FINANCIAL ACCOUNTING AND REPORTING

FINALS REVIEWER

THEORETICAL ANALYSIS COMPUTATIONAL APPLICATION

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 FINANCIAL ACCOUNTING AND REPORTING
FINALS REVIEWER

I. THEORETICAL ANALYSIS.
A. MULTIPLE CHOICE. Choose the letter of the best answer to each item.

1. It is the body authorized by law to promulgate rules and regulations affecting the practice of the
accountancy profession in the Philippines.
a. FRSC
b. ASC
c. BOA
d. GAAP

2. The following are enhancing qualitative characteristics of useful financial information except:
a. Verifiability
b. Faithful Representation
c. Timeliness
d. Comparability

3. Statement 1: The journal entries are only posted to the ledger after the unadjusted trial balance
has been prepared.
Statement 2: The preparation of the worksheet is a requirement set by the accounting standards to
ensure the validity of a company’s financial reports.
Statement 3: The preparation of the trial balance helps the company uncover all possible errors that
could be made throughout the accounting cycle.
a. Only statement 1 is wrong.
b. Only statement 3 is correct.
c. Only statement 2 is correct.
d. All of the statements are correct.
e. None of the statements are correct.

4. Statement 1: The post-closing trial balance only contains nominal accounts.

Statement 2: If the credit column of the adjusted trial balance is greater than the debit column, it
indicates that there is a net income for the period.
Statement 3: The post-closing trial balance contains the updated Capital account that appears in the
company’s year-end statement of financial position.
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.

5. Statement 1: If the credit column of the income statement columns is greater than the debit
column, the debit column of the balance sheet columns must therefore be greater than the credit
column.
Statement 2: Reversing entries are only optional.
Statement 3: The error of omission cannot be discovered by preparing a trial balance.
a. Only statement 3 is wrong.
b. Only statement 1 is wrong.
c. Only statement 1 is correct.
d. All of the statements are correct.
e. None of the statements are correct.

6. Statement 1: The T-account is a device that represents the basic layout of a ledger.
Statement 2: The error of transplacement is an error where numbers in a figure are interchanged.

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Statement 3: If the income statement columns are equal, it indicates that there is neither a net
income or a net loss.
a. Only statement 2 is wrong.
b. Only statement 3 is correct.
c. Only statement 3 is wrong.
d. All of the statements are correct.
e. None of the statements are correct.

7. If the entity has used the expense method for deferrals, what is the proforma adjusting journal
entry to be made at year end?
a. Debit Asset, Credit Expense
b. Debit Expense, Credit Asset
c. Debit Income, Credit Liability
d. Debit Liability, Credit Income

8. The following are applicable to a merchandising concern except:

a. Cost of Goods Available for Sale
b. Cost of Sales
c. Cost of Goods Manufactured
d. Purchases

9. At a given level of purchases, which of the following would cause the cost of goods sold to be
greater than the purchases?
a. A net increase in Merchandise Inventory
b. A net decrease in Merchandise Inventory
c. No net change in Merchandise Inventory
d. Cannot be determined from the information given

10. Evaluate the following statements.

Statement 1: Cost of goods sold is always presented in the nature of expense method.
Statement 2: Cost of goods manufactured is always presented in the function of expense
method.
a. Neither of the statements are correct.
b. Only statement 1 is correct.
c. Only statement 2 is correct.
d. Both statements are correct.

11. In the statement of cost of goods manufactured, which of the following effects could be a
possible outcome given a decrease in the work in process?
a. The total manufacturing cost will be greater than the total cost of goods manufactured.
b. The total manufacturing cost will be lesser than the total cost of goods manufactured.
c. No changes would occur to the total cost of goods manufactured.
d. The effect can’t be determined based on the given information.

12. The journal entry for the usage of indirect raw material used in the production is,
a. Debit Factory Overhead, Credit Work In Process Inventory
b. Debit Factory Overhead, Credit Raw Materials Inventory
c. Debit Raw Materials, Credit Factory Overhead
d. Debit Indirect Raw Material, Credit Raw Material

13. Statement 1: In situations where the net income is insufficient to cover the interest and/or
salary allowances, or the partnership incurs a loss, interest and salary allowances are normally
provided for in full and any remainder is taken as a negative amount.
Statement 2: An adequate accounting system and an accurate measurement of income are
not needed by a partnership because the profit is divided among two or more partners.

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 a. Neither of the statements are correct.
b. Only statement 1 is correct.
c. Only statement 2 is correct.
d. Both statements are correct.

14. Statement 1: For financial reporting purposes, the personal assets and debts of a partner
should be combined with the assets and debts of the business.
Statement 2: A partner’s contribution in the form of non-cash assets should be recorded at
its fair market value in the absence of an agreed value.
a. Neither of the statements are correct.
b. Only statement 1 is correct.
c. Only statement 2 is correct.
d. Both statements are correct.

15. Statement 1: A partnership begins from the moment of the execution of the contract, unless
a different date is stipulated
Statement 2: A partnership for a fixed term or a particular undertaking which is continued
after the expiration of the term or the attainment of the undertaking becomes a partnership at will.
a. Neither of the statements are correct.
b. Only statement 1 is correct.
c. Only statement 2 is correct.
d. Both statements are correct.

B. TRUE OF FALSE. Determine whether the following statements are true or false.

16. Management accounting reports need to comply with the International Financial Reporting
Standards.

17. Under the accrual basis of accounting, revenues are recognized when cash is received.

18. The conceptual framework is used in establishing general accepted accounting principles (GAAP)
in financial reporting.

19. When the balance given in the trial balance for prepayments is only to an expense account, it is
understood that the method used was the asset method.

20. A trial balance can be accurate and error-free even without any adjustments.

21. The initial entry of a deferred income under liability method has a credit to the Unearned
Income account.

22. On the year-end Statement of Financial Position, the Merchandise Inventory pertains to
merchandise unsold at the start of the accounting period.

23. In a merchandising business, net profit is equal to net sales minus cost of goods sold.

24. The invoice price is equal to list price minus trade discounts.

25. Total manufacturing costs is equal to Prime costs plus Conversion costs.

26. Ending work-in process inventory is computed by deducting cost of goods manufactured from
the total cost of goods placed in process.

27. Indirect materials are indirect costs included in manufacturing overhead.

28. Product costs are recognized as expenses when the products are sold.

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29. A corporation is an artificial being created by operation of law, having the right of succession
and the powers, attributes and properties expressly authorized by law or incident to its existence.

30. A corporation is not a separate and distinct entity from its stockholders.

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II. COMPUTATIONAL APPLICATION. Supply the answer to each question.

PROBLEM A (Trial Balance)

The manager of Two Moons 2 Co. attempted to create a trial balance. Having little experience with
bookkeeping, they committed errors during its preparation. Their attempt at the trial balance is
presented below.

Two Moons 2 Co.

Trial Balance
December 31, 2019
Debit Credit
Cruz, Capital P 1,045,350
Cruz, Drawings 325,000
Fees Earned 821,500
Rent Expense P 20,000
Utilities Expense 35,000
Salaries Expense 42,500
Cash 952,000
Accounts Receivable 56,500
Accounts Payable 105,600
Equipment 300,000
Supplies 18,500
Advances to Suppliers 90,450
Advances from Customers 102,500
Furnitures and Fixtures 235,000
Total 365,450 P 2,384,450

1. What is the correct total of the debit column?

2. How much are the total assets of the company?
3. Assuming no more adjustments are necessary, what is the balance of Cruz, Capital that should
appear in the year-end Statement of Financial Position?

PROBLEM B (Adjusting Entries)

On December 31, 2019, the company had total assets worth P2,534,000 and total liabilities worth
P1,140,300. No adjustments have yet been made regarding the following items:
• The company disclosed office supplies worth P250,000 at the year-end inventory count.
Supplies were initially recorded using the expense method.
• Out of the total advances from customers worth P532,500, 5/6 were already earned as of
year-end.
• Interest has accrued on a 3-year note received by the company at the beginning of the year
with a face value of P600,000 and an annual interest rate of 10%.
• Salaries worth P54,500 have accrued at the end of the year.
• Equipment was acquired on May 31, 2017 with an acquisition cost of P200,000. The
equipment has an estimated useful life of 5 years.

4. How much are the total adjusted assets of the company?

PROBLEM C (Adjusting Entries)

Atty. Reyes has a law firm and he lets his clients consult him on account. The transactions of the
said firm are as follows
• Started the year with P140,000 balance of Accounts Receivable
• Collections of P230,000 are made during the year
• Allowance for Doubtful Accounts had a credit balance of P10,000
As the year 2019 ends, the lawyer asked for the balances of the debts of his clients. Below are the
aging of accounts that the clients left to the lawyer, based on the estimations of professionals.
• 0-30 days, 125,000
• 31-60 days, 73,000

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 • 61-90 days, 42,000
• 90-120 days, 50,000
• More than 120 days, 20,000
It is also assumed that these said account have these certain percent of collectibility.
• 0-30 days, 99%
• 31-60 days, 92%
• 61-90 days, 86%
• 90-120 days, 80%
• More than 120 days, 50%
Additional information came to the accountant that the said accounts are to be written off
• 10% of the beginning accounts receivable balance
• 60% of the “more than 120 days” balance

5. How much was did Atty. Reyes billed as consultancy fees for the year?
6. Amortized Cost of the Accounts Receivable.

PROBLEM D (Adjusting Entries)

On August 1, 2019, Chaeyeon Company purchased 650,000 worth of equipment from Sakura
Enterprises for operational purposes. The equipment has an estimated useful life of 8 years. It is
stated that the company uses the straight-line depreciation method.

7. Assuming that Chaeyeon Company uses the Nature of Expense method, how much should be
reported as Depreciation Expense in the Statement of Financial Position on December 31, 2019?

PROBLEM E (Merchandising)
Hannah Merchandising purchased various merchandise on credit from Montana Marketing on
August 22 amounting to P200,000. Terms of the transaction are as follows: 10-10, 5/8, n/20.
Hannah returned goods worth P8,500 and received a reduction worth P1,500 in purchase due to
slight defect on goods. The purchase was paid in full amount on August 31.

8. How much is the amount that Hannah paid on August 31?

PROBLEM F (Merchandising)
Mordecai Company purchased P150,000 worth of merchandise from Rigby Company on March 13.
The transaction terms are: 5, 10, 3/10 and n/30.

9. What is the journal entry when he pays in full on March 25 using Net method?
10. What is the journal entry when he pays in full on March 19 using Gross method?

PROBLEM G (Manufacturing)
A-Wheat Company’s total manufactured loaf bread of 100,000 kg for 2018 had the following costs:

Opening Work-in-Process P132,744

Materials (85% is direct materials) 355,000
Labor (16% is indirect labor) 402,500
COO Salary 201,300
Closing Work-in-Process 175,200

Factory Overhead is 95% of labor cost excluding indirect materials and indirect labor.

11. Compute for the Cost of Goods Manufactured.

PROBLEM H (Manufacturing)
Reyes Corp. has shown the following data:

Sales P1,215,300
Income Tax 20%

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 Gross Profit 75% of sales
Operating Expenses 200,850

12. How much is the corporation’s net income for the period?
13. How much is the Cost of Goods Sold?

PROBLEM I (Manufacturing)
Manufacturing Company paid wages for factory laborers, P130,000 and P45,000 for factory
supervisor's salaries.

14. Provide account(s) to be debited and credited for the labor incurred in the production.

PROBLEM J (Manufacturing)
The incomplete Statement of Cost of Goods Manufactured of GREYSON CHANCE CO. is presented
below:

GREYSON CHANCE CO.

STATEMENT OF COST OF GOODS MANUFACTURED
For the year ended September 30, 2018
Direct Materials:
Raw Materials Inventory, Oct. 1 P?
Plus: Net purchases of Raw Materials 345,000
Raw Materials Available P?
Less: Raw Materials Inventory, Sept. 30 135,607
Raw Materials Issued to Production P 2,450,320
Direct Labor ?
Factory Overhead
Indirect Materials P 650,730
Indirect Labor 564,390
Other Factory Expenses 400,000 1,615,120
Total Manufacturing Costs P 5,544,365
Work in Process Inventory, Oct. 1 352,460
P 5,896,825
Less: Work in Process Inventory, Sept. 30 ?
Cost of Goods Manufactured P 4,689,700

COMPUTE FOR:
15. Raw Materials Inventory, Oct. 1
16. Direct Labor
17. Work in Process Inventory, Sept. 30

PROBLEM K (Partnership Formation)

Kit and Kat decided to form a partnership by combining their businesses. Their books show the
following data:
Kit Kat
Cash 72,000 60,150
Accounts Receivables 142,500 94,300
Inventory 240,000 172,000
Fixtures 330,000 31,000
Prepaid Rent 63,000 14,000
Notes Payable 336,000 81,000

It has been agreed that they would recognize the following adjustments:
a. They will recognize the uncollectible accounts of 17,200 and 35,100 respectively.

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b. Fixtures of Kat are over depreciated by 3,000.

Each partner’s share in the equity will be equal to the net assets invested.

18. What would be the adjusted capital balance of Kat?

PROBLEM L (Partnership Formation)
Yani, Lyn, and Lizel decided to form a real estate venture as a partnership. Yani invested P400,000
cash and Lyn gave an office valued at P312,000. There is a P61,000 note payable remaining on this
office to be assumed by the partnership.

Although Lizel has no tangible assets to contribute, both Yani and Lyn believed that Lizel’s expert
skills in salesmanship provides an adequate investment. The partners agree to receive an equal
capital interest in the partnership.

19. Using the bonus method, what is the total partnership capital?
20. Using the bonus method, what is the capital balance of Lyn?
21. What is the amount of bonus from Yani to Lizel?

PROBLEM M (Partnership Operations)

Herm, Marc and Chloe formed a partnership on January 1, 2019 and contributed P150,000 ;
P200,000 and P250,000 respectively.

Their Articles of Co-partnership provide the following:

For salary:
Herm – P24,000
Marc – P18,000
Chloe – P12,000

As Interest Allowance:
Interest of 12% on the average capital during 2019 of the three partners

The remainder will be divided in the ratio of 2:4:4 respectively. The operating income for the year
ended December 31, 2019 amounted to P176,000.

Herm contributed additional capital of P30,000 on July 1 and made a drawing of P10,000 on
October 1.

Marc contributed additional capital of P20,000 on August 1 and made of drawing of P10,000 on
October 1.

Chloe made a drawing of P30,000 on November 1.

22. What is the average capital of balance of Marc?

23. What would be the share of Chloe in the P176,000 operating income?

PROBLEM N (Partnership Operations)

Sid and Sally divide partnership income and losses solely on the basis of their average capital
balances. Sid had P31,000 invested during all of 2019. Sally had P22,300 invested from January 1,
2019 to August 31, and she invested another P7,500 on September 1.

24. If income was P80,000 during 2019, how much should each partner receive?

PROBLEM O (Corporation Share Issuance)

Nene Kinokuni Company shareholder’s equity during 2018 and 2019 are as follows:
2019 2018
Ordinary Share, P50 par 6,000,000 3,800,000
12% Preference Share, P150 par 3,000,000 1,500,000
Additional Paid-in Capital, Ordinary 360,000

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Additional Paid-in Capital, Preference 400,000 250,000

25. How many preference shares were issued during 2019?

26. How many ordinary shares were issued in 2019?
27. What is the total number of ordinary shares issued at December 31, 2019?
28. What is the average issue price per share of the preference shares issued in 2019?
29. What is the average issue price per share of the ordinary shares issued in 2019?
30. How much is the contributed capital of Nene Kinokuni?

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 FINANCIAL ACCOUNTING AND REPORTING
FINALS REVIEWER ANSWER KEY

THEORETICAL ANALYSIS COMPUTATIONAL APPLICATION

1. C 1. 2,074,950
2. B 2. 1,652,450
3. E 3. 1,444,350
4. C 4. 2,804,000
5. D 5. 426,000
6. A 6. 277,030
7. A 7. 0
8. C 8. 152,000
9. Accounts Payable 124,402.50
9. B Purchase Discounts Lost 3,847.50
Cash 128,250
10. Accounts Payable 128,250
10. A Cash 124,402.50
Purchase Discount 3,847.50
11. B 11. 1,097,419
12. B 12. 568,500
13. C 13. 303,825
14. Work in Process Inventory 130,000
14. C Factory Overhead 45,000
Cash 175,000
15. D 15. 2,240,927
16. FALSE 16. 1,478,925
17. FALSE 17. 1,207,125
18. FALSE 18. 258,350
19. FALSE 19. 651,000
20. FALSE 20. 217,000
21. TRUE 21. 183,000
22. FALSE 22. 205,833
23. FALSE 23. 60,760
24. TRUE 24. Sid – 44,444; Sally – 35,556
25. FALSE 25. 10,000
26. TRUE 26. 44,000
27. TRUE 27. 120,000
28. TRUE 28. 165
29. TRUE 29. 58.18
30. FALSE 30. 9,760,000

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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)
Rich Anne A. Magsombol (JPIA)
Jerald Patrick Reyes (JPIA)
Alexander Jacinto (JPIA)
Ross Benedict R. Altavas (JPIA)
Joshua M. Lopez (JPIA)
Patricia O. Santos (JPIA)
Regine B. Toquero (JPIA)
John Russel Yu (JPIA)
Franz Emmanuel D. Cacatian (JPIA)
Aira Krishten J. Catibayan (JPIA)
Laurice Lein Laurico (JPIA)
Ella Regina Francisco (JPIA)
Vincent Paul Agdoro (JPIA)

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