Apino Jan Dave T.

BSA 4-1
Quiz

Cash
The books of Manila’s Service, Inc. disclosed a cash balance of P687,570 on
December 31, 2014. The bank statement as of December 31 showed a balance of P
547,800. Additional information that might be useful in reconciling the two balances
follows:
a) Check number 748 for P 30,000 was originally recorded on the books as
P45,000
b) A customer’s note dates September 25 was discounted on October 12. The
note was dishonored on December 29(maturity date). The bank charges
Manila’s account for P142,650, including a protest fee of P2,650.
c) The deposit of December 24 was recorded on the books as P28,950, but it
was actually a deposit of P27,000.
d) Outstanding checks totaled P98,850 as of December 31
e) There were bank service charges for December of P 2,100 not yet recorded
on the books.
f) Manila’s account had been charged on December 26 for a customer’s NSF
check for P12,960.
g) Manila properly deposited P6,000 on December 3 that was not recorded by
the bank.
h) Receipts of December 31 for P134,250 were recorded by the bank on January
2.
i) A bank memo stated that a customer’s note for P45,000 and interest of
P1,650 had been collected on December 27, and the bank charged P360
collection fee
What is the adjusted cash in bank balance?
a. P583,200
b. P577,200
c. P580,200
d. P512,400
Net adjustment to cash as of December 31 ,2014
a. P104,370
b. 110,370
c. P98,370
d. P175,170

Balance per Bank 547,800

Deposit in Transit 134,250
Bank Error 6,000
Less Outstanding Checks 98,850
Adjusted Bank Balance, 12/31 589,200

Balance per Book 687,570

Book error 15,000
Customer Note 46,290
Less Dishonored note 142,650
Book error 1950
NSF check 19,960
Bank service charge 2,100
Adjusted book balance 589,200

Unadjusted balance per books, 12/31 687,570

Adjusted book balance,12/31 589,200
Net adjustment to cash 98,370

In connection with your audit of Caloocan Corporation for the year ended December
31, 2015, you gathered the following:
1. Current account at Metrobank
P2,000,000
2. Current account at BPI
(100,000)
3. Payroll account 500,000
4. Foreign bank account – restricted (in equivalent pesos)
1,000,000
5. Postage stamps 1,000
6. Employee’s post dated check 4,000
7. IOU from controller’s sister
10,000
8. Credit memo from a vendor for a purchase return
20,000
9. Traveler’s check 50,000
10. Not-sufficient-funds check
15,000
11. Money order 30,000
12. Petty cash fund (P4,000 in currency and expense receipts for P6,000)
10,000
13. Treasury bills, due 3/31/07 (purchased 12/31/06)
200,000
14. Treasury bills, due 1/31/07 (purchased 1/1/06)
300,000

Based on the above information and the result of your audit, compute for the cash
and cash equivalent that would be reported on the December 31, 2015 balance
sheet.
a. P2,784,000
b. P3,084,000
c. P2,790,000
d. P2,704,000

Current account at Metrobank P2,000,000

Payroll account 500,000
Traveler’s check 50,000
Money order 30,000
Petty cash fund (P4,000 in currency) 4,000
Treasury bills, due 3/31/07 (purchased 12/31/06) 200,000
Total P2,784,000

Receivables
Your audit of Banayo Corp. for the year ended December 31, 2014 revealed that
Accounts Receivable account consists of the following:
Trade accounts receivable(current) 3,440,000
Past due trade accounts 640,000
Uncollectible accounts 128,000
Credit balances in customers’ accounts
(80,000)
Notes receivable dishonored 240,000
Consignment shipments- at cost 320,000
The consignee sold goods costing P96,000 for the consignee and remitted the
calance to Banayo. The cash was received in January 2015

Total P4,688,000
Determine the balance of
Trade Accounts Receivable
a. 4,080,000
b. 3,440,000
c. 4,464,000
d. 3,584,000
Allowance for doubtful accounts
a. 204,000
b. 216,000
c. 172,000
d. 179,200
Doubtful accounts expense
a. 264,000
b. 220,000
c. 252,000
d. 227,200

Trade accounts receivable(current) 3,440,000

Past due trade accounts 640,000
Notes receivable dishonored 240,000
Consignment goods already sold (P160,000*90%) 144,000
Adjusted trade receivables 4,464,000

Adjusted trade receivables 4,464,000

Less due from consignee 144,000
Basis of allowance 4,320,000
Bad debt rate 5%
Require allowance 216,000

Required allowance for doubtful accounts 216,000

Write off 128,000
Allowance before adjustments (80,000)
Doubtful accounts expense 264,000

Bantay company’s unadjusted trial balance at December 31, 2014 included the
following accounts:

Accounts receivable 1,000,000

Allowance for doubtful accounts 40,000
Sales (15,000,000)
Sales returns and allowance 700,000
Bantay estimates its bad debts expense to be 1 ½ % of net sales. Determine its bad
debt expense for 2014
a. 225,000
b. 254,500
c. 214,500
d. 55,000

Sales 15,000,000
Sales returns 700,000
Net sales 14,300,000
Bad debt rate 1½%
Bad debt expense 214,500

Inventories
You are engaged in the regular annual examination of the accounts and records of
ABCD Manufacturing Co. for the year ended December 31, 2014. To reduce the
workload at year end, the company, upon your recommendation, took its annual
physical inventory on November 30, 2012. You observed the taking of the inventory
and made tests of the inventory count and the inventory records.

The company’s inventory account, which includes raw materials and work-in-
process is on perpetual basis. Inventories are valued at cost, first-in, first-out
method. There is no finished goods inventory.

The company’s physical inventory revealed that the book inventory of P1,695,960
was understated by P84,000.
To avoid delay in completing its monthly financial statements, the company decided
not to adjust the book inventory until year-end except for obsolete inventory items.

Your examination disclosed the following information regarding the November 30

inventory:

a. Pricing tests showed that the physical inventory was overstated by P61,600.

b. An understatement of the physical inventory by P4,200 due to errors in footings

and extensions.

c. Direct labor included in the inventory amounted to P280,000. Overhead was

included at the rate of 200% of direct labor. You have ascertained that the
amount of direct labor was correct and that the overhead rate was proper.

d. The physical inventory included obsolete materials with a total cost of P7,000.
During December, the obsolete materials were written off by a charge to cost of
sales.

Your audit also disclosed the following information about the December 31
inventory:

a. Total debits to the following accounts during December were:

Cost of sales P1,920,800

Direct labor 338,800
Purchases 691,600

b. The cost of sales of P1,920,800 included direct labor of P386,400.

Adjusted amount of physical inventory at November 30, 2014

P1,845,7
a. P1,715,560 c. 60
P1,722,5
b. P1,631,560 d. 60
Adjusted amount of inventory at December 31, 2014

a. P1,509,760
b. P1,516,760
b. P1,502,760
c. P1,425,760

Inventory, November 30, 2014 1,695,960

Understatement 84,000
Overstatement-Pricing Test (61,600)
Understatement-errors in footings & extn 4,200
Obsolete materials (7,000)
Adjusted Inventories, November 30, 2014 1,715,560
Purchases in December 691,600
Direct Labor Incurred 338,800
Overhead 677,600
Cost of Goods Sold (1,920,800)
Inventories, December 31, 2014 1,509,760

In connection with your audit of the Alcala Manufacturing Company, you reviewed
its inventory as of December 31, 2014 and found the following items:

(a) A packing case containing a product costing P100,000 was standing in the
shipping room when the physical inventory was taken. It was not included in the
inventory because it was marked “Hold for shipping instructions.” The customer’s
order was dated December 18, but the case was shipped and the costumer billed on
January 10, 2015.
(b) Merchandise costing P600,000 was received on December 28, 2014, and the
invoice was recorded. The invoice was in the hands of the purchasing agent; it was
marked “On consignment”.
(c) Merchandise received on January 6, 2015, costing P700,000 was entered in
purchase register on January 7. The invoice showed shipment was made FOB
shipping point on December 31, 2014. Because it was not on hand during the
inventory count, it was not included.
(d) A special machine costing P200,000, fabricated to order for a particular
customer, was finished in the shipping room on December 30. The customer was
billed for P300,000 on that date and the machine was excluded from inventory
although it was shipped January 4, 2015.
(e) Merchandise costing P200,000 was received on January 6, 2015, and the related
purchase invoice was recorded January 5. The invoice showed the shipment was
made on December 29, 2014, FOB destination.
(f) Merchandise costing P150,000 was sold on an installment basis on December 15.
The customer took possession of the goods on that date. The merchandise was
included in inventory because Alcala still holds legal title. Historical experience
suggests that full payment on installment sale is received approximately 99% of the
time.
(g) Goods costing P500,000 were sold and delivered on December 20. The goods
were included in the inventory because the sale was accompanied by a purchase
agreement requiring Alcala to buy back the inventory in February 2015.

Based on the above and the result of your audit, how much of these items should be
included in the inventory balance at December 31, 2014?
a. P1,300,000
b. P 800,000
c. P1,650,000
d. P1,050,000
Unshipped goods P 100,000
Purchased merchandise shipped FOB shipping point 700,000
Goods used as collateral for a loan 500,000
Total P1,300,000

Investments
The following transactions of the Angat Company were completed during the year
2015:
Jan. 2 Purchased 20,000 shares of Bulacan Auto Co. for P40 per share plus
brokerage costs of P4,500. These shares were classified as trading securities.
Feb. 1 Purchased 20,000 shares of Malolos Company common stock at P125 per
share plus brokerage fees of P19,000. Angat classifies this stock as and available-
for-sale security.
Apr. 1 Purchased P2,000,000 of RP Treasury 7% bonds, paying 102.5 plus accrued
interest of P35,000. In addition, the company paid brokerage fees of P18,000. Angat
classified these bonds as a trading security.
Jul. 1 Received semiannual interest on the RP Treasury Bonds.
Aug. 1 Sold P500,000 of RP Treasury 7% bonds at 103 plus accrued interest.
Oct. 1 Sold 3,000 shares of Malolos at P132 per share. The market values of the
stocks and bonds on December 31, 2015, are as follows: Bulacan Auto Co. P45 per
share Malolos Company P130 per share RP Treasury 7% bonds 102
Based on the above and the result of your audit, determine the following:
1. Gain or loss on sale of P500,000 RP Treasury Bonds on August 1, 2015
a. P15,000 gain
b. P 2,500 gain
c. P2,000 loss
d. P7,500 loss
2. Gain or loss on sale of 3,000 Malolos shares on October 1, 2015
a. P18,150 loss
b. P18,150 gain
c. P 2,000 gain
d. P21,000 gain

Sales proceeds (P500,000 x 1.03) P515,000

Less cost of RP Treasury bonds sold (P500,000 x 1.025) 512,500
Gain on sale of P500,000 RP Treasury Bonds P 2,500

Sales proceeds (3,000 shares x P132) P396,000

Less cost of shares sold {[(20,000 x P125) + P19,000] x 3/20} 377,850
Gain on sale of 3,000 Malolos shares P 18,150

On January 2, 2014, ABCD Company acquired 20% of the 400,000 shares of

outstanding common stock of XYZ Corporation for P30 per share. The purchase
price was equal to XYZ’s underlying book value. ABCD plans to hold this stock to
influence the activities of XYZ.
The following data are applicable for 2014 and 2015:
2014 2015
XYZ dividends (paid Oct. 31) P 40,000 P
48,000
XYZ earnings 140,000
160,000
XYZ stock market price at year-end 32 31

On January 2, 2006, ABCD Company sold 20,000 shares of XYZ stock for P31 per
share. During 2006, XYZ reported net income of P120,000, and on October 31,
2006, XYZ paid dividends of P20,000. At December 31, 2006, after a significant
stock decline, which is expected to be temporary, XYZ’s stock was selling for P22
per share. After selling the 20,000 shares, ABCD does not expect to exercise
significant influence over XYZ, and the shares are classified as available for sale.

1. Carrying value of Investment in XYZ as of December 31, 2014

a. P12,020,000
b. P 2,500,000
c. P2,420,000
d. P2,388,000
2. Carrying value of Investment in XYZ as of December 31, 2015
a. P2,442,400
b. P2,612,000
c. P12,042,400
d. P 2,372,000
3. Gain or loss on sale of Investment in XYZ on January 2, 2006
a. P2,390,600 loss
b. P 9,400 gain
c. P33,000 loss
d. P27,000 gain

Acquisition cost (400,000 x 20% x P30)

P2,400,000
Dividends received (P40,000 x 20%) (8,000)
Investment income (P140,000 x 20%) 28,000
Carrying value, 12/31/14 P2,420,000

Carrying value, 12/31/14 P2,420,000

Dividends received (P48,000 x 20%) (9,600)
Investment income (P160,000 x 20%) 32,000
Carrying value, 12/31/15 P2,442,400

Sales proceeds (20,000 x P31) P620,000

Less carrying value of investment sold (P2,442,400 x 20/80)
610,600
Gain on sale of investment P 9,400

Franchise
On January 1, 2014, ABCD signed an agreement to operate as franchisee of Clear
Copy Service, Inc. for an initial franchise of P680,000. Of this amount, P200,000
was paid when the agreement was signed and the balance was payable in four
annual payments of P120,000 each, beginning January 1, 2015. The agreement
provides that the down payment is not refundable and no future services are
required of the franchisor. The implicit rate for loan of this type is 14%. The
agreement also provides the 5% of the revenue from the franchise must be paid to
the franchisor annually. ABCD’s revenue from the franchise for 2014 was
P8,000,000. ABCD estimates the useful life of the franchise to be ten years.
Carrying amount of franchise as of December 31, 2014
a. P549,644
b. P494,680
c. P538,733
d. P612,000

Acquisition Cost
Cash 200,000
Installment – 120,000*2.9137 349,644
Carrying Amount of Franchise (1/14) 549,644
Amortization – 594,644/10 54964
Carrying Amount (12/14) 494,680

Patent

On July 1, 2015, ABCD purchased a patent from the inventor, who asked P1,100,000
for it. ABCD paid for the patent as follows: cash, P400,000; issuance of 10,000
shares of its own ordinary shares, par P10 (market value, P20 per share); and a note
payable due at the end of three years, face amount, P500,000, noninterest-bearing.
The current interest rate for this type of financing is 12 percent. ABCD estimates the
useful life of the patent to be ten years.
Carrying amount of patent as of December
31, 2015
P860,3
a. P1,045,000 c. 10
P908,1
b. P 955,900 d. 05

Cash 400,000
Shares – 10,000 shares @ P20 200,000
Notes Payable – P500,000*0.7117 355,850
Carrying Amount of Note (7/15) 955,850
Amortization – (955,850/10)/2 47,792.50
Carrying Amount (12/15) 908,057.5

Bonds payable

ABCD issued P5,000,000, 12% bonds, on October 1, 2009 at 96. The bonds will
mature on October 1, 2019. Interest is paid semi-annually on October 1 and April 1.
ABCD uses the straight line method to amortize bond discount. Based on the
foregoing information, determine the adjusted balances of the following as of March
31, 2015:
Unamortized bond
discount
a. P110,000 c P200,000
d. P
b. P100,000 90,000

Bond interest payable

c
a. P 0 . P150,000
d
b. P300,000 . P250,000

Face amount 5,000,000

Acquisition cost 4,800,000
Bond Discount 200,000

Amortization [(200,000/10)*5.5] 110,000

Unamortized Discount 90,000

Face amount 5,000,000

Stated Rate 12%
Interest Payable 600,000
Period ½
Interest Payable 300,000

Warranty Payable
Cavaliers has a one-year product warranty on some selected items. The estimated
warranty liability on sales made during the 2014 – 2015 fiscal year and still
outstanding as of March 31, 2015, amounted to P252,000. The warranty costs on
sales made from April 1, 2015 to March 31, 2016, are estimated at P630,000. The
actual warranty costs incurred during 2015 – 2016 fiscal year are as follows:
Warranty claims honored on 2014 – 2015 sales P 252,000
Warranty claims honored on 2015 – 2016 sales 285,000
Total P 537,000
Estimated warranty payable
a. P252,000 b. P345,000 c. P630,000 d. P882,000

Warranty payable, 3/31/15 252,000

Add warranty expense accrued during 2015-2016 630,000
Total 882,000
Less payments during 2015-2016 537,000
Warranty payable, 3/31/16 345,000
Shareholder’s Equity

The shareholders’ equity section of the ABCD Corporation’s statement of financial

position as of December 31,2015 is presented below:

12% Preference share capital,

P100 par P 270,000
Ordinary share capital, P20 par 1,598,400
Share premium – preference 36,800
Share premium – ordinary 235,200
Share premium – treasury shares 3,200
Retained earnings 1,585,840
Total shareholders’ equity P3,729,440

ABCD had 65,000 ordinary shares as December 31,2014.

The following shareholders’ equity transactions were recorded in 2015 and 2016:

2015
May 1 - Sold 9,000 ordinary shares for P24, par
value P20.
July 1 - Sold 700 preference shares for P124, par
value P100.
Jul. 31 - Issued an 8% share dividend on ordinary
shares. The market value of ordinary
share was P30 per share.
Aug. 30 - Declared cash dividends of 12% on
preference shares and P3 per share on
ordinary shares.
Dec. 31 - Profit for the year amounted to
P1,345,040.

2016
Feb. 1 - Sold 2,200 ordinary shares for P30.
May 1 - Sold 600 preference shares for P128.
May 31 - Issued a 2-for-1 split of ordinary shares.
The par value of the ordinary share was
reduced to P10 per share.
Sep. 1 - Purchased 1,000 ordinary shares for P18
to be held as treasury shares.

Oct. 1 - Declared and paid cash dividends of 12%

on preference shares and P4 per share on ordinary shares.

Nov. 1 - Sold 1,000 shares of treasury shares for P22.

Dec. 31 - Profit for the year amounted to P991,520.

Dividends paid to ordinary shareholders in 2016

a. P652,690
b. P692,560
c. P652,960
d. P656,960

Ordinary Shares 163,240

Dividend per Share 4
Dividends Paid to Ordinary Shares 652,960

The Retained Earnings account of Perseverance Company shows the following

debits and credits for the year 20xx:
RETAINED EARNINGS
Balance
Date Debit Credit Debit Credit
Jan. 1 Balance 726,400
(a) Loss from fire 5,250 721,150
(b) Write-off of goodwill 52,500 668,650
(c) Stock dividends distributed 140,000 528,650
(d) Loss on sale of equipment 48,300 480,350
Officers’ compensation related to
( e ) income of
prior periods – accrual overlooked 325,500 154,850
( f ) Loss on retirement of preferred shares
at more than issue price 70,000 84,850
( g ) Paid in capital in excess of par 129,500 214,350
( h ) Stock issuance expenses
(related to letter g) 10,000 204,350
( i ) Stock subscription defaults 8,470 212,820
Gain on retirement of preferred stock
( j ) at
less than issue price 25,900 238,720
( k ) Gain on early retirement of bonds 15,050 253,770
( l ) Gain on life insurance policy settlement 10,500 264,270
( m ) Correction of a fundamental error 50,050 314,320
 Effect of change in accounting principle
from FIFO to weighted average 100,000 414,320
(o) Dividends payable 25,000 389,320
(p) Loss on sale of treasury stock 20,000 369,320
(q) Proceeds from sale of donated stock 40,000 409,320
(r) Appraisal increase in land 250,000 659,320
(s) Appropriated for property acquisition 100,000 559,320

Determine the correct amount of Retained Earnings account.

a. 190,000
b. 195,950
c. 205,950
d. 200,000

Jan. 1 Balance 726,400

C Stock dividend (140,000)
E Officers’ compensation (325,500)
F Loss on retirement of preferred shares (70,000)
M Correction of prior-period error 50,050
N Effect of change in accounting principle 100,000
O Dividends payable (25,000)
P Loss on sale of treasury stock (20,000)
S Appropriated for property acquisition (100,000)
Correct amount of RE before net income(loss) 195,950