Part 2 PRE2

Test II Problem No.
2
You are now in the process of reviewing the audit conducted by your staff of REGAL Co. and now concentrating on
working papers where possible adjusting journal entries may be drafted to arrive at the adjusted balances as at
May 31, 2020:
The following are the working papers:
Working Paper No.1
CASH-BPI
Bank Reconciliation
May 31, 2020
Balance per bank statement P15,646,340
Add(deduct) reconciling items:
Deposit in transit (Note 1) 187,625
Outstanding checks (Note 2) (217,665)
Note charged by the bank (Note 3) 83,700
Fund transfer from UCPB (Note 4) (25,000)
Balance per general ledger P15,675,000
The top schedule for the cash account showed the following accounts with their unadjusted balances:
Cash-BPI P15,675,000
Cash-UCPB (225,000)
Cash-SBTC 375,000
Balance per balance sheet P15,825,000
Audit Notes:
1. Inclusive of a customer’s check in the amount of P37,500 dated April 25, 2019, which up to now is not yet
deposited because it has been misplaced.
2. Included two checks totaling P28,709 which were among the items counted during the cash count
conducted early morning on June 1, 2020.
3. This is the maturity value of a two-year note maturing on May 31, 2020. The note bears a 12% interest.
Interest for the year ended May 31, 2019 was properly accrued.
4. Upon cross-referencing this with the working paper showing the bank reconciliation with UCPB, whereby
the bank balance was reconciled with the general ledger balance, you verified that the P25,000 was
appropriately shown as a reconciling item to the bank balance.
Working Paper No.2

ACCOUNTS RECEIVABLE
Reconciliation Between Subsidiary Ledger and General Ledger Balances
May 31, 2020
Balance per subsidiary ledger P8,047,054
Add (deduct) reconciling items:
Write-offs (See Working Paper No. 3) (375,215)
Sales (Note 5) 122,500
Collections (Note 6) 73,690
Balance per general ledger P7,868,029
Audit Notes:
5. The goods were in transit as at May 31, 2020, terms FOB shipping point. The company recognized a gross
profit of 25% on this sale.
6. This was collected from a customer by the company’s branch on May 31, 2020 on sales made on March
25, 2020 and was remitted to the company’s head office on June 15, 2020. Collections from branches are
charged to Cash-SBTC account.
Working Paper No. 3
ALLOWANCE FOR DOUBTFUL ACCOUNTS
May 31, 2020
Balance, June 1, 2019 P815,000
Add (deduct) transactions during the year:
Write-offs of accounts aged 5 years (375,215)
Provision 217,859
Balance, May 31, 2020 P657,644
Based on the company’s past experience, an allowance should be set up based on the following rates:
Per subsidiary ledger
Aging Distribution Percentage
Current P1,737,690.00 2
1-30 1,617,340.00 5
31-60 1,437,706.50 10
61-90 1,474,450.00 15
Over 90 1,779,867.50 20
Total P8,047,054.00
Requirements
Adjusting entries (10 points)
Audited balances (10 points)
1. Compute the correct cash balance for BPI
2. Compute the correct cash balance for UCPB
3. Compute the correct cash balance to be reported on the balance sheet.
4. Compute the correct balance of Accounts Receivable.
5. Compute the correct balance of the allowance for doubtful accounts.
Test II Problem No. 3

Dream, Inc., uses a periodic inventory system and a fiscal year ending September 30. On September 30, 2019, the
company correctly reported inventory on hand costing P14,500. During the fiscal year ending September 30, 2020,
the company recorded purchases of P45,000. A physical count on September 30, 2020, revealed that goods costing
P21,000 were on hand. The following material events occurred between September 23 and October 7, 2020:
1. Goods costing P3,000 that Dream was holding as a consignee were included in the physical count.
2. An invoice for goods costing P4,600 was received and entered as a credit purchased on September
29. The goods arrived on October 2. The supplier shipped the goods FOB destination on September
27.
3. An invoice for goods costing P4,100 was received and entered as a credit purchase on October 3.
The goods arrived on that date and were in satisfactory condition. The invoice indicates that the
supplier shipped the goods FOB shipping point on September 29.
4. Goods that Dream specially purchased from an overseas supplier for ultimate sale to Digitel
Enterprises, Inc., were included in the physical count. A contract between Dream and Digitel
pertaining to the goods states that “title passes when buyer approves the goods”. A representative
from Digitel Enterprises inspected and approved the goods in Dream’s warehouse on September
28. Dream shipped the goods and recorded a sale on October 4. The goods cost P2,500 and were
sold on credit for P3,600.
5. Goods costing P800 and housed in a special storeroom were inadvertently overlooked when the
physical count was taken.
6. An invoice for goods costing P3,100 was received and entered as a credit purchase on September
28. The supplier shipped the goods FOB shipping point on September 26. The receiving report
indicates that Dream received the goods on October 1.
Requirement: Prepare adjusting entries and working paper computing the adjusted balance of inventory as of
September 30, 2020 and purchases and cost of goods sold for the year ended September 30, 2020 (15 points)

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Test II Problem No.

Working Paper No.2

Test II Problem No. 3

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