INTERMEDIATE ACCOUNTING Examination Question and Answers 2024, Exams of Accounting

Download INTERMEDIATE ACCOUNTING Examination Question and Answers 2024 and more Exams Accounting in PDF only on Docsity! INTERMEDIATE ACCOUNTING Examination Question and Answers 2024 CASH AND CASH EQUIVALENTS (10 points) 1. Petty cash fund is A. An exemption to imprest system B. For payment of notes payable C. An example of the imprest system D. Solely for purchase of patties 2. Which of the following items would be added to the book balance on a bank reconciliation? A. Deposit in transit B. Service charge C. Correction of an understatement of the accounts receivable due to error in recording check collection by the heartbroken accountant D. Correction of an overstatement of the accounts receivable due to error in recording check collection by the hungry accountant 3. Which of the following items would be deducted from the book balance on a bank reconciliation? A. Outstanding check B. Proceeds from a matured time deposit C. Correction of an understatement of the accounts receivable due to error in recording check collection by the sleepy accountant D. Correction of an overstatement of the accounts receivable due to error in recording check collection by the thirsty accountant 4. Deposits held as compensating balances A. If legally restricted and held against short-term credit may be included as cash. B. Usually do not earn interest. C. If legally restricted and held against long-term credit may be included among current assets. D. None of these. 5. In reconciling the bank balance with the book cash balance, which of the following would NOT cause the bank balance shown in the bank statement to be lower than the unadjusted balance? A. Deposit in transit B. Cash on hand at the company C. Interest credited to the account by the bank D. NSF checks from a customer, as reported on the bank statement 6. Which is NOT a key element of internal control over cash receipts? A. Cash deposit on a regular basis B. Daily entry in a voucher register C. Daily recording of all cash receipts in the accounting records D. Immediate counting by the person opening the mail or using the cash register 7. Bank overdrafts generally should be A. reported as a deduction from the current asset section. B. reported as a deduction from cash. C. netted against cash and a net cash amount reported. D. reported as a current liability. 8. Which of the following is not true? A. The imprest petty cash system in effect adheres to the rule of disbursement by check. B. Entries are made to the Petty Cash account only to increase or decrease the size of the fund or to adjust the balance if not replenished at year-end. C. The Petty Cash account is debited when the fund is replenished. D. All of these are not true. 9. A Cash Over and Short account a. is not generally accepted. b. is debited when the petty cash fund proves out over. c. is debited when the petty cash fund proves out short. d. is a contra account to Cash. 10. When preparing a bank reconciliation, bank debits are a. added to the bank statement balance. b. deducted from the bank statement balance. c. added to the balance per books. d. deducted from the balance per books. 1 4 B. If prices are increasing, the cost of inventory at the end of the accounting period under FIFO method is higher than the weighted average method. C. When units are identical or interchangable, specific identification method may give an opportunity to profit manipulation by selecting the particular units for delivery to customers. D. Ending inventories under LIFO which is no longer acceptable in accounting are reported in terms of most recent cost. PART 2 – PROBLEMS (70 POINTS) CASH AND CASH EQUIVALENTS (24 POINTS) PROBLEM 1: On June 30, 2020, the bank statement of Bacon Company had an ending balance of P 3,735,000. The following data were assembled in the course of reconciling the bank balance: • The bank erroneously credited Bacon Company for P 21,000 on June 22 • During the month, the bank charged back NSF checks amounting to P23,000 of which P 8,000 had been redeposited by June 25 • Collection for June 30 totaling P 103,000 was deposited the following month • Checks-outstanding on June 30 amounted to P302,000 • Note collected by the bank for Bacon Company was P80,000 and the corresponding bank charge was P 5,000 Question No. 1: What is the unadjusted cash in bank per ledger on June 30,2020? Solution: Unadjusted bank balance 3,735,000 Deposit in transit 103,000 Outstanding checks (302,000) Erroneous bank credit (21,000) Notes collected, net (75,000) NSF, net 15,000 Unadjusted book balance/Balance per ledger 3,455,000 PROBLEM 2: Faye Company prepared the following bank reconciliation on June 30: Balance per bank 9,800,000 Deposit in transit 400,000 Outstanding checks (1,400,000) Balance per book 8,800,000 There were total deposits of P6,500,000 and charges for disbursement of P9,000,000 for July per bank statement. All reconciliation items on June 30 cleared the bank on July 31. Checks outstanding amounted to P1,000,000 on July 31. Question No. 2: What is the amount of cash disbursement per book in July? Solution: Disbursements per bank 9,000,000 Less: OC (related to June) (1,400,000) Add: OC (July) 1,000,000 Disbursements per book 8,600,000 PROBLEM 3: Ace company provided the following information on December 31,2020: Petty cash fund 50,000 Current account – First Bank 4,000,000 Current account – Second Bank (250,000) Money market placement – Third Bank 1,000,000 Time deposit – Fourth Bank 2,000,000 • The petty cash fund included unreplenished December 2020 petty cash expense vouchers for P15,000 and an employee check for P5,000 dated January 31,2021 • A check for P100,000 was drawn against First Bank current account dated and recorded December 29, 2020 but delivered to payee on January 15, 2021 5 • The Fourth Bank time deposit is set aside for land acquisition in early January 2021 Question No. 3: What total amount should be reported as cash and cash equivalents on December 31, 2020? Solution: Supporting computation PCF 50,000 – 15,000 – 5,000 30,000 First Bank 4,000,000 + 100,000 4,100,000 Money Market Placement 1,000,000 Total 5,130,000 PROBLEM 4 Oust the Turtle Company had the following account balances on December 31, 2020: Cash in bank A – rank and file payroll account 200,000 Cash in bank B – savings account 123,456 Cash in bank C – checking account 2,500,555 Cash in bank D – savings account 2,000 Cash in bank E – checking account 676,777 Cash in bank F – managerial payroll account 711,711 Cash in bank E is set aside for plant expansion planned to start on January 15, 2021. Cash in bank C was used on February 14, 2021 to buy land. Question No. 4: How much should be reported as cash on December 31, 2020? Solution: Notes: Cash in bank C is not segregated on December 31, 2020, it was just simply used to buy land on February 15, 2021, which was a future date as of December 31, 2020. Therefore, Company had no intention to use ash in bank C to buy noncurrent asset on December 31, 2020. PROBLEM 5 Company A had the following account balances on December 31, 2020: Cash in bank A – rank and file payroll account 200,000 Cash in bank B – savings account 123,456 Cash in bank C – checking account 2,500,555 Cash in bank D – savings account 2,000 Cash in bank E – checking account 676,777 Cash in bank F – managerial payroll account 711,711 • Cash on bank C is set aside for payment of bonds payable, acquired on October 14, 2014, due on December 31, 2021 • Cash in bank E is segregated for purchase of inventories Question No. 5: How much should be reported as cash on December 31, 2020? Cash in bank A – rank and file payroll account 200,000 Cash in bank B – savings account 123,456 Cash in bank C – checking account (Bonds are current) 2,500,555 Cash in bank D – savings account 2,000 Cash in bank E – checking account (Inventories are current) 676,777 Cash in bank F – managerial payroll account 711,711 4,214,499 Cash in bank A – rank and file payroll account 200,000 Cash in bank B – savings account 123,456 Cash in bank C – checking account 2,500,555 Cash in bank D – savings account 2,000 Cash in bank F – managerial payroll account 711,711 Total cash on December 31, 2020 3,537,722 6 PROBLEM 6 Oust the Turtle Company has the following balances on December 31, 2020: Cash on hand 4,500.00 Cash in bank A 33,000.00 Cash in bank X 50,000.00 Cash in bank C 822,999.72 • Cash on hand includes $ 3. Exchange rate on balance sheet date is P50.25: $ 1. • Oust the Turtle Company wrote a check (Cash in bank A) worth ₱ 20,000 dated December 30, 2020 but is still unreleased as of balance sheet date. • Oust the Turtle Company released a check (Cash in bank X) dated January 1, 2021 worth ₱ 55,000 on December 20, 2020. • Oust the Turtle Company wrote a check (Cash in bank C) worth ₱ 2,001.28 dated and released on December 31, 2020. Question No. 6: How much is Oust the Turtle Company’s cash on December 31, 2020? (Use two decimal places for centavos) Solution: PROBLEM 7 On December 31, 2020, Oust the Turtle Corporation had the following: Petty cash fund 200,000 Cash in bank A 123,456 Time deposit acquired on April 1, 2020, maturing on January 1, 2021 2,500,555 Treasury bills maturing on December 31, 2021, acquired on December 31, 2020 2,000 Cash in bank B 676,777 Cash in bank C 711,711 • Cash in bank B is set aside for purchase of vehicles • Cash in bank A is frozen by the court by virtue of a case filed by the Bureau of Internal Revenue Question No. 7 How much should be reported as cash on December 31, 2020? Petty cash fund 200,000 Cash in bank C 711,711 Cash balance, December 31, 2020 911,711 PROBLEM 8 Oust the Turtle Corporation’s petty cash fund, which has an imprest balance of P5,000 showed a composition when counted as follows: Bills 1,000 Coins 40 Vouchers – Transportation 1,200 Vouchers – Gasoline 889 Vouchers – Supplies 1,872 Question No. 8: How much is petty cash fund? Solution: PROBLEM 9 In connection with your audit of Big Brother Corp. for the year ended December 31, 2014, you gathered the following information: Bills 1,000 Coins 40 Overage (Count: P5,001 less Accountability: P5,000) (1) Petty Cash Fund Balance 1,039 Cash on hand 4,500.00 Cash in bank A 33,000 + 20,000 53,000.00 Cash in bank X 50,000 + 55,000 105,000.00 Cash in bank C 822,999.72 Total cash on December 31, 2020 985,499.72 9 Total Accounts Receivable 11,750,000 Allowance for DA, ending, required/adjusted 2,000,000 Allowance for DA, beginning 500,000 Recovery 300,000 Write-off (700,000) Doubtful accounts expense for 2020 (squeeze figure) 1,900,000 Allowance for DA, ending 2,000,000 PROBLEM 14 On December 31,2020, Elisha Company sold a machine in exchange for a noninterest-bearing note requiring ten annual payments of P400,000. The first payment was made on December 31,2020. The market interest rate for similar notes at date of issuance was 8% Period Present value of 1 at 8% Present value of ordinary annuity of 1 at 8% 9 0.50 6.25 10 0.46 6.71 QUESTION NO. 14: On December 31,2020, what amount should be reported as note receivable? Solution: P 400,000 face amount x 6.25 PVF = P 2,500,000 PROBLEM 15 The financial statements of Anne Company included in the following information for 2020: January 1 December 31 Accounts receivable 1,200,000 Allowance for doubtful accounts 60,000 Sales 8,000,000 Cash collected from customers 7,000,000 The cash collections included a recovery of P10,000 from a customer whose account had been written off as worthless in 2019. During 2020, it was necessary to recognized doubtful accounts expense of P100,000 and write off worthless customers’ accounts P30,000. On December 1,2020, a customer settled an account by issuing a 12%, six-month note for P400,000. Question No. 15 What is the net realizable value of accounts receivable on December 31,2020? Solution: PROBLEM 16 On January 1, 2020, Oust the Turtle Company received a non-interest-bearing note for P400,000. The note is payable in two equal installments, with the first payment to be made on December 31, 2021 and the next payment a year after. The effective rate is 10%. Question No. 16 How much is the present value of the note on January 1, 2020? (Round off present value factor and your answer to two decimal places.) Solution: P200,000 (payable after 2 years, 12/31/21) 0.83 x 200,000 166,000 P200,000 (payable after 3 years, 12/31/22) 0.75 x 200,000 150,000 Present Value of Note 316,000 Accounts Receivable 1,200,000 Add: Sales 8,000,000 Less: Collections 7,000,000 Less: Write-off 30,000 Less: Reclassification to Notes TOTAL 400,000 1,770,000 ADA, beginning 60,000 Add: doubtful Accounts expense 100,000 Less: Write-off 30,000 TOTAL 130,000 NRV 1,640,000 10 Interest Income 31,600 PROBLEM 17 On January 1, 2020, Oust the Turtle Company received a non-interest-bearing note for P400,000. The note is payable in two equal installments, with the first payment to be made on December 31, 2021 and the next payment a year after. The effective rate is 10%. Question No. 17 How much is the discount on notes receivable on January 1, 2020? (Round off present value factor and your answer to two decimal places.) Solution: Face of Note 400,000 Present Value of Note (see problem 1) 316,000 PROBLEM 18 On January 1, 2020, Oust The Turtle Company received a non-interest-bearing note for P400,000. The note is payable in two equal installments, with the first payment to be made on December 31, 2021 and the next payment a year after. The effective rate is 10%. Question No. 18 How much is the interest income on December 31, 2020? (Round off present value factor and your answer to two decimal places.) Solution: Carrying Value 316,000 x Effective Rate 10% PROBLEM 19 On June 30, 2020, the entity also discounted a customer’s note with recourse at a bank at a 10% discount rate. The note is dated May 1, 2020 has a term of 90 days, a face value of P 6,000,000 and an interest rate of 9%. The entity accounted for this transaction as a secured borrowing. The customer paid the note to the bank on maturity date Question No. 19 What is the amount of proceeds from discounting the note on June 30, 2020? SOLUTION: Maturity value [P 6,000,000+ (P 6,000,000 x 9% x 3/12)] 6,135,000 Less: Discount 51,125 PROBLEM 20 On December 31, 2019, Jan Company sold used equipment with carrying amount of P 2,000,000 in exchange for a non-interest-bearing note of P 5,000,000 requiring ten annual payments of P 500,000. 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 is 5.65 for ten periods and 5.33 for nine periods. Question No. 20 What is the carrying amount of notes receivable on December 31, 2020? Solution: PROBLEM 21 At the end of its first year of operations, December 31, 2019, Cauayan, Inc. reported the following information: Accounts receivable, net of allowance for doubtful accounts P 9,500,000 Customer accounts written off as uncollectible during 2019 240,000 Bad debts expense for 2019 840,000 Question No. 21 Proceeds 6,083,875 Discount on Notes Receivable 84,000 Carrying amount, 12/31/19 (500,000 x 5.65) 2,825,000 Less: Principal Payment (500,000) Add: Amortization of discount 339,000 Carrying Amount, 12/31/2020 2,664,000 11 What should be the balance in accounts receivable at December 31, 2020, before subtracting the allowance for doubtful accounts? Solution: Bad debt expense for 2019 P 840,000 Customer accounts written off as uncollectible during 2019 (240,000) Allowance for doubtful accounts, 12/31/2019 P 600,000 Accounts receivable, net of allowance for doubtful accounts P 9,500,000 Allowance for doubtful accounts, 12/31/2019 (See above computation) 600,000 Accounts receivable, before deducting allowance for doubtful accounts P 10,100,000 Notes: Year 2019 is the first year of operations, therefore, no beginning balance of Allowance for Doubtful accounts. Allowance for Doubtful Accounts PROBLEM 22 The following accounts were taken from Cervantes Inc.’s balance sheet at December 31, 2019. Debit Credit Accounts receivable P 4,100,000 Allowance for doubtful accounts 100,000 Net credit sales P 7,500,000 Question No. 22 If doubtful accounts are 3% of accounts receivable, determine the bad debt expense to be reported for 2019. Solution: Accounts receivable P 4,100,000 Percentage 3% Bad debt expense, before adjustment P 123,000 Allowance for doubtful accounts (debit balance) 100,000 PROBLEM 23 Tender Company accepted from a customer a P 4,000,000, 90-day, 12% note dated August 31, 2019. On September 30, 2019, the entity discounted without recourse the note at 15%. However, the proceeds were not received until October 1, 2019. Question No. 23 What amount was received from the note receivable discounting? SOLUTION: Face of notes receivable 4,000,000 Interest Income at maturity (P 4,000,000 x 12% x 90/360) 120,000 Maturity Value 4,120,000 Discount (P 4,120,000 x 15% x 60/360) (103,000) Amount of cash received from the bank 4,017,000 Question No. 24: What amount should be reported as loss on note receivable discounting? SOLUTION: Net Proceeds 4,017,000 Carrying amount: Principal 4,000,000 Accrued Interest Receivable (P 4,000,000 x 12% x 40,000 (4,040,000) 1/12) Alternative solution – by Journal Entry: Debit Credit Accounts written off in 2019 (Uncollectible accounts) 0 January 1 balance, unadjusted 240,000 840,000 Bad debts expense in 2019 (given) 600,000 December 31, 2019 balance Bad debt expense for 2019 P 223,000 Loss on Notes Receivable Discounting (23,000) 14 Items ordered and in the receiving department, invoice not received 400,000 400,000 Buyer. Already received by the receiving department Items ordered, invoice received but goods not received. Burden of freight is on the buyer. 300,000 300,000 Buyer. Term is FOB Shipping Point; still in transit (not yet received) Items shipped today, invoice mailed, FOB shipping point 250,000 - Seller. Already shipped. Title to goods is already with the buyer Items shipped today, invoice mailed, FOB Seller. Title to goods is still with destination 150,000 150,000 the seller. Items currently held on consignment. Included in the count. Items out on consignment. 200,000 800,000 (200,000) 800,000 Assumed counted in bodega. Items in receiving department, refused by us Buyer. Refused to accept upon because of damage 180,000 - delivery. (returns) Items included in count, damaged. Net realizable value is P45,000 Items sold and in the shipping department. Term 50,000 250,000 (5,000) 250,000 Damaged and should be recorded at lower of cost and NRV. Assumed to be included among the items counted in the bodega. It is the shipping department and is FOB Shipping Point. not at the shipping point of the seaport. Correct amount of inventory 5,645,000 PROBLEM 30 Synzer Company has incurred the following costs in connection with its purchase price of inventory: Purchase price based on vendor’s invoices 1,250,000 Trade discounts on purchases already deducted from vendors’ invoices 125,000 Salaries of accounting department 150,000 Brokerage commission paid to agents for arranging imports 50,000 Sales commission paid to sales agents 75,000 After-sales warranty costs 62,500 Import duties 100,000 Freight and insurances on purchases 250,000 Other handling costs relating to imports 25,000 Question No. 31 What is the total cost of the purchases? SOLUTION: Items Given Purchase Cost Explanation Purchase price based on vendor’s invoices 1,250,000 Trade discounts on purchases already deducted from vendors’ invoices 125,000 1,250,000 - Already deducted Salaries of accounting department 150,000 Brokerage commission paid to agents for arranging imports 50,000 Sales commission paid to sales agents 75,000 - 50,000 - Administrative cost Selling expense After-sales warranty costs 62,500 - Selling expense Import duties 100,000 100,000 Freight and insurances on purchases 250,000 250,000 Other handling costs relating to imports 25,000 25,000 TOTAL COST OF PURCHASES 1,675,000 PROBLEM 31 Xylen Company purchased inventory for cash. The details thereof were as follows: Invoice price (no VAT is charged on these goods) 850,000 Rebate offered to the entity by the supplier 10,000 Question No. 32 Assuming the terms of the agreement made it clear that the rebate was a reduction to the invoice price of the inventory, what is the total amount of inventoriable cost? SOLUTION: Inventoriable cost = P 850,000 invoice price – P 10,000 rebates = P 840,000 15 PROBLEM 32 On September 30, a fire at Elusive Company’s only warehouse caused a severe damaged to the entire inventory. Based on recent history, the entity has a gross profit of 30% on cost of goods sold. A physical inventory disclosed usable damaged goods which can be sold to a jobber for P 100,000. The following information is available from the records for nine months ended September 30: Inventory, January 1 1,100,000 Purchases 6,000,000 Net Sales 7,280,000 Question No. 33 What is the estimated amount of fire loss? SOLUTION: PROBLEM 33 Oust The Turtle Company’s inventory at December 31, 2020 was P 360,000 based on a physical count of goods priced at cost and before any necessary year-end adjustment relating to the following: • Goods shipped FOB destination on December 28, 2020 from a vendor to Oust The Turtle was received on January 1, 2021. The invoice cost was P 48,000. • Included in the physical count were goods billed to a customer FOB shipping point on June 30, 2020. These goods costing P 18,000 were picked up by the carrier on January 9, 2021. What amount should Oust The Turtle report as inventory in its December 31, 2020 statement of financial position? Question No. 34 P360,000. The first item was correctly excluded since the ownership only passes to Oust The Turtle on January 1, 2021. The second item was still reportable by Oust The Turtle since the goods’ ownership only passed to the customer when it was shipped on January 9, 2021. PROBLEM 34 Jailbird Company provided the following data about the inventory for the month of January: Units Unit Cost Total Cost January 1 Beginning 16,000 140 2,240,000 5 Purchase 4,000 150 600,000 10 Sales 15,000 15 Purchase 20,000 160 3,200,000 16 Purchase return 1,000 160 160,000 25 Sales 8,000 26 Sale return 4,000 31 Purchase 30,000 150 4,500,000 Question No. 35 What is the moving average cost of the inventory on January 31? Solution: Units Unit Cost Total Cost January 1 Beginning 16,000 140.00 2,240,000 5 Purchase 4,000 150 600,000 20,000 142.00 2,840000 10 Sales 15,000 5,000 142.00 710,000 15 Purchase 20,000 160 3,200,000 25,000 156.40 3,910,000 Inventory, January 1 1,100,000 Add: Purchases 6,000,000 Cost of goods available for sales Less: Cost of Sales Net Sales 7,100,000 7,280,000 Divide by sales rate (based on cost) 130% 5,600,000 Estimated inventory at date of fire, 9/30 1,500,000 Less: Usable damaged goods that are salable 100,000 FIRE LOSS, 9/30 1,400,000 16 16 Purchase return 1,000 160 160,000 24,000 156.25 3,750,000 25 Sales 8,000 16,000 156.25 2,500,000 26 Sale return 4,000 20,000 156.25 3,125,000 31 Purchase 30,000 150 4,500,000 50,000 152.50 7,625,000