FA LQ 5. Bonus

Ateneo de Zamboanga UniversitySCHOOL OF MANAGEMENT AND ACCOUNTANCY

Accounting 240: Financial Accounting, Part II

Long Quiz No. 5: Bonus

Name: _____________________________________ Date: _______________ Score: __________

This is a bonus test, but the levels of difficulty per problem are not necessarily easy. What makes this a bonus is the idea that you have the entire Christmas break to work on this test. This test covers topics from Accounting 230 to Accounting 240. You may encounter items that we have not discussed yet in class like the chapters on Shareholder’s Equity. Therefore, you have to read and study.

If your accumulated long quiz raw score as of the fourth test is 50 points over a total possible highest score of 135, whatever your result in this bonus test will be added to your LQ raw score. Let us assume that you got 40 points in this bonus test. So, you will get a total of 90 points (50 + 40) over the original total highest possible score of 135 points. In case your total score will exceed the total highest possible score of 135 points, (let us say you got 145 points over 135 points), you will only get a maximum score equivalent to the total highest possible score, and the excess shall not be carried over to the next quarter.

To select your final answer, mark X on the boxes provided in the answers section of this test paper. Solutions in good form must be presented in separate sheets of yellow paper. Upon submission, the solution sheets must be stapled with the test paper on top of the said sheets.

ANSWERS SECTION

A B C D A B C D A B C D A B C D01

11

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31

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35

A B C D A B C D A B C D A B C D06

16

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08

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40

PROBLEM 1

You have been engaged to audit the December 31, 2014, financial statements of Don’t Panic Company. Your audit disclosed the following:

Cash in Bank

1. Checks totaling P30,000 in payment of accounts payable were mailed on December 31, 2014, but were not recorded until 2015.

2. Late in December 2014, the bank returned a P4,000 customer’s check marked “NSF” but no entry was made. The check is for Invoice No. 14344 dated December 10, 2014.

3. Cash in bank includes P200,000 restricted for the acquisition of equipment.4. On December 31, 2014, the bank credited Don’t Panic for P1,000,000 in exchange for a 16%

note payable maturing December 31, 2019. Equal principal payments are due December 31 of each year, beginning in 2015. This note is collateralized by a P500,000 tract of land acquired as a future plant site, which is included in noncurrent investments.

Accounts Receivable

1. Included in accounts receivable is a P35,000 note due on December 31, 2017 from the president of Don’t Panic Company.

2. Don’t Panic Company determines the allowance for bad debts by applying certain percentages to the accounts receivable aging as follows:

Days past invoice date Percent deemed to be uncollectible0-30 131-60 561-90 20Over 90 80

The following is an aging of accounts receivable-trade based on accounts receivable schedule as of December 31, 2014, before any adjustments on the accounts.

Days past invoice date Amount0-30 P396,00031-60 85,00061-90 30,000Over 90 20,000

No provision for bad debts has been recorded for the current year.

Inventories

The P250,000 inventory total, which was based on a physical count at December 31, 2014, was priced at cost. Subsequently, it was determined that the inventory cost was overstated by P50,000. At December 31, 2014, its net realizable value approximated the adjusted cost.

Mortgage Payable

The mortgage payable requires P300,000 principal payments, plus interest, at the end of each month. Payments were made on January 31 and February 28, 2015. The balance of this mortgage was due on June 30, 2015. On March 1, 2015, prior to issuance of the audited financial statements, Don’t Panic Company consummated a noncancelable agreement with the lender to refinance his

mortgage. The new terms require P200,000 annual principal payments plus interest, on February 28 of each year, beginning in 2016.

Presented below are the working balance sheet and working profit and loss statement for Don’t Panic Company:

DON’T PANIC COMPANYWorking Balance Sheet

December 31, 2014

CURRENT ASSETS

Cash in bank P 300,000

Trading securities 102,600

Accounts receivable 566,000

Allowance for bad debts (15,250)

Inventories 250,000

Prepayments 362,800

1,566,150

NON-CURRENT ASSETS

Land held for future plant site 500,000

Cash restricted for acquisition of equipment -

500,000

Property, plant and equipment

Land 4,400,000

Buildings 2,500,000

Machinery and equipment 1,500,000

8,400,000

Accumulated depreciation (850,000)

7,550,000

Officer's note receivable -

TOTAL ASSETS P 9,616,150

CURRENT LIABILITIES

Accounts payable P 265,000

Note payable- current -

Mortgage payable- current -

Accrued expenses and others 35,000

300,000

NON-CURRENT LIABILITIES

Note payable -

Mortgage payable 1,800,000

Total liabilities 2,100,000

SHAREHOLDER'S EQUITY

Ordinary shares (P100 par, 100,000 shares

authorized, 40,000 shares issued and outstanding) 4,000,000

Share premium 462,000

Retained earnings 3,054,150

Total shareholder's equity 7,516,150

TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY P 9,616,150

DON’T PANIC COMPANYWorking Profit and Loss (WPL)

December 31, 2014

Sales P 10,800,000

Cost of Sales 7,560,000

Gross Income 3,240,000

Other Income 10,200

Total Income 3,250,200

Operating expenses 1,550,000

Net income P 1,700,200

NET INCOME P 1,700,200

Retained earnings, January 1 1,353,950 Retained earnings, December 31 P 3,054,150

For items 1-15, select the answer that best corresponds to the audited balance as of December 31, 2014, of each of the following items based on the information given in the problem. Ignore tax effects.

1. Cash in banka. P1,266,000 c. P1,066,000b. P1,096,000 d. P66,000

2. Accounts receivable- tradea. P570,000 c. P527,000b. P531,000 d. P535,000

3. Allowance for bad debtsa. P15,250 c. P15,000b. P30,250 d. P29,900

4. Inventoriesa. P200,000 c. P300,000b. P250,000 d. P230,000

5. Investment propertya. P500,000 c. P700,000b. Nil d. P300,000

6. Landa. P5,100,000 c. P4,900,000b. P4,400,000 d. P3,900,000

7. Accounts payablea. P235,000 c. P295,000b. P265,000 d. P205,000

8. Note payable- currenta. P200,000 c. P1,000,000b. P800,000 d. Nil

9. Mortgage payable- currenta. P600,000 c. P1,200,000b. P1,800,000 d. P200,000

10. Note payable- noncurrenta. P200,000 c. P800,000b. P1,000,000 d. Nil

11. Mortgage payable- noncurrenta. P1,200,000 c. P200,000b. P600,000 d. Nil

12. Retained earnings as of year-enda. P2,985,150 c. P2,989,150b. P2,959,150 d. P3,039,150

13. Cost of salesa. P7,560,000 c. P7,614,000b. P7,640,000 d. P7,610,000

14. Operating expensesa. P1,535,000 c. P1,554,800b. P1,550,000 d. P1,565,000

15. Net incomea. P1,631,200 c. P1,685,200b. P1,605,200 d. P1,635,200

PROBLEM 2

Keep Calm Company was organized on January 2, 2013, with authorized share capital of P50,000 shares of 10%, P200 par value preference and 200,000 shares of P10 par value ordinary. During the company’s first two years of operations, the following equity transactions occurred.

2013January 2 Sold 10,000 ordinary shares at P16.

Sold 3,000 preference shares at P216.March 2 Sold ordinary shares as follows: 10,800 shares at P22; 2,700 shares at P25.July 10 Acquired a nearby piece of land, appraised at P400,000, for 600 preference shares

and 27,000 ordinary shares. (Preference share capital was recorded at P216, the balance being assigned to ordinary).

Dec. 16 Declared the regular preference cash dividend and a P1.50 ordinary cash dividend.Dec. 28 Paid the dividends declared on December 16.Dec. 31 The income summary account showed a credit balance of P450,000.

2014Feb. 27 Reacquired 12,000 ordinary shares at P19.June 17 Resold 10,000 treasury shares at P23.July 31 Resold all of the remaining treasury shares at P18.Sept. 30 Sold 11,000 additional ordinary shares at P1.Dec. 16 Declared the regular preference cash dividend and an P0.80 ordinary cash dividend.Dec. 28 Paid the dividends declared on December 16.Dec. 31 The income summary account showed a credit balance of P425,000.

Based on the above information, determine the balances of the following on December 31, 2014:

16. Preference share capitala. P729,600 b. P777,600 c. P720,000 d. P648,000

17. Ordinary share capitala. P615,400 b. P615,000 c. P577,000 d. P966,500

18. Total share premiuma. P95,600 b. P447,100 c. P449,100 d. P409,100

19. Unappropriated retained earningsa. P875,000 b. P416,050 c. P606,050 d. P604,050

20. Total shareholder’s equitya. P2,388,150 b. P1,892,100 c. P2,376,630 d. P2,498,150

PROBLEM 3

You have been engaged to audit the financial statements of Perfect Ko ‘To Company for the fiscal year ended June 30, 2014. The cost of goods sold section of the income statement prepared by your client for the year ended June 30, 2014, appears as follows:

Inventory, July 1, 2013 P 75,000 Purchases 540,000 Goods available for sale 615,000 Inventory, June 30, 2014 105,000

Cost of goods sold P 510,000

Although the books have been closed, your working paper trial balance is prepared showing all accounts with activity during the year. The July 1 and June 30 inventories appearing above were determined through physical count and no reconciling items were considered. All purchases are FOB shipping point. The company uses the periodic inventory system.

In the course of your examination of inventory cutoff, both at the beginning and end of the year, you discovered the following facts:

July 1, 2013

a. June invoices totaling P19,500 were entered in the voucher register in June, but the goods were not received until July.

b. Invoices totaling P8,100 were entered in the voucher register in July, but the goods were received during June.

June 30, 2014

a. Invoices totaling P27,900 were entered in the voucher register in July, and the goods were received in July, but the invoices were dated June.

b. June invoices totaling P11,100 were entered in the voucher register in June but the goods were not received until July.

c. Invoices totaling P16,200 (the corresponding goods for which were received in June) were entered in the voucher register, July.

d. Sales of P26,400 were made on account on June 30 and the goods were delivered at that time, but all entries relating to the sales were made in July.

21. What is the adjusted inventory on July 1, 2013a. P86,400 b. P94,500 c. P63,600 d. P102,600

22. What is the correct amount of purchases for the year ended June 30, 2014?a. P584,100 b. P592,200 c. P559,800 d. P576,000

23. What is the correct inventory on June 30, 2014?a. P144,000 b. P132,900 c. P116,100 d. P135,900

24. The accounts payable balance on June 30, 2014 should be increased bya. P44,100 b. P27,900 c. P27,300 d. P55,200

25. The correct cost of goods sold for the year ended June 30, 2014 is

a. P537,600 b. P553,800 c. P526,500 d. P507,300PROBLEM 4

Rak Na Ituuu Company issued 10-year bonds on January 1, 2014. The company’s year-end is December 31, and financial statements are prepared annually. The amortization and interest schedule below reflects the bond issuance and the subsequent interest payments and charges.

AMORTIZATION SCHEDULE

Date Interest Paid Interest expense Amount Unamortized Carrying Value

01/01/14 - - P28,253 P471,747

12/31/14 P55,000 P56,610 26,643 473,357

12/31/15 55,000 56,803 24,840 475,160

12/31/16 55,000 57,019 22,821 477,179

12/31/17 55,000 57,261 20,560 479,440

12/31/18 55,000 57,533 18,027 481,973

12/31/19 55,000 57,837 15,190 484,810

12/31/20 55,000 58,177 12,013 487,987

12/31/21 55,000 58,558 8,455 491,545

12/31/22 55,000 58,985 4,470 495,530

12/31/23 55,000 59,470 - 500,000

26. The bonds were issued ata. A premium b. A discount c. Face value d. Par value

27. What amortization method is used in the amortization schedule presented?a. Straight-line method b. Bonds outstanding c. Effective interest d. Declining

balance

28. What is the nominal interest rate of the bonds issued on January 1, 2014?a. 11% b. 12% c. 10% d. 6%

29. What is the effective interest rate of the bonds issued on January 1, 2014?a. 11% b. 12% c. 10% d. 6%

30. On the basis of the schedule presented, what is the journal entry to record the issuance of the bonds on January 1, 2014?

a. Cash P500,000Bonds payable P500,000

b. Cash P471,747Interest expense 28,253

Bonds payable P500,000

c. Cash P500,000Premium on bonds P 28,253Bonds payable 471,747

d. Cash P471,747

Discount on bonds 28,253Bonds payable P500,000

PROBLEM 5

You have been asked by a client to review the records of Babols Company, a small manufacturer of precision tools and machines. Your client is interested in buying the business and arrangements have been made for you to review the accounting records.

Your examination reveals the following:

Babols commenced business on April 1, 2011, and has been reporting on a fiscal year ending, March 31. The company has never been audited, but the annual statements prepared by the bookkeeper reflect the following income before closing and before deducting income taxes:

Year Ended March 31

Income Before Taxes

2012 P143,200 2013 222,800 2014 207,160

A relatively small number of machines have been shipped on consignment. These transactions have been recorded as ordinary sales and billed as such. On March 31 of each year, machines billed and in the hands of consignees amounted to:

2012 P13,000 2013 None 2014 11,180

Sales price was determined by adding 30% to cost. Assume the consigned machines are sold the following year.

On March 30, 2013, two machines were shipped to a customer on a cash on delivery basis. The sale was not entered until April 5, 2013, when cash was received for P12,200. The machines were not included in the inventory at March 31, 2013. (Title passed on March 30, 2013.)

All machines are sold subject to a five-year warranty. It is estimated that that the expense ultimately to be incurred in connection to the warranty will amount to ½ of 1% of sales. The company has charged an expense account for warranty costs incurred.

Warranty Expense for Sales Made In

Year Ended March 31 Sales 2012 2013 2014 Total

2012 P1,880,000 P1,520 P1,5202013 2,020,000 720 P2,620 3,3402014 3,590,000 640 3,240 P3,280 7,700

Bad debts have been recorded on a direct writeoff basis. Experience of similar enterprises indicates that losses will approximate ¼ of 1% of sales. Bad debts written off were:

Warranty Expense for Sales Made In

Year Ended March 31 2012 2013 2014 Total

2012 P1,500 P1,5002013 1,600 P1,040 2,6402014 700 3,600 P3,400 7,700

Commissions on sales have been entered when paid. Commissions payable on March 31 of each year were:

2012 P2,8002013 1,6002014 2,240

A review of the corporate minutes reveals the manager is entitled to a bonus of ½ of 1% of the income before deducting income taxes and the bonus. The bonuses have never been recorded or paid.

Based on the preceding information, determine the following:

26. Correct sales for the year ended March 31, 2012.a. P1,867,000 b. P1,880,000 c. P1,870,000 d. P1,873,000



29. Additional warranty expense for the year ended March 31, 2014a. P10,133 b. P24,834 c. P6,886 d. P17,833

30. Additional bad debt expense for the year ended March 31, 2013a. P2,473 b. P1,217 c. P8,917 d. P6,858

31. Additional commission expense for the year ended March 31, 2014a. P1,600 b. P2,240 c. P4,640 d. P640

32. Manager’s bonus expense for the year ended March 31, 2014a. P902 b. P1,781 c. P2,683 d. P1,149

33. Correct income before income tax for the year ended March 31, 2012a. P229,841 b. P228,692 c. P125,785 d. P126,417



PROBLEM 6

Presented below are Comoros Company’s comparative statements of financial position and income statements:

COMOROS COMPANYComparative Statement of Financial Position

December 31, 2014 and 2013

ASSETS 2014 2013

Cash P 119,000 P 98,000

Accounts receivable 312,000 254,000 Inventory 278,000 239,000 Prepaid expenses 35,000 21,000 Total current assets 744,000 612,000

Non-trading equity securities 59,000 - Property, plant and equipment 536,000 409,000 Accumulated depreciation (76,000) (53,000) Total noncurrent assets 519,000 356,000

Total Assets P 1,263,000 P 968,000

LIABILITIES and SHAREHOLDER'S EQUITY

Accounts payable P 212,000 P 198,000

Accrued expenses 98,000 76,000 Dividends payable 40,000 - Total current liabilities 350,000 274,000

Notes payable, due on 2015 125,000 - Total noncurrent liabilities 125,000 - Total liabilities 475,000 274,000

Ordinary share capital 600,000 550,000 Retained earnings 188,000 144,000 Total shareholder's equity 788,000 694,000

Total Liabilities and Shareholder's Equity P 1,263,000 P 968,000

COMOROS COMPANYCondensed Comparative Income Statements

For the Years Ended, December 31, 2014 and 2013

2014 2013

Net sales P 3,561,000 P 3,254,000

Cost of goods sold (2,789,000

) (2,568,000) Gross income 772,000 686,000 Expenses (521,000) (486,000) Net income P 251,000 P 200,000

Additional information for Comoros: All accounts receivable and accounts payable relate to trade merchandise. The proceeds from the notes payable were used to finance plant expansion. Ordinary shares were sold to provide additional working capital.

Compute for the following for 2014:

36. Cash collected from accounts receivable, assuming all sales are on account.a. P3,619,000 b. P3,503,000 c. P3,561,000 d. P3,249,000

37. Total purchases, assuming all purchases of inventory are on accounta. P2,828,000 b. P2,789,000 c. P2,550,000 d. P2,750,000

38. Cash payments made on accounts payable to suppliersa. P2,630,000 b. P2,842,000 c. P2,828,000 d. P2,814,000

39. Dividends declareda. P63,000 b. P0 c. P207,000 d. P107,000

40. Cash payments for dividendsa. P211,000 b. P177,000 c. P50,000 d. P125,000

fin.

Documents

FA LQ 5. Bonus