Theory

1. S1: Components of an interim financial reporting shall include, at a minimum

of condensed financial statements and selected explanatory notes.

S2: Interim financial reporting must publish a set of condensed financial

statements.

S3: Statement of changes in equity and statement of cash flows has the same
presentation of comparative interim statements.

a. One statement is correct

b. Two statements are correct
c. All statements are correct
d. All statements are incorrect

2. I. Segment information is required only in the consolidated financial

statements.
II. Risk and reward approach is still used in identifying operating segments.
III. Chief operating decision maker identifies a function and not necessarily a
manager with a specific title.
IV. Total external revenue of reportable operating segments should be 75% or
more of the entity’s external revenue.
V. Two or more operating segments may be aggregated into a single operating
segment if segments have similar economic characteristics and share a majority
of the criteria.

Which of the following is true?

a. III, IV and V
b. II, III, IV and V
c. I, III, IV and V
d. I, II, III, IV and V

3. An increase in net asset is increase in assets and decrease in liabilities. A

decrease in net asset is increase in liabilities and decrease in assets.

a. Single entry method

b. Net assets approach
c. Capital maintenance approach
d. All of the above
4. S1: Overstatement of ending inventory is an overstatement of net income.

S2: Understatement of purchase is an overstatement of net income.

S3: Understatement of sale is an understatement of net income.

S4: Failure to record prepaid expense is an understatement of net income.

a. Two statements are correct

b. Three statements are correct
c. All statements are correct
d. All statements are incorrect

5. S1: Noncumulative preference share is one which the right to receive

dividends in any one year which is not declared.

S2: Cumulative preference share is one which any undeclared dividends

accumulate each year until paid.

S3: Nonparticipating preference share is one entitled to receive only the

dividends equal to the fixed rate.

S4: Participating preference share is one which entitled to receive dividends in

excess of the basic of fixed rate.

a. Two statements are correct

b. Three statements are correct
c. All statements are correct
d. All statements are incorrect

6. Who is not required to present earnings per share?

a. Public entities
b. Whose ordinary shares are publicly traded.
c. The process of issuing ordinary share or potential ordinary shares in the
public securities market
d. Whose preference shares are publicly traded.

Problem
1. “Fight” Company, a fiscal-year entity ending October 31, 2020, had the
following income before tax for each quarter and its effective annual tax rate.
The entity reports quarterly for interim purposes.

Income before tax Tax rate

First quarter 2,000,000 25%

Second quarter 3,000,000 30%
Third quarter 1,500,000 30%
Fourth quarter 3,500,000 30%

What is the total income tax expense for the year ended October 31, 2020?

a. 2,500,000
b. 2,900,000
c. 3,000,000
d. 1,050,000

2-3.

“For” Company provided the following data for the current year.

Segment Revenue Profit (loss) Assets

1 4,000,000 400,000 2,000,000

2 2,400,000 240,000 1,200,000
3 3,000,000 (300,000) 1,500,000
4 1,000,000 100,000 500,000
5 6,000,000 (600,000) 3,000,000
6 1,500,000 (150,000) 750,000
7 1,900,000 190,000 950,000
8 2,200,000 (220,000) 1,100,000

There are no intersegment sales.

What is/are not a reportable segment?

a. Segment 4
b. Segment 4, 6 and 7
c. Segment 6 and 7
d. All segments are reportable
What is the total external revenue of the reportable segments?

a. 21,000,000
b. 22,000,000
c. 16,600,000
d. 17,600,000

“Your” company reported the following data for the current year:

Sales per book P 700,000

Account receivable, end 4,000,000
Account receivable, beginning 2,500,000
Collection from customers 1,500,000

Income – cash basis 1,000,000

Deferred income, end 150,000
Deferred income, beginning 300,000
Accrued income, end 200,000
Accrued income, beginning 100,000

The entity converted from cash basis to accrual basis.

4. What is the amount of the sales?

a. 6,700,000
b. 6,000,000
c. 3,700,000
d. 700,000

5. What is the amount of income other than sales?

a. 750,000
b. 1,000,000
c. 1,250,000
d. 1,500,000

6. An increase in net assets results to P7,000,000 while a decrease in net assets

is P5,900,000. The entity had the following increase in share capital and share
premium in total of P2,500,000. A dividend is declared and paid for the current
year for P1,500,000.

What is the net income/loss for the current year?

 a. 100,000 income
b. 100,000 loss
c. 2,100,000 income
d. 0

7. A company failed to recognize accruals and prepayments during this year.

Accrual and prepayments not recognized at the end of the year are:

Prepaid expense 150,000

Accrued expense 100,000
Advances from customer 200,000
Accrued income 200,000

What is the effect on retained earning?

a. 50,000 debit
b. 50,000 credit
c. 300,000 debit
d. 350,000 credit

A company provide the following activities during the year:

Cash receipts from sale of goods P 1,000,000

Cash receipts from other revenues 500,000
Cash payments to supplier of goods 700,000
Cash payments to other expenses 500,000
Cash receipts from sales of property, plant and equipment 1,500,000
Cash payments to acquire long-term assets 1,000,000
Cash receipts from issuing shares 900,000
Cash payments for amounts borrowed 500,000
Income tax 100,000
Interest received (return on investment) 100,000
Dividend paid (for financial resources) 100,000

8. What is the amount of net cash from operating activities?

a. 300,000
b. 100,000
c. 200,000
d. 0
9. What is the amount of net cash from investing activities?

a. 500,000
b. 600,000
c. 400,000
d. 200,000

10. What is the amount of net cash from financing activities?

a. 300,000
b. 400,000
c. 500,000
d. 200,000

11. The shareholders’ equity showed the following on December 31, 2019
showed the following:

Preference share capital, 10% P150 par, 20,000 shares P 3,000,000

Ordinary share capital, P150 par, 30,000 shares 4,500,000
Share premium 4,000,000
Retained earnings 500,000

Total shareholders’ equity P12,000,000

Dividends paid on preference share is only up to December 31, 2016.

The preference share is cumulative and participating.

What is the book value per share in ordinary share?

a. 228
b. 234
c. 270
d. 290

12. An entity provided the following information for the current year.

Preference share capital, P100 par, 12%, cumulative, undeclared P 2,000,000

Ordinary share capital, P100 par, 60,000 shares 6,000,000

Income from continuing operations 3,000,000

What amount should be reported as basic earnings per share?

 a. 100
b. 96
c. 50
d. 46

13. An entity had the following securities outstanding at the beginning of the
year:

12% convertible bonds payable, each P1,000

bond convertible into 15 ordinary shares P 5,000,000
Ordinary share capital, P100 par, 300,000
authorized shares, 150,000 issued shares 15,000,000
Net income 6,500,000
Income tax rate 30%

What amount should be reported s diluted earnings per share?

a. 30.76
b. 31.56
c. 27.02
d. 28.89

14.

Income from continuing operations P 7,000,000

Ordinary shares actually outstanding 660,000
Preference share capital, P100 par, 6% cumulative 6,000,000
Bond payable 5,000,000
Income tax rate 30%

The bond payable has nominal rate of 12% and is convertible into 50,000
shares.

What amount should be the incremental earnings per share of convertible bond?

a. 10.06 dilutive
b. 8.4 dilutive
c. 8.4 antidilutive
d. 10.06 antidilutive
KEY TO CORRECTION

Theory

1. B

2. C

3. D

4. C

5. C

6. D

Problem

1. B

First quarter 2,000,000 x 25% = 500,000

Second quarter 3,000,000 x 30% = 900,000
Third quarter 1,500,000 x 30% = 450,000
Fourth quarter 3,500,000 x 30% = 1,050,000

Total income tax 2,900,000

2. A

3. A

Segment Revenue Profit (loss) Assets

1 4,000,000 400,000 2,000,000

2 2,400,000 240,000 1,200,000
3 3,000,000 (300,000) 1,500,000
4 1,000,000 100,000 500,000
5 6,000,000 (600,000) 3,000,000
6 1,500,000 (150,000) 750,000
7 1,900,000 190,000 950,000
8 2,200,000 (220,000) 1,100,000

22,000,000 11,000,000
 Threshold Reportable segments

Revenue (22,000,000 x 10%) 2,200,000 1,2,3,5 and 8

Profit (930,000 x 10%) = 93,000
Loss (1,270,000 x 10%) GREATER 127,000 1,2,3,5,6,7 and 8
Asset (11,000,000 x 10%) 1,100,000 1,2,3,5 and 8

REPORTABLE SEGMENT REVENUE

1 4,000,000
2 2,400,000
3 3,000,000
5 6,000,000
6 1,500,000
7 1,900,000
8 2,200,000

Total external revenue P 21,000,000

4. C

Sales per book 700,000

Sales on account:

Accounts receivable, end 4,000,000

Collection from customers 1,500,000 5,500,000
Total 6,200,000
Less: Accounts receivable, beginning (2,500,000)

Total sales – accrual basis P 3,700,000

5.

Income 1,000,000
Add: Deferred income, beginning 300,000
Accrued income, end 200,000

Total 1,500,000

Less: Deferred income, end (150,000)

Accrued income, beginning (100,000)

Income – accrual basis P 1,250,000

6. A

Increase in net asset 7,000,000

Decrease in net asset 5,900,000

Net asset 1,100,000

Add: Dividend paid 1,500,000

Total 2,600,000
Less: Increase in share capital and share premium (2,500,000)

Net income 100,000

7. B

Effects on retained earning

Debit Credit

Prepaid expense 150,000

Accrued expense 100,000
Advances from customer 200,000
Accrued income 200,000

Retained earnings 300,000 350,000

Credit – 350,000
Debit – (300,000)

Retained earnings Credit – 50,000

8. C

Cash receipts from sale of goods P 1,000,000

Cash receipts from other revenues 500,000
Cash payments to supplier of goods (700,000)
Cash payments to other expenses (500,000)
Income tax
(100,000)

Operating activities P 200,000

9. B
Cash receipts from sales of property, plant and equipment 1,500,000
Cash payments to acquire long-term assets (1,000,000)
Interest received (return on investment) 100,000

Investing activities P 600,000

10. A

Cash receipts from issuing shares 900,000

Cash payments for amounts borrowed (500,000)
Dividend paid (for financial resources) (100,000)

Financing activities P 300,000

11. A

Excess over par Preference Ordinary

Balances 4,500,000 3,000,000 4,500,000

Preference dividend ( 900,000) 900,000
Ordinary dividend
(4,500,000 X 10%) ( 450,000) 450,000

Balance for participation 3,150,000

Preference (3M/7.5M x 3,150,000) 1,260,000

Ordinary (4.5M/7.5M x 3,150,000) 1,890,000

Total shareholders’ equity 5,160,000 6,840,000

Divide by shares outstanding 20,000 shs. 30,000 shs.

Book value per share 258 228

12. D

Income from continuing operation 3,000,000

Preference dividend (2,000,000 x 12%) (240,000)

Income to ordinary shares 2,760,000

Divide by outstanding ordinary shares 60,000 shs.

Basic earnings per share 46

13. A
Outstanding ordinary shares 150,000
Conversion (5,000 x 15) 75,000
Total ordinary shares 225,000

Net income 6,500,000

Interest on bonds, net of tax
(5,000,000 x 12% x 70%) 420,000

Adjusted income 6,920,000

Divide by ordinary shares 225,000

Diluted earnings per share 30.76

14. B

Income from continuing operation 7,000,000

Preference dividend (6,000,000 x 6%) (340,000)

Income to ordinary shares 6.640,000

Divide by outstanding ordinary shares 660,000 shs.

Basic earnings per share 10.06

Convertible bond payable

Interest expense, net of tax (5,000,000 x 12% x 70%) 420,000

Divide by incremental ordinary shares from conversion 50,000

Incremental earnings per share 8.4

*Incremental EPS is lower than basic EPS = potentially dilutive