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PART II
The trial balance of ANN CO., prior to the closing of its account for the fiscal year ended September 30, 2006 follows:
Cash 22,500
Accounts receivable 93,600
Allowance for doubtful accounts 3,190
Note receivable 15,500
Merchandise inventory, 9/30/02 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
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
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B. Accounts payable 1,500
Cash 1,500
C. Accounts receivable 1,500
Cash 1,500
D. No adjustment
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C. Office salaries 5,000
Depreciation expense 5,000
D. Sales salaries 5,000
Accrued salaries expense 5,000
The cash books of Grace Corporation show the following entries during the month of June 2006.
Cash Receipts Journal Check Register
Date Amount Date Check No. Amount
June 1Balance 762,000 June2 801 15,625
4Deposit 113,000 3 802 7,526
4Deposit 811,000 5 803 229,205
7Deposit 152,200 7 804 169,555
10 Deposit 11,300 8 805 74,936
10 Deposit 12,700 10 806 274,600
11 Deposit 73,000 11 807 34,842
17 Deposit 110,075 13 808 250,000
18 Deposit 3,725 14 809 1,070,000
18 Deposit 65,000 17 810 167,300
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19 Deposit 26,463 19 811 3,130
20 Deposit 133,037 21 812 82,730
27 Deposit 273,628 23 813 127,200
30 Deposit 92,400 25 814 93,080
30 815 720
CM - Represents a 60-day, 6% note for P40,000 collected by the bank for the account of Grace Company.
CM - Represents a 60-day, 6% own note for P200,000 discounted by Grace Corporation with the bank and not yet
recorded in the books.
DM - Represents bank service charge for the month.
Check No. 924 represents a check signed by Graciele Company.
Collection charge – represents collection fee charged by the bank.
40. The unadjusted cash ledger balance of GRACE CORPORATION at June 30, 2006 is:
A. P 114,079 B. P 113,179 C. P 39,079 D. P 38,179
41. The unadjusted cash bank balance of GRACE CORPORATION at June 30, 2006 is:
A. P 261,305 B. P 336,305 C. P 337,205S D. P 412,205
42. The deposit in transit of GRACE CORPORATION at June 30, 2006 is:
A. P 92,400 B. P 104,500 C. P 182,000 D. P 0
43. The outstanding checks of GRACE CORPORATION at June 30, 2006 is:
A. P 302,806 B. P 228,526 C. P 227,806 D. P 153,526
44. The adjusted cash balance of GRACE CORPORATION at June 30, 2006 is:
A. P 277,879 B. P 276,079 C. P 261,305 D. P 201,079
The accounts receivable of FRANCO COMPANY were stated at P1,467,000 in a balance sheet submitted to a banker for
credit. You are called upon to help arrange the report and, upon analysis, the asset was found to consist of the following
items:
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Investment in and advances to affiliated company 150,000
Loans to officers and employees 13,500
Deposits with municipalities – bids for contracts 67,500
Unpaid capital stock subscriptions 60,000
Advances to creditors for merchandise purchased
but not received 24,000
Cash advanced to salesmen for traveling expenses 4,500
Allowance for doubtful accounts ( 30,000)
P 1,467,000
The amount of P1,125,000 due from customers was the remaining balance after deducting accounts with credit balances of
P6,000.
During your examination, you noted that on December 31, the company assigned P300,000 of customers’ accounts to secure
a 17%, P240,000 note payable. A 1% commission based on the accounts assigned was charged and deducted from the cash
received. The client recorded this transaction by a debit to cash and a credit to notes payable.
46. How much is the Accounts Receivable (gross) balance at December 31?
A. P 759,000 B. P 789,000 C. P 1,101,000 D. P 1,131,000
The following selected transactions occurred during the year ended December 31, 2006 of DOMINGO COMPANY:
At year-end, the company provides for estimated bad debts losses by crediting the Allowance for Bad Debts account for 2%
of its net credit sales for the year. The allowance for bad debts at the beginning of the year is P19, 327.20.
53. The Bad Debts Expense of DOMINGO COMPANY at December 31, 2006 is:
A. P 20,725.54 B. P 14,093.14 C. P 8,030.74 D. P7,829.14
55. The Allowance for Bad Debts of DOMINGO COMPANY at December 31, 2006 is:
A. P 20,725.54 B. P 14,093.14 C. P 8,030.74 D. P7,829.14
Listed below are some items of inventory from Anecito Company that are in question during your analysis. The company
stores a substantial portion of the merchandise in a separate warehouse and transfer damaged goods to a special inventory
account.
1. Items in receiving department returned by customer, no communication received from customer 20,000
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2. Items ordered and in receiving department, invoice not yet received from supplier 50,000
3. Items counted in warehouse by the inventory crew 70,000
4. Invoice received for goods ordered, goods shipped but not received (Anecito Company pays freight) 5,000
5. Items, shipped today, fob destination, invoice mailed to customer 5,000
6. Items currently used for window displays 10,000
7. Items on counter for sale per inventory count [not in (3)] 90,000
8. Items in shipping department, invoice not mailed to customer 6,000
9. Items in receiving department, refused by Anecito because of Damage [(not in (3)] 3,000
10. Items shipped today, fob shipping point, invoice mailed to customer 4,000
11. Items included in warehouse count, damaged, not returnable 8,000
12. Items included in warehouse count, specifically crafted and
segregated for shipment to customer in five days per sales
contract, with return privilege. 18,000
56. If the recorded inventory in the balance sheet is P289,000, the year-end inventory will be overstated by:
A. P 41,000 B. P 23,000 C. P 18,000 D. P 3,000
In the event of your analysis, you found the following information related to the inventories on December 31, 2006.
a. An invoice for P90,000, FOB shipping point, was received on December 15, 2006. The receiving report indicates
that the goods were received on December 18, 2006, but across the face of the report is the notation “Merchandise
not of the same quality as ordered, returned for credit, December 19”. The merchandise was included in the
inventory.
b. Included in the physical count were inventories billed to customer FOB shipping point on December 31, 2006.
These inventories had a cost of P28,000 and were billed at P35,000. The shipment was in loading dock waiting to
be picked by the common carrier.
c. Merchandise with an invoice cost of P50,000, received from a vendor at 5:00 pm on December 31, 2006, were
recorded on a receiving report dated January 2, 2007. The goods were not included in the physical count, but invoice
was included in accounts payable at December 31, 2006.
d. Merchandise costing P15,000 to the company FOB shipping point on December 26, 2006. The purchase was
recorded, but the merchandise was excluded from the ending inventory because it was not received until January 4,
2007.
e. The inventory included 1000 units erroneously priced at P9.50 per unit. The correct cost was P10.00 per unit.
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B. Cost of sales 50,000 Inventory 50,000
C. Inventory 50,000 Retained earnings 50,000
D. No adjustment
64. On January 10, 2006, Lao Company sold merchandise on account fob destination to Febryan Co. for P20,000. Febryan
Co. paid the freight cost of P1,500 to be deducted from its account. How much Febryan Company paid to Lao Company?
A. P 21,500 B. P 20,000 C. P 19,600 D. P 18,500
You have observed the physical count of DEMI CORPORATION’s inventory taken on December 31, 2006. The following
errors were discovered:
a. Goods that cost P7,000 was sold for P8,500 on December 29, 2006. The order was shipped December 31, 2006
with terms fob destination. The merchandise was not included in the ending inventory. The sale was not recorded until
January 4, 2007, the date when the customer made payment of the sold goods.
b. On December 29, 2006, DEMI CORPORATION purchased merchandise costing P15,000 from a supplier. The
order was shipped December 30, 2006 (terms FOB shipping point) and was still “in transit” on December 31, 2006. Since
the invoice was received on December 31, the purchase was recorded in 2006. The merchandise was included in the
inventory count.
c. On January 4, 2007, goods that were included in the ending inventory at December 31, 2006, were returned to
DEMI CORPORATION because the consignee had not been able to sell it. The cost of this merchandise was P9,500 with
a selling price of P14,500.
d. DEMI CORPORATION failed to make an entry for a purchase on account of P6,500 at the end of 2005, although
it included this merchandise in the inventory count. The purchase was recorded when payment was made to the supplier in
2006.
e. On January 6, 2007, DEMI CORPORATION received merchandise which had been shipped to them on December
31, 2006. The terms of the purchase were fob destination. Cost of the merchandise was P6,400. The purchase was not
recorded until payment was made in January 2007 but the goods were included in the inventory as of December 31, 2006.
Goods with a selling price of P30,000 was shipped to Herald Company, a consignee, on December 29, 2005. Since this was
shipped before the inventory count, the merchandise, which was billed 20% above cost, was excluded from the inventory
count. Sales was not recorded until the inventory was received on January 5, 2006. Your further investigation revealed that
50% of these goods were sold in 2006 and the on-hand at December 31, 2006 were not yet reported in 2006 inventory.
66. What is the entry to adjust finding number “b” at December 31, 2006?
A. Inventory 15,000 C. Both A and B
Retained Earnings 15,000
B. Retained Earnings 15,000 D. Neither A nor B
Accounts Payable 15,000
67. DEMI CORPORATION should debit what account to adjust finding number “c” at December 31, 2006?
A. Sales C. Retained Earnings
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B. Cost of Sales D. No adjustment is necessary
69. The entry to adjust finding number “e” at December 31, 2006 is: (assume the book is not close)
A. Retained Earnings 6,400 C. Purchases 6,400
Inventory 6,400 Accounts Payable 6,400
B. Retained Earnings 6,400 D. Cost of sales 6,400
Accounts payable 6,400 Inventory 6,400
70. The entry to adjust finding number “f” at December 31, 2006 is: (assume the book is close)
A. Inventory 25,000 C. Cost of sales 25,000
Accounts Receivable 25,000 Sales 25,000
Cost of sales 25,000 Retained Earnings 25,000
Sales 25,000 Accounts Receivable 25,000
B. Cost of sales 25,000 D. Retained Earnings 2,500
Sales 15,000 Inventory 12,500
Retained Earnings 25,000 Accounts Receivable 15,000
Accounts Receivable 15,000
The trial balance of Aguilar Enterprises on December 31, 2006 shows P350,000 as the unadjusted balance of the Machinery
account. On April 1, 2006, a Jucuzzi machine costing P40,000 with accumulated depreciation of P30,000 was sold for
P20,000, which proceeds was credited to the Machinery account. On June 30, 2006, a Goulds machine, costing P50,000
and with accumulated depreciation of P22,000 was traded in for a new Pioneer machine with an invoice price of P100,000.
The cash paid of P90,000 for the Pioneer machine (P100,000 less trade-in allowance of P10,000 was debited to the
Machinery account).
Company policy on depreciation states that it provides an annual rate of 10% without salvage value. A full year’s
depreciation is charged in the year of acquisition and none in the year of disposition.
71. The adjusted balance of the Machinery account at December 31, 2006 is:
A. P 290,000 B. P 370,000 C. P 260,000 D. P 300,000
72. The correct depreciation expense for the machinery for the year ended December 31, 2006 is:
A. P 37,000 B. P 29,000 C. P 30,000 D. P 26,000
In 2007, you are asked to analyze fixed assets of Esmedina Copper Mines. This mining company bought the exploration
rights of Maharishi Exploration on June 30, 2007 for P7,290,000. Of this purchase price, P4,860,000 was allocated to
copper ore which had remaining reserves estimated at 1,620,000 tons. The remainder of the purchase price is properly
considered as expensed outright. Esmedina Copper Mines expects to extract 15,000 tons of ore a month with an estimated
selling price of P50 per ton. Production started immediately after some new machines costing P600,000 was bought on
June 30, 2007. These new machineries had an estimated useful life of 15 years with a scrap value of 10% of cost after the
ore estimated has been extracted from the property, at which time the machineries will already be useless.
Among the operating expenses of Esmedina Copper Mines at December 31, 2007 were:
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76. The adjusted depreciation at year-end amounted to:
A. P 20,000 B. P 30,000 C. P 50,000 D. P 60,000
In connection with your examination of the financial statements of the Maraat Corporation for the year 2007, the company
presented to you the Property, Plant and Equipment section of its balance sheet as of December 31, 2006, which consists of
the following:
Land P 400,000
Buildings 3,200,000
Leasehold improvements 2,000,000
Machinery and equipment 2,800,000
1. Land site number 5 was acquired for P4,000,000. Additionally, to acquire the land, Maraat Corporation paid a
P240,000 commission to a real estate agent. Costs of P60,000 were incurred to clear the land. During the course of clearing
the land, timber and gravel were recovered and sold for P20,000.
2. The second tract of land (site number 6) with a building was acquired for P1,200,000. The closing statement
indicated that the land value was P800,000 and the building value was P400,000. Shortly after acquisition, the building was
demolished at a cost of P120,000. The new building was constructed for P600,000 plus the following costs:
3. The third tract of land (site number 7) was acquired for P2,400,000 and was put on the market for resale.
4. Extensive work was done to a building occupied by Maraat Corporation under a lease agreement. The total cost
of the work was P500,000, which consisted of the following:
- END OF PART II -
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