Reminders:

a. Exam starts at 6:30 until 9:45 pm

b. Rules in submitting assignments will apply.
c. Filename and subject of email should follow the naming convention: last
name_section_Q3&4
d. A separate excel sheet that contains summary of answers should be also
submitted together with the jpg format of solutions
e. Late/non-submission is tantamount “zero” score. Hence, answers should be
submitted on or before 9:45 pm to emailadd: academe101@gmail.com
f. First 21 questions will be your Q3; while items 22-42 will be your Q4

1. The liabilities section of the balance sheet of Pug Company on December 31,
2005 detailed the following:

Accounts payable 2,000,000

Notes payable-trade 2,500,000
Bank note payable -10% 800,000
Bank note payable – 12% 1,000,000
Accrued expenses 350,000
Accrued interest payable 500,000
Mortgage note payable – 6% 4,000,000
Bonds payable – 10% due June 30, 2006 5,000,000

The 10% bank note payable is issued on January 1, 2005, payable on demand
and interest is payable every six months. The 12% bank note payable is a
two-year note issued on July 1, 2004.

The 6%, 10 year mortgage note was issued on October 1, 2002. Terms of the
note give the holder to demand payment if the company fails to make monthly
interest payment. On December 31, 2005, Pug is three months behind in paying
its required interest.

What is the total amount of current liabilities on December 31, 2005?

2. To increase sales, Quezon Company inaugurated a promotional campaign on June

30, 2005. Quezon placed a coupon redeemable for a premium in each package
of cereal sold at P200. Each premium costs P100. A premium is offered to
customers who send in 5 coupons and a remittance of P30. The distribution
cost per premium is P20. Quezon estimated that only 60% of the coupons
issued will be redeemed. For the six months ended December 31, 2005, the
following is available:

Packages of cereal sold 100,000

Premiums purchased 10,000
Coupons redeemed 40,000

What is the estimated liability for coupons on December 31, 2005?

3. A new product introduced by Wilkenson Promotions carries a two-year warranty

against defects. The estimated warranty costs related to dollar sales are as
follows:

Year of sale ............ 3 percent

Year after sale ...... 5 percent

Sales and actual warranty expenditures for the years ended December 31, 2004
and 2005, are as follows:
 Actual Warranty
Sales Expenditures
2004 P 8,000,000 P200,000
2005 10,000,000 700,000

What amount should Wilkenson report as its estimated liability as of

December 31, 2005?

4. National Appliance Center sells washing machines that carry a three-year

warranty against manufacturer's defects. Based on company experience,
warranty costs are estimated at P60 per machine. During the year, National
sold 48,000 washing machines and paid warranty costs of P340,000. In its
income statement for the year ended December 31, National should report
warranty expense of

5. On November 5, 2005, a Calauag Company truck was in an accident with an auto

driven by Macalelon. Calauag received notice on January 15, 2006, of a
lawsuit for P4,000,000 damages for personal injuries suffered by Macalelon.
Calauag’s counsel believes it is probable that Macalelon will be awarded an
estimated amount in the range between P2,000,000 and P3,000,000, and no
amount is a better estimate of potential liability than any other amount.
The accounting year ends on December 31, and the 2005 financial statements
were issued on March 31, 2006. What amount of provision should Calauag
accrue at December 31, 2005?

6. As an inducement to enter a lease, Legaspi Company, a lessor, grants Daraga

Company, a lessee, nine months of free rent under a five year operating
lease. The lease is effective on July 1, 2005, and provides for monthly
rental of P500,000 to begin April 1, 2006. In Daraga’s income statement for
the year ended June 30, 2005, rent expense should be reported as

7. Tabaco Company leased equipment for its entire nine-year useful life,
agreeing to pay P1,000,000 at the start of the lease term on January 1,
2004, and P1,000,000 annually on each January 1, for the next eight years.
The present value on January 1, 2004, of the nine lease payments over the
lease term, using the rate implicit in the lease which Tabaco knows to be
10% was P6,330,000. The January 1, 2004, present value of the lease
payments using Tabaco’s incremental borrowing rate of 12% was P5,970,000.
Tabaco made a timely second lease payment. What amount should Tabaco
report as capital lease liability in its December 31, 2005 balance sheet?

8. Bran Company leased equipment for its entire 10 year economic life, agreeing
to pay P1,000,000 at the start of the lease term on January 1, 2005 and
P1,000,000 annually on each January 1 for the next nine years. The present
value factors using the implicit rate in the lease which is 10% for an
annuity due with ten payments: 6.76 and for an ordinary annuity with ten
payments: 6.15. Bran properly recorded the finance lease and depreciated
the asset using the straight line method. What is the current portion of
the lease liability on December 31, 2005?

9. On January 2, 2005, Trent Company signed an 8-year noncancelable lease for a

new machine requiring P1,500,000 annual payments at the beginning of each
year. The machine has a useful life of 12 years with no residual value.
 Title passes to Trent at the lease expiration date. Trent uses the
straight-line depreciation for all of its plant assets. Aggregate lease
payments have a present value on January 2, 2005 of P5,400,000 based on an
appropriate interest rate. For 2005, Trent should record depreciation
expense for the leased machine at

10. Camarines Company is a dealer in machinery. On January 1, 2005, a

machinery was leased to another enterprise with the following provisions:

Annual rental payable at the end of each year 2,000,000

Lease term and useful life of machinery 5 years
Cost of machinery 5,000,000
Residual value-unguaranteed 1,000,000
Implicit interest rate 10%
PV of an ordinary annuity of 1 for 5 periods at 10% 3.79
PV of 1 for 5 periods at 10% 0.62

At the end of the lease term on December 31, 2009, the machinery will revert
to Camarines. The perpetual inventory system is used. Camarines incurred
initial direct costs of P200,000 in finalizing the lease agreement.
Camarines Company should report profit on the sale at

11. Concepcion Company and its divisions are engaged solely in manufacturing
operations. The following data pertain to the industries in which operations
were conducted for the year ended December 31, 2005.

SegmentsTotal revenue Operating profitIdentifiable assets

1 13,000,000 4,000,000 25,000,000
2 10,000,000 2,000,000 20,000,000
3 8,000,000 1,500,000 15,000,000
4 3,000,000 1,000,000 7,000,000
5 3,500,000 800,000 8,000,000
6 2,500,000 700,000 5,000,000
40,000,000 10,000,000 80,000,000
In its segment information for 2005, how many reportable segments does
Concepcion have?

12. Panamao Company, a publicly owned corporation, is subject to the

requirements for segment reporting. In its income statement for the year
ended December 31, 2005, Panamao reported revenue of P150,000,000, operating
expenses of P100,000,000 and net income of P50,000,000. Operating expenses
include payroll costs of P20,000,000. Panamao’s combined identifiable
assets of all industry segments at December 31, 2005 were P80,000,000. The
reported revenue includes P120,000,0000 of sales to external customers.
External revenue reported by operating segments must be at least

13. Kiangan Company has provided the following 2005 current account
balances:

January 1 December 31
Accounts receivable 1,500,000 2,800,000
Allowance for doubtful accounts 200,000 400,000
Prepaid insurance 600,000 450,000
Accounts payable 900,000 1,200,000
 Kiangan’s net income for 2005 was P8,000,000. Net cash provided by
operating activities should be

14-18
Lucban’s Music Emporium carries a wide variety of music promotion techniques
- warranties and premiums – to attract customers.

Musical instrument and sound equipment are sold in a one-year warranty for
replacement of parts and labor. The estimated warranty cost, based on past
experience, is 2% of sales.

The premium is offered on the recorded and sheet music. Customers receive a
coupon for each peso spent on recorded music or sheet music. Customers may
exchange 200 coupons and P20 for an AM/FM radio. Lucban pays P34 for each
radio and estimates that 60% of the coupons given to customers will be
redeemed.

Lucban’s total sales for 2005 were P7,200,000 - P5,400,000 from musical
instrument and sound reproduction equipment and P1,800,000 from recorded
music and sheet music. Replacement parts and labor for warranty work
totaled P164,000 during 2005. A total of 6,500 AM/FM radio used in the
premium program were purchased during the year and there were 1,200,000
coupons redeemed in 2005.

The accrual method is used by Lucban to account for the warranty and premium
costs for financial reporting purposes. The balance in the accounts related
to warranties and premiums on January 1, 2005, were as shown below:
Inventory of Premium AM/FM radio P39,950
Estimated Premium Claims Outstanding 44,800
Estimated Liability from Warranties 136,000

Determine the amounts that will be shown on the 2005 financial statements
for the following:

14. Warranty Expense?

15. Estimated liability from warranties?
16. Premium Expense?
17. Inventory of AM/FM radio?
18. Estimated liability for premiums?

19. Nagbukel Company issued rights to subscribe to its stock, the ownership
of 4 shares entitling the stockholders to subscribe for 1 share at P100.
Sinait Company owns 200,000 shares of Nagbukel Company with total cost of
P15,000,000. The stock is quoted right-on at 125. What is the theoretical
value of the stock rights?

20. Ilocos Company received dividends from its common stock investments
during the year 2005 as follows:

a. A stock dividend of 20,000 shares from A Company when the market price of
A’s shares was P30 per share.

b. A cash dividend of P2,000,000 from B Company in which Ilocos owns a 20%

interest.
 c. A cash dividend of P1,500,000 from C Company in which Ilocos owns a 10%
interest.

d. 10,000 shares of common stock of D Company in lieu of cash dividend of

P20 per share. The market price of D Company’s shares was P180. Ilocos
holds originally 100,000 shares of D Company common stock. Ilocos owns
5% interest in D Company.

What amount of dividend revenue should Ilocos report in its 2005 income
statement?

21. On October 1, 2005, Bangued Company acquired P20,000,000 face value 12%
bonds of Didigan Company at 110 plus accrued interest. The bonds were dated
July 1, 2004 and will mature on June 30, 2009. Interest is payable June 30
and December 31. The commission to acquire the bonds was P500,000. The
total amount paid for the investment in bonds was

22. Luba Company purchased bonds at a discount of P5,000,000. Subsequently,

Luba sold these bonds at a premium of P2,000,000. During the period that
Luba held this investment, amortization of the discount amounted to
P1,500,000. What amount should Luba report as gain on the sale of the
bonds?

23. The work-in-process inventory of Bakun Company were completely destroyed

by fire on June 1, 2005. You were able to establish physical inventory
figures as follows:

January 1, 2005 June 1, 2005

Raw materials P 60,000 P120,000
Work-in-process 200,000 -
Finished goods 280,000 240,000
Sales from January 1 to May 31, were P546,750. Purchases of raw materials
were P200,000 and freight on purchases, P30,000. Direct labor during the
period was P160,000. It was agreed with insurance adjusters than an average
gross profit rate of 35% based on cost be used and that direct labor cost
was 160% of factory overhead.

The work in process inventory destroyed as computed by the adjuster?

24. Trinidad Company uses the average cost retail method to estimate its
inventory. Data relating to the inventory at December 31, 2005 are:
Cost Retail
Inventory, January 1 P 2,000,000 P3,000,000
Purchases 10,600,000 14,000,000
Net markups 1,600,000
Net markdowns 600,000
Sales 12,000,000
Estimated normal shoplifting losses 400,000
Estimated normal shrinkage is 5% of sales

Trinidad’s cost of goods sold for the year ended December 31, 2004 is
25. The Atok Corporation was organized on January 1, 2004. On December 31,
2005, the corporation lost most of its inventory in a warehouse fire just
before the year-end count of inventory was to take place. Data from the
records disclosed the following:

2004 2005
Beginning inventory, January 1 P 0 P1,020,000
Purchases 4,300,000 3,460,000
Purchases returns and allowances 230,600 323,000
Sales 3,940,000 4,180,000
Sales returns and allowances 80,000 100,000

On January 1, 2005, the Corporation’s pricing policy was changed so that the
gross profit rate would be three percentage points higher than the one
earned in 2004.

Salvaged undamaged merchandise was marked to sell at P120,000 while damaged

merchandise was marked to sell at P80,000 had an estimated realizable value
of P18,000.

How much is the inventory loss due to fire?

26. The Alcala Company counted its ending inventory on December 31. None of
the following items were included when the total amount of the company’s
ending inventory was computed:
 P150,000 in goods located in Alcala’s warehouse that are on consignment from another company.
 P200,000 in goods that were sold by Alcala and shipped on December 30 and were in transit on
December 31; the goods were received by the customer on January 2. Terms were FOB
Destination.
 P300,000 in goods were purchased by Alcala and shipped on December 30 and were in transit on
December 31; the goods were received by Alcala on January 2. Terms were FOB shipping point.
 P400,000 in goods were sold by Alcala and shipped on December 30 and were in transit on
December 31; the goods were received by the customer on January 2. Terms were FOB shipping
point.
The company’s reported inventory (before any corrections) was P2,000,000.
What is the correct amount of the company’s inventory on December 31?

27. On June 1, 2005 Amulung Company sold merchandise with a list price of
P5,000,000 to ABC. Amulung allowed trade discounts of 20% and 10%. Credit
terms were 5/10, n/30 and the sale was made FOB shipping point. Amulung
prepaid P200,000 of delivery cost for ABC as an accommodation. On June 11,
2005, Amulung received from ABC full remittance of

28-29
28. Gonzaga Company uses the weighted average method to determine the cost of
its inventory. Gonzaga recorded the following information pertaining to its
inventory:
Units Units cost Total cost
Balance 1/1 160,000 60 9,600,000
Sold on 1/15 140,000
Purchased on 1/31 80,000 90 7,200,000
 What amount of inventory should Gonzaga report in its January 31, 2005
balance sheet under periodic inventory system?
29. What amount of inventory should Gonzaga report in its January 31, 2005
balance sheet under periodic inventory system?
30. On November 17, 2005, Solana Airways entered in to a commitment to
purchase 3,000 barrels of aviation fuel for P9,000,000 on March 23, 2006.
Solana entered into this purchase commitment to protect itself against the
volatility in the aviation fuel market. By December 31, 2005, the purchase
price of aviation fuel had fallen to P2,200 per barrel. However, by March
23, 2006, when Solana took delivery of the 3,000 barrels, the price of
aviation fuel had risen to P2,500 per barrel. How much should be recognized
as loss on purchase commitment on December 31, 2005?

31. Binmaley Company operates in an industry that has a high rate of bad
debts. On December 31, 2005, before any year-end adjustments, the accounts
receivable balance was P20,000,000 and its allowance for doubtful accounts
balance was P1,500,000. The year-end balance reported for the allowance for
doubtful accounts is based on the following schedule:

Time Outstanding Accounts Receivable Percent Uncollectible

Under 30 days P10,000,000 5%
31 - 180 days 5,000,000 10%
181 - 360 days 3,000,000 30%
More than one year 2,000,000 100%
The accounts which have been outstanding for more than one year and 100%
uncollectible would be written off immediately. What should be the doubtful
accounts expense for the year ended December 31, 2005?

32-34
32. Anda Corporation provided for uncollectible accounts receivable under the
allowance method since the start of its operations to December 31, 2005.
Provisions were made monthly at 2 percent of credit sales; bad debts written
off were charged to the allowance account; recoveries of bad debts
previously written off were credited to the allowance account; and no year-
end adjustments to the allowance account were made. Anda's usual credit
terms are net 30 days.

The credit balance in the allowance for doubtful accounts was P260,000 at
January 1, 2005. During 2005, credit sales totaled P18,000,000, interim
provisions for doubtful accounts were made at 2 percent of credit sales,
P180,000 of bad debts were written off, and recoveries of accounts
previously written off amounted to P30,000. Anda installed a computer
system in November 2005 and an aging of accounts receivable was prepared for
the first time as of December 31, 2005. A summary of the aging is as
follows:

Balance in Estimated %
Classifications by Month of Sale Each Category Uncollectible
November-December 2005 P2,280,000 2%
July-October 2005 1,200,000 15%
January-June 2005 800,000 25%
Prior to January 1, 2005 260,000 80%
 Based on the review of collectibility of the account balances in the "prior
to January 1, 2005" aging category, additional receivables totaling P120,000
were written off as of December 31, 2005. Effective with the year ended
December 31, 2005, Anda adopted a new accounting method for estimating the
allowance for doubtful accounts at the amount indicated by the year-end
aging analysis of accounts receivable.

How much is the adjusted balance of the allowance for doubtful accounts as
of December 31, 2005?
33. How much is the doubtful accounts for the year 2005?
34. The recorded allowance for doubtful accounts should be increased by

35. The following data pertain to Angat Corporation on December 31, 2005:

Current account at Metrobank P2,000,000

Current account at BPI (100,000)
Payroll account 500,000
Foreign bank account – restricted (in equivalent pesos) 1,000,000
Postage stamps 1,000
Employee’s post dated check 4,000
IOU from controller’s sister 10,000
Credit memo from a vendor for a purchase return 20,000
Traveler’s check 50,000
Not-sufficient-funds check 15,000
Money order 30,000
Petty cash fund (P4,000 in currency and expense receipts for
P6,000) 10,000
Treasury bills, due 3/31/06 (purchased 12/31/05) 200,000
Treasury bills, due 1/31/06 (purchased 1/1/05) 300,000

Based on the above information, compute for the cash and cash equivalent
that would be reported on the December 31, 2005 balance sheet.
36. You noted the following composition of Hagonoy Company’s “cash account”
as of December 31, 2005:

Demand deposit account P2,000,000

Time deposit – 30 days 1,000,000
NSF check of customer 40,000
Money market placement (due June 30, 2006) 1,500,000
Savings deposit in a closed bank 100,000
IOU from employee 20,000
Pension fund 3,000,000
Petty cash fund 10,000
Customer check dated January 1, 2006 50,000
Customer check outstanding for 18 months
40,000
Total P7,760,000

Additional information follows:

a) Check of P200,000 in payment of accounts payable was recorded on December

31, 2005 but mailed to suppliers on January 5, 2006.
b) Check of P100,000 dated January 15, 2006 in payment of accounts payable
was recorded and mailed on December 31, 2005.
c) The company uses the calendar year. The cash receipts journal was held
open until January 15, 2006, during which time P400,000 was collected and
recorded on December 31, 2005.
 The cash and cash equivalents to be shown on the December 31, 2005 balance
sheet is

37. The following data pertain to Balagtas Corporation on December 31,

2005:

Checkbook balance P10,000,000

Bank statement balance 15,000,000
Check drawn on Balagtas’ account, payable to supplier, dated and
recorded on Dec. 31, 2005, but not mailed until Jan. 15, 2006 3,000,000
Cash in sinking fund 4,000,000
Money market, three months due January 31, 2006 5,000,000
On December 31, 2005, how much should be reported as “cash and cash
equivalents”?

38. On December 31, 2005, Baliuag Company had the following cash balances:

Cash in bank P15,000,000

Petty cash fund (all funds were reimbursed on December 31, 2005) 50,000
Time deposit 5,000,000
Saving deposit 2,000,000
Cash in bank includes P500,000 of compensating balance against short term
borrowing arrangement at December 31, 2005. The compensating balance is
legally restricted as to withdrawal by Baliuag. A check of P300,000 dated
January 15, 2006 in payment of accounts payable was recorded and mailed on
December 31, 2005. In the current assets section of the December 31, 2005
balance sheet, what amount should be reported as “cash and cash
equivalents”?

39. AIR. is preparing its interim financial statements for the period ended
March 31, 20x1. The following relate to the transactions during the first
quarter:
a. Total sales for the interim period was ₱4,000,000
b. Cost of sales was ₱1,800,000.
c. AIR is liable for 5% commission on its sales to its sales representatives
and agents. No commission has yet been paid as of March 31, 20x1.
d. The allowance for doubtful accounts has a balance of ₱20,000 as of
January 1,20x1 the required balance as of March 31, 20x1 is ₱60,000.
There were no write-offs or recoveries during the period.
e. A building with historical cost of ₱4, 800,000 is being depreciated over
5 years using straight line method.
f. AIR prepaid a one-year insurance on its assets for ₱160,000 on January
1,20x1.
g. Property taxes for 20x1 amounting to₱104,000 was paid in January.
h. Advertising costs of ₱200,000 were incurred in February on promotional
activities held on Valentine’s Day.
i. Year-end staff bonuses are expected to be around ₱368,000 employees
become entitled to the bonuses as they provide services to AIR during the
year.
j. AIR’s president is entitled to 10% bonus on profit before bonus taxes
 k. loss on sale of a used equipment on March 2, 20x1 was ₱120,000.
l. AIR incurred ₱48,000 on unanticipated repairs on its factory equipment ON
March 16, 20x1.
m. Due to the unexpected breakdown of the factory equipment on March 16,
20x1, AIR has planned a major periodic overhaul of its other equipment to
be held annually starting December 31, 20x1. The cost of the major
planned periodic overhaul is estimated at ₱192,000.
n. AIR leases one of its retail stores. Monthly rentals are ₱20,000,
however, the lease contracts provide for a contingent rent equal to 2% of
the excess of sales over ₱3,600.
o. AIR’s budget for 20x1 included charitable contributions of ₱96,000 and
employee training costs of ₱52,000. None of those costs were incurred as
of March 31, 20x1.
p. Other operating expenses incurred during the first quarter totaled
₱480,000.

How much is the profit (loss) for the first quarter ended March 31, 20x1?

40-42

Using the data below compute for the following:

40. Cashflows from operating activities?
41. Cash flows from investing activities?
42. Cash flows from financing activities?

Sales 12,000
Interest income 40
Rent income 540
Divided income 80
Sale of held for trading securities 1600
Sale of old building 1,040
Collection of non-trade note 120
Proceeds from loan with a bank 3200
Issuance of shares 1,940
Purchases 7,600
Operating expenses 2,400
Interest expenses 60
Income taxes paid 140
Investment in FVOCI 200
Purchase of equipment 2,200
Loan granted to employee 260
Payment of loan borrowed 480
Reacquisition of shares 400
Dividends paid 180

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