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Problems - Final Examination

The document contains 12 multiple choice accounting questions related to topics such as discontinued operations, accounting changes, depreciation, development costs, inventory valuation, errors, and more. For each question, letter options are provided as possible answers.

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jhell de la cruz
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270 views3 pages

Problems - Final Examination

The document contains 12 multiple choice accounting questions related to topics such as discontinued operations, accounting changes, depreciation, development costs, inventory valuation, errors, and more. For each question, letter options are provided as possible answers.

Uploaded by

jhell de la cruz
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Cebu Roosevelt Memorial Colleges

San Vicente St., Bogo City Cebu


Intermediate Accounting 3
Direction: Use the attached google form as your answer sheet.
1. Tokino Company is a diversified entity with nationwide interests in commercial real estate development,
banking, mining and food distribution. The food distribution division was deemed to be inconsistent with
the long-term direction of the entity.
On October 1, 2020 the board of directors voted to approve the disposal of this division. The sale is expected
to occur in August 2021.
The food distribution had revenue of 35,000,000 and expenses of 27,000,000 for the period January 1 to
September 30, and revenue of 15,000,000 and expenses of 10,000,000 for the period October 1 to December
31.
The carrying amount of the division’s net assets on December 31, 2020 was 58,000,000 and the fair value
less cost of disposal was 56,000,000.
The sale contract requires Tokino to terminate certain employees incurring an expected termination costs
of 4,000,000 to be paid by December 15, 2021. The income tax rate is 30%.
What amount should be reported as income from discontinued operation for 2020?
a. 7,000,000
b. 4,900,000
c. 9,000,000
d. 6,300,000

2. Miko Company reported the following data for the current year:
Net Income 500,000
Selling and administrative expenses 2,250,000
Income from continuing operation 700,000
Income before income tax 1,000,000

What amount should be reported as income or loss from discontinued operation?


a. 700,000 income
b. 500,000 income
c. 100,000 loss
d. 200,000 loss

3. On December 31, 2020, Roboco Company committed to a plan to discontinue the operations of Underwear
Division.
The entity estimated that the division’s operating loss for 2021 would be 500,000.
The fair value of the facilities was 300,000 less than carrying amount on December 31, 2020.
The division’s operating loss for 2020 was 1,400,000 and the division was actually sold for 400,000 less than
carrying amount in 2021. The income tax rate is 30%.
What amount should be reported as loss from discontinued operation in 2020?
a. 1,700,000
b. 1,190,000
c. 1,400,000
d. 1,820,000

4. During 2020, Haachama Company appropriately changed to the FIFO method from the weighted average
method for financial statement and income tax purposes. The change will result in 150,000 increase in the
beginning inventory on January 1, 2020. The tax rate is 30%.
What is the prior period specific effect of this accounting change?
a. 150,000
b. 105,000
c. 45,000
d. 0
5. On January 1, 2018, Polka Company purchased for 4,800,000 a machine with a useful life of ten years and a
residual value of 200,000.
The machine was depreciated by the double declining balance and the carrying amount of the machine was
3,072,000 on December 31, 2019.
The entity changed to the straight line method on January 1, 2020. The residual value did not change.
What is the depreciation expense on this machine for the year ended December 31, 2020?
a. 287,200
b. 384,000
c. 460,000
d. 359,000

6. On January 1, 2016, Izumi Company purchased equipment for 4,000,000. The equipment has a useful life of
10 years and a residual value of 400,000.
On January 1, 2020, the entity determined that the useful life of the equipment was 12 years from the date
of acquisition and the residual value was 460,000.
What is the depreciation of the equipment for 2020?
a. 175,000
b. 262,500
c. 360,000
d. 300,000

7. Amelia Company provided the following information at year-end:


December 31, 2020 December 31, 2019
Development costs 8,160,000 5,840,000
Amortization (1,800,000) (1,200,000)

The capitalized development costs relate to a single project that commenced in 2017. It has now been
discovered that one of the criteria for capitalization has never been met.
A. What adjustment is required to restate retained earnings on January 1, 2020?
a. 6,360,000
b. 1,720,000
c. 4,640,000
d. 0

B. What amount of the development cost should be expensed in 2020?


a. 5,840,000
b. 6,360,000
c. 1,720,000
d. 0

8. In reviewing the draft financial statements for the year ended December 31, 2020, Baqua Company decided
that market conditions were such that the provision for inventory obsolescence on December 31, 2020
should be increased by 3,000,000.
If the same basis of calculating inventory obsolescence had been applied on December 31, 2019, the
provision would have been 1,800,000 higher than the amount recognized in the statement of
comprehensive income.
What adjustment should be made to the net income of 2019 presented as a comparative figure in the 2020
financial statements?
a. 1,800,000 decrease
b. 1,800,000 increase
c. 3,000,000 decrease
d. 0
9. Ayame Company reported net income of 700,000 for 2020. The entity declared and paid dividend of 150,000
in 2020.
In the financial statements for the year ended December 31, 2019, the entity reported retained earnings of
1,100,000 on January 1, 2019.
The net income for 2019 was 600,000 and the entity declared and paid dividend of 300,000 in 2019.
In 2020, after the 2019 financial statements were approved for issuance, the entity discovered an error in
the December 31, 2018 financial statements.
The effect of error was a 650,000 overstatement of net income for the year ended December 31, 2018 due
to under depreciation.
What amount should be reported as retained earnings on December 31, 2020?
a. 1,300,000
b. 1,400,000
c. 1,650,000
d. 1,950,000

10. A company has decided to switch from using the FIFO method of inventory valuation to using the average
cost method (AVCO). In the first accounting period where the change is made, opening inventory valued by
the FIFO method was 53,200. Closing inventory valued by the AVCO method was 59,800. Total purchases
during the period were 136,500. Using the AVCO method, opening inventory would have been valued at
56,200.
What is the cost of goods that should be included in the income statement for the period?
a. 129,900
b. 132,900
c. 135,900
d. 140,100

11. Botan Company reported a retained earnings balance of 5,000,000 at January 1, 2020. In August 2020, Botan
determined that insurance premiums of 600,000 for the three-year period beginning January 1, 2019, had been paid
and fully expensed in 2019. Botan has 30% income tax rate. What amount should Botan report as adjusted retained
earnings in 2020?
a. 5,420,000
b. 5,280,000
c. 5,140,000
d. 4,720,000

12. Nene Enterprises purchased a machine on January 2, 2019, at a cost of 120,000. An additional 50,000 was spent for
installation, but this amount was charged erroneously to repair expense. The machine has a useful life of five years
and a residual amount of 20,000. As a result of error,
a. Retained earnings at December 31, 2020, was understated by 30,000 and 2020 income was overstated by 6,000.
b. Retained earnings at December 31, 2020, was understated by 38,000 and 2020 income was overstated by 6,000.
c. Retained earnings at December 31, 2020, was understated by 30,000 and 2020 income was overstated by
10,000.
d. 2019 income was understated by 50,000.

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