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1.

Iloko Company was organized on January 1, 2006 with authorized capital of


50,000 shares of P100 par value common stock. During 2006, iloko had the
following transactions affecting stockholders equity:
January 7-issued 20,000 shares at P120 per share.
December 2-purchased 3,000 shares of treasury stock at P130 per share.
The cost method was used to record the treasury stock transaction. ilokos
net income for P1,500,000. What is the amount of stockholders equity at
December 31, 2006?
a.
b.
c.
d.

3,200,000
3,510,000
3,540,000
3,600,000

2. The following balances are shown in the stockholders equity of kalinga


Compay on December 31, 2005:
Preferred stock, 100,000 shares, P10 par
1,000,000
Common stock, 500,000 shares, P10
5,000,000
Additional paid in capital-PS
50,000
Additional paid in capital-CS
200,000
Retained earnings
100,000
During 2006, the following transactions pertaining to the stockholdersequity
were completed:
Retirement of 5,000 shares of preferred stock at P11 per share.
Purchase of 5,000 shares of treasury stock, common, at P12 pr share.
Stock split, common 2 for 1.
Net income for 2006, P300,000.
The total stockholders equity on December 31, 2006 is
a.
b.
c.
d.

6,251,000
6,350,000
6,551,000
6,556,000

3. The retained earnings account in the general ledger of Esneg Company for
2006 appeared as follows:
Retained earnings
Stock dividend
2,120,000

500,000

Balance, 1/1

Uninsecuredfire loss
760,000

175,000

Net income for 2006

Priors yearsadjustment
250,000

215,000

Premium on capital stock

Appropirated fo bond
150,000
Redemtion
Balance, 12/31

Gain on sales of treasury stock


300,000
2,090,000
3,280,000

3,280,000

The correct unapproprated retained earnings balance at December 31, 2006


should be
a.
b.
c.
d.

1,690,000
2,090,000
2,490,000
2,240,000

4. Fugato Company accomplished a quasi-reorganization effective December


31, 2006. Immediately prior to the quasi-reorganization, the stockholders
equity was as follows:
Common stock, par value of P10 per share;
authorized, issued and outstanding,
400,000 shares
Additional paid in capital
Retained earnings (deficit)

4,000,000
600,000
(900,000)

Under the terms of the quasi-reorganization, the par value of the common
stock was reduced from P10 per share to P 5 per share, and plant asset was
written down by P1, 200,000. Immediately after the quasi-reorganization, the
total stockholders equity should be
a.
b.
c.
d.

2,500,000
2,000,000
1,700,000
1,600,000

5. Pangalatok Companys income statement for the year ended December 31,
2006 shows pretax of P5, 000,000. The following items are treated differently
on the tax return and on the accounting records:
Tax return Accounting records
Rent income
Depreciation

350,000
1,400,000

Premiums on officers life insurance

600,000
1,100,000

none

450,000

The tax rate is 35%.

What is the current portion of the total income tax expense?


a.
b.
c.
d.

1,907,500
1,750,000
1,715,000
1,557,500

6. On December 31, 2006, Ivan tan Company signed an operating lease for a
warehouse with Outwater Company for 10 years at P1,200,000 per year.
Upon execution of the lease, Outwater paid Ivan Tan P2,400,000, covering
rent for the first 2 years. Ivan Tan closed its book on December 31, and
correctly reported P2, 400,000 as a gross rental income on its 2006 income
tax return. How much should be shown in Ivan Tans 2006 income statement
as gross rental income?
a. 2,400,000
b. 1,000,000
c. 1,200,000
d.
0
7. On March 1, 2006, Pampanga Company lease its equipment to Nova
Company for P1,200,000 a year for a four year period ending February 28,
2010. The equipment was purchased by Pampanga on January 1, 2006 for
3,000,000 and was actually intended for leasing. The equipment has a fiveyear life with no residual value. Depreciation is computed on a straight line
basis. As provided in the lease contract, Pampanga incurred total
maintenance and similar cost of P50,000 relating to the year ended
December 31, 2006. Nova paid P1,200,000 to Pampanga on March 1, 2006.
Under the operating as income before income tax derived from the lease for
the year ended December31, 2006?
a. 450,000

b. 400,000
c. 550,000
d. 350,000
8. The following information relates to the 2006 activity of the defined benefit
plan of Ilocano Company, a company whose stock is publicly traded:
Service cost
Expected return on plan asset
Interest cost on pension benefit obligation
Amortization of actuarial loss
Amortization of unrecognized past service cost

1,500,000
400,000
820,000
150,000
350,000

Ilocanos 2006 pension cost is


a.
b.
c.
d.

3,220,000
2,870,000
2,420,000
1,580,000

9. Zambal Company is a calendar-year corporation whose financial statements


for 2004 and 2005 included errors as follows:
Year

Ending inventory

2004
2005

150,000 overstated
50,000 understated

Depreciation expense
125,000 overstated
40,000 understated

Assume that purchases were recorded correctly and that no correcting entries
were made at December 31, 2005.ignoring income tax, by how much should
retained earnings be retroactively adjusted at January 1, 2006?
a.
b.
c.
d.

135,000 increase
35,000 decrease
15,000 decrease
10,000 increase

10.On December 31, 2006, the following accounts appear in the trial balance of
Chavacano Company:
Inventories on January 1:
Raw materials
Goods in process
Finished goods
Purchases of raw materials
Purchase returns and allowances
Freight in
Direct labor
Indirect labor

350,000
400,000
319,000
4,200,000
120,000
80,000
1,420,000
900,000

Realty tax-factory building


Realty tax-salesroom and office
Depreciation-factory building
Depreciation salesroom and office
Light and power

150,000
120,000
90,000
50,000
1,000,000

Of the light and power, 60% was consumed in the factory, 25% in the
office and 15% in the salesroom.
Inventories on December 31:
Raw materials
380,000
Goods in process
500,000
Finished goods
250,000

The cost of materials used is

a.
b.
c.
d.

4,050,000
4,130,000
4,170,000
4,250,000

11.Cebuana Companys revenue for the year ended December 31, 2006 was as
follows:
Consolidated revenue per income statement
Intersegment sales
Intersegment transfers

12,000,000
1,800,000
600,000

Cebuano has a reportable segment if that segment revenue is at least


a.
b.
c.
d.

1,440,000
1,200,000
240,000
60,000

12. bagawak company reports operating profit as to the industry segments in its
supplementary financial information annually. The following is available for 2006:
Segment A
Segment B
Segment C

Sales
750,000
500,000
250,000

Traceable
450,000
225,000
125,000

Additional expenses are no included above are as follows:


Indirect operating expense
240,000
General corporate Expenses
180,000

Interest expense

96,000

Bagawak allocate common cost based on the ratio of segments sales to total sales.
What should be the operating profit for segment B for 2006?
a.
b.
c.
d.

103,000
135,000
163,000
195,000

13. Certain information relative to the operations of Cuyonin Company follows:


Accounts receivable, January 1
Accounts receivable collected
Cash sales
Inventory, January 1
Inventory, Dec. 31
Purchases
Gross profit on sales

800,000
2,600,000
500,000
1,200,000
1,100,000
2,000,000
900,000

What is the accounts receivable balance at Dec. 31?


a.
b.
c.
d.

1,700,000
1,200,000
1,300,000
700,000

14. the December 31, 2006 balances of selected accounts of Bicolano Company and
pertinent information are shown below:
Inventory, January 1
Purchases
Purchase return and allowances
Sales return and allowances
Inventory at December 31
Gross profit rate on net sales
Gross
a.
b.
c.
d.

sales for 2006 amounted to


7,750,000
8,500,000
7,000,000
9,125,000

15. The following information is available from the records of Hiligaynon Company
for the current year.
Beginning inventory
Freight in
Purchase return
Ending inventory

Selling expenses
Sales discount
The cost of goods sold is six times the selling expenses.
What is the amount of purchases?
a.
b.
c.
d.
16.

6,500,000
6,700,000
8,000,000
8,200,000
Under the accrual basis, rental income of Hamtikan Company for the current
year is P600,000. Additional information regarding rental income is:
Unearned rental income, January 1

50,000

Unearned rental income, December 31

75,000

Accrued rental income, January 1

30,000

Accrued rental income, December 31

40,000

How much cash was received from rental in the current year?
a.
b.
c.
d.
17.

Boholano Company uses the balance sheet approach in estimating


uncollectible accounts expense. The company prepares an adjusting entry to
recognize this expense at the end of each month. During the month of July,
the company wrote off a P100,000 receivable and made no recoveries of
previous writeoffs. Following the adjusting entry for July, the credit balance in
the allowance for doubtful accounts was P250,000 larger than it was on July
1. What amount of uncollectible account expense was recorded for July?
a.
b.
c.
d.

18.

585,000
615,000
625,000
655,000

250,000
100,000
150,000
350,000

Tausug Companys working capital was P5,000,000 at January 1, 2006. The


following additional information pertains to Tausug for 2006:
Working Capital provided by operations
850,000
Capital Expenditures

1,500,000

Short-term borrowings
Long-term borrowings

500,000
1,000,000

Payments on short-term borrowings

250,000

Payments on long-term borrowings

300,000

Proceeds from issuance of common stock

700,000

Dividends paid on common stock

400,000

How much was the working capital at December 31, 2006?


a.
b.
c.
d.
19.

5,350,000
5,600,000
5,750,000
6,000,000

Maranao Company was organized on January 1, 2003. After 3 years of


profitable operations, the equity section of Maranaos balance sheet on
January 1, 2006 was follows:
Contributed Capital:
Common stock, P50 par, 500,000 shares
authorized, 200,000 shares issued and
outstanding

10,000,000

Additional paid capital


5,000,000
Retained earnings

6,000,000

On January 15, 2006, Maranao Company reacquired 20,000 shares of


common stock at P100 per share. The treasury stock is recorded at cost. On
February 1, the company issued a 20% stock dividend. The market value of
the common is P100 on this date. On July 1, the company declared a P20
cash dividend per share payable on August 1. On December 31, all treasury
stock was sold at P120 per share and the company reported net income of
P5,000,000 for the year ended December 31, 2006. What should be the
balance of retained earnings on December 31, 2006?
a. 4,880,000
b. 3,080,000

c. 5,600,000
d. 5,280,000
20.

Waray Company leases a warehouse to Vander Company. Waray Company


granted Vamder Company, as inducement to enter into a lease with Waray,
nine months of free rent, under a 5-year operating lease. The lease provides
for a monthly rental of P389,000 to begin April 1, 2006 and is effective on July
1, 2005. The income statement of Waray Company for the year ended June
30, 2006 shall report a rent income at
a.
b.
c.
d.

3,501,000
1,167,000
3,967,800
991,950

Answer Key:
1. B
2. C
3. A
4. A
5. C
6. D
7. D
8. C
9. A
10.B
11.A
12.D
13.D
14.B
15.D
16.B
17.D
18.A
19.A
20.C

21.
22.
23.
24.
25.

26.
27.

ANSWERS IN PRACTICAL ACCOUNTING 1

1. A.
28.
29.
30.
31.
32.
33.
2. C.
34.
35.
36.
37.
38.
39.
3. A.

Bal. Per Bank


Erroneous Bank Credit
Deposit in transit
Outstanding check
Adjusted bal. Per bank

Allowance for doubtful accounts


24,000
Doubtful account expense(SQUEZZE)
172,000
Total
196,000
Write off
(96,000)
Allowance
100,000

40.
41.
42.
43.
44.
4. B.
45.
46.
47.
48.
49.
50.
51.
52.
5. B.

Noninterest bearing note


Building
Accumulated depreciation
Gan on sale

53.
54.
55.

Accounts payable
Estimated expenses
current liabilities

56.
57.
58.

3,735,000
21,000)
103,000
( 302,000)
3,515,000
(

4,000,000
(3,800,000)
1,600,000
1,800,000

Cash( including sinking fund 500,000


With trustee)
2,000,000
Notes receivable
1,000,000
Accounts receivable
800,000
Equity in assignee
500,000
Current assets
5,000,000

420,000
240,000
660,000

6. B
59.
60.
61.
62.
63.

Cash
Accounts receivable
Merchandise inventory
Accounts payable
Gross profit

620,000
(240,000)
80,000
(50,000)
2,150,000

64.
65.
66.
7. B

Expenses
Cash balance

1,070,000
1,490,000

67.
68.
69.
70.
71.
8. B
72.
73.
74.
75.
76.
77.

Purchases
Gross rate
Shortage in inventory
78.
79.
80.
81.
82.

83.
9. D
84.
85.
86.
87.
88.
89.
90.
91.
92.
93.
94.
95.
96.
97.
98.

interest income on government


depreciation claimed on tax
warranty expense

700,000
1,300,000
600,000
562,000

400,000
x 30%
120,000

Raw materials beg.


900,000
Factory supplies
(4,000,0000)
Goods in process
250,000
Finished goods
50,000
Cost of the raw materials
800,000

Cost
Revaluation surplus
Divide by
Multiply by

1,000,000
100,000
900,000
4
225,000
2
450,000

10.
A
99.
100.
101.
book.
102.
103.

The cash established should be capitalized in browns

104.
105.
106.
107.
108.
109.
11.

Replacement of the old shingle roof


with a fireproof
Major improvements to the
electrical wiring
Capitalized in 2006

750,000
350,000
1,100,000

110.
111.
112.
113.
114.

Cash
Accounts receivable
Merchandise inventory
Accounts payable
Gross profit

620,000
(240,000)
80,000
(50,000)
2,150,000

115.
116.
117.
12.
D
118.
119.
120.
121.
122.
123.
124.
125.
126.
127.
13.
B
128.
129.
130.
131.
132.
133.
134.
14.
A
135.
136.
137.
138.
139.
140.
141.
142.
15.
D

Expenses
Cash balance

1,070,000
1,490,000

Cost

1,000,000
Revaluation surplus
Divide by
Multiply by

100,000
900,000
4
225,000
2
450,000

2,400,000
2,000,000
400,000

Research and development


Materials consumed
Compensation paid

365,000
110,000
200,000
675,000

143.
144.
145.
146.
147.
148.

Trade A/P
Accrued taxes payable
Customer deposit
Bank overdraft
Accrued electric
149.

1,200,000
125,000
100,000
55,000
60,000
1,540,000

150.
16.
C
Sales on Credit
2,400,000
151.
Cost
2,000,000
152.
Gain
400,000
153.
17.
A.
research and development cost
365,000
154.
Materials and supplies consumed
110,000
155.
Compensation paid
200,000
156.
Total expense
675,000
157.
158.
18. A.
159.
SHE Dec 31,2006
3,700,000
160.
Write down
(1,200,000)
161.
Total stockholders equity
2,500,000
162.
163.
164.
165.
166.
19.A
167.
Sales
300,000
168.
Total
cost
360,000
169.
170.
20.C
issuance
500,000
171.
Preferred stock
600,000
172.
Payment in full
2,210,420
173.
174.
175.
176.
21. B.
177.
Authorized share capital
5,000,000
178.
Issuance
2,400,000

179.
180.
181.
182.
183.
184.

192.
193.
194.

Net income
APIC
Total stockholders equity

22. C
185.
Preferred share
186.
Common stock
187.
Reissuance TS
188.
Net income
189.
Stock split
190.
Retained earnings
191.
Total stockholders equity
6,551,000

1,500,000
500,000
3,500,000

945,000
5,060,000
16,000
300,000
130,000
100,000

23.A
195.
Beg.balance
2,090,000
196.
Premium
( 250,000)
197.
Gain on TS
(150,000)
198.
Unappropriated retained earnings1,690,000

199.
200.
201.
202.
203.

24. A.
204.
SHE Dec 31,2006
3,700,000
205.
Write down
(1,200,000)
206.
Total stockholders equity
2,500,000

207.
208.
209.

25. C.
210.
Pretax income
5,000,000
211.
Tax rate
35%
212.
Total
213.
Rent income
(35,000)
214.
Total income tax expense

215.

x
1,750,000
1,715,000

216.
217.

26. D
218.

219.
220.
221.

No rental income should be recorded in 2006

27. D
222.
Equipment
1,200,000/4yrs =
300,000+50,000 =350,000

223.
224.
225.

28.C
226.
227.
228.
229.
230.
231.

232.
233.
234.

29. A.
235.
236.
237.
238.
239.

240.
241.
242.
243.
244.
245.
246.
247.
248.

255.
256.
257.
258.
259.
260.

Service cost
1,500,000
Expected return
400,000
Interest cost
820,000
Actuarial loss
150,000
Amortization
(350,000)
2006 pension cost 2,520,000

30. B
249.
250.
251.
252.
253.
254.

Inventory end
Inventory
Depreciation
Depreciation
Increase

150,000
50,000

Authorized share capital


Issuance
Net income
APIC
Total stockholders equity

(125,00)
(40,000
35,000

5,000,000
2,400,000
1,500,000
500,000
3,500,000

261.

31. A.
262.
Conso Revenue.
12,000,000
263.
Intersegment sales
1,800,000
264.
Intersegment transfers
600,000
265.
1,440,000

266.
267.
268.
270.
271.
272.

32. D.
269. Noninterest bearing note
Building
Accumulated depreciation
1,600,000
Gain on sale
1,800,000

273.
274.
275.
276.

4,000,000
(3,800,000)

33. D
Research and development
277. Materials consumed
278. Compensation paid

365,000
110,000
200,000

279.
675,000
280.
281.

282.

283.

34. B

284.
285.
(240,000)
286.
287.
288.

Cash
Accounts receivable
Merchandise inventory
Accounts payable
Gross profit

80,000
(50,000)
2,150,000

289.
290.

Expenses
Cash balance

1,070,000

1,490,000
291.

292.
293.

294.

35. D

620,000

295.
296.
297.
298.
299.
300.
301.
302.
303.
304.
305.
306.
307.
308.
309.
310.
311.
312.
313.
314.
315.
316.
317.
318.
319.
320.
321.

322.
323.
324.

a.

325.
326.
327.
328.

SALES
EXPENSES:
TRACEABLE
ALLOCATES COST

500,000
225,000
80,000

305,000
195,000

36. D
ACCOUNTS RECIEVABLE
COLLECTION
CASH

800,000
(600,000)
500,000
700,000

PURCHASES
RETAINED EARNINGS
GROSS PROFIT
Gross sales

7,500,000
(500,000)
1,500,000
8,500,000

37. B

38. A
39. A
Common stock, P50 par, 500,000 shares
authorized, 200,000 shares issued and
outstanding
Additional paid capital
Retained earnings

40. C monthly rental

Accounts receivable
Merchandise inventory
Accounts payable

10,000,000
5,000,000
6,000,000
4,880,000
P389,000

3,967,800

(240,000)
80,000
(50,000)

41.C computational error of


P150,000
error resulted
P400,000
350,000 debit

329.
330.
331.
42. A Adjustment to retained earnings for the overstatement of 2006
net income 70,000
332. Cash dividend declared and paid in 2006
1,450,000
333. Net 9income
260,000
334.
1,440,000
335.

336.
337.
338.
339.

43.D
340.
341.

342.
343.
344.
345.
346.

348.
349.

Selling Expenses 10% of sales


Additional paid capital
Retained earnings

1,000,000
6,125,000
7,125,000

44.D

347. Accounts payable


Estimated expenses
current liabilities

1,000,000
80,000
1,080,000

350.
351.
352.
353.
354.
355.
356.
357.
358.
359.

45.C

360. Cost
361.
362.
363.
364.
365.
366.
367.
368.
369.
370.

375.
376.
377.
378.
379.
380.

382.

3,900,000
Revaluation surplus

100,000
4,000,000

46.C

371. Raw materials beg.


900,000
372. Goods in process
250,000
373. Finished goods
50,000
374. Cost of the raw materials
1,O00,000

47.A

381. Noninterest bearing note


Building

6,000,000
(3,400,000)

383.
384.
385.

Accumulated depreciation
Gan on sale

(2,660,000)
594,000

386.
387.
388.
389.
390.
391.
392.
393.

394.

48.B

Pretax income

5,000,000
395.
Tax rate
35%
396.
Total
397.
Rent income
(35,000)
398.
Total income tax expense

x
1,750,000
1,715,000

399.
400.

401.
402.
403.

49.B

404.
609,000

Cash
Accounts receivable
Gross profit

620,000
(240,000)
2,150,000

Expenses
Cash balance

1,070,000

405.
406.
407.
408.
409.
410.
411.
412.
413.
414.
415.

50.B
2,200 dozens class A @ 360
3,000 dozens class B @ 360
Total inventory value

792,000
1,080,000
1,872,000