PROBLEM 1:

The following balances have been excerpted from Leonard’s Statement of Financial Position for the year
2021:
1-Jan Dec. 31

Accounts receivable 200,000 300,000

Allowance for bad debts 20,000 30,000
Merchandise Inventory 380,000 330,000
Accounts payable 150,000 100,000
Accounts receivable written off 50,000
Cash received from customers 1,498,000
Cash paid to creditors 1,200,000
Sales Discounts 20,000
Purchase Returns 10,000
Rental Receivables 70,000 80,000
Rental Payable 60,000 35,000
Cash Received from tenants 120,000

Additional information:

 Collections from customers included customer’s deposit of P80,000 of which P20,000 selling
price of goods were already shipped and received by the customer. The shipment of goods was
not recorded by the company although the cost of merchandise was properly excluded in the
count.
 Collections from customers also included P30,000 payment from customer of accounts
receivable in which a check dated January 15, 2022 was received.
 Collections also included recovery of accounts previously written off amounting to P8,000.
 Included in the payment of trade creditors was a check drawn and recorded by the company to
the supplier in December 2021 amounting to P20,000 which was delivered to the payee on
January 10, 2022.
 Also the company did not record payment to the supplier amounting to P30,000.

1. Net Sales
a. 1,400,000 b. 1550,000 c. 1470,000 d. 1,570,000
2. Net Purchases
a. 1, 130,000 b. 1,160,000 c. 1, 140,000 d. 1, 170,000
3. Cost of Sales
a. 1, 180,000 b. 1, 210,000 c. 1, 490,000 d. 1, 220,000
4. Rent Income
a. 130,000 b. 155,000 c. 145,000 d, 135,000
5. Bad debts expense
a. 52,000 b. 60,000 c. 22,000 d. 12,000
Problem 2

Calcium prepares statements on the cash basis. The balance sheet on December 31. 2021 and income
statement for the year 2021 are as follows:
Statement of Financial Position

Cash 1,500,000
Furniture and equipment 2,500,000
Total 4,000,000

Note Payable 1,000,000

Capital:
Balance, Jan. 1 1,600,000.00
Add: Net Income 2,250,000.00
Total 3,850,000.00
Less: Withdrawals 850,000.00 3,000,000
Total 4,000,000

Income Statement

Professional Fees 5,000,000

Expenses:
Rent 1,200,000
Supplies 800,000
Other Operating Expenses 750,000 2,750,000
Net Income 2,250,000

You decided that the statements should be prepared on the accrual basis and you assemble the
information below:

1. The furniture and equipment were acquired on July 1, 2020. The estimated life is 10 years.
2. The 12% promissory note is dated April 1, 2021 and matures in one year. Interest is payable on
the date of maturity.
3. Accounts Receivable:

December 31, 2021 750,000

December 31, 2020 500,000
4. Accrued rent expense on December 31, 2021, P100,000.
5. Office supplies unused:

December 31, 2021 250,000

December 31, 2020 300,000
Based on the above and the result of your audit, determine the accrual balance of the following as of
December 31, 2021:

1. The professional fees

2. Net Income
3. Current Asset
a. 2,500,000 b. 2,010,000 c. 2,400,000 d. 2,210,000
4. Noncurrent Asset
a. 2, 125,000 b. 2,225,000 c. 2,200,000 d. 2, 400,000
5. Total Asset

PROBLEM 3:

You have been asked by a client to audit the financial statements of Half-Hearted Compay for the first
time. In examining the books, you found out that certain adjustments had been overlooked at the end of
2020 and 2021. You also discovered that other items had been improperly recorded. These omissions
and other failures for each year are summarized below:
2020 2021
Merchandise inventory, end 10,000 overstated 8,000 understated
Advances to supplier were recorded as purchases
but the merchandise was received in the following
year: 30,000 40,000
Advances from customers recorded as sales but the
goods were delivered in the following year: 20,000 70,000
Improvements on building had been charged to
expense on Jan. 1, 2020. Improvements have a life
of 5 years. 100,000

On Jan. 1, 2020, an equipment costing P40,000 was

sold for P20,000. At the date of sale, the equipment
had an accumulated depreciation of P15,000. The
cash received was recored as other income in 2020.

1. What is the total effect of the errors on the 2020 net income?
2. What is the total effect of the errors on the 2021 net income?
3. What is the total effect of the errors on the company’s working capital at December 31, 2021?
4. What is the total effect of the errors on the balance of the company’s retained earnings
December 31, 2021?
5. Necessary adjusting journal entries at December 31, 2021 would require a net
a. Credit to RE P45,000
b. Credit to Sales P50,000
c. Credit to Purchases P20,000
d. Debit to equipment P40,000

Problem 4
Villaverde Company provided the following for the current year:
Increase in long-term debt 5,000,000
Purchase of treasury shares 1,000,000
Depreciation and amortization 1,500,000
Gain on sale of equipment 500,000
Proceeds from issuance of share capital 4,000,000
Purchase of equipment for cash 7,000,000
Proceeds from sale of equipment 2,000,000
Proceeds of cash dividend 2,500,000
Net Income 8,000,000
Increase (Decrease) in working capital accounts:
Accounts receivable 2,000,000
Inventory (3,500,000)
Trade accounts and notes payable 4,000,000
Income tax payable (4,500,000)
Cash balance, Jan. 1 6,000,000

1. What amounts should be reported as net cash provided by operating activities?

2. What amounts should be reported as net cash used in investing activities?
3. What amounts should be reported as net cash provided by financing activities?
4. What amounts should be reported as cash balance on December 31?

Problem 5
A CPA is engaged by the Sony Corporation in 2016 to examine the books and records and to
make whatever corrections are necessary. An examination of the accounts discloses the
following:

a. Dividends had been declared on December 15 in 2014 and 2015 but had not been
entered in the books until paid.

b. Improvements in building and equipment of P9,600 had been debited to expense at the
end of April 2013. Improvements are estimated to have an 8-year life. The company
uses the straight-line method in recording depreciation and computes depreciation to
the nearest month.

c. The physical inventory of merchandise had been understated by P3,000 at the end of
2014 and by P4,300 at the end of 2015.

d. The merchandise inventories at the end of 2015 and 2016 did not include merchandise
that was then in transit and to which the company had title. This shipments of P3,800
and P5,500 were recorded as purchases in January of 2016 and 2014, respectively.

e. The company had failed to record sales commissions payable of P2,100 and P1,700 at
the end of 2015 and 2016, respectively.

f. The company had failed to recognized supplies on hand of P1,200 and P2,500 at the end
of 2015 and 2016, respectively.
The Retained Earnings account showed the following postings:

Date Item Debit Credit

2014 Jan 1 Balance 81,000
Dec 31 Net income for year 18,000
2015 Jan 10 Dividends paid 15,000
Mar 6 Stock sold – excess
over par 32,000
Dec31 Net loss for year 11,200
2016 Jan 10 Dividend paid 15,000
Dec 31 Net loss for year 12,400

Questions:
1. Corrected net income of 2014
a. P 19,800 b. P 15,600 c. P 13,600 d. P 16,800

2. Corrected net loss of 2015

a. P 16,000 b. P 14,000 c. P 12,000 d. P 10,000

3. Corrected net loss of 2016

a. P 16,200 b. P 15,800 c. P 15,200 d. P 12,800

4. Adjusted retained earnings at December 31, 2014

a. P 109,200 b. P 106,400 c. P 94,600 d. P 85,000

5. Adjusted retained earnings at December 31, 2015

a. P 71,200 b. P 69,000 c. P 67,600 d. P 65,000

6. Adjusted retained earnings at December 31, 2016

a. P 51,400 b. P 49,800 c. P 49,000 d. P 48,200

Bonus Question (2 points): Cite your favorite bible verse.