Quiz 7 10 April 2018, questions PDF

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DySAS Center for CPA Review2F & 3F Mitra Building, San Pedro Street, Davao City Tel. No. (082) 224-43-20: E-mail Address – dysasrev@yahooPractical Accounting 1 John C. Frivaldo, CPA, MBA FIRST PRE-BOARD EXAMINATIONS December 20, 2009 @ 8:00 – 10:00 am ========================================...

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DySASCe nt erf orCPA Re vi ew 2F & 3F Mitra Building, San Pedro Street, Davao City Tel. No. (082) 224-43-20: E-mail Address – [email protected] Practical Accounting 1 John C. Frivaldo, CPA, MBA FIRST PRE-BOARD EXAMINATIONS December 20, 2009 @ 8:00 – 10:00 am =========================================================== INSTRUCTIONS: Mark the letter of your choice with a VERTICAL LINE on the answer sheet provided. ERASURES NOT ALLOWED. 1. Alpha Company provided the following information relating to the current year: Net income 3,500,000 Unrealized gain on available for sale securities 250,000 Foreign currency translation adjustment – credit 50,000 Revaluation surplus 1,000,000 How much is the comprehensive income? (a) P3,800,000 (b) P4,700,000 (c) P4,750,000 (d) P4,800,000

D

Net income 3,500,000 Unrealized gain on available for sale securities 250,000 Foreign currency translation adjustment – credit 50,000 Revaluation surplus 1,000,000 Comprehensive income 4,800,000 2. The following information pertains to Deal Corporation’s 2009 cost of goods sold: Inventory, January 1 4,500,000 2009 purchases 6,200,000 2009 writeoff of obsolete inventory 1,700,000 Inventory, December 31 1,500,000 The inventory written off became obsolete due to an unexpected and unusual technological advance by a competitor. In its 2009 income statement, what amount should Deal as cost of goods sold? (a) P9,000,000 (b) P9,200,000 (c) P7,500,000 (d) P6,200,000 C Beginning inventory Purchases Available for sale Ending inventory (1,500,000 + 1,700,000) Cost of goods sold

P 4,500,000 6,200,000 P10,700,000 ( 3,200,000) P 7,500,000

3. The records of Big Corporation at December 31, 2009 showed the following balances: Uncollectible accounts expense 2,000,000 Freight out 3,500,000 Cost of sales 40,000,000 Loss on sale of equipment 1,500,000 Loss from typhoon 3,000,000 Sales 90,000,000 Interest income 4,000,000 Administrative expenses 10,000,000 Finished goods inventory, January 1 60,000,000 Sales commissions 7,000,000 Finished goods inventory, December 31 55,000,000 Income tax rate 30% Big shall report as income after income tax from continuing operations the amount of: (a) P30,000,000 (b) P21,000,000 (c) P27,000,000 (d) P18,900,000 Sales P90,000,000 Cost of sales (40,000,000) Gross income P50,000,000 Interest income 4,000,000 Total revenue P54,000,000 Operating expenses: Uncollectible accounts expense P2,000,000

B

Freight out Administrative expenses Sales commissions Loss on sale of equipment Income before income tax

3,500,000 10,000,000 7,000,000 1,500,000 (24,000,000) P30,000,000

Income tax (30%) Income from continuing operations

( 9,000,000) P21,000,000

4. Thor’s income statement for the year ended December 31, 2009 reported net income as P7,410,000. The auditor raised questions about the following amounts that had been included in net income: Unrealized loss on decline in market value of available for sale securities (P 540,000) Gain on early retirement of bonds payable (net tax effect) 2,200,000 Adjustments to profits of prior years for errors in depreciation (net of tax effect) ( 750,000) Loss from fire (net of tax effect) (1,400,000) The loss from fire was an infrequent but not an unusual occurrence in Thor’s line of business. Thor’s December 31, 2009 income statement should report net income of: (a) P6,500,000 (b) P6,610,000 (c) P8,160,000 (d) P8,700,000 D Net income per book Unrealized loss on decline Adjustment to profit of prior years Adjusted net income

P7,410,000 540,000 750,000 P8,700,000

5. During 2009, Kerr Company determined that machinery previously depreciated over a seven-year life had a total estimated useful life of only five years. An accounting change was made in 2009 to reflect the change in estimate. If the change had been made in 2008, accumulated depreciation would have been P800,000 at December 31, 2008, instead of P600,000. As a result of this change, the 2009 depreciation expense was P50,000 greater. The income tax rate was 30%. What should be reported in Kerr’s income statement for the year ended December 31, 2009, as the cumulative effect on prior years of changing the estimated useful life of the machinery? (a) P 0 (b) P127,500 (c) P150,000 (d) P187,500 A 6. While preparing its 2009 financial statements, Dek Corporation discovered computational errors in its 2008 and 2007 depreciation expense. These errors resulted in overstatement of each year’s income by P100,000, net of income taxes. The following amounts were reported in the previously issued financial statements: 2008 2007 Retained earnings, 1/1 P2,800,000 P2,000,000 Net income 600,000 800,000 Retained earnings, 12/31 P3,400,000 P2,800,000 Dek’s income statement for 2009 is correctly reported at P700,000. The statement of retained earnings for the year ended December 31, 2009 should report an ending balance at: (a) P3,900,000 (b) P4,100,000 (c) P4,300,000 (d) P4,000,000 A Retained earnings – 1/1/09 Prior period adjustment: Underdepreciation in 2007 and 2008 Corrected beginning balance Net income for 2009 Retained earnings – 12/31/09

P3,400,000 ( 200,000) P3,200,000 700,000 P3,900,000

7. Zen, Inc. maintains a markup of 60% based on cost. The company’s selling and administrative expenses average 30% of sales. For 2009, sales amounted to P960,000. Zen’s cost of goods sold and operating income for 2009 are: Cost of goods sold Operating income (a) P570,000 P 96,000 (b) P576,000 P288,000 (c) P600,000 P 72,000 (d) P600,000 P288,000 C Sales Cost of sales (960,000/ 160%) Gross income Selling and administrative (30% x 960,000) Operating income

P960,000 (600,000) P360,000 (288,000) P 72,000

8. In Bar’s 2009 single-step income statement, the section title “Revenues” consisted of the following: Net sales revenue P1,870,000 Results from discontinued operations:

Loss from operations of segment (net of P12,000 tax effect) (P24,000) Gain on disposal of segment (net of P72,000 tax effect) 144,000 120,000 Interest revenue 102,000 Gain on sale of equipment 47,000 Cumulative change in 2007 and 2008 income due to change in depreciation method (net of P7,500 tax effect) 15,000 Total revenues P2,154,000 In the revenues section of the 2009 income statement, Bar should have reported total revenues of: (a) P2,163,000 (b) P2,154,000 (c) P2,037,000 (d) P2,019,000 D Net sales revenue Interest revenue Gain on sale of equipment Total revenues

P1,870,000 102,000 47,000 P2,019,000

9. The following is a statement of retained earnings for the current year provided by Laser Company: Balance at beginning of year 85,000 Additions: Change in estimate of amortization expense for the year 2,500 Gain on sale of land 18,000 Interest revenue 4,500 Profit and loss for current year 13,000 38,000 Total 123,000 Deductions: Increased depreciation due to change in estimated life 5,000 Dividends declared and paid 11,000 Loss on sale of equipment 3,000 Loss from major casualty 7,000 26,000 Balance at end of year 97,000 What net income should have been reported in the income statement for the year? (a) P23,000 (b) P13,000 (c) P12,000 (d) P25,500 Profit and loss for current year Change in estimate of amortization expense Gain on sale of land Interest revenue Increased depreciation due to change in estimated life Loss on sale of equipment Loss from major casualty Adjusted net income

A

13,000 2,500 18,000 4,500 (5,000) (3,000) (7,000) 23,000

10. On June 1, 2009, Star Company approved a plan to dispose of a business segment. It is expected that the sale will occur on April 30, 2010. On December 31, 2009, the carrying value of net assets of the segment was P4,000,000 and the net recoverable amount was P3,600,000. During 2009, the company paid employees severance and relocation costs of P200,000 as a direct result of the discontinued operation. The revenues and expenses of the discontinuing segment during 2009 were: Revenues Expenses June 1 to December 31 4,400,000 5,800,000 If the tax rate is 30%, how much will be reported as loss from ordinary activities of the discontinued segment during 2009? (a) P980,000 (b) P1,120,000 (c) P1,400,000 (d) P2,000,000 C Revenues Expenses Termination cost Impairment loss Loss from ordinary activities

4,400,000 (5,800,000) ( 200,000) ( 400,000) (2,000,000)

Tax savings (2,000,000 x 30%) Loss from ordinary activities, net of tax

600,000 (1,400,000)

11. Far is disposing a segment of its business. At the measurement date, the net loss from the disposal is estimated to be P675,000. Included in this P675,000 are severance pay of P50,000 and employee relocation costs of P25,000, both of which are directly associated with the decision to dispose of the segment, and estimated operating loss of the segment to the disposal date of P100,000. A loss of P125,000 from operations from the beginning of the year to the measurement date is not included in the P675,000 estimated loss. Ignoring income taxes, how much should be reported on Far’s income statement as the total loss under the heading “discontinued operations”? (a) P225,000 (b) P625,000 (c) P650,000 (d) P800,000 D Loss from operations of segment Net loss from disposal of segment Total loss

P125,000 675,000 P800,000

12. The accounts below were taken from the unadjusted trial balance of Kase Corporation as at December 31, 2009: Cash, net of bank overdraft of P150,000 600,000 Notes receivable (including discounted note of P100,000) 500,000 Trade accounts receivable, net of customers’ credit balance of P50,000 700,000 Merchandise inventory 800,000 Trade accounts payable, net of creditors’ debit balances of P100,000 800,000 What is the correct amount of current assets on December 31, 2009? (a) P2,800,000 (b) P2,700,000 (c) P2,600,000 (d) P2,900,000 A Cash (150,000 + 600,000) Notes receivable (500,000 - 100,000) Trade accounts receivable (700,000 + 50,000) Merchandise inventory Creditors’ debit balances Total current assets

P 750,000 400,000 750,000 800,000 100,000 P2,800,000

Items 13 and 14: The following trial balance of Trey Company at December 31, 2009 has been adjusted except for income tax expense: Cash Accounts receivable, net Prepaid taxes Accounts payable Ordinary share Premium share Accumulated profits Foreign currency translation adjustment Revenues Expenses

P

550,000 1,650,000 320,000 P 140,000 500,000 680,000 630,000 430,000

3,600,000 2,600,000 _________ P5,550,000 P5,550,000 During 2009, estimated tax payments of P320,000 were charged to prepaid taxes. Trey has not yet recorded income tax expense. There were no differences between financial and income tax income. Trey’s tax rate is assumed to be 32%. Included in accounts receivable is P500,000 due from a customer. Special terms granted to this customer require payment in equal semiannual installments of P125,000 every April 1 and October 1. 13. In Trey’s December 31, 2009 statement of financial position, what amount should be reported as total current assets? (a) P1,950,000 (b) P2,200,000 (c) P2,270,000 (d) P2,520,000 A Cash P 550,000 Accounts receivable (1,650,000–125,000–125,000) 1,400,000 Total current assets P1,950,000 14. In Trey’s December 31, 2009 statement of financial position, what amount should be reported as total accumulated profits? (a) P1,017,600 (b) P1,200,000 (c) P1,310,000 (d) P1,630,000 C

Revenues Expenses Income before income tax Income tax (32%)

P3,600,000 (2,600,000) P1,000,000 ( 320,000)

Net income Accumulated profits – January 1 Total accumulated profits

P 680,000 630,000 P1,310,000

Items 15 to 17: Multi Corporation provided the following balances on December 31, 2009: Accounts payable 500,000 Accrued taxes 100,000 Ordinary shares 5,000,000 Dividends-ordinary share 1,000,000 Dividends-preference share 500,000 Mortgage payable (P500,000 due in 6 months) 4,000,000 Notes payable, due January 1, 2012 2,000,000 Premium share 500,000 Preference share 3,000,000 Premium on note payable 200,000 Profit summary-credit balance 4,000,000 Accumulated profits-1/1/2009 2,500,000 Unamortized issue cost on note payable 50,000 Unearned rent income 150,000 15. What is the amount of total noncurrent liabilities? (a) P5,700,000 (b) P6,200,000 (c) P5,500,000 Mortgage payable (4,000,000 – 500,000) Notes payable, due January 1, 2008 Premium on note payable Total long-term liabilities

(d) P5,650,000 A

P3,500,000 2,000,000 200,000 P5,700,000

16. What is the accumulated profits account balance on December 31, 2009? (a) P6,500,000 (b) P2,500,000 (c) P1,000,000 (d) P5,000,000 Retained earnings-1/1/2009 Income summary-credit balance Dividends-common stock Dividends-preferred stock Retained earnings-12/31/2009

P2,500,000 4,000,000 (1,000,000) ( 500,000) P5,000,000

17. What is the total shareholders’ equity on December 31, 2009? (a) P15,000,000 (b) P13,500,000 (c) P9,500,000 Preferred stock Common stock Additional paid in capital Retained earnings Total stockholders’ equity

D

(d) P8,500,000 B

P 3,000,000 5,000,000 500,000 5,000,000 P13,500,000

18. Heidi uses the direct method to prepare its cash flow statement. Pertinent account balances are: 2005 2004 Prepaid interest expense 200,000 50,000 Property, plant and equipment 5,000,000 4,500,000 Unamortized bond discount 250,000 300,000 Selling expenses 7,200,000 8,600,000 General and administrative expenses 6,850,000 7,565,000 Interest expense 800,000 150,000 Income tax expense 1,000,000 3,000,000 Allowance for uncollectible accounts 65,000 55,000 Accumulated depreciation 900,000 750,000 Income tax payable 1,100,000 1,300,000 Deferred income tax liability 200,000 400,000 Accrued interest payable 300,000 500,000 Heidi purchased P500,000 in equipment during 2005. Heidi allocated one-third of its depreciation to selling and the remainder to administrative. What amount should Heidi report in its 2005 cash flow statement as cash paid for interest? (a) P1,100,000 (b) P1,150,000 (c) P1,200,000 (d) P750,000 A

Interest expense Add: Prepaid interest, end. Interest payable, beg. Total

800,000 200,000 500,000 700,000 1,500,000

Less: Prepaid interest, beg. Interest payable, end. Amortization of bond disc. Interest paid

50,000 300,000 50,000 400,000 1,100,000

19. Jog, Inc. reported P60,000 net income for 2009. During the year, machinery costing P4,000 and land costing P6,000 were purchased. A machinery costing P4,000 and land costing P6,000 were purchased. Machinery was sold for P300 which was its net book value. Selected account information follows: 2009 January 1 December 31 Land P5,000 P11,000 Machinery 8,000 7,000 Accumulated depreciation 3,000 2,000 Net cash provided by operating activities was: (a) P60,000 (b) P60,300 (c) P53,700 (d) P63,700 D Net income Depreciation expense Net cash provided by operating activities

60,000 3,700 63,700

20. The 2009 net income of Chet Company was P3,000,000. Following are the changes in balance sheet accounting during 2009: Deferred income tax liability (noncurrent) 36,000 increase Accumulated depreciation due to a major repair on equipment 42,000 decrease Noncurrent investment (at equity) 110,000 increase Unearned interest income 28,000 decrease The reported net cash provided by operating activities in the 2009 statement of cash flows should be: (a) P3,008,000 (b) P2,856,000 (c) P2,996,000 (d) P2,898,000 D Net income Deferred income tax liability (long-term) Long-term investment (at equity) Unearned interest income Net cash flows from operating

P3,000,000 36,000 ( 110,000) ( 28,000) P2,898,000

Items 21 to 23: The worksheet below presents the comparative statement of financial position items of Kim Company at December 31, 2010 and 2009: 2010 2009 Cash 4,037,500 3,500,000 Accounts receivable 5,640,000 5,840,000 Inventories 9,250,000 8,575,000 Property, plant and equipment 16,535,000 14,835,000 Accumulated depreciation (5,825,000) (5,200,000) Investment in associate 1,525,000 1,375,000 Loan receivable 1,312,500 0 Accounts payable 5,075,000 4,775,000 Income taxes payable 150,000 250,000 Dividends payable 400,000 500,000 Liability under finance lease 2,000,000 0 Ordinary shares, P10 par 2,500,000 2,500,000 Share premium 7,500,000 7,500,000 Accumulated profits 14,850,000 13,400,000 Additional information: (a) On December 31, 2009, Kim acquired 25% of Ming Co.’s ordinary shares for P1,375,000. On that date, the book value of Ming’s only assets and liabilities, which approximated their fair values, was P5,500,000. Ming reported profit of P600,000 for the year ended December 31, 2010. No dividend was paid on Ming’s ordinary shares during the year. (b) During 2010, Kim loaned P1,500,000 to Lim Co., an unrelated company. Lim made the first semi-annual principal repayment of P187,500, plus interest at 10%, on December 31, 2010. (c) On January 2, 2010, Kim sold equipment costing P300,000, with a carrying amount

of P175,000, for P200,000 cash. (d) On December 31, 2010, Kim entered into a finance lease for an office building. The present value of the annual rental payments is P2,000,000, which equals the fair...