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ADFINA 2 - Preweek 1
ADFINA 2 - Preweek 1
ADFINA 2 - Preweek 1
1. Whitney Limited lost $150 on a hedging and had a corresponding gain on the hedged item of
$100. The effectiveness range for these associated transactions is:
A. 100% - 150% B. 0% - 15% C. 20% - 30% D. 66% - 150%
3. If the U.S. dollar is the currency in which the foreign affiliate’s books and records are
maintained, and the U.S. dollar is also the functional currency,
A. The translation method should be used for restatement.
B. The remeasurement method should be used for restatement.
C. Either translation or remeasurement could be used for restatement.
D. No restatement is required.
4. An entity has a subsidiary that operates in a country where the exchange rate fluctuates wildly
and there are seasonal variations in the income and expenditure patterns. Which of the
following rates of exchange would probably be used to translate the foreign subsidiary’s income
statement?
A. Year-end spot rate.
B. Average for the year.
C. Average of the quarter-end rates.
D. Average rates for each individual month of the year.
5. On October 1, 2009, Mild Co., a U.S. company, purchased machinery from Grund, a German
company, with payment due on April 1, 2010. If Mild’s 2009 operating income included no
foreign currency transaction gain or loss, the transaction could have
A. Been denominated in foreign currency (Euro).
B. Been denominated in U.S. dollars.
C. Caused a foreign currency gain to be reported as a contra account against machinery.
D. Caused a foreign currency translation gain to be reported in other comprehensive income.
6. Average exchange rates are used to translate certain items from foreign financial statements
into Philippine peso. Such averages are used in order to:
A. Smooth out large translation gains and losses.
B. Eliminate temporary fluctuation in exchange rates that may be reversed in the next fiscal
period.
C. Avoid using different exchange rates for some revenue and expense accounts.
D. Approximate the exchange rate in effect when the items were recognized.
7. Which of the following hedging strategies would a business most likely use?
A. An importer will want to hedge his foreign denominated accounts receivable and will
purchase forward contracts to hedge an exposed net asset position.
B. An importer will want to hedge his foreign denominated accounts payable and will purchase
forward contracts to hedge an exposed net liability position.
C. An exporter will want to hedge his foreign denominated accounts receivable and will
purchase forward contracts to hedge an exposed net liability position.
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D. An exporter will want to hedge his foreign denominated accounts payable and will purchase
forward contracts to hedge an exposed net liability position.
8. A U.S. company sells merchandise to a foreign company denominated in the foreign currency.
Which of the following statements is true?
A. If the foreign currency appreciates, a foreign exchange gain will result.
B. If the foreign currency depreciates, a foreign exchange gain will result.
C. No foreign exchange gain or loss will result.
D. If the foreign currency appreciates, a foreign exchange loss will result.
9. What is the type of financial risk involved when entities have outstanding purchase
commitments?
A. Price risk
B. Credit risk
C. Interest rate risk
D. Foreign currency risk
10. Exchange gains and losses on accounts receivable and payable that are denominated in a
foreign currency are:
A. Accumulated and reported upon settlement.
B. Deferred and treated as transaction price adjustments.
C. Reported as equity adjustments from translation.
D. Recognized in the periods in which exchange rates change.
15. An appreciation in the value of the Philippine peso against the British pound would tend to:
A. Discourage the British from buying Philippine goods.
B. Discourage Filipinos from buying British goods.
C. Increase the number of peso that could be brought with a pound.
D. Discourage Filipino tourists from traveling to Britain.
16. In the year an 80% owned subsidiary sells equipment to its parent company at a gain, the non-
controlling interest in consolidated income is calculated by multiplying the non-controlling
interest percentage by the subsidiary’s reported net income
A. Plus the intercompany gain considered realized in the current period.
B. Plus the net amount of unrealized gain on the intercompany sale.
C. Minus the net amount of unrealized gain on the intercompany sale.
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D. Minus the intercompany gain considered realized in the current period.
17. When preparing consolidated financial statement work papers, unrealized intercompany gains,
as a result of equipment or inventory sales by affiliates, are allocated proportionately by percent
of ownership between parent and subsidiary only when the selling affiliate is
A. The parent and the subsidiary is less than wholly owned.
B. A wholly owned subsidiary.
C. The subsidiary and the subsidiary is less than wholly owned.
D. The parent of a wholly owned subsidiary.
18. Lewis Company owns 80 percent of Tomassini Corporation’s stock. You are told that Tomassini
has sold equipment to Lewis and that the following eliminating entry is needed to prepare
consolidated statement for 2009:
Equipment 20,000
Gain on Sale of Equipment 40,000
Depreciation Expense 5,000
Accumulated Depreciation 50,000
19. Why does the intercompany sale of a building require subsequent adjustments to depreciation
expense?
A. Because the buyer is using a different depreciation method.
B. Because the buyer has changed the estimated useful life.
C. Because immediately after the sale, the balance in accumulated depreciation on the buyer’s
books is zero.
D. Because the book value of the building is the same for the seller and the buyer.
20. When an intercompany gain on sale of land is finally realized by sale of the land to an outsider,
the consolidated gain on sale will equal:
A. The sum of the recorded gain on sale to the outsider and the deferred gain.
B. The difference between the recorded gain on sale to the outsider and the deferred gain.
C. The deferred gain.
D. The gain recorded by the affiliate that resold the asset to the outsider.
PROBLEM SOLVING:
For items 21 to 28, use the following information:
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On January 1, 2014, Parent Company acquired 90% of Subsidiary Company in exchange for 5,400
shares of P10 par ordinary shares having a market value of P120,600. Parent and Subsidiary
condensed balance sheets on January 1, 2014 before the combination were as follows:
Parent Subsidiary
Cash P 30,900 P 37,400
Accounts receivable 34,200 9,100
Inventories 22,900 16,100
Equipment, net 179,000 40,000
Patents ___________ 10,000
Total assets P 267,000 P 112,600
At the date of acquisition, all assets and liabilities of Subsidiary Company have a book value
approximately equal to their respective market values except the following as determined by
appraisals as follows:
Inventories (FIFO method) P 17,100
Equipment, net – 4 years remaining life 48,000
Patents – 10 years remaining life 13,000
24. Assuming that on December 31, 2014, the following results were given:
Dividend paid Net Income
Parent Company P 15,000 P 30,200
Subsidiary Company 4,000 9,400
Compute the non-controlling interest in net income on December 31, 2014:
A. P -0- B. P 540 C. P610 D. P 940
27. Compute the profit for the period attributable to equity holders of parent on December 31, 2014:
A. P 26,600 B. P 32,090 C. P 32,700 D. P 44,100
29. An entity purchases plant from a foreign supplier for 3 million baht on January 31, 2014, when
the exchange rate was 2 baht = P1. At the entity’s year-end of March 31, 2014, the amount has
not been paid. The closing rate was 1.5 baht = P1. The entity’s functional currency is the peso.
Which of the following statement is correct?
A. Cost of plant, P 2 million, exchange loss P 0.5 million, trade payable P 1.5 million.
B. Cost of plant, P 1.5 million, exchange loss P 0.6 million, trade payable P 2 million.
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C. Cost of plant, P 1.5 million, exchange loss P 0.5 million, trade payable P 2 million.
D. Cost of plant, P 2 million, exchange loss P 0.5 million, trade payable P 2 million.
30. An entity acquired all the share capital of a foreign entity at a consideration of 9 million baht on
June 30, 2014. The fair value of the net assets of the foreign entity at that date was 6 million
baht. The functional currency of the entity is the peso. Then financial year-end of the entity is
December 31, 2014. The exchange rates at June 30, 2014, and December 31, 2014, were 1.5
baht = P1 and 2 baht = P1, respectively. What figure for goodwill should be included in the
financial statements for the year ended December 31, 2014?
A. P 2,000,000 B. 1,500,000 baht C. P 1,500,000 D. P 3,000,000
32. On March 1, 2015, foreign exchange gain or loss on forward contract amounted to:
A. P 5,000 loss B. P 5,000 gain C. P 2,000 gain D. P 2,000 loss
33. The December 31, 2015 foreign exchange gain or loss on forward contract to be charged to and
amounted to:
A. P 80,500 gain – equity/OCI
B. P 80,500 gain – earnings
C. P 80,500 loss – equity/OCI
D. P 92,000 gain – equity/OCI
34. The December 31, 2015, translation reserve balance (cumulative translation adjustment)
amounted to:
A. P 148,500 debit
B. P 229,500 debit
C. P 309,500 debit
D. P 148,500 credit
Items 35 – 38 are based on the following information:
On January 1, 2011, entities A and B each acquired 30 percent of the ordinary shares that carry
voting rights at a general meeting of shareholders of Entity Z for P 100,000. The purchase price is
equal to the fair value of 30 percent of entity Z’s identifiable assets less percent of its identifiable
liabilities. Entity A and B immediately agreed to share control over entity Z. For the year ended
December 31, 2011, entity Z recognized a loss of P 600,000. Entities A and B have no constructive
or legal obligation in respect of their jointly controlled entity’s loss and have made no payments on
its behalf. Entity Z recognized profit for the year ended December 31, 2012 of P 800,000. There is
published price quotation for Entity Z.
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35. Using the equity method at December 31, 2011, Entities A and B each recognizes their share of
the losses of the jointly controlled entity amounted to:
A. P -0- B. P 60,000 C. P 100,000 D. P 180,000
36. At December 31, 2011, entities A and B must each report their investment in entity Z (a joint
controlled entity) amounted to:
A. P -0- B. P 60,000 C. P 100,000 D. P 180,000
37. At December 31, 2012, entities A and B each recognizes their share of profit of the jointly
controlled entity amounted to:
A. P 160,000 B. P 100,000 C. P 60,000 D. P -0-
38. At December 31, 2012, entities A and B must each report their investment in entity Z (a jointly
controlled entity) amounted to:
A. P 160,000 B. P 100,000 C. P 60,000 D. P -0-
39. What is the intrinsic value (IV) and time value (TV) option on January 1, 2014?
Intrinsic Value Time Value
A. P 16,000 P -0-
B. P -0- P 16,000
C. P 10,000 P 6,000
D. P 6,000 P 10,000
40. The foreign exchange gain or loss on option contract on June 30, 2014 should be:
A. P 5,000 loss – current earnings
B. P 65,000 gain – OCI
C. P 65,000 loss – OCI
D. P 0 gain – OCI
41. The June 30, 2014 foreign exchange gain or loss to be recognized in current earnings if zero
export sales for 2014:
A. P -0- B. P 26,000 C. P 39,000 D. P 65,000
42. The June 30, 2014 foreign exchange gain or loss to be recognized in current earnings if export
sales of 1,000,000 baht – all occurred in December 2014:
A. P -0- B. P 26,000 C. P 39,000 D. P 65,000
43. Everest Company has historically reported bad debt expense of 5% of sales in each quarter.
For the current year, the company followed the same procedure in the three quarters of the
year. However, in the fourth quarter, the company, in consultation with its auditor, determined
that bad debt expense for the entire year should be P 450,000. Sales in each quarter of the year
were as follows: first quarter, P 2,000,000; second quarter, P 1,500,000; third quarter, P
2,500,000; fourth quarter, P 4,000,000. How much bad debt expense should be recognized for
the fourth quarter?
A. P 200,000 B. P 150,000 C. P 300,000 D. P 400,000
44. Colt Company has four manufacturing divisions, each of which has been determined to be a
reportable segment. Common costs are appropriately allocated on the basis of each division’s
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sales in relation to Colt’s aggregate sales. Colt’s Delta division accounted for 40% of Colt’s
total sales in the current year. For the current year ended December 31, Delta had sales of P
8,000,000 and traceable costs of P 4,800,000. In the current year, Colt incurred costs of P
800,000 that were not directly traceable to any of the divisions. In addition, Colt incurred
interest expense of P 640,000. In reporting supplementary segment information, how much
should be shown as Delta’s profit for the current year?
A. P 3,200,000 B. P 3,000,000 C. P 2,880,000 D. P 2,624,000
45. What is the intrinsic value (IV) and time value (TV) of option on December 31, 2014?
Intrinsic Value Time Value
A. P 40,000 P 2,000
B. P 2,000 P 40,000
C. P 42,000 P -0-
D. P -0- P 42,000
46. What is the intrinsic value (IV) and time value (TV) of option on March 1, 2015?
Intrinsic Value Time Value
A. P 42,000 P -0-
B. P 40,000 P 2,000
C. P 35,000 P -0-
D. P -0- P 35,000
47. The foreign exchange gain or loss on option contract (hedging instrument) on December 31,
2014 if changes in the time value will be included from the assessment of hedge effectiveness
(non-split accounting) should be
A. P 1,000 loss B. P 1,000 gain C. P 39,000 gain D. P 40,000 gain
48. The foreign exchange gain or loss on option contract (hedging instrument) on December 31,
2014 if changes in the time value will be excluded from the assessment of hedge effectiveness
(split accounting) should be
A. P 1,000 loss B. P 1,000 gain C. P 39,000 gain D. P 40,000 gain
49. The foreign exchange gain or loss on option contract (hedging instrument) on December 31,
2014 if changes in the intrinsic value will be excluded from the assessment of hedge
effectiveness (split accounting) should be
A. P 1,000 loss B. P 1,000 gain C. P 39,000 gain D. P 40,000 gain
50. The December 31, 2014 foreign exchange gain or loss amounted to:
A. P -0- B. P 1,000 gain C. P 1,000 loss D. P 40,000 gain
PRACTICAL ACCOUNTING II
ADVANCED FINANCIAL ACCOUNTING II QUIZZER 1
ANSWER KEY
1. On January 1, 2015, Rogers Inc. sold equipment costing P 2,800,000 with accumulated
depreciation of P 1,680,000 to Cooper Corp., wholly owned subsidiary, for P 1,500,000. Rogers
had owned the equipment for six years and was depreciating the equipment using the straight-
line method over ten years with no salvage value. Cooper will continue to use the straight-line
method over the remaining four years of the equipment’s economic life. In consolidated
statements at December 31, 2015, the cost and accumulated depreciation, respectively, should
be
A. P 2,800,000 and P 1,680,000 C. P 2,800,000 and P 2,055,000
B. P 1,500,000 and P 375,000 D. P 2,800,000 and P 1,960,000
Cost 2,800,000
2. In 2012, Einstein Inc. purchase land from its 70%-owned subsidiary for P 125,000. The
subsidiary originally paid P 80,000 for the land several years earlier. In 2014, Einstein Inc.
needed to raise some cash and sold the land to an unrelated third party for P 115,000. What
amount of gain or loss on the sale of the land should be reported in the consolidated income
statement in 2012 and 2014?
2012 2014 2012 2014
A. P 45,000 gain P 35,000 gain C. P -0- P 10,000 loss
B. P 45,000 gain P 10,000 loss D. P -0- P 35,000 gain
3. Dark Inc. owns 70% of Light Co.’s common stock. On January 2, 2014, Dark Inc. sold to Light
Co. some equipment for P 90,000. The equipment had a carrying amount of P 60,000. Light is
depreciating the acquired equipment over a fifteen-year remaining useful life by the straight-line
method. The net adjustments to calculate 2014 and 2015 consolidated net income would be an
increase (decrease) of
2014 2015 2014 2015
A. P (28,000) P 2,000 C. P 2,000 P -0-
B. P (24,000) P -0- D. P (6,000) P 24,000
4. Blue Inc. owns 70% of Green Co.’s outstanding common stock. Blue Inc. reports cost of goods
sold in 2014 of P 850,000 while Green Co. reports P 520,000. During 2014, Blue Inc. sells
inventory costing P 100,000 to Green Co. for 125,000. 40% of these goods are not resold by
Green Co. until the following year. What is the amount of cost of goods sold will be reported in
the consolidated income statement?
A. P 1,395,000 B. P 1,255,000 C. P 1,360,000 D. P 1,235,000
5. The Slumber Company’s statement of financial position on December 31, 2014 is as follows:
Assets Liabilities and Shareholders’ Equity
Cash P 200,000 Current liabilities P 600,000
Accounts Receivable 400,000 Long-term debt 1,000,000
Inventories 1,000,000 Ordinary Share, P2 par 200,000
PPE 1,800,000 Share premium 400,000
_________ Retained earnings 1,200,000
Total P 3,400,000 Total P 3,400,000
On December 31, 2012, the Plumber Company acquired 75% of the outstanding ordinary
shares of Slumber for P 3,000,000 cash. On that date, the fair market value of Slumber’s
inventories was P 900,000 and fair value of Slumber’s property, plant and equipment was P
2,000,000. The fair values of all assets and liabilities of Slumber were equal to their book
values.
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As a result of the acquisition of Slumber by Plumber, the consolidated statement of financial
position of Plumber and Slumber should reflect goodwill in the amount of (assume that the non-
controlling interest is measured at fair value and that the consideration transferred includes a
control premium of P 300,000).
A. P 750,000 C. P 1,200,000
B. P 1,000,000 D. P 1,525,000
Acquisition cost 3,000,000
Less: FINA (2,900,000 x 75%) 2,175,000
Goodwill – partial 825,000
Less: Control premium 300,000
Goodwill w/o control premium 525,000
Divide by 75%
Goodwill – full 700,000
Add: Control premium 300,000
Goodwill – with control premium (full) 1,000,000 (B)
6. The statement of financial position of Bob Company as of December 31, 2013 is as follows:
On December 31, 2013, the Taylor Inc. bought all of the outstanding shares of Bob Company for
P 1,800,000 cash. On the date of acquisition, the fair market value of Bob’s inventories was P
675,000, while the fair value of Bob’s property, plant and equipment was P 1,100,000. The fair
value of all other assets and liabilities of Bob were equal to their book values. In addition, not
included above were costs in-process research and development of Bob Company amounting
to P 100,000.
7. Condensed Statement of Financial Position of Dolce Inc. and Galvez Inc. as of December 31,
2013 were as follows:
Dolce Galvez
Current assets P 275,000 P 65,000
Noncurrent assets 625,000 425,000
Total Assets 900,000 490,000
On January 1, 2014, Dolce Inc. issued 30,000 shares with market value of P 25 per share for
the assets and liabilities of Galvez Inc. Dolce Inc. also paid P 125,000 cash. The book value
reflects the fair value of the assets and liabilities, except that the noncurrent assets of Galvez
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Inc. have a fair value of P 630,000 and the noncurrent assets of Dolce Inc. are overstated by P
30,000. Contingent consideration, which is determinable, is equal to P 15,000. Dolce paid for
the share issuance costs only amounting to P 74,000 and incurred other acquisition costs
amounting to P 19,000.
As a result of acquiring the net assets of Galvez Inc., compute for the total liabilities in the books
of Dolce.
A. P 100,000 B. P 115,000 C. P 134,000 D. P 65,000
Liabilities – Dolce 65,000
Liabilities – Galvez 35,000
Contingent consideration 15,000
Unpaid other acquisition costs 19,000
Total liabilities 134,000 (C)
Duck Corporation acquired a 70% interest in Whistle Corporation on January 1, 2013, when
Whistle’s book values were equal to their fair values. During 2013, Duck sold merchandise that cost
P 75,000 to Whistle for P 110,000. On December 31, 2013, three-fourths of the merchandise
acquired from Duck remained in Whistle’s inventory. Separate incomes of Duck and Whistle are as
follows:
Duck Whistle
Sales Revenue P 150,000 P 200,000
Cost of Goods Sold 90,000 70,000
Operating Expenses 12,000 15,000
Separate Incomes P 48,000 P 115,000
8. What amount of sales to be reported in the consolidated income statement as of December 31,
2013?
A. P 350,000 B. P 240,000 C. P 200,000 D. P 40,000
10. What is the consolidated net income to be reported in the consolidated financial statement as of
December 31, 2013?
A. P 163,000 B. P 88,750 C. P 136,750 D. P 136,700
Plastic Corporation acquired Shaldan Corporation’s common stock on January 1, 2010 for P
210,000 cash. The stockholders’ equity of Shaldan at this time consisted of P 150,000 capital stock
and P 50,000 retained earnings. The difference between the price paid by Plastic and the
underlying equity acquired in Shaldan was due to P 12,500 undervaluation of Shaldan’s inventory,
a P 25,000 undervaluation of Shaldan’s equipment and to goodwill. The undervalued inventory
items were sold by Shaldan during 2010, and the undervalued equipment had a remaining useful
life of five years. Straight-line depreciation is used. Any goodwill is not amortized.
Goodwill was tested for impairment, and it was determined that an impairment loss of P 10,000
must be recognized in 2012.
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Some balance sheet and income statement accounts of Plastic and Shaldan Corporations at end
for the year ended December 31, 2013 are presented below:
Plastic Shaldan
Income Statement
Balance Sheet
Additional information:
Retained earnings, January 1, 2013 75,000 80,000
Dividends 40,000 20,000
Determine the amounts that would appear in the consolidated financial statements of
Plastic Corporation and Subsidiary for each of the following items:
A. Goodwill at December 31, 2013
B. Consolidated depreciation expenses for 2013
C. Non-controlling interest income for 2013
D. Consolidated net income for 2013
E. Consolidated retained earnings at December 31, 2013
F. Non-controlling interest at December 31, 2013
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