CHAPTER 1 Caselette - Accounting Cycle

CHAPTER 1 - Accounting Process &
Working Paper Preparation

Exercises: Indicate your answer by encircling the letter that contains your choice in each
of the following questions.
1. One is using periodic inventory system. For the year, its total purchases amounted to
P2!,!!!. Its unsold merchandise at the end of the year has a cost of P,!!! which is
"!# of its beginning inventory. One$s cost of sale is
a. P 2!,!!! b. P 21,2! c. P 2%&,!!! d. P 2%",'!
2. (wo$s purchase per purchase invoice is P1!,!!!. (he purchase discount is 2)1!, n)*!.
Freight is P!!, FO+ shipping point collect. (he net purchase amounts under net
method is
a. P P1%',!!! b. P 1%',!! c. P 1%",!! d. P 1!,!!
*. ,sing the information in Item 2, the amount paid by the buyer is
a. P P1%',!!! b. P 1%',!! c. P 1%",!! d. P 1!,!!
%. (he purchase invoice shows the amount of P2!,!!!, 2)1!, 1)2!, n)*!- FO+ destination
collect, P2!!. If the account is paid 1 days after the invoice date, the net payment
should be
a. P 2%,!!! b. P 2%',!! c. P 2%',*!! d. P 2%%,"!!
. ,sing the information in Item %, the net purchase is
a. P 2%,!!! b. P 2%',!! c. P 2%',*!! d. P 2%%,"!!
.. (hree purchased merchandise for P,!!! and paid P2!! for freight, FO+ destination
collect. (he merchandise was sold at 12!# of cost. (he gross profit is
a. P 1,!!! b. P 1,!%! c. P .,!!! d. P .,2%!
'. (he total purchase is P1,1'., net of 2# cash discount. ,nsold portion of purchase is
P1'.. (he sale is at mar/0up of 1!#. (he gross profit is
a. P 11'..! b. P "".2% c. P 11.2 d. P 1!!.!!
". (he term of a P*!!,!!! purchase is 2)2!, n).!, FO+ shipping point prepaid, P*!!. If
the account is paid on the 2
th
day from the invoice date, the total payment would be
a. P 2&%,!!! b. P 2&&,'!! c. P 2&%,*!! d. P *!!,*!!
&. Four paid freight for P2!! on its purchase on account from Five, FO+ shipping point. (he
1ournal entry in both boo/s of Four and Five would be
+oo/s of Four +oo/s of Five
a. Freight0out 2!! Freight0in 2!!
2ash 2!! 3ccounts payable 2!!
b. Freight0in 2!! 4o entry
3ccounts receivable 2!!
c. Freight0in 2!! 4o entry
2ash 2!!
d. Freight0in 2!! Freight0out 2!!
2ash 2!! 3ccounts receivable 2!!
1

1!. 5i6 sold merchandise at list price of P2!,!!!- 1!- - n)*!. Part of the sale amounting
to P1!,!!! was returned due to defect. (he amount to be collected by 5i6 is
a. P 2!,2!! b. P 2!*,'! c. P 2!%,!!! d. P 1&,2!!
11. 3mar 2ompany received P&.,!!! on 3pril 1, 2!!2 for one year$s rent in advance and
recorded the transaction with a credit to a nominal account. (he 7ecember *1, 2!!2
ad1usting entry is
a. 7ebit rent revenue and credit unearned rent revenue, P2%,!!!.
b. 7ebit rent revenue and credit unearned rent revenue, P'2,!!!.
c. 7ebit unearned rent revenue and credit rent revenue, P2%,!!!.
d. 7ebit unearned rent revenue and credit rent revenue, P'2,!!!.
12. 3ndoy 2ompany paid P'2,!!! on 8une 1, 2!!2 for a two0year insurance policy and
recorded the entire amount as insurance e6pense. (he 7ecember *1, 2!!2 ad1usting
entry is
a. 7ebit insurance e6pense and credit prepaid insurance, P21,!!!.
b. 7ebit insurance e6pense and credit prepaid insurance, P1,!!!.
c. 7ebit prepaid insurance and credit insurance e6pense, P21,!!!.
d. 7ebit prepaid insurance and credit insurance e6pense, P1,!!!.
1*. 3ntipuesto 2ompany purchase equipment on 4ovember 1, 2!!2 and gave a 120month,
&# note with a face value of P%"!,!!!. (he 7ecember *1, 2!!2 ad1usting entry is
a. 7ebit interest e6pense and credit interest payable, P',2!!.
b. 7ebit interest e6pense and credit interest payable, P1!,"!!.
c. 7ebit interest e6pense and credit cash, P',2!!.
d. 7ebit interest e6pense and credit interest payable, P%*,2!!.
1%. On 7ecember *1, 2!!2, 3silo 2ompany$s boo//eeper made an ad1usting entry debiting
supplies e6pense and credit supplies inventory for P12,.!!. (he supplies inventory
accounts had a P1,*!! debit balance on 7ecember *1, 2!!1. (he 7ecember *1, 2!!2
balance sheet showed supplies inventory of P11,%!!. Only one purchase of supplies was
made during the month, on account. (he entry for that purchase was
a. 7ebit supplies inventory and credit cash, P",'!!.
b. 7ebit supplies e6pense and credit accounts payable, P",'!!.
c. 7ebit supplies inventory and credit accounts payable, P",'!!.
d. 7ebit supplies inventory and credit accounts payable, P1.,!!.
1. 3stillo 2ompany loaned P*!!,!!! to another company on 7ecember 1, 2!!2 and
received a *0month, 1#, interest0bearing note with a face value of P*!!,!!!. 9hat
ad1usting entry should 3stillo 2ompany ma/e on 7ecember *1, 2!!2:
a. 7ebit interest receivable and credit interest income, P',!!.
b. 7ebit cash and credit interest income, P*,'!.
c. 7ebit interest receivable and credit interest income, P*,'!.
d. 7ebit cash and credit interest receivable, P',!!.
.
1.. (he supplies inventory account balance at the beginning of the period was P..,!!!.
5upplies totaling P12",2! were purchased during the period and debited to supplies
inventory. 3 physical count shows P*",2! of supplies inventory at the end of the
period. (he year0end ad1usting entry is
a. 7ebit supplies inventory and credit supplies e6pense, P&!,!!!.
b. 7ebit supplies e6pense and credit supplies inventory, P12",2!.
c. 7ebit supplies inventory and credit supplies e6pense, P1.,!!!.
d. 7ebit supplies e6pense and credit supplies inventory, P1.,!!!.
2

1'. 3t the end of 2!!2, 3vila 2ompany made four ad1usting entries for the following items;
<1= depreciation e6pense, P*,!!!- <2= e6pired insurance, P2,2!! <originally recorded as
prepaid insurance=- <*= interest payable, P&,!!!- and <%= rental revenue receivable,
P1!,!!!.
In the normal situation, to facilitate subsequent entries, the ad1usting entry or entries
that may be reversed is)are
a. >ntry 1 c. >ntries * and %
b. >ntry % d. >ntries 2, *, and %
1". +agaipo 2ompany reported an allowance for doubtful accounts of P12,!!! <credit= at
7ecember *1, 2!!2 before performing an aging of accounts receivable. 3s a result of
the aging, +agaipo 2ompany determined that an estimated P2!,!!! of the 7ecember
*1, 2!!2 accounts receivable would prove uncollectible. (he ad1usting entry at
7ecember *1, 2!!2 would be
a. 7oubtful accounts e6pense ",!!!
3llowance for doubtful accounts ",!!!
b. 7oubtful accounts e6pense 2!,!!!
3ccounts receivable 2!,!!!
c. 3llowance for doubtful accounts ",!!!
7oubtful accounts e6pense ",!!!
d. 7oubtful accounts e6pense ",!!!
Interest revenue ",!!!
1&. 3ssuming that the company does not reverse the ad1usting entries, what should be
made on 3pril 1, 2!! when the annual interest payment is received:
a. 7ebit cash and credit interest revenue, P&,*'.
b. 7ebit cash and credit interest receivable, P2",12.
c. 7ebit cash, P*',!!- credit interest receivable, P2",12- and interest revenue,
P&,*'.
d. 7ebit cash and credit interest revenue, P*',!!.
2!. ,sing the data of 4o. 1&, but assuming that the company does reverse its ad1usting
entries, what entry should be made on 3pril 1, 2!!* when the annual interest payment
is received:
a. 7ebit cash and credit interest revenue, P&,*'.
b. 7ebit cash and credit interest receivable, P2",12.
c. 7ebit cash, P*',!!- credit interest receivable, P2",12- and interest revenue,
P&,*'.
d. 7ebit cash and credit interest revenue, P*',!!.
Answer:
1. b 2. b 3. a 4. c 5. b 6. a 7. d 8. d 9. c 10. a
11.a 12.d 13.a 14.c 15.c 16.d 17.c 18.a 19.c 20.d
3

Problem 1
(he following is the post0closing trial balance of 3bagon 5hop dated February 1, 2!!.;
7ebit 2redit
2ash 12!,!!!
3ccounts ?eceivable 2"!,!!!
3llowance for doubtful accounts 2,"!!
,nused shop supplies "!!
5hop >quipment 2%!,!!!
3ccumulated depreciation 0 shop
equipment
%",!!!
3ccounts payable "","!!
4otes payable 1!!,!!!
3ccrued interest payable 1,2!!
3bagon, 2apital %!!,!!!
(otal .%!,"!! .%!,"!!
For the month of February, the following are the transactions of 3bagon 5hop.
1. 3bagon withdrew P1!!,!!! cash from the business for her personal use.
2. Paid P12,!!! insurance premium.
*. Paid P2%,!!! rent.
%. (otal service rendered to various customers, P1%!,!!!, %!# of total sales are on cash
basis and the balance on open account.
. ?eceived promissory note from customer to replace P%!,!!! accounts receivable.
.. 2ollected in cash P1.%,!!! of accounts receivable.
'. Paid the notes payable of P1!!,!!! plus the P2,%!! interest.
". Purchased P2,%!! shop supplies on cash basis.
&. Paid salaries, P2%,!!!.
3t the end of the month, the following information are available to effect ad1ustments.
a. (he insurance in number 2 for P12,!!! is applicable for si6 months starting February.
b. (he rent of P2%,!!! paid in number * is for * months, starting February.
c. (he note receivable is number is earning 12# interest per year. (he note is dated
February 1, and is due on 3pril *!.
d. +ad debts e6pense is estimated at 2# of accounts receivable balance.
e. (he annual depreciation is P%",!!!.
f. (he unused supplies balance is P1,!!!.
Questions
1. 2ash at end of February is;
a. P 1!*,2!! b. P ",2!! c. P ',2!! d. P '2,"!!
2. 4et ?eali@able value of 3ccounts ?eceivable at end of February is
a. P 1.,"!! b. P 1',2!! c. P 1&.,"!! d. P 1&',2!!
*. ,nused shop supplies at end of February is
a. P 1,"!! b. P 1,!!! c. P "!! d. P 2!!
%. 4et boo/ value of 5hop >quipment at end of February is
a. P 1"",!!! b. P 1"&,!!! c. P 1"%,!!! d. P 1%%,!!!
4

. 3ccounts Payable at end of February is
a. P 12","!! b. P "","!! c. P ".,%!! d. P %","!!
.. 4otes Payable at end of February is
a. P 1!!,!!! b. P 1!2,%!! c. P &',.!! d. P !
'. 3bagon 2apital, net of drawing at end of February is
a. P *&",.!! b. P *&',%!! c. P *&',"!! d. P *"",.!!
". 4et income of the company at end of February is
a. P &",.!! b. P &',%!! c. P &',"!! d. P "",.!!
&. (otal ?evenue of the company at end of February is
a. P 1%2,"!! b. P 1%2,%!! c. P 1%!,%!! d. P 1%!,!!!
1!. (otal >6penses of the 2ompany at end of February is
a. P 2,.!! b. P %1,"!! c. P %1,%!! d. P %1,!!!
Solution
1 Abagon, drawing 100,000
Cas 100,000
2 !nsurance e"#ense 12,000
Cas 12,000
3 $ent e"#ense 24,000
Cas 24,000
4 Cas 56,000
Accounts recei%ab&e 84,000
$e%enue 140,000
5 'otes recei%ab&e 40,000
6 Cas 164,000
7 'otes #a(ab&e 100,000
!nterest e"#ense 2,400
Cas 102,400
8 )u##&ies e"#ense 2,400
Cas 2,400
9 )a&aries 24,000
Cas 24,000
Ad*usting +ntr(:
a ,re#aid !nsurance 10,000
!nsurance e"#ense 10,000
b ,re#aid rent 16,000
$ent e"#ense 16,000
c !nterest recei%ab&e 400
!nterest inco-e 400
.,40,000 " 12/ " 10121
d 2ad debts 400
A&&owance 3or bad debts 400
e 4e#reciation 4,000
Accu-. de#reciation 4,000
3 5nused su##&ies 1,000
)u##&ies e"#ense 1,000
)u##&ies e"#ense 800
5nused su##&ies 800
g Accrued interest #a(ab&e 1,200
6o re%erse te beg. accrued interest
#a(ab&e
5

6$!A7 2A7A'C+ A485)69+'6) !'C:9+ )6A6+9+'6 2A7A'C+ );++6
CA);
75,20
0 75,200
ACC'6) $+C+!< 160,000 160,000
A77:=. >:$ 24 2,800 400 3,200
':6+) $+C+!< 40,000 40,000
5'5)+4 )5,,7!+) 800 1,000 800 1,000
);:, +Q5!,9+'6 240,000 240,000
ACC59. 4+,' 48,000 4,000 52,000
ACC:5'6) ,A? 88,800 88,800
':6+) ,A?A27+ @ @
ACC. !'6. ,A? 1,200 1,200 @
A2AA:', 4$A=!'A 100,000 100,000
A2AA:', CA,!6A7 400,000 400,000
$+<+'5+ 140,000 140,000
!')5$A'C+ +B, 12,000 10,000 2,000
$+'6 +B,+')+ 24,000 16,000 8,000
)5,,7!+) +B, 2,400 800 1,000 2,200
)A7A$!+) 24,000 24,000
!'6+$+)6 +B, 2,400 CCCCCCC 1,200 1,200
680,800 680,800
,$+,A!4 !') 10,000 10,000
,$+,A!4 $+'6 16,000 16,000
!'6+$+)6 $+C+! 400 400
!'6+$+)6 !'C 400 400
2A4 4+26) 400 400
4+,$+C!A6!:' 4,000 CCCCCCC 4,000 CCCCCCCC
33,800 33,800 41,800 140,400
'+6 !'C:9+ 98,600 CCCCCCCC CCCCCCC 98,600
140,400 140,400 642,600 642,600
Answer:
1. C 2. A 3. 2 4. A 5. 2 5. 4 8. A 9. A 9. C 10. 2
Problem 2
(he following selected transactions were completed during Aear 1 of operations by Bicar
2orporation;
a. 5old of its 2!,!!! shares of its own common stoc/, par P1 per share, for P1 per
share and received cash in full.
b. +orrowed P1!!,!!! cash on 12#, one0year note, interest payable at maturity on
3pril *!, Aear 2.
c. Purchased equipment for use in operating the business at a net cash cost of
P1.%,!!!- paid in full.
d. Purchased merchandise for resale at cash cost of P1%!,!!!- paid cash. 3ssume a
periodic inventory system- therefore, debit Purchases.
6

e. Purchased merchandise for resale on credit terms of 2)1!, n).!. (he merchandise
will cost P&,"!! if paid within 1! days- after 1! days, the payment will be P1!,!!!. (he
company always ta/es the discount- therefore, such purchased are recorded at net of
the discount.
f. 5old merchandise for P1"!,!!!- collected P1.,!!! cash, and the balance is due in
one month.
g. Paid P*!,!!! cash for operating e6penses.
h. Paid C of the balance for the merchandise purchased in <e= within 1! days- the
balance remains unpaid.
i. 2ollected !# of the balance due on the sale in <f=- the remaining balance is
uncollected.
1. Paid cash for an insurance premium, P.!!- the premium was for two years$ coverage
<debit Prepaid insurance=.
/. Purchased a tract of land for a future building for company operations, P.*,!!! cash.
l. Paid damages to a customer who was in1ured on the company premises, P1!,!!!
cash.
Questions
,sing the unad1usted trial balance, answer the following;
1. 2ash balance is;
a. P 1',! b. P 1',%!! c. P 1',2! d. P 1%&,&!!
2. 3ccounts receivable balance is;
a. P 1,!!! b. P 1!,!!! c. P ','!! d. P ',!!
*. Prepaid insurance balance is;
a. P .!! b. P %!! c. P *!! d. P 2!!
%. Dand account balance is;
a. P 22',!!! b. P 1.%,!!! c. P 1!1,!!! d. P .*,!!!
. >quipment account balance is;
a. P 22',!!! b. P 1.%,!!! c. P 1!1,!!! d. P .*,!!!
.. 3ccounts payable balance is;
a. P 2,.! b. P 2,!! c. P 2,%! d. P 2,1!
'. 4otes payable balance is;
a. P 112,!!! b. P 1!&,!!! c. P 1!!,!!! d. P "",!!!
". 2ommon stoc/ balance is;
a. P *!!,!!! b. P 2"!,!!! c. P 2!!,!!! d. P 2!,!!!
1. Premium on capital stoc/ balance is;
a. P *!!,!!! b. P 2"!,!!! c. P 2!!,!!! d. P 2!,!!!
7

2. 5ales balance is;
a. P 1"!,!!! b. P 1.!,!!! c. P 1!!,!!! d. P "!,!!!
*. Purchases balance is;
a. P 1%&,"!! b. P 1%&,.!! c. P 1!,!!! d. P 1!,2!!
%. Operating e6penses and other e6penses is;
a. P %&,"!! b. P %!,2!! c. P %!,!!! d. P *","!!
Solution
.a1 Cas 300,000
Co--on stocD 20,000
,re-iu- on ca#ita& stocD 280,000
.b1 Cas 100,000
'otes #a(ab&e 100,000
.c1 +Eui#-ent 164,000
Cas 164,000
.d1 ,urcases 140,000
Cas 140,000
.e1 ,urcases 9,800
Accounts #a(ab&e 9,800
.31 Cas 165,000
)a&es 180,000
.g1 :#erating e"#enses 30,000
Cas 30,000
.1 ,urcase disc. &ost 200
Accounts #a(ab&e 200
Cas 7,500
.i1 Cas 7,500
.*1 ,re#aid insurance 600
Cas 600
.D1 7and 63,000
Cas 63,000
.&1 7oss on da-ages 10,000
Cas 10,000
Cas 157,400
,re#aid insurance 600
7and 63,000
+Eui#-ent 164,000
'otes #a(ab&e 100,000
Co--on stocD 20,000
,re-iu- on ca#ita& stocD 280,000
)a&es 180,000
,urcases 149,800
:#erating e"#enses 30,000
,urcase disc. &ost 200
7oss on da-ages 10,000 CCCCCCC
6ota& 582,500 582,500
A')=+$
1. b 2. d 3. a 4. d 5. b 6. b 7. c 8. d 9. b 10. a
11. a 12. b
Problem 3
8

(he post0closing trial balance of the general ledger of 9ilson 2orporation at 7ecember *1,
2!I, reflected the following;
3ccount 7ebit 2redit
2ash 2',!!!
3ccounts receivable 21,!!!
3llowance for doubtful accounts 1,!!!
Inventory <perpetual inventory system= *,!!!
Prepaid insurance <2! mos. remaining= &!!
>quipment <2!0year life, no salvage value=!,!!!
3ccumulated depreciation 22,!!
3ccounts payable ',!!
9ages payable 0
Income ta6es payable <for 2!I= %,!!!
2ommon stoc/, par P1 "!,!!!
?etained earnings 1",&!!
5ales revenue 0
2ost of goods sold 0
Operating e6penses 0
Income ta6 e6pense 0
Income summary 0EEE EEEEEE
1**,&!! 1**,&!!
F >nding inventory, P%,!!! <at 12)*1)2!8=
(he following transactions occurred during 2!8 in the order given <use the number at the
left to indicate the date=;
1. 5ales revenue at P*!,!!!, of which P1!,!!! was on credit- cost provided by perpetual
inventory record, P1&,!!.
2. 2ollected P1',!!! on accounts receivable.
*. Paid income ta6es payable <2!I=, P%,!!!.
%. Purchased merchandise, P%!,!!!, of which P",!!! was on credit.
. Paid accounts payable, P.,!!!.
.. 5ales revenue of P'2,!!! <in cash=- cost, P%.,"!!.
'. Paid operating e6penses, P1&,!!!.
". On 8anuary 1, 2!8, sold and issued 1,!!! shares of common stoc/, par P1, for P1,!!!
cash.
&. Purchased merchandise, P1!!,!!!, of which P2',!!! was on credit.
1!. 5ales revenue of P&",!!!, of which P*!,!!! was on credit- cost P.*,'!!.
11. 2ollected cash on accounts receivable, P2.,!!!.
. Paid cash on accounts payable, P2",!!!.
.. Paid various operating e6penses in cash, P1",!!!.
3ssume a bad debt rate of G# of credit sales for the period and a *2# income ta6 rate. 3t
7ecember *1, 2!8, accrued wages were P*!!. ,se straight0line depreciation.
Questions
1. 2ash at 7ecember *1, 2!8 is;
a. P 1,!!! b. P !,!!! c. P %,!!! d. P %1,!!!
2. 3ccounts receivable at 7ecember *1, 2!8 is;
a. P 1",!!! b. P 1.,"!! c. P 1.,!!! d. P 1,"!!
9

*. Inventory at 7ecember *1, 2!8 is;
a. P .%,!! b. P %,!!! c. P *,!!! d. P *2,!!
%. Prepaid insurance at 7ecember *1, 2!8 is;
a. P *.!.!! b. P .2.! c. P &!! d. P %!
. >quipment at 7ecember *1, 2!8 is;
a. P &,!!! b. P .!,!!! c. P !,&!! d. P !,!!!
.. 3ccumulated depreciation at 7ecember *1, 2!8 is;
a. P *!,!!! b. P 2,!!! c. P 22,!! d. P 2!,!!!
'. 3ccounts payable at 7ecember *1, 2!8 is;
a. P 1,!!! b. P 1%,!! c. P 1!,!! d. P ",!!
". Income ta6es payable at 7ecember *1, 2!8 is;
a. P &,.!! b. P &,%2' c. P ,.1 d. P %,!!!
&. ?etained earnings at 7ecember *1, 2!8 is;
a. P *&,*!! b. P *",&** c. P *!,&!& d. P 2',%!!
1!. 2ost of goods sold at 7ecember *1, 2!8 is;
a. P 11!,!! b. P 12",!!! c. P 1*!,!!! d. P 1*2,!!!
11. 4et income before ta6es at 7ecember 2!8 is;
a. P *!,!!! b. P 2&,%.! c. P 1',..! d. P 12,!!
Solution
.11 Cas 20,000
)a&es 30,000
Cost o3 sa&es 19,500
!n%entor( 19,500
.21 Cas 17,000
.31 !nco-e ta"es #a(ab&e 4,000
Cas 4,000
.41 !n%entor( 40,000
Cas 32,000
.51 Accounts #a(ab&e 6,000
Cas 6,000
.61 Cas 72,000
)a&es 72,000
!n%entor( 46,800
.71 :#erating e"#enses 19,000
Cas 19,000
.81 Cas 1,000
Co--on stocD 1,000
.91 !n%entor( 100,000
Cas 73,000
.101 Cas 68,000
)a&es 98,000
!n%entor( 63,700
.111 Cas 26,000
10

.121 Accounts #a(ab&e 28,000
Cas 28,000
.131 :#erating e"#enses 18,000
Cas 18,000
Ad*usting +ntr(:
.a1 :#erating e"#enses .ins. +"#1 540
.,900 " 120201
.b1 :#erating e"#enses .de#reciation1 2,500
Accu-u&ated de#reciation 2,500
.c1 :#erating e"#enses .bad debts1 200
A&&owance 3or bad debts 200
.d1 :#erating e"#enses 300
=ages #a(ab&e 300
>!'A'C!A7 )6A6+9+'6)
Cas 51,000
A&&owance 3or bad debts .1,2001
!n%entor( 45,000
+Eui#-ent 50,000
Accu-u&ated de#reciation .25,0001
6ota& Assets 138,160
=ages #a(ab&e 300
!nco-e ta"es #a(ab&e 9,427
Co--on stocD 81,000
$etained earnings 38,933
6ota& 7iabi&it(0);+ 138,160
)a&es re%enue 200,000
Aross #ro3it 70,000
:#erating e"#enses 40,540
!nco-e be3ore ta"es 29,460
!nco-e ta"es e"#ense 9,427
'et inco-e 20,033
$etained earnings F beg 18,900
$etained earnings F end 38,933
Answer:
1. a 2. b 3. b 4. a 5. d 6. b 7. d 8. b 9. b 10.c 11.b
Problem 4
(he account of P>H,I( 2OIP34A as at 7ecember 1, 2!!. are listed below;
2ash 21%,!!!
3ccounts receivable **",!!!
Iar/etable securities %2.,!!!
Office supplies *1,!!!
Prepaid insurance %",!!!
Dand *'!,!!!
+uilding &!!,!!!
3ccum. depreciation J bldg 2!,!!!
>quipment "!!,!!!
3ccum. depreciation J equip. 2!!,!!!
3ccounts payable 1'2,!!!
Iortgage payable 1,2!!,!!!
2apital EEEEEEE 1,*!,!!!
11

*,12',!!! *,12',!!!
(he following transactions occurred during the month of 7ecember 2!!.;
7ec. 1 5ettled the accounts payable of P11,!!! less 2# discount.
* 2ollected the accounts receivable of P1"!,!!! less *# discount.
% 5old merchandise on account to P3P32OA 5,PPDI>5, P21!,!!!. (erms; FO+
destination, *)1!, n)*!. P3P32OA 5,PPDI>5 paid the freight for P*,!!!.
?eceived returns from P3P32OA 5,PPDI>5, P2,!!!.
' Purchased merchandise from O5(IH,> P?O7,2(5, P2*2,!!!. (erms; FO+
shipping point, 2)1!, n)*!. P>H,I( 2OIP34A paid P2,!!! for the
transportation cost.
& ?eturned goods to O5(IH,> P?O7,2(5, P12,!!! acquired on 7ecember '.
1! Paid interest on mortgage payable, P",!!!.
11 ?eceived payment from P3P32OA 5,PPDI>5 for the amount due.
12 5old merchandise to O34I 5KOPP>?5, P**!,!!!. (erms; FO+ shipping point,
*)1!, n)*!.
1" ?eceived payment from O34I 5KOPP>?5 from the 7ecember 12 sales.
1& 5old merchandise to 43B3D>5 5KOP, P2%2,!!!. (erm; FO+ shipping point,
*)1!, n)*!. P>H,I( 2OIP34A paid P,!!! for the freight.
2! Paid P&,!!! for representation e6pense.
2& ?eceived from 43B3D>5 5KOP returned merchandise in the amount of
P1",!!! from the 7ecember 1& sales.
*! (he owner, Lenevieve, withdraw merchandise for personal use. 2ost J
P2!,!!!- 5elling price J P*!,!!!.
3dditional information
1. 5alaries in the amount of P'*,!!! have accrued on 7ecember *1.
2. Insurance coverage with premium of P2,!!! has e6pired at month0end.
*. 7epreciation on the building and on the equipment for the month amounted to
P*,!!! and P%,!!, respectively.
%. Office supplies on hand at month0end amounted to P',!!!.
. 3 count of the inventory amounted to P%*,!!! on 7ecember *1, 2!!..
Questions
1. 2ash balance at 7ecember *1, 2!!. is;
a. P ''*,'! b. P ''2,'!! c. P '%",%! d. P '2','!!
2. 3ccounts receivable at 7ecember *1, 2!!. is;
a. P %12,!!! b. P %!,!!! c. P *"',!!! d. P *.2,!!!
*. Inventory at 7ecember *1, 2!!. is;
a. P .2,'!! b. P %*,!!! c. P %2.,!!! d. P 212,!!!
%. Office supplies at 7ecember *1, 2!!. is;
a. P ',!!! b. P 1!,!!! c. P 2%,!!! d. P *1,!!!
. 4et carrying value of Fi6ed 3ssets at 7ecember *1, 2!!. is;
a. P 1,&"!,!!! b. P 1,.2!,!!! c. P 1,.12,!! d. P 1,2%2,!!
.. (otal assets at 7ecember *1, 2!!. is;
a. P *,2*,&! b. P *,2!,&! c. P *,2!*,&! d. P *,1*,&!
12

'. 3ccounts payable at 7ecember *1, 2!!. is;
a. P 2"&,!!! b. P 2'&,!!! c. P 2'',!!! d. P 2',!!!
". 3ccrued e6penses at 7ecember *1, 2!!. is;
a. P &',!!! b. P '*,!!! c. P 2%,!!! d. P &,!!!
&. 4et sales at 7ecember *1, 2!!. is;
a. P '"2,!!! b. P '1",&! c. P '1",2%! d. P '1",1!
1!. (otal purchases at 7ecember *1, 2!!. is;
a. P 2*2,!!! b. P 212,!!! c. P 1&&,'!! d. P 1&','!!
11. Operating e6penses at 7ecember *1, 2!!. is;
a. P 12.,!! b. P 11",!! c. P 1!&,!! d. P 1!1,!!
12. 4et income at 7ecember *1, 2!!. is;
a. P %"2,"!! b. P %2.,&! c. P %1&,!%! d. P %1",&!
1*. 2apital balance at 7ecember 1, 2!!. is;
a. P 1,'!%,!%! b. P 1,'!*,&! c. P 1,*!,!!! d. P 1,2",!!!
1%. 2apital balance at 7ecember *1, 2!!. is;
a. P 1,'!%,!%! b. P 1,'!*,&! c. P 1,*!,!!! d. P 1,2",!!!
1. (otal liabilities and capital at 7ecember *1, 2!!. is;
a. P *,2*,&! b. P *,2!,&! c. P *,2!*,&! d. P *,1*,&!
Solution
4ec 1 Accounts #a(ab&e 115,000 4ec 10 !nterest e"#ense 8,000
Cas 112,700 Cas 8,000
,urcases .discount1 2,300
4ec 11 Cas 176,450
4ec 3 Cas 174,600 )a&es .discount1 5,550
)a&es .discount1 5,400 Accounts recei%ab&e 182,000
4ec 12 Accounts recei%ab&e 330,000
4ec 4 Accounts recei%ab&e 207,000 )a&es 330,000
6rans#ortation e"# 3,000
)a&es 210,000 4ec 18 Cas 320,100
)a&es .discount1 9.900
4ec 5 )a&es .returns1 25,000 Accounts recei%ab&e 330,000
4ec 19 Accounts recei%ab&e 247,000
4ec 7 ,urcases 232,000 Cas 5,000
>reigt@in 2,000 )a&es 242,000
Cas 2,000
Accounts #a(ab&e 232,000 4ec 20 $e#resentation e"# 9,000
Cas 9,000
4ec 9 Accounts #a(ab&e 12,000
,urcases .returns1 12,000 4ec 29 )a&es .returns1 18,000
4ec 30 4rawing 20,000
,urcases 20,000
Ad*usting entr(:
13

1. )a&aries e"#ense 73,000
Accrued sa&aries 73,000
2. !nsurance e"#ense 2,000
,re#aid insurance 2,000
3. 4e#reciation 7,500
Accu-. 4e#Gn F b&dg 3,000
Accu-. 4e#Gn F eEui# 4,500
4. )u##&ies e"#ense 24,000
:33ice su##&ies 24,000
5. !n%entor( F 2) 453,000
!n%entor( F !) 453,000
A')=+$:
1. C 2. C 3. 2 4. A 5. C 6. A 7. C 8. 2 9. 4 10. C
11. A 12. 4 13. C 14. 2 15. A
Problem 5
(he ?ighter 5hoe 5tore 2ompany prepares monthly financial statements for its ban/. (he
4ovember *! and 7ecember *1, 2!!., trial balances contained the following information;
4ov. *! 7ec. *1
7r. 2r. 7r. 2r.
5upplies 1,!!! *,!!!
Prepaid insurance .,!!! %,2!
9ages payable 1!,!!! 1,!!!
,nearned rent revenue 2,!!! 1,!!!
(he following information also is /nown;
a. (he 7ecember income statement <accrual basis= reported P2,!!! in supplies
e6pense.
b. 4o insurance payments were made in 7ecember.
c. P1!,!!! was paid to employees during 7ecember for wages.
d. On 4ovember 1, 2!!., a tenant paid ?ighter P*,!!! in advance rent for the
period 4ovember through 8anuary. ,nearned revenue was credited.
Questions
1. 9hat was the cost of supplies purchased during 7ecember:
a. P 1,!!! b. P 2,!!! c. P *,!!! d. P %,!!!
2. 9hat was the ad1usting entry recorded at the end of 7ecember for prepaid
insurance:
a. Prepaid insurance %,2!
Insurance e6pense %,2!
b. Insurance e6pense %,2!
Prepaid insurance %,2!
c. Insurance e6pense 1,'!
Prepaid insurance 1,'!
d. 4o ad1usting entry
*. 9hat was the ad1usting entry recorded at the end of 7ecember for
accrued wages:
a. 9ages e6pense 1,!!!
14

9ages payable 1,!!!
b. 9ages e6pense 1!,!!!
9ages payable 1!,!!!
c. 9ages e6pense ,!!!
9ages payable ,!!!
d. 4o ad1usting entry
%. 9hat was the amount of rent revenue earned in 7ecember:
a. P 1,!!! b. P 2,!!! c. P *,!!! d. P %,!!!
. 9hat ad1usting entry was recorded at the end of 7ecember for unearned
rent:
a. ,nearned rent rev. *,!!!
?ent revenue *,!!!
b. ?ent revenue 2,!!!
,nearned rent rev. 2,!!!
c. ,nearned rent revenue 1,!!!
?ent revenue 1,!!!
d. ,nearned rent revenue 2,!!!
?ent revenue 2,!!!
Solution
1. 4
)u##&ies on ;and
2eg. 2a& 1,000 Ad*ust-ent 2,000
,urcases 4,000 H
+nding ba&. 3,000
H sEueeIed 3igure
2. C 3. A 4. A 5. C
Problem 6
(he trial balance of 344 2O., prior to the closing of its account for the fiscal year ended
5eptember *!, 2!!. follows;
2ash P22,!!
3ccounts receivable &*,.!!
3llowance for doubtful accounts P *,1&!
4ote receivable 1,!!
Ierchandise inventory, &)*!)!2 .,"&!
Furniture and equipment .1,"!!
3ccumulated depreciation 1",'!
Loodwill *!,!!!
3ccounts payable *,.!!
4otes payable 1!,!!!
2apital 5toc/ 1!!,!!!
?etained >arnings ,2!
5ales *'2,!!!
5ales return and allowances %,'.!
Purchases 21,&*!
Purchase return and allowances *,.!
3dvertising &,.1!
5ales salaries 2","!
2ommission e6pense 1,2!!
Iiscellaneous e6pense 2,&&!
15

?ent e6pense 1*,!!!
Office salaries 1&,'2!
Dight and 9ater 1,!!
Insurance e6pense 1,!"!
(a6es and licenses %,'"!
Leneral e6pense 1.,*%!
Interest e6pense %,12!
Interest income &1!
Aour e6amination of the company$s account has the need for ad1ustments based on the
following items;
a. (he cash account included a customer$s chec/ for P1,!! deposited on
5eptember 2, 2!!. but returned by the ban/ on 5eptember 2&, 2!!. for lac/ of
countersignature. 4o entry was made for the returned chec/.
b. ,nrecorded ban/ charge for 5eptember 2!!., P!!
c. (he allowance for doubtful accounts should be ad1usted to # of the
outstanding accounts receivable balance on 5eptember *!, 2!!..
d. 3 physical inventory of merchandise ta/en at the end of the fiscal year 2!!.
amounted to P.!,12!.
e. Loods received on consignment, still unsold costing P2,!!! were included in
the physical inventory.
f. (he merchandise inventory on 5eptember *!, were correctly stated.
g. 7epreciation of furniture and equipment at 1!# annually has not been
recogni@ed.
h. 3ccrued salesmen$s salaries not recorded P,!!!
i. 3n insurance policy was ta/en on the inventory and equipment on Iarch 1,
2!!. with the annual insurance premium of P1,!"! paid on that date.
1. ?ent e6pense account considered of rent for the store and office space for
thirteen months starting 3ugust 1, 2!!..
+ased on the aforementioned data, answer the following questions-
1. (he ad1usting entry on item 3 is
a. 2ash 1,!!
3ccounts receivable 1,!!
b. 3ccounts payable 1,!!
2ash 1,!!
c. 3ccounts receivable 1,!!
2ash 1,!!
d. 4o ad1ustment

2. (he ad1usting entry on item + is
a. 2ash !!
16

3ccounts receivable !!
b. 2ash !!
Leneral e6penses !!
c. Leneral >6penses !!
2ash !!
d. 4o ad1ustment
*. (he ad1usting entry on item 2 is
a. 3ccounts receivable %,."!
3llowance for 7oubtful 3ccounts %,."!
b. 7oubtful 3ccounts 1,.
3llowance for 7oubtful 3ccounts 1,.
c. 3llowance for 7oubtful 3ccounts 1,%&!
7oubtful 3ccounts 1,%&!
d. 7oubtful 3ccounts 1,%&!
3llowance for 7oubtful 3ccounts 1,%&!
%. (he ad1usting entry on item 7 is
a. Ierchandise Inv. .!,12!
Income 5ummary .!,12!
b. Ierchandise Inv. .!,12!
Purchases .!,12!
c. Income summary .!,12!
Ierchandise inventory .!,12!
d. 4o ad1ustment
. (he ad1usting entry on item >
a. Income summary 2,!!!
Ierchandise Inv. 2,!!!
b. 5ales 2,!!!
Ierchandise Inv. 2,!!!
c. Ierchandise inventory 2,!!!
Income summary 2,!!!
d. 4o ad1ustment
.. (he ad1usting entry on item F is
a. Ierchandise Inv. .,"&!
Income summary .,"&!
b. Ierchandise Inv. .,"&!
Purchases .,"&!
c. Income summary .,"&!
Ierchandise inventory .,"&!
d. 4o ad1ustment
'. (he ad1usting entry on item L is
a. 7epreciation >6p. .,1"!
3ccumulated 7epreciation .,1"!
b. 3ccumulated 7epreciation .,1"!
Furniture and >quipment .,1"!
c. 3ccumulated depreciation .,1"!
7epreciation e6pense .,1"!
d. 4o ad1ustment
17

". (he ad1usting entry on item K is
a. 3ccrued 5alaries >6pense ,!!!
5ales salaries ,!!!
b. 3ccrued salaries e6p. ,!!!
Office salaries ,!!!
c. Office salaries ,!!!
7epreciation e6pense ,!!!
d. 5ales salaries ,!!!
3ccrued salaries e6pense ,!!!
&. (he ad1usting entry on item I is
a. Insurance >6p. .*!
Prepaid insurance .*!
b. Prepaid insurance .*!
insurance e6p. .*!
c. Insurance e6pense %!
Prepaid insurance %!
d. Prepaid insurance %!
Insurance e6pense %!
1!. (he ad1usting entry on item 8 is
a. ?ent e6pense 11,!!!
Prepaid rent 11,!!!
b. Prepaid rent 2,!!!
?ent e6pense 2,!!!
c. Prepaid rent 11,!!!
?ent e6pense 11,!!!
d. ?ent e6pense 2,!!!
Prepaid rent 2,!!!
3fter ma/ing the ad1ustments compute the following;
11. 2ash
a. P2%,!!! b. P21,!!! c. P2!,!! d. P2!,!!!
12. 4et reali@able value of accounts receivable
a. P&!,%1! b. P&!,*% c. P"",&2! d. P"","%
1*. Ierchandise inventory, 5eptember *!, 2!!.
a. P.!,12! b. P.,"&! c. P.2,12! d. P",12!
1%. Furniture and >quipment, net of accumulated depreciation
a. P,.2! b. P*.,"'! c. P*..'!! d. *.,"&!
1. (otal assets, 5eptember *!, 2!!.
a. P2.2,'" b. P2!,"% c. P22*,"! d. P2.2,'!!
1.. 2ost of goods sold, 5eptember *!, 2!!.
a. P211,!! b. P21!,!! c. P212,*!! d. P212,2"!
1'. 4et income, 5eptember *!, 2!!. <disregard ta6 effect=
a. P*1,.* b. P*1,.2 c. P*",&* d. P*",11
18

1". Prepaid insurance
a. P.*! b. P%! c. P1,!"! d. P.!!
1&. Prepaid rent
a. P11,!!! b. P2,!!! c. P1*,!!! d. P1!,!!!
Answer:
1. C 2. C 3. 2 4. A 5. A 6. 4 7. A 8. 4 9. 4 10. C
11. C 12. 2 13. 4 14. 2 15. A 16. A 17. 4 18. 2 19. A
Problem 7
5elected pre0ad1ustment account balances and ad1usting information of 43PPA 2OIP34A for
the year ended 7ecember *1, 2!!., are as follows;
?etained earnings, 8anuary 1, 2!!. %%!,.'!
5ales 5alaries and 2ommissions *,!!!
3dvertising >6pense 1.,!!!
Degal 5ervices 2,22
Insurance and Dicenses ",!!
(ravel >6pense J 5ales ?epresentative %,.!
7epreciation >6pense 1!,&!!
Interest ?evenue '!!
,tilities e6pense .,%!!
(elephone and Postage >6pense 1,%'
5upplies inventory 2,1"!
Iiscellaneous 5elling >6pense 2,2!!
7ividends **,!!!
7ividend ?evenue ',1!
Interest e6pense %,2!
3llowance for bad debts <2r. +alance= *'!
Officers$ 5alaries >6pense *.,.!!
5ales %&,2!!
5ales returns and allowances 11,2!!
5ales discounts ""!
Lain on sales of assets 1",!!
Inventory, 8anuary 1, 2!!. "&,'!!
Inventory, 7ecember *1, 2!!. 2!,!
Purchases 1'*,!!!
Freight0in ,2
3ccounts ?eceivable, 7ecember *1, 2!!. 2.1,!!!
5hares of common stoc/ outstanding *&,!!!
3d1usting information;
1. 2ost of inventory in the possession of consignee as of 7ecember *1, 2!!., was not
included in the ending inventory balance, P**,.!!.
2. 3fter preparing an analysis of aged accounts receivable, a decision was made to increase
the allowance for bad debts to a percentage of the ending account receivable balance to
*#. 3ccounts totaling P',%"! were written off as uncollectible during the year.
*. Purchase returns and allowances amounting to .# of purchases <not including freight0
in= were not recorded at year0end.
19

%. 5ales commission for the last day of the year had not been accrued. (otal sales for the
day, P*,.!!. 3verage sales commission as a percent of sales is *#.
. 4o accrual has been made for a freight bill received on 8anuary *, 2!!', for goods
received on 7ecember 2&, 2!!., P"!!.
.. 3n advertising campaign for P1,"1" was initiated 4ovember 1, 2!!.. (his amount was
recorded as Mprepaid advertisingN and should be amorti@ed over a .0month period. 4o
amorti@ation was recorded.
'. Freight charges paid on sold merchandise and not passed to the buyer were netted
against sales. Freight charges on sales during 2!!. is P%,2!!.
". Interest earned but not accrued, P.&!.
&. 7epreciation e6pense on a new for/lift <estimated life is 1! years= purchased for P',"!!
on Iarch 1, 2!!. had not been recogni@ed. <3ssume all equipment will have no salvage
value and the 5DI is used. 7epreciation is calculated to the nearest month.=
1!. 3 MrealN account is debited upon the receipt of supplies. 5upplies on hand at year0end is
P1,.!!.
11. Income ta6 rate <on all items= is *2#.
Questions
1. 4et 5ales is
a. P %&&,2!! b. P %"&,*!! c. P %"",!! d. P %"',*2!
2. Purchases net of returns and allowances is
a. P 1.,2!! b. P 1.%,!!! c. P 1.2,.2! d. P 1.1,2!!
*. Freight0in is
a. P .,*2 b. P ,2!! c. P ,!!! d. P %,12
%. Inventory J 12)*1)!2 is
a. P %,'!! b. P %,1! c. P *,.!! d. P 2,2!!
. 2ost of sales is
a. P 2.,%%! b. P 2!,*! c. P 2!%,%& d. P 11%,'&
.. 5ales salaries and commission is
a. P *,1!" b. P *,1!! c. P *,!!! d. P *%,'!!
'. 3dvertising e6pense is
a. P 2%,.&. b. P 1.,"!! c. P 1.,'! d. P 1.,.!.
". 7epreciation e6pense is
a. P 1%,.!! b. P 12,!! c. P 12,!!! d. P 11,!
&. 5upplies e6pense is
a. P .'! b. P "! c. P .! d. P %"!
20

1!. 7oubtful accounts e6pense is
a. P ',!! b. P ',%.! c. P ',*!! d. P ',2!!
11. Interest revenue is
a. P 1,%! b. P 1,*&! c. P 1,*!! d. P 1,2&!
12. Income ta6 e6pense is
a. P ",% b. P %,.! c. P *,'22 d. P *,.&*
1*. 4et income is
a. P 11,". b. P 11," c. P 11%,1& d. P 1!%,%%
Solution
,er booD Ad*ust-ents ,er Audit
)a&es 495,200 4,200 499,400
)a&es ret. And a&&ow. .11,2001 .11,2001
)a&es discount .8801 .8801
483,120 487,320
Cost o3 )a&es
2eginning in%entor( 89,700 89,700
,urcases 173,000 173,000
,urc. $et and a&&ow. 10,380 .10,3801
,urc. 4iscount @
>reigt@in 5,525 800 6,325
6ota& Aoods A%ai&. >or )a&e 268,225 258,645
+nding in%entor( 20,550 33,600 54,150
247,675 204,495
Aross ,ro3it 235,445 282,825
!nterest re%enue 700 690 1,390
4i%idends re%enue 7,150 7,150
Aain on sa&e o3 assets 18,500 18,500
6ota& $e%enue 261,795 309,865
)a&es )a&aries and Co--ission 35,000 108 35,108
Ad%ertising +"#ense 16,000 606 16,606
7ega& ser%ices 2,225 2,225
!nsurance and &icenses 8,500 8,500
6ra%e& e"#ense 4,560 4,560
4e#reciation e"#ense 10,900 650 11,550
5ti&ities e"#ense 6,400 6,400
6e&e#one and #ostage 1,475 1,475
9isc. se&&ing e"#ense 2,200 2,200
:33icersJ sa&aries 36,600 36,600
!nterest e"#ense 4,520 4,520
2ad debts 7,460 7,460
6rans#ortation e"#ense 4,200 4,200
21

)u##&ies e"#ense 580 580
141,984
!nco-e be3ore ta" 167,881
!nco-e ta" 53,721.92
'et !nco-e 114,159
A')=+$:
1. 4 2. C 3. A 4. 2 5. C 6. A 7. 4 8. 4 9. 2 10. 2
11. 2 12. C 13. C
Problem 8
Presented below are unaudited balances of selected accounts of +aluyot 2ompany as at
7ecember *1, 2!!. J its first year of operation. 7uring the course of your audit of
+aluyot$s boo/s you obtained additional information affecting these accounts;
7ebit 2redit
2ash !!,!!!
3ccounts receivable 1,*!!,!!!
3llowance for bad debts ",!!!
5ales <net= .,'!,!!!
3ccounts payable .!!,!!!
Purchases <net= %,*!,!!!
2ars and truc/s 1,2!!,!!!
Iachinery and equipment &!,!!!
3ccumulated depreciation &,!!!
3dditional information;
a. On 7ecember *1, 2!!., +aluyot recorded and wrote chec/ payments to creditors
amounting to P*!!,!!!. 3 number of chec/s amounting to P1!,!!! were mailed on
8anuary *, 2!!'.
b. On 7ecember 2", 2!!., +aluyot purchased and received goods amounting to P1!!,!!!,
terms 2)1!, n)*!. 3s a policy, +aluyot records purchases in accounts payable at net
amounts. (his particular invoice was recorded and paid on 8anuary %, 2!!'.
c. On 7ecember 2., 2!!., a supplier authori@ed +aluyot to return goods shipped and billed
at P"!,!!! on 7ecember *, 2!!.. (he goods were returned on 7ecember *!, 2!!..
(he supplier$s credit memo was received and recorded on 8anuary , 2!!'.
d. Loods amounting to P!,!!! were invoiced for the account of Palmes 2ompany and
recorded on 8anuary 2, 2!!' with terms of net .! days, FO+ shipping point. (he goods
were shipped to Palmes on 7ecember *!, 2!!..
e. (he ban/ returned on 7ecember 2&, 2!!., a customer chec/ for P,!!! mar/ed M4o
5ufficient FundN but no entry was made.
f. +aluyot estimates that allowance for uncollectible accounts should be one and one0half
percent <1G#= of the accounts receivable balance as of year0end. 4o provision has yet
been made for 2!!..
22

g. 3ll the cars and truc/s were acquired on Iay 1, 2!!. at a total cost of P1,2!!,!!!.
+aluyot estimates the useful life of the cars and truc/s at five0years and depreciates
these assets based on 1!# declining balance. 3s a policy, depreciation is computed to
the nearest month and rounded0off to the nearest peso. 4o depreciation has been
recorded for cars and truc/s as at 7ecember *1, 2!!..
Questions
1. (he ad1usted amount of 2ash is;
a. P .!,!!! b. P .%,!!! c. P !!,!!! d. P %&,!!!
2. (he ad1usted amount of 3ccounts ?eceivable is;
a. P 1,*,!!! b. P 1,*!,!!! c. P 1,*!,!!! d. P 1,*!!,!!!
*. (he ad1usted amount of 5ales J net is;
a. P .,"%!,!!! b. P .,"!!,!!! c. P .,'!,!!! d. P .,'!!,!!!
%. (he ad1usted amount of Purchases J net is;
a. P %,%%",!!! b. P %,*.",!!! c. P %,*!,!!! d. P %,2'!,!!!
. (he ad1usted amount of +ad 7ebts >6pense is;
a. P *.,*2 b. P 2",*2 c. P 2!,*2 d. P 12,*2
.. (he ad1usted amount of 2!!. 7epreciation >6pense J Iachinery and >quipment is;
a. P &,! b. P &,!! c. P &,%1' d. P &,!!!
'. (he ad1usted amount of 3ccounts payable is;
a. P "1",!!! b. P "!!,!!! c. P '.",!!! d. P .!!,!!!
Solution
.a1 Cas 150,000
.b1 ,urcases 98,000
.c1 Accounts #a(ab&e 80,000
,urcase returns 80,000
.d1 Accounts recei%ab&e 50,000
)a&es 50,000
.e1 Accounts recei%ab&e 5,000
Cas 5,000
.31 2ad debts 28,325
A&&owance 3or bad debts 28,325
.1,355,000 " 1K/ L , 20,325 M ,8,000 debit ba&ance o3 A&&owance1
A')=+$:
1. 2 2. A 3. 2 4. 2 5. 2 6. 4 7. C
Problem 9
(he trial balance of (?34H,ID34 2O?PO?3(IO4, prior to the closing of is accounts for the
fiscal year0ended 5eptember *!, 2!!. follows;
7>+I( 2?>7I(
2ash 22,!!!
3ccounts receivable &*.,!!!
3llowance for doubtful accounts *1,&!!
4otes receivable 1,!!!
Ierchandise inventory, 5ept. *!, 2!! .",&!!
Furniture and >quipment .1",!!!
3cc. 7epreciation J Furniture O >quipment 1"',!!
23

Loodwill *!!,!!!
3ccounts payable *.,!!!
4otes payable 1!!,!!!
2apital stoc/ 1,!!!,!!!
?etained earnings 2,!!
5ales *,'2",2!!
5ales returns and allowances %',.!!
Purchases 2,1&,*!!
Purchase returns and allowances *.,!!
3dvertising &.,1!!
5ales salaries 2"",!!
2ommission e6pense 12,!!!
Iiscellaneous selling e6penses 2&,&!!
?ent e6pense 1*!,!!!
Office salaries 1&',2!!
Dight and water 1,!!!
Insurance e6pense 1!,"!!
(a6es and licenses %',"!!
Iiscellaneous general e6penses 1.*,%!!
Interest e6pense %1,2!!
Interest income EEEEEEEE &,1!!
.,1"1,'!! .,1"1,'!!
Aour e6amination of the company$s accounts had indicated the need for ad1ustments based
on the following information;
1. (he 2ash account include a customers$ chec/ for P1,!!! deposited on 5eptember 2,
2!!., but returned by the ban/ on 5eptember 2&, 2!!. for lac/ of countersignature. 4o
entry was made by the company for the return of the chec/ or for its redeposit on
October , 2!!..
2. (he 3llowance for 7oubtful 3ccounts should be ad1usted to # of the customers$
outstanding balances on 5eptember *!, 2!!..
*. 3 physical inventory ta/en of the merchandise stoc/ as of the end of the fiscal year
amounted to P.!1,2!!.
%. 3 purchase of merchandise FO+ shipping point, for which goods costing P%!,!!! were
still in transit on 5eptember *!, 2!!. was neither ta/en as a liability nor included in the
inventory on that date.
. Loods received on consignment, still unsold, were included in the inventory at the
agreed selling price of P2%,!!!.
.. (he merchandise inventory at 5eptember *!, 2!! was correctly stated.
'. On 8uly 1, 2!!., equipment acquired on October 1, 2!!* with a boo/ value of P*2,!!!
on 5eptember *!, 2!! was sold for P*,!!! in cash. (he sales proceeds were credited
to the Furniture and >quipment account.
". 7epreciation for the fiscal year 2!!02!!. has not been recorded. 7epreciation rate
being used is 1!# annually.
24

&. 3n insurance policy was ta/en on the inventory and equipment on 3pril 1, 2!!. with the
annual premium of P1!,"!! paid on that date.
1!. ?ent e6pense account consisted of rent paid for stoc/ and office space for thirteen <1*=
months ending October *1, 2!!..
11. (he 12!0day 4ote Payable of P1!!,!!! bearing interest of 12# was discounted at the
ban/ on 5eptember 1, 2!!..
12. (he Loodwill account was set0up by a credit to ?etained >arnings under a resolution of
the +oard of 7irectors.
Questions
1. 2ash for the fiscal year0ended 5eptember *!, 2!!. is;
a. P 1&,!!! b. P 21!,!!! c. P 22,!!! d. P 2%!,!!!
2. 3ccounts receivable for the fiscal year0ended 5eptember *!, 2!!. is;
a. P &!.,!!! b. P &21,!!! c. P &1,!!! d. P &*.,!!!
*. 3llowance for doubtful accounts for the fiscal year0ended 5eptember *!, 2!!. is;
a. P 1,.! b. P %.,"!! c. P %,*!! d. P %',!
%. Ierchandise inventory for the fiscal year0ended 5eptember *!, 2!!. is;
a. P .1',2!! b. P .%1,2!! c. P .'',2!! d. P .1,2!!
. +oo/ value of the Furniture and >quipment for the fiscal year0ended 5eptember *!,
2!!. is;
a. P *.!,2!! b. P *'2,2!! c. P *',2!! d. P %"&,"!!
.. Loodwill for the fiscal year0ended 5eptember *!, 2!!. is;
a. P *!!,!!! b. P 2&2,!! c. P 2",!!! d. P !
'. 3ccounts payable for the fiscal year0ended 5eptember *!, 2!!. is;
a. P %&.,!!! b. P *.,!!! c. P 2,!!! d. P '.,!!!
". 4et income for the fiscal year0ended 5eptember *!, 2!!. is;
a. P *2.,'! b. P **2,'! c. P *%.,'! d. P *%','!
&. ?etained earnings for the fiscal year0ended 5eptember *!, 2!!. is;
a. P 22,!! b. P .!!,2! c. P "",2! d. P &!!,2!
1!. Insurance e6pense for the fiscal year0ended 5eptember *!, 2!!. is;
a. P ,%!! b. P &,2!! c. P 1!,"!! d. P 1.,2!!
Solution
1. Accounts $ecei%ab&e 15,000
Cas 15,000
2. 4oubt3u& Accounts +"#ense 15,650
A&&owance 3or doubt3u& accounts 15,650
N5/ " .936,000 M 15,0001 L 47,550 @ 31,900O
3. 9ercandise !n%entor( 601,200
!nco-e )u--ar( 601,200
25

4. ,urcases 40,000
9ercandise !n%entor( 40,000
Accounts ,a(ab&e 40,000
!nco-e )u--ar( 40,000
5. !nco-e )u--ar( 24,000
6. !nco-e )u--ar( 568,900
7. Accu-u&ated 4e#reciation F >ur. P +E#t. 11,000
Aain on sa&e o3 eEui#-ent 6,000
>urniture P +Eui#-ent 5,000
Cost .,32,000 0 80/1 ,40,000
7ess acc. de#r. to date o3 sa&e 11,000
.,40,000 " 10/ " 2 M .40,000 " 10/ "
90121
2ooD %a&ue ,29,000
)e&&ing #rice 35,000
Aain on sa&e o3 eEui#-ent , 6,000
8. 4e#reciation e"#ense 64,300
Acc. 4e#r. F >ur. P +Eui# 64,300
4e#r. 3or (ear ended 9.30.03
:n eE#t so&d .40,000 " 10/ " 90121 , 3,000
:n re-aining eE#t. .613,000 " 10/1 61,300
,64,300
9. ,re#aid !nsurance 5,400
!nsurance e"#ense 5,400
10. ,re#aid rent 10,000
$ent e"#ense 10,000
11. 4iscount on notes #a(ab&e 3,000
6ota& discount
.100,000 " 12/ " 12003601
,4,000
7ess #ortion a##&icab&e to (ear ended 9.30. 1,000
5na-ortiIed, 9.30. ,3,000
12. $etained +arnings 300,000
Aoodwi&& 300,000
6$A'Q5!7A' C:$,:$A6!:'
=:$Q!'A 6$!A7 2A7A'C+
)e#te-ber 30, 2003
6ria& 2a&ance Ad*ust-ents !nco-e )tate-ent 2a&ance )eet
4ebit Credit 4ebit Credit 4ebit Credit 4ebit Credit
Cas 225,000 15,000 210,000
A$ 936,000 15,000 951,000
A&&. 3or 4A 31,900 15,650 47,550
'$ 155,000 155,000
9! 568,900 568,900 617,200 617,200H
>0+ 618,000 5,000 613,000
A4F >0+. 187,500 11,000 64,300 240,800
26

Aoodwi&& 300,000 300,000 @0@
A, 536,000 40,000 576,000
', 100,000 100,000
C) 1,000,000 1,000,000
$+ 552,500 300,000 252,500
)a&es 3,728,200 3,728,200
)a&es $P A 47,600 47,600
,urcases 2,159,300 40,000 2,199,300
,urc $PA. 36,500 36,500
Ad% 96,100 96,100
)a&es sa& 288,500 288,500
Co-. e"# 152,000 152,000
9isc.se&& 29,900 29,900
$ent e"# 130,000 10,000 120,000
:33ice sa& 197,200 197,200
7igt P = 15,000 15,000
!ns. e"# 10,800 5,400 5,400
6a" P &icen 47,800 47,800
9isc. Ae 163,400 163,400
!nt. e"# 41,200 3,000 38,200
!nt inc 9,100 9,100
6,181,700 6,181,700
4A 15,650 15,650
Aain 6,000 6,000
4e#ren 64,300 64,300
,re ins 5,400 5,400
,re rent 10,000 10,000
4isc on ', 3,000 3,000
464,350 464,350 4,049,250 4,397,00
0
2,564,600 2,216,850
'+6 !'C 347,750 347,750
4,397,000 4,397,000 2,564,600 2,564,600
A')=+$:
1. 2 2. C 3. 4 4. A 5. 2 6. 4 7. 4 8. 4 9. 2 10. A

Problem 10
Aour audit client, (ortor 2orporation, presents to you the unad1usted trial balance shown
below, which was drawn from its general ledger as at 8une *!, 2!!., the end of its fiscal
year.
(O?(O? 2O?PO?3(IO4
,nad1usted (rial +alance
8une *!, 2!!.
2ash '21,"!!
(rading 5ecurities 2!!,!!!
3ccounts receivable 2,12",!!!
Inventory, 8une *!, 2!! ,1&%,*!!
Invest. in associates <>quity Iethod= 1,2!!,!!!
>quipment 1,.21,!!!
Prepaid e6penses 11.,2!!
Loodwill !!,!!!
3ccounts payable 2,%2.,%!!
3ccrued e6penses 12,.!!
3ccrued interest payable 22.,!!!
3llowance for bad debts *.,1!!
3llowance for depreciation %!,'!!
Doans payable 2,!!,!!!
2apital stoc/ *,!!!,!!!
27

3dditional paid0in capital 2.!,!!!
?etained earnings 1,"!","!!
5ales 21,.!2,!!!
Interest income 1%!,!!!
Purchases 1*,&2",!!!
5alaries and wages *,2!,!!!
?ent, light and water '!,!!!
3dvertising %!!,!!!
5upplies *!!,!!!
(a6es 2!,!!!
Iiscellaneous e6penses 1,'&*,*!!
Interest e6pense 2!,!!! EEEEEEEEE
*2,.!2,.!! *2,.!2,.!!
Aour e6amination of the accounts disclosed the following information;
1. (he cash account included an 45F chec/ returned by the ban/ on 8une *!, 2!!., but
recorded as a cash reduction in 8uly, 2!!., P%%,!!!, and a voucher for suppliers paid in
cash on 8une 2', 2!!. but not entered in the boo/s, P2.,!!.
2. Iar/etable 5ecurities which cost P2!!,!!! have a mar/et value of P21!,!!!. Dong0
(erm Investments have a mar/et value of P1,2!,!!! as at balance sheet date.
*. (he company has been providing an allowance for bad debts at # of the
outstanding customers$ balances. ,ncollectible accounts were charged off against the
allowance during the year.
%. 3 physical inventory ta/en by management personnel of the merchandise stoc/ at
8une *!, 2!!. totaled P,'1,&!!. Aou were unable to observe the inventory0ta/ing as
your services were engaged only on 8uly 1, 2!!.. 7ue to the condition of the
accounting records and internal accounting controls, you were also unable to satisfy
yourself as to the inventory.
. >quipment no longer needed <cost, P1!,!!!- accumulated depreciation, P%,!!!=
was sold for P1!!,!!! cash on 8une 2&, 2!!.- the cash proceeds were credited to the
>quipment account. >quipment is depreciated at 1!# a year on a monthly basis
computed at year0end.
.. Prepaid e6penses included insurance premium of P*!,!!! paid on 3pril 1, 2!!. on a
one0year fire insurance policy.
'. 5alaries unpaid as of 8une *!, 2!!., P1*,!!! were not ta/en up under accrued
e6penses.
". (he Loodwill account was set0up with a credit to ?etained >arnings on the basis of a
resolution of the +oard of 7irectors.
&. 3 1!# cash dividend declared on 8une 1, 2!!., payable on 8uly *1, 2!!., has not
been recorded.
1!. (he +oard of 7irectors approved a resolution on 8une 2, 2!!. appropriating out of
?etained >arnings the amount of P*!!,!!! to meet possible future losses on inventories.
28

Questions
1. 2ash for the fiscal year0ended 8une *!, 2!!. is;
a. P .**,"!! b. P .1,*!! c. P .'',"!! d. P .&,*!!
2. Iar/etable securities for the fiscal year0ended 8une *!, 2!!. is;
a. P ! b. P 1&!,!!! c. P 2!!,!!! d. P 21!,!!!
*. 3ccounts receivable for the fiscal year0ended 8une *!, 2!!. is;
a. P 2,1'2,!!! b. P 2,12",!!! c. P 2,1!!,!!! d. P 2,!"%,!!!
%. 3llowance for doubtful accounts for the fiscal year0ended 8une *!, 2!!. is;
a. P '2,!! b. P 1!%,2!! c. P 1!.,%!! d. P 1!",.!!
. Inventory for the fiscal year0ended 8une *!, 2!!. is;
a. P ,'1,&!! c. P %,.*.,'!!
b. P ,1&%,*!! d. 2annot be determined.
.. >quipment for the fiscal year0ended 8une *!, 2!!. is;
a. P 1,.'1,!!! b. P 1,'1,!!! c. P 1,.21,!!! d. P 1,..,!!!
'. 3ccumulated depreciation for the fiscal year0ended 8une *!, 2!!. is;
a. P *&!,'!! b. P 2,"!! c. P .2,"!! d. P .22,"!!
". ?etained earnings before net income for the fiscal year0ended 8une *!, 2!!. is;
a. P '!","!! b. P 1,!!","!! c. P 1,*!","!! d. P 1,!",!!!
&. ?etained earnings after net income for the fiscal year0ended 8une *!, 2!!. is;
a. P 2,.*&,'!! b. P 2,%!,!! c. P 1,"%!,!! d. P 1,"!,!!
1!. (he auditor should issue a<an=;
a. ,nqualified Opinion c. Hualified Opinion
b. ,nqualified Opinion with e6planatory paragraph d. 3dverse Opinion
Solution
6:$6:$ C:$,:$A6!:'
=:$Q!'A 6$!A7 2A7A'C+
8une 30, 2006
6ria& 2a&ance Ad*ust-ents !nco-e )tate-ent 2a&ance )eet
4ebit Credit 4ebit Credit 4ebit Credit 4ebit Credit
Cas 721,800 70,500 651,300
6) 200,000 10,000 210,000
A$ 2,128,000 44,000 2,172,000
!n%en. 5,194,300 5,194,300 5,751,900 5,751,900
!n%est. Ass. 1,200,000 1,200,000
+Eui#. 1,621,000 50,000 1,571,000
,re#aid e"#. 116,200 7,500 108,700
Aoodwi&& 500,000 500,000 @@@@@@@@@@@@
A, 2,426,400 2,426,400
Acc. +"#. 152,600 13,000 165,600
Acc. int. #a( 226,000 226,000
A&&ow. >or
24
36,100 72,500 108,600
Acc. 3or
de#r.
450,700 60,000 172,100 562,800
7oans 2,500,000 2,500,000
29

#a(ab&e
Ca#ita& stocD 3,000,000 3,000,000
A,!C 260,000 260,000
$+ 1,808,800 500,000
300,000
300,000 708,800
)a&es 21,602,000 21,602,000
!nt. inc. 140,000 140,000
,urc. 13,928,000 13,928,000
)a&. P wages 3,250,000 13,000 3,263,000
$ent, &igt R 750,000 750,000
Ad%ertising 400,000 400,000
)u##&ies 300,000 26,500 326,500
6a"es 250,000 250,000
9is. e"#. 1,793,300 1,793,300
!nt. e"#. 250,000 250,000
32,602,600 32,602,600
;o&ding gain 10,000 10,000
24 e"#ense 72,500 72,500
Aain on sa&e 10,000 10,000
4e# e"# 172,100 172,100
!ns. e"#ense 7,500 7,500
4i%. #a(ab&e 300,000 300,000
$+@a##ro. 300,000 300,000
1,505,600 1,505,600 26,407,200 27,513,900 11,654,900 10,558,200
'+6 !'C. 1,106,700 1,106,700
27,513,900 27,513,900 11,664,900 11,664,900
1. Accounts recei%ab&e 44,000
)u##&ies 26,500
Cas 70,500
2. 6rading )ecurities .<a&uation
A&&ow.1
10,000
;o&ding gain @ 6) 10,000
3. 2ad debts e"#ense 72,500
5/ " .2,128,000 M 44,0001 L
108,600 @ 36,100
4. 6o be considered in te #re#aration
o3 te audit re#ort. >ai&ure to
obser%e te in%entor( taDing resu&ts
in a &i-itation in te sco#e o3
e"a-ination. 4e#ending on te
-ateria&it( o3 te a-ount o3
!n%entor( in re&ation to oter
accounts, te auditor wi&& eiter
issue a Eua&i3ied o#inion or
disc&ai-er o3 o#inion.
5. A&&owance 3or de#reciation 60,000
+Eui#-ent 50,000
Aain on sa&e o3 eEui#-ent 10,000
Cost
,150,000
7ess acc. de#r.
.45,000M15,0001
60,000
2ooD %a&ue , 90,000
)e&&ing #rice 100,000
Aain , 10,000
4e#reciation e"#ense 172,100
A&&owance 3or de#reciation 172,100
30

10/ " .1,621,000 M 100,0001
6. !nsurance e"#ense 7,500
,re#aid e"#enses
.30,000 " 30121
7,500
7. )a&aries and wages 13,000
Accrued e"#enses 13,000
8. $etained earnings 500,000
Aoodwi&& 500,000
4i%idends #a(ab&e .10/ "
,3,000,0001
300,000
$+ A##ro#riated 3or ,ossib&e
7osses in !n%.
300,000
A')=+$:
1. 2 2. C 3. A 4. 4 5. A 6. 2 7. C 8. A 9. 4 10. C
Problem 11
>rasmo 2orporation was incorporated on 7ecember 1, 2!!, and began operations one
wee/ later. 8esus is a nonpublic enterprise. +efore closing the boo/s for the fiscal year
ended 4ovember *!, 2!!., >rasmo 2orporation$s controller prepared the following financial
statements;
+alance 5heet
4ovember *!, 2!!.
355>(5
2urrent 3ssets;
2ash 1!,!!!.!!
Iar/etable securities, at cost .!,!!!.!!
3ccounts receivable %!,!!!.!!
3llowance for doubtful accounts <&,!!!.!!=
Inventories %*!,!!!.!!
Prepaid insurance 1,!!!.!!
(otal current assets 1,!%.,!!!.!!
Property, plant and equipment %2.,!!!.!!
3ccumulated depreciation <%!,!!!.!!=
?esearch and developments 12!,!!!.!!
(otal assets 1,2,!!!.!!
DI3+IDI(I>5 O 5(O2PKOD7>?5$ >H,I(A
2urrent Diabilities
3ccounts payable O accrued e6penses &2,!!!.!!
Income ta6 payable 22%,!!!.!!
(otal current liabilities "1.,!!!.!!
5toc/holders$ >quity
2ommon stoc/, P1! par value %!!,!!!.!!
?etained earnings **.,!!!.!!
(otal stoc/holders$ >quity '*.,!!!.!!
(otal liabilities O 5toc/holders$ >quity 1,2,!!!.!!
5tatement of Income
For the year ended 4ovember *!, 2!!.
4et sales 2,&!,!!!.!!
31

2ost O e6penses;
2ost of sales 1,.'!,!!!.!!
5elling and 3dministrative .!,!!!.!!
7epreciation %!,!!!.!!
?esearch and 7evelopment *!,!!!.!!
2,*&!,!!!.!!
Income before income ta6es .!,!!!.!!
Provision for income ta6es 22%,!!!.!!
4et income **.,!!!.!!

>rasmo is in the process of negotiating a loan for e6pansion purposes and the ban/ has
requested audited financial statements. 7uring the course of the audit, the following
additional information was obtained;
1. (he investment portfolio consist of short0term investments in mar/etable equity
securities with a total mar/et valuation of P,!!! as of 4ovember *!, 2!!..
2. +ased on aging of the accounts receivable as of 4ovember *!, 2!!., it was
estimated that P*.,!!! of the receivables will be uncollectible. (here were no +ad 7ebt
write0offs during the year.
*. Inventories at 4ovember *!, 2!!., did not include wor/ in process inventory costing
P12,!!! sent to an outside processor on 4ovember 2&, 2!!..
%. 3 P*,!!! insurance premium paid on 4ovember *!, 2!!., on a policy e6piring one year
later was charged insurance e6pense.
. On 8une 1, 2!!., a machine purchased for P2%,!!! was charged to repairs and
maintenance. >rasmo depreciates machines of this type on the straight0line method over
a five year life, with no salvage value, for financial and ta6 purposes.
.. ?esearch and development costs of P1!,!!! were incurred in the development of a
patent which >rasmo e6pects to be granted during the fiscal year ending 4ovember *!,
2!!*. >rasmo initiated a five year amorti@ation of the P1!,!!! total cost during the
fiscal year ended 4ovember *!, 2!!..
'. 7uring 4ovember 2!!., a competitor company filed suit against >rasmo for patent
infringement claiming P2!!,!!! in damages. >rasmo 2orporation$s legal counsel believes
that an unfavorable outcome is probable. 3 reasonable estimate of the court$s award to
the plaintiff is P!,!!!.
". (he %!# effective ta6 rate was determined to be appropriate for calculating the
provision for income ta6es for the fiscal year ended 4ovember *!, 2!!.. Ignore
computation of deferred income ta6es.
Questions
1. In the income statement for the year ended 4ovember *!, 2!!., >rasmo should report
for the mar/etable securities
a. 3 reali@ed loss of P,!!!. c. 3 reali@ed gain of P,!!!
b. 3n unreali@ed loss of P,!!!. d. 3n unreali@ed gain of P,!!!
2. In the 4ovember *!, 2!!., balance sheet, >rasmo should report in respect of the
investment portfolio
32

Iar/etable 5ecurities Baluation 3llowance
a. P,!!! P 0!0
b. P,!!! P,!!!
c. P.!,!!! P 0!0
d. P.!,!!! P,!!!
*. In the 4ovember *!, 2!!., balance sheet, >rasmo should report the allowance for
doubtful accounts at
a. P2*,!!! b. P*.,!!! c. P&,!!! d. P.&,!!!
%. +ad debts e6pense for the year ended 4ovember *!, 2!!., is
a. P 0!0 b. P2*,!!! c. P*.,!!! d. P&,!!!
. Inventories at 4ovember *!, 2!!., should be reported at
a. P%1",!!! b. P%*!,!!! c. P%%2,!!! d.P%!,!!!
.. 2ost of goods sold for the year ended 4ovember *!, 2!!., reported as
a. P1,.%*,!!! b. P1,.%,!!! c. P1,.",!!! d. P1,.'!,!!
'. Prepaid insurance at 4ovember *!, 2!!., should be reported at
a. P 0!0 b. P12,!!! c.P1,!!! d. P1",!!!
". 3t 4ovember *!, 2!!., property, plant and equipment should be reported at
a. P%!2,!!! b. P%2.,!!! c. P%%',!! d. P%!,!!!
&. 7epreciation e6pense for the year ended 4ovember *!, 2!!., should be
reported at
a. P1.,!!! b. P*',.!! c. P%!,!!! d. P%2,%!!
1!. 3t 4ovember *!, 2!!., accumulated depreciation should be reported at
a. P*',.!! b. P%!,!!! c. P%2,%!! d. P%%,"!!
11. In the 4ovember *!, 2!!. balance sheet, research and development costs
should be reported at
a. P 0!0 b. P12!,!!! c. P1*,!!! d. P1!,!!!
12. ?esearch and development e6pense for the year ended 4ovember *!, 2!!. is
a. P 0!0 b. P1,!!! c. P*!,!!! d. P1!,!!!
1*. In the 4ovember *!, 2!!. balance sheet, >rasmo should report an estimated
liability from lawsuit at
a. P 0!0 b. P!,!!! c. P1!!,!!! d. P2!!,!!!
1%. For the year ended 4ovember *!, 2!!., which one of the following ad1ustments
increases the ,nad1usted income, before income ta6es of P.!,!!!:
a. Pension e6pense
b. 9or/ in process inventory at outside processor
c. >stimated loss from lawsuit
d. ?esearch and development cost
1. For the year ended 4ovember *!, 2!!., which of the following ad1ustments
decreases the unad1usted income, before income ta6es, of P.!,!!!:
a. ?ecognition of prepaid insurance
33

b. ?eduction in allowance for doubtful accounts
c. 7epreciation on machine purchased 8une 1,2!!.
d. ?ecognition of research and development cost
Solution
1. 5nrea&iIed o&ding &oss 5,000
<a&uation a&&owance 5,000
2. A&&owance 3or bad debts 23,000
) P A +"#ense .2ad debts1 23,000
3. !n%entor( 12,000
4. ,re#aid insurance 3,000
) P A +"#ense 3,000
5. ,ro#ert( and eEui#-ent 24,000
) P A +"#ense 24,000
4e#reciation 2,400
Accu-. 4e#reciation 2,400
6. $4 cost F !) 120,000
$4 cost F 2) 120,000
7. +st. &oss on da-ages 50,000
+st. &iab on da-ages 50,000
A')=+$:
1. 2 2. 43. 2 4. C 5. C 6. C 7. 4 8. 4 9. 4 10. C
11. A 12. 4 13. 2 14. 2 15. C
Problem 12
In connection with your audit of the >ddie Bic Farms 2orp., the accountant prepared the
following balance sheet;
>ddie Bic Farms 2orp.
+alance sheet
7ecember *1, 2!!.
3ssets
2ash P %&*,!!!
Iar/etable securities .*!,!!!
3ccounts receivable %!,!!!
Inventories 1,!!2,!!!
(otal current assets 2,..,!!!
Dand, buildings, and equipment 2,&!%,!!!
(otal assets P,.&,!!!
Diabilities and 5toc/holders$ >quity
3ccounts payable P ."%,"%!
>stimated losses from future crop failures .'!,!!!
5alaries payable *!!,!!!
(otal current liabilities 1,.%,"%!
1!# +onds payable <due in 1! years= 1,!!,!!!
2apital stoc/ &!!,!!!
?etained earnings 1,&.%,1.!
(otal liabilities and stoc/holder$s equity P ,.&,!!!
3dditional information;
a. 2ash is held in a chec/ing account and a savings account with balances of P1*!,'!! and
P*.2,*!!, respectively. (he cash in the savings account will be used to support
operations in the event of a crop failure.
34

b. (he mar/etable securities represents the cost of treasury bills with a total mar/et value
of P.!!,!!! at year0end.
c. 3 loan to the president for P*.!,!!! that is to be repaid in quarterly installments of
P*!,!!! is included in M3ccounts ?eceivableN. (he balance of accounts receivable are
considered to be & percent collectible.
d. Inventories include;
Finished products '"!,!!!
5upplies *&,!!!
5torage buildings <net of P.!,&.! depreciation= 1"*,!!!
(otal 1,!!2,!!!
e. MDand, buildings, and equipmentN includes tractors that were purchased near the end
of the year for P'2!,!!! <shown net of a P.!!,!!!, 0year loan used to buy the
tractors=. (he balance of the account consists of land that was purchased for
P2,%!!,!!! and buildings that were purchased for P1!,!!! <shown net of depreciation
of P12.,!!!=.
f. Included in M3ccounts PayableN are P21!,!!! of deposits to suppliers for delivery of
goods in February of the ne6t year.
g. (he company has 1"!,!!! shares of P par common stoc/ issued and outstanding. (he
common stoc/ was originally sold for P' per share, and the premium was included in
M?etained >arnings.N
h. 3fter reading a P3L353 report, the president believes that ne6t year will be a bad crop
year due to prolonged M>l 4inoN phenomenon and estimates the company will lose about
P.'!,!!!. 3n appropriation of ?etained >arnings has been made for this amount.
Questions
+ased on the above and the result of your audit, determine the ad1usted balances of the
following as of 7ecember *1, 2!!.;
1. 2ash
a. P 1*!,'!! b. P 2*1,.!! c. P *.2,*!! d. P %&*,!!!
2. 3ccounts receivable
a. P 1'1,!!! b. P 1*,!!! c. P *1,!!! d. P %!,!!!
*. 2urrent assets
a. P 2,%%*,!!! b. P 2,2**,!!! c. P 2,!"!,'!! d. P 2,!!,'!!
%. Dand, +uildings, and >quipment
a. P *,"'*,&.! b. P *,."',!!! c. P *,.',&.! d. P *,!"',!!!
. 4oncurrent assets
a. P %,%!&,*!! b. P %,2"&,*!! c. P %,!%',!!! d. P *,&2',!!!
.. (otal assets
a. P .,.%2,*!! b. P .,%&!,!!! c. P .,*%!,!!! d. P,&'','!!
35

'. 2urrent liabilities
a. P 1,1&%,"%! b. P 1,.%,"%! c. P &"%,"%! d. P ''%,"%!
". (otal liabilities
a. P *,1%,"%! b. P 2,"%%,"%! c. P 2,.*%,"%! d. P 2,%2%,"%!
&. (otal retained earnings
a. P 2,2.,1.! b. P 2,2*,1.! c. P 1,.!%,1.! d. P 1,&,1.!
1!. (otal stoc/holders$ equity
a. P *,%&,1.! b. P *,'&',%.! c. P *,%2&,1.! d. P 2,%.2,".!
Solution
a. 2ash J restricted *.2,*!!
2ash *.2,*!!
b. Kolding loss *!,!!!
3llowance for holding loss *!,!!!
c. Other receivable J noncurrent *.!,!!!
3ccounts receivable *.!,!!!
Other receivable J current 12!,!!!
Other receivable J noncurrent 12!,!!!
+ad debts &,!!!
3llowance for bad debts &,!!!
<1"!,!!! 6 #=
d. 5upplies *&,!!!
Dand, building O equipment 1"*,!!!
Inventories 222,!!!
e. Dand, building O equipment .!!,!!!
Dong0term liability .!!,!!!
f. 3dvances to suppliers 21!,!!!
3ccounts payable 21!,!!!
g. O>; ?etained earnings .'!,!!!
>st. liability .'!,!!!
2>; ?etained earnings .'!,!!!
?etained earnings J appropriated .'!,!!!
3d1; >stimated liability .'!,!!!
?etained earnings .'!,!!!
3nswer;
1. 3 2. 3 *. 7 %. + . +
.. 2 '. 3 ". + &. + 1!. 3
Problem 13
I. 5ena1on hired an attorney to help her start 5>438O4 ?>P3I? 5>?BI2> 2O?PO?3(IO4.
On Iarch 1, I. 5ena1on deposited P11,!! cash in ban/ account in the name of the
corporation in e6change for 1,1! shares of P1! par value common stoc/. 9hen he paid the
attorney$s bill of P'!!, the attorney advised her to hire an accountant to /eep his records.
I. 5ena1on was so busy that it was Iarch *1 before she as/ed you to straighten out his
records. Aour tas/ is to develop the financial statements on the Iarch transactions.
3fter investing in her business and paying her attorney, I. 5ena1on borrowed P,!!! from
the ban/. 5he later paid P2.!, including interest of P.!, on this loan. 5he also purchased a
used pic/up truc/ in the company$s name, paying P2,!! down and financing P',%!!. (he
first payment on the truc/ is due 3pril 1. I. 5ena1on then rented an office and paid three
months$ rent P&!!, in advance. 2redit purchases of office equipment of P"!! and repair
tools of P!! must be paid by 3pril 1!.
In Iarch,5>438O4 ?>P3I? 5>?BI2> 2O?PO?3(IO4 completed repairs of P1,*!!, of which
P%!! were cash transactions. Of the credit transactions, P*!! were collected during Iarch.
36

9ages of P%! were paid to employees. On Iarch *1, the company received a P' bill for
the Iarch utilities e6pense and a P! chec/ from a customer for wor/ to be completed in
3pril.
Questions
1. (he 2ash balance of 5>438O4 ?>P3I? 5>?BI2> 2O?PO?3(IO4 at Iarch *1 is;
a. P12,*&! b. P12,*1 c. P12,%%! d. P11,!!
2. (he 3ccounts ?eceivable balance of 5>438O4 ?>P3I? 5>?BI2> 2O?PO?3(IO4 at
Iarch *1 is;
a. P&!! b. P"!! c. P'!! d. P.!!
*. (he (otal 2urrent 3ssets of 5>438O4 ?>P3I? 5>?BI2> 2O?PO?3(IO4 at Iarch *1
is;
a. P1*,'1 b. P1*,. c. P1*,1 d. P1*,.%!
%. (he (otal 4on0current assets of 5>438O4 ?>P3I? 5>?BI2> 2O?PO?3(IO4 at Iarch
*1 is;
a. P11,&!! b. P11,""" c. P11,*"" d. P11,2!!
. (he (otal 3ssets of 5>438O4 ?>P3I? 5>?BI2> 2O?PO?3(IO4 at Iarch *1 is;
a. P2,2" b. P2,%1 c. P2%,"%! d. P2%,&1
.. (he (otal 5toc/holders$ >quity of 5>438O4 ?>P3I? 5>BI2> 2O?PO?3(IO4 at Iarch
*1 is;
a. P11,21 b. P11,&!* c. P<"= d. P<2"=
'. (he (otal Diability of 5>438O4 ?>P3I? 5>?BI2> 2O?PO?3(IO4 at Iarch *1 is;
a. P1.,!2 b. P1%,'2 c. P1*,.2 d. P.,22
". (he (otal Diability and 5toc/holders$ >quity of 5>438O4 ?>P3I? 5>?BI2>
2O?PO?3(IO4 at Iarch *1 is;
a. P2,2" b. P2,%1 c. P2%,"%! d. P2%,&1
&. (he (otal Operating e6penses and other e6penses of 5>438O4 ?>P3I? 5>?BI2>
2O?PO?3(IO4 at Iarch *1 is;
a. P1," b. P1,!* c. P1,!1 d. P"&'
1!. (he 4et Income of 5>438O4 ?>P3I? 5>?BI2> 2O?PO?3(IO4 at Iarch *1 is;
a. P%1 b. P%!* c. P<"= d. P<2"=
Solution
Cas 11,500
Co--on stocD 11,500
,re@o#erating cost 700
Cas 700
Cas 5,000
'otes #a(ab&e 5,000
!nterest e"#ense 60
'otes #a(ab&e 200
Cas 260
+Eui#-ent 9,900
Cas 2,500
'otes #a(ab&e 7,400
$ent e"#ense 300
,re#aid rent 600
Cas 900
37

+Eui#-ent 800
A, F oters 800
6oo&s 500
Accrued e"#enses 500
Cas 400
Accounts recei%ab&e 900
$e%enue 1,300
Cas 300
Accounts recei%ab&e 300
=ages 450
Cas 450
5ti&ities 75
Accrued e"#enses 75
Cas 50
Ad%ances 3ro- custo-er 50
Answer:
1. C 2. 4 3. 4 4. 4 5. C 6. A 7. C 8. C 9. A 10. 4
Problem 14
OI34732 2O?PO?3(IO4 has 1ust completed its third year of operations, 7ecember *1,
2!!.. (he newly selected president was ama@ed, to say the least, when told that the
Mcompany$s boo/s have never been in balance.N In fact, he has learned that they are
P1%,"!! out of balance. 2onsequently, he has decided to as/ an independent 2P3 to Mget
things straightened out.N Aou are the luc/y 2P3Q 9hile getting an overview of the situation
you learn that the boo//eeper 1ournali@e and posts all of the daily transactions, but the
ad1usting and closing entries are entered directly into the ledger accounts. 3 wor/sheet is
not used. 3fter recording the ad1usting entries, the boo//eeper prepares an ad1usted trial
balance, which is then used to prepare the financial statements.
3t your request the boo//eeper prepared the following post0closing trial balance following
his usual procedures;
OI34732 2O?PO?3(IO4
Post0closing (rial +alance
7ecember *1, 2!!.
2ash 1',"!!
3ccounts receivable ,!!!
4ote receivable .,!!!
Ierchandise inventory <periodic system= 12!,!!!
Prepaid insurance 2,%!!
>quipment 2%!,!!!
Dand <future site= %!,!!!
3ccounts payable 2!,!!!
Income ta6 payable 1!,!!!
Iortgage payable 1!!,!!!
2ommon stoc/, par P1! <2!,!!! shares outstanding= *2!,!!!
7ividends declared and paid %,!!!
?etained earnings !,!!!
(o balance 1%,"!! EEEEEEE
(otal !!,!!! !!,!!!
3fter spending considerable time digging into the records and files of the company, you
discovered the following;
38

a. >stimates of bad debts e6pense that total P,!!! have been credited directly to
3ccounts ?eceivable.
b. 3ccrued interest e6pense of P%,!!! was recorded, but the credit was omitted.
b. 7epreciation e6pense, on a straight0line basis <no residual value=, is P*!,!!! per
year. 7epreciation for 2!!1 and 2!!2 was credited directly to the asset account.
c. (he 2!!. ending inventory of P1%!,!!! was not recorded- the beginning inventory
was P12!,!!!.
d. Prepaid insurance of P2,%!! was for two full years, 2!!. and 2!!'.
e. 7epreciation was not recorded in 2!!..
f. 3ccounts payable of P2,!!! were paid, but the debit was not recorded.
g. (he common stoc/ account needs scrutiny.
Questions
1. 2ash at 7ecember *1, 2!!. is;
a. P 11,"!! b. P 1*,"!! c. P 1,"!! d. P 1',"!!
2. 3ccounts receivable at 7ecember *1, 2!!. is;
a. P .,!!! b. P .!,!!! c. P ,!!! d. P !,!!!
*. 4otes receivable at 7ecember *1, 2!!. is;
a. P 1!,!!! b. P ",!!! c. P .,!!! d. P !
%. Ierchandise inventory at 7ecember *1, 2!!. is;
a. P 2.!,!!! b. P 1%!,!!! c. P 12!,!!! d. P 11!,!!!
. Prepaid insurance at 7ecember *1, 2!!. is;
a. P 2,%!! b. P 1,"!! c. P 1,2!! d. P !
.. >quipment at 7ecember *1, 2!!. is;
a. P 21!,!!! b. P 2%!,!!! c. P 2'!,!!! d. P *!!,!!!
'. Dand <future site= at 7ecember *1, 2!!. is;
a. P %!,!!! b. P *!,!!! c. P 2!,!!! d. P !
". 3ccounts payable at 7ecember *1, 2!!. is;
a. P 22,!!! b. P 2!,!!! c. P 1",!!! d. P 1.,!!!
&. Income ta6es payable at 7ecember *1, 2!!. is;
a. P *",!1. b. P 2",!1. c. P 1!,*"% d. P 1!,!!!
1!. Iortgage payable at 7ecember *1, 2!!. is;
a. P 1!!,!!! b. P &,!!! c. P &!,!!! d. P "!,!!!
11. 2ommon stoc/ at 7ecember *1, 2!!. is;
a. P *2!,!!! b. P 2!!,!!! c. P 1"!,!!! d. P 12!,!!!
39

1%. ?etained earnings at 7ecember *1, 2!!. is;
a. P !,!!! b. P *,2!! c. P 1",!!! d. P 2%,!!!
Solution
Cas 17,800
'ote recei%ab&e 6,000
9ercandise in%entor( 140,000
,re#aid insurance 1,200
+Eui#-ent 300,000
Accu-u&ated de#reciation 90,000
7and 40,000
!nterest #a(ab&e 4,000
!nco-e ta" #a(ab&e 10,000
9ortgage #a(ab&e 100,000
Co--on stocD 200,000
A,!C 120,000
$etained earnings CCCCCCCC 18,000 sEueeIed 3igure
565,000 565,000
Answer
1. 4 2. C 3. C 4. 2 5. C 6. A 7. A 8. C 9. 4 10. A
11. 2 12. C
Problem 15
Aour new audit client, 2api@ 2ompany, prepared the trial balance below as of 7ecember *1,
2!!.. (he company started its operations on 8anuary 1, 2!!. Aour e6amination resulted in
the necessity of applying the ad1usting entries indicated in the additional data below.
2api@ 2ompany
(?I3D +3D342>
7ecember *1, 2!!.
7ebits 2redits
2ash P1!,!!!
3ccounts receivable, net allowance of P2!,!!! .!!,!!!
Inventories, 7ecember *1, 2!! ..&,!!!
Dand ..!,!!!
+uildings &&!,!!!
3ccumulated depreciation, building P1&,"!!
Iachinery %%%,!!!
3ccumulated depreciation, machinery %,!!!
5in/ing fund assets ',!!!
+ond discounts ',!!!
(reasury stoc/, common 1!,!!!
3ccounts payable .',!!!
3ccrued bond interest 11,2!
First mortgage, .# sin/ing fund bonds .'&,!!
2ommon stoc/ 1,!!,!!!
40

Premium on common stoc/ 1!,!!!
5toc/ donation 1"!,!!!
?etained earnings, 7ecember *1, 2!! 222,%!
4et sales 2,.2,!!!
Purchases "!,!!
5alaries and wages !',!!!
Factory operating e6penses *.%,!!
3dministrative e6penses 1!,!!!
+ond interest %,!!! EEEEEEEEE
P.,!!!,!!! P.,!!!,!!!
3dditional data are as follows;
<1= (he 1,!!,!!! common stoc/ was issued at a 1! percent premium to the owners of
the land and buildings on 7ecember *1, 2!!%, the date of organi@ation. 5toc/ with a par
value of P1"!,!!! was donated bac/ by the vendors. (he following entry was made;
<7ebit= (reasury stoc/ P1"!,!!!
<2redit= 5toc/ donation P1"!,!!!
(he stoc/ was donated because the proceeds from its subsequent sale were to be
considered as an allowance on the purchase price of land and buildings in proportion to
their values as first recorded. (he treasury stoc/ was sold in 2!!. for P',!!!, which
was credited to treasury 5toc/.
<2= On 7ecember *1, 2!!., a machine costing P1,!!! when the business started was
removed. (he machine had been depreciated at 1! percent during the first year. (he
only entry made was one crediting the Iachinery account with its sales price of P.,!!!.
<*= 7epreciation is to be provided on the straight0line basis, as follows; buildings, 2
percent of cost- machinery, 1! percent of cost. Ignore salvage values.
<%= (he first mortgage, .# sin/ing fund bonds, par value P'!,!!! will mature in ten
years from 8anuary 1, 2!!, interest payable 3pril 1 and October 1. (he bonds were sold
on 8anuary 1, 2!!, at &!- the discount is to be amorti@ed over the life of the bonds on
straight0line basis.
<= 3 sin/ing fund is built up on the straight0line basis, with a provision that each
installment after the first shall be decreased y the amount of the annual . percent
interest, which interest is to be added to the fund. (he audit disclosed that the proper
installment to the sin/ing fund was paid by the company on 7ecember *1, 2!!., but
that the amount was charged in error o the firs Iortgage, .# 5in/ing Fund +onds
account.
<.= (he trustee of the sin/ing fund reported an addition of P%,!! interest to the fund on
7ecember *1, 2!!.. this had not been recorded by the company.
<'= Inventories at 7ecember *1, 2!!., were P2,!!!.
Questions
+ased on the above and the result of your audit, you are to provide the answers to the
following;
1. (he correct balance of Dand account as of 7ecember *1, 2!!. was
41

a. P..!,!!! b. P.*!,!!! c. P"",!!! d. P!
2. (he ad1usted net boo/ value of the +uilding as of 7ecember *1, 2!!. was
a. P &!',2!! b. P&!,%!! c. P&!,%!! d. P&%,!!!
*. (he correct net boo/ value of the machinery as of 7ecember *1, 2!!. was
a. P*&&,!!! b. P*%,!!! c. P*%,!!! d. P*%",!!!
%. (he correct amount of total depreciation e6pense for 2!!. was
a. P.%",!!! b. P.*,&!! c. P.2,%!! d. P.*,!!!
. Kow much was the gain or loss on sale of machinery on 7ecember *1, 2!!.:
a. P.,!!! loss b. P.,!!! gain c. P',!! loss d. P',!! gain
.. (he ad1usted net carrying amount of .# sin/ing fund bonds as of 7ecember *1,
2!!. was
a. P.',!!! b. P.'&,!! c. P.&!,!!! d. P'*,!!!
'. (he correct balance of sin/ing fund assets as of 7ecember *1, 2!!. was;
a. P',!!! b. P'&,!! c. P1!,!!! d. P1%,!!
". (he correct balance of (reasury 5toc/ as of 7ecember *1, 2!!. was;
a. P! b. P1!,!!! c. P1"!,!!! d. P',!!!
&. (he correct balance of 2ommon 5toc/ as of 7ecember *1, 2!!. was;
a. P1,*2!,!!! b. P1,!!,!!! c. P1,.!,!!! d. P1,*&,!!!
1!. (he correct balance of stoc/ donation as of 7ecember *1, 2!!. was;
a. P1"!,!!! b. P1!,!!! c. P! d. P',!!!
Solution
1. :+: 6reasur( stocD 180,000
)tocD donation 180,000
C+: 9e-o entr(
Ad*: )tocD donation 180,000
6reasur( stocD 180,000
@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@
:+: Cas 75,000
6reasur( stocD 75,000
C+: Cas 75,000
7and 30,000
2ui&ding 45,000
Ad*: 6reasur( stocD 75,000
7and 30,000
2ui&ding 45,000
2. :+: Cas 6,000
9aciner( 6,000
C+: Cas 6,000
Accu-. 4e#Gn 3,000
7oss on sa&e 6,000
9aciner( 15,000
Ad*: Accu-. 4e#Gn: -ac 3,000
7oss on sa&e 6,000
9aciner( 9,000
3. 4e#reciation 63,900
Accu-. 4e#Gn F 9ac 45,000 H
Accu-. de#Gn @ b&dg 18,900
42

H 444,000 M 6,000 F 15,000 " 10/ L 45,000
HH 990,000 F 45,000 L 945,000 " 2/ L 18,900
Accu-. 4e#Gn F b&dg 900
$etained earnings 900
4. 4iscount on bonds 75,000
)inDing 3und bonds 75,000
$etained earnings 7,500
4iscount on bonds 15,000
, 75,000010 (rs L ,7,500 F 2002
7,500 F 2003
5. :+: )inDing 3und bond 70,500
Cas 70,500
C+: )inDing 3und 70,500
Cas 70,500
Ad*: )inDing 3und 70,500
)inDing 3und bond 70,500
6. )inDing 3und 4,500
!nterest inco-e 4,500
Answer:
1. 2 2. A 3. 4 4. 2 5. A 6. C 7. C 8. A 9. 2 10. C
Problem 16
Instructions;
1. Prepare the audit ad1ustments required in the problems.
2. Post the net ad1ustment at the 9or/ing +alance 5heet <9+5= and 9or/ing Profit and
Doss <9PD=.
*. 2ompute the final balances of each account on your 9+5 and 9PD, proceed to the
questionnaires and transfer all answers to the final answer sheet.
%. 3ssume no other issues, e6cept those discussed on the problem.

On 4ovember 2!, 2!!. you have substantially completed your fieldwor/ relative to your
audit of ?,2K>DD 2orporation, engaged in the sale of rechargeable lamps. Its rented store
and office is located in 7avao 2ity.
+ased on your review of the records you have found out that the company$s financial
statements at the end of its fiscal year 5eptember *!, 2!!. submitted by their account is
sub1ect to the ad1ustments you noted in your audit.
Audit finding o! 1
Included in the 2ash account is a customer$s chec/ for P1,1!! deposited on 5eptember *!,
2!!. but returned by the ban/ on 5eptember *!, 2!!. for insufficiency of drawer$s funds.
(he chec/ was redeposited on October *, 2!!.. 4o entry was made by the company for the
return nor the redeposit of the chec/.
Audit finding o! 2
(he debit balance of P1,!! in the allowance for bad debts resulted from write0offs of
uncollectible accounts in e6cess of the beginning balance of the allowance. Further analysis
of the customer$s accounts disclosed the need for setting up an allowance as at 5eptember
*!, 2!!. to # of outstanding balance as of date.
Audit finding o! 3
Loods shipped out on consignment basis in 5eptember 2!!., still unsold as at the end of
the month, were recorded as sales for P%,&!! which included %!# gross profit on cost. (his
was not included in the physical inventory.
43

Audit finding o! 4
3 physical inventory ta/en of the merchandise on 5eptember *!, 2!!. amounted to
P%1,!!.
Audit finding o! 5
4otes receivable included a 12!0day "# for P&,!!! dated 8uly 1, 2!!. from 8. ?amos,
interest due on maturity date <assume *! days per month=.
Audit finding o! 6
Furniture and equipment costing P*,!!! acquired on October 1, 2!!*, and a boo/ value of
P2,%!! at 5eptember *!, 2!!, was sold for P2,!!! cash on October 1, 2!!.. (he sales
price was credited to Furniture and >quipment.
Audit finding o! 7
7epreciation for the fiscal year has not been recorded. >stimated life of the furniture and
equipment is 1! years.
Audit finding o! 8
3 one0year insurance policy was ta/en by the company on 8une *!, 2!!. and paid the
annual of P1,2!!.
Audit finding o! 9
(he company paid P11,'!! representing rent for 1* months ending on October *1, 2!!..
Audit finding o! 10
(he 12!0day note payable of P.,!!!, bearing 12# interest was discounted with the ban/ on
3ugust 1, 2!!.. Interest e6pense was debited.
Audit finding o! 11
(he e6cess of P11! issue price over the 1!! par value upon sale of 2!! shares was credited
to retained earnings.
Audit finding o! 12
Loodwill account was set0up with a credit to ?etained >arnings on the basis of a resolution
of the +oard of 7irectors.
Audit finding o! 13
Office salaries unpaid as of 5eptember *!, 2!!., P1,2!!, were not ta/en up as accrued
e6pense.
Audit finding o! 14
Patents were acquired by purchase on 5eptember *!, 2!! for P2!,!!!. It has as estimated
useful life of % years.
Audit finding o! 15
3n analysis of the investment account shows that on 5eptember 2!!. 2 shares were sold
for P2!! per share. (his was recorded as a debit balance to 2ash, P,!!! and a credit to
Investments in 3 2o., P,!!!.
Audit finding o! 16
3 repayment of non0interest bearing note payable for P,!!! was erroneously debited to
3dvertising.
44

Audit finding o! 17
3 payment of P1,!!! for (a6es on 5eptember 2&, 2!!. was not recorded in the boo/s.
Audit finding o! 18
On 5eptember *!, 2!!. ?,2K>DD 2ompany declared a 1!# stoc/ dividend distributable on
October 21, 2!!.. (he mar/et value per share is P12! at the time of declaration. (his has
not been ta/en up in the boo/s.
Audit finding o! 19
On 5eptember *!, 2!!. a Dand was donated by a stoc/holder. (he stoc/holder bought the
Dand in 1&&" for P2.,!!!. (he appraised value of the land at present is P!,!!!.
Audit finding o! 20
Iar/etable 5ecurities which cost P1,!!! has a mar/et value of P1.,!!!.
Audit finding o! 21
3 payment to supplier within the discount period was made on 8une 2!, 2!!.. (he discount
of P2! was credited to 5ales discounts instead of purchase discounts.
Audit finding o! 22
?,2K>DD 2orporation has a pending lawsuit from a customer, as/ing for a P1!!,!!!
damages. (he lawyers of the company believe that it is remote that the case of the
customer will prosper in court.
?,2K>DD 2orporation
9or/ing +alance 5heet
5eptember *!, 2!!.
P>? 3,7I( FI43D
+OOP 378,5(I>4( +3D342>5
"urrent
2ash 1!,!!
Iar/etable 5ecurities 1,!!!
3ccount ?eceivable J trade ',2!!
3llowance for doubtful accounts 1,!! dr.
4otes ?eceivable 21,!!
Inventories *&,!!
Investment in 3, 2o. J1!! shares 2,!!!
Interest ?eceivable 0
Prepayments 1,'!
(O(3D 1'1,&!
Dand
Furniture O >quipment !,"!
3ccumulated 7epreciation <12,1'!=
(O(3D *",."!
Loodwill 1!,!!!
Patents 2!,!!!
(O(3D *!,!!!
#ot$l Assets 2%!,.*!
45

%i$bilities
3ccounts payable *,%2!
3ccrued e6penses 0
4otes payable *1,!!!
&toc'(olders) e*uit+
2apital 5toc/, P1!! ',!!!
3dditional paid in capital 0
5toc/ dividend distributable 0
7onated capital 0
?etained >arnings &&,21!
#ot$l %i$b! , &! E 2%!,.*!
?,2K>DD 2O?PO?3(IO4
9or/ing Profit and Doss
Aear >nded 5eptember *!, 2!!.
P>? 3,7I( FI43D
+OOP5 378,5(I>4( +3D342>5
5ales 2.&,"1!
5ales returns < 1,&!=
5ales discounts < 1,'!!=
4et sales 2..,1.!
2ost of sales
Inventory, beg. *&,!!
Purchases 1"&,*.!
Purchase returns < *,'!!=
Purchase discounts < 1,&'!=
Inventory, end <%1,!!=
1"1,.&!
Lross Profit "%,%'!
3dvertising < ',21!=
7oubtful 3ccounts 0
5alesman$s 5alaries <21,.!=
Iiscellaneous 5elling e6penses < 1,&%!=
?ent e6pense <11,'!!=
Insurance e6pense < 1,2!!=
Dight and water < *!!=
(a6es < 1,1!=
Office salaries < *,**!=
Iiscellaneous office e6pense < 1,.!=
Doss on sale 0
3morti@ation of Intangibles 0
Interest >6pense < %,!.!=
Other Income %*!
4et Income *!,%%!
Questions
1. 2ash
a. P &,!! b. P",%!! c. P1!,.!! d. P,"!!
2. 3ccounts receivable J trade
46

a. P',2!! b. P*,%!! c. P!,!!! d. P",*!!
*. 3llowance for doubtful accounts
a. P1,!! b. P2,.'! c. P2.".! d. P%,11
%. Interest ?eceivable
a. P.! b. P1"! c. P2%! d. &!
. Inventories
a. P%1,!! b. P%.,%!! c. P%,!!! d. %!,!!!
.. 7oubtful accounts
a. P2,&"! b. P2,.'! c. P%,1'! d. P%,!!!
'. Prepayments
a. P2,&"! b. P*,'!! c. p2,!! d. P2,.!
". Furniture and >quipment
a. P',"! b. P.2,"! c. P.!,"! d. P!,"!
&. 7epreciation
a. P,!" b. P.,2" c. P.,!" d. P%.&"
1!. 3ccounts payable
a. P*,%2! b. P*%,%2! c. P*.,!!! d. P*2,&""
11. 2apital 5toc/
a. P',!!! b. P'',!!! c. P! d. P'*,!!!
12. 5ales
a. P2.&,"1! b. P2'%,'1! c. P2.%,&1! d. P2.!,1!!
1*. Purchases
a. P1"&,*.! b. P1"',*.! c. P1"!,!!! d. P2!!,1.!
1%. Interest e6pense
a. P%,!*! b. P%.!.! c. P%,!&! d. P*,&1!
1. Other Income
P%*! b. P.1! c. P%!! d. !
1.. Loodwill
a. P! b. P1!,!!! c. P,!!! d. P.,!!!
1'. Office salaries
a. P2,1*! b. P22,"! c. P%,*! d. P1,2!!
1". Patents
a. P! b. P1!,!!! c. P1,!!! d. P,!!!
1&. 3dditional Paid in 2apital
a. P*,!! b. P!! c. P2,!!! d. P2!!
2!. Investment in a 2o.
47

a. P! b. P2.,!!! c. P2%,!!! d. P2,!!!
21. 3dvertising
a. P',21! b. P,21! c. P2,21! d. P,!!!
22. Dight and Power
a. P!! b. P,*!! c. P*!! d. P!
2*. (a6es
a. P1,&'! b. P2,1! c. P1,!!! d. P*!!
2%. ?,2K>DD 2ompany should record stoc/ dividend payable at
a. P',!! b. P&,!!! c. P! d. P1,!!
2. Dand
a. P! b. P!,!!! c. p2.,!!! d. P2%,!!!
2.. (he appropriate account to be credited for the donation is
a. ?etained >arnings c. 7onated 2apital
b. 2apital 5toc/ d. Other Income
2'. Iar/etable securities, net of any allowance for decline
a. P1%,!!! b. P1,!!! c. P1.,!!! d. P!
2". 5ales discount
a. P1,."! b. P1,'2! c. P1,2!! d. P1,!!
2&. 5alesman$s salaries
a. P21,.! b. P22,"! c. P2!,!!! d. P2,!!!
*!. ?,2K>DD 2ompany should recogni@e liability from damages for
a. P! b. P1!!,!!! c. P!,!!! d.P2!!,!!!

Answer:
1. 2 2. 2 3. 2 4. 2 5. C 6. C 7. 2 8. 4 9. A 10. A
11. A 12. C 13. A 14. 4 15. 2 16. A 17. C 18. C 19. A 20. C
21. C 22. C 23. 2 24. A 25. 2 26. C 27. 2 28. 2 29. A 30. A
+ntries:
>inding 1 >inding 8
Accounts recei%ab&e 1,100 ,re#a(-ents 900
Cas 1,100 !nsurance e"#ense 900
>inding 2 >inding 9
2ad debts 4,170 ,re#a(-ents 900
A&&ow. >or 24 4,170 $ent e"#ense 900
>inding 3 >inding 10
)a&es 4,900 ,re#a(-ent 150
Accounts recei%ab&e 4,900 !nterest e"#ense 150
!n%entor( 3,500 >inding 11
C:) 3,500 $etained earnings 2,000
>inding 4 A,!C 2,000
C:) 39,500 >inding 12
!n%entor( 39,500 $etained earnings 10,000
!n%entor( 41,500 Aoodwi&& 10,000
C:) 41,500 >inding 13
>inding 5 :33ice sa&aries 1,200
!nterest recei%ab&e 180 Accrued e"#enses 1,200
!nterest inco-e 180 >inding 14
>inding 6 A-ortiIation 5,000
48

'o ad*ust-ents ,atents 5,000
>inding 7
4e#reciation 5,085
A4 5,085
>inding 15 >inding 18
7oss on sa&e 1,000 $etained earnings 9,000
!n%est-ent 1,000 )tocD di%. distr. 7,500
>inding 16 A,!C 1,500
'ote #a(ab&e 5,000 >inding 19
Ad%ertising 5,000 7and 50,000
4onated ca#ita& 50,000
>inding 17
6a"es 1,000 >inding 20
Cas 1,000 'o ad*ust-ent
>inding 21
)a&es discount 20
,urcase discount 20
WORKING PAPER
,er booDs ,er audit
Cas 10,500.00
2,100.0
0 8,400.00
9arDetab&e securities 15,000.00 15,000.00
Accounts recei%ab&e @ trade 57,200.00
1,100.0
0
4,900.0
0 53,400.00
A&&ow.3or bd @ debit ba&ance 1,500.00
4,170.0
0
.2,670.0
01
'otes recei%ab&e 21,500.00 21,500.00
!n%entories 39,500.00
45,000.0
0
39,500.0
0 45,000.00
!n%est-ent in A. Co. @ 100 sares 25,000.00
1,000.0
0 24,000.00
!nterest recei%ab&e @ 180.00 180.00
,re#a(-ents 1,750.00
1,950.0
0 3,700.00
7and @
50,000.0
0 50,000.00
>urniture P +Eui#-ent 50,850.00 50,850.00
Accu-u&ated de#reciation
.12,170.0
01
5,085.0
0
.17,255.0
01
Aoodwi&& 10,000.00
10,000.0
0 @
,atents 20,000.00
5,000.0
0 15,000.00
240,630.0
0
267,105.0
0
Accounts #a(ab&e 35,420.00 35,420.00
Accrued e"#enses @
1,200.0
0 1,200.00
'otes #a(ab&e 31,000.00
5,000.0
0 26,000.00
Ca#ita& stocD, ,100 75,000.00 75,000.00
Additiona& #aid in ca#ita& @
3,500.0
0 3,500.00
)tocD di%idend distributab&e @
7,500.0
0 7,500.00
4onated ca#ita& @
50,000.0
0 50,000.00
$etained earnings 99,210.00 68,485.00
240,630.0
0
267,105.0
0
49

)a&es 269,810.00
4,900.0
0 264,910.00
)a&es returns
.1,950.0
01
.1,950.0
01
)a&es discounts
.1,700.0
01 20.00
.1,720.0
01
'et sa&es 266,160.00 261,240.00
Cost o3 sa&es HHH 181,690.00
39,500.0
0 20.00
41,500.0
0
3,500.0
0 176,170.00
Aross #ro3it 84,470.00 85,070.00
:ter inco-e 430.00 180.00 610.00
6:6A7 84,900.00 85,680.00
:#erating e"#enses
Ad%ertising
.7,210.0
01
5,000.0
0
.2,210.0
01
4oubt3u& accounts @
4,170.0
0
.4,170.0
01
)a&es-enJs sa&aries
.21,650.0
01
.21,650.0
01
9isce&&aneous se&&ing e"#enses
.1,940.0
01
.1,940.0
01
$ent e"#enses
.11,700.0
01 900.00
.10,800.0
01
!nsurance e"#ense
.1,200.0
01 900.00
.300.00
1
7igt and water
.300.00
1
.300.00
1
6a"es
.1,510.0
01
1,000.0
0
.2,510.0
01
:33ice sa&aries
.3,330.0
01
1,200.0
0
.4,530.0
01
9isce&&aneous o33ice e"#enses
.1,560.0
01
.1,560.0
01
7oss on sa&e @
1,000.0
0
.1,000.0
01
4e#reciation @
5,085.0
0
.5,085.0
01
A-ortiIation o3 intangib&es @
5,000.0
0
.5,000.0
01
!nco-e 3ro- o#erations 34,500.00 24,625.00
!nterest e"#ense
.4,060.0
01 150.00
.3,910.0
01
'et inco-e 30,440.00 20,715.00
$etained beginning 68,770.00
12,000.0
0 56,770.00
4i%idends @
9,000.0
0
.9,000.0
01
$etained end 99,210.00 68,485.00
186,105.0
0
186,105.0
0
HHH C:)
!n%entor( @ beg. 39,500.00
,urcases 189,360.00
,urcase returns
.3,700.0
01
,urcase discounts .1,970.0
50

01
6AA) 223,190.00
!n%entor( @ end
.41,500.0
01
C:) 181,690.00
51

CHAPTER 1 Caselette - Accounting Cycle

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CHAPTER 1 Caselette - Accounting Cycle

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CHAPTER 1 - Accounting Process &

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