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PRACTICAL ACCOUNTING 1 REVIEW

C0MPREHENSIVE INCOME & DISCONTINUED OPERATIONS
PROF. U.C. VALLADOLID
Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.
1. Use the following information (in thousands):
Revenues
Income from continuing operations
Net Income
Income from operations
Selling & administrative expenses
Income before income tax

1,200,000
150,000
135,000
330,000
750,000
300,000

Determine the amount of discontinued operations.

a. (30,000)
b. 120,000
c. 150,000
d. (15,000)
2. At Ruth Company, events and transactions during 2016 included the following. The tax rate for all
items is 30%.
(1) Depreciation for 2014 was found to be understated by 30,000.
(2) A litigation settlement resulted in a loss of 25,000.
(3) The inventory at December 31, 2014 was overstated by 40,000.
(4) The company disposed of its recreational division at a loss of 500,000.
The effect
would be
a.
b.
c.
d.

of these events and transactions on 2016 income from continuing operations net of tax
17,500.
38,500.
66,500.
416,500.

3. At Ruth Company, events and transactions during 2016 included the following. The tax rate for all
items is 30%.
(1) Depreciation for 2014 was found to be understated by 30,000.
(2) A litigation settlement resulted in a loss of 25,000.
(3) The inventory at December 31, 2014 was overstated by 40,000.
(4) The company disposed of its recreational division at a loss of 500,000.
The effect of these events and transactions on 2016 net income net of tax would be
a. 17,500.
b. 367,500.
c. 388,500.
d. 416,500.
4. During 2016, Lopez Corporation disposed of Pine Division, a major component of its business.
Lopez realized a gain of 1,200,000, net of taxes, on the sale of Pine's assets. Pine's operating
losses, net of taxes, were 1,400,000 in 2016. How should these facts be reported in Lopez's income
statement for 2016?

a.
b.
c.
d.

Total Amount to be Included in

Income from
Results of
Continuing Operations
Discontinued Operations
1,400,000 loss
1,200,000 gain
200,000 loss
0
0
200,000 loss
1,200,000 gain
1,400,000 loss

5. Use the following information:

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Gross profit
Loss on sale of investments
Interest expense
Gain on sale of discontinued operations
Income tax rate

7,800,000
20,000
15,000
60,000
20%

Compute the amount of income tax applicable to continuing operations.

a. 1,553,000
b. 1,640,000
c. 1,569,000
d. 1,568,000
6. Use the following information:
Gross profit
Loss on sale of investments
Interest expense
Gain on sale of discontinued operations
Income tax rate

7,800,000
20,000
15,000
60,000
20%

Compute the amount of discontinued operations to be combined with income from continuing
operations on the income statement.
a. 60,000
b. 48,000
c. 12,000
d. None of the above.
7. Use the following information:
Gross profit
Loss on sale of investments
Interest expense
Gain on sale of discontinued operations
Income tax rate

7,800,000
20,000
15,000
60,000
20%

Compute the total amount of income tax expense experienced by the company.
a. 1,530,000
b. 1,600,000
c. 1,565,000
d. 2,010,000
8. Leonard Corporation reports the following information:
Correction of overstatement of depreciation expense
in prior years, net of tax
215,000
Dividends declared
160,000
Net income
500,000
Retained earnings, 1/1/2016, as reported
1,000,000
Leonard should report retained earnings, January 1, 2016, as adjusted at
a. 785,000.
b. 1,000,000.
c. 1,215,000.
d. 1,555,000.
9. Leonard Corporation reports the following information:
Correction of overstatement of depreciation expense
in prior years, net of tax
215,000
Dividends declared
160,000
Net income
500,000
Retained earnings, 1/1/2016, as reported
1,000,000

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Leonard should report retained earnings, December 31, 2016, at
a. 785,000.
b. 1,125,000.
c. 1,340,000.
d. 1,555,000.
10. The following information was extracted from the accounts of Essex Corporation at December 31,
2016:
CR(DR)
Total reported income since incorporation
1,700,000
Total cash dividends paid
(800,000)
Unrealized holding loss
(120,000)
Total share dividends distributed
(200,000)
Prior period adjustment, recorded January 1, 2016
75,000
What should be the balance of retained earnings at December 31, 2016?
a. 655,000
b. 700,000
c. 580,000
d. 775,000
11. On January 1, 2016, Zhang Inc. had cash and share capital of 5,000,000. At that date, the company
had no other asset, liability, or equity balances. On January 5, 2016, it purchased for cash
3,000,000 of equity securities that it classified as available-for-sale. It received cash dividends of
400,000 during the year on these securities. In addition, it has an unrealized loss on these
securities of 300,000. The tax rate is 20%.
Compute the amount of comprehensive income.
a.
b.
c.
d.

100,000
80,000
320,000
300,000

12. Madsen Company reported the following information for 2016:

Sales revenue
Cost of goods sold
Operating expenses
Unrealized holding gain on available-for-sale securities
Cash dividends received on the securities

510,000
350,000
55,000
40,000
2,000

For 2016, Madsen would report other comprehensive income of

a. 137,000.
b. 135,000.
c. 42,000.
d. 40,000.
13. Korte Company reported the following information for 2016:
Sales revenue
Cost of goods sold
Operating expenses
Unrealized holding gain on available-for-sale securities
Cash dividends received on the securities

500,000
350,000
55,000
20,000
2,000

For 2016, Korte would report comprehensive income of

a. 117,000.
b. 115,000.
c. 97,000.
d. 20,000.
14. For the year ended December 31, 2016, Transformers Inc. reported the following:
Net income
Preference dividends declared

60,000
10,000

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Ordinary share dividends declared
Unrealized holding loss, net of tax
Retained earnings, beginning balance
Share capital Ordinary
Accumulated Other Comprehensive Income,
Beginning Balance

2,000
1,000
80,000
40,000
5,000

What would Transformers report as the ending balance of Retained Earnings?

a.
b.
c.
d.

139,000
133,000
128,000
127,000

15. Perry Corp. reports operating expenses in two categories: (1) selling and (2) general and
administrative. The adjusted trial balance at December 31, 2016, included the following expense
accounts:
Accounting and legal fees
Advertising
Freight-out
Interest
Loss on sale of long-term investments
Officers' salaries
Rent for office space
Sales salaries and commissions

140,000
120,000
75,000
60,000
30,000
180,000
180,000
110,000

One-half of the rented premises is occupied by the sales department.

How much of the expenses listed above should be included in Perry's selling expenses for 2016?
a. 230,000
b. 305,000
c. 320,000
d. 395,000
16. Chase Corp. had the following infrequent transactions during 2016:
A 150,000 gain from selling its automotive division.
A 210,000 gain on the sale of investments.
A 70,000 loss on the write-down of inventories.
In its 2016 income statement, what amount should Chase report as other income and expense?
a. 80,000
b. 140,000
c. 290,000
d. 360,000
17. On December 31,2016, Charmaine co. committed to a plan to sell a manufacturing facility in its
present condition and classifies the facility as held for sale at this date. After a firm purchase
commitment is obtained, the buyers inspection of the property identifies environmental damage not
previously known to exist. Charmaine is required by the buyer to make good the damage, which will
extend the period required to complete the sale beyond one year. However, the entity has initiated
actions to make good the damage, and satisfactory rectification of the damage is highly probable.
On December 31,2016, the carrying value of the facility is P4,000,000 and its fair market value is
P3,600,000.
In its December 31,2016 balance sheet, Charmaine co. should properly report this manufacturing
facility as:
a.
should no longer be included in the December 31,2016 balance sheet
b.
should be included among the property , plant , and equipment at P4,000,000
c.
should be included among th property , plant, and equipment a P3,600,000
d.
should be reported separately as non current asset held for disposal and valued at
P3,600,000

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18. On January 2, 2016, X co. is committed to a plan to sell a manufacturing facility and has initiated
action to locate a buyer. Any uncompleted customers orders will be transferred to the buyer. The
fair value of the facility is P6,000,000 and its carrying value as of January 2,2016 is P5,600,000.
On January 2,2016, X co. sold classify the building as
a.
PPE valued at P6,000,000
b.
PPE valued at P5,600,000
c.
Non current asset held for sale valued at P6,000,000
d.
Non current asset held for sale valued at P5,600,000
19. On July 2016, Vince Carter is committed to a plan to sell a disposal group that represents a
significant portion of its regulated operations. The sale requires regulatory approval, which could
extend the period required to complete the sale beyond one year. Actions necessary to obtain that
approval cannot be initiated until after a buyer is known and a firm purchase commitment is
obtained. However, a firm purchase commitment is highly probable within one year. The non-current assets of disposal group have a carrying value of P5,000,000 and liabilities of P1,000,000.
The assets total fair value as of December 31, 2016 of the disposal group is P4,800,000. If the sale
is completed within one year, the estimated cost to sell is P200,000, but if the sale will exited
beyond one year, the present value of the estimated cost to sell is P180,000.
If the sale will extend beyond one year, what amount of non-current asset should Vince Carter
report its held for sale property at December 31, 2016?
a.
3,600,000
b.
3,620,000
c.
4,000,000
d.
4,620,000
20. On July 1, 2016, Blazers co. has a building with a cost of P4,000,000 and accumulated deprecation
of P1,600,000. On the same date, Blazers co. commits to a plan to sell the building by February 1,
2015. The building has a fair value of P2,000,000 and it is estimated that the selling cost of the
building will be P150,000. As of July 1, 2016, the building has a remaining life of 15 years.
What is the amount to be reported as the carrying value of the building held for sale as of December
31, 2016?
a.
1,788,333
b.
1,850,000
c.
1,933,333
d.
2,000,000
What is the amount of loss to be recognized by Blazers co. in its income statement as a result of
reclassification?
a.
none
b.
150,000
c.
400,000
d.
550,000
21. On October 1, 2016, Jerome co. has a building with a cost of P4,000,000 and accumulated
depreciation of P3,100,000. The co. commits a plan to sell the building by February 1, 2015. On
October 1, 2016, the building has an estimated selling price of P800,000 and it is estimated that
selling cost associated with the disposal of the building will be P120,000. On December 31, 2016,
the estimated selling price of the building has increased to P1,200,000 with estimated selling cost
remaining at P120,000.
1. At the time of reclassification as held for sale, what amount should the non current asset
held for sale be recognized?
a. 680,000
b. 780,000
c. 800,000
d. 900,000
2. What amount of loss should Jerome recognize at the time the building was reclassified as
held for sale?

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a.
b.
c.
d.

None
100,000
120,000
220,000

3. As of December 31,2016, what amount of gain on recovery should Jerome recognize to the
asset held for sale?
a. None
b. 180,000
c. 220,000
d. 400,000
22. XYZ Company has three segments, A, B and C. Segment C, the closing division, is deemed
inconsistent with the long-term direction of the enterprise. Management has decided to dispose of
Segment C. On November 15, 2016, the board of directors of XYZ Company voted to approve the
disposal and an announcement was made. On that date the carrying amount of Segment Cs net
assets was P90,000,000 and the recoverable amount of the net assets was P70,000,000. Segment
Cs revenue and expenses for 2016, respectively, were P50,000,000 and P32,000,000, including an
interest of P5,000,000 attributable to Segment C. There was no further impairment of assets
between November 15 and December 31, 2016.
Before income tax, how much is the 2016 income or loss from the discontinued segment?
a.
13,000,000 income
b.
18,000,000 income
c.
30,000,000 income
d.
2,000,000 loss
23. On September 30, 2016, when the carrying amount of the net assets of a business segment was
P70,000,000, XYZ Company signed a legally binding contract to sell the business segment. The
sale is expected to be completed by January 31, 2017 at a selling price of expected to be
completed by January 31, 2017 at a selling price of P60,000,000. In addition, prior to January 31,
2017, the sale contract obliges XYZ Company to terminate the employment of certain employees of
the business segment incurring an expected termination cost of P2,000,000 to be paid on June 30,
2017. The segments revenue and expenses for 2016 were P40,000,000 and P45,000,000
respectively.
Before income tax, how much will be reported as loss from the discontinued segment for 2016?
a.
17,000,000
b.
12,000,000
c.
15,000,000
d.
7,000,000
24. Siasi Company is a diversified company with nationwide interest in commercial real estate
development, banking, mining and food distribution. The food distribution division was deemed to
be inconsistent with the long-term direction of the company. On October 1, 2016 the board
directors voted to approve the disposal of this division. The sale is expected to occur in August
2017. the food distribution had the following revenue and expenses in 2016: January 1 to
September 30, revenue of P35,000,000 and expenses of P27,000,000; October 1 to December 31,
revenue of P15,000,000 and expenses of P10,000,000. The carrying amount of the divisions
assets at December 31, 2016 was P56,000,000 and the recoverable amount was estimated to be
P56,500,000. The sale contract requires Siasi to terminate certain employees incurring an
expected termination cost of P4,000,000 to be paid by December 15, 2017.
The income statement for the year ended December 31, 2016 will report income from discontinued
operations at
a. 9,500,000
b. 6,175,000
c. 9,000,000
d. 5,850,000
25. Cuticle Company decided on May 1, 2016 to dispose a component of its business. The component
was sold on August 28, 2016. Cuticles income for 2016 included income of 8,000,000 from operating
the discontinued segment from January to the sale date . Cuticle incurred a loss on August 28 sale of
2,500,000.

Ignoring income taxes, what amount should be reported in the 2016 income statement as income
or loss under discontinued operation?
a.4,500,000 loss
b.5,000,000 income
c.5,500,000 income
d.10,500,000 income
26. Pink Company has correctly classified its packaging operation as a disposal group held for sale
and as discontinued operation. For the year ended December 31, 2016, this disposal group
incurred trading loss after tax of P4,000,000 and the loss on remeasuring it to fair value less cost to
sell was P2,000,000.
What total amount of the disposal groups losses should be included in profit or loss for the year
ended December 31, 2016?
a. 2,000,000
b. 4,000,000
c. 6,000,000
d. 0
27. On September 30, 2016, when the carrying amount of the net assets of segment C was 7,000,000,
X Company signed a binding contract to sell segment C for P12,000,000. The sale is expected to
be completed by January 31,2017, the sale contract obliges X Company to terminate certain
employees of segment C incurring termination costs of P2,000,000 to be paid on June 30, 2017.
The company continued to operate segment C throughout 2016. Revenue of segment C throughout
2016 was P 8,000,000, operating costs was P4,000,000.
How much income should be reported as income from discontinued segment for 2016, before tax ?
a. None
b. 2,000,000
c. 7,000,000
d. 8,000,000
28. The following information is available for Bart Company for the current year:
Disbursements for purchases
5,800,000
Increase in trade accounts payable
500,000
Decrease in merchandise inventory
200,000
Cost of goods sold for the current year was
a.
6,500,000
b.
6,100,000
c.
5,500,000
d.
5,100,000
29. Below are selected account balances of Mount Isarog Company as of December 31, 2016:
Retained earnings, January 1
3,000,000
Dividends
1,000,000
Sales
8,350,000
Dividend income
100,000
Inventory, January 1
1,040,000
Purchases
3,720,000
Salaries
1,540,000
Contribution to employees pension fund
280,000
Delivery
205,000
Miscellaneous expense
125,000
Doubtful accounts expense
10,000
Depreciation expense
85,000
Loss on sale of securities
40,000
Loss on inventory writedown
150,000
Income tax
105,000
Inventory at December 31 was valued at P700,000 (P850,000 less P150,000 writedown of obsolete
inventory)

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What was the cost of goods sold for 2016?
a.
4,760,000
b.
4,060,000
c.
3,910,000
d.
4,210,000
30. After its first year of operations, Mercury Company had the following data on its operations.
Manufacturing costs were distributed as follows:
Cost of goods sold
4,320,000
Materials used
50%
Direct labor
30%
Manufacturing overhead
20%
Goods in process, December 31, were 10% of the total manufacturing cost. Finished goods
remaining in stock were 20% of the total cost of goods manufactured.
The direct labor cost was
a.
1,800,000
b.
2,400,000
c.
3,000,000
d.
5,400,000
31. During 2016, Fuqua Steel Company had the following unusual financial events:
Bonds payable were retired five years before their scheduled maturity,
resulting in P2,600,000 loss. Fuqua has frequently retired bonds early when
interest rates declined significantly.
A steel forming segment suffered P2,550,000 loss due to hurricane damage.
This was the fourth similar loss sustained in a 5-year period at that location.
A segment of Fuquas operations, steel transportation, was sold at a net loss
P3,500,000. This was Fuquas first divestiture of one of its operating
segments.
Before income tax, what amount of loss should be reported separately as a component of income
from continuing operations in 2016?
a.
5,150,000
b.
8,650,000
c.
2,550,000
d.
0
32. Midway Company had the following transactions during 2016.
P1,200,000 pretax loss on foreign currency exchange due to a major
unexpected devaluation by the foreign government.
P500,000 pretax loss from discontinued operations of a division.
P800,000 pretax loss on equipment damaged by a tsunami. This was the first
tsunami ever to strike in Midways area. Midway also received P4,000,000
from its insurance company to replace a building, with a carrying value of
P3,300,000, that had been destroyed by the tsunami.
What amount of loss should Midway report in its 2016 income statement as part of continuing
operations?
a.
100,000
b.
1,300,000
c.
4,100,000
d.
2,500,000