University of Cebu- Banilad Campus

COLLEGE OF BUSINESS AND ACCOUNTANCY

Gov., Cuenco Avenue, Banilad,Cebu City
Seatwork 02 Statement of Income

Name: ______________________________________Course & Year: ___________ Schedule: ________________ Date:

__________

(TEST I) Multiple Choice: Shade your answer with YELLOW.

1. Which of the following is not a generally practiced method of presenting the income statements?
a. Including prior period adjustments in determining net income
b. The single-step income statement
c. The consolidated statement of income
d. Including gains and losses from discontinued operations of a segment of a business in determining net income

2. Which one of the following types of losses is excluded from the determination of net income in income statement?
a. Material losses resulting from transaction in the company’s investments account
b. Material losses resulting from unusual sales of assets not acquired for resale
c. Material losses resulting from the write-off of intangibles
d. Material losses resulting from correction of errors related to prior periods

3. All of the following costs should be charged against revenue in the period in which costs are incurred except for
a. Manufacturing overhead costs for a product manufactured and sold in the same accounting period
b. Costs which will not benefit any future period
c. Costs from idle manufacturing capacity resulting from an unexpected plant shutdown
d. Costs of normal shrinkage and scrap incurred for the manufacture of a product in ending inventory.

4. The transaction approach in determining income is a concept in which

a. Income is measured as the amount that an entity could consume during a period and be as well off at the end of that period
as it was at the beginning.
b. Market values adjusted for the effects of inflation or deflation are used to calculate income
c. The financial statement effects of business events are classified as revenue, gains, expenses, and losses, which are used to
measure and define income.
d. Income equals the change in market value of the firm’s outstanding common stock for the period.

5. The natural ordering of items in the income statement would be best illustrated by which of the following?
a. Extraordinary items, cumulative effects, income from continuing operations, discontinued operations, net income
b. Income from ordinary activities, extraordinary items, net income
c. Income from continuing operations, discontinued operations, net income
d. Discontinued operations, income from continuing operations, extraordinary items, cumulative effects, net income

6. If the classification of expense by function method is used for the presentation of an income statement, additional information
on the following items must be disclosed:
a. revenue c. gains on revaluation assets
b. gains on disposal of assets d. depreciation and amortization expense

7. The income statement would help in which of the following?

a. Evaluate liquidity c. Estimate future cash flows

b. Evaluate solvency d. Estimate future financial flexibility

8. Conceptually, net income is a measure of?

a. Wealth
b. Change of wealth
c. Capital maintenance
d. Cash flow

9. This term comprises items of income and expenses including reclassification adjustments that are not recognized in profit or
loss as required or permitted by PFRS.

a. Comprehensive income c. Profit or loss

b. Other comprehensive income d. Retained earnings

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 University of Cebu- Banilad Campus
COLLEGE OF BUSINESS AND ACCOUNTANCY
Gov., Cuenco Avenue, Banilad,Cebu City
10. Comprehensive income includes all of the following, except?

a. Dividend revenue c. Issuance of shares

b. Loss on disposal d. Unrealized gain on trading securities

TEST II) Problem Solving (NR X 2): Supply the requirements of each problem. No solution, no credit of answers. Write your
solution at the end of this questionnaire.

A. The following items were among those that were reported on Bulacan Company’s income statement for the year ended
December 31, 2019:
Legal and audit fees 2,000,000
Rent for office space 6,000,000
Interest on acceptances payable 1,000,000
Loss on abandoned data processing equipment 500,000
Insurance 200,000
The office space is used equally by the sales and accounting departments. What amount should be classified as general and
administrative expenses? ______________________ 5,200,000

B. The following information pertains to Malolos Company’s 2019 cost of good sold.
Inventory, January 1 10,000,000
Purchases 40,000,000
Writeoff of obsolete inventory 5,000,000 Other Expenses
Inventory, December 31 3,000,000
What amount should Malolos report as cost of goods sold? ______________________42,000,000

C. Valenzuela Company incurred the following infrequent losses during 2019:

Loss on disposal of one of four dissimilar factories 1,000,000
Foreign exchange loss on an amount remitted by a foreign
customer due to major currency devaluation 2,000,000
Loss on worthless inventory due to a competitor’s
unexpected product innovation 5,000,000
Loss from major strike by employees 4,000,000
Loss on early extinguishment of long-term debt 1,500,000
Loss from expropriation of asset 3,000,000
In its 2019 income statement, what total amount should Valenzuela report as part of continuing operations?
______________________16,500,000

D. The following information was taken from Hagonoy Company’s accounting records for the year ended December 31, 2019:
Decrease in raw materials inventory 1,000,000 +
Increase in goods in process inventory 3,000,000 -
Increase in finished goods inventory 2,000,000 -
Raw materials purchased 40,000,000
Direct labor payroll 10,000,000
Factory overhead 6,000,000
Freight out 4,000,000
Freight in 5,000,000
The cost of goods sold is ______________________57,000,000

E. The following information for 2019 is provided by Marilao Company:

Sales 20,000,000
Cost of goods sold 12,000,000
Selling expenses 1,200,000
General and administrative expenses 1,800,000
Interest expense 1,500,000
Gain on early extinguishment of long-term debt 500,000
Correction of inventory error, net of income tax – credit 800,000 Retained correction of prior period error
Investment income – equity method 600,000 Other income
Gain on sale of investment 2,000,000
Income tax expense 2,100,000
Dividends declared 2,500,000 Retained earnings
What was the 2019 net income is? ______________________4,500,000

F. Tow Company’s income statement for the year ended December 31, 2015 reported a net profit of P10,000,000. The auditor
raised questions about the following amounts that had been included in the net profit:
Unrealized loss on decline in value of FA at fair value thru OCI P500,000 OCI
Loss on inventory write-off of inventory due to a government ban net of tax 1,500,000
Adjustment of profit of prior year net-debit 2,000,000 Retained earnings
Loss from expropriation of property, net of tax 3,500,000
Exchange differences gain on translating foreign operations 4,500,000 OCI
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 University of Cebu- Banilad Campus
COLLEGE OF BUSINESS AND ACCOUNTANCY
Gov., Cuenco Avenue, Banilad,Cebu City
Revaluation surplus realization 1,000,000 Retained earnings
Required:
a. What amount should be reported as profit on 2015’s statement of comprehensive income. ___7,000,000
b. What amount should be reported as total comprehensive income on 2015’s statement of comprehensive income.
________11,000,000 (7M-500K+4,500)

F. Prepare a properly classified income statement with notes to financial statements. Refer to Seatwork 02 Statement of
Comprehensive Income Problem A. Similar account titles and classification, please apply.

The following accounts are gathered from the records of ABC Company for 2015.

Sales 15,000,000
Inventories – January 1:
Raw materials 400,000
Goods in process 480,000
Finished goods 720,000
Inventories – December 31
Raw materials 560,000
Goods in process 340,000
Finished goods 600,000
Purchases 6,000,000
Direct labor 1,900,000
Indirect labor 500,000
Superintendence 420,000
Light, heat and power 640,000
Rent – factory building 240,000
Repair and maintenance – machinery 100,000
Factory supplies used 220,000
Sales salaries 800,000
Advertising 320,000
Depreciation – store equipment 140,000
Office salaries 300,000
Depreciation – office equipment 80,000
Depreciation – machinery 120,000
Sales returns and allowances 100,000
Interest income 20,000
Gain on sale of equipment 200,000
Delivery expenses 400,000
Accounting and legal fees 300,000
Office expenses 500,000
Typhoon Rolly- loss 600,000
Gain from expropriation of asset 200,000
Income tax expense 640,000

—End of Examination—

Multiple choice:

1.

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