Accounting Process & Working Paper Preparation

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

1. One is using periodic inventory system. For the year, its total purchases amounted to
P250,000. Its unsold merchandise at the end of the year has a cost of P5,000 which is
80% of its beginning inventory. One’s cost of sale is

2. Two’s purchase per purchase invoice is P150,000. The purchase discount is 2/10, n/30.
Freight is P500, FOB shipping point collect. The net purchase amounts under net
method is

3. Using the information in Item 2, the amount paid by the buyer is

4. The purchase invoice shows the amount of P250,000, 2/10, 1/20, n/30; FOB destination
collect, P200. If the account is paid 15 days after the invoice date, the net payment
should be

5. Using the information in Item 4, the net purchase is

6. Three purchased merchandise for P5,000 and paid P200 for freight, FOB destination
collect. The merchandise was sold at 120% of cost. The gross profit is

7. The total purchase is P1,176, net of 2% cash discount. Unsold portion of purchase is
P176. The sale is at mark-up of 10%. The gross profit is

8. The term of a P300,000 purchase is 2/20, n/60, FOB shipping point prepaid, P300. If
the account is paid on the 25th day from the invoice date, the total payment would be

9. Four paid freight for P200 on its purchase on account from Five, FOB shipping point. The
journal entry in both books of Four and Five would be
Books of Four Books of Five
a. Freight-out 200 Freight-in 200
Cash 200 Accounts payable 200
b. Freight-in 200 No entry
Accounts receivable 200
c. Freight-in 200 No entry
Cash 200
d. Freight-in 200 Freight-out 200
Cash 200 Accounts receivable 200

10. Six sold merchandise at list price of P250,000; 10; 5; n/30. Part of the sale amounting
to P10,000 was returned due to defect. The amount to be collected by Six is

11. Breeze Company received P96,000 on April 1, 2016 for one year’s rent in advance and
recorded the transaction with a credit to a nominal account. The December 31, 2016
adjusting entry is
a. Debit rent revenue and credit unearned rent revenue, P24,000.
b. Debit rent revenue and credit unearned rent revenue, P72,000.
c. Debit unearned rent revenue and credit rent revenue, P24,000.
d. Debit unearned rent revenue and credit rent revenue, P72,000.

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12. Dupe Company paid P72,000 on June 1, 2016 for a two-year insurance policy and
recorded the entire amount as insurance expense. The December 31, 2016 adjusting
entry is
a. Debit insurance expense and credit prepaid insurance, P21,000.
b. Debit insurance expense and credit prepaid insurance, P51,000.
c. Debit prepaid insurance and credit insurance expense, P21,000.
d. Debit prepaid insurance and credit insurance expense, P51,000.

13. Flip flop Company purchase equipment on November 1, 2016 and gave a 12-month, 9%
note with a face value of P480,000. The December 31, 2016 adjusting entry is
a. Debit interest expense and credit interest payable, P7,200.
b. Debit interest expense and credit interest payable, P10,800.
c. Debit interest expense and credit cash, P7,200.
d. Debit interest expense and credit interest payable, P43,200.

14. On December 31, 2016, Poison Draw Company’s bookkeeper made an adjusting entry
debiting supplies expense and credit supplies inventory for P12,600. The supplies
inventory accounts had a P15,300 debit balance on December 31, 2015. The December
31, 2016 Statement of Financial Position showed supplies inventory of P11,400. Only
one purchase of supplies was made during the month, on account. The entry for that
purchase was
a. Debit supplies inventory and credit cash, P8,700.
b. Debit supplies expense and credit accounts payable, P8,700.
c. Debit supplies inventory and credit accounts payable, P8,700.
d. Debit supplies inventory and credit accounts payable, P16,500.

15. Ronintoadin Company loaned P300,000 to another company on December 1, 2016 and
received a 3-month, 15%, interest-bearing note with a face value of P300,000. What
adjusting entry should Ronintoadin Company make on December 31, 2016?
a. Debit interest receivable and credit interest income, P7,500.
b. Debit cash and credit interest income, P3,750.
c. Debit interest receivable and credit interest income, P3,750.
d. Debit cash and credit interest receivable, P7,500.
.
16. The supplies inventory account balance at the beginning of the period was P66,000.
Supplies totaling P128,250 were purchased during the period and debited to supplies
inventory. A physical count shows P38,250 of supplies inventory at the end of the
period. The year-end adjusting entry is
a. Debit supplies inventory and credit supplies expense, P90,000.
b. Debit supplies expense and credit supplies inventory, P128,250.
c. Debit supplies inventory and credit supplies expense, P156,000.
d. Debit supplies expense and credit supplies inventory, P156,000.

17. At the end of 2016, Submarine Company made four adjusting entries for the following
items: (1) depreciation expense, P35,000; (2) expired insurance, P2,200 (originally
recorded as prepaid insurance); (3) interest payable, P9,000; and (4) rental revenue
receivable, P10,000.

In the normal situation, to facilitate subsequent entries, the adjusting entry or entries
that may be reversed is/are
a. Entry 1 c. Entries 3 and 4
b. Entry 4 d. Entries 2, 3, and 4

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18. Substitoad Company reported an allowance for doubtful accounts of P12,000 (credit) at
December 31, 2016 before performing an aging of accounts receivable. As a result of
the aging, Substitoad Company determined that an estimated P20,000 of the December
31, 2016 accounts receivable would prove uncollectible. The adjusting entry at
December 31, 2016 would be
a. Doubtful accounts expense 8,000
Allowance for doubtful accounts 8,000
b. Doubtful accounts expense 20,000
Accounts receivable 20,000
c. Allowance for doubtful accounts 8,000
Doubtful accounts expense 8,000
d. Doubtful accounts expense 8,000
Interest revenue 8,000

Problem 1
The following is the post-closing trial balance of Swap Shop dated February 1, 2016:

Debit Credit
Cash 120,000
Accounts Receivable 280,000
Allowance for doubtful accounts 2,800
Unused shop supplies 800
Shop Equipment 240,000
Accumulated depreciation - shop 48,000
equipment
Accounts payable 88,800
Notes payable 100,000
Accrued interest payable 1,200
Swap, Capital 400,000
Total 640,800 640,800

For the month of February, the following are the transactions of Swap Shop.

1. Swap withdrew P100,000 cash from the business for her personal use.
2. Paid P12,000 insurance premium.
3. Paid P24,000 rent.
4. Total service rendered to various customers, P140,000, 40% of total sales are on cash
basis and the balance on open account.
5. Received promissory note from customer to replace P40,000 accounts receivable.
6. Collected in cash P164,000 of accounts receivable.
7. Paid the notes payable of P100,000 plus the P2,400 interest.
8. Purchased P2,400 shop supplies on cash basis.
9. Paid salaries, P24,000.

At the end of the month, the following information are available to effect adjustments.

a. The insurance in number 2 for P12,000 is applicable for six months starting February.
b. The rent of P24,000 paid in number 3 is for 3 months, starting February.
c. The note receivable is number 5 is earning 12% interest per year. The note is dated
February 1, and is due on April 30.
d. Bad debts expense is estimated at 2% of accounts receivable balance.
e. The annual depreciation is P48,000.

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f. The unused supplies balance is P1,000.

Questions
1. Cash at end of February is:
2. Net Realizable value of Accounts Receivable at end of February is
3. Unused shop supplies at end of February is
4. Net book value of Shop Equipment at end of February is
5. Accounts Payable at end of February is
6. Notes Payable at end of February is
7. Swap Capital, net of drawing at end of February is
8. Net income of the company at end of February is
9. Total Revenue of the company at end of February is
10. Total Expenses of the Company at end of February is

Problem 2
The following selected transactions were completed during Year 1 of operations by
Tradetoad Corporation:

a. Sold of its 20,000 shares of its own common stock, par P1 per share, for P15 per share
and received cash in full.

b. Borrowed P100,000 cash on 12%, one-year note, interest payable at maturity on April
30, Year 2.

c. Purchased equipment for use in operating the business at a net cash cost of P164,000;
paid in full.

d. Purchased merchandise for resale at cash cost of P140,000; paid cash. Assume a
periodic inventory system; therefore, debit Purchases.

e. Purchased merchandise for resale on credit terms of 2/10, n/60. The merchandise will
cost P9,800 if paid within 10 days; after 10 days, the payment will be P10,000. The
company always takes the discount; therefore, such purchased are recorded at net of
the discount.

f. Sold merchandise for P180,000; collected P165,000 cash, and the balance is due in one
month.

g. Paid P30,000 cash for operating expenses.

h. Paid ¾ of the balance for the merchandise purchased in (e) within 10 days; the balance
remains unpaid.

i. Collected 50% of the balance due on the sale in (f); the remaining balance is uncollected.

j. Paid cash for an insurance premium, P600; the premium was for two years’ coverage
(debit Prepaid insurance).

k. Purchased a tract of land for a future building for company operations, P63,000 cash.

l. Paid damages to a customer who was injured on the company premises, P10,000 cash.

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Questions
Using the unadjusted trial balance, answer the following:

1. Cash balance is:

2. Accounts receivable balance is:
3. Prepaid insurance balance is:
4. Land account balance is:
5. Equipment account balance is:
6. Accounts payable balance is:
7. Notes payable balance is:
8. Common stock balance is:
9. Premium on capital stock balance is:
10. Sales balance is:
11. Purchases balance is:
12. Operating expenses and other expenses is:

Problem 3
The post-closing trial balance of the general ledger of Treeborn Corporation at December 31,
2015, reflected the following:

Account Debit Credit

Cash 27,000
Accounts receivable 21,000
Allowance for doubtful accounts 1,000
Inventory (perpetual inventory system) 35,000
Prepaid insurance (20 mos. remaining) 900
Equipment (20-year life, no salvage value)50,000
Accumulated depreciation 22,500
Accounts payable 7,500
Wages payable -
Income taxes payable (for 2015) 4,000
Common stock, par P1 80,000
Retained earnings 18,900
Sales revenue -
Cost of goods sold -
Operating expenses -
Income tax expense -
Income summary -___ ______
133,900 133,900
* Ending inventory, P45,000 (at 12/31/2016)

The following transactions occurred during 2016 in the order given (use the number at the
left to indicate the date):

1. Sales revenue at P30,000, of which P10,000 was on credit; cost provided by perpetual
inventory record, P19,500.
2. Collected P17,000 on accounts receivable.
3. Paid income taxes payable (2015), P4,000.
4. Purchased merchandise, P40,000, of which P8,000 was on credit.
5. Paid accounts payable, P6,000.
6. Sales revenue of P72,000 (in cash); cost, P46,800.
7. Paid operating expenses, P19,000.

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8. On January 1, 2016, sold and issued 1,000 shares of common stock, par P1, for P1,000
cash.
9. Purchased merchandise, P100,000, of which P27,000 was on credit.
10. Sales revenue of P98,000, of which P30,000 was on credit; cost P63,700.
11. Collected cash on accounts receivable, P26,000.
1. Paid cash on accounts payable, P28,000.
2. Paid various operating expenses in cash, P18,000.

Assume a bad debt rate of ½% of credit sales for the period and a 30% income tax rate. At
December 31, 2016, accrued wages were P300. Use straight-line depreciation.

Questions
1. Cash at December 31, 2016 is:
2. Accounts receivable at December 31, 2016 is:
3. Inventory at December 31, 2016 is:
4. Prepaid insurance at December 31, 2016 is:
5. Equipment at December 31, 2016 is:
6. Accumulated depreciation at December 31, 2016 is:
7. Accounts payable at December 31, 2016 is:

Problem 4
The account of UNIFROG COMPANY as at December 1, 2016 are listed below:

Cash 214,000
Accounts receivable 338,000
Marketable securities 426,000
Office supplies 31,000
Prepaid insurance 48,000
Land 370,000
Building 900,000
Accum. depreciation – bldg 250,000
Equipment 800,000
Accum. depreciation – equip. 200,000
Accounts payable 172,000
Mortgage payable 1,200,000
Capital _______ 1,305,000
3,127,000 3,127,000

The following transactions occurred during the month of December 2016:

Dec. 1 Settled the accounts payable of P115,000 less 2% discount.

3 Collected the accounts receivable of P180,000 less 3% discount.
4 Sold merchandise on account to PAPACOY SUPPLIES, P210,000. Terms: FOB
destination, 3/10, n/30. PAPACOY SUPPLIES paid the freight for P3,000.
5 Received returns from PAPACOY SUPPLIES, P25,000.
7 Purchased merchandise from OSTIQUE PRODUCTS, P232,000. Terms: FOB
shipping point, 2/10, n/30. UNIFROG COMPANY paid P2,000 for the
transportation cost.
9 Returned goods to OSTIQUE PRODUCTS, P12,000 acquired on December 7.
10 Paid interest on mortgage payable, P8,000.
11 Received payment from PAPACOY SUPPLIES for the amount due.
12 Sold merchandise to OANI SHOPPERS, P330,000. Terms: FOB shipping point,
3/10, n/30.

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 18 Received payment from OANI SHOPPERS from the December 12 sales.
19 Sold merchandise to NAVALES SHOP, P242,000. Term: FOB shipping point,
3/10, n/30. UNIFROG COMPANY paid P5,000 for the freight.
20 Paid P9,000 for representation expense.
29 Received from NAVALES SHOP returned merchandise in the amount of
P18,000 from the December 19 sales.
30 The owner, Genevieve, withdraw merchandise for personal use. Cost –
P20,000; Selling price – P30,000.

Additional information
1. Salaries in the amount of P73,000 have accrued on December 31.
2. Insurance coverage with premium of P2,000 has expired at month-end.
3. Depreciation on the building and on the equipment for the month amounted to P3,000
and P4,500, respectively.
4. Office supplies on hand at month-end amounted to P7,000.
5. A count of the inventory amounted to P453,000 on December 31, 2016.

Questions
1. Cash balance at December 31, 2016 is:
2. Accounts receivable at December 31, 2016 is:
3. Inventory at December 31, 2016 is:
4. Office supplies at December 31, 2016 is:
5. Net carrying value of Fixed Assets at December 31, 2016 is:
6. Total assets at December 31, 2016 is:
7. Accounts payable at December 31, 2016 is:
8. Accrued expenses at December 31, 2016 is:
9. Net sales at December 31, 2016 is:
10. Total purchases at December 31, 2016 is:
11. Operating expenses at December 31, 2016 is:
12. Net income at December 31, 2016 is:
13. Capital balance at December 1, 2016 is:
14. Capital balance at December 31, 2016 is:
15. Total liabilities and capital at December 31, 2016 is:

Problem 5
The Smarter Bag Store Company prepares monthly financial statements for its bank. The
November 30 and December 31, 2016, trial balances contained the following information:

Nov. 30 Dec. 31
Dr. Cr. Dr. Cr.
Supplies 1,000 3,000
Prepaid insurance 6,000 4,250
Wages payable 10,000 15,000
Unearned rent revenue 2,000 1,000

The following information also is known:

a. The December income statement (accrual basis) reported P2,000 in supplies expense.
b. No insurance payments were made in December.
c. P10,000 was paid to employees during December for wages.
d. On November 1, 2016, a tenant paid Righter P3,000 in advance rent for the period
November through January. Unearned revenue was credited.

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Questions
1. What was the cost of supplies purchased during December?

2. What was the adjusting entry recorded at the end of December for prepaid insurance?
a. Prepaid insurance 4,250
Insurance expense 4,250
b. Insurance expense 4,250
Prepaid insurance 4,250
c. Insurance expense 1,750
Prepaid insurance 1,750
d. No adjusting entry

3. What was the adjusting entry recorded at the end of December for accrued wages?
a. Wages expense 15,000
Wages payable 15,000
b. Wages expense 10,000
Wages payable 10,000
c. Wages expense 5,000
Wages payable 5,000
d. No adjusting entry

4. What was the amount of rent revenue earned in December?

5. What adjusting entry was recorded at the end of December for unearned rent?
a. Unearned rent rev. 3,000
Rent revenue 3,000
b. Rent revenue 2,000
Unearned rent rev. 2,000
c. Unearned rent revenue 1,000
Rent revenue 1,000
d. Unearned rent revenue 2,000
Rent revenue 2,000

Problem 6
The trial balance of ARTORIGUS CO., prior to the closing of its account for the fiscal year
ended September 30, 2016 follows:

Cash P22,500
Accounts receivable 93,600
Allowance for doubtful accounts P 3,190
Note receivable 15,500
Merchandise inventory, 9/30/15 56,890
Furniture and equipment 61,800
Accumulated depreciation 18,750
Goodwill 30,000
Accounts payable 53,600
Notes payable 10,000
Capital Stock 100,000
Retained Earnings 55,250
Sales 372,000
Sales return and allowances 4,760
Purchases 215,930
Purchase return and allowances 3,650

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 Advertising 9,610
Sales salaries 28,850
Commission expense 15,200
Miscellaneous expense 2,990
Rent expense 13,000
Office salaries 19,720
Light and Water 1,500
Insurance expense 1,080
Taxes and licenses 4,780
General expense 16,340
Interest expense 4,120
Interest income 910

Your examination of the company’s account has the need for adjustments based on the
following items:

a. The cash account included a customer’s check for P1,500 deposited on September 25,
2016 but returned by the bank on September 29, 2016 for lack of countersignature. No
entry was made for the returned check.

b. Unrecorded bank charge for September 2016, P500

c. The allowance for doubtful accounts should be adjusted to 5% of the outstanding

accounts receivable balance on September 30, 2016.

d. A physical inventory of merchandise taken at the end of the fiscal year 2016 amounted
to P60,120.

e. Goods received on consignment, still unsold costing P2,000 were included in the physical
inventory.

f. The merchandise inventory on September 30, were correctly stated.

g. Depreciation of furniture and equipment at 10% annually has not been recognized.

h. Accrued salesmen’s salaries not recorded P5,000

i. An insurance policy was taken on the inventory and equipment on March 1, 2016 with
the annual insurance premium of P1,080 paid on that date.

j. Rent expense account considered of rent for the store and office space for thirteen
months starting August 1, 2016.

Based on the aforementioned data, answer the following questions;

1. The adjusting entry on item A is

a. Cash 1,500
Accounts receivable 1,500
b. Accounts payable 1,500
Cash 1,500
c. Accounts receivable 1,500
Cash 1,500
d. No adjustment

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2. The adjusting entry on item B is
a. Cash 500
Accounts receivable 500
b. Cash 500
General expenses 500
c. General Expenses 500
Cash 500
d. No adjustment

3. The adjusting entry on item C is

a. Accounts receivable 4,680
Allowance for Doubtful Accounts 4,680
b. Doubtful Accounts 1,565
Allowance for Doubtful Accounts 1,565
c. Allowance for Doubtful Accounts 1,490
Doubtful Accounts 1,490
d. Doubtful Accounts 1,490
Allowance for Doubtful Accounts 1,490

4. The adjusting entry on item D is

a. Merchandise Inv. 60,120
Income Summary 60,120
b. Merchandise Inv. 60,120
Purchases 60,120
c. Income summary 60,120
Merchandise inventory 60,120
d. No adjustment

5. The adjusting entry on item E

a. Income summary 2,000
Merchandise Inv. 2,000
b. Sales 2,000
Merchandise Inv. 2,000
c. Merchandise inventory 2,000
Income summary 2,000
d. No adjustment

6. The adjusting entry on item F is

a. Merchandise Inv. 56,890
Income summary 56,890
b. Merchandise Inv. 56,890
Purchases 56,890
c. Income summary 56,890
Merchandise inventory 56,890
d. No adjustment

7. The adjusting entry on item G is

a. Depreciation Exp. 6,180
Accumulated Depreciation 6,180
b. Accumulated Depreciation 6,180
Furniture and Equipment 6,180
c. Accumulated depreciation 6,180

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 Depreciation expense 6,180
d. No adjustment

8. The adjusting entry on item H is

a. Accrued Salaries Expense 5,000
Sales salaries 5,000
b. Accrued salaries exp. 5,000
Office salaries 5,000
c. Office salaries 5,000
Depreciation expense 5,000
d. Sales salaries 5,000
Accrued salaries expense 5,000

9. The adjusting entry on item I is

a. Insurance Exp. 630
Prepaid insurance 630
b. Prepaid insurance 630
insurance exp. 630
c. Insurance expense 450
Prepaid insurance 450
d. Prepaid insurance 450
Insurance expense 450

10. The adjusting entry on item J is

a. Rent expense 11,000
Prepaid rent 11,000
b. Prepaid rent 2,000
Rent expense 2,000
c. Prepaid rent 11,000
Rent expense 11,000
d. Rent expense 2,000
Prepaid rent 2,000

After making the adjustments compute the following:

11. Cash
12. Net realizable value of accounts receivable
13. Merchandise inventory, September 30, 2016
14. Furniture and Equipment, net of accumulated depreciation
15. Total assets, September 30, 2016
16. Cost of goods sold, September 30, 2016
17. Net income, September 30, 2016 (disregard tax effect)
18. Prepaid insurance
19. Prepaid rent

Problem 7
Selected pre-adjustment account balances and adjusting information of MERLIN COMPANY
for the year ended December 31, 2016, are as follows:

Retained earnings, January 1, 2016 440,670

Sales Salaries and Commissions 35,000
Advertising Expense 16,000
Legal Services 2,225

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 Insurance and Licenses 8,500
Travel Expense – Sales Representative 4,560
Depreciation Expense 10,900
Interest Revenue 700
Utilities expense 6,400
Telephone and Postage Expense 1,475
Supplies inventory 2,180
Miscellaneous Selling Expense 2,200
Dividends 33,000
Dividend Revenue 7,150
Interest expense 4,520
Allowance for bad debts (Cr. Balance) 370
Officers’ Salaries Expense 36,600
Sales 495,200
Sales returns and allowances 11,200
Sales discounts 880
Gain on sales of assets 18,500
Inventory, January 1, 2016 89,700
Inventory, December 31, 2016 20,550
Purchases 173,000
Freight-in 5,525
Accounts Receivable, December 31, 2016 261,000
Shares of common stock outstanding 39,000

Adjusting information:

1. Cost of inventory in the possession of consignee as of December 31, 2016, was not
included in the ending inventory balance, P33,600.

2. After 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
3%. Accounts totaling P7,480 were written off as uncollectible during the year.

3. Purchase returns and allowances amounting to 6% of purchases (not including freight-in)

were not recorded at year-end.

4. Sales commission for the last day of the year had not been accrued. Total sales for the
day, P3,600. Average sales commission as a percent of sales is 3%.
5. No accrual has been made for a freight bill received on January 3, 2017, for goods
received on December 29, 2016, P800.

6. An advertising campaign for P1,818 was initiated November 1, 2016. This amount was
recorded as “prepaid advertising” and should be amortized over a 6-month period. No
amortization was recorded.

7. Freight charges paid on sold merchandise and not passed to the buyer were netted
against sales. Freight charges on sales during 2016 is P4,200.

8. Interest earned but not accrued, P690.

9. Depreciation expense on a new forklift (estimated life is 10 years) purchased for P7,800
on March 1, 2016 had not been recognized. (Assume all equipment will have no salvage
value and the SLM is used. Depreciation is calculated to the nearest month.)

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10. A “real” account is debited upon the receipt of supplies. Supplies on hand at year-end is
P1,600.

11. Income tax rate (on all items) is 30%.

Questions
1. Net Sales is
2. Purchases net of returns and allowances is
3. Freight-in is
4. Inventory – 12/31/16 is
5. Cost of sales is
6. Sales salaries and commission is
7. Advertising expense is
8. Depreciation expense is
9. Supplies expense is
10. Doubtful accounts expense is
11. Interest revenue is

Problem 8
Presented below are unaudited balances of selected accounts of Borz Company as at
December 31, 2016 – its first year of operation. During the course of your audit of Borz’s
books you obtained additional information affecting these accounts:

Debit Credit
Cash 500,000
Accounts receivable 1,300,000
Allowance for bad debts 8,000
Sales (net) 6,750,000
Accounts payable 600,000
Purchases (net) 4,350,000
Cars and trucks 1,200,000
Machinery and equipment 950,000
Accumulated depreciation 95,000

Additional information:

a. On December 31, 2016, Borz recorded and wrote check payments to creditors
amounting to P300,000. A number of checks amounting to P150,000 were mailed on
January 3, 2017.

b. On December 28, 2016, Borz purchased and received goods amounting to P100,000,
terms 2/10, n/30. As a policy, Borz records purchases in accounts payable at net
amounts. This particular invoice was recorded and paid on January 4, 2017.

c. On December 26, 2016, a supplier authorized Borz to return goods shipped and billed at
P80,000 on December 3, 2016. The goods were returned on December 30, 2016. The
supplier’s credit memo was received and recorded on January 5, 2017.

d. Goods amounting to P50,000 were invoiced for the account of Palmes Company and
recorded on January 2, 2017 with terms of net 60 days, FOB shipping point. The goods
were shipped to Palmes on December 30, 2016.

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e. The bank returned on December 29, 2016, a customer check for P5,000 marked “No
Sufficient Fund” but no entry was made.

f. Borz estimates that allowance for uncollectible accounts should be one and one-half
percent (1½%) of the accounts receivable balance as of year-end. No provision has yet
been made for 2016.

g. All the cars and trucks were acquired on May 1, 2016 at a total cost of P1,200,000.
Borz estimates the useful life of the cars and trucks at five-years and depreciates these
assets based on 150% declining balance. As a policy, depreciation is computed to the
nearest month and rounded-off to the nearest peso. No depreciation has been recorded
for cars and trucks as at December 31, 2016.

Questions
1. The adjusted amount of Cash is:
2. The adjusted amount of Accounts Receivable is:
3. The adjusted amount of Sales – net is:
4. The adjusted amount of Purchases – net is:
5. The adjusted amount of Bad Debts Expense is:
6. The adjusted amount of 2016 Depreciation Expense – Machinery and Equipment is:
7. The adjusted amount of Accounts payable is:

Problem 9
The trial balance of DRYSTAN CORPORATION, prior to the closing of is accounts for the fiscal
year-ended September 30, 2016 follows:
DEBIT CREDIT
Cash 225,000
Accounts receivable 936,000
Allowance for doubtful accounts 31,900
Notes receivable 155,000
Merchandise inventory, Sept. 30, 2015 568,900
Furniture and Equipment 618,000
Acc. Depreciation – Furniture & Equipment 187,500
Goodwill 300,000
Accounts payable 536,000
Notes payable 100,000
Capital stock 1,000,000
Retained earnings 552,500
Sales 3,728,200
Sales returns and allowances 47,600
Purchases 2,159,300
Purchase returns and allowances 36,500
Advertising 96,100
Sales salaries 288,500
Commission expense 152,000
Miscellaneous selling expenses 29,900
Rent expense 130,000
Office salaries 197,200
Light and water 15,000
Insurance expense 10,800
Taxes and licenses 47,800
Miscellaneous general expenses 163,400
Interest expense 41,200

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 Interest income ________ 9,100
6,181,700 6,181,700

Your examination of the company’s accounts had indicated the need for adjustments based
on the following information:

1. The Cash account include a customers’ check for P15,000 deposited on September 25,
2016, but returned by the bank on September 29, 2016 for lack of countersignature. No
entry was made by the company for the return of the check or for its redeposit on
October 5, 2016.

2. The Allowance for Doubtful Accounts should be adjusted to 5% of the customers’

outstanding balances on September 30, 2016.

3. A physical inventory taken of the merchandise stock as of the end of the fiscal year
amounted to P601,200.

4. A purchase of merchandise FOB shipping point, for which goods costing P40,000 were
still in transit on September 30, 2016 was neither taken as a liability nor included in the
inventory on that date.

5. Goods received on consignment, still unsold, were included in the inventory at the
agreed selling price of P24,000.

6. The merchandise inventory at September 30, 2015 was correctly stated.

7. On July 1, 2016, equipment acquired on October 1, 2013 with a book value of P32,000
on September 30, 2015 was sold for P35,000 in cash. The sales proceeds were credited
to the Furniture and Equipment account.

8. Depreciation for the fiscal year 2015-2016 has not been recorded. Depreciation rate
being used is 10% annually.

9. An insurance policy was taken on the inventory and equipment on April 1, 2016 with the
annual premium of P10,800 paid on that date.

10. Rent expense account consisted of rent paid for stock and office space for thirteen (13)
months ending October 31, 2016.

11. The 120-day Note Payable of P100,000 bearing interest of 12% was discounted at the
bank on September 1, 2016.

12. The Goodwill account was set-up by a credit to Retained Earnings under a resolution of
the Board of Directors.

Questions
1. Cash for the fiscal year-ended September 30, 2016 is:
2. Accounts receivable for the fiscal year-ended September 30, 2016 is:
3. Allowance for doubtful accounts for the fiscal year-ended September 30, 2016 is:
4. Merchandise inventory for the fiscal year-ended September 30, 2016 is:
5. Book value of the Furniture and Equipment for the fiscal year-ended September 30,
2016 is:
6. Goodwill for the fiscal year-ended September 30, 2016 is:

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7. Accounts payable for the fiscal year-ended September 30, 2016 is:
8. Net income for the fiscal year-ended September 30, 2016 is:
9. Retained earnings for the fiscal year-ended September 30, 2016 is:
10. Insurance expense for the fiscal year-ended September 30, 2016 is:

Problem 10
Your audit client, Eachtar Corporation, presents to you the unadjusted trial balance shown
below, which was drawn from its general ledger as at June 30, 2016, the end of its fiscal
year.
Eachtar CORPORATION
Unadjusted Trial Balance
June 30, 2016
Cash 721,800
Trading Securities 200,000
Accounts receivable 2,128,000
Inventory, June 30, 2015 5,194,300
Invest. in associates (Equity Method) 1,200,000
Equipment 1,621,000
Prepaid expenses 116,200
Goodwill 500,000
Accounts payable 2,426,400
Accrued expenses 152,600
Accrued interest payable 226,000
Allowance for bad debts 36,100
Allowance for depreciation 450,700
Loans payable 2,500,000
Capital stock 3,000,000
Additional paid-in capital 260,000
Retained earnings 1,808,800
Sales 21,602,000
Interest income 140,000
Purchases 13,928,000
Salaries and wages 3,250,000
Rent, light and water 750,000
Advertising 400,000
Supplies 300,000
Taxes 250,000
Miscellaneous expenses 1,793,300
Interest expense 250,000 _________
32,602,600 32,602,600

Your examination of the accounts disclosed the following information:

1. The cash account included an NSF check returned by the bank on June 30, 2016, but
recorded as a cash reduction in July, 2016, P44,000, and a voucher for suppliers paid in
cash on June 27, 2016 but not entered in the books, P26,500.

2. Marketable Securities which cost P200,000 have a market value of P210,000. Long-
Term Investments have a market value of P1,250,000 as at Statement of Financial
Position date.

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3. The company has been providing an allowance for bad debts at 5% of the outstanding
customers’ balances. Uncollectible accounts were charged off against the allowance
during the year.

4. A physical inventory taken by management personnel of the merchandise stock at June

30, 2016 totaled P5,751,900. You were unable to observe the inventory-taking as your
services were engaged only on July 15, 2016. Due to the condition of the accounting
records and internal accounting controls, you were also unable to satisfy yourself as to
the inventory.

5. Equipment no longer needed (cost, P150,000; accumulated depreciation, P45,000) was

sold for P100,000 cash on June 29, 2016; the cash proceeds were credited to the
Equipment account. Equipment is depreciated at 10% a year on a monthly basis
computed at year-end.

6. Prepaid expenses included insurance premium of P30,000 paid on April 1, 2016 on a

one-year fire insurance policy.

7. Salaries unpaid as of June 30, 2016, P13,000 were not taken up under accrued
expenses.

8. The Goodwill account was set-up with a credit to Retained Earnings on the basis of a
resolution of the Board of Directors.

9. A 10% cash dividend declared on June 15, 2016, payable on July 31, 2016, has not
been recorded.

10. The Board of Directors approved a resolution on June 25, 2016 appropriating out of
Retained Earnings the amount of P300,000 to meet possible future losses on inventories.

Questions
1. Cash for the fiscal year-ended June 30, 2016 is:
2. Marketable securities for the fiscal year-ended June 30, 2016 is:
3. Accounts receivable for the fiscal year-ended June 30, 2016 is:
4. Allowance for doubtful accounts for the fiscal year-ended June 30, 2016 is:
5. Inventory for the fiscal year-ended June 30, 2016 is:
6. Equipment for the fiscal year-ended June 30, 2016 is:
7. Accumulated depreciation for the fiscal year-ended June 30, 2016 is:
8. Retained earnings before net income for the fiscal year-ended June 30, 2016 is:
9. Retained earnings after net income for the fiscal year-ended June 30, 2016 is:
10. The auditor should issue a(an):
a. Unqualified Opinion c. Qualified Opinion
b. Unqualified Opinion with explanatory paragraph d. Adverse Opinion

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