PSBA Refresher Course

Financial Accounting and Reporting CHRISTIAN ARIS VALIX

Review – Cash and Cash Equivalent to Inventories

1. On December 31, 2021, an entity reported the following items related to cash and cash equivalents:
Cash in bank – demand deposit 3,000,000
Time deposit – 30 days 500,000
NSF check of customer 200,000
Money market placement due June 30, 2022 2,000,000
Saving deposit 1,000,000
IOU from an employee 300,000
Pension fund 1,500,000
Customer check dated January 31, 2022 600,000
Customer check outstanding for 18 months 400,000

• Check of P100,000 in payment of accounts payable was dated and recorded on December 31, 2021
but mailed to creditors on January 15, 2022.
• Check of P300,000 dated January 31, 2022 in payment of accounts payable was recorded and mailed
December 31, 2021.
• The cash receipts journal was held open until January 15, 2022, during which time P200,000 was
collected and recorded on December 31, 2021.
What total amount should be reported as cash and cash equivalents on December 31, 2021?
a. 4,700,000
b. 6,700,000
c. 4,900,000
d. 5,100,000
2. An entity began operations on January 1, 2021. On December 31, 2021, the entity provided for doubtful
accounts based on 1% of annual credit sales. On January 1, 2022, the entity changed the method of
determining allowance for doubtful accounts by aging of accounts receivable.
Days past invoice date Percent uncollectible
0 to 30 1
31 to 90 5
91 to 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:
2022 2021
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 at December 31
0 – 30 300,000 250,000
31 – 90 80,000 90,000
91 – 180 60,000 45,000
Over 180 25,000 15,000
1. What is the allowance for doubtful accounts on December 31, 2022?
a. 30,000 c. 29,150
b. 39,000 d. 27,000

2. What amount should be reported as doubtful accounts expense for 2022?

a. 39,000 c. 38,000
b. 31,000 d. 11,000
3. On December 31, 2021, an entity (bank) has a loan receivable of P4,000,000 from a borrower that it is
carrying at face value and is due on December 31, 2026. Interest on the loan is payable at 9% each
December 31. The borrower paid the interest due on December 31, 2021, but informed the bank that it
would probably miss the next two years’ interest payments. After that, the borrower is expected to resume
the annual interest payment but it would make the principal payment one year late, with interest paid for
that additional year at the time of principal payment. The PV of 1 at 9% is 0.77, 0.71, 0.65 and 0.60 for
three, four, five and six periods respectively. What amount should be reported as impairment loss for the
year 2021?

a. 617,200
b. 720,000
c. 360,000
d. 977,200

4. An entity sells a new product. During a move to a new location, the inventory records for the product were
misplaced. The entity has been able to gather some information from the purchases and sales records. The
July purchases are as follows:

Quantity Unit cost Total cost

July 5 10,000 65 650,000
10 12,000 70 840,000
15 15,000 60 900,000
25 14,000 55 770,000

On July 31, 17,000 units were on hand. The sales for July amounted to P6,000,000 or 60,000 units at P100
per unit. Gross profit on sales for July was P2,400,000. The entity has always used periodic FIFO
inventory costing system.

1. What amount should be reported as cost of inventory on July 31?

a. 3,600,000
b. 1,670,000
c. 770,000
d. 950,000

2. What amount was reported as cost of inventory on July 1?

a. 1,390,000
b. 2,400,000
c. 950,000
d. 760,000

5. At year end, an entity reported ending inventory at P3,000,000 and the allowance for inventory writedown
before any adjustment at P150,000.

Product 1 Product 2 Product 3 Product 4

Historical cost 800,000 1,000,000 700,000 500,000
Replacement cost 900,000 1,200,000 1,000,000 600,000
Sales price 1,200,000 1,300,000 1,250,000 1,000,000
Net realizable value 550,000 1,100,000 950,000 350,000
Normal profit 250,000 150,000 300,000 300,000

What amount of loss on inventory writedown should be included in cost of goods sold?

a. 100,000
b. 200,000
c. 400,000
d. 250,000
6. An entity provided the following information:

June July August

Sales on account 7,200,000 7,360,000 7,600,000
Cash sales 720,000 800,000 1,040,000

All merchandise is marked up to sell at cost plus 20%. Inventory at the beginning of each month is 30%
of that month’s cost of goods sold.

1. What amount should be reported as cost of goods sold for June?

a. 5,760,000
b. 6,000,000
c. 6,080,000
d. 6,600,000

2. What amount should be reported as purchases for July?

a. 6,528,000
b. 8,304,000
c. 6,800,000
d. 6,920,000

7. An entity used the average retail inventory method. At year-end, the following information relating to the
inventory was gathered:

Cost Retail
Beginning inventory 190,000 450,000
Purchases 2,990,000 4,350,000
Purchase discount 40,000
Freight in 150,000
Mark ups 300,000
Mark downs 400,000
Sales 4,400,000
Sales return 100,000
Sales discount 50,000
Sales allowance 30,000

What amount should be reported as cost of ending inventory?

a. 400,000
b. 280,000
c. 245,000
d. 315,000

8. At the beginning of the current year, an entity purchased a vineyard costing P6,000,000. It was determined
that the grape vines can produce fruit for a period of 8 years. During the current year, the entity harvested
grapes with a fair value less cost of disposal of P2,000,000. By year-end, the grapes were sold for
P3,500,000. The entity incurred operating expenses of P500,000 and the entity used the perpetual method.
What amount should be reported as income before tax?

a. 1,250,000
b. 2,750,000
c. 2,250,000
d. 3,000,000

END