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FINANCIAL ACCOUNTING PROBLEMS

Problem I (Current assets)


An entity provided the following trial balance on June 30, 2015:
Cash overdraft  20
2 00,000! "roperty, plant and e#uip$ent, net 1,%00,000
Accounts receivable, net &00,000 Accounts payable and accrued e'penses ()0,000
*nventory 1,200,000 +hare capital 3,000,000
"repaid e'penses 200,000 +hare pre$iu$ 500,000
and held for resale 2,000,000 -etained earnings 1,((0,000
Chec.s a$ounting to "(00,000 were written to vendors and recorded on June 30 resulting in cash
overdraft of "200,000/ he chec.s were $ailed on July %/ and held for resale was sold for cash on
July 15/ he financial state$ents were issued on July 31/ n June 30, 2015, what total a$ount
should be reported as current assets
a/ ),500,000
 b/ ),100,000
c/ ),300,000
d/ 2,500,000

Problem 2 (Total
(Total assets)
An entity was incorporated on January 1, 2015 with proceeds fro$ the issuance of "&,500,000 in
shares and borrowed funds of "1,100,000/ uring the first year of operations, revenue fro$ sales
and consulting a$ounted to "420,000, and operating costs and e'penses totaled "()0,000/ n
ece$ber 15, the entity declared a "30,000 cash dividend, payable to shareholders on January 15,
201(/
201(/ o additi
additional
onal activi
activitie
tiess affec
affected
ted owners6
owners6 e#uity
e#uity in 2015/
2015/ he liabi
liabilit
lities
ies increa
increased
sed to
"1,200,000 by ece$ber 31, 2015/ 7hat a$ount should be reported as total assets on ece$ber 
31, 2015
a/ 4,450,000
 b/ 4,420,000
c/ &,4&0,000
d/ 4,&50,000

Problem  (Current l!ab!l!t!es)


An entity had the following liabilities on ece$ber 31, 2015:

Accounts payable 55,000


8nsecured notes, 49 due &1201( )00,000
Accrued e'penses 35,000
Contingent liability )50,000
eferred ta' liability 25,000
+enior bonds, &9, due 331201( 1,000,000

he contingent liability is an accrual for possible loss on a "1,000,000 lawsuit filed against the
entity/ he legal counsel e'pects the suit to be settled in 201( and has esti$ated that the entity will
 be liable for da$ages in the range of ")50,000 to "&50,000/ he deferred ta' liability is e'pected to
reverse in 201(/ 7hat a$ount should be reported on ece$ber 31, 2015 for current liabilities
a/ 515,000
 b/ %)0,000
c/ 1,)%0,000
d/ 1,515,000
"age 2

Problem " (Net !n#ome)


An entity reported net inco$e of "&,)10,000 for the current year/ he auditor raised #uestions about
the following a$ounts that had been included in net inco$e:
8nreali;ed loss on e#uity invest$ents at fair value through other co$prehensive
inco$e  5)0,000 !
<ain on early retire$ent of bonds payable 2,200,000
Ad=u
d=ust$ent of profi
ofit of prior year for error in depr
epreciation, net of ta' effect  &50
&50,000 !
oss fro$ fire  1,)00,000 !
<ain fro$ change in fair value attributable to the credit ris. of financial liability
designated at fair value through profit or loss 500,000
7hat a$ount should be reported as ad=usted net inco$e
a/ (,500,000
 b/ &,200,000
c/ 4,200,000
d/ 4,&00,000

Problem $ (Reta!ne% earn!n&s)


An entity provided the following infor$ation on ece$ber 31, 2015:
otal reported inco$e since incorporation 1,&00,000
otal cash dividends paid  400,000!
8nreali;ed holding loss on trading invest$ent  120,000!
otal share dividends distributed  200,000!
"rior period ad=ust$ent recorded January 1, 2015 > credit &5,000
7hat a$ount should be reported as retained earnings on ece$ber 31, 2015
 a/
 a / (55,000
 b/
 b/ &00,000
 c/
 c / 540,000
 d/
 d/ &&5,000

Problem ' (Cas #omutat!on)

An entity reported
reported the chec.boo. balance
balance on ece$ber 31, 2015 at "4,000,000/ *n addition,
addition, the
entity held the following ite$s in the safe on that date:
Chec. payable to the entity, dated January 2, 201( in pay$ent of a sale,
not !n#lu%e%  in
 in ece$ber 31 chec. boo. balance 1,000,000
Chec.
Chec. payabl
payablee to the entity
entity, deposit
deposited
ed ece$ber
ece$ber 15 and includ
included
ed in
ece$ber 31 chec.boo. balance, but returned by ban. on
ece$ber 30 sta$ped ?+@/ he chec. was redeposited on
January 2, 201( and cleared on January 5, 201( 3,000,000
Chec. drawn on the entity6s account, dated and recorded on
ece$ber 31, 2015 but not $ailed until January 15, 201( 2,500,000
Coins and currencies on hand 400,000
hree>$onth $oney $ar.et instru$ents 1,500,000
7hat is the correct a$ount of ?cash on ece$ber 31, 2015
a/ &,500,000
 b/ %,300,000
c/ 4,300,000
d/ %,400,000
"age 2

Problem " (Net !n#ome)


An entity reported net inco$e of "&,)10,000 for the current year/ he auditor raised #uestions about
the following a$ounts that had been included in net inco$e:
8nreali;ed loss on e#uity invest$ents at fair value through other co$prehensive
inco$e  5)0,000 !
<ain on early retire$ent of bonds payable 2,200,000
Ad=u
d=ust$ent of profi
ofit of prior year for error in depr
epreciation, net of ta' effect  &50
&50,000 !
oss fro$ fire  1,)00,000 !
<ain fro$ change in fair value attributable to the credit ris. of financial liability
designated at fair value through profit or loss 500,000
7hat a$ount should be reported as ad=usted net inco$e
a/ (,500,000
 b/ &,200,000
c/ 4,200,000
d/ 4,&00,000

Problem $ (Reta!ne% earn!n&s)


An entity provided the following infor$ation on ece$ber 31, 2015:
otal reported inco$e since incorporation 1,&00,000
otal cash dividends paid  400,000!
8nreali;ed holding loss on trading invest$ent  120,000!
otal share dividends distributed  200,000!
"rior period ad=ust$ent recorded January 1, 2015 > credit &5,000
7hat a$ount should be reported as retained earnings on ece$ber 31, 2015
 a/
 a / (55,000
 b/
 b/ &00,000
 c/
 c / 540,000
 d/
 d/ &&5,000

Problem ' (Cas #omutat!on)

An entity reported
reported the chec.boo. balance
balance on ece$ber 31, 2015 at "4,000,000/ *n addition,
addition, the
entity held the following ite$s in the safe on that date:
Chec. payable to the entity, dated January 2, 201( in pay$ent of a sale,
not !n#lu%e%  in
 in ece$ber 31 chec. boo. balance 1,000,000
Chec.
Chec. payabl
payablee to the entity
entity, deposit
deposited
ed ece$ber
ece$ber 15 and includ
included
ed in
ece$ber 31 chec.boo. balance, but returned by ban. on
ece$ber 30 sta$ped ?+@/ he chec. was redeposited on
January 2, 201( and cleared on January 5, 201( 3,000,000
Chec. drawn on the entity6s account, dated and recorded on
ece$ber 31, 2015 but not $ailed until January 15, 201( 2,500,000
Coins and currencies on hand 400,000
hree>$onth $oney $ar.et instru$ents 1,500,000
7hat is the correct a$ount of ?cash on ece$ber 31, 2015
a/ &,500,000
 b/ %,300,000
c/ 4,300,000
d/ %,400,000
"age 3

Problem * (Ima!rment o+ a##ounts re#e!,able)

An entity reported the following accounts receivable on ece$ber 31, 2015:


Custo$er A 1,000,000
Custo$er B 1,500,000
Custo$er C 2,000,000
Custo$er  2,500,000
All other accounts receivable not individually significant 3,500,000
he entity deter$ined that Custo$er A receivable is totally i$paired and Custo$er B receivable is
i$paired by "&00,000/ he other receivables fro$ Custo$ers C and  are not considered i$paired/
he entity deter$ined that a co$posite rate of 109 is appropriate to $easure i$pair$ent on the
re$aining accounts receivable/ 7hat is the total i$pair$ent loss of accounts receivable for 2015
a/ 2,500,000
 b/ 2,050,000
c/ 1,050,000
d/ 2,&50,000

Problem - (Current net re#e!,ables)

An entity reported current receivables on ece$ber 31, 2015 which consisted


con sisted of the following:
rade accounts receivable %30,000
Allowance for uncollectible accounts 20,000
Clai$ against shipper for goods lost in transit in ove$ber 2015 30,000
+elling price of unsold goods sent by the entity on consign$ent at 1309 of 
cost and not included in the ending inventory 2(0,000
+ecurity deposit on lease of warehouse used for storing inventories 300,000
7hat is the correct total of #urrent net receivables on ece$ber 31, 2015
a/ 1,500,000
 b/ 1,200,000
c/ 1,2)0,000
d/ %)0,000

Problem . (Measurement o+ notes re#e!,ables)

n ece$ber 31, 2015, an entity received two "2,000,000 notes receivable fro$ custo$ers/ n
 both notes, interest is calculated on the outstanding principal balance at the annual rate of
o f 39 and
a nd
 payable at $aturity/
$aturity/ he first note, $ade under custo$ary trade ter$s, is due in nine $onths and the
second note is due in five years/ he $ar.et interest rate for si$ilar notes on ece$ber 31, 2015
was 49/ he " of 1 at 49 due in nine $onths is /%)), and the " of 1 at 49 due in 5 years is /(4/
n ece$ber 31, 2015, what total carrying a$ount should be reported for the two notes receivable
a/ 3,2)4,000
 b/ 3,)%),)00
c/ 3,3(0,000
d/ 3,5(),000
"age )

Problem /0 (Measurement o+ loan re#e!,able)

A ban. granted a 10>year loan to a borrower in the a$ount of "1,500,000 with stated interest rate of 
(9/ "ay$ents are due $onthly and are co$puted to be "1(,(50/ he ban. incurred ")0,000 of 
direct loan origination cost and "20,000 of indirect loan origination cost/ *n addition, the ban. 
charged the borrower a )>point nonrefundable loan origination fee/ 7hat is the carrying a$ount of 
the loan receivable to be reported initially by the ban.
a/ 1,))0,000
 b/ 1,)40,000
c/ 1,500,000
d/ 1,520,000

Problem // (Cost o+ !n,entor1)

An entity reported inventory on ece$ber 31, 2015 at "(,000,000 based on a physical count at cost
and before any necessary year>end ad=ust$ents relating to the following:
 *ncluded in the physical count were goods billed to a custo$er @B shipping point on
ece$ber 30, 2015/ hese goods had a cost of "125,000 and were pic.ed up by the carrier on
January &, 201(/
 <oods shipped @B shipping point on ece$ber 24, 2015 fro$ a vendor to the entity were
received on January ), 201(/ he invoice cost was "300,000/
7hat a$ount should be reported as inventory on ece$ber 31, 2015
a/ 5,4&5,000
 b/ (,000,000
c/ (,1&5,000
d/ (,300,000

Problem /2 (Comutat!on o+ a##ounts a1able)

An entity reported accounts payable on ece$ber 31, 2015 at "),500,000 before any necessary
year>end ad=ust$ents relating to the following transactions:
 n ece$ber 2&, 2015, the entity wrote and recorded chec.s to creditors totaling "2,000,000
causing an overdraft of "500,000 in the entity6s ban. account on ece$ber 31, 2015/ he
chec.s were $ailed on January 10, 201(/

 n ece$ber 24, 2015, the entity purchased and received goods for "&50,000, ter$s 210, n30/
he entity recorded purchases and accounts payable at net a$ount/ he invoice was recorded
and paid January 3, 201(/

 <oods shipped @B destination on ece$ber 20, 2015 fro$ a vendor to the entity were
received January 2, 201(, he invoice cost was "325,000/
n ece$ber 31, 2015, what a$ount should be reported as accounts payable
a/ &,5&5,000
 b/ &,250,000
c/ &,235,000
d/ &,553,500
"age 5
Problem / (Reta!l !n,entor1 meto%)

n ece$ber 31, 2015, an entity provided the following infor$ation:


Cost Reta!l
*nventory, January 1 &35,000 1,015,000
"urchases ),1(5,000 5,&&5,000
Additional $ar.up 210,000
+ales for the year totaled "5,500,000/ Dar.down a$ounted to "100,000/ 8nder the aro!mate
lo3er o+ a,era&e #ost or NR4 retail $ethod, what is the inventory on ece$ber 31, 2015
a/ 1,050,000
 b/ 1,)00,000
c/ %%),000
d/ %40,000

Problem /" (Gross ro+!t meto%)

An entity budgeted the following sales/


  5une 5ul1 Au&ust
+ales on account 1,400,000 1,4)0,000 1,%00,000
Cash sales 140,000 200,000 2(0,000
All $erchandise is $ar.ed up to sell at invoice cost plus 209/ Derchandise inventory at the
 beginning of each $onth is 309 of that $onthEs pro=ected cost of goods sold/ 7hat is the a$ount
of anticipated purchases for 5ul1
a/ 1,(32,000
 b/ 2,0&(,000
c/ 1,&00,000
d/ 1,&30,000

Problem /$ (B!olo&!#al assets)

An entity provided the following infor$ation about assets in forest plantation:


@reestanding trees 5,000,000
and under trees %00,000
-oads in forest 500,000
Ani$als related to recreational activities 2,000,000
-ubber trees and grape vines 1,500,000
7hat total a$ount should be reported as biological assets
a/ 5,000,000
 b/ 4,500,000
c/ (,500,000
d/ %,%00,000

Problem /' (Ma#!ner1)

n +epte$ber 1, 2015, an entity purchased a new $achine on a deferred pay$ent basis/ A down
 pay$ent of "200,000 was $ade and ) annual install$ents of "(00,000 each are to be $ade beginning
on +epte$ber 1, 201(/ he cash e#uivalent price of the $achine was "2,300,000/ ue to an e$ployee
stri.e, the entity could not install the $achine i$$ediately and thus incurred "30,000 of storage cost/
Cost of installation e'cluding the storage cost a$ounted to "40,000/ 7hat is the total cost of the
$achine
a/ 2,300,000
 b/ 2,340,000
c/ 2,)10,000
d/ 2,(00,000
"age (

Problem /* (Borro3!n& #ost)

uring 2015, an entity constructed an asset costing "10,000,000/ he weighted average
accu$ulated e'penditures on the asset during the year totaled "(,000,000/ o help pay for 
construction, "),)00,000 was borrowed at 109 on January 1, 2015, and funds not needed for 
construction were te$porarily invested in short>ter$ securities, yielding "%0,000 in interest
revenue/ ther than the construction funds borrowed, the only other debt outstanding during the
year was a "5,000,000, 10>year, %9 note payable dated January 1, 2012/ 7hat is the a$ount of 
interest that should be capitali;ed during 2015
a/ (00,000
 b/ 300,000
c/ )%),000
d/ %)),000

Problem /- (6elet!on)

*n 2015, an entity purchased property with natural resources for "24,000,000/ he property had a
residual value of "5,000,000/ Fowever, the entity is re#uired to restore the property to the original
condition at a discounted a$ount of "2,000,000/ *n 2015, the entity spent "1,000,000 in
develop$ent cost and "3,000,000 in building/ *n 201(, an a$ount of "),000,000 was spent for 
additional develop$ent on the $ine/ "roduction began in 201( and the tons e'tracted totaled
3,000,000 in 201( and 2,500,000 in 201&/ he re$aining tons totaled &,000,000 and 3,500,000,
respectively on ece$ber 31, 201( and ece$ber 31, 201&/ 7hat a$ount of depletion should
recogni;ed in 201&
a/ 10,500,000
 b/ 12,250,000
c/ %,000,000
d/ 4,&50,000

Problem /. (Re,aluat!on)

n June 30, 2015, an entity reported the following infor$ation:


G#uip$ent at cost 30,000,000
Accu$ulated depreciation 10,500,000
he e#uip$ent was $easured using the cost $odel and depreciated on a straight line basis over 10>
year period/ n ece$ber 31, 2015, the $anage$ent decided to change the basis of $easuring the
e#uip$ent fro$ the cost $odel to the revaluation $odel/ he e#uip$ent was revalued to the fair 
value of "2&,000,000 with re$aining useful life of 5 years/ he inco$e ta' rate is 309/ 7hat
a$ount should be reported as revaluation surplus on ece$ber 31, 2015
a/ &,500,000
 b/ 5,250,000
c/ (,300,000
d/ %,000,000
"age &

Problem 20 (Comuter so+t3are)

uring the current year, an entity incurred the following costs to develop and produce a routine,
low>ris. co$puter software product:

Co$pletion of detailed progra$ design or wor.ing $odel 1,300,000


Cost incurred for coding and testing to establish technological feasibility 1,000,000
ther coding costs after establish$ent of technological feasibility 2,)00,000
ther testing costs after establish$ent of technological feasibility 2,000,000
Costs of producing product $asters for training $aterials 1,500,000
uplication of co$puter software and training $aterials fro$ product $aster 2,500,000
"ac.aging product %00,000

7hat a$ount should be capitali;ed initially as software cost


a/ 5,)00,000
 b/ 3,&00,000
c/ 5,%00,000
d/ (,%00,000

Problem 2/ (Start u #osts)

An entity, a $a=or winery, begins construction of a new facility in Dindanao/ he following costs
are incurred in con=unction with the start>up activities of the new facility:
"roduction e#uip$ent 4,150,000
ravel costs of salaried e$ployees )00,000
icense fees 1)0,000
raining of local e$ployees for production and $aintenance operations 1,200,000
Advertising costs 450,000
7hat a$ount of start up costs should be e'pensed
a/ %,&50,000
 b/ 1,(00,000
c/ 1,3%0,000
d/ 0

Problem 22 (Intan&!ble assets)

n January 1, 2013, an entity purchased patent at a cost of "1,%20,000 at which date the re$aining
legal life was 1( years/ n January 1, 2015, the useful life of the patent was deter$ined to be only 4
years fro$ the date of ac#uisition/ n January 1, 2015, the entity paid "400,000, of which
three>fourths was for a trade$ar., and one>fourth was for the other entity6s agree$ent not to
co$pete for a 5>year period in the line of business covered by the trade$ar./ he entity considered
the life of the trade$ar. indefinite/ Doreover, the entity agreed to pay "50,000 to the other entity as
consulting fee each year for 5 years payable every January 1/ 7hat is the a$orti;ation of intangible
assets for 2015
a/ 320,000
 b/ 240,000
c/ 250,000
d/ 3&0,000
"age 4

Problem 2 (Goo%3!ll)

n ece$ber 31, 2015, an entity purchased for ")0,000,000 cash all of the outstanding ordinary
shares of another entity when the subsidiary6s state$ent of financial position showed net assets of 
"32,000,000/ he subsidiary6s assets and liabilities had fair value different fro$ the carrying
a$ount as follows:

Carr1!n& amount Fa!r ,alue


"roperty, plant and e#uip$ent, net 50,000,000 5&,500,000
ther assets 5,000,000 0
ong>ter$ debt 30,000,000 24,000,000
7hat a$ount should be reported as goodwill in the ece$ber 31, 2015 consolidated state$ent of 
financial position of the ac#uirer and its wholly>owned subsidiary
a/ 3,500,000
 b/ 2,500,000
c/ &,500,000
d/ 4,000,000

Problem 2" (F!nan#!al asset at +a!r ,alue trou& oter #omreens!,e !n#ome)

n January 1, 2015, an entity purchased nontra%!n& e#uity securities which are irrevocably
designated at fair value through other co$prehensive inco$e:
Pur#ase r!#e Transa#t!on #ost Mar7et 8 /29/920/$
+ecurity A 1,000,000 100,000 1,500,000
+ecurity B 2,000,000 200,000 2,)00,000
+ecurity C ),000,000 )00,000 ),&00,000
n July 1, 201(, the entity sold +ecurity C for "5,200,000/ 7hat a$ount should be credited to
retained earnings as a result of the sale of the invest$ent in 201(
a/ 400,000
 b/ 500,000
c/ 300,000
d/ 0

Problem 2$ (Interest on loans)

An entity fre#uently borrowed fro$ the ban. in order to $aintain sufficient operating cash/ he
following loans were at a 129 interest rate with interest payable at $aturity/ he entity repaid each
loan on scheduled $aturity date/

6ate o+ loan Amount Matur!t1 %ate Term o+ loan


 ove$ber 1, 201) 500,000 ctober 31, 2015 1 year 
@ebruary 1, 2015 1,500,000 July 31, 2015 ( $onths
Day 1, 2015 400,000 January 31, 201( % $onths

he entity recorded interest e'pense when the loans are repaid/ As a result, interest e'pense of 
"150,000 was recorded in 2015/ *f no correction is $ade, by what a$ount would interest e'pense
 be understated for 2015
a/ 5),000
 b/ (2,000
c/ (),000
d/ &2,000
"age %

Problem 2' (Comensate% absen#es)

An entity has 35 e$ployees who wor. 4>hour days and are paid hourly/ n January 1, 2013, the
entity began a progra$ of granting the e$ployees 10 days of paid vacation each year/ acation days
earned in 2013 $ay first be ta.en on January 1, 201)/
:ourl1 4a#at!on 6a1s Earne% 4a#at!on 6a1s Use%
;ear <a&es b1 Ea# Emlo1ee b1 Ea# Emlo1ee

2013 25/40 10 0
201) 2&/00 10 4
2015 24/50 10 10
he entity has chosen to accrue the liability for co$pensated absences at the current rate of pay in
effect when the co$pensated ti$e is earned/ 7hat is the accrued liability for co$pensated absences
on ece$ber 31, 2015
a/ %),%20
 b/ %0,&20
c/ &%,400
d/ %5,&(0

Problem 2* (F!nan#e lease = lessee)

An entity leased e#uip$ent for the entire nine>year useful life, agreeing to pay "1,000,000 at the
start of the lease ter$ on January 1, 2015, and "1,000,000 annually on each January 1 for the ne't
eight years/ he present value on January 1, 2015 of the nine lease pay$ents over the lease ter$
using the rate i$plicit in the lease which the lessor .nows to be 109 was "(,330,000/ he January
1, 2015 present value of the lease pay$ents using the incre$ental borrowing rate of 129 was
"5,%&0,000/ he entity $ade a ti$ely second lease pay$ent/ 7hat a$ount should be reported as
finance lease liability on ece$ber 31, 201(
a/ 5,330,000
 b/ ),4(3,000
c/ ),%&0,000
d/ ),)(&,000

Problem 2- (F!nan#e lease = lessor)

An entity leased e#uip$ent to an unrelated party on July 1, 2015 for an eight>year period e'piring
June 30, 2023/ G#ual pay$ents under the lease are "(00,000 and are due on July 1 of each year/ he
first pay$ent was $ade on July 1, 2015/ he i$plicit rate of interest conte$plated is 109/ he cash
selling price of the e#uip$ent is "3,500,000 and the carrying a$ount is "2,400,000/ he lease is
appropriately recorded as a sales type lease/ 7hat total a$ount of inco$e should be recorded for 
the year ended ece$ber 31, 2015
a/ &00,000
 b/ 525,000
c/ %%0,000
d/ 4)5,000
"age 10

Problem 2. (Sale an% leaseba#7)

n January 1, 2015, an entity sold a $achine for "5,000,000/ he fair value of the $achine was
"(,500,000 on the date of sale/ he $achine had a carrying a$ount of "&,000,000 and re$aining
life of 15 years/ he entity i$$ediately leased bac. the $achine for 5 years at an annual rental that
was deter$ined to be sufficiently lower than the $ar.et rent/ 7hat total a$ount of loss should be
recogni;ed i$$ediately in 2015
a/ )00,000
 b/ 400,000
c/ 500,000
d/ 0

Problem 0 (Emlo1ee bene+!t 8 IFRS /.R)

An entity provided the following infor$ation for the current year:


Current service cost 500,000
*nterest on pro=ected benefit obligation (00,000
*nterest inco$e on plan assets 350,000
oss on plan settle$ent 250,000
"ast service cost during the year 300,000
Actual return on plan assets 450,000
Actuarial loss during the year 200,000
Contribution to the plan 1,500,000
 7hat is the e$ployee benefit e'pense for the current year
a/ 1,300,000
 b/ 1,050,000
c/ 1,500,000
d/ 1,100,000

Problem / (A#tual return on lan assets)

An entity provided the following data related to the pension plan/


6e#ember /> 20/$ 6e#ember /> 20/'
efined benefit obligation 4,)00,000 11,100,000
"lan assets at fair value %,000,000 %,%00,000
 et actuarial loss 1,))0,000 1,500,000
iscount rate 109 %9
G'pected rate of return 49 &9
he contribution was "1,2(0,000 in 201( and benefits paid totaled "1,125,000/ 7hat was the actual
return on plan assets in 201(
a/ %00,000
 b/ &(5,000
c/ (00,000
d/ )(5,000
"age 11

Problem 2 (4a#at!on a1 eense)

An entity grants all e$ployees two wee.s of paid vacation for each full year of e$ploy$ent/
8nused vacation ti$e can be accu$ulated and carried forward to succeeding years and will be paid
at the salaries in effect when vacations are ta.en or when e$ploy$ent is ter$inated/ here was no
e$ployee turnover in 2015/ Additional infor$ation relating to the year ended ece$ber 31, 2015 is
as follows:
iability for accu$ulated vacations on January 1, 2015 350,000
"re>2015 accrued vacations ta.en fro$ January 1, 2015 to +epte$ber 30, 2015
the authori;ed period for vacations! 200,000
acations earned for wor. in 2015 ad=usted to current rate 300,000
he entity granted a 109 salary increase to all e$ployees on ctober 1, 2015, the annual salary
increase date/ 7hat a$ount should be reported as vacation pay e'pense for 2015
a/ )50,000
 b/ 335,000
c/ 315,000
d/ 300,000

Problem  (Term!nat!on bene+!ts IFRS /.R)

An entity is co$$itted to close a factory in 10 $onths and shall ter$inate the e$ploy$ent of all the
re$aining e$ployees of the factory/ 8nder the ter$ination plan, an e$ployee lea,!n& be+ore
#losure o+ +a#tor1  shall receive on ter$ination date a cash pay$ent of "20,000/ Fowever, an
e$ployee that ren%ers ser,!#e unt!l #losure  of the factory shall receive "(0,000/ here are 120
e$ployees at the factory/ he entity e'pects 20 e$ployees to leave before closure and 100
e$ployees to render service until closure/ 7hat a$ount should be recogni;ed as ter$ination
 benefit
a/ 2,)00,000
 b/ (,)00,000
c/ 2,000,000
d/ ),000,000

Problem " (In#ome ta)

An entity reported "%,000,000 inco$e before provision for inco$e ta'/ he following data are
 provided for the current year:
-ent received in advance 1,(00,000
*nco$e fro$ e'e$pt $unicipal bonds 2,000,000
epreciation deduction for inco$e ta' purposes in e'cess of depreciation
reported for financial reporting purposes 1,000,000
a' pay$ent during the current year 500,000
*nco$e ta' rate 309
7hat a$ount of current inco$e ta' liability should be reported at year>end
a/ 1,&40,000
 b/ 2,240,000
c/ 2,540,000
d/ 2,440,000
"age 12

Problem $ (Bon%s a1able)

An entity has outstanding a &9, ten>year "100,000 facevalue bond/ he bonds was originally sold
to yield (9 annual interest/ he entity uses the effective interest $ethod to a$orti;e bond pre$iu$
and does not elect the fair value option for reporting financial liabilities/ n June 30, 2015, the
carrying a$ount of the outstanding bond was "105,000/ 7hat a$ount of una$orti;ed pre$iu$ on
 bond should be reported on June 30, 201(
a/ 1,050
 b/ 3,%50
c/ ),300
d/ ),500

Problem ' (Sare=base% #omensat!on)

n January 1, 2015, an entity granted to e$ployees 10,000 share options/ n January 1, 201(, the
entity granted to e$ployees an additional 20,000 share options/
6ate Fa!r ,alue o+ sare
January 1, 2015 20
ece$ber 31, 2015 22
January 1, 201( 25
ece$ber 31, 201( 30
he shares vest at the end of a four>year period/ here are no forfeitures/ 7hat a$ount should be
recorded as co$pensation e'pense for 201(
a/ 1&5,000
 b/ 205,000
c/ 225,000
d/ 500,000

Problem * (Reta!ne% earn!n&s)

An entity provided the following data for the year ended ece$ber 31, 2015:
-etained earnings unappropriated, January 1 200,000
verdepreciation of 201) due to prior period error 100,000
 et inco$e for 2015 1,300,000
- -etained earnings appropriated for treasury shares original balance is "500,000
 but reduced by "200,000 by reason of reissuance of the treasury shares! 300,000
-etained earnings appropriated for contingencies beginning balance "&00,000/
 but increased by current appropriation of "100,000! 400,000
Cash dividends paid to shareholders 500,000
Change in accounting policy fro$ @*@ to average H credit ad=ust$ent 150,000

7hat is the balance of unaror!ate% retained earnings on ece$ber 31, 2015


a/ 1,150,000
 b/ 1,350,000
c/ 1,%50,000
d/ 1,&50,000
"age 13

Problem - (6!lute% earn!n&s er sare)

An entity reported the following capital structure:


20/$ 20/'
utstanding shares:
rdinary shares 110,000 110,000
Convertible preference shares 10,000 10,000

uring 2015, the entity paid preference dividends of "3 per share/ he preference shares are
convertible into 20,000 ordinary shares/ et inco$e for 2015 was "450,000/ he inco$e ta' rate is
309/ 7hat a$ount should be reported as diluted earnings per share for 2015
a/ (/31
 b/ (/5)
c/ &/04
d/ &/)5

Problem . (Cas bas!s)

An entity had the following beginning and ending balances in prepaid e'penses and accrued
liabilities for the current year:
Prea!% eenses A##rue% l!ab!l!t!es
Beginning balance 5,000 4,000
Gnding balance 10,000 20,000
ebits to operating e'penses totaled "100,000/ 7hat a$ount was paid for operating e'penses
during the current year
a/ 43,000
 b/ %3,000
c/ 10&,000
d/ 11&,000

Problem "0 (Current #ost)

An entity disclosed supple$ental infor$ation on the effects of changing prices/ he entity
co$puted the increase in current cost of inventory as follows:
*ncrease in current cost no$inal peso! 1,500,000
*ncrease in current cost constant peso! 1,200,000
7hat a$ount should be disclosed as the inflation co$ponent of the increase in current cost
a/ 2,&00,000
 b/ 1,500,000
c/ 1,200,000
d/ 300,000
"age 1)

Problem "/ (A##rual bas!s)

An entity ac#uired rights to a patent under a licensing agree$ent that re#uired an advance royalty
 pay$ent when the agree$ent was signed/ he entity re$itted royalties earned and due under the
agree$ent on ctober 31 each year/ Additionally, on the sa$e date, the entity paid, in advance,
esti$ated royalties for the ne't year/ he entity ad=usted prepaid royalties at year>end/ he entity
 provided the following infor$ation for the year ended ece$ber 31, 2015:

January 1 "repaid royalties (50,000


ctober 31 -oyalty pay$ent charged to royalty e'pense 1,100,000
ece$ber 31 Iear>end credit ad=ust$ent to e'pense 250,000

n ece$ber 31, 2015, what a$ount should be reported as prepaid royalties


a/ 250,000
 b/ )00,000
c/ 450,000
d/ %00,000

Problem "2 (A##rual bas!s)

An entity had a balance of "420,000 in the professional fees e'pense account on ece$ber 31,
2015, before considering year>end ad=ust$ents relating to the following:

 Consultants were hired for a special pro=ect at a total fee not to e'ceed "(50,000/ he entity had
recorded "550,000 of this fee based on billings for wor. perfor$ed in 2015/
 he attorney6s letter re#uested by the auditors dated January 31, 201(, indicated that legal fees
of "(0,000 were billed on January 15, 201( for wor. perfor$ed in ove$ber 2015, and
unbilled fees for ece$ber 2015 were "&0,000/

7hat a$ount should be reported for professional fees e'pen se for 2015
a/ 1,050,000
 b/ %50,000
c/ 440,000
d/ 420,000

Problem " (6!s#losures)

An entity reported the following infor$ation in the year>end financial state$ents:


Capital e'penditures 1,000,000
@inance lease pay$ents 125,000
*nco$e ta'es paid 325,000
ividends paid 200,000
*nterest pay$ents 220,000
7hat total a$ount should be reported as supple$ental disclosures in the state$ent of cash flows
 prepared using the indirect $ethod
a/ 5)5,000
 b/ &)5,000
c/ 1,125,000
d/ 1,4&0,000
"age 15

Problem "" (Oerat!n& a#t!,!t!es)

An entity reported net inco$e of "3,000,000 for the current year/ Changes occurred in certain
accounts as follows:
G#uip$ent 250,000 increase
Accu$ulated depreciation )00,000 increase
 ote payable 300,000 increase
uring the year, the entity sold e#uip$ent costing "250,000 with accu$ulated depreciation of 
"150,000 for a gain of "50,000/ *n ece$ber of the current year, the entity purchased e#uip$ent
costing "500,000 with "200,000 cash and a 129 note payable of "300,000/ 7hat a$ount should
 be reported as net #as ro,!%e% b1 oerat!n& a#t!,!t!es 
a/ 3,)00,000
 b/ 3,500,000
c/ 3,550,000
d/ 3,(00,000

Problem "$ (Oerat!n& a#t!,!t!es)

An entity reported net inco$e of "5,000,000 for the current year/ epreciation e'pense was
"1,%00,000/ he following wor.ing capital accounts changed:
Accounts receivable 1,100,000 increase
 ontrading e#uity invest$ent 1,(00,000 increase
*nventory &30,000 increase
 ontrade note payable 1,500,000 increase
Accounts payable 1,220,000 increase

8nder the indirect $ethod, what net a$ount of ad=ust$ents is re#uired to reconcile net inco$e to
net cash provided by operating activities

a/ ),%50,000
 b/ 1,050,000
c/ 1,2%0,000
d/ 310,000
"age 1(

SOLUTIONS
Problem / Ans3er A
Cash (00,000 >200,000 overdraft! )00,000
Accounts receivable &00,000
*nventory 1,200,000
"repaid e'penses 200,000
and held for resale 2,000,000
otal current assets ),500,000

Problem 2 Ans3er A
iabilities 1,200,000
+hare capital &,500,000
-etained earnings 150,000
otal liabilities and e#uity 4,450,000
-evenue fro$ sales and consulting 420,000
perating costs and e'penses  ()0,000!
 et inco$e 140,000
ividend declared  30,000!
-etained earnings 150,000

Problem  Ans3er C
Accounts payable 55,000
8nsecured notes )00,000
Accrued e'penses 35,000
+erial bonds 1,000,000
otal current liabilities 1,)%0,000
he contingent liability is only disclosed/
8nder *@-+, the deferred ta' liability is noncurrent regardless of the reversal period/

Problem " Ans3er C


 et inco$e per boo. &,)10,000
8nreali;ed loss> other co$prehensive inco$e erroneously deducted 5)0,000
"rior period error erroneously deducted &50,000
<ain on credit ris. H other co$prehensive inco$e erroneously added  500,000!
Ad=usted net inco$e 4,200,000
he gain on early retire$ent of bonds payable and the loss fro$ fire are properly included in net
inco$e/

Problem $ Ans3er 6
otal reported inco$e 1,&00,000
otal cash dividends paid  400,000!
otal share dividends distributed  200,000!
"rior period ad=ust$ent H credit &5,000
-etained earnings H ece$ber 31, 2015 &&5,000
he unreali;ed holding loss on trading invest$ent is ignored because it is already included in the
reported inco$e since incorporation/
"age 1&

Problem ' Ans3er C


Chec.boo. balance 4,000,000
 +@ chec. 3,000,000!
8ndelivered chec. drawn 2,500,000
Coins and currencies 400,000
otal cash 4,300,000
he chec. payable to the entity is properly not included because it is postdated January 2, 201(/
echnically, the three>$onth $oney $ar.et instru$ents are cash e#uivalents but not cash/

Problem * Ans3er A
Custo$er A 1,000,000
Custo$er B &00,000
otal other receivables 400,000
otal i$pair$ent loss 2,500,000
Custo$er C 2,000,000
Custo$er  2,500,000
ther accounts receivable 3,500,000
otal other receivables for collective assess$ent of i$pair$ent 4,000,000
8nder *@-+ significant accounts receivable not i$paired should be co$bined with other accounts
receivable not individually significant for collective assess$ent of i$pair$ent/

Problem - Ans3er 6
rade accounts receivable %30,000
Allowance for uncollectible accounts  20,000!
Clai$ against shipper 30,000
otal current net receivables %)0,000
he selling price of unsold goods on consign$ent should be e'cluded fro$ accounts receivable but
the cost should be included in inventory/
he security deposit is classified as noncurrent/

Problem . Ans3er 6
ong>ter$ note receivable H second note 2,000,000
*nterest on note 2,000,000 ' 39 ' 5 years! 300,000
otal $aturity 2,300,000
Dultiply by " factor /(4
"resent value of note receivable 1,5(),000
+hort>ter$ note receivable H first note 2,000,000
otal carrying a$ount of notes receivable 3,5(),000
he long>ter$ note receivable should be discounted even if is interest>bearing because the interest
rate is unreasonably low co$pared to the $ar.et rate/
he short>ter$ note receivable is reported at face a$ount because the discount is usually not
$aterial/
"age 14

Problem /0 Ans3er B
@ace a$ount 1,500,000
irect origination cost )0,000
rigination fee charged against borrower )9 ' 1,500,000!  (0,000!
*nitial carrying a$ount 1,)40,000
he direct origination cost is a deferred charge and the origination fee received fro$ the borrower
is unearned inco$e and the two should be included in the $easure$ent of loan receivable/
he indirect origination cost is an outright e'pense/

Problem // Ans3er 6
"hysical count (,000,000
<ood in transit purchased @B shipping point 300,000
otal inventory (,300,000

he goods billed to a custo$er are properly included in inventory because the ter$ is @B shipping
 point and the goods are delivered January &, 201(/

Problem /2 Ans3er C
Accounts payable per boo. ),500,000
-eversal of undelivered chec.s 2,000,000
<oods purchased, received and recogni;ed at net a$ount &50,000 ' %49! &35,000
Accounts payable to be reported &,235,000
he undelivered chec.s should be restored to the cash balance and accounts payable/
he goods purchased and received on January 2, 201( should be e'cluded fro$ accounts payable
 because the ter$ is @B destination/

Problem / Ans3er 6
Cost -etail
*nventory H January 1 &35,000 1,015,000
"urchases ),1(5,000 5,&&5,000
Additional $ar.up  210,000
<oods available for sale ),%00,000 &,000,000
Conservative cost ratio ),%00,000  &,000,000! &09
+ales 5,500,000!
Dar.down  100,000!
Gnding inventory at retail 1,)00,000
At cost &09 ' 1,)00,000! %40,000
he lower of average cost or - retail $ethod is the sa$e as the conservative or conventional
$ethod/ hus, the $ar.down is ignored in co$puting the cost ratio/
"age 1%

Problem /" Ans3er 6


Cost of goods sold:
June 1,%40,000  1209! 1,(50,000
July 2, 0)0,000  1209! 1,&00,000
August 2,1(0,000  1209! 1,400,000
*nventory H July 1 309 ' 1,&00,000! 510,000
"urchases (S?UEE@E) 1,&30,000
<oods available for sale 2,2)0,000
*nventory H July 31 309 ' 1,400,000!  5)0,000!
Cost of goods sold > July 1,&00,000
he a$ount of purchases for July is co$puted by wor.ing bac. fro$ the cost of goods sold/

Problem /$ Ans3er A
@reestanding trees 5,000,000
he land under trees and roads in forest should be included in property, plant and e#uip$ent/
8nder *@-+, ani$als related to recreational activities as in ga$e par.s, and bearer plants, such as
rubber trees and grape vines should be accounted for as property, plant and e#uip$ent/

Problem /' Ans3er B


Cash e#uivalent price 2,300,000
*nstallation cost 40,000
otal cost of $achine 2,340,000

he storage cost is an outright e'pense/

Problem /* Ans3er C
Average e'penditures (,000,000
+pecific borrowing ),)00,000!
<eneral borrowing 1,(00,000

*nterest on specific borrowing ),)00,000 ' 109! ))0,000


*nterest inco$e on te$porary invest$ent of specific borrowing  %0,000!
*nterest on general borrowing 1,(00,000 ' %9! 1)),000
otal capitali;ed interest )%),000
"age 20

Problem /- Ans3er 6
"urchase price 24,000,000
evelop$ent cost H 2015 1,000,000
evelop$ent cost H 201( ),000,000
Gsti$ated restoration cost 2,000,000
otal cost 35,000,000
-esidual value  5,000,000!
epletable a$ount 30,000,000

"roduction in 201( 3,000,000


-e$aining esti$ate H ece$ber 31, 201( &,000,000
otal esti$ate H January 1, 201( 10,000,000

-ate per unit 30,000,000  10,000,000! 3/00


epletion for 201( 3,000,000 ' 3! %,000,000

"roduction in 201& 2,500,000


-e$aining esti$ate H ece$ber 31, 201& 3,500,000
otal esti$ate H January 1, 201& (,000,000

epletable a$ount 30,000,000


epletion 201(  %,000,000!
-e$aining depletable a$ount 21,000,000

 ew rate 21,000,000  (,000,000! 3/50

epletion 201& 2,500,000 ' 3/50! 4,&50,000

Problem /. Ans3er C
Accu$ulated depreciation H (302015 10,500,000
epreciation fro$ July 1 to ece$ber 31, 2015 30,000,000  10 ' (12! 1,500,000
Accu$ulated depreciation H 12312015 12,000,000

Cost 30,000,000
Accu$ulated depreciation  12,000,000!
Carrying a$ount 14,000,000
@air value 2&,000,000
-evaluation surplus %,000,000
eferred ta' liability 309 ' %,000,000!  2,&00,000!
 et revaluation surplus (,300,000

Problem 20 Ans3er C
ther coding cost after establish$ent of technological feasibility 2,)00,000
ther testing costs after establish$ent of technological feasibility 2,000,000
Costs of producing product $asters 1,500,000
otal capitali;ed cost of co$puter software 5,%00,000

he co$pletion of detailed progra$ design and the cost incurred to establish technological
feasibility should be e'pensed i$$ediately/

he duplication of co$puter software and pa c.aging product should be charged to inventory/
"age 21
Problem 2/ Ans3er B
ravel costs of e$ployees )00,000
raining of local e$ployees 1,200,000
otal start up costs to be e'pensed 1,(00,000
he production e#uip$ent should be capitali;ed/
he license fees and advertising costs should be e'pensed but not within the purview of start up
costs/

Problem 22 Ans3er A
"atent > January 1, 2013 1,%20,000
A$orti;ation for 2013 and 201) 1,%20,000  1( ' 2!  2)0,000!
Carrying a$ount H January 1, 2015 1,(40,000
"urchase price 400,000
rade$ar. 3) ' 400,000!  (00,000!
 onco$petition agree$ent 200,000
"atent 1,(40,000  ( years re$aining! 240,000
 onco$petition agree$ent 200,000  5 years! )0,000
otal a$orti;ation for 2015 320,000
he patent has a re$aining life of ( years because the revised life is 4 years fro$ the date of
ac#uisition and two years already e'pired/
he trade$ar. is not a$orti;ed because the life is indefinite/
he annual consulting fee is an outright e'pense/

Problem 2 Ans3er A
 et assets per boo. 32,000,000
@air value of property, plant and e#uip$ent greater &,500,000
@air value of other assets ;ero  5,000,000!
@air value of long>ter$ debt lower 2,000,000
 et assets at fair value 3(,500,000
Ac#uisition cost )0,000,000
<oodwill 3,500,000
he net assets should be recogni;ed at fair value in a business co$bination/

Problem 2" Ans3er A


"urchase price of security C ),000,000
ransaction cost )00,000
otal cost ),)00,000
*f the e#uity invest$ent is $easured at fair value through other co$prehensive inco$e @C*!,
the transaction cost is capitali;ed
Dar.et value of security C 12312015 ),&00,000
Fistorical cost ),)00,000
8nreali;ed gain H C* 123120015 300,000

5ournal entr1 on 5ul1 /> 20/'


Cash 5,200,000
8nreali;ed gain H C* 300,000
@inancial asset H @C* ),&00,000
-etained earnings 400,000

8nder the final version of *@-+ %, any change in fair value of an e#uity invest$ent $easured at
@C* is per$anently e'cluded fro$ profit or loss under all circu$stances but $ay transferred to
e#uity or retained earnings/
"age 22

Problem 2$ Ans3er A

January 1, 2015 to ctober 31, 2015 500,000 ' 129 ' 1012! 50,000
@ebruary 1, 2015 to July 31, 2015 1,500,000 ' 129 ' (12! %0,000
Day 1, 2015 to ece$ber 31, 2015 400,000 ' 129 ' 412! (),000
Correct interest e'pense 20),000
-ecorded interest e'pense 150,000
*nterest e'pense understated 5),000

Problem 2' Ans3er A

otal vacation days H 2013, 201) and 2015 30


otal vacation days used 4 K 10! 14
8nused vacation days 12

@ro$ 201) 2
@ro$ 2015 10
otal unused vacation days > @*@ 12

201) 35 e$ployees ' 4 hours ' 2 ' "2&! 15,120


2015 35 ' 4 ' 10 ' "24/50! &%,400
Accrued liability H 12312015 %),%20

Problem 2* Ans3er B

6ate Pa1ment /0 !nterest Pr!n#!al Present ,alue


112015 (,330,000
112015 1,000,000 > 1,000,000 5,330,000
11201( 1,000,000 533,000 )(&,000 ),4(3,000
he relevant present value is the a$ount co$puted using the 109 i$plicit rate/
he first pay$ent on January 1, 2015 is applied all to principal

Problem 2- Ans3er 6

"resent value H &12015 cash price! 3,500,000


"ay$ent on &12015 H all applicable to principal  (00,000!
"resent value H &12015 2,%00,000

*nterest inco$e fro$ July 1, 2015 to June 30, 201( 109 ' 2,%00,000! 2%0,000

Cash price 3,500,000


Carrying a$ount 2,400,000
<ain on sale &00,000
*nterest inco$e &12015 to 12312015 2%0,000 ' (12! 1)5,000
otal inco$e 4)5,000
"age 23

Problem 2. Ans3er B

@air value of $achine (,500,000


Carrying a$ount &,000,000
*$pair$ent loss  500,000!

+ale price 5,000,000


@air value (,500,000
eferred loss  1,500,000!

*$pair$ent loss 500,000


A$orti;ation of deferred loss 1,500,000  5 years! 300,000
otal loss to be recogni;ed in 2015 400,000

*f the leasebac. is an operating lease and the sale price is below fair value of the asset co$pensated
 by below $ar.et rent:

a/ he difference between the sale price and the fair value is a deferred loss to be a$orti;ed over
the lease ter$/

 b/ *f the fair value is below the carrying a$ount, the carrying a$ount is written down to fair value
and the writedown is recogni;ed i$$ediately as an i$pair$ent loss/

Problem 0 Ans3er A

Current service cost 500,000


*nterest on pro=ected benefit obligation (00,000
*nterest inco$e on plan assets  350,000!
oss on plan settle$ent 250,000
"ast service cost during the year 300,000
otal e$ployee benefit e'pense 1,300,000

Problem / Ans3er B

"lan assets at fair value H 12212015 %,000,000


Contribution to plan 201( 1,2(0,000
Actual return on plan assets (S?UEE@E) &(5,000
otal 11,025,000
Benefits paid in 201(  1,125,000!
"lan assets at fair value H 1231201( %,%00,000

he actual return or plan assets is ? sueee%  by wor.ing bac. fro$ ending plan assets at fair
value/

Problem 2 Ans3er C

Accu$ulated vacations H 112015 350,000


acation ta.en in 2015 200,000
iability balance H 112015 150,000

acations earned in 2015 300,000


Ad=ust$ent of accu$ulated vacations H 112015 109 ' 150,000! 15,000
otal vacation pay e'pense 315,000
"age 2)

Problem  Ans3er A

er$ination benefit 120 e$ployee ' "20,000! 2,)00,000

otal pay$ent until closure (0,000


er$ination benefit  20,000!
Additional benefit considered as short>ter$ benefit )0,000

+hort>ter$ benefit 100 e$ployees ' )0,000! ),000,000

8nder *@-+, the additional a$ount paid to e$ployees who render service until closure is no longer
a ter$ination benefit but short>ter$ benefit/

Problem " Ans3er A

@inancial inco$e %,000,000


-ent received in advance 1,(00,000
a' e'e$pt inco$e  2,000,000!
a' depreciation in e'cess of financial depreciation 1,000,000!
a'able inco$e &,(00,000

Current ta' e'pense 309 ' &,(00,000! 2,240,000


a' pay$ent during the year  500,000!
Current ta' liability 1,&40,000

Problem $ Ans3er C

*nterest paid &9 ' 100,000! &,000


*nterest e'pense (9 ' 105,000! (,300
"re$iu$ a$orti;ation &00

Carrying a$ount H (302015 105,000


@ace a$ount 100,000
"re$iu$ on bonds payable H (302015 5,000
A$orti;ation &12015 to (30201(  &00!
8na$orti;ed pre$iu$ H (30201( ),300

Problem ' Ans3er A

+hare options on January 1, 2015 10,000 ' 20! 200,000


+hare options on January 1, 201( 20,000 ' 25! 500,000

he share options are $easured at fair value on the date of grant and allocated over the vesting
 period/

+hare options on January 1, 2015 200,000 ) years! 50,000


+hare options on January 1, 201( 500,000  ) years! 125,000
otal co$pensation e'pense for 201( 1&5,000
"age 25

Problem * Ans3er B

-etained earnings H January 1 200,000


"rior period error H overdepreciation 100,000
 et inco$e 1,300,000
-etained earnings appropriated for treasury shares reverted to unappropriated balance 200,000
*ncrease in retained earnings appropriated for contengencies  100,000!
Cash dividends paid  500,000!
Change in accounting policy > credit 150,000
-etained earnings unappropriated > ece$ber 31 1,350,000

Problem - Ans3er B

rdinary shares outstanding 110,000


"otential ordinary shares fro$ convertible preference shares 20,000
otal ordinary shares 130,000

iluted G"+ 450,000 net inco$e  130,000! (/5)

Problem . Ans3er B

perating e'penses 100,000


Beginning prepaid e'penses  5,000!
Gnding prepaid e'penses 10,000
Beginning accrued liabilities 4,000
Gnding accrued liabilities  20,000!
perating e'penses paid %3,000

Problem "0 Ans3er 6

*ncrease in current cost H no$inal 1,500,000


*ncrease in current cost H constant 1,200,000
*ncrease in current cost due to inflation 300,000

Problem "/ Ans3er 6

"repaid royalties H January 1 (50,000


*ncrease in prepaid royalties credited to e'pense 250,000
"repaid royalties H ece$ber 31 %00,000
"age 2(

Problem "2 Ans3er B

"rofessional fees e'pense per boo. 420,000


Accrued legal fees H ove$ber (0,000
Accrued legal fees H ece$ber &0,000
Ad=usted professional fees e'pense %50,000

he entity already recorded "550,000 out of total consultants6 fee of "(50,000/ he balance of 
"100,000 is not recogni;ed because no wor. has been perfor$ed as yet/

Problem " Ans3er A

*@-+ re#uires the following disclosures when preparing the state$ent of cash flows:

*nco$e ta'es paid 325,000


*nterest pay$ents 220,000
otal 5)5,000

Problem "" Ans3er B

*ncrease in accu$ulated depreciation )00,000


Add : Accu$ulated depreciation of e#uip$ent sold 150,000
epreciation for the year 550,000

 et inco$e 3,000,000


epreciation for the year 550,000
<ain on sale of e#uip$ent  50,000!
 et cash flows > operating 3,500,000

Problem "$ Ans3er C

epreciation 1,%00,000
*ncrease in accounts receivable 1,100,000!
*ncrease in inventory  &30,000!
*ncrease in accounts payable 1,220,000
 et ad=ust$ent to net inco$e as an addition 1,2%0,000
he increase in nontrading e#uity invest$ent is an investing activity/
he increase in nontrade note payable is a financing activity/
"age 2&

SITUATION PROBLEM I 8 BAND RECONCILIATION

An entity had the following ban. reconciliation on June 30, 2015:


Balance per ban. state$ent, June 30 3,000,000
eposit transit )00,000
otal 3,)00,000
utstanding chec.s  %00,000!
Balance per boo., June 30 2,500,000
he ban7 statement  for the $onth of July showed the following:
eposits including "200,000 note collected for the depositor entity! %,000,000
isburse$ents including "1)0,000 +@ chec. and "10,000 service charge! &,000,000
All reconciling ite$s on June 30 cleared through the ban. in July/ he deposit in transit
a$ounted to "1,000,000 and the outstanding chec.s totaled "(00,000 on July 31/
1/ 7hat is the a$ount of cash in ban. that should be reported on July 31, 2015
a/ 5,000,000
 b/ 5,)00,000
c/ ),550,000
d/ ),%00,000

2/ 7hat is the cash balance per ledger on July 31, 2015


a/ 5,350,000
 b/ 5,550,000
c/ ),500,000
d/ 5,)00,000

3/ 7hat is the a$ount of cash receipts for boo. for the $onth of July
a/ %,400,000
 b/ 4,(00,000
c/ %,)00,000
d/ %,(00,000

)/ 7hat is the a$ount of cash disburse$ents per boo. for the $onth of July
a/ &,300,000
 b/ (,&00,000
c/ (,450,000
d/ (,550,000
"age 24

SOLUTION 8 SITUATION PROBLEM I

?uest!on / Ans3er B

Balance per ban. H June 30 3,000,000


July ban. deposits %,000,000
July ban. disburse$ents  &,000,000!
Balance per ban. H July 31 5,000,000
July deposits in transit 1,000,000
July outstanding chec.s  (00,000!
Ad=usted ban. balance 5,)00,000

?uest!on 2 Ans3er A

Balance per ledger H July 31 S?UEE@E! $>$0>000


 ote collected by ban. in July 200,000
 +@ chec. in July  1)0,000!
+ervice charge in July  10,000!
Ad=usted boo. balance 5,)00,000

he balance per boo. on July 31 is ?s#uee;ed by wor.ing bac. fro$ the ad=usted balance/

?uest!on  Ans3er C

eposits per ban. state$ent for July %,000,000


 ote collected by ban. in July  200,000!
eposit in transit H June 30  )00,000!
eposit in transit H July 31 1,000,000
Cash receipts per boo. for July %,)00,000

?uest!on " Ans3er 6

isburse$ents per ban. state$ent for July &,000,000


 +@ chec. in July  1)0,000!
+ervice charge in July  10,000!
utstanding chec.s H June 30  %00,000!
utstanding chec.s H July 31 (00,000
Cash disburse$ents per boo. for July (,550,000
"age 2%

SITUATION PROBLEM 2 8 ACCOUNTS RECEI4ABLE

@ro$ inception of operations, an entity provided for uncollectible accounts e'pense under the
allowance $ethod and provisions were $ade $onthly at 29 of credit sales/ o year>end
ad=ust$ents to the allowance account were $ade/ he balance in the allowance for doubtful
accounts was "1,000,000 on January 1, 2015/ uring 2015, credit sales totaled "20,000,000, interi$
 provisions for doubtful accounts were $ade at 29 of credit sales, "200,000 of bad debts were
written off, and recoveries of accounts previously written off a$ounted to "50,000/ An aging of 
accounts receivable was $ade for the first ti$e on ece$ber 31, 2015 as follows:
Class!+!#at!on Balan#e Un#ollet!ble
 ove$ber H ece$ber (,000,000 109
July H ctober 2,000,000 209
January H June 1,500,000 309
"rior to January 1, 2015 500,000 509

Based on the review of collectibility of the account balances in the ?prior to January 1 2015 aging
category, additional accounts totaling "100,000 are to be written off on ece$ber 31, 2015/
Gffective ece$ber 31, 2015, the entity adopted the aging $ethod for esti$ating the allowance for 
doubtful accounts/

1/ 7hat is the re#uired allowance for doubtful accounts on ece$ber 31, 2015
a/ 1,(50,000
 b/ 1,%50,000
c/ 1,&00,000
d/ 1,)50,000

2/ 7hat a$ount should be reported as doubtful accounts e'pense in the inco$e state$ent for 
2015
a/ 1,200,000
 b/ 1,(50,000
c/ %00,000
d/ %50,000

3/ 7hat is the year>end ad=ust$ent to the allowance for doubtful accounts on ece$ber 31, 2015
a/ %00,000 debit
 b/ %00,000 credit
c/ 500,000 debit
d/ 500,000 credit

)/ 7hat is the net reali;able value of accounts receivable on ece$ber 31, 2015
a/ %,%00,000
 b/ 4,250,000
c/ 4,350,000
d/ 4,200,000
"age 30

SOLUTION 8 SITUATION PROBLEM 2

?uest!on / Ans3er A

(,000,000 ' 109 (00,000


2,000,000 ' 209 )00,000
1,500,000 ' 309 )50,000
500,000 H 100,000 ' 509 200,000
-e#uired allowance H ece$ber 31, 2015 1,(50,000

?uest!on 2 Ans3er C

Allowance for doubtful accounts H January 1 1,000,000


-ecoveries of accounts written off 50,000
oubtful accounts e'pense (S?UEE@E) %00,000
otal 1,%50,000
Accounts written off 200,000 K 100,000!  300,000!
Allowance for doubtful accounts H ece$ber 31 1,(50,000

he doubtful accounts e'pense is sueee%  by wor.ing bac. fro$ the ending allowance for
doubtful accounts/

?uest!on  Ans3er 6

Correct doubtful accounts e'pense %00,000


-ecorded doubtful accounts e'pense 29! ' 20,000,000 sales! )00,000
*ncrease in allowance > credit 500,000

?uest!on " Ans3er B

 ove$ber H ece$ber (,000,000


July H ctober 2,000,000
January H June 1,500,000
"rior January 1, 2015 500,000 H 100,000! )00,000
Accounts receivable H ece$ber 31, 2015 %,%00,000
Allowance for doubtful accounts  1,(50,000!
 et reali;able value 4,250,000
"age 31

SITUATION PROBLEM  8 GROSS PROFIT MET:O6

n ece$ber 31, 2015, a fire da$aged the warehouse and factory of an entity co$pletely
destroying the goods in process inventory/ here was no da$age to the raw $aterials, finished
goods and factory supplies he physical inventory revealed the following/
5anuar1 / 6e#ember /
-aw $aterials 1,&00,000 2,000,000
<oods in process ),300,000 0
@inished goods (,000/000 ),500,000
@actory supplies 500,000 )00,000
he gross profit $argin historically appro'i$ated 0 o+ sales / he sales for the year a$ounted to
"20,000,000/ -aw $aterial purchases totaled "),000,000/ irect labor costs for the year a$ounted
to "5,000,000, and $anufacturing overhead has been applied at (09 of direct labor/
1/ 7hat is the cost of raw $aterials used
a/ 5,&00,000
 b/ 3,&00,000
c/ 3,400,000
d/ 3,(00,000

2/ 7hat is the total $anufacturing cost


a/ 13,000,000
 b/ 11,400,000
c/ 11,&00,000
d/ 11,(00,000

3/ 7hat is the cost of goods sold


a/ 12,000,000
 b/ 1(,000,000
c/ 13,000,000
d/ 1),000,000

)/ 7hat is the cost of goods in process inventory destroyed by fire


a/ 3,500,000
 b/ 3,400,000
c/ 2,500,000
d/ 1,500,000
"age 32

SOLUTION 8 SITUATION PROBLEM 

?uest!on / Ans3er B

-aw $aterials H January 1 1,&00,000


"urchases ),000,000
-aw $aterials available for use 5,&00,000
-aw $aterials H ece$ber 31  2,000,000!
-aw $aterials used 3,&00,000

?uest!on 2 Ans3er C

-aw $aterials used 3,&00,000


irect labor 5,000,000
Danufacturing overhead (09 ' 5,000,000! 3,000,000
otal $anufacturing cost 11,&00,000

he change in the factory supplies is no longer considered because it is already part of the
$anufacturing overhead applied/

?uest!on  Ans3er 6

Cost of goods sold &09 ' 20,000,000! 1),000,000

he cost ratio is &09 because the gross profit rate is 309 on sales/

?uest!on " Ans3er A

otal $anufacturing cost 11,&00,000


<oods in process H January 1 ),300,000
otal goods in process 1(,000,000
<oods in process H ece$ber 31 S?UEE@E!  3,500,000!
Cost of goods $anufactured 12,500,000
@inished goods H January 1 (,000,000
<oods available for sale 14,500,000
@inished goods H ece$ber 31  ),500,000!
Cost of goods sold 1),000,000

he cost of ending goods in process is co$puted by wor.ing bac. fro$ the cost of goods sold/
"age 33

SITUATION PROBLEM " 8 IN4ESTMENT IN ASSOCIATE

n January 1, 2015, an entity ac#uired a 109 interest in an investee for "3,000,000/ he invest$ent
was accounted for under the #ost meto% / uring 2015, the investee reported net inco$e of 
"),000,000 and paid dividend of "1,000,000/ n January 1, 201(, the entity ac#uired a further 159
interest in the investee for "4,500,000/ n such date, the carrying a$ount of the net assets of the
investee was "3(,000,000 and the fair value of the 109 e'isting interest was "3,500,000/ he fair 
value of the net assets of the investee is e#ual to carrying a$ount e'cept for an e#uip$ent whose
fair value was "),000,000 greater than carrying a$ount/ he e#uip$ent had a re$aining life of 5
years/ he investee reported net inco$e of "4,000,000 for 201( and paid dividend of "5,000,000 on
ece$ber 31, 201(/

1/ 7hat a$ount of invest$ent inco$e should be recogni;ed in 2015


a/ )00,000
 b/ 100,000
c/ 500,000
d/ 300,000

2/ 7hat is the goodwill arising fro$ the ac#uisition on January 1, 201(


a/ 3,000,000
 b/ 2,000,000
c/ 2,500,000
d/ 0

3/ 7hat total a$ount of inco$e should be recogni;ed by the investor in 201(


a/ 2,000,000
 b/ 2,500,000
c/ 2,300,000
d/ 1,400,000

)/ 7hat is the carrying a$ount of the invest$ent in associate on ece$ber 31, 2015
a/ 12,550,000
 b/ 12,350,000
c/ 11,%50,000
d/ 12,&50,000
"age 3)

SOLUTION 8 SITUATION PROBLEM "

?uest!on / Ans3er B

ividend inco$e 109 ' 1,000,000! 100,000

8nder cost $ethod, the invest$ent inco$e is based on dividend declared or paid/

?uest!on 2 Ans3er B

G'isting 109 interest re$easured at fair value 3,500,000


 ew 159 interest 4,500,000
otal cost H January 1, 201( 12,000,000
 et assets ac#uired 259 ' 3(,000,000!  %,000,000!
G'cess of cost over carrying a$ount 3,000,000
G'cess attributable to e#uip$ent whose fair value is greater than carrying a$ount
259 ' ),000,000!  1,000,000!
<oodwill 2,000,000

?uest!on  Ans3er C

+hare in net inco$e 259 ' 4,000,000! 2,000,000


A$orti;ation of e'cess attributable to e#uip$ent 1,000,000  5 years!  200,000!
 et invest$ent inco$e 1,400,000

@air value of 109 interest 3,500,000


Fistorical cost 3,000,000
-e$easure$ent gain 500,000
 et invest$ent inco$e 1,400,000
otal inco$e in 201( 2,300,000

*f the invest$ent in associate is achieved in stages the old interest is re$easured at fair value
through profit or loss/

?uest!on " Ans3er A

otal cost 11201( 12,000,000


 et invest$ent inco$e 1,400,000
+hare in cash dividend 259 ' 5,000,000!  1,250,000!
Carrying a$ount H 1231201( 12,550,000
"age 35

SITUATION PROBLEM $ 8 PROPERT;> PLANT AN6 E?UIPMENT

January 1, 2015, an entity disclosed the following balances:

and ),000,000
and i$prove$ents 1,300,000
Buildings 20,000,000
Dachinery and e#uip$ent 4,000,000

uring the current year, the following transactions occurred:

L A tract of land was ac#uired for "2,000,000 cash as a building site/

L A plant facility consisting of land and building was ac#uired in e'change for 200,000 shares of 
the entity/ n the ac#uisition date, each share had a #uoted price of ")5 on a stoc. e'change/
he plant facility was carried on the seller6s boo.s at "1,(00,000 for land and "5,)00,000 for 
the building at the e'change date/ Current appraised values for the land and the building,
respectively, are "2,000,000 and "4,000,000/ he building has an e'pected life of forty years
with a "200,000 residual value/

L *te$s of $achinery and e#uip$ent were purchased at a total cost of "),000,000/ Additional
costs incurred were freight and unloading "100,000 and installation "300,000/ he e#uip$ent
has a useful life of ten years with no residual value/

L G'penditures totaling "1,200,000 were $ade for new par.ing lot, street and sidewal.s at the
entity6s various plant locations/ hese e'penditures had an esti$ated useful life of fifteen years/

L -esearch and develop$ent costs were "1,100,000 for the year/

L A $achine costing "200,000 on January 1, 2004 was scrapped on June 30, 2015/ +traight line
depreciation had been recorded on the basis of a 10>year life with no residual value/ A $achine
was sold for "500,000 on July 1, 2015/ riginal cost of the $achine sold was "&00,000 on
January 1, 2012, and it was depreciated on the straight line basis over an esti$ated useful life of 
eight years and a residual value of "50,000/

1/ 7hat is the total cost of land on ece$ber 31, 2015


a/ &,400,000
 b/ &,(00,000
c/ 4,000,000
d/ (,400,000

2/ 7hat is the total cost of land i$prove$ents on ece$ber 31, 2015


a/ 1,200,000
 b/ 3,(00,000
c/ 1,300,000
d/ 2,500,000

3/ 7hat is the total cost of buildings on ece$ber 31, 2015


a/ 24,000,000
 b/ 25,)00,000
c/ 2&,200,000
d/ 2&,000,000

)/ 7hat is total cost of $achinery and e#uip$ent on ece$ber 31, 2015


a/ 12,)00,000
 b/ 11,500,000
c/ 11,000,000
d/ 11,&00,000