Professional Documents
Culture Documents
MIDTERM
1. The objective of PAS 1 Presentation of Financial Statements is to prescribe the basis for presentation
of general purpose financial statements, to ensure
a. intra-comparability c. faithful representation
b. inter-comparability d. a and b
3. The ledger of COPIOUS RICH Co. as of December 31, 20x1 includes the following:
Additional information:
COPIOUS Co.’s financial statements were authorized for issue on April 15, 20x2.
- The 15% note payable was issued on January 1, 20x1 and is due on January 1, 20x5. The note pays
annual interest every year-end. The agreement with the lender provides that COPIOUS Co. shall
maintain an average current ratio of 2:1. If at any time the current ratio falls below the agreement,
the note payable will become due on demand. As of the 3 rd quarter in 20x1, COPIOUS’s average
current ratio is 0.50:1. Immediately, COPIOUS informed the lender of the breach of the agreement.
On December 31, 20x1, the lender gave COPIOUS a grace period ending on December 31, 20x2 to
rectify the deficiency in the current ratio. COPIOUS promised the creditor to liquidate some of its
long-term investments in 20x2 to increase its current ratio.
- The 16% bonds are 10-year bonds issued on December 31, 1992. The bonds pay annual interest
every year-end.
- The 18% serial bonds are issued at face amount and are due in semi-annual installments of ₱20,000
every April 1 and September 30. Interests on the bonds are also due semi-annually. The last
installment on the bonds is due on September 30, 20x7.
Additional information:
a. Ending inventory is ₱100,000.
b. Three-fourths of the salaries, rent, and depreciation expenses pertain to the sales department. The
sales department does not share in the other expenses.
10. After the renovations are completed and the property is classified as held for sale but before a
firm purchase commitment is obtained, the entity becomes aware of environmental damage
requiring remediation. The entity still intends to sell the property. However, the entity does not
have the ability to transfer the property to a buyer until after the remediation is completed. The
costs of renovations made totaled ₱200,000. The estimated costs of remediation are ₱100,000.
How should DEMOTIC Co. classify the land and buildings?
a. Included under property, plant and equipment at ₱5,700,000.
b. Included under investment property at ₱6,000,000.
c. Included under investment property at ₱5,700,000.
d. Classified as held for sale at ₱5,700,000
11. An entity is committed to a plan to sell a manufacturing facility in its present condition and
classifies the facility as held for sale at that date. After a firm purchase commitment is obtained,
the buyer’s inspection of the property identifies environmental damage not previously known to
exist. The entity is required by the buyer to make good the damage, which will extend the period
required to complete the sale beyond one year. However, the entity has initiated actions to make
good the damage, and satisfactory rectification of the damage is highly probable. The
manufacturing facility has a carrying amount of ₱10,000,000 and fair value less costs to sell of
₱10,600,000. How should the entity classify the manufacturing facility?
a. Held for sale, ₱10.6M c. PPE, ₱10M
b. Held for sale, ₱10M d. PPE, ₱10.6M
12. Under the indirect method, the cash flow from operating activities is determined by adjusting
the reported profit by (choose the incorrect statement)
a. adding back non-cash expenses
b. adding back decreases in operating assets
c. deducting decreases in operating liabilities
d. adding back increases in operating assets
13. Under the indirect method, the cash flow from operating activities is determined by adjusting
the reported profit by (choose the incorrect statement)
a. deducting non-cash income
b. deducting increases in operating assets
c. deducting decreases in nonoperating liabilities
d. deducting gains on sale of nonoperating assets
14. When preparing a statement of cash flows using the direct method, amortization of patent is
a. shown as an increase in cash flows from operating activities.
b. shown as a reduction in cash flows from operating activities.
c. included with supplemental disclosures of noncash transactions.
d. not reported in the statement of cash flows or related disclosures.
16. Using the indirect method, cash flows from operating activities would be increased by which of
the following?
a. Gain on sale of investments
b. Increase in prepaid expenses
c. Decrease in accounts payable
d. Decrease in accounts receivable
Cash
beg. 400
Sales 12,000 7,600 Purchases
Interest income 40 2,400 Operating expenses
Rent income 540 60 Interest expense
Dividend income 80 140 Income taxes
Sale of held for trading securities 1,600 200 Investment in FVOCI
Sale of old building 1,040 2,200 Purchase of equipment
Collection of non-trade note 120 260 Loan granted to employee
Proceeds from loan with a bank 3,200 480 Payment of loan borrowed
Issuance of shares 1,940 400 Reacquisition of shares
180 Dividends
7,040 end.
DS
Additional information:
There were no write-offs of accounts receivable during the year.
Equipment with an accumulated depreciation of ₱800 was sold during the year for ₱480
resulting to a gain on sale of ₱60.
a. 1,680
b. 4,800
c. 4,960
d. 8,080
22. How much is the cash payments for acquisition of property, plant, and equipment?
a. 3,600
b. 4,820
c. 4,080
d. 4,940
23. ABC Co. has the following information as of December 31, 20x1:
Jan. 1 Dec. 31
Accounts receivable 100,000 250,000
Allowance for bad
15,000
debts 20,000
Net credit sales 850,000
Bad debt expense 60,000
Recoveries 20,000
How much is the total cash receipts from customers during the period?
a. 970,000
b. 879,000
c. 907,000
d. 897,000
24. BLUFF DECEIVE Co. has the following information as of December 31, 20x2:
Jan. 1 Dec. 31
Accounts receivable 16,000 20,000
Allowance for bad debts (400) (1,000)
Prepaid rent 3,840 3,200
Accounts payable 6,800 8,800
BLUFF reported profit of ₱8,800 for the year, after depreciation expense of ₱200, gain on sale of
equipment of ₱240, and restructuring and other provisions of ₱400. None of the provisions
recognized during the period affected cash.
25. How much is the net cash flows from (used in) investing activities?
a. (2,400,000)
b. 2,400,000
c. 800,000
d. (800,000)
26. How much is the net cash flows from (used in) financing activities?
a. (800,000)
b. 800,000
c. (2,400,000)
d. 2,400,000
27. How much is the net cash flows from (used in) operating activities?
a. (6,000,000)
b. 6,000,000
c. 6,600,000
d. (7,600,000)
28. How much is the net cash flows from (used in) investing activities?
a. (8,160,000)
b. 8,460,000
c. (9,200,000)
d. 8,160,000
29. How much is the net cash flows from (used in) financing activities?
a. (2,560,000)
b. 2,560,000
c. (2,960,000)
d. 2,960,000
30. REMNANT REMAINDER Co.’s cash balances as of December 31, 20x2 and 20x1 were ₱7,040,000
and ₱400,000 respectively. REMNANT’s December 31, 20x2 statement of cash flows reported net
cash used in investing activities of ₱1,500,000 and net cash from financing activities of
₱4,080,000.
How much is the net cash flows from (used in) operating activities?
a. (4,060,000)
b. 4,060,000
c. 4,600,000
d. (4,600,000)
31. During 20x1, ALBEIT ALTHOUGH Company decided to change from the Average cost formula
for inventory valuation to the FIFO cost formula. Inventory balances under each method were as
follows:
Average FIFO
January 1 4,000,000 4,800,000
December 31 8,000,000 8,400,000
Income tax rate is 30%. What is the net cumulative effect of the accounting change in ALBEIT’s
opening retained earnings balance?
a. 400,000 increase c. 280,000 increase
b. 560,000 decrease d. 560,000 increase
32. On January 1, 20x1, PRISTINE UNCORRUPTED Co. acquired an equipment for ₱4,000,000. The
equipment will be depreciated using the straight-line method over 20 years. The estimated
residual value is ₱400,000.
In 20x6, following a reassessment of the realization of the expected economic benefits from the
equipment, PRISTINE Co. changed its depreciation method to sum-of-the-years digits (SYD). The
remaining useful life of the asset is estimated to be 4 years and the residual value is changed to
₱200,000. How much is the depreciation expense in 20x6?
a. 1,160,000 b. 1,140,000 c. 1,233,560 d. 1,110,669
33. The correcting entry, if the books are still open, includes
a. a debit to advertising expense for ₱1,600,000
b. a credit to advertising income for ₱1,600,000
c. a debit to retained earnings for ₱1,600,000
d. a credit to retained earnings for ₱1,600,000
34. The correcting entry, if the books are already closed, includes
a. a debit to advertising expense for ₱1,600,000
b. a credit to advertising income for ₱1,600,000
c. a debit to retained earnings for ₱1,600,000
d. a credit to retained earnings for ₱1,600,000
35. On January 15, 20x3 while finalizing its 20x2 financial statements, DIAPHANOUS
TRANSPARENT Co. discovered that depreciation expense recognized in 20x1 is overstated by
₱1,600,000. Ignoring income tax, the entry to correct the prior period error includes
a. a debit to depreciation expense for ₱1,600,000
b. a debit to retained earnings for ₱1,600,000
c. a credit to depreciation expense for ₱1,600,000
d. a debit to accumulated depreciation for ₱1,600,000
The unadjusted balances of retained earnings are ₱8,800,000 and ₱16,800,000 as of December 31, 20x1
and 20x2, respectively.
The unadjusted balances of retained earnings are ₱6,400,000 and ₱8,800,000 as of December 31, 20x1
and 20x2, respectively.
Profits before correction of errors were ₱492,000, ₱624,000, and ₱840,000 in 20x1, 20x2, and 20x3,
respectively.
Retained earnings before correction of errors were ₱4,492,000, ₱5,116,000 and ₱5,956,000 in 20x1,
20x2, and 20x3, respectively.
44. What is the net effect of the errors on the 20x1 profit? (over) understatement
a. (187,200)
b. 187,200
c. (164,200)
d. 164,200
45. What is the net effect of the errors on the 20x2 profit? (over) understatement
a. (572,000)
b. 572,000
c. 563,400
d. (563,400)
49. What is the net effect of the errors on the 20x1 retained earnings? (over) understatement
a. (182,700)
b. 182,700
c. (165,200)
d. (187,200)
50. What is the net effect of the errors on the 20x2 retained earnings? (over) understatement
a. 348,800
b. (348,800)
c. (384,800)
d. 384,800
ANSWER