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ACTBAS1 FINALS REVIEWER

TERM 3 AY 2013-2014

True or False
1.
2.
3.
4.
5.

A purchase of equipment would increase equity.


A permanent withdrawal is made in anticipation of profits from the business.
Loans extended to other entities form part of investing activities.
Salaries and wages expense is recorded at net of statutory deductions.
The endorser can collect from the endorsee if maker does not pay or
dishonors the note with recourse.
6. A long-term note payable may not be recorded at present value if the
company violates the concept of going concern.
7. Current assets are listed in the statement of financial position in the order of
their solvency.
8. An entry to close net loss to the capital account would include a debit on
income summary.
9. Unused supplies would never need a reversing entry if it was recorded using
the asset method.
10.When previously written off accounts are collected, bad debts expense is
credited.
11.Probable loss on uncollectible account is estimated to be P13,000, however,
Allowance for Doubtful Accounts of P11,000 was not adjusted at the end of
the period. Net Income is understated.
12.An aging schedule is prepared only for old accounts receivables that have
been past due for more than one year.
13.A debit to an asset and a credit to a liability is one form of adjusting entry.
14.Accrued items are those for which recognition of the related revenue or
expense occurs in an accounting period after the entity pays or receives
cash, respectively.
15.The account Liability on Notes Receivable Discounted is closed whether the
discounted own note is honoured or dishonoured at maturity date.
16.An endorser of a note receivable becomes liable to the endorsee on the date
of maturity.
17.Materiality is only a threshold or a cut-off point in determining useful
information.
18.Prudence is best described as selecting an alternative that understates assets
and net income and overstates liabilities.
19.Real accounts is the collective term for revenue and expense accounts.
20.When the owner pays the accrued expenses of the business out of his
personal funds there is an increase in proprietorship and a decrease in
liability.
Problem Solving
1. On February 15, 2014, Dia bought a sofa from Emer for P80, 000. She paid
30% by cash and the balance, on account due in 90 days at 12%. On April 1,
2014, Emer sold the note to a local bank. What is the discount rate if
Emer received net proceeds of P56, 598.50?
2. Spinel works for 8 hours each day. However, for the month of January, Spinel
had to work overtime since it was tax season. She worked for two hours more
than usual each week. Salaries are paid twice in a month. Given that she
has a basic pay of P400 per hour plus 130% of the basic pay rate for
each hour of over time, what is Spinels gross pay? Assume 20
working days.

3. Spinel receives her net pay of P23, 348.50 after the company makes
deductions. This includes SSS of P350, Philhealth of 275, Pag-ibig of P100 and
Withholding Tax. What is the amount of withholding tax, assuming the
same given in number 2?
4. Lazuli accounts for the following at the end of the year:
Total assets at the beginning of the year
Additional investment
Total liabilities at the beginning of the
year
Income summary (credit)

P100,500
20,000
42,700
30,000

Lazuli observes that total assets and total liabilities increased by 30% and
10%, respectively, from the beginning balance. Given the data above,
Lazuli wonders if there were any withdrawals made for the year.
What is the amount, if any?
5. Zirc recorded an entry for bad debts on December 31, 2014:
Doubtful accounts expense
146,400
Allowance for doubtful accounts
146,400
Accounts receivable for the year-ended amounted to P703, 000 while the
unadjusted allowance for doubtful accounts amounted to a debit of P5, 800.
Given such data, at what percent of accounts receivable is estimated
to be collectible?

6. JBA Consulting Services have the following selected transactions.


October 29
Received a P75,000 60-day 17% note
from Benedict for consulting services to
be rendered next month
November 18
Discounted Benedicts note with BPI at a
discount rate of 15%
December 28
Received notice from BPI that the note
discounted with them was dishonored.
Paid the bank the amount due plus
protest fees of P875.
How much is the discount of the note?
7. With the given in number 6, assume that the consulting services collected the
account on February 14 of next year. How much is the total proceeds?
8. The following account balances were taken from the books of APHRODITE
HEALTH & BEAUTY SPA as of December 31, 2014:
Accounts Payable
58600
Accounts Receivable
135050
Accumulated Depreciation- Furniture
14000
and Fixtures
Accumulated Depreciation- Office
48000
Equipment
Advertising Expense
12500
Allowance for Doubtful Accounts
10840
Cash
51713
Aphrodite, Capital
324437
Aphrodite, Drawing
20000
Depreciation Expense
38000
Doubtful Accounts Expense
5400
Discount on Notes Payable
600
Furnitures and Fixtures
120000

Interest Expense
Interest Income
Interest Receivable
Mortgage Payable (due on 2015)
Notes Payable (due on 2015)
Notes Receivable
Office Equipment
Rent Expense
Repairs and Maintenance
Representation and Entertainment
Expense
Salaries and Wages
Service Income
Supplies Inventory
Supplies used
Taxes and Licenses
Taxes and Licenses Payable
Unearned Service Income
Utilities Expense

5107
8500
2800
70000
10000
50000
250000
34000
13500
5750
100000
310500
6500
10500
4207
2100
15050
6400

How much is the net income?


9. Using the given of number 5 for the end of 2014, what is the balance of
the property, plant and equipment?
10.
Supplies inventory had a balance of P5,280. An inventory of supplies
revealed a total of P2,520. How much is the adjustment?
11.A business receives its commission on the 5th day of the month following the
month of sale based on 20% of selling price of the items that it is
commissioned to sell. The table below shows the schedule for September
2014 of goods delivered by Supplier Banana Republic to the company and its
inventory count at month-end
Units Delivered
Units on Hand
Unit Selling Price
5000
3500
P350
What is the balance of the commission?
12.
A business depreciates its assets uniformly over an estimated life of 10
years with negligible scrap value. The balance of the equipment account at
the beginning of the period was P360,000 while the accumulated
depreciation account is shown with a balance of P108,000. On April 1 of the
current year, another piece of equipment was acquired at a total cost of
P150,000. This new piece of was estimated to have a salvage value of at
least P6,000. How much is the depreciation for this fiscal year ending
September 30?
13.
Darren company had a year-end accounts receivable totaling
P520,000. It is estimated that 5% of the accounts receivable will be
uncollectible. The allowance for bad debts has credit balance of P2,000
before adjustment. What is the amount of adjustment?
14.The Big Five renders computer repair services to individuals and institutional
clients on account basis. However, most of its accounts receivables are not
paid on time due to its poor collection policy. After reviewing its accounting
records, the company discloses the following:
Customer
Transaction
Amount
Date
One Large Company
October 13

50,000

Two Big to Fail Co.


Three Huge Men Inc.
Four Ever Great Company

November 26
September 18
December 7

90,000
35,000
100,000

Company policy regarding past due accounts are as follows:


Account
%
Classification
Doubtfu
l
1-30 days
5%
31-60 days
10%
61-90 days
15%
More than 90 days
20%
The allowance for doubtful accounts as of January 1, 2015 has a
credit balance of 15,500. How much doubtful account expense will
be recorded for 2015?

15.On December 31, 2014, after adjustments, ABC Services had the following
records:
Equipment
A
B
C

Carrying Value
1,600,000
2,400,000
4,800,000

No. of Years Used


2.5
3
2

Est. No. of Years Remaining


0.5
5
4

On January 1, 2015, ABC Services bought a new equipment for P8,000,000. It


is estimated that the new equipment will be used for 8 years. On the same
date, the company disposed Equipment B for a price twice of its carrying
value. It is their policy to provide no salvage value for their equipment and
use a straight-line method of depreciation. How much is the net effect of
the transactions affecting the Equipment account on the companys
2015 net income?
16-17. An examination of the cash receipts and payments of Lalala Services reveals
the following:
Cash paid to suppliers for purchase of
5,000
merchandise
Cash received from customers
14,000
Cash paid for purchase of equipment
22,000
Owner withdrawals
2,000
Additional investment
10,000
Interest received on short-term
1,000
investments
Salaries paid
4,000
Repayment of loan
5,000
Cash from sale of land
12,000
What is the cash flow from financing activities?
What is the cash flow from investing activities?
18.On October 1, 2013 Storybrook Company had total assets of 150,000. The
total assets include equipment purchased on account for 30,000 with a useful
life of 10 years and 5% salvage value. As of September 30, 2014, its equity
raised to 110,000, brought about by net income of 40,000 and temporary
withdrawals of 5,000. How much is the noncurrent liabilities at as of
year-end, if the current portion has the same percentage as that of
equity to assets ratio?

The following information is obtained from the books of Martha Repair Service
Center for the year 2013. Construct Martha Repair Service Center Income
Statement, Statement of Changes in Equity, Statement of Financial
Position, Statement of Cash Flows and accompanying notes for the year
2013.
Accounts Payable

150450
Accounts Receivable
130000
Accrued Rent Income
1700
Accumulated Depreciation Building
65000
Accumulated Depreciation Furniture and
15000
Fixtures
Accumulated Depreciation Office
30000
Equipment
Advances to Employees
2500
Allowance for Doubtful Accounts
34000
Buildings
670000
Cash
686750
Depreciation Expense
66000
Dividends Income
13000
Doubtful Accounts Expense
23000
Furniture and Fixtures
90000
Gain on Sale of Equipment
1500
Interest Expense
12000
Interest Income
16000
Martha, Capital
480000
Martha, Drawing
50000
Mortgage Payable
400000
Notes Receivable
190000
Notes Payable (due after 4 years)
320000
Office Equipment
340000
Prepaid Insurance
28000
Prepaid Interest
24000
Rent Income
16000
Salaries Expense
162000

Service Income
Supplies
Supplies Expense
SSS and Philhealth Premiums Expense
SSS and Philhealth Premiums Payable
Pag-ibig Contributions Payable
Unearned Interest Income
Utilities Expense
Withholding Taxes Payable

970000
58000
44000
65000
54000
38000
32000
34000
42000

Additional Information for Cash Flows:


Cash Receipts:
Cash collections from customers
Interest income
Dividends income
Rent income
Proceeds from sale of furniture
Proceeds from bank loan
Cash Payments:
For operating expenses
For interest expense
For purchase of office equipment
For payment of principal of loan
Cash withdrawal by owner
Cash balance January 1

630000
16000
13000
16000
3500
468000
375000
12000
42000
266000
50000
285250

Answer Key:
True or False
1. False
2. False
3. True
4. False
5. False
6. True
7. False
8. False
9. True
10.False
11.False
12.False
13.False
14.False
15.False
16.False
17.True
18.False
19.False
20.True

No effect to equity.
Temporary withdrawal, not permanent.
Recorded at gross.
Switch endorser and endorsee.
Liquidity
Credit on income summary.
Not always.

Problem Solving
1.
Principal (80,000 x .70)
Interest (56,000 x .12 x 90/360)
Maturity value
Maturity value

56,000
1,680
57,680
57,680

Discount (SQUEEZE)
Net proceeds

(1081.50)
56,598.50

Maturity value
Discount period
Discount rate (SQUEEZE)
Discount

57,680
45/360
.15
1081.50

Basic pay (8 x 400 x 20)


Overtime pay (2 x 4 x 400 x 1.3)
Gross pay

64,000
4,160
68,160

2.

3.
Gross pay (68,160/2)
SSS
Philhealth
Pag-ibig
Withholding Tax (SQUEEZE)
Net pay

34,080
(350)
(275)
(100)
(10,006.50)
23,348.50

4.
Capital, beg. (100,500 42,700)
Additional investment
Net Income
Withdrawals (SQUEEZE)
Capital, end. (100,500 x 1.3 42,700 x
1.1)

57,800
20,000
30,000
(24,120)
83,680

5.
Allowance for doubtful accounts
(146,400 5,800)
Divided by: Accounts receivable
% uncollectible
% collectible (1 0.2)

140,600
703,000
0.20
0.80

6.
Note Receivable
Add: Interest
Maturity Value
Multiply by: Period
Discount rate
Discount

P 75000
2125
77125
40/360
0.15
P 1285.42

7.
Maturity Value
Interest Expense
Proceeds

P 77125
1285.42
P 75839.58

8.
Total revenues
Total expenses
Net income

P 319000
(235364)
P 83636

9.
Office Equipment

P 250000

Less: Accumulated Depreciation


Furnitures and Fixtures
Less: Accumulated Depreciation
TOTAL

48000
120000
14000

10.
Balance of inventory
Total inventory
Amount of adjustment

P 202000
106000
P308000

P 5280
2520
P 2760

11.
Units delivered
Units on hand
Units sold
Multiply by selling price
Multiply by commission rate
Commission Income

5000
(3500)
1500
P 350
0.2
P 105000

12.
Depreciation of the old asset
Equipment Depreciation ((1500006000)/10)*6/12
Total depreciation for the fiscal year

P 43200

13.
Required rate of bad debts
Required allowance
Credit balance
Additional allowance for bad debts

0.05
26000
(2000)
P 24000

P 36000
7200

14.
Customer
One
Two
Three
Four

Amount
50,000
90,000
35,000
100,000

%
Doubtful
0.15
0.1
0.2
0.05

Req. Allowance for doubtful accounts,


Dec. 31
Less: Allowance for doubtful accounts,
Jan. 1
Doubtful Accounts Expense
Equipment
Partial Solutions
whole CV to be expensed on its last
A
year
gain on sale = (2,400,000 x 2) B
2,400,000
C
annual depreciation = 4,800,000 / 4
D
annual depreciation = 8,000,000 / 8
Net Effect

Total
P 7,500
9,000
7,000
5,0
00
P
28,500
15,5
00
P 13,000
Increase (Decrease)
(1,600,000.00)
2,400,000.00
(1,200,000.00)
(1,000,000.00)
(1,400,000.00)

16-17.
Additional Investment
Repayment of Loan
Owners Drawing
Cash Flow from Financing Activities

P 10,000
(5,000)
(2,000)
P 3,000

Cash paid for purchase of equipment


Cash from sale of land
Cash flow from Investing Activities

P (22,000)
12,000
P (10,000)

18.
Equity, end
Net Income
Withdrawals
Equity, beg
Assets, beg
Liabilities, beg
Multiply by: Ratio (75,000/150,000)
Current Liabilities

P 110,000
(40,000)
5,000
P 75,000
(150,000)
P 75,000
0.50
P 37,500

Martha Repair Service Center


Income Statement
For the Year Ending December 31, 2013
Not
e
Service Income
P
970,000
Other Income
1
46,500
Total Income

Expenses
Salaries Expense
Depreciation Expense
SSS and Philhealth Premiums
Expense
Supplies Expense
Utilities Expense
Doubtful Accounts Expense
Interest Expense

Net Income

P
1,016,500

P
162,000
6
6,000
6
5,000
4
4,000
3
4,000
2
3,000
1
2,000

(406
,000)
P
610,500

Martha Repair Service Center


Statement of Changes in Owner's Equity
For the Year Ending December 31, 2013
Martha, Capital - January 1
P
480,000
Add: Net income
610,5
00
Sub-total
P
1,090,500
Less: Martha, Drawing
(50,0
00)
Martha, Capital - December
Php
31
1,040,500
Martha Repair Service Center
Statement of Financial Position
December 31, 2013
ASSETS
Not
e
Current Assets
Cash
P
686,750
Trade and Other Receivables
2
290,
200
Prepaid Expenses
3
110,
000
Total Current Assets

Non-Current Assets
Property, Plant and Equipment

990,
000

TOTAL ASSETS

LIABILITIES AND OWNER'S


EQUITY
Current Liabilities
Trade and Other Payables

Non-Current Liabilities
Mortgage Payable
Notes Payable (due after 4
years)
Total Non-Current Liabilities
Total Liabilities

Owner's Equity
Martha, Capital

P
1,086,950

P
2,076,950

P
316,450

P
400,000
320,
000
720,
000
P
1,036,450

1,040,

500
TOTAL LIABILITIES AND OWNER'S
EQUITY

P
2,076,950

Martha Repair Service Center


Statement of Cash Flows
For the Year Ending December 31, 2013
Cash flows from operating
activites
Receipts
Cash collections from
P
customers
630,000
Interest income
16,000
Dividends income
13,000
Rent income
16,000
Payments
For operating expenses
(375,
000)
Interest expense
(12,0
00)
Net cash from operating
P
activities
288,000
Cash flows from investing
activites
Receipt
From sale of furniture

P
3,500

Payment
For purchase of office
equipment
Net cash used by investing
activities
Cash flows from financing
activites
Receipt
Proceeds from bank loan
Payments
For principal of loan
Cash withdrawal by owner
Net cash from financing
activities
Net increase/decrease in cash
Cash balance - January 1

(42,
000)
(38,
500)

P
468,000
(266,
000)
(50,
000)
152,
000
P
401,500
28

5,250
P
686,750

Cash balance - December 31

Note 1

Other Income
Dividends Income

P
13,000
1
,500
16
,000
16
,000
P
46,500

Gain on Sale of Equipment


Interest Income
Rent Income
Total Other Income

Note 2

Trade and Other Receivables


Accounts Receivable
Allowance for Doubtful
Accounts
Notes Receivable

P
130,000
(34,
000)

Advances to Employees
Accrued Rent Income
Total Trade and Other
Receivables
Note 3

Prepaid Expenses
Prepaid Insurace

P
28,000
24
,000
58
,000
P
110,000

Prepaid Interest
Supplies
Total Prepaid Expenses

Note 4

Property, Plant and Equipment


Buildings
Less: Accumulated
Depreciation
Furniture and Fixtures
Less: Accumulated
Depreciation
Office Equipment

P
96,000
190
,000
2
,500
1
,700
P
290,200

670,
000
(65,
000)
90,
000
(15,0
00)
340
,000

P
605,000

75,
000

Less: Accumulated
Depreciation
Total Property, Plant and
Equipment
Note 5

Trade and Other Payables


Accounts Payable
SSS and Philhealth Premiums
Payable
Pag-ibig Contributions Payable
Unearned Interest Income
Withholding Taxes Payable
Total Trade and Other Payables

(30,
000)

310
,000
P
990,000

P
150,450
54
,000
38,
000
32
,000
42
,000
P
316,450