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PRACTICAL ACCOUNTING 1

BALANCE SHEET

Bogo Company trial balance reflected the following account balances


at December 31, 2006:
Accounts receivable 1,600,000
Trading securities 500,000
Accumulated depreciation on equipment and 1,500,000
furniture
Cash 1,100,000
Inventory of merchandise 3,000,000
Equipment and furniture 2,500,000
Patent 400,000
Prepaid expenses 100,000
Land held for future business site 1,800,000
1. In Bogo Company’s December 31, 2006 balance sheet, the
current assets total is
a. 8,100,000
b. 7,300,000
c. 6,700,000
d. 6,300,000

The following information pertains to Alena Company on December 31


of the current year:
Property, plant and equipment 35,000,000
Accounts receivable 20,000,000
Prepaid insurance 2,500,000
Short-term note payable 3,000,000
Cash 5,000,000
Bonds payable 40,000,000
Total assets 101,500,000
Land 20,000,000
Accounts payable 8,000,000
Allowance for doubtful accounts 1,000,000
Merchandise inventory 13,000,000
Available for sale securities – to be held indefinitely 7,000,000
Wages payable 2,000,000
Total liabilities 56,000,000
Premium on bonds payable 3,000,000
2. The December 31 working capital is
a. 46,500,000
b. 33,500,000
c. 26,500,000
d. 35,500,000

Rice Company was incorporated on January 1, 2006, with P5,000,000


from the issuance of stock and borrowed funds of P1,500,000. During
the first year of operations, net income was P2,500,000. On December
15, Rice paid a P500,000 cash dividend. No additional activities
affected owners’ equity in 2006. At December 31, 2006, Rice’s
liabilities had increased to P1,800,000.
3. In Rice’s December 31, 2006 balance sheet, total assets should
be reported at
a. 6,500,000
b. 9,300,000
c. 8,800,000
d. 6,800,000

Mirr Company was incorporated on January 1, 2006, with proceeds


from the issuance of P7,500,000 in stock and borrowed funds of
P1,100,000. During the first year of operation, revenues from sales
and consulting amounted to P8,200,000, and operating costs and
expenses totaled P6,400,000. On December 15, Mirr declared a
P300,000 dividend, payable to stockholders on January 15, 2007.
No additional activities affected owners’ equity in 2006. Mirr’s
liabilities increased to P2,000,000 by December 31, 2006.
4. On Mirr’s December 31, 2006 balance sheet, total assets should
be reported at
a. 11,000,000
b. 11,300,000
c. 10,100,000
d. 12,100,000

The following is Gold Company’s June 30, 2006, trial balance:


Cash overdraft 100,000
Accounts receivable, net 350,000
Inventory 580,000
Prepaid expenses 120,000
Land classified as “held for sale” 1,000,000
Property, plant and equipment, net 950,000
Accounts payable and accrued 320,000
expenses
Common stock 250,000
Additional paid-in capital 1,500,000
Retained earnings 830,000
3,000,000 3,000,000
Checks amounting to P300,000 were written to vendors and recorded
on June 29,2006, resulting in cash overdraft of P100,000. The checks
were mailed on July 9, 2006. Land classified as held for sale was sold
for cash on July 15, 2006.
Gold issued its financial statements on July 31, 2006.
5. In its June 30, 2006 balance sheet, what amount should Gold
report as current assets?
a. 2,250,000
b. 2,050,000
c. 1,950,000
d. 1,250,000

Arabian Company’s December 31, 2006 balance sheet reported the


following current assets:
Cash 4,000,000
Accounts receivable 7,500,000
Inventory 4,000,000
Deferred tax asset 1,200,000
Equipment used and held for resale 300,00
17,000,000
An analysis of the accounts receivable disclosed the accounts
receivable comprised the following
Trade accounts receivable 5,000,000
Allowance for doubtful accounts (500,000)
Selling price of Arabian Company’s unsold goods
sent to Tar Company on consignment at 150% of
cost and excluded from Arabian’s ending inventory 3,000,000
7,500,000
6. At December 31, 2006, the total current assets should be
a. 16,000,000
b. 15,700,000
c. 14,500,000
d. 14,800,000

The following data pertains to Caticlan Company on December 31,


2006:
Cash, including sinking fund of P500,000 with trustee 2,000,000
Notes receivable (P200,000 pledged) 1,200,000
Accounts receivable – unassigned 3,000,000
Accounts receivable – assigned 800,000
Notes receivable discounted 700,000
Equity of assignee in accounts receivable assigned 500,000
Inventory, including P600,000 cost of goods in transit
purchased FOB destination. The goods were received
on January 3, 2007 2,800,000
Allowance for doubtful accounts 100,000

7. How much current assets should be shown in the balance sheet


on December 31, 2006?
a. 7,900,000
b. 8,000,000
c. 7,400,000
d. 7,700,000

Presented below are account balances and related information on


December 31, 2006 for Daet Company:
Cash and cash equivalents 3,700,000
Accoounts receivable 1,500,000
Allowance for doubtful accounts (200,000)
Inventory 2,000,000
Prepaid insurance 300,000
7,300,000
• The cash and cash equivalents include the following:
Cash in bank, net of bank overdraft of P300,000
Maintained in a separate bank 1,000,000
Cash set aside by the Board of Directors for the
Purchase of a plant site 2,000,000
Petty cash 10,000
Cash withheld from wages for income tax of employees 190,000
General cash 500,000
3,700,000
=======
=
• The accounts receivable balance includes past due account in
the amount of P100,000 on which a loss of 50% is anticipated.
The account should be written off.
• The merchandise inventory includes goods held on consignment
amounting to P150,000 and goods of P200,000 purchased and
received on December 31, 2006. Neither of these items have
been recorded as a purchase.
• The prepaid-insurance includes cash surrender value of life
insurance of P50,000.
8. The adjusted balance of current assets should be
a. 5,400,000
b. 5,100,000
c. 5,300,000
d. 5,200,000

The trial balance of Mill Company included the following account


balances at December 31, 2006:
Accounts payable 1,500,000
Bonds payable, due 2007 2,500,000
Discounts on bonds payable 2007 300,000
Dividends payable 800,000
Note payable, due 2008 2,000,000
9. What amount should be included in the current liability section of
Mill’s December 31, 2006 balance sheet?
a. 4,500,000
b. 5,100,000
c. 6,500,000
d. 7,800,000

The trial balance of Gar Company reflected the following liability


account balances at December 31, 2006:
Accounts payable 1,900,000
Bonds payable 3,400,000
Deferred tax liability 400,000
Dividends payable 500,000
Income payable 900,000
Note payable, due January 31, 2007 600,000
Discount on bands payable 200,000
The deferred tax liability is based on temporary differences that will
reverse equally in 2007 and 2008.
10. In Gar’s December 31, 2006 balance sheet, the current liabilities
total was
a. 7,100,000
b. 4,300,000
c. 3,900,000
d. 4,100,000

Brite Company had the following liabilities at December 31, 2006:


Account payable 550,000
Unsecured note, 8%, due July 1, 2007 4,000,000
Accrued expenses 350,000
Contingent liability 450,000
Deferred tax liability 250,000
Senior bonds, 7%, due March 31, 2007 5,000,000
The contingent liability is an accrual for possible loss on a P1,000,000
lawsuit filed against Brite. Brite’s legal councel expects the suit to be
settled in 2007 and has estimasted that Brite will be liable for damages
in the amount of 450,000
The deferred tax liability is not related to an asset for financial
reporting and is expected to reverse in 2007
11. What amount should Brite report in its December 31, 2006 balance
sheet for current liabilities?
a. 10,350,000
b. 10,150,000
c. 9,900,000
d. 4,900,000

An analysis of Burma Company’s liabilities disclosed the following

Accounts payable, after deducting debit balances


In suppliers’ accounts amounting to P100,000 4,000,000
Accrued expenses 1,500,000
Credit balances of customers’ accounts 500,000
Stock dividend payable 1,000,000
Claims for increase in wages and allowance by
Employees of the company, covered in a
pending lawsuit 400,000
Estimated expenses in redeeming prize coupons
Presented by customers 600,000
12. How much should be presented as total current liabilities on the
balance sheet?
a. 6,700,000
b. 6,600,000
c. 7,100,000
d. 7,700,000

The trial balance of Brazil Company reflected the following liability


account balances on December 31, 2006:
Accounts payable 5,000,000
Bonds payable, due December 30, 2007 10,000,000
Premium on bonds payable 500,000
Deferred tax liability 2,500,000
Dividends payable 4,500,000
Income tax payable 1,500,000
Note payable – bank 4,000,000
The bank note payable matures on June 30, 2007. On March 1, 2007,
the entire balance of the bank payable was refinanced on a long-term
basis. Brazil’s financial statements were issued on March 31, 2007.
13. In its December 31, 2006, Brazil Company should report current
liabilities at
a. 21,500,000
b. 24,000,000
c. 25,500,000
d. 28,000,000

The following information about Manchester Company is available at


December 31, 2006:
Employee income taxes withheld 900,000
Cash balance at first state Bank 2,500,000
Cash overdraft at Harbor Bank 1,300,000
Accounts receivable with credit balance 750,000
Estimated expenses of meeting warranties on
merchandise previously sold 500,000
Estimated damages as a result of unsatisfactory
performance on a contact 1,500,000
Accounts payable 3,000,000
Deferred serial bonds, issued at par and bearing
interest at 12%, payable in semiannual installments
of P500,000 due April 1 and October 1 of each year,
the last bond to be paid on October 1, 2012. Interest
is also paid semiannually. 5,000,000
Stock dividend payable 2,000,000

14. The December 31, 2006 balance sheet should report current
liabilities at
a. 8,100,000
b. 7,950,000
c. 9,100,000
d. 7,350,000

The December 31, 2006 balance sheet of East Company contained the
following current assets:
Cash 3,200,000
Accounts receivable 2,000,000
Inventory 2,800,000
Deferred charges 200,000
8,200,000
An examination revealed that accounts receivable consisted of the
following items:
Customers’ accounts 1,420,000
Employees’ account-current 240,000
Advances to subsidiary 260,000
Allowance for uncollectible accounts (120,000)
Claims against shipper for goods lost in transit 200,000
2,000,000
15. On December 31, 2006, East Company should report total current
assets at
a. 7,740,000
b. 7,780,000
c. 7,940,000
d. 8,200,000

The unadjusted current assets section and stockholders’ equity section


of United Company on December 31, 2006 are as follows:
Current assets
Cash 600,000
Trading securities (including P300,000 of United
Company common stock) 1,000,000
Trade accounts receivable 3,500,000
Inventory 1,500,000
Total 6,600,000

Stockholders’ equity
Common stock 5,000,000
Retained earnings 500,000
Total 5,500,000
16. In its 2006 statement of stockholders’ equity, United’s total amount
of stockholders’ equity at December 31, 2006 is
a. 5,000,000
b. 5,500,000
c. 5,800,000
d. 5,200,000

The adjusted trial balance of Zinc Company at December 31, 2006,


includes the following account balances:
Common stock 6,000,000
Additional paid-in capital 1,000,000
Treasury stock, at cost 500,000
Net unrealized loss on available for sale securities 200,000
Retained earnings appropriated 1,500,000
Retained earnings unappropriated 2,000,000
17. What amount should Zinc report as total stockholders’ equity in its
December 31, 2006 balance sheet?
a. 10,000,000
b. 10,500,000
c. 9,800,000
d. 9,300,000

When preparing a draft of its 2006 balance sheet, Mont Company


reported net assets totaling P8,750,000. Included in the asset section
of the balance sheet were the following:
Treasury stock of Mont Company at cost, which
approximate market value on December 31 250,000
Idle machinery 100,000
Cash surrender value of life insurance on corporate
executives 150,000
Allowance for inventory writedown 200,000
18. At what amount should Mont’s net assets be reported in the
December 31, 2006 balance sheet?
a. 8,500,000
b. 8,400,000
c. 8,300,000
d. 8,200,000

During 2006, Jane Company engaged in the following transactions:


Key management personnel compensation 2,000,000
Sales to affiliated entities 3,000,000
19. Which of the two transactions would be disclosed as related party
transactions in Jane’s 2006 financial statements?
a. Neither transaction
b. The P2,000,000 transaction only
c. The P3,000,000 transaction only
d. Both transactions

Dean Company acquired 100% of Morey Company prior to 2006.


During 2006, the individual companies included in their financial
statements the following:
Dean Morey
Key officers’ salaries 750,000 500,000
Officers’ expenses 200,000 100,000
Loans to officers 1,250,000 500,000
Intercompany sales 1,500,000
20. What amount should be reported as related party disclosure in the
notes to Dean’s 2006 consolidated financial statements?
a. 1,500,000
b. 1,550,000
c. 1,750,000
d. 3,000,000

The accounts below were taken form the unadjusted trial balance of
Kasie Company as at December 31, 2006:
Cash, net of bank overdraft of P150,000 600,000
Notes receivable (including discounted note of 500,000
P100,000)
Trade accounts receivable, net of customers’ credit
balances of P50,000 700,000
Merchandise inventory 800,000
Trade accounts payable, net of creditors’ debit
balances of P100,000 800,000
21. What is the correct amount of current assets on December 31,
2006?
a. 2,800,000
b. 2,700,000
c. 2,600,000
d. 2,900,000

The following accounts and their balances appear in an unadjusted trial


balance of Grand Company as of December 31, 2006:
Cash 800,000
Accounts receivable 4,000,000
Inventory 1,000,000
Accounts payable 600,000
Notes payable 400,000

Additional information gathered for adjustment follows:


• The cash account includes collection in January 2007 of P400,000
account from customer who was given a cash discount of
P20,000.
• The cash account also includes a January 2007 cash sales of
P100,000. Gross profit on the sale was 40%.
• From the amount collected, the company paid a bank loan of
P200,000 with interest of P40,000 accruing January 2007.
22. The correct amount of current assets on December 31, 2006
should be
a. 5,960,000
b. 6,020,000
c. 5,780,000
d. 5,800,000

23. The correct amount of current liabilities on December 31, 2006


should be
a. 1,200,000
b. 1,000,000
c. 1,240,000
d. 1,160,000

The following amounts were taken from the unadjusted trial balance of
Tank Company on December 31, 2006:
Accounts payable 900,000
Accounts receivable 800,000
Accrued interest payable 50,000
Cash 200,000
Dividends payable 250,000
Income tax payable 100,000
Trading securities 1,000,000
Notes receivable 1,500,000
Merchandise inventory 750,000
Bonds payable, P500,000 due September 30 annually 2,000,000
Contingent liabilities 400,000
Accrued expenses 350,000
The accounts receivable balance includes customers’ deposit of
P200,000. The market value of the trading securities is P700,000. The
balance of the notes receivable includes P300,000 of note discounted
for which the company is contingently liable.
24. What is the total current assets?
a. 4,150,000
b. 3,850,000
c. 3,650,000
d. 4,250,000

25. What is total current liabilities?


a. 1,850,000
b. 2,350,000
c. 2,150,000
d. 2,750,000

The following trial balance of Trey Company at December 31, 2006 has
been adjusted except for income tax expense:
Cash 550,000
Accounts receivable, net 1,650,000
Prepaid taxes 350,000
Accounts payable 140,000
Common stock 500,000
Additional paid in capital 680,000
Retained earnings 630,000
Foreign currency translation adjustment 400,000
Revenue 3,600,000
Expenses 2,600,000
5,550,000 5,550,000
During 2006, estimated tax payments of P350,000 were charged to
prepaid taxes, Trey has not yet recorded income tax expense. There
were no differences between financial and taxable income. Trey’s tax
rate is 35%.
Included in accounts receivable is P500,000 due from a customer.
Special terms granted to this customer require payment in equal
semiannual installments of P125,000 every April 1 and October 1.
26. In Trey’s December 31, 2006 balance sheet, what amount should
be reported as total current assets?
a. 1,950,000
b. 2,200,000
c. 2,300,000
d. 2,550,000

27. In Trey’s December 31, 2006 balance sheet, what amount should
be reported as total retained earnings?
a. 1,680,000
b. 1,200,000
c. 1,280,000
d. 1,630,000

The following trial balance of Mint Company at December 31, 2006,


has been adjusted except for income tax expense:
Cash 600,000
Accounts receivable, net 3,500,000
Cost in excess of billings on long-term
contracts 1,600,000
Billings in excess of cost on long-term
contracts 700,000
Prepaid taxes 525,000
Property, plant and equipment, net 1,435,000
Note payable – noncurrent 1,620,000
Common stock 750,000
Additional paid-in capital 2,030,000
Retained earnings unappropriated 900,000
Retained earnings restricted for note 160,000
payable
Earnings from long-term contracts 6,680,000
Costs and expenses 5,180,000
12,840,000 12,840,000
• Mint uses the percentage-of-completion method to account for
long-term construction contracts for financial statement and
income tax purposes. All receivables on these contracts are
considered to be collectible within 12 months.
• During 2006, estimated tax payments of P525,000 were charged
to prepaid taxes. Mint has not recorded income tax expense.
There were no temporary or permanent differences. The tax rate
is 35%. In Mint’s December 31, 2006 balance sheet, what
amount should be reported as
28. Total retained earnings?
a. 1,875,000
b. 2,035,000
c. 2,400,000
d. 2,560,000

29. Total noncurrent liabilities?


a. 1,620,000
b. 1,780,000
c. 2,320,000
d. 2,480,000

30. Total current assets?


a. 5,000,000
b. 4,100,000
c. 5,700,000
d. 6,225,000

Multinational Company provided the following balances on December


31, 2006:
Accounts payable 500,000
Accrued taxes 100,000
Common stock 5,000,000
Dividends – common stock 1,000,000
Dividends – preferred stock 500,000
Mortgage payable (P500,000 due six months) 4,000,000
Note payable, due January 31, 2008 2,000,000
Additional paid in capital 500,000
Preferred stock 3,000,000
Premium on note payable 200,000
Income summary – credit balance 4,000,000
Retained earnings – 1/1/2006 2,500,000
Unamortized issue cost on note payable 50,000
Unearned rent income 150,000
31. What is the amount of noncurrent liabilities on December 31,
2006?
a. 5,700,000
b. 6,200,000
c. 5,500,000
d. 5,650,000

32. What is the retained earnings account balance on December 31,


2006?
a. 6,500,000
b. 2,500,000
c. 1,000,000
d. 5,000,000

33. What is the total stockholders’ equity on December 31, 2006?


a. 15,000,000
b. 13,500,000
c. 9,500,000
d. 8,500,000

The balance sheet accounts of Aroma Company on December 31, 2006


follow:
Cash 300,000
Accounts receivable, net allowance of P50,000 800,000
Inventory 1,650,000
Prepaid expenses 250,000
Property, plant and equipment 8,800,000
Accumulated depreciation 800,000
Accounts payable 1,250,000
Accrued expenses 250,000
Bonds payable 4,000,000
Common stock 5,000,000
Retained earnings 500,000
A P500,000 note payable to bank, due on June 30, 2007, was deducted
from the balance on deposit in the same bank.
The company recorded checks of P200,000 in payment of accounts
payable on December 31, 2006. These checks were still on hand on
January 20, 2007.
An advance payment of P100,000 from a customer for goods to be
delivered in 2007 was deducted from accounts receivable.

34. What is the working capital on December 31, 2006?


a. 1,500,000
b. 3,800,000
c. 1,400,000
d. 2,000,000

The following trial balance of Shaw Company at December 31, 2006


has been adjusted except for income tax expense:
Cash 675,000
Accounts receivable (net) 2,695,000
Inventory 2,185,000
Property, plant and equipment 10,245,000
Accounts payable and accrued liabilities 1,800,000
Income tax payable 1,750,000
Deferred tax liability 750,000
Common stock 2,500,000
Additional paid in capital 3,000,000
Retained earnings, 1/1 3,350,000
Net sales and other revenue 15,000,00
0
Costs and expenses 10,000,000
Income tax expense 2,350,000
28,150,00028,150,00
0
Included in accounts receivable ins P1,000,000 due from a customer
and payable in quarterly installments of P125,000. The last payment is
due December 30, 2008. the balance in the deferred tax liability
account pertains to a temporary difference that arose in a prior year,
of which P150,000 is expected to reverse in 2007. During the year,
estimated tax payment of P600,000 was charged to income tax
expense. The income tax rate is 35% on all types of income. In
Shaw’s December 31, 2006 balance sheet
35. The current assets total is
a. 6,030,000
b. 5,555,000
c. 5,530,000
d. 5,055,000

36. The current liabilities total is


a. 2,950,000
b. 3,550,000
c. 4,300,000
d. 3,700,000

37. The final retained earnings balance is


a. 8,350,000
b. 3,350,000
c. 6,600,000
d. 6,150,000

The current sections of the unadjusted balance sheet of Camarines Sur


Company on December 31, 2006 were as follows:
CURRENT ASSETS CURRENT LIABILITIES
Cash 2,000,000 Trade accounts payable, net
of a debit balance of P50,000 2,450,000
Accounts receivable 3,000,000 Interest payable 150,000
Merchandise inventory 1,900,000 Income tax payable 300,000
Deferred charges 100,000 Money claims of the union,
pending final decision 500,000
Mortgage payable, due in
four annual installments 2,000,000
Total current assets 7,000,000 Total current liabilities 5,400,000
A review of the accounts showed that the cash balance of P2,000,000
included a customer’s check amounting to P100,000 returned by the
bank marked NSF, an employee’s IOU of P50,000, and the amount of
P200,000 deposited with the court for a case under litigation. The cash
in bank portion of P1,650,000 is the balance per bank statement. On
December 31, 2006, outstanding checks amounted to P250,000.

Accounts receivable balance of P3,000,000 is composed of:


Customers’ debit balances 1,600,000
Advances to subsidiary 400,000
Advances to suppliers 200,000
Receivables from officers 300,000
Allowances for doubtful accounts (100,000)
Selling price of merchandise invoiced at 120% of cost,
not yet delivered and excluded from ending inventory 600,000
3,000,000
38. The correct total of current assets on December 31, 2006 should
be
a. 5,950,000
b. 6,000,000
c. 5,450,000
d. 5,500,000

39. The correct total of current liabilities on December 31, 2006 should
be
a. 3,450,000
b. 3,400,000
c. 3,950,000
d. 3,700,000

Madre Company provided the following schedule of liabilities as of


December 31, 2006.
Accounts payable 650,000
Notes payable – trade 190,000
Notes payable – bank 800,000
Accrued expenses 15,000
Interest payable 145,000
Mortgage note payable – 10% 600,000
Mortgage note payable – 12% 1,500,000
Bonds payable 2,000,000
 Bank note payables include two notes payable to First Bank. A
P300,000, 10% note issued March 1, 2004, payable on demand.
Interest is payable every six months.
 A 1 – year, P500,000, 11% note issued January 1, 2006. On
December 30, 2006, Madre negotiated a written agreement with
First Bank to replace the note with a 2 –year, P500,000 10% note
to be issued January 1, 2007.
 The 10% mortgage note was issued October 1, 2003, with a term
of 10 years. Terms of the note give the holder the right to
demand immediate payment if the company fails to make a
monthly interest payment within 10 days of the date the
payment is due. As of December 31, 2006, Madre is three
months behind in paying its required interest payment.
 The 12% mortgage note was issued May 1, 2000, with a term of
20 years. The current principal amount due is P1,500,000.
Principal and interest are payable annually on April 30. A
payment of P220,000 is due April 30, 2007. The payment
includes interest of P180,000.
 The bonds payable are 10-year, 8% bonds, issued June 30, 1997.
Interest is payable semiannually on June 30 and December 31.
40. The amount of current liabilities on December 31, 2006 should be
a. 3,940,000
b. 4,440,000
c. 1,940,000
d. 3,900,000