BS Accountancy ISAP Chapter

Practical Accounting 1 Reviewer

1. The following data pertain to Angat Corporation on December 31, 2005:

Current account at Metrobank P2,000,000

Current account at BPI (100,000)
Payroll account 500,000
Foreign bank account – restricted (in equivalent pesos) 1,000,000
Postage stamps 1,000
Employee’s post dated check 4,000
IOU from controller’s sister 10,000
Credit memo from a vendor for a purchase return 20,000
Traveler’s check 50,000
Not-sufficient-funds check 15,000
Money order 30,000
Petty cash fund (P4,000 in currency and expense receipts for
P6,000) 10,000
Treasury bills, due 3/31/06 (purchased 12/31/05) 200,000
Treasury bills, due 1/31/06 (purchased 1/1/05) 300,000
Based on the above information, compute for the cash and cash equivalent that would be
reported on the December 31, 2005 balance sheet.
a. P2,784,000 c. P2,790,000
b. P3,084,000 d. P2,704,000
2. The following data pertain to Balagtas Corporation on December 31, 2005:
Checkbook balance P10,000,00
0
Bank statement balance 15,000,000
Check drawn on Balagtas’ account, payable to supplier, dated
and recorded on Dec. 31, 2005, but not mailed until Jan. 15, 3,000,000
2006
Cash in sinking fund 4,000,000
Money market, three months due January 31, 2006 5,000,000
On December 31, 2005, how much should be reported as “cash and cash equivalents”?
a. P13,000,000 c. P18,000,000
b. P12,000,000 d. P17,000,000
3. On December 31, 2005, Baliuag Company had the following cash balances:
Cash in bank P15,000,000
Petty cash fund (all funds were reimbursed on December 31, 2005) 50,000
Time deposit 5,000,000
Saving deposit 2,000,000
Cash in bank includes P500,000 of compensating balance against short term borrowing
arrangement at December 31, 2005. The compensating balance is legally restricted as to
withdrawal by Baliuag. A check of P300,000 dated January 15, 2006 in payment of accounts
payable was recorded and mailed on December 31, 2005. In the current assets section of the
December 31, 2005 balance sheet, what amount should be reported as “cash and cash
equivalents”?
1. P21,850,000 c. P21,800,000
2. P16,850,000 d. P14,850,000
4. Bocaue Company had the following account balances on December 31, 2005.
Petty cash fund P50,000
Cash in bank – current account 10,000,000
Cash in bank – payroll account 2,000,000
Cash on hand 500,000
Cash in bank – restricted account for plant additions, expected to
be disbursed in 2006 4,000,000
Treasury bills, due February 15, 2006 3,000,000
The petty cash fund includes unreplenished December 2005 petty cash expense vouchers of
P20,000 and employee IOUs of P10,000. The cash on hand includes a P100,000 check
payable to Bocaue dated January 15, 2006. What should be reported as “cash and cash
equivalents” on December 31, 2005?
a. P12,420,000 c. P15,420,000
b. P19,420,000 d. P15,450,000
5. Bulacan Corporation's checkbook balance on December 31, 2005, was P800,000. In addition,
Bulacan held the following items in its safe on December 31:
 Check payable to Bulacan Corporation, dated January 2, 2006, not
included in December 31 checkbook balance P200,000
Check payable to Bulacan Corporation, deposited December 20, and
included in December 31 checkbook balance, but returned by
bank on December 30, stamped "NSF." The check was
redeposited January 2, 2006, and cleared January 7 40,000
Post-dated checks 15,000
Check drawn on Bulacan Corporation's account, payable to a
vendor, dated and recorded December 31, but not mailed until
100,000
January 15, 2006
The proper amount to be shown as cash on Bulacan's balance sheet at December 31, 2005, is
a. P760,000 c. P860,000
b. P800,000 d. P975,000
6. You noted the following composition of Hagonoy Company’s “cash account” as of December
31, 2005:
Demand deposit account P2,000,000
Time deposit – 30 days 1,000,000
NSF check of customer 40,000
Money market placement (due June 30, 2006) 1,500,000
Savings deposit in a closed bank 100,000
IOU from employee 20,000
Pension fund 3,000,000
Petty cash fund 10,000
Customer check dated January 1, 2006 50,000
Customer check outstanding for 18 months 40,000
Total P7,760,000
Additional information follows:
1. Check of P200,000 in payment of accounts payable was recorded on December 31, 2005
but mailed to suppliers on January 5, 2006.
2. Check of P100,000 dated January 15, 2006 in payment of accounts payable was recorded
and mailed on December 31, 2005.
3. The company uses the calendar year. The cash receipts journal was held open until
January 15, 2006, during which time P400,000 was collected and recorded on December
31, 2005.
The cash and cash equivalents to be shown on the December 31, 2005 balance sheet is
a. P3,310,000 c. P1,910,000
b. P2,910,000 d. P4,410,000

7. The following information pertains to Bustos Company as of December 31, 2005:

Cash balance per general ledger P15,000,000
Cash balance per bank statement 14,550,000
Checks outstanding (including certified check of P100,000) 1,000,000
Bank service charge shown in December bank statement 50,000
Error made by Bustos in recording a check that cleared the bank in
December (check was drawn in December for P500,000
but recorded at P700,000) 200,000
Deposit in transit 1,500,000
At the December 31, 2005 balance sheet cash in bank should be
a. P15,150,000 c. P14,250,000
b. P14,650,000 d. P14,550,000
8. The bookkeeper of Calumpit Company recently prepared the following bank reconciliation on
December 31, 2005:
Balance per bank statement 20,000,000
Add: Deposit in transit 1,500,000
Checkbook and other bank charge 50,000
Error made by Calumpit in recording check
No. 150,000
1005 (issued in December)
Customer check marked DAIF 500,000 2,200,000
Total 22,200,000
Deduct: Outstanding checks 1,900,000
Note collected by bank (includes P200,000 2,300,000 4,200,000
interest)
Balance per book 18,000,000
 Calumpit has P1,000,000 cash on hand on December 31, 2005. The amount to be reported as
cash on the balance sheet as of December 31, 2005 should be
a. P19,600,000 c. P20,600,000
b. P18,600,000 d. P19,750,000
9. The petty cash fund of Guiguinto Company on December 31, 2005 is composed of the
following:
Coins and currencies P14,000
Petty cash vouchers:
Gasoline payments 3,000
Supplies 1,000
Cash advances to employees 2,000
Employee’s check returned by bank marked NSF 5,000
Check drawn by the company payable to the order of Kristine
Anson, petty cash custodian, representing her salary 20,000
A sheet of paper with names of employees together with contribution
for a birthday gift of a co-employee in the amount of 8,000
Total P53,000
The petty cash ledger account has an imprest balance of P50,000. What is the correct amount
of petty cash on December 31, 2005?
a. P34,000 b. P39,000 c. P14,000 d. P42,000
10. The Plaridel Corporation was organized on January 3, 2005 with an authorized capital stock of
P5,000,000. At December 31, 2005 of the same year, the general ledger of said Company
showed the following accounts and balances:
Accounts receivable P 200,000
Merchandise inventory 250,000
Land 1,200,000
Building 1,600,000
Furniture and fixtures 400,000
Accounts payable 420,000
Notes payable – bank 500,000
Common stock 1,500,000
Additional paid capital 100,000
Sales 5,800,000
Expenses paid (excluding purchases) 725,000
Your review of the bank statement for December disclosed the following information:
Bank balance, December 31, 2005 P 524,500
Bank service charge 6,000
Deposits in transit 62,500
Total checks not returned by the bank 128,000
Your review also revealed that the cash received of P62,500 on December 31, 2005 was
deposited on January 2, 2006. The company’s mark up on sales is 40%.
How much is the adjusted cash balance as of December 31, 2005?
a. P459,000 c. P39,000
b. P536,000 d. P1,619,000
11. Reconciliation of Malolos Corporation’s bank account at November 30, 2005 follows:
Balance per bank statement P3,150,000
Deposits in transit 450,000
Checks outstanding (45,000)
Correct cash balance P3,555,000
Balance per books P3,558,000
Bank service charge (3,000)
Correct cash balance P3,555,000
December data are as follows:
Bank Books
Checks recorded P3,450,000 P3,540,000
Deposits recorded 2,430,000 2,700,000
Collection by bank (P600,000 plus interest) 630,000 -
NSF check returned with December bank 15,000 -
statement
Balances 2,745,000 2,715,000
The checks outstanding on December 31, 2005 amount to
P45,000 b. P135,000 c. P90,000 d. P0
12. Mangatarem Company had the following information relating to its accounts receivable for
the year 2005:
Accounts receivable – January 1 P12,000,000
 Credit sales 20,000,000
Collection from customers, excluding the recovery of accounts written off 17,000,000
Accounts written off as worthless 300,000
Sales returns 1,000,000
Recovery of accounts written off 100,000
Estimated future sales returns on December 31 400,000
Estimated uncollectible accounts on December 31, per aging 1,000,000

Mangatarem should report the December 31, 2005 accounts receivable, before allowance for
sales returns and uncollectible accounts, at
c. P13,700,000 c. P13,800,000
d. P12,300,000 d. P13,130,000
13. Binmaley Company operates in an industry that has a high rate of bad debts. On December
31, 2005, before any year-end adjustments, the accounts receivable balance was P20,000,000
and its allowance for doubtful accounts balance was P1,500,000. The year-end balance
reported for the allowance for doubtful accounts is based on the following schedule:
Time Outstanding Accounts Receivable Percent Uncollectible
Under 30 days P10,000,000 5%
31 - 180 days 5,000,000 10%
181 - 360 days 3,000,000 30%
More than one year 2,000,000 100%
The accounts which have been outstanding for more than one year and 100% uncollectible
would be written off immediately. What should be the doubtful accounts expense for the year
ended December 31, 2005?
c. P1,900,000 c. P3,900,000
d. P2,400,000 d. P2,000,000
14. Calasiao Company determined that the net realizable value of its accounts receivable at
December 31, 2005 based on an aging of the receivables, was P15,000,000. Additional
information is as follows:
Allowance for uncollectible accounts – 1/1/2005 P1,500,000
Uncollectible accounts written off during 2005 1,000,000
Uncollectible accounts recovered during 2005 200,000
Accounts receivable – December 31, 2005 17,000,000
For 2005, what should be Calasiao’s uncollectible accounts expense?
a. P2,000,000 c. P1,800,000
b. P1,500,000 d. P1,300,000
15. Bayambang Company sells to wholesalers on terms of 5/15, net 30. Bayambang has no cash
sale but 50% of customers take advantage of the discount. Bayambang uses the gross
method of recording sales. An analysis of trade receivables at December 31, 2005 revealed
the following:
Age Amount _ Collectible
0 - 15 days 15,000,000 100%
16 - 30 days 3,000,000 95%
Over 30 days 2,000,000 1,500,000
On the December 31, 2005 balance sheet, what amount should be reported as allowance for
discounts?
3. P750,000 c. P375,000
4. P650,000 d. P500,000
16. The following accounts were abstracted from Villasis Company’s unadjusted trial balance at
December 31, 2005:
Debit Credit
Accounts receivable P20,000,000
Allowance for doubtful accounts 300,000
Net credit sales P70,000,000
VilIasis estimates that 5% of the gross accounts receivable will become uncollectible. The
doubtful accounts expense for the year ended December 31, 2005 should be
4. P1,000,000 c. P1,300,000
5. P3,500,000 d. P 700,000
17. All of Urdaneta Company’s sales are on a credit basis. The following information is available
for 2005:
Allowance for doubtful accounts, 1/1/2005 P1,000,000
Sales 22,000,000
Sales returns 2,000,000
Accounts written off as uncollectible 600,000
Recovery of accounts written off 200,000
 Urdaneta provides for doubtful accounts expense at the rate of 10% of net sales. At
December 31, 2005, the allowance for doubtful accounts balance should be
c. P3,200,000 c. P2,800,000
d. P2,600,000 d. P2,000,000
18. On January 1, 2005, the balance of accounts receivable of Manaoag Company was P5,000,000
and the allowance for doubtful accounts on same date was P800,000. The following data
were gathered:
Credit sales Writeoffs Recoveries
2002 P10,000,000 P250,000 P20,000
2003 14,000,000 400,000 30,000
2004 16,000,000 650,000 50,000
2005 25,000,000 1,100,000 145,000
Doubtful accounts are provided for as 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 2005 doubtful accounts expense?
c. P750,000 c. P330,000
d. P812,500 d. P875,000
19. The Natividad Publishing Company follows the procedure of debiting Bad Debts Expense for
2% of all new sales. Sales for 4 consecutive years and year-ended allowance account
balances were as follows:
Allowance for Bad
Debts End-of-Year
Year Sales Credit Balance
2002 P2,100,000 P21,500
2003 1,975,000 35,500
2004 2,500,000 50,000
2005 2,350,000 66,000
Compute the amount of accounts written off for the year 2005.
c. P31,000 b. P25,500 c. P35,500 d. P5,500
20. Anda Corporation provided for uncollectible accounts receivable under the allowance method
since the start of its operations to December 31, 2005. Provisions were made monthly at 2
percent of credit sales; bad debts written off were charged to the allowance account;
recoveries of bad debts previously written off were credited to the allowance account; and no
year-end adjustments to the allowance account were made. Anda's usual credit terms are net
30 days.
The credit balance in the allowance for doubtful accounts was P260,000 at January 1, 2005.
During 2005, credit sales totaled P18,000,000, interim provisions for doubtful accounts were
made at 2 percent of credit sales, P180,000 of bad debts were written off, and recoveries of
accounts previously written off amounted to P30,000. Anda installed a computer system in
November 2005 and an aging of accounts receivable was prepared for the first time as of
December 31, 2005. A summary of the aging is as follows:
Balance in Estimated %
Classifications by Month of Sale Each Category Uncollectible
November-December 2005 P2,280,000 2%
July-October 2005 1,200,000 15%
January-June 2005 800,000 25%
Prior to January 1, 2005 260,000 80%

Based on the review of collectibility of the account balances in the "prior to January 1, 2005"
aging category, additional receivables totaling P120,000 were written off as of December 31,
2005. Effective with the year ended December 31, 2005, Anda adopted a new accounting
method for estimating the allowance for doubtful accounts at the amount indicated by the
year-end aging analysis of accounts receivable.
QUESTIONS:
b. How much is the adjusted balance of the allowance for doubtful accounts as of December
31, 2005?
a. P537,600 b. P350,000 c. P633,600 d. P753,600
c. How much is the doubtful accounts for the year 2005?
a. P427,600 b. P577,600 c. P547,600 d. P457,600
d. The recorded allowance for doubtful accounts should be increased by
a. P283,600 b. P187,600 c. P67,600 d. P0
21. Purple Company showed the following balances on December 31, 2005:
Accounts receivable-unassigned P1,000,000
Accounts receivable-assigned 300,000
Allowance for doubtful accounts-January 1 30,000
 Receivable from factor 40,000
Note payable-bank 240,000
During the year 2005 Purple Company found itself in financial distress and decided to resort
to receivable financing.
On June 30, Purple Company factored P200,000 of its accounts receivable to a finance
company. The finance company charged a factoring fee of 5% of the accounts factored and
withheld 20% of the amount factored.
On December 31, Purple Company assigned P300,000 of its accounts receivable to a bank
under a nonnotification basis. The bank advanced 80% less a service fee of 5% of the
account assigned. Purple Company signed a promissory note for the loan.
On December 31, it is estimated that 5% of the outstanding accounts receivable may prove
uncollectible.
REQUIRED:
a. Entry to record the factoring.
b. Entry to record the assignment.
c. Entry to adjust the allowance for doubtful accounts on December 31.
d. Indicate the classification, presentation and disclosure of the accounts involved in
receivable financing.
22. Mangaldan Company obtained a one-year loan of P5,000,000 from a bank on April 1, 2005.
The loan was discounted at 12%. The company signed a note and pledged its accounts
receivable of P5,000,000 as collateral for the loan. In relation to the loan, Mangaldan should
report note payable on December 31, 2005 at
a. P4,850,000 c. P5,450,000
b. P4,400,000 d. P4,550,000
23. On December 1, 2005 Pozurrubio Company assigned on a nonnotification basis accounts
receivable of P5,000,000 to a bank in consideration for a loan of 90% of the receivables less a
5% service fee on the accounts assigned. Pozurrubio signed a note for the bank loan. On
December 31, 2005, Pozurrubio collected assigned accounts of P3,000,000 less discount of
P200,000. Pozurrubio remitted the collections to the bank in partial payment for the loan.
The bank applied first the collection to the interest and the balance to the principal. The
agreed interest is 1% per month on the loan balance. In its December 31, 2005 balance
sheet, Pozurrubio should report note payable as a current liability at
6. P1,745,000 c. P1,545,000
7. P1,700,000 d. P2,250,000
24. Binalonan Company factored P5,000,000 of accounts receivable to ABC Company on July 1,
2005. Control was surrendered by Binalonan. ABC assessed a fee of 5% and retains a
holdback equal to 20% of the accounts receivable. In addition ABC charged 12% computed
on a weighted average time to maturity of the receivables of 30 days.
a. Binalonan Company will receive and record cash of
e. P3,700,685 c. P3,750,000
f. P3,700,000 d. P4,700,685
b. Assuming all receivables are collected, Binalonan Company’s cost of factoring the
receivables would be
e. P250,000 c. P49,315
f. P299,315 d. P 0
25. On September 30, 2005, Asingan Company discounted at the bank a customer’s P5,000,000 6-
month 10% note receivable dated June 30, 2005. The bank discounted the note at 12%. The
proceeds from this discounted note amounted to
a. P5,092,500 c. P4,842,000
b. P5,250,000 d. P5,170,000
26. Urdaneta Company accepted from a customer P5,000,000, 120-day, 12% note dated August
31, 2005. On September 30, 2005, Urdaneta discounted the note at the National Bank.
However, the proceeds were not received until October 1, 2005. In the September 30, 2005
balance sheet, the amount receivable from the bank includes accrued interest revenue of
d. P200,000 c. P44,000
e. P156,000 d. P 0
27. Umingan Company has a 10% note receivable dated June 30, 2005, in the original amount of
P9,000,000. Payments of P3,000,000 in principal plus accrued interest are due annually on
July 1, 2006, 2007 and 2008. In its June 30, 2007 balance sheet, what amount should
Umingan report as a current asset for interest on the note receivable?
e. P900,000 c. P300,000
f. P600,000 d. P 0
28. Balungao Company accepted a P5,000,000, 2% interest bearing note from Rosales Company
on December 31, 2005, in exchange for a machine with a list price of P4,000,000 and a cash
 price of P3,750,000. The note is payable on December 31, 2007. In its 2005 income
statement, Balungao should report the sale at
a. P3,750,000 c. P5,000,000
b. P4,000,000 d. P5,200,000
29. On January 2, 2005 Tayog Company sold equipment with a carrying amount of P6,500,000 in
exchange for P8,000,000 noninterest bearing note due January 2, 2008. There was no
established exchange price for the equipment. The prevailing interest rate for this note on
January 2, 2005 was 10%. The present value of 1 at 10% for three periods is 0.75.
a. In the 2005 income statement, what amount should be reported as interest income?
a. P800,000 c. P660,000
b. P600,000 d. P740,000
b. In the 2005 income statement, what amount should be reported as gain or loss on sale
of equipment?
a. P1,500,000 gain b. P 100,000 gain c. P500,000 gain d.
P500,000 loss
30. Cagayan Company included the following items under inventories:
Materials P 1,400,000
Advance for materials ordered 200,000
Goods in process 650,000
Unexpired insurance on inventories 60,000
Advertising catalogs and shipping boxes 150,000
Finished goods in factory 2,000,000
Finished goods in company-owned retails store, including 50% 750,000
profit on cost
Finished goods in hands on consignees including 40% profit on 400,000
sales
Finished goods in transit to customers, shipped FOB destination, at 250,000
cost
Finished goods out on approval, at cost 100,000
Unsalable finished goods, at cost 50,000
Office supplies 40,000
Materials in transit shipped FOB shipping point, excluding freight of 330,000
P30,000
Goods held on consignment, at sales price, cost P150,000 200,000
How much is the correct amount of inventories?
a. P5,610,000 c. P5,375,000
b. P5,500,000 d. P5,450,000
31. The Abulug Manufacturing Company reviewed its year-end inventory and found the following
items:
a. 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 costumer billed on January 10, 2006.
b. Merchandise costing P600,000 was received on December 28, 2005, and the invoice was
recorded. The invoice was in the hands of the purchasing agent; it was marked “On
consignment”.
c. Merchandise received on January 6, 2006, costing P700,000 was entered in purchase
register on January 7. The invoice showed shipment was made FOB shipping point on
December 31, 2005. Because it was not on hand during the inventory count, it was not
included.
d. 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 that date and the machine was excluded from inventory although it was shipped
January 4, 2006.
e. Merchandise costing P200,000 was received on January 6, 2006, and the related purchase
invoice was recorded January 5. The invoice showed the shipment was made on
December 29,2005, FOB destination.
f. Merchandise costing P150,000 was sold on an installment basis on December 15. The
customer took possession of the goods on that date. The merchandise was included in
inventory because Abulug still holds legal title. Historical experience suggests that full
payment on installment sale is received approximately 99% of the time.
g. 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 Abulug to buy back the inventory in February 2006.
How much of these items should be included in the inventory balance at December 31, 2005?
 a. P1,300,000 c. P1,650,000
b. P 800,000 d. P1,050,000
32. The Alcala Company counted its ending inventory on December 31. None of the following
items were included when the total amount of the company’s ending inventory was
computed:
g. P150,000 in goods located in Alcala’s warehouse that are on consignment from another
company.
h. P200,000 in goods that were sold by Alcala and shipped on December 30 and were in
transit on December 31; the goods were received by the customer on January 2. Terms
were FOB Destination.
i. P300,000 in goods were purchased by Alcala and shipped on December 30 and were in
transit on December 31; the goods were received by Alcala on January 2. Terms were FOB
shipping point.
j. P400,000 in goods were sold by Alcala and shipped on December 30 and were in transit on
December 31; the goods were received by the customer on January 2. Terms were FOB
shipping point.
The company’s reported inventory (before any corrections) was P2,000,000. What is the
correct amount of the company’s inventory on December 31?
a. P2,550,000 c. P2,500,000
b. P1,950,000 d. P2,700,000
33. Aparri Company included the following items in its inventory on December 31, 2005:
Merchandise out on consignment, at sales price,
including 25% markup on cost P4,000,000
Goods purchased in transit, FOB destination 2,000,000
Goods held on consignment by Aparri Company 1,000,000
By what amount should the inventory at December 31, 2005 be reduced?
g. P3,800,000 c. P1,800,000
h. P2,000,000 d. P1,000,000
34. Allapacan Company had the following consignment transactions during 2005:
Inventory shipped on consignment to Benguet Company, P600,000
consignee
Freight paid by Allapacan 50,000
Inventory received on consignment from Ifugao, consignor 800,000
Freight paid by Ifugao 50,000
No sales of consigned goods were made through December 31, 2005. In its December 31,
2005 balance sheet, Allapacan should include consigned inventory of
a. P600,000 c. P 650,000
b. P700,000 d. P1,500,000
35. On June 1, 2005 Amulung Company sold merchandise with a list price of P5,000,000 to ABC.
Amulung allowed trade discounts of 20% and 10%. Credit terms were 5/10, n/30 and the
sale was made FOB shipping point. Amulung prepaid P200,000 of delivery cost for ABC as an
accommodation. On June 11, 2005, Amulung received from ABC full remittance of
c. P3,420,000 c. P3,600,000
d. P3,620,000 d. P3,800,000
36. Baggao Company’s accounts payable balance at December 31, 2005 was P8,000,000 before
considering the following data:
k. Goods shipped to Baggao FOB shipping point on December 15, 2005 were lost in transit.
The invoice cost of P500,000 was not recorded by Baggao. On January 15, 2006, Baggao
filed a P500,000 claim against the common carrier.
l. On December 30, 2005, a vendor authorized Baggao to return for full credit goods shipped
and billed at P200,000 on December 15, 2005. The returned goods were shipped by
Baggao on December 31, 2005. A P200,000 credit memo was received and recorded on
January 5, 2006.
What should Baggao report as accounts payable on December 31, 2005?
e. P8,300,000 c. P7,800,000
f. P8,500,000 d. P7,500,000
37. Ballesteros Company began operations late in 2004. For the first quarter ended March 31,
2005, Ballesteros made available the following information:
Total merchandise purchased through March 15, recorded at net P4,900,000
Merchandise inventory at December 31, 2004, at selling price 1,500,000
All merchandise was acquired on credit and no payments have been made on accounts
payable since the inception of the company. All merchandise is marked to sell at 50% above
invoice cost before time discounts of 2/10, n/30. No sales were made in 2005.
How much cash is required to eliminate the current balance in accounts payable?
g. P6,000,000 c. P6,400,000
 h. P5,900,000 d. P5,750,000
38. Calayan Company has determined its December 31, 2005 inventory on a FIFO basis at
P9,500,000. Information pertaining to that inventory follows:
Estimated selling price P14,000,000
Estimated cost to complete and cost of disposal 5,000,000
Normal profit margin 2,000,000
Current replacement cost 8,000,000
Calayan records losses that result from applying the lower of cost or market rule. At
December 31, 2005, Calayan should report inventory at
e. P9,500,000 c. P9,000,000
f. P8,000,000 d. P7,000,000
39. Claveria Company installs replacement siding, windows, and louvered glass doors for family
homes. At December 31, 2005, the balance of raw materials inventory account was P502,000,
and the allowance for inventory writedown was P33,000. The inventory cost and market data
at December 31, 2005, are as follows:
Cost Replacement Sales Net Normal
Cost Price Realizable Profit
value

Aluminum siding 89,000 86,000 91,500 87,000 5,000

Mahogany siding 94,000 92,000 93,000 85,000 7,000

Louvered glass 125,000 135,000 129,000 111,000 10,000

door
Glass windows 194,000 114,000 205,000 197,000 20,000
Total 502,000 427,000 518,500 480,000 32,000
The correct balance of the raw materials inventory after any allowance for write down is
8. P427,000 c. P480,000
9. P486,500 d. P477,000
40. Enrile Company had 180,000 units of Product A on hand at January 1, 2005 costing P20 each.
Purchases of product A during the month of January were as follows:
Units Unit cost
January 5 160,000 30
15 200,000 40
31 140,000 50
A physical count on January 31, 2005 shows 200,000 units of product A on hand. The
inventory on January 31, should be
FIFO LIFO
e. P9,400,000 P4,200,000
f. P4,200,000 P9,400,000
g. P9,400,000 P5,800,000
h. P4,200,000 P7,000,000
41. Gonzaga Company uses the weighted average method to determine the cost of its inventory.
Gonzaga recorded the following information pertaining to its inventory:
Units Units cost Total cost
Balance 1/1 160,000 60 9,600,000
Sold on 1/15 140,000
Purchased on 1/31 80,000 90 7,200,000
What amount of inventory should Gonzaga report in its January 31, 2005 balance sheet?
Perpetual Periodic
5. P8,400,000 P7,000,000
6. P7,000,000 P8,400,000
7. P8,400,000 P7,500,000
8. P7,000,000 P7,500,000
42. Mahal Company sells one product, which it purchases from various suppliers. The trial
balance at December 31, 2005, included the following accounts:
Sales (100,000 units at P150) P15,000,000
Sales discount 1,000,000
Purchases 9,300,000
Purchase discount 400,000
Freight in 100,000
Freight out 200,000
The inventory purchases during 2005 were as follows:
Units Unit cost Total cost
Beginning inventory, January 1 20,000 P60 P 1,200,000
 Purchases, quarter ended March 31 30,000 65 1,950,000
Purchases, quarter ended June 30 40,000 70 2,800,000
Purchases, quarter ended Sept. 30 50,000 75 3,750,000
Purchases, quarter ended Dec. 31 10,000 80 800,000
150,000 P10,500,000
Mahal’s accounting policy is to report inventory in its financial statements at the lower of cost
or market, applied to total inventory. Cost is determined under the first-in, first-out method.
Mahal has determined that, at December 31, 2005, the replacement cost of its inventory was
P70 per unit and the net realizable value was P72 per unit. The normal profit margin is P10
per unit.
What should Mahal report as cost of goods sold for the year 2005?
21. P6,400,000 c. P6,700,000
22. P6,600,000 d. P7,100,000
43. The following quarterly cost data have been accumulated for Pamplona Mfg. Inc.
Raw materials – beginning inventory (Jan. 1, 2005) 10,000 units @P6.00
Purchases 8,500 units @P7.00
11,000 units @P7.50
Transferred 21,500 units of raw materials to work in process:
Work in process – beginning inventory (Jan. 1, 5,600 units @P13.50
2005)
Direct labor P250,000
Manufacturing over head P325,000
Work in process – ending inventory (Mar. 31, 2005) 4,200 units @P13.75
If Pamplona uses the FIFO method for valuing raw materials inventories, compute for the cost
of goods manufactured for the quarter ended Mar. 31 2005
a. P699,150 c. P734,850
b. P717,000 d. P746,850
44. Total debits and total credits in selected accounts of Piat Company, after closing entries were
posted on December 31, 2005 are given below.
Debits Credits
Materials P 600,000 P 200,000
Goods in process 500,000 300,000
Material purchases 2,500,000 2,500,000
Purchase discounts 100,000 100,000
Transportation in 200,000 200,000
Direct labor 3,000,000 3,000,000
Manufacturing overhead 1,500,000 1,500,000
Finished goods 700,000 400,000
Cost of goods sold was
a. P7,100,000 c. P6,900,000
b. P7,000,000 d. P7,400,000
45. On August 30, 2005, Sta. Ana Company purchased a tract of land for P12,000,000. Sta. Ana
incurred additional cost of P3,000,000 during the remainder of 2005 in preparing the land for
sale. The tract was subdivided into residential lots as follows:
Lot class Number of lots Sales price per lot
A 100 240,000
B 100 160,000
C 200 100,000
Using the relative sales value method, what amount of cost should be allocated to Class C
lots?
a. P6,000,000 c. P7,500,000
b. P5,000,000 d. P4,000,000
46. On November 17, 2005, Solana Airways entered in to a commitment to purchase 3,000 barrels
of aviation fuel for P9,000,000 on March 23, 2006. Solana entered into this purchase
commitment to protect itself against the volatility in the aviation fuel market. By December
31, 2005, the purchase price of aviation fuel had fallen to P2,200 per barrel. However, by
March 23, 2006, when Solana took delivery of the 3,000 barrels, the price of aviation fuel had
risen to P2,500 per barrel. How much should be recognized as loss on purchase commitment
on December 31, 2005?
a. P1,500,000 c. P2,400,000
b. P 900,000 d. P 0
47. Benguet Company’s accounting records indicated the following for 2005:
Inventory, January 1 P6,000,000
Purchases 20,000,000
Sales 30,000,000
 A physical inventory taken on December 31, 2005 resulted in an ending inventory of
P4,500,000. The gross profit on sales remained constant at 30% in recent years. Benguet
suspects some inventory may have been taken by a new employee. At December 31, 2005
what is the estimated cost of missing inventory?
h. P5,000,000 c. P500,000
i. P4,500,000 d. P 0
48. The Atok Corporation was organized on January 1, 2004. On December 31, 2005, the
corporation lost most of its inventory in a warehouse fire just before the year-end count of
inventory was to take place. Data from the records disclosed the following:
2004 2005
Beginning inventory, January 1 P 0 P1,020,000
Purchases 4,300,000 3,460,000
Purchases returns and allowances 230,600 323,000
Sales 3,940,000 4,180,000
Sales returns and allowances 80,000 100,000
On January 1, 2005, the Corporation’s pricing policy was changed so that the gross profit rate
would be three percentage points higher than the one earned in 2004.
Salvaged undamaged merchandise was marked to sell at P120,000 while damaged
merchandise was marked to sell at P80,000 had an estimated realizable value of P18,000.
How much is the inventory loss due to fire?
i. P918,200 c. P856,200
j. P947,000 d. P824,600
49. The work-in-process inventory of Bakun Company were completely destroyed by fire on June
1, 2005. You were able to establish physical inventory figures as follows:
January 1, 2005 June 1, 2005
Raw materials P 60,000 P120,000
Work-in-process 200,000 -
Finished goods 280,000 240,000
Sales from January 1 to May 31, were P546,750. Purchases of raw materials were P200,000
and freight on purchases, P30,000. Direct labor during the period was P160,000. It was
agreed with insurance adjusters than an average gross profit rate of 35% based on cost be
used and that direct labor cost was 160% of factory overhead.
The work in process inventory destroyed as computed by the adjuster
a. P314,612 c. P185,000
b. P366,000 d. P265,000
50. Tublay uses the retail inventory method to approximate the lower of average cost or market.
The following information is available for the current year:
Cost Retail
Beginning inventory P 1,300,000 P 2,600,000
Purchases 18,000,000 29,200,000
Freight in 400,000
Purchase returns 600,000 1,000,000
Purchase allowances 300,000
Departmental transfer in 400,000 600,000
Net markups 600,000
Net markdowns 2,000,000
Sales 24,400,000
Sales discounts 200,000
Employee discounts 600,000
What should be reported as the estimated cost of inventory at the end of the current year?
10. P3,120,000 c. P3,000,000
11. P3,200,000 d. P3,840,000
51. Trinidad Company uses the average cost retail method to estimate its inventory. Data
relating to the inventory at December 31, 2005 are:
Cost Retail
Inventory, January 1 P 2,000,000 P3,000,000
Purchases 10,600,000 14,000,000
Net markups 1,600,000
Net markdowns 600,000
Sales 12,000,000
Estimated normal shoplifting losses 400,000
Estimated normal shrinkage is 5% of
sales
Trinidad’s cost of goods sold for the year ended December 31, 2004 is
i. P9,100,000 c. P8,400,000
 j. P8,680,000 d. P7,700,000
52. Mankayan Company uses the first-in, first-out retail method of inventory valuation. The
following information is available:
Cost Retail
Beginning inventory P 2,500,000 4,000,000
Purchases 13,500,000 16,000,000
Net markups 3,000,000
Net markdowns 1,000,000
Sales 15,000,000
What would be the estimated cost of the ending inventory?
m. P7,000,000 c. P5,110,000
n. P5,250,000 d. P4,750,000
53. The following data pertain to Antique Company’s investments in debt securities:
Market value
Cost 12/31/2005 12/31/2004
Trading 5,000,000 5,200,000 4,500,000
Available for sale 5,000,000 4,800,000 4,700,000
What amount should Antique report as unrealized gain in its 2005 income statement?
23. 700,000 25. 800,000
24. 200,000 26. 100,000
54. On October 1, 2005, Bangued Company acquired P20,000,000 face value 12% bonds of
Didigan Company at 110 plus accrued interest. The bonds were dated July 1, 2004 and will
mature on June 30, 2009. Interest is payable June 30 and December 31. The commission to
acquire the bonds was P500,000. The total amount paid for the investment in bonds was
i. 23,100,000
j. 22,600,000
k. 22,500,000
l. 21,900,000
55. On July 1, 2005 Tagum Company purchased as a long-term investment in Langiden Company’s
10-year 12% bonds, with face value of P20,000,000, for P18,500,000. Interest is payable
semiannually on June 30 and December 31. The bonds mature on July 1, 2010. Tagum uses
the straight line amortization method. What is the amount of interest income that Tagum
should report in its 2005 income statement?
g. 1,350,000
h. 1,200,000
i. 1,500,000
j. 1,050,000
56. On October 1, 2005 Bucay Company purchased 20,000 of the P1,000 face value 12% bonds of
Manabo Company for P23,000,000 including accrued interest of P600,000. The bonds which
mature on January 1, 2012, pay interest semiannually on January 1 and July 1. Bucay used
the straight line method of amortization and appropriately recorded the bonds as a long-term
investment. On the December 31, 2006 balance sheet the bonds should be reported at
47. 22,304,000
48. 21,920,000
49. 22,880,000
50. 22,400,000
57. On April 1, 2005, Caluya Company purchased P5,000,000 face value 9%. Treasury notes for
P4,962,500 including accrued interest of P112,500. The notes mature on July 1, 2006 and pay
interest semiannually. Caluya intends to hold the notes to maturity. In its October 31, 2005
balance sheet, the carrying amount of this investment should be
j. 4,850,000
k. 4,920,000
l. 4,930,000
m. 4,975,000
58. Luba Company purchased bonds at a discount of P5,000,000. Subsequently, Luba sold these
bonds at a premium of P2,000,000. During the period that Luba held this investment,
amortization of the discount amounted to P1,500,000. What amount should Luba report as
gain on the sale of the bonds?
k. 2,000,000
l. 5,500,000
m. 3,500,000
n. 3,000,000
59. On January 1, 2005, Bucloc Company acquired for P6,500,000 the entire P8,000,000 issue
12% serial bonds. Bonds of P2,000,000 mature at annual intervals beginning December 31,
 2005. Interest is payable semiannually on June 30 and December 31. What is the interest
income for 2005 using the bond outstanding method of amortization?
o. 1,560,000
p. 1,380,000
q. 780,000
r. 960,000
60. On January 1, 2005, Lacub Company purchased P8,000,000 face value 12% bonds at 120.
Bonds are due on January 1, 2015 but can be redeemed at earlier dates at premium values as
follows:
January 1, 2007 to December 31, 2010, at 110
January 1, 2011 to December 31, 2014, at 104
What is the interest income for 2005 using the accelerated method of amortization?
a. 1,360,000
b. 960,000
c. 560,000
d. 800,000
61. On July 1, 2005, Boloc Company purchased P2,000,000 of East Company’s 8% bonds due on
July 1, 2015. Boloc expects to hold the bonds until maturity. The bonds pay interest
semiannully on January 1 and July. The bonds were purchased for P1,750,000 to yield 10%.
In its 2005 income statement, Boloc should report interest income at
a. 175,000
b. 160,000
e. 92,500
f. 87,500
62. On July 1, 2005, Cagayan Company paid P9,585,000 for 10% bonds with a face amount of
P8,000,000. Interest is paid on June 30 and December 31. The bonds were purchased to
yield 8%. Cagayan uses the effective interest method to recognize interest income from this
investment. What should be reported as the carrying amount of the bonds in the December
31, 2005, balance sheet?
c. 9,568,400
d. 9,601,600
e. 9,551,800
f. 9,618,200
63. On July 1, 2005, Tuguegarao Company purchased as a long term investment P8,000,000 of
Candon Company’s 8% bonds for P7,570,000, including accrued interest of P320,000. The
bonds were purchased to yield 10% interest. The bonds pay interest annually on December
31. Tuguegarao uses the interest method. In its December 31, 2005 balance sheet, what
amount should Tuguegarao report as investment in bonds?
53. 7,292,500 55. 7,628,500
54. 7,207,500 56. 7,335,000
64. On January 1, 2004, Sibalon Company purchased as a long-term investment P5,000,000 face
value of 8% bonds for P4,562,000. The bonds were purchased to yield 10% interest. The
bonds pay interest annually December 31. Sibalon uses the interest method of amortization.
What amount (rounded to the nearest P100) should Sibalon report on its December 31, 2005
balance sheet for this long-term investment?
30. 4,680,000 32. 4,618,000
31. 4,662,000 33. 4,562,000
65. On July 1, 2005, Solana Company purchased Amulong Company’s 10-year, 8% bonds with
face amount of P8,000,000 for P6,720,000. The bonds mature on June 30, 2013 and pay
interest semiannually on June 30 and December 31. Using the interest method, Solana
recorded bond discount amortization of P28,800 for six months ended December 31, 2005.
From this long-term investment, Solana should report 2005 income of
k. 348,800 m. 320,000
l. 291,200 n. 384,000
66. On January 1, 2005 Aparri Company purchased 5-year bonds with face value of P8,000,000
and stated interest of 10% per year payable semiannually January 1, and July 1. The bonds
were acquired to yield 8%. Present value factors are:
Present value of an annuity of 1 for 10 periods at 5% 7.72
Present value of an annuity of 1 for 10 periods at 4% 8.11
What is the purchase price of the bonds?
g. 7,382,400
h. 8,617,600
i. 8,648,800
j. 7,351,200