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1. Mega Company purchased from Ora Company a P2,000,000, 8% 5-year note that required
five equal annual year-end payments of P500,900. The note was discounted to yield a 9%
rate to Mega. At the date of purchase, Mega recorded the note at its present value of
P1,948,500. What should be the total revenue earned by Mega over the life of this note?
(a) P504,500 (b) P556,000 (c) P800,000 (d) P900,000 B
National Bank grants a 10-year loan to Abbo Company in the amount of P1,500,000 with a
stated interest rate of 6%. Payments are due monthly and are computed to be P16,650.
National Bank incurs P40,000 of direct loan origination cost and P20,000 of indirect loan
origination cost. In addition, National Bank charges Abbo a 4-point nonrefundable loan
origination fee.
The direct origination cost incurred by the bank is a deferred charge to be amortized
over the term of the loan. The indirect origination cost incurred by the bank is an
outright expense. The nonrefundable origination fee charged by the bank against the
borrower is unearned income on the part of the bank and deferred financing charge on
the part of the borrower to be amortized over the term of the loan.
5. Roth Company received from a customer a 1 year, P500,000 note bearing annual interest
of 8%. After holding the note for 6 months, Roth discounted the note at a nearby bank at an
effective interest rate of 10%. What amount of cash did Roth received from the bank?
(a) P540,000 (b) P523,810 (c) P513,000 (d) P495,238 C
6. On June 30, 2003, Ray Company discounted at the bank a customers P60,000, 6-month,
10% note receivable dated April 30, 2003. The bank discounted the note at 12%. Rays
proceeds from this discounted note amounted to:
(a) P56,400 (b) P57,600 (c) P60,480 (d) P61,740 C
8. Assuming all receivables are collected, X Corporations cost of factoring the receivables
would be:
(a) P313,150 (b) P180,000 (c) P433,150 (d) P613,150 A
9. Sigma Company began operations on January 1, 2004. On December 31, 2004, Sigma
provided for uncollectible accounts based on 1% of annual credit sales. On January 1, 2005,
Sigma changed its method of determining its allowance for uncollectible accounts by
applying certain percentages to the accounts receivable aging as follows:
Days past invoice date Percent uncollectible
0 30 1
31 90 5
91 180 20
Over 180 80
In addition, Sigma wrote off all accounts receivables that were over 1 year old. The following
additional information relates to the years ended December 31, 2005 and 2004:
2005 2004
Credit sales P3,000,000 P2,800,000
Collections (including recovery) 2,915,000 2,400,000
Accounts written off 27,000 none
Recovery of accounts previously
written off 7,000 none
Days past invoice date at 12/31:
0 30 300,000 250,000
31 90 80,000 90,000
91 180 60,000 45,000
Over 180 25,000 15,000
What is the provision for uncollectible accounts for the year ended December 31, 2005?
(a) P39,000 (b) P31,000 (c) P38,000 (d) P11,000 B
Allowance 12/31/2004
(2,800,000 x 1%) P28,000
Recovery in 2005 7,000
Uncollectible accounts expense 31,000
Total P66,000
Writeoff in 2005 27,000
Required allowance 12/31/2005 P39,000
10. From inception of operations to December 31, 2003, Murr Corporation provided for
uncollectible accounts receivable under the allowance method, provisions were made
monthly at 2% of credit sales, bad debt written off were charged to the allowance account,
recoveries of bad debts previously written off were credited to the allowance account, and
no year-end adjustments to the allowance account were made. Murrs usual credit terms are
net 30 days.
The balance in the allowance for doubtful accounts was P120,000 at January 1, 2004.
During 2004, credit sales totaled P9,000,000, interim provisions for doubtful accounts were
made at 2% of credit sales, P90,000 of bad debts were written off, and recoveries of
accounts previously written off amounted to P15,000. Murr installed a computer facility in
November 2004 and prepared an aging of accounts receivable for the first time as of
December 31, 2004. A summary of the aging is as follows:
Classification by Balance in Estimated %
month of sale each category uncollectible
November December 2004P2,000,000 2%
July October 600,000 10%
January June 400,000 25%
Prior to 1/1/2004 200,000 75%
P3,200,000
Based on the review of collectibility of the account balances in the prior to 1/1/2004 aging
category, additional receivables totaling P60,000 were written off as of December 31, 2004.
Effective with the year ended December 31, 2004, Murr adopted a new accounting method
for estimating the allowance the allowance for doubtful accounts at the amount indicated by
the year-end aging analysis of accounts receivable.
What is the year-end adjustment to the allowance for doubtful accounts as of December
31, 2004?
(a) P305,000 (b) P180,000 (c) P320,000 (d) P140,000 D
11. When examining the accounts of Brute Company, you ascertain that balances relating to
both receivables and payables are included in a single controlling account called receivables
control that has a debit balance of P4,850,000. An analysis of the make-up of this account
revealed the following:
Debit Credit
Accounts receivable customers P7,800,000
Accounts receivable officers 500,000
Debit balances creditors 300,000
Postdated checks from customers 400,000
Subscriptions receivable 800,000
Accounts payable for merchandise P4,500,000
Credit balances in customers accounts 200,000
Cash received in advance from customers
for goods not yet shipped 100,000
Expected bad debts 150,000
After further analysis of the aged accounts receivable, you determined that the allowance
for doubtful accounts should be P200,000. What is the correct total of current net
receivables?
(a) P8,950,000 (b) P8,800,000 (c) P8,600,000 (d) P8,850,000 B
14. Excel reported P70,000 of inventory on December 31, 2003, based on physical count.
Additional information was given as follows:
a. Included in the physical count were machines billed to a customer, FOB shipping
point, on December 31, 2003. The machines had a cost of P3,000 a had been billed
at P5,000. The shipment is ready for pick-up by the delivery contractor.
b. Goods were in transit from a vendor. The invoice cost was P8,000 and goods were
shipped FOB shipping point on December 31, 2003.
c. Work in process costing P500 was sent to an outside processor for finishing on
December 30, 2003.
d. Goods out on consignment amounted to P4,600 (sales price); shipping costs, P120
(markup is 15% on cost).
The correct amount of inventory on December 31, 2003 is:
(a) P85,620 (b) P85,500 (c) P82,620 (d) P82,500 C
15. The book value of Goods inventory at the end of 2003 is P95,000. Included in the amount
are the following items:
Merchandise in transit, purchased FOB shipping point P6,800
Goods held as consignee 5,000
Goods out on consignment, at cost plus 50% markup
on cot plus P100 delivery charge 6,100
The correct amount of inventory is:
(a) P83,100 (b) P87,900 (c) P86,200 (d) P88,000 D
16. Compute for the cost of inventory lost in fire using the data below:
Inventory, July 1, 2004 P51,600
Purchases, July 1, 2004 to Jan. 19, 2005 368,000
Sales, July 1, 2004 to Jan. 19, 2005 583,000
Purchase returns 11,200
Purchase discounts taken 5,800
Freight in 3,800
Sales returns 8,600
A fire destroyed the entire inventory except for purchases in transit, FOB shipping point, of
P2,000 and goods having a selling price of P4,700 that were salvaged from the fire. The
salvaged goods had an estimated value of P2,900. The average gross profit rate on net
sales is 40%.
(a) P59,760 (b) P56,940 (c) P62,660 (d) P56,860 B
17. The following information pertains to Dely Corporations 2004 cost of goods sold:
Inventory, December 31, 2003 P90,000
2004 purchases 124,000
2004 write-off of obsolete inventory 34,000
Inventory, December 31, 2004 30,000
The inventory written off became obsolete due to an unexpected and unusual technological
advance by a competitor. In its 2004 income statement, what amount should Dely report as
cost of goods sold?
(a) P218,000 (b) P184,000 (c) P150,000 (d) P124,000 C
18. Pine Company prepares monthly income statements. A physical inventory is taken only at
year-end; hence, month-end inventories must be estimated. All sales are made on account.
The rate of markup on cost is 50%. The following information relates to the month of
November:
Accounts receivable, November 1 P102,000
Accounts receivable, November 30 153,000
Collection of accounts receivable during November 255,000
Inventory, November 1 183,600
Purchases of inventory during November 163,200
The estimated cost of the November 30 inventory is:
(a) P122,400 (b) P142,800 (c) P193,800 (d) P224,400 B
19. A store uses the gross profit method to estimate inventory and cost of goods sold for interim
reporting purposes. Past experience indicates that the average gross profit rate is 25% of
sales. The following data relate to the month of October:
Inventory cost, October 1 P255,000
Purchases during the month at cost 683,400
Sales 856,800
Sales returns 30,600
Using the data above, what is the estimated ending inventory at October 31?
(a) P206,550 (b) P214,200 (c) P295,800 (d) P318,750 D
20. The following items were included in Opal Companys inventory account at December 31,
2004:
Merchandise out on consignment, at sales price,
including 40% markup on selling price P28,000
Goods purchased in transit, FOB shipping point 24,000
Goods held on consignment by Opal Company 16,000
Goods out on approval (sales price, P10,000;
cost , P8,000) 10,000
By what amount should the inventory at December 31, 2004 be reduced?
(a) P29,200 (b) P50,000 (c) P54,000 (d) P78,000 A
21. The balance in Reed Companys accounts payable account at December 31, 2000 was
P1,225,000 before the following information was considered:
- Goods shipped FOB destination on December 21, 20009 from a vendor to Reed were lost
in transit. The invoice cost of P45,000 was not recorded by Reed. On December 28,
2000, Reed notified the vendor of the lost shipment.
- Goods were in transit from a vendor to Reed on December 31, 2000. The invoice cost
was P60,000 and the goods were shipped FOB shipping point on December 28, 2000.
Reed received the goods on January 6, 2001.
- Goods shipped to Reed, FOB shipping point on December 20, 2000 from a vendor were
lost in transit. The invoice price was P50,000. On January 5, 2001, Reed filed a P50,000
claim against the common carrier.
- On December 27, 2000, a vendor authorized Reed to return, for full credit, goods shipped
and billed at P35,000 on December 20, 2000. The returned goods were shipped by Reed
on December 27, 2000. A P35,000 credit memo was received and recorded by Reed on
January 6, 2001.
What amount should Reed report as accounts payable in its December 31, 2000 balance
sheet?
(a) P1,300,000 (b) P1,345,000 (c) P1,235,000 (d) P1,250,000 A
25. Art Company has determined its cash flows from 2004 operating activities as P5,350,000.
The cash balance on January 1, 2004 was P6,500,000. During 2004, the company had the
following investing and financing activities. Cash dividends of P3,500,000 were declared and
paid. An additional P1,400,000 of cash dividends were declared but remained unpaid at the
end of the year.
Machinery with a book value of P1,750,000 was sold for that amount. Additional machinery
of P2,600,000 was acquired for cash to replace the one sold.
Note payable of P4,200,000 was taken out of the local bank early in the year. By the end of
the year, P1,500,000 of this amount including interest of P300,000 had been repaid.
Bonds payable with a book value of P2,500,000 was converted into common stock having
par value of P2,000,000.
How much should be reported as net cash used in financing activities in the 2002 cash flow
statement?
(a) P4,700,000 (b) P5,000,000 (c) P1,900,000 (d) P500,000 D
28. The transactions of Art Company for the year 2005 included the following:
Purchase of land for cash (cash was borrowed from bank)3,000,000
Sale of securities for cash 1,000,000
Dividend declared (of which P1,500,000 was paid during
the year) 2,000,000
Issuance of common stock for cash 5,000,000
Payment of bank loan including interest of P200,000 2,200,000
Increase in customers deposits 300,000
The 2005 cash flow statement should report net cash provided by financing activities at:
(a) P4,500,000 (b) P1,500,000 (c) P4,300,000 (d) P4,800,000 A
29. Data below came from the comparative trial balance of Excel Corporation. The books are
kept on the accrual basis. Included in the operating expenses are depreciation of P3,100
and amortization of P1,400.
December
2005 2004
Accounts receivable 220,000 245,000
Interest receivable 800 1,700
Inventories 420,000 405,000
Prepaid insurance 3,800 1,900
Accounts payable 364,000 345,000
Other operating expenses payable 18,000 15,000
Net sales 1,200,000
Interest revenue 6,500
Cost of goods sold 800,000
Insurance expense 48,000
Other operating expenses 95,000
Cash paid for operating expenses during the year is:
(a) P137,400 (b) P87,500 (c) P139,600 (d) P102,500 A
30. Land on January 1, 2003 balance sheet was recorded at P6,000,000. Selected information in
the year 2003 from the statement of cash flows follows:
Net income P20,000,000
Depreciation expense 3,000,000
Loss on sale of land 200,000
Proceeds from sale of land 1,400,000
Investing and financing activities not affecting cash:
Issued preferred stock for land 2,400,000
The value of the land to be disclosed in the balance sheet as of December 31, 2003 is:
(a) P6M (b) P7M (c) P8.4M (d) P6.8M D
31. Dione Company employs several consulting companies. Some of the companies require
payments in advance for performing services while others bill Dione after services are
rendered. Dione also leases office space to several law firms. Some law firms are required
to pay rent in advance for using their offices while others are allowed to their offices before
paying rent. Dione uses the conventional accrual basis of accounting. The amount of cash
paid to consulting companies during 2004 was P6,400,000 and the amount of rent revenue
earned from leasing office space was P7,800,000. Selected information obtained from the
companys comparative balance sheet is shown below:
2004 2003
Prepaid consulting fees 200,000 500,000
Accrued consulting fees 700,000 200,000
Rent receivable 600,000 800,000
Unearned rent revenue 1,000,000 400,000
Under the direct method, the 2004 cash flow statement should report cash received from
leasing office space at:
(a) P8,600,000 (b) P7,800,000 (c) P8,200,000 (d) P7,000,000 A
32. The balance sheet at December 31 of Love Company showed a cash balance of P200,000.
An examination of the books disclosed the following:
a. Cash sales of P15,000 from January 1 to 7, were predated as of December 28 to 31, and
charged to the cash account.
b. Customers checks totaling P5,000 deposited with and returned by the bank, NSF, on
December 27, were not recorded in the books.
c. Checks of P6,500 in payment of liabilities were prepared before December 31, and
recorded in the books, but withheld by the treasurer.
d. Customers postdated checks totaling P4,300 are being held by the cashier as part of
cash. The companys experience shows that postdated checks are eventually realized.
e. The cash account includes P30,000 being reserved for the purchase of a mini-computer
which will be delivered soon.
How much cash balance is to be shown on the December 31 balance sheet?
(a) P152,200 (b) P166,500 (c) P192,200 (d) P200,000 A
33. The balance sheet at December 31,2004 of Lore Company showed a cash balance of
P105,600. An examination of the books disclosed the following:
a. The sales book was left open up to January 5, 2005 and cash sales totaling P15,000 were
considered as sales in December 2004.
b. Checks of P9,300 in payment of liabilities were prepared before December 31, 2004,
recorded in the books, but not mailed or delivered to payees.
c. Customers postdated checks totaling P7,800 deposited with but returned by bank, NSF,
on December 27, 2004. Return was not recorded in the books, P1,500.
d. The cash account includes P40,000 earmarked for the purchase of an office equipment
which will be delivered soon.
How much cash balance is to be shown on the December 31, 2004 balance sheet?
(a) P105,600 (b) P60,500 (c) P58,400 (d) P50,600 D
34. The balance sheet at December 31 of Live Company showed a cash balance of P91,750. An
examination of the books disclosed the following:
a. Cash sales of P12,000 from January 1 to 5, 2005 were predated as of December 28 to 31,
2004 and charged to the cash account.
b. Customers checks totaling P4,500 deposited with and returned by the bank, NSF, on
December 27, 2004 were not recorded in the books.
c. Checks of P5,600 in payment of liabilities were prepared before December 31, 2004 and
recorded in the books, but withheld by the treasurer.
d. Personal checks of officers, P2,700, were redeemed on December 31, 2004, but
returned to cashier on January 2, 2005.
e. The cash account includes P20,000 being reserved for the purchase of an office machine
which will be delivered soon.
How much cash balance is to be shown on the December 31 balance sheet?
(a) P91,750 (b) P69,150 (c) P54,750 (d) P90,350 C
Cash balance, per book P 91,750
Cash sales for January ( 12,000)
NSF checks ( 4,500)
Undelivered check 5,600
Customers postdated checks ( 3,400)
Personal checks of officers ( 2,700)
Cash for purchase of a computer ( 20,000)
Adjusted cash balance P 54,750
Items 30 to 34:
On October 7, 2004, the cash book of Davao Company showed the following entries:
Receipts Checks
September 30 (overdraft) P 0 P5,000
October 1 Tuesday 1,200 1,600
2 Wednesday 3,000 2,400
3 Thursday 800 1,000
4 Friday 6,000 3,400
5 Saturday 4,000 2,500
Cash receipts are deposited at the beginning of every Monday, Wednesday and Friday and in
each case includes the receipts of the preceding two working days. The bank statement at
the close of October 5 showed:
Balance, September 30 overdraft P6,500
Deposits 7,000
Checks (includes all checks issued prior to October 4
and also a check for P300 belonging to Cebu
Co., erroneously charged to Davao account 5,800
A check for P256 issued on October 5 had been canceled
by the company but the bookkeeper has not made
any entry for this.
Additional information: undeposited collections October 31, P10,000; outstanding checks
October 31, P5,644.
39. The adjusted book and bank balances as at October 5, 2004 should be:
(a) P5,644 (b) P644 (c) P1,144 (d) P344 B