GEN 010 Quiz 1 - Ususkskksd PDF

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Quiz 1Technically, offsetting in financial statements is accomplished whenThe allowance for doubtful accounts is deducted from accounts receivable The accumulated depreciation is deducted from property, plant and equipment The total liabilities are deducted from total assets to arrive at net assets ...

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Quiz 1 Technically, offsetting in financial statements is accomplished when The allowance for doubtful accounts is deducted from accounts receivable The accumulated depreciation is deducted from property, plant and equipment The total liabilities are deducted from total assets to arrive at net assets Gains or losses from disposal of non-current assets are reported by deducting from the proceeds the carrying amount of the assets and the related disposal cost When the classification of items in the financial statements is changed, the entity Must not reclassify the comparative amounts Can choose whether to reclassify the comparative amounts Must reclassify the comparative amounts, unless it is impracticable to do so. Must reclassify the current year amounts only Which of the following cannot be considered fair presentation? To select and apply accounting policies in accordance with applicable PFRS To present information in a manner that provides relevant, reliable, comparable and understandable information To provide additional disclosures when compliance with specific PFRS is insufficient to understand the entity’s financial position and financial performance To rectify inappropriate accounting policies either by disclosure of accounting policies used by notes or explanatory information Which of the following entities is a going concern? Management intends to liquidate the entity Management intends to cease the entity’s operation Management has no realistic alternation but to cease the entity’s operation None of the above Which criticism is not normally aimed at a statement of financial position? Failure to reflect current value information The extensive use of separate classifications An extensive use of estimate Failure to include items of financial value An entity must present additional line items in a statement of financial position when Such presentation is relevant to an understanding of the entity’s financial position Such presentation is generally accepted practice in the sector in which the entity operates Such presentation is required by the tax authorities of the jurisdiction in which the entity operates Such presentation is relevant to an understanding of the entity’s financial position and financial performance

When classifying assets as current and non-current for reporting purposes The amounts at which current assets are carried and reported must reflect realizable cash value Prepayments for items such as insurance or rent are included in other assets rather than as current assets The time period by which current assets are distinguished from noncurrent asset is determined by the seasonal nature of the business Assets are classified as current if these are reasonably expected to be realized in cash or consumed during the normal operating cycle Which of the following accounting bases may be used to prepare financial statements in conformity with a comprehensive basis of accounting other than generally accepted accounting principles? Income tax basis of accounting Cash receipts and disbursements basis of accounting Income tax basis and cash receipts and disbursements basis of accounting Neither income tax basis nor cash receipts and disbursements basis of accounting What is the purpose of reporting comprehensive income? To report transactions with owners To report a measure of overall entity performance To replace net income with a better measure To combine income from continuing operations with income from discontinued operations Under a strict transactions approach to income measurement, which of the following would not be considered a transaction? Sale of goods at certain markup Payment of salaries Adjustment of inventory to lower of cost and net realizable value when net realizable value is below cost Exchange of inventory valued at regular selling price for an equipment A transaction that is material in amount, unusual in nature and infrequent in occurrence shall be presented separately as Component of income from continuing operations, but not net applicable income tax Component of income from continuing operations, net of applicable income tax Component of income from discontinued operation, net applicable income tax Prior period error, net of applicable income tax Investor and creditors use income statement information for each of the following, except To evaluate the future performance of an entity To provide a basis for predicting future performance To help assess the risk and uncertainty of achieving future cash flows To evaluate the past performance of an entity

Which of the following statements best describe the term “significant influence”? A holding of a significant proportion of the share capital in another entity The contractually agreed sharing of control over an economic entity The power to participate in the financial and operating policy decision of an entity The mutual sharing in the risks and benefits of a combined entity Problems Problem 1 ABC company provided the following account balance at year-end which had been adjusted except for income tax expense Cash Accounts receivable Cost in excess of billings on long-term contracts Billings in excess of cost on long term contracts Prepaid taxes Property, plant, and equipment, at carrying amount Note payable – non-current Share capital Share premium Retained earnings unappropriated Retained earnings restricted for note payable Earnings from long term contracts Cost and expenses

600,000 3,500,000 1,600,000 700,000 450,000 1,510,000 1,620,000 750,000 2,030,000 900,000 160,000 6,680,000 5,180,000

All receivables on long-term contracts are considered to be collectible within 12 months. During the year, estimated tax payments of P450,000 were charged to prepaid taxes. The entity has not recorded income tax expense. The tax rate is 30%. At year-end, what amount should be reported as Total retained earnings? 1,950,000 2,110,000 2,400,000 2,560,000 Total noncurrent liabilities? 1,620,000 1,780,000 2,320,000 2,480,000 Total current assets?

5,000,000 4,100,000 5,700,000 6,150,000 Total shareholders’ equity? 2,940,000 2,780,000 4,890,000 4,730,000 Solutions Earnings from long term contracts Cost and Expenses Income before income taxes Income tax (30% x 1,500,000) Net Income Retained Earnings unappropriated Retained Earnings restricted Total retained earnings

6,680,000 (5,180,000) 1,500,000 ( 450,000) 1,050,000 900,000 160,000 2,110,000

Note Payable-noncurrent

1,620,000

The billings in excess of cost on long term contracts account is a current liability Cash Accounts receivable Cost in excess of billings on long term contracts

600,000 3,500,000 1,600,000

Total Current Assets

5,700,000

The prepaid taxes of P450,000 represents the tax expenses for the current year Share capital Share premium Retained earnings

750,000 2,030,000 2,110,000

Total Shareholders’ Equity

4,890,000

Problem 2 ABC company provided the following information for the current year:

Current Assets Property, plant, and equipment Current Liabilities Non-current liabilities

January 1

December 31

700,000 3,000,000 ? 1,000,000

? 4,000,000 300,000 ?

Working capital of P600,000 remained unchanged. Net income for the current year was P400,000 No dividends were declared during the year and there were no other changes in shareholders’ equity. What is the amount of current assets on December 31? 900,000 300,000 600,000 450,000 What is the shareholders’ equity on December 31? 3,000,000 2,600,000 2,700,000 3,700,000 What is the amount of non-current liabilities on December 31? 2,200,000 1,100,000 1,600,000 1,900,000 Solutions Current assets – December 31 (SQUEEZE) Current liabilities – December 31 Working Capital

900,000 (300,000) 600,000

Current assets – January 1 Property, plant and equipment Total Assets – January 1 Current liabilities Non-current liabilities Shareholders’ equity – January 1

700,000 3,000,000 3,700,000 ( 100,000) (1,000,000) 2,600,000

Net income for current year Shareholder’s equity – December 31

400,000 3,000,000

Current assets – January 1 Current liabilities – January 1(Squeeze) Working Capital – January 1 Current assets – December 31 Property, plant and equipment Total assets – December 31 Current liabilities – December 31 Non-current liabilities – December 31 (Squeeze) Shareholders’ equity – December 31

700,000 100,000 600,000 900,000 4,000,000 4,900,000 ( 300,000) (1,600,000) 3,000,000

Problems 3 ABC company, an investment entity, provided the following income and expenses for the current year: Dividend income from investment Distribution income from trusts Interest income on deposits Income from bank treasury bills Unrealized gain on derivative contract as cash flow hedge Income from dealing in securities and derivatives held for trading Write down of securities and derivatives held for trading Other Income Finance costs Administrative staff costs Sundry administrative costs Income tax expense What is the total income before tax? 11,200,000 11,350,000 10,700,000 10,750,000 What is the total amount of expenses before tax? 5,430,000 5,300,000 5,000,000 5,150,000 What is the net income for the current year?

9,200,000 500,000 700,000 100,000 400,000 600,000 150,000 250,000 300,000 3,800,000 1,200,000 1,700,000

5,900,000 3,700,000 4,200,000 5,500,000 What is the comprehensive income for the current year? 4,200,000 4,600,000 3,800,000 9,200,000 Solutions Dividend income from investments Distribution income from trusts Interest income on deposits Income from bank treasury bill Income from dealing in securities and derivatives held for trading – net amount Other income

9,200,000 500,000 700,000 100,000

Total Income

11,200,000

Income from dealing in securities and derivatives Write down of securities and derivatives

600,000 (150,000)

Net amount

450,000 250,000

450,000

Administrative costs Sundry administrative costs Finance costs

3,800,000 1,200,000 300,000

Total expenses

5,300,000

Total income Total expenses Income before income tax Income tax expense

11,200,000 (5,300,000) 5,900,000 (1,700,000)

Net Income

4,200,000

Net income Other comprehensive Income Unrealized gain on derivative contract

4,200,000

Comprehensive Income

4,600,000

Problem 4

400,000

ABC company incurred the following costs and expenses during the current year: Raw materials purchases Direct labor Indirect labor – factory Factory repairs and maintenance Taxes on factory building Depreciation – Factory building Taxes on salesroom and general office Depreciation – sales equipment Advertising Sales salaries Office supplies Utilities – 60% applicable to factory

Raw materials Work in process Finished goods

4,000,000 1,500,000 800,000 200,000 100,000 300,000 150,000 50,000 400,000 500,000 700,000 500,000 Beginning

Ending

300,000 400,000 500,000

450,000 350,000 700,000

What is the cost of raw materials? 3,850,000 4,000,000 4,150,000 4,750,000 What is the goods manufactured for the current year? 7,450,000 7,200,000 7,100,000 7,300,000 What is the cost of goods sold for the current year? 7,300,000 6,900,000 7,600,000 8,300,000 Solutions Beginning raw materials Raw material purchases Raw materials available for use Ending raw materials

300,000 4,000,000 4,300,000 ( 450,000)

Raw materials used

3,850,000

Raw materials used Direct labor Factory Overhead: Indirect labor Factory repairs and maintenance Taxes on factory building Depreciation Utilities (60%x500,000)

3,850,000 1,500,000 800,000 200,000 100,000 300,000 300,000

1,700,000

Total Manufacturing cost Beginning Work in process Ending work in process

7,050,000 400,000 ( 350,000)

Cost of goods manufactured

7,100,000

Beginning finished goods Cost of goods manufactured

500,000 7,100,000

Goods available for use Ending Finished goods

7,600,000 ( 700,000)

Cost of goods sold

6,900,000

Problem 5 BigHit company purchased 10% of VAST company’s 100,000 outstanding ordinary shares on January 1, 2018 for P500,000. On December 31, 2018, BigHit company purchased an additional 20,000 shares of VAST company for P1,500,000. VAST company had not issued any additional shares during 2018. The investee reported earnings of P3,000,000 for 2018. The fair value of the 10% interest is P900,000 on December 31,2018. What is the carrying amount of the investment in Associate on December 31, 2018? 2,300,000 2,000,000 2,400,000 2,900,000 What is the amount of income should be recognized for 2018? 500,000 400,000 900,000 0

Solutions Fair Value of 10% interest Cost on December 31 (20,000/100,000 shares = 20%)

900,000 1,500,000

Carrying amount – December 31, 2018

2,400,000

If the investment in associate is achieved in stages, the existing interest is remeasured at fair value with any changes in fair value included in profit or loss. The fair value of the existing interest plus cost of the new interest equals the total costs of investment on the initial application of the equity method starting 2019. Fair Value of 10% interest Acquisition cost of 10% interest

900,000 500,000

Gain on remeasurement

400,000

The gain on remeasurement is recognized in profit or loss. Since the investment in associate is achieved on December 31, 2018, the investor does not share in the net income of the investee in 2018. The equity method of accounting is fully applied starting 2019.

Problem 6 At the beginning of the current year, ABC Company acquired 40% of the outstanding ordinary share of an investee for P6,500,000. The carrying amount of the net assets of the investee equaled P12,500,000. Any excess of cost over carrying amount is attributable to goodwill. The investee reported net loss P4,000,000 and paid cash dividend of P2,500,000. What is the carrying amount of the investment at year –end? 6,500,000 3,900,000 4,900,000 5,500,000 Solution Acquisition cost Share in net loss (40%x 4,000,000) Share in cash dividend (40%x2,500,000)

6,500,000 (1,600,000) (1,000,000)

Carrying amount of investment in associate

3,900,000...