Friday, June 12, 2009

Accounting Review Materials - Problems

Sharpen your accounting skill by practicing always. As the famous adage goes "Practice makes Perfect".

To become a CPA needs perseverance. Never quit in every problems that you will encounter. Take every problem as an oppurtunity for you to achieve your dream.

Loans and Receivable

1.Lopez Inc. had accounts receivable of P200,000 and an allowance for doubtful accounts of P8,500. What is the amortized cost of the accounts receivable?

2. At the end of its first year of operations, December 31, 2006, Neil Co. had accounts receivable of P6,000,000, net of related allowance for doubtful accounts. During 2006, Neil recorded charges to doubtful accounts expense of P900,000 and wrote of P200,000 of uncollectible accounts receivable. On December 31, 2006, how much should Neil report as accounts receivable before the allowance for doubtful accounts?

3.The following data are available on December 31, 2006 for Curious Co.:

Sales 1,600,000
Accounts receivable 400,000
Allowance for doubtful accounts, January 1, 2006 20,000
Accounts written off 5,000

What is the doubtful account expense for 2006 under the following approaches?
a.Percentage of sales (the estimate is 3%)
b.Percentage of accounts receivable (the estimate is 8%)
c.Aging (the estimate is P50,000)
d.Direct write off

4.At December 31, before adjusting and closing the accounts had occurred, the allowance for doubtful accounts of Wise Corp. showed a debit balance of P5,300. An aging of the accounts receivable indicated the amount probably uncollectible to be P3,900. Under these circumstances, a year-end adjusting entry for uncollectible accounts expense would include a debit to uncollectible accounts expense of

5.On December 31, 2006, Valiant Co. had an unadjusted credit balance of P100,000 in its allowance for uncollectible accounts. An analysis of trade accounts receivable at that date revealed the following:

Age Amount Estimated Uncollectible
0 – 30 days 6,000,000 5%
31 – 60 days 400,000 10%
Over 60 days 200,000 P150,000

What amount should Valiant report as doubtful accounts expense?

6. Care Co.’s allowance for doubtful accounts had a credit balance of P20,000 at December 31, 2005. Care accrues doubtful accounts expense at 4% of credit sales. During 2006, Care’s credit sales amounted to P3,000,000, and uncollectible accounts totaling P50,000 were written off. The aging of accounts receivable indicated that a P100,000 allowance for doubtful accounts was required at December 31, 2006. What doubtful accounts expense should Care report for 2006?

7.At the end of January 2006, the unadjusted trial balance of Value Corp. included the following accounts:

Debit Credit
Sales (90% represent credit sales) 800,000
Accounts receivable 550,000
Allowance for doubtful accounts 4,280

Value uses the balance sheet approach in estimating uncollectible accounts expense, and aging the accounts receivable indicates the estimated uncollectible portion to be P16,600.
a.What is the amount of uncollectible accounts expense recognized in Value’s income statement?
b.What is the amortized cost of Value’s accounts receivable in January 31 balance sheet?

8.On January 1, 2006, the balance of the accounts receivable of Easy Co. was P207,000, while the allowance for doubtful accounts was a credit of P7,800. The following data were gathered:

Credit Sales Write-offs Recoveries
2003 1,110,000 26,000 2,150
2004 1,225,000 29,500 3,750
2005 1,465,000 30,000 3,600
2006 1,500,000 31,000 4,200

Doubtful accounts are provided for as a percentage of credit sales. The accountant calculates the percentage annually by using the experience of the three years prior to the current year. Cash receipts in 2006 from credit sales amounted to P1,380,200. What is the amount of allowance for bad debts at December 31, 2006?

9.Slice Co. factored P10,000 of its accounts receivable to finance company for P8,500. An allowance for bad debts equal to P300 was previously established for these accounts. The finance company withheld 5% of the purchase price as protection against sales returns and allowances.

Prepare journal entries assuming:
a.Sale of receivable without recourse.
b.Sale of receivable with recourse and the recourse obligation has an estimated fair value of P500.

10.On December 1, 2006, Eternity Co. assigned on a non-notification basis accounts receivable of P3,000,000 to a bank in consideration for a loan of 80% of the receivable less a 5% service fee on the account assigned. Eternity collected assigned accounts of P2,000,000 and 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, 2006 balance sheet, Eternity should report the note payable as a current liability at

11. On January 1, 2006, Davis Corp. assigned P500,000 of accounts receivable to the Bombay Finance Co. Davis gave a 14% note for P450,000 representing 90% of the assigned accounts and received proceeds of P432,000 after deduction of a 4% fee. On February 1, Davis remitted P80,000 to Bombay Finance, including interest for 1 month on the unpaid balance. As a result of this P80,000 remittance, by what amount accounts receivable assigned and notes payable will be decreased?

12. Scarbrough Corp. factored P600,000 of accounts receivable to Duff Corp. on October 1, 2004. Control was surrendered by Scarbrough. Duff accepted the receivables subject to recourse for nonpayment. Duff assessed a fee of 3% and retains a holdback equal to 5% of the accounts receivable. In addition, Duff charged 15% interest computed on a weighted-average time to maturity of the receivables of fifty-four days. The fair value of the recourse obligation is P9,000. Scarbrough will receive and record cash of

13.Hindu Co. sells P40,000 of accounts receivable to a factor and receives 94% of the value of the factored accounts less a 10% commission based on the gross amount of factored accounts receivable. After the journal entry to record this factoring transaction is made, at what amount total asset will be reduced?

14.The following transactions are from among those experienced by Mole Co.:

On March 14, the company sold merchandise, P2,050,000 to ABC Co., FOB destination, 2/10, n/30.

On April 7, it received a 60-day, 12% note dated April 5 from ABC. The face of the note was the amount of the invoice minus freight charge of P50,000 paid by the customer in connection with the March 14 sale.

On April 20, the note of ABC was discounted with the bank at 15%.

On June 4, it received notification from the bank that ABC dishonored its note, Accordingly, Mole paid the bank the amount due including protest fee and other charges of P10,000.

On July 4, Mole received cash from ABC for the full amount of its indebtedness plus interest on the original face value.

Prepare journal entries to record the above transactions.

15. Harlem Co. received from a customer a 1-year, P500,000 note bearing annual interest of 8%. After holding the note for 4 months, Harlem discounted the note at a bank at an effective interest rate of 10%. What amount of cash did Harlem receive from the bank?

16. Tazz Co. accepted from a customer a P4,000,000, 90-day, 12% note dated August 31, 2006. On September 30, 2006, Tazz discounted the note at 15%. However, the proceeds were not received until October 1, 2006. In the September 30, 2006 balance sheet, what is the amount of accrued interest revenue?

17. On July 1, 2006, Rex Co. sold goods in exchange for P200,000, 8-month, non-interest bearing note receivable. At the time of sale, the note’s market rate of interest was 12%. What amount did Rex receive when it discounted the note at 10% on September 1, 2006?

18. Jane Co. discounted its “own” P50,000, 1-year note at a bank, at a discounted rate of 12%, when the prime rate was 10%. In reporting the note on Jane’s balance sheet prior to note’s maturity, what rate should Jane use for the accrual of interest?

19.On May 17, West Co. accepted a P6,500, 8%, 90-day note from a customer. On June 11, the note was discounted at 10%. At maturity date, the note was dishonored and the bank charged a P25 protest fee. What amount would West Co. debit to Notes Receivable Dishonored?

20. Alden Co. sold an 80% pro-rata interest in a P2,000,000 note receivable to Stone Co. for P1,920,000. The note was originally issued at face value. Future benefits and cost of servicing the note are immaterial.
a.What is the amount of gain or loss Alden should recognize on this transfer of a partial interest?
b.What is the fair value of the note?

Cash and cash Equevalents

1.On December 1, 2005, Lagoon Co. established an imprest petty cash fund. The operations of the fund for the last month of 2005 and the first month of 2006 are summarized as follows:

a.On December 1, 2005, the petty cash fund was established by cashing a company check for P20,000 and delivering the proceeds to the cashier.

b.On December 21, 2005, a request for replenishment of the fund was received by the accounts payable department, supported by appropriate signed vouchers, summarized as follows:
Selling expenses 5,035
Administrative expenses 6,025
Miscellaneous expenses 2,150

A check for P13,560 was drawn payable to the petty cash cashier.

c.On December 31, 2005, the company’s independent auditor counted the fund in connection with the year-end audit and found the following:
Cash in petty cash fund 10,660
Employee’s check with January date (postdated) 850
Expense vouchers properly approved:
Selling expenses 3,355
Administrative expenses 4,020
Miscellaneous expenses 965

The petty cash fund was not replenished at year-end.

d.On January 15, 2006, the employee’s check held in the petty cash fund at December 31 was encashed and the proceeds retained in the fund.

e.On January 31, 2006, a request for replenishment was made and a check was drawn to restore the fund to its original balance of P20,000. The support voucher for January 2006 expenditures are summarized below:

Selling expenses 1,200
Administrative expenses 4,060
Miscellaneous expenses 2,200

Record the transactions in a general journal form.

2. A company had a petty cash account with a stated balance of P300 on January 1, 2006. Petty cash expenses for the month of January were as follows: postage – P45, supplies used – P145, and parking fees – P30. At the end of January 2006, the auditor counted the money in the petty cash fund and found P50 cash on hand. What should be the journal entry regarding the petty cash fund at January 31, 2006?

3. Crunchy Co. established a P3,000 petty cash fund. You found the following items in the fund:

Cash and currency 1,683.80
Expense vouchers 829.80
Advance to salesman 200.00
IOU from employee 300.00

In the entry to replenish the fund, what amount should be debited to cash short or over account?

4. On January 1, 2006, Morris Co. established an imprest petty cash fund for P10,000 by writing a check drawn against its general checking account. On January 30, 2006, the fund contained the following:

Currencies and coins 3,000
Receipts for office supplies 4,000
Receipts for postage (still unused) 2,000
Receipts for transportation 600

On January 31, 2006, the company wrote a check to replenish the fund. What is the amount of replenishment under the imprest fund system?

5. The petty cash fund of ABC Co. showed the following:

Currencies and coins 4,200
Petty cash vouchers 2,000
A check drawn by the company to the order of petty cash
custodian representing her salary for the period 3,000
A sheet of paper with the names of several employees
together with contributions to Bantay Bata in an envelop 800

What is the amount of petty cash to be reported by ABC Co.?

6. The cash account of your client includes the following:
Petty cash fund (P400 in form of paid vouchers) 600
Undeposited receipt (including postdated check of P700) 12,700
Cash in bank (P400 still outstanding per bank statement) 23,400
Bond sinking - cash 18,000
IOU signed by officers and employees 1,500

What is the amount of cash to be reported for balance sheet presentation purposes?

7. Warbird Co. had the following cash balance at December 31, 2006:

Undeposited coins and currencies 35,000
Unrestricted demand deposits 1,450,000
Company check written and deducted from the demand deposit
but not scheduled to be mailed until January 2, 2007 180,000
Time deposit restricted for use (expected use in year 2007) 3,000,000

In exchange for a guarantee line of credit, Warbird has agreed to maintain a minimum balance of P150,000 in its unrestricted demand deposit account. How much should Warbird report as “Cash” in its December 31, 2006 balance sheet?

8. The Kitty Co. has the following bank accounts and items on hand:

Payroll account – Equitable Bank 2,500,000
Value Added Tax account – Equitable Bank 1,000,000
Checking account – Equal Bank ( 500,000)
Employee’s NSF check 100,000
Postage stamps 3,000
Traveler’s check 300,000
IOU from the company’s president 500,000
Customer check undeposited for lack of countersignature 400,000
Money order 700,000
Petty cash fund (expense receipts of P10,000) 50,000

What is the correct cash balance to be reported by Kitty Co.?

9. Leonardo Co. had the following balances at December 31, 2006:

Cash in bank – current account 4,000,000
Cash in bank – payroll account 1,500,000
Cash on hand 500,000
Treasury bills, purchased November 15, 2006 and
due February 15, 2007 2,000,000

The cash on hand includes a P200,000 customer check payable to Leonardo dated January 15, 2007. What should be reported as “Cash and Cash Equivalents” on December 31, 2006?

10.In preparing its bank reconciliation for the month of May, Jolly Co. has available the following information:

Balance per bank statement, May 31 18,025
Deposit in transit, May 31 3,125
Outstanding checks, May 31 2,875
Check erroneously deducted by bank from Jolly’s account, May 20 1,250
Bank service charges for May 150

What is the corrected cash balance at May 31?

11. On December 31, 2006, Tiger Co. had the following cash balances:

Cash in bank 5,000,000
Petty cash fund 50,000
Time deposit, one year, due March 1, 2007 1,000,000
Savings deposit 500,000

A check of P100,000 dated January 15, 2007 in payment of accounts payable was recorded and mailed on December 28, 2006. In the current assets section of the December 31, 2006 balance sheet, what amount should be reported as “Cash and Cash Equivalents”?

12. Pretty Co.’s bank statement for the month of May included the following information:

Bank service charge for May 1,300
Check deposited by Pretty during May was not collectible
and has been marked “NSF” by the bank and returned 4,000

In comparing the bank statement to its own cash records, Pretty found the following:

Deposits made but not yet recorded by the bank 13,240
Checks written and mailed but not yet recorded by the bank 9,870

All the deposits in transit and outstanding checks have been properly recorded in Pretty’s books.. Pretty also found a check for P3,500, payable to Pretty Co., that had not yet been deposited and had not been recorded in Pretty’s books. Pretty’s books show a bank account balance of P92,130 (before any adjustments or corrections). What is Pretty Co.’s correct cash balance at May 31?

13. In preparing its October 31, 2006 bank reconciliation, Apple Co. has made available the following information:

Balance per bank statement, October 31, 2006 180,500
Bank service charge for October 1,000
Deposit in transit 32,500
NSF checks 6,000
Outstanding checks 27,500

What is the cash balance per book?

14. Rocks Co. has the following partial bank reconciliation:

Balance per bank 50,000
Balance per books 51,240
Deposit in transit 10,000

Interest earned?
Checks outstanding 8,600
Bank service charge 20
NSF check 100

a.How much interest was earned?
b.Assuming a combination entry, when the adjusting journal entry is made to record the bank reconciliation, what amount of cash should be debited?

15. The Super Co.’s cash account ledger shows a balance o P1,652,000 at October 31, 2006. The bank statement, however, shows a balance of P2,090,000 at the same date. The only reconciling items consists of a bank service charge of P2,000, a large number of outstanding checks totaling P590,000 and a deposit in transit. What is the deposit in transit in October 31, 2006 bank reconciliation?

16. The following bank reconciliation is presented for the Queen Co. for the month of October 2006:
Balance per bank statement, October 31, 2006 18,040
Add: Deposit in transit 4,150
Total 22,190
Less: Outstanding checks 6,320
Balance per books, October 31, 2006 15,870
Data for the month of November 2006 follow:
Per Bank:
November deposits 26,100
November disbursements 22,420

All items that were outstanding as of October 31, 2006 cleared through the bank in November. In addition, P2,500 in checks were outstanding as of November 30, 2006. What is the balance of cash per books at November 30, 2006?

17. The reconciliation of Tableland Co.’s bank account at May 31, was as follows:

Balance per bank statement 10.500
Deposit in transit 1,500
Checks outstanding ( 150)
Correct cash balance 11,850
Balance per books 11,864
Bank service charge ( 14)
Correct cash balance 11,850
June data are as follows:

Bank Books
Checks recorded 11,500 11,800
Deposited recorded 8,100 9,000
Service charge recorded 12
Collections by bank (including interest of P100) 2,100
NSF check returned with June statement
(will be redeposited, assumed to be good) 50
Balances, June 30 9,138 9,050

What is the amount of outstanding checks at June 30?

18. The accountant of Luneta Co. prepared the following bank reconciliation dated June 30, 2006:
Balance per bank 980,000
Deposit in transit 40,000
Outstanding checks (140,000)
Balance per book 880,000
There were total deposits of P650,000 and charges for disbursements of P900,000 for July 2006 per bank statement. All reconciliation items as at June 30, 2006 cleared the bank on July 31, 2006. Checks outstanding amounted to P10,000 on July 31, 2006. How much was the cash disbursements per book in July 2006?

19. Colors Co. had the following bank reconciliation at May 31, 2006:
Balance per bank 465,000
Deposit in transit 100,000
Outstanding checks (125,000)
Balance per book 440,000
There were total deposits of P600,000 and charges for disbursements of P500,000 for June 2006 per bank statement. All reconciliation items at May 31, 2006 cleared through the bank in June. Outstanding checks at June 30, 2006 totaled P75,000 and deposits in transit amounted to P150,000. What is the amount of cash receipts per book in June 30, 2006?

20.The following bank reconciliation of Maverick Co. were provided at May 31, 2006:
Balance per bank statement 210,000
Deposit in transit 30,000
Checks outstanding ( 3,000)
Adjusted bank balance 237,000
Balance per books 237,280
Bank service charge ( 280)
Correct cash balance 237,000
June data are as follows:

Bank Books
Checks recorded 230,000 236,000
Deposited recorded 162,000 180,000
Service charge recorded 240
Collections by bank (including interest of P2,000) 42,000
NSF check returned with June 30 statement
(to be redeposited) 1,000
Balances, June 30 182,760 181,000

What is the cash in bank balance that should be shown on June 30, 2006

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