CPA REVIEW SCHOOL OF THE PHILIPPINES

Manila
FINANCIAL ACCOUNTING AND REPORTING VALIX/VALIX/ESCALA/SANTOS/DELA CRUZ
BATCH 92 OCTOBER 2022 CPALE

COMPREHENSIVE INCOME AND ACCOUNTING CHANGES

1. An entity reported the following data for the current year:

Net sales 9,500,000
Cost of goods sold 4,000,000
Selling expenses 1,000,000
Administrative expenses 1,200,000
Interest expense 700,000
Gain from expropriation of land 500,000
Income tax 800,000
Income from discontinued operation 600,000
Unrealized gain on equity investment at FVOCI 900,000
Unrealized loss on debt investment at FVOCI 200,000
Unrealized loss on forward contract designated as a cash flow hedge 400,000
Actuarial loss on defined benefit plan due to actuarial assumptions 300,000
Foreign translation gain 100,000
Loss on credit risk of financial liability designated at FVPL 700,000
Revaluation surplus during the current year 2,500,000
1. What net amount should be recognized in other comprehensive income?
a. 1,900,000
b. 3,100,000
c. 2,600,000
d. 2,800,000
2. What amount should be reported as comprehensive income?
a. 4,800,000
b. 1,000,000
c. 2,900,000
d. 2,300,000
2. An entity reported net income of P7,400,000 for the current year. The auditor raised questions about the
following amounts that had been included in net income:
Equity in earnings of an associate – 25% interest 1,500,000
Dividend received from the associate 400,000
Unrealized loss on equity investment at FVOCI 550,000
Gain on early retirement of bonds payable 2,200,000
Debit adjustment of profit of prior year for error in underdepreciation, net of tax 750,000
Loss from fire 1,400,000
Unrealized gain on equity investment at FVPL 500,000
What amount should be reported as adjusted net income?
a. 8,300,000
b. 7,800,000
c. 7,600,000
d. 8,700,000
3. On January 1, 2020, an entity purchased for P5,000,000 a machine with useful life of ten years and
residual value of P200,000. The machine was depreciated by the double declining balance method and
the carrying amount of the machine was P3,200,000 on December 31, 2021. The entity changed to the
straight line method on January 1, 2022 and the residual value did not change.
What is the carrying amount of the asset on December 31, 2022?
a. 2,825,000
b. 2,175,000
c. 2,625,000
d. 3,200,000

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4. On January1, 2022, an entity decided to decrease the useful life of an existing patent from 10 years to 8
years. The patent was purchased on January 1, 2017 for P3,000,000 no residual value. The entity
decided on January 1, 2022 to change the depreciation method from an accelerated method to the
straight line method. On January 1, 2022, the cost of an equipment was P8,000,000 and the
accumulated depreciation P3,400,000. The remaining useful life of the equipment on January 1, 2022 is
10 years and the residual value P200,000.
What is the total charge against income for 2022 as a result of the accounting changes?
a. 940,000
b. 960,000
c. 627,500
d. 647,500
5. An entity was incorporated on January 1, 2019. In preparing the financial statements for the year ended
December 31, 2021, the entity used the following original cost and useful life:
Building 15,000,000 15 years
Machinery 10,500,000 10 years
Furniture 3,500,000 7 years
On January 1, 2022, the entity determined that the remaining useful life is 10 years for the building, 7
years for the machinery and 5 years for the furniture. The entity used the straight line method of
depreciation with no residual value.
What amount should be reported as total depreciation for 2022?
a. 2,650,000
b. 3,700,000
c. 2,550,000
d. 3,500,000
6. During 2022, an entity decided to change from the FIFO method of inventory valuation to the weighted
average method. Inventory balances under each method were:
FIFO Weighted Average
December 31, 2019 4,500,000 5,400,000
December 31, 2020 7,800,000 7,100,000
December 31, 2021 8,300,000 7,800,000
The income tax rate is 25%. What amount should be reported as the effect of this accounting change in
the statement of retained earnings for 2022?
a. 375,000 decrease
b. 375,000 increase
c. 500,000 decrease
d. 500,000 increase
7. An entity reported the following events during 2022:
• The entity decided to write off P1,000,000 from inventory which was over two years old as it
was obsolete.
• A counting error relating to inventory on December 31, 2021 was discovered. The error required
an increase in the carrying amount of inventory on that date at P500,000.
• Sales of P1,500,000 had been omitted from the financial statements for the year ended
December 31, 2021.
• The provision for uncollectible accounts on December 31, 2021 was P500,000. During 2022,
P800,000 was written off related to the December 31, 2021 accounts receivable.
What pretax amount should be reported as prior period error in the financial statements for 2022?
a. 2,500,000
b. 1,500,000
c. 2,000,000
d. 2,300,000

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