(CPA REVIEW SCHOOL OF THE PHILIPPINES Manita FINANCIAL ACCOUNTING AND REPORTING FINAL PREBOARD EXAMINATION L ‘Cash AR (2,800,000 - 500,000 In ventory Land held for sale Total current assets Correct tax expense (8,000,000 x 30%) Recorded tax expense Decrease in expense Income tax payable tncome tax expense AP Income tax payable (2,400,000 - 500,000) Bonds payable Total current liabilities ‘Share capital ‘Share premium Retained earnings (1,000,000 + 5,600,000) Total shareholder's equity Proceeds from factoring Proceeds from assignment (3,000,000 x 98%) Total proceeds Gross AR (1,500,000 + 6,000,000) Less : Allowance (7,500,000 x 15%) Carrying amount Required allowance Allowance before adjustment Doubtful account expense Face Uneamed interest income (342,000 — 150,000) 3,808,000 x 12% Carrying amount of loan ~ 12/31/18 PV of expected cash flows Interest (350,000 x 2.40) Principal (7,000,000 x 0.71) Impairment loss 5,810,000 x 12% Face Allowance (1,190,000 — 347,200) Interest income Interest received Amortization of allowance VALIX STY VALIX ESCALA 500,000 840,000 4,970,000 500,000 1,800,000 1,900,000 1,300,000 5,000,000 2,500,000 3,000,000 6,600,000 12,100,000 1,700,000 2,940,000 4,640,000 7,500,000 1,125,000) 6,375,000 1,125,000 300,000 825,000 4,000,000 192,000) 808,000 456,960 7,000,000 3,810,000 1,120,000 697,200 7,000,000 (842,800) 6.157.200 697,200 712. 13. 1a 15. 16. 17, 19, 20. 21. 22. oie 24. 40,000 sas Available for sale (10,500,000 - 400, Inventory at LCNRV .000) Cost of goods sold Dairy cattle Bearer animals Produce growing on coconut trees Dual use plant Bue Interest received (10,000,000 x 8% x 6/12) Discount amortization Interest income $0,000 x 1.2 x 20 Proceeds (30,000 x 250) Carrying amount (FIFO) June | 24,000 3,000,000 Dec. 1 6,000 1,000,000 Gain on sale Inventory — January 1, 2019 400,000 Income tax payable Retained earnings 6,050,000 Net cash settlement (12% - 8% = 4% x 4,060,000) Interest rate swap receivable (160,000 x 2. Interest expense (4,000,000 x 8%) Net cost of equipment (5,400,000 ~ 400,500) Residual value Depreciable amount with grani (4,800,009 x 3/15) Depreciation for 21 tion (400,000 x 12/15) Additional depre Total depreciation Beginning balance Average expenditures (10,000,000/2) Total Capitalized interest (8,000,000 x 9%) FV of land Legal fees Mortgage and interest Property taxes ‘ Grading and drainage Total cost of land 120,000 280,000 eee27. 8 31. 32. 33. 34. 35. 36 37. Demolition cost Architect foe Poyord Payment t0 contractor 9,000,000 Borrowing cost "400,000 Insurance | 100,000 goo =e Purchase price 6,000,000 Development cost 1,500,000 ‘Restoration cost (2,500,000 x 0.68) 1,700,000 Residual value (1.000.000) Depletion base $200,000 Deplenon rate (8,200,000 / 5,000,000) Let Depletion included in cost goods sold (350,000 x 1.64) 574,000 A Depreciation rate (2,800,000 / 5,000,000) 0.56 Depreciation (400,000 x 0.56) 224,000 c 2,800,000 + 3,200,000 6,000,000 A ° D PV of rentals (2,000,000 x 3.60) (sales revenue) 7,200,000 A PV of unguaranteed RV (1,000,000 x 0.57) (570,000) Net investment Z720,000 7,770,000 x 12% 232.400, D ‘Cost of asset 6,000,000 PV of unguaranteed RV (1,000,000 x 0.57) (570,000) Cost of goods sold 5,430,000 D Old liability 7,000,000 PV of new/modified liability PV of interest (6,000,000 x 11% = 660,000 x 2.58) 1,702,800 PV of principal (6,000,000 x 0.79) 4.740000 _(6,442,800) Gain on modification 557,200 c Note payable 1,000,000 Premium on note payable 442,800 Gain on modification 557,200 6,442,800 x 8% 315,424 B 650,000 x 30% 195,000 A Current tax expense (6,950,000 x 30%) 2,085,000 Deferred tax expense (350,000 x 30%) 105,000 Total tax expense (7,300,000 x 30%) 2,120,000 Cc Jan. 1 (80,000 x 30) 2,400,000 Oct. 31 (80,000 ~ 4,000 = 76,000 x 5 x 10% share dividend x 6 new par) 228,000 2,628,000 D Share capital38. 39. 41. 42. 43. 45. 46. 47. 48. 49. 50 51.D 61.C Issue of shares (70 - 30 = 40 x 80,000) Share Div. (76,000 x 5 x 10% = 38,000 x (25-6) Reissue of treasury shares (700,000 - 260,000) Share premium ‘Net income ‘Share dividend (38,000 x 25) Retained earnings PV of interest (400,000 x 6.145) PV of principal (5,000,000 x 0.3855) Issue price Interest expense 438,550 Cash Discount in bonds payable 1/ 2,500,000 x 12/12 4/1 500,000 x 9/12 7/_ 250,000 x 6/12 Weighted average outstanding shares Potential ordinary shares (2,000,000 x 3/12) for diluted EPS Average shares for diluted EPS Basic EPS (15,000,000 / 3,000,000) Net income Interest expense on bonds (5,000,000 x 7% x 3/12 x 70%) Adjusted net income Diluted EPS (15,612,500 / 3,500,000) Equity ~ December 31 (7,500,000 — 3,200,000) Equity ~ January 1 (5,000,000 — 2,000,000) Increase in equity Share capital and share premium Revaluation surplus Dividend paid Net income 2,650,000 6,730,000 Borrowing cost Dividend income Impairment loss Net expense Total income before tax Total expenses before tax Net income 52.C 54.D SSA 56.B 57.€ 38.B 62.B 64.A 65.4 66D 67.0 688 3,200,000 722,000 4,500, 2,458,000 1,927,500 400,000 38,530 2,500,000 375,000 125,000 3,000,000 500,000 3.500.000 5 15,000,000 612,500 48,612,500 4.46 4,300,000 3,009,000 1,300,000 (800,000) (300,000) 250,000 430,000 (300,000) 250,000 (60,000) 10,000) 12,000,000 3,500,000 4,500,000 59.C 69.D Page 4 60.A 70.D a oO > >CPA REVIEW SCHOOL OF THE PHILIPPINES (CPAR) MANAGEMENT ADVISORY SERVICES. ‘SOLUTIONS - FINAL PREBOARD BATCH 84 4. Net income = 0.15(P20,000,000) = P3,000,000. ROA = P3,000,000/P22,500,000 = 13.3%. 5. ‘Sales 15,000 ‘Cost of goods sold er P 1,065 Interest —465 et P 600 Taxes (35%) —210 Net Income 390 pep = FEET, EBIT = 0.133125; EBIT = P1065. TA” 38,000 Now fill in: EBIT = P1,065. Interest = EBIT - EBT = P1,065 - P600 = P465. D2 0445; D = 0.45(P,0) = B3.600. 465 Berea am rege 7 O-1282 = 12.92% 7. Avoidable revenue 300,000 Less Avoidable cost (P150,000 + P60,000 + P70,000) _280,000 Contribution to corporate profit 20,000 This product contributes P20,000 toward corporate profits, therefore, discontinuing this product will decrease operating income by P20,000. 8. Net operating profit after taxes 36,000,000 ~ Capital charge on invested capital (P100,000,000 x 10%) (10,000,000) Economic value added 26,000,000 9. Net operating profit after taxes 36,000,000 + Depreciation expense 15,000,000 = Change in net working capital ; (10,000,000) ~ Capital expenditures (12,000,000) Free cash flow 222,000,000 10. Debt 8% x 60% x 25% 1.20% Equity (2.12/32) + 6%] x 75% 9.47% WaACC 10.67% 13. North = P750,000/P6,000,000 = 0,125 South = P550,000/P5,000,000 = 0.110 16. North = 750,000 ~ (0.1 x P6,000,000) = P150,000 South = P550,000 ~ (0.1 x P5,000,000) = P 50,000 17, Present A/R balance P125,000 New A/R balance Cue x 36) —72,000 Decrease in A/R balance 53,000 Present long term debt balance ' 300,000 - payment —53,000 New long term debt balance 247,000MANAGEMENT ADVISORY SERVICES FINAL PREBOARD SOLUTIONS ~ BATCH 84 19. 21. 27. 37. Avoidable costs total P170,000 P18 - (P170,000/10,000) = EL P45,000 + P65,000 + P30,000 + P30,009 = PJ79,000 Total hours available Less hours for Standard (100 x 3) Balance + hours per unit of Premium Units of premium to produce: Setup Per Setup Total 1 200 200 2 160 320 For second setup: 320 ~ 200 = 120 Present value of cash inficws (P150,000 x 4.212) Investment Net present value 12+ 80 = 15% eerr 70,000 Less interest (P247,000 x 10%) 24,200 eT 45,300 Less tax (30%) 1 13.590 Net income 31,710 + Equity 200,000 ROE 15.86% }. Fad costs (P6,800 + P37,200) 44,000 + QM per unit [100 ~ (P10 + P7 + PS + P10)] 68 ‘Break even point G47 From March ssles (PS0,000 x 30%) 15,000 From February sales (P40,000 x 70%) 28,000 Collections in March 43.000 March purchases (P28,000 x 40%) P11,200 February purchases (P20,000 x 60%) 12,000 Payment to suppliers 23.200 Payment to suppliers 23,200 Labor (P50,000 x 20%) ' 10,000 Other operating costs (P15,000 — 4,000) 11,000 (Cash disbursements in March Baa.200 Cash balance, March 1 P 4,000 ‘Add receipts 43,000 Total 47,000 Less disbursements 44.200 Balance 2,800 ‘Add borrowings. 1,000 Cash balance, March 31 Ps.B00 YTM = [75 + 80/26] + [(920 x 60%) + 400] = 8.20% ks =8.20 x 60% x 30% 1.48% ke = 6% + [1.2(5)} x 70% 8.40% WACC 2.88% "45,000 + FE5,000 + 30,000 + P30,000. 631,800 450,000 Page 2 of 3yo MANAGEMENT ADVISORY SERVICES FINAL PREBOARD SOLUTIONS - BATCH 84 Page 3 of 3 38. Cash inflow after tax but before depreciation (P140,000 70%) P 98,000 a. 43. 62. 63. ‘Deprectation tax shield P90,000 x 30%) 27.900 ‘Annual net cash inflows " ‘2125.00 Present value of: ‘Annusal net cash inflows (P125,000 x 3.791) 473,875, ‘Testninal valve (P50,000 x 0.621) 31,050 WC to be released (10,000 x 0.621) 6210 ‘Total present value of cash inflows P511,135, Less investment (500,000 + P10,000) 510,000 ‘Net present value Bas F + O.1SF + 0.06 (F + 0.15F) = P60 Where F = the cost of the food alone O.1SF = the service charge 06 (F + 0.15F) = the sales tax -15(500x) 20,000 x (P75 -- P45) = P600,000 ‘The new income statement will be as follows: Operating income (EBIT) (0.2 x P6,000,000) 1,200,000 Interest expense 200,000 Earnings before taxes (EBT) 1,000,000 Taxes (40%) i —400,000 Net income 2.600.000 ROAci> = P540,000/P5,000,000 = 10.8%; ROAxew = P600,000/P6,000,000 = 10% ROWow = P540,000/P4,000,000 = 13.5%; ROEnew = P600,000/P4,000,000 = 15% Net income increases, ROA falls and ROE increases. 30,000 + 5,000 ~ 6,000 = 29,000 uniforms 29,000 units + 9,000 units ~ 12,000 units = Purchases 26,000 units x P20 = P520,000 29,000 units x (P20 + P8 + P6) = P9B6.000 30,000 units x (P20 + P8 + P6) = P1,020,000 “The expected value of the contribution margin is equal to P1.L0,000. (P700,000 x 30%) + (P200,000 x 30%). fr (-P400,000 x 40%). (11,000 ~ 12,000) = 1,000F x P8 = P8,000 favorable Increase in inventory (100,000 - 80,000)" 20,000 x Fixed OH per unit (P180,000/100,000) P_1.80 Difference in income 36,000ADVANCED FINANCIAL ACCOUNTING AND REPORTING Final Preboard Examination Sotutions Agreed value of the land Divided by: Capital interest ratio of A Total agreed capital Multiply by: Capital interest ratio of B Agreed capital after formation of B 1,000,000 Less: Agreed capital of B (800,000 ~ $0,000) _(750,000) Amount contributed by B 250,000 c Agreed capital of B (800,000 50,000) 750,000 Divided by: Capital interest ratio of B + 40% Total agreed capital 1,875,000 Multiply by: Capital interest ratio of A x 60% Agreed capital after formation of A ‘1,125,000 Less: Agreed value of the land (4,500,000) Amount withdrawn by A (375,000) Salary of A: (100,000 x 4) 400,000 Interest of A: (5,000,000 x 70% x 5%) 175,000 Interest of B: (5,000,000 x 30% x 5%) 75,000 _— Al B Total Salaries 400,000 - | 400,000 Interest 175,000 | 75,000 | 250,000 Remainder (105,000) |” (45,000) | (150,000) Net Income |_ 470,000 | 30,000 | 500,000 D Initial capital of B (5,000,000 x 30%) 1,500,000 Add: Share in the net income of B 30,000 Capital ending of B 1,530,000Total agreed capital Less: Total contributed bs Add: capital (312,500 + 125,000 + 62,500 +187,500) Undervaluation of a certain asset Capital credit to X (1,000,000 x 25%) Contributed capital of X Bonus to X Capital of S before admission Share in the undervaluation of an asset (312,500 x 50%) Share in the bonus to X (62,500 x 50%) Capital of S after admission BV non-cash asset BV non-cash asset sold BV unrealized non-cash assets Cash withheld for future liquidation expenses Maximum possible loss 1,000,000 ~(687,500) 312,500 250,000 (187,500) 62,500 62,500 156,250 G1.250) 187,500 2,000,006 11,500,000) 500,000 150,000 650,000 Share in liquidation Share in maxir (325,000) Balances _ (373,000) Less: Fully secured creditors Add: Share in absorbing ! Cash ributed fo parti Assets pledged for fully secured creditors at estimated market value Excess asset from fuily secured creditors Other free assets at estimated market value Total free assets Less: Unsecured creditors with priority Net free assets 375,000 150,000 (69,000) 99,000 80,000 170,900 (14,000) 156,0001A ‘Assets pledged for partially secared creditors ‘st eatimated market value 104,000 Less: Partially socured creditors Excess liability from partially secured creditors 16,000 ‘Add: Other unsecured creditors without priority 224.900 ‘Total ensecured creditors without priority 240,000 Net free assets 156,000 Divided by: Total unsecured creditors without priority + 240,000 Botimated recovery percentage 65% ‘Assets pledged for partially secured creditors et estimated market value 104,000 A&B: Recovery of excess liability from partially secured creditors (16,000 x 65%) 10,400 Estimated recovery for partially secured creditors 114,400 1B Installment receivable (2020 sales) December 31, 2020 Less: Unpaid balance upon default Less: Installment receivable (2020 sales) December 31, 2021 Collections during 2021 Multiply by: DGP rate RGP of Installment receivable (2020 sales) in 2021 FMV trade-in Less: Granted allowance Under allowance Installment sales 2021 Add: Under allowance Adjusted Installment sales 2021 Less: Written-off balance Less: Installment receivable (2021 sales) December 31, 2021 Collections during 2021 Multiply by: DGP rate RGP of Installment receivable (2021 sales) im 2021 1A FMV repossessed merchandise (64,700 — 11,000) Less: Unrecovered cost (114,000 x 70%) Loss on repossession Written-off balance Multiply by: Cost ratio of Installment sales 2021 Bad debt expense Total RGP in 2021 Less: Loss on repossession Less: Bad debt expense Net (loss) for the year 2021 390,000 (114,000) (167,200) 108,800 30% 32,640 76,000 (69,000) 7,000 420,000 7,000 427,000 (210,000) (73,560) 143,440 x 45% 64,548 53,700 (79,800) (26,100) 210,000 x __55% 115,500 97,188 (26,100) (115,500) (44,412)13. Total estimated cost 2020: (3,920,000+ 70%) 5,600,000 Total estimated cost 2021: (1,680,000 + 17.5%) 9,600,000 2020 2021 Contract price 8,300,000 8,300,000 Less: Total estimated cost £5.600.000) (9,600,000) Estimated Gross profit/(loss) 2,700,000 (1,300,000) Muhiply by: Percentage of completion —__30% 00% Gross profit/(1oss) to dete 810,000 (1,300,000) Less: Prior Gross profit/(loss) _—_____: —{810,000) Gross profit(loss) for the year 810,000 (2,110,000) NOTE: In 2021 since estimated gross loss, it should be recognized 100% immediately on the year it happened even if the percentage of completion was 82.5% Construction sales as of 2021 (8,300,000 x 82.5%) 6,847,500 Less: Construction sales for the year 2020 (8,300,000 x 30%) (2,490,000) Construction sales for the year 2021 4 ‘Add: Gross loss for the year 2021 2,110,000 Construction cost of sales for the year 2024 6,467,500 4A Cost incurred to date as of 2021 (1,680,090 + 17.5% x 82.5%) 7,920,000 Less: Gross loss to date as of 2021 1,300,000) Construction-in-progrese as of 2021 6,620,000 15.4 Initial franchise fee (50,000 + 480,000) Less: Direct cost of franchise DGP Divide by: Initial franchise fee DGP raie 250 Collections for tite May 31, y) Multiply by: DGP rate x RGP for the 5 myaths ended May 16.C RGP for the 5 months ended May 31 31,250 Add: Continuing fronchise fee {( 10 + 125,000) x 12%} 33,000 Add: Interest income (480,000 x 5% x 5/12) 10.000 Less: Indirect cost £20,000) Net income for the 5 months eaded May 31,2020 $4,250 17.C 18.D 19.C 20.4 21.BNOTE: The collection of Mandalagan branch of the customer's account of the Manalangin branch has no effect in the reciprocal accounts of the Home Office and Mandalagan branch because it is a Manalangin branch error. Since it is the company’s Policy to record the asset in Mandalagan's books and the fact that Mandalagan also bought the asset, therefore the error of Mandalagan has no effect on the reciprocal accounts, 2A Relative sales value of A (11 x 4,000) 44,000 (44%) Relative sales value of B (10 x 3,000) 30,000 (30%) Relative sales value of C (26 x 1,000) 26,000 (26%) 100,000 Total joint cost (24,000 + 28,000) 52,000 Multiply by: Relative sales value ratio of C x _26% Share in the joint cost of C 13,520 Divided by: Number of kilos produced + _1,000 Cost per unit of C 13.52 NOTE: The revenue of the by-product was not deducted from the joint cost because the company accounted the by-product using the realizable value method, thus recognized as other revenue. 23.4 To record the purchased materials and since all were requisitioned to production, therefore it will be recorded in the Raw and In-Process account: RIP 750,000 Accounts Payable 750,000 Since all were completed, therefore from RIP account will transfer to FG account: FG 750,000 RIP 750,000 24.C Direct materials requisitioned to production 730,000 Add: Applied conversion 3,250,000 Total cost of goods completed and sold 4,000,000 Less: Over applied OH (2,750,000 ~ 2,487,500) (262,500 Adjusted Cost of goods sold 3,737,50025.B 6B Ferrero] [Started and Completed (273,000 — 150,000)_| 125,000 | $7,500 [IEG Ub sci eeeeieeee Ahernatively: ii ‘Conversion “Transferred to next rent (Completed 275,000 EL EUP (175,000 x 50% complete) | 87,500 (150,000 x 60% complete) | __0,000) Lost units (normal) - FIFO EUP 272,500 NOTE: Since there was no inspection point, therefore continuous process, thus the normal lost units will not be accounted in the EUP schedule (method of neglect). 27.D Conversion BIEUP (150,000 x 100% complete) 150,000 [Started and Completed (275,000 — 150,000) 125,000 87,500 [ELEUP (175,000 x 50% complete) Lost units (normal) [Weighted Average EUP Alternatively: Conversion Transferred to next department (Completed) 275,000 EI EUP (175,000 x 50% complete) [87,500 4 Lost units (normal) - Weighted Average EUP 362,500 NOTE: Since there was no inspection point, therefore continuous process, thus the normal lost units will not be accounted in the EUP schedule (method of neglect).Page 7 Lost units (normal) 7,500 Transferred-in | DM] CC BI EUP (Transferred-in: 10,000 x 100% complete) (DM: 10,000 x 100% complete) (CC: 10,000 x 100% 10,000 } 10,000 | 10,000 complete) \ | Started and completed (62,500 — 10,000) 52,500 [52,500 | 52,500 EIEUP (Transferred-in: 15,000 x 100% complete) (DM: 15,000 x 100% complete) (CC: 15,000 x 60% 15,000] 15,000] 9,000 complete) Lost units (normal) z : : ‘Weighted Average EUP 77,500 | 77,500 | 71,500 Alternative: [_Transferred-in] DM[__CC. Completed 62,500 | 62,500 | 62,500 EIEUP (Transferred-in: 15,000 x 100% complete) (DM: 15,000 x 100% complete) (CC: 15,000 x 60% 15,000 | 15,000| 9,000 complete) Lost units (normal) ie - = Weighted Average EUP_ 77,500 | 77,500 [71,500 Transferred-in DM. cc Last month cost [40,750 [9,500 4850 (Add: This month cost 232,750 | 168,750 | 202,500 Total cost 263,500 | 178,250 | 207,350 —_ Transferred-in| DMJ cc Total cost 263,500 | 178,250 | 207,350 Weighted Average EUP_| 7,500 = 71,500 ‘Cost per EUP - 3.40 2.90 Transferred-in (15,000 x 3.40) 51,000 Direct materials (15,000 x 2.30) 34,500 Conversion cost (9,000 x 2.90) _26,100 Total Ending WIP 111,600 NOTE: Since there was no inspection point, therefore continuous process, thus the normal lost units will not be accounted in the EUP schedule (method of neglect).Page 8 29.B Transfered-in| DM] CC BI EUP (Transferred-in: 10,000 x 0% to complete) (DM: 10,000 x 0% to complete) (CC: 10,000 x 60% to - -| 6,000 complete) Started and completed (62,500 — 10,000) 32,500 | 52,500 | 32,500 EI EUP (Transferred-in: 15,000 x 100% complete) (DM: 15,000 x 100% complete) (CC: 15,000 x 60% 15,000 | 15,000} 9,000 complete) Lost units (normal) - = = Weighted Average EUP 67,500 | 67,500 | 67,500 Alternative: Transferred-in[ _DM[_CC ‘Completed 62,500 | 62,500 | 62,500 EI EUP (Transferred-in: 15,000 x 100% complete) (DM: 15,000 x 100% complete) (CC: 15,000 x 60% 15,000| 15,000 9,000 complete) BI EUP (Transferred-in: 10,000 x 100% complete) (DM: 10,000 x 100% complete) (CC: 10,000 x 40% (10,000) | (10,000) | (4,000) complete) Lost units (normal) a -[ - Weighted Averag: 67,300 |_ 67,500 | 67,500 a Total Cost (This month only) _| 50 | 168,750 Weighted Average EUP y [= 67,500 Cost perEUP Beginning inventory cost (49,750 + 9,500 + 4,850) $5,400 Add: Beginning inventory cost to complete CC: (10,000 x 60% x 3.00) 18,000 Add: Started and Completed cost (52,500 x 8.80) Completed/Transferret-out cost NOTE: Since the 00 535,200 normal lost units will not be accountes in the EUP schedule (uuethod of neglect). 30.C 31.c Sales of Entity A per books in 2020 Sales of Entity B per books ix: 2020 Sales of Entity C per books in 2020 Less: intercompany sales of inventory in 2 20 (400,000 + $00,000) Consolidated sales for the year ended December 41, 2020 6,000,000 4,000,000 3,000,000 (900,000) 12,100,000 was no inspection poins, theretore continuous process, thus the32.4 A B 2019 Sales 5,000,000 (100%) 3,000,000 (100%) 2019 Cost of sales (3,000,000) (60%) (70%) 2019 Gross profit 2,000,000 (40%) 900,000 (30%) A B 2020 Sales 6,000,000 (100%) 4,000,000 (100%) 2020 Cost of sales (4,200,000) (70%) (3,200,000) (80%) 2020 Gross profit 1,800,000 (30%) 800,000 (20%) Cost of sales of Entity A per books in 2020 Cost of sales of Entity B per books in 2020 Cost of sales of Entity C per books in 2020 Less: Intercompany sales of inventory in 2020 (400,000 + 500,000) Less: RPBI in 2020 of entity C sales during 2019 (200,000 x 20% x 3/4) Less: RPBI in 2020 of entity B sales during 2019 (300,000 x 30% x 2/3) Add: UPEI in 2020 of entity C sales during 2020 (400,000 x 40% x 1/5) Add: UPE] in 2020 of entity A sales during 2020 (500,000 x 30% x 3/5) Consolidated cost of sales for the year ended December 31, 2020 3B 12/31/2019 BY Net assets 530,000 Add: Net income 6mons. ended 6/30/2020 70,000 Less: Overvaluation of equipment (20,000) Fair value of identifiable net assets of B 600,000 Fair value Ordinary shares (20,000 x 15) 300,000 Fair value Bonds (80,000 x 125%) 100,000 Total consideration for 80% interest 400,000 Fair value of 20% NCI (600,000 x 20%) 120,000 Aggregate of consideration and fair value NCI 520,000 ‘Aggregate of consideration and fair value NCI_ 520,000 Less: Fair value of identifiable net assets of B (600,000) Gain on bargain purchase (80,000) NOTE: S 8,332,000 ince the fair value amount of 110,000 of the 20% NCI was less than the proportionate share, therefore the correct valuation of the 20% NCI was the proportionate share. 34.C Net income entity A per books Net income entity B per books from the date of acquisition (100,000 ~ 70,000) Direct cost of business combination Excess amortization of an overvalued equipment (20,000 + § x 6/12) Intercompany dividends (20,000 x 80%) Gain on bargain purchase Upstream unrealized gain (16,000 ~ 12,000) Upstream realized gain (4,000 + 4 x 3/12) Rental income of A from an intercompany transaction (2,500 x 4) Rent expense of B from an intercompany transaction (2,500 x 4) NCI on the date of acquisition Add: NCI-NI Less: NCI share in dividends declared (20,000 x 20%) NCI 12/31/2020 CNI-Parent (80%) 1,000,000 24,000 (12,000) 1,600 (16,000) 80,000 (3,200) 200 (10,000) 8,000 1,072,600 120,000 7,650 (4,000) 123,650 NCI-NI (20%) 6,000 400 (800) 50 2,000 7,650Page 10 35.D RE of Pareat 12/31/2019 5,000,000 ‘Add: CNI-Paremt 1,072,600 Less: Dividends declared of parent 200,000) Consolidated RE 12/31/2820 5.872,600 36.4 37.8 7 Entity B (80%) Entity C (20%) Net income entity B per books $00,000 - Net loss entity C per books (80,000) (20,000) Gain on bargain purchase 200,000 : Intercompany dividends (50,000 x 80%) (40,000) : Downstream unrealized gain (136,000 ~ 100,000) (36,000) : Downstream realized gain (36,000 ~ 4 x 8/12) 6,000 - ‘Service income of C from an intercompany transaction (8,000) (2,000) Service expense of B from an intercompany transaction 10,000 : 552,000 (22,000) Entity A (60%) Entity B (40%) Net income entity A per books 1,000,000 - Net income entity B (552,000) 331,200 220,800 Intercompany dividends (150,000 x 60%) (90,000) 2 Upstream RPBI in 2021 (120,000 x 20/120 x 30%) 3,600 2,400 Interest income in 2021 of A from an intercompany (20,000) 7 ‘transaction (1,000,000 x 8%) : Interest expense in 2021 of B from an intercompany transaction (1,000,000 x 8%) —##.000 a 1,212,800 255,200 38.4 Annual depreciation (100,000 = 2) 50,000 Total life (1,000,000 = 50,000) 20 Expired life Q) Remaining life from the date of sale January 1, 202 18 Consolidated book value of building on December 31, 2020 (720,000 x 680,000 1718) 39.D 1/1/2020 BY Net assets (1,500,000 ~ 200,000) 1,300,000 f (200,000) Fair value net assets of B 1,260,000 Fair value consideration given for 90% 900,000 Less: Share in Fair value net assets of P (1,200,000 x 99%) (1,080,000) Gain on bargain purchase (180,000) Share in the NI of B per books (200,090 x 96%) 180.000 Share in the excess amortization of overvalued no building {(10,000 ~ 5) x 90%) : Share in tie upsiream anreelized gain : (30,000 x 90%) (27,909) Share in the upstecam realized gain {60,069 + 3 x 6/12) x 903} ou Share in the upstream UPEL in 220 10,800) (106,000 x 25/325 x 60%) x 90%) Share in the adjusted NI of B 164,700 Initial measurement of lavestmen: in sutsidiay Add: Gain on bargain purchase Add: Share in the adjusted NI of B Less: Share in dividend declared of B ($0,000 x 96°%) Investment in subsidiary 12/31/202040.D 41.c 42.B 43.D 44.0 45.B 46.D Forward contract payable ~ 12/01/2018 (5,000 x 52) 260,000 Forward contract payable — 12/31/2018 (5,000 x 45) 225,000 Foreign currency gain 35,000 47. Accounts receivable — 12/31/2018 (5,000 x 47) 235,000 48.B Forward contract payable — 12/31/2018 (5,000 x 45) 225,000 Forward contract payable ~ 03/02/2019 (5,000 x 44) 220,000 Foreign currency gain 5,000 49.4 Subsequent measurement of Investment $4,800 property (fair value model) (1,200 x 4) : Translated amount of Investment property to presentation currency (4,800 P192,000 x40) NOTE: The investment property was considered a non-monetary asset and since the fair value model was used, therefore the subsequent measurement was the rate when the fair value was determined. Translated to its presentation currency, the closing rate was used because all assets when translated used closing rate. 50.€ Option price 50 Market price 12/01/2018 (50) Change in price 0 x 1,200 Intrinsic value call option 12/01/2018 0 Option price 50 Market price 12/31/2018 (52) Change in price : 2 x 1,200 Intrinsic value call option 12/31/2018 2,400 Intrinsic value call option 12/01/2018 0 Intrinsic value call option 12/31/2018 2,400 Gain on intrinsic value in OCI 12/31/2018 2,400Page 12 SLA Option price 50 Market price 03/31/2019 G5) Change in price 5 x 1200 Intrinsic value call option 03/31/2019 6000 Intrinsic value call option 12/01/2018 0 Intrinsic value call option 03/31/2019 6,000 Cumulative Gain on intrinsic value in OCI 12/31/2019 6,000 Fair value option 12/31/2018 3,000 Intrinsic value call option 12/31/2018 (2,400) Time value 12/31/2018 600 Fair value option 03/31/2019 ° 6,000 Intrinsic value call option 03/31/2019 (6.000) Time value 03/31/2019 0 Time value 12/31/2018 600 Time value 03/31/2019 0 Forex loss in time value for the year ended 12/31/2019 (600) Reclassification from OCI to P&L. (6,000 x 60%) 3,600 Forex loss in time value for the year ended 12/31/2019 (600) Net foreign currency gain in P&L for the year ended 12/31/2019 3,000 52.B Forward contract payable ~ 11/01/2018 (9,000 x 51) 459,000. Forward contract payable — 12/31/2018 (9,000 x 55) 495,000 Foreign currency loss 36,000 NOTE: Since the forward rate increased, the underlying asset also increased resulting to a forex gain in the underlying asset. Therefore the firm commitment will have a debit balance, hence firm commitment asset. To record the forex gain in the hedge item: Firm commitment 36,000 Forex gain 36,000 53.A Forward contract receivable ~ 12/01/2018 (7,000 x 48) 336,000 Forward contract receivable ~ 12/31/2018 (7,000 x 51) 357,000 Foreign currency gain 21,000 54.B Accounts payable — 11/01/2018 (7,000 x 45) Accounts payable — 12/31/2018 (7,000 x 50) 350,000 Foreign currency loss 35,000Page 13 55.B 56.D Net assets December 31, 2019 at December 31, 2019 rate (Y580,000 x P4.50) 2,610,000 Ordinary share at date of issuance rate (Y300,000 x P4.8) (1,440,000) Preference share at date of issuance rate (Y 100,000 x P3) (300,000) Translated Retained Earnings December 31, 2019 ‘Cumulative translation adjustment 2019 gain (credit) in OCI 360,000 Net assets December 31, 2020 at December 31,2020 rate (Y600,000 x P5) | 3,000,000 Ordinary share at date of issuance rate (Y300,000 x P4.8) (1,440,000) Preference share at date of issuance rate (Y100,000 x P3) (300,000) Translated Retained Earnings December 31, 2020 (550,000) {510,000 + (Y50,000 x P3.20) ~ (¥30,000 x P4)] Cumulative translation adjustment 2020 gain (credit) in OCI 710,000 Cumulative translation adjustment 2019 gain (credit) in OCI 360,000 Translation adjustment gain (credit) for the year 2020 350,000 ‘Cumulative translation adjustment 2020 gain (credit) in OCI 710,000 57.C 58.D 59.B 60.4 Sales reported by entity C 5,000,000 : Unsold portion of related party sales to entity A (1,000,000 x 20%) (200,000) Insold portion of related party sales to entity B (2,000,000 x 30%) (600,000) Sales reported by entity C from outsiders 4,200,000 Multiply by: Interest of entity B x___ 50% Sales revenue reported by entity B 2,100,000 61.A Initial investment of entity A 2,000,000 Add: Share in the net income from JV in 2018 (1,500,000 x 40%) 600,000 Less: Share in dividends declared from JV in 2018 (300,000 x 40%) (120,000) Less: Share in the net loss from JV in 2019 (400,000 x 40%) (160,000) Less: Share in cumulative preference dividends in 2019 (1,000,000 x 10% x 40%) — _(40,000) Investment in JV account 12/31/2019 2,280,000Page 14 2.8 FOR THE YEAR 2018 ‘Share in the net income from JV 2018 (500,000 x 50%) 250,000 ‘Share in unrealized gain 2018 from releted party transaction in 2018 (60,000 x 50%) (30,000) Share in realized gain 2018 from related party transaction in 2018 from date of sale an | 000 | {(60,000 ~ 5 x 6/12) x 50%) ‘Share in UPE! 2018 from related party transaction in 2018 [(100,000 x 40%) x 50%] ‘Adjusted share in the net income from JV in 2018 203,000 Initial investment of entity A 1,000,000 Add. Adjusted share in the net income from JV in 2018 203,000 Less: Share in dividends declared from $V in 2018 (100,000 x 30%) ($0,000) Investment in JV account 12/31/2018 1,153, FOR THE YEAR 2019 ‘Share in the net loss from JV 2019 (2,500,000 x 50%) (1,250,000) ‘Share in realized gain 2019 from related party transaction in 2018 6.000 {(60,000 + 5) x $0%) ae ‘Share in RPBI 2019 from related party transaction in 2018 [(100,000 x 30%) x 50%] Share in unrealized loss 2019 from related party transaction in 2019 (50,000 x 50%) __25,000 Adjusted share in the net loss from JV in 2019 (1,204,000) 1,153,000, Investment in JV account 12/31/2018 (1,153,000) Add: Adjusted share in the net loss from JV in 2019 Investment in JV account 12/31/2019 NOTE: Since the beginning balance in 2019 of the Investment in JV account of entity A was less than the adjusted share in the net loss from JV in 2019, therefore in 2019 entity A can only receive a share in the adjusted net loss from JV up to his Investment in JV balance and the batance of 51,000 (1,204,000 ~ 1,153,000) will be disclosed in the notes. 1,500,000 6,000 5,000 (25,000) (51,000) 1,435,000 Share in realize (60,000 + Share in RPBI 202 Adjusted share in the ne! inconte from JV in 2620 B.A 64.B 65.C 66.C 67.B 68.D Restricted pledge receivable 1,050,006 Unrestricted pledge receivable Total pledge receivables Collectible portion x Total pledge receivables, net oe 70.4 END ~~a AUDITING PROGLEMS. FINAL PREBOARD EXAMINATION PROSLEM 1 — MACHINE PARTS SUPPLY COMPANY: 1. Accounts payable 137,040 Purchases 137,040 2 122,340 ‘Accounts receivable 122,340 3 RRAO 682 140,220, RR no. 683 —13,500 ‘Should be removed from the inventory count PAS3.7220 4 S031 1,680 ST no, 312 95,820 Sino, 313 — 19,050 Toul Pile.550 PROBLEM 2- CORDOVA CO. Interest Interest Premium Amortized Date Received ‘Income ‘Amortization ——Cost__ 1231.17 P1,086,565 1231.18 P 70,000 P 54,328 P 15,672 1,070,893 12.31.19 70,000 53,545 16,455 1,054,438 1231.20 70,000 52,722 17,278 1,037,160 1231.21 70,000 51,858 18,142 1,019,018 12.31.22 70,000 50,982* 19,018 1,000,000 TAcusnent due to rounding 6. Investment in bonds ~ FVOCI 1.075.000 7. Fair value, Dec. 31, 2019 1,075,000 Carrying value, Dec. 31, 2019: Fair value, Dec. 31, 2018 1,065,000 Premium amortization in 2019 116,455) 1,048,545. Unrealized gain 26.455 8. Fair vaiue, Dec. 31, 2020 1,056,500 Camying value, Dec. 31, 2020: Fair value, Dec. 31, 2019 1,075,000 Premium amortization in 2020 (17,278) 1,057,722 Unrealized loss P4222 9. Fair value, Dec. 31, 2021 P1,030,000 Carrying value, Dec. 31, 2021: Fair value, Dec. 31, 2020 P1,056,500 Premium amortization in 2021 (18.142) 1,038,358 Unrealized loss P8358 PROBLEM 3 - MANDAUE COMPANY uP TO NOV. 30 DEC. 31 Per books 720,000 810,000 November purchase recorded in December 10,000 October deposits recorded as purchases (14,000) (14,000) Defective items returned (5,000) (12,000) December purchases recorded in November (18,500) —_ 692,500 784.000Net overstatement of 2016 net income 17, Net proceeds ‘Book value of Truck No. 1: Cost ‘Less: Acoum. depreciation, 1/1/13 ~ 1/1/17 (P1,620,000/5 x 4) Gain on sale 18. Depreciation per client (Comect depreciation: Truck No. 2 (P1,980,000/5) Truck No. 4 (P2,160,000/5) Truck No. 5 (P3,060,000/5) Overstatement of depreciation — net income understated Unreconded gain on sale ~ net income understated ‘Net understatement of 2017 net income PROBLEM 5 Balance May 34 Bank batances 652,000 May 31 10,900 May 31 : (20,000) May 31 800 ‘Bank collection in May (70,009) 70,000 ‘company in June (2,000 2,900 checks: Already redepostted (1,000) _(1,090} P2ALBDQ PROBLEM 6 — ANDRES CORP. 26. Cost of patents Amortization for 2018 (P2.805,000/20 years) Carrying value, Dec. 31, 2018 1,620,000 1,296,000 396,000 432,000 $12,000 Disbursements 63,200 (20,000) 17,600 800 <200) (1,000) (3,000) £4,000) 256.400 (47,600) 200 3,000 a(CPA REVIEW SCHOOL OF THE FRELIPPENEES (rnv FINAL PREBOARD 27. Cost of Boansing agreement no. 1 Recoverstie valve 28. Cost of Bcwnaing agreement no, 2 (P1,620,000 + P180,000) ‘Amortization Canyig vetua, Dex. 31, 2018 (Cost of leasshokd improvements Accsnuisted deprecation Camying vatue, Dec. 31, 2018 Machinery and equipment per books, Dec. 31, 2018 (Cost of wnproving machinery. Assembly tne equipment ‘Adpssted balence, Dec. 31, 2018 * 210) 31. Cash receipts per book 47,464 Understatement 7 ‘Overfooting the sales discounts column (P936 - P736) ‘Cash receipts as corrected 48.000 BUSTOS GLASS COMPANY Total amount of fund per count Total amount of fund per books or receipts: Petty cash fund per GL Undiaimed wages per opened envelopes Undeposited collections (P17,300 - P15,300) ‘SHORTAGE EMIL, INC. m. Unadjusted balances Outstanding checks Bank error Deposit in transit AE 1 2 3 Corrected balances SHORTAGE as of Dec. 31, 2018 Adjusted balances 35. Deposit in transit, Dec. 31, 2018 ‘Add: Company collections, Jan. 2-15, 2019 Per records AE 4 ' 2,000 5 4,500 Total Less: Deposits credited by bank, Jan. 2-15, 2019 Deposit in transit, Jan. 15, 2019 Cash and cash items per count on Jan. 15, 2019 Cash shortage, Jan. 2-15, 2019 Page 3 of 4 Pages oan ‘2.080.000 1,800,000 (180.000) e.s20.000 ‘450,000 (90,000) ‘P260.000 3,570,000 1,041,000 19,432 20,000 1,160 2,000 23,160 (P3728) Book Bank 247,200 P264,095, (25,325) 750 53,500 8,500 60,000 11,785| REVEEW SCHOOL GF THE PHELIPPERES (CPAR) - MARELA (Ad8: Cash shortage 2 of Dec. 31, 2018 14.680 ‘Tout shortage es of January 15, 2019 2h PROBLEM 8. 35 800k value of loan recetvabie 16,500,000 Present value of projected cash flows: ‘Dac. 31, 2018 (P5,250,000 x 0.9091 P4,772,775 Oe. 31, Bis (eewonon 10.8) 4,958,400 ‘Dec. 31, 2020 (P5,250,000 x 0.7513) AS 13,675,500 ‘Loan imnparrment toss B2g24500 Om Poment (mpsiment =—_—Racetvable Wncome Received Dec S120 P18.S00.000 P2450 ©——PI3,675,600 P1.367:560—_P5.250,000 Dec. 31.2010 11250.000 1,486,960 9,790,080 979,305 8,000,000 (Dec $1, 2020 5.250,000 477 845 4,772,355 ATT BAS, 5,250,000 PROBLEM 9 “1, Machinery ~ x 150,000 ~ Machinery (P150,000 x 5*/15) 50,000 ‘Retained earnings (P150,000 - P50,000) 100,000 © Jan. 1, 2013 - Dec. 31, 2017 42. Cost of machine Y 525,000 Less: Accumulated depreciation, Dec. 31, 2017 (P525,000 x 4/12) -175,000, Camying value, Dec. 31, 2017 350,000 43. Camying valve, Dec. 31, 2017 350,000 Less: Salvage value 25,000 Remaining depreciable cost 325,000 Divide by revised remaining life + 4y Depreciation for 2018 281.250 44. Cost of building 3,000,000 Less: Accumulated depreciation, Dec. 31, 2017 (P3,000,000 x 3/20) 450,000 Book value of building, Dec. 31, 2017 ‘45. Book value of building, Dec. 31, 2017 2,550,000 Less: Depreciation for 2018 (P2,550,000 x 17/153*) ‘Bo0k value of building, Dec. 31, 2018 2.266.667 PROBLEM 10 ~ HAGINIT, INC. 4%. Inventory, July 1, 2017 (P75,000 + P19,500) 1P24,500 47. Purchases (P540,000 - 8,100 +P27,900 + P16,200) 576,000 48, Inventory, June 30, 2018 (P105,000 + P27,900 +P11,100) P144,000 49. Accounts payable, June 30, 2018 (P27,900 + P16,200) 44,100 50. Inventory, July 1, 2017 P.94,500 Purchases 526,000 Goods available for sale 670,500 Inventory, June 30, 2018 (144,000) Cost of goods sold 526.500 ---END-~-