Intermediate Accounting 2 and 3 Final

POLYTECHNIC OF THE PHILIPPINES
Taguig Branch
INTERMEDIATE ACCOUNTING 2
I. Current Liabilities
II. Notes Payable and Debt Restructuring
III. Bonds Payable
IV. Leases
V. Employee Benefits
VI. Accounting for Taxes
VII. Shareholder’s Equity
MACABUGTO, JEFSEY MAE N. Prof. UC, Valladolid

BSA 2
CURRENT LIABILITY
1. Current liabilities are not discounted anymore but measured, recorded, and reported at
their ______.
a. Face amount c. Fair market value
b. Amortized cost d. Initial amount
2. Statement 1: A contingent asset is not recognized in the financial statements

Statement 2: A contingent liability is disclosed only.
Statement 3: If the contingent liability is remote, no disclosure is required.
a. Only statement 1 is true.
b. Only statements 1 and 3 are true.
c. All statements are true.
d. None of the statements is true.
3. Which of the following should be considered in the evaluation whether or not to record a
liability for litigation?
a. Time period in which the underlying cause of action occurred.
b. The probability of favorable outcome.
c. The ability to make a reliable estimate of loss.
d. All of the above.
4. Refundable deposits consist of cash and property received from customers but which are
refundable after compliance with certain conditions. The best example of it is the
returnable containers. What happens to the deposit if the customer fails to return the
container?
a. Expensed immediately.
b. Considered the sale price of the containers.
c. Recognized as loss
d. No action required.
5. Award credits are the points granted by the entity to customers if they buy goods or
services. How is the consideration allocated to the award credits initially recognized?
a. Deferred Revenue c. Accounts Receivable
b. Prepaid Expense d. Sales
CURRENT LIABILITIES
1. Dahlia Amelie, a senior accountant who has been working under the JV Chase and Co.,
for over a decade, was offered by the company a bonus for her loyalty in the industry.
Data relating to bonus is as follows:

 35% of income over Php 8,000,000.
 Income was Php 8,500,000 before tax and before bonus for the current year.
 Bonus is computed on income in excess of Php 8,000,000 after deducting bonus
but before tax.
Q1. What is the income after bonus but before tax? (Round off into whole number)
a. 370,370 c. 2,800,000
b. 175,000 d. 2,975,000
Q2. What is the bonus to Dahlia Amelie? (Round off into whole number)
a. 370,370 c. 129,630
b. 175,000 d. 500,000
2. As part of the Valentine’s celebration, Canterbury Chocolate Incorporation decided to

produce a limited edition heart-shaped hair clips. To redeem the product, the company
requires 10 wrappers of their chocolate to be given at any branch. Canterbury estimates
that only 75% out of 1,000,000 chocolate wrapper will be redeemed. For the year 2020,
10,000 hair clips were ordered by the company at a total cost of Php 500,000. A total of
7,500 hair clips were distributed to the customers.
What is the amount of liability that the Canterbury Chocolate Incorporation should report
on its December 31, 2020 Statement of Financial Postion?
a. 1,000,000 c. 750,000
b. 3,375,000 d. 675,000
3. Azkaban Company offered a premium who will send in 10 coupons which is included in
one package sold. The following is the data regarding the premium distribution:
2019 2020
Number of packages sold 80,000 90,000
Number of premium purchased at Php 25 17,000 24,000
Number of premium distributed 15,000 23,000
Number of premium to be distributed next period 2,000 1,000
Q1. What is the premium expense to be reported in 2019?

a. 425,000 c. 80,000
b. 50,000 d. 90,000
Q2. What is the premium liability on December 31, 2019?

a. 425,000 c. 80,000
b. 50,000 d. 90,000
4. Valflix Corporation sells premium video tutorial subscription for a 3-month, 6-month,
and 1-year period. Cash receipt from subscribers are credited to premium video tutorial
subscriptions collected in advance and this account had a balance of Php 10,050,000 on
January 1, 2020. In addition to that, Php 29,000,000 was received from subscribers. At
the end of the year, a total of Php 23,000,000 subscription revenue was credited.
On December 31, 2020, what amount should be reported as the balance for subscription
collected in advance?
a. 12,950,000 c. 16,050,000
b. 6,000,000 d. 18,950,000
5. Pineapple company produced its latest waterpods – a wireless earphone last year which
only requires Bluetooth connectivity. It sells its new product that carry a 2-year warranty
period. The estimated warranty cost per waterpod is Php 1,500. On the current year, the
company sold 10,000 waterpods and paid warranty cost of Php 11,450,000.
Q1. What amount should be recorded as warranty expense for the year-end?
a. 15,000,000 c. 11,440,000
b. 11,450,000 d. 3,550,000
Q2. What amount should be recorded as warranty liability for the year-end?
a. 15,000,000 c. 11,440,000
b. 11,450,000 d. 3,550,000
Solution:
1. Q1 & Q2
₱
8,500,000
-8,000,000
₱ ₱
500,000.00 /30% = 370,370.00
35%
₱
2. Estimated redemption 129,630
(1,000,000 x 75%) ₱ 750,000
Redemption (7,500 x 10) 75,000
Future redemption ₱ 675,000
No. of wrappers 10
Premium to be distributed ₱ 67,500
Cost 50
Premium Liability ₱ 3,375,000
3. Q1. No. of premiums distributed ₱ 15,000

No. of premiums to be distributed 2,000
Total Premiums ₱ 17,000
25
Premium expense ₱ 425,000
Q2. No. of premiums to be distributed 2,000

Cost ₱ 25
Estimated liability ₱ 50,000
4.
Cash receipts collected in advance ₱ 10,050,000
Cash receipts from subscribers 29,000,000
₱ 39,050,000
Subscription revenue credited -23,000,000
Subscription collected in advance ₱ 16,050,000
5. ₱
Warranty cost per product 1,500
Items sold during the year 10,000
₱
Warranty expense 15,000,000
Warranty cost paid 11,450,000
₱
Warranty liability 3,550,000
BONDS PAYABLE
1. Statement 1: When bonds are reacquired prior to maturity date, they may be cancelled
and permanently retired.
Statement 2: When bonds are reacquired prior to maturity date, they may be held in the
treasury for future reissue when the need of fund arises.
a. Statement 1 is true, Statement 2 is false
b. Statement 1 is false, Statement 2 is true
c. Both statement is true
d. Both statement is false
2. The change in fair value attributable to the credit risk of the liability is recognized in
______.
a. Other Comprehensive Income c. Statement of Cash Flow
b. Statement of Financial Position d. All of the above.
3. When does the bond refunding be made?

a. After the issuance date of financial position.
b. On or before the issuance date of financial statement.
c. On or before the date of maturity of old bond.
d. After the maturity of the old bond.
4. Treasury bonds are an entity’s own bonds originally issued and reacquired but not
cancelled. Therefore, treasury bonds should be debited at
a. Current amount c. Acquisition cost
b. Amortized value d. Face amount
5. Discount on bond payable and premium on bond payable are reported as adjustments to
the bond liability account. What is the difference between the two?
a. The discount is a deduction on bond payable while the premium is an addition.
b. The discount is an addition on bond payable while the premium is a deduction.
c. The discount does not affect the bond payable while premium is a deduction.
d. Both of them do not affect the bond payable.
BONDS PAYABLE
1. Caramel Corporation had the following long-term debt on December 31, 2020:
 Sinking funds maturing in installments 7,000,000
 10% registered debentures, callable in 2021, 2,000,000
maturing in 2022
 Industrial revenue bonds maturing in installment 3,200,000
 Subordinated bonds maturing in 2021 6,000,000
 15% subordinated debentures, Php 200,000 maturing 1,500,000
annually beginning 2021
 8% collateral trust bond, convertible into ordinary shares 2,600,000
beginning 2021, due in 2022
Q1. What is the total amount of term bonds?

a. 10,600,000 c. 9,000,000
b. 6,100,000 d. 11,700,000
Q2. What is the total amount of serial bonds?
a. 10,600,000 c. 9,000,000
b. 6,100,000 d. 11,700,000
2. On February 1, 2020, JPIA Company issued Php 10,000,000 of 8-year, 10% term bonds
dated April 1, 2019. The bonds were sold to yield 15% with total proceeds of Php
9,000,000 plus accrued interest. Interest is paid every April 1 and October 1.
What amount should be reported as accrued interest payable on December 31, 2020?
a. 750,000 c. 1,000,000
b. 250,000 d. 1,200,000
3. On January 1, 2020, Caramel Incorporation received Php 5,200,000 for 10% bonds with a
face amount of Php 5,000,000. The bonds were sold to yield 8%. Interest is payable
semiannually every April 1 and October 1. The entity has elected the fair value option for
measuring financial liability. On December 31, 2020, the fair value of the bonds is
determined to be Php 5,125,000 due to market interest and factors.
Q1. What is the carrying amount of the bonds payable on January 1, 2020?
a. 5,200,000 c. 1,020,000
b. 5,125,000 d. 816,000
Q2. What is the interest expense for 2020?
a. 520,000 c. 500,000
b. 512,500 d. 532,500
Q3. What is the gain or loss from change in fair value of the bonds for 2020?
a. 75,000 gain c. 200,000 gain
b. 75,000 loss d. 200,000 loss
4. On July 1, 2020, Tea Corporation issued 5,000 bonds of 10%, Php 800 face amount for
Php 4,500,000. The bonds were issued to yield 12%. The bonds are dated July 1, 2020
and mature on July 1, 2028. Interest is payable semiannually on April 1 and October 1.
Q1. What is the amount of interest expense?

a. 200,000 c. 450,000
b. 270,000 d. 400,000
Q3. What is the amount of interest paid?
a. 200,000 c. 450,000
b. 270,000 d. 400,000
Q3. Using the effective interest method, what amount of bond discount should be
amortized for six months ended December 31, 2020?
a. 470,000 c. 70,000
b. 450,000 d. 50,000
5. On January 1, 2020, Grimmie Company issued 12% bonds in the face amount of Php
1,000,000 that mature on December 31, 2030. The bonds were issued for Php 900,000 to
yield 15%, resulting to bond discount of Php 300,000.
The entity used the interest method for amortizing bond discount. Interest is payable
annually on December 31.
Q1. For the year ended December 31, 2023, what amount should be reported as bond
interest expense? (round to the nearest peso)
a. 142,813 c. 120,000
b. 135,000 d. 137,250
Q2. For the year ended December 31, 2024, what amount should be reported as discount
amortization? (round to the nearest peso)
a. 300,000 c. 26,235
b. 15,000 d. 22,813
Q3. What will be the carrying amount of bonds issued on December 31, 2022? (round to
the nearest peso)
a. 900,000 c. 915,000
b. 952,088 d. 974,901
Solution:
1. Q1.
10% registered debentures ₱2,000,000.00
8% collateral trust bond 6,000,000.00
Subordinated bonds maturing in 2021 2,600,000.00
Total Term Bonds ₱10,600,000.00
Q2.
Sinking funds maturing in installments ₱7,000,000.00

Industrial revenue bonds maturing in installment 3,200,000.00
15% subordinated debentures, Php 200,000 maturing
1,500,000.00
annually
Total Serial Bonds ₱11,700,000.00
2.
Accrued interest payable from October

₱10,000,000.00
1 to December 31, 2020
10%
₱1,000,000.00
3/12
₱250,000.00
3. Q1. Bonds Payable on January 1, 2020 ₱ 5,200,000
Q2. Interest Expense

₱ 5,000,000
10%
₱ 500,000
Q3. Gain or Loss from change of fair value ₱
5,200,000.00
-5,125,000.00
₱₱
4,000,000.00
75,000.00
10% ₱
4. Q1. Interest Expense ₱ 4,500,000.00
400,000.00 12%
₱
6/12 540,000.00
₱ 6/12
Q2. Interest Paid 200,000.00 ₱
270,000.00
Q3. Discount amortization

₱
270,000.00
-200,000
₱
70,000.00
5. Q1 – Q3
Carrying
Date Interest Paid Interest Expense Discount Amortization
Amount
₱
01/01/2020 900,000
₱ ₱ ₱
12/31/ 2020 120,000 135,000 15,000 915,000
12/31/2021 120,000 137,250 17,250 932,250
12/31/2022 120,000 139,837.50 19,837.50 952,087.50
12/31/2023 120,000 142,813.13 22,813.13 974,900.63
12/31/2024 120,000 146,235.09 26,235.09 1,001,135.72
NOTE PAYABLE AND BOND RESTRUCTURING

1. Transaction costs are included in the measurement of note payable. What happens to the
transaction cost if the note payable is irrevocably designated at fair value through profit
or loss?
a. Expensed immediately
b. No effect
c. Added to the note payable
d. None of the above.
2. This involves a reduction of interest rate, forgiveness of unpaid interest or a moratorium

of interest.
a. Maturity
b. Dacio en Pago
c. Interest Concession
d. Interest Maturity
3. Under a debt restructuring involving substantial modification of terms, the future cash
flows under the new terms shall be discounted using
a. Interest rate under the new term
b. Original effective interest rate
c. Current interest rate
d. Market rate of interest
4. This refers to the discounted amount of the future cash outflow in setting the note payable
using the market rate of interest.
a. Fair value c. Annuity
b. Present value d. Market value
5. Which of the following defines liability?

a. Present obligation of a particular entity.
b. If the settlement requires an outflow of resources embodying economic benefit.
c. It arises from past transaction or event.
NOTES PAYABLE AND DEBT RESTRUCTURING

1. Snow Ball Corporation issued a note payable to Finest Bank with an amount of Php
3,000,000, bearing interest at 10%, and payable in four equal annual principal payments
of Php 750,000 on February 1, 2020. On this date, the bank’s prime rate was 8%. The
first interest and principal payment was made on February 1, 2021.
On December 31, 2021, what amount should be reported as accrued interest payable?
a. 206,250 c. 260,250
b. 210,450 d. 260,025
2. Rising Star Ltd has a liability to Wishing Star Ltd – a Php 500,000, 12%, 2-year note
dated December 31, 2020. Due to financial deficiency on the following year, Rising Star
Ltd incurred interest of Php 50,000 on the note on December 31, 2021.
Under a debt restructuring on December 31, 2021, Wishing Star Ltd agreed to settle the
note and accrued interest for a machinery with a fair value of Php 150,000. The carrying
amount of the machinery is Php 100,000.
What is the gain on extinguishment?
a. 50,000 c. 450,000
b. 100,000 d. 500,000
3. Alpha Chase and Co., is indebted to Omega Chasers Co., and is negotiating to lessen its
problem to financial deficiency. Alpha has a Php 1,200,000 note payable to Moon
Chasers Bank, with a fair value of Php 1,050,000.
The bank accepted an equity interest in Alpha in the form of 100,000 ordinary shares at
Php 10 per share. The par value is Php 8 per share.
Q1. What is the gain on extinguishment as a result of equity swap?
a. 200,000 c. 300,000
b. 400,000 d. 150,000
Q2. What is the share premium from the issuance of share?
a. 200,000 c. 300,000
b. 400,000 d. 150,000
Q3. Consider that the share has no fair value, what will be the gain on extinguishment?
a. 200,000 c. 300,000
b. 400,000 d. 150,000
4. Tinkerbell Ltd was not able to pay its interest on note payable due to Neverland Bank at
Php 5,000,000 at 6% interest, and accrued interest of Php 200,000.
As a result of restructuring agreement on January 1, 2020, Neverland Bank agreed to

reduce the principal liability to Php 4,000,000 and forgive the accrued interest. In
addition, the date of maturity is extended to December 31, 2022. The annual interest of
10% is to be paid for 5 years every December 31.
Q1. What is the gain on extinguishment? (round to four decimal places)
a. 1,200,000 c. 1,200,800
b. 1,200,080 d. 1,200,008
Q2. What is the interest expense for 2020? (round to nearest peso)
a. 239,000 c. 239,590
b. 239,900 d. 239,995
5. On February 1, 2019, Stranger Company borrowed Php 3,000,000 on a 10%, seven-year

note payable. On December 31, 2019, the fair value of the note is determined to be Php
2,225,000 based on market factors. The entity has elected the fair value option for
reporting the financial liability.
Q1. What is the interest expense to be reported?

a. 775,000 c. 750,000
b. 275,000 d. 725,000
Q2. What is the carrying amount of note payable on December 31, 2019?
a. 3,000,000 c. 5,225,000
b. 2,225,000 d. 725,000
Q3. What is the gain or loss as a result of the fair value option?
a. 750,000 c. 700,000
b. 725,000 d. 775,000
Solution:
₱
1. Note Payable - February 1,2020 3,000,000
Payment on February 1, 2021 -750,000
₱
Note Payable - February 1,2021 2,250,000
x10%
₱
225,000
11/12
₱
Accrued interest payable 206,250
₱
2. Note Payable 500,000
₱
Total liability 550,000
Carrying amount of machinery 100,000
₱
Gain on extinguishment 450,000
3. Q1. Note payable ₱ 1,200,000
Fair Value of Shares 1,000,000
Gain on debt extinguishment ₱ 200,000
Q2. Fair value of shares (100,000 x 10) ₱ 1,000,000

Par value of shares (100,000 x 8) 800,000
Share premium ₱ 200,000
Q3. Note payable ₱ 1,200,000

Fair value of note payable 1,050,000
Gain on extinguishment ₱ 150,000
4. Q1. Present value of principal (4,000,000 x 0.6209) ₱ 2,483,600

Present value of annual interest payment (400,000 x
3.7908) 1,516,320
Total present value of new liability ₱ 3,999,920
Note payable old ₱5,000,000
Total old liability ₱ 5,200,000
Present value of new liability -3,999,920
Gain on extinguishment 1,200,080
Q2. Present value of new liability ₱ 3,999,920

Old rate 6%
Interest expense ₱ 239,995
₱
5. Q1. Face amount 3,000,000
10%
₱
300,000
11/12
₱
Interest expense 275,000
₱
Q2. Carrying amount is at par with the fair value 2,225,000
₱
Q3. Note payable - February 1, 2019 3,000,000
Fair value - December 31, 2019 2,225,000
₱
Decrease in Fair value - gain 775,000
LEASE ACCOUNTING
1. What is the new lease standard?
a. IFRS 16 c. PFRS 16
b. IFRS 22 d. PFRS 22
2. Statement 1: If the decrease in carrying amount of lease liability is higher than the
decrease in carrying amount of right of use asset, the difference is a
termination gain.
Statement 2: If the decrease in carrying amount of right of use asset is higher than the
decrease in carrying amount of lease liability, the difference is
termination gain.
b. Only statement 2 is true.
c. Both statements are true.
d. Neither of the statements is true.
3. This refers to the lease that does not transfer substantially all the risks and rewards
incidental to ownership of an underlying asset.
a. Finance lease c. Either a or b
b. Operating lease d. Neither a nor b
4. What is the classification of an operating lease?

a. The present value of the lease payments amounts to substantially all the fair value of
underlying asset at the inception of the lease.
b. The term is for the major part of the economic life of the underlying asset even if title
is not transferred.
c. Both a and b.
d. Neither a nor b.
5. Which statement is true regarding initial direct costs incurred by the lessor?
a. In a direct financing lease, initial direct costs are added to the net investment in the
lease.
b. In a sales type lease, initial direct costs are expensed as component of cost of goods
sold.
c. In an operating lease, initial direct costs incurred by the lessor are deferred and
allocated over the lease term.
d. All of these statements are correct.
LEASES
1. On January 1, 2019, a Rising Star Company, a newly founded entity searched for an
equipment to be rented for testing purposes. It found Straight-line Company, a lessor, and
leased an equipment under an operating lease. The lease term is three years and the lease
payments are made in advance on January 1 of each year.
The data of the lease term is provided as follows:
January 1, 2019 500,000

January 1, 2020 600,000
January 1, 2021 700,000
1,800,00
Total Rentals 0
What amount should be recognized as rent income in 2020?

a. 500,000 c. 700,000
b. 600,000 d. 55,000
2. On January 1, 2019, Caramel Company decided to lease a machinery that fastens the
production of maple syrup. The information is as follows:
500,00
Fixed rental payment at the end of each year 0
10
Lease term years
20
Useful life of machine years
Incremental borrowing rate 15%
Implicit interest rate 10%
200,00
Residual value 0
Present value of an ordinary annuity of 1 for 10
periods
15% 5.8474
10% 6.1446
Present value of 1 for 10 periods
15% 0.1229
The lessee has the option to purchase the machine upon the lease expiration on January
1,2029 by paying P100,000. Caramel is reasonably certain to exercise the purchase option at
the commencement date of the lease. (Round the present values to four decimal periods and
the final answers to whole number)
Q1. What is the total lease liability?
a. 6,144,600 c. 5,847,400
b. 5,951,850 d. 5,654,650
Q2. What is the depreciable amount for the current year?

a. 287,593 c. 200,000
b. 575,185 d. 169,480
3. Banana Company leased an equipment to lessen the production time and increase productivity
on January 1, 2018. It also guaranteed a residual value shown in the information:
1,000,00
Fixed rental payment at the end of each year 0
Lease term 7 years
Useful life of machine 10 years
Residual value 200,000
Present value of an ordinary annuity of 1 for 7
periods 4.5638
Present value of 1 for 7 periods 0.4523 (Round
the present values to four decimal periods and the final answers to whole number)
Q1. What amount should be recorded as right of use of asset?

a. 4,463,800 c. 4,473,340
b. 4,563,800 d. 4,463,340
Q2. What amount should be reported as interest expense on its first payment?
a. 536,801 c. 536,108
b. 563,081 d. 563,801
4. Pink Floral Company leased a machinery to start a new segment. They provided the following
information:
Advanced fixed rental payment at the beginning of 1,000,00

each year 0
Initial direct cost paid 300,000
Lease incentive receive 100,000
Residual value guarantee 400,000
Lease term 10
Useful life of machine 15
Present value of an ordinary annuity of 1 for 10 periods 6.1446
Present value of 1 for 10 periods 0.3855
(Round the present values to four decimal periods and the final answers to whole number)
Q1. What amount should be recorded as lease liability at the beginning of the year?
a. 6,144,600 c. 6,298,800
b. 6,498,800 d. 6,441,600
Q2. What is the cost of right of use of asset to be recorded?

a. 6,144,600 c. 6,298,800
b. 6,498,800 d. 6,441,600
5. Egg Waffles Company decided to lease a commercial site for their new business segment.
They found Homebuilders Company, a lessor, and entered into a lease on January 1, 2019
providing the following information:
1,000 square
Floor space of the site meters
Fixed annual rental payable at the end of each year 100,000
Lease term 5
On January 1, 2021, both companies agreed to amend the agreement with the following
information:
Floor space of the site 800 square meters

Fixed annual rental payable at the end of each year 90,000
(Round the present values to four decimal periods and the final answers to whole number)
Q1. What is the lease liability on December 31, 2020 before the modification?
a. 136,448 c. 360,480
b. 303,738 d. 240,186
Q2. What is the termination gain or loss on January 1, 2021?

a. 3,258 c. 6,480
b. 4,779 d. 4,186
Q3. What is the increase in the lease liability due to the modification on January 1, 2021?
a. 31,672 c. 10,000
b. 30,000 d. 10,672
Solution
:
1. Total rentals ₱ 1,800,000

Divided by total no. of years 3
Rent income ₱ 600,000
2. Q1. Present value of lease payment (1,000,000 x 6.1446) ₱ 6,144,600

Present value of purchase option (500,000 x 0.3855) 192,750
Total lease liability ₱ 5,951,850
Q2. Lease liability ₱ 5,951,850

Residual value 200,000
5,751,850
Divided by useful life of
machine 20
Depreciation ₱ 287,593
3. Q1 Present value of lease payment 4,563,800

Present value residual guarantee 90,460
Cost of right of use of asset 4,473,340

Interest rate 12%
Interest expense ₱ 536,801
4. Q1. Present value of rentals ₱ 6,144,600

Present value of residual value 154,200
Lease liability - Beginning ₱ 6,298,800

Initial direct cost 300,000
Lease incentive received -100,000
Cost of right of use of asset ₱ 6,498,800
(100,000 x ₱
5. Q1. Lease liability 3.6048) 360,480
Date Payment Interest Principal Lease Liability

₱
January 1, 2019 360,480
December 31, 2019 100,000 43,257.60 56,742.40 303,737.60
December 31, 2020 100,000 36,448.51 63,551.49 240,186.11
Q2. Decrease in floor space (1,000 - 800) 200

Decrease in the scope of the lease (200/1,000) 20%
Cost of right of use of asset ₱ 360,480

Accumulated depreciation (360,480 / 5 x 2) -144,192
Carrying amount ₱ 216,288
Decrease in lease liability (240,186 x 20%) ₱ 48,037

Decrease in CA of ROUA (216,288 x 20%) -43,258
Termination gain ₱ 4,779
Q3. Present value of lease liability after

modification (90,000 x 2.4869) ₱ 223,821
Remaining lease liability (240,186 - 48,037) -192,149
Increase in liability ₱ 31,672
EMPLOYEE BENEFITS
1. I. A defined contribution plan is a postemployment benefit plan under which an entity
pays fixed contribution known as the fund.
II. Under a contributory plan, the employer and employee make contributions to the
retirement benefit plans but they do not necessarily contribute equal amount.
III. Under an unfunded plan, the entity retains the obligation for the payment of
retirement without the establishment of a separate plan.
IV. Under a noncontributory plan, only the employer makes contributions to the
retirement benefit plan.
Which among the following sentences are true?
a. I, II, III, and IV c. I and IV only.
b. I, II, and III only d. I, II, and IV only.
2. This postemployment benefit plan is a defined contribution plan because the entity
obligation is limited to specified contributions to the plan as a percentage of salary.
a. PAG-IBIG c. GSIS
b. SSS d. All of the above.
3. What comprises the service cost?

a. Current service cost, past service cost, any gain or lost in settlement.
b. Remeasurement of plant asset, current service cost, past service cost.
c. Initial service cost, past service cost, interest income on plant assets.
d. Any gain or loss in settlement, interest income on plant assets, current service cost.
4. In rare circumstances, when a retirement benefit plan has attributes of both defined
contribution and defined benefit plan, the plan is deemed
a. Defined benefit plan
b. Defined contribution plan
c. Both a and b are possible
d. Neither a nor b
5. What happens if the fair value of the plan assets is less than the projected benefit
obligation?
a. A gain is incurred
b. The difference shall be expensed immediately.
c. An accrued benefit cost is incurred.
d. A remeasurement is incurred which must be recognized through other comprehensive
income.
EMPLOYEE BENEFITS
1. Penguin Powerhouse Company is an entity that manufactures books. It provided the

following information for the current year:
7,000,00
Projected benefit obligation - January 1 0
6,000,00
Fair value of plan assets, January 1 0
1,300,00
Current service cost 0
Actual return on plan assets 580,000
Actuarial gain during the year 180,000
Employer contribution 470,000
Benefits paid to retirees 400,000
Q1. Settlement rate 12% What is the
total defined benefit cost?
a. 1,420,000 c. 1,380,000
b. 1,460,000 d. 1,320,000
Q2. What amount should be recorded as employee benefit expense?

a. 1,420,000 c. 1,380,000
b. 1,460,000 d. 1,320,000
2. Chamomile Company, one of the Asia’s largest corporation granted their employees of
two weeks of paid vacation leave. During the year, the employees earned 4,200 weeks of
vacation leave and used 3,500 weeks.
The current salary of the employees is an average of P5,000 per week and is expected to
increase by P150 per week.
What is amount of vacation pay expense should be recorded if the benefit is accumulating
and vesting?
a. 17,500,000 c. 21,000,000
b. 21,105,000 d. 21,630,000
3. SpongeBob Squarepants Company is an international TV network that provides kids

shows across the globe. On January 1, 2019, it showed the following data pertaining to
the pension plan for the current year.
Projected benefit obligation, January 1 30,000,000

Fair value of plan assets, January 1 15,000,000
Current service cost 8,000,000
Actual return on plan assets 2,000,000
Actuarial gain during the year 1,700,000
Employer contribution 3,000,000
Benefits paid to retirees 5,000,000
Settlement rate 12%
If there is no change in actuarial estimate during the year, amount of projected benefit
obligation should be recorded at the year-end?
a. 34,900,000 c. 23,000,000
b. 45,000,000 d. 31,700,000
4. Dahlia Amelie Heusaff, a senior accountant of Easy Money Corporation shall receive a
retirement benefit of 15% of the final salary per annum for a contractual period of three years.
The senior accountant does not contribute to the scheme.
The projected salary and present value of 1 at 10 % discount rate over 5 years are as follows:
YEAR SALARY PERIOD PV

2018 1,440,000 1 0.9091
2019 1,800,000 2 0.8264
2020 2,400,000 3 0.7513
2021 2,520,000 4 0.683
2022 3,600,000 5 0.6209
Q1. What is the annual benefit that should be used in computing the estimated pension
liability?
a. 375,000 c. 270,000
b. 378,000 d. 216,000
Q2. Using the projected unit credit method, what amount of the estimated pension liability
should be recorded on December 31, 2020?
a. 1,030,886 c. 1,300,800
b. 624,760 d. 724,860
5. Kathnails Company is fast leading corporation which renders beauty services to customers.
On January 1, 2019, it showed a projected benefit obligation of P32,000,000 and a pension
fund with a fair value of P10,200,000. In addition, a decrease on PBO of P2,800,000 is
recorded. The entity provided the additional data during the year:

Actual return on pension fund 1,000,000
Employer contribution 7,800,000
Benefits paid to retirees 8,500,000
Past service cost 3,000,000
Effect of asset ceiling 600,000
Discount rate 8%
Expected return on pension fund 10%
Q1. What is the pension expense for the current year?

a. 17,792,000 c. 16,816,000
b. 15,560,000 d. 16,048,000
Q2. What is the fair value of the pension fund on December 31?
a. 16,048,000 c. 10,500,000
b. 15,000,000 d. 18,500,000
Q3. What is the projected benefit obligation on December 31?

a. 39,260,000 c. 41,860,000
b. 34,000,000 d. 37,500,000
Q4. What is the remeasurement gain or loss on December 31?

a. 2,800,000 gain c. 2,948,000 loss
b. 2,984,000 gain d. 2,800,000 gain
Q5. What is the pension asset/liability on December 31?

a. 28,760,000 asset c. 28,760,000 liability
b. 39,260,000 asset d. 39,260,000 liability
Solution
:
1. Q1. Projected benefit obligation - interest ₱ 840,000
Fair value of plan assets - interest -720,000
Employee benefit expense ₱ 1,420,000
Q2. Actual return on plant assets ₱ 580,000

Loss ₱ 140,000
Actuarial Gain 180,000
Gain ₱ 40,000

Less gain 40,000
Defined benefit cost ₱ 1,380,000
2. Vacation weeks used (3,500 x 5,000) ₱ 17,500,000

Vacation weeks unused (700 x 5,150) 3,605,000
Total vacation pay expense ₱ 21,105,000
Projected benefit obligation, January

3. 1 ₱ 30,000,000
Interest on PBO 3,600,000
Benefits paid to retirees -5,000,000
Actuarial gain during the year -1,700,000
Projected benefit obligation, December 31 ₱ 34,900,000
4. Q1. Final Salary ₱ 2,520,000

Retirement benefit rate 15%
Annual benefit ₱ 378,000
PRESENT
Q2. BENEFIT PV FACTOR VALUE
2018 378,000 0.7513 283,991
2019 378,000 0.8264 312,379
2020 378,000 0.9091 343,640
2021 378,000 1 378,000
CURRENT SERVICE INTEREST PRESENT

COST COST VALUE
12/31/2018 283,991 283,991
12/31/2019 312,379 28,399 624,769
12/31/2020 343,640 62,477 1,030,886
12/31/2021 378,000 103,089 1,511,975
5. Q1. Projected benefit obligation - interest ₱ 2,560,000

Effect of asset ceiling 48,000
Fair Value of Pension Fund,

Q2. beginning ₱ 10,200,000
Contribution 7,800,000
Actual return on pension fund 1,000,000
Benefits paid -8,500,000
Pension fund, ending ₱ 10,500,000
Projected benefit obligation, January

Q3. 1 ₱ 32,000,000
Interest on PBO 2,560,000
Benefits paid to retirees -8,500,000
Actuarial gain during the year -2,800,000
Projected benefit obligation,
December 31 ₱ 39,260,000
Q4. Actual return on pension fund ₱ 1,000,000

Gain ₱ 184,000
Actuarial gain during the year 2,800,000
Net remeasurement gain ₱ 2,984,000
Q5. Projected benefit obligation, ending ₱ 39,260,000

Pension fund, ending -10,500,000
Pension asset ₱ 28,760,000
ACCOUNTING FOR TAXES
1. This refers to the allocation of income tax expense to the various revenues that brought
about the tax.
a. Intraperiod tax allocation
b. Timing difference allocation
c. Permanent difference allocation
d. Future deductible allocation
2. Statement 1: A deferred tax asset and a deferred tax liability shall be classified as
noncurrent asset and noncurrent liability respectively, regardless of
reversal period.
Statement 2: A deferred tax asset and a deferred tax liability shall be discounted.
Which among the statements is true?
a. Statement 1 only.
b. Statement 2 only.
c. Both statements are correct.
d. Neither of the statements is correct.
3. Which of the following is the most likely item to result in a deferred tax asset?
a. Unearned revenue.
b. Sales
c. Prepaid expense.
d. Acquisition of real asset.
4. Which of the following shall the income tax expense be not allocated?
a. Other comprehensive income
b. Prior period error
c. Gross profit
d. Discontinued operation.
5. Which of the following is true?
a. Taxable temporary difference result in a future deductible expense.
b. Deductible temporary difference result in future taxable amount.
c. Deductible temporary difference result in future deductible expense.
ACCOUNTING FOR TAXES
1. Hamlet Chase and Co., reported a pretax income of P7,200,000 for the year 2019. The
other income includes P150,000 of tax-exempt interest revenue from municipal bonds
held by the entity.
The income statement included depreciation expense of P700,000 for an equipment with
cost of P4,000,000. The income tax return reported P800,000 as depreciation on the
machine. The enacted tax rate is 30% for the current and following years.
What is the current tax expense?

a. 2,085,000 c. 4,890,000
b. 3,075,000 d. 3,900,000
2. Annie Company prepaid a P2,000,000 premium on an annual insurance policy. The

premium payment was a tax deductible expense in the 2019 cash basis tax return.
The accrual basis income statement will report a P800,000 insurance expense in 2019 and
2020. The income tax rate is 30%.
What is the deferred tax liability?

a. 250,000 c. 290,000
b. 240,000 d. 300,000
3. Delilah Corporation reported its income statement for the year 2019 with a net income
before tax of P2,000,000. In addition, the statement provides the following information:
Rent received in advance 230,000

Interest income on time deposit 380,000
Depreciation deducted for income tax purposes 120,000
Income tax rate 30%
Q1. What is the current provision for income tax for the current year?
a. 520,000 c. 519,000
b. 522,000 d. 530,000
Q2. What is the total tax expense?

a. 486,000 c. 445,000
b. 490,000 d. 480,000
4. Choco Butternut Corporation started their operations on January 1, 2020. At the end of
the year, the entity provided the following data:
3,500,00
Pretax income 0
Premium on life insurance 300,000
Tax-exempt interest income 250,000
Warranty expense 120,000
Actual warranty repairs 180,000
Doubtful accounts expense 390,000
Write-off of uncollectible accounts 50,000
What is the taxable income for the first year?

a. 4,050,000 c. 4,020,000
b. 4,060,000 d. 4,030,000
5. Mermaid Island Company, a company that leads lines of resorts and restaurants reported
their financial and taxable income for the current year, 2020.
The following are provided:

Interest revenue on government bonds 300,000
Depreciation claimed on tax return in excess of
depreciation per book 1,200,000
Excess of warranty expense over actual 220,000
Income from installment sale reported for tax 390,000
Unearned rent received 980,000
Fines paid 20,000
Income tax rate 30%
Future enacted tax rate 25%
In addition, the company had the pretax income of P16,000,000.
Q1. What amount should be recorded as taxable net income for the year?
a. 15,720,000 c. 15,670,000
b. 15,700,000 d. 15,760,000
Q2. What amount should be recognized as current tax expense?

a. 4,715,000 c. 4,714,000
b. 4,716,000 d. 4.761,000
Q3. What amount should be recognized as deferred tax liability?

a. 300,000 c. 490,000
b. 350,000 d. 450,000
Solution
:
1 Financial income ₱ 7,200,000
Interest revenue on municipal bonds -150,000
Tax depreciation -100,000
Taxable income ₱ 6,950,000
Tax rate x 30%
Current tax expense ₱ 2,085,000
2 Prepaid insurance ₱ 800,000

Tax rate x30%
₱ 240,000
3. Q1. Net income per book ₱ 2,000,000

Interest income on time deposit -380,000
Taxable accounting income ₱ 1,620,000
Excess tax depreciation -120,000
Tax rate x30%
Current provision for income tax ₱ 519,000
Q2. Accounting income subject to tax ₱ 1,620,000

Tax rate x30%
Total tax expense ₱ 486,000
4 Pretax income ₱ 3,500,000

Premium on life insurance 300,000
Tax-exempt interest income -250,000
Warranty expense 120,000
Actual warranty repairs -180,000
Doubtful accounts expense 390,000
Write-off of uncollectible accounts -50,000
5. Q1. Pretax income ₱ 16,000,000

Interest income -300,000
Depreciation claimed -1,200,000
Excess on warranty expense 220,000
Unearned rent received 980,000
Fines paid 20,000
Taxable net income ₱ 15,720,000
Q2. Taxable net income ₱ 15,720,000

Current tax rate x30%
Current tax expense ₱ 4,716,000
Q3. Future taxable amount 1,200,000

Future enacted tax rate x25%
Deferred tax liability 300,000
SHAREHOLDER’S EQUITY
1. The following are the content of the by-laws of a corporation. Which is not?
a. The method of amending by-laws.
b. The manner of issuing share certificates.
c. The time, place, manner of calling and rules for meeting of shareholders and
directors. The place of shareholder’s meeting must be the secondary place of
business.
d. The appointment, duties, powers, and length of office directors.
2. A share represents the interest or right of a shareholder in the corporation. The following
are the rights of a shareholder. Which is not?
a. To share in the earnings of the corporation.
b. To vote in the election of directors and determination of rank of employees.
c. To subscribe for additional shares.
d. To share in the net assets of the company.
3. Statement 1: A no-par value share is one without any value appearing on the face of the
certificate and has a purpose of fixing the minimum issue price of the share.
Statement 2: A par value share has always an issued value or stated value based on the
consideration for which it is issued.
Which among the statements is correct?

a. Statement 1 only.
b. Statement 2 only.
c. Both statements are correct.
d. Neither of the statements is correct.
4. In conformity with the legal provisions and PFRS 2, if shares are issued for services, the
shares shall be recorded at the _______.
a. Fair value of the service or fair value of the shares issued
b. Face amount of the service or fair value of the shares issued
c. Carrying amount of the service or fair value of the shares issued
d. Book amount of the service or fair value of the shares issued.
5. The following define characteristics of different preference shares.
I. Callable preference share shall be classified as current or noncurrent
financial liability depending on its issued date.
II. Redeemable preference share provides for mandatory redemption by the
issuer for a fixed or determinable amount at a future date.
III. A convertible preference share gives the holder the right to exchange the
holdings for other securities of issuing corporation.
IV. Redeemable preference share as distinguished from callable preference
share has no definite redemption date.
Which among the following is/are true?
a. I, II, III, and IV c. II, and IV only
b. I, II, and IV only d. II and III only
SHAREHOLDER’S EQUITY
1. Whales Corporation reported the following information at year-end:
Common stock, P10 par value 600,000

Paid-in capital in excess of par value 180,000
Retained earnings 200,000
Total shareholder’s equity 980,000
On September 1, the entity declared and distributed a 10% stock dividend. By this time, the
market value of the stock is P14 per share.
What is the balance of retained earnings after adjustments?
a. 390,000 c. 116,000
b. 460,000 d. 415,000
2. Andrade’s Kitchen, a corporation, provided the following information at year-end:
Preference share capital, P85 par 8,500,000

Share premium – preference share 1,000,000
Ordinary share capital, P15 par 3,500,000
Share premium – ordinary share 2,000,000
Subscribed original share capital 5,000,000
What is the total amount of legal capital?

a. 17,000,0000 c. 16,000,000
b. 4,600,000 d. 4,000,000
3. Hollis Woods Incorporation issued P100 per share, 50,000 convertible preference shares of
P85 par value during the year 2020.
One preference share may be converted into two ordinary shares of P15 par value at the
option of the preference shareholder.
At the end of the year, all the preference shares were converted into ordinary shares. The
market value of the ordinary share at the conversion date was P50.
Q1. What amount should be credited to ordinary share capital as a result of conversion?
a. 2,000,000 c. 2,500,000
b. 1,500,000 d. 1,000,000
Q2. What amount should be credited to share premium as a result of conversion?

a. 2,000,000 c. 3,500,000
b. 1,500,000 d. 1,000,000
4. Hope Inc., in the beginning of the current year was organized with authorized share capital of
150,000 shares of P100 par value.
These events took place:

 February 1 Issued 50,000 shares at P115 per share
 April 22 Issued 2,000 shares for legal services when the fair value
was P135 per share
 September 24 Issued 6,000 shares for a tract of land when the fair value
was P150 per share
Q1. What amount should be reported as share capital?

a. 1,200,000 c. 8,500,000
b. 1,120,000 d. 5,800,000
Q2. What amount should be reported as share premium?

a. 1,200,000 c. 8,500,000
b. 1,120,000 d. 5,800,000
5. At the end of the year, Reindeer Spots Company cancelled 3,000 shares of P25 par value held
in treasury at an average cost of P90 per share.
Prior to that event, the entity had the following balances:

Share capital issued, beginning, P70 per share 1,400,000
Share premium 600,000
Treasury shares, at cost 300,000
Q1. What is the adjusted share capital at year-end?

a. 1,325,000 c. 1,532,000
b. 1,235,000 d. 1,598,000
Q2. What is the adjusted share premium at year-end?

a. 410,000 c. 465,000
b. 465,500 d. 410,500
Q3. What is the adjusted balance of retained earnings at year-end?

a. 410,000 c. 465,000
b. 465,500 d. 410,500
Solution:
1 Common Stock ₱ 660,000

Paid-in Capital in Excess of Par Value 204,000
Retained Earnings 116,000
Total Stockholders’ Equity ₱ 980,000
2 Preference share capital ₱ 8,500,000

Ordinary share capital 3,500,000
Subscribed ordinary share capital 5,000,000
Total legal capital ₱ 17,000,000
3. Q1. Cash 5,000,000

Preference share capital 4,250,000
Share premium - preference 750,000
To record the issuance of
preference share
Q2. Preference share capital 4,250,000

Share premium-preference 750,000
Ordinary share capital 1,500,000
Share premium - ordinary 3,500,000
To record the conversion.
4. Q1. Feb-01 (50,000 x 100) ₱ 5,000,000

Apr-22 (2,000 x 100) 200,000
Sep-24 (6,000 x 100) 600,000
Share capital ₱ 5,800,000
Q2. Feb-01 (50,000 x 15) ₱ 750,000

Apr-22 (2,000 x 35) 70,000
Sep-24 (6,000 x 50) 300,000
Share premium ₱ 1,120,000
S
5. Q1 hare capital ₱ 1,250,000
Par value of treasury cancelled -75,000
Adjusted share capital ₱ 1,325,000
Q2. Share premium ₱ 600,000

Share premium of treasury shares cancelled (45 x 3,000) -135,000
Adjusted share premium ₱ 465,000
Q3. Retained earnings ₱ 500,000

Loss on cancellation of treasury -90,000
Adjusted retained earnings ₱ 410,000
Cost of treasury shares ₱ 300,000

Original issue price (3,000 x 70) -210,000
Loss on cancellation of treasury shares ₱ 90,000
POLYTECHNIC OF THE PHILIPPINES

Taguig Branch
INTERMEDIATE ACCOUNTING 3
I. Statement of Financial Position
II. Statement of Comprehensive Income
III. Statement of Cash Flow
IV. Segment Reporting
V. Retained Earnings, Book Value per Share, Earnings per Share
VI. Error Correction
STATEMENT OF FINANCIAL POSITION

1. Which of the following is not required to be presented as minimum information on the
face of the statement of financial position?
a. Contingent liability
b. Investment property
c. Investment accounted under the equity method
d. Biological asset
2. Which statement about the statement of financial position is true?
a. Biological assets should be reported as a contra asset in the statement of

financial position
b. The number of shares authorized for issue should be reported in the statement
of financial position and not on the statement of changes in equity notes
c. Provisions should be recognized in the statement of financial position
d. A revaluation surplus on a noncurrent asset in the current year should be
recognized in the income statement.
3. Cash equivalents are highly-liquid investments that are convertible into cash. What
should an investment be so it may qualify as a cash equivalent?
a. Has a short maturity of three months or less from the date of conversion.
b. Has a short maturity of three months or less from the date of acquisition.
c. Has a short maturity of three months or less from the date of purchase.
d. B and C
e. A and C
f. A, B, and C
4. In which section of the statement of financial position should cash that is restricted for
the settlement of a liability due 18 months after the reporting period be presented?
a. Current assets
b. Noncurrent assets
c. Treated as a contra asset account
d. Treated as an offset
5. In PAS 1, paragraph 54, the line items of the Statement of Financial position are listed.
Additional line items or items that are not listed shall be presented on:
a. Face of the balance sheet if such presentation is relevant to the entity.

b. Additional line items are not allowed but presented as a note under the balance
sheet.
c. No additional line items exist as all accounts are recorded in paragraph 54.
d. Additional line item is added after the account that follows its beginning letter.
STATEMENT OF FINANCIAL POSITION

1. Cookies and Cream Ltd provided the following information on December 31, 2019.
Cash in bank, net of bank overdraft P500,000 ₱ 7,500,000
Petty cash, unreplenished petty cash expenses P20,000 60,000
Accounts receivable, net of customers account with credit balances,
8,000,000
P2,000,000
Inventory 4,000,000
Total current assets ₱19,560,000
Accounts payable, net of suppliers' accounts with debit balances of

₱ 9,000,000
P1,000,000
Bonds payable due August 31, 2016 6,300,000
Total current liabilities ₱15,300,000
Q1. What is the total current assets to be reported on December 31, 2019?
a. 15,300,000 c. 22,040,000
b. 4,260,000 d. 5,790,000
Q2. What is the total noncurrent liability to be reported at year-end?

a. 15,300,000 c. 0
b. 4,260,000 d. 5,790,000
2. Harry Potter Company was incorporated on January 1, 2017 with ₱10,000,000 from the
issuance of share capital and borrowed funds of ₱ 3,500,000. During the first year, the net
income acquired by the company was ₱2,000,000. On December 18, the company paid a
₱560,000 cash dividend. On December 31, 2017, the liabilities increased to ₱700,000.
What should be reported as total assets?

a. ₱ 12,640,000
b. ₱ 14,640,000
c. ₱ 13,640,000
d. ₱15,640,000
3. All for Christ Corporation provided the following data on December 31, 2019:
20,000,00
Share Capital 0
Share Premium 5,000,000
Treasury Shares at cost 6,000,000
Retained Earnings 7,000,000
Revaluation Surplus 4,000,000
What is the total shareholder’s equity for the period?

a. 30,000,000
b. 40,000,000
c. 42,000,000
d. 36,000,000
4. Jollibee food corporation maintains a balance in the BPI and had the following information on
December 31, 2014
Cash and Cash equivalents 700,000
Accounts Receivable, net of allowance P90,000 110,000
Inventory 690,000
Accounts payable 560,000
Deferred tax liability 70,000
Bonds Payable 80,000
Wages payable 300,000
Share Capital 490,000
A P700,000 note payable to bank due August 16, 2015, was deducted from the cash balance
on deposit on in BDO. The entity recorded checks of P300,000 in payment of accounts
payable on December 31,2014. The checks are still on hand on January 6, 2015.
Q1. What is the total noncurrent liabilities?

a. 70,000
b. 150,000
c. 10,000
d. 410,000
Q2. What is the total current assets?

a. 1,210,000
b. 1,000,000
c. 2,000,000
d. 2,100,000
5. Red Hut Company was incorporated on January 1, 2019 with P2,000,000 from the issuance of
share capital and borrowed funds of P500,000. During the first year, the net income was
P600,000. On December 20, the entity paid P100,000 cash dividend. On December 31, 2019,
the liabilities increased to P900,000.
On December 31, 2019, what amount should be reported as total assets?

a. 3,400,000 c. 900,000
b. 2,000,000 d. 1,500,000
Solution:
1. Q
Cash in bank (7,500,000 + 500,000) ₱8,000,000
1
Petty cash (60,000 - 20,000) 40,000
Accounts receivable 10,000,000
Inventory 4,000,000
22, 040,
Total current assets
000
Q2 None of the given information is a noncurrent liability

2
₱
Liabilities
700,000
Share Capital 10,000,000
Retained Earnings (2,000,000 - 560,000) 1,940,000
₱12,640,0
Total Liabilities and Shareholder's Equity
00
₱20,000,0
Share Capital
3 00
Share Premium 5,000,000
Treasury Shares at cost -6,000,000
Retained Earnings 7,000,000
Revaluation Surplus 4,000,000
₱30,000,0
Total Shareholder's Equity
00
₱
4. Q1. Only the deferred tax liability is the noncurrent liability. 70,000
₱
Cash and Cash equivalents
Q2. 700,000
₱
Undelivered checks -300,000
400,000
Accounts Receivable, net of allowance P90,000 110,000
Inventory 690,000
₱
Total Current Assets
1,210,000
₱
5 Liabilities 900,000
Share Capital 2,000,000
₱
Total liabilities and shareholder's equity 3,400,000
Total liabilities and shareholder's equity is equal to asset.
STATEMENT OF COMPREHENSIVE INCOME
1. It pertains to the total of income less expense, excluding the components of other comprehensive
income.
a. Profit or Loss c. Revenue
b. Profit d. Net income
2. Below are the components of Other Comprehensive Income that will be reclassified subsequently to
profit or loss. Which is/are not?
I. Gain or loss from translating financial statements of a foreign operation.
II. Change in revaluation surplus.
III. Unrealized gain or loss on derivative contracts designated as cash flow hedge
IV. Remeasurements of defined benefit plans
a. I and II only c. I and III only
b. II and IV only d. I, II, III, and IV
3. Profit or loss attributable to non-controlling interest and owners of the parent and comprehensive
income attributable to non-controlling interest and owners if the parent, shall be disclosed in the
statement of comprehensive income as allocation of profit or loss and other comprehensive income for
the period.
a. True c. It can either be true or false
b. False d. neither.
4. What is the purpose of comprehensive income?

a. To provide information regarding company’s overall performance.
b. To provide information regarding company’s profitability and financial stability
c. To provide information regarding company’s capacity to liquidate assets
d. To provide information regarding company’s financial status.
5. Under a strict transaction approach to income measurement, which of the following would not be
considered a transaction?
a. Exchange of inventory valued at regular selling price for an equipment
b. Payment of salaries
c. Sales of goods at certain markup
d. Adjustment of inventory to lower cost and net realizable value is below cost.
STATEMENT OF COMPREHENSIVE INCOME

1. Enchanted Company showed the following information for the current year:
Beginning Inventory 700,000
Freight in 80,000
Purchase Returns 50,000
Ending Inventory 500,000
Sales Return and Allowances 650,000
Gross Profit on sales 25%
Q1. What amount of cost of goods sold should be recognized?

a. 230,000 c. 430,000
b. 320,000 d. 310,000
Q2. What is the gross sales?

a. 1,000,000 c. 1,111,111
b. 1,100,000 d. 1,110,000
2. Bella Swan Company identifies a noncurrent asset held for sale on August 30, 2019. At that date, the
carrying amount was P5,000,000. Its fair value was estimated at P3,000,000 and the cost of disposal
was P390,000. On September 16, same year, the asset was sold for net proceeds of P2,750,000.
Q1. How much should be reported as an impairment loss?

a. 2,390,000 c. 2,610,000
b. 2,000,000 d. 2,390,000
Q2. What amount should be included as gain/loss on disposal in the statement of comprehensive
income for the year ended December 31, 2019?
a. 140,000 gain c. 360,000 gain
b. 140,000 loss d. 360,000 loss
3. Belinda Corporation, an investment entity, showed the following income and expenses for the current
year:
Dividend income from investments ₱ 300,000
Interest income on deposits 290,000
Income from dealing and trading 200,000
Other Income 150,000
Unrealized gain on derivatives 190,000
Finance cost 390,000
Administrative staff cost 40,000
Income tax expense 20,000
Write-down of securities and derivatives 50,000
What is the total income before tax?

a. 890,000 c. 940,000
b. 900,000 d. 980,000
4. Asianovela Company showed the following information for the current year:
Income from continuing operations P 1,000,000
Income from discontinued operations 490,000
Unrealized gain on financial asset - FVPL 280,000
Unrealized loss on equity investment - FVOCI 80,000
Unrealized gain on debt investment - FVOCI 105,000
Translation loss on foreign operations 70,000
Loss on credit risk of financial liability at FVPL 150,000
Revaluation surplus during the year 300,000
How much should be reported as net income for the current year?
a. 1,500,000 c. 1,850,000
b. 1,490,000 d. 1,795,000
5. Swift Company agreed to sell its book shelf and 200 pieces of books, a part of its business, on August
16, 2012. The carrying amount of the book shelf and books combined was P90,000 and has a fair
value of P75,000. The disposal date is expected on February 2013. The book shelf and books reported
an operating loss of P10,000 for the year ended December 31, 2012.
What amount should be reported as pretax loss from discontinued operation in 2012?
a. 5,000 c. 15,000
b. 25,000 d. 10,000
Solution:
1.
Beginning Inventory ₱ 700,000
Q1.
Freight in 80,000
Purchase Returns -50,000
Goods available for sale ₱ 730,000
Ending inventory -500,000
Cost of goods sold ₱ 230,000
Q2. Net sales (230,000 / 50%) ₱ 460,000

Sales return and allowances 650,000
Gross sales ₱ 1,110,000
2.
Carrying amount ₱ 5,000,000
Q1.
Fair Value less Cost of disposal -2,610,000
Impairment Loss ₱ 2,390,000
Q2 Sale Price 2,750,000

Fair Value less cost of disposal 3,000,000
Adjusted carrying amount -390,000 -2,610,000
Gain on Sale ₱ 140,000
3. Dividend income from investments ₱ 300,000

Interest income on deposits 290,000
Income from dealing and trading 150,000
Other Income 150,000
Total income ₱ 890,000
4. Income from continuing operations ₱ 1,000,000

Income from discontinued operations 490,000
Net income ₱ 1,490,000
5. Operating loss for the year ₱ 10,000

Impairment loss (90,000-75,000) 15,000
Loss from discontinued operation ₱ 25,000
STATEMENT OF CASH FLOW

1. What is the primary purpose of the statement of cash flow?
a. To provide quantitative information about the business transactions.
b. To provide information about the cash receipts and cash disbursements.
c. To provide information about the entity’s financial performance.
d. To provide information about the entity’s capability to generate profit and avoid losses.
2. Which of the following is not an example of cash flow from operating activity?
I. Cash receipts from sale of goods and rendering of services.
II. Cash payments or refunds of income taxes unless they can be specifically identified with
financing and investing activities.
III.Cash payments from repayment of advances and loans made to other parties.
IV. Cash payments for the amounts borrowed.
a. I, II, and III c. III and IV only
b. I, II, and IV d. None. All are example of operating activities.
3. How is the interest paid and received treated in the statement of cash flow?
a. As an operating activity
b. As a financing activity
c. As an investing activity
Explanation: Interest paid and received can be classified in a consistent manner as operating, financing,
and investing from period to period.
4. Below are examples of cash equivalents. Which is not?
a. Equity securities
b. Three-year BSP treasury bill purchased three months before date of maturity.
c. Three-month time deposit
d. Three-month money market instrument
Explanation: equity securities cannot qualify as cash and cash equivalents because shared do not have
maturity.
5. If the statement of cash flow is a cash concept, then noncash transactions must be disclosed
elsewhere. Which of the following item is disclosed separately?
a. Acquisition of assets by means of share capital issuance
b. Conversion of bonds payable to share capital

c. Conversion of preference share to ordinary share
STAMENT OF CASH FLOW
1. Azkaban Company prepared its statement of cash flows for the current year and collected the
following data:
Proceeds from sale of equipment 100,000
Dividend declared 450,000
Dividend paid 380,000
Proceeds from sale of treasury shares
(carrying amount, P650,000) 750,000
What amount should be reported as net cash provided by financing activities?

a. 200,000
b. 270,000
c. 300,000
d. 370,000
2. Lovegood Inc. has a reported net income of Php 760,000 for the year ended December 31, 2020.
Included in the income were depreciation expense of Php 12,200 and a gain on the sale of equipment
of Php 6,700. The equipment had an historical cost of Php 50,000 and accumulated depreciation of
Php 34,000. Each of the following accounts increased during 2020:
Patent 5,500
Bonds Payable 12,000
Available-for-sale equipment 3,000
Prepaid Rent 4,200
What is the amount provided by the investing activities of Lovegood Inc. for the year ended December
31, 2020?
a.17,200 c. 31,200
b. 22,700 d. 14,200
3. JPIA company provided the following information:
2016 2015
₱ ₱
Cash 750,000.00 820,000.00
Accounts Receivable, net 1,200,000 900,000
Merchandise Inventory 600,000 320,000
Prepaid Expenses 670,000 290,000
Long Term Investments 2,000,000 0
Property, Plant, and Equipment 1,500,000 800,000
Accumulated Depreciation 200,000 70,000
Accounts Payable 290,000 190,000
Accrued Expenses 300,000 230,000
Dividend Payable 180,000 0
Note Payable - LTD 500,000 0
Share Capital 560,000 460,000
Retained Earnings 450,000 370,000
₱8,900,000.0
Net Credit Sales 0 6,550,000
Cost of Goods Sold 5,300,000 3,700,000
Expenses 600,000 850,000
₱3,000,000.0 ₱2,000,000.0
Net Income 0 0
Q1. What is the net cash provided by operating activities?
a.2,730,000 c. 3,730,000
b. 2,700,000 d. 3,700,000
Q2. What is the net cash provided by the financing activities?

a. 2,660,000 c. 2,620,000
b. 2,260,000 d. 2,066,000
Q3. What is the net cash provided by the investing activities?

a. 2,700,000 c. 2,720,000
b. 7,002,000 d. 7,200,000
4. Heaven Company provided the following account balances:

December 31, 2019 December 31, 2020
Equipment 1,000,000 1,500,000
Accumulated Depreciation 200,000 220,000
Loss in Sale of Equipment 20,000
During 2020, the entity sold for P300,000 an equipment with an original cost of P500,000.
Q1. What is the depreciation of equipment in 2020?

a. 400,000 c. 220,000
b. 180,000 d. 200,000
Q2. What is the amount of equipment purchased in 2020?

a. 1,500,000 c. 1,000,000
b. 500,000 d. 2,000,000
5. Strawberry Shortcake provided the following data for the following year:
Sales 10,000,000
Cost of Goods -6,000,000
Expenses paid -800,000
Depreciation -200,000
Net income 3,000,000
Increase in accounts receivable 1,200,000

Decrease in inventory 700,000
Decrease in accounts payable 300,000
Q1. What amount of cash was received from the customer?

a. 10,000,000 c. 3,800,000
b. 8,800,000 d. 4,200,000
Q2. What amount of cash was paid to suppliers?

a. 6,000,000 c. 8,800,000
b. 5,600,000 d. 4,200,000
Q3. What is the net cash provided by operating activities?

a. 2,400,000 c. 4,200,000
b. 5,600,000 d. 8,800,000
Solution
:
1 Proceeds from sale of treasury shares ₱ 750,000
Dividend paid -380,000
Net cash flow from financing activities ₱ 370,000
2 Historical cost of the equipment ₱ 50,000

Accumulated depreciation -34,000
Carrying amount ₱ 16,000
Gain on sale of equipment 6,700
Proceeds from sale of equipment ₱ 22,700
Less: Increase in Patent -5,500
Increase in AFS -3,000
Net cash provided by investing activities ₱ 14,200
3. Q1. Net Income ₱3,000,000

Increase in accounts receivable -300,000
Increase in inventory -280,000
Decrease in prepaid expense 10,000
Depreciation 130,000
Increase in accounts payable 100,000
Increase in accrued expenses 70,000
Net Cash provided by operating activities ₱2,730,000
Q2. Proceeds from note payable ₱ 4,900,000
Proceeds from share capital 100,000
Dividend paid in 2016:
Retained earnings, 2015 ₱ 370,000
Net income, 2016 3,000,000
Retained earnings, 2016 -450,000
Dividend declared, 2018 2,920,000
Dividend payable, 2018 -180,000 -2,740,000
Net cash provided by Financing Activities ₱ 2,260,000
Q3. Purchase of long term investment ₱ 2,000,000

Purchase of PPE
Property, Plant, and Equipment - 2016 1,500,000
Property, Plant, and Equipment - 2015 -800,000 700,000
Net cash used by investing activities ₱ 2,700,000
4. Q1. Accumulated Depreciation - December 31, 2019 ₱ 200,000

Depreciation for 2020 200,000
Total ₱ 400,000
Accumulated Depreciation on equipment sold
Cost ₱ 500,000
Carrying amount 320,000 180,000
Accumulated Depreciation - December 31, 2020 ₱ 220,000
Q2. Machinery - December 31, 2019 ₱ 1,000,000

Machinery purchased in 2020 1,000,000
Total ₱ 2,000,000
Cost of equipment sold -500,000
Machinery - December 31, 2020 ₱ 1,500,000
5. Q1. Sales ₱ 10,000,000

Increase in accounts receivable -1,200,000
Cash received from customers ₱ 8,800,000
Q2. Cost of goods sold ₱ 6,000,000

Decrease in inventory -700,000
Purchases ₱ 5,300,000
Decrease in accounts payable 300,000
Payment to suppliers ₱ 5,600,000
Q3. Cash received from customers ₱ 8,800,000

Payment to suppliers -5,600,000
Expenses paid -800,000
Net cash provided by operating activities ₱ 2,400,000
RETAINED EARNINGS, BOOK VALUE PER SHARE, EARNINGS PER SHARE
1. Statement 1: The amount equal to the par value shall be allocated to the preference share
while the amount equal to stated value shall be allocated to the
ordinary share.
Statement 2: The excess of par or stated value from the balance of retained earnings is
then apportioned taking into account the liquidation value and dividend rights of
the ordinary shareholders.
Which among the statements is/are true?

e. Only statement 1 is true.
f. Only statement 2 is true.
g. Both statements are true.
h. Neither of the statements is true.
2. Retained earnings can be classified into two: appropriated & unappropriated retained
earnings. Whereas unappropriated retained earnings is:
a. The retained earnings which resulted into a debit balance. Hence, deficit.
b. The retained earnings that represent the portion that can be declared as
dividends to stockholder. Hence, free.
c. The retained earnings which accumulated losses.
3. The following are the circumstances that may justify quasi-reorganization. Which is not?
I. When large accumulated losses exist.
II. When the company sees that a new beginning will help the company move
forward.
III. When the cost basis of the accounting for property, plant, and equipment
becomes unrealistic.
IV. When approved by the company CEO.
a. I only c. III only

b. II only d. IV only
4. In the computation of basic earnings per share, the amount of preference share dividends
on noncumulative preference share should be
a. Expensed as incurred
b. Ignored as it does not affect the net income
c. Deducted from the net income when declared
d. Deducted from the share of preference shareholders
5. The presence of convertible bonds payable in the computation of diluted earnings per
share results to:
a. Conversion of bond payable to ordinary shares
b. Adding back of interest expense on the bond payable
c. Increase of ordinary share outstanding
d. All of the above
RETAINED EARNINGS, BOOK VALUE PER SHARE, EARNINGS PER SHARE
1. On January 1, 2020, Mega Star Company issued 100,000 ordinary shares. On July 1,
2020, there were 50,000 additional ordinary shared issued for cash. The company also
unexercised share options to purchase 20,000 ordinary shares at P12 per share
outstanding at the beginning and end of 2020. No value was assigned to the share
options. The average market price of ordinary share was P15 during the current year.
What is the number of shares that should be used in computing the diluted earnings per
share?
a. 100,000 c. 125,000
b. 129,000 d. 121,000
2. On January 1, 2019, Curtis-Smith Corporation issued 85,000 ordinary shares by which

15,000 of these were held as treasury.
During the year, the entity reported the following transactions:
 May 1 2,000 shares of treasury were sold
 August 1 12,000 unissued shares were sold
 November 15 A 2-for-1 share split off took effect.
Q1. How many shares were issued on December 31, 2019?

a. 194,000 c. 97,000
b. 85,000 d. 168,000
Q2. How many shares were outstanding on December 31, 2019?

a. 194,000 c. 97,000
b. 85,000 d. 168,000
3. Moonlight Chase and Co., provided the following information on December 31, 2020:
2020 2019
10% Cumulative preference share, P40 par 1,000,000 1,000,000
Ordinary shares, P12 par 1,200,000 1,500,000
Share premium 800,000 500,000
Retained earnings 3,000,000 2,800,000
Net income for the year 1,050,000
 40,000 shares were issued on August 1, 2020.

 The preference shares were paid in 2019 but not declared during 2020.
 The market price of the ordinary share was P50 on December 31, 2020.
Q1. What is the book value per preference share in 2020?

a. 44.80 c. 48.40
b. 48.80 d. 44.08
Q2. What is the book value per ordinary share in 2020?

a. 44.80 c. 48.40
b. 48.80 d. 44.08
4. Ford Company had the following transactions during the year:
Jan-01 Ordinary shares outstanding 500,000

Mar-01 Issued 15% dividend 20,000
Apr-01 Issued ordinary shares 60,000
Jun-01 Issued ordinary shares for cash 90,000
Dec-31 Ordinary shares outstanding 660,000
What is the weighted average number of shares outstanding?

a. 660,000 c. 672,500
b. 580,000 d. 650,500
5. Starlight Corporation has a retained earnings of P5,000,000 on January 1, 2018. In April, the
entity reacquired 70,000 treasury shares at P20 per share, of which 20,000 were sold in July.
The entity used the cost method to record the treasury shares. The net income for the current
year is P1,200,000.
Q1. What amount of retained earnings is to be recorded at year-end?
a. 5,000,000 c. 6,200,000
b. 5,200,000 d. 6,000,000
Q2. What amount should be reported as unappropriated retained earnings at year-end?

a. 5,000,000 c. 6,200,000
b. 5,200,000 d. 6,000,000
Solution
:
1. Ordinary shares outstanding on January 1 100,000
Ordinary shares issued on July 1 (50,000 x 6/12) 25,000
Shares option outstanding 20,000
Assumed treasury shares (240,000 / 15) -16,000
Average number of shares 129,000
2. Q1. Original shares issued 85,000

New shares issued 12,000
Total shares issued before split 97,000
x2
Q2. Shares issued after split 194,000
Treasury shares after split (13,000x2) -26,000
Outstanding ordinary shares 168,000
3. Q1. Preference shares 1,000,000

Preference dividend for 2020 (12% x 1,000,000) 120,000
Preference shareholder's equity 1,120,000
Number of preference share (1,000,000/40) /24,000
₱
Book value per share 44.80
Q2. Preference share 1,000,000

Ordinary shares 1,200,000
Retained earnings 3,000,000
Total Shareholder's equity 6,000,000
Preference shareholder's equity 1,120,000
Ordinary shareholders' equity 4,880,000
Ordinary shares outstanding (1,200,000/12) /100,000
Book value per ordinary share ₱
48.80
(500,000 x 1.15 x
4. Jan-01 12/12) 575,000
Apr-01 (60,000 x 9/12) 45,000
Jun-01 (90,000 x 7/12) 52,500
Average number of shares 672,500
₱
5. Q1. Retained earnings - January 1 5,000,000
Net income - 2018 1,200,000
Total retained earnings ₱ 6,200,000
Q2. Appropriated for treasury shares (50,000 x P20) -1,000,000
Unappropriated retained earnings ₱ 5,200,000
SEGMENT REPORING
1. Statement 1: There is no precise limit to the number of segments. It is, however, be
considered if the number increases above ten whether the practical
limit has been reached.
Statement 2: If the number does not exceed ten, then, the information may become too
detailed and may result to losing its usefulness. Thus, it is
recommended that the number reaches ten or above.
Which of the following sentences is true?
b. Only statement 2 is true.
c. Both statements are true.
d. Neither of the statements is true.
2. In which circumstances may two or more operating segments be aggregated into a single
operating segment?
a. If the segments have similar economic characteristics.
b. If the segments share similar amount of assets.
c. If the segments are both equitable and progressive.
3. The following describes the segment reporting. Which is/are correct?

I. The disclosure of financial information about products and services including the
geographical area in which an entity operates.
II. Its purpose is to enable investors and users make better assessment of business
activities.
III. The disclosure of information shall be done to enable the users evaluate the nature
and financial effects of the business.
IV. It also has the purpose of understanding the performance of the entity as a whole.
a. I and II only c. I and III only
b. II and IV only d. I, II, III, and IV
4. Which of the following quantitative threshold must be met by an operating segment to be

reportable?
a. The segment revenue, including both sales to external customers and
intersegment sales, is 75% or more of the combined revenue of all operating
segments.
b. The assets of the segment are 10% or more of the combined assets.
c. The information of the segment is believed by the management to be useful.
d. A and b only
e. A and c only
5. A financial report contains both consolidated financial statements of a parent and the
parent’s separate financial statements. Where is the segment information required?
a. Consolidated financial statement
b. Separate financial statement
c. Both statements are required
d. Either a or b
SEGMENT REPORTING
1. Swift Company, a publicly owned entity, examines performance and makes operating
decisions using the following information for the reportable segments:
Total revenue 6,000,000
Total profit 700,000
The total profit includes intersegment profit of P70,000. Also, the company has P15,000
of common costs which is not allocated in the reports.
What amount should be reported as segment profit?

a. 6,000,000 c. 770,000
b. 700,000 d. 6,770,000
2. Angel Kate Company provided the following information for the current year:
Sales 35,000,000
Cost of goods sold 12,000,000
Expenses 2,000,000
Depreciation 500,000
Income tax expense 6,490,000
The entity has three major reportable segments, A, B, and C. An analysis revealed that
P120,000 of the total depreciation expense and P500,000 of expenses are related to
general corporate activities.
The remaining expenses and sales are allocable to segment activities to the following
percentages:
Segment A Segment B Segment C Others
Sales 30% 30% 30% 10%
Cost of goods sold 20% 30% 25% 25%
Expenses 40% 30% 15% 15%
Depreciation 15% 40% 30% 15%
What amount should be reported as profit of Segment C?
a. 7,500,000 c. 7,161,000
b. 10,500,000 d. 7,275,000
3. Butterfly Company has five manufacturing division; all are reportable segments. In the current
year, Butterfly’s Wing division had sales of P50,000,000, traceable cost of P29,000,000, and
interest expense of P2,000,000. In addition, the company incurred costs of P1,200,000 which are
not directly traceable. Butterfly’s Wing division accounted for 30% of its total sales in the current
year.
It is an entity policy that interest expense is included in the measurement of profit or loss that is
reviewed by the chief operating decision maker.
What amount should be disclosed as Butterfly’s profit for the current year?
a. 31,360,000 c. 31,000,000
b. 18,640,000 d. 20,640,000
4. Purple Mint Company reported the following information on its 2020 Statement of Comprehensive
income:
Revenue 6,000,000
Intersegment Sales 2,000,000
Expenses net of payroll costs, P200,000 1,500,000
Net income 4,500,000
Combined identifiable assets 5,000,000
Q1. The entity should disclose major customer data if sales to any single customer amount to at least:
a. 600,000 c. 400,000
b. 500,000 d. 300,000
Q2. What amount must be the external revenue of reportable operating segments?
a. 4,500,000 c. 3,500,000
b. 6,000,000 d. 4,000,000
5. Adeline Company discloses supplemental operating segment information. The following information
available for the current year:
Segment Sales Traceable Expenses
A 7,000,000 3,000,000
B 10,000,000 4,000,000
C 5,000,000 1,000,000
22,000,000 8,000,000
Additional expenses are as follows:
Indirect expenses 1,200,000

General corporate expenses 1,000,000
Income tax expense 800,000
The interest and income tax expense are regularly reviewed by the chief operating decision maker as a
measure of profit or loss.
Appropriate common expenses are allocated to segments based on the ratio of a segment’s sales to
total sales.
What is Segment A’s profit for the year?

a. 4,000,000 c. 3,440,000
b. 3,360,000 d. 4,440,000
Solution
:
1 An entity shall report a measure of profit
or loss based on the measure reported to the
chief operating decision maker.
₱
2 Sales (35,000,000 x 30%) 10,500,000
Cost of goods sold (12,000,000 x 25%) -3,000,000
₱
Gross income 7,500,000
Expenses (1,500,000 x 15%) -225,000
Depreciation (380,000 x 30%) -114,000
₱
Segment profit - Segment C 7,161,000
₱
3 Sales - Wing Division 50,000,000
Expenses:
₱
Traceable cost 29,000,000
Allocated indirect cost 360,000
Interest expense 2,000,000 31,360,000
₱
Segment profit 18,640,000
₱
4. Q1. Revenue 6,000,000
x10%
₱ 600,000
Q2. Revenue 6,000,000
x75%
₱
4,500,000
₱
5 Sales - Segment A 7,000,000
Expenses:
₱
Traceable expenses 3,000,000
Indirect expenses 300,000
Income tax expense 200,000 3,640,000
₱
Segment profit 3,360,000
CORRECTION OF ERROR
1. The following statements describe a characteristic of a prior period error:

I. PPE are omissions and misstatements in the entity’s financial statements for only
one and must not be carried over the succeeding periods.
II. PPE arises from a failure to use reliable information that was available when
financial statements for this period were authorized for issue.
III. PPE could reasonably be expected to be obtained and taken into account in the
preparation and presentation of those financial statements.
IV. PPE includes effects of mathematical mistakes, failure to apply accounting
regulations, misinterpretation of information, and fraud.
Which of the following is/are correct?

a. I, II, and III only c. I, III, and IV only
b. II, III, and IV only d. I, II, III, and IV only
2. On December 31, 2019, Leaves Company found out that their ending inventory is
overstated by P120,000. By this time, the books have been closed. What is the
appropriate entry to correct the error?
a. Debit, Retained Earnings; Credit Inventory
b. Debit, Inventory; Credit Sales
c. Debit, Retained Earnings; Credit Sales
d. No entry needed.
3. In the absence of an accounting standard, what should the management use in selecting
and applying an accounting policy?
a. Judgement of the own company
b. Follow the taxation policy
c. Follow the constitution and civil code
4. Which of the following would cause income to be overstated in the period of occurrence?
a. Understated ending inventory
b. Understated beginning inventory
c. Overstated bad debt expense
d. Overstated purchases
5. The following errors are self-correcting errors. Which is/are not?

I. Overstatement of prepaid expense
II. Understatement of depreciation expense
III. Overstatement of deferred income
IV. Understatement of accrued income
a. I only c. III only
b. II only d. All are self-correcting errors.
ERROR CORRECTION
1. Moonlight Corporation reported pretax incomes of P4,545,000 and P3,483,000 for the years
ended December 31, 2019.and 2020, respectively. Your audit however revealed the following
errors:
a. Sales for 2013 included a Pl, 719,000 collection pertaining to a delivery made in
January of 2020 under an FOB Shipping point freight term.
b. Inventory on December 31, 2013 was understated by P388 ,800 while inventory on
December 3i, 2014 was overstated by P255,000. –r
c. Interest expenses on Bonds for both years were recorded as payments were made every
December 31. The bonds have a face value of P11,250,000 and pay a nominal interest
rate of 6%. They were issued at a discount of P675,000 on January 1, 202018 to yield
an effective interest rate of 7%.
d. Ordinary repairs to equipment had been charged to the Equipment account during 2019
to 2020. Repairs of P382,500 and P423,000 had been incurred in 2019 and 2020,
respectively. In determining depreciation charges, Moonlight uses the double declining
balance method over 10 a ten-year asset useful life. The rate is being applied to the
balance of the asset account at the end of each year.
What is the adjusted pretax income for 2019?

a. 2,978,618 c. 2,838,982
b. 2,973,250 d. 2,842,750
2. An analysis of incomplete records of Journey Corporation produced the following information

applicable to 2014:
Account Increases
Cash 5,000,000
Accounts Receivable 2,300,000
Accounts Payable 1,000,000
Prepaid insurance 700,000
Account Decreases
Inventory 500,000
Equipment 900,000
Notes receivable 1,200,000
Accrued salaries
payable 240,000
Summary of cash transactions were as follows:

RECEIPTS
Cash sales 2,000,000
Collections on accounts receivable 1,900,000
Collections on notes receivable 1,200,000
Interest on notes receivable 120,000
Purchase returns and allowances 180,000
DISBURSEMENT
Cash purchases · 700,000
Payments on accounts payable 200,000
Sales returns and allowances 300,000
Insurance 40,000
Salaries 1,500,000
Equipment 800,000
Other expenses 780,000
Dividends 500,000
 Total purchase returns and allowances amounted to P800,000

 Total sales returns and allowances amounted to P1,200,000
Required: Determine the audited balance of the following:
Q1. Net Sales
a. 5,900,000 c. 7,000,000
b. 6,000,000 d. 5,400,000
Q2. Net purchases
a. 3,000,000 c. 3,020,000
b. 4,500,000 d. 3,520,000
Q3. Cost of sales
a. 3,520,000 c. 3,020,000
b. 3,000,000 d. 4,020,000
3. Tennessee Company is a supplier of school and office supplies. It keeps its records under
cash
basis of accounting. In line with your audit, the bookkeeper presented the following
schedule:
Total cash receipt from customers based on cash 2,300,00

records 0
4,000,00
Total cash receipt from rentals 0
Total cash payments to suppliers, based on cash 1,200,00
records 0
Total cash payments for operating expenses 300,000
Total sales returns, including P70,000 refund to
customers 270,000
Sales discount 90,000
Total purchase returns, including P30,000 refund 230,000
Purchase discounts 160,000
Accounts written off during the year 50,000
Cash recovery from previous write-off 30,000 Further
assessment revealed the following:
Account Increases Account Decreases
Prepaid operating
expenses 300,000 Accounts receivable 40,000
Notes Receivable 200,000 Notes payable 80,000
Accounts Payable 150,000 Unearned income 110,000
Accrued operating
expenses 170,000
Merchandise Inventory 220,000
What is the accrual basis gross sales?

a. 2,300,000 c. 2,600,000
b. 2,840,000 d. 2670,000
4. Butterfly Garden Co., financial statements are being audited for the first time since it began
operations in 2019. Herb's books showed net income for 2019 and 2020 at P3,000,000 and
P3,900,000 respectively. The auditor's findings after examination are summarized below:
a) Two-year insurance premium payments made in advance by Herb at the beginning of
2013 and in 2015 amounted to P150,000 and P200,000, respectively. The company
charged the same to insurance expense upon payments.
b) The following accrued income were also omitted:

December 31, 2019 20,000
December 31, 2020 34,000
December 31, 2021 27,000
c) On July, 2019, the company completed major improvements on the building being leased
from a manufacturing company. The said improvement which costs P900,000 was
charged to repairs and maintenance expense. The 5-year lease agreement for the said
building was dated January 1, 2019.
What is the understatement in the 2021 depreciation expense?

a. 200,000 c. 600,000
b. 300,000 d. 550,000
5. Jefsey Mae, a senior accountant in the Lovegood’s Accounting firm audited the financial
statements of CoCo Life Co.’s financial statements for the year 2020. The company maintains
records under cash basis and only keeps records of its cash receipt and cash disbursements. As
part of her audit, she was requested to convert the records to accrual basis.
Jefsey was able to collect the following information:

2019 2020
Outstanding sales invoices 56,000 100,000
Advance collections from customers 89,000 102,000
Unpaid merchandise invoices 23,000 34,000
Advance payments to suppliers 89,000 0
Unpaid employee salaries 4,000 12,000
Prepaid rentals for some stalls and outlets 10,000 12,000
Unpaid rentals for other stalls and outlets 14,000 18,000
The cash receipt and disbursement records revealed the following information:
• Amount collected from customers, P500,000
• Total payments to suppliers of merchandise, P890,000
• Payment of employee salaries, P615,000
Q1. What is the total sales for 2020?

a. 422,000 c. 411,000
b. 490,000 d. 416,000
Q2. What is the total purchases for 2020?
a. 1,000,000 c. 890,000
b. 990,000 d. 860,000
Q3. What is the total salaries expense for 2020?

a. 623,000 c. 650,000
b. 633,000 d. 670,000
Q4. What is the total advertising expense for 2020?

a. 382,000 c. 387,000
b. 352,000 d. 357,000
Solution
:
2019
1 Unadjusted pretax income ₱ 4,545,000
a. 2019 sales overstatement -1,719,000
b. 2019 inventory understatement 388,800
c. 2019 understatement in interest
expense 10,640,250 x 7% 744,818
11,250,000 x 6% 675,000 -69,818
d. ordinary repairs -382,500
Overstatement in depreciation 382,5000x20% 76,500
Adjusted pretax income ₱ 2,838,982
2. Q1. Cash sales ₱ 2,000,000

Collections on accounts receivable 1,900,000
Collections on notes receivable 1,200,000 ₱ 5,100,000
Sales returns and allowances 900,000
Total ₱ 8,300,000
Decrease notes receivable -1,200,000
Sales returns and allowances -1,200,000
Net sales, per audit ₱ 5,900,000
Q2. Cash purchases · ₱ 700,000
Payments on accounts payable 200,000 ₱ 900,000
Purchase returns and allowances 620,000
Gross purchases ₱ 3,820,000
Purchase returns and allowances -800,000
Net purchases, per audit ₱ 3,020,000
Q3. Decrease in inventory 500,000
Cost of sales, per udit ₱ 3,520,000
3 Cash receipt from customers ₱ 2,300,000

Sales discount 90,000
Sales return 270,000
Write-off of AR 50,000
Increase in NR 200,000
Total ₱ 2,910,000
Decrease in AR -40,000
Recovery of cash -30,000
4. Leasehold improvement ₱ 900,000

Remaining lease term 4.5
Understatement in depreciation ₱ 200,000
5. Q1. Cash collected from customers ₱ 500,000

A/R, ending 102,000
A/R, beginning -89,000
Advances from customers, beginning -102,000
Sales per accrual basis ₱ 411,000
Q2. Total payments to suppliers ₱ 890,000

A/P, ending 34,000
Advances to suppliers, beginning 89,000
A/P, beginning -23,000
Purchases per accrual basis ₱ 990,000
Q3. Salaries paid ₱ 615,000.0

Salaries payable, ending 12,000
Salaries payable, beginning -4,000
Salaries expense per accrual basis ₱ 623,000
Q4 Rent expenses paid ₱ 380,000

Prepaid rent, beginning 10,000
Accrued rent, ending 18,000
Prepaid rent, ending -12,000
Accrued rent, beginning -14,000
Advertising expense per accrual basis ₱ 382,000

Intermediate Accounting 2 and 3 Final

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POLYTECHNIC OF THE PHILIPPINES

MACABUGTO, JEFSEY MAE N. Prof. UC, Valladolid

2. Statement 1: A contingent asset is not recognized in the financial statements

Data relating to bonus is as follows:

2. As part of the Valentine’s celebration, Canterbury Chocolate Incorporation decided to

Q1. What is the premium expense to be reported in 2019?

Q2. What is the premium liability on December 31, 2019?

3. Q1. No. of premiums distributed ₱ 15,000

Q2. No. of premiums to be distributed 2,000

3. When does the bond refunding be made?

Q1. What is the total amount of term bonds?

Q1. What is the amount of interest expense?

Sinking funds maturing in installments ₱7,000,000.00

Accrued interest payable from October

3. Q1. Bonds Payable on January 1, 2020 ₱ 5,200,000

Q2. Interest Expense

Q3. Discount amortization

NOTE PAYABLE AND BOND RESTRUCTURING

2. This involves a reduction of interest rate, forgiveness of unpaid interest or a moratorium

5. Which of the following defines liability?

NOTES PAYABLE AND DEBT RESTRUCTURING

What is the gain on extinguishment?

As a result of restructuring agreement on January 1, 2020, Neverland Bank agreed to

5. On February 1, 2019, Stranger Company borrowed Php 3,000,000 on a 10%, seven-year

Q1. What is the interest expense to be reported?

Q2. Fair value of shares (100,000 x 10) ₱ 1,000,000

Q3. Note payable ₱ 1,200,000

4. Q1. Present value of principal (4,000,000 x 0.6209) ₱ 2,483,600

Q2. Present value of new liability ₱ 3,999,920

4. What is the classification of an operating lease?

The data of the lease term is provided as follows:

January 1, 2019 500,000

What amount should be recognized as rent income in 2020?

Q2. What is the depreciable amount for the current year?

Q1. What amount should be recorded as right of use of asset?

Advanced fixed rental payment at the beginning of 1,000,00

Q2. What is the cost of right of use of asset to be recorded?

Floor space of the site 800 square meters

Q2. What is the termination gain or loss on January 1, 2021?

1. Total rentals ₱ 1,800,000

2. Q1. Present value of lease payment (1,000,000 x 6.1446) ₱ 6,144,600

Q2. Lease liability ₱ 5,951,850

3. Q1 Present value of lease payment 4,563,800

Q2. Lease liability ₱ 4,473,340

4. Q1. Present value of rentals ₱ 6,144,600

Q2. Lease liability ₱ 6,928,800

Date Payment Interest Principal Lease Liability

Q2. Decrease in floor space (1,000 - 800) 200

Cost of right of use of asset ₱ 360,480

Decrease in lease liability (240,186 x 20%) ₱ 48,037

Q3. Present value of lease liability after

3. What comprises the service cost?

1. Penguin Powerhouse Company is an entity that manufactures books. It provided the

Q2. What amount should be recorded as employee benefit expense?

3. SpongeBob Squarepants Company is an international TV network that provides kids

Projected benefit obligation, January 1 30,000,000

YEAR SALARY PERIOD PV

Current service cost 13,000,000

Q1. What is the pension expense for the current year?

Q3. What is the projected benefit obligation on December 31?

Q4. What is the remeasurement gain or loss on December 31?

Q5. What is the pension asset/liability on December 31?