Mindanao State University

College of Business Administration and Accountancy

Department of Accountancy

ACT112 – INTERMEDIATE ACCOUNTING I

Prelim Exam

QUESTIONNAIRE

Name: Score:
Section: Date:

Part I. Theories
1. What is the basic requirement for cash and cash equivalent?
a. Unrestricted in use for current operations
b. Available for the purchase of property, plant and equipment
c. Set aside for the liquidation of long-term debt
d. Deposited in bank

2. Bank overdrafts that cannot be offset should be

a. reported as a deduction from the current asset section.
b. reported as a deduction from cash.
c. netted against cash and a net cash amount reported.
d. reported as a current liability.

3. What is the theoretically correct method of recording cash discounts related to accounts
receivable?
a. Net method
b. Gross method
c. Allowance method
d. All three methods are theoretically correct

4. It is a predetermined amount withheld by a factor as a protection against customer

returns, allowances, and other special adjustments.
a. Equity in assigned accounts
b. Service charge
c. Factor’s holdback
d. Loss on factoring

5. Accompanying the bank statement was a credit memorandum for a short-term,

noninterest-bearing note collected by the bank. What entry is required in the depositor’s
accounts?
a. Debit Cash; credit Miscellaneous Income
b. Debit Cash; credit Notes Receivable
c. Debit Accounts Receivable; credit Cash
d. Debit Notes Receivable; credit Cash

6. A higher interest rate results to

a. decreased amount of present value.
b. increased amount of present value.
c. same amount of present value.
d. Answer cannot be determined due to insufficient data

During 2019, Artezia Corporation transferred inventory to Cedric Corporation and agreed to
repurchase the merchandise early in 2020. Cedric then used the inventory as collateral to
borrow from Lawrence Bank, remitting the proceeds to Artezia. In 2020 when Artezia
repurchased the inventory, Cedric used the proceeds to repay its bank loan.
7. This transaction is known as a(n)
a. consignment.
b. installment sale.
c. product financing arrangement.
d. assignment for the benefit of creditors.

8. On whose books should the cost of the inventory appear at the December 31, 2019
balance sheet date?
a. Artezia Corporation
b. Cedric Corporation
c. Lawrence Bank
d. Cedric Corporation, with Artezia making appropriate note disclosure of the transaction

9. Angel Co. uses the periodic inventory system. In the current year, Angel’s ending
inventory is understated by 20,000. Which of the following statements is correct?
a. Angel’s cost of goods sold is understated by 20,000.
b. Angel’s net purchases are understated by 20,000.
c. Angel’s gross income is understated by 20,000.
d. Angel’s profit is overstated by 20,000.

10. A method of estimating bad debts that focuses on the income statement rather than the
statement of financial position is the allowance method based on
a. Direct write-off
b. Aging the trade accounts receivable
c. Credit sales
d. The balance in the trade accounts receivable

11. To produce an inventory valuation which approximates the lower of average cost or
market using the conservative retail inventory method, the computation of the ratio of cost
to retail should
a. Ignore both markups and markdowns
b. Include markups and markdowns
c. Include markdowns but not markups
d. Include markups but not markdowns

12. Accounting for the interest in a noninterest bearing note receivable is an example of
what aspect of accounting theory?
a. Matching
b. Verifiability
c. Form over substance
d. Substance over form

13. All of the following are problems associated with the measurement of accounts
receivable, except
a. Cash discounts under the net method
b. Uncollectible accounts
c. Sales returns
d. Sales allowances

14. A method of estimating doubtful accounts that emphasizes asset valuation rather than
income measurement is the allowance method based on
a. Direct writeoff
b. Aging of receivables
c. Gross sales
d. Credit sales less sales returns and allowances

15. Which of the following shall not be considered cash for financial reporting purposes?
a. IOUs
b. Petty cash fund
 c. Money orders
d. Coin and currency

16. An entity determines that the credit risk on a loan receivable has not increased
significantly since initial recognition. The entity should recognize loss allowance equal to
a. the lifetime expected credit losses on the instrument.
b. the 12-month expected credit losses on the instrument.
c. sum of a and b
d. none; credit losses should be recognized only when there is objective evidence of a
loss event.

17. A cash over or short account

a. Is not generally accepted
b. Is debited when the petty cash fund proves out short
c. Is debited when the petty cash fund proves out over
d. Is a contra account to cash

18. When the required balance of the loss allowance decreases,

a. the entity recognizes loss.
b. the entity recognizes gain.
c. the entity recognizes unearned interest to be amortized over the remaining term of
the instrument.
d. the entity recognizes a deferred charge to be amortized over the remaining term of
the instrument.

19. The policies and procedures used to safeguard assets, ensure accurate business
information, and ensure compliance with laws and regulations are called
a. voucher system.
b. bank reconciliation.
c. internal controls.
d. proof of cash.

20. An entity is a large manufacturer of machines. A major customer has placed an order for
a special machine for which it has given a deposit to the entity. The parties have agreed
on a price for the machines. As per the terms of sale agreement, it is free on board
contract and the title passes to the buyer when goods are loaded into the ship at the port.
When should the revenue be recognized by the entity?
a. When the machine is loaded at the port.
b. When the customer orders the machine.
c. When the deposit is received.
d. When the machine has been received by the customer.

21. The payments of accounts payable made subsequent to the close of the accounting
period are recorded as if they were made at the end of the current period.
a. Kiting
b. Window dressing
c. Lapping
d. Imprest system

22. Which of the following should be recorded in Accounts Receivable?

a. Receivables from officers representing employee loans
b. Receivables from subsidiaries
c. Dividends receivable
d. None of these

23. Coins, currencies, checks, money orders, money on deposit, and cash funds that are
available for unrestricted use in current operations are disclosed in the notes to the
financial statements as
a. Cash.
b. Cash equivalents.
c. Investments.
 d. Accounts receivable.

24. Nontrade receivables are classified as current assets only if these are reasonably
expected to be realized in cash
a. Within one year or within the operating cycle, whichever is shorter.
b. Within one year or within the operating cycle, whichever is longer.
c. Within the normal operating cycle.
d. Within one year, the length of the operating cycle notwithstanding.

25. Accounts Receivable shall be recognized initially at

a. Discounted Value
b. Maturity Value
c. Current Value
d. Face Value

26. What factor should you use for a ₱2,000 note receivable that is collectible in full after five
years?
a. Present value of 1
b. Present value of an ordinary annuity of 1
c. Present value of an annuity due of 1
d. Any of these

27. Which of the following best describes the concept of time value of money?
a. Interest is earned only on interest-bearing receivables.
b. The amount debited to interest receivable is always equal to the interest income
recognized during the period.
c. Interest is earned or incurred on debt instruments due to passage of time.
d. If no interest receivable is recognized, no interest income is also recognized.

28. What is the treatment for abnormal freight in?

a. Charge to finished goods inventory
b. Charge to expense for the period
c. Charge to raw materials inventory
d. Allocate to raw materials, work in process and finished goods

29. Why would an entity sell accounts receivable to another entity?

a. To accelerate access to amount collected
b. To improve the quality of the credit granting process
c. To limit its legal liability
d. To comply with customer agreements

30. Present value is

a. the value now of a future amount.
b. the amount that must be invested now to produce a known future value.
c. always smaller than the future value.
d. all of these.

31. A shorter period results to

a. increased amount of present value.
b. decreased amount of present value.
c. same amount of present value.
d. shorter accountant.

32. According to PAS 2, inventories are measured at

a. cost
b. fair value
c. net realizable value
d. lower of a and c
33. Which of the following items should be included in a company’s inventory at the balance
sheet date?
a. Goods in transit which were purchased FOB destination.
b. Goods received from another company for sale on consignment.
c. Goods sold to a customer which are being held for the customer to call for at the
customer’s convenience.
d. Goods in transit which were purchased FOB shipping point.

34. The present value of 1 for a period of zero equals

a. 1.
b. 0.
c. Error!
d. Answer depends on the interest rate

35. If material, deposits in foreign bank which are subject to foreign exchange restriction
shall be classified
a. Separately as noncurrent asset, with appropriate disclosure
b. Separately as current asset, with appropriate disclosure
c. Be written off as loss
d. As part of cash and cash equivalents

36. All of the following can be classified as cash and cash equivalents, except
a. Redeemable preference shares acquired and due in 60 days
b. Commercial papers held and due for repayment in 90 days
c. Equity investments
d. A bank overdraft

37. During periods of arising prices, when the FIFO inventory cost flow method is used, a
perpetual inventory system would
a. Not be permitted
b. Result in the same ending inventory as a periodic system
c. Result in a higher ending inventory than a periodic system inventory system
d. Result in a lower ending inventory than a periodic inventory system

38. A proof of cash would be useful for

a. Discovering cash receipts that have not been recorded in the journal
b. Discovering time lag in making deposits
c. Discovering separation of incompatible duties of employees
d. Discovering cash receipts that have been recorded but have not been deposited

39. Cash in foreign currency is valued at

a. face value.
b. current exchange rate reduced by an allowance for expected decline in peso.
c. estimated realizable value.
d. current exchange rate.

40. Which of the following is not a characteristic of a system of cash control?

a. Use of a voucher system
b. Daily deposit of all cash received
c. Internal audits at irregular intervals
d. Combined responsibility for handling and recording cash

41. Theoretically, freight and warehousing costs incurred in the transfer of consigned goods
from the consignor to the consignee should be considered
a. An expense by the consignor
b. Inventoriable by the consignor
c. An expense by the consignee
d. Inventoriable by the consignee
42. The use of purchase discounts account implies that the recorded cost of a purchased
inventory item is its
a. Invoice price
b. Invoice price plus any purchase discount lost
c. Invoice price less the purchase discount taken
d. Invoice price less the purchase discount allowable whether taken or not

43. When using a perpetual inventory system

I. No purchases account is used.
II. A cost of goods sold account is used.
III. Two entries are required to record a sale.

a. I and II only
b. II only
c. II and III only
d. I, II and III

44. Which of the following statements is incorrect?

a. The accounting function should be separated from the custodianship of assets.
b. The responsibility for receiving merchandise and paying for it should usually be given
to one person.
c. Certain clerical personnel should be rotated among various jobs.
d. An entity’s personnel should be given well-defined responsibilities.

45. Generally, which inventory costing method approximates most closely the current cost
for each of the following:
Cost of goods sold Ending inventory
a. LIFO LIFO
b. FIFO FIFO
c. LIFO FIFO
d. FIFO LIFO

46. How is the gross profit method used in relation to inventory valuation?
a. To verify the accuracy of the physical inventory
b. To verify accuracy of the perpetual inventory record
c. To estimate the cost of goods sold
d. To provide a FIFO inventory value

47. The cost of ending inventory was lower using FIFO than LIFO. If there is no beginning
inventory, what direction did the cost of purchases move during the period?
a. Up
b. Down
c. Steady
d. Cannot be determined

48. The “amortized cost” of loan receivable is the amount at which

a. The loan receivable is measured initially minus principal repayment, plus or minus the
cumulative amortization of any difference between the initial amount recognized and
the principal maturity amount.
b. The loan receivable is measured initially minus principal repayment, plus or minus the
cumulative amortization of any difference between the initial amount recognized and
the principal maturity amount, minus reduction for impairment.
c. The loan receivable is measured initially.
d. The loan receivable is measured initially minus principal repayment.

49. Which of the following should not be taken into account when determining the cost of
inventory?
a. Storage costs of part-finished goods
b. Recoverable purchase taxes
 c. Trade discounts
d. Import duties on shipping of inventory inward

50. These are deductions made by the bank to the depositor’s bank account but not yet
recorded by the depositor.
a. Credit memos (CM)
b. Outstanding checks (OC)
c. Debit memos (DM)
d. Deposits in transit (DIT)

51. The cost of inventory is the sum of

a. Cost of purchase and cost of inventories
b. Direct cost, indirect cost and other cost
c. Cost of conversion and other cost incurred in bringing the inventory to the present
location and condition
d. Cost of purchase, cost of conversion and other cost incurred in bringing the inventory
to the present location and condition

52. In a bank reconciliation, deposits not recorded by the bank are:

a. deducted from the balance according to the bank statement
b. added to the balance according to the depositor’s records
c. deducted from the balance according to the depositor’s records
d. added to the balance according to the bank statement

53. Which of the following statements is true in relation to presentation of receivables in the
statement of financial position?
a. Trade receivables and nontrade receivables must be shown separately.
b. Nontrade receivables are presented as noncurrent assets.
c. Trade receivables and nontrade receivables which are currently collectible shall be
presented as one line item called ‘trade and other receivables.’
d. Trade accounts receivable and trade notes receivable shall be presented receivable.

54. Which of the following cost flow assumptions is used for inventory when an entity builds
townhouses?
a. FIFO
b. Weighted average
c. Specific identification
d. Any of these cost flow assumptions

55. Cash equivalents are

e. Short-term and highly liquid investments that are readily convertible into cash.
f. Short-term and highly liquid investments that are readily convertible into cash with
remaining maturity of three months.
g. Short-term and highly liquid investments that are readily convertible into cash and so
near their maturity that they represent insignificant risk of changes in value because of
changes in interest rates.
h. Short term and highly liquid marketable equity securities.

56. The internal control feature specific to petty cash is

a. Separation of duties
b. Imprest system
c. Assignment of responsibility
d. Proper authorization

57. In calculating the carrying amount of loan receivable, the lender adds to the principal
I. Direct origination cost
II. Indirect origination cost
III. Origination fee charged to borrower

a. I only
 b. I and II only
c. I and III only
d. I, II, and III

58. Which of the following is not an acceptable basis for valuation of inventory?
a. Historical cost
b. Current replacement cost
c. Prime cost
d. Current selling price less cost of disposal

59. If the cash balance in a company’s bank statement is less than the correct cash balance
and neither the company nor the bank has made any errors, there must be
a. Outstanding checks
b. Bank charges not yet recorded by the company
c. Deposits in transit
d. Deposits credited by the bank but not yet recorded by the company

60. The allocation of fixed factory overhead to the cost of conversion is based on
a. Normal capacity of the production facilities
b. Actual use of the production facilities
c. Either the normal capacity or actual use of the production facilities, whichever is
appropriate
d. Relative sales value method

Part II. Problems

The Witcher Company had the following account balances on December 31, 2019.
Cash in bank – current account 5,000,000
Cash in bank – payroll account 1,000,000
Cash on hand 500,000
Cash in bank – restricted account for building
construction expected to be disbursed in 2020 3,000,000
Time deposit, purchased December 15, 2019 and
due March 15, 2020 2,000,000
The cash on hand included a P200,000 check payable to The Witcher Company, dated January
15, 2020.

1. What should be reported as cash and cash equivalents on December 31, 2019?
a. 6,300,000
b. 8,300,000
c. 6,500,000
d. 8,700,000

Ryla Company revealed a balance of P8,200,000 in the accounts receivable control account at
year-end. An analysis of the accounts receivable showed the following:
Accounts known to be worthless 100,000
Advance payments to creditors on purchase orders 400,000
Advances to affiliated entities 1,000,000
Customers’ accounts reporting credit balances arising
from sales returns ( 600,000)
Interest receivable on bonds 400,000
Trade accounts receivable – unassigned 2,000,000
Subscription receivable due in 30 days 2,200,000
Trade accounts receivable – assigned (Roscoe
Company’s equity in assigned accounts is P500,000) 1,500,000
Trade installments receivable due 1 – 18 months,
 excluding unearned finance charge of P50,000 850,000
Trade accounts receivable from officers, due currently 150,000
Trade accounts on which postdated checks are held
and no entries were made on receipt of checks 200,000
Total 8,200,000

2. What amount should be reported as trade accounts receivable at year-end?

a. 4,650,000
b. 4,700,000
c. 4,150,000
d. 4,050,000

On December 31, 2021, Belle Co. has a balance of 240,000 in its inventory account, determined
through physical count, and a balance of 90,000 in its accounts payable account. The balances
were determined before any necessary adjustment for the following:
 Segregated goods in the shipping area marked “Bill and hold sale” were included in
inventory because shipment was not made until January 4, 2022. The goods were sold
to the customer, on a “bill and hold” sale, for 20,000 on December 30, 2021. The
customer accepted the billing on that day. The cost of the goods is 10,000. The goods
were already packed and ready for shipment. Both Belle and the buyer acknowledged
the shipping term.

 A package containing a product costing 80,000 was standing in the shipping area when
the physical inventory was conducted. This was included in the inventory although it was
marked “Hold for shipping instructions.” The sale order was dated December 17, 2021
but the package was shipped and the customer was billed on January 4, 2022.

 Merchandise costing 10,000, shipped FOB destination from a vendor on December 30,
2021, was received and recorded on January 5, 2022.

 Goods shipped F.O.B. destination on December 27, 2021, from a vendor to Belle Co.
were received on January 6, 2022. The invoice cost of 30,000 was recorded on
December 31, 2021 and included in the count as “goods in-transit.”

3. How much is the adjusted balance of inventory?

a. 240,000
b. 230,000
c. 160,000
d. 200,000

4. How much is the adjusted balance of accounts payable?

a. 90,000
b. 80,000
c. 60,000
d. 100,000

Noah Corporation had a specific receivable from a customer in the amount of 600,000 as of
December 31, 2010. During 2014, the customer informed Noah Corporation that servicing of its
payable will be made once there is significant improvement in their financial capabilities. Since
there is are no available historical data relating to similar borrowers, Noah Corporation uses its
experienced judgement to estimate the amount of impairment loss. Reasonable estimate
revealed that the fair value of the receivable as of December 31, 2014 represents 40% of the
outstanding receivable.

5. What amount of impairment loss on its receivable should Noah report for 2014?
a. None
b. 240,000
c. 360,000
 d. 600,000

Marco Co. has the following information on December 31, 2021 before any year-end
adjustments.

Accounts receivable, Jan. 1 80,000

Net credit sales 270,000
Collections from customers (excluding recoveries) 140,000
Allowance for doubtful accounts, Jan. 1 10,000
Write-offs 5,000
Recoveries 1,000
Percentage of receivables 5%

6. How much is the bad debt expense?

a. 4,250
b. 4,300
c. 4,550
d. 10,300

Pierre Angelo Company included the following items in inventory:

Materials 1,400,000
Advance for materials ordered 200,000
Goods In process 650,000
Unexpired insurance on inventory 60,000
Advertising catalogs and shipping cartons 150,000
Finished goods in factory 2,000,000
Finished goods in entity-owned retails store,
including 50% profit on cost 750,000
Finished goods in hands of consignees including
40% profit on sales 400,000
Finished goods in transit to customers, shipped
FOB destination at cost 250,000
Finished goods out on approval, at cost 170,000
Unsalable finished goods, at cost 50,000
Office supplies 40,000
Materials in transit, shipped FOB shipping point,
including freight of 30,000 330,000
Goods held on consignment, at sales price, cost 150,000 200,000

7. What is the correct amount of inventory?

a. 5,375,000
b. 5,500,000
c. 5,540,000
d. 5,250,000

Hasna Company shows the following account balances in their financial records as of
December 31, 2014:
Checking account at Azeem Bank ( 20,000)
Checking account at Tam Bank 500,000
Payroll account – Dimple Bank 100,000
Foreign bank account – restricted 750,000
Postage stamps 22,000
Employees’ postdated checks 30,000
I.O.U from president’s brother 75,000
Traveler’s check 50,000
No sufficient funds check 18,000
Petty cash fund (18,000 in currency and expenses
receipts for 82,000) 100,000
Cashier’s checks 36,000

8. What is the correct cash balance to be reported in the statement of financial

position of Hasna Company on December 31, 2014?
a. 582,000
b. 684,000
c. 702,000
d. 704,000

9. What is the correct cash balance to be reported in the statement of financial

position of Hasna Company on December 31, 2014 assuming the bank overdraft is
repayable on demand and it’s integral to the entity’s cash management?
a. 682,000
b. 684,000
c. 702,000
d. 704,000
Angel Company had the following account balances on December 31, 2019.
Petty cash fund 50,000
Cash in bank – current account 4,000,000
Cash in bank – payroll account 1,200,000
Cash in bank – sinking fund 1,000,000
Cash on hand 500,000
Cash in bank – restricted account for plant addition
expected to be disbursed in 2020 1,500,000
Treasury bills 1,000,000

 The petty cash fund included unreplenished December 2019 petty cash expense
vouchers of P5,000 and employee IOU of P5,000.
 The cash on hand included a P100,000 check payable to Angel Company dated
January 15, 2020.
 In exchange for a guaranteed line of credit, the entity l has agreed to maintain a
minimum balance of P200,000 in its unrestricted current bank account.
 The sinking fund is set aside to settle a bond payable that is due on June 30, 2020.

10. What should be reported as cash and cash equivalents on December 31, 2020?
a. 8,640,000
b. 8,440,000
c. 7,640,000
d. 5,640,000

Taken from the records of Geralt of Rivia Company are the following:
Balance per books, October 31 4,440
Total Credits per books, November 8,320
Balance per books, November 30 2,400
Balance per bank statement, October 31 5,520
Balance per bank statement, November 30 4,560
Total Debits per bank statement, November 2,800
Loan proceeds directly credited to Geralt of Rivia’s account in
October 1,200
Collection of receivable directly credited to Geralt of Rivia’s
account in November – not yet recorded in the books 600
NSF checks returned in October 900
NSF checks returned in November - not yet recorded in 300
the books
Check received from a customer amounting to 1,800
was recorded in the books in October as 180
Overstatement in book debit in October 800
Overstatement in book credit in November 300
Understatement in bank debit in October 290
Overstatement in bank credit in October 370
Deposit amounting to 1,050 was recorded by
the bank in November as 150

Deposits in transit – October 31 4,500

Outstanding checks – October 31 3,800

11. How much are the deposits in transit on November 30?

a. 5,820
b. 6,190
c. 5,340
d. 6,920
12. How much are the outstanding checks on November 30?
a. 7,620
b. 8,680
c. 9,120
d. 8,280
13. How much is the adjusted balance of cash on November 30?
e. 3,000
f. 3,300
g. 2,400
h. 3,580

The records of ABC Co. show the following:

 150,000 amount of goods sold on an installment basis to XYZ, Inc., title to the goods
was retained by ABC Co. until full payment is made. XYZ, Inc. took possession of the
goods.

 280,000 amount of goods sold to Alpha Co., for which ABC Co. has the option to
repurchase the goods sold at a set price that covers all costs related to the inventory.

 70,000 amount of goods bought under a “sale on trial” arrangement.

 50,000 amount of goods received from Beta Co. for which an agreement was signed
requiring ABC Co. to replace such goods in the near future.

14. How much is included as part of inventory?

a. 50,000
b. 120,000
c. 270,000
d. 330,000

On May 9, 2015, Gaiser Corp. sold merchandise with a list price of 150,000 to Samantha on
account. Gaiser allowed trade discounts of 30% and 20%. Credit terms were 2/15, n/40 and the
sale was made F.O.B. destination. Gaiser prepaid 6,000 of delivery costs for Samantha as an
accommodation.

15. What amount should Samantha remit to Gaiser as full payment on May 24, 2015?
a. 82,320
b. 88,200
 c. 88,320
d. 94,200

On October 31, 2015, Roxana Company engaged in the following transactions:

 Obtained a 500,000, six-month loan from Dion Bank, discounted at 12%. The company
pledged 500,000 of accounts receivable as security for the loan.

 Factored 1,000,000 of accounts receivable without recourse on a non notification basis

with Cassis Company. Cassis charged a factoring fee of 2% of the amount of receivables
factored and withheld 10% of the amount factored.

16. What is the total cash received from the financing of receivables?
a. 1,320,000
b. 1,350,000
c. 1,380,000
d. 1,470,000

On January 1, 2019, Eris Company sold goods to Anakin Company. Anakin signed a
noninterest-bearing note requiring payment of P600,000 annually for seven years. The first
payment was made on January 1, 2019.

The prevailing rate of interest for this type of note at date of issuance was 10%.
PV of an ordinary annuity of 1 at 10% for 6 periods 4.36
PV of an ordinary annuity of 1 at 10% for 7 periods 4.87

17. What amount should be recorded as sales revenue in January 2019?

a. 3,216,000
b. 2,922,000
c. 2,616,000
d. 2,142,000

18. What is the interest income for 2019?

a. 300,000
b. 232,200
c. 261,600
d. 360,000

19. What is the carrying amount of the note receivable on December 31, 2019?
a. 3,600,000
b. 3,000,000
c. 2,277,600
d. 2,877,600

Ryder Co. has the following comparative information regarding its inventories.
2022 2021
Inventory, December 31 at cost 30,000 22,000
Inventory, December 31 at NRV 33,000 24,000
Cost of goods sold before adjustments 180,000 200,000

Ryder Co. recognizes write-downs of inventories in cost of goods sold.

20. How much is the cost of goods sold in 2021?

 a. 200,000
b. 202,000
c. 198,000
d. 220,000

21. How much is the cost of goods sold in 2022?

a. 178,000
b. 177,000
c. 180,000
d. 183,000

Yessica Bank granted an 8%, 3-year 6,000,000 loan to Alex Company on January 1, 2014. The
interest on the loan is payable every December 31. Yessica Bank incurred 520,600 of direct
origination cost but an origination fee of 200,000 was charged against Alex Company. The
effective rate on the loan as a result of the origination fee and cost is now 6%.

22. What is the carrying value of the loan on January 1, 2014 in Yessica Bank’s
accounting books?
a. 5,800,000
b. 6,000,000
c. 6,320,600
d. 6,230,600

23. What is the carrying value of the loan on December 31, 2015 in Yessica Bank’s
accounting books?
a. 6,000,000
b. 6,113,026
c. 6,219,836
d. 6,230,600

On October 1, 2014, Steve Company consigned 50 sewing machines to Bucky Company for
sale at 20,000 each and paid 40,000 in transportation cost. On December 31, 2014, Bucky
reported the sale of 30 sewing machines and remitted 510,000. The remittance was net of the
agreed 15% commission.

24. What amount should Steve recognize as consignment sales revenue for 2014?
a. 560,000
b. 576,000
c. 510,000
d. 600,000

Cassia Co. acquired a tract of land for 2,000,000. The land was developed and subdivided into
residential lots at an additional cost of 200,000. Although the subdivided lots are relatively equal
in sizes, they were offered at different sales prices due to differences in terrain. Information on
the subdivided lots is shown below:

Lot Group No. of Lots Price per Lot

A 4 480,000
B 10 240,000
C 15 192,000

During the year, 2 lots from the A group, 3 lots from the B group and 12 lots from the C group
were sold.

25. How much gross income is recognized during the year?

a. 2,766,666
b. 2,783,333
 c. 2,694,345
d. 2,877,333

Ercella Co. is a wholesaler of guitar picks. The activity for product “Harsen” during August is
shown below:

Date Transaction Units Unit cost Total cost

August 1 Inventory 2,000 ₱ 28.80 ₱ 57,600
7 Purchase 3,000 29.76 89,280
12 Sales 4,200
13 Purchase 4,800 30.40 145,920
14 Sales return 600
22 Sales 3,800
29 Purchase 1,900 30.88 58,672
30 Purchase return 300 30.88 (9,264)
Total goods available for sale ₱ 342,208

26. How much are the ending inventory and cost of goods sold under the FIFO –
periodic cost flow formula?
Ending Inventory Cost of Goods Sold
a. 219,840 122,368
b. 112,341 229,867
c. 122,368 219,840
d. 122,386 219,804

27. How much are the ending inventory and cost of goods sold under the weighted
average – perpetual cost flow formula?
Ending inventory Cost of goods sold
a. 121,794 220,414
b. 122,468 219,740
c. 122,017 220,191
d. 123,384 218,824

The following information applies to Abel, Inc. for 2014:

Merchandise purchased for resale 400,000
Freight-in 5,000
Freight-out 10,000
Purchase returns 2,000

28. How much is Abel’s 2014 inventoriable cost?

a. 400,000
b. 403,000
c. 408,000
d. 413,000

Aidin Corporation applies the lower of cost and net realizable value (NRV) of inventory. Data
regarding the items in work-in-process inventory are shown below:

Skirt Dress
Historical cost 56,640 90,000
Selling price 108,800 108,000
Estimated cost to complete 14,400 12,600
Replacement cost 50,400 95,400
Normal profit margin as a percentage of selling price 25% 10%

29. Under the lower of cost and NRV, the dress should be valued at:
a. 76,800
b. 87,600
c. 90,000
d. 95,400
Athanasia Company began operations on January 1, 2019. On December 31, 2019, the entity
provided for doubtful accounts based on 1% of annual credit sales.
On January 1, 2020, the entity used the method of determining the allowance for doubtful
accounts by aging of accounts receivable.
Days past invoice date Percent uncollectible
0 – 30 1
31 – 90 5
91 – 180 20
Over 180 80

In addition, the entity wrote off all accounts receivable that were over 1 year old.
The entity provided the following additional information:
2020 2019
Credit sales 3,000,000 2,800,000
Collections, including recovery 2,915,000 2,400,000
Accounts written off 27,000 none
Recovery of accounts previously written off 7,000 none

Days past invoice date on December 31

0 – 30 300,000 250,000
31 – 90 80,000 90,000
91 – 180 60,000 45,000
Over 180 25,000 10,000

30. What is the allowance for doubtful accounts on December 31, 2019?
a. 28,000
b. 24,000
c. 26,000
d. 0

31. What amount should be reported as allowance for doubtful accounts on December
31, 2020?
a. 39,000
b. 31,000
c. 38,000
d. 11,000

In preparing its bank reconciliation at December 31, 2014, Reina Company has the following
available data:

Balance per bank statement, December 31, 2014 38,075

Deposit in transit, December 31, 2014 5,200
Outstanding checks, December 31, 2014 6,350
Amount erroneously credited by bank to Reina’s account,
December 31, 2014 400
Bank service charges for December 75

32. How much is Reina’s adjusted cash in bank at December 31, 2014?
e. 36,050
f. 36,125
g. 36,450
h. 36,525
The work in process inventories of Yara Manufacturing, Inc. were completely destroyed by fire
on June 1, 2021. Amounts for the following accounts have been established.

January 1, 2021 June 1, 2021

Accounts payable 117,000 135,000
Raw materials 12,000 18,000
Work in process 60,000 ?
Finished goods 69,000 87,000

The following additional information was determined:

 Payments to suppliers for purchases on account, 60,000.
 Freight on purchases, 3,000.
 Direct labor, 48,000.
 Production overhead, 18,000.
 Sales from January 1 to May 31, 225,000.
 Sales returns, 45,000.
 Sales discounts, 15,000.
 Gross profit rate based on sales, 25%.

33. How much is the work in process destroyed by fire?

a. 48,000
b. 49,500
c. 58,500
d. 51,000

Percy Company showed the following bank information on August 31:

Balance of cash in bank account 1,300,000
Balance of bank statement 1,200,000
Outstanding checks, August 31:
Number 555 10,000
761 55,000
762 50,000
763 25,000
764 65,000
765 70,000
Receipts of August 31, deposited September 1 275,000
Service charge for August 5,000
NSF check receipt from a customer 85,000

 The cashier-bookkeeper had misappropriated P30,000 and an additional P10,000 by

charging sales discounts and crediting accounts receivable.
 The stub for check number 765 and the invoice relating thereto showed that it was for
P50,000. It was recorded incorrectly in the cash disbursements journal as P70,000.
This check was draw in payment of an account payable.
 Payment has been stopped on check number 555 which was drawn in payment of an
account payable. The payee cannot be located.

34. What is the adjusted cash in bank on August 31?

a. 1,240,000
b. 1,230,000
c. 1,210,000
d. 1,200,000

Maxi Department Store uses a calendar year and the FIFO retail inventory method (assuming
stable prices). Information relating to the computation of the inventory at December 31 is as
follows:
 Cost Retail
Inventory, January 1 320,000 800,000
Sales 5,800,000
Purchases 2,100,000 6,000,000
Freight-in 70,000
Net markups 400,000
Net markdowns 200,000

35. What is the ending inventory at cost at December 31 using FIFO retail inventory
method?
a. 420,000
b. 430,000
c. 440,000
d. 200,000

Fiona Company reported the following balances at December 31, 2015 and 2014.

December 31, 2015 December 31, 2014

Inventory 2,600,000 2,900,000
Accounts payable 750,000 600,000

The company paid its suppliers 4,900,000 during the year ended December 31, 2015.

36. How much should Fiona report as cost of goods sold in its December 31, 2015
statement of comprehensive income?
a. 4,350,000
b. 4,850,000
c. 4,950,000
d. 5,450,000

On October 1, 2021, the warehouse of Winter Co. and all the inventories contained therein were
damaged by flood. Off-site back up of data base shows the following information:

Inventory, Jan. 1 10,000

Accounts payable, Jan. 1 3,000
Accounts payable, Sept. 30 2,000
Payments to suppliers 50,000
Freight-out 500
Purchase returns 500
Sales from Jan. to Sept. 80,000
Sales returns 5,000
Sales discounts 2,000
Gross profit rate based on sales 30%

Goods in transit as of October 1, 2021, purchased FOB shipping point, amounted to 1,000, cost
of goods out on consignment is 1,200, and materials damaged by flood can be sold at a salvage
value of 1,800.
37. How much is the inventory loss due to the flood?
a. 3,000
b. 2,500
c. 4,400
d. 4,900

On January 1, 20x1, Izek Company sold transportation equipment with a historical cost of
20,000,000 and accumulated depreciation of 7,000,000 in exchange for cash of 500,000 and a
noninterest-bearing note receivable of 8,000,000 due in 4 equal annual installments starting on
December 31, 2021 and every December 31 thereafter. The prevailing rate of interest for this
type of note is 12%.

38. How much is the interest income in 2021?

a. 728,946
b. 678,334
c. 728,964
d. 704,236

39. How much is the current portion of the receivable on December 31, 20x1?
a. 1,271,036
b. 1,423,560
c. 3,380,102
d. 1,594,388

40. How much is the carrying amount of the receivable on December 31, 20x2?
a. 4,803,663
b. 3,380,103
c. 6,074,699
d. 6,000,000

Marvel Company had the following bank reconciliation on June 30:

Balance per bank statement, June 30 3,000,000
Deposit in Transit 400,000
Total 3,400,000
Outstanding checks (900,000)
Balance per book, June 30 2,500,000

The bank statement for the month of July showed the following:
Deposits, including P200,000 note collected for Marvel 9,000,000
Disbursements, including P140,000 NSF customer check
and P10,000 service charge 7,000,000

All reconciling items on June 30 cleared through the bank in July. The outstanding checks
totaled P600,000 and the deposit in transit amounted to P1,000,000 on July 31.

41. What is the adjusted cash in bank on July 31?

a. 2,500,000
b. 5,400,000
c. 2,900,000
d. 5,000,000

42. What is the amount of cash receipts per book in July?

a. 9,400,000
b. 9,600,000
c. 8,600,000
d. 9,800,000

43. What is the amount of cash disbursements per book in July?

a. 6,550,000
b. 6,700,000
c. 7,300,000
d. 6,850,000

Presented below is information pertaining to Yasha Co.:

 Cost Retail
Inventory, January 1 21,750 35,000
Purchases 138,250 200,750
Freight-In 5,000 -
Purchase discounts 1,250 -
Purchase returns 13,000 21,500
Departmental Transfers-In (Debit) 2,500 3,750
Departmental Transfers-Out (Credit) 2,000 3,000
Markups 15,000
Markup cancellations 5,000
Markdowns 30,000
Markdown cancellations 7,500
Abnormal spoilage (theft and casualty loss) 12,500 17,500
Sales 109,500
Sales returns 6,250
Sales discounts 2,500
Employee discounts 1,250
Normal spoilage (shrinkage and breakages) 500

44. How much is the ending inventory under the Average cost method?
a. 60,750
b. 60,000
c. 61,050
d. 62,400

Peter Parker Company reported the checkbook balance on December 31, 2019 at P5,000,000
and held the following items on same date:

Check payable to Peter Parker, dated January 2, 2020 in

payment of a sale made in December 2019, not
included in December 31 checkbook balance. 2,000,000
Check payable to Peter Parker, deposited December 15
and included in December 31 checkbook
balance, but returned by bank on December 30
stamped “NSF”. The check was redeposited on
January 2, 2020 and cleared on January 9, 2020 500,000
Check drawn on Peter Parker’s account, payable to a vendor, dated
and recorded in Peter Parker’s books on December 31, 2019
but not mailed until January 10, 2020 300,000
Certificate of time deposit 1,000,000

45. What amount should be reported as cash on December 31, 2019?

a. 4,800,000
b. 5,300,000
c. 6,500,000
d. 5,800,000