TOPIC : ADVANCE FINANCIAL ACCOUNTING AND REPORTING 2

PURPOSE : PRACTICE TEST FOR THE FINAL EXAMINATION (3RD YEAR)

TYPE : PROBLEM-SOLVING (20 ITEMS)

1. BASIC ACCTG. Company acquired 25% of LEDGER Company's ordinary shares for P1,900,000
cash and carries the investment using the cost method. After six months, BASIC ACCTG. purchased
another 55% of LEDGER’s ordinary shares for P5,500,000. The said amount excludes control premium
of P275,000. On this date, LEDGER reports identifiable assets with carrying value of P9,000,000 and
fair value of P11,500,000 and it has liabilities with a book value and a fair value of P3,500,000. The
non-controlling interest is measured at proportionate share.

Compute the amount of Goodwill

A. 2,000,000

B. 1,775,000

C. 1,900,000

D. 1,875,000

2. On November 1, 2020, TRANSFER TAX Co, entered into a forward contract to buy $2000 with a
bank to speculate on the changes in the value of a USA Dollar. It will be delivered on January 31, 2021.
The following direct exchange rates are provided by the bank:

November 1, 2020 December 31, 2020 January 31, 2021

Buying spot rate P40 P37 P38
Selling spot rate P45 P50 P48
Forward buying 30-days P38 P32 P35
Forward selling 30-days P34 P41 P36
Forward buying 60-days P43 P35 P46
Forward selling 60-days P40 P41 P43
Forward buying 90-days P42 P40 P38
Forward selling 90-days P43 P40 P36

What is the foreign currency gain or (loss) for the year ended December 31, 2020?

A. 2000 loss C. 6000 gain

B. 4000 loss D. 8000 gain

3. AUDTHEO Corporation of Makati paid P1,1128,750 for a 35% interest in AUDPROB Co. of Taiwan
on January 1, 2022, when AUDPROB’S net asset totaled 375,000 NT Dollar and the exchange rate for
NT Dollar was P8.60. A summary of changes in AUDPROB’s net assets during 2022 is as follows:

NT DOLLAR EXCHANGE RATES

Net assets, January 1 375,000 8.60
Net income for 2022 75,000 8.55
Dividends paid for 2022 25,000 8.54

AUDPROB Corp. anticipated a strengthening of the Philippine peso against the NT Dollar during the
last half of 2022, and it borrowed 150,000 NT Dollar from a Taiwanese bank for one year at 10%
interest on July 1, 2022 to hedge its net investment in AUDPROB. The loan was made when the
exchange rate for NT Dollar was P8.55. The loan was denominated in NT dollar and the current
exchange rate at December 31, 2022 was P8.50.

What is the other comprehensive income – translation adjustment presented in equity in 2022 as
a result of hedging?

A. 6,587.50

B. 14,087.50

C. 20,675.00

D. 0

4. The following data applies to FAR Company’s purchase of 45,400 Belgium francs under a forward
contract dated November 1, 2022, for delivery on January 31, 2023:

11/1/22 12/31/22 1/31/23

Spot rates 55.75 53.90 54.50
30-day forward rate 51.30 56.15 53.20
60-day forward rate 57.65 52.30 55.75
90-day forward rate 54.25 55.45 52.10

Velocity entered into a forward contract to speculate in the foreign currency.

In its income statement for the year-ended December 31, 2022, what amount of gain/loss should
Velocity Report from this forward contract?

A. 83,990 gain

B. 83,990 loss

C. 86,260 loss

D. 86,260 gain

5. AFAR Corporation paid P2,250,000 for a 90% interest in FAR Corporation on January 1, 2021. At
this price paid, an amount of P90,000 was the excess over underlying book value of the interest
acquired. The excess was allocated P40,500 to an undervalued equipment with a three-year remaining
useful life and P49,500 to a goodwill which both are attributable to controlling interest. Non-controlling
interest is measured at fair value. The Statement of Comprehensive Income of AFAR and FAR for 2021
were given below:

AFAR FAR
Sales P5,000,000 P2,000,000
Dividend Income from 225,000 0
Subsidiary
Cost of Sales (2,500,000) (1,000,000)
Depreciation Expense (500,000) (300,000)
Other expense (1,000,000) (450,000)
Net income P1,1225,000 P250,000

Determine the consolidated net income attributable to controlling interest for 2021.

A. 1,436,500

B. 1,211,500

C. 1,212,850

D. 1,235,000

6. On June 30, 2021, INCOME TAX acquired 80% of the outstanding shares of BUSINESS TAX for
P3,125,000. On this date BUSINESS TAX net assets had book value of P5,000,000 but with a fair value
of P4,062,500. The liabilities of BUSINESS TAX have a book and fair value of P250,000. INCOME
TAX paid P62,500 to a CPALawyer who facilitated the combination. The fair value of the non-
controlling interest on this date was P750,000.

Compute the goodwill (gain from bargain price) arising from the above combination

A. 62,500

B. 75,000

C. (62,500)

D. (125,000)
7. Portal Company acquired an 80% interest in Sand Co. on January 1, 2021 for P1,800,000 cash when
Sand Co. had Ordinary Shares of P1,000,000 and Retained Earnings of P1,000,000. Non-controlling
interest is measured at fair value. All excess (difference between the sum of the total price and fair value
of the non-controlling interest versus the book value of the net assets of the acquired company) was
attributable to an intangible asset with a ten-year life. Sand Co. made P200,000 net income in 2021 and
paid dividends of P30,000 to Portal. Portal Co.’s income from separate operations in 2021 was
P2,500,000.

The controlling interest in the consolidated net income is

A. 2,610,000

B. 2,675,000

C. 2,640,000

D. 2,651,000

8. Bulk Co. acquired 100% of Wise, Inc. on January 1, 2021. On the date of acquisition, Wise had a

building with a book value of P1,000,000 and a fair value of P1,950,000. Wise had an equipment with

a book value of P1,750,000 and a fair value of P1,400,000. The building had a 10-year remaining

useful life and the equipment had a 5-year remaining useful life.

In Bulk’s December 31, 2021 Consolidated Financial Statement how much carrying value of the

building from Wise will be presented?

A. 900,000

B. 1,855,000

C. 1,755,000

D. 1,950,000

9. ARK Corp. owns 90% of BGC Corp’s ordinary shares. On October 1, 2021, ARK Corp. acquired an

equipment from BGC Corp. for P1,520,000. The carrying amount of the equipment is P1,920,000 and

has a remaining life of 4 years.

Due to this intercompany transaction, how much will be debited to Retained Earnings in the

2022 working paper?

A. 25,000

B. 22,500

C. 100,000

D. 90,000
10 - 11

GRM Company acquired inventories on October 18, 2021, from its 90% owned subsidiary, BWZ

Company. The inventories were sold for P7,120,000 including the 25% markup based on cost. Out of

these inventories, 55% were sold to outsiders by the end of 2021.

10. Based on the above transaction, how much will be credited to Cost of Goods Sold in the 2022

working paper?

A. 640,800

B. 576,720

C. 7,120,000

D. 801,000

11. How much would be debited to retained earnings?

A. 640,800

B. 576,720

C. 7,120,000

D. 801,000

12. Quad Corporation purchases all of the net assets of Chrome, Inc. for P400,000, immediately prior
to the combination. Chrome’s net assets were carried on the books at P225,000, and Chrome had
retained earnings of P30,000. The fair value of Chrome’s net assets at the date of combination is
P310,000. Quad Corporation had retained earnings of P50,000 and no goodwill prior to the
combination.

Immediately after the combination, the combined company reports goodwill and retained

earnings of:

A. 0 and 50,000 Respectively

B. 0 and 80,000 Respectively

C. 90,000 and 50,000 Respectively

D. 90,000 and 80,000 Respectively

13 AND 14

FINACC., a Philippine Corporation, sold inventory on credit to a British Company on May 1, 2021.

FINACC received payment of 262,500 British Pounds on October 1, 2021. The exchange rate was

P1 = 0.65 British Pounds on May 1 and P1 = 0.70 British Pounds on October 1, 2021.

13. What amount of foreign exchange gain or loss should be recognized on October 1, 2021?

A. 5,250,000 loss

B.13,125 loss

C. 13,125 gain

D. 28,846 loss

14. What amount should be recorded as sale of inventory in the income statement of FINACC in

2021?

A. 262,500

B. 183,750

C. 170,625

D. 403,846

15. On January 1, 2022, Entity A acquired 80% of the outstanding shares of Entity B for a cash
consideration of P1,185,000. On this date, the book value of the shareholders' equity of Entity B was
P1,350,000. At the acquisition date, the inventory of Entity B was understated by P75,000 and the
equipment was understated by P150,000. The acquisition date fair value of the noncontrolling interest
was P300,000.

What amount should Entity A report as result of the business combination?

A. 90,000 gain on bargain purchase

B. 90,000 goodwill

C. 75,000 gain on bargain purchase

D. 75,000 goodwill

16 – 17

On January 1, 2021, SALES Company acquired 75% of the outstanding shares of OBLICON Company
that resulted at a gain on acquisition in the amount of P75,000. On this date the Ordinary shares and
Retained earnings of OBLICON Company were P1,200,000 and P300,000 respectively.

All of the book values of the assets and liabilities of OBLICON Company equal their fair values except
for the equipment which was understated by P156,000. The equipment had a remaining life of 10 years.

For the year ended, December 31, 2021, SALES Company reported a net income of P600,000, while
OBLICON Company reported a net income of P360,000 and declared dividends of P240,000
16. What amount should SALES Company report as consolidated net income attributable to
parent for the year ended December 31, 2021?

A. 600,000

B. 776,700

C. 678,300

D. 753,300

17. What amount should SALES Company report as noncontrolling interest net income for the
year ended December 31, 2021?

A. 360,000

B. 90,000

C. 93,900

D. 86,100

On January 1, 2021, AUDPROB Inc. paid a premium to acquire a put option from a writer. This is in
relation to a forecasted sale of merchandise worth $130,000. (option price = P4.965)

1/1/2021 Dec. 31 Jan. 30

Spot rate P4.934 P4.908 P4.750
Fair Value option P19,600 P22,800 P27,950

18. Compute the gain/loss affecting earnings for the first quarter of 2021?

A. 3,380

B. (3,380)

C. 3,200

D. (180)

19 – 20

Bank Ph is a subsidiary of Bank Japan. The functional currency of Bank Ph is peso while the
presentation currency of its parent, Bank Japan is yen. For the year ended December 31, 2020, Bank Ph
has the following foreign currency denominated assets : Accounts receivable of $1000 and Prepaid
Asset of $100. The historical rates of Accounts receivable and Prepaid asset are $1 = P30 and $1 = P20
and P1 = 2 Yen and P1 = 4 Yen, respectively. The exchange rate on December 31, 2020 is $1 = 40 and
P1 = 3 Yen.
19. In the separate statement of financial position of Bank Ph. On December 31, 2020, what is the
book value of accounts receivable and prepaid asset, respectively?

A. P30,000 and P2,000

B. P40,000 and P4,000

C. P40,000 and P2,000

D. P30,000 and P4,000

20. Using the same data above, what is the book value of accounts receivable and prepaid asset
respectively in the Consolidated Statement of Financial Position of Honda Japan?

A. Y120,000 and Y6,000

B. Y90,000 and Y4,000

C. Y120,000 and Y8,000

D. Y90,000 and Y24,000

All the best!

END