PROBLEM NO.

1 - Pistons Company
Per books Adjustments Per audit
Current assets
Cash 481,600 1 (327,300) 334,300 1 B
2 180,000
Accounts receivable 1,127,000 1 155,000 1,282,000
Merchandise inventory 3,025,000 3,025,000

4,633,600 4,641,300
Current liabilities
Accounts payable 2,100,500 2 186,200 2,286,700
Other current liabilities 215,500 215,500
2,316,000 2,502,200

Working capital (CA-CL) 2,317,600 2,139,100 2 B

Current ratio (CA/CL) 2.00 1.85 3 B

4 C
5 D
Note : Prepare "T" accounts then post identified adjustments.

Adjusting entries

1 Accounts receivable (P147,250 + P7,750) 155,000

Sales 180,050
Cash 327,300
Sales discounts 7,750

2 Cash 180,000
Purchase discounts 6,200
Accounts payable 186,200
 Page 2 of 13

PROBLEM NO. 2 - Heats Company

1A
2B
Bank Books
Unadjusted balances, 12/31/06 518,800 491,200
Add (deduct) adjustments:
Outstanding checks (P41,760 - P400) (41,360)
Erroneous bank debit 1,200
Cash in transit 5,760
Collection charged to Allow. For Doubtful a/cs 3,200
Collection charged to Inventory 2,400
Unrecorded cash receipt 5,840
Unrecorded interest refund 160
Check returned and replaced not yet cancelled 400
Balances 484,400 503,200
Shortage (18,800)
Adjusted balances 484,400 484,400

3B
Accountabilities:
Cash receipts per records (Jan. 2 to Jan. 10) 68,800
Unrecorded collections deposited (Jan. 2 to Jan. 10) 3,360
Unrecorded collections not deposited (Jan. 9) 6,800
Petty cash fund 1,200
Total 80,160
Less 1/1 to 1/10 collections deposited in the bank:
Total credits per bank statement 60,800
Correction of error in December, 2006 (1,200)
Deposit in transit, 12/31/06 (5,760) 53,840
Cash that should be on hand as of 1/10/07 26,320
Cash and cash items counted 6,000
Cash shortage for the period 1/1/07 to 1/10/07 20,320

4A
5A
PROBLEM NO. 3 - Nets Company

1C
Category Aging ratio AR Balance Rate Allowance
1 – 10 days 64% 960,000 1.00% 9,600
11 – 30 days 18% 270,000 2.50% 6,750
31 – 60 days 8% 120,000 5.00% 6,000
61 – 120 days 5% 75,000 20.00% 15,000
121 – 180 days 3% 45,000 35.00% 15,750
over 180 days 2% 30,000 80.00% 24,000
100% 1,500,000 77,100

2D
(Debit) Doubtful accounts expense 22,300.00 *
(Credit) Allowance for doubtful accounts 22,300.00

Allowance for doubtful accounts, 1/1/06 27,300

Add provisions (P8,000,000 x 4%) 320,000
Total 347,300
Less accounts written-off 292,500
Balance before adjustment 54,800
Required allowance (see no. 1) 77,100
Additional required allowance for doubtful accounts 22,300

3B
4C
5A
PROBLEM NO. 4 - Cavaliers, Inc.
Question No. 1 - A

GL/SL 60 61 to 90 91 to 120 over 120

Unadjusted balances 558,600 258,513 204,735 59,886 35,466
Add (deduct) adjustments:
AJE No. 1 (6,300) (6,300)
AJE No. 2 (4,110) (4,110)
AJE No. 3 7,260 7,260
Adjusted balances 555,450 258,513 211,995 55,776 29,166

Adjusting journal entries:

1) Allowance for doubtful accounts 6,300
Accounts receivable - over 120 days 6,300
To write off definitely uncollectible accounts

2) Doubtful account expense 4,110

Accounts receivable - 91 to 120 days 4,110
To correct entry made in recording accounts written off

3) Accounts receivable - 61 to 90 days 7,260

Advances from customers 7,260
To reclassify advances from customers

4) Allowance for doubtful accounts 11,062

Doubtful account expense 11,062
To adjust allowance to required balance

Question No. 2 - B

Age of accounts balance Rate Allowance

60 258,513 1% 2,585.13
61 to 90 211,995 3% 6,359.85
91 to 120 55,776 6% 3,346.56
over 120 29,166 25% 7,291.50
555,450 19,583.04
Question no. 3 - B
Question no. 4 - A
Balance per books 36,945
Add (deduct) adjustments:
AJE no. 1 (6,300)
AJE no. 4 (squeeze) (11,062) (17,362)
Required allowance (see no. 7) 19,583

Balance per books (P27,930 - P4,110) 23,820

Add (deduct) adjustments:
AJE no. 2 4,110
AJE no. 4 (11,062) (6,952) (4)
Doubtful accounts expense per audit 16,868 (3)

Question no. 5 - D
PROBLEM NO. 5 - Wizards Company
Question No. 1 - C
Date Collection Period PV factor PV at 8%
January 1, 2007 200,000 0 1.0000 200,000
January 1, 2008 200,000 1 0.9259 185,180
January 1, 2009 200,000 2 0.8573 171,460
600,000 556,640

Question No. 2 - B
Carrying value, 12/31/06 600,000
Less PV of projected cash flows (see below) 556,640
Loan impairment (bad debt expense) 43,360

Journal entry to record the loan impairment:

Bad Debt Expense 43,360
Allowance for Loan Impairment 43,360

Question No. 3 - B
Interest income for 2007 [P556,640 - P200,000) x 8%] 28,531

Journal entries to record collection:

Cash 200,000
Loan receivable 200,000

Allowance for Loan Impairment 28,531

Interest income 28,531

Question No. 4 - C
Question No. 5 - A
 Page 6 of 13

PROBLEM NO. 6 - Pacers Company

Inventory Accts. Payable Net Sales
Unadjusted balances 1,520,000 1,200,000 8,150,000
Add (deduct) adjustments:
a - - (40,000)
b 71,000 71,000 -
c 30,000 - -
d 32,000 - (47,000)
e 21,000 - -
f 27,000 - -
g - 56,000 -
h 3,000 6,000
Adjusted balances 1,704,000 1,333,000 8,063,000
1 2 3
1 B
2 A
3 D
4 C
5 A

PROBLEM NO. 7 - Bulls Company

Question No. 1 - D
Cost of units available for sale 118,800
Less purchases:
July 5 (60,000 units x P0.40) 24,000
July 11 (50,000 units x P0.41) 20,500
July 15 (40,000 units x P0.42) 16,800
July 16 (50,000 units x P0.45) 22,500 83,800
Cost of beginning inventory 35,000
Divide by cost per unit 0.35
Number of units on hand, July 1 100,000

Question No. 2 - C
Inventory, July 1 100,000
Add purchases 200,000
Total units available for sale 300,000
Less inventory, July 31 50,000
Units sold 250,000

Question No. 3 - B
Question No. 4 - B
Cost of units available for sale 118,800
Less cost of sales 99,000
Inventory, July 31 19,800 (4)
Divide by units on hand July 31 50,000
Unit cost of inventory, July 31 0.396 (3)

Question No. 5 - A
 Page 7 of 13

PROBLEM NO. 8 - Bulls, Inc.

Question No. 1 - A
Bulls, Inc. owns 10% (100,000/1,000,000) of BSA, Inc. stock; therefore, the cost method
is used and the dividend is computed as follows:
P300,000 dividends paid by BSA, Inc. x 10% = P30,000

Question No. 2 - C
Bulls, Inc. owns 25% (250,000/1,000,000) of CPA Corp. stock; therefore, the equity method
is used to record the income earned.
P650,000 x 25% = P162,500 share of income of CPA Corp.

Question No.3 - B
Carrying value of investment in BSA, Inc. (100,000 shares x P6.50) 650,000

Question No. 4 - D
Acquisition cost (250,000 shares x P10) 2,500,000
Share in net income for 2005 (P650,000 x 25%) 162,500
Carrying value, 12/31/05 2,662,500
Dividends received in 2006 (P100,000 x 25%) (25,000)
Share in net income for 2006 (P250,000 x 25%) 62,500
Carrying value, 12/31/06 2,700,000

Question No. 5 - A

Carrying value, 12/31/06 (see no. 3) 650,000

Acquisition cost (100,000 shares x P5) 500,000
Unrealized gain, 12/31/06 150,000
PROBLEM NO. 9 - Spurs Corporation

1 D
Balance, January 1, 2006 400,000
Land site number 102:
Acquisition cost 4,000,000
Commission paid to real estate agent 240,000
Clearing costs 60,000
Amounts recovered (20,000) 4,280,000
Land site number 103:
Acquisition cost 1,200,000
Demolition cost 120,000 1,320,000
Balance, December 31, 2006 6,000,000

Notes: Cost of Land site number 103 should be charged entirely to land account
Land site number 104 should be presented as land held for resale

2 B
Balance, January 1, 2006 3,200,000
Cost of new building constructed on site no. 103:
Constructions costs 600,000
Excavation fees 44,000
Architectural design fees 32,000
Building permit fee 4,000 680,000
Balance, December 31, 2006 3,880,000

3 C
Balance, January 1, 2006 2,000,000
Electrical work 140,000
Construction of extension (P320,000 x 1/2) 160,000
Improvement on office space 260,000
Balance, December 31, 2006 2,560,000

4 C
Balance, January 1, 2006 2,800,000
Cost of new machines acquired:
Invoice price 300,000
Freight costs 8,000
Unloading charges 6,000 314,000
Balance, December 31, 2006 3,114,000

5B
PROBLEM NO. 10 - Various

1 A
Carrying amount, 1/1/06 (P600,000 x 10/20) 300,000
Add overhaul costs 120,000
Total remaining carrying amount, 1/1/06 420,000
Divide by remaining life, 1/1/06 (20-10+5) 15
Depreciation for 2006 28,000

2 B
Purchase price of machine 650,000
Freight cost 5,000
Installation cost 20,000
Testing costs prior to regular operation 4,000
Total cost 679,000
Less residual amount 50,000
Depreciable amount 629,000
Divide by useful life 20
Depreciation expense - original asset 31,450
Depreciation expense - accessories (P48,600/18) 2,700
Total depreciation expense for 2006 34,150

3 C
Depreciation expense for 2006 (P340,000 x .25 x 6/12) 42,500

4 D
Cash price of machine 2,000,000
Installation cost 70,000
Total cost 2,070,000
Less residual amount 100,000
Depreciable amount 1,970,000
Divide by useful life 10
Depreciation for 2006 197,000

5 D
Cost of natural resources, net of residual value (P10M - P2M) 8,000,000
Mine improvements 750,000
Cost subject to depletion 8,750,000
Divide by total estimated reserves in 2005 2,000,000
Depletion rate in 2005 4.38
Number of tons mined in 2005 50,000
Depletion for 2005 219,000

Original cost subject to depletion 8,750,000

Less depletion in 2005 219,000
Remaining cost to deplete, 1/1/06 8,531,000
Remaining tons of ore, 1/1/06 (3,000,000+150,000) 3,150,000
Depletion rate in 2006 2.71
Number of tons mined in 2006 150,000
Depletion for 2006 406,500
PROBLEM NO. 11 - Nuggets Company

1 C
Present value of rental payments (P420,000 x 4.6048) 1,934,016
Present value of GRV (P367,122 x 0.5066) 185,984
Cost of leased equipment 2,120,000

2 B
Cost of leased equipment (see no. 1) 2,120,000
Less residual amount 367,122
Depreciable amount 1,752,878
Divide by lease term 6
Depreciation expense for 2005 292,146

3 C
4 B
5 A
Date Payment Interest Principal Lease liab.
01.01.05 2,120,000
01.01.05 420,000 - 420,000 1,700,000
01.01.06 420,000 204,000 216,000 1,484,000
01.01.07 420,000 178,080 241,920 1,242,080
01.01.08 420,000 149,050 270,950 971,130
01.01.09 420,000 116,536 303,464 667,665
01.01.10 420,000 80,120 339,880 327,785
01.01.11 367,122 39,337 327,785 -
 Page 11 of 13

PROBLEM NO. 12 - Mavericks Company

Question No. 1 - B
P300,000 note payable to bank (P300,000 x 8% x 4/12) 8,000
Mortgage note payable – 10% (P600,000 x 10% x 3/12) 15,000
Mortgage note payable – 12% (P1,500,000 x 12% x 8/12) 120,000
Total interest payable, 12/31/06 143,000

Question No. 2 - A
Note payable to bank - payable on demand 300,000

Note: The P500,000 note payable to bank will be classified as noncurrent because it
was refinanced on a long term basis as of December 31, 2006.

Question No. 3 - C
Accounts payable 650,000
Notes payable – trade 190,000
Notes payable – bank (see no. 2) 300,000
Wages and salaries payable 15,000
Interest payable (see no. 1) 143,000
Mortgage note payable – 10% (with breach in loan covenants) 600,000
Mortgage note payable – 12% (P220,000 - P180,000) 40,000
Bonds payable, due 7/1/07 2,000,000
Total current liabilities, 12/31/06 3,938,000

Question No. 4 - D
Notes payable – bank (see no. 17) 500,000
Mortgage note payable – 12% (P1,500,000 - P40,000) 1,460,000
Total noncurrent liabilities, 12/31/06 1,960,000

Question No. 5 - C
PROBLEM NO. 13 - Grizzlies Corporation

Preferred Common Retained Treasury

stock stock APIC earnings stock Total
Issuance of CS, 1/2/05 160,000
Issuance of PS, 1/2/05 600,000 48,000
Issuance of CS, 3/2/05 305,100
Issuance of PS and CS for land, 7/10/05 120,000 270,400 9,600
Declared cash dividend-PS and CS, 12/16/06 (147,750)
Net income for 2005 450,000
Balances, 12/31/05 720,000 735,500 57,600 302,250 - 1,815,350
Acquisition of TS, 2/27/06 (228,000)
Resale of TS above cost, 6/17/06 40,000 190,000
Resale of TS below cost, 7/31/06 (2,000) 38,000
Issuance of CS, 7/31/05 231,000
Declared cash dividend-PS and CS, 12/16/06 (121,200)
Net income for 2006 425,000
Balances, 12/31/06 720,000 966,500 95,600 606,050 - 2,388,150
1-C 2-B 3-D 4-B
5-A
PROBLEM NO. 14 - Clippers Corporation
NI NI NI NI RE
2003 2004 2005 2006 12.31.06
Unadjusted balances 60,000 44,000 52,000 60,000 216,000
1) Ending inventory - overstated
2004 (56,000) 56,000
2005 (64,000) 64,000
2) Ending inventory - understated
2003 48,000 (48,000)
2006 72,000 72,000
3) Prepaid expense
2003 7,200 (7,200)
2004 5,600 (5,600)
2005 4,000 (4,000)
2006 4,800 4,800
4) Unearned income
2004 (3,200) 3,200
2006 (2,400) (2,400)
5) Accrued expense
2003 (1,600) 1,600
2004 (600) 600
2005 (800) 800
2006 (400) (400)
6) Accrued income
2004 1,000 (1,000)
2006 1,200 1,200

Adjusted balances 113,600 (62,800) 44,400 196,000 291,200

(1) (2) (3) (4) (5)
B A C D B