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AP.2809 - Simulated Examination
Suggested answers/solutions by OCAMPO/CABARLES/SOLIMAN/OCAMPO
PROBLEM NO. 1 - Caloocan Corporation
Question No. 1 - B
Cash balance, 12/31/18 706,600
Add back credits to Cash account:
Cash paid for operating expenses 440,000
Cash paid on accounts payable 943,400 1,383,400
Total 2,090,000
Less other debits to Cash account:
Cash balance, 12/31/17 200,000
Collection of note receivable 50,000 250,000
Cash sales 1,840,000
Divide by selling price per unit 100
Units sold 18,400
Question No. 2 - A
Accounts payable, 12/31/17 150,000
Add purchases:
Month Unit cost Quantity Total cost
January 65.20 1,500 97,800
February 65.40 1,500 98,100
March 65.60 1,500 98,400
April 65.80 1,500 98,700
May 66.00 1,500 99,000
June 66.20 1,500 99,300
July 66.40 1,500 99,600
August 66.60 1,500 99,900
September 66.80 1,500 100,200
October 67.00 1,500 100,500
November 67.20 1,500 100,800
December 67.40 1,500 101,100 1,193,400
Total 18,000 1,343,400
Less cash paid on accounts payable 943,400
Accounts payable, 12/31/18 400,000
Question No. 3 - A
Inventory quantity, 12/31/17 (P399,750/P65.00) 6,150
Add purchases (see no. 2) 18,000
Units available for sale 24,150
Less units sold (see no. 1) 18,400
Inventory quantity, 12/31/18 5,750
Month of purchase Quantity Unit cost Total cost
December 1,500 67.40 101,100
November 1,500 67.20 100,800
October 1,500 67.00 100,500
September (balance) 1,250 66.80 83,500
5,750 385,900
Question No. 4 - D
Question No. 5 - C
PROBLEM NO. 2 - Olive Corporation
12/31/17 Addition Disposal 12/31/18 CA, 12/31/18
Cost
Land 450,000 200,000 650,000 650,000 (7-A)
Land improvements - 100,000 100,000 95,000
Buildings 2,400,000 730,000 3,130,000 1,816,250 (6-C)
Machinery and equipment 2,770,000 960,000 1,810,000 1,394,500
5,620,000 1,030,000 960,000 5,690,000 3,955,750 (8-C)
Accumulated depreciation
Land improvements - 5,000 5,000
Buildings 1,200,000 113,750 1,313,750
Machinery and equipment 546,500 253,000 384,000 415,500
1,746,500 371,750 384,000 1,734,250
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Computation of depreciation:
Land improvements (P100,000/10 x 6/12) 5,000
Buildings:
Old (P2.4M/25) 96,000
New - constructed (P330,000/12 x 6/12) 13,750
Donated (P400,000/25 x 3/12) 4,000 113,750
Machinery and equipment
Remaining (P1,810,000/10) 181,000
Sold (P960,000/10 x 9/12) 72,000 253,000
Question No. 9 - A
Sales proceeds 520,000
Carrying amount (P960,000 - P384,000) 576,000
Gain (Loss) on sale (56,000)
Question No. 10 - D
PROBLEM NO. 3 - GDL, Inc.
Question No. 11 - A
Patent amortization (P1,680,000/6) 280,000
Trademark -
Noncompetition agreement (P2,000,000/5) 400,000
Total amortization 680,000
Question No. 12 - D
Patent (P1,680,000 - P280,000) 1,400,000
Trademark (P8,000,000 x 3/4) 6,000,000
Noncompetition agreement (P2,000,000 - P400,000) 1,600,000
Carrying amount of intangible assets, 12/31/18 9,000,000
Question No. 13 - A
Deferred tax asset, 12/31/17 360,000
Decrease in deferred tax asset:
Decrease in unearned rent (P200,000 x 35%) (70,000)
Increase in warranty liability (P150,000 x 35%) 52,500 (17,500)
Deferred tax asset, 12/31/18 342,500
Question No. 14 - B
Question No. 15 - A
PROBLEM NO. 4 - Syria Company
December
Nov. 30 Receipts Disb Dec. 31
Unadjusted bank balances 480,000 240,000 300,000 420,000
Undeposited collections:
November 30 100,000 (100,000)
December 31 140,000 140,000
Outstanding checks:
November 30 (150,000) (150,000)
December 31 120,000 (120,000)
Erroneous bank debit (90,000) 90,000
Deposits with loan payment (P725,000 x 80%) 580,000 580,000
NSF checks:
Returned in Nov., recorded in Dec. 10,000 (10,000)
Returned and recorded in Dec. (25,000) (25,000)
Returned in Dec., recorded in Jan. (29,000) 29,000
Unrecorded bank collection in Dec. (106,000) (106,000)
Anticipated loan proceeds from AR hypothecation
Nov. 30 sales (P180,000 x 80%) 144,000 (144,000)
Dec. 31 sales (P200,000 x 80%) 160,000 160,000
Anticipated loan payment from undeposited collections
Nov. 30 (P100,000 x 80%) (80,000) (80,000)
Dec. 31 (P140,000 x 80%) 112,000 (112,000)
Interest charge for bank loan in Dec. (38,000) 38,000
Unadjusted book balances 504,000 735,000 700,000 539,000
(16 - A) (17 - C) (18 - B) (19 - D)
Question No. 20 - B
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PROBLEM NO. 5 - Austronesian Corporation
Question No. 21 - B
Cash-Allied Bank, 12/31/17 450,000
Add (deduct) transactions during 2018:
(b) Collections on accounts receivable 5,765,000
(d) Payment on dishonored discounted NR (30,900)
(e) Proceeds from NR discounted 585,000
(g) Recoveries of bad debts written off 20,200
(h) Collections on notes receivable 270,000
(h) Collections on interest receivable 24,500
(j) Loan proceeds from Allied Bank 350,000
(j) Loan repayment - interest and principal (195,000)
(k) Replenishment of petty cash fund (4,500)
(l) Transfer to bond retirement fund (30,000)
(m) Decrease in cash on hand [P160,000 - P120,000] 40,000
(n) Payment for expenses (6,800,000)
Cash-Allied Bank, 12/31/18 444,300
Cash on hand, 12/31/18 120,000
Petty cash fund, 12/31/18 10,000
Total cash, 12/31/18 574,300
Question No. 22 - A
Accounts receivable, 12/31/17 856,000
Add (deduct) transactions during 2018:
(a) Sales on account 7,670,000
(b) Collections on accounts receivable
[(P5,765,000 + (P930,000x.02)] (5,783,600)
(c) Notes received in settlement of accounts (825,000)
(f) Accounts written off (87,200)
Accounts receivable, 12/31/18 1,830,200
Allowance for doubtful accounts, 12/31/18 (P1,830,200 x 5%) 91,510
(f) Accounts written off 87,200
(g) Recoveries of bad debts written off (20,200)
Allowance for doubtful accounts, 12/31/17 (41,500)
Doubtful accounts expense for 2018 117,010
Question No. 23 - C
Accounts receivable, 12/31/18 1,830,200
Less allowance for doubtful accounts, 12/31/18 91,510
Accounts receivable, net 1,738,690
Question No. 24 - D
Accounts receivable, net (see no. 23) 1,738,690
Notes receivable (see below) 285,000
Notes receivable - dishonored (d) 30,900
Interest receivable (i) 6,300
Trade and other receivables, net 2,060,890
Notes receivable, 12/31/17 365,000
Add (deduct) transactions during 2018:
(c) Notes received in settlement of accounts 825,000
(d) Collections and dishonor of discounted notes (155,000)
(e) Collections of discounted notes (480,000)
(h) Collections of notes receivable (270,000)
Accounts receivable, 12/31/18 285,000
Question No. 25 - D
PROBLEM NO. 6 - Bahrain Bank
Question No. 26 - B
Question No. 27 - C
Principal 10,000,000
Direct origination cost 130,900
Origination fee received from borrower (P10M x .05) (500,000)
Carrying amount, 1/1/17 9,630,900
Amortization schedule - partial
Date EI (11%) NI (10%) Disc. Amort. C.A.
1/1/17 9,630,900
12/31/17 1,059,399 1,000,000 59,399 9,690,299
12/31/18 1,065,933 1,000,000 65,933 9,756,232
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Question No. 28 - A
Carrying amount, 12/31/18 (see schedule) 9,756,232
Less PV of expected cash flows:
12/31/20 (P4M x 0.8116) 3,246,400
12/31/22 (P4M x 0.6587) 2,634,800 5,881,200
Loan impairment (bad debt expense) 3,875,032
Question No. 29 - A
Question No. 30 - B
PROBLEM NO. 7 - La Cost Company
Question no. 31 - C
Selling price (4,000 shares x P69) 276,000
Less CA of shares sold (P528,250 x 4/8) 264,125
Gain on sale of Totoy Bibo shares 11,875
Question no. 32 - A
Selling price (4,000 shares x P62) 248,000
Less CA of shares sold (P630,000 x 4/10) 252,000
Loss on sale of Bulaklak shares (4,000)
Realized gain on shares sold (P40,000 x 4/10) 16,000
Gain on sale of Bulaklak shares 12,000
Question no. 33 - C
Yeye Bonel [(10,000+ 3,000) x P76.60] 995,800
Totoy Bibo [(8,000 - 4,000) x P68.50] 274,000
Pasaway (15,000 x P55.25) 828,750
Mayniladlad 205,550
Total fair value - TS 2,304,100
Question no. 34 - C
Bulaklak Inc. [(10,000 - 4,000) x P61] 366,000
Jumbo Hotdog (20,000 x P27) 540,000
Total fair value - AFS 906,000
Question no. 35 - A
Trading securites, 12/31/17 1,477,500
Cost of 3,000 additional Yeye Bonel shares, 3/1 229,500
CA of 4,000 Totoy Bibo shares sold, 4/15 (264,125)
Cost of 15,000 Pasaway shares purchased, 10/30 832,500
Trading securites, 12/31/18 before mark-to-market 2,275,375
Trading securites at market 2,304,100
Unrealized gain on TS - P/L 28,725
Fair value of AFS, 12/31/18 906,000
Total cost of AFS, 12/31/18 [(P590Tx6/10)+P490T] 844,000
Unrealized gain-AFS, 12/31/18 (Equity component) 62,000
PROBLEM NO. 8 - Lakers, Inc.
Question No. 36 - B
Total proceeds 4,000,000
Less liability component:
PV of the principal (P4,000,000 x 0.6830) 2,732,000
PV of the interest [(P4,000,000 x 8% x 3.1699) 1,014,368 3,746,368
Equity component 253,632
Question no. 37 - D
Carrying amount, 1/1/17 (see no. 36) 3,746,368
Add discount amortization for 2017:
Effective interest (P3,746,368 x 10%) 374,637
Nominal interest (P4,000,000 x 8%) 320,000 54,637
Carrying amount, 12/31/17 3,801,005
Question no. 38 - D
Effective interest - 2018 (P3,801,005 x 10%) 380,101
Question no. 39 - A
Carrying amount, 12/31/17 (see no. 38) 3,801,005
Add discount amortization for 2018:
Effective interest (P3,801,005 x 10%) 380,101
Nominal interest (P4,000,000 x 8%) 320,000 60,101
Carrying amount, 12/31/18 3,861,106 *
CA of bonds converted (P3,861,106* x 1/2) 1,930,553
Par value of shares issued (P2,000,000/P1,000 x 6 x P100) 1,200,000
Net increase in share premium 730,553
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Question no. 40 - C
Reacquisiton price (P1,000,000 x 110%) 1,100,000
CA of bonds reacquired (P3,861,106 x 1/4) 965,276
Loss on bond reacquisition 134,724
PROBLEM NO. 9 - Perseverance Corporation
Retained Treasury
Share capital Share premium earnings shares
Balances, 12/31/16 3,000,000 300,000 450,000 -
Issuance of CS, 6/15/17 5,000,000 1,000,000
Stock dividend, 9/30/17 400,000 40,000 (440,000)
Profit - 2017 475,000
Balances, 12/31/17 8,400,000 1,340,000 485,000 -
Acquisition of TS, 3/1/18 285,000
Sale of TS, 5/31/18 37,500 (142,500)
Exercise of 25,000 share rights, 9/15/18 5,000,000 1,250,000
Exercise of 40,000 share rights, 10/31/18 8,000,000 2,000,000
Declared cash dividend, 12/10/18 (425,000)
Retired 1,000 TS, 12/20/18 (100,000) 5,000 (95,000)
Profit - 2018 500,000
Balances, 12/31/18 21,300,000 4,632,500 560,000 47,500
41 - B 42 - C 43 - D
Question no. 44 - D
Question no. 45 - D
PROBLEM NO. 10 - Bryant Corporation
Question No. 46 - A
Unadjusted income before taxes 560,000
Add (deduct) adjustments:
a) Unrealized loss on short term marketable securities (P55,000 - P60,000) (5,000)
b) Decrease in allowance for doubtful accounts (P59,000 - P36,000) 23,000
c) Understatement of ending inventories 12,000
d) Prepaid insurance charged to expense 3,000
e) Accrual of pension cost (P45,000/2) (22,500)
f) Production machine charged to expense 24,000
f) Depreciation of production machine (P24,000/5 x 6/12) (2,400)
g) Write off of R & D expense (P150,000 - P30,000) (120,000)
h) Provision for loss from lawsuit (50,000)
Adjusted income before taxes 422,100
Less income tax expense (40%) 168,840
Net income 253,260
Question No. 47 - C
Cash 150,000
Marketable securities, at fair value 55,000
Accounts receivable 450,000
Allowance for doubtful accounts (36,000)
Inventories (P430,000 + P12,000) 442,000
Prepaid insurance (P15,000 + P3,000) 18,000
Total current assets 1,079,000
Question No. 48 - B
Property, plant and equipment (P426,000 + P24,000) 450,000
Accumulated depreciation (P40,000 + P2,400) (42,400)
Property, plant and equipment, net 407,600
Current assets (see no. 47) 1,079,000
Total assets 1,486,600
Question No. 49 - A
Accounts payable and accrued expenses 592,000
Income taxes payable (see no. 46) 168,840
Accrued pension expense 22,500
Provision for loss from lawsuit 50,000
Total liabilities 833,340
Question No. 50 - D
Share capital 400,000
Retained earnings (see no. 46) 253,260
Total equity 653,260
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