i W (Aj pouyrecanic university OF “HE PHILIPPINES 7 ; 4 us Sta, Mesa, Manila FINANCE COLLEGE OF ACCOUWNTANCY AND ACEO 3016 ~ FINANCIAL ACCOUNTING THEORIES ANID PROBLEMS, P-L : MIDTERM DEPARTMENTAL EXAMINATION * AUGUST 11, 2013 jour choice in the answer sheet provided. Erasure DIRECTION: Choose your best answer and shade the letter of y aig ducing t are not allowed. Show all supporting computations in a separate worksheet. Always observe hor examination. TESTI: THEORIES (1 Point Ech) 1, Which statement is INCORRECT regardifg fiancial inst ‘2, Finanzil instruments ore contracts, Yb nancial instruments give ise to a ivancial assets the holder” Finacial inziruments encompass financi! assets financial liabilities and equity instruments 4.) Financial instrument shoutd be in writing 2. When should an item that meets th? definition of an element be recognized, according to the Framevork? : a. Whenit is probable that any future economic benefit associated with the item will flow to or from the entity \When the element has a cost or value that can be measured with reliability >< ‘When the entity obtains control of the rights or obligations associated with the item > ‘When itis probable that any future economic benefit associated with the itera will flow t9 oF fron. ‘the entity and the item has a cost or value that can be measured with zeliability 3. Which of the following procedures is the least essential attribute of a cash disbursement contro! system? a. “Establishment of a petty cash fund ~ is 8. Supervision of all cash disbursement and recov! keaping functions ~ : c. Use of mulkiple bank accounts d. Checks are signed only when supported by adequate documentation and verification ~ €: Alldisbu semesits (except petty cash) are required to be made by check / 4. ‘Which of the following statements concerning compensating balance agreement: a. They reduce the amount of cash availabie to tne borrower ~ b, They must be disclosed in the financial statements notes They increase the effective interest rate to the borrower They always involve iegal Festrictions ‘onthe cash received y. NOT TRUE? In reconciling the bark balance with the boo cash balance, which of the Slowing would noi cause ti bank balance shown on the bank statement to be lower than the adjusted book balance? {2) Interest credited to the account hy the bank Se deposit in ransit ©. Cash on hand at the company ._NSF checks from 3 customer, 2s reported on the bank statement ° 6. Which of the following reconciling items would require an adjusting entry on the company’s book Non-sufficient funds check . Cash on hand BY" Outstanding checks. d. Erroneous bank debit 7. Worship Company prepares four-column }ank feconciiiation, Check #888 was written for PS.670 on the Dooks, but the check wes wriften and cleared by the bank for correct amount of P6,570. The correct ‘treatment on the reconciliation would be. be . “a. On the bank side, deduct P900 from payments and add P900 to ending balance b. On the book side, deduct P900 from. Payments and add P900 to ending balance ce the bank side, add P800 to receipts and ad P900 to ending balance - D n the book side; add ?800 to payrnents and Jeduct P900 from ending balance 8. Which of the following is NOT considered cas ‘Petty cash funds and change funds sh for finencial reporting purposes?is muney orders, travellers’ checks and personal checks. ./ £ oi 's, currency and available funds — 3. ; Bank overdraft (amount is material) 1; .ls 8. In preparing monthly bank reconciliation, which of the followin Ni 1 which of the following items Would be added to balan ‘eported in bank statement to arrve atthe correct cs balance, a Bank service charge y Code SDeposits.n transit b. Acustomer's note collected by the b: 4. Outstanding checks ¥ 70. Wt the cash Balance: shown in # company’s accounting records is less than the correct cas neither the company nor the bank has made any eror, there must be rs 3. Bank charges not yet recognized by the company sy 3 b. Outstanding checks 2 ; < } Deposits credited by the bank, not yet rezorded by the company BA “d. Collections rot yet deposited ae 11. Whick of the follow'ng would be classified as trade receivable? _ 3. Cash dividends receivable $ s.Claimsin litigation « &. loanstoemployees x mounts due trom customer 12. Wher, individual customers account have credit balances of material amounts, these amount 3. May be shown af creit balances of customers account in current asset section > 'b. May be deducted from the debit balance in other customers account on the statement financial position . ©: }Must be reported (or disclosed) separately in the liability, section of the statement ¢" financ position d. Shoulit be omitted from the ‘statement of financial position 12, ABC Cycle Shop sells » bicycle to PUP-CAF, a customer who uses Express Card {a national crest care not issued by a bank). In recording this sale, ABC Cycle Shop should record a, Accash reccipt (cash sales) An account receivable from PUP-CAF 1.) Anaccount receivabie from Express Card d. Asmall increase in allowance for doubtful accounts 14. When an account previously written off is subsequently recovered and collected, the transaction would: =5. ta Increase profit under direct write-off method PIR Carh ‘b. Increase profit under allowance method v Allow) PIS €. Decrease profit under the direct method ’ d._ Increase net accounts receivable uncer allowance method 415, Courage Company, which has an edequate amount in its allowance for 1s, write-off vunegllectible an account receivable from a bankrupt customer, This action will: a) Have no bffect on total current assets 4 b. Reduce total current assets Mou! AE Reduce net income for the period ALR 4 d. Reduce the amount of total equity oY 16, Anoninterest bearing note receivable * @. Causes no interest revenue to be recorded b. Includes a specified principal amount, plus specified interest cc. lincludes a specified principal amount but an unspecified interest arnount 7 () Includes an unspecified principal amount and an unspecified interest amount & Soca The ter note has P6,000 and was interest bearing at an annual rate o! 18 percent. The o\ver note he 7,080 and was noninterest hearing (implied interest rate was 18 perceat) eived two one year notes in payment fer merchandise scld. One note had a fo a, The total amount of cash ultimately to be received will be more for the interest bearing Both notes willcasethe sme totalinteres:to be recognized “G_ The amount of interest revenue which shouid be recognized is more for the ret saring 4, The noninterest bearing note shows a higher book value immediately after the salevm escent seenveu ry, UU plus interest of 459 E, mesteulraconstotleconne duc oa yg ¢ i The Principalof the note Plus interest is due on August 15 The maturity valor mae eee : 19. The-carrying value of impaired note beforo ru PBvizing a loan impairment : YS. Gelvdeseccued mere, 21, Which of the ©. Is the same as the carrying value afte, rece 7 recognizing the im Is less than the carrying value atte, relmpureee Tecpenizing the impairment following is NOT TRUE? A a. Notes receivable intially should be recorded at the present value of the f the date of issue“ , : mre tn receipts on b. All notes implicity cary interest. Discount on notes receivable is 8 contra accafint frequentlPyound with interest bea:ing ct The account notes receivabe dishonored isan asset account 22. PAS 2~ Inventories applies to 3. Workin progress arising under Construction contracts, including directly related service contracts b.. Financial instruments ‘ © Agricultural produce after harvest 4.” None of the abave 23. Under PAS 2 — Inventories, Sericvitural and forest products are measured at = in accordance with wel-established industry practices, Cost 1. Net reaizable value 2, Fairvaue lesscost to sell 4. Lower of Aand a 24, Which of the following is incorrect regarding purchase commitments? 8. No journal entry is required to record an asset and Hiabilty at the commitment b. Itisan executory contract ~ ‘ ©) Ina cancelale purtase commitment, when price dedine takes place Ser the bomnitment dave © and itis outstarcing at the end of an accounting period; eat Gellmated loss istecognized ~ d. Gain on fecov ery in a purchase commitment ‘can only be recognized to the extent of the estimated loss previously recognized _. 25, The retail inventory mezhod is widely used a. To permit the comput: n of net income without pl.ysical count of inventory 'b.° Asa control measure in determining inyentory shortages « In regulating quantities of inventory oF nand sh. #pr insurence information oa of the’choices 26. Which of the following so : e See 2. Itis an inventory estimation technique based on a relationship between gross profit ard sales that is assumed to be fairy stable es Ite use is not appropriate for financial reporting purposes iid st ‘labo! 2fficienc 6.118 takes into account the-normal Teve's of materials ard supplies Iabot, efficie a) b, jot Yelate to gross profit method estimation tectnique? ind apacityy lization a oe IN Serve a useful purpose when approximation of ending inventorSr these shipping terms, the seller pays forthe fee ) FOB shipping point; I, which Iggally must be porne by te b iver . Freight prepaid © FOB destination; Freight collect FOB':hipping point ; Freigat collect 4. FOR destination; Freight prepaid 28. Ona particular date, which of the Following shouldbe Jacluded in a company’s inventory |_| & Goods in the company's warehouse which hi co yeemignmat ‘Goods sold through a sales contract the terms ‘being held for the customer to ¢ Goods purchased and in transit Goods held for sale in the posse: ® been received from another corpany ior of which have been completed, but the goods a alfor at his convenience FOB destination ssion of an agent of the company © Emphasizes the valuatioy Most ciosely approxima n of inventory for statement of tinancias ‘Most clearly reflects the tes lower-of-cast-or-mnarket for the endl Position purposes ing inventory periodic income Matches the physical flow of, Goods from inventory with sales sevenues Yields tre most conservative améunt of reported income 30. Praise Company discovered @ P14,000 overs mesa ts 2013 eng iver ie te statements fo 2013 were prepared. The eft this ercer on the 2013 FS was ¢ f Cutrent assets were overstated and net incarve was understated x Cutrent assets were understated and net incame was overstated E ‘¢./ Cutrent assets were overstated anc’ net income was overstated G. Current assets were ‘Understated and net income was understated PROBLEM SOLVING (2 Paints Each) 31, Presented below is a list of-items th wat may OF may not reported as inventory in Sut December 31 Statement of Financial Po sition : Goods out on consignment at another company’s stare 280,000 Goods sold on installment basis : 100,000 Goods purchased stil in transit on December 31 on terms CiE 728,000 Goods purchased stiln transit on De.ember 31on terms Exship 7 200,000 Goods sold to another company, for wh ch Our company has signed an agreement o repurchase ata set price that vers all cons eater! to the inventory Goods sold where large returns are predictable Goods sold f.0.b, Setler that are is transit as of December 31 Freight charges on goods purchased 120,000 80,000 Factory labor costs incurred an goods stil not ompletely processed 50,000 Interest cost incurred for inventories that are routinely manufactured 20,000 Costs incurred to advertise goods held for resale, 20,000 -Materiais on hand not yet placed into production 380,000 Raw meterials on which athe company has started oraduction, but which are not completely processed 280,000 Fectory supplies, 20,000 Goods held on consign'nent from another company 450,000 Costs identified with units completed but not yet sold 260,000 Goods sold f.0.b. Buyer that are in transit on December 31 40,000 ‘Temporary Investment in stocks and bonds thar will be resold in,the near future 300,000 ow mach ofthese items would be reported a inventory inthe franca statements? a. 2,360,000 ——_b, 2,260,000 ©. 72,220,000 4. 74,000,000 7 ms 2/30, 0/30. Al) 01 the ‘Mike Ross Corp, purchased merchandise during 2023 on credit for P200,000 ae {FOSS fiability except P40,000 was paid within the ciscount period. The ae ne ra ay term, At the end of the annual accounting pesiod, December 32, 2033, 90% of inventory. The entity use> net Deen sold and 10% remained in inventory, The ertity has eo beginning inventory. iy method of recording purchases,fe entity used the gross method af recor f Bods sold. ‘Would have been a The same NG PUC ses instead of th net method, the “parte b Higher by P720 —e. Lower by P720 4. 476,400 ‘Use the following information for the next two questions. Harvey Specter Sales Company uses the fsti, fkstout (FFD) method in calevlating cost of thee products that the Company sells, At July 4, the bal allowance for inventory write-down was 3,000, inventor Products are given for the month of lly goods sold f lance of inventory account was 552,500, ies andj ‘urehase information canceming th ¢ z 50,000 units 30,000 units 65,00" unit: @r690 = @P10.00-— @PO.0 70,000 units 5,000 units 30,000 uni July2 inventory July 1-18 Purchases @P650 © @PIOS0 = @P1z5, July 16-31 Purchases 30,000 units @ F890 July 2-31 Sales 105,000 50,000 units 45,000 nics units July31 Sales Price per unit 8.00 P11.00 P2.00 July32 Inventory 45,000 units 25,000 units $0,000 units On July 31, the Companys suppliers reduced their prices from thé most recent purchase prices b: following percentages: product C, 20%; product P, 108; product A, 8%. Accordingly, Harvey decided! ic reduce its sales prices on all tems by 10%, effectiv. August 1. Harvey's selling cost is 10% of sales pv <2 Product C and P have # normal profit (after selling costs) of 30% 00 Sales prices, while than normal p-—'h (on pfoduct & (after setting cost) Is 15% of sales price. 33. The amount of Inventory to be reported on the ompany’s statement of financial position at Jxly 31 is a. -P543,810 b, P559,350 ¢. 569,850 d> P595,350 38. The loss on inventory write down for the «haath of ‘uly a P5,650 . °13,500 © P82,650 4,785,650 35. Jessica Pearson Inc. is a wholesaler of office supplies. The activity for Model V calculatars during Augus! 1s shown below: * Balance/Transaction fet Inventory > P3600 ue Purchase 3,000 3720 | 2 Sales 3,500 a Purchase 4,800 38.00 | 2 Sales 3,800 ain 23 Purchave 4,600 3aso 6! 3 kept in units o: If Jessica Pearson Inc. uses perpetual inventory rerords and that sald bea ) . 2 is reported as ending inventory of Model V calculators using average method at August 22, 146,409 a, P150,080 b, P252,264 . P150,16C a ‘Use the following information for the next two questions. oration is avalable forthe current) Louis citt Inc. uses the retail inventory method, The following inform Retail ‘Begining Inventory me sgooese 2,600.00 Purchases 18,000,000 29,200,000 Freight in 00,020, Purchase returns 600,020) 3,000,000) Purchase allowances Sto oat") : Departmental transfer in "400,000 00,000 Net markups 590,000, x Net markdow’s Y 2,0081000) sales Tan reece 400007 70 Sales returns a 380000 “Zale 2 Me Sales ciscount +H 00007 75.2 268,000 Employee discount 600,000 df Less fr SK Bs ue .oss from oreakage : Pas 20, y 36, The estimated cost of inventory at the end of the curcnt year using the average retail in ¥ é. 73,584,000 a.)P3,200,000-“ —_. 3,000,000 ¢ 3,250,000 3B etry ty : 37, The estimated cost of inventory at the end ofthe curert year using ti : % F2a00000 —& P3o0000 | E3280000 ~ (C4. 73,858,880 .e . 38. Cémpute for the estimated cost af inventory lost in fire using the data below: a tyyo S,tnventory, July 2, 2002 P 52,600 UP ary, oO. - Purchases, July 3, 2102 to Jan. 19, 2013 368,000 by perenne “} Sales, July, 2300 to Jan 18,2013 _, seac0o 8 Vapi Purchase returns 200 -(S4Y,qyD “ Purchase-discount taken I 5,800 Gl iW Freight-in 3,800 UNO Sales turns 8500. 94000 et ; —y is eae ne ie nat oe Es vay eng DI L206 a00ds having selling price af P4900 th3t were salvage From Tha fire The average grosc profit rate on vt sales is 40%. = OS a ied The'closing raw materials inventory of Donna Paulsen Company amounted to P245,000 a: of Deter 31, 2013. This total includes an item of raw material (material Zip) with a”cost o estimated net realizable value of P80,000. immeciately after the balance sheet dat. used in the production and the cast of the finished product where material Zip was = its net selling price exceeds the cost of production, As of December 31,-2013, what amount of raw mavarials inventory should the Company report? a. -P80,000", ——_b, (P100,000, c. P328,000* 345,000 40. Rachel Zane Corporation sells its product, a rare metal, in a controlled market agus Ds applicable to all quantities: The total cost of 5,000 pounds of the metal now held in Invenio is PIS “100 Wee total seting prize is P350,000, and is estimated casts of disposal are P5,000. HG@O> At what amount should the inventory of 5,000 puunds be reported inthe statement 9 tinancial pos! wn? a. 145,000 . puso.000 <<. (~@>P345,000 4. P350,000 41. Dec Company uses the statemer of financial position approach in estimating uncotlectible acccun expense. The company prepares an adjusting entry to recognize this expense at the enc of each wont During the month of July, the compary vcite-off a P1,000 ceceivable and made no recoveries of 210.9 write ors. Following the adjusting entxy for July, the credit balance in allowance for doubtful @ ov" wes ao larger than it.was in July 1. What amount of uncolleggiblé account expense vas reco H