Mary Mickaella R.

Ventura

BSA 2-C

Group 3 – AMONG US

Problem 6: Multiple Choice – Computational

1. During 20x3, the “other revenues and gains” section of Totman Company’s Statement of Earnings and
Comprehensive Income contains P5,000 in interest revenue, P15,000 equity in Harpo Co. earnings and
P60,000 total gain on sale of foreign operations. The total gain on sale of foreign operations includes
P25,000 reclassification adjustment for cumulative translation gain. Assuming the reclassification
adjustment relating to the sale of the foreign operation increased the current portion of income tax
expense by P10,000, determine the net of tax amount of Totman’s reclassification adjustment to other
comprehensive income.

a. 5,000

b. 2,500

c. 35,000

d. 15,000

Solution:

Reclassification adjustment from gain on sale of foreign corporations 25,000

Less: Income tax effect 10,000

15,000

2. A company buys ten shares of securities at P2,000 each on December 31, 20x1. The Securities are
classified to be subsequently measured at fair value through other comprehensive income (FVOCI). The
fair value of the securities increases to P2,500 on December 31, 20x2, and to P2,750 on December 31,
20x3. On December 31, 20x3, the company sells the securities. Assume no dividends are paid and that
the company has a tax rate of 30%. What is the amount of the reclassification adjustment for other
comprehensive income on December 31, 20x3?

a. 0

b. (7,500)

c. 5,250
d. 5,250

Solution:

Reclassification adjustment of cumulative unrealized gains or losses on FVOCI securities is PROHIBITED.

3. What amount of comprehensive income should HUBRIS ARROGANCE Corporation report on its
statement of comprehensive income given the following net of tax figures that represent changes during
the period?

Actuarial gain or loss on defined benefit plan (6, 000)

Unrealized gain on FBOCI securities 30, 000

Reclassification adjustment for cumulative gain on translation

Of foreign operation included in profit or loss (5, 000)

Stock warrants outstanding 13, 000

Profit for the year 154, 000

a. 173,000

b. 178,000

c. 179,000

d. 181,000

Solution:

Actuarial Gain or loss on defined benefit plan (6, 000)

Unrealized gain on FVOCI securities 30, 000

Reclassification adjustment for cumulative gain on

Translation of foreign operation included in profit or loss (5, 000)

Profit of the year 154, 000

4. Clark Co.’s advertising expense account had a balance of P146,000 at December 31, 20x3, before any
necessary year-end adjustment relating to the following:

 Included in the P146,000 is the P15,000 cost of printing catalogs for a sales promotional
campaign in January 20x4.
 Radio advertisements broadcast during December 20x3 were billed to Clark to January 2, 20x4.
Clark paid the P9,000 invoice on January 11, 20x4

What amount should Clark report as advertising expense in its income statement for the year ended
December 31, 20x3?

a. 122,000

b. 131,000

c, 140,000

d. 155,000

Solution:

Advertising expense 146,000

Less: cost of printing catalogs (15,000)

Add: payment of Clark 9,000

140,000

5. In Yew Co.’s 20X5 annual report, Yew described its social awareness expenditures during the year as
follows:

“The Company contributed P250,000 in cash to youth and educational programs. The Company
also gave P140,000 to health and human-service organizations, of which P80,000 was contributed by
employees through payroll deductions. In addition, consistent with the Company’s commitment to the
environment, the Company spent P100,000 to redesign product packaging.”
What amount of the above should be included in Yew’s income statement as charitable contributions
expense?

a. 310,000

b.390,000

c. 410,000

d. 490,000

Solution:

Company contributions 250,000

Add: contributions to health and human-service organizations 140,000

Less: employee contribution (80,000)

310,000

The next two items are based on the following:

Debit Credit

Sales 575,000

Cost of sales 240,000

Administrative expenses 70,000

Loss on sale of equipment 10,000

Sales commissions 50,000

Interest revenue 25,000

Freight out 15,000

Loss on early retirement of long- term debt 20,000

Uncollectible accounts expense 15,000______________

Totals 420,000 600,000

Other information:
Finished goods inventory:

January 1, 20x1 ……………………………P400,000

December 31,20x1…………………………360,000

Vane’s income tax rate is 30%. In Vane’s 20x1 multiple step income statement,

6. What amount should Vane report as the cost of goods manufactured?

a. 200,000

b. 215,000

c. 280,000

d. 295,000

Solution:

Cost of goods manufactured 200,000 (squeeze)

Add: Finished goods beg. 400,000

Less: Finished goods end. (360,000)

Cost of sales 240,000

7. What amount should Vane report as income after income taxes from continuing operations?

a. 126,000

b. 129,500

c.140,000

d.147,000

Solution:

Excess of credits over debits (600,000 – 420,000) 180,000

Loss on early retirement of long –term debt 20,000

Income from continuing operations 200,000

Less: tax (200,000 x 30%) 60,000

Income after income taxes from continuing operations 140,000

8. Brock Corp. reports operating expense in two categories: (1) selling, and (2) general administrative.
The adjusted trial balance at December 31,20x1 included the following expense and loss accounts:

Accounting and legal fees 120,000

Advertising 150,000

Freight-out 80,000

Interest 70,000

Loss on sale of long-term investment 30,000

Officers’ salaries 225,000

Rent for office space 220,000

Sales salaries and commissions 140,000

One-half of the rented premises is occupied by the sales department, Brock’s total selling expenses for
20x1 are?

a. 480,000

b.400,000

c.370,000

d.360,000

Solution:

Advertising expense 150,000

Freight –out 80,000

Rent for office space (220,000/ 2) 110,000

Total of Selling Expense 480,000

9. The following costs were incurred by Griff Co. a manufacturer, during 20x1:

Accounting and legal fees 25,000

Freight-in 175,000

Freight-out 160,000

Officers’ salaries 150,000

Insurance 85,000

Sales representatives salaries 215,000

What amount of these costs should be reported as general and administrative expenses for 20x1?

a. 260,000

b. 550,000

c. 635,000

d. 810,000

Solution:

Accounting and legal fees 25,000

Officers’ salaries 150,000

Insurance 85,000

Total general and administrative costs 260,000