Name: Scores: Part 1-REC

Section/Subject/Time: Part 2-C&CE

Date: Part 3-INVMNT

Direction: Encircle the letter of your answer. Show your solutions. No solution, no
point/s.
Part 1 – RECEIVABLES

Problem 1

Presented below are unaudited balances of selected accounts of MARJORIE COMPANY as of

December 31, 2006:
Unaudited Balances, 12/31/06
Selected Accounts Debit Credit
Cash P 500,000
Accounts receivable 1,300,000
Allowance for doubtful accounts 8,000
Net sales P 6,750,000

Additional information are as follows:

a. Goods amounting to P50,000 were invoiced for the accounts of Joy Store & Co.,
recorded on January 2, 2007 with terms of net, 60 days, FOB shipping point. The goods
were shipped to Variety Store on December 30, 2006.

b. The bank returned on December 29, 2006, a customer’s check for P5,000 marked
“DAIF”, but no entry was made.

c. MARJORIE COMPANY estimates that allowance for uncollectible accounts should be one
and one-half percent (1½%) of the accounts receivable balance as of year-end. No
provision has yet been made for 2006.

1. What is the adjusted balance of Accounts Receivable on December 31, 2006?

a. P 1,355,000
b. P 1,350,000
c. P 1,305,000
d. P 1,300,000

2. What is the adjusted balance of Allowance for doubtful accounts on December 31,
2006?
a. P 36,325
b. P 28,325
c. P 20,325
d. P 8,000

3. What is the adjusted amount of 2006 Bad Debts Expense?

a. P 12,325
b. P 20,325
c. P 28,325
d. P 36,325

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Problem 2

You are examining the financial statements of MATIAS CORPORATION for the year ended
December 31, 2006. During the audit of the accounts receivable and other related
accounts, certain information was obtained.

The December 31, 2006 debit balance in the Accounts Receivable control account is
P197,000.

The only entries in the Bad Debts Expense account were: a credit for P324 on December
31, 2006, because Marlisa Company remitted in full for the accounts charged off October
31, 2006, and a debit on December 31 for the amount of the credit to the Allowance for
Doubtful Accounts.

The Allowance for Doubtful Accounts schedule is presented below:

Debit Credit Balance
January 1, 2006 P 3,658
October 21, 2006, Uncollectible;
Marlisa Co., - P324; Abonales Co.,
- P 820; Cherryl Co., - P564 P 1,508 2,150
December 31, 2006, 5% of P197,000 P 9,850 12,000

An aging schedule of the accounts receivable as of December 31, 2006 and the decision are
shown in the table below:

Age Net Debit Balance Amount to which the Allow.

is to be adjusted after adjust.
____________ _________________ and corrections have been made

0 – 1 month P 93,240 1 percent

1 – 3 months 76,820 2 percent
3 – 6 months 22,180 3 percent
over 6 months 6,000 Definitely uncollectible, P1,000;
P2,000 is considered 50% uncollec-
tible; the remainder is estima-
ted to be 80% collectible.

There is a credit balance in one account receivable (0-1 month) of P2,000; it represents an
advance on a sales contract. Also, there is a credit balance in one of the 1-3 months
accounts receivable of P500 for which merchandise will be accepted by the customer.

The ledger accounts have not been closed as of December 31, 2006. The Accounts
Receivable control account is not in agreement with the subsidiary ledger. The difference
cannot be located, and the auditor decides to adjust the control to the sum of the
subsidiaries after corrections are made.

4. The adjusted balance of accounts receivable of MATIAS CORPORATION at December

31, 2006 is:
a. P 199,740 b. P 199,540 c. P 198,300 d. P 198,100

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 5. The adjusted write-off of accounts receivable balance of MATIAS CORPORATION at
December 31, 2006 is:
a. P 2,708.00 b. P 2,508.00 c. P 2,384.00 d. P 1,708.00

6. The adjusted allowance of bad debts account of MATIAS CORPORATION at December

31, 2006 is:
a. P 4,980.60 b. P 4,964.20 c. P 4,780.60 d. P 4,764.20

7. The bad debts expense per book of MATIAS CORPORATION at December 31, 2006 is:
a. P 9,850.00 c. P 4,764.20
b. P 6,359.80 d. Cannot be determined

8. The adjusted bad debts expense of MATIAS CORPORATION at December 31, 2006 is:
a. P 3,814.20 b. P 3,614.20 c. P 3,490.20 d. P 2,814.20

9. The entry to adjust the account of Marlisa Company is:

a. Bad debts 324 c. Allow. for BD 324
Allow. for BD 324 Bad debts 324
b. Bad debts 324 d. Accounts receiv. 324
Accounts receivable 324 Bad debts 324

10. The entry to reconcile the accounts receivable control ledger to subsidiary ledger is:
a. Accounts receivable 1,440 c. Accounts receiv. 1,440
Allow. for BD 1,440 Misc. income 1,440
b. Allow. for BD 1,440 d. No adjustment
Accounts receivable 1,440

11. The net realizable value of accounts receivable of MATIAS CORPORATION at

December 31, 2006 is:
a. P 194,975.80 b. P 194,775.80 c. P 193,335.80 d.P193,319.40

Problem 3

On January 1, 2006, TUQUIB COMPANY sells its equipment with a carrying value of
P160,000. The company receives a non-interest-bearing note due in 3 years with a face
amount of P200,000. There is no established market value for the equipment. The
prevailing interest rate for a note of this type is 12%. The following are the present value
factors of 1 at 12%:

Present value of 1 for 3 periods 0.71178

Present value of an ordinary annuity of 1 for 3 periods 2.40183

12. The gain or loss on the sale of equipment is:

a. P 40,000 b. P 122 c. P 0 d. (P 17,644)

13. The discount on notes receivable is:

a. P 57,644 b. P 40,000 c. P 39,878 d. P 0

14. The discount amortization at the end of the second year using the effective-interest
amortization is:
a. P 17,083 b. P 19,133 c. P 21,428 d. P 36,216

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 15. The entry to record the discount amortization is:
a. Discount on NR c. Interest income
Interest income Discount on NR
b. Discount on NR d. Interest expense
Interest expense Discount on NR

Part 2 – CASH AND CASH EQUIVALENTS

Problem 4

16. In preparing its August 31, 2007 bank reconciliation, Arvin Corp. has available the
following information:
Balance per bank statement, 8/31/07 21,650
Deposit in transit, 8/31/07 3,900
Return of customer's check for insufficient funds, 8/30/07 600
Outstanding checks, 8/31/07 2,750
Bank service charges for August 100
At August 31, 2007, Arvin's correct cash balance is
a. $22,800.
b. $22,200.
c. $22,100.
d. $20,500.

Problem 5

The following items are found in the cash account of Ivie Company at December 31, 2006.
The company’s controller asks your opinion whether the items listed below should be
considered as part of cash account and come up with adjusting entry to adjust the cash
account.

1. Customers’ check dated December 25, 2006, P25,000.

2. Company’s check (P30,000) dated December 26, 2006 which was drawn in payment for
merchandise purchased on that date but not delivered until January 3, 2007. This check
was deducted in the cash balance.
3. A check worth P196,000 from customer who paid the account net of the 2% discount.
The company records the transaction as credit to Accounts Receivable for the proceeds.
4. Cash in closed bank (Urban Bank), P95,000.
5. Redemption fund, P100,000
6. Sinking fund, P100,000. This will be used on March 1, 2007 to redeem the bonds
payable.
7. Metro Bank Checking Account No. 0004568, P210,000.
8. RCBC Checking Account No. 0002347, P115,000.
9. Overdraft in PNB Checking Account No. 00011256, P50,000.
10. Company’s check dated January 3, 2007 in payment of account, P50,000. This was
recorded in the company’s disbursement ledger at December 31, 2006.
11. Overdraft in RCBC Checking Account No. 0056791, P15,000.
12. Postage stamps, P2,000.

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13. 90-day Treasury Bills (purchase on November 1, 2006), P100,000
14. Treasury Bills that matures on February 1, 2007, P50,000.
15. Change fund, P10,000.
16. Customers’ certified check, P20,000.
17. Company’s certified check, P50,000. (This was included in the cash disbursement for
December).

17. The entry to correct/adjust item number 3 is:

a. Accounts receivable 4,000

Sales discounts 4,000
b. Sales discounts 4,000
Accounts receivable 4,000
c. Accounts receivable 4,000
Sales 4,000
d. No adjustments

18. The entry to correct/adjust item number 10 is:

a. Accounts payable 50,000

Cash 50,000
b. Other liabilities 50,000
Cash 50,000
c. Cash 50,000
Accounts payable 50,000
d. No adjustment

19. The entry to correct/adjust item number 17 is:

a. Accounts payable 50,000

Cash 50,000
b. Cash 50,000
Accounts receivable 50,000
c. Cash 50,000
Accounts payable 50,000
d. No adjustments

20. The entry to correct/adjust item number 16 is:

a. Accounts receivable 20,000

Cash 20,000
b. Cash 20,000
Accounts payable 20,000
c. Cash 20,000
Accounts receivable 20,000
d. No adjustments

21. IVIE COMPANY’S adjusted cash and cash equivalents balance at December 31, 2006
is:
a. P 771,000 b. P 741,000 c. P 721,000s d. P 691,000

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Problem 6

In connection with an audit, you are given the following bank reconciliation.

BANK RECONCILIATION
December 31, 2006
Balance per ledger, 12/31/03 P 34,349.72
Add: Collections received on the last day of
December and charged to “Cash in Bank”
on books but not deposited 5,324.50
Debit memo for customer’s checks returned
unpaid (check is on hand but no entry has been
made on the books) 4,000.00
Debit memo for bank service charge for December 1,000.00
P 46,674.22
Deduct:
Outstanding checks P 18,625
(see details below)
Credit memo for proceeds of a note receivable
which had been left at the bank for collection
but which has not been recorded as collected 8,000
Check for an account payable entered on books
as P12,625 but drawn and paid by bank as
16,225 3,600 32,225.00
Computed balance P 14,449.22
Unlocated difference 36,601.00
Balance per bank (check to confirmation) P 51,050.22

LIST OF OUTSTANDING CHECKS

December 31, 2006
Check No. Amount
14344 P 5,820
14358 1,295
14367 3,543
14399 2,001
14401 4,892
14407 5,074
P 18,625

22. The adjusted cash balance at December 31, 2006 is:

a. P 33,749.72 b. P 34,949.72 c. P 37,749.72 d.P40,949.72

23. A check for an account payable entered on books as P12,625 but drawn and paid by
bank as 16,225
a. Should not be included in the reconciliation since the bank already gave the money
to the payee.
b. Should not be included in the reconciliation since bank’s record is always followed.
c. Should be included as deduction in the book reconciliation since this is considered as
book error, thus a reconciling item.

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 d. Should be included as addition in the book reconciliation since this is considered as
book error, thus a reconciling item.

24. The outstanding checks at December 31, 2006 is:

a. P 15,025 b. P 18,625 c. P 19,025 d. P 22,625

25. The cash balance of the company per record at December 31, 2006 is:
a. Overstated by P600 c. Understated by P 3,400
b. Overstated by P1,200 d. Overstated by P 6,600

Problem 7

The following information pertains to the cash of Jenny Company:

Nov 31 Dec. 31
Balance shown on bank statement P 27,380 P 26,960
Balance shown in general ledger before
reconciling the bank account 25,780 25,000
Outstanding checks 8,630 10,150
Deposits in transit 6,850 12,450

For Dec.
Deposits shown in bank statement P 55,880
Charges shown on bank statement 56,300
Cash receipts shown in company’s books 53,980
Cash payments shown in company’s books 54,760

The bank service charge was P180 in November (recorded by the company during
December) and P240 in December (not yet recorded by the company).

Included with the December bank statement was a check for P5,000 that had been received
on December 25 from a customer on account. The returned check marked “NSF” by the
bank, has not yet been recorded on the company’s books.

During December the bank collected P7,500 of bond interest for the company and credited
the proceeds to the company’s account. The company earned the interest during the
current accounting period but has not yet recorded it.

During December the company issued a check for P6,960 for equipment. The check, which
cleared the bank during December, was incorrectly recorded by the company for P8,960.

26. The adjusted cash receipts of JENNY COMPANY at December 31 is:

a. P 61,480 b. P 53,980 c. P 50,280 d. P 46,480

27. The adjusted cash disbursements of JENNY COMPANY at December 31 is:

a. P 63,980 b. P 61,980 c. P 57,820 d. P 54,780

28. The adjusted December 31 cash balance of JENNY COMPANY is:

a. P 29,760 b. P 29,260 c. P 27,260 d. P 25,600

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 29. The adjusted November 31 cash balance of JENNY COMPANY is:
a. P 29,160 b. P 27,260 c. P 26,160 d. P 25,600

30. The check issued but was incorrectly recorded as P8,960 should be adjusted by:
a. Accounts payable 2,000 c. Cash 2,000
Cash 2,000 Accounts payable 2,000
b. Equipment 2,000 d. Cash 2,000
Cash 2,000 Equipment 2,000

Part 3 – INVESTMENTS

Problem 8

On May 1, 2018, Golden company purchased a short-term P4,000,000 face value 9% debt
instruments for P3,720,000 including the accrued interest designated as an investment to profit or
loss which is based on the business model of the entity to buy and sell portfolio of securities and
to make profit for short-term movements in the market rate of interest. Golden Company
incurred and paid P20,000 transaction cost related to the acquisition of the instrument. The debt
instruments mature on January 1, 2021, and pay semi-annual interest on January 1 and July 1. On
December 31, the fair market value of the instruments is P3,880,000 and estimated cost to sell of
P40,000.
31. What amount of gain or loss should Golden Company disclose in the profit or loss in the
statement of comprehensive income for the year ended December 31, 2018?
a. P120,000
b. P160,000
c. P240,000
d. P280,000

Problem 9

On October 1, 2018, Graham Company, with a business model of trading debt securities,
purchased a P2,000,000 face value 9% debt instruments with a remaining term of 2 years and
three months for P2,174,867. The prevailing market rate of interest at the time of acquisition was
8%. Interest is being received every December 31. On December 31, the fair market value of the
instruments is P2,072,321 based on the prevailing market rate of 7%.

32. What amount of unrealized gains or loss should Graham Company report in its December
31, 2018 profit or loss?
a. None
b. 32,454
c. 102,546
d. 135,000

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Problem 10

On January 1, 2018, Sun Company purchased the debt instruments of Silk Company with a face
value of P5,000,000 bearing interest rate of 8% for P4,621,006 to yield 10% interest per year.
The bonds mature on January 1, 2023 and pay annual interest every December 30. On December
31, 2018 the fair value of the investment is P4,838,014 which is based on the prevailing market
rate of 9%.

33. If the company’s business model has the objective of trading and making a profit from
changes in the fair value of the securities, what amount of unrealized gain or loss should
the company disclose in their December 31, 2018 profit or loss?
a. None
b. P26,559 unrealized gain
c. P154,907 unrealized gain
d. P217,008 unrealized gain

34. If the company’s business model has the objective of collecting all the contractual cash
flows including interest and principal, at what amount should the investment be reported
in the company’s statement of financial position for the year ended December 31, 2018?
a. P4,621,006
b. P4,683,107
c. P4,751,418
d. P4,838,014

Problem 11

On January 2, 2013, Saint company invested in a 4-year 10% bond with a face value of
P6,000,000 in which interest is to be paid every December 31. The bonds has an effective
interest rate of 9% and was acquired for P6,194,383. Saint Company has a portfolio of
commercial loans that it holds to sell in the short-term. On December 31, 2013, the security has a
fair value of P6,229,862 which is based on the prevailing market rate of 8.5%.
On December 31, 2013, Saint Company acquires Joseph Company that manages commercial
loans and has a business model that holds the loan in order to collect contractual cash flows.
Saint Company original portfolio of commercial loans is no longer for sale. And the portfolio is
now managed together with the acquired commercial loans and all are held to collect contractual
cash flows. On December 31, 2014, the debt investment has a fair value of P6,213,992 which is
based on the prevailing rate of 8%.

35. What amount should the debt instrument be reported in the December 31, 2015 statement
of financial position?
a. P6,082,949
b. P6,159,400

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 c. P6,213,992
d. P6,229,862

Problem 12

On January 2, 2013, Saint Company invested in a 4-year 10% bond with a face value of
P6,000,000 in which interest is to be paid every December 31. The bonds has an effective
interest rate of 9% and was acquired for P6,194,383. On December 31, 2014, the management of
Saint Company decided to dispose P4,000,000 face value debt instrument which will be used to
settle and obligation to finance some of its operating costs. The company has a business model of
collecting the contractual cash flows for all their debt security investments, however due to
frequent sale and disposal of investments the management has decided that the business model is
no longer appropriate. On December 31, 2014, the four million face value debt instrument was
disposed of when the market rate of similar instrument was 11%.
PV factor of 11% after 2 years 0.8116
PV factor of annuity of 11% after 2 years 1.7125

36. What is the amortized cost of the debt instrument on December 31, 2014?
a. P6,055,046
b. P6,105,547
c. P6,151,877
d. P6,194,383

37. If the remaining debt securities were redesignated on December 31, 2015 when the
market rate of interest has yet to change, what is the amount of gain or loss should the
company recognize in its 2015 profit or loss as a result of the redesignation?
a. None
b. P69,432
c. P138,865
d. P208,298

Problem 13

On December 31, 2016 Outer Company invested in a 5-year bond of Inner Corporation. The
bonds have a face value of P3,000,000 with 8% interest payable per year. Outer company paid
P2,772,552 to acquire the instruments at prevailing market rate of 10%. The company has a
business model of collecting all contractual cash flows including interests and the principal for
all debt investments.

During 2018, Inner Corporation’s business deteriorated due to political instability and faltering
global economy. After reviewing all available evidence at December 31, 2018, Outer Company
determined that it was probable that Inner Company will still be able to pay the annual interest
on the original loan but a reduced principal of P2,500,000 at maturity. As a result, Outer

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Company decided that the investment in bonds was impaired, and that a loss should be
recognized immediately.

38. What amount of impairment loss should Outer Company recognized on its debt
instruments?
a. None
b. P375,656
c. P413,222
d. P454,545

39. Assume that on December 31, 2019. Inner Company’s financial condition had improved
and informed Outer Company to pay back P2,900,000 on maturity instead of the reduced
amount of P2,500,000 in December 31, 2018, what amount of impairment recovery
should Outer Company report in its 2019 profit or loss?
a. None
b. P247,934
c. P330,578
d. P363,636

Problem 14

On January 2, 2016, Holy company invested in a 4-year 10% bond with a face value of
P3,000,000 in which interest is to be paid every December 31, The bonds has an effective
interest rate of 8% and was acquired for P3,198,728. Holy Company has designated the debt
instrument as investment at amortized cost. On December 31, 2018, Holy Company sold the
bonds at prevailing rate of interest of 12%.

40. What amount of gain or loss should Holy Company recognize on the sale of the security?
a. 109,127
b. 154,127
c. 205,447
d. 250,477

41. What amount of interest income should Holy Company report in its 2018 statement of
income?
a. 244,437
b. 248,552
c. 252,363
d. 300,000

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Problem 15

At December 31, 2007, Maria Angela Corporation had the following investments that were
purchased during 2005, its first year of operations:

Cost Fair Value

Trading Securities:
Security A 700,000 725,000
Security B 210,000 200,000
Totals 910,000 925,000

Securities Available for Sale:

Security C 500,000 560,000
Security D 850,000 865,000
Totals 1,350,000 1,425,000

Securities to be Held to Maturity:

Security E 970,000 980,000
Security F 412,000 409,000
Totals 1,382,000 1,389,000

No investments were sold during 2007. All securities except Security D and Security F are
considered short-term investments. None of the market changes is considered permanent.

42. The amount of investment to be reported as current assets is:

a. P 2,465,000 b. P 2,455,000 c. P 2,380,000 d. P 1,485,000

43. The amount of investment to be reported as non-current assets is:

a. P 1,389,000 b. P 1,382,000 c. P 1,277,000 d. P 1,274,000

44. The unrealized gain (or loss) component of income before taxes is:
a. P 15,000 b. P 75,000 c. P 97,000 d. P 100,000

45. The unrealized gain (or loss) component of shareholders’ equity is:
a. P 82,000 b. P 75,000 c. P 60,000 d. P 12,000

God bless 
“Try not to become a man of success. Rather become a man of value.”
- Albert Einstein
-End-

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