Chapter 2 Problems - IA

1. The following data are available for purposes or stating the financial position of an entity on
December 31, 2020:
Cash, including sinking fund of P500,000 with trustee 2,000,000
Notes receivable 1,000,000
Accounts receivable – assigned 800,000
Note receivable discounted 700,000
Equity of assignee in accounts receivable 500,000
Inventory, including P600,000 cost of goods in transit purchased
FOB shipping point. The goods were received on Jan. 15, 2021 2,800,000
Allowance for doubtful accounts 100,000

How much current assets should be shown in the statement of financial position of December
31, 2020?
a. 5,800,000 b. 5,700,000 c. 5,300,000 d. 5,200,000

2. An entity provides the following on December 31, 2020.

 
Accounts payable after deducting debit balances in suppliers’
            accounts amounting to P50,000                                                400,000
Stock dividends payable                                                                                     200,000
Mortgage payable                                                                                                 300,000
Customers’ deposit                                                                                                 40,000
Appropriation reserve                                                                                          50,000
Income tax withheld                                                                                               30,000
Claims for increase in wages and allowance by employees,
covered in a pending lawsuit                                                             100,000
Estimated expenses in redeeming prize coupons                           120,000

What total amount should be reported as current liabilities?

a. 1,240,000 b. 590,000 c. 840,000 d. 640,000

3. An entity reported the following liabilities on December 31, 2020:

Accounts payable 1,500,000
Short-term borrowings 200,000
Mortgage payable, current portion P200,000 3,000,000
Other bank loan, due June 30, 2021 1,000,000

The P1,000,000 bank loan was refinanced with a 5-year loan on December 31, 2020. The
financial statements were issued February 28, 2021.

What total amount should be reported as current liabilities on December 31, 2020?
a. 2,700,000 b. 5,700,000 c. 1,900,000 d. 2,900,000
 4. An entity provided the following information on December 31, 2020:

Cash 300,000
Accounts receivable 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
Share capital 5,000,000
Retained earnings 500,000

A P500,000 note payable to bank, due on June 30, 2021, was deducted from the
balance on deposit in the same bank.

The entity recorded checks of P200,000 in payment of accounts payable on December

31, 2020. These checks were still on hand on January 20, 2021.

An advance payment of P100,000 from a customer for goods to be delivered in 2020

was deducted from accounts receivable.

What total amount should be reported as current assets on December 31, 2020?
a. 3,600,000 b. 3,900,000 c. 3,800,000 d. 3,700,000

What total amount should be reported as current liabilities on December 31, 2020?
a. 1,900,000 b. 2,300,000 c. 2,100,000 d. 2,200,000

5. An entity reported the following liability account balances on December 31, 2020:

Accounts payable 950,000

Bonds payable 2,000,000
Premium on bonds payable 100,000
Income tax payable 450,000
Deferred tax liability 200,000
Dividends payable 250,000
Note payable, due January 31, 2021 300,000

The deferred tax liability is based on temporary differences that will reverse in 2021. In the
December 31, 2020 statement of financial position, what total amount should be reported as
current liabilities?
a. 1,650,000 b. 2,150,000 c. 4,050,000 d. 1,950,000

6. An entity reported the following on December 31, 2020:

Accounts payable 2,000,000

 Short-term borrowings 1,500,000
Bonds payable, due 2022 3,000,000
Discount on bonds payable 500,000
Mortgage payable, current portion P500,000 3,500,000
Bank loan, due June 30, 2021 1,000,000

The P1,000,000 bank loan was refinanced with a 5-year loan on January 31, 2020. The financial
statements were issued March 1, 2021.

What total amount should be reported as current liabilities on December 31, 2020?
a. 4,000,000 b. 5,000,000 c. 7,500,000 d. 8,500,000

7. An entity provided the following trial balance on December 31, 2020 which had been
adjusted except for income tax expense:

Cash 600,000
Accounts receivable, net of allowance of
P100,000 1,650,000
Prepaid taxes 300,000
Accounts payable 140,000
Share capital 500,000
Share premium 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 2020, estimated tax payments of P300,000 were charged to prepaid taxes. The entity has
not yet recorded income tax expense.

There were no differences between financial and taxable income. The tax rate is 30%.

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.

On December 31, 2020, what amount should be reported as total current assets?
a. 2,250,000 b. 2,000,000 c. 2,200,000 d. 2,300,000

On December 31, 2020, what amount should be reported as total retained earnings?
a. 1,330,000 b. 1,200,000 c. 1,680,000 d. 1,630,000

8. An entity provided the following information on December 31, 2020:

Accounts payable, net of creditors’ debit

balances P200,000 2,000,000
Accrued expenses 800,000
 Bonds payable due December 31, 2022 4,500,000
Premium on bonds payable 500,000
Deferred tax liability 500,000
Income tax payable 1,100,000
Cash dividends payable 600,000
Share dividends payable 400,000
Note payable – 6% due on March 1, 2021 1,500,000
Note payable – 8% due October 1, 2021 1,000,000

On January 5, 2021, the 8% note payable was refinanced on a long-term basis.

Under the loan agreement for the 6% note payable, the entity has the discretion to refinance
the obligation for at least twelve months after December 31, 2020.

What amount should be reported as total current liabilities?

a. 6,100,000 b. 5,700,000 c. 7,200,000 d. 4,700,000

What amount should be reported as total noncurrent liabilities?

a. 8,000,000 b. 7,500,000 c. 8,400,000 d. 7,000,000

9. An entity provided the following trial balance on December 31, 2020 which had been
adjusted except for income tax expense:

Cash 360,000
Accounts receivable 1,680,000
Inventory 1,200,000
Property, plant and equipment 6,300,000
Accounts payable and accrued liabilities 1,080,000
Income tax payable 900,000
Deferred tax liability 420,000
Share capital 1,500,000
Share premium 1,800,000
Retained earnings, January 1 2,100,000
Net sales and other revenue 9,000,000
Costs and expenses 6,000,000
Income tax expense 1,260,000 _________
16,800,000 16,800,000
========= =========

The accounts receivable included P600,000 due from a customer and payable in quarterly
installments of P75,000. The last payment is due December 30, 2022.

During the year, estimated tax payment of P360,000 was charged to income tax expense. The
income tax rate is 30%.

On December 31, 2020, what amount should be reported as total current asset?
a. 2,640,000 b. 2,940,000 c. 3,240,000 d. 2,040,000
On December 31, 2020, what amount should be reported as retained earnings?
a. 5,100,000 b. 2,100,000 c. 4,200,000 d. 3,840,000

10. On December 31, 2020, the bookkeeper of an entity provided the following information:

Accounts payable, including deposits and advances

from customers of P300,000 1,500,000
Notes payable, including note payable to bank due
on December 31, 2022 for P600,000 1,800,000
Share dividends payable 480,000
Credit balances in customers’ accounts 240,000
Serial bonds, payable in semiannual installment of P600,000 6,000,000
Accrued interest on bonds payable 180,000
Contested BIR tax assessment 360,000
Unearned rent income 60,000

In the December 31, 2020 statement of financial position, how much current liabilities should be
reported?
a. 4,380,000 b. 5,220,000 c. 4,080,000 d. 4,740,000

11. An entity provided the following data on December 31, 2020:

Accounts payable 900,000

Notes payable, 8% unsecured, due July 1, 2021 6,400,000
Note payable, 6% due December 31, 2021 2,000,000
Serial Bonds payable, (1,000,000 maturing annually) 5,000,000
Accrued expenses 350,000
Contingent liability 450,000
Deferred tax liability 250,000

The contingent liability is an accrual for possible loss on a P1,000,000 lawsuit filed against the
entity.

The deferred tax liability is not related to an asset for financial reporting and is expected to
reverse in 2021.

When total amount should be reported as current liabilities on December 31, 2020?
a. 10,650,000 b. 10,150,000 c. 11,100,000 d. 9,650,000

12. At year-end, the current assets of an entity revealed cash and cash equivalents of P420,000,
accounts receivable of P720,000 and inventories of P360,000. The examination of accounts
receivable disclosed the following:

Trade accounts 558,000

Allowance for doubtful accounts (12,000)
Claim against shipper for goods lost in transit 18,000
Selling price of unsold goods sent by an entity on consignment
 at 130% of cost and not included in ending inventory 156,000

What total amount should be reported as current asset at year-end?

a. 1,447,200 b. 1,464,000 c. 1,344,000 d. 1,500,000
13. An entity provided the following data on December 31, 2020:

Cash 2,000,000
Accounts receivable 3,000,000
Inventory 1,900,000
Prepaid expenses 100,000
Accounts payable, net of debit balance of P50,000 2,450,000
Interest payable 150,000
Income tax payable 300,000
Money claim of the union pending final decision 500,000
Mortgage payable, due in four annual installments 2,000,000

Analysis of cash

Cash in bank 1,650,000

Customer check marked NSF 100,000
Employee IOU 50,000
Deposit with court for case under litigation 200,000
Total cash 2,000,000

Analysis of accounts receivable

Customers’ debit balances 1,600,000

Advances to subsidiary 400,000
Advances to suppliers 200,000
Advances to officers due currently 300,000
Allowance for doubtful accounts (100,000)
Selling price of merchandise invoiced at 120%
of cost, undelivered and excluded from inventory 600,000
Total accounts receivable 3,000,000

What amount should be reported as total current assets?

a. 6,350,000 b. 5,550,000 c. 6,050,000 d. 6,100,000

What amount should be reported as total current liabilities?

a. 3,950,000 b. 3,450,000 c. 3,400,000 d. 3,700,000

14. An entity reported the following current assets on December 31, 2020:

Cash 5,000,000
Financial assets held for trading (including
 long-term investment of P500,000 in ordinary
shares of Ayala Company 2,000,000
Inventories (including goods received on
consignment of P200,000) 800,000
Prepaid expenses (including a deposit of P50,000 made
on inventories to be delivered in 18 months) 150,000
Total current assets 7,950,000

Cash in general checking account 3,500,000

Cash fund to be used to retire bonds payable in 2021 1,000,000
Cash held to pay value added taxes 500,000
Total cash 5,000,000

What total amount of current assets should be reported on December 31, 2020?
a. 6,200,000 b. 7,250,000 c.6,250,000 d. 7,200,000

15. At year-end, the current assets of an entity revealed cash and cash equivalents of P700,000,
accounts receivable of P1,200,000 and inventories of P600,000. The examination of accounts
receivable disclosed the following:

Trade accounts 930,000

Allowance for doubtful accounts (20,000)
Claim against shipper for goods lost in transit 50,000
Selling price of unsold goods sent by Hazel
on consignment is markup at 30% of sales and
not included in ending inventory 260,000
Total accounts receivable 1,200,000

a. 2,442,000 b. 2,460,000 c. 2,412,000 d. 2,440,000

16. The following data are available for purposes or stating the financial position of an entity on
December 31, 2020:

Cash, including sinking fund of P500,000 with trustee 2,000,000

Notes receivable 1,000,000
Accounts receivable – assigned 800,000
Note receivable discounted 700,000
Equity of assignee in accounts receivable 500,000
Inventory, including P600,000 cost of goods in transit purchased
FOB shipping point. The goods were received on Jan. 15, 2021 2,800,000
Allowance for doubtful accounts 100,000

How much current assets should be shown in the statement of financial position of December
31, 2020?
a. 5,800,000 b. 7,200,000 c. 6,700,000 d. 5,200,000

17. An entity provided the following adjusted account balances on December 31, 2020:
 Wages payable 500,000
Cash 400,000
Mortgage payable 1,500,000
Dividends payable 300,000
Prepaid rent 200,000
Inventory 800,000
Sinking fund 500,000
Short-term investments 600,000
Investment in associate 3,000,000
Accounts receivable 700,000

What total amount should be reported as current assets on December 31, 2020?
a. 6,200,000 b. 2,100,000 c. 2,700,000 d. 3,200,000

Answer Key

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