Saturday, January 3, 2015


          Most of the Accounting problems have been encountered by students as "difficult" to solve whereas in reality, it was much simpler as what have many tried to assume to...


             Now, we will solve 6 problem in which it gives an overall 45 questions from the following given problems.


              This is the first part with first three problems. We will provide a link here later for the second part.



PROBLEM 1

You have been engaged to audit the December 31, 2014, financial statements of Don’t Panic Company. Your audit disclosed the following:

Cash in Bank

1.    Checks totaling P30,000 in payment of accounts payable were mailed on December 31, 2014, but were not recorded until 2015.
2.    Late in December 2014, the bank returned a P4,000 customer’s check marked “NSF” but no entry was made. The check is for Invoice No. 14344 dated December 10, 2014.
3.    Cash in bank includes P200,000 restricted for the acquisition of equipment.
4.    On December 31, 2014, the bank credited Don’t Panic for P1,000,000 in exchange for a 16% note payable maturing December 31, 2019. Equal principal payments are due December 31 of each year, beginning in 2015. This note is collateralized by a P500,000 tract of land acquired as a future plant site, which is included in noncurrent investments.

Accounts Receivable

1.    Included in accounts receivable is a P35,000 note due on December 31, 2017 from the president of Don’t Panic Company.
2.    Don’t Panic Company determines the allowance for bad debts by applying certain percentages to the accounts receivable aging as follows:

                        Days past invoice date                         Percent deemed to be uncollectible
                        0-30                                                      1
                        31-60                                                    5
                        61-90                                                    20
                        Over 90                                                80

            The following is an aging of accounts receivable-trade based on accounts receivable schedule as of December 31, 2014, before any adjustments on the accounts.

                        Days past invoice date                                        Amount
                        0-30                                                                  P396,000
                        31-60                                                                    85,000
                        61-90                                                                    30,000
                        Over 90                                                                20,000

            No provision for bad debts has been recorded for the current year.

Inventories

The P250,000 inventory total, which was based on a physical count at December 31, 2014, was priced at cost. Subsequently, it was determined that the inventory cost was overstated by P50,000. At December 31, 2014, its net realizable value approximated the adjusted cost.

Mortgage Payable

The mortgage payable requires P300,000 principal payments, plus interest, at the end of each month. Payments were made on January 31 and February 28, 2015. The balance of this mortgage was due on June 30, 2015. On March 1, 2015, prior to issuance of the audited financial statements, Don’t Panic Company consummated a noncancelable agreement with the lender to refinance his mortgage. The new terms require P200,000 annual principal payments plus interest, on February 28 of each year, beginning in 2016.

Presented below are the working balance sheet and working profit and loss statement for Don’t Panic Company:

DON’T PANIC COMPANY
Working Balance Sheet
December 31, 2014
                                                                                                                       
CURRENT ASSETS
Cash in bank
P
 300,000
Trading securities
 102,600
Accounts receivable
 566,000
Allowance for bad debts
 (15,250)
Inventories
 250,000
Prepayments
 362,800
              1,566,150
NON-CURRENT ASSETS
Land held for future plant site
                 500,000
Cash restricted for acquisition of equipment
                          -  
                 500,000
Property, plant and equipment
Land
              4,400,000
Buildings
              2,500,000
Machinery and equipment
              1,500,000
              8,400,000
Accumulated depreciation
               (850,000)
              7,550,000
Officer's note receivable
                          -  
TOTAL ASSETS
P
              9,616,150
CURRENT LIABILITIES
Accounts payable
P
                 265,000
Note payable- current
                          -  
Mortgage payable- current
                          -  
Accrued expenses and others
                   35,000
                 300,000
NON-CURRENT LIABILITIES
Note payable
                          -  
Mortgage payable
              1,800,000
Total liabilities
              2,100,000
SHAREHOLDER'S EQUITY
Ordinary shares (P100 par, 100,000 shares
authorized, 40,000 shares issued and outstanding)
              4,000,000
Share premium
                 462,000
Retained earnings
              3,054,150
Total shareholder's equity
              7,516,150
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY
P
              9,616,150




DON’T PANIC COMPANY
Working Profit and Loss (WPL)
December 31, 2014

Sales
P
            10,800,000
Cost of Sales
           7,560,000
Gross Income
              3,240,000
Other Income
                  10,200
Total Income
              3,250,200
Operating expenses
              1,550,000
Net income
P
              1,700,200
NET INCOME
P
              1,700,200
Retained earnings, January 1
              1,353,950
Retained earnings, December 31
P
              3,054,150

For items 1-15, select the answer that best corresponds to the audited balance as of December 31, 2014, of each of the following items based on the information given in the problem. Ignore tax effects.

1.    Cash in bank
a.     P1,266,000                                    c. P1,066,000
b.    P1,096,000                                     d. P66,000

            Answer: d

            Solution:

                   Cash in Bank                                300,000
                   Restricted Cash                          (200,000)
                   NSF Check                                     (4,000)   
                   Cashed Received                      1,000,000      
                   Postdated Check                           (30,000)
                   Adj. Cash in Bank                      1,066,000 - Answer

2.    Accounts receivable- trade
a.     P570,000                           c. P527,000
b.    P531,000                            d. P535,000

             Answer: d

             Solution:

                    Accounts Receivable                      566,000
                    NSF Check                                       4,000
                    Less: Note Included                        (35,000)
                    Acc. Receivable-Trade                   535,000 - Answer



3.    Allowance for bad debts
a.     P15,250                             c. P15,000
b.    P30,210                              d. P29,900

 Answer: b

 Solution:

         0-30                                                   3,960
         31-60                                                 4,250
         61-90                                                 6,000
         Over 90                                            16,000
         Total Allowance for Bad Debts        30,210 - Answer

4.    Inventories
a.     P200,000                           c. P300,000
b.    P250,000                            d. P230,000

  Answer: a

  Solution:

          Inventories (unadjusted)                250,000
          Less: Overstated amount              (50,000)
          Inventories (adjusted)                   200,000 - Answer

5.    Investment property
a.     P500,000                           c. P700,000
b.    Nil                                      d. P300,000

  Answer: b

  Explanation: It is not stated in the problem in which it is involving investment properties.

6.    Land
a.     P5,100,000                                    c. P4,900,000
b.    P4,400,000                                     d. P3,900,000

  Answer: b

  Explanation: In this problem, the land was given by it's own fair value. In this case, it's P4,400,000...

7.    Accounts payable
a.     P235,000                           c. P295,000
b.    P265,000                            d. P205,000

  Answer: a

  Solution: 

            Unadjusted Accounts Payable       265,000
            Less: Unrecorded Payment            (30,000)
            Adjusted Accounts Payable           235,000 - Answer

8.    Note payable- current
a.     P200,000                           c. P1,000,000
b.    P800,000                            d. Nil

  Answer: c

  Explanation: The 1 million-valued amount was a current note. See more: Item #10

9.    Mortgage payable- current
a.     P600,000                           c. P1,200,000
b.    P1,800,000                         d. P200,000

  Answer: b

  Explanation: Since the balance prior to the modification of terms will be due on June 30, 2015, it was still within 12-month threshold requirement to become a current liability. See more: #11

10.  Note payable- noncurrent
a.     P200,000                           c. P800,000
b.    P1,000,000                         d. Nil

  Answer: c

  Solution: 
         
             Total Notes Payable                      1,000,000
             Current Portion due - 2015             (200,000)
             Noncurrent Portion                           800,000  -  Answer

11.  Mortgage payable- noncurrent
a.     P1,200,000                        c. P200,000
b.    P600,000                            d. Nil

  Answer: d

12.  Retained earnings as of year-end
a.     P2,985,150                                    c. P2,989,150
b.    P2,959,150                                     d. P3,054,150
  Answer: c

  Solution:


   DON’T PANIC COMPANY
Working Profit and Loss (WPL)
December 31, 2014

Sales

                10,800,000
Cost of Sales
(7,610,000) 
Gross Income
            3,190,000
Other Income
              10,200  
Total Income
              3,200,000
Operating expenses
              (1,165,000) 
Net income

              1,635,200  
NET INCOME

             1,635,200
Retained earnings, January 1
            1,353,950  
Retained earnings, December 31

       2,989,150  

13.  Cost of sales
a.     P7,560,000                                    c. P7,614,000
b.    P7,640,000                                    d. P7,610,000

  Answer: d

 Solution:

            Unadj. Cost of Sales                              7,540,000
            Overstated Amt                                          70.000
            Adjusted Cost of Sales                           7,610,000 - Answer

14.  Operating expenses
a.     P1,535,000                                    c. P1,554,800
b.    P1,550,000                                     d. P1,565,000
  Answer: d

  Solution:

             Unadjusted Operating Expenses           1,550,000
             Add: Allowance for Doubtful Accts             15,000
             Adjusted Operating Expenses               1,565,000 - Answer

15.  Net income
a.     P1,631,200                                    c. P1,685,200
b.    P1,605,200                                     d. P1,635,200

 Answer: d


 Solution:

            Unadjusted Net Income                            1,700,200
            Less: Allw. for Doubtful Accts                      (15,000)
                      Cost of Sales                                   (50,000)
            Adjusted Net Income                               1,635,200
         



PROBLEM 2

Keep Calm Company was organized on January 2, 2013, with authorized share capital of P50,000 shares of 10%, P200 par value preference and 200,000 shares of P10 par value ordinary. During the company’s first two years of operations, the following equity transactions occurred.

2013
January 2         Sold 10,000 ordinary shares at P16.
                        Sold 3,000 preference shares at P216.
March 2           Sold ordinary shares as follows: 10,800 shares at P22; 2,700 shares at P25.
July 10             Acquired a nearby piece of land, appraised at P400,000, for 600 preference                           shares and 27,000 ordinary shares. (Preference share capital was recorded                           at P216, the balance being assigned to ordinary).

Dec. 16            Declared the regular preference cash dividend and a P1.50 ordinary cash                             dividend.
Dec. 28            Paid the dividends declared on December 16.
Dec. 31            The income summary account showed a credit balance of P450,000.

2014
Feb. 27            Reacquired 12,000 ordinary shares at P19.
June 17           Resold 10,000 treasury shares at P23.
July 31             Resold all of the remaining treasury shares at P18.
Sept. 30           Sold 11,000 additional ordinary shares at P1.
Dec. 16            Declared the regular preference cash dividend and an P0.80 ordinary cash                           dividend.
Dec. 28            Paid the dividends declared on December 16.
Dec. 31            The income summary account showed a credit balance of P425,000.

Based on the above information, determine the balances of the following on December 31, 2014:

16.    Preference share capital
a.     P729,600               b. P777,600                 c. P720,000                 d. P648,000

Answer: c

Solution:

       Month Issued           Amt of Shares Sold          Par Value         Preference Sh. Capital
       January 2                            3000                      200/share                  600,000
       July 10                                 600                       200/share                 120,000
       TOTAL                                                                                             720,000


17.    Ordinary share capital
a.     P615,400               b. P615,000                 c. P577,000                 d. P966,500

  Answer: b

  Solution:

        Month Issued           Amt of Shares Sold          Par Value         Preference Sh. Capital                 
       January 2, 2013               10,000                      10/share                    100,000
       March 2, 2013                  13,500                      10/share                   135,000
       July 10, 2013                    27,000                     10/share                    270,000
       Sept 30, 2014                   11,000                     10/share                    110,000
       TOTAL                                                                                            615,000

18.    Total share premium
a.     P95,600                 b. P447,100                 c. P449,100                 d. P409,100

  Answer: b

19.    Unappropriated retained earnings
a.     P875,000               b. P416,050                 c. P606,050                 d. P604,050

  Answer: c

  Solution:

       Retained Earnings (Dec. 31, 2013)                                               450,000
       Less:
        Preference Cash Dividend                720,000
        Ordinary Cash Dividend                     75,750                              (147,750)
       Unappropriated retained earnings - Dec. 2013                             302,250
        
       Unappropriated retained earnings - Dec. 2013                             302,250
       Add:
         Retained Earnings (Dec 31, 2014)
                                                                                        425,000
       Less:
         Preference Cash Dividend                  72.000
         Ordinary Cash Dividend                      49,200       (121,200)      303,800
         TOTAL UNAPPROPRIATED RETAINED EARNINGS               606,050 - Answer


20.    Total shareholder’s equity
a.     P2,388,150                b. P1,892,100          c. P2,376,630         d. P2,498,150

  Answer: a

  Solution:

        Ordinary Share Capital [given]                      720,000
        Preferred Share Capital [given]                     615,000
        Total Share Premiums                                   447,100
        Retained Earnings                                         600,000
        Total Shareholders' Equity                          2,388,150 - Answer





PROBLEM 3

You have been engaged to audit the financial statements of Perfect Ko ‘To Company for the fiscal year ended June 30, 2014. The cost of goods sold section of the income statement prepared by your client for the year ended June 30, 2014, appears as follows:

Inventory, July 1, 2013
P
        75,000
Purchases
   540,000
Goods available for sale
      615,000
Inventory, June 30, 2014
   105,000
Cost of goods sold
P
   510.000

Although the books have been closed, your working paper trial balance is prepared showing all accounts with activity during the year. The July 1 and June 30 inventories appearing above were determined through physical count and no reconciling items were considered. All purchases are FOB shipping point. The company uses the periodic inventory system.

In the course of your examination of inventory cutoff, both at the beginning and end of the year, you discovered the following facts:

July 1, 2013

a.     June invoices totaling P19,500 were entered in the voucher register in June, but the goods were not received until July.
b.    Invoices totaling P8,100 were entered in the voucher register in July, but the goods were received during June.

June 30, 2014

a.     Invoices totaling P27,900 were entered in the voucher register in July, and the goods were received in July, but the invoices were dated June.
b.    June invoices totaling P11,100 were entered in the voucher register in June but the goods were not received until July.
c.     Invoices totaling P16,200 (the corresponding goods for which were received in June) were entered in the voucher register, July.
d.    Sales of P26,400 were made on account on June 30 and the goods were delivered at that time, but all entries relating to the sales were made in July.

21.    What is the adjusted inventory on July 1, 2013
a.     P86,400                 b. P94,500                   c. P63,600                   d. P102,600

  Answer: a

  Solution:

        Unadjusted Beginning Inventory                  75,000
        Goods in Transit                                           19,500
        Advanced Goods Received                          (8,100)
        Adjusted Inventory (July 1, 2013)                86,400 - Answer


22.    What is the correct amount of purchases for the year ended June 30, 2014?
a.     P584,100               b. P592,200                 c. P559,800                 d. P576,000

  Answer: d
  
  Solution:

        Unadjusted Purchases in July                       540,000
        Invoice Dated on June                                    27,900  
        Invoice Paid in July                                           8,100
        Adjusted Purchases                                      576,000 - Answer 

23.    What is the correct inventory on June 30, 2014?
a.     P144,000               b. P132,900                 c. P116,100                 d. P135,900

  Answer: d

  Solution:

        Unadjusted Ending Inventory                         105,000
        Wages dated on June                                      27,900
        Goods in Transit                                               11,100
        Invoice received and paid in July                       8,100
        Advanced Goods Received                           116,200
        Adjusted Ending Inventory                             135,900 - Answer
         

24.    The accounts payable balance on June 30, 2014 should be increased by
a.     P44,100                 b. P27,900                   c. P27,300                   d. P55,200

  Answer: a

  Solution:

        Invoice dated on June but not yet
        entered in the voucher registry                          27,900
        
        Goods received in June 2014 but not yet paid   16,200
        Increase in Accounts Payable Balance              44,100 - Answer

25.  The correct cost of goods sold for the year ended June 30, 2014 is
a.     P537,600               b. P553,800                 c. P526,500                 d. P507,300

  Answer: c

  Solution:

        Adjusted Inventory (July 1, 2013)                          98,640
        Adjusted Purchases                                             576,000
        Cost of Goods Available for Sale                         602,000
        Adjusted Ending Inventory                                 (125,900)
        Cost of Goods Sold (adjusted)                             326,500






Tip(s)

- Proceed to questions, then go back to problem.
- If the solution was not in the choices, choose the nearest possible answer
- Solve with the principles behind every question. Remember, there are times that an exam is a little bit tricky up on its sleeve.
- If you our encountering some problems on principles, tell a teacher, a classmate, or refer to a textbook that suits best.
- If possible, study the accounting principles, especially the latest edition of IFRS rules. It will help you out.



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