Midterm Exam - Problems PDF

Preview

Summary

EXAM...

Description

Intermediate Accounting 1: Midterm Exam Name:__________________________ Student No.: ____________________ Numbers 1, 2, and 3 Sobrang Dali Promise Company had the following items at the end of the current year: Cash in bank per bank statement at current month – end Equity investment at Fair Value through Profit and Loss 3-year time deposit purchased 2 months prior to maturity Credit memo authorizing return of goods to vendor Cash fund set aside to acquire equipment next year Cash surrender value

1,500,000 1,700,000 1,200,000 550,000 500,000 150,000

A review of the records revealed that outstanding checks and deposits in transit were P900,000 and P600,000, respectively. The bank statement at month-end showed debut memo for service charge P20,000, NSF check P180,000 and credit memo for loan proceeds P600,000 and note collected P300,000. 1. What is the cash in bank balance per ledger? a. 1,100,000 b. 500,000 c. 1,400,000 d. 300,000 2. What is the adjusted cash in bank? a. 2,200,000 b. 1,900,000 c. 1,800,000 d. 1,200,000 3. What amount should be reported as cash and cash equivalents? a. 2,900,000 b. 3,000,000 c. 2,400,000 d. 2,700,000 Number 4 and 5 ECQ Company recorded the following data at the end of the current year: Accounts Receivable Credit Sales Doubtful Accounts Expense (2% of Credit Sales)

8,000,000 20,000,000 400,000

The allowance for doubtful accounts on January 1 has a balance of P150,000. At year end, ECQ Company estimated its doubtful accounts by using percentage of accounts receivables method. The entity estimated than 10% would be a good estimate. 4. What amount of doubtful accounts expense should be reported for the current year? a. 250,000 b. 400,000 c. 650,000 d. 800,000

5. What is included in the adjusting entry to conform to the new method? a. Debit doubtful accounts expense P650,000 b. Debit doubtful accounts expense P250,000 c. Debit retained earnings P250,000 d. Credit retained earnings P250,000 Numbers 6, 7 and 8 During 2020, Quarantino Company sold accounts receivable with recourse with a face amount of P1,000,000. The factor charged a service fee of 10% of the accounts factored and withheld 5% of the accounts factored as protection against customer returns and other adjustments. The fair value of the recourse obligation is determined to be P37,500. All of the accounts were fully collected by the factor. On June 30, 2020, the entity also discounted a customer’s note with recourse at a bank at a 10% discount rate. The note is dated May 1, 2020, has a term of 90 days, a face value of P1,500,000 and an interest rate of 9%. The entity accounted for this transaction as a secured borrowing. The customer paid the note to the bank on maturity date. 6. What amount of loss on factoring should Quarantino Company report for 2020? a. 100,000 b. 137,500 c. 187,500 d. 150,000 7. What is the amount of proceeds from discounting the note on June 30, 2020? a. 1,500,000.00 b. 1,520,968.75 c. 1,525,968.75 d. 1,533,750.00 8. What amount should be recognized as interest expense related to the note discounting? a. 12,781.25 b. 3,468.75 c. 1,531.25 d. 0 Stay Safe Company has determined its December 31, 2019 inventory on a FIFO basis at P1,900,000. Information pertaining to that inventory follows: Estimated Selling Price 2,800,000 Estimated cost to complete and cost to disposal 1,000,000 Normal profit margin 400,000 Current replacement cost 1,600,000 Stay Safe Company records losses that results from applying the lower of cost or net realizable value. 9. At December 31, 2019, the Company should report inventory at: a. 1,800,000 b. 1,900,000 c. 1,600,000 d. 1,400,000 On May 6, 2020 a flash flood caused damage to the merchandise stored in the warehouse of Cebu Co. you were asked to submit an estimate of the merchandise destroyed in the warehouse. The following data were established: ▪

Net sales for 2019 were P1,600,000, matched against cost of P1,120,000.

▪ ▪ ▪

Merchandise inventory, January 1, 2020 was P400,000, 90% of which was in the warehouse and 10% in downtown showrooms. For January 1, 2020, you ascertained invoice value of purchases (all stores in the warehouse), P200,000; freight inward, P8,000; purchases returned. P12,000. Cost of merchandise transferred from the warehouse to showrooms was P16,000, and net sales from January 1 to May 6, 2020 (all warehouse stock) were P640,000.

Assuming gross profit rate in 2020 to be the same as in the previous year. 10. The estimated merchandise destroyed by the flood was: a. 100,000 b. 108,000 c. 88,000 d. 92,000 Numbers 11, 12, and 13 Money Heist Company incurred and paid the following expenditures in acquiring an administration building and the land on which it is built: Date 1/1/2018 1/1/2018

Additional Information 200,000,000 20% of the price is attributable to land 20,000,000 Non-refundable transfer taxes (not included in the P200M purchase price) 1/1/2018 1,000,000 Legal costs directly attributable to the acquisition 1/1/2018 10,000 Reimbursing the previous owner for prepaying the nonrefundable local government property taxes for the 6-month period ending June 30, 2018. 6/30/2018 20,000 Non-refundable annual local government property taxes for the year ending June 30, 2019. Throughout 120,000 Day-to-day repairs and maintenance, including the salary and 2018 other costs of the administration and maintenance staff. These costs are attributable equally to each of the 10 units. At December 31, 2018, Determination made the following assessments: ▪ ▪ ▪ ▪

Useful life of the building; 50 years from date of acquisition Residual Value of the building is P20,000,000. The entity will consume the building’s future economic benefits evenly over 50 years from the date of acquisition Fair value less cost to sell of the land and building is P250,000,000.

11. The initial carrying value of building on January 1, 2018 is: a. 200,000,000 b. 160,000,000 c. 176,800,000 d. 160,800,000 12. How much is the Depreciation expense in 2018? a. 2,950,000 b. 4,740,000 c. 3,740,000 d. 3,276,000 13. What is the carrying value of the building in December 31, 2018? a. 196,400,000 b. 157,200,000 c. 173,664,000 d. 157,984,000

The Furniture City Co. fabricated furniture and fixtures for its office use in the company’s plant during 2019. The following data were taken from the company’s records: Finished goods Office furniture & fixture

Materials 100,800 67,200

Direct Labor 151,200 50,500

Factory overhead amounted to P134,000. Normal production of finished goods results to 420 units. Due to the fabrication of office furniture and fixtures, finished goods produced total 294 units only in 2018. The assets are to be charged with the overhead which would have been apportioned to the 126 units which were not produced. 14. The total cost of office furniture and fixtures a. 117,700 b. 175,129 c. 157,900 d. 251,700 Number 15 and 16 On June 1, 2019, Kitchen Nightmares Inc. engaged Hell Kitchen Co. to construct a machine for the former’s use. Construction was completed on December 31, 2019. To finance the construction, the entity borrowed P800,000 from a bank also on June 1, 2019. The 12% loan had a one-year term, with interest annually payable at maturity. Kitchen Nightmares Inc. paid P500,000 of the loan proceeds to Hell Kitchen on June 1 and balance was invested in short-term securities at 9% until December 1. On December 1, Kitchen Nightmares Inc. paid the balance to Hell Kitchen Co. 15. What is the cost of machine on December 1, 2019? a. 816,500 b. 830,000 c. 848,000 d. 834,500 16. What is the amount of borrowing cost is capitalized for 2019? a. 48,000 b. 34,500 c. 30,000 d. 16,500 The Gordon Ramsey Manufacturing Company reviewed its year-end inventory and found the following items: ▪

▪ ▪

▪

▪

A packing case containing a product costing P100,000 was standing in the shipping room when the physical inventory was taken. It was not included in the inventory because it was marked “Hold for shipping instructions”. The customer’s order was dated December 18, but the case was shipped and the customer billed on January 10, 2016. Merchandise costing P600,000 was received on December 28, 2015, and the invoice was recorded. The invoice was in the hands of the purchasing agent; it was marked “On consignment”. Merchandise received on January 6, 2016, costing P700,000 was entered in purchase register on January 7. The invoice showed shipment was made FOB shipping point on December 31, 2015. Because it was not on hand during the inventory count, it was not included. A special machine costing P200,000 fabricated to order for a particular customer, was finished in the shipping room on December 30. The customer was billed for P300,000 on the date and the machine was excluded from inventory although it was shipped January 4, 2016. Merchandise costing P200,000 was received on January 6, 2016, and the related purchase invoice was recorded January 5. The invoice showed the shipment was made on December 29, 2015, FOB Destination.

▪

▪

Merchandise costing P150,000 was sold on installment basis on December 15. The customer took possession of the goods on that date. The merchandise was included in inventory because the company still holds legal title. Historical experience suggests that full payment on installments sale is received approximately 99% of the time. Goods costing P500,000 were sold and delivered on December 20. The goods were included in the inventory because the sale was accompanied by a purchase agreement requiring Gordon Ramsey Co. to buy back the inventory in February 2016.

17. How much of these items should be included in the inventory balance as December 31, 2015? a. 1,650,000 b. 1,300,000 c. 1,050,000 d. 800,000 The books of Tiktok Co. showed the following balance at December 31, 2018: Cash on hand Cash in Bank – current account Cash in Bank – peso saving deposit Cash in Bank – dollar deposit (unrestricted) Cash in Bank – dollar deposit (restricted) Cash in money – market account 6-month Time Deposit Treasury bill, purchased 12/1/2018, maturing 2/28/2019 Treasury bond, purchased 3/1/2018, maturing 2/28/2019 Treasury Note Unused Credit Line Redeemable preference shares, purchased 12/1/2018, due on 3/1/2019 Treasury shares purchased 12/1/2018 to be reissued on 3/5/2019 Sinking fund Additional Information: ▪ ▪

▪ ▪

P

200,000 700,000 4,000,000 $200,000 40,000 P 500,000 $120,000 P 1,600,000 1,000,000 400,000 4,000,000 740,000 100,000 400,000

Cash on hand includes P40,000 check payable to Tiktok Co. dated January 10, 2019. During December 2018, checking amounting to P120,000 and P80,000 were drawn against the current account in payment of accounts payable. The P120,000 check is dated January 15, 2019. The P80,000 check is dated December 31, 2018 but was delivered to the payee only on January 15, 2019. The Cash in Bank – peso savings deposit includes a deposit in escrow in the amount of P680,000 and a compensating balance amounting to P500,000 which is legally restricted. The exchange rate as of year-end is $1 is to P40.

18. The amount of cash and cash equivalents to be reported in the 2018 financial statements is: a. 14,720,000 b. 11,400,000 c. 18,900,000 d. 10,900,000 On September 15, 2015, Pogi Brothers Company purchase goods costing P200,000. The terms were FOB destination. Cost incurred in connection with the sales and delivery of the goods were as follows: Packaging for shipment 4,000 Shipping 6,000 Special handling charges 8,000 The goods were received on September 22. In the September 30, 2015 statement of financial position.

19. what amount of these goods should be included in inventory? a. 200,000 b. 204,000 c. 210,000 d. 218,000 Patrick Company had purchased equipment for P5,000,000 on January 1, 2020. The equipment had a 10-year life and salvage value of 10%. Patrick Company depreciated the equipment using the straight method. On December 31, 2023, Irene questioned the recoverability of the carrying amount of this equipment. On December 31, 2023, the undiscounted expected net future cash inflows related to the continued use and eventual disposal of the equipment total P3,500,000. The equipment’s fair value on December 31, 2023 is P2,800,000. 20. After any loss on impairment has been recognized, what is the carrying value of the equipment? a. 3,200,000 b. 3,500,000 c. 2,700,000 d. 2,800,000 Patricia Company had purchased equipment for P10,000,000, on January 1, 2022. The equipment had a 5-year life and a salvage value of 10%. Nerissa Company depreciated the equipment using the straight-line method. On December 31, 2024, Patricia had doubts on the recoverability of the carrying amount of this equipment. On December 31, 2024, the undiscounted expected net future cash inflows related to the continued use and eventual disposal of the equipment totaled P4,500,000. The equipment’s fair value on December 31, 2024 is P4,000,000. 21. After any loss on impairment has been recognized, what is the carrying amount of the equipment? a. 5,000,000 b. 4,500,000 c. 4,000,000 d. 4,600,000 On January 1, 2021, Labas Muna Company sold property to Abo Bukas Company which originally cost Labas Muna P380,000. There was no established exchange price for this property. Abo Bukas gave Labas Muna a P600,000 zerointerest-bearing note payable in three equal annual installments of P200,000 with the first payment due December 31, 2021. The note has no ready market. The prevailing rate of interest for a note of this type is 10%. The present value of a P600,000 note payable in three equal annual installments of P200,000 at a 10% rate of interest is P497,400. 22. What is the amount of interest income that should be recognized by Labas Muna in 2021, using the effective interest method? a. 0 b. 20,000 c. 49,740 d. 60,000 23. What is the balance of note payable that should be recognized by Labas Muna Co. in 2022, using the effective interest method? a. 347,140 b. 200,000 c. 381,854 d. 181,854 24 – 25 Bonus Points....