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REVIEW OF FINANCIAL ACCOUNTING THEORY AND PRACTICE

BALANCE SHEET
1. Pampanga Companys December 31, 2005 balance sheet reported the following
current assets:
Cash
Accounts receivable
Inventory
Prepaid expenses
Equipment used and held for resale

3,000,000
5,200,000
2,000,000
700,000
100,000
11,000,000

An analysis of the accounts receivable disclosed that accounts receivable comprised

the following:
Trade accounts receivable
Allowance for doubtful accounts
Selling price of Pampanga Companys unsold goods sent to XYZ
Company on consignment at 125% of cost and excluded
from Pampangas ending inventory

4,000,000
( 300,000)
1,500,000
5,200,000

At December 31, 2005, the total current assets should be

a. P10,600,000
c. P10,700,000
b. P 9,800,000
d. P 9,900,000
2. The trial balance of Arayat Company reflected the following liability account balances
on December 31, 2005:
Accounts payable
4,000,000
Bonds payable, due 2006
8,000,000
Discount on bonds payable
1,000,000
Deferred tax liability
1,500,000
Dividends payable
3,000,000
Income tax payable
500,000
Note payable, due 1/15/2007
2,500,000
In its December 31, 2005 balance sheet, Arayat should report current liabilities at
a. P16,000,000
c. P17,000,000
b. P14,500,000
d. P16,500,000
3. Candaba Company was incorporated on January 1, 2005, with proceeds from the
issuance of P15,000,000 in common stock and borrowed funds of P5,000,000. During
the first year of operations, revenue from sales and consulting amounted to P20,000,000,
and operating costs and expenses totaled P12,000,000. On December 15, Candaba
declared a P2,000,000 cash dividend payable to stockholders on January 15, 2006. No
additional activities affected owners equity in 2005. Candabas liabilities increased to
P7,000,000 by December 31, 2005. On December 31, 2005 balance sheet, total assets
should be reported at
a. P30,000,000
c. P22,000,000
b. P21,000,000
d. P28,000,000
4. Apalit Companys December 31, 2005 unadjusted current assets and stockholders equity
are as follows:
Cash
Trading securities (including P2,000,000 of Apalit
Companys common stock)
Trade accounts receivable
Inventory
Total current assets

5,000,000
8,000,000
10,000,000
7,000,000
30,000,000

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Common stock
Additional paid in capital
Retained earnings (including appropriated for contingencies of P3,000,000)
Total equity

15,000,000
3,000,000
7,000,000
25,000,000

The trading securities and inventory are reported at their costs which approximate
market values. In the 2005 statement of changes in equity, the total amount of equity at
December 31, 2005 is
a. P25,000,000
c. P20,000,000
b. P23,000,000
d. P22,000,000
5. The following trial balance of Macabebe Company on December 31, 2005 has been
adjusted except for income tax expense.
Cash
Accounts receivable
Inventory
Property, plant and equipment
Accounts payable and accrued liabilities
Income tax payable
Deferred tax liability
Common stock
Additional paid in capital
Retained earnings 1/1
Nets sales and other revenues
Costs and expenses
Income tax expense

4,000,000
6,700,000
11,000,000
19,000,000
7,000,000
4,800,000
1,200,000
10,000,000
4,000,000
5,000,000
80,000,000
65,000,000
6,300,000
112,000,000

________
112,000,000

During the year, estimated tax payments of P1,500,000 were charged to income tax
expense. The current and future tax rate is 32% on all types of revenue. The deferred tax
liability is unrelated and will reverse in 2006.
1. The adjusted retained earnings on December 31, 2005 should be
a. P15,200,000
c. P20,000,000
b. P13,700,000
d. P15,000,000
2. The total current liabilities on December 31, 2005 should be
a. P10,300,000
c. P11,800,000
b. P11,500,000
d. P13,000,000
6. The bookkeeper for Guagua Computers, Inc., reports the following balance sheet amounts
as of June 30, 2005.
Current assets
Noncurrent assets
Current liabilities
Noncurrent liabilities
Owners equity

P2,440,500
6,285,500
1,386,000
900,000
6,440,000

A review of account balances reveals the following data.

(a) An analysis of current assets discloses the following:
Cash
Investment securities trading
Trade accounts receivable
Inventories, including advertising supplies of P20,000

P 422,500
600,000
568,000
850,000
P2,440,500

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(b) Noncurrent assets include the following:

Property, plant and equipment:
Depreciated book value (cost P6,560,000)
Deposit with a supplier for merchandise ordered
for August delivery
Goodwill recorded on the books to cancel losses
incurred by the company in prior years

P5,490,000
21,500
774,000
P6,285,500

(c) Current liabilities include the following:

Payroll payable
Taxes payable
Rent payable
Trade accounts payable
Total owed to suppliers on account
Less: 6-month note received from a supplier
who purchased some used equipment
on June 29, 2005
Notes payable

71,500
41,500
114,000

P1,014,000
15,000

999,000
160,000
P1,386,000

(d) Noncurrent liabilities include the following:

9% mortgage on property, plant, and equipment, payable in
semiannual installment of P90,000 through to June 30, 2010

P900,000

(e) Owners equity Includes the following:

Preferred stock: 190,000 shares outstanding (P20 par value)
Common stock: 1,600,000 shares at P1 stated value
Additional paid-in capital

P3,800,000
1,600,000
1,040,000
P6,440,000

(f) Common shares were originally issued for P3,910,000, but the losses of the
company for the past years were charged against additional paid-in capital.
QUESTIONS:
Determine the adjusted amounts of the following:
1. Current assets
a. P2,462,000

b. P2,477,000

c. P2,440,500

d. P2,435,500

2. Noncurrent assets
a. P5,490,000
b. P6,560,000

c. P5,511,500

d. P6,264,000

3. Current liabilities
a. P1,401,000

c. P1,581,000

d. P1,491,000

4. Noncurrent liabilities
a. P720,000
b. P900,000

c. P810,000

d. P880,000

5. Owners equity
a. P7,710,000

c. P8,750,000

d. P5,666,000

b. P1,602,500

b. P6,440,000
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