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There are ways by which corruption can be reduced if not totally eliminated in our country. Some of which can be done through the simplest way by updating anti-bribery & anti-corruption policies. Public servants may engage in these programs by making sure that they themselves as public figures won't...

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ACCOUNTING 5 Intermediate Accounting 2 Semester of A.Y. 2021-2022

PRELIM EXAMINATION MULTIPLE CHOICE. Theory 1. Entity A (customer) enters into a contract with Entity B (supplier) for the use of a data processing equipment. According to the contract, Entity A shall operate the equipment only in accordance with the standard operating procedures stated in the accompanying user’s manual. In assessing the existence of a lease, does Entity A have the right to direct use of the asset? a. No, because the asset’s use is restricted b. Yes, because Entity A has the right to direct how and for what purpose the asset is used c. Yes, because the asset’s use is predetermined and Entity B is precluded from changing that predetermine use d. Maybe yes, maybe no. but exactly I don’t know 2. Which of the following is not one of the criteria when determining whether a contract is or contains a lease? a. Identified asset b. Identified liability c. Right to obtain substantially all of the economic benefits from use of an identified asset throughout the period of use d. Right to direct the use of the identified asset throughout the period of use 3. Which of the following statements is correct regarding the accounting for leases? a. The lessor depreciates the lease asset under a finance lease. b. The lessee depreciates the leased asset under a short-term or a low-valued asset lease c. When discounting lease payments, the lessor and the lessee use the interest rate implicit in the lease d. An entity can never be both a lessor and a lessee of a same leased asset 4. According to PFRS 16, right-of-use assets are presented in the lessee’s statement of financial position a. Separately from the other assets of the lessee b. Together with other assets as if they were owned, with disclosure of the line items that include the right-of-use assets c. a or b d. Not presented in the lessee’s financial statements but only in the lessor’s financial statements 5. If the current tax expense is less than the income tax expense during the period, there must be a a. Deferred tax benefit b. Deferred tax expense c. Income tax payable

d.

Prepaid income tax

6. Trade receivables have a carrying amount of P4,000. The related revenue has already been included in taxable profit (tax loss). How much is the tax base of the asset? a. 4,000 b. 2,400 c. 1,600 d. 0 7. Dividends receivable from a subsidiary have a carrying amount of P4,000. Dividends are not taxable. How much is the tax base of the asset? a. 4,000 b. 2,400 c. 1,600 d. 0 8. Current liabilities include accrued fines and penalties with a carrying amount of P4,000. Fines and penalties are not deductible for tax purposes. How much is the tax base of the liability? a. 4,000 b. 2,400 c. 1,600 d. 0 9. A loan payable has a carrying amount of P4,000. The repayment of the loan will have no tax consequences. How much is the tax base of the liability? a. 4,000 b. 2,400 c. 1,600 d. 0 10. The computation of employees retirement benefit expense is addressed in this standard. a. PAS 17 b. PFRS 7 c. PAS 19 d. PFRS 9 11. Legal capital is the portion of contributed capital that cannot be distributed to the owners during the lifetime of the corporation unless the corporation is dissolved and all of its liabilities are settled first. For no par value shares, legal capital is a. The aggregate par value of shares issued and subscribed b. The total consideration received or receivable from shares issued or subscribed c. The aggregate stated value of shares issued and subscribed d. The aggregate market value of shares issued and subscribed 12. Which of the following is not one of the basic shareholders rights? a. The right to participate in earnings b. The right to maintain one’s proportional interest in the corporation

c. d.

The right to participate in the proceeds of the sale of corporate assets upon liquidation of the corporation The right to inspect the accounting records of the corporation

13. On February 1, authorized ordinary share was sold on a subscription basis at a price in excess of par value, and 20 percent of the subscription price was collected. On May 1, the remaining 80 percent of the subscription price was collected. Share premium would increase on February 1 May 1 a. No Yes b. No No c. Yes No d. Yes Yes 14. The issuance of shares of preferred stock to shareholders a. Increases preferred stock outstanding b. Has no effect on preferred stock outstanding c. Increases preferred stock authorized d. Decreases preferred stock authorized 15. Which of the following is an appropriate presentation of treasury stock? a. As a marketable security b. As a deduction at cost from total stockholder’s equity c. As a deduction at cost from the total contingent liabilities d. As a deduction at par from total stockholder’s equity

MULTIPLE CHOICE. Short Problems 1. On December 30, 20x5, Haber Co. leased a new machine from Gregg Corp. The following data relate to the lease transaction at the inception of the lease: Lease term Annual rental payable at the end of each lease year Useful life of machine Implicit interest rate

10 years P 100,000 12 years 10%

The lease has no renewal option, and the possession of the machine reverts to Gregg when the lease terminates. At the inception of the lease, Haber should record a lease liability of a. 0 b. 615,000 c. 630,000 d. 676,000

2. On January 2, 20x6, Ashe Company entered into a ten-year noncancellable lease requiring year-end payments of P100,000. Ashe’s incremental borrowing rate is 12% while the lessor’s implicit interest rate, known to Ashe, is 10%. Ownership of the property remains with the lessor at expiration of the lease. There is no bargain purchase option. The leased property has an estimated economic life of 12 years. What amount should Ashe capitalize for this leased property on January 2, 20x6? a. 1,000,000 b. 614,500 c. 565,000 d. 0 3. Neal Corp. entered into a nine-year lease on a warehouse on December 31, 20x1. Lease payments of P52,000, which includes payment for non-lease component of P2,000 (at stand-alone selling price), are due annually, beginning on December 31, 20x1, and every December 31 thereafter. Neal does not know the interest rate implicit in the lease; Neal’s incremental borrowing rate is 9%. What amount should Neal report as lease liability at December 31, 20x1? a. 280,000 b. 291,200 c. 450,000 d. 468,000 On January 1, 20x1, Entity Y leases out an equipment to Entity X. Information on the lease is as follows: Lease term Annual rent payable at the end of each year Interest rate implicit in the lease

3 years 100,000 10%

The lease provides for the transfer of ownership of the equipment to the lessee at the end of the lease term. 4. How much is the gross investment on January 1, 20x1? a. 500,000 b. 400,000 c. 300,000 d. 200,000 5. How much is the net investment on January 1, 20x1? a. 238,664 b. 242,883 c. 248,685 d. 252,086 6. How much is the unearned interest on January 1, 20x1? a. 51,315 b. 52,313 c. 48,992 d. 47,652

?

Taken from the records of ABC Co. as of December 31, 20x1 is the following information: Carrying amount Tax base Difference Computer software cost 500,000 500,000

Machinery Accrued liability – health care

1,000,000 200,000

600,000 -

400,000 200,000

Additional information: • Software development costs after technological feasibility was established were capitalized for financial reporting. The costs were recognized as outright deductions for the tax purposes. • Straight line method is used in depreciating the machinery while sum-of-the-years’ digits method is used for tax purposes. • Health care benefits are accrued as incurred but are tax deductible only when cash is actually paid. • Pretax profit for 20x1 is P1,000,000. Income tax rate is 30%. • There were no temporary differences as of January 1, 20x1. 7. How much is the deferred tax liability on December 31, 20x1? a. 400,000 b. 900,000 c. 320,000 d. 270,000 8. How much is the deferred tax asset on December 31, 20x1? a. 270,000 b. 120,000 c. 90,000 d. 60,000 9. How much is the deferred tax expense/ benefit in 20x1? a. 210,000 expense b. 210,000 benefit c. 270,000 expense d. 270,000 benefit 10. How much is the current tax expense in 20x1? a. 300,000 b. 160,000 c. 90,000 d. 64,000 11. On December 1, 20x1, ABC Co. hired Juanita Perez to begin working on January 2, 20x2 at a monthly salary of P4,000. ABC’s balance sheet on December 31, 20x1 will show a liability of a. P 4,000 b. P 48,000 c. P 480,000 d. No liability

12. Entity A has 20 employees who are reach entitled to one day paid vacation leave for each month of service rendered. Unused vacation leaves are carried forward and can be used in future periods if the current period’s entitlement is not used in full. Moreover, employees are entitled to a cash payment for unused entitlement when they leave the entity. All the employees have rendered service throughout the current year and have taken a total of 150 days of vacation leaves. The average daily rate of the employees in the current period is P 1,000. However, a 5% increase in the rate is expected to take into effect in the following year. Based on Entity A’s past experience, the average annual employee turnover rate is 20%. How much will Entity A accrue at the end of the current year for unused entitlements? a. 0 b. 75,600 c. 90,000 d. 94,500 13. Under a profit-sharing plan, Entity A agrees to pay its employees 5% of its annual profit. The bonus shall be divided among the employees currently employed as at year-end. Relevant information follows: Profit for the year Employees at the beginning of the year Average employees during the year Employees at the end of the year

P 8,000,000 8 7 6

If you are an alumnus of Entity A, how much bonus do you expect to receive? a. 66,667 b. 50,000 c. 57,143 d. 0 Information on Entity A’s defined benefit plan is as follows: PV of DBO – Jan. 1, 20x1 FVPA – Jan.1, 20x1 PV of DBO – Dec.31, 20x1 FVPA end – Dec.31, 20x1 Current service cost Actuarial loss Return on plan assets Discount rate

2,000,000 1,800,000 2,900,000 2,600,000 400,000 200,000 120,000 10%

14. How much is the net defined benefit liability (asset) to be presented in Entity A’s December 31, 20x1 statement of financial position? a. (300,000) b. 300,000 c. (200,000) d. 200,000 15. How much is the component of the 20x1 defined benefit cost to be recognized in profit or loss? a. 400,000 b. 420,000 c. 520,000 d. 200,000

16. How much is the component of the 20x1 defined benefit cost to be recognized in other comprehensive income – (income)/loss? a. (140,000) b. 140,000 c. 260,000 d. (260,000) 17. The stockholder’s equity section of Peter Corporation’s balance sheet at December 31, 20x2, was as follows: Ordinary shares (P10 par value, authorized 1,000,000 shares, issued and outstanding 900,000 shares) Share premium Retained Earnings

P 9,000,000 2,700,000 1,300,000

On January 2, 20x3, Peter purchased and retired 100,000 shares of its stock for P1,800,000. Immediately after retirement of these 100,000 shares, the balances in the share premium and retained earnings accounts should be Share Premium Retained Earnings a. P 900,000 P 1,300,000 b. P 1,400,000 P 800,000 c. P 1,900,000 P 1,300,000 d. P 2,400,000 P 800,000 18. Asp Co. was organized on January 2, 20x1, with 30,000 authorized shares of P10 par ordinary shares. During 20x1 the corporation had the following capital transactions: Jan. 5 July 14 Dec. 27

Issued 20,000 shares at P15 per share Purchased 5,000 shares at P17 per share Reissued the 5,000 shares held in treasury at P20 per share

Asp used the cost method to record the purchase and reissuance of the treasury shares. In its December 31, 20x1, balance sheet, what amount should Asp report as share premium in excess of par? a. 100,000 b. 125,000 c. 140,000 d. 115,000 Caroline Co.’s equity structure at December 31, 20x1 is shown below: 10% Preference sh., P100 par (liquidation value P120 per share) Ordinary shares, P100 par Subscribed share capital – ordinary shares Subscription receivable Retained earnings Treasury shares (at cost) – 2,000 ordinary shares Total shareholder’s equity

1,000,000 3,000,000 100,000 (60,000) 900,000 (260,000) 4,680,000

19. The preference shares are cumulative. Dividends are in arrears for three years. How much is the book value per ordinary share? a. 150

b. c. d.

111.72 112.37 141.38

20. The preference shares are noncumulative. Dividends are in arrears for three years. How much is the book value per ordinary share? a. 118.62 b. 112.62 c. 98.87 d. 122.39...