Mary Mickaella R.

Ventura

BSA 2-C

Group 3 – AMONG US

Problem 5: Multiple Choice – Computational

1. The following is Gold Corp.'s June 30, 1992, trial balance:

Cash overdraft 10,000

Accounts receivable, net 35,000

Inventory 58,000

Prepaid expenses 12,000

Land held for resale 100,000

Property, plant, and equipment, net 95,000

Accounts payable and accrued expenses 32,000

Common stock 25,000

Additional paid-in capital 150,000

Retained earnings 83,000

Totals 300, 000 300, 000

Additional Information:

• Checks amounting to P30,000 were written to vendors and recorded on June 29, 20X1, resulting in a

cash overdraft of P10,000. The checks were mailed on July 9, 20X1.

• The non-current assets are classified as held for sale refers to land. The land was sold for cash on July
15, 20X1

• Gold issued its financial statements on July 31, 20X1.

In its June 30, 20X1, balance sheet, what amount should Gold report as current assets?

ANSWER: A
Solution:
Cash (-10,000 + 30, 000) 20, 000
AR, net 35, 000
Inventory 58, 000
Prepaid expenses 12, 000
Non-current assets classified as held for sale 100, 000
TOTAL CURRENT ASSETS 225, 000

2. On December 31, 20x1, ABC Co. committed to a plan to sell its building at its current condition.
ABC Co. Expects that the sale will occur within twelve months after the end of the current
reporting period. The building has a carrying amount of P12,000,000 and an estimated useful life
of 5 years at the start of the year. ABC Co. Depreciates the building using the straight line
method of depreciation with no residual value. The building has a fair value of P8,000,000 and
estimated costs to sell of P100,000 at the end of the year. All the conditions for classifying the
building as held for sale are met as of year-end.

How much is the carrying amount of the building in ABC Co.'s December 31, 20x1 statement of
financial position?
ANSWER: D
Solution:
C. A. of Building 12/31/x1=12, 000, 000 x 4/5 = 9.6M
FV – cost to sell = (8, 000, 000 – 100, 000)= 7.9M
Lower amount= 7.9M

3. How much is the impairment loss recognized on December 31, 20x1?

ANSWER: C
Solution:
C. A. of Building 12/31/x1=12, 000, 000 x 4/5 = 9.6M
FV – cost to sell = (8, 000, 000 – 100, 000)= 7.9M
Impairment Loss = (9.6M – 7.9M)= 1.7M

4. On November 1,20x3, management of Herron Corporation committed to a plan to dispose of

Timms Company, a major subsidiary. The disposal meets the requirements for classification as
discontinued operations. The carrying value of Timms Company was 8,000,000 and the
management estimated the fair value less costs to sell to be 6,500,000. For 20x3, Timms
Company had a loss of 2,000,000. How much should Heron Corporation present as loss from
discontinued operations before the effect of taxes in its income statement for 20x3?

ANSWER: D
 Solution:
Impairment Loss (6.5M -8M) (1, 500, 000)
Loss during 20X3 (2, 000, 000)
Loss from discontinued operations (3, 500, 000)

5. On December 1,20x3, Greer Co. committed to a plan to dispose of its Hart business components
assets. The disposal meets the requirements to be classified as discontinued operations. On that
date, Greer estimated that the loss from the disposition of the assets would be 700,000 and
Harts 20x3 operating losses were 200,000. Disregarding income taxes, what net gain (loss)
should be reported for discontinued operations in Greer’s 2003 income statement?

ANSWER: D
Solution:
Estimated loss on sale (700, 000)
Loss during 20X3 (200, 000)
Loss from discontinued operations (900, 000)

6. On November 30, 20X5, Pearman Company committed to a plan to sell a component unit that
met the criteria for a discontinued operation and was properly classified as held for sale. The
component unit was tested for impairment and a P400, 000 loss was calculated. The component
unit’s loss from operation was P1, 000, 000. The final sale was expected to occur on February 15,
20X6. What amount(s) should report as loss from discontinued operation before consideration
of the tax effects?

ANSWER: A
(400, 000 + 1, 000, 000) = 1, 400, 000 Loss from discontinued operations

7. On April 27, 20X5, ABC committed to a plan to sell a component unit. As a result, the component
unit’s operations and cash flows will be eliminated from ABC’s operations and ABC will not have
any significant post-sale involvement in the component’s operations. The component was sold
on December 25 for a gain of P100, 000. During the period from January 1, 20X5, to April 27,
20X5, the component unit had income of P150, 000. However, from period April 27 to
December 25 the component suffered a loss of P50, 000. Ignoring taxes, what should ABC
report for discontinued operation for 20X5?

ANSWER: C
Solution:
Profit from Jan. to April 20X5 150, 000
Loss from May to Dec. 20X5 (50, 000)
Actual gain on sale –Dec. 20X5 100, 000
Profit from discontinued operations 200, 000

8. On December 31, 20X4, Greer Co. entered into an agreement to sell its Hart segment's assets.
On that date, Greer estimated the gain from the disposition of the assets in 20X5 would be
 P700,000 and Hart's 20X5 operating losses would be P200,000. As a result of the sale, the
components operations and cash flows will be eliminated from the entity’s operations and the
entity will not have any significant continuing post-sale involvement in the components
operations. The component classified as held for sale. Hart's actual operating losses were
P300,000 in both 20X4 and 20X5, and the actual gain on disposition of Hart's assets in 20X5 was
P650,000.

Disregarding income taxes, what net gain (loss) should be reported for discontinued operations
in Greer's comparative 20X5 and 20X4 income statements?

ANSWER: C
Solution:
20X5 20X4
Actual operating losses (300, 000) (300, 000)
Actual gain on sale 650, 000
Result of discontinued operations 350, 000 (300, 000)

9. On April 30, 20X6, Carty Corp. approved a plan to dispose of a segment of its business. The
disposal loss is $P480,000, including severance pay of P55,000 and employee relocation costs of
P25,000, both of which are directly associated with the decision to dispose of the segment. Also
included is the segment’s estimated operating loss of P100, 000 for the period from May 1,
20X6, to the disposal date. A P120, 000 operating losses from January 1, 20X 6 to April 30, 20X6,
is not included in the estimated disposal loss of P480, 000. The estimate was equal to the actual
loss incurred during the year.

Before income taxes, what amount should be reported in Carty's income statement for the year
ended December 31, 20X6, as the loss from discontinued operations?

ANSWER: A
Solution:

Including all of the items 480, 000

Add: 120, 000

600, 000

10. Rock Co.’s financial statements had the following balances at Dec. 31:
Profit for the period from discontinued operation 50, 000
Foreign currency translation gain 100, 000
Profit for the year 400, 000
Unrealized gain on FVOCI equity securities 20, 000

What amount should Rock report as comprehensive income for the year ended December 31?
ANSWER: C
Solution:
Profit for the period from disc. Operations 50, 000
Foreign currency translation gains 100, 000
Profit for the year 400, 000
Unrealized gain on FVOCI equity securities 20, 000
Total comprehensive income 570, 000