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University of Santo Tomas

Alfredo M. Velayo College of Accountancy


Junior Philippine Institute of Accountants

CASH & CASH EQUIVALENTS

Problem 1: (Burkina Faso Corp.)


In the course of your examination of the cash in bank account of Burkina Faso Corp., you
obtained the following information:

(a) The bank statement on May 31, 2015 showed a balance of P 1,836,000.

(b) Among the bank credits in May was customers note for P 600,000 collected for the
account of the company which the company recognized in June among its receipts.

(c) Included in the bank debits for the month of May were service charges amounting to
P 7,200 and a P 240,000 check which was charged by the bank in error against
Burkina Faso Corp.s account.

(d) You also ascertained that there were deposits-in-transit amounting to P 480,000 and
outstanding checks totaling P 1,020,000 by the end of May.

(e) The bank statement for the month of June showed total credits of P 2,496,000 and
total charges of P 1,224,000.

(f) The companys books for June showed total debits of P 4,818,600, total credits of P
2,443,200 and a balance of P 2,913,600.

(g) Bank debit memos for June were:


No. 781 for service charges, P 9,600
No. 782 on a customers returned check marked DAUD for P 144,000.

(h) On June 30, 2015, the corporation placed with the bank a customers promissory note
with a face amount of P 720,000 for collection. The Corporation treated this note as
part of its receipts although the bank was able to collect on the note only in July
2015.

(i) A disbursement check of P 45,000 was recorded by the corporation as P 450,000 in


the month of May. This error was corrected in the books in June.

(j) Another check for P 23,760 was recorded in the company cash disbursements books
in June as P 237,600.

Question(s):
1. How much is the unadjusted cash balance per ledgers as of May 30, 2015?
2. How much is the adjusted cash balance as of May 30, 2015?
3. What is the correct deposit-in-transit as of June 30, 2015?
4. What is the correct outstanding checks as of June 30, 2015?
5. How much is the adjusted cash balance as of June 30, 2015?

Problem 2: (Chile Co.)


The cash account in the ledger of Chile Co. had a balance of P 105,600 at December 31,
2016. An investigation of the account, however, disclosed the following:

(a) The sales book was left open up to January 5, 2017, and cash sales totaling P 15,000
were considered as sales in December.
(b) Checks of P 9,300 in payment of liabilities were prepared before December 31, 2016,
recorded in the books, but not mailed or delivered to payees.
(c) Post-dated customer collection checks totaling P 7,800 are being held by the cashier
as part of cash. The companys experience shows that post-dated checks are
eventually realized.
(d) Customers check for P 1,500 deposited with but returned by bank marked DAIF on
December 27, 2016. The return was not recorded in the books.
(e) The cash account includes P 40,000 earmarked for the purchase of a small
equipment which will soon be delivered.

Question(s):
6. What is the amount of cash to be shown on the statement of financial
position on December 31, 2016?
Page 1 of 20
Villaluz
University of Santo Tomas
Alfredo M. Velayo College of Accountancy
Junior Philippine Institute of Accountants

Problem 3: (El Salvador, Inc.)


In connection with your examination of El Salvador, Inc. for the year ended December 31,
2015, you gathered the following information:

Current account at PNB P 6,000,00


0
Current account at Chinabank (300,000
)
Payroll account 1,500,00
0
Foreign bank account restricted (in US$)* 60,000
Postage stamps 3,000
Employees post-dated check 12,000
IOU from president 30,000
Credit memo from a vendor for a purchase return 60,000
Travelers check 150,000
Customers NSF check 45,000
Money orders 90,000
Petty cash fund (P 12,000 in currency and coins and expense vouchers
for P 18,000) 30,000
Treasury bills, due 3/31/16 (acquired 12/31/15) 600,000
Treasury bills, due 2/1/16 (acquired 1/1/15) 900,000
Change fund 10,000
Bond sinking fund 1,000,00
0

* Exchange rate as of 12/31/15 is US$1: P 50.

Question(s):
7. What is the total cash and cash equivalent to be reported in the December
31, 2015 statement of financial position?
8. What amount should be presented as part of Non-current assets?

Problem 4: (Bosnia and Herzegovina Co.)


The accountant of Bosnia and Herzegovina Co. prepared the following bank reconciliation at
December 31, 2015:

Balance per bank statement P 350,000


Add: Deposit in transit 175,250
Note collected by bank 15,000
Total: P 540,250
Less: Outstanding checks (246,750)
Balance per general ledger P 293,500

In the course of your examination, you noted the following:


(a) At December 31, 2015, the bank statement and the general ledger showed balances
of P 350,000 and P 293,500, respectively.
(b) The cut-off bank statement showed a bank charge on January 3, 2016 for P 25,000
representing a correction of an erroneous bank credit.
(c) Included in the list of outstanding checks were the following:
A check payable to a supplier dated December 28, 2015, in the amount of P
15,000 delivered on January 4, 2016.
A check representing advance payment to a supplier in the amount of P
37,200, the date of which is January 5, 2016 and released In December 2015.
(d) On December 31, 2015, the company received and recorded a customers check
dated January 2, 2016 amounting to P 50,000.

Question(s):
9. What is the correct amount of outstanding checks as of December 31,
2015?
10.What is the correct cash balance on December 31, 2015?
11.How much was the cash shortage?

Problem 5: (Barbados Company)


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Villaluz
University of Santo Tomas
Alfredo M. Velayo College of Accountancy
Junior Philippine Institute of Accountants

Barbados Company records contained the following:

Outstanding checks, October 31, P 90,000.


Customers DAUD check recorded in November but returned in October, P 6,000.
Bank service charges in October and recorded in November, P 2,400.
Total credits to the cash account in all journals during November, P 190,400.
Checks and charges returned by the bank in November including a November service
charge of P 3,000 and NSF check of P 12,000, P 195,000.

Question(s):
12.What is the amount of outstanding checks as of November 30?

Problem 6: (Burma Co.)


The following information was revealed in trying to reconcile the bank statement balance as
of February 28 with the Burma Co.s records as of the same date:
Total credits per February bank statement were P 310,000.
Among the bank credits in January was a customers note collected by the bank for
the account of the company which the company recognized in February. Proceeds
were P 30,300.
Client books for February showed total debits of P 420,000.
Deposits in transit on January 31 were P 15,000.
The bank credited the clients account in February for P 50,000 representing loan
approved and granted by the bank. Burma made no entry for this.
A deposit of P 4,300 was recorded by your client as P 3,400 in June. The bank
recorded the deposit at its correct amount.

Question(s):
13.How much were the deposits in transit as of February 28?

Problem 7: (Cote Divoire Co.)


A count of the petty cash fund of Cote Divoire Co. on January 5, 2016, 9 am revealed the
following composition:

Bills and coins P 7,30


0
Vouchers:
Dated December 2015 850
Dated January 2016 200
IOUs from employees (all dated December 2015) 4,20
0
Employees check dated
December 25, 2015 2,80
January 10, 2016 0
4,25
0
Unsigned pay envelope to an employee (the envelope
has been opened with no money inside) 5,00
0

The petty cash fund per records is P 15,000.

Question(s):
14.How much is the cash shortage or overage?
15.What is the correct amount of petty cash fund to be reported in the
statement of financial position as of December 31, 2015?

Problem 8: (Cyprus Co.)


You are examining the general cash account of the Cyprus Co. for the fiscal year ended
September 30, 2015. You obtained the following information:

Per Per
books bank
statement
Beginning balance, August 31, 2015 P 665,000 P 780,000
Deposits 2,500,000

Page 3 of 20
Villaluz
University of Santo Tomas
Alfredo M. Velayo College of Accountancy
Junior Philippine Institute of Accountants

Cash receipts journal 2,520,000


Checks cleared (2,354,600)
Cash disbursements journal (2,380,000
)
September bank service charge (8,500)
Note paid directly (610,000)
NSF check (36,000)
Balance, September 30 805,000 270,000

August 31 bank
reconciliation
Balance per bank P 780,000
Deposits in transit 60,000
Outstanding checks (175,000
)
Balance per books 665,000

Additional information:
(1) Checks clearing that were outstanding on August 31 totaled P 165,000.
(2) Checks clearing that were recorded in the June disbursements journal totaled P
2,050,000.
(3) A check for P 100,000 cleared the bank, but had not been recorded in the cash
disbursements journal. It was for a purchase of merchandise.
(4) A check for P 39,600 was charged to Cyprus but had been written on a different
companys bank account.
(5) Deposits included P 60,000 from August and P 2,440,000 for June.
(6) The bank charged Cyprus account for an NSF check totaling P 36,000. The credit
manager concluded that the customer intentionally closed its account and left the
city. The check was turned over to a collection agency.
(7) A note for P 595,000, plus interest, was paid directly to the bank under an agreement
signed three months ago. The note payable was recorded at P 595,000 on Cyprus
records.

Question(s):
16.What is the amount of deposits in transit as of September 30, 2016?
17.What is the amount of outstanding checks as of September 30, 2016?
18. What is the adjusted book disbursements on September 30?
19.What is the adjusted bank balance on September 30?

Problem 9: (Eritrea Corp.)


A count of the petty cash fund of Eritrea Corp. in the morning of January 6, 2016 showed the
following compositions:

Bills and coins:


Denomination No. of pieces
P 1,000 5
500 10
200 5
100 10
50 10
20 20
10 25
5 50

Unreplenished paid vouchers:


12/28 Transportation P 500
12/30 Office repairs 300
12/30 Miscellaneous 900
12/30 Due to employees 1,000
1/1 Gasoline 1,000

Unreplenished unpaid vouchers:


1/3 Gasoline 800
1/3 Transportation 1,500

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University of Santo Tomas
Alfredo M. Velayo College of Accountancy
Junior Philippine Institute of Accountants

Checks on hand:
12/29 T. Jones, employee 2,000
11/26 M. Rivera, employee, returned by the bank 1,000
marked NSF
12/27 Eritrea Corp., payable to the custodian 10,00
0
Cash receipt voucher for a return of an expense advance 900

Question(s):
20.How much is the cash shortage or overage, if any?
21.What is the correct petty cash fund balance to be reported as of December
31, 2015?

Problem 10: (Kiribati Co.)


In the course of your examination of Cash of Kiribati Co. as of and for the period ended
December 31, 2015, the following is a list that comprise the companys Cash and cash
equivalent account:

Current account at PCIB P 3,000,00


0
Savings account at DBP 2,000,00
0
Current account at Eastwest Bank (240,000
)
Undeposited checks, bank drafts, and money orders on hand 987,000
Travel fund 50,000
Interest and dividend fund 120,000
Payroll fund 400,000
Pension fund 250,000
Change fund 25,000
Bond sinking fund 500,000
Petty cash fund, imprest balance 30,000
Cash in HCI Bank (closed) 300,000
Postage stamps 3,000
IOU from employees 30,000
Credit memo from a vendor for a purchase return 60,000
Investment in debt securities, due 3/31/16 (acquired 12/31/15) 600,000
Investment in debt securities, due 2/28/16 (acquired 2/1/15) 9,000,00
0
Investment in equity securities 1,000,00
0

You noted the following:


(1) The current account at PCIB included the following:
(a) P 75,000 check to a supplier, in payment of an outstanding invoice dated
December 1, 2015. The check was issued as of December 31, 2015 but dated
January 2, 2016.
(b) P 120,000 check to a supplier, in payment of another outstanding invoice dated
December 18. The check which was dated December 30, 2015 was still on hand
as of December 31, 2015. This check was delivered to the payee on January 4,
2016.
(c) P 180,000 check to another supplier dated December 31 and released on the
same date for the payment of an invoice dated December 24.

(2) The savings account at DBP included a P 500,000 compensating balance related to a
5-year, 12%, P 5,000,000 bank loan dated January 1, 2013. The terms of the loan
called for the legal restriction on withdrawal from the said compensating balance at
any time during the year term of the loan.
(3) The undeposited checks, bank drafts and money orders included the following items:
(a) P 180,000 check from a customer dated 4/30/15.
(b) P 125,000 check from a customer dated 1/16/16.
(c) P 155,000 check from a customer dated 11/27/15, returned by the bank with the
November bank statement marked DAIF, yet to be redeposited.
(d) P 127,000 check from an employee dated 12/22/15.

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University of Santo Tomas
Alfredo M. Velayo College of Accountancy
Junior Philippine Institute of Accountants

(e) P 80,000 check from a manager dated 12/16/15 returned by the bank marked
NSF.
(f) P 150,000 postal money order.
(g) P 120,000 bank drafts.

(4) Cash, in the custody of the petty cashier, on December 31, 2015 were:
(a) Bills and coins totaling P 7,000.
(b) Replenishment check of P 11,500.
(c) P 10,000 worth of unreplenished paid petty cash vouchers.

(5) All other funds were accounted for as equaling cash or securities on hand.
(6) Kiribati made an estimate that only half of the cash in HCI Bank shall be recovered
but the period of recovery is indefinite.
(7) The investment in equity securities comprise of the following:
(a) P 400,000 investment in ordinary shares acquired on 12/1/15 which are intended
for short-term profit purposes. Kiribati intends to sell this by 3/1/16.
(b) P 300,000 investment in ordinary shares acquired on 11/30/14 which Kiribati is
intending to hold as available for sale (AFS).
(c) P 300,000 investment in preference shares acquired on 12/1/15 redeemable at
the option of the issuer by 2/28/15.

Question(s):
22.What is the adjusted Current account at PCIB that should be presented as
part of Cash and cash equivalents?
23.How much from the Savings account with DBP shall be presented as part of
Cash and cash equivalents?
24.How much from the Current account with Eastwest bank shall be presented
as part of Cash and cash equivalents?
25.How much from the undeposited checks, money orders and bank drafts
shall be presented as part of Cash and cash equivalents?
26.How much is the adjusted petty cash fund?
27.How much from the total cash funds shall be presented as part of Cash and
cash equivalents?
28.How much from the debt and equity securities shall be presented as part of
Cash and cash equivalents?
29.What is the total cash and cash equivalents to be reported by Kiribati in its
December 31, 2015 statement of financial position?

-END OF CASH & CASH EQUIVALENTS-

RECEIVABLES

Problem 1: (Bahamas Co.)


The Trade Accounts Receivable account of Bahamas Co. showed a balance of P 264,500 on
December 31, 2015. Below are the items that affected the trade accounts receivable
account for the year 2015:

January 1 balance, net of P 9,000 credit balance P 106,000


Charge sales 1,250,000
Charge for consignment sales 25,000
Shareholder subscriptions 60,000
Recovery of previously written-off accounts 5,000
Refunds to customers with credit balances 5,000
Deposit on contract 50,000
Claim against the common carrier for shipping damages 5,000
IOUs from employees 1,000
Cash advances to affiliates 50,000
Advances to suppliers 10,000
Receipts from customers, including overpayment of P 10,000 and the
recovery of accounts written off (1,240,000
)
Accounts written off (7,000)
Returns of merchandise (5,500)
Allowance to customers for shipping damages (3,000)
Collections on carrier claims (2,000)
Page 6 of 20
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University of Santo Tomas
Alfredo M. Velayo College of Accountancy
Junior Philippine Institute of Accountants

Collection on shareholder subscriptions (45,000)


Total: 264,500

Additional information:
(a) It was ascertained that 50% of the outstanding trade accounts receivable balance
are still currently collectible. The credit sales term is 5/30 n/60. Based on past
experience, 25% of the customers whose accounts are still current normally pay
within the discount period.

(b) 30% of the trade accounts receivable is 60 days past due and is expected to be
90% collectible.

(c) 20% of the trade accounts receivable is more than 120 days past due and is
expected to be 50% collectible.

Question(s):
1. What is the correct balance of the trade accounts receivable?
2. What is the carrying value of the trade accounts receivable?

Problem 2: (Costa Rica Corp.)


Your examination of Costa Rica Corp.s accounts receivable and its related allowance for
uncollectible accounts expense revealed the following information:

(a) The general ledgers of Costa Rica Corp. have the following balances:

Accounts receivable P 360,000


Allowance for uncollectible (1,320)
accounts
Net realizable value 358,68
0

(b) An aging of Costa Rica Corp.s accounts receivable per subsidiary ledgers, on
December 31, 2015 contained the following information:

Days Amount:
outstanding:
Under 30 days P 240,00
0
30 60 days 48,000
61 120 days 36,000
121 180 days 24,000
Over 180 days 12,000
360,0
00

(c) Investigations revealed that half of the over 180 days account is definitely
uncollectible and that a P 12,000 customer credit balance for an advance
payment for a future delivery was included in the under 30 days account.

(d) Based on past experiences, the corporation believes that the following
uncollectible percentage are reasonable:

Under 30 days 0%
30 60 days 3%
61 120 days 15%
121 180 days 30%
Over 180 days 60%

(e) The credit sales term is 10/15 n/30. As per past experience, 20% of the customers
whose accounts are still current are expected to take advantage of the cash
discount.

(f) Also you have ascertained that 5% of the current account should be provided for
probable future sales returns.
Page 7 of 20
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University of Santo Tomas
Alfredo M. Velayo College of Accountancy
Junior Philippine Institute of Accountants

Question(s):
3. What is the adjusted accounts receivable balance?
4. What is the correct doubtful accounts expense for the period?
5. What is the carrying value of Costa Rica Corp.s accounts receivable as of
December 31, 2015?
6. Assuming that the allowance for doubtful accounts had a P 1,680 debit
balance before adjustments, what is the doubtful accounts expense?

Problem 3: (Georgia Co.)


From the start of operations to December 31, 2015, Georgia Co. provided for uncollectible
accounts receivable under the allowance method. Georgias usual credit terms are 2/30
n/60.

The balance in the allowance for bad debts was P 65,000 at January 1, 2015. During 2015,
sales totaled P 5,000,000 (of which 10% are cash sales), interim provisions for bad debts
were made at 2% of credit sales; P 45,000 of bad debts were written off; and recoveries of
accounts previously written off amounted to P 7,500. Georgia installed a computer facility in
November 2015, and an aging of accounts receivable was prepared for the first time as of
December 31, 2015.

A summary of the aging is as follows:

Classification by Balance in Estimated uncollectible


Month of sale: each category: percentage (%):
November December P 1,140,000 1.5
July October 600,000 8.0
January June 400,000 35.0
Prior to 1/1/15 130,000 70.0
2,270,000

Based on the review of the collectability of the account balances in the prior to 1/1/15
category, additional accounts totaling P 30,000 were written off as of December 31, 2015.
Effective with the year ended December 31, 2015, Georgia adopted the revised company
policy in recognizing bad debts.

Further review revealed that P 700,000 of the November December balance were
December sales and 30% of the amount is anticipated to be collected within the discount
period the following period.

Question(s):
7. What is the correct balance of the allowance for bad debts at December 31,
2015?
8. What is the carrying value of the accounts receivable at December 31,
2015?

Problem 4: (Marshall Islands Co.)


In the course of your examination of Marshall Islands Co.s receivables account as of
December 31, 2015, you found out that the account comprised the following items:

Trade accounts receivable P 1,550,000


Trade accounts receivable, assigned (proceeds from assignment
amounted to P 650,000) 750,000
Trade accounts receivable, factored (proceeds from factoring done on
a without-recourse basis amounted to P 250,000) 300,000
12% trade notes receivable 200,000
20% trade notes receivable, discounted at 40% upon receipt of the
180-day note on a without recourse basis 300,000
Trade receivables rendered worthless and must be written off 50,000
Installments receivable, normally due one to two years 600,000
Customers accounts reporting credit balances arising from sales 60,000
returns
Advance payments for purchase of merchandise 300,000
Customers accounts reporting credit balances arising from advance 40,000
payments
Cash advances to affiliates 800,000
Page 8 of 20
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University of Santo Tomas
Alfredo M. Velayo College of Accountancy
Junior Philippine Institute of Accountants

Claims from insurance company 30,000


Subscription receivable due in 60 days 600,000
Accrued interest receivable 20,000
Deposit on contract bids 500,000
Advances to stockholders (collectible in 2019) 2,000,000

Question(s):
9. How much is the total trade receivables?
10.How much is the amount to be presented as trade and other receivables
under current assets?
11.How much gain or loss from receivable financing should be recognized in
the profit or loss statement?

Problem 5: (San Marino, Inc.)


San Marino, Inc. had the following transactions for the fiscal year ended August 31, 2015:

(a) San Marino, Inc. had an outstanding accounts receivable balance amounting to P
4,000,000 on June 30, 2015. These was pledged to HCIB Bank in consideration of a
12% loan. The loan amount is 80% of the outstanding accounts receivable. HCIB
charged San Marino 5% of the outstanding accounts receivable as service charge. By
the end of July, San Marino collected P 1,200,000 cash from credit customers, net of P
120,000 cash discounts. Also, by the end of July, San Marino accepted merchandise
from customers as returns. This was originally invoiced at P 80,000. By the end of
August, San Marino collected another P 900,000 after P 50,000 cash discounts and
wrote-off P 200,000 of the accounts receivable as worthless.

It was agreed-upon with the HCIB that remittances from collections will be made to
the bank on a monthly-basis and that the collections from customer will cover both
interest and the principal amount of the loan.

(b) On May 1, 2015, San Marino discounted to HCIB a 12-month, 10% note dated January
1, 2015 and with a face value of P 2,000,000. HCIBs discount rate was at 8%. The
discounting was done on a without-recourse basis.

Question(s):
12.What is the balance of the accounts receivable account as of August 31,
2015?
13.What is the balance of the loan payable account as of August 31, 2015?
14.What is the balance of the note receivable as of August 31, 2015?
15.What amount of gain or loss is to be reported in the 2015 profit or loss from
derecognition of receivables, if any?

Problem 6: (Botswana Co.)


Botswana Co. had the following transactions in 2015:

(a) At the beginning of November, Botswana Co. assigned P 2,000,000 out of its P
10,000,000 outstanding accounts receivable to NYB Bank in consideration of a P
1,500,000, 12% loan. NYB charged Botswana 5% of the loan principal as service
charge. By the end of November, Botswana collected P 600,000 cash from the
assigned accounts net of P 50,000 cash discount. Also, by the end of November,
Botswana accepted merchandise from customers as returns. This was originally
invoiced at P 60,000. By the end of December, Botswana collected another P 700,000
from the assigned accounts after P 40,000 cash discount and wrote-off P 80,000 of
the assigned accounts as worthless.

The agreement with NYB calls for monthly remittance of customer collections for the
month. The collections will cover both interest and loan principal.

(b) Also at the beginning of November, Botswana Co. factored P 500,000 of its accounts
receivable to NYB. As of the date of factoring, it was ascertained that P 20,000 of the
accounts receivable is doubtful of collection. NYB advanced P 350,000 cash to
Botswana and withheld P 50,000 as factors holdback to cover future sales discount
and sales returns and allowances. The Co. incurred P 10,000 of legal fees and other
professional fees related to the factoring.

Page 9 of 20
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University of Santo Tomas
Alfredo M. Velayo College of Accountancy
Junior Philippine Institute of Accountants

Question(s):
16.What is the balance of the accounts receivable-assigned account as of
December 31, 2015?
17.How much is the equity in assigned accounts to be disclosed on December
31, 2015?
18.What amount of gain or loss to be reported in the 2015 profit or loss from
derecognition of receivables, if any?

Problem 7: (Algeria Co.)


The Statement of financial position of Algeria Co. reported the following long-term
receivables as of December 31, 2015:

Notes receivable from sale of a business segment P 4,500,00


0
Note receivable from vice president 1,200,00
0

In connection with your examination, you were able to gather the following transactions
during 2016 and other information pertaining to the companys long-term receivables: (Use
three decimal place for PV factors)

(1) The note receivable from sale of a business segment bears annual interest rate of
12%. The note is payable in annual installments of P 1,500,000 plus appropriate
interest every April 1. The initial principal and interest payment was made on April 1,
2016.

(2) The note receivable from vice president is dated December 31, 2015, earns interest
at 10%, and is due on December 31, 2018. The 2016 interest was collected at year-
end.

(3) The company sold a piece of equipment to Bhutan Corp. on April 1, 2016 in exchange
for a P 600,000 non-interest bearing note due on April 1, 2018. The note had no
ready market and there was no established price for the said equipment. The
prevailing interest rate for a note of this type at April 1, 2016 was 12% and 15% at
December 31, 2016.

(4) A tract of land was sold by the company to Bobby Bolivia Inc. on July 1, 2016 for P
3,000,000 under an installment sales contract. Bobby signed a four-year 11% note for
P 2,100,000 on July 1, 2016, in addition to the P 900,000 down-payment. The equal
annual payments of principal and interest on the note will be P 676,875 payable on
July 1 of every year starting July 1, 2017. The land had an established cash price of P
3,000,000 and its cost to the company was P 2,250,000. The collection of the
installments on this note is reasonably assured.

Question(s):
19.How much is the total current portion of the long-term notes receivable as
of December 31, 2016?
20.How much is the total non-current notes receivables as of December 31,
2016?
21.What is the amount of accrued interest receivable as of December 31,
2016?
22.What is the total amount of interest income to be reported for the year
2016?

Problem 8: (Kosovo Co.)


On December 31, 2015, Kosovo Co. lent P 4,000,000 to Latvia Inc. due after three years.
Kosovo received an 8% promissory note. Interests are collectible annually every December
31. The prevailing market rate of a note of this type is 6.25%.

Kosovo was able to collect interest as it became due at the end of 2016. During 2017, Latvia
is experiencing business deterioration due to political instability and faltering global
economy, Kosovo was not able to collect amounts due at the end of 2017. After assessing
the collectability of the note at December 31, 2017, Kosovo determined that it was probable
that Latvia would pay back only P 3,400,000 collectible as follows:

December 31, 2019 P 1,400,00


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0
December 31, 2020 1,000,00
0
December 31, 2021 600,000
December 31, 2022 400,000

As of December 31, 2017, the prevailing interest rate for all debt instruments is 9.75%. (Use
four decimal places for PV factors)

Question(s):
23.What is the carrying value of the notes receivable as of December 31,
2016?
24.What is the impairment loss to be recognized in the 2017 income
statement?
25.What amount related to the note shall be presented as non-current assets
on December 31, 2018?
26.What is the interest income to be recognized in the 2019 income
statement?
27.What amount related to the note shall be presented as current assets on
December 31, 2020?
28.What is the carrying value of the notes receivable as of December 31,
2020?

Problem 9: (Mauritania Corp.)


You are to assess the collectability of the receivables carried in the books of Mauritania Corp.
the books showed the following balances as of December 31, 2015:

Notes receivable P 6,000,000


Accounts 4,000,000
receivable

In the course of your examination, you discovered the following:

(1) The composition of the notes receivable, as shown above, is as follows:

Notes receivable from Nauru Co. P 2,000,000


Notes receivable from Poland Co. 3,000,000
Notes receivable from Rwanda Co. 1,000,000

(2) No interest has yet been recorded by Mauritania during 2015 on any of the notes.

(3) Nauru Co. is undergoing bankruptcy proceedings and has negotiated for a
restructuring of its notes receivable. The note was for a four-year period and interest
of 10% is collectible annually. All interest accrued before 2015 has been collected.
The note matured on December 31, 2015. Collection of interest was last made on
December 31, 2014. The restructuring agreement with Nauru calls for annual
payment of P 550,000 starting December 31, 2016. No further interest will be
collected during the extended period.

(4) The notes receivable from Rwanda bears interest at 10%. The note was received from
sale of goods in the normal course of business. The note is dated October 1, 2015
and matures on March 31, 2017.

(5) The notes receivable from Poland is a three-year non-interest bearing note. The note
was received in exchange for a tract of land sold by Mauritania on May 1, 2015. The
land was carried in the books at the date of sale at P 2,600,000. The prevailing rate
of interest for a note of this type is 10%.

Question(s):
29.What amount is to be presented as current assets in the statement of
financial position at December 31, 2015?
30.What amount is to be presented as non-current assets in the statement of
financial position at December 31, 2015?
31.What is the amount of impairment loss on receivables to be reported in the
2015 income statement?
32.How much is the total interest revenue for the year 2015?
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Problem 10: (Saint Kitts and Nevis Co.)


Saint Kitts and Nevis Co. started operations on January 1, 2015. The following data are
available as of June 30, 2015:

Purchase of merchandise P 1,900,000


Inventory, June 30, 2015 350,000
Goods were sold at 150% above cost; 75% of sales were on account
Recorded uncollectible accounts expense 32,000
Total collections from customers 3,504,750
Adjusted allowance for uncollectible accounts, June 30, 2015
15,000
Question(s):
33.What is the account balance of Accounts receivable at December 31, 2015?

-END OF RECEIVABLES-

INVENTORIES

Problem 1: (Belize Co.)


The following information were found during your examination of the inventory and related
accounts of the Belize Co.:

(a) An excerpt from Belizes trial balance revealed the following account balances:

Accounts P 680,000
receivable
Inventory, per 1,200,0
count 00
Accounts payable 790,000
Net sales 6,050,0
00
Net purchases 3,300,0
00
Net income 610,000

(b) Belize conducted an inventory count on December 31, 2015. Belize normally sells at
30% gross margin based on sales price.
(c) Goods were in transit FOB destination from a supplier in the amount of P 120,000.
Further testing revealed that the suppliers invoice pertaining to the delivery was
received and recorded on December 29, 2015.
(d) Goods costing P 70,000 had been received on December 31, and recorded as a
purchase. However, upon your inspection the goods were found to be defective and
would be immediately returned.
(e) Materials costing P 224,000, sold and billed on December 30 under a bill-and-hold
agreement, had been segregated in the warehouse awaiting pick-up by the customer.
Being on hand, the materials had been included in the count.
(f) Goods costing P 70,000 was out on consignment with Cambodia Co. since the
monthly statement from Cambodia listed those materials as on hand, the items had
been excluded from the ending inventory and invoiced on December 31 at a normal
gross profit provision.
(g) The sale of materials invoiced at P 150,000 had been shipped FOB point of shipment
at December 31. However, this inventory was found to be included in the ending
inventory. The sale was properly recorded in 2015.
(h) Goods costing P 98,000 had been segregated but not shipped at December 31. A
review of the customers purchase order related to the goods set forth terms as FOB
shipping point. The sale had not been recorded while the goods were excluded from
the count.
(i) Belize has an invoice from a supplier, terms FOB shipping point but the goods had not
arrived as yet. While these materials costing P 170,000 had been included in the
inventory count, no entry had been made for their purchase.
(j) Merchandise costing P 200,000 had been recorded as a purchase but not included as
inventory. Terms of the sale are FOB point of shipment according to the suppliers
invoice which had arrived at December 31.

Determine the correct balances of the following:


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1. Inventory.
2. Accounts payable.
3. Net sales.
4. Net purchases.
5. Net income.

Problem 2: (Comoros Corp.)


In your examination of the December 31, 2015 financial statements of Comoros Corp., you
found the following inventory-related transactions:

Goods costing P 100,000 are on consignment with a customer. These goods were
invoiced at normal profit margin which was at 40% based on cost and was recorded
as 2015 sales. Being offsite on the count date which was on December 30, 2015,
these goods were not included in the physical count.
Goods costing P 33,000 were delivered to Comoros Corp. on January 3, 2016. The
invoice of these goods were received and recorded on January 8, 2016. The invoice
showed that the shipment was made on December 30, 2015, FOB seller.
Goods costing P 40,000 were shipped FOB seller on December 31, 2015, and were
received by the customer on January 1, 2016. Although the sale was recorded in
2015, these goods were included in the 2015 inventory.
Goods costing P 16,000 were shipped to a customer on December 30, 2015, FOB
buyer. These goods were received by the customer on January 7, 2016 and were not
included in the physical count. The sale was recorded in 2016.
Goods costing P 22,000 shipped by a vendor under FOB buyer term, were received on
January 2, 2016. The related invoice however, were received on December 31, 2015,
thus was recorded as purchase in 2015.
Goods costing P 50,000 were received from a vendor under consignment term. These
goods were included in the physical count. No purchase related to the inventory had
been recorded yet.
Comoros recorded as 2015 sale a P 112,000 invoice for goods delivered to a
customer on December 31, 2015, FOB buyer. The goods were received by the
customer on January 6, 2016. Having been delivered after the inventory count date,
the goods were included in the physical count.

Question(s):
6. What is the net adjustment to inventories as of December 31, 2015?
7. Assuming sales are on account, what is the net adjustment to accounts
receivable as of December 31, 2015?
8. Assuming all purchases are on account, what is the net adjustment to
accounts payable?
9. What is the effect of the errors to the 2015 net income?

Problem 3: (Bissau Co.)


You are engaged in an examination of financial statements of Bissau Co. for the year ended
October 31, 2015, and have observed the physical count of inventories on October 30, 2015.

All merchandise received up to and including October 30, 2015 has been included in the
physical count which totaled P 354,500. As a result of the count, the following cost of goods
sold schedule has been prepared by Bissaus accountant:

Inventory, November 1, 2014 P 235,000


Net purchases
2,543,9
00
Total cost of goods available for 2,778,9
sale 00
Inventory, October 30, 2015 per (?)
count
Cost of goods sold ?

The following list of invoices is for purchases of merchandise and are entered in the
purchase journal for the months of October and November 2015:

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Recorded as purchases in October 2015

Receiving Amoun Freight Invoice Date


report #: t: terms: date: merchandise
were received:
6901 P 14,400 Destination October 18 October 20
6902 8,800 Destination October 20 October 23
6903 18,500 Shipping October 23 October 30
point
6904 7,800 Destination October 21 November 3
6905 5,000 Destination November October 28
5
6906 20,500 Shipping October 26 October 30
point
6907 18,400 Shipping October 26 October 30
point
6908 24,200 Destination October 22 October 30
6909 69,200 Destination October 28 October 30

Recorded as purchases in November 2015

Receiving Amoun Freight Invoice Date


report #: t: terms: date: merchandise
were received:
6912 P 4,000 Destination October 30 October 31
6913 9,700 Destination October 30 October 30
6914 12,840 Shipping October 26 October 30
point
6915 14,440 Shipping November November 3
point 1
6916 25,640 Shipping October 24 November 4
point
6917 28,400 Shipping October 24 November 4
point
6918 14,200 Destination October 28 November 4

Question(s):
10.What is the adjusted balance of the Inventory account as of October 31,
2015?
11.What is the correct cost of goods sold for the period ended October 31,
2015?

Problem 4: (Holy See Co.)


As part of your examination of receivables of Holy See Co., you performed a cut-off test of
sales. Results of your test revealed the following:

Recorded as Sales in December 2015

Sales Cost: Freight Terms: Date of Date received by


price shipment: the customers:
:
P 18,00 P 16,50 Shipping point 12/25/2015 12/30/2015
0 0
12,50 10,20 Destination 12/25/2015 12/30/2015
0 0
8,680 7,240 Destination 12/27/2015 01/03/2016
14,20 12,50 Shipped to 12/29/2015 01/03/2016
0 0 consignee
9,000 7,500 Shipping point 12/30/2015 01/03/2016
10,00 7,750 Destination 12/31/2015 01/02/2016
0
7,800 6,100 Shipping point 12/31/2015 01/03/2016
14,00 12,00 Shipped to 12/31/2015 01/02/2016
0 0 consignee

Recorded as Sales in January 2016


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Sales Cost: Freight Terms: Date of Date received by


price shipment: the customers:
:
P 21,00 P 18,20 Shipping point 12/31/2015 01/02/2016
0 0
10,50 8,800 Destination 12/31/2015 01/02/2016
0
4,500 3,200 Destination 01/01/2016 01/04/2016
6,500 5,000 Shipping point 01/03/2016 01/07/2016

A count of all inventories within the premises was made in the morning of December 31,
2015 prior to any shipment made during that day. The total cost of the count was recorded
as inventories as of December 31, 2015. The goods shipped to consignees are still unsold at
December31.

The unadjusted ledger balances showed the following:

Accounts P 276,500
receivable
Inventories 425,000
Sales 1,320,0
00
Cost of goods sold 842,000

Determine the adjusted balances of the following:


12.Accounts receivable.
13.Inventories.
14.Sales.
15.Cost of goods sold.
16.Gross profit.

Problem 5: (Lesotho Co.)


The Lesotho Co. is an importer and wholesaler. Its merchandise is purchased from several
suppliers and is warehoused by Lesotho until sold to customers. In conducting an
examination for the year ended June 30, 2015, the Companys CPA observed the physical
inventory count at an interim date, May 31, 2015, instead of at fiscal year-end.

The CPA obtained the following information from the records and ledgers:

Inventory, July 1, 2014 P 87,500


Inventory, May 31, 2015 95,000
Sales for 11 months ended May 31, 2015 840,00
0
Sales for year-ended June 30, 2015 960,00
0
Purchases for 11 months ended May 31, 2015 (before 675,00
adjustments) 0
Purchases for year-ended June 30, 2015 (before 800,00
adjustments) 0

The CPAs examination disclosed the following data:

Shipments received in May and included in the physical inventory count but
recorded as June purchases P 7,500

Shipments received in unsalable condition and excluded from physical


inventory; credit memos had not been received nor had returns to vendors
been recorded: 1,000
Total at May 31, 2015 1,500
Total at June 30, 2015 (including the May unrecorded returns)

Deposits made with vendor and charged to purchases in April 2015. The goods
were shipped in July 2015 2,000

Deposits made with a vendor and charged to purchases in May 2015. Goods
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were shipped, FOB buyer, on May 29, 2015 and was included in May 31, 2015
physical inventory count as goods in transit 5,500

Through the carelessness of the warehouseman, a June shipment was


damaged. This shipment was later sold in June at its cost of 10,00
0

Required:
17.Compute the gross profit ratio for the eleven months ended May 31, 2015.
18.Compute the cost of goods sold during June 2015.
19.Compute the estimated June 30, 2015 inventory.

Problem 6: (Malawi Co.)


Malawi Co.s policy is to measure their inventory accounts at the lower of cost and net
realizable value (NRV). Data regarding Malawis inventories are as follows:

The general ledgers showed the following balances:

Costs: Raw materials P 2,875,00


Work-in- 0
progress 748,000
Finished goods 1,430,00
0

Allowance for Inventory write-down: Raw materials P (40,000)


Finished goods (10,000)

The following information was furnished to you by Malawi Co.:

RAW MATERIALS INVENTORY

Item # 18672 RM #0997 RM #0823 RM


#0916
Cost P 250,000 500,000 400,000
Current purchase 250,000 480,000 375,000
price

Item # 18673 RM #0800 RM #0913 RM


#0888
Cost P 400,000 300,000 200,000
Current purchase 450,000 275,000 180,000
price

Item # 18674 RM #0762 RM


#0797
Cost P 375,000 450,000
Current purchase 395,000 420,000
price

WORK-IN-PROGRESS INVENTORY

Item Item Item


#18672 #18673 #18674
Cost P 240,000 P 188,000 P 320,000
Selling price 360,000 289,000 735,000
Estimated cost to 48,000 97,650 74,000
complete
Replacement cost 208,000 169,000 375,000
Normal profit margin as
percentage of selling 30.0 25.0 20.0
price

FINISHED GOODS INVENTORY

Item Item Item #18674


#18672 #18673
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Cost P 550,000 P 540,000 P 430,000


Selling price 675,000 620,000 820,000
Estimated cost to sell as
percentage of selling 20.0 15.0 15.0
price

Question(s):
20.What is the correct amount to be reported as Raw materials inventory as of
year-end?
21.What is the correct amount to be reported as Work-in-Progress inventory as
of year-end?
22.What is the correct amount to be reported as Finished goods inventory as
of year-end?
23.What is the total loss on inventory write-down to be reported for the
period?

Problem 7: (Antigua and Barbuda Corp.)


Antigua and Barbuda Corp. wholesales wooden tables. The company is a calendar year
entity. At December 1, 2015, inventory on hand consisted of 350 wooden tables at P 820
each and 43 wooden tables at P 850 each. During the month ended December 31, 2015, the
following inventory transactions took place. All purchase and sales transactions are on
credit.

Decemb 2 Sold 300 wooden tables for P 1,200 each.


er
4 Five wooden tables were returned by a customer. They had originally cost P
820 each and were sold for a sales price same as the above.
1 Purchased 55 wooden tables at P 910 each.
1
1 Purchased 76 wooden tables at P 960 each.
5
1 Sold 86 bicycles at P 1,360 each.
6
1 Returned a damaged wooden table to the supplier. This wooden table had
8 been purchased on December 11.
2 Sold 60 wooden tables for P 1,250 each.
0
2 Purchased 72 wooden tables at P 980 each.
4
3 Two wooden tables, sold on December 20, were returned by a customer. The
0 wooden tables were badly damaged so it was decided to write them off. They
had originally cost P 910 each.

Assuming Antigua and Barbuda uses perpetual inventory system, determine the
following:
24.Cost of 12/31/15 inventory using the First In, First Out (FIFO) method.
25.Gross profit for the month of December using the First In, First Out (FIFO)
method.***
26.Cost of 12/31/15 inventory using the moving average method.
27.Gross profit for the month of December using the moving average method.
***

Assuming Antigua and Barbuda uses periodic inventory system, determine the
following:
28.Cost of 12/31/15 inventory using the weighted average method.
29.Cost of goods sold for the month of December using the weighted average
method.

Problem 8: (Chad Co.)


The records of Chad Co. revealed the following information on August 31, 2015

COST: RETAIL:
Inventory, September 1 P 1,020,00 P 1,920,000
0
Purchases 13,072,5 22,155,00
00 0
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Transportation In 300,000
Sales 19,800,00
0
Purchase return 450,000 750,000
Purchase allowance 270,000
Sales returns & allowances 450,000
Sales discounts 500,000
Purchase discounts 15,960
Normal spoilages & 600,000
breakages
Discounts granted to 300,000
employees
Departmental transfer debit 300,000 425,000
Departmental transfer credit 600,000 1,200,000
Net mark-up 450,000
Net mark-down 1,425,000
Mark-up cancellations 40,000
Mark-down cancellations 40,000
Abnormal spoilages & 120,000 200,000
breakages

The company reported inventories per a physical count conducted on August 31 at P


400,000. You ascertained that the count was adequately made by Chad. (Round percentages
to the nearest whole number)

Requirement(s):
30.Estimated cost of inventory shortage under the average cost method.
31.Estimated cost of inventory shortage under the FIFO retail method.
32.Estimated cost of inventory shortage under the conventional retail method.

Problem 9: (Fiji Co.)


The Fiji Co. uses the lower of cost and net realizable value (NRV) inventory. Data regarding
the items in work-in-process (WIP) inventory are presented below:

Marker Pens Pencil


s s
Historical cost P 24,000 P 18,88 P 30,000
0
Selling price 36,000 21,80 38,000
0
Estimated cost to complete 3,000 2,620 6,200
Replacement cost 20,800 16,80 16,800
0
Normal profit margin as a percentage
of selling price 15.0 20.0 25.0
Cost to sell as a percentage of selling 5.0 10.0 10.0
price

Question(s):
33.What is the loss on inventory write-down under the direct write-off method?
34.What is the loss on inventory write-down under the allowance method,
assuming that the unadjusted balance of the allowance for inventory write-
down is at P 2,000?
35.What is the gain on recovery of previous write-down under the allowance
method, assuming, that the unadjusted balance of the allowance for
inventory write-down is at P 5,000?
36.What is the correct carrying value of inventories as of December 31?

Problem 10: (Grenada Co.)


The following data was presented to you by Grenada Co. on December 31, 2015:

Item #: Quantity: Cost: Net realizable value: Amount:


012 360 units P 3.60 each P 3.64 each P 1,310.40
013 24 units 4.70 each 4.80 each 112.80
014 28 units 16.50 each 16.50 each 1,353.00
015 43 units 5.15 each 5.20 each 176.80
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016 400 units 9.10 each 8.10 each 3,640.00


017 70 dozens 2.00/dozen 2.00/dozen 140.00
018 95 grosses 144.00/gross 132.00/gross 13,780.00

Question(s):
37.How much should the inventory be presented in the 2015 statement of
financial position?

-END OF INVENTORIES-

~END OF HANDOUT~

Every expert was once a beginner

Suggested Answers:
CASH & CASH RECEIVABLES INVENTORIES
EQUIVALENTS
1. P 538,200 1. P 124,500 1. P 1,169,000
2. P 1,536,000 2. P 107,537 2. P 770,000
3. P 1,317,600 3. P 366,000 3. P 5,950,000
4. P 2,171,760 4. P 22,320 4. P 3,280,000
5. P 2,253,840 5. P 330,720 5. P 499,000
6. P 50,600 6. P 25,320 6. P 59,000
7. P 8,362,000 7. P 275,100 7. P (252,000)
8. P 4,000,000 8. P 1,960,700 8. P 11,000
9. P 194,550 9. P 3,100,000 9. P (204,000)
10. P 255,700 10. P 4,050,000 10. P 412,540
11. P 55,000 11. P (86,000) 11. P 2,439,140
12. P 92,000 12. P 1,450,000 12. P 250,620
13. P 145,600 13. P 1,152,320 13. P 420,440
14. P 400 shortage 14. 0 14. P 1,294,120
15. P 5,300 15. P 16,000 gain 15. P 846,560
16. P 80,000 16. P 470,000 16. P 447,560
17. P 340,000 17. P 245,850 17. 20%
18. P 3,134,500 18. P 90,000 loss 18. P 98,000
19. P 50,500 19. P 1,945,875 19. P 114,000
20. P 10,800 shortage 20. P 4,875,363 20. P 2,785,000
21. P 25,500 21. P 385,500 21. P 708,000
22. P 3,195,000 22. P 683,538 22. P 1,497,000
23. P 1,500,000 23. P 4,127,863 23. P 103,000
24. 0 24. P 1,545,814 24. P 148,980
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25. P 447,000 25. P 1,806,139 25. P 176,230


26. P 18,500 26. P 188,596 26. P 143,486
27. P 613,500 27. P 542,561 27. P 170,736
28. P 900,000 28. P 919,023 28. P 133,607
29. P 6,655,500 29. P 1,400,655 29. P 382,603
30. P 3,771,950 30. P 297,500
31. P 456,555 31. P 308,750
32. P 375,260 32. P 252,500
33. P 353,250 33. P 3,880
34. P 1,880
35. P 1,120
36. P 69,000
37. P 18,012

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