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Mid Term Test Paper Ae 120
Mid Term Test Paper Ae 120
Mid Term Test Paper Ae 120
Midterm Examination
INTERMEDIATE ACCOUNTING 3
Term 1 ● School Year 2021-2022
TEST I (20%)
A. Classify the following items whether
XX – Change in accounting estimate ZZ – Change in accounting policy
Write the particular letters only
ZZ 1. Change from completed contract to percentage of completion in determining revenue from contracts
Options 6. Is a contract conveying the right, but not the obligation, to buy or sell a designated quantity
of a foreign currency at a specified exchange rate (strike price) usually at a specified future date?
Interest Rate Swap 7. Is a financial transaction between two parties who agree to exchange streams of
payments over a period of time. It is also a private agreement between two companies to exchange cash flows
in the future according to a prearranged formula.
Futures Contract 8. Contract is a legally binding agreement to buy/sell a commodity or financial asset at a fixed
price sometime in the future. It is normally traded on an exchange.
10. The derivatives is readily settled at a future date by a net cash payment.
TEST II – 50%
A. The following are short problems independent from one another. You are required to
answer/compute what is asked at the end of each problem. Show your computations in good form
B.
1. Discontinued operations
On September 1, 2020, Tiny Bubbles approved a formal plan to sell a business segment. The sale will
occur on February 2021. The segment had operating income of P5,000,000 from January to August 31
and P1,000,000 for the remainder of the year 2020. The carrying amount of the segment was
P8,000,000 and the recoverable amount was P10,000,000. The income tax rate is 35%.
Required: How much will be reported as income from ordinary activities of the discontinued segment,
net of tax for the year 2020?
Document Code : CBA-F-ME
MANUEL S. ENVERGA UNIVERSITY FOUNDATION
An Autonomous University Document Title : Major Examination
Lucena City Page : 01 of 01
Revision Number : 0
COLLEGE OF BUSINESS AND ACCOUNTANCY Effectivity Date : August 2019
PACUCOA Level IV Accredited
Prepared by : CBA
QUALITY FORM Reviewed by : QMR
Approved by : President
Answer:
Income (5,000,000 + 1,000,000) P6,000,000
Income Tax – 35% 2,100,000
Net Income P 3,900,000
2. Accounting change
Jaguar Company has recorded bad debts expense in the past at a rate of 1.5% of net sales. In 2019, Jaguar
decides to increase its estimate to 2%. If the new rate had been used in prior years, cumulative bad debt
expense would have been P380,000 instead of P285,000. In 2019, bad debts expense will be P120,000
instead of P 90,000.
Required:
2.1. What amount of bad debts should the company report in its statement of comprehensive income as
a result of change in estimate?
2.2. Assuming that Accounts receivable at the end of 2019 has a balance of P600,000, how much is the
net realizable value after considering the change in estimate
Answer:
Accounts Receivable P600, 000
Bad Debt Expense (6,000,000*2%) 12,000
Net Realizable Value P588,000
3. Lanzones Company bought a machine on January 1, 2016 for P240,000 at which time it had an
estimated useful live of eight years with no residual value. Straight line method of depreciation is
used for all Lanzones’ depreciable assets. On January 1, 2018, the machine’s estimated useful life was
determined to be only 6 years from the acquisition date.
Recorded as follow
Depreciation P45, 000
Accumulated Depreciation 45,000
Document Code : CBA-F-ME
MANUEL S. ENVERGA UNIVERSITY FOUNDATION
An Autonomous University Document Title : Major Examination
Lucena City Page : 01 of 01
Revision Number : 0
COLLEGE OF BUSINESS AND ACCOUNTANCY Effectivity Date : August 2019
PACUCOA Level IV Accredited
Prepared by : CBA
QUALITY FORM Reviewed by : QMR
Approved by : President
4. Operating segment
The following information pertains to the White Company and its divisions for the year ended December 31,
2020.
Sales to unaffiliated customers P 10,000,000
Inter-segment sales of products similar to those sold to
Unaffiliated customers 2,000,000
White Company and all of its divisions are engaged solely in manufacturing operations
Required:
4.1. Is this a reportable segment?
Answer: Yes it is reportable segment since it meets the idea of quantitative threshold.
4.2. If yes, how much is the minimum segment revenue?
Answer:
Sales to unaffiliated customers P10, 000, 000
Inter- segment sales 2,000,000
Total sales P 12,000,000
4.3. If no, why?
C. Answer the following questions(30%) – 10 points each
1. If you are an importer of raw materials, what derivative contract will you entered into to mitigate
the different risks?
Answer:
If I am an importer of raw materials, the derivative contract I will enter into is option contract. A
option contract gives the holder the right to buy a stock and a put option gives the holder the
right to sell a stock. Option contracts are most commonly associated with the financial services
industry, where a seller may option the opportunity to purchase stock at a certain price for a set
period of time. By accepting a certain amount of money in exchange for this option, the seller
has bargained away their right to revoke the offer. As a buyer of raw materials call options will
give me a right to purchase materials at specified price.
2. How will you differentiate a change in accounting estimate from a change in accounting policy?
Answer:
Change in accounting estimate recognise prospectively in period of change if the change
affects that period only, or in future periods if the change affects future periods as well.
While Change in accounting policy retrospective restatement of comparatives, unless a new
standard includes specific transitional requirements. Accounting policies require
transactions and balances to be measured in financial statements. Sometimes these values
are easily observable (e.g. from a supplier invoice), but in many cases values are not directly
observable and need to be measured at monetary amounts that must be estimated. In such
cases, accounting estimates are developed to achieve the objective set out by the
accounting policy. This typically involves the use of judgements and assumptions.
3. Briefly discuss the accounting for discontinued operations
Answer:
The accounting for discontinued operations refer to parts only of a company's core
business or product line that have been divested or shut down not the whole operation of
business, and which are reported separately from continuing operations on the income
statement. This results of operations of a component of an entity that is either being held
for sale or which has already been disposed of. For example the company is manufacturing a
certain skin care products for both men and women. As a result they notice that the sales
Document Code : CBA-F-ME
MANUEL S. ENVERGA UNIVERSITY FOUNDATION
An Autonomous University Document Title : Major Examination
Lucena City Page : 01 of 01
Revision Number : 0
COLLEGE OF BUSINESS AND ACCOUNTANCY Effectivity Date : August 2019
PACUCOA Level IV Accredited
Prepared by : CBA
QUALITY FORM Reviewed by : QMR
Approved by : President
are declining pertaining to Men’s area and this they realize that most men do not use skin
products .The Company now decided to discontinue the manufacturing of men skin care
products and then they will report for women’s skin care products to under continuing
operation. There is accounting standard in part of discontinued operations. Of course there
are still assets and other costs involved in their company and then they will need to report
discontinued operation for that category for public knowledge
PREPARED BY CALIBRATED BY