(CPA REVIEW SCHOOL OF THE PHILIPPINES Manila FINANCIAL ACCOUNTING AND REPORTING April 14,2019 Final Preboard Examination 12:00 neon to 3:00 p.m. MULTIPLE CHOICE: MARK FULLY with PENCIL No. 2 the letter of your choice on the answer sheet provided. Make the mark DARK but do not use too much pressure. ERASURES ARE STRICTLY NOT ALLOWED. Nambers 1 and 2 Situation 1 - An entity issued P6,000,000 of 9%, ten year bonds on June 30, 2019 for P5,625,000. This price provided a 10% yield on the bonds. Interest is payable semiannually every June 30 and December 31 Situation 2 - An entity provided warranty for all products sold during 2019. The entity sold 200,000 nits during the current year. It estimated thet 75% of the products sold will have no defeets, 15% of the prodicts sold will have a minor defect and 10% of the products sold will have a major defect. The cost of a minor defect is P100 per unit while the cost of a major defect is P300. The entity is also involved in ‘tax dispute with the BIR in 2019. Based on legal advice, there is a 40% chance that the entity will lose the case and thet the entity will have to pay P500,000. 1, What is the carrying amount of the bonds on Decernber 31, 2019? a. 5,687,500 b. 5,636,250 ce. $613,750 4. 6,000,000 2. What total amount of provisions should be recorded on December 31, 20197 ‘a 9,300,000 '. 9°200,000 9,000,000 4. 9,500,000 Numbers 3 and 4 ‘An entity hall an outstanding loan of P3,000,000. The loan has an effective interest rate of 12%. On December 31, 2019, the enity was experiencing financial difficulty and entered into a restructuring agreement with a bank under the following modifications: Reduce the principal blance by 20%, extend the maturity date fom December 31,2019 10 January 1, 2023 and reducing the interest rate to 10%. Interest is payable annually every December 31. There was no accrued interest as of December 31, 2019. The present value factors of 1 for tree periods at 10% and 129 are 0,751 and 0.712 respectively and the present value factors ofan ordinary annuity for thre periods at 10% and 12% are 2.487 and 2.402 respectively 3. What amount of gain should be reported as a result ofthe modification of terms under IFRS? a. 720,000 600,720 . © 714,720 a ° 4. What amount of interest expense should be reported forthe year ended December 31, 2020? a. 276234 . 240,000 ©. 239,928 4 288,000‘Numbers §,6 and 7 (On December 31, 2018, an entity reported the following equity items: 8% cumulative preference shares (150,000 issued, P20 par) 3,000,000 (Ordinary share capita (2,000,000 issued, PS pat) 10,000,000, Share premium - preference 200,000 Share premium - ordinary 27,000,000 Reuined earnings 4,500,000 ‘The following transactions affected equity during 2019: Jan, 1 30,000 preference shares issued at P22 per share ‘Apc. 150,000 ordinary shares issued atP20 per share June 1 _2-for- share split onthe ordinary shares July 1 30,000 ordinary treasury shares were reacquired at P10 per share Oct. 1 10,000 treasury shares were reissued at PLT per share a Dec.31 Net income for the year is P9,000,000. The latest preference dividend was paid during 2017. 5. What emount should be reported as total shareholders’ equity on December 31,2019? 8 $5,170,000 . 44°700,000 $4,882,000 55,375,000 6. What amount should be reported as basic earnings per share for 20197 2 220 b 222 © 214 207 ‘Whats the book value per preference share on December 31, 20192 20.00 b. 2295 © 2320 4 21.60 Number 8 ‘An entity was reporting losses for several years. The board of ditectors and shareholders approved a quasi-eorganization. The reorganization included reducing inventory and land by P300,000 and 'P800,000 respectively. Immediately before the restatement, the entity had the following balances ‘Share capital (320,000 issued shares, PLO par) 3,200,000 ‘Share premium '800,000 Reuwined earings (deficit) (400,000) ‘What is the reduction in the total par value ofthe shares to fully eliminate the deficit? 400,000 . ». 700,000 © 1,500,000 a 0had” 3 Numbers 9,10 and 11 “ Anentity reported the following equity items on January 1, 2019: ‘Share capital (P10 par value) «6,900,000 Shere premium 1,500,000 Retained eernings 5,000,000 ‘The following transections occured during 2019: July 15% share dividend was declared when the market price wes P40 per share ‘Get. 1 Declared a 2for-I share split when the market price is P50 per share. Nov. 30 Declared a property dividend. The property i fom the entity's equity investment consisting (of 200, 000 shares, The iavestment bad a carrying amount of P12 per share and a fair value of 9.50 per share Dee. 31. Netincont forthe years P3,000,000. The fir value ofthe equity investments P10 per share ‘on December 31, 2019. ‘On March $, 2020, the property dividend was distributed, The fair value ofthe investment on such date ‘was PII per share. i 9, What amount of retained eamings should be reported on December 31, 20197 4,800,000 b. 4,400,000 4,900,000 4. 5,800,000 10, The equity investment should be measured on December 31, 2019 at what amount? a. 2,400,000 . 2,000,000 1,900,000 4. 3,000,000 11, What amount of gain oF loss on distribution of property dividend shouldbe reognized on March 5, 20207 200,000 gain , 200,000 oss €. 100,000 oss 100,000 gain ‘Numbers 12 and 13, ‘An entity granted share options to key officers to purchase 300,000 shares with a P30 par value. These ‘options were granted on January 1, 2019 and were vested 2 years after the date of grant provided that the employees sill remain withthe entity. The options expire 5 years aftr the date of grant. The option price is PAS per share and using an option-pricing model, the total compensation was determined to be 'P900,000 on Jenuary 1, 2019. During 2020, 6% ofthe shave options were forfeited and the remaining ‘options were exercised by December 31, 2021. 12, What amount of compensation expense should be recognized for 20207 a. 450,000 », 846,000 396,000 <4. 900,000 13, What amount of share premium should be recorded as a result ofthe exercise of the share options on December 31, 20217 5,076,000 b. 4,536,000 I ©. 4,230,000 4. 500,000Page 4 Numbers 14,15 and 16 ‘An entity isa manufacturer of machinery. It uses lease agreements to sell its product. On January 1, 2019, the entity leased a machine to another entity under the following terms: ‘The lease tenm is years ‘The annual rental is PS00,000 payable every January 1, stating January 1,2019, ‘The machine has cost othe entity of PI, 600,000. Implicit interest rate in the lease, known tothe lessee, is 8% ‘The machine reverts back to the entity at the end of S years with unguarenteed residual value of 400,000. The present value factors of | and annuity due at 8% for 5 periods are 0.68 and 4:31 respectively. 14, What amount of sales revenue shouldbe recognized by the entity? 2,135,000 , 2.427.000 ©. 2'355,000 4. 1,883,000 15, What amount of gross income should be recognized by the entity for 2019? $55,000 '. 827,000 ©. 955,000 700,000 16, Wher amount should te recognized as interest income for 2019? a 194,160 b 154160 © 172.400 4. 128.000 ‘Numbers 17 and 18, An entity reported tals incu:n: of P8,000,000 during 2619, i fs" year of operations. The following are the differences thet vouse finance! income to cer from taxable tvsome: excess tax depreciation ‘vet accouiting depreciation, P5000, revenue collected for tax in excess of accounting revenue, P2000 000 and ws peas es an expec i emest, P200,009. The income tax rate is 17, What total tax expense should be reported for 2019? 1,890,000 b. 2'400.000 1,950,000 4. 2,010,000 18, What is the net d 450,000 expense b. 450,000 bensfit $10,000 ex} 4. $10,000 benefir ied tax expense or benefit for 20192Numbers 19, 20 and.21 ‘An entity provided the following items related to its defined benefit plan for 2019: December 31 3,355,000 Projected benefit obligation 2.260.000 Fair value of plan assets ‘The current service cos forthe year was P155,000, comibutions to the fund amounted to PS00,000 and the actual rerum and interest inzome on the pln asset was P160,000. No benefits were paid. There was «decrease inthe projected benefit obignon ducing the year de to change in actuarial assumptions 19. What isthe benefit expense for 20197 1. 500,000 b. 795,000 5. 295,000 4. 195,000 20, What amoint was recognized as actuarial gain on PBO during the year? 100,000 200,000 240,000 0 21. What amount should be reported as prepaid or accrued benefit cost on December 31, 20197 ‘a 1,095,000 accrued . 1,095,000 prepaid ¢, 308,000 prepaid 4,305,000 accrued ‘Numbers 22 and 23 ‘An entity provided the following data on December 31, 2019. Cash 400,000 Accounts payable 500,000 ‘Accounts receivable £800,000 Note payable 550,000 Inventories 350,000 Bonds payable 1,100,000 + Cash included a P200,000 sinking fund tobe used to settle the bonds in 2023. ‘+ Accounts receivable included a P200,000 note receivable from a customer due in 2022, 1 The note payable is due on February 14, 2020. On December 31, 2019, the entity intended to refinance the note payable on a Tongeterm basis. On January 19, 2020, the entity executed the refinancing. The 2019 financial statements are issued on March 15, 2020. ‘© Inventories included equity investments of 250,000. The entity is expected to sell 40% of this investment next yea, while the remaining 60% is to be held indefinitely 22, What total amount of current assets should be reported on December 31, 20197 ‘a. 1,200,000 b. 1,350,000 1,550,000 4. 1150,000 23, What total amount of current lisilties should be reported on December 31, 20197 500,000 $50,000 «©. 1,100,000 I <. 1,050,000Numbers 24 and 25 ‘An entity provided the following information forthe current year: December 31 January 1 Cash 4,300,000 700,000 Accounts receivable 1,200,000 1,000,000 Investment . ‘500,000 Accrued expenses 700,000 600,000 Income tx payable 400,000 150,000 Bonds payable 200,000 00,000 4 Ordinary shares were issued for P3,000,000 cash. ‘+ The investment was sold for P30(,000 cash. ‘+ Cash dividend of P&00,000 was paid to shareholders ‘© Parof the bonds were setled early at a price of P2S0,000, ‘+ Depreciation forthe year was P300,000 and net income was PI,050,000. 124, What isthe net cash provided by operating activities? 1,200,000 b. 1.150,000 1.380.000 . 1,400.000 25, What is the net cash provided by financing activities? a. 3,000,000 ’. 2.750.000 . 1,950,000 4. 200,000 ‘Numbers 26 and 27 ‘The bank statement forthe shes 31, 2019: The ensiy provived the Outstanding checks were Pi © Deposits an tans” were PESO sscount of an entity showed a balance of P4,$00,000 on December ilowing information in preparing a bank tecoreiliation: 100 A ‘Check payment was incorrec’'y recordea by the entity inthe amount of 260,000. The correct amour recorded bythe bank was P250,000, + The bark witdrew 21002092 pyment on mostgepaytle oft eaity. The entity id notreord 1 pay Bank service charges arovaned to 120,000 A deposit of P8000 as inappropriately creed by ine bank tothe entity's account NSF checks amounted to P200,060 Per instruction of tae suit un December 30, the bank withdrew P!,60 090 from the acsount and purchased treasury bills. The entity recorded the transiction oe the same date, 26, What is the cash in 4,050,000 « b. 4.850.000 5,650,008, 4. 3,080,000 be reported on December 31,2019: 27. What isthe eash in bank balence per ledge: on Deceinber 31, 20192 b &| | Page 7 Numbers 28,29 and 30 (On January 1,2019, an entity was indebted to a bank under a P4,800,000, 10% loan. The loan was dated January 1, 2017 and was due on December 31, 2020. The annual interest was lat paid on December 31, 2017. The entity was experiencing financial troubles and therefore the bank considered the loan impaired. The bank agreed to reduce lest year's interest and the remaining two years” terest peyments 0 P200,000 each and delay all such payments on December 31, 2020. The present value of I at 10% for two periods is 0.83, ‘The entity also reported the net realizable value of accounts receivable inthe amounts of 1,000,000 and 1,200,000 on December 31, 2019 and 2018 respectively. I was also disclosed that the allowance for . Actual borrowing cos incurred during the construction period less investment income. «, Actual borrowing cost incurred forthe year 4. Actual borrowing cos incurred for the year less investment income, ‘57. The following are comronents of employee benefit expense, except 4 Curers service cost '. Interesi ow the projected benefit obligation ©: Interest on ie effect of the asset ceiling 4. Decresse'n projested benefit obligation due to change i actuarial assuinpkions 58. All ofthe following gairs and loses ace presented in othe: comprehensive income, except f Remeasurements andes a defined bene , Fair value changes oft ct «- Revaluetion surpias 4 Translation sijustreat— credit 59, All of the following ar finan:il abilities, except ‘8. Bonds payable b. Noses payabio Income tax payable 4. Accounts payable 60. If an entity hes elected to use the fir valve option fora financia! Lait a. is measured at fair vals through profi or loss. b.ltis measured at emurtized eos. €- Its measured at fst vaive through other comprehensive income 4. Fair valus option is pot ited for financial lish tes. 61. Allof te following ate considered inves'ment property, except Land that is hele for capita appreciation i. Building leased out under ao operating Hse, ©. Bhilding tha is esntracte for ferue use as investine 4. Land for sale in the ordinary course of bu propertyPage 13 (62, Debt investments can be subsequently measured at FVPL and amortized cost FVOCT and amortized cost FVPL, FVOCI and amortized cost FVPL and FVOCI pegs (63. Cash receipts from royalties and commissions are 4 Cash flows from operating atvities '. Cash flows from investing activities «©. Cash flows from financing activities 4. Not reported inthe cashflow statement 64, Al ofthe following are components of income or loss from continuing operations, except 1 Revenue from the sale of merchandise ’. Interest income <. Impairment loss of assets of a major division classified as held for sale 4, Unrealized loss on trading investments (65, All ofthe following ar classified as curent liabilities, except ‘Trade accounts payable ‘Deferred tax liability that is expected to reverse next year Curent porion ofa long tem debt Cash dividend payable (66, Al ofthe following are criteria for an asset to be classified as eurrent, except 1. Realized, sold or consumed beyond the normal operating cycle ». Realized within 12 months after the end ofthe reporting period «Held for trading 4. Cash or cash equivalent (67, Which of the following describes the function ofthe Financial Reporting Standards Council? To establish and improve accounting standards that will be generally accepted ©. To prepare interpretations of PFRS and to provide guidance on issues not addressed ‘To promulgate rules and regulations affecting the accountancy profession 4. To supervise overall registered business entities (68, Tobe issued a certificate of accreditation, a CPA must have acquired a minimum of a. Two years meaningful experience ‘i. Three years meaningful experience «e. Four years meaningfel experience 4. Five years meaningfl experience (69. Which of the following isin correct order? ‘2 Reconding in journal, adjusting entries, analyze documents b, Adjusting entries, financial staternents, closing entries «. Posting to ledger, closing entries, adjusting entries 4. Postelosing tial balance, recording in joumal, nancial statements 70. Under the Revised Conceptual Framework, which ofthe following is a characteristic of an asset? 1. Present economic resource ' Economic resource is. right that hus the potential to produce economic benefits €- Economie resource is controlled by the entity asa result of a past event 4. All ofthese characterize an asset. -END -