PRE-COMPREHENSIVE EXAMINATION FINANCIAL ACCOUNTING 1 & 2 $¥.2011-2012 “Theories 1pteach 1 ‘The operating cycle ofan entity is that span of time which ‘a. Coincides with an entity's business cycle which runs from one trough ofthe entity's business activity to the next Corresponds with ts natural busines yea which runs fram ane rough ofthe particular Firm’ businoss activity tothe nex. _lssetby the industry's trade association usualy on an average length of time forall entities which are ‘members ofthe association. 4. Runs rom cash disbursement for items of inventory through thei sale to the realization of eash from sale. [At the Boginning ofthe current year, an investor acquired 308 ofthe ocdinary shares of another entity Inthe current year, the investes has net eaings which exceeded dvidends paid. The investor mistakenly recorded these transactions using the cost method instead ofthe equity method of accounting. What effect would this have on investment account, net earnings, and retained earnings, respectively? 2 Overstate, overstate, overstate 'b.Overstato, understate, understate &Understate, overstate, understate 1. Underetate, understate, understate Ian inventory is transferred to investment property that ist be carried at fir, the remeasurement to flr value 3, Included in equity by Inchded in profit or loss © Incuded in retained earings 4. Aecounted fr as revaluation of inventory Which ofthe fallowing best dscrbos residual value? 4. Theestimated net amount currently obtainable If the asst is at the ond of its useful ie The present value of estimated future cash lows expected to arise fom the continuing use ofthe asset and from its timate isposal The amount at which the asset could be exchanged between knowledgeable and wing partios nan arm's length transaction 44. The amount of cash or cash equivalents that could curently obtained by sling the asset in an orderly ‘isposat Which ofthe following statements regarding depreciation struc? 2a. Anassot must be depreciated frm the date ofits purchase the date of sale b, The annual depreciation charge shal be constant over the feof the asset The total costs of an asset must eventually be depreciated 44. the carrying amount of an assets less than the residual value, deprecation I not charged Contingent assets are usualy recognized when a. Realized 1b. Occurrence is reasonably possible and the amount canbe reliably measured ‘&Oceurrence is probable and the amount can be reliably measured 1d, Theamountcan be reliably measured Ifthe sale and leaseback transaction results ina finance lease, any exces of sale procoeds over the carrying amounts 1. Deferred and amortized as income over the lease term 1, Deferred and amortized as income over theif ofthe asset Recognized in the profit or loss immediately 4. Recognized in other comprehensive income10. a 2 13. 14 Uf the present value of 2 note issued In exchange for a property's las than Its face amount, the ifference shall Amortized as interest expense over the life of the note “Amortized as interest expense over the lf of the asset Included in interest expense inthe year of issuance be | Included in the costo the asset b 4 Which ofthe following ienota theoretical basis forthe allocation of expense? 3. Summarization b. Classification Profit maximization immediate recognition \Which ofthe following would be matched with current revenue ona basis other than association of causeand effect? 3. Good! Sales commission Cost of goods sold Purchases on account ‘The installation of accounting procedures forthe accumulation of accounting data is known 3s a. Auditing . Financlal Accounting 6 Gloctronie data processing 1d. Recounting system eis a financing agreement thats usually done ona “without recourse, notification basis. a. Pledge b. Assignment Factoring 6. Discounting Any transtion loss on fist adosting PAS 19 shal be recognized 1. Asexpense immediately Ik As expense over a maximum ofS years a. Lonly b. Monly Either ort irevocably 44. Either or i revocably ‘Any transition gain on fist adopting PAS 19 shal be ‘8. Recognized as income immediately b. Deferred and amorszed over a maximum of § years © Credited to Retained Earrings 4. Credited to Equity Which one ofthe following lt an adjunctaecount that should not be closed a the end of every accounting period? Allowance for doubtful accounts be Fightin ‘&_Dscount on bonds payable 4 ‘Share premium Which ofthe following should be lnluded in plan assets?L Assets held by long-term employee benefit fund N.——Qualiying insurance policy a tonly b.tonly & Bothtandit Nether | nor 117. How should sales staff commission be dealt with when valuing inventors atthe lower of cost and net realizable vue? a. Added tocost bored &Deducted in arriving NRV 4. Deducted fram cost 28, These ae spoof principles, bases, conventions, rules and practices applied inthe preparation and presentation of financial statements. Accounting polices Accounting principles © Accounting standards 4. Accounting concepts 19. The use ofa discount lst account implies that cost ofa purchased inventory item is | Invoice price bist price © Invoice price less the purchase discount taken ‘4, Invoic price less the purchase discount allowable whether or not taken 20. Which ofthe followings not a derivative? Interest ate swap agreement Futures contract © Option Regular way purchase or sale Problems 2pts cach 4 During the curent year, Shawn Company incurred the following costs in connection with the issuance of bonds: Printing and engraving 150,000 Legal fees 800,000 Fees pad to independent accountants {or registration information 100,000 Commission pai to underwriter 1,500,000 ‘what amount should be recorded as bond issue costs to be amortized ver the term ofthe bonds? 1. 2,550,000 ». . 2,400,000 © 1500.00 3. 1,050,000 2. Hana Company had 700,000 ordinary shares authorized and 300,000 shares outstanding at January 12010. The {allowing events occured during 2010 Januaty31 Declared 10% stock dividends June 30 Purchased 100,000 shares August Reissued 50,000 shares November 30 Declared 2-or- stock split‘On December 31, 2010, how many ordinary shates are outstanding? a. 560,000 b. 600,000 630,000 4 660,000 (On November 3, 2010, Jessie Company declared a property dividend of equioment payable on March 1, 2011. The carrying amount ofthe equlpmant 3,000,000 and the flr values 2,500,000 on November 3, 2030. However, the fal value less costo distribute the equipment s 2,200,000 on December 31, 2010 and 2,000,000 on ‘Mare, 2012 ‘what the dividend payable on December 31, 20107 2,500,000 b. 2,200,000 = 3,000,000 ao ‘whats the measurement af the equipment on December 31,2010? a. 2,500,000 b. 2,200,000 3,000,000 . 2,000,000 \What amount of loss is recognized in profit or loss on March 1, 20117 ‘@ 300,000 200,000 ‘= 500,000 40 ‘on December 28, 2010, Mikee Company purchased goods costing 500,000. The terms were F.0.B. destination, Some ‘ofthe costs Incurred in connection with the sale and delivery ofthe goods were a follows Packaging for shipments 10,000 Shipping 15,000 Speciathandlings 25,000 “These goods were recelved on December 31,2010. On December 31, 2010, what amount of costs for these {g00ds shouldbe incused in inventory? a. 545,000 b. 535,000 © $20,000 4. 500,000 ‘On January 1, 2005 5) Company purchased 2 naw building a a cost of 6,000,000. Depreciation was computed on straight ine baci at 4% per year. On January 2, 2010, the bulling was revalved ata fir value of 8,000,000 laneringincome tax, what the revaluation surplus on January 3, 20107 4,000,000 . 3,200,000 2,000,000 4. 6,400,000 ‘What is the depreciation for 2010?320,000 b. 400,000 © 100,000 4. 240000 9. Whatisthe revaluation surplus on December 31,2010? a. 3.072,000 1,900,000 & 3,040,000 4 1820,000 10. On uly, 2032, Maroons Company acquired 3 held to maturity security in Cobra Starship Company's 10-year 12% bonds with a face value of P5,000,000, for PS 386,300. Interest s payable semi-annually on January 1 aad July 1. The bonds mature on uly 1, 2016. Bonds effective rate is 10%, On Decemibar 31,2032, Maroons Company soldits debt Instrument for 5,500,000. |What amount of goin should Maroons Company recognize asa result of the dsposal? 1M 385 210438 b. a76,604 6. 245,956 ANSWER: Seling Price 5,500,000. ‘amortized Cost 5.289.566 Gain onsale of investment Bao.ass Acausition & interest date Interest Eorned @ 6% rate _Inteestincome Strate Premium Amortization Book Valve July, 2012 ° © ° 5.386.300 ec. 31, 2011 300,000 269,315 30,585 5,355,515 Duly 2, 2012 300,000, 267,781 32,239, 5)323,396 Dec. 31, 2012 300,000 266,170 33.830, 209.566 11, PLOT has ahalance in the telephone wires account of 1,234,000 on January 1, 2016, During 2016, PLOT installed new telephone wices a follows: May August December Cost of new wires installed 500,000 800.000 400,000, Cost of ld wires replaced 360,000 300,000, Proceeds from sale of old wires 40,000 30,000 Using the retirement and replacement methods, whats the amount of depreciation that should be recognized in 2016? Retirement Replacement a, 580,000 830,000 6. 580,000 3,630,000 © 660,000 "660,000, . 660,000 1,630,000 ANSWER: A Retirerant Method: Original cst of asses rere (360,000 + 300,000) 60,000 Less Salvage value of assets retired 70,000 Depreciation 390.000 Replacement Method! Replacement cost of assets (500,000 + 400,000), 300,000 Less: Salvage value of asets retired 79.000 Depreciation eaa0.000 42, Punkrock Company had 600,000 ordinary sharas oustanding on January 2, 2011. During 2011, Punkrockissued right to acquire one ordinary share at P20 the ratio fone new share for every shares outstanding, The market valueofthe ordinary share immediately prior to the right issue Is P35. The rghts were exercised on October 1, 2011. The net income of Punkrock Company forthe year I P8,580,000. \hat amount should ba reported as basi earnings per share? ote «as & deo a Be swe 8 Teweiaiabiotn «SL Maret a of share eh on % Thao a fa : Morcetonwot hres % saysmene ar ana (alnary shares, Jan. 3 ‘Ordinary shares issued through right on Oct 2 (600,000/4) Total ordinary shares, Dec. 33 January 1 600,000 x 35/30x 9/12 October 1: 750,000 3/12 Avorage number of shares Basie Earnings per share (8,580,000/712,500) 13, The third year ofa construction project began with aF30,000 balance in Construction in Progress. Included in that figures P5,000 of interest capitalized inthe fist swo years, Construction expenditures during the year were P80,000, "which were incurred evenly throughout the entre year. The company has had over P300,000 interest-bearing debt ‘outstanding the third year, ata weighted avarage rate of 9 percent, How much is the interest forthe third year is exptalzed? a. 3,600 © 9360 b 6300 4. 9.900 ANSWER: Beginning balance, Construction in Progress 30,000 Current expenditures, incurred evenly (80,000/2), ‘49000 ‘Average current expenditures 70,000 ‘Weighted average rato —_ 2% Interest eapialized E30 14, On December 17,2013, an explosion ocurred at Jagger Company plant causing extensive property damage to arco buildings, Although no claims had yet been asserted against Jagger Company by March 10,2012, Jagger's management and counsel concluded that itis reasonably possible that Jagger will be cesponsibe for damages, and ‘that P2,500,000 would be reasonable estimate ofits ably. lager’sP10,000,000 comprehensive publ labilty polly has 500,000 deductible clause. In Jagger's December 31, 2025 financiat statements, which wore Issued on March 25,2012, how should this item be reported? 3. Mofootnote or accruals necessary b. Asa footnote disclosure indicating the possible oss of ®500,000, © Asan acerved lability of P5C0,000 4. As@ footnote disclosure indicating the possible loss of P2,500,000 ANSWER: B ‘When the loss contingency s only possible and canbe reasonably estimate it requires no accrual, only a disclosure s necessary indicating the posible loss of 800,000. Based on comprehensive insurance, any damage in excess of P500,000 to be paid by the insurance company. 415, Nick Minaj Record’ lables at Dacember 31, 2011 were as follows ‘Recounts payable and accrued intrest 2,000,000v. 18 19. S.year 10% Notes Payable 5,000,000 Part ofthe loans for Nick Minato appropriate a fixed amount out of its accu lated profits and losses annually tnt the amount of appropriation has equaled the face ofthe obligation. As of December 31,2033, Nici Mina cords has yet to comply with the loan agreement. In ts December 31, 2011 statement of Financial postion, Nik Mina) should report current ables at 2. 2,000,000, 5,000,000 2,500,000 7,000,000 ANSWER: ‘All accounts are cutent AS 1 pr. 68, hen an entity breaches an undertaking under a long-term loan agreement on or before balance sheet date and the liability Becomes payable on demand, the lability s classified as current. (On October 2, 2010 Jet Corporation issued 10,000 shares ofthe 25 par treasury oxdinary share fr a parcel of land to bbe hel fora future plant site. The treasury share was acquired by Jat at a cost of 30 per share. Jet's ordinary share had a fir market value of 40 per share on October 1, 2010. Jt recsived $0,000 from the sale of scrap when an existing structure onthe site was raze. [Atwhatamount should the land be carro? ponies = 3 ee a. 250,000 (eee) 300000 =a 350,000 ore 4 400,000 (on May 1, 2010 Red Hood Company issued 2,000,000, 10 yar, 8% bonds at 205 including accrued interest These bonds are dated January 1, 2010 Interests payable semi-annually on January 1 and Jly 1. Transaction costs of 10,000 were paid by Red Hood. ‘what isthe net cash receipt fom the bond issuance? ano aee aS 2,100,000 — ss i zine Bee ; ED coon ce) 2 [At the end of 2022, Vanity Corparation has one timing ifference that wl roverse and cause taxable amounts 10275, 100 n 2012, 300,000 in 2013 and 300,000 in 2014. Vanity’s pretax financial income for 2011 i 2,500,000 and the tax rate is 32%. There are na deferred taxes a the beginning of 2011. Mow much shouldbe the income tx. or 2017 sm oo +‘ a Cae oR) 20000 Cae oy 428,750 [2eOD80) & ss0000 Sarre 22. + 200 &00 : = uo Company i awholstr etd candles. The ctv rem e124 ing ine presented below ie___Tramactions Unt fine Ot tnvrybal 6000” 2000 oh puss 9.000 2400 2 Ses iano 19 Puchaws 14400. 2600 2 San ano 29 Purchases ‘4800 27.00Under the FIFO inventory system, how much the ending inventory of tem #1234 at June 30? a. 280,800 ce b. 278,400 (ee ee ee 302,400 eae 290 x 26.00 \ETID 316,800 az By 20, Under the weighted average cost periadic inventory system, how much is the ending inventory of tem #1238 at June 302 Gao 22D. NO OO 2. 278,400 ee 2A Ze COD b. 294,720 440 z a & 302,400 “eae 23 40 oa promo 7ASLx ao =Ay 37 Sem 2 21. draft of Bell Company's 2023 statement of financial position reported total assets of 3,093,750 of which the following Items were included “Treasury share of Bell at cost, which tpoorimats mare leon Decor 31 soon nae! ptr ooo Cah sured vale fe nsrarc on cor. exces zs Tons reserve Det oso cedars ena ken thera vsDacrr 34,201 cecal ruc postion! i meee \ea3s0 b. Losaas0 (20080) © Loszias ies 16750 ieee Toss 22 22, Asof June 30, 2010, the bank statement af Marine Trading had an ending balance of 373,612. The following balances werenpembed nthe coune of ecanling the bak bln : + Thebank erroneously credited Marine Trading for 2,150 on June 19 1+ uring the month, the benk charged NSF checks amounting o 2,340 af which 800 had been deposited onthe 24" ofsune + Collections for June 30 totaling 10,330 was deposited the following month + Checks outstanding as of lune 30 were 30,205, 1+ Notes collected by the bank for Marine Trading were 8,180 and the corresponding bank charges were 50 Whats the adjusted bank balance on June 30,2030? a. 351587 353927 358,147 6 359,687 23. Mercury Company bought a patent fo 600,000n January 2, 2008, at which time the patent hed an estimated useful life offen years. On January 2, 2012 was determined thatthe patent’ useful fe would expire atthe end of 2014, How much should Mercury record as amortization expense for this patent on December 31, 2011? e000 geo oc0] 07 GOOD 305000 ae © zaeo Gee) & ano B10 Cop/a = les ee 24 On anuary 2, 2013, Earth Company bought trademark rom Mars Company for 600,000. Earth retained an Independent consultant, who estimated the trademark’ remaining life to be 20 years, Is amortized cost on Mats! ecounting records was 456,00028. 26. ‘what amount should the trademark be initially recorded? 2. 456,000 b. 570,000 585,000 ‘4 600,000 Computer Inc. had 300,000 of ordinary shares ised and outstanding st December 32, 2010, On July 1, 2011, an additonal 50,000 ordinary shares were isued for eash. Computer aso had unexercsed stock options to purchase £20,000 ordinary shares at 15 per share outstanding atthe beginning and end of 2011. The average market price of (Computer's ordinary share was 20 during 2013 ‘Whats the numberof shares that should be used in computing diluted earings per share? a 325,000 b. 335,000 360,000 365,000 ANSWER: January 1 300,000.12/12= 300,000 July 50,000. 6/12 = 25,000 325,000 erage 325,000, Share sued for no consideration schedule 1) 10,000 Total umber of shares tobe usec son Schedule 1 ‘Assumed exercised and isue of shares ‘40,000 Les: Assumed shares issued if purchased for market price: Assume proceeds (4,000 x15) 600,000 + Average market price 20,000 30,000 ‘Shares issued (ree for no consierction 909 ‘Bugs Co, sole to Bunny Co, a 200,000, 8% 5-year note that required five equal annual year-end payments. This note ‘was iscounted to yield 9% rate ta Bunny. The present value factors ofan ordinary anuity of PL for S periods areas Fallows: Be 3.982 9% 3.890 \what should be the total interest revenue earned by Bunny on this note? = 59500 b. 55,610 80,000 4. 99,000 ANSWER: Total futuee payments (50,100% 5) 250,500 Less: PV value of note 194.890 Total interest revenue —S5510 Face value ofthe note 200,000 “Present value annuity 3.992 Required year-end annual payment 50,100 XPV factor of ordinary annuity of for S periods at yet rate _ 3.8902. 22. Present Value of note ‘Abe Company, lessor, leases its equipment under an operating ease. Te lease term is S years and the lease payments are made in advance an January 1 ofeach year as shown inthe fllowing schedule: January 1, 2009, 1,000,000 January 1, 2020 1,000,000 January 12012, 4,400,000 January 1, 2022 3,700,000, January 1, 2023, 1,900,000, (On December 31, 2030, what amount shouldbe recognized as ren receivable? 1,400,000 b. 200.000 & 400,000 4 ° ANSWER: ‘Average annual rental (7,000,000/5) 400,009 Rent income for 2009 and 2010 (1,400,000 2) 2,800,000 Rent recelved for 2008 and 2010 (1,000,000+ 1,000,000} 2,000,000 Rent receivable =s0.000 ‘The folloing were taken from the incomplete financial data of Sam Company, a calendar year mefchandlsing corporation: Dec.31.2010 Dec. 31,2001 ‘Trade Aecounts Recalvable 840,000 760,000 Inventory 3,500,000 2,000,000 ‘Accounts Payable 950,000 980,000 ‘Accrued general & administrative expenses 130,000 170,000 Prepaid seling expense 150,000, 330,000 Property, plant and equipment 1,750,000 11420,000 Patent 25,000 300,000 Investmentin Associate 550,000 720,000 Investment equity Oc 490,000 520,000 “Te following addtional information were made avaliable: cash payments for seling and administrative expenses as 900,000, payments for purchases, net of cash clscounts of 70,000 was 1,580,000. Equipment with a book value oF 200,000 was sold for 250,000. There were no acquisitions of property, plant and equipment and other transactions affecting net income curing the period. There were no acqustions of investment during 2013. Income aerate is 22%, If the company reported comprehensive income of 285,600 net of tax, whats the amount collections on trade receivables in 20117 a 3,295,000 3,335,000 &3595,000 3.655.000 ANSWER: D ‘Comprehensive income before tax (285/600/68%) 420,000 ‘Uncealized gain (520,000-400,000) (220,000) {Gain fom sale of PPE (250,000 ~ 200,000) (0,000)Patent amortization (425,000 ~ 300,000) 325,000 PE Depreciation (1,750,000 ~1,420,000 ~ 200,000) 130,000 Selling 2 gen exp. other than depreciation and amortization 960,000 Grats profit, 1,465,000 Cost of Sales 2,330,000 Sales 3,595,000 ‘Trade RecoWvabes beginning 40,000 ‘Trade Receivables ending 139,000) Collection of trade receivables 3.885.009 23. Rainbow Company has the following information pertaining to is biological asets forthe yeer 2022: Aherd of 10, 2.yea od animals was held at January 3, 2022. Ten animals aged 25 years were purchased on lly 2, 2012 or 5400, and ten animals were born on July 1, 2012. No animals were sold or disposed of during the period. Per unit ai ‘vals les estimated point-oFsale costs were as follows 2.0. year old animal at January 1, 2012 5,000 [Newborn animal at July 1, 2012 3,500 25-year old animal a uly 2, 2012 5,400 [Newborn animal at December 31,2032 3,600 (05-year old animal at December 31,2012 4,000 20-year old animal at December 31, 2012 5,250 25-year old animal at December 31,2012 5.550 '30- year old animal at December 31, 2012 5,000 How much ofthe increase inthe fair value ofthe biological assets is due to price change? b. 25,000, 26500, 4 27500 30. How much ofthe inerease inthe fir value of the asst is due to bilogical change? a. 75,000 b 79,500 © 110000 4 118500 ANSWER: Increase in FV less estimated point of sale costs due to price change 300(5,280-$,000) 25,000 3015 550- 5,400), 1,500 3043 600 3500) 4.000 ‘otal 22500 ANSWER: D Increase in FV ess estate point of sale costs due to price change 100(6,000 5,250) 75,000 10(5,000-5,550), 4500 10(4,000- 3,600), 44,000 10% 3500 35005 Total 300