Batch 17 1st Preboard (P1) PDF

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DySAS Center for CPA Review2F & 3F Mitra Building, San Pedro Street, Davao City Tel. No. (082) 224-43-20: E-mail Address – dysasrev@yahooPractical Accounting 1 John C. Frivaldo, CPA, MBA FIRST PRE-BOARD EXAMINATIONS December 20, 2008 @ 8:00 – 10:00 am ============================================...

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DySAS Center for CPA Review 2F & 3F Mitra Building, San Pedro Street, Davao City Tel. No. (082) 224-43-20: E-mail Address – [email protected] Practical Accounting 1 John C. Frivaldo, CPA, MBA FIRST PRE-BOARD EXAMINATIONS December 20, 2008 @ 8:00 – 10:00 am =========================================================== INSTRUCTIONS: Mark the letter of your choice with a VERTICAL LINE on the answer sheet provided. ERASURES NOT ALLOWED. 1. Mega Company purchased from Ora Company a P2,000,000, 8% 5-year note that required five equal annual year-end payments of P500,900. The note was discounted to yield a 9% rate to Mega. At the date of purchase, Mega recorded the note at its present value of P1,948,500. What should be the total revenue earned by Mega over the life of this note? (a) P504,500 (b) P556,000 (c) P800,000 (d) P900,000 B Total payments (500,900 x 5) Present value of note Total interest revenue

P2,504,500 1,948,500 P 556,000

National Bank grants a 10-year loan to Abbo Company in the amount of P1,500,000 with a stated interest rate of 6%. Payments are due monthly and are computed to be P16,650. National Bank incurs P40,000 of direct loan origination cost and P20,000 of indirect loan origination cost. In addition, National Bank charges Abbo a 4-point nonrefundable loan origination fee. 2. National Bank, the lender, has a carrying amount of: (a) P1,440,000 (b) P1,480,000 (c) P1,500,000

(d) P1,520,000

B

Note receivable P1,500,000 Direct origination cost 40,000 Total P1,540,000 Nonrefundable origination fee (1,500,000 x 4%) 60,000 Carrying value P1,480,000 The direct origination cost incurred by the bank is a deferred charge to be amortized over the term of the loan. The indirect origination cost incurred by the bank is an outright expense. The nonrefundable origination fee charged by the bank against the borrower is unearned income on the part of the bank and deferred financing charge on the part of the borrower to be amortized over the term of the loan. 3. Abbo, the borrower, has a carrying amount of: (a) P1,440,000 (b) P1,480,000 (c) P1,500,000 Note payable Nonrefundable origination fee Carrying value

(d) P1,520,000

A

P1,500,000 ( 60,000) P1,440,000

4. Impeccable Corporation manufactures and sells electrical generators. On January 1, 2000, it sold an electrical generator costing P700,000 for P1,000,000. The buyer paid P100,000 down and signed a P900,000 non-interest bearing note payable in three equal installments every December 31. Assume the prevailing interest rate for a note of this type is 12%. What is the interest income that should be recognized for the year 2000? (a) P86,465 (b) P108,000 (c) P179,460 (d) P59,820 A Face value Present value (300,000 x 2.4018) Unearned interest income Interest income – 2000 (720,540 x 12%)

P900,000 (720,540) P179,460 P86,465

5. Roth Company received from a customer a 1 – year, P500,000 note bearing annual interest of 8%. After holding the note for 6 months, Roth discounted the note at a nearby bank at an effective interest rate of 10%. What amount of cash did Roth received from the bank? (a) P540,000 (b) P523,810 (c) P513,000 (d) P495,238 C Maturity value [500,000 + (500,000 x 8%)] Discount (540,000 x 10% x 6/12) Net proceeds

P540,000 ( 27,000) P513,000

6. On June 30, 2003, Ray Company discounted at the bank a customer’s P60,000, 6-month, 10% note receivable dated April 30, 2003. The bank discounted the note at 12%. Ray’s proceeds from this discounted note amounted to: (a) P56,400 (b) P57,600 (c) P60,480 (d) P61,740 C Maturity value [60,000 + (60,000 x 10% x 6/12)]P63,000 Discount (63,000 x 12% x 4/12) ( 2,520) Net proceeds P60,480 X Corporation factored P6,000,000 of accounts receivable to A Corporation on October 1, 2004. Control was surrendered by X Corporation. A Corporation accepted the receivables subject to recourse for nonpayment. A Corporation assessed a fee of 3% and retains a holdback equal to 5% of the accounts receivable. In addition, A Corporation charged 15% interest computed on a weighted-average time to maturity of the receivables of 54 days. The fair value of the recourse obligation is P90,000. 7. X Corporation will receive and record cash of: (a) P5,296,850 (b) P5,386,850 (c) P5,476,850 Accounts receivable Factor’s holdback (6,000,000 x 5%) Factoring fee (6,000,000 x 3%) Interest (6,000,000 x 15% x 54/365) Cash received from factoring

(d) P5,556,850

B

P6,000,000 ( 300,000) ( 180,000) ( 133,150) P5,386,850

8. Assuming all receivables are collected, X Corporation’s cost of factoring the receivables would be: (a) P313,150 (b) P180,000 (c) P433,150 (d) P613,150 A Factoring fee Interest Total cost of factoring

P180,000 133,150 P313,150

9. Sigma Company began operations on January 1, 2004. On December 31, 2004, Sigma provided for uncollectible accounts based on 1% of annual credit sales. On January 1, 2005, Sigma changed its method of determining its allowance for uncollectible accounts by applying certain percentages to the accounts receivable aging as follows: Days past invoice date Percent uncollectible 0 – 30 1 31 – 90 5 91 – 180 20 Over 180 80 In addition, Sigma wrote off all accounts receivables that were over 1 year old. The following additional information relates to the years ended December 31, 2005 and 2004: 2005 2004 Credit sales P3,000,000 P2,800,000 Collections (including recovery) 2,915,000 2,400,000 Accounts written off 27,000 none Recovery of accounts previously written off 7,000 none Days past invoice date at 12/31: 0 – 30 300,000 250,000 31 – 90 80,000 90,000 91 – 180 60,000 45,000 Over 180 25,000 15,000

What is the provision for uncollectible accounts for the year ended December 31, 2005? (a) P39,000 (b) P31,000 (c) P38,000 (d) P11,000 B 0 – 30 (300,000 x 1%) 31 – 90 (80,000 x 5%) 91 – 180 (60,000 x 20%) Over 180 (25,000 x 80%) Required allowance – 12/31/2005

P 3,000 4,000 12,000 20,000 P39,000

Allowance – 12/31/2004 (2,800,000 x 1%) Recovery in 2005 Uncollectible accounts expense Total Writeoff in 2005 Required allowance – 12/31/2005

P28,000 7,000 31,000 P66,000 27,000 P39,000

10. From inception of operations to December 31, 2003, Murr Corporation provided for uncollectible accounts receivable under the allowance method, provisions were made monthly at 2% of credit sales, bad debt written off were charged to the allowance account, recoveries of bad debts previously written off were credited to the allowance account, and no year-end adjustments to the allowance account were made. Murr’s usual credit terms are net 30 days. The balance in the allowance for doubtful accounts was P120,000 at January 1, 2004. During 2004, credit sales totaled P9,000,000, interim provisions for doubtful accounts were made at 2% of credit sales, P90,000 of bad debts were written off, and recoveries of accounts previously written off amounted to P15,000. Murr installed a computer facility in November 2004 and prepared an aging of accounts receivable for the first time as of December 31, 2004. A summary of the aging is as follows: Classification by Balance in Estimated % month of sale each category uncollectible November – December 2004 P2,000,000 2% July – October 600,000 10% January – June 400,000 25% Prior to 1/1/2004 200,000 75% P3,200,000 Based on the review of collectibility of the account balances in the “prior to 1/1/2004” aging category, additional receivables totaling P60,000 were written off as of December 31, 2004. Effective with the year ended December 31, 2004, Murr adopted a new accounting method for estimating the allowance the allowance for doubtful accounts at the amount indicated by the year-end aging analysis of accounts receivable. What is the year-end adjustment to the allowance for doubtful accounts as of December 31, 2004? (a) P305,000 (b) P180,000 (c) P320,000 (d) P140,000 D November – December (2,000,000 x 2%) July – October (600,000 x 10%) January – June (400,000 x 25%) Prior to 1/1/2004 (200,000 – 60,000 x 75%) Required allowance – 12/31/2004

P 40,000 60,000 100,000 105,000 P305,000

Allowance – 1/1/2004 Recoveries Doubtful accounts expense Total Writeoffs (90,000 + 60,000) Required allowance – 12/31/2004

P120,000 15,000 320,000 P455,000 150,000 P305,000

Correct doubtful accounts expense Recorded amount (2% x 9,000,000) Increase in doubtful accounts

P320,000 180,000 P140,000

Doubtful accounts Allowance for doubtful accounts

P140,000 P140,000

11. When examining the accounts of Brute Company, you ascertain that balances relating to both receivables and payables are included in a single controlling account called receivables control that has a debit balance of P4,850,000. An analysis of the make-up of this account revealed the following: Debit Credit Accounts receivable – customers P7,800,000 Accounts receivable – officers 500,000 Debit balances – creditors 300,000 Postdated checks from customers 400,000 Subscriptions receivable 800,000 Accounts payable for merchandise P4,500,000 Credit balances in customers’ accounts 200,000 Cash received in advance from customers for goods not yet shipped 100,000 Expected bad debts 150,000 After further analysis of the aged accounts receivable, you determined that the allowance for doubtful accounts should be P200,000. What is the correct total of current net receivables? (a) P8,950,000 (b) P8,800,000 (c) P8,600,000 (d) P8,850,000 B Accounts receivable – customers (7,800,000 + 400,000) Allowance for doubtful accounts Accounts receivable – officers Debit balances – creditors Total current net receivables

P8,200,000 ( 200,000) 500,000 300,000 P8,800,000

12. The following information is available for the Hook company: Amount in Thousands 2001 2002 2003 Charge sales 900 1,100 1,000 Cash sales 600 800 700 Total 1,500 1,900 1,700 Accounts receivable (end of year) 170 230 220 Allowance for doubtful accounts (end of year) 47 30 56 Accounts written off as uncollectible (during the year) 2 50 4 Assuming there was no change in the method used for estimating doubtful accounts, what was the balance in the allowance for doubtful accounts at the beginning of 2001? (a) P 0 (b) P22,000 (c) P45,000 (d) P49,000 B 2001 Allowance – 1/1 22,000 Expense (squeeze) 27,000 Total 49,000 Writeoff 2,000 Allowance – 12/31 47,000 Percentage of charge sales: 2001 33,000/ 1,100,000 2002 30,000/ 1,000,000 2003 3% x 900,000

2002 47,000 33,000 80,000 50,000 30,000 = = =

2003 30,000 30,000 60,000 4,000 56,000

3% 3% 27,000 Expense

13. Rip Corporation showed the following balances on January 1, 2003: Accounts receivables P 600,000 Allowance for doubtful accounts 30,000 The following transactions affecting accounts receivable occurred during the year ended December 31, 2003: Sales – cash and credit P3,280,000 Cash received from cash customers 400,000 Cash received from credit customers, excluding recovery 2,475,000 Cash received from credit customers who took advantage of the 2/10, n/30 terms (included in P2,475,000) 1,470,000

Accounts receivable written off as worthless 20,000 Recoveries of accounts written off 5,000 Credit memoranda for returned credit sales 55,000 Cash refunds to cash customers 10,000 The company uses the percentage of accounts receivable method in determining the allowance for doubtful accounts. What is the net realizable value of accounts receivable on December 31, 2003? (a) P855,000 (b) P900,000 (c) P850,000 (d) P895,000 A Accounts receivable – 1/1 P 600,000 Sales – credit (3,280,000 – 400,000) 2,880,000 Cash received from credit customers, excluding recovery (2,475,000) Sales discounts ( 30,000) Accounts receivable written off as worthless ( 20,000) Credit memoranda for returned credit sales ( 55,000) Accounts receivable – 12/31 P 900,000 Accounts collected with discount (1,470,000/98%)P1,500,000 Cash received 1,470,000 Sales discounts (2% x 1,500,000) P 30,000 Accounts receivable – 12/31 P 900,000 Allowance for doubtful accounts (5% x 900,000) ( 45,000) Net realizable value P 855,000 14. Excel reported P70,000 of inventory on December 31, 2003, based on physical count. Additional information was given as follows: a. Included in the physical count were machines billed to a customer, FOB shipping point, on December 31, 2003. The machines had a cost of P3,000 a had been billed at P5,000. The shipment is ready for pick-up by the delivery contractor. b. Goods were in transit from a vendor. The invoice cost was P8,000 and goods were shipped FOB shipping point on December 31, 2003. c. Work in process costing P500 was sent to an outside processor for finishing on December 30, 2003. d. Goods out on consignment amounted to P4,600 (sales price); shipping costs, P120 (markup is 15% on cost). The correct amount of inventory on December 31, 2003 is: (a) P85,620 (b) P85,500 (c) P82,620 (d) P82,500 C Inventory per count, Jan. 1, 2003 Goods in transit, shipped FOB shipping point Work in process job out for finishing Goods out on consignment [(4,600/ 1.15) + 120] Inventory as adjusted, Dec. 31 2003

P70,000 8,000 500 4,120 P82,620

15. The book value of Good’s inventory at the end of 2003 is P95,000. Included in the amount are the following items: Merchandise in transit, purchased FOB shipping point P6,800 Goods held as consignee 5,000 Goods out on consignment, at cost plus 50% markup on cot plus P100 delivery charge 6,100 The correct amount of inventory is: (a) P83,100 (b) P87,900 (c) P86,200 (d) P88,000 D Inventory per books, December 31 Goods held as consignee Markup on goods out on consignment [6,000 – (6,000/ 1.50)] Inventory as adjusted, December 31

P95,000 ( 5,000) ( 2,000) P88,000

16. Compute for the cost of inventory lost in fire using the data below: Inventory, July 1, 2004 P51,600 Purchases, July 1, 2004 to Jan. 19, 2005 368,000 Sales, July 1, 2004 to Jan. 19, 2005 583,000 Purchase returns 11,200 Purchase discounts taken 5,800 Freight in 3,800 Sales returns 8,600 A fire destroyed the entire inventory except for purchases in transit, FOB shipping point, of P2,000 and goods having a selling price of P4,700 that were salvaged from the fire. The salvaged goods had an estimated value of P2,900. The average gross profit rate on net sales is 40%. (a) P59,760 (b) P56,940 (c) P62,660 (d) P56,860 B Inventory, July 1, 2004 Purchases, July 1, 2004 to Jan. 19, 2005 Purchase returns Purchase discounts taken Freight in Available for sale Cost of goods sold: Net sales (583,000 – 8,600) P574,400 Multiply by cost percentage 60% Estimated ending inventory Goods in transit Salvage value of damaged goods Estimated inventory lost in fire

P 51,600 368,000 ( 11,200) ( 5,800) 3,800 P406,400

(344,640) P 61,760 ( 2,000) ( 2,820) P 56,940

17. The following information pertains to Dely Corporation’s 2004 cost of goods sold: Inventory, December 31, 2003 P90,000 2004 purchases 124,000 2004 write-off of obsolete inventory 34,000 Inventory, December 31, 2004 30,000 The inventory written off became obsolete due to an unexpected and unusual technological advance by a competitor. In its 2004 income statement, what amount should Dely report as cost of goods sold? (a) P218,000 (b) P184,000 (c) P150,000 (d) P124,000 C Inventory, December 31, 2003 2004 purchases 2004 write-off of obsolete inventory Inventory, December 31, 2004 Cost of goods sold

P90,000 124,000 (34,000) (30,000) P150,000

18. Pine Company prepares monthly income statements. A physical inventory is taken only at year-end; hence, month-end inventories must be estimated. All sales are made on account. The rate of markup on cost is 50%. The following information relates to the month of November: Accounts receivable, November 1 P102,000 Accounts receivable, November 30 153,000 Collection of accounts receivable during November 255,000 Inventory, November 1 183,600 Purchases of inventory during November 163,200 The estimated cost of the November 30 inventory is: (a) P122,400 (b) P142,800 (c) P193,800 (d) P224,400 B Inventory, November 1 P183,600 Purchases of inventory during November 163,200 Cost of goods available for sale P346,800 Accounts receivable, November 30 P153,000 Collection of accounts receivable during November 255,000 Accounts receivable, November 1 (102,000) Sales P306,000 Divided by 150% (50% markup on cost) 50% Estimated cost of goods sold P204,000 Estimated cost of the Nov. 30 inventory (346,800 – 204,000) P142,800

19. A store uses the gross profit method to estimate inventory and cost of goods sold for interim reporting purposes. Past experience indicates that the average gross profit rate is 25% of sales. The following data relate to the month of October: Inventory cost, October 1 P255,000 Purchases during the month at cost 683,400 Sales 856,800 Sales returns 30,600 Using the data above, what is the estimated ending inventory at October 31? (a) P206,550 (b) P214,200 (c) P295,800 (d) P318,750 D Inventory cost, October 1 Purchases during the month at cost Cost of goods sold [(856,800 – 30,600) x 75%] Estimated inventory, October 31

P255,000 683,400 (619,650) P318,750

20. The following items were included in Opal Company’s inventory account at December 31, 2004: Merchandise out on consignment, at sales price, including 40% markup on selling price P28,000 Goods purchased in transit, FOB shipping point 24,000 Goods held on consignment by Opal Company 16,000 Goods out on approval (sales price, P10,000; cost , P8,000) 10,000 By what amount should the inventory at December 31, 2004 be reduced? (a) P29,200 (b) P50,000 (c) P54,000 (d) P78,000 A

Markup on merchandise out on consignment (40% x 28,000) Goods held on consignment Markup on goods out on approval (10,000 – 8,000) Total inventory reduction

P11,200 16,000 2,000 P29,200

21. The balance in Reed Company’s accounts payable account at December 31, 2000 was P1,225,000 before the following information was considered: - Goods shipped FOB destination on December 21, 20009 from a vendor to Reed were lost in transit. The invoice cost of P45,000 was not recorded by Reed. On December 28, 2000, Reed notified the vendor of the lost shipment. - Goods were in transit from a vendor to Reed on December 31, 2000. The invoice cost was P60,000 and the goods were shipped FOB shipping point on December 28, 2000. Reed received the goods on January 6, 2001. - Goods shipped to Reed, FOB shipping point on December 20, 2000 from a vendor were lost in transit. The invoice price was P50,000. On January 5, 2001, Reed filed a P50,000 claim against the common carrier. - On December 27, 2000, a vendor authorized Reed to return, for full credit, goods shipped and billed at P35,000 on December 20, 2000. The returned goods were shipped by Reed on December 27, 2000. A P35,000 credit memo was received and recorded by Reed on January 6, 2001. What amount should Reed report as accounts payable in its December 31, 2000 balance sheet? (a) P1,300,000 (b) P1,345,000 (c) P1,235,000 (d) P1,250,000 A Accounts payable per book A B C D Adjusted accounts payable

P1,225,000 60,000 50,000 ( 35,000) P1,300,000...