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PROBLEM NO. 1
Hangover Company
Proof of Cash
For the month of July, 2005
- - - -
1. B
2. A
3. D
4. A
5. C
PROBLEM NO. 2 - Carlos Uno Company
Question No. 6 - B
PV of Note (P220,000 x 0.8264) 181,808
Less cost of land 125,000
Gain on sale 56,808
Amortization schedule:
Interest income Carrying amount
Jan. 1, 2005 181,808
Dec. 31, 2005 18,181 199,989
Dec. 31, 2006 20,011 220,000
Question No. 7 - C
Year Principal Interest Total PVF PV
2006 200,000 24,000 224,000 0.8772 196,493
2007 200,000 16,000 216,000 0.7695 166,212
2008 200,000 8,000 208,000 0.6750 140,400
600,000 503,105
Amortization schedule:
Eff. Int. Nom. Int. Disc. Amort. Principal Carrying amount
Jan. 1, 2006 503,105
Dec. 31, 2006 70,435 24,000 46,435 200,000 349,540
Dec. 31, 2007 48,936 16,000 32,936 200,000 182,476
Dec. 31, 2008 25,524 8,000 17,524 200,000 -
Question No. 8 - B
Interest income for 2005 (P181,808 x 10%) 18,181
Question No. 9 - A
NR - 1/1/05 sale [P220,000-(P181,808+P18,181)] 20,011
NR - 1/1/06 sale (P503,105 x 14%) 70,435
Total interest income in 2006 90,446
Question No. 10 - D
Question No. 12 - D
Accounts payable, 12/31/06 168,000
Add debits to accounts payable in 2006:
Purchase returns 12,000
Cash payments to trade creditors 1,600,000 1,612,000
Total 1,780,000
Less accounts payable, 12/31/05 200,000
Gross purchases for 2006 1,580,000
Less purchase returns 12,000
Net purchases for 2006 1,568,000
Question No. 13 - A
Inventory, 12/31/05 180,000
Add net purchases for 2006 1,568,000
Total goods available for sale 1,748,000
Less cost of sales for 2006 [(P2,480,800-P4,000) x (960/1,600)] 1,486,080
Inventory, 12/31/06 261,920
Question No. 14 - D
Estimated inventory, 12/31/06 261,920
Physical inventory, 12/31/06 168,000
Estimated inventory shortage 93,920
Question No. 15 - C
Question No. 16 - C
Under(over)
Item a [2,000 units x (P9.50-P5.90)] 7,200
Item b 17,500
Item c (2,900)
Item d 1,500
Net understatement 23,300
Question No. 17 - D
Question No. 18 - B
2005 2006
Unadjusted net income 370,000 526,000
Add(deduct) adjustments:
Item a 7,200 (7,200)
Item b 17,500 (17,500)
Item c (2,900) 2,900
Item d - -
21,800 (21,800) (18)
Corrected net income 391,800 504,200
(17)
Question No. 19 - D
2005 2006 Total
Originally reported net income 370,000 526,000 896,000
Corrected net income 391,800 504,200 896,000
Difference (21,800) 21,800 -
Question No. 20 - D
PROBLEM NO. 5 - Johnnie Marketing Company
Question No. 21 - B
Total proceeds 206,500
Less accrued interest (P200,000 x 9% x 5/12) 7,500
Net proceeds 199,000
Less cost of treasury notes:
Total amount paid 198,500
Less accrued interest (P200,000 x 9% x 3/12) 4,500 194,000
Gain on sale of treasury notes 5,000
Question No. 22 - B
Sales proceeds 70,000
Carrying value 90,000
Realized loss on sale of S-Mart shares (20,000)
Question No. 23 - C
Interest income on Virgo Co. bonds (P300,000 x 12%) 36,000
Interest income on Phil. tresury notes (P200,000 x 9% x 8/12) 12,000
Total 48,000
Question No. 24 - D
Asia Textile Common (6,000 shares x P44) 264,000
Virgo Co. Bonds (P300,000/P1,000 x P950) 285,000
Carrying value, 12/31/06 549,000
Question No. 25 - C
Trading securities, 1/1/06 640,600
Purchase of Phil. treasury notes, 4/1 194,000
Carrying value of S-Mart shares sold, 7/1 (90,000)
Sale of Phil. treasury notes, 12/1 (194,000)
Trading securities, 12/31/06 before mark-to-market 550,600
FV of trading securities, 12/31/06 549,000
Unrealized loss on TS 1,600
Question no. 27 - A
Silko Company (3,000 x P20) 60,000
Monroe Company (2,000 x P22) 44,000
Treasury notes (P40,000 x 1.02) 40,800
Total FV of trading securities, 12/31/05 144,800
Question no. 28 - C
Cost of Silko Company (3,000 x P16) 48,000
Cost of Monroe Company (2,000 x P33) 66,000
Cost of Treasury notes (P40,000 x 1.01) 40,400
Total 154,400
Total FV of trading securities, 12/31/05 144,800
Unrealized loss on trading securities 9,600
Question no. 29 - D
Monroe shares sold, 3/23/06:
Selling price (2,000 shares x P17) 34,000
Less CV of shares sold 44,000 (10,000)
Treasury notes sold, 6/30/06
Selling price (P40,000 x 1.005) 40,200
Less CV of treasury notes 40,800 (600)
Total realized loss (10,600)
Question no. 30 - A
PROBLEM NO. 7 - Napoleon Manufacturing Company
31 C
Balance, 12/31/05 2,400,000
Total cost of building wing 330,000
Donated building 400,000
Total 3,130,000
Less accumulated depreciation:
Balance, 12/31/05 1,200,000
Depreciation for 2006
Main building (P2,400,000/25) 96,000
Building wing (P330,000/12 x 6/12)
*
13,750
Donated building (P400,000/25 x 3/12) 4,000 1,313,750
Carrying value, 12/31/06 1,816,250
Original life 25
Less expired life:
Age on 12/31/05 (P1,200,000/P2,400,000) x 25 yrs 12.50
Additional expired life (from Jan. to June) 0.50 13
Remaining life of main building on 6/30/06 12 *
32 A
Land, 12/31/05 450,000
Donated land 200,000
Carrying value, 12/31/06 650,000
33 A
Proceeds from sale 520,000
Less book value on the date of sale (10/1/06)
Cost 960,000
Accumulated depreciation (P960,000/10 x 4) (384,000) 576,000
Loss on sale 56,000
34 C
Balance Balance
Cost 12.31.05 Additions Retirements 12.31.06
Land 450,000 200,000 - 650,000
Land improvements - 100,000 - 100,000
Buildings 2,400,000 730,000 - 3,130,000
Machinery & equipment 2,770,000 - 960,000 1,810,000
Total 5,620,000 1,030,000 960,000 5,690,000
Accumulated depreciation
Land improvements - 5,000 5,000
Buildings 1,200,000 113,750 1,313,750
Machinery & equipment 546,500 253,000 384,000 415,500
Total 1,746,500 371,750 384,000 1,734,250
Carrying value
Land 450,000 650,000
Land improvements - 95,000
Buildings 1,200,000 1,816,250
Machinery & equipment 2,223,500 1,394,500
3,873,500 3,955,750
35 A
PROBLEM NO. 8 - Matador Corporation
Question No. 36 - A
Semitruck No. 2 (fully depreciated as of 7/1/05) -
Semitruck No. 5 (P340,000/5) 68,000
Semitruck No. 6 (P360,000/5) 72,000
Should be depreciation expense for 2006 140,000
Depreciation expense per books 278,000
Overstatement 138,000
Question No. 37 - D
Cost, 12/31/06
Semitruck No. 1 (sold, 1/1/04) -
Semitruck No. 2 (acquired, 7/1/00) 220,000
Semitruck No. 3 (traded-in, 7/1/03) -
Semitruck No. 4 (damaged and sold, 7/1/05 -
Semitruck No. 5 (acquired, 7/1/03) 340,000
Semitruck No. 6 (acquired, 7/1/05) 360,000 920,000
Accumulated depreciation, 12/31/06
Semitruck No. 2 (fully depreciated as of 7/1/05) 220,000
Semitruck No. 5 (P340,000 x 3.5/5) 238,000
Semitruck No. 6 (P360,000 x 1.5/5) 108,000 566,000
Carrying amount, 12/31/06 354,000
Question No. 38 - A
Question No. 39 - B
Question No. 40 - A
Net income
over (under)
2003:
Unrecorded loss on trade-in:
Trade-in value (P340,000 - P150,000) 190,000
Carrying value (P300,000 x 3.5/5) 210,000 20,000
Overstatement of depreciation expense:
Semitruck No. 1 (P180,000/5) 36,000
Semitruck No. 2 (P220,000/5) 44,000
Semitruck No. 3 (P300,000/5 x 6/12) 30,000
Semitruck No. 4 (P240,000/5) 48,000
Semitruck No. 5 (P340,000/5 x 6/12) 34,000
Should be depreciation expense 192,000
Depreciation expense per books 203,000 (11,000) 9,000 (38)
2004:
Unrecorded loss on sale:
Sales proceeds 35,000
Carrying value (P180,000 x 1/5) 36,000 1,000
Overstatement of depreciation expense:
Semitruck No. 2 (P220,000/5) 44,000
Semitruck No. 4 (P240,000/5) 48,000
Semitruck No. 5 (P340,000/5) 68,000
Should be depreciation expense 160,000
Depreciation expense per books 211,000 (51,000) (50,000) (39)
2005:
Unrecorded loss on disposal:
Sales proceeds 7,000
Insurance proceeds 25,000
Total 32,000
Carrying value (P240,000 x 2/5) 96,000 64,000
Erroneous credit to Miscellaneous Income 7,000
Overstatement of depreciation expense:
Semitruck No. 2 (P220,000/5 x 6/12) 22,000
Semitruck No. 4 (P240,000/5 x 6/12) 24,000
Semitruck No. 5 (P340,000/5) 68,000
Semitruck No. 6 (P360,000/5 x 6/12) 36,000
Should be depreciation expense 150,000
Depreciation expense per books 244,500 (94,500) (23,500) (40)
2006:
Overstatement of depreciation expense (see no. 36) (138,000)
Net understatement of Retained Earnings as of 12/31/06 (202,500)
PROBLEM NO. 9 - ESQ Corporation
Question no. 41 - A
Projected benefit obligation, 1/1/06 9,200,000
Benefits paid to retirees (780,000)
Interest cost (P9,200,000 x 10%) 920,000
Current service cost (squeeze) 118,000
Projected benefit obligation, 12/31/06 9,458,000
Question no. 42 - A
Current service cost (see no. 41) 118,000
Interest cost (P9,200,000 x 10%) 920,000
Expected return on plan assets (900,000)
Amortization of deferred gain (65,000)
Net benefit expense 73,000
Question no. 43 - C
Fair value of plan assets, January 1 10,070,000
Employer contributions 850,000
Actual return on plan assets 990,000
Benefits paid to retirees (780,000)
Fair value of plan assets, 12/31/06 11,130,000
Question no. 44 - B
Excess over corridor (P65,000 x 10) 650,000
Corridor (P10,070,000 x 10%) 1,007,000
Unrecognized gain, 1/1/06 1,657,000
Amortization of deferred gain - 2006 (65,000)
Excess actual over expected return on plan assets
(P990,000 - P900,000) 90,000
Unrecognized gain, 12/31/06 1,682,000
Question no. 45 - D
Jan. 1, 2006 Dec. 31, 2006