Final Activity

In
Financial Accounting, pt 2
(ACCL04B)

INSTRUCTIONS: Answer the following questions. Use the last page of this document to write
your final answers. Show your solution.

PROBLEM 1
Zora Company reported the following differences between the book basis and tax basis of
assets and liabilities on December 31, 2013:

Carrying amount Tax base

Installment accounts receivable 1,000,000 0

Litigation liability 200,000 0

It is expected that the litigation liability will be settled in 2014. The difference in accounts
receivable will result in taxable amounts of P600,000 in 2014 and P400,000 in 2015. The entity
has taxable income of P7,000,000 in 2013 and is expected to have taxable income in each
following two years. The income tax rate is 30%. This is the first year of operations and the
operating cycle of the business is to years.

1. What is the current tax expense?

a. 2,400,000
b. 2,040,000
c. 2,100,000
d. 2,460,000

2. What is the deferred tax expense?

a. 300,000
b. 360,000
c. 240,000
d. 60,000

3. What is the total tax expense?

a. 2,460,000
b. 2,400,000
c. 2,340,000
d. 1,860,000
PROBLEM 2
On January 1, 2013, Goron Company had a projected benefit obligation of P10,000,000 and a
pension fund with a fair value of P9,200,000. The entity provided the following information
during the current year:

Current service cost 1,200,000

Actual return on pension fund 250,000
Benefits paid to retirees 1,100,000
Contribution to pension fund 1,050,000
Discount rate 9%
Expected return on pension fund 10%

1. What is the pension expense for the current year?

a. 1,272,000
b. 2,100,000
c. 1,850,000
d. 1,050,000

2. What is the fair value of pension fund on December 31?

a. 9,400,000
b. 9,450,000
c. 8,350,000
d. 9,150,000

3. What is the projected benefit obligation on December 31?

a. 11,000,000
b. 12,100,000
c. 11,200,000
d. 10,100,000

4. What is the remeasurement gain or loss on December 31?

a. 578,000 gain
b. 578,000 loss
c. 250,000 gain
d. 250,000 loss

5. What is the pension asset or liability on December 31?

a. 1,600,000 liability
b. 1,600,000 asset
c. 800,000 liability
d. 800,000 asset
PROBLEM 3
Rito Company began operations on January 1, 2013 by issuing at P15 per share one-half of the
950,000 ordinary shares of P1 par value that had been authorized for issue. In addition, the
entity had 500,000 authorized preference shares of P5 par value. During 2013, the entity had
1,025,000 of net income and declared P230,000 of dividend. During 2014, the entity had the
following transactions:

 Issued 100,000 ordinary shares for P17 per share.

 Issued 150,000 preference shares for P8 per share.
 Authorized purchase of a custom-made machine to be delivered in January
2015. The entity restricted of P300,000 of retained earnings for the purchase of
the machine.
 Issued additional 50,000 preference shares for P9 per share.
 Reported P1,250,000 of net income and declared on December 31, 2014 a
dividend of P635,000 to shareholders of record on January 15, 2015 to be paid
on February 1, 2015.

What is the total shareholders’ equity on December 31, 2014?

a. 11,850,000
b. 11,550,000
c. 12,485,000
d. 7,920,000

PROBLEM 4
On December 31, 2013, Gerudo Company reported the following balances:

Share capital authorize, P100 par 5,000,000

Share capital unissued 2,000,000
Subscribed share capital 1,000,000
Treasury shares, 5,000 at cost 600,000
Share premium 500,000
Retained earnings 1,500,000

On December 31, 2013, the board of directors declared and issued a dividend from the treasury
shares of one share for each ten shares held. The market value of the share on same date is
P150. What is the decrease in retained earnings as a result of the stock dividend?

a. 480,000
b. 525,000
c. 350,000
d. 420,000
ANSWERS:

PROBLEM 1
1.
2.
3.
PROBLEM 2
1.
2.
3.
4.
5.
PROBLEM 3
1.
PROBLEM 4
1.

SOLUTIONS: