Chapter 1 Caselette - Accounting Cycle PDF

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CHAPTER 1 Accounting Process Working Paper Preparation Exercises: Indicate your answer encircling the letter that contains your choice in each of the following questions. 1. One is using periodic inventory system. For the year, its total purchases amounted to Its unsold merchandise at the end of the...

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CHAPTER 1 - Accounting Process & Working Paper Preparation Exercises: Indicate your answer by encircling the letter that contains your choice in each of the following questions. 1. One is using periodic inventory system. For the year, its total purchases amounted to P250,000. Its unsold merchandise at the end of the year has a cost of P5,000 which is 80% of its beginning inventory. One’s cost of sale is a. P 250,000 b. P 251,250 c. P 249,000 d. P 248,750 2. Two’s purchase per purchase invoice is P150,000. The purchase discount is 2/10, n/30. Freight is P500, FOB shipping point collect. The net purchase amounts under net method is a. P P147,000 b. P 147,500 c. P 148,500 d. P 150,500 3. Using the information in Item 2, the amount paid by the buyer is a. P P147,000 b. P 147,500 c. P 148,500

d. P 150,500

4. The purchase invoice shows the amount of P250,000, 2/10, 1/20, n/30; FOB destination collect, P200. If the account is paid 15 days after the invoice date, the net payment should be a. P 245,000 b. P 247,500 c. P 247,300 d. P 244,800 5. Using the information in Item 4, the net purchase is a. P 245,000 b. P 247,500 c. P 247,300

d. P 244,800

6. Three purchased merchandise for P5,000 and paid P200 for freight, FOB destination collect. The merchandise was sold at 120% of cost. The gross profit is a. P 1,000 b. P 1,040 c. P 6,000 d. P 6,240 7. The total purchase is P1,176, net of 2% cash discount. Unsold portion of purchase is P176. The sale is at mark-up of 10%. The gross profit is a. P 117.60 b. P 88.24 c. P 115.25 d. P 100.00 8. The term of a P300,000 purchase is 2/20, n/60, FOB shipping point prepaid, P300. If the account is paid on the 25th day from the invoice date, the total payment would be a. P 294,000 b. P 299,700 c. P 294,300 d. P 300,300 9. Four paid freight for P200 on its purchase on account from Five, FOB shipping point. The journal entry in both books of Four and Five would be Books of Four Books of Five a. Freight-out 200 Freight-in 200 Cash 200 Accounts payable 200 b. Freight-in 200 No entry Accounts receivable 200 c. Freight-in 200 No entry Cash 200 d. Freight-in 200 Freight-out 200 Cash 200 Accounts receivable 200

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10. Six sold merchandise at list price of P250,000; 10; 5; n/30. Part of the sale amounting to P10,000 was returned due to defect. The amount to be collected by Six is a. P 205,200 b. P 203,750 c. P 204,000 d. P 195,200 11. Amar Company received P96,000 on April 1, 2002 for one year’s rent in advance and recorded the transaction with a credit to a nominal account. The December 31, 2002 adjusting entry is a. Debit rent revenue and credit unearned rent revenue, P24,000. b. Debit rent revenue and credit unearned rent revenue, P72,000. c. Debit unearned rent revenue and credit rent revenue, P24,000. d. Debit unearned rent revenue and credit rent revenue, P72,000. 12. Andoy Company paid P72,000 on June 1, 2002 for a two-year insurance policy and recorded the entire amount as insurance expense. The December 31, 2002 adjusting entry is a. Debit insurance expense and credit prepaid insurance, P21,000. b. Debit insurance expense and credit prepaid insurance, P51,000. c. Debit prepaid insurance and credit insurance expense, P21,000. d. Debit prepaid insurance and credit insurance expense, P51,000. 13. Antipuesto Company purchase equipment on November 1, 2002 and gave a 12-month, 9% note with a face value of P480,000. The December 31, 2002 adjusting entry is a. Debit interest expense and credit interest payable, P7,200. b. Debit interest expense and credit interest payable, P10,800. c. Debit interest expense and credit cash, P7,200. d. Debit interest expense and credit interest payable, P43,200. 14. On December 31, 2002, Asilo Company’s bookkeeper made an adjusting entry debiting supplies expense and credit supplies inventory for P12,600. The supplies inventory accounts had a P15,300 debit balance on December 31, 2001. The December 31, 2002 balance sheet showed supplies inventory of P11,400. Only one purchase of supplies was made during the month, on account. The entry for that purchase was a. Debit supplies inventory and credit cash, P8,700. b. Debit supplies expense and credit accounts payable, P8,700. c. Debit supplies inventory and credit accounts payable, P8,700. d. Debit supplies inventory and credit accounts payable, P16,500. 15. Astillo Company loaned P300,000 to another company on December 1, 2002 and received a 3-month, 15%, interest-bearing note with a face value of P300,000. What adjusting entry should Astillo Company make on December 31, 2002? a. Debit interest receivable and credit interest income, P7,500. b. Debit cash and credit interest income, P3,750. c. Debit interest receivable and credit interest income, P3,750. d. Debit cash and credit interest receivable, P7,500. . 16. The supplies inventory account balance at the beginning of the period was P66,000. Supplies totaling P128,250 were purchased during the period and debited to supplies inventory. A physical count shows P38,250 of supplies inventory at the end of the period. The year-end adjusting entry is a. Debit supplies inventory and credit supplies expense, P90,000. b. Debit supplies expense and credit supplies inventory, P128,250. c. Debit supplies inventory and credit supplies expense, P156,000. d. Debit supplies expense and credit supplies inventory, P156,000.

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17. At the end of 2002, Avila Company made four adjusting entries for the following items: (1) depreciation expense, P35,000; (2) expired insurance, P2,200 (originally recorded as prepaid insurance); (3) interest payable, P9,000; and (4) rental revenue receivable, P10,000. In the normal situation, to facilitate subsequent entries, the adjusting entry or entries that may be reversed is/are a. Entry 1 c. Entries 3 and 4 b. Entry 4 d. Entries 2, 3, and 4 18. Bagaipo Company reported an allowance for doubtful accounts of P12,000 (credit) at December 31, 2002 before performing an aging of accounts receivable. As a result of the aging, Bagaipo Company determined that an estimated P20,000 of the December 31, 2002 accounts receivable would prove uncollectible. The adjusting entry at December 31, 2002 would be a. Doubtful accounts expense 8,000 Allowance for doubtful accounts 8,000 b. Doubtful accounts expense 20,000 Accounts receivable 20,000 c. Allowance for doubtful accounts 8,000 Doubtful accounts expense 8,000 d. Doubtful accounts expense 8,000 Interest revenue 8,000 19. Assuming that the company does not reverse the adjusting entries, what should be made on April 1, 200 when the annual interest payment is received? a. Debit cash and credit interest revenue, P9,375. b. Debit cash and credit interest receivable, P28,125. c. Debit cash, P37,500; credit interest receivable, P28,125; and interest revenue, P9,375. d. Debit cash and credit interest revenue, P37,500. 20. Using the data of No. 19, but assuming that the company does reverse its adjusting entries, what entry should be made on April 1, 2003 when the annual interest payment is received? a. Debit cash and credit interest revenue, P9,375. b. Debit cash and credit interest receivable, P28,125. c. Debit cash, P37,500; credit interest receivable, P28,125; and interest revenue, P9,375. d. Debit cash and credit interest revenue, P37,500. Answer: 1. b 2. b 11.a 12.d

3. a 13.a

4. c 14.c

5. b 15.c

6. a 16.d

7. d 17.c

8. d 18.a

9. c 19.c

10. a 20.d

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Problem 1 The following is the post-closing trial balance of Abagon Shop dated February 1, 2006:

Cash Accounts Receivable Allowance for doubtful accounts Unused shop supplies Shop Equipment Accumulated depreciation - shop equipment Accounts payable Notes payable Accrued interest payable Abagon, Capital Total

Debit 120,000 280,000

Credit

2,800 800 240,000 48,000

640,800

88,800 100,000 1,200 400,000 640,800

For the month of February, the following are the transactions of Abagon Shop. 1. 2. 3. 4. 5. 6. 7. 8. 9.

Abagon withdrew P100,000 cash from the business for her personal use. Paid P12,000 insurance premium. Paid P24,000 rent. Total service rendered to various customers, P140,000, 40% of total sales are on cash basis and the balance on open account. Received promissory note from customer to replace P40,000 accounts receivable. Collected in cash P164,000 of accounts receivable. Paid the notes payable of P100,000 plus the P2,400 interest. Purchased P2,400 shop supplies on cash basis. Paid salaries, P24,000.

At the end of the month, the following information are available to effect adjustments. a. The insurance in number 2 for P12,000 is applicable for six months starting February. b. The rent of P24,000 paid in number 3 is for 3 months, starting February. c. The note receivable is number 5 is earning 12% interest per year. The note is dated February 1, and is due on April 30. d. Bad debts expense is estimated at 2% of accounts receivable balance. e. The annual depreciation is P48,000. f. The unused supplies balance is P1,000. Questions 1. Cash at end of February is: a. P 103,200 b. P 85,200

c. P 75,200

2. Net Realizable value of Accounts Receivable at end of February is a. P 156,800 b. P 157,200 c. P 196,800 3.

Unused shop supplies at end of February is a. P 1,800 b. P 1,000 c. P

800

4. Net book value of Shop Equipment at end of February is a. P 188,000 b. P 189,000 c. P 184,000

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d. P 72,800

d. P 197,200

d. P

200

d. P 144,000

5. Accounts Payable at end of February is a. P 128,800 b. P 88,800

c. P 86,400

d. P 48,800

6. Notes Payable at end of February is a. P 100,000 b. P 102,400

c. P 97,600

d. P 0

7.

Abagon Capital, net of drawing at end of February is a. P 398,600 b. P 397,400 c. P 397,800 8. Net income of the company at end of February is a. P 98,600 b. P 97,400 c. P 97,800

d. P 388,600 d. P 88,600

9. Total Revenue of the company at end of February is a. P 142,800 b. P 142,400 c. P 140,400

d. P 140,000

10. Total Expenses of the Company at end of February is a. P 52,600 b. P 41,800 c. P 41,400

d. P 41,000

Solution 1 Abagon, drawing Cash 2 Insurance expense Cash 3 Rent expense Cash 4 Cash Accounts receivable Revenue 5 Notes receivable Accounts receivable 6 Cash Accounts receivable 7 Notes payable Interest expense Cash 8 Supplies expense Cash 9 Salaries Cash

100,000 100,000 12,000 12,000 24,000 24,000 56,000 84,000 140,000 40,000 40,000 164,000 164,000 100,000 2,400 102,400 2,400 2,400 24,000 24,000

Adjusting Entry: a b c

d e f

g

Prepaid Insurance Insurance expense Prepaid rent Rent expense Interest receivable Interest income (P40,000 x 12% x 1/12) Bad debts Allowance for bad debts Depreciation Accum. depreciation Unused supplies Supplies expense Supplies expense Unused supplies Accrued interest payable Interest expense To reverse the beg. accrued interest payable TRIAL BALANCE

10,000 10,000 16,000 16,000 400 400 400 400 4,000 4,000 1,000 1,000 800 800 1,200

ADJUSTMENTS

1,200

INCOME STATEMENT

BALANCE SHEET

5

75,20 0

CASH ACCNTS RECEIV

75,20 0

160,000

ALLOW. FOR BD

160,000 2,800

NOTES RECEIV

40,00 0

800 240,000

1,000

ACCUM. DEPN

48,000

ACCOUNTS PAY

88,800

NOTES PAYABLE ACC. INT. PAY

1,200

ABAGON, DRAWING

800

1,000 240,000

4,000

52,000 88,800 -

1,200

100,000

100,000

ABAGON, CAPITAL

400,000

REVENUE

140,000

INSURANCE EXP

12,000

RENT EXPENSE

24,000

SUPPLIES EXP

400,000 140,000 10,000

2,400

800

2,000

16,000

8,000

1,000

2,200

24,000

INTEREST EXP

24,000

2,400

_______

680,800

680,800

1,200

1,200

10,00 0 16,00 0 400

PREPAID INS PREPAID RENT INTEREST RECEI

10,00 0 16,00 0 400

INTEREST INC

400

BAD DEBTS

400

400

DEPRECIATION

400

4,000 _______ 33,80 33,80 0 0

NET INCOME

Answer: 1. C 2. A

3,200

40,00 0

UNUSED SUPPLIES SHOP EQUIPMENT

SALARIES

400

4,000 41,800 98,600 140,400

3. B

4. A

5. B

5. D

8. A

9. A

9. C

________ 140,400 ________ _______ 140,400 642,600

98,600 642,600

10. B

Problem 2 The following selected transactions were completed during Year 1 of operations by Vicar Corporation: a.

Sold of its 20,000 shares of its own common stock, par P1 per share, for P15 per share and received cash in full.

b.

Borrowed P100,000 cash on 12%, one-year note, interest payable at maturity on April 30, Year 2.

c.

Purchased equipment for use in operating the business at a net cash cost of P164,000; paid in full.

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d.

Purchased merchandise for resale at cash cost of P140,000; paid cash. Assume a periodic inventory system; therefore, debit Purchases.

e.

Purchased merchandise for resale on credit terms of 2/10, n/60. The merchandise will cost P9,800 if paid within 10 days; after 10 days, the payment will be P10,000. The company always takes the discount; therefore, such purchased are recorded at net of the discount.

f.

Sold merchandise for P180,000; collected P165,000 cash, and the balance is due in one month.

g.

Paid P30,000 cash for operating expenses.

h.

Paid ¾ of the balance for the merchandise purchased in (e) within 10 days; the balance remains unpaid.

i.

Collected 50% of the balance due on the sale in (f); the remaining balance is uncollected.

j.

Paid cash for an insurance premium, P600; the premium was for two years’ coverage (debit Prepaid insurance).

k.

Purchased a tract of land for a future building for company operations, P63,000 cash.

l.

Paid damages to a customer who was injured on the company premises, P10,000 cash.

Questions Using the unadjusted trial balance, answer the following: 1. Cash balance is: a. P 157,550

b. P 157,400

c. P 157,250

d. P 149,900

2. Accounts receivable balance is: a. P 15,000 b. P 10,000

c. P 7,700

d. P 7,500

3. Prepaid insurance balance is: a. P 600 b. P 400

c. P 300

d. P 200

4. Land account balance is: a. P 227,000 b. P 164,000

c. P 101,000

d. P

63,000

5. Equipment account balance is: a. P 227,000 b. P 164,000

c. P 101,000

d. P

63,000

6. Accounts payable balance is: a. P 2,650 b. P 2,500

c. P 2,450

d. P 2,150

7. Notes payable balance is: a. P 112,000 b. P 109,000

c. P 100,000

d. P 88,000

8. Common stock balance is: a. P 300,000 b. P 280,000

c. P 200,000

d. P 20,000

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1. Premium on capital stock balance is: a. P 300,000 b. P 280,000 2. Sales balance is: a. P 180,000 3. Purchases balance is: a. P 149,800

c. P 200,000

d. P 20,000

b. P 160,000

c. P 100,000

d. P 80,000

b. P 149,600

c. P 150,000

d. P 150,200

c. P 40,000

d. P 38,800

4. Operating expenses and other expenses is: a. P 49,800 b. P 40,200 Solution (a)

(b) (c) (d) (e) (f)

(g) (h)

(i) (j) (k) (l)

Cash

300,000 Common stock 20,000 Premium on capital stock 280,000 Cash 100,000 Notes payable 100,000 Equipment 164,000 Cash 164,000 Purchases 140,000 Cash 140,000 Purchases 9,800 Accounts payable 9,800 Cash 165,000 Accounts receivable 15,000 Sales 180,000 Operating expenses 30,000 Cash 30,000 Purchase disc. lost 200 Accounts payable 200 Accounts payable 7,500 Cash 7,500 Cash 7,500 Accounts receivable 7,500 Prepaid insurance 600 Cash 600 Land 63,000 Cash 63,000 Loss on damages 10,000 Cash 10,000

Cash Accounts receivable Prepaid insurance Land Equipment Accounts payable Notes payable Common stock Premium on capital stock Sales Purchases Operating expenses Purchase disc. lost Loss on damages Total ANSWER 1. b 2. d 11. a 12. b

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3. a

157,400 7,500 600 63,000 164,000 2,500 100,000 20,000 280,000 180,000 149,800 30,000 200 10,000 582,500

4. d

5. b

_______ 582,500

6. b

7. c

8. d

9. b

10. a

Problem 3 The post-closing trial balance of the general ledger of Wilson Corporation at December 31, 20I, reflected the following: Account Debit Cash 27,000 Accounts receivable 21,000 Allowance for doubtful accounts Inventory (perpetual inventory system) 35,000 Prepaid insurance (20 mos. remaining) 900 Equipment (20-year life, no salvage value)50,000 Accumulated depreciation Accounts payable Wages payable Income taxes payable (for 20I) Common stock, par P1 Retained earnings Sales revenue Cost of goods sold Operating expenses Income tax expense Income summary -___ 133,900 * Ending inventory, P45,000 (at 12/31/20J)

Credit

1,000

22,500 7,500 4,000 80,000 18,900 -

______ 133,900

The following transactions occurred during 20J in the order given (use the number at the left to indicate the date): 1. Sales revenue at P30,000, of which P10,000 was on credit; cost provided by perpetual inventory record, P19,500. 2. Collected P17,000 on accounts receivable. 3. Paid income taxes payable (20I), P4,000. 4. Purchased merchandise, P40,000, of which P8,000 was on credit. 5. Paid accounts payable, P6,000. 6. Sales revenue of P72,000 (in cash); cost, P46,800. 7. Paid operating expenses, P19,000. 8. On January 1, 20J, sold and issued 1,000 shares of common stock, par P1, for P1,000 cash. 9. Purchased merchandise, P100,000, of which P27,000 was on credit. 10. Sales revenue of P98,000, of which P30,000 was on credit; cost P63,700. 11. Collected cash on accounts receivable, P26,000. 5. Paid cash on accounts payable, P28,000. 6. Paid various operating expenses in cash, P18,000. Assume a bad debt rate of ½% of credit sales for the period and a 32% income tax rate. At December 31, 20J, accrued wages were P300. Use straight-line depreciation. Questions 1. Cash at December 31, 20J is: a. P 51,000 b. P 50,000

c. P 45,000

d. P 41,000

2. Accounts receivable at December 31, 20J is:

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a. P 18,000

b. P 16,800

c. P 16,000

d. P 15,800

3. Inventory at December 31, 20J is: a. P 64,500 b. P 45,000

c. P 35,000

d. P 32,500

4.

Prepaid insurance at December 31, 20J is: a. P 360.00 b. P 562.50 c. P 900

5. Equipment at December 31, 20J is: a. P...