PRACTICAL ACCOUNTING 1 – REVIEW

COMPREHENSIVE INCOME & NCAHS

PROF. U.C. VALLADOLID

Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.

1. Presented below is information related to Watt Company in its first year of operation. The following information is
provided at December 31, 2020, the end of its first year.
Sales revenue 450,000
Cost of goods sold 210,000
Selling and administrative expenses 75,000
Gain on sale of plant assets 45,000
Unrealized gain on available-for-sale financial assets 15,000
Financial costs 10,000
Loss on discontinued operations 20,000
Allocation to non-controlling interest 60,000
Dividends declared and paid 8,000

Compute the following (a) income from operations, (b) net income, (c) net income attributable to Watt Company
shareholders, (d) comprehensive income, and (e) retained earnings balance at December 31, 2020.

2. Ortiz Co. had the following account balances:

Sales 120,000
Cost of goods sold 60,000
Salary expense 10,000
Depreciation expense 20,000
Dividend revenue 4,000
Utilities expense 8,000
Rental revenue 20,000
Interest expense 12,000
Sales returns 11,000
Advertising expense 13,000
What amount would Ortiz report as other income and expense in its income statement?
a. 24,000 b. 12,000 c. 49,000 d. 10,000

3. Chase Corp. had the following infrequent transactions during 2020:

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 2020 income statement, what amount should Chase report as other income and expense?
a. 80,000 b. 140,000 c. 290,000 d. 360,000

4. James, Inc. incurred the following infrequent losses during 2020:

A 70,000 impairment loss on intangible assets.
A 40,000 litigation settlement.
A 60,000 write-off of obsolete inventory.
In its 2020 income statement, what amount should James report as other income and expense?
a. 170,000 b. 130,000 c. 110,000 d. 100,000
5. The following costs were incurred by Griff Co., a manufacturer, during year 1:
Accounting and legal fees 25,000 Freight-in 175,000 Freight-out 160,000 Officers salaries 150,000 Insurance 85,000
Sales representatives salaries 215,000 What amount of these costs should be reported as general and administrative
expenses for year 1?
a. 260,000 b. 550,000 c. 635,000 d. 810,000

6. Brock Corp. reports operating expenses in two categories: (1) selling, and (2) general and administrative. The
adjusted trial balance at December 31, year 1, included the following expense and loss accounts:
Accounting and legal fees 120,000 Advertising 150,000 Freight-out 80,000 Interest 70,000 Loss on sale of long-term
investment 30,000 Officers’ salaries 225,000 Rent for office space 220,000 Sales salaries and commissions 140,000
One-half of the rented premises is occupied by the sales department.
Brock’s total selling expenses for year 1 are
a. 480,000 b. 400,000 c. 370,000 d. 360,000

7. Ortiz Co. had the following account balances:

Sales 120,000
Cost of goods sold 60,000
Salary expense 10,000
Depreciation expense 20,000
Dividend revenue 4,000
Utilities expense 8,000
Rental revenue 20,000
Interest expense 12,000
Sales returns 11,000
Advertising expense 13,000
What amount would Ortiz report as income from operations in its income statement?
a. 49,000 b. 30,000 c. 22,000 d. 10,000

8. Use the following information (in thousands):

Revenues 1,200,000
Income from continuing operations 150,000
Net Income 135,000
Income from operations 330,000
Selling & administrative expenses 750,000
Income before income tax 300,000

Determine the amount of discontinued operations.

a. (30,000) b. 120,000 c. 150,000 d. (15,000)

9. Use the following information:

Gross profit 7,800,000
Loss on sale of investments 20,000
Interest expense 15,000
Gain on sale of discontinued operations 60,000
Income tax rate 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.
10. During 2020, 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 2020.
How should these facts be reported in Lopez's income statement for 2020?
Total Amount to be Included in
Income from Results of
Continuing Operations Discontinued Operations
a. 1,400,000 loss 1,200,000 gain
b. 200,000 loss 0
c. 0 200,000 loss
d. 1,200,000 gain 1,400,000 loss

11. On November 1, year 2, management of Herron Corporation committed to a plan to dispose of Timms Company, a
major subsidiary. The disposal meets the requirements for classification as discontinued operations. The carrying
value of Timms Company was 8,000,000 and management estimated the fair value less costs to sell to be 6,500,000.
For year 2, Timms Company had a loss of 2,000,000. How much should Herron Corporation present as loss from
discontinued operations before the effect of taxes in its income statement for year 2?
a. 0 b. 1,500,000 c. 2,000,000 d. 3,500,000

12. Cuticle Company decided on May 1, 2020 to dispose a component of its business. The component was sold on
August 28, 2020. Cuticle’s income for 2020 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 2020 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

13. 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, 2020, this disposal group incurred trading loss after tax of P4,000,000
and the loss on remeasuring to fair value less cost to sell was P2,000,000.
What total amount of the disposal group’s losses should be included in profit or loss for the year ended December
31, 2020?
a. 2,000,000 b.4,000,000 c.6,000,000 d.0

14. On September 30, 2020, 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,
2021, 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, 2021. The company continued to operate segment C throughout 2020.
Revenue of segment C throughout 2020 was P 8,000,000, operating costs was P4,000,000.
How much income should be reported as income from discontinued segment for 2020, before taxes ?
a. 0 b.2,000,000 c.7,000,000 d.8,000,000

15. On September 30, 2019, 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, 2020 at a selling price of expected to be completed by January 31, 2020 at a selling price of P60,000,000.
In addition, prior to January 31, 2020, 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, 2020.
The segment’s revenue and expenses for 2019 were P40,000,000 and P45,000,000 respectively.
Before income tax, how much will be reported as loss from the discontinued segment for 2019?
a. 17,000,000 b. 12,000,000 c. 15,000,000 d. 7,000,000

16. On January 1, 2020, 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, 2020, 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. 100,000 b. 80,000 c. 320,000 d. 300,000

17. On January 1, 2020, 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, 2020, 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 other comprehensive income/(loss).

a. 240,000 b. (300,000) c. 100,000 d. 80,000

18. Korte Company reported the following information for 2020:

Sales revenue 500,000
Cost of goods sold 350,000
Operating expenses 55,000
Unrealized holding gain on available-for-sale securities 20,000
Cash dividends received on the securities 2,000
For 2020, Korte would report comprehensive income of
a. 117,000. b. 115,000. c. 97,000. d. 20,000.

19. On January 2, 2019, 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, 2019 is P5,600,000.

On January 2, 2019, 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

20. On July 2019, 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, 2019 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, 2019?
a. 3,600,000 b. 3,620,000 c. 4,000,000 d. 4,620,000

21. On July 1, 2019, 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, 2018. 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, 2019, 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, 2019?
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. 0 b. 150,000 c. 400,000 d. 550,000

22. On October 1, 2019, 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, 2018. On October 1, 2019, 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, 2019, 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?
a. 0 b. 100,000 c. 120,000 d. 220,000
3. As of December 31, 2019, what amount of gain on recovery should Jerome recognize to the asset held for
sale?
a. 0 b. 180,000 c. 220,000 d. 400,000

23. The bookkeeper for the Kristine Company prepared the following income statement and retained earnings statement
for the year ended December 31, 2020:
Kristine Company
December 31, 2020
Expense and Profits

Sales (net ) P1,568,000

Less: Selling expenses ( 156,800)
Net sales 1,411,200
Add: Interest revenue 18,400
Add: Gain on sale of equipment 25,600
Gross sales revenue 1,455,200
Less: Costs of operations
Cost of goods sold P960,800
Correction of overstatement in last year's
income due to error (net of P13,200
income tax credit) 30,800
Dividend costs (P4 per share for 8,000
ordinary shares) 32,000
Loss due to earthquake 33,600 (1,057,200)
Taxable revenues 398,000
Less: Income tax on income from continuing
operations ( 99,840)
Net income 298,160
Miscellaneous deductions
Loss from operations of discontinued
Segment X44 (net of P7,200 income tax
credit) 16,800
Administrative expenses 134,400 ( 151,200)
Net revenues P 146,960

Kristine Company
Retained Revenue Statement
For the Year Ended December 31, 2020

Beginning retained earnings P474,400

 Add: Gain on sale of Segment X44 (net of P10,800 income taxes)
25,200
Recalculated retained earnings 499,600
Add: Net revenues 146,960
646,560
Less: Interest expense ( 27,200)
Ending: retained earnings P619,360

The preceding account balances are correct but have been incorrectly classified in certain instances.

Based on the above and the result of the audit, answer the following:
1. The income from continuing operations for the year ended December 31, 2020 is
a. P207,760 c. P299,200
b. P199,360 d. P226,560
2 The income (loss) from discontinued operations for the year ended December 31, 2020 is
a. P 8,400 c. P25,200
b. (P16,800) d. P 0
3. The profit for the year ended December 31, 2020 is
a. P234,960 c. P209,760
b. P307,600 d. P207,760
4. The balance of retained earnings as of December 31, 2020 should be
a. P619,360 c. P650,160
b. P646,560 d. P709,360