UNIT 1 DISCUSSION PROBLEMS IN INTEFAR

CASH
1. Determine the accounting treatment of each item:

Items Accounting Treatment

Petty cash fund
Money Orders
Postage Stamps
IOU from company officer
Certificate of deposit
Coin & Currency
Checking account
Money market saving certificate
Savings deposit
Time deposit
Demand Deposit
Redeemable preference shares acquired & due in 60 days
Equity investments – trading securities
Bank overdraft
Deposits in foreign bank which are subject to foreign exchange
restrictions
Bank draft
Compensating balance – legally restricted & held against short
term borrowings
Compensating balance – legally restricted & held against long
term borrowings
Compensating balance – not legally restricted
Cash in sinking fund

2. In the books of Lougie’s Company, determine whether the errors below are either book or bank
reconciling items & check their treatments (add/minus) assuming adjusted balance method is used.

a. Erroneous credit to Lougie’s account, representing proceeds of loan granted to

another company 30,000
b. Check issued by another company charged to Lougie’s account
20,000
c. Lougie discovered that a check written in a current month for P81,000 in payment of
accounts payable, had been recorded in the entity’s record as:
18,000
d. Check of Loydie Company charged by bank against Lougie Company 50,000
e. A check was drawn by Lodie Company. The bank charged it in error to the account of
Lougie Company. 26,000
f. A check was made for the proper amount of P25, 000 in payment of account;
however, it was entered in the cash disbursements journal as
52,000
g. Check of Lookie Company charged by bank against Lougie Company account.
12,000
h. Deposit of Lookie Company credited to Lougie Company 10,000
i. A creditor’s check for P30,000 was incorrectly recorded in the depositor’s book as
40,000
j. Check of Lougie Company in payment of an accounts payable had been recorded by
the depositor as P20, 000. The correct amount is: 12,000

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3. The following treasury bills are presented to you:

Treasury Date of End of Reporting Date of Amount

Bill Purchase Period Maturity
No. 1 01/01/2019 12/31/2019 01/01/2020 P 25,000.00
No. 2 07/31/2019 12/31/2019 01/01/2020 10,000.00
No. 3 11/30/2019 12/31/2019 12/31/2020 50,000.00
No. 4 12/15/2019 12/31/2019 02/28/2020 35,000.00
No. 5 10/25/2019 12/31/2019 01/15/2020 12,000.00
No. 6 06/30/2019 12/31/2019 02/14/2021 10,000.00
No. 7 12/30/2019 12/31/2019 02/15/2021 5,000.00
No. 8 01/01/2019 12/31/2019 02/14/2020 4,000.00
No. 9 02/14/2019 12/31/2019 02/14/2020 2,000.00
No. 10 12/28/2019 12/31/2019 01/30/2020 10,000.00

Compute for the following balances as of December 31, 2019:

a. Cash equivalents
b. Current investment
c. Noncurrent investment

4. The December 31, 2019, trial balance of Paul Company includes the following accounts:

Cash on hand 200,000

Petty cash fund 20,000
BPI Bank current account 5,000,000
Leyte Bank current account 4,000,000
City Bank current account (100,000)
Makati Bank savings account 250,000
Makati Bank time deposit , 90 days 2,000,000

➢ Cash on hand includes the following items:

Customer’s check for P35, 000 returned by bank December 26, 2019, due to insufficient fund but
subsequently redeposited and cleared by the bank on January 10, 2020.
➢ Customer’s check for P15, 000 dated January 10, 2020, received December 23, 2019.
➢ The petty cash fund consists of the following items on December 31, 2019:

Currency & coins 5,000

IOUs from officers 2,000
Unreplenished PCVs 12,000
19,000
➢ Included among the checks drawn by Paul against the BPI Bank current account and recorded in
December 2019 are the following:

Check written and dated December 23, 2019, and delivered to payee on January 3, 2020, P25, 000.00
Check written December 26, 2019, dated January 30, 2020, delivered to payee on December 28, 2019,
P45, 000.00.

➢ The credit balance in City Bank current account represents checks drawn in excess of the deposit
balance which are still outstanding on December 31, 2019.

➢ The saving account deposit in Makati Bank has been set aside by the Board of Directors for acquisition
of new equipment. This amount is expected to be disbursed in the next 3 months from the end of the
reporting period.

Determine the following:

4.1 Cash on hand
4.2 Petty Cash Fund
4.3 BPI Bank current account
4.4 Cash and cash equivalents
4.5 Adjusting entries on December 31, 2019
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RECEIVABLES:
5. Determine the accounting classification:
Trade accounts receivable
Trade notes receivable
Customer’s accounts reporting credit balance arising from sales return
Advance payments for purchase of merchandise
Cash advance to subsidiary
Claim from insurance company
Subscriptions receivable due in 60 days
Subscriptions receivable due in 2 years
Accrued interest receivable
Deposit on contract
Claim against common carrier for shipping damages
IOUs from employees
Advances to affiliates

6. Charivic Company sold merchandise on account for P600, 000. The terms are 2/10, n/30. The related
freight charge amounted to P10, 000.00. The account was collected within the discount period.

Requirements: Prepare journal entries for the sale and subsequent collection assuming:
6.1 FOB Destination and freight collect
6.2 FOB Destination and freight prepaid
6.3 FOB Shipping Point and freight collect
6.4 FOB Shipping Point and freight prepaid

7. Olet Company engaged in the following transactions during the month of September:

September 1 Sold merchandise to A Company for P50,000, 2/10, n/30

September 2 Sold merchandise to B Company for P200,000, 2/10, n/30
September 12 Received payment from B Company for the September 2 Sale
September 30 Received payment from A Company for the September 1 Sale

Requirements: Prepare journal entries using:

7.1 Gross method
7.2 Net method

8. Joshua Company provided the following date for 2019:

Allowance for doubtful accounts- January 1, 2019 180,000

Accounts receivable – January 1, 2019 300,000
Sales ( 60% is on account) 9,500,000
Collection of accounts receivable (20% of credit sales in 2019 were
collected) 1,340,000
Sales returns and allowances from credit sales 800,000
Accounts written off as uncollectible 200,000

Determine the following:

8.1 Allowance for doubtful accounts as of year-end assuming 3% of net credit sales is used
8.2 Bad debt expense assuming 3% of gross accounts receivable is used
8.3 Bad debt expense assuming aging of receivables is used. Required allowance under aging of
accounts receivable is P220, 000.

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9. Information on a sale of PPE were as follows:
Date of Sale of PPE June 30, 2019
Carrying amount of PPE 4,800,000

9.1 Assuming PPE was sold in exchange for a P 6,000,000 noninterest bearing note due on June
30, 2022 with a prevailing rate of 10%, what is the initial measurement of notes receivable
as of December 31, 2019?
9.2 Assuming PPE was sold in exchange for P 5,000,000 noninterest bearing due on March 1, 2020
with a prevailing rate of 10%, what is the interest income of notes receivable as of December
31, 2019?
9.3 Assuming PPE was sold in exchange for P 5,500,000 10% interest bearing due on June 30,
2022, what is the carrying amount of notes receivable as of December 31, 2019?
9.4 Assuming PPE was sold in exchange for P 5,500,000 10% interest bearing due on March 1,
2020, what is the interest income of notes receivable as of December 31, 2019?

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INVENTORY:
10. Determine the accounting treatment of the following items:
Items Accounting Treatment
Import duties on shipping of inventory
1.2 Advance for materials ordered
1.3 Recoverable purchase taxes
1.4 Irrecoverable purchase taxes
1.5 Freight in
1.6 Abnormal freight in
1.7 Interest on inventory loan
1.8 Difference between purchase for normal credit terms and the
amount paid assuming inventories are purchased with deferred
settlement terms
1.9 Freight out
1.10 Trade discounts
1.11 Rebates
1.12 Labor and other cost of personnel directly engaged in
providing business
1.13 Compensation of supervisor directly engaged in providing the
service
1.14 Attributable overhead incurred in providing the service
1.15 Storage costs necessary in the production process before a
further production stage
1.16 Storage costs of FG Inventory
1.17 Salaries of factory staff
1.18 Salaries of sales staff
1.19 Cost of direct labor
1.20 Distribution cost
1.21 Land acquired for resale by a real estate firm
1.22 Land and other property not held for resale
1.23 Shares and bonds held for resale by a brokerage firm
1.24 Machinery acquired by a manufacturing entity for use in the
production process
1.25 Commission paid when inventory is purchased
1.26 Depreciation of plant equipment used in manufacturing
1.27 Freight & other handling costs incurred in the transfer of
goods from the consignor to consignee
1.28 Goods held on consignment
1.29 Goods out on consignment
1.30 In-transit insurance premium for inventory purchased
1.31 Allowance for inventory writedown
1.32 Loss on inventory writedown

11. The records of Torres Company showed the following:

Date Transaction Units Unit Cost Total Cost

January 1 Beginning 10,000 40 400,000
February 14 Sale 5,000
April 12 Purchase 15,000 50 750,000
July 12 Sale 18,000
September 2 Purchase 25,000 60 1,500,000
December 25 Sale 12,000

Compute the cost of ending inventory and cost of sales using:

11.1 FIFO- Periodic & Perpetual
11.2 Weighted Average
11.3 Moving Average

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12. The company started operation in CY 2018

Merchandise Inventories –End Purchases

Year Net Realizable Value Cost
CY 2018 P 180,000.00 P 220,000.00 P 500,000.00
CY 2019 200,000.00 300,000.00 650,000.00
CY 2020 420,000.00 300,000.00 600,000.00

Requirement: Compute the following using direct method and allowance method:
12.1 Inventory to be reported in CY 2018, CY 2019, & CY 2020
12.2 Loss & allowance on inventory writedown to be reported in CY 2018 & CY 2019
12.3 Gain on reversal of inventory writedown to be reported in CY 2020

13. Dulce Company used the retail inventory method to approximate the ending inventory. The
following information is available for the current year:
Cost Retail
Beginning Inventory 650,000 1,200,000
Purchases 9,000,000 14,700,000
Freight in 200,000
Purchase returns 300,000 500,000
Purchase allowances 150,000
Departmental transfer in 200,000 300,000
Net markups 300,000
Net markdowns 1,000,000
Sales 9,500,000
Sales discounts 100,000
Employee discounts 500,000
Estimated normal shoplifting losses 600,000
Estimated normal shrinkage 400,000

11.1 What is the estimated cost of ending inventory using the conservative approach?
11.2 What is estimated cost of ending inventory using the average cost approach?
11.3 What is the estimated cost of ending inventory using the FIFO approach?
11.4 What is the cost of sales using the conservative approach?
11.5 What is the cost of sales using the average approach?
11.6 What is the cost of sales using the FIFO approach?

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14. Charivic Company reported the following information for 2019:
Inventory, January 1 5,000,000
Purchases 26,000,000
Freight in 2,000,000
Purchase returns & allowances 3,500,000
Purchase discounts 1,500,000
Sales 40,000,000
Sales returns 3,000,000
Sales discounts 1,000,000

A physical inventory taken on December 31, 2019 resulted in an ending inventory of P 4,000,000.
On December 31, 2019, unsold goods out on consignment with selling price of P 1,000,000 are in
the hands of a consignee.

14.1 Assuming the gross profit was 40% on sales. On December 31, 2019, what is the
estimated cost of inventory shortage?
14.2 Assuming the gross profit was 48% based on cost, what is the estimated cost of ending
inventory?

INVESTMENTS:

15. Information:

Investments Percentage Measurement Fair Value Transaction

Share Cost
Equity Investment 10% Held for trading 1,000,000 10,000
Equity Investment 15% Not Held for trading-FVOCI option 2,000,000 20,000
elected
Equity Investment 12% Not Held for trading-FVOCI option 1,050,000 12,000
not elected
Equity Investment 20% Equity Method 1,000,000 15,000

REQUIREMENT: Compute the initial measurement of each equity investment.

16. On January 1, 2018, Demeanor Company purchased bonds with face value of P5, 000,000 to
be held as financial assets at amortized cost. The entity paid P 4,600,000 plus transaction
cost of P 142,000.00. The bonds mature on December 31, 2020 and pay 6% interest annually
on December 31 of each year with 8% effective yield. The bonds are quoted at 105 on
December 31, 2018.

Prepare journal entries for CY 2018

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17. The securities owned by LGBTQ Company were held as permanent investments. During the current
year, the following transactions occurred:

January 1 Purchased 10,000 shares of Gay Company at P 70 per share

March 1 Purchased 10,000 shares of Queer Company for P660,000
April 1 Received a cash dividend of P5 per share from Gay Company
July 1 Received 20% stock dividend from Queer Company
Aug 1 Purchased 10,000 shares of Princess Company at P50
October 1 The share of Queer Company was split a 5-for-1 basis
October 1 Received a cash dividend of P5 per share from Gay Company
Queer Company offered shareholders rights to subscribe to one new
share for every 10 rights tendered at P20. At the time of issuance, the
October 31 market value of the right is P3. Stock rights are not accounted for
separately.
November Exercised the Queer Company stock rights
15
December 1 Received a cash dividend of P5 per share from Queer Company
December 15 Sold 10,000 shares of Queer Company at P30 per share. Use FIFO
approach

Requirement: Prepare the relevant entries

18. Vivacious Company issued rights to subscribe to its share capital, the ownership of 4 shares
entitling the shareholders to subscribe for 1 share at par, P100. The investor owned 25,000
shares with total cost of P2, 100,000. The stock rights are accounted for separately.

➢ Assuming the share is quoted at P125 right-on; prepare journal entries to record the
receipt of rights and the subsequent exercise of the rights.
➢ Assuming the share is quoted at P125 ex-right; prepare journal entries to record the
receipt of rights and the subsequent exercise of rights.

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CASH MCQ

1. Noel Company shows the following account balances in their financial records as of December 31,
2019:
Checking account at Morgan Bank, P(20,000); Checking account at Land Bank, P 500,000; Payroll
account-National Bank, P100,000; Foreign bank account – restricted, P750,000; Postage stamps,
P22,000; Employees’ postdated checks , P30,000; IOU from president’s brother, P75,000;
Traveler’s check, P50,000; No-sufficient fund check, P18,000; Petty cash fund ( P 16,000 in
currency and expenses receipts for P84,000), P100,000 and Cashier’s checks, P36,000.

What is the correct cash balance to be reported in the balance sheet of Noel Company on
December 31, 2019?
a. 582,000 c. 702,000
b. 686,000 d. 704,000

2. At year-end, Myra Company reported cash and cash equivalents which comprised the following:
Cash on hand 500,000
Demand deposit 4,000,000
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 is the amount should be reported as cash at year-end?

a. P 7,000,000.00 c. P 6,800,000.00
b. P 4,800,000.00 d. P 5,000,000.00

Use the following information for items 3 & 4:

While checking the cash account of the Turquoise Company on December 31, 2019, you find the
following information:

Balance per books 677,600

Balance per bank statement 653,230
Deposit in bank closed by BSP 160,000
Outstanding checks 98,760
Deposit in transit 123,450
Currency and coins counted 95,000
Petty cash fund (of which P4, 500 is in the form
of paid vouchers) 10,000
Bank charges not yet taken up in the books 580
Receivables from employees 7,000
Bond sinking fund cash 100,000
Error in recording a check in the books. The correct
amount as paid by the bank is P 8,900 instead of
P 9,800 as recorded in the books, or the difference
of 900

3. The correct cash in bank balance for Turquiose Co. on December 31, 2019 is:
a. 554,150 c. 677,920
b. 702,290 d. 837,920

4. What is the correct cash on hand balance for Turquiose Co. on December 31, 2019?
a. 95,000 c. 100,500
b. 128,950 d. 195,000

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RECEIVABLES MCQ

5. On January 2, 2018, Star Company originates 1 10-year 7% P 4,000,000. The loan carries an annual
interest rate of 7% and is repayable at par at the end of year 10 (December 31, 2027). Star Company
charges a 1.25% (P50, 000) non-refundable loan origination costs. The contract specifies that the
borrower has an option to pre-pay the instrument at approximately equal to instrument’s amortized
cost at each exercise date, and that no penalty will be charges for pre-payment. But at the inception
of the contract, Star Company expects that the borrower not to pre-pay, the amortization period is
equal to the instrument’s full term and for that reason the effective yield rate is determined at 6.823%.

What is the amortized cost of the instrument on December 31, 2019?

a. 4,050,000 c. 4,042,413
b. 4,046,331 d. 4,038,288

Use the following information for items 6 & 9:

On December 31, 2019, Park Company sold used equipment with carrying amount of P 2,000,000 in
exchange for a noninterest bearing note of P 5,000,000 requiring ten annual payments of P
500,000.00. The first payment was made on December 31, 2020.

The market interest for similar note was 12%. The present value of an ordinary annuity of 1 at 12% is
5.65 and 5.33 for nine periods.

6. What is the carrying amount of the note receivable on December 31, 2019?
a. 5,000,000 c. 2,665,000
b. 2,825,000 d. 4,500,000

7. What is the gain on sale of equipment to be recognized in 2019?

a. 3,000,000 c. 825,000
b. 2,175,000 d. 0

8. What amount should be recognized as interest income for 2020?

a. 600,000 c. 319,800
b. 339,000 d. 300,000

9. What is the carrying amount of the note receivable on December 31, 2020?
a. 2,664,000 c. 2,825,000
b. 4,500,000 d. 2,325,000

10. Maiden Company provide some information on their financial records on December 31, 2008
Account Receivable Jan.1 P 1,920,000
Collection of Account receivable 6,420,000
Bad Dept 200,000
Inventory, January 1 2,880,000
Inventory, December 31 2,640,000
Accounts Payable, January 1 1,000,000
Accounts Payable, December 31 1,500,000
Cash Sales 1,200,000
Purchases 4,800,000
Gross Profit on Sales 2,160,000
What is the ending balance of accounts receivable on December 31, 2008?
a. P 1,680,000 c. P 3,210,000
b. P 2,880,000 d. P 4,080,000

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 Use the following information for items 11 - 13:

On December 1, 2019, Camille Company assigned a nonnotification basis accounts receivable of P5,
000,000 to a bank in consideration for a loan of 80% of the accounts less a 5% service fee on the
accounts assigned. The entity signed a note for the bank loan. On December 31, 2019, the entity
collected assigned accounts of P2, 000,000 less discount of P200, 000. The entity remitted the
collections to the bank in partial payment for the loan. The bank applied first the collection to the
interest and the balance to the principal. The agreed interest is 1% per month on the loan balance.
The entity accepted sales returns of P100, 000 on the assigned accounts and wrote off assigned
accounts totaling P300, 000.

11. What is the balance of accounts receivable assigned on December 31, 2019?
a. 3,000,000 c. 2,400,000
b. 2,600,000 d. 2,900,000

12. What is the carrying amount of the note payable on December 31, 2019?
a. 2,240,000 c. 4,000,000
b. 2,000,000 d. 2,200,000

13. What is the equity of the assignor in assigned accounts on December 31, 2019?
a. 2,600,000 c. 360,000
b. 2,240,000 d. 0

INVENTORY MCQ

14. On December 20, 2019, Fossil Company purchase goods costing P 100,000.00. The terms were FOB
destination. Some of the costs incurred in connection with the sale and delivery of goods were as
follows: Packaging for shipment, P 2,000.00; Shipping, P 3,000 and special handling charges, P
4,000.00. These goods were received on December 31, 2019. In the December 31, 2019 statement of
financial position, what amount of these goods should be included in inventory?
a. 100,000 c. 107,000
b. 104,000 d. 109,000

15. Matrimony Company determined the year-end inventory on a FIFO basis at P4, 000,000. The entity
provided the following information to the inventory:

Estimated selling price 4,050,000

Estimated cost of disposal 200,000
Normal profit margin 500,000
Current replacement cost 3,500,000

The entity measured inventory at the lower of cost and net realizable value. What is the carrying
amount of the inventory at year-end?
a. 4,000,000 c. 3,350,000
b. 3,850,000 d. 3,500,000

16. On September 30, 2019, Black Company reported that a fire caused severe damage to the entire
inventory. The entity has a gross profit rate of 30% on cost. The following data are available for nine
months ended September 30, 2019:

Inventory at January 1 1,100,000

Net purchases 6,000,000
Net sales 7,280,000

A physical inventory disclosed usable damaged goods which can be sold for P 100, 000.What is the
estimated amount of fire loss?
a. 1,500,000 c. 2,004,000
b. 1,400,000 d. 1,964,000

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17. Fortune Company had 10,000 units of product A on hand at December 1, 2019, costing P40 each.
Purchases of product A during the month of January were as follows:

Units Unit Cost Cost

December 10 12,000 42 504,000
December 18 15,000 43 645,000
December 22 10,000 44 440,000
December 27 5,000 45 225,000
December 29 8,000 46 368,000

A physical count on December 31, 2019 shows 16,000 units of Product A on hand. What is the cost
of the inventory at December 31, 2019 under FIFO?
a. 683,500 c. 725,000
b. 698,000 d. 736,000

INVESTMENTS MCQ

Use the following information for items 18 - 19:

During 2019, Latvia Company purchased trading securities with the following cost and market value
on December 31, 2019:

Security Cost Market Value

A- 1, 000 shares 200,000 300,000
B- 10,000 shares 1, 700,000 1,600,000
C- 20,000 shares 3,100,000 2,900,000
5,000,000 4,800,000

The entity sold 10,000 shares of Security B on January 15, 2020, for P150 per share.

18. What amount of unrealized gain or loss should be reported in the income statement for 2019?
a. 200,000 loss c. 300,000 loss
b. 200,000 gain d. 300,000 gain

19. What amount should be reported as loss on sale of trading investment in 2020?
a. 200,000 gain c. 100,000 gain
b. 200,000 loss d. 100,000 loss

20. Carmela Company acquired an equity instrument for P4, 000,000 on March 31, 2018. The equity
instrument is classified as financial asset at fair value through other comprehensive income. The
transaction cost incurred amounted to P700,000.On December 31, 2018, the fair value of the
investment was P5,500,000 and the transaction cost that would be incurred on the sale of the
investment is estimated at P600,000.
What amount of gain should be recognized in other comprehensive income for the year ended
December 31, 2018?
a. 200,000 c. 800,000
b. 900,000 d. 0

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Use the following information for items 21 - 24:

On January 1, 2018, Gelyka Company purchased 12% bonds with face amount of P5, 000,000 for P
5,500,000 including transactions cost of P100, 000. The bonds provide an effective yield of 10%.

The bonds are dated January 1, 2018 and pay interest annually on December 31 of each year.

The bonds are quoted at 115 on December 31, 2018. The entity has irrevocably elected to use the
fair value option.

21. What amount of gain from change in fair value should be reported for 2018?
a. 750,000 c. 350,000
b. 250,000 d. 0

22. What amount of interest income should be reported for 2018?

a. 600,000 c. 660,000
b. 550,000 d. 540,000

23. What is the carrying amount of the bond investment on December 31, 2018?
a. 5,750,000 c. 5,500,000
b. 5,400,000 d. 5,450,000

24. What total amount of income from the investment should be reported in the income statement
for 2018?
a. 540,000 c. 890,000
b. 950,000 d. 900,000

Use the following information for items 25 - 24:

On January 1, 2018, Dumaguete Company purchased bonds with face amount of P4, 000,000 for P 4,
206,000. The business model in managing the financial asset is to collect contractual cash flows that
are solely payments of principal and interest and also to sell the bonds in the open market.

The bonds mature on December 31, 2020 and pay 10% interest annually on December 31 each year
with 8% effective yield.

The bonds are quoted at 95 on December 31, 2018 and 90 on December 31, 2019.

25. What amount of unrealized loss should be reported as component of other comprehensive
income in 2018?
a. 342,480 c. 469,520
b. 406,000 d. 0
26. What amount of unrealized loss should be reported as component of other comprehensive
income in 2019?
a. 473,878 c. 200,000
b. 131,398 d. 0
27. What amount of cumulative unrealized loss should be reported in the statement of changes in
equity for 2019?
a. 406,000 c. 473,878
b. 606,000 d. 0
28. What is the carrying amount of the bond investment to be reported on December 31, 2019?
a. 4,206,000 c. 3,800,000
b. 3,600,000 d. 4,673,878

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