FINANCIAL ACCOUNTING 3 - QUIZ # 2

STATEMENT OF FINANCIAL POSITION &

NOTES TO THE FINANCIAL STATEMENTS

Name: Section:
Surname First Name MI Date:

PART I - THEORIES
Instructions: Write TRUE , if the statement is correct, and FALSE , if otherwise; on the space provided.
No erasures.

1) The Conceptual Framework is intended to establish the objectives and concepts used in
developing financial reporting standards.
2) A current asset is an asset that is held primarily for the purpose of trading, expected to be
realized within 12 months from the balance sheet date, and is expected to be realized, sold,
or consumed within the entity's normal operating cycle.
3) The refinancing (rolling over) of a currently maturing long-term debt on a long-term basis
completed on or before the balance sheet date requires that such debt be classified as a
non-current liability.
4) An entity shall present current and non-current assets, and current and non-current liabilities,
as separate classifications in the FS, except when presentation based on liquidity provides
information that is reliable and more relevant.
5) A contingent liability is NOT required to be presented as a line item on the face of the
Statement of Financial Position.
6) The two capital concepts indicated in the scope of the Conceptual Framework are Financial
and Physical Capital.
7) Notes to financial statements provide narrative descriptions or disaggregations of items
disclosed on the face of the financial statements and provide information about items that
do not qualify for recognition.
8) An entity is required to disclose the domicile and legal form of the entity, description of the nature of
entity's operation and business activities, and name of parent and ultimate parent of the group of
companies.
9) The operating cycle of an entity is the time between the acquisition of assets for processing and their
realisation in cash or cash equivalents.
10) In determining a systematic manner of presenting notes, the entity shall consider the effect on the
understandability and comparability of its financial statements.
11) Materiality is an entity-specific aspect of relevance based on the nature and magnitude of the items to
which the information relates in the context of an entity's financial report.
12) Adjusting events are post-balance sheet date events that provide evidence of conditions that existed at
the balance sheet date.
13) When an entity breaches an undertaking under a long-term loan agreement with the effect that the liability
becomes payable on demand, the liability is classified as current, even when lender has agreed not to
demand payment as a consequence of the breach.
14) An entity shall present a complete set of financial statements (including comparative financial information)
at least annually.
15) The offsetting of assets and liabilities is allowed and permitted by the PFRS since this produces financial
statements that are more relevant to an understanding of the entity's financial position.

PART II - PROBLEMS
Instructions: Write the correct answer for the following problems on the blank space succeeding every question.
No erasures. Provide a separate scratch paper for your computations.

PROBLEM 1

Dancel Company provided the following on December 31, 2018:

Cash in bank, net of bank overdraft of P500,000 5,000,000.00

Petty cash (unreplenished petty cash expenses, P10,000) 50,000.00
Notes Receivable 4,000,000.00
Accounts Receivable, net of accounts with credit balances of P1,500,000 6,000,000.00
Inventory 3,500,000.00
Bond Sinking Fund 3,000,000.00
Accounts Payable, net of accounts with debit balances of P1,000,000 7,000,000.00
Notes Payable 4,000,000.00
Bond Payable due June 30, 2019 3,000,000.00
Accrued Expenses 2,000,000.00

1. What amount should be reported as total current assets on December 31, 2018?

2. What amount should be reported as total current liabilities on December 31, 2018?

PROBLEM 2

The following trial balance of UDD Company on December 31, 2018 has been adjusted, except for income tax expense:

Cash 675,000.00 -
Accounts Receivable (net) 2,695,000.00 -
Inventory 2,185,000.00 -
Property, plant and equipment (net) 10,245,000.00 -
Accounts Payable and Accrued Liabilities - 1,800,000.00
Income Tax Payable - 1,500,000.00
Deferred Tax Liability - 750,000.00
Share Capital - 2,500,000.00
Share Premium - 3,000,000.00
Retained Earnings, January 1 - 3,350,000.00
Net Sales and Other Revenue - 15,000,000.00
Costs and Expenses 10,000,000.00 -
Income Tax Expense 2,100,000.00 -
27,900,000.00 27,900,000.00

The accounts receivable included P1,000,000 due from a customer and payable in quarterly installmens of P125,000.
The last payment is due December 30, 2020. The deferred tax liability pertains to a temporary difference that is expected
to reverse in 2013. During the year, the estimated tax payment of P600,000 was charged to income tax expense. The
income tax rate is 30% on all types of income.

In UDD's December 31, 2018 statement of financial position, what should be reported as:

3. Total current assets?

4. Total current liabilities?

5. Retained Earnings?

PROBLEM 3

Benben Inc., a parent company has reported the following current account in its financial records as of December 31, 2018:

Cash and cash equivalents 3,000,000.00

Loans and receivables 20,000,000.00
Merchandise inventory 2,000,000.00
Prepaid expense 500,000.00
TOTAL 25,500,000.00

Included in the loans and receivables is a P5,000,000 loan to Spades Inc., a subsidiary. The loan is repayable on demand
but the demand feature is primarily a form of protection or a tax-driven feature of the loan and it is the intention of both
parties that the loan will remain outstanding in the foreseeable future.

6. What is the correct amount of current assets should Benben Inc. report in its December 31, 2018 financial position?

PROBLEM 4

The accounts and balances shown below were taken from Danao Company's trial balance on December 31, 2018.
All adjusting entries have been made.

Wages payable 250,000.00

Cash 175,000.00
Bonds payable 600,000.00
Dividends payable 140,000.00
Prepaid rent 136,000.00
Inventory 820,000.00
Investment in sinking fund assets 525,000.00
Investment to profit or loss securities 153,000.00
Premium on bonds payable 48,000.00
Investment in subsidiary 1,020,000.00
Taxes payable 228,000.00
Accounts payable 248,000.00
Accounts receivable 366,000.00
Property, plant, and equipment 1,200,000.00
Patents-net 150,000.00
Accumulated depreciation-PPE 400,000.00
Land held for future business site 900,000.00

7. How much should be reported as total current assets?

8. How much should be reported as total non-current assets?

9. How much should be reported as total current liabilities?

10. How much should be reported as total non-current liabilities?

PROBLEM 5

Clara Company had the following items at December 31, 2018:

Accounts payable 500,000.00

8% Notes payable - Tam Bank, due July 1, 2019 1,000,000.00
Accrued expenses 600,000.00
9% Bonds payable, due March 31, 2022 5,000,000.00
The company has entered into a loan facility arrangement with Come Bank. The committed facility wherein the bank
can not cancel unilaterally and the scheduled maturity of this facility is three years from the balance sheet date.

Clara Company intends to take a loan of P1,000,000 through the three-year facility arrangement to finance the
maturing loan to Tam Bank.

11. How much is the current liabilities to be reported on December 31, 2018?

PROBLEM 6

The following data are provided by Mayonnaise Company. The end of the reporting period is December 31, 2018 and the
financial statements are authorized for issue on March 30, 2019.

a. On December 31, 2018, Mayonnaise Company had a receivable of P400,000 from a customer that
is due 60 days after the end of reporting period. On January 15, 2019, a receiver was appointed
for the said customer. The receiver informed Mayonnaise that the P400,000 would be fully paid by
June 30, 2019.

b. Mayonnaise measures its investments in listed shares as held for trading at fair value through profit
or loss (FVPL). On December 31, 2018, these investments were recorded at the market value of
P5,000,000. During the period up to February 15, 2019, there was a steady decline in the market
value of all the shares in the portfolio, and on February 15, 2019, the market value had fallen to
P2,000,000.

c. Mayonnaise Company had reported a contingent liability on December 31, 2018, related to a court case
in which Mayonnaise was the defendant. The case was not heard until the first week of February 2019.
On February 11, 2019, the judge handed down a decision against Mayonnaise. The judge determined
that Mayonnaise was liable to pay damages and costs totaling P3,000,000.

d. On December 31, 2018, Mayonnaise had a receivable from a large customer in the amount of P3,500,000.
On January 31, 2019, Mayonnaise was advised in writing by the liquidator of the said customer that the
customer was insolvent and that only 10% of the receivable will be paid on April 30, 2019.

12. What total amount should be reported as "adjusting events" on December 31, 2018?

PROBLEM 7

As of December 31, 2018, the current liabilities of Autotelic Company totaled P1,500,000 before any year-end adjustment
relating to the following:

On December 19, 2018, a supplier authorised Autotelic Company to return, for full credit, goods shipped and billed at
P45,000 on December 9, 2018. The returned credit memo was received and recorded by Autotelic on January 2, 2019.

During December 2018, Autotelic received P75,000 from a customer as an advance payment for a merchandise which
Autotelic will make according to the customers' specifications. For this transaction, Autotelic has a P75,000 credit balance
in its accounts receivables from the said customer on December 31, 2018.

On December 31, 2018, the company wrote and recorded checks to creditors totaling P400,000 which would cause an
overdraft of P100,000 in the company's bank account on December 31, 2018. The checks were mailed on January 9, 2019.

13. How much is the net adjustment to total current liabilities based on the aforementioned transactions?

14. How much is the total current liabilities on December 31, 2018?

PROBLEM 8

For the year ended December 31, 2018, Eraserheads Inc. reported the following:

Net Income 600,000.00

Preference share capital dividends declared 100,000.00
Ordinary share capital dividends declared 20,000.00
Unrealized holding loss, net of tax 10,000.00
Retained earnings, beginning balance 800,000.00
Ordinary share capital 400,000.00
Accumulated other comprehensive income, Beginning Balance 50,000.00

15. How much is the ending balance of Retained Earnings?