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In an audit of Selena Company on December 31, 2017, the following

information is gathered:
Balance per book 6,700,000
Customer’s check 200,000
Depositor’s note charged to account 650,000
Customer’s note collected by bank 120,000
Outstanding checks
Checkbook printing charge 2,000
Certified checks included in the outstanding checks 100,000
Deposit in transit 1,200,000
Interest earned on deposits net of 20% final tax 32,000

The adjusted cash in bank of Selena Company on December 31, 2017 is

a. 6,050,000 b. 6,700,000 c. 6,000,000 d. 5,300,000

• Ans. C

Balance per book 6,700,000

Customer’s NSF check ( 200,000)
Depositor’s note charged to account ( 650,000)
Customer’s note collected by bank 120,000
Checkbook printing charge ( 2,000)
Interest earned on deposits 32,000
Balance per books 6,000,000
On December 31, 2009, the balance of accounts receivable of Jalena Company was
P6,000,000 and the January 1, 2009 balance of allowance for doubtful accounts
was P800,000. The following data were gathered:

Credit Sales Write offs Recoveries

2006 9,000,000 400,000 30,000
2007 13,000,000 600,000 70,000
2008 15,000,000 700,000 120,000
2009 20,000,000 650,000 150,000

Doubtful accounts are provided for a percentage of credit sales. The accountant
calculates the percentage annually by using the experience of the three years prior
to the current year. How much should be reported as allowance for doubtful
accounts on December 31, 2009?

a. 1,100,000 b. 800,000 c. 1,300,000 d. 1,250,000

Ans. A
Total writeoff (400 + 600 + 700) 1,700,000
Less: Total recovery (30 + 70 + 120) 220,000
Net writeoff 1,480,000
Divided by total credit sales 37,000,000
Doubtful accounts expense rate

Beg. ADA 800,000

Writeoff ( 650,000)
Recovery 150,000
DAE (20M x 4%) 800,000
ADA, end 1,100,000
Esplanade Company sells a variety of merchandise to its customers. On December
31, 2009, the balance of Esplanade’s ending inventory account was P3,000,000,
and the allowance for inventory writedown account before any adjustment was
P150,000. Relevant information about the proper valuation of inventories and
the breakdown of inventory cost and market data at December 31, 2009, are as
Cost Replacement Sales NRV Normal
Cost Price Profit
Bags 800,000 900,000 1,200,000 550,000 250,000
Shoes 1,200,000 1,200,000 1,300,000 1,100,000 150,000
Clothing 700,000 1,000,000 1,250,000 950,000 300,000
Lingerie 500,000 600,000 1,000,000 350,000 300,000

How much loss on inventory write-down is included in 2009 cost of sales?

a. 50,000 b. 200,000 c. 400,000 d. 250,000
Lower of cost or NRV on item by item basis (550 + 1M + 700 +
350) 2,600,000
Less: Total cost 3,000,000
Required allowance for inventory writedown 400,000
Less: Beginning allowance 150,000
Loss on writedown 250,000
On January 1, 2009, Katherine Company purchased 20% of the outstanding
ordinary share capital of David Company for P4,000,000, of which
P1,000,000 was paid in cash and P3,000,000 payable with 12% annual
interest on December 31, 2010. Katherine also paid P500,000 to a
business broker who helped find a suitable business and negotiated to

At the time of the acquisition, the fair value of David’s identifiable assets and
liabilities were equal to their carrying value except for an office building
which has a fair value in excess of book value of P2,000,000 and an
estimated life of 4 years. David’s shareholder’s equity on January 1, 2009
was P13,000,000.

During 2009, David reported net income of P6,000,000 and paid dividends of
P4,000,000. What amount should Katherine Company report as
investment in associate on December 31, 2009?

a. 4,300,000 b. 4,800,000 c. 4,900,000 d. 4,500,000

Cost 4,500,000
Share in net income (6M x 20%) 1,200,000
Dividends ( 800,000)
Amortization ( 100,000)
Carrying amount 12/31/09 4,800,000
During 2009, Judith Company Corporation constructed a new
hydro electric power plant at a cost of P25,000,000. The
expenditures for this facility, which was finished late in
2009, were incurred evenly during the year. The entity had
the following loans among Judith’s liabilities outstanding on
December 31, 2009:
12% note to finance construction of the hydro-electric power
plant, dated January 1, 2009, P10,000,000 that was unpaid as of
December 31, 2009. Investments were made on the excess
borrowings from this loan and income of P50,000 was realized
from deposits and other investments during 2009.
8%, 20-year bonds payable issued at face value on January 1, 2001,
15%, 5-year mortgage note payable, dated March 1, 2006,
What is the amount of interest that was capitalized as cost of
new building?
a. 2,560,000 b. 1,385,000
c. 1,200,000 d. 2,325,000
Average expenditures (25M / 2)
Interest on BP (8% x 40M)
Interest on MP (15% x 10M)
Divide by the total Principal (40M + 10M) 50M
Capitalization rate
Specific borrowings (10M x 12%) – 50,000
General borrowings
Total borrowing cost eligible for capitalization
On January 1, 2017, Amanda Company received from a
customer an 8-month, 6,000,000 note bearing an
annual interest rate of 10%. The principal and the
interest are payable on September 1, 2017. To obtain
cash quickly, Amanda discounted the note with East-
West Bank on March 1, 2017. The bank charged a
discount rate of 12%. What is the loss on note
receivable discounting to be recognized by Amanda?
a. 100,000 b. 400,000
c. 384,000 d. 84,000
Ans. D
Maturity value (6M x 10% x 8/12)
Less: Discount (6.4M x 12% x 6/12)
Less: Principal and interest
receivable (6M x 10% x 2/12) 6,100,000
Loss on discounting
( 84,000)
Marla Company acquired new equipment on account on March 1, 2017with a 5%
discount if paid with in 15 days. The following information is available:
List price 3,500,000
Trade discount 20%
Removal of old equipment 100,000
Cost of installation 50,000
Cost of redecoration of office in connection with the purchase 250,000
Insurance taken during delivery 20,000
Repairs incurred while in transit 10,000
Transportation costs 30,000

If the invoice was paid on March 31, 2017, what should be the cost of equipment?
a. 2,760,000 b. 3,425,000 c. 2,900,000 d. 3,010,000
Purchase price net of discount (2,800 -140)
Direct cost (50 + 20 + 30) 100,000
Total cost 2,760,000
Dominika Company purchased another entity for P8,000,000 cash. The
acquiree had total liabilities of P1,500,000. Dominika Company’s
assessment of the fair value of the assets it obtained when it
purchased the other entity is as follows:
Cash 500,000
Accounts receivable – net 1,000,000
Inventory 800,000
Property, plant and equipment – net 3,000,000
In-process research and development 2,000,000
Assembled workforce 1,200,000

What is the goodwill arising from the acquisition?

a. 2,200,000 b. 3,000,000 c. 1,000,000 d. 700,000
Ans. A
Acquisition cost 8,000,000
Less: FV on net assets acquired
(7.3M-1.5M) 5,800,000
Goodwill 2,200,000
In January 2017, Farley Corp. acquired 20% of the outstanding
common stock of Davis Co. for P800,000. This investment gave
Farley the ability to exercise significant influence over Davis.
The book value of the acquired shares was P600,000. The excess of
cost over book value was attributed to an identifiable intangible
asset which was undervalued on Davis’ balance sheet and which
had a remaining useful life of ten years.
For the year ended December 31, 2017, Davis reported net income
of P180,000 and paid cash dividends of P40,000 on its common
What is the proper carrying value of Farley’s investment in Davis at
December 31, 2017?

(a) P772,000 (b) P780,000 (c) P800,000 (d) P 808,000

Original investment 800,000
Add: Share in net income
(180,000 x20%) 36,000
Less: Amortization
(200,000 / 10) 20,000 16,000
Total 816,000
Less: Dividends (40,000 x 20%) 8,000
Carrying value of Farley’s investment 808,000
Abe Company, lessor, leases its equipment under an operating lease.
The lease term is 5 years and the lease payments are made in
advance on January 1 of each year as shown in the following
January 1, 2005 1,000,000
January 1, 2006 1,000,000
January 1, 2007 1,400,000
January 1, 2008 1,700,000
January 1, 2009 1,900,000
On December 31, 2006, Abe Company should recognize rent
receivable at:
P1,400,000 (b) P800,000 (c) P400,000 (d) P 0
Average rent (7M/ 5) P1,400,000
Rent income for 2005 and 2006
(1.4M x 2) P2,800,000
Rent received for 2005
and 2006 (1M + 1M) 2,000,000
Rent receivable – 12/31/2006 P4,800,000
If a petty cash fund is established in the amount of
P250, and contains P150 in cash and P95 in
receipts for disbursements when it is replenished,
the journal entry to record replenishment should
include credit (s) to the following account (s):
(a) petty cash, P75
(b) petty cash, P100
(c) cash, P95; cash short and over, P5
(d) cash, P100
Expenses (100 – 5) P95
Cash short and over (100 – 95) 5
Cash (250 – 150) P100
• The following information is available from Bulacan Crispy Company's accounting
records for the current year:
Purchases 4,700,000
Purchase discounts 150,000
Beginning inventory 1,450,000
Ending inventory 1,650,000
Freight out 400,000
The company gives out sales discounts to long term customers. Sales discounts
granted for the year amounted to 250,000. Sales returns increased this year to 2%
of sales or 300,000 in value.
The Company’s cost of goods sold for the current year is

a. 4,050,000
b. 4,100,000
c. 4,350,000
d. 3,800,000
. Mabilis Corp. provided the following information on December 31,2012:
Capital Stock 5,000,000
Premium on Capital Stock 3,600,000
Cumulative translation adjustment (equity reduction) 2,000,000
Cumulative unrealized gain on available for sale securities 600,000
Treasury shares, at cost 700,000
Retained earnings (post closing or ending) 1,500,000
How much is the contributed capital that should be reported on the
financial statement as of December 31, 2012?

a. 9,200,000
b. 9,300,000
c. 7,300,000
d. 8,600,000
Malupeet Corporation factored 8M of its Accounts Receivable to
Madugas Corporation. Madugas accepted and took over the
receivables subject to recourse for non-payment. It is estimated
that the fair value of the recourse obligation is 240,000.
Other information include:
Factoring fee 2%
Holdback Value 4%
Calculate the loss of Mabait in this factoring transaction:

a. 560,000
b. 720,000
c. 480,000
d. 880,000
Plaridel Publishing Company had the following trial balances at
December 31,2011:
Cash in Citi 3,500,000
Cash on hand 250,000
Treasury Bills 500,000
Special Time Deposits 500,000
Cash in bank includes P500,000 of compensating balance against
short-term borrowing arrangement which is not legally restricted as
to withdrawal by the company. Also, the special deposits account
pertains to cash legally restricted for machinery upgrades that is
expected to be disbursed in 2012.
In the current assets section of Company's December 31, 2011 balance
sheet, the total cash and cash equivalents should be

a. 3,750,000
b. 3,250,000
c. 4,750,000
d. 4,250,000
Ans. D
• Solution
Cash in Citi 3,500,000
Cash on hand 250,000
Treasury bills 500,000
Total cash and cash equivalents 4,250,000
***A compensating balance is the bank's minimum balance requirement
must be maintained in the company's bank account for servicing a
checking or demand deposit account or in connection with a borrowing
arrangement with the bank. It should be part of cash if not legally
restricted. Otherwise, it should be treated as other current
or non-current asset depending on the loan or bank services it is
related. There was no mention of any contrary statement for the
Treasury bills so it should be assumed as maturing within 90 days.
The amortization of bond premium on long-
term debt should be presented in a statement
of cash flows (using indirect approach for
operating activities) as a(n)

a. Addition to net income.

b. Deduction from net income.
c. Investing activity.
d. Financing activity.
• If bonds are sold at a discount or premium, the interest
expense for the period will differ from the change in
cash resulting from payment of interest expense. When
the premium is amortized, the interest expense
included in income determination is not as large as the
interest paid or becoming payable in the period.
Because the cash outflow is larger than the deduction
in arriving at net income, a deduction from net income
is necessary to determine cash provided by operating
activities (when using the indirect approach of
presenting cash flows from operating activities).
The following information is available from Sand Corp.’s accounting
records for the year ended December 31, 2009:
Cash received from customers ............... P870,000
Rent received ......................................... 10,000
Cash paid to suppliers and employees .. 510,000
Taxes paid ............................................. 110,000
Cash dividends paid .............................. 30,000
Net cash flow provided by operations for 2008 was

a. P260,000
b. P250,000
c. P230,000
d. P220,000
• Solution: Cash received from customers ...............
Rent received ......................................... 10,000
Cash paid to suppliers and employees .. (510,000)
Taxes paid ............................................. (110,000)

***The answer is 260,000. Dividend payment is

not included because it is a SHE item and
therefore included under financing activities.
Excel reported P70,000 of inventory on December 31, 2009, based on
physical count. Additional information was given as follows:
Included in the physical count were small equipments billed to a
customer, FOB shipping point, on December 31, 2009. The small
equipments had a cost of P3,000 had been billed at P5,000. The
shipment is ready for pick-up by the delivery contractor.
Goods were in transit from a vendor. The invoice cost was P8,000 and
goods were shipped FOB shipping point on December 31, 2009.
Work in process costing P500 was sent to an outside processor for
finishing on December 30, 2009.
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, 2009 is:
(a) P85,620 (b) P85,500 (c) P82,620 (d) P82,500
Inventory per count, Jan. 1, 2009 P70,000
Goods in transit, shipped
FOB shipping point 8,000
Work in process job out for finishing 500
Goods out on consignment
[(4,600/ 1.15) + 120] 4,120
Inventory as adjusted, Dec. 31 2009 P82,620
Following data reselected information on Marbel Company for the year 2017:
Cash balance, January 1 130,000
Accounts receivable, January 1 190,000
Collections from customers 2,100,000
Stockholders’ equity, January 1 380,000
Total assets, January 1 750,000
Total assets, December 31 880,000
Cash balances, December 31 160,000
Accounts receivable, December 31 360,000
Total liabilities, December 31 390,000
The net income of Marbel for 2017 is:

(a) P490,000 (b) P150,000 (c) P110,000 (d) P70,000


Total assets – December 31 880,000

Total liabilities – December 31 390,000
Stockholders’ equity – December 31 490,000
Stockholders’ equity – January 1 380,000

Net income 110,000

Since there are no dividends declared and issuance of capital stock

during the year, the net increase in stockholders’ equity is already
the net income for the year.