Quiz 1.

1 Leases

Joy Company purchased a new machine for P4,800,000 on January 1, 2017 and leased
it to Ray the same day. The machine has an estimated 12-year life and will be
depreciated P400,000 per year. The lease is for a three-year period expiring January 1,
2020 at an annual rental of P850,000. Additionally, Ray paid P300,000 to Joy as a lease
bonus to obtain the three-year lease. Joy incurred insurance expense of P80,000 for
the leased machine during 2017.

What is the 2017 operating profit on this leased asset?

P470,000

On January 1, 2017, Active Company sold a building with a book value of P4,200,000 to
another entity for P4,050,000. Active Company immediately entered into a leasing
agreement wherein Active would lease the building back for an annual payment of
P640,000. The term of the lease is 10 years, the expected remaining useful life of the
building.

The first annual lease payment is to be made immediately, and future payments will be
made on January 1 of each succeeding year. The lessor’s implicit interest rate is 12%.

How much loss on sale and leaseback should be recognized for 2017?
P150,000

On January 1, 2020, Aim Company entered into a ten-year noncancelable lease

requiring year-end payments of P1,000,000. Aim’s incremental borrowing rate is 12%,
while the lessor’s implicit interest rate, known to Aim, is 10%. Present value factors for
an ordinary annuity for ten periods are 6.145 at 10%, and 5.650 at 12%. On same date,
Aim Company paid initial direct cost of P200,000 in negotiating and securing the leasing
arrangement. Ownership of the property remains with the lessor at expiration of the
lease. There is no bargain purchase option. The leased property has an estimated
economic life of 12 years.

What amount should Aim capitalize as cost of the leased property on January 1, 2020?
P6,345,000

Novelty Company leased a warehouse with adjoining land for a period of 15 years. The
fair values of the leasehold interests in the land and the warehouse are P5,000,000 and
P2,500,000 respectively. The land has an indefinite economic life whereas the
warehouse has a useful life of 15 years. Title to the land is not expected to pass at the
end of the lease.

At what amount should the assets in relation to finance leases be recognized in the
financial statements of Novelty?
P2,500,000

Newlook Company entered into a nine-year finance lease on a warehouse on

December 31, 2019. Lease payment of P 520,000 which includes real estate taxes and
other executory cost of P20,000, are due annually, beginning on December 31, 2020
and every December 31 thereafter. The interest rate implicit in the lease is 9%. The
rounded present value of an ordinary annuity of 1 for nine years at 9% is 5.6.

What amount should Newlook report as lease liability at December 31, 2019?
P2,800,000

On January 1, 2020, Cane Company signed an eight-year noncancellable lease for a

new machine, requiring P150,000 annual payments at the beginning of each year. The
machine has a useful life of 12 years, with no residual value. Title passes to Cane at
the lease expiration date. Cane uses straight line depreciation for all of its plant assets.
Aggregate lease payments have a present value on January 1, 2020 of P1,080,000
based on an appropriate rate of interest.

Cane should record depreciation expense of the leased machine for 2020 at
P90,000

Moonlight Company leased equipment to Sunlight Company on January 1, 2020, for an

eight-year period expiring December 31, 2027. Equal payments under the lease are
P500,000 and are due on January 1 of each year. The first payment was made on
January 1, 2020. The selling price of the equipment is P2,900,000 and its carrying
amount on Moonlight’ books is P2,000,000. The lease is appropriately accounted for as
a sales type lease. The present value of the lease payments at an implicit interest rate
of 12% is P2,780,000.

What amount of profit on the sale should Moonlight report for the year ended December
31, 2020?
P780,000
On January 1, 2020 Luzon Company, acting as a lessor, leased an equipment for ten years at
an annual rental of P1,200,000, payable by Visayas, the lessee, at the beginning of each year.
The equipment had a cost of P8,400,000 with an estimated life of 12 years and no residual
value. Luzon uses the straight-line depreciation. The implicit rate is 9%.

What amount of interest income should be reported in 2020 by Luzon if the lease was
accounted for as a direct financing lease?

P648,000

Which of the following situations would prima facie lead to a lease being classified as an
operating lease?
The present value of the minimum lease payments is 50% of the fair value of the
asset.

Which of the following is a correct statement of one of the lease capitalization criteria?
The lease term is equal to or more than 75% of the economic life of the leased property.

An entity is a dealer in equipment and uses leases to facilitate the sale of its product.
The entity expects a 12% return. At the end of the lease term, the equipment will
revert to the lessor.

On January 1, 2017, an equipment is leased to a lessee with the following information:

Cost of equipment to the entity 3,500,000

Fair value of equipment 5,500,000

Residual value – unguaranteed 600,000

Initial direct cost 200,000

Annual rental payable in advance 900,000

Useful life and lease term 8 years

Implicit interest rate 12%

PV of 1 at 12% for 8 periods 0.40

PV of an ordinary annuity of 1 at 12% for 8 periods 4.97

PV of an annuity due of 1 at 12% for 8 periods 5.56

First lease payment January 1, 2017

What is the gross investment in the lease?

7,800,000

What is the net investment in the lease?

5,244,000

What is the total financial revenue?

2,556,000

What amount should be recognized as interest income for 2017?

521,280

What amount of cost of goods sold should be recognized in recording the lease?
3,460,000

For which of the following transactions would the use of the present value of an annuity
due concept be appropriate in calculating the present value of the asset obtained or
liability owed at the date of incurrence?
A capital lease is entered into with the initial lease payment due upon the signing of the lease
agreement

One difference between a financial lease and operating lease is that:

an operating lease is often cancellable by the lessee.

The principal reason for the existence of leasing is that:

companies, financial institutions, and individuals derive different benefits from
owning assets.
A way to analyze whether debt or lease financing would be preferable is to:
compare the net present values under each alternative, using the after-tax cost of
borrowing as the discount rate.

Quiz -Accounting for income tax and Employee Benefits

On June 30, 2020, Lovely Company prepaid a P1,000,000 premium on an annual

insurance policy. The premium payment was a tax deductible expense in Lovely’s 2020
cash basis tax return. The accrual basis income statement will report a P500,000
insurance expense in 2020 and 2021. The income tax rate is 30%.In Lovely’s December
31, 2020 statement of financial position, what amount related to the insurance should be
reported as deferred tax liability?
150,000

Queen Company adopted a defined benefit pension plan on January 1, 2020. Queen
amortizes the past service cost over 16 years and funds past service cost by making
equal payments to the fund trustee at the end of each of the first ten years.

The current service cost is fully funded at the end of each year. The following data are
available for the current year:

Current service cost P220,000

Past service cost:

Amortized 83,400

Funded 114,400

Queen’s prepaid pension cost at December 31, 2020 is

31,000

Best Company determined that it has an obligation relating to employees’ rights to

receive compensation for future absences attributed to employees’ services already
rendered. The obligation relates to rights that vest, and payment of the compensation is
probable. The amount of Best’s obligations as of December 31, 2020 are reasonably
estimated as follows:
Vacation pay P1,100,000

Sick pay 900,000

In its December 31, 2020 statement of financial position, what amount should Best
report as its liability for compensated absences?

2,000,000

Forex Company prepared the following reconciliation of income per book with income
per tax return for the year ended December 31, 2018:

Book income before income tax P15,000,000

Add temporary difference:

Construction contract revenue which will

reverse in 2009 2,000,000

Deduct temporary difference:

Depreciation expense which will reverse in

equal amounts in each of the next 4 years ( 8,000,000)

Taxable income P 9,000,000

If the income tax rate is 30%, what amount should Forex report in its 2018 income
statement as the current provision for income tax?

2,700,000

Sky Company has established a defined benefit pension plan for its employees. Annual
payments under the pension plan are equal to 3% of an employee’s highest lifetime
salary multiplied by the number of years with the company. An employee’s salary in
2018 was P500,000. The employee is expected to retire in 10 years, and his salary
increases are expected to average 4% per year during that period. As of December 31,
2018, the employee has worked for 15 years. The future value of 1 at 4% for 10 periods
is 1.48.
 What is the amount of annual pension payment that should be used in computing
the employees’ projected benefit obligation as of December 31, 2018?

333,000

Shame began operations in 2018. Included in Shame’s 2018 financial statements were
bad debt expense of P150,000 and profit from an installment sale of P250,000. For tax
purposes, the bad debts will be deducted and the profit from the installment sale will be
recognized in 2018. The enacted tax rate is 30% for 2019 and future years. In its 2018
income statement, what amount should Shame report as deferred tax expense?
30,000

Time Company’s information for the year-end of 2018 follows:

Deferred tax Related asset

Accelerated tax depreciation (P75,000) Noncurrent

Additional cost of inventory for

tax purposes 25,000 Current

(P50,000)

Time anticipates that P10,000 of the deferred tax liability will reverse in 2019. In its
December 31, 2018 balance sheet, what amount should Time report as noncurrent
deferred tax liability?

75,000

Unity Corp. prepared the following reconciliation between pretax accounting income and
taxable income for the year ended December 31, 2018:

Pretax accounting income P1,500,000

Taxable income ( 900,000)

Difference P 600,000

Analysis of difference:

Interest on money market funds P 150,000

Excess of tax depreciation over book

 depreciation 450,000

P 600,000

Unity’s effective income tax rate for 2018 is 30%. The depreciation difference will
reverse in equal amounts over the next three years at an enacted tax rate of 30%. In
Unity’s 2018 income statement, what amount should be reported as the current portion
of its provision for income taxes?

270,000

R Corp. prepared the following reconciliation of income per books with income per tax
return for the year ended December 31, 2018:

Book income before income taxes P900,000

Add: Construction contract revenue which

will reverse in 2021 120,000

Less: Depreciation expense which will reverse

in equal amounts in each of the next 4 yrs (480,000)

P540,000

R’s effective income tax rate is 30% for 2018. What amount should R report in its 2018
income statement as a current provision for income taxes

162,000

PAS 19 shall be applied by an employer in accounting for all employee benefits, except
those to which IFRS 2 Share-based Payment applies
True

Which of the following is not true regarding the objective of PAS 19?
PAS 19 requires an entity to recognise a deferred asset when an employee has
acknowledged the obligation to provide service in exchange for employee
benefits to be paid in the future

Which of the following employee benefits are out of scope of PAS 19?
None of the above
Employee benefits include benefits provided to employees __________ and may be
settled by payments or the provision of goods or services made either directly to the
employees__________.
or to their dependents or beneficiaries; or their dependents

An employee may provide services to an entity on a __________.

All of the above (full-time or part-time, permanent or temporary basis, casual basis)

Which of the following terms are defined by the following statement: “post-employment
benefit plans under which an entity pays fixed contributions into a separate entity and
will have no legal or constructive obligation to pay further contributions if the fund does
not hold sufficient assets to pay all employee benefits relating to employee service in
the current and prior periods”?
Defined contribution plan

Prelim exam
Cone Company purchased a new machine for P4,800,000 on January 1, 2016 and
leased it to East the same day. The machine has an estimated 12-year life, and will be
depreciated P400,000 per year. The lease if for a three-year period expiring January 1,
2019, at an annual rental of P850,000. Additionally, East paid P300,000 to Cone as a
lease bonus to obtain the three-year lease. For 2016, Cone incurred insurance
expense of P80,000 for the leased machine. What is Cone’s 2016 operating profit on
this leased asset?
470,000

Kay Company, a lessor of office machines, purchased a new machine for P6,000,000
on January 1, 2016, which was leased the same day to Lee. The machine will be
depreciated P550,000 per year. The lease is for a four-year period expiring January 1,
2020, and provides for annual rental payments of P1,000,000 beginning January 1,
2016. Additionally, Lee paid P640,000 to Kay as a lease bonus. In its 2016 income
statement, what amount of revenue should Kay report on this leased asset?
1,160,000

Kay Company, a lessor of office machines, purchased a new machine for P6,000,000
on January 1, 2016, which was leased the same day to Lee. The machine will be
depreciated P550,000 per year. The lease is for a four-year period expiring January 1,
2020, and provides for annual rental payments of P1,000,000 beginning January 1,
2016. Additionally, Lee paid P640,000 to Kay as a lease bonus. In its 2016 income
statement, what amount of expense should Kay report on this leased asset?
550,000

Might Company purchased a tractor on January 1, 2014 at a cost of P1,600,000 for the
purpose of leasing it. The tractor is estimated to have a useful life of 5 years with scrap
of P100,000. Depreciation is on a straight line basis. On April 1, 2014, Might entered
into a lease contract for the lease of the tractor for a term of two years up to March 31,
2016. The lease fee is P50,000 monthly and the lessee paid P600,000, the lease for
one year. Might paid P120,000 commission associated with negotiating the lease,
P15,000 minor repairs, and P10,000 transportation of the tractor to the lessee during
2014. Might Company should report net rent revenue for the year 2014 at:
80,000

On January 1, 2014, Glide Company leased a building to Dive Company for a ten-year
term at an annual rental of P500,000. At inception of the lease, Glide received
P2,000,000 covering the first two years’ rent of P1,000,000 and a security deposit of
P1,000,000. This deposit will not be returned to Dive upon expiration of the lease but
will be applied to payment of rent for the last two years of the lease. What portion of the
P2,000,000 should be shown as a current liability, respectively, in Glide’s December
31, 2014 balance sheet?
500,000

What portion of the P2,000,000 should be shown as a noncurrent liability,

respectively, in Glide’s December 31, 2014 balance sheet?
1,000,000

Elf Company prepared the following reconciliations of its pretax financial statement
income to taxable income for the year ended December 31, 2018, its first year of
operations:

Pretax financial income P1,600,000

Nontaxable interest received ( 50,000)

Long-term loss accrual in excess of

deductible amount 100,000

Depreciation in excess of financial

statement income ( 250,000)

 Taxable income P1,400,000

Assume the income tax is 30%, what amount should Elf report as income tax expense –
current portion of its 2018 income statement

420,000

On January 2, 2017, Might Company purchased machine for P1,400,000. This machine
has a 5-year useful life, a residual value of P200,000, and is depreciated using the
straight line method for financial statement purposes. For tax purposes, depreciation
expense was P500,000 for 2017 and P400,000 for 2018. Might’s 2018 income before
tax and depreciation expense was P2,000,000 and its tax rate was 30%. If Might has
made no estimated tax payments during 2018, what amount of current income tax
liability would Might report in its December 31, 2018 balance sheet
480,000

For calendar year 2018, B Corp. reported depreciation of P660,000 in its income
statement. On its 2018 income tax return, B reported depreciation of P1,100,000. B’s
income statement also included P110,000 accrued warranty expense and will be
deducted for tax purposes when paid. B’s enacted tax rate is 30% for 2018 and
thereafter. Taxable income is expected in all future years. The depreciation difference
and warranty expense will reverse over the next three years as follows:

Depreciation Warranty

Expense Expense

2009 P176,000 P 22,000

2010 154,000 33,000

2011 110,000 55,000

P440,000 P110,000

These were B’s only temporary differences. In B’s 2018 income statement, the deferred
portion of its provision for income taxes should be:

34,650

Glade Company leases computer equipment to customers under direct financing

leases. The equipment has no residual value at the end of the lease and the leases do
not contain bargain purchase options. Glade wishes to earn 8% interest on a 5-year of
equipment with a fair value of P3,234,000. The present value of an annuity due of 1 at
8% for 5 years is 4.312. On January 1, 2019, Glade leased the equipment to Blaze
Company. What is the total amount of interest revenue that Glade will earn over the life
of the lease?
516,000

On January 1, 2019, Hooks Oil Company sold equipment with a carrying amount of
P1,000,000, and a remaining useful life of 10 years, to Maco Drilling for P1,500,000.
Hooks immediately leased the equipment back under a 10 year capital lease with a
present value of P1,500,000 and will depreciate the equipment using the straight-line
method. Hooks made the first annual lease payment of P244,120 in December 2019. In
Hooks’ December 31, 2019 balance sheet, the unearned gain on equipment sale should
be
450,000

The following information relates to the defined benefit pension plan of Rex Company
for the year ended December 31, 2019:

Projected benefit obligation, January 1 4,600,000

Projected benefit obligation, December 31 4,730,000

Fair value of plan assets, January 1 5,035,000

Fair value of plan assets, December 31 5,565,000

Expected return on plan assets 450,000

Amortization of deferred gain 20,000

Employer contribution 425,000

Benefits paid to retirees 390,000

Settlement rate 10%

The net periodic pension cost reported in the income statement for 2019 would be:

50,000

Bond Company started to manufacture in 2014 copy machines that are sold on the
installment basis. Bond recognizes revenue when equipment is sold for financial
reporting purposes, and when installment payments are received for tax purposes. In
2014, Bond recognized gross profit of P6,000,000 for financial reporting purposes, and
P1,500,000 for tax purposes. The amounts of gross profit expected to be recognized
for tax purposes in 2015 and 2016 are P2,500,000 and P2,000,000 respectively. Bond
guarantees the copy machines for two years. Warranty costs are recognized on the
accrual basis for financial accounting purposes and when paid for tax purposes.
Warranty expense accrued in 2014 is P2,500,000, but only P500,000 of warranty cost is
paid in 2014. It is expected that in 2015 and 2016, P1,000,000 and P1,000,000
respectively of warranty costs will be paid. In addition during 2014, P500,000 interest,
net of 20% final income tax, was received and earned, and P100,000 insurance
premium on life insurance policies that covered the life of Bond’s president was paid.
Bond is the beneficiary for this policy. The tax rate is 30%. Pretax accounting income
in 2014 was P2,000,000. Assuming any 2014 net operating loss will be carried to 2015,
how much is the gross deferred tax asset in 2014 respectively?
870,000

Assuming any 2014 net operating loss will be carried to 2015, how much is the gross
deferred tax liability in 2014 respectively?
1,350,000

A contract is, or contains, a lease if the contract conveys the right __________ an
identified asset for a period of time in exchange for consideration.
To control the use of

Which of the following shall a lessee recognise at the commencement date?

A right-of use asset; A lease liability

At the commencement date, a lessee shall measure the right-of-use asset at

__________.
cost

Which of the following does not refer to temporary differences?

Adjustable temporary difference

Which of the following terms agrees with this definition: “profit or loss for a period before
deducting tax expense”?
Accounting profit

Current tax for current and prior periods shall, to the extent unpaid, be recognized as
__________.
A liability
An entity uses PAS to prepare its financial statements but the defined benefit obligation
has been calculated using assumptions that are different from PAS. How should the
entity measure its net pension liability?
The value in the balance sheet will simply be used in the consolidated financial
statements

Under the terms of a company pension plan, the company contributes 5 percent of an
employee's salary to the plan. The employee is guaranteed a return of the contributions
plus a terminal bonus of 20 percent by the employer. The plan would be classified as

Defined benefit plan

An employer's statement of financial position should show a liability equal to the

expected amount payable in the following 12 months as a result of unused entitlement
to non-accumulating short-term paid absences.
False

Which of the following items is always treated as a long-term employee benefit?

A bonus which is not payable wholly before 12 months after the end of the period
in which the related employee services are performed

Short-term employee benefits do not include:

Bonuses payable more than 12 months after the end of the period in which the
related employee services are performed

Quiz:Shareholders Equity (SHE)

Irog Company was organized on January 1, 2020 with authorized capital of 50,000
ordinary

shares of P100 par value. During 2020, Irog had the following transactions affecting

shareholders’ equity:

January 7 Issued 20,000 shares at P120 per share

December 2 Purchased 3,000 shares of treasury at P130 per share

The cost method was used to record the acquisition of treasury shares. Irog’s net
income for 2019 is P1,500,000.
What is the shareholders’ equity on December 31, 2020?

3,510,000

The accounts below appear in the December 31, 2020 trial balance of Moon Company:

Authorized share capital P5,000,000

Unissued share capital 2,000,000

Subscribed share capital 1,000,000

Subscription receivable 400,000

Share premium 500,000

Retained Earnings unappropriated 600,000

Retained Earnings appropriated 300,000

Revaluation surplus 200,000

Treasury shares at cost 100,000

In its December 31, 2020 statement of financial position, Moon should report total
shareholders’ equity at
5,100,000

Sunrise Company’s records included the following shareholders’ equity accounts?

Preference share capital, par value P15, authorized 200,000 shares

P2,550,000

Share premium, preference share

150,000

Ordinary share capital, no par, P50 stated value, 100,000

Shares authorized
3,000,000
In Sunrise’s statement of shareholders’ equity, the number of issued and outstanding
shares for ordinary shares?

60,000

In Sunrise’s statement of shareholders’ equity, the number of issued and outstanding

shares for preference share is
170,000

Ox Company was organized on January 1, 2019 at which date it issued 100,000

ordinary shares of P10 par value at P15 per share. During the period January 1, 2019
through December 31, 2020, Ox reported net income of P450,000 and paid cash
dividend of P230,000. On January 10, 2020, Ox Purchased 6,000 treasury shares at
P12 per share. On December 31, 2020, Ox sold 4,000 treasury shares at P8 per share
and retired the remaining treasury shares. Ox uses the cost method of accounting for
treasury shares.

What is the total shareholders’ equity at December 31, 2020?

1,680,000

Hype Company, a developmental stage enterprise, incurred the following costs during
its first year of operations:

Legal fees for incorporation and other related matters P1,000,000

Underwriters’ fees for initial stock offering 500,000

Exploration costs and purchase of mineral rights 6,000,000

Hype had no revenue during its first year of operations. What amount may Hype
capitalize as organization costs?

0 ??
1,000,000
6,500,000
7,000,000

1. The following transactions pertain to Coral Corporation for year ended

December 31, 2019:
 2. Coral Corporation is authorized to issue 5,000 shares of P100 par preference
share and 20,000 shares of P50 par ordinary share.
3. Sold 10,000 shares of ordinary share at par for cash.
4. Issued 400 shares of preference share for P120 per share cash.
5. Reacquired 500 ordinary shares as treasury share for P90 per share.
6. Reissued 300 shares of treasury share for P100 per share.
7. Agreed to a subscription contract for 1,000 shares of ordinary share for P60
per share. The subscription requires a down payment of P20 per share.
8. Declared 30% share dividend on the ordinary share. The market value of the
ordinary share at the time of declaration is P80 per share.
9. The revenue and expense summary account has a credit balance of
P300,000. This is closed to accumulated profits.

How much is the total shareholders’ equity at December 31, 2019?

853,000

Grind Company has 60,000 ordinary shares of Bang Corporation as an investment in

available for securities. These shares were acquired at fair market value, which was
P80 per share on May 2, 2019. On December 20, 2019, the market value of these
shares is P90 per share. On December 22, 2019, Grind Company sold 42,000 shares
of its investment in Bang Corporation for P85 per share. Market value of Bang’s shares
has yet to change, it remained at P90 per share. What amount of realized gain or loss
should Grind Company recognize in selling those shares?
210,000

A person who purchases common stock of a corporation is known as:

Common stockholder

A person who purchases preferred stock of a corporation is known as:

Preferred stockholder

Which of the following statements is not true about preferred stock?

Stockholders always have a voting right

Who is known as the real owner of the corporation?

common stockholder

According to current standards, mandatorily redeemable preferred stock is required to

be reported as:
liability
The shares of common and preferred stock that have been issued and outstanding are
reported in which section of balance sheet?
Stockholder’s equity section
Any unpaid dividend is carried forward to the future periods for which type of stock?
Cumulative preferred stock

The Southern company issued 5,000 shares of its $10 par value common stock. These
shares were issued at a price of $25 per share. The correct journal entry to record this
transaction is:
Cash $125,000 Dr; Common stock $50,000 Cr; Share Premium - common stock
$75,000 Cr.

Which of the following is not affected as a result of stock split?

Par value of total shares outstanding

The following information has been extracted from the balance sheet of Washington
Corporation as on December 31, 2017:

● Number of shares of common stock authorized: 200,000 shares

● Number of shares of common stock issued and outstanding: 80,000 shares
● Par value per share: $10

On January 1, 2018, the board of directors proposed a 7-for-5 stock split which was
approved.

The 7-for-5 stock split would increase the number of shares issued and outstanding by:

(mali 112k)

Which of the following cannot be a component of stockholders’ equity section of the

balance sheet?
Long term loan

Sometime companies buyback their own shares which are known as:
Treasury stock
 Quiz-Retained Earnings
Retained earnings are
the cumulative earnings of the company after dividends.

Which of the following is an argument for the relevance of dividends?

All (Informational content, Reduction of uncertainty, Some investors' preference for
current income )

All of the following are true of stock splits EXCEPT:

retained earnings are changed.

If Ian O'Connor Enterprises, Inc., repurchased 50 percent of its outstanding common

stock from the open (secondary) market, the result would be
a decrease in total assets.

In a balance sheet, the sum of retained earnings and common stock are known as:
Common equity

For a company making profits, which of the following statements is likely to be true?
Retained earnings at the year end will be greater than retained profits at the
beginning of the year.

Decrease in retained earnings can be explained by which of the following factors?

Net loss

The Retained Earnings account comprises:

The cumulative earnings less dividends since the inception of the corporation.

Among the following options which one is false with regard to appropriations of retained
earnings?
They require setting aside a reserve of cash for the appropriations.

A financial document indicating the success or failure of a business trading over a time
period is known as?
Income statement
The records of Stamina Farms disclosed a shortage in cash

amounting to P600,000. The treasurer had concealed the fraud by increasing

inventories

by P300,000, land by P100,000 and accounts receivable by P200,000.

Faced with prosecution, the treasurer offered to surrender 6,000 Stamina Farms shares

owned by him. The board of directors accepted the offer, with the agreement that the

treasurer would pay any deficiency between the shortage and the book value of the

shares, after adjusting for the fraud. The corporation would in turn pay the excess, if
any,

of the book value over the shortage.

As of December 31, 2015, there were 40,000 common shares issued and outstanding
with

a par value of P100; Retained earnings as of January 1, 2015 was P1,600,000 and net

income from 2015 operations was P1,400,000.

What would be the book value per share for purposes of the agreement?

175

Assuming further the company distributes the 6,000 shares as dividend to the
remaining stockholders, what would be the balance of the Retained earnings as of
December 31, 2015?
1,950,000

How much would the company pay the treasurer, if any?

450,000

Jute Enterprises issues 10,000 shares of common stock on January 1, 2012 at 12 per
share. On June 30, 2012, a 10% stock dividend is declared. The market value of the
stock on this date is 15. The journal entry to record the stock dividend declared would
include a:
debit to retained earnings for 15,000

Company A has a simple capital structure of 100,000 shares of 10 par common shares,
no preferred shares, and retained earnings of 750,000. The company made no sales or
purchases of its common shares. The earnings per share was .75. What was the
amount of net income?
75,000

Net income for the period totaled 55,000, preferred dividends paid totaled 10,000, and
common dividends paid totaled 30,000. If there were 100,000 common shares
outstanding throughout the year, what was the earnings per common share?
.45

From January 1 to May 31, Company A had 7,000 shares outstanding. From June 1 to
October 31, the company had 8,000 shares outstanding. From November 1 to
December 31, the company had 7,500 shares outstanding. What is the denominator for
determining the earnings per share for this simple capital structure company?
7,500

From January 1 to May 31, Company A had 4,800 shares outstanding. From June 1 to
October 31, the company had 5,220 shares outstanding. From November 1 to
December 31, the company had 6,000 shares outstanding. If the company had declared
a two-for-one stock split on December 1, how many shares are outstanding after the
stock split?
12,000

Which is the order in which the dates related to cash dividends occur?
declaration, record, payment

The Common Stock Dividend Distributable account is classified as a/an:

shareholders' equity account

Quiz: share based

Share-based payment transactions applies in which an entity __________ goods or
services?
Acquires and receives

Which of the following events are outside the scope share based?
Equity instruments issued in a business combination in exchange for control of
the acquiree

How shall an entity recognise the goods or services received or acquired in a

share-based payment transaction, which do not qualify for recognition as assets?
As expenses

When shall an entity remeasure the liability for cash-settled transactions?

At the end of each reporting period until the liability is settled

FX Services granted 15 million of its P1 par common shares to executives, subject to

forfeiture if employment is terminated within three years. The common shares have a
market price of P8 per share on the grant date. Ignoring taxes, what is the effect on
earnings in the year after the shares are granted to executives?
40M

The compensation associated with restricted stock under a stock award plan is:
Vesting

On January 1, 2013, M Company granted 90,000 stock options to certain executives.

The options are exercisable no sooner than December 31, 2015, and expire on January
1, 2019. Each option can be exercised to acquire one share of P1 par common stock for
P12. An option-pricing model estimates the fair value of the options to be P5 on the date
of grant.
What amount should M recognize as compensation expense for 2013?
150,000

The compensation associated with executive stock option plans is:

The estimated fair value of the options.

Executive stock options should be reported as compensation expense:

Fair value

A warrant bestows on its owner the:

obligation to sell securities directly to the issuer at a fixed price for a stated
period of time??

Stock warrants outstanding should be classified as

None (reductions of capital contributed in excess of par value, liabilities, assets)

The conversion of preferred stock may be recorded by the

book value method.
A contract that gives the holder the right to purchase a specified quantity of the
underlying assets at a predetermined price on or before a fixed expiration date is known
as __________.
Call option

What is the impact, all else equal, of a decreasing market interest rate on the value of
an option?
Decrease value

What is the impact, all else equal, of a longer time to expiration on the value of an
option?
Increase value

Quiz - Cash Flow Statement and Financial Statement

The statement of cash flows
summarizes the operating, financing, and investing activities of an entity.

The primary purpose of the statement of cash flows is to

provide information about the cash receipts and cash payments during a period.

The acquisition of land by issuing common stock is

a noncash transaction that is not reported in the body of a statement of cash
flows.

The order of presentation of activities on the statement of cash flows is

operating, investing, and financing.

Financing activities involve

Issuing debt

Meyer Company reported net income of $40,000 for the year. During the year, accounts
receivable increased by $14,000, accounts payable decreased by $6,000 and
depreciation expense of $10,000 was recorded. Net cash provided by operating
activities for the year is
30,000

Flynn Company reported a net loss of $10,000 for the year ended December 31, 2002.
During the year, accounts receivable decreased $10,000, merchandise inventory
increased $16,000, accounts payable increased by $20,000, and depreciation expense
of $10,000 was recorded. During 2002, operating activities
provided net cash of $14,000.

Starting with net income and adjusting it for items that affected reported net income but
which did not affect cash is called the
Indirect method

A company had net income of $420,000. Depreciation expense is $52,000. During the
year, Accounts Receivable and Inventory increased $30,000 and $80,000, respectively.
Prepaid Expenses and Accounts Payable decreased $4,000 and $8,000, respectively.
There was also a loss on the sale of equipment of $6,000. How much cash was
provided by operating activities?
$352,000.
$512,000.
$536,000.
$364,000.

Stapp Company had an increase in inventory of $40,000. The cost of goods sold was
$120,000. There was a $5,000 decrease in accounts payable from the prior period.
What were Stapp's cash payments to suppliers?
$165,000.
$125,000.
$155,000.
$115,000.

Norton Company has other operating expenses of $80,000. There has been a decrease
in prepaid expenses of $4,000 during the year, and accrued liabilities are $6,000 larger
than in the prior period. What were Norton's cash payments for operating expenses?
$90,000.
$78,000.
$70,000.
$82,000??? (80k-4k+6k)

Gant Company reports a $30,000 increase in inventory and a $10,000 increase in

accounts payable during the year. Cost of Goods Sold for the year was $500,000. The
cash payments made to suppliers were
520,000
Rodman Company had credit sales of $650,000. The beginning accounts receivable
balance was $40,000 and the ending accounts receivable balance was $140,000. What
were the cash collections from customers during the period?
550,000

Cash payments to suppliers is computed by analyzing the

Accounts Payable and the Inventory accounts.

Selected information from Kit Company’s accounting records is as follows:

Cash paid to retire common stock P 12,000

Proceeds from issuance of preferred stock 15,000

Cash dividends paid 5,000

Proceeds from sale of equipment 25,000

On the statement of cash flows for the year, Kit should report net cash flow from
financing activities as:
P2,000, net outflow of cash

Chester Corporation was a development stage enterprise from its inception on

September 1, 2017 to December 31, 2018. The following information was taken from
Chester’s accounting records for the above period:

Net sales P1,350,000

Cost of sales 1,000,000

Selling, general and administrative expenses 400,000

Research and development costs 300,000

Interest expense 100,000

In the period September 1, 2017 to December 31, 2018, what amount should Chester
report as net loss?

450,000
Eliot Corporation’s liabilities at December 31, 2017 were as follows:

Accounts payable and accrued interest P200,000

12% note payable issued November 1, 2016

maturing July 1, 2017 60,000

10% debentures payable, next annual principal

installment of P100,000 due February 1, 2018 700,000

On December 31, 2017, Eliot consummated a noncancelable agreement with the lender
to refinance the 12% note payable on a long-term basis, on readily determinable terms
that have not yet been implemented. Both parties are financially capable of honoring the
agreement’s provisions. Eliot’s December 31, 2017 financial statements were issued on
March 31, 2018. In its December 31, 2017 balance sheet, Eliot should report current
liabilities at:

300,000

Roy’s trial balance reflected the following account balances at December 31, 2015:

Accounts receivable (net) P1,600,000

Short-term investments 500,000

Accumulated depreciation on equipment and furniture 1,500,000

Cash 1,100,000

Inventory of merchandise 3,000,000

Equipment and furniture 2,500,000

Patent 400,000

Prepaid expenses 100,000

Land held for future business site 1,800,000

In Roy’s December 31, 2015 balance sheet, the current assets total is:

6,300,000

Rice Company was incorporated on January 1, 2015 with P5,000,000 from the issuance
of stock and borrowed funds of P1,500,000. During the first year of operations, net
income was P2,500,000. On December 15, Rice paid a P500,000 cash dividend. No
additional activities affected owners’ equity in 2015. At December 31, 2015, Rice’s
liabilities had increased to P1,800,000. In Rice’s December 31, 2015 balance sheet,
total assets should be reported at:
8,800,000