FINANCIAL ACCOUNTING 1

CASH AND CASH EQUIVALENTS

THEORIES

1. As contemplated in accounting, cash includes

a. Money only
b. Money and any negotiable instrument
c. Any negotiable instrument
d. Money and any negotiable instrument that is payable in money and acceptable by the bank for deposit
and immediate credit
2. To be reported as “cash and cash equivalent”, the cash and cash equivalent must be
a. Unrestricted in use for current operations
b. Available for the purchase of property, plant and equipment
c. Set aside for the liquidation of long-term debt
d. Deposited in the bank
3. Cash equivalents are
a. Short-term and highly liquid investments that are readily convertible into cash
b. Short-term and highly liquid investments that are readily convertible into cash with remaining maturity
of three months or more
c. Short-term and highly liquid investments that are readily convertible into cash with remaining maturity
of three months or less
d. Short-term and highly liquid marketable equity securities
4. Which is false concerning measurement of cash and cash equivalents?
a. Cash is measured at face value
b. Cash in foreign currency is measured at the current exchange rate
c. If a bank or financial institution holding the funds of the company is in bankruptcy or financial difficulty,
cash should be written down to estimated realizable value
d. Cash equivalents should be measured at maturity value, meaning face value plus interest
5. If material, deposits in foreign bank which are subject to foreign exchange restriction should be classified
a. Separately as current asset, with appropriate disclosure
b. Separately as a non-current asset with appropriate disclosure
c. Be written off as an extraordinary loss
d. As part of cash and cash equivalents
6. Bank overdraft
a. Is a debit balance in a cash in bank account
b. Is offset against demand deposit account in another bank
c. Which cannot be offset is classified as a current liability
d. Which cannot be offset is classified as non-current liability
7. A compensating balance
a. Must be included in cash and cash equivalent
b. Which is legally restricted and related to a long-term loan is classified as a current asset
c. Which is legally restricted and related to a short-term loan is classified separately as a current asset
d. Which is not legally restricted as to withdrawal is classified separately as current asset
8. 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 the balance sheet
d. Should be treated as outstanding checks if they are ultimately encashed
9. Which of the following should not be considered cash for financial reporting purposes?
a. Petty cash funds and change funds
b. Money orders, certified checks and personal checks
c. Coin, currency and available funds
d. Post-dated checks and IOUs
FINANCIAL ACCOUNTING 1

10. Which of the following is usually considered cash?

a. Certificates of deposit
b. Checking accounts
c. Money market savings certificates
d. Post-dated checks
11. Petty cash fund is
a. Separately classified as current asset
b. Money kept on hand for making minor disbursements of coin and currency rather than by writing
checks
c. Set aside for the payment of payroll
d. Restricted cash
12. The petty cash account under the imprest fund system is debited
a. Only when the fund is created
b. When the fund is created and every time it is replenished
c. When the fund is created and when the size of the funds is increased
d. When the fund is created and when the size of the funds is decreased
13. The internal control feature that is specific to petty cash is
a. Separation of duties
b. Assignment of responsibility
c. Proper authorization
d. Imprest system
14. In reimbursing the petty cash fund, which of the following is true?
a. Cash is debited
b. Petty cash is debited
c. Petty cash is credited
d. Expense accounts are debited
15. A cash over and short account
a. In not generally accepted
b. Is debited when the petty cash fund proves out over
c. Is debited when the petty cash fund proves out short
d. Is a contra account to cash
16. The following statements pertain to accounting for petty cash fund. Which statement is false?
a. Each disbursement from petty cash should be supported by a petty cash voucher
b. The creation of a petty cash fund requires a journal entry to reflect the transfer of fund out of the
general cash account
c. At any time, the sum of cash in the petty cash fund and the total of petty cash vouchers should equal
the amount for which the imprest petty cash fund was established
d. With the establishment of an imprest petty cash fund, one person is given the authority and
responsibility for issuing checks to cover minor disbursements
17. The following statements pertain to the cash short or over account. Which statement is true?
a. It would be impossible to have cash shortage or overage if employees were paid in cash rather than by
check
b. The entry to account for daily cash sales for which a small amount of cash shortage existed would
include a debit to cash short or over account
c. If the cash short or over account has a debit balance at the end of the period it must be debited to an
expense account
d. A credit balance in a cash short or over account should be considered a liability because the short
changed customer will demand return of this amount
18. A bank reconciliation is
a. A formal financial statement that lists all of the bank account balances of an enterprise
b. A merger of two banks that previously where competitors
c. A statement send by the bank to depositor on a monthly basis
FINANCIAL ACCOUNTING 1

d. A schedule that accounts for the differences between an enterprise’s cash balance as shown on its
bank statement and the cash balance shown in its general ledger
19. Which of the following items must be added to the cash balance per ledger in preparing a bank
reconciliation which ends with the adjusted cash balance?
a. Note receivable collected by bank in favor of the depositor and credited to the account of the depositor
b. NSF customer check
c. Service charge
d. Erroneous bank debit
20. Which of the following must be deducted from the bank statement balance in preparing a bank
reconciliation which ends with adjusted cash balance?
a. Deposit in transit
b. Outstanding check
c. Reduction of loan charged to the account of the depositor
d. Certified check
21. If the balance shown on a company’s bank statement is less than the correct cash balance and neither the
company nor the bank has made any errors, there must be
a. Deposits credited by the bank but not yet recorded by the company
b. Outstanding checks
c. Deposits in transit
d. Bank charges not yet recorded by the company
22. If the cash balance shown on a company’s accounting records is less than the correct cash balance and
neither the company nor the bank has made any errors, there must be
a. Deposits credited by the bank but not yet recorded by the company
b. Outstanding checks
c. Deposits in transit
d. Bank charges not yet recorded by the company
23. Which will not require an adjusting entry on the depositor’s books?
a. NSF check from customer
b. Check in payment of account payable amounting to P50,000 is recorded by the depositor as P5,000
c. Deposit of another entity credited to the account of the depositor
d. Bank service charge
24. Which statement is true?
a. Bank service charge will cause the cash balance per ledger to be higher than that reported by the
bank, all other things being equal
b. Outstanding checks will cause the cash balance per ledger to be greater than the balance reported by
the bank, all other things being equal
c. An error made by the bank by charging an amount to the depositor’s account requires a correcting
entry in the depositor’s own records
d. The cash amount shown in the balance sheet must be the balance reported in the bank statement
25. A proof of cash
a. Is a physical count of currencies on hand on balance sheet date
b. Is a formal statement showing that total cash receipts during the year
c. Is a four-column bank reconciliation showing reconciliation of cash balances per book and per bank at
the beginning and end of the current month and reconciliation of cash receipts and cash disbursements
of the bank and the depositor during the current month
d. Is a summary of cash receipts and cash payments
26. The following statements relate to cash. Which statement is true?
a. The term cash equivalent refers to demand credit instruments such as money order and bank drafts
b. The purpose of establishing a petty cash fund is to keep enough cash on hand to cover all normal
operating expenses for a period of time
c. Classification of a restricted cash balance as current or noncurrent should parallel the classification of
the related obligation for which cash was restricted
FINANCIAL ACCOUNTING 1

d. Compensating balance required by a bank should always be excluded from cash and cash equivalents
27. Which is not considered as a cash equivalent?
a. A three-year treasury note maturing on May 30 of the current year purchased by the entity on April 15
of the current year
b. A three-year treasury note maturing on May 30 of the current year purchased by the entity on January
15 of the current year
c. A 90-day T-bill
d. A 6-day money market placement
28. As of December 31 of the current year, an entity had various checks and papers in its safe. Which item
should not be in its cash account in the current year-end balance sheet?
a. US$ 20,000 cash
b. Past due promissory note issued in favor of the entity by its President
c. Another entity’s P150,000 check payable to the entity dated December 15 of the current year
d. The entity’s undelivered check payable to a supplier dated December 31 of the current year
29. Which item should be excluded from cash and cash equivalent on the current year-end balance sheet of an
entity?
a. The minimum cash balance in the entity’s current account which is maintained to avoid service charges
b. A check issued by the entity on December 27 of the current year but dated January 15 of next year
c. Time deposit which matures in one year
d. A customer’s check denominated in a foreign currency
30. At December 31 of the current year, an entity had cash accounts at three different banks. One account
balance is segregated solely for payment into a bond sinking fund. A second account, used for branch
operations, is overdrawn. The third account, used for regular corporate operations, has a positive balance.
How should these accounts be reported in the December 31 classified balance sheet?
a. The segregated account should be reported as a non-current asset, the regular account should be
reported as a current asset, and the overdraft should be reported as a current liability
b. The segregated and regular accounts should be reported as current assets, and the overdraft should
be reported as a current liability
c. The segregated account should be reported as a non-current asset and the regular account should be
reported as a current asset net of the overdraft
d. The segregated and regular accounts should be reported as current assets net of the overdraft

PROBLEMS

1. San Miguel Corporation provided the following data on December 31, 2014:
Checkbook balance……………………………………………………………… P 4,000,000
Bank statement balance………………………………………………………… 5,000,000
Check drawn on San Miguel’s account, payable to supplier, dated
and recorded on December 31, 2015 but not mailed until
until January 2016……………………………………………………… 500,000
Cash in sinking fund…………………………………………………………….. 2,000,000
On December 31, 2015, what amount of cash should be reported as cash under current assets?
a. P 4,500,000
b. P 5,500,000
c. P 3,500,000
d. P 6,500,000
2. On December 31, 2015, DALTA Inc. reported cash accounts with the following details:
Undeposited collections………………………………….............................. P 60,000
Cash in bank – PCIB checking account………………….………………….. 500,000
Cash in bank – PNB (overdraft)…………………………….………………… (50,000)
Undeposited NSF check received from customer dated 12/01/14……….. 15,000
Undeposited customer check, dated 01/15/25……………………………… 25,000
FINANCIAL ACCOUNTING 1

Cash in bank – PCIB (fund for payroll)………………………………………. 150,000

Cash in bank – PCIB (savings deposit)……………………………………… 100,000
Cash in bank – PCIB (90-day money market instrument)…………………. 2,000,000
Cash in foreign bank – restricted……………………………………………… 100,000
IOUs from officers………………………………………………………………. 30,000
Sinking fund cash………………………………………………………………. 450,000
Financial asset held for trading……………………………………………….. 120,000
On December 31, 2014, what total amount should be reported as cash and cash equivalents?
a. P 2,660,000
b. P 2,810,000
c. P 2,770,000
d. P 810,000
3. SMART Telecoms had the following balances on December 31, 2014:
Cash in bank…………………………………………………………………….. P 2,250,000
Cash on hand……………………………………………………………………. 125,000
Cash restricted for plant addition……………………………………………… 1,600,000
Cash in bank included P600,000 of compensating balances against short-term borrowing agreement. The
compensating balance is not legally restricted as to withdrawal. On December 31, 2015, what total cash
should be reported under current assets?
a. P 1,775,000
b. P 2,250,000
c. P 2,375,000
d. P 3,975,000
4. Petron Tri-Activ had the following account balances on December 31, 2015:
Cash in bank…………………………………………………………………….. P 2,250,000
Cash on hand……………………………………………………………………. 125,000
Cash restricted for plant acquisition
(to be disbursed in 2016)….………………………………………….. 1,600,000
Cash in bank included P600,000 of compensating balance against long-term borrowing. The compensating
balance is not legally restricted as to withdrawal. On December 31, 2015, what is the total cash to be
reported under current assets?
a. P 1,775,000
b. P 2,250,000
c. P 2,375,000
d. P 3,950,000
5. F2 Logistic Cargo reported that the cash had a balance on December 31, 2015 of P 4,415,000 which
consisted of the following:
Petty cash fund…………………………………………………………………. P 24,000
Undeposited receipts including PDC for P70,000………………………….. 1,220,000
Cash in PNB, per bank statement, with P40,000 outstanding checks…... 2,245,000
Bonds in sinking fund………………………………………………………….. 850,000
Vouchers paid out of collection, not yet recorded………………………….. 43,000
IOUs signed by employees…………………………………………………… 33,000
What amount of cash should be reported as cash on December 31, 2015?
a. P 3,379,000
b. P 3,419,000
c. P 3,489,000
d. P 3,449,000
6. Apple Co. provided the following information with respect to the cash and cash equivalents on December
31, 2015:
Checking account at first bank…………………………………………………. P (200,000)
Checking account at second bank…………………………………………….. 3,500,000
Treasury bonds…………………………………………………………………... 1,000,000
Payroll account…………………………………………………………………… 500,000
VAT account……………………………………………………………………… 400,000
FINANCIAL ACCOUNTING 1

Foreign bank account – in peso (unrestricted)……………………………….. 2,000,000

Postage stamps………………………………………………………………….. 50,000
Employee’s postdated check…………………………………………………… 300,000
IOU from president………………………………………………………………. 750,000
Credit memo from a vendor for purchase returns……………………………. 80,000
Travelers check………………………………………………………………….. 300,000
NSF check……………………………………………………………………….. 150,000
Petty cash fund (P20,000 cash & P30,000 vouchers)………………………. 50,000
Money order…………………………………………………………………….... 180,000
What amount should be reported as unrestricted cash on December 31, 2015?
a. P5,900,000
b. P4,600,000
c. P4,900,000
d. P6,900,000
7. Nike reported petty cash fund with the following details:
Currencies……………………………………………………………………….. P 20,000
Coins……………………………………………………………………………… 2,000
Petty cash vouchers
Gasoline payment for delivery of equipment………………………. 3,000
Medical supplies for employees…………………………………….. 1,000
Repairs of office equipment…………………………………………. 1,500
Loans to employees………………………………………………….. 3,500
Check drawn by the entity payable to the order of Grace de la Cruz,
the petty cash custodian, representing her salary………………… 15,000
NSF employee check…………………………………………………………… 3,000
A sheet of paper with names of several employees together
With contribution for a birthday gift of a co-employee…………….. 5,000
The petty cash general ledger account has an imprest balance of P50,000. What is the amount of petty
cash fund that should be reported in the Statement of Financial Position?
a. P 27,000
b. P 37,000
c. P 22,000
d. P 42,000
8. On December 31, 2015, Cignal HD had the following cash balances:
Cash in bank……………………………………………………………………. P 1,800,000
Petty cash fund (all funds were reimbursed on 12/31/15)…………………. 50,000
Time deposit (due February 1, 2016)………………………………………… 250,000
Cash in bank included P600,000 of compensating balance against short-term borrowing arrangement on
12/31/15. The compensating balance is legally restricted as to withdrawal. On December 31, 2015, what is
the amount that is to be reported as cash and cash equivalents?
a. P 2,100,000
b. P 1,950,000
c. P 1,500,000
d. P 1,250,000
9. New San Jose Builders Inc. reported petty cash fund which comprised the following:
Coins and currencies…………………………………………………….......... P
3,300
Paid vouchers
Transportation…………………………………………………………. 600
Gasoline……………………………………………………………….. 400
Office supplies………………………………………………………… 500
Postage stamps………………………………………………………. 300
Due from employees…………………………………………………. 1,200
3,000
NSF managers check…………………………………………………………..
1,000
Checks drawn by the order of the custodian…………………………………
2,700
FINANCIAL ACCOUNTING 1

What is the correct amount of petty cash fund for financial statement presentation purposes?
a. P 10,000
b. P 7,000
c. P 6,000
d. P 9,000
10. Megaworld Co. established a P3000 petty cash fund. You found the following items in the fund:
Cash & Currency………………………………………………………………….P 1683.80
Expense Vouchers………………………………………………………..………829.80
Advances to employees……………………………………….…………………. 200.00
IOU from employees……………………………………………………………… 300.00
In the entry to replenish the fund, what amount should be debited to the cash short or over account?
a. P 13.60
b. P 300.00
c. P 500.00
d. P 0
11. Stark Industry’s accountant is preparing its October bank reconciliation and has collected the following
data:
Per Books Per
Bank
Oct. 1 balance…………………………………………………. P11600
P10,000
Oct. deposits…………………………………………………… 24,600 21,200
Oct. checks……………………………………………………. 27,800 29,000
Note Collected (plus 10% interest)…………………………. 0 4,400
Oct. service charge…………………………………………… 0 20
Oct. 31 balance……………………………….………………. 8,400 6,580
Additionally, deposits in transit and outstanding checks from September reconciliation were P4,400 and
P2,800, respectively.
The correct cash balance at October 31 should be:
a. P10,960
b. P12,780
c. P11,180
d. P 3,980
12. Fédération Internationale de Volleyball provided the following information in preparing the August 31, 2015
bank reconciliation:
Balance per bank statement…………………………………………………... P 1,805,000
Deposit in transit………………………………………………………………… 325,000
NSF customer check…………………………………………………………… 60,000
Outstanding checks…………………………………………………………….. 275,000
Bank service charge for August………………………………………………. 10,000
On August 31, 2015, how much is the adjusted cash balance?
a. P 1,855,000
b. P 1,795,000
c. P 1,785,000
d. P 1,755,000
13. FIBA prepared the following bank reconciliation on December 31, 2015:
Balance per bank statement…………………………………………………… P 2,800,000
Add: Deposit in transit………………………………………………………. 195,000
Checkbook printing charge…………………………………………… 5,000
Error made in recording check no. 45 last December…………….. 35,000
NSF check……………………………………………………………… 110,000
Less: Outstanding checks…………………………………………………… 100,000
Note collected by bank……………………………………………….. 215,000

Balance per book……………………………………………………………….. P 2,830,000

FINANCIAL ACCOUNTING 1

The entity had P200,000 cash on hand on 12/31/15. How much should be reported as cash in the
statement of financial position?
a. P 2,930,000
b. P 3,095,000
c. P 2,895,000
d. P 3,130,000

14. When a company’s bookkeeper started to prepare the monthly bank reconciliation, the cash account
showed a balance of P528,600. At the end of the month, the following information was available from the
company records and the monthly bank statement:
Customers NSF check listed in the bank statement………………………………… P 40,800
Bank service charge…………………………………………………………………….. 2,400
Outstanding check………………………………………………………………………. 178,000
Deposit of 45,000 was erroneously credited in the bank statement as................. 54,000
Company wrote 1,700 but recorded it as…………………………………………….. 7,100
Customer default on account………………………………………………………….. 12,600
The correct cash balance should be:
a. P 572,400
b. P 490,800
c. P 581,400
d. P 561,600
15. Samsung Inc. uses four-column bank reconciliation. The bank reconciliation for March shows outstanding
checks for P300. During April, the company wrote check totaling P23,600. The bank statement for April
shows P23,010 of checks clearing the company’s account. The amount of outstanding checks on April bank
reconciliation must be:
a. P 890
b. P 600
c. P 300
d. P 1,200
16. Nitendo Co. reported a balance of P14,300 in its cash account at the end of the month. There were
P12,000 deposits in transit and P11,500 of checks outstanding. The bank statement showed a balance of
P15,000. Service charge of P600, and the collection of a note plus interest. The note had a face value of
P1500. How much interest did the company collect?
a. P 1,800
b. P 300
c. P 2,400
d. P 1,200
17. Sony uses four-column bank reconciliation. The bank statement for May shows payments of P13,150,
including service charge of P200. At the beginning of May, there were P900 of checks outstanding. At the
end of May, there were P1,200 of checks outstanding. Before recording the bank service charge, Sony
must have recorded May payments of:
a. P13,250
b. P12,650
c. P13,050
d. P13,650
18. A company received its monthly bank statement, which showed an ending balance of P150,000.
Adjustment on the bank reconciliation included a deposit in transit of P20,000; outstanding checks of
P30,000; NSF check of P5,000; bank service charge of P300; proceeds of a note collected by the bank of
P40,000. What was the correct cash balance to be shown in the statement of financial position?
a. P134,700
b. P105,300
c. P140,000
d. P174,700
19. Using the same information in no. 18, how much is the unadjusted cash balance per books?
a. P134,700
b. P105,300
c. P140,000
d. P174,700
20. GIC Enterprise’s cash account had a balance of P96,200 on August 31. This included a bank deposit of
P8,700 that was in transit on the 31st. The August 31 bank statement contained the following information:
FINANCIAL ACCOUNTING 1

Bank statement balance……….. P 108,900 NSF check……………………… P

1,600
Bank service charge……………. 1,700 Collection of note……………….
8,600
GIC also had an outstanding check of P16,100. What is GIC’s reconciled balance?
a. P92,900
b. P96,200
c. P104,700
d. P101,500

1. Leona Company had the following account balances on December 31, 2011:
Cash in Bank- current account 4,000,000.00

Cash in Bank- payroll account 1,500,000.00

Cash on Hand 500,000.00

Cash in Bank- restricted for equipment acquisition on 2012 1,000,000.00

Treasury bill purchased November 1, 2011 to mature on February 1,

2012 2,000,000.00

The cash on hand includes a P 200,000 customer check payable to Leona Company, dated
January 15, 2012. What should be reported as “cash and cash equivalents” on December
31, 2011?

a. P 9,000,000 c. P 8,800,000
b. P 7,800,000 d. P 5,800,000

2. On December 31, 2011, Tigres Company had the following cash balances:
Cash in Bank 5,000,000.00

Petty Cash Fund 50,000.00

Time Deposit, one year, due March 1,

2012 1,000,000.00

Saving Deposit 500,000.00

A check of P 100,000 dated January 15, 2012 in payment of accounts payable was
recorded and mailed on December 28, 2011. How much “cash and cash equivalents”
should be reported on December 31, 2011?

a. P 6,550,000 c. P 5,650,000
b. P 6,650,000 d. P 5,450,000

3. The “cash” account in Jen Company’s ledger on December 31, 2011 showed a balance
of P 5,250,000 which included the following:
Petty Cash Fund 50,000.00

Undeposited receipts, including a post-dated customer 1,300,000.0

check of P200,000 0

2,500,000.0
Cash in Bank 0

Cash in Sinking Fund 1,000,000.0

FINANCIAL ACCOUNTING 1

Expenses paid out of collections, not yet recorded 250,000.00

IOUs signed by employees 150,000.00

5,250,000.0
0

At what amount should Jen Company report as “cash” in the December 31, 2011
statement of financial position?

a. P 3,650,000 c. P 4,650,000
b. P 3,850,000 d. P 4,050,000

4. Enipr Company had the following account balances at December 31, 2011:
Cash on Hand and in Bank 5,000,000.00

Cash restricted for bond payable due on June 30, 2013 2,000,000.00

Time Deposit 6,000,000.00

Saving deposit set aside for dividend payable on June 30, 2012 1,000,000.00

In the December 31, 2011 statement of financial position, what total amount should be
reported as “cash and cash equivalents”?

a. P 12,000,000 c. P 11,000,000
b. P 14,000,000 d. P 13,000,000

5. On April 1, Jennifer Company established an imprest system petty cash fund for P
10,000 by writing a check drawn against the general checking account. On April 30, the
fund contained the following:
Currency and coins 3,000.00

Receipts for office supplies 4,000.00

Receipts for postage still unused 2,000.00

Receipts for transportation 600.00

On April 30, the entity wrote a check to replenish the fund. What is the amount of
replenishment under the imprest fund system?

a. P 10,000 c. P 7,000
b. P 6,600 d. P 3,000

6. During the audit of Maganda Company on December 31, 2011, the following data are
gathered:
4,000,000.0
Balance per book 0

Bank charges 10,000.00

FINANCIAL ACCOUNTING 1

Outstanding checks 950,000.00

1,200,000.0
Deposit in transit 0

1,500,000.0
Customer note collected by bank 0

Interest on customer note 60,000.00

Customer check returned NSF 250,000.00

1,000,000.0
Depositor's note charged to account 0

The correct cash balance amounts to ____.

a. P 4,300,000 c. P 4,250,000
b. P 5,300,000 d. P 4,000,000

Suggested Answers:

1. D
2. C
3. A
4. A
5. A
6. C
7. D
8. A
9. A
10. C
11. D
12. C
13. B
14. D
15. C
16. A
17. D
18. A
19. C
20. A
21. A
22. D
23. B
24. B
25. C
26. B
27. B
28. B
29. D
30. B

PROBLEM 5.
1. C
2. B
3. B

PROBLEM 6.
1. D
FINANCIAL ACCOUNTING 1

2. A

PROBLEM 7.
1. D
2. C
3. C

PROBLEM 8.
1. A
2. B
PROBLEM 9. B

PROBLEM 10.
1. A
2. D

PROBLEM 11. D

PROBLEM 12. A

PROBLEM 13. 
1. C
2. C

PROBLEM 14.
1. B
2. B
PROBLEMS:

Total manufacturing costs


. Direct materials and direct labor costs total P120,000, conversion costs total P100,000, and factory overhead costs total
P400 per machine hour. If 150 machine hours were used for Job #201, what is the total manufacturing cost for Job #201?

A. 120,000 C. 180,000

B. 160,000 D. 280,000

Overhead

Budgeted overhead

. Machine hours used to set the predetermined overhead rate were 25,000, actual hours were 24,000, and overhead
applied was P60,000. Budgeted overhead for the year was

A. P57,600. C. P60,000.

B. P59,000. D. P62,500.

Overhead per unit


. ABC Company had a total overhead of P360,000 and selling and administrative expense of P140,000 for the year. 1,000
units of A and 3,000 units of B were produced. A requires 3 machine hours and B requires one machine hour per unit.
What is overhead chargeable per unit of A

A. P 60 C. P120

B. P 90 D. P180
FINANCIAL ACCOUNTING 1

. ABC Company had a total overhead of P360,000 and selling and administration expense of P140,000 for the year. 1,000
units of A and 3,000 units of B were produced. A requires 3 and B requires one machine hours per unit. A requires 6 direct
labor hours and B requires 4 direct labor hours per unit. 40% of overhead is related to labor and the balance to machines.
Labor-related overhead per hour amounts to

A. P 8 C. P18

B. P12 D. P24


. ABC Company had a total overhead of P360,000 and selling and administration expense of P140,000 for the year. 1,000
units of A and 3,000 units of B were produced. A requires 3 and B requires one machine hours per unit. A requires 6 direct
labor hours and B requires 4 direct labor hours per unit. 40% of overhead is related to labor and the balance to machines.
The overhead per unit of B amounts to

A. P 60 C. P156

B. P 68 D. P180


. ABC Company had a total overhead of P360,000 and selling and administration expense of P140,000 for the year. 1,000
units of A and 3,000 units of B were produced. Assuming that 20% of all overhead are batch-related for 1,000 batches,
40% of which was for producing product A, batch-related overhead for product A per unit amounts to

A. P20 C. P60

B. P40 D. P80


. ABC Company had a total overhead of P360,000 and selling and administration expense of P140,000 for the year. 1,000
units of A and 3,000 units of B were produced. Assuming that 30% of overhead is product related overhead - 20% of
which is related to product A, product-related overhead per unit of A amounts to

A. P30 C. P50

B. P40 D. P60

Total overhead variance


. Cooke Company uses the equation P450,000 + P1.50 per direct labor hour to budget manufacturing overhead. Cooke
has budgeted 150,000 direct labor hours for the year. Actual results were 156,000 direct labor hours and P697,500 total
manufacturing overhead. The total overhead variance for the year is

A. P4,500 favorable. C. P4,500 unfavorable.

B. P18,000 favorable. D. P18,000 unfavorable.

Over(under)-applied overhead

. If estimated annual factory overhead is P800,000, estimated annual direct labor hours are 400,000, actual June factory
overhead is P82,000, and actual June direct labor hours are 38,000, then overhead is:

A. P6,000 overapplied C. P1,800 underapplied

B. P1,800 overapplied D. P6,000 underapplied

FINANCIAL ACCOUNTING 1

Gross profit

. BKY Company predicted that factory overhead for 2006 and 2007 would be P60,000 for each year. The predicted and
actual activity for 2006 and 2007 were 30,000 and 20,000 direct labor hours, respectively.
2006 2007

Sales in units 25,000 25,000

Selling price per unit P10 P10

Direct materials and direct labor per unit P 5 P 5

The company assumes that the long-run production level is 20,000 direct labor hours per year. The actual factory
overhead cost for the end of 2006 and 2007 was P60,000. Assume that it takes one direct labor hour to make one
finished unit.

When the annual estimated factory overhead rate is used, the gross profits for 2006 and 2007, respectively, are

A. P 75,000 and P 75,000 C. P125,000 and P125,000

B. P 75,000 and P 55,000 D. P 75,000 and P 50,000

Process costing

Work in process

. Britney Company has unit costs of P10 for materials and P30 for conversion costs. If there are 2,500 units in ending work
in process, 40% complete as to conversion costs, and fully complete as to materials cost, the total cost assignable to the
ending work in process inventory is

A. P 45,000 C. P 75,000

B. P 55,000 D. P100,000

Overhead component

. In the Star Company, the predetermined overhead rate is 80% of direct labor cost. During the month, P210,000 of factory
labor costs are incurred, of which P180,000 is direct labor and P30,000 is indirect labor. Actual overhead incurred was
P200,000. The amount of overhead debited to Work in Process Inventory should be

A. P120,000 C. P168,000

B. P144,000 D. P160,000

Equivalent unit of production


. The Assembling Department’s output during the period consists of 20,000 units completed and transferred out, and 5,000
units in ending work in process 60% complete as to materials and conversion costs. Beginning inventory is 1,000 units,
40% complete as to materials and conversion costs. The equivalent units of production are

A. 22,600 C. 24,000

B. 23,000 D. 25,000


. The Amor Company has 2,000 units in beginning work in process, 20% complete as to conversion costs, 23,000 units
transferred out to finished goods, and 3,000 units in ending work in process one-third complete as to conversion costs.
FINANCIAL ACCOUNTING 1

The beginning and ending inventory is fully complete as to materials costs. Equivalent units for materials and conversion
costs are

A. 22,000 and 24,000 C. 24,000 and 26,000

B. 26,000 and 24,000 D. 26,000 and 26,000


. Dodge Company has a mixing department and a refining department. Its process-costing system in the mixing
department has two direct materials cost categories (material J and material P) and one conversion costs pool. The
company uses First-in, First out cost flow method. The following data pertain to the mixing department for November 2006

Units

Work in process, November 1: 50 percent completed

15,000

Work in process, November 30, 70 percent completed 25,000

Units started 60,000

Completed and transferred 50,000

Costs

Work-in-process, November 1 P218,000

Material J 720,000

Material P 750,000

Conversion Costs 300,000

Material J is introduced at the start of operations in the Mixing department, and Material P is added when the product is
three-fourths completed in the mixing department. Conversion costs are added uniformly during the process.

The respective equivalent units for Material J and Material P in the mixing department for November 2006, are

A. Both 50,000 units C. 75,000 units and 60,000 units

B. 60,000 units and 50,000 units D. 60,000 units and 75,000 units


. The cost of goods completed and transferred out to the Refining department was
A. P1,930,750 C. P1,600,500

B. P1,350,000 D. P1,550,500


. The Amor Company’s accounting records reflected the following data for April 2003. The company accounts its production
using First-in, First-out cost flow method:
Work in process, March 31,2003, 60% completed as to
materials and conversion costs
? units

Work in process, April 30, 2003, 30% completed as to

materials and conversion costs
24,000 units

Equivalent units of production for April 2003 64,000

Units started and completed in April 50,000

FINANCIAL ACCOUNTING 1

How many units were in the beginning work-in-process?

A. 6,800 C. 17,000

B. 11,333 D. 24,000


. Had the company used the weighted-average method of accounting for its production, the equivalent units should be

A. 74,200 C. 81,000

B. 57,200 D. 53,800

Units to be accounted for


. In the Newman Company, there are zero units in beginning work in process, 7,000 units started into production, and 500
units in ending work in process 20% completed. The physical units to be accounted for are

A. 7,000 C. 7,600

B. 7,360 D. 7,340

Cost of Finished Goods Transferred


. For the month of May, the Production Control Department of La Mesa, Inc. reported the following production data for
Finishing Department (second department):
Transferred-in from Assembly Department 75,000

Transferred-out to Packaging Department 59,250

In-process end of May (with 1/3 labor and factory overhead) 15,750

All materials were put into process in Assembly Department. The Cost Accounting Department collected these figures for
Finishing Department.

Unit cost for unit transferred-in from Assembly Department P 2.70

Labor cost in Finishing Department 41,280.00

Applied factory overhead 112.5% of labor cost

How much was the cost of Finished goods transferred out to the Packaging Department?

A, P240,555 C. P260,580

B. P 80,580 D. P159,975

Comprehensive

Use the following data to answer question Nos. 18 through 20.

Mergy Company uses process costing in accounting for its production department, which uses two raw materials. Material
Alpha is placed at the beginning of the process. Inspection is at the 85% completion stage. Material Bravo is then added to the
good units. Normal spoilage units amount to 5% of good output. The company records contain the following information for
April:
FINANCIAL ACCOUNTING 1

Started during the period 20,000 units

Material Alpha P26,800

Material Beta P22,500

Direct labor cost P75,160

Factory overhead P93,950

Transferred to finished goods 14,000

Work in process (95% complete), April 30 4,000


. How much were Material cost per equivalent unit for Alpha and Beta, respectively?

A. P1.40; P1.36 C. P1.34; P1.06

B. P1.40; P1.06 D. P1.34; P1.25


. The equivalent units of production for Material Alpha and Beta are

Alpha Beta

A. 18,000 14,000

B. 18,000 18,000

C. 20,000 18,000

D. 20,000 14,000


. The number of normal and abnormal lost units are:

Normal Abnormal

A. 700 1,400

B. 1,400 700

C. 900 1,100

D. 1,100 900

Material cost

Unit material cost


. Catridge Company has no beginning work in process; 9,000 units are transferred out and 3,000 units in ending work in
process are one-third finished as to conversion costs and fully complete as to materials cost. If total materials cost is
P60,000, the unit materials cost is

A. P5.00 C. P5.45

B. P6.00 D. P5.35
FINANCIAL ACCOUNTING 1

Lost units

. Lapid Company uses process costing. All materials are added at the beginning of the process. The product is inspected
when it is 90 percent converted, and spoilage is identified only at that point. Normal spoilage is expected to be 5% of
good output.
The following are extracted from the production records of Lapid Company for May 2003:

Units put into process 21,000

Units transferred to finished goods 14,000

In-process, May 31, 75% complete 6,000

How many are considered abnormal lost units?

A. Zero C. 15

B. 300 D. 850
 .Answer: C
Direct materials and direct labor P120,000

Factory overhead P400 x 150 60,000

Total manufacturing cost P180,000

 .Answer: D

Overhead rate per hour (P60,000 ÷ 24,000) P2.50

Budgeted overhead (25,000 x P2.50) P62,500

 .Answer: D

Total number of hours: (1,000 x 3) + (3,000 x 1) 6,000

Overhead cost per hour (P360,000 ÷ 6,000) P 60

Overhead charged per unit of product A: 3 hrs. x P60 P180

 .Answer: A

Labor-related overhead: (P360,000 x 0.40) P144,000

Total number of labor hours: (1,000 x 6) + (3,000 x 4) 18,000

Labor-related overhead per DLH: (P144,000 ÷ 18,000) P 8

 .Answer: B

Machine-related overhead: (P360,000 x 0.6) P216,000

Total number of machine hours (1,000 x 3) + 3,000 6,000

Machine-related OH per MH: (P216,000 ÷ 6,000) P36

Overhead applied per unit of Product B:

Labor-related (4 hours x P8) P32

Machine-related (1 x P36) 36

Overhead per unit P68

The overhead is broken down into two volume-based cost pools. This is a more modified example of traditional
costing

 .Answer: B

Batch related costs: (360,000 + 140,000) × 20% P100,000

Batch related costs, Product A: 100,000 × 40% 40,000

 Batch-related overhead per unit of Product A: 40,000 / 1,000 P 40

In ABC costing, there is no need to make a distinction between manufacturing and non-manufacturing costs in
computing the relevant product costs

 Answer: A

Product-related overhead cost (360,000 + 140,000) × 30% P150,000

Product-related overhead cost, Product A: 150,000 × 20% P 30,000

Product-related overhead cost per unit, Product A: 30,000 / 1,000 P 30

 .Answer: A

Variable overhead P1.50

Predetermined fixed overhead (P450,000 ÷ 150,000) 3.00

Total overhead rate P4.50

Actual overhead P697,500

Applied overhead (156,000 hours x P4.50) 702,000

Total overhead variance, favorable P 4,500

 .Answer: D
Applied overhead 38,000 x P2 P76,000

Actual overhead 82,000

Underapplied overhead P6,000

Overhead rate per direct labor hour (P800,000 ÷ 400,000) P2.00

 .Answer: B

Gross Profit:

2006: (25,000 x 10) - 175,000 = P75,000

2007: (25,000 x 10) - 195,000 = P55,000

Overhead application rates:

2006: 60,000/30,000 = P2.00

2007: 60,000/20,000 = P3.00

Unit Costs:

2006: 5 + 2 = P7.00
 2007: 5 + 3 = P8.00

Costs of goods sold:

2006: 25,000 x P7 P175,000

2007: (5,000 x P7) + (20,000 x P8) P195,000

Note: In 2007 the company has a beginning inventory of 5,000 units at unit cost of P7.

 .Answer: B

Materials cost (2,500 x P10) P25,000

Conversion cost (2,500 x 0.4 x P30) 30,000

Total costs of Work in Process P55,000

 .Answer: B

The amount of overhead applied to production should be 80 percent of direct labor cost (P180,000 x 0.80) =
P144,000

 .Answer: B

Completed units 20,000

Work in process, End (5,000 x 0.6) 3,000

Total equivalent units, average 23,000

 .Answer: B

Units completed and transferred out 23,000

Work in Process, End 3,000

 Materials Conversion Costs

 % of EUP % of Completion EUP

Completion

Completed units 100 23,000 100.00 23,000

WIP - End 100  3,000 33.33  1,000

Weighted-Average  26,000  24,000

EUP

 .Answer: B
 Computation of equivalent units

Material J Material P

Work-in-process, Nov. 1 - 15,000

Units started and completed 35,000 35,000

Work-in-process, Nov. 30 25,000 -

EUP 60,000 50,000

 .Answer: C

Work in process-beginning

Cost, Nov. 1  P218,000 

Cost, November   

 Material P (15,000 x P5) 225,000  

 Conversion 7,500 x P5 37,500 262, 500 P 480,500

Started, completed 35,000 P32   

1,120,000

Cost of goods transferred out   

P1.600,500

Unit Costs

 Material J 720,000/60,000 P12

 Material P 750,000/50,000 15

 Conversion costs 300,000/60,000 5

 Total  P32

 .Answer: C

Equivalent units for April  64,000

 Less: EU – started and completed during:  

 17,000

March 31 6,800  40

Number of units in process as of

6,800

Equivalent units - work-in-process end Mar 31

57,200

7,200

(24,000 x 3)

Work-in-process, end

April

50,000

 .Answer: A

Equivalent units – FIFO 64,000

Add equivalent units in March 31 (17,000 x .6) 10,200

Weighted Average EUP 74,200

 .Answer: A

The number of units to be accounted should be the sum of the units in beginning work in process and the number of
units that have been started during the period

 .Answer: A
EUP:

Transferred out to Packaging Dept. 59,250

In process, end 15,750 x 1/3 5,250

 Total 64,500

Unit Cost:

Transferred in 2.70

Labor and overhead 87,720/64,500 1.36

Total 4.06

Cost of finished goods transferred out 59,250 x 4.06 P240,555

 .Answer: D

 Equivalent units  

 Alpha Beta

 Transferred to F.G. 14,000 14,000

 End Process  4,000  4,000

 Normal lost units  900 0

 Abnormal lost unit  1,100  0

 Total 20,000 18,000

Unit cost

Alpha P26,800  20,000 = P1.34

Beta P22,500  18,000 = P1.25

 .Answer: C

Equivalent units Alpha Beta

Transferred to F.G. 14,000 14,000

End Process  4,000  4,000

Normal lost units  900 

Abnormal lost unit  1,100  ______

Total 20,000 18,000

 .Answer: C
Total lost units (20,000 – 18,000) 2,000

Total lost units 5% x 18,000 900

Abnormal lost units 1,100

 .Answer: A

Completed and transferred out 9,000

Units in work-in-process, End (3,000 x 100%) 3,000

Equivalents units of production - Materials 12,000

Materials cost per EUP (P60,000 ÷ 12,000) P5.00

 .Answer: B

Total lost units (21,000 – 20,000) 1,000

Less normal lost units 5% of 14,000 700

Abnormal lost unit 300