Financial Accounting 1 Valix

SOLUTION MANUAL
Financial Accounting
Valix and Peralta
Volume One - 2008 Edition
1
CHAPTER 1
Problem 1-1 Problem 1-2 Problem 1-3 Problem 1-4
1. D 1. A 1. C 1. A
2. C 2. A 2. D 2. C
3. D 3. D 3. D 3. A
4. D 4. B 4. A 4. A
5. C 5. D 5. D 5. D
6. C 6. B 6. A
7. B 7. D 7. D
8. C 8. C 8. B
9. D 9. C 9. D
10. A 10. D 10. D
1. A 1. A 1. D 1. B
2. A 2. A 2. D 2. B
3. A 3. C 3. C 3. C
4. D 4. A 4. A 4. C
5. D 5. A 5. A 5. A
6. D 6. A 6. C 6. B
7. B 7. B 7. D 7. D
8. D 8. C 8. D 8. D
9. C 9. A 9. B 9. A
10. D 10. B 10. D 10. B
1. D 1. A 1. C 1. E
2. D 2. B 2. B 2. D
3. C 3. D 3. D 3. B
4. B 4. B 4. A 4. C
5. C 5. A 5. F 5. G
6. D 6. E 6. H
7. C 7. J 7. I
8. A 8. G 8. F
9. D 9. H 9. J
10. A 10. I 10. A
2
Problem 1-13 Problem 1-14
1. Systematic and rational allocation 1. Materiality

as a matching process 2. Going concern
2. Comparability or consistency 3. Income recognition principle
3. Monetary unit 4. Accounting entity
4. Income recognition principle 5. Standard of adequate disclosure
5. Time period 6. Comparability
6. Going concern and cost principle 7. Matching principle
7. Accounting entity 8. Cost principle
8. Materiality 9. Reliability
9. Completeness or standard 10. Time period
of adequate disclosure
10. Conservatism or prudence
Problem 1-15
1. The cost of leasehold improvement should not be recorded as outright expense, but should be
amortized as expense over the life of the improvement or life of the lease, whichever is shorter. This
is in conformity with the systematic and rational allocation principle of expense recognition.
2. The fact that the customer has not been seen for a year is not a controlling factor to write off the
account. If the account is doubtful of collection, an allowance should be set up. It is only when there
is proof of uncollectibility that the account should be written off.
3. Advertising cost should be treated as outright expense, by reason of the uncertainty of the benefit
that may be derived therefrom in the future, in conformity with “immediate recognition principle”.
4. The balance of the cash surrender value should not be charged to loss. In reality, this is conceived as
a prospective receivable if and when the policy is canceled because of excessive premium in the
early stage of policy. The CSV should be classified as noncurrent investment.
5. The cost of obsolete merchandise should not be included as part of inventory but charged to expense,
as a conservative approach.
6. The excess payment represents goodwill which should not be amortized but subject to impairment.
Conservatism dictates that goodwill should be recognized when paid for.
7. The depreciation is not dependent on the amount of profit generated during the year. Depreciation is
an allocation of cost and therefore should be provided regardless of the level of earnings.
8. An entry should be made to recognize the inventory fire loss, and such loss should be treated as
component of income.
9. Revenues and expenses of the canteen should be separated from the revenues and cost of regular
business operations in order to present fairly the financial position and performance of the regular
operations.
10. The increase in value of land and building should not be taken up in the accounts. The use of
revalued amount is permitted only when the revaluation is made by independent and expert
appraiser. The expected sales price of P5,000,000 is not necessarily the revalued amount of the land
and building. Moreover, increase in value is not an income until the asset is sold.
Problem 1-16
1. Accrual assumption 6. Income recognition principle

2. Going concern assumption 7. Expense recognition principle
3. Asset recognition principle 8. Cause and effect association principle
4. Cost principle 9. Systematic and rational allocation principle
5. Liability recognition principle 10. Immediate recognition principle
Problem 1-17
1. Monetary unit assumption 6. Substance over form
2. Cost principle 7. Income recognition principle
3. Materiality 8. Comparability or consistency
4. Time period 9. Conservatism or prudence
5. Matching principle 10. Adequate disclosure or completeness
Problem 1-18
1. The cost of the asset should be the amount of cash paid. No income should be recognized when an
asset is purchased at an amount less than its market value. Revenue arises from the act of selling and
not from the act of buying.
2. The entry should be reversed because the pending lawsuit is a mere contingency. The contingent loss
is simply disclosed. To be recognized in accordance with conservatism, the contingent loss must be
both probable and measurable.
3. The new car should be charged against the president and debited to receivable from officer, because
the car is for personal use.
4. The entry is incorrect because no revenue shall be recognized until a sale has taken place.
5. Purchased goodwill should be recorded as an asset. Under the new standard, goodwill is not
amortized anymore but on each balance sheet date it should be assessed for impairment.
Problem 1-19
1. Accrual
2. Going concern
3. Accounting entity
4. Monetary unit
6. Time period
5
CHAPTER 2
Problem 2-1
Easy Company
Statement of Financial Position
December 31, 2008
ASSETS
Current assets: Note

Cash and cash equivalents 800,000
Accounts receivable 450,000
Inventories 900,000
Prepaid expenses (1) 200,000
Total current assets 2,350,000
Noncurrent assets:
Property, plant and equipment (2) 4,400,000
Long-term investments 950,000
Intangible asset (3) 800,000
Total noncurrent assets 6,150,000
Total assets 8,500,000
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Trade and other payables (4) 450,000
Note payable, short-term debt 200,000
Total current liabilities 650,000
Noncurrent liabilities:
Mortgage payable, due in 5 years 1,500,000
Note payable, long-term debt 500,000
Total noncurrent liabilities 2,000,000
Shareholders’ equity:
Share capital, P100 par 4,000,000
Share premium 500,000
Retained earnings 1,350,000
Total shareholders’ equity 5,850,000
Total liabilities and stockholders’ equity 8,500,000
Note 1 - Prepaid expenses
Office supplies 50,000

Prepaid rent 150,000
Total prepaid expenses 200,000
Note 2 - Property, plant and equipment
Property, plant and equipment 5,600,000

Accumulated depreciation (1,200,000)
Net book value 4,400,000
Note 3 - Intangible asset
Patent 800,000
Note 4 - Trade and other payables
Accounts payable 350,000

Accrued expenses 100,000
Total 450,000
Problem 2-2
Simple Company
December 31, 2008
ASSETS

Cash 420,000
Trading securities 250,000
Trade and other receivables (1) 620,000
Inventories (2) 1,250,000
Prepaid expenses (3) 20,000
Noncurrent assets:
Long-term investments (5) 2,000,000
Intangible assets (6) 300,000
Current liabilities: Note

Trade and other payables (7) 620,000
Serial bonds payable - current portion 500,000
Total current liabilities 1,120,000
Serial bonds payable - remaining portion 2,000,000
Share capital 5,000,000
Retained earnings 880,000
Total liabilities and shareholders’ equity 9,500,000
Note 1 - Trade and other receivables

Allowance for doubtful accounts ( 50,000)
Notes receivable 150,000
Claim receivable 20,000
Total 620,000
Note 2 - Inventories
Finished goods 400,000

Goods in process 600,000
Raw materials 200,000
Factory supplies 50,000
Total 1,250,000
Note 3 - Prepaid expenses
Prepaid insurance 20,000
Accum. Book
Cost depr. value
Land 1,500,000 - 1,500,000
Building 4,000,000 1,600,000 2,400,000
Machinery 2,000,000 1,300,000 700,000
Tools 40,000 - 40,000
Total 7,540,000 2,900,000 4,640,000
Note 5 - Long-term investments
Investment in bonds 1,500,000

Plant expansion fund 500,000
Total 2,000,000
Note 6 - Intangible assets
Franchise 200,000
Goodwill 100,000
Total 300,000

Notes payable 100,000
Income tax payable 60,000
Advances from customers 100,000
Accrued interest on note payable 10,000
Employees income tax payable 20,000
Total 620,000
Problem 2-3
Exemplar Company
December 31, 2008
ASSETS

Cash and cash equivalents 500,000
Inventories 1,300,000
Prepaid expenses 70,000
Noncurrent assets:
Long-term investments (3) 1,310,000
Intangible assets (4) 3,350,000
Other noncurrent assets (5) 150,000
Note
Trade and other payables (6) 1,000,000
Bonds payable 5,000,000
Premium on bonds payable 1,000,000
Share capital (7) 7,000,000
Reserves (8) 700,000
Retained earnings (deficit) (1,800,000)

Accrued interest on notes receivable 10,000
Total 640,000
Accum. Book
Cost depr. value
Land 1,500,000 - 1,500,000
Building 5,000,000 2,000,000 3,000,000
Equipment 1,000,000 200,000 800,000
Total 7,500,000 2,200,000 5,300,000
Note 3 - Long-term investments
Land held for speculation 500,000

Sinking fund 400,000
Preference share redemption fund 350,000
Cash surrender value 60,000
Total 1,310,000
Computer software 3,250,000

Lease rights 100,000
Total 3,350,000
10
Note 5 - Other noncurrent assets
Advances to officers, not collectible currently 100,000

Long-term refundable deposit 50,000
Total 150,000

Unearned rent income 40,000
SSS payable 10,000
Accrued salaries 100,000
Dividends payable 120,000
Withholding tax payable 30,000
Total 1,000,000
Note 7 – Share capital
Preference share capital 2,000,000

Ordinary share capital 5,000,000
Total 7,000,000
Note 8 - Reserves
Share premium – preference 500,000

Share premium – ordinary 200,000
Total 700,000
Problem 2-4
Relax Company
December 31, 2008
ASSETS

Cash 400,000
Trade accounts receivable (1) 750,000
Inventories 1,000,000
Noncurrent assets:
Investment in associate 1,300,000
Intangible assets (3) 350,000
11
Note
Mortgage note payable-current portion 400,000
Mortgage note payable, remaining position 1,600,000
Bank loan payable, due June 30, 2010 500,000
Share capital 3,000,000
Reserves (5) 1,400,000
Note 1 - Trade accounts receivable

Net realizable value 750,000
Accum. Book
Cost depr. value
Land 500,000 - 500,000
Building 5,000,000 2,000,000 3,000,000
Machinery 3,000,000 1,200,000 1,800,000
Equipment 400,000 100,000 300,000
Total 8,900,000 3,300,000 5,600,000
Trademark 150,000
Secret processes and formulas 200,000
Total 350,000

Income tax payable 50,000
Estimated liability for damages 140,000
Total 1,350,000
12
Note 5 - Reserves
Additional paid in capital 300,000

Retained earnings appropriated for plant expansion 1,000,000
Retained earnings appropriated for contingencies 100,000
Total 1,400,000
Problem 2-5
Summa Company
December 31, 2008
ASSETS

Cash (1) 700,000
Bond sinking fund 2,000,000
Inventory 1,200,000
Noncurrent assets:
Investment property 700,000
Intangible asset (4) 370,000
LIABILITIES AND EQUITY
Note
Bonds payable due June 30, 2009 2,000,000
Noncurrent liability:
Deferred tax liability 650,000
Equity:
Share capital (6) 3,500,000
Reserves (7) 500,000
Total equity 6,700,000
Total liabilities and equity 11,400,000
13
Note 1 - Cash
Cash on hand 50,000

Cash in bank 650,000
700,000

Accrued interest receivable 30,000
Total 830,000
Accum. Book
Cost depr. value
Land 1,000,000 - 1,000,000
Building 5,500,000 2,500,000 3,000,000
Furniture and equipment 2,400,000 900,000 1,500,000
Total 8,900,000 3,400,000 5,500,000
Note 4 - Intangible asset
Patent 370,000
Accounts payable 1,000,000

Accrued taxes 50,000
Other accrued liabilities 150,000
Total 2,050,000
Note 6 – Share capital
Authorized share capital, 50,000 shares, P100 par 5,000,000

Unissued share capital (2,000,000)
Issued share capital 3,000,000
Subscribed share capital, 10,000 shares 1,000,000
Subscription receivable ( 500,000) 500,000
Paid in capital 3,500,000
Note 7 - Reserves

Retained earnings appropriated for contingencies 200,000
Total 500,000
14
Problem 2-6 (Functional method)
Karla Company
Income Statement
Year ended December 31, 2008
Note
Net sales revenue (1) 7,700,000
Cost of sales (2) (5,000,000)
Gross income 2,700,000
Other income (3) 400,000
Total income 3,100,000
Expenses:
Selling expenses (4) 950,000
Administrative expenses (5) 800,000
Other expenses (6) 100,000 1,850,000
Income before tax 1,250,000
Income tax ( 250,000)
Net income 1,000,000
Note 1 – Net sales revenue
Gross sales 7,850,000

Sales returns and allowances ( 140,000)
Sales discounts ( 10,000)
Net sales revenue 7,700,000
Note 2 – Cost of sales
Inventory, January 1 1,000,000

Purchases 5,250,000
Freight in 500,000
Purchase returns and allowances ( 150,000)
Purchase discounts ( 100,000)
Net purchases 5,500,000
Goods available for sale 6,500,000
Inventory, December 31 (1,500,000)
Cost of sales 5,000,000
Note 3 – Other income

Rental income 250,000
Dividend revenue 150,000
Total other income 400,000
15
Note 4 – Selling expenses
Freight out 175,000

Salesmen’s commission 650,000
Depreciation – store equipment 125,000
Total selling expenses 950,000
Note 5 – Administrative expenses
Officers’ salaries 500,000

Depreciation – office equipment 300,000
Total administrative expenses 800,000
Note 6 – Other expenses
Loss on sale of equipment 50,000

Loss on sale of investment 50,000
Total other expenses 100,000
Natural method
Karla Company
Income Statement
Note
Total 8,100,000
Expenses:
Increase in inventory (3) ( 500,000)
Net purchases (4) 5,500,000
Freight out 175,000
Salesmen’s commission 650,000
Depreciation (5) 425,000
Other expenses (6) 100,000 6,850,000
Income tax ( 250,000)
16
Gross sales 7,850,000

Sales discounts ( 10,000)
Rental income 250,000

Dividend revenue 150,000
Total other income 400,000
Note 3 – Increase in inventory
Inventory, December 31 1,500,000

Inventory, January 1 1,000,000
Increase in inventory 500,000
Note 4 – Net purchases
Purchases 5,250,000
Freight in 500,000
Purchase returns and allowances ( 150,000)
Purchase discounts ( 100,000)
Net purchases 5,500,000
Note 5 – Depreciation

Total 425,000
Note 6 – Other expenses
Loss on sale of equipment 50,000

Loss on sale of investment 50,000
Total 100,000
17
Problem 2-7
Masay Company
Statement of Cost of Goods Manufactured
Year Ended December 31, 2008
Raw materials – January 1 200,000

Purchases 3,000,000
Raw materials available for use 3,200,000
Less: Raw materials – December 31 280,000
Raw materials used 2,920,000
Direct labor 950,000
Factory overhead:
Indirect labor 250,000
Superintendence 210,000
Light, heat and power 320,000
Rent – factory building 120,000
Repair and maintenance – machinery 50,000
Factory supplies used 110,000
Depreciation – machinery 60,000 1,120,000
Total manufacturing cost 4,990,000
Goods in process – January 1 240,000
Total Cost of goods in process 5,230,000
Less: Goods in process – December 31 170,000
Cost of goods manufactured 5,060,000
Cost of sales method
Masay Company
Income Statement
Note
Cost of goods sold (2) (5,120,000)
Expenses:
Other expense (6) 300,000 1,720,000
Income before tax 820,000
Income tax expense ( 320,000)
Net income 500,000
18
Sales 7,500,000
Note 2 – Cost of goods sold
Finished goods – January 1 360,000

Finished goods – December 31 ( 300,000)
Cost of goods sold 5,120,000
Gain from expropriation 100,000

Interest income 10,000
Gain on sale of equipment 100,000
210,000
Sales salaries 400,000

Advertising 160,000
Delivery expenses 200,000
Total 830,000
Office salaries 150,000

Accounting and legal fees 150,000
Office expenses 250,000
Total 590,000
Note 6 – Other expense
Earthquake loss 300,000

19
Nature of expense method
Masay Company
Income Statement
Note
Expenses:
Decrease in finished goods
and goods in process (3) 130,000
Raw materials used (4) 2,920,000
Direct labor 950,000
Factory overhead (5) 1,120,000
Salaries (6) 550,000
Advertising 160,000
Depreciation (7) 110,000
Delivery expenses 200,000
Accounting and legal fees 150,000
Office expenses 250,000
Other expense (8) 300,000 6,840,000
Income before tax 820,000
Income tax expense ( _320,000)
Net income 500,000
Sales 7,500,000
Gain from expropriation 100,000

Gain on sale of equipment 100,000
210,000
Note 3 – Decrease in finished goods and goods in process
January 1 December 31 Decrease

Finished goods 360,000 300,000 60,000
Goods in process 240,000 170,000 70,000
Total 600,000 470,000 130,000
20
Note 4 – Raw materials used
Raw materials – January 1 200,000

Purchases 3,000,000
Raw materials available for use 3,200,000
Raw materials – December 31 280,000
Note 5 – Factory overhead

Superintendence 210,000
Light, heat and power 320,000
Rent – factory building 120,000
Repair and maintenance – machinery 50,000
Factory supplies used 110,000
Depreciation – machinery 60,000
Total 1,120,000
Note 6 – Salaries

Total 550,000
Note 7 – Depreciation

Total 110,000
Earthquake loss 300,000
Problem 2-8
Youth Company
Income Statement
Note
Expenses:
Other expense (5) 340,000 1,610,000
21
Sales 9,070,000
Beginning inventory 1,500,000

Purchases 5,750,000
Transportation in 150,000
Purchase discounts ( 100,000) 5,800,000
Ending inventory (1,400,000)

Store supplies 80,000
Total 690,000

Depreciation – building 120,000
Office supplies 60,000
Total 580,000
Uninsured flood loss 340,000
22
Problem 2-9
Christian Company
Purchases 1,600,000
Freight in 80,000
Total 1,680,000
Increase in raw materials ( 100,000)
Direct labor 1,480,000
Factory overhead:
Depreciation – machinery 50,000
Factory taxes 130,000
Factory supplies expense 120,000
Factory superintendence 480,000
Factory maintenance 150,000
Factory heat, light and power 220,000 1,750,000
Decrease in goods in process 90,000
Christian Company
Income Statement
Note
Sales revenue 8,000,000
Expenses:
Administrative expenses (3) 930,000 1,730,000

Decrease in finished goods 200,000
23

Advertising 120,000
Delivery expense 160,000
Total 800,000
Office supplies expense 30,000

Doubtful accounts 100,000
Total 930,000
Problem 2-10
Ronald Company
Materials – January 1 1,120,000

Purchases 1,600,000
Freight on purchases 220,000
Purchase discounts ( 20,000) 1,800,000
Materials available for use 2,920,000
Less: Materials – December 31 1,560,000
Materials used 1,360,000
Direct labor 2,000,000
Factory overhead:
Heat, light and power 600,000
Repairs and maintenance 100,000
Other factory overhead 340,000
Factory supplies used (300,000 + 660,000 – 540,000) 420,000
Depreciation – factory building 280,000 2,100,000
Goods in process – January 1 360,000
Total cost of goods in process 5,820,000
Less: Goods in process – December 31 320,000
24
Ronald Company
Income Statement
Note


Expenses:
Selling expenses 200,000
Administrative expenses 340,000 540,000

Sales 7,120,000
Finished goods – January 1 420,000

Finished goods – December 31 ( 520,000)
Interest revenue 160,000
25
Problem 2-11
Reliable Company
Statement of Retained Earnings
Retained earnings – January 1 200,000

Prior period error – overdepreciation in 2007 100,000
Change in accounting policy from FIFO to weighted average
method – credit adjustment 150,000
Corrected beginning balance 450,000
Decrease in appropriation for treasury share 200,000
Total 1,950,000
Cash dividends paid to shareholders ( 500,000)
Current appropriation for contingencies ( 100,000)
Retained earnings – December 31 1,350,000
Problem 2-12

Loss from fire ( 50,000)
Goodwill impairment ( 250,000)
Loss on sale of equipment ( 200,000)
Gain on retirement of bonds payable 100,000
Gain on life insurance settlement 450,000
Adjusted net income 3,050,000
Gondola Company
Statement of Retained Earnings
Balance – January 1 2,600,000

Compensation of prior period not accrued ( 500,000)
Correction of prior period error – credit 400,000
Adjusted beginning balance 2,500,000
Net income – adjusted 3,050,000
Stock dividend ( 700,000)
Loss on retirement of preference share ( 350,000)
Appropriated for treasury share (1,000,000)
Balance – December 31 3,500,000
26
CHAPTER 3
Problem 3-1 Problem 3-2

1. D 6. D 1. D 6. D
2. A 7. B 2. D 7. D
3. A 8. C 3. C 8. B
4. C 9. C 4. A 9. D
5. B 10. A 5. C 10. B
Problem 3-3
a. Undeposited collections 60,000

Cash in bank – PCIB 500,000
Cash in bank – PCIB (for payroll) 150,000
Cash in bank - PCIB (savings deposit) 100,000
Money market instrument – 90 days 2,000,000
Total cash and cash equivalents 2,810,000
b. Accounts receivable (15,000 + 25,000) 40,000

Cash in foreign bank 100,000
Advances to officers 30,000
Sinking fund cash 450,000
Bank overdraft 50,000
Cash 690,000
Problem 3-4
Adjusting entries on December 31, 2008
a. Cash 100,000
b. Cash 50,000
c. Accounts receivable 200,000

Cash 200,000
d. Accounts receivable (20,000 + 60,000 + 30,000) 110,000

Money market placement 1,000,000
Cash in closed bank 50,000
Advances to employee 30,000
Pension fund 400,000
Cash 1,590,000
27
Cash and cash equivalents:

Demand deposit (see below) 1,450,000
Time deposit – 30 days 500,000
Petty cash fund 10,000
Total 1,960,000
Demand deposit per book 1,500,000

Undelivered check 100,000
Postdated check delivered 50,000
Window dressing of collection ( 200,000)
Adjusted balance 1,450,000
Problem 3-5
1. Cash on hand 500,000

Postdated check (100,000)
Adjusted cash on hand 400,000
2. Petty cash fund 20,000

Unreplenished petty cash expenses ( 2,000)
Postdated employee check ( 3,000)
Adjusted petty cash 15,000
3. Security Bank current account 1,000,000

Postdated company check delivered 200,000

Security Bank current account 1,200,000
PNB current account No. 1 400,000
PNB current account No. 2 ( 50,000)
BSP Treasury bill – 60 days 3,000,000
Total cash and cash equivalents 4,965,000
*The BPI Time deposit of P2,000,000 is shown as noncurrent investment because it is

restricted for land acquisition.
5. Accounts receivable 100,000

Cash on hand 100,000
Expenses 2,000
Receivable from employee 3,000
Security Bank current account 200,000

28
Problem 3-6

NSF customer check ( 40,000)
Postdated customer check ( 60,000)
Adjusted on hand 400,000
2. Currency and coins 1,000

Check drawn payable to petty cashier 14,000
Adjusted petty cash 15,000
3. Cash in bank 2,000,000
Undelivered company check 100,000
Adjusted cash in bank 2,250,000
4. Accounts receivable (40,000 + 60,000) 100,000

Cash on hand 100,000
Advances to employees 3,000

Cash short or over 2,000
Cash in bank (100,000 + 150,000) 250,000

Problem 3-7

Postdated customer check ( 15,000)
Adjusted cash on hand 150,000
2. Petty cash fund:

Currency and coins 5,000
3. Philippine Bank current account 5,000,000

Undelivered company check 25,000

Philippine Bank current 5,070,000
Manila Bank current 4,000,000
Asia Bank time deposit 2,000,000
Total cash and cash equivalent 11,225,000
29

Cash on hand 50,000
Receivable from officer 2,000

Expenses 12,000
Petty cash 15,000
Philippine Bank current 70,000

City Bank current 100,000
Bank overdraft 100,000
Problem 3-8
Fluctuating Fund System Imprest Fund System
1. Petty cash fund 10,000 1. Petty cash fund 10,000

Cash in bank 10,000 Cash in bank 10,000
2. Postage 1,500 2. No entry

Supplies 5,500
Transportation 1,200
Miscellaneous expense 800

Cash in bank 14,000 Postage 1,500
Supplies 5,500
Cash in bank 14,000
Problem 3-9

2. Postage 1,500 2. No entry

Supplies 2,000
3. No entry
3. Transportation 1,000
Cash in bank 1,500 4. No entry
30
4. Supplies 1,000
Accounts payable 3,000 5. Postage 1,500
Petty cash fund 4,000 Supplies 3,000
5. Petty cash fund 9,000 Miscellaneous expense 500
Cash in bank 9,000 Accounts payable 3,000
Cash in bank 9,000
6. Postage 2,000
Supplies 3,000 6. No entry
Petty cash fund 9,000 7. Petty cash fund 10,000
Postage 2,000
7. Petty cash fund 19,000 Supplies 3,000
Cash in bank 19,000 Transportation 4,000
Cash in bank 19,000
Problem 3-10
May 2 Petty cash fund 10,000 May 2 Petty cash fund 10,000
29 Postage 1,000 29 Postage 1,000

Supplies 3,000 Supplies 3,000
Transportation 2,500 Transportation 2,500
Miscellaneous expense 1,500 Miscellaneous expense 1,500
Petty cash fund 8,000 Petty cash fund 8,000

Cash in bank 8,000
June 30 Supplies 2,000 June 30 Supplies 2,000

Accounts payable 1,000 Accounts payable 1,000
Transportation 1,000 Transportation 1,000
Petty cash fund 4,000 Petty cash fund 4,000
July 1 Petty cash fund 4,000

Supplies 2,000
Postage 1,000
To reverse the adjustment made

on June 30.
15 Petty cash fund 5,000 July 15 Supplies 1,500

Supplies 3,500 Postage 500
Postage 1,500 Transportation 500
Transportation 1,500 Miscellaneous expense 500
Miscellaneous expense 500 Petty cash fund 3,000
Cash in bank 12,000
Cash in bank 12,000
31
Problem 3-11
2008
Nov. 2 Petty cash fund 10,000
Cash in bank 10,000
30 Postage 2,000
Supplies 5,000
Cash in bank 17,000
Dec. 31 Postage 3,000
Supplies 4,000
Special deposit 2,000
2009
Jan. 1 Petty cash fund 9,000
Postage 3,000
Supplies 4,000
Special deposit 2,000
2 No entry
31 Postage 5,000
Supplies 6,000
Cash in bank 19,000
Problem 3-12
Requirement 1
2008
Dec. 1 Petty cash fund 10,000
Cash in bank 10,000
20 Selling expenses 5,000

Miscellaneous expenses 2,000
Equipment 2,000
Cash in bank 9,000
31 Receivable from employee 2,000

Transportation 500
2009
Jan. 1 Petty cash fund 4,000
Receivable from employee 2,000
Transportation 500
32
2009
Jan. 15 No entry
31 Selling expenses 2,000

Administrative expenses 2,000
Purchases 1,200
Cash in bank 6,700
Requirement 2
Petty cash 10,000

Less: Petty cash expenses from December 21, 2008 to January 31, 2009:
Selling expenses (1,500 + 500) 2,000
Administrative expenses 2,000
Transportation (500 + 1,000) 1,500
Purchases 1,200 6,700
Petty cash before replenishment 3,300
Problem 3-13 Answer B Problem 3-14 Answer C
Problem 3-15 Answer A Problem 3-16 Answer A
Petty cash fund 50,000 Payroll account 2,500,000

Undeposited collections 1,100,000 Value added tax account 1,000,000
Cash in bank 2,500,000 Traveler’s check 300,000
Total 3,650,000 Money order 700,000
Total 4,540,000
Problem 3-17 Answer C
Checking account #101 1,750,000

Checking account #201 ( 100,000)
Time deposit account 250,000
90-day Treasury bill 500,000
Total cash and cash equivalent 2,400,000
Problem 3-18 Answer B
Cash in First Bank 5,000,000

Change fund 50,000
Total 5,065,000
Cash balance per book 6,000,000

Credit adjustment (1,600,000)
Adjusted cash balance 4,400,000
33
Note receivable 1,000,000

Accounts receivable (400,000 + 200,000) 600,000
Cash 1,600,000
Problem 3-20 Answer A
Checkbook balance 8,000,000

Postdated customer check (2,000,000)
NSF check ( 500,000)
Undelivered company check 1,500,000

Cash on hand 2,400,000
Cash in bank 3,500,000
Petty cash 40,000
Saving deposit 2,000,000
Total deposit 7,940,000
Problem 3-22 Answer B Problem 3-23 Answer A Problem 3-24 Answer A
Cash on hand and in bank 5,000,000

Time deposit 6,000,000
Saving deposit 1,000,000
Total 12,000,000
Currencies 4,000
Coins 1,000
Accommodation check 6,000
Total 11,000
Coins and currency 2,000

Replenishment check 4,000
Total 6,000
Total petty cash 10,000

Currency and coins ( 3,000)
Amount of replenishment 7,000
34
CHAPTER 4
Problem 4-1
1. D 6. C 11. C
2. A 7. D 12. B
3. B 8. C 13. A
4. C 9. A 14. C
5. C 10. B 15. C
Problem 4-2
Balance per book 65,000

Add: CM for note collected 30,000
Total 95,000
Less: DM for service charge 2,000
Adjusted book balance 93,000
Balance per bank 108,000

Add: Deposit in transit 80,000
Total 188,000
Less: Outstanding checks:
No. 102 15,000
105 30,000
107 50,000 95,000
Adjusted bank balance 93,000
Adjusting entries:
1. Cash in bank 30,000

Note receivable 30,000
2. Bank service charge 2,000

Cash in bank 2,000
Problem 4-3
Balance per book 110,000 Add: CM

for note collected 45,000
Total 155,000

NSF check 10,000
Book error (52,000 – 25,000) 27,000 42,000
35
Balance per bank 135,000

Erroneous bank debit 8,000 68,000
Total 203,000
No. 770 20,000
775 30,000
777 40,000 90,000
Adjusting entries:

Bank service charge 5,000
Cash in bank 42,000
Problem 4-4
Balance per book 2,840,000

Add: CM for note collected 270,000
Total 3,110,000
Adjusted book balance 3,105,000
Balance per bank 3,265,000

Total 3,715,000
No. 116 60,000
122 180,000
124 120,000
125 250,000 610,000
Adjusted bank balance 3,105,000
Adjusting entries:


Cash in bank 5,000
36
Problem 4-5

Add: Note collected by bank 2,150,000
Total 7,150,000
Less: Bank service charge 50,000

NSF check 500,000 550,000
Deposit in transit 3,000,000
Total 7,450,000
Less: Outstanding checks 850,000
Adjusting entries:

Problem 4-6
Book balance 1,405,000

Add: Collection of note 2,500,000
Interest on note 150,000
Book error on check no. 175 45,000 2,695,000
Total 4,100,000
Payment for light and water 245,000
NSF check 220,000 470,000
Bank balance 5,630,000

Total 6,380,000
Less: Bank error 1,100,000
Outstanding checks 1,650,000 2,750,000
37
Adjusting entries:


Light and water 245,000
Problem 4-7
a. Balance per book – April 30 1,100,000

Credit memo for note collected 60,000
Outstanding checks:
No. 1331 40,000
1332 30,000
1334 60,000
1335 10,000 140,000
Total 1,300,000
NSF check 25,000
Undeposited collections 270,000 300,000
Balance per bank – April 30 1,000,000
b. Adjusting entries:


Cash in bank 30,000
c. Balance per book – April 30 1,100,000

CM for note collected 60,000
Bank service charge ( 5,000)
NSF check ( 25,000)
Adjusted cash in bank 1,130,000
38
Problem 4-8
a. Balance per bank 3,500,000

Add: Undeposited collections 550,000
NSF check 50,000
DM for safety deposit 5,000
Unrecorded check 125,000 730,000
Total 4,230,000
Less: Checks outstanding 650,000
Overstatement of creditor’s check 270,000
Understatement of customer’s check 180,000 1,100,000
b. Adjusting entries:

c. Balance per book 3,130,000

Overstatement of creditor’s check 270,000
Understatement of customer’s check 180,000
Total 3,580,000
Less: NSF check 50,000
DM for safety box 5,000
Unrecorded check 125,000 180,000
Problem 4-9

Add: Proceeds of bank loan 940,000
Note collected by bank 435,000 1,375,000
Total 4,075,000
Less: Service charge 10,000
Customer’s check charged back 50,000 60,000
39

Incorrect deposit 90,000
Erroneous bank charge 150,000
Erroneous debit memo 200,000 915,000
Total 4,915,000
Erroneous bank credit 300,000 900,000
Adjusting entries:

Interest expense (60,000 x 1/6) 10,000
Prepaid interest expense 50,000
Loan payable (940,000/94%) 1,000,000

Cash in bank 60,000
Problem 4-10
Balance per book (squeeze) 2,120,000

Proceeds of note collected 435,000 935,000
Total 3,055,000
NSF check 50,000 55,000
Balance per bank (squeeze) 3,070,000

Bank error (200,000 – 20,000) 180,000 630,000
Total 3,700,000
Less: Outstanding checks (750,000 – 50,000) 700,000
Adjusting entries:

Bank service charge (5,000 + 15,000) 20,000
Loan payable 500,000
40
Problem 4-11

Total 5,516,000
Less: Understatement of check in payment of account
(200,000 – 20,000) 180,000
Petty cash fund 10,000 190,000

Erroneous bank charge 50,000
Deposit omitted from bank statement 150,000 500,000
Total 6,000,000
Less: Erroneous bank credit 130,000
Outstanding checks 544,000 674,000
Adjusting entries:

Interest expense (84,000 x 2/12) 14,000
Prepaid interest expense 70,000
Supplies 2,000
Postage 1,000
Loan payable (516,000/86%) 600,000
Problem 4-12

Add: Overstatement of check number 765 20,000
Check number 555 stopped for payment 10,000 30,000
Total 1,330,000
NSF check 85,000 90,000

Total 1,475,000
Number 761 55,000
762 40,000
763 25,000
764 65,000
765 50,000 235,000
41
Adjusting entries:

Miscellaneous income 10,000

Cash in bank 90,000
3. Receivable from cashier 40,000

Sales discounts 10,000
Problem 4-13
a. Bank reconciliation – June 30

Add: Credit memo for note collected 300,000
Total 1,300,000
Less: NSF check 100,000
Service charge 4,000 104,000

Total 2,050,000
Bank reconciliation – July 31

Add: Credit memo for bank loan 500,000
Total 1,900,000

Add: Deposit in transit 1,100,000
Total 3,750,000
Less: Outstanding checks 1,851,000
b. Adjusting entries, July 31

Bank loan payable 500,000
42

Cash in bank 1,000
Computation of deposit in transit – July 31
Deposit in transit – June 30 400,000

Add: Deposits during July:
Book debits 4,000,000
Less: June credit memo for note collected 300,000 3,700,000
Total 4,100,000
Less: Deposits credited by bank during July:
Bank credits 3,500,000
Less: July credit memo for bank loan 500,000 3,000,000
Deposit in transit – July 31 1,100,000
Computation of outstanding checks – July 31
Outstanding checks, June 30 854,000

Add: Checks drawn by company during July:
Book credits 3,600,000
Less: June debit memos for
NSF check 100,000
Service charge 4,000 104,000 3,496,000
Total 4,350,000
Less: Checks paid by bank during July:
Bank debits 2,500,000
Less: July service charge 1,000 2,499,000
Outstanding checks, July 31 1,851,000
Problem 4-14
a. Reconciliation – October 31
Bank balance 400,000

Total 700,000
Reconciliation – November 30

Add: Understatement of collection from customer 90,000
Total 1,090,000
Less: Understatement of check disbursement 270,000
43
Bank balance 930,000

Check of Susan Company charged in error 200,000 390,000
Total 1,320,000
Deposit of Susan Company erroneously credited 100,000 500,000
b. Adjusting entries – November 30

2. Accounts payable 270,000

Computation of outstanding checks – October 31
Outstanding checks – October 31 (squeeze) 100,000

Add: Checks issued by depositor:
Book disbursements 1,800,000
Understatement of check paid 270,000 2,070,000
Total 2,170,000
Less: Checks paid by bank:
Bank disbursements 1,970,000
Check of Susan Company charged in error ( 200,000) 1,770,000
Outstanding checks – November 30 400,000
Computation of deposit in transit – November 30
Deposit in transit – October 31 300,000

Add: Cash receipts deposited during November:
Book receipts 2,200,000
Understatement of collection from customer 90,000 2,290,000
Total 2,590,000
Less: Deposits credited by bank during November:
Bank receipts 2,500,000
Deposit of Susan Company erroneously credited ( 100,000) 2,400,000
Deposit in transit – November 30 190,000
Problem 4-15
a. Reconciliation on July 1
44

Total 2,220,000
Reconciliation on July 31
Book balance 470,000

Add: Note collected by bank 1,500,000
Total 1,970,000

Total 3,100,000
Check # 107 650,000
108 500,000 1,150,000
b. Adjusting entries on July 31


Cash in bank 20,000
Computation of deposit in transit – July 1
Deposit in transit – July 1 (squeeze) 500,000

Cash receipts per book 3,400,000
Total 3,900,000
Less: Deposits credited by bank 3,500,000
Deposit in transit – July 31 400,000
Computation of outstanding checks – July 1
Outstanding checks – July 1 (squeeze) 950,000

Checks drawn by depositor 4,200,000
Total 5,150,000
Less: Checks paid by bank 4,000,000
Outstanding checks – July 31 1,150,000
45
Problem 4-16
Balance per book – November 30 500,000

NSF check 50,000
Customer’s note erroneously recorded as cash receipt 100,000 160,000
Balance per bank – November 30 600,000

Total 720,000
Deposit in transit – October 31 45,000

Cash receipts deposited:
Book debits 710,000
October collections recorded in November ( 45,000)
Customer’s note recorded as cash receipt (100,000) 565,000
Total 610,000
Less: Deposits credited by bank:
Bank credits 500,000
Correction of bank error ( 10,000) 490,000
Deposit in transit – November 30 120,000
Outstanding checks – October 31 125,000

Checks issued by depositor:
Book credits 1,200,000
October bank service charge ( 5,000) 1,195,000
Total 1,320,000
Checks paid by bank:
Bank debits 1,000,000
November bank service charge ( 10,000)
November NSF check ( 50,000) 940,000
Outstanding checks – November 30 380,000
Adjusting entry:

46
Problem 4-17
March 31 Receipts Disbursements April 30

Book balance 200,000 800,000 720,000 280,000
Note collected by bank
March 60,000 ( 60,000)
April 100,000 100,000
Service charge
March ( 8,000) ( 8,000)
April 2,000 ( 2,000)
NSF check
March ( 20,000) ( 20,000)
April 30,000 ( 30,000)
Deposit in transit
March 31 ( 80,000) 80,000
April 30 (220,000) (220,000)
Outstanding checks
March 31 178,000 178,000
April 30 (372,000) 372,000
Bank balance 330,000 700,000 530,000 500,000
Problem 4-18
July 31 Receipts Disbursements August 31

Bank balance 800,000 5,000,000 3,940,000 1,860,000
Book error on collection ( 180,000) ( 180,000)
Book error on payment ( 540,000) 540,000
Bank error on deposit ( 200,000) ( 200,000)
Bank error on payment ( 400,000) 400,000
NSF check:
July 100,000 100,000
August ( 50,000) 50,000
Note collected by bank:
July ( 200,000) 200,000
August ( 300,000) ( 300,000)
Deposit in transit:
July 600,000 ( 600,000)
August 480,000 480,000
Outstanding checks:
July ( 100,000) ( 100,000)
August 650,000 ( 650,000)
Book balance 1,200,000 4,400,000 3,600,000 2,000,000
47
Problem 4-19
Nov. 30 Receipts Disbursements Dec. 31
Book balance 2,032,000 2,568,000 1,440,000 3,160,000

Bank service charge
November 30 ( 2,000) ( 2,000)
December 31 4,000 ( 4,000)
Collection of note
November 30 ( 200,000) 200,000
December 31 ( 300,000) ( 300,000)
Adjusted book balance 1,830,000 2,468,000 1,442,000 2,856,000
Bank balance 1,890,000 2,090,000 1,080,000 2,900,000

Outstanding checks
November 30 ( 180,000) ( 180,000)
December 31 592,000 ( 592,000)
Deposit in transit
November 30 80,000 ( 80,000)
December 31 498,000 498,000
Check erroneously charged by bank
November 30 40,000 ( 40,000)
December 31 ( 50,000) 50,000
Adjusted bank balance 1,830,000 2,468,000 1,442,000 2,856,000
Adjusting entry:

48
Problem 4-20
Sept. 30 Receipts Disbursements Oct. 31
Book balance 1,900,000 1,400,000 2,400,000 900,000

NSF check:
September 30 ( 60,000) ( 60,000)
October 31 40,000 ( 40,000)
Collection of accounts receivable
September 30 30,000 ( 30,000)
October 31 50,000 50,000
Overstatement of check
September 30 90,000 ( 90,000)
October 31 ________ ( 120,000) 120,000
Adjusted balance 1,960,000 1,330,000 2,260,000 1,030,000
Bank balance 2,100,000 1,200,000 2,500,000 800,000

Deposit in transit
September 30 130,000 ( 130,000)
October 31 260,000 260,000
Outstanding checks
September 30 ( 270,000) ( 270,000)
October 31 30,000 ( 30,000)
Adjusting entries on October 31

Cash in bank 40,000

Salaries 120,000
49
Problem 4-21
May 31 Receipts Disbursements June 30
Balance per book 2,500,000 5,300,000 5,400,000 2,400,000

Bank service charge:
May 31 ( 20,000) ( 20,000)
June 30 25,000 ( 25,000)
NSF check:
June 30 200,000 ( 200,000)
Interest collected:
June 30 75,000 75,000
Book error:
June 30 _________ ( 300,000) 300,000
Balance per bank 2,700,000 5,500,000 5,600,000 2,600,000

Deposit in transit
May 31 625,000 ( 625,000)
June 30 500,000 500,000
Outstanding checks
May 31 ( 845,000) ( 845,000)
June 30 550,000 ( 550,000)
Adjusting entries on June 30:

Equipment 300,000


Bank charges ( 10,000)
Customer note collected by bank 1,500,000
Interest on customer note 60,000
Depositor’s note charged to account (1,000,000)
50
Total 2,200,000
Erroneous bank credit 300,000 700,000
The adjusted cash in bank can also be computed by starting with the balance per book.
Balance per book 850,000

Add: Proceeds of note collected 750,000
Total 1,600,000
Less: NSF checks (150,000 – 50,000) 100,000

Note collected by bank 950,000
Book error (200,000 – 20,000) ( 180,000)
Bank service charge ( 20,000)
Problem 4-28 Answer D
Balance per ledger 3,750,000
Service charges ( 50,000)

Collection of note 1,500,000
Book error ( 100,000)
Unrecorded check for traveling expenses ( 500,000)


Deposit in transit 1,400,000
Total 7,600,000
Outstanding checks (squeeze) 3,000,000
51
Outstanding checks – May 31 3,000,000

Checks issued by depositor in June:
Total credits to cash in June 9,000,000
Service charge in May recorded in June ( 100,000) 8,900,000
Total 11,900,000
Checks paid by bank in June:
Checks and charges by bank in June 8,000,000
Service charge in June ( 50,000)
NSF check in June (1,000,000) 6,950,000
Outstanding checks – June 30 4,950,000
Balance per book – June 30 2,100,000
Service charges ( 50,000)

Collection by bank 550,000
Balance per bank – June 30 2,400,000

Deposits outstanding – June 30 500,000
Checks outstanding – June 30 ( 400,000)
Outstanding checks – May 31 100,000
Checks recorded by book in June 2,500,000
Total 2,600,000
Less: Checks recorded by bank in June 2,200,000
Outstanding checks – June 30 400,000
Deposits outstanding – May 31 300,000

Deposits recorded by book in June 1,800,000
Total 2,100,000
Less: Deposits recorded by bank in June 1,600,000
Deposits outstanding – June 30 500,000
Note collected 1,936,000

Book error (1,930,000 – 1,390,000) ( 540,000)
Service charge ( 47,000)
Net debt to cash 509,000
52
Balance per bank – November 30 3,600,000

December deposits 5,500,000
Total 9,100,000
December disbursements (4,400,000)
Balance per bank – December 31 4,700,000
Deposit in transit – December 700,000
Outstanding checks – December ( 500,000)
Adjusted bank balance – December 31 4,900,000
Balance per book – December 31 (squeeze) 4,300,000

Note collected by bank 1,000,000
Service charge ( 50,000)
Bank disbursements for July 9,000,000
Outstanding checks – June 30 (1,400,000)

Outstanding checks – July 31 1,000,000
Book disbursements for July 8,600,000
Bank receipts for April 6,000,000

Deposits in transit – March 31 (1,000,000)
Deposits in transit – April 30 1,500,000
Book receipts for April 6,500,000
53
CHAPTER 5
Problem 5-1 Problem 5-2 Problem 5-3
1. D 6. A 1. A 6. A 1. D
2. D 7. B 2. C 7. D 2. B
3. D 8. C 3. A 8. C 3. C
4. B 9. A 4. A 9. C 4. D
5. A 10. C 5. A 10. D 5. A
Problem 5-4
a. Accounts receivable 775,000
Installments receivable 300,000
Advances to suppliers 150,000
Advances to subsidiary 400,000
Subscriptions receivable 300,000
Customer’s credit balances 30,000
Advances from customers 20,000
Receivables 2,000,000
b. Accounts receivable 775,000

Installments receivable 300,000
Advances to suppliers 150,000
Subscription receivable 300,000
Total trade and other receivables 1,600,000
c. The advances to subsidiary should be classified as noncurrent and presented as

long-term investment.
The customers’ credit balances and advances from customers should be classified as current
liabilities and included as part of “trade and other payables”.
Problem 5-5
a. Accounts receivable – January 1 600,000

Charge sales 6,000,000
Total 6,600,000
Less: Collections from customers 5,300,000
Writeoff 35,000
Merchandise returns 40,000
Allowances to customers 25,000 5,400,000
Accounts receivable – December 31 1,200,000
54
b. Subscription receivable 150,000

Deposit on contract 120,000
Advances to affiliated 100,000
Advances to supplier 50,000
c. Accounts receivable 1,200,000

Advances to supplier 50,000
d. The subscriptions receivable should be deducted from subscribed share capital.
The deposit on contract should be classified as noncurrent and presented as other

noncurrent asset.
The advances to affiliates should be classified as noncurrent and presented as long-term investment.
Problem 5-6
Requirement 1
1. Accounts receivable 3,600,000

Sales 3,600,000
2. Notes receivable 400,000

3. Doubtful accounts 90,000

Allowance for doubtful accounts 90,000
4. Allowance for doubtful accounts 20,000

5. Sales return 15,000

6. Cash 2,450,000
Accounts receivable 2,450,000
7. Sales discount 45,000

8. Cash 150,000
55
Requirement 2
Requirement 3

Less: Allowance for doubtful accounts 70,000
Problem 5-7
FOB destination and freight collect

Freight out 10,000
Sales 500,000
Allowance for freight charge 10,000
2. Cash 475,000
Sales discount 15,000
Allowance for freight charge 10,000
FOB destination and freight prepaid

Freight out 10,000
Sales 500,000
Cash 10,000
2. Cash 485,000
FOB shipping point and freight collect

Sales 500,000
2. Cash 485,000
FOB shipping point and freight prepaid

Sales 500,000
Cash 10,000
56
2. Cash 495,000
Problem 5-8

Sales 4,000,000
2. Cash 1,470,000
3. Cash 1,000,000


Allowance for sales return 40,000
Problem 5-9
Gross method Net method
July 1 Accounts receivable 50,000 July 1 Accounts receivable 49,000

Sales 50,000 Sales 49,000
2 Accounts receivable 200,000 2 Accounts receivable 196,000

Sales 200,000 Sales 196,000
12 Cash 196,000 12 Cash 196,000

Sales discount 4,000 Accounts receivable 196,000
30 Cash 50,000 30 Cash 50,000

Accounts receivable 50,000 Accounts receivable 49,000
Sales discount forfeited 1,000
Problem 5-10
a. Credit sales (75% x 5,000,000) 3,750,000
Doubtful accounts (2% x 3,750,000) 75,000

b. Doubtful accounts (1% x 5,000,000) 50,000

57
c. Required allowance 80,000

Less: Credit balance of allowance 20,000
Doubtful accounts expense 60,000

d. Required allowance (10% x 500,000) 50,000

Less: Credit balance of allowance 20,000

Problem 5-11
a. Required allowance (5% x 600,000) 30,000

Add: Debit balance in allowance account 10,000

b. Required allowance 50,000

Add: Debit balance in allowance account 10,000

c. Doubtful accounts (2% x 1,900,000) 38,000

Problem 5-12
a. Doubtful accounts (3% x 8,000,000) 240,000

b. Doubtful accounts 170,000

Allowance – January 1 100,000

Doubtful accounts (squeeze) 170,000
Recovery 20,000
Total 290,000
Accounts written off 130,000
Allowance – December 31 (8% x 2,000,000) 160,000
c. Doubtful accounts 210,000

58

Doubtful accounts (squeeze) 210,000
Recovery 20,000
Total 330,000
Allowance – December 31 200,000
Problem 5-13
Requirement a

Sales 7,000,000
2. Cash 2,450,000
Accounts receivable(2,450,000/98%) 2,500,000
3. Cash 3,900,000


Cash 10,000

Requirement b

Rate = 40,000/1,000,000 = 4%
Allowance for doubtful accounts – December 31 (4% x 1,500,000) 60,000

Less: Allowance before adjustment 20,000
Requirement c
Accounts receivable – December 31 1,500,000

Net realizable value 1,440,000
59
Problem 5-14
Requirement a
1. Cash 800,000
Sales (800,000/10%) 8,000,000
2. Cash 684,000
Sales discount (5% x 720,000) 36,000
Accounts receivable(10% x 7,200,000) 720,000
3. Cash 5,940,000
4. Sales discount 10,000

Allowance for sales discount 10,000



Cash 10,000

Required allowance – December 31 (5% x 2,400,000) 120,000

Less: Allowance before adjustment 50,000
Rate = 100,000/2,000,000 = 5%
Requirement b

Allowance for sales discount 10,000 130,000
60
Problem 5-15
Requirement a

Sales (3,070,000 – 470,000) 2,600,000
2. Cash (2,455,000 – 1,455,000) 1,000,000

3. Cash 1,455,000
Accounts receivable (1,455,000/97%) 1,500,000

5. Cash 470,000
Sales 470,000
6. Sales return and allowances 55,000

7. Sales return and allowances 10,000

Cash 10,000

Cash 5,000

Credit sales 2,600,000

Less: Sales discount 45,000
Sales return and allowances 55,000 100,000
Net credit sales 2,500,000
Doubtful accounts (2,500,000 x 2%) 50,000
Requirement b

61
Problem 5-16
1. Accounts receivable – Jan. 1 1,500,000 4,410,000/98% 4,500,000
Sales 7,935,000
Recovery 15,000 2,475,000/99% 2,500,000
Collections (8,000,000)
Sales discount ( 115,000) Sales discount:
Writeoff ( 55,000) 2% x 4,500,000 90,000
Sales return ( 30,000) 1% x 2,500,000 25,000
Accounts receivable – Dec. 31 1,250,000 115,000
Problem 5-17
Percent of Required
Amount Uncollectible allowance
1. Not yet due 1,700,000 - -
1 – 30 days past due 1,200,000 5% 60,000
31 – 60 days past due 100,000 25% 25,000
61 – 90 days past due 150,000 50% 75,000
Over 90 days past due 1,200,000 100% 120,000
3,270,000 280,000
2. Allowance – January 1 170,000

Receivables 30,000
Doubtful accounts expense (squeeze) 345,000
Total 545,000
Less: Writeoff (235,000 + 30,000) 265,000
Required allowance – December 31 280,000

Problem 5-18
1. 1,000,000 x 1% 10,000 2. Allowance – January 1 90,000

400,000 x 5% 20,000 Recoveries 20,000
300,000 x 10% 30,000 Doubtful accounts (squeeze) 200,000
200,000 x 25% 50,000 Total 310,000
60,000 x 100% 60,000 Less: Writeoff (100,000 + 40,000) 140,000
1,960,000 170,000 Allowance – December 31 170,000

Correct amount 200,000

Recorded (2% x 9,000,000) 180,000
Understatement 20,000
4. Accounts receivable – December 31 1,960,000

62
Problem 5-19
2005 2006 2007 Total

1. Writeoff 26,000 29,000 30,000 85,000
Less: Recoveries 2,000 3,000 4,000 9,000
Net writeoff 24,000 26,000 26,000 76,000
76,000
Percentage to be used in computing the allowance = ------------------- = 2%
3,800,000
2. Credit sales for 2008 3,000,000

Multiply by bad debt percentage 2%
Provision for doubtful accounts 60,000
3. Accounts receivable – January 1, 2008 250,000

Add: Credit sales for 2008 3,000,000
Recoveries 5,000 3,005,000
Total 3,255,000
Less: Collections in 2008 2,615,000
Writeoff 40,000 2,655,000
Accounts receivable – December 31, 2008 600,000
4. Allowance for doubtful accounts – January 1 20,000

Add: Doubtful accounts for 2008 60,000
Recoveries 5,000 65,000
Total 85,000
Less: Writeoff 40,000
Allowance for doubtful accounts – December 31 45,000
Problem 5-20
1. Accounts receivable – December 31, 2007 600,000

Add: Sales for 2008 5,000,000
Recovery of accounts written off 10,000 5,010,000
Total 5,610,000
Less: Collection from customers 4,360,000
Accounts settled by issuance of note 200,000 4,610,000
Accounts receivable – December 31, 2008 1,000,000
2. Allowance for doubtful accounts – December 31, 2007 30,000

Add: Recovery of accounts written off 10,000
Total 40,000
Less: Accounts written off 50,000
Allowance before adjustment – December 31, 2008 (debit balance) (10,000)
63
3. Required allowance – December 31, 2008

On current accounts (700,000 x 5%) 35,000
On past due accounts (300,000 x 20%) 60,000
Total 95,000
4. Required allowance – December 31, 2008 95,000

Add: Debit balance before adjustment 10,000
Increase in allowance 105,000

Problem 5-21
170,000 – 10,000 258,000 – 20,000
Rate in 2007 = ------------------------ = .016 Rate in 2008 = -------------------------- = .017
10,000,000 14,000,000
1. Retained earnings (.016 x 1,250,000) 20,000

2. Allowance – January 1 20,000

Recoveries – 2008 10,000
Doubtful accounts – 2008 (squeeze) 92,000
Total 122,000
Less: Writeoff – 2008 88,000
Allowance – December 31 (.017 x 2,000,000) 34,000

Problem 5-22
1. Allowance – January 1, 2008 500,000

Doubtful accounts recorded (2% x 20,000,000) 400,000
Recovery 50,000
Total 950,000
Less: Writeoff (300,000 + 100,000) 400,000
Allowance balance before adjustment 550,000
2. 5,000,000 x 5% 250,000
2,000,000 x 10% 200,000
1,000,000 x 25% 250,000
500,000 – 100,000 x 75% 300,000
Required allowance – December 31, 2008 1,000,000

Allowance for doubtful accounts (1,000,000 – 550,000) 450,000
64
Problem 5-23
1. Allowance – 1/1/2008 (1% x 2,800,000) 28,000
2. Allowance – 1/1/2008 28,000

Doubtful accounts recorded in 2008 (1% x 3,000,000) 30,000
Recovery 7,000
Total 65,000
Writeoff (27,000)
Allowance before adjustment 38,000
3. 300,000 x 1% 3,000
80,000 x 5% 4,000
60,000 x 20% 12,000
25,000 x 80% 20,000
Required allowance – 12/31/2008 39,000

Allowance for doubtful accounts (39,000 – 38,000) 1,000
Problem 5-24
2008
Jan. 1 Loan receivable 4,000,000
Cash 4,000,000
Cash 342,100
Unearned interest income 342,100

Cash 150,000
Dec. 31 Cash 400,000


(10%) (12%)
Date Interest received Interest income Amortization Carrying value
01/01/2008 3,807,900
12/31/2008 400,000 456,948 56,948 3,864,848
12/31/2009 400,000 463,782 63,782 3,928,630
12/31/2010 400,000 471,370* 71,370 4,000,000
*12% x 3,928,630 equals 471,435, or a difference of P65 due to rounding.
2009
Dec. 31 Cash 400,000
65
2009
Dec. 31 Unearned interest income 63,782
2010
Dec. 31 Cash 400,000

Cash 4,000,000
Loan receivable 4,000,000
Problem 5-25
2008
Jan. 1 Loan receivable 3,000,000
Cash 3,000,000
Direct origination cost 260,300

Cash 260,300
Cash 100,000
Dec. 31 Cash 240,000


(8%) (6%)
Date Interest received Interest income Amortization Carrying value
01/01/2008 3,160,300
12/31/2008 240,000 189,618 50,382 3,109,918
12/31/2009 240,000 186,595 53,405 3,056,513
12/31/2010 240,000 183,487 56,513 3,000,000
2009
Dec. 31 Cash 240,000

2010
Dec. 31 Cash 240,000
66
2010
Dec. 31 Interest income 56,513
Cash 3,000,000
Problem 5-26
Requirement 1
December 31, 2009 (1,000,000 x .93) 900,000
December 31, 2010 (2,000,000 x .86) 1,720,000
December 31, 2011 (3,000,000 x .79) 2,370,000
Total present value of loan 5,020,000
Requirement 2
Loan receivable – 12/31/2008 6,000,000

Accrued interest (6,000,000 x 8%) 480,000
Total carrying value 6,480,000
Present value of loan 5,020,000
Impairment loss 1,460,000
Requirement 3
2008 Impairment loss 1,460,000

Allowance for loan impairment 980,000
2009 Cash 1,000,000


Interest income (8% x 5,020,000) 401,600
2010 Cash 2,000,000


Loan receivable – 12/31/2009 5,000,000

Allowance for loan impairment (980,000 – 401,600) ( 578,400)
Carrying value – 12/31/2009 4,421,600
Interest income for 2010 (8% x 4,421,600) 353,728
67
2011 Cash 3,000,000


Loan receivable – 12/31/2010 3,000,000

Allowance for loan impairment (578,400 – 353,672) ( 224,672)
Carrying value – 12/31/2010 2,775,328

Allowance per book 224,672
Difference due to rounding 2,646
Problem 5-27
Requirement 1
December 31, 2009 ( 500,000 x .89) 445,000

December 31, 2010 (1,000,000 x .80) 800,000
December 31, 2011 (2,000,000 x .71) 1,420,000
December 31, 2012 (4,000,000 x .64) 2,560,000
Requirement 2

Accrued interest receivable (12% x 7,500,000) 900,000
Total carrying value 8,400,000
Present value of loan 5,225,000
Impairment loss 3,175,000
Requirement 3
2008 Impairment loss 3,175,000

Allowance for loan impairment 2,275,000
2009 Cash 500,000

Loan receivable 500,000

Interest income (12& x 5,225,000) 627,000
2010 Cash 1,000,000


68
Loan receivable – 12/31/2009 7,000,000

Allowance for loan impairment (2,275,000 – 627,000) (1,648,000)
Carrying value – 12/31/2009 5,352,000
Problem 5-28
December 31, 2011 ( 360,000 x .772) 277,920 Face value of loan 4,000,000
December 31, 2012 ( 360,000 x .708) 254,880 Present value of loan 3,365,360
December 31, 2013 ( 360,000 x .650) 234,000 Impairment loss 634,640
December 31, 2014 (4,360,000 x .596) 2,598,560
2008 Cash 360,000
Impairment loss 634,640

2009 Allowance for loan impairment 302,882

Interest income (9% x 3,365,360) 302,882
2010 Allowance for loan impairment 331,758

Interest income (634,640 – 302,882) 331,758
2011 Cash 360,000

2012 Cash 360,000

2013 Cash 360,000

2014 Cash 4,360,000

Problem 5-29
12/31/2008 Impairment loss 338,500

The remaining term of the loan is 4 years. Accordingly, the present value
factor for 4 periods is used.
69
Present value of principal (500,000 x .735) 367,500

Present value of interest (80,000 x 5 = 400,000 x .735) 294,000
Total present value of loan 661,500

Present value of loan 661,500
Loan impairment loss 338,500
12/31/2009 Allowance for loan impairment 52,920

Interest income (8% x 661,500) 52,920
Accounts receivable-January 1 1,300,000

Credit sales 5,500,000
Collections from customers (5,000,000)
Sales return ( 150,000)
Accounts written off ( 100,000)
Accounts receivable-December 31 1,550,000
Allowance for sales return ( 50,000)
Trade accounts receivable 2,000,000

Accounts receivable (squeeze) 6,700,000

Allowance for doubtful accounts (900,000 – 200,000) ( 700,000)

Recovery of accounts written off 100,000
Total 1,050,000
70

Uncollectible accounts expense (squeeze) 100,000
Recovery of accounts written off 50,000
Total 430,000
Accounts written off (230,000)
Allowance – December 31 (2,700,000 – 2,500,000) 200,000

Total 230,000
Accounts written off (squeeze) 30,000
0 –60 days (1,200,000 x 1%) 12,000

61 – 120 days (900,000 x 2%) 18,000
Over 120 days (1,000,000 x 6%) 60,000
Allowance – December 31, 2008 90,000

Uncollectible accounts expense (squeeze) 80,000
Recovery 20,000
Total 160,000
Accounts written off ( 70,000)
Allowance for sales discount (5,000,000 x 2% x 50%) 50,000
Doubtful accounts expense (3% x 3,000,000 + 10,000) 100,000
Doubtful accounts expense (2% x 7,000,000) 140,000
71

Doubtful accounts expense (4% x 5,000,000) 200,000
Collection of accounts written off 10,000
Total 250,000

Doubtful accounts expense (squeeze) 175,000
Total 425,000

Financial Accounting 1 Valix

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Financial Accounting 1 Valix

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SOLUTION MANUAL

Problem 1-1 Problem 1-2 Problem 1-3 Problem 1-4

10. D 10. B 10. D 10. B

Problem 1-9 Problem 1-10 Problem 1-11 Problem 1-12

1. Systematic and rational allocation 1. Materiality

1. Accrual assumption 6. Income recognition principle

Current assets: Note

LIABILITIES AND SHAREHOLDERS’ EQUITY

Note 1 - Prepaid expenses

Office supplies 50,000

Note 2 - Property, plant and equipment

Property, plant and equipment 5,600,000

Note 3 - Intangible asset

Note 4 - Trade and other payables

Accounts payable 350,000

Current assets: Note

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities: Note

Note 1 - Trade and other receivables

Accounts receivable 500,000

Finished goods 400,000

Prepaid insurance 20,000

Note 4 - Property, plant and equipment

Note 5 - Long-term investments

Investment in bonds 1,500,000

Note 6 - Intangible assets

Note 7 - Trade and other payables

Accounts payable 300,000

Current assets: Note

LIABILITIES AND SHAREHOLDERS’ EQUITY

Note 1 - Trade and other receivables

Accounts receivable 400,000

Note 2 - Property, plant and equipment

Note 3 - Long-term investments

Land held for speculation 500,000

Note 4 - Intangible assets

Computer software 3,250,000

Advances to officers, not collectible currently 100,000

Note 6 - Trade and other payables

Accounts payable 400,000

Note 7 – Share capital

Preference share capital 2,000,000

Share premium – preference 500,000

Current assets: Note

Note 1 - Trade accounts receivable

Accounts receivable 800,000

Note 2 - Property, plant and equipment

Note 4 - Trade and other payables

Notes payable 750,000

Additional paid in capital 300,000

Current assets: Note

LIABILITIES AND EQUITY

Cash on hand 50,000

Accounts receivable 650,000

Note 3 - Property, plant and equipment

Note 4 - Intangible asset

Note 5 - Trade and other payables

Accounts payable 1,000,000

Note 6 – Share capital

Authorized share capital, 50,000 shares, P100 par 5,000,000

Share premium 300,000

Note 1 – Net sales revenue

Gross sales 7,850,000