Financial Accounting 1 Valix

SOLUTION MANUAL
Financial Accounting
Valix and Peralta
Volume One - 2008 Edition

1
CHAPTER 1

Problem 1-1 Problem 1-2 Problem 1-3 Problem 1-4

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

8. C 8. C
8. B
9. D 9. C
9. D
10. A 10. D
10. D


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


1. D 1. A 1. C 1. E
2. D 2. B 2. B 2. D
3. C 3. D 3. D 3. B
4. B 4. B 4. A 4. C
5. C 5. A 5. F 5. G
6. D 6. E 6. H
7. C 7. J 7. I
8. A 8. G 8. F
9. D 9. H 9. J
10. A 10. I 10. A

2

Problem 1-13 Problem 1-14

1. Systematic and rational allocation 1. Materiality
as a matching process 2. Going concern
2. Comparability or consistency 3. Income recognition
principle
3. Monetary unit 4. Accounting entity
4. Income recognition principle 5. Standard of
adequate disclosure
5. Time period 6.
Comparability
6. Going concern and cost principle 7. Matching principle

7. Accounting entity 8. Cost
principle
8. Materiality 9. Reliability
9. Completeness or standard 10. Time period
of adequate disclosure
10. Conservatism or prudence

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 8. Cause and effect association
principle
4. Cost principle 9. Systematic and rational allocation
principle
5. Liability recognition principle 10. Immediate recognition principle

Problem 1-17

1. Monetary unit assumption 6. Substance over form
2. Cost principle 7. Income recognition principle
3. Materiality 8. Comparability or consistency
4. Time period 9. Conservatism or prudence
5. Matching principle 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: Note
Cash and cash equivalents 800,000
Accounts receivable 450,000
Inventories 900,000
Prepaid expenses (1)
200,000
Total current assets
2,350,000
Noncurrent assets:
Property, plant and equipment (2) 4,400,000
Long-term investments 950,000
Intangible asset (3)
800,000
Total noncurrent assets
6,150,000
Total assets
8,500,000

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Trade and other payables (4) 450,000
Note payable, short-term debt 200,000
Total current liabilities
650,000
Noncurrent liabilities:
Mortgage payable, due in 5 years 1,500,000
Note payable, long-term debt 500,000
Total noncurrent liabilities
2,000,000
Shareholders' equity:
Share capital, P100 par 4,000,000
Share premium 500,000
Retained earnings 1,350,000
Total shareholders' equity
5,850,000
Total liabilities and stockholders' equity
8,500,000

Note 1 - Prepaid expenses

Office supplies 50,000
Prepaid rent 150,000
Total prepaid expenses 200,000

6

Note 2 - Property, plant and equipment

Property, plant and equipment 5,600,000
Accumulated depreciation (1,200,000)
Net book value 4,400,000

Note 3 - Intangible asset

Patent 800,000

Note 4 - Trade and other payables

Accounts payable 350,000
Accrued expenses 100,000
Total 450,000

Problem 2-2

Simple Company
December 31, 2008

A S S E T S

Cash 420,000
Trading securities 250,000
Trade and other receivables (1) 620,000
Inventories (2) 1,250,000
Prepaid expenses (3) 20,000
Total current assets 2,560,000

Noncurrent assets:
Property, plant and equipment (4)
4,640,000
Long-term investments (5) 2,000,000
Intangible assets (6)
300,000
Total noncurrent assets 6,940,000
Total assets 9,500,000

7


Current liabilities: Note
Trade and other payables (7) 620,000
Serial bonds payable - current portion 500,000
1,120,000

Serial bonds payable - remaining portion
2,000,000

Share capital 5,000,000
Retained earnings 880,000
Total shareholders' equity 6,380,000
Total liabilities and shareholders' equity
9,500,000

Note 1 - Trade and other receivables

Allowance for doubtful accounts ( 50,000)
Notes receivable 150,000
Claim receivable 20,000
Total 620,000

Note 2 - Inventories

Finished goods 400,000
Goods in process 600,000
Raw materials 200,000
Factory supplies 50,000
Total 1,250,000

Note 3 - Prepaid expenses

Prepaid insurance 20,000


Accum. Book
Cost depr.
value
Land 1,500,000 -
1,500,000
Building 4,000,000 1,600,000
2,400,000
Machinery 2,000,000 1,300,000
700,000
Tools 40,000 -
40,000
Total 7,540,000 2,900,000
4,640,000

8

Note 5 - Long-term investments

Investment in bonds
1,500,000
Plant expansion fund
500,000
Total 2,000,000

Note 6 - Intangible assets

Franchise 200,000
Goodwill
100,000
Total
300,000


Accounts payable
300,000
Notes payable
100,000
Income tax payable
60,000
Advances from customers
100,000
Accrued expenses
30,000
Accrued interest on note payable
10,000
Employees income tax payable
20,000
Total
620,000

Problem 2-3
Exemplar Company
December 31, 2008

A S S E T S

Cash and cash equivalents 500,000
Inventories 1,300,000
Prepaid expenses 70,000
2,790,000
Noncurrent assets:
Property, plant and equipment (2)
5,300,000
Long-term investments (3) 1,310,000
Intangible assets (4) 3,350,000
Other noncurrent assets (5) 150,000
Total noncurrent assets
10,110,000
Total assets
12,900,000

9


Note
Trade and other payables (6)
1,000,000
Bonds payable 5,000,000
Premium on bonds payable 1,000,000
6,000,000

Share capital (7) 7,000,000
Reserves (8) 700,000
Retained earnings (deficit) (1,800,000)
5,900,000
12,900,000


Accounts receivable
400,000
Allowance for doubtful accounts (
20,000)
Accrued interest on notes receivable
10,000
Total 640,000


Accum. Book
Cost
depr. value
Land 1,500,000 -
1,500,000
Building 5,000,000 2,000,000
3,000,000
Equipment 1,000,000 200,000
800,000
Total 7,500,000 2,200,000
5,300,000

Note 3 - Long-term investments

Land held for speculation
500,000
Sinking fund
400,000
Preference share redemption fund
350,000
Cash surrender value
60,000
Total 1,310,000


Computer software 3,250,000
Lease rights
100,000
Total 3,350,000

10
Note 5 - Other noncurrent assets

Advances to officers, not collectible currently
100,000
Long-term refundable deposit 50,000
Total 150,000


Notes payable 300,000
Unearned rent income 40,000
SSS payable 10,000
Accrued salaries 100,000
Dividends payable
120,000
Withholding tax payable
30,000
Total 1,000,000

Note 7 – Share capital

Preference share capital
2,000,000
Ordinary share capital 5,000,000
Total 7,000,000

Note 8 - Reserves

Share premium – preference 500,000
Share premium – ordinary 200,000
Total 700,000

Problem 2-4

Relax Company
December 31, 2008

A S S E T S

Cash 400,000
Trade accounts receivable (1) 750,000
Inventories 1,000,000
2,250,000
Noncurrent assets:
Investment in associate 1,300,000
Intangible assets (3) 350,000

11


Note
Trade and other payables (4) 1,350,000
Mortgage note payable-current portion 400,000
1,750,000

Mortgage note payable, remaining position 1,600,000
Bank loan payable, due June 30, 2010 500,000
2,100,000

Share capital 3,000,000
Reserves (5) 1,400,000
5,650,000
9,500,000

Note 1 - Trade accounts receivable

Net realizable value 750,000


Accum. Book
Cost depr.
value
Land 500,000 - 500,000
Building 5,000,000 2,000,000
3,000,000
Machinery 3,000,000 1,200,000
1,800,000
Equipment 400,000 100,000
300,000
Total 8,900,000 3,300,000
5,600,000


Trademark 150,000
Secret processes and formulas 200,000
Total 350,000


Income tax payable 50,000
Accrued expenses 60,000
Estimated liability for damages 140,000
Total 1,350,000
12
Note 5 - Reserves

Additional paid in capital
300,000
Retained earnings appropriated for plant expansion
1,000,000
Retained earnings appropriated for contingencies
100,000
Total 1,400,000

Problem 2-5

Summa Company
December 31, 2008

A S S E T S

Cash (1) 700,000
Bond sinking fund 2,000,000
Inventory 1,200,000
4,830,000

Noncurrent assets:
Investment property 700,000
Intangible asset (4) 370,000

LIABILITIES AND EQUITY

Note
Trade and other payables (5) 2,050,000
Bonds payable due June 30, 2009 2,000,000
4,050,000

Noncurrent liability:
Deferred tax liability
650,000

Equity:
Share capital (6) 3,500,000
Reserves (7) 500,000
Total equity 6,700,000
Total liabilities and equity 11,400,000

13

Note 1 - Cash

Cash on hand 50,000
Cash in bank 650,000
700,000

Accrued interest receivable 30,000
Total 830,000


Accum. Book

Cost depr.
value

Land 1,000,000 - 1,000,000
Building 5,500,000 2,500,000 3,000,000
Furniture and equipment 2,400,000 900,000
1,500,000
Total 8,900,000 3,400,000 5,500,000

Note 4 - Intangible asset

Patent 370,000


Accounts payable 1,000,000
Accrued taxes 50,000
Other accrued liabilities 150,000
Total 2,050,000

Note 6 – Share capital

Authorized share capital, 50,000 shares, P100 par
5,000,000
Unissued share capital (2,000,000)
Issued share capital 3,000,000
Subscribed share capital, 10,000 shares 1,000,000
Subscription receivable ( 500,000)
500,000
Paid in capital 3,500,000

Note 7 - Reserves

Retained earnings appropriated for contingencies
200,000
Total 500,000

14

Problem 2-6 (Functional method)

Karla Company
Income Statement
Year ended December 31, 2008

Note

Net sales revenue (1)
7,700,000
Cost of sales (2)
(5,000,000)
Gross income
2,700,000
Other income (3)
400,000
Total income
3,100,000
Expenses:
Selling expenses (4) 950,000
Administrative expenses (5) 800,000
Other expenses (6) 100,000
1,850,000
Income before tax
1,250,000
Income tax ( 250,000)
Net income 1,000,000

Note 1 – Net sales revenue

Gross sales 7,850,000
Sales returns and allowances ( 140,000)
Sales discounts ( 10,000)
Net sales revenue
7,700,000

Note 2 – Cost of sales

Inventory, January 1
1,000,000
Purchases 5,250,000
Freight in 500,000
Purchase returns and allowances ( 150,000)
Purchase discounts ( 100,000)
Net purchases
5,500,000
Goods available for sale
6,500,000
Inventory, December 31 (1,500,000)
Cost of sales
5,000,000

Note 3 – Other income

Rental income 250,000
Dividend revenue 150,000
Total other income
400,000

15

Note 4 – Selling expenses

Freight out 175,000
Salesmen's commission 650,000
Depreciation – store equipment
125,000
Total selling expenses
950,000

Note 5 – Administrative expenses

Officers' salaries
500,000
Depreciation – office equipment
300,000
Total administrative expenses
800,000

Note 6 – Other expenses

Loss on sale of equipment
50,000
Loss on sale of investment
50,000
Total other expenses
100,000

Natural method

Karla Company
Income Statement

Note
7,700,000
Other income (2)
400,000
Total 8,100,000
Expenses:
Increase in inventory (3) ( 500,000)
Net purchases (4) 5,500,000
Freight out 175,000
Salesmen's commission 650,000
Depreciation (5) 425,000
Officers' salaries 500,000
Other expenses (6) 100,000
6,850,000
Income before tax 1,250,000
Income tax ( 250,000)

16


Gross sales 7,850,000
Sales discounts (
10,000)
Net sales revenue
7,700,000


Rental income 250,000
Dividend revenue 150,000
Total other income
400,000

Note 3 – Increase in inventory

Inventory, December 31 1,500,000
Inventory, January 1
1,000,000
Increase in inventory
500,000

Note 4 – Net purchases

Purchases 5,250,000
Freight in 500,000
Purchase returns and allowances (
150,000)
Purchase discounts (
100,000)
Net purchases 5,500,000

Note 5 – Depreciation

125,000
300,000
Total 425,000

Note 6 – Other expenses

Loss on sale of equipment
50,000
Loss on sale of investment
50,000
Total 100,000

17

Problem 2-7

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

Raw materials – January 1
200,000
Purchases 3,000,000
Raw materials available for use
3,200,000
Less: Raw materials – December 31
280,000
Raw materials used
2,920,000
Direct labor
950,000
Factory overhead:
Indirect labor 250,000
Superintendence 210,000
Light, heat and power 320,000
Rent – factory building 120,000
Repair and maintenance – machinery 50,000
Factory supplies used 110,000
Depreciation – machinery 60,000
1,120,000
Total manufacturing cost
4,990,000
Goods in process – January 1 240,000
Total Cost of goods in process
5,230,000
Less: Goods in process – December 31
170,000
Cost of goods manufactured 5,060,000

Cost of sales method

Masay Company
Income Statement

Note

7,450,000
Cost of goods sold (2)
(5,120,000)
Gross income
2,330,000
Other income (3)
210,000
Total income
2,540,000
Expenses:
Other expense (6) 300,000
1,720,000
Income before tax
820,000
Income tax expense (
320,000)
Net income 500,000

18


Sales 7,500,000
Sales returns and allowances (
50,000)
Net sales revenue
7,450,000

Note 2 – Cost of goods sold

Finished goods – January 1
360,000
5,420,000
Finished goods – December 31 ( 300,000)
Cost of goods sold
5,120,000


Gain from expropriation
100,000
Interest income 10,000
Gain on sale of equipment
100,000

210,000


Sales salaries
400,000
Advertising 160,000
70,000
Delivery expenses
200,000
Total 830,000


Office salaries 150,000
40,000
Accounting and legal fees 150,000
Office expenses 250,000
Total 590,000

Note 6 – Other expense

Earthquake loss 300,000

19

Nature of expense method

Masay Company
Income Statement

Note
7,450,000
Other income (2)
210,000
Total income
7,660,000
Expenses:
Decrease in finished goods
and goods in process (3) 130,000
Raw materials used (4) 2,920,000
Direct labor 950,000
Factory overhead (5) 1,120,000
Salaries (6) 550,000
Advertising 160,000
Depreciation (7) 110,000
Delivery expenses 200,000
Accounting and legal fees 150,000
Office expenses 250,000
6,840,000
Income before tax
820,000
_320,000)
Net income 500,000


Sales 7,500,000
Net sales revenue
7,450,000


Gain from expropriation 100,000
Gain on sale of equipment 100,000
210,000

Note 3 – Decrease in finished goods and goods in process

January 1 December 31
Decrease
Finished goods 360,000 300,000
60,000
Goods in process 240,000 170,000
70,000
Total 600,000 470,000
130,000

20

Note 4 – Raw materials used

Raw materials – January 1 200,000
Purchases 3,000,000
Raw materials available for use 3,200,000
Raw materials – December 31 280,000
Raw materials used 2,920,000

Note 5 – Factory overhead

Superintendence 210,000
Light, heat and power 320,000
Rent – factory building 120,000
Repair and maintenance – machinery 50,000
Factory supplies used 110,000
Total 1,120,000

Note 6 – Salaries

Sales salaries 400,000
Total 550,000

Note 7 – Depreciation

Depreciation – store equipment 70,000
Depreciation – office equipment 40,000
Total 110,000


Earthquake loss 300,000

Problem 2-8
Youth Company
Income Statement

Note
8,870,000
(5,900,000)
Gross income
2,970,000
Expenses:
1,610,000
Income before tax 1,360,000
360,000)
21


Sales 9,070,000
Sales returns and allowances (
200,000)
Net sales revenue 8,870,000


Beginning inventory 1,500,000
Purchases 5,750,000
Transportation in 150,000
5,800,000
Goods available for sale 7,300,000
Ending inventory (1,400,000)
Cost of goods sold 5,900,000


Depreciation – store equipment 110,000
Store supplies
80,000
Total 690,000


Officers' salaries 400,000
Depreciation – building 120,000
Office supplies 60,000
Total 580,000


Uninsured flood loss 340,000

22
Problem 2-9

Christian Company

Purchases 1,600,000
Freight in 80,000
Total 1,680,000
Increase in raw materials (
100,000)
Raw materials used
1,580,000
Direct labor
1,480,000
Factory overhead:
Factory taxes 130,000
Factory supplies expense 120,000
Factory superintendence 480,000
Factory maintenance 150,000
Factory heat, light and power 220,000
1,750,000
4,810,000
Decrease in goods in process 90,000

Christian Company
Income Statement

Note
Sales revenue
8,000,000
(5,100,000)
Gross income
2,900,000
Expenses:
1,730,000
Income before tax
1,170,000
Income tax expense
( 170,000)


Decrease in finished goods
200,000
Cost of goods sold
5,100,000

23


Advertising 120,000
Delivery expense 160,000
Total 800,000


Office supplies expense
30,000
Doubtful accounts 100,000
Total 930,000

Problem 2-10

Ronald Company

Materials – January 1
1,120,000
Purchases 1,600,000
Freight on purchases 220,000
1,800,000
Materials available for use
2,920,000
Less: Materials – December 31
1,560,000
Materials used 1,360,000
Direct labor
2,000,000
Factory overhead:
Heat, light and power 600,000
Repairs and maintenance 100,000
Other factory overhead 340,000
Factory supplies used (300,000 + 660,000 – 540,000) 420,000
Depreciation – factory building 280,000
2,100,000
5,460,000
Goods in process – January 1 360,000
Total cost of goods in process
5,820,000
Less: Goods in process – December 31
320,000

24

Ronald Company
Income Statement

Note

6,980,000
(5,400,000)
Gross income
1,580,000

Other income (3)
160,000
Total income
1,740,000

Expenses:
Selling expenses 200,000

Administrative expenses 340,000
540,000

Income before tax
1,200,000
200,000)


Sales 7,120,000


Net sales revenue
6,980,000


Finished goods – January 1
420,000


5,920,000

Finished goods – December 31 ( 520,000)

Cost of goods sold
5,400,000


Interest revenue 160,000

25

Problem 2-11

Reliable Company
Statement of Retained Earnings

Retained earnings – January 1 200,000
Prior period error – overdepreciation in 2007
100,000
Change in accounting policy from FIFO to weighted average
method – credit adjustment 150,000
Corrected beginning balance 450,000
Decrease in appropriation for treasury share 200,000

Total 1,950,000
Cash dividends paid to shareholders ( 500,000)
Current appropriation for contingencies ( 100,000)

Retained earnings – December 31 1,350,000

Problem 2-12

Loss from fire ( 50,000)
Goodwill impairment ( 250,000)
Loss on sale of equipment ( 200,000)
Gain on retirement of bonds payable 100,000
Gain on life insurance settlement 450,000
Adjusted net income 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
400,000
Adjusted beginning balance 2,500,000
Net income – adjusted 3,050,000
Stock dividend ( 700,000)
Loss on retirement of preference share ( 350,000)
Appropriated for treasury share (1,000,000)
Balance – December 31 3,500,000

26
CHAPTER 3

Problem 3-1 Problem 3-2

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

Problem 3-3

a. Undeposited collections 60,000
Cash in bank – PCIB 500,000

Cash in bank – PCIB (for payroll)
150,000
Cash in bank - PCIB (savings deposit)
100,000
Money market instrument – 90 days 2,000,000
Total cash and cash equivalents 2,810,000

b. Accounts receivable (15,000 + 25,000) 40,000
Cash in foreign bank 100,000
Advances to officers 30,000
Sinking fund cash 450,000
Bank overdraft 50,000
Cash 690,000

Problem 3-4

Adjusting entries on December 31, 2008

a. Cash 100,000

b. Cash 50,000

c. Accounts receivable 200,000
Cash 200,000

d. Accounts receivable (20,000 + 60,000 + 30,000) 110,000
Money market placement 1,000,000
Cash in closed bank 50,000
Advances to employee 30,000
Pension fund 400,000
Cash
1,590,000

27

Cash and cash equivalents:
Demand deposit (see below) 1,450,000
Time deposit – 30 days
500,000
Petty cash fund
10,000
Total 1,960,000

Demand deposit per book 1,500,000
Undelivered check 100,000
Postdated check delivered 50,000
Window dressing of collection (
200,000)
Adjusted balance
1,450,000

Problem 3-5

1. Cash on hand 500,000
Postdated check (100,000)
Adjusted cash on hand 400,000

2. Petty cash fund 20,000
Unreplenished petty cash expenses ( 2,000)
Postdated employee check ( 3,000)
Adjusted petty cash 15,000

3. Security Bank current account 1,000,000
Postdated company check delivered 200,000
Adjusted balance 1,200,000

Petty cash fund 15,000
Security Bank current account
1,200,000
PNB current account No. 1 400,000
PNB current account No. 2 (
50,000)
BSP Treasury bill – 60 days
3,000,000
Total cash and cash equivalents
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 100,000
Cash on hand
100,000

Expenses 2,000
Receivable from employee 3,000

Security Bank current account 200,000

28

Problem 3-6

NSF customer check (
40,000)
Postdated customer check (
60,000)
Adjusted on hand
400,000

2. Currency and coins 1,000
Check drawn payable to petty cashier
14,000
Adjusted petty cash 15,000

3. Cash in bank 2,000,000
Undelivered company check
100,000
Postdated company check delivered
150,000
Adjusted cash in bank
2,250,000
4. Accounts receivable (40,000 + 60,000) 100,000
Cash on hand
100,000

Advances to employees 3,000
Cash short or over 2,000

Cash in bank (100,000 + 150,000) 250,000
Accounts payable
250,000

Problem 3-7

35,000)
Postdated customer check (
15,000)
Adjusted cash on hand
150,000

2. Petty cash fund:
Currency and coins 5,000

3. Philippine Bank current account
5,000,000
Undelivered company check
25,000
Postdated company check delivered
45,000
Adjusted balance
5,070,000

Petty cash fund
5,000
Philippine Bank current
5,070,000
Manila Bank current
4,000,000
Asia Bank time deposit
2,000,000
Total cash and cash equivalent
11,225,000

29

Cash on hand 50,000

Receivable from officer 2,000
Expenses 12,000
Petty cash 15,000

Philippine Bank current 70,000

City Bank current 100,000
Bank overdraft
100,000

Problem 3-8

Fluctuating Fund System Imprest Fund System

1. Petty cash fund 10,000 1. Petty cash fund
10,000
Cash in bank 10,000 Cash in bank
10,000

2. Postage 1,500 2. No entry
Supplies 5,500
Transportation 1,200
Miscellaneous expense 800

5,000
Cash in bank 14,000 Postage
1,500
Supplies
5,500
Transportation
1,200
Miscellaneous expense
800
Cash in bank
14,000
Problem 3-9


10,000
Cash in bank 10,000 Cash in bank
10,000

2. Postage 1,500 2. No entry
Supplies 2,000
3. No entry
3. Transportation 1,000
Miscellaneous expense 500
Cash in bank 1,500 4. No entry

30


4. Supplies 1,000
Accounts payable 3,000 5. Postage
1,500
Petty cash fund 4,000 Supplies
3,000
5. Petty cash fund 9,000 Miscellaneous expense
500
Cash in bank 9,000 Accounts payable
3,000
Cash in bank 9,000
6. Postage 2,000
Supplies 3,000 6. No entry
Petty cash fund 9,000 7. Petty cash fund
10,000
Postage 2,000
7. Petty cash fund 19,000 Supplies
3,000
Cash in bank 19,000 Transportation
4,000
Cash in bank
19,000

Problem 3-10


May 2 Petty cash fund 10,000 May 2 Petty cash
fund 10,000
Cash in bank 10,000 Cash in
bank 10,000

29 Postage 1,000 29 Postage
1,000
Supplies 3,000 Supplies
3,000
Transportation 2,500 Transportation
2,500
Miscellaneous expense 1,500
Miscellaneous expense 1,500
Petty cash fund 8,000 Petty cash
fund 8,000

Cash in bank
8,000

June 30 Supplies 2,000 June 30 Supplies
2,000
Accounts payable 1,000 Accounts payable 1,000
Transportation 1,000 Transportation
1,000
Petty cash fund 4,000 Petty cash
fund 4,000

July 1 Petty cash fund 4,000
Supplies 2,000
Postage 1,000

To reverse the adjustment made
on June 30.

15 Petty cash fund 5,000 July 15 Supplies
1,500
Supplies 3,500 Postage 500
Postage 1,500 Transportation
500
Transportation 1,500 Miscellaneous
expense 500
Miscellaneous expense 500 Petty cash
fund 3,000
Cash in bank 12,000
Petty cash fund
12,000
Cash in bank
12,000

31

Problem 3-11

2008
Nov. 2 Petty cash fund 10,000
Cash in bank
10,000

30 Postage 2,000
Supplies 5,000
Cash in bank
17,000

Dec. 31 Postage 3,000
Supplies 4,000
Special deposit 2,000

2009
Jan. 1 Petty cash fund 9,000
Postage 3,000
Supplies 4,000
Special deposit 2,000

2 No entry

31 Postage 5,000
Supplies 6,000
Cash in bank
19,000

Problem 3-12

Requirement 1

2008
Dec. 1 Petty cash fund 10,000
Cash in bank
10,000

20 Selling expenses 5,000
Miscellaneous expenses 2,000
Equipment 2,000
Cash in bank
9,000

31 Receivable from employee 2,000
Transportation 500
2009
Jan. 1 Petty cash fund 4,000
Receivable from employee
2,000
Transportation 500

32
2009
Jan. 15 No entry

31 Selling expenses 2,000
Purchases 1,200
Cash in bank
6,700

Requirement 2

Petty cash 10,000
Less: Petty cash expenses from December 21, 2008 to January 31, 2009:
Selling expenses (1,500 + 500) 2,000
Transportation (500 + 1,000) 1,500
Purchases 1,200
6,700
Petty cash before replenishment 3,300

Problem 3-13 Answer B Problem 3-14 Answer C

Problem 3-15 Answer A Problem 3-16 Answer A

Petty cash fund 50,000 Payroll account 2,500,000
Undeposited collections 1,100,000 Value added tax account
1,000,000
Cash in bank 2,500,000 Traveler's check 300,000
Total 3,650,000 Money order
700,000
Total
4,540,000

Problem 3-17 Answer C

Checking account #101 1,750,000
Checking account #201 ( 100,000)
Time deposit account 250,000
90-day Treasury bill
500,000
Total cash and cash equivalent
2,400,000

Problem 3-18 Answer B

Cash in First Bank
5,000,000
Change fund 50,000
Total
5,065,000


Cash balance per book 6,000,000
Credit adjustment
(1,600,000)
Adjusted cash balance 4,400,000

33

Note receivable 1,000,000
Accounts receivable (400,000 + 200,000) 600,000
Cash 1,600,000

Problem 3-20 Answer A

Checkbook balance 8,000,000

Postdated customer check (2,000,000)
NSF check ( 500,000)
Undelivered company check 1,500,000
Adjusted balance 7,000,000


Cash on hand 2,400,000
Cash in bank 3,500,000
Petty cash 40,000
Saving deposit 2,000,000
Total deposit 7,940,000

Problem 3-22 Answer B Problem 3-23 Answer A Problem 3-24 Answer A


Cash on hand and in bank 5,000,000
Time deposit 6,000,000
Saving deposit 1,000,000
Total 12,000,000


Currencies 4,000
Coins 1,000
Accommodation check 6,000
Total 11,000


Coins and currency 2,000

Replenishment check 4,000

Total 6,000


Total petty cash 10,000
Currency and coins ( 3,000)
Amount of replenishment 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 65,000
Add: CM for note collected 30,000

Total 95,000
Less: DM for service charge 2,000

Adjusted book balance 93,000

Balance per bank 108,000

Add: Deposit in transit
80,000
Total 188,000
Less: Outstanding checks:
No. 102 15,000

105 30,000

107 50,000
95,000
Adjusted bank balance 93,000

Adjusting entries:

1. Cash in bank 30,000

Note receivable
30,000

2. Bank service charge 2,000
Cash in bank
2,000

Problem 4-3

Add: CM for note collected
45,000
Total 155,000

Less: DM for service charge 5,000

NSF check 10,000

Book error (52,000 – 25,000) 27,000
42,000

35

Balance per bank 135,000

Add: Deposit in transit 60,000

Erroneous bank debit 8,000
68,000
Total 203,000

No. 770 20,000

775
30,000
777
40,000 90,000

Adjusting entries:

Bank service charge 5,000
Note receivable
50,000

Cash in bank
42,000

Problem 4-4

Balance per book 2,840,000
Add: CM for note collected
270,000
Total 3,110,000
Less: DM for service charge
5,000
Adjusted book balance 3,105,000

Balance per bank 3,265,000

450,000
Total 3,715,000
No. 116 60,000

122 180,000
124 120,000
125 250,000
610,000
Adjusted bank balance 3,105,000

Adjusting entries:

Note receivable 250,000

Cash in bank
5,000

36

Problem 4-5


Add: Note collected by bank 2,150,000
Total 7,150,000

Less: Bank service charge 50,000

NSF check 500,000
550,000


Deposit in transit
3,000,000
Total 7,450,000

Less: Outstanding checks
850,000

Adjusting entries:

Note receivable 2,000,000

Cash in bank
550,000

Problem 4-6

Book balance
1,405,000
Add: Collection of note 2,500,000
Interest on note 150,000
Book error on check no. 175
45,000 2,695,000
Total 4,100,000
Payment for light and water 245,000
NSF check 220,000
470,000

Bank balance
5,630,000
750,000
Total 6,380,000
Less: Bank error 1,100,000
Outstanding checks 1,650,000
2,750,000

37

Adjusting entries:

Note receivable
2,500,000
Interest income
150,000
Accounts payable
45,000

Light and water 245,000
Cash in bank
470,000

Problem 4-7

a. Balance per book – April 30
1,100,000
Credit memo for note collected
60,000
Outstanding checks:
No. 1331 40,000
1332 30,000
1334 60,000
1335 10,000
140,000
Total 1,300,000
NSF check 25,000
Undeposited collections 270,000
300,000
Balance per bank – April 30
1,000,000

b. Adjusting entries:

Note receivable
60,000

Cash in bank 30,000

c. Balance per book – April 30
1,100,000
CM for note collected 60,000
Bank service charge (
5,000)
NSF check (
25,000)
Adjusted cash in bank
1,130,000

38

Problem 4-8

a. Balance per bank
3,500,000
Add: Undeposited collections 550,000
NSF check 50,000
DM for safety deposit 5,000
Unrecorded check 125,000
730,000

Total 4,230,000

Less: Checks outstanding 650,000
Overstatement of creditor's check 270,000
Understatement of customer's check 180,000
1,100,000
Balance per book
3,130,000

b. Adjusting entries:

Accounts payable
270,000
Accounts receivable
180,000

Cash in bank
180,000

c. Balance per book
3,130,000
Overstatement of creditor's check
270,000
Understatement of customer's check
180,000
Total 3,580,000
Less: NSF check 50,000
DM for safety box 5,000
Unrecorded check 125,000
180,000
Adjusted book balance
3,400,000

Problem 4-9

Add: Proceeds of bank loan 940,000
Note collected by bank 435,000
1,375,000
Total 4,075,000
Less: Service charge 10,000
Customer's check charged back 50,000
60,000

39

Incorrect deposit 90,000
Erroneous bank charge 150,000
Erroneous debit memo 200,000
915,000
Total 4,915,000
Less: Outstanding checks 600,000
Erroneous bank credit 300,000
900,000

Adjusting entries:

Interest expense (60,000 x 1/6) 10,000
Prepaid interest expense 50,000
Loan payable (940,000/94%)
1,000,000
Note receivable
400,000
Interest income
40,000

Cash in bank
60,000

Problem 4-10

Balance per book (squeeze)
2,120,000
Add: Proceeds of bank loan 500,000
Proceeds of note collected 435,000
935,000

Total 3,055,000

NSF check 50,000
55,000

Balance per bank (squeeze)
3,070,000
Bank error (200,000 – 20,000) 180,000
630,000
Total 3,700,000
Less: Outstanding checks (750,000 – 50,000)
700,000

Adjusting entries:

Bank service charge (5,000 + 15,000) 20,000
Loan payable
500,000
Notes receivable
400,000
Interest income
50,000

40

Problem 4-11

Add: Proceeds of bank loan
516,000
Total 5,516,000
Less: Understatement of check in payment of account
(200,000 – 20,000) 180,000
190,000

Erroneous bank charge 50,000
Deposit omitted from bank statement 150,000
500,000
Total 6,000,000
Less: Erroneous bank credit 130,000
Outstanding checks 544,000
674,000

Adjusting entries:

Interest expense (84,000 x 2/12) 14,000
Prepaid interest expense 70,000
Supplies 2,000
Postage 1,000
Loan payable (516,000/86%)
600,000

Problem 4-12

Add: Overstatement of check number 765 20,000
Check number 555 stopped for payment 10,000
30,000
Total 1,330,000
NSF check 85,000
90,000

Total 1,475,000
Number 761 55,000
762 40,000
763 25,000
764 65,000
765 50,000
235,000

41
Adjusting entries:

Accounts payable
20,000
Miscellaneous income
10,000

Cash in bank
90,000

3. Receivable from cashier 40,000
Accounts receivable
30,000
Sales discounts
10,000

Problem 4-13

a. Bank reconciliation – June 30

Book balance 1,000,000
Add: Credit memo for note collected
300,000
Total 1,300,000
Less: NSF check 100,000
Service charge 4,000
104,000
1,196,000

Bank balance 1,650,000
400,000
Total 2,050,000
854,000
Adjusted bank balance
1,196,000

Bank reconciliation – July 31

Add: Credit memo for bank loan
500,000
Total 1,900,000
Less: Service charge
1,000
1,899,000

1,100,000

Total 3,750,000

1,851,000
1,899,000

b. Adjusting entries, July 31

Bank loan payable
500,000

42

Cash in bank 1,000

Computation of deposit in transit – July 31

Deposit in transit – June 30
400,000
Add: Deposits during July:
Book debits 4,000,000
Less: June credit memo for note collected
300,000 3,700,000
Total 4,100,000
Less: Deposits credited by bank during July:
Bank credits 3,500,000
Less: July credit memo for bank loan
500,000 3,000,000
Deposit in transit – July 31
1,100,000

Computation of outstanding checks – July 31

Outstanding checks, June 30 854,000
Add: Checks drawn by company during July:
Book credits 3,600,000
Less: June debit memos for
NSF check 100,000
Service charge 4,000
104,000 3,496,000
Total 4,350,000
Less: Checks paid by bank during July:
Bank debits 2,500,000
Less: July service charge
1,000 2,499,000
Outstanding checks, July 31
1,851,000

Problem 4-14

a. Reconciliation – October 31

600,000

Bank balance 400,000
300,000
Total 700,000
100,000
600,000

Reconciliation – November 30

Add: Understatement of collection from customer
90,000
Total 1,090,000
Less: Understatement of check disbursement
270,000
820,000

43

Bank balance 930,000
Check of Susan Company charged in error 200,000
390,000
Total 1,320,000
Deposit of Susan Company erroneously credited 100,000
500,000
820,000

b. Adjusting entries – November 30

Accounts receivable
90,000

2. Accounts payable 270,000
Cash in bank
270,000

Computation of outstanding checks – October 31

Outstanding checks – October 31 (squeeze)
100,000
Add: Checks issued by depositor:
Book disbursements 1,800,000
Understatement of check paid
270,000 2,070,000
Total 2,170,000
Less: Checks paid by bank:
Bank disbursements 1,970,000
Check of Susan Company charged in error ( 200,000)
1,770,000
Outstanding checks – November 30 400,000

Computation of deposit in transit – November 30

Deposit in transit – October 31
300,000
Add: Cash receipts deposited during November:
Book receipts 2,200,000
Understatement of collection from customer
90,000 2,290,000
Total 2,590,000
Less: Deposits credited by bank during November:
Bank receipts 2,500,000
Deposit of Susan Company erroneously credited (
100,000) 2,400,000
Deposit in transit – November 30
190,000

Problem 4-15

a. Reconciliation on July 1

1,270,000

44

500,000
Total 2,220,000
950,000
1,270,000

Reconciliation on July 31

Book balance 470,000
Add: Note collected by bank
1,500,000
Total 1,970,000
Less: Bank service charge
20,000
1,950,000

400,000
Total 3,100,000
Check # 107 650,000
108 500,000
1,150,000
1,950,000

b. Adjusting entries on July 31

Note receivable
1,500,000

Cash in bank
20,000

Computation of deposit in transit – July 1

Deposit in transit – July 1 (squeeze)
500,000
Cash receipts per book 3,400,000
Total 3,900,000
Less: Deposits credited by bank
3,500,000
Deposit in transit – July 31
400,000

Computation of outstanding checks – July 1

Outstanding checks – July 1 (squeeze)
950,000
Checks drawn by depositor
4,200,000
Total 5,150,000
Less: Checks paid by bank
4,000,000
Outstanding checks – July 31 1,150,000

45

Problem 4-16

Balance per book – November 30
500,000
NSF check 50,000
Customer's note erroneously recorded as cash receipt 100,000
160,000

Balance per bank – November 30
600,000
120,000
Total 720,000
380,000

Deposit in transit – October 31
45,000
Cash receipts deposited:
Book debits 710,000
October collections recorded in November ( 45,000)
Customer's note recorded as cash receipt (100,000)
565,000
Total 610,000
Less: Deposits credited by bank:
Bank credits 500,000
Correction of bank error ( 10,000)
490,000
Deposit in transit – November 30
120,000

Outstanding checks – October 31
125,000
Checks issued by depositor:
Book credits 1,200,000
October bank service charge ( 5,000)
1,195,000
Total 1,320,000
Checks paid by bank:
Bank debits 1,000,000
November bank service charge ( 10,000)
November NSF check ( 50,000)
940,000
Outstanding checks – November 30 380,000

Adjusting entry:


46

Problem 4-17

March 31 Receipts Disbursements April 30
Book balance 200,000 800,000 720,000
280,000
Note collected by bank
March 60,000 ( 60,000)
April 100,000
100,000
Service charge
March ( 8,000) (
8,000)
April 2,000
( 2,000)
NSF check
March ( 20,000) ( 20,000)
April 30,000
( 30,000)
Deposit in transit
March 31 ( 80,000) 80,000
April 30 (220,000)
(220,000)
Outstanding checks
March 31 178,000 178,000
April 30
(372,000) 372,000
Bank balance 330,000 700,000 530,000
500,000

Problem 4-18

July 31 Receipts Disbursements
August 31
Bank balance 800,000 5,000,000 3,940,000
1,860,000
Book error on collection ( 180,000) (
180,000)
Book error on payment ( 540,000)
540,000
Bank error on deposit ( 200,000) (
200,000)
Bank error on payment ( 400,000)
400,000
NSF check:
July 100,000 100,000
August ( 50,000)
50,000
Note collected by bank:
July ( 200,000) 200,000
August ( 300,000) (
300,000)
Deposit in transit:
July 600,000 ( 600,000)
August 480,000
480,000
Outstanding checks:
July ( 100,000) ( 100,000)
August
650,000 ( 650,000)
Book balance 1,200,000 4,400,000 3,600,000
2,000,000

47

Problem 4-19

Nov. 30 Receipts
Disbursements Dec. 31

Book balance 2,032,000 2,568,000
1,440,000 3,160,000
Bank service charge
November 30 ( 2,000) (
2,000)
December 31 4,000
( 4,000)
Collection of note
November 30 ( 200,000) 200,000
December 31 ( 300,000)
( 300,000)
Adjusted book balance 1,830,000 2,468,000
1,442,000 2,856,000

Bank balance 1,890,000 2,090,000
1,080,000 2,900,000
Outstanding checks
November 30 ( 180,000) (
180,000)
December 31 592,000
( 592,000)
Deposit in transit
November 30 80,000 ( 80,000)
December 31 498,000
498,000
Check erroneously charged by bank
November 30 40,000 ( 40,000)
December 31
( 50,000) 50,000
Adjusted bank balance 1,830,000 2,468,000
1,442,000 2,856,000

Adjusting entry:

Cash in bank
304,000

48

Problem 4-20

Sept. 30 Receipts
Disbursements Oct. 31

Book balance 1,900,000 1,400,000
2,400,000 900,000
NSF check:
September 30 ( 60,000) (
60,000)
October 31 40,000 (
40,000)
Collection of accounts receivable
September 30 30,000 ( 30,000)
October 31 50,000 50,000
Overstatement of check
September 30 90,000 ( 90,000)
October 31 ________
( 120,000) 120,000
Adjusted balance 1,960,000 1,330,000
2,260,000 1,030,000

Bank balance 2,100,000 1,200,000
2,500,000 800,000
Deposit in transit
September 30 130,000 ( 130,000)
October 31 260,000 260,000
Outstanding checks
September 30 ( 270,000) (
270,000)
October 31
30,000 ( 30,000)
Adjusted balance 1,960,000 1,330,000
2,260,000 1,030,000

Adjusting entries on October 31

Cash in bank
40,000

Accounts receivable
50,000
Salaries
120,000

49

Problem 4-21

May 31 Receipts Disbursements
June 30

Balance per book 2,500,000 5,300,000 5,400,000
2,400,000
Bank service charge:
May 31 ( 20,000) (
20,000)
June 30 25,000
( 25,000)
NSF check:
June 30 200,000 (
200,000)
Interest collected:
June 30 75,000
75,000
Book error:
June 30 _________
( 300,000) 300,000
Adjusted balance 2,480,000 5,375,000 5,305,000
2,550,000

Balance per bank 2,700,000 5,500,000 5,600,000
2,600,000
Deposit in transit
May 31 625,000 ( 625,000)
June 30 500,000
500,000
Outstanding checks
May 31 ( 845,000) (
845,000)
June 30
550,000 ( 550,000)
Adjusted balance 2,480,000 5,375,000 5,305,000
2,550,000

Adjusting entries on June 30:

Interest income
75,000
Equipment
300,000

Cash in bank
225,000


Balance per book
4,000,000
Bank charges (
10,000)
Customer note collected by bank
1,500,000
Interest on customer note
60,000
250,000)
Depositor's note charged to account
(1,000,000)
4,300,000

50


200,000
Total
2,200,000

Erroneous bank credit 300,000
700,000
1,500,000
The adjusted cash in bank can also be computed by starting with the balance
per book.

Add: Proceeds of note collected
750,000
Total
1,600,000
Less: NSF checks (150,000 – 50,000)
100,000
1,500,000



Note collected by bank
950,000
Book error (200,000 – 20,000) (
180,000)
NSF check ( 250,000)

Bank service charge (
20,000)




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 (
500,000)


Deposit in transit
1,400,000
Total 7,600,000
Outstanding checks (squeeze) 3,000,000

51




Outstanding checks – May 31
3,000,000
Checks issued by depositor in June:
Total credits to cash in June
9,000,000
Service charge in May recorded in June (
100,000) 8,900,000
Total 11,900,000
Checks paid by bank in June:
Checks and charges by bank in June 8,000,000
Service charge in June ( 50,000)
NSF check in June (1,000,000)
6,950,000
Outstanding checks – June 30 4,950,000


Balance per book – June 30
2,100,000
Service charges (
50,000)
Collection by bank
550,000
NSF check (
100,000)
2,500,000

Balance per bank – June 30
2,400,000
Deposits outstanding – June 30
500,000
Checks outstanding – June 30 (
400,000)

Outstanding checks – May 31 100,000
Checks recorded by book in June
2,500,000
Total
2,600,000
Less: Checks recorded by bank in June
2,200,000
Outstanding checks – June 30 400,000

Deposits outstanding – May 31
300,000
Deposits recorded by book in June
1,800,000
Total 2,100,000
Less: Deposits recorded by bank in June
1,600,000
Deposits outstanding – June 30
500,000


Note collected 1,936,000
Book error (1,930,000 – 1,390,000)
( 540,000)
NSF check (
840,000)
Service charge (
47,000)
Net debt to cash 509,000

52




Balance per bank – November 30
3,600,000
December deposits
5,500,000
Total 9,100,000
December disbursements
(4,400,000)
Balance per bank – December 31
4,700,000
Deposit in transit – December
700,000
Outstanding checks – December
( 500,000)
Adjusted bank balance – December 31
4,900,000

Balance per book – December 31 (squeeze)
4,300,000
Note collected by bank 1,000,000
NSF check (
350,000)
Service charge (
50,000)


Bank disbursements for July
9,000,000
Outstanding checks – June 30
(1,400,000) Outstanding checks – July 31
1,000,000
Book disbursements for July
8,600,000


Bank receipts for April
6,000,000
Deposits in transit – March 31
(1,000,000)
Deposits in transit – April 30
1,500,000
Book receipts for April
6,500,000

53
CHAPTER 5

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

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

Problem 5-4

a. Accounts receivable 775,000
Installments receivable 300,000
Advances to suppliers 150,000
Advances to subsidiary 400,000
Subscriptions receivable 300,000
Accrued interest receivable 10,000
Customer's credit balances
30,000
Advances from customers
20,000 Receivables
2,000,000

b. Accounts receivable
775,000
50,000)
Notes receivable
100,000
Installments receivable
300,000
Advances to suppliers
150,000
Claim receivable
15,000
Subscription receivable
300,000
Accrued interest receivable
10,000
Total trade and other receivables
1,600,000

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
600,000
Charge sales
6,000,000
Total 6,600,000
Less: Collections from customers 5,300,000
Writeoff 35,000
Merchandise returns 40,000
Allowances to customers 25,000
5,400,000
Accounts receivable – December 31
1,200,000

54

b. Subscription receivable 150,000
Deposit on contract 120,000
Advances to employees 10,000
Advances to affiliated 100,000
Advances to supplier 50,000

c. Accounts receivable
1,200,000
Claim receivable
60,000
Advances to employees
10,000
Advances to supplier
50,000
1,320,000

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 3,600,000
Sales 3,600,000

2. Notes receivable 400,000
Accounts receivable
400,000

3. Doubtful accounts 90,000
Allowance for doubtful accounts
90,000

4. Allowance for doubtful accounts 20,000
Accounts receivable
20,000

5. Sales return 15,000
Accounts receivable
15,000

6. Cash 2,450,000
Accounts receivable
2,450,000

7. Sales discount 45,000
Accounts receivable
45,000

8. Cash 150,000

55

Requirement 2


Requirement 3

Accounts receivable
670,000
Less: Allowance for doubtful accounts
70,000
Net realizable value
600,000

Problem 5-7

FOB destination and freight collect

Freight out 10,000
Sales 500,000
Allowance for freight charge
10,000

2. Cash 475,000
Sales discount 15,000
Allowance for freight charge 10,000
Accounts receivable
500,000

FOB destination and freight prepaid

Freight out 10,000
Sales 500,000
Cash 10,000

2. Cash 485,000
Accounts receivable
500,000

FOB shipping point and freight collect

Sales 500,000

2. Cash 485,000
Accounts receivable
500,000

FOB shipping point and freight prepaid

Sales 500,000
Cash 10,000

56

2. Cash 495,000
Accounts receivable
510,000

Problem 5-8

Sales 4,000,000

2. Cash 1,470,000
Accounts receivable
1,500,000

3. Cash 1,000,000
Accounts receivable
1,000,000

Accounts receivable
100,000

Allowance for sales return
40,000

Problem 5-9

Gross method Net method

July 1 Accounts receivable 50,000 July 1 Accounts
receivable 49,000
Sales 50,000 Sales
49,000

2 Accounts receivable 200,000 2 Accounts
receivable 196,000
Sales 200,000 Sales
196,000

12 Cash 196,000 12 Cash
196,000
Sales discount 4,000 Accounts receivable
196,000

30 Cash 50,000 30 Cash
50,000
Accounts receivable 50,000 Accounts
receivable 49,000 Sales
discount forfeited 1,000

Problem 5-10

a. Credit sales (75% x 5,000,000)
3,750,000

Doubtful accounts (2% x 3,750,000)
75,000

75,000

b. Doubtful accounts (1% x 5,000,000) 50,000
50,000
57

c. Required allowance 80,000
Less: Credit balance of allowance
20,000
Doubtful accounts expense
60,000

60,000

d. Required allowance (10% x 500,000)
50,000
Less: Credit balance of allowance
20,000
30,000

30,000

Problem 5-11

a. Required allowance (5% x 600,000)
30,000
Add: Debit balance in allowance account
10,000
40,000

40,000

b. Required allowance
50,000
Add: Debit balance in allowance account
10,000
60,000

60,000

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

Problem 5-12

a. Doubtful accounts (3% x 8,000,000) 240,000
240,000

b. Doubtful accounts 170,000
170,000

Allowance – January 1
100,000
Doubtful accounts (squeeze)
170,000
Recovery
20,000
Total 290,000
Accounts written off
130,000
Allowance – December 31 (8% x 2,000,000)
160,000

c. Doubtful accounts 210,000
210,000

58

100,000
Doubtful accounts (squeeze)
210,000
Recovery
20,000
Total 330,000
130,000
Allowance – December 31
200,000

Problem 5-13

Requirement a

Sales 7,000,000

2. Cash 2,450,000
Accounts receivable(2,450,000/98%)
2,500,000

3. Cash 3,900,000
Accounts receivable
3,900,000

Accounts receivable
30,000

10,000

Cash 10,000
Accounts receivable
10,000

Accounts receivable
70,000

Requirement b

Allowance for doubtful accounts 40,000

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

Allowance for doubtful accounts – December 31 (4% x 1,500,000)
60,000
Less: Allowance before adjustment 20,000
Doubtful accounts expense 40,000

Requirement c

Accounts receivable – December 31 1,500,000
Net realizable value 1,440,000

59

Problem 5-14

Requirement a

1. Cash 800,000
Accounts receivable 7,200,000
Sales (800,000/10%)
8,000,000

2. Cash 684,000
Sales discount (5% x 720,000) 36,000
Accounts receivable(10% x 7,200,000)
720,000

3. Cash 5,940,000
Accounts receivable
5,940,000

4. Sales discount 10,000
Allowance for sales discount
10,000

Accounts receivable
80,000

Accounts receivable
60,000

10,000

Cash 10,000
Accounts receivable
10,000

70,000

Required allowance – December 31 (5% x 2,400,000)
120,000
Less: Allowance before adjustment
50,000

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

Requirement b

Accounts receivable 2,400,000
Less: Allowance for doubtful accounts 120,000
Allowance for sales discount 10,000
130,000
Net realizable value 2,270,000

60

Problem 5-15

Requirement a

Sales (3,070,000 – 470,000)
2,600,000

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

3. Cash 1,455,000
Accounts receivable (1,455,000/97%)
1,500,000

Accounts receivable
20,000

5. Cash 470,000
Sales 470,000

6. Sales return and allowances 55,000
Accounts receivable
55,000

7. Sales return and allowances 10,000
Cash 10,000

5,000

Cash 5,000
Accounts receivable
5,000

50,000

Credit sales 2,600,000
Less: Sales discount 45,000
Sales return and allowances 55,000
100,000
Net credit sales 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 1,500,000 4,410,000/98%
4,500,000
Sales 7,935,000
Recovery 15,000 2,475,000/99%
2,500,000
Collections (8,000,000)
Sales discount ( 115,000) Sales discount:
Writeoff ( 55,000) 2% x
4,500,000 90,000
Sales return ( 30,000) 1% x
2,500,000 25,000
Accounts receivable – Dec. 31 1,250,000
115,000
Problem 5-17

Percent of
Required

Amount Uncollectible
allowance
1. Not yet due 1,700,000 - -
1 – 30 days past due 1,200,000 5%
60,000
31 – 60 days past due 100,000 25%
25,000
61 – 90 days past due 150,000 50%
75,000
Over 90 days past due 1,200,000 100%
120,000
3,270,000
280,000

2. Allowance – January 1
170,000
Receivables 30,000
Doubtful accounts expense (squeeze)
345,000
Total 545,000
Less: Writeoff (235,000 + 30,000)
265,000
Required allowance – December 31
280,000

3. Accounts receivable
3,270,000
280,000
2,990,000

Problem 5-18

1. 1,000,000 x 1% 10,000 2. Allowance – January 1
90,000
400,000 x 5% 20,000 Recoveries
20,000
300,000 x 10% 30,000 Doubtful accounts
(squeeze) 200,000
200,000 x 25% 50,000 Total
310,000
60,000 x 100% 60,000 Less: Writeoff
(100,000 + 40,000) 140,000
1,960,000 170,000 Allowance – December 31
170,000
20,000

Correct amount
200,000
Recorded (2% x 9,000,000)
180,000
Understatement
20,000

4. Accounts receivable – December 31
1,960,000
170,000
1,790,000

62

Problem 5-19

2005 2006
2007 Total

1. Writeoff 26,000 29,000
30,000 85,000
Less: Recoveries 2,000 3,000
4,000 9,000
Net writeoff 24,000 26,000
26,000 76,000
76,000
Percentage to be used in computing the allowance = ------------------
- = 2%
3,800,000

2. Credit sales for 2008
3,000,000
Multiply by bad debt percentage
2%
Provision for doubtful accounts
60,000

3. Accounts receivable – January 1, 2008
250,000
Add: Credit sales for 2008 3,000,000
Recoveries 5,000
3,005,000
Total 3,255,000
Less: Collections in 2008 2,615,000
Writeoff 40,000
2,655,000
Accounts receivable – December 31, 2008
600,000

4. Allowance for doubtful accounts – January 1
20,000
Add: Doubtful accounts for 2008 60,000
Recoveries 5,000
65,000
Total 85,000
Less: Writeoff
40,000
Allowance for doubtful accounts – December 31
45,000

Problem 5-20

1. Accounts receivable – December 31, 2007
600,000
Add: Sales for 2008 5,000,000
Recovery of accounts written off 10,000
5,010,000
Total 5,610,000
Less: Collection from customers 4,360,000
Accounts written off 50,000
Accounts settled by issuance of note 200,000
4,610,000
Accounts receivable – December 31, 2008
1,000,000

2. Allowance for doubtful accounts – December 31, 2007
30,000
Add: Recovery of accounts written off
10,000
Total 40,000
Less: Accounts written off
50,000
Allowance before adjustment – December 31, 2008 (debit balance)
(10,000)

63

3. Required allowance – December 31, 2008
On current accounts (700,000 x 5%)
35,000
On past due accounts (300,000 x 20%)
60,000
Total 95,000

4. Required allowance – December 31, 2008
95,000
Add: Debit balance before adjustment
10,000
Increase in allowance
105,000

105,000

Problem 5-21

170,000 – 10,000 258,000 – 20,000
Rate in 2007 = ------------------------ = .016 Rate in 2008 = -------
------------------- = .017
10,000,000 14,000,000

1. Retained earnings (.016 x 1,250,000) 20,000
20,000

2. Allowance – January 1
20,000
Recoveries – 2008
10,000
Doubtful accounts – 2008 (squeeze)
92,000
Total 122,000
Less: Writeoff – 2008
88,000
Allowance – December 31 (.017 x 2,000,000)
34,000

3. Accounts receivable
2,000,000
34,000
1,966,000

Problem 5-22

1. Allowance – January 1, 2008
500,000
Doubtful accounts recorded (2% x 20,000,000)
400,000
Recovery
50,000
Total 950,000
Less: Writeoff (300,000 + 100,000)
400,000
Allowance balance before adjustment
550,000

2. 5,000,000 x 5%
250,000
2,000,000 x 10%
200,000
1,000,000 x 25%
250,000
500,000 – 100,000 x 75%
300,000
Required allowance – December 31, 2008
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)
28,000

2. Allowance – 1/1/2008
28,000
Doubtful accounts recorded in 2008 (1% x 3,000,000)
30,000
Recovery
7,000
Total 65,000
Writeoff
(27,000)
Allowance before adjustment
38,000

3. 300,000 x 1% 3,000
80,000 x 5% 4,000
60,000 x 20% 12,000
25,000 x 80% 20,000
Required allowance – 12/31/2008
39,000

Allowance for doubtful accounts (39,000 – 38,000)
1,000

Problem 5-24

2008
Jan. 1 Loan receivable
4,000,000
Cash 4,000,000

Cash 342,100
Unearned interest income
342,100

Unearned interest income 150,000
Cash 150,000

Dec. 31 Cash 400,000


(10%) (12%)

Date Interest received Interest income Amortization
Carrying value
01/01/2008 3,807,900
12/31/2008 400,000 456,948 56,948
3,864,848
12/31/2009 400,000 463,782 63,782
3,928,630
12/31/2010 400,000 471,370* 71,370
4,000,000

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

2009
Dec. 31 Cash 400,000

65
2009
Dec. 31 Unearned interest income 63,782
2010
Dec. 31 Cash 400,000


Cash 4,000,000
Loan receivable 4,000,000

Problem 5-25

2008
Jan. 1 Loan receivable
3,000,000
Cash 3,000,000

Direct origination cost 260,300
Cash 260,300

Cash 100,000
Direct origination cost
100,000

Dec. 31 Cash 240,000


(8%) (6%)

Date Interest received Interest income Amortization
Carrying value
01/01/2008 3,160,300
12/31/2008 240,000 189,618 50,382
3,109,918
12/31/2009 240,000 186,595 53,405
3,056,513
12/31/2010 240,000 183,487 56,513
3,000,000

2009
Dec. 31 Cash 240,000


2010
Dec. 31 Cash 240,000

66

2010
Dec. 31 Interest income 56,513

Cash 3,000,000

Problem 5-26

Requirement 1

December 31, 2009 (1,000,000 x .93)
900,000
December 31, 2010 (2,000,000 x .86)
1,720,000
December 31, 2011 (3,000,000 x .79)
2,370,000
Total present value of loan
5,020,000

Requirement 2

Loan receivable – 12/31/2008
6,000,000
Accrued interest (6,000,000 x 8%)
480,000
Total carrying value
6,480,000
Present value of loan
5,020,000
Impairment loss 1,460,000

Requirement 3

2008 Impairment loss 1,460,000
480,000
Allowance for loan impairment
980,000

2009 Cash 1,000,000
Loan receivable
1,000,000

Allowance for loan impairment 401,600
Interest income (8% x 5,020,000)
401,600

2010 Cash 2,000,000
Loan receivable
2,000,000

Interest income
353,728

5,000,000
Allowance for loan impairment (980,000 – 401,600) (
578,400)
Carrying value – 12/31/2009
4,421,600

Interest income for 2010 (8% x 4,421,600)
353,728

67

2011 Cash 3,000,000
Loan receivable
3,000,000

Interest income
224,672

3,000,000
Allowance for loan impairment (578,400 – 353,672) (
224,672)
2,775,328

222,026
Allowance per book
224,672
Difference due to rounding
2,646
Problem 5-27

Requirement 1

December 31, 2009 ( 500,000 x .89)
445,000
December 31, 2010 (1,000,000 x .80)
800,000
December 31, 2011 (2,000,000 x .71)
1,420,000
December 31, 2012 (4,000,000 x .64)
2,560,000
5,225,000

Requirement 2

Accrued interest receivable (12% x 7,500,000)
900,000
Total carrying value
8,400,000
5,225,000
Impairment loss 3,175,000

Requirement 3

2008 Impairment loss 3,175,000
900,000
2,275,000

2009 Cash 500,000
Loan receivable
500,000

Interest income (12& x 5,225,000)
627,000

2010 Cash 1,000,000
Loan receivable
1,000,000

Interest income
642,240

68

Loan receivable – 12/31/2009 7,000,000
Allowance for loan impairment (2,275,000 – 627,000)
(1,648,000)
5,352,000

642,240

Problem 5-28

December 31, 2011 ( 360,000 x .772) 277,920 Face value of loan
4,000,000
December 31, 2012 ( 360,000 x .708) 254,880 Present value of loan
3,365,360
December 31, 2013 ( 360,000 x .650) 234,000 Impairment loss
634,640
December 31, 2014 (4,360,000 x .596) 2,598,560
Total present value of loan 3,365,360

2008 Cash 360,000
Interest income
360,000

Impairment loss 634,640
634,640

2009 Allowance for loan impairment 302,882
Interest income (9% x 3,365,360)
302,882

2010 Allowance for loan impairment 331,758
Interest income (634,640 – 302,882)
331,758

2011 Cash 360,000
Interest income
360,000

2012 Cash 360,000
Interest income
360,000

2013 Cash 360,000
Interest income
360,000

2014 Cash 4,360,000
Interest income
360,000
Loan receivable
4,000,000
Problem 5-29

12/31/2008 Impairment loss 338,500
338,500

The remaining term of the loan is 4 years. Accordingly, the
present value
factor for 4 periods is used.

69

Present value of principal (500,000 x .735)
367,500
Present value of interest (80,000 x 5 = 400,000 x .735)
294,000
661,500

661,500
Loan impairment loss
338,500

12/31/2009 Allowance for loan impairment 52,920
Interest income (8% x 661,500)
52,920


Accounts receivable-January 1
1,300,000
Credit sales
5,500,000
Collections from customers
(5,000,000)
Sales return (
150,000)
Accounts written off (
100,000)
Accounts receivable-December 31
1,550,000
250,000)
Allowance for sales return (
50,000)
1,250,000


Trade accounts receivable
2,000,000
100,000)
Claim receivable
300,000
2,200,000


Accounts receivable (squeeze)
6,700,000
Allowance for doubtful accounts (900,000 – 200,000) (
700,000)
6,000,000


Allowance – January 1 300,000
Doubtful accounts expense 650,000

Recovery of accounts written off
100,000
Total 1,050,000
450,000
Allowance – December 31 600,000

70


Uncollectible accounts expense (squeeze)
100,000
Recovery of accounts written off
50,000
Total 430,000
(230,000)
Allowance – December 31 (2,700,000 – 2,500,000)
200,000


180,000
50,000
Total 230,000
Accounts written off (squeeze)
30,000
200,000


0 –60 days (1,200,000 x 1%)
12,000
61 – 120 days (900,000 x 2%)
18,000
Over 120 days (1,000,000 x 6%)
60,000
Allowance – December 31, 2008
90,000

60,000
Uncollectible accounts expense (squeeze)
80,000
Recovery 20,000
Total 160,000
( 70,000)
90,000


Allowance for sales discount (5,000,000 x 2% x 50%)
50,000



Doubtful accounts expense (3% x 3,000,000 + 10,000)
100,000


Doubtful accounts expense (2% x 7,000,000) 140,000

71


Doubtful accounts expense (4% x 5,000,000)
200,000
Collection of accounts written off
10,000
Total 250,000
30,000
220,000


250,000
Doubtful accounts expense (squeeze)
175,000
Total 425,000
205,000
220,000



Financial Accounting 1 Valix

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