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COMPREHENSIVE ACCOUNTING REVIEW CENTER

Tuguegarao City, Cagayan 3502


Financial Accounting and Reporting
Constructive Accounting Part 1

Theories:
1. The components of the financial statements include all, except
a. Balance sheet, income statement and cash flow statement
b. Statement of changes in equity or statement of recognized gains and losses
c. Notes, comprising a summary of significant accounting policies and other explanatory notes
d. Additional statements such as environmental reports and value added statements

2. Which is incorrect concerning fair presentation of financial statements?


a. In virtually all circumstances, a fair presentation is achieved by compliance with applicable Philippine
Financial Reporting Standards.
b. Financial statements shall present fairly the financial position, performance and cash flows of an enterprise.
c. An enterprise whose financial statements comply with PFRS shall make an explicit and unreserved statement
of such compliance in the notes.
d. Inappropriate accounting treatments are rectified either by disclosure of the accounting policies used or by
note or explanatory material.

3. Which is incorrect concerning the overall considerations in the preparation and presentation of financial
statements?
a. An enterprise shall prepare its financial statements, except for cash flow information, under the accrual basis
of accounting.
b. The presentation and classification of items in the financial statements shall be retained from one period to
the next.
c. Assets and liabilities, income and expenses, shall not be offset unless required or permitted by another PFRS.
d. Comparative information need not be disclosed in respect of the previous period for all numerical
information in the financial statements.

4. Which is incorrect concerning the concept of materiality and aggregation?


a. Materiality depends on the size and nature of the item judged in the particular circumstances of its omission
or misstatement.
b. Materiality provides that the specific disclosure requirements of a PFRS must be met even if the resulting
information is not material.
c. Items of a dissimilar nature or function shall be presented separately unless they are immaterial.
d. Information is material if its nondisclosure could influence the economic decisions of users taken on the basis
of the financial statements.

5. An asset shall be classified as current when it satisfies any of the following criteria (choose the incorrect one).
a. It is expected to be realized in or is intended for sale or consumption in the entity’s normal operating cycle.
b. It is held primarily for the purpose of being traded.
c. It is expected to be realized in more than twelve months after the balance sheet date.
d. It is cash or a cash equivalent which is unrestricted from being exchanged or used to settle a liability for at
least twelve months after the balance sheet date.

6. The operating cycle of an enterprise


a. Is set by the industry’s trade association usually on an average length of time for all firms which are members
of the association.
b. Is the time between the acquisition of assets for processing and their realization in cash or cash equivalents.
c. Is the period of time normally elapsed from the time the enterprise expends cash to the time it converts trade
receivables back into cash.
d. Causes the distinction between current and noncurrent items to depend on whether they will affect cash
within one year.

7. A liability shall be classified as current when it satisfies any of the following criteria (choose the incorrect one)
a. It is expected to be settled in the entity’s normal operating cycle.
b. It is held primarily for the purpose of being traded.
c. It is due to be settled within twelve months after the balance sheet date.
d. The entity has an unconditional right to defer settlement of the liability for at least twelve months after the
balance sheet date.

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8. Which can be classified as current liabilities even if they are due to be settled after more than twelve months
from balance sheet date?
a. Bank overdrafts
b. Dividends payable
c. Income taxes payable
d. Trade payables and accruals for employee and other operating costs

9. A long-term debt that is due to be settled within twelve months after the balance sheet date is classified as
noncurrent when
I. An agreement to refinance or reschedule payment on a long-term basis is completed after balance sheet
date and before the financial statements are authorized for issue.
II. The entity has the discretion to refinance or roll over the obligation for at least twelve months after the
balance sheet date under an existing loan facility.
a. I only b. II only c. Both I and II d. Neither I nor II

10. When an entity breaches a covenant under a long-term loan agreement on or before the balance sheet date with
the effect that the liability becomes payable on demand, the liability is classified as noncurrent when
I. The lender has agreed on or before the balance sheet date to provide a grace period ending at least twelve
months after the balance sheet date.
II. The lender has agreed after the balance sheet date and before the financial statements are authorized for
issue not to demand payment as a consequence of the breach.
a. I only b. II only c. Both I and II d. Neither I nor II

11. Which statement is incorrect?


a. As a minimum, the face of the balance sheet shall include line items that are sufficiently different in nature
or function to warrant separate presentation.
b. The standard does not prescribe the order or format in which the line items are to be presented.
c. Additional line items, headings and subtotals shall be presented on the face of the balance sheet when such
presentation is relevant to an understanding of the entity’s financial position.
d. When entity presents current and noncurrent captions, it shall classify deferred tax assets and deferred tax
liabilities as current.

12. Biological assets are measured at initial recognition and every balance sheet date at
a. Cost c. Replacement cost
b. Fair value d. Fair value less estimated point of sale cost

13. The notes to financial statements should be presented in what order?


I. Statement of compliance with PFRS
II. Summary of significant accounting policies
III. Supporting computations for items presented on the face of the statements
IV. Other disclosures, including contingent liabilities, unrecognized contractual commitments and
nonfinancial disclosures
a. I, II, III and IV c. II, III, IV and I
b. IV, I, II and III d. No specific order

14. Accounting policies are


a. Concepts that underlie the preparation and presentation of financial statements for external users.
b. Attributes that make the information provided in financial statements useful to users.
c. Fundamental premises on which the accounting process is based
d. Specific principles, bases, conventions, rules and practices adopted by an enterprise in preparing and
presenting financial statements.

15. The summary of significant accounting policies shall describe


I. The measurement basis used in preparing the financial statements.
II. The accounting policies used that are relevant to an understanding of the financial statements.
a. I only b. II only c. Both I and II d. Neither I nor II

16. Nonfinancial disclosures include all of the following, except


a. The domicile and legal form of the enterprise, its country of incorporation and the address of the registered
office.
b. A description of the nature of the enterprise’s operations and its principal activities.
c. The name of the parent and the ultimate parent of the group.
d. Contingent liabilities and unrecognized contractual commitments.

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17. Related parties include all of the following, except
a. Affiliates
b. Associates
c. Two enterprises that have a common director
d. Key management personnel, directors and officers of enterprise, and close family members of such
individuals

18. Unrelated parties include all of the following, except


a. Two venturers simply because they share joint control over a joint venture.
b. Providers of finance, trade unions, public utilities and government departments and agencies simply by
virtue of their normal dealings with an entity.
c. A customer, supplier, franchisor or general agent with whom an entity transacts a significant volume of
business, merely by virtue of the resulting economic dependence.
d. Postemployment benefit plan for the benefit of employees of the entity.

19. Close family members of an individual are those who may be expected to influence or be influenced by that
individual in their dealings with the entity. Close family members include all of the following, except
a. The individual’s spouse and children
b. Children of the individual’s spouse
c. Dependents of the individual or the individual’s spouse
d. Brothers and sisters

20. It is the method used in pricing transactions between related parties by making reference to comparable goods
sold in an economically comparable market to a buyer unrelated to the seller.
a. No specific method c. Fixed price method
b. Cost plus 10 % mark-up method d. Uncontrolled price method

21. Which statement is incorrect concerning the presentation of the income statement?
a. The nature of expense method means that expenses are aggregated according to their nature and are not
reallocated among various functions within the enterprise.
b. The cost of sales method means that expenses are classified according to their function as cost of sales,
distribution or administrative activities.
c. PAS 1 requires the use of the cost of sales method because this presentation often provides more relevant
information to the users than the nature of expense method.
d. The choice between the functional and natural presentation depends on historical and industry factors and
the nature of the entity.

22. The statement of recognized gains and losses shall include all of the following, except
a. Net unrealized loss on available for sale securities
b. Foreign currency translation gain
c. Revaluation surplus
d. Dividend paid to stockholders

23. Which statement is correct concerning the two concepts of capital?


I. Under a financial capital concept, such as invested money or invested purchasing power, capital is
synonymous with the net assets or equity of the enterprise.
II. Under a physical capital concept, such as operating capability, capital is regarded as the productive
capacity of the enterprise.
a. Both I and II b. Neither I nor II c. I only d. II only

24. Which is incorrect concerning accounting changes?


a. The effect of a change in accounting estimate shall be treated currently and prospectively, if necessary.
b. The effect of a change in the expected pattern of consumption of economic benefits of a depreciable asset
should be included in the determination of income or loss of the period of change and future periods.
c. A change in accounting policy shall be accounted for retrospectively.
d. If it is difficult to distinguish between a change in accounting policy and a change in accounting estimate, the
change is treated as a change in accounting policy.

25. A change in accounting policy shall be made when


I. Required by a Standard or an interpretation of the Standard.
II. The change will result in more relevant or reliable information about financial position, performance
and cash flows.
a. I only b. II only c. Both I and II d. Neither I nor II

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26. Prior period errors are omissions from and misstatements in the financial statements for one or more periods
arising from a failure or misuse of reliable information that
I. Was available when financial statements for those periods were authorized for issue.
II. Could reasonably be expected to have been obtained and taken into account in the preparation and
presentation of those financial statements.
a. I only b. II only c. Both I and II d. Neither I nor II

27. A company has included in its consolidated financial statements this year a subsidiary acquired several years
ago that was appropriately excluded from consolidation last year. This results in
a. Accounting change that should be reported prospectively
b. Accounting change that should be reported by restating the financial statements of all prior periods
presented
c. A correction of an error
d. Neither an accounting change nor a correction of an error.

28. A discontinued operation is a component of an entity that either has been disposed of or is classified as “held for
sale” and
I. Represents a separate major line of business or geographical area of operations.
II. Is part of a single co-ordinated plan to dispose of a major line of business or geographical area of
operations.
III. Is a subsidiary acquired exclusively with a view to resale.
a. I only b. I and II only c. III only d. I, II and III

29. A component of an entity is classified as “held for sale” when the following conditions are met (choose the
incorrect one)
a. Management is committed to a plan to sell.
b. The component is available for immediate sale.
c. An active program to locate a buyer is initiated.
d. The sale is highly probable with two years from the date of classification as held for sale.

30. What is the appropriate presentation of a discontinued operation?


a. The amounts of revenue, expenses and pre-tax profit or loss from the activities attributable to the
discontinued operation during the current period, and the related income tax expense are presented on the
face of the income statement side by side with the continuing operation.
a. Net profit or loss from the activities of discontinued operation is treated as component of equity.
b. Net profit or loss from the activities of the discontinued operation is accounted for as a change in accounting
policy.
c. The results from the discontinued operation shall be presented as a single amount net of tax below the
income from continuing operations.

31. Which is incorrect concerning the balance sheet presentation of discontinued operation?
a. Assets of the component held for sale are presented separately from all other assets of the entity.
b. Assets of the component held for sale are measured at the lower of fair value less cost to sell and their
carrying amount.
c. Liabilities of the component held for sale are presented separately from all other liabilities of the entity.
d. Noncurrent assets of the component held for sale shall continue to be depreciated.

Problems:
1. The general ledger trial balance of Edwin Company included the following accounts on December 31, 2013
Inv., including inv. Expected in the ordinary course of operations to be sold
beyond 12 mos. Amounting to 700,000 1,000,000
Accounts Receivable 1,200,000
Prepaid insurance 100,000
Financial assets held for trading 200,000
Financial assets at FV through other comprehensive income 800,000
Cash 300,000
Deferred tax asset 150,000
Bank overdraft 250,000
What amount should be reported as total current assets on 12/31/2013? IFRS Adapted
A. 2.8M C. 3.6M
B. 2.55M D. 2.1M

2. Caticlan Company provided the following data on 12/31/2013:

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Cash, including Sinking fund of 500,000 2,000,000
Notes Receivable 1,200,000
Notes Receivable Discounted 700,000
A/R – Unassigned 3,000,000
A/R – Assigned 800,000
Equity of assignee in A/R assigned 500,000
Inv., including 600,000 cost of goods in transit
purchased FOB Destination. Goods were received
on 1/3/2014 2,800,000
Allowance for Doubtful accounts 100,000
What total amounts of current assets should be reported in the statement of financial position on 12/31/2013?
PHILCPA Adapted
A. 7.9M C. 7.4M
B. 8M D. 7.7M

3. Turkey Company disclosed the following liabilities:


A/P, after deducting debit balances in suppliers accounts amounting to 100,000 4,000,000
Accrued expenses 1,500,000
Credit Bal. Of customers accounts 500,000
Stock dividend payable 1,500,000
Claims for increase in wages and allowance by employees of the
entity covered in a pending lawsuit 400,000
Estimated expense in redeeming prize coupons 600,000
What amount should be reported as total current liabilities? PhilCPA Adapted
A. 6.7M C. 7.1M
B. 6.6M D. 7.7M

4. Santan Company provided the following data on 12/31/2013:


Trade A/P, including cost of goods received on consignment of 150,000 1,350,000
Accrued taxes payable 125,000
Customers deposits 100,000
Santan company as Guarantor 200,000
Bank overdraft 55,000
Accrued electric and power bills 60,000
Reserve for contingencies 150,000
What amount should be reported as total current liabilities? PhilCPA Adapted
A. 1.84M C. 1.65M
B. 1.74M D. 1.54M

5. Brown Company reported total assets of 4,375,000 at year end. The total assets included the following:
Treasury shares of peach company at cost 120,000
Unamortized patent 56,000
Cash surrender value of life insurance 68,500
Cumulative translation loss 42,000
What amount should be reported as total assets at year-end? PhilCPA Adapted
A. 4,208,500 C. 4,250,500
B. 4,213,000 D. 4,255,000

6. Genson Company is part of a major industrial group. And is known to accurately disclose related party transaction
in its financial statements. Renumeration and other payments made to the entity chief executive officer during 2013
were:
Annual salary 2,000,000
Share opt. And other share-based payments 1,000,000
Cont. To retirement benefit plan 500,000
Reimbursement of travel Expense For business trips 1,200,000
What total amount should be disclosed as “Compensation” to key management personnel? IFRS Adapted
A. 3.5M C. 3.0M
B. 4.7M D. 2.5M

7. Pumpkin Company is completing the preparation of its draft financial statements for the year ended 12/31/2013.
The financial statements are authorized for issue on 3/31/2014. On 3/15/2014, a dividend of 1,750,000 was
declared and a contractual profit share payment of 350,000 was made, both based on the profit for the year ended
12/31/2013. On 2/1/2014, a customer went into liquidation having owed the entity 340,000 for the past 5 mos. No
Allowance had been made against this debt in the draft financial statements. On 3/20/2014, a manufacturing plant

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was destroyed by fire resulting in a financial loss of 2,600,000. What total amount should be recognized in profit and
loss for the year ended 12/31/2013 to reflect adjusting events after the end of reporting period? IFRS Adapted
A. 1.75M C. 2.6M
B. 3.29M D. 0.69M

8. Elysee company draft financial statements showed the profit before tax for the year ended 12/31/2013 at
9,000,000. The board of directors authorized the financial statements for issue on March 20, 2014. A fire occurred
at one of Elysee’s sites on 1/15/2014 with resulting damage costing 7,000,000, only 4,000,000 of which is covered
by insurance. The repairs will take place and be paid for in April 2014. The 4,000,000 claim from the insurance entity
will however be received on February 14, 2014. What amount should be reported as profit before tax in Elysee’s
financial statements? IFRS Adapted
A. 13M C. 2M
B. 9M D. 6M

9. Careless Company carried a provision of 2,000,000 in its draft financial statements on 12/31/2013 in relation to
an unresolved court case. On 1/31,2014, when the financial statements on 12/31/2013 had not yet been authorized
for issue, the case was settled and the court decided the final total damages payable by Careless to be 2,800,000.
What amount should be adjusted on 12/31/2013. In relation to this event? IFRS Adapted
A. 2.8M C. 0.8M
B. 2M D. 0

10. Halagayon Company provided the following information for the current year:
Beg. Inv. 400,000
Freight in 300,000
Purch. Return 900,000
End. Inv. 500,000
Selling Exp. 1,250,000
Sales DC 250,000
The cost of good sold is six times the Selling Expense. What is the amount of gross purchases? PhilCPA Adapted
A. 6.5M C. 8M
B. 6.7M D. 8.2M

11. Ilocano Company provided the following information for the current year:
Inv, January 1 2,000,000
Purch. 7,500,000
Purch. R and A 500,000
Sales R and A 750,000
Inv. Dec. 31 2,800,000
Gross profit rate on Net Sales 20%
What is the amount of gross sales for the current year? PhilCPA Adapted
A. 7.750M C. 7M
B. 8.5M D. 9.125M

12. Saturn Company showed cost of goods sold of 4,320,000 in its statement of comprehensive income after the first
year of operations. The total manufacturing cost comprised 50% Mat. Used, 30% Direct labor incurred, and 20%
manufacturing overhead. Goods in process at year end were 10% of total manufacturing cost. Finished goods at year
end amounted to 20% goods manufactured. What is the amount of direct labor cost incurred? PhilCPA Adapted
A. 1.8M C. 3M
B. 2.4M D. 5.4M

13. Jericho Company Showed net income of 480,000 in its income statement for the current year. Selling expense
were equal to 15% of sales and also 25% of cost of sales. All other expense were 13% of sales. What is the gross
profit for the current year? PhilCPA Adapted
A. 4M C. 1.6M
B. 2.4M D. 2M

14. Lotus Company provided the following data for the current year:
Sales 9,750,000
Share of profit of associate 450,000
Decrease in Inv. Of FG 250,000
Raw Mat. & Consumables used 3,500,000
Employee Benefits expense 1,500,000
Translation gain on foreign operation 300,000
Impairment loss 800,000

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Finance Cost 350,000
Other operating expenses 900,000
Income tax and expense 900,000
Unrealized gain on interest rate swap 200,000
What is the net income for the current year? IFRS Adapted
A. 2.9M C. 2M
B. 2.5M D. 1.85M

15. Diana Co. accounts for noncurrent assets using the cost model. On Oct. 1, 2013, the entity classified a noncurrent
asset as held for sale. At that date, the assets carrying amount was 3,200,000, its FV was estimated at 2,200,000 and
the cost of disposal at 200,000. On Dec. 15, 2013, the asset was sold for net proceeds of 1,850,000. What amount
should be included as an impairment loss in the statement of comprehensive income for the year ended Dec. 31,
2013? IFRS Adapted
A. 1M C. 1.35M
B. 1.2M D. 0

16. Coran Co. accounts for noncurrent assets using the cost model. On july 31, 2013, the entity classified a noncurrent
assets as held for sale. At that date, the asset’s carrying amount was 1,450,000, the FV was estimated at 2,150,000
and cost of disposal at 150,000. The asset was sold on Jan. 31, 2014 for 2,120,000. At what amount should the asset
be measured in the statement of financial position on Dec. 31, 2013? IFRS Adapted
A. 2M C. 2.12M
B. 2.15M D. 1.45M

17. Claro Co. purchased equipment for 5,000,000 on Jan.1, 2013 with a useful life of 10yrs. And no residual value. On
jan. 1,2015, the entity classified the asset as held for sale. The FV of the equipment on jan.1 2015 is 3,300,000 and
the cost of disposal is 100,000. On Dec. 31,2015, the FV of the equipment is 3,800,000 and the cost of disposal is
200,000. On Dec. 31, 2015, the entity believed that criteria for classification as held for sale can no longer be met.
Accordingly, the entity decided not to sell the asset but to continue using it. IFRS Adapted

1. What is the measurement of the equipment that ceases as held for sale on Dec. 31,2015?
A. 3.2M C. 3.5M
B. 4M D. 3.6M
2. What amount should be recognized in profit or loss as a result of the reclassification in 2015?
A. 800T C. 400T
B. 300T D. 0

18. On Sept. 30 2013, when the carrying amount of the net assets of a business segment was 70,000,000, young
company signed a legally binding contract to sell the business segment. The sales is expected to be completed by Jan
31, 2014, the sale contract obliges young company to terminate the employment of certain employees of the business
segment incurring an expected termination cost of 2,000,000 to be paid on june 30, 2014. The segment revenue and
expenses for 2013 were 40,000,000 and 45,000,000 respectively, Before income taxes, what amount should be
reported as loss from discontinued operation for 2013? PFRS Adapted
A. 17M C. 15M
B. 12M D. 7M

19. Rodrigo Company had purchased an equipment on Jan. 1,2010 for 2,400,000. The entity used the straight line
depreciation based on a ten-year useful life with no residual value. During 2013, the entity decided that the
equipment would be used only three more years. What entry should b made on Jan. 1,2013 to reflect this accounting
change? PhilCPA Adapted
A. No entry
B. Dr. Other comprehensive income and Cr. Accumulated dep’n for 480,000.
C. Dr. Retained earnings and Cr. Accum. Dep’n for 480,000
D. Dr. Dep’n and Cr. Accum. Dep’n for 560,000.

20. On Jan. 1,2009 Romanian Co. purch. Equipment for 4,000,000. The equipment has a useful life of 10yrs. And a
residual value of 400,000. On jan. 1,2013 the entity determined that the useful life of the equipment was 12 years
from the date of acquisition and the residual value was 460,000. What is the depreciation of the equipment for 2013?
IFRS Adapted
A. 175,000 C. 360,000
B. 262,500 D. 300,000

21. On Jan. 1,2012 Kelvin Co. purchased a machine for 2,750,000. The machine was depreciated using the sum of
years digits method based on a useful life of 10yrs. With no residual value. On January 1, 2013, the entity changed to

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the straightline method of dep’n. The entity can justify the changes. What is the dep’n of the machine for 2013?
PhilCPA Adapted
A. 180T C. 250T
B. 220T D. 275T

22. On 1/1/2007 Demacia Co.paid 6,000,000 to acquire a new barge. In the belief that it was entitled to a refund of
purchase taxes on the acquisition of the barge, the entity claimed and was refunded 600,000 by the local government.
However, in late 2013 the entity repaid the refund when it became apparent that it had made an error in making the
claim to the local government as it not had been entitled to the refund purchase taxes on acquisition barge. The useful
life of the barge is 15years from the date of acquisition. The residual value of the barge is NIL. In 2013, the period
over which the barge is expected to be economically usable increased from 15 to 26yrs. However, the entity expects
to dispose of the barge after using it for 20yrs. From the date of acquisition. On 12/312013, the entity assessed the
residual value of the barge at 800,000. What is the carrying amount of the barge on 12/31/2013? IFRS Adapted
A. 3.6M C. 3.46M
B. 3.4M D. 3.42M

23. Harbor Company reported the Ff. Events during the yr. Ended 12/31/2013.
It was decided to write off 800,000 from inv. Which was over two yrs. Old as it was obsolete.
Sales of 600,000 had been omitted from the financial statements for the yr. Ended 12/31/2012.
What total amount should be reported as prior period error in the financial statements for the year ended
12/31/2013?
A. 1,400,000 C. 800,000
B. 600,000 D. 200,000

24. Galaxian Co. failed to accrue warranty cost of 100,000 on 12/31202. In addition, a change from straight line to
accelerated dep’n made at the beginning of 2013 resulted in a cumulative effect of 60,000 on Retained Earning. What
amount before tax should be reported as prior period error in 2013? PHILCPA Adapted
A. 100,000 C. 60,000
B. 160,000 D. 0

25. Samar Co. reported the FF. Events during the yr. Ended 12/31/2014: Accounting error relating to the inventory
on 12/31/2013 was discovered. This req. A reduction in the carrying amount of inventory at that date of 280,000.
The provision for uncollectible accounts receivable on 12/31/2013 was 300,000. During 2014, 500,000 was written
off the 12/31/2013 accounts receivable. What adjustment is required to restate retained earnings on 1/1/2014?
IFRS Adapted
A. 280T C. 580T
B. 300T D. 0

26. Gucci Co. reported net income of 700,000 for 2014. The entity declared and paid dividends of 150,000 in 2014
and 300,000 in 2013. In the financial statements for the year ended 12/31/2013, the entity reported RE of 1,100,000
on 1/1/2013. The profit for 2013 was 600,000. In 2014, after the 2013 FS were approved for issue, the entity
discovered an error in the 12/31/2012 FS. The effect of the error was a 650,000 overstatement of profit for the yr.
Ended 12/31/2012 due to under-depreciation. What amount should be reported as RE on 12/31/2014?
A. 1.3M C. 1.65M
B. 1.4M D. 1.95M

COMPREHENSIVE PROBLEMS
1. The following accounts and their balances appear in an unadjusted trial balance of Claire Company as of December
31, 2004:
Cash 5,000,000
Accounts receivable 8,000,000
Inventory 10,000,000
Accounts payable 6,000,000
Notes payable 4,000,000
Additional information gathered for adjustment follows:
 The cash account includes collection in January 2005 of P1,000,000 account from customer who was given a
cash discount of P100,000
 The cash account also includes a January 2005 cash sale of P500,000. Gross profit on the sale was 40%
 From the amount collected, Claire Company paid a bank loan of P3,000,000 with interest of P300,000
accruing January 2005
The correct amount of current assets on December 31, 2004 should be
A. 22,900,000 C. 25,900,000
B. 26, 200,000 D. 23,000,000

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2. The following amounts were taken from the trial balance of Adrianne Company on December 31, 2004:
Accounts payable 8,000,000
Accounts receivable 7,500,000
Accrued expenses 950,000
Accrued interest payable 600,000
Allowance for doubtful accounts 500,000
Cash and cash equivalents 2,400,000
Dividends payable 1,000,000
Income tax payable 960,000
Trading securities 1,400,000
Notes receivable 1,000,000
Merchandise inventory 4,500,000
Bonds payable, 12% P500,000 due September 30 annually 5,000,000
Prepaid expenses 200,000
Retained earnings 6,000,000
Contingent liabilities 800,000
Deferred tax liability 480,000
Deferred charges 70,000
Additional information: The accounts receivable balance is net of customer’s deposit of P100,000. The fair value of
the trading securities is P2,000,000. The balance of the notes receivable includes P200,000 of notes discounted for
which the company is contingently liable. In 2004, the company began using the average cost method of valuing
inventories. Prior to 2004, the FIFO method was used. The value of the inventory if the FIFO method was used would
be P5,000,000. Adrianne Company should report current assets on December 31, 2004 at
A. 17,100,000 C. 17,000,000
B. 16,500,000 D. 16,400,000

3. The following information about Aireen Company is available at December 31, 2004:
Employee income taxes withheld 1,000,000
Cash balance at Abiera State Bank 10,000,000
Cash overdraft at Jean Bank 1,500,000
Accounts receivable with credit balance 2,000,000
Estimated expenses of meeting warranties on
merchandise previously sold 3,000,000
Estimated damages as a result of unsatisfactory
performance on a contract 4,000,000
Accounts payable 8,000,000
Deferred serial bonds, issued at par and bearing interest
at 12%, payable in semiannual installments of P500,000
due April 1 and October 1 of each year, the first bond to
be paid on April 1, 2006. Interest is also paid semiannually.
Interest accrued is not yet recorded 5,000,000
Stock dividend payable 2,000,000
The December 31, 2004 balance sheet should report current liabilities at
A. 19,650,000 C. 20,650,000
B. 19,500,000 D. 20,500,000

4. The liabilities section of the balance sheet of Pug Company on December 31, 2005 detailed the following:
Accounts payable 2,000,000
Notes payable-trade 2,500,000
Bank note payable -10% 800,000
Bank note payable -12% 1,000,000
Accrued expenses 350,000
Accrued interest payable 500,000
Mortgage note payable-6% 4,000,000
Bonds payable -10% due June 30, 2006 5,000,000
The 10% bank note payable is Issued on January 1, 2005, payable on demand and interest is payable every six
months. The 12% bank note payable is a two-year note issued on July 1, 2004. The 6%, 10-year mortgage note was
issued on October 1, 2002. Terms of the note give the holder to demand payment if the company fails to make
monthly interest payment. On December 31, 2005, Rig is three months behind in paying its required interest. What
is the total amount of current liabilities on December 31, 2005?
A. 10,150,000 C. 15,150,000
B. 15,750,000 D. 16,150,000

5. The following information relates to the obligations of Daniel Company as of December 31, 2004:

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 Accounts payable for goods and services purchased on open account amounted to P4,000,000 at December
31, 2004. On December 15, 2004, Daniel declared a cash dividend of P20 per common share, payable on
January 12, 2005, to shareholders of record as of December 31, 2004. Daniel had 100,000 shares of common
stock issued and outstanding throughout 2004.
 On July 1, 2004, Daniel issued P10,000,000, 8% bonds for P8,800,000 to yield 10%. The bonds mature on
June 30, 2010, and pay interest annually every June 30. At December 31, 2004, the bonds were trading on
the open market at 86 to yield 12%. Daniel uses the effective interest method.
 Daniel's 2004 pretax financial income was P15,000,000 and its taxable income was P10,000,000. The
difference is due to P3,000,000 of permanent differences and P2,000,000 of temporary differences related
to noncurrent assets. At December 31, 2004, Daniel had cumulative taxable differences of P4,000,000 related
to noncurrent assets. The income tax rate is 32% Daniel made no estimated tax payments during the year.
Daniel Company should report total current liabilities on December 31, 2004 at
A. 10,240,000 C. 9,640,000
B. 10,560,000 D. 9,600,000

6. The income statement accounts of Howie Company for the year 2005 included the following:
Sales 30,000,000
Cost of sales 13,600,000
Administrative expenses 3,500,000
Loss on sale of equipment 600,000
Interest expense 1,000,000
Sales commissions 2,200,000
Interest income 1,200,000
Distribution cost 1,400,000
Loss on early retirement of long-term debt 1,800,000
Doubtful accounts expense 500,000
Correction of an error-debit 3,000,000
Investment income-equity investee 2,500,000
The income tax rate is 32%. The 2005 income statement should report operating income at
A. 6,188,000 C. 9,100,000
B. 6,392,000 D. 9,400,000

7. The following is a statement of retained earnings of Ryan Company for 2003.


Retained earnings – January 1 8,000,000
Additions:
Change in estimate of 2003 amortization 300,000
expense
Gain on sale of land 2,000,000
Interest revenue 500,000
Profit and loss for 2003 5,000,000 7,800,000
Total 15,800,000
Deductions:
Increased depreciation due to change in 600,000
estimate
Dividends declared and paid 6,000,000
Loss on sale of equipment 400,000
Loss from major casualty (extraordinary) 1,500,000 8,500,000
Retained earnings – December 31 7,300,000
What is the corrected 2003 net income?
A. 5,300,000 C. 5,900,000
B. 5,600,000 D. 6,800,000

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