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AP - MIDTERM (QUIZ 2017)

Problem

1. In reconciling the book and bank balance of the cash account of Perlas Corporation, you discover the following for the month of
December 2018:

Balance per bank statement P400,000.00

Balance per books 387,000.00
Receipts not yet deposited 100,000.00
Bank service charge 1,000.00
Customer's check returned by bank marked DAIF 22,000.00

A paid check for 40,000 was recorded in the cash book as P4,000.

1. Assuming no other errors were noted, what is the amount of the outstanding checks at December 31, 2018?
a. P113,000 b. P150,000 c. P172,000 d. P171,000

2. What is the adjusted cash balance on December 31, 2018?

a. P329,000 b. P350,000 c. P328,000 d. P2228,000

2. The financial statements of Red Bulls Corporation included the following:

December 31, 2017 December 31, 2018

Accounts Receivable P 735,000
Allowance for doubtful accounts 16,200
Sales on account P 4,500,000
Cash collected from customers 4,200,000

Among the cash collections was the full recovery of a P16,000 receivable from Robert De Leon, a customer whose account had
been written off as worthless late in 2017.

During 2018, it was necessary to write off uncollectible customers ’ accounts totalling P20,200.

On December 1, 2018, a customer settled his account by issuing t Red Bulls Corporation a 9% six-month note for P250,000.

At December 31, 2018, the accounts receivable included P100,800 past due accounts. After careful study of all past due
accounts, the management estimated the probable loss contained therein was 10%. In addition, 2% of the current accounts
receivable might prove uncollectible.

1. What is the balance of Accounts Receivable as of Dec. 31, 2018?

a. P780,800
b. P801,000
c. P821,200
d. P1,051,000

2. What is the amount of the current accounts receivable that might prove to be uncollectible?
a. P13,600
b. P14,004
c. P14,408
d. P19,004

3. What is the balance of the allowance for uncollectible accounts before adjustments on December 31, 2018?
a. P4,000
b. P12,000
c. P12,200
d. P32,200

4. What is the balance of the allowance for uncollectible accounts after all necessary adjusting entries on December 31, 2018?
a. P10,080
b. P12,084
c. P14,004
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d. P23,680

3. You have been engaged for the audit of the Blatche Company for the year ended December 31, 2018. The company is engaged
in the wholesale chemical business and makes all sales 25% above cost.

Following are the portions of client’s sales and purchase accounts for the calendar year 2018:

SALES

DATE REFERENCE AMOUNT DATE REFERENCE AMOUNT

12-31 Closing Entry P 699,860 Balance Forward P 658,320
12-27 *SI #965 5,195
12-28 SI #966 19,270
12-28 SI #967 1,302
12-31 SI #969 5,841
12-31 SI #970 7,922
12-31 SI #971 2,010
TOTAL P 699,860 TOTAL P 699,860

PURCHASES

DATE REFERENCE AMOUNT DATE REFERENCE AMOUNT

12-31 Balance Forwarded P 360,300 12-31 Closing Entry P 385,346
12-28 @RR # 1059 3,100
12-30 RR #1061 8,965
12-31 RR #1062 4,861
12-31 RR #1063 8,120
TOTAL P 385,346 TOTAL P 385,346

*SI –Sales Invoice

@RR- Receiving Report

You observed the physical inventory of goods in the warehouse on December 31, 2018 and were satisfied that it was properly
taken. The inventory list per count indicates total inventory of P 98,000.

When performing a sales and cut off test, you found that at December 31, 2018, the last receiving report that have been used
was no. 1063 and that no shipments have been made on any sales invoices with numbers larger than NO. 968. You also obtained
additional information below:

a. Included in the warehouse physical inventory at December 31, 2018 were chemicals that had been
purchased and received on receiving report no. 1060 for which an invoice was not received until 2019. Cost was P
2,183.

b. In the warehouse at December 31, 2018, were goods that had been sold and paid for by the customer but which were
not shipped out until 2019. They were all sold on sales invoice no.965 and were not inventoried.

c. On the evening of December 31, 2018, there were two cars on the Blatche Company siding:

- Car PRM 993 was unloaded on January 2, 2019 and received on receiving report 1063. The freight
was paid by the vendor.
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- Car UMX 410 was loaded and sealed on December 31, 2018 and left the company’s siding on January 2,
2019. The sales price P 12,700 and the freight was paid by the Customer . The order was sold on sales invoice
No. 968.

d. Temporarily stranded at December 31, 2018 on a railroad siding were two cars of chemical enroute to the Castro Co.
They were sold on sales invoice No. 966 and the terms were FOB Destination

e. En route to the Blatche Company on December 31, 2018, was a truckload of material that was received on receiving
report no. 1064. The material was shipped FOB Destination and freight of P 750 was paid the Blatche Company.
However the freight was deducted from the purchase price of P 9,750.

f. Included in the physical count were chemicals exposed to rain while in transit and deemed unsalable. Their invoice
cost was P 11,250 and freight charges of P 1,350 had been paid on the chemicals.

1. How much is the correct balance of inventory at December 31, 2018

a. P 98,000
b. P 119,096
c. P 110,976
d. P 121,636

2. How much is the net adjustment to Cost of Sales?

a. P 31,513
b. P 23,393
c. P 16,097
d. P 33,696

3. What are the correct adjusting entries related to Car UMX 410?
a. Inventory 13,475
Cost of Sales 13,475
b. Cost of Sales 12,700
Inventory 12,700
c. Sales 12,700
Accounts Receivable 12,700
d. Inventory 10,160
Cost of Sales 10,160

4. In connection with your audit of the Cleo Corporation, you noted that the company’s Notes Receivable consists of the following:

a. A 4-month note dated November 30, 2018, from AA Company, P200,000; interest rate, 16%; discounted on November 30,
2018 at 16%.

b. A draft drawn payable 30 days after for P900,000 by the BB Company on the Charlie Company in favor of the Delta Company,
endorsed to Cleo Corp. on December 2, 2018 and accepted on December 4, 2018.

c. A 90-day note dated November 1, 2018 from E. Dy, P500,000; interest at 16%; the note is for subscription to 5,000 preference
shares of Cleo Corp. at P100 per share.

d. A 60-day note dated May 3, 2018, from CC Company, P600,000; interest rate, 16%; dishonored at maturity; judgment
obtained on October 10, 2018. Collection within the next twelve months is doubtful.

e. A 90-day note dated January 4, 2018, from Apol Bobads, president of Cleo, P160,000; no interest; note not renewed;
president confirmed.

f. A 120-day note dated September 14, 2018, from DD Company, P120,000; interest rate, 16%; note is held by bank as
collateral.

Based on the above and the result of your audit, you are to provide the answers to the following:

1. The adjusted balance of Notes Receivable as of December 31, 2018 is

a. P2,480,000 c. P1,020,000
b. P1,220,000 d. P 900,000
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2. How much of foregoing notes receivable will be reported in the current assets section of the statement of financial position
(SFP)?
a. P1,220,000 c. P1,680,000
b. P2,480,000 d. P1,520,000

3. How much is the net interest income from the foregoing notes receivable for 2018?
a. P19,093 c. P166,613
b. P70,613 d. P 35,093

4. The adjusted balance of Interest Receivable as of December 31, 2018 is

a. P19,093 c. P70,613
b. P 5,760 d. P 0

5. The Isabela Company is a wholesale distributor of automotive replacement parts. Initial amounts taken from Isabela’s accounting
records are as follows:

Inventory at December 31, 2018 (based on physical count of goods in warehouse on December 31, 2018): P1,250,000

Accounts Payable at December 31,2018:

Vendor Terms Amount

A Company 2/10, n/30 P265,000

B Company n/30 210,000

C Company n/30 300,000

D Company n/30 225,000

E Company n/30 ---

F Company n/30 ---

Total P1,000,000

Sales were P9,000,000.

Additional information is as follows:

Parts held on consignment from B Company to Isabela, the consignee, amounting to P155,000, were included in the
physical count of goods in Isabela’s warehouse on December 31, 2018 and in accounts payable at December 31, 2018.

P22,000 of parts which were purchased from E Company and paid for in December 2018 were sold in the last week of
2018 and appropriately recorded as sales of P28,000. The parts were included in the physical count of goods in Isabela’s
warehouse on December 31, 2018, because the parts were on the loading dock waiting to be picked up by customers.

Parts in transit on December 31,2018, to customers, shipped FOB shipping point, on December 28,2018, amounted to
P34,000. The customers received the parts on January 6, 2019. Sales of P40,000 to the customers for the parts were
recorded by Isabela on January 2, 2019.

Retailers were holding P210,000 at cost (P250,000 at retail) of goods on consignment from Isabela, the consignor, at
their stores on December 31, 2018.

Goods were in transit from F Company to Isabela on December 31, 2018. The cost of goods was P25,000 and they
were shipped FOB shipping point on December 29, 2018.

A quarterly freight bill in the amount of P2,000 specifically relating to merchandise purchases in December 2018, all of
which was still in inventory at December 31, 2018, was received on January 3, 2019. The freight bill was not included in
either the inventory or in accounts payable at December 31, 2018.

All of the purchases from A Copany occurred during the last seven days of the year. These items have been recorded in
accounts payable and accounted for in the physical inventory at cost before discount. Isabela’s policy is to pay invoices in time
to take advantage of all cash discounts, adjust inventory accordingly, and record accounts payable, net of cash discount
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1. The adjusted Sales for 2018 were

a. P8,750,000
b. P8,790,000
c. P9,000,000
d. P9,040,000

2. The correct inventory balance is

a. P1,304,700
b. P1,308,000
c. P1,310,000
d. P1,338,700

3. The correct Accounts Payable balance is

a. P841,700
b. P847,000
c. P866,700
d. P872,000

4. The net effect of the adjustments is an understatement (overstatement) in cost of sales of

a. P(222,000)
b. P(188,000)
c. P(78,600)
d. P78,600

6. At December 31, 2017, Jerome, Inc. reported as financial assets at fair value though profit or loss the following marketable equity
secutirites:
Seattle Company ordinary share, P10 par, 2,000 shares P28,400
Grunge Co. preference share, P50, 1,200 shares P78,000

An analysis of transactions during 2018 relating to the account “Trading Securities” reveals the following:
A 20% bonus issue was declared by Seattle Co. when each ordinary share has a market value of P12 per share.
Jeromes recorded the dividend as a debit to investment with a corresponding credit to dividend income at the total
market value of the shares received.
Subsequent to the receipt of the bonus issue, 400 shares of Seattle were sold at P12 per share, the proceeds of the
sale were credited to the account.
A 10% cash dividend from Grunge Company was received and recorded on January 15, 2018. The said dividend was
declared on December 15, 2017.
1,500 ordinary shares of Cobain, Inc. were purchased during 2018 at P21 per share. Broker’s commission of P2,800
was recorded as operating expenses.
800 shares of Nirvana Co. were purchased on April 1, 2018, for the purpose of affiliation. Nirvana has 4,000 shares
outstanding throughout the year. The company does not intend to sell the said shares in the near future. The shares
were recorded at the purchase price of P50 per share. Broker’s commission of P5,400 was recorded as operating
expenses. Nirvana reported net income of P50,000 during the year 2018.
There were no other investments during the year.
Market value per share as of December 31, 2018 are as follows: Seattle ordinary, P14; Grunge preference, P64; Cobain
ordinary, P21; and Nirvana ordinary P52.
Related unadjusted account balances per books as of December 31, 2018 are as follows: Other Operating Income
P53,200 and Operating Expenses P764,000.

1. Trading Securities at December 31, 2018

a. P133,167 c. P104,800
b. P136,300 d. P135,000

2. Total Dividend Income for the year 2018

a. P7,800 c. P7,680
b. P6,000 d. 0

3. Investment in Associate as of December 31, 2018

a. P52,900 c. P41,000
b. P47,500 d. P52,000

4. What is the income from Associate in year 2018?

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a. 2,500 c. 75,000
b. 72,500 d. 77,500

5. What is the Operating Expenses for the year 2018?

a. 769,400 c. 764,000
b. 758,600 d. 730,000

6. Unrealized Gain or Loss on Trading Securities taken to profit or loss?

a. P 5,533 c. 4,333
b. P 3,133 d. 1,200

7. Oz Company is in the process of adjusting the books at the end of 2021. The accounting records revealed the following
information:

The entity failed to accrue sales commissions at the end of 2019 and 2020 as follows:
2019 220,000
2020 140,000

In each case, the sales commissions were paid and expenses in January of the following year.

Errors in ending inventory for the last three years were discovered to be as follows:
2019 400,000 understated
2020 540,000 overstated
2021 150,000 understated

The unadjusted retained earnings balance on January 1, 2021 is P12,600,000 and the unadjusted net income for 2021 was
P3,000,000. Dividends of P1,750,000 were declared during 2021.

1. What is adjusted net income for 2021?

a. 3,830,000
b. 3,150,000
c. 3,680,000
d. 3,530,000

2. What is the adjusted balance of retained earnings of December 31, 2021?

a. 14,000,000
b. 13,320,000
c. 13,850,000
d. 11,000,000

8. Joshtin Company reported the following errors:

2020 2021
Over(under)statement of ending inventory (100,000) 40,000
Depreciation understatement 40,000 60,000
Failure to accrue salaries at year-end 80,000 120,000
1. What is the net effect on net income for 2021?
a. 240,000 understated
b. 240,000 overstated
c. 220,000 overstated
d. 260,000 understated

2. What is the net effect of the errors on retained earnings on December 31, 2021?
a. 260,000 understated
b. 260,000 overstated
c. 220,000 understated
d. 220,000 overstated

9. Queen Jelly Company’s balance in the Allowance for Uncollectible accounts was P154,000 at January 1, 2020. During 2020,
credit sales totaled P9,000,000, interim provisions for uncollectible accounts were made at 2% of credit sales, P95,000 of bad
debts were written off, and recoveries of accounts previously written off amounted to P15,000. Queen Jelly installed a computer
facility in November 2020 and an aging of accounts receivable was prepared for the first time as of December 31, 2020. A
summary of the aging as follows:
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Classification by Month of Sale Balance in Each Category Estimated % Uncollectible

November - December 2020 P1,080,000 2%
July - October 2020 650,000 10%
January - June 2020 420,000 25%
Prior to 1/1/2020 150,000 70%

Based on the review of collectibility of the account balances in the “prior to 1/1/2020” aging category, additional receivables
totalling P60,000 were written off as of December 31, 2020. The 70% uncollectible estimate applies to the remaining P90,000 in
the category. Effective with the year ended December 31, 2020, Queen Jelly adopted a new accounting method for estimating
the allowance for uncollectible accounts at the amount indicated by the year-end aging analysis of the accounts receivable.

6. In the audit adjusting entries, how much additional uncollectible accounts expense should be provided at December 31, 2020?
a. P60,600 b. P194,000 c. P240,600 d. 254,600

7. How much uncollectible accounts expense should be presented on the statement of comprehensive income for the year ended
December 31, 2020?
a. P60,600 b. P194,000 c. P240,600 d. 254,600

8. At what amount should Accounts Receivable be presented in the statement of financial position at December 31, 2020?
a. P1,985,400 b. P1,999,400 c. P2,003,400 d. P2,240,000

10. The J & J Corporation started its business on January 1, 2020, after considering the collections experience of other companies
in the industry, J & J Corporation established an allowance for bad debts estimated to be 5% of credit sales. Outstanding
receivables recorded in the books of accounts on December 31, 2020 totaled P575,000, while the allowance for bad debts
account had a credit balance of P62,500 after recording estimated doubtful account expense for December and after writing off
P12,500 of uncollectible accounts.

Further analysis of the company’s accounts showed that merchandise purchased in 2020 amounted to P2,250,000 and ending
merchandise inventory was P375,000. Goods were sold at 40% above cost.

80% of total sales were on account. Total collections from customers, on the other hand, excluding proceeds from cash sales,
amounted to P1,500,000.

Questions:

Based on the above and the result of your audit, answer the following:
1. The recorded accounts receivable as of December 31, 2020 is understated by
1. P537,500 b. P412,500 c. P12,500 d. P 0

2. The doubtful accounts expense for the year ended December 31, 2020 should be
1. P75,000 b. P105,000 c. P131,250 d. P125,000

3. The recorded allowance for doubtful accounts receivable as of December 31, 2020 is understated by
1. P50,000 b. P30,000 c. P56,250 d. P 0

4. The net realizable value of accounts receivable as of December 31, 2020 is

1. P495,000 b. P512,500 c. P993,750 d. P875,000

11. On January 1, 2018, MELON CORP. loaned P3,000,000 to Debtor Company. Under the loan agreement, Debtor Company is to
make an annual principal payment of P600,000 for 5 years plus Interest at 8%. The first Principal and interest payment is due
on January 1, 2019. The required payments were made by Debtor Company for 2019 and 2020. However, during 2020, Debtor
Company began to face financial difficulties, requiring Melon Corp. to reevaluate the collectibility of the loan. On December 31,
2020, Melon Corp. determines that it will be able to collect the remaining principal, but it is unlikely that the interest will be
collected.

The following present value factors are taken from the table of present values:

Present value of 1 at 8% for:

1 Period 0.92593
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2 Periods 0.85734

3 Periods 0.79383

QUESTIONS:

1. What is the present value of the expected future cash flows as of December 31, 2020?

A. P1,800,000 C. P1,669,962

B. P2,146,260 D. P1,428,894

2. What is the amount of loan impairment on December 31, 2020?

A. P371,106 C. P730,028

B. P130,038 D. P 0

3. Assuming that Melon Corp.’s assessment of the collectibility of the loan has not changed, what amount of interest income
should be recognized for 2021?

A. P85,597 C. P96,000

B. P144,000 D. P133,597

12. The petty cash fund (imprest balance of P45,000) of Joseph Company on December 31, 2020 is composed of the following:

Coins and currencies P 17,000

Petty cash vouchers:
Postage Stamps 1,000
Supplies 2,000
Cash advances to employees 3,000
Employee's check returned by bank marked DAIF 4,000
Replenishment check drawn by the company payable
to the order of Maria Cortez,
petty cash custodian 18,000
Unused postage 500
Check payable to Meralco, for payment of the
company's utility bills 3,500
A sheet of paper with names of employees together with
contribution for a birthday gift of a
co-employee in the amount of 4,500
Total P 53,500

Questions:

1. How much is the cash shortage or overage as of December 31, 2020? Indicate whether shortage or overage.
a. Overage of P4,000 c. Shortage of P4,000
b. Overage of P4,500 d. Shortage of P4,500

2. How much petty cash fund shall be shown as part of "Cash" balance as of December 31, 2020?
a. P 38,000 c. P 35,000
b. P 20,000 d. P 17,000

13. Hanroush Corporation has a current account in Cavalier’s Bank. Your audit of the company’s cash accounts reveals the
following:

1. Balances taken from the company's general ledger:

Cash balance, November 30,2020 P 637,860
Cash balance, December 31,2020 546,240
Receipts, December 1-31,2020 306,220
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2. Balances taken from the December bank statement:

Bank balance, November 30,2020 P 685,180
Cash balance, December 31,2020 637,220
Disbursements (debits) 306,220

3. Outstanding checks, November 30,2020 (P 26,140 was

paid by the bank in December) 64,140

4. Checks written and recorded in December; not included in

the checks returned with the December bank statement 38,060

5. Deposit in transit, November 30,2020 15,260

6. Deposit in transit, December 31, 2020 16,140

7. A bank credit memo was issued in December to correct the

erroneous charge made in November 1,500

8. Note collected by bank in December (company was not informed

of the collection 2,060

9. A check for P 2.020 (payable to a supplier) was recorded in the

Check register in December as P 3,000. 980

10. A check for P2,240 was charged by the bank as P 2,420 in

December 180

11. Hanroush Corporation issued a stop payment order to the bank

in December. This pertains to a check written in December
which was not received by the payee. A new check was
written and recorded in the Check Register in December.
The old check was written off by a journal entry also in
December. 780

12. Bank service charge, November 30,2020. 60

QUESTIONS:

1. What is the total book disbursements in December?

2. What is the total bank receipts in December?

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3. What is the total outstanding checks in December 31?

4. What is the adjusted bank balance on November 30?

5. What is the adjusted book receipts in December?

6. What is the adjusted bank disbursements in December?

7. What is the adjusted book balanceon December 31?

14. The Labidabs Corporation was organized on January 13, 2020 and started operation soon thereafter. The Company cashier
who acted also as the bookkeeper had kept the accounting records very haphazardly. The manager suspects him of
defalcation and engaged you to audit his account to find out the extent of the fraud, if there is any.
On November 15, when you started the examination of the accounts, you find the cash on hand to be P25,700. From inquiry
at the bank, it was ascertained that the balance of the Company’s bank deposit in current account on the same date was
P131,640. Verification revealed that the check issued for P9,260 is not yet paid by the bank. The corporation sells at 40%
above cost.
Your examination of the available records disclosed the following information:
Capital stock issued at par for cash P1,600,000 Real state purchased and paid in full 1,000,000 Mortgage liability secured by
real state 400,000 Furniture and fixtures (gross) bought on which there is still balance unpaid of P30,000
145,000 Outstanding notes due to bank 160,000 Total amount owed to creditors on open account 231,420 Total sales
1,615,040 Total amount still due from customers 426,900 Inventory of merchandise on November 15 at cost 469,600 Expenses
paid excluding purchases 303,780
Based on the above and the result of your audit, compute for the following as of November 15, 2020:

1. Collections from sales

a. P1,188,140
b. P1,153,600
c. P1,615,040
d. P2,041,940

2. Payments for purchases

a. P1,854,620
b. P1,391,780
c. P1,207,204
d. P 922,180
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3. Total cash disbursements

a. P2,340,960
b. P3,273,400
c. P2,810,560
d. P2,625,984

4. Unadjusted cash balance

a. P 74,740
b. P722,156
c. P1,007,180
d. P 537,580

5. Cash shortage is
a. P574,076
b. P389,500
c. P859,100
d. P 0