THE REVIEW SCHOOL OF ACCOUNTANCY

QUIZZER 1 – PAS 8 AND CASH/ACCRUAL, SINGLE ENTRY

Problem 1: Bee Co.’s net income for 2012, 2013 and 2014 were P100,000, P145,000 and
P185,00; receptively. The following items were not handled properly.
a. Rent of P6,500 for 2015 was received from a lessee on Dec. 23, 2014, and recorded
as outright income in 2014.
b. Salaries payable at the end of the following years were omitted:
c.
December 31, 2011 2,500
December 31, 2012 5,500
December 31, 2013 7,500
December 31, 2014 4,700
d. The following unused office supplies were omitted in the accounting records:
December 31, 2011 3,500
December 31, 2012 6,500
December 31, 2013 3,700
December 31, 2014 7,100
e. On Jan. 1, 2012, the company completed major repairs on the company’s machinery
and equipment totaling P220,000 which was expensed outright. The said equipment is
5 years old as of January 1, 2012. As of December 31, 2014, the equipment had an
original cost of P500,000 and a carrying value of P250,000.

1. The correct 2014 depreciation expense is:

a. 31,250 b. 50,000 c. 51,250 d. 70,000
2. The corrected 2012 net income is:
a. 80,000 b. 234,000 c. 240,000 d. 300,000
3. The corrected 2013 net income is:
a. 113,700 b. 120,200 c. 126,700 d. 139,300
4. The corrected 2014 net income is:
a. 184,700 b. 170,900 c. 165,600 d. 164,700
5. The effect of the above errors on 2014 beginning retained earnings is:
a. 176,200 understatement c. 116,200 understatement
b. 136,200 understatement d. 3,800 overstatement
6. The effect of the above errors on 2014 working capital is:
a. 4,100 understatement c. 8,900 understatement
b. 4,100 overstatement d. 8,900 overstatement

PROBLEM 2. LOG CORP. Reported pre-tax incomes of Php 4,545,000 and Php 3,483,000 for
the years ended December 31, 2013 and 2014, respectively. Your audit however revealed the
following errors:

a. Sales for 2013 included a Php 1,719,000 collection pertaining to a delivery made in January of
2014 under an FOB Shipping point freight term.

b. Inventory on December 31, 2013 was understated by Php 388,800 while inventory on
December 31,2014 was overstated by Php 255,000.

c. Interest expenses on Bonds for both years were recorded as payments were made every
December 31. The bonds have a face value of Php 11,250,000 and pay a nominal interest rate of
6%. They were issued at a discount of Php 675,000 on January 1, 2012 to yield an effective
interest rate of 7%.

d. Ordinary repairs to equipment had been charged to the Equipment account during 2013 to
2014. Repairs of Php 382,500 and Php 423,000 had been incurred in 2013 and 2014,

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respectively. In determining depreciation charges, Log uses the double declining balance method
over 10 a ten-year asset useful life. The rate is being applied to the balance of the asset account at
the end of each year.

7. What is the adjusted pretax income for 2013?

a. Php 2,978,618 c. Php 2,838,982
b. Php 2,973,250 d. Php 2,842,750
8. What is the adjusted pretax income for 2014?
a. Php 4,206,295 c. Php 4,356,640
b. Php 4,145,095 d. Php 4,483,495

PROBLEM 3.The following information pertains to Lot Inc,’s depreciable assets:

a. Equipment XYZ was acquired on January 2011 by exchanging an old delivery van
originally costing ₱225,000 but with a carrying value on the same date at ₱75,000. The
new equipment had cash purchase price of ₱450,000 while the old equipment had a
market value of ₱50,000. The company paid ₱400,000on the trade in, which the company
had debited to the Equipment account, the only entry made by the client related to the
trade in transaction. The equipment had been depreciated over its 10-year useful life
using straight-line method. On January 3, 2014, it had been ascertained that the
equipment had a 5-year remaining useful life.
b. Equipment UVW cost ₱393,750 and was acquired on January 1, 2012. On the date of
acquisition, the expected useful life was 12 years with no residual value. The straight line
depreciation method was used. On January 2, 2014, it was estimated that the remaining
life of the asset would be 6 years and that there would be ₱18,750 residual value. In
addition, 150% declining balance method will be used to fairly reflect the mode of use of
the asset.
c. A building was purchased on January 3, 2011, for ₱4,500,000. The building was expected
to have a useful life of 20 years with no residual value. The straight line depreciation
method was used. On January 1, 2014, a change was made to the sum-of-years digits
method of depreciation. Total life of the asset was estimated to be at 15 years with
₱50,000 residual value.
9. How much is the adjustment to the accumulated depreciation account and the related
depreciation expense for the current year for the Equipment XYZ?
a. 15,000 and 63,000 c.165,000 and 56,000
b. 135,000 and 63,000 d.135,000 and 56,000

10. How much is the depreciation expense for the current year for the Equipment UVW?
a. 82,031 b. 77,344 c. 82,813 d. 87,500

11. What is the book value of the building at December 31, 2014?
a. 3,346,875 b. 3,570,000 c. 3,236,538 d. 3,244,231

PROBLEM 4: In the course of your examination of the December 31, 2014, financial
statements of Insular Corp, you discovered certain errors that had occurred during 2013 and
2014. No errors were corrected during 2013. The errors are summarized below:
a. Beginning merchandise inventory (January 1, 2013) was understated by
P259,200.Merchandise costing P72,000 was sold for P120,000 to Naval Company on
December 28, 2013 but the sale was recorded in 2014. The merchandise was shipped
FOB shipping point and was not included in ending inventory. Insular uses the periodic
inventory system.

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 b. A two-year fire insurance policy was purchased on May 1, 2013, for P172,800. The
whole amount was charged to Prepaid Insurance. No adjusting entry was prepared in
2013 and 2014.

c. A one-year note receivable of P288,000 was held by Insular beginning October 1. 2013.
Payment of the 10% note and accrued interest was received upon maturity. No adjusting
entry was made on December 31, 2013.

d. Equipment with a 10-year useful life was purchased on January 1, 2013 for P1,176,000.
No depreciation expense was recorded during 2013 and 2014. Assume that the equipment
has no residual value and that Insular uses straight-line method for recording
depreciation.

The company reported a P1,500,000 net income in 2013 and a P1,750,000 net income in 2014.

12. What is the net adjustment to the beginning retained earnings account in 2014?
a. 69,600 b. 175,200 c. 127,200 d. 48,000
13. What is the adjusted balance of net income in 2014?
a. 1,168,800 b. 1,512,400 c. 1,538,800 d. 1,418,800

Problem 5. You were engaged by Kuting Corp. to audit its financial Statements for the first
time. In examining the company’s books, you discovered that certain adjustments had been
overlooked at the end of 2013 and 2014. Moreover, you also discovered that other Items had
been erroneously recorded. The said omissions and other failures for each year are noted below:
2013 2014
Prepaid Insurance 256, 000 205, 200
Accrued salaries and wages 582, 400 520, 000
Accrued interest income 172, 800 142, 000
Advances from customers 313, 600 374, 000
Capital expenditures charged as repairs expense 376, 000 348, 000

Audit notes:
a. Collections from customers had been recorded as sales but should have been recognized
as advances from customers because goods were not shipped until the following year.
b. Capital expenditures had been recorded as repairs but should have been charged to the
Machinery account; the depreciation rate is 10% per year, but depreciation in the year of
expenditure is to be recognized at 5%.
Based on the above and the result of your audit, answer the following:

14. What is the total effect of the errors on the 2014 net income?
a. Understated by 251, 000 c. Understated by 213, 400
b. Overstated by 216, 200 d. Overstated by 253, 800
15. What is the total effect of the errors on the company’s working capital as of December 31,
2014?
a. Understated by 202, 200 c. Understated by 177, 200
b. Overstated by 76, 600 d. Overstated by 546, 800
16. If remained unadjusted, what will be the effect of the errors to the company’s December 31,
2014 accumulated profits?
a. Understated by 103, 400 c. Understated by 177, 200
b. Overstated by 620, 600 d. Overstated by 570, 600

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PROBLEM 6: The income statements of ROXAS INC. indicate the following net income:

2012 1,500,000
2013 1,750,000
2014 2,000,000
An examination of the accounting records for the year ended December 31, 2014 indicates that
several errors were made. The following errors were discovered:
a. Salary accruals on December 31, were consistently omitted:
2011 95,000
2012 110,000
2013 100,000
2014 140,000

b. The footings and extensions showed that the inventory on December 31, 2013 was
overstated by P190,000

c. P150,000 worth of inventories were received on January 4, 2015. Upon investigation you
discovered that these goods were shipped by the supplier on December 30, 2014 FOB
Shipping Point. Further investigation revealed that liability on the item were recorded
when the goods were received.

d. Prepaid Insurance were consistently omitted at the end of each year:

2011 75,000
2012 100,000
2013 115,000
2014 120,000

e. Interest receivable were not recorded on December 31 of the following years:

2012 20,000
2013 25,000
2014 30,000

f. On January 31, 2014 an equipment costing P400,000 was sold for P220,000. At the date
of sale the equipment had accumulated depreciation of P240,000. The cash received
recorded by the company as miscellaneous income.

g. You also discovered that on July 1, 2012, the company completed the construction of the
left wing of its factory building incurring a total cost of P750,000, which it had charged
to repairs expense. The said building has been used in operations for 5 years as of July 1,
2012 and its life was unaffected by the extension. The building which had an original cost
of P3,000,000 had an accumulated depreciation of P1,125,000 as of December 31, 2014
Required:

17. What is the correct depreciation expense in 2014

a. 150,000 c. 200,000
b. 175,000 d. 187,500
18. What is the correct net income in 2012?
a. 2,365,000 c. 2,255,000
b. 2,235,000 d. 2,230,000
19. What is the correct net income in 2013?
a. 1,540,000 c. 1,640,000
b. 1,590,000 d. 1,690,000

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 20. What is the correct net income in 201?
a. 2,100,000 c. 2,050,000
b. 2,000,000 d. 1,950,000

PROBLEM 7. You are performing for the first time the audit for the year ended December 31,
2014 of GKNB CORP. Financial statements. The company reported the following amounts of
net income for the years ended December 31, 2012, 2013 and 2014.

2012 Php 381,000

2013 450,000
2014 385,500

During your examination, you discovered the following errors:

a. You observed that there were errors in the physical count: December 31, 2013 inventories
were understated by Php 42,000 and December 31, 2014 were overstated by Php 69,000.

b. On December 31, 2014, GKNB recorded on account, merchandise in transit which cost Php
45,000. The merchandise was shipped FOB Destination and had not arrived by December 31.
The merchandise was not included in the ending inventory.

c. Accrual sales at each year end were consistently omitted as follows:

2012 Php 12,000
2013 15,000
2014 10,500
d. Accrual of salaries were also consistently omitted as follows:
December 31, 2012 Php 30,000
December 31, 2013 42,000

e. On March 5, 2013, a 10% stock dividend was declared and distributed. The par value of the
shares amounted to Php 30,000 and market value was Php 39,000. Th stock dividend was
recorded as follows:
Other Expense Php 30,000
Ordinary Shares Php 30,000

f. On July 1, 2013, GKNB paid a three-year rent. The three-year premium of Php 18,000 was
paid on that date, and the entire premium was recorded as insurance expense.

g. On January 1,2014, GKNB retired bonds with a book value of Php 360,000 for Php 318,000.
The gain was deferred and amortized over 10 years as a reduction of interest expense on the
outstanding bonds.

21. What is the correct net income in 2012?

a. Php 399,000 c. Php 351,000
b. Php 363,000 d. Php 339,000
22. What is the correct net income in 2013?
a. Php 477,000 c. Php 528,000
b. Php 498,000 d. Php 534,000
23. What is the correct net income in 2014?
a. Php 313,200 c. Php 393,000
b. Php 388,800 d. Php 418,800
24. What is the retroactive adjustments to the beginning retained earnings in 2014 to correct the
prior years’ errors?
a. Php 21,000 cr. c. Php 69,000 dr.
b. Php 21,000 dr. d. Php 69,000 cr.
25. What is the adjusting entry in 2014 to correct the error in item e above?
a. Accumulated profits 39,000

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 Other expense 30,000
Share Premium 9,000

b. Accumulated profits 30,000

Accumulated profits 30,000

c. Accumulated profits 9,000

Share Premium 9,000
d. No adjustment is necessary

PROBLEM 8: You are auditing the financial statements of WWEE company. The company’s
accountant provided you with the following comparative statements of income and accumulated
profits for the years 2014 and 2013:

2014 2013
Sales 6,000,000 4,500,000
Cost of Goods Sold (2,800,000) (2,400,000)
Gross Income 3,200,000 2,100,000
Operating expenses (1,500,000) (1,800,000)
Net Profit 1,700,000 300,000

Accumulated Profits, beg 1,150,000 1,000,000

Net Profits 1,700,000 300,000
Dividends paid (500,000) (150,000)
Accumulated profits, end 2,350,000 1,150,000

Audit Notes:

a. The management, with your concurrence, opined that the changing company’s inventory
costing from FIFO to Weighted Average is justified as it will present a more relevant and
reliable financial information given the prevailing current circumstance. The following
summarizes the inventory costs at year end under both the methods:
2014 2013
FIFO 625,000 727,500
Weighted Average 715,000 827,500

b. The company decided to change its method of deprecation from the double declining
balance method to the straight line. The depreciable assets had a 10 year useful life and
has been estimated to be P50,000. Expenses in the income statements included P350,000
and P437,500, respectively, computed based on double declining balance method.

c. On August 31, 2013, the company started the construction of a building it plans to use as
a second factory. As of the current balance sheet date, the construction is yet to be done.
Total accumulated costs incurred on the construction and recorded in its Construction-in-
Progress account, amounted to P1,500,000, which excluded a P25,000 borrowing cost in
2013 which has been charged to expense. You have ascertained that such borrowing cost
should have been capitalized following PAS 23. Actual borrowing cost in 2014 amounted
to P75,00 which have been charged to expense.

Answer the following questions based on the above information:

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26. What is the restated net income in 2013 to be presented in the comparative income
statements?
a. 425,000 b. 400,000 c. 300,000 d. 275,000

27. What is the correct net income in 2014?

a. 1,700,000 b. 1,685,000 c. 1,775,000 d. 1,610,000

28. What is the adjusted accumulated profits balance at the beginning of 2014?
a. 1,025,000 b. 1,075,000 c. 1,225,000 d. 1,275,000

29. What is the adjusted accumulated profits balance at the end of 2014?
a. 2,425,000 b. 2,385,000 c. 2,550,000 d. 2,885,000

30. What is the necessary adjusting entry as result of the change described in item C?

a. No adjustment entry
b. Interest Expense 25,000
Retained Earnings 25,000
c. Construction in Progress 100,000
Retained earnings 25,000
Interest expense 75,000
d. Construction in Progress 100,000
Interest expense 100,000

PROBLEM 9. Kris Company presented to you the following income statement in line with the
same company’s audit of the financial statements:

KRIS COMPANY
INCOME STATEMENT
For the Year Ended December 31, 2014

Sales ₱10,350,000
Cost of Goods Sold 7,050,000
Gross Profit 3,000,000
Operating Expenses:
Selling ₱675,00
Administrative 1,050,000 1,725,000
Net Income ₱1,575,000
Your audit disclosed the following information:

 Accounts receivable decreased ₱540,000 during the year.

 Prepaid expenses increased ₱255,000 during the year.
 Accounts payable to suppliers of merchandise decreased ₱412,500 during the year.
 Accrued expenses payable decreased ₱150,000 during the year.
 Administrative expenses include depreciation expense of ₱90,000.
 Inventories decreased by ₱450,000.
Requirements:

31. What is the total amount of cash received from customers during the year?
a. 10,890,000 b. 10,350,000 c. 9,810,000 d. 10,477,500
32. What is the total amount of cash paid to suppliers during the year?
a. 6,600,000 b. 7,912,500 c. 7,012,500 d. 6,187,500
33. What is the total amount of cash paid for operating expenses during the year?
a. 1,740,000 b. 1,530,000 c. 2,130,000 d. 2,040,000
34. What is the net amount of cash provided by operating activities?
a. 1,492,500 b. 1,837,500 c. 1,747,500 d. 1,575,000

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PROBLEM 10: PORTER COMPANY is in its first year of operation and is using the cash basis
of accounting. The company presented the following cash receipts and disbursement records for
2014:

Cash Receipts P384,000

Cash Disbursements (247,500)
P136,500

The management requested you to compute its income under accrual basis.

The following are deemed relevant in your analysis:

a. Depreciation of plant assets for 2014 computed by straight-line method is P31,500.

b. Prepaid insurance of P5,400, two-thirds of which relates to 2015, is included in the 2014
cash disbursement figure. This amount was recognized as insurance expense when it was
paid.
c. Porter Company received P36,000 in advance rent for space in its building. The entire
amount is included in the cash receipts figure and was recognized as rent revenue when
received. However, P21,000 of it was for space that will be provided in 2015.
d. Employees are due P8,400 at the end of 2014.
e. Interest amounting to P9,510 from investments is receivable at the end of 2014.
f. You estimate that your 2014 fee for accounting services that have not been billed will be
P1,500.

Requirements:

35. What is the correct net income under the accrual basis of accounting?
a. 88,710 b. 87,210 c. 77,700 d. 68,190
36. What is the total liabilities to be reported as of the balance sheet date under the accrual basis?
a. 34,500 b. 44,010 c. 40,410 d. 30,900

PROBLEM 11:You are auditing the financial statements of UKG INC. for the year ended
December 31, 2014. The company maintains its books on a semi-accrual and semi-cash basis.
Purchases and sales are recognized on an accrual basis while other operating expenses are kept
on cash basis. The company bookkeeper presented to you a draft of its income statements for the
year under audit:

Sales P600,000
Cost of Sales 360,000
Gross Profit 240,000
Depreciation Expense (29,000)
Other Expenses (166,000)
Interest Expense (20,000)
Net Income P25,000

Your investigation revealed the following information:

a. On January 1, 2014, UKG issued P200,000, 10%, 10-year bonds when the market rate of
interest was 8%. Interest is payable on June 30 and December 31.
b. All purchases of inventory are on account and other expenses reflect those expenses paid
in cash during the period

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 c. The company had open invoice (unpaid invoices) from suppliers amounting to P120,000
on December 31, 2014 and P116,000 on January 1, 2014
d. The company had outstanding invoices (uncollected invoices) to customers amounting to
P96,000 on January 1, 2014 and P110,000 on December 31, 2014
e. Inventory taking at the end of year revealed that inventory on hand on December 31,
2013 amounted to 186,000 while inventory on December 31, 2014 was at P174,000.
f. Accrued utilities at the beginning and at the end of the year amounted to P5,000 and
7,000, respectively while prepaid rentals at the beginning and at the end of the year
amounted to P10,000 and 14,000, respectively
Based on the information available and as a result of your audit, determine the following:

37. How much was paid for inventory purchases?

a. 344,000 b. 348,000 c. 368,000 d. 372,000
38. How much was received from customers in 2014?
a. 490,000 b. 566,000 c. 586,000 d. 614,000
39. What is the carrying value of the bonds payable on December 31, 2014?
a.225,318 b. 226,267 c. 226,840 d. 227,180
40. What is the correct interest expense in 2014?
a. 21,862 b. 20,000 c. 19,087 d. 18,138
41. What is the correct net income in 2014?
a. 26,862 b. 28,862 c. 29,718 d. 46,000

Problem 12: You were able to gather the following in connection with your audit of the Wowie
Corp. for the year ended December 31, 2014:

December 31, 2013 December 31, 2014

Accounts receivable P 6, 400, 000 P 4, 000, 000
Unpaid merchandise inventory ? 2, 621, 000
Accrued wages 85, 000 125, 000
Advertising supplies inventory 35, 000 75, 000
Advertising Expense 14, 250 40, 000
Prepaid insurance 25, 000 0
Unexpired insurance 0 41, 000

During the year

 Amount collected from customers, P10, 000, 000

 Total payments to suppliers of merchandise, P13, 618, 000
 Total payments to suppliers of merchandise of prior year, P4, 632, 000
 Wages paid, P 3, 050, 000
 Advertising paid which includes, P 300, 000
 Insurance premium paid, P125, 000
Requirements:
42. Total sales for 2014 under accrual basis
a. 6,400,000 b. 12,400,000 c. 7,600,000 d. 14,000,000

43. Total purchases for 2014 under accrual basis

a. 11,607,000 b. 15,269,000 c. 13,618,000 d. 16,239,000
44. Accrual wages expense for 2014

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a. 3,010,000 b. 3,090,000 c. 3,100,000 d. 3,140,000
45. Accrual advertising expense in 2014
a. 245,750 b. 285,750 c. 260,000 d. 300,000
46. Accrual insurance expense in 2014
a. 84,000 b. 109,000 c. 100,000 d. 141,000

PROBLEM 13.An analysis of incomplete records of Journey Corporation produced the

following information applicable to 2014:

ACCOUNT INCREASES
Cash 4,200,000
Accounts receivable 1,400,000
Accounts payable 400,000
Prepaid insurance 200,000
ACCOUNT DECREASES
Inventory 1,000,000
Equipment 100,000
Notes receivable 600,000
Accrued salaries payable 300,000

Summary of cash transactions were as follows:

RECEIPTS
Cash sales 3,000,000
Collections on A/R 30,000,000
Collections on N/R 2,400,000
Interest on N/R 200,000
Purchase returns and
allowances 500,000
DISBURSEMENTS:
Cash purchases 1,100,000
Payments on A/P 16,500,000
Sales return and allowances 400,000
Insurance 700,000
Salaries 10,000,000
Equipment 800,000
Other expenses 1,500,000
Dividends 1,000,000
Additional Information:

a. Total purchase returns and allowances amounted to ₱800,000

b. Total sales returns and allowances amounted to ₱1,200,000
Required: Determine the audited balances of the following:

47. Net sales

a. 35,800,000 b. 36,200,000 c. 36,600,000 d. 37,000,000
48. Net purchases
a. 17,900,000 b. 17,700,000 c. 17,400,000 d. 17,000,000
49. Cost of Sales
a. 18,000,000 b. 18,400,000 c. 18,700,000 d. 18,900,000
50. Depreciation Expense
a. 100,000 b. 800,000 c. 900,000 d. 1,000,000
51. Net Income
a. 5,000,000 b. 5,150,000 c. 5,200,000 d. 5,900,000

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