Cash and Cash Equivalents

The following table summarizes the cash receipts and disbursements of LOL Company for the last 6
months of 2016:
Month
July
August
September
October
November
December

Receipts
P102,000
70,000
120,000
172,000
260,000
280,000
964,000

Additional Information:
1. Bank balance, July 1, 2016
2. Bank Balance, December 31,2016
3. Outstanding checks, December 31,2016
(No check were outstanding on July 1)
4. Undeposited receipts, December 31, 2016
(Included in the December receipts)
5. Bank deposits, July 1 through December 31

Disbursements
P60,000
110,000
68,000
92,000
122,000
180,000
668,000
P200,000
524,000
42,000
24,000
914,000

What is the total shortage?

a. P0
b. P76,000
c. P30,000
d. P66,000
Book Balance, July 1
Add Total books receipts:
Total
Less Total disbursements
Adjusted Book Balance, December 31

P 200,000
1,004,000
1,204,000
632,000
P 572,000

Bank Balance, December 31

Add Undeposited receipts
Total
Less Outstanding Checks
Adjusted Bank Balance
Adjusted Book Balance
Cash Shortage

P 572,000
24,000
548,000
42,000
506,000
572,000
(66,000)

The auditor of LOL Company gathered the following information:

1.
2.
3.
4.
5.

The November 30 bank statement balance included the following bank service charges of P2,000.
The November 30 cash balance in the general ledger was P244,500.
Outstanding checks on November 30 were P63,000 while undeposited receipts were P36,000.
The bank service charges as shown on the bank statement totaled P3,000.
The December 30 cash balance in the general ledger was P319,750, which recognized P482,750
for December receipts and P405,500 for checks written during December. In transit to the bank
were receipts of P28,750. Checks of P15,000 written prior to December and checks of P60,500
written in December had not yet cleared the bank.

What is the total book disbursements for December?

a.
b.
c.
d.

P403,500
P404,500
P407,500
P405,500

What is the November 30 Bank Balance?

a. P271,500
b. P269,500
c. P268,500
d. P266,500

Balance per Books

Nov 30

Receipts

Disbursements

Dec 31

224,500

482,750

407,500

319,750

(36,000)

36,000
(28,750)

(28,750)

Undeposited
receipts
Nov. 30
Dec. 31
Outstanding
Checks
Nov. 30

63,000

63,000

Dec. 31
Bank
Charge

(75,000)

75,000

Service

Nov. 30

(2,000)

(2,000)

Dec. 31
Balance per Bank

269,500

490,000

Checks during December

November service charge recorded in December
Total Disbursements

3,000

(3,000)

396,000

363,500
405,500
2,000
407,500

Your audit of the December 31, 2015, financial statements of MMM Corporation reveals the following:
1. Current account at MetroBank
P (35,000)
2. Current account at PNB
65,000
3. Treasury bills (acquired 3 months before maturity)
200,000
4. Treasury bills (maturity date is 12/31/16)
500,000
5. Payroll account
175,000
6. Foreign bank account - restricted
(translated using the12/31/15 exchange rate)
900,000
7. Postage stamps
600
8. Employees checks marked DAIF
10,000
9. IOU from the vice president
50,000
10. Credit memo from a supplier for a purchase returns
25,000
11. Travelers check
60,000
12. Money order
10,000
13. Companys check dated 12/30/15 but not mailed at year-end
30,000
14. Petty cash fund (P4,000 in currency
and expense receipts for(P6,000)
10,000
MMM corp. adjusted cash and cash equivalent balance at December 31, 2015 is
a.
b.
c.
d.

P560,000
P544,000
P514,000
P509,000

Current account at PNB

Treasury bills acquired 3 mos. Before maturity
Payroll account
Travelers check
Money order
Companys undelivered check
Petty cash fund
Total

65,000
200,000
175,000
60,000
10,000
30,000
4,000
544,000

Inventories
You are engaged in the regular annual examination of the accounts and records of ABCD Manufacturing
Co. for the year ended December 31, 2016. To reduce the workload at year end, the company, upon your
recommendation, took its annual physical inventory on November 30, 2016. You observed the taking of
the inventory and made tests of the inventory count and the inventory records.
The companys inventory account, which includes raw materials and work-in-process is on perpetual
basis. Inventories are valued at cost, first-in, first-out method. There is no finished goods inventory.
The companys physical inventory revealed that the book inventory of P1,695,960 was understated by
P84,000.
To avoid delay in completing its monthly financial statements, the company decided not to adjust the
book inventory until year-end except for obsolete inventory items.
Your examination disclosed the following information regarding the November 30 inventory:
a. Pricing tests showed that the physical inventory was overstated by P61,600.
b. An understatement of the physical inventory by P4,200 due to errors in footings and extensions.
c. Direct labor included in the inventory amounted to P280,000. Overhead was included at the rate of
200% of direct labor. You have ascertained that the amount of direct labor was correct and that the
overhead rate was proper.
d. The physical inventory included obsolete materials with a total cost of P7,000. During December, the
obsolete materials were written off by a charge to cost of sales.
Your audit also disclosed the following information about the December 31 inventory:
a. Total debits to the following accounts during December were:
Cost of sales

P1,920,800

Direct labor

338,800

Purchases

691,600

b. The cost of sales of P1,920,800 included direct labor of P386,400.

Adjusted amount of physical inventory at November 30, 2016
a. P1,715,560

c. P1,845,760

b. P1,631,560

d. P1,722,560

Adjusted amount of inventory at December 31, 2016

a. P1,509,760
b. P1,516,760
c. P1,502,760
d. P1,425,760
Supporting Computation
Inventory, November 30, 2016
Understatement
Overstatement-Pricing Test
Understatement-Errors in Footings & Extensions
Obsolete materials
Adjusted Inventories, November 30, 2016

1,695,960
84,000
(61,600)
4,200
(7,000)
1,715,560

Purchases in December

691,600

Direct Labor Incurred

Overhead (200% of Direct Labor)

338,800
677,600

Cost of Goods Sold

Inventories, December 31, 2016

(1,920,800)
1,509,760

The AAA Company is on a calendar year basis. The following data were found during your audit:
a.

Goods in transit shipped FOB destination by a supplier, in the amount of P100, 000, had been excluded
from the inventory, and further testing revealed that the purchase had been recorded.

b.

Goods costing P50, 000 had been received, included in inventory, and recorded as a purchase. However,
upon your inspection the goods were found to be defective and would be immediately returned.

c.

Materials costing P250, 000 and billed on December 30 at a selling price of P320, 000, had been
segregated in the warehouse for shipment to a customer. The materials had been excluded from inventory
as a signed purchase order had been received from the customer. Terms, FOB destination.

d.

Goods costing P70, 000 was out on consignment with BBB Company. Since the monthly statement from
BBB Company listed those materials as on hand, the items had been excluded from the final inventory
and invoiced on December 31 at P80, 000.

e.

The sale of P150, 000 worth of materials and costing P120, 000 had been shipped FOB point of shipment
on December 31. However, this inventory was found to be included in the final inventory. The sale was
properly recorded in 2005.

f.

Goods costing P100, 000 and selling for P140,000 had been segregated, but not shipped at December 31,
and were not included in the inventory. A review of the customers purchase order set forth terms as FOB
destination. The sale had not been recorded.

g.

Your client has an invoice from a supplier, terms FOB shipping point but the goods had not arrived as
yet. However, these materials costing P170, 000 had been included in the inventory count, but no entry
had been made for their purchase.

h.

Merchandise costing P200, 000 had been recorded as a purchase but not included as inventory. Terms of
sale are FOB shipping point according to the suppliers invoice which had arrived at December 31.
Further inspection of the clients records revealed the following December 31, 2006 balances: Inventory,
P1,100,000; Accounts receivable, P580,000; Accounts payable, P690,000; Net sales, P5,050,000; Net
purchases, P2,300,000; Net income, P510,000.

Based on the above and the result of your audit, determine the adjusted balances of following as
of December 31, 2016:
1. Inventory
a. P1, 230,000
b. P1, 650,000

c. P1, 550,000
d. P1, 480,000

2. Accounts payable
a. P710, 000
b. P540, 000

c. P810, 000
d. P760, 000

3. Net sales
a. P4, 550,000
b. P4, 650,000

c. P4, 730,000
d. P4, 970,000

4. Net purchases
a. P2, 370,000
b. P2, 420,000

c. P2, 150,000
d. P2, 320,000

5. Net income
a. P220, 000
b. P290, 000

c. P540, 000
d. P550, 000

Accounts Payable
Inventory

Net Purchases

Net Income

Net Sales

Unadjusted balances
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
Adjusted balances

P1,100,000
(50,000)
250,000
70,000
(120,000)
100,000
200,000
P1,550,000

P690,000
(100,000)
(50,000)
170,000
P710,000

P5,050,000
(320,000)
(80,000)
P4,650,000

P2,300,000
(100,000)
(50,000)
170,000
P2,320,000

P510,000
100,000
(70,000)
(10,000)
(120,000)
100,000
(170,000)
200,000
P540,000

ABC Company engaged you to examine its books and records for the fiscal year ended June 30, 2016.
The companys accountant has furnished you not only the copy of trial balance as of June 30, 2016 but
also the copy of companys balance sheet and income statement as at said date. The following data
appears in the cost of goods sold section of the income statement:
Inventory, July 1, 2015
Add Purchases
Total goods available for sale
Less Inventory, June 30, 2016
Cost of goods sold

P 500,000
3,600,000
4,100,000
700,000
P3,400,000

The beginning and ending inventories of the year were ascertained thru physical count except that no
reconciling items were considered. Even though the books have been closed, your working paper trial
balance show all account with activity during the year. All purchases are FOB shipping point. The
company is on a periodic inventory basis.
In your examination of inventory cut-offs at the beginning and end of the year, you took note of the
following:
July 1, 2015
a.

June invoices totaling to P130,000 were entered in the voucher register in June. The corresponding goods
not received until July.
b. Invoices totaling P54,000 were entered in the voucher register in July but the goods received during June.
June 30, 2016
c.

Invoices with an aggregate value of P186,000 were entered in the voucher register in July, and the goods
were received in July. The invoices, however, were date June.
d. June invoices totaling P74,000 were entered in the voucher register in June but the goods were not
received until July.
e. Invoices totaling P108,000 (the corresponding goods for which were received in June) were entered the
voucher register, July.

f.

Sales on account in the total amount of P176,000 were made on June 30 and the goods delivered at that
time. Book entries relating to the sales were made in June.

1. How much is the adjusted Inventory as of July 1, 2015?

a. P500,000
c. P576,000
b. P630,000
d. P370,000
2. How much is the adjusted Purchases for the fiscal year ended June 30, 2016?
a. P3,840,000
c. P3,894,000
b. P3,600,000
d. P3,914,000
3. How much is the adjusted Inventory as of June 30, 2016?
a. P784,000
c. P892,000
b. P500,000
d. P960,000

Unadjusted balances

Inventory7/1/15
P500,000

Purchases
P3,600,000

Inventory6/30/16
P700,000

130,000
130,000

(54,000)
186,000
108,000
240,000

186,000
74,000
260,000

P630,000

P3,840,000

P960,000

Adjustments
a
b
c
d
e
f
Total
Adjusted balances

Investments
WWW Company purchased P160 million of 8% bonds, dated January 1, on January 1, 2016 to be held as
financial assets at amortized cost. On the acquisition date, the market yield of bonds with similar risk and
maturity was 10%. The company paid P132 million for the price of the bonds. Interest is received on June
30 and December 31. Due to changes in market conditions, the fair value of the bonds at December 31,
2016 was P140 million.

At what amount will WWW Company report its investment in the December 31, 2016 statement of
financial position?
a. P132.2 million
b. 140 million

c. 132.41 million
d. 160 million

The unrealized holding gain or loss to be classified as component of other comprehensive income at
December 31, 2016 is?
a. P8.31 million holding gain
b. P8.39 million holding loss
c. P7.59 million holding gain
d. P0

The amount of interest income to be reported in WWW Companys income statement for the year ended
December 3, 2016 is?
a. P6.4 M
b. P12.8 M
c. P6.61 M
d. P13.21 M

Date

Interest Received

Interest Income

Principal

01/1/16

Carrying Amount
132,000,000

06/30/16

6,400,000

6,600,000

200,000

132,200,000

12/31/16

6,400,000

6,610,000

210,000

132,410,000

Total Interest Income for the year

P13, 210,000

On January 1, 2015, YYY Company purchased P2,000,000 face value bonds at a price of P1,824,800
which will yield an interest rate of 10 %. The nominal interest rate on the bonds is 8% payable annually
every December 31. The companys business model is to collect contractual cash flows that are solely
payments of principal and interest.
On December 31, 2016 YYY Company changed the business model in managing the bonds from
collecting contract cash flows that are solely payments of principal and interest to realizing short term
gain. The market value of the bonds on January1, 2017 is 105.
What amount should be reported as interest income for 2016?
a. P184,728

b. P160,000
c. P182,000
d. P24,728
What is the carrying amount of the bonds on December 31, 2016?
a. P2,000,000
b. P1,872,008
c. P1,847,280
d. P1,782,000

Date

Interest Received

Interest Income

Principal

1/1/15

Carrying Amount
1,824,800

12/31/15

160,000

182,480

22,480

1,847,280

12/31/16

160,000

184,728

24,728

1,872,008

PPE
AAA Company incurred the ff expenditures in2016:
Purchase of land

7,892,000

Land survey

104,000

Fees for search of title for land

12,000

Building permit fee

70,000

Temporary quarters for construction crews

215,000

Cost to demolish

940,000

Excavation of basement

200,000

Special assessment for street project

40,000

Dividends

100,000

Damages awarded for injuries sustained in construction

168,000

Cost of construction

58,000,000

Cost of paving parking lot adjoining building

800,000

Cost of shrubs, trees, and other landscaping

660,000

A portion of the building site had been temporarily used by AAA to operate a car park while the building
was being constructed. A total of P325, 000 was earned by AAA from this incidental activity.
What is the cost of land?
a. 8,896,000
b. 8,048,000
c. 9,648,000
d. 10,448,000
What is the cost of building?
a. 58,485,000
b. 58,160,000
c. 58,252,000
d. 59,425,000

Purchase price of land

7,892,000

Survey fee

104,000

Fees to search of land

12,000

Special assessment

40,000

Land

8,048,000

Building permit fee

70,000

Temporary quarters

215,000

Cost to demolish old building

940,000

Special assessment for street project

200,000

Cost of construction

58,000,000

Land

59,425,000