GIALOGO, JESSIE LYN
San Sebastian College – Recoletos
Quiz
1. Karen Company reported net income for a 2-year period as follows:
2017 - Php 6,000,000 2018 - Php 8,000,000
In an audit of its financial statement for the year 2017, the following errors were discovered:
Bad debt expense of Php 11,000 was not recorded in 2017
Depreciation expense in 2018 was overstated by Php 14,000
Depreciation expense in 2017 was understated by Php 12,000
The company leased a portion of its building for Php 480,000. The term of the lease is for
a 12 months period ending April 30, 2018. Collection of rent was credited to unearned rent
revenue account. At the end of 2017, no entry was made to recognize the earned portion of
the amount collected
The company paid a 12-month insurance period of Php 240,000 effective April 1, 2017.
The entire amount was recognize to an asset account and no adjustment was made at the end
of 2017.
Required: Answer the following:
1. Compute for the adjusted net income for 2017 and 2018 and the Retained Earnings as of
December 31, 2017 and December 31 ,2018.
Net Income 2017 = P5,797,000
Net Income 2018 = P8,274,000
Retained Earnings 2017 = P(203,000)
Retained Earnings 2018 = P(274,000)
Note: Please see attach photos for solution.
2. Give the effect of the errors in the 2017 working capital
Effects of Error in 2017
Unrecorded Bad Debt Expense Overstated
Understated Depreciation Expense Overstated
Insurance Expense Overstated
3. Prepare the adjusting entries assuming the errors were discovered in (a) 2017; (b) 2018
and (c) 2019
2017
Bad Debt Expense 11,000
Allowance for Bad Debts 11,000
#
Depreciation Expense 12,000
Accumulated Depreciation 12,000
#
Unearned Revenue 320,000
Rent Income 320,000
#
Insurance Expense 180,000
Prepaid Insurance 180,000
2018
Retained Earnings 11,000
Allowance for Bad Debts 11,000
#
Accumulated Depreciation 14,000
Depreciation Expense 14,000
#
Retained Earnings 12,000
Accumulated Depreciation 12,000
#
Insurance Expense 60,000
Retained Earnings 180,000
Prepaid Insurance 240,000
Unearned Rent Revenue 320,000
Rent Revenue 320,000
2019
Retained Earnings 11,000
Allowance for Bad Debts 11,000
#
Retained Earnings 12,000
Accumulated Depreciation 12,000
#
Retained Earnings 240,000
Prepaid Insurance 240,000
#
Accumulated Depreciation 14,000
Retained Earnings 14,000
#
Unearned Rent Revenue 320,000
Rent Revenue 320,000
2. The accountant for the Karen Company assembled the following data:
June 30 July 31
Cash account balance P 15,822 P 39,745
Bank statement balance 107,082 137,817
Deposits in transit 8,201 12,880
Outstanding checks 27,718 30,112
Bank service charge 72 60
Customers check deposited July 10,
returned by bank on July 16 marked NSF,
and redeposited immediately: no entry made
on books for return or redeposit 8,250
Collection by bank of company's notes receivable 71,815 80,900
The bank statements and the company’s cash records show these totals:
Disbursements in July per bank statement P 218,373
Cash receipts in July per Karen’s books 236,452
QUESTIONS:
Based on the application of the necessary audit procedures and appreciation of the above data,
you are to provide the answers to the following:
1. How much is the adjusted cash balance as of June 30? P 87,565
2. How much is the adjusted bank receipts for July? .P245,537
3. How much is the adjusted book disbursements for July? P212,517
4. How much is the adjusted cash balance as of July 31? P120,585
5. How much is the cash shortage as of July 31? 0
Note: Please see attach photos for solution.
3. In the audit of Karen Company’s cash account, you obtained the following information:
The company’s bookkeeper prepared the following bank reconciliation as of November 30,
2018:
Bank balance – November 30, 2018 P90,800
Undeposited collections 5,000
Bank service charges 100
Bank collection of customer’s note (8,000)
Outstanding checks:
Amoun
Number
t
1159 P3,000
1767 5,000
1915 2,000 __(10,000)
Book balance – November 30,
P77,900
2018
Additional data are given as follows:
1. Company recordings for December:
Total collections from customers P 165,000
Total checks drawn 98,000
2. Bank statement totals for December:
Charges P 123,800
Credits 169,000
3. Check no. 1159 dated November 25, 2018, was entered as P3,000 in payment of voucher for
P30,000. Upon examination of the checks returned by the bank, the actual amount of the check
was P30,000.
4. Check no. 2113 dated December 20, 2018 was issued to replace a mutilated check (no. 1767),
which was returned by the payee. Both checks were recorded in the amount drawn, P5,000, but
no entry was made to cancel check no. 1767.
5. The December bank statement included a check drawn by Sipag Company for P1,500.
6. Undeposited collections on December 31, 2018 - P8,000.
7. The service charge for December was P150 which was charged by the bank to another client.
8. The bank collected a note receivable of P7,000 on December 28, 2010, but the collection was
not received on time to be recorded byPasig.
9. The outstanding checks on December 31, 2018, were:
Check
Amount Check No. Amount
No.
1767 P5,000 2910 P2,300
2856 1,300 2925 4,100
QUESTIONS:
Based on the above and the result of your audit, determine the following:
1. Unadjusted cash balance per books as of December 31, 2018? P152,800
2. Adjusted cash balance as of November 30, 2018? P63,800
3. Adjusted book receipts for December 2018? P172,000
4. Adjusted bank disbursement for December 2018? P98,150
5. Adjusted cash balance as of December 31, 2018===? P137,650
Note: Please see attach photos for solution.
4. You obtained the following information on the current account of Karen Company during
your examination of its financial statements for the year ended December 31, 2018.
The bank statement on November 30, 2018 showed a balance of P306,000. Among the bank
credits in November was a customer’s note for P100,000 collected for the account of the
company which the company recognized in December among its receipts. Included in the bank
debits were cost of checkbooks amounting to P1,200 and a P40,000 check which was charged by
the bank in error against Karen Co. account. Also in November you ascertained that there were
deposits in transit amounting to P80,000 and outstanding checks totaling P170,000.
The bank statement for the month of December showed total credits of P416,000 and total
charges of P 204,000. The company's books for December showed total debits of P735,600, total
credits of P407,200 and a balance of P485,600. Bank debit memos for December were: No. 121
for service charges, P1,600 and No. 122 on a customers returned check marked “Refer to
Drawer” for P24,000.
December 31, 2018 the company placed with the bank a customer’s promissory note with a face
value of P120,000 for collection. The company treated this note as part of its receipts although
the bank was able to collect on the note only in January, 2019. A check for P3,960 was recorded
in the company cash payments books in December as P39,600.
QUESTIONS:
Based on the application of the necessary audit procedures and appreciation of the above data,
you are to provide the answers to the following:
1. How much is the undeposited collections as of December 31, 2018? P219,600
2. How much is the outstanding checks as of December 1, 2018? P361,960
3. How much is the adjusted cash balance as of November 30, 2018? P256,000
4. How much is the adjusted bank receipts for December? P515,600
5. How much is the adjusted book disbursements for December? P395,960
6. How much is the adjusted cash balance as of December 31, 2018? P375,640
Note: Please see attach photos for solution.
5. On January 1, 2018, Karen Company sold an office equipment with a cost of Php 1,000,000
and accumulated depreciation of Php 150,000 in exchange for a 3-year 10% Php 2,000,000 note
receivable. Principal is due on December 31, 2020 but interest is due annually every July 1 and
December 31. The prevailing interest rate for this type of note is 12%.
Required: Based on the above data, compute for the following:
1. How much is the gain or loss on sale of office equipment in 2018? P1,051,730
2. How much is the interest income for 2018? P229,054
3. How much is the carrying amount of the note on December 31, 2018? P1,930,784
4. How much is the current portion of the note on December 31, 2018? 0
5. How much is the non-current portion of the note on December 31, 2018? P1,930,784
Note: Please see attach photos for solution.
6. On January 1, 2018, Karen Company sold a delivery equipment costing Php 1,000,000 with
accumulated depreciation of Php 150,000 in exchange for a 3-year Php 1,800,000 on-interest
bearing note receivable due as follows:
Expected Date of
Amount of Cash Flow
Collection
December 31, 2018 Php 1,000,000
December 31, 2019 Php 600,000
December 31, 2020 Php 200,000
The prevailing rate of interest for this type of loan is 12%.
Required: Based on the above data, compute for the following:
1. How much is the gain or loss on sale of delivery equipment in 2018? P663, 580
2. How much is the interest income for 2018? P181,630
3. How much is the carrying amount of the note on December 31, 2018? P695,210
4. How much is the current portion of the note on December 31, 2018? P600,000
5. How much is the non-current portion of the note on December 31, 2018? P200,000
Note: Please see attach photos for solution.
7.On September 1 of the current year, Karen Company borrowed Php 900,000 for one year from
Jaja Company with a 10% stated interest rate. As a security for the loan, Karen Company
hypothecated its accounts receivable amounting to Php 1,200,000. Jaja Company deducted the
one-year interest in advance.
How much cash is received on September 1 as a result of pledging of account receivable.
Face Value P900,000
Interest Deducted (90,000)
Net Proceeds P180,000
8. On December 31, 2018 Karen Company assigned specific accounts receivable totaling Php
200,000 s collateral on a Php 150,000, 12% note from a certain bank. Karen Company will
continue to collect the assigned accounts receivable. In addition to the interest of the note, the
bank also charged a 5% finance fee deducted in advance on the Php 150,000 value of the note.
The December collections of assigned accounts receivable amounted to Php 100,000 less cash
discounts of Php 5,000. On December 31, 2018, Karen Company remitted the collection to the
bank in payment for the interest accrued on December 31, 2018 and the note payable.
Required: Based on the above data, compute for the following:
1. What amount of cash was received from the assignment of accounts receivable on
December 1, 2018? P140,000
2. What is the carrying amount of note payable on December 31, 2018? P73,000
3. What amount should be disclosed as the equity of Karen Company assigned accounts on
December 31,2018? P27,000
Note: Please see attach photos for solution.
9. The Karen Company is on a calendar year basis. The following data were found during your
audit:
Goods in transit shipped FOB destination by a supplier, in the amount of P100,000 had
been excluded from the inventory, and further testing revealed that the purchase had been
recorded.
Goods costing P50,000 had been received, included in inventory, and recorded as
purchase. However, upon your inspection the goods were found to be defective and would be
immediately returned.
Materials costing P250,000 and billed on December 30 at a selling price of P320,000, had
been segregated in the warehouse for shipment to a customer. The materials had been
excluded from inventory as a signed purchase order had been received from the customer.
Terms, FOB destination.
Goods costing P70,000 was out on consignment with Klaire Company. Since the monthly
statement from Klaire Company listed those materials as on hand, the items had been
excluded from the final inventory and invoiced on December 31 at P80,000
The sale of Pl50,000 worth of materials costing P120,000 had been shipped FOB point of
shipment on December 31. However, this inventory was found to be included in the final
inventory. The sale was properly recorded in 2018.
Goods costing Pl00,000 and selling for P140,000 had been segregated, but not shipped at
December 31, and were not included in the inventory. A review of the Customer’s purchase
order set forth terms as FOB destination. The sale had not been recorded.
Your client has an invoice from a supplier, terms FSB shipping point but the goods had
not arrived as yet. However, these materials costing P170,000 had been included in the
inventory count, but no entry had been made for their purchase.
Merchandise costing P200,000 had been recorded as a purchase but not included as
inventory. Terms of sale are FOB shipping point according to the supp1ier’s invoice which
had arrived at December 31.
Further inspection of the client’s records revealed the following December 31, 2018 balances;
Inventory, P1,100,000; Accounts receivable, P580,000); Accounts payable, P690,000; Net
sales,P5,050,000; Net purchases, P2,300,000; Net income, P510,000.
QUESTIONS:
Based on the above and the result of your audit, determine the adjusted balances of following
as of December 31, 2018:
1. Inventory = P1,550,000
2. Accounts payable = P710,000
3. Net sales = P4,650,000
4. Net purchases = P2,320,000
5. Net Income= P540,000
Note: Please see attach photos for solution.
10. The Karen Company values its inventory at the lower of FIFO cost or net realizable value
(NRV). The inventory accounts at December 31, 2017, had the following balances.
Raw materials P 650,000
Work in process 1,200,000
Finished goods 1,640,000
The following are some of the transactions that affected the inventory of the Company during
2018.
Jan. 8 Karen purchased raw materials with a list price of P200,000 and was given a trade
discount of 20% and 10%; terms 2/15, n/ 30. Karen values inventory at the net invoice price
Feb. 14 Karen repossessed an inventory item from a customer who was overdue in making
payment. The unpaid balance the sale is P15,200 The repossessed merchandise is to be refinished
and placed on sale. It is expected that the item can be sold for P24,000 after estimated refinishing
cost of P6,000. The normal profit for this item is considered to be P3,200.
Mar. 1 Refinishing costs of P6,400 were incurred on the repossessed item.
Apr. 3 The repossessed item was resold for P24,000 on account, 20% down.
Aug. 30 A sale on account was made of finished goods that have a list price of P59,200 and a
cost P38,400. A reduction of P8,000 off the list price was granted as a trade-in allowance. The
trade in item is to be priced to sell at P6,400 as is. The normal profit on this type of inventory is
25% of the sales price.
QUESTIONS:
Based on the above and the result of your audit, answer the following
1. The entry on Jan. 8 will include a debit to Raw Materials Inventory of P141,120
2. The repossessed inventory on Feb. 14 is most likely to be valued at P14,800
3. The journal entries on April 3 is?
Cash 4,800
Accounts Receivable 19,200
Repossessed Inventory 24,000
#
Cost of Repossessed Inventory 21,200
Repossessed Inventory 21,200
4. The trade-in inventory on Aug. 30 is most likely to be valued at P4,800
5. How much will be recorded as Sales on Aug. 30? P56,000
Note: Please see attach photos for solution.
11. Karen Factory started operations in 2010. It manufactures bath towels. 60% of the production
are “Class A” which sell for P500 per dozen and 40% are “Class B” which sell for P250 per
dozen. During 2010, 6,000 dozens were produced at an average cost of P360 per dozen. The
inventory at the end of the year was as follows:
220 dozens “C1ass A” @ P360 P 79,200
300 dozens “Class B” @ P360 108,000
P187,200
QUESTIONS:
Using the relative sales value method, which management considers as a more equitable basis of
cost distribution, answer the following:
How much of the total cost should be allocated to Class A? P1,620,000
How much of the total cost should be allocated to Class B? P540,000
How much is the value of the inventory as of December 31, 2018? P166,500
How much is the cost of sale as of December 31, 2018? P1,993,500
How much is the gross profit in 2018? P221,500
Note: Please see attach photos for solution.
12. During 2018, you were engaged to audit Karen Farms Incorporation who produces milk
from its farm. The company produces 20% of the community’s milk that it consumed while
owning 5 farms and had a stock of 2,100 cows and 1,050 heifers. The farm produces 800,000
kilograms of milk a year and the average inventory held is 15,000 kilograms of milk. However,
on December 31, 2018, the entity is currently holding 50,000 kilograms of powdered milk. On
December 31, 2018, the biological assets are as follows:
Purchased before January 1,
3 years old 2,100 cows
2018
Purchased on January 1, 2018 2 years old 300 heifers
Purchased on July 1, 2018 1.5 years old 750 heifers
No animals were born or sold during the current year. The unit fair value less costs to sell are as
follows:
January 1, 2018
1 year old Php 3,000
2 year old Php 4,000
July 1, 2018
1 year old Php 3,000
December 31, 2018
1 year old Php 3,200
2 year old Php 4,500
1.5 year old Php 3,600
3 year old Php 5,000
The entity has had problems during the year. Contaminated milk was sold to customers. As a
result, milk consumption had gone down. The entity business spread over different parts of the
country. The only region affected by the contamination was in Pangasinan. However, the cattle
in this area were unaffected by the contamination and were found healthy. The entity feels that it
cannot measure the fair value of the cows in the region because of the problems created by the
contamination. There are 600 cows and 200 heifers in the farm and all of these animals had been
purchased on January 1, 2018.
Questions: Based on the above facts, compute for the following:
1. What is the fair value of biological assets on January 1, 2018?
2. What is the fair value of biological assets purchased on July 1, 2018?
3. What is the fair value of the biological assets on December 31, 2018?
4. What is the increase in the fair value of biological assets on December 31, 2018?
5. What is the increase in fair value of biological assets due to physical change?
6. What is the increase in fair value of biological assets due to price change?
13. On January 1, 2018, Karen Company has a piece of land acquired a year ago at a cost of Php
600,000 and a fair value of Php 700,000. On March 31, 2018, the company exchange the land for
a financial asset to be initially recognized at fair value through other comprehensive income. At
the time of exchange, the shares, which was publicly listed has a fair value of Php 820,000.
Required: Based on the above, answer the following:
1. How much is the gain (loss) on exchange to be recognize in 2018?
Investment on financial asset P820,000
Land- Asset given up (700,000)
Gain on Exchange P120,000
2. The journal entry on March 31.
Investment on Financial Asset P820,000
Land 700,000
Gain on Exchange 120,000
14. On January 1, 2018, Karen Company has an investment in equity designated as FVTOCI
with a fair value of Php 600,000. These securities were acquired a year ago at a cost of Php
625,000. On March 31, 2018, Karen Company exchanged these securities for a piece of land
from Klaire Company. The carrying amount of the land in the book was Php 480,000 and a zonal
value of Php 800,000. At the time of exchange, the shares, which was publicly listed has a fair
value of Php 650,000.
Required: Based on the above, answer the following:
1. How much is the gain (loss) on exchange to be recognize in 2018 equity?
Trading Security P650,000
Land (800,000)
Loss on exchange P150,000
2. The journal entry on March 31.
Trading Security P650,000
Loss on Exchange 150,000
Land 800,000
15. At December 31, 2017, Karen Company properly reported the following trading securities:
Cost Market Value
EA Corporation 1,000 preference
Php 40,000 Php 30,000
shares
DJA 6,000 ordinary share Php 60,000 Php 90,000
RVE 2,000 ordinary share Php 55,000 Php 80,000
During 2018, the following transactions occurred:
January 5 – Acquired 8,000 shares of AR Company for Php 880,000 incurring an
additional cost of Php 10,000 for brokerage and another Php 10,000 for commissions. These
shares are to be initially recognized as trading securities
February 14 - Received dividends from AR Company declared on January 10, 2018 at
Php 16,000
March 18 – Received dividends of Php 2/share from DJA Company
November 15 – Sold 2,500 shares of DJA Company for Php 50,000. Commissions and
taxes for Php 5,000 were paid for the sale.
December 15 – Recorded a transfer f all remaining DJA Company shares to FVTOCI
when the fair value was Php 14.
On December 31, 2018, the following are the available market values per share:
EA Corporation – Php 50
DJA Company – Php 15
RVE – Php 45
AR Company – Php 100
Required: Based on the above, answer the following:
1. The correct cost of investment acquired on January 5.
2. The total dividend income during the year
3. The gain (loss) on sale of DJA Company
4. The unrealized gain (loss) and where do we present this unrealized gain (loss) at the end
of the year
5. The total adjusted carrying value of the investment at the end of the year.
The End!
