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1. The credit total of a trial balance exceeds the debit total by ₱700. In investigating the cause of the difference, the following
errors were determined:
(a) A credit to accounts receivable of ₱660 was not posted;
(b) A ₱6,000 debit to be made to the Purchases account was debited to Accounts payable instead;
(c) A ₱3,600 credit to be made to the Sales account was credited to the Accounts receivable account instead;
(d) The Interest payable account balance of ₱5,040 was included in the trial balance as ₱6,400.

The reconciled balance from the given information is

Trial balance
Dr. Cr.
700 Excess of credits over debits

(a) credit to AR not posted (660)

(b) debit to purchases not made 6,000 6,000 (b) erroneous debit to accounts payable
(c) erroneous credit to accounts
receivable 3,600 3,600 (c) credit to sales unrecorded
(d) overstatement of interest payable (6,400 -
(1,360) 5,040)
Totals 8,940 8,940

2. The inexperienced accountant of Raymel Co. prepared the following closing entry on December 31, 20x1:
Dec. 31, Sales 1,800,000
20x1 Interest income 40,000
Unrealized gain – OCI 20,000
Accrued interest income 32,000
Dividend income 16,000
Cost of goods sold 680,000
Prepaid insurance 18,000
Dividends 280,000
Accrued interest 70,000
expense 50,000
Finance cost 60,000
Depreciation expense 750,000
Income summary

Dec. 31, Income summary 750,000

20x1 Retained earnings 750,000

How much is the correct amount of “Income summary” to be closed to retained earnings?

Solution:
Dec. 31, 20x1 Sales 1,800,000
Interest income 40,000
Dividend income 16,000
Cost of goods sold 680,000
Finance cost 50,000
Depreciation expense 60,000
Income summary 1,066,000

Dec. 31, 20x1 Income summary 1,066,000

Retained earnings 1,066,000

3. Evardone Co. reported the following information at the current year-end:

 Investment securities of P1,000,000. These securities are share investments in entities that are traded in the
Philippine Stock Exchange. As a result, the shares are very actively traded in the market.
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 Investment securities of P2,000,000. These securities are government treasury bills. The treasury bills have a 10-
year term and purchased on December 31 at which time they had two months to go until they mature.
 Cash of P3,500,000 in the form of coin, currency, saving account and checking account.
 Investment securities of P1,500,000. These securities are commercial papers. The term of the papers is nine months,
and they were purchased on December 31 at which time they had three months to go until they mature.
What total amount should be reported as cash and cash equivalents at the current year-end?

Solution:
Government treasury bills 2,000,000
Cash 3,500,000
Commercial papers 1,500,000
Total 7,000,000

4. On December 31, 2023, Waray Co. had the following cash balances:
Cash in bank 2,050,000
Petty cash fund (all funds were reimbursed on 12/31/2023) 75,000
Time deposit (due February 1, 2024) 315,000
Cash in bank included P600,000 of compensating balance against short-term borrowing arrangement on December 31, 2023.
The compensating balance is legally restricted as to withdrawal. On December 31, 2023, what total amount should be
reported as cash and cash equivalents?

Solution:
Cash in bank (2,050,000 – 600,000) 1,450,000
Petty cash fund 75,000
Time deposit 315,000
Total 1,840,000

5. Roque Co. reported the checkbook balance on December 31, 2023 at P5,000,000. In addition, the entity held the following
items on same date:
Check payable to Roque, dated January 2, 2024 in payment of a sale made in December 2023, not included
in December 31 checkbook balance 1,500,000
Check payable to Roque, deposited December 15 and included in December 31 checkbook balance, but
returned by bank on December 30 stamped “NSF”. The check was redeposited on January 2, 2024 and
cleared on January 9, 2024 900,000
Check drawn on Roque’s account, payable to a vendor, dated and recorded in Roque’s books on December
31, 2023 but not mailed until January 10, 2024 400,000
What amount should be reported as “cash” on December 31, 2023?

Solution:
Checkbook balance 5,000,000
NSF (900,000)
Undelivered company check 300,000
Adjusted cash balance 4,400,000

6. Davao Co. reported checkbook balance on December 31, 2023 at P4,500,000. Data about certain cash items follow:
 A customer check amounting to P200,000 dated January 2, 2024 was included in the December 31, 2023 checkbook
balance.
 Another customer check for P500,000 deposited on December 22, 2023 was included in the checkbook balance but
returned by the bank for insufficiency of fund. This check was redeposited on December 26, 2023 and cleared two
days later.
 A P500,000 check payable to supplier and recorded on December 30, 2023 was mailed on January 16, 2024.
 A petty cash of P50,000 with the following summary on December 31, 2023:
Coins and currencies 6,000
Petty cash vouchers 42,000
Return value of 20 cases of soft drinks 3,000
 A check of P42,000 was drawn on December 31, 2023 payable to Petty Cash.
What amount should be reported as “cash” on December 31, 2023?

Solution:
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Checkbook balance 4,500,000

Postdated customer check (200,000)
Undelivered check payable to supplier 500,000
Adjusted cash in bank 4,800,000
Petty cash:
Coins and currencies 6,000
Replenishment check 42,000 48,000
Total cash 4,848,000

7. Palawan Co.’s checkbook balance on December 31, 2023, was P160,000. On the same date, it held the following items in its
safe:
a) A P5,000 check payable to Palawan, dated January 2, 2024, was not included in the December 31 checkbook
balance.
b) A P3,500 check payable to Palawan which was deposited December 19 and included in the December 31 checkbook
balance, was returned by the bank on December 30 marked NSF. The check was re-deposited on January 2, 2024,
and cleared January 9.
c) A P25,000 check payable to a supplier and drawn on Palawan’s account, was dated and recorded on December 31,
but was not mailed until January 19, 2024
Compute the cash to be reported in its December 31, 2023, balance sheet.

Solution:
Balance per book 160,000
Undelivered check 25,000
NSF check (3,500)
Correct cash balance 181,500

8. Wesleyan Co. reported a total cash and cash equivalents of P6,325,000 on December 31, 2023, which includes the following
information:
a. Two certificates of deposits, each totaling P500,000. These certificates of deposit have a maturity of 120 days.
b. A check that is dated January 12, 2024 in the amount of P125,000.
c. A commercial paper of P2,100,000 which is due in 120 days.
d. Currency and coins on hand amounted to P7,700.
The company was agreed to maintain a cash balance of P500,000 in one of its banks at all times and it is not available for
withdrawal and to ensure future credit availability (this amount was included in the above balance.) Compute the cash and
cash equivalents to be reported in its December 31, 2023, balance sheet.

Solution:
Balance reported 6,325,000
Certificate of deposit (500,000 x 2) (1,000,000)
Check dated January 12, 2024 – postdated check (125,000)
Maintaining balance (500,000)
Commercial paper (2,100,000)
Correct cash and cash equivalents 2,600,000

9. Estonia Co. provided the following information about the composition of its cash on December 31, 2023:
 Commercial savings account of P600,000 and a commercial checking account balance of P900,000 are held at BPI.
 Money market fund account held by Citibank that permits Estonia to write checks in this balance, P5,000,000.
 Travel advances of P180,000 for executive travel for the first quarter of next year (employee to pay through salary
deduction)
 A separate cash fund in the amount of P1,500,000 is restricted for the retirement of long-term assets.
 Petty cash fund, P10,000.

Compute the correct cash and cash equivalents should Estonia report in its December 31,2023 statement of financial position.

Solution:
Commercial savings account 600,000
Commercial checking account 900,000
Money market fund account 5,000,000
Petty cash fund 10,000
Correct cash and cash equivalents 6,510,000
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10. In preparing the bank reconciliation on December 31, 2023, Baldo Co. provided the following data:
Balance per bank statement 4,000,000
Deposit in transit 678,000
Amount erroneously credited by bank to Baldo’s account 55,000
Bank service charge for December 5,000
Outstanding checks 700,000
What is the adjusted cash in bank on December 31, 2023?

Solution:
Balance per bank statement 4,000,000
Deposit in transit 678,000
Amount erroneously credited by bank to Baldo’s account (55,000)
Outstanding checks (700,000)
Adjusted bank balance 3,923,000

11. Homez Co. provided the following data for the purpose of reconciling the cash balance per book with the balance per bank
statement on December 31, 2023:
Balance per bank statement 2,000,000
Outstanding checks (including certified check of P120,000) 500,000
Deposit in transit 275,000
December NSF checks (of which P43,000 had been redeposited and cleared by 12/27) 150,000
Erroneous credit to Homez, representing proceeds of loan granted to another company 300,000
Proceeds of note collected by bank for Homez, net of service charge of P20,000 750,000
What amount should be reported as cash in bank on December 31, 2023?

Solution:
Balance per bank 2,000,000
Deposit in transit 275,000
Outstanding checks (500,000 -120,000) (380,000)
Erroneous bank credit (300,000)
Adjusted bank balance 1,595,000

12. Arrieta Co. kept all cash in a checking account. An examination of the accounting records and bank statement for the month
ended June 30, 2023 revealed the following information:
 The cash balance per book on June 30 is P8,600,000.
 A deposit of P1,000,000 that was placed in the bank’s night depositary on June 30 does not appear on the bank
statement.
 The bank statement shows June 30, the bank collected not for Arrieta and credited the proceeds of P955,000 to the
entity’s account.
 Checks outstanding on June 30 amount to P300,000.
 Arrieta discovered that a check written in June for P200,000 in payment of an account payable, had been recorded in
the entity’s records as P21,000.
 Included with the June bank statement was NSF check for P250,000 that Arrieta had received from a customer on
June 27.
 The bank statement shows a P19,500 service charge for June.
What amount should be reported as cash in bank on June 30, 2023?

Solution:
Balance per book 8,600,000
Note collected by bank 955,000
Book error (200,000 – 21,000) (179,000)
NSF (250,000)
Service charge (19,500)
Adjusted book balance 9,106,500
13. On March 31, 2023, Angora Inc. received the bank statement. However, the closing balance of the account was unreadable.
Attempts to contact the bank after hours did not secure the desired information. The following data are available in preparing a
bank reconciliation:
Check issued by Angola Co. charge to Angora Inc’s account 20,000
Deposit of February 28 placed in night depositary 85,000
Outstanding checks 205,000
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Other bank service charges 7,000

Bank service charge on NSF check 4,000
NSF check of customer 150,000
Interest earned on note 10,000
Note collected by bank 190,000
February 28 book balance 1,500,000
What is the cash balance per bank statement?

Solution:
Book Bank
Unadjusted balance 1,500,000 1,639,000 SQUEEZE
Note collected 190,000
DIT 85,000
Interest earned on note 10,000
Other bank service charges (7,000)
Bank service charge on NSF check (4,000)
NSF check of customer (150,000)
Bank error 20,000
Outstanding checks (205,000)
Adjusted balance 1,539,000 1,539,000
14. Aliwalas Co. provided the following information on December 31, 2023:
Balance per book 6,867,000
Balance per bank statement 6,532,000
Deposit in bank closed by BSP 1,500,000
Deposit in transit 1,324,000
Outstanding checks 986,000
Currency and coins counted 950,000
Petty cash fund (of which P10,000 is in the form of paid vouchers) 50,000
Bank service charge not yet taken up in the book 6,000
Bond sinking fund 1,000,000
Receivables from employees 70,000
Error in recording a check in the book. The correct amount as paid by the bank is P87,000 instead of
P78,000 as recorded in the book, or a difference of 9,000
What amount should be reported as cash in the statement of financial position on December 31, 2023?

Solution:
Book Bank
Unadjusted balance 6,867,000 6,532,000
BSC (6,000)
Book error 9,000
DIT 1,324,000
OC (986,000)
Adjusted balance 6,870,000 6,870,000
Currency and coins 950,000
Petty cash fund (50,000 – 10,000) 40,000
Total cash 7,860,000

Use the following information for the next 2 questions:

15. Reynaldo Co. had the following bank reconciliation at March 31, 2023:
Balance per bank statement, March 31, 2023 46,500
Deposit in transit 10,300
Outstanding check (12,600)
Balance per book, March 31, 2023 44,200
Data per bank statement for the month of April 2023 follow:
Deposits 58,400
Disbursements 49,700
All reconciliation items at March 31, 2023 cleared through the bank in April. Outstanding checks at April 30, 2023 totaled
P7,500. What is the amount of cash disbursements per book?

Solution:
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Bank Book
Disbursements during April 49,700 44,600
OC – 3/31 (12,600)
OC – 4/30 7,500
Cash disbursement – April 30 44,600 44,600

16. What is the cash balance per book on April 30, 2023?

Solution:
Balance per books, 3/31/2023 44,200
Book receipts (Note 1) 48,100
Book disbursements (Note 2) (44,600)
Balance per books, 4/30/2023 47,700

Note 1:
Bank receipts, April 58,400
DIT, March (10,300)
Book receipts, April 48,100

Note 2:
Bank disbursements, April 49,700
OC, April 7,500
OC, March (12,600)
Book disbursements, April 44,600

Use the following information for the next 2 questions:

17. In reconciling the cash in bank of Imago Co. with the bank statement balance for the month of November 2023, the following
data are summarized:
Book debits for November, including October CM for note collected, P60,000 800,000
Book credits for November, including NSF of P20,000 and service charge of P800 for October 620,000
Bank credits for November including CM for November for bank loan of P100,000 and October deposit in
transit for P80,000 700,000
Bank debits for November including October outstanding checks of P170,800 and November service charge of
P200 600,000
What is the amount of outstanding checks for November?

Solution:
Book credits 620,000
Less:
Charges not representing Imago Co. – issued checks:
NSF 20,000
Service charge 800 (20,800)
Total checks issued during the month 599,200
Less:
Checks paid by the bank:
Bank debits 600,000
Less: Bank charges (NSF) (200)
Total checks paid 599,800
Outstanding checks for October (170,800) (429,000)
Outstanding checks for November 170,200

18. How much is the deposit in transit for the month of November?

Solution:
Book debits (receipts) 800,000
Less: Credit memo, October (60,000)
Deposit, November 740,000
Less: Deposit, November which was received by bank
Bank credits (receipts) 700,000
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Less:
DIT, October 80,000
CM for November 100,000 (180,000) (520,000)
DIT, November 220,000
19. Malinao Co. provided some information on their financial records on December 31, 2023:
Accounts receivable, January 1 1,920,000
Collections of accounts receivable 6,240,000
Bad debts 200,000
Inventory, January 1 2,880,000
Inventory, December 31 2,640,000
Accounts payable, January 1 1,000,000
Accounts payable, December 31 1,500,000
Cash sales 1,200,000
Purchases 4,800,000
Gross profit on sales 2,160,000
What is the ending balance of accounts receivable on December 31, 2023?

Solution:
Inventory, January 1 2,880,000
Purchases 4,800,000
TGAS 7,680,000
Inventory, December 31 (2,640,000)
Cost of sales 5,040,000
Gross profit 2,160,000
Total sales 7,200,000
Cash sales (1,200,000)
Sales on account 6,000,000
Accounts receivable, January 1 1,920,000
Collections of accounts receivable (6,240,000)
Accounts receivable, December 31 1,680,000
Use the following data for the next 4 questions:
20. Lobo Co.,a manufacturer of wide range of inventory items, reported the following amounts as of December 31, 2023:
Subscription receivable due in 60 days 600,000
Accounts receivable – customers 5,000,000
Accounts receivable – affiliates 1,000,000
Advances to employees 400,000
Advances to executives 800,000
Accounts receivable – employees 300,000
Accounts receivable - executives 200,000
Accounts receivable which postdated checks were received 150,000
Advances to subsidiary 2,000,000
Notes receivable arising from selling inventory 550,000
Notes receivable arising from lending funds (due in 2026) 1,200,000
Notes receivable arising from lending funds (due in 2024) 2,400,000
Interest receivable 90,000
Advances to suppliers 420,000
Debit balances in suppliers’ accounts 50,000
Accounts receivable – installment basis 900,000
Compute the total trade receivables.
21. Compute the total nontrade receivables.
22. Compute the total receivables to be classified as current.
23. Compute the total receivables to be classified as non-current.

Solution:
Trade Nontrade Current Noncurrent
Subscription receivable 600,000 600,000
Accounts receivable – customers 5,000,000 5,000,000
Accounts receivable – affiliates 1,000,000 1,000,000
Advances to employees 400,000 400,000
Advances to executives 800,000 800,000
Accounts receivable – employees 300,000 300,000
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Accounts receivable - executives 200,000 200,000

Postdated checks 150,000 150,000
Advances to subsidiary 2,000,000 2,000,000
NR arising from selling inventory 550,000 550,000
NR arising from lending funds (due in 2026) 1,200,000 1,200,000
NR arising from lending funds (due in 2024) 2,400,000 2,400,000
Interest receivable 90,000 90,000
Advances to suppliers 420,000 420,000
Debit balances in suppliers’ accounts 50,000 50,000
Accounts receivable – installment basis 90,000 900,000
8,100,000 7,960,000 12,860,000 3,200,000

24. On December 31, 2023, the “Receivables” account of Constantino Co. 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 on (1) year to
(2) years, P300,000; Customer’s accounts reporting credit balances arising from sales returns, P30,000; Advance payments
for purchase of merchandise, P150,000; Customers; accounts reporting credit balances arising from advance payments,
P20,000; Cash advances to subsidiary, P400,000; Claims from insurance company; P15,000; Subscription receivable due in
60 days, P300,000; Accrued interest receivable, P10,000. Compute the amount should be presented as “trade and other
receivables” under current assets.

Solution:
Trade AR 775,000
Trade NR 100,000
Installment receivables 300,000
Advance payments 150,000
Claims receivables 15,000
Subscription receivable 300,000
Accrued interest receivable 10,000
Trade and other receivables 1,650,000

Use the following information for the next 4 questions:

25. On January 18, 2023, Pingkian Co. sold goods on account to Odesa Inc. with a list price of P300,000 with a term of 10, 15,
2/10 n/30. The freight cost of the transaction amounted to P10,000. The account was paid on January 25, 2023. How much net
cash did Pingkian received from Odesa Inc. on January 25, 2023, assuming the freight terms is FOB Shipping Point, freight
collect.

Solution:
Pingkian (Seller) Odesa (Buyer)
Invoice price (300,000 x 90% x 85%) = 229,500
1/18: 1/18:
No entry Dr. Purchases 229,500
Cr. AP 229,500

Dr. Freight-in 10,000

Cr. Cash 10,000
1/25: 1/25:
Dr. Cash (229,500 x 98%) 224,910
Dr. Sales discount (229,500 x 2%) 4,590
Cr. AR 229,500

26. How much net cash did Pingkian received from Odesa Inc. on January 25, 2023, assuming the freight terms is FOB Shipping
Point, freight prepaid.

Solution:
Pingkian (Seller) Odesa (Buyer)
Invoice price (300,000 x 90% x 85%) = 229,500
1/18: 1/18:
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Dr. AR 10,000 Dr. Freight-in 10,000

Cr. Cash 10,000 Cr. Cash 10,000
1/25: 1/25:
Dr. Cash (229,500 x 98% + 10,000) 234,910
Dr. Sales discount (229,500 x 2%) 4,590
Cr. AR 229,500

27. How much net cash did Pingkian received from Odesa Inc. on January 25, 2023, assuming the freight terms is FOB
Destination, freight prepaid.

Solution:
Pingkian (Seller) Odesa (Buyer)
Invoice price (300,000 x 90% x 85%) = 229,500
1/18: 1/18:
Dr. Freight-out 10,000
Cr. Cash 10,000
1/25: 1/25:
Dr. Cash (229,500 x 98%) 224,910
Dr. Sales discount (229,500 x 2%) 4,590
Cr. AR 229,500

28. How much net cash did Pingkian received from Odesa Inc. on January 25, 2023, assuming the freight terms is FOB
Destination, freight collect.

Solution:
Pingkian (Seller) Odesa (Buyer)
Invoice price (300,000 x 90% x 85%) = 229,500
1/18: 1/18:
Dr. Freight-out 10,000 Dr. AP 10,000
Cr. Allowance for freight charges 10,000 Cr. Cash 10,000
1/25: 1/25:
Dr. Cash (229,500 x 98% - 10,000) 214,910
Dr. Sales discount (229,500 x 2%) 4,590
Dr. Allowance for freight charges 10,000
Cr. AR 229,500

OR

1/18: 1/18:
Dr. Freight-out 10,000 Dr. AP 10,000
Cr. AR 10,000 Cr. Cash 10,000
1/25: 1/25:
Dr. Cash (229,500 x 98% - 10,000) 214,910
Dr. Sales discount (229,500 x 2%) 4,590
Cr. AR 219,500

29. Roxas Co’s unadjusted trial balance at December 31 included the following accounts:
Debit Credit
Accounts receivable 1,500,000
Allowance for doubtful accounts 40,000
Sales 10,000,000
Sales return and allowances 700,000
The following analysis pertains to the account receivable reported in the trial balance:
Classification Balance Percentage collectible
0–1-month category 500,000 98%
1-6 months category 800,000 95%
Over 6 months 200,000 80%
It estimates bad debts expense to be 2% of net sales. Compute the bad debts expense.
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Solution:
Net sales (10,000 – 700) 9,300,000
X % uncollectible 2%
BDE 186,000

30. It estimates bad debts expense to be 2% of net sales. Compute for the allowance for doubtful account end of the year.

Solution:
AFBD, beg 40,000
BDE 186,000
AFBD, end 226,000

31. It estimates bad debts expense to be 5% of accounts receivable. Compute for the allowance for doubtful account end of the
year.

Solution:
AR, end 1,500,000
% uncollectible 5%
AFBD, end 75,000

32. It estimates bad debts expense to be 5% of accounts receivable. Compute the bad debt expense.

Solution:
AFBD, beg 40,000
BDE (squeeze) 35,000
AFBD, end 75,000

33. It estimates bad debts expense to be 5% of accounts receivable. Compute the amortized cost of accounts receivable.

Solution:
AR, end 1,500,000
AFBD, end (75,000)
NRV/Amortized cost 1,425,000

34. It estimates bad debts expense based on aging. Compute for the allowance for doubtful account end of the year.

Solution:
Classification Balance
0–1-month category (500,000 x 2%) 10,000
1-6 months category (800,000 x 5%) 40,000
Over 6 months (200,000 x 20%) 40,000
AFBD, end 90,000

35. It estimates bad debts expense based on aging. Compute the amortized cost of accounts receivable.

Solution:
AR, end 1,500,000
AFBD, end (90,000)
NRV/Amortized cost 1,410,000
36. On January 1, 2023, Florendo Co. sold a machine with a cost of P500,000 and accumulated depreciation of P350,000 to
Gregorio Co. In lieu of cash payment, Gregorio gave Florendo a 4-year, P100,000, 10% note. The note requires interest to be
paid annually on December 31. The 10% interest rate is a realistic rate of interest for a note of this type. Compute the present
value of the note.

Solution:
PV of principal (100,000 x 0.6830) 68,301
PV of interest (100,000 x 10% x 3.1699) 31,699
PV of note receivable 100,000
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The effective interest rate and nominal rate of a note with a realistic interest and on the assumption that no transaction cost is
incurred is the same.

37. Compute the gain or (loss) on sale of machinery.

Solution:
Net selling price = PV of principal and interest = face value 100,000
Carrying amount of machinery:
Cost 500,000
Accumulated depreciation (350,000) 150,000
Loss on sale (50,000)

38. Compute the interest income.

Solution: 100,000 x 10% = 10,000

39. Compute the current portion of the notes receivable.

Solution:
0. since no principal amount is collectible within one year from the reporting date.

40. Compute the non-current portion of the notes receivable.

The entire principal amount of notes receivable of P100,000 is to be presented as noncurrent asset since it is collectible beyond
one year from the reporting date.

1.
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