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INTERMEDIATE ACCOUNTING 1
FIRST GRADING EXAMINATION
KEY ANSWERS

ANSWERS AT A GLANCE:

The Accounting Process Bank Reconciliation Notes Receivable

1. D 22. D 42. D
2. B 23. D 43. D
3. D 24. B 44. C
4. A 25. A 45. A
5. C 26. B 46. D
6. A 27. D 47. E
7. B 28. B 48. B
8. B 29. D 49. A
9. B 30. A 50. A
10. D 31. C 51. A
52. D
Cash and Cash Equivalents Accounts Receivable 53. B
11. C 32. D 54. B
12. C 33. B 55. D
13. D 34. B 56. C
14. C 35. D 57. B
15. C 36. C 58. D
16. D 37. B 59. A
17. D 38. A 60. C
18. C 39. B
19. D 40. D BONUS QUESTION:
20. C 41. B 61. A
21. A

SOLUTIONS:

Chapter 1 - The Accounting Process

1. D
2. B
3. D
4. A
5. C
6. A

Solution:
Total debits in adjusted TB (which is equal to total credits)
2,970,000
composed of real and nominal accounts
Total credits in statement of financial position columns
(2,161,200)
composed of real accounts only
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Total credits representing nominal accounts only 808,800

Total debits of nominal accounts (740,400)
Profit – excess of nominal credits over nominal debits 68,400

7. B
Solution:
4,000,00
Unadjusted total expenses 0
a. Prepaid advertisement cost (40,000)
b. Unexpired portion of prepaid insurance (72,000)
c. Unexpired portion of prepaid rent (120,000)
d. Unused office supplies (64,000)
3,704,00
Adjusted total expenses 0

Adjusting entries
Item (a):
Dec. 31, 20x1 Prepaid advertisement 40,000
Advertising expense 40,000

Item (b):
Dec. 31, 20x1 Prepaid insurance (96K x 18/24) 72,000
Insurance expense 72,000

Item (c):
Dec. 31, 20x1 Prepaid rent (240K x 2 weeks/4) 120,000
Rent expense 120,000

Item (d):
Dec. 31, 20x1 Office supplies 64,000
Office supplies expense 64,000

8. B

9. B
Solution:
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10. D
Solution:

Chapter 2 – Cash and Cash Equivalents

11. C
12. C
13. D
14. C
15. C
16. D
17. D
18. C (8,000 – 400 + 1,000) = 8,600
19. D (1,800,000 + 50,000) = 1,850,000

20. C
Solution:
Checking account #101 175,000
Checking account #201 (10,000)
Money market account 25,000
90-day certificate of deposit, due 2/28/04 50,000
Cash and cash equivalents 240,000

21. A – (740 + 240 + 230 + 170 + 8 + 8 = 1,396 per count – 1,400 accountability) = 4 shortage

Chapter 3 – Bank Reconciliation

22. D
23. D
24. B
25. A
Solutions:
Balance per books, Sept. 30 1,480 Bal. per bank statement, Sept. 30 2,800
Credit memo : Deposits in transit 2,200
Collection on note by bank 2,500
Debit memos: Outstanding checks (1,000 - 100) (900)
NSF check (500)
Bank service charge (70)
Book error: Bank error:
Understatement of collection 90 Unrecorded debit (600)
Adjusted balance 3,500 Adjusted balance 3,500
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1,480 unadjusted balance vs. 3,500 adjusted balance = 2,020 net debit to cash

date Cash in bank 2,020

Accounts receivable (500 - 90) 410
Bank service charge 70
Note receivable (2,500 – 250) 2,250
Interest income 250

26. B
Solution:
Bal. per books, end. 280,000 Bal. per bank, end. 320,000
Add: CM 20,000 Add: DIT 75,000
Less: DM (15,000) Less: OC (25,000)
Add/Less: Book errors: Add/Less: Bank errors:
Understatement 45,000 Overstatement (40,000)
Adjusted balance 330,000 Adjusted balance 330,000

27. D
Solution:

Step 1 squeeze
Bal. per books 380 Bal. per bank 370
CM 670 DIT 560
DM (400) OC (280)
Adj. bal. 650 Adj. bal. 650 Step 2

28. B
Solution:
Disbursements per bank – April 99,400
Less: OC last month (25,200)
Add: OC this month 15,000
Disbursements per books –
April 89,200

Alternative solution:
Outstanding checks
25,200 31-Mar
Checks encashed
(Disbursements by
bank) 99,400 89,200 Checks drawn (squeeze)
1-Apr 15,000
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29. D
Solution:
Bal. per bank statement – Apr. 30 (46.5K + 58.4K – 49.7K) 55,200
Less: Outstanding check as of Apr. 30 (7,000)
Bal. per books – Apr. 30 48,200

Alternative solution:
Deposits per bank - April 20x1 58,400
Less: DIT in March that cleared in April (10,300)
Add: DIT as of April 30 -
Cash receipts per books – April 48,100

Disbursements per bank - April 20x1 49,700

Less: OC in March that cleared in April (12,600)
Add: OC as of April 30 7,000
Disbursements per books – April 44,100

Cash per books - Mar. 31 (given) 44,200

Add: Cash receipts per books - April 48,100
Less: Disbursements per books - April (44,100)
Cash per books - April 30 48,200

30. A
Solution:
Balance per bank statement .................. ₱32,400
Add deposits in transit ..................... 51,000
₱83,400
Deduct outstanding checks ................... 79,100
Corrected balance ........................... ₱ 4,300

Balance per depositor's records ............. ₱ 8,350

Add note receivable collected by bank ....... 1,250
₱ 9,600
Deduct:
Overdrafts ................................ ₱ 800
Book error--unrecorded check .............. 4,500 5,300
Corrected balance ........................... ₱ 4,300

31. C
Solution:
Bal. per Bal. per Step 1
(33,670) (36,088)
squeeze books bank
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DIT 4,680
Bank charge (1,248) OC (6,110)
Dishonored
(2,600)
check
Adj. bal. (37,518) Adj. bal. (37,518)
Step 2

Answer: (33,670)

Chapter 4 - Accounts Receivable

32. D
33. B (20,000 + 18,000 – 37,000) = 1,000 bad debts expense
34. B
Solution:
Allowance for doubtful accounts
- beg.
Write-offs 40,000 90,000 Bad debts expense
- Recoveries
end. 50,000

490,000 + 50,000 = 540,000

35. D – [(80,000 – 4,000) - (4,500 – 4,000)] = (76,000 – 500) = 75,500

36. C – (9,500 + 9,000 – 8,000) = 10,500

37. B – (425,000 – 14,000) = 4,110

38. A – (53,000 x 10%) – 760 = 4,540

39. B – (148,000 + 70,000 + 60,000 + 2,000 – 160,000) = 120,000

40. D – [840,000 – (36,000 + 76,800)] = 727,200

41. B
Solution:
Formula: Percentage = (Write-offs – Recoveries) ÷ (Net credit sales)

(Total Write-offs from 20x0 to 20x3) less (Total Recoveries from 20x0
Percentage (Jan. 1,
= to 20x3)
20x4)
Total Net credit sales from 20x0 to 20x3
= [(10K+7K+10K+15K) – (.6K+1K+3K+5K)] ÷ (80K+100K+160K+200K)
= (42,000 – 9,600) ÷ 540,000
Percentage (Jan. 1, 20x4) = (32,400 ÷ 540,000) = 6%

Percentage (Dec. 31, = (Total Write-offs from 20x1 to 20x4) less (Total Recoveries from 20x1
20x4) to 20x4)
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Total Net credit sales from 20x1 to 20x4

= [(7K+10K+15K+28K) – (1K+3K+5K+2K)] ÷ (100K+160K+200K+240K)
= (60,000 – 11,000) ÷ 700,000
Percentage (Dec. 31, 20x4) = (49,000 ÷ 700,000) = 7%

Allowance for doubtful accounts

Jan. 1, 20x4 (6% x
6,000 100,000)
20x4 write-offs 28,000 2,000 20x4 recoveries
Bad debts expense
34,000 (squeeze)
Dec. 31, 20x4 (7% x
200,000) 14,000

Chapter 5 - Notes Receivable

42. D
43. D
44. C
45. A
46. D
47. E
48. B
49. A
50. A (800K x PV of 1 @14%, n=5) = 415,495
51. A [(800K ÷ 4) x PV ordinary ann. of 1 @14%, n=4] = 582,742

52. D [(800K ÷ 5) x PV annuity due of 1 @14%, n=5] = 626,194

53. B
Solutions:
Initial measurement:
₱1,000,000 x PV of ₱1 @14%, n= 4 = ₱592,080

Carrying amount on Dec. 31, 20x1:

Date Interest income Unearned interest Present value
1/1/x1 407,920 592,080
12/31/x1 82,891 325,029 674,971
12/31/x2 94,496 230,533 769,467
12/31/x3 107,725 122,807 877,193
12/31/x4 122,807 0 1,000,000

Net effect in 20x1 P/L

1/1/x1
Note receivable 1,000,000
Unearned interest 407,920
Land 500,000
Gain on sale 92,080

Interest income 82,891

Gain on sale 92,080
Net effect on P/L - increase 174,971
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54. B (600,000 x PV of ₱1 @10%, n=3) = 450,789 x 10% = 45,000 rounded off

55. D
Solutions:
Initial measurement: (4M ÷ 4) x PV annuity due of 1 @12%, n=4 = 3,401,831

Subsequent measurement:
Interest
Date Collections Amortization Present value
income
Jan. 1, 20x1 3,401,831
Jan. 1, 20x1 1,000,000 - 1,000,000 2,401,831
Jan. 1, 20x2 1,000,000 288,220 711,780 1,690,051
Jan. 1, 20x3 1,000,000 202,806 797,194 892,857
Jan. 1, 20x4 1,000,000 107,143 892,857 0

56. C
Carrying amount of notes receivable - Jan. 1, 20x2 1,690,051
Add back: Collection on Jan. 1, 20x2 1,000,000
Carrying amount of notes receivable - Dec. 31, 20x1 2,690,051

57. B (1.2M x PV of 1 @11%, n=5) = 712,142 x 111% x 111% = 877,430

58. D
Initial measurement: [(1.2M ÷ 4) x PV ordinary ann. of 1 @11%, n=4] = 930,734

Subsequent measurement:
Date Collections Interest income Amortization Present value
1/1/x1 930,734
12/31/x1 300,000 102,381 197,619 733,115
12/31/x2 300,000 80,643 219,357 513,758
12/31/x3 300,000 56,513 243,487 270,271
12/31/x4 300,000 29,729 270,271 -

59. A
Outstanding balance of face amount (300K
x 2) 600,000

Carrying amt. on 12/31/x2 (513,758)

Unearned interest on 12/31/x2 86,242

OR

Interest income in 20x3 and 20x4 (56,513 + 29,729) = 86,242

60. C
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Solution:
Using trial and error:
Cash flows PV of 1 @3.5%, n=1 Present value
900,000.00 0.96618357 869,565.22
135,000.00 0.96618357 130,434.78
1,000,000.00

BONUS QUESTION:
61. A