Applied Auditing- ACTG 109A

Midterm Examination- Problems

Prepared By: Regie R. Baoy
NAME:____________________________________DATE:_____________________SCORE:__________________
Instruction. Encircle the letter that corresponds to your answer. Do not use pencils. Avoid erasures.
1.

The following data pertain to Angat Corporation on December 31, 2012:

Current account no. 1 at Metrobank
Current account no.2 at Metrobank
Payroll account
Foreign bank account restricted (in equivalent pesos)
Postage stamps
Employees post dated check
IOU from controllers sister
Credit memo from a vendor for a purchase return
Travelers check
Not-sufficient-funds check
Money order
Petty cash fund (P4,000 in currency and expense receipts for P6,000)

P2,000,000
(100,000)
500,000
1,000,000
1,000
4,000
10,000
20,000
50,000
15,000
30,000
10,000
200,000
300,000

Treasury bills, due 3/31/13 (purchased 12/31/12)

Treasury bills, due 1/31/13 (purchased 1/1/12)

Based on the above information, compute for the cash and cash equivalent that would be reported on the December 31, 2012
balance sheet.
A. P2,784,000
C. P2,790,000
B. P3,084,000
D. P2,684,000
2.

Kaniper Company has the following items at year-end:

Cash in bank
Petty cash
Commercial paper with maturity of 2 months
Postdated checks
Kaniper should report cash and cash equivalents of
A. P20,000.
B. P20,300.

3.

C. P25,800.

P20,000
300
5,500
1,400
D. P27,200.

Burr Company had the following account balances at December31,2011:

Cash in banks
Cash on hand
Cash legally restricted for additions to plant (expected to be disbursed in2012)

P 2,250,000
125,OOO
1,600,000

Cash in banks includes P600,000 of compensating balances against short-term borrowing arrangements. The compensating
balances are not legally restricted as to withdrawal by Burr. In the current assets section of
Burr'sDecember31, 2011 balance sheet, total cash should be reported at
A. P1,775,000
B. P2,250,000
C. P2,375,000
D. P3,975,000
4.

If a
it is
A.
B.
C.
D.

petty cash fund is established in the amount of P250, and contains P150 in cash and P95 in receipts for disbursements when
replenished, the journal entry to record replenishment should include credits to the following accounts
Petty Cash, P75.
Petty Cash, P100.
Cash, P95; Cash Over and Short, P5.
Cash, P100.

5.

In preparing its bank reconciliation for the month of April 2012, Henke, Inc. has available the following information.
Balance per bank statement, 4/30/12
NSF check returned with 4/30/12 bank statement
Deposits in transit, 4/30/12
Outstanding checks, 4/30/12
Bank service charges for April
What should be the correct balance of cash at April 30, 2012?
A. P39,370
B. P38,940
C . P38,490

P39,140
450
5,000
5,200
20
D. P38,470

6.

The bookkeeper of Calumpit Company recently prepared the following bank reconciliation on December 31, 2012:
Balance per bank statement
Add: Deposit in transit
Checkbook and other bank charge
Error made by Calumpit in recording check No.
1005 (issued in December)
Customer check marked DAIF
Total
Deduct: Outstanding checks
Note collected by bank (includes P200,000 interest)
Balance per book

20,000,000

1,500,000
50,000
150,000
500,000

2,200,000
22,200,000

1,900,000
2,300,000

4,200,000
18,000,000

Calumpit has P1,000,000 cash on hand on December 31, 2012. The amount to be reported as cash on the balance sheet as of
December 31, 2012 should be
A. P19,600,000
C. P20,600,000
B. P18,600,000
D. P19,750,000
7.

The Plaridel Corporation was organized on January 3, 2012 with an authorized capital stock of P5,000,000. At December 31,
2012 of the same year, the general ledger of said Company showed the following accounts and balances:
Accounts receivable
Merchandise inventory
Land
Building
Furniture and fixtures
Accounts payable
Notes payable bank
Common stock
Additional paid capital
Sales
Expenses paid (excluding purchases)

P 200,000
250,000
1,200,000
1,600,000
400,000
420,000
500,000
1,500,000
100,000
5,800,000
725,000

Your review of the bank statement for December disclosed the following information:
Bank balance, December 31, 2012
Bank service charge
Deposits in transit
Total checks not returned by the bank

P 524,500
6,000
62,500
128,000

Your review also revealed that the cash received of P62,500 on December 31, 2012 was deposited on January 2, 2013. The
companys mark up on sales is 40%.
How much is the adjusted cash balance as of December 31, 2012?
A. P459,000
C. P39,000
B. P536,000
D. P1,619,000
8.

Reconciliation of Malolos Corporations bank account at November 30, 2012 follows:

Balance per bank statement
Deposits in transit
Checks outstanding
Correct cash balance

P3,150,000
450,000
(45,000)
P3,555,000

Balance per books

Bank service charge
Correct cash balance

P3,558,000
(3,000)
P3,555,000

December data are as follows:

Bank
P3,450,000
2,430,000
630,000
15,000
2,745,000

Checks recorded
Deposits recorded
Collection by bank (P600,000 plus interest)
NSF check returned with December bank statement
Balances
The checks outstanding on December 31, 2012 amount to
A. P45,000
B. P135,000

C.

P90,000

Books
P3,540,000
2,700,000
2,715,000
D.

P0

9.

Tresh, Inc. had the following bank reconciliation at March 31, 2012:
Balance per bank statement, 3/31/12
Add: Deposit in transit
Less: Outstanding checks
Balance per books, 3/31/12
Data per bank for the month of April 2012 follow:
Deposits
Disbursements

P37,200
10,300
47,500
12,600
P34,900
P46,700
49,700

All reconciling items at March 31, 2012 cleared the bank in April. Outstanding checks at April 30, 2012 totaled P6,000. There
were no deposits in transit at April 30, 2012. What is the cash balance per books at April 30, 2012?
A. P28,200
B. P31,900
C. P34,200
D. P38,500
10. The following information was obtained in connection with the audit of Pinky Companys cash account as of December 31, 2010.
Outstanding checks, 11/30/10
Outstanding checks, 12/31/10
Deposit in transit, 11/30/10
Cash balance per general ledger 12/31/10
Actual company collections from its customers
during December
Company checks paid by bank in December
Bank service charges recorded on company books
in December
Bank service charges per December bank statement
Deposits credited by bank during December
November bank service charges recorded on
Company books in December

P 16,250
12,500
12,500
37,500
152,500
130,000
2,500
3,250
145,000
1,500

The bank erroneously charged the companys account for a P 3,750 check of another depositor. This bank error was
corrected in January 2011.
How much is the deposit in transit on December 31, 2010?
A. P5,000
C. P22,500
B. P20,000
D. P17,000
C.
11. Your audit disclosed that on December 31, 2012, the accounts receivable control account of Alilem Company had a balance of
P2,865,000. An analysis of the accounts receivable control account showed the following:
Accounts known to be worthless
Advance payments to creditors on purchase purchase orders
Advances to affiliated companies
Customers accounts reporting credit balances arising from sales returns
Interest receivable on bonds
Other trade accounts receivable- unassigned
Subscription receivable
Trade accounts receivable- assigned (Alilem companys equity in assigned accounts is P150,000)
Trade installment receivable due 1-18 months including unearned finance charges of P30,000
Trade receivables from officers due currently
Trade accounts on which post-dated checks are held (no entries were made on receipts of checks)

P37,500
150,000
375,000
(225,000)
150,000
750,000
825,000
375,000
330,000
22,500
75,000
P2,865,000

How much is the net current trade and other receivables as of December 31, 2012?
A. P2,647,500
C. P2,272,500
B. P2,610,000
D. P1,822,500
12.AG Inc. made a P10,000 sale on account with the following terms: 1/15, n/30. If the company uses the gross method to record
sales made on credit, what is/are the debit(s) in the journal entry to record the sale?
A. Debit Accounts Receivable for P9,900.
B. Debit Accounts Receivable for P9,900 and Sales Discounts for P100.
C. Debit Accounts Receivable for P10,000.
D. Debit Accounts Receivable for P10,000 and Sales Discounts for P100.
13.AG Inc. made a P10,000 sale on account with the following terms: 2/10, n/30. If the company uses the net method to record
sales made on credit, what is/are the debit(s) in the journal entry to record the sale?
A. Debit Accounts Receivable for P9,800.
B. Debit Accounts Receivable for P9,800 and Sales Discounts for P200.
C. Debit Accounts Receivable for P10,000.
D. Debit Accounts Receivable for P10,000 and Sales Discounts for P200.

14. Roxy Company had the following information relating to its account receivable:
Accounts receivable at 12/31/11
Credit sales for 2012
Collections from customers for 2012, excluding recovery
Accounts written off 9/30/2012
Collection of accounts written off in prior year
(customer credit was not reestablished)
Estimated uncollectible receivables per aging of
receivables at 12/31/12

P 1,300,000
5,400,000
4,750,000
125,000
25,000
165,000

On December 31, 2012, the net realizable value of accounts receivable is

A.
P1,825,000
B. P1,800,000
C. P1,635,000

D. P1,660,000

15.On the December 31, 2010 statement of financial position of Vanoy Co., the current receivables consisted of the following:
Trade accounts receivable
Allowance for uncollectible accounts
Claim against shipper for goods lost in transit (November 2010)
Selling price of unsold goods sent by Vanoy on consignment
at 130% of cost (not included in Vanoy 's ending inventory)
Security deposit on lease of warehouse used for storing
some inventories
Total

P 75,000
(2,000)
3,000
26,000
30,000
P132,000

At December 31, 2010, the correct total of Vanoy's current net receivables was
A. P76,000.
B. P102,000.
C. P106,000.

D. P132,000.

16.Ace Co. prepared an aging of its accounts receivable at December 31, 2010 and determined that the net realizable value of the
receivables was P300,000. Additional information is available as follows:
Allowance for uncollectible accounts at 1/1/10credit balance
Accounts written off as uncollectible during 2010
Accounts receivable at 12/31/10
Uncollectible accounts recovered during 2010

P 34,000
23,000
325,000
5,000

For the year ended December 31, 2010, Ace's uncollectible accounts expense would be
A. P25,000.
B. P23,000.
C. P16,000.

D. P9,000.

17.The following accounts were abstracted from Starr Co.'s unadjusted trial balance at December 31, 2010:
Debit
Credit
Accounts receivable
P750,000
Allowance for uncollectible accounts
8,000
Net credit sales
P3,000,000
Starr estimates that 2% of the gross accounts receivable will become uncollectible. After adjustment at December 31, 2010,
the allowance for uncollectible accounts should have a credit balance of
A. P60,000.
B. P52,000.
C. P23,000.
D. P15,000.
18.A trial balance before adjustments included the following:
Sales
Sales returns and allowance
Accounts receivable
Allowance for doubtful accounts

Debit

Credit
P425,000

P14,000
43,000
760

If the estimate of uncollectibles is made by taking 2% of net sales, the amount of the adjustment is
A. P6,700.
B. P8,220.
C. P8,500.
D. P9,740.

19. Dont Let Me Down, Inc. estimates its doubtful accounts by aging its account receivable. The aging schedule of accounts
receivable at December 31, 2012 is presented below:
Age of accounts
0 - 30 days
31 - 60 days
61 - 90 days
91 - 120 days
Over 120 days

Amount
P 1,264,800
691,500
288,600
114,975
59,100
P2,418,975

Dont Let Me Down, Inc. uncollectible accounts experience for the past 5 years are summarized in the following schedule:
Year
2011
2010
2009
2008
2007

A/R Balance
Dec. 31
P 1,968,750
1,500,000
697,500
1,224,000
1,865,500

0 30
Days
0.3%
0.5%
0.2%
0.4%
0.9%

31 60
Days
1.8%
1.6%
1.5%
1.7%
2.0%

61 90
Days
12%
11%
9%
10.2%
9.7%

91 120
Days
38%
41%
50%
47%
33%

Over 120
Days
65%
70%
69%
81%
95%

The balance of the allowance for doubtful accounts at December 31, 2012 (before adjustment) is P126,751.
The
A.
B.
C.
D.

necessary adjusting journal entry to adjust the allowance for doubtful accounts as of December 31, 2012 would include:
No adjusting journal entry is necessary.
A debit to retained earnings of P13,894.
A debit to doubtful accounts expense P140,644.
A credit to allowance for doubtful accounts of P13,894.

20.Lester Company received a seven-year zero-interest-bearing note on February 22, 2010, in exchange for property it sold to Porter
Company. There was no established exchange price for this property and the note has no ready market. The prevailing rate of
interest for a note of this type was 7% on February 22, 2010, 7.5% on December 31, 2010, 7.7% on February 22, 2011, and
8% on December 31, 2011. What interest rate should be used to calculate the interest revenue from this transaction for the
years ended December 31, 2010 and 2011, respectively?
A. 0% and 0%
B. 7% and 7%
C. 7% and 7.7%
D. 7.5% and 8%
21.On December 31, 2010, Flint Corporation sold for P75,000 an old machine having an original cost of P135,000 and a book value
of P60,000. The terms of the sale were as follows:
P15,000 down payment
P30,000 payable on December 31 each of the next two years
The agreement of sale made no mention of interest; however, 9% would be a fair rate for this type of transaction. What should
be the amount of the notes receivable net of the unamortized discount on December 31, 2010 rounded to the nearest dollar?
(The present value of an ordinary annuity of 1 at 9% for 2 years is 1.75911.)
A. P52,773.
B. P67,773.
C. P60,000.
D. P105,546.
22.Equestrain
Roads
sold
P50,000
of
goods
and
accepted
the
customer's
P50,000
10%
1-year note receivable in exchange. Assuming 10% approximates the market rate of return, what would be the debit in this
journal entry to record the sale?
A. No journal entry until cash is collected.
B. Debit Notes Receivable for P50,000.
C. Debit Accounts Receivable for P50,000.
D. Debit Notes Receivable for P45,000.
23.On January 1, 2010, West Co. exchanged equipment for a P400,000 zero-interest-bearing note due on January 1, 2013. The
prevailing rate of interest for a note of this type at January 1, 2010 was 10%. The present value of P1 at 10% for three periods
is 0.75. What amount of interest revenue should be included in West's 2011 income statement?
A. P0
B. P30,000
C. P33,000
D. P40,000
24. Bacolod Company obtained a one-year loan of P5,000,000 from a bank on April 1, 2009. The loan was discounted at 12%. The
company signed a note and pledged its accounts receivable of P5,000,000 as collateral for the loan. In relation to the loan,
Bacolod should report note payable on December 31, 2009 at (Use straight line amortization method)
A.
P4,850,000
B.
P4,400,000
C.
P5,450,000
D.
P4,550,000

25. On November 30, 2009, accounts receivable in the amount of P900,000 were assigned to Kaban Finance Co. by Kalan as
security for a loan of P750,000. Kaban charged a 3% commission on the accounts; the interest rate on the note is 12%. During
the December 2009, Kalan collected P350,000 on assigned accounts after deducting P560 of discounts. Kalan wrote off a P530
assigned account. On December 31, 2009 Kalan remitted to Kaban the amount collected plus one months interest on the note.
How much is Kalans equity in the assigned accounts receivable as of December 31, 2009?
A. P149,470
B. P141,970
C. P141,410
D. P148,910
27. On May 17, Sagay Co. accepted a P6,500, 8%, 90-day note from a customer. On June 11, the note was discounted at 10%. AT
maturity date, the note was dishonored and the bank charged a P25 protest fee. The amount that Sagay Co. would debit to
Accounts Receivable is:
A. P6,655
B. P6,525
C. P6,535
D. P6,130
28.Rosalie Corporation is located in Los Angeles but does business throughout Europe. The company builds and sells equipment used
in manufacturing pharmaceuticals. On December 31, 2011, Rosalie's accounts receivable are as follows:
Individually significant receivables
Finley Company
P 80,000
Rios, Inc.
200,000
Rafael Co.
120,000
Hunter, Inc.
100,000
All other receivables
500,000
Total
P1,000,000
Rosalie Corporation determines that Finley Company's receivable is impaired by P40,000 and Hunter, Inc.'s receivable is totally
impaired. The other receivables from Rafael and Rios are not considered impaired. Rosalie determines that a composite rate of
2% is appropriate to measure impairment on all other receivables. What is the total impairment of receivables for Rosalie
Corporation for 2011?
A. P156,400
B. P140,000
C. P150,000
D. P123,600
29. On January 1, 2010, Nickel Company loaned Copper Company amounting to P2,000,000 and received a two-year, 6%,
P2,000,000 note. The note calls for annual interest to be paid each December 31. Nickel collected the 2010 interest on schedule.
However, on December 31, 2011, based on the Coppers recent financial difficulties, Nickel expects that the 2011 interest, which
was recorded in the books, will not be collected and that only P1,200,000 of the principal will be recovered. The P1,200,000
principal amount is expected to be collected in two equal annual installments on December 31, 2013 and December 31, 2015.
The prevailing interest rate for similar type of note as of December 31, 2011 is 8%. The carrying amount of the loan as of
December 31, 2011 is (Round off present value factors to four decimal places).
A.
P 473,465
B.
P1,736,032
C.
P 534,000
D.
P1,134,000
30. ABC Bank granted a loan to borrower on January 1, 2010. The interest rate on the loan is 12% payable annually starting
December 31, 2010. The loan matures in five years on December 31, 2014. The data related to the loan are:
Principal amount
Direct origination cost
Origination fee received from the borrower

P2,000,000
62,744
200,000

The borrower paid the interest due on December 31, 2010. However, during 2011 the borrower began to experience financial
difficulties, requiring ABC to reassess the collectability of the loan. As of December 31, 2011, ABC expects that only P1,200,000 of
the principal will be recovered. The P1,200,000 principal amount is expected to be collected in two equal installments on December
31, 2013 and December 31, 2015. The prevailing interest rates for similar type of note as of December 31, 2010 and 2011 are
15% and 16%, respectively.
How much is the interest income to be recognized in 2012?
A . P114,374
C. P103,154
B . P134,539
D. P124,368

-END OF EXAMINATIONYou'll never find anybody that achieves great success in life without a give up story. And there
will come a time when you will find that you too will have to give up something good if you want
something better.
6