14. The ledger of CALLOW IMMATURE Co.

in 20x1 includes the following:

Share capital 200,000
Share premium 40,000
Retained earnings, appropriated 36,000
Retained earnings, unappropriated 84,000
Revaluation surplus 60,000
Remeasurements of the net defined benefit liability (asset) - gain 30,000
Cumulative net unrealized gain on fair value changes of investment
in FVOCI 46,000
Effective portion of losses on hedging instruments in a cash
flow hedge 20,000
Cumulative translation loss on foreign operation 10,000
Treasury shares, at cost 26,000

How much is the total shareholders’ equity?

a. 460,000
b. 440,000
c. 420,000
d. 390,000

Solution:

Share capital 200,000

Share premium 40,000
Retained earnings, appropriated 36,000
Retained earnings, unappropriated 84,000
Revaluation surplus 60,000
Remeasurements of the net defined benefit liability (asset)
- gain 30,000
Cumulative net unrealized gain on fair value
changes of investment in FVOCI 46,000
Effective portion of losses on hedging instruments in a
cash flow hedge (20,000)
Cumulative translation loss on foreign operation (10,000)
Treasury shares, at cost (26,000)
Total shareholders' equity 440,000

Use the following information for the next two questions:

15. GUILE DECEITFULNESS Co. was incorporated on January 1, 20x1. The following were the
transactions during the year:
- Total consideration from share issuances amounted to ₱2,000,000.
- A land and building were acquired through a lump sum payment of ₱400,000. A mortgage
amounting to ₱100,000 was assumed on the land and building.
- Total payments of ₱80,000 were made during the year on the mortgage assumed on the land and
building, The payments are inclusive of interest amounting to ₱10,000.
- Additional capital of ₱200,000 was obtained through bank loans. None of the bank loans were
paid during the year. Half of the bank loans required a secondary mortgage on the land and
building.
- There is no accrued interest as of year-end.
- Dividends declared during the year but remained unpaid amounted to ₱60,000.
- No other transactions during the year affected liabilities.
- Retained earnings as of December 31, 20x1 is ₱120,000.

16. How much is the profit for the year?

a. 120,000
b. 160,000
c. 180,000
d. 220,000

Retained earnings
- Jan. 1, 20x1

Dividends 60,000 180,000 Profit for the year (squeeze)

Dec. 31, 20x1 120,000

17. How much is the total assets as of December 31, 20x1?

a. 2,410,000
b. 2,520,000
c. 2,380,000
d. 2,420,000

Asset = Liabilities + Equity

Mortgage assumed on land and building 100,000

Principal payment on the mortgage (80K – 10K interest) ( 70,000)
Bank loans 200,000
Dividends payable 60,000
Liabilities, Dec. 31, 20x1 290,000

Share issuances 2,000,000

Retained earnings – Dec. 31, 20x1 120,000
Equity, Dec. 31, 20x1 2,120,000
Total assets, Dec. 31, 20x1 (liabilities + equity) 2,410,000

18. The ledger of DEROGATORY DEGRADING Co. in 20x1 includes the following:
Cash 200,000
Accounts receivable 400,000
1,000,00
Inventory 0
Accounts payable 300,000
Note payable 100,000

During the audit of DEROGATORY’s 20x1 financial statements, the following were noted by the
auditor:
- Cash sales in 20x2 amounting to ₱20,000 were inadvertently included as sales in 20x1.
DEROGATORY recognized gross profit of ₱6,000 on the sales.
- A collection of a ₱40,000 accounts receivable in 20x2 was recorded as collection in 20x1. A cash
discount of ₱2,000 was given to the customer.
- During January 20x2, a short-term bank loan of ₱50,000 obtained in 20x1 was paid together with
₱5,000 interest accruing in January 20x2. The payment transaction in 20x2 was inadvertently
included as 20x1 transaction.

How much is the adjusted working capital as of December 31, 20x1?

a. 1,651,000
b. 1,014,000
c. 1,450,000
d. 1,201,000

Solution:

The adjusted balance of cash is computed as follows:

200,000
Cash (unadjusted)
(20,000)
Cash sales in 20x2 recorded as 20x1 sale

Collection of account in 20x2 recorded as 20x1 collection

(38,000)
(40,000 account less 2,000 cash discount)
50,000
Loan payment in 20x2 recorded as 20x1 transaction
5,000
Interest payment in 20x2 recorded as 20x1 transaction
197,000
Adjusted cash balance, Dec. 31, 20x1

The adjusted balance of accounts receivable is computed as follows:

Accounts receivable (unadjusted) 400,000
Collection of account in 20x2 recorded as 20x1 collection 40,000
Adjusted accounts receivable balance, Dec. 31, 20x1 440,000

The adjusted balance of inventory is computed as follows:

Inventory (unadjusted) 1,000,000
Cost of cash sale in 20x2 recorded as 20x1 sale
 (20,000 sale - 6,000 gross profit) 14,000
Adjusted inventory balance, Dec. 31, 20x1 1,014,000

Adjusted current assets, Dec. 31, 20x1: (197K + 440K + 1,014K) = 1,651,000

The adjusted current liabilities are computed as follows:

Accounts payable 300,000
Note payable 100,000
Loan payable 50,000
Adjusted current liabilities, Dec. 31, 20x1 450,000

Working capital, Dec. 31, 20x1 = Current assets – Current liabilities

Working capital, Dec. 31, 20x1 = (1,651,000 – 450,000) = 1,201,000
22. Entity A has the following information:

Inventory, beg. 80,000

Inventory, end. 128,000
Purchases 320,000
Freight-in 16,000
Purchase returns 8,000
Purchase discounts 11,200

How much is Entity A’s cost of sales?

a. 286,800
b. 292,800
c. 288,600
d. 268,800

Inventory, beg. 80,000

Net purchases:
Purchases 320,000
Freight-in 16,000
Purchase returns (8,000)
Purchase discounts (11,200) 316,800
Total goods available for sale 396,800
Less: Inventory, end. (128,000)
Cost of goods sold 268,800
The next three items are based on the following information:
Lake Corporation’s accounting records showed the following investments at January 1, 20x3:
Ordinary shares:
Kar Corp. (1,000 shares) 10,000
Aub Corp. (5,000 shares) 100,000

Real estate:
Parking lot (leased to Day Co.) 300,000

Other:
Trademark (at cost, less accumulated
amortization) 25,000
435,00
Total investments
0

Lake owns 1% of Kar and 30% of Aub. The Day lease, which commenced on January 1, 20x1, is for
ten years, at an annual rental of ₱48,000. In addition, on January 1, 20x1, Day paid a nonrefundable
deposit of ₱50,000, as well as a security deposit of ₱8,000 to be refunded upon expiration of the lease.
The trademark was licensed to Barr Co. for royalties of 10% of sales of the trademarked items.
Royalties are payable semiannually on March 1 (for sales in July through December of the prior
year), and on September 1 (for sales in January through June of the same year).
During the year ended December 31, 20x3, Lake received cash dividends of ₱1,000 from Kar, and
₱15,000 from Aub, whose 20x3 net incomes were ₱75,000 and ₱150,000, respectively. Lake also
received ₱48,000 rent from Day in 20x3 and the following royalties from Barr:

March 1 September 1
20x2 3,000 5,000
20x3 4,000 7,000

Barr estimated that sales of the trademarked items would total ₱20,000 for the last half of 20x3.

48. In Lake’s 20x3 income statement, how much should be reported for dividend revenue?
a. 16,000
b. 2,400
c. 1,000
d. 150

C 1,000 – the dividend from the 1% investment. The dividend from the 30% investment is not dividend
income but rather a deduction to the carrying amount of the investment in associate (significant influence
is presumed to exist).

49. In Lake’s 20x3 income statement, how much should be reported for royalty revenue?
a. 14,000
b. 13,000
c. 11,000
d. 9,000
D
Solution:
Royalty revenue for Jan. to June, 20x3
(received on Sept. 20x3) 7,000
Royalty revenue for July to Dec., 20x3 (20,000 x 10%) 2,000
Total royalty revenue 9,000

50. In Lake’s 20x3 income statement, how much should be reported for rental revenue?
a. 43,000
b. 48,000
c. 53,000
d. 53,800

C
Solution:
Annual rental 48,000
Amortization of nonrefundable deposit (50K ÷ 10 yrs.) 5,000
Total rental revenue 53,000
56. WAYFARER TRAVELER Co. is preparing its December 31, 20x1, current year financial
statements. A land included in WAYFARER’s property, plant and equipment that did not
qualify as held for sale as of December 31, 20x1 was actually sold on January 5, 20x2. The
financial statements were authorized for issue on March 1, 20x2. On December 31, 20x1,
WAYFARER has total current assets of ₱9,000,000. Not included in this amount is the fair value
less costs to sell of the land amounting to ₱1,000,000. How much is the total current assets
current in WAYFARER’s December 31, 20x1 financial statements?
a. ₱8,000,000 c. ₱10,000,000
b. ₱9,000,000 d. ₱11,000,000

B – The event is disclosed only as a non-adjusting event after the reporting period.

57. On December 31, 20x1, STRIDENT HARSH-SOUNDING Co. classified its building with a
historical cost of ₱4,000,000 and accumulated depreciation of ₱2,400,000 as held for sale. All of
the criteria under PFRS 5 are complied with. On that date, the land has a fair value of ₱1,400,000
and cost to sell of ₱80,000. The entry on December 31, 20x1 includes
a. a debit to building for ₱1,320,000
b. a credit to accumulated depreciation for ₱2,400,000
c. a debit to impairment loss for ₱280,000
d. No reclassification entry will be made on December 31, 20x1

Jan. 1, Held for sale asset (1.4M – 80K) 1,320,000

20x1
Accumulated depreciation 2,400,000
Impairment loss 280,000
 Building 4,000,000

58. On December 31, 20x1, OBSTINACY STUBBORNESS Co. classified its building with a carrying
amount of ₱1,600,000 and fair value less cost to sell of ₱1,320,000 as held for sale.

The building was not sold in 20x2. However, the exception to the one-year requirement was met. On
December 31, 20x2, the fair value less cost to sell of building is ₱1,240,000.

The building was not sold in 20x3. However, the exception to the one-year requirement was still
met. On December 31, 20x3, the fair value less cost to sell of building increased to ₱1,680,000. How
much is the gain on reversal of impairment to be recognized on December 31, 20x3?
a. 440,000
b. 360,000
c. 280,000
d. 0

B 360,000, limited to the total impairment losses recognized in previous years (1,240,000 - 1,600,000
original carrying amount)
64. On December 31, 20x1, INIMICAL UNFRIENDLY Co. entered into an agreement to sell a
component. On that date, INIMICAL estimated the gain from the disposal to be made in 20x2 at
₱2,000,000 and the operating losses prior to the date of sale to be ₱1,200,000. As a result of the
sale, the component’s operations and cash flows will be eliminated from the entity’s operations
and the entity will not have any significant continuing post-sale involvement in the component’s
operations. Accordingly, the component was classified as held for sale and discontinued
operations.

The component’s actual operating losses in 20x1 and 20x2 were ₱2,800,000 and ₱2,600,000,
respectively, and the actual gain on disposal of the component in 20x2 was ₱1,600,000. INIMICAL’s
income tax rate is 30%. Any income tax benefit is expected to be realizable. There were no other
temporary differences during the year.

What single, post-tax amounts should be reported for discontinued operations in INIMICAL’s
comparative 20x2 and 20x1 income statements, respectively?
a. (1,960,000), (700,000)
b. (560,000), (1,960,000)
c. (650,000), (1,950,000)
d. (700,000), (1,960,000)

D 20x2: (1,600,000 – 2,600,000) x 70% = (700,000)

20x1: (-2,800,000 x 70%) = (1,960,000)

65. On April 30, 20x1, ABROGATE ABOLISH Co. approved a plan to dispose of a component of its
operations. The disposal meets the requirements for classification as discontinued operations.

From January 1 to April 30, 20x1, the component earned operating profit of ₱400,000 and from May 1
to December 31, 20x1, the segment suffered operating losses of ₱200,000.

The net assets of the component has a carrying amount of ₱32,000,000 as of April 30, 20x1. The fair
value less costs to sell of the component is ₱26,000,000. Additional estimated disposal loss includes
severance pay of ₱220,000 and employee relocation costs of ₱100,000, both of which are directly
associated with the decision to dispose of the segment. ABROGATE’s income tax rate is 30%. Any
income tax benefit is expected to be realizable. There were no other temporary differences during the
year.

How much is the profit (loss) from discontinued operations to be reported in ABROGATE's
statement of profit or loss and other comprehensive income for the year ended December 31, 20x1?
a. 4,564,000
b. 4,060,000
c. 4,340,000
d. 4,284,000

Solution:
Operating profit – January 1 to April 30, 20x1 400,000
Operating loss – May 1 to December 31, 20x1 (200,000)
Impairment loss (32M – 26M) (6,000,000)
Severance pay (220,000)
Employee relocation costs (100,000)
Total (6,120,000)
Multiply by: 1 minus Tax rate 70%
Loss for the period from discontinued operations (4,284,000)
3. The ledger of COPIOUS RICH Co. as of December 31, 20x1 includes the following:

15% Note payable 50,000

16% Bonds payable 100,000
18% Serial bonds 200,000
Interest payable -

Additional information:
COPIOUS Co.’s 昀椀nancial statements were authorized for issue on April 15, 20x2.
- The 15% note payable was issued on January 1, 20x1 and is due on January 1, 20x5. The note pays
annual interest every year-end. The agreement with the lender provides that COPIOUS Co. shall
maintain an average current ratio of 2:1. If at any time the current ratio falls below the agreement,
the note payable will become due on demand. As of the 3 rd quarter in 20x1, COPIOUS’s average
current ratio is 0.50:1. Immediately, COPIOUS informed the lender of the breach of the agreement.
On December 31, 20x1, the lender gave COPIOUS a grace period ending on December 31, 20x2 to
rectify the de昀椀ciency in the current ratio. COPIOUS promised the creditor to liquidate some of its
long-term investments in 20x2 to increase its current ratio.
- The 16% bonds are 10-year bonds issued on December 31, 1992. The bonds pay annual interest
every year-end.
- The 18% serial bonds are issued at face amount and are due in semi-annual installments of ₱20,000
every April 1 and September 30. Interests on the bonds are also due semi-annually. The last
installment on the bonds is due on September 30, 20x7.

How much is the total current liabilities?

a. 9,000
b. 100,000
c. 109,000
d. 120,000

Solution:

16% Bonds payable 100,000

Interest payable on the serial bonds (200K x 18% x 3/12) 9,000
Current liabilities 109,000
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4. Entity B has the following information:

Inventory, beg. 120,000

Inventory, end. 192,000
Purchases 480,000
Freight-in 24,000
Purchase returns 12,000
Purchase discounts 16,800

How much is Entity B’s the cost of sales?

a. 402,300
b. 416,300
c. 420,300
d. 422,300

Inventory, beg. 120,000

Net purchases:
Purchases 480,000
Freight-in 24,000
Purchase returns (12,000)
Purchase discounts (16,800) 475,200
Total goods available for sale 595,200
Less: Inventory, end. (192,000)
Cost of goods sold 403,200

Use the following information for the next four questions:

The nominal accounts of Hazel Lee Co. on December 31, 20x1 have the following balances:

Accounts Dr. Cr.

Sales ₱1,045,000
Interest income 80,000
Gains 30,000
Inventory, beg. ₱80,000
Purchases 300,000
Freight-in 30,000
Purchase returns 15,000
Purchase discounts 27,000
Freight-out 25,000
Sales commission 60,000
Advertising expense 35,000
Salaries expense 350,000
Rent expense 60,000
Depreciation expense 80,000
Utilities expense 40,000
Supplies expense 30,000
Transportation and travel expense 25,000

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Insurance expense 10,000

Taxes and licenses 50,000
Interest expense 5,000
Miscellaneous expense 2,000
Loss on the sale of equipment 15,000

Additional information:
a. Ending inventory is ₱100,000.
b. Three-fourths of the salaries, rent, and depreciation expenses pertain to the sales department. The
sales department does not share in the other expenses.

5. In a statement of comprehensive income prepared using the single-step approach (nature of

expense method), how much is presented as ‘change in inventory’? (increase)/decrease
a. (288,000)
b. 288,000
c. (20,000)
d. 20,000

Single-step approach

Hazel Lee Co.

Statement of Comprehensive Income
For the period ended December 31, 20x1

INCOME
₱1,045,00
Sales
0
Interest income 80,000
Gains 30,000
TOTAL INCOME 1,155,000

EXPENSES
Net purchases (a) 288,000
Change in inventory (b) (20,000)
Freight-out 25,000
Sales commission 60,000
Advertising expense 35,000
Salaries expense 350,000
Rent expense 60,000
Depreciation expense 80,000
Utilities expense 40,000
Supplies expense 30,000
Transportation and travel expense 25,000
Insurance expense 10,000
Taxes and licenses 50,000

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Interest expense 5,000

Miscellaneous expense 2,000
Loss on sale of equipment 15,000
TOTAL EXPENSES 1,055,000

PROFIT FOR THE YEAR 100,000

Other comprehensive income -
COMPREHENSIVE INCOME FOR THE YEAR ₱100,000

(a)
“Net purchases” is computed as follows:
Purchases ₱300,000
Freight-in 30,000
Purchase returns (15,000)
Purchase discounts (27,000)
Net Purchases ₱288,000

(b)
“Change in inventory” is computed as follows:

Inventory, beg. ₱80,000

Inventory, end 100,000
(₱20,000
Change in inventory – increase
)

6. In a statement of comprehensive income prepared using the single-step approach (nature of

expense method), how much is presented as total expenses?
a. 1,055,000
b. 1,075,000
c. 787,000
d. 772,000

7. In a statement of comprehensive income prepared using the multi-step approach (function of

expense method), how much is presented as distribution costs?
a. 398,500
b. 487,500
c. 467,500
d. 512,500

Multi-step approach

Hazel Lee Co.

Statement of Comprehensive Income
For the period ended December 31, 20x1

Notes
Sales ₱1,045,000

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Cost of sales 1 (268,000)

GROSS PROFIT 777,000
Other income 2 110,000
Distribution costs 3 (487,500)
Administrative expenses 4 (279,500)
Other expenses 5 (15,000)
Interest expense (5,000)
PROFIT FOR THE YEAR 100,000
Other comprehensive income -
COMPREHENSIVE INCOME FOR THE YR. ₱100,000

Note 1: Cost of sales

Inventory, beg. ₱80,000
Purchases 300,000
Freight-in 30,000
Purchase returns (15,000)
Purchase discounts (27,000)
Total goods available for sale 368,000
Inventory, end (100,000)
Cost of sales ₱268,000

Note 2: Other income

Interest income ₱80,000
Gains 30,000
Other income ₱110,000

Note 3: Distribution costs

Freight-out ₱25,000
Sales commission 60,000
Advertising expense 35,000
Salaries expense (350,000 x 3/4) 262,500
Rent expense (60,000 x 3/4) 45,000
Depreciation expense (80,000 x 3/4) 60,000
Distribution costs ₱487,500

Note 4: Administrative expenses

Salaries expense (350,000 x 1/4) ₱87,500
Rent expense (60,000 x 1/4) 15,000
Depreciation expense (80,000 x 1/4) 20,000
Utilities expense 40,000
Supplies expense 30,000
Transportation and travel expense 25,000

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 Insurance expense 10,000
Taxes and licenses 50,000
Miscellaneous expense 2,000
Administrative expenses ₱279,500

Note 5: Other expenses

Loss incurred on the sale of equipment – 15,000

8. In a statement of comprehensive income prepared using the multi-step approach (function of

expense method), how much is presented as administrative expenses?
a. 297,500
b. 302,500
c. 287,500
d. 279,500
Use the following information for the next three questions:
The movements in the cash account of DEADLOCK STANDSTILL Co. during 20x2 are shown
below.

Cash
beg. 400
7,60
Sales 12,000 0 Purchases
2,40
Interest income 40 0 Operating expenses
Rent income 540 60 Interest expense
Dividend income 80 140 Income taxes
Sale of held for trading securities 1,600 200 Investment in FVOCI
2,20
Sale of old building 1,040 0 Purchase of equipment
Collection of non-trade note 120 260 Loan granted to employee
Proceeds from loan with a bank 3,200 480 Payment of loan borrowed
Issuance of shares 1,940 400 Reacquisition of shares
180 Dividends
7,04
0 end.

17. How much is the cash 昀氀ows from operating activities?

a. 4,600
b. 4,840
c. 5,040
d. 4,060

D (Refer to solutions below)

18. How much is the cash 昀氀ows from investing activities?

a. (1,500)
b. 1,500
c. 1,240
d. (1,240)

A (Refer to solutions below)

19. How much is the cash 昀氀ows from 昀椀nancing activities?

a. 4,800
b. (4,800)
c. 4,240
d. 4,080
 lOMoARcPSD|13490478

D Solutions:

DEADLOCK STANDSTILL Co.

Statement of cash flows
For the year ended December 31, 20x2

Cash flows from operating activities

12,000
Cash receipts from customers
40
Cash receipts for interest income
540
Cash receipts for rent income
80
Cash receipts for dividend income
(7,600)
Cash paid to suppliers
(2,400)
Cash paid for operating expenses
2,660
Cash generated from operations
(60)
Interest paid
(140)
Income taxes paid
1,600
Cash receipt from sale of held for trading securities
4,060
Net cash from operating activities

Cash flows from investing activities

(200)
Cash payment for acquisition of investment in FVOCI
1,040
Cash receipt from sale of old building
(2,200)
Cash payment for acquisition of equipment
120
Cash receipt from collection of loan granted
(260)
Cash payment for loan granted
(1,500)
Net cash used in investing activities

Cash flows from financing activities

3,200
Cash proceeds from loan borrowed
(480)
Cash payment for loan borrowed
1,940
Cash proceeds from issuance of share capital
(400)
Cash payment for acquisition of treasury shares
(180)
Cash payment for dividends
4,080
Net cash from financing activities

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6,640
Net increase in cash and cash equivalents
400
Cash and cash equivalents, beginning
7,040
Cash and cash equivalents, end

Use the following information for the next four questions:

BLITHE JOYFUL Co. had the following information during 20x2:
Accounts receivable, January 1, 20x2 2,400
Accounts receivable, December 31, 20x2 1,600
Sales on account and cash sales 32,000
Bad debts expense 800
Accounts payable, January 1, 20x2 1,400
Accounts payable, December 31, 20x2 800
Cost of sales 16,000
Increase in inventory 3,600

Operating expenses on accrual basis 4,880

Increase in accrued payables for operating expenses 1,640
Decrease in prepaid operating expenses 1,560

Property, plant, and equipment, January 1, 20x2 7,200

Property, plant, and equipment, December 31, 20x2 10,800

Additional information:
 There were no write-o昀昀s of accounts receivable during the year.
 Equipment with an accumulated depreciation of ₱800 was sold during the year for ₱480
resulting to a gain on sale of ₱60.

20. How much is the cash receipts from customers?

a. 38,200
b. 37,400
c. 35,400
d. 32,800

Solution:
Accounts receivable
Jan. 1, 20x2 2,400 - Write-offs
Collections of accounts
Sales 32,000 32,800 receivables (squeeze)
1,600 Dec. 31, 20x2

21. How much is the cash payments to suppliers?

a. 19,000

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b. 20,200
c. 22,000
d. 23,400

Solution:
Inventory
Jan. 1, 20x2 -
Net purchases (squeeze) 19,600 16,000 Cost of sales
3,600 Dec. 31, 20x2

Accounts payable
1,400 Jan. 1, 20x2
Payments for purchases on
account (squeeze) 20,200 19,600 Net purchases (accrual)
Dec. 31, 20x2 800

22. How much is the cash payments for operating expenses?

a. 1,680
b. 4,800
c. 4,960
d. 8,080

Solution:
Prepaid expense / Accrued expense
Prepaid expense, beginning 1,560 - Accrued expense, beg.
Cash paid for operating expenses
(squeeze) 1,680 4,880 Operating expense (accrual basis)
Accrued expense, end 1,640 - Prepaid expense, end

23. How much is the cash payments for acquisition of property, plant, and equipment?
a. 3,600
b. 4,820
c. 4,080
d. 4,940

Solution:
The entry for the sale of equipment is re-constructed as follows:
20x2 Cash on hand (given) 480
Accumulated depreciation (given) 800
Equipment (squeeze) 1,220
Gain on sale (given) 60

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Property, plant and equipment

Jan. 1, 20x2 7,200
Historical cost of equipment sold (see
Acquisition of PPE (squeeze) 4,820 1,220 journal entry above)
10,800 Dec. 31, 20x2

24. ABC Co. has the following information as of December 31, 20x1:
Jan. 1 Dec. 31
Accounts receivable 100,000 250,000
Allowance for bad
15,000
debts 20,000
Net credit sales 850,000
Bad debt expense 60,000
Recoveries 20,000

How much is the total cash receipts from customers during the period?
a. 970,000
b. 879,000
c. 907,000
d. 897,000

Solution:
Accounts receivable
beg. 90,000
Net credit sales 1,200,000 73,000 Write-offs a
Collections from customers (including
Recoveries 10,000 907,000 recoveries) - (squeeze)
320,000 end.

a
The amount of write-offs is computed as follows:
Allowance for doubtful accounts
26,000 beg.
Write-offs (squeeze) 73,000 10,000 Recoveries
80,000 Bad debt expense
end. 43,000

25. BLUFF DECEIVE Co. has the following information as of December 31, 20x2:

Jan. 1 Dec. 31
Accounts receivable 16,000 20,000
Allowance for bad debts (400) (1,000)
Prepaid rent 3,840 3,200
Accounts payable 6,800 8,800

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BLUFF reported pro昀椀t of ₱8,800 for the year, after depreciation expense of ₱200, gain on sale of
equipment of ₱240, and restructuring and other provisions of ₱400. None of the provisions
recognized during the period a昀昀ected cash.

How much is the cash 昀氀ows from operating activities?

a. 4,800
b. 5,600
c. 8,800
d. 8,400

Solution:
Cash flows from operating activities
Profit 8,800
Adjustments for:
Depreciation expense 200
Gain on sale of building (240)
Restructuring and other provisions 400
9,160
Increase in accounts receivable, net
[(20,000 – 1,000) – (16,000 – 400)] (3,400)
Decrease in prepaid rent 640
Increase in accounts payable 2,000
Net cash from operating activities 8,400

Use the following information for the next two questions:

INORDINATE EXCESSIVE Co. had the following information for 20x2:
 Acquired 3-month treasury bills for ₱200,000.
 Acquired equipment with a purchase price of ₱4,000,000 by paying 20% in cash and issuing a
note payable for the balance. There were no payments made on the note during the year.
 Acquired land with fair value of ₱3,200,000 by issuing shares with aggregate par value of
₱2,400,000. The excess is credited to share premium.
 Extended a ₱1,600,000 loan to a director.
 Borrowed ₱1,280,000 from a bank. Used the cash proceeds as follows: ₱800,000 for additional
working capital and ₱480,000 to se琀琀le scrip dividends declared in 20x1.
 Se琀琀led an outstanding note payable by issuing shares with aggregate par value of ₱800,000.
Share premium resulted from the transaction amounted to ₱280,000.

26. How much is the net cash 昀氀ows from (used in) investing activities?
a. (2,400,000)
b. 2,400,000
c. 800,000
d. (800,000)

Cash flows from investing activities

Cash payment for acquisition of equipment (4M x 20%) (800,000)
Cash proceeds of loan granted to officer (1,600,000)

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Net cash used in investing activities (2,400,000)

27. How much is the net cash 昀氀ows from (used in) 昀椀nancing activities?
a. (800,000)
b. 800,000
c. (2,400,000)
d. 2,400,000

Cash flows from financing activities

Cash receipt from borrowings 1,280,000
Cash payment for dividends (480,000)
Net cash used in financing activities 800,000

Use the following information for the next three questions:

Information on LA-DI-DA SHOWY Co.'s 昀椀nancial position and performance as of December 31,
20x2 and 20x1 are presented below.

LA-DI-DA SHOWY Company

Statement of 昀椀nancial position
As of December 31, 20x2
ASSETS 20x2 20x1
Current assets
Cash and cash equivalents 1,000,000 600,000
Held for trading securities 480,000 -
Accounts receivable – net 1,520,000 1,240,000
Rent receivable 100,000 40,000
Inventory 2,000,000 3,600,000
Prepaid insurance 200,000 160,000
Total current assets 5,300,000 5,640,000
Noncurrent assets
Investment in bonds 360,000 340,000
Buildings 10,000,000 4,000,000
Accumulated depreciation (800,000) (800,000)
Goodwill 360,000 400,000
Total noncurrent assets 9,920,000 3,940,000
TOTAL ASSETS 15,220,000 9,580,000
LIABILITIES AND EQUITY
Current liabilities
Accounts payable 480,000 320,000
Unearned rent 80,000 120,000
Insurance payable 240,000 180,000
Dividends payable 920,000 480,000
Income tax payable 60,000 140,000
Short-term loan payable - 200,000

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Total current liabilities 1,780,000 1,440,000

Noncurrent liabilities
Bonds payable 4,000,000 4,000,000
Discount on bonds (380,000) (400,000)
Deferred tax liability 60,000 40,000
Total noncurrent liabilities 3,680,000 3,640,000
TOTAL LIABILITIES 5,460,000 5,080,000
Equity
Share capital 8,000,000 4,000,000
Retained earnings 1,760,000 500,000
TOTAL EQUITY 9,760,000 4,500,000
TOTAL LIABILITIES AND
EQUITY 15,220,000 9,580,000

LA-DI-DA SHOWY Company

Statement of pro昀椀t or loss
For the year ended December 31, 20x2
Sales 20,000,000
Cost of sales (12,000,000)
Gross income 8,000,000
Rent income 1,800,000
Interest income 80,000
Insurance expense (400,000)
Bad debts expense (60,000)
Interest expense (400,000)
Loss on sale of building (160,000)
Unrealized gain on investment 80,000
Other expenses (4,800,000)
Pro昀椀t before tax 4,140,000
Income tax expense (1,200,000)
Pro昀椀t for the year 2,940,000

Additional information:
 During 20x2, LA-DI-DA purchased held for trading securities for ₱400,000. The fair value of the
shares on December 31, 20x2 is ₱480,000.
 The allowance for doubtful accounts has balances of ₱80,000 and ₱40,000 as of December 31, 20x2
and 20x1, respectively.
 During 20x2, LA-DI-DA sold an old building with historical cost of ₱3,200,000 for ₱1,040,000.
 LA-DI-DA inadvertently included depreciation expense in the “Other expenses” line item.
 There were no acquisitions or disposals of investment in bonds during the period.
 During 20x2, LA-DI-DA issued shares with an aggregate par value of ₱4,000,000 for ₱4,000,000
cash.

28. How much is the net cash 昀氀ows from (used in) operating activities?
a. (6,000,000)
b. 6,000,000

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c. 6,600,000
d. (7,600,000)

Solution:
Cash flows from operating activities
2,940,000
Profit for the year

Adjustments for:
2,000,000
Depreciation expense
40,000
Impairment loss on goodwill
160,000
Loss on sale of building
(80,000)
Unrealized gain on held for trading securities
(20,000)
Amortization of discount on investment in bonds
20,000
Amortization of discount on bonds payable
5,060,000

(280,000)
Increase in accounts receivable, net
(60,000)
Increase in rent receivable
1,600,000
Decrease in inventory
(40,000)
Increase in prepaid insurance
160,000
Increase in accounts payable
(40,000)
Decrease in unearned rent
60,000
Increase in insurance payable
(80,000)
Decrease in income tax payable
20,000
Increase in deferred tax liability
6,400,000

(400,000)
Cash paid for the acquisition of held for trading securities
6,000,000
Net cash from operating activities

29. How much is the net cash 昀氀ows from (used in) investing activities?
a. (8,160,000)
b. 8,460,000
c. (9,200,000)
d. 8,160,000

Solution:

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Cash flows from investing activities

Cash receipt from sale of old building 1,040,000
Cash payment for acquisition of building (9,200,000)
Net cash used in investing activities (8,160,000)

30. How much is the net cash 昀氀ows from (used in) 昀椀nancing activities?
a. (2,560,000)
b. 2,560,000
c. (2,960,000)
d. 2,960,000

Solution:
Cash flows from financing activities
Cash proceeds from issuance of share capital 4,000,000
Cash payment for short-term loan (200,000)
Cash payment for dividends (1,240,000)
Net cash from financing activities 2,560,000

31. REMNANT REMAINDER Co.’s cash balances as of December 31, 20x2 and 20x1 were ₱7,040,000
and ₱400,000 respectively. REMNANT’s December 31, 20x2 statement of cash 昀氀ows reported net
cash used in investing activities of ₱1,500,000 and net cash from 昀椀nancing activities of
₱4,080,000.

How much is the net cash 昀氀ows from (used in) operating activities?
a. (4,060,000)
b. 4,060,000
c. 4,600,000
d. (4,600,000)

Solution:
4,060,000
Net cash from operating activities squeeze
(1,500,000)
Net cash from investing activities
4,080,000
Net cash used in financing activities
6,640,000
Net increase in cash during the period
400,000
Cash, beginning balance
7,040,000
Cash, ending balance start

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32. During 20x1, ALBEIT ALTHOUGH Company decided to change from the Average cost formula
for inventory valuation to the FIFO cost formula. Inventory balances under each method were as
follows:
Average FIFO
January 1 4,000,000 4,800,000
December 31 8,000,000 8,400,000

Income tax rate is 30%. What is the net cumulative e昀昀ect of the accounting change in ALBEIT’s
opening retained earnings balance?
a. 400,000 increase c. 280,000 increase
b. 560,000 decrease d. 560,000 increase

D (4,800,000 – 4,000,000) x 70% = 560,000 increase

33. On January 1, 20x1, PRISTINE UNCORRUPTED Co. acquired an equipment for ₱4,000,000. The
equipment will be depreciated using the straight-line method over 20 years. The estimated
residual value is ₱400,000.

In 20x6, following a reassessment of the realization of the expected economic bene昀椀ts from the
equipment, PRISTINE Co. changed its depreciation method to sum-of-the-years digits (SYD). The
remaining useful life of the asset is estimated to be 4 years and the residual value is changed to
₱200,000. How much is the depreciation expense in 20x6?
a. 1,160,000 b. 1,140,000 c. 1,233,560 d. 1,110,669

A [(4M – 400K) x 15/20 + 400K] – 200K x 4/10 = 1,160,000

Use the following information for the next two questions:

On January 10, 20x2, prior to the authorization of LIBERTINE IMMORAL Co.’s December 31, 20x1
昀椀nancial statements for issue, the accountant of LIBERTINE Co. received a bill for an advertisement
made in the month of December 20x1 amounting to ₱1,600,000. This expense was not accrued as of
December 31, 20x1.

34. The correcting entry, if the books are still open, includes
a. a debit to advertising expense for ₱1,600,000
b. a credit to advertising income for ₱1,600,000
c. a debit to retained earnings for ₱1,600,000
d. a credit to retained earnings for ₱1,600,000

A (Dr.) Advertising expense 1.6M; (Cr.) Advertising payable 1.6M

35. The correcting entry, if the books are already closed, includes
a. a debit to advertising expense for ₱1,600,000
b. a credit to advertising income for ₱1,600,000
c. a debit to retained earnings for ₱1,600,000

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d. a credit to retained earnings for ₱1,600,000

C (Dr.) Retained earnings 1.6M; (Cr.) Advertising payable 1.6M

36. On January 15, 20x3 while 昀椀nalizing its 20x2 昀椀nancial statements, DIAPHANOUS
TRANSPARENT Co. discovered that depreciation expense recognized in 20x1 is overstated by
₱1,600,000. Ignoring income tax, the entry to correct the prior period error includes
a. a debit to depreciation expense for ₱1,600,000
b. a debit to retained earnings for ₱1,600,000
c. a credit to depreciation expense for ₱1,600,000
d. a debit to accumulated depreciation for ₱1,600,000

D (Dr.) Accum. Dep’n. 1.6M; (Cr.) Retained earnings 1.6M

Use the following information for the next four questions:

GULOSITY GREEDINESS Co. reported pro昀椀ts of ₱4,000,000 and ₱8,000,000 in 20x1 and 20x2,
respectively. In 20x3, the following prior period errors were discovered:
 The inventory on December 31, 20x1 was understated by ₱200,000.
 An equipment with an acquisition cost of ₱1,200,000 was erroneously charged as expense in
20x1. The equipment has an estimated useful life of 5 years with no residual value. GULOSITY
Co. provides full year depreciation in the year of acquisition.

The unadjusted balances of retained earnings are ₱8,800,000 and ₱16,800,000 as of December 31, 20x1
and 20x2, respectively.

37. How much is the correct pro昀椀t in 20x1?

a. 7,560,000
b. 5,610,000
c. 4,760,000
d. 5,160,000

D (Refer to solutions below)

38. How much is the correct pro昀椀t in 20x2?

a. 7,560,000
b. 5,160,000
c. 5,720,000
d. 5,610,000

20x1 20x2
Unadjusted pro昀椀ts 4,000,000 8,000,000
Corrections - (over) understatement:

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(a) Understatement of Dec. 31, 20x1 inventory 200,000 (200,000)

(b.1) Capitalizable costs charged as expense 1,200,000 -
(b.2) Depreciation expense not recognized (240,000) (240,000)
Net adjustment to pro昀椀t 1,160,000 (440,000)
Correct pro昀椀ts 5,160,000 7,560,000

39. How much is the correct retained earnings in 20x1?

a. 9,960,000 b. 17,520,000 c. 9,860,000 d. 18,420,000

A (Refer to solutions below)

40. How much is the correct retained earnings in 20x2?

a. 9,960,000 b. 17,520,000 c. 9,860,000 d. 18,420,000

20x1 20x2
Unadjusted retained earnings 8,800,000 16,800,000
Net e昀昀ect of errors on retained earnings:
20x1: 1,160,000* 1,160,000
20x2: (440,000) + 1,160,000* 720,000
Adjusted retained earnings 9,960,000 17,520,000
*Amounts represent the net e昀昀ect of errors in pro昀椀ts (refer to previous solution).

Use the following information for the next four questions:

HELICAL SPIRAL Co. reported pro昀椀ts of ₱1,600,000 and ₱2,400,000 in 20x1 and 20x2, respectively.
In 20x3, the following prior period errors were discovered:
 Prepaid supplies in 20x1 were overstated by ₱80,000.
 Accrued salaries payable in 20x1 were understated by ₱160,000.
 Repairs and maintenance expenses in 20x1 amounting to ₱400,000 were erroneously capitalized
and being depreciated over a period of 4 years.

The unadjusted balances of retained earnings are ₱6,400,000 and ₱8,800,000 as of December 31, 20x1
and 20x2, respectively.

41. How much is the correct pro昀椀t in 20x1?

a. 1,006,000
b. 1,610,000
c. 1,720,000
d. 1,060,000

D (Refer to solutions below)

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42. How much is the correct pro昀椀t in 20x2?

a. 2,704,000
b. 2,160,000
c. 2,740,000
d. 2,610,000

Solutions:
20x1 20x2
Unadjusted profits 1,600,000 2,400,000
Corrections - (over) understatement:
(a) Overstatement of 20x1 prepaid assets (80,000) 80,000
(b) Understatement of 20x1 accrued salaries (160,000) 160,000
(c.1) Expenses erroneously capitalized (400,000) -
(c.2) Depreciation recognized on repair costs
(400,000 ÷ 4) 100,000 100,000
Net adjustment to profit (540,000) 340,000
Correct profits 1,060,000 2,740,000

43. How much is the correct retained earnings in 20x1?

a. 5,806,000
b. 5,520,000
c. 5,860,000
d. 5,420,000

C (Refer to solutions below)

44. How much is the correct retained earnings in 20x2?

a. 8,960,000
b. 8,600,000
c. 8,860,000
d. 8,420,000

B (Refer to solutions below)

Solutions:
20x1 20x2
Unadjusted retained earnings 6,400,000 8,800,000
Net effect of errors on retained earnings:
20x1: (540,000)* (540,000)
20x2: 340,000 + (540,000)* (200,000)
Adjusted retained earnings 5,860,000 8,600,000
*Amounts represent the net effect of errors in profits (refer to previous solution).

Use the following information for the next 昀椀fteen questions:

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THRALL SLAVE Company made the following errors:

a. December 31, 20x1 inventory was understated by ₱100,000.
b. December 31, 20x2 inventory was overstated by ₱160,000.
c. Purchases on account in 20x1 were understated by ₱400,000 (not included in physical count).
d. Advances to suppliers in 20x2 totaling ₱520,000 were inappropriately charged as purchases.
e. December 31, 20x1 prepaid insurance was overstated by ₱20,000.
f. December 31, 20x1 unearned rent income was overstated by ₱104,000.
g. December 31, 20x2 interest receivable was understated by ₱68,000.
h. December 31, 20x2 accrued salaries payable was understated by ₱120,000.
i. Advances from customers in 20x2 totaling ₱240,000 were inappropriately recognized as sales but
the goods were delivered in 20x3.
j. Depreciation expense in 20x1 was overstated by ₱28,800
k. In 20x2, the acquisition cost of a delivery truck amounting to ₱360,000 was inappropriately
charged as expense. The delivery truck has a useful life of 昀椀ve years. THRALL’s policy is to
provide a full year’s straight line depreciation in the year of acquisition and none in the year of
disposal.
l. A fully depreciated equipment with no residual value was sold in 20x3 for ₱200,000 but the sale
was recorded in the following year.

Pro昀椀ts before correction of errors were ₱492,000, ₱624,000, and ₱840,000 in 20x1, 20x2, and 20x3,
respectively.

Retained earnings before correction of errors were ₱4,492,000, ₱5,116,000 and ₱5,956,000 in 20x1,
20x2, and 20x3, respectively.

45. What is the net e昀昀ect of the errors on the 20x1 pro昀椀t? (over) understatement
a. (187,200)
b. 187,200
c. (164,200)
d. 164,200

A (Refer to solutions below)

46. What is the net e昀昀ect of the errors on the 20x2 pro昀椀t? (over) understatement
a. (572,000)
b. 572,000
c. 563,400
d. (563,400)

B (Refer to solutions below)

47. What is the net e昀昀ect of the errors on the 20x3 pro昀椀t? (over) understatement
a. (78,000)
b. 78,000
c. (60,000)

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d. 60,000

D (Refer to solutions below)

48. How much is the correct pro昀椀t (loss) in 20x1?

a. (348,000)
b. 348,000
c. 324,800
d. 304,800

D (Refer to solutions below)

49. How much is the correct pro昀椀t (loss) in 20x2?

a. 1,196,000
b. 1,296,000
c. 1,684,800
d. 1,286,000

A (Refer to solutions below)

50. How much is the correct pro昀椀t (loss) in 20x3?

a. 900,000
b. 926,000
c. 968,400
d. 986,000

A (Refer to solutions below)

Solutions:
20x1 20x2 20x3
Unadjusted profits 492,000 624,000 840,000
Corrections - (over)/understatement
a. Understatement of 20x1 inventory 100,000 (100,000) -
b. Overstatement of 20x2 inventory (160,000) 160,000
c. Understatement of 20x1 purchases (400,000) 400,000 -
d. Overstatement of 20x2 purchases 520,000 (520,000)
e. Overstatement of 20x1 prepaid
insurance (20,000) 20,000 -
f. Overstatement of 20x1 unearned
rent 104,000 (104,000) -
g. Understatement of 20x2 interest
income 68,000 (68,000)
h. Understatement of 20x2 accrued
salaries (120,000) 120,000
i. Overstatement of 20x2 advances/
sales (240,000) 240,000
j. Overstatement of 20x1 depreciation
expense 28,800 - -

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k. Acquisition cost of delivery truck in

20x2 360,000
k.1 Depreciation on delivery truck (72,000) (72,000)
l. Gain on sale in 20x3 not recorded* 200,000
Net correction on profits
(over) / under (187,200) 572,000 60,000
Corrected profits 304,800 1,196,000 900,000

*Since the equipment sold is fully depreciated and it has no residual value, the proceeds represents the gain on sale.

51. What is the net e昀昀ect of the errors on the 20x1 retained earnings? (over) understatement
a. (182,700)
b. 182,700
c. (165,200)
d. (187,200)

D (Refer to solutions below)

52. What is the net e昀昀ect of the errors on the 20x2 retained earnings? (over) understatement
a. 348,800
b. (348,800)
c. (384,800)
d. 384,800

D (Refer to solutions below)

53. What is the net e昀昀ect of the errors on the 20x3 retained earnings? (over) understatement
a. 444,800
b. (444,800)
c. 524,800
d. (524,800)

A (Refer to solutions below)

54. How much is the correct retained earnings in 20x1?

a. 4,304,800
b. 4,404,800
c. 4,524,400
d. 4,340,800

A (Refer to solutions below)

55. How much is the correct retained earnings in 20x2?

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a. 5,500,800
b. 5,756,800
c. 5,246,400
d. 5,340,400

A (Refer to solutions below)

56. How much is the correct retained earnings in 20x3?

a. 6,340,800
b. 6,400,800
c. 6,479,800
d. 7,004,400

Solutions:
20x1 20x2 20x3
Unadjusted retained earnings 4,492,000 5,116,000 5,956,000
Net effect of errors on profits in:
20x1 (187,200) (187,200) (187,200)
20x2 572,000 572,000
20x3 60,000
Net effect of errors on retained earnings (over) /
under (187,200) 384,800 444,800
Adjusted retained earnings 4,304,800 5,500,800 6,400,800

57. What is the net e昀昀ect of the errors on the 20x1 working capital? (over) understatement
a. (216,000)
b. 216,000
c. 80,000
d. (80,000)

58. What is the net e昀昀ect of the errors on the 20x2 working capital? (over) understatement
a. 228,000
b. (228,000)
c. (68,000)
d. 68,000

59. What is the net e昀昀ect of the errors on the 20x3 working capital? (over) understatement
a. No e昀昀ect
b. 132,000
c. 200,000
d. (200,000)

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Solutions:
20x1 20x2 20x3
Effect of errors on working capital (over)/under
a. Understatement of 20x1 inventory 100,000
b. Overstatement of 20x2 inventory (160,000)
c. Understatement of 20x1 accounts
payable a (400,000)
d. Understatement of 20x2 advances to
suppliers b 520,000
e. Overstatement of 20x1 prepaid
insurance (20,000)
f. Overstatement of 20x1 unearned rent 104,000
g. Understatement of 20x2 interest
receivable 68,000
h. Understatement of 20x2 accrued salaries (120,000)
i. Understatement of 20x2 advances to
customers c (240,000)
l. Understatement of cash due to the sale of
equipment not recorded in 20x3 200,000

Net effect of errors on working capital (over)/under (216,000) 68,000 200,000

a
If purchases on account is understated, accounts payable is also understated. Understatement in
current liabilities overstates working capital.
b
Advances to suppliers are normally classified as current receivables. Understatement in current assets
understates working capital.
c
Advances from customers are normally classified as current liabilities. Understatement in current
liabilities overstates working capital.

60. TRIBULATION GREAT DISTRESS Co.’s current reporting period ends on December 31, 20x1.
The following transactions occurred after the end of reporting period:
 On January 5, 20x2, TRIBULATION declared ₱8,000,000 dividends.
 On January 15, 20x2, TRIBULATION issued 1,000 shares with par value per share of ₱400 for
₱2,400 per share.
 On January 20, 20x2, TRIBULATION installed an oil rig. Current legislation requires that the oil
rig be uninstalled at the end of its useful life and the site where it was installed be restored.
TRIBULATION estimates the present value of the decommissioning and restoration cost at
₱4,000,000.
 On February 1, 20x2, a building with a carrying amount as of December 31, 20x1 of ₱2,000,000
was totally razed by 昀椀re.
 On February 10, 20x2, TRIBULATION received notice of a litigation in relation to an accident
that happened on December 31, 20x1. TRIBULATION estimates a probable loss of ₱800,000.
 On March 5, 20x2, TRIBULATION purchased a subsidiary for ₱40,000,000 in a business
combination accounted for using the acquisition method. Goodwill of ₱10,000,000 was
recognized on the business combination.

The 昀椀nancial statements were authorized for issue on March 1, 20x2.

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What is the total amount of the adjusting events?

a. 6,800,000
b. 800,000
c. 4,800,000
d. 30,000,000

B 800,000 probable loss on litigation

61. UNCORK RELEASE Co.’s current reporting period ends on December 31, 20x1. The following
transactions occurred after the end of reporting period:
 On January 20, 20x2, a pending litigation was resolved requiring a se琀琀lement amount of
₱400,000. The 20x1 year-end 昀椀nancial statements included a provision for loss on litigation of
₱480,000.
 Inventories costing ₱4,000,000 were recognized at their net realizable value of ₱3,600,000 in the
20x1 year-end 昀椀nancial statements. During January 20x2, the inventories were sold for
₱3,520,000. Actual selling costs amounted to ₱120,000.
 The year-end accounts receivable include a ₱400,000 receivable from RELINQUISH, Inc. No
allowance for doubtful accounts was recognized on this receivable as of December 31, 20x1. On
February 3, 20x2, RELINQUISH 昀椀led for bankruptcy. It was estimated that the receivable will
not be collected.
 The fair value of 昀椀nancial assets measured at fair value through pro昀椀t or loss signi昀椀cantly
declined to ₱320,000 on February 28, 20x2. The 昀椀nancial assets are recognized in the 20x1 year-
end 昀椀nancial statements at ₱1,200,000 which is their fair value as of December 31, 20x1.
 On March 5, 20x2, a case was resolved requiring a se琀琀lement amount of ₱800,000. The 20x1 year-
end 昀椀nancial statements included a provision for loss on litigation of ₱600,000.

UNCORK Co.’s pro昀椀t for the year ended December 31, 20x1 before consideration of the above
transactions is ₱8,800,000. The 昀椀nancial statements were authorized for issue on March 1, 20x2.

How much is the adjusted pro昀椀t?

a. 8,820,000
b. 9,020,000
c. 10,820,000
d. 8,280,000

Solution:
Unadjusted profit, December 31, 20x1 8,800,000
(a) Reduction in provision for loss on pending litigation
(480K – 400K) 80,000
(b) Reduction in NRV of inventories [3.6M - (3.52M –120K)] (200,000)
(c) Impairment loss on receivables (400,000)
Adjusted profit, December 31, 20x1 8,280,000

Use the following information for the next two questions:

The following relates to the transactions of GRIMACE FROWN Co. during 20x1:

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Directors' and o昀케cers' remuneration 8,000,000

Post-employment bene昀椀ts of o昀케cers 800,000
Fringe bene昀椀ts in the form of housing assistance to
directors and o昀케cers 20,000,000
Share options granted to o昀케cers 1,200,000
O昀케cers' expenses on travels, representation and
entertainment subject to liquidation and
reimbursement 400,000
Loans to directors and o昀케cers 12,000,000
Sales to related entities 40,000,000

62. How much is the amount of related party disclosures on GRIMACE’s separate 昀椀nancial
statements?
a. 30,000,000
b. 52,000,000
c. 82,000,000
d. 42,000,000

C Key management personnel compensation (8M + 800K + 20M + 1.2M) + Related party transactions
(12M + 40M) = 82M

63. How much is the amount of related party disclosures on GRIMACE’s consolidated 昀椀nancial
statements?
a. 12,000,000
b. 30,000,000
c. 82,000,000
d. 42,000,000

D Key management personnel compensation (8M + 800K + 20M + 1.2M) + Related party transactions
(12M) = 42M

64. DEMENTED INSANE Co. is preparing its year-end 昀椀nancial statements and has identi昀椀ed the
following operating segments:
Segment
s Revenues Pro昀椀t (loss) Assets
A 4,000,000 800,000 56,000,000
B 4,800,000 560,000 72,000,000
C 1,080,000 (280,000) 48,000,000
D 960,000 (2,800,000) 4,000,000
E 1,160,000 200,000 5,600,000
Totals 12,000,000 (1,520,000) 185,600,000

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What are the reportable segments?

a. A, B and D
b. A, B, C and D
c. A and B
d. A, B, C, D and E

 Revenue test: Threshold = 1,200,000 (12,000,000 x 10%). Reportable segments are A and B.

 Profit or loss test: Total profits (800,000 + 560,000 + 200,000 = 1,560,000); Total losses (280,000
+ 2,800,000 = 3,080,000).

Threshold = 308,000 (3,080,000 (higher) x 10%). Reportable segments are A, B and D.

 Asset test: Threshold = 18,560,000 (185,600,000 x 10%). Reportable segments are A, B and C.

 The reportable segments are A, B, C and D.

65. EMBOSOM CHERISH Co. engages in 昀椀ve diversi昀椀ed operations namely, operations A, B, C, D,
and E. Information on these segments are shown below:
Segment
s Revenues Pro昀椀t (loss) Assets

A 3,200 800 40,000

B 3,200 400 8,000

C 200 40 4,000

D 600 80 8,000

E 800 280 24,000

Totals 8,000 1,600 84,000

Additional information:
a. For internal reporting purposes, segments A and B are considered as one operating segment.
b. Segment E is considered as an operating segment for internal decision making purposes.
c. Segments C and D have similar economic characteristics and share a majority of the aggregation
criteria.

What are the reportable segments?

a. A, B, C, D and E
b. A, B and E
c. A and B as one segment and E
d. A and B as one segment, E, and C and D as one segment

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 Management approach: Reportable segments are A and B aggregated as a single reportable

segment and E.

 Quantitative tests: C and D aggregated as a single reportable segment.

66. SORDID DIRTY Co. is preparing its year-end 昀椀nancial statements and has identi昀椀ed the
following operating segments:
Inter-
External segment Total
Segments revenues revenues revenues Pro昀椀t Assets
A 4,800,000 2,400,000 7,200,000 2,800,000 48,000,000
B 1,600,000 400,000 2,000,000 1,600,000 28,000,000
C 1,000,000 - 1,000,000 400,000 4,000,000
D 800,000 - 800,000 320,000 3,200,000
E 600,000 - 600,000 280,000 2,800,000
F 400,000 - 400,000 200,000 2,000,000
Totals 9,200,000 2,800,000 12,000,000 5,600,000 88,000,000

Management believes that between segments C, D, E and F, segment C is most relevant to external
users of 昀椀nancial statements.

What are the reportable segments?

a. A and B
b. A, B, C and D
c. A, B and C
d. A, B, C, D, E and F

 Quantitative tests: A and B. However, their total external revenues is less than the 75% limit.
Therefore, C is included as reportable in order to meet the 75% limit, even if segment C does not
qualify in any of the quantitative tests.

67. RUSTIC RURAL Co. has the following information on its operating segments.
Inter-
External segment Total
Segments revenues revenues revenues Pro昀椀t Assets
A 4,800,000 2,400,000 7,200,000 2,800,000 48,000,000
B 1,600,000 400,000 2,000,000 1,600,000 28,000,000
C 1,000,000 - 1,000,000 400,000 4,000,000
D 800,000 - 800,000 320,000 3,200,000
E 600,000 - 600,000 280,000 2,800,000
F 400,000 - 400,000 200,000 2,000,000
Totals 9,200,000 2,800,000 12,000,000 5,600,000 88,000,000

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RUSTIC Co. shall provide disclosure for major customers if revenues from transactions with a single
external customer amount to how much?
a. 920,000
b. 280,000
c. 1,200,000
d. 560,000

A (9,200,000 x 10%) = 920,000

1. The ledger of LEEWAY TOLERANCE Co. as of December 31, 20x1 includes the following:
Assets
Petty cash fund 14,000
Cash in bank 40,000
Accounts receivable (including ₱30,000 pledged accounts) 70,000
Accounts receivable – assigned 50,000
Equity in assigned receivables 20,000
Notes receivable (including ₱40,000 notes receivable
discounted) 90,000
Notes receivable discounted 40,000
Advances to subsidiary 64,000
Held for trading securities 40,000
Inventory 124,000
Deferred charges 36,000
Cash surrender value 12,000
Bond sinking fund 200,000
Total assets 800,000

Liabilities
Accounts payable 80,000
Estimated warranty liability 28,000
Loans payable related to assigned receivables (due in 12
months) 30,000
Accrued expenses 26,000
Bonds payable (due on December 31, 20x2) 200,000
Premium on bonds payable 16,000
Total liabilities 380,000

Additional information:
- Petty cash fund includes IOU’s from employees amounting to ₱4,000. The remaining balance of
₱10,000 represents bills and coins.
- The cash in bank balance represents the balance per bank statement. As of December 31, 20x1,
deposits in transit amounted to ₱20,000 while outstanding checks amounted to ₱3,000. Included
in the bank statement as of December 31, 20x1 is an NSF check amounting to ₱16,000.
- Accounts receivable (unassigned) includes uncollectible past due accounts of ₱8,000 which need
to be written-off.
- Also included in accounts receivable (unassigned) is a ₱10,000 receivable from a customer which
was given a special credit term. Under the special credit term, the customer shall pay the ₱10,000
receivable in equal quarterly installments of ₱1,250. The last payment is due on December 31,
20x3.
- The held for trading securities include the reacquisition cost of LEEWAY Co.’s shares amounting
to ₱8,000.
- Inventory includes ₱60,000 goods in transit purchased FOB Destination but excludes ₱24,000
goods in transit purchased FOB Shipping point.

How much is the working capital?

 a. 204,000
b. 224,000
c. 246,000
d. 254,000

A
Solution:
Current assets
Petty cash fund (P14,000 – P4,000 IOU's) 10,000
Cash in bank (40,000 + 20,000 DIT - 3,000 OC) 57,000
Advances to employees (representing the IOU's) 4,000
Accounts receivable* 57,000
Accounts receivable – assigned 50,000
Notes receivable 90,000
Notes receivable discounted (40,000)
Held for trading securities (P40,000 – P8,000 Treasury shares) 32,000
Inventory (P112,000 – P60,000 FOB Dest. + P24,000 FOB SP) 88,000
Bond sinking fund 200,000
Total current assets 548,000

Current liabilities
Accounts payable (80,000 - 60,000 FOB Dest. + 24,000 FOB SP) 44,000
Estimated warranty liability 28,000
Loans payable related to assigned receivables (due in 12 mos.) 30,000
Accrued expenses 26,000
Bonds payable (due on December 31, 20x2) 200,000
Premium on bonds payable 16,000
Total current liabilities 344,000

Working capital 204,000

*The adjusted accounts receivable is computed as follows:

Accounts receivable 70,000
Uncollectible accounts written-off ( 8,000)
Accounts with special credit term – noncurrent portion
(P1,250 quarterly installment x 4 installments in 20x3) ( 5,000)
Adjusted accounts receivable (unassigned) 57,000
Use the following information for the next two questions:
The records of HACK TO CHOP Co. on December 31, 20x1 showed the following information:
Sales 2,000,000
Sales discounts 20,000
Cost of sales 800,000
Distribution costs 96,000
Administrative costs 240,000
Casualty loss on typhoon 40,000
Dividends received from investments in FVPL 24,000
Dividends received from investment in associate 48,000
Share in the profit of an associate 72,000
Dividends declared and paid 28,000
Interest expense 44,000
Unrealized gain on investments in FVPL 30,000
Unrealized gain on investments in FVOCI 38,000
Income tax expense 300,000
Loss on revaluation 26,000
Remeasurements of the net defined benefit liability (asset) - gain 22,000
Correction of understatement in depreciation in prior year 32,000
Translation adjustment of foreign operation – loss 8,000

4. How much is the other comprehensive income?

a. 42,000
b. 36,000
c. 34,000
d. 26,000

5. How much is the total comprehensive income?

a. 612,000
b. 627,000
c. 516,000
 d. 584,000

Solution:
HACK TO CHOP Co.
Statement of profit or loss and other comprehensive income
For the year ended December 31, 20x1

Sales 2,000,000
Sales discounts (20,000)
Net sales 1,980,000
Cost of sales (800,000)
Gross profit 1,180,000
Distribution costs (96,000)
Administrative costs (240,000)
Dividends received from investments in FVPL 24,000
Share in the profit of an associate 72,000
Unrealized gain on investments in FVPL 30,000
Casualty loss on typhoon (40,000)
Interest expense (44,000)
Profit before tax 886,000
Income tax expense (300,000)
Profit for the year 586,000
Other comprehensive income:
Items that will not be reclassified subsequently to profit or loss:
Loss on revaluation (26,000)
Unrealized gain on investments in FVOCI 38,000
Remeasurements of defined benefit pension plans 22,000
34,000
Items that may be reclassified subsequently to profit or loss:
Loss on translation of foreign operation (8,000)
Other comprehensive income for the year 26,000
TOTAL COMPREHENSIVE INCOME FOR THE YEAR 612,000
32. Entity A reported profit of ₱340,000 for the year ended December 31, 20x1. Depreciation expense
for the year was ₱100,000. The following are the changes in the operating assets and liabilities of
Entity A during 20x1:

20x1 20x0
Accounts receivable 560,000 300,000
Accounts payable 240,000 120,000

How much is the net cash from operating activities?

a. 820,000
b. 580,000
c. 300,000
d. 100,000

C 340K profit + 100K depreciation – 260K inc. in A/R + 120K inc. in A/P = 300K

Use the following information for the next two questions:

The following were the cash transactions of Entity A during the period:

Cash receipts from sale of goods 650,000

Cash paid for purchases of inventory 340,000
Cash receipts on loans taken from a bank 200,000
Cash paid for interest expense 20,000
Cash payment for the acquisition of property, plant and
equipment 180,000

33. How much is the net cash from (used in) operating activities?
a. 155,000
b. (155,000)
c. 290,000
d. (290,000)

C 650K sale – 340K purchases – 20K interest = 290K

34. How much is the net cash from (used in) investing activities?
a. 180,000
b. (180,000)
c. 20,000
d. 0

B acquisition of PPE
The comparative statement of financial position and statement of comprehensive income of Entity A
on December 31, 20x1 are shown below:

Entity A
Statement of Financial Position
As of December 31, 20x1

ASSETS 20x1 20x0

Cash and cash equivalents 440,000 200,000
Trade and other receivables 130,000 120,000
Inventory 120,000 480,000
Prepaid assets 40,000 160,000
Total current assets 730,000 960,000

Property, plant & equipment 760,000 440,000

Total noncurrent assets 760,000 440,000

1,490,00 1,400,00
TOTAL ASSETS 0 0

LIABILITIES
Trade and other payables 620,000 560,000

EQUITY
Owner’s capital 870,000 840,000

TOTAL LIABILITIES & 1,490,00 1,400,00

EQUITY 0 0

Entity A
Statement of Comprehensive Income
For the year ended December 31, 20x1

Sales 1,000,000
Cost of sales (600,000)
GROSS PROFIT 400,000
Rent income 150,000
Depreciation expense (240,000)
Insurance expense (120,000)
Bad debts expense (30,000)
Loss on sale of equipment (40,000)
PROFIT FOR THE YEAR 120,000
Other comprehensive income -
COMPREHENSIVE INCOME FOR THE
120,000
YR.

Additional information:
 Equipment with carrying amount of ₱240,000 was sold for ₱200,000 resulting to a loss on sale of
₱40,000.
 Acquisition of equipment for cash amounted to ₱800,000.
 Owner drawings totalled ₱90,000.

35. How much is the cash flows from (used in) operating activities?
a. 930,000
b. (930,000)
c. 400,000
d. (400,000)

36. How much is the cash flows from (used in) investing activities?
a. 600,000
b. (600,000)
c. 400,000
d. (400,000)

37. How much is the cash flows from (used in) financing activities?
a. 440,000
b. (440,000)
c. 90,000
d. (90,000)

Solution:
Entity A
Statement of cash flows
For the year ended December 31, 20x1

Cash flows from operating activities

Profit before tax 120,000
Depreciation expense 240,000
Loss on sale of equipment 40,000
Increase in trade and other receivable, net (10,000)
Decrease in inventory 360,000
Decrease in prepaid insurance 120,000
Increase in trade and other payables 60,000
Net cash from operating activities 930,000

Cash flows from investing activities

Cash receipt from sale of equipment 200,000
Cash payment for acquisition of equipment (800,000)
Net cash used in investing activities (600,000)

Cash flows from financing activities

Owner's drawings (90,000)
Net cash from financing activities (90,000)

Net increase in cash and cash equivalents 240,000

Cash and cash equivalents, beginning 200,000
Cash and cash equivalents, end 440,000
57. Information on an entity’s operating segments is shown below:

Operating segments Total revenue Profit Identifiable assets

A 1,000,000 200,000 4,000,000
B 500,000 120,000 1,000,000
C 300,000 30,000 800,000
D 500,000 50,000 1,700,000
E 200,000 60,000 800,000
F 900,000 400,000 1,000,000
Totals 3,400,000 860,000 9,300,000

The reportable segments are

a. A, B and F c. A, B, C, D and F
b. A, B, D and F d. All segments
62. Entity A publishes quarterly interim financial reports. Entity A’s annual depreciation for items
of PPE is ₱120,000. At the end of the first quarter, Entity A’s inventories have a cost of ₱600,000
and a net realizable value of ₱510,000. Entity A expects that the total employee bonuses (13 th
month pay) that will be paid at year-end will amount to ₱60,000. How much is the total amount
of expense to be recognized from the items described above in Entity A’s first quarter statement
of profit or loss?
a. 120,000 c. 30,000
b. 135,000 d. 270,000

63. Under the cash basis of accounting, revenues are recorded

a. when they are earned and realized.
b. when they are earned and realizable.
c. when they are earned.
d. when they are collected.

64. White Co. wants to convert its 2003 financial statements from the accrual basis of accounting to
the cash basis. Both supplies inventory and office salaries payable increased between January 1,
2003 and December 31, 2003. To obtain the 2003 cash basis net income, how should these
increases be added to or deducted from accrual-basis net income?
Supplies inventory Office salaries payable
a. Deducted Deducted
b. Deducted Added
c. Added Deducted
d. Added Added

65. Insurance payments P150,000

Prepaid insurance, Jan. 1 65,000
Prepaid insurance, Dec. 31 85,000
Accrued insurance payable decreased by 35,000

How much is the insurance expense under accrual basis accounting?

a. 205,000
b. 65,000
c. 130,000
d. 95,000

D Solution:
Prepaid, beg. 65,000 35,000 Accrued payable, beg.
Payments 150,000 95,000 Insurance expense (squeeze)
Accrued payable, end. - 85,000 Prepaid, end.
66. Unearned rent, Jan. 1 P170,000
Unearned rent, Dec. 31 85,000
Accrued rent income, Jan. 1 180,000
Accrued rent income, Dec. 31 200,000
Rental payments received 560,000

How much is the Rent income under the accrual basis accounting?
a. 455,000
b. 625,000
c. 665,000
d. 645,000

C
Solution:
Accrued, beg. 180,000 170,000 Unearned, beg.
Rent income (squeeze) 665,000 560,000 Payments received
Unearned, end. 85,000 200,000 Accrued, end.

67. Payments made for income taxes P760,000

Income tax payable increased by 200,000
Deferred tax liability, Jan. 1 360,000
Deferred tax liability, Dec. 31 470,000
Deferred tax asset, Jan. 1 85,000
Deferred tax asset, Dec. 31 65,000

Income tax expense under accrual basis accounting is

a. 1,090,000
b. 960,000
c. 850,000
d. 830,000

A
Solution:
Income tax payable
- beg.
Tax payments 760,000 960,000 Current tax expense (squeeze)
end. 200,000

Income tax expense (squeeze) 1,090,000

Less: Increase in DTL (110,000)
Less: Decrease in DTA (20,000)
Current tax expense 960,000
87. (Use the PFRS for SMEs) On 1 January 20X1 an entity acquired goods for sale in the ordinary
course of business for ₱100,000, including ₱5,000 refundable purchase taxes. The supplier
usually sells goods on 30 days’ interest-free credit. However, as a special promotion, the
purchase agreement for these goods provided for payment to be made in full on 31 December
20X1. In acquiring the goods transport charges of ₱2,000 were incurred: these were due on 1
January 20X1. An appropriate discount rate is 10 per cent per year. The entity shall measure the
cost of inventories at:
a. ₱102,000 b. ₱97,000 c. ₱88,364 d. ₱107,000