Danao, Ma. Erika D.

PRELIM EXAMINATION

On April 1, 2019 GB Company had 6,000 units of merchandise on hand that cost P120 per unit. During
the month, GB had the following entries with regard to the merchandise:

April 5 Purchase on account 15,000 units at P140 per unit

8 Returned 1,000 units from the April 5 purchases – cost flow.

1. What is the cost of goods sold for April 2019?

a. 2, 120, 000 b. 2, 200, 000 c. 2, 144,000 d. 2, 080,000

Bakun Company began operations late in 2018. for the first quarter ended March 31, 2019, Bakun made
available the following information: Total merchandise purchased through March 15, recorded at net
4,900,000 Merchandise inventory at December 31, 2018, at selling price 1,500,000 All merchandise was
acquired on credit and no payments have been made on accounts payable since the inception of the
company. All merchandise is marked to sell at 50% above invoice cost before time discounts of 2/10,
n/30. No sales were made in 2019. (MCQ PROBLEMS #15)

2. How much cash is required to eliminate the current balance in accounts payable?

a. 6,000,000 b. 5, 900,000 c. 6, 400,000 d. 5, 750,000

The balance in Reed Company’s accounts payable account at December 31, 2019 was P4,900,000 before
the following information was considered:

• Goods shipped F.O.B. destinations on December 21, 2019 from a vendor to Reed were lost in transit.
The invoice cost of P180,000 was not recorded by Reed. On December 28, 2019, Reed notified the
vendors of the lost shipment.

• Goods were in transit from a vendor to Reed on December 31, 2019. The invoice cost was P240,000
and the goods were shipped F.O.B. shipping point on December 28, 2019. Reed received the goods on
January 6, 2020.

3. What amount should be Reed report as accounts payable in its December 31, 2019 balance
sheet?
 a. 5, 320,000 b. 5, 140,000 c. 5, 080,000 d. 4, 900,000

Appari Bank granted a loan to a borrower on January 1, 2016. The interest rate on the loan is 10%
payable annually starting December 31, 2016. The loan matures in five years on December 31, 2020.

Principal amount 4,000,000

Direct origination cost 61,500

Origination fee received from borrower 350,000

The effective rate on the loan after considering the direct origination cost and origination fee received is
12%.

4. What is the carrying value of the loan receivable on January 1, 2016?

a. 4, 000, 000 b. 4, 650,000 c.4, 411,500 d. 3, 711,500

5. What is the interest income for 2016?

a. 400, 000 b. 558, 000 c. 529, 380 d. 445, 380

6. Accounts of the petty cash fund of XYZ Company showed its composition as follows:

Coins and currency 3,300

Paid vouchers:

Transportation 600

Gasoline 400

Office supplies 500

Postage stamps 300

Due from employees 1,200 3,000

Manager’s check returned by bank marked NSF 1,000

Check drawn by company to the order of petty cash custodian 2,700

What is the amount of the petty cash fund for balance sheet purposes?

a. 10,000 b. 7,000 c. 6,000 d. 9,000

Principal amount 4,000,000

Direct origination cost 61,500

Origination fee received from borrower 350,000

The effective rate on the loan after considering the direct origination cost and origination fee received is
12%.

What is the carrying value of the loan receivable on January 1, 2019?

a. 4,000,000 b. 4,650,000 c. 4,411,500 d. 3,711,500

The inventory on hand at December 31, 2019 for Fair Company is valued at a cost of P950,000. The
following items were not included in this inventory amount:

Item 1: Purchased goods in transit, shipped FOB destination, invoice price P30,000 which includes
freight charge of P1,500.

Item 2: Goods held on consignment by Fair Company at a sales price of P28,000, including sales
commission of 20% of the sales price.

Item 3: Goods sold to Grace Company, under terms FOB destination, invoiced for P18,500 which
includes P1,000 freight charge to deliver the goods. Goods are in transit. The company’s selling price is
140% of cost.

Item 4: Purchased goods in transit, terms FOB shipping point, invoice price P50,000, freight cost, P2,500.

Item 5: Goods out on consignment to Manila Company, sales price P35,000, shipping

cost of P2,000.

8. What is the adjusted cost of the inventory on December 31, 2019.

a. 1, 042,000 b. 1, 043,000 c. 1, 040,000 d. 1, 073,500

Kalibo Bank loaned P5,000,000 to Caticlan Company on January 1, 2019. The terms of the loan require
principal payments of P1,000,000 each year for 5 years plus interest at 8%. The first principal and
interest payment is due on January 1, 2020. Caticlan Company made the required payments during 2020
and 2021. However, during 2021 Caticlan Company began to experience financial difficulties, requiring
Kalibo to reassess the collectibility of the loan. On December 31, 2021, Kalibo Bank determines that the
remaining principal payment will be collected but the collection of the interest is unlikely. The present
value of 1 at 8% is as follows:

For one period 0.93

For three periods 0.79

9. What is the loan impairment loss on December 31, 2021?

a. 420, 000 b. 210, 000 c. 630, 000 d. 0

10. What is the interest income to be reported by Kalibo Bank in 2022?

a. 223, 200 b. 143, 200 c. 240, 000 d. 0

Hero Company’s inventory at December 31, 2019 was P7,500,000 based on physical count priced at cost
and before any necessary adjustment for the following:

• Merchandise costing P750,000, shipped FOB shipping point from a vendor on December 30, 2019, was
received and recorded on January 5, 2020.

• Goods in the shipping area were excluded from inventory although shipment was not made until
January 4, 2020. The goods, billed to the customer FOB shipping point on December 30, 2019, had a cost
of P600,000.

1. What amount should Hero report as inventory in its December 31, 2019 balance sheet?

a. 7,500,000 b. 7,950,000 c. 8,100,000 d. 8,850,000

The following information applied to Fenn Company for the current year:

Merchandise purchased for resale 4,000,000

Freight in 100,000

Freight out 50,000

Purchase returns 20,000

Interest on inventory loan 200,000

2. Fenn’s inventoriable cost was

a. 4, 280,000 b. 4, 030,000 c. 4, 080,000 d. 4, 130,000

3. Burr Company had the following account balance at December 31, 2019:

Cash in bank 2,250,000

Cash on hand 125,000

(expected to be disbursed in 2020) 1,600,000

Cash in bank includes P600,000 of compensating balance against short-term borrowing arrangement.
The compensating balance is not legally restricted as to withdrawal by Burr.

In the current assets section of Burr’s December 31, 2019 balance sheet, total cash should be reported
at

a. 1,775,000 b. 2,250,000 c. 2,375,000 d. 3,975,000

XYZ Company factored P6,000,000 of accounts receivable to ABC Company on October 1, 2006. Control
was surrendered by XYZ. ABC accepted the receivables subject to recourse for nonpayment. ABC
assessed a fee of 3% and retains a holdback equal to 5% of the accounts receivable. In addition, ABC
charged 15% interest computed on a weighted-average time to maturity of the receivables of 54 days.
The fair value of the recourse obligation is P90,000.

4. XYZ will receive and record cash of

a. 5,296,850 b. 5,386,850 c. 5,476,850 d. 5,556,850

5. Assuming all receivables are collected, XYZ Company’s cost of factoring the receivables would be
a. 313,150 b. 180,000 c. 433,150 d. 613,150