Mary the Queen College (Pampanga) ACCOUNTING 5: Financial Accounting Part 3 QUIZ NO.

2: Operating Segments, Cash to Accrual Basis of Accounting Single Entry & Correction of Errors 1st Semester, A.Y. 2013-2014

Score:
Name: _____________ Year &Section: _____________ Date _________

PROBLEM SOLVING:

Correction of Errors:
PROBLEM 1 A. Indicate the effects of each of the errors by writing O for overstatement, U for understatement and X for no effect. B. Prepare adjusting entries assuming the errors were discovered in (a) 2011, (b) 2012, and (c) 2013. 1. The company failed to record purchases of merchandise on account of P25,000 at the end of 2011. 2011 2012 2013 a. Purchases for the year b. Accounts payable at the end of the year c. Net income for the year d. Retained earnings at year-end, before closing e. Retained earnings at year-end, after closing 2. Sale of merchandise on account on December 30, 2011 amounting to P20,000 was not recorded until the customer paid his account in January 2012. 2011 2012 2013 a. b. c. d. e. Sales for the year Accounts receivable at the end of the year Net income for the year Retained earnings at year-end, before closing Retained earnings at year-end, after closing

3. The depreciation expense in 2011 was overstated by P10000. 2011 a. Expense for the year b. Accumulated depreciation at the end of the year c. Net income for Jae year d. Retained earnings at year-end, before closing e. Retained earnings at year-end, after closing

2012

2013

4. The Company, paid two- year insurance premium of P24,000 effective April 1, 2011. The entire amount was debited to expense account and no adjustment was made at the end of 2011. 2011 2012 2013 a. Expense for the year b. Prepaid insurance at the end of the year c. Net income for the year c. Retained earnings at year-end, before closing d. Retained earnings at year-end after closing 1

5. On December 31, 2011, the Company acquired a parcel of land and a building at a total cost, of P500,000. The entire amount paid was debited to the land account. A reasonable estimate of the cost that should have been allocated to the building was 200,000. The building has an estimated life of 20 years. 2011 2012 2013 a. Land at the end of the year b. Building at the end of the year c. Net income for the year d. Retained earnings at year-end, before closing e. Retained earnings at year-end, after closing

PROBLEM 2 ( 15 Points ) The income statement of KAREN Company for the years ended December 2010, 2011, and 2012 indicate the following net income: 2010- P170,000 2011- P205,000 2012- P186,000

An examination of the accounting records for these years indicates that several errors were made in arriving at the net income amounts reported. The following errors were discovered: a. Accrued salaries were consistently omitted from the records. The amounts omitted were: 2010- P10,000 2011- P14,000 2012-P16,000

b. The merchandise inventory at December 31, 2011 was understated by P9,000 as the result of errors made in the footings and extensions on the inventory sheets. c. Unexpired insurance of P12,000 applicable to 2011 was expensed in 2010. d. Interest receivable of P2,400 was not recorded on December 31, 2011. e. On January 2, 2011, a piece of equipment costing P40,000 was sold for P18,000. At the date of sale the equipment had an accumulated depreciation of P24,000. The cash received was recorded as income in 2011.In addition; depreciation was recorded for this equipment in both 2011 and 2012 at the rate at 10% of cost.

REQUIRED: The adjusted Net Income in 2010, 2011 and 2012. Solutions: Reported Net Income Adjustments: 2010 P170,000 2011 P205,000 2012 P186,000

MULTIPLE CHOICES: INSTRUCTIONS: CHOOSE THE BEST ANSWER FOR EACH OF THE FOLLOWING. STRICTLY NO ERASURES ARE ALLOWED. PROVIDE SOLUTIONS.

Correction of Errors:
You are been engaged to prepare audited financial statement figures for BOURNE, Inc. The records are in agreement with the following balance sheet: BOURNE, INC. Balance Sheet December 31, 2013 Assets Cash P10,000 Accounts receivable 12,000 Notes receivable 13,000 Inventory 25,000 Equipment- net 40,000 100,000 Liabilities and Capital Accounts Payable P10,000 Notes Payable 3,000 Common Stock 20,000 Additional paid-In capital 40,000 Retained Earnings 27,000 100,000

A review of the records of the corporation indicates that the errors and omissions listed in the table below had not been corrected during the applicable years: Inventory Overstated December 31 2010 2011 P7,000 2012 8,000 2013 Inventory Depreciation Understated Expense Prepaid Expense Unearned Income Accrued Expense

P6,000 9,000

250 500 150 350

P900 700 500 600

P400 300

P200 75 100 50

The net income according to the records is: 2011, P7,500; 2012, P6500; and 2013, P5,500. No dividends were declared during these years, and no adjustments were made to retained earnings. Ignoring income tax effects, answer the following questions: 1. Adjusted net income/net loss for 2011: a. (6,475) b. 225 c. (6,225) d. 775 2. Adjusted net income/net loss for 2012: a. 6,025 b. (1,475) c. 5,525 d. (8,475) 3. Adjusted net income/net loss for 2013: a. 22,000 b. 14,000 c. 6,000 d. 22,150 3

4. What is the effect of these errors on the net working capital at the end of 2013? a. P 8,000 understated c. P 16,850 understated b. P 8,900 understated d. P 9,250 understated 5. What is the adjusted balance of the stockholders' equity at December 31, 2003? a. P 9,00 b. P 95,900 c. P 103,850 d. P 96,250

Operating Segments:
6. Holy Company has three divisions, each of which has been determined to be reportable segment. Common cost are appropriately allocated on the basis of each divisions sales in relation to Holys aggregate sales. In 2013, segment 1 had sales of P6,000,000 which was 25% of Holys total sales and had traceable operating costs of P3,800,000. In 2013, Holy incurred operating costs of P1,000,000 that were not directly traceable to any of the segments and incurred interest expense of P300,000 in 2013. In reporting segment information, what amount should be shown as Segment 1s operating profit for 2013? a. 1,500,000 b. 1,750,000 c. 1,800,000 d. 1,950,000

7. If a financial report contains both the consolidated financial statements of a parent and the parents separate financial statements, segments information is required in
a. b. c. d. The separate financial statements only The consolidated financial statements only Both the separate and consolidated financial statements Neither the separate nor the consolidated financial statements

8. An entity shall report information about an operating segment when

a. Its reported external and internal revenue is 10% or more of the combined external revenue of all operating segments. b. Its reported external revenue is 10% or more of the combined external and internal revenue of all operating segments. c. Its reported external revenue is 10% or more of the combined external revenue of all operating segments. d. Its reported external and internal revenue is 10% or more of the combined external and internal revenue of all operating segments.

9. Operating segments that do not meet any of the quantitative thresholds

a. Cannot be considered reportable b. May be considered reportable and separately disclosed if management believes that information about the segment would be useful to the users of the financial statements c. Maybe considered reportable and separately disclosed if the information is for internal use only. d. May be considered reportable and separately disclosed if this is the practice within the economic environment in which the entity operates.

10. What is the practical limit to the number of reportable operating segment?
a. Five segments b. Ten segments

c. No precise limits but if the number increases above five, the entity shall consider whether a practical limit has been reached. d. No precise limit but if the number increases above ten, the entity shall consider whether a practical limit has been reached.

11. An entity shall disclose which of the following general information? I. II. Factors used to identity the entitys reportable segments, including the basis of organization. Type of products and services from which each reportable segment derives its revenue.

a. b. c. d.

I only II only Both I and II Neither I and II

12. Bumper Company has three lines of business, each of which was determined to be reportable segment. Bumper Company sales aggregated P15,000,000 in 2013 of which segment #1 contributed 40%. Traceable costs were P3,500,000 for September to November out of a total of P10,000,000 for the company as a whole. For internal reporting, Bumper allocates common costs of P3,000,000 based on the ratio of a segments income before common costs. In its 2013 financial statements, how much should Bumper report as operating profit for segment no.1? a. 750,000 b. 1,000,000 c. 1,500,000 d. 2,000,000

13.

Mugs Corporation, a publicly owned corporation, is subject to the requirements for segment reporting. In its income statement for the year ended December 31, 2013, Mugs reported revenues of P50,000,000, operating expenses of P47,000,000, and net income of P3,000,000. Operating expenses include payroll costs of P15,000,000. mugs combined identifiable assets of all industry segments at December 31, 2013 were P40,000,000.

In its financial statements, Mugs should disclose major customer data if sales to any single customer amount to at least a. 300,000 b. 1,500,000 c. 4,000,000 d. 5,000,000
14. The following information pertains to the White Company and its divisions for the year ended December 31, 2013: Sales to unaffiliated customers Inter-segment sales of products similar to those sold to unaffiliated customers interest earned on loans to the other industry segments P10,000,000 2,000,000 400,000

White Company and all of its divisions are engaged solely in manufacturing operations.

White has a reportable segment if that segments revenue is a. 500,000 b. 1,000,000 c. 1,040,000 d. 1,200,000

Cash and Accrual Basis:

Presented below are Kevin Companys comparative statements of financial position and income statements: Kevin Company Comparative Statement of Financial Position December 31, 2014 and 2013 Assets Current Assets: Cash Accounts receivable Inventory Prepaid expenses Total current assets Available for sale securities Plant, property, and equipment Accumulated depreciation Total non-current assets Total Assets Liabilities and Shareholders Equity Current liabilities Accounts payable Accrued expenses Dividends payable Total current liabilities Notes payable-due 2016 Total liabilities Shareholders Equity: Ordinary share capital Retained earnings Total shareholders equity Total liabilities and shareholders equity 2014 2013

119,000 312,000 278,000 35,000 744,000 59,000 536,000 (76,000) 519,000 1,263,000

98,000 254,000 239,000 21,000 612,000 -------409,000 (53,000) 356,000 968,000

212,000 98,000 40,000 350,000 125,000 475,000 600,000 188,000 788,000 1,263,000

198,000 76,000 -------274,000 -------274,000 550,000 144,000 694,000 968,000

Kevin Company Comparative Income Statement December 31, 2014 and 2013 2014 3,561,000 2,789,000 772,000 521,000 251,000 2013 3,254,000 2,568,000 686,000 486,000 200,000

Net sales Cost of goods sold Gross income Expenses Net income

Additional information: a. All accounts receivable and accounts payable relate to trade merchandise b. The proceeds from the notes payable were used to finance plant expansion c. Ordinary shares were sold to provide additional working capital.

Compute the following for 2014:

15. Cash collected from accounts receivable, assuming all sales are on account
a. b. c. d. P3,619,000 P3,503,000 P3,561,000 P3,249,000

16. Total purchases, assuming all purchases of inventory are on account

a. b. c. d. P2,828,000 P2,789,000 P2,550,000 P2,750,000

17. Cash payments made on accounts payable to suppliers

a. b. c. d. P2,630,000 P2,842,000 P2,828,000 P2,814,000

18. Dividends declared

a. b. c. d. P63,000 P0 P207,000 P107,000

19. Cash payments for dividends

a. b. c. d. P211,000 P0 P207,000 P167,000

20. Cash payments for assets that were not reflected in operations
a. b. c. d. P125,000 P186,000 P184,000 P127,000

21. Cash payments for expenses

a. b. c. d. P490,000 P513,000 P506,000 P529,000

22. Which of the following statements regarding accrual versus cash basis is true? a. The Financial Reporting Standards Council believes that the cash basis is appropriate for some smaller entities, especially those in the service industry. b. The cash basis is less useful in predicting the timing and amounts of future cash flows of an entity.

c. Application of the cash basis results in an income statement reporting revenue and expenses. d. The cash basis requires a complete set of double entry records.

23. Prior to the current year, an entity used the cash basis of accounting. At the end of the current year, the entity changed to the accrual basis. The entity cannot determine the beginning balance of supplies inventory. What is the effect of the entitys inability to determine beginning supplies inventory on its accrual basis net income and year-end accrual basis owners equity? Net Income a. No effect b. No effect c. Overstated d. Overstated Owners Equity No effect Overstated No effect Overstated

24. The premium on a four-year insurance policy expiring on December 31, 2015 was paid in total on January 1, 2012. If the original payment was recorded as a prepaid asset, the balance in the prepaid asset account on December 31, 2013 would be a. Lower than the balance on December 31, 2012 b. Lower than the balance on December 31, 2014 c. The same as the balance on December 31, 2015 d. The same as the original payment

25. Under the accrual basis, rental income of Diesel Company for the calendar year 2014 is P600,000. Additional information regarding rental income are as follows: Unearned rental income, January 1, 2014 Unearned rental income, December 31, 2014 Accrued rental income, January 1, 2014 Accrued rental income, December 31, 2014 50,000 75,000 30,000 40,000

Under the cash basis, how much rental income should be reported by Diesel in year 2014?
a. b. c. d. P585,000 P615,000 P625,000 P655,000

Single Entry:
26. On January 1, 2013, the capital of C Company was P1,700,000 and on December 31, 2013, the capital was P2,400,000. During the year, C withdrew merchandise costing P100,000 and with sales value of P180,000, and paid a P1,000,000 note payable of the business with interest of 12% for six months with a check drawn on a personal checking account. What was the net income or loss for the year 2013?
a. b. c. d. P260,000 income P260,000 loss P180,000 income P180,000 loss

27. At September 1, 2013, the following existed in the records of Josh Company: Plant and equipment Accumulated depreciation 8,600,000 3,970,000

During the year ended September 30, 2014, plant with a written down value of P370,000 was sold P490,000. The plant had originally cost P800,000. Plant purchased during the year cost P1,800,000. It is the companys policy to charge a full years depreciation in the year of acquisition of an asset and none in the year of sale, using a rate of 10% on the straight-line basis. What net amount should appear in Joshs statement of financial position at September 30, 2014 for plant and equipment? a. b. c. d. 4,670,000 5,100,000 5,630,000 6,060,000

28. On January 1, 2012, the statement of financial position of R Company showed total assets of P5,000,000, total liabilities of P2,000,000 and contributed capital of P2,000,000. During the year, the corporation issued share of capital of P500,000 par value at a premium of P300,000. Dividend of P2,500,000 was paid on December 31, 2012. The statement of financial position on December 31, 2012 showed total assets of P7,500,000 and total liabilities of P3,200,000. What was the net income for the current year? a. 1,750,000 b. 1,000,000 c. 750,000 d. 500,000

29. The December 31, 2010 statement of financial position of M Company showed shareholders equity of P5,000,000. The share capital of P3,000,000 remained unchanged during the year. Transactions during the current year which affected the equity were: An adjustment of retained earnings for 2009 over depreciation 100,000 Gain on sale of treasury shares 300,000 Dividend declared, of which P400,000 was paid 600,000 Net income for 2010 800,000 What was the retained earnings balance on January 1, 2010?
a. b. c. d. P1,400,000 P1,700,000 P1,200,000 P1,600,000

30. S company had total assets of P4,000,000 and shareholders equity of P2,080,000 at the beginning of the year. During the year, assets increased by P520,000 and liabilities decreased by P820,000. What is the shareholders equity at the end of the year?
a. b. c. d. P3,420,000 P3,700,000 P3,380,000 P1,340,000

31. E Companys beginning and ending total liabilities were P840,000 and P1,000,000, respectively. At year-end, owners equity was P2,600,000 and total assets were P200,000 larger than at the beginning of the year. If new share capital issued exceeded dividends by P240,000, what was the net income or loss of the year?
a. b. c. d. P280,000 income P280,000 loss P40,000 income P200,000 loss

32. T Company provided the following information for 2014? Net loss Total assets at December 31 Share capital at December 31 Share premium at December 31 Dividends declared 100,000 3,000,000 1,000,000 500,000 700,000

The debt-to-equity ratio is 60% on December 31, 2014. What is the retained earnings account balance on January 1, 2014?
a. b. c. d. P1,100,000 P1,300,000 P1,175,000 P975,000

33-35 BONUS Just don't give up trying to do what you really want to do. Where there's love and inspiration, I don't think you can go wrong..

-End of Examination-

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