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
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
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
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
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:
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
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
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
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
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
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
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
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
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
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
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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