Ateneo de Naga University College of Business and Accountancy Department of Accountancy FINANCIAL ACCOUNTING THEORY AND PRACTICE CASH

& RECEIVABLES ASSESSMENT TEST Summer, SY 2009-2010 16 April 2010

GOOD LUCK! Multiple Choice (40 pts.) Instruction: Please read the questions and choices carefully and on the attached answer sheet shade the letter of your choice. 1. Which of the following items used to reconcile the cash account does require an adjusting entry? a. Deposit in transit c. Outstanding Check b. Postdated check d. Check charged to account in error 2. As part of the internal control, Thumbs Up Company established a petty cash fund using the fluctuating fund system as its model. The entry to replenish the petty cash fund is a. debit Expenses, credit Cash c. debit Cash, credit Petty Cash b. debit Petty Cash, credit Cash d. debit Cash, credit Expenses 3. Which of the following would not be classified as cash? a. Personal checks c. Cashiers' checks b. Travelers' checks d. Postdated checks 4. In a bank reconciliation, collection of a note made by the bank not recognized by the company is a. deducted from the book balance c. deducted from the bank balance b. added to the bank balance d. added to the book balance 5. Which of the following items used to reconcile the cash account does not require an adjusting entry? a. deposit erroneously credited to account c. bank collection of notes receivable b. bank service charge d. DAIF check 6. The statement that correctly describes the reporting of cash is a. Cash cannot be combined with cash equivalents b. Restricted cash funds may be combined with cash c. Cash is listed first in the current asset section d. Restricted cash funds cannot be reported as a current asset 7. An accountants first assignment as a staff with a local CPA firm is to prepare the bank reconciliation for a client firm. One of the relevant information provided is a check written on the account of a customer of the client returned by the clients bank marked DAIF worth P2,000. Which of the following is the correct adjusting entry? a. Cash 2,000 Accounts Receivable 2,000 b. Accounts payable 2,000 Cash 2,000 c. Cash 2,000 Accounts Payable 2,000 d. Accounts Receivable 2,000 Cash 2,000 8. Statement 1 - Certificates of deposit and money market savings certificates are examples of time deposits. Statement 2 - A bank reconciliation should be prepared by the individual responsible for cash receipts and disbursements. a. Both statements are true c. Statement I is true, Statement II is false b. Both statements are false d. Statement II is true, Statement I is false 9. In reimbursing the petty cash fund, which of the following is true? a. cash is debited c. petty cash is debited b. petty cash is credited d. expense accounts are debited 10. Which means that the check has been merely drawn and recorded but not given to the payee at the end of the reporting period? a. Undelivered check c. Stale check b. Postdated check delivered d. Outstanding check 11. The balance in Accounts Receivable is not reduced in recording which of the following types of financing arrangements? a. Assignment of specific accounts receivable b. General assignment of accounts receivable c. Factoring of accounts receivable d. Transfer of accounts receivable without recourse 12. Which valuation allowance is not a proper deduction from trade accounts receivable in arriving at net realizable value? a. allowance for doubtful accounts c. allowance for sales discount b. allowance for sales return d. allowance for depreciation 13. If a company employs the gross method of recording accounts receivable from customers, then sales discounts taken should be a. reported as a deduction from sales in the income statement b. reported as an item of other expense in the income statement c. reported a deduction from accounts receivable in determining the net realizable value of accounts receivable d. reported as sales discounts forfeited in the cost of goods sold section of the income statement
TA-Assessment Test I S/Y 2009-2010 Summer Page 1 of 6

14. The entry Accounts Receivable xxx Allowance for Uncollectible Accounts xxx would be made when a. a customer pays its account balance. b. a customer defaults on its account. c. a previously defaulted customer pays its outstanding balance. d. estimated uncollectible receivables are too low. 15. One of the following statements about promissory notes is incorrect. The incorrect statement is a. The party making the promise to pay is called the maker. b. The party to whom payment is to be made is called the payee. c. A promissory note is not a negotiable instrument. d. A promissory note is more liquid than an accounts receivable. 16. Net realizable value of inventory is defined as the net amount that an enterprise expects to realize from the sale of the inventory a. In the ordinary course of operations less estimated costs of completion and costs necessary to make the sale. b. Plus the estimated costs of completion plus the estimated costs necessary to make the sale c. In a forced sale d. Plus the estimated costs of completion. 17. Which of the following is true when accounts receivable are factored without recourse? a. The transaction may be accounted for either as a secured borrowing or as a sale, depending upon the substance of the transaction. b. The receivables are used as collateral for a promissory note issued to the factor by the owner of the receivable. c. The factor assumes the risk of collectibility and absorbs any credit losses in collecting the receivables. d. The financing cost (interest expense) should be recognized ratably over the collection period of the receivables. 18. The allowance method of recognizing bad debts expense (as opposed to the direct write-off method) can be applied in more than one way. What two conditions must be met before the allowance method can be used? a. Bad debts must be expected and material b. Bad debts must be relevant and reliable c. Bad debts must be probable and estimable d. Bad debts must be consistent over time and the method used to estimate then must be consistently applied. 19. These are receivables consisting of open accounts with customers. a. trade receivables c. accounts receivables b. nontrade receivables d. notes receivables 20. Which of the following is technically not a method to generate cash from accounts receivable? a. pledging c. factoring b. assignment d. discounting 21. The following information refers to the financial records of Space City Enterprises as of December 31 Cash balance per books P3,480 Cash balance on bank statement 3,280 Deposits in transit 1,200 Outstanding checks 810 Cash collections of notes receivable for depositors 730 Dishonored checks due to nonsufficient funds 480 Bank service charges 60 How much is the correct cash balance as of December 31? a. P3,470 c. P3,670 b. P3,530 d. P3,870 22: Ateneo Company had the following bank reconciliation at March 31: Balance per bank statement, 3/31 P 93,000 Add: Deposit in transit 20,600 P113,600 Less: Outstanding checks (25,200) Balance per books, 3/31 P 88,400 Data per bank statement for the month of April follow: Deposits P116,800 Disbursements 99,400 All reconciliation items at March 31 cleared through the bank in April. Outstanding checks at April 30 totaled P15,000. What is the amount of cash disbursements per books in April? a. P99,400 c. P109,600 b. P89,200 d. P114,400 23. The cash account shows a balance of P450,000 before reconciliation. The bank statement does not include a deposit of P23,000 made on the last day of the month. The bank statement shows a collection by the bank of P9,400 and a customers check for P3,200 was returned because it was NSF. A customers check for P4,500 was recorded on the books at P5,400, and a check written for P790 was recorded as P970. The correct cash balance in the cash account was a. P455,120 c. P457,280 b. P455,480 d. P478,480 24. Boyer International is currently preparing its financial statements for 2010. The company has several different sources of cash and is trying to decide how to classify them. The sources of cash is as follows:
TA-Assessment Test I S/Y 2009-2010 Summer Page 2 of 6

P30,000 in a checking account with the First National Bank P3,000 in checks dated December 4, 2010 received from customers P250,000 in certificates of deposit through the First National Bank that are to mature on November 15, 2011. P40,000 in a savings account with the First National Bank P1,000 in the petty cash fund. As of December 31, 2010, there are receipts totaling P600 in the petty cash drawer. P50,000 held as a compensating balance for a loan with the First National Bank. The loan agreement requires Boyer International to maintain a compensating balance equal to 10% of the loan balance. P8,000 credit balance in a checking account with Interstate Federal Savings. How much will be recognized as Cash and Cash Equivalents on December 31, 2010? a. P73,400 c. P73,600 b. P123,400 d. P65,400 25. Volume Company had the following cash balance at December 31, 2008: Undeposited coins and currency P 35,000 Unrestricted demand deposits 1,450,000 Company checks written (and deducted from the demand deposits amount) but not scheduled to be mailed until January 2 270,000 Time deposits restricted for use (expected use in 2009) 3,000,000 In exchange for a guaranteed line of credit, Volume has agreed to maintain a minimum balance of P150,000 in its unrestricted demand deposits account. How much should Volume report as Cash in its December 31, 2008 balance sheet? a. P1,755,000 c. P3,305,000 b. P3,270,000 d. P4,755,000 26. Aries Corporation keeps all its cash in a checking account. An examination of the companys accounting records and bank statement for the month ended June 30, 1998 revealed the following information: a. The cash balance per book on June 30 is P850,000. b. A deposit of P100,000 that was placed in the banks night depository on June 30 does not appear on the bank deposit. c. The bank statement shows on June 30, the bank collected a note for Aries and credited the proceeds of P95,000 to the companys account. d. Checks outstanding on June 30 amount to P30,000. e. Aries discovered that a check written in June for P20,000 in payment of an account payable had been recorded in the companys record as P2,000. f. Included with the June bank statement was an NSF check for P25,000 that Aries had received from a customer on June 26. g. The bank statement shows a P2,000 service charge for June. The cash in bank to be shown on the balance sheet on June 30, 1998 is a. 900,000 c. 936,000 b. 830,000 d. 918,000 27. In preparing the bank reconciliation of Francis Company for the month of July, the following information is available: Checkbook balance, 7/31 100,000 Bank statement balance, 7/31 140,000 Collection of note made by the bank during July 50,000 Bank service charges for July 10,000 What is the correct cash balance at July 31? a. P90,000 c. P140,000 b. P100,000 d. P150,000 28. The following information pertains to Levesque Company at December 31, 2001: Checkbook balance 120,000 Bank statement 130,000 Checks drawn on Levesques account payable to vendor, dated and recorded 12/31/01 but not mailed until 1/20/02 18,000

TA-Assessment Test I S/Y 2009-2010 Summer

Page 3 of 6

On Levesques balance sheet at December 31, 2001, how much should be shown as cash? a. P 102,000 c. P 138,000 b. P 148,000 d. P 112,000 29 In preparing its bank reconciliation for the month of February, James Company has available the following information: Balance per bank statement, February 28 ................. P18,025 Deposit in transit, February 28 ......................... 3,125 Outstanding checks, February 28 ......................... 2,875 Check erroneously deducted by bank from James' account, 125 February 10 ........................................... Bank service charges for February ....................... 25 What is the corrected cash balance at February 28? a. P18,400 c. P18,275 b. P18,150 d. P18,125 30. The following items were included as cash in the books of Amora Co.: Checking account at BDO P (2,400) Checking account at Metrobank 5,335 Checking account at PS Bank used for payment of dividends 5,500 Postage stamps 107 Customer's postdated check 2,300 I.O.U. from an employee 200 Stale check 1,250 Postal money order 500 Petty cash fund (the company has not replenished the fund to the imprest account of P500) 176 Cash surrender value 5,000 Cash accumulated in a special fund that will be used for plant expansion 1,500 The correct amount that should be included as unrestricted cash on the balance sheet is a. P 11,835 c. P 4,811 b. P 6,011 d. P 11,511 31. Apex Company accepted from a customer P1,000,000 face amount, 6-month, 8% note dated April 15, 2004. On the same date Apex discounted the note at Union Bank at a 10% discount rate. How much cash should Apex receive from the bank on April 15, 2004? a. P1,040,000 c. P988,000 b. P990,000 d. P972,000 Use the following problem to answer the independent situations in Question No. 32 33: The following information was abstracted from the records of the Hooper Corporation: Accounts Receivable, December 31, 2010 P 590,000 Allowance for Doubtful Accounts before adjustment, December 31, 2010 18,000 (dr) Sales2010 2,180,000 Sales Discounts2010 18,000 Sales Returns2010 27,000 32. How much is the doubtful accounts expense at December 31, 2010 assuming 1.5 percent of 2010 net sales are uncollectible? a. P32,025 c. P32,295 b. P32,700 d. P32,430 33. How much is the doubtful accounts expense at December 31, 2010 assuming 3 percent of outstanding accounts receivable are uncollectible? a. P17,700 c. P30,000 b. P35,700 d. P18,000 Use the following problem to answer Question No. 34 35 On September 1, Riva Co. assigns specific receivables totaling P750,000 to Pacific Bank as collateral on a P625,000, 12 percent note. Riva Co. will continue to collect the assigned accounts receivable. Pacific also assesses a 2 percent service charge on the total accounts receivable assigned. Riva Co. is to make monthly payments to Pacific with cash collected on assigned accounts receivable. Collections of assigned accounts during September totaled P260,000 less cash discounts of P3,500. 34. What were the proceeds from the assignment of Riva's accounts receivable on September 1? a. P610,000 c. P625,000 b. P612,500 d. P735,000 35. What amount is owed to Pacific by Riva Co. for September collections plus accrued interest on the note to September 30? a. P260,000 c. P264,000 b. P262,750 d. P266,250 36. Vanette Company recorded bad debts expense of P20,000 during 2009. The allowance for bad debts had a balance of P17,500 on December 31, 2008. During the year 2009, Vanette wrote off P30,500 of uncollectible receivables and recovered P8,050 of bad debts written off in prior years. How much will be the allowance for bad debts at December 31, 2009? a. P7,000 c. P19,050 b. P15,050 d. P45,550 37. On December 31, 2009, Pope Co. sold a machine to Saint Co. in exchange for a non-interest bearing note requiring ten annual payments of P50,000. Saint made the first payment on December 31, 2010. The market interest rate for similar notes at date of issuance was 8%. Information on present value factors is as follows: Period Present Value of P1 @ 8% Present Value of Ordinary Annuity of P1 @ 8%
TA-Assessment Test I S/Y 2009-2010 Summer Page 4 of 6

9 0.50 6.25 10 0.46 6.71 In its December 31, 2009 balance sheet, what amount should Pope report as the notes receivable? a. P225,000 c. P312,500 a. P230,000 d. P335,500 38. Thesaurus Inc. reported a balance of P43,000 in its Cash account at the end of the month. There were P20,000 deposits in transit and P15,000 outstanding checks. The bank statement showed a balance of P50,000 including a note with face value of P15,000 and a P6,000 service charge. How much is the interest on the note collected by the bank? a. P3,000 c. P9,000 b. P6,000 d. P12,000 39. Mike Company sold merchandise on credit to Marcial Company for P1,000 on July 1, with terms of 2/10, net /30. On July 6, Marcial returned P200 worth of merchandise claiming the materials were defective. On July 8, Mike received a payment from Marcial and credited Accounts Receivable for P450. On July 24, Marcial Company paid the remaining balance on its account. How much was the total Sales Discounts given to Marcial during July? a. P0 c. P441 b. P9 d. P2,441 40. Crescent Corporation's interest revenue for 2001 was P13,100. Accrued interest receivable on December 31, 2001, was P2,275 and P1,875 on December 31, 2000. The cash received for interest during 2001 was a. P1,350. c. P12,700. b. P10,825. d. P13,100.

Life is 10% what happens and 90% how you react to it.
Charles R. Swindoll

TA-Assessment Test I S/Y 2009-2010 Summer

Page 5 of 6

Ateneo de Naga University College of Business and Accountancy Department of Accountancy FINANCIAL ACCOUNTING THEORY AND PRACTICE CASH & RECEIVABLES ASSESSMENT TEST Summer, SY 2009-2010 16 April 2010

ANSWER KEY

1. B 2. B 3. D 4. D 5. A 6. C 7. D 8. C 9. D 10.A 11.B 12.D 13.A 14.C 15.C 16.A 17.C 18.C 19.A 20.D 21.C 22.B 23.A 24.A 25.A 26.A 27.C 28.C 29.A 30.D 31.C 32.A 33.B 34.A 35.B 36.B 37.D 38.A 39.B 40.C

TA-Assessment Test I S/Y 2009-2010 Summer

Page 6 of 6