CPA REVIEW SCHOOL OF THE PHILIPPINES

Manila
Financial Accounting and Reporting 6728
STATEMENT OF COMPREHENSIVE INCOME

1. An entity reported the following for the current year:

Legal and audit fees 1,700,000
Rent for office space 2,400,000
Advertising 500,000
Interest on inventory loan 2,100,000
Loss on abandoned data processing equipment 350,000
Freight in 1,750,000
Freight out 1,600,000
Officers’ salaries 1,500,000
Insurance 850,000
Sales representative salaries 2,150,000
Research and development expense 1,000,000

The office space is used equally by the sales and accounting departments.

1. What amount should be classified as general and administrative expenses?

a. 5,250,000
b. 6,450,000
c. 5,600,000
d. 6,250,000

2. What amount should be reported as selling expenses?

a. 5,450,000
b. 4,250,000
c. 6,300,000
d. 6,450,000

2. An entity provided the following information for the current year:

Increase in raw materials inventory 150,000
Decrease in goods in process inventory 200,000
Decrease in finished goods inventory 350,000
Raw materials purchased 4,300,000
Direct labor payroll 2,000,000
Factory overhead 3,000,000
Freight out 450,000
Freight in 250,000

What is the cost of goods sold for the current year?

a. 9,950,000
b. 9,550,000
c. 9,250,000
d. 9,150,000

3. An entity reported operating expenses other than interest expense for the year at 40% of cost of
goods sold but only 20% of sales. Interest expense is 5% of sales. The amount of purchases is 120%
of cost of goods sold. Ending inventory is twice as much as the beginning inventory. The net income
for the year is P2,100,000. The income tax rate is 30%.

1. What is the amount of sales for the year?

a. 10,000,000
b. 15,000,000
c. 18,000,000
d. 12,000,000

2. What is the amount of purchases for the year?

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a. 6,000,000
b. 7,200,000
c. 3,000,000
d. 3,600,000

4. An entity provided the following information for the current year:

Income from continuing operations 4,000,000
Income from discontinued operations 500,000
Unrealized gain on financial asset – FVPL 800,000
Unrealized loss on equity investment – FVOCI 1,000,000
Unrealized gain on debt investment – FVOCI 1,200,000
Unrealized gain on futures contract designated as a cash flow hedge 400,000
Translation loss on foreign operation 200,000
Net remeasurement gain on defined benefit plan during the year 600,000
Loss on credit risk of a financial liability designated at FVPL 300,000
Revaluation surplus during the year 2,500,000

1. What net amount should be reported as other comprehensive income for the current year?

a. 4,000,000
b. 3,500,000
c. 3,200,000
d. 7,000,000

2. What amount should be reported as comprehensive income for the current year?

a. 5,200,000
b. 7,700,000
c. 8,500,000
d. 7,200,000

5. An entity reported net income of P7,400,000 for the current year. The auditor raised questions
about the following amounts that had been included in the net income:
Equity in earnings of an associate – 25% interest 1,500,000
Dividend received from the associate 400,000
Unrealized loss on equity investment at FVOCI ( 550,000)
Gain on early retirement of bonds payable 2,200,000
Adjustment of profit of prior year for error in depreciation, net of tax effect ( 750,000)
Loss from fire (1,400,000)
Gain from change in fair value of financial liability designated at FVPL 500,000

What amount should be reported as adjusted net income?

a. 8,300,000
b. 7,800,000
c. 9,500,000
d. 8,800,000

6. An investment entity provided the following data for the current year:
Dividend income from investments 10,000,000
Distribution income from trusts 500,000
Interest income on deposits 700,000
Income from bank treasury bills 100,000
Income from dealing in securities held for trading 600,000
Writedown on securities held for trading 150,000
Other income 250,000
Finance cost 300,000
Administrative staff costs 3,800,000
Sundry administrative costs 1,400,000
Income tax expense 2,000,000

1. What is the total income before tax?

a. 12,000,000
b. 12,150,000 6728
c. 11,750,000
d. 11,550,000

2. What is the net income for the year?

a. 6,500,000
b. 4,500,000
c. 4,650,000
d. 4,250,000

7. An entity had the following events and transactions during 2020:

 Depreciation for 2019 was understated by P500,000
 A litigation settlement resulted in a loss of P2,000,000
 The inventory on December 31, 2018 was overstated by P800,000
 The entity disposed of a recreational division at a loss P1,500,000
 The income tax rate is 30%

What total amount of loss should be included in income from continuing operations for 2020?

a. 2,000,000
b. 1,400,000
c. 3,500,000
d. 2,450,000

8. During 2020, an entity decided to change from the FIFO method of inventory valuation to the
weighted average method. Inventory balances under each method were:

FIFO Weighted Average

December 31, 2017 4,500,000 5,400,000
December 31, 2018 7,800,000 7,100,000
December 31, 2019 8,300,000 7,800,000

The income tax rate is 30%. What amount should be reported as the effect of this accounting change
in the statement of retained earnings for 2020?

a. 350,000 decrease
b. 350,000 increase
c. 490,000 decrease
d. 490,000 increase

9. On January 1, 2018, an entity purchased a machine for P7,200,000 and depreciated it by the
straight line method using an estimated useful life of eight years with no residual value. On
January 1, 2020, the entity determined that the machine had a useful life of six years from the date
of acquisition with a residual value of P600,000. What is the accumulated depreciation on December
31, 2020?

a. 4,200,000
b. 3,600,000
c. 3,000,000
d. 4,600,000

10. On January 1, 2018, an entity purchased for P5,000,000 a machine with a useful life of ten years
and residual value of P200,000. The machine was depreciated by the double declining balance method.
The entity changed to the straight line method on January 1, 2020 and the residual value did not
change. What is the carrying amount of the asset on December 31, 2020?

a. 2,825,000
b. 2,800,000
c. 2,625,000
d. 3,200,000

Key to correction: AAADB CBAAB BACA

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