Test 15 August 2017, questions and answers PDF

Title Test 15 August 2017, questions and answers
Course Accounting
Institution De La Salle University
Pages 36
File Size 259.6 KB
File Type PDF
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Summary

FINANCIAL ACCOUNTING PROBLEMS Problem I (Current assets) An entity provided the following trial balance on June 30, 2015: Cash overdraft Accounts receivable, net Inventory Prepaid expenses Land held for resale ( 200,000) 700,000 1,200,000 200,000 2,000,000 Property, plant and equipment, net Accounts...


Description

FINANCIAL ACCOUNTING PROBLEMS Problem I (Current assets) An entity provided the following trial balance on June 30, 2015: Cash overdraft Accounts receivable, net Inventory Prepaid expenses Land held for resale

( 200,000) 700,000 1,200,000 200,000 2,000,000

Property, plant and equipment, net Accounts payable and accrued expenses Share capital Share premium Retained earnings

1,900,000 640,000 3,000,000 500,000 1,660,000

Checks amounting to P600,000 were written to vendors and recorded on June 30 resulting in cash overdraft of P200,000. The checks were mailed on July 9. Land held for resale was sold for cash on July 15. The financial statements were issued on July 31. On June 30, 2015, what total amount should be reported as current assets? a. 4,500,000 b. 4,100,000 c. 4,300,000 d. 2,500,000

Problem 2 (Total assets) An entity was incorporated on January 1, 2015 with proceeds from the issuance of P7,500,000 in shares and borrowed funds of P1,100,000. During the first year of operations, revenue from sales and consulting amounted to P820,000, and operating costs and expenses totaled P640,000. On December 15, the entity declared a P30,000 cash dividend, payable to shareholders on January 15, 2016. No additional activities affected owners’ equity in 2015. The liabilities increased to P1,200,000 by December 31, 2015. What amount should be reported as total assets on December 31, 2015? a. b. c. d.

8,850,000 8,820,000 7,870,000 8,750,000

Problem 3 (Current liabilities) An entity had the following liabilities on December 31, 2015: Accounts payable Unsecured notes, 8% due 7/1/2016 Accrued expenses Contingent liability Deferred tax liability Senior bonds, 7%, due 3/31/2016

55,000 400,000 35,000 450,000 25,000 1,000,000

The contingent liability is an accrual for possible loss on a P1,000,000 lawsuit filed against the entity. The legal counsel expects the suit to be settled in 2016 and has estimated that the entity will be liable for damages in the range of P450,000 to P750,000. The deferred tax liability is expected to reverse in 2016. What amount should be reported on December 31, 2015 for current liabilities? a. 515,000 b. 940,000 c. 1,490,000 d. 1,515,000

Page

2

Problem 4 (Net income) An entity reported net income of P7,410,000 for the current year. The auditor raised questions about the following amounts that had been included in net income: Unrealized loss on equity investments at fair value through other comprehensive income ( 540,000 ) Gain on early retirement of bonds payable 2,200,000 Adjustment of profit of prior year for error in depreciation, net of tax effect ( 750,000 ) Loss from fire ( 1,400,000 ) Gain from change in fair value attributable to the credit risk of financial liability designated at fair value through profit or loss 500,000 What amount should be reported as adjusted net income? a. b. c. d.

6,500,000 7,200,000 8,200,000 8,700,000

Problem 5 (Retained earnings) An entity provided the following information on December 31, 2015: Total reported income since incorporation Total cash dividends paid Unrealized holding loss on trading investment Total share dividends distributed Prior period adjustment recorded January 1, 2015 - credit

1,700,000 ( 800,000) ( 120,000) ( 200,000) 75,000

What amount should be reported as retained earnings on December 31, 2015? a. b. c. d.

655,000 700,000 580,000 775,000

Problem 6 (Cash computation) An entity reported the checkbook balance on December 31, 2015 at P8,000,000. In addition, the entity held the following items in the safe on that date: Check payable to the entity, dated January 2, 2016 in payment of a sale, not included in December 31 check book balance Check payable to the entity, deposited December 15 and included in December 31 checkbook balance, but returned by bank on December 30 stamped “NSF”. The check was redeposited on January 2, 2016 and cleared on January 5, 2016 Check drawn on the entity’s account, dated and recorded on December 31, 2015 but not mailed until January 15, 2016 Coins and currencies on hand Three-month money market instruments What is the correct amount of “cash” on December 31, 2015? a. 7,500,000 b. 9,300,000 c. 8,300,000 d. 9,800,000

1,000,000

3,000,000 2,500,000 800,000 1,500,000

Page 3 Problem 7 (Impairment of accounts receivable) An entity reported the following accounts receivable on December 31, 2015: Customer A Customer B Customer C Customer D All other accounts receivable not individually significant

1,000,000 1,500,000 2,000,000 2,500,000 3,500,000

The entity determined that Customer A receivable is totally impaired and Customer B receivable is impaired by P700,000. The other receivables from Customers C and D are not considered impaired. The entity determined that a composite rate of 10% is appropriate to measure impairment on the remaining accounts receivable. What is the total impairment loss of accounts receivable for 2015? a. 2,500,000 b. 2,050,000 c. 1,050,000 d. 2,750,000

Problem 8 (Current net receivables) An entity reported current receivables on December 31, 2015 which consisted of the following: Trade accounts receivable Allowance for uncollectible accounts Claim against shipper for goods lost in transit in November 2015 Selling price of unsold goods sent by the entity on consignment at 130% of cost and not included in the ending inventory Security deposit on lease of warehouse used for storing inventories

930,000 20,000 30,000 260,000 300,000

What is the correct total of current net receivables on December 31, 2015? a. 1,500,000 b. 1,200,000 c. 1,240,000 d. 940,000

Problem 9 (Measurement of notes receivables) On December 31, 2015, an entity received two P2,000,000 notes receivable from customers. On both notes, interest is calculated on the outstanding principal balance at the annual rate of 3% and payable at maturity. The first note, made under customary trade terms, is due in nine months and the second note is due in five years. The market interest rate for similar notes on December 31, 2015 was 8%. The PV of 1 at 8% due in nine months is .944, and the PV of 1 at 8% due in 5 years is .68. On December 31, 2015, what total carrying amount should be reported for the two notes receivable? a. 3,248,000 b. 3,494,400 c. 3,360,000 d. 3,564,000

Page 4 Problem 10 (Measurement of loan receivable) A bank granted a 10-year loan to a borrower in the amount of P1,500,000 with stated interest rate of 6%. Payments are due monthly and are computed to be P16,650. The bank incurred P40,000 of direct loan origination cost and P20,000 of indirect loan origination cost. In addition, the bank charged the borrower a 4-point nonrefundable loan origination fee. What is the carrying amount of the loan receivable to be reported initially by the bank? a. b. c. d.

1,440,000 1,480,000 1,500,000 1,520,000

Problem 11 (Cost of inventory) An entity reported inventory on December 31, 2015 at P6,000,000 based on a physical count at cost and before any necessary year-end adjustments relating to the following: 

Included in the physical count were goods billed to a customer FOB shipping point on December 30, 2015. These goods had a cost of P125,000 and were picked up by the carrier on January 7, 2016.



Goods shipped FOB shipping point on December 28, 2015 from a vendor to the entity were received on January 4, 2016. The invoice cost was P300,000.

What amount should be reported as inventory on December 31, 2015? a. b. c. d.

5,875,000 6,000,000 6,175,000 6,300,000

Problem 12 (Computation of accounts payable) An entity reported accounts payable on December 31, 2015 at P4,500,000 before any necessary year-end adjustments relating to the following transactions: 

On December 27, 2015, the entity wrote and recorded checks to creditors totaling P2,000,000 causing an overdraft of P500,000 in the entity’s bank account on December 31, 2015. The checks were mailed on January 10, 2016.



On December 28, 2015, the entity purchased and received goods for P750,000, terms 2/10, n/30. The entity recorded purchases and accounts payable at net amount. The invoice was recorded and paid January 3, 2016.



Goods shipped FOB destination on December 20, 2015 from a vendor to the entity were received January 2, 2016, The invoice cost was P325,000.

On December 31, 2015, what amount should be reported as accounts payable? a. b. c. d.

7,575,000 7,250,000 7,235,000 7,553,500

Page 5 Problem 13 (Retail inventory method) On December 31, 2015, an entity provided the following information: Cost

Retail

Inventory, January 1 735,000 1,015,000 Purchases 4,165,000 5,775,000 Additional markup 210,000 Sales for the year totaled P5,500,000. Markdown amounted to P100,000. Under the approximate lower of average cost or NRV retail method, what is the inventory on December 31, 2015? a. 1,050,000 b. 1,400,000 c. 994,000 d. 980,000

Problem 14 (Gross profit method) An entity budgeted the following sales. Sales on account Cash sales

June

July

August

1,800,000 180,000

1,840,000 200,000

1,900,000 260,000

All merchandise is marked up to sell at invoice cost plus 20%. Merchandise inventory at the beginning of each month is 30% of that month's projected cost of goods sold. What is the amount of anticipated purchases for July? a. b. c. d.

1,632,000 2,076,000 1,700,000 1,730,000

Problem 15 (Biological assets) An entity provided the following information about assets in forest plantation: Freestanding trees Land under trees Roads in forest Animals related to recreational activities Rubber trees and grape vines

5,000,000 900,000 500,000 2,000,000 1,500,000

What total amount should be reported as biological assets? a. b. c. d.

5,000,000 8,500,000 6,500,000 9,900,000

Problem 16 (Machinery) On September 1, 2015, an entity purchased a new machine on a deferred payment basis. A down payment of P200,000 was made and 4 annual installments of P600,000 each are to be made beginning on September 1, 2016. The cash equivalent price of the machine was P2,300,000. Due to an employee strike, the entity could not install the machine immediately and thus incurred P30,000 of storage cost. Cost of installation excluding the storage cost amounted to P80,000. What is the total cost of the machine? a. 2,300,000 b. 2,380,000

c. 2,410,000 d. 2,600,000

Page 6 Problem 17 (Borrowing cost) During 2015, an entity constructed an asset costing P10,000,000. The weighted average accumulated expenditures on the asset during the year totaled P6,000,000. To help pay for construction, P4,400,000 was borrowed at 10% on January 1, 2015, and funds not needed for construction were temporarily invested in short-term securities, yielding P90,000 in interest revenue. Other than the construction funds borrowed, the only other debt outstanding during the year was a P5,000,000, 10-year, 9% note payable dated January 1, 2012. What is the amount of interest that should be capitalized during 2015? a. b. c. d.

600,000 300,000 494,000 944,000

Problem 18 (Depletion) In 2015, an entity purchased property with natural resources for P28,000,000. The property had a residual value of P5,000,000. However, the entity is required to restore the property to the original condition at a discounted amount of P2,000,000. In 2015, the entity spent P1,000,000 in development cost and P3,000,000 in building. In 2016, an amount of P4,000,000 was spent for additional development on the mine. Production began in 2016 and the tons extracted totaled 3,000,000 in 2016 and 2,500,000 in 2017. The remaining tons totaled 7,000,000 and 3,500,000, respectively on December 31, 2016 and December 31, 2017. What amount of depletion should recognized in 2017? a. 10,500,000 b. 12,250,000 c. 9,000,000 d. 8,750,000

Problem 19 (Revaluation) On June 30, 2015, an entity reported the following information: Equipment at cost Accumulated depreciation

30,000,000 10,500,000

The equipment was measured using the cost model and depreciated on a straight line basis over 10year period. On December 31, 2015, the management decided to change the basis of measuring the equipment from the cost model to the revaluation model. The equipment was revalued to the fair value of P27,000,000 with remaining useful life of 5 years. The income tax rate is 30%. What amount should be reported as revaluation surplus on December 31, 2015? a. b. c. d.

7,500,000 5,250,000 6,300,000 9,000,000

Page 7 Problem 20 (Computer software) During the current year, an entity incurred the following costs to develop and produce a routine, low-risk computer software product: Completion of detailed program design or working model Cost incurred for coding and testing to establish technological feasibility Other coding costs after establishment of technological feasibility Other testing costs after establishment of technological feasibility Costs of producing product masters for training materials Duplication of computer software and training materials from product master Packaging product

1,300,000 1,000,000 2,400,000 2,000,000 1,500,000 2,500,000 900,000

What amount should be capitalized initially as software cost? a. b. c. d.

5,400,000 3,700,000 5,900,000 6,900,000

Problem 21 (Start up costs) An entity, a major winery, begins construction of a new facility in Mindanao. The following costs are incurred in conjunction with the start-up activities of the new facility: Production equipment Travel costs of salaried employees License fees Training of local employees for production and maintenance operations Advertising costs

8,150,000 400,000 140,000 1,200,000 850,000

What amount of start up costs should be expensed? a. 9,750,000 b. 1,600,000 c. 1,390,000 d. 0

Problem 22 (Intangible assets) On January 1, 2013, an entity purchased patent at a cost of P1,920,000 at which date the remaining legal life was 16 years. On January 1, 2015, the useful life of the patent was determined to be only 8 years from the date of acquisition. On January 1, 2015, the entity paid P800,000, of which three-fourths was for a trademark, and one-fourth was for the other entity’s agreement not to compete for a 5-year period in the line of business covered by the trademark. The entity considered the life of the trademark indefinite. Moreover, the entity agreed to pay P50,000 to the other entity as consulting fee each year for 5 years payable every January 1. What is the amortization of intangible assets for 2015? a. b. c. d.

320,000 280,000 250,000 370,000

Page 8 Problem 23 (Goodwill) On December 31, 2015, an entity purchased for P40,000,000 cash all of the outstanding ordinary shares of another entity when the subsidiary’s statement of financial position showed net assets of P32,000,000. The subsidiary’s assets and liabilities had fair value different from the carrying amount as follows: Property, plant and equipment, net Other assets Long-term debt

Carrying amount 50,000,000 5,000,000 30,000,000

Fair value 57,500,000 0 28,000,000

What amount should be reported as goodwill in the December 31, 2015 consolidated statement of financial position of the acquirer and its wholly-owned subsidiary? a. b. c. d.

3,500,000 2,500,000 7,500,000 8,000,000

Problem 24 (Financial asset at fair value through other comprehensive income) On January 1, 2015, an entity purchased nontrading equity securities which are irrevocably designated at fair value through other comprehensive income: Purchase price Security A Security B Security C

1,000,000 2,000,000 4,000,000

Transaction cost

Market – 12/31/2015

100,000 200,000 400,000

1,500,000 2,400,000 4,700,000

On July 1, 2016, the entity sold Security C for P5,200,000. What amount should be credited to retained earnings as a result of the sale of the investment in 2016? a. 800,000 b. 500,000 c. 300,000 d. 0

Problem 25 (Interest on loans) An entity frequently borrowed from the bank in order to maintain sufficient operating cash. The following loans were at a 12% interest rate with interest payable at maturity. The entity repaid each loan on scheduled maturity date. Date of loan November 1, 2014 February 1, 2015 May 1, 2015

Amount 500,000 1,500,000 800,000

Maturity date October 31, 2015 July 31, 2015 January 31, 2016

Term of loan 1 year 6 months 9 months

The entity recorded interest expense when the loans are repaid. As a result, interest expense of P150,000 was recorded in 2015. If no correction is made, by what amount would interest expense be understated for 2015? a. b. c. d.

54,000 62,000 64,000 72,000

Page 9 Problem 26 (Compensated absences) An entity has 35 employees who work 8-hour days and are paid hourly. On January 1, 2013, the entity began a program of granting the employees 10 days of paid vacation each year. Vacation days earned in 2013 may first be taken on January 1, 2014. Year

Hourly Wages

2013 2014 2015

25.80 27.00 28.50

Vacation Days Earned Vacation Days Used by Each Employee by Each Employee 10 10 10

0 8 10

The entity has chosen to accrue the liability for compensated absences at the current rate of pay in effect when the compensated time is earned. What is the accrued liability for compensated absences on December 31, 2015? a. b. c. d.

94,920 90,720 79,800 95,760

Problem 27 (Finance lease - lessee) An entity leased equipment for the entire nine-year useful life, agreeing to pay P1,000,000 at the start of the lease term on January 1, 2015, and P1,000,000 annually on each January 1 for the next eight years. The present value on January 1, 2015 of the nine lease payments over the lease term using the rate implicit in the lease which the lessor knows to be 10% was P6,330,000. The January 1, 2015 present value of the lease payments using the incremental borrowing rate of 12% was P5,970,000. The entity made a timely second lease payment. What amount should be reported as finance lease liability on December 31, 2016? a. b. c. d.

5,330,000 4,863,000 4,970,000 4,467,000

Problem 28 (Finance lease - lessor) An entity leased equipment to an unrelated party on July 1, 2015 for an eight-year period expiring June 30, 2023. Equal payments under the lease are P600,000 and are due on July 1 of each year. The first payment was made on July 1, 2015. The implicit rate of interest contemplated is 10%. The cash selling price of the equipment is P3,500,000 and the carrying amount is P2,800,000. The lease is appropriately recorded as a sales type lease. What total amount of income should be recorded for the year ended December 31, 2015? a. b. c. d.

700,000 525,000 990,000 845,000

Page 10 Problem 29 (Sale and leaseback) On January 1, 2015, an entity sold a machine for P5,000,000. The fair value of the machine was P6,500,000 on the date of sale. The machine had a carrying amount of P7,000,000 and remaining life of 15 years. The entity immediately leased back the machine for 5 years at an annual rental that was determined to be sufficiently lower than the market rent. What total amount of loss should be recognized immediately in 2015? a. 400,000 b. 800,000 c. 500,000 d. 0

Problem 30 (Employee benefit – IFRS 19R) An entity provided the following information for the current year: Current service cost Interest on projected benefit obligation Inte...


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