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Ateneo de Zamboanga University

SCHOOL OF MANAGEMENT AND ACCOUNTANCY


Accounting 240: Financial Accounting, Part II
Long Quiz No. 5: Bonus
Name: _____________________________________ Date: _______________ Score: __________
This is a bonus test, but the levels of difficulty per problem are not necessarily easy. What makes this a bonus is the
idea that you have the entire Christmas break to work on this test. This test covers topics from Accounting 230 to
Accounting 240. You may encounter items that we have not discussed yet in class like the chapters on Shareholders
Equity. Therefore, you have to read and study.
If your accumulated long quiz raw score as of the fourth test is 50 points over a total possible highest score of 135,
whatever your result in this bonus test will be added to your LQ raw score. Let us assume that you got 40 points in
this bonus test. So, you will get a total of 90 points (50 + 40) over the original total highest possible score of 135
points. In case your total score will exceed the total highest possible score of 135 points, (let us say you got 145
points over 135 points), you will only get a maximum score equivalent to the total highest possible score, and the
excess shall not be carried over to the next quarter.
To select your final answer, mark X on the boxes provided in the answers section of this test paper. Solutions in good
form must be presented in separate sheets of yellow paper. Upon submission, the solution sheets must be stapled
with the test paper on top of the said sheets.

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PROBLEM 1
You have been engaged to audit the December 31, 2014, financial statements of Dont Panic
Company. Your audit disclosed the following:
Cash in Bank
1. Checks totaling P30,000 in payment of accounts payable were mailed on December 31,
2014, but were not recorded until 2015.
2. Late in December 2014, the bank returned a P4,000 customers check marked NSF but no
entry was made. The check is for Invoice No. 14344 dated December 10, 2014.
3. Cash in bank includes P200,000 restricted for the acquisition of equipment.
4. On December 31, 2014, the bank credited Dont Panic for P1,000,000 in exchange for a 16%
note payable maturing December 31, 2019. Equal principal payments are due December 31
of each year, beginning in 2015. This note is collateralized by a P500,000 tract of land
acquired as a future plant site, which is included in noncurrent investments.
Accounts Receivable
1. Included in accounts receivable is a P35,000 note due on December 31, 2017 from the
president of Dont Panic Company.
2. Dont Panic Company determines the allowance for bad debts by applying certain
percentages to the accounts receivable aging as follows:
Days past invoice date
0-30
31-60
61-90
Over 90

Percent deemed to be uncollectible


1
5
20
80

The following is an aging of accounts receivable-trade based on accounts receivable


schedule as of December 31, 2014, before any adjustments on the accounts.
Days past invoice date
0-30
31-60
61-90
Over 90

Amount
P396,000
85,000
30,000
20,000

No provision for bad debts has been recorded for the current year.
Inventories
The P250,000 inventory total, which was based on a physical count at December 31, 2014, was
priced at cost. Subsequently, it was determined that the inventory cost was overstated by P50,000.
At December 31, 2014, its net realizable value approximated the adjusted cost.
Mortgage Payable
The mortgage payable requires P300,000 principal payments, plus interest, at the end of each
month. Payments were made on January 31 and February 28, 2015. The balance of this mortgage
was due on June 30, 2015. On March 1, 2015, prior to issuance of the audited financial statements,
Dont Panic Company consummated a noncancelable agreement with the lender to refinance his

mortgage. The new terms require P200,000 annual principal payments plus interest, on February 28
of each year, beginning in 2016.
Presented below are the working balance sheet and working profit and loss statement for Dont
Panic Company:
DONT PANIC COMPANY
Working Balance Sheet
December 31, 2014
CURRENT ASSETS
Cash in bank
Trading securities
Accounts receivable
Allowance for bad debts
Inventories
Prepayments

NON-CURRENT ASSETS
Land held for future plant site
Cash restricted for acquisition of equipment

500,000
500,000

Property, plant and equipment


Land
Buildings
Machinery and equipment

4,400,000
2,500,000
1,500,000
8,400,000
(850,000)
7,550,000
-

Accumulated depreciation
Officer's note receivable
TOTAL ASSETS

300,000
102,600
566,000
(15,250)
250,000
362,800
1,566,150

9,616,150

265,000
35,000
300,000

CURRENT LIABILITIES
Accounts payable
Note payable- current
Mortgage payable- current
Accrued expenses and others
NON-CURRENT LIABILITIES
Note payable

Mortgage payable

1,800,000

Total liabilities

2,100,000

SHAREHOLDER'S EQUITY
Ordinary shares (P100 par, 100,000 shares
authorized, 40,000 shares issued and outstanding)
Share premium
Retained earnings

4,000,000
462,000
3,054,150

Total shareholder's equity

7,516,150

TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY

9,616,150

DONT PANIC COMPANY


Working Profit and Loss (WPL)
December 31, 2014
Sales
Cost of Sales
Gross Income
Other Income
Total Income
Operating expenses

10,800,000
7,560,000
3,240,000
10,200
3,250,200
1,550,000

Net income

1,700,200

NET INCOME
Retained earnings, January 1

1,700,200
1,353,950

Retained earnings, December 31

3,054,150

For items 1-15, select the answer that best corresponds to the audited balance as of December 31,
2014, of each of the following items based on the information given in the problem. Ignore tax
effects.
1. Cash in bank
a. P1,266,000
b. P1,096,000

c. P1,066,000
d. P66,000

2. Accounts receivable- trade


a. P570,000
b. P531,000

c. P527,000
d. P535,000

3. Allowance for bad debts


a. P15,250
b. P30,250

c. P15,000
d. P29,900

4. Inventories
a. P200,000
b. P250,000

c. P300,000
d. P230,000

5. Investment property
a. P500,000
b. Nil

c. P700,000
d. P300,000

6. Land
a. P5,100,000
b. P4,400,000

c. P4,900,000
d. P3,900,000

7. Accounts payable
a. P235,000
b. P265,000

c. P295,000
d. P205,000

8. Note payable- current


a. P200,000
b. P800,000

c. P1,000,000
d. Nil

9. Mortgage payable- current


a. P600,000
b. P1,800,000

c. P1,200,000
d. P200,000

10. Note payable- noncurrent


a. P200,000
b. P1,000,000

c. P800,000
d. Nil

11. Mortgage payable- noncurrent


a. P1,200,000
c. P200,000
b. P600,000
d. Nil
12. Retained earnings as of year-end
a. P2,985,150
c. P2,989,150
b. P2,959,150
d. P3,039,150
13. Cost of sales
a. P7,560,000
b. P7,640,000

c. P7,614,000
d. P7,610,000

14. Operating expenses


a. P1,535,000
b. P1,550,000

c. P1,554,800
d. P1,565,000

15. Net income


a. P1,631,200
b. P1,605,200

c. P1,685,200
d. P1,635,200

PROBLEM 2
Keep Calm Company was organized on January 2, 2013, with authorized share capital of P50,000
shares of 10%, P200 par value preference and 200,000 shares of P10 par value ordinary. During the
companys first two years of operations, the following equity transactions occurred.
2013
January 2
March 2
July 10

Sold 10,000 ordinary shares at P16.


Sold 3,000 preference shares at P216.
Sold ordinary shares as follows: 10,800 shares at P22; 2,700 shares at P25.
Acquired a nearby piece of land, appraised at P400,000, for 600 preference shares
and 27,000 ordinary shares. (Preference share capital was recorded at P216, the
balance being assigned to ordinary).

Dec. 16
Dec. 28
Dec. 31

Declared the regular preference cash dividend and a P1.50 ordinary cash dividend.
Paid the dividends declared on December 16.
The income summary account showed a credit balance of P450,000.

2014
Feb. 27
June 17
July 31
Sept. 30
Dec. 16
Dec. 28
Dec. 31

Reacquired 12,000 ordinary shares at P19.


Resold 10,000 treasury shares at P23.
Resold all of the remaining treasury shares at P18.
Sold 11,000 additional ordinary shares at P1.
Declared the regular preference cash dividend and an P0.80 ordinary cash dividend.
Paid the dividends declared on December 16.
The income summary account showed a credit balance of P425,000.

Based on the above information, determine the balances of the following on December 31, 2014:
16. Preference share capital
a. P729,600
b. P777,600

c. P720,000

d. P648,000

17. Ordinary share capital


a. P615,400
b. P615,000

c. P577,000

d. P966,500

18. Total share premium


a. P95,600

b. P447,100

c. P449,100

d. P409,100

19. Unappropriated retained earnings


a. P875,000
b. P416,050

c. P606,050

d. P604,050

20. Total shareholders equity


a. P2,388,150
b. P1,892,100

c. P2,376,630

d. P2,498,150

PROBLEM 3
You have been engaged to audit the financial statements of Perfect Ko To Company for the fiscal
year ended June 30, 2014. The cost of goods sold section of the income statement prepared by your
client for the year ended June 30, 2014, appears as follows:

Inventory, July 1, 2013


P
Purchases
Goods available for sale
Inventory, June 30, 2014
Cost of goods sold
P

75,000
540,000
615,000
105,000
510,000

Although the books have been closed, your working paper trial balance is prepared showing all
accounts with activity during the year. The July 1 and June 30 inventories appearing above were
determined through physical count and no reconciling items were considered. All purchases are
FOB shipping point. The company uses the periodic inventory system.
In the course of your examination of inventory cutoff, both at the beginning and end of the year, you
discovered the following facts:
July 1, 2013
a. June invoices totaling P19,500 were entered in the voucher register in June, but the goods
were not received until July.
b. Invoices totaling P8,100 were entered in the voucher register in July, but the goods were
received during June.
June 30, 2014
a. Invoices totaling P27,900 were entered in the voucher register in July, and the goods were
received in July, but the invoices were dated June.
b. June invoices totaling P11,100 were entered in the voucher register in June but the goods
were not received until July.
c. Invoices totaling P16,200 (the corresponding goods for which were received in June) were
entered in the voucher register, July.
d. Sales of P26,400 were made on account on June 30 and the goods were delivered at that
time, but all entries relating to the sales were made in July.
21. What is the adjusted inventory on July 1, 2013
a. P86,400
b. P94,500
c. P63,600

d. P102,600

22. What is the correct amount of purchases for the year ended June 30, 2014?
a. P584,100
b. P592,200
c. P559,800
d. P576,000
23. What is the correct inventory on June 30, 2014?
a. P144,000
b. P132,900
c. P116,100

d. P135,900

24. The accounts payable balance on June 30, 2014 should be increased by
a. P44,100
b. P27,900
c. P27,300
d. P55,200
25. The correct cost of goods sold for the year ended June 30, 2014 is
a. P537,600
b. P553,800
c. P526,500

d. P507,300

PROBLEM 4
Rak Na Ituuu Company issued 10-year bonds on January 1, 2014. The companys year-end is
December 31, and financial statements are prepared annually. The amortization and interest
schedule below reflects the bond issuance and the subsequent interest payments and charges.
AMORTIZATION SCHEDULE
Date
01/01/14
12/31/14
12/31/15
12/31/16
12/31/17
12/31/18
12/31/19
12/31/20
12/31/21
12/31/22
12/31/23

Interest Paid
P55,000
55,000
55,000
55,000
55,000
55,000
55,000
55,000
55,000
55,000

Interest expense
P56,610
56,803
57,019
57,261
57,533
57,837
58,177
58,558
58,985
59,470

26. The bonds were issued at


a. A premium

b. A discount

Amount Unamortized
P28,253
26,643
24,840
22,821
20,560
18,027
15,190
12,013
8,455
4,470
-

c. Face value

27. What amortization method is used in the amortization schedule presented?


a. Straight-line method
b. Bonds outstanding c. Effective interest

Carrying Value
P471,747
473,357
475,160
477,179
479,440
481,973
484,810
487,987
491,545
495,530
500,000

d. Par value

d. Declining
balance

28. What is the nominal interest rate of the bonds issued on January 1, 2014?
a. 11%
b. 12%
c. 10%

d. 6%

29. What is the effective interest rate of the bonds issued on January 1, 2014?
a. 11%
b. 12%
c. 10%

d. 6%

30. On the basis of the schedule presented, what is the journal entry to record the issuance of
the bonds on January 1, 2014?
a. Cash
Bonds payable

P500,000

b. Cash
Interest expense
Bonds payable

P471,747
28,253

c. Cash
Premium on bonds
Bonds payable

P500,000

d. Cash
Discount on bonds
Bonds payable

P471,747
28,253

P500,000

P500,000
P 28,253
471,747

P500,000

PROBLEM 5
You have been asked by a client to review the records of Babols Company, a small manufacturer of
precision tools and machines. Your client is interested in buying the business and arrangements
have been made for you to review the accounting records.
Your examination reveals the following:

Babols commenced business on April 1, 2011, and has been reporting on a fiscal year
ending, March 31. The company has never been audited, but the annual statements
prepared by the bookkeeper reflect the following income before closing and before deducting
income taxes:
Year Ended
March 31
2012
2013
2014

Income
Before Taxes
P143,200
222,800
207,160

A relatively small number of machines have been shipped on consignment. These


transactions have been recorded as ordinary sales and billed as such. On March 31 of each
year, machines billed and in the hands of consignees amounted to:
2012
P13,000
2013
None
2014
11,180
Sales price was determined by adding 30% to cost. Assume the consigned machines are
sold the following year.

On March 30, 2013, two machines were shipped to a customer on a cash on delivery basis.
The sale was not entered until April 5, 2013, when cash was received for P12,200. The
machines were not included in the inventory at March 31, 2013. (Title passed on March 30,
2013.)

All machines are sold subject to a five-year warranty. It is estimated that that the expense
ultimately to be incurred in connection to the warranty will amount to of 1% of sales. The
company has charged an expense account for warranty costs incurred.
Warranty Expense for Sales Made In
Year Ended March 31
2012
2013
2014

Sales
P1,880,000
2,020,000
3,590,000

2012
P1,520
720
640

2013
P2,620
3,240

2014

P3,280

Total
P1,520
3,340
7,700

Bad debts have been recorded on a direct writeoff basis. Experience of similar enterprises
indicates that losses will approximate of 1% of sales. Bad debts written off were:

Warranty Expense for Sales Made In


Year Ended March 31
2012
2013
2014

2012
P1,500
1,600
700

2013

2014

P1,040
3,600

P3,400

Total
P1,500
2,640
7,700

Commissions on sales have been entered when paid. Commissions payable on March 31 of
each year were:
2012
P2,800
2013
1,600
2014
2,240

A review of the corporate minutes reveals the manager is entitled to a bonus of of 1% of


the income before deducting income taxes and the bonus. The bonuses have never been
recorded or paid.

Based on the preceding information, determine the following:


26. Correct sales for the year ended March 31, 2012.
a. P1,867,000
b. P1,880,000

c. P1,870,000

d. P1,873,000

27. Correct sales for the year ended March 31, 2013.
a. P2,035,000
b. P2,032,200

c. P2,042,200

d. P2,045,200

28. Correct sales for the year ended March 31, 2014.
a. P3,569,200
b. P3,566,620
c. P3,578,820
29. Additional warranty expense for the year ended March 31, 2014
a. P10,133
b. P24,834
c. P6,886

d. P3,590,000
d. P17,833

30. Additional bad debt expense for the year ended March 31, 2013
a. P2,473
b. P1,217
c. P8,917

d. P6,858

31. Additional commission expense for the year ended March 31, 2014
a. P1,600
b. P2,240
c. P4,640

d. P640

32. Managers bonus expense for the year ended March 31, 2014
a. P902
b. P1,781
c. P2,683

d. P1,149

33. Correct income before income tax for the year ended March 31, 2012
a. P229,841
b. P228,692
c. P125,785

d. P126,417

34. Correct income before income tax for the year ended March 31, 2013
a. P228,692
b. P179,488
c. P125,785

d. P126,417

35. Correct income before income tax for the year ended March 31, 2014
a. P179,488
b. P229,841
c. P180,390

d. P126,417

PROBLEM 6
Presented below are Comoros Companys comparative statements of financial position and income
statements:
COMOROS COMPANY
Comparative Statement of Financial Position
December 31, 2014 and 2013
ASSETS
Cash
Accounts receivable
Inventory
Prepaid expenses
Total current assets

2014
P

Non-trading equity securities


Property, plant and equipment
Accumulated depreciation
Total noncurrent assets
Total Assets

119,000
312,000
278,000
35,000
744,000

2013
P

59,000
536,000
(76,000)
519,000

98,000
254,000
239,000
21,000
612,000
409,000
(53,000)
356,000

1,263,000

968,000

212,000
98,000
40,000
350,000

198,000
76,000
274,000

LIABILITIES and SHAREHOLDER'S EQUITY


Accounts payable
Accrued expenses
Dividends payable
Total current liabilities
Notes payable, due on 2015
Total noncurrent liabilities
Total liabilities

125,000
125,000
475,000

274,000

Ordinary share capital


Retained earnings
Total shareholder's equity

600,000
188,000
788,000

550,000
144,000
694,000

Total Liabilities and Shareholder's Equity

1,263,000

968,000

COMOROS COMPANY
Condensed Comparative Income Statements
For the Years Ended, December 31, 2014 and 2013
2014
Net sales
Cost of goods sold
Gross income
Expenses
Net income

3,561,000
(2,789,000)
772,000
(521,000)
251,000

2013
P

3,254,000
(2,568,000)
686,000
(486,000)
200,000

Additional information for Comoros:


All accounts receivable and accounts payable relate to trade merchandise.
The proceeds from the notes payable were used to finance plant expansion.
Ordinary shares were sold to provide additional working capital.
Compute for the following for 2014:
36. Cash collected from accounts receivable, assuming all sales are on account.
a. P3,619,000
b. P3,503,000
c. P3,561,000
d. P3,249,000
37. Total purchases, assuming all purchases of inventory are on account
a. P2,828,000
b. P2,789,000
c. P2,550,000

d. P2,750,000

38. Cash payments made on accounts payable to suppliers


a. P2,630,000
b. P2,842,000
c. P2,828,000

d. P2,814,000

39. Dividends declared


a. P63,000

c. P207,000

d. P107,000

c. P50,000

d. P125,000

b. P0

40. Cash payments for dividends


a. P211,000
b. P177,000

fin.

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