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Integrated Review 1

Standalone assignment

Quiz 1.02 Cash and Cash Equivalents to Loan Impairment

Submissions
Here are your latest answers:

Question 1
Beach Bank loaned Boracay Company P7,500,000 on January 1, 200A. The terms of the loan were payment in full on January 1, 200E plus annual interest payment at 11%.
The interest payment was made as scheduled on January 1, 200B. However, due to financial setbacks, Boracay Company was unable to make the 200C interest payment.

Beach Bank considered the loan impaired and projected the cash flows from the loan on December 31, 200C. The bank accrued the interest on December 31, 200B, but did
not continue to accrue interest for 200C due to the impairment of the loan. The projected cash flows are:

Amount projected on December 31, 200C

Date of cash flow
December 31, 200D 500,000
December 31, 200E 1,000,000
December 31, 200F 2,000,000
December 31, 200G 4,000,000

The PV of 1 at 11% is 0.90 for one period, 0.81 for two periods, 0.73 for three periods, and 0.66 for four periods.

What is the loan impairment loss for 200C?

Response: 2,965,000

Feedback:

December 31, 200D ( 500,000 x.90) 450,000

December 31, 200E (1,000,000 x.81) 810,000
December 31, 200F (2,000,000 x.73) 1,460,000
December 31, 200G (4,000,000 x .66) 2,640,000
Total present value of loan 5,360,000

Loan receivable 7,500,000

Accrued interest receivable (7,500,000 x 11%) 825,000
Carrying amount 8,325,000
Present value of loan (5,360,000)
Impairment loss 2,965,000

Journal entry on January 1, 200C

Impairment loss 2,965,000

Accrued interest receivable 825,000
Allowance for loan impairment 2,140,000

The impairment loss is P2,965,000 but the allowance for loan impairment is credited only for P2,140,000 net of the accrued interest of P825,000.

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The impairment loss on loan receivable is measured as the difference between the carrying amount of loan receivable and the present value of the loan using the original
effective rate.

Correct answer: 2,965,000

Score: 1 out of 1 Yes

Question 2
National Bank granted a 10-year loan to Abbo Company in the amount of P1,500,000 with a stated interest rate of 6%. Payments are due monthly and are computed to be
P16,650. National Bank incurred P40,000 of direct loan origination cost and P20,000 of indirect loan origination cost. In addition, National bank charged Abbo Company a
4-point non-refundable loan origination fee.

What is the initial carrying amount of the loans payable on the part of Abbo Company?

Response: 1,440,000

Feedback:

Correct answer: 1,480,000

Score: 0 out of 1 No

Question 3
Oro Company had the following bank reconciliation on March 31:

Balance per bank statement, March 31 4,650,000

Add: Deposits in transit 1,030,000
Total 5,680,000
Less: Outstanding checks (1,260,000)
Balance per book, March 3 1 4,420,000

Data per bank statement for the month of April:

Deposits 5,840,000
Disbursements 4,970,000

All reconciliation items on March 31 cleared through the bank in April.

Outstanding checks on April 30 totaled P700,000 and there were no deposits in transit on April 30.

What is the cash balance per book on April 30?

Response: 4,820,000

Feedback:

Balance per bank - March 31 4,650,000

Bank deposits - April 5,840,000
Bank disbursements - April (4,970,000)
Balance per bank - April 30 5,520,000
Outstanding checks-April 30 (700,000)
Adjusted cash in bank- April 30 4,820,000

The adjusted cash in bank on April 30 is also the cash balance per book on April 30 because there are no book reconciling items.

Correct answer: 4,820,000

Score: 1 out of 1 Yes

Question 4
Frame Company has an 8% note receivable dated June 30, 200A, in the original amount of P1,500,000.

Payments of P500,000 in principal plus accrued interest are due annually on July 1, 200B, 200C and 200D.

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On June 30, 200C, what amount should be reported as accrued interest on the note receivable?

Response: 80,000

Feedback:

Accrued interest receivable - June 30, 200C (1,000,000 x 8%) 80,000

Note receivable, June 30, 200A 1,500,000

Payment on July 1, 200B (500,000)
Note receivable, July 1, 200B 1,000,000

Since the next payment is on July 1, 200C, the accrued interest is for one year from July 1, 200B to June 30, 200C.

Correct answer: 80,000

Score: 1 out of 1 Yes

Question 5
On March 1, 200A, the JPC Company recorded two sales of P20,000 and P30,000 under credit terms of 3/10, n/30. Payment for the P20,000 sale was received March 10.
Payment for the P30,000 sales was received on March 25. Under the gross and net method, net sales in March 200A income statement should appear as

Gross method Net Method

Response: 49,400 48,500

Feedback:

Gross Method Net Method

Invoice amounts (20,000 + 30,000) 50,000 50,000
Discount deducted at gross method (20,000 x 3%) (600)
Discount deducted at net method (50,000 x 3%) (1,500)
Net sales recorded 49,400 48,500

Correct answer: 49,400 48,500

Score: 1 out of 1 Yes

Question 6
Roth Company received from a customer a one-year, P500,000 note bearing annual interest of 8%. After holding the note for six months, the entity discounted the note
without recourse at 10%.

What amount of cash was received from the bank?

Response: 513,000

Feedback:

Principal 500,000
Add: Interest (500,000 x 8%) 40,000
Maturity value 540,000
Less: Discount (540,000 x 10% x 6/12) 27,000
Net proceeds 513,000

Correct answer: 513,000

Score: 1 out of 1 Yes

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Question 7
Star Company assigned P4,000,000 of accounts receivable as collateral for a P2,000,000 6% loan with a bank. The entity also paid a finance fee of 5% on the transaction
upfront.

What amount should be recorded as a gain or loss on transfer of accounts receivable?

Response: 0

Feedback: No gain or loss is recognized because assignment of accounts receivable is a secured borrowing and not for sale.

Correct answer: 0

Score: 1 out of 1 Yes

Question 8
Ral Company reported the checkbook balance on December 31,200A at P5,000,000 and held the following items on same date:

Check payable to Ral, dated January 2, 200B in payment of a sale made in December 200A, not included in December 31 checkbook
balance 2,000,000
Check payable to Ral, deposited December 15 and included in December 31 checkbook balance, but returned by bank on December
30 stamped "NSF". The check was redeposited on January 2, 200B and cleared on January 9, 200B

500,000
Check drawn on Ral's account, payable to a vendor, dated and recorded in Ral's books on December 31, 200A but not mailed until
January 10, 200B
300,000
Certificate of time deposit 1,000,000

What amount should be reported as cash on December 31, 200A?

Response: 4,800,000

Feedback:

Correct answer: 6,500,000

Score: 0 out of 1 No

Question 9
On December 31, 200A, the selected information on accounts receivable of Blake are as follows:

Accounts Receivable, beginning P 1,500,000

Allowance for bad debts, beginning 75,000
Credit sales 14,540,000
Collection from customers 13,150,000
Accounts written-off 200,000
Recovery of accounts written-off 85,000

The following items are included in credit sales:

- Recorded sale of merchandise to a customer. Goods in transit were shipped on December 28, 200A, FOB shipping, invoice amount is P350,000.
- Recorded sale of merchandise to a customer. Goods in transit were shipped on December 30, 200A, FOB destination, invoice amount is P500,000 and freight charges
paid are P25,000.
- Recorded sale of merchandise to a customer. Goods were received by customer on December 31, 200A, FOB destination, freight collect, . Invoice amount is P600,000
and estimated freight charges are P32,000.
- Recorded as sales merchandise delivered to a consignee. Estimated retail value of goods are P200,000.
- It is estimated that 5.0% of receivables is doubtful as to collec on.

What is the correct balance of Blake's accounts receivable?

Response: 2,075,000

Feedback:

Accounts Receivable, beginning P 1,500,000

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Adjusted credit sales 13,840,000
Collection from customers (13,150,000)
Accounts written-off (200,000)
Recovery of accounts written-off 85,000
Accounts receivable, ending P 2,075,000

Unadjusted credit sales P 14,540,000

Goods in transit, FOB destination (500,000)
Goods on consignment (200,000)
Adjusted credit sales P 13,840,000

Correct answer: 2,075,000

Score: 1 out of 1 Yes

Question 10
Tranvia Company had the following balances on December 31, 200A:

Cash in checking account 350,000

Cash in money market account 750,000
Treasury bill, purchased November 1, 200A maturing January 31, 200B
3,500,000
Time deposit purchased December 1, 200A maturing March 31, 200B
4,000,000

What amount should be reported as cash and cash equivalents on December 31, 200A?

Response: 4,600,000

Feedback:

Cash in checking account 350,000

Cash in money market account 750,000
Treasury bill purchased November 1, 200A maturing January 31, 200B 3,500,000
Total cash and cash equivalents 4,600,000

Under PAS 7, treasury bills, money market placement and time deposit normally qualify as cash equivalents only when they have a short maturity of three months or less
from the date of acquisition.

In the absence of specific term, money market account is short-term investment of three months or less.

The treasury bill is classified as cash equivalent because the term is three months.

The time deposit is not a cash equivalent because the term is four months.

Correct answer: 4,600,000

Score: 1 out of 1 Yes

Question 11
On June 1, 200A, Apple Corp. sold merchandise with a list price of P200,000 to Microsoft Corp. on account. Apple Corp. allowed trade discounts of 20% and 10%. Credit
terms were 2/10, n/30 and sale was made FOB shipping point. Apple Corp. prepaid P3,000 of insurance for Microsoft Corp. as an accommodation.

On June 10, 200A, Microsoft paid Apple Corp. his full account of

Response: 144,120

Feedback:

List price 200,000

1st Trade Discount (200,000 x 20%) (40,000)
Invoice price net of 1st discount 160,000

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2nd Trade Discount (160,000 x 10%) (16,000)

Invoice price 144,000
Insurance paid by Apple on behalf of Microsoft 3,000
Cash discount (144,000 x 2%) (2,880)
Payment to settle full account 144,120

Correct answer: 144,120

Score: 1 out of 1 Yes

Question 12
Galant Company has the following data relating to accounts receivable for the year ended December 31, 200A:

Accounts receivable, January 1, 200A P 480,000

Allowance for Doubtful accounts, January 1, 200A 19,200
Sales during the year, all on account, terms: 2/10, 1/15, n/30 2,400,000
Cash received from customers during the year 2,560,000
Accounts written off during the year 17,600

An analysis of cash received from customers during the year revealed that P1,411,200 was received from customer availing the 10-day discount period, P792,000 from
customers availing the 15-day discount period, P4,800 represented recovery of accounts written off, and the balance was received from customers paying beyond the
discount period. Galant’s year-end balance of allowance for doubtful accounts was estimated to be 5% of the outstanding accounts receivable as at December 31, 200A,
based on the aging of the accounts.

What is the accounts receivable balance at December 31, 200A?

Response: 270,400

Feedback: 480,000 + 2,400,000 – 2,560,000 – 17,600 – 36,800* + 4,800 = 270,400

*1,411,200 ÷ .98 = 1,440,000 x 2% = 28,800
792,000 ÷ .99 = 800,000 x 1% = 8,000
28,800 + 8,000 = 36,800

Correct answer: 270,400

Score: 1 out of 1 Yes

Question 13
Kharla Company factored P8,000,000 of accounts receivable to a finance entity as a continuing agreement. Control are surrendered by Kharla Company. The factor charges
commission of 4% and retained a holdback equal to 14% of the accounts receivable. Kharla provided credit terms of 2/10, n/30 to its customers. Upon collection of the full
amount of the receivables sales returns amounted to P250,000.

What amount was initially received by Kharla Company from the factoring?

Response: 6,400,000

Feedback:

Factored receivables 8,000,000

Factor's holdback (8,000,000 x 14%) (1,120,000)
Commission (8,000,000 x 4%) (320,000)
Sales Discount (8,000,000 x 2%) (160,000)
Initial Proceeds from factoring 6,400,000

Correct answer: 6,400,000

Score: 1 out of 1 Yes

Question 14
National Bank granted a 10-year loan to Abbo Company in the amount of P1,500,000 with a stated interest rate of 6%. Payments are due monthly and are computed to be
P16,650. National Bank incurred P40,000 of direct loan origination cost and P20,000 of indirect loan origination cost. In addition, National bank charged Abbo Company a
4-point non-refundable loan origination fee.

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What is the initial carrying amount of the loan receivable on the part of National Bank?

Response: 1,480,000

Feedback:

Loan receivable 1,500,000

Direct origination cost 40,000
Total 1,540,000
Origination fee received from borrower (1,500,000 x 4%) (60,000)
Carrying amount 1,480,000

The indirect origination cost incurred by the bank is an outright expense.

Correct answer: 1,480,000

Score: 1 out of 1 Yes

Question 15
Timex Company reported petty cash fund which comprised the following:

Coins and currency 3,300

Paid vouchers:
Transportation 600
Gasoline 400
Office supplies 500
Postage stamps 300
Due from employees 1,200 3,000
Manager's check returned by bank marked "NSF" 1,000
Check drawn by the entity to the order of petty cash custodian 2,700

What is the correct amount of petty cash fund for statement presentation purposes?

Response: 6,000

Feedback:

Coins and currency 3,300

Check drawn by the entity to the order of the petty cash custodian 2,700
Correct amount of petty cash 6,000

The check drawn by the entity to the order of the petty cash custodian is actually a replenishment check and therefore part of cash.

Correct answer: 6,000

Score: 1 out of 1 Yes

Question 16
Pika’s P3,600,000 8-month, 12.0% note was received from a customer and discounted by First Bank after the lapse of 2 months at 14.0% without recourse.

What is the amount of Pika’s gain on note discounting?

Response: 324,000

Feedback:

Correct answer: 17,280

Score: 0 out of 1 No

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Question 17
Frame Company has an 8% note receivable dated June 30, 200A, in the original amount of P1,500,000.

Payments of P500,000 in principal plus accrued interest are due annually on July 1, 200B, 200C and 200D.

What is the balance of note receivable on July 1, 200B?

Response: 1,000,000

Feedback:

Note receivable, June 30, 200A 1,500,000

Payment on July 1, 200B (500,000)
Note receivable, July 1, 200B 1,000,000

Correct answer: 1,000,000

Score: 1 out of 1 Yes

Question 18
Pygmalion Compay had the following balances on December 31,200A

Cash in bank- current account 5,000,000

Cash in bank- payroll account 1,000,000
Cash on hand 500,000
Cash in bank- restricted account for building construction expected to be disbursed in 200B
3,000,000
Time deposit, purchased December 15, 200A and due March 15, 200B 2,000,000

The cash on hand included a P200,000 check payable to Pygmalion, dated January 15, 200B.

What total amount should be reported as cash and cash equivalents on December 31, 200A?

Response: 8,300,000

Feedback:

Cash in bank-current account 5,000,000

Cash in bank- payroll account 1,000,000
Cash on hand (500,000-200,000 postdated customer check) 300,000
Time deposit 2,000,000
Total cash and cash equivalents 8,300,000

The cash in bank set aside for payroll is included in cash because it is for the payment of current liability.

The cash on hand is reduced by the postdated check payable to Pygmalon The postdated check should be reverted to accounts receivable.

The time deposit is a cash equivalent because the term is three months.

The cash in bank restricted for building construction is classified as a noncurrent investment because it is set aside for the acquisition of a noncurrent asset and not for the
payment of a current liability.

Correct answer: 8,300,000

Score: 1 out of 1 Yes

Question 19
At year-end, Myra Company reported cash and cash equivalents which comprised the following:

Cash on hand 500,000

Demand deposit 4,000,000

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Certificate of deposit 2,000,000
Postdated customer check 300,000
Petty cash fund 50,000
Traveler's check 200,000
Manager's check 100,000
Money order 150,000

What total amount should be reported as "cash" at year-end?

Response: 5,000,000

Feedback:

Correct answer: 6,800,000

Score: 0 out of 1 No

Question 20
Burr Company had the following account balances at year-end:

Cash in bank 2,250,000

Cash on hand 125,000
Cash restricted for addition to plant and expected to be disbursed next year 1,600,000

Cash in bank included P600,000 of compensating balance against short-term borrowing arrangement.

The compensating balance is not legally restricted as to withdrawal.

What total amount of cash should be reported under current assets at year-end?

Response: 2,375,000

Feedback:

Cash in bank 2,250,000

Cash on hand 125,000
Total cash 2,375,000

A compensating balance is a minimum checking or demand deposit account balance that must be maintained in connection with a borrowing arrangement with a bank.

The compensating balance is part of cash if it is not legally restricted as to withdrawal.

Otherwise, if it is legally restricted, the compensating balance is excluded from the amount shown as "cash", and shown separately as current or noncurrent asset depending
on the bank loan to which it is related.

If the related bank loan is short-term, the restricted compensating balance is a current asset.

If the related bank loan is long-term, the restricted compensating balance is a noncurrent asset.

Correct answer: 2,375,000

Score: 1 out of 1 Yes

Question 21
In preparing the bank reconciliation for the month of August, Apex Company provided the following information:

Balance per bank statement 1,805,000

Deposit in transit 325,000
Return of customer check for insufficient fund 60,000
Outstanding checks 275,000
Bank service charge for August 10,000

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What is the adjusted cash in bank?

Response: 1,855,000

Feedback:

Balance per bank 1,805,000

Deposit in transit 325,000
Total 2,130,000
Outstanding checks (275,000)
Adjusted bank balance 1,855,000

The customer check which is returned for insufficient fund and the bank service charge are ignored because these are book reconciling items.

Correct answer: 1,855,000

Score: 1 out of 1 Yes

Question 22
On June 1, 200A, Yola Company loaned Dale P500,000 on a 12% note, payable in five annual installments of PI00,000 beginning January 1, 200B.

In connection with this loan, Dale was required to deposit P5,000 in a noninterest-bearing escrow account.

The amount held in escrow is to be returned to Dale after all principal and interest payments have been made.

Interest on the note is payable on the first day of each month beginning July 1, 200A. Dale made timely payments through November 1, 200A.

On January 1,200B, Yola received payment of the first principal installment plus all interest due.

On December 31,200A, what amount should be reported as accrued interest receivable?

Response: 10,000

Feedback:

November 200A (500,000 x 1%) 5,000

December 200A (500,000 x 1%) 5,000
Accrued interest receivable on December 31, 200A 10,000

The interest is 1% per month because the annual rate is 12%.

Correct answer: 10,000

Score: 1 out of 1 Yes

Question 23
The Accounts Receivable control account of Silicon Valley Company shows a balance of P114, 000 as of December 31, 200A. An analysis of the account showed the
following:

Accounts Receivable from regular customers P 52,000

Advances to creditors on purchase orders 15, 000
Customers’ credit balances (5,000)
Notes receivable dishonored, charged back to accounts receivable 4,000
Selling price of goods in transit, shipped to customers on December 31, 200A under terms of FOB shipping point
8,000
Subscription receivable, due June 30, 200B 40,000

The correct balance of current trade accounts receivable of Silicon Valley as of December 31, 200A is:

Response: 59,000

Feedback:

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Correct answer: 64,000

Score: 0 out of 1 No

Question 24
Thor Company provided the following data on December 31.

Checkbook balance 4,000,000

Bank statement balance 5,000,000
Check drawn on Thor's account, payable to supplier, dated and recorded on December 31, 200A but not mailed until January 15, 200B
500,000
Sinking fund cash 2,000,000

On December 31, 200A, what amount should be reported as "cash" under current assets?

Response: 4,500,000

Feedback:

Checkbook balance 4,000,000

Undelivered check drawn on Thor's account 500,000
Adjusted cash balance 4,500,000

The undelivered check is restored to the cash balance by debiting cash and crediting accounts payable.

The sinking fund cash is a noncurrent investment because it is set aside for the payment of bond payable which is a noncurrent liability.

Correct answer: 4,500,000

Score: 1 out of 1 Yes

Question 25
Vanette Company provides for bad debts expense at the rate of 1% of sales on account. The allowance for doubtful accounts balance on December 31, 200A was P17,500.
During the year 200B, Vanette wrote off P30,500 of uncollectible receivables and recovered P8,050 of bad debts written off in prior years. Sales on account for 200B totaled
P2,000,000. How much will be the allowance for doubtful account balance at December 31, 200B?

Response: 7,000

Feedback:

Correct answer: 15,050

Score: 0 out of 1 No

Question 26
On December 1, 200A, Nicole Company gave Dawn Company a P2,000,000, 12% loan. Nicole Company paid proceeds of P1,940,000 after deduction of a P60,000
nonrefundable loan origination fee.

Principal and interest are due in sixty monthly installments of P44,500, beginning January 1, 200B.

The repayments yield an effective interest rate of 12% at a present value of P2,000,000 and 13.4% at a present value of P1,940,000.

What amount should be reported as accrued interest receivable on December 31, 200A?

Response: 20,000

Feedback: Accrued interest receivable (2,000,000 x 12% x 1/12) = 20,000

Correct answer: 20,000

Score: 1 out of 1 Yes

Question 27
Beach Bank loaned Boracay Company P7,500,000 on January 1, 200A. The terms of the loan were payment in full on January 1, 200E plus annual interest payment at 11%.
The interest payment was made as scheduled on January 1, 200B. However, due to financial setbacks, Boracay Company was unable to make the 200C interest payment.

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Beach Bank considered the loan impaired and projected the cash flows from the loan on December 31, 200C. The bank accrued the interest on December 31, 200B, but did
not continue to accrue interest for 200C due to the impairment of the loan. The projected cash flows are:

Amount projected on December 31, 200C

Date of cash flow
December 31, 200D 500,000
December 31, 200E 1,000,000
December 31, 200F 2,000,000
December 31, 200G 4,000,000

The PV of 1 at 11% is 0.90 for one period, 0.81 for two periods, 0.73 for three periods, and 0.66 for four periods.

What amount should be reported as interest income for 200C?

Response: 589,600

Feedback:

Interest income for 200D (5,360,000 x 11%) 589,600

December 31, 200D ( 500,000 x.90) 450,000

December 31, 200E (1,000,000 x.81) 810,000
December 31, 200F (2,000,000 x.73) 1,460,000
December 31, 200G (4,000,000 x .66) 2,640,000
Total present value of loan 5,360,000

Correct answer: 589,600

Score: 1 out of 1 Yes

Question 28
On December 1, 200A, Nicole Company gave Dawn Company a P2,000,000, 12% loan. Nicole Company paid proceeds of P1,940,000 after deduction of a P60,000
nonrefundable loan origination fee.

Principal and interest are due in sixty monthly installments of P44,500, beginning January 1, 200B.

The repayments yield an effective interest rate of 12% at a present value of P2,000,000 and 13.4% at a present value of P1,940,000.

What amount of interest income should be reported in 200A?

Response: 21,663

Feedback: Interest income for 200A (1,940,000 x 13.4% x 1/12) = 21,663

Correct answer: 21,663

Score: 1 out of 1 Yes

Question 29
An analysis and aging of accounts receivable of the Lucille Company at December 31, 200A, showed the following:

Accounts Receivable .................................. 840,000

Allowance for Doubtful Accounts
(before adjustment) ................................ 36,000(cr)
Estimated cash discount for customers paying within the discount period 10,000
Accounts estimated to be uncollectible ............... 76,800

Compute the net realizable value of the accounts receivable of Lucille Company at December 31, 200A.

Response: 753,200
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Feedback:

Accounts Receivable 840,000

Accounts estimated to be uncollectible (76,800)
Estimated cash discount for customers paying within the discount period (10,000)
Net realizable value 753,200

Correct answer: 753,200

Score: 1 out of 1 Yes

Question 30
Liwanag Company reported an imprest petty cash fund of P50,000 with the following details:

Currencies 20,000
Coins 2,000
Petty cash vouchers:
Gasoline payments for delivery equipment 3,000
Medical supplies for employees 1,500
Repairs of office equipment 3,500
Loans to employees 15,000
A check drawn by the entity payable to the order of Grace de la Cruz, petty cash custodian, representing her salary
15,000
An employee check returned by the bank for insufficiency of fund 3,000
A sheet of paper with names of several employees together with contribution for a birthday gift of a co-employee. Attached to the sheet of
paper is a currency of
5,000

What amount of petty cash fund should be reported in the statement of financial position?

Response: 37,000

Feedback:

Currencies 20,000
Coins 2,000
Check drawn to the order of the petty cash custodian 15,000
Petty cash fund 37,000

The check drawn payable to the order of the petty cash custodian representing her salary is actually an accommodation check. Thus, the amount is included as part of cash.

Correct answer: 37,000

Score: 1 out of 1 Yes

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