Intermediate Accounting Quiz Bee

INTERMEDIATE ACCOUNTING Easy Round PROBLEM NO. 1 In connection with your audit of Caloocan Corporation for the year ended December 31, 2006, you gathered the following: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12.

Current account at Metrobank Current account at BPI Payroll account Foreign bank account – restricted (in equivalent pesos) Postage stamps Employee’s post dated check IOU from controller’s sister Credit memo from a vendor for a purchase return Traveler’s check Not-sufficient-funds check Money order Petty cash fund (P4,000 in currency and expense receipts for P6,000) 13. Treasury bills, due 3/31/07 (purchased 12/31/06) 14. Treasury bills, due 1/31/07 (purchased 1/1/06)

P2,000,000 (100,000) 500,000 1,000,000 1,000 4,000 10,000 20,000 50,000 15,000 30,000 10,000 200,000 300,000

Question: Compute for the cash and cash equivalent that would be reported on the December 31, 2006 balance sheet. a. P2,784,000 c. P2,790,000 b. P3,084,000 d. P2,704,000 Suggested Solution: Current account at Metrobank Payroll account Traveler’s check Money order Petty cash fund (P4,000 in currency) Treasury bills, due 3/31/07 (purchased 12/31/06)

P2,000,000 500,000 50,000 30,000 4,000 200,000

Total

P2,784,000

Answer: A PROBLEM NO. 2 On October 1, 2018, Grimm Co consigned 40 freezers to Holden Co costing P14,000 each sale at P 20,000 each and paid P16,000 in transportation costs. On December 30,2018, Holden Co reported the sale of 10 freezers and remitted P170,000. The remittance was net of the agreed 15% commission. What amount should be recorded as consignment sales revenue for 2018? A. 154,000 B. 170,000 C. 196,000 D. 200,000 Solution: Freezers Sold (10 x P 20,000)

200,000

PROBLEM NO. 3 The cash account of the Makati Corporation as of December 31, 2006 consists of the following: On deposit in current account with Real Bank Cash collection not yet deposited to the bank A customer’s check returned by the bank for insufficient fund A check drawn by the Vice-President of the Corporation dated January 15, 2007 A check drawn by a supplier dated December 28, 2006 for goods returned by the Corporation A check dated May 31,2006 drawn by the Corporation against the Piggy Bank in payment of customs duties. Since the importation did not materialize, the check was returned by the customs broker. This check was an outstanding check in the reconciliation of the Piggy Bank account

P 900,000 350,000 150,000 70,000 60,000

410,000

Petty Cash fund of which P5,000 is in currency; P3,600 in form of employees’ I.O.U. s; and P1,400 is supported by approved petty cash vouchers for expenses all dated prior to closing of the books on December 31, 2006 Total Less: Overdraft with Piggy Bank secured by a Chattel mortgage on the inventories Balance per ledger

10,000 1,950,000 300,000 P1,650,000

Question: At what amount will the account “Cash” appear on the December 31, 2006 balance sheet? a. P1,315,000 c. P1,495,000 b. P1,425,000 d. P1,725,000 Suggested Solution: Current account with Real Bank Undeposited collection

P 900,000 350,000

Supplier's check for goods returned by the Corporation Unexpended petty cash Current account with Piggy Bank (P410,000 - P300,000) Total

P1,425,000

Answer: B Problem 4 Corolla Company incurred the following costs: Materials Storage costs of finished goods Delivery to customers Irrecoverable purchase taxes

700,000 180,000 40,000 60,000

At what amount should the inventory be measured? A. 880,000 B. 760,000 C. 980,000 D. 940,000 Solution Material Irrecoverable purchase taxes Total

60,000 5,000 110,000

700,000 60,000 760,000

Problem 5 Roanne Company used allowance method of accounting for uncollectible accounts. During the current year, the entity had charged P 800,000 to bad debt expense and wrote off accounts receivable of P 900,000 as uncollectible. What was the decrease in working capital? A. 900,000 B, 800,000 C.100,000 D. 0 Solution Only the bad debt expense decreases working capital. The write off does not affect anymore the working capital because the effect is offsetting on current assets. Average Problem 6 Faith Company provided the following information relating to current operations: Accounts Receivable, January 1 4,000,000 Accounts Receivable collected 8,400,000 Cash Sales 2,000,000 Inventory, January 1 4,800,000 Inventory, December 31 4,400,000 Purchases 8,000,000 Gross Margin on Sales 4,200,000 What is the balance of accounts receivable on December 31? a. 8,200,000 b. 6,200,000 c. 2,000,000 d. 4,200,000 Solution: Inventory, Jan1 Purchases TGAS Inventory-Dec 31 COGS Gross Margin Sales Gross Sales Cash Sales Credit Sales AR-Jan 1 Total AR collected AR- Dec 31

4,800,000 8,000,000 12,800,000 (4,400,000) 8,400,000 4,200,000 12,600,000 (2,000,000) 10,600,000 4,600,000 14,600,000 (8,400,000) 6,200,000

Problem 7-8 Frame Company has 8% note receivable dated June 30,2018, in the original amount of P 1,500,000. Payments of P 500,000 in principal plus accrued interest are due annually on July 1,2019, 2020 and 2021. 7. What is the balance of note receivable on July 1, 2019? A. 1,500,000

B. 1,000,000 C. 500,000 D. 0 8. In June 30, 2020 statement of financial position, what amount should be reported as a current asset for interest on the note receivable? A. 120,000 B. 40,000 C. 80,000 D. 0 Solution Note Receivable, June 30,2018 Payment on July 1, 2019 Note Receivable, July 1, 2019 Multiply: Accrued interest Receivable

1,500,000 (500,000) 1,000,000 8%______ 80,000

Problem 9 Presented below is a list of items that may or may not reported as inventory in a company’s December 31 balance sheet. 1. Goods out on consignment at another company’s store 2. Goods sold on installment basis 3. Goods purchased f.o.b. shipping point that are in transit at December 31 4. Goods purchased f.o.b. destination that are in transit at December 31 5. Goods sold to another company, for which our company has signed an agreement to repurchase at a set price that covers all costs related to the inventory 6. Goods sold where large returns are predictable 7. Goods sold f.o.b. shipping point that are in transit December 31 8. Freight charges on goods purchased 9. Factory labor costs incurred on goods still unsold 10. Interest cost incurred for inventories that are routinely manufactured 11. Costs incurred to advertise goods held for resale 12. Materials on hand not yet placed into production 13. Office supplies 14. Raw materials on which a the company has started production, but which are not completely processed 15. Factory supplies 16. Goods held on consignment from another company 17. Costs identified with units completed but not yet sold 18. Goods sold f.o.b. destination that are in transit at December 31 19. Temporary investment in stocks and bonds that will be resold in the near future

P800,000 100,000 120,000 200,000 300,000 280,000 120,000 80,000 50,000 40,000 20,000 350,000 10,000 280,000 20,000 450,000 260,000 40,000 500,000

Question: How much of these items would typically be reported as inventory in the financial statements? a. P2,300,000 c. P2,260,000 b. P2,000,000 d. P2,220,000

Suggested Solution: PAS 2 par. 6 defines “Inventories” as assets held for sale in the ordinary course of business; in the process of production for such sale; or in the form of materials or supplies to be consumed in the production process or in the rendering of services. Par. 10 further states that the cost of inventories shall comprise all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. Therefore, items 1, 3, 5, 8, 9, 12, 14, 15, 17 and 18 would be reported as inventory in the financial statements. Problem 10 In the course of your audit of the Las Piñas Corporation, its controller is attempting to determine the amount of cash to be reported on its December 31, 2006 balance sheet. The following information is provided: 1. Commercial savings account of P1,200,000 and a commercial checking account balance of P1,800,000 are held at PS Bank. 2. Travel advances of P360,000 for executive travel for the first quarter of the next year (employee to reimburse through salary deduction). 3. A separate cash fund in the amount of P3,000,000 is restricted for the retirement of a long term debt. 4. Petty cash fund of P10,000. 5. An I.O.U. from a company officer in the amount of P40,000. 6. A bank overdraft of P250,000 has occurred at one of the banks the company uses to deposit its cash receipts. At the present time, the company has no deposits at this bank. 7. The company has two certificates of deposit, each totaling P1,000,000. These certificates of deposit have maturity of 120 days. 8. Las Piñas has received a check dated January 2, 2007 in the amount of P150,000. 9. Las Piñas has agreed to maintain a cash balance of P200,000 at all times at PS Bank to ensure future credit availability. 10. Currency and coin on hand amounted to P15,000. Question: How much will be reported as cash and cash equivalent at December 31, 2006? a. P3,025,000 c. P2,575,000 b. P2,825,000 d. P5,025,000 Suggested Solution: Savings account at PS Bank Checking account at PS Bank Petty cash fund Currency and coin Total Answer: A

P1,200,000 1,800,000 10,000 15,000 P3,025,000

DIFFICULT ROUND Problem 11 Lin Co sold merchandise at a gross profit of 30 %. On June 30, all of the inventory was destroyed by fire. The entity provided the following information for the six months ended June 30: Net Sales 8,000,000 Beginning Inventory 2,000,000 Net Purchases 5,200,000 What is the estimated cost of the destroyed inventory? A. 4,800,000 B. 2,800,000 C. 1,600,000 D. 800,000 Solution: Beg Inv Net Purchases TGAS COGS(8,000,000 x 70%) End Inv destroyed by fire

2,000,000 5,200,000 7,200,000 (5,600,000) 1,600,000

Problem 12-15 You obtained the following information in connection with your audit of Villasis Corporation: Beginning inventory Sales Purchases Freight in Mark ups Mark up cancellations Markdown Markdown cancellations

Cost P1,987,200 4,688,640 94,560

Retail P2,760,000 7,812,000 6,512,000 720,000 120,000 240,000 40,000

Villasis Corp. uses the retail inventory method in estimating the values of its inventories and costs. Based on the above information, answer the following: 12. The cost ratio to be used considering the provisions of PAS 2 is a. 68.58% c. 70.00% b. 69.20% d. 75.78% 13. The estimated ending inventory at retail is a. P2,300,000 c. P1,940,000 b. P2,060,000 d. P1,860,000 14. The estimated ending inventory at cost is a. P1,412,786 c. P1,302,000 b. P1,275,588 d. P1,287,120 15. The estimated cost of goods sold is a. P5,468,400 b. P5,494,812

c. P5,357,614 d. P4,685,117

Suggested Solution: Question No. 1 Cost

Retail

Beginning inventory Purchases Freight in Net mark up (P720,000 - P120,000) Net mark down (P240,000 - P40,000) Goods available for sale

P1,987,200 4,688,640 94,560 ___________ P6,770,400

Cost ratio (P6,770,400/P9,672,000)

P2,760,000 6,512,000 720,000 120,000 P9,672,000

70%

PAS 2 par. 22 states that the retail inventory method is often used in the retail industry for measuring inventories of large numbers of rapidly changing items with similar margins for which it is impracticable to use other costing methods. The cost of inventory is determined by reducing the sales value of the inventory by the appropriate percentage gross margin. The percentage used takes into consideration inventory that has been marked down to below its original selling price. An average percentage for each retail department is often used. Previously, the conventional approach (lower of average cost or market valuation) is often used if the problem is silent. The conventional approach ignores markdown in the computation of cost ratio. However, since PAS 2 specifically states that the percentage should take into consideration inventory that has been marked down to below its original selling price, the cost ratio was computed using the average method. Question No. 2 Goods available for sale at retail Less sales Ending inventory, at retail

P9,672,000 7,812,000 P1,860,000

Question No. 3 Ending inventory, at cost (P1,860,000 x 70%)

P1,302,000

Question No. 4 Goods available for sale at cost Less ending inventory, at cost Estimated cost of sales

P6,770,400 1,302,000 P5,468,400

Answers: 1) C; 2) D; 3) C; 4) A

CLINCHER

1. Otso Manufacturing Corporation mass produces eight different products. The controller, who is interested in strengthening internal controls over the accounting for materials used in production, would be most likely to implement a. A separation of duties among production personnel. b. A perpetual inventory system. c. An economic order quantity (EOQ) system. d. A job order cost accounting system. 2. Which of the following control procedures would most likely be used to maintain accurate perpetual inventory records? a. Independent matching of purchase orders, receiving reports, and vendors' invoices. b. Independent storeroom count of goods received. c. Periodic independent reconciliation of control and subsidiary records. d. Periodic independent comparison of records with goods on hand. 3. Which of the following internal control procedures will most likely prevent the concealment of a cash shortage resulting from improper write-off of a trade account receivable? a. Write-offs must be supported by an aging schedule showing that only receivables overdue for several months have been written off.

b. Write-offs must be approved by the cashier who is in a position to know if the receivables have, in fact, been collected. c. Write-offs must be approved by a responsible officer after review of credit department recommendations and supporting evidence. d. Write-offs must be authorized by company field sales employees who are in a position to determine the financial standing of the customers. 4. Postdated checks received by mail in settlement of customer’s accounts should be a. Returned to customer. b. Stamped with restrictive endorsement. c. Deposited immediately by the cashier. d. Deposited the day after together with cash receipts. 5. An essential phase of the audit of the cash balance at the end of the year is the auditor's review of cutoff bank statement. This specific procedure is not useful in determining if a. Kiting has occurred. b. Lapping has occurred. c. The cash receipts journal was held open. d. Disbursements per the bank statement can be reconciled with total checks written.