Financial Accounting and Reporting

ANSWER SHEET

I. THEORIES II. PROBLEMS

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1 UST - JPIA & SBMA|A.Y. 2019 - 2020

I. THEORIES
A. Choose the letter of the correct answer.
1. Statement 1: In a trial balance, if the total of the credit column is greater than that of the debit column, the
company has earned a net income.
Statement 2: Preparing a trial balance will not uncover all errors committed during the accounting cycle, for it only
tests the equality of the accounts’ balances.
Statement 3: The transposition error is committed when numbers in a figure are interchanged during recording.

a. Only statement 1 is wrong.

b. Only statement 2 is correct.
c. Only statement 2 is wrong.
d. All of the statements are correct.
e. None of the statements are correct.

2. Statement 1: A trial balance is prepared before entries are posted to the ledger.
Statement 2: Preparing a worksheet is required by the accounting standards to ensure the correctness of the
company’s financial reports.
Statement 3: The transplacement error is committed when a decimal point is placed incorrectly when recording.

a. Only statement 2 is correct.

b. Only statement 3 is wrong.
c. Only statement 3 is correct.
d. All of the statements are correct.
e. None of the statements are correct.

3. Statement 1: The adjusted trial balance does not show the updated Capital account that will appear on the final
Statement of Financial Position.
Statement 2: If the total of the debit column in the Balance Sheet columns in the worksheet exceeds that of the
credit column, there is a net loss.
Statement 3: The error of omission is committed when a transaction is not recorded.

a. Only statement 1 is wrong.

b. Only statement 2 is wrong.
c. Only statement 3 is correct.
d. All of the statements are correct.
e. None of the statements are correct.

4. Statement 1: A post-closing trial balance tests the equality of the accounts after closing entries are made.
Statement 2: The post-closing trial balance shows the updated Capital account at year-end.
Statement 3: The post-closing trial balance will only contain real accounts.

a. Only statement 3 is wrong.

b. Only statement 1 is correct.
c. Only statement 2 is wrong.
d. All of the statements are correct.
e. None of the statements are correct.

5. Statement 1: In an adjusted trial balance, only nominal accounts are listed and tested for equality.
Statement 2: If the total of the debit column in the Income Statement columns exceeds the total of its credit
column, it follows that the total of the debit column in the Balance Sheet columns will also exceed the total of its
credit column.
Statement 3: If the totals in the Income Statement columns are equal to each other, there is neither a net income
or a net loss.

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 a. Only statement 1 is wrong.
b. Only statement 2 is correct.
c. Only statement 3 is correct.
d. All of the statements are correct.
e. None of the statements are correct.

6. Which of the following is not an example of a special journal?

a. Sales Journal
b. Cash Receipts Journal
c. Purchases Journal
d. General Journal
e. None of the above

7. Unearned revenue is a/an ________ account.

a. Asset
b. Liability
c. Expense
d. Revenue
e. None of the above

8. A guide to accountants and bookkeepers, it is a listing of all the accounts and is usually tailored to the operations
of the business.

a. Assets
b. Account
c. Operating Cycle
d. Chart of Accounts

9. It is the average time that is required to go from cash to cash in producing revenue.

a. Operating Cycle
b. Basic Accounting Equation
c. Duality
d. Assets

10. These are resources controlled by the business as a result of past transactions and events and have the potential to
produce future economic benefits.

a. Expenses
b. Liabilities
c. Assets
d. Current Assets

11. This represents assets held for sale in the ordinary course of business, in the process of production for sale, or in
the form of materials or supplies to be consumed in the production process of in the rendering of services.

a. Equipment
b. Inventories
c. Furniture and Fixtures

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 d. Receivables

12. These are short-term, highly liquid investments that are acquired three months before maturity or earlier.

a. Trade Securities
b. Cash Equivalents
c. Cash
d. Accounts Receivables

13. Financial statements must be prepared at least:

A. Monthly
B. Semiannually
C. Annually
D. Quarterly

14. The elements directly related to the measurement of financial performance are

A. Assets, liabilities, equity, income and expenses

B. Assets, liabilities, equity
C. Income and expenses
D. Sales and cost of sales

15. The elements directly related to the measurement of financial position are

A. Assets, liabilities, equity, income and expenses

B. Assets, liabilities, equity
C. Income and expenses
D. Sales and cost of sales

16. An income statement is a formal statement showing the financial position of an entity for a given
period of time. Notes to financial statements is not required since all information are stated already in the
statement of comprehensive income, changes in equity, and financial position.

A. First statement is correct

B. Second statement is correct
C. Both statements are correct
D. Both statements are incorrect

17. A document prepared to prove the equality of debits and credits after all adjustments have been
prepared is

A. Adjusted statement of financial position

B. Adjusted trial balance
C. Adjusted financial statements
D. Post-closing trial balance

18. An adjusting entry in which a revenue is recognized before the related cash receipt occurs is called

A. Deferral
B. Nominal
C. Accrual
D. Special item

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19. Which of the following best defines a deferral?

A. Adjusting entries where cash flow precedes revenue or expense recognition.

B. Adjusting entries where revenue or expense recognition precedes cash flow.
C. Adjusting entries where cash flow and revenue or expense recognition are simultaneous.
D. Adjusting entries where revenue or expenses are recognized in the absence of cash flow evidence.

20. Adjusting Entries are needed when a company uses what method to account for deferrals?

A. Asset Method
B. Expense method
C. None
D. A and B

II. PROBLEMS
A. Supply the answer.
Problem 1
The following accounts and balances were taken from the ledger of Lover Company.

Cash ₱520,000
Accounts Receivable 735,000
Notes Receivable 341,000
Supplies 25,000
Prepaid Insurance 100,000
Equipment 50,000
Acc. Dep. – Equipment 10,000
Furniture and Fixtures 80,000
Acc. Dep. – Furniture and Fixtures 16,000
Accounts Payable 376,000
Notes Payable 200,000
Advances from Customers 85,000
Swift, Capital ??????
Swift, Drawings 200,000
Professional Fees Earned 1,390,000
Interest Revenue 5,000
Salaries Expense 220,000
Utilities Expense 240,000
Supplies Expense 35,000
Interest Expense 2,500
Insurance Expense 75,000
Rent Expense 180,000
Depreciation Expense 26,000

You were tasked to create a trial balance. No errors were made throughout the accounting period.
Compute for the following:
1. Total of the credit column
2. Balance of Swift, Capital
3. Total of the debit column
4. Total liabilities

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Problem 2
The February 2019 transactions of Rasengan Co., a dental clinic, are as follows:

1 Invested ₱ 500,000 in the business.

6 Purchased ₱ 300,000 worth of equipment, paying half of the amount for cash and half of it on account.
8 Paid rent of ₱ 45,000, good for 3 months.
15 Paid salaries of employees for the first half of the month, ₱ 20,000.

Required:
5-8. Journalize the transactions.

Problem 3
The following account balances were taken from the records of Rocel Company for the year ending December 31, 2019

Withholding Tax Payable 7,400

Salaries Payable 2,550
Prepaid Insurance 14,200
Supplies 7,800
Furnitures 70,500
Equipment 110,000
Notes Receivable due in 3 months 18,000
Mortgage Payable 50,000
Notes Payable due in 2020 14,000
Rocel, Capital 183,850
Trading Securities 30,500
Cash 20,000
Allowance for Doubtful Accounts 2,000
Accumulated Depreciation -
8,000
Furniture
Accumulated Depreciation -
15,000
Equipment
Accrued Utilities Expense 4,700
Accrued Interest Income 1,500
Accounts Receivable 25,000
Accounts Payable 10,000

9. How much is the total Current Assets?

10. How much is the total Non-Current Assets?
11. How much is the total Current Liabilities?
12. How much is the total Non-Current Liabilities?
13. How much is the total Owner’s Equity?

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Problem 4
RICARDO started a T-Shirt Printing Business, Tee’s and Prints, on January 1, 2019. By December 31, 2019, assets totaled
P 250,000 and total owner’s equity was P90,000. In addition to that, Ricardo reported a total revenue of P 110,000 and
total expenses of P 55,000 for 2019.

14. Compute for total Liabilities for the year ended December 31, 2019.
15. Compute for the correct Net Income for the year ended December 31, 2019.

Continuing Ricardo’s case, assume that he had an initial investment of P 95,000 cash and that there were no other
transactions that took place in 2019 that would affect owner’s equity aside from owner’s cash withdrawal.

16. Compute for Ricardo’s Cash Withdrawal.

Problem 5
ALLY’S SPORTS GEAR SHOP started the business with total assets of P 510,200 and total liabilities of P 105,000 on
January 1, 2019. During the year, the business recorded P 715,000 revenue, P 120,000 expenses and withdrew P 90,000.

17. Compute for the correct net income of Ally’s Sports Gear Shop for the year ended December 31, 2019.

18. Compute for the correct change (net movement) in Ally, Capital during the year 2019.

19. Compute for the correct balance of Ally, Capital account at the end of the year 2019.

Problem 6
Catherine’s bakeshop has liabilities that equal one third of her total assets. Her bakeshop’s equity amounts to P
480,000.

20. How much is her bakeshop’s liabilities?

Problem 7
JASWIN CO. was incorporated on January 1, 2019 with Php 555,715 from owner’s investment and borrowed funds of
Php 22,000. During the first year of operations, net income was Php 26,715. On June 15, 2019, Jaswin made a
withdrawal of Php 6,000. No additional activities affected owner’s equity in 2019. At December 31, 2019, Jaswin’s
Liability had increased to Php 25,200.

21. In Jaswin’s December 31, 2019 balance sheet, total assets should be reported at how much?

Problem 8
Shown below are some information taken from the adjusted trial balance of Emmanuel Tomoc:

Service Revenue 3,900,000

Accounts Payable 870,000
Accounts Receivable 1,000,130
Depreciation Expense 540,000
Utilities Expense 618,070
Rent Expense 200,000
Insurance Expense 189,630
Cash 10,760,000
Accumulated Depreciation 7,000,000
Niyebe, Capital 12,550,000
Transportation Expense 70,000
Royalty Income 1,450,000
No other information were provided.

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 22. How much is the Net Income/Loss?

Problem 8
On January 2019, Anneliese had the following transactions:

1 – Invested cash in his business amounting to P2,000,000 and a machine amounting to P850,000.
3 – Rendered legal advice to Josen worth P504,000.
6 – Placed an order in Abenson of Xerox Machine amounting to P840,000.
12 – Helped Mikhaela won a lawsuit. Anneliese charged her P530,000 but cannot pay the full amount.
Mikhaela made a 30% down payment and will pay the remaining amount due on a later date.
13 – Paid the telephone, electricity, and water expenses at an aggregate amount of P340,000.
16 – Purchased supplies on account amounting to P33,500.
17 – Paid the secretary a salary amounting to P130,000.
27 – Received the 80% of the remaining balance due from Mikhaela.

23. Determine the amount of the Net Income/Loss.

Problem 9

A2Kaan purchased an equipment on January 1, 2016. As of January 1, 2019, A2kaan has the following balance of its
equipment:
Equipment P 120,000
Less: Accumulated Depreciation ??????
Carrying value ?????

On July 1, 2019, A2kaan sold its old equipment for a gain of 50,000. Proceeds were 100,000. Eighteen months after,
A2kaan purchased a new machine for P 200,000 with an estimated life of 10 years.

24. How much is the depreciation expense for the year 2019?
25. How long is the useful life of the equipment purchased on January 1, 2016?

26. How much is the book value of the equipment as of December 31, 2019?

Problem 10:

ANG POGI CO. purchased a Php 750,000 van on November 1, 2018 for delivery purposes. The vehicle will lose its value
after its serviceable lifecycle of 20 years.

27. How much is the van’s carrying value on August 1, 2022?

28. How much is its accumulated depreciation balance as of October 31, 2020?

Problem 11:

DUCKS CO., a duck farm, uses the allowance method of recognizing uncollectible accounts. The following summary
schedule was prepared from an aging of accounts receivable outstanding on December 31, 2019:

# of days outstanding: Amount Probability of collection

0 – 15 days P 268,000 95 %

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 16 – 30 days 400,200 90 %

31 – 60 days 317,300 82 %

61 – 90 days 887,700 75 %

Over 90 days 339,800 69 %

Credit sales P 460,900

Allowance for bad debts, Jan. 1 103,250

Allowance for bad debts, Dec. 31 (prior to adjustments) 90,600

29. What is the amount of amortized cost of accounts receivable as of December 31, 2019?

Problem 12:

GERBILEE CO. has accounts receivable amounting to 616,500 at the end of the year 2019. Allowance for doubtful
accounts at the end of the year is 30,000 more than the beginning balance allowance for doubtful accounts. Doubtful
accounts expense for the year ended 2019 is 25,000. Doubtful accounts expense is 5% of total revenue. Expenses
amounted to 300,000 excluding doubtful accounts expense.

30. What is the amount of Net income?

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 ANSWER KEY

I. THEORIES II. PROBLEMS

1 A 1 2,829,500
2 C 2 747,500
3 B 3 2,829,500
4 D 4 661,000
C Cash 500,000
5 5
R. Capital 500,000
D Equipment 300,000
6 6 Cash 150,000
Accounts Payable 150,000
B Prepaid Rent 45,000
7 7
Cash 45,000
D Salaries Expense 20,000
8 8
Cash 20,000
9 A 9 115,000
10 C 10 157,500
11 B 11 24,650
12 B 12 64,000
13 C 13 183,850
14 C 14 160,000
15 B 15 55,000
16 D 16 60,000
17 B 17 595,000
18 C 18 505,000
19 A 19 910,200
20 D 20 240,000
21 601,630
22 3,732,300 NET INCOME
23 564,000 NET INCOME
24 10,000
25 6 years
26 0
27 609,375
28 75,000
29 1,775,203
30 175,000

Prepared by:
Minstrell Aubrey V. Macayan (JPIA) Aaron Christian D. Bustos (SBMA)
Francis Matthew N. Obligacion (JPIA) Romina Rocel T. Zabalo (SBMA)
Vicente Paulo L. Ducut (JPIA) Emmanuel C. Tomoc (SBMA)
Marion Jasper T. Tagle (JPIA)

10 UST - JPIA & SBMA|A.Y. 2019 - 2020