MC:

1. If a financial institution holding the funds of the company is in bankruptcy or other financial
difficulty, cash should be valued at

A. Face value, regardless of the realizable value

B. Estimated Realizable Value, if amount recoverable is estimated to be lower than the face
amount
C. Estimated Realizable Value
D. Estimated Realizable Value, if amount recoverable is estimated to be higher than the face
amount.

2. Bank Overdraft

A. is a debit balance in retained earnings

B. is offset against demand deposit account in another bank
C. which cannot be offset is classified as current liability
D. which cannot be offset is classified as non-current liability

3. Unreleased checks

A. should be treated as outstanding checks

B. should be restored to the cash balance
C. should be treated as outstanding checks if the date is shortly after balance sheet date.
D. Should be treated as outstanding checks if they are ultimately encashed.

4. Entries to record the replenishment of petty cash fund results in a debit to petty cash fund
and a credit to cash in bank, exemplifies the

A. imprest petty cash system

B. fluctuating petty cash system
C. internal control
D. administrative control

5. Usually, if the petty cash fund is not replenished just prior to year-end and an appropriate
adjusting entry is not made

A. a complete audit is necessary

B. the petty cash account should be returned to the company cashier
C. expenses will be overstated and cash will be understated
D. cash will be overstated and expenses will be understated

6. The payments of accounts payable made subsequent to the close of the accounting period are
recorded as if they were made at the end of the current period

A. Window dressing
B. Lapping
C. Kiting
D. Imprest system

7. Which of the following items must be deducted from the bank statement balance in preparing
a bank reconciliation statement wherein the amount being determined is the unadjusted
book balance?
A. Deposit in transit
B. Checks returned marked as NSF
C. Interest on deposit
D. Erroneous bank debit entry

8. Which of the following items listed, taken from bank reconciliation, would not require a
correcting entry on the company’s book?

A. A check received from a customer which was deposited during the month and returned with
the bank statement with a memo indicating that the customer’s account does not have
sufficient funds to cover the check.
B. A collection of a note from a customer together with interest for the company made by the
bank
C. Bank service charge for the month as reflected in the bank statement provided by the bank
D. A check of P20,000 representing payment was debited against the company’s account by the
bank of P2,000.

9. I. Credit balances in bank accounts as shown in the books which cannot be offset are to be
shown as current liabilities.
II. Short-term temporary placement of excess cash, even if they can be pre-terminated, should
not be shown as part of the cash account.

A. True, True
B. True, False
C. False, False
D. False, True

10. AYAWKONA Company provided the following information on December 31, 2016:
BPI time deposit – 30 days 1,000,000
Petty Cash Fund 20,000
Security Bank Current Account 3,000,000
BDO Current Account No.1 400,000
Cash on hand 500,000
BDO Current Account No.2 (50,000)
BSP Treasury Bill -60days 4,000,000

The cash on hand included a customer check postdated check of P100,000 and postal money
order of P40,000. A check for P300,000 was drawn against Security Bank account dated
January 15,2017 delivered to the payee and recorded December 31, 2016. The BPI time deposit
is set aside for acquisition of equipment. What total amount of cash and cash equivalents
should be reported on December 31,2016?

A. 7,470,000 C. 8,070,000
B. 7,770,000 D. 9,070,000

11. Bank Reconciliation

A. is the process of transferring money in or out of a bank account

B. Requires that every transaction which the bank will result in a cash payment be verified,
approved and recorded before a bank check is prepared.
C. Is an analysis that reflects the bank transactions made by the depositor
D. Explains the difference between the bank balance and the balance shown in the depositor’s
records.
 12. If receivables are hypothecated against borrowings, the amount of receivables involved
should be

A. Disclosed in the notes

B. Excluded from the total receivables with disclosures.
C. Excluded from the total receivables with no disclosures.
D. Excluded from the total receivables and a gain or loss is recognized between the face value and
the amount of borrowings.

13. The ideal measure of short term notes receivable is the discounted value of cash to be
received in the future. Failure to follow this practice usually does not make the statement of
financial position misleading because

A. Most short term notes receivable are non interest bearing

B. The allowance for uncollectible accounts includes a discount element
C. The amount of the discount is not material
D. Most notes receivable can be sold to a bank or factor.

14. Of the approaches to record cash discounts related to accounts receivable, which is more
theoretically correct?

A. Net approach
B. Gross approach
C. Allowance approach
D. All three approaches are theoretically correct

15. Which of the following is generally accepted method of determining the amount of
adjustment to bad debt expense?

A. A percentage of sales adjusted for the balance in the allowance

B. A percentage of sales not adjusted for the balance in the allowance
C. A percentage of accounts receivable not adjusted for the balance in the allowance
D. An amount derived from aging accounts receivable and not adjusted for the balance in the
allowance

16. When the direct writeoff method is used, the entry to write off a specific customer account
would

A. Increase Net income

B. Have no effect on net income
C. Increase both accounts receivable and net income
D. Decrease both accounts receivable and net income

17. Which of the following is treated as a sale of accounts receivable?

A. Factoring without recourse in exchange for cash

B. Pledging accounts receivable in exchange for a loan
C. Assignment of accounts receivable
D. Discounting without recourse.

18. When an entity factored accounts receivable without a recourse with a bank, the transaction
Is best described as

A. Ban loan collateralized by the accounts receivable

 B. Bank loan to be repaid by the proceeds from the accounts retained by the entity
C. Sale of the accounts receivable to the bank with risk of uncollectible accounts retained by the
entity
D. Sale of the accounts receivable to the bank, with the risk of uncollectible accounts transferred
to the bank.

19. A bank granted a 10-year loan to a borrower in the amount of P1,500,000 with stated
interest rate of 6%. Payments are due monthly and are computed to be P16,650. The bank
incurred P40,000 of direct loan origination cost and P20,000 of indirect loan origination cost.
The bank charged the borrower a 4-point nonrefundable origination fee. What is the carrying
amount of the loan receivable to be reported initially by the bank?

A. 1,440,000 C. 1,500,000
B. 1,480,000 D. 1,520,000

20. On December 31,2018, an entity received two P2,000,000 notes receivable from customers.
On both notes, interest is calculated on the outstanding principal balance at the annual rate of
3% and payable at maturity. The first note, made under customary trade terms is due in nine
months and the second note is due in five years. The market interest rate for similar notes on
December 31, 2018 was 8%. The PV of 1 at 8% due in nine months is 0.944a and the PV of 1
at 8% due in 5 years in 0.68. What is the carrying amount amount of the first note receivable?

A. 2,000,000 C. 2,060,000
B. 1,888,888 D. 1,945,000

PROBLEM SOLVING:

Problem 1. KAYAPABA Company provided information on December 31, 2019:

Cash in bank per book 7,400,000

Cash in bank per bank statement 8,180,000
Deposit in transit 1,200,000
Outstanding check, including certified check of P200,000 1,500,000
Note collected by bank for Aldrin, including interest of P100,000 1,100,000
Service charge for December 20,000
DAIF checks of customers returned by bank 500,000
Error in recording a check in the book. The correct amount as paid by the bank
is P100,000 instead of P200,000 as recorded in the book 100,000
Deposit in the other bank closed by BSP 1,500,000
Currency and coins on hand 600,000
Petty cash fund 50,000

What is the total cash to be reported as current asset on December 31,2019?

Problem 2. TALA Company began operation on January 1, 2018. On December 31,2018, the entity
provided for doubtful accounts based on 1% of annual credit sales. On January 1, 2019, the entity
changed the method of determining the allowance for doubtful accounts by aging method of accounts
receivable.

Days past invoice date Percent uncollectible

0 – 31 1
31 – 90 5
91 – 180 20
over 180 80

In addition, the entity wrote off all accounts receivable over 1 year old. The entity provided the
following additional information:

2019 2018

Credit Sales 6,000,000 5,600,000

Collection, including recovery 5,830,000 4,800,000
Accounts written off 50,000 NONE
Recovery of accounts previously written off 10,000 NONE

Days past invoice date at December 31

2019 2018
0 – 30 600,000 500,000
31 – 90 160,000 180,000
91 - 180 120,000 90,000
Over 180 50,000 30,000

What amount should be reported as doubtful accounts expense for 2019?

PROBLEM 3. KERI Bank loaned P7,500,000 to a borrower on January 1, 2011. The terms of the loan
were payment in full on January 1, 2016 plus annual interest payment at 12%. The interest payment
was made as scheduled on January 1, 2012. However, due to financial setbacks, the borrower was
unable to make the 2013 interest payment. The bank considered the loan impaired and projected the
cash flows from the loan on December 31,2013. The bank has accrued the interest on December
31,2012 but did not continue to accrue interest for 2013 due to the impairment of the loan. The
projected cash flows are:

Date of Cash Flows Amount projected December 31,2013

December 31,2014 500,000

December 31,2015 1,000,000
December 31,2016 2,000,000
December 31,2017 4,000,000

The PV of 1 at 12% is 0.89 for one period. 0.80 for two periods. 0.71 for three periods and 0.64 for
four periods.

What is the impairment loss to be recognized on December 31, 2013?

ANSWERS:

MC:

1. B
2. C
3. B
4. B
5. D
6. A
7. C
8. D
9. B
10. C
11. D
12. A
13. C
14. A
15. B
16. D
17. A
18. D
19. B
20. A

PROBLEMS

1. 8,730,000
2. 62,000
3. 3,175,000