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INTERMEDIATE ACCOUNTING 1

1. A company’s trial balance totals were:

Debit …………………….₱387,642
Credit ……………………₱379,511

A suspense account was opened for the difference. Which of the following errors would have the
effect of reducing the difference when corrected?
a. The petty cash balance of ₱500 has been omitted from the trial balance
b. ₱4,000 received for rent of part of the office has been correctly recorded in the cash book and
debited to Rent expense account
c. No entry has been made in the records for a cash sale of ₱2,500
d. ₱3,000 paid for repairs to plant has been debited to the plant asset account.

B – the correction is credit rent expense account (which will decrease the overstated total debits) and
a credit to rent income/ unearned rent (which will increase the understated total credits).

Choice A is incorrect. If the omitted PCF balance is corrected, the total debits will be increased;
thereby increasing the difference between the total debits and credits.
Choice C is incorrect. The correction, which is debit cash and credit sales, will not affect the total
debits and credits.
Choice D is incorrect. The correction, which is a reclassification from plant asset account – a debit
account, to repairs expanse – also a debit account, will not affect the difference between the total
debits and credits.

2. A company paid its property taxes on October 1 for the period October 1, year 1 to September
30, year 2. When the payment was made the company debited property taxes expense and
credited cash for ₱8,000. The adjusting entry at December 31, year 1 would include which of the
following:
a. debit prepaid property taxes, ₱6,000.
b. credit prepaid property taxes, ₱6,000.
c. credit property tax expense, ₱2,000.
d. debit property tax expense, ₱6,000.

3. If during an accounting period an expense item has been incurred and consumed but not yet
paid for or recorded, the end-of-period adjusting entry would involve
a. a liability account and an asset account.
b. an asset or contra asset account and an expense account.
c. a liability account and an expense account.
d. a receivable account and a revenue account.

4. A trial balance
a. proves that debits and credits are equal in the ledger.
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b. supplies a listing of open accounts and their balances that are used in preparing financial
statements.
c. is normally prepared three times in the accounting cycle.
d. all of these.

5. It is a formal record where transactions are initially recorded.

a. Journal entries c. Master file
b. Ledger d. Journal

6. It is the basic storage of information in accounting.

a. Journal entry c. Debit or Credit
b. T-account d. Account

7. Which of the following is a recordable event or item?

a. Changes in managerial policy
b. The value of human resources
c. Changes in personnel
d. None of these

8. Errors revealed by a trial balance are

a. those errors resulting from transposition but not transplacement.
b. those errors resulting from either transposition or transplacement.
c. transplacement and transposition errors on both sides of a journal entry.
d. those errors which that have caused the total debits and total credits to be unequal.

9. Adjusting entries are necessary to

1. obtain a proper matching of revenue and expense.
2. achieve an accurate statement of assets and equities.
3. adjust assets and liabilities to their fair value.
a. 1 c. 3
b. 2 d. 1 and 2

10. Factors that shape an accounting information system include the

a. nature of the business c. volume of data to be handled.
b. size of the firm d. all of these.

11. An accrued revenue can best be described as an amount

a. collected and currently matched with expenses.
b. collected and not currently matched with expenses.
c. not collected and currently matched with expenses.
d. not collected and not currently matched with expenses.

12. At the end of the current year, the prepaid insurance account showed a debit the balance of
₱5,000; the balance at the beginning of the year was ₱6,000, and during the year the insurance
premiums paid amounted to ₱8,000. Assuming insurance premium payments are initially
entered in the prepaid insurance account ,the adjusting entry at the end of the year would
include:
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a. debit prepaid insurance ₱9,000

b. credit prepaid insurance ₱1,000
c. debit insurance expense ₱7,000
d. debit insurance expense ₱9,000

13. When an item of revenue is collected and recorded in advance, it is normally called a(n)
___________ revenue.
a. accrued c. unearned
b. prepaid d. cash

14. The information below was taken from the bank transfer schedule prepared during the audit of
Fox Co.’s financial statements for the year ended December 31, 2001. Assume all checks are
dated and issued on December 30, 2001.
Bank Accounts Disbursement date Receipt date
Check no. From To Per books Per bank Per books Per bank
101 National Federal Dec. 30 Jan. 4 Dec. 30 Jan. 3
202 County State Jan. 3 Jan. 2 Dec. 30 Dec. 31
303 Federal American Dec. 31 Jan. 3 Jan. 2 Jan. 2
404 State Republic Jan. 2 Jan. 2 Jan. 2 Dec. 31

Which of the following checks might indicate kiting?

a. #101 and #303.
b. #202 and #404
c. #101 and #404
d. #202 and #303

15. Trask Corporation's checkbook balance on December 31, 2001 was ₱8,000. In addition, Trask
held the following items in its safe on December 31:

Check payable to Trask Corporation, dated January 2, 2002, not

included in December 31 checkbook balance ₱2,000
Check payable to Trask Corporation, deposited December 20,
and included in December 31 checkbook balance, but
returned by bank on December 30, stamped "NSF." The
check was redeposited Jan. 2, 2002, and cleared Jan. 7 400
Post-dated checks 150
Check drawn on Trask Corporation's account, payable to a
vendor, dated and recorded December 31, but not mailed
until 1,000
January 15, 2002

The proper amount to be shown as cash on Trask's balance sheet at December 31, 2001, is
a. ₱7,600.
b. ₱8,000.
c. ₱8,600.
d. ₱9,750.
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C (8,000 – 400 + 1,000) = 8,600

16. Bank statements provide information about all of the following except
a. checks cleared during the period.
b. NSF checks.
c. bank charges for the period.
d. errors made by the company.

17. Which of the following items would be added to the book balance on a bank reconciliation?
a. Outstanding checks
b. A check written for ₱63 entered as ₱36 in the accounting records
c. Interest paid by the bank
d. Deposits in transit

18. In preparing a bank reconciliation, interest paid by the bank on the account is
a. added to the bank balance.
b. subtracted from the bank balance.
c. added to the book balance.
d. subtracted from the book balance.

19. In preparing a monthly bank reconciliation, which of the following items would be added to the
balance reported on the bank statement to arrive at the correct cash balance?
a. Outstanding checks
b. Bank service charge
c. Deposits in transit
d. A customer's note collected by the bank on behalf of the depositor

20. Bank reconciliations are normally prepared on a monthly basis to identify adjustments needed in
the depositor's records and to identify bank errors. Adjustments should be recorded for
a. bank errors, outstanding checks, and deposits in transit.
b. all items except bank errors, outstanding checks, and deposits in transit.
c. book errors, bank errors, deposits in transit, and outstanding checks.
d. outstanding checks and deposits in transit.

21. In preparing its bank reconciliation for the month of February, James Company has made
available the following information:
Balance per bank statement, February 28 ₱18,025
Deposit in transit, February 28 3,125
Outstanding checks, February 28 2,875
Check erroneously deducted by bank from James' 125
account, February 10
Bank service charges for February 25

What is the corrected cash balance at February 28?

a. ₱18,125
b. ₱18,150
c. ₱18,275
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d. ₱18,400

Solution: (18,025 + 3,125 – 2,875 + 125) = 18,400

Use the following information for the next three questions:

The accounting records and bank statement of Entity A show the following information:

SUBSIDIARY LEDGER
CASH IN BANK - BPI CURRENT ACCOUNT
Date Description Debit Credit Balance
6/1 Bal. forwarded     881,000
6/11 Check #1113   130,800 750,200
6/15 Check #1114   220,000 530,200
6/16 Deposit 295,800   826,000
6/22 Deposit 670,000   1,496,000
6/24 Check #1115   80,000 1,416,000
6/28 Check #1116   380,000 1,036,000
6/29 Deposit 160,000   1,196,000

METROBANK
BANK STATEMENT - ENTITY A
Dat
Description Debit Credit Balance
e
6/1 Bal. forwarded     881,000
6/10 Deposit 350,000 1,231,000
6/15 Payment 2,000   1,229,000
6/15 Check #1114 220,000   1,009,000
6/16 Deposit   295,800 1,304,800
6/20 Payment 50,000 1,254,800
6/22 Deposit   670,000 1,924,800
6/24 Check #1115 80,000 1,844,800
6/26 Check #1113 130,800 1,714,000
6/28 Deposit   410,000 2,124,000

Additional information:
 The payments of ₱2,000 and ₱50,000 shown on the bank statement pertain to the cost of
checkbook requested from the bank and the monthly amortization of a bank loan, respectively.
The loan payment includes payment for interest of ₱8,000.
 Deposits shown on the bank statement but not on the cash ledger represent collections of
accounts receivable.

22. How much is the deposit in transit?

a. 160,000
b. 102,000
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c. 52,000
d. 380,000

23. How much is the credit memo?

a. 52,000
b. 160,000
c. 760,000
d. 380,000

24. How much is the adjusted cash balance?

a. 1,940,000
b. 1,760,000
c. 1,380,000
d. 1,904,000

Solutions to #s 22 to 24:

SUBSIDIARY LEDGER
CASH IN BANK - BPI CURRENT ACCOUNT
Date Description Debit Credit Balance
6/1 Bal. forwarded     881,000
6/11 Check #1113   130,800 750,200
6/15 Check #1114   220,000 530,200
6/16 Deposit 295,800   826,000
6/22 Deposit 670,000   1,496,000
6/24 Check #1115   80,000 1,416,000
6/28 Check #1116   380,000 1,036,000
6/29 Deposit 160,000   1,196,000

METROBANK
BANK STATEMENT - ENTITY A
Dat
Description Debit Credit Balance
e
6/1 Bal. forwarded     881,000
6/10 Deposit 350,000 1,231,000
6/15 Payment 2,000   1,229,000
6/15 Check #1114 220,000   1,009,000
6/16 Deposit   295,800 1,304,800
6/20 Payment 50,000 1,254,800
6/22 Deposit   670,000 1,924,800
6/24 Check #1115 80,000 1,844,800
6/26 Check #1113 130,800 1,714,000
6/28 Deposit   410,000 2,124,000
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Bank reconciling items:

 Deposit in transit: ₱160,000 deposit on 6/29.
 Outstanding check: ₱380,000 Check #1116.

Book reconciling items:

 Credit memos: ₱350,000 deposit on 6/10 + ₱410,000 deposit on 6/28 = ₱760,000.
 Debit memos: ₱2,000 payment on 6/15 + ₱50,000 payment on 6/20 = ₱52,000.

Bal. per books, end. 1,196,000 Bal. per bank, end. 2,124,000
Add: CM 760,000 Add: DIT 160,000
Less: DM (52,000) Less: OC (380,000)
Add/Less: Book errors - Add/Less: Bank errors -
Adjusted balance 1,904,000 Adjusted balance 1,904,000
     

Use the following information for the next three questions:

Information on ABC Co. is shown below:
30-Jul Aug. 31
Book balance 132,200 180,000
Book debits 60,000
Book credits ?
Bank balance 100,600 169,000
Bank debits 20,600
Bank credits ?
Notes collected by bank 10,000 35,000
Debit memos 7,800 8,900
Understatement of book receipts - 2,800
Deposit in transit 45,000 43,800
Outstanding checks 11,200 3,900

25. How much is the adjusted receipts in August?

a. 78,800
b. 80,700
c. 88,700
d. 87,800

26. How much is the adjusted disbursements in August?

a. 13,300
b. 17,800
c. 16,200
d. 14,300

27. How much is the adjusted balance of cash on August?

a. 136,200
b. 134,400
c. 132,600
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d. 208,900

Solutions to #s 25 to 27:
Receipt
  30-Jul Disbursements 31-Aug
s
Per books 132,200 60,000 12,200 180,000
ADD: CM
July 10,000 (10,000)
August 35,000 35,000
LESS: DM
July (7,800) (7,800)
August 8,900 (8,900)
Book errors:
August 2,800 2,800
Adjusted 134,40 208,90
87,800 13,300
bal. 0 0

  30-Jul Receipts Disbursements 31-Aug

Per bank 100,600 89,000 20,600 169,000
ADD: DIT
July 45,000 (45,000)
August 43,800 43,800
LESS: OC
(11,200
July (11,200)
)
August 3,900 (3,900)

Adjusted 208,90
134,400 87,800 13,300
bal. 0

28. Under the allowance method of recognizing bad debts on trade accounts receivable, the effect of
writing off an account to an entity's working capital is
a. increase
b. decrease
c. either a or b depending on the current level of the entity's working capital
d. no effect

29. JG Company had an accounts receivable balance of ₱40,000 on December 31, 2001, and ₱65,000
on December 31, 2002. The company wrote off ₱10,000 of accounts receivable during 2002, and
collected ₱2,000 on an account written off in 2000. Sales for the year 2002 totaled ₱520,000. All
sales were on account. The amount collected from customers on accounts receivable during 2002
was
a. ₱487,000. c. ₱510,000.
b. ₱485,000. d. ₱495,000.

Solution:
Accounts receivable
beg. 40,000
Sales on account 520,000 487,000 Collections, including recoveries
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Recoveries 2,000 10,000 Write-offs

65,000 end.

30. RGI Company had an accounts receivable balance of ₱45,000 on December 31, 2001, and ₱60,000
on December 31, 2002. The company wrote off ₱12,000 of accounts receivable during 2002, and
collected ₱2,500 on an account written off in 2000. Sales for the year 2002 totaled ₱550,000. All
sales were on account. The total collections from customers in 2002 were
a. ₱535,000. c. ₱538,000.
b. ₱523,000. d. ₱525,500.

Solution:
Accounts receivable
beg. 45,000
Sales on account 550,000 525,500 Collections, including recoveries
Recoveries 2,500 12,000 Write-offs
60,000 end.

31. At the close of its first year of operations, December 31, 2004, Linn Company had accounts
receivable of ₱490,000, after deducting the related allowance for doubtful accounts. During 2004,
the company had charges to bad debt expense of ₱90,000 and wrote off, as uncollectible,
accounts receivable of ₱40,000. What should the company report on its balance sheet at
December 31, 2004 as accounts receivable before the allowance for doubtful accounts?
a. ₱620,000 c. ₱440,000
b. ₱540,000 d. ₱360,000

Solution:
Allowance for doubtful accounts
- beg.
Write-offs 40,000 90,000 Bad debts expense
- Recoveries
end. 50,000

490,000 + 50,000 = 540,000

32. Before year-end adjusting entries, Bass Company's account balances at December 31, 2004 for
accounts receivable and the related allowance for uncollectible accounts were ₱700,000 and
₱45,000, respectively. An aging of accounts receivable indicated that ₱62,500 of the December 31
receivables are expected to be uncollectible. The net realizable value of accounts receivable after
adjustment is
a. ₱682,500. c. ₱592,500.
b. ₱637,500. d. ₱655,000.

Solution: (700,000 – 62,500) = 637,500

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33. During the year, Jantz Company made an entry to write off a ₱4,000 uncollectible account.
Before this entry was made, the balance in accounts receivable was ₱80,000 and the balance in
the allowance account was ₱4,500. The net realizable value of accounts receivable after the write-
off entry was
a. ₱80,000. c. ₱71,500.
b. ₱79,500. d. ₱75,500.

Solution: [(80,000 – 4,000) - (4,500 – 4,000)] = (76,000 – 500) = 75,500

34. The following information is available for Reagan Company:

Allowance for doubtful accounts at December 31, 2003 ₱ 8,000
Credit sales during 2004 400,000
Accounts receivable deemed worthless and written
off during 2004 9,000

It has been determined that an allowance for doubtful accounts of ₱9,500 is needed at December 31,
2004. What amount should Reagan record as "bad debt expense" for the year ended December 31,
2004?
a. ₱8,500 c. ₱10,500
b. ₱9,500 d. ₱17,500

Solution: (9,500 + 9,000 – 8,000) = 10,500

Use the following information for the next two questions:

A trial balance before adjustments included the following:
Debit Credit
Sales ₱425,000
Sales returns and allowance ₱14,000
Accounts receivable 53,000
Allowance for doubtful accounts 760

35. If the estimate of uncollectibles is made by taking 1% of net sales, the amount of the adjustment
is
a. ₱3,350. c. ₱4,250.
b. ₱4,110. d. ₱4,870.

Solution: (425,000 – 14,000) = 4,110

36. If the estimate of uncollectibles is made by taking 10% of gross account receivables, the amount
of the adjustment is
a. ₱4,540. c. ₱5,224.
b. ₱5,300. d. ₱6,060.

Solution: (53,000 x 10%) – 760 = 4,540

37. For the month of December, the records of Balin Corporation show the following information:
Cash received on accounts receivable ₱ 70,000
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Cash sales 60,000

Accounts Receivable, December 1 160,000
Accounts Receivable, December 31 148,000
Accounts Receivable written off as uncollectible 2,000

The corporation uses the direct write-off method in accounting for uncollectible accounts receivable.

What are the gross sales for the month of December?

a. ₱118,000 c. ₱130,000
b. ₱120,000 d. ₱144,000

Solution: (148,000 + 70,000 + 60,000 + 2,000 – 160,000) = 120,000

38. An analysis and aging of accounts receivable of the Lucille Company at December 31, 2002,
showed the following:

Accounts Receivable .................................. ₱840,000

Allowance for Doubtful Accounts
(before adjustment) ................................ 36,000 (cr)
Accounts estimated to be 76,800
uncollectible ...............

Compute for the net realizable value of the accounts receivable of Lucille Company at December 31,
2002.
a. ₱804,000 c. ₱763,200
b. ₱799,200 d. ₱727,200

Solution: [840,000 – (36,000 + 76,800)] = 727,200

39. Spongebob Squarepants lent ₱2,000 to Squidward for one year at 10% interest, all due at
maturity. He insisted the terms of the transaction be formalized in promissory note. In this
situation
a. the maturity value of the note is ₱2,000.
b. Spongebob Squarepants is considered the maker of the note and records the note as an asset
in his accounting records.
c. Spongebob Squarepants is considered the maker of the note and records the note as a
liability in his accounting records.
d. Squidward is considered the maker of the note and records the note as a liability in his
accounting records.

40. Scott Company received a one-year non-interest-bearing note receivable. When the note
receivable was recorded, which of the following were debited or credited?
Interest Receivable Discount on Note Receivable
a. Yes Yes
b. Yes No
c. No Yes
d. No No
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41. The periodic cash flows from a debt instrument may be computed by
a. multiplying the future cash flows from the note by an appropriate present value factor.
b. dividing the initial carrying amount by an appropriate present value factor.
c. adding together the periodic interest income and the amortization.
d. dividing the face amount by the life of the instrument.

42. On May 1, 2004 a company purchased a new machine which it does not have to pay for until
May 1, 2006. The total payment on May 1, 2006 will include both principal and interest.
Assuming interest at a 10% rate, the cost of the machine would be the total payment multiplied
by what time value of money factor?
a. Future value of annuity of 1
b. Future value of 1
c. Present value of annuity of 1
d. Present value of 1

43. What is the effective interest rate of a bond or other debt instrument measured at amortized
cost?
a. The stated coupon rate of the debt instrument.
b. The interest rate currently charged by the entity or by others for similar debt instruments
(i.e., similar remaining maturity, cash flow pattern, currency, credit risk, collateral, and
interest basis).
c. The interest rate that exactly discounts estimated future cash payments or receipts through
the expected life of the debt instrument or, when appropriate, a shorter period to the net
carrying amount of the instrument.
d. The basic, risk-free interest rate that is derived from observable government bond prices.

44. Which of the following is true regarding non-interest bearing note receivables?
a. they are always discounted to their present value on initial recognition
b. they include a specified principal amount but an unspecified interest amount
c. they include a specified principal and specified interest
d. they cause no interest income to be recognized over their term
e. they include an unspecified principal and an unspecified interest

45. A company received two one-year notes in payment for merchandise sold. One note has a face
amount of ₱6,000 and was interest-bearing at an annual rate of 18 percent. The other note has a
face amount of ₱7,080 and was non-interest-bearing (its implied interest rate was 18 percent)
a. The total amount of cash ultimately to be received will be more for the interest-bearing note.
b. Both notes will cause the same total interest to be recognized.
c. The amount of interest revenue which should be recognized is more for the interest-bearing
note.
d. The amount which should be credited to sales revenue is more for the noninterest-bearing
note

46. Gary Snail Inc., received a 3-year non-interest bearing trade note for ₱50,000 on January 1, 20x1.
The current interest rate at that time was 15% for similar notes. Gary Snail recorded the receipt
of the note as follows:
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(Dr) Notes receivable – trade ₱50,000

(Cr) Sales ₱50,000

The effect of this accounting for the notes receivable Gary Snail’s profit for years 20x1, 20x2 and 20x3
and retained earnings at the end of 20x3, respectively, shall to
a. overstate, overstate, understate, no effect
b. overstate, understate, understate, no effect
c. overstate, understate, understate, understate
d. no effect on any of these

47. Which of the following statements regarding interest methods of allocations is not true?
a. The term “interest methods of allocation” refers both to the convention for periodic
reporting and to the several approaches to dealing with changes in estimated future cash
flows.
b. Interest methods of allocation are reporting conventions that use present value techniques in
the absence of a fresh-start measurement to compute changes in the carrying amount of an
asset or liability from one period to the next.
c. Interest methods of allocation are grounded in the notion of current cost.
d. Holding gains and losses are generally excluded from allocation systems.

48. Which of the following is not an objective of using present value in accounting measurements?
a. To capture the value of an asset or a liability in the context of a particular entity.
b. To estimate fair value.
c. To capture the economic difference between sets of future cash flows.
d. To capture the elements that taken together would comprise a market price if one existed.

49. On July 1, 2002, Cornell Corp. received a one-year note with a face value of ₱900,000 and a stated
interest rate of 15 percent in exchange for a machine with a fair value of ₱1,000,000. Compute the
effective interest rate for Cornell Corp.
a. 16.67 percent
b. 15.0 percent
c. 3.5 percent
d. 11.11 percent

Solution:
Using trial and error:
Cash flows PV of 1 @3.5%, n=1 Present value
900,000.00 0.96618357 869,565.22
135,000.00 0.96618357 130,434.78
1,000,000.00

50. A 10 percent, ₱3,000, 3-month note receivable discounted at 12 percent for 2 months will result in
net proceeds of
a. ₱3,075.00.
b. ₱3,013.50.
c. ₱3,000.00.
d. ₱3,005.25.
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Solution:
MV = 3,000 + (3,000 x 10% x 3/12) = 3,075
D = 3,075 x 12% x 2/12 = 61.50
NP = 3,075 – 61.50 = 3,013.50

- END -