Exam, answers PDF

Preview

Summary

NAME: Professor: Section: Date: Score: INTERMEDIATE ACCOUNTING 3 FIRST GRADING EXAMINATION 1. According to PAS 1, an asset shall be classified as current when it satisfies any of the following criteria, except a. it is expected to be realized in, or is intended for sale or consumption in, the normal...

Description

NAME: Professor:

Section:

Date: Score:

INTERMEDIATE ACCOUNTING 3 FIRST GRADING EXAMINATION 1. According to PAS 1, an asset shall be classified as current when it satisfies any of the following criteria, except a. it is expected to be realized in, or is intended for sale or consumption in, the entity’s normal operating cycle b. it is held primarily for the purpose of being traded c. it is expected to be realized within twelve months after the balance sheet date d. it is cash or a cash equivalent that is restricted 2. A liability shall be classified as current when it satisfies any of the following criteria, except a. it is expected to be settled in the entity’s normal operating cycle b. it is held primarily for the purpose of being traded c. it is due to be settled within twelve months after the balance sheet date d. the entity has an unconditional right to defer settlement of the liability for at least twelve months after the balance sheet date. 3. If an entity expects, and has the discretion, to refinance or roll over an obligation for at least twelve months after the balance sheet date under an existing loan facility, it classifies the obligation as non-current, a. even if it would otherwise be due within a shorter period. b. even if the original term was for a period longer than twelve months c. even if an agreement to refinance, or to reschedule payments, on a long-term basis is completed after the reporting period and before the financial statements are authorized for issue d. choices b and c 4. When an entity breaches an undertaking under a long-term loan agreement on or before the end of the reporting period with the effect that the liability becomes payable on demand, (choose the incorrect statement) a. The liability is classified as current, even if the lender has agreed, after the balance sheet date and before the authorization of the financial statements for issue, not to demand payment as a consequence of the breach. b. The liability is classified as current because, at the balance sheet date, the entity does not have an unconditional right to defer its settlement for at least twelve months after that date. c. The liability is classified as non-current, even if the lender has agreed, after the balance sheet date and before the authorization of the financial statements for issue, not to demand payment as a consequence of the breach. d. The liability is normally classified as current; however, the liability is classified as noncurrent if the lender agreed by the balance sheet date to provide a period of grace ending at

least twelve months after the balance sheet date, within which the entity can rectify the breach and during that period the lender cannot demand immediate repayment. 5. Material Omissions or misstatements of items are material if they could, individually or collectively; influence the economic decisions of users taken on the basis of the financial statements. Materiality depends on a. the peso amount and degree of financial consequence of the omission or misstatement judged in the surrounding circumstances b. the size and peso amount of the omission or misstatement judged in the surrounding circumstances c. the peso amount and nature of the omission but not the misstatement judged in the surrounding circumstances d. the size and nature of the omission or misstatement judged in the surrounding circumstances 6. Identify the incorrect statement. a. When an entity has departed from a requirement of a Standard or an Interpretation in a prior period, and that departure affects the amounts recognized in the financial statements for the current period, it shall disclose the (a) title of the Standard or Interpretation from which the entity has departed and the (b) impact of such departure. b. In the extremely rare circumstances in which management concludes that compliance with a requirement in a Standard or an Interpretation would be so misleading that it would conflict with the objective of financial statements set out in the Framework, but the relevant regulatory framework prohibits departure from the requirement, the entity shall, to the maximum extent possible, reduce the perceived misleading aspects of compliance by disclosing:(a) the title of the Standard or Interpretation in question and (b) for each period presented, the adjustments to each item in the financial statements that management has concluded would be necessary to achieve a fair presentation. c. Financial statements shall be prepared on a going concern basis unless management either intends to liquidate the entity or to cease trading, or has no realistic alternative but to do so. d. PAS 1 requires an entity preparing financial statements, to make an assessment of the entity’s ability to continue as a going concern. In assessing whether the going concern assumption is appropriate, management takes into account all available information about the future, which is at least, but is not limited to, five years from the balance sheet date. 7. Identify the incorrect statement. a. The final stage in the process of aggregation and classification is the presentation of condensed and classified data, which form line items on the face of the financial statements. b. PAS 1 sometimes uses the term ‘disclosure’ in a broad sense, encompassing items presented on the face of the balance sheet, statement of profit or loss and other comprehensive income, statement of changes in equity and cash flow statement, as well as in the notes. c. Applying the concept of materiality means that a specific disclosure requirement in a Standard or an Interpretation need not be satisfied if the information is not material. d. An entity shall prepare its financial statements, including cash flow information, using the accrual basis of accounting. e. PAS 1 requires an entity presenting its current year financial statements to also present its financial statements for the previous year.

8. The ledger of SCHOLIAST COMMENTATOR Co. as of December 31, 20x1 includes the following: Assets Cash 10,000 Trade accounts receivable (net of ₱10,000 credit balance in accounts) 40,000 Held for trading securities 80,000 Financial assets designated at FVPL 30,000 Investment in equity securities at FVOCI 70,000 Investment in bonds measured at amortized cost (due in 3 years) 60,000 Prepaid assets 10,000 Deferred tax asset (expected to reverse in 20x2) 12,000 Investment in Associate 36,000 Investment property 46,000 Sinking fund 38,000 Property, plant, and equipment 100,000 Goodwill 28,000 Totals 560,000 How much is the total current assets? a. 220,000 b. 180,000 c. 340,000 d. 164,000 Solution: Current assets Cash Trade accounts receivable (40,000 + 10,000) Held for trading securities Financial assets designated at FVPL Prepaid assets Total current assets

10,000 50,000 80,000 30,000 10,000 180,000

9. The ledger of PERNICIOUS DEADLY Co. as of December 31, 20x1 includes the following: Liabilities Bank overdraft 10,000 Trade accounts payable (net of ₱10,000 debit balance in accounts) 40,000 Notes payable (due in 20 semi-annual payments of ₱4,000) 80,000 Interest payable 30,000 Bonds payable (due on March 31, 20x2) 70,000 Discount on bonds payable (30,000) Dividends payable 10,000 Share dividends payable 12,000 Deferred tax liability (expected to reverse in 20x2) 36,000 Income tax payable 44,000

Contingent liability Reserve for contingencies Totals

100,000 28,000 430,000

How much is the total current liabilities? a. 192,000 b. 186,000 c. 212,000 d. 178,000 Solution: Current liabilities Bank overdraft Trade accounts payable (P20,000 + P5,000) Notes payable (P2,000 semi-annual instalment x 2) Interest payable Bonds payable (due on March 31, 20x2) Discount on bonds payable Dividends payable Income tax payable Total current liabilities

10. The ledger of CALLOW IMMATURE Co. in 20x1 includes the following: Share capital Share premium Retained earnings, appropriated Retained earnings, unappropriated Revaluation surplus Remeasurements of the net defined benefit liability (asset) - gain Cumulative net unrealized gain on fair value changes of investment in FVOCI Effective portion of losses on hedging instruments in a cash flow hedge Cumulative translation loss on foreign operation Treasury shares, at cost

10,000 50,000 8,000 30,000 70,000 (30,000) 10,000 44,000 192,000

200,000 40,000 36,000 84,000 60,000 30,000 46,000 20,000 10,000 26,000

How much is the total shareholders’ equity? a. 460,000 b. 440,000 c. 420,000 d. 390,000 Solution: Share capital Share premium Retained earnings, appropriated Retained earnings, unappropriated Revaluation surplus

200,000 40,000 36,000 84,000 60,000

Remeasurements of the net defined benefit liability (asset) - gain Cumulative net unrealized gain on fair value changes of investment in FVOCI Effective portion of losses on hedging instruments in a cash flow hedge Cumulative translation loss on foreign operation Treasury shares, at cost Total shareholders' equity

30,000 46,000 (20,000) (10,000) (26,000) 440,000

Use the following information for the next two questions: 11. GUILE DECEITFULNESS Co. was incorporated on January 1, 20x1. The following were the transactions during the year: - Total consideration from share issuances amounted to ₱2,000,000. - A land and building were acquired through a lump sum payment of ₱400,000. A mortgage amounting to ₱100,000 was assumed on the land and building. - Total payments of ₱80,000 were made during the year on the mortgage assumed on the land and building, The payments are inclusive of interest amounting to ₱10,000. - Additional capital of ₱200,000 was obtained through bank loans. None of the bank loans were paid during the year. Half of the bank loans required a secondary mortgage on the land and building. - There is no accrued interest as of year-end. - Dividends declared during the year but remained unpaid amounted to ₱60,000. - No other transactions during the year affected liabilities. - Retained earnings as of December 31, 20x1 is ₱120,000. 12. How much is the profit for the year? a. 120,000 b. 160,000 c. 180,000 d. 220,000

Retained earnings Dividends Dec. 31, 20x1

60,000

180,000

Jan. 1, 20x1 Profit for the year (squeeze)

120,000

13. How much is the total assets as of December 31, 20x1? a. 2,410,000 b. 2,520,000 c. 2,380,000 d. 2,420,000

Asset = Liabilities + Equity Mortgage assumed on land and building Principal payment on the mortgage (80K – 10K interest)

(

100,000 70,000)

Bank loans Dividends payable Liabilities, Dec. 31, 20x1

200,000 60,000 290,000

Share issuances Retained earnings – Dec. 31, 20x1 Equity, Dec. 31, 20x1

2,000,000 120,000 2,120,000

Total assets, Dec. 31, 20x1 (liabilities + equity)

2,410,000

14. The ledger of DEROGATORY DEGRADING Co. in 20x1 includes the following: Cash 200,000 Accounts receivable 400,000 Inventory 1,000,000 Accounts payable 300,000 Note payable 100,000 During the audit of DEROGATORY’s 20x1 financial statements, the following were noted by the auditor: - Cash sales in 20x2 amounting to ₱20,000 were inadvertently included as sales in 20x1. DEROGATORY recognized gross profit of ₱6,000 on the sales. - A collection of a ₱40,000 accounts receivable in 20x2 was recorded as collection in 20x1. A cash discount of ₱2,000 was given to the customer. - During January 20x2, a short-term bank loan of ₱50,000 obtained in 20x1 was paid together with ₱5,000 interest accruing in January 20x2. The payment transaction in 20x2 was inadvertently included as 20x1 transaction. How much is the adjusted working capital as of December 31, 20x1? a. 1,651,000 b. 1,014,000 c. 1,450,000 d. 1,201,000 Solution: The adjusted balance of cash is computed as follows: Cash (unadjusted) Cash sales in 20x2 recorded as 20x1 sale Collection of account in 20x2 recorded as 20x1 collection (40,000 account less 2,000 cash discount)

Loan payment in 20x2 recorded as 20x1 transaction Interest payment in 20x2 recorded as 20x1 transaction Adjusted cash balance, Dec. 31, 20x1 The adjusted balance of accounts receivable is computed as follows: Accounts receivable (unadjusted) Collection of account in 20x2 recorded as 20x1 collection Adjusted accounts receivable balance, Dec. 31, 20x1 The adjusted balance of inventory is computed as follows: Inventory (unadjusted) Cost of cash sale in 20x2 recorded as 20x1 sale

200,000 (20,000) (38,000) 50,000 5,000 197,000

400,000 40,000 440,000 1,000,000

14,000 1,014,000

(20,000 sale - 6,000 gross profit)

Adjusted inventory balance, Dec. 31, 20x1 Adjusted current assets, Dec. 31, 20x1: (197K + 440K + 1,014K) = 1,651,000 The adjusted current liabilities are computed as follows: Accounts payable Note payable Loan payable Adjusted current liabilities, Dec. 31, 20x1

300,000 100,000 50,000 450,000

Working capital, Dec. 31, 20x1 = Current assets – Current liabilities Working capital, Dec. 31, 20x1 = (1,651,000 – 450,000) = 1,201,000

15. Entity A has the following information: Inventory, beg. Inventory, end. Purchases Freight-in Purchase returns Purchase discounts

80,000 128,000 320,000 16,000 8,000 11,200

How much is Entity A’s cost of sales? a. 286,800 b. 292,800 c. 288,600 d. 268,800

Inventory, beg.

80,000

Net purchases: Purchases

320,000

Freight-in Purchase returns

16,000 (8,000)

Purchase discounts

(11,200)

Total goods available for sale Less: Inventory, end. Cost of goods sold

316,800 396,800 (128,000) 268,800

16. In a two-statement presentation, information on profit or loss and other comprehensive income is shown a. in two separate statements, a statement of profit or loss and a statement showing other comprehensive income. b. in two separate statements, a statement of profit or loss and an income statement. c. in two separate statements, a single-step statement and a multi-step statement.

d. in a single statement called ‚statement of comprehensive income.‛ 17. Under this presentation method, expenses are presented in the statement of comprehensive income without distinctions as to their functions within the entity. a. nature of expense method b. function of expense method c. single-statement presentation d. two-statement presentation 18. Under this presentation, expenses are classified as either operating or non-operating item. At a minimum, cost of sales is presented separately. a. nature of expense method b. function of expense method c. single-statement presentation d. two-statement presentation Use the following information for the next five questions: The nominal accounts of Rommel SP Corp. on December 31, 20x1 have the following balances: Accounts Sales Interest income Gains Inventory, beg. Purchases Freight-in Purchase returns Purchase discounts Freight-out Sales commission Advertising expense Salaries expense Rent expense Depreciation expense Utilities expense Supplies expense Transportation and travel expense Insurance expense Taxes and licenses Interest expense Miscellaneous expense Loss on the sale of equipment

Dr.

Cr. ₱739,000 45,000 15,000

₱ 65,000 180,000 10,000 5,000 9,000 30,000 45,000 25,000 240,000 30,000 50,000 25,000 15,000 15,000 10,000 60,000 5,000 3,000 5,000

Additional information: a. Ending inventory is ₱ 90,000. b. One-fourth of the salaries, rent, and depreciation expenses pertain to the non-sales department. The sales department does not share in the other expenses.

19. How much is the net purchases? a. ₱185,000 b. ₱176,000

c. ₱194,000 d. ₱192,000

Purchases

180,000

Freight-in Purchase returns

10,000

Purchase discounts

(9,000)

(5,000)

Net purchases

176,000

20. How much is the ‚change in inventory‛ in 20x1? a. ₱90,000 increase c. ₱25,000 decrease b. ₱65,000 decrease d. ₱25,000 increase Inventory, beg.

65,000 90,000

Inventory, end. Change in inventory – increase

(25,000)

21. How much is the cost of goods sold? a. ₱151,000 c. ₱169,000 b. ₱95,000 d. ₱127,000 Net purchases

176,000

Less: Net increase in inventory

(25,000)

Cost of sales

151,000

22. How much is the total selling expense? a. ₱420,000 c. ₱180,000 b. ₱260,000 d. ₱340,000 Freight-out

30,000

Sales commission

45,000

Advertising expense Salaries expense (240K x 3/4) Rent expense (30K x 3/4) Depreciation expense (50K x 3/4) Selling expenses/Distribution costs

25,000 180,000 22,500 37,500 340,000

23. How much is the total general and administrative expense? a. 280,000 c. 330,000 b. 320,000 d. 208,000 Salaries expense (240K x 1/4)

60,000

Rent expense (30,000 x 1/4)

7,500

Depreciation expense (50K x 1/4)

12,500

Utilities expense

25,000

Supplies expense

15,000

Transportation and travel expense

15,000

Insurance expense Taxes and licenses

10,000 60,000

Miscellaneous expense Administrative expenses

3,000 208,000

Use the following information for the next two questions: DECORTICATE PEEL, Inc. is committed to a plan to sell a manufacturing facility and has initiated actions to locate a buyer. As of this date, the building has a carrying amount of ₱6,000,000, a fair value of ₱5,000,000 and estimated costs to sell of ₱200,000. At the plan commitment date, there is a backlog of uncompleted customer orders. 24. DECORTICATE, Inc. intends to sell the manufacturing facility with its operations. Any uncompleted customer orders at the sale date will be transferred to the buyer. The transfer of uncompleted customer orders at the sale date will not affect the timing of the transfer of the facility. How should DECORTICATE Co. classify the manufacturing facility? a. Included under property, plant and equipment at ₱6,000,000. b. Included under property, plant and equipment at ₱4,800,000. c. Classified as held for sale at ₱6,000,000 d. Classified as held for sale at ₱4,800,000 D (5,000,000 fair value – 200,000 costs to sell) = 4,800,000

25. DECORTICATE, Inc. intends to sell the manufacturing facility, but without its operations. The entity does not intend to transfer the facility to a buyer until after it ceases all operations of the facility and eliminates the backlog of uncompleted customer orders. How should DECORTICATE Co. classify the manufacturing facility? a. Included under property, plant and equipment at ₱6,000,000. b. Included under property, plant and equipment at ₱4,800,000. c. Classified as held for sale at ₱6,000,000 d. Classified as held for sale at ₱4,800,000 B – not available for immediate sale in its present condition; PPE at 4.8M (5M – 200K) because the manufacturing facility is impaired.

26. An entity in the power generating industry is committed to a plan to sell a disposal group that represents a significant portion of its regulated operations. The sale requires regulatory

approval, which could extend the period required to complete the sale beyond one year. Actions necessary to obtain that approval cannot be initiated until after a buyer is known and a firm purchase commitment is obtained. However, a firm purchase commitment is highly probable within one year. The disposal group has a carrying amount of ₱10,000,000 and fair value less costs to sell of ₱10,600,000. How should the entity classify the disposal group? a. Held for sale, ₱10.6M c. Under previous classifications, ₱10M b. Held for sale, ₱10M d. Under previou...