Name: ____________________________ SCORE: ______

Section: _____

PROBLEM 1 The ledger of INFIRM SICK Co. as of December 31, 20x1 includes the following:

10% Note payable 80,000

12% Note payable 120,000
14% Mortgage note payable 60,000
Interest payable -

Additional information:

- INFIRM Co.’s financial statements were authorized for issue on April 15, 20x2.

- The 10% note payable is due on July 1, 20x2 and pays semi-annual interest every July 1 and December 31. On January 28, 20x2,
INFIRM Co. entered into a refinancing agreement with a bank to refinance the entire note by issuing a long-term obligation.

- The 12% note payable is due on March 31, 20x2 and pays annual interest every March 31. On January 31, 20x2, INFIRM Co.
extended the maturity of the note to March 31, 20x3 under the existing loan agreement. The extension of maturity date is at the
option of INFIRM.

- The 14% mortgage note is due on December 31, 20x9. Per agreement with the creditor, INFIRM is to pay quarterly interests on
the note, failure to do so will render the note payable on demand. INFIRM failed to pay the 3rd and 4th quarterly interests on the
note during 20x1.

How much is the total current liabilities?

PROBLEM 2 Use the following information for the next three questions:

The ledger of COLTISH UNDISCIPLINED Co. in 20x1 includes the following:

Jan. 1, Dec. 31,

20x1 20x1
Current assets 1,200,000 ?
Noncurrent assets 4,000,000 ?
Current liabilities 900,000 1,000,000
Noncurrent
liabilities ? 3,000,000

Additional information:

- COLTISH’s working capital as of December 31, 20x1 is twice as much as the working capital as of January 1, 20x1.
- Total equity as of January 1, 20x1 is ₱1,700,000. Profit for the year is ₱2,400,000 while dividends declared amounted to
₱1,000,000. There were no other changes in equity during the year.

a. How much is the total noncurrent liabilities as of January 1, 20x1?

b. How much is the total current assets as of December 31, 20x1?
c. How much is the total noncurrent assets as of December 31, 20x1?

PROBLEM 3 HARANGUE INFLATED SPEECH Co. had the following information for 20x1:
Accounts receivable turnover 10:1
Total assets turnover 2:1
Average receivables during the year ₱400,000
Total assets, January 1, 20x1 800,000

How much is the total assets as of December 31, 20x1?

1
PROBLEM 4 GUILE DECEITFULNESS Co. was incorporated on January 1, 20x1. The following were the transactions during the
year:
- Total consideration from share issuances amounted to ₱2,000,000.
- A land and building were acquired through a lump sum payment of ₱400,000. A mortgage amounting to ₱100,000 was
assumed on the land and building.
- Total payments of ₱80,000 were made during the year on the mortgage assumed on the land and building, The payments are
inclusive of interest amounting to ₱10,000.
- Additional capital of ₱200,000 was obtained through bank loans. None of the bank loans were paid during the year. Half of the
bank loans required a secondary mortgage on the land and building.
- There is no accrued interest as of year-end.
- Dividends declared during the year but remained unpaid amounted to ₱60,000.
- No other transactions during the year affected liabilities.
- Retained earnings as of December 31, 20x1 is ₱120,000.

How much is the profit for the year?

PROBLEM 5 Use the following information for the next two questions:

Anne Jeng Inc.’s accounts show the following balances:

Cost of goods sold ₱320,000

Insurance expense 75,000
Advertising expense 25,000
Freight-out 30,000
Loss on sale of equipment 7,000
Rent expense (one-half pertains sales department) 80,000
Salaries expense (1/4 pertains to non-sales
personnel) 150,000
Sales commission expense 10,000
Bad debts expense 5,000
Interest expense 5,000

a. How much is the total distribution costs (selling expenses)?

b. How much is the total administrative expenses?

PROBLEM 6 Entity A has the following information:

Inventory, beg. 80,000

Inventory, end. 128,000
Purchases 320,000
Freight-in 16,000
Purchase returns 8,000
Purchase discounts 11,200
How much is Entity A’s cost of sales?

7. Which of the following is considered revenue?

a. gain on sale of equipment
b. service fees
c. other income
d. other comprehensive income

8. Which of the following items is likely to be presented in the statement of comprehensive income of a merchandising business
but not of a service business?
a. Service fees c. Cost of sales
b. Salaries expense d. Income tax expense

9. A statement of comprehensive income that presents cost of sales separately from other expenses is prepared under the
a. single-step method. c. multi-step method.
b. single-presentation. d. two-statement presentation.

2
ANSWER KEY
1. B Solution:

10% Note payable 80,000

Interest payable on the 12% note (120,000 x 12% x 9/12) 10,800

14% Mortgage note payable 60,000

Interest payable on the 14% note (60,000 x 14% x 6/12) 4,200

Current liabilities 155,000

PROBLEM 2
A Solution:

Assets = Liabilities + Equity

(1,200,000 + 4,000,000) = (900,000 + Noncurrent liabilities) + 1,700,000

Noncurrent liabilities = 5,200,000 – 900,000 – 1,700,000

Noncurrent liabilities, Jan. 1, 20x1 = 2,600,000

A Solution:

Working capital = Current assets – Current liabilities

Working capital, Jan. 1, 20x1 = 1,200,000 – 900,000

Working capital, Jan. 1, 20x1 = 300,000

Working capital, Dec. 31, 20x1 = Working capital, Jan. 1, 20x1 times 2

Working capital, Dec. 31, 20x1 = 300,000 x 2 = 600,000

Working capital = Current assets – Current liabilities

600,000 = Current assets, Dec. 31, 20x1 – 1,000,000

Current assets, Dec. 31, 20x1 = 1,600,000

D Solution:

Equity

  1,700,000 Jan. 1

Dividend 1,000,000 2,400,000 Profit for the year

3
 s

Dec. 31 3,100,000  

Assets = Liabilities + Equity

(1,600,000 + Noncurrent assets) = (1,000,000 + 3,000,000) + 3,100,000

Noncurrent assets, Dec. 31, 20x1 = 4,000,000 + 3,100,000 – 1,600,000

Noncurrent assets, Dec. 31, 20x1 = 5,500,000

PROBLEM 3 C Solution:

Sales are computed as follows:

Net credit sales

Accounts receivable turnover =
Average accounts receivable

Net credit sales

10 =
400,000

Net credit sales = 4,000,000

Net credit sales

Total assets turnover =
Average total assets

Where:

Total assets, beg. + Total assets, end

Average total assets =
2

Net credit sales

Total assets turnover =
Average total assets

4,000,000
2 =
Average total assets

Average total assets = 4,000,000

Average total assets = 2,000,000

Average total assets = Total assets, Jan. 1 + Total assets, Dec. 31

4
 2

800,000 + Total assets, Dec. 31

2,000,000 =
2

Total assets, Dec. 31 = (2,000,000 x 2) - 800,000

Total assets, Dec. 31 = 3,200,000

PROBLEM 4

Retained earnings

- Jan. 1, 20x1

Dividends 60,000 180,000 Profit for the year (squeeze)

Dec. 31, 20x1 120,000  

PROBLEM 5

Advertising expense 25,000

Freight-out 30,000

Rent expense (80K x 1/2) 40,000

Salaries expense (150K x 3/4) 112,500

Sales commission expense 10,000

Distribution costs 217,500

Insurance expense 75,000

Rent expense (80K x 1/2) 40000

Salaries expense (150K x 1/4) 37500

Bad debts expense 5,000

Administrative expenses 157,500

PROBLEM 6

Inventory, beg. 80,000

Net purchases:

5
 Purchases 320,000

Freight-in 16,000

Purchase returns (8,000)

Purchase discounts (11,200) 316,800

Total goods available for sale 396,800

Less: Inventory, end. (128,000)

Cost of goods sold 268,800

7. Which of the following is considered revenue?

a. gain on sale of equipment
b. service fees
c. other income
d. other comprehensive income

8. Which of the following items is likely to be presented in the statement of comprehensive income of a
merchandising business but not of a service business?
a. Service fees c. Cost of sales
b. Salaries expense d. Income tax expense

9. A statement of comprehensive income that presents cost of sales separately from other expenses is prepared
under the
a. single-step method. c. multi-step method.
b. single-presentation. d. two-statement presentation.