PRELIMINARY EXAMINATIONS

Intermediate Accounting 3 /
(Accounting 7)

NAME _______________________________________

I.Multiple Choice – Theory (15 points)

1.The major financial statements include all except:
a.Statement of financial position
b. Income statement
c. Cash flow statement
d. Statement of retained earnings

2. What is the objective of financial statements?

a. To provide information about the financial position, financial performance and changes in financial position to
a wide range of users.
b. To prepare a statement of financial position and a statement of comprehensive income
c. To present relevant, reliable, comparative and understandable information
d. To prepare financial statements in accordance with all applicable standards

3. The preparation of the financial statements is the primary responsibility of:

a. Management of the entity
b. Internal auditor
c. External auditor
d. Treasurer

4. Which statement indicates a going concern?

a. Management intends to liquidate the entity
b. Management intends to cease the operations of the entity
c. Management has no realistic alternative but to cease the operations of the entity
d. Management intends to operate the business for a very long period of time.

5. Accrued/ deferred revenue would normally appear in the statement of financial position under:
a. Current assets
b. Noncurrent assets
c. Current liabilities
d. Noncurrent liabilities.

6. The disclosure of accounting policies is important to financial statement users in determining:

a. Net income for the year
b. Whether the accounting policies are consistently applied from year to year
c. The value of obsolete goods in the ending inventory
d. Whether the working capital position is adequate for future operations

7. What is the purpose of information presented in the notes to financial statements?

a. To provide disclosures required by Generally Accepted Accounting Policies
b. To correct improper presentation in the financial statements
c. To provide recognition of amounts not included in the total of financial statements
d. To present management response to auditor’s comments

8. The summary of significant accounting policies should include:

a. The composition of property, plant and equipment and the depreciation method used
b. The composition of property, plant and equipment only
c. The depreciation method used only
d. Neither the composition of property, plant and equipment nor the depreciation method used

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9. Which of the following should be included in the key management personnel compensation?
a. Social security contributions
b. Postemployment benefits
c. Social security contributions and postemployment benefits
d. Dividends to shareholders

10. The term comprehensive income:

a. Must be reported on the face of the income statement
b. Includes all changes in equity except those resulting from investment by and distribution to owners
c. Is the net change in owner’s equity for the period
d. Is synonymous with net income

11. Which of the following does not appear in the statement of retained earnings?
a. Net loss
b. Prior period error
c. Preference share dividend
d. Other comprehensive income

12. Which of the following is included within the financial statements?

a. A statement of retained earnings
b. Accounting policies
c. An auditor’s report
d. Board of directors’ report

13. Which event after the reporting period would require adjustment?
a. Loss of factory as a result of fire
b. change in the market price of investment
c. Loss on inventory resulting from flood loss
d. Loss on a lawsuit the outcome of which is deemed uncertain at year-end

14. Non adjusting events include all except,

a. A major business combination after reporting period
b. Announcing plan to discontinue an operation
c. Expropriation of a major asset after reporting period
d. Destruction of a major production plant by a fire before the end of the reporting period

15. Related party transaction include all except,

a. A venturer sold goods to the joint venture
b. Sold a car to the uncle of the entity’s finance director
c. Sold goods to another entity owned by the daughter of the managing director
d. All of these are related party transactions.

II. Multiple Choice Problems. Show your computations 30 points

At year-end, the current assets of T Company revealed cash and cash equivalents of P700,000, accounts
receivable of P1,200,000 and inventories of P600,000. The examination of accounts receivable disclosed:
Trade accounts 930,000
Allowance for doubtful accounts (20,000)
Claims against shipper for goods lost in transit 30,000
Selling price of unsold goods sent by T on consignment, not included in ending inventory 260,000
Total accounts receivable 1,200,000

1.What amount should be reported as current assets at year-end?

a. 2,412,000
b. 2,440,000
c. 2,240,000
d. 2,500,000
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 Kate Company provided the following trial balance on June 30, 2020:
Cash overdraft 100,000
Accounts receivable 350,000
Inventory 580,000
Prepaid expenses 120,000
Land held for sale 1,000,000
Property, plant, and equipment 950,000
Accounts payable 200,000
Accrued expenses 150,000
Share premium 250,000
Share capital 1,500,000
Retained earnings 800,000
3,000,000 3,000,000

Checks amounting to P300,000 were written to vendors/suppliers and recorded on June 29, resulting in a cash
overdraft of P100,000. The checks were released on July 9, 2020.

Land held for sale was sold for cash on July 15, 2020.

2.What total amount should be reported as current assets?

a.2,250,000
b.2,050,000
c.1,950,000
d.1,250,000

3.What total amount of current liabilities should be reported?

a.450,000
b.350,000
c.650,000
d.300,000

4.What total amount should be reported as shareholders’ equity:

a.2,550,000
b.1,750,000
c.1,500,000
d.2,300,000

Nonita Company reported the following total debits and total credits in selected accounts after closing entries
were posted:

Materials 600,000 200,000

Goods in process 500,000 300,000
Materials purchases 2,500,000 2,500,000
Purchase discount 100,000 100,000
Freight in 200,000 200,000
Direct labor 3,000,000 3,000,000
Factory overhead 1,500,000 1,500,000
Finished goods 700,000 400,000

5.What is the cost of raw materials used?

a.2,800,000
b.2,400,000
c.3,200,000
d.2,600,000

6.What is the cost of goods manufactured?

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 a.6,900,000
b.7,200,000
c.7,000,000
d.7,400,000

7.What is the cost of goods sold?

a.6,900,000
b.7,400,000
c.7,100,000
d.7,000,000

Raymond Company reported the following unadjusted current assets and shareholders’ equity at year-end:
Cash 600,000
Financial assets at fair value, including cost of Raymond Co. shares 1,000,000
Trade accounts receivable 3,500,000
Inventory 1,500,000
Share capital 5,000,000
Share premium 2,000,000
Retained earnings 500,000

8.What amount should be reported as total shareholders’ equity at year-end?

a.7,200,000
b.7,500,000
c.7,800,000
d.5,200,000

During 2020, Roman Company was sued by the competitor for P5,000,000 for infringement of a patent.

Based on the advice of the legal counsel, the entity accrued the sum of P3,000,000 as a provision in the financial
statements for the year ended December 31, 2020

Subsequently, on March 15, 2021, the Supreme Court decided in favor of the party alleging infringement of the
patent and ordered Roman Co. to pay the aggrieved party a sum of P3,500,000.

The financial statements were prepared by the entity’s management on February 15, 2021 and approved by the
board of directors on March 31, 2021.

9.What amount should be recognized as accrued liability on December 31, 2020?

a.5,000,000
b.3,500,000
c.3,000,000
d.1,500,000

Melisa Company provided the following information for the current year:

Beginning inventory 400,000

Freight in 300,000
Purchase returns 900,000
Ending inventory 500,000
Distribution cost 1,250,000
Sales discount 250,000

The cost of goods sold is 6 times the distribution cost.

10. What is the amount of gross purchases?

a.6,500,000
b.6,700,000
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 c.8,000,000
d.8,200,000

III. Problem Solving. Show your solutions. 10 points each

1. Meredith Company provided the following information on December 31, 2020:

Current assets 3,100,000 Current liabilities 1,000,000
Other assets 5,900,000 Long term liabilities 1,000,000
Capital 7,000,000

Breakdown of accounts:
Cash (including P200,000 invested in money market and restricted foreign deposit of P300,000 ) P1,000,000
Land held for sale 500,000
Accounts receivable less allowance of P50,000 700,000
Inventories 600,000
Lee Ann share capital, at cost 300,000
Total current assets 3,100,000

Store supplies 50,000

Building less allowance of P500,000 3,000,000
Equipment less allowance of P250,000 750,000
Financial assets at amortized cost 1,000,000
Trademark 300,000
Advances to officers- indefinite repayment 150,000
Patent 250,000
Land 400,000
Total other assets 5,900,000

Accounts payable 500,000

Note payable, due December 31, 2021 100,000
Income tax payable 150,000
Share premium 250,000
Total current liabilities 1,000,000

Unearned leasehold income (5 years starting 2021) 350,000

Stock dividend payable 150,000
Serial bonds payable (100,000 maturing annually) 500,000
Total long-term liabilities 1,000,000

Retained earnings 1,500,000

Share capital P100 par 5,000,000
Retained earnings appropriated for plant expansion 500,000
Total capital 7,000,000

Required:
Prepare a statement of financial position with supporting notes and computations.

2. Merchant Company provided the following information for 2020:

Sales 7,500,000
Inventories January 1:
Raw materials 200,000
Goods in process 240,000
Finished goods 360,000
Inventories December 31:
Raw materials 280,000
Goods in process 170,000
Finished goods 300,000
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 Purchases 3,000,000
Direct labor 950,000
Indirect labor 250,000
Superintendence 210,000
Heat, light and power 320,000
Rent- factory building 120,000
Repair and maintenance – machinery 50,000
Factory supplies used 110,000
Sales salaries 400,000
Advertising 160,000
Depreciation – store equipment 70,000
Office salaries 150,000
Depreciation – office equipment 40,000
Depreciation – machinery 60,000
Sales returns and allowances 50,000
Interest income 10,000
Gain on sale of equipment 100,000
Delivery expenses 200,000
Accounting and legal fees 150,000
Office expense 250,000
Earthquake loss 300,000
Gain from expropriation of asset 100,000
Income tax expense 320,000

Required:
1.Prepare a statement of cost of goods manufactured
2.Prepare an income statement using cost of goods sold method, with supporting notes.