Republic Central Colleges

Angeles City

Activities for E4- Accounting for Cash, Receivables and Inventories

Name
Score

Instruction:
● highlight your answer.
● for problem solving, just simplify your answer
● 1 point for theory and 3 points for problem solving

A. Cash and Cash Equivalent

1. To be reported as “cash and cash equivalent”, the cash and cash equivalent must be-
a. Unrestricted in use for current operations
b. Available for the purchase of property, plant and equipment
c. Set aside for the liquidation of long-term debt
d. Deposited in bank

2. Which of the following is usually considered cash?

a. Postdated checks
b. Money market savings certificates
c. Checking accounts
d. Certificates of deposit

3. If material, deposits in foreign bank which are subject to foreign exchange restriction
should be classified-
a. Separately as current asset, with appropriate disclosure
b. Separately as noncurrent asset with appropriate disclosure
c. Be written off as an extraordinary loss
d. As part of cash and cash equivalents

4. What is the major purpose of an imprest petty cash fund?

a. To effectively plan cash inflows and outflows
b. To ease the payment of cash to vendors
c. To determine the honesty of the petty cashier
d. To effectively control cash disbursements

5. When a petty cash fund is used, which of the following is true?

a. The balance of the petty cash fund should be reported on the statement of financial
position as a long-term investment
b. The petty cashier’s summary of petty cash payments serves as a journal entry that is
posted to the appropriate general ledger account
c. The reimbursement of the petty cash fund should be credited to the cash account
d. Entries that include a credit to the cash account should be recorded at the time the
payments from the petty cash fund are made

6. Which is not considered as a cash equivalent?

 a. A three-year treasury note maturing on May 30 of the current year purchased by the
entity on April 15 of the current year
b. A three-year treasury note maturing on May 30 of the current year purchased by the
entity on January 15 of the current year
c. A 90 day Treasury-bill
d. A 60 day money market placement

7. This practice consists of misappropriating a collection from one customer and

concealing this defalcation when collection is made from another customer
a. Kiting
b. window dressing
c. lapping
d. theft

8. A check that is drawn, recorded and already given to the payee but it bears a date
subsequent to the statement of financial position.
a. Postdated check delivered
b. undelivered check
c. Stale check
d. bouncing check

9. Which of the following should not be considered cash for financial reporting purposes?
a. Petty cash funds and change funds
b. Money orders, certified checks and personal checks
c. Coin, currency and available funds
d. Postdated checks and IOUs

10. Unreleased checks ( checks drawn before statement of financial position but held for
later delivery to creditors)
a. Should be treated as outstanding checks if they are ultimately encashed
b. Should be treated as outstanding checks if the date is shortly after statement of
financial position
c. Should be restored to the cash balance
d. Should be treated as outstanding checks

11. AD Company provided you the following information relating to your cash audit.
● The checkbook balance of AD Company on December 31, 2019 is P 1,000,000
● A customer check amounting to P 50,000 dated Jan. 2, 2020 was included in the
December 31, 2019 balance
● Another customer check of P 125,000 deposited on December 22, 2019 was
included in its checkbook balance but returned by the bank for insufficiency of
funds. This check was redeposited on December 26, 2019 and cleared two days
later.
● A P 100,000 check payable to supplier dated and recorded on December 30,
2019 was mailed on Jan. 16, 2020.

● A petty cash fund of P 25,000 showed the following on Dec. 31, 2019
Coins and currencies P 7,500
Return value of 5 cases of soft drinks P 2,500
 Petty cash vouchers 15,000
● A check of P 15,000 was drawn on December 31, 2019, payable to Petty cashier

The correct cash balance at December 31, 2019 statement of financial position is
a. P 1,072,500 c. P 1,075,000
b. 1,050,000 d. 947,500

Solution

Checkbook bal. 1,000,000

Postdated check erroneously included 50,000

Undelivered check 100,000

Petty cash fund (7.5k + 15k) 22,500

Total P1,072,500

12. The cash account of AT Company were made available to determine the correct cash
balance at December 31, 2019:
Bank balance at BPI (A P 128,000 check is still outstanding per bank statement) P1,262,000
Currency and coins awaiting deposit 454,000
Deposit in Orient Bank, a closed bank 400,000
Petty cash fund (of which P 10,000 is in the form of paid vouchers) 40,000
Receivables from officers and employees 50,000
Bond sinking fund cash 600,000

The correct cash balance of AT Company at December 31, 2019 is-

a. P 2,356,000 c. P 1,746,000
b. 2,218,000 d. 1,618,000

Solution

Cash balance (1262M – 128K) 1,134,000

Currency & Coins 454,000

Petty cash fund (40k – 10k) 30,000

Total cash P1,618,000

13. You have gathered the following data of AL Company’s petty cash account at
September 30, 2019:
Currencies and coins P 132,000
Petty cash vouchers:
Travel expenses 32,400
Medical supplies 9,600
Postage and stamps 16,000
IOUs to employees 32,000
An employee’s check returned by bank for insufficiency of
 funds but re placed by a Treasury check 10,000
A check drawn by the company payable to a A. Presa, petty
cashier representing her salary 152,000
A sheet of names together with contributions for birthday gift of
an employee containing amount of 20,000
The petty cash ledger account has an imprest balance of 400,000

What is the correct Petty cash fund on AL Company’s September 30, 2019?
a. P 284,000 c. P 304,000
b. 294,000 d. 314,000

Solution

Currency & coins 132,000

Checks drawn (salary) 152,000

Total P284,000

14. The cash account in BC Company’s ledger account showed a balance of P 1,766,000 at
December 31, 2019 which was determined to consist of-
Cash in Bank, per BC’s ledger, with a check for P 32,000 still outstanding P 898,000
Undeposited receipts, including a post-dated customer check for P 28,000 488,000
Bond sinking fund- cash 340,000
Vouchers paid out of collections, not yet recorded 19,200
IOUs signed by employee, taken from collections 13,200
Petty cash fund 9,600

At what amount should cash account be reported on BC’s statement of financial position
at December 31, 2019?
a. P 1,335,600 c. P 1,395,600
b. 1,367,600 d. 1,411,600

Solution

Cash in bank 898,000

Undeposited receipts 488,000

Petty cash fund 9,600

Total P1,395,600

15. LA Company’s checkbook balance on December 31, 2019 was P 200,000. In addition,
LA held the following items in its safe on that date:
Check payable to LA dated January 2, 2020 in payment of a sale made in December 2019,
not included in December 31 checkbook balance P 80,000
Check payable to LA, deposited December 15 and included in December Checkbook balance,
but returned by bank on December 30 stamped “NSF”. The check was redeposited on
January 2, 2020 and cleared on January 9, 2020 20,000
Check drawn on LA’s account payable to a vendor, dated and recorded in LA’s books on
December 31 but not mailed until January 7, 2020 12,000
Check drawn on LA’s account and issued to a customer for returned goods, dated
 December 30 but not recorded until January 2, 2020 2,000

The proper amount to be shown as Cash on LA’s statement of financial position at

December 31, 2019 is-
a. P 272,000 c. P 192,000
b. 270,000 d. 190,000

Solution

Checkbook balance 200,000

NSF customer check (20,000)

Undelivered company checks 12,000

Total P192,000

B. Receivables
16. Which of the following items should be included in accounts receivable reported on the
balance sheet?
a. Notes receivable.
b. Interest receivable.
c. Allowance for doubtful accounts.
d. Advances to related parties and officers.

17. Which is a generally accepted method of determining the amount of the adjustment to
bad debts expense?
a. A percentage of sales adjusted for the balance in the allowance
b. A percentage of accounts receivable not adjusted for the balance in the allowance
c. An amount derived from aging accounts receivable adjusted for the balance in the
allowance
d. An amount derived from aging accounts receivable not adjusted for the balance in
the allowance

18. A credit balance in accounts receivable resulting from overpayments, advanced

payments and sales returns should be classified as –
a. A current a liability
b. A long-term liability
c. A contra asset
d. A note disclosure

19. Uncollectible account expense

a. Represent the loss in accounts receivable that eventually turn out to be uncollectible
b. Is the amount an entity must pay whenever a customer fails to pay his or her account
c. Should not occur if a company properly investigates customers based on credit
history
 d. Is the amount an entity must pay to a collection agent to recover amounts on overdue
accounts

20. The advantage of relating bad debt experience to accounts receivable is that this
approach-
a. Does not require knowledge of the balance in the allowance for doubtful account
b. Gives a reasonably correct amount of receivables in the Statement of Financial
Position
c. Does not require estimates of uncollectible accounts
d. Relates bad debt expense to the period of sale
B

21. Using the percentage-of-receivables method for recording bad debt expense, estimated
uncollectible accounts are P 45,000. If the balance of the Allowance for Doubtful
Accounts is P 6,000 credit before adjustment, what is the amount of bad debt expense
for that period?
a. P 45,000
b. P 39,000
c. P 51,000
d. P 6,000

Solution

Est. uncollectible accounts 45,000

Less: allow. for doubtful accounts 6,000

Total P39,000

22. . Using the percentage-of-receivables method for recording doubtful accounts expense,
estimated uncollectible accounts are P 45,000. If the balance of the Allowance for
Doubtful Accounts is P 6,000 debit before adjustment, what is the balance of Allowance
for Doubtful accounts after adjustment?
a. P 45,000
b. P 51,000
c. P 39,000
d. P 6,000

Solution

Total est. uncollectible accounts 45,000

23. In 2021 Wilkinson Company had net credit sales of P 2,250,000. On January 1, 2021,
Allowance for Doubtful Accounts had a credit balance of P54,000. During 2021, P 90,000
of uncollectible accounts receivable were written off. Past experience indicates that the
allowance should be 10% of the balance in receivables (percentage of receivables
 basis). If the accounts receivable balance at December 31 was P 600,000, what is the
required adjustment to the Allowance for Doubtful Accounts at December 31,2021?
a. P 60,000
b. P 25,000
c. P 96,000
d. P 90,000

Solution

Accounts receivable (600k x 10%) 60,000

Uncollectible accounts 90,000

Less: allow. for DA 54,000

Total P96,000

24. Armenia Company revealed the following information for 2021:

Accounts receivable on January, P 650,000; Credit sales P 2,700,000; Sales Return
P 75,000; accounts written off P 40,000; Estimated future sales returns at year-end P 50,000
and Estimated uncollectible accounts receivable at year end per aging- P 110,000. Net
realizable value of Accounts receivable at December 31 is P 925,000

On December 31, 2021, How much is the amount collected from the credit customer ?

A. P 1,085,000
B. P 2,150,000
C. P 1,065,000
D. Answer not given

Solution

Begin balance 650,000

Add: credit sales 2,700,000

Total 3,350,000

Less: AR end 925,000

Sales return 75,000

Accounts Written off 40,000

Total P2,310,000

25. India Company determined the net value of accounts receivable on December 31, 2021
based on an aging of accounts receivable was P 325,000.
Allowance for uncollectible accounts 1-1-2021 P 30,000
Uncollectible accounts written off during 2021 18,000
Uncollectible accounts recovered during 2021 2,000
Accounts receivable on 12/31/2021 P 350,000

What is the uncollectible accounts expense for the current year?

A. P 5,000
B. P 11,000
C. P 15,000
D. P 21,00

Solution

Allowance for uncollectible accounts P 30,000

Uncollectible accounts written off 18,000

Total write off 12,000

Add: Uncollectible accounts recovered 2,000

Less: ending balance 25,000

Total uncollectible P11,000

26. Doane Company receives a P 10,000, 3-month, 6% promissory note from Ray Company
in settlement of an open accounts receivable. What entry will Doane Company make
upon receiving the note?

a. Notes Receivable 10,150

Accounts Receivable—Ray Company 10,150
b. Notes Receivable 10,150
Accounts Receivable—Ray Company 10,000
Interest Revenue 150

c. Notes Receivable 10,000

Interest Receivable 150
Accounts Receivable—Ray Company 10,000
Interest Revenue 150
d. Notes Receivable 10,000
Accounts Receivable—Ray Company 10,000

Solution

Notes Receivable 10,000

Accounts Receivable-Ray Company 10,000

C. Inventories

27. Brilliant Company purchased motorcycles from various countries and exports them to
Europe. Brilliant Company has incurred the following costs during the current year:
 
Cost of Purchase based on vendor’s invoices                   P  5,000,000
Trade discounts on purchases already deducted     
    from vendor’s invoices                                                          500,000
Import duties                                                                             400,000
Freight and insurance on purchases                                      1,000,000
Other handling costs relating to imports                                    100,000
Salaries of accounting department                                            600,000
Brokerage commission paid to agents for arranging imports     200,000
Sales commission paid to sales agents                                     300,000
After-sales warranty costs                                                          250,000
 
     What is the total cost of the purchases?
a. P 5,700,000      
b.     6,100,000         
c.     6,500,000        
d.     6,700,000

Solution
Cost of purchases 5,000,000
Import duties 400,000
Freight and insurance 1,000,000
Other handling cost 100,000
Brokerage commission 200,000
Total cost of purchases P6,700,000

 
28. The inventory on hand at December 31, 2020 for Fairy Company is valued at a cost of 
P 950,000.  The following items were not included in this inventory:
1. The purchased goods in transit, shipped FOB destination, invoice price of
     P 30,000 which includes freight charge of P 1,500.
2. Goods held on consignment by Fairy Company at a sales price of P 28,000, including
sales commission of 20% of the sales price
3. Goods sold to Grace Company, under terms FOB destination, invoice for
     P 18,500 which includes P 1,000 freight charge to deliver the goods.  Goods are in
transit.  The company’s selling price is 140% of cost.
4. Purchased goods in transit, terms FOB shipping point, invoice price P 50,000, freight
cost.  P 2,500
5. Goods out on consignment to Manila Company, sales price P 35,000, shipping cost of
P 2,000
 
      Compute the correct amount of inventory on December 31, 2020-
a.  P  1,025,000    
b. P  1,042,000       
c. P  1,033,000          
d. P  1,038,000
Solution

Inventory on hand 950,000

Goods sold (18,500 – 1,000 / 140%) 12,500

Purchase goods in transit (50k + 2.5k) 52,500

Goods out on consignment (25k + 2) 27,000

Adjusted inventory P1,042,000

29. Luigi Company sold selected merchandise on a consignment basis during 2020.  Luigi’s
2020 accounting records show the following information:
Inventory, January 1, P 250,000;  Inventory on hand, December 31, 
P 300,000; Inventory on consignment, December 31, P 45,000; Purchases, 
P 1,000,000; Freight-in, P 22,000; Freight-out to customers, P 75,000; and
Freight-out to consignees- P 8,000.

   What amount should Luigi report as cost of goods sold in its 2020 income 
     statement?
a. P  980,000            
b. P  972,000          
c. P 935,000          
d. P  927,000

Solution

Inventory Beg. 250,000

Purchases 1,000,000

Freight in 22,000

GAS 1,272,000

Less: inventory end 300,000

COGS P972,000

30.   Duchess Company reported during the current year beginning inventory P 500,000, net
purchases P 2,500,000 and net sales P 3,200,000.  A physical inventory at year-end
resulted in an inventory of P 575,000.  The gross profit on sales has remained constant
at 25%.  The entity suspected that some inventory may have been taken by a new
employee.  What is the estimated cost of missing inventory at year-end?
a. P   25,000
b. P  100,000
c. P  175,000
 d. P  225,000

Solution

Inventory Beg. 500,000

Purchases 2,500,000

GAS 3,000,000

Est. COGS (3,200M x 75%) 2,400,000

Total 600,000

Less: Inventory end. 575,000

Total cost missing P25,000

31. Saturn Company provided the following information for the current year:
Inventory, January 1                         P  1,300,000
Purchases                                            4,600,000
Purchase returns                                    100,000
Freight-in                                                 200,000
Sales                                                    6,800,000
Sales discounts                                       100,000
Sales returns                                           300,000

At year-end, a physical inventory revealed that the ending inventory was only 
P 850,000.  The gross profit on sales was 30%.  The entity suspected that some inventory
may have been pilfered.

What is the estimated cost of missing inventory at year end?

a. P   600,000
b. P   670,000
c. P  1,450,000
d. P  1,520,000

Solution

Inventory Beg. 1,300,000

Purchases 2,500,000

GAS 6,000,000

Est. COGS (6.4M x 70%) 4,480,000

Total 1,520,000

Less: Inventory end. 850,000

Total cost missing P670,000

 
32. The cost of inventories shall comprise all of the following costs, except-
a. cost of purchase
b. cost of conversion
c. other cost incurred in bringing the inventories to their present location and condition
d. abnormal amount of wasted material

33. Which of the following costs of conversion cannot be included in cost of inventory?
a. cost of direct labor
b. factory rent and utilities
c. salaries of sales staff (sales department shares the building with factory)
d. factory overhead based on normal capacity

34. The inventories of a service provider may simply be described as-

a. billed services c. work in progress
b. unbilled services d. service inventory

35. Commodities of broke-traders are measured at-

a. fair value c. cost
b. fair value less cost to sell d. net realizable value

36. The costing of inventory must be deferred until the end of the accounting period under
which of the following methods of inventory valuation?
a. moving average c. LIFO perpetual
b. weighted average d. FIFO perpetual

37. The credit balance that arises when a net loss on a purchase commitment is recognized
should be-
a. presented as a current liability c. presented as an appropriation of retained
earnings
b. subtracted from ending inventory d. presented in the income statement

38. The gross margin method of estimating ending inventory may be used for all of the
following except-
a. internal as well as external interim reports
b. internal as well as external year-end reports
c. estimate of inventory destroyed by fire or other casualty
d. rough test of the validity of an inventory cost determined under either periodic or
perpetual system

End