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 Company’s profit for years 2012,
2013, and 2014 and the carrying value of the said receivables at the end of 2014, respectively?

2. Leviticus Company had the following transactions all throughout the year 2012, company’s 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?

3. On December 31, Ruth Company has the following data:

Trade receivables 232,500
Allowance for uncollectible accounts (5,000)
Claim against shipper for goods lost in transit, FOB shipping point 7,500
Selling price of unsold consigned goods 65,000
Security deposit 75,000
How much is the total current receivables?

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

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
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

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 ______________________________

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

9. Accounting for the interest in a non interest bearing note receivable is an example of what aspect of
accounting theory?

10. Bank overdrafts generally should be

a. reported as a deduction from current asset section.
b. reported as a deduction from cash.
c. netted against cash and net cash amount reported.
d. reported as a current liability
e. C or D, based on the company’s policy

11. 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 Elvira’s joining Adelina?

12. 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.
13. 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

14. 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?

15. 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 P 400,000
Inventories 1,120,000
Equipments – net 2,240,000
Intangibles – net 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?

16. 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?
17. 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)

18. 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 %)

19. 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 partnership’s 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?

20. 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.

21. 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?
22. 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 P 5,000,000

Ordinary shares authorized. P10 par 2,000,000
Unissued Preference shares 1,800,000
Unissued Ordinary shares 1,000,000
Subscription receivable, Ordinary share 180,000
Subscription receivable, Preference share 190,000
Notes receivable 224,650
Accumulated depreciation – Property, Plant and Equipment 1,234,550
Preference shares subscribed 100,000
Ordinary shares subscribed 200,000
Mortgage payable 980,230
Share premium – Ordinary 600,000
Share premium – Preference 200,000
Share premium – Treasury 50,000
Accumulated profits and losses 2,000,000
Treasury shares – Ordinary (10,000 shares at cost) 680,000
Revaluation Surplus 371,000
The share subscriptions are scheduled to be collected on the following dates:
Ordinary Preference
Due Date Due Date
Proportion Proportion

P 100,000 Nov. 27, 2011 P 60,000 Sept. 20, 2012

50,000 Aug. 21, 2012 130,000 Oct. 8, 2012
30,000 Oct. 11,20112

P 180,000 P 190,000

Based on the above information, determine the total Reserves as of September 30, 2011.

23. 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 ¼ 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?
24. 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.

1/1/2012 to date of flood 2011

Merchandise Inventory, beginning P200,000 -0-
Purchases 1,190,000 P1,120,000
Purchase returns 30,000 20,000
Sales 1,560,000 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?

25. 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.