PRACTICE MIDTERM EXAMINATION

Problem 1
An entity provided the following information on December 31, 2022:

Accounts payable 2,000,000

Accrued expenses 800,000
Bonds payable 2,500,000
Premium on bonds payable 300,000
Deferred tax liability 500,000
Income tax payable 1,100,000
Cash dividend payable 600,000
Share dividend payable 400,000
Note payable – due March 1, 2023 1,500,000

1. What amount should be reported as total current liabilities?

a. 6,000,000 b. 6,400,000 c. 4,500,000 d. 6,500,000

SOLUTION:
A/P – 2M
A/E – 800K
IT/P – 1.1M
CD/P – 600K
N/P – 1.5 M
= 6M

Problem 2
An entity reported the following current assets at December 31, 2022:

Cash, including P1,000,000 sinking fund and P500,000 value added tax
fund 5,000,000
Accounts receivable
2,000,000
Inventory, including goods received on consignment P200,000
800,000
Equity investment at FVPL
3,000,000
Equity investment at FVOCI
1,500,000
Deferred tax asset 550,000
Deposit made on inventory to be delivered in 18 months
150,000

2. What total amount of current assets should be reported December 31,

2022?
a. 11,200,000 b. 11,250,000 c. 9,600,000 d. 9,750,000

SOLUTION:
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3. An entity provided the following trial balance on December 31, 2022:

Cash overdraft
(200,000)
Property, plant and equipment, net
1,900,000
Accounts receivable net
700,000
Accounts payable 700,000
Inventory
1,200,000
Share capital
3,000,000
Prepaid expenses
200,000
Share premium
500,000
Land held for resale
2,000,000
Retained earnings
1,600,000

Checks amounting to P600,000 were written to vendors and recorded on

December 31, 2022 resulting in cash overdraft of P200,000. The checks
were mailed on January 15, 2023. Land held for resale was
sold for cash on January 31, 2023.

3. What total amount should be reported as current assets?

a. 4,500,000 b. 4,100,000 c. 4,300,000 d. 2,500,000

4. What total amount should be reported as current liabilities?

a. 1,300,000 b. 1,500,000 c. 900,000 d. 700,000

SOLUTION:
A. CURRENT ASSETS
CASH 400,000 (600,000 – 200,000)
A/R 700,000
INV. 1.2M
P/E 200,000
LAND 2M
= 4,500,000

B. CURRENT LIABILITIES
=A/P 1.3M (700,000 + 600,000)

4. An entity provided the following unadjusted balances at year-end:

Cash 850,000
Share premium 600,000
Accounts receivable 1,650,000
Retained earnings 1,100,000
Prepaid taxes 600,000
Translation adjustment – debit 500,000
Accounts payable 400,000
Revenue 3,600,000
Share capital 500,000
Expenses 2,600,000

During the current year, estimated tax payments of P600,000 were

charged to prepaid taxes. The entity has not yet recorded income tax
expense. There were no differences between financial income and taxable
tax income and the tax rate is 25%. Included in accounts receivable is
P500,000 due from a customer. Special terms granted to this customer
require payment in equal semiannual installments of P125,000 every April
1 and October 1.

5. What amount should be reported as total current assets?

a. 2,600,000 b. 2,250,000 c. 2,475,000 d. 3,100,000

SOLUTION:
CASH 850,000
A/R 1,400,000 (1,650,000 – 250,000) (125,000 X 2 = 250,000)
P/T 350,000
= 2.6M

>>> REVENUES – EXPENSES = X TAX RATE THEN DEDUCT TAX PAYMENTS

TO GET PREPAID TAXES AT YEAR-END

An entity reported the following liability balances on December 31, 2022:

Accounts payable 6,500,000
Bank note payable – 10% 3,000,000
Bank note payable – 11% 5,000,000
Mortgage note payable – 10% 2,000,000
Bonds payable 4,000,000

 The P3,000,000, 10% note was issued march 1, 2018, payable on

demand. Interest is payable every six months
 The one year P5,000,000, 11% note was issued January 15, 2018.

On December 31, 2018, the entity negotiated a written agreement

with the bank to replace the note with a 2 year 5,000,000, 10% note
to be issued January 15, 2019.

 The 10% mortgage note was issued October 1,2015 with a term of
10years. The term of the note give the holder the right to demand
immediate payment if the entity fails to make a monthly interest
payment within 10 days from the date the payment is due.

On December 31, 2018 the entity is three months behind in making

the required interest payment.

 The bond payable are ten years 8% bonds issued June 30 ,2009.
Interest payable semi-annually on June 30 and December 31

6. What amount should be reported as total current liabilities and total

non-current liabilities
a. 15,650,000 and c. 20,650,000 and 0
5,000,000
b. 5,000,000 and d. 13,650,000 and 7,000,000
15,650,000

An entity reported the following data for the current year:

Net sales 9,500,000
Cost of goods sold 4,000,000
Selling expenses
1,000,000
Administrative expenses
1,200,000
Interest expense 700,000
Gain from expropriation of land 500,000
Income tax 800,000
Income from discontinued operation 600,000
Unrealized gain on equity investment at FVOCI
900,000
Unrealized loss on debt investment at FVOCI
200,000
Unrealized loss on forward contract designated as a cash flow hedge
400,000
Actuarial loss on defined benefit plan due to actuarial assumptions
300,000
Foreign translation gain (Credit)
100,000
Loss on credit risk of financial liability designated at FVPL
700,000
Revaluation surplus during the current year
2,500,000

7. What net amount should be recognized in other comprehensive

income?
a. 1,900,000 b. 3,100,000 c. 2,600,000 d. 2,800,000

8. What amount should be reported as comprehensive income?

a. 4,800,000 b. 1,000,000 c. 2,900,000 d. 2,300,000

SOLUTION:
A. NET AMOUNT OF OCI

B. REPORTED AS CI

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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 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
Debit adjustment of profit of prior year for error in under depreciation, net
of tax 750,000
Loss from fire
1,400,000
Unrealized gain on equity investment at FVPL
500,000

9. What amount should be reported as adjusted net income?

a. 8,300,000 b. 7,800,000 c. 7,600,000 d. 8,700,000

Brian Company provided the following information for the year 2023:

Increase in materials 300,000

inventory
Decrease in work in process 400,000
inventory
Decrease in finished goods 700,000
inventory
Materials purchased 8,600,0
00
Direct labor payroll 4,000,0
00
Manufacturing overhead 6,000,0
00
Freight outward 900,000
Freight inward 500,000

10. What is the cost of goods sold for the year 2023?
a. 18,300,00 b. 18,500,00 c. 19,100,00 d. 19,900,00
0 0 0 0

11. The major elements of the income statement are

a. revenue, cost of goods sold, selling expenses, and general expense.

b. operating section, nonoperating section, discontinued operations and
cumulative effect.
c. revenues, expenses, gains, and losses.
d. All of these.

12. The income statement reveals

a. resources b. resources and c. net earnings d. net earnings

and equities of equities of a firm (net income) of (net income) of a
a firm at a for a period of a firm at a point firm for a period of
point in time. time. in time time.

13. Which method of income measurement is used in the preparation of

the income statement?
a. Capital b. Transaction c. Cash-flow d. Income
maintenance approach. approach. components
approach. approach.

14. Which of the following equations expresses the definition of “income”?

a. Income = Revenues – Expenses
b. Income = (Revenues + Gains) – (Expenses + Losses)
c. Income = Revenues + Gains
d. Income = Gains – Losses

15. The definition of expenses includes

a. losses b. expenses c. d. expenses, losses and
only. and losses. expenses unrealized losses on available-
only. for-sale securities.

16. IFRS requires that a single amount be disclosed within the income
statement for
a. the post-tax profit/loss on discontinued operations and the pre-tax
gain/loss on the disposal of discontinued operational assets.
b. the pre-tax profit/loss on discontinued operations and the post-tax
gain/loss on the disposal of discontinued operational assets.
c. the pre-tax profit/loss on discontinued operations and the pre-tax
gain/loss on the disposal of discontinued operational assets.
d. the post-tax profit/loss on discontinued operations and the post-tax
gain/loss on the disposal of discontinued operational assets.

17. Which of the following is not a generally practiced method of

presenting the income statement?
a. Including prior period adjustments in determining net income.
b. The condensed income statement.
c. The consolidated income statement.
d. Including gains and losses from discontinued operations of a component
of a business in determining net income.

18. Which of the following is not a selling expense?

a. Advertising b. Office salaries c. Freight- d. Store supplies
expense. expense. out. consumed.

19. Which of the following is included in comprehensive income?

a. Investments b. Unrealized gains c. Distributions to d. Changes in
by owners. on non-trading owners. accounting
equity securities. principles.

20. Comprehensive income includes all of the following except

a. dividend b. losses on disposal c. investments by d. unrealized
revenue. of assets. owners. holding gains.

21. Comprehensive income includes all of the following, except

a. revenues b. expenses c. preference d. unrealized gains
and gains. and losses. share dividends. and losses on non-
trading equity
securities.

22. The statement of financial position is useful for analyzing all of the
following except
a. liquidity. b. solvency. c. profitability. d. financial
flexibility.

23. The statement of financial position can help assess all of the following
except
a. Solvency. b. Financial c. Profitability. d. Liquidity.
flexibility.

24. The net assets of a business are equal to

a. current assets b. total assets c. total assets d. none of these
minus current plus total minus total choices are
liabilities. liabilities. shareholders' correct.
equity.

25. The basis for classifying assets as current or noncurrent is conversion

to cash within
a. the accounting b. the operating c. the accounting d. the operating
cycle or one cycle or one cycle or one cycle or one
year, whichever year, whichever year, whichever year, whichever
is shorter. is longer. is longer. is shorter.

26. The basis for classifying assets as current or noncurrent is the period
of time normally required by the accounting entity to convert cash
invested in
a. inventory b. receivables c. tangible fixed d. inventory
back into cash, back into cash, assets back into back into cash,
or 12 months, or 12 months, cash, or 12 or 12 months,
whichever is whichever is months, whichever is
shorter. longer. whichever is longer.
longer.

27. The current assets section of the statement of financial position should
include
a. machinery. b. patents. c. goodwill. d. Inventory.

28. Which of the following is a current asset?

a. Cash surrender b. Investment in c. Cash d. Trade
value of a life equity securities designated for installment
insurance policy for the purpose of the purchase receivables
of which the controlling the of tangible normally
company is the issuing company. fixed assets. collectible in 18
bene-ficiary. months.

29. Each of the following are an intangible asset except

a. copyrights. b. goodwill. c. plant d. trademarks.
expansion fund.

30. Which of the following is not a long-term investment?

a. Investments in b. Franchise c. Land held for d. A sinking

ordinary shares speculation fund

31. Which item below is not a current liability?

a. Unearned b. Share dividends c. The currently d. Trade
revenue distributable maturing portion of accounts
long-term debt payable

32. An example of an item which is not an element of working capital is

a. accrued interest on b. goodwill. c. goods in d. short-term
notes receivable. process. investments.

33. Non-current liabilities include

a. obligations not b. obligations c. deferred d. All of these
expected to be payable at some income taxes and choices are
liquidated within date beyond the most lease correct.
the next year or next year or obligations.
operating cycle operating cycle.

34. Treasury shares should be reported as a(n)

a. current asset. b. investment. c. other asset. d. reduction of
equity.

Casino Company provided the following comparative statement:

2018 2017
Cash P 560,000 P 740,000
Accounts receivable 300,000 350,000
Inventory 800,000 650,000
Prepaid expenses 40,000 60,000
Property, plant, and 5,500,000 4,200,000
equipment
Accumulated (2,000,000) (1,600,000
depreciation )
Accounts payable 600,000 950,000
Accrued expenses 150,000 50,000
Short-term note 200,000 500,000
payable – bank
Long-term note payable 1,000,000 -
– bank
Ordinary share capital 3,000,000 3,000,000
Retained earnings 250,000 (100,000)

Cash needed to purchase new equipment and to improve the working

capital position was raised by borrowing from bank with a long-term note.
Equipment costing P 200,000 and carrying amount of P 150,000 was sold
for P 180,000. The entity declared and paid cash dividend of P 300,000 in
the current year. There were no entries in the retained earnings account
other than to record dividend and net income for the year.

35. What is the net cash provided by operating activities?

A. 690,000 B. 740,000 C. 770,000 D. 800,000

36. What is the net cash used in investing activities?

A. 1,300,000 B. 1,320,000 C. 1,480,000 D. 1,500,000

37. What is the net cash provided by financing activities?

A. 300,000 B. 400,000 C. 600,000 D. 700,000
Shadow Punch Company provided the following information for the
preparation of a statement of cash flows:

DEBITS 2018 2017

Cash 460,000 200,000
Trading securities 600,000 -
Accounts receivable (net) 1,020,0 1,020,0
00 00
Inventory 1,360,0 1,200,0
00 00
Long-term investments 400,000 600,000
Equipment 3,400,0 2,000,0
00 00
Patent 180,000 200,000
TOTAL 7,420,0 5,220,0
00 00

CREDITS
Accumulated depreciation 900,000 900,000
Accounts payable and 1,650,0 1,440,0
accrued liabilities 00 00
Short-term debt 650,000 -
Share capital, P20 par 1,600,0 1,400,0
00 00
Share premium 740,000 500,000
Retained earnings 1,880,0 980,000
00
TOTAL 7,420,0 5,220,0
00 00

Additional information:
 Profit for 2018 was P1,380,000.
 Cash dividends of P480,000 were declared and paid in 2018.
 Equipment costing P800,000 and having a book value of P300,000
was sold in 2018 for P300,000.
 A long-term investment was sold in 2018 for P270,000. There were
no other transactions affecting long-term investments in 2018.
 10,000 shares were issued in 2018 for P44 per share.
 The trading securities were purchased for cash on December 31,
2018.

38. What is the net cash provided by operating activities?

A. 1,280,000 B. 1,380,000 C. 1,830,000 D. 1,900,000

39. What is the net cash used in investing activities?

A. 1,630,000 B. 1,730,000 C. 1,790,000 D. 2,230,000

40. What is the net cash provided by financing activities?

A. 610,000 B. 880,000 C. 910,000 D. 1,090,000