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DIAGNOSTIC TEST (Chapters 1-21)

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COMPUTATIONAL
INSTRUCTIONS:
Compute for what is required.
Properly identify each item by writing the company name used in each question.
Show your solutions in good form; no/wrong solution means wrong answer.
In writing your answers, follow this format:
1
12
123
1,234
12,345
123,456
Do not put peso sign and there should be no space in between the numbers.

The controller of STAR Company, in an attempt to determine the amount to

be reported on its December 31, 2014 statement of financial position as
cash and cash equivalents, has identified the following items; •Correct cash
balance in BPI, restricted for payroll payment, P350, 000 •Special account in
BDO used as a bond sinking fund, P350, 000 •Postal money orders, P90,
000 •Treasury warrants, P100, 000 •Check from a customer on hand dated
January 2, 2013; P180, 000 •Traveler’s check on hand, P200, 000 •Utility
deposit receipt (made to Electron Company), P250, 000 •Checks to
suppliers on hand (dated December 29, 2012), P45, 000. The amount to be
reported by STAR Company as cash and cash equivalents is:

1 point

On January 1, 2020, Grateful Company purchased bonds with face amount

of P4,000,000 for P4,206,000. The business model of the entity in managing
the financial asset is to collect contractual cash flows that are solely
payment of principal and interest and also to sell the bonds in the open
market. The entity has not elected the fair value option of measuring
financial asset. The bonds mature on December 31, 2022 and pay 10%
interest annually on December 31 each year with 8% effective yield. The
bonds are quoted at 95 on December 31, 2020 and 90 on December 31,
2021. What amount of unrealized loss should be reported as component
other comprehensive income in 2020?

1 point

Your answer

Use this information to answer the following four questions. Courage

Company acquired P6,000,000 of Comfort 12% bonds on May 1, 2020 at 94
plus accrued interest to be held as financial asset at amortized cost. The
bonds pay interest semiannually on February 1 and August 1, and mature on
February 1, 2024. The fiscal period for Courage Company is the calendar
period. Amortization is done following the straight line method. On May 1,
2022, Courage Company sold all the bonds at 105 plus accrued interest. On
the date of acquisition, how much should be debited to trading securities?

1 point

Your answer

What is the realized gain or loss on July 1, 2003?

1 point
The balance sheet at December 31, 2006 of Mall Company showed a cash
balance of P91,750. An examination of the books disclosed the following:
Cash sales of P12,000 from January 1 to 7 were pre-dated as of December
28, 31, 2006 and charged to the cash account. Customer’s check totaling
P4,500 deposited with and returned by the bank “NSF” on December 27,
2006 were not recorded in the books. Checks of P5,600 in payment of
liabilities were prepared before December 31, 2006 and recorded in the
books, but withheld by the treasurer. Post-dated checks totaling P3,400 are
being held by the cashier as part of cash. The company’s experience shows
that post-dated checks are eventually realized. The cash account includes
P20,000 being reversed for the purchased of a mini-computer which will be
delivered soon. Personal checks officers, P2,700 were “redeemed” on
December 31, 2006, but returned to cashier on January 2, 2007. How much
is the cash balance that should be shown in the December 31, 2006?

1 point
On January 1, 2021, the stock inventory of Ron Company was P1,000,000
at retail and P560,000 at cost. During the current year, the entity registered
the following purchases: Cost - 4000000; Retail Price - 6200000; Original
Mark-up - 2200000. The total net sales was P5400000. The following
reductions were made in the retail price: To meet price competition - 50,000;
To dispose of overstock - 30000; Miscellaneous reductions - 120000. During
the current yeas, the selling price of a certain inventory increased from 200
to 300. The additional markup is applied to 5000 items but was later
cancelled on the remaining 1000 items. What is the inventory on December
31, 2021 using the average cost retail method?

1 point

Your client, Mills Corporation, requests your assistance in determining the

amount of loss and in filing in insurance claim in connection with a fire on
June 15, 2006 that destroyed some of the company’s inventory and
accounting records. You were able to obtain the following information from
available records. The last physical inventory was taken on December 31,
2005. At the time, total (at cost) amounted to P210,789.80. Accounts
payable were P110,106.42 on December 31, 2005 and P126,945.37 at the
time the fire occurred. Payments to vendors from December 31, 2005 to the
date of fire totaled P641,871.56. All sales are on account and account
receivable were P135,009.18 at December 31, 2005 to the date of fire
amounted to P876,195.50. Almost all the merchandising items are sold
approximately 30% in excess of cost. As at June 15, 2006, the total cost of
inventory items not destroyed by the fire amounted to P144,882.33. How
much is the loss incurred by the company as a result of the fire? (Round
your answer to the nearest two decimal places.)

1 point

Your answer

On December 31, 2019, the “Receivables” account of Con Company shows

an amortized cost of P1,950,000. Subsidiary details show the following:
Trade accounts receivable P775,000; Trade notes receivable,
P100,000;installments receivables, normally due in one year to two years,
P300,000; Customers’ accounts reporting credit balances arising from sales
returns, P30,000; Advance payments for purchase of merchandise,P150,00;
Customers’ accounts reporting credit balances arising from advance
payments, P20,000; Cash advances to subsidiary, P500,000; Claims from
insurance company, P14,000; Subscription receivable due in 60 days,
P310,000; Accrued interest receivable, P10,000. How much should be
presented as “trade and other receivables” under current assets?

1 point

Your answer

On January 1, 2009, Katherine Company purchased 20% of the outstanding

ordinary share capital of David Company for P4,000,000, of which
P1,000,000 was paid in cash and P3,000,000 payable with 12% annual
interest on December 31, 2010. Katherine also paid P500,000 to a business
broker who helped find a suitable business and negotiated to purchase. At
the time of the acquisition, the fair value of David’s identifiable assets and
liabilities were equal to their carrying value except for an office building
which has a fair value in excess of book value of P2,000,000 and an
estimated life of 4 years. David’s shareholder’s equity on January 1, 2009
was P13,000,000.During 2009, David reported net income of P6,000,000
and paid dividends of P4,000,000. What amount should Katherine Company
report as investment in associate on December 31, 2009?

1 point

Your answer

On January 1, 2009, Amanda Company received from a customer an 8-

month, 6,000,000 note bearing an annual interest rate of 10%. The principal
and the interest are payable on September 1, 2009. To obtain cash quickly,
Amanda discounted the note with East-West Bank on March 1, 2009. The
bank charged a discount rate of 12%. What is the loss on note receivable
discounting to be recognized by Amanda?
1 point

Your answer

On November 1, 2020, Vibes Company invested P600000 in equity

securities representing 20 000 ordinary shares of Carbon Company. The
investment was classified as equity security to profit or loss since the
company intends to sell the security for a short-term profit. On December 31,
2020, this investment has a market value of P580 000. On January 15,
2015, Ribbon Company sold the investment for P630 000. What amount of
realized gain should Ribbon Company recognize on the disposal of the
trading security?

1 point

Your answer

Light Company accepted a P200,000, 90-day, 12% interest bearing note

dated November 15, 2015 from a customer. On December 15, 2015, Light
discounted the note at Finance Company at 15% discount rate. Light
Company informed the maker of the note regarding the discounting
arrangement. On maturity date, the maker of the note did not pay the note
and as a result Finance Company charged Light Company for the total
amount due plus P2,000 protest fee. What amount of interest income should
Light Company recognize related to the notes receivable in its December 31,
2015 statement of financial position?

1 point

Your answer

Dancer Company purchased 40 000 shares of Lancer Corporation's newly

issued 6% cumulative preference shares, P50 par for P3 040 000 on May 8,
2020. Each share carried one detachable share warrants entitling the holder
to acquire at P60 one share of Lancer ordinary shares. On May 8, 2020, the
market price of the preference shares ex-warrants was P69 per share and
the market price of the share warrant was P6 per warrant. On December 31,
2020, Dancer sold stock warrants for P295 000. What is the gain on sale of
warrant?

1 point

Lewis Company’s usual sales terms are net sixty days, FOB shipping point.
Sales, net of returns and allowances; totalled P2,300,000 for the year ended
Dec. 31, 2014, before year-end adjustments. Additional data are follows: (1)
On Dec. 27, 2014, Lewis authorized a customer to return, for full credit,
goods shipped and billed at P50,000 on Dec. 15, 2014. The returned goods
were received by Lewis on Jan. 4, 2015 and a P50,000 credit memo was
issued and recorded on the same date. (2) Goods with an invoice amount of
P80,000 were billed and recorded on Jan. 3, 2015. The goods were shipped
on Dec. 30, 2014. (3) Goods with an invoice amount of P100,000 were billed
and recorded on Dec. 30, 2014. The goods were shipped on Jan. 3, 2015.
Lewis’ adjusted net sales for 2014 should be:

1 point

Your answer

The inventory control account balance of Luca Company at December 31,

2009 was P4,000,000 using the perpetual inventory system. A physical
count conducted on that day found inventory on hand worth of P3,400,000.
Net realizable value for each inventory item held for sale exceeded cost. An
investigation of the discrepancy revealed the following: (a.) Goods costing
P300,000 were sold on credit to Fernando Company for P500,000 on
December 28, 2009 FOB destination. The goods were still in transit on
December 31, 2009. The sales invoice was raised and processed on
December 31, 2009. (b.) Goods costing P450,000 were purchased on credit
FOB destination from Kimi Company on December 29, 2009. The goods
were received on December 30, 2009 and included in the physical count.
The purchase invoice was received on January 2, 2010. (c.) Goods costing
P150,000 were purchased on credit from Alistair Company on December 27,
2009 FOB shipping point. The goods were shipped on December 28, 2009
but, as they had not arrived by December 31, 2009, were not included in the
physical count. The purchase invoice was received and processed on
December 31, 2009. (d.) Goods worth P200,000 held on consignment from
Jensen Company had been included in the physical count. (e.) On
December 31, 2009, Luca Company sold goods costing P750,000 on credit
FOB shipping point to Ruben Company for P1,000,000. The goods were
dispatched from the warehouse on December 31, 2009 but the sales invoice
had not been raised at that date. (f.) Damaged inventory items valued
P350,000 were discovered during the physical count. These items were still
recorded as of December 31, 2009 but were omitted from the physical count
records pending their writeoff. What is Luca Company’s adjusted inventory
amount?

1 point

Your answer

How much should be reported as allowance for doubtful accounts on

December 31, 2009?

1 point
Your answer

The draft financial statements of Clarity Company, for the year ended
December 31, 2006 are currently under consideration by the directors. The
net asset for the year is shown as P3,500,000. Since December 31, 2006,
the following events have occurred, but have not been reflected in any way
in the draft financial statements to that date. ITEM 1 – A substantial quantity
of slow-moving inventory was sold for P320,000. The inventory had cost
P600,000 and had been valued for the accounts at December 31, 2006 at its
estimated net realizable value of P400,000 ITEM 2 – A trade receivable paid
the amount owing of P130,000 in full. At December 31, 2006, there were
doubts as to whether it would be paid, and a specific provision for the full
amount had been made in the accounts. What is the adjusted amount of net
asset should Clarity Company report in its December 31, 2006 balance
sheet?

1 point
Brady Corporation values its inventory at the lower of cost or net realizable
value as required by IFRS. Brady has the ff. information regarding its
inventory: Historical cost- P1,000, Estimated selling price - 900, Estimated
costs to complete and sell-50, Replacement cost - 800. What is the amount
for inventory that Brady should report on the statement of financial position
under the lower of cost or net realizable value method?

1 point

Your answer

The records of Barney’s Dept. Store report the ff. data for the month of
January 2014: Sales -P 7,100,000, Sales allowances - 100,000, Sales
returns- 500,000, Employee discounts - 200,000, Theft and other losses -
100,000, Initial markup on purchases - 2,900,000, Additional markup -
250,000, Mark up cancellation - 100,000, Mark down - 600,000, Mark down
cancellation - 100,000, Freight on purchases - 100,000, Purchase at cost -
4,500,000, Purchase returns at cost - 240,000, Purchase returns at sales
price - 350,000, Beginning inventory at cost - 440,000, Beginning inventory
at sales price -800,000. Using the average retail inventory method, Barney’s
ending inventory is

1 point

Your answer

In December 2002, Union Company exchanged an old packing machine,

which cost P120,000 and was 50% depreciated, for a dissimilar used
machine and paid a cash difference of P16,000. The market value of the old
packaging machine was determined to be P70,000. For the year ended
December 31, 2002, what amount of gain should Union recognize on this
exchange?

1 point
On Jan.1, 2014, Card Corp, signed a three-year non-cancellable purchase
contract, which allows Card to purchase up to 500,000 units of a computer
part annually from Hart Supply Co. at P.10 per unit and guarantees a
minimum annual purchase of 100,000 units. During 2014, the part
unexpectedly became obsolete. Card had 250,000 units of his inventory at
Dec. 31, 2014, and believes these parts can be sold as scrap for P.02 per
unit. What amount of probable loss from the purchase commitment should
Card report in 2011 income statement?

1 point

Your answer

On September 1, 2020, Tender Company purchased 30% of the outstanding

ordinary shares of Care Corporation for P3 000 000 when the book value of
the net assets of Care Corporation was P 9 000 000. The fair values of the
assets are equal to their carrying values except for a land which was
undervalued by P1 000 000. Care reported net earnings throughout the year
in the amount of P2 400 000 and paid a total cash dividends of P1 000 000.
What is the maximum amount of income Tender Company could include in
its 2020 profit or loss as "income from investment"?

1 point

Your answer

Kit Company acquired 4 000 shares of Keng Corporation ordinary shares on

November 2, 2020 at a cost of P440 000. Keng Corporation designated the
investment at fair value to other comprehensive income. On January 2,
2021, Keng distributed a 10% ordinary share dividend. On November 30, Kit
Company received a cash dividend of P10 per share. On December 31,
2021, Keng Company shares are selling at P110 per share. If the shares are
to be sold, Kit Company will have to incur P5 000 transaction cost. On
January 31, 2022, Kit sold 2 400 shares of its Keng shares for P276 000 and
incurred transaction cost of P3 000. For the year ended December 31, 2021,
what amount of dividend income should the company recognize?
1 point

Your answer

What is the correct amount of petty cash on December 31, 2014?

1 point

On July 1, 2002, Roger Co. paid P1,198,000 for 10% 20-year bonds with a
face amount of P1,000,000. Interest is paid on December 31 and June 30.
The bonds were purchased to yield 8%. Roger uses the effective interest
method to recognize interest income from investment. What should be
reported as carrying amount of the bonds in Roger’s December 31, 2002
balance sheet?

1 point
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