2nd Flr, GF Partners Bldg, 139 H - CPA Diary



[pic] 2nd Flr, GF Partners Bldg, 139 H.V. dela Costa, Salcedo Village, Makati City

3rd Flr. Equitable PCI Building, 2070 Claro M. Recto ,Manila Tel.7348895/7349198

Practical Accounting 1 Prof. Rommel M. Valdez

Income Statement – Part I

|1. |The following items were among those that were reported on Cyprus Co.’s income statement for the year ended December 31, |

| |2004: |

| | |Legal and audit fees |P170,000 |

| | |Rent for office space | 240,000 |

| | |Interest on acceptances payable | 210,000 |

| | |Loss on abandoned data processing equipment used in operations | 35,000 |

| |The office space is used equally by Cyprus’ sales and accounting departments. |

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| |What amount of the above items should be classified as general and administrative expenses in Cyprus’ income statement? |

| |a. |P500,000 |c. P410,000 |

| |b. |P290,000 |d. P325,000 |

|2. |Information concerning the first month of operations of Avon is presented below. (The periodic inventory system is used.) |

| | |Transportation-in |P 760 |

| | |Total purchases on account | 22,200 |

| | |Purchase returns on account | 700 |

| | |Transportation-out | 810 |

| | |Total recorded as cash purchases | 9,140 |

| | |Purchase allowances on account | 1,350 |

| | |Inventory at the end of the month | 4,800 |

| | |Sales discounts | 750 |

| | |Refunds for defective items purchased for cash | 400 |

| | |Error made by bookkeeper debiting supplies | |

| | |expense for cash purchase of merchandise |790 |

| |The correct cost of goods sold is |

| |a. P16,110 |b. P24,890 |c. P25,640 |d. P26,450 |

|3. |The Do It Corporation presented the following income statement and statement of retained earnings for the year ended December 31, |

| |2004 as developed by its bookkeeper who has completed 12 units of accounting. |

|Do It Corporation | |

|Revenue Statement | |

|December 31, 2004 | |

|Net sales |P 390,000 |

| Less: Dividends declared (P3.50 per common shares) | 15,000 |

|Revenues |P 375,000 |

|Less: Selling expenses |41,600 |

|Gross profit |P333,400 |

|Less: Operating expenses | |

| Interest expense |8,200 |

| Cost of goods sold |227,400 |

| Provision for income taxes |23,920 |

|Net operating income |P 83,880 |

|Add: Dividend revenue |3,600 |

| General and administrative expenses |48,600 |

|Net income |P 28,880 |

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|Retained Earnings Statement | |

|December 31, 2004 | |

|Beginning retained earnings |P116,000 |

|Add: Net income |28,880 |

|Adjusted retained earnings |P144,880 |

|Less: Loss on sale of land |8,000 |

|Ending retained earnings |P136,880 |

|The corrected net income after taxes is - | |

|a. P44,000 |b. P39,000 |c. P34,000 |d. P35,880 |

|4. |Augusta Co.’s trial balance of income statement accounts for the year ended December 31, 2004 showed the following: |

| | |Debit |Credit |

| |Sales | |P1,150,000 |

| |Cost of sales |P480,000 | |

| |Administrative expenses | 140,000 | |

| |Loss on sale of equipment | 20,000 | |

| |Sales commissions | 100,000 | |

| |Interest income | | 50,000 |

| |Freight out | 30,000 | |

| |Loss on early retirement of long-term debt | 40,000 | |

| |Uncollectible accounts expense | 30,000 | |

| | |_____________ |_____________ |

| | |P840,000 |P1,200,000 |

| |Other information | | |

| |Finished goods inventory: | | |

| |January 1, 2004 | 800,000 | |

| |December 31, 2004 | 720,000 | |

| |Augusta’s income tax rate is 35%. | | |

| |In Augusta’s 2004 income statement, what amount should Augusta report as the cost of goods manufactured? |

| |a. |P560,000 b. P430,000 |c. |P590,000 d. P400,000 |

|5. |You are given the data as follows for CHIN UP CORP.: |

| |Net assets at the beginning of the year P130,000 |

| |Net assets at the end of the year 175,000 |

| |Dividends declared 8,000 |

| |Capital stock issued 7,000 |

| |The net income (loss) is - |

|a. P45,000 |b. P36,000 |c. P44,000 |d. P46,000 |

|6. |Brandon Co.’s accounting records for the year ended December 31, 2003 included the following information: |

| |Work in process inventory increase | P0 |

| |Finished goods inventory increase | 70,000 |

| |Raw materials purchases |860,000 |

| |Raw materials inventory decrease | 30,000 |

| |Freight-out | 90,000 |

| |Direct labor |400,000 |

| |Manufacturing overhead |600,000 |

| |Cost of goods sold of Brandon for 2003 is: |

| |a. |P1,910,000 b. P1,900,000 |c. |P1,820,000 d. P1,790,000 |

7. The following information is given for Mint Company: Freight-in – P2,000; Purchase returns – P3,000; Selling expenses – P150,000; Ending inventory – P80,000. The cost of goods sold is equal to 800% of selling expenses.

What is the cost of goods available for sale?

a. P1,200,000 b. P1,205,000 c. P1,275,000 d. P1,280,000

8. The following information for the Lilac Company for the year 2003:

Gross profit on sales P 76,800

Cost of goods manufactured 272,000

Goods in process inventory, beginning 22,400

Goods in process inventory, ending 30,400

Finished goods inventory, beginning 36,000

Finished goods inventory, ending 41,600

How much was the sales of Lilac Company for the year 2003?

a. P335,200 b. P343,200 c. P347,200 d. P348,800

9. After the initial year of operations, the Beige Company had the following data in its operating results:

Net income is P750,000. Selling expenses are 12.5% of sales and also equal to 25% of cost of goods sold. Administrative expenses and other expenses are 17.5% and 5% of sales, respectively.

What is Beige’s gross profit for the year?

a. P5,000,000 b. P2,500,000 c. P1,750,000 d. P750,000

10. The net sales of Ping Mfg. Company in 2003 is P5,800,000. The cost of goods manufactured is P4,800,000. The beginning inventories of Goods in Process and Finished Goods are P820,000 and P650,000, respectively. The ending inventories are: Goods in Process – P750,000; Finished Goods – P550,000. The selling expenses and general and administrative expenses are 5% and 2.5% of cost of sales, respectively.

What is Pink’s net income for the year 2003?

a. P900,000 b. P457,250 c. P532,500 d. P830,000

11. Net income of Silver Company for the year ended December 31, 2003 was P480,000. Percentage distribution of some of the items in the income statement was as follows:

Selling expenses – 10% of sales; Administrative Expenses, excluding bad debts – 15% of sales (also equal to 25% of cost of sales); Bad debts Expenses – 3% of sales.

What was the amount of Silver Company’s sales during 2003?

a. P1,920,000 b. P3,200,000 c. P4,000,000 d. P4,800,000

|12. |The factory accounts of Silang Corp. for the year ended December 31, 2003 were gathered: Manufacturing cost totaled |

| |P900,000; cost of goods manufactured was P800,000, of which factory overhead was 75% of direct labor. Overhead was |

| |25% of total manufacturing cost. |

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| |Beginning work-in-process inventory January 1, 2003 was 60% of ending work-in-process inventory, December 31, 2003. |

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| |Manufacturing costs for the year ended December 31, 2003 submitted to you by the factory accountant was as follows: |

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| | |Raw material used |P375,000 |

| | |Direct labor | 300,000 |

| | |Factory overhead | 225,000 |

| | |Total |P900,000 |

| | |Assuming cost percentage relationships as stated are correct. |

|. |Work-in-process at December 31, 2003 was: |

| |a. P200,000 |c. P250,000 | |

| |b. P225,000 |d. P275,000 | |

For questions 13 – 15:

The 2003 operations of Ecru Company resulted in the following:

Cost of goods sold amounted to P3,500,000. The beginning inventory is P500,000 greater than the ending inventory, the latter being equivalent to 20% of purchases during the period. Gross profit of the company is 30% of net sales. Total operating expense amounted to 60% of the gross profit while sales returns and allowances amounted to 2% of net sales. The company is subject to income tax rate of 35%.

13. What was the company’s net sales for the period?

a. P3,500,000 b. P4,100,000 c. P5,000,000 d. P5,100,000

14. What was the amount of net income after income tax?

a. P210,000 b. P390,000 c. P600,000 d. P900,000

15. What was the total purchases for the period?

a. P600,000 b. P1,100,000 c. P3,000,000 d. P4,100,000

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