=Chapter Y wy cHapreg oe Stustated CPALE on FAR H " SIMULATED CPA LICENSURE Exainaiyg Ee ACCOUNTING ANG! REPORONS ON FINANCIAL the student: Fe erie: final (chapter, Consists of two sets Examinations (CPALE) on Financial Acesy Track Your Progress! Name of the examinee: ee Set: | Date Time Actual | Percent: | Remarks: "| taken: consumed: | Score: A: —_/70 B —_/70 1499 a scatYow 1. 3. OKETAL, Ne t al Chapter Finale: Simulated CPALE on FAR SETA The accounting standards used in the Philippines are adapted from the standards issued by the A. Federal Accounting Standards Board (FASB). B. International Accounting Standards Board (IASB). C. Philippine Institute of Certified Public Accountants (PICPA). \ D. Board of Accountancy (BOA). Which of the following statements pertaining to the Financial Reporting Standards Council (FRSC) is incorrect? A. The FRSC Is the accounting standard-setting body in the Philippines. B, The FRSC’s main function is to prepare interpretations of PFRS for” approval by the Philippine Interpretations Committee (PIC). C. The FRSC replaces the Accounting Standards Council. D. All of the foregoing statements are correct. Financial reporting standards continuously change primarily in response to A. users’ needs. B. political influence. C. government regulations. D. changes in social environments. Which of the following is not part of Philippine Financial Reporting Standards? A. Philippine Accounting Standards (PAS). B. Philippine Standards on Auditing, (PSA). C. Philippine Financial Reporting Standards (PFRS). D. Interpretations (PIC). Which of the following is not a benefit associated with the Conceptual Framework? A. A conceptual framework should increase financial statement users’ understanding of and confidence in financial reporting. B: Practical problems should be more quickly solvable by reference to an existing conceptual framework. C. Acoherent set of accounting standards and rules should result. D. Business entities will need far less assistance from accountants because the financial reporting process will be quite easy to apply. Every transaction will affect how many accounts? A. Only one B, Only two 2 C. Two or more D. Atleast three 1500Chapter Finale: Simulated C@PALE on FAR Which, of the following cannot be considered fair presentation of financial 2 7 statements? A. To present information in a manner that provides relevant and faithfully represented financial Information. e B. To provide additional disclosures when compliance with specific PFRS is insufficient to understand the financial position and. financial | performance. aoa fre, select and apply accounting policies in accordance with applicable To rectify Inappropriate accounting policies either by disclosure of the accounting policies used or by notes or explanatory information. Earnings per share should be computed based on a A. number of shares outstanding at the beginning of the year. B." number of shares outstanding at the end of the year. C.» average number of shares outstanding during the year. D. average number of shares outstanding last year. Decker Company provided the following information on December 31, 2022: Accounts payable (net of creditors’ debit balances of P200,000) “ P2,000,000 Accrued expenses . “a00,000 Bonds payable due December 31, 2022 : 5,000,000 Discount on bonds payable é "500,000 Deferred tax liability (Vote A) 500,000 Income tax payable 1,100,000 ' Cash dividends payable “600,000 Share dividends payable 400,000 Notes payable — 6% due March 1, 2023 (Note B) 1,500,000 Notes payable — 8% due October 1, 2023 (Note) 1,000,000 The financial statements for 2022 were issued on March 31, 2023. Additional Note: _ Note A — The balance is related to a temporary difference that is expected to reverse during 2023. | Note B — On January 15, 2023, the 6% note was refinanced on a | long-term basis. . | Note C — Under the loan agreement for the 8% note payable, Decker Company has the discretion to refinance the obligation for at, least twelve months after December 31, 2022. What amount should be reported as total current liabilities on December 31, 2022? A. 5,200,000 B. 6,200,000 C. 6,600,000 D. 6,700,000 1501Chapter Finale: Simulated QPALE on FAR For the next two items: Charlotte Co. provided the following information for the current year: * Purchased a building for P2,400,000. Paid P800,000 and signed a mortgage with the seller for the remaining P1,600,000. ~ * Executed a debt-to-equity swap and replaced a P1,200,000 loan by giving the lender ordinary shares worth P1,200,000 on the date the swap was executed * Purchased land for P2,000,000, Paid P700,000 and issued ordinary shares worth P1,300,000. * Borrowed P1,100,000 under a long-term loan agreement. Used the cash from the loan proceeds to purchase additional inventory for P300,000, to pay cash dividends of P600,000 and to increase the cash balance by 200,000. 10. What amount oe be reported .s as net cash used in investing 11. Whi activities? ‘A. 800,000 B. 1,500,000 C. 2,400,000 D. 4,400,000 mount should be reported as net cash provided by financing activities? ‘A. 500,000 B. 700,000 Cc. 1,100,000 D. 1,700,000 12. Below are selected financial information for Kingpin Company for the year ended December 31, 2022: Long-term Liabilities: 10% bonds P 10,000,000 12% bonds 2,000,000 Shareholders’ Equity: Preference share capital, 12% cumulative, P50 par, 100,000 shares authorized, 25,000 shares issued and outstanding 1,250,000 Ordinary Share Capital, P1 par, 10,000,000 shares authorized; 1,000,000 shares Issued and outstanding 1,000,000 Share premium — Ordinary 4,000,000 Retained earnings 6,000,000 1502Chapter Finale: Simulated CPALE on FAR Adaitional information: + Options were granted on June 30, 2022, to purchase 100,000 shares at P24 per share. No options were exercised during the year 2022. The average price per ordinary, share during the period was P30 per share. Each bond was issued at face value. The 10% bonds were issued on October 1, 2022 and is Sonvartible into ordinary shares at 50 shares for each P 1,000 © The 12% bonds were issi i 200,000 eas tre Issued Prior to 2022 and is convertible into -Fach 12% preference is convertible into 4 ordinary shares. * Profit for 2022 is 1,500,000. ‘2 "Income tax rate is 30%, What amount should be presented as diluted earnings per share? A. 1.25. B. 1.35. c. 1.37. D. 1.50. For the next three items: In connection with your examination of the financi Corporation for the year ended December 31, 202 a information: ments of TAZMANIAN 022, you gathered the following following: a. A check for P112,500 received from a customer had bi i and then returned by the bank on December 30, 2022. No ies made for the return of this check. The customer cent check on January 5, 2023. reo b, Accheck for P37,600 was cleared by the bank as P28,600. The bank made the correction on January 2, 2023, c, Acheck for P17,500 representing payment of an employee advance was received and deposited on December 29, 2022 but was not recorded until January 10, 2023. d. Deposit in transit and outstanding checks at December 31, 2022, totaled P681,250 and P1,381,900, respectively. 1503 ‘. Chapter Finale: Simutated CPALE on FAR e. Postdated checks totaling P336,500 was included in the deposits in transit. These represent collections from customers. These checks were deposited on January 5, 2023. f. Various debit memos for drafts purchased for payment of importation of equipment totaling P1,150,000 were not yet recorded. These purchases were previously set up as accounts payable. The said equipment arrived in December 2022. g. Interest earned on the bank balance for the fourth quarter of 2022, amounting to P9,750 (net of final tax) was not recorded. h. Bank service charges totaling P6,300 were not recorded. > Various expense vouchers from the corporation's imprest petty cash fund dated December 2022 totaled P81,250, while those dated January 2023, amounted to P29,515. Another disbursement from the fund dated December 2022 was a cash advance to an employee amounting to P17,500. A replenishment of the petty cash fund was made on January 10, 2023. > TAZMANIAN’s trial balance on December 31, 2022, includes the following cash and cash equivalents related accounts: 7 Cash in bank ~ Landbank 3,741,600 Cash in bank ~ BDO (restricted ‘account for plant expansion, expected to be disbursed in early 2023) 3,500,000 Petty cash fund 150,000 90-day time deposit 25,000,000 TAZMANIAN has agreed to maintain a cash balance of P500,000 in its Landbank account at all times. This amount is not restricted as to withdrawal. 13. What is the adjusted balance of Cash in bank — Landbank on December 31, 2022? A. 2,145,550 B. 2,163,550 C. 2,276,050 D. 2,500,050 14, What is the correct balance of petty cash fund on December 31, 2022? A. 21,735 B, 51,250 C. 68,750 D. 102,985 1504Chapter Finale: Stnstated OPALE on FAR 15. What amount shall be presented as cash and cash equivalents on TAZMANIAN’s December 31, 2022 statement of financial p A. 27,214,800 B. 27,551,300 Cc. 30,714,800 D. 31,051,300 For the next two items: smokey Corporation sells goods on cash and on account basis. The entity’s credit terms are 2/10, 1/15, n/30, Below are the foliowi i i terme 266 2/30) Ea fe foliowing transactions affecting accounts Total sales (cash and credit) Cash received from customers who purchased on cash basis rent Cash received from customers who purchased on account: From those who took advantage of the 2/10 discount term 3,920,000 From those who took advantage of the 1/15 discount term 2,475,000 From those who did not took advantage of the discount terms "400,000 written off accounts : 75,000 Credit memorandum issued to customers who purchased on : “"gccount for returns and allowances 100,000 cash refunds given: to customers who purctiased on cash basis for returns and allowances Bn 000 Recoveries of accounts written off as uncollectible, not included 7 in cash received from customers stated above 25,000 palances on January 1, 2022: _ Accounts receivablé P1,500,000 Allowance for uncollectible-accounts 100000 Itis estimated that 10% of the accounts receivable on December 31, 2022 will be incollectible. 16, How much is the uncollectible accounts expense to be reported for the year 2022? A. 192,500 B. 203,000 C. 242,500 D, 253,000 17, At what amount should the accounts receivable be reported on the December 31, 2022 statement of financial position? A. 2,182,500 B. 2,277,000 C. 2,425,000 D. 2,530,000 1505Chapter Finale: Simulated CPALE on FAR 18. A receivable is credit-impaired if A. A loss event has occurred that is detrimental to the entity's ability to, collect the contractual cash flows from the receivable. B, Its recoverable amount exceeds its carrying amount. C. There is delay in the periodic payments on the receivable. ' D. Its fair value is less than its carrying amount. 19. The irrevocable election to present changes in fair value in other comprehensive income is applicable only to 4 ‘A. Equity instrument that is not held for trading. - B. Equity instrument that is held for trading. C. Financial asset measured at amortized cost. D. Financial asset measured at fair value. 20. On January 1, 2022, Mighty Thor Company acquired 20% of the outstanding ordinary shares of an investee for P7,000,000. This investment gave Mighty Thor Company the ability to exercise significant influence over the investee. The carrying amount of the acquired net assets was P6,000,000. The excess of cost-over carrying amount was attributed to an identifiable intangible asset which was undervalued on investee’s statement of financial position and en had a remaining useful life of ten years. For the year ended December 31, 2022, the investee reported net income of 1,800,000 and paid cash dividend of P600,000 on its ordinary shares. On December 31, 2022, what is the carrying amount of the investment in associate? 2 A. 6,780,000 : B. 6,900,000 C. 7,000,000 D. 7,140,000 For the next two items: On January 1, 2022, PARKER Company purchased bonds with face aman of P5,000,000. The entity paid P4,600,000 plus transaction cost of P142,000. The bonds mature on December 31, 2020 and pay 6% interest annually on December 31 of each year with 8% effective yield. The bonds are quoted at 105 on December 31, 2022. 21. If the business model for this investment is to hold and collect contractual cash flows that are solely payments of interest and principal, compute for the (1) interest income for the year 2022; (2) carrying value of the bond investment on December 31, 2022, and; 3) unrealized gain on fair value changes that will be presented in the statement of comprehensive income for the year 2022. q@) (2) @) A, 379,360 4,821,360 Zero B. 379,360 5,250,000 428,640 C. 300,000 5,250,000 650,000 1506Chapter Finale: Simsbdited CPALE on FAR D. 300,000 4,821,360 Zero 7 22. If the business model for this’ investment is to collect contractual cash flows that are solely payments of principal and interest and also to sell the bonds in the open market, compute for the (1) interest income for the year 2022; (2) carrying value of the bond investment on December 31, 2022, and; (3) unrealized gain on fair value changes that will be presented in the statement of comprehensive income for the year 2022. : q@) @) (3) A. 379,360 4,821,360 Zero B.. 379,360 5,250,000 428,640 Cc 300,000: 5,250,000 650,000 D. 300,000 4,821,360 Zero 23. The revaluation surplus that is realized because of the use of the asset or disposal of the asset may be transfefred directly to A. Retained earnings B. Income C. Share capital } D. Share premium 24. Under current accounting practice, intangible assets are classified as | A. amortizable or unamortizable. +.B. limited-life or indefinite-life. C. specifically identifiable or goodwill-type. D. legally restricted or goodwill-type. 25. Lexmark Corp. Company is specializing on sale of printers and related gadgets, including ink cartridges. Their lines of merchandise include all brands, whether high-end or low-end products, catering to both individual and institutional users of the products. During the year, selected trarisactions relating to its purchases follow: . Purchases of HP printers from XYZ Company 334,400 Purchases of Kyocera printers from MNO Corporation 209,800 Purchases of ink cartridges from XYZ Company 72,000 Terms of XYZ Company and MNO Corporation are as follows: XYZ Company 3/10, n/30 MNO Corporation 2/10, n/30 iE 1507 | iChapter Finale: Simutated GPALE on FAR During the year, the company received credit memoranda for defective merchandise returned as follows: (Al/ returns and allowances took place within five days of purchases and prior to any payment of account) XYZ Company P20,800 MNO Corporation 11,400 Total cash discounts taken during the year amounted to P8,872. How much were the discounts lost? A. 6,664 B. 7,516 c 15,536 D. 16,388 ‘Sweet Tooth Company has the policy of valuing inventory at the lower of cost and net realizable value. Data pertaining to its three classes of sugar products follow: ClassA Class B Estimated selling price per sack P1,500 —-P1,000 Estimated selling cost per sack 300 200 Cost per sack 1,250 750 Number of sacks 200 500 How much inventory should be shown in Sweet Tooth Company's December 31 statement of financial position? A. 777,500 B. 1,112,500 C. 1,925,000 D. Correct answer not given. . Refer to the following independent cases: (2) Atthe beginning of the year, a check was issued for P800,000 as payment for a piece of land and the buyer assumed the liability for unpaid taxes in arrears for the previous year, P20,000 and those assessed for the current year, P18,000. (b) A company issued 28,000 ordinary shares (P50 par) with a market value of P60 per share for the land. The land was recently appraised at 1,600,000 by independent and professional appraisers. * (c) A company rejected an offer to purchase the land for P16,000,000 cash two years ago. Instead, the company issued 100,000 ordinary shares for the land (market value of the ordinary share, P156 each based on several recent large transactions and normal weeldy stock trading volume). (d) A company purchased land by signing a note with the seller, requiring down payment of P200,000, payment of P240,000 one year from Purchase, and P160,000 three years from purchase. The note is non- interest bearing. The effective interest rate of similar notes is 10%. 1508Chapter Finale: Stnutated OPALE on AR Present value of 1 at 10% for 1 period is 0.91. Present value of 1 at 10% for 3 periods is 0.75. How much is the cost of land acquired in (a), (b), (c) and (d), respectively? A. P838,000; P1,600,000; P15,600,000; P538,400 B. P820,000; P1,600,000; P15,600,000; P538,400 C. P820,000; P1,680,000; P15,600,000; P600,000 D. -P838,000; P1,680,000; P16,000,000; P600,000 - ON January 1, 2016, Sammy Corporation acquired a buildin 5 1g at a cost of. P11,000,000. The building has been depreciated using straight-line on the basis of a 20-year life, with a residual value of P1,000,000. On January 1, 2021, an appraisal of the buildin competent appraisers reported a fair value of P10,000,00% tnith ann rence residual value of P1,500,000 and a remaining useful life of 10 years. Itis the company's policy to transfer a portion of the revaluation surplus to retains earings while the asset is being used by the company. Assume tar me accumulated depreciation of the revalued asset is restated proportions with the change in the gross carrying amount of the sence os Assuming that no further revaluation was record was sold on January 1, 2025 for P6,750,000, Whatis the gain or hens recognized by Sammy upon the disposal of the asset? ‘A. P150,000 gain. B. _ P150,000 loss. CC. P1,000,000 gain. D. 1,000,000 loss. TWENTY-ONE GUNS Company's accounting policy with respect to investment properties is to measure them at fair value at the end of each reporting period, One investment property was measured at P8,000,000 on December 31, 2022. The property had been acquired on January 1, 2022 for a total of P7,600,000, made up of P6,900,000 paid to the vendor, P300,000 paid to the local authority as a property transfer tax and P400,000 paid to professional advisers, The useful life of the property is 40 years. What is the gain to be recognized for 2022 with respect to the investment property? A. 400,000 8, 590,000 © 700,000 D. 800,000 150930. 31. 32. . Chapter Finale: Simulated CPALE on FAR On January 1, 2019, Bucky Company purchased a patent for a new consumer product for P900,000. At the time of purchase, the patent was valid for 15 years. However, the useful life of the patent was estimated to be only 10 years due to the competitive nature of the product. On December 31, 2022, the product was permanently withdrawn from sale under governmental order because of a potential health hazard in the product. What amount should be charged against. income in 2022 if amortization is recorded at the end of each year? A. 90,000 . B. 540,000 C. 630,000 D. 720,000 Ancient Company has a herd of 15, one-year old animals on January 1, 2022. ‘Two animals aged 1.5 years were purchased on July 1,2022 and three animals, were born on July 1, 2022. No animals were sold or disposed of during the period. Fair values per unit are summarized belo ° One-year old animal at January 1, 2022/5, 000 1.5 year old animal at July 1, 2022 5,500 Newborn animal at July 1, 2022 3,500 One-year old animal at December 31, 2022 5,100 1.5 year old animal at December 31, 2022 5,700 Newborn animal at December 31, 2022 3,800 ‘Two-year old animal at December 31,2022 » 6,000 0.5 year old animal at December 31, 2022 3,900 : Cost to sell per unit is estimated at P500. How much is the gain due to physical change? A. 14,400 B. 15,900 c. 23,400 . D. 24,900 On January 1, 2022, Villa Company classified as held for sale an equipment with carrying amount of P5,000,000. On this date, the equipment is expected to be sold for P4,600,000. Disposal cost is expected at P200,000. On December 31, 2022, the equipment had not been sold and management after considering its options decided to place back thé equipment into operations. . On that date. The entity estimated that the equipment is expected td be sold _ at P4,300,000 with the disposal cost at P50,000, The carrying-amount of the equipment was P4,500,000 on December 31, 2022 if the noncurrent asset was not classified as held for sale. 1510' Chapter Finale: Simulated GPALE on FAR What is the carrying amount of the equipment that should be reported in the statement of financial position on December 31, 2022? A. 4,250,000 B. 4,400,000 ¢. 4,500,000 D. 5,000,000 33. Marshall Company reported accounts payable on December 31, 2022 at | 4,500,000 before any necessary year-end adjustments relating to the following transactions: * On December 27, 2022, Marshall wrote and recorded checks to creditors totaling P2,000,000 causing an overdraft of P500,000 in Marshall's bank 2023. : 1pQn,December 28.2022, Marshall purchased and recelved goods for P750,000, terms 2/10, n/30. Marshall records purchases and accounts payable at net amount. The invoice was recorded and paid January 3, 2023. : + Goods shipped FOB destination on December 24, 2022 from a vendor to Marshall were received January 8, 2023. The invoice cost was P325,000. On December 31, 2022, what. amount should be reported as accounts payable? A. 7,235,000 B. 7,250,000 C. 7,553,500 =D. 7,575,000 34, Bond issue costs are most appropriately accounted for by A. charging them to expense account in the year the bonds are actually sold. B. debiting them to unamortized bond issued costs, setting them as a deferred charge on the statement of financial position and amortizing them in a manner similar to bond ‘discount over the life of the bond. C. charging them to an expense account in the year the bonds are originally dated whether or not they are sold in that year. D. adding them to any discount on bonds or subtracting them from any premium on bonds when the bonds are sold. ‘ . 1511 * account on December 31, 2022. The checks were mailed on January 5, 1Chapter Finale: Simutated CPALE on FAR 35. On January 2, 2022, Stark Company issued 10% bonds in the face amount of P10,000,000 that mature on December 31, 2031. The bonds were issued for 8,860,000 to yield 12%. Interest is payable semi-annually on June 30 and + December 31. The company uses the effective interest method. What amount should be reported as interest expense for 20 227 A. 886,000 B. 1,000,000 C. 1,063,200 D. 1,065,096 36. On January 2, 2022, Scott Company issued 3-year bonds with face amount of 2,500,000 at 98. Additionally. The entity paid bond issue cost of P70,000. The nominal rate is 10% and the effective rate after considering the ‘bond issue cost is 12%. The interest is payable annually on December 31. The entity used the effective interest method. What is the carrying amount of the bonds payable on December 31, 2022? . A. 2,415,600 B. 2,420,000 Cc. 2,424,000 D. 2,500,000 37. The following information pertains to the transfer of real estate pursuant to a debt restructuring by Clint Company to Natasha Company in full liquidation of Clint Company's liability to Natasha Company: Principal amount of the liability liquidated P1,200,000 Accrued interest on the liability liquidated 300,000 Carrying value of real estate transferred 1,000,000 Fair value of real estate transferred 1,200,000 What amount of pretax gain on extinguishment should Clint Company report for the current year? A. Zero. B. 200,000. . Cc. 300,000. B D- 500,000. 38. Gain or loss on substantial modification of terms shall A. be recognized in profit or loss. B. be recognized in other comprehensive income. CC. be recognized as a contra-account to the related liability. “ D. not be recognized. 1512le. Chapter Finale: Simulated CPALE on FAR, 39. Which of the following best describes the accrual approach of accounting for. warranty cost? A. Expensed when paid. }. Expensed when warranty claims are certain. C. _Expensed based on estimate in year of sale. D. Expensed when incurred. 40. Warranty4U Company manufactures high-end home electronic systems. The. entity provides a one-year warranty for all products sold. The entity estimated that the warranty cost is P200 per unit sold and reported a liability for estimated warranty cost of P650,000 on December 31, 2021. During the current year, the entity sold 5,000 units for a total of P9,000,000 and paid warranty claims of P750,000 on current and prior year sales. ‘What amount should be reported as (1 warranty and (2) warranty liability on Decemberaa couse eee or 2022 ) - (1) 1,000,000; (2) 250,000 /. B. (1) 750,000; (2) 250,000 (4) 1,000,000; (2) 900,000 ‘Ken te other A. Zero B. P1,000 C. P25,000 D. 26,000 61. How much is the net defined benefit liability/asset that wi shown in the December 31, 2022 at that will be A. P49,500 liability statement of financial position? B. P49,500 asset CC. P50,500 liability D. 50,500 asset 62. If an entity does not prepare interim financial reports The year-end financial statements are deemed not to comply with A accounting standards, B. The year-end financial statements’ compli i i a saves ona its’ compliance with accounting standards C. The year-end financial statements shall not be acceptable under local jurisdiction. D. Interim financial reports ‘shall be included in the year-end financial statements. . 63. Which of the following entities are required to report on business segments? A. Publicly-traded entities. B. Non-public entities. C. Joint ventures. D. All entities. 1521Chapter Finale: Simulated CPALE on FAR 64. Logan Company and its divisions are engaged solely in manufacturing operations. The entity reported the following segment profit or loss for the year 2022: 65. 66. Segment: —_ Profit (loss): 5,100,000 1,500,000 (3,000,000) 600,000 (300,000) ° 3,900,000 wawne In the segment information for 2022, what are the reportable segments? A. B. i D. dand2 1,2, and 3 1, 2,3, and 4 1, 2, 3, 4, and 5 If a small entity opts to account for its biological assets using the current market price model, all changes in the current market price of its biological assets are ; A. B. ic; D. Recognized in profit or loss. Recognized in other comprehensive income. Recognized in retained earnings. Not recognized. . ’ Under PFRS for SMEs, an entity A. must choose to present either a statement of income and retained earnings or a statement of comprehensive income and a statement of changes in equity (that is, a free accounting policy choice available to all entities that prepare their financial statements in accordance with the PFRS for SMEs Standard). must choose to present either a statement of income and retained earnings or a statement of comprehensive income and a statement of changes in equity (that is, a free accounting policy choice available to all entities that prepare their financial statements in accordance with the IFRS for SMEs Standard). is permitted, but not required, to present a statement of income and retained earnings in place of a statement of comprehensive income and a statement of changes in equity if the only changes to its equity in the periods for which financial statements are presented arise from profit or loss, payment of dividends, corrections of prior period errors and changes in accounting policy. that chooses to present a statement of income and retained earnings must also present a statement of comprehensive income and a statement of changes in equity. 1522Chapter inate: Simukated CPALE on FAR 67. PFRS for SMEs states that after initial recognition, the acquirer must measure goodwill acquired in a business combination 2 . A. at cost less accumulated amortization and accumulated impairment. B. at cost less accumulated amortization. C. at cost less accumulated impairment. D. at fair value. 68. Under PFRS for SMEs, an entity must account for its i i i SS ee for its investments in associates A. either the cost model or the fair vaiue i i policy for all investments in associates) (using the same accounting B. either the cost model or the fair value model lecter an investment-by-investment basis), {model con-be selected on Cc. either the cost model, the equity method or the fai odel, th e fair v i the same accounting policy for all investments in acta Cae : D. either the cost model, the equity method or the fair value model (modet can be selected on an invest ment-by-investment basis) 5 | .9. On January 1, 2017, an entity purchased a plot oe. building on the land for use as its edministatve neces ee Seana was completed and administrative staff moved in on January 1 sen tnd January 1, 2021, the entity's administrative staff moved out of the teedion and into newly acquired premises. The building was immediately retenong independent third party under an operating lease. On fae 31, 2 2 the entity accepted an unsolicited offer from the tenant to purchase the bowie from the entity with immediate effect. se the building The fair value of the building can be determined reliably wi z or effort on an ongoing basis. ly without undue cost Under PFRS for SMEs, the entity should account for the building as A (December 31, 2023). MAY 4, 2017 to the date of esposal B. property, plant and equipment during 2017-2022. c. ey during 2021-2082. during 2017-2020 and investment D. Crees peal oao ones ane during 2017-2020 and investment 70. Which is true about the financial reporting framework of a microenterprise? A. Microenterprises must use PFRS for Small Entities as their financial reporting framework. : B. Microenterprises must use income tax basis as their financial reporting framework. : C. Microenterprises have the option to use PFRS for Small Entities or Income Tax basis as their financial reporting framework. D. Microenterprises must use Full PFRS as their financial reporting framework. 1523Chapter Finale: Simulated CPALE »,, Drie SET A ANSWERS 1] B 26[ A Si B 2] 8 27| B 525/ ED) 3] A 28] A 53] B 4| "8 29| A 54[ 8B 52RD) 30{c 55] B 6] c 3i[ Cc 56 |B 7{| Dd 32|_A 57|_D slic 33 A s8/D |B 34[D 59] B 10 |B 35|_D 60 | D 15 eA 36[ A 61] 12 A 37 D 62 B. 13 |B 38| A 63 | A 14[B 39[¢ 64 |B 15|—A ao]; ¢c 65] A 161/2eAi 41|_ A 66[c 17|A 42[ oc 67 [A is | A 43["D 68] c 19[ A 441 A 69|_c 20/D as[ 70 [¢ 21[A 46{D 22[ 8 47[— A 23[ A. 48 Cc 24) B “49 [cc aor ars sol 1524 — =Chapter Finale: Simdtated CPALE on FAR SETB . PRO! PROBLEM A: : THADDEUS ROSS Corp,’s Cash in Bank items as of December 31, 2019 included the following items: " 7 Cash-in HSBC ~ checking account : P 1,500,000 Cash in Citystate Bank — checking account 1,200,000 _ Cash in BDO — checking account (per bank statement) 1,450,000 Total 4,150,000 Additional information in relation to the above-mentioned: components is as follows: ¥ (1) The following items were noted in relation to the HSBC checking account: ,@» Check No. 311 written and dated on December 28, 2019 in the amount of P45,000 remains on hand as of December 31, 2019. : ** Check No. 323 written on December 29, 2019 in the amount of ~ P30,000 dated January 2, 2020 was picked up at December 31, 2019, *° Check No. 326 written and dated on December 30, 2019 in the amount of P25,000 was picked up at December 31, 2019 but has remained outstanding until January 4, 2020. " . (2) The following information is in relation to the company's Citystate Bank checking account: Citystate Bank checking account # 001 P 1,450,000 Citystate Bank checking account # 002 zs (250,000) Total, f 1,200,000 The overdraft in Citystate Bank checking account # 002 was due to a check for P300,000 dated January 3, 2020 and was claimed by the Payee on December 30, 2019. * A compensating balance was being maintained in Citystate Bank checking account # 001 for P100,000 in relation to a long-term loan which was restricted as to withdrawal. (3) The following items were identified in relation to the BDO checking account, deposit in transit at December 31, 2019, P75,000; outstanding checks at December 31, 2019, P60,000; service charge for December, P2,500; interest income-for December, P1,000. <1. The correct amount to be reported as Cash in Bank is A. 4,240,000 B. 4,440,000 C. 4,523,500 reat .D.. 4,540,000 1525,weree —« Chapter Finale: Simulated CPALE on FAR PROBLEM B: On December 31, 2019, Chicago Bank granted a PS million loan to a borrower with 10% stated rate payable annually and maturing in five years. Market rate of interest on the loan of this type is 12%. Unfortunately, the financial condition of the borrower worsened because of lower revenue. On December 31, 2021, the bank determined that the borrower would pay back only P3 million of the principal at maturity. However, it was considered likely that interest would continue to be paid on the PS million loan. . The present value of 1 at 12% is 0.57 for five periods and 0.71 for three periods, The present value of an ordinary annuity of 1 at 12% is 3.60 for five periods and 2.40 for three periods. * 2. What is the amount of cash paid to the borrower on December 31, 2019? A. 4,400,000 B. 4,500,000 C. 4,650,000 D. 5,000,000 3. What is the impairment loss on loan receivable to be recognized © for 2021? A. 1,442,960 B. 1,670,000 Cc. 1,922,960 D. 2,000,000 PROBLEM. OBADIAH STANE Company is preparing the 2019 year-end financial statements. Prior to any adjustments, inventory is valued at P7,600,000. The following information has been found relating to certain inventory transactions: * Goods costing at P1,000,000 are on consignment with a customer. These goods are not included in the year-end inventory figure. * Goods costing P250,000 were received from a vendor on January 5, 2020. The related invoice was received and recorded on January 12, 2020. The goods were shipped on December 31, 2019, terms FOB shipping point. * Goods costing P850,000 were shipped on December 31, 2019, and were delivered to the customer on January 2, 2020. The terms of the invoice were FOB shipping point. The goods were included in ending inventory for 2019 even though the sale was recorded in-2019. “e A P350,000 shipment of goods to a customer on December 31, 2019 terms FOB destination was not included in the year-end inventory. The goods cost P260,000 and were delivered to the customer on January 8, 2020. The sale was properly recorded in 2020. 1526Chapter Finale: Simulated CPALE on FAR * An invoice for goods costing P350,000 was received and recorded as a purchase on December 31, 2019. The related goods, shipped FOB shipping point, were in transit on December 31, 2019 and received on January 2, 2020, and were not included in the physical inventory. * » Goods costing at P650,000 are on consignment from a vendor. These goods are not included in the year-end inventory figure: . ae) shipment of goods to a customer on December 30, 2019, Crag ee cgstination, was recorded a5 a sale in 2019, The ‘goods, | and delivered to the customer on January 6, Not included in 2019 ending inventory, eeu y 4. What is the correct inventory on December 31, 2019? A. 8,100,000 B. 9,100,000 C. 9,450,000 D. 9,950,000 PROBLEM D: Based on a physical inventory at year-end, Coulson Company determined the The normal profit margin is 10% of sales, 5. Under the lower of cost and net realizable value, what amount should be reported as chocolates inventory at year-end? ‘A. 2,400,000 B. 2,500,000 Cc. 2,600,000 D. 2,800,000 PROBLEM E: A fire destroyed Hill Company's inventory on October 31. On January 1, the inventory had a cost of P2,500,000. During the period January 1 to October 31, the entity had net purchases of P7,500,000 and net sales of P15,000,000. Undamaged inventory at the date of fire had a cost of P150,000. The markup on cost is 66 2/3%. 6. What was the cost of inventory destroyed by fire? A. 850,000 B. 1,000,000 Cc. 3,850,000 D. 4,000,000 1527QQeTay a \ Chapter Finale: Stinutated CPALE on FAR ed bonds with face amount of PROBLEM FE: ‘On January 1, 2018, PARKER Company PUrChaSe® 4,600,000 plus transaction! cost of P142,000. The 6% interest annually on December 5,000,000. The entity paid bonds mature on December 31, ‘2020 and pay 31 of each year with 8% effective yield. The bon 31,2018. 7. If the business model for this investment is to hold and collect contractual cash flows that are solely payments of interest and principal, comput w terest income for the year 2018; (2) earryi investment on December 31, 3018, and;.(3) un fair value changes that will-be presented in the hensive income. for the year 2018. Ww (2) eS) "is are quoted at 105 on December zed gain on ‘of compre real statement A. 379,360 4,821,360 B. 379,360 5,250,000 428,640 300,000 5,250,000 650,000 p. 300,000 4,821,360 oO g, Ifthe business model for this investment cash flows that are solely payment: and interest and, ° Siso to sell the bonds in the open ‘market, compute for the (1) for the year 2018; (2) carrying value of the bond, investment on December 34, 3018, and; (3) unrealized gain on fur value changes that will be presented in the statement of temprehensive income for the year 2018. ie) @) 3) to collect contractual A. 379,360 4,821,360 B. 379,360 5,250,000 428,640 C. 300,000. 5,250,000 , 650,000 D. 300,000 4,821,360 0 ir value option of interest income vestment on value 9, If the entity has irrevocably elected the fa U cosuring this investment, compute for the (1) i ue of the bond ji d for the year 2018; (2) carrying va December 31, 2018, and; (3) upree fed gain on fair changes that will be presented the statement © Comprehensive income for the year 2018. 1) 2 @) : 379,360. 4,821,360 428,640 300,000 5,250,000 508,000 300,000 5,250,000 650,000 379,360 4,821,360 0 poapPp 1528 - Ff —ae Chopter Finale: Simtated CDALE oun FAR 10. Equity investments irrevocably accounted for at fair value through other comprehensive income are : ‘A. Non-trading investments where a company has holdings of less than B. Trading investments, where a company has holdings of less thar «G_ Investments where a company has holdings of between'20% and D. Investments where a company has holdings of more than 50%. 41: The irrevocable election to : * comprehensive income is applicable only eo in fair value in other ‘A. Equity instrument that is not held for trading 8. Equity instrument that is held for trading.” C. Financial asset measured at amortized cost. D, Financial asset measured at fair value. BL ¢ At the beginning of the current year, Valkyrie Compan: i i “investment a 20% interest in another entity. Valkyrie paid PY OG0,c00 err investment when the fair value of the net assets was P35,000,000. ‘The inst can exercise significant, influence over the investee's operating ‘and freneey policies. i ~ puring the current year, the investee reported net i i Bann nde of Fevau,0On income of P6,000,000 and paid | 12. What amount of revenue from the i : ae Secrets the investment should be reported A. 400,000 7 B. 600,000 : : C. 800,000 D. 1,200,000 PROBLEM H: ' On January 1, 2019, Mighty Thor Company acquired 20% of the outstanding ordinary shares of an investee for P7,000,000. This investment gave Mighty Thor Company the ability to exercise significant influence over the investee, The carrying amount of the acquired net assets was P6,000,000, The excess of cost over carrying amount was attributed to an identifiable intangible asset which was undervalued on investee’s statement of financial position and i which had a remaining useful life of ten years, for the year ended December 31, 2019, the investee reported net income of 1,800,000 and paid cash dividend of P600,000 on its ordinary shares.” 1529Chapster Finale: Simulated OPYALE on FAR 13. On December 31, 2019, what is the carrying amount of the investment in associate? . A. 6,780,000 B. 6,900,000 ¢. 7,000,000 D. 7,140,000 PROBLEM I: Jittery Company acquired the following plant assets during 2018: Equipment = Acquired at an invoice price of P600,000, subject to. a 5% cash ‘iscount which was not taken. ‘land- Acquired by issuing 10,000 shares of P50 par value when the market price of the share was P120. The fair value of the land is P1,100,000. - Machinery — Acquired at a cost of P275,000. Installation cost was P7,000, trial run and other testing cost was P18,000, and construction of the base, 10,000.’ 14, What are the initial cost of the equipment, land, and machinery, respectively? A. 600,000; 1,100,000; 300,000 i B. 570,000; 1,200,000; 310,000 C. 570,000; 1,100,000; 310,000 D. 600,000; 1,200,000; 300,000 PROBLEM At the beginning of 2018, Hallmark Company exchanged an old packaging machine, which cost P1,200,000 and was 50% depreciated, for a used machine and received a cash difference of P160,000. The fair value of the old Packaging machine was determined tobe P700,000. 15. Assuming the transaction has commercial substance, whatis the cost of the new asset acquired? 440,000 540,000 700,000 860,000 pop> PROBLEM K: On January 1, 2016, Revolver Co. signed an eight-year lease for office space. The entity has the option to renew the lease for an additional four-year period on or before January 1, 2023. During January 2018, the entity made general improvement to the premises costing P3,600,000 and having an estimated useful life of 10 years. On December 31, 2018, the entity‘s intention as to exercise of the renewal option is uncertain because this will depend upon future office space requirement. A full year depreciation expense is taken for the current year. 1530Chapter Finale: Simulated PALE on FAR 16. What amount should be recorded as depreciation of leasehold improvement for the year 2018? : A. 300,000 B. 360,000 C. 450,000 D. 600,000 17. Which of the following is not a characteristic wet of 2 istic of property, plant, and A. The property, plant, and equipment are tangible assets. 5 th Property Plant, and equipment are used in business operations. erty, plant, and equipment are expected to period of more than one year. " ee ©. The property, plant, and equipment are subject to depreciation. 18. In which of the following sit i tl eae ng _fituations is the production method of ‘A. An asset's service potential declines with use, B. An asset's service potential declines with the Passage of time. “.C, Amasset is subject to rapid obsolescence. .D. An asset incurs increasing repairs and maintenance with use, PROBLEM L: : Cold Warfare Company purchased a patent on January 1, 2013 for P6,000 The original life of the patent was estimated to be 15 years. However, during sae, the controller received information proving conclusively that the product protected by the patent would be obsolete within four years, The entity decicled to write off the unamortized portion of the patent cost over five years beginning in 2018, : . 19. What is the patent amortization for 2018? A. 400,000 B. 800,000 C. 1,000,000 D. 1,200,000 PROBLEM M: Southern Company acquired a registered trademark for P600,000. The trademark has a remaining legal life of five years but can be renewed every 10 years for a Nominal fee. The entity expects to renew the trademark indefinitely. 20. What amount of amortization expense should be recorded for the trademark in the current year? A 0 B. 15,000 ‘ Cc: 40,000 é ' D. 120,000 1531Chapter Finale: Sinutated CPALE on FAR PROBLEM N; At the beginning of 2018, Downtown Company acquired an intangible asset for 3,000,000. The intangible asset has an estimated useful life of 10 ears, At the end of 2018, the intangible asset was evaluated to determine whether it was impaired. On same date, the following information are available: Fair value, 12/31/2018 2,100,000 Cost to be incurred if the intangible asset is to be disposed on December 31, 2018, 100,000 ‘The asset is expected to generate future cash flows of P300,000 annually for the remaining 9 years. The appropriate discount rate is 5%. The present value of an ordinary annuity of 1 at 5% for nine periods is 7.11. 21. What is the impairment loss to be recognized for 2018? Ao 567,000 ~ 600,000 700,000 poe 22. The carrying amount of an intangible is the fair value of the asset at a balance sheet date. the asset's acquisition cost less the total related amortization recorded to date. ‘equal to the balance of the related accumulated amortization account. the assessed value of the asset for intangible tax purposes. 9 9 gry PROBLEM O: Elmo Co. has a single investment property which had an original cost of P5,800,000 ‘on January 1, 2015. The fair value was P6,000,000 and P5,900,000 on December 31, 2017 and December 31, 2018, respectively. On acquisition, the property had - 2 useful life of 40 years. 23. What is the expense recognized | in profit or loss for 2018 under the fair value model and cost model, respectively? 147,500; 145,000 100,000; 145,000 145,000; 100,000 100,000; 147,500 pomp 1532Chapter Finale: Simutated CPALE on FAR PROBLEM P: Robust Company purchased an investment property on January 1, 2017 for a cost of P2,200,000. The property had a useful life of 40 years and on December 31, 2019 had a fair value of P3,000,000. On December 31, 2019, the property was sold for a net proceeds of P2,900,000. The entity used the cost model to account for the investment property. 24, What is the gain or loss to be i i disposal of the investment property? eee A. 100,000 loss B, 700,000 gain C, 810,000 gain D. 865,000 gain, PROBL! Legend Dairy produced milk for local ice cream Producers. The i operations at the beginning of current year by purchasing Hikice’ vee oe 2,000,000. ‘The entity provided the following information at year-end relating to the milking cows: Carrying amount — January 1° Change in fair value due to growth and price change So Decrease in fair value due to harvest 90,000 Milk harvested during the year but not yet sold 150,000 25. What is the carrying amount of the biologi : ‘A. 2,000,000 logical asset at year end? B. 2,350,000 C. 2,400,000 D. 2,500,000 PROBLEM R: : On April 1, 2019, Brie Company had’a machine with a cost of P1,000,000 and accumulated depreciation of P750,000. On the same date, the entity classified the machine as “held for sale” and decided to sell the machine within one year. The machine had an estimated selling price of P100,000 and a remaining useful life of two years. It is estimated that the disposal cost of the machine will be P10,000. On December 31, 2019, the estimated selling price of the machine had increased to p150,000 with estimated disposal cost of P20,000. 26. What amount should be recognized as gain on reversal of impairment on December 31, 2019? 40,000 60,000 73,750 93,750 a 1533 pom>Chapter Finale: Simuated CPALE on FAR 27. An entity shall measure a non-cuirrent asset or disposal group classified as held for sale at A. Carrying amount B. Fair value less cost of disposal C. Lower of carrying amount and fair value less cost of disposal D. Higher of carrying amount and fair value less cost of disposal PROBLEM. B-bol King Co. started a new promotional program. For every 10 box tops returned, customers receive a basketball. The entity estimated that only 60% of the box tops reaching the market will be redeemed. The entity provided the following information: Units Amount Sales ob proaue 100,000 30,000,000 Basketballs purchased : 5,500 74'125'000 Basketballs distributed 4,000 28, What is the amount of year-end estimated liability associated with this promotion? A. 1,500,000 B. 3,000,000 C. 4,125,000 D. 4,500,000 PROBLEM T: During 2017, Stark Industries Inc. introduced a new line of machines that carry a three-year warranty against manufacturer's defects. Based on industry experience, warranty costs are estimated at 2% of sales in the year of sale, 3% in the year after sale, and 4% in the second year after sale, Sales and actual warranty expenditures for the first three-year period were as follows: Sales Actual nty Expenditures 2017 P 400,000 P 6,000 2018 1,000,000 40,000 2019 — 1,400,000 90,000 2,800,000 P136,000 29. What amount should Stabler report as a’ liability at December 31, 2019? A. 0 B. 28,000 C. 36,000 D. 116,000 30. How would the proceeds received from the advance sale of non- refundable tickets for Avengers: Endgame be reported before the showing date? A. Revenue for the entire proceeds, B, Unearned revenue for the entire proceeds. C. Revenue to the extent of related costs expended. 1534Chapter uate: Sinatated OPALE on FAR D. Unearned revenue to the extent of related! costs expended. PROBLEM U: The following information pertains to the transfer of real estate pursuant to a debt restructuring by Clint Company to Natasha Company in full liquidation of Clint Company's liability to Natasha Company: - Principal amount of the liability liquidated 1,200,000 Accrued interest on the liability liquidated 300,000 Carrying value of real estate transferred 1,000,000 Fair value of real estate transferred 1,200,000 31. What amount of pretax gain on extinguishment sh i Company report for the current year? faa AO B. 200,000 c. 300,000 D. 500,000 PROBLEM V: On January 1, 2019, Madness Company had an overdue 10% note payabl: at P8,000,000 and accrued interest of P800,000. As a result of ¢ restuchuring agreement on January 1, 2019, BPI agreed to the following provisions: * _ The principal obligation is reduced to P6,000,000. ° The accrued interest of P800,000 is forgiven, ¢ The date of maturity is extended to December 31, 2022. «Annual interest of 12% is to be paid for 4 years every December 31. The present value of 1 at 10% for 4 periods is 0.683 and the present value of an ordinary annuity of 1 at 10% for 4 periods is 3.17. 32. bi fe the gain on extinguishment of debt to be recognized for 204: A. 1,619,600 B. 2,000,000 Cc. 2,419,600 D. 2,800,000 PROBLEM W: : Caress Company carried a provision of P2 million in the draft financial statements on December 31, 2019 in relation to an unresolved court case. On January 31, 2020, when the financial statements on December 31, 2019 had not yet been authorized for issue, the case was settled and the court decided the damages Payable by Caress Company to be P2.8 million. 1535 |Chapter Finale: Simulated CPALE on FAR 33. What correct amount should be reported as provision on December 31, 2019 in relation to this event? A 0 B. 800,000 Cc. 2,000,000 D. 2,800,000 PROBLEM X: Nakia Company is involved in litigation regarding a faulty product sold in a prior year. The entity had consulted with an attorney and determined that it is possible that the entity may lose the case. The attorney estimated that there is a 40% chance of losing. If this is the case, the attorney estimated that the amount of any payment would be P5 million. 34, What is the required journal entry as a result of this litigation? A. Debit litigation expense for PS million and credit litigation liability for PS million. B. Debit litigation expense for P2 million and credit litigation liability for P2 million, C. Debit litigation expense for P3 million and credit litigation liability for P3 million. D. No journal entry is required. PROBLEM Y: In May 2019, Rhodey Company filed suit against James Company seeking 1,900,000 damages for patent infringement. A court verdict in November 2019 awarded Rhodey P1,500,000 in damages, but James’s appeal is not expected to be decided before 2020. Rhodey’s counsel believed it is probable that Rhodey will be successful against James for an estimated amount in the range between P800,000 and P1,100,000, with P1,000,000 considered the most likely amount. 35, What amount should Rhodey record as income from the lawsuit for the year ended December 31, 20197 A 0 B. 1,000,000 Cc, 1,100,000 D. 1,500,000 36. Which of the following is not considered a provision? A. Warranty liability B. Bad debt C. Tax payable D. Note payable 1536Chapter Finale: Simulated CPALE on FAR 37. Which of the following statements is false In relation to the measurement of a provision? * A. The risks and uncertainties that inevitably surround many events and circumstances shall be taken into account in reaching the best estimate of a provision. 8. Where the effect of the time value of money is material, the amount of a provision shall be the Present value of the expenditure expected 5 to settle the obligation. C. Future events that may affect the amount required to settle the obligation shall be reflected in the amount of the Provision where there is sufficient objective evidence that the future events will occur. D. Gains from expected disposal of assets shall be taken into account in measuring a provision. PROBLEM. Banner Corporation began operations on January 1, 2018 by issuing at P15 per share one-half of the 950,000 ordinary shares of P10 par value that had been authorized for sale, In addition, the entity has 500,000 authorized preference shares of PS par value. _ During 2018, the entity had P1,025,000 of net income and declared P230,000 of dividend. P During 2019, the entity had the following transactions: * Issued 100,000 ordinary shares for P17 per share. + Issued 150,000 preference shares for P8 per share. © Authorized the purchase of a special machine to be delivered in January 2020. The entity restricted P300,000 of retained earings for the purchase of the said machine. * Issued additional 50,000 preference shares for P9 per share. Reported P1,215,000 of net income and declared on December 32, 2019 a cash dividend of P635,000 to shareholders of record on January 15, 2020 to be paid on February 1, 2020. 38. What is the shareholders’ equity on December 31, 2019? A. 7,920,000 B. 11,550,000 C, 11,850,000 D.” 12,485,000 1537Ca ptr Finale: Simulated OPALE on Fete PROBLEM AA: \ Casper Company disclosed the following shareholders’ equity on January 1, 2019: \ Share capital, par value P20 Authorized 50,000 shares; issued and outstanding, 30,000 shares 600,000 Share premium 150,000 Retained earnings + 230,000 During the year, the following transactions occurred relating to shareholders’ equity: : * 1,000 sharés were reacquired at P28 per share. * 900 shares were reacquired at P30 per share. _* 1,500 shares of treasury were sold at P32 per share. The entity reported net income of P110,000 for the current year. i 39. What amount should be reported as shareholders’ equity on December 31, 2019? A. 973,000 B. 1,071,000 C. 1,078,000 D. 1,083,000 1 PROBLEM BB:, Precious One Company was organized on January 1, 2018 with an authorization of 1.2 million ordinary shares with a par value of P6 per share. During the year, the entity had the following share capital transactions: January 5 Issued 675,000 shares at P10 per share. July 28 Purchased 90,000 treasury shares at P11 per share. December 31 Sold the 90,000 shares held in the treasury at P18 per share. The entity used’the cost method to record the purchase and reissuance of the treasury shares, 40. What is the total amount of share premium on December 31, 2018? A 0 B. 2,070,000 Cc. 2,700,000 D. 3,330,000 1538Chapter Finale: Simulated CPALE on FAR pROBLEM. cc: OnJanuary 1, 2018, Ronin Company had 125,000 issued shares and 25,000 shares to officers as part of a share compensation plan. + November 1 — A 3-for-1 share split took effect. December 1—The entity purchased 5.000 of its own shares to discourage an unfriendly takeover. These shares were not retired. 41, On December 31, 2018, how many shares were issued and outstanding? BP Hssued ~ 375,000; Outstanding ~ 334,000 . Issued ~ 375,000; Outstanding — 324,000 C. Issued — 334,000; Outstanding — 334,000 D. Issued ~ 325,000; Outstanding — 324,000 : PROBLEM Dp: ; “Puring 2018, Selvig Company reported the following cash dividends on the P10 Par value share capital: / He cuarter “ P800,000 Se oer 900,000 34 Quarter 1,000,000 quarter 1,100,000 The 4 quarter cash dividend was declared on December 20, 2018 to shareholders of record December 31, 2018 payable on January 31, 2019. In addition, the entity declared a 5% stock dividend on December 1, 2018 when there were 300,000 shares issued and outstanding and the market value was P20 per share on declaration date and P25. on distribution date. The shares were issued on December 21, 2018. 42. What was the effect on shareholders’ equity accounts as a result of the dividend transactions? Share capital Share premium. Retained earnings in Zero Zero 3,800,000 debit B. 150,000 credit 225,000 credit 4,175,000 debit Cc 150,000 credit 150,000 credit 4,100,000 debit D. + 300,000 credit 300,000 credit 3,800,000 debit 1539 held as treasury. During the year, transactions involving share capital were as follows: January 1 through October 31 — 13,000 treasury shares were distributedce Chapter Finale: Simulated CPALE on FAR PROBLEM EE: Adverse financial and operating circumstances warrant that Captain Rogers ‘Company should undergo a quasi-reorganization on December 31, 2018. The following information may be relevant in accounting for quasi-reorganization: ©. Inventory with a fair value of P2 million is currently recorded in the e accounts at cost of P2.5 million. * Plant assets with a fair value of P7 million are currently recorded at P8.5 million, net of accumulated depreciation, * Individual shareholders contribute P4 million to create additional capital to facilitate the reorganization. No new shares are issued. + The par value of the share is reduced from P25 to PS: Immediately before these events, the shareholders’ equity appears as follows: Share capital, P25 par, 100,000 shares outstanding ‘Share premium Deficit 43. After the quasi-reorganization, what amount should be reported as share premium? ‘ A. 1,750,000 B. 2,750,000 C. 3,250,000 D. 3,750,000 44. Subsequent to the quasi-reorganization, what amount of retained earnings shall be restricted and cannot be declared as dividends according to the SEC? A 0 B, 3,000,000 Cc. 3,500,000 D. 5,000,000 45. Total stockholders’ equity represents ‘A. acclaim to specific assets contributed by the owners. B. the maximum amount that can be borrowed by the enterprise. C. a claim against a portion of the total assets of an enterprise. D. only the amount of earnings that have been retained in the business. 46. Cash dividends are paid on the basis of the number of shares authorized. issued, outstanding. outstanding less the number of treasury shares. pomp 1540Chapter Finale: Stnutated CPALE on FAR 47. A feature common to both stock splits and stock dividends is A. a transfer to earned capital of a corporation. B. that there is no effect on total stockholders’ equity. C. an increase in total liabilities of a corporation. D. a reduction in the contributed capital of a corporation. 48. When treasury stock is purchased for more than the par value of the stock and the cost method is used to account for treasury ‘stock, what account(s) should be debited? A. Treasury stock for the par value and paid-in capital in excess of par for the excess of the purchase price over the par value. Paid-in capital in excess of par for the purchase price. Treasury stock for the purchase price. Treasury stock for the par valtie and retained earnings for the excess of the purchase price over the-par value. PROBLEM FE: Honeybee Company owns an office building and normally charges tenants P3,000 per square meter per year for office space. Because the occupancy rate is low, Honeybee Company agreed to lease 1,000 square meters to Wasp Company at 1,200 per square meter for the first year of a three-year operating lease. Rent for remaining years will be at the P3,000 rate. Wasp Company moved into the building on January 1, 2018, and paid the first year’s rent in advance. gone 49. What amount of lease revenue should be reported in the income statement for the year ended September 30, 2018? A. 900,000 B. 1,200,000 Cc. 1,800,000 D. 2,400,000 PROBLEM G Perseverance Company is in the business of leasing equipment. The lessor expects a 12% return. All leases are classified as direct financing lease. At the end of the lease term, the equipment will revert to the lessor. On January 1, 2018, an equipment is leased to a lessee with the following information: Cost of equipment to the lessor : 5,000,000 Residual value — unguaranteed 600,000 Annual rental payable in advance 900,000 Initial direct cost paid by the lessor 250,000 Useful life and lease term 8 years Implicit rate in the lease 12% First lease payment January 1, 2018 1541 «Chapter Finale: Simulated GPALE on FAR 50. What is the gross investment in the lease? ‘A. 5,000,000 B. 5,250,000 C. 7,200,000 D. 7,800,000 51. What is the interest income for 2018? A. 450,000 B. 522,000 Cc 594,000 D. 630,000 . PROBLEM HH: . Palmares Company leased equipment from Baler Company on July 1, 2018 for an 8-year period. Equal payments under the lease are P600,000 and are due on July 1 of each year. The first payment was made on July 1, 2018. The interest rate contemplated by Palmares and Baler is 10%. The cash selling price of the equipment is P3,520,000 and the cost of the equipment on Baler Company's records is P2,800,000. The lease is appropriately accounted for as a sales-type leae. 52. What amount of profit on sale and interest income, respectively, should be recognized for the year ended December 31, 2018? ‘A. 720,000; 176,000 B. 720,000; 146,000 C. 45,000; 176,000 D. 45,000; 146,000 53. Lease payments under an operating lease shall be recognized as an expense in the income statement on A. Straight line basis over the lease term unless another systematic basis is representative of the time pattern of the user's benefit. B. Diminishing balance basis C. Sum of units basis D. Cash basis 54, Under a direct financing lease, the excess of aggregate rentals over the cost of leased property shall be recognized as interest income of the lessor A. In increasing amounts during the lease term B. In constant amounts during the lease term C. In decreasing amounts during the lease term D. After the cost of leased property has been fully recovered through rentals 1542Chapter Finale: Simulated CPALE on FAR 55. What is the treatment of unguaranteed residual value in determining the cost of goods sold under a sales type lease? A. The unguaranteed residual value is ignored. B.~ The unguaranteed residual value is added to the cost of the lease asset. vos C. The unguaranteed residual value is deducted from the cost of the leased asset at absolute amount. D. The unguaranteed residual value is deducted from the cost of the leased asset at present value. 56. The excess of the fair value of leased property at the inception of the lease over the carrying amount should be recognized by the dealer lessor “as A. Unearned income from a sales type lease B. Unearned income from a direct financing lease C. Manufacturer profit from a sales type lease D. Manufacturer profit from a direct financing lease PROBLEM 33; On January 1, 2018, Rollers Company entered into a ten-year noncancelable lease requiring year-end payments of P1,000,000. Rollers’ incremental borrowing rate is 12%, while the lessor’s implicit interest rate, known to Rollers, is 10%. Present ’ value factors for an ordinary annuity for ten periods are 6.145 at 10%, and 5.650 at 12%. e / on the same date, Rollers company paid initial direct cost of P200,000 in negotiating and securing the leasing arrangement. Ownership of the property remains with the lessor at expiration of the lease. There is no purchase option. The leased property has an estimated economic life of 12 years. 57. What amount should be capit ally as cost of the right of use asset? A. 5,650,000 B. 5,850,000 7 Cc. 6,145,000 D. 6,345,000 58. What is the annual depreciation of the right of use asset? A. 487,500 B, 528,750 Cc. 585,000 D. 634,500 1543Chapter Finale: Sinutated CPALE on FAR PROBLEM Ki Ripe Company leased equipment for the entire nine-year useful life, agreeing to Pay P500,000 at the start of the lease term on December 31, 2017, and P500,000 annually on each December 31 for the next eight years. : The present value on December 31, 2017 of the nine lease payments over the lease term using the rate implicit in the lease which Ripe knows to be 10% was P3,165,000. The December 31, 2017 present value of the lease payments using Ripe’s incremental borrowing rate of 12% was P2,985,000, 59. What amount should be reported as lease liability on December 31, 2018? - A. 2,283,200 B. 2,431,500 C. 2,485,000 D. 3,500,000 PROBLEM LL: Mesmerizing Company provided the following information related to a defined benefit plan for the current year: Past service cost 115,000 Current service cost : 30,000 Contribution to the fund 21,000 Benefits paid 5 31,000. Fair value of plan assets: January 1 " 2,100,000 December 31 2,400,000 Projected benefit obligation: January 1 2,200,000 December 31 - 2,500,000 Discount rate 5% 60. What amount should be recognized as employee benefit expense for the current year? A. 115,000 B. 140,000 C 145,000 D. 150,000 61. What is the actuarial loss arising from the increase in projected benefit obligation? » > A. 76,000 B. 185,000 Cc. 191,000 D. . 300,000 ° 1544Chapter Finale: Simutated PALE on FAR 62. What amount should be reported as prepaid or accrued benefit cost on December 31? A. 100,000 accrued B. 100,000 prepaid C. 150,000 accrued D. 150,000 prepaid 63. The components of defined benefit cost include all, except A. Service cost B. Net interest C. Remeasurements D. Contribution to the plan 64. In accounting for a defined benefit plan, ‘A. An appropriate funding must be establistied to ensure that enough fund would be available at retirement. B. The employer responsibility is simply to make a contribution each year. C. The expense recognized each period is equal to the cash contribution to the plan. The liability is determined based upon variables that reflect current salary levels. D. PROBLEM MM: Dowell Company reported the following carrying amount of assets and liabilities at year-end: Property 10,000,000 Plant and equipment 5,000,000 ~ Inventory 4,000,000 Trade receivables 3,000,000 Trade payables 6,000,000 2,000,000 Cash The value for tax purposes for property and for plant and equipment was P7,000,000 and 4,000,000, respectively. the entity has made a provision for inventory obsolescence of P2,000,000 which is not allowable for tax purposes, Further, an impairment loss against trade receivables of P1,000,000 has been made. This charge will not be allowed in the current year for tax purposes. The tax rate is 30%. 65. What amount should be reported as (1) deferred tax liability and (2) deferred tax asset at year-end? A. (1) 1,200,000; (2) 900,000 B. (1) 900,000; (2) 1,200,000 C. (1) 300,000; (2) 0 D. (1) 0; (2) 300,000 1545Chapter Finale: Simulated CPALE on FAR PROBLEM NN: JUICE KOHLOURD Company is in the first year of operations and reported pretax accounting income of P4,000,000. The entity provided the following information for the first year: Premium on life insurance of key officer 100,000 Depreciation on tax return in excess of book depreciation 200,000 Interest on municipal bonds 50,000 Warranty expense 40,000 Actual warranty repairs 30,000 Bad debt expense 60,000 Ending balance in allowance for bad debts 40,000 Rent received in advance that will be recognized evenly over the next three years 300,000 ‘Income tax rate is 30%. 66. What is the current tax expense for the first year? A B. c D. 1,215,000 1,260,000 1,320,000 1,335,000 67. Which of the following differences would result in future taxable amount? A B. Cc D. Expenses or losses that are deductible after they are recognized in accounting income. Revenues or gains that are taxable before they are recognized in accounting income. Expenses or losses that are deductible before they are recognized in accounting income. Revenues or gains that are recognized in accounting income but are never included in taxable income, G8, An item that would create @ permanent difference in pretax financial income and taxable income would be A B. c D. Using accelerated depreciation for tax purposes and straight line depreciation for book purposes. Using percentage of completion method on long-term construction contracts. Paying fines for violation of laws. All of these create @ permanent difference in pretax financial income and taxable income. 1546Chapter Finale: Simulated PALE on FAR PROBLEM OO: Vicar Company initiated a performance-based employee share option plan on January 1, 2016. The performance base for the plan is net sales in the year 2018. The plan provides for share options to be awarded to the employee as a group on the following basis: Level Net sales range Options granted 1 Less than 2.5 million 10,000 2 P2.5 million — 4,999,999 20,000 3 PS million ~ 10 million 30,000 4 More than 10 million 40,000 ‘The options become exercisable on January 1, 2019. The options exercise price is 200 per share. On January 1, 2016, each option had a fair value of P90. The share market prices were: January 1, 2016 P2S0 December 31, 2016 300 December 31, 2017 350 December 31, 2018 320 The entity reported the following sales each year: 2016 4.5 million 2017 5.5 million 2018 7 million 69. What amount should be recognized as compensation expense for 2018? A. 600,000 B. 900,000 C. 1,200,000 D. 1,800,000 PROBLEM PP: Melissa Company granted 100 share appreciation rights to each of the 1,000 employees on January 1, 2016. The management estimated that 90% of the awards will vest on December 31, 2018. The fair value of each share appreciation right on December 31, 2016 is P10. 70, What is the fair value of the liability for the share appreciation tights on December 31, 2016? A. 100,000 B. 300,000 C. 450,000 D. 900,000 1547 4Glapter Finale: Simulated CPALE on FAR SET B ANSWERS B 26[_A si] 8 t 27[_C 52|_B h 28] A 53|_A roe} [29] > s4] Cc 30| 8 55|D A 31{_ 0. 56 | C A 32[¢ 57|"D B 33| .D 58|_D a 34] D 59] B A 35] A 60] D A 36] D 61] A D 37{ D 62[ A D 38] C 63|_D a 39D 64[_A ; B 740 [D 65| A D 41] A 66| B D a2] C e7|c A 43 B 68| B 44 D 69 B A 45|_C 70/8 B 46 c B 42 B B-| | 48[c D 49 c B 50 D A