FUNDAMENTALS OF ACCOUNTING II COMPREHENSIVE REVIEW 2.

0
RIAN SOLIMAN
Multiple Choice (THEORY AND PRACTICAL PROBLEM)

____ 1. Financial accounting is the area of accounting that emphasizes reporting to

a. management.
b. regulatory bodies.
c. internal auditors.
d. creditors and investors.
____ 2. Which of the following is an internal user of a company's financial information?
a. Board of directors.
b. Stockholders in the company.
c. Holders of the company's bonds.
d. Creditors with long-term contracts with the company.
____ 3. Generally accepted accounting principles
a. are accounting adaptations based on the laws of economic science.
b. derive their credibility and authority from legal rulings and court precedents.
c. derive their credibility and authority from the national government through the financial
reporting section of the SEC.
d. derive their credibility and authority from general recognition and acceptance by the
accounting profession.
____ 4. Which of the following is not among the first five steps in the accounting cycle?
a. Record transactions in journals.
b. Record closing entries.
c. Adjust the general ledger accounts.
d. Post entries to general ledger accounts.
____ 5. Which of the following errors will be detected when a trial balance is properly prepared?
a. An amount that was entered in the wrong account
b. A transaction that was entered twice
c. A transaction that had been omitted
d. None of the above
____ 6. If an inventory account is understated at year end, the effect will be to
a. overstate the net purchases.
b. overstate the gross profit.
c. overstate the cost of goods available for sale.
d. overstate the cost of goods sold.
____ 7. On March 1, 2012, Frosties Co. borrowed cash and signed a 36-month, interest-bearing note on which both
the principal and interest are payable on February 28, 2015. At December 31, 2014, the liability for accrued
interest should be
a. 10 months' interest.
b. 22 months' interest.
c. 34 months' interest.
d. 36 months' interest.
____ 8. The allowance for doubtful accounts is an example of a(n)
a. expense account.
b. contra account.
c. adjunct account.
d. control account.
____ 9. Coco Company uses a periodic inventory system. Coco purchased cattle from Ranch Inc. at a cost of P27,000
on credit. The entry to record the receipt of the cattle would be
a. Purchases ........................... 27,000

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Accounts Payable .................. 27,000
b. Inventory ........................... 27,000
Accounts Payable .................. 27,000
c. Purchases ........................... 27,000
Cash .............................. 27,000
d. Inventory ........................... 27,000
Cash .............................. 27,000
____ 10. Failure to record depreciation expense at the end of an accounting period results in
a. understated income.
b. understated assets.
c. overstated expenses.
d. overstated assets.
____ 11. On December 31 of the current year, Kellogg Company's bookkeeper made an entry debiting Supplies
Expense and crediting Supplies on Hand for P12,600. The Supplies on Hand account had a P15,300 debit
balance on January 1. The December 31 balance sheet showed Supplies on Hand of P11,400. Only one
purchase of supplies was made during the month, on account. The entry for that purchase was
a. debit Supplies on Hand, P8,700 and credit Cash, P8,700.
b. debit Supplies Expense, P8,700 and credit Accounts Payable, P8,700.
c. debit Supplies on Hand, P8,700 and credit Accounts Payable, P8,700.
d. debit Supplies on Hand, P16,500 and credit Accounts Payable, P16,500.
____ 12. Corn Company paid P24,900 in insurance premiums during 2013. Corn showed P3,600 in prepaid insurance
on its December 31, 2013, balance sheet and P4,500 on December 31, 2012. The insurance expense on the
income statement for 2013 was
a. P16,800.
b. P24,000.
c. P25,800.
d. P33,000.
____ 13. Flakes Company sells service contracts for personal computers. The service contracts are for a one-year, two-
year, or three-year period. All sales are for cash and all receipts are credited to Unearned Service Contract
Revenues. This account had a balance of P144,000 at December 31, 2012, before year-end adjustment.
Service contract costs are charged as incurred to the Service Contract Expense account, which had a balance
of P36,000 at December 31, 2012. Service contracts still outstanding at December 31, 2012, expire as
follows:

During 2013 .................... P30,000

During 2014 .................... 45,000
During 2015 .................... 20,000

What amount should be reported as unearned service contract revenues in Flakes December 31, 2012, balance
sheet?
a. P49,000
b. P59,000
c. P95,000
d. P108,000
____ 14. The basic financial statements are listed below:

(1) Balance sheet

(2) Statement of retained earnings
(3) Income statement
(4) Statement of cash flows

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In which of the following sequences does the accountant ordinarily prepare the statements?
a. 1, 4, 3, 2.
b. 2, 1, 3, 4.
c. 3, 2, 1, 4.
d. 3, 2, 4, 1.
____ 15. Which of the following accounts would not appear on a post-closing trial balance?
a. Retained Earnings
b. Accumulated Depreciation
c. Depreciation Expense
d. Allowance for Doubtful Accounts
____ 16. Which of the following is consistent with the cash-basis of accounting?
a. Recording a liability for a lawsuit the company is expected to lose
b. Recording bad debt expense when an account proves uncollectible
c. Recording salaries payable at the end of an accounting period
d. Recording revenue when earned
____ 17. For a given year, beginning and ending total liabilities were P18,000 and P20,400, respectively. At year-end,
owners’ equity was P40,200 and total assets were P4,000 larger than at the beginning of the year. If additional
investment by the owner exceeded withdrawals by P4,800, net income (loss) for the year was apparently
a. (P3,200)
b. (P4,000)
c. P800
d. P3,200
____ 18. At the beginning of the fiscal year, office supplies inventory amounted to P600. During the year, office
supplies amounting to P8,800 were purchased. This amount was debited to office supplies expense. An
inventory of office supplies at the end of the fiscal year showed P400 of supplies remaining. The beginning of
the year balance is still reflected in the office supplies inventory account. What is the required amount of the
adjustment to the office supplies expense account?
a. P9,000 debit
b. P200 debit
c. P8,400 credit
d. P8,800 credit
____ 19. Frosties Corporation shows the following balances:

Beginning of Year End of Year

Inventory P80,000 P72,500
Accounts Payable 40,000 30,000

Frosties paid suppliers P100,000 during the year. What is Frosties’s cost of goods sold for the year?
a. P97,500
b. P107,500
c. P102,500
d. P92,500
____ 20. At the end of the current fiscal year, an analysis of the payroll records of Honey Star Company showed
accrued salaries of P22,200. The Accrued Salaries Payable account had a balance of P32,000 at the end of the
current fiscal year, which was unchanged from its balance at the end of the prior fiscal year. The books of the
company have not yet been closed. The entry needed in this situation would include:
a. a debit to Capital of P9,800.
b. a credit to Capital of P9,800.
c. a debit to Accrued Salaries payable of P9,800.
d. a debit to Salaries Expense of P9,800.
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____ 21. Which one of the following statements is incorrect?

a. The accounting function should be separated from the custodianship of a company's
assets.
b. Certain clerical personnel in a company should be rotated among various jobs.
c. The responsibility of receiving merchandise and paying for it usually should be given to
one person.
d. A company's personnel should be given well-defined responsibilities.
____ 22. A discount given to a customer for purchasing a large volume of merchandise is typically referred to as a
a. quantity discount.
b. cash discount.
c. trade discount.
d. size discount.
____ 23. When a specific customer's account is written off by a company using the allowance method, the effect on net
income and the net realizable value of the accounts receivable is

Net Realizable Value

Net Income of Accounts Receivable
a. None None
b. Decrease Decrease
c. Increase Increase
d. Decrease None
____ 24. Bank statements provide information about all of the following except
a. checks cleared during the period.
b. NSF checks.
c. bank charges for the period.
d. errors made by the company.
____ 25. In preparing a monthly bank reconciliation, which of the following items would be added to the balance
reported on the bank statement to arrive at the correct cash balance?
a. Outstanding checks
b. Bank service charge
c. Deposits in transit
d. A customer's note collected by the bank on behalf of the depositor
____ 26. Bank reconciliations are normally prepared on a monthly basis to identify adjustments needed in the
depositor's records and to identify bank errors. Adjustments should be recorded for
a. bank errors, outstanding checks, and deposits in transit.
b. all items except bank errors, outstanding checks, and deposits in transit.
c. book errors, bank errors, deposits in transit, and outstanding checks.
d. outstanding checks and deposits in transit.

First Company sold merchandise on credit to Second Company for P1,000 on July 1, with terms of 2/10, net
/30. On July 6, Second returned P200 worth of merchandise claiming the materials were defective. On July 8,
First received a payment from Second and credited Accounts Receivable for P450. On July 24, Second
Company paid the remaining balance on its account.

____ 27. See First Company information above. How much was the total Sales Discounts given to Second during July?
a. P0
b. P9
c. P441
d. P2,441

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____ 28. An analysis and aging of accounts receivable of the Juicy Company at December 31, 2013, showed the
following:

Accounts Receivable .................................. P840,000

Allowance for Doubtful Accounts
(before adjustment) ................................ 36,000 (cr)
Accounts estimated to be uncollectible ............... 76,800

Compute the net realizable value of the accounts receivable of Juicy Company at December 31, 2013.
a. P804,000
b. P799,200
c. P763,200
d. P727,200

Quaker Company uses the allowance method of accounting for bad debts. The following summary schedule
was prepared from an aging of accounts receivable outstanding on December 31 of the current year.

No. of Days Probability

Outstanding Amount of Collection
0-30 days P500,000 .98
31-60 days 200,000 .90
Over 60 days 100,000 .80

The following additional information is available for the current year:

Net credit sales for the year .................. P4,000,000

Allowance for Doubtful Accounts:
Balance, January 1 ............................. 45,000 (cr)
Balance before adjustment, December 31 ......... 2,000 (dr)

____ 29. See Quaker Company information above. If Quaker bases its estimate of bad debts on the aging of accounts
receivable, doubtful accounts expense for the current year ending December 31 is
a. P47,000.
b. P48,000.
c. P50,000.
d. P52,000.
____ 30. Oats, Inc. reported the following balances (after adjustment) at the end of 2013 and 2012.

12/31/2013 12/31/2012
Total accounts receivable ................. P105,000 P96,000
Net accounts receivable ................... 102,000 94,500

During 2013, Oats wrote off customer accounts totaling P3,200 and collected P800 on accounts written off in
previous years. Oat's doubtful accounts expense for the year ending December 31, 2013 is
a. P1,500.
b. P2,400.
c. P3,000.
d. P3,900.
____ 31. Cereals Company had the following transactions in its first year of operations:

Sales (90 percent collected in the first year) ....... P750,000

Disbursements for costs and expenses ................. 600,000

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Purchases of equipment for cash ...................... 200,000
Proceeds from initial owner investment................ 250,000
Payments on short-term borrowings .................... 25,000
Proceeds from short-term borrowings .................. 50,000
Depreciation on equipment ............................ 40,000
Disbursements for income taxes ....................... 45,000
Bad debt write-offs .................................. 30,000

What is the cash balance at December 31 of the first year?

a. P75,000
b. P85,000
c. P105,000
d. P140,000
____ 32. Assume the following facts for Break Company: The month-end bank statement shows a balance of P40,000;
outstanding checks total P2,000; a deposit of P8,000 is in transit at month-end; and a check for P400 was
erroneously charged against the account by the bank. What is the correct cash balance at the end of the
month?
a. P33,600
b. P34,400
c. P45,600
d. P46,400
____ 33. A debit balance in the Allowance for Doubtful Accounts
a. should never occur.
b. is always the result of management not providing a large enough allowance in order to
manage earnings.
c. may occur before the end-of-period adjustment for uncollectibles.
d. may exist even after the end-of-period adjustment for uncollectibles.
____ 34. The following information is available for Fast Company relative to 2013 operations:

Accounts receivable, January 1, 2013 P 40,000

Accounts receivable collected during 2013 84,000
Cash sales during 2013 20,000
Inventory, January 1, 2013 48,000
Inventory, December 31, 2013 44,000
Purchases of inventory during 2013 80,000
Gross margin on sales 42,000

What is Fast Company’s accounts receivable balance at December 31, 2013?

a. P82,000.
b. P62,000.
c. P20,000.
d. P146,000.
____ 35. An overstatement of ending inventory in Period 1 would result in income of Period 2 being
a. overstated.
b. understated.
c. correctly stated.
d. The answer cannot be determined from the information given.
____ 36. Which of the following would not be reported as inventory?

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a. Land acquired for resale by a real estate firm
b. Stocks and bonds held for resale by a brokerage firm
c. Partially completed goods held by a manufacturing company
d. Machinery acquired by a manufacturing company for use in the production process
____ 37. Which of the following describes the flow of product costs through the inventory accounts of a manufacturer?
a. Raw materials, goods in process, factory overhead, finished goods
b. Raw materials, goods in process, finished goods
c. Raw materials, direct labor, factory overhead, finished goods
d. Raw materials, direct labor, factory overhead
____ 38. Which inventory costing method would not be appropriate for a manufacturer using a perpetual inventory
system?
a. First-in, first-out
b. Last-in, first-out
c. Average cost
d. Moving Average
____ 39. In a period of rising prices, the inventory cost allocation method that tends to result in the lowest reported net
income is
a. LIFO.
b. FIFO.
c. moving average.
d. weighted average.
____ 40. A firm using the perpetual inventory method returned defective merchandise costing P2,000 to one of its
suppliers. The entry to record this transaction will include a debit to
a. Accounts Receivable.
b. Inventory.
c. Purchase Returns and Allowances.
d. Accounts Payable.
____ 41. The average cost method is applicable to which of the following inventory systems?

Periodic Perpetual
a. Yes Yes
b. Yes No
c. No Yes
d. No No
____ 42. Assume that a company records purchases net of discount. If the company bought merchandise valued at
P10,000 on credit terms 3/15, net 30, the entry to record a payment for half of the purchase within the
discount period would include a debit to
a. Accounts Payable for P4,850 and a credit to Cash for P4,850.
b. Accounts Payable for P5,000 and a credit to Cash for P5,000.
c. Accounts Payable for P4,850 and to Interest Expense for P150, and a credit to Cash for
P5,000.
d. Accounts Payable for P5,000 and to Interest Revenue for P150 and to Cash for P5,000.
____ 43. On August 1, Strawberry Company recorded purchases of inventory of P80,000 and P100,000 under credit
terms of 2/15, net 30. The payment due on the P80,000 purchase was remitted on August 14. The payment
due on the P100,000 purchase was remitted on August 29. Under the net method and the gross method, these
purchases should be included at what respective net amounts in the determination of cost of goods available
for sale?

Net Method Gross Method

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a. P178,400 P176,400
b. P176,400 P176,400
c. P176,400 P178,400
d. P180,000 P176,400
____ 44. Ponkan Retailers purchased merchandise with a list price of P100,000, subject to a trade discount of 20
percent and credit terms of 2/10, n/30. At what amount should Ponkan record the cost of this merchandise if
the gross method is used?
a. P100,000
b. P80,000
c. P98,000
d. P78,400
____ 45. The following information was obtained from the accounts of Coffee Company:

Beginning Inventory .................................. P20,000

Purchases ............................................ 40,000
Purchase Returns and Allowances ...................... 2,000
Purchase Discounts ................................... 4,000
Freight-In ........................................... 5,000
Ending Inventory ..................................... 10,000
Freight-Out .......................................... 6,000

Given this information, the cost of goods available for sale is

a. P65,000.
b. P59,000.
c. P69,000.
d. P61,000.
____ 46. On January 1, 2013, Hotcake Co. paid P500,000 for 20,000 shares of Maple Co.'s common stock and
classified these shares as trading securities. Hotcake does not have the ability to exercise significant influence
over Maple. Maple declared and paid a dividend of P0.50 a share to its stockholders during 2013. Maple
reported net income of P260,000 for the year ended December 31, 2013. The fair value of Maple Co.'s stock
at December 31, 2013, is P27 per share. What is the net asset amount (which includes both investments and
any related market adjustments) attributable to the investment in Maple that will be included on Hotcake's
balance sheet at December 31, 2013?
a. P530,000
b. P540,000
c. P569,000
d. P579,000
____ 47. Sausage Corporation purchased the following portfolio of trading securities during 2013 and reported the
following balances at December 31, 2013. No sales occurred during 2013. All declines are considered to be
temporary.

Security Cost Market Value at 12/31/13

X P 80,000 P 82,000
Y 140,000 132,000
Z 32,000 28,000

The only transaction in 2014 was the sale of security Z for P34,000 on December 31, 2014. The market values
for the other securities at December 31, 2014, were the same as at December 31, 2013. Sausage's entry to
record the sale of security Z would include
a. a credit of P2,000 to Realized Gain on Sale of Trading Securities.
b. a debit of P2,000 to Realized Gain on Sale of Trading Securities.

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c. a P2,000 debit to Market Adjustment-Trading Securities.
d. a P4,000 debit to Market Adjustment-Trading Securities.
____ 48. Choco, Inc. began business on January 1, 2013, and at December 31, 2013, Choco had the following
investment portfolios of equity securities:

FA@FVTPL (Trading) FA@FVTOCI

Aggregate cost P150,000 P225,000
Aggregate market value 120,000 185,000

None of the declines is judged to be other than temporary. Unrealized losses at December 31, 2013, should be
recorded with corresponding charges against

P&L Statement OCI Statement

a. P70,000 P 0
b. P40,000 P30,000
c. P30,000 P40,000
d. P 0 P70,000
____ 49. On April 1, 2012, Hash Inc. purchased as a temporary investment P100,000, face amount, 10%. Government
Treasury notes; they pay interest semiannually on January 1 and July 1. The notes were purchased at 102.
Which of the following entries correctly records this purchase?
a. Trading Securities--10% Gov. Treasury Notes. 100,000
Interest Receivable......................... 2,500
Premium on Trading Securities............... 2,000
Cash..................................... 104,500
b. Trading Securities--10% Gov. Treasury Notes. 102,000
Interest Receivable......................... 2,500
Cash..................................... 104,500
c. Trading Securities--10% Gov. Treasury Notes. 100,000
Interest Receivable......................... 4,500
Cash..................................... 104,500
d. Trading Securities--10% Gov. Treasury Notes. 102,000
Cash..................................... 102,000
____ 50. Brown Company began business in February of 2012. During the year, Brown purchased the three trading
securities listed below. On its December 31, 2012, balance sheet, Brown appropriately reported a P4,000
credit balance in its Market Adjustment--Trading Securities account. There was no change during 2013 in the
composition of Brown's portfolio of trading securities. Pertinent data are as follows:

Market Value
Security Cost December 31, 2013
A P120,000 P126,000
B 90,000 80,000
C 160,000 157,000
P370,000 P363,000

What amount of loss on these securities should be included in Brown's income statement for the year ended
December 31, 2013?
a. P0
b. P3,000
c. P7,000
d. P11,000

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____ 51. An investor that uses the equity method of accounting for its investment in a 30 percent-owned investee that
earned P50,000 and paid P8,000 in dividends, made the following entries:

Investment in Equity Securities 15,000

Equity in Earnings of Investee 15,000

Cash 2,400
Dividend Revenue 2,400

What effect will these entries have on the parent corporation’s statement of financial position?
a. Investment in subsidiary understated, retained earnings understated.
b. Investment in subsidiary overstated, retained earnings overstated.
c. Investment in subsidiary overstated, retained earnings understated.
d. Financial position will be fairly stated.

STRAIGHT PROBLEMS/JOURNAL ENTRIES

1. The records of ORANGE Corp. show the following information:

(a) Purchased a three-year insurance policy for P10,800 on September 1, 2013, and
recorded the premium payment in the asset account.
(b) Borrowed P60,000 on a 1-year, 12% note on August 1, 2013. Interest is payable at
maturity.
(c) Collected P8,400 on September 1, 2013, to cover six months' rent paid in advance,
and recorded the receipt in a revenue account.
(d) The Allowance for Doubtful Accounts shows an unadjusted balance of P500 (debit)
as of December 31, 2013. Based on an aging of receivables, it is determined that
the balance in the allowance account should be P1,872 at December 31, 2013.
(e) Machinery purchased on January 1, 2013, for P600,000 is to be depreciated at the
rate of 25 percent per year.

Prepare journal entries to adjust the books of ORANGE Corp. at December 31, 2013.
2. The information listed below was obtained from the accounting records of DALANDAN Company as of June
30, 2013, the end of the company’s fiscal year.

(a) Payments to vendors of P2,000 were made for purchases on account during the year
and were not recorded.
(b) On June 28, 2013, DALANDAN received P4,500 in advance for services to be
performed in July 2013. The P4,500 was credited to Sales Revenue.
(c) Building and land were purchased in 2006 for P750,000. The building's fair market
value was P620,000 at the time of purchase. The building is being depreciated over
a 25-year life using the straight-line method, and assuming no salvage value.
(d) On June 1, 2013, P120,000 was loaned to a borrower on a 6-month note with
interest at an annual rate of 7 percent. Interest is due at maturity.
(e) Accrued salaries and wages are P2,500 at June 30, 2013.
(f) The office supplies account has a balance of P3,110. An inventory of supplies
revealed a total of P602.

Prepare journal entries to adjust the books of DALANDAN Company at June 30, 2013.

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3. LEMON Co. had these unadjusted account balances on December 31, 2013:

Inventory, January 1, 2013 ............................ P175,250

Purchases ............................................. 143,500
Freight-In ............................................ 13,770
Purchase Discounts .................................... 3,150
Purchase Returns and Allowance ........................ 25,410

Assuming that the ending inventory is P88,400, prepare the entry to adjust the inventory accounts.
4. The following account balances pertain to the CITRUS Manufacturing Co. at September 30, 2013 (before
adjusting entries).

Debit Credit
Accounts Receivable ......................... P 40,000
Allowance for Doubtful Accounts ............. P 2,500
Inventory ................................... 99,700
Prepaid Insurance ........................... 2,400
Equipment ................................... 300,000
Accumulated Depreciation .................... 125,000
Notes Payable ............................... 48,000
Unearned Revenue ............................ 72,000

Additional information:

(a) The controller and the credit manager agreed that, based on an aging of year-end
accounts receivable, the allowance for doubtful accounts should be increased to
P4,300.
(b) The credit manager determined that a customer account with a balance of P850 was
uncollectible (without regard to the information in (a) above).
(c) The P48,000 note payable is dated August 13, 2013, and bears interest at 12 percent
per annum. The note and interest are payable at maturity on November 13, 2013.
(Assume a 365-day year and round to the nearest peso.)
(d) The prepaid insurance balance arose from the payment of an annual premium on
January 1, 2013.
(e) The company maintains a perpetual inventory system. The inventory at September
30, 2013, was P102,600 as determined by physical count.
(f) The equipment is being depreciated over a 20-year estimated useful life.
(g) The unearned revenue represents an amount received for a long-term equipment
rental to the TOYOMANSI Co. The cash (P72,000) was received on April 26,
2013, and represents prepayment of a 1-year rental beginning May 1, 2013.

Prepare adjusting entries to CITRUS Co.'s accounts at September 30, 2013. Each entry should be made in
general journal format. Identify each entry by using the letter of the paragraph containing the additional
information for the entry.

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 FUNDAMENTALS OF ACCOUNTING II COMPREHENSIVE REVIEW 2.0
RIAN SOLIMAN
5. LIME Co. had the following transactions pertaining to the fiscal year ended October 31, 2013.

-- June 15, 2013, paid an annual casualty insurance premium of P5,400 for a policy
beginning July 1, 2013.
-- October 1, 2013, received advance payment of P6,930 from a customer for a 9-
month equipment rental.

Provide the appropriate journal entries to record the preceding transactions. Adjust the accounts at year-end
assuming that no entries have been made between the transaction date and year-end and assuming that:

(1) transactions were originally recorded in asset and liability accounts.

(2) transactions were originally recorded in revenue and expense accounts.
6. The following data are from a comparison of the balance sheets of SUHA Company as of December 31, 2013,
and December 31, 2012:

Accounts Receivable ..................... increase P7,600

Inventory ............................... decrease 4,500
Accounts Payable ........................ increase 2,400
(all accounts payable relate to inventory
purchases)
Prepaid Insurance ....................... decrease 1,350
Wages Payable ........................... decrease 670

The following data are from SUHA's 2013 income statement:

Sales ................................................. P200,000

Cost of Goods Sold .................................... 110,000
Insurance Expense ..................................... 25,000
Wages Expense ......................................... 40,000

During 2013:

(a) How much cash was collected from customers?

(b) How much cash was paid for inventory purchases?
(c) How much cash was paid for insurance?
(d) How much cash was paid for wages?
7. The information below is from the books of the BERRY Corporation on June 30:

Balance per bank statement ........................... P11,164

Receipts recorded but not yet deposited in the bank .. 1,340
Bank charges not recorded ............................ 16
Note collected by bank and not recorded on books ..... 1,120
Outstanding checks ................................... 1,100
NSF checks--not recorded on books nor redeposited .... 160

Assuming no errors were made, compute the cash balance per books on June 30 before any reconciliation
adjustments.
8. The books of CARROT's Service, Inc. disclosed a cash balance of P68,757 on June 30. The bank statement as
of June 30 showed a balance of P54,780. Additional information that might be useful in reconciling the two
balances follows:

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 FUNDAMENTALS OF ACCOUNTING II COMPREHENSIVE REVIEW 2.0
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(a) Check number 748 for P3,000 was originally recorded on the books as P4,500.
(b) A customer's note dated March 25 was discounted on April 12. The note was
dishonored on June 29 (maturity date). The bank charged CARROT’s account for
P14,265, including a protest fee of P42.
(c) The deposit of June 24 was recorded on the books as P2,895, but it was actually a
deposit of P2,700.
(d) Outstanding checks totaled P9,885 as of June 30.
(e) There were bank service charges for June of P210 not yet recorded on the books.
(f) Steve's account had been charged on June 26 for a customer's NSF check for
P1,296.
(g) Steve properly deposited P600 on June 3 that was not recorded by the bank.
(h) Receipts of June 30 for P13,425 were recorded by the bank on July 2.
(i) A bank memo stated that a customer's note for P4,500 and interest of P165 had
been collected on June 27, and the bank charged a P36 collection fee.

Prepare a bank reconciliation statement, using the form reconciling bank and book balances to the correct
cash balance.
9. The following information was abstracted from the 2013 financial statements of KIWI Company:

Sales ............................................... P747,000 *

Accounts Receivable, December 31, 2013 .............. 128,000
Allowance for Doubtful Accounts ..................... 1,220 (cr)
Sales discounts ..................................... 18,000 *
Sales returns ....................................... 12,400 *
*30% related to credit sales ........................

Prepare the adjusting entry for doubtful accounts expense under each of the following assumptions:
(1) 3 percent of current accounts receivable are uncollectible.
(2) 2.5 percent of net credit sales are uncollectible.
10. Cash, the most liquid of all assets, must be safeguarded. Cash can be easily concealed and transported, bears
no marks of ownership, and is universally valued and accepted. Risk of theft of cash is directly correlated to
the accessibility of cash and cash records. Businesses address these problems through a system of internal
control.

Required:

1. Discuss generally what a system of internal control is designed to accomplish and

identify general controls over cash that should be implemented.
2. Identify internal control procedures for cash receipts.
3. Identify internal control procedures for cash disbursements.
11. CHEESE Company reported the following net income amounts:

2011 ........................................ P52,000

2012 ........................................ P38,000
2013 ........................................ P66,000

In 2014, the company discovered errors that been made in computing the ending inventories for 2011 and
2012, as follows:
2011 Ending inventory understated by P4,000.
2012 Ending inventory understated by P8,000.

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RIAN SOLIMAN

Compute the correct net incomes for (1) 2011, (2) 2012, and (3) 2013.

12. CAKE Inc. carries the following marketable equity securities on its books at December 31, 2012, and 2013.
All securities were purchased during 2013 and there were no beginning balances in any market adjustment
accounts.

Trading Securities:
Market Market
Cost December 31, 2012 December 31, 2013
V Company P 50,000 P 26,000 P 40,000
W Company 26,000 40,000 40,000
X Company 70,000 60,000 50,000
Total P146,000 P126,000 P130,000

Designated @ OCI:

Y Company P420,000 P360,000 P200,000

Z Company 100,000 120,000 240,000
Total P520,000 P480,000 P440,000

(1) Give the entries necessary to record the valuations for both FA@FVTPL and
FA@FVTOCI securities at December 31, 2012 and 2013.
(2) What net effect would these valuations have on 2012 and 2013 comprehensive
income?
13. On January 1, 2013, BLUE Corp. acquired 30 percent (13,000 shares) of BERRY Services Inc. common
stock for P1,300,000 as a long-term investment. Data from BERRY's 2013 financial statements include the
following:

Net income ............................................ P330,000

Less cash dividends paid .............................. 160,000
Increase in retained earnings ......................... P170,000

The market value of BERRY Services Inc. common stock on December 31, 2013, was P98 per share. BLUE
does not have any other noncurrent investments in securities.

Prepare the necessary journal entries for Alsop's investment in BERRY Services Inc. common stock under

(1) FV Method @ OCI

(2) the equity method.

FNDACT2_Ex-08_Comprehensive Review 2.0 References: PRINCIPLES OF ACCOUNTING by Kieso Weygandt|FINANCIAL

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