‘The Review School of Accountancy ‘Tel. No. 735-9807 & 734-3989 FINANCIAL ACCOUNTING & REPORTING Saturday, Sept. 15, 2018 Final Pre-board Examication 08:00 a.m to 11:00 a.m Muitiple Choice Instruction: Select the best: answer by MARKING with Pencil No.2 the letter of your choice. Follow the marking (one vertical line} a9 indicated on the ANSWER SHEET provided. Be sure that you sre using the correct ANSWER SHEET for this subject. Also mark the proper SéT (either SZET A or SET B) for appropriate computer checking. Jack Company operates two uajor lines of business’ namely, candle manufacturing and clotiing rerailing. On December 31, 2018, in response to an unsolicited offer, Jack Company disposed of its candle-making operation for P1,000,000 when the carrying amount of the operation's assets were - factory. building, 490,00); machinery, P300,000 and traqemark,, 2200,000. The candle-making operatic has no other assets and has no liability, but as @ result of the disposai the compary has an income tax payable of P20,000 related ‘to the gain on disposal. The candle-making has a profit after tax of P150,000 for the year ended December 31, 2018. Eailia Company is an experienced héne appliance dealer. Enilia Company also offers a number of service together with the home appliances that it sells (installation and maintenance). Emilia Company sells dishwashers on a standalone basis, it also selis installation and maintenance service for the dishwashers. Pricing for dishwashers is as follows: Dishwasher only 7 P1, 600 Dishwasher with instalation service . 1,700 Dishwasher with maintenance services 1,950 Dishwasher with installation and maintenance services 2,000 In cases -where maintenance services are provided, the maintenance service is separately. priced within the arrangement at P350. Dishwashers are sold subject to a general, right of return. If a customer purchases a dishwasher with installation and/or maintenance services, in the event Emilia Company does not complete the service satisfactorily, the customer is only entitled to a refund of the porticn of the fee that exceeds P1,600. On January 1, 2018, Emilia Company sells 100 dishwashers to Condo Complex, Inc. developer of high-rise condos. the dishwashers are installed and Condo Complex, Inc. purchases the dishwashers with the installation and maintenance services. The total price for the 100 dishwashers is P190,000. The Hawk Company maintains a general. current account at the Pacific Bank. Pacific Bank provides a bank statement and canceled checks one a month. The cut-off date is the last cay cf the month. The bank statement for the month of October is sunmarized below: Balance October 2, 2018 P321, 200 Deposits 821,400 Checks processed (784, 330) Service charges { 800) NSF’ checks (21,870) Note paymant collected by. bank 11,209 Balance October 31, 2019 F346, 600 ‘The company’s general ledger account nas a balance of P352,760 at the end of October. A review of the company cecords and the bank statement xeveals the following . 1. Cash receipts not yal. deposited totalad 225,650 2, A deposit of 10,200 was made on October 31 that was not credited to the ‘Company’ s account until Novenbar. Financial Accounting and Reporting - FINAL PRE BOARD EXAMINATION (BATCH 36) Page 1 of 1202. 03. o4. 05. ALL checks written in September have been processed by the bank. Checks written in'October that had not been processed by the bank total P55, 360. "17,900 was incorrectly recorded by the company as ‘The ‘check was for payment to a supplier of raw A check written for P7,900 disbursement. materials. Company owes First Hank P30 million under a 10% note with two years bue to financial difficulties of Bliss Company, the was not paid.” First Bank agrees to; reduced the two interest The Blisi remaining to maturity. previous year's Interest (P3 million) forgive the interest accrued. from last year, payments to P2 million each and seduced the principal to P25 million. current prevailing rate of interest is 11t. The following data concerning the retail inventory method are taken from the financial records of Welch. Company. Cost, __ Retail Beginning inventory “45,000 > “70,000 Purchases 224,000 320,000 Freight-in. 6,000 - Net markups : = 20,000 Net markdowns + 14,000 ~ 336,000 Sales In. the’ statement of comprehensive income, what Company disclose related to the discontinued operation? Single amount should Jack a. None ce 150,000 b. P100, 000 d. 230,000 How much revenue should Emilia Company allocate to the installation? a. none ce. P 9,500 b. Pa, 750 d. P33, 250 What is the correct cash balance of Hawk Company for the month ended October 31, 22187 a. 331,290 fe. P34z, 340 b. P332,520 J.P345, 620 What amount. of loss should First Bank recognize in relation to the loans owed by Bliss Company? a. None ce. PB, 867,768 b. 3,513,757 a. P98, 284; 392 IE the ending inventory of Welch Company is to be valued at approximately the lower-of-cost-or-net realizable value, the calculation of the cost to retail ratio should be based on goods available for sale at (1) cost and (2) ‘retail, respectively of : : a, £279,000 and P4i0, 000 ©. 2279, 000 sna 390,000. b. 'P279,000 and P396,000 a. 273,000 and ?390,000 The’ Parch Company purchased a jewel polishing machine .for P694,000 on 1 Janvary 2016 and received a government grant of P108,000 towards the capital cost. Company ‘policy is to treat the grant as a deferred income. The machine as to be depreciated on a sun-of-years-digit over 8 years and was estimated to have a residual value of P10,000 at the end of this period. on June 30, 2018, Sky Company, which uses PFRS 9, sold an investment in other comprehensive income for P1,200,000. This investment was originally purchased at a cost of P800,000. At the time of disposal, the carrying amount of the investment at fair value was ?900,000. The investment has a related fair value gain, of P100,000 that was recognized in the fair value reserve. = ‘On January 1, 2018 Texas Company; ‘a medium-sized, entity, acquired 30% of the ordinary. shares that carry voting rights’ at a general meeting -of shareholders ‘of Houston Company for P6,000,000. ‘For the year ended December “31, 2018 Houston Company recogiized a profit of 8,000,000 and declared and paid dividend of P4,000,000. The fair value of Texas Company investment on. December 31,2018 is P5,800;000. ‘Texas Company uses the cost less impairment loss mode] ‘of accounting its investment because Houston Company shares have no published price quotations. On’ January 2,,2018, Horizon Company, a medium-sized entity acquired 208 of the outstanding ordinary shares of Meadow Company. for 2,200,000 which included P50,000 transaction cost. This investment gave Horizon the ability to\exercise Significant influence over Meadow Company. The book value of the acquired shares was P1,800,000, The excess of cost ver book value wan attributed to a ' Binanci®l Accounting and Reporting ~ FINAL PRE BOARD EXAMINATION (BATCH 36) Page 2 of 1206. 08. ov. 10. depreciable asset which was undervalued on Meadow Company's balance sheet and which had ten years usful life cemaining. For the year ended Decenber 31, 2018, Meadow Company reported net income of P1,500,000 and paid cash dividends of P300,000. on its ordinary. ‘The Niagara Company owns thcee properties which are classified as investment properties according to TAS40 investment property. Details of the properties are given below: Initial cost Fair value at Fair value at : 31 Dec 2018 31 Dec 2019 Property -(1) 270,000 320, 000 350, 000 Property (2) 345, 000 305, 000 285,000, Property (3) 330,600 385, 000 360,000 Each property was acquired in 2519 with a vseful life of 50 years. The company's accounting policy is’ to use the fair value model for investment properties. under IAS20 Government grants and government assistance, what should be the net effect in the prefit or loss with respect to the machine and grant for the year ended December 31, 20197 a. P96,000 e. PUt2, 000 b. P2128, 000 a. e133,000 What amount of unrealized gain or loss should be transferred to retained earnings imuediately after che sale? a. none 2. 300,000 b. P200, 000 d. 400,000 i What is the net amount should Texas Company report if its statement of comprehensive income related to its investment in Maxim Company for the year ended December 31, 2018? a. P 200,000 fe. PL, 200,000 b. 1,000,000 si. P2, 490,000 If Horizon Compahy uses the equity model to account for its investment and the investment has a recoversble amount of P2,000,000 on December 31, 2018, what is the net effect in ica statoment of comprehensive irlcome in relation to its investment in Meadow Company? a. P100,/000 decrease ‘@. P260,000 increase b. P140,000 decrease a. 'P300,000 increase What ig the gain or loss .co be recognized in Niagara's profit or loss for the year ending 31 December 2019? ‘a. P15,000 loss cc. 930,000 gain b. 218,900 loss J. P45, 000 loss ‘The Lancer Company has 2 singl¢ investment ‘property which had originally cost 580,000 on 1 January 2017. Xt 31 Decenber 2017 its fair value was P550,000 gad at 31 Decenber 2010 ic had a Cair value of 510,000. On acquisition the property had a useful life of 40 yorrs. on January’ 1, 2017, Stax Company parchased the debt instruments of Trek Company with a face value of £5,000,000 bearing interest rate of 8 for | P4,620,921 to yield 108 interest pet year. The bonds mature on January 1, 2022 and pay interest annually on December 30. On December 31, 2017 the fair value of the investment is P4,832,014 which is based on the prevailing market rate of 98. At September 30, 201!, Company: Equipment P860, 000 Accumulated depreciation 397,000 following balances’ existed in the records of Loves During the year ended September 30, 2018, equipment with a written down value ‘of P37,000 was sold for P49,000. The equipment had originally cost PAG, 000. Equipment purchased during the year: cost P180,000, It is the company’s policy to charge full year's deproriation in the, year of acquisition’of an asset and none inthe year of. sale. using a rate of 108 on the straight-line basis. AK cash-generating unit of Tailor Company contains: Property, plant and equipment P6,000,000; Patent P4,000,000 and Goodwill P2,000,000. An annual Ampairment review is raquited as the cash-generating unit contains gcodwitl. The most recent: review assegses its recoverable amount to be P9,00C,000. An Lmpaimmant! “lors of 73,000,000 has occurred and Le recognized in profit or 1 Jackson O11 Company paid P2, 300,000 for an offshore oil rig to extract of] in the Philippine S« After the oil is extracted from. the offshore site, the Financial Accounting and Reporting - FINAL PRE BOARD EXAMINATION (BATCH 36) Page 3 of 12a 42 13. a4. 15. equipment will be sold. Jackson Oil Company is required by its licensing agreement to remove the oil rig at the end of the production and restore the seabed. The company has provided the following three cash flow possibilities for the restoration costs to be paid in three years, after the extraction is completed. Cash outflow Probability 1 500, 000 308 2 600, 000 508 3] 700, 000 208 ‘The ‘company’s risk free interest rale is ft. A 5@ risk adjustment factor to the probability-weighted expected cash flows is considered appropriate to reflect the uncertainties in the cash flow estimates. According to IAS40 Investment property, what amount should be included in expense Lancer's profit or loss for the year ending 31 December 2018 under each of the fair value model and the cost model, respectively? 4. P40,000 and P12, 000 c. 40,000 and’ P26, 500 b. P40,000 and P14, 500 d. P40,000 and P55, 500 What amount of interest income shouia Star Company report in its December 31, 2018 statement of comprehensive income assuming the debt instrument was designated: at initial recognition as Investment at Fair Value to Other Comprehensive Incone? a. P40, 000 c. 0438, 608 b.- P435, 421 d. P48, 308 What net amount should appear in Loves Company's balance sheet at September 30, 2018 for equipment? a. P457,000 ec. P§83, 000 b. 510,000 4. 2606, 000 After. the recognition of the impairment loss on the. cash-generating unit o£ Tailor Company, at what amount should the property; plant and equipment be valued? a P5,200,000 PS, 600;,000 b. P5,400,000 4: P6,000,.000 At-what amount should the oil rig be initially recorded? a. “P2, 300, 000 cc. P2,791, 360 b. P2, 768,360 a. P2,890,000 * ‘The Clear Company accounts for non-current assets using the cost model. on 20 July 2018 Clear classified a non-current asset as held ‘for sale in accordance with. IFRSS Non-current assets held for sale and discontinuedoperations. At that date the asset's carrying amount was P580,000. its fair value was estipiated at P860,000. and the-costs to séll.at P58,000.The asset was sold on 18 October 2018 for P848, 000. Sunrise Corporation incurred the following development costs: 2015 2016, 2017 2018 2039) Development costs” [10,000,000 | 20, 000, 000 [ 20, 000, 000 30, 000, 060 | 20, 000, 000 Comtercial production comiensed in 2018 and the product “is expected to last § years. Sunrise Corporation uses the straight-line: method of amortization for development costs. crazy Company has ‘recognized a. provision for lawsuit at P400,000 in its statement of financial.position at 3) December’ 2017. At December. 31, 2018, the risk adjusted present value of the best estimate of the amount required to ttle the lawsuit is P900,000 but portion of the increase during 2018 included a 78 that is attributable to the unwinding of the discount and the remainder of the increase is attributed to better information becoming available on which to base the estimat Happy company hes the following information related to its warranty obligation: In year 2018, goods are sold for P10,000,000. Experience indicates that 90% of the products sold require no warranty repairs; 68 of products sold require minor repairs costing 30% of the saJes price; and 4% of products sold require major repaits or. replacement costing 70t of males price. The expenditures for warranty repairs and replacements for products sold in 2038 are expected to be made 608 in 2019, 30% in 2020 and 19% in 2021, in each case at the end of the pericd. Because the cash flows already reflect the probabilities of the cash flows, and assuming there are no other risks or uncertainties that must be Feflected, to determine the present values of those cash flows the entity uses a “risk free” discount rate based on government bonds with the same term as |’ ‘®nanci@l Accounting and Reporting - FINAL PRE BOARD EXAMINATION (BATCH 36) Page 4 of 12 “oeexpected cash flows (63 for cne-yea vonds and 7% for two-year and three-year bonds) . On December 31, 2018, Cordial Company is pursuing a claim against an insurance company through’ legal processes. The court iy expected to rule in late December 2019. At the reporting date December 31, 2018 the cutcome of the case is uncertain, The entity's Jawyere believe there Ls a 708 chance that the entity will win the case. Furthermore, they believe that there is a 20% chance that the entity will be Anarded P2C9,000 (the amount sought by Cordial Company) and an 80t chance thac cocdisl Company will be awarded 100,000 (the amount that was recently awacded by the vame judge in a similar case.) Other outcomes are unlikely. A 74 risk adjustment faccor tc the probability-weighted expected Gash flows is considered appropriate to reflect the uncertainties in the cash flow estimates. An appropriate discount rate is 108. 16. In accordance with TFRS5, at what amount should the asset be stated in Clear's statement of financial position at 30 September 20187 a. P580,000 s. PRO2, 000 b. 790,000 dg. veae, 000 17, What is the amount of deferved development cost at the end year 20197 a. £45,000, 000 264,000,000 * b. P63, 000,000 a. PRO, 000, 000 16, In the statement of comprehensive income for the year ended December 31, 2018, what amount of loss from the lewsuit Crazy Company must disclosed? a. None cc. 472,000 b. P28, 000 a. P500,000 19. What amount of provicion yn warranty should Happy Compaily report in its statement ‘of financisi position for the year ended December 31, 2018? a. P120,£29 ©. P380, 907 i b. P260,378 a. Pa1a, 457 20. In the December 31,° 2018 financial statement of Cordial Company the entit: a. recognizes an asset measured at P100,000 b. recognizes an asset measured at £84,000 ©. “recognizes a contingent asset measured at P81, 709 d. discloses a contingent asset ( and does not recognizean asset in its statement of financial position! . on January 1, 2018, Triumph ‘Company entered, -as a lessee, into a three-year non-cancellable lease of & motor vehicle that has an economic life of seven years. At the inception of tha leasa, che fair value (cash cost) of the motor Vehicle is P1,000,000.° On December 31, 2018, 2019 and 2020 the lessee is required to. pay the lessor ?250,0G0. The lessor is required to sell the motor vehicle to an independent. third parcy at the end of the lease term. If the motor vehicle is sold for lesa than P369,500 the lessee will pay the shortfall to the lessor.. Conversely, if the motor vehicle is gold tor more than P369, 500 the lessee will receive the excess from the lessor in, the form of rental rebate. The incremental borrowing rate is 5% per year On January 1, 2014, Melody Company entere’, as a lessor, into a five-year non~ cancellable operating lease of 2 builoing it completed constructing earlier that day at a cost of f¥,009,000 The building has an economic life of 60 years and nil residual value. The company accounts for the building ss property, plant and equipment using the cost model because the fair value of the property cannot be determined reilably withour undue cost or effort on an ongoing basis. No lease amount is payable for the fizst four years of the lease. ‘The single lease payment of P1,500,000 ie due on January 1, 2018. At the beginning of 2018, Wallace Corporation issued 10% bonds with a face value of P1,800,000. These -bonde mature in the five years, and interest 1s paid semiannually on Junz 30 and December 31. The bonds were séld for 1,667,518 to yield 12%. Wallace uses:a calendar-year reporting period. Shine Company offers % coffee mag as a premium for every ten 2.50 candy bar wrappers presented by .customere together with P10.00, The purchase price of each mug to the company is 18.06; in addition, it costs P5.00 to mail each mug. ‘The results of the promiun plan for. the years 2018 and 2019 are as follows (assume all purchases and sales are for cash): : 2018 201g Coftee mugs purchased «30,000 400,000 Candy bars sold 3,750,000 4,500,000 Weappers redeemed... _ 1,900,000 2,800,000 Financial Accounting and Reporting ~ FINAL PRE BOARD EXAMINATION (BATCH 36) Page 5 of 122018 wrappers expected to be redeemed in 2019 wnwnm--. 1,300,000 2019 wrappers expected to'be redeemed in 2020... 1,800, 000 As “of December 31, 2018, the carrying amount of Manor's unfunded obligation for long-service leave was 500,000 of which P20U,000 are entitled to take a leave in the twelve months folidwing the end of the reporting period December 31, 2018. ‘The balance of P300,000 is in respect of leave that employees are entitled to take only atter the end of the next annual reporting period. Manor Company anticipates that only 753 of its employees will take the leave due during the next annual reporting period (approximately 50,000 of the 200,000): is expected to be carried forward. 21. Nhat amount of current liability for long-service leave should Manor Company report in its December 31, 2018 statement of financial position? fb. PSO, 000 ©. P300,000 b. 200,000 d. P500, 000 22. what is the amount of premium expense to be recognized in 20197 a. 540,000 ©. P840,000 bp. 699,000 d. 990, 000 23. Using the ‘effective-interest siethod of amortization, what amount of interest expense should Wallace Corporation report for 2018? (Round your answer to the nearest peso.) a. P190,051 c. 2180, 000 be P190, 654 d. 200, 705, 24, What amount of unearned rental snollld Melody Company recognize on January 1, 2018? a. None ce .P 600,000 b. P300,000 d. Pt, 200,000 25. What amount of finance cos! should Triumph Company recognize in its statement of comprehensive income for the year ended December 31, 20197 a. None : cc. P40, 000 b. P23, 500 4. 50,000 String Company leased office premises to" Sling, Inc. for a 4-year term beginning January 2, 2018. . Under the terns of the operating lease, rent for the ‘first year is ?216,000 and rent for years 2 through 4 is 337,500 per annum. However, as an inducement to enter the lease, Sling was allowed to use the leased asset rent-free for the first three months. Income tax rate for all years is 32%. Assume that on January 1, 2C16, Hou Co sells a computer system to Larson Finance Co. for P510,000 and imiediately leases the computer system back. The relevant information is a3 fo) lows 1. The computer was, carried on llsu’s books at a value of 450,000 2. The cerm of the non-cancelable lease is 10 years: title will transfer to Hsu. 3, The. lease agreement requires equal rental payments of P83,000.11 at the end of each year. 4) The incremental borrowing -rate for Hsu is 128. Hsu is aware that Larson Finance Co.-set the annual rental to ensure a rate of return of 10%, 5. The computer has a fair value of P510,000 on January i, 2016, and an estimated economic life of 10 years. 6. Hsu plays executory costs of £9,000 per year. For ‘calendar year 2018, Kane Corp., reported depreciation of P1,200;600 in its income. statement. On its 2018 inconé tax return, ‘Kane reported depreciation of 21,800,000. Kane's income statement also included P225,000 accrued warranty expense that will be deducted for tax purposes when paid. Kane's.enacted tax rates are 308 for 2018 and 2019, and 24% for 2020 and 2021. The depreciation difference and warranty expense will reverse over the next three years as follows: Depreciation Difference ‘Warranty Expense 2029 "F240, 000 P 45,000 2020 210/000 75,000 2021 150, 000 105, 000: ‘225.000 These were Kane's only temporary differences. Wonder Company is experiencing financial difficulty and is negotiating trouble debt restructuring with its creditors to relive its financial stress. Wonder has a P3,000,000 note: payable to Magabank. The bank is considering. acceptance of an equity interest’ in Wonder Company in the form of 200,000 ordinary shares with a fair value of P12 per share. Tho par value of the ordinary share is ’ FGnanclahAccounting end Reporting ~ FINAL PRE BOARD EXAMINATION (BATCH 36) Page 6 of 1226. 29. 30. an. 32. bd P10 per share. Wonder Compeny incurred total transaction costs of £80,000 related to the issue of shares. Purity Company owes P1,998/C00 to Sanctity, Inc. The debt is a 10-year, 118 note. Because Purity Cewpany is in financial trouble, Sanctity, Inc. agrees to accept some property and cancel the entice debt. The property has a book value DE P800, 000 and fair marker valu? of 1,200,000. the following balances in relation to a Plan assets P690,000 Plan liability At its year end, The Parlor Gompary ha defined benefit post-employment plan P1,140,000 Remeasurement loss P120,000. The following information pertains co the 2018 activity of Lark Corp.'s defined benefit pension. plai current service cost 300, 000 Expected return on plan assote 100,000 Interest cost on actuarial Lenefit obligation 164,000 Actual return on plan’ aase 195, 000 Remeasurement gain on pian asset 115, 000 Based on this information, which December 31, 20167 a. a debit to Leased Computer under Finance Lease for ?510,000 b. a credit to Unearned Profit on Sale-leaseback for P60, 000 c. & debit to Unearned Profit on Sale-leaseback for P60,000 : d. a debit to Unearned Profit on Sale-leaseback for P6, 000 € the following would be recorded by Hsu on In ite December 31, 2016statement of financial position of Stiing Company, what amount should be reported as deferced tax liability? a. None c. PSA, 946 b. P42, 120 d. 93,969 In Kane's 2018 income statement, tne, deferred portion of its provision for income taxes should, be a. P101,700. . c. 'P112,500 b. P109,800 a. P20, 700 What is the amount df share preniun to be reporced by Wonder in its statement of financial position as a result of the restructuring assuming the issue of equity is a settlement of deb? : a. P320,000 +P 920,000 b. P400, 000 a. 2,000,000" What amount of gain or loys on the settlement of the liability should Purity Company recognize? a. None ce. PB 798,000 b, P400, 000 d. -P1,198,000 Onder IAS19 Employee benefits, “shat figure. should ‘be shown on Parlor’s statement of financial position for the plan deficit? A. 330,000 ©. & 570,000 b. . P450,000 4. Fi, 140,000 How much is Lark’s 2018 retirement benefit costs? t a P316,000 c. P374,000 : ® b. P384,000 d. P684, 000 Dreamer Corp. has an employee benefit plan for compensated absences that gives employees 10 paid wacation days andl0 paid sick days. Both vacation and sick days can be carried over indefinitely. Employees can elect to receive payment in lieu of vacation days; however, no payment is given for sick days not taken. At December 31, 2018, Oreamer’s unadjusted balance of liability for compensated absences was P210,000. Dreamer estimated that there were 150 vacation days and 75 sick days aveilable at December 31, 2018, Dreamer’s employees earn an avorage of P1,000 per day. Ana Co. offers ail its 10,000 employees the opportunity. to participate in an employee share-purchase plan. Under the terms of the plan, the employees are entitled to purchase 100 ordinary shares (par value Pl per. share) at a 20 Percent discount. The purchase price must be paid immediately upon acceptance of the offer. In total, 8500 employees accept. the offer, and each employee Purchases on average 80 shares at P22 share (market price P27.50). Home Company reported the following amounts in the stockholders’ equity ection of its balance sheet dated December 31, 2017: Financial Accounting and Reporting - FINAL PRE BOARD EXAMINATION (BATCH 36) Page 7 of 1233. 3a. 35. 36. 37. 38. Preference share capital (P150 par value, 20,000’ shares) 3,000, 000 Ordinary share capital (P37.50 par value, 100,000 shares) 3,750,000 Share premiun reserve 6,000, 000 Accumulated profits 4,500,000 Treasury stock, at cost (5,000 ordinary shares) 250,000 On January 2, 2018, Home sold 20,000 additional shares of ordinary share for P90°per share. Late in 2018, it was learned that because of mathematical error, an overstatement. of depreciation expense by 375,000 had occurred in 2014. Home reported net income of P825,000 for 2018. Home declared cash dividends of P150,000. on preference share and P450,000 on the ordinary share during 2018. All the treasury shares were re-issued for P35 per share on December 31, 2018. Tarnished Company has incurred heavy losses since its inception. At the recommendation of the president, the board of directors voted to implement quasi-reorganization, through reduction of par value subject to shareholde: approval. Immediately prior to the restatement on December 31, 2018, the shareholders’ equity was as follows: Ordinary share capital, P50 par, P75,000,000; Share premium, P30,000,000 and Accumulated losses, 27,000,000. ‘The. shareholders approved the quasi-reorganization on January 2, 2019 to be accomplished by a reduction of P3,500,000 in the value of their inventory, the intangible asset and plant. and equipment should be written down by P6, 500,000 and P5,000,000 respectively, and recognition of unrecorded liabilities of 3,000,000. The shareholders’ equity. of Joyful Corporation on December 31, 2018 shows the following account balanc 108 Preference share, 5,000 shares, P100. par 500, 000 12% Preference share, 6,000 sharas, P100. par 600,000 Ordinary share, 10,000 shares, P40. par 400,000 Share premium . 320, 000 Accumulated. profits 480,000 The 10% preference share ig cumulative and fully participating, while the 128 preference share is non-cumulative and. fully participating. The last payment ‘of dividends was on December 31, 2016; In ‘its December. 31, 2018 balance sheet, what amount of liability for compensated absences is Dreamer required to report? a. P360,000 c. 210,000 b. P225,000. d. 150,000 Under IFRS, Ana Co.- will record a. No compensation since the plan is used to raise capital, not compensate employees. b. Compensation expense of P5, 500,000. ¢. Compensation expense. of P18, 700,000. d. Compensation expense of P3,'740, 000 What should be the accumulated profits balance on December 31, 20187 a. P4,275,000 ce - PB, 025,000 b. P4, 905,000 a. 5,100,000 To complete the quasi- reorganization of Tarnished Company the par value per share should be reduced, what, should be the par value after the quasi- reorganization? a. P30 ce. P40 b. P35 a. PEs What is the book value per share of ordinary shares? a. P44,00 c.P60.27 b. P59.68 d. P102.80 On: December. 31, 2018, Raven Company has 200,000 ordinary shares outstanding with a par value of P100 per-share. Information revealed that Raven had an 98 convertible debenture, P1,000,000 face value bonds. The bond has a carrying value of P1,067,830.as of January 2, 2018 based on a prevailing rate of 7%. Each’ 1,000 bond is convertible into 20 ordinary shares. The bonds were dated January 1, ‘2018. Net income after tax of 32¢ for 2018 was P418, 000. How much should Raven Company report a8 earnings per share in’ its December 31, 2018 financial statements? a. P1.90 e. P2.13 b. P2.09 a. P2.89 a AOE EU rE AGV'L) DEN Mann OF 7?7s 39. 40. al. a2. a3. 4a, . On ganvary 1, 2018, the Accum-lated Depreciation-Machinery account of a particular company showed a halsnce c! 570,000. at the end of 2018, after the adjusting entries were posted, it: showed a balance of P395,000. During 2018, one of the machines which cost 125,000 was sold for 60,500 cash. This Tesulted in a lost of P4,000. Assuming that no other assets were disposed of Guring the year, how much was depreciation expense for 2018? a. 728,000 €. 185, 500 b. 260,000 dL P93, 500 The following is an extract from the balance sheets of Forward Company for the years ended July 31, 2017 and Joly 31, 2018: 2018 2017 : Taventory 09, 050 800,000 Receivables 00,200 500, 000 Trade payables 350, 006 300, 000 Accruals of expense 89, 000, 200,000 What effect would the movements in these items during the! year have on cash generated from operations, as reported in the cash flow stlatement of Forward Company? a. P100,000 outflow c. 250,000 outflow b. P100,000 inflow d. F259, 000 inflow Alberta Company provides the followiey note to the non-curfent assets in its balance sheet: Plant and machiner: opening batanc P230,c00 _ eibbecad 530) 900 mudieions charge te0voo0"aoro00 tial 00 Disposals sioe,e08; « 804000) 25} 000) Closing balance, Uatoae Hrsocboo saz0to9 ‘The additional machinery was purchased for cash. A machine was sold at a profit of 020/000. what! ia thi net sawn ok elow for plane aad machinery? a. P 90,000 e. 139,000 : B patoseoo a thee, 000 on January 1, 2018, Porter Coupany, leased a éolor copier from Whimper Company ata price of P479,079. The lease agreement specifies annual payments beginning Janvary 1, 2016, the inception of the lease and af each December 31 thereafter through Decenber 31, 2022. The estimated life df the copier is 7 years. On December 31, 2023, st the end of the sik year lease term, the Copier is expected to be wor:n P75,090 and Porter Company -has the option to purchase it for P60,000 ch that dave and Porter has the intention to exercise the option. The residual value of the copier after seven years is zero. Whinper Company manufactused: the copier at a cost of P300,000 and its interest rate for financing the Eravsaction ix 108. What is the carrying value of the lease rental payable ac of Uacanber 31, 20217 a. P54,542 ee P13, 066 b. 132,543 4. 937,567 ° Fortune Company, @ medium entecprise has following information in relation to its defined benefit.pension: plan: Actual. return on plan assets, P 230,000; Benefits paid to retirees; P 200,000; Contributions, P345,000; Present value of defined benefit obligation, Jen. 1, 2913, P2, 500,000; Present value of: defined benefit obligation, Dec. 31, 2019, 92,870,000; Fair value of plan asset, Jan. 1, 2019, P2,400,000; Current service cost, 300,000; Past service cost, 40,0007" Discount: rate 108; Hemeasurement gain on obligation, 20,000. What amount of retirement benefic costs should be included in the profit or loss? 2. B340,000 2. P360,000 b. 350,000 a. #470;000 On January 1, 2019, Alison Company issued its 10%, 5-year convertible debt instrument with a face amount of 5,000,000 for P5,100,000. ‘Interest is Payable every December 31 of each yeac. The debt instrument is convert ible into. $0,000 ordinary shares with a par value of P100. When the deb: instruments were issued, the prevailing market rate of interest for similar debt without conversion ‘option is 119. The Company incurred transacticn cost of P70,000 related to the issue oF une compound instrument. PV of 118 for an ordinary annuity of Pl after 5 periods 3.696 PV of 118 after 5 interest pericds 1593 BOARD EXAMINATION (BATCH 36) Page 9 of 12nt the equity component? How much of the total proceeds repre: a, P100,000 cc. P283,059 b. P225,500 a, 285,050 Revél: Company's worksheet for the preparation of its 2018 statement of cash 45. flows included the following: December 31 January 2 Accounts receivable P116, 000 P 92,000 4,000 3,200 Allowance for uncollectible accounts Prepaid expense Accounts payable Revel Company's 2018 net income is P600,000. What amount should Revel Company include as net cash provided by operating activities in the statement of cash flows? a. 605, 600 c. P$92,000 b. P604,000 d. P5@1, 600 32,800 43, 600 89, 600 77, 600 46. The amortization of bond premium on long-term debt should be presented in a otatenent of cash flows (using the indirect method for operating activities) as a(n) a. Addition to net income. €. Investing activity. b, Deduction from net income. 4. Financing activity. 47. If, at the end of a period, @ company erroneously excluded some goods from its ending inventory and also erroneously did not record the purchase of these goods in its accounting records, these errors would cause a. The ending inventory and retained earnings to.be understated. b, The ending inventory, cost of goods sold, and retained earnings to be understated. &- NO effect on net income, working capital, and retained earnings. 4. Cost of goods sold. and net income to be ynderstated. 48, Statement I: If accrued expense decreases, this means that the expense actually incurred exceeds the expenses paid. : The increase in salaries payable means that the salaries expense * Statement 1: under the accrual basis exceeds the salaries paid to employees. a. True; True ©, False; True b. True; False d. False; False 49. Which body authors the present International Financial Reporting Standards ( TERS)? a, International Accounting’ Standards Board b. International Financial Reporting Standards Board €. International Accounting Standards Comittee 4. International Accounting Standards Council 50, This means “correcting the recognition, measurement and disclosure of amounts of elements of financial statements as if a prior period error had never occurred”. a. Retrospective application Prospective application b. Retrospective restatement d. Prospective restatement When an owner-occupied property is transferred to investment property at fair ue, a decrease in the carrying amount of the property to its fair value at the date of transfer Is recognized in profit and loss, or, for a revalued property, charged ‘against the revalvation surplus to the extent of its credit balance b, Is recognized’ in profit and loss at all times ¢. Is absorbed by rétained earnings d.. Is carriéd directly to equity 52. PAS 36 (Impairment of assets) should be applied in accounting for the impairment of which type of asset? a. Assets arising from construction contracts b. Non-current assets héld for sale ¢. Investment properties measured at fair value di" Non-current assets measured at. cost s1. Which of ‘the, following is not cortect regarding trading securities? a. They are classified as current assets b. Unrealized holding gains and losses are reported in profit or loss ©. Cash dividend shall be recognized as, dividend income 4. Share in profit of the investee increases carrying of the investment 53. " Frnanall Accounting and Reporting ~ FINAL PRE BOARD EXAMINATION (BATCH 36) Pope TO F120Or ge ree oe plan? i { ceiling in a defined benefit 2. [tis the excess of azsel ceiling aver the prepaid pension cost b. It is che excess of prepaid ponsion cost over the asset ceiling ©. It is the excess of asset ceiling over the accrued pension cost d. It ts the excess of accrued pension cost over the asset ceiling 55. Which of the following is true about fair velue model in accounting for investment in associate ofa smal. and medium entity? a. Investment should pe carried at the balance sheet date at fair value less cost to sell Impairment loss vhall be tecognized if recoverable value is lower than carrying amount { . Transaction cost should be expensed outright at initial lecognition a. Dividend received iy consicered a ceduction from investment account 56. Which of the following items should be treated as dividend income? a. Reverse stock split . Shares received in lieu of cash b. Cash received in lieu of shares d. - Cash dividend under: equity method 57. Deductible temporary difference arises when a revenue item js reported for tax eee 1 Incone oe Yeo : No | e. No Yes. | ALL of the following situations will result to a future taxable amount, except a. Carrying amount of the asec: > tax base of the asset b. Tax base of the asset> carrying axourt of the asset ¢. Carrying amount of the Habisity « tax base of the liability @. Financial income > taxable income { 59. For a sdles-type lease, : a. the sales price incluJes the présent value of the guaranteed residual value. b. the present value of the unguaranteed residual value is, deducted from the cost or carrying value of the asset to determine the cost of goods sold. c. the gross profit will be the same whether the residual value is guaranteed or unguaranteed. } d. none of these. 60. A company records impairment loss ba goodwill. This would result in what ctype of difference? @. Temporary, future taxable amount _c. Permanent, nond@ductible expense b. Temporary, future deductibie emcuit °d. Permanent, nontaxable revenue 61. Ove to the importance of earnings per shere information, it is required to be reported by ail Public Companies Nonpublic Companies a Yes Yes i b. yes No b c. No No : a. NO yes 62: What effect will the acquisition of treasucy stock have on stockholders’ equity and earnings per share, respectively’ a. Decrease and no effect ©. Decrease and increase b. Increase and no effecc d. Increase and decrease 63. Which of the following trahsactions Would not lead to the! recognition of a share premiun? a. - Donation of land by a shareholder b. Gain on sale of shares as a sesult of exercise of stock rights ¢. Issuance. of convertible bonds d. None of the above 64. In computing the diluted garhiays per share, convertible, securities are assumed converted at the a. Beginning of the year in a!) casea b. End of the year in all canes c; Beginning of the earliest pericd or at the time of issuance whichever comes later Beginning of the earliest period or at the time bf issuance whichever comes earlier Financial Accounting and Reporting - FINAL PRE BOARD EXAMINATION (BATCH 36) Page 11 of 126S. What is the treatment of unguaranteed residual value under’ a dealer's or manufacturer's lease? a, The unguaranteed residual value is deducted from the cost of the leased asset at present value, to derive cost of sales. >. The unguaranteed residual value is deducted from the cost of the leased asset. at absolute anount, to derive cost of sales ¢. The unguaranteed residual value is completely disregarded. d. The unguaranteed residual value is added to the cost of the leased jet at present value, to derive cost of sa! 66. Which of the following statoment« are false under a sale and 11 transaction? JZ. If a sale and leaseback transaction results in a finance lease, any excess of proceeds over the carrying amount shall not be immediately recognized as income by a seller-lessee. Instead, it shall be deferred and amortized over the lease term. : HI, If the sale price is established at fair value under an operating jease, any shall be deferred and amortized over the period for which : the asset is expected to be used. a. Tony | ¢. Both I and IT b. II only 4. Neither £ nor Ir 67. It is defined as the issuance by an entity of its own ordinary shares to its ordinary shareholders without consideration and under conditions, indicating that such action is prompted mainly by a desire to increase the number of shares outstanding for the purpose of effecting a reduction in their unit rarket price. : a. Share split ¢. Share option b. Rights, issue +d, Share appreciation right 68. Under a cash settled sharé-based payment transaction, when shall an entity Measure the fair value of the liability-arising from this arrangement? a, At the end of each reporting period only. b. At the beginning of each reporting period only ©. At the date of settlement only, : d. At the end of each reporting period and the date of settlement 69. Options and warradts are antidilutive if a. The option price is lower than the average market price b. The option price is higher than the average market price - €: The option price js equal or lower to the average market price d. The, option shares represent 50% of the outstanding shar 70. Which of ‘the following 1s a component of amount to be recagnized in profit or Joss: under: a defined benefit plan? : Statement I: Current service cost : Statement IZ; The difference between the actual return on plan asset and interest income on plant asset. Statement III: Any settlement loss or settlement gain. Past service cost é. 3, IIT and v 5 qd. 03, If , 11% and Iv : Sonat Kessonane wad RenSeae TD FINAL PRE BOS aE SHS