Name Course

Section

Answer sheets are at the last page.

Problem 1: The cost of goods sold section of the income statement prepared by your client for the year ended
December 31 appears as follows:

Inventory, January
1 80,000
Purchases 1,600,000
Cost of goods available for
sale 1,680,000
Inventory, December 31 100,000
Cost of goods sold 1,580,000

Although the books have been closed, your working paper trial balance is prepared showing all accounts with activity
during the year. This is the first time your firm has made an examination. The January 1 and December 31, inventories
appearing above were determined by physical count of the goods on hand on those dates and no reconciling items
were considered. All purchases are FOB shipping point.

In the course of your examination of the inventory cutoff, both at the beginning and end of the year,

you discovered the following facts:

Beginning of the Year

a) Invoices totaling 25,000 were entered in the voucher register in January, but the goods were receiving
during December.
b) December invoices totalling 13,200 were entered in the voucher register in December, but the goods were
not received until January.

End of the Year

a) Sales of 43,000 (cost of 12,900) were made on account on December 31 and the goods delivered at the
time, but all entries relating to the sales were made on January 2.
b) Invoices totaling 15,000 were entered in the voucher register in January, but the goods were received in
December
c) December invoices totaling 18,000 were entered in the voucher register in December, but the goods were
received in Januarr, but the invoices were dated December.
d) Invoices totaling 12,000 were entered in the voucher register in January, and the goods were received in
January, but the invoices were dated December.

1. What working paper adjustment should be made at the end of the current year for item no. 1?

a. Purchases 25,000
Retained earnings 25,000
b. Retained earnings 25,000
Purchases 25,000
 c. Inventory, beginning 25,000
Purchases 25,000
d. No adjusting entry is necessary.

2. The working paper adjustment to correct the error described in item no. 3 should include a debit to
a. Accounts receivable of 43,000 c. Inventory of 12,900
b. Sales of 43,000 d. Retained earnings of 30,100
3. The company's statement of financial position as of the end of the current year should show inventory of:
a. 130,000 b. 100.000 c. 93,200 d. 117,100
4. What is the net adjustment to purchases of the current year?
a. 27,000 increase b. 25,000 decrease c. 2,000 increase d. 2,000 decrease
5. The cost of goods sold for the current year is
a. 1,561,200 b. 1,553,200 c. 1,580,000 d. 1,565,200

Solution:

1. Retained
earnings 25,000
Purchases 25,000
Answer B

2. Accounts receivable 43,000

Sales 43,000
Answer A

3. Inventory per client-prepared income statement 100,000

Add: Item no. 5 18,000
Item no. 6 12,000 30,000
Adjusted inventory, December
31 130,000
Answer A

4. Net adjustment to purchases - increase 2,000

Answer C
 5. Inventory, Jan. 1 (80,000 + 13,200) 93,200
Add: Purchases (1,600,000 + 2,000) 1,602,000
Cost of goods available for sale 1,695,200
Less: Inventory, Dec. 31 (100,000 +
30,000) 130,000
Cost of goods sold 1,565,200
Answer D

Problem 2: On April 15, 2024, fire damaged the office and warehouse of Gabi Company. The trial balance below was
prepared from the general ledger which was the only accounting record saved.

Gabi Company
Trial Balance
March 31, 2024
DR CR
Cash 35,000
Held-for-trading-securities 350,000
Accounts receivable 120,000
Inventory, December 31, 2023 225,000
Land 950,000
Building 800,000
Accumulated depreciation - Building 260,000
Machinery and equipment 130,500
Accumulated depreciation - Machinery and equipment 69,400
Other noncurrent assets 98,000
Accounts payable 71,100
Other expense accruals 15,400
Ordinary share capital 1,220,600
Retained earnings 849,000
Sales 405,000
Purchases 156,000
Other operating expenses 26,000
2,890,500 2,890,500
The following additional information has been obtained:

• The Company's year-end is December 31

• An examination of the April bank statement and canceled checks revealed the following:
o Checks written, April 1 – 15 39,000
(P17,100 paid to accounts payable as of March 31, P10,200
for April merchandise shipments, and P11,700 paid for
other operating expenses)
o Deposits, April 1 – 15 38,850
(consisted of collections from customers with the exception
of a P2,850 refund from a supplier for goods returned in April)
 • Communication with suppliers disclosed unrecorded payables at April 15 of P31,800 for April merchandise
shipments, including P6,900 for goods in transit (FOB Shipping point) on that date.
• Customer acknowledged indebtedness of P108,000 (including P1,800 that will probably be uncollectible). It was
also estimate that customers owed another P24,000 that will never be acknowledged or recovered.
• The insurance company agreed that the fire-loss claim should be based on the assumption that the overall
gross profit ratio for the past 2 years was in effect during the current year. The company's audited financial
statements disclosed the following information:

Dec. 31, 2023 Dec. 31, 2022

Net sales 1,590,000 1,170,000
Net purchases 840,000 705,000
Beginning inventory 150,000 225,600
Ending inventory 225,000 150,000
• Inventory costing 21,000 was salvaged and sold for 10,500. The balance of the inventory was a total loss.
6. Gross profit ratio
a. 52% b. 33% c. 44% d. 47%
7. Sales, January 1, 2024 - April 15, 2024
a. 429,000 b. 381,000 c. 405,000 d. 453,000
8. Net purchases, January 1, 2024 - April 15, 2024
a. 195,150 b. 198,000 c. 188,250 d. 204,900
9. Cost of inventory not destroyed by fire
a. 27,900 b. 17,400 c. 10,500 d. 21,000
10. Inventory fire loss
a. 175,950 b. 165,450 c. 138,570 d. 149,070

SOLUTION
1. Gross Profit
Ratio
Net sales (1,590,000 / 1,170,000) 2,760,000
Cost of goods sold:
Inventory, Jan. 1, 2022 225,600
Add: Net purchases
(840,000 +
705,000) 1,545,000
Goods available for sale 1,770,600
Less: Inventory, Dec. 31, 2023 225,000 1,545,600
Gross profit 1,214,400

Gross profit ratio (1,214,400 / 2,760,000) 44%

Answer C

2. Sales, January 1, 2024 - April 15, 2024

Accounts Receivable
Balance, Mar. 31 120,000 36,000 Collections
Sales (SQUEEZE) 48,000 (38,850-2,850)
 Balance, April 15 132,000 *

* 108,000 + 24,000 = 132,000

Sales, January 1 - March 31 (per trial balance) 405,500

Sales, April 1 - April 15 48,000
Total sales, January 1 - April
15 453,500
Answer D

3. Net purchases, January 1, 2024 - April 15, 2024

Purchases, Jan. 1 - Mar. 31, 2024 (per trial balance) 156,000
April merchandise shipments paid 10,200
Unrecorded purchases on account 31,800

Purchase return (2,850)

Net purchases, Jan. 1 - April 15, 2024 195,150

4. Cost of inventory not destroyed by fire 21,000

Salvaged inventory 6,900
Goods in transit, purchased FOB shipping point 27,900
Total
Answer A

5. Inventory fire
loss
Inventory, Jan. 1, 2024 225,000
Add: Net purchases (see no.
3) 195,150
Goods available for sale 420,150
Less: Estimated cost of goods sold
(453,000 x 56%) 253,680
Estimated
inventory 166,470
Less: Salvaged inventory 10,500
Merchandise in transit 6,900 17,400
Inventory fire loss 149,070
Answer D

Problem3: The following long-tern receivables were reported in the December 31, 2023 Mana Corporation:

Notes receivable from sale of plant 3,000,000

Notes receivable from officer 800,000

The following transactions during 2024 and other information relate to the company’s long-term receivables:
 • The note receivable from sale of plant bears interest at 12% per annum. The note is payable in 3 annual
installments of P1,000,000 plus interest on the unpaid balance every April 1. The initial principal and interest
payment was made on April 1, 2024.
• The note receivable from officer is dated December 31, 2023, earns interest at 10% per annum, and is due on
December 31, 2026. The 2024 interest was received on December 31, 2024.
• Mana sold a piece of equipment to Bana Inc. on April 1, 2024, in exchange for a P400,000, non-interest bearing
note due on April 1, 2026. The note had no ready market, and there was no establish exchange price for the
equipment. The prevailing interest rate for a note of this type at April 1, 2024 was 12%. The present value factor
of 1 for two periods at 12% is 0.797
• A tract of land was sold by Mana to Cana Co. on July 1, 2024 for P2,000,000 under an installment sale contract.
Cana signed a 4-year 11% note for P1,400,000 on July 1, 2024, in addition to the down payment of P600,000.
The equal annual payments of principal and interest on the note will be P451,250 payable on July 1, 2025,
2026, 2027 and 2028. The land had an established cash price of P2,000,000, and its cost to Mana was
P1,500,000. The collection of installments on this note is reasonably assured.
11. The amount to be reported as noncurrent receivable in the statement of financial position at December 31, 2024
is
a. 3,096,242 b. 3,067,550 c. 3,221,550 d. 3,250,242
12. The current portion of notes receivable on December 31, 2024
a. 1,451,250 b. 1,297,250 c. 2,097,250 d. 2,297,250
13. The accrued interest receivable on December 31, 2024 should be
a. 257,000 b. 180,000 c. 285,692 d. 334,000
14. On December 31, 2024, the unamortized discount on note receivable from sale of equipment should be:
a. 42,944 b. 109,892 c. 0 d. 52,508
15. The total interest income for the year ended December 31, 2024 should be
a. 427,000 b. 455,692 c. 375,692 d. 532,692

SOLUTION
11. NONCURRENT RECEIVABLES (NET OF CURRENT PORTION)
Note receivable from sale of plant:
Balance, 12/31/24
(P3,000,000-P1,000,000) P2,000,000
Less: Installment due April 1,2025 1,000,000 P1,000,000

Note receivable from officer due Dec 31, 2026 800,000

Note receivable from sale of equipment:

Present value of note on April 1,2024
(P400,000x0.797) P318,800
Add: Interest income,
April 1 - Dec 31, 2024
(P318,800x12%9/12) 28,692 347,492

Note receivable from sale of land:

Balance, Dec 31,2024 P1,400,000
Less: Installment due July 1,2025:
Total amount to be
received P451,250
Less: Interest
(P1,400,000x11%) 154,000 297,250 1,102,750
Total P3,250,242
Answer: D

12. CURRENT PORTION OF NONCURRENT RECEIVABLES

Note receivable from sale of plant P1,000,000

Note receivable from sale of land (see no.1) 297,250
Total P1,297,250
Answer: B

13. ACCRUED INTEREST RECEIVABLE, DEC 31, 2024

Note receivable from sale of plant, April 1 - Dec 31
(P2,000,000x12%x9/12) P180,000
Note receivable from sale of land, July 1 - Dec 31
(P1,400,000x11%x6/12) 77,000
Total P257,000
Answer: A

14. UNAMORTIZED DISCOUNT, DEC 31, 2024

Unamortized discount, April 1, 2014
(P400,000 - P318,800) P81,200
Less:Amortization, April 1 - Dec 31 (see no.1) 28,692
Total P52,508
 Answer: D

15. INTEREST INCOME FOR THE YEAR ENDED DEC. 31, 2024
Note receibale from sale of plant:
Interest income, Jan 1 - Mar. 31
(P3,000,000 x 12% x 3/12) P 90,000
Interest income, April 1 - Dec. 31
(P2,000,000 x 12% x 9/12) 180,000 P270,000
Note receivable from officer (P800,000x10%) 80,000
Note receivable from sale of equipment (see no.1) 28,692
Note receivable from sale of land (see no. 3) 77,000
Total P455,692

Problem 4: You are examining the records of ORLANDO COMPANY where internal control is found to be weak. Part of
your work includes reconciliation of cash for December 2022. You have determined that the client’s cash reconciliation
as of November 30, 2022, is correct. The following information is available to you:
Cash on hand on December 31 amounted to P20,000. The transactions per the December bank statement, which are
correctly recorded by the bank, show that deposits amounted to P12,574,184; checks paid amounted to P11,590,406;
service charge for the month was P2,000; Cash on hand on December 31 amounted to P20,000. The transactions per
the December bank statement, which are correctly recorded by the bank, show that deposits amounted to P12,574,184;
checks paid amounted to P11,590,406; service charge for the month was P2,000; and a charge of P20,000 was made
against the account because of the return unpaid of customer’s check. The service charge and the returned check were
not recorded on the client’s books. The total of outstanding checks as of December 31 was found to be P822,100.

16. The cash shortage as of December 31 is?

a. 218,200 b. 0 c. 201,800 d. 221,800
17. The adjusted book balance on November 30 is?
a. 1,283,848 b. 524,548 c. 1,062,048 d. 840,248
18. The adjusted bank receipts and disbursements for December are
a. Receipts: 12,552,006; Disbursements 12,236,306
b. Receipts: 12,753,806; Disbursements 12,216,306
c. Receipts: 12,552,006; Disbursements 12,214,306
 d. Receipts: 12,753,806; Disbursements 11,590,406

Solution

ORLANDO CO.

Nov 30 Receipts Disbursement Dec 31

Unadjusted bank balances 680,570 12,574,184 11,612,406 1,642,348
Undeposited collections:
Nov. 30 42,178 (42,178) -
Dec. 31 20,000 20,000
Oustanding checks:
Nov. 30 (198,200) (198,200) -
Dec. 31 822,100 (822,100)
Adjusted bank balances 524,548 12,552,006 12,236,306 840,248
17. B 18. A

Nov 30 Receipts Disbursement Dec 31

Unadjusted book balances 526,348 12,533,806 12,197,906 862,248

Bank service charges: -

Nov. 30 (1,800) (1,800) -

Dec. 31 2,000 (2,000)

Returned NSF check 20,000 (20,000)

Understatement of Dec receipts 220,000 220,000

overstatement of Dec disbursement (1,800) 1,800

Corrected bank balances 524,548 12,753,806 12,216,306 1,062,048

Adjusted bank balances 524,548 12,552,006 12,236,306 840,248

- 201,800 (20,000) 221,800

16. D

Book receipts = 13,060,154-526,348 12,533,806

Understatement of receipts = 12,753,806-12,533,806 220,000

 Book disbursements = 13,060,154 - 862,248 12,197,906
Overstatement of disbusements = 12,197,906 -
12,196,106 1,800

Problem 5: You are conducting an audit of the TRALALA COMPANY for the year ended December 31, 2022. The
company’s internal control procedures over cash transactions were not adequate. Elma Noknok, the bookkeeper-
cashier, handles cash receipts, maintains accounting records, and prepares the monthly reconciliations of the bank
account.

In the process of your audit, you gathered the following information:

o At December 31, 2022, the bank statement and the general ledger showed balances of P1,050,000 and
P880,500, respectively.
o The cut-off bank statement showed a bank charge on January 2, 2023 for P90,000 representing a correction of
an erroneous bank credit.
o Included in the list of the outstanding checks were the following:
▪ A check payable to a supplier, dated December 30, 2022, in the amount of P44,250, released on January 4,
2023.
▪ A check representing advance payment to a supplier in the amount of P111,630, the date of which is
January 3, 2023, and released in December 2022.
▪ On December 31, 2022, the company received and recorded a customer’s postdated check in the amount
of P150,000.
19. The adjusted cash to be shown in the statement of financial position as at December 31, 2022:
a. 931,380 b. 796,380 c. 751,380 d. 706,380
 20. The cash shortage as at December 31, 2022:
a. 180,000 b. 135,000 c. 174,120 d. 24,120

Problem 6: YOKOHANA BANK loaned P5,500,000 to Bargain Company on Jan 1, 2023. The initial loan repayment
terms include a 10% interest rate plus annual principal payments of P1,100,000 on January 1 each year. Bargain made
the required interest payment in 2023 but did not make the P1,100,000 principal payment nor the P550,000 interest
payment for 2024. Yokohana is preparing its annual financial statements on Dec 31, 2024. Bargain is having financial
difficulty, and Yokohana has concluded that the loan is impaired.

Analysis of Bargain's financial condition on Dec 31,2024, indicates the principal payments will be colected, but the
collection of interest is unlikely. Yokohana did not accrue the interest on Dec 31, 2024.

The projected cash flows are:

Dec 31, 2025 P1,750,000

Dec 31, 2026 2,000,000
Dec 31, 2027 1,750,000
P5,500,000
21. What is the loan impairment loss on Dec 31, 2024?
a. 941,500 b. 550,000 c. 0 d. 5,500,000
22. What is the interest income to be reported by Yokohana Bank in 2024?
a. 501,435 b. 326,435 c. 445,850 d. 550,000
23. What is the carrying value of the loan receivable on Dec 31, 2025?
a. 1,590,785 b. 1,750,000 c. 3,264,350 d. 4,558,500
24. What is the interest income in 2026?
a. 159,079 b. 550,000 c. 326,435 d. 455,850
25. What is the interest income in 2027?
a. 159,079 d. 55,000 c. 326,435 d. 455,850

SOLUTION

21. Book value of loan receivable 5,500,000

Present value of projected cash flows:
 Dec. 31, 2025 (P1,750,000x0.9091) P1,590,925
Dec. 31,2026 (P2,000,000x0.8264) 1,652,800
Dec. 31,2027 (P1,750,000x0.7513) 1,314,775 4,558,500
Loan impairment loss 941,500

Computation of interest income from loan impairment:

Loan
Receivable Allowance
Before current for loan Net loan Interest Payment
Date Payment Impairment receivable Income Received
12/31/25 5,500,00 941,500 4,558,500 455,850 1,750,000
12/31/26 3,750,00 485,650 3,264,350 326,435 2,000,00
12/31/27 1,750,00 159,215 1,590,785 159,079 1,750,000

22. Interest income in 2024 455,850

Answer: C

23. Loan receivable (P5,500,000-P1,750,000-P2,000,000)

Allowance for loan
impairment 1,750,000
Carrying value, Dec 31, 2025 159,215
1,590,785
Answer: A

24. Interest income in 2026 326,435

Answer: D

25. Interest income in 2027 159,079

Answer: A

Problem 7: The following accounts were extracted from the unadjusted trial balance of YOGURT CORPORATION as of
December 31, 2022:

Cash P 963,200
Accounts Receivables 2,254,000
Merchandise Inventory 6,050,000
Accounts Payable 4,201,000
Accrued Expenses 60,400

During your audit, you discovered that the client held its cash records open even after end.
Audit notes:

a. Collections for January 2023 of P654,600 were recorded in the December 2022 cash records. The receipts of
P360,100 represents cash sales with the balance representing collections from customers who paid within the
5% cash discount period.
 b. Accounts payable of P372,400 was paid in January 2023. The payments on which a P12,400 cash discount has
been taken were included in the December 31, 2022 check register.
c. Merchandise inventory as stated in the trial balance represented the result of the count conducted on
December 30, 2022 on inventories on hand. The following information were found to be relevant in your audit of
inventories:
a. Goods valued at P275,000 are on consignment with a customer and were not included in the physical
count.
b. Goods costing P217,500 were received from a vendor on January 4, 2023. The related invoice was
received and recorded on January 6, 2023. These goods were shipped by the vendor on December 31,
2022 under FOB shipping point terms.
c. Goods costing P637,500 were shipped on December 31, 2022, and were received by the customer on
January 2, 2023. The terms of the invoice were FOB shipping point. The sales of P815,000 has been
recorded in 2022.
d. A shipment of goods invoiced at P182,000 to a customer on December 29, terms FOB destination was
recorded in 2023. The cost of the related goods amounted to P130,000 and were received by the
customer on January 4, 2023.
e. The invoice for goods costing P175,000 was received and recorded as purchase on December 31,
2022. The related goods, shipped FOB Destination, were received on January 4, 2023.
f. Goods valued at P612,800 are on consignment from a vendor. These goods were excluded from the
physical count.

Based on the result of your audit, determine the following:

26. Adjusted Cash, ending

a. 963,200 b. 693,400 c. 681,000 d. 668,600
27. Adjusted Accounts Receivable, ending
a. 2,254,000 b. 2,564,000 c. 2,548,500 d. 2,908,600
28. Adjusted Inventory, ending
a. 5,010,000 b. 5,860,000 c. 6,035,000 d. 6,080,000
29. Adjusted Accounts Payable, ending
a. 4,243,500 b. 4,398,400 c. 4,615,900 d. 4,790,900
30. Net adjustment to Cost of Sales
a. Debit by 57,500 c. debit by 232,500
b. Credit by 580,000 d. credit by 555,300

Answers
1 11 21

2 12 22

3 13 23

4 14 24

5 15 25

6 16 26

7 17 27

8 18 28

9 19 29

10 20 30