Excel_Professional Services Inc.

Management Firm of Professional Review and Training Center (PRTC)

Manila * Cavite * Laguna * Cebu * Cagayan De Oro * Davao

OPEN First Preboard Examination on Financial Accounting and Reporting

February 22, 2022
Suggested answers/solutions by OCAMPO/OCAMPO

Question No. 1 - C
Question No. 2 - B
Question No. 3 - D
Question No. 4 - B
Unadjusted inventory 2,348,900
Add (deduct) adjustments:
Item letter b 134,200
Item letter c -
Item letter d -
Item letter e 85,400
Item letter f (104,380)
Item letter g (105,200)
Item letter h 15,000
Adjusted inventory 2,373,920

Question No. 5 - C
Unadjusted inventory 2,580,000
Item a -
Item b -
Item c 20,000
Item d 41,000
Item e 43,000
Item f -
Adjusted inventory 2,684,000

Question No. 6 - A
Cost NRV LCN Units Total
Product A 14 12 12 2,000 24,000
Product B 16 20 16 5,000 80,000
104,000
NRV of Product A (P17 - P5)

Question No. 7 - C
Raw materials, 1/1 42,500
Purchases 96,000
Raw materials available for use 138,500
Less raw materials, 6/30 52,000
Raw materials used 86,500
Direct labor 130,000
Factory overhead (P130,000 x .6) 78,000
Total manufacturing cost 294,500
Work-in-process, 1/1 115,000
Total cost placed in process 409,500
Less work-in-process, 6/30 (squeeze) 135,020
Cost of goods manufactured 274,480
Finished goods, 1/1 120,000
Total goods available for sale 394,480
Less finished goods, 6/30 112,000
Cost of goods sold (P428,000 x .66) 282,480

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Question No. 8 - B
Cost Retail
Beginning inventory 440,000 800,000
Purchases 4,500,000 7,400,000
Purchase returns (240,000) (350,000)
Freight on purchases 100,000
Additional mark up 250,000
Mark up cancellations (100,000)
Mark down (600,000)
Mark down cancellations 100,000
Goods available for sale 4,800,000 7,500,000

Cost ratio (P4,800,000/P7,500,000) 0.64

Goods available for sale (GAS) at retail 7,500,000

Less net decrease in GAS at retail:
Sales 5,300,000
Sales returns (400,000)
Employee discounts 200,000
Theft and other losses 100,000 5,200,000
Ending inventory at retail 2,300,000
x Cost ratio 0.64
Ending inventory at cost 1,472,000

Question No. 9 - D
Question No. 10 - B
Question No. 11 - B
Fair value, based on level 1 input (P5,300 - P300) 5,000
Estimated costs to sell (Commissions) (500)
Carrying amount of biological assets 4,500

Question No. 12 - B
Jounal entry to reclassify the property:
Investment property 7,000,000
Allowance for inventory writedown 2,000,000
Loss (P/L) 1,000,000
Inventory 10,000,000

Question No. 13 - A
Cost subject to depletion (P20M - P4M) 16,000,000
Divide by total estimated reserves in 2021 5,000,000
Depletion rate in 2021 3.20
Number of tons mined in 2021 500,000
Depletion for 2021 1,600,000

Original cost subject to depletion 16,000,000

Less depletion in 2021 1,600,000
Remaining cost to deplete, 1/1/22 14,400,000
Remaining tons of ore, 1/1/22 (4,500,000+1,500,000) 6,000,000
Depletion rate in 2022 2.40
Number of tons mined in 2022 1,500,000
Depletion for 2022 3,600,000

Question No. 14 - C
Cost/Depreciable amount 2,800,000
Accumulated depreciation, beg. of 3rd year (200,000 x P5.6) (1,120,000)
CA/Remaining depreciable amount beg. of 3rd year 1,680,000
Depreciation - 3rd year (P1,680,000/8) (210,000)
CA/Remaining depreciable amount beg. of 4th year 1,470,000
/Remaining remaining reserves beg. of 4th year 300,000
Depreciation rate - 4th year 4.90

Depreciation - 4th year (100,000 x P4.9) 490,000

Question No. 15 - C

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 List price of the equipment 14,000
Cash discount (deduct whether taken or not) (200)
Freight 250
Installation costs 430
Testing costs 295
Cost of new equipment 14,775

Question No. 16 - B
Actual invoice price 58,000
Concrete platform 4,000
Testing 7,000
Total cost 69,000

Depreciation - 2022:
(P69,000/10 x 4/12) 2,300

Question No. 17 - A
Cost 81,000
Residual value (6,000)
Depreciable amount 75,000
/ Total estimated output 24,000
Depreciation rate 3.125
x Output - 2022 7,000 units
Depreciation - 2022 21,875

Note: Output method is the most appropriate based on the information given.

Question No. 18 - A
Depreciation - 2022 (3rd year)
[(P20,000 - P2,000) x 2/10] 3,600

Question No. 19 - C
Depreciation - 2022 (4th year)
(P500,000 x .75 x .75 x .75 x .25) 52,734

Question No. 20 - A
Question No. 21 - B
Machine A Machine B
Fair value 84,000 38,000
Carrying amount, 12/31/22:
Cost 100,000 60,000
Accumulated depreciation (20,000) (20,000)
80,000 40,000
Increase (Decrease) 4,000 (2,000)
To be recognized in OCI Profit or loss

Question No. 22 - B
Profit or loss (2,000)
Other comprehensive income (OCI) 4,000
Comprehensive income 2,000

Question No. 23 - B
Depreciation [(P5M/20) x 6/12] (125,000)
FV adjustment, 7/1/22 (Revaluation loss)
FV, 7/1/22 4,800,000
CA, 7/1/22 (P5M - P.125M) 4,875,000 (75,000)
FV adjustment, 12/31/22
FV, 12/31/22 4,950,000
FV, 7/1/22 4,800,000 150,000
(50,000)

Question No. 24 - A
Cost to acquire patents 100,000
Cost of training and advertising - expense when incurred

Question No. 25 - C

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 R & D expense (Include all except equipment) 11,000,000

Question No. 26 - D
Patent amortization - 2022 (P330,000/10) 33,000

Question No. 27 - C
12/31/21 12/31/22
CA before amortization 940,000 705,000
Amortization (P940,000/4) (235,000) (235,000)
CA after amortization 705,000 470,000
Recoverable amount (Higher of FV-COD and VIU)
720,000 445,000
Impairment loss - 25,000
Amortization 235,000
Impairment 25,000
Total expense in 2022 profit or loss 260,000

Question No. 28 - A
Purchase price 35,000,000
Less fair value of net assets:
Unadjusted 15,000,000
Patent 10,000,000
Receivable 2,000,000 27,000,000
Goodwill 8,000,000

Question No. 29 - D
Question No. 30 - B
Cost 650,000
Acc. depreciation, 12/31/22 [(P650,000 - P50,000) x 5/12] (250,000)
Carrying amount, 12/31/22 400,000
Recoverable amount - VIU [(P1M - P825,000)/5 x 3.7908] 132,678
Impairment loss 267,322

Question No. 31 - B
Fair value, 12/31/22 1,650,000
CA, 12/31/22 without impairment [P2,000,000 - (P80,000 x 12)] 1,040,000
Revaluation surplus 610,000

Alternative computation:
Fair value, 12/31/22 1,650,000
Less CA, 12/31/22 with impairment 836,875
Revaluation increase 813,125
Less reversal of impairment 203,125
Revaluation surplus 610,000

Useful life (P2,000,000/P80,000) 25

CA, 12/31/19 [P2,000,000 - (P80,000 x 9)] 1,280,000

Impairment loss 250,000
RA 1,030,000

CA, 12/31/19 after impairment 1,030,000

Less depreciation - 2020 to 2022 [(P1,030,000/16) x 3] 193,125
CA, 12/31/22 836,875

CA, 12/31/22 without impairment [P2,000,000 - (P80,000 x 12)] 1,040,000

Less CA, 12/31/22 with impairment 836,875
Reversal of impairment loss in P/L 203,125

Question No. 32 - A
Balance of revaluation reserve before revaluation 20,000
Revaluation increase on 6/30/22 (P330,000 - P290,000) 40,000
Balance of revaluation reserve after revaluation 60,000

Question No. 33 - B
Depreciation - 2022 [(P135,000 - P13,500)/5] 24,300
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Question No. 34 - B
Interest Allied Bank loan (P800,000 x .06) 48,000
Interest BDO Bank loan (P1,000,000 x .066) 66,000
Interest Metro Bank loan (P3,000,000 x .07) 210,000
Total 324,000
Total general borrowings 4,800,000
Capitalization rate 6.75%
Capitalized interest (P1,800,000 x .0675 x 8/12) 81,000

Question No. 35 - A
Question No. 36 - B
Question No. 37 - A
Include all items.

Question No. 38 - D
Cash in bank (P15,000,000 - P500,000 + P300,000) 14,800,000
Petty cash fund 50,000
Time deposit 5,000,000
Saving deposit 2,000,000
Cash and cash equivalents 21,850,000

Question No. 39 - D
Cash in bank, 1/1 70,000
Set up of petty cash fund (2,000)
Collections of accounts receivable 290,000
Collections of subscriptions receivable 50,000
Payment for delivery equipment (50,000)
Payments of accounts payable (280,000)
Proceeds from bank loan 80,000
Payment of bank loan (35,000)
Payments of expenses (P90,000 - P5,000 - P1,500) (83,500)
Cash in bank, 12/31 39,500

Question No. 40 - D
Balance per bank 169,263
Deposits in transit 18,200
Outstanding checks (P59,435 - P5,000) (54,435)
NSF checks not redeposited (P3,435 - P1,835) 1,600
Erroneous bank debit 2,200
CM - Note collected by bank net of BSC (P7,548 - P18) (7,530)
Balance per books 129,298

Question No. 41 - B
Outstanding checks, 6/1 (Work back from 6/30) 211,160
Checks issued per books - June (P396,040 - P400) 395,640
Checks paid per bank - June (P344,200 - P600 - P2,000) (341,600)
Outstanding checks, 6/30 265,200

Question No. 42 - C
Accounts receivable, 1/1/22 209,000
Credit sales for 2022 1,500,000
Collections during 2022 (1,380,200)
Accounts written off - 2022 (31,000)
Accounts receivable, 12/31/22 297,800

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Question no. 43 - B
Allowance for doubtful accounts, 1/1/22 7,600
Provision for doubtful accounts - 2020 (P1,500,000 x .02) 30,000
Accounts written off - 2022 (31,000)
Recovery of accounts written off - 2022 4,200
Allowance for doubtful accounts, 12/31/22 10,800

Year Credit sales AR writen-off Recoveries Net

2019 1,110,000 26,000 2,150 23,850
2020 1,225,000 29,500 3,750 25,750
2021 1,465,000 30,000 3,600 26,400
3,800,000 85,500 9,500 76,000

Net accounts written off (2019 to 2021) 76,000

Divide by credit sales (2019 to 2021) 3,800,000
Percentage of uncollectible accounts to credit sales 0.02

Question no. 44 - C
PVF at 8%,
Cash flows 5 periods CA, 12/31/22
Principal 500,000 0.6806 340,300
Interest 20,000 3.9927 79,854
420,154

Question no. 45 - C
Date Cash flows Periods PVF at 9% PV, 12/31/22
12/31/23 - 1 0.9174 -
12/31/24 - 2 0.8417 -
12/31/25 18,000 3 0.7722 13,900
12/31/26 18,000 4 0.7084 12,751
12/31/27 218,000 5 0.6499 141,678
168,329

PV of contractual cash flows (gross CA) 200,000

PV of expected cash flows (168,329)
Impairment loss 31,671

Question no. 46 - D
Loan Stage Amount PV of ECF Credit loss Probability Allowance
1 3 600,000 360,000 240,000 100% 240,000
2 1 500,000 450,000 50,000 2% 1,000
3 2 400,000 320,000 80,000 5% 4,000
4 1 300,000 270,000 30,000 2% 600
5 2 200,000 160,000 40,000 5% 2,000
6 3 100,000 60,000 40,000 100% 40,000
287,600

Question no. 47 - B
Reduced principal 100,000
Interest (P200,000 x .08 x 5) 80,000
Expected cash flows 180,000
x PVF at 8%, 4 periods 0.7350
Carrying amount, 12/31/22 132,300
x interest rate 0.08
Interest income - 2023 10,584

Question no. 48 - B
Journal entry:
Cash 600,000
Financial liability 600,000
This is a transfer that does not qualify for derecognition since the entity retained substantially all
risks and rewards of the transferred asset.

Question no. 49 - C

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 PV of Principal (P1,000,000 x 0.6806) 680,600
PV of Interest (P1,000,000 x .1 x 3.9927) 399,270
PV, 1/1/22 1,079,870
Less premium amortization, 1/1 - 4/1
Nominal interest (P1M x .1 x 3/12) 25,000
Effective interest (P1,079,870 x .08 x 3/12) (21,597) 3,403
Purchase price (PV, 4/1/22) 1,076,467
Accrued interest 25,000
Total amount paid 1,101,467

Question no. 50 - A
Interest income - 2022 (P1,079,870 x .08 x 9/12) 64,792

Question no. 51 - D
Question no. 52 - C
Fair value, 12/31/22 1,240,000
Less carrying amount before FV adjustment (previous FV) 1,220,000
Fair value adjustment gain (loss) in profit or loss 20,000

Question no. 53 - B
Cost 18,800,000
Share of profit (P7,040,000 x .25) 1,760,000
Dividends received (750,000 x P2) (1,500,000)
Carrying amount, 12/31/22 19,060,000

Question no. 54 - C
Question no. 55 - D
Question no. 56 - A
Question no. 57 - C
Question no. 58 - A
Question no. 59 - C
Unadjusted accounts payable 5,000,000
Add (deduct) adjustments:
Goods purchased FOB destination, received 12/24/21 400,000
Goods purchased FOB shipping point, shipped 12/28/21 650,000
Adjusted accounts payable 6,050,000

Question no. 60 - C
Interest expense - 2022 (P64,000 x 3.6048 x .12 x 6/12) 13,842

Question no. 61 - A
Carrying amount, 12/31/21 10,300,000
Premium amortization, 1/1 - 9/1/22 (P12,000 x 8) (96,000)
Carrying amount, 9/1/22 10,204,000
Retirement price #########
Gain on bond retirement 204,000

Computation of monthly amortization:

Carrying amount, 12/1/19 (P10.8M - P.2M) 10,600,000
Carrying amount, 12/31/21 #########
Amortization of premium 300,000
Divide by the number of months (12/1/19 to 12/31/21) 25
12,000

Question no. 62 - B
Liability, 12/31/22 (P1,000,000 x .25 x .7938) 198,450

Question no. 63 -C
Question no. 64 -A
Question no. 65 -B
Question no. 66 -D
Question no. 67 -A
Question no. 68 -B
Question no. 69 -C
Question no. 70 -D

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