CHAPTER 1 - Accounting Process &

 Working Paper
Paper Preparation
Preparation
Exercises: Indicate your answer
answer by encircling the letter that contains your
your choice in each
of the following questions.

1. One is using
using periodi
periodic
c inventory
inventory system
system.. For the
the year, its total
total purchas
purchases
es amounted
amounted to
P2!,!!!. Its unsold merchandise
merchandise at the end
end of the year has a cost of P,!!! which is
"!# of its beginning
beginning inventory. One$s cost of sale is
a. P 2
2!,!!! b. P 21,2! c. P 2%&,!!! d. P 2%",'!

2. (wo$s
(wo$s purchase
purchase per
per purchase
purchase invoi
invoice
ce is P1!,!!
P1!,!!!. !. (he purch
purchase
ase discoun
discountt is 2)1!,
2)1!, n)*!.
n)*!.
Freigh
Freightt is P!!, FO+ shippi
shipping
ng point collect
collect.. (he net purchas
purchase
e amount
amounts s under
under net
method is
a. P P1
P1%',
%',!!! b. P 1%',!! c. P 1%",!! d. P 1!,!!

*. sing the
the informat
information
ion in Item
Item 2, the amoun
amountt paid by the buyer
buyer is
a. P P1
P1%'
%',,!!! b. P 1%',!! c. P 1%",!! d. P 1!,!!

%. (he purchase
purchase invoice
invoice shows
shows the amount
amount of P2!,!!!,
P2!,!!!, 2)1!,
2)1!, 1)2!, n)*!-
n)*!- FO+ destinatio
destination
n
collect,
collect, P2!!. If the account
account is paid 1 days after the invoice
invoice date, the net payment
payment
should be
a. P 2%,!!! b. P 2%',!! c. P 2%',*!! d. P 2%%,"!!

. sing the informa

information
tion in
in Item %, the net
net purchas
purchase
e is
a. P 2%
2%,!!! b. P 2%',!! c. P 2%',*!! d. P 2%%,"!!

. (hree
(hree purcha
purchased
sed merchan
merchandis
dise
e for P,!!!
P,!!! and paid
paid P2!!
P2!! for freight
freight,, FO+ destina
destinatio
tion
n
collect. (he merchandise
merchandise was sold at 12!# of cost. (he gross profit is
a. P 1,!!! b. P 1,!%! c. P ,!!! d. P ,2%!

'. (he total

total purcha
purchase
se is P1,1',
P1,1', net of 2# cash
cash discou
discount.
nt. nsold
nsold porti
portion
on of purchas
purchase
e is
P1'. (he sale
sale is at mar/0up
mar/0up of 1!#. (he gross
gross profit
profit is
a. P 11'.! b. P ""
"".2% c. P 11.2 d. P 1!!.!!

". (he term

term of a P*!!,!!!
P*!!,!!! purch
purchase
ase is
is 2)2!,
2)2!, n)!,
n)!, FO+
FO+ shipping
shipping point
point prepa
prepaid,
id, P*!!.
P*!!. If
the account is paid on the 2th day from the
the invoice date, the total payment
payment would be
a. P 2&%,!!! b. P 2&&,'!! c. P 2&%,*!! d. P *!!,*!!

&. Four paid

paid freight
freight for P2!! on its purchase
purchase on account
account from Five,
Five, FO+ shipping
shipping point.
point. (he
 ournal entry in both boo/s
boo/s of Four and Five
Five would be
+oo/s of Four +oo/s of Five
a. Freight0out 2!! Freight0in 2!!
ash 2!! 3ccounts payable 2!!
b. Freight0in 2!! 4o entry
3ccounts receivable 2!!
c. Freight0in 2!! 4o entry
  a
ash 2!!
d. Freight0in 2!! Freight0out 2!!
ash 2!! 3ccounts receivable 2!!

1
1!. 5i6 sold merchandise
merchandise at list price of P2!,!!!- 1!- - n)*!. Part of the sale amounting
amounting
to P1!,!!! was returned
returned due to defect. (he amount to be collected
collected by 5i6 is
a. P 2!
2!,2!! b. P 2!*,'! c. P 2!%,!!! d. P 1&,2!!

11. 3mar ompany

ompany received
received P&,!!! on 3pril 1, 2!!2 for one year$s rent in advance
advance and
recorded
recorded the transaction
transaction with a credit
credit to a nominal account.
account. (he 7ecember
7ecember *1, 2!!2
adusting entry is
a. 7ebit rent
rent revenue
revenue and
and credit
credit unearned
unearned rent
rent revenue,
revenue, P2%,!!
P2%,!!!.
!.
b. 7ebit rent
rent revenue
revenue and credit
credit unearn
unearned
ed rent revenue
revenue,, P'2,!!!.
P'2,!!!.
c. 7ebit unearn
unearned
ed rent revenue
revenue and credit
credit rent
rent revenue,
revenue, P2%,!!!
P2%,!!!..
d. 7ebit unearn
unearned
ed rent revenu
revenuee and credit
credit rent revenue
revenue,, P'2,!!!.
P'2,!!!.

12.3ndoy ompany
ompany paid
paid P'2,!!
P'2,!!!
! on 8une
8une 1, 2!!2
2!!2 for a two0y
two0year
ear insuran
insurance
ce policy
policy and
recorded
recorded the entire amount
amount as insurance
insurance e6pense.
e6pense. (he 7ecember
7ecember *1, 2!!2 adusting
adusting
entry is
a. 7ebit insura
insurance
nce e6pense
e6pense and
and credit prepaid
prepaid insura
insurance,
nce, P21,!!!
P21,!!!..
b. 7ebit insura
insurance
nce e6pense
e6pense and
and credit prepaid
prepaid insura
insurance,
nce, P1,!!!
P1,!!!..
c. 7ebit prepai
prepaid
d insuranc
insurance
e and credit
credit insuran
insurance
ce e6pense,
e6pense, P21,!!
P21,!!!.
!.
d. 7ebit prepaid
prepaid insura
insurance
nce and
and credit insura
insurance
nce e6pense,
e6pense, P1,!!
P1,!!!.
!.

1*. 3ntipuesto ompany purchase

purchase equipment on 4ovember 1, 2!!2 and gave gave a 120month,
&# note with a face value
value of P%"!,!!!. (he 7ecember *1, 2!!2 adusting
adusting entry is
a. 7ebit interes
interestt e6pense
e6pense and credit
credit intere
interest
st payable,
payable, P',2!!
P',2!!..
b. 7ebit interes
interestt e6pense
e6pense and credit
credit intere
interest
st payable,
payable, P1!,"!
P1!,"!!.
!.
c. 7ebit interest
interest e6pense
e6pense a
and
nd credit
credit cash,
cash, P',2!!.
P',2!!.
d. 7ebit interes
interestt e6pense
e6pense and credit
credit intere
interest
st payable,
payable, P%*,2!
P%*,2!!.
!.

1%. On 7ecember *1, 2!!2, 3silo ompany$s

ompany$s boo//eeper made an adusting
adusting entry debiting
supplies
supplies e6pense and credit
credit supplies
supplies inventory
inventory for P12,!!. (he supplies
supplies inventory
inventory
accounts had a P1,*!! debit balance
balance on 7ecember
7ecember *1, 2!!1. (he 7ecember *1, 2!!2
balance sheet showed
showed supplies inventory
inventory of P11,%!!. Only one purchase
purchase of supplies was
made during the month, on account.
account. (he entry for that
that purchase was
a. 7ebit suppli
supplies
es inventor
inventory
y and credit
credit cash,
cash, P",'!!.
P",'!!.
b. 7ebit supplie
supplies
s e6pense
e6pense and credit
credit account
accounts s payable,
payable, P",'!!.
P",'!!.
c. 7ebit suppli
supplies
es inventor
inventory
y and credit
credit accoun
accounts
ts payable,
payable, P",'!
P",'!!.
!.
d. 7ebit supplie
supplies
s inventory
inventory and
and credit
credit accounts
accounts payable,
payable, P1,!
P1,!!.
!.

1.3stillo
1.3stillo ompan
ompany y loa
loaned
ned P*!!,!
P*!!,!!!!! to anoth
another
er compan
company y on 7ecemb
7ecemberer 1, 2!!2
2!!2 and
received
received a *0month,
*0month, 1#, interest0bea
interest0bearing
ring note with a face value
value of P*!!,!!!. 9hat
adusting entry should 3stillo ompany ma/e on 7ecember *1, 2!!2:
a. 7ebit interes
interestt receivabl
receivable e and credit
credit interest
interest income,
income, P',!!.
P',!!.
b. 7ebit cash and credit
credit interest
interest income,
income, P*,'!.
P*,'!.
c. 7ebit interes
interestt receivab
receivablele and credit
credit interes
interestt income,
income, P*,'!.
P*,'!.
d. 7ebit cash
cash and
and credit
credit intere
interest
st receiva
receivable,
ble, P',!!
P',!!..
.
1. (he supplies inventory
inventory account
account balance at the beginning
beginning of the period was P,!!!.
P,!!!.
5upplies totaling P12",2! were purchased during the period and debited to supplies
invent
inventory
ory.. 3 physic
physicalal count
count shows
shows P*",2!
P*",2! of suppli
supplies
es inventor
inventoryy at the end of the
period. (he year0end
year0end adusting
adusting entry is
a. 7ebit supplie
suppliess inventory
inventory and
and credit
credit supplies
supplies e6pense,
e6pense, P&!,!!!
P&!,!!!..
b. 7ebit supplie
suppliess e6pense
e6pense and credit
credit supplies
supplies invento
inventory,
ry, P12",2!.
P12",2!.
c. 7ebit suppli
supplies
es inventor
inventory y and credit
credit supplie
suppliess e6pense,
e6pense, P1,!!
P1,!!!.
!.
d. 7ebit supplie
suppliess e6pense
e6pense and credit
credit supplies
supplies invento
inventory,
ry, P1,!!!.
P1,!!!.

2
1!. 5i6 sold merchandise
merchandise at list price of P2!,!!!- 1!- - n)*!. Part of the sale amounting
amounting
to P1!,!!! was returned
returned due to defect. (he amount to be collected
collected by 5i6 is
a. P 2!
2!,2!! b. P 2!*,'! c. P 2!%,!!! d. P 1&,2!!

11. 3mar ompany

ompany received
received P&,!!! on 3pril 1, 2!!2 for one year$s rent in advance
advance and
recorded
recorded the transaction
transaction with a credit
credit to a nominal account.
account. (he 7ecember
7ecember *1, 2!!2
adusting entry is
a. 7ebit rent
rent revenue
revenue and
and credit
credit unearned
unearned rent
rent revenue,
revenue, P2%,!!
P2%,!!!.
!.
b. 7ebit rent
rent revenue
revenue and credit
credit unearn
unearned
ed rent revenue
revenue,, P'2,!!!.
P'2,!!!.
c. 7ebit unearn
unearned
ed rent revenue
revenue and credit
credit rent
rent revenue,
revenue, P2%,!!!
P2%,!!!..
d. 7ebit unearn
unearned
ed rent revenu
revenuee and credit
credit rent revenue
revenue,, P'2,!!!.
P'2,!!!.

12.3ndoy ompany
ompany paid
paid P'2,!!
P'2,!!!
! on 8une
8une 1, 2!!2
2!!2 for a two0y
two0year
ear insuran
insurance
ce policy
policy and
recorded
recorded the entire amount
amount as insurance
insurance e6pense.
e6pense. (he 7ecember
7ecember *1, 2!!2 adusting
adusting
entry is
a. 7ebit insura
insurance
nce e6pense
e6pense and
and credit prepaid
prepaid insura
insurance,
nce, P21,!!!
P21,!!!..
b. 7ebit insura
insurance
nce e6pense
e6pense and
and credit prepaid
prepaid insura
insurance,
nce, P1,!!!
P1,!!!..
c. 7ebit prepai
prepaid
d insuranc
insurance
e and credit
credit insuran
insurance
ce e6pense,
e6pense, P21,!!
P21,!!!.
!.
d. 7ebit prepaid
prepaid insura
insurance
nce and
and credit insura
insurance
nce e6pense,
e6pense, P1,!!
P1,!!!.
!.

1*. 3ntipuesto ompany purchase

purchase equipment on 4ovember 1, 2!!2 and gave gave a 120month,
&# note with a face value
value of P%"!,!!!. (he 7ecember *1, 2!!2 adusting
adusting entry is
a. 7ebit interes
interestt e6pense
e6pense and credit
credit intere
interest
st payable,
payable, P',2!!
P',2!!..
b. 7ebit interes
interestt e6pense
e6pense and credit
credit intere
interest
st payable,
payable, P1!,"!
P1!,"!!.
!.
c. 7ebit interest
interest e6pense
e6pense a
and
nd credit
credit cash,
cash, P',2!!.
P',2!!.
d. 7ebit interes
interestt e6pense
e6pense and credit
credit intere
interest
st payable,
payable, P%*,2!
P%*,2!!.
!.

1%. On 7ecember *1, 2!!2, 3silo ompany$s

ompany$s boo//eeper made an adusting
adusting entry debiting
supplies
supplies e6pense and credit
credit supplies
supplies inventory
inventory for P12,!!. (he supplies
supplies inventory
inventory
accounts had a P1,*!! debit balance
balance on 7ecember
7ecember *1, 2!!1. (he 7ecember *1, 2!!2
balance sheet showed
showed supplies inventory
inventory of P11,%!!. Only one purchase
purchase of supplies was
made during the month, on account.
account. (he entry for that
that purchase was
a. 7ebit suppli
supplies
es inventor
inventory
y and credit
credit cash,
cash, P",'!!.
P",'!!.
b. 7ebit supplie
supplies
s e6pense
e6pense and credit
credit account
accounts s payable,
payable, P",'!!.
P",'!!.
c. 7ebit suppli
supplies
es inventor
inventory
y and credit
credit accoun
accounts
ts payable,
payable, P",'!
P",'!!.
!.
d. 7ebit supplie
supplies
s inventory
inventory and
and credit
credit accounts
accounts payable,
payable, P1,!
P1,!!.
!.

1.3stillo
1.3stillo ompan
ompany y loa
loaned
ned P*!!,!
P*!!,!!!!! to anoth
another
er compan
company y on 7ecemb
7ecemberer 1, 2!!2
2!!2 and
received
received a *0month,
*0month, 1#, interest0bea
interest0bearing
ring note with a face value
value of P*!!,!!!. 9hat
adusting entry should 3stillo ompany ma/e on 7ecember *1, 2!!2:
a. 7ebit interes
interestt receivabl
receivable e and credit
credit interest
interest income,
income, P',!!.
P',!!.
b. 7ebit cash and credit
credit interest
interest income,
income, P*,'!.
P*,'!.
c. 7ebit interes
interestt receivab
receivablele and credit
credit interes
interestt income,
income, P*,'!.
P*,'!.
d. 7ebit cash
cash and
and credit
credit intere
interest
st receiva
receivable,
ble, P',!!
P',!!..
.
1. (he supplies inventory
inventory account
account balance at the beginning
beginning of the period was P,!!!.
P,!!!.
5upplies totaling P12",2! were purchased during the period and debited to supplies
invent
inventory
ory.. 3 physic
physicalal count
count shows
shows P*",2!
P*",2! of suppli
supplies
es inventor
inventoryy at the end of the
period. (he year0end
year0end adusting
adusting entry is
a. 7ebit supplie
suppliess inventory
inventory and
and credit
credit supplies
supplies e6pense,
e6pense, P&!,!!!
P&!,!!!..
b. 7ebit supplie
suppliess e6pense
e6pense and credit
credit supplies
supplies invento
inventory,
ry, P12",2!.
P12",2!.
c. 7ebit suppli
supplies
es inventor
inventory y and credit
credit supplie
suppliess e6pense,
e6pense, P1,!!
P1,!!!.
!.
d. 7ebit supplie
suppliess e6pense
e6pense and credit
credit supplies
supplies invento
inventory,
ry, P1,!!!.
P1,!!!.

2
1'. 3t the end of 2!!2, 3vila ompany made four adusting
adusting entries for the following items;
<1= depreciation e6pense, P*,!!!- <2= e6pired insurance, P2,2!! <originally recorded as
prepaid
prepaid insuranc
insurance=-
e=- <*= interest
interest payable,
payable, P&,!!!-
P&,!!!- and <%= rental
rental revenue
revenue receivabl
receivable,
e,
P1!,!!!.

In the normal situation, to facilitate subsequent entries, the adusting entry or entries
that may be reversed is)are
a. >ntry 1 c. >ntries * and
and %
b. >ntry % d. >ntries 2, *, and %

1". +agaipo
+agaipo ompany reported an allowance
allowance for doubtful
doubtful accounts
accounts of P12,!!! <credit= at
7ecember *1, 2!!2 before
before performing an aging
aging of accounts
accounts receivable. 3s a result of
the aging, +agaipo ompany determined that an estimated P2!,!!! of the 7ecember
*1, 2!!2 account
accountss receiv
receivabl
able
e would
would prove uncolle
uncollecti
ctible
ble.. (he
(he adust
adusting
ing entry at
7ecember *1, 2!!2 would be
a. 7oubtful accounts e6pense ",!!!
3llowance for doubtful accounts ",!!!
b. 7oubtful accounts e6pense 2!,!!!
3ccounts receivable 2!,!!!
c. 3llowance for doubtful accounts ",!!!
7oubtf
7oubtful
ul acc
accoun
ounts
ts e6pens
e6pensee ",!!!
",!!!
d. 7oubtful accounts e6pense ",!!!
Interest revenue ",!!!

1&. 3ssuming
3ssuming that the company
company does not reverse the adusting
adusting entries,
entries, what should be
made on 3pril 1, 2!! when the annual interest payment is received:
a. 7ebit cash and credit
credit interest
interest revenue,
revenue, P&,*'
P&,*'..
b. 7ebit cash
cash and
and credit
credit intere
interest
st receiva
receivable,
ble, P2",12
P2",12..
c. 7eb
7ebit
it cas
cash,
h, P*'
P*',!
,!!-
!- cre
credit
dit interest
interest receivab
receivable,
le, P2",12-
P2",12- and int
intere
erest
st rev
revenu
enue,
e,
P&,*'.
d. 7ebit cash
cash and
and credit
credit intere
interest
st revenue,
revenue, P*',!!.
P*',!!.

2!. sing the data of 4o. 1&, but assuming

assuming that the company
company does reverse
reverse its adusting
adusting
entries, what entry should be made on 3pril 1, 2!!* when the annual interest payment
is received:
a. 7ebit cash and credit
credit interest
interest revenue,
revenue, P&,*'
P&,*'..
b. 7ebit cash
cash and
and credit
credit intere
interest
st receiva
receivable,
ble, P2",12
P2",12..
c. 7ebit
7ebit cas
cash,
h, P*',!
P*',!!-
!- credit
credit interest
interest receivab
receivable,
le, P2",12-
P2",12- and intere
interest
st revenu
revenue,
e,
P&,*'.
d. 7ebit cash
cash and
and credit
credit intere
interest
st revenue,
revenue, P*',
P*',!!.
!!.

 Answer:
1. b 2. b 3. a 4. c 5. b 6. a 7. d 8. d 9. c 10. a
11.a 12.d 13.a 14.c 15.c 16.d 17.c 18.a 19.c 20.d  

3
Problem 1
(he following is the post0closing trial balance of 3bagon 5hop dated February 1, 2!!;

7ebit redit
ash 12!,!!!
3ccounts ?eceivable 2"!,!!!
3llowance for doubtful accounts 2,"!!
nused shop supplies "!!
5hop >quipment 2%!,!!!
3ccumulated depreciation 0 shop   %",!!!
equipment
3ccounts payable "","!!
4otes payable 1!!,!!!
3ccrued interest payable 1,2!!
3bagon, apital %!!,!!!
(otal %!,"!! %!,"!!

For the month of February, the following are the transactions of 3bagon 5hop.

1. 3bagon
3bagon withdrew
withdrew P1!!,!!!
P1!!,!!! cash
cash from the business
business for her
her personal
personal use.
use.
2. Paid
Paid P12,!!
P12,!!! ! insura
insurance
nce prem
premium
ium..
*. Paid
Paid P2%,
P2%,!!
!!!! ren
rent.
t.
%. (otal service
service rendere
rendered d to various
various customers,
customers, P1%!,!!!,
P1%!,!!!, %!#
%!# of total sales are
are on cash
basis and the balance on open account.
. ?eceived
?eceived promissory
promissory notenote from customer
customer to replace
replace P%!,!!!
P%!,!!! accounts
accounts receivable.
receivable.
. ollected
ollected in cash
cash P1%,!!!
P1%,!!! ofof account
accountss receivabl
receivable.
e.
'. Paid the
the notes payab
payable
le of P1!!,!!!
P1!!,!!! plus
plus the
the P2,%!!
P2,%!! interest.
interest.
". Purchase
Purchasedd P2,%!!
P2,%!! shop
shop supplies
supplies on cash
cash basis.
basis.
&. Paid
Paid salar
salaries
ies,, P2%,!
P2%,!!!.
!!.

3t the end of the month, the following information are available to effect adustments.

a. (he insuranc
insurancee in number 2 for P12,!!!
P12,!!! is applicab
applicable
le for si6 months
months starting
starting February.
February.
b. (he rent
rent of P2%,!!!
P2%,!!! paid in number
number * is for
for * months,
months, starting
starting Februar
February.y.
c. (he note
note recei
receiva
vable
ble is numbe
numberr  is earning
earning 12#
12# intere
interest
st per year
year.. (he
(he note is date
dated
d
February 1, and is due on 3pril *!.
d. +ad debts
debts e6pense
e6pense is estimate
estimated d at 2# of accounts
accounts receiv
receivable
able balanc
balance.
e.
e. (he annu
annual
al depre
deprecia
ciatio
tion
n is P%",!
P%",!!!.
!!.
f. (he unused
unused suppli
supplies
es bala
balance
nce is P
P1,!
1,!!!.
!!.

Questions
1. ash
ash at end of Febr
Februa
uary
ry is;
is;
a. P 1!*,2!! b. P ",2!! c. P ',2!! d. P '2,"!!

2. 4et ?eali@abl
?eali@able
e value of 3ccou
3ccounts
nts ?eceivab
?eceivable
le at end of Februa
February
ry is
a. P 1,"!! b. P 1',2!! c. P 1&,"!! d. P 1&',2!!

*. nus
nused
ed shop
shop supp
upplies
lies at en
end of
of Feb
Febrruary
uary is
a. P 1,"!! b. P 1,!!! c. P "!! d. P 2!!

%. 4et boo/ value

value of 5hop >quipment
>quipment at
at end of Februa
February
ry is
a. P 1"",!!! b. P 1"&,!!! c. P 1"%,!!! d. P 1%%,!!!

4
. 3ccounts
3ccounts Payable
Payable at
at end
end of February
February is
a. P 12","!! b. P "","!! c. P ",%!! d. P %","!!

. 4otes
4otes Payab
Payable
le at end
end of Febr
Februar
uary
y is
a. P 1!!,!!! b. P 1!2,%!! c. P &',!! d. P !

'. 3bag
3bagon
on api
apita
tal,
l, net
net of
of dra
drawi
wing
ng at end
end of
of Feb
Febru
ruar
ary
y is
is
a. P *&",!! b. P *&',%!! c. P *&',"!! d. P *"",!!
". 4et
4et in
incom
come of
of the
the comp
compa any at
at en
end of
of Feb
Febru
rua
ary is
a. P &",!! b. P &',%!! c. P &',"!! d. P "",!!

&. (otal ?evenue

?evenue of the compan
companyy at end
end of Februa
February
ry is
a. P 1%2,"!! b. P 1%2,%!! c. P 1%!,%!! d. P 1%!,!!!

1!. (otal >6penses of the ompany at end of Februar

February
y is
a. P 2,!! b. P %1,"!! c. P %1,%!! d. P %1,!!!

Solution
1 Abagon, drawing 100,000
  CaCas 100,000
2 !nsurance e"#ense 12,000
  Ca
Cas 12,000
3 $ent e"#ense 24,000
Cas 24,000
4 Cas 56,000
 Accounts recei%ab&e
recei%ab&e 84,000
  $e
$e%enue 140,000
5 'otes recei%ab&e 40,000
Accounts recei%ab&e 40,000
6 Cas 164,000
Accounts recei%ab&e 164,000
7 'otes #a(ab&e 100,000
!nterest e"#ense 2,400
  CaCas 102,400
8 )u##&ies e"#ense 2,400
Cas 2,400
9 )a&aries 24,000
Cas 24,000

 Ad*usting +ntr(:
+ntr(:

a re#aid !nsurance 10,000

!nsurance e"#ense 10,000
b re#aid rent 16,000
$ent e"#ense 16,000
c !nterest recei%ab&e 400
!nterest inco-e 400
40,000 " 12/ " 112
d ad debts 400
A&&owance or bad debts 400
e e#reciation 4,000
Accu-. de#reciation 4,000
 nused su##&ies 1,000
)u##&ies e"#ense 1,000
)u##&ies e"#ense 800
nused su##&ies 800
g Accrued interest #a(ab&e 1,200
!nterest e"#ense 1,200
o re%erse te beg. accrued interest
 #a(ab&e

5
 $!A AA'C+ A)+') !'C+ )A++' AA'C+ );++

  75,20
CA);  0 75,200
 ACC') $+C+!< 160,000 160,000
 A=. >$  2,800 400 3,200
'+) $+C+!< 40,000 40,000
')+ )!+) 800 1,000 800 1,000
); +Q!+' 240,000 240,000
 ACC. +' 48,000 4,000 52,000
 ACC') A? 88,800 88,800
'+) A?A+ @ @
 ACC. !'. A? 1,200 1,200 @
 AA', $A=!' 100,000 100,000
 AA', CA!A 400,000 400,000
$+<+'+ 140,000 140,000
!')$A'C+ +B 12,000 10,000 2,000
$+' +B+')+ 24,000 16,000 8,000
)!+) +B 2,400 800 1,000 2,200
)AA$!+) 24,000 24,000
!'+$+) +B 2,400   1,200 1,200
680,800 680,800
$+A! !') 10,000 10,000
$+A! $+' 16,000 16,000
!'+$+) $+C+! 400 400
!'+$+) !'C 400 400
A +) 400 400
+$+C!A!' 4,000   4,000  
33,800 33,800 41,800 140,400
'+ !'C+ 98,600     98,600
140,400 140,400 642,600 642,600

 Answer:
1. C 2. A 3.  4. A 5.  5.  8. A 9. A 9. C 10. 

Problem 2
(he following selected transactions were completed during Aear 1 of operations by Bicar
orporation;

a. 5old of its 2!,!!! shares of its own common stoc/, par P1 per share, for P1 per
share and received cash in full.

b. +orrowed P1!!,!!! cash on 12#, one0year note, interest payable at maturity on

3pril *!, Aear 2.

c. Purchased equipment for use in operating the business at a net cash cost of
P1%,!!!- paid in full.

d. Purchased merchandise for resale at cash cost of P1%!,!!!- paid cash. 3ssume a
periodic inventory system- therefore, debit Purchases.

6
e. Purchased merchandise for resale on credit terms of 2)1!, n)!. (he merchandise
will cost P&,"!! if paid within 1! days- after 1! days, the payment will be P1!,!!!. (he
company always ta/es the discount- therefore, such purchased are recorded at net of
the discount.

f. 5old merchandise for P1"!,!!!- collected P1,!!! cash, and the balance is due in
one month.

g. Paid P*!,!!! cash for operating e6penses.

h. Paid C of the balance for the merchandise purchased in <e= within 1! days- the
balance remains unpaid.

i. ollected !# of the balance due on the sale in <f=- the remaining balance is
uncollected.

 . Paid cash for an insurance premium, P!!- the premium was for two years$ coverage
<debit Prepaid insurance=.

/. Purchased a tract of land for a future building for company operations, P*,!!! cash.

l. Paid damages to a customer who was inured on the company premises, P1!,!!!
cash.

Questions
sing the unadusted trial balance, answer the following;

1. ash balance is;

a. P 1',! b. P 1',%!! c. P 1',2! d. P 1%&,&!!

2. 3ccounts receivable balance is;

a. P 1,!!! b. P 1!,!!! c. P ','!! d. P ',!!

*. Prepaid insurance balance is;

a. P !! b. P %!! c. P *!! d. P 2!!

%. Dand account balance is;

a. P 22',!!! b. P 1%,!!! c. P 1!1,!!! d. P *,!!!

. >quipment account balance is;

a. P 22',!!! b. P 1%,!!! c. P 1!1,!!! d. P *,!!!

. 3ccounts payable balance is;

a. P 2,! b. P 2,!! c. P 2,%! d. P 2,1!

'. 4otes payable balance is;

a. P 112,!!! b. P 1!&,!!! c. P 1!!,!!! d. P "",!!!

". ommon stoc/ balance is;

a. P *!!,!!! b. P 2"!,!!! c. P 2!!,!!! d. P 2!,!!!

1. Premium on capital stoc/ balance is;

a. P *!!,!!! b. P 2"!,!!! c. P 2!!,!!! d. P 2!,!!!

7
2. 5ales balance is;
a. P 1"!,!!! b. P 1!,!!! c. P 1!!,!!! d. P "!,!!!
*. Purchases balance is;
a. P 1%&,"!! b. P 1%&,!! c. P 1!,!!! d. P 1!,2!!

%. Operating e6penses and other e6penses is;

a. P %&,"!! b. P %!,2!! c. P %!,!!! d. P *","!!

Solution

a Cas 300,000

Co--on stocD 20,000
re-iu- on ca#ita& stocD 280,000
b Cas 100,000
'otes #a(ab&e 100,000
c +Eui#-ent 164,000
Cas 164,000
d urcases 140,000
Cas 140,000
e urcases 9,800
 Accounts #a(ab&e 9,800
 Cas 165,000
 Accounts recei%ab&e 15,000
)a&es 180,000
g #erating e"#enses 30,000
Cas 30,000
 urcase disc. &ost 200
 Accounts #a(ab&e 200
 Accounts #a(ab&e 7,500
Cas 7,500
i Cas 7,500
 Accounts recei%ab&e 7,500
* re#aid insurance 600
Cas 600
D and 63,000
Cas 63,000
& oss on da-ages 10,000
Cas 10,000

Cas 157,400
 Accounts recei%ab&e 7,500
re#aid insurance 600
and 63,000
+Eui#-ent 164,000
 Accounts #a(ab&e 2,500
'otes #a(ab&e 100,000
Co--on stocD 20,000
re-iu- on ca#ita& stocD 280,000
)a&es 180,000
urcases 149,800
#erating e"#enses 30,000
urcase disc. &ost 200
oss on da-ages 10,000 
ota& 582,500 582,500

 A')=+$
1. b 2. d 3. a 4. d 5. b 6. b 7. c 8. d 9. b 10. a
11. a 12. b

Problem 3

8
(he post0closing trial balance of the general ledger of 9ilson orporation at 7ecember *1,
2!I, reflected the following;

3ccount 7ebit redit

ash 2',!!!
3ccounts receivable 21,!!!
3llowance for doubtful accounts 1,!!!
Inventory <perpetual inventory system= *,!!!
Prepaid insurance <2! mos. remaining= &!!
>quipment <2!0year life, no salvage value=!,!!!
3ccumulated depreciation 22,!!
3ccounts payable ',!!
9ages payable 0
Income ta6es payable <for 2!I= %,!!!
ommon stoc/, par P1 "!,!!!
?etained earnings 1",&!!
5ales revenue 0
ost of goods sold 0
Operating e6penses 0
Income ta6 e6pense 0
Income summary 0EEE EEEEEE
1**,&!! 1**,&!!
 >nding inventory, P%,!!! <at 12)*1)2!8=

(he following transactions occurred during 2!8 in the order given <use the number at the
left to indicate the date=;

1. 5ales revenue at P*!,!!!, of which P1!,!!! was on credit- cost provided by perpetual
inventory record, P1&,!!.
2. ollected P1',!!! on accounts receivable.
*. Paid income ta6es payable <2!I=, P%,!!!.
%. Purchased merchandise, P%!,!!!, of which P",!!! was on credit.
. Paid accounts payable, P,!!!.
. 5ales revenue of P'2,!!! <in cash=- cost, P%,"!!.
'. Paid operating e6penses, P1&,!!!.
". On 8anuary 1, 2!8, sold and issued 1,!!! shares of common stoc/, par P1, for P1,!!!
cash.
&. Purchased merchandise, P1!!,!!!, of which P2',!!! was on credit.
1!. 5ales revenue of P&",!!!, of which P*!,!!! was on credit- cost P*,'!!.
11. ollected cash on accounts receivable, P2,!!!.
. Paid cash on accounts payable, P2",!!!.
. Paid various operating e6penses in cash, P1",!!!.

3ssume a bad debt rate of G# of credit sales for the period and a *2# income ta6 rate. 3t
7ecember *1, 2!8, accrued wages were P*!!. se straight0line depreciation.

Questions
1. ash at 7ecember *1, 2!8 is;
a. P 1,!!! b. P !,!!! c. P %,!!! d. P %1,!!!

2. 3ccounts receivable at 7ecember *1, 2!8 is;

a. P 1",!!! b. P 1,"!! c. P 1,!!! d. P 1,"!!

9
*. Inventory at 7ecember *1, 2!8 is;
a. P %,!! b. P %,!!! c. P *,!!! d. P *2,!!

%. Prepaid insurance at 7ecember *1, 2!8 is;

a. P *!.!! b. P 2.! c. P &!! d. P %!

. >quipment at 7ecember *1, 2!8 is;

a. P &,!!! b. P !,!!! c. P !,&!! d. P !,!!!

. 3ccumulated depreciation at 7ecember *1, 2!8 is;

a. P *!,!!! b. P 2,!!! c. P 22,!! d. P 2!,!!!

'. 3ccounts payable at 7ecember *1, 2!8 is;

a. P 1,!!! b. P 1%,!! c. P 1!,!! d. P ",!!

". Income ta6es payable at 7ecember *1, 2!8 is;

a. P &,!! b. P &,%2' c. P ,1 d. P %,!!!

&. ?etained earnings at 7ecember *1, 2!8 is;

a. P *&,*!! b. P *",&** c. P *!,&!& d. P 2',%!!

1!. ost of goods sold at 7ecember *1, 2!8 is;

a. P 11!,!! b. P 12",!!! c. P 1*!,!!! d. P 1*2,!!!

11. 4et income before ta6es at 7ecember 2!8 is;

a. P *!,!!! b. P 2&,%! c. P 1',! d. P 12,!!

Solution
1 Cas 20,000
 Accounts recei%ab&e 10,000
)a&es 30,000
Cost o sa&es 19,500
!n%entor( 19,500
2 Cas 17,000
 Accounts recei%ab&e 17,000
3 !nco-e ta"es #a(ab&e 4,000
Cas 4,000
4 !n%entor( 40,000
Cas 32,000
 Accounts #a(ab&e 8,000
5 Accounts #a(ab&e 6,000
Cas 6,000
6 Cas 72,000
)a&es 72,000
Cost o sa&es 46,800
!n%entor( 46,800
7 #erating e"#enses 19,000
Cas 19,000
8 Cas 1,000
Co--on stocD 1,000
9 !n%entor( 100,000
Cas 73,000
 Accounts #a(ab&e 27,000
10 Cas 68,000
 Accounts recei%ab&e 30,000
)a&es 98,000
Cost o sa&es 63,700
!n%entor( 63,700
11 Cas 26,000
 Accounts recei%ab&e 26,000

10
12 Accounts #a(ab& e 2 8,000
Cas 28,000
13 #erating e"#enses 18,000
Cas 18,000

 Ad*usting +ntr(:
a #erating e"#enses ins. +"# 540
re#aid insurance 540
900 " 1220
b #erating e"#enses de#reciation 2,500
 Accu-u&ated de#reciation 2,500
c #erating e"#enses bad debts 200
 A&&owance or bad debts 200
d #erating e"#enses 300
=ages #a(ab&e 300

>!'A'C!A )A++')
Cas 51,000
 Accounts recei%ab&e 18,000
 A&&owance or bad debts 1,200
!n%entor( 45,000
re#aid insurance 360
+Eui#-ent 50,000
 Accu-u&ated de#reciation 25,000 
ota& Assets 138,160

 Accounts #a(ab&e 8,500

=ages #a(ab&e 300
!nco-e ta"es #a(ab&e 9,427  
Co--on stocD 81,000
$etained earnings 38,933
ota& iabi&it();+ 138,160

)a&es re%enue 200,000

Cost o sa&es 130,000
ross #roit 70,000
#erating e"#enses 40,540
!nco-e beore ta"es 29,460
!nco-e ta"es e"#ense 9,427  
'et inco-e 20,033
$etained earnings F beg 18,900
$etained earnings F end 38,933

 Answer:
1. a 2. b 3. b 4. a 5. d 6. b 7. d 8. b 9. b 10.c 11.b

Problem 4
(he account of P>HI( OP34A as at 7ecember 1, 2!! are listed below;

ash 21%,!!!
3ccounts receivable **",!!!
ar/etable securities %2,!!!
Office supplies *1,!!!
Prepaid insurance %",!!!
Dand *'!,!!!
+uilding &!!,!!!
3ccum. depreciation J bldg 2!,!!!
>quipment "!!,!!!
3ccum. depreciation J equip. 2!!,!!!
3ccounts payable 1'2,!!!
ortgage payable 1,2!!,!!!
apital EEEEEEE 1,*!,!!!

11
 *,12',!!! *,12',!!!

(he following transactions occurred during the month of 7ecember 2!!;

7ec. 1 5ettled the accounts payable of P11,!!! less 2# discount.

* ollected the accounts receivable of P1"!,!!! less *# discount.
% 5old merchandise on account to P3P3OA 5PPDI>5, P21!,!!!. (erms; FO+
destination, *)1!, n)*!. P3P3OA 5PPDI>5 paid the freight for P*,!!!.
 ?eceived returns from P3P3OA 5PPDI>5, P2,!!!.
' Purchased merchandise from O5(IH> P?O7(5, P2*2,!!!. (erms; FO+
shipping point, 2)1!, n)*!. P>HI( OP34A paid P2,!!! for the
transportation cost.
& ?eturned goods to O5(IH> P?O7(5, P12,!!! acquired on 7ecember '.
1! Paid interest on mortgage payable, P",!!!.
11 ?eceived payment from P3P3OA 5PPDI>5 for the amount due.
12 5old merchandise to O34I 5KOPP>?5, P**!,!!!. (erms; FO+ shipping point,
*)1!, n)*!.
1" ?eceived payment from O34I 5KOPP>?5 from the 7ecember 12 sales.
1& 5old merchandise to 43B3D>5 5KOP, P2%2,!!!. (erm; FO+ shipping point,
*)1!, n)*!. P>HI( OP34A paid P,!!! for the freight.
2! Paid P&,!!! for representation e6pense.
2& ?eceived from 43B3D>5 5KOP returned merchandise in the amount of
P1",!!! from the 7ecember 1& sales.
*! (he owner, Lenevieve, withdraw merchandise for personal use. ost J
P2!,!!!- 5elling price J P*!,!!!.

3dditional information
1. 5alaries in the amount of P'*,!!! have accrued on 7ecember *1.
2. Insurance coverage with premium of P2,!!! has e6pired at month0end.
*. 7epreciation on the building and on the equipment for the month amounted to
P*,!!! and P%,!!, respectively.
%. Office supplies on hand at month0end amounted to P',!!!.
. 3 count of the inventory amounted to P%*,!!! on 7ecember *1, 2!!.

Questions
1. ash balance at 7ecember *1, 2!! is;
a. P ''*,'! b. P ''2,'!! c. P '%",%! d. P '2','!!

2. 3ccounts receivable at 7ecember *1, 2!! is;

a. P %12,!!! b. P %!,!!! c. P *"',!!! d. P *2,!!!

*. Inventory at 7ecember *1, 2!! is;

a. P 2,'!! b. P %*,!!! c. P %2,!!! d. P 212,!!!

%. Office supplies at 7ecember *1, 2!! is;

a. P ',!!! b. P 1!,!!! c. P 2%,!!! d. P *1,!!!

. 4et carrying value of Fi6ed 3ssets at 7ecember *1, 2!! is;

a. P 1,&"!,!!! b. P 1,2!,!!! c. P 1,12,!! d. P 1,2%2,!!

. (otal assets at 7ecember *1, 2!! is;

a. P *,2*,&! b. P *,2!,&! c. P *,2!*,&! d. P *,1*,&!

12
'. 3ccounts payable at 7ecember *1, 2!! is;
a. P 2"&,!!! b. P 2'&,!!! c. P 2'',!!! d. P 2',!!!

". 3ccrued e6penses at 7ecember *1, 2!! is;

a. P &',!!! b. P '*,!!! c. P 2%,!!! d. P &,!!!

&. 4et sales at 7ecember *1, 2!! is;

a. P '"2,!!! b. P '1",&! c. P '1",2%! d. P '1",1!

1!. (otal purchases at 7ecember *1, 2!! is;

a. P 2*2,!!! b. P 212,!!! c. P 1&&,'!! d. P 1&','!!

11. Operating e6penses at 7ecember *1, 2!! is;

a. P 12,!! b. P 11",!! c. P 1!&,!! d. P 1!1,!!

12. 4et income at 7ecember *1, 2!! is;

a. P %"2,"!! b. P %2,&! c. P %1&,!%! d. P %1",&!

1*. apital balance at 7ecember 1, 2!! is;

a. P 1,'!%,!%! b. P 1,'!*,&! c. P 1,*!,!!! d. P 1,2",!!!

1%. apital balance at 7ecember *1, 2!! is;

a. P 1,'!%,!%! b. P 1,'!*,&! c. P 1,*!,!!! d. P 1,2",!!!

1. (otal liabilities and capital at 7ecember *1, 2!! is;

a. P *,2*,&! b. P *,2!,&! c. P *,2!*,&! d. P *,1*,&!

Solution

ec 1 Accounts #a(ab&e 115,000 ec 10 !nterest e"#ense 8,000

Cas 112,700 Cas 8,000
urcases discount 2,300
ec 11 Cas 176,450
ec 3 Cas 174,600 )a&es discount 5,550
)a&es discount 5,400 Accounts recei%ab&e 182,000
 Accounts recei%ab&e 180,000

ec 12 Accounts recei%ab&e 330,000

ec 4 Accounts recei%ab&e 207,000 )a&es 330,000
rans#ortation e"# 3,000
)a&es 210,000 ec 18 Cas 320,100
)a&es discount 9.900
ec 5 )a&es returns 25,000 Accounts recei%ab&e 330,000
 Accounts recei%ab&e 25,000
ec 19 Accounts recei%ab&e 247,000
ec 7 urcases 232,000 Cas 5,000
>reigt@in 2,000 )a&es 242,000
Cas 2,000
 Accounts #a(ab&e 232,000 ec 20 $e#resentation e"# 9,000
Cas 9,000
ec 9 Accounts #a(ab&e 12,000
urcases returns 12,000 ec 29 )a&es returns 18,000
 Accounts recei%ab&e 18,000

ec 30 rawing 20,000

urcases 20,000
 Ad*usting entr(:

13
1. )a&aries e"#ense 73,000
 Accrued sa&aries 73,000

2. !nsurance e"#ense 2,000

re#aid insurance 2,000

3. e#reciation 7,500
 Accu-. e#Gn F b&dg 3,000
 Accu-. e#Gn F eEui# 4,500

4. )u##&ies e"#ense 24,000

ice su##&ies 24,000

5. !n%entor( F ) 453,000
!n%entor( F !) 453,000

 A')=+$:
1. C 2. C 3.  4. A 5. C 6. A 7. C 8.  9.  10. C  
11. A 12.  13. C 14.  15. A

Problem 5
(he ?ighter 5hoe 5tore ompany prepares monthly financial statements for its ban/. (he
4ovember *! and 7ecember *1, 2!!, trial balances contained the following information;

4ov. *! 7ec. *1
7r. r. 7r. r.
5upplies 1,!!! *,!!!
Prepaid insurance ,!!! %,2!
9ages payable 1!,!!! 1,!!!
nearned rent revenue 2,!!! 1,!!!

(he following information also is /nown;

a. (he 7ecember income statement <accrual basis= reported P2,!!! in supplies

e6pense.
b. 4o insurance payments were made in 7ecember.
c. P1!,!!! was paid to employees during 7ecember for wages.
d. On 4ovember 1, 2!!, a tenant paid ?ighter P*,!!! in advance rent for the
period 4ovember through 8anuary. nearned revenue was credited.

Questions
1. 9hat was the cost of supplies purchased during 7ecember:
a. P 1,!!! b. P 2,!!! c. P *,!!! d. P %,!!!

2. 9hat was the adusting entry recorded at the end of 7ecember for prepaid
insurance:
a. Prepaid insurance %,2!
Insurance e6pense %,2!
b. Insurance e6pense %,2!
Prepaid insurance %,2!
c. Insurance e6pense 1,'!
Prepaid insurance 1,'!
d. 4o adusting entry

*. 9hat was the adusting entry recorded at the end of 7ecember for
accrued wages:
a. 9ages e6pense 1,!!!

14
 9ages payable 1,!!!
b. 9ages e6pense 1!,!!!
9ages payable 1!,!!!
c. 9ages e6pense ,!!!
9ages payable ,!!!
d. 4o adusting entry

%. 9hat was the amount of rent revenue earned in 7ecember:

a. P 1,!!! b. P 2,!!! c. P *,!!! d. P %,!!!

. 9hat adusting entry was recorded at the end of 7ecember for unearned
rent:
a. nearned rent rev. *,!!!
?ent revenue *,!!!
b. ?ent revenue 2,!!!
nearned rent rev. 2,!!!
c. nearned rent revenue 1,!!!
?ent revenue 1,!!!
d. nearned rent revenue 2,!!!
?ent revenue 2,!!!

Solution
1. 
)u##&ies on ;and 
eg. a& 1,000 Ad*ust-ent 2,000
urcases 4,000 H
+nding ba&. 3,000
H sEueeIed igure
2. C 3. A 4. A 5. C  

Problem 6
(he trial balance of 344 O., prior to the closing of its account for the fiscal year ended
5eptember *!, 2!! follows;

ash P22,!!
3ccounts receivable &*,!!
3llowance for doubtful accounts P *,1&!
4ote receivable 1,!!
erchandise inventory, &)*!)!2 ,"&!
Furniture and equipment 1,"!!
3ccumulated depreciation 1",'!
Loodwill *!,!!!
3ccounts payable *,!!
4otes payable 1!,!!!
apital 5toc/ 1!!,!!!
?etained >arnings ,2!
5ales *'2,!!!
5ales return and allowances %,'!
Purchases 21,&*!
Purchase return and allowances *,!
3dvertising &,1!
5ales salaries 2","!
ommission e6pense 1,2!!
iscellaneous e6pense 2,&&!

15
 ?ent e6pense 1*,!!!
Office salaries 1&,'2!
Dight and 9ater 1,!!
Insurance e6pense 1,!"!
(a6es and licenses %,'"!
Leneral e6pense 1,*%!
Interest e6pense %,12!
Interest income &1!

Aour e6amination of the company$s account has the need for adustments based on the
following items;

a. (he cash account included a c ustomer$s chec/ for P 1,!! deposited o n

5eptember 2, 2!! but returned by the ban/ on 5eptember 2&, 2!! for lac/ of
countersignature. 4o entry was made for the returned chec/.

b. nrecorded ban/ charge for 5eptember 2!!, P!!

c. (he allowance for doubtful accounts should be adusted to # of the

outstanding accounts receivable balance on 5eptember *!, 2!!.

d. 3 physical inventory of merchandise ta/en at the end of the fiscal year 2!!
amounted to P!,12!.

e. Loods received on consignment, still unsold costing P2,!!! were included in

the physical inventory.

f. (he merchandise inventory on 5eptember *!, were correctly stated.

g. 7epreciation of furniture and equipment at 1!# annually has n ot been

recogni@ed.

h. 3ccrued salesmen$s salaries not recorded P,!!!

i. 3n insurance policy was ta/en on the inventory and equipment on arch 1,

2!! with the annual insurance premium of P1,!"! paid on that date.

 . ?ent e6pense account considered of rent for the store and office space for
thirteen months starting 3ugust 1, 2!!.

+ased on the aforementioned data, answer the following questions-

1. (he adusting entry on item 3 is

a. ash 1,!!
3ccounts receivable 1,!!
b. 3ccounts payable 1,!!
ash 1,!!
c. 3ccounts receivable 1,!!
  ash 1,!!
d. 4o adustment

2. (he adusting entry on item + is

a. ash !!

16
 3ccounts receivable !!
b. ash !!
Leneral e6penses !!
c. Leneral >6penses !!
  ash !!
d. 4o adustment

*. (he adusting entry on item  is

a. 3ccounts receivable %,"!
3llowance for 7oubtful 3ccounts %,"!
b. 7oubtful 3ccounts 1,
3llowance for 7oubtful 3ccounts 1,
c. 3llowance for 7oubtful 3ccounts 1,%&!
7oubtful 3ccounts 1,%&!
d. 7oubtful 3ccounts 1,%&!
3llowance for 7oubtful 3ccounts 1,%&!

%. (he adusting entry on item 7 is

a. erchandise Inv. !,12!
Income 5ummary !,12!
b. erchandise Inv. !,12!
Purchases !,12!
c. Income summary !,12!
erchandise inventory !,12!
d. 4o adustment

. (he adusting entry on item >

 a. Income summary 2,!!!
erchandise Inv. 2,!!!
b. 5ales 2,!!!
erchandise Inv. 2,!!!
c. erchandise inventory 2,!!!
Income summary 2,!!!
d. 4o adustment

. (he adusting entry on item F is

a. erchandise Inv. ,"&!
Income summary ,"&!
b. erchandise Inv. ,"&!
Purchases ,"&!
c. Income summary ,"&!
erchandise inventory ,"&!
d. 4o adustment

'. (he adusting entry on item L is

a. 7epreciation >6p. ,1"!
3ccumulated 7epreciation ,1"!
b. 3ccumulated 7epreciation ,1"!
Furniture and >quipment ,1"!
c. 3ccumulated depreciation ,1"!
7epreciation e6pense ,1"!
d. 4o adustment

17
". (he adusting entry on item K is
a. 3ccrued 5alaries >6pense ,!!!
5ales salaries ,!!!
b. 3ccrued salaries e6p. ,!!!
Office salaries ,!!!
c. Office salaries ,!!!
7epreciation e6pense ,!!!
d. 5ales salaries ,!!!
3ccrued salaries e6pense ,!!!

&. (he adusting entry on item I is

a. Insurance >6p. *!
Prepaid insurance *!
b. Prepaid insurance *!
insurance e6p. *!
c. Insurance e6pense %!
Prepaid insurance %!
d. Prepaid insurance %!
Insurance e6pense %!

1!. (he adusting entry on item 8 is

a. ?ent e6pense 11,!!!
Prepaid rent 11,!!!
b. Prepaid rent 2,!!!
?ent e6pense 2,!!!
c. Prepaid rent 11,!!!
?ent e6pense 11,!!!
d. ?ent e6pense 2,!!!
Prepaid rent 2,!!!

3fter ma/ing the adustments compute the following;

11.ash
a. P2%,!!! b. P21,!!! c. P2!,!! d. P2!,!!!

12. 4et reali@able value of accounts receivable

a. P&!,%1! b. P&!,*% c. P"",&2! d. P"","%

1*. erchandise inventory, 5eptember *!, 2!!

a. P!,12! b. P,"&! c. P2,12! d. P",12!

1%. Furniture and >quipment, net of accumulated depreciation

a. P,2! b. P*,"'! c. P*.'!! d. *,"&!

1. (otal assets, 5eptember *!, 2!!

a. P22,'" b. P2!,"% c. P22*,"! d. P22,'!!

1. ost of goods sold, 5eptember *!, 2!!

a. P211,!! b. P21!,!! c. P212,*!! d. P212,2"!

1'. 4et income, 5eptember *!, 2!! <disregard ta6 effect=

a. P*1,* b. P*1,2 c. P*",&* d. P*",11

18
1". Prepaid insurance
a. P*! b. P%! c. P1,!"! d. P!!

1&. Prepaid rent

a. P11,!!! b. P2,!!! c. P1*,!!! d. P1!,!!!

 Answer:
1. C 2. C 3.  4. A 5. A 6.  7. A 8.  9.  10. C  
11. C 12.  13.  14.  15. A 16. A 17.  18.  19. A

Problem 7
5elected pre0adustment account balances and adusting information of 43PPA OP34A for
the year ended 7ecember *1, 2!!, are as follows;

?etained earnings, 8anuary 1, 2!! %%!,'!

5ales 5alaries and ommissions *,!!!
3dvertising >6pense 1,!!!
Degal 5ervices 2,22
Insurance and Dicenses ",!!
(ravel >6pense J 5ales ?epresentative %,!
7epreciation >6pense 1!,&!!
Interest ?evenue '!!
tilities e6pense ,%!!
(elephone and Postage >6pense 1,%'
5upplies inventory 2,1"!
iscellaneous 5elling >6pense 2,2!!
7ividends **,!!!
7ividend ?evenue ',1!
Interest e6pense %,2!
3llowance for bad debts <r. +alance= *'!
Officers$ 5alaries >6pense *,!!
5ales %&,2!!
5ales returns and allowances 11,2!!
5ales discounts ""!
Lain on sales of assets 1",!!
Inventory, 8anuary 1, 2!! "&,'!!
Inventory, 7ecember *1, 2!! 2!,!
Purchases 1'*,!!!
Freight0in ,2
3ccounts ?eceivable, 7ecember *1, 2!! 21,!!!
5hares of common stoc/ outstanding *&,!!!

3dusting information;

1. ost of inventory in the possession of consignee as of 7ecember *1, 2!!, was not
included in the ending inventory balance, P**,!!.

2. 3fter preparing an analysis of aged accounts receivable, a decision was made to increase
the allowance for bad debts to a percentage of the ending account receivable balance to
*#. 3ccounts totaling P',%"! were written off as uncollectible during the year.

*. Purchase returns and allowances amounting to # of purchases <not including freight0

in= were not recorded at year0end.

19
%. 5ales commission for the last day of the year had not been accrued. (otal sales for the
day, P*,!!. 3verage sales commission as a percent of sales is *#.
. 4o accrual has been made for a freight bill received on 8anuary *, 2!!', for goods
received on 7ecember 2&, 2!!, P"!!.

. 3n advertising campaign for P1,"1" was initiated 4ovember 1, 2!!. (his amount was
recorded as Mprepaid advertisingN and should be amorti@ed over a 0month period. 4o
amorti@ation was recorded.

'. Freight charges paid on sold merchandise and not passed to the buyer were netted
against sales. Freight charges on sales during 2!! is P%,2!!.

". Interest earned but not accrued, P&!.

&. 7epreciation e6pense on a new for/lift <estimated life is 1! years= purchased for P',"!!
on arch 1, 2!! had not been recogni@ed. <3ssume all equipment will have no salvage
value and the 5D is used. 7epreciation is calculated to the nearest month.=

1!. 3 MrealN account is debited upon the receipt of supplies. 5upplies on hand at year0end is
P1,!!.

11. Income ta6 rate <on all items= is *2#.

Questions
1. 4et 5ales is
a. P %&&,2!! b. P %"&,*!! c. P %"",!! d. P %"',*2!

2. Purchases net of returns and allowances is

a. P 1,2!! b. P 1%,!!! c. P 12,2! d. P 11,2!!

*. Freight0in is
a. P ,*2 b. P ,2!! c. P ,!!! d. P %,12

%. Inventory J 12)*1)!2 is
a. P %,'!! b. P %,1! c. P *,!! d. P 2,2!!

. ost of sales is
a. P 2,%%! b. P 2!,*! c. P 2!%,%& d. P 11%,'&

. 5ales salaries and commission is

a. P *,1!" b. P *,1!! c. P *,!!! d. P *%,'!!

'. 3dvertising e6pense is

a. P 2%,& b. P 1,"!! c. P 1,'! d. P 1,!

". 7epreciation e6pense is

a. P 1%,!! b. P 12,!! c. P 12,!!! d. P 11,!

&. 5upplies e6pense is

a. P '! b. P "! c. P ! d. P %"!

20
1!. 7oubtful accounts e6pense is
a. P ',!! b. P ',%! c. P ',*!! d. P ',2!!

11. Interest revenue is

a. P 1,%! b. P 1,*&! c. P 1,*!! d. P 1,2&!

12. Income ta6 e6pense is

a. P ",% b. P %,! c. P *,'22 d. P *,&*

1*. 4et income is

a. P 11," b. P 11," c. P 11%,1& d. P 1!%,%%

Solution
er booD Ad*ust-ents er Audit  
)a&es 495,200 4,200 499,400
)a&es ret. And a&&ow. 11,200 11,200
)a&es discount 880 880
483,120 487,320
Cost o )a&es
eginning in%entor( 89,700 89,700
urcases 173,000 173,000
urc. $et and a&&ow. 10,380 10,380
urc. iscount @
>reigt@in 5,525 800 6,325
ota& oods A%ai&. >or )a&e 268,225 258,645
+nding in%entor( 20,550 33,600 54,150
247,675 204,495

ross roit 235,445 282,825

!nterest re%enue 700 690 1,390

i%idends re%enue 7,150 7,150
ain on sa&e o assets 18,500 18,500

ota& $e%enue 261,795 309,865

)a&es )a&ari es and Co--ission 35,000 108 35,108

 Ad%ertising +"#ense 16,000 606 16,606
ega& ser%ices 2,225 2,225
!nsurance and &icenses 8,500 8,500
ra%e& e"#ense 4,560 4,560
e#reciation e"#ense 10,900 650 11,550
ti&ities e"#ense 6,400 6,400
e&e#one and #ostage 1,475 1,475
isc. se&&ing e"#ense 2,200 2,200
icersJ sa&aries 36,600 36,600
!nterest e"#ense 4,520 4,520
ad debts 7,460 7,460
rans#ortation e"#ense 4,200 4,200

21
)u##&ies e"#ense 580 580
141,984

!nco-e beore ta" 167,881

!nco-e ta" 53,721.92

'et !nco-e 114,159

 A')=+$:
1.  2. C 3. A 4.  5. C 6. A 7.  8.  9.  10. 
11.  12. C 13. C  

Problem 8
Presented below are unaudited balances of selected accounts of +aluyot ompany as at
7ecember *1, 2!! J its first year of operation. 7uring the course of your audit of
+aluyot$s boo/s you obtained additional information affecting these accounts;

7ebit redit
ash !!,!!!
3ccounts receivable 1,*!!,!!!
3llowance for bad debts ",!!!
5ales <net= ,'!,!!!
3ccounts payable !!,!!!
Purchases <net= %,*!,!!!
ars and truc/s 1,2!!,!!!
achinery and equipment &!,!!!
3ccumulated depreciation &,!!!

3dditional information;

a. On 7ecember *1, 2!!, +aluyot recorded and wrote chec/ payments to creditors
amounting to P*!!,!!!. 3 number of chec/s amounting to P1!,!!! were mailed on
8anuary *, 2!!'.

b. On 7ecember 2", 2!!, +aluyot purchased and received goods amounting to P1!!,!!!,
terms 2)1!, n)*!. 3s a policy, +aluyot records purchases in accounts payable at net
amounts. (his particular invoice was recorded and paid on 8anuary %, 2!!'.

c. On 7ecember 2, 2!!, a supplier authori@ed +aluyot to return goods shipped and billed
at P"!,!!! on 7ecember *, 2!!. (he goods were returned on 7ecember *!, 2!!.
(he supplier$s credit memo was received and recorded on 8anuary , 2!!'.

d. Loods amounting to P!,!!! were invoiced for the account of Palmes ompany and
recorded on 8anuary 2, 2!!' with terms of net ! days, FO+ shipping point. (he goods
were shipped to Palmes on 7ecember *!, 2!!.

e. (he ban/ returned on 7ecember 2&, 2!!, a customer chec/ for P,!!! mar/ed M4o
5ufficient FundN but no entry was made.

f. +aluyot estimates that allowance for uncollectible accounts should be one and one0half
percent <1G#= of the accounts receivable balance as of year0end. 4o provision has yet
been made for 2!!.

22
g. 3ll the cars and truc/s were acquired on ay 1, 2!! at a total cost of P1,2!!,!!!.
+aluyot estimates the useful life of the cars and truc/s at five0years and depreciates
these assets based on 1!# declining balance. 3s a policy, depreciation is computed to
the nearest month and rounded0off to the nearest peso. 4o depreciation has been
recorded for cars and truc/s as at 7ecember *1, 2!!.

Questions
1. (he adusted amount of ash is;
a. P !,!!! b. P %,!!! c. P !!,!!! d. P %&,!!!

2. (he adusted amount of 3ccounts ?eceivable is;

a. P 1,*,!!! b. P 1,*!,!!! c. P 1,*!,!!! d. P 1,*!!,!!!

*. (he adusted amount of 5ales J net is;

a. P ,"%!,!!! b. P ,"!!,!!! c. P ,'!,!!! d. P ,'!!,!!!

%. (he adusted amount of Purchases J net is;

a. P %,%%",!!! b. P %,*",!!! c. P %,*!,!!! d. P %,2'!,!!!

. (he adusted amount of +ad 7ebts >6pense is;

a. P *,*2 b. P 2",*2 c. P 2!,*2 d. P 12,*2

. (he adusted amount of 2!! 7epreciation >6pense J achinery and >quipment is;
a. P &,! b. P &,!! c. P &,%1' d. P &,!!!

'. (he adusted amount of 3ccounts payable is;

a. P "1",!!! b. P "!!,!!! c. P '",!!! d. P !!,!!!

Solution
a Cas 150,000
 Accounts #a(ab&e 150,000
b urcases 98,000
 Accounts #a(ab&e 98,000
c Accounts #a(ab&e 80,000
urcase returns 80,000
d Accounts recei%ab&e 50,000
)a&es 50,000
e Accounts recei%ab&e 5,000
Cas 5,000
 ad debts 28,325  
 A&&owance or bad debts 28,325 
1,355,000 " 1K/ L  20,325 M 8,000 debit ba&ance o A&&owance
 A')=+$:
1.  2. A 3.  4.  5.  6.  7. C  

Problem 9
(he trial balance of (?34HID34 O?PO?3(IO4, prior to the closing of is accounts for the
fiscal year0ended 5eptember *!, 2!! follows;
7>+I( ?>7I(
ash 22,!!!
3ccounts receivable &*,!!!
3llowance for doubtful accounts *1,&!!
4otes receivable 1,!!!
erchandise inventory, 5ept. *!, 2!! ",&!!
Furniture and >quipment 1",!!!
3cc. 7epreciation J Furniture  >quipment 1"',!!

23
 Loodwill *!!,!!!
3ccounts payable *,!!!
4otes payable 1!!,!!!
apital stoc/ 1,!!!,!!!
?etained earnings 2,!!
5ales *,'2",2!!
5ales returns and allowances %',!!
Purchases 2,1&,*!!
Purchase returns and allowances *,!!
3dvertising &,1!!
5ales salaries 2"",!!
ommission e6pense 12,!!!
iscellaneous selling e6penses 2&,&!!
?ent e6pense 1*!,!!!
Office salaries 1&',2!!
Dight and water 1,!!!
Insurance e6pense 1!,"!!
(a6es and licenses %',"!!
iscellaneous general e6penses 1*,%!!
Interest e6pense %1,2!!
Interest income EEEEEEEE &,1!!
,1"1,'!! ,1"1,'!!

Aour e6amination of the company$s accounts had indicated the need for adustments based
on the following information;

1. (he ash account include a customers$ chec/ for P1,!!! deposited on 5eptember 2,
2!!, but returned by the ban/ on 5eptember 2&, 2!! for lac/ of countersignature. 4o
entry was made by the company for the return of the chec/ or for its redeposit on
October , 2!!.

2. (he 3llowance for 7oubtful 3ccounts should be adusted to # of the customers$

outstanding balances on 5eptember *!, 2!!.

*. 3 physical inventory ta/en of the merchandise stoc/ as of the end of the fiscal year
amounted to P!1,2!!.

%. 3 purchase of merchandise FO+ shipping point, for which goods costing P%!,!!! were
still in transit on 5eptember *!, 2!! was neither ta/en as a liability nor included in the
inventory on that date.

. Loods received on consignment, still unsold, were included in the inventory at the
agreed selling price of P2%,!!!.

. (he merchandise inventory at 5eptember *!, 2!! was correctly stated.

'. On 8uly 1, 2!!, equipment acquired on October 1, 2!!* with a boo/ value of P*2,!!!
on 5eptember *!, 2!! was sold for P*,!!! in cash. (he sales proceeds were credited
to the Furniture and >quipment account.

". 7epreciation for the fiscal year 2!!02!! has not been recorded. 7epreciation rate
being used is 1!# annually.

24
&. 3n insurance policy was ta/en on the inventory and equipment on 3pril 1, 2!! with the
annual premium of P1!,"!! paid on that date.

1!. ?ent e6pense account consisted of rent paid for stoc/ and office space for thirteen <1*=
months ending October *1, 2!!.

11. (he 12!0day 4ote Payable of P1!!,!!! bearing interest of 12# was discounted at the
ban/ on 5eptember 1, 2!!.

12. (he Loodwill account was set0up by a credit to ?etained >arnings under a resolution of
the +oard of 7irectors.

Questions
1. ash for the fiscal year0ended 5eptember *!, 2!! is;
a. P 1&,!!! b. P 21!,!!! c. P 22,!!! d. P 2%!,!!!

2. 3ccounts receivable for the fiscal year0ended 5eptember *!, 2!! is;
a. P &!,!!! b. P &21,!!! c. P &1,!!! d. P &*,!!!

*. 3llowance for doubtful accounts for the fiscal year0ended 5eptember *!, 2!! is;
a. P 1,! b. P %,"!! c. P %,*!! d. P %',!

%. erchandise inventory for the fiscal year0ended 5eptember *!, 2!! is;
a. P 1',2!! b. P %1,2!! c. P '',2!! d. P 1,2!!

. +oo/ value of the Furniture and >quipment for the fiscal year0ended 5eptember *!,
2!! is;
a. P *!,2!! b. P *'2,2!! c. P *',2!! d. P %"&,"!!

. Loodwill for the fiscal year0ended 5eptember *!, 2!! is;

a. P *!!,!!! b. P 2&2,!! c. P 2",!!! d. P !

'. 3ccounts payable for the fiscal year0ended 5eptember *!, 2!! is;
a. P %&,!!! b. P *,!!! c. P 2,!!! d. P ',!!!

". 4et income for the fiscal year0ended 5eptember *!, 2!! is;
a. P *2,'! b. P **2,'! c. P *%,'! d. P *%','!

&. ?etained earnings for the fiscal year0ended 5eptember *!, 2!! is;
a. P 22,!! b. P !!,2! c. P "",2! d. P &!!,2!

1!. Insurance e6pense for the fiscal year0ended 5eptember *!, 2!! is;
a. P ,%!! b. P &,2!! c. P 1!,"!! d. P 1,2!!

Solution

1. Accounts $ecei%ab&e 15,000

  Cas 15,000

2. oubtu& Accounts +"#ense 15,650

A&&owance or doubtu& accounts 15,650
N5/ " 936,000 M 15,000 L 47,550 @ 31,900O

3. ercandise !n%entor( 601,200

!nco-e )u--ar( 601,200

25
4. urcases 40,000
ercandise !n%entor( 40,000
Accounts a(ab&e 40,000
!nco-e )u--ar( 40,000

5. !nco-e )u--ar( 24,000

ercandise !n%entor( 24,000

6. !nco-e )u--ar( 568,900

ercandise !n%entor( 568,900

7. Accu-u&ated e#reciation F >ur. P +E#t. 11,000

ain on sa&e o eEui#-ent 6,000
>urniture P +Eui#-ent 5,000

Cost 32,000  80/ 40,000

ess acc. de#r. to date o sa&e 11,000
40,000 " 10/ " 2 M 40,000 " 10/ "
912
ooD %a&ue 29,000
)e&&ing #rice 35,000
ain on sa&e o eEui#-ent  6,000

8. e#reciation e"#ense 64,300

Acc. e#r. F >ur. P +Eui# 64,300

e#r. or (ear ended 9.30.03

n eE#t so&d 40,000 " 10/ " 912  3,000
n re-aining eE#t. 613,000 " 10/ 61,300
64,300

9. re#aid !nsurance 5,400

!nsurance e"#ense 5,400

10. re#aid rent 10,000

$ent e"#ense 10,000

11. iscount on notes #a(ab&e 3,000

!nterest e"#ense 3,000

ota& discount 4,000

100,000 " 12/ " 120360
ess #ortion a##&icab&e to (ear ended 9.30. 1,000
na-ortiIed, 9.30. 3,000

12. $etained +arnings 300,000

  oodwi&& 300,000

$A'Q!A' C$$A!' 
=$!' $!A AA'C+ 
)e#te-ber 30, 2003

ria& a&ance Ad*ust-ents !nco-e )tate-ent a&ance )eet  

ebit Credit ebit Credit ebit Credit ebit Credit  
Cas 225,000 15,000 210,000
 A$ 936,000 15,000 951,000
 A&&. or A 31,900 15,650 47,550
'$ 155,000 155,000
! 568,900 568,900 617,200 617,200H
>+ 618,000 5,000 613,000
 AF >+. 187,500 11,000 64,300 240,800

26
 oodwi&& 300,000 300,000 @0@
 A 536,000 40,000 576,000
' 100,000 100,000
C) 1,000,000 1,000,000
$+ 552,500 300,000 252,500
)a&es 3,728,200 3,728,200
)a&es $P A 47,600 47,600
urcases 2,159,300 40,000 2,199,300
urc $PA. 36,500 36,500
 Ad% 96,100 96,100
)a&es sa& 288,500 288,500
Co-. e"# 152,000 152,000
isc.se&& 29,900 29,900
$ent e"# 130,000 10,000 120,000
ice sa& 197,200 197,200
igt P = 15,000 15,000
!ns. e"# 10,800 5,400 5,400
a" P &icen 47,800 47,800
isc. e 163,400 163,400
!nt. e"# 41,200 3,000 38,200
!nt inc 9,100 9,100
6,181,700 6,181,700

A 15,650 15,650
ain 6,000 6,000
e#ren 64,300 64,300
re ins 5,400 5,400
re rent 10,000 10,000
isc on ' 3,000 3,000
464,350 464,350 4,049,250 4,397,00 2,564,600 2,216,850
0
'+ !'C 347,750 347,750
4,397,000 4,397,000 2,564,600 2,564,600

 A')=+$:
1.  2. C 3.  4. A 5.  6.  7.  8.  9.  10. A

Problem 10
Aour audit client, (ortor orporation, presents to you the unadusted trial balance shown
below, which was drawn from its general ledger as at 8une *!, 2!!, the end of its fiscal
year.
(O?(O? O?PO?3(IO4
nadusted (rial +alance
8une *!, 2!!
ash '21,"!!
(rading 5ecurities 2!!,!!!
3ccounts receivable 2,12",!!!
Inventory, 8une *!, 2!! ,1&%,*!!
Invest. in associates <>quity ethod= 1,2!!,!!!
>quipment 1,21,!!!
Prepaid e6penses 11,2!!
Loodwill !!,!!!
3ccounts payable 2,%2,%!!
3ccrued e6penses 12,!!
3ccrued interest payable 22,!!!
3llowance for bad debts *,1!!
3llowance for depreciation %!,'!!
Doans payable 2,!!,!!!
apital stoc/ *,!!!,!!!

27
 3dditional paid0in capital 2!,!!!
?etained earnings 1,"!","!!
5ales 21,!2,!!!
Interest income 1%!,!!!
Purchases 1*,&2",!!!
5alaries and wages *,2!,!!!
?ent, light and water '!,!!!
3dvertising %!!,!!!
5upplies *!!,!!!
(a6es 2!,!!!
iscellaneous e6penses 1,'&*,*!!
Interest e6pense 2!,!!! EEEEEEEEE
*2,!2,!! *2,!2,!!

Aour e6amination of the accounts disclosed the following information;

1. (he cash account included an 45F chec/ returned by the ban/ on 8une *!, 2!!, but
recorded as a cash reduction in 8uly, 2!!, P%%,!!!, and a voucher for suppliers paid in
cash on 8une 2', 2!! but not entered in the boo/s, P2,!!.

2. ar/etable 5ecurities which cost P2!!,!!! have a mar/et value of P21!,!!!. Dong0
(erm Investments have a mar/et value of P1,2!,!!! as at balance sheet date.

*. (he company has been providing an allowance for bad debts at # of the
outstanding customers$ balances. ncollectible accounts were charged off against the
allowance during the year.

%. 3 physical inventory ta/en by management personnel of the merchandise stoc/ at

8une *!, 2!! totaled P,'1,&!!. Aou were unable to observe the inventory0ta/ing as
your services were engaged only on 8uly 1, 2!!. 7ue to the condition of the
accounting records and internal accounting controls, you were also unable to satisfy
yourself as to the inventory.

. >quipment no longer needed <cost, P1!,!!!- accumulated depreciation, P%,!!!=

was sold for P1!!,!!! cash on 8une 2&, 2!!- the cash proceeds were credited to the
>quipment account. >quipment is depreciated at 1!# a year on a monthly basis
computed at year0end.

. Prepaid e6penses included insurance premium of P*!,!!! paid on 3pril 1, 2!! on a

one0year fire insurance policy.

'. 5alaries unpaid as of 8une *!, 2!!, P1*,!!! were not ta/en up under accrued
e6penses.

". (he Loodwill account was set0up with a credit to ?etained >arnings on the basis of a
resolution of the +oard of 7irectors.

&. 3 1!# cash dividend declared on 8une 1, 2!!, payable on 8uly *1, 2!!, has not
been recorded.

1!. (he +oard of 7irectors approved a resolution on 8une 2, 2!! appropriating out of
?etained >arnings the amount of P*!!,!!! to meet possible future losses on inventories.

28
Questions
1. ash for the fiscal year0ended 8une *!, 2!! is;
a. P **,"!! b. P 1,*!! c. P '',"!! d. P &,*!!

2. ar/etable securities for the fiscal year0ended 8une *!, 2!! is;
a. P ! b. P 1&!,!!! c. P 2!!,!!! d. P 21!,!!!

*. 3ccounts receivable for the fiscal year0ended 8une *!, 2!! is;
a. P 2,1'2,!!! b. P 2,12",!!! c. P 2,1!!,!!! d. P 2,!"%,!!!

%. 3llowance for doubtful accounts for the fiscal year0ended 8une *!, 2!! is;
a. P '2,!! b. P 1!%,2!! c. P 1!,%!! d. P 1!",!!

. Inventory for the fiscal year0ended 8une *!, 2!! is;

a. P ,'1,&!! c. P %,*,'!!
b. P ,1&%,*!! d. annot be determined.

. >quipment for the fiscal year0ended 8une *!, 2!! is;

a. P 1,'1,!!! b. P 1,'1,!!! c. P 1,21,!!! d. P 1,,!!!

'. 3ccumulated depreciation for the fiscal year0ended 8une *!, 2!! is;
a. P *&!,'!! b. P 2,"!! c. P 2,"!! d. P 22,"!!

". ?etained earnings before net income for the fiscal year0ended 8une *!, 2!! is;
a. P '!","!! b. P 1,!!","!! c. P 1,*!","!! d. P 1,!",!!!

&. ?etained earnings after net income for the fiscal year0ended 8une *!, 2!! is;
a. P 2,*&,'!! b. P 2,%!,!! c. P 1,"%!,!! d. P 1,"!,!!

1!. (he auditor should issue a<an=;

a. nqualified Opinion c. Hualified Opinion
b. nqualified Opinion with e6planatory paragraph d. 3dverse Opinion

Solution

$$ C$$A!' 
=$!' $!A AA'C+ 
 une 30, 2006

ria& a&ance Ad*ust-ents !nco-e )tate-ent a&ance )eet  

ebit Credit ebit Credit ebit Credit ebit Credit  
Cas 721,800 70,500 651,300
) 200,000 10,000 210,000
 A$ 2,128,000 44,000 2,172,000
!n%en. 5,194,300 5,194,300 5,751,900 5,751,900
!n%est. Ass. 1,200,000 1,200,000
+Eui#. 1,621,000 50,000 1,571,000
re#aid e"#. 116,200 7,500 108,700
oodwi&& 500,000 500,000 @@@@@@@@@@@@
 A 2,426,400 2,426,400
 Acc. +"#. 152,600 13,000 165,600
 Acc. int. #a( 226,000 226,000
 A&&ow. >or 36,100 72,500 108,600

 Acc. or 450,700 60,000 172,100 562,800
de#r.
oans 2,500,000 2,500,000

29
 #a(ab&e
Ca#ita& stocD 3,000,000 3,000,000
 A!C 260,000 260,000
$+ 1,808,800 500,000
300,000
300,000 708,800
)a&es 21,602,000 21,602,000
!nt. inc. 140,000 140,000
urc. 13,928,000 13,928,000
)a&. P wages 3,250,000 13,000 3,263,000
$ent, &igt R 750,000 750,000

 Ad%ertising 400,000 400,000

)u##&ies 300,000 26,500 326,500
a"es 250,000 250,000
is. e"#. 1,793,300 1,793,300
!nt. e"#. 250,000 250,000
32,602,600 32,602,600
;o&ding gain 10,000 10,000
 e"#ense 72,500 72,500
ain on sa&e 10,000 10,000
e# e"# 172,100 172,100
!ns. e"#ense 7,500 7,500
i%. #a(ab&e 300,000 300,000
$+@a##ro. 300,000 300,000
1,505,600 1,505,600 26,407,200 27,513,900 11,654,900 10,558,200
'+ !'C. 1,106,700 1,106,700
27,513,900 27,513,900 11,664,900 11,664,900

1. Accounts recei%ab&e 44,000

)u##&ies 26,500
  Cas 70,500
2. rading )ecurities <a&uation 10,000
 A&&ow.
;o&ding gain @ ) 10,000
3. ad debts e"#ense 72,500
A&&owance or bad debts 72,500
5/ " 2,128,000 M 44,000 L
108,600 @ 36,100
4. o be considered in te #re#aration
o te audit re#ort. >ai&ure to
obser%e te in%entor( taDing resu&ts
in a &i-itation in te sco#e o
e"a-ination. e#ending on te
-ateria&it( o te a-ount o
!n%entor( in re&ation to oter
accounts, te auditor wi&& eiter
i ssue a Eua&iied o#inion or
disc&ai-er o o#inion.
5. A&&owance or de#reciation 60,000
  +Eui#-ent 50,000
ain on sa&e o eEui#-ent 10,000
Cost
150,000
ess acc. de#r.
45,000M15,000
60,000
ooD %a&ue  90,000
)e&&ing #rice 100,000
ain  10,000
e#reciation e"#ense 172,100
A&&owance or de#reciation 172,100

30
 10/ " 1,621,000 M 100,000
6. !nsurance e"#ense 7,500
re#aid e"#enses 7,500
30,000 " 312
7. )a&aries and wages 13,000
Accrued e"#enses 13,000
8. $etained earnings 500,000
  oodwi&& 500,000
9. $etained earnings 300,000
i%idends #a(ab&e 10/ " 300,000
3,000,000
10. $etained earnings 300,000
$+ A##ro#riated or ossib&e 300,000
osses in !n%.
 A')=+$:
1.  2. C 3. A 4.  5. A 6.  7. C 8. A 9.  10. C  

Problem 11
>rasmo orporation was incorporated on 7ecember 1, 2!!, and began operations one
wee/ later. 8esus is a nonpublic enterprise. +efore closing the boo/s for the fiscal year
ended 4ovember *!, 2!!, >rasmo orporation$s controller prepared the following financial
statements;
+alance 5heet
4ovember *!, 2!!
355>(5

urrent 3ssets;
ash 1!,!!!.!!
ar/etable securities, at cost !,!!!.!!
3ccounts receivable %!,!!!.!!
3llowance for doubtful accounts <&,!!!.!!=
Inventories %*!,!!!.!!
Prepaid insurance 1,!!!.!!
(otal current assets 1,!%,!!!.!!
Property, plant and equipment %2,!!!.!!
3ccumulated depreciation <%!,!!!.!!=
?esearch and developments 12!,!!!.!!
(otal assets 1,2,!!!.!!

DI3+IDI(I>5  5(OKOD7>?5$ >HI(A

urrent Diabilities
3ccounts payable  accrued e6penses &2,!!!.!!
Income ta6 payable 22%,!!!.!!
(otal current liabilities "1,!!!.!!
5toc/holders$ >quity
ommon stoc/, P1! par value %!!,!!!.!!
?etained earnings **,!!!.!!
(otal stoc/holders$ >quity '*,!!!.!!
(otal liabilities  5toc/holders$ >quity 1,2,!!!.!!

5tatement of Income
For the year ended 4ovember *!, 2!!

4et sales 2,&!,!!!.!!

31
ost  e6penses;
ost of sales 1,'!,!!!.!!
5elling and 3dministrative !,!!!.!!
7epreciation %!,!!!.!!
?esearch and 7evelopment *!,!!!.!!
2,*&!,!!!.!!
Income before income ta6es !,!!!.!!
Provision for income ta6es 22%,!!!.!!
4et income **,!!!.!!

>rasmo is in the process of negotiating a loan for e6pansion purposes and the ban/ has
requested audited financial statements. 7uring the course of the audit, the following
additional information was obtained;

1. (he investment portfolio consist of short0term investments in mar/etable equity

securities with a total mar/et valuation of P,!!! as of 4ovember *!, 2 !!.

2. +ased on aging of the accounts receivable as of 4ovember *!, 2!!, it was

estimated that P*,!!! of the receivables will be uncollectible. (here were no +ad 7ebt
write0offs during the year.

*. Inventories at 4ovember *!, 2!!, did not include wor/ in process inventory costing
P12,!!! sent to an outside processor on 4ovember 2&, 2!!.

%. 3 P*,!!! insurance premium paid on 4ovember *!, 2!!, on a policy e6piring one year
later was charged insurance e6pense.

. On 8une 1, 2!!, a machine purchased for P2%,!!! was charged to repairs and
maintenance. >rasmo depreciates machines of this type on the straight0line method over
a five year life, with no salvage value, for financial and ta6 purposes.

. ?esearch and development costs of P1!,!!! were incurred in the development of a

patent which >rasmo e6pects to be granted during the fiscal year ending 4ovember *!,
2!!*. >rasmo initiated a five year amorti@ation of the P1!,!!! total cost during the
fiscal year ended 4ovember *!, 2!!.

'. 7uring 4ovember 2!!, a competitor company filed suit against >rasmo for patent
infringement claiming P2!!,!!! in damages. >rasmo orporation$s legal counsel believes
that an unfavorable outcome is probable. 3 reasonable estimate of the court$s award to
the plaintiff is P!,!!!.

". (he %!# effective ta6 rate was determined to be appropriate for calculating the
provision for income ta6es for the fiscal year ended 4ovember *!, 2!!. Ignore
computation of deferred income ta6es.

Questions
1. In the income statement for the year ended 4ovember *!, 2!!, >rasmo should report
for the mar/etable securities
a. 3 reali@ed loss of P,!!!. c. 3 reali@ed gain of P,!!!
b. 3n unreali@ed loss of P,!!!. d. 3n unreali@ed gain of P,!!!

2. In the 4ovember *!, 2!!, balance sheet, >rasmo should report in respect of the
investment portfolio

32
 ar/etable 5ecurities Baluation 3llowance
a. P,!!! P 0!0
b. P,!!! P,!!!
c. P!,!!! P 0!0
d. P!,!!! P,!!!

*. In the 4ovember *!, 2!!, balance sheet, >rasmo should report the allowance for
doubtful accounts at
a. P2*,!!! b. P*,!!! c. P&,!!! d. P&,!!!

%. +ad debts e6pense for the year ended 4ovember *!, 2!!, is
a. P 0!0 b. P2*,!!! c. P*,!!! d. P&,!!!

. Inventories at 4ovember *!, 2!!, should be reported at

a. P%1",!!! b. P%*!,!!! c. P%%2,!!! d.P%!,!!!

. ost of goods sold for the year ended 4ovember *!, 2!!, reported as
a. P1,%*,!!! b. P1,%,!!! c. P1,",!!! d. P1,'!,!!

'. Prepaid insurance at 4ovember *!, 2!!, should be reported at

a. P 0!0 b. P12,!!! c.P1,!!! d. P1",!!!

". 3t 4ovember *!, 2!!, property, plant and equipment should be reported at
a. P%!2,!!! b. P%2,!!! c. P%%',!! d. P%!,!!!

&. 7epreciation e6pense for the year ended 4ovember *!, 2!!, should be
reported at
a. P1,!!! b. P*',!! c. P%!,!!! d. P%2,%!!

1!. 3t 4ovember *!, 2!!, accumulated depreciation should be reported at

a. P*',!! b. P%!,!!! c. P%2,%!! d. P%%,"!!

11. In the 4ovember *!, 2!! balance sheet, research and development costs
should be reported at
a. P 0!0 b. P12!,!!! c. P1*,!!! d. P1!,!!!

12. ?esearch and development e6pense for the year ended 4ovember *!, 2!! is
a. P 0!0 b. P1,!!! c. P*!,!!! d. P1!,!!!

1*. In the 4ovember *!, 2!! balance sheet, >rasmo should report an estimated
liability from lawsuit at
a. P 0!0 b. P!,!!! c. P1!!,!!! d. P2!!,!!!

1%. For the year ended 4ovember *!, 2!!, which one of the following adustments
increases the nadusted income, before income ta6es of P!,!!!:
a. Pension e6pense
b. 9or/ in process inventory at outside processor
c. >stimated loss from lawsuit
d. ?esearch and development cost

1. For the year ended 4ovember *!, 2!!, which of the following adustments
decreases the unadusted income, before income ta6es, of P!,!!!:
a. ?ecognition of prepaid insurance

33
 b. ?eduction in allowance for doubtful accounts
c. 7epreciation on machine purchased 8une 1,2!!
d. ?ecognition of research and development cost
Solution

1. nrea&iIed o&ding &oss 5,000

<a&uation a&&owance 5,000
2. A&&owance or bad debts 23,000
) P A +"#ense ad debts 23,000
3. !n%entor( 12,000
Cost o sa&es 12,000
4. re#aid insurance 3,000
) P A +"#ense 3,000
5. ro#ert( and eEui#-ent 24,000
) P A +"#ense 24,000
e#reciation 2,400
 Accu-. e#reciation 2,400
6. $ cost F !) 120,000
$ cost F ) 120,000
7. +st. &oss on da-ages 50,000
+st. &iab on da-ages 50,000

 A')=+$:
1.  2.  3.  4. C 5. C 6. C 7.  8.  9.  10. C  
11. A 12.  13.  14.  15. C  

Problem 12
In connection with your audit of the >ddie Bic Farms orp., the accountant prepared the
following balance sheet;
>ddie Bic Farms orp.
+alance sheet
7ecember *1, 2!!
3ssets
ash P %&*,!!!
ar/etable securities *!,!!!
3ccounts receivable %!,!!!
Inventories 1,!!2,!!!
(otal current assets 2,,!!!
Dand, buildings, and equipment 2,&!%,!!!
(otal assets P,&,!!!
Diabilities and 5toc/holders$ >quity
3ccounts payable P "%,"%!
>stimated losses from future crop failures '!,!!!
5alaries payable *!!,!!!
(otal current liabilities 1,%,"%!
1!# +onds payable <due in 1! years= 1,!!,!!!
apital stoc/ &!!,!!!
?etained earnings 1,&%,1!
(otal liabilities and stoc/holder$s equity P ,&,!!!

3dditional information;

a. ash is held in a chec/ing account and a savings account with balances of P1*!,'!! and
P*2,*!!, respectively. (he cash in the savings account will be used to support
operations in the event of a crop failure.

34
b. (he mar/etable securities represents the cost of treasury bills with a total mar/et value
of P!!,!!! at year0end.

c. 3 loan to the president for P*!,!!! that is to be repaid in quarterly installments of

P*!,!!! is included in M3ccounts ?eceivableN. (he balance of accounts receivable are
considered to be & percent collectible.

d. Inventories include;

Finished products '"!,!!!

5upplies *&,!!!
5torage buildings <net of P!,&! depreciation= 1"*,!!!
(otal 1,!!2,!!!

e. MDand, buildings, and equipmentN includes  tractors that were purchased near the end
of the year for P'2!,!!! <shown net of a P!!,!!!, 0year loan used to buy the
tractors=. (he balance of the account consists of land that was purchased for
P2,%!!,!!! and buildings that were purchased for P1!,!!! <shown net of depreciation
of P12,!!!=.

f. Included in M3ccounts PayableN are P21!,!!! of deposits to suppliers for delivery of

goods in February of the ne6t year.

g. (he company has 1"!,!!! shares of P par common stoc/ issued and outstanding. (he
common stoc/ was originally sold for P' per share, and the premium was included in
 M?etained >arnings.N 

h. 3fter reading a P3L353 report, the president believes that ne6t year will be a bad crop
year due to prolonged M>l 4inoN phenomenon and estimates the company will lose about
P'!,!!!. 3n appropriation of ?etained >arnings has been made for this amount.

Questions
+ased on the above and the result of your audit, determine the adusted balances of the
following as of 7ecember *1, 2!!;

1. ash
a. P 1*!,'!! b. P 2*1,!! c. P *2,*!! d. P %&*,!!!

2. 3ccounts receivable
a. P 1'1,!!! b. P 1*,!!! c. P *1,!!! d. P %!,!!!

*. urrent assets
a. P 2,%%*,!!! b. P 2,2**,!!! c. P 2,!"!,'!! d. P 2,!!,'!!

%. Dand, +uildings, and >quipment

a. P *,"'*,&! b. P *,"',!!! c. P *,',&! d. P *,!"',!!!

. 4oncurrent assets
a. P %,%!&,*!! b. P %,2"&,*!! c. P %,!%',!!! d. P *,&2',!!!

. (otal assets
a. P ,%2,*!! b. P ,%&!,!!! c. P ,*%!,!!! d. P,&'','!!

35
'. urrent liabilities
a. P 1,1&%,"%! b. P 1,%,"%! c. P &"%,"%! d. P ''%,"%!

". (otal liabilities

a. P *,1%,"%! b. P 2,"%%,"%! c. P 2,*%,"%! d. P 2,%2%,"%!

&. (otal retained earnings

a. P 2,2,1! b. P 2,2*,1! c. P 1,!%,1! d. P 1,&,1!

1!. (otal stoc/holders$ equity

a. P *,%&,1! b. P *,'&',%! c. P *,%2&,1! d. P 2,%2,"!

Solution
a. ash J restricted *2,*!!
ash *2,*!!
b. Kolding loss *!,!!!
3llowance for holding loss *!,!!!
c. Other receivable J noncurrent *!,!!!
3ccounts receivable *!,!!!
Other receivable J current 12!,!!!
Other receivable J noncurrent 12!,!!!
+ad debts &,!!!
3llowance for bad debts &,!!!
<1"!,!!! 6 #=
d. 5upplies *&,!!!
Dand, building  equipment 1"*,!!!
Inventories 222,!!!
e. D and, building  equipment !!,!!!
Dong0term liability !!,!!!
f. 3dvances to suppliers 21!,!!!
3ccounts payable 21!,!!!
g. O>; ?etained earnings '!,!!!
>st. liability '!,!!!
>; ?etained earnings '!,!!!
?etained earnings J appropriated '!,!!!
3d; >stimated liability '!,!!!
?etained earnings '!,!!!
3nswer;
1. 3 2. 3 *. 7 %. + . +
.  '. 3 ". + &. + 1!. 3

Problem 13
. 5enaon hired an attorney to help her start 5>438O4 ?>P3I? 5>?BI> O?PO?3(IO4.
On arch 1, . 5enaon deposited P11,!! cash in ban/ account in the name of the
corporation in e6change for 1,1! shares of P1! par value common stoc/. 9hen he paid the
attorney$s bill of P'!!, the attorney advised her to hire an accountant to /eep his records.
. 5enaon was so busy that it was arch *1 before she as/ed you to straighten out his
records. Aour tas/ is to develop the financial statements on the arch transactions.

3fter investing in her business and paying her attorney, . 5enaon borrowed P,!!! from
the ban/. 5he later paid P2!, including interest of P!, on this loan. 5he also purchased a
used pic/up truc/ in the company$s name, paying P2,!! down and financing P',%!!. (he
first payment on the truc/ is due 3pril 1. . 5enaon then rented an office and paid three
months$ rent P&!!, in advance. redit purchases of office equipment of P"!! and repair
tools of P!! must be paid by 3pril 1!.

In arch,5>438O4 ?>P3I? 5>?BI> O?PO?3(IO4 completed repairs of P1,*!!, of which

P%!! were cash transactions. Of the credit transactions, P*!! were collected during arch.

36
9ages of P%! were paid to employees. On arch *1, the company received a P' bill for
the arch utilities e6pense and a P! chec/ from a customer for wor/ to be completed in
3pril.
Questions
1. (he ash balance of 5>438O4 ?>P3I? 5>?BI> O?PO?3(IO4 at arch *1 is;
a. P12,*&! b. P12,*1 c. P12,%%! d. P11,!!

2. (he 3ccounts ?eceivable balance of 5>438O4 ?>P3I? 5>?BI> O?PO?3(IO4 at

arch *1 is;
a. P&!! b. P"!! c. P'!! d. P!!

*. (he (otal urrent 3ssets of 5>438O4 ?>P3I? 5>?BI> O?PO?3(IO4 at arch *1

is;
a. P1*,'1 b. P1*, c. P1*,1 d. P1*,%!

%. (he (otal 4on0current assets of 5>438O4 ?>P3I? 5>?BI> O?PO?3(IO4 at arch

*1 is;
a. P11,&!! b. P11,""" c. P11,*"" d. P11,2!!

. (he (otal 3ssets of 5>438O4 ?>P3I? 5>?BI> O?PO?3(IO4 at arch *1 is;

a. P2,2" b. P2,%1 c. P2%,"%! d. P2%,&1

. (he (otal 5toc/holders$ >quity of 5>438O4 ?>P3I? 5>BI> O?PO?3(IO4 at arch

*1 is;
a. P11,21 b. P11,&!* c. P<"= d. P<2"=

'. (he (otal Diability of 5>438O4 ?>P3I? 5>?BI> O?PO?3(IO4 at arch *1 is;
a. P1,!2 b. P1%,'2 c. P1*,2 d. P,22

". (he (otal Diability and 5toc/holders$ >quity of 5>438O4 ?>P3I? 5>?BI>
O?PO?3(IO4 at arch *1 is;
a. P2,2" b. P2,%1 c. P2%,"%! d. P2%,&1

&. (he (otal Operating e6penses and other e6penses of 5>438O4 ?>P3I? 5>?BI>
O?PO?3(IO4 at arch *1 is;
a. P1," b. P1,!* c. P1,!1 d. P"&'

1!. (he 4et Income of 5>438O4 ?>P3I? 5>?BI> O?PO?3(IO4 at arch *1 is;
a. P%1 b. P%!* c. P<"= d. P<2"=

Solution
Cas 11,500
Co--on stocD 11,500
re@o#erating cost 700
Cas 700
Cas 5,000
'otes #a(ab&e 5,000
!nterest e"#ense 60
'otes #a(ab&e 200
Cas 260
+Eui#-ent 9,900
Cas 2,500
'otes #a(ab&e 7,400
$ent e"#ense 300
re#aid rent 600
Cas 900

37
+Eui#-ent 800
 A F oters 800
oo&s 500
 Accrued e"#enses 500

Cas 400
 Accounts recei%ab&e 900
$e%enue 1,300
Cas 300
 Accounts recei%ab&e 300
=ages 450
Cas 450
ti&ities 75 
 Accrued e"#enses 75 
Cas 50
 Ad%ances ro- custo-er 50
 Answer:
1. C 2.  3.  4.  5. C 6. A 7. C 8. C 9. A 10. 

Problem 14
O3473 O?PO?3(IO4 has ust completed its third year of operations, 7ecember *1,
2!!. (he newly selected president was ama@ed, to say the least, when told that the
 Mcompany$s boo/s have never been in balance.N In fact, he has learned that they are
P1%,"!! out of balance. onsequently, he has decided to as/ an independent P3 to Mget
things straightened out.N Aou are the luc/y P3Q 9hile getting an overview of the situation
you learn that the boo//eeper ournali@e and posts all of the daily transactions, but the
adusting and closing entries are entered directly into the ledger accounts. 3 wor/sheet is
not used. 3fter recording the adusting entries, the boo//eeper prepares an adusted trial
balance, which is then used to prepare the financial statements.

3t your request the boo//eeper prepared the following post0closing trial balance following
his usual procedures;
O3473 O?PO?3(IO4
Post0closing (rial +alance
7ecember *1, 2!!

ash 1',"!!
3ccounts receivable ,!!!
4ote receivable ,!!!
erchandise inventory <periodic system= 12!,!!!
Prepaid insurance 2,%!!
>quipment 2%!,!!!
Dand <future site= %!,!!!
3ccounts payable 2!,!!!
Income ta6 payable 1!,!!!
ortgage payable 1!!,!!!
ommon stoc/, par P1! <2!,!!! shares outstanding= *2!,!!!
7ividends declared and paid %,!!!
?etained earnings !,!!!
(o balance 1%,"!! EEEEEEE
(otal !!,!!! !!,!!!

3fter spending considerable time digging into the records and files of the company, you
discovered the following;

38
a. >stimates of bad debts e6pense that total P,!!! have been credited directly to
3ccounts ?eceivable.

b. 3ccrued interest e6pense of P%,!!! was recorded, but the credit was omitted.

b. 7epreciation e6pense, on a straight0line basis <no residual value=, is P*!,!!! per

year. 7epreciation for 2!!1 and 2!!2 was credited directly to the asset account.

c. (he 2!! ending inventory of P1%!,!!! was not recorded- the beginning inventory
was P12!,!!!.

d. Prepaid insurance of P2,%!! was for two full years, 2!! and 2!!'.

e. 7epreciation was not recorded in 2!!.

f. 3ccounts payable of P2,!!! were paid, but the debit was not recorded.

g. (he common stoc/ account needs scrutiny.

Questions
1. ash at 7ecember *1, 2!! is;
a. P 11,"!! b. P 1*,"!! c. P 1,"!! d. P 1',"!!

2. 3ccounts receivable at 7ecember *1, 2!! is;

a. P ,!!! b. P !,!!! c. P ,!!! d. P !,!!!

*. 4otes receivable at 7ecember *1, 2!! is;

a. P 1!,!!! b. P ",!!! c. P ,!!! d. P !

%. erchandise inventory at 7ecember *1, 2!! is;

a. P 2!,!!! b. P 1%!,!!! c. P 12!,!!! d. P 11!,!!!

. Prepaid insurance at 7ecember *1, 2!! is;

a. P 2,%!! b. P 1,"!! c. P 1,2!! d. P !

. >quipment at 7ecember *1, 2!! is;

a. P 21!,!!! b. P 2%!,!!! c. P 2'!,!!! d. P *!!,!!!

'. Dand <future site= at 7ecember *1, 2!! is;

a. P %!,!!! b. P *!,!!! c. P 2!,!!! d. P !

". 3ccounts payable at 7ecember *1, 2!! is;

a. P 22,!!! b. P 2!,!!! c. P 1",!!! d. P 1,!!!

&. Income ta6es payable at 7ecember *1, 2!! is;

a. P *",!1 b. P 2",!1 c. P 1!,*"% d. P 1!,!!!

1!. ortgage payable at 7ecember *1, 2!! is;

a. P 1!!,!!! b. P &,!!! c. P &!,!!! d. P "!,!!!

11. ommon stoc/ at 7ecember *1, 2!! is;

a. P *2!,!!! b. P 2!!,!!! c. P 1"!,!!! d. P 12!,!!!

39
1%. ?etained earnings at 7ecember *1, 2!! is;
a. P !,!!! b. P *,2!! c. P 1",!!! d. P 2%,!!!

Solution
Cas 17,800
 Accounts recei%ab&e 60,000
 A&&owance or bad debts 5,000
'ote recei%ab&e 6,000
ercandise in%entor( 140,000
re#aid insurance 1,200
+Eui#-ent 300,000
 Accu-u&ated de#reciation 90,000
and 40,000
 Accounts #a(ab&e 18,000
!nterest #a(ab&e 4,000
!nco-e ta" #a(ab&e 10,000
ortgage #a(ab&e 100,000
Co--on stocD 200,000
 A!C 120,000
$etained earnings  18,000 sEueeIed igure
565,000 565,000

 Answer 
1.  2. C 3. C 4.  5. C 6. A 7. A 8. C 9.  10. A
11.  12. C  

Problem 15
Aour new audit client, api@ ompany, prepared the trial balance below as of 7ecember *1,
2!!. (he company started its operations on 8anuary 1, 2!!. Aour e6amination resulted in
the necessity of applying the adusting entries indicated in the additional data below.

api@ ompany
(?I3D +3D34>
7ecember *1, 2!!

 7ebits redits
ash P1!,!!!
3ccounts receivable, net allowance of P2!,!!! !!,!!!
Inventories, 7ecember *1, 2!! &,!!!
Dand !,!!!
+uildings &&!,!!!
3ccumulated depreciation, building P1&,"!!
achinery %%%,!!!
3ccumulated depreciation, machinery %,!!!
5in/ing fund assets ',!!!
+ond discounts ',!!!
(reasury stoc/, common 1!,!!!
3ccounts payable ',!!!
3ccrued bond interest 11,2!
First mortgage, # sin/ing fund bonds '&,!!
ommon stoc/ 1,!!,!!!

40
 Premium on common stoc/ 1!,!!!
5toc/ donation 1"!,!!!
?etained earnings, 7ecember *1, 2!! 222,%!
4et sales 2,2,!!!
Purchases "!,!!
5alaries and wages !',!!!
Factory operating e6penses *%,!!
3dministrative e6penses 1!,!!!
+ond interest %,!!! EEEEEEEEE
P,!!!,!!! P,!!!,!!!
3dditional data are as follows;

<1= (he 1,!!,!!! common stoc/ was issued at a 1! percent premium to the owners of
the land and buildings on 7ecember *1, 2!!%, the date of organi@ation. 5toc/ with a par
value of P1"!,!!! was donated bac/ by the vendors. (he following entry was made;

<7ebit= (reasury stoc/ P1"!,!!!

<redit= 5toc/ donation P1"!,!!!

(he stoc/ was donated because the proceeds from its subsequent sale were to be
considered as an allowance on the purchase price of land and buildings in proportion to
their values as first recorded. (he treasury stoc/ was sold in 2!! for P',!!!, which
was credited to treasury 5toc/.

<2= On 7ecember *1, 2!!, a machine costing P1,!!! when the business started was
removed. (he machine had been depreciated at 1! percent during the first year. (he
only entry made was one crediting the achinery account with its sales price of P,!!!.

<*= 7epreciation is to be provided on the straight0line basis, as follows; buildings, 2

percent of cost- machinery, 1! percent of cost. Ignore salvage values.

<%= (he first mortgage, # sin/ing fund bonds, par value P'!,!!! will mature in ten
years from 8anuary 1, 2!!, interest payable 3pril 1 and October 1. (he bonds were sold
on 8anuary 1, 2!!, at &!- the discount is to be amorti@ed over the life of the bonds on
straight0line basis.

<= 3 sin/ing fund is built up on the straight0line basis, with a provision that each
installment after the first shall be decreased y the amount of the annual  percent
interest, which interest is to be added to the fund. (he audit disclosed that the proper
installment to the sin/ing fund was paid by the company on 7ecember *1, 2!!, but
that the amount was charged in error o the firs ortgage, # 5in/ing Fund +onds
account.

<= (he trustee of the sin/ing fund reported an addition of P%,!! interest to the fund on
7ecember *1, 2!!. this had not been recorded by the company.

<'= Inventories at 7ecember *1, 2!!, were P2,!!!.

Questions
+ased on the above and the result of your audit, you are to provide the answers to the
following;

1. (he correct balance of Dand account as of 7ecember *1, 2!! was

41
 a. P!,!!! b. P*!,!!! c. P"",!!! d. P!

2. (he adusted net boo/ value of the +uilding as of 7ecember *1, 2!! was
a. P &!',2!! b. P&!,%!! c. P&!,%!! d. P&%,!!!

*. (he correct net boo/ value of the machinery as of 7ecember *1, 2!! was
a. P*&&,!!! b. P*%,!!! c. P*%,!!! d. P*%",!!!

%. (he correct amount of total depreciation e6pense for 2!! was

a. P%",!!! b. P*,&!! c. P2,%!! d. P*,!!!

. Kow much was the gain or loss on sale of machinery on 7ecember *1, 2!!:
a. P,!!! loss b. P,!!! gain c. P',!! loss d. P',!! gain

. (he adusted net carrying amount of # sin/ing fund bonds as of 7ecember *1,
2!! was
a. P',!!! b. P'&,!! c. P&!,!!! d. P'*,!!!

'. (he correct balance of sin/ing fund assets as of 7ecember *1, 2!! was;
a. P',!!! b. P'&,!! c. P1!,!!! d. P1%,!!

". (he correct balance of (reasury 5toc/ as of 7ecember *1, 2!! was;
a. P! b. P1!,!!! c. P1"!,!!! d. P',!!!

&. (he correct balance of ommon 5toc/ as of 7ecember *1, 2!! was;
a. P1,*2!,!!! b. P1,!!,!!! c. P1,!,!!! d. P1,*&,!!!

1!. (he correct balance of stoc/ donation as of 7ecember *1, 2!! was;
a. P1"!,!!! b. P1!,!!! c. P! d. P',!!!

Solution
1. +: reasur( stocD 180,000
)tocD donation 180,000
C+: e-o entr( 
 Ad*: )tocD donation 180,000
reasur( stocD 180,000
@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@
+: Cas 75,000
reasur( stocD 75,000
C+: Cas 75,000
and 30,000
ui&ding 45,000
 Ad*: reasur( stocD 75,000
and 30,000
ui&ding 45,000
2. +: Cas 6,000
aciner( 6,000
C+: Cas 6,000
Accu-. e#Gn 3,000
oss on sa&e 6,000
aciner( 15,000
 Ad*: Accu-. e#Gn: -ac 3,000
oss on sa&e 6,000
aciner( 9,000
3. e#reciation 63,900
 Accu-. e#Gn F ac 45,000 H
 Accu-. de#Gn @ b&dg 18,900

42
 H 444,000 M 6,000 F 15,000 " 10/ L 45,000
HH 990,000 F 45,000 L 945,000 " 2/ L 18,900
 Accu-. e#Gn F b&dg 900
$etained earnings 900
4. iscount on bonds 75,000
)inDing und bonds 75,000
$etained earnings 7,500
!nterest e"#ense 7,500
iscount on bonds 15,000
 75,00010 (rs L 7,500 F 2002
7,500 F 2003
5. +: )inDing und bond 70,500
Cas 70,500
C+: )inDing und 70,500
Cas 70,500
 Ad*: )inDing und 70,500
)inDing und bond 70,500
6. )inDing und 4,500
!nterest inco-e 4,500
 Answer:
1.  2. A 3.  4.  5. A 6. C 7. C 8. A 9.  10. C  

Problem 16

Instructions;
1. Prepare the audit adustments required in the problems.
2. Post the net adustment at the 9or/ing +alance 5heet <9+5= and 9or/ing Profit and
Doss <9PD=.
*. ompute the final balances of each account on your 9+5 and 9PD, proceed to the
questionnaires and transfer all answers to the final answer sheet.
%. 3ssume no other issues, e6cept those discussed on the problem.

On 4ovember 2!, 2!! you have substantially completed your fieldwor/ relative to your
audit of ?K>DD orporation, engaged in the sale of rechargeable lamps. Its rented store
and office is located in 7avao ity.

+ased on your review of the records you have found out that the company$s financial
statements at the end of its fiscal year 5eptember *!, 2!! submitted by their account is
subect to the adustments you noted in your audit.

Audit finding o! 1

Included in the ash account is a customer$s chec/ for P1,1!! deposited on 5eptember *!,
2!! but returned by the ban/ on 5eptember *!, 2!! for insufficiency of drawer$s funds.
(he chec/ was redeposited on October *, 2!!. 4o entry was made by the company for the
return nor the redeposit of the chec/.

Audit finding o! 2

(he debit balance of P1,!! in the allowance for bad debts resulted from write0offs of
uncollectible accounts in e6cess of the beginning balance of the allowance. Further analysis
of the customer$s accounts disclosed the need for setting up an allowance as at 5eptember
*!, 2!! to # of outstanding balance as of date.

Audit finding o! 3

Loods shipped out on consignment basis in 5eptember 2!!, still unsold as at the end of
the month, were recorded as sales for P%,&!! which included %!# gross profit on cost. (his
was not included in the physical inventory.

43
Audit finding o! 4
3 physical inventory ta/en of the merchandise on 5eptember *!, 2!! amounted to
P%1,!!.
Audit finding o! 5
4otes receivable included a 12!0day "# for P&,!!! dated 8uly 1, 2!! from 8. ?amos,
interest due on maturity date <assume *! days per month=.

Audit finding o! 6

Furniture and equipment costing P*,!!! acquired on October 1, 2!!*, and a boo/ value of
P2,%!! at 5eptember *!, 2!!, was sold for P2,!!! cash on October 1, 2!!. (he sales
price was credited to Furniture and >quipment.

Audit finding o! 7

7epreciation for the fiscal year has not been recorded. >stimated life of the furniture and
equipment is 1! years.

Audit finding o! 8

3 one0year insurance policy was ta/en by the company on 8une *!, 2!! and paid the
annual of P1,2!!.

Audit finding o! 9

(he company paid P11,'!! representing rent for 1* months ending on October *1, 2!!.

Audit finding o! 10

(he 12!0day note payable of P,!!!, bearing 12# interest was discounted with the ban/ on
3ugust 1, 2!!. Interest e6pense was debited.

Audit finding o! 11

(he e6cess of P11! issue price over the 1!! par value upon sale of 2!! shares was credited
to retained earnings.

Audit finding o! 12

Loodwill account was set0up with a credit to ?etained >arnings on the basis of a resolution
of the +oard of 7irectors.

Audit finding o! 13

Office salaries unpaid as of 5eptember *!, 2!!, P1,2!!, were not ta/en up as accrued
e6pense.

Audit finding o! 14

Patents were acquired by purchase on 5eptember *!, 2!! for P2!,!!!. It has as estimated
useful life of % years.

Audit finding o! 15

3n analysis of the investment account shows that on 5eptember 2!! 2 shares were sold
for P2!! per share. (his was recorded as a debit balance to ash, P,!!! and a credit to
Investments in 3 o., P,!!!.

Audit finding o! 16

3 repayment of non0interest bearing note payable for P,!!! was erroneously debited to
3dvertising.

44
Audit finding o! 17
3 payment of P1,!!! for (a6es on 5eptember 2&, 2!! was not recorded in the boo/s.

Audit finding o! 18

On 5eptember *!, 2!! ?K>DD ompany declared a 1!# stoc/ dividend distributable on
October 21, 2!!. (he mar/et value per share is P12! at the time of declaration. (his has
not been ta/en up in the boo/s.

Audit finding o! 19

On 5eptember *!, 2!! a Dand was donated by a stoc/holder. (he stoc/holder bought the
Dand in 1&&" for P2,!!!. (he appraised value of the land at present is P!,!!!.

Audit finding o! 20

ar/etable 5ecurities which cost P1,!!! has a mar/et value of P1,!!!.

Audit finding o! 21

3 payment to supplier within the discount period was made on 8une 2!, 2!!. (he discount
of P2! was credited to 5ales discounts instead of purchase discounts.

Audit finding o! 22

?K>DD orporation has a pending lawsuit from a customer, as/ing for a P1!!,!!!
damages. (he lawyers of the company believe that it is remote that the case of the
customer will prosper in court.

?K>DD orporation
9or/ing +alance 5heet
5eptember *!, 2!!

P>? 37I( FI43D

+OO 3785(>4( +3D34>5
"urrent
ash 1!,!!
ar/etable 5ecurities 1,!!!
3ccount ?eceivable J trade ',2!!
3llowance for doubtful accounts 1,!! dr.
4otes ?eceivable 21,!!
Inventories *&,!!
Investment in 3, o. J1!! shares 2,!!!
Interest ?eceivable 0
Prepayments 1,'!
(O(3D 1'1,&!

Dand
Furniture  >quipment !,"!
3ccumulated 7epreciation <12,1'!=
(O(3D *","!

Loodwill 1!,!!!
Patents 2!,!!!
(O(3D *!,!!!
#ot$l Assets   2%!,*!

45
%i$bilities
3ccounts payable *,%2!
3ccrued e6penses 0
4otes payable *1,!!!
&toc'(olders) e*uit+
apital 5toc/, P1!! ',!!!
3dditional paid in capital 0
5toc/ dividend distributable 0
7onated capital 0
?etained >arnings &&,21!
#ot$l %i$b! , &! E   2%!,*!

?K>DD O?PO?3(IO4
9or/ing Profit and Doss
Aear >nded 5eptember *!, 2!!
P>? 37I( FI43D
+OO5 3785(>4( +3D34>5

5ales 2&,"1!
5ales returns < 1,&!=
5ales discounts < 1,'!!=
4et sales 2,1!

ost of sales
Inventory, beg. *&,!!
Purchases 1"&,*!
Purchase returns < *,'!!=
Purchase discounts < 1,&'!=
Inventory, end <%1,!!=
1"1,&!
Lross Profit "%,%'!
3dvertising < ',21!=
7oubtful 3ccounts 0
5alesman$s 5alaries <21,!=
iscellaneous 5elling e6penses < 1,&%!=
?ent e6pense <11,'!!=
Insurance e6pense < 1,2!!=
Dight and water < *!!=
(a6es < 1,1!=
Office salaries < *,**!=
iscellaneous office e6pense < 1,!=
Doss on sale 0
3morti@ation of Intangibles 0
Interest >6pense < %,!!=
Other Income %*!
4et Income *!,%%!

Questions

1. ash
a. P &,!! b. P",%!! c. P1!,!! d. P,"!!

2. 3ccounts receivable J trade

46
 a. P',2!! b. P*,%!! c. P!,!!! d. P",*!!

*. 3llowance for doubtful accounts

a. P1,!! b. P2,'! c. P2."! d. P%,11
%. Interest ?eceivable
a. P! b. P1"! c. P2%! d. &!

. Inventories
a. P%1,!! b. P%,%!! c. P%,!!! d. %!,!!!

. 7oubtful accounts
a. P2,&"! b. P2,'! c. P%,1'! d. P%,!!!

'. Prepayments
a. P2,&"! b. P*,'!! c. p2,!! d. P2,!

". Furniture and >quipment

a. P',"! b. P2,"! c. P!,"! d. P!,"!

&. 7epreciation
a. P,!" b. P,2" c. P,!" d. P%.&"

1!. 3ccounts payable

a. P*,%2! b. P*%,%2! c. P*,!!! d. P*2,&""

11. apital 5toc/

a. P',!!! b. P'',!!! c. P! d. P'*,!!!

12. 5ales
a. P2&,"1! b. P2'%,'1! c. P2%,&1! d. P2!,1!!

1*. Purchases
a. P1"&,*! b. P1"',*! c. P1"!,!!! d. P2!!,1!

1%. Interest e6pense

a. P%,!*! b. P%.!! c. P%,!&! d. P*,&1!

1. Other Income

P%*! b. P1! c. P%!! d. !

1. Loodwill
a. P! b. P1!,!!! c. P,!!! d. P,!!!

1'. Office salaries

a. P2,1*! b. P22,"! c. P%,*! d. P1,2!!

1". Patents
a. P! b. P1!,!!! c. P1,!!! d. P,!!!

1&. 3dditional Paid in apital

a. P*,!! b. P!! c. P2,!!! d. P2!!

2!. Investment in a o.

47
 a. P! b. P2,!!! c. P2%,!!! d. P2,!!!

21. 3dvertising
a. P',21! b. P,21! c. P2,21! d. P,!!!
22. Dight and Power
a. P!! b. P,*!! c. P*!! d. P!

2*. (a6es
a. P1,&'! b. P2,1! c. P1,!!! d. P*!!

2%. ?K>DD ompany should record stoc/ dividend payable at

a. P',!! b. P&,!!! c. P! d. P1,!!

2. Dand
a. P! b. P!,!!! c. p2,!!! d. P2%,!!!

2. (he appropriate account to be credited for the donation is

a. ?etained >arnings c. 7onated apital
b. apital 5toc/ d. Other Income

2'. ar/etable securities, net of any allowance for decline

a. P1%,!!! b. P1,!!! c. P1,!!! d. P!

2". 5ales discount

a. P1,"! b. P1,'2! c. P1,2!! d. P1,!!

2&. 5alesman$s salaries

a. P21,! b. P22,"! c. P2!,!!! d. P2,!!!

*!. ?K>DD ompany should recogni@e liability from damages for

a. P! b. P1!!,!!! c. P!,!!! d.P2!!,!!!

 Answer:
1.  2.  3.  4.  5. C 6. C 7.  8.  9. A 10. A
11. A 12. C 13. A 14.  15.  16. A 17. C 18. C 19. A 20. C  
21. C 22. C 23.  24. A 25.  26. C 27.  28.  29. A 30. A

+ntries:
>inding 1 >inding 8
 Accounts recei%ab&e 1,100 re#a(-ents 900
Cas 1,100 !nsurance e"#ense 900
>inding 2 >inding 9
ad debts 4,170 re#a(-ents 900
 A&&ow. >or  4,170 $ent e"#ense 900
>inding 3 >inding 10
)a&es 4,900 re#a(-ent 150
 Accounts recei%ab&e 4,900 !nterest e"#ense 150
!n%entor( 3,500 >inding 11
C) 3,500 $etained earnings 2,000
>inding 4 A!C 2,000
C) 39,500 >inding 12
!n%entor( 39,500 $etained earnings 10,000
!n%entor( 41,500 oodwi&& 10,000
C) 41,500 >inding 13
>inding 5 ice sa&aries 1,200
!nterest recei%ab&e 180 Accrued e"#enses 1,200
!nterest inco-e 180 >inding 14
>inding 6 A-ortiIation 5,000

48
'o ad*ust-ents atents 5,000
>inding 7 
e#reciation 5,085  
 A 5,085 

>inding 15 >inding 18
oss on sa&e 1,000 $etained earnings 9,000
!n%est-ent 1,000 )tocD di%. distr. 7,500
>inding 16 A!C 1,500
'ote #a(ab&e 5,000 >inding 19
 Ad%ertising 5,000 and 50,000
onated ca#ita& 50,000
>inding 17 
a"es 1,000 >inding 20
Cas 1,000 'o ad*ust-ent  
>inding 21
)a&es discount 20
urcase discount 20

WORKING PAPER
er booDs er audit
2,100.0
Cas 10,500.00 0 8,400.00
arDetab&e securities 15,000.00 15,000.00
1,100.0 4,900.0
 Accounts recei%ab&e @ trade 57,200.00 0 0 53,400.00
4,170.0 2,670.0
 A&&ow.or bd @ debit ba&ance 1,500.00 0 0
'otes recei%ab&e 21,500.00 21,500.00
45,000.0 39,500.0
!n%entories 39,500.00 0 0 45,000.00
1,000.0
!n%est-ent in A. Co. @ 100 sares 25,000.00 0 24,000.00
!nterest recei%ab&e @ 180.00 180.00
1,950.0
re#a(-ents 1,750.00 0 3,700.00
50,000.0
and @ 0 50,000.00
>urniture P +Eui#-ent 50,850.00 50,850.00
  12,170.0   5,085.0 17,255.0
 Accu-u&ated de#reciation 0 0 0
10,000.0
oodwi&& 10,000.00 0 @
5,000.0
atents 20,000.00 0 15,000.00
240,630.0 267,105.0
0 0

 Accounts #a(ab&e 35,420.00 35,420.00

1,200.0
 Accrued e"#enses @ 0 1,200.00
5,000.0
'otes #a(ab&e 31,000.00 0 26,000.00
Ca#ita& stocD, 100 75,000.00 75,000.00
3,500.0
 Additiona& #aid in ca#ita& @ 0 3,500.00
7,500.0
)tocD di%idend distributab&e @ 0 7,500.00
50,000.0
onated ca#ita& @ 0 50,000.00
$etained earni ngs 99,210.00 68,485.00
240,630.0 267,105.0
0 0

49
 4,900.0
)a&es 269,810.00 0 264,910.00
  1,950.0   1,950.0
)a&es returns 0 0
  1,700.0 1,720.0
)a&es discounts 0 20.00 0
'et sa&es 266,160.00 261,240.00
39,500.0
Cost o sa&es HHH 181,690.00 0 20.00
41,500.0
0
3,500.0
0 176,170.00
ross #roit 84,470.00 85,070.00
ter inco-e 430.00 180.00 610.00
A 84,900.00 85,680.00
#erating e"#enses
  7,210.0   5,000.0 2,210.0
  Ad%ertising 0 0 0
4,170.0 4,170.0
oubtu& accounts @ 0 0
  21,650.0   21,650.0
)a&es-enJs sa&aries 0 0
  1,940.0   1,940.0
isce&&aneous se&&ing e"#enses 0 0
  11,700.0 10,800.0
$ent e"#enses 0 900.00 0
  1,200.0 300.00
!nsurance e"#ense 0 900.00  
  300.00   300.00
igt and water     
  1,510.0   1,000.0 2,510.0
  a"es 0 0 0
3,330.0   1,200.0 4,530.0
ice sa&aries 0 0 0
  1,560.0   1,560.0
isce&&aneous oice e"#enses 0 0
1,000.0 1,000.0
oss on sa&e @ 0 0
5,085.0 5,085.0
e#reciation @ 0 0
5,000.0 5,000.0
A-ortiIation o intangib&es @ 0 0
!nco-e ro- o#erations 34,500.00 24,625.00
  4,060.0 3,910.0
!nterest e"#ense 0 150.00 0
'et inco-e 30,440.00 20,715.00
12,000.0
$etained beginning 68,770.00 0 56,770.00
9,000.0 9,000.0
i%idends @ 0 0
$etained end 99,210.00 68,485.00
186,105.0 186,105.0
0 0
HHH C)
!n%entor( @ beg. 39,500.00
urcases 189,360.00
  3,700.0
urcase returns 0
urcase discounts 1,970.0

50