PROBLEM NO. 1 – Computation of adjusted inventory
Ovation Company asks you to review its December 31, 2015 inventory values and prepare the necessary adjustments to the books. The following information is given to you.
a. Ovation uses the periodic method of recording inventory. A physical count reveals P2,348,900 inventory on hand at December 31, 2015.
b. Not included in the physical count of inventory is P134,200 of merchandise purchased on December 15 from Standing. This merchandise was shipped F.O.B shipping point on December 29 and arrived in January. The invoice arrived and was recorded on December 31.
c. Included in inventory is merchandise sold to Oval on December 30, F.O.B destination. This merchandise was shipped after it was counted. The invoice was prepared and recorded as a sale on account for P128,000 on December 31. The merchandise cost P73,500 and Oval received it on January 3.
d. Included in inventory was merchandise received from Owl on December 31 with an invoice price of P156,300. The merchandise was shipped FOB. destination. The invoice, which has not yet arrived, has not been recorded.
e. Not included in inventory is P85,400 of merchandise purchased from Oxygen Industries. The merchandise was received on December 31 after the inventory had been counted. The invoice was received and recorded on December 30.
f. Included in inventory was P104,380 of inventory held by Ovation on consignment from Ovoid Industries.
g. Included in inventory is merchandise sold to Kemp FOB. shipping point. This merchandise was shipped after it was counted. The invoice was prepared and recorded as a sale for P189,000 on December 31. The cost of this merchandise was P105,200 and Kemp received the merchandise on January 5.
h. Excluded from inventory was carton labeled, “Please accept for credit.” This carton contains merchandise costing P15,000 which had been sold to a customer for P25,000. No entry had been made to the books to reflect the return, but none of the returned merchandise seemed damaged.
REQUIRED:
Determine the adjusted balance of Inventory.
SOLUTION:
Unadjusted inventory
2,348,900 Add (deduct) adjustments:
b) Goods in-transit purchased FOB shipping - not included
134,200 c) Goods in-transit sold FOB destination - included - d) Goods purchased and received already - included - e) Goods purchased and received already - not included
85,400 f) Goods held on consignment - included
(104,380) g) Goods in-transit sold FOB shipping point - included
(105,200) e) Goods returned by customers, received already - not
included
15,000
Adjusted inventory
2,373,920
PROBLEM NO. 2 – Computation of adjusted inventory and related accounts
Bulls Company, a manufacturer of small tools, provided the following information from its accounting records for the year ended December 31, 2015:
Inventory at December 31, 2015
(based on physical count on Dec. 31, 2015) P 980,000
Accounts Payable at December 31, 2015 586,000
Net Sales (sales less sales returns) 10,048,000 Additional information follows:
a. Goods held on consignment from Chicago to Bulls amounting to P9,000 were included in the physical count of goods in Bulls’ warehouse on December 31, 2015, and in accounts payable at December 31, 2015.
b. Retailers were holding P50,000, at cost, of goods on consignment from Bulls, at their stores on December 31, 2015. c. Included in the physical count were goods billed to a customer FOB shipping point on December 31, 2015. These goods had a cost of P31,000 and were billed at P40,000. The shipment was on Bulls’ loading dock waiting to be picked up by the common carrier.
d. P15,000 worth of parts which were purchased from Deng Co. and paid for in December 2015 were sold in the last week of 2015 and appropriately recorded as sales of P21,000. The parts were included in the physical count on December 31, 2015 because the parts were on the loading dock waiting to be picked up by the customer.
e. Goods were in transit from a vendor to Bulls on December 31, 2015. The invoice cost was P71,000 and the goods were shipped FOB shipping point on December 29, 2015.
f. Work in process inventory costing P30,000 was sent to an outside processor for plating on December 30, 2015. g. Goods returned by customers and held pending inspection in the returned goods area on December 31, 2015 were
not included in the physical count. On January 8, 2016, the tools costing P32,000 were inspected and returned to inventory. Credit memos totaling P47,000 were issued to the customers on the same date.
h. Goods shipped to a customer FOB destination on December 26, 2015 were in transit at December 31, 2015, and had a cost of P21,000. Upon notification of receipt by the customer on January 2, 2016, Bulls issued a sales invoice for P42,000.
i. Goods, with an invoice cost of P27,000, received from a vendor at 5:00 p.m. on December 31, 2015, were recorded on a receiving report dated January 2, 2016. The goods were not included in the physical count, but the invoice was included in accounts payable at December 31, 2015.
j. Goods received from a vendor on December 26, 2015 were included in the physical count. However, the related P56,000 vendor invoice was not included in accounts payable at December 31, 2015, because the accounts payable copy of the receiving report was lost.
k. On January 3, 2016, a monthly freight bill in the amount of P6,000 was received. The bill specifically related to merchandise purchased in December 2015, one-half of which was still in the inventory at December 31, 2015. The freight charges were not included in either the inventory or accounts payable at December 31, 2015.
1. Determine the following as of and for the year ended December 31, 2015: a. Inventory
b. Net Sales
c. Accounts Payable
2. Adjusting entries as of December 31, 2015
SOLUTION:
Requirement No. 1
Inventory
Accts.
Payable Sales, net Unadjusted balances
980,000 586,000
10,048,000 Add (deduct) adjustments:
a - Goods held on consignment
(9,000) (9,000) - b - Goods out on consignment
50,000 - - c - Unshipped goods, erroneously
billed - - (40,000) d - Goods with constructive delivery
(15,000) - - e - Goods purchased FOB shipping
point
71,000 71,000 - f - WIP sent to outside processor
30,000 - - g - Goods returned by customers
32,000 - (47,000) h - Goods sold FOB destination
21,000 - - i - Goods excluded from physical
count 27,000 - - j - Unrecorded purchases - 56,000 - k - Unrecorded freight-in 3,000 6,000 Adjusted balances 1,190,000 710,000 9,961,000 Requirement No. 2 a) Accounts payable 9,000 Inventory 9,000 b) Inventory 50,000
P/L summary (Cost of sales) 50,000 c) Sales 40,000 Acccounts receivable 40,000
d) P/L summary (Cost of sales)
15,000
Inventory 15,000 e) Inventory 71,000 Accounts payable 71,000 f) Inventory 30,000
P/L summary (Cost of sales) 30,000
g) Inventory
32,000
P/L summary (Cost of sales) 32,000 Sales returns 47,000 Acccounts receivable 47,000 h) Inventory 21,000
P/L summary (Cost of sales) 21,000
i) Inventory
27,000
P/L summary (Cost of sales) 27,000
j) P/L summary (Cost of sales)
56,000 Accounts payable 56,000 k) Inventory 3,000 P/L summary (Cost of sales)
3,000
Accounts payable 6,000
PROBLEM NO. 11 – Roll forward analysis
You are engaged in the regular annual examination of the accounts and records of Valenzuela manufacturing for the year ended December 31, 2015. To reduce the workload at year end, the company upon your recommendation, took its annual physical inventory in November 30, 2015. You observed the taking of the inventory and made tests of the inventory count and inventory records.
The company’s inventory account, which includes raw materials and work in process, is on perpetual basis. Inventories are valued at cost, FIFO method. There is no finished goods inventory. The company’s physical inventory revealed that the book inventory of 1,695,960 was understated by 84,000. To avoid delay in completing its monthly financial statements, the company decided not to adjust the book inventory until year end except for obsolete inventory items.
Your examination disclosed the following information regarding the November 30 inventory 1. Pricing tests showed that the physical inventory was overstated by 61, 600.
2. An understatement of the physical inventory by 4,200 due to errors in footings and extensions.
3. Direct labor included in the inventory amounted to 280,000. Overhead was included at the rate of 200% of direct labor. You have ascertained that the amount of direct labor was correct and that the overhead rate was proper.
4. The physical inventory included obsolete materials with a total cost of 7,000. During December the obsolete materials were written off by a charge to cost of sales.
Your audit also disclosed the following information about the December 31 inventory: a. Total debits to the following accounts during December were:
Cost of sales 1,920,800 Direct labor 338, 800 Purchases 691, 600
b. The cost of sales of 1,920,800 included direct labor of 386,000
REQUIRED
Compute for the following:
1. Adjusted amount of physical inventory at November 30, 2015 2. Adjusted amount of inventory at December 31, 2015
3. Breakdown of inventory at December 31, 2015
a. Cost of materials on hand, and materials included in work in process b. Direct labor included in work in process
c. Factory overhead included in work in process
SOLUTION:
Requirement No. 1
Inventory per books, 11/30
1,695,960 Add understatement of booked inventory
84,000 Physical inventory,11/30, per client
1,779,960 Add (deduct) adjustments
Overstatement due to pricing errors
(61,600) Understatement due to footing and extension errors
4,200 Obsolete materials
(7,000) Inventory per physical count, as adjusted
1,715,560 Requirement No. 2
Adjusted balance of inventory, 11/30
1,715,560 Purchases 691,600 Direct labor 338,800 Factory overhead (200% of direct labor)
677,600
Total
3,423,560 Less cost of sales:
Per books
1,920,800 Obsolete materials written off through
COS (7,000) 1,913,800 Inventory, 12/31 1,509,760 Requirement No. 3
Inventory, 11/30 (see no. 1)
1,715,560 Direct labor
(280,000) Factory overhead (200% of direct labor)
(560,000) Raw materials, 11/30 875,560 Purchases 691,600 Total 1,567,160 Less: Materials included in cost of sales
Adjusted cost of sales (see no. 2)
1,913,800 Direct labor (386,400) Factory overhead (772,800) 754,600 Cost of materials on hand and materials included in WIP
812,560 Labor cost in the WIP:
Labor included in 11/30 inventory
280,000 Labor incurred in December
338,800 Total
618,800 Labor included in COS
(386,400)
232,400 Applied factory overhead (200% of direct labor)
464,800 Total, as shown in no.2
1,509,760 PROBLEM NO. 1 – Audit of recognition and measurement of intangible assets
The accountant of the newly organized Zerg Corporation provided to you the details the company’s Intangible Assets account as follows:
Date Intangible Assets Description Amount
01/02 Organization costs P 233,000
01/15 Goodwill 15,000
04/01 Patent 490,000
05/01 License and trademark 300,000 07/01 R & D laboratory 1,310,000
12/31 Product development costs 1,750,000 4, 098, 000 Transactions during 2015 included the following:
Jan 2 Paid legal fees of P 150,000 and stock certificate costs of P83,000 to complete organization of the corporation of the corporation.
15 Hired a clown to stand in front of the corporate office for 2 weeks and hand out pamphlets and candy to create goodwill for the new enterprise. Clown cost, P10,000; pamphlets and candy, P5,000.
Apr. 1 Patented a newly developed process with costs as follows: Legal fees to obtain patent P429,000
Patent application and licensing fees
61,000
Total 490,000
It is estimated that in 5 years other companies will have developed improved processes, making the Zerg Corporation process obsolete.
May 1 Acquired both a license to use a special type of container and a distinctive trademark to be printed on the container in exchange for 6, 000, no-par, ordinary shares of Zerg selling for P50 per share. The license is worth twice as much as the trademark, both of which may be used for 5 years.
Jul.1 Constructed a shed for P1,310,000 to house prototypes of experimental models to be developed in future research projects.
Dec. 31 Paid salaries for an engineer and chemist involved in research and development totaling P1,720,000 in 2015. It is the company’s policy to take full year amortization in the year of acquisition.
REQUIRED:
1. Prepare the necessary adjusting journal entries as of December 31, 2015. 2. Compute the carrying amount of the Intangible assets as of December 31, 2015.
3. Compute the total amount resulting from the foregoing transactions that should be expensed when incurred.
SOLUTION: Requirement No. 1 1/2 Organization expenses 233,000 Intangible assets 233,000 1/15 Advertising expense 15,000 Intangible assets 15,000 4/1 Patents 490,000 Intangible assets 490,000
5/1 Licences (P300,000 x 2/3) 200,000 Trademark 100,000 Intangible assets 300,000 7/1 Building 1,310,000 Intangible assets 1,310,000 12/31
Research and development expense 1,750,000 Intangible assets 1,750,000 Amortization expense 158,000 Patent (P490,000/5) 98,000 Licences (P200,000/5) 40,000 Trademark (P100,000/5) 20,000 Requirement No. 2 Cost Patent 490,000 Licences 200,000 Trademark 100,000 790,000 Less amortization Patent (P490,000/5) 98,000 Licences (P200,000/5) 40,000 Trademark (P100,000/5) 20,000 158,000 Carrying amount, 12/31/12 632,000 Requirement No. 3
Organization expenses (Jan. 2 transaction)
233,000 Advertising expense (Jan. 15 transaction)
15,000 R and D expense (Dec. 31 transaction)
1,750,000 Total
1,998,000 PROBLEM NO. 3 – Amortization and impairmentof intangible assets
The Terran Company acquired several small companies at the end of 2014 and, based on the acquisitions, reported the following intangibles in its December 31, 2014 statement of financial position:
Patent P200,000
Copyright 400,000
Tradename 350,000
Computer software 100,000
Goodwill 900,000
The company’s accountant determines the patent has an expected life of 10 years and no expected residual value, and that it will generate approximately equal benefits each year. The company expects to use the copyright and tradename for the foreseeable future. The accountant knows that the computer software is used in the company’s 120 sales offices. The company has replaced the software in 60 offices in 2015, and expects to replace the software in 40 more offices in 2016 and the remainder in 2017.
In December 31, 2015, there are no indications of impairment of patent and computer software. The following information relate to the other intangible assets:
a.) Because of the rampant piracy, the copyright is expected to generate cash flows of just P8,000 per year. b.) The tradename is expected to generate cash flows of P15,000 per year.
c.) The goodwill is associated with Terran’s SCV Manufacturing reporting unit. The cash flows expected to be generated by the SCV Manufacturing reporting unit is P200,000 per year for the next 24 years. The reporting unit has a carrying amount of P2,100,000.
REQUIRED:
Based on the above and the result of your audit, determine the following: (Assume that the appropriate discount rate for al litems is 5%)
1. Total amortization of intangible assets in 2015 2. Total loss on impairment in 2015
3. Carrying amount of goodwill on December 31, 2015
4. Carrying amount of other intangible assets on December 31, 2015
SOLUTION: Requirement No. 1 Patent (P200,000/10) 20,000 Computer software [P100,000 x (60/120)] 50,000 Total amortization 70,000
*The useful lives of copyright and tradename are indefinite, so no amortization expense is recognized. ** Goodwill is not amortized.
Requirement No. 2
Copyright: Carrying amount 400,000 Recoverable amount (P8,000/0.05) 160,000 240,000 Tradename: Carrying amount 350,000 Recoverable amount (P15,000/0.05) 300,000 50,000 Goodwill:
Carrying amount of Anne Manufacturing unit 3,000,000 Recoverable amount (P200,000 x 14.0939) 2,818,780 181,220
Total impairment loss
471,220
Requirement No. 3
Original amount of Goodwill
900,000 Less impairment loss
181,220 Carrying amount of Goodwill, 12/31/12
718,780 Question No. 4 - A Patent (P200,000 - P20,000) 180,000 Copyright (recoverable amount)
160,000 Tradename (recoverable amount)
300,000 Computer software (P100,000 - P50,000)
50,000 Carrying amount of other intangible assets, 12/31/12
690,000 PROBLEM NO.10 – Audit of intangibles and other assets
GDI., Inc, had the following noncurrent asset account balances at December 31, 2014 Patent
Accumulated amortization Deferred tax asset
P1,920,000 (240,0000) 360,000
Transactions during 2015 and other information relating to the noncurrent assets of GDL, Inc were as follows:
a. The patent was purchased from Grey Company for P1,920,000 on January 1, 2013, at which date the remaining life was sixteen years. On January 1, 2015, GDL determined that the useful life of the patent was only eight years from the date of acquisition.
b. On January 3, 2015, in connection with the purchase of a trademark from Cody Corporation, the partie entered into a noncompetiton agreement and a consulting contract. GDL paid Cody P8,000,000, of which three-quarters was for trademark and one-quarter was for Cody’s agreement not to compete for a five-year period in the line of business covered by the trademark. GDI considers the life of the trademark to be indefinite. Under the consulting contract,
GDL agreed to pay Cody P500,000 annually on January 3 for five years. The first payment was made on January 3,2015
c. Deferred tax asset is provided in recognition of temporary differences between accounting and tax reporting of rent income and warranty liability. For the year ended December 31, 2015, (1) rent collected in advance decreased by P200,000, and (2)product warranty liability increased by P150,000. GDL’s income tax rate for 2015 was 35% REQUIRED:
Based on the above and the result of your audit, determine the following: 1. The total amortization of the intangible assets for the year 2015 2. The carrying amount of the intangible assets as of December 31,2015 3. The carrying amount of deferred tax asset as of December 31, 2015
SOLUTION: Requirement No. 1 Patent amortization (P1,680,000/6) 280,000 Trademark - Noncompetition agreement (P2,000,000/5) 400,000 Total amortization 680,000 Requirement No. 2 Patent (P1,680,000 - P280,000) 1,400,000 Trademark (P8,000,000 x 3/4) 6,000,000 Noncompetition agreement (P2,000,000 - P400,000) 1,600,000 Carrying amount of intangible assets, 12/31/12
9,000,000 Requirement No. 3
Deferred tax asset, 12/31/11
360,000 Decrease in deferred tax asset:
Decrease in unearned rent (P200,000 x 35%) (70,000) Increase in warranty liability (P150,000 x
35%)
52,500
(17,500) Deferred tax asset, 12/31/12
342,500 PROBLEM NO. 1 – Composition of trade and other receivables
On December 21, 2015 the accounts receivable control account of Ipil-ipil Co. had a balance of P181,100. An analysis of the accounts receivable account showed the following:
Accounts known to be worthless P 2,500
Advances to affiliated companies 25,000 Customers’ accounts reporting credit balance arising from sales
return
(15,000)
Interest receivable on bonds 10,000
Other trade accounts receivable – unassigned 50,000 Subscriptions receivable for ordinary share capital due in 30 days 55,000
Trade accounts receivable – assigned 15,000
Trade installment receivable due 1 – 18 months,
(including unearned finance charges, P2,000) 22,000 Trade receivables from officers, due currently 1,500 Trade accounts on which post-dated checks are held
(no entries were made on receipts of checks) 5,000
Total P181,000
REQUIRED:
Determine the trade and other receivables to be reported on the entity’s December 31, 2015 statement of financial position. SOLUTION:
Items included:
Trade accounts receivable (see computation below)
91,500 Advance payments to creditors on purchase orders
10,000 Interest receivable on bonds
10,000 Subscriptions receivable due in 30 days
55,000 Trade and other receivables
166,500
Composition of trade accounts receivable: Other trade accounts receivable – unassigned
50,000 Trade accounts receivable - assigned
15,000 Trade installment receivable due 1 – 18 months,
net of unearned finance charges of P2,000
20,000 Trade receivables from officers due currently
1,500 Trade accounts on which post-dated checks are held
(no entries were made on receipts of checks)
5,000
Trade accounts receivable 91,500
Items not included:
Accounts known to be worthless 2,500 Write off
Advances to affiliated companies 25,000 Noncurrent investment Customers' account with credit balance (15,000) Trade and other payables
PROBLEM NO. 8 – Audit of notes receivable and related accounts
On January 1, 2015, Pedro Company sold land that originally cost P400, 000 to Buyer Company. As payment, Buyer gave Pedro Company a P600, 000 note. The note bears an interest rate of 4% and is to be repaid in three annual installments of P200, 000 (plus interest on the outstanding balance). The first payment is due on December 31, 2015. The market price of the land is not reliably determinable =. The prevailing rate of interest for notes of this type is 14% on January 1, 2015 and 15% on December 31, 2015.
Pedro made the following journal entries in relation to the sale of land and the relate note receivable. January 1, 2015
Notes Receivable P600,000
Land P400,000
Gain on sale of Land 200,000
December 31, 2015
Cash P224,000
Notes receivable P200,000
Interest income 24,000
Pedro reported the notes receivable in its statement of financial position at December 31, 2015 as part of trade and other receivables.
REQUIRED:
1. Determine the following as of and for the year ended December 31, 2015: a. Correct gain on sale of land
b. Correct interest income c. Overstatement of profit
d. Correct carrying amount of note receivable e. Overstatement of working capital
2. Adjusting entries as of December 31, 2015 SOLUTION:
Requirement No. 1.a
PV of consideration receivable (see computation below) 503,105
Carrying amount of land (400,000)
Correct gain on sale of land 103,105
Present value of cash flows to determine initial CA:
Date Principal Interest (4%) Total PVF (14%) PV, 1/1/12 PV, 12/31/12 12/31/12 200,000 24,000 224,000 0.8772 196,493
12/31/13 200,000 16,000 216,000 0.7695 166,212 189,475 12/31/14 200,000 8,000 208,000 0.6750 140,400 160,056
600,000 503,105 349,531
Requirement No. 1.b
Amortization schedule using effective interest method:
Date EI (14%) NI (4%) Disc. Amort. Repayment AC
1/1/12 503,105
12/31/13 48,936 16,000 32,936 200,000 182,476 12/31/14 25,524 8,000 17,524 200,000 -
23
Interest income - 2012 (P503,105 x .14) 70,435 Requirement No. 1.c
Gain on sale of land - overstated (P200,000 - P103,105) 96,895 Interest income for 2012 - understated (P70,435 - P24,000) (46,435)
Net overstatement of 2012 profit 50,460
Requirement No. 1.d
Carrying amount, 12/31/12 (see schedule) 349,540 Requirement No. 1.e
Amount reported as notes receivable 400,000 Correct current portion of NR (P349,540 - P182,476) 167,064 Overstatement of CA/working capital 232,936
Requirement No. 2
Adjusting journal entries:
To corect the entrymade to record the sale of land on 1/1/12:
Gain on sale of land 96,895
Discount on notes receivable (FV-PV) 96,895 To record amortization of discount on 12/31/12:
Discount on notes receivable 46,435
Interest income 46,435
PROBLEM NO. 11 – Loan impairment
Bahrain Bank granted a loan to a borrower in the amount of P10,000,000 on January 1,2014. The interest rate on the loan is 10% payable annually starting December 31, 2014. The loan matures in five years on December 31, 2018. Bahrain Bank incurs P130,900 of direct loan origination cost and P50,000 of indirect loan origination cost. In addition, Bahrain Banks charges the borrower a 5-point nonrefundable loan origination fee.
The borrower paid the interred due on December 31, 2014. However during 2015 the borrower began to experience financial difficulties, requiring the bank to reassess the collectability of the loan. As of December 31, 2015, the bank expects that only P8,000,000 of the principal will be recovered. The P8,000,000 principal amount is expected to be collected in two equal installments on December 31,2017 and December 31,2019. The prevailing interest rates for similar type of note as of December 31, 2014 and 2015 are 15% and 16%, respectively.
REQUIRED:
Determine the following:
1. Interest income to be recognized in 2014
2. Carrying amount of the loan as of December 31, 2014 3. Loan impairment loss to be recognized in 2015 SOLUTION:
Requirement No.s 1 & 2
Principal 10,000,000
Direct origination cost 130,900
Carrying amount, 1/1/12 9,630,900 Amortization schedule
Date EI (11%) NI (10%) Disc. Amort. C.A.
1/1/11 9,630,900 12/31/11 1,059,399 1,000,000 59,399 9,690,299 12/31/12 1,065,933 1,000,000 65,933 9,756,232 12/31/13 1,073,186 1,000,000 73,186 9,829,418 12/31/14 1,081,236 1,000,000 81,236 9,910,654 12/31/15 1,089,346 1,000,000 89,346 10,000,000 826 Requirement No. 3
Carrying amount, 12/31/12 (see schedule) 9,756,232 Less PV of expected cash flows:
12/31/14 (P4M x 0.8116) 3,246,400
12/31/16 (P4M x 0.6587) 2,634,800 5,881,200
Loan impairment (bad debt expense) 3,875,032
PROBLEM NO.12- Proof of cash
Celtics Company had the following bank reconciliation on June 30, 2015: Balance per bank statement, June 30, 2015 P3,000,000
Add: Deposit in transit 400,000
Total 3,400,000
Less: Outstanding checks 900,000
Balance per book, June 30 P2,500,000
The bank statement for the month of July 2015 showed the following:
Deposits (including P200,000 note collected for Celtics) P9,000,000 Disbursements (including P140,000 NSF check and P10,000 service charge) 7,000,000 All reconciling items on June 30,2015 cleared through the bank in july. The
outstanding checks totaled P600,000 and the deposits in transit amounted to P1,000,000 on July 31, 2015.
REQUIRED:
Determine the following:
1. Cash receipts per books in July 2. Cash disbursement per books in July 3. Cash balance per books at July 31 4. Adjusted cash balance at July 31
SOLUTION: Requirement No. 1
Total deposits per bank statement in June
9,000,000 Note collected by bank in July
(200,000) Deposits in transit, June 30
(400,000)
Deposits in transit, July 31
1,000,000 Cash receipts per books in July
9,400,000 Requirement No. 2
Total disbursements per bank statement in June
7,000,000 July NSF check
(140,000) July service charge
(10,000) Outstanding checks, June 30
(900,000)
Outstanding checks, July 31 600,000
Cash disbursements per books in July
6,550,000 Requirement No. 3
Balance per books, June 30, 2007
2,500,000 July receipts per books (see no. 21)
9,400,000 July disbursements per books (see no. 22)
(6,550,000) Balance per books, July 31, 2007
5,350,000 Requirement No. 4
Balance per bank statement, July 31 (P3M+P9M-P7M)
5,000,000 Deposits in transit, July 31
1,000,000 Outstanding checks, July 31
(600,000) Adjusted bank balance, July 31
5,400,000
Balance per books, July 31
5,350,000 Note collected by bank in July 200,000 NSF check
(140,000) Bank service charges
(10,000) Adjusted book balance, July 31
5,400,000 PROBLEM NO.14 –Three-dated bank reconciliation
The client, Noel Corporation, obtained bank statements for November 30 and December 31, 2015 and reconciled the balanced. You obtained directly the statements of January 12,2016 and obtained the necessary confirmation. You have found that there are no errors in addition or subtraction in the client’s books.
11/30/15 12/31/15
Balance, company records 271,260 226,010
Deposits in transits 35,000 ?
Outstanding checks 88,240 ?
12/1-31/15 1/1-12/16
Receipts, cash records P963,230 P292,500
Credits, bank statement 941,010 321,490
Disbursements, cash records 1,008,480 177,570
Charges, bank statement 1,010,410 230,180
The following information also was obtained:
a) Check no. 804 for P340 cleared by the bank in December as P1,340. This was found in proving the bank statement. The bank made the correction on January 8, 2016.
b) A note of P20,000, sent to the bank for collection on November 15,2015, was collected and credited to the account on November 28, 2015, net of a collection fee of P80. The note was recorded in the cash receipts on December 21, 2015, at which date the collection fee was entered as a disbursement.
c) The client records returned checks in red in the cash receipts journal. The checks listed in the table were returned by the bank.
Amount Returned Recorded Redeposited
Co. A P3,270 12/6/15 No entries 12/8/15
Co. B P6,730 12/27/15 1/3/16 1/15/16
d) Two payroll checks for employee’s vactions totalling P5,500 were drawn on January 3, 2016, and cleared the bank on January 8,2016. Those checks were not entered in the clients records because semi-monthly payroll summaries are entered only on the 15th and the last day of each month.
REQUIRED:
1. Compute for the following:
a. Deposits in transit as of December 31, 2015 b. Outstanding checks as of December 31,2015 c. Deposits in transits as of January 12, 2016 d. Outstanding checks as of January 12,2016
2. Prepare a 4-column bank reconciliation for the month of December 2015 and for the period January 1 to 12, 2016 using the adjusted balance method.
SOLUTION: Requirement 1.a
Deposits in transit, Nov. 30
35,000 Add collections in December: December book receipts 963,230 Customers' note collected by bank in Nov.
(20,000) 943,230 Total 978,230 Less deposits credited by the bank in December:
December bank receipts
941,010
NSF check redeposited (Customer A)
(3,270)
937,740 Deposits in transit, Dec. 31
40,490 Requirement 1.b
Outstanding checks, Nov. 30
88,240 Add checks issued in December:
December book disbursements
1,008,480 Collection fee for note collected in Nov.
(80) 1,008,400
Total 1,096,640
Less checks paid by the bank in December: December bank disbursements
1,010,410 Bank error in check payment (P1,340 - P340)
(1,000) NSF check - Customer A (3,270) NSF check - Customer B (6,730) 999,410 Outstanding checks, Dec. 31
97,230 Requirement 1.c
Deposits in transit, Dec. 31 (see Requirement 1.a)
40,490 Add collections, Jan. 1-12:
Jan. 1-12 book receipts
292,500 NSF check - Customer B 6,730 299,230 Total 339,720 Less deposits credited by the bank, Jan. 1-12:
Jan. 1-12 bank receipts
321,490 Correction of error in check payment in Dec.
(1,000)
320,490 Deposits in transit, Jan. 12
19,230 Requirement 1.d
Outstanding checks, Dec. 31 (see Requirement 1.b)
97,230 Add checks issued, Jan. 1-12:
Jan. 1-12 book disbursements
177,570 Unrecorded payroll checks
5,500 183,070 Total 280,300
Less checks paid by the bank, Jan. 1-12:
230,180 Outstanding checks, Jan. 12
50,120
December January 1-12
Nov. 30 Receipts Disb Dec. 31 Receipts Disb Jan. 12
Unadjusted bank balances 344,420 941,010 1,010,410 275,020 321,490 230,180 366,330 Deposits in transit: eginning of period 35,000 (35,000) (40,490) End of period 40,490 40,490 19,230 19,230 Outstanding checks: Beginning of period (88,240) (88,240) (97,230) End of period 97,230 (97,230) 50,120 (50,120) Bank error in check
payment (1,000) 1,000 (1,000) NSF check redeposited (Customer A)
(3,270)
(3,270) Adjusted bank balances
291,180 943,230 1,015,130 219,280 299,230 183,070 335,440
Unadjusted book balances 271,260 963,230 1,008,480 226,010 292,500 177,570 340,940 Note collected by bank in
Nov. 19,920 (20,000) (80) NSF check not redeposited (Customer B)
6,730 (6,730) 6,730 Unrecorded payroll in Jan.
5,500
(5,500) Adjusted book balances
291,180 943,230 1,015,130 219,280 299,230 183,070 335,440
