(CPA REVIEW SCHOOL OF THE PHILIPPINES Manila FINANCIAL ACCOUNTING AND REPORTING April 14,2019 Final Preboard Examination 12:00 neon to 3:00 p.m. MULTIPLE CHOICE: MARK FULLY with PENCIL No. 2 the letter of your choice on the answer sheet provided. Make the mark DARK but do not use too much pressure. ERASURES ARE STRICTLY NOT ALLOWED. Nambers 1 and 2 Situation 1 - An entity issued P6,000,000 of 9%, ten year bonds on June 30, 2019 for P5,625,000. This price provided a 10% yield on the bonds. Interest is payable semiannually every June 30 and December 31 Situation 2 - An entity provided warranty for all products sold during 2019. The entity sold 200,000 nits during the current year. It estimated thet 75% of the products sold will have no defeets, 15% of the prodicts sold will have a minor defect and 10% of the products sold will have a major defect. The cost of a minor defect is P100 per unit while the cost of a major defect is P300. The entity is also involved in ‘tax dispute with the BIR in 2019. Based on legal advice, there is a 40% chance that the entity will lose the case and thet the entity will have to pay P500,000. 1, What is the carrying amount of the bonds on Decernber 31, 2019? a. 5,687,500 b. 5,636,250 ce. $613,750 4. 6,000,000 2. What total amount of provisions should be recorded on December 31, 20197 ‘a 9,300,000 '. 9°200,000 9,000,000 4. 9,500,000 Numbers 3 and 4 ‘An entity hall an outstanding loan of P3,000,000. The loan has an effective interest rate of 12%. On December 31, 2019, the enity was experiencing financial difficulty and entered into a restructuring agreement with a bank under the following modifications: Reduce the principal blance by 20%, extend the maturity date fom December 31,2019 10 January 1, 2023 and reducing the interest rate to 10%. Interest is payable annually every December 31. There was no accrued interest as of December 31, 2019. The present value factors of 1 for tree periods at 10% and 129 are 0,751 and 0.712 respectively and the present value factors ofan ordinary annuity for thre periods at 10% and 12% are 2.487 and 2.402 respectively 3. What amount of gain should be reported as a result ofthe modification of terms under IFRS? a. 720,000 600,720 . © 714,720 a ° 4. What amount of interest expense should be reported forthe year ended December 31, 2020? a. 276234 . 240,000 ©. 239,928 4 288,000‘Numbers §,6 and 7 (On December 31, 2018, an entity reported the following equity items: 8% cumulative preference shares (150,000 issued, P20 par) 3,000,000 (Ordinary share capita (2,000,000 issued, PS pat) 10,000,000, Share premium - preference 200,000 Share premium - ordinary 27,000,000 Reuined earnings 4,500,000 ‘The following transactions affected equity during 2019: Jan, 1 30,000 preference shares issued at P22 per share ‘Apc. 150,000 ordinary shares issued atP20 per share June 1 _2-for- share split onthe ordinary shares July 1 30,000 ordinary treasury shares were reacquired at P10 per share Oct. 1 10,000 treasury shares were reissued at PLT per share a Dec.31 Net income for the year is P9,000,000. The latest preference dividend was paid during 2017. 5. What emount should be reported as total shareholders’ equity on December 31,2019? 8 $5,170,000 . 44°700,000 $4,882,000 55,375,000 6. What amount should be reported as basic earnings per share for 20197 2 220 b 222 © 214 207 ‘Whats the book value per preference share on December 31, 20192 20.00 b. 2295 © 2320 4 21.60 Number 8 ‘An entity was reporting losses for several years. The board of ditectors and shareholders approved a quasi-eorganization. The reorganization included reducing inventory and land by P300,000 and 'P800,000 respectively. Immediately before the restatement, the entity had the following balances ‘Share capital (320,000 issued shares, PLO par) 3,200,000 ‘Share premium '800,000 Reuwined earings (deficit) (400,000) ‘What is the reduction in the total par value ofthe shares to fully eliminate the deficit? 400,000 . ». 700,000 © 1,500,000 a 0had” 3 Numbers 9,10 and 11 “ Anentity reported the following equity items on January 1, 2019: ‘Share capital (P10 par value) «6,900,000 Shere premium 1,500,000 Retained eernings 5,000,000 ‘The following transections occured during 2019: July 15% share dividend was declared when the market price wes P40 per share ‘Get. 1 Declared a 2for-I share split when the market price is P50 per share. Nov. 30 Declared a property dividend. The property i fom the entity's equity investment consisting (of 200, 000 shares, The iavestment bad a carrying amount of P12 per share and a fair value of 9.50 per share Dee. 31. Netincont forthe years P3,000,000. The fir value ofthe equity investments P10 per share ‘on December 31, 2019. ‘On March $, 2020, the property dividend was distributed, The fair value ofthe investment on such date ‘was PII per share. i 9, What amount of retained eamings should be reported on December 31, 20197 4,800,000 b. 4,400,000 4,900,000 4. 5,800,000 10, The equity investment should be measured on December 31, 2019 at what amount? a. 2,400,000 . 2,000,000 1,900,000 4. 3,000,000 11, What amount of gain oF loss on distribution of property dividend shouldbe reognized on March 5, 20207 200,000 gain , 200,000 oss €. 100,000 oss 100,000 gain ‘Numbers 12 and 13, ‘An entity granted share options to key officers to purchase 300,000 shares with a P30 par value. These ‘options were granted on January 1, 2019 and were vested 2 years after the date of grant provided that the employees sill remain withthe entity. The options expire 5 years aftr the date of grant. The option price is PAS per share and using an option-pricing model, the total compensation was determined to be 'P900,000 on Jenuary 1, 2019. During 2020, 6% ofthe shave options were forfeited and the remaining ‘options were exercised by December 31, 2021. 12, What amount of compensation expense should be recognized for 20207 a. 450,000 », 846,000 396,000 <4. 900,000 13, What amount of share premium should be recorded as a result ofthe exercise of the share options on December 31, 20217 5,076,000 b. 4,536,000 I ©. 4,230,000 4. 500,000