Intermediate Accounting, Part 1

S.Y. 2023-2024, 1st Semester

PRELIM EXAM

Name: Score:
Course & Section: Date:

Arabian Company reported the following on December 31, 2023:

Cash (including bond sinking fund of P500,000) 5,000,000

Accounts receivable 7,500,000
Notes receivable (net of discounted note of P500,000) 2,000,000
Inventory 4,000,000
Total current assets 18,500,000

An analysis disclosed that accounts receivable comprised of the following:

Trade accounts receivable 5,000,000

Allowance for sales discount (250,000)
Allowance for doubtful accounts (250,000)
Selling price of Arabian Company’s unsold goods sent to Tar Company on
consignment at 150% of cost and excluded from Arabian’s ending inventory 3,000,000
Accounts receivable 7,500,000

1. What amount should Arabian Company report as total current

assets on December 31, 2023?

a. 17,250,000
b. 17,000,000
c. 15,250,000
d. 15,000,000

Mercury Company incurred the following costs during 2023:

Property tax 250,000

Freight in 1,750,000
Doubtful accounts 1,600,000
Officer’s salaries 1,500,000
Insurance 850,000
Sales representative salaries 2,150,000
Interest on bank loan 500,000
Research and development cost 1,000,000

2. What amount of costs should Mercury Company report as administrative expense?

a. 2,600,000
b. 3,350,000
c. 4,200,000
d. 5,200,000

On December 31, 2023, Armenia Company reported the following items:

Cash on hand 1,000,000

Petty cash fund 50,000
Security bank current account 2,000,000
BDO current account (overdraft) (200,000)
BPI time deposit – 90 days for land acquisition 2,000,000
Sinking fund for bonds payable due December 31, 2024 2,500,000
Asia Bank time deposit – 60 days 900,000

The cash on hand included a customer postdated check of P150,000 and postal money order of P50,000.
The petty cash fund included unreplenished petty cash vouchers of P10,000 and an employee check for
P5,000 dated January 31, 2024.
3. What amount should Armenia report as cash and cash equivalent on December 31, 2023?

a. 8,285,000
b. 5,385,000
c. 6,285,000
d. 6,235,000

Zealous Company is accounting for its petty cash fund using the imprest system. On November 1, 2023,
Zealous established a petty cash fund of P50,000. On December 31, 2023, the fund consisted of the
following items:

Currency and coins 2,000

Petty cash voucher for employee’s IOU 10,000
Currency in envelope marked “collections for Valentine’s Day party” 5,000
Petty cash vouchers for expenses 33,000

The petty cash fund was replenished on December 31, 2023.

4. Zealous’ entry to replenish the petty cash fund will include

a. Credit Petty Cash Fund, P48,000

b. Credit Cash Short / Over, P5,000
c. Credit Cash in Bank, P43,000
d. Debit Cash Short / Over, P5,000

Aroma Company records sales return during the year as a credit to accounts receivable. However, at year-
end, the entity estimates the probable sales return and records the same by means of an allowance account.
Also, the entity uses the gross method of recording cash discounts. The following transactions occurred
during the year:

Sale of merchandise on account, 2/10, n/30 4,000,000

Collection within the discount period 1,470,000
Collection beyond the discount period 1,000,000
Sales return granted 100,000
Sales return estimated at the end of the year 20,000
Doubtful accounts (10% of gross accounts receivable at year-end) ?

5. What is the net realizable value of accounts receivable to be reported by Aroma?

a. 1,240,000
b. 1,260,000
c. 1,267,000
d. 1,287,000

Marvel Company reported the following information before adjustments on December 31, 2023:

Accounts receivable 3,000,000

Allowance for doubtful accounts 200,000
Sales 10,000,000
Sales returns and allowances 500,000
Accounts written off 150,000
Collection of accounts previously written off 30,000

75% of all sales are on credit and an average of 4% of credit sales may prove uncollectible.

6. What amount of allowance for doubtful accounts should Marvel report on December 31, 2023?

a. 300,000
b. 365,000
c. 285,000
d. 380,000
Emma Company is a dealer in equipment. On January 1, 2023, the entity sold equipment in exchange for a
noninterest bearing note requiring five annual payments of P800,000. The first payment was made on
December 31, 2023. The market rate for similar notes was 8%. The PV of 1 at 8% for 5 periods is 0.68 and
The PV of an ordinary annuity of 1 at 8% for 5 periods is 3.99.

7. What is the carrying amount of the note receivable to be recognized by Emma on December
31, 2023?

a. 3,200,000
b. 2,647,360
c. 2,937,600
d. 3,447,360

On December 1, 2023, Grateful Company assigned P1,500,000 of accounts receivable to a bank on a non-
notification basis in consideration for a loan. The bank advanced P1,300,000 less a service charge of
P50,000. The entity signed a promissory note bearing interest at 12%. On December 31, 2023, the entity
collected assigned accounts of P1,000,000 less sales discount of P30,000. Also on December 31, 2023,
the entity remitted the collection to the bank in payment first of interest and the balance to the principal
amount of the note.

8. What is the balance of the note payable to be reported by Grateful on December 31, 2023?

a. 330,000
b. 280,000
c. 343,000
d. 293,000

Daisy Company factored with recourse P5,000,000 of accounts receivable with a bank. The finance charge
is 5% and 10% was retained to cover sales discounts, sales returns and sales allowances. The transaction
met the condition to be considered as sale but subject to recourse for nonpayment. The factor estimated the
fair value of the recourse obligation at P125,000.

9. What total amount of loss on factoring should Daisy recognized initially?

a. 500,000
b. 250,000
c. 375,000
d. 625,000

Morale Company provided the following transactions:

January 1 Sold merchandise for P5,000,000 accepting a note of P5,000,000 for six months with interest
to be paid at 12% at maturity

March 1 Discounted the note with recourse at a local bank at 15%. The discounting is accounted
for as conditional sale with recognition of a contingent liability

July 1 The customer paid the bank in full

10. What amount of loss on note receivable discounting should Morale report on March 1?

a. 65,000
b. 100,000
c. 265,000
d. 48,750
Myriad Company provided the following data on December 31, 2023:

Finished goods in storeroom, at cost 2,000,000

Finished goods in transit, purchased FOB Shipping Point 250,000
Finished goods held by salesmen, at cost 100,000
Goods in process, at cost 1,000,000
Materials on hand 900,000
Materials in transit, purchased FOB Destination 50,000
Damaged materials returned to supplier 100,000
Factory supplies 400,000

11. What is the cost of Myriad’s inventory on December 31, 2023?

a. 4,250,000
b. 4,350,000
c. 4,650,000
d. 2,350,000

Lawan Company provided the following information relating to inventory for the month of February:

Date Transaction Units Unit Cost

February 1 Beginning 10,000 52
February 7 Purchase 30,000 50
February 12 Sale 20,000
February 17 Purchase 60,000 45
February 22 Purchase 20,000 43
February 28 Sale 70,000

The unit selling price is P90 and the entity uses the weighted average periodic system.

12. What is Lawan’s inventory cost on February 28?

a. 1,371,000
b. 1,400,000
c. 1,310,000
d. 1,395,000

13. It is a “global phenomenon” intended to bring about transparency and a higher degree of
comparability in financial reporting, both of which will benefit the investors and are essential to
achieve the goal of one uniform and globally accepted financial reporting standards.

a. Norwalk agreement
b. World Trade
c. Borderless accounting
d. IFRS

14. Created by the IFRS Foundation to help meet the demand of international investors with global
investment portfolios for high quality, transparent, reliable and comparable reporting by companies
on climate and other environmental, social and governance (ESG) matters.

a. International Financial and Sustainability Standards Board

b. International Sustainability Standards Board
c. International Financial Reporting Standards Board
d. International Sustainability Standards Committee
15. Presented below is a list of items that may or may not be reported as inventory in an entity’s
Dec. 31 statement of financial position.

I. Goods purchased FOB shipping point (in transit) P120,000

II. Goods purchased FOB destination (in transit) 200,000
III. Freight charges on goods purchased 80,000
IV. Materials on hand not yet placed into production 350,000
V. Factory supplies 20,000
VI. Office supplies 10,000
VII. Interest cost incurred for inventories that are routinely
Manufactured 40,000
VIII. Costs identified with units started but which are not yet
Completed 280,000
IX. Costs identified with units completed but not yet sold 310,000
X. Goods out on consignment at another company’s store 800,000
XI. Goods held on consignment from another company 450,000
XII. Goods sold on installment basis 100,000
XIII. Goods sold to another company, for which the company has
signed an agreement to repurchase at a set price that covers
all costs related to the inventory 300,000
XIV. Goods sold FOB seller (in transit) 120,000
XV. Goods sold FOB buyer (in transit) 40,000
XVI. Costs incurred to advertise goods held for resale 20,000
XVII. Securities acquired for the purpose of selling in the near term 500,000
XVIII. Equipment held for sale in accordance with PFRS 5 80,000

How much of these items would typically be reported as inventories in the statement of financial
position?

a. P2,300,000
b. P2,260,000
c. P2,220,000
d. P2,000,000

Use the following information for the next two questions.

An entity wholesales bicycles. It uses the perpetual inventory system. The entity's reporting date is Dec. 31.
At Dec. 1, inventory on hand consisted of 350 bicycles at P820 each and 43 bicycles
at P850 each. During the month of December, the following inventory transactions took place (all purchase
and sales transactions are on credit):

Dec. 02 Sold 300 bicycles for P1,200 each.

03 Five bicycles were returned by a customer. They had originally cost P820 each and were
sold for P1,200 each.
09 Purchased 55 bicycles at P910 each.
13 Purchased 76 bicycles at P960 each.
15 Sold 86 bicycles for P1,350 each.
16 Returned one damaged bicycles to the supplier. This bicycle had been purchased
on 9 December.
22 Sold 60 bicycles for P1,250 each.
26 Purchased 72 bicycles at P980 each.
29 Two bicycles, sold on 22 December, were returned by a customer. The bicycles were badly
damaged so it was decided to write them
off. They had originally cost P910 each.

16. The cost of goods sold for the month of December using moving average method is (Round unit
costs to the nearest peso)

a. P367,230
b. P365,410
c. P366,320
d. P372,725

17. The cost of goods sold for the month of December using FIFO method is
a. P367,230
b. P365,410
c. P366,320
d. P372,725
18. Your analysis of the accounts receivable of an entity indicates the following:

Accounts receivable, Jan. 1 P300,000

Allowance for doubtful accounts, Jan. 1 40,000
Credit sales during the year 1,200,000
Cash collections during the year 1,100,000
Accounts receivable written off during the year 20,000

In prior years, the entity’s bad debt expense has averaged 2% of credit sales. On Dec. 31, what
would be the amount of the entity’s accounts receivable, net of any allowance for doubtful accounts,
assuming that the entity uses the credit sales method to estimating bad debt expense?

a. P336,000
b. P358,000
c. P360,000
d. P400,000

19. An entity estimates bad debt expense at ½% of credit sales. The entity reported accounts
receivable and allowance for uncollectible accounts of P471,000 and P1,650 respectively, at Dec.
31, 2022. During 2023, entity’s credit sales and collections were P315,000 and P319,000,
respectively, and P1,720 in accounts receivable were written off. The balance of entity’s accounts
receivable at Dec. 31, 2023 is

a. P465,280
b. P467,000
c. P469,280
d. P473,280

20. An entity sold equipment on July 1, 2022. The equipment cash price is P79,000. The buyer signed a
deferred payment contract that provides for a down payment of P10,000 and an 8-year note for
P103,472. The note is to be paid in 8 equal annual payments of P12,934. The payments include
10% interest and are made on June 30 of each year, beginning June 30, 2023. The total interest
income for the year ended Dec. 31, 2023 is

a. P5,982
b. P6,599
c. P6,612
d. P6,900

21. On Jan. 1, 2019, an entity sold a machine with a carrying amount of P300,000 and accepted in
exchange a promissory note with a face value of P500,000, a due date of Dec. 31, 2028, and a
stated rate of 4%, with interest receivable at the end of each year. The fair value of the machine is
not readily determinable and the note is not readily marketable. Under the circumstances, the note
is considered to have an appropriate imputed rate of interest of 8%. The carrying amount of the
note receivable of the entity as of Dec. 31, 2023 is

a. P365,802
b. P407,547
c. P420,154
d. P500,000

22. An entity often factors its accounts receivable. The finance company requires an 8% reserve and
charges a 1.5% commission on the amount of the receivable. The remaining amount to be
advanced is further reduced by an annual interest charge of 16%. What proceeds (rounded to the
nearest peso) will the enterprise receive from the finance company at the time a 110,000 account
that is due in 60 days is turned over to the finance company?

a. P83,630
b. P81,950
c. P99,550
d. P96,895
23. Which statement is correct regarding accounting for transfers of receivables in accordance
with PFRS 9?

a. The transfer of risks and rewards evaluated is evaluated by determining the

transferee’s ability to sell the asset.
b. A sale of a financial asset together with a total return swap that transfers the market risk
exposure back to the entity is an example of a transfer that qualifies for derecognition.
c. The entity shall determine whether it has retained control of the financial asset if an entity
neither transfers nor retains substantially all the risks and rewards of ownership of a transferred
asset.
d. The entity shall continue to recognize the transferred asset in its entirety if an entity neither
transfers nor retains substantially all the risks and rewards of ownership of a transferred asset
and retains control of the transferred asset.

24. Which of the following returns is not consistent with cash flows that are solely payments of principal
and interest on the principal amount outstanding?

a. Return for the time value of money and credit risk

b. Return for liquidity risk
c. Return for amounts to cover expenses and a profit margin
d. Return for equity price risk

1-14 EDGARDO CO. was organized on January 2, 2023. The following items are from the
company’s trial balance on December 31, 2023.

Ordinary share capital P1,650,000

Share premium 165,000
Merchandise inventory 75,900
Land 1,100,000
Building 1,540,000
Furniture and fixtures 403,700
Accounts receivable 181,940
Accounts payable 428,615
Notes payable-bank 550,000
Sales 6,858,720
Operating expenses (including depreciation of P400,000) 1,105,665

Additional information:

I. Deposit in transit, December 31 P423,126

II. Service charge for December 2,200
III. Outstanding checks, December 31 562,500
IV. Bank balance, December 31 981,200
V. Edgardo Co.’s mark up on sales is 30%

25. What is the total collections from sales?

a. P6,114,967
b. P4,531,164
c. P6,676,780
d. P6,069,800

26. What is the total payments for merchandise purchases?

a. P4,296,589
b. P4,448,389
c. P4,043,990
d. P6,506,005

27. What is the total cash receipts per books?

a. P8,601,780
b. P8,986,780
c. P8,219,800
d. P9,041,780
28. What is the total cash disbursements per books?

a. P8,597,754
b. P7,416,140
c. P8,197,754
d. P8,005,954

29. What is the cash balance per books on December 31?

a. P719,026
b. P803,660
c. P1,324,026
d. P844,026

30. What is the adjusted cash balance on December 31?

a. P801,660
b. P716,826
c. P1,321,826
d. P841,826

1-26 The following information was obtained in connection with P Company’s cash account as of
December 31, 2023.

Outstanding checks, 11/30/23 P16,250

Outstanding checks, 12/31/2023 12,500
Deposit in transit, 11/30/2023 12,500
Cash balance per ledger 12/31/2023 37,500
Actual company collections from its customers during
December 152,500
Company checks paid by bank in December 130,000
Bank service charges recorded on company books in
December 2,500
Bank service charges per December bank statement 3,250
Deposit credited by bank during December 145,000
November bank service charges recorded on company
books in December 1500

The cash receipts book of December is under-footed by P2,500

The bank erroneously charged the company’s account for a P3,750 check of another depositor. This
bank error was corrected in January 2024.

31. How much is the deposit in transit on December 31, 2023?

a. P5,000
b. P20,000
c. P22,500
d. P17,500

32. The total unrecorded bank service charges as of December 31, 2023 is

a. P750
b. P2,250
c. P1,750
d. P4,250

33. What is the total book receipts in December?

a. P150,000
b. P152,500
c. P155,000
d. P147,500
34. What is the total amount of company’s checks issued in December?\

a. P130,000
b. P123,000
c. P133,750
d. P126,250

35. What is the total book disbursements in December?

a. P123,750
b. P128,500
c. P126,250
d. P128,750

36. What is the book balance on November 30, 2023?

a. P16,250
b. P21,250
c. P37,500
d. P35,000

37. What is the bank balance on November 30, 2023?

a. P23,000
b. P18,500
c. P43,500
d. P16,250

38. What is the total bank receipts in December?

a. P120,000
b. P140,000
c. P145,000
d. P150,000

39. What is the total bank disbursements in December?

a. P154,500
b. P132,500
c. P129,500
d. P137,000

40. What is the bank balance on December 31, 2023?

a. P21,500
b. P26,500
c. P31,000
d. P33,250

41. Which of the following items is NOT included in the single balance sheet line item, “trade and other
receivables”?

a. Due from customers on sales in exchange for promissory notes.

b. Accrued interest income.
c. Advances to suppliers.
d. Subscription receivable due in 420 days.

42. Which of the following should be included as cost of inventory?

a. Depreciation expense of the delivery equipment.

b. Depreciation expense of the factory machinery.
c. Storage cost of finished goods.
d. None from the choices.
43. In accounting for petty cash fund, which of the following is correct?

a. Under the imprest fund system, the petty cash fund is credited when expenses are paid.
b. Under the fluctuating fund system, the petty cash fund is credited when expenses are
paid.
c. Under the fluctuating fund system, the petty cash fund is credited when the size of the fund is
increased.
d. Under the imprest fund system, no year-end adjusting entries are required when the fund
remains unreplenished as of that date.

44. An entry debiting inventory and crediting cost of goods sold would be made when

a. Merchandise is sold and the periodic inventory method is used.

b. Merchandise is sold and the perpetual inventory method is used.
c. Merchandise is returned and the periodic inventory method is used.
d. Merchandise is returned and the perpetual inventory method is used.

45. The "primary users" of financial information include

a. Existing and potential investors only

b. Existing and potential lenders and other creditors only
c. Existing and potential investors, lenders and other creditors.
d. User group, such as employees, customers, governments and their agencies, and the public

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