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Problem I (Current assets)
An entity provided the following trial balance on June 30, 2015:
Cash overdraft @ 200,000! "roperty, plant and e#uip$ent, net 1,%00,000
Accounts receivable, net &00,000 Accounts payable and accrued e'penses ()0,000
*nventory 1,200,000 +hare capital 3,000,000
"repaid e'penses 200,000 +hare pre$iu$ 500,000
Land held for resale 2,000,000 -etained earnings 1,((0,000
Chec.s a$ounting to "(00,000 were written to vendors and recorded on June 30 resulting in cash
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overdraft of "200,000/ Phe chec.s were $ailed on July %/ Land held for resale was sold for cash on
July 15/ Phe financial state$ents were issued on July 31/ Qn June 30, 2015, what total a$ount
should be reported as current assetsR
a/ ),500,000
b/ ),100,000
c/ ),300,000
d/ 2,500,000

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Problem 2 (Total assets)
An entity was incorporated on January 1, 2015 with proceeds fro$ the issuance of "&,500,000 in
shares and borrowed funds of "1,100,000/ Suring the first year of operations, revenue fro$ sales
and consulting a$ounted to "420,000, and operating costs and e'penses totaled "()0,000/ Qn
Sece$ber 15, the entity declared a "30,000 cash dividend, payable to shareholders on January 15,
201(/ Uo additional activities affected owners6 e#uity in 2015/ Phe liabilities increased to
"1,200,000 by Sece$ber 31, 2015/ 7hat a$ount should be reported as total assets on Sece$ber
31, 2015R
a/ 4,450,000
b/ 4,420,000
c/ &,4&0,000
d/ 4,&50,000

Problem @ (Current l!ab!l!t!es)

An entity had the following liabilities on Sece$ber 31, 2015:
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payable 55,000
8nsecured notes, 49 due &Z1Z201( )00,000
Accrued e'penses 35,000
Contingent liability )50,000
Seferred ta' liability 25,000
+enior bonds, &9, due 3Z31Z201( 1,000,000

Phe contingent liability is an accrual for possible loss on a "1,000,000 lawsuit filed against the
entity/ Phe legal counsel e'pects the suit to be settled in 201( and has esti$ated that the entity will
be liable for da$ages in the range of ")50,000 to "&50,000/ Phe deferred ta' liability is e'pected to
reverse in 201(/ 7hat a$ount should be reported on Sece$ber 31, 2015 for current liabilitiesR
a/ 515,000
b/ %)0,000
c/ 1,)%0,000
d/ 1,515,000

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"age 2

Problem " (Net !n#ome)

An entity reported net inco$e of "&,)10,000 for the current year/ Phe auditor raised #uestions about
the following a$ounts that had been included in net inco$e:
8nreali;ed loss on e#uity invest$ents at fair value through other co$prehensive
inco$e @ 5)0,000 !
<ain on early retire$ent of bonds payable 2,200,000
Ad=ust$ent of profit of prior year for error in depreciation, net of ta' effect @ &50,000 !
Loss fro$ fire @ 1,)00,000 !
<ain fro$ change in fair value attributable to the credit ris. of financial liability
designated at fair value through profit or loss 500,000
7hat a$ount should be reported as ad=usted net inco$eR
a/ (,500,000
b/ &,200,000
c/ 4,200,000
d/ 4,&00,000

Problem $ (Reta!ne% earn!n&s)

An entity provided the following infor$ation on Sece$ber 31, 2015:
Potal reported inco$e since incorporation 1,&00,000
Potal cash dividends paid @ 400,000!
8nreali;ed holding loss on trading invest$ent @ 120,000!
Potal share dividends distributed @ 200,000!
"rior period ad=ust$ent recorded January 1, 2015 > credit &5,000
7hat a$ount should be reported as retained earnings on Sece$ber 31, 2015R
a/ (55,000
b/ &00,000
c/ 540,000
d/ &&5,000

Problem ' (CasH #omIutat!on)

An entity reported the chec.boo. balance on Sece$ber 31, 2015 at "4,000,000/ *n addition, the
entity held the following ite$s in the safe on that date:
Chec. payable to the entity, dated January 2, 201( in pay$ent of a sale,
not !n#lu%e% in Sece$ber 31 chec. boo. balance 1,000,000
Chec. payable to the entity, deposited Sece$ber 15 and included in
Sece$ber 31 chec.boo. balance, but returned by ban. on
Sece$ber 30 sta$ped ?U+@a/ Phe chec. was redeposited on
January 2, 201( and cleared on January 5, 201( 3,000,000
Chec. drawn on the entity6s account, dated and recorded on
Sece$ber 31, 2015 but not $ailed until January 15, 201( 2,500,000
Coins and currencies on hand 400,000
Phree>$onth $oney $ar.et instru$ents 1,500,000
7hat is the correct a$ount of ?casha on Sece$ber 31, 2015R
a/ &,500,000
b/ %,300,000
c/ 4,300,000
d/ %,400,000

"age 3

Problem * (ImIa!rment o+ a##ounts re#e!,able)

An entity reported the following accounts receivable on Sece$ber 31, 2015:

Custo$er A 1,000,000
Custo$er B 1,500,000
Custo$er C 2,000,000
Custo$er S 2,500,000
All other accounts receivable not individually significant 3,500,000
Phe entity deter$ined that Custo$er A receivable is totally i$paired and Custo$er B receivable is
i$paired by "&00,000/ Phe other receivables fro$ Custo$ers C and S are not considered i$paired/
Phe entity deter$ined that a co$posite rate of 109 is appropriate to $easure i$pair$ent on the
re$aining accounts receivable/ 7hat is the total i$pair$ent loss of accounts receivable for 2015R
a/ 2,500,000
b/ 2,050,000
c/ 1,050,000
d/ 2,&50,000

Problem - (Current net re#e!,ables)

An entity reported current receivables on Sece$ber 31, 2015 which consisted of the following:
Prade accounts receivable %30,000
Allowance for uncollectible accounts 20,000
Clai$ against shipper for goods lost in transit in Uove$ber 2015 30,000
+elling price of unsold goods sent by the entity on consign$ent at 1309 of
cost and not included in the ending inventory 2(0,000
+ecurity deposit on lease of warehouse used for storing inventories 300,000
7hat is the correct total of #urrent net receivables on Sece$ber 31, 2015R
a/ 1,500,000
b/ 1,200,000
c/ 1,2)0,000
d/ %)0,000

Problem . (Measurement o+ notes re#e!,ables)

Qn Sece$ber 31, 2015, an entity received two "2,000,000 notes receivable fro$ custo$ers/ Qn
both notes, interest is calculated on the outstanding principal balance at the annual rate of 39 and
payable at $aturity/ Phe first note, $ade under custo$ary trade ter$s, is due in nine $onths and the
second note is due in five years/ Phe $ar.et interest rate for si$ilar notes on Sece$ber 31, 2015
was 49/ Phe "c of 1 at 49 due in nine $onths is /%)), and the "c of 1 at 49 due in 5 years is /(4/
Qn Sece$ber 31, 2015, what total carrying a$ount should be reported for the two notes receivableR
a/ 3,2)4,000
b/ 3,)%),)00
c/ 3,3(0,000
d/ 3,5(),000

"age )

Problem /0 (Measurement o+ loan re#e!,able)

A ban. granted a 10>year loan to a borrower in the a$ount of "1,500,000 with stated interest rate of
(9/ "ay$ents are due $onthly and are co$puted to be "1(,(50/ Phe ban. incurred ")0,000 of
direct loan origination cost and "20,000 of indirect loan origination cost/ *n addition, the ban.
charged the borrower a )>point nonrefundable loan origination fee/ 7hat is the carrying a$ount of
the loan receivable to be reported initially by the ban.R
a/ 1,))0,000
b/ 1,)40,000
c/ 1,500,000
d/ 1,520,000

Problem // (Cost o+ !n,entor1)

An entity reported inventory on Sece$ber 31, 2015 at "(,000,000 based on a physical count at cost
and before any necessary year>end ad=ust$ents relating to the following:
! *ncluded in the physical count were goods billed to a custo$er @QB shipping point on
Sece$ber 30, 2015/ Phese goods had a cost of "125,000 and were pic.ed up by the carrier on
January &, 201(/
! <oods shipped @QB shipping point on Sece$ber 24, 2015 fro$ a vendor to the entity were
received on January ), 201(/ Phe invoice cost was "300,000/
7hat a$ount should be reported as inventory on Sece$ber 31, 2015R
a/ 5,4&5,000
b/ (,000,000
c/ (,1&5,000
d/ (,300,000

Problem /2 (ComIutat!on o+ a##ounts Ia1able)

An entity reported accounts payable on Sece$ber 31, 2015 at "),500,000 before any necessary
year>end ad=ust$ents relating to the following transactions:
! Qn Sece$ber 2&, 2015, the entity wrote and recorded chec.s to creditors totaling "2,000,000
causing an overdraft of "500,000 in the entity6s ban. account on Sece$ber 31, 2015/ Phe
chec.s were $ailed on January 10, 201(/

! Qn Sece$ber 24, 2015, the entity purchased and received goods for "&50,000, ter$s 2Z10, nZ30/
Phe entity recorded purchases and accounts payable at net a$ount/ Phe invoice was recorded
and paid January 3, 201(/

! <oods shipped @QB destination on Sece$ber 20, 2015 fro$ a vendor to the entity were
received January 2, 201(, Phe invoice cost was "325,000/
Qn Sece$ber 31, 2015, what a$ount should be reported as accounts payableR
a/ &,5&5,000
b/ &,250,000
c/ &,235,000
d/ &,553,500

"age 5
Problem /@ (Reta!l !n,entor1 metHo%)

Qn Sece$ber 31, 2015, an entity provided the following infor$ation:

Cost Reta!l
*nventory, January 1 &35,000 1,015,000
"urchases ),1(5,000 5,&&5,000
Additional $ar.up 210,000
+ales for the year totaled "5,500,000/ Dar.down a$ounted to "100,000/ 8nder the aIIroR!mate
lo3er o+ a,era&e #ost or NR4 retail $ethod, what is the inventory on Sece$ber 31, 2015R
a/ 1,050,000
b/ 1,)00,000
c/ %%),000
d/ %40,000

Problem /" (Gross Iro+!t metHo%)

An entity budgeted the following sales/

5une 5ul1 Au&ust
+ales on account 1,400,000 1,4)0,000 1,%00,000
Cash sales 140,000 200,000 2(0,000
All $erchandise is $ar.ed up to sell at invoice cost plus 209/ Derchandise inventory at the
beginning of each $onth is 309 of that $onthEs pro=ected cost of goods sold/ 7hat is the a$ount
of anticipated purchases for 5ul1R
a/ 1,(32,000
b/ 2,0&(,000
c/ 1,&00,000
d/ 1,&30,000

Problem /$ (B!olo&!#al assets)

An entity provided the following infor$ation about assets in forest plantation:

@reestanding trees 5,000,000
Land under trees %00,000
-oads in forest 500,000
Ani$als related to recreational activities 2,000,000
-ubber trees and grape vines 1,500,000
7hat total a$ount should be reported as biological assetsR
a/ 5,000,000
b/ 4,500,000
c/ (,500,000
d/ %,%00,000

Problem /' (Ma#H!ner1)

Qn +epte$ber 1, 2015, an entity purchased a new $achine on a deferred pay$ent basis/ A down
pay$ent of "200,000 was $ade and ) annual install$ents of "(00,000 each are to be $ade beginning
on +epte$ber 1, 201(/ Phe cash e#uivalent price of the $achine was "2,300,000/ Sue to an e$ployee
stri.e, the entity could not install the $achine i$$ediately and thus incurred "30,000 of storage cost/
Cost of installation e'cluding the storage cost a$ounted to "40,000/ 7hat is the total cost of the
$achineR
a/ 2,300,000
b/ 2,340,000
c/ 2,)10,000
d/ 2,(00,000

"age (

Problem /* (Borro3!n& #ost)

Suring 2015, an entity constructed an asset costing "10,000,000/ Phe weighted average
accu$ulated e'penditures on the asset during the year totaled "(,000,000/ Po help pay for
construction, "),)00,000 was borrowed at 109 on January 1, 2015, and funds not needed for
construction were te$porarily invested in short>ter$ securities, yielding "%0,000 in interest
revenue/ Qther than the construction funds borrowed, the only other debt outstanding during the
year was a "5,000,000, 10>year, %9 note payable dated January 1, 2012/ 7hat is the a$ount of
interest that should be capitali;ed during 2015R
a/ (00,000
b/ 300,000
c/ )%),000
d/ %)),000

Problem /- (6eIlet!on)

*n 2015, an entity purchased property with natural resources for "24,000,000/ Phe property had a
residual value of "5,000,000/ Fowever, the entity is re#uired to restore the property to the original
condition at a discounted a$ount of "2,000,000/ *n 2015, the entity spent "1,000,000 in
develop$ent cost and "3,000,000 in building/ *n 201(, an a$ount of "),000,000 was spent for
additional develop$ent on the $ine/ "roduction began in 201( and the tons e'tracted totaled
3,000,000 in 201( and 2,500,000 in 201&/ Phe re$aining tons totaled &,000,000 and 3,500,000,
respectively on Sece$ber 31, 201( and Sece$ber 31, 201&/ 7hat a$ount of depletion should
recogni;ed in 201&R
a/ 10,500,000
b/ 12,250,000
c/ %,000,000
d/ 4,&50,000

Problem /. (Re,aluat!on)

Qn June 30, 2015, an entity reported the following infor$ation:

G#uip$ent at cost 30,000,000
Accu$ulated depreciation 10,500,000
Phe e#uip$ent was $easured using the cost $odel and depreciated on a straight line basis over 10>
year period/ Qn Sece$ber 31, 2015, the $anage$ent decided to change the basis of $easuring the
e#uip$ent fro$ the cost $odel to the revaluation $odel/ Phe e#uip$ent was revalued to the fair
value of "2&,000,000 with re$aining useful life of 5 years/ Phe inco$e ta' rate is 309/ 7hat
a$ount should be reported as revaluation surplus on Sece$ber 31, 2015R
a/ &,500,000
b/ 5,250,000
c/ (,300,000
d/ %,000,000

"age &

Problem 20 (ComIuter so+t3are)

Suring the current year, an entity incurred the following costs to develop and produce a routine,
low>ris. co$puter software product:

Co$pletion of detailed progra$ design or wor.ing $odel 1,300,000

Cost incurred for coding and testing to establish technological feasibility 1,000,000
Qther coding costs after establish$ent of technological feasibility 2,)00,000
Qther testing costs after establish$ent of technological feasibility 2,000,000
Costs of producing product $asters for training $aterials 1,500,000
Suplication of co$puter software and training $aterials fro$ product $aster 2,500,000
"ac.aging product %00,000

7hat a$ount should be capitali;ed initially as software costR

a/ 5,)00,000
b/ 3,&00,000
c/ 5,%00,000
d/ (,%00,000

Problem 2/ (Start uI #osts)

An entity, a $a=or winery, begins construction of a new facility in Dindanao/ Phe following costs
are incurred in con=unction with the start>up activities of the new facility:
"roduction e#uip$ent 4,150,000
Pravel costs of salaried e$ployees )00,000
License fees 1)0,000
Praining of local e$ployees for production and $aintenance operations 1,200,000
Advertising costs 450,000
7hat a$ount of start up costs should be e'pensedR
a/ %,&50,000
b/ 1,(00,000
c/ 1,3%0,000
d/ 0

Problem 22 (Intan&!ble assets)

Qn January 1, 2013, an entity purchased patent at a cost of "1,%20,000 at which date the re$aining
legal life was 1( years/ Qn January 1, 2015, the useful life of the patent was deter$ined to be only 4
years fro$ the date of ac#uisition/ Qn January 1, 2015, the entity paid "400,000, of which
three>fourths was for a trade$ar., and one>fourth was for the other entity6s agree$ent not to
co$pete for a 5>year period in the line of business covered by the trade$ar./ Phe entity considered
the life of the trade$ar. indefinite/ Doreover, the entity agreed to pay "50,000 to the other entity as
consulting fee each year for 5 years payable every January 1/ 7hat is the a$orti;ation of intangible
assets for 2015R
a/ 320,000
b/ 240,000
c/ 250,000
d/ 3&0,000

"age 4

Problem 2@ (Goo%3!ll)

Qn Sece$ber 31, 2015, an entity purchased for ")0,000,000 cash all of the outstanding ordinary
shares of another entity when the subsidiary6s state$ent of financial position showed net assets of
"32,000,000/ Phe subsidiary6s assets and liabilities had fair value different fro$ the carrying
a$ount as follows:

Carr1!n& amount Fa!r ,alue

"roperty, plant and e#uip$ent, net 50,000,000 5&,500,000
Qther assets 5,000,000 0
Long>ter$ debt 30,000,000 24,000,000
7hat a$ount should be reported as goodwill in the Sece$ber 31, 2015 consolidated state$ent of
financial position of the ac#uirer and its wholly>owned subsidiaryR
a/ 3,500,000
b/ 2,500,000
c/ &,500,000
d/ 4,000,000

Problem 2" (F!nan#!al asset at +a!r ,alue tHrou&H otHer #omIreHens!,e !n#ome)

Qn January 1, 2015, an entity purchased nontra%!n& e#uity securities which are irrevocably
designated at fair value through other co$prehensive inco$e:
Pur#Hase Ir!#e Transa#t!on #ost Mar7et 8 /29@/920/$
+ecurity A 1,000,000 100,000 1,500,000
+ecurity B 2,000,000 200,000 2,)00,000
+ecurity C ),000,000 )00,000 ),&00,000
Qn July 1, 201(, the entity sold +ecurity C for "5,200,000/ 7hat a$ount should be credited to
retained earnings as a result of the sale of the invest$ent in 201(R
a/ 400,000
b/ 500,000
c/ 300,000
d/ 0

Problem 2$ (Interest on loans)

An entity fre#uently borrowed fro$ the ban. in order to $aintain sufficient operating cash/ Phe
following loans were at a 129 interest rate with interest payable at $aturity/ Phe entity repaid each
loan on scheduled $aturity date/

6ate o+ loan Amount Matur!t1 %ate Term o+ loan

Uove$ber 1, 201) 500,000 Qctober 31, 2015 1 year
@ebruary 1, 2015 1,500,000 July 31, 2015 ( $onths
Day 1, 2015 400,000 January 31, 201( % $onths

Phe entity recorded interest e'pense when the loans are repaid/ As a result, interest e'pense of
"150,000 was recorded in 2015/ *f no correction is $ade, by what a$ount would interest e'pense
be understated for 2015R
a/ 5),000
b/ (2,000
c/ (),000
d/ &2,000

"age %

Problem 2' (ComIensate% absen#es)

An entity has 35 e$ployees who wor. 4>hour days and are paid hourly/ Qn January 1, 2013, the
entity began a progra$ of granting the e$ployees 10 days of paid vacation each year/ cacation days
earned in 2013 $ay first be ta.en on January 1, 201)/
:ourl1 4a#at!on 6a1s Earne% 4a#at!on 6a1s Use%
;ear <a&es b1 Ea#H EmIlo1ee b1 Ea#H EmIlo1ee

2013 25/40 10 0
201) 2&/00 10 4
2015 24/50 10 10
Phe entity has chosen to accrue the liability for co$pensated absences at the current rate of pay in
effect when the co$pensated ti$e is earned/ 7hat is the accrued liability for co$pensated absences
on Sece$ber 31, 2015R
a/ %),%20
b/ %0,&20
c/ &%,400
d/ %5,&(0

Problem 2* (F!nan#e lease = lessee)

An entity leased e#uip$ent for the entire nine>year useful life, agreeing to pay "1,000,000 at the
start of the lease ter$ on January 1, 2015, and "1,000,000 annually on each January 1 for the ne't
eight years/ Phe present value on January 1, 2015 of the nine lease pay$ents over the lease ter$
using the rate i$plicit in the lease which the lessor .nows to be 109 was "(,330,000/ Phe January
1, 2015 present value of the lease pay$ents using the incre$ental borrowing rate of 129 was
"5,%&0,000/ Phe entity $ade a ti$ely second lease pay$ent/ 7hat a$ount should be reported as
finance lease liability on Sece$ber 31, 201(R
a/ 5,330,000
b/ ),4(3,000
c/ ),%&0,000
d/ ),)(&,000

Problem 2- (F!nan#e lease = lessor)

An entity leased e#uip$ent to an unrelated party on July 1, 2015 for an eight>year period e'piring
June 30, 2023/ G#ual pay$ents under the lease are "(00,000 and are due on July 1 of each year/ Phe
first pay$ent was $ade on July 1, 2015/ Phe i$plicit rate of interest conte$plated is 109/ Phe cash
selling price of the e#uip$ent is "3,500,000 and the carrying a$ount is "2,400,000/ Phe lease is
appropriately recorded as a sales type lease/ 7hat total a$ount of inco$e should be recorded for
the year ended Sece$ber 31, 2015R
a/ &00,000
b/ 525,000
c/ %%0,000
d/ 4)5,000

"age 10

Problem 2. (Sale an% leaseba#7)

Qn January 1, 2015, an entity sold a $achine for "5,000,000/ Phe fair value of the $achine was
"(,500,000 on the date of sale/ Phe $achine had a carrying a$ount of "&,000,000 and re$aining
life of 15 years/ Phe entity i$$ediately leased bac. the $achine for 5 years at an annual rental that
was deter$ined to be sufficiently lower than the $ar.et rent/ 7hat total a$ount of loss should be
recogni;ed i$$ediately in 2015R
a/ )00,000
b/ 400,000
c/ 500,000
d/ 0

Problem @0 (EmIlo1ee bene+!t 8 IFRS /.R)

An entity provided the following infor$ation for the current year:

Current service cost 500,000
*nterest on pro=ected benefit obligation (00,000
*nterest inco$e on plan assets 350,000
Loss on plan settle$ent 250,000
"ast service cost during the year 300,000
Actual return on plan assets 450,000
Actuarial loss during the year 200,000
Contribution to the plan 1,500,000
7hat is the e$ployee benefit e'pense for the current yearR
a/ 1,300,000
b/ 1,050,000
c/ 1,500,000
d/ 1,100,000

Problem @/ (A#tual return on Ilan assets)

An entity provided the following data related to the pension plan/

6e#ember @/> 20/$ 6e#ember @/> 20/'
Sefined benefit obligation 4,)00,000 11,100,000
"lan assets at fair value %,000,000 %,%00,000
Uet actuarial loss 1,))0,000 1,500,000
Siscount rate 109 %9
G'pected rate of return 49 &9
Phe contribution was "1,2(0,000 in 201( and benefits paid totaled "1,125,000/ 7hat was the actual
return on plan assets in 201(R
a/ %00,000
b/ &(5,000
c/ (00,000
d/ )(5,000

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"age 11

Problem @2 (4a#at!on Ia1 eRIense)

An entity grants all e$ployees two wee.s of paid vacation for each full year of e$ploy$ent/
8nused vacation ti$e can be accu$ulated and carried forward to succeeding years and will be paid
at the salaries in effect when vacations are ta.en or when e$ploy$ent is ter$inated/ Phere was no
e$ployee turnover in 2015/ Additional infor$ation relating to the year ended Sece$ber 31, 2015 is
as follows:
Liability for accu$ulated vacations on January 1, 2015 350,000
"re>2015 accrued vacations ta.en fro$ January 1, 2015 to +epte$ber 30, 2015
@the authori;ed period for vacations! 200,000
cacations earned for wor. in 2015 ad=usted to current rate 300,000
Phe entity granted a 109 salary increase to all e$ployees on Qctober 1, 2015, the annual salary
increase date/ 7hat a$ount should be reported as vacation pay e'pense for 2015R
a/ )50,000
b/ 335,000
c/ 315,000
d/ 300,000

Problem @@ (Term!nat!on bene+!ts IFRS /.R)

An entity is co$$itted to close a factory in 10 $onths and shall ter$inate the e$ploy$ent of all the
re$aining e$ployees of the factory/ 8nder the ter$ination plan, an e$ployee lea,!n& be+ore
#losure o+ +a#tor1 shall receive on ter$ination date a cash pay$ent of "20,000/ Fowever, an
e$ployee that ren%ers ser,!#e unt!l #losure of the factory shall receive "(0,000/ Phere are 120
e$ployees at the factory/ Phe entity e'pects 20 e$ployees to leave before closure and 100
e$ployees to render service until closure/ 7hat a$ount should be recogni;ed as ter$ination
benefitR
a/ 2,)00,000
b/ (,)00,000
c/ 2,000,000
d/ ),000,000

Problem @" (In#ome taR)

An entity reported "%,000,000 inco$e before provision for inco$e ta'/ Phe following data are
provided for the current year:
-ent received in advance 1,(00,000
*nco$e fro$ e'e$pt $unicipal bonds 2,000,000
Sepreciation deduction for inco$e ta' purposes in e'cess of depreciation
reported for financial reporting purposes 1,000,000
Pa' pay$ent during the current year 500,000
*nco$e ta' rate 309
7hat a$ount of current inco$e ta' liability should be reported at year>endR
a/ 1,&40,000
b/ 2,240,000
c/ 2,540,000
d/ 2,440,000

"age 12

Problem @$ (Bon%s Ia1able)

An entity has outstanding a &9, ten>year "100,000 facevalue bond/ Phe bonds was originally sold
to yield (9 annual interest/ Phe entity uses the effective interest $ethod to a$orti;e bond pre$iu$
and does not elect the fair value option for reporting financial liabilities/ Qn June 30, 2015, the
carrying a$ount of the outstanding bond was "105,000/ 7hat a$ount of una$orti;ed pre$iu$ on
bond should be reported on June 30, 201(R
a/ 1,050
b/ 3,%50
c/ ),300
d/ ),500

Problem @' (SHare=base% #omIensat!on)

Qn January 1, 2015, an entity granted to e$ployees 10,000 share options/ Qn January 1, 201(, the
entity granted to e$ployees an additional 20,000 share options/
6ate Fa!r ,alue o+ sHare
January 1, 2015 20
Sece$ber 31, 2015 22
January 1, 201( 25
Sece$ber 31, 201( 30
Phe shares vest at the end of a four>year period/ Phere are no forfeitures/ 7hat a$ount should be
recorded as co$pensation e'pense for 201(R
a/ 1&5,000
b/ 205,000
c/ 225,000
d/ 500,000

Problem @* (Reta!ne% earn!n&s)

An entity provided the following data for the year ended Sece$ber 31, 2015:
-etained earnings unappropriated, January 1 200,000
Qverdepreciation of 201) due to prior period error 100,000
Uet inco$e for 2015 1,300,000
- -etained earnings appropriated for treasury shares @original balance is "500,000
but reduced by "200,000 by reason of reissuance of the treasury shares! 300,000
-etained earnings appropriated for contingencies @beginning balance "&00,000/
but increased by current appropriation of "100,000! 400,000
Cash dividends paid to shareholders 500,000
Change in accounting policy fro$ @*@Q to average H credit ad=ust$ent 150,000

7hat is the balance of unaIIroIr!ate% retained earnings on Sece$ber 31, 2015R

a/ 1,150,000
b/ 1,350,000
c/ 1,%50,000
d/ 1,&50,000

"age 13

Problem @- (6!lute% earn!n&s Ier sHare)

An entity reported the following capital structure:

20/$ 20/'
Qutstanding shares:
Qrdinary shares 110,000 110,000
Convertible preference shares 10,000 10,000

Suring 2015, the entity paid preference dividends of "3 per share/ Phe preference shares are
convertible into 20,000 ordinary shares/ Uet inco$e for 2015 was "450,000/ Phe inco$e ta' rate is
309/ 7hat a$ount should be reported as diluted earnings per share for 2015R
a/ (/31
b/ (/5)
c/ &/04
d/ &/)5

Problem @. (CasH bas!s)

An entity had the following beginning and ending balances in prepaid e'penses and accrued
liabilities for the current year:
PreIa!% eRIenses A##rue% l!ab!l!t!es
Beginning balance 5,000 4,000
Gnding balance 10,000 20,000
Sebits to operating e'penses totaled "100,000/ 7hat a$ount was paid for operating e'penses
during the current yearR
a/ 43,000
b/ %3,000
c/ 10&,000
d/ 11&,000

Problem "0 (Current #ost)

An entity disclosed supple$ental infor$ation on the effects of changing prices/ Phe entity
co$puted the increase in current cost of inventory as follows:
*ncrease in current cost @no$inal peso! 1,500,000
*ncrease in current cost @constant peso! 1,200,000
7hat a$ount should be disclosed as the inflation co$ponent of the increase in current costR
a/ 2,&00,000
b/ 1,500,000
c/ 1,200,000
d/ 300,000

"age 1)

Problem "/ (A##rual bas!s)

An entity ac#uired rights to a patent under a licensing agree$ent that re#uired an advance royalty
pay$ent when the agree$ent was signed/ Phe entity re$itted royalties earned and due under the
agree$ent on Qctober 31 each year/ Additionally, on the sa$e date, the entity paid, in advance,
esti$ated royalties for the ne't year/ Phe entity ad=usted prepaid royalties at year>end/ Phe entity
provided the following infor$ation for the year ended Sece$ber 31, 2015:

January 1 "repaid royalties (50,000

Qctober 31 -oyalty pay$ent charged to royalty e'pense 1,100,000
Sece$ber 31 Iear>end credit ad=ust$ent to e'pense 250,000

Qn Sece$ber 31, 2015, what a$ount should be reported as prepaid royaltiesR

a/ 250,000
b/ )00,000
c/ 450,000
d/ %00,000

Problem "2 (A##rual bas!s)

An entity had a balance of "420,000 in the professional fees e'pense account on Sece$ber 31,
2015, before considering year>end ad=ust$ents relating to the following:

! Consultants were hired for a special pro=ect at a total fee not to e'ceed "(50,000/ Phe entity had
recorded "550,000 of this fee based on billings for wor. perfor$ed in 2015/
! Phe attorney6s letter re#uested by the auditors dated January 31, 201(, indicated that legal fees
of "(0,000 were billed on January 15, 201( for wor. perfor$ed in Uove$ber 2015, and
unbilled fees for Sece$ber 2015 were "&0,000/

7hat a$ount should be reported for professional fees e'pense for 2015R
a/ 1,050,000
b/ %50,000
c/ 440,000
d/ 420,000

Problem "@ (6!s#losures)

An entity reported the following infor$ation in the year>end financial state$ents:

Capital e'penditures 1,000,000
@inance lease pay$ents 125,000
*nco$e ta'es paid 325,000
Sividends paid 200,000
*nterest pay$ents 220,000
7hat total a$ount should be reported as supple$ental disclosures in the state$ent of cash flows
prepared using the indirect $ethodR
a/ 5)5,000
b/ &)5,000
c/ 1,125,000
d/ 1,4&0,000

"age 15

Problem "" (OIerat!n& a#t!,!t!es)

An entity reported net inco$e of "3,000,000 for the current year/ Changes occurred in certain
accounts as follows:
G#uip$ent 250,000 increase
Accu$ulated depreciation )00,000 increase
Uote payable 300,000 increase
Suring the year, the entity sold e#uip$ent costing "250,000 with accu$ulated depreciation of
"150,000 for a gain of "50,000/ *n Sece$ber of the current year, the entity purchased e#uip$ent
costing "500,000 with "200,000 cash and a 129 note payable of "300,000/ 7hat a$ount should
be reported as net #asH Iro,!%e% b1 oIerat!n& a#t!,!t!es R
a/ 3,)00,000
b/ 3,500,000
c/ 3,550,000
d/ 3,(00,000

Problem "$ (OIerat!n& a#t!,!t!es)

An entity reported net inco$e of "5,000,000 for the current year/ Sepreciation e'pense was
"1,%00,000/ Phe following wor.ing capital accounts changed:
Accounts receivable 1,100,000 increase
Uontrading e#uity invest$ent 1,(00,000 increase
*nventory &30,000 increase
Uontrade note payable 1,500,000 increase
Accounts payable 1,220,000 increase

8nder the indirect $ethod, what net a$ount of ad=ust$ents is re#uired to reconcile net inco$e to
net cash provided by operating activitiesR

a/ ),%50,000
b/ 1,050,000
c/ 1,2%0,000
d/ 310,000

"age 1(

SOLUTIONS
Problem / Ans3er A
Cash @(00,000 >200,000 overdraft! )00,000
Accounts receivable &00,000
*nventory 1,200,000
"repaid e'penses 200,000
Land held for resale 2,000,000
Potal current assets ),500,000

Problem 2 Ans3er A
Liabilities 1,200,000
+hare capital &,500,000
-etained earnings 150,000
Potal liabilities and e#uity 4,450,000
-evenue fro$ sales and consulting 420,000
Qperating costs and e'penses @ ()0,000!
Uet inco$e 140,000
Sividend declared @ 30,000!
-etained earnings 150,000

Problem @ Ans3er C
Accounts payable 55,000
8nsecured notes )00,000
Accrued e'penses 35,000
+erial bonds 1,000,000
Potal current liabilities 1,)%0,000
Phe contingent liability is only disclosed/
8nder *@-+, the deferred ta' liability is noncurrent regardless of the reversal period/

Problem " Ans3er C

Uet inco$e per boo. &,)10,000
8nreali;ed loss> other co$prehensive inco$e erroneously deducted 5)0,000
"rior period error erroneously deducted &50,000
<ain on credit ris. H other co$prehensive inco$e erroneously added @ 500,000!
Ad=usted net inco$e 4,200,000
Phe gain on early retire$ent of bonds payable and the loss fro$ fire are properly included in net
inco$e/

Problem $ Ans3er 6
Potal reported inco$e 1,&00,000
Potal cash dividends paid @ 400,000!
Potal share dividends distributed @ 200,000!
"rior period ad=ust$ent H credit &5,000
-etained earnings H Sece$ber 31, 2015 &&5,000
Phe unreali;ed holding loss on trading invest$ent is ignored because it is already included in the
reported inco$e since incorporation/

"age 1&

Problem ' Ans3er C

Chec.boo. balance 4,000,000
U+@ chec. @3,000,000!
8ndelivered chec. drawn 2,500,000
Coins and currencies 400,000
Potal cash 4,300,000
Phe chec. payable to the entity is properly not included because it is postdated January 2, 201(/
Pechnically, the three>$onth $oney $ar.et instru$ents are cash e#uivalents but not cash/

Problem * Ans3er A
Custo$er A 1,000,000
Custo$er B &00,000
Potal other receivables 400,000
Potal i$pair$ent loss 2,500,000
Custo$er C 2,000,000
Custo$er S 2,500,000
Qther accounts receivable 3,500,000
Potal other receivables for collective assess$ent of i$pair$ent 4,000,000
8nder *@-+ significant accounts receivable not i$paired should be co$bined with other accounts
receivable not individually significant for collective assess$ent of i$pair$ent/

Problem - Ans3er 6
Prade accounts receivable %30,000
Allowance for uncollectible accounts @ 20,000!
Clai$ against shipper 30,000
Potal current net receivables %)0,000
Phe selling price of unsold goods on consign$ent should be e'cluded fro$ accounts receivable but
the cost should be included in inventory/
Phe security deposit is classified as noncurrent/

Problem . Ans3er 6
Long>ter$ note receivable H second note 2,000,000
*nterest on note @2,000,000 ' 39 ' 5 years! 300,000
Potal $aturity 2,300,000
Dultiply by "c factor /(4
"resent value of note receivable 1,5(),000
+hort>ter$ note receivable H first note 2,000,000
Potal carrying a$ount of notes receivable 3,5(),000
Phe long>ter$ note receivable should be discounted even if is interest>bearing because the interest
rate is unreasonably low co$pared to the $ar.et rate/
Phe short>ter$ note receivable is reported at face a$ount because the discount is usually not
$aterial/

"age 14

Problem /0 Ans3er B
@ace a$ount 1,500,000
Sirect origination cost )0,000
Qrigination fee charged against borrower @)9 ' 1,500,000! @ (0,000!
*nitial carrying a$ount 1,)40,000
Phe direct origination cost is a deferred charge and the origination fee received fro$ the borrower
is unearned inco$e and the two should be included in the $easure$ent of loan receivable/
Phe indirect origination cost is an outright e'pense/

Problem // Ans3er 6
"hysical count (,000,000
<ood in transit purchased @QB shipping point 300,000
Potal inventory (,300,000

Phe goods billed to a custo$er are properly included in inventory because the ter$ is @QB shipping
point and the goods are delivered January &, 201(/

Problem /2 Ans3er C
Accounts payable per boo. ),500,000
-eversal of undelivered chec.s 2,000,000
<oods purchased, received and recogni;ed at net a$ount @&50,000 ' %49! &35,000
Accounts payable to be reported &,235,000
Phe undelivered chec.s should be restored to the cash balance and accounts payable/
Phe goods purchased and received on January 2, 201( should be e'cluded fro$ accounts payable
because the ter$ is @QB destination/

Problem /@ Ans3er 6
Cost -etail
*nventory H January 1 &35,000 1,015,000
"urchases ),1(5,000 5,&&5,000
Additional $ar.up jjjjjjjj 210,000
<oods available for sale ),%00,000 &,000,000
Conservative cost ratio @),%00,000 Z &,000,000! &09
+ales @5,500,000!
Dar.down @ 100,000!
Gnding inventory at retail 1,)00,000
At cost @&09 ' 1,)00,000! %40,000
Phe lower of average cost or U-c retail $ethod is the sa$e as the conservative or conventional
$ethod/ Phus, the $ar.down is ignored in co$puting the cost ratio/

"age 1%

Problem /" Ans3er 6

Cost of goods sold:
June @1,%40,000 Z 1209! 1,(50,000
July @2, 0)0,000 Z 1209! 1,&00,000
August @2,1(0,000 Z 1209! 1,400,000
*nventory H July 1 @309 ' 1,&00,000! 510,000
"urchases (S?UEE@E) 1,&30,000
<oods available for sale 2,2)0,000
*nventory H July 31 @309 ' 1,400,000! @ 5)0,000!
Cost of goods sold > July 1,&00,000
Phe a$ount of purchases for July is co$puted by wor.ing bac. fro$ the cost of goods sold/

Problem /$ Ans3er A
@reestanding trees 5,000,000
Phe land under trees and roads in forest should be included in property, plant and e#uip$ent/
8nder *@-+, ani$als related to recreational activities as in ga$e par.s, and bearer plants, such as
rubber trees and grape vines should be accounted for as property, plant and e#uip$ent/

Problem /' Ans3er B

Cash e#uivalent price 2,300,000
*nstallation cost 40,000
Potal cost of $achine 2,340,000

Phe storage cost is an outright e'pense/

Problem /* Ans3er C
Average e'penditures (,000,000
+pecific borrowing @),)00,000!
<eneral borrowing 1,(00,000

*nterest on specific borrowing @),)00,000 ' 109! ))0,000

*nterest inco$e on te$porary invest$ent of specific borrowing @ %0,000!
*nterest on general borrowing @1,(00,000 ' %9! 1)),000
Potal capitali;ed interest )%),000

"age 20

Problem /- Ans3er 6
"urchase price 24,000,000
Sevelop$ent cost H 2015 1,000,000
Sevelop$ent cost H 201( ),000,000
Gsti$ated restoration cost 2,000,000
Potal cost 35,000,000
-esidual value @ 5,000,000!
Sepletable a$ount 30,000,000

"roduction in 201( 3,000,000

-e$aining esti$ate H Sece$ber 31, 201( &,000,000
Potal esti$ate H January 1, 201( 10,000,000

-ate per unit @30,000,000 Z 10,000,000! 3/00

Sepletion for 201( @3,000,000 ' 3! %,000,000

"roduction in 201& 2,500,000

-e$aining esti$ate H Sece$ber 31, 201& 3,500,000
Potal esti$ate H January 1, 201& (,000,000

Sepletable a$ount 30,000,000

Sepletion 201( @ %,000,000!
-e$aining depletable a$ount 21,000,000

Uew rate @21,000,000 Z (,000,000! 3/50

Sepletion 201& @2,500,000 ' 3/50! 4,&50,000

Problem /. Ans3er C
Accu$ulated depreciation H (Z30Z2015 10,500,000
Sepreciation fro$ July 1 to Sece$ber 31, 2015 @30,000,000 Z 10 ' (Z12! 1,500,000
Accu$ulated depreciation H 12Z31Z2015 12,000,000

Cost 30,000,000
Accu$ulated depreciation @ 12,000,000!
Carrying a$ount 14,000,000
@air value 2&,000,000
-evaluation surplus %,000,000
Seferred ta' liability @309 ' %,000,000! @ 2,&00,000!
Uet revaluation surplus (,300,000

Problem 20 Ans3er C
Qther coding cost after establish$ent of technological feasibility 2,)00,000
Qther testing costs after establish$ent of technological feasibility 2,000,000
Costs of producing product $asters 1,500,000
Potal capitali;ed cost of co$puter software 5,%00,000

Phe co$pletion of detailed progra$ design and the cost incurred to establish technological
feasibility should be e'pensed i$$ediately/

Phe duplication of co$puter software and pac.aging product should be charged to inventory/

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"age 21
Problem 2/ Ans3er B
Pravel costs of e$ployees )00,000
Praining of local e$ployees 1,200,000
Potal start up costs to be e'pensed 1,(00,000
Phe production e#uip$ent should be capitali;ed/
Phe license fees and advertising costs should be e'pensed but not within the purview of start up
costs/

Problem 22 Ans3er A
"atent > January 1, 2013 1,%20,000
A$orti;ation for 2013 and 201) @1,%20,000 Z 1( ' 2! @ 2)0,000!
Carrying a$ount H January 1, 2015 1,(40,000
"urchase price 400,000
Prade$ar. @3Z) ' 400,000! @ (00,000!
Uonco$petition agree$ent 200,000
"atent @1,(40,000 Z ( years re$aining! 240,000
Uonco$petition agree$ent @200,000 Z 5 years! )0,000
Potal a$orti;ation for 2015 320,000
Phe patent has a re$aining life of ( years because the revised life is 4 years fro$ the date of
ac#uisition and two years already e'pired/
Phe trade$ar. is not a$orti;ed because the life is indefinite/
Phe annual consulting fee is an outright e'pense/

Problem 2@ Ans3er A
Uet assets per boo. 32,000,000
@air value of property, plant and e#uip$ent greater &,500,000
@air value of other assets ;ero @ 5,000,000!
@air value of long>ter$ debt lower 2,000,000
Uet assets at fair value 3(,500,000
Ac#uisition cost )0,000,000
<oodwill 3,500,000
Phe net assets should be recogni;ed at fair value in a business co$bination/

Problem 2" Ans3er A

"urchase price of security C ),000,000
Pransaction cost )00,000
Potal cost ),)00,000
*f the e#uity invest$ent is $easured at fair value through other co$prehensive inco$e @@cQC*!,
the transaction cost is capitali;ed
Dar.et value of security C 12Z31Z2015 ),&00,000
Fistorical cost ),)00,000
8nreali;ed gain H QC* 12Z31Z20015 300,000

5ournal entr1 on 5ul1 /> 20/'

Cash 5,200,000
8nreali;ed gain H QC* 300,000
@inancial asset H @cQC* ),&00,000