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OPENFINAL PRE-BOARD EXAMINATIONFINANCIAL ACCOUNTING AND REPORTINGSET- AINSTRUCTIONS: Select the best answer for each of the following quesons. ALL queson are compulsory and MUST be aempted. Mark only one answer for each item on the answer sheet provided. Strictly NO ERASURES ALLOWED. Erasures will r...

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OPEN

FINAL PRE-BOARD EXAMINATION

FINANCIAL ACCOUNTING AND REPORTING SET- A INSTRUCTIONS: Select the best answer for each of the following quesons. ALL queson are compulsory and MUST be aempted. Mark only one answer for each item on the answer sheet provided. Strictly NO ERASURES ALLOWED. Erasures will render your examinaon answer sheet INVALID. Use PENCIL NO.2 only. GOODLUCK! 1. Which statement is incorrect? a. The Board of Accountancy (BOA) is under the supervision and administrave control of the Professional Regulaon Commission. b. The financial Reporng Standards Council assists the BOA in carrying out its power and funcon to promulgate accounng standards in the Philippines. c. The Auding and Assurance standards Council shall be composed of fieen members with a chairman. d. Commission on Audit is represented in the Philippine Interpretaons Commiee. 2. An enty with total liabilies of P100 million is considered as a. Publicly accountable enty b. Medium-sized enty c. Small enty d. Micro enty 3. Which statement is correct regarding the Conceptual framework for financial reporng? a. Prevails in cases where there is conflict with PFRS. b. Its foundaon is the elements of financial statements. c. Assists users of financial statements in applying the accounng standards. d. It addresses the characteriscs that make financial informaon useful. 4. Which statement is incorrect regarding the 2018 Conceptual Framework for Financial Reporng? a. It clarified why informaon used in assessing stewardship is needed to achieve the objecve of financial reporng. b. It clarified the roles of prudence, measurement uncertainty and substance over form in assessing whether informaon is useful. c. The definion s of an asset and a liability have been refined and the definions of income and expenses have been updated only to reflect that refinement. d. None of the above. 5. Which statement is incorrect? a. Prepayments occur when cash flow precedes expense recognion. b. Failure to record the unexpired poron of insurance premium paid would understate profit.

c. Failure to record the unearned poron of rent received in advance would overstate owner’s equity. d. The adjusng entry to record the unearned poron of rent received in advance may be reversed. 6. Lorraine Co. owns a royalty interest in an oil well. The contract spulates that Lorraine will receive royalty payments semiannually on January 31 and July 31. The January 31, payments will be for 20% of the oil sold to jobbers between the previous June 1 and November 31, and the July 31, payment will be for oil sold between the previous June 1 and November 30, and the July 31, payment will be for oil sold between the previous December 1 and May 31. Royalty receipts for 2019 amounted to P80,000 and P100,000 on January 31 and July 31 respecvely. On December 31 ,2018 accrued royalty income receivable amounted to P15,000. Producon reports show the following oil sales: June 1, 2018 - November 30, 2018 December 1, 2018 - May 31, 2019 June 1, 2019 – November 30, 2019 Dec. 1, 2019 – Dec. 31, 2019

P400,000 500,000 425,000 70,000

What amount should Lorraine report as royalty income for 2019? a. P179,000 c. P184,000 b. P180,000 d. P194,000 7. Which statement is incorrect regarding the informaon provided by an enty’s financial statements? a. The informaon about the nature and amounts of a reporng enty’s economic resources and claims cab help users to idenfy the reporng enty’s financial strengths and weaknesses. b. Informaon about the return the enty has produced provides an indicaon of how well management has discharged its responsibilies to make efficient and effecve use of the reporng enty’s resources. c. Informaon about a reporng enty’s past financial performance and how its management discharged its responsibilies in indicave of the enty’s future returns on its economic resources d. Changes in economic resources and claims not resulng from financial performance are reported in statement of Changes in Equity. Use the following informaon for the next two quesons: Leinard Company’s June 30, 2019 post-closing trial balance: Account Title Cash Short-term investment s Accounts receivable Prepaid expenses Land Buildings

Debits P850,000 630,000 2,800,000 320,000 750,000 3,200,000

Credits

Accumulated dep. – buildings Equipment Accumulated dep. - equipment Accounts payable Accrued expenses Notes payable Mortgage payable Ordinary shares Retained earnings Total

P1,600,000 2,650,000

P11,200,000

1,200,000 1,730,000 450,000 1,000,000 2,500,000 1,000,000 1,720,000 P11,200,000

Addional Informaon: 1. The short-term investments accounts includes P180,000 in treasury bills purchased in May. The bills mature in July. 2. The accounts receivable account consist of the following: a. Amounts owed by customers P2,250,000 b. Allowance for uncollecble accounts Trade customers (150,000) c. Nontrade note receivable (due in three years) 650,000 d. Interest receivable on note (due in four months) 50,000 Total P2,800,000 3. The notes payable accounts consists of two notes of P500,000 each. One note is due on September 30, 2019, and the other is due on November 30, 2020. 4. The mortgage payable is payable in semiannual installment of P50,000 each plus interest. The next payment is due on October 31, 2019. Interest has been properly accrued and is included in accrued expenses. 5. Five hundred thousand shares is no par ordinary shares are authorized, of which 200,000 shares have been issued and are outstanding. 6. The land account includes P500,000 represenng the cost of the land on which the company’s office building resides. The remaining P250,000 is the cost of the land the company is holding for investment purposes. QUESTIONS: 8. The total current assets of Leinard Coompany as of June 30, 2019 is a. P3,950,000 c. P3,590,000 b. P3,630,000 d. P3,900,000 9. The total current liabilies of Leinard Company as of June 30, 2019 is a. P2,880,000 c. P2,780,000 b. P2,680,000 d. P2,280,000 10. At a minimum, the face of the Statement of Financial Posion shall include which of the following line items? I. Accounts receivable

II. III. IV. V. VI.

Biological assets Machinery and equipment Provision Deferred tax liabilies Issued capital and reserves aributable to owners of the parent

a. I,II,III,IV,V and VI b. I,II,VI , IV and VI only

c. II,IV,V and VI only d. II,IV, and VI only

Use the following informaon for the next two quesons: The following date were taken from the records of Jess Company for the year 2019: Sales P5,590,000 Sales returns 55,000 Inventories, January 1: Raw materials 131,000 Work in process 238,350 Finished goods 442,000 Inventories, December 31: Raw materials 145,500 Work in process 175,720 Finished goods 412,000 Direct labor 1,050,000 Purchases 2, 051,500 Purchase returns 17, 150 Purchase discounts 12,550 Freight-in 8,250 Freight-out 200,000 Allowance for doubul accounts 25,000 Sales salaries 445,000 Office supplies 155,000 Depreciaon – factory building 44,000 Depreciaon – office equipment 44,000 Depreciaon – store equipment 77,000 Depreciaon – machinery and equip. 25,500 Amorzaon – patents 33,000 Bad debts expense 20,000 Factory supplies expense 75,550 Accrued manufacturing expenses payable 34,500 Indirect labor 35,300 Interest income 116,240 Interest receivable 34,250 Factory light and power 65,000 Property taxes and insurance -factory building 13,200 Prepaid insurance expense 18,750 Royales on producon 13,200 Supervision expense 65,000

Tools expense Miscellaneous factory expense Dividends paid

10,500 50,150 70,000

QUESTIONS: 11. The cost of goods sold is a. P3,588,880 b. P3,542,680

c. P3,523,880 d. P3,513,380

12. The income before taxes is a. P1,005,120 b. P1.051,360

c. P1,114,860 d. P1,121,360

13. The profit or loss secon or the statement of profit or loss shall include line items that present the following amounts for the period: I. Finance cost II. Depreciaon III. Share of profit or loss of associates IV. Employee benefits V. Tax expense VI. Discounted operaons a. I,II,III,IV,V and VI c. I,III,V and VI only b. I,II,III,V and VI only d. II, and IV only 14. The components of other comprehensive income include: I. Changes in revaluaon surplus II. Gains and losses on remeasuring held for trading financial assets III. Effecve poron of gains and losses on hedging instruments in a fair value hedge IV. Interest on defined benefit plans V. Gains or losses arising from translang the financial statements of a foreign operaon a. I,II,III,IV, and V b. I,III, and IV only

c. I and V only d. I,III, and V only

15. Joyce Company has provided the following 2019 account balances:

Accounts receivable Allowance for doubul accounts Prepaid insurance Accounts payable

Jan. 1 P1,500,000 200,000 600,000 900,000

Joyce’s profit for 2019 was P8,000,000. The net cash provided by operang acvies is a. P9,550,000 c. P7,350,000 b. P8,650,000 d. P7,150,000

Dec. 31 P2,800,000 400,000 450,000 1,200,000

16. In which of the following is an enty related to the reporng enty? I. An associate of a member of a group of which the reporng enty is a member. II. A customer with whom the reporng enty transacts a significant volume of business in economic dependence. III. The enty is a post-employment defined benefit plan for the benefit of employees of an enty related to the reporng enty. IV. One enty is a subsidiary of a third enty and the reporng enty is an associate of the third enty. a. I,II,III, and IV b. I,III, and IV only

c. I and IV only d. II only

17. At December 31, 2019, Jimwell Co. had the following balances in the accounts it maintains at First State Bank: Checking account #101 P175,000 Checking account #201 (10,000) Monet market account 25,000 90-day cerficate of deposit, due 2/28/20 50,000 180-day cerficate of deposit, due 3/15/20 80,000 In its December 31, 2019 statement of financial posion, what amount should Jimwell report as cash and cash equivalent? a. P190,000 c. P240,000 b. P200,000 d. P320,000 18. The cash account shows a balance of P38,000 before reconciliaon. The bank statement does not include a deposit of P2,300 made on the last day of the month. The bank statement shows a collecon by the bank of P940 and a customer’s check for P220 was returned because it was NSF. A customer’s check for P450 was recorded on the books as P540, and a check wrien for P79 was recorded as P97. The correct balance in the cash account was a. P38,612 c. P38,648 b. P38,828 d. P40,948 19. The Geraldine Manufacturing Company sells its products, offering 30 days credit to its customers. Uncollecble amounts are esmated by accruing monthly charge to bad debt expense equal to 2% of credit sales. at the end of the year, the allowance for uncollecble accounts is adjusted based on aging of accounts receivable. The company started the current year with the following balances in its accounts: Accounts receivable Allowance for doubul accounts

P305,000 25,000

During the year, sales on credit were P1,300,000, cash collecons from customers were P1,250,000, and actual write-offs of accounts were P25,000. An aging of accounts receivable at the end of the year indicates a required allowance of P30,000. Based on the foregoing, which statement is true? a. The balance of accounts receivable at the end of the year is P300,000. b. The doubul accounts expense for the year is P26,000.

c. The adjusng entry for doubul accounts at year-end includes a credit to allowance for doubul accounts of P3,500. d. None of the above. 20. On July 1, 2019, Daniboy Company finished consultaon services and accepted in exchange a promissory note with a face value of P300,000, a due date of June 30, 2022, and stated rate of 5%, with interest receivable at the end of each year. the fair value of the services is not readily determinable and the note is not readily marketable. Under the circumstances, the note is considered to have an appropriate imputed rate of interest of 10%. The total income to be recognized in Daniboy’s 2019 profit or loss is c. P275, 829 a. P307,500 d. P262,694 b. P288,963 21. On December 28, 2018, Joanna Company commits itself to purchase a financial asset to be classified as FA@AC for P1,000,000, its fair value of commitment (trade) date. This security has a fair value of P1,002,000 and P1,005,000 on December 31, 2018. (Joanna’s financial year-end), and January 5, 2019 (selement date), respecvely. If Joanna applies the selement date accounng method to account for regular-way purchases of its securies, the financial asset should be recognized on January 5, 2019 at a. P1,000,000 c. P1,005,000 b. P1,002,000 d. P 0 22. On December 28, 2019, Eric Company commits itself to purchase of financial asset to be classified as held for trading for P500,000, its fair value on commitment (trade) date. This security has a fair value of P505,000 and P510,000 on December 31, 2019 (Eric financial year-end), and January 5, 2020 (selement date), respecvely. If Eric applies the selement date accounng method to account for regular-way purchases of its securies, how much should be recognized as fair value adjustment gain in its 2019 profit of loss? c. P5,000 a. P15,000 d. Nil b. P10,000 23. On January 1, 2017, Jomare Companny purchased equality investment at a cost of P2,000,000. The investment is designated as FA@FVTOCI. The following table sets out the changes in the fair value of the investment and the nature of the change in each year: Year 2017

Fair value change P(40,000)

2018

( 80,000 )

2019

150,000

Nature of change No objecve evidence of impairment Objecve evidence of impairment Objecve evidence of reversal of impairment

How much should be recognized in profit or loss for 2017, 2018 And 2019, respecvely as a result of the fair value changes? a. P 0; P 0; 0

b. P 0; P(120,000); P120,000 c. P 0; P 120,000); P120,000 d. P o; P(80,000 ); P 80,000 24. Which statement is incorrect regarding investment in an associate classified as held for sale? a. An enty shall apply PFRS 5 to an investment, or a poron of an investment, in an associate that meets the criteria to be classified as held for sale. b. Any retained poron of an investment in an associate that has not been classified as held for sale shall be accounted for using the equality method unl disposal of the poron that is classified as held for sale takes places. c. Aer the disposal takes place, an enty shall account for any retained interest in the associate in accordance with PFRS 9 unless the retained interest connues to be an associate, in which case the enty uses the equity method. d. When an investment or a poron of an investment, in an associate previously classified as held for sale no longer meets the criteria to be so classified, it shall be accounted for using the equity method prospecvely. 25. During 2019, Jacob Co. pays an insurance premium of P81,800 on a P900,000 life insurance policy covering the president. The cash surrender value of the policy will increase from P165,000 to P175,200 during 2019. Dividends received from the insurance company during 2019 total P6,300. The president died half-way through 2019. The policy indicates that the cash surrender value is P170,100 at that date and 50% of the premium is refunded. The gain on life insurance selement is c. P723,600 a. P714,000 d. P736,200 b. P729,900 26. Nyll Inc. borrows P10 million from Bank A at a fixed rate of 7%, payable quarterly in arrears. The prime rate is 4.5% when the loan is taken out. Nyll’s management believes that interest rates will decline in the near future. Accordingly, it enters into a swap agreement with Bank B. under the agreement, Nyll is commied to pay Bank B a sum equal to prime plus 2.5% on a noonal principal of P10 million and Bank B is commied to pay to Nyll a sum equal to 7% on a noonal principal of P10 million, with the amounts seled on a net basis at the end of each quarter. If the prime rate drops to 4%, what are Nyll’s cash flows for the next quarter? a. P162,500 inflow from Bank A b. P162,500 oulow to Bank B c. P175,000 oulow to Bank A and P12,500 inflow from Bank B d. P175,000 oulow to bank A and P12,500 oulow to Bank B Use the following informaon for the five quesons. The following informaon relate to an enty’s non-financial assets as of December 2019: Inventory The following figures relate to inventory of materials:

Item X

Item Y

P200,000

P400,000

Replacement cost

180,000

370,000

Esmated costs to convert materials into finished goods Esmated selling price of finished goods

100,000 320,000

200,000 610,000

10,000

15,000

Cost

Esmated costs to sell

Property, plant and equipment The enty purchased a machine for P100,000 on January 1, 2016, with the following addional items paid or incurred Separaon pay for laborer laid off upon acquision of new machine Loss on sale of machine replaced Transportaon in Installaon cost

P1,200 1,300 1,000 4,000

The new machine is esmated to have a useful life of 10 years and a residual value of P4,000. On January 1, 2019, new parts which cost P12,600 were added to the machine so as to reduce its fuel consumpon, but with no change in its esmated life or residual value. Investment property The enty has an office building used for administrave purposes with a depreciated historical cost of P5 million. At 1 January 2019 it had a remaining life of 20 years. Aer a re-organizaon on 1 July 2019, the property was leased to a third party and reclassified as an investment property applying the enty’s policy of the fair value model. An independent value assessed the property to have a fair value of P4.8 million at 1 July 2019, which had risen to P4.95 million at 31 December 2019. Intangible asset On January 2, 2018, the enty purchased a patent with a cost P940,000 a useful life of 4 years. at December 31, 2018, and December 31, 2019, the company determines that impairment indicators are present. The following informaon is available for impairment tesng at each year end:

Fair value less costs of disposal Value-in-use

12/31/2018 P690,000 P720,000

12/31/2019 P420,000 P445,000

No changes were made in the asset’s esmated useful life.

QUESTUIONS: 27. The enty should recognize loss on write-down of inventory of materials of

a. P50,000 b. P30,000 28. The depreciaon charge on the machine for 2019 is a. P12,150 b. P12,000

c. P5,000 d. Nil

c. P11,900 d. P11,360

29. The net amount to be recognized in 2019 or loss in relaon to the building is c. P(100,000) a. P150,000 d. P(50,000) b. P25,000 30. The total expense to be recognized in 2019 profit or loss in relaon to the patent is c. P260,000 a. P285,000 d. P235,000 b. P270,000 31. Which statement is incorrect? a. In accordance with PIC Q&A No. 2018-10, an enty should disclose write-downs of inventory held at the end of the reporng period. b. In accordance with PIC Q&A No. 2012-02, the costs incurred in relaon to demolion (of the physical tearing down) of the old building to give way for the construcon of the replacement building should preferably be capitalized as part of the cost of the new building c. In accordance with PIC Q&A No. 2017-6, collector’s items for administrave or aesthec purchases can be accounted for in accordance with PAS 40. d. Subsequent expenditure on brands, mastheads, publishing tles, customer lists and items similar in substance (whether externally acquired or internally generated) is always recognized in profit or loss as incurred. 32. The Fama Corporaon’s inventory at December 31, 2019, was P325,000 based on a physical count priced at cost....