P1-10-001 - Practical Accounting 1 PDF

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Dynamic Society of Accounting Students Monthly Examinations Practical Accounting 1 In an audit of Selena Company on December 31, 2009, the following information is gathered: Balance per book 6,700, Customer’s check 200, Depositor’s note charged to account 650, Customer’s note collected by bank 120, ...

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Dynamic Society of Accounting Students Monthly Examinations Practical Accounting 1 1. In an audit of Selena Company on December 31, 2009, the following information is gathered: Balance per book 6,700,000 Customer’s check 200,000 Depositor’s note charged to account 650,000 Customer’s note collected by bank 120,000 Outstanding checks 800,000 Checkbook printing charge 2,000 Certified checks included in the outstanding checks 100,000 Deposit in transit 1,200,000 Interest earned on deposits net of 20% final tax 32,000 The adjusted cash in bank of Selena Company on December 31, 2009 is a. 6,050,000 b. 6,700,000 d. 5,300,000 c. 6,000,000 Balance per book Customer’s NSF check Depositor’s note charged to account Customer’s note collected by bank Checkbook printing charge Interest earned on deposits Balance per books

6,700,000 ( 200,000) ( 650,000) 120,000 ( 2,000) 32,000 6,000,000

2. On January 1, 2009, Everlasting Company purchased serial bonds with a face value of P4,000,000 and a stated interest rate of 10% to be held to maturity. The stated interest is payable annually on December 31. The bonds are acquired to have an effective yield at 12%. The bonds mature at annual installments of P1,000,000 every January 1, beginning in January 1, 2010 and every January 1 thereafter. What is the market price of the bond investment on January 1, 2009? (Round off present value factors to 2 decimal places) c. 3,842,000 a. 4,000,000 b. 3,776,000 d. 3,876,000 PV of PV of PV of PV of Total

1/1/10 1/1/11 1/1/12 1/1/13

cash cash cash cash

flow flow flow flow

(1.4M (1.3M (1.2M (1.1M

x x x x

.89) .80) .71) .64)

1,246,000 1,040,000 852,000 704,000 3,842,000

3. On December 31, 2009, the balance of accounts receivable of Jalena Company was P6,000,000 and the January 1, 2009 balance of allowance for doubtful accounts was P800,000. The following data were gathered: Credit Sales Write of offs fs Recov Recoveries eries 2006 9,000,000 400,000 30,000 2007 13,000,000 600,000 70,000 2008 15,000,000 700,000 120,000 2009 20,000,000 650,000 150,000 Doubtful accounts are provided for a percentage of credit sales. The accountant calculates the percentage annually by using the experience of the three years prior to the current year. How much should be reported as allowance for doubtful accounts on December 31, 2009? a. 1,100,000 b. 800,000 c. 1,300,000 d. 1,250,000 Total writeoff (400 + 600 + 700) Less: Total recovery (30 + 70 + 120) Net writeoff Divided by total credit sales Doubtful accounts expense rate Beg. ADA Writeoff Recovery DAE (20M x 4%) ADA, end

1,700,000 220,000 1,480,000 37,000,000 4% 800,000 ( 650,000) 150,000 800,000 1,100,000

4. Esplanade Company sells a variety of merchandise to its customers. On December 31, 2009, the balance of Esplanade’s ending inventory account was P3,000,000, and the allowance for inventory writedown account before any adjustment was P150,000. Relevant information about the proper valuation of inventories and the breakdown of inventory cost and market data at December 31, 2009, are as follows: Cost Repla Replacement cement Sales NRV Normal Cost Price Pro Profit fit Bags 800,000 900,000 1,200,000 550,000 250,000 Shoes 1,200,000 1,200,000 1,300,000 1,100,000 150,000 Clothing 700,000 1,000,000 1,250,000 950,000 300,000 Lingerie 500,000 600,000 1,000,000 350,000 300,000 How much loss on inventory writedown is included in 2009 cost of sales? a. 50,000 b. 200,000 c. 400,000 d. 250,000 Lower of cost or NRV on item by item basis (550 + 1M + 700 + 350) 2,600,000 Less: Total cost 3,000,000 Required allowance for inventory writedown 400,000 Less: Beginning allowance 150,000 Loss on writedown 250,000 5. Flavia Manufacturing began operations 3 years ago. On October 1, 2009, a fire broke out in the warehouse destroying all inventories. The information available is presented below. January 1 October 1 Inventory 500,000 Accounts receivable 800,000 500,000 Accounts payable 400,000 650,000 Collection on accounts receivable, 1/1 to 10/1 6,500,000 Payments to suppliers, 1/1 to 10/1 5,200,000 Goods out on consignment at October 1, at cost 400,000 2006 2007 2008 Sales 6,000,000 7,500,000 8,000,000 Gross profit on sales 1,650,000 1,725,000 2,000,000 What is the inventory loss suffered as a result of the fire? a. 900,000 b. 425,000 c. 200,000 d. 825,000 Sales (6,500,000 – 800,000 + 500,000 Purchases (5,200 – 400 + 650) GP % (27.5% + 23% +25%) / 3 or (5,375/21,500)

6,200,000 5,450,000 25%

GAS (500,000 + 5,450,000) Less: Estimated COS (6.2M x (1-25%) Estimated ending inventory Less: Cost of goods out on consignment Estimated fire loss

5,950,000 4,650,000 1,300,000 400,000 900,000

6. On January 1, 2009, Katherine Company purchased 20% of the outstanding ordinary share capital of David Company for P4,000,000, of which P1,000,000 was paid in cash and P3,000,000 payable with 12% annual interest on December 31, 2010. Katherine also paid P500,000 to a business broker who helped find a suitable business and negotiated to purchase. At the time of the acquisition, the fair value of David’s identifiable assets and liabilities were equal to their carrying value except for an office building which has a fair value in excess of book value of P2,000,000 and an estimated life of 4 years. David’s shareholder’s equity on January 1, 2009 was P13,000,000. During 2009, David reported net income of P6,000,000 and paid dividends of P4,000,000. What amount should Katherine Company report as investment in associate on December 31, 2009? a. 4,300,000 b. 4,800,000 c. 4,900,000 d. 4,500,000 Cost Share in net income (6M x 20%) Dividends Amortization Carrying amount 12/31/09

4,500,000 1,200,000 ( 800,000) ( 100,000) 4,800,000

7.

During 2009, Judith Company Corporation constructed a new hydro electric power plant at a cost of P25,000,000. The expenditures for this facility, which was finished late in 2009, were incurred evenly during the year. The entity had the following loans among Judith’s liabilities outstanding on December 31, 2009:  12% note to finance construction of the hydro-electric power plant, dated January 1, 2009, P10,000,000 that was unpaid as of December 31, 2009. Investments were made on the excess borrowings from this loan and income of P50,000 was realized from deposits and other investments during 2009.  8%, 20-year bonds payable issued at face value on January 1, 2001, P40,000,000.  15%, 5-year mortgage note payable, dated March 1, 2006, P10,000,000. What is the amount of interest that was capitalized as cost of new building? a. 2,560,000 c. 1,200,000 d. 2,325,000 b. 1,385,000 Average expenditures (25M / 2) Interest on BP (8% x 40M) Interest on MP (15% x 10M) Total Divide by the total Principal (40M + 10M) Capitalization rate

12.5M 3.2M 1.5M 4.7M 50M 9.4%

Specific borrowings (10M x 12%) – 50,000 General borrowings Total borrowing cost eligible for capitalization

1,150,000 235,000 1,385,000

8. On January 1, 2009, Amanda Company received from a customer an 8-month, 6,000,000 note bearing an annual interest rate of 10%. The principal and the interest are payable on September 1, 2009. To obtain cash quickly, Amanda discounted the note with East-West Bank on March 1, 2009. The bank charged a discount rate of 12%. What is the loss on note receivable discounting to be recognized by Amanda? d. 84,000 a. 100,000 b. 400,000 c. 384,000 Maturity value (6M x 10% x 8/12) Less: Discount (6.4M x 12% x 6/12) Proceeds Less: Principal and interest receivable (6M x 10% x 2/12) Loss on discounting

6,400,000 384,000 6,016,000 6,100,000 ( 84,000)

9. Marla Company acquired new equipment on account on March 1, 2009 with a 5% discount if paid with in 15 days. The following information is available: List price 3,500,000 Trade discount 20% Removal of old equipment 100,000 Cost of installation 50,000 Cost of redecoration of office in connection with the purchase 250,000 Insurance taken during delivery 20,000 Repairs incurred while in transit 10,000 Transportation costs 30,000 If the invoice was paid on March 31, 2009, what should be the cost of equipment? a. 2,760,000 b. 3,425,000 c. 2,900,000 d. 3,010,000 Purchase price net of discount (2,800 -140) Direct cost (50 + 20 + 30) Total cost

2,660,000 100,000 2,760,000

10. The inventory control account balance of Luca Company at December 31, 2009 was P4,000,000 using the perpetual inventory system. A physical count conducted on that day found inventory on hand worth of P3,400,000. Net realizable value for each inventory item held for sale exceeded cost. An investigation of the discrepancy revealed the following: a. Goods costing P300,000 were sold on credit to Fernando Company for P500,000 on December 28, 2009 FOB destination. The goods were still in transit on December 31, 2009. The sales invoice was raised and processed on December 31, 2009. b. Goods costing P450,000 were purchased on credit FOB destination from Kimi Company on December 29, 2009. The goods were received on December 30, 2009 and included in the physical count. The purchase invoice was received on January 2, 2010. c. Goods costing P150,000 were purchased on credit from Alistair Company on December 27, 2009 FOB shipping point. The goods were shipped on December 28, 2009 but, as they had not arrived

by December 31, 2009, were not included in the physical count. The purchase invoice was received and processed on December 31, 2009. d. Goods worth P200,000 held on consignment from Jensen Company had been included in the physical count. e. On December 31, 2009, Luca Company sold goods costing P750,000 on credit FOB shipping point to Ruben Company for P1,000,000. The goods were dispatched from the warehouse on December 31, 2009 but the sales invoice had not been raised at that date. f. Damaged inventory items valued P350,000 were discovered during the physical count. These items were still recorded as of December 31, 2009 but were omitted from the physical count records pending their writeoff. What is Luca Company’s adjusted inventory amount? a. 3,650,000 b. 3,600,000 c. 4,100,000 d. 4,000,000 Unadjusted perpetual balance Recorded goods sold FOB destination Unearned merchandise that had been received Unrecorded goods sold FOB shipping point Damaged goods Adjusted perpetual balance

4,000,000 300,000 450,000 ( 750,000) ( 350,000) 3,650,000

Unadjusted periodic balance Uncounted goods sold FOB destination Goods in transit purchased FOB shipping point Goods held on consignment Adjusted periodic balance

3,400,000 300,000 150,000 ( 200,000) 3,650,000

11. Lene Company uses straight line depreciation for its property, plant and equipment. Balances of the property, plant and equipment and related accumulated depreciation accounts on January 1, 2009 are P25,000,000 and P5,000,000 and on December 31, 2009 are P20,000,000 and P6,200,000. Lene did not purchase property, plant and equipment during 2009. However, machinery was sold for P3,000,000 that resulted in a P400,000 loss. What is the depreciation expense for 2009? a. 1,200,000 c. 3,600,000 d. 2,200,000 b. 2,800,000 Accum. Depn. 1/1 Accum. Depn. From sold equipment (5M – (3M + 400) Depreciation expense (SQUEEZE) Accum. Depn. 12/31

5,000,000 (1,600,000) 2,800,000 6,200,000

12. During 2009, Dinara Company made the following property, plant and equipment expenditures: Land and building acquired from Samantha Company 7,000,000 Repairs and reconditioning cost made to the building 250,000 Reconstruction of sidewalk and fences 100,000 Special tax assessment 50,000 Remodeling of office space including new partitions and walls 400,000 In exchange for the land and building acquired from Samantha, Dinara issued 50,000 ordinary shares of its P100 par value ordinary shares. On the date of purchase, the shares had a market value of P140 per share and the land and building had a fair value of P2,000,000 and P6,000,000 respectively. During the year, Dinara also received land from a shareholder to facilitate to relocation of its main offices in the city. Dinara paid P50,000 for the donated land transfer. The donated land is fairly valued at P1,800,000. What is the total cost of the land acquisition? a. 4,100,000 b. 3,900,000 d. 3,600,000 c. 3,850,000 FV of land acquired by issuing of shares Special assessment FV of donated land Total cost

2,000,000 50,000 1,800,000 3,850,000

13. Dominika Company purchased another entity for P8,000,000 cash. The acquiree had total liabilities of P1,500,000. Dominika Company’s assessment of the fair value of the assets it obtained when it purchased the other entity is as follows: Cash 500,000 Accounts receivable – net 1,000,000 Inventory 800,000 Property, plant and equipment – net 3,000,000

In-process research and development Assembled workforce What is the goodwill arising from the acquisition? a. 2,200,000 b. 3,000,000

2,000,000 1,200,000 c. 1,000,000

Acquisition cost Less: FV on net assets acquired (7.3M-1.5M) Goodwill

d. 700,000 8,000,000 5,800,000 2,200,000

14. The following were taken from the incomplete financial data of Sam Company, a calendar year merchandising corporation: December 31, 2005 December 31, 2006 Trade accounts receivable 840,000 780,000 Inventory 1,500,000 1,000,000 Accounts payable 950,000 980,000 Accrued gen. & admin. expense 130,000 170,000 Prepaid selling expense 150,000 130,000 PPE, net 1,650,000 1,420,000 Patent 425,000 300,000 Investment in Associate 550,000 720,000 The following additional information were made available: cash payments for selling and administrative expense was 900,000, payments for purchases, net of discounts of 70,000 was 1,530,000. Equipment with a book value of 200,000 was sold for 250,000. There were no acquisitions of PPE and other transactions affecting net income during the period . There no acquisitions of investment during the year 2006. If the company reported a net income of 270,000, what is the amount of collections on trade receivables in 2006? a. 2,425,000 b. 2,470,000 d. 3,485,000 c. 3,285,000 Net income Gain on sale of equipment Income from investment in associates Depreciation Amortization of patent Selling and Admin. expenses Gross profit

270,000 ( 50,000) ( 170,000) 30,000 125,000 960,000 1,165,000

Sales Cost of sales Gross profit

3,225,000 2,060,000 1,165,000

Cost of sales: Beg. Inv. Purchases Purchase discounts Ending inventory COS Accounts payable 1,530,000 950,000 70,000 1,630,000 980,000

1,500,000 1,630,000 ( 70,000) (1,000,000) 2,060,000 Accounts Receivable 840,000 3,825,000 3,200,000 780,000

Cash paid – Selling & Admin PB AE AB AB Selling & Admin (accrual) Property, plant & equipment 1,650,000 200,000 sold 30,000 depreciation 1,420,000

900,000 150,000 170,000 (130,000) (130,000) 960,000...