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Easy Round
PROBLEM NO. 1
In connection with your audit of Caloocan Corporation for the year ended December 31, 2006, 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
Question:
Compute for the cash and cash equivalent that would be reported on the December 31, 2006 balance
sheet.
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a. P2,784,000 c. P2,790,000
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b. P3,084,000 d. P2,704,000
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Suggested Solution: eH w
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Current account at Metrobank P2,000,000
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Payroll account 500,000
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Total P2,784,000
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Answer: A
PROBLEM NO. 2
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On October 1, 2018, Grimm Co consigned 40 freezers to Holden Co costing P14,000 each sale at P
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On December 30,2018, Holden Co reported the sale of 10 freezers and remitted P170,000. The
remittance was net of the agreed 15% commission.
A. 154,000
B. 170,000
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C. 196,000
D. 200,000
Solution:
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PROBLEM NO. 3
The cash account of the Makati Corporation as of December 31, 2006 consists of the following:
On deposit in current account with Real Bank P 900,000
Cash collection not yet deposited to the bank 350,000
A customer’s check returned by the bank for insufficient 150,000
fund
A check drawn by the Vice-President of the Corporation
dated January 15, 2007 70,000
A check drawn by a supplier dated December 28, 2006 for
goods returned by the Corporation 60,000
A check dated May 31,2006 drawn by the Corporation
against the Piggy Bank in payment of customs duties.
Since the importation did not materialize, the check was
returned by the customs broker. This check was an
outstanding check in the reconciliation of the Piggy
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Bank account 410,000
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Petty Cash fund of which P5,000 is in currency; P3,600 in
form of employees’ I.O.U. s; and P1,400 is supported by
approved petty cash vouchers for expenses all dated
prior to closing of the books on December 31, 2006 10,000
Total 1,950,000
Less: Overdraft with Piggy Bank secured by a Chattel
mortgage on the inventories 300,000
Balance per ledger P1,650,000
Question:
At what amount will the account “Cash” appear on the December 31, 2006 balance sheet?
a. P1,315,000 c. P1,495,000
b. P1,425,000 d. P1,725,000
Suggested Solution:
Answer: B
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Problem 4
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Corolla Company incurred the following costs:
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Materials 700,000
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Storage costs of finished goods 180,000
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Delivery to customers 40,000
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B. 760,000
C. 980,000
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D. 940,000
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Solution
Material 700,000
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Total 760,000
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Problem 5
Roanne Company used allowance method of accounting for uncollectible accounts.
During the current year, the entity had charged P 800,000 to bad debt expense and wrote off accounts receivable of
P 900,000 as uncollectible.
Solution
Only the bad debt expense decreases working capital.
The write off does not affect anymore the working capital because the effect is offsetting on current assets.
Average
Problem 6
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Faith Company provided the following information relating to current operations:
Accounts Receivable, January 1 4,000,000
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Accounts Receivable collected 8,400,000
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Cash Sales 2,000,000
Inventory, January 1 4,800,000
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Inventory, December 31
Purchases rs e 4,400,000
8,000,000
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Gross Margin on Sales 4,200,000
a. 8,200,000
b. 6,200,000
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c. 2,000,000
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d. 4,200,000
Solution:
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TGAS 12,800,000
Inventory-Dec 31 (4,400,000)
COGS 8,400,000
Gross Margin Sales 4,200,000
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Problem 7-8
Frame Company has 8% note receivable dated June 30,2018, in the original amount of P 1,500,000.
Payments of P 500,000 in principal plus accrued interest are due annually on July 1,2019, 2020 and 2021.
7. What is the balance of note receivable on July 1, 2019?
A. 1,500,000
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B. 1,000,000
C. 500,000
D. 0
8. In June 30, 2020 statement of financial position, what amount should be reported as a current asset for interest on
the note receivable?
A. 120,000
B. 40,000
C. 80,000
D. 0
Solution
Note Receivable, June 30,2018 1,500,000
Payment on July 1, 2019 (500,000)
Note Receivable, July 1, 2019 1,000,000
Multiply: 8%______
Accrued interest Receivable 80,000
Problem 9
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Presented below is a list of items that may or may not reported as inventory in a company’s
December 31 balance sheet.
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1. Goods out on consignment at another company’s store P800,000
2. Goods sold on installment basis 100,000
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3. Goods purchased f.o.b. shipping point that are in transit
at December 31 rs e 120,000
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4. Goods purchased f.o.b. destination that are in transit at
December 31 200,000
5. Goods sold to another company, for which our company
has signed an agreement to repurchase at a set price that
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manufactured 40,000
11. Costs incurred to advertise goods held for resale 20,000
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17. Costs identified with units completed but not yet sold 260,000
18. Goods sold f.o.b. destination that are in transit at
December 31 40,000
19. Temporary investment in stocks and bonds that will be
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Question:
How much of these items would typically be reported as inventory in the financial statements?
a. P2,300,000 c. P2,260,000
b. P2,000,000 d. P2,220,000
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Suggested Solution:
in the form of materials or supplies to be consumed in the production process or in the rendering of
services.
Par. 10 further states that the cost of inventories shall comprise all costs of purchase, costs of conversion
and other costs incurred in bringing the inventories to their present location and condition.
Therefore, items 1, 3, 5, 8, 9, 12, 14, 15, 17 and 18 would be reported as inventory in the financial
statements.
Problem 10
In the course of your audit of the Las Piñas Corporation, its controller is attempting to determine the
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amount of cash to be reported on its December 31, 2006 balance sheet. The following information is
provided:
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1. Commercial savings account of P1,200,000 and a commercial checking account balance of
P1,800,000 are held at PS Bank.
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2. Travel advances of P360,000 for executive travel for the first quarter of the next year (employee
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to reimburse through salary deduction).
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3. A separate cash fund in the amount of P3,000,000 is restricted for the retirement of a long term
debt.
4. Petty cash fund of P10,000.
5. An I.O.U. from a company officer in the amount of P40,000.
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6. A bank overdraft of P250,000 has occurred at one of the banks the company uses to deposit its
cash receipts. At the present time, the company has no deposits at this bank.
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7. The company has two certificates of deposit, each totaling P1,000,000. These certificates of
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Question:
How much will be reported as cash and cash equivalent at December 31, 2006?
a. P3,025,000 c. P2,575,000
b. P2,825,000 d. P5,025,000
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Suggested Solution:
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Answer: A
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DIFFICULT ROUND
Problem 11
Lin Co sold merchandise at a gross profit of 30 %. On June 30, all of the inventory was destroyed by fire.
The entity provided the following information for the six months ended June 30:
Net Sales 8,000,000
Beginning Inventory 2,000,000
Net Purchases 5,200,000
Solution:
Beg Inv 2,000,000
Net Purchases 5,200,000
TGAS 7,200,000
COGS(8,000,000 x 70%) (5,600,000)
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End Inv destroyed by fire 1,600,000
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Problem 12-15
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You obtained the following information in connection with your audit of Villasis Corporation:
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Cost Retail
Beginning inventory
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Sales 7,812,000
Purchases 4,688,640 6,512,000
Freight in 94,560
Mark ups 720,000
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Villasis Corp. uses the retail inventory method in estimating the values of its inventories and costs.
a. 68.58% c. 70.00%
b. 69.20% d. 75.78%
13. The estimated ending inventory at retail is
a. P2,300,000 c. P1,940,000
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b. P2,060,000 d. P1,860,000
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a. P5,468,400 c. P5,357,614
b. P5,494,812 d. P4,685,117
Suggested Solution:
Question No. 1
Cost Retail
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Beginning inventory P1,987,200 P2,760,000
Purchases 4,688,640 6,512,000
Freight in 94,560
Net mark up (P720,000 - P120,000) 720,000
Net mark down (P240,000 - P40,000) ___________ 120,000
Goods available for sale P6,770,400 P9,672,000
PAS 2 par. 22 states that the retail inventory method is often used in the retail industry for
measuring inventories of large numbers of rapidly changing items with similar margins for which it
is impracticable to use other costing methods. The cost of inventory is determined by reducing the
sales value of the inventory by the appropriate percentage gross margin. The percentage used takes
into consideration inventory that has been marked down to below its original selling price. An
average percentage for each retail department is often used.
Previously, the conventional approach (lower of average cost or market valuation) is often used if the
problem is silent. The conventional approach ignores markdown in the computation of cost ratio.
However, since PAS 2 specifically states that the percentage should take into consideration
inventory that has been marked down to below its original selling price, the cost ratio was computed
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using the average method.
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Question No. 2
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Goods available for sale at retail P9,672,000
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Less sales 7,812,000
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Ending inventory, at retail P1,860,000
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Question No. 3
Ending inventory, at cost (P1,860,000 x 70%) P1,302,000
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Question No. 4
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Answers: 1) C; 2) D; 3) C; 4) A
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CLINCHER
1. Otso Manufacturing Corporation mass produces eight different products. The controller, who is
interested in strengthening internal controls over the accounting for materials used in production,
would be most likely to implement
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b. Write-offs must be approved by the cashier who is in a position to know if the receivables
have, in fact, been collected.
c. Write-offs must be approved by a responsible officer after review of credit department
recommendations and supporting evidence.
d. Write-offs must be authorized by company field sales employees who are in a position to
determine the financial standing of the customers.
4. Postdated checks received by mail in settlement of customer’s accounts should be
a. Returned to customer.
b. Stamped with restrictive endorsement.
c. Deposited immediately by the cashier.
d. Deposited the day after together with cash receipts.
5. An essential phase of the audit of the cash balance at the end of the year is the auditor's review
of cutoff bank statement. This specific procedure is not useful in determining if
a. Kiting has occurred.
b. Lapping has occurred.
c. The cash receipts journal was held open.
d. Disbursements per the bank statement can be reconciled with total checks written.
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