FINANCIAL ACCOUNTING AND REPORTING TEST BANK

8152017 – 1

PROBLEM 1 – STATEMENT OF FINANCIAL POSITION

The following trial balance of an entity on December 31, 2017 has been adjusted except for income tax
expense

!ash ",000,000
#ccounts recei$able 1%,000,000
&n$entory 10,000,000
'roperty,plantande(uipment 2),000,000
#ccountspayable *,000,000
&ncometax
payable ",000,000
'referenceshare
capital 3,000,000
+rdinaryshare
capital 1),000,000
hare
premium %,000,000
-etained earnings
/anuary
. 1 *,000,000
et sales and other re$enue 0,000,000
!ost
of
goods sold %,000,000
xpenses 12,000,000
&ncometaxexpense 11,000,000 
12",000,000 12",000,000

During the year, estimated tax payments of '),000,000 were charged to income tax expense The tax
rate is 304 on all types of re$enue &n$entory and accounts payable included goods purchased in
transit, 5+6 destination, costing ')00,000, and unsold goods held on consignment at yearend, costing
'300,000 The perpetual system is used The preference share capital is redeemable mandatorily on
December 31, 201

1 8hat amount should be reported as current assets on December 31, 20179

a 2*,200,000
b 2*,700,000
c 2*,)00,000
d 30,000,000

2 8hat amount should be reported as current liabilities on December 31, 20179

a 1%,200,000
b 17,200,000
c 12,200,000
d *,200,000

3 8hat is the net income for 20179

a 20,000,000
b 1%,000,000
c 23,000,000
d *,000,000

% 8hat amount should be reported as total shareholders: e(uity on December 31, 20179
a %0,000,000
b 37,000,000
c %),000,000
d %2,000,000
 'age 2

SOLUTION - PROBLEM 1

Ques!"# 1 A#s$e% A

!ash ",000,000

#ccounts
recei$able
&n$entory;10,000,000)00,000300,000< 1%,000,000
*,200,000
Total
current
assets 2*,200,000

Ques!"# 2 A#s$e% C

et sales and other re$enue 0,000,000

!ost
goods
of sold %,000,000<
;
xpenses 12,000,000<
;
&ncome
before
tax 20,000,000

Taxexpense;304x20,000,000< ;",000,000<
et income 1%,000,000

expense
Tax ",000,000

'ayment
during
year ;),000,000<
&ncome
tax
payable 1,000,000

#ccounts
payable ,200,000
&ncome
tax
payable 1,000,000
-edeemable preference 3,000,000
Total
current
liabilities 12,200,000

#ccounts
payable
perboo= *,000,000

>oodsintransit5+6destination ;)00,000<
>oods
held on
consignment 300,000<
;
#djusted accounts
payable ,200,000

Ques!"# & A#s$e% B

et income 1%,000,000

Ques!"# ' A#s$e% D

+rdinary
share
capital 1),000,000
hare
premium %,000,000
-etained
earnings 23,000,000
Total
shareholders:
e(uity %2,000,000

-etainedearnings
/anuary
. 1 *,000,000
et income 1%,000,000
Total
retained
earnings 23,000,000
 'age 3

PROBLEM 2 - STATEMENT OF FINNACIAL POSITION

3 +n December 31, 2017, an entity showed the following current assets?

!ash )00,000
#ccounts
recei$able 2,)00,000
&n$entory 2,000,000
'repaid
expenses 100,000
Total
current
assets ),100,000
!ash on hand including customer postdated chec= of '20,000 and employee
'10,000
&+@
of 130,000
!ash in ban= (e% )*#+ s*e,e# ;outstanding chec=s on December 31,
2017,
'70,000< 370,000
Total
cash )00,000

!ustomers:debit balances, net of customer deposit of ')0,000 1,*00,000

#llowancefordoubtfulaccounts ;1 )0,000<
ale price of goods in$oiced to customers at 1)04 of cost on December 2*,
2017 but deli$ered on /anu ary ), 201 and excl uded from rep orted
i n$entory 7)0,000
Total
accountsrecei$able 2,)00,000

1 8hat is the adjusted cash balance9

a )00,000
b %70,000
c %30,000
d %00,000

2 8hat is the net realiAable $alue of accounts recei$able9



a 1,*70,000
b 1,20,000
c 1,00,000
d 1,*)0,000

3 8hat is the adjusted in$entory9

a 2,000,000
b 2,37),000
c 2,)00,000
d 2,7)0,000

% 8hat total amount of current assets should be reported9

a %,*00,000
b %,30,000
c %,70,000
d %,"30,000
 'age %

SOLUTION – PROBLEM 2

Ques!"# 1 A#s$e% D

hand
!ash
on 130,000

!ustomer
postdated
chec= 20,000<
;
mployee
&+@ 10,000<
;
#djusted
cash
on
hand 100,000

!ashinban=perban=statement 370,000

+utstanding
chec=s ;70,000< 300,000

#djusted
cash
balance %00,000

Ques!"# 2 A#s$e% B

!ustomers:
debit
balances 1,*00,000

!ustomerdepositerroneouslynetted )0,000

!ustomer
postdated
chec= 20,000

#ccounts
recei$able 1,*70,000

#llowancefordoubtfulaccounts ; 1)0,000<
et realiAable $alue 1,20,000

Ques!"# & A#s$e% C

&n$entory per boo= 2,000,000

@ndeli$ered goods incorrectly excluded from in$entory ;7)0,000 B 1)04< )00,000
#djusted
in$entory 2,)00,000

Ques!"# ' A#s$e% B

!ash %00,000
#ccountsrecei$able,netofallowance 1,20,000
#d$ancesto
employee
&+@
 10,000
&n$entory 2,)00,000
'repaid
expenses 100,000
Total
current
assets %,30,000
 'age )

PROBLEM & – STATEMENT OF COMPREENSI.E INCOME

#n entity reported the following data for the current year?

et sales *,)00,000

!ost
goods
of expenses
sold
elling %,000,000
1,000,000
#dministrati$eexpenses 1,200,000
&nterest
expense 700,000
>ainfromexpropriationofland )00,000
&ncome
tax 00,000
&ncomefromdiscontinuedoperations "00,000
@nrealiAedgainone(uityin$estmentat5C+!& *00,000
@nrealiAed loss on futures contract designated as a cash flow hedge %00,000
&ncrease in projected benefit obligation due to actuarial assumptions 300,000
5oreigntranslationadjustment.debit 100,000
-e$aluationsurplus 2,)00,000

1 8hat amount should be reported as income from continuing operations9

a 3,100,000
b 2,300,000
c 1,00,000
d 2,*00,000

2 8hat net amount should recogniAed in other comprehensi$e income for the year9
a 2,"00,000
b 3,100,000
c 3,%00,000
d 00,000

3 8hat net amount in +!& should be presented as may not be recycled to profit or loss9
a 3,%00,000
b 2,700,000
c 3,700,000
d 3,100,000

% 8hat amount should be reported as net income9

a 2,*00,000
b 2,300,000
c 3,100,000
d 2,%00,000

) 8hat amount should be reported as comprehensi$e income9

a ),)00,000
b 2,*00,000
c 2,"00,000
 d ",100,000

'age "

SOLUTION - PROBLEM &

Ques!"# 1 A#s$e% B

et sales *,)00,000

!ost
of
goods
sold ;%,000,000<
>ross
income ),)00,000

>ain
from
expropriation
of
land )00,000

Total
income ",000,000

elling
expenses 1,000,000

#dministrati$eexpenses 1,200,000

&nterest
expense 700,000 2,*00,000

&ncome before tax 3,100,000

Tax
expense 00,000<
;
&ncomefromcontinuingoperations 2,300,000

Ques!"# 2 A#s$e% A

@nrealiAedgainone(uityin$estmentat5C+!& *00,000
@nrealiAedloss.cashflowhedge ;%00,000<
#ctuarialloss.increasein'6+ ;300,000<
Translationadjustment.debit ;100,000<
-e$aluationsurplus 2,)00,000
et gain  +!& 2,"00,000

Ques!"# & A#s$e% D

@nrealiAedgainone(uityin$estmentat5C+!& *00,000

#ctuarial
loss
on
'6+ ;300,000<
-e$aluation
surplus 2,)00,000

et amount of +!& #" %e/*ss!!e " (%"! "% "ss 3,100,000
Ques!"# ' A#s$e% A

&ncomefromcontinuingoperations 2,300,000
&ncomefromdiscontinuedoperations "00,000
et income 2,*00,000

Ques!"# 5 A#s$e% A

et income 2,*00,000

et gain . +!& 2,"00,000
!omprehensi$e
income ),)00,000

'age 7

PROBLEM ' – IN.ESTMENT IN ASSOCIATE

+n /anuary 1, 2017, an entity ac(uired a 104 interest in an in$estee for '3,000,000 The in$estment
was accounted for under the /"s ,e3"  During 2017, the in$estee reported net income of
'%,000,000 and paid di$idend of '1,000,000

+n /anuary 1, 201, the entity ac(uired a further 1)4 interest in the in$estee for ',)00,000 +n such
date, the carrying amount of the net assets of the in$estee was '3",000,000 and the fair $alue of the
104 existing interest was '3,)00,000

The fair $alue of the net assets of the in$estee is e(ual to carrying amount except for an e(uipment
whose fair $alue was '%,000,000 greater than carrying amount The e(uipment had a remaining life of
) years

The in$estee reported net incom e of ',000,000 for 201 and paid di$idend of '),000,000 on
December 31, 201

1 8hat amount of in$estment income should be recogniAed in 20179

a %00,000

b )00,000
c 100,000
d 300,000

2 8hat is the implied goodwill arising from the ac(uisition on /anuary 1, 2019
a 3,000,000
b 2,000,000
c 2,)00,000
d 0

3 8hat total amount of income should be recogniAed by the in$estor in 2019

a 2,000,000
b 2,300,000
c 2,)00,000
d 1,00,000
% 8hat is the carrying amount of the in$estment in associate on December 31, 2019
a 12,))0,000
b 12,3)0,000
c 11,*)0,000
d 12,7)0,000

'age 

SOLUTION - PROBLEM '

Ques!"# 1 A#s$e% B

Di$idendincome;104x1,000,000< 100,000

@nder cost method, the in$estment income is based on di$idend declared or paid

Ques!"# 2 A#s$e% B

xisting104interestremeasuredatfair$alue 3,)00,000

ew 1)4 interest ,)00,000

Totalcost
/anuary
. 1,
201 12,000,000

et assets ac(uired ;2)4 x 3",000,000< ; *,000,000<

xcessofcosto$ercarryingamount 3,000,000

xcess attributable to e(uipment whose fair $alue is greater than carrying amount
;2)4
%,000,000<
x 1,000,000<
;
>oodwill 2,000,000

Ques!"# & A#s$e% C

hareinnetincome;2)4x,000,000< 2,000,000

#mortiAation of excess attributable to e(uipment ;1,000,000 B ) years< ; 200,000<

et in$estment income 1,00,000
5air
$alue
of
104interest 3,)00,000

Eistorical
cost 3,000,000
-emeasurement
gain )00,000

et in$estment income 1,00,000

Total
income
201
in 2,300,000

&f the in$estment in associate is achie$ed in stages the old interest is remeasured at fair $alue through
profit or loss

Ques!"# ' A#s$e% A

Total
cost
/anuary
1,
201 12,000,000

et in$estment income 1,00,000

hareincashdi$idend;2)4x),000,000< ;1,2)0,000<
!arryingamount.December31,201 12,))0,000

'age *

PROBLEM 5 – IN.ESTMENT IN ASSOCIATE

#n entity ac(uired %04 of another entity:s shares on /anuary 1, 2017 for '1),000,000 The in$estee:s
assets and liabilities at that date were as follows?

C*%%4!#*,"u# F*!%6*ue
!ash 1,000,000 1,000,000
#ccountsrecei$able %,000,000 %,000,000
&n$entory.5&5+ ,000,000 *,000,000
Fand ),)00,000 7,000,000
'lantande(uipment.net 1%,000,000 22,000,000
Fiabilities 7,000,000 7,000,000

The plant and e(uipment ha$e a 10year remaining useful life The in$entory was all sold in 2017 The
entity sold the land in 201 for ',000,000 and reported a gain of '2,)00,000

The in$estee reported net income of '3,000,000 for 2017 and '),000,000 for 201 The in$estee paid
'1,000,000 cash di$idend on December 31, 2017 and '2,000,000 on December 31, 201

1 8hat is the implied a goodwill arising from the ac(uisition9

a 200,000
b "00,000
 c 00,000
d %00,000

2 8hat is the in$estment income for 20179

 a 0,000
b %0,000
c %00,000
d )0,000

3 8hat is the in$estment income for 2019

a 1,00,000
b 2,20,000
c 1,"0,000
d 2,0,000

% 8hat is the carrying amount of the in$estment in associate on December 31, 2019
a 1),3"0,000
b 1),000,000
c 1",)"0,000
d 13,00,000

'age 10

SOLUTION – PROBLEM 5

Ques!"# 1 A#s$e% B

!ash 1,000,000

#ccounts
recei$able %,000,000

&n$entory ,000,000

Fand ),)00,000

'lant
and
e(uipment 1%,000,000

Fiabilities 7,000,000<
;
et assets at carrying amount 2),)00,000

#c(uisition
cost 1),000,000

et assets ac(uired ;%04 x 2),)00,000< ;10,200,000<

xcess
cost
of %,00,000

#ttributable to in$entory ;*,000,000 . ,000,000 G 1,000,000 x %04< ; %00,000<

#ttributable toland
#ttributable to plant;7,000,000
and e(uipment ;22,000,0001%,000,000
. ),)00,000 G 1,)00,000 x %04< G ,000,000 x %04< ; ;"00,000<
3,200,000<
&mplied
goodwill "00,000

s
Ques!"# 2 A#s$e% B

hareinnetincomefor2017;%04x3,000,000< 1,200,000

#mortiAationofexcess.in$entory ; %00,000<
#mortiAation of excess . plant and e(uipment ;3,200,000 B 10 years< ; 320,000<
&n$estment
income for
2017 %0,000

Ques!"# & A#s$e% A

hareinnetincomefor201;%04x),000,000< 2,000,000

#mortiAationofexcess.plantande(uipment ;3 20,000<
#mortiAation
of
excessland
. ;"00,000<
&n$estment
income for
201 1,00,000

Ques!"# ' A#s$e% A

#c(uisition
cost 1),000,000

&n$estment
income
2017 %0,000

!ashdi$idendfor2017;%04x1,000,000< ; %00,000<
&n$estment
incomefor
201 1,00,000

!ashdi$idendfor201;%042,000,000< ; 00,000<
!arryingamount.December31,201 1),3"0,000

'age 11

PROBLEM  – BOND IN.ESTMENTAT F.OCI

#n entity purchased '),000,000 of 4, )year bonds on /anuary 1, 2017 with interest payable on /une
30 and December 31 The bonds were purchased for '),100,000 plus transaction cost of '10,000 at
an effecti$e interest rate of 74

The business model for this in$estment is to collect contractual cash flows and sell the bonds in the
open mar=et +n December 31, 2017, the bonds were (uoted at 10"

1 8hat amount of interest income should be reported for 20179

a %00,000
b 200,000
c 3"%,)"0
d 3"3,*%0
2 8hat is the adjusted carrying amount of the in$estment on December 31, 20179
a ),300,000
b ),171,*%0
c ),17%,)"0
d ),000,000

3 8hat amount should be recogniAed in +!& in the statement of comprehensi$e income for 20179
a 300,000
b 12),%%0
c 12,0"0
d *2,000

% &f the entity elected the *!% 6*ue "(!"# , what total amount of income should be recogniAed for
20179
a %00,000
b %*2,000
c "00,000
d 200,000

'age 12

SOLUTION - PROBLEM 

D*e I#e%es %e/e!6e I#e%es !#/",e A,"%!*!"# C*%%4!# *,"u#

/an
2017
1, ),20,000
/an30,2017 200,000 12,20 17,720 ),1*0,20
Dec31,2017 200,000 11,""0 1,3%0 ),171,*%0

Ques!"# 1 A#s$e% D
&nterest
/anuary
/une
to 12,20
&nterest
/uly
to
December 11,""0
&nterest
incomefor
2017 3"3,*%0
Ques!"# 2 A#s$e% A

Har=et$alueonDecember31,2017;),000,000x10"< ),300,000

Ques!"# & A#s$e% C

Har=et $alue on December 31, 2017 ),300,000

!arrying amount December 31, 2017 ;see table of amortiAation< ),171,*%0
@nrealiAed
gain
+!&
 12,0"0

Ques!"# ' A#s$e% C

Har=et$alueonDecember31,2017 ),300,000
#c(uisition cost, e9/u!# %*#s*/!"# /"s ),100,000
>ainfromchange
in
fair
$alue 200,000
&nterest
income;4 x
),000,000< %00,000
Total
income "00,000

'age 13

PROBLEM 7 – PROPERT:; PLANT AND EQUIPMENT

/anuary 1, 2017, an entity disclosed the following balances?

Fand %,000,000
Fand
impro$ements 1,300,000
6uildings 20,000,000
Hachineryand
e(uipment ,000,000

During the current year, the following transactions occurred?

I # tract of land was ac(uired for '2,000,000 cash as a building site

I # plant facility consisting of land and building was ac(uired in exchange for 200,000 shares of the
entity +n the ac(uisition date, each share had a (uoted price of '%) on a stoc= exchange The
 plant facility was carried on the seller:s boo=s at '1,"00,000 for land and '),%00,000 for the
building at the exchange date !urrent appraised $alues for the land and the building, respecti$ely,
are '2,000,000 and ',000,000 The building has an expected life of forty years with a '200,000
residual $alue

I &tems of machinery and e(uipment were purchased at a total cost of '%,000,000 #dditional costs
incurred were freight and unloading '100,000 and installation '300,000 The e(uipment has a
useful life of ten years with no residual $alue

I xpenditures totaling '1,200,000 were made for new par=ing lot, street and sidewal= at the entity:s
$arious plant locations These expenditures had an estimated useful life of fifteen years

I -esearch and de$elopment costs were '1,100,000 for the year

I # machine costing '200,000 on /anuary 1, 2010 was scrapped on /une 30, 2017 traight line
depreciation had been recorded on the basis of a 10year life with no residual $alue

I # machine was sold for ')00,000 on /uly 1, 2017 +riginal cost of the machine sold was '700,000
on /anuary 1, 201%, and it was depreciated on the straight line basis o$er an estimated useful life of
eight years and a residual $alue of ')0,000

1 8hat is the total cost of land on December 31, 20179

b 7,00,000
c 7,"00,000
d ,000,000
e ",00,000

2 8hat is the total cost of land impro$ements on December 31, 20179

a 1,200,000
b 3,"00,000
c 1,300,000
d 2,)00,000

3 8hat is the total cost of buildings on December 31, 20179

a 2,000,000
b 2),%00,000
c 27,200,000
d 27,000,000

% 8hat is total cost of machinery and e(uipment on December 31, 20179

a 12,%00,000
b 11,)00,000
c 11,000,000
d 11,700,000

'age 1%

SOLUTION – PROBLEM 7

Ques!"# 1 A#s$e% A

Fand
/anuary
. 1 %,000,000
Fand
ac(uired
for
cash 2,000,000
Fandac(uiredbyissuingshares;2B10x*,000,000< 1,00,000
Fand
December
. 31 7,00,000

Juoted price of shares issued for land and building ;200,000 x '%)< *,000,000
!urrent appraiAed $alue ?
Fand 2,000,000
 6uilding ,000,000

Total 10,000,000

The total cost of the land and building is e(ual to the (uoted price of the shares which is allocated
prorata to the land and building based on the current appraised $alue

Ques!"# 2 A#s$e% D

Fandimpro$ements./anuary1 1,300,000
xpendituresforpar=inglot,streetandsidewal= 1,200,000
6alance
December
. 31 2,)00,000

Ques!"# & A#s$e% C

6uildings
/anuary
. 1 20,000,000
6uildingac(uiredbyissuingshares;B10x*,000,000< 7,200,000

6alance
December
. 31 27,200,000

Ques!"# ' A#s$e% B

Hachineryande(uipment/anuary1 ,000,000

Hachineryande(uipmentpurchased %,000,000

5reight
and
unloading 100,000

&nstallation 300,000

Hachinery
scrapped
Hachinery
sold ; ;200,000<
700,000<
Hachinerye(uipment.December31 11,)00,000

'age 1)

PROBLEM 8 - INCOME TA<

#n entity had the following financial statement elements for which the December 31, 2017 carrying
amount is different from the December 31, 2017 tax basis?
 C*%%4!# *,"u# T*9 )*s!s D!e%e#/e

(uipment ),)00,000 %,000,000 1,)00,000

#ccrued liability . health care )00,000 0 )00,000
!omputer software cost 2,000,000 0 2,000,000

The difference between the carrying amount and tax basis of the e(uipment is due to accelerated
depreciation for tax purposes

The accrued liability is the estimated health care cost that was recogniAed as expense in 2017 but
deductible for tax purposes when actually paid

&n /anuary 2017, the entity incurred '3,000,000 of computer software cost !onsidering the technical
feasibility of the project, this cost was capitaliAed and amortiAed o$er 3 years for accounting purposes
Eowe$er, the total amount was expensed in 2017 for tax purposes

The pretax accounting income for 2017 is '1),000,000 The income tax rate is 304 and there are no
deferred taxes on /anuary 1, 2017

1 8hat amount should be reported as current tax expense for 20179

a ),%00,000
b 3,"00,000
c 3,300,000
d ),700,000

2 8hat amount should be reported as total tax expense for 20179

a %,)00,000
b %,*)0,000
c %,0)0,000
d 3,*00,000

3 8hat amount should be reported as deferred tax liability on December 31, 20179
a 1,0)0,000
b 1,200,000
c *00,000
d 1)0,000

% 8hat amount should be reported as deferred tax asset on December 31, 20179


a 7)0,000
b "00,000
c 1)0,000
d 0

'age 1"

SOLUTION – PROBLEM 8

Ques!"# 1 A#s$e% B

#ccounting
income 1),000,000
5uture taxable amount?

(uipment
 !omputer
software ;1,)00,000<

5uture
deductibleamount? ;2,000,000<
#ccrued
liability )00,000

Taxable
income 12,000,000

!urrenttaxexpense;304x12,000,000< 3,"00,000

Ques!"# 2 A#s$e% A

Totaltaxexpense;304x1),000,000< %,)00,000

Ques!"# & A#s$e% A

Deferredtaxliability;304x3,)00,000< 1,0)0,000

Ques!"# ' A#s$e% C

Deferredtaxasset;304x)00,000< 1)0,000
 'age 17
PROBLEM = - BENEFIT COST
#n entity pro$ided the following pension plan information?

'rojectedbenefitobligation./anuary1 3,)00,000
5air$alueofplanassets./anuary1 2,00,000
'ension benefits paid during the year 2)0,000
!urrentser$icecostfortheyear 1,7)0,000
'ast ser$ice cost for the year ;$esting period ) years< %2),000
#ctual return on plan assets 10,000
!ontribution to the plan 1,)00,000
#ctuarial loss due to change in assumptions on projected benefit obligation 200,000
Discount
settlement
or rate 104

1 8hat is the employee benefit expense for the current year9

a 2,2%),000
b 1,*0),000
c 2,)2),000
d 1,7)0,000

2 8hat is the net remeasurement loss for the current year9

a 200,000
b 100,000
c 300,000
d %00,000

3 8hat is the projected benefit obligation on December 319

a ),))0,000
b ),07),000
c ),77),000
d ),*7),000

% 8hat is the fair $alue of plan assets on December 319

a %,%0,000
b %,230,000
c %,300,000
d %,0)0,000

1 8hat amount should be reported as accrued benefit cost on December 319

a 1,7%),000
b 1,7)0,000
c 1,0%),000
d 700,000
 'age 1
SOLUTION - PROBLEM =
Ques!"# 1 A#s$e% A

!urrent
ser$ice
cost 1,7)0,000

'ast
ser$ice
cost %2),000

&nterestexpense;104x3,)00,000< 3)0,000

&nterestincome;104x2,00,000< ;20,000<
mployee benefit
expense 2,2%),000

Ques!"# 2 A#s$e% C

#ctual return 10,000

&nterest
income 20,000
-emeasurementlossonplanassets 100,000
#ctuarial
loss
on
'6+ 200,000
et remeasurement loss 300,000

Ques!"# & A#s$e% D

'6+
/anuary
. 1 3,)00,000

!urrent
ser$ice
cost 1,7)0,000

'ast
ser$ice
cost %2),000

&nterest
expense 3)0,000

#ctuarial
loss 200,000

6enefits
paid 2)0,000<
;
'6+
December
. 31 ),*7),000

Ques!"# ' A#s$e% B

5C'#
/anuary
. 1 2,00,000

#ctual
return 10,000

!ontribution
to
the
plan 1,)00,000

6enefits
paid 2)0,000<
;
5C'#
December
. 31 %,230,000

Ques!"# 5 A#s$e% A

5C'#
December
. 31 %,230,000

'6+
December
. 31 ;),*7),000<
'repaidBaccruedbenefitcost.December 31 ;1,7%),000<
 'age 1*

PROBLEM 10 - SALES T:PE LEASE

#n entity is a dealer in e(uipment and uses leases to facilitate the sale of its product The entity expects
a 124 return #t the end of the lease term, the e(uipment will re$ert to the lessor

+n /anuary 1, 2017, an e(uipment is leased to a lessee with the following information?

!ostofe(uipmenttotheentity 3,)00,000
5air$alueof
e(uipment ),)00,000
-esidual $alue .
unguaranteed "00,000
&nitial
direct
cost 200,000
#nnualrentalpayableinad$ance *00,000
@seful life
andlease
term years

&mplicit
interest
rate 124
124
'C
at1
ofperiods
for
 0%0
'Cofanordinaryannuityof1at124forperiods %*7
'Cofanannuitydueof1at124forperiods ))"
5irstlease
payment /anuary
1,
201"

1 8hat is the gross in$estment in the lease9

a 7,00,000
b 7,200,000
c ","00,000
d ",*00,000

2 8hat is the net in$estment in the lease9

a ),00%,000
b ),2%%,000
c ),)00,000
d ),7%0,000

3 8hat is the total financial re$enue9

a 2,1*",000
b 2,7*",000
c 2,))",000
d 1,*)",000

% 8hat amount should be recogniAed as interest income for 20179

a "00,%0
b %*2,%0
c )3",7"0
d )21,20

) 8hat amount of cost of goods sold should be recogniAed in recording the lease9
a 3,2"0,000
b 3,)00,000
c 3,7%0,000
d 3,%"0,000
 'age 20

SOLUTION – PROBLEM 10

Ques!"# 1 A#s$e% A

>ross
rentals
;*00,000
<
x 7,200,000
-esidual
$alue "00,000
>ross
in$estment 7,00,000

Ques!"# 2 A#s$e% B

'Cofrentals;*00,000x))"< ),00%,000
'Cofresidual$alue;"00,000x%0< 2%0,000
et in$estment ),2%%,000

Ques!"# & A#s$e% C

>ross
in$estment 7,00,000
ot in$estment ),2%%,000
Total
financial
re$enue 2,))",000

Ques!"# ' A#s$e% D

et in$estment . /anuary 1, 2017 ),2%%,000

#d$ancepaymenton/anuary1,2017 ; *00,000<
6alance
/anuary
. 1,
2017 %,3%%,000

&nterestincomefor2017; 124x%,3%%,000< )21,20

Ques!"# 5 A#s$e% D

!ost
e(uipment
of 3,)00,000

'Cofunguaranteedresidual$alue ; 2%0,000<
&nitial
direct
cost 200,000
!ost
goods
of sold 3,%"0,000

ales, excluding present $alue of unguaranteed residual $alue ),00%,000

!ost
goods
of sold 3,%"0,000
>ross
profit
on
sale 1,)%%,000
 'age 21

PROBLEM 11 – EARNINGS PER SARE

#n entity reported the following information on /anuary 1, 2017?

+rdinarysharecapital,'10par, 00,000shares ,000,000

'referencesharecapital,')0par,)0,000shares 2,)00,000
124
6onds
payable ),000,000

TheDi$idends
preference
on share capital
preference is 104
shares are incumulati$e and years
arrears for two con$ertible into 100,000 ordinary shares

The 124 bonds are con$ertible into 0 ordinary shares for each '1,000 bond

@nexercised share options to purchase *0,000 ordinary shares at '20 per share were outstanding at the
beginning and ending of 2017 The a$erage mar=et price of the ordinary share was '30 per share and
the mar=et price on December 31, 2017 was '%0 per share

Hay 1 &ssued "0,000 ordinary shares at '2) per share

/uly 1 'urchased 100,000 ordinary shares at '1) to be held as treasury
+ct 1 !on$erted bonds with face amount of '2,000,000
Dec 31 The net income for 2017 was '),000,000 The tax rate is 304

1 8hat is the amount of basic earnings per share9

a "02
b )2"
c )72
d )%2

2 8hat is the total number of potentially diluti$e ordinary shares at the beginning of year9
a )30,000
b )00,000
c )*0,000
d )"0,000

3 8hat is the amount of diluted earnings per share9

a ))2
b %20
c %07
d 3*7
 'age 22

SOLUTION - PROBLEM 11

Ques!"# 1 A#s$e% C

et income ),000,000

'referencedi$idend;104x2,)00,000< ; 2)0,000<
et income  ordinary %,7)0,000

/anuary
1; 00,000
12B12<
x 00,000

Hay 1"0,000
; B12<
x %0,000

/uly 1 ;100,000 "B12<

x ;)0,000<
+ctober
1 ; 2,000
0
x3B12<
x %0,000

#$erage
shares
outstanding 30,000

6asic
';%,7)0,000
30,000<
B 72
)

Ques!"# 2 A#s$e% A
hare
options *0,000

Treasuryshares;1,00,00030<
B ;"0,000<
&ncrementalordinarysharesfromshareoptions 30,000

+rdinarysharesfromcon$ersionofpreferenceshares 100,000

+rdinary shares fromcon$ersion of bonds payable ;),000 x 0< %00,000

'otential
ordinary
shares )30,000

Ques!"# & A#s$e% C

&ncremental'on'referenceshares;2)0,000B100,000< 2)0

&nterest on bonds #" /"#6e%e

; 3,000,000x124x704< 2)2,000
&nterest on bonds /"#6e%e; 2,000,000x124x*B12x704< 12",000
Total
interest
expense 37,000

&ncremental'onbonds;37,000B%00,000< *%

Ne!#/",e S3*%es EPS

6asic
' %,7)0,000 30,000 )72
hare
options
Diluted
' %,7)0,000 30,000
"0,000 ))2
6ondspayable 37,000 3"0,000
Diluted
' ),12,000 1,220,000 %20
'referenceshares 2)0,000 100,000
Diluted
' ),37,000 1,320,000 07
%

'otential
ordinary
shares
.
bonds %00,000

-eported
basic
in ' ;%0,000<
-eported
diluted
in ' 3"0,000

'age 23

PROBLEM 12 – STATEMENT OF CAS FLO>S

#n entity presented the following comparati$e financial information?

2018 2017
'roperty,plantande(uipment 2,1*0,000 1,%%0,000
#ccumulateddepreciation %)0,000 270,000
Fongtermin$estments 22),000 
'repaidexpenses 3)1,000 31),000
Herchandisein$entory 1,*)0,000 1,2"0,000
#ccounts recei$able, net of allowance 1,)"0,000 1,00,000
!ash "*0,000 "%0,000
harecapitalordinary 3,000,000 2,%00,000
-etainedearnings *0",000 ",000
Fongtermnotepayable 1,27),000 1,0*),000
#ccountspayable 30*,000 22,000
Di$idendpayable 201,000 
#ccruedexpenses 2),000 

2018 2017
et credit sales 7,020,000 3,7)3,000

!ostofgoodssold ;3,*1),000< ;1,1,000<

>rossprofit 3,10),000 1,72,000

xpenses, including income tax ;2,)",000< ;1,37%,000<

et income )1*,000 %*,000

#ccounts recei$able and accounts payable relate to merchandise for sale in the normal course of
business The allowance for bad debts was the same at the end of 201 and 2017 and no recei$ables
were charged against the allowance

#ccounts payable are recorded net of any discount and are always paid within the discount period

The proceeds from the note payable were used to finance the ac(uisition of property, plant and
e(uipment +rdinary shares were sold to pro$ide additional wor=ing capital
1 8hat amount should be reported as net cash pro$ided by operating acti$ities in 2019
a 3%),000
b 1"),000
c )%",000
 d )10,000

2 8hat amount should be reported as net cash used in in$esting acti$ities in 2019
a 7)0,000
b 22),000
c *7),000
d 7)0,000

3 8hat amount should be reported as net cash pro$ided by financing acti$ities in 2019
a "00,000
b 70,000
c 7)0,000
d "0,000

'age 2%

SOLUTION – PROBLEM 12

Ques!"# 1 A#s$e% A

et income )1*,000

Depreciation
;%)0,000
27,000<
 10,000

&ncrease
in
prepaid
expenses ;
3",000<
&ncrease
in$entory
in ;"*0,000<
&ncreasein
accountsrecei$able ;%0,000<
&ncrease
in
accountspayable 27,000

&ncrease
in
accrued
expenses 2),000

et cash pro$ided  operating 3%),000

Ques!"# 2 A#s$e% C

&ncrease
''
in ;7)0,000<
&ncreaseinlongtermin$estments ;22),000<

et cash used  in$esting ;*7),000<

Ques!"# & A#s$e% D

Di$idend
paid
201
in ;100,000<
'roceeds
from
share
capital "00,000
'roceeds
from
note
payable 10,000
et cash pro$ides  financing "0,000

-etained
earnings
2017
 ",000

et income  201 )1*,000

Total 1,207,000

-etained
earnings
201
 ; *0",000<
Di$idend
declared
in
201 301,000

Di$idend
payable
201
. ;201,000<
Di$idend
paid
201
in 100,000

'age 2)

PROBLEM 1& – STATEMENT OFCAS FLO>S

1 #n entit y pro$ided the following incre ases ;decreases< in the statement of financial position
accounts

!ash
and
cash
e(ui$alents 120,000

#$ailablefor
sale
securities 300,000

#ccounts
recei$able,
net 

&n$entory 0,000

Fongterm
in$estments ;100,000<
'lant
assets 700,000

#ccumulated
depreciation 

#ccounts
payable ),000<
;
Di$idend
payable 1"0,000

hortterm
ban=
debt 32),000

Fongterm
debt 110,000

hare
capital,
'10 par 100,000

hare
premium 120,000

-etained
earnings 2*0,000


 et income for the current year was '7*0,000
 !ash di$idend of ')00,000 was declared
 6uilding costing '"00,000 and with carrying amount of '3)0,000 was sold for '3)0,000
  (uipment costing '110,000 was ac(uired through issuance of longterm debt
 # longterm in$estment was sold for '13),000 There were no other transactions affecting
longterm in$estment
 The shares were issued for cash

1 8hat is the net cash (%"6!e by operating acti$ities9

a 1,1"0,000
b 1,0%0,000
c *20,000
d 70),000

2 8hat is the net cash use in in$esting acti$ities9

a 1,00),000
b 1,1*0,000
c 1,27),000
d 1,"00,000

3 8hat is the net cash (%"6!e by financing acti$ities9

a 20),000
b 1)0,000
c %),000
d 20,000

'age 2"

SOLUTION – PROBLEM 1&

Ques!"# 1 A#s$e% C

et income 7*0,000

&ncrease
in
in$entory 0,000<
;
>ainonsaleoflongtermin$estment ; 3),000<
Depreciation 2)0,000
Decreaseinaccountspayable ;) ,000<
et cash pro$ided . operating *20,000

Ques!"# 2 A#s$e% A

ale
price
of
in$estment 13),000
!ost of in$estment sold . decrease in longterm in$estment ;100,000<
>ainonsaleoflongtermin$estment 3),000
et increase in accumulated depreciation 

#dd accumulated depreciation on building sold ;"00,000 . 3)0,000< 2)0,000

Depreciation
for
the
year 2)0,000

et increase in plant assets 700,000

#dd
cost
of
building
sold "00,000

Totalac(uisitionduringyear 1,300,000

(uipment ac(uiredbyissuinglongtermdebt ; 110,000<

!ashpaymentforplantassets 1,1*0,000

!ashpaymentforplantassets ;1,1*0,000<
!ashpaymentfora$ailableforsalesecurities ; 300,000<
ale
price
of
in$estment 13),000

ale
building
of 3)0,000

et cash used  in$esting ;1,00),000<

Ques!"# & A#s$e% A

&ncrease
in
share
capital 100,000

&ncrease
in
share
premium 120,000

!ashrecei$edfromissueofshares 220,000

'roceedsfromshorttermdebt 32),000

Di$idend
paid ;3%0,000<
et cash pro$ided . financing 20),000

Di$idend
declared )00,000

Di$idend
payable ;1"0,000<
Di$idend
paid 3%0,000

P%""

et cash pro$ided  operating *20,000

et cash used . in$esting ;1,00),000<

et cash pro$ided . financing 20),000

&ncreaseincashandcashe(ui$alents 120,000
'age 27
PROBLEM 1' – STATEMENT OF CAS FLO>S

#n entity pro$ided the following data?

De/e,)e% &1; 2017 De/e,)e% &1; 2018

Trade accounts recei$able, net of allowance %0,000 70,000
&n$entory 1,)00,000 1,%00,000
#ccountspayable *)0,000 *0,000

 Total sales were '12,000,000 for 201 and '11,000,000 for 2017 !ash sales were 204 of total
sales each year !ost of goods sold was ',%00,000 for 201

 Cariable expenses for 201 amounted to '1,200,000 and $aried in proportion to sales Cariable
expenses had been paid )04 in the year incurred and )04 the following year

 5ixed expenses, including '3)0,000 depreciation and ')0,000 bad debt expense, totaled
'1,000,000 each year ighty percent of fixed expenses in$ol$ing cash were paid in the year
incurred and 204 the following year ach year there was a ')0,000 bad debt estimate and a
')0,000 writeoff

1 8hat is the cash collected from customers during 2019

a 12,010,000
b 12,0"0,000
c 11,*"0,000
d 11,*0,000

2 8hat is the amount of purchases for 2019

a *,00,000
b ,300,000
c ,)00,000
d ,%00,000

3 8hat is the cash disbursed for purchases during 2019

a ,)00,000
b ,270,000
c ,300,000
d ,200,000

% 8hat amount of cash was disbursed for $ariable expenses during 2019
a 1,1)0,000
b 1,200,000
c 1,100,000

d "00,000

) 8hat amount of cash was disbursed for fixed expenses during 2019
a )00,000
b ")0,000
c "00,000
d )00,000
'age 2
SOLUTION – PROBLEM 1'

Ques!"# 1 A#s$e% A

#-
December
. 31,
2017 %0,000
Total
sales
201
. 12,000,000
Total 12,%0,000
#-.
December 31,
201 ; 70,000<
6ad
debt
writeoff ; )0,000<
!ollectionsfromcustomers.201 12,010,000 #

Ques!"# 2 A#s$e% B

&n$entory.December31,2017 1,)00,000
'urchases 201 ;SQUEE?E< ,300,000 6
>oodsa$ailableforsale *,00,000
&n$entory.December31,201 ;1,%00,000<
!ostofgoodssold
201
 ,%00,000

Ques!"# & A#s$e% B

#ccountspayable.December31,2017 *)0,000
'urchases
201 ,300,000
Total *,2)0,000
#ccountspayable.December31,2017 ;* 0,000<
!ashdisbursedforpurchases201 ,270,000 6

Ques!"# ' A#s$e% A

Cariablecostratio;1,200,000B12,000,000< 104

Cariableexpenses.2017;104x11,000,000< 1,100,000

Cariable expenses 2017 paid in 201 ;)04 x 1,100,000< ))0,000

Cariable expenses 201 paid in 201 ;)04 x 1,200,000< "00,000
Cariableexpensespaidin201 1,1)0,000 #

Ques!"# 5 A#s$e% C

5ixedexpenseseachyear 1,000,000
Depreciation 3)0,000<
;
6ad
debt
expense ;)0,000<
!ashdisbursedforfixedexpensesin201 "00,000 !

END