PROBLEM NO.

1 - Beatles Company
Requirement No. 1
1) Sales returns 92,000
Accounts receivable 92,000
2) None
3) None, this is only misposting. However, the customers' ledger should be adjusted.
4) Sales 40,000
Accounts receivable 40,000
5) Accounts receivable-Nontrade 160,000
Accounts receivable 160,000
6) Cash 124,000
Accounts receivable 124,000
7) None, this is only a misposting. However, the customers' ledger should be adjusted.
8) None, this is only a misposting. However, the customers' ledger should be adjusted.
9) None, this is only a misposting. However, the customers' ledger should be adjusted.

Requirement No. 2
Unadjusted balance 2,020,000
Add (Deduct) adjustments:
No. 1 (92,000)
No. 4 (40,000)
No. 5 (160,000)
No. 6 (124,000)
Adjusted balance, 12/31/05 1,604,000
PROBLEM NO. 2 - Paul Company

2003 2004 2005 Total

Cash sales 68,000 104,000 124,800 296,800
Sales on account (see computations below) 666,400 721,600 948,000 2,336,000
Total sales 734,400 825,600 1,072,800 2,632,800 100%
Cost of sales 587,520 660,480 858,240 2,106,240 80%
Gross profit 146,880 165,120 214,560 526,560 20%

Computation of total sales from 2003 to 2005 (you may also use "T" account)
Total accounts receivable, 12/31/05 132,000
Total collections from 2003 to 2005 2,270,400
Total 2,402,400
Less total accounts receivable, 12/31/02 66,400
Total sales on account from 2003 to 2005 2,336,000

Computation of total cost of sales from 2003 to 2005 (you may also use "T" account)
Inventories, 12/31/02 146,400
Add purchases for 2003 to 2005
Total accounts payable, 12/31/05 44,000
Total payments for purchases from 2003 to 2005 2,060,000
Total 2,104,000
Less total accounts payable, 12/31/02 20,000 2,084,000
Total goods available for sale 2,230,400
Less inventories, 12/31/05 124,160
Total cost of sales from 2003 to 2005 2,106,240

Note: Since it was mentioned in the problem that the rate of gross profit on sales has remained
constant for each of the three years, we can compute the GPR from the total sales and cost of sales.

Computation of sales on account for 2003, 2004, and 2005:

Accounts receivable from sales in
2003 2004 2005 Total
Accounts receivable, 12/31/05 3,200 7,200 112,800 123,200
Collections:
2003 595,200 595,200
2004 60,000 647,200 707,200
2005 8,000 67,200 835,200 910,400
Sales on account 666,400 721,600 948,000 2,336,000

Note: Less than one year old = 2005; One to two years old = 2004; Two to three years old = 2003.
PROBLEM NO. 3 - George Company
Requirement No. 1 (a)
Allowance for doubtful accounts per aging 200,000
Add: bad debts written off 187,500
Total 387,500
Less: allowance for doubtful accounts, 1/1/05 300,000
Recovery of bad debts written off 50,000 350,000
Doubtful accounts expense for 2005 37,500
Requirement No. 1 (b)
Accounts receivable, 12/31/05 2,375,000
Less: allowance for doubtful accounts per aging 200,000
Net realizable value 2,175,000
Requirement No. 1 (c)
Should be (per aging) 200,000
As recorded (per client):
Allowance for doubtful accounts, 1/1/05 300,000
Add: doubtful accounts expense for 2005 150,000
Recovery of bad debts written off 50,000
Total 500,000
Less: bad debts written off 187,500 312,500
Decrease in recorded allowance 112,500
Requirement No. 1 (c)
(Debit) Allowance fordoubtful accounts 112,500
(Credit) Doubtful accounts expense 112,500

Requirement No. 2
a) P5,000,000 x 3% = P150,000
b) P300,000 + P150,000 +P50,000 - P187,500 = P312,500

Requirement No. 3
a) (P2,375,000 x 8% )+ P187,500 - P300,000 - P50,000 = P27,500
b) P2,375,000 x 8% = P190,000

PROBLEM NO. 4 - John Corporation

Question No. 1 - C
Purchases 2,250,000
Less inventory , 12/31/05 375,000
Cost of sales 1,875,000
Add gross profit (P1,875,000 x 40%) 750,000
Total sales 2,625,000
Multiply by % of credit sales 0.80
Credit sales 2,100,000
Less: Collections from customers 1,500,000
Accounts written off 12,500 1,512,500
Accounts receivable, 12/31/05 per audit 587,500
Accounts receivable, 12/31/05 per books 575,000
Understatement of accounts receivable 12,500

Question No.2 - B
Credit sales for 2005 (see no. 1) 2,100,000
Multiply by bad debt rate 0.05
Doubtful accounts expense for 2005, per audit 105,000

Question No. 3 - B
Doubtful accounts expense (see no. 2) 105,000
Less accounts written off 12,500
Allowance for doubtful accounts, 12/31/05 per audit 92,500
Allowance for doubtful accounts, 12/31/05 per books 62,500
Understatement of allowance for doubtful accounts 30,000

Question No.4 - A
Accounts receivable (see no. 1) 587,500
Less allowance for doubtful accounts (see no. 3) 92,500
Net realizable value, 12/31/05 495,000
PROBLEM NO. 5 - Ringo Corporation

1C
Customer Balance 0-30 days 31-60 days 61-90 days 91-120 days >120 days
Maybe, Inc. 140,720 56,000 84,720 - - -
Perhaps Co. 83,680 - - - 48,000 35,680
Pwede Corp. 122,400 80,000 - 42,400 - -
Perchance Co. 180,560 - 92,560 88,000 - -
Possibly Co. 126,400 126,400 - - - -
Luck, Inc. 69,600 - - - 69,600 -
Total 723,360 262,400 177,280 130,400 117,600 35,680

Age of accounts Total Rate Allowance

0 30 days 262,400 1.00% 2,624.00
31 60 days 177,280 1.50% 2,659.20
61 90 days 130,400 3.00% 3,912.00
91 120 days 117,600 10.00% 11,760.00
over 120 days 35,680 50.00% 17,840.00
723,360 38,795.20

2D
(Debit) Doubtful accounts expense 24,795.20 *
(Credit) Allowance for doubtful accounts 24,795.20
* (P38,795.20 - P14,000)

PROBLEM NO. 7 - Ono Corporation

Question No. 1
PV of Principal (P300,000 x 0.7513) 225,390
PV of Interest (P300,000 x 5% x 2.4869) 37,304
Consultation service fee revenue 262,694

Question No. 2
Carrying amount, 12/31/04 (see no.1) 262,694
Add discount amortization for 2005:
Effective interest (P262,694 x 10%) 26,269
Nominal interest (P300,000 x 5%) 15,000 11,269
Carrying amount, 12/31/05 273,963

Question No. 3

Interest income for 2005 (P262,694 x 10%) 26,269

PROBLEM NO. 6 - Yoko Corporation
1 B
Note receivable from sale of plant
Balance, 12/31/05 (P6,000,000 - P2,000,000) 4,000,000
Less installment due on April 1, 2006 2,000,000 2,000,000
Note receivable from officer, due 12/31/07 1,600,000
Note receivable from sale of equipment
Present value of note, 4/1/05 (P800,000 x 0.797) 637,600
Add interest earned for 2005 (P637,600 x 12% x 9/12) 57,384 694,984
Note receivable from sale of land
Balance, 12/31/05 2,800,000
Less principal installment due on 7/1/06
Total amount to be received 902,500
Less interest (P2,800,000 x 11%) 308,000 594,500 2,205,500
Total noncurrent receivables, 12/31/05 6,500,484

2 B
Note receivable from sale of plant due on 4/1/06 2,000,000
Note receivable from sale of land (see no. 1) 594,500
Current portion of long-term receivables 2,594,500

3 B
Note receivable from sale of plant (P4,000,000 x 12% x 9/12) 360,000
Note receivable from sale of land (P2,800,000 x 11% x 6/12) 154,000
Accrued interest receivable, 12/31/05 514,000

4 B
Note receivable from sale of plant:
P6,000,000 x 12% x 3/12 180,000
P4,000,000 x 12% x 9/12 360,000 540,000
Note receivable from officer (P1,600,000 x 10%) 160,000
Note receivable from sale of equipment (P637,600 x 12% x 9/12) 57,384
Note receivable from sale of land (P2,800,000 x 11% x 6/12) 154,000
Total interest income for 2005 911,384

PROBLEM NO. 8

1. D 11. A 21. D
2. D 12. A 22. A
3. D 13. C 23. B
4. B 14. B 24. D
5. C 15. A 25. C
6. D 16. D
7. D 17. D
8. C 18. D
9. C 19. A
10. B 20. B
 A B C D
1 Cash on hand and in bank 38,700 35,002 34,402 35,502
2 Notes receivable 4,000 4,500 5,000 5,500
3 Accounts receivable 36,000 40,000 42,000 38,000
4 Allow. for doubtful accounts 1,800 2,000 2,100 1,900
5 Accounts receivable-net 40,100 38,000 40,000 39,900
6 Accounts receivable-others 2,750 - 500 1,000
7 Advances to officers and employees 3,840 1,000 2,840 3,740
8 Marketable securities 13,000 10,750 8,500 4,250
9 Allow. for decline in MV of marketable sec. 1,375 250 1,125 -
10 Inventories 15,400 20,000 24,600 16,000
11 Prepayments 100 500 - 900
12 Total curent assets 111,904 113,302 113,950 112,802
13 Property, plant and equipment 990,000 1,910,000 910,000 940,000
14 Accumulated depreciation 346,000 344,000 350,000 356,000
15 PPE-net 566,000 1,566,000 606,000 584,000
16 Total assets 677,904 713,950 679,302 678,802
17 Accounts payable 600 4,000 5,200 2,800
18 Accrued expenses 2,800 4,000 5,200 1,200
19 Total current liabilities 2,800 5,200 4,000 1,200
20 Bonds payable 397,000 400,000 363,000 360,000
21 Bond discount 37,000 3,000 43,000 40,000
22 Total liabilities 400,000 405,200 363,000 368,200
23 Common stock 311,102 200,000 108,750 308,750
24 Retained earnings, end. 125,104 108,750 111,102 94,750
25 Net sales 944,000 948,000 950,000 952,000
26 Cost of sales 669,600 665,000 661,000 664,400
27 Gross Profit 280,400 282,400 285,000 287,000
28 Operating expenses 270,798 264,798 270,000 264,000
29 Operating income 23,602 15,000 17,602 18,400
30 Other income 5,000 7,250 5,500 7,750
31 Other charges 6,500 9,000 6,000 3,000
32 Net income 16,352 11,000 17,000 14,000
33 Gain on sale of Maretable securities-SMC 1,000 2,250 1,750 -
34 Bond discount amortization 1,000 4,000 3,000 -
35 Dividend income-SMC Co. common 1,000 500 2,000 1,500