BASIC ACCOUNTING - FINAL ROUND

EASY
1.

Easy Inc. received a 3-year, non-interest bearing trade note for P50,000 on January 1, 2012. The current
interest rate at that time was 15% for similar notes. The Company recorded the receipt of the note as
follows:
Notes Receivables
50,000
Sales
50,000
What is the effect of this accounting for the notes receivable on the Companys profit for years 2012,
2013, and 2014 and the carrying value of the said receivables at the end of 2014, respectively? (Indicate
the effect only) (10 secs)
Answer: overstate, understate, understate, no effect

2.

Leviticus Company had the following transactions all throughout the year 2012, companys start of
operations:
Sales (90% collected in first year)
1,500,000
Bad debt written-off
60,000
Disbursements for cost of sales and operating expenses
1,200,000
Disbursements for income taxes
90,000
Purchase of fixed assets
400,000
Depreciation on fixed assets
80,000
Proceeds from issuance of ordinary shares
500,000
Proceeds from short term borrowing
100,000
Payments on short term borrowing
50,000
How much is cash as of December 31, 2012?
Answer: P210,000

3.

On December 31, Ruth Company has the following data:

Trade receivables
Allowance for uncollectible accounts
Claim against shipper for goods lost in transit, FOB shipping point
Selling price of unsold consigned goods
Security deposit
How much is the total current receivables?

232,500
(5,000)
7,500
65,000
75,000

Answer: P235,000
4.

Buyer Co. regularly buys shirts from Vendor Company and is allowed trade discounts of 20% and 10%
from the list price. Buyer purchased shirts from Vendor on May 27 and received an invoice with list price
of P100,000 and payment terms 2/10, n/30. If Buyer uses the net method of recording purchases, the
journal entry to record the payment on June 8 is
( provide the complete journal entry )
Answer: Dr: Accounts Payable P70,560
Dr: Purchase discount lost P1,440
Cr: Cash P72,000

5.

X Factor Corporation is installing a new plant at its production facility. It has incurred the following costs:
Purchase price of plant P2,500,000; Initial delivery and handling costs P200,000; Cost of site
preparation P600,000; Consultants used for advice on the acquisition of the plant P700,000; Estimated
dismantling costs to be incurred after 7 years P300,000; Operating losses before commercial production
P400,000.
The total costs that can be capitalized as PPE is
Answer: P4,000,000

6.

Which of the following statements is false?

a. A certified check is a liability of the bank certifying it.
b. A certified check will be accepted by many persons who would not otherwise accept a personal check
c. A certified check is one drawn by a bank upon itself
d. A certified check should not be included in the outstanding checks
Answer: C

7.

A used delivery truck was traded in for a new truck. Information relating to the trucks were as follows:
Used truck: Cost P1.6M; Accumulated depreciation P1.2M; Estimated fair value P320,000
New truck: List price P2M; Cash price without trade-in P1.9M; Cash price with trade-in P1.56M
The amount that should be capitalized as the cost of the new truck is ______________________________
Answer: P1,880,000

8.

A check register may be used in lieu of what special journal?

Answer: Cash disbursement journal

9.

Accounting for the interest in a non interest bearing note receivable is an example of what aspect of
accounting theory?
Answer: Substance over form

AVERAGE
1.
a.
b.
c.
d.
e.

Bank overdrafts generally should be

reported as a deduction from current asset section.
reported as a deduction from cash.
netted against cash and net cash amount reported.
reported as a current liability
C or D, based on the companys policy
Answer: D

2.

On December 1, 2013, Adelina invited Elvira to join him in his business. Elvira agreed, provided that
Adelina will adjust the accumulated depreciation of his equipment to ascertain amount and will recognize
unrecorded liabilities of P50,000. On the other hand, Elvira is to invest additional pieces of equipment to
make his interest equal to 45%. If the capital balance of Adelina before and after adjustment were
P695,000 and P605,000, respectively, what is the effect in the carrying value of the equipment as a result
of Elviras joining Adelina?
Answer: P455,000

3.

Which of the following statements is/are true in relation to issue of shares?

I. If the equity instruments are issued before the entity receives cash, the entity shall present the
amount receivable as an asset.
II. If the entity receives cash before the equity instruments are issued and the entity cannot be required
to repay the cash, the entity shall recognize an increase in equity to the extent of the cash received.
III. To the extent that the equity instruments have been subscribed but not issued and the entity has not
yet received the cash, the entity has not yet received the cash; the entity shall not recognize an
increase in equity.
Answer: II and III only

4.

As suggested by Article 1787 of the Philippine Civil Code and relevant PFRSs, the net contributions (assets
and related liabilities assumed by the partnership) of the partners to the partnership are measured at
a. fair value
c. discretionary amount determined by partners
b. cost
d. any of theses
Answer: A. Fair Value

5.

During its second year of operations, Shark Company found itself in financial difficulties. Shark decided to
use its accounts receivable as a means of obtaining cash to continue operations. On July 1, 2011, Shark
sold P1,500,000 of accounts receivable for cash proceeds of P1,390,000. No bad debt allowance was
associated with these accounts. On December 15, 2011, Shark assigned the remainder of its accounts
receivable, P5,000,000 as of the date, as collateral on a P2,500,000, 12% annual interest rate loan from
Finance Company. Shark received P2,500,000 less a 2% finance charge. None of the assigned accounts had
been collected by the end of the year.
Additional information is as follows:
Allowance for bad debts before adjustment, 12/31/2011 85,000
Estimated uncollectible, 12/31/2011
3% of A/R
Accounts receivable excluding factored and
assigned accounts, 12/13/11
1,000,000
What amount should be recognized by Shark Company as bad debt expense for 2011?
Answer: P95,000

6.

On December 1, 2013, Carissa and Marietta agreed to invest equal amounts and share profits and losses
equally in a partnership. Carissa invested P3,120,000 cash and a piece of equipment. Marietta invested
some assets which are shown below:
Receivables
Inventories
Equipments net
Intangibles net

P 400,000
1,120,000
2,240,000
920,000

The assets invested by Marietta are not properly valued. P32,000 of the receivables are worthless; and
Inventories are to be written down to P1,040,000. Included in the equipments is an obsolete apparatus
acquired for P384,000 with an accumulated depreciation P336,000. Part of the intangible assets is a
patent with a carrying value of P56,000 which was under litigation. Marietta unsuccessfully defended the
case and the final decision of the court was released on November 29, 2013.
What is the fair value of the equipment invested by Carissa?
Answer: P1,344,000
7.

Candice Company reported net income of P34,000 for the year ended December 31, 2013 which included
depreciation expense of P8,400 and a gain on sale of equipment of P1,700. The equipment had an
historical cost of P40,000 and accumulated depreciation of P24,000.
Each of the following accounts increased during 2013:
Patent
9,800
Prepaid rent
4,500
Available for sale investment
8,000
Bonds payable
5,000
What amount should be reported as net cash provided (used) by investing activities for the year ended
December 31, 2013? (30 secs)
Answer: (P100)

8.

Storm Company made the following expenditures:

Continuing and frequent repairs
P350,000
Repainted the building
120,000
Major improvement to wiring
450,000
Partial replacement of tiles
180,000
What total amount should be expensed immediately? (30 secs)
Answer: P650,000

DIFFICULT
1.

Lechon Company is negotiating a loan with EastNorth Bank needs P7.2 million. As part of the loan
agreement, EastNorth Bank will require Lechon Company to maintain a compensating balance of 15% of
the loan amount on deposit in a checking account at the bank. Lechon Company currently maintains a
balance of P0.40 million in the checking account. The interest rate Lechon Company is required to pay on
the loan is 12%. EastNorth pays 15% on checking accounts. Determine the amount of the loan and its
related effective interest rate.
(round off effective interest rate in 2 decimal %)
Answer: P8 million and 11.67%

2.

Kim, Gerald and Maja were partners with capital balances on January 2, 2013 of P350,000, P420,000 and
P280,000, respectively. Said capital balances were in the same ratio as their original net investments.
Their loss sharing ratio is 3:5:2. On May 1, 2011, Kim retires from the partnership because she is irritated
with Maja. On the date of retirement, the partnerships net profit from operations is P240,000. The
partners agreed further to pay Kim P382,800 in settlement of her interest. How much will be the capital of
Gerald after the retirement of Kim?
Answer: P544,320

3.

Lito Company reported the following changes during the current year: Increase (decrease)
Cash P400,000; Accounts Receivable P300,000; Allowance for bad debts P50,000; Inventory
(P150,000); Prepaid Rent (P50,000); Plant and Equipment P1,000,000; Accumulated Depreciation
P100,000; Accounts Payable P80,000; Bonds Payable (P100,000); Discount on bonds payable
(P10,000); Ordinary Share capital P120,000; Share Premium P60,000; Treasury Shares at cost
P30,000.

There were no other entries in the Accumulated profit or loss account except for the dividend declaration
of P50,000, which was paid in the current year. Determine the net income for the year.
Answer: P1,260,000
4.

The January 1, 2012 balance sheet of Go Company shows:

2012
Accounts receivable

P2,000,000

Allowance for doubtful accounts

100,000
Additional information for 2012:
a. Cash sales of the Company amount to P800,000 and represent 10% of gross sales.
b. 90% of the credit sales customers did not take advantage of the 5/10, n/30 terms.
c. Customer who did not take advantage of the discount paid P5,940,000.
d. It is expected that cash discounts of P10,000 will be taken on accounts receivable outstanding at
12/31/12.
e. Sales returns in 2012 amounted to P80,000. All returns were from charge sales.
f.
During 2012, accounts totaling P60, 000 were written-off as uncollectible. Recoveries during the year
amounted to P10,000. This amount is not included in the foregoing collections.
g. The allowance for doubtful accounts is adjusted so that it represents a certain percentage of the
outstanding accounts receivable at year-end.
On December 31, 2012, how much should be reported in the statement of financial position for the NRV
of Receivables? (60 secs)
Answer: P2,270,000

5.

The accounts shown below (with normal balances) appear in the trial balance of Blue Eagles, Inc. on
September 30, 2011, end of the accounting year.
Preference shares authorized. P100 par
Ordinary shares authorized. P10 par
Unissued Preference shares
Unissued Ordinary shares
Subscription receivable, Ordinary share
Subscription receivable, Preference share
Notes receivable
Accumulated depreciation Property, Plant and Equipment
Preference shares subscribed
Ordinary shares subscribed
Mortgage payable
Share premium Ordinary
Share premium Preference
Share premium Treasury
Accumulated profits and losses
Treasury shares Ordinary (10,000 shares at cost)
Revaluation Surplus
The share subscriptions are scheduled to be collected on the following dates:
Ordinary
Proportion
P

100,000
50,000
30,000

180,000

Preference
Proportion

Due Date
Nov. 27, 2011
Aug. 21, 2012
Oct. 11,20112

60,000
130,000

190,000

5,000,000
2,000,000
1,800,000
1,000,000
180,000
190,000
224,650
1,234,550
100,000
200,000
980,230
600,000
200,000
50,000
2,000,000
680,000
371,000

Due Date
Sept. 20, 2012
Oct. 8, 2012

Based on the above information, determine the total Reserves as of September 30, 2011.
Answer: P1,901,000
6.

On June 1, 2012, after more than ten years of profitable business of ABC Merchandising, partners Jaja,
Jeje, Jiji and Jojo decided to dissolve the partnership business and to liquidate its affairs for good. During
the first five months of operations for the calendar year ending December 31, 2012, the partnership has
earned a total net income of Php1,000,000. The Articles of Partnership provides for the following
profit/loss sharing agreements.
Jaja and Jojo is to receive Php30,000 and Php20,000 monthly salary, respectively;
Jeje, Jiji and Jojo shall receive interests for their beginning capital balances amounting to 3%, 2% and
10%, respectively. The total capital balance of the partnership as of the beginning of the year is
Php2,500,000 of which Jiji and Jojo owns Php500,000 and Php1,000,000, respectively. Jaja owns of
the remaining capital balance.
Any remaining profit or loss is apportioned to Jaja, Jeje, Jiji and Jojo, respectively, using 1:2:3:4 ratio.
On July 2, 2012, the partnership sold Php1,000,000 of its assets for Php800,000. Total available cash was
used to pay all outstanding liabilities amounting to Php900,000 and liquidation expenses amounting to
Php10,000. Also, in July 2, 2012, remaining available cash of Php500,000 was paid to the partners as
partial payment of their respective shares in the partnership liquidation.
On July 15, 2012, the remaining assets were sold. After paying for expenses amounting to Php15,000, all
available cash was distributed to the partners. Jojo received Php698,000 as his share for the final
installment of his share in the partnership.
Based on the foregoing, how much was received by Jeje as his share in the installment payment to the
partners in July 2, 2012?
Answer: P P321,428.57

7.

On November 30, 2012, a big flood caused severe damage to the warehouse on Tribecca Company. The
company suffered a big loss on its merchandise inventory. The following information was available from
the accounting records of Tribecca.

Merchandise Inventory, beginning

Purchases
Purchase returns
Sales

1/1/2012 to date of flood

P200,000
1,190,000
30,000
1,560,000

2011
-0P1,120,000
20,000
1,200,000

At the beginning of 2012, the company changed its policy on selling prices of the merchandise in order to
produce a gross profit rate of 5% higher than the gross profit rate in 2011. Undamaged merchandise
marked to sell at P50,000 and damaged merchandise marked to sell at P15,000 were salvaged. The
damaged merchandise slightly damaged and had an estimated realizable value of P12,000. What is the
estimated cost of inventory lost from the flood?
Answer: P222,500

8.

CORONA and TUPAS establish a partnership to operate a used furniture business under the name C&T
Furniture. CORONA contributes furniture that cost P 60,000 and has a fair value of P 90,000. TUPAS
contributes P 30,000 cash and delivery equipment that cost P 40,000 and has a fair value of P 30,000. The
partners agree to share profits and losses 60% to CORONA and 40% to TUPAS.
Calculate the peso amount of inequity that will result if the initial non-cash contributions of the partners
are recorded at cost rather than fair market value.
Answer: P18,000