PRACTICAL ACCOUNTING 1

PROBLEM NO. 1 Computation of adjusted cash and cash equivalents

You noted the following composition of The Man of Words Companys cash account as of
December 31, 2010 in connection with your audit:
Demand deposit account
Time deposit
NSF check of customer
Money market placement (due June 30, 2011)
Savings deposit in a closed bank
IOU from employee
Pension fund
Petty cash fund
Customers check dated January 1, 2011
Customers check outstanding for 18 months
Total

P 2,000,000
1,000,000
40,000
1,500,000
100,000
20,000
3,000,000
10,000
50,000
40,000
7,760,000

Additional information follows:

Check of P200, 000 in payment of accounts payable was recorded on December 31, 2010 but
mailed to suppliers on January 5, 2011.
Check of P100, 000 dated January 15, 2011 in payment of accounts payable was recorded and
mailed on December 31, 2010.
The company uses the calendar year. The cash receipts journal was held open until January 5,
2011, during which time P400, 000 was collected and recorded on December 31, 2010.
QUESTION:
The cash and cash equivalents to be shown on the December 31, 2010 statement of financial position
is 2,910,000

PROBLEM NO. 2 Proof of cash; Computation of adjusted balances

The accountant for the The Enthusiast Company assembled the following data:
June 30
Cash account balance
Bank statement balance
Deposits in transit
Outstanding checks
Bank service charge
Customers check deposited July 10,
returned by bank on July, 16 marked NSF,
and redeposit immediately; no entry made
on books for return or redeposit
Collection by bank of companys notes receivable

P 15,822
107,082
8,201
27,718
72

71, 815

The bank statements of the companys cash records show these totals:
Disbursements in July per bank statement
Cash receipts in July per The Enthusiasts books
QUESTIONS:

July 31
P39, 745
137, 817
12, 880
30, 112
60

8, 250
80, 900

P218, 373
236, 452

Based on the application of the necessary audit procedures and appreciation of the above data, you
are to provide the answers to the following:

1.
2.
3.
4.
5.

Adjusted cash balance as of June 30? 87,565

Adjusted bank receipts for July? 245,537
Adjusted book disbursements for July? 212,517
Adjusted cash balance as of July 31?
120,585
Cash shortage as of July 31? 0

PROBLEM 3: The Blur Company provided the following information:

Current assets
Property, plant and equipment
Current liabilities
Non-current liabilities

1/1/2013
240,000
1,600,000
?
580,000

12/31/2013
?
1,700,000
130,000
?

All assets and liabilities of the entity are reported at year-end. Working Capital of P92, 000 remained
unchanged from 2012 to 2013. Net income in 2013 was 64,000. No dividends were declared during
2013 and there were no other changes in owners equity.
What amount should be reported as noncurrent liabilities on December 31, 2013? 616,000

PROBLEM 4: The Aqua Girl Company provided the following account balances on December 31,
2013:
Accounts Payable
Bonds Payable, due 2014
Discount on Bonds Payable
Dividends Payable
Note Payable, due 2015

1,500,000
2,500,000
300,000
800,000
2,000,000

What total amount of current liabilities should be reported? 4,500,000

Problem 5: The Entrepreneur Company reported operating expenses in two categories, namely
distribution and administrative. The adjusted trial balance at year-end included the following
expense and loss accounts for current year:
Accounting and legal fees
Advertising
Freight Out
Interest
Loss on sale of long-term investment
Officers salaries
Rent for office space
Sales salaries and commissions

1,200,000
1,500,000
800,000
700,000
300,000
2,250,000
2,200,000
1,400,000

One half of the rented premises is occupied by the sales department.

What amount should be reported as total distribution costs? 4,800,000

PROBLEM 6: The Spelling Geek Company provided the following information for the current year:
Purchases
Purchase discounts
Beginning Inventory
Ending Inventory
Freight out

5,300,000
100,000
1,600,000
2,150,000
400,000

What is the cost of goods sold for the current year? 4,650,000
Problem 7: The Confused Company provided the following information for the current year:
Net accounts receivable at January 1
Net accounts receivable at December 31
Accounts receivable turnover
Inventory at January 1
Inventory at December 31
Inventory turnover

900,000
1,000,000
5 to 1
1,100,000
1,200,000
4 to 1

What is the gross margin for the current year? 150,000

Problem 8: Ms. Knows All company provided the following for the current year:
Net Income
Unrealized gain on derivative contract
Foreign currency translation adjustment debit
Revaluation surplus

3,500,000
250,000
50,000
1,000,000

What is the comprehensive income for the current year? 4,700,000

Problem 9: The Silhouette company accounts for noncurrent assets using the cost model. On July
31, 2013, the entity classified a noncurrent asset as held for sale. At the date, the assets carrying
amount was P1, 450,000. The fair value was estimated at 2,150,000 and the cost of disposal at
150,000. The asset was sold on January 31, 2014 for 2,120,000. At what amount should the asset be
measured in the financial position on December 31, 2014? 1,450,000
Problem 10: On January 1, 2012, The Quiz bowler company acquired a machine at a cost of
2,000,000. The machine is depreciated on the straight line method over five years period with no
residual value. Because of a bookkeeping error, no depreciation was recognized in 2012 financial
statements. The oversight was discovered during the preparation of the 2013 financial statements.
What is the depreciation expense on the machine for 2013? 400,000
Problem 11: On December 31, 2013, Silent Intense company had the following cash balances:
Cash in bank
Petty cash fund (all funds were reimbursed on 12/31/2013)
Time deposit (due February 1, 2014)

1,800,000
50,000
250,000

Cash in bank included P600, 000 of compensating balance against short-term borrowing
arrangement on December 31, 2013. The compensating balance is legally restricted as to withdrawal.
In the December 31, 2013 statement of financial position, what amount should be reported as cash
and cash equivalents? 1,500,000

Problem 12: Accounts of the petty cash fund of The Essayist company showed its composition as
follows:
Coins and currency
3,300
Paid vouchers:
Transportation
600
Gasoline
400
Office supplies
500
Postage stamps
300
Due from customers
1,200
3,000
Managers check returned by bank marked NSF
1,000
Check drawn by the entity to the order of petty cash custodian
2,700
What is the correct amount of petty cash fund for the statement presentation purposes? 6,000
Problem 13: On December 31, 2013, The Ancient company reported that the current receivables
consisted of the following:
Trade accounts receivable
Allowance for uncollectible accounts
Claim against shipper for goods lost in transit (November 2013)
Selling price of unsold goods sent by The Ancient on consignment at
130% of cost (not included in The Ancients ending inventory)
Security deposit on lease of warehouse used for storing some inventories

930,000
(20,000)
30,000
260,000
300,000

On December 31, 2013, what total amount should be reported as trade and other receivables under
current assets? 940,000

Problem 14: The following transactions affecting the accounts receivable of The Prehistoric Leader
company took place during year ended December 31, 2013:
Sales (cash and credit)
Cash received from credit customers, all of whom took advantage
Of the discount feature of the entitys credit terms 4/10, n/30
Cash received from cash customers
Accounts receivable written off as worthless
Credit memorandum issued to credit customers for sales returns
and allowances
Cash refunds given to cash customers for sales return and allowances
Recoveries on accounts receivable written off as uncollectible in prior
period (not included in cash amount stated above)

5,900,000
3,024,000
2,100,000
50,000
250,000
20,000
80,000

The following balances were taken from the January 1, 2013 statement of financial position:
Accounts receivable
Allowance for doubtful accounts

950,000
100,000

The entity provided for uncollectible account losses by crediting allowance for doubtful accounts in
the amount of P70, 000 for the current year.
1. What is the balance of accounts receivable on December 31, 2013? 1,300,000
2. What is the balance of allowance for doubtful accounts on December 31, 2013? 200,000

Problem 15: The Guitarist company prepared an aging of accounts receivable on December 31, 2013
and determined that the net realizable value of the accounts receivable was P2, 500,000. Additional
information is as follows:
Allowance for doubtful accounts on January 1
Accounts written off as uncollectible
Accounts receivable on December 31
Uncollectible accounts recovery

280,000
230,000
2,700,000
50,000

For the year ended December 31, 2013, what amount should be recognized as doubtful accounts
expense? 100,000
Problem 16: The Sinking Fund Master company assigned P4, 000,000 of accounts receivable as
collateral for a P2, 000,000 6% loan with a bank, the entity also paid a finance fee of 5% on the
transaction upfront. What amount should be recorded as a gain or loss on the transfer of accounts
receivable? 0
Problem 17: On July 1, 2013, Subli Queen company sold goods in exchange for P2, 000,000, 8
month, noninterest-bearing note receivable. At the time of sale, the market rate of interest was 12%.
The entity discounted the note at 10% on September 1, 2013:
1. What is the cash received from discounting? 1,900,000
2. What is the loss on note receivable discounting? 100,000
Problem 18: Bureche company factored P6, 000,000 of accounts receivable to a finance entity on
October1, 2013. Control was surrendered by Bureche company. The factor assessed fee of 3% and
retained a holdback equal to 5% of the accounts receivable. In addition, the factor charged 15%
interest computed on a weighted average time to maturity of the accounts receivable for 54 days.
1. What is the amount of cash initially received from the factoring? 5,386,850
2. If all accounts were collected, what is the cost of factoring the accounts receivable? 313,150
Problem 19: The Voice company is a dealer in equipment. On December 31, 2013, the entity sold
equipment in exchange for a noninterest-bearing note requiring five annual payments of P500, 000.
The first payment was made on December 31, 2014. The market interest for similar notes was 8%. The
PV of 1 at 8% for five periods is 0.68, and the PV of an ordinary annuity of 1 at 8% for five periods is
3.99.
1. On December 31, 2013, what is the carrying amount of the note receivable? 1,995,000
2. What interest income should be reported for 2014? 159,600
3. What is the carrying amount of the note receivable on December 31, 2014? 1,654,600
Problem 20: On December 1, 2013, Ms Basically company gave Call Center Agent company a
P200, 000, 12% loan. Ms Basically company paid proceeds of 194,000 after the deduction of a P6,
000 nonrefundable loan origination fee. Principal and interest are due in sixty monthly installments
of P4, 450, beginning January 1, 2014. The repayments yield an effective interest rate of 12% at a
present value of P200, 000 and 13.4% at a present Value of P194, 000.
1. What is the amount of interest income should be reported in 2013? 2,166.33
2. What amount should be reported as accrued interest receivable on December 31, 2013? 2,000
Problem 21: The Mirrorer company has a herd of 10 2-year old animals on January 1, 2013. One
animal aged 2.5 years was purchased on July 1, 2013 for 108, and one animal was born on July 1, 2013.
No animals were sold or disposed of during the year. The fair value less cost of disposal per unit is as
follows:

2-year old animals on January1

2.5 year old animal on July 1
New born animal on July 1
2-year old animal on December 31
2.5- year old animal on December 31
New born animal on December 31
3- year old animal on December 31
0.5- year old animal on December 31

100
108
70
105
111
72
120
80

1. What is the fair value of the biological assets on December 31, 2013? 1,400
2. What is the gain from change in fair value of biological assets that should be recognized in
2013? 292
3. What is the gain from change in fair value due to price change? 55

Problem 22: The Selfie Queen company estimated the cost of the physical inventory on March 31
for use in interim financial statement. The rate of markup on cost is 25%. The inventory on January 1
was P5, 500,000. During the period January 1 to March 31, the entity had purchases of P4, 300,000,
purchase returns of P200, 000 and sales of 7,500,000. What is the estimated cost of inventory on
March 31? 3,600,000
Problem 23: On January 1, 2013, The Living Legend company paid P18, 000,000 for 50,000 ordinary
shares of, Old company which represent a 25% interest in the net assets of Old company. The
acquisition cost is equal to the carrying amount of the net assets acquired. The Living Legend has
the ability to exercise significant influence over Old company. The Living Legend received a
dividend of P35 per share from Old in 2013. The investee reported net income of P9, 600,000 for
the year ended December 31, 2013. On December 31, 2013, what amount should be reported as
investment in associate? 18,650,000
Problem 24: Red Riding Hood company started construction of a new office building on January 1,
2013, and moved into the finished building on July 1, 2014. Of the buildings P25, 000,000 total cost,
P20, 000,000 was incurred in 2013 evenly through the year. The incremental borrowing rate was 12%
throughout 2013, and the total amount of interest incurred was P1, 020,000. What amount should be
reported as capitalized interest on December 31, 2013? 1,020,000
Problem 25: CRESHeR company provided the following information at year-end:
2014
2013
Building-cost
25,000,000
25,000,000
Accumulated depreciation-building
5,000,000
3,875,000
The entity did not acquire or dispose of any buildings during 2014. The straight line method of
depreciation is used. The residual value is 10% of asset cost. What is the average useful life of the
building? 20 yrs.
Problem 26: On July 1, 2013, Clutch of Erudites company, a calendar year corporation, purchased
the rights to mine. The total purchase price was P16, 400,000, of which P2, 000,000 was allocable to
the land. The estimated reserves were 1,800,000 tons. The entity expects to extract and sell 25,000
tons per month. The entity purchased new equipment on July 1, 2013. The equipment cost P7,
500,000 and had a useful life of 8 years. However, after all the resource is removed, the equipment
will be of no use and will be sold for P300, 000.
1. What amount should be recorded as depletion for 2013? 1,200,000
2. What amount should be recorded as depreciation of the mining equipment for 2013? 600,000

PROBLEM 27: Cost of land, land improvements, & building

TFs Corporation was incorporated on January 2, 2014. The ff. items relate to the TFs property and
equipment transactions:

Cost of land, which included an old apartment building

appraised at 300,000
Apartment building mortgage assumed, including
related interest due at the time of purchase
Delinquent property taxes assumed by TFs
Payments to tenants to vacate the apartment building
Costs of razing the apartment building
Proceeds from sale of salvaged materials
Architects fee for new building
Building permit for new construction
Fee for title search
Survey before construction of new building
Excavation before construction of new building
Payment to building contractor
Assessment by city for drainage project
Cost of grading and leveling
Temporary quarters for construction crew
Temporary building to house tools and materials
Cost of changes during construction to make new building more energy efficient
Interest cost on specific borrowing incurred during construction
Payment of medical bills of employees accidentally injured while
inspecting building construction
Cost of paving driveway and parking lot
Cost of installing lights in the parking lot
Premium for insurance on building during construction
Cost of open house party to celebrate opening of new building
Cost of windows broken by vandals distracted by the celebration

P 3,000,000
80,000
30,000
20,000
40,000
10,000
60,000
40,000
25,000
20,000
100,000
10,000,000
15,000
50,000
80,000
50,000
90,000
360,000
18,000
60,000
12,000
30,000
50,000
12,000

Questions:
Based on the above and the result of your audit, determine the ff:
1. Cost of Land 3,270,000
2. Cost of building 10,810,000
3. Cost of land improvements 72,000
4. Amount that should be expensed when incurred 80,000
5. Total depreciable property and equipment
10,882,000
Problem 28: JPIA company developed a new machine for manufacturing baseballs. Because the
machine is considered very valuable, the entity had it patented. The following expenditures were
incurred in developing and patenting the machine:
Purchase of special equipment to be used solely for development
of a new machine
Research salaries and fringe benefits for engineers and scientist
200,000
Cost of testing prototype
Legal cost for filing of patent
Fees paid to government patent office
Drawings required by patent office to be filed with patent application

1,800,000

250,000
150,000
50,000
40,000

1. What amount should be capitalized as cost of patent? 240,000

2. What amount of research and development cost should be expensed in the current year?
2,250,000

Problem 29: During 2013, JMAP company sold 500,000 boxes of cake mix under a new sales
promotional program. Each box contained one coupon, which entitled the customer to a baking pan
upon remittance of P40. The entity paid 50 per pan and P5 for handling and shipping and estimated
that 80% of the coupons would be redeemed, even though only 300,000 had been processed during

2013. What amount should be reported as a liability for unredeemed coupons on December 31, 2013?
1,500,000

Problem 30: JFINEX company sells magazine subscriptions of one to three-year periods. Cash
receipts from subscribers are credited to magazine subscriptions collected in advance, and this
account had a balance of P2, 400,000 on December 31, 2013 before year-end adjustment.
Outstanding subscriptions on December 31, 2013 expire as follows:
During 2014
600,000
During 2015
900,000
During 2016
400,000
On December 31, 2013, what amount should be reported as magazine subscriptions collected in
advance? 1,900,000
Problem 31: The bonus agreement of AFOAD company provides that the general manager shall
receive an annual bonus of 10% of the net income after bonus and tax. The income tax rate is 30%.
The general manger received P280, 000 for the current year as bonus. What is the income before
bonus and tax? 4,280,000
Problem 32: JPMAP company issued the 2013 financial statements on March 1, 2014. The following
data are provided by the entity for the year ended December 31, 2013:
Amount owing to another entity for services rendered during December 2013
Estimated long service leave owing to employees in respect of past services
Estimated cost of relocating an employee from head office to a branch in another
City (employee will physically relocate in 2014)
Estimated cost of overhauling machine every 5 years (the machine is 5 years old
On December 31, 2013)

300,000
1,200,000
100,000
150,000

What amount should be recognized as provision on December 31, 2013? 1,200,000

Problem 33: The Living Legend company provided the following bank reconciliation on May 31:
Balance per bank statement
Deposits outstanding
Check outstanding
Correct cash balance

2,100,000
300,000
( 30,000)
2,370,000

Balance per book

Bank service charge
Correct cash balance

2,372,000
( 2,000)
2,370,000

June data are as follows:

Bank
Checks recorded
2,300,000
Deposits recorded
1,620,000
Collections by bank (P400, 000 note plus interest)
420,000
NSF check returned with June 30 statement balances
10,000
Balances
1,830,000
1. What is the amount of check outstanding on June 30? 90,000
2. What is the amount of deposits in transit on June 30? 480,000
3. What is the adjusted cash in bank on June 30? 2,220,000

Book
2,360,000
1,800,000
1,810,000