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PRACTICAL ACCOUNTING I Quiz No. 2
PRACTICAL ACCOUNTING I Quiz No. 2
QUIZ NO. 2
1. On December 31, 2016, the bookkeeper of Grand Company provided the following information:
In the December 31, 2016 balance sheet, how much current liabilities should be reported?
a. 6,800,000 b. 7,300,000 c. 7,900,000 d. 8,700,000
How much should be presented as total current liabilities in the balance sheet?
a.6,000 b. 168,500 c. 183,500 d.216,000
3. The balance in Coward Company’s accounts payable at December 31, 2016 was P1,170,000 before any year-end
adjustments relating to the following:
Goods were in transit from a vendor to Coward on December 31, 2016. The invoice cost was P65,000
and the goods were shipped FOB shipping point on December 29, 2016. The goods were received on
January 2, 2017.
Goods shipped FOB shipping point on December 20, 2016 from a vendor to Coward, were lost in transit.
The invoice cost was P32,500. On January 5, 2017, Coward filed a P32,500 claim against the common
carrier.
Goods shipped FOB destination on December 21, 2016, from a vendor to Coward, were received on
January 6, 2017. The invoice cost was P19,500.
What amount should Coward report as accounts payable on its December 31, 2016 balance sheet?
a. 1,202,500 b. 1,222,500 c. 1,235,000 d. 1,267,500
4. Echo Company sells office equipment contracts agreeing to service equipment for a two-year period. Cash
receipts from contracts are credited to unearned service contract revenue and service contract costs are
charged to service contract expense as incurred. Revenue from service contract is recognized as earned over the
lives of the contracts.
Additional information for the year ended December 31, 2016 were as follows:
What amount should Echo report as unearned service contract revenue as of December 31, 2016?
a. 460,000 b. 480,000 c.490,000 d. 720,000
5. Brave Company sells appliance service contracts, agreeing to repair appliances for a two-year period. Brave’s
past experience is that, of the total pesos spent for repairs on service contracts, 40% is incurred evenly during
the first contract year and 60% evenly during the second contract year. Receipts from service contract sales for
two years ended December 31, 2017, are as follows:
2016 P500,000
2017 600,000
Receipts from contracts are credited to unearned service contract revenue. Assume that all contract sales are
made evenly during the year.
What amount should Brave Company report as unearned service contract revenue at December 31, 2017?
a. 360,000 b. 470,000 c. 480,000 d. 630,000
6. On November and December 2015, Adventure Company received P792,000 for 1,000, 3-year subscriptions at
P264 per issue per year, starting with the January 2016 issue. Adventure elected to include the entire P792,000
in its 2015 income statement for tax purposes.
What amount should Adventure report in its 2015 balance sheet as unearned subscription revenue?
a. 0 b. 44,000 c. 264,000 d. 792,000
7. Gallery Department Store sells gift certificates, redeemable for store merchandise, that expire one year after
their issuance. Gallery has the following information pertaining to its gift certificates sales and redemptions:
Gallery’s experience indicates that 10% of gift certificates sold will not be redeemed.
In its December 31, 2016 balance sheet, what amount should Gallery report as unearned revenue?
a. 400,000 b. 600,000 c. 800,000 d. 1,000,000
8. Organ Company requires refundable advance payments with special orders for machinery constructed to
customer’s specifications. Information for 2016 were as follows:
Customer advances – balance, December 31, 2015 P885,000
Advances received with orders in 2016 1,380,000
Advances applied to orders shipped in 2016 1,230,000
Advances applicable to orders cancelled in 2016 375,000
What amount should Organ Company report as current liability for customer’s deposits in its December 31, 2016
balance sheet?
a. 0 b. 660,000 c. 1,035,000 d. 1,110,000
9. Apex Company’s employees earn two weeks of paid vacation for each year of employment. Unused vacation
time can be accumulated and carried forward to succeeding years and will be paid at the salary in effect when
the vacation is taken. As of December 31, 2016, when Paul’s salary was P6,000 per week. Paul had earned 18
weeks vacation time and had used 12 weeks of accumulated vacation time.
At December 31, 2016 how much should Apex carry as a liability for Paul’s accumulated vacation time?
a. 0 b. 12,000 c. 36,000 d. 72,000
10. Strand Inc. provides an incentive compensation plan under which its president receives a bonus equal to 10% of
the corporation’s income in excess of P600,000 before income tax but after deduction of the bonus.
If income before income tax and bonus is P1,920,000 and the tax rate is 32%, the amount of the bonus would be
a. 120,000 b. 132,000 c. 174,360 d. 192,000
11. B Company had 10,000 shares issued and outstanding at January 1, 2009. During 2009, B took the following
actions:
March 15 Declared a 2 for 1 share split, when the fair value of the share was P80 per share.
December 15 Declared a P5 per share cash dividend.
What amount should B report as dividends in its 2009 statement of changes of equity?
a. 100,000 b. 50,000 c.850,000 d.950,000
12. On May of the current year, L Company’s board of directors declare a 10% stock dividend. The market price of
L’s 30,000 shares of P20 par value was P90 per share on that date. The stock dividend was distributed on July 1,
when the market price was P100 per share. What amount should L credit to share premium for this stock
dividend?
a. 210,000 b. 240,000 c.270,000 d. 300,000
The shareholders’ equity section of the statement of financial position of K Company on December 31, 2011
showed the following:
Dividends have been paid on the preference shares up to December 31, 2009.
13. Compute the book value of preference shares and ordinary shares assuming preference share is noncumulative
and nonparticipating.
a. 112 and 166 b. 124 and 160 c. 156 and 144 d. 128 and 158
14. Compute the book value of preference shares and ordinary shares assuming preference share is noncumulative
and nonparticipating.
a. 124 and 160 b. 112 and 166 c. 156 and 144 d. 128 and 158
15. Compute the book value of preference shares and ordinary shares assuming preference share is noncumulative
and participating.
a. 148 and 148 b. 124 and 160 c. 156 and 144 d. 128 and 158
16. Compute the book value of preference shares and ordinary shares assuming preference share is cumulative and
participating.
a. 156 and 144 b. 124 and 160 c. 112 and 166 d. 128 and 158
17. Compute the book value of preference shares and ordinary shares assuming preference share is cumulative and
participating up to 16%.
a. 128 and 158 b. 124 and 160 c. 112 and 166 d. 156 and 144
18. Compute the book value of preference shares and ordinary shares assuming preference share is cumulative and
nonparticipating and liquidation value of P106 per share.
a. 130 and 157 b. 124 and 160 c. 112 and 166 d. 156 and 144
19. The shareholders’ equity section of F Company revealed the following information on December 31, 2011:
20. Of the 125,000 shares issued by J Company, 25,000 shares were held as treasury at January 1, 2009. During
2009, transactions were as follows:
January 1 to October 31 - 13,000 treasury shares were distributed to officers as part of a share
compensation plan.
November 1- a 3 for 1 split took effect
December 1- J purchased 5,000 of its own shares to discourage an unfriendly takeover.
These shares were not retired.
On December 31, 2009, how many shares were issued and outstanding?
Issued Outstanding
a. 375,000 334,000
b. 375,000 324,000
c. 334,000 334,000
d. 324,000 324,000
Part of the loan agreement is for Eliot to appropriate a fixed amount out of its accumulated profits and losses
annually until the amount of appropriation has equaled the face of the obligation. As of December 31, 2016,
Eliot Corporation has yet to comply with the loan agreement.
In its December 31, 2016 balance sheet, Eliot should report current liabilities at
a. 2,000,000 b. 2,500,000 c. 5,000,000 d. 7,000,000
22. Assuming the lender agreed on December 31, 2016 to provide a grace period of 12 months for the entity to
rectify breach and assured Eliot Corporation that no demand of payment is to be made within the grace period,
what amount of current liabilities should Eliot Corporation report in its December 31, 2016 balance sheet?
a. 2,000,000 b. 2,500,000 c. 5,000,000 d. 7,000,000
23. On July 1, 2016, Clapper Corporation issued a five-year note payable with a face value of P250,000 and a 10%
interest rate. The terms of the note require Clapper to make five annual payments of P50,000 plus accrued
interest, with the first payment due on June 30, 2017.
With respect to the note, how much would be included in the current liabilities section of Clapper’s December
31, 2016 balance sheet?
a. 12,500 b. 50,000 c. 62,500 d. 75,000
24. On July 1, 2016, Clear Company obtained a P3,000,000, 180-day bank loan at an annual rate of 12%. The loan
agreement requires Clear to maintain a P600,000 compensating balance in its checking account at the lending
bank. Clear would otherwise maintain a balance of only P300,000 in this account. The checking account earns
interest at an annual rate of 6%.
25. On December 2, 2016, an employee filed a P3,000,000 lawsuit against Cruiser Company for damages suffered
when one of Cruiser’s plants exploded on July 20, 2016. Cruiser’s legal counsel expects the company will lose the
lawsuit and estimates the loss to be between P500,000 and P1,000,000. The employee has offered to settle the
lawsuit out of court for P900,000, but Cruiser will not agree to the settlement.
In its December 31, 2016 balance sheet, what amount should Cruiser Company report as provision from lawsuit?
a. 500,000 b. 750,000 c. 1,000,000 d. 3,000,000
26. Golan Company guaranteed a loan of P400,000 granted to Timothy Company. At the date when the directors
approved the financial statements of Timothy, there is no reason to believe that the guarantee will be invoked.
Assuming that the amount of the guarantee is a material amount for Golan Company, what proper accounting
this guarantee is in the books of Golan Company?
a. The amount of the guarantee is not accounted for in Golan’s books.
b. The amount of P400,000 should be recognized as a provision.
c. The P400,000 be recognized as a liability with necessary disclosure in the notes to financial statements
d. The contingent liability should be disclosed by way of note to the financial statements.
27. A truck owned and operated by Ward Company was involved in an accident with an auto driven by Stillman on
January 12, 2016. Ward Company received notice on April 24, 2016 of a lawsuit for P800,000 damages for a
personal injury suffered by Stillman. Ward’s counsel believes it is reasonably possible that Stillman will be
successful against the company for an estimated amount in the range between P100,000 and P400,000. No
amount within this range is a better estimate of potential damages than any other amount. It is expected that
the lawsuit will be adjudicated in the latter part od 2017.
28. On September 1, 2014, Crackers Company issued a note payable to PNB in the amount of P2,400,000, with the
stated rate of 12% and payable in 3 equal annual installments. On this date, the bank’s prime rate is 11%. The
first interest and principal payment was made on September 1, 2015.
How much should Crackers record as accrued interest payable at December 31, 2015?
a. 58,667 b. 64,000 c. 88,000 d. 96,0000
29. Urn Corporation’s liability account balances at June 30, 2015 included a 10% note payable in the amount of
1,800,000. The note is dated October 1, 2014 and is payable in three equal annual payments of P600,000 plus
interest.
In Urn’s June 30, 2016 balance sheet, what amount should be reported as accrued interest payable for this
note?
a. 30,000 b. 45,000 c. 90,000 d. 135,000
30. During 2016, Mallows Company sold 500,000 boxes of hotcakes under a new sales promotional program. Each
box contains one coupon, which when submitted with P16, entitles the customer a baking pan. Mallows pays
P20 per pan and P2 for handling and shipping. Mallows estimates that 80% of the coupons will be redeemed,
even though only 300,000 coupons had been processed during 2016.
What amount should Mallows report as a liability for unredeemed coupons at December 31, 2016?
a. 300,000 b. 400,000 c. 600,000 d. 1,000,000
Answers:
1. B
2. D
3. D
4. D
5. D
6. D
7. A
8. C
9. C
10. A
11. A
12. A
13. A
14. A
15. A
16. A
17. A
18. A
19. B
20. A
21. D
22. A
23. C
24. B
25. B
26. D
27. A
28. B
29. C
30. C