RT and Co.

Basic Accounting Wizard

Easy

E1. When specific customer’s account is written off by a company using the allowance method,
the effect on net income and net accounts receivable are, respectively

a. no effect, decrease
b. no effect, no effect
c. decrease, decrease
d. decrease, no effect

E2. You are given the following information related to Reyes Tacandong and Co.

Gross profit rate based on cost 25%

Accounts receivable December 31, 2012 120,000
Collections on accounts receivable in 2013 645,000
Cost of goods available for sale in 2013 690,000
Merchandise inventory, December 31, 2013 150,000

Assuming all sales were on account, what was the company’s Accounts Receivable balance at
December 31, 2013.

a. 105,000
b. 150,000
c. 159,000
d. 195,000

E3. Reyes Tacandong and Co. uses accrual basis of accounting. Reyes Tacandong and Co.’s
wages expense account had P2, 550,000 balance at the end of the year. The wages payable had
115,000balance at the beginning of the year and a 225,000 balance at the end of the year.

How much cash was paid for the wages during the year?
a. 2,660,000
b. 2,550,000
c. 2,440,000
d. 2,330,000

E4 When using a perpetual inventory system,

a. Purchases account is used

b. A cost of goods sold account is not used
c. Two journal entries are required to record sale
 d. A physical count of goods is necessary at the end of the period

E5 Reyes Tacandong and Co. prepared an aging of its accounts receivable a t December 31,
2013 and determined that the net realizable value of the receivables was 750,000. Additional
information follows:

Allowance for Bad Debts, 84,000

December 31, 2012
Accounts written off as 69,000
uncollectible during 2013
Accounts Receivable, December 810,000
31, 2013
Uncollectible Accounts Recovery 15,000

What is Reyes Tacandong and Company’s bad debt expense for year ended December 31,
2013?

a. 69,000
b. 60,000
c. 45,000
d. 30,000

E6. Charging the acquisition of an inexpensive trash bin to an expense account is an example of
the application of:

a. Consistency principle
b. Cost principle
c. Matching principle
d. Materiality principle

E7 Chas Company’s insurance expense account had a 300,000 balance at the end of the year.
The prepaid insurance account had a 90,000 balance at the beginning of the year and 90,000
balance at the end of the year.
How much cash was paid for the insurance during the year?
a. 630,000
b. 420,000
c. 360,000
d. 240,000

E8. Jamby and Minam just formed a partnership. Jamby contributed cash of P2,205,000 and
office equipment that cost P945,000. The equipment had been used in her sole proprietorship
and had been 70% depreciated, the appraised value of the equipment is P630,000. Jamby also
contributed a note payable of P210,000 to be assumed by the partnership. Jamby is to have
60% interest in the partnership. Miriam contributed only P1,575,000 merchandise inventory at
fair market value. Assume the use of bonus method, the partners’ capital must be in conformity
with their profit and loss ratio upon formation.

In the formation of a partnership, which of the following is true?

a.       The agreed capital of Jamby upon formation is P2,625,000
b.      The total agreed capital of the partnership is P4,375,000
c.       The capital of Miriam will increase by P105,000 as a result of the transfer of capital
d.      There is either an investment or withdrawal of asset under the bonus method

E9. Which of the following items should be included in the company’s inventory at the end of
the reporting period?

a. Goods in transit which were purchased FOB destination

b. Goods received from another company for sale on a consignment
c. Goods in transit to a customer FOB destination
d. Goods held from a supplier subject to the Company’s approval

E10 Reyes Tacandong and Company had 80,000 ordinary shares in January 2013. The Company
distributed a 15% share bonus in March. After acquiring 10,000 shares in November, the
company split its shares 1- for 4 in December.

How many ordinary shares are outstanding as of December 31, 2013?

a. 328,000
b. 23,000
c. 20,500
d. 13,000

M1.The following information was taken from Reyes Tacandong and Company’s accounting
records for the current year:

Increase in goods in process inventory 500,000

Increase in raw materials inventory 150,000
Decrease in finished goods inventory 350,000
Raw materials purchased 4,300,000
Direct Labor payroll 2,000,000
Factory overhead 3,000,000
Freight out 450,000
What was the cost of goods sold in the current year?
a. 9,300,000
b. 9,150,000
c. 8,650,000
d. 9,000,000

M2 When an account previously written off is subsequently recovered and collected, the
transaction would
a. Increase in net income under the direct write off method
b. Increase in net income under allowance method
c. Decrease in net income under the direct method
d. Increase in accounts receivable under the allowance method

M3 It is the process of determining the monetary amounts at which the elements of the
financial statements are recognized and carried in the financial statement.

a. Recognition
b. Measurement
c. Realization
d. Reporting

M4 On July 1, 2013, Crafters, Inc. has 200,000 ordinary shares outstanding with par value of P10
per share and market value of P12 per share. On the same date, Crafters declared a 1 for 2
reverse share split. The par value of the share was increased from P10 to P20 and one new P20
par value share was issued for every two P10 par outstanding. Immediately before the 1 for 2
reverse share split, Crafters’ share premium account balance was P450,000.

What should be the balance in Crafter’s share premium account immediately after the reverse
share split is effected?

a. 0
b. 450,000
c. 650,000
d. 850,000

M5 ReyesTacandong and Company provided the following information regarding the purchase
of the machinery:

Salvage Value ?
Depreciation for this machinery in 2013 90,000
Purchase Price 750,000
Date of Purchase April 1, 2013
Estimated useful life 5 years
The company uses straight line of depreciation. How much is the salvage value of the
machinery of the company?

a. 150,000
b. 166,667
c. 180,000
d. 200,000

M6 Dividends in arrears are reported in the statement of financial position as

a. Current liabilities
b. Contra- equity accounts
c. Contra-asset accounts
d. Note disclosure

M7. The shareholder’s equity of Reyes Tacandong and Company consists of the following
accounts:

Preference Share Capital, 10% cumulative, 5,000,000

P100 par (50,000 shares)
Ordinary Share Capital P100 par (200,000 20,000,000
shares)
Subscribed Ordinary Shares, net of 6,000,000
Subscription receivable of P4,000,000
(100,000 shares)
Treasury Ordinary Shares at cost (50,000 4,000,000
shares)
Share Premium 10,000,000
Retained Earnings 8,000,000

Preference dividends have not been paid for three years and have a liquidation value of P110.
The book value per ordinary share is:
a. 210
b. 168
c. 166
d. 152
M8. The following changes in Reyes Tacandong and Co.’s account balance occurred during
2013:

Increase
Assets 890,000
Liabilities 270,000
Share Capital 600,000
Share Premium 60,000

Except for a 130,000 dividend payments and the year’s earnings, there were no changes in the
Retained Earnings for 2013.

What was Reyes Tacandong and Company’s net income for 2013?
a. 40,000
b. 90,000
c. 130,000
d. 170,000

M9. What is the purpose of the double entry booking system?

a. To ensure every transaction will be posted on the debit and credit side with the same
amount in at least two accounts.
b. To prepare books of prime entry accurately
c. To record the cash in and out of the business
d. To avoid careless mistake.

M10. The following were taken from Reyes Tacandong and Company’s unadjusted trial balance
as of December 31, 2013

Debit Credit
Accounts Receivable 1,000,000
Allowance for Uncollectible 8,000
Accounts
Net Credit Sales 3,000,000

Reyes Tacandong and Company estimates that 3% of the net credit sales will become
uncollectible. After adjustment at December 31, 2013, the allowance for bad debts should have
a credit balance of
a. 90,000
b. 82,000
c. 38,000
d. 30,000
H1 Reyes Tacandong and Company provided the following information regarding its equipment:

Salvage Value 50,000

Accumulated Depreciation as of December 31, 450,000
2013
Purchase Price ?
Date of Purchase April 1, 2010
Estimated useful life 5 years

The company uses straight line of depreciation. How much is the purchase price of the
equipment of the company?

a.600,000
b. 650,000
c. 700,000
d. 642,367

H2 Which of the following is not typically a characteristic of preference share?

a. Preference as to dividends
b. Preference over ordinary shares during liquidation
c. Preference as to voting rights
d. Cumulative and callable terms

H3 The petty cash fund of Reyes Tacandong and Co. at the end of the fiscal year ended June 30,
2013 is composed of the following:

Currencies 3,800
Coins 1,200
Paid vouchers for
Office Supplies 1,750
Postage Stamps 2,000
Loans to employees 6,000
Customer’s check marked NSF 2,750
Check drawn by the company payable to the 12,500
custodian, representing her salary
Check payable to an employee dated July 16, 4,000
2013
The correct amount of petty cash fund at June 30, 2013 is

a. 5,000
b. 17,500
c. 21,500
d. 30,000

H4.Ethan Company made 5,000,000 in payments to the suppliers during the year. Ethan
Company’s beginning inventory was 200,000 and the ending inventory was 350,000. In
addition, Ethan had a beginning Accounts Payable of 700,000.

How much is the cost of good sold of the company?

a. 5,850,000
b. 4,510,000
c. 4,150,000
d. 1,450,000

H5 Seldom does the balance of the cash in bank account in the depositor’s books agree with the
balance appearing in the bank statement at a particular date because of

a. A tax avoidance
b. Bank secrecy requirements
c. Negligence by the bookkeeper
d. Time-lapse difference

H6 At December 31, 2013 and 2012, Eagle had outstanding 4,000 shares at 100 par value, 12%
cumulative fully participating preference shares and 20,000 10 par value ordinary shares. At
December 31, 2012, dividends in arrears on preference shares were 24,000. Cash dividends
declared in 2013 totaled 108,000.

What is the total amount of dividends payable to preference shareholders?

a. 80,000
b. 72,000
c. 56,000
d. 24,000

H6 At December 31, 2013 and 2012, Eagle had outstanding 4,000 shares at 100 par value, 12%
cumulative fully participating preference shares and 20,000 10 par value ordinary shares. At
December 31, 2012, dividends in arrears on preference shares were 24,000. Cash dividends
declared in 2013 totaled 108,000.
What is the amount of dividends payable to each ordinary shares
a. 4.2
b. 2.6
c. 1.8
d. 1.4

H7 The following were taken from Reyes Tacandong and Company’s unadjusted trial balance as
of December 31, 2013

Debit Credit
Accounts Receivable 1,000,000
Allowance for Uncollectible 8,000
Accounts
Net Credit Sales 3,000,000

Reyes Tacandong and Company estimates that 3% of the gross accounts receivable will become
uncollectible. What is the bad debt expense at December 31, 2013?
a. 90,000
b. 38,000
c. 20,000
d. 22,000

H8 What is the purpose of information presented in the notes to financial statement?

a. To correct improper presentation in the financial statement.
b. To present management’s responses to auditor comments
c. To provide disclosures required by the GAAP.
d. To provide recognition of amounts not included in the total of the financial
statements.

H9 The Reyes Tacandong and Company provided the following information on December 31,
2013:

Share Premium 9,000,000

Accounts Payable 1,100,000
Sales 10,000,000
Treasury Share 250,000
Preference Share( at par) 1,750,000
Ordinary Share (at par) 400,000
Total Costs and Expenses 7,800,000
Retained Earnings, Jan 1 1,000,000
 The net income is not yet closed to the retained earnings. Total shareholder’s equity should be
reported on December 31, 2013 at

a. 14,100,000
b. 13,400,000
c. 11,900,000
d. 11,200,000

H10. Rowena is trying to decide whether to accept a bonus of 25% of net income after salaries and
bonus or a salary of P97,500 plus a bonus of 10% of net income after salaries and bonus as a
means of allocating profit among the partners. Salaries traceable to the other partners are
estimated to be P450,000. What amount of income would be necessary so that Jinky would
consider the choices to be equal?

a. P1,100,000                              b. P1,197,500                     c. P650,00                            d. P1,262,500

Solution:

E2 (690,000-150,000)*125/100+120,000-645,000 = 150,000

E3 2,550,000 +115,000 – 225,000 = 2,440,000

E5

Allowance for Bad Debts, (84,000)

December 31, 2012
Accounts written off as +69,000
uncollectible during 2013
Uncollectible Accounts Recovery (15,000)

Accounts Receivable, December +810,000

31, 2013
Net Accounts Receivable (750,000)

Bad Debts Expense 30,000

E10(80,000*1.15-10,000)/4

M1

Increase in goods in process inventory (500,000)

Increase in raw materials inventory (150,000)
 Decrease in finished goods inventory +350,000
Raw materials purchased +4,300,000
Direct Labor payroll +2,000,000
Factory overhead +3,000,000
Cost of Goods Sold 9,000,000

M5. 90,000/.75*5 - 750,000 =150,000

M7.

Preference Share Capital, 10% cumulative, P100 par 5,000,000

(50,000 shares)
Ordinary Share Capital P100 par (200,000 shares) +20,000,000
Subscribed Ordinary Shares, net of Subscription receivable +6,000,000
of P4,000,000 (100,000 shares)
Treasury Ordinary Shares at cost (50,000 shares) (4,000,000)
Share Premium +10,000,000
Retained Earnings +8,000,000
45,000,000
Subscription Receivable +4,000,000
Total 49,000,000
Less: Preference Share (5,500,000)
(1500,000)
42,000,000
42,000,000/250,000 shares = 168 Book Value per Share

M8.

Assets 890,000
Liabilities (270,000)
Share Capital (600,000)
Share Premium (60,000)
Dividend +130,000
Net Income 90,000

M10. 3,000,000*.03-8,000 = 82,000

H1.450,000/3.75*5+50,000
H3.

Currencies 3,800
Coins 1,200
Check drawn by the company payable to the custodian, representing her 12,500
salary
Total 17,500

H4. 5,000,000 -700,000+200,000 -350,000

H7. 1,000,000*3% +8,000= 38,000

H9.

Share Premium 9,000,000

Sales 10,000,000
Treasury Share 250,000
Preference Share( at par) 1,750,000
Ordinary Share (at par) 400,000
Total Costs and Expenses 7,800,000
Retained Earnings, Jan 1 1,000,000
Total Shareholder’s Equity 14,100,000