rolito dionela

5/26/2018 Rolito Dionela

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Cash and Cash Equivalents

BONAMANA Corporation keeps all its cash in checking account. An examination of the

Companys accounting records and bank statement for the month ended December 31,2010

revealed the following information:

The cash balance as of December 31,2010 represents

Bank statement balance P84,690

Book balance 85,240

A deposit of P9,500 through the banks night depository box on December 29, 2010 did not

appear on the bank statement. The bank statement shows that on December 28,2010, the bank

collected a note for BONAMANA and credited the proceeds of P9,350 to the companys

account. The proceeds include P350 interest, all of which BONAMANA earned during the

current accounting period, BONAMANA has not yet recorded the collection.

Check outstanding on December 31,2010:

No. 504 P1,500

No. 509 480NO. 519 720

BONAMANA discovered that check no. 523, written in December 2010 for P1,830 inpayment to a supplier, had been recorded in the companys records as P1,380.

Included with the December 31,2010 bank statement was an NSF check for P2,500 thatBONAMANA had received from SPY company on account on December 19.

BONAMANA has not yet the returned check. The bank statement shows a P150 service

charge for December.

REQUIRED:

1. Corrected cash balance, December 31

2. Increase in cash balance


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3. The adjusting entry would be:

Solution:

Balance per bank statement, December 31 P84,690

Deposit in transit 9500

Outstanding Checks (2,700)

Corrected cash Balance P91,940Unadjusted balance per books, December 31 (85,240)

Increase in cash balance P 6,250

Adjusting EntryCash P6,250

Accounts Payable 450

Accounts Receivable 2,500

Bank service charge 150

Notes receivable P9,000

Interest revenue 350

MOONLIGHT Company has an current account in Zambales Bank. Your audit of the companys

cash account reveals the following:

a. Balances taken from the companys general ledger:a. Cash balance, November 30, 2012 P637,860b. Cash Balance, December 31,2012 576,420c. Receipts, December 1-31, 2012 306,220

b. Outstanding checks, November 30,2012a. (26,140 was paid by bank in December) 64,140

c. Checks written and recorded in December not included


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in the checks returned with the December bank statement 36,080

d. Deposit in transit, November 30, 2012 15,260e. Deposit in transit, December 31,2012 16,140f.

A bank credit memo was issued in December

to correct an erroneous charge made in November 1,500

g. Note collected by bank in December(company was not informed of the collection) 2,060

h. A check for P2,020 (payable to a supplier) wasi. recorded in the Check Register in December as P3,000 980a check for P2,240 was charged by the bank

as 2420 in December 180

j. MOONLIGHT Co. issued a stop payment orderto the bank in December. This pertains to a

check written in December which was not

received by the payee. A new check was written and

recorded in the check register in December. The old check was

written off by a journal entry, also in December. 780

k. Bank Service charge, November 30, 2012 60REQUIRED:

1. Total outstanding checks on December 31, 2012

2. Bank statement balance on November 30, 2012

3. Bank statement balance on December 31, 2012

4. Total bank disbursements for the month of December

SOLUTION:

1. Outstanding check

64,140 - 26,140 + 36080 = P74,0802.


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Nov. 30 Receipts Disbursements Dec.30Book balances P637,860 306,220 367,660 576,420

Outstanding checks

November 64,140 64,140

December (74,080) 74,080

Deposit in transit

November (15,260) 15,260

December (16,140) (16,140)

Erroneous bank charge in November (1,500) 1,500

Note Collected by bank in

December

2,060 2,060

Over-book disb. (980) 980Over-bank disb, 180 (180)

Check stopped payment (780) (780)

Bank service charge (60) (60)

Bank Balances P685,180 P308,120 356,080 637,220

The following information was included in the bank reconciliation for GROWL Company for

June:

Checks and Charges recorded by bank in June (including a June service charge of P300),

P172,100; Service charge made by bank in May and recorded on the books in June, P200;

Total of credits to cash in all journals during June, P198,020; Customers NSF check returned in

May and redeposited in June (no entry made on books in either May or June), 2,500;

Outstanding checks at June,P80,600 and deposit in transit in June, P6000.

What were the total outstanding checks at the beginning of June?

Checks paid by the bank

Total disbursements 172,100

Less: Charges not representing checks


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NSF P 1,000

Service charge- June 300 1,300 P170,800

Less:

Checks issued by the company:

Total Disbursements P198,020

Service Charge- May 200

Total checks issued 197,820

Less: outstanding checks, end 80,600 117,220

Outstanding checks, beginning P 53,580

RECEIVABLESPROBLEM 1

The adjusted trial balance of MLL Corporation on December 31, 2013, includes the following

cash and receivables balances.

CashMetrobank P2,250,000

Currency on Hand 800,000

Petty Cash Fund 50,000

Cash in bond sinking fund 750,000

Notes receivable (including notes discounted with recourse, P

155,000 1,825,000

Accounts Receivable P4,280,000

Allowance for Doubtful accounts (207,500) 4,072,500

Interest Receivable 26250

Current liabilities reported in the December 31, 2013, statement of financial position included:

Obligation on discounted notes receivable 775,000


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Transactions during 2014 included the following:

a) Sales on account were 38,350,000.b) Cash collected on accounts totaled P28,825,000, including accounts of P4,650,000 with

cash discounts of 2%.

c) Notes received in settlement of accounts totaled P4,125,000.d) Note receivable discounted as of December 31, 2013, were paid at maturity with the

exception of one P150,000 note on which the company had to pay the bank P154,500,

which include interest and protest fees. It is expected that recovery will be made on this

note early in 2013.

e) Customer notes of P2,925,000 were discounted with recourse during the year, proceedsfrom their transfer being P2,925,000. (all discounting transactions were recorded as

loans.) Of this total, P2,400,000 matured during the year without notice of protest.

f) Customer accounts of P436,000 were written off during the year as worthless.g) Recoveries of bad debts written off in prior years were P101,000.h) Notes Receivable collected during the year totaled P1,350,000 and interest collected

was 122,500

i) On December 31, accrued interest on note receivable was P31,500.j) Cash of P1,750,000 was borrowed from Metrobank with accounts receivable of

P2,000,000 being pledged on the loan. Collection of P975,000 has been made on these

receivables (included in the total given in transaction(b)}, and this amount was applied

on December 31, 2013, to payment of accrued interest on the loan of P30,000, and the

balance to the partial payment of the loan

k) The petty cash fund was reimbursed( meaning that cash was removed from the bankaccount and in the petty cash fund) based following analysis of expenditure vouchers;

Travel Expense P5,600

Entertainment expense 3,900


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Postage expense 4,650

Office supplies expense 8,650

Cash short or over(an income

account) 300

l) Cash of P150,000 was added to bond retirement fund.m) Currency on hand at December 31, 2013, was P600,000.n) Total cash payment for all expenses during the year were P34,000,000. Charge to

general expenses.

o) Uncollectible accounts are estimated to be 5% of the December 31. 2013, Accountsreceivable.

REQUIRED:

Based on the above and the result of your audit, answer the following:

1. The total cash to be reported in the companys December 31, 2013 statement offinancial position

2. The doubtful accounts expense to be reported for the year ended December 31,2013

3. The net accounts receivable as of December 31, 20134. Net trade and other receivable to be reported in the companys statement of financial

position as of December 31, 2013

Solution:

ITEM CASHAccount

ReceivableNote

ReceivableInterest

Receivable

A 38,350,000

B 28,825,000 (28,918,000)

C (4,125,000) 4,125,000

D (154,500) (620,500)


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1. 2,871,5002. Doubtful account expense

3. 9,151,0004. (9.151,000 - 457,550 + 1,579,500+ 31,500)= 10,304,450Problem 2

D.O Company started operations in 2006. The company has no allowance for doubtful

accounts. Uncollectible receivables were expensed as written off and recoveries were credited

to income as collected. Data from the companys records for five years is as follows:

Year Credit Sales Amount Written- Recovery

E 2925000 (2,400,000)

F (436,000)

G 101,000

H 1,472,500 (1,350,000)

I 31,500

J 775,000

K

L (150,000)

M 600,000

N (34,000,000)

ADJ> 394,000 4,871,000 (245,500) 31,500

balances 2,427,500 4,280,000 1,825,000

PCF 50,000

Adjusted 2,871,500 9,151,000 1,579,500 31,500

Required allowance (9,151,000 x

5%) 457,550

Write-off 436,000

Recovery (101,000)

Beginning Balance (207,500)

Doubtful account expense 585,050


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Off

2006 3,000,000 30,000 0

2007 4,500,000 76,000 5,400

2008 5,900,000 104,000 5,000

2009 6,600,000 130,000 9,600

2010 8,000,000 166,000 10,000

Balances of accounts receivables are as follows:

As of December 31, 2009 P3,000,000

As of December 31, 2010 3,500,000

On March 1, 2010, right after the 2009 financial statements were released, management

realized that companys policy regarding treatment of bad accounts was not correct, and

decided that an allowance method must be followed. A policy was established to set up an

allowance of doubtful accounts based on the companys historical debt loss percentage applied

to year-end accounts receivable. The historical bad debts loss percentage shall be recomputed

each year based on the average of all available past years up to maximum of five years.

REQUIRED:

Based on the above and the result of your audit, you are to provide the answers to the following:

1. The amount of allowance for doubtful accounts that should be set up as of January1,2010 (with corresponding charge to retained earnings)

2. The average percentage of net doubtful accounts to credit sales that should be used insetting up the 2010 allowance

3. The balance of allowance for doubtful accounts as of December 31,20104. The doubtful accounts expense for 2010

Solution:

Question 1:


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Year Credit Sales Amount Written-Off Recovery NET

2006 3,000,000 30,000 0 30,000

2007 4,500,000 76,000 5,400 70,600

2008 5,900,000 104,000 5,000 99,000

2009 6,600,000 130,000 9,600 120,400

20,000,000 340,000 20,000 320,000

Net accounts written off 320,000

Divided by credit sales 20,000,000

Percentage of uncollectible accounts 1.60%

Allowance for doubtful accounts,1/1/10(3,000,000x1.6%) P48,000

Question 2:

Year Credit Sales Amount Written-Off Recovery NET

2006 3,000,000 30,000 0 30,000

2007 4,500,000 76,000 5,400 70,600

2008 5,900,000 104,000 5,000 99,000

2009 6,600,000 130,000 9,600 120,400

2010 8,000,000 166,000 10,000 156,000

28,000,000 506,000 30,000 476,000

Net accounts written off 476,000

Divided by credit sales 28,000,000

Percentage of uncollectible accounts 1.70%

Question 3:Allowance for doubtful accounts,12/31/10(3,500,000x1.7%) P59,500

Question 4:

Required allowance, 12/31/2010 59,500

Accounts written off in 2010 166,000

Bad debts recoveries 10,000


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Allowance for doubtful, 1/1/10 48,000

Doubtful account expense in 2010 P167,500

PROBLEM 3

On February 1, 2011, XOXO Corporation factored receivables with a carrying amount of

P2,000,000 to Moonlight Corporation. XOXO Corporation assesses a finance charge of 3% of

the receivable and retains 5% of the receivables.

Question 1: If the factoring is treated as sale, what amount of loss from sale should thecompany report in its 2011 statement of comprehensive income for the year 2011?

Question 2:Assume that XOXO Corporation retained significant amount of risks and rewards ofownership and had a continuing involvement on the factored financial asset, what amount of

loss from factoring should the company recognize?

Solution:

Question 1:Amount factored P2,000,000

Less: Finance Charge (2,000,000 x 3%) 60,000

Holdback(2,000,000 x 5%) 100,000 160,000

Amount received 1,840,000

Add: New Asset received(holdback) 100,000

Total consideration received 1,940,000

Less: Carrying value of the receivable equal to face 2,000,000

Loss on factoring 60,000

Question 2: NONE.

INVENTORIES


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The MAMA COMPANY is an importer and wholesaler. Its merchandise of purchased from a

number of suppliers and is warehoused until sold to consumers.

In conducting his audit for the year ended December 31, 2012, the companys CPA determined

that the system of internal control was good. Accordingly, he observed the physical inventory at

an interim date, November 30, 2012, instead of at year-end.

The following information was obtained from the general ledger:

Inventory, January 1, 2012 P117,000

Inventory, November 30, 2012 292,500

Sales for eleven months ended November 30, 2012 1,040,000

Sales for the year ended December 31, 2012 1,235,000

Purchases for eleven months ended November 30, 2012

(before audit adjustments) 936,000

Purchases for year ended December 31, 2012(before

audit adjustment) 1,053,000

Additional information:

a) Goods received on November 28 but recorded aspurchases in December 13,000

b) Deposits made in October 2012 for purchasesto be made in 2013 but charged to Purchases 18,200

c) Defective merchandise returned to suppliers:a. Total at November 30, 2012 6,500b. Total at December 31, 2012, excluding

November items 9,100

The returns have not been recorded pending receipt of credit memos from the suppliers.

The defective goods were not included in the inventory.

d) Goods shipped in November under FOB destinationAnd received in December recorded as


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purchases in November 24,050

e) Through the carelessness of the clientswarehouseman, certain goods were damaged

in December and sold in the same month

at its cost. 26,000

f) Audit of the clients November inventorysummary revealed the following:

Items duplicated 3,900

Purchases in transit:

Under FOB shipping point 15,600

Under FOB destination 24,050

Items counted but not included in the inventory

Summary 9,100

Errors in extension that overvalued 5,200

REQUIRED:

1. Correct amount of net purchases up to November 30, 20122. Correct amount of net purchases up to December 31, 20123. Correct amount of net purchases for the month of December 20124. Correct inventory on November 30, 20125. Gross income for eleven months ended December 31, 20126. Cost of sale ratio for eleven months ended November 30,20127. Total cost of goods sold for the amount of December 2012?8. Estimated inventory on December 31, 2012

SOLUTION:

UP TONov. 30 Dec. 31


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Per books 936,000 1,053,000

November purchase recorded in

December 13,000

October deposits recorded as purchases (18,200) (18,200)

Defective items returned (6,500) (15,600)

December purchases recorded in

November (24,050)

P900,250 P1,019,200

1. P900,250

2. P1,019,200

3. P1,019,200- P900,250= 118,9504. Per count P292,500

Items duplicated (3,900)

In transit under FOB destination (24,050)

Items counted but not included in list 9,100

Overvaluationextension errors (5,200)

P268,450

5. Sales P1,040,000

Cost of sales:

Inventory, Jan, 1 117,000

Net Purchases 900,250

GAFS 1,017,250

Inventory, Nov. 30 (268,450) 748,800

Gross Income P291,200

6. Cost ratio (748,800/1,040,000) 72%

7. Regular sales (P169,000 x 72%) 121,680

Sale of damaged items 26,000

Cost of goods sold for December P147,680

8. Inventory, Nov. 30 268,450


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December net purchases 118,950

Cost of goods sold (147,680)

Estimated inventory, Dec. 31 P 239,720

On September 15, 2011, a fire destroyed a significant portion of merchandise inventory of

GOODBYE SUMMER Corporation. The following information was available from the records of

the company:

January 1, 2011

To Date of Fire2010

Sales P900,400 P1,060,360

Sales Returns and allowances 10,200 11,960

Purchases 756,490 810,952

Purchase returns and allowances 20,590 22,220

Beginning Inventory 211,120 240,320

The company determined the cost of inventory not damaged to be P139, 476. Damaged

merchandise, which cost P30,000, had an estimated realizable value of P10,000.

REQUIRED:

1. Gross profit percentage

2. Estimated ending inventory at cost

3. Estimated fire loss

Solution:

Sales, 2010 1,060,360


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Less: Sales return and allowances 11,960

Net Sales, 2010 1,048,400 100%

Less: Cost of Sales, 2010

Beginning inventory 240,320

Add: Purchases 810,952

Purchase return &

Allowances (22,220)

Less: Ending Inventory (211,300) 817,752 78%

Gross Profit 230,648 22

Beginning inventory, 2011 211,300

Add: Net purchases

Purchases 756,490

Purchase returns & allowances (20,590) 735,900

TGAS P947,200

Less: Estimated COS

Sales 900,040

Sales Return & Allowances (10,200)

Net Sales 890,200

X Cost ratio .78 694,356

Estimated ending Inventory at cost P252,844Less: Undamaged Inventory P139,476

Net realizable value of

damaged inventory 10,000 149,476

Estimated Fire Loss P51,684


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The OVERDOSE Corporation uses the lower of cost or net realizable value inventory. Data

regarding the items in work-in-Process inventory are presented below

Markers PensHistorical cost P48,000 P37,760

Selling Price 36,000 43,600

Estimated cost to complete 9600 9600

Replacement Cost 41,600 33,600

Normal Profit Margin 25% 25%

Required:1. What is the amount of markers inventory to be reported in Saviors statement of financialposition?

2. What is the amount of pens inventory to be reported in Saviors statement of financial

position?

Solution:

1. COST(lower) 48,000

NRV:

Selling Price 72,000

Less: Estimated cost to complete (9,600) 62,400

2. COST 37,760

NRV:

Selling Price 43,600

Less: Estimated cost to complete (9,600) 34,000

PROPERTY, PLANT & EQUIPMENTProblem 1


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On January 1, 2010, SBS Corporation purchased a tract of land (site number 345) with a

building for P6,000,000. SBS paid real estate brokers commission of P150,000, legal fees of

60,000, and a title guarantee insurance of P18,000. The closing statement indicated that the

land value was P5,000,000 and the building value was P1,000,000. Shortly after acquisition, the

building was razed at a cost of 75,000.

SBS entered into a P3,000,000 fixed price contract with the TAO BUILDERs, Inc. on March 1,

2010 for the construction of an office building on land site number 123. The building was

completed and occupied on September 30, 2011. Additional construction costs were incurred as

follows:

Plans, specifications and blueprints..................120,000

Architects fees for design and supervision...........250,000

The building is estimated to have a forty-year life from date of -completion and will be

depreciated using the 150%-declining-balance method.

To finance the construction cost, SBS borrowed 3,000,000 on March 1,2010. The loan is

payable in ten equal annual installments of P300,000 plus interest at the rate of 14%, SBS

average amounts of accumulated building construction expenditures were as follows:

For the period March 1 to December 31, 2010 900,000

For the period January 1 to September 30,2011 2,300,000

REQUIRED:

1. Total cost of land account

2. If borrowing cost is added to the asset constructed, what is the capitalized cost of the office

building?

3. Depreciation to be recognized on December 31,2011.

Solution:


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1. Acquisition cost 6,000,000

Real estate tax 150,000

Legal fees 60,000

Title Guarantee 18,000

Cost of razing the building 75,000

Cost of Land 6,303,0002. Contract Price P3,000,000

Plans, specification and blueprint 120,000

Architect Fees 250,000

Borrowing cost(900,000 x 14% x 10/12) 105,000

(2,300,000 x 14% X 9/12) 241,500

Cost of Building 3,716,500

3. (1/40 x 1.5) 3.75%

(3,716,500 x 3.75% x 3/12) P34,842

Problem 2

The CRAZY-IN-LOVE company acquired a tract of land containing an extractable natural

resource. The company is required by its purchase to restore the land to a condition suitable for

recreational use after it has extracted the natural resource. Geological surveys estimate that the

land will have a value of 1,200,000 after restoration. Relevant cost information follows:

Land P9,000,000

Estimated restoration costs 1,800,000

Question 1: If the company maintains no inventories of extracted materials, how much should

be charged to depletion expense per ton of extracted material assuming the amount of

estimated restoration cost was already recognized as a liability?


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Question 2: if the company maintains no inventories of extracted materials, how much should be

charged to depletion expense per ton of extracted material assuming the amount of estimated

restoration cost has yet to be recognized?

Solution:

Question 1

Cost 9,000,000

Estimated restoration cost 1,800,000

Estimated Salvage value (1,200,000)

Depletable cost P9,600,000

Divided by life in units 2,000,000

Depletion per unit P 4.80

Question 2

Cost P9,000,000

Estimated salvage value (1,200,000)

Depletable cost 7,800,000

Divided by life in units 2,000,000

Depletion per unit P 3.90

Problem 3

On January 1, 2008, CHEN Company purchased an asset for P1,000,000, worth an estimated

useful life of 10 years. Straight-line method of depreciation is to be used. On January 1, 2010, it

was properly determined that the recoverable amount of the asset is P640, 000. On January 1,

2011, it was properly computed that the recoverable of the asset is P740,000.


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Question 1: Under the cost model for long lived assets, what are the amounts to be reported in

the income statement and shareholders equity respectively, immediately on January 1, 2011?

Question 2 under the revaluation model for long lived assets, what are the amounts to be

reported in the profit or loss and shareholders equity on January 1, 2011?

Solution:

Question 1: 140,000; NONEHistorical costJanuary 1,2008 1,000,000

Accumulated depreciation from 1/1/08

To 1/1/10(1,000,00 x 2/10) 200,000

Carrying value on January 1, 2010 800,000

QUESTION 2: 140,000; 40,000Recoverable valueJanuary 1, 2011 P740,000

Less: Carrying amount based on its previous recoverable

Amount 560,000

Increase in the value of the asset 180,000

Carrying amount-01/01/11(based on historical cost) 700,000

Carrying amount-01/1/11( based on its previous fair value) 560,000

Reversal of impairment loss recognized as income in the income statement

140,000Question 2:

Recoverable value- January 1, 2011 P740,000

Less: Carrying amount based on its previous

Recoverable Value Carrying Value

As of January 1, 2010 640,000 800,000

Depreciation for 2010:

(640,000/8 years 80,000 100,000

Carrying amount 560,000 700,000


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recoverable amount 560,000

Increase in the value of the asset 180,000

Less: Reversal of impairment loss recognized previously:

RecoverableJanuary 1, 2011 560,000

Carrying value on January 1,2011 700,000 140,000

Revaluation surplus to be reported in the shareholders

Equity 40,000

INTANGIBLES AND PREPAYMENTS******

During 2010, JAR OF HEARTS COMPANY purchased a building site for its proposed

research and development laboratory at a cost of P1,560,000. Construction of the building was

started in 2010. The building was completed on December 31, 2011, at a cost of P7,280,000

and was placed in service on January 2, 2012. The estimated useful life of the building for

depreciation was to be employed and there was no estimated salvage value.

Management estimates that about 50% of the projects of the research and development

group will result in long- term benefits (I.e. at least 10 years to the corporation. However, JAR

OF HEARTS fails to demonstrate how such projects will generate probable future economic

benefits. The remaining projects either benefit the current period or are abandoned before


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completion. A summary of the number of projects and the directs incurred in conjunction with

the research and development activities for 2012 appears below

Upon recommendation of the research and development group, JAR OF HEARTS

Company acquired a patent for manufacturing rights at a cost of P2,080,000.

The patent was acquired on April 1 2011, and has an economic life of 10 years.

Number of

Projects

Salaries and employee

benefits

Other Expenses(excluding

depreciation Charges)

Completed projects with long-term

benefits 30 2,340,000 1,300,000

Abandoned projects or projects that

benefit the current period 20 1,690,000 390,000

Projects in processresults

indeterminate 10 1,040,000 312,000

Total 60 5,070,000 2,002,000

REQUIRED:

1. The total research and development expenses for 2012.

2. What is the amount of patent amortization for 2012?

3. What is the book value of the building on December 31, 2012?

4. What is the carrying value of the patent at December 31, 2012?

Solution:

1. Salaries and employee benefits P5,070,000

Depreciationbuilding (7,280,000/20 years) 364,000

Other expenses 2,002,000

Total research and development expenses 7,436,000

2. Patent amortization for 2012(P2,080,000/10 years) P208,000


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3. Costs of building P7,280,000

Less: Accumulated depreciation, December 31, 2012

(7,280,000/20 years) 364,000

Book value, December 31, 2012 P6,916,000

4. Cost of patent purchased April 1, 2011 P2,080,000

Less: Amortization:

April 1Dec. 31, 2011

(P2,080,000/10 x 9/12) P156,000

Jan. 1Dec. 31,2012

(P2,080,000/10) 208,000 364,000

Carrying value, Dec. 31,2012 P1,716,000

LIVE-IT-UP CORPORATION was organized in 2011. Its accounting records include only one

account for all intangible assets. The following is a summary of the debit entries that have been

recorded and posted during 2011 and 2012:

INTANGIBLE ASSETS

July 1, 2011 8- year franchise; expires June 30, 2019 P126,000

Oct, 1, 2011 Advance payment on leasehold (term of lease is 2 years) 84,000

Dec. 31, 2011 Net loss for 2011 including incorporation fee, P3,000, and

related legal fees of organizing, P15,000(all fees incurred in

2011)

48,000

Jan. 2, 2012 Acquired patent (10-year life 222,000

Mar. 1, 2012 Cost of developing a secret formula 225,000

Apr. 1, 2012 Goodwill purchased 835,200

July 1, 2012 Legal fee for successful defense of patent purchased above 37,950

Oct, 1, 2012 Research and development costs 480,000

Ignore income tax effects.

REQUIRED:


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1. The unamortized patent cost at December 31, 20122. The unamortized franchise cost at December 31, 20123. The amount of prepaid rent to be reported in KIKITATs December 31, 2012, statement

of financial position.

4. The adjusting entries on December 31, 2012, should include a net debit to the retainedearnings account of

5. As a result of the adjustments at December 31, 2012, the total charges againstKIKIKTATs 2012 income should be

SOLUTION:

1. Cost of patent, Jan. 2, 2012 P222,000

Less: Amortization for 2012(222,000/10 years) 22,200

Unamortized patent cost 199,800

2. Cost franchise, July 1, 2011 P126,000

Less: Amortization, July 1, 2011Dec. 31, 2012

(P126,000/8 x 6/12) 23,625

Unamortized franchise cost, Dec. 31, 2012 P102,375

3. Prepaid rent, December 31, 2012(P84,000 x 9/24) P 31,500

4. December 31, 2011 48,000

(126,000/8x6/12) 7,875

(84,000x3/24) 10,500

Net debit to R/E 66,375

5. Research and development expense 705,000

Legal Fees expense 37,950

Franchise amortization 15,750

Rent expense 42,000

Patent amortization expense 22,200

TOTAL 822,900


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*******On January 2, 2002, SNSD Company spent P480,000 to apply for and obtain a patent

on a newly developed product. The patent had an estimates useful life of 10 years, at the

beginning of 2006, the company spent P144,000 in successfully prosecuting an attempted

patent infringement. At the beginning of 2007, the company purchased for P280,000 a patent

that was expected to prolong the life of its original patent by 5 years. On July 1, 2010, a

competitor obtained rights to a patent that made the companys patent obsolete.

REQUIRED:

1. Carrying amount of patent as of December 31, 20062. Amortization of patent in 20073. Carrying amount of patents as of December 31,20094. Loss on patent obsolescence in 2010

Solution

1. Cost of patent P480,000

Less: Accumulated Amortization ( 480,000 x5/10) 240,000

Carrying amount of patent, 12/31/06 240,000

2. Amortization of original patent (240,000/10) P24,000

Amortization on related patent (280,000/10) 28,000

Total amortization in 2007 52,000

3. Original patent (240,000 x 7/10) P168,000

Related patent (280,000 x 7/10) 196,000

Carrying amount of patents, 12/31/09 364,000

4. Carrying amount of patents, 12/31/09 364,000

Less: Amortization, 1/1/10 to 7/10:

Original patent (P240,000/10 x 6/12) P12,000

Related patent (280,000/10 x 6/12) 14,000 26,000

Loss on patent obsolescence P338,000


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Problem no.1

In connection with the audit of the PAKYO COMPANY for the year ended December 31, 2010

you are called upon to verify the accounts payable transactions. You find that the company does

not make use of a voucher register but enters all merchandise purchases in a Purchases

Journal, from which posting are made to a subsidiary accounts payable ledger. The subsidiary

ledger balance of P1,500,000 as of December 31, 2010 agrees with the accounts payablebalance in the companys general ledger. An analysis of the account disclosed the following:

Trade creditors, credit balances P1,363,000

Trade creditors, debit balances 63,000

Net P 1,300,000

Estimated warranty on products sold 100,000

Customers deposits 9,000

Due to officers and shareholders for advances 50,000

Goods received on consignment at selling price

(offsetting debit made to Purchases) 41,000

P 1,500,000

A further analysis of the Trade Creditors debit balances indicates:


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Date Items Amount

Miscellaneous debit balances prior to

2007 No information available due to loss

of records in a fire. P 3,000

03/03/07 Manila Co.Merchandise returned for credit,

but the company is now out of business 8,000

06/10/09 Cebu Corp.Merchandise returned but Cebu

says never received 7,000

07/10/10 Jolo DistributorsAllowance granted on

defective merchandise after the invoice

was paid 5,000

10/10/10 Bulacan CoOverpayment of invoice 12,000

12/05/10 Advance to Zambales Co. This company agrees

to supply certain articles on a cost

plus basis 24,000


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12/05/10 Goods returned for credit and adjustments on

price after the invoices were paid; credit memos

from supplier not yet received 4,000

63,000

Your next step is to check the invoices in both the paid and the unpaid invoice files against

ledger accounts. In this connection, you discover an invoice from Atlas Co. of P45,000 dated

December 12, 2010 marked Duplicate, which was entered in the Purchase Journal in January

2011. Upon inquiry, you discover that the merchandise covered by this invoice was received

and sold, but the original invoice apparently has not been received.

In the bank reconciliation working papers, there is a notation that five checks totaling P 63,000

were prepared and entered in the Cash Disbursements Journal of December, but these checks

were not issued until January 10, 2011.

The inventory analysis summary discloses good in transit of P 6,000 at December 31, 2010, not

taken up by the company under audit during the year 2010. These goods are included in your

adjusted inventory.

1. The Accounts payableTrade balance at December 31, 2010 should be

2. The net adjustment to Purchases should include a


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3. The entry to adjust the Accounts payable account for those accounts with debit balances

should include a debit to

4. The entry to adjust the Accounts payable account for those accounts with debit balances

should include a debit to

5. Auditor confirmation of accounts payable balances at the end of the reporting period may be

necessary because

A. There is likely to be other reliable external evidence to support the balances

B. Correspondence with the audit clients attorney will reveal all legal action by vendors for non-

payment

C. This is a duplication of cutoff test

D. Accounts payable at the end of reporting period may not be paid before the audit is

completed.

Solution:

1. (1,363,000 + 45,000 + 63,000 + 6,000 = 1,477,0002. Net debit 10,0003. 18,0004. Advances to supplier - 24,0005. A


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Problem 2

You were able to obtain the following from the accountant for Maverics Corp. Related to thecompanys liability as of December 31, 2010.

Accounts payable P 650,000

Notes payabletrade 190,000

Notes payablebank 800,000

Wages and salaries payable 15,000

Interest payable ?

Mortgage notes payable10% 600,000

Mortgage notes payable12% 1,500,000

Bonds Payable 2,000,000

The following additional information pertains to these liabilities:

a. All trade notes payable are due within six months of the balance sheet date.b. Bank notes payable include two separate notes payable Allied Bank.

(1)A P300,000, 8% note issued March 1, 2008, payable on demand. Interest is payableevery six months.

(2)A 1-year, P500,000, 11 % note issued January 2, 2010. On December 30, 2010Mavericks negotiated a written agreement with Allied Bank to replace the note with


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2-year, P500,000, 10% note to be iss7ued January 2, 2011. The interest was paid on

December 31, 2010

c. The 10% mortgage note was issued October 1, 2007. With a term of 10 years. Terms ofthe note give the holder the right to demand immediate payment of the company fails to

make a monthly interest payment within 10 days of the date the payment is due. As of

December 31, 2010, Mavericks is three months behind in paying its required interest

payment.

d. The 12% mortgage note was issued May 1, 2001, with a term of 20 years. The currentprincipal amount due is P 1,500,000. Principal and interest payable annually on April 30,

A payment of P220,000 is due April 30, 2011. The payment includes interest of P

180,000.

e. The bonds payable is 10-year, 8% binds, issued June 30, 2001. Interest is payablesemi-annually every June 30 and December 31.

Based on the above and the result of your audit, answer the following:

1. Interest payable as of December 31, 2010 is2. The portion of the Notes payable bank to be reported under current liabilities as of

December 31, 2010 is

3. Total current liabilities as of December 31, 2010 is4. Total noncurrent liabilities as of December 31, 2010 is

Solution:

1. 300,000 x 8% x 4/12 = 8,000600,000 x 10% x 3/12 = 15,000

1,500,000 x 12% x 8/12 = 120,000

Interest Payable 143,000

2. Note payable to bank P300,0003. Accounts Payable P650,000


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Notes Payabletrade 190,000

Notes payablebank 300,000

Wages and Salaries payable 15,000

Interest payable 143,000

Mortgage note payable 640,000

Bond payable 2,000,000

Total current Liabilities 3,938,000

4. Note payable-bank p500,000Mortgage note payable

(1,500,00040,000) 1,460,000

1,960,000

On January 1, 2009, WIZARDS CORPORATION issued 2,000 of its 5-year, P1,000 face value

11% bonds date January 1 at an effective annual interest rate (yield) of 9%. Interest is payable

each December 31. Wizards uses the effective interest method of amortization. On December

31, 2010. The 2,000 bonds were extinguished early through acquisition on the Open Market by

Wizard for P1,980,000 plus accrued interest. On July 1, 2009, Wizards issued 5,000 of its

P1,000 face value, 10% convertible bonds at pat. Interest is payable every June 30 and

December 31. On the date of issue, the prevailing market interest rate for similar debt without

the conversion option is 12%. On July 1, 2010, an investor in Wizards convertible bonds

tendered 1,500 bonds for conversion into 15,000 shares of Wizards common stock, which had a

fair value of P105 and a par value of P1 at the date of conversion.

Shareholders quityEMERALD Company reported the following shareholders equity on January 1, 2013.

Share Capital, 1,500,000 shares 1,500,000


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Share Premium 15,000,000

Retained Earnings 8,100,000

Treasury Shares, 100,000 at cost (900,000)

All of the outstanding and treasury shares were originally issued in 2011 for 11 per share. The

treasury shares are reacquired on March 31, 2012. During 2013, the following events or

transactions occurred relating to shareholders equity:

February 15Issued 400,000 shares for P12.5 per share June 15Declared a cash dividend of P0.20 per share to shareholders of record

on April 15. This was the first dividend ever declared.

SeptemberThe president retired, the entity purchased from the retiringpresident 100,000 shares for P13.00 per share which was equal to market value

on this date. These shares were cancelled.

December 15Declared a cash dividend ofP0.20 per share to shareholders ofrecord on January 2, 2014.

On December 31, 2013, the entity is being sued by two separate parties for patent

infringement. The management and outside legal counsel share the following opinion regarding

these suits:

Suit Likelihood of losing the suit Estimated Loss

#1 Reasonably possible 600,000

#2 Probable 400,000

Required:

1. What is the increase in share premium arising from the issuance of 400,000 shareson February 15?


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2. What is the decrease in share premium arising from the retirement of 100,000shares on September 15?

3. What amount of loss contingencies should be appropriated by a charge tounappropriated retained earnings?

4. What amount of cash dividend should be charged against unappropriated retainedearnings in 2013?

5. What amount should be reported in the notes to financial statement as restriction onretained earnings because of acquisition of treasury shares?

SOLUTION:

1. 400,000 x 11.50 = 4,600,0002. 100,000 x 10 = 1,000,0003. SUIT no.1 is a possible loss which require disclosure that can be done by appropriation

of Retained Earnings

4. 1,800,000 x .2 = 360,0001,700,000 x .2 = 340,000

Total cash dividend 700,000

5. Treasury shares, at cost P900,000**********************************************************************

You are a senior accountant responsible for the annual audit of LOBERIAL CO.for the yearended December 31, 2012. The information available to you is presented below. You may

assume that any pertinent information not presented below has already been checked and

found satisfactory.

Excerpts from trial balance, December 31, 2012

Credit

Retained Earnings P93,000


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Allowance for decline in value of inventory

36500

Share capital (5,000 shares) 500,000

The books have not been closed, but all adjusting entries which the company expects to make

have been posted. Their trial balance shows a P60,000 net income for the year.

Ledger details of Retained Earnings:

Retained Earnings

08/06/12 CD 2,000 12/31/11 Balance 134,500

10/10/12 J 10,000 4/29/12 CR 500

12/31/12 J 30,000

Note: The balance at 12/31/11 agrees with last years working papers.

Analysis of selected cash receipts:

Date Account Credited Amount

4/29/12 Share Capital

Retained Earnings

10,500

500

Sold 100 par shares

at 105

10/10/12 Building 530,000 See corollary entry

dated 10/10/12

Analysis of selected cash disbursements:

Date Account Debited Amount Explanation

08/06/12 Retained Earnings 2,000 Freak accident to

company truck not

covered by insurance:

repairs by DJ Repairs


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Selected Entries in the general journal:

Date Entry and Explanation Debit Credit10/10/12 Accumulated Depreciation

Retained Earnings

Building

Sale of main office

building

370,000

10,000

380,000

12/31/12 Retained Earnings

Allowance for decline in

Value of Inventory

Provision to value at lower

of cost and net realizable

value

30,000

30,000

Based on the preceding information, determine the following:

1. Loss on sale of building2. Share capital balance3. Share premium balance at December 31,20124. Net income for 2012

SOLUTION:

1. (910,000370,000)570,000 = P10,0002. 500,0003. 5004. (60,000-10,000-2,000-30,000) = P18,000

****************************************************************


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The Perseverance Corporation has requested you to audit its financial statements for the year2005. During your audit, Perseverance presented to you its balance sheet as of December 31,

2004 containing the following capital section:

Preferred stock P10 par; 60,000 shares authorized and issued, of which 6,000

are treasury shares costing P90,000 and shown as an assetP600,000

Common stock, par value P4; 600,000 shares authorized, of which

450,000 are issued and outstanding 1,800,000

Additional paid in capital (P5 per share on preferred stock

issued in 2000) 300,000

Allowance for doubtful accounts receivable 12,000

Reserve for depreciation 840,000

Reserve for fire insurance 198,000

Retained earnings 2,250,000

P6,000,000

Additional information:

1) Of the preferred stock, 3,000 shares were sold for P18 per share on August 30, 2005.Perseverance credited the proceeds to the Preferred Stock account. The treasury

shares as of December 31, 2004 were acquired in one purchase in 2004.

2) The preferred stock carries an annual dividend of P1 per share. The dividend iscumulative. As of December 31, 2004, unpaid cumulative dividends amounted to P5 per

share. The entire accumulation was liquidated in June, 2005, by issuing to the preferred

stockholders 54,000 shares of common stock.

3) A cash dividend of P1 per share was declared on December 1, 2005 to preferredstockholders of record December 15, 2005. The dividend is payable on January 15,

2006.

4) At December 31, 2005, the Allowance for Doubtful Accounts Receivable and Reserve forDepreciation had balances of P25,000 and P1,050,000, respectively.

5) On March 1, 2005, the Reserve for Fire Insurance was increased by P60,000; RetainedEarnings was debited.


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6) On December 31, 2005, the Reserve for Fire Insurance was decreased by P30,000,which represents the carrying value of a machine destroyed by fire on that date.

Estimated fire cleanup costs of P6,000 does not appear on the records.

7) The December 31, 2004 Retained Earnings consists of the following:

Donated land from a stockholder (Market value on date of donation) P450,000

Gains from treasury stock transactions 51,000

Earnings retained in business 1,749,000

P2,250,000

8) Net income for the year ended December 31, 2005 was P1, 297,500 per companysrecords.

QUESTIONS:

Based on the above and the result of your audit, determine the adjusted balances of the

following as of December 31, 2005. (Disregard tax implications)

1. Preferred stock

2. Common stock

3. Additional paid in capital

4. Appropriated retained earnings

5. Unappropriated retained earnings

6. Treasury stock

7. Total stockholders equity

SOLUTION:

1. Preferred stock 600,0002. Common stock 2,016,000

3. Additional paid in capital 864,000

4. Appropriated retained earnings 303,000

5. Unappropriated retained earnings 2,578,500


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6. Treasury stock 45,000

7. Total stockholders equity 6,316,500

rolito dionela

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