REVIEWER ON INTERMEDIATE ACCOUNTING FOR MIDTERM

1. Which of the following would not be a correct form for an adjusting entry?
a. A debit to a revenue and a credit to a liability
b. A debit to an expense and a credit to a liability
c. A debit to a liability and a credit to a revenue
d. A debit to an asset and a credit to a liability

2. Which of the following must be considered in estimating depreciation on an asset for an

accounting period?
a. The original cost of the asset
b. Its useful life
c. The decline of its fair market value
d. Both the original cost of the asset and its useful life.

3. The information below is from the books of the Seminole Corporation on June 30:

Balance per bank statement ₱11,164

Deposits in transit 1,340
Bank charges not recorded 16
Note collected by bank and not recorded on books 1,120
Outstanding checks 1,100
NSF checks - not recorded on books nor redeposited 160

Assuming no errors were made, how much is the cash balance per books on June 30 before any
reconciliation adjustments?
a. 11,404
b. 10,980
c. 10,460
d. 11,440

Solution:
Per books 10,460 (squeeze) Per bank, June 30 11,164 (start)

Credit memo 1,120 Deposits in transit 1,340

Debit memo Outstanding checks (1,100)

(16 + 160) (176)

Adjusted balance 11,404 Adjusted balance 11,404

4. Under the allowance method of recognizing bad debts on trade accounts receivable, the effect of
writing off an account to an entity's current ratio is
a. increase
b. decrease
c. increase if the entity's current ratio is higher than 1 prior to the write-off; decrease if the
entity's current ratio is lower than 1 prior to the write-off
 d. no effect

5. On December 31, Central Savings & Loan discounted a 3-month, ₱70,000, non-interest-bearing
note dated October 31, at 12 percent. How much is the proceeds from the discounting?
a. 63,900
b. 48,550
c. 30,380
Solution:
MV = 70,000 + (70,000 x 0% x 3/12) = 70,000
D = 70,000 x 12% x 1/12 = 700
NP = 70,000 – 700 = 69,300

6. On June 1, 2004, Noll Corp. sold merchandise with a list price of ₱30,000 to Linn on account. Noll
allowed trade discounts of 30% and 20%. Credit terms were 2/15, n/40 and the sale was made
f.o.b. shipping point. Noll prepaid ₱600 of delivery costs for Linn as an accommodation. On June
12, 2004, Noll received from Linn a remittance in full payment amounting to
a. ₱16,464. b. ₱17,052. c. ₱17,064. d. ₱16,794.

C ₱30,000 × .7 × .8 = ₱16,800
(₱16,800 × .98) + 600 = ₱17,064.

7. The following information was derived from the 2004 accounting records of Kelly Co.:
Kelly's Goods
Kelly's Central Warehouse Held by Consignees
Beginning inventory ₱260,000 ₱ 28,000
Purchases 950,000 140,000
Freight-in 20,000
Transportation to consignees 10,000
Freight-out 60,000 16,000
Ending inventory 290,000 40,000
Kelly's 2004 cost of sales was
a. ₱940,000.
b. ₱1,000,000.
c. ₱1,068,000.
d. ₱1,078,000.

D ₱260,000 + ₱28,000 + ₱950,000 + ₱140,000 + ₱20,000 + ₱10,000 – ₱290,000 – ₱40,000 =

₱1,078,000.

8. Dial Corp.'s accounts payable at December 31, 2004, totaled ₱800,000 before any necessary year-
end adjustments relating to the following transactions:
 On December 27, 2004, Dial wrote and recorded checks to creditors totaling ₱350,000 causing an
overdraft of ₱100,000 in Dial's bank account at December 31, 2004. The checks were mailed out
on January 10, 2005.
 On December 28, 2004, Dial purchased and received goods for ₱200,000, terms 2/10, n/30. Dial
records purchases and accounts payable at net amounts. The invoice was recorded and paid
January 3, 2005.
 Goods shipped f.o.b. destination on December 20, 2004 from a vendor to Dial were received
January 2, 2005. The invoice cost was ₱65,000.

At December 31, 2004, what amount should Dial report as total accounts payable?
a. ₱1,411,000.
b. ₱1,346,000.
c. ₱1,050,000.
d. ₱1,000,000.

B ₱800,000 + ₱350,000 + ₱196,000 = ₱1,346,000.

9. The balance in Iwig Co.'s accounts payable account at December 31, 2004 was ₱400,000 before
any necessary year-end adjustments relating to the following:
 Goods were in transit to Iwig from a vendor on December 31, 2004. The invoice cost was ₱50,000.
The goods were shipped f.o.b. shipping point on December 29, 2004 and were received on
January 4, 2005.
 Goods shipped f.o.b. destination on December 21, 2004 from a vendor to Iwig were received on
January 6, 2005. The invoice cost was ₱25,000.
 On December 27, 2004, Iwig wrote and recorded checks to creditors totaling ₱30,000 that were
mailed on January 10, 2005.
In Iwig's December 31, 2004 balance sheet, the accounts payable should be
a. ₱430,000
b. ₱450,000.
c. ₱475,000.
d. ₱480,000.

D ₱400,000 + ₱50,000 + ₱30,000 = ₱480,000.

10. Gear Co.'s accounts payable balance at December 31, 2004 was ₱1,100,000 before considering the
following transactions:
 Goods were in transit from a vendor to Gear on December 31, 2004. The invoice price was
₱80,000, and the goods were shipped f.o.b. shipping point on December 29, 2004. The goods
were received on January 4, 2005.
 Goods shipped to Gear, f.o.b. shipping point on December 20, 2004, from a vendor were lost in
transit. The invoice price was ₱50,000. On January 5, 2005, Gear filed a ₱50,000 claim against the
common carrier.

In its December 31, 2004 balance sheet, Gear should report accounts payable of
a. ₱1,230,000.
b. ₱1,180,000.
c. ₱1,150,000.
d. ₱1,100,000.
A ₱1,100,000 + ₱80,000 + ₱50,000 = ₱1,230,000.

11. Entity A needs guidance in accounting for its inventories. Entity A should refer to which of the
following?
a. PAS 1
b. PAS 2
c. PAS 7
d. PAS 8

12. The debit side of a trial balance totals ₱800 more than the credit side. Which one of the following
errors would fully account for the difference?
a. ₱400 paid for plant maintenance has been correctly entered in the cash book and credited to
the plant asset account.
b. Discount received ₱400 has been debited to discount allowed account.
c. A receipt of ₱800 for commission receivable has been omitted from the records.
d. The petty cash balance of ₱800 has been omitted from the trial balance.

13. To reduce in accounting costs, a firm always expenses its routine operating expenditures
immediately, and then makes an adjusting entry at the end of the year if needed. For example, it
received ₱1,200 for one year's rent from a tenant on August 1 and immediately recorded ₱1,200
of rent revenue. The rental period begins August 1.The adjusting entry required at December 31
would include
a. cr. unearned rent ₱700 c. cr. rent revenue ₱700
b. dr. rent revenue ₱500 d. dr. unearned rent ₱500

14. Transactions are posted to the

a. book of original entry c. log book
b. book of final entry d. facebook

15. Why are certain costs of doing business capitalized when incurred and then depreciated or
amortized over subsequent accounting cycles?
a. To reduce the federal income tax liability
b. To aid management in cash-flow analysis
c. To match the costs of production with revenues as earned
d. To adhere to the accounting constraint of conservatism

16. Grant Company accepted a ₱400,000 face value, 6-month, 10 percent note dated May 15 from a
customer. On that same date Grant discounted the note at Eagle National Bank at a 12 percent
discount rate. How much cash should Grant receive from the bank on May 15?
a. ₱400,000
b. ₱396,000
c. ₱394,800
d. ₱387,200
Solution:
MV = 400,000 + (400,000 x 10% x 6/12) = 420,000
D = 420,000 x 12% x 6/12 = 25,200
NP = 420,000 – 25,200 = 394,800

17. Goods in transit which are shipped f.o.b. destination should be

a. included in the inventory of the seller.
b. included in the inventory of the buyer.
c. included in the inventory of the shipping company.
d. none of these.

18. Cross Co. accepted delivery of merchandise which it purchased on account. As of December 31,
Cross had recorded the transaction, but did not include the merchandise in its inventory. The
effect of this on its financial statements for December 31 would be
a. net income, current assets, and retained earnings were understated.
b. net income was correct and current assets were understated.
c. net income was understated and current liabilities were overstated.
d. net income was overstated and current assets were understated.

19. All of the following costs should be expensed in the period they are incurred except for
a. manufacturing overhead costs for a product manufactured and sold in the same accounting
period.
b. costs which will not benefit any future period.
c. depreciation of idle manufacturing capacity resulting from an unexpected plant shutdown.
d. storage costs that are necessary in bringing the asset to its intended condition.

20. Which of the following cost flow formulas can be applied by an entity whose inventories that are
purchased last are sold first?
a. LIFO d. b or c
b. FIFO e. None of these
c. Weighted average cost

21. Dark Co. recorded the following data pertaining to raw material X during January 2004:
Date Units Unit cost
1/1/04 On hand 3,200 ₱2.00
1/11/04 Issue 1,600
1/22/04 Purchase 4,000 ₱2.35

The moving-average unit cost of X inventory at January 31, 2004 is

a. ₱2.18.
b. ₱2.22.
c. ₱2.25.
d. ₱2.35.
C [(1,600 × ₱2.00) + (4,000 × ₱2.35)] ÷ 5,600 = ₱2.25.

22. Barlow Company's Accounts Payable balance at December 31, 2002, was ₱1,800,000 before
considering the following transactions:
 Goods were in transit from a vendor to Barlow on December 31, 2002. The invoice price was
₱100,000, and the goods were shipped FOB shipping point on December 29, 2002. The goods
were received on January 4, 2003.
 Goods shipped to Barlow FOB shipping point on December 20, 2002, from a vendor were lost in
transit. The invoice price was ₱50,000. On January 5, 2003, Barlow filed a ₱50,000 claim against
the common carrier.

In its December 31, 2002, balance sheet, Barlow should report Accounts Payable of
a. 1,950,000 b. 1,900,000 c. 1,850,000 d. 1,800,000

A
Solution:
Unadjusted bal. 1,800,000
Goods purchased - FOB Shipping pt. 100,000
Goods lost - FOB Shipping pt. 50,000
Adjusted bal. 1,950,000

23. The balance in Master Company's accounts payable account at December 31, 2002, was
₱1,100,000 before considering the following information:
 Goods shipped FOB shipping point on December 20, 2002, from a vendor to Master were lost in
transit. The invoice cost of ₱20,000 was not recorded by Master. On January 6, 2003, Master filed
a ₱20,000 claim against the common carrier.
 On December 27, 2002, a vendor authorized Master to return, for full credit, goods shipped and
billed at ₱35,000 on December 2, 2002. The returned goods were shipped by Master on December
27, 2002. A ₱35,000 credit memo was received and recorded by Master on January 6, 2003.

What amount should Master report as accounts payable in its December 31, 2002, balance sheet?
a. 1,120,000 b. 1,115,000 c. 1,085,000 d. 1,065,000

C
Solution:
Unadjusted bal. 1,100,000
Goods purchased - FOB shipping pt. 20,000
Purchase returns (35,000)
Adjusted bal. 1,085,000

24. The balance in Stockwell Company's accounts payable account on December 31, 2002, was
₱1,225,000 before the following information was considered:
 Goods shipped FOB destination on December 21, 2002, from a vendor to Stockwell were
lost in transit. The invoice cost of ₱45,000 was not recorded by Stockwell. On December
28, 2002, Stockwell notified the vendor of the lost shipment.
  Goods were in transit from a vendor to Stockwell on December 31, 2002. The invoice cost
was ₱60,000, and the goods were shipped FOB shipping point on December 28, 2002.
Stockwell received the goods on January 6, 2003.

What amount should Stockwell report as accounts payable in its December 31, 2002, balance sheet?
a. 1,330,000 b. 1,285,000 c. 1,270,000 d. 1,225,000

B
Solution:
Unadjusted bal. 1,225,000
Goods purchased - FOB dest. -
Goods purchased - FOB shipping pt. 60,000

Adjusted bal. 1,285,000

25. When using the periodic inventory system, which of the following generally would not be
separately accounted for in the computation of cost of goods sold?
a. Trade discounts applicable to purchases during the period
b. Cash (purchase) discounts taken during the period
c. Purchase returns and allowances of merchandise during the period
d. Cost of transportation-in for merchandise purchased during the period

26. Goods out on consignment are

a. included in the consignee's inventory.
b. recorded in a Consignment Out account which is an inventory account.
c. recorded in a Consignment In account which is an inventory account.
d. all of these

27. Miller Company needs an estimate of its ending inventory balance. The following information is
available:
Cost Retail
Sales revenue ............................. ₱180,000
Beginning inventory ....................... ₱ 35,000 62,000
Net purchases ............................. 100,000 135,000
Gross margin percentage ................... 30%

Given this information, when using the gross margin estimation method, ending inventory is
approximately
a. ₱1,000.
b. ₱9,000.
c. ₱19,000.
d. ₱11,650.

B 35,000 + 100,000 - (180,000 x 70%) = 9,000

28. The following information is available for the Becca Company for the three months ended June
30 of this year:

Inventory, April 1 of this year ...................... ₱1,200,000

Purchases ............................................ 4,500,000
Freight-in ........................................... 300,000
Sales ................................................ 6,400,000

The gross margin was 25 percent of sales. What is the estimated inventory balance at June 30?
a. ₱880,000
b. ₱933,000
c. ₱1,200,000
d. ₱1,500,000

C (1,200,000 + 4,500,000 + 300,000) – (6,400,000 x 75%) = 1,200,000

29. Petersen Menswear, Inc. maintains a markup of 60 percent based on cost. The company's selling
and administrative expenses average 30 percent of sales. Annual sales were ₱1,440,000.
Petersen's cost of goods sold and operating profit for the year are

Cost of Operating
Goods Sold Profit

a.  ₱864,000 ₱144,000
b.  ₱864,000 ₱432,000
c.  ₱900,000 ₱108,000
d.  ₱900,000 ₱432,000

Solution:
% Amount
Sales 100% 1,440,000
(1,440,000 x 100/160) or
COGS (900,000) (1,440,000 x 62.5%*)
Expenses 30% (432,000) (1,440,000 x 30%)
Profit 108,000

*(60% ÷ 160%) = 37.5% GPR based on sales

(100% - 37.5%) = 62.5% cost ratio

30. On October 31, a flood at Payne Company's only warehouse caused severe damage to its entire
inventory. Based on recent history, Payne has a gross profit of 25 percent of net sales. The
following information is available from Payne's records for the ten months ended October 31:
Inventory, January 1 .................................. ₱ 520,000
Purchases ............................................. 4,120,000
Purchase returns ...................................... 60,000
Sales ................................................. 5,600,000
 Sales discounts ....................................... 400,000

A physical inventory disclosed usable damaged goods which Payne estimates can be sold for
₱70,000. Using the gross profit method, the estimated cost of goods sold for the ten months ended
October 31 should be
a. ₱680,000.
b. ₱3,830,000.
c. ₱3,900,000.
d. ₱4,200,000.

Solution: C (5,600,000 – 400,000) x 75%] = 3,900,000

31. Davis Company's accounting records indicated the following information:

Inventory, 1/1/02 ..................................... 1,000,000

Purchases during 5,000,000
2002 .................................
Sales during 2002 ..................................... 6,400,000

A physical inventory taken on December 31, 2002, revealed actual ending inventory at cost was
₱1,150,000. Davis' gross profit on sales has regularly been about 25 percent in recent years. The
company believes some inventory may have been stolen during the year. What is the estimated
amount of missing inventory at December 31, 2002?
a. ₱50,000
b. ₱200,000
c. ₱350,000
d. ₱450,000

Solution: A (1,000,000 + 5,000,000) – (6,400,000 x 75%) = 1,200,000 – 1,150,000 = 50,000

32. On June 19, 2002, a fire destroyed the entire uninsured merchandise inventory of the Allen
Merchandising Company. The following data are available:

Inventory, January 1 .................................. ₱ 80,000

Purchases, January 1 through June 560,000
19 ..................
Sales, January 1 through June 19 ...................... 776,000
Markup percentage on cost ............................. 25%

What is the approximate inventory loss as a result of the fire?

a. ₱19,200
b. ₱27,200
c. ₱34,000
d. ₱58,000

A (80,000 + 560,000) – (776,000 x 100%/125%) = 19,200

33. Product X sells for ₱12.00; selling expenses are ₱2.40; normal profit is ₱3.00. If the cost of
Commodity X is ₱7.80, the lower of cost or NRV is
a. ₱5.40.
b. ₱6.00.
c. ₱6.60.
d. ₱7.80.

D – the cost

34. The following information is available for Torino Corp. for its most recent year:

Net sales ............................................. ₱3,600,000

Freight-in ............................................ 90,000
Purchase 50,000
discounts ....................................
Ending inventory ...................................... 240,000

The gross margin is 40 percent of net sales. What is the cost of goods available for sale?
a. ₱1,680,000
b. ₱1,920,000
c. ₱2,400,000
d. ₱2,440,000

C (3,600,000 x 60%) = 2,160,000 COGS + 240,000 EI = 2,400,000

====================

BANK RECONCILIATION

1. It is a report that is prepared for the purpose of bringing the balances of cash per records and per
bank statement into agreement.
a. Bank statement
b. Check Disbursement Voucher
c. Bank reconciliation
d. Bank deposit slip

2. These are deposits made but not yet credited by the bank to the depositor’s bank account.
a. Credit memos (CM)
b. Debit memos (DM)
c. Outstanding checks (OC)
d. Deposits in transit (DIT)
3. These are deductions made by the bank to the depositor’s bank account but not yet recorded by
the depositor.
a. Credit memos (CM)
b. Debit memos (DM)
c. Outstanding checks (OC)
d. Deposits in transit (DIT)

4. These are additions made by the bank to the depositor’s bank account but not yet recorded by
the depositor.
a. Credit memos (CM)
b. Debit memos (DM)
c. Outstanding checks (OC)
d. Deposits in transit (DIT)

5. These are checks drawn and released to payees but are not yet encashed with the bank.
a. Credit memos (CM)
b. Debit memos (DM)
c. Outstanding checks (OC)
d. Deposits in transit (DIT)

6. Which of the following is added to the cash balance per books when preparing a bank
reconciliation statement?
a. Credit memo
b. Debit memo
c. Outstanding check
d. Deposit in transit

7. Which of the following is added to the cash balance per bank statement when preparing a bank
reconciliation statement?
a. Credit memo
b. Debit memo
c. Outstanding check
d. Deposit in transit

8. Which of the following represents a debit memo?

a. Collections made by the bank on behalf of the depositor.
b. Interest income earned by the deposit.
c. Proceeds from loan directly credited or added by the bank to the depositor’s account.
d. Interest expense on a loan that is directly deducted from the depositor’s account.

9. Which of the following is not a debit memo?

a. Bank service charges
 b. No sufficient funds checks (NSF)
c. Automatic debits representing payments of bills by the bank on behalf of the depositor
d. Direct deposits of customers to the depositor’s account

10. As an internal control, bank reconciliation statements are usually prepared

a. on a daily basis.
b. on a monthly basis.
c. annually every year-end.
d. whenever the accountant feels like it.

1. Entity A is preparing its November 30, 20x1 bank reconciliation statement. The following
information was determined:
 Cash balance per accounting books, Nov. 30, 20x1 ₱600,000
 Cash balance per bank statement, Nov. 30, 20x1 ₱860,000
 Credit memo ₱380,000
 Debit memo ₱ 60,000
 Deposits in transit ₱100,000
 Outstanding checks ₱ 40,000
Requirement: Prepare the bank reconciliation.

2. Entity A is preparing its February 28, 20x1 bank reconciliation statement. The following
information was determined:
 Cash balance per accounting books, Feb. 28, 20x1 ₱260,000
 Cash balance per bank statement, Feb. 28, 20x1 ₱205,000
When investigating the difference, the accountant determined the following:

a. A customer deposited ₱30,000 to Entity A’s bank account as payment for an account receivable. This
is not yet recorded in the books of accounts.
b. A ₱102,500 check deposited by Entity A during the month is not yet credited to Entity A’s account.
c. A check drawn in the amount of ₱22,500 is not yet presented to the bank for payment.
d. The bank returned a check deposit amounting to ₱5,000 because of insufficiency in the funds of the
drawer. The check was received from a customer as payment for accounts receivable.

Requirements:

a. Prepare the bank reconciliation.

b. Prepare the adjusting (reconciling) entries.

ACCOUNTS RECEIVABLE
1. At January 1, 20x1, Judy Co. had a credit balance of ₱260,000 in its allowance for uncollectible
accounts. Based on past experience, 2% of Judy 's credit sales have been uncollectible. During 20x1,
Judy wrote off ₱325,000 of uncollectible accounts. Credit sales for 20x1 were ₱9,000,000. In its
December 31, 20x1, balance sheet, what amount should Judy report as allowance for uncollectible
accounts?
 a. 115,000
b. 180,000
c. 245,000
d. 440,000

2. On the December 31, 20x6, balance sheet of Esther Co., the current receivables consisted of the
following:

Trade accounts receivable 93,000

Allowance for uncollectible accounts (2,000)
Claim against shipper for goods lost in transit (November 20x6) 3,000
Selling price of unsold goods sent by Esther on consignment at
130% of cost (not included in Esther's ending inventory) 26,000
Security deposit on lease of warehouse used for storing some
inventories 30,000
150,00
Total
0

At December 31, 20x6, the correct total of Esther's current net receivables was
a. 94,000
b. 120,000
c. 124,000
d. 150,000

3. The following information is from the records of Prosser, Inc. for the year ended December 31,
2002.
Allowance for Doubtful Accounts, January 1, 2002 .. ₱ 6,000 (cr)
Sales, 2002 ....................................... 2,920,000
Sales Returns and Allowances, 2002 ................ 32,000

If the basis for estimating bad debts is 1 percent of net sales, the correct amount of doubtful accounts
expense for 2002 is
a. ₱22,800.
b. ₱23,200.
c. ₱28,880.
d. ₱34,880.

4. An analysis and aging of the accounts receivable of Shriner Company at December 31 revealed the
following data:

Accounts Receivable .................................. ₱450,000

Allowance for Doubtful Accounts (before adjustment) .. 25,000 (cr)
Accounts estimated to be uncollectible ............... 32,000

The net realizable value of the accounts receivable at December 31 should be

 a. ₱450,000.
b. ₱443,000.
c. ₱425,000.
d. ₱418,000.

5. Maple Company provides for doubtful accounts expense at the rate of 3 percent of credit sales. The
following data are available for last year:

Allowance for Doubtful Accounts, January 1 ........ ₱ 54,000 (cr)

Accounts written off as uncollectible during the
year ............................................ 60,000
Collection of accounts written off in prior years .
(customer credit was re-established) .............. 15,000
Credit sales, year-ended December 31 .............. 3,000,000

The allowance for doubtful accounts balance at December 31, after adjusting entries, should be
a. ₱45,000.
b. ₱84,000.
c. ₱90,000.
d. ₱99,000.

6. Based on the aging of its accounts receivable at December 31, Pribob Company determined that the
net realizable value of the receivables at that date is ₱760,000. Additional information is as follows:
Accounts Receivable at December 31 ................ ₱880,000
Allowance for Doubtful Accounts at January 1 ...... 128,000 (cr)
Accounts written off as uncollectible during the
year ............................................ 88,000

Pribob's doubtful accounts expense for the year ended December (31 is
a. ₱80,000.
b. ₱96,000.
c. ₱120,000.
d. ₱160,000.

7. Based on its past collection experience, Ace Company provides for bad debts at the rate of 2 percent
of net credit sales. On January 1, 2002, the allowance for doubtful accounts credit balance was
₱10,000. During 2002, Ace wrote off ₱18,000 of uncollectible receivables and recovered ₱5,000 on
accounts written off in prior years. If net credit sales for 1999 totaled ₱1,000,000, the doubtful
accounts expense for 2002 should be
a. ₱17,000.
b. ₱20,000.
c. ₱23,000.
d. ₱35,000.

8. Richards Company uses the allowance method of accounting for bad debts. The following summary
schedule was prepared from an aging of accounts receivable outstanding on December 31 of the
current year.
 No. of Days Probability
Outstanding Amount of Collection
0-30 days ₱500,000 .98
31-60 days 200,000 .90
Over 60 days 100,000 .80

The following additional information is available for the current year:

Net credit sales for the year .................. ₱4,000,000

Allowance for Doubtful Accounts:
Balance, January 1 ............................. 45,000 (cr)
Balance before adjustment, December 2,000 (dr)
31 .........

If Richards determines bad debt expense using 1.5 percent of net credit sales, the net realizable value of
accounts receivable on the December 31 balance sheet will be
a. ₱738,000.
b. ₱740,000.
c. ₱742,000.
d. ₱750,000.

9. Gekko, Inc. reported the following balances (after adjustment) at the end of 2002 and 2001.
12/31/200 12/31/200
2 1
Total accounts receivable ................. ₱105,000 ₱96,000
Net accounts receivable ................... 102,000 94,500
During 2002, Gekko wrote off customer accounts totaling ₱3,200 and collected ₱800 on accounts
written off in previous years. Gekko's doubtful accounts expense for the year ending December 31, 2002
is
a. ₱1,500.
b. ₱2,400.
c. ₱3,000.
d. ₱3,900.

10. Gray Company had an accounts receivable balance of ₱50,000 on December 31, 2001, and ₱75,000
on December 31, 2002. The company wrote off ₱20,000 of accounts receivable during 2002, and
collected ₱3,000 on an account written off in 2000. Sales for the year 2002 totaled ₱620,000. All
sales were on account. The amount collected from customers on accounts receivable during 2002
was
a. ₱575,000.
b. ₱578,000.
c. ₱600,000.
d. ₱595,000.

SOLUTION
1. A (260K + (2% x 9M) – 325K = 115K
2. A (93,000 – 2,000 + 3,000) = 94,000

3. C (2,920,000 – 32,000) x 1% = 28,880

4. D (450,000 – 32,000) = 418,000

5. D [54,000 – 60,000 + 15,000 + (3,000,000 x 3%)] = 99,000

6. A
Allowance for doubtful accounts

128,000 beg.

Write-offs 88,000 80,000 Bad debts expense (squeeze)

- Recoveries

end. 120,000 a

a
(880,000 – 760,000) = 120,000

7. B (1,000,000 x 2%) = 20,000

8. C
Allowance for doubtful accounts

Dec. 31 (unadjusted) 2,000

Write-offs - 60,000 Bad debts (4M x 1.5%)

- Recoveries

end. 58,000

(500,000 + 200,000 + 100,000) = 800,000 – 58,000 = 742,000

9. D
Allowance for doubtful accounts

1,500 beg. (96K - 94.5K)

Write-offs 3,200 3,900 Bad debts (squeeze)

800 Recoveries

end. (105K - 102K) 3,000

10. B
 Accounts receivable

beg. 50,000

Sales on account 620,000 578,000 Collections, including recoveries

Recoveries 3,000 20,000 Write-offs

75,000 end.

1. Which of the following is incorrect?

a. The operating cycle always is one year in duration.
b. The operating cycle sometimes is longer than one year in duration.
c. The operating cycle sometimes is shorter than one year in duration.
d. The operating cycle is a concept applicable both to manufacturing and retailing enterprises.

2. The category "trade receivables" includes

a. advances to officers and employees.
b. income tax refunds receivable.
c. claims against insurance companies for casualties sustained.
d. none of these.

3. Which of the following should be recorded in Accounts Receivable?

a. Receivables from officers
b. Receivables from subsidiaries
c. Dividends receivable
d. None of these

4. When the direct write-off method of recognizing bad debt expense is used, the entry to write off a
specific customer account would
a. increase net income.
b. have no effect on net income.
c. increase the accounts receivable balance and increase net income.
d. decrease the accounts receivable balance and decrease net income.

5. When comparing the allowance method of accounting for bad debts with the direct write-off
method, which of the following is true?
a. The direct write-off method is exact and also better illustrates the matching principle.
b. The allowance method is less exact but it better illustrates the matching principle.
c. The direct write-off method is theoretically superior.
d. The direct write-off method requires two separate entries to write off an uncollectible account.
6. When the allowance method of recognizing bad debt expense is used, the entry to record the write-
off of a specific uncollectible account would decrease
a. allowance for doubtful accounts.
b. net income.
c. net realizable value of accounts receivable.
d. working capital.

7. When a specific customer's account is written off by a company using the allowance method, the
effect on net income and the net realizable value of the accounts receivable is
Net Realizable Value

Net Income of Accounts Receivable

a. None None

b. Decrease Decrease

c. Increase Increase

d. Decrease None

8. When the allowance method of recognizing bad debt expense is used, the entries at the time of
collection of a small account previously written off would
a. increase net income.
b. increase the allowance for doubtful accounts.
c. decrease net income.
d. decrease the allowance for doubtful accounts.

9. A method of estimating bad debts that focuses on the balance sheet rather than the income
statement is the allowance method based on
a. direct write-off.
b. aging the trade receivable accounts.
c. credit sales.
d. specific accounts determined to be uncollectible.

10. The entry

Accounts Receivable xxx

Allowance for Uncollectible Accounts xxx

would be made when

a. a customer pays its account balance.

b. a customer defaults on its account.
c. a previously defaulted customer pays its outstanding balance.
d. estimated uncollectible receivables are too low.