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15. On October 31, year 2, Dingo, Inc. had cash accounts at three different banks. One account
balance is segregated solely for a November 15, year 2 payment into a bond sinking fund. A
second account, used for branch operations, is overdrawn. The third account, used for regular
corporate operations, has a positive balance. How should these accounts be reported in Dingos
October 31, year 2 classified balance sheet?
a. The segregated account should be reported as a noncurrent asset, the regular account
should be reported as a current asset, and the overdraft should be reported as a current
liability.
b. The segregated and regular accounts should be reported as current assets, and the overdraft
should be reported as a current liability.
c. The segregated account should be reported as a noncurrent asset, and the regular account
should be reported as a current asset net of the overdraft.
d. The segregated and regular accounts should be reported as current assets net of the
overdraft.
16. A method of estimating uncollectible accounts that emphasizes asset valuation rather than
income measurement is the allowance method based on
a. Aging the receivables.
c. Gross sales.
b. Direct write-off.
d. Credit sales less returns and allowances.
17. Statement I: If there is objective evidence that the receivables are impaired, an impairment loss
should be recognized.
Statement II: The amount of loss is the difference between the assets carrying amount and the
present value of estimated future cash flows discounted at the financial assets original contracted
interest rate.
a. Statement I is true
b. Statement II is true
18. Under the effective interest method of amortization, the interest income is equal to
a. The state rate of interest multiplied by the face amount of the loan
b. The market rate of interest multiplied by the face amount of the loan
c. The stated rate of interest multiplied by the beginning carrying amount of the loan
d. The market rate of interest multiplied by the beginning carrying amount of the loan
19. Which of the following is the proper balance sheet presentation of receivables?
a. Trade receivables and non-trade receivables should be shown separately.
b. Non-trade receivables should be presented as current assets.
c. Trade accounts receivable and trade notes receivable should be presented separately.
d. Trade receivables and non-trade receivables which are currently collectible should be
presented as one line item as trade and other receivables.
20. Which statement is incorrect concerning the recognition principles?
a. An asset is recognized when it is probable that future economic benefits will flow to the
enterprise and the asset has a cost or value that can be measured reliably.
b. A liability is recognized when it is possible that on outflow of resources embodying
economic benefits will result from the settlement of a present obligation that can be
measured reliably.
c. Income is recognized when an increase in future economic benefits related to an
increase in asset or a decrease in a liability has arisen that can be measured reliably.
d. Expenses are recognized when a decrease in future economic benefits related to a
decrease in asset or an increase in liability has arisen that can be measured reliably.
Amount
P100,000
60,000
5,000
2,500
P167,500
Collectible
100%
95%
90%
P500
In its December 31, year 2 balance sheet, what amount should Delta report for allowance for
discounts?
22. Fenn Stores, Inc. had sales of P1,000,000 during December 2014. Experience shown that
merchandise equaling 7% of sales will be returned within thirty days and an additional 3% will be
returned within ninety days. Returned merchandise is readily resalable. In addition, merchandise
equaling 15% of sales will be exchanged for merchandise of equal or greater value. What amount
should Fenn report for net sales in its income statement for the month of December 2014?
23. Boy Company sold a machine to Golden Corporation on January 1, 2014, for which the cash
sales price was P379,100. Golden entered into an installment sales contract with Boy, calling for
annual payments of P100,000 for five years, including interest of 10%. The first payment was due
on December 31, 2014. How much interest income should be recorded by Boy in 2015?
24. The Premiere National Bank has a note receivable of P200,000 from the Marvelous Company
that it is carrying at face value and is due on December 31, 2018. Interest on the note payable at
9% each December 31. The Marvelous Company paid the interest due on December 31, 2014,
but informed the bank that it would probably miss the next two years interest payments because
of its financial difficulties. After that, it expected to resume its annual interest payments, but it
would make the principal payment one year late, with interest paid for that additional year at the
time of the principal payments. How much should be recognized as loan impairment loss in
2014? (Round off present value factors to four decimal places).
25. The following data were taken from the records of Ali Corporation for the year ended December
31, 2014:
Sales on account
Notes received to settle accounts
Provision for doubtful accounts
Accounts receivable deemed to be worthless
Purchases on account
Payment to creditors
Discounts allowed by creditors
Merchandise returned by customer
Collections received to settle accounts
Notes given to creditors in settlement of accounts
Merchandise returned to supplies
Payment on notes payable
Discount taken by customers
Collections received in settlement of notes
3,600,000
400,000
90,000
25,000
3,900,000
3,200,000
260,000
15,000
2,450,000
250,000
70,000
100,000
40,000
180,000
1,720,000
1,700,000
8,100,000
500 debit
40,000
140,000
If bad debts are estimated to be 1 % of ending accounts receivable, in the adjusting entry to
recognize bad debts, you would debit bad debt expense for?
27. On May 9, 2011, Paul Corp. sold merchandise with a list price of P150,000 to Camry account.
Paul allowed trade discounts of 30% and 20%. Credit terms were 2/15, n/40 and the sale was
made F.O.B shipping point. Paul prepaid P6,000 of delivery costs for Camry as an
accommodation. What amount should Camry remit to Paul as full payment on May 24, 2011?
Use the problem for questions 28 & 29:
Oops! You Break My Heart Company provided the following transactions affecting accounts receivable
during the year ended December 31, 2015:
Sales (cash and credit)
Cash received from credit customers, all of whom took advantage
of the discount feature of the entity's credit terms 4/10, n/30
Cash received from cash customers
Accounts receivable written off as worthless
Credit memorandum issued to credit customers for sales returns
and allowances
Cash refunds given to cash customers for sales returns and
allowances
Recoveries on accounts receivable written off as uncollectible in
prior periods (not included in cash amount stated above)
5,900,00
0
3,024,00
0
2,100,00
0
50,000
250,000
20,000
80,000
The following balances were taken from the January 1, 2015 statement of financial position:
Accounts receivable
Allowance for bad debts
P900,000
120,000
The entity provided for net uncollectible account losses by crediting allowance for bad debts for 1.75% of
net credit sales for the current period.
28. What is the adjusted balance of accounts receivable on December 31, 2015?
29. What is the balance of allowance for bad debts after adjustment on December 31, 2015?
30. On January 1, 2014, Threepeater Co. equipment costing P380,000 with accumulated
depreciation of P160,000 on the date of sale. Threepeater received as consideration for the sale,
a P400,000 non-interest bearing note, due January 1, 2017. There were no established exchange
price for the equipment and the note had no ready market. The prevailing rate of interest for a
note of this type at January 1, 2014 was 10% and 12% on December 31, 2014. In Threepeaters
2014 income statement, how much should be included for interest income?
31. The following information was included in the bank reconciliation for Ryan, Inc. for June. Assume
all other reconciling items are listed.
Checks and charges recorded by bank in June, including a June
service charge of P600
Service charge made by bank in May and recorded in the books in June
Total of credits to Cash in all journals during June
Customers NSF check returned as a bank charge in June (no
entry made on books)
Customers NSF check returned in May and redeposited in June (no entry
Made on books in either May or June)
Outstanding checks at June 30
Deposit in transit at June 30
P344,200
400
396,040
2,000
5,000
265,200
12,000
(1,200)
5,335
5,500
107
2,300
200
1,250
500
500
5,000
1,500
Successful and unsuccessful people do not vary greatly in their abilities. They vary in their desires to
reach their potential.John Maxwell