FAR B41 First Pre Board Exams Questions Answers Solutions PDF

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ReSAThe Review School of AccountancyTel. No. 735-9807 & 734-FINANCIAL ACCOUNTING & REPORTING 18 February 2021(Thursday)First Pre-Board Examination 6:00 P. – 9:00 P.MMUULLTTIIPPLLEE CCHHOOIICCEEINSTRUCTIONS : Select the correct answer for each of the followingquestions. Mark only one...

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ReSA The Review School of Accountancy Tel. No. 735-9807 & 734-3989 FINANCIAL ACCOUNTING & REPORTING First Pre-Board Examination

18 February 2021(Thursday) 6:00 P.M. – 9:00 P.M.

ULTIPL PLE CHO HOICE MUL INSTRUCTIONS: Select the correct answer for each of the following questions. Mark only one answer for each item by shading the box corresponding to the letter of your choice on the sheet provided. STRICTLY NO ERASURES ARE ALLOWED. Use pencil no. 2 only. 01. Which method of income measurement is used in the preparation of the statement of comprehensive income? a. Capital maintenance approach. c. Cash-flow approach. b. Transaction approach. d. Income components approach 02. IFRS requires that a single amount be disclosed within the statement of comprehensive income for a. the post-tax profit/loss on discontinued operations and the pre-tax gain/loss on the disposal of discontinued operational assets. b. the pre-tax profit/loss on discontinued op erations and the post-tax gain/loss on the disposal of discontinued operational assets. c. the pre-tax profit/loss on discontinued operations and the pre-tax gain/loss on the disposal of discontinued operational assets. d. the post-tax profit/loss on discontinued operations and the post-tax gain/loss on the disposal of discontinued operational assets. 03. If a company prepares a consolidated statement of comprehensive income, IFRS requires that net income be reported for a. the majority interest only. b. the minority interest only. c. both the majority interest and the minority interest. d. as a single amount only. 04. When a company discontinues an operation and disposes of the discontinued operation (component), the transaction should be included in the statement of comprehensive income as a gain or loss on disposal reported as a. a prior period adjustment. b. an other income and expense item. c. an amount after continuing operations and before net income. d. a bulk sale of plant assets included in income from continuing operations. 05. Use the following information: Gross profit P3,900,000 Loss on sale of investments 10,000 Interest expense 7,500 Gain on sale of discontinued 30,000 operations Income tax rate 20% Compute the amount of income tax applicable to continuing operations. a. P776,500 c. P784,500 b. P784,000 d. P820,000 06. Lucky Spade Corporation has a discontinued operations loss of P300,000, an unusual gain of P210,000, and a tax rate of 40%. At what amount should Lucky Spade Corporation report each item? Discontinued Unusual gain Discontinued Unusual gain loss loss a. P(300,000) P210,000 c. (180,000) 210,000 b. (300,000 126,000 d. (180,000) 126,000 07. On January 1, 2020, Aztec Princess Inc. had cash and share capital of P10,000,000. At that date, the company had no other asset, liability, or equity balances. On January 5, 2020, it purchased for cash P6,000,000 of equity securities that it classified as non-trading. It received cash dividends of P800,000 during the year on these securities. In addition, it has an unrealized loss on these securities of P600,000. The tax rate is 20%. Compute the amount of net income/(loss). a. P800,000 c. P(200,000) b. P640,000 d. P160,000

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08. On January 1, 2020, Jungle Flower Company. had cash and share capital of P10,000,000. At that date, the company had no other asset, liability, or equity balances. On January 5, 2020, it purchased for cash P6,000,000 of equity securities that it classified as non-trading. It received cash dividends of P800,000 during the year on these securities. In addition, it has an unrealized loss on these securities of P600,000. The tax rate is 20%. Compute the amount of comprehensive income. a. P160,000 c. P600,000 b. P200,000 d. P640,000 09. Which of the following is a current asset? a. Cash surrender value of a life insurance policy of which the company is the bene-ficiary. b. Investment in equity securities for the purpose of controlling the issuing company. c. Cash designated for the purchase of tangible fixed assets. d. Trade installment receivables normally collectible in 18 months 10. The amount of time that is expected to elapse until an asset is realized or otherwise converted into cash is referred to as a. solvency. c. liquidity. b. financial flexibility. d. exchangeability. 11. Working capital is a. capital which has been reinvested in the business b. unappropriated retained earnings. c. cash and receivables less current liabilities. d. none of these choices are correct. 12. On the statement of financial position all of the following are reported as investments except a. Bonds, ordinary shares, and long-term notes. b. Non-controlling interest. c. Pension funds. d. Non-consolidated subsidiaries. 13. The presentation of non-current liabilities in the statement of financial position should disclose a. maturity dates. c. conversion rights. b. interest rates. d. All of these choices are correct. 14. Deep Diver, Inc. hired a new controller in late 2020. The controller has not prepared financial statements using IFRS before and needs your assistance. In compiling a complete set of financial statements under IFRS, which of the following components must be included? a. A statement of financial position at the end of the period. b. Notes, including a summary of significant accounting policies. c. A statement of comprehensive income for the period. d. All of these choices are correct. 15. Which of the following is not a method of disclosing pertinent information? a. Supporting schedules b. Parenthetical explanations c. Cross reference and contra items d. All of these are methods of disclosing pertinent information. 16. Royal Pulp Corporation is located in London but does business throughout Europe. The company builds and sells equipment used in manufacturing pharmaceuticals. On December 31, 2020, Rosalie has trading securities valued at P63,000; goodwill valued at P450,000; prepaid insurance valued at P36,000; patents valued at P210,000; and a customer list valued at P390,000. On Royal Pulp Corporation’s statement of financial position at December 31, 2020, what amount should be reported as intangible assets? a. P 660,000 c. P1,113,000 b. P1,050,000 d. P1,149,000

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Financial Accounting and Reporting

FIRST PRE BOARD EXAMINATION (Bat

ReSA: The Review School of Accountancy

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17. When a company holds between 20% and 50% of the outstanding ordinary shares of an investee, which of the following statements applies? a. The investor should always use the equity method to account for its investment. b. The investor should use the equity method to account for its investment unless circum-stances indicate that it is unable to exercise "significant influence" over the investee. c. The investor must use the fair value method unless it can clearly demonstrate the ability to exercise "significant influence" over the investee. d. The investor should always use the fair value method to account for its investment. 18. When preparing a bank reconciliation, bank credits are a. added to the bank statement balance. b. deducted from the bank statement balance. c. added to the balance per books. d. deducted from the balance per books. 19. Under the equity method of accounting for investments, an investor recognizes its share of the earnings in the period in which the a. investor sells the investment. b. investee declares a dividend. c. investee pays a dividend. d. earnings are reported by the investee in its financial statements. 20. Companies account for transfers of investments between categories a. prospectively, at the end of the period after the change in business model. b. prospectively, at the beginning of the period after the change in business model. c. retroactively, at the end of the period after the change in business model. d. retroactively, at the beginning of the period after the change in business model.

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21. What is the preferable presentation of accounts receivable from officers, employees, or affiliated companies on a statement of financial position? a. As offsets to equity b. By means of footnotes only c. As assets but separately from other receivables d. As trade notes and accounts receivable if they otherwise qualify as current assets 22. Equity investments acquired by a corporation which are accounted for by recognizing unrealized holding gains or losses as other comprehensive income and as a separate component of equity are a. non-trading where a company has holdings of less than 20%. b. trading investments where a company has holdings of less than 20%. c. investments where a company has holdings of between 20% and 50%. d. investments where a company has holdings of more than 50%. 23. IFRS requires companies to measure their financial assets based on all of the following except a. The company’s business model for managing its financial assets. b. Whether the financial asset is a debt or equity investment. c. The contractual cash flow characteristics of the financial asset. d. All of these answer choices are IFRS requirements. 24. When a company has acquired a "passive interest" in another corporation, the acquiring company should account for the investment a. by using the equity method. c. by using the effective interest method. b. by using the fair value method. d. by consolidation. Items 25 and 26 are based on the following information: 25. Coxy Cabin Manufacturing has notes receivable that have a fair value of P810,000 and a carrying amount of P620,000. Coxy Cabin Manufacturing decides on December 31, 2020, to use the fair value option for these recently-acquired receivables. Which of the following statements is correct regarding the election of the fair value option by Coxy Cabin Manufacturing?

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Financial Accounting and Reporting

FIRST PRE BOARD EXAMINATION (Bat

ReSA: The Review School of Accountancy a.

b.

c. d.

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Coxy Cabin Manufacturing can elect to use the fair value option or amortized cost for these notes at each statement of financial position date. Coxy Cabin Manufacturing reports the receivables at fair value, with any unrealized holding gains and losses reported as a separate component of comprehensive income. The unrealized holding gain is the difference between the fair value and the carrying amount. All of the choices are correct regarding the fair value option.

26. Under IFRS Coxy Cabin Manufacturing Manufacturing will derecognize its receivables in all of the following cases except a. When Coxy Cabin Manufacturing Manufacturing elects to use the fair value option for a receivable. b. When the contractual rights to the cash flows of the receivable no longer exist; for example, when one of Coxy Cabin Manufacturing’s customers declares bankruptcy. c. When Coxy Cabin Manufacturing Manufacturing collects a receivable when due. d. All of these answer choices require Coxy Cabin Manufacturing Manufacturing to derecognize its receivables. Items 27 and 28 are based on the following information: Starlet Company reported an account receivable of P905,000 and merchandise inventory of P1,500,000 in its accounting books as of December 31, 2019. The reported inventory amount does not included goods costing P200,000 sent to a consignee, however, Starlet Company charged the consignee for the selling price of the goods transferred. The amount charge against the consignee was included in their account receivable. The goods are mark to sell at 25% on cost. The “account sales” (report from the consignee) revealed that 60% of the goods were already sold. Charges of the consignee are as follows: 8% commission on the sales value of merchandise sold and a P20,000 delivery cost for merchandise received on consignment and a P6,000 delivery cost for goods sold. 27. At what amount should the inventory of Starlet Company be reported in its December 31, 2019 statement of financial position? a. P1,500,000 c. P1,588,000 b. P1,580,000 d. P1,700,000 28. By what amount should the account receivable of Starlet Company be reduced with respect to the consigned goods? a. P655,000 c. P 793,000 b. P767,000 d. P1,017,000 29. On January 1, 2019 Cleopatra Company acquired an investment in P1,000,000 8% loan stock, which it measured at amortized cost. At December 31, 2019 the borrower breached loan covenants and the investment was determined to be credit impaired; estimated credit losses over the remainder of the loan stock term arising from default within 12 months to December 31, 2020 are P550,000 and estimated credit losses over the remainder of the term arising from defaults at any time in the remainder of the term are P700,000. What amount of expense is recognized in profit or loss in the year ended December 31, 2020? a. An impairment loss of P550,000 and interest income of P36,000 b. An impairment loss of P550,000 and interest income of P80,000 c. An impairment loss of P700,000 and interest income of P24,000 d. An impairment loss of P700,000 and interest income of P80,000 30. Snow Company operates two major lines of business namely, candle manufacturing and clothing retailing. On December 31, 2020, in response to an unsolicited offer, Snow Company disposed of its candle-making operation realizing a gain in the amount of P200,000 but as a result of the disposal the company has an income tax payable of P60,000 related to the gain on disposal. The candle-making has a net loss before tax of P700,000 for the year ended December 31, 2020. In the statement of comprehensive income, what single amount should Snow Company disclose related to the discontinued operation? a. (P350,000) c. (P350,000) b. (P350,000) d. (P630,000)

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Financial Accounting and Reporting

FIRST PRE BOARD EXAMINATION (Bat

ReSA: The Review School of Accountancy

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31. Coin Master Company provided the following account balances on December 31, 2020: Accounts payable, P125,000; Accrued taxes, P50,000; Holding loss on FVOCI investment, P30,000; Ordinary share capital, P1,000,000; Share Dividends payable–ordinary, P150,000; Mortgage payable (P200,000 due in six months), P1,200,000; Notes payable–20%, due on January 2, 2021, P1,500,000; Shares premium-ordinary, P250,000; Preference liability, P450,000; Accumulated profits–December 31, 2020, P550,000; Unearned rent income, P25,000; Dividends payable–preference liability, P100,000. How much should Coin Master Company report as Shareholders’ equity on December 31, 2020? a. P1,920,000 c. P1,980,000 b. P1,950,000 d. P2,020,000 32. Sherlock Company's bank statement for the month of October 31, 2020 had an ending balance of P7,470,000. The following information were gathered in the course of reconciling the bank balance: 1. The bank erroneously credited Sherlock Company for P42,000 2. The bank charged Sherlock Company for NSF checks amounting to P46,000 of which P16,000 had been redeposited by October 28. 3. Collection for October totaling P206,000 was deposited the following month of December. 4. Note collected by the bank for Sherlock Company was P160,000 and the corresponding bank charge was P10,000. What is the unadjusted cash in bank balance (per book) on October 31, 2020? a. P6,910,000 c. P7,030,000 b. P6,994,000 d. P7,114,000 Items 33 to 35 are based on the following information: 33. Rebel Ram Company received an P1,800,00 subsidy from the government to purchase manufacturing equipment on January, 2, 2019. The equipment has a cost of P5,000,000 a useful life ten years, and no salvage value. Rebel Ram Company depreciates the equipment on a double declining method and chooses to account for the grant as deferred revenue. What is the combined impact of deferred grant revenue recognition and depreciation expense recorded for the year ended 2021 is; a. a decrease in the net income by P230,400 b. a decrease in the net income by P409,600 a decrease in the net income by P640,000 c. d. a decrease in the net income by P870,400 34. On January 2, 2022, the government asked for the repayment of the grant due to the noncompliance with attached condition of the grant. On January 3, 2022 Rebel Ram Company repaid the government in the amount of P1,100,000 as full settlement. What amount of gain or loss should Solar Company recognized as a result of the repayment? a. none c. P362,720 b. P178,400 d. P510,176 35. Assume that the grant received on January 2, 2019 was treated as a reduction in the gross carrying amount of the manufacturing equipment, what is the carrying value of the equipment after the repayment mas made on January 3, 2022? a. P1,638,400 c. P2,560,000 b. P2,500,000 d. P3,645,000 36. Merry Matilda Company has recognized a decline in its December 31, 2019 merchandise inventory. The cost of the inventory was P1,850,000 and its net realizable value was P1,425,000. The company has a policy to include all declines in the other expense and reversals in the other income and uses the allowance method. During 2020 market conditions have further decline and Merry Matilda’s inventory decreases to an NRV of P1,300,000. At the close of the business year of 2020, Merry Matilda Company decided to change the policy of accounting for declines and reversals. The new policy requires that all declines and reversals should now be included in the cost of sales. Which of the following will Merry Matilda Company record in 2020? a. A debit to cost of sales and credit allowance for decline P125,000. b. A debit to cost of sales and credit allowance for decline P550,000. c. A debit to Loss on Decline P125,000. d. A debit to Loss on Decline P550,000.

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Financial Accounting and Reporting

FIRST PRE BOARD EXAMINATION (Bat

ReSA: The Review School of Accountancy

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37. On December 31, 2019, Kitty Tiger Corporation sold for P1,600,000 an old machine having an original cost of P3,000,000 and a book value of P1,800,000. The terms of the sale were as follows: P400,000 down payment P400,000 payable on December 31 each of the next three years The agreement of sale made no mention of interest; however, 10% would be a fair rate for this type of transaction. What is the amount of interest income should be reported in the statement of comprehensive income for the year ended December 31, 2020? a. P36,364 c. P 99,474 b. P69,421 d. P120,000 38. As of December 31, 2020, Cerberus Company has a note receivable from Satyr Company, with face amount of P200,000 that pays an annual interest of P20,000 every December 31 of the year. The historical effective interest rate is 10%. As of December 31, Satyr Company is in financial difficulty and indicates it will be unable to make all payments according to the contractual terms. Below shows the cash flow schedule involving the receivable from Satyr Company” December Contractual cash Expected cash Loss cash flows flows flows 2021 20,000 16,000 4,000 2022 20,000 16,000 4,000 2023 220,000 166,000 54,000 What amount of impairment loss should Cerberus Company recognized on the above receivable as of December 31, 2020? a. P46,830 c. P66,830 b. P47,513 d. P67,513 39. Bow Master Company had a balance of P4,000,000 as its total equity at January 1, 2020. During the year ended December 31, 2020 the company: * revalued property with a carrying amount of P750,000 to P1,500,000 * issued shares for P500,000 * made profit of P1,000,000 On March 1, 2021 the directors declared an ordinary dividend of P200,000 for the year ended December 31, 2020. What is the closing balance on total equity in the statement of changes in equity for the year ended December 31, 2020? a. P5,250,000 c. P6,150,000 b. P6,050,000 d. P6,250,000 40. Magic Skull Company held a 3% holding of the shares of Baba Yaga Company, a public limited Company. The investment was classified as an investment in equity...