Financial-Accounting.doc

SOLUTION MANUAL Financial Accounting Valix and Peralta

Volume One - 2008 Edition

1 CHAPTER 1

Problem 1-1

1. D 2. C 3. D 4. D 5. C 6. C 7. B 8. C 9. D

10. A

Problem 1-5

1. A 2. A 3. A 4. D 5. D 6. D 7. B 8. D 9. C

10. D

Problem 1-9

1. D 2. D 3. C 4. B 5. C

Problem 1-2

1. A 2. A 3. D 4. B 5. D 6. B 7. D 8. C 9. C

10. D

Problem 1-6

1. A 2. A 3. C 4. A 5. A 6. A 7. B 8. C 9. A

10. B

Problem 1-10

1. A 2. B 3. D 4. B 5. A 6. D 7. C 8. A 9. D

10. A

Problem 1-3

1. C 2. D 3. D 4. A 5. D

Problem 1-7

1. D 2. D 3. C 4. A 5. A 6. C 7. D 8. D 9. B

10. D

Problem 1-11

1. C 2. B 3. D 4. A 5. F 6. E 7. J 8. G 9. H

10. I

Problem 1-4

1. A 2. C 3. A 4. A 5. D 6. A 7. D 8. B 9. D

10. D

Problem 1-8

1. B 2. B 3. C 4. C 5. A 6. B 7. D 8. D 9. A

10. B

Problem 1-12

1. E 2. D 3. B 4. C 5. G 6. H 7. I 8. F 9. J

10. A

2

Problem 1-13

1. Systematic and rational allocation as a matching process

2. Comparability or consistency 3. Monetary unit

4. Income recognition principle 5. Time period

6. Going concern and cost principle 7. Accounting entity

8. Materiality

9. Completeness or standard of adequate disclosure

10. Conservatism or prudence

Problem 1-14

1. Materiality 2. Going concern

3. Income recognition principle 4. Accounting entity

5. Standard of adequate disclosure 6. Comparability

7. Matching principle 8. Cost principle

9. Reliability 10. Time period

Problem 1-15

1. The cost of leasehold improvement should not be recorded as outright expense, but should be amortized as expense over the life of the improvement or life of the lease, whichever is shorter. This is in conformity with the systematic and rational allocation principle of expense recognition.

2. The fact that the customer has not been seen for a year is not a controlling factor to write off the account. If the account is doubtful of collection, an allowance should be set up. It is only when there is proof of uncollectibility that the account should be written off.

3. Advertising cost should be treated as outright expense, by reason of the uncertainty of the benefit that may be derived therefrom in the future, in conformity with immediate recognition principle.

4. The balance of the cash surrender value should not be charged to loss. In reality, this is conceived as a prospective receivable if and when the policy is canceled because of excessive premium in the early stage of policy. The CSV should be classified as noncurrent investment.

5. The cost of obsolete merchandise should not be included as part of inventory but charged to expense, as a conservative approach.

6. The excess payment represents goodwill which should not be amortized but subject to impairment. Conservatism dictates that goodwill should be recognized when paid for.

7. The depreciation is not dependent on the amount of profit generated during the year. Depreciation is an allocation of cost and therefore should be provided regardless of the level of earnings.

3

8. An entry should be made to recognize the inventory fire loss, and such loss should be treated as component of income.

9. Revenues and expenses of the canteen should be separated from the revenues and cost of regular business operations in order to present fairly the financial position and performance of the regular operations.

10. The increase in value of land and building should not be taken up in the accounts. The use of revalued amount is permitted only when the revaluation is made by independent and expert appraiser. The expected sales price of P5,000,000 is not necessarily the revalued amount of the land and building. Moreover, increase in value is not an income until the asset is sold.

Problem 1-16

1. Accrual assumption 6. Income recognition principle 2. Going concern assumption 7. Expense recognition principle

3. Asset recognition principle 4. Cost principle

5. Liability recognition principle

8. Cause and effect association principle

9. Systematic and rational allocation principle 10. Immediate recognition principle

Problem 1-17

1. Monetary unit assumption 2. Cost principle

3. Materiality 4. Time period

5. Matching principle

6. Substance over form

7. Income recognition principle 8. Comparability or consistency 9. Conservatism or prudence

10. Adequate disclosure or completeness

Problem 1-18

1. The cost of the asset should be the amount of cash paid. No income should be recognized when an asset is purchased at an amount less than its market value. Revenue arises from the act of selling and not from the act of buying.

2. The entry should be reversed because the pending lawsuit is a mere contingency. The contingent loss is simply disclosed. To be recognized in accordance with conservatism, the contingent loss must be both probable and measurable.

3. The new car should be charged against the president and debited to receivable from officer, because the car is for personal use.

4

4. The entry is incorrect because no revenue shall be recognized until a sale has taken place.

5. Purchased goodwill should be recorded as an asset. Under the new standard, goodwill is not amortized anymore but on each balance sheet date it should be assessed for impairment.

Problem 1-19

1. Accrual

2. Going concern

3. Accounting entity 4. Monetary unit

6. Time period

5

CHAPTER 2

Problem 2-1

Easy Company Statement of Financial Position

December 31, 2008

A S S E T S

Current assets:

Cash and cash equivalents Accounts receivable Inventories

Prepaid expenses Total current assets

Noncurrent assets:

Property, plant and equipment Long-term investments Intangible asset

Total noncurrent assets Total assets

Note

800,000 450,000 900,000

(1) 200,000

(2)4,400,000 950,000

(3) 800,000

2,350,000

6,150,000 8,500,000

LIABILITIES AND SHAREHOLDERS EQUITY

Current liabilities:

Trade and other payables Note payable, short-term debt

Total current liabilities Noncurrent liabilities:

Mortgage payable, due in 5 years Note payable, long-term debt

(4)450,000

200,000

650,000

1,500,000

500,000

Total noncurrent liabilities Shareholders equity:

Share capital, P100 par Share premium Retained earnings

Total shareholders equity

Total liabilities and stockholders equity

2,000,000

4,000,000 500,000 1,350,000

5,850,000 8,500,000

Note 1 - Prepaid expenses

Office supplies Prepaid rent

Total prepaid expenses

50,000 150,000 200,000

6

Note 2 - Property, plant and equipment

Property, plant and equipment Accumulated depreciation Net book value

5,600,000 (1,200,000) 4,400,000

Note 3 - Intangible asset

Patent800,000

Note 4 - Trade and other payables

Accounts payable Accrued expenses Total

350,000 100,000 450,000

Problem 2-2

Simple Company Statement of Financial Position

December 31, 2008

A S S E T S

Current assets: Cash

Trading securities

Trade and other receivables

Note

420,000 250,000

(1)620,000

Inventories(2)1,250,000


(3) 20,000

2,560,000

Noncurrent assets:

Property, plant and equipment Long-term investments Intangible assets


(4)4,640,000 (5)2,000,000 (6) 300,000

6,940,000 9,500,000

7



Trade and other payables

Serial bonds payable - current portion Total current liabilities

Note

(7) 620,000 500,000

1,120,000

Noncurrent liabilities:

Serial bonds payable - remaining portion

Shareholders equity: Share capital Share premium Retained earnings


Total liabilities and shareholders equity

2,000,000

5,000,000 500,000

880,000 6,380,000

9,500,000

Note 1 - Trade and other receivables

Accounts receivable

Allowance for doubtful accounts Notes receivable

Claim receivable Total

500,000 ( 50,000)

150,000

20,000 620,000

Note 2 - Inventories

Finished goods Goods in process Raw materials Factory supplies Total

400,000 600,000 200,000

50,000 1,250,000

Note 3 - Prepaid expenses

Prepaid insurance20,000


Land Building Machinery Tools

Total

Cost 1,500,000 4,000,000 2,000,000

40,000 7,540,000

Accum. depr.

-1,600,000 1,300,000

-

2,900,000

Book value

1,500,000 2,400,000 700,000

40,000 4,640,000

8

Note 5 - Long-term investments

Investment in bonds Plant expansion fund Total

1,500,000

500,000 2,000,000

Note 6 - Intangible assets

Franchise Goodwill Total

200,000 100,000

300,000


Accounts payable Notes payable Income tax payable

Advances from customers Accrued expenses

Accrued interest on note payable Employees income tax payable Total

300,000 100,000 60,000 100,000 30,000 10,000

20,000 620,000

Problem 2-3

Exemplar Company Statement of Financial Position December 31, 2008

A S S E T S

Current assets:Note Cash and cash equivalents

Trading securities

500,000 280,000

Trade and other receivables Inventories

Prepaid expenses

Total current assets Noncurrent assets:

Property, plant and equipment Long-term investments Intangible assets

Other noncurrent assets Total noncurrent assets

Total assets

(1) 640,000 1,300,000

70,000

(2)5,300,000 (3) 1,310,000 (4)3,350,000 (5) 150,000

2,790,000

10,110,000 12,900,000

9



Trade and other payables Noncurrent liabilities:

Bonds payable

Note

(6)1,000,000

5,000,000

Premium on bonds payable Total noncurrent liabilities

1,000,000

6,000,000

Shareholders equity: Share capital Reserves

Retained earnings (deficit) Total shareholders equity


(7) 7,000,000 (8) 700,000

(1,800,000)

5,900,000 12,900,000


Accounts receivable 400,000 Allowance for doubtful accounts ( 20,000)

Notes receivable

Accrued interest on notes receivable Total

250,000

10,000 640,000


Accum. Costdepr.

Land1,500,000-

Book value

1,500,000

Building Equipment Total

5,000,000 1,000,000 7,500,000

2,000,000

200,000 2,200,000

3,000,000

800,000 5,300,000

Note 3 - Long-term investments

Land held for speculation Sinking fund

Preference share redemption fund Cash surrender value

Total

500,000 400,000 350,000

60,000 1,310,000


Computer software Lease rights

Total

3,250,000

100,000 3,350,000

10 Note 5 - Other noncurrent assets

Advances to officers, not collectible currently Long-term refundable deposit

Total

100,000

50,000 150,000


Accounts payable Notes payable Unearned rent income SSS payable

Accrued salaries Dividends payable Withholding tax payable Total

400,000 300,000 40,000 10,000 100,000 120,000

30,000 1,000,000

Note 7 Share capital

Preference share capital Ordinary share capital Total

2,000,000 5,000,000 7,000,000

Note 8 - Reserves

Share premium preference Share premium ordinary Total

500,000 200,000

700,000

Problem 2-4

Relax Company Statement of Financial Position

December 31, 2008

A S S E T S


Trade accounts receivable Inventories


Noncurrent assets:

Property, plant and equipment Investment in associate Intangible assets

Note

400,000 (1)750,000

1,000,000

100,000

2,250,000

(2) 5,600,000 1,300,000

(3) 350,000


7,250,000 9,500,000

11


Note Current liabilities:

Trade and other payables(4) Mortgage note payable-current portion

Total current liabilities

1,350,000

400,000

1,750,000

Noncurrent liabilities:

Mortgage note payable, remaining position Bank loan payable, due June 30, 2010

Total noncurrent liabilities

1,600,000

500,000

2,100,000

Shareholders equity: Share capital Reserves

Retained earnings



3,000,000 (5)1,400,000

1,250,000

5,650,000 9,500,000

Note 1 - Trade accounts receivable

Accounts receivable

Allowance for doubtful accounts Net realizable value

800,000 ( 50,000)

750,000


Land Building Machinery Equipment Total

Cost 500,000

5,000,000 3,000,000

400,000 8,900,000

Accum. depr.

-2,000,000 1,200,000

100,000 3,300,000

Book value

500,000 3,000,000

1,800,000

300,000 5,600,000


Trademark

Secret processes and formulas Total

150,000 200,000 350,000


Notes payable Accounts payable Income tax payable Accrued expenses

Estimated liability for damages Total

Note 5 - Reserves

750,000 350,000 50,000 60,000

140,000 1,350,000

12

Additional paid in capital

Retained earnings appropriated for plant expansion Retained earnings appropriated for contingencies Total

300,000 1,000,000

100,000 1,400,000

Problem 2-5

Summa Company Statement of Financial Position

December 31, 2008

A S S E T S


Bond sinking fund

Trade and other receivables Inventory


Note

(1) 700,000 2,000,000

(2) 830,000 1,200,000

100,000

4,830,000

Noncurrent assets:

Property, plant and equipment Investment property

Intangible asset

(3)5,500,000 700,000

(4) 370,000


6,570,000 11,400,000

LIABILITIES AND EQUITY


Trade and other payables

Bonds payable due June 30, 2009 Total current liabilities

Note

(5) 2,050,000 2,000,000

4,050,000

Noncurrent liability:

Deferred tax liability650,000

Equity:

Share capital Reserves Retained earnings

Total equity

Total liabilities and equity

(6) 3,500,000 (7) 500,000 2,700,000

6,700,000 11,400,000

13

Note 1 - Cash

Cash on hand Cash in bank


Accounts receivable


Accrued interest receivable Total

50,000 650,000 700,000

650,000 ( 50,000)

200,000

30,000 830,000


Land Building

Furniture and equipment Total

Cost 1,000,000 5,500,000 2,400,000 8,900,000

Accum. depr.

-2,500,000

900,000 3,400,000

Book value 1,000,000 3,000,000 1,500,000 5,500,000

Note 4 - Intangible asset

Patent370,000


Accounts payable Notes payable Accrued taxes

Other accrued liabilities Total

1,000,000 850,000

50,000

150,000 2,050,000

Note 6 Share capital

Authorized share capital, 50,000 shares, P100 par Unissued share capital

Issued share capital

Subscribed share capital, 10,000 shares Subscription receivable

1,000,000 ( 500,000)

5,000,000 (2,000,000)

3,000,000

500,000

Paid in capital3,500,000

Note 7 - Reserves

Share premium

Retained earnings appropriated for contingencies Total

300,000 200,000 500,000

14

Problem 2-6 (Functional method)

Karla Company Income Statement

Year ended December 31, 2008

Net sales revenue Cost of sales Gross income Other income Total income Expenses:

Selling expenses Administrative expenses Other expenses

Income before tax Income tax

Net income

Note (1) (2)

(3)

(4)950,000 (5)800,000 (6)100,000

7,700,000 (5,000,000) 2,700,000

400,000 3,100,000

1,850,000 1,250,000 ( 250,000) 1,000,000

Note 1 Net sales revenue

Gross sales

Sales returns and allowances Sales discounts

Net sales revenue

7,850,000 ( 140,000)

( 10,000) 7,700,000

Note 2 Cost of sales

Inventory, January 1 Purchases

Freight in

1,000,000 5,250,000

500,000

Purchase returns and allowances( 150,000)

Purchase discounts Net purchases

Goods available for sale Inventory, December 31 Cost of sales

( 100,000)

5,500,000 6,500,000

(1,500,000) 5,000,000

Note 3 Other income

Rental income Dividend revenue Total other income

250,000 150,000 400,000

15 Note 4 Selling expenses

Freight out

Salesmens commission Depreciation store equipment Total selling expenses

175,000 650,000 125,000 950,000

Note 5 Administrative expenses

Officers salaries

Depreciation office equipment Total administrative expenses

500,000 300,000

800,000

Note 6 Other expenses

Loss on sale of equipment Loss on sale of investment Total other expenses

50,000

50,000 100,000

Natural method

Karla Company Income Statement


Net sales revenue Other income Total

Expenses:

Increase in inventory

Note (1) (2)

(3)( 500,000)

7,700,000

400,000 8,100,000

Net purchases Freight out

Salesmens commission Depreciation

Officers salaries Other expenses

Income before tax Income tax

Net income

(4)5,500,000 175,000 650,000

(5) 425,000 500,000

(6) 100,000

6,850,000 1,250,000 ( 250,000) 1,000,000

16


Gross sales

Sales returns and allowances Sales discounts

Net sales revenue

7,850,000 ( 140,000)

( 10,000) 7,700,000

Note 2 Other income

Rental income Dividend revenue Total other income

250,000 150,000 400,000

Note 3 Increase in inventory

Inventory, December 31 Inventory, January 1 Increase in inventory

1,500,000 1,000,000

500,000

Note 4 Net purchases

Purchases Freight in

Purchase returns and allowances Purchase discounts

Net purchases

5,250,000 500,000

( 150,000) ( 100,000)

5,500,000

Note 5 Depreciation

Depreciation store equipment Depreciation office equipment Total

125,000 300,000 425,000

Note 6 Other expenses

Loss on sale of equipment Loss on sale of investment Total

50,000

50,000 100,000

17 Problem 2-7

Masay Company

Statement of Cost of Goods Manufactured Year Ended December 31, 2008

Raw materials January 1 Purchases

Raw materials available for use Less: Raw materials December 31 Raw materials used

Direct labor Factory overhead:

Indirect labor Superintendence Light, heat and power Rent factory building

250,000 210,000 320,000 120,000

200,000 3,000,000 3,200,000

280,000 2,920,000 950,000

Repair and maintenance machinery Factory supplies used

Depreciation machinery Total manufacturing cost

50,000 110,000

60,000

1,120,000 4,990,000

Goods in process January 1 Total Cost of goods in process

Less: Goods in process December 31 Cost of goods manufactured

240,000 5,230,000

170,000 5,060,000

Cost of sales method

Masay Company Income Statement


Net sales revenue Cost of goods sold Gross income Other income Total income Expenses:

Selling expenses Administrative expenses Other expense

Income before tax Income tax expense Net income

Note (1) (2)

(3)

(4)830,000 (5)590,000 (6) 300,000

7,450,000 (5,120,000) 2,330,000

210,000 2,540,000

1,720,000 820,000

( 320,000)

500,000

18


Sales

Sales returns and allowances Net sales revenue

7,500,000 ( 50,000)

7,450,000

Note 2 Cost of goods sold

Finished goods January 1 Cost of goods manufactured Goods available for sale Finished goods December 31 Cost of goods sold

360,000 5,060,000

5,420,000 ( 300,000)

5,120,000

Note 3 Other income

Gain from expropriation Interest income

Gain on sale of equipment

100,000 10,000 100,000

210,000 Note 4 Selling expenses

Sales salaries Advertising

Depreciation store equipment Delivery expenses

Total

400,000 160,000 70,000 200,000 830,000


Office salaries

Depreciation office equipment Accounting and legal fees Office expenses

Total

150,000 40,000 150,000 250,000 590,000

Note 6 Other expense

Earthquake loss300,000

19

Nature of expense method

Masay Company Income Statement

Year Ended December 31, 2008

Net sales revenue Other income Total income Expenses:

Decrease in finished goods

Note

(1) 7,450,000 (2) 210,000 7,660,000

and goods in process(3)130,000

Raw materials used Direct labor

(4)2,920,000 950,000

Factory overhead Salaries Advertising Depreciation Delivery expenses

(5) 1,120,000 (6) 550,000 160,000

(7) 110,000 200,000

Accounting and legal fees Office expenses

150,000 250,000

Other expense Income before tax Income tax expense Net income

(8) 300,000 6,840,000 820,000

( _320,000)

500,000


Sales


7,500,000 (50,000)

7,450,000

Note 2 Other income

Gain from expropriation Interest income

Gain on sale of equipment

Note 3 Decrease in finished goods and goods in process

100,000 10,000 100,000 210,000

Finished goods Goods in process Total

January 1 360,000

240,000 600,000

December 31 300,000

170,000 470,000

Decrease 60,000

70,000 130,000

20 Note 4 Raw materials used

Raw materials January 1 Purchases

Raw materials available for use Raw materials December 31 Raw materials used

200,000 3,000,000 3,200,000

280,000 2,920,000

Note 5 Factory overhead

Indirect labor250,000

Superintendence Light, heat and power Rent factory building

Repair and maintenance machinery Factory supplies used

Depreciation machinery Total

210,000 320,000

120,000 50,000 110,000

60,000 1,120,000

Note 6 Salaries

Sales salaries Office salaries Total

400,000 150,000 550,000

Note 7 Depreciation

Depreciation store equipment Depreciation office equipment Total

70,000

40,000 110,000


Earthquake loss300,000

Problem 2-8

Youth Company Income Statement


Net sales revenue Cost of goods sold Gross income Expenses:

Selling expenses Administrative expenses Other expense


Note (1) (2)

(3)690,000 (4)580,000 (5) 340,000

8,870,000 (5,900,000)

2,970,000

1,610,000 1,360,000

( 360,000) 1,000,000

21


Sales


9,070,000 ( 200,000)

8,870,000


Beginning inventory Purchases Transportation in Purchase discounts Goods available for sale Ending inventory

Cost of goods sold

5,750,000 150,000

( 100,000)

1,500,000

5,800,000 7,300,000 (1,400,000) 5,900,000

Note 3 Selling expenses

Depreciation store equipment Store supplies

Sales salaries Total

110,000 80,000 500,000 690,000


Officers salaries Depreciation building Office supplies

Total

400,000 120,000

60,000 580,000


Uninsured flood loss340,000

22 Problem 2-9

Christian Company


Purchases1,600,000

Freight in Total

Increase in raw materials Raw materials used Direct labor

Factory overhead: Indirect labor

Depreciation machinery Factory taxes

Factory supplies expense Factory superintendence Factory maintenance Factory heat, light and power

Total manufacturing cost

600,000 50,000 130,000 120,000 480,000 150,000 220,000

80,000 1,680,000 ( 100,000) 1,580,000 1,480,000

1,750,000 4,810,000

Decrease in goods in process Cost of goods manufactured

90,000 4,900,000

Christian Company Income Statement


Sales revenue Cost of goods sold Gross income Expenses:

Selling expenses Administrative expenses


Note

(1)

(2) 800,000 (3) 930,000

8,000,000 (5,100,000) 2,900,000

1,730,000 1,170,000 ( 170,000) 1,000,000


Cost of goods manufactured Decrease in finished goods Cost of goods sold

4,900,000

200,000 5,100,000

23

Note 2 Selling expenses

Sales salaries 520,000

Advertising 120,000

Delivery expense 160,000

Total

800,000


Office supplies expense 30,000

Office salaries 800,000

Doubtful accounts 100,000

Total

930,000

Problem 2-10

Ronald Company


Materials January 1 Purchases

Freight on purchases Purchase discounts Materials available for use

Less: Materials December 31

1,600,000 220,000

( 20,000)

1,120,000

1,800,000 2,920,000 1,560,000

Materials used Direct labor Factory overhead:

Heat, light and power Repairs and maintenance Indirect labor

Other factory overhead

Factory supplies used (300,000 + 660,000 540,000)

1,360,000 2,000,000

600,000 100,000 360,000 340,000 420,000

Depreciation factory building Total manufacturing cost

280,000 2,100,000 5,460,000

Goods in process January 1 Total cost of goods in process

Less: Goods in process December 31 Cost of goods manufactured

360,000 5,820,000

320,000 5,500,000

24

Ronald Company Income Statement


Note

Net sales revenue Cost of goods sold Gross income Other income

(1)6,980,000 (2) (5,400,000)

1,580,000 (3) 160,000

Total income Expenses:

Selling expenses Administrative expenses


200,000

340,000

1,740,000

540,000 1,200,000

( 200,000) 1,000,000


Sales


7,120,000 ( 140,000)

6,980,000


Finished goods January 1 Cost of goods manufactured Goods available for sale Finished goods December 31 Cost of goods sold

420,000 5,500,000

5,920,000 ( 520,000) 5,400,000

Note 3 Other income

Interest revenue160,000

25

Problem 2-11

Reliable Company Statement of Retained Earnings Year Ended December 31, 2008

Retained earnings January 1

Prior period error overdepreciation in 2007

Change in accounting policy from FIFO to weighted average method credit adjustment

Corrected beginning balance Net income

Decrease in appropriation for treasury share Total

200,000 100,000

150,000 450,000 1,300,000

200,000 1,950,000

Cash dividends paid to shareholders Current appropriation for contingencies Retained earnings December 31

( 500,000)

( 100,000) 1,350,000

Problem 2-12

Net income 3,000,000 Loss from fire ( 50,000)

Goodwill impairment

Loss on sale of equipment

Gain on retirement of bonds payable Gain on life insurance settlement Adjusted net income

( 250,000) ( 200,000)

100,000

450,000 3,050,000

Gondola Company Statement of Retained Earnings


Balance January 1 2,600,000 Compensation of prior period not accrued ( 500,000)

Correction of prior period error credit Adjusted beginning balance

Net income adjusted

400,000 2,500,000 3,050,000

Stock dividend

Loss on retirement of preference share

( 700,000) ( 350,000)

Appropriated for treasury share Balance December 31

(1,000,000) 3,500,000

26 CHAPTER 3

Problem 3-1Problem 3-2

1. D 6. D 2. A 7. B 3. A 8. C 4. C 9. C 5. B 10. A

1. D 6. D 2. D 7. D 3. C 8. B 4. A 9. D 5. C 10. B

Problem 3-3

a. Undeposited collections Cash in bank PCIB

Cash in bank PCIB (for payroll) Cash in bank - PCIB (savings deposit) Money market instrument 90 days Total cash and cash equivalents

b. Accounts receivable (15,000 + 25,000) Cash in foreign bank

Advances to officers Sinking fund cash Trading securities

Bank overdraft Cash

60,000 500,000 150,000 100,000 2,000,000

2,810,000

40,000 100,000 30,000 450,000 120,000

50,000 690,000

Problem 3-4

Adjusting entries on December 31, 2008

a. Cash

Accounts payable

b. Cash

Accounts payable

c. Accounts receivable Cash

d. Accounts receivable (20,000 + 60,000 + 30,000)

100,000

50,000

200,000

110,000

100,000

50,000

200,000

Money market placement Cash in closed bank Advances to employee Pension fund

Cash

1,000,000

50,000 30,000

400,000

1,590,000

27

Cash and cash equivalents: Demand deposit (see below) Time deposit 30 days

Petty cash fund Total

Demand deposit per book Undelivered check Postdated check delivered Window dressing of collection Adjusted balance

1,450,000 500,000

10,000 1,960,000

1,500,000 100,000

50,000 ( 200,000)

1,450,000

Problem 3-5

1. Cash on hand Postdated check Adjusted cash on hand

2. Petty cash fund

Unreplenished petty cash expenses Postdated employee check Adjusted petty cash

3. Security Bank current account Postdated company check delivered Adjusted balance

4. Cash on hand Petty cash fund

Security Bank current account PNB current account No. 1 PNB current account No. 2 BSP Treasury bill 60 days

Total cash and cash equivalents

500,000 (100,000) 400,000

20,000 ( 2,000) ( 3,000)

15,000

1,000,000

200,000 1,200,000

400,000 15,000 1,200,000

400,000 ( 50,000)

3,000,000 4,965,000

*The BPI Time deposit of P2,000,000 is shown as noncurrent investment because it is restricted for land acquisition.

5. Accounts receivable Cash on hand

100,000

100,000

Expenses

Receivable from employee Petty cash fund

Security Bank current account Accounts payable

2,000 3,000

200,000

5,000

200,000

28 Problem 3-6

1. Cash on hand

NSF customer check Postdated customer check Adjusted on hand

2. Currency and coins

Check drawn payable to petty cashier Adjusted petty cash

3. Cash in bank

Undelivered company check Postdated company check delivered Adjusted cash in bank

4. Accounts receivable (40,000 + 60,000) Cash on hand

Advances to employees Cash short or over

Petty cash fund

Cash in bank (100,000 + 150,000) Accounts payable

100,000

3,000 2,000

250,000

500,000 ( 40,000) ( 60,000)

400,000

1,000 14,000 15,000

2,000,000 100,000

150,000 2,250,000

100,000

5,000

250,000

Problem 3-7

1. Cash on hand

NSF customer check Postdated customer check Adjusted cash on hand

2. Petty cash fund: Currency and coins

3. Philippine Bank current account Undelivered company check Postdated company check delivered Adjusted balance

200,000 ( 35,000) ( 15,000)

150,000

5,000

5,000,000 25,000

45,000 5,070,000

4. Cash on hand Petty cash fund

Philippine Bank current Manila Bank current Asia Bank time deposit

Total cash and cash equivalent

150,000 5,000

5,070,000 4,000,000

2,000,000 11,225,000

29

5. Accounts receivable Cash on hand

Receivable from officer Expenses

Cash short or over Petty cash

Philippine Bank current Accounts payable

City Bank current Bank overdraft

50,000

2,000 12,000 1,000

70,000

100,000

50,000

15,000

70,000

100,000

Problem 3-8

Fluctuating Fund SystemImprest Fund System

1. Petty cash fund10,0001. Petty cash fund10,000 Cash in bank 10,000 Cash in bank 10,000

2. Postage Supplies Transportation

Miscellaneous expense Petty cash fund

1,5002. No entry 5,500

1,200 800

9,000

3. Petty cash fund 14,000 3. Petty cash fund 5,000 Cash in bank 14,000 Postage 1,500 Supplies 5,500

Transportation 1,200 Miscellaneous expense 800

Cash in bank14,000 Problem 3-9


1. Petty cash fund Cash in bank

10,0001. Petty cash fund10,000 10,000 Cash in bank 10,000

2. Postage 1,500 Supplies 2,000

Petty cash fund

3. Transportation 1,000 Miscellaneous expense 500

Cash in bank

2. No entry

3,500

3. No entry

1,5004. No entry

30 Fluctuating Fund SystemImprest Fund System

4. Supplies

Accounts payable Petty cash fund

1,000

3,000 5. Postage 1,500 4,000 Supplies 3,000 Transportation 1,000

5. Petty cash fund9,000Miscellaneous expense500

Cash in bank

6. Postage Supplies Transportation

Petty cash fund

7. Petty cash fund Cash in bank

9,000Accounts payable3,000

Cash in bank9,000 2,000

3,0006. No entry 4,000

9,000 7. Petty cash fund 10,000 Postage 2,000

19,000 Supplies 3,000 19,000 Transportation 4,000

Cash in bank19,000

Problem 3-10


May 2 Petty cash fund Cash in bank

10,000 May 10,000

2 Petty cash fund10,000

Cash in bank10,000

29 Postage1,000 Supplies3,000 Transportation2,500

29 Postage1,000 Supplies 3,000 Transportation2,500

Miscellaneous expense1,500

Petty cash fund8,000

Miscellaneous expense 1,500


Petty cash fund8,000 Cash in bank

8,000

June 30 Supplies

Accounts payable Transportation

Petty cash fund

2,000June 30 Supplies2,000 1,000 Accounts payable1,000 1,000 Transportation1,000

4,000Petty cash fund4,000

July1 Petty cash fund4,000

Supplies2,000 Postage1,000 Transportation1,000

To reverse the adjustment made on June 30.

15 Petty cash fund5,000July 15 Supplies1,500

Supplies 3,500 Postage 1,500

Postage500 Transportation 500

Transportation1,500Miscellaneous expense500

Miscellaneous expense 500

Cash in bank12,000



Cash in bank12,000

31 Problem 3-11

2008

Nov. 2Petty cash fund10,000

Cash in bank10,000

30Postage2,000 Supplies5,000 Petty cash fund 10,000

Cash in bank17,000

Dec. 31 Postage3,000 Supplies4,000 Special deposit2,000


2009

Jan. 1 Petty cash fund9,000

Postage3,000 Supplies4,000 Special deposit2,000

2 No entry

31 Postage5,000 Supplies6,000 Accounts payable 7,000 Cash short or over 1,000

Cash in bank19,000

Problem 3-12

Requirement 1 2008

Dec. 1 Petty cash fund10,000

Cash in bank10,000

20 Selling expenses5,000 Miscellaneous expenses2,000 Equipment2,000

Cash in bank9,000

31 Receivable from employee 2,000 Selling expenses 1,500

Transportation500

Petty cash fund4,000 2009

Jan. 1 Petty cash fund4,000

Receivable from employee2,000 Selling expenses1,500 Transportation 500

32 2009

Jan. 15 No entry

31 Selling expenses2,000 Administrative expenses 2,000 Transportation 1,500 Purchases1,200

Cash in bank6,700

Requirement 2

Petty cash10,000 Less: Petty cash expenses from December 21, 2008 to January 31, 2009:

Selling expenses (1,500 + 500) Administrative expenses Transportation (500 + 1,000) Purchases

Petty cash before replenishment

Problem 3-13 Answer B

Problem 3-15 Answer A

2,000 2,000 1,500

1,200 6,700

3,300

Problem 3-14 Answer C


Petty cash fund Undeposited collections Cash in bank

Total

50,000 1,100,000 2,500,000 3,650,000

Payroll account

Value added tax account Travelers check

Money order Petty cash fund Total

2,500,000 1,000,000 300,000 700,000

40,000 4,540,000


Checking account #101 1,750,000 Checking account #201 ( 100,000)

Time deposit account 90-day Treasury bill

Total cash and cash equivalent

250,000

500,000 2,400,000


Cash in First Bank Change fund Petty cash fund Total

5,000,000 50,000

15,000 5,065,000


Cash balance per book Credit adjustment Adjusted cash balance

6,000,000 (1,600,000)

4,400,000

33

Note receivable

Accounts receivable (400,000 + 200,000) Cash

1,000,000 600,000

1,600,000


Checkbook balance Postdated customer check

8,000,000 (2,000,000)

NSF check( 500,000)

Undelivered company check Adjusted balance

1,500,000 7,000,000


Cash on hand Cash in bank Petty cash Saving deposit Total deposit

2,400,000 3,500,000

40,000 2,000,000

7,940,000

Problem 3-22 Answer BProblem 3-23 Answer AProblem 3-24 Answer A


Cash on hand and in bank Time deposit

Saving deposit Total

5,000,000 6,000,000

1,000,000 12,000,000


Currencies4,000 Coins 1,000 Accommodation check 6,000 Total 11,000


Coins and currency2,000 Replenishment check4,000 Total6,000


Total petty cash Currency and coins Amount of replenishment

10,000 ( 3,000)

7,000

34

CHAPTER 4

Problem 4-1

1. D 6. C 11. C 2. A 7. D 12. B 3. B 8. C 13. A 4. C 9. A 14. C 5. C 10. B 15. C

Problem 4-2

Balance per book

Add: CM for note collected Total

Less: DM for service charge Adjusted book balance

Balance per bank Add: Deposit in transit Total

Less: Outstanding checks: No. 102

105

65,000 30,000 95,000

2,000 93,000

108,000

80,000 188,000

15,000 30,000

107 Adjusted bank balance

50,000 95,000

93,000

Adjusting entries:

1. Cash in bank30,000

Note receivable30,000

2. Bank service charge2,000

Cash in bank2,000

Problem 4-3

Balance per book


Less: DM for service charge NSF check

Book error (52,000 25,000) Adjusted book balance

110,000

45,000 155,000

5,000 10,000

27,000 42,000 113,000

35

Balance per bank Add: Deposit in transit

135,000 60,000

Erroneous bank debit Total


775 777

Adjusted bank balance

8,000 68,000 203,000

20,000 30,000

40,000 90,000 113,000

Adjusting entries:

1. Cash in bank 45,000 Bank service charge 5,000


2. Bank service charge5,000 Accounts receivable 10,000 Accounts payable 27,000

Cash in bank42,000

Problem 4-4

Balance per book


Less: DM for service charge Adjusted book balance

2,840,000

270,000 3,110,000

5,000 3,105,000



122 124

3,265,000

450,000 3,715,000

60,000 180,000 120,000


250,000 610,000 3,105,000

Adjusting entries:

1. Cash in bank

Bank service charge Note receivable Interest income

2. Bank service charge Cash in bank

270,000 10,000

5,000

250,000 30,000

5,000

36

Problem 4-5

Balance per book

Add: Note collected by bank Total

Less: Bank service charge

5,000,000 2,150,000

7,150,000 50,000

NSF check Adjusted book balance

500,000 550,000 6,600,000

Balance per bank Deposit in transit Total

Less: Outstanding checks Adjusted bank balance

4,450,000 3,000,000 7,450,000

850,000 6,600,000

Adjusting entries:

1. Cash in bank

Bank service charge Note receivable Interest income

2. Bank service charge Accounts receivable

Cash in bank

2,150,000 50,000

50,000 500,000

2,000,000 200,000

550,000

Problem 4-6

Book balance

Add: Collection of note Interest on note

Book error on check no. 175 Total

Less: Bank service charge Payment for light and water NSF check

Adjusted book balance

2,500,000 150,000

45,000

5,000 245,000 220,000

1,405,000

2,695,000 4,100,000

470,000 3,630,000

Bank balance

Add: Deposit in transit Total

Less: Bank error

5,630,000

750,000 6,380,000

1,100,000

Outstanding checks Adjusted bank balance

1,650,000 2,750,000 3,630,000

37

Adjusting entries:

1. Cash in bank

Note receivable Interest income Accounts payable

2. Bank service charge Light and water Accounts receivable

Cash in bank

2,695,000 2,500,000

150,000

45,000

5,000 245,000 220,000

470,000

Problem 4-7

a. Balance per book April 30 Credit memo for note collected Outstanding checks:

No. 1331 1332 1334 1335

Total

Less: Bank service charge

1,100,000 60,000

40,000 30,000 60,000

10,000 140,000 1,300,000

5,000

NSF check

Undeposited collections Balance per bank April 30

25,000 270,000

300,000 1,000,000

b. Adjusting entries:



2. Bank service charge 5,000 Accounts receivable 25,000

Cash in bank

c. Balance per book April 30 CM for note collected

30,000

1,100,000 60,000

Bank service charge(5,000)

NSF check

Adjusted cash in bank

( 25,000) 1,130,000

38

Problem 4-8

a. Balance per bank

Add: Undeposited collections NSF check

DM for safety deposit Unrecorded check

550,000 50,000

5,000 125,000

3,500,000

730,000

Total

Less: Checks outstanding Overstatement of creditors check

4,230,000 650,000

270,000

Understatement of customers check Balance per book

180,000 1,100,000 3,130,000

b. Adjusting entries:

1. Cash in bank Accounts payable

450,000

270,000

Accounts receivable

2. Accounts receivable Bank service charge Accounts payable

Cash in bank

180,000

50,000 5,000 125,000

180,000

c. Balance per book

Overstatement of creditors check Understatement of customers check Total

Less: NSF check

DM for safety box

3,130,000 270,000

180,000 3,580,000

50,000 5,000

Unrecorded check Adjusted book balance

125,000 180,000 3,400,000

Problem 4-9

Balance per book

Add: Proceeds of bank loan

2,700,000 940,000

Note collected by bank435,0001,375,000

Total

Less: Service charge

Customers check charged back Adjusted book balance

4,075,000 10,000

50,000 60,000 4,015,000

39

Balance per bank Add: Deposit in transit

Incorrect deposit Erroneous bank charge Erroneous debit memo

Total

Less: Outstanding checks Erroneous bank credit


475,000

90,000 150,000

200,000

600,000 300,000

4,000,000

915,000 4,915,000

900,000 4,015,000

Adjusting entries:

1. Cash in bank

Bank service charge

Interest expense (60,000 x 1/6) Prepaid interest expense

Loan payable (940,000/94%) Note receivable

Interest income

2. Bank service charge

1,375,000 5,000 10,000 50,000

10,000

1,000,000 400,000 40,000

Accounts receivable50,000

Cash in bank60,000

Problem 4-10

Balance per book (squeeze) Add: Proceeds of bank loan

Proceeds of note collected Total

Less: Bank service charge NSF check


Balance per bank (squeeze) Add: Deposit in transit

Bank error (200,000 20,000) Total

Less: Outstanding checks (750,000 50,000) Adjusted bank balance

500,000 435,000

5,000

50,000

450,000 180,000

2,120,000

935,000 3,055,000

55,000 3,000,000

3,070,000

630,000 3,700,000

700,000 3,000,000

Adjusting entries:

Cash in bank

Bank service charge (5,000 + 15,000) Accounts receivable

Loan payable

880,000 20,000

50,000

500,000

Notes receivable Interest income

400,000

50,000

40 Problem 4-11

Balance per book

Add: Proceeds of bank loan Total

Less: Understatement of check in payment of account (200,000 20,000)

Petty cash fund Adjusted book balance

Balance per bank

Add: Undeposited collections

180,000

10,000

300,000

5,000,000

516,000 5,516,000

190,000 5,326,000

5,500,000

Erroneous bank charge50,000 Deposit omitted from bank statement 150,000 500,000

Total

Less: Erroneous bank credit Outstanding checks


130,000 544,000

6,000,000

674,000 5,326,000

Adjusting entries:

Cash in bank

Interest expense (84,000 x 2/12) Prepaid interest expense Accounts payable

Petty cash fund Supplies Transportation Postage

Loan payable (516,000/86%)

326,000 14,000 70,000 180,000

4,000 2,000

3,000

1,000

600,000

Problem 4-12

Balance per book

Add: Overstatement of check number 765 Check number 555 stopped for payment

Total

Less: Service charge NSF check


1,300,000 20,000

10,000 30,000 1,330,000

5,000

85,000 90,000 1,240,000

Balance per bank

Add: Undeposited collections Total

Less: Outstanding checks: Number 761

762 763 764

1,200,000

275,000 1,475,000

55,000 40,000 25,000 65,000


50,000 235,000 1,240,000

41 Adjusting entries:


Accounts payable20,000 Miscellaneous income 10,000

2. Bank service charge 5,000 Accounts receivable 85,000

Cash in bank90,000

3. Receivable from cashier40,000 Accounts receivable 30,000

Sales discounts10,000

Problem 4-13

a. Bank reconciliation June 30

Book balance

Add: Credit memo for note collected Total

Less: NSF check

1,000,000

300,000 1,300,000

100,000

Service charge Adjusted book balance

4,000 104,000 1,196,000

Bank balance



1,650,000

400,000 2,050,000

854,000 1,196,000

Bank reconciliation July 31

Book balance

Add: Credit memo for bank loan Total

Less: Service charge Adjusted book balance

Bank balance



1,400,000

500,000 1,900,000

1,000 1,899,000

2,650,000 1,100,000 3,750,000 1,851,000 1,899,000

b. Adjusting entries, July 31

1. Cash in bank

Bank loan payable

500,000

500,000

42

2. Bank service charge1,000

Cash in bank1,000

Computation of deposit in transit July 31

Deposit in transit June 30 Add: Deposits during July:

Book debits

400,000

4,000,000

Less: June credit memo for note collected Total

300,0003,700,000 4,100,000

Less: Deposits credited by bank during July: Bank credits

Less: July credit memo for bank loan Deposit in transit July 31

3,500,000

500,000

3,000,000 1,100,000

Computation of outstanding checks July 31

Outstanding checks, June 30

Add: Checks drawn by company during July: Book credits

Less: June debit memos for NSF check

854,000

3,600,000

100,000

Service charge Total

4,000 104,000 3,496,000 4,350,000

Less: Checks paid by bank during July: Bank debits

Less: July service charge Outstanding checks, July 31

2,500,000

1,000

2,499,000 1,851,000

Problem 4-14

a. Reconciliation October 31


Bank balance



600,000

400,000 300,000

700,000 100,000 600,000

Reconciliation November 30

Book balance

Add: Understatement of collection from customer Total

Less: Understatement of check disbursement Adjusted book balance

1,000,000

90,000 1,090,000

270,000

820,000

43

Bank balance

Add: Deposit in transit

930,000 190,000

Check of Susan Company charged in error200,000 390,000

Total

Less: Outstanding checks

1,320,000 400,000

Deposit of Susan Company erroneously credited Adjusted bank balance

100,000 500,000

820,000

b. Adjusting entries November 30



2. Accounts payable Cash in bank

270,000

270,000

Computation of outstanding checks October 31

Outstanding checks October 31 (squeeze) Add: Checks issued by depositor:

Book disbursements

100,000

1,800,000

Understatement of check paid Total

270,0002,070,000 2,170,000

Less: Checks paid by bank:

Bank disbursements1,970,000

Check of Susan Company charged in error( 200,000) Outstanding checks November 30

1,770,000

400,000

Computation of deposit in transit November 30

Deposit in transit October 31

Add: Cash receipts deposited during November: Book receipts

Understatement of collection from customer Total

Less: Deposits credited by bank during November: Bank receipts

2,200,000

90,000

2,500,000

300,000

2,290,000 2,590,000

Deposit of Susan Company erroneously credited Deposit in transit November 30

( 100,000)2,400,000

190,000

Problem 4-15

a. Reconciliation on July 1

Adjusted book balance1,270,000

44

Bank balance



1,720,000

500,000 2,220,000

950,000 1,270,000

Reconciliation on July 31

Book balance

Add: Note collected by bank

470,000 1,500,000

Total

Less: Bank service charge Adjusted book balance

Bank balance


Less: Outstanding checks: Check # 107

1,970,000

20,000 1,950,000

2,700,000

400,000 3,100,000

650,000


500,000 1,150,000 1,950,000

b. Adjusting entries on July 31

1. Cash in bank

Note receivable

2. Bank service charge

1,500,000

1,500,000

20,000

Cash in bank20,000

Computation of deposit in transit July 1

Deposit in transit July 1 (squeeze) Cash receipts per book

Total

Less: Deposits credited by bank Deposit in transit July 31

500,000 3,400,000 3,900,000 3,500,000

400,000

Computation of outstanding checks July 1

Outstanding checks July 1 (squeeze) Checks drawn by depositor

Total

Less: Checks paid by bank Outstanding checks July 31

950,000 4,200,000 5,150,000 4,000,000

1,150,000

45

Problem 4-16

Balance per book November 30 Less: Service charge

NSF check

Customers note erroneously recorded as cash receipt Adjusted book balance

10,000 50,000

100,000

500,000

160,000 340,000

Balance per bank November 30 Add: Deposit in transit

Total


Deposit in transit October 31 Cash receipts deposited:

Book debits

October collections recorded in November

600,000 120,000

720,000 380,000 340,000

45,000

710,000 ( 45,000)

Customers note recorded as cash receipt Total

Less: Deposits credited by bank: Bank credits

Correction of bank error Deposit in transit November 30

Outstanding checks October 31 Checks issued by depositor:

Book credits

October bank service charge Total

Checks paid by bank: Bank debits

(100,000)

500,000 ( 10,000)

1,200,000 ( 5,000)

1,000,000

565,000 610,000

490,000 120,000

125,000

1,195,000 1,320,000

November bank service charge(10,000)

November NSF check(50,000) 940,000 Outstanding checks November 30 380,000

Adjusting entry:

Bank service charge Accounts receivable Note receivable

Cash in bank

10,000 50,000 100,000

160,000

46

Problem 4-17

Book balance

Note collected by bank

March 31 200,000

Receipts 800,000

Disbursements 720,000

April 30 280,000

March60,000( 60,000)

April100,000100,000 Service charge

March( 8,000) April

NSF check

( 8,000)

2,000( 2,000)

March April

Deposit in transit March 31 April 30

Outstanding checks March 31

April 30 Bank balance

( 20,000)

( 80,000)

178,000

330,000

80,000 (220,000)

700,000

( 20,000) 30,000

178,000 (372,000) 530,000

( 30,000)

(220,000)

372,000 500,000

Problem 4-18

July 31 Bank balance800,000

Receipts 5,000,000

Disbursements 3,940,000

August 31 1,860,000

Book error on collection Book error on payment

( 180,000)

( 540,000)

( 180,000) 540,000

Bank error on deposit Bank error on payment NSF check:

( 200,000)

( 400,000)

( 200,000) 400,000

July100,000100,000

August(50,000)50,000 Note collected by bank:

July August

Deposit in transit: July

August Outstanding checks:

July August

( 200,000)

600,000

( 100,000)

200,000

( 300,000)

( 600,000) 480,000

(

100,000)

650,000

( 300,000)

480,000

( 650,000)

Book balance1,200,0004,400,0003,600,0002,000,000

47

Problem 4-19

Nov. 30ReceiptsDisbursementsDec. 31

Book balance2,032,0002,568,0001,440,0003,160,000 Bank service charge

November 30 December 31

Collection of note November 30

(2,000)

( 200,000)

(2,000)

4,000(4,000)

200,000

December 31 Adjusted book balance

Bank balance Outstanding checks

November 30

1,830,000

1,890,000

( 180,000)

( 300,000) 2,468,000

2,090,000

1,442,000

1,080,000

( 180,000)

( 300,000) 2,856,000

2,900,000

December 31 Deposit in transit

November 30 December 31

80,000( 80,000) 498,000

592,000( 592,000)

498,000

Check erroneously charged by bank November 3040,000 December 31

( 40,000)

( 50,000) 50,000

Adjusted bank balance1,830,0002,468,0001,442,0002,856,000

Adjusting entry:

Bank service charge Note receivable

Cash in bank

4,000 300,000

304,000

48

Problem 4-20

Sept. 30ReceiptsDisbursementsOct. 31

Book balance1,900,0001,400,0002,400,000900,000 NSF check:

September 30( 60,000) October 31

(60,000)

40,000( 40,000)

Collection of accounts receivable September 3030,000 October 31

Overstatement of check

September 3090,000

( 30,000)

50,00050,000

( 90,000)

October 31 Adjusted balance

Bank balance Deposit in transit

1,960,000

2,100,000

________ 1,330,000

1,200,000

( 120,000) 2,260,000

2,500,000

120,000 1,030,000

800,000

September 30 October 31

Outstanding checks

130,000( 130,000)

260,000260,000

September 30( 270,000)( 270,000)

October 31 30,000 (30,000) Adjusted balance 1,960,000 1,330,000 2,260,0001,030,000

Adjusting entries on October 31

1. Accounts receivable Cash in bank

2. Cash in bank

Accounts receivable Salaries

40,000

170,000

40,000

50,000 120,000

49

Problem 4-21

May 31ReceiptsDisbursementsJune 30

Balance per book2,500,0005,300,0005,400,0002,400,000 Bank service charge:

May 31(20,000) June 30

NSF check: June 30

Interest collected: June 30

Book error:

( 20,000) 25,000

200,000

75,000

(25,000)

( 200,000)

75,000

June 30 Adjusted balance

Balance per bank Deposit in transit

2,480,000

2,700,000

_________ 5,375,000

5,500,000

( 300,000) 5,305,000

5,600,000

300,000 2,550,000

2,600,000

May 31 June 30

Outstanding checks May 31

625,000

( 845,000)

( 625,000)

500,000500,000

( 845,000)

June 30 Adjusted balance

550,000 2,480,0005,375,0005,305,000

( 550,000) 2,550,000

Adjusting entries on June 30:

1. Cash in bank Interest income Equipment

2. Bank service charge Accounts receivable

Cash in bank

375,000

25,000 200,000

75,000 300,000

225,000


Balance per book4,000,000

Bank charges(10,000)

Customer note collected by bank Interest on customer note

1,500,000 60,000

NSF customer check( 250,000)

Depositors note charged to account Adjusted book balance

(1,000,000) 4,300,000

50



Less: Outstanding checks

2,000,000

200,000 2,200,000

400,000

Erroneous bank credit Adjusted bank balance

300,000 700,000 1,500,000

The adjusted cash in bank can also be computed by starting with the balance per book.

Balance per book

Add: Proceeds of note collected Total

Less: NSF checks (150,000 50,000) Adjusted book balance

850,000

750,000 1,600,000

100,000 1,500,000


Balance per book

Note collected by bank

8,500,000 950,000

Book error (200,000 20,000) NSF check

( 180,000) ( 250,000)

Bank service charge Adjusted book balance

(20,000) 9,000,000




Problem 4-28 Answer D

Balance per ledger 3,750,000 Service charges ( 50,000) Collection of note 1,500,000 Book error ( 100,000)

Unrecorded check for traveling expenses Adjusted book balance

Balance per bank Deposit in transit Total

Outstanding checks (squeeze) Adjusted bank balance

( 500,000) 4,600,000

6,200,000 1,400,000 7,600,000 3,000,000 4,600,000

51 Problem 4-29 Answer B



Outstanding checks May 31 Checks issued by depositor in June:

Total credits to cash in June

3,000,000

9,000,000

Service charge in May recorded in June Total

Checks paid by bank in June:

Checks and charges by bank in June

( 100,000)

8,000,000

8,900,000 11,900,000

Service charge in June(50,000)

NSF check in June Outstanding checks June 30

(1,000,000) 6,950,000 4,950,000


Balance per book June 302,100,000

Service charges Collection by bank

( 50,000) 550,000

NSF check


Balance per bank June 30 Deposits outstanding June 30 Checks outstanding June 30 Adjusted bank balance

Outstanding checks May 31 Checks recorded by book in June Total

Less: Checks recorded by bank in June Outstanding checks June 30

Deposits outstanding May 31 Deposits recorded by book in June Total

Less: Deposits recorded by bank in June Deposits outstanding June 30

( 100,000) 2,500,000

2,400,000 500,000

( 400,000) 2,500,000

100,000 2,500,000

2,600,000 2,200,000

400,000

300,000 1,800,000 2,100,000 1,600,000

500,000


Note collected1,936,000

Book error (1,930,000 1,390,000) NSF check

( 540,000) ( 840,000)

Service charge Net debt to cash

(47,000)

509,000

52



Problem 4-36 Answer D

Balance per bank November 30 December deposits

Total

December disbursements Balance per bank December 31 Deposit in transit December Outstanding checks December

Adjusted bank balance December 31

Balance per book December 31 (squeeze) Note collected by bank

NSF check Service charge


3,600,000 5,500,000 9,100,000 (4,400,000) 4,700,000

700,000

( 500,000) 4,900,000

4,300,000 1,000,000

( 350,000) ( 50,000) 4,900,000


Bank disbursements for July Outstanding checks June 30 Outstanding checks July 31 Book disbursements for July

9,000,000 (1,400,000) 1,000,000 8,600,000


Bank receipts for April Deposits in transit March 31 Deposits in transit April 30 Book receipts for April

6,000,000 (1,000,000)

1,500,000 6,500,000

53 CHAPTER 5

Problem 5-1Problem 5-2Problem 5-3

1. D 6. A 2. D 7. B 3. D 8. C 4. B 9. A 5. A 10. C

1. A 6. A 1. D 2. C 7. D 2. B 3. A 8. C 3. C 4. A 9. C 4. D 5. A 10. D 5. A

Problem 5-4

a. Accounts receivable Notes receivable Installments receivable Advances to suppliers Advances to subsidiary Claim receivable Subscriptions receivable

Accrued interest receivable Customers credit balances Advances from customers Receivables

b. Accounts receivable


Installments receivable Advances to suppliers Claim receivable Subscription receivable Accrued interest receivable

775,000 100,000 300,000 150,000 400,000 15,000 300,000 10,000

(

30,000 20,000 2,000,000

775,000 50,000)

100,000 300,000 150,000 15,000 300,000

10,000

Total trade and other receivables1,600,000

c. The advances to subsidiary should be classified as noncurrent and presented as long-term investment.

The customers credit balances and advances from customers should be classified as current liabilities and included as part of trade and other payables.

Problem 5-5

a. Accounts receivable January 1 Charge sales

Total

Less: Collections from customers

600,000 6,000,000 6,600,000

5,300,000

Writeoff Merchandise returns

Allowances to customers Accounts receivable December 31

35,000 40,000

25,000 5,400,000 1,200,000

54

b. Subscription receivable Deposit on contract Claim receivable Advances to employees Advances to affiliated Advances to supplier

Accounts receivable 490,000

c. Accounts receivable Claim receivable

60,000

Advances to employees 10,000

Advances to supplier

150,000 120,000 60,000 10,000 100,000 50,000

1,200,000

50,000

Total trade and other receivables1,320,000

d. The subscriptions receivable should be deducted from subscribed share capital.

The deposit on contract should be classified as noncurrent and presented as other noncurrent asset.

The advances to affiliates should be classified as noncurrent and presented as long-term investment.

Problem 5-6

Requirement 1

1. Accounts receivable Sales

2. Notes receivable Accounts receivable

3. Doubtful accounts

Allowance for doubtful accounts

4. Allowance for doubtful accounts Accounts receivable

5. Sales return

Accounts receivable

3,600,000

400,000

90,000

20,000

15,000

3,600,000

400,000

90,000

20,000

15,000

6. Cash

Accounts receivable

7. Sales discount

Accounts receivable

8. Cash

Notes receivable

2,450,000

45,000

150,000

2,450,000

45,000

150,000

55

Requirement 2

Notes receivable250,000

Requirement 3

Accounts receivable

Less: Allowance for doubtful accounts Net realizable value

670,000

70,000 600,000

Problem 5-7

FOB destination and freight collect

1. Accounts receivable Freight out

Sales

Allowance for freight charge

2. Cash

Sales discount

Allowance for freight charge Accounts receivable

500,000 10,000

475,000 15,000 10,000

500,000 10,000

500,000

FOB destination and freight prepaid

1. Accounts receivable Freight out

Sales Cash

2. Cash

Sales discount

Accounts receivable

500,000 10,000

485,000 15,000

500,000 10,000

500,000

FOB shipping point and freight collect


500,000

500,000

2. Cash

Sales discount

Accounts receivable

485,000 15,000

500,000

FOB shipping point and freight prepaid


Cash

510,000

500,000 10,000

56

2. Cash

Sales discount

Accounts receivable

495,000 15,000

510,000

Problem 5-8


2. Cash

Sales discount

Accounts receivable

3. Cash

Accounts receivable

4. Sales return

Accounts receivable

5. Sales return

Allowance for sales return

4,000,000

1,470,000 30,000

1,000,000

100,000

40,000

4,000,000

1,500,000

1,000,000

100,000

40,000

Problem 5-9

Gross methodNet method

July 1 Accounts receivable Sales

49,000

2 Accounts receivable Sales

196,000

50,000

200,000

50,000

200,000

July 1 Accounts receivable Sales

2 Accounts receivable Sales

49,000

196,000

12 Cash196,00012 Cash196,000 Sales discount 4,000 Accounts receivable

196,000


30 Cash50,00030 Cash50,000

Accounts receivable50,000 49,000

1,000

Accounts receivable Sales discount forfeited

Problem 5-10

a. Credit sales (75% x 5,000,000)

Doubtful accounts (2% x 3,750,000)

Doubtful accounts


3,750,000

75,000

75,000

75,000

b. Doubtful accounts (1% x 5,000,000)50,000

Allowance for doubtful accounts50,000 57

c. Required allowance80,000 Less: Credit balance of allowance 20,000 Doubtful accounts expense60,000

Doubtful accounts60,000

Allowance for doubtful accounts60,000

d. Required allowance (10% x 500,000)50,000 Less: Credit balance of allowance 20,000 Doubtful accounts expense30,000



Problem 5-11

a. Required allowance (5% x 600,000)30,000 Add: Debit balance in allowance account10,000 Doubtful accounts expense40,000



b. Required allowance50,000 Add: Debit balance in allowance account10,000 Doubtful accounts expense60,000



c. Doubtful accounts (2% x 1,900,000)38,000


Problem 5-12

a. Doubtful accounts (3% x 8,000,000) Allowance for doubtful accounts

b. Doubtful accounts


Allowance January 1 Doubtful accounts (squeeze) Recovery

Total

Accounts written off

Allowance December 31 (8% x 2,000,000)

c. Doubtful accounts


240,000

170,000

210,000

240,000

170,000

100,000 170,000

20,000 290,000 130,000 160,000

210,000

58

Allowance January 1 Doubtful accounts (squeeze) Recovery

Total

Accounts written off Allowance December 31

100,000 210,000

20,000 330,000 130,000 200,000

Problem 5-13

Requirement a


2. Cash

Sales discount

Accounts receivable(2,450,000/98%)

3. Cash

Accounts receivable


5. Accounts receivable


Cash

Accounts receivable

6. Sales return

7,000,000

2,450,000 50,000

3,900,000

30,000

10,000

10,000

70,000

7,000,000

2,500,000

3,900,000

30,000

10,000

10,000


Requirement b



Rate = 40,000/1,000,000 = 4%

Allowance for doubtful accounts December 31 (4% x 1,500,000)60,000 Less: Allowance before adjustment20,000 Doubtful accounts expense40,000

Requirement c

Accounts receivable December 31 Allowance for doubtful accounts Net realizable value

1,500,000

( 60,000) 1,440,000

59

Problem 5-14

Requirement a

1. Cash

Accounts receivable Sales (800,000/10%)

2. Cash

Sales discount (5% x 720,000)

Accounts receivable(10% x 7,200,000)

3. Cash

Accounts receivable

4. Sales discount

Allowance for sales discount

5. Sales return

Accounts receivable


Accounts receivable


Cash

Accounts receivable

800,000 7,200,000

684,000 36,000

5,940,000

10,000

80,000

60,000

10,000

10,000

8,000,000

720,000

5,940,000

10,000

80,000

60,000

10,000

10,000

7. Doubtful accounts70,000


Required allowance December 31 (5% x 2,400,000) Less: Allowance before adjustment

Doubtful accounts

120,000

50,000

70,000

Rate = 100,000/2,000,000 = 5%

Requirement b

Accounts receivable

Less: Allowance for doubtful accounts Allowance for sales discount

Net realizable value

120,000

10,000

2,400,000

130,000 2,270,000

60 Problem 5-15

Requirement a


Sales (3,070,000 470,000)

2. Cash (2,455,000 1,455,000) Accounts receivable

3. Cash

Sales discount

2,600,000

1,000,000

1,455,000 45,000

2,600,000

1,000,000

Accounts receivable (1,455,000/97%)


5. Cash Sales

6. Sales return and allowances Accounts receivable

7. Sales return and allowances Cash



1,500,000

20,000

20,000

470,000

470,000

55,000

55,000

10,000

10,000

5,000

5,000

Cash5,000




Credit sales

Less: Sales discount

2,600,000 45,000

Sales return and allowances Net credit sales

55,000 100,000 2,500,000

Doubtful accounts (2,500,000 x 2%)50,000

Requirement b

Accounts receivable


625,000

60,000 565,000

61 Problem 5-16

1. Accounts receivable Jan. 1 Sales

Recovery Collections

1,500,000 7,935,000 15,000

(8,000,000)

4,410,000/98%

2,475,000/99%

4,500,000

2,500,000

Sales discount Writeoff

( 115,000) ( 55,000)

Sales discount:

2% x 4,500,00090,000

Sales return(30,000)1% x 2,500,000 25,000 Accounts receivable Dec. 31 1,250,000 115,000

Problem 5-17

1. Not yet due

1 30 days past due 31 60 days past due 61 90 days past due Over 90 days past due

Amount 1,700,000

1,200,000 100,000 150,000 1,200,000 3,270,000

Percent of Uncollectible -

5% 25% 50% 100%

Required allowance

-

60,000 25,000 75,000 120,000 280,000

2. Allowance January 1 Receivables

Doubtful accounts expense (squeeze) Total

Less: Writeoff (235,000 + 30,000) Required allowance December 31

170,000 30,000 345,000 545,000 265,000 280,000



3,270,000

280,000 2,990,000

Problem 5-18

1. 1,000,000 x 1% 400,000 x 5% 300,000 x 10% 200,000 x 25%

60,000 x 100% 1,960,000

10,000 20,000 30,000 50,000

60,000 170,000

2. Allowance January 1 Recoveries

Doubtful accounts (squeeze) Total

Less: Writeoff (100,000 + 40,000) Allowance December 31

90,000 20,000 200,000 310,000

140,000 170,000



Correct amount Recorded (2% x 9,000,000) Understatement

4. Accounts receivable December 31 Less: Allowance for doubtful accounts Net realizable value

200,000 180,000

20,000

1,960,000

170,000 1,790,000

62

Problem 5-19

1. Writeoff

Less: Recoveries

2005 2006 2007 Total 26,000 29,000 30,000 85,000

2,000 3,000 4,000 9,000

Net writeoff24,00026,00026,00076,000 76,000

Percentage to be used in computing the allowance = ------------------- = 3,800,000

2. Credit sales for 2008

2%

3,000,000

Multiply by bad debt percentage Provision for doubtful accounts

3. Accounts receivable January 1, 2008 Add: Credit sales for 2008

2%

60,000

250,000 3,000,000

Recoveries Total

Less: Collections in 2008 Writeoff

Accounts receivable December 31, 2008

4. Allowance for doubtful accounts January 1 Add: Doubtful accounts for 2008

Recoveries

5,000

2,615,000

40,000

60,000

5,000

3,005,000 3,255,000

2,655,000

600,000

20,000

65,000

Total85,000 Less: Writeoff40,000 Allowance for doubtful accounts December 31 45,000

Problem 5-20

1. Accounts receivable December 31, 2007 Add: Sales for 2008

Recovery of accounts written off Total

Less: Collection from customers Accounts written off

Accounts settled by issuance of note Accounts receivable December 31, 2008

5,000,000

10,000

4,360,000 50,000

200,000

600,000

5,010,000 5,610,000

4,610,000 1,000,000

2. Allowance for doubtful accounts December 31, 2007 Add: Recovery of accounts written off

Total

Less: Accounts written off

Allowance before adjustment December 31, 2008 (debit balance)

30,000 10,000 40,000 50,000

(10,000)

63

3. Required allowance December 31, 2008 On current accounts (700,000 x 5%) On past due accounts (300,000 x 20%)

Total

4. Required allowance December 31, 2008 Add: Debit balance before adjustment Increase in allowance

5. Doubtful accounts


35,000 60,000 95,000

95,000

10,000 105,000

105,000

105,000

Problem 5-21

170,000 10,000

Rate in 2007 = ------------------------ = .016 10,000,000

1. Retained earnings (.016 x 1,250,000) Allowance for doubtful accounts

2. Allowance January 1 Recoveries 2008

Doubtful accounts 2008 (squeeze) Total

Less: Writeoff 2008

258,000 20,000

Rate in 2008 = -------------------------- = .017 14,000,000

20,000

20,000

20,000 10,000

92,000 122,000

88,000

Allowance December 31 (.017 x 2,000,000)



34,000

2,000,000

34,000 1,966,000

Problem 5-22

1. Allowance January 1, 2008

Doubtful accounts recorded (2% x 20,000,000) Recovery

Total

Less: Writeoff (300,000 + 100,000) Allowance balance before adjustment

2. 5,000,000 x 5% 2,000,000 x 10% 1,000,000 x 25% 500,000 100,000 x 75%

Required allowance December 31, 2008


500,000 400,000

50,000 950,000 400,000 550,000

250,000 200,000 250,000

300,000 1,000,000

Allowance for doubtful accounts (1,000,000 550,000)450,000

64 Problem 5-23

1. Allowance 1/1/2008 (1% x 2,800,000)

2. Allowance 1/1/2008

Doubtful accounts recorded in 2008 (1% x 3,000,000) Recovery

Total Writeoff

Allowance before adjustment

3. 300,000 x 1% 80,000 x 5% 60,000 x 20% 25,000 x 80%

Required allowance 12/31/2008

4. Doubtful accounts1,000 Allowance for doubtful accounts (39,000 38,000)

28,000

28,000 30,000

7,000 65,000

(27,000) 38,000

3,000 4,000 12,000 20,000 39,000

1,000

Problem 5-24

2008

Jan. 1Loan receivable Cash

4,000,000

4,000,000

Cash

Unearned interest income

Unearned interest income Cash

342,100

150,000

342,100

150,000

Dec. 31Cash

Interest income

400,000

400,000

Unearned interest income56,948

Interest income56,948

(10%)(12%)

Date 01/01/2008 12/31/2008 12/31/2009 12/31/2010

Interest received

400,000 400,000 400,000

Interest income

456,948 463,782 471,370*

Amortization

56,948 63,782 71,370

Carrying value 3,807,900 3,864,848 3,928,630 4,000,000

*12% x 3,928,630 equals 471,435, or a difference of P65 due to rounding.

2009

Dec. 31Cash

Interest income

400,000

400,000

65 2009

Dec. 31Unearned interest income63,782

Interest income63,782 2010

Dec. 31Cash

Interest income

400,000

400,000

Unearned interest income Interest income

Cash

Loan receivable

71,370

4,000,000

71,370

4,000,000

Problem 5-25

2008

Jan. 1Loan receivable Cash

3,000,000

3,000,000

Direct origination cost Cash

Cash

260,300

260,300

100,000

Direct origination cost100,000

Dec. 31Cash

Interest income

240,000

240,000

Interest income50,382 Direct origination cost 50,382

(8%)(6%)

Date 01/01/2008 12/31/2008 12/31/2009 12/31/2010

Interest received

240,000 240,000 240,000

Interest income

189,618 186,595 183,487

Amortization

50,382 53,405 56,513

Carrying value 3,160,300 3,109,918 3,056,513 3,000,000

2009

Dec. 31Cash

Interest income

240,000

240,000

Interest income53,405 Direct origination cost 53,405

2010

Dec. 31Cash

Interest income

240,000

240,000

66

2010

Dec. 31Interest income56,513

Direct origination cost56,513

Cash

Loan receivable

3,000,000

3,000,000

Problem 5-26

Requirement 1

December 31, 2009 (1,000,000 x .93) December 31, 2010 (2,000,000 x .86) December 31, 2011 (3,000,000 x .79) Total present value of loan

900,000 1,720,000 2,370,000 5,020,000

Requirement 2

Loan receivable 12/31/2008 Accrued interest (6,000,000 x 8%) Total carrying value

Present value of loan

6,000,000

480,000 6,480,000 5,020,000

Impairment loss1,460,000

Requirement 3

2008Impairment loss

Accrued interest receivable Allowance for loan impairment

2009Cash

Loan receivable

1,460,000

1,000,000

480,000 980,000

1,000,000

Allowance for loan impairment Interest income (8% x 5,020,000)

401,600

401,600

2010Cash

Loan receivable

2,000,000

2,000,000

Allowance for loan impairment Interest income

353,728

353,728

Loan receivable 12/31/2009

Allowance for loan impairment (980,000 401,600) Carrying value 12/31/2009

Interest income for 2010 (8% x 4,421,600)

5,000,000

( 578,400) 4,421,600

353,728

67

2011Cash

Loan receivable

3,000,000

3,000,000

Allowance for loan impairment Interest income

224,672

224,672

Loan receivable 12/31/2010

Allowance for loan impairment (578,400 353,672) Carrying value 12/31/2010

Interest income for 2011 (8% x 2,775,328) Allowance per book

Difference due to rounding

3,000,000

( 224,672) 2,775,328

222,026 224,672

2,646

Problem 5-27

Requirement 1

December 31, 2009 ( 500,000 x .89)445,000

December 31, 2010 (1,000,000 x .80) December 31, 2011 (

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