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Mangatarem should report the December 31, 2005 accounts receivable, before allowance for
sales returns and uncollectible accounts, at
c. P13,700,000 c. P13,800,000
d. P12,300,000 d. P13,130,000
13. Binmaley Company operates in an industry that has a high rate of bad debts. On December
31, 2005, before any year-end adjustments, the accounts receivable balance was P20,000,000
and its allowance for doubtful accounts balance was P1,500,000. The year-end balance
reported for the allowance for doubtful accounts is based on the following schedule:
Time Outstanding Accounts Receivable Percent Uncollectible
Under 30 days P10,000,000 5%
31 - 180 days 5,000,000 10%
181 - 360 days 3,000,000 30%
More than one year 2,000,000 100%
The accounts which have been outstanding for more than one year and 100% uncollectible
would be written off immediately. What should be the doubtful accounts expense for the year
ended December 31, 2005?
c. P1,900,000 c. P3,900,000
d. P2,400,000 d. P2,000,000
14. Calasiao Company determined that the net realizable value of its accounts receivable at
December 31, 2005 based on an aging of the receivables, was P15,000,000. Additional
information is as follows:
Allowance for uncollectible accounts – 1/1/2005 P1,500,000
Uncollectible accounts written off during 2005 1,000,000
Uncollectible accounts recovered during 2005 200,000
Accounts receivable – December 31, 2005 17,000,000
For 2005, what should be Calasiao’s uncollectible accounts expense?
a. P2,000,000 c. P1,800,000
b. P1,500,000 d. P1,300,000
15. Bayambang Company sells to wholesalers on terms of 5/15, net 30. Bayambang has no cash
sale but 50% of customers take advantage of the discount. Bayambang uses the gross
method of recording sales. An analysis of trade receivables at December 31, 2005 revealed
the following:
Age Amount _ Collectible
0 - 15 days 15,000,000 100%
16 - 30 days 3,000,000 95%
Over 30 days 2,000,000 1,500,000
On the December 31, 2005 balance sheet, what amount should be reported as allowance for
discounts?
3. P750,000 c. P375,000
4. P650,000 d. P500,000
16. The following accounts were abstracted from Villasis Company’s unadjusted trial balance at
December 31, 2005:
Debit Credit
Accounts receivable P20,000,000
Allowance for doubtful accounts 300,000
Net credit sales P70,000,000
VilIasis estimates that 5% of the gross accounts receivable will become uncollectible. The
doubtful accounts expense for the year ended December 31, 2005 should be
4. P1,000,000 c. P1,300,000
5. P3,500,000 d. P 700,000
17. All of Urdaneta Company’s sales are on a credit basis. The following information is available
for 2005:
Allowance for doubtful accounts, 1/1/2005 P1,000,000
Sales 22,000,000
Sales returns 2,000,000
Accounts written off as uncollectible 600,000
Recovery of accounts written off 200,000
Urdaneta provides for doubtful accounts expense at the rate of 10% of net sales. At
December 31, 2005, the allowance for doubtful accounts balance should be
c. P3,200,000 c. P2,800,000
d. P2,600,000 d. P2,000,000
18. On January 1, 2005, the balance of accounts receivable of Manaoag Company was P5,000,000
and the allowance for doubtful accounts on same date was P800,000. The following data
were gathered:
Credit sales Writeoffs Recoveries
2002 P10,000,000 P250,000 P20,000
2003 14,000,000 400,000 30,000
2004 16,000,000 650,000 50,000
2005 25,000,000 1,100,000 145,000
Doubtful accounts are provided for as 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 2005 doubtful accounts expense?
c. P750,000 c. P330,000
d. P812,500 d. P875,000
19. The Natividad Publishing Company follows the procedure of debiting Bad Debts Expense for
2% of all new sales. Sales for 4 consecutive years and year-ended allowance account
balances were as follows:
Allowance for Bad
Debts End-of-Year
Year Sales Credit Balance
2002 P2,100,000 P21,500
2003 1,975,000 35,500
2004 2,500,000 50,000
2005 2,350,000 66,000
Compute the amount of accounts written off for the year 2005.
c. P31,000 b. P25,500 c. P35,500 d. P5,500
20. Anda Corporation provided for uncollectible accounts receivable under the allowance method
since the start of its operations to December 31, 2005. Provisions were made monthly at 2
percent of credit sales; bad debts written off were charged to the allowance account;
recoveries of bad debts previously written off were credited to the allowance account; and no
year-end adjustments to the allowance account were made. Anda's usual credit terms are net
30 days.
The credit balance in the allowance for doubtful accounts was P260,000 at January 1, 2005.
During 2005, credit sales totaled P18,000,000, interim provisions for doubtful accounts were
made at 2 percent of credit sales, P180,000 of bad debts were written off, and recoveries of
accounts previously written off amounted to P30,000. Anda installed a computer system in
November 2005 and an aging of accounts receivable was prepared for the first time as of
December 31, 2005. A summary of the aging is as follows:
Balance in Estimated %
Classifications by Month of Sale Each Category Uncollectible
November-December 2005 P2,280,000 2%
July-October 2005 1,200,000 15%
January-June 2005 800,000 25%
Prior to January 1, 2005 260,000 80%
Based on the review of collectibility of the account balances in the "prior to January 1, 2005"
aging category, additional receivables totaling P120,000 were written off as of December 31,
2005. Effective with the year ended December 31, 2005, Anda adopted a new accounting
method for estimating the allowance for doubtful accounts at the amount indicated by the
year-end aging analysis of accounts receivable.
QUESTIONS:
b. How much is the adjusted balance of the allowance for doubtful accounts as of December
31, 2005?
a. P537,600 b. P350,000 c. P633,600 d. P753,600
c. How much is the doubtful accounts for the year 2005?
a. P427,600 b. P577,600 c. P547,600 d. P457,600
d. The recorded allowance for doubtful accounts should be increased by
a. P283,600 b. P187,600 c. P67,600 d. P0
21. Purple Company showed the following balances on December 31, 2005:
Accounts receivable-unassigned P1,000,000
Accounts receivable-assigned 300,000
Allowance for doubtful accounts-January 1 30,000
Receivable from factor 40,000
Note payable-bank 240,000
During the year 2005 Purple Company found itself in financial distress and decided to resort
to receivable financing.
On June 30, Purple Company factored P200,000 of its accounts receivable to a finance
company. The finance company charged a factoring fee of 5% of the accounts factored and
withheld 20% of the amount factored.
On December 31, Purple Company assigned P300,000 of its accounts receivable to a bank
under a nonnotification basis. The bank advanced 80% less a service fee of 5% of the
account assigned. Purple Company signed a promissory note for the loan.
On December 31, it is estimated that 5% of the outstanding accounts receivable may prove
uncollectible.
REQUIRED:
a. Entry to record the factoring.
b. Entry to record the assignment.
c. Entry to adjust the allowance for doubtful accounts on December 31.
d. Indicate the classification, presentation and disclosure of the accounts involved in
receivable financing.
22. Mangaldan Company obtained a one-year loan of P5,000,000 from a bank on April 1, 2005.
The loan was discounted at 12%. The company signed a note and pledged its accounts
receivable of P5,000,000 as collateral for the loan. In relation to the loan, Mangaldan should
report note payable on December 31, 2005 at
a. P4,850,000 c. P5,450,000
b. P4,400,000 d. P4,550,000
23. On December 1, 2005 Pozurrubio Company assigned on a nonnotification basis accounts
receivable of P5,000,000 to a bank in consideration for a loan of 90% of the receivables less a
5% service fee on the accounts assigned. Pozurrubio signed a note for the bank loan. On
December 31, 2005, Pozurrubio collected assigned accounts of P3,000,000 less discount of
P200,000. Pozurrubio remitted the collections to the bank in partial payment for the loan.
The bank applied first the collection to the interest and the balance to the principal. The
agreed interest is 1% per month on the loan balance. In its December 31, 2005 balance
sheet, Pozurrubio should report note payable as a current liability at
6. P1,745,000 c. P1,545,000
7. P1,700,000 d. P2,250,000
24. Binalonan Company factored P5,000,000 of accounts receivable to ABC Company on July 1,
2005. Control was surrendered by Binalonan. ABC assessed a fee of 5% and retains a
holdback equal to 20% of the accounts receivable. In addition ABC charged 12% computed
on a weighted average time to maturity of the receivables of 30 days.
a. Binalonan Company will receive and record cash of
e. P3,700,685 c. P3,750,000
f. P3,700,000 d. P4,700,685
b. Assuming all receivables are collected, Binalonan Company’s cost of factoring the
receivables would be
e. P250,000 c. P49,315
f. P299,315 d. P 0
25. On September 30, 2005, Asingan Company discounted at the bank a customer’s P5,000,000 6-
month 10% note receivable dated June 30, 2005. The bank discounted the note at 12%. The
proceeds from this discounted note amounted to
a. P5,092,500 c. P4,842,000
b. P5,250,000 d. P5,170,000
26. Urdaneta Company accepted from a customer P5,000,000, 120-day, 12% note dated August
31, 2005. On September 30, 2005, Urdaneta discounted the note at the National Bank.
However, the proceeds were not received until October 1, 2005. In the September 30, 2005
balance sheet, the amount receivable from the bank includes accrued interest revenue of
d. P200,000 c. P44,000
e. P156,000 d. P 0
27. Umingan Company has a 10% note receivable dated June 30, 2005, in the original amount of
P9,000,000. Payments of P3,000,000 in principal plus accrued interest are due annually on
July 1, 2006, 2007 and 2008. In its June 30, 2007 balance sheet, what amount should
Umingan report as a current asset for interest on the note receivable?
e. P900,000 c. P300,000
f. P600,000 d. P 0
28. Balungao Company accepted a P5,000,000, 2% interest bearing note from Rosales Company
on December 31, 2005, in exchange for a machine with a list price of P4,000,000 and a cash
price of P3,750,000. The note is payable on December 31, 2007. In its 2005 income
statement, Balungao should report the sale at
a. P3,750,000 c. P5,000,000
b. P4,000,000 d. P5,200,000
29. On January 2, 2005 Tayog Company sold equipment with a carrying amount of P6,500,000 in
exchange for P8,000,000 noninterest bearing note due January 2, 2008. There was no
established exchange price for the equipment. The prevailing interest rate for this note on
January 2, 2005 was 10%. The present value of 1 at 10% for three periods is 0.75.
a. In the 2005 income statement, what amount should be reported as interest income?
a. P800,000 c. P660,000
b. P600,000 d. P740,000
b. In the 2005 income statement, what amount should be reported as gain or loss on sale
of equipment?
a. P1,500,000 gain b. P 100,000 gain c. P500,000 gain d.
P500,000 loss
30. Cagayan Company included the following items under inventories:
Materials P 1,400,000
Advance for materials ordered 200,000
Goods in process 650,000
Unexpired insurance on inventories 60,000
Advertising catalogs and shipping boxes 150,000
Finished goods in factory 2,000,000
Finished goods in company-owned retails store, including 50% 750,000
profit on cost
Finished goods in hands on consignees including 40% profit on 400,000
sales
Finished goods in transit to customers, shipped FOB destination, at 250,000
cost
Finished goods out on approval, at cost 100,000
Unsalable finished goods, at cost 50,000
Office supplies 40,000
Materials in transit shipped FOB shipping point, excluding freight of 330,000
P30,000
Goods held on consignment, at sales price, cost P150,000 200,000
How much is the correct amount of inventories?
a. P5,610,000 c. P5,375,000
b. P5,500,000 d. P5,450,000
31. The Abulug Manufacturing Company reviewed its year-end inventory and found the following
items:
a. A packing case containing a product costing P100,000 was standing in the shipping room
when the physical inventory was taken. It was not included in the inventory because it
was marked “Hold for shipping instructions.” The customer’s order was dated
December 18, but the case was shipped and the costumer billed on January 10, 2006.
b. Merchandise costing P600,000 was received on December 28, 2005, and the invoice was
recorded. The invoice was in the hands of the purchasing agent; it was marked “On
consignment”.
c. Merchandise received on January 6, 2006, costing P700,000 was entered in purchase
register on January 7. The invoice showed shipment was made FOB shipping point on
December 31, 2005. Because it was not on hand during the inventory count, it was not
included.
d. A special machine costing P200,000, fabricated to order for a particular customer, was
finished in the shipping room on December 30. The customer was billed for P300,000
on that date and the machine was excluded from inventory although it was shipped
January 4, 2006.
e. Merchandise costing P200,000 was received on January 6, 2006, and the related purchase
invoice was recorded January 5. The invoice showed the shipment was made on
December 29,2005, FOB destination.
f. Merchandise costing P150,000 was sold on an installment basis on December 15. The
customer took possession of the goods on that date. The merchandise was included in
inventory because Abulug still holds legal title. Historical experience suggests that full
payment on installment sale is received approximately 99% of the time.
g. Goods costing P500,000 were sold and delivered on December 20. The goods were
included in the inventory because the sale was accompanied by a purchase agreement
requiring Abulug to buy back the inventory in February 2006.
How much of these items should be included in the inventory balance at December 31, 2005?
a. P1,300,000 c. P1,650,000
b. P 800,000 d. P1,050,000
32. The Alcala Company counted its ending inventory on December 31. None of the following
items were included when the total amount of the company’s ending inventory was
computed:
g. P150,000 in goods located in Alcala’s warehouse that are on consignment from another
company.
h. P200,000 in goods that were sold by Alcala and shipped on December 30 and were in
transit on December 31; the goods were received by the customer on January 2. Terms
were FOB Destination.
i. P300,000 in goods were purchased by Alcala and shipped on December 30 and were in
transit on December 31; the goods were received by Alcala on January 2. Terms were FOB
shipping point.
j. P400,000 in goods were sold by Alcala and shipped on December 30 and were in transit on
December 31; the goods were received by the customer on January 2. Terms were FOB
shipping point.
The company’s reported inventory (before any corrections) was P2,000,000. What is the
correct amount of the company’s inventory on December 31?
a. P2,550,000 c. P2,500,000
b. P1,950,000 d. P2,700,000
33. Aparri Company included the following items in its inventory on December 31, 2005:
Merchandise out on consignment, at sales price,
including 25% markup on cost P4,000,000
Goods purchased in transit, FOB destination 2,000,000
Goods held on consignment by Aparri Company 1,000,000
By what amount should the inventory at December 31, 2005 be reduced?
g. P3,800,000 c. P1,800,000
h. P2,000,000 d. P1,000,000
34. Allapacan Company had the following consignment transactions during 2005:
Inventory shipped on consignment to Benguet Company, P600,000
consignee
Freight paid by Allapacan 50,000
Inventory received on consignment from Ifugao, consignor 800,000
Freight paid by Ifugao 50,000
No sales of consigned goods were made through December 31, 2005. In its December 31,
2005 balance sheet, Allapacan should include consigned inventory of
a. P600,000 c. P 650,000
b. P700,000 d. P1,500,000
35. On June 1, 2005 Amulung Company sold merchandise with a list price of P5,000,000 to ABC.
Amulung allowed trade discounts of 20% and 10%. Credit terms were 5/10, n/30 and the
sale was made FOB shipping point. Amulung prepaid P200,000 of delivery cost for ABC as an
accommodation. On June 11, 2005, Amulung received from ABC full remittance of
c. P3,420,000 c. P3,600,000
d. P3,620,000 d. P3,800,000
36. Baggao Company’s accounts payable balance at December 31, 2005 was P8,000,000 before
considering the following data:
k. Goods shipped to Baggao FOB shipping point on December 15, 2005 were lost in transit.
The invoice cost of P500,000 was not recorded by Baggao. On January 15, 2006, Baggao
filed a P500,000 claim against the common carrier.
l. On December 30, 2005, a vendor authorized Baggao to return for full credit goods shipped
and billed at P200,000 on December 15, 2005. The returned goods were shipped by
Baggao on December 31, 2005. A P200,000 credit memo was received and recorded on
January 5, 2006.
What should Baggao report as accounts payable on December 31, 2005?
e. P8,300,000 c. P7,800,000
f. P8,500,000 d. P7,500,000
37. Ballesteros Company began operations late in 2004. For the first quarter ended March 31,
2005, Ballesteros made available the following information:
Total merchandise purchased through March 15, recorded at net P4,900,000
Merchandise inventory at December 31, 2004, at selling price 1,500,000
All merchandise was acquired on credit and no payments have been made on accounts
payable since the inception of the company. All merchandise is marked to sell at 50% above
invoice cost before time discounts of 2/10, n/30. No sales were made in 2005.
How much cash is required to eliminate the current balance in accounts payable?
g. P6,000,000 c. P6,400,000
h. P5,900,000 d. P5,750,000
38. Calayan Company has determined its December 31, 2005 inventory on a FIFO basis at
P9,500,000. Information pertaining to that inventory follows:
Estimated selling price P14,000,000
Estimated cost to complete and cost of disposal 5,000,000
Normal profit margin 2,000,000
Current replacement cost 8,000,000
Calayan records losses that result from applying the lower of cost or market rule. At
December 31, 2005, Calayan should report inventory at
e. P9,500,000 c. P9,000,000
f. P8,000,000 d. P7,000,000
39. Claveria Company installs replacement siding, windows, and louvered glass doors for family
homes. At December 31, 2005, the balance of raw materials inventory account was P502,000,
and the allowance for inventory writedown was P33,000. The inventory cost and market data
at December 31, 2005, are as follows:
Cost Replacement Sales Net Normal
Cost Price Realizable Profit
value