Theories

1. Which of the following are classified as current assets?

I. Cash restricted for settlement of liability due 18 months after the reporting period
II. Trade receivables collectible in 18 months
III. Trade receivables collectible within the normal operating cycle.
IV. Cash surrender value of life insurance policy

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

2. What is not a purpose of notes to financial statements?

a. To provide disclosures required by GAAP

b. To present information about the basis of preparation of the statements and
accounting policies
c. To provide additional information not presented but necessary for a fair
presentation
d. To provide recognition of amounts not included in the total of the financial
statements

3. On 2019, Yeshua recognized P1,400,000 liability in relation to a court case which is

probable that he will lose. On March 1, 2020, Yeshua lost the case and then was
obligated to indemnify a sum of P2,000,000. On March 30, 2020 the financial
statements were authorized for issue by the board of directors. What is the necessary
adjusting entry in the financial statements of 2019?

a. Loss on lawsuit 600,000

Estimated Liability 600,000
b. Loss on lawsuit 1,400,000
Estimated Liability 1,400,000
c. Disclose.
d. Do nothing.

4. Which of the following is incorrect regarding accounting estimate?

a. It is an essential part of the preparation the financial statements and does not
undermine their reliability.
b. Some revisions may be needed when material changes occur to which the
estimates were based on, such as new information or subsequent development.
c. It is accounted for currently or retrospectively.
 d. All are correct regarding accounting estimate.

5. Which of the following is the objective of financial statements?

a. To provide financial information about the reporting entity that is useful to existing
and potential investors, lenders and other creditors in making decisions about
providing resources to the entity
b. To provide information about the financial position, financial performance and
cash flows of an entity that is useful to a wide range of users in making economic
decisions
c. To meet the needs of users who are not in a position to require an entity to
prepare reports tailored to their particular information needs
d. To prepare and present financial statements in accordance with all applicable
PFRS and Interpretations

6. A discontinued operation is a component of an entity that either has been disposed of

or is classified as held for sale and

I. Represents a separate major line of business or geographical area of operations.

II. Is part of a single co-ordinated plan to dispose of a separate major line of business or
geographical area of operations

III. Is a subsidiary acquired inclusively with a view of retaining the unit.

a. I only
b. I and II
c. I and III
d. I, II, and III

Problems

7-10. Defender Company provided the following account balances on December 31,
2020:

Cash and cash equivalents 3,950,000

Accounts receivable, net 1,500,000

Inventory 2,050,000
Prepaid taxes 900,000
Property, plant and equipment 5,000,000
Accumulated depreciation 2,500,000
Equipment held for sale 1,250,000
Notes payable – 8% due on Feb 28 2021 800,000
Notes payable – 12% due on January 1, 2022 500,000
Bonds Payable 1,500,000
Premium on bonds payable 300,000
Share Capital 2,350,000
Share premium 200,000
Retained earnings 3,500,000
Revenue 10,000,000
Expenses 7,000,000

 Additional information was given in regards cash and cash equivalents:

- A P50,000 check dated February 14, 2021 which was delivered to the payee
on December 16, 2020.
- P450,000 restricted for purchase of a noncurrent asset.
 The entity has the discretion to refinance the 8% note payable at least 12 months
after the reporting period
 The entity estimated tax payments of P900,000 and charged it to prepaid taxes.
The income tax rate is 30%.

What is the amount to be recognized as current assets?

a. 7,050,000
b. 8,300,000
c. 8,250,000
d. 9,150,000

What is the amount to be recognized as noncurrent liabilities?

a. 3,100,000
b. 4,350,000
c. 2,800,000
d. 3,700,000

What is the amount to be reported as adjusted total retained earnings at year-end?

a. 5,600,000
b. 6,500,000
c. 5,800,000
d. 3,500,000

What is the amount to be recognized as total shareholders’ equity?

a. 2,550,000
b. 8,150,000
c. 6,050,000
 d. 7,500,000

11. Grace Company was preparing the financial statements for the year 2020 which
was scheduled to be authorized by the board of directors on March 30, 2021. The
following information were presented:

* On January 28, 2021, the court case wherein she was the defendant had come to final
decision and she was obligated to pay total damages of P300,000. There is a P200,000
as a provision in the related case recorded in the financial statements.

* On February 12, 2021, a customer who owed the entity P500,000 went bankrupt. No
allowance had been made against this debt in the financial statements.

* On March 17, 2021, a plant was destroyed by fire which was not covered with
insurance.

What total amount should be recognized in profit or loss for the year-ended December
31, 2020 to reflect adjusting events after the end of reporting period?

a. 300,000
b. 800,000
c. 600,000
d. 500,000

12-14 Jireh Company provided the following information for 2020:

Sales 7,000,000
Goods work in process – 1/1 540,000
Goods work in process – 12/31 450,000
Direct Labor 645,000
Finished goods – 1/1 1,000,000
Finished goods – 12/31 850,000

Cost of Goods Sold 3,540,000

Sales salaries 320,000
Sales return and allowances 900,000
Advertising 75,000
Freight Out 35,000
Depreciation – office equipment 320,000
Office salaries 450,000
Loss on sale of trading investment 360,000
Translation loss on foreign operation 370,000
Unrealized gain on derivative contract designated as
cash flow hedge 770,000
Income tax expense 350,000

What is the cost of goods sold manufactured?

a. 885,000
b. 2,805,000
c. 3,540,000
d. 3,390,000

What is the OCI for the year?

a. 370,000
b. 360,000
c. 400,000
d. 410,000

What is the comprehensive income for the year?

a. 1,050,000
b. 1,200,000
c. 2,530,000
d. 4,690,000

15-17. Judge Company purchased an equipment for P2,500,000 on January 1, 2020

with a useful life of 5 years. At year-end, the entity classified the asset as held for sale.

On the same date, the fair value of the equipment is P1,850,000 and the cost of
disposal is P50,000

On December 31, 2021, the fair value of the equipment is P1,200,000 and the cost of
disposal is P20,000

On the same date, the Judge believed that the criteria for classification as held for sale
can no longer be met. Accordingly, the entity decided not to sell the asset but to
continue to use it.

What is the impairment loss to be recognized on December 31, 2021?

a. 800,000
b. 150,000
c. 650,000
d. 200,000
What is the measurement of the equipment that ceases to be held for sale on
December 31, 2021?

a. 1,810,000
b. 1,180,000
c. 1,500,000
d. 1,150,000

What amount should be recognized as gain or loss as a result of the reclassification on

2021?

a. 670,000
b. 620,000
c. 820,000
d. 320,000

18. (9-11) Redeemer Company has two divisions, Light and Salt. During 2020, the entity
decided to sell Salt Division. It is probable that the disposal will be completed early next
year.

2020 2019 2018

Sales- Light 170,000 40,000 52,000
COGS - Light 70,000 20,000 22,000
Other expenses – Light 17,000 10,000 15,000
Sales – Salt 117,000 35,000 55,000
COGS – Salt 65,000 12,000 18,000
Other expenses - Salt 35,000 13,000 15,000

During 2020, the entity sold an equipment of Salt Division and recognized a pretax loss
of P7,000 on the disposal. The income tax rate is 30%

What amount should be reported as an income or loss from discontinued operations for
2020?

a. 7,000
b. (3,000)
c. 3,000
d. (7,000)

19-20 Yashaya Company determined some important factors that led them to decide
that the provision for inventory obsolescence on December 31, 2020 should be
increased to P4,300,000. The same has a recent balance of only P3,000,000.
If the same basis was applied on the recent year, 2019, the provision would have been
P1,500,000 higher than that of recognized in the statement of comprehensive income.

What adjustment should be made to net income of 2020?

a. 3,000,000
b. 4,300,000
c. 1,300,000
d. 2,800,000

What adjustment should be made to net income of 2019 presented as comparative

figure in 2019?

a. 1,500,000
b. 2,800,000
c. 200,000
d. 0

Answers:

1. C

2. D

3. A

4. C

5. B

6. B

7. B

Cash and cash equivalents (3,950,000 – 450,000) 3,500,000

Accounts Receivable, net 1,500,000
Inventory 2,050,000
Equipment held for sale 1,250,000
Total current assets 8,300,000

8. A

Notes payable – 8% due on Feb 28 2021 800,000

Notes payable – 12% due on January 1, 2022 500,000
Bonds Payable 1,500,000
Premium on bonds payable 300,000
Total noncurrent liabilities 3,100,000

9. A

Revenue 10,000,000
Expenses 7,000,000
Income before tax 3,000,000
Income tax expense (3,000,000 x 30%) (900,000)
Net income 2,100,000
Unadjusted Retained Earnings 3,500,000
Adjusted Retained Earnings 5,600,000

10. B

Share capital 2,350,000

Share premium 200,000
Retained earnings 5,600,000
Total shareholders’ equity 8,150,000

11. C

Depreciation expense (bankruptcy of customer) 500,000

Additional amount for loss in lawsuit 100,000
Total adjustment 600,000

12. D

Cost of Goods Manufactured 3,390,000

Finished goods – 1/1 1,000,000
Total Goods available for use 4,390,000
Finished goods – 12/31 850,000
Cost of Goods Sold 3,540,000

*squeeze/workback

13. C

Unrealized gain on derivative contract designated as

cash flow hedge 770,000
Translation loss on foreign operation (370,000)
Other comprehensive income 400,000

14. A

Net Sales (7,000,000 – 900,000) 6,100,000

Cost of Goods Sold (3,540,000)
Gross Profit 2,560,000
Expenses:

Distribution costs 430,000

Administrative expenses 770,000
Other expenses 360,000 1.560.000

Income before tax 1,000,000

Income tax expense (350,000)
Net income 650,000

OCI to be reclassified to profit or loss:

Unrealized gain on derivative contract designated as

cash flow hedge 770,000
Translation loss on foreign operation (370,000) 400,000
Comprehensive income 1,050,000

15. D

Carrying amount – 1/1/2020 2,500,000

Depreciation expense (2,500,000/5 years) (500,000)
Carrying amount – 12/31/2020 2,000,000
Fair Value less cost of disposal (1,850,000 – 50,000) (1,800,000)
Impairment loss – 2020 200,000

16. B

Carrying amount – 12/31/2020 2,000,000

Depreciation that would have been recog. for 2021 (500,000)
Carrying amount – 12/31/2021 1,500,000

Recoverable amount – lower (1,200,000 – 20,000) 1,180,000

17. B

Measurement of equipment – 2021 1,180,000

Carrying amount – 12/31/2020 (1,800,000)
Loss on reclassification 620,000

18. A

Sales – Salt 117,000

COGS – Salt (65,000)
Other expenses – Salt (35,000)
Loss on disposal (7,000)
Income from discontinued operation before tax 10,000
Income from discontinued operation after tax (10,000 – 3,000) 7,000

19. C

Unadjusted Inventory obsolescence 3,000,000

Inventory obsolescence, end. 4,300,000
Adjustment 1,300,000

20. D

This is an accounting estimate, not an accounting change in policy so there is no need

to recognized anything in relation to the recent year since accounting estimated is
accounted for prospectively.