PROFESSIONAL REGULATORY BOARD OF ACCOUNTANCY CPA Licensure Examination OCTOBER 06, 2018 (08:00 A.M. — 11:00 A.M. FINANCIAL ACCOUNTING AND REPORTING INSTRUCTION: Select the answer for each \e correct answer for each of the following questions. Mark only one Kem by shading the box corresponding to the letter of your choice on the answer sheet provided, STRICTLY NO ERASURES ALLOWED. Numbers 1 and 2 Libis Company reported the following information on December 31, 2018: Eauipment 840,000 Fquity 1,555,000 eae 210,000 Noncurrent liabilities 750,000 eptory 600,000 Accounts payable 440.000 Accounts receivable (net) 405'000 Cash 630,000 Total 2.745.000 Total 2.745.000 ‘Cash included P 12,000 in petty cash fund and P120,000 in bond sinking fund. ANS et Sccounts receivable comprised debit balance - P520,000, eredit balance — P80,000, and allowance for doubtful accounts — P35,000, loventory costing P53,000 was shipped out on consignment on December 312 2018. The inventory balance did not include the consigned gocds but an account receivable of P53,000 was recognized on the consigned goods. Income tax payable of P90,000 was accrued on December 31, 2018, The entity had set up a cash fund to meet this obligation. This cash fund was not included iu the cash balance but was offset against the income tax payable account. ‘What amount of current assets should be reported on December 31, 2018? 1,695,000 >. 1,745,000 c. 1,655,000 4. 1,798,000 What amount of current liabilities should be reported on December 31, 2018? & 530,000 b. 520,000 . ©. 663,000 4. 610,000 Number 3 Release Company issued its December 31, 2018 financial statements on March 20, 2019. The following events took place before the financial statements were suthorized: * A flood loss of P800,000 occurred on Murch 1, 2019. * 10,000 ordinary shares were issued at P150 par value on March 15, 2019. * On March 1,2019, the entity determined after negotiations with the BIR that income tax payable for 2018 should be P5,200,000. On December 31, 2018, income tax payable was recorded at P3,000,000. ‘What total amount of adjusting events should be reported on December 31, 20187 a 5,200,000 5 b. 4,500,000 ©, 2:200,000 4. 2,300,000 Scanned with CamScannerNumbers 4, 5 ana 6 Mesmerize Company reported net income of P1,450,000 for the year ended December 31, 2018. Below are some transactions during 2018 that might affect the entity's cash flow. * . Purch_sed 109 treasury shares at a cost of P200 per share. These shares were reissued at P250 per share, * Sold 100 ordinary shares of Globe Company at P2,000 per share. The acquisition cost of the shares ‘Was P1,650 per share and the carrying amount on disposal date was P1,800 per share. The investment ‘was measured irrevocably at FVOCI. * Revised the estimate for doubtful accounts. Before 2018, the estimate is 1% of net sales. In 2018, it Was increased to 2%, Net sales for 2018 totaled P5,000,000 and accounts receivable at gross amount decreased by P120,000 during 2018. * Issued $00 ordinary shares with F100 par value for a patent, The fair value of the shares on the date of issue was P230 per share. * Depreciation expense for the year 2018 was P390,000. ~The entity had 30% of Saint Company's ordinary shares held as long-term investment. Saint Teported net income of ‘270,000 for 2018. * Cash dividends paid for the year 2018 totaled P20,000. p - What is the net cash flow from operating activities? a. 1,944,000 provided b. 1,959,000 provided ©. 1,979,000 provided 4. 2,060,000 provided 5. What is the net,cash flow from investing activities? a. 200,000 provided b. 281,000 provided €. 119,000 provided d. 46,000 used ‘ 6. What is the net cash flow from financing activities? 2 5,000 provided b. 15,000 provided ©. 100,000 provided d. © 15,000 used 7 ‘Numbers 7 and ‘On November 1,/2018, Constantine Company received P24,000 representing royalty revenue for three months."On Febrpary 1, 2019, the entity received P1C8,000 representing royalty revenue for one year. ‘The entity used the income method and did not prepare reversing entries. 7, What is includfd in the adjusting entry on December 31, 2018? revenue P24,000, revenue P8,000. -d royalty revenue P16,000. revenue P16,000. 8, Whatis included in the adjusting entry on December 31, 2019? a. Credit defer royalty revenue P9,000. b, Debit deferted royalty revenue P1,000. c, Credit defeired royalty revenue P1,000. “4. Debit royally revenue P8,000. Scanned with CamScannerNumbers 9 and 10 Kaniper Company provided the following information at the current yeut-end: Cash in bank, Petty cash Commercial paper with maturit of 2 months Customer postdated checks Plant expansion fund Bond sinking fund (Bonds are due in.5 months) Cash fund for payment of salaries Sales Sales retums and allowance Accounts receivable Allowance for doubtful accounts before adjustment — debit balance Deposit in transit and The entity estimated per bank statement 9. What amount of cash and cash equivalent should be reported on December 31, 2018? & 578,000 ». 403,000 483,000 4. 603,000 10. What is the doubtful accounts expense for the current year? a, 43,000 b. 35,400 ©. 42,240 a. 50,600 Numbers 11 and 12 200,000 3,000 55,000 14,000 150,000 120,000 200,000 4,250,000 140,000 430,000 7,600 outstanding checks were P80,000 and P55,000 respectively at year-end. that 10% of the accounts receivable balance will 2e uncollectible. On January 1, 2018, Knit Company purchased 8% bonds in the face umount of P8,000,000. The bonds mature on January 1, 2023 and were purchased for P8,671,680 to yield 6%. Knit’s business model for this investment is to collect contractual cash flows composed of principal and interest, and sell the asset in the open market. Interest is payable annually every December 31. The fair value of the bonds on December 31, 2018 was 7,737,600 with an effective yield of 9%. 11. What is the interest income for 2018? a. 640,000 b. 520,301 ©. 513,119 4. 780,451 12. What amount of unrealized loss ir: OCi is reported in the statement of comprehensive income for 20187 a, 814,381 b. 377,439 ©, 262,400 d. 671,680 Scanned with CamScannerNumber 13 On December 31, 2018, Calm Company appropriately reported P80, equity securities measured irrevocably at FVOCI. 000 unrealized loss in OCI for Security Cost Fair value ot December 31, 2019 x 1,250,000 1,600,000 a 1,000,060 ‘950,000 z 1,750,000 1,250,000 What amount of tnrealized loss is recognized in the 2019 statement of changes in equity? a. 200,000 b. 120,000 © 280,000 ey 0 Numbers 14.and 15 Gates Company invested P2,000,000 in Broth Company for 25% interest. Broth paid out 40% of net income in dividends each year. The investment account showed the following details: Initial cost. | ‘i 5,000,000 Debit to the investment account C Concod Credit to the investment account s a oan Investment balance at year-end 14. What amount.of investment income was reported by Cates? a. 1,600,000. b. 1,000,000, cc. 1,400,001 4. "650,00 15, What amount of net income was reported by Broth? a. 4,000,001 ». 5,600,001 ©. 1,600,006 ds 2,400,00 ? Nunabers 16 and 17 ‘The following information was available from the inventory records of Rich Company for January: Units Unit Cost Balance at Janudgy 1 30,000 9.77 Purchases : January 6 20,000 10.30 J4nuary 26 27,000 10.71 Sales: Janmary 7 25,000 J4nuary 31 40,000 16, What amount of inventory should be reported under FIFO? a. 128,520 b. 117,240 ©, 123,600 d. 122,880 17, What amouit of inventory should be reported under the moving average method? a, 126,060 b. 122,88 ec. 123,12 d. 124,37 Scanned with CamScannerNumbers 18 and 19 Hurley Company provided the following information for the current year: “Accounts receivable, January 2,100,000 1 . 7 Accounts receivable, December 31 a Collections of accounts during the year 9,000,000 Inventory, January 1 4,500,000 Purchases during the year 5,800,000 All sales are made on account. The markup on cost is 20%. During the yeer, the entity constricted equipment for use in operation with the following information: Manerials and parts purchased subject to a 2% discount that was not teken 2100 Smputed interest relating to stock finai funds used during construction 9,00 Labor cost ee * 1,900,900, Allocated overhead cost 500,009 Profit on self-construction 300,000 Installation cost 40,000 18. What is the estimated inventory December 317 a. 9,600,000 b. 2,600,000 ~~ ©. 2,300,000 d. 1,700,000 19. What is the total cost of the equipment? & 4,100,000 b. 4,400,000 c. 4,440,000 4. 4,540,000 Numbers 20 and 21 During 2018, Bare Company constructed various assets at a total cost of P8,400,000. The weighted average expenditures on assets qualifying for capitalization of interest during 2018 amounted to P5,600,000. The entity had the following debt outstanding ut December 31, 2018: 10%, 5-year note to finance constriction of various assets, . dated January 1, 2018, with interest payable annually on December 31 3,600,000 * 12%, ten-year bonds issued at par on December 31, 2012, with interest payable annually on December 31 4,000,000 9%, 3-year note payable, dated January 1, 2017, with interest payable annually on January 1 2,000,000 20. What is the capitalized borrowing cost for the year ended December 31, 2018? 800,000 580,000 440,000 360,000 ae oP 21. What is interest expense for the year ended December 31, 20187 a. 480,000 b. 660,000 ce, 580,000 4. 440,000 Scanned with CamScannerNumbers 22 and 23 On January 1, 2018, Kol with no residual the obsolescence pf the flows on the eq determined the re} bl Company purchased equipment for 1,200,000 with a useful life of 8 years Value. On December 31, 2019, new technology was introduced that would accelerate ‘equipment. The entity estimated the present value of the expected future aet cash lipment at P580,000 and the fair value less cost of disposal at P600,000. The entity coverable amount of the equipment on December 31, 2020 at P570,000. 22, ‘What amount of impairment loss should be recognized for 20197 a. 150,000 ». 330,000 ©. 300,000 a. 0 { 23. What amount of gain on reversal of impairment loss should be recognized for the year 20207 3,300,000 b. 250,000 ©. 70,000 a 0 Numbers 24 and 25 Yoon Company 4 i A patent w: remaining 2,000,000 rovided the following information pertaining to intangible assets: rot from Graf Company for P2,500,000 on Jrauary 1, 2017. Yoon estimated the to be 10 years. The patent was carried at Graf's records at a carrying amount of fhen sold to Yoon. On January 1, 2018, Yoon estimated that the remaining life of the patent is only|$ years. + During 2013, [a franchise wes purchased from Reymont Company for P5,800,000. In addition, 5% of revenue frpm the franchise must be paid to Reyment. Revenue from the franchise for 2018 was 35,000,000. the year of pi * Yoon incur [The useful life of the franchise is 10 years and a full year's amortization is taken on {rchase. research and development costs of P500,000 in 2018. Yoon estimated that these costs will be recouped by December 31, 2021 ing amount of the intangible essets on December 31, 2018? 25. What total athount of expenses should reported in the income statement for 20187 24. What is the a. 7,220,0 b. 7,520,0 ©. 7,395,0 d. 7,020,0 a, 3,280,0 b. "1,530,0 ° 4 a a 2 2 $s S Scanned with CamScannerNumbers 26, aid 27 ‘Avery Company provided the following data fo the year ended December 31,2018. * As 8 result of uninsured accidents during injury sul 3, ‘idents during 2018, personal injury suits for P3,500,000 and P600,000 Pave been fled aguinst Avery Company, Based on Avery's legal counsel, an untevorebie onteoene preueiible for the P600,000 suit but an unfavorable outcome approximating P2,500,000 will Probably result in the P3,500,000 case. * Avery Company owns » foreign subsidiary that has a carryi t of P5,725,000 and : it carrying amount of P5,725, an sstimated fair value of P9,500,000, The forsign government hes communicated’ to the eatity ite ‘Arzation to expropriate the assets and business of all foreign investors. It is virtually certain that Avery will receive 40% of the fair value as final settlement. * Litigation was filed for the re: ve iting fee on a failed project during 2018. The legal counsel covery of P1,300,000 consulting fee on proj believed it is more likely than not that the entity’: claim will be successful. 26. What amount of total expenses should be recognized as a result ofthe suits filed against Avery? @ 2,500,000 b. 3,100,000 ©. 4,425,000 4. 5,025,000 27. How should the entity treat the recovery of consulting fee? - a Recognize income of P1,300,000 ». Disclose the award of P1,300,000 ¢. Disclose the award of P650,000 d. No accrual or disclosure Numbers 28, 29 and 30 : On January 1, 2018, Kobiachi Company issued P3,000,000, 11% bonds for P3,195,000. The market rate Of interest for these bonds is 10% and mature on January 1, 2029. Interest is payable annually om December 31. Kobiachi used the effective-interest method of amortization. On December 31, 2019, Xobiachi was under financial difficulty and therefors entered into a debt restructuring agreement with, the creditor. In the agreement, Kobiachi will issue 20,000 shares with P100 par value on December 31, 2019 to settle the bonds. On such date, the shares do'not heve a fair velue but the bonds are quoted at 104. Kobiachi was unable to pay the required interest on December 31, 2019. Interest was accrued on such date, . 28. What is the interest expense for 20197 a 330,000 b. 319,500 ©, 318,450 4. 353,810 29. What is the carrying amount of the bonds payable on December 31, 2019 before accrued interest? 8. 3,195,000 b.. 3,184,500 ©. 3,172,950 4. 3,000,000 30, What amount of gain on extinguishment should lye recognized for 20197 a. 307,950 b. 382,950 cc. 120,000 d. $2,950 Scanned with CamScannerNumber 31, 32, and 33 On January 1, 2018, ¥1i i is nuary 1, 2018, Flips Company is authorized to issue 100,000 P100 par value ordinary shares. The following transactions occurred during 2018: January 1 Issued 40,000 ordinary shares at P130 per share. ruary | Issued 30,000 ordinary shares for the following assets: Machine 500,000 fair value i Land None Building 1,100,000 fair value a ‘The ordinary shares are selling at P120 on this date. ee Purchased 10,000 ordinary shares at P150 per share to be held as treasury. see i Declared a 2 for-1 split. peer! 1s Relansed 5,000 treasury shares at P100 per share. 3 clare ivi inary sbi Bese ‘clared a P10 per share cash dividend on the ordinary shares ‘Net income for the year is P3,000,000. 31. What is the share capital at year-end? a. 7,000,000 b. 6,000,000 ©. 6,250,000 ° 4. 5,000,090, 7 32. What is the share premium at yéar-end? 1,800,000 b. 1,925,000 e, 1,200,000 4. 1,325,000, 33. What is the bhlance of retained earings at year-end? a 3,000,000 b. 1,600,000 ©. 1,750,000, 4. 1,800,000 34. What is the total sharetiolder’s equity at December 31, 2018? a 9,425,004 b. 8,950,001 €. 9,550,001 d. 8,925,001 Number 35 Ortago Compary sustained heavy losses for sever! years and underwent quasireorganization on December 31, 2)18. The following information is available: Fair value Carrying amount Inventory 5,700,000 6,000,000 Equipment 7,200,000 8,000,000 ‘The share capithl is P6,000,000 with P6 par value, share premitm is P1,500,000 and the deficit is 6,200,000 befifre the adjustments. The par value per share is reduced by P2. What amount must the shareholders coptribute:to eliniinate the deficit? a, °"6,200,00 b. 3,800,006 : c. 1,800,01 a. Scanned with CamScannerNumbers 36 ang 37 On January 1 20,000, Poo Pi ee Company granted share options to its key officers for the purchase of been Ordinary shares at P250 per share. The options are exercisable within a 5-year riod beginni per share tions : ¥§ bos. Using eae 1, 2020, by officers still in the employ of Portillo, and expiring December 31, n prici ion expense is ). On a] 3,000 options were ion Pricing model, the total compeusation expense is P,000,000. On April 1, 2019, on this date was P350. share was P400, réeited when some officers resigned from the entity. The market price of the share ‘On March 31, 2020, 12,000 options were exercised when the market price of the 36, What is the compensation expense for 20197 4,000,000 3,400,000 2,000,000 . 1 1,400,000 37. Whi aege at amount of share premium from issue of share capital is recognized on March 31, 20207 2,400,000 4,200,000 3,000,000 6,000,000 pege Numbers 38, 39 and 40 On January 1, 2018, Buraka Company had 480,000 P60 par ordinary shares and 100,000, 9% P100 par convertible cumulative preference shares outstanding. The preference shares are convertible into 100,000 ordinary’ shares before share dividend and share split. During 2018, the following transactions affected the ordinary shares: February 1 Issued 120,000 shares March 1 Issued a 20% share dividend May — 1 Acquired 100,000 treasury shares June 1 Issued a 3-for-1 split Oetober 1 Reissued 60,000 treasury shares ‘The net income was P32,560,000 and Buraka «lid uot declare dividend on preference shares. 38, What is the number of average ordinary shares ouistanding? a. 1,939,000 b. 1,969,000 c. 1,860,000 d. 1,800,000 39, What amount should be reported as basic EPS for 2018? a, 16.54 beele.79) c. 16.96 4 d. 16.33 40. What amount should be reported as diluted EPS for 2018? a. 14.16 b. 13.77 c. 15.53 : a. 15.97 Scanned with CamScannerNumbers 41 and 42 Shapiro Company manufactures an X-ray machine and leases itto Capitol Hospital, The entity provided following information Pertaining to the finance lease agreement: Commencement of the le Xe 1, 2018 ase january 1, Annual rental payable in advance © : 600,000 ee ere le in advance every January } 10 years Useful life of machine 12 years, Cost of the machine 3,000,000 ‘air value of the machine on January 1, 2018 4,950,000 Legal fees in directly signing the lease | 140,000 Guaranteed residual value 150,000 Implicitwrate in the lease os ‘The machine will revert back to Shapiro on January 1, 2028. The present value of an ordinary annwty tnd annuity due for 10 periods at 10% are 6.14 and 6.76. The present velue ‘of 1 for 10 periods at 10% 41. What arnount of sales revenue should be recognized by Shapiro? a. 4,956,780 b. 4,056,000 c. 3,742,500 d. 4,114,500 42. What amount of interest income should recognized for 2018? a 405,600 b. 345,600 . ©. 411,450 a a. 351,450 Numbers 43 and 44 Nielson Company, ia its first year of operations, had the following differences between carrying amount and tax base of agsets and lizbilities at December 31, 2018: i Carrying amount Tax base Equipment 4,000,000 3,500,000 . ‘Warranty liability 1,500,000 oO. The warranty liability will be settled in 2019. The difference in equipment will reverse in amounts of 200,000, P200,900 and P190,000 for the years 2019, 2020 and 2021 respectively. The financial income for 2018 is P5,500,000 and the tax rate is 30% for the years 2018-2020 and 25% for 2021. It is probable that the entity will report taxable income in the future periods. ent tax expense for 2018? Scanned with CamScannerNumbers 45 and 46 Cheng Company bad a d ded : : lefined benefit plan for the employees, On January 1, 2018, the entity provic ‘he following balances related to this pwr Fair of the plan assets 2,700,000 jected benefit obligation 3,400,000 Daring 2018, the actuary provided the following information: Service cost 450,000 Actual return on plan assets 270,006 Benefits paid to retirees 410,000 Discount rate 1% Contribution to the plan 2 (Cheng reported a pension liability of P468,000 on December 31, 2018: 45. What amount of employee benefit expense should be reported for 20187 a 499,000 b. 450,000 © 418,000 4. 459,000 46. What is the cash contribution to the plan asset for 2018? ” a 418,000 b. 731,000 ©. 232,000 ‘ d. 650,000 Numbers 47 and 48 On January 1, 2018, Camia Company purchased a drilling machine for P8,400,000 with useful life of 10 years and no residual value. An iraportant component of the machine is the drill housing component that will need to be replaced in 5 years, The P2,000,000 cost of the drill housing component is included in the P8,400,000 cost of the machine. The straight line depreciation is used. During 2018, Camia, Company incurred P4,000,000 in exploration cost for each of 15 oil wells drilled in 2018. Of the 15 well drilled in 2018, 10 were dry boles. The entity used the successful effort method of accounting. The entity depleted 30% of the oil discovered in 2018. . 47. What total amount of depreciation should be recorded in 2018? & 1,040,000 b. 1,240,000 cc. 840,000 4. 640,000 48. What amount of exploration cost would remain on December 31, 20187 a. 42,000,000 b, 14,000,000 cc. 20,000,000 4. 6,000,000 Scanned with ComScannerNumbers 49 aud 50 ‘Aceardo January pares Fic” SME, constructed a building at total cost of P10,500,000 that was completed on 2018 amounting to Peg fa jife of the building is 10 years. Included in the cost was borrowing cost for on January 1, 2016 me so0e: Accardo borrowed P4,000,000 to finance the construction of the building The building iy ta be nase oe 8 January 1, 2021. The annual interest is payable every December 31. received rentals ef PI ag jou under an operating lease to unrelated parties starting 2018 and the entity the building on al o1 eno ‘for 2018. The entity also determined that it can measure the fair value of muilding is P1P,000,000 acs without undue cost and effort. On December 31, 2018, the fair value of cost respectively for 2018. ntity paid P2S0,000 and P320,000 of property taxes and maintenance 49. What is the initial cost of the building on January 1, 20187 a 10,500,000 b. 10,300,060 ©. 10,550,040 4. 10,750,0 t of income should be reported by SME for 2018? Numbers 51 to , (Theory) 51, The Internati¢nal Accounting Standard Board 8, Was the predecessor to the IASC. Can overmile the FRSC when their policies disagree. b. ¢. Promotes the use of high quality and understandable global accounting standards. . Had its headquarters in Geneva. 52. General-purppse financial statements are the product of a. Financial pecounting B Manager accounting ¢. Both finaycial and managerial accounting d. Neither fipancial nor managerial accounting 53. What is the quality of information that is capable of making a difference in a decision? a, Faithful representation b. Understaxdability c. Timeline: d, Relevan 54. Which staterent about discontinued operation is true? a. The gain or loss on disposal of a component of a business should be reported as other income b. Results of operations of a discontinued component should be reported below income frpm continuing operation, Earnings per share should not be presented for discontinued operation ‘The gain pr loss on disposal of a component of a business should not be segregated but reported “together with the results of continuing operations. Scanned with CamScannernods issued by anot i *epayment for funds teeen f teasury shares 56. Events that 0 authorized for issue icy ie ohd of the reporting period but before the financial statements are reporting period that aff Provide additional evidence about conditions that existed at the end of the fects the realizability of accounts receivable should be a. Discussed onl ; ly in the management comm: tion of the annual report es Dae aly in the notes to the financial sinements i a Used es a an adjustment to doubtful accounts record an adjustment directly to the retained earnings account 57. When an enti ‘ — for as Tavautent be ea 2 passive interest in another entity, the acquiring entity should account a. Equity method b. Fairvalue method c. Effective interest method 4. Consolidation method ©. Cash received as . Cash purchase o} 58. Gains or losses on cash flow hedge derivatives are a. Ignored completely b. Recorded in other comprehensive income c. Reported directly in net income 4. Reported directly in retained earnings 59. The entry debiting accounts receivable and crediting all6wance for doubtful accounts is made when a. A customer pays an account balance : b. A customer defaults on an account c. A previously defaulted customer pays the outstanding balance d. Estimated uncollectible accounts are low 60. Impairment loss of an intangible asset is the difference between a. Carrying amount and the expecied future net cash flows ». Carrying emount and recoverable amount. c. Recoverable amount and the expected future net cash flows d. Carrying amount and fair value 61. All of the following are considered research and development costs, except Laboratory research aimed at discovery of new knowledge. ‘Application of research findings to # plan er design for a new product. Conceptual formulation and design of possible product altemative. Marketing research for a new product Bore 62, Printing costs and legal fees associated with the issue of bonds at amortized cost should a. Be expensed when incurred >. Be reported os'a deduction from the face amount of bonds payable ©. Be recorded as a reduction of the bond issue amotint and amortized over the life of the bonds 4. Not be reported as an expense until the period the bonds mature’or are retired Scanned with CamScanner63. In a debt settlement in which # a. Carrying amount of. th b. Carrying amount of the da & Present value of the debt j 4. Fossent value of the debt i the modification is substantial, a gain should be recognized when ‘bt is less than the total future cash flows. bt is greater than the present value of the future cash flows, is less than the present value of the future cash flows. is greater than the present value of the future cash flows. 64. Once . Fi ‘he total compensation for share options is measured at the date of grant ak : " b teats [paged in future periods related to a change in market conditions. ec. An enti need 10 reflect the changes in the market price of an entity's ordinary shares. * insttumente permitted to adjust the number of share options expected to the actual number of v d. All of thelchoices are correct, 65. In computing basic as an adjust EPS, if the preference shares are cumulative, the amount that should be deducted lent to the numerator is the a. Preferenct dividends in atrears b. Preference dividends in arrears net of tax § Annual preference dividend net of tax |. Annual preference dividend 66. How does an entity treat share issue costs when incurred? @. A deduction from share pr ae cee r are premium, ©. A deferred pharge 4. An intangible asset 67. When an entity amends a pension plan, past service cost should be a. Treated a§ a prior period adjustment because no future periods are benefited b. Amortized over the vesting period if the benefits are not vested ¢. Recordedjin other comprehensive income Reported bs an expense in the period the plan is amended 68. Which statement is not true about the fair value option? a, The fair value option is irrevocable. b. The fair| value option must be elected for all equity investments. c. Electing the fair value option for debt investments simply measures the investment at FVPL. d. All of tHese statements are true. . 69. All of the follpwing topics are addressed in PFRS for SME, except a. Revaluatibn model for property, plant and equipment b. Measurenfent of basic debt instruments c. Earnings per share | 4. Cost modbl for investment in associate ffect of an overstatement of ending inventory in the current pericd in the income of 70. What is the next period? a. Over b. Undetstat| c. Correctly| ; ; d. The answer cannot be determined from the information -END- Scanned with CamScannerFinancial Accounting and Reporting 1. Cash (690,000 — 120,000 + 90,000) 660,000 Accounts receivable (405,000 + 80,000 — 53,000) 432,000 Inventory (600,000 + 53,000) 653,000 Total current assets 745.000 iB 2. Accounts payable 440,000 Income tax payable 90,000 Accounts receivable ~ credit balance 80,000 Total current lisbilities foo «2b 3. 5,200,000 — 3,000,000 2,200,000 c Operating Investing Financing Net inoame 1,450,000 Purchase of treasury shares (20,000) Sale of treasury shares 25,000 Proceeds from disposal - Globe 200,000 Doubtful aecounts expense 100,000 Deerease in AR 120,000 ' Depreciation 390,000 Share in the net income (81,000) Cash dividend 20,000) ‘Cash flow provided (used) 1,979,000 (45,000) —o 5A E 6.D 7. Cash 24,000 Royalty revenue 24,000 Royalty revenue 8,000 B Deferred royalty revenue 8,000 8. Cash 108,000 ‘Royalty revenue 108,000 Royalty revenue 1,000 Deferred royalty revenue . 1,000 9. 603,000 10. Required allowance (430,000 x 10%) 43,000 Allowance before adjustment - debit 7,600 Doubtful accounts expense 50.600 Dp 1B 1A (6%) 8%) Date Interestincome Interest received Premiuin amortization Carrying amount Jan. 1,.2018 8,671,680 Dec. 31; 2018 $20,301 640,000 119,699 8,551,981 Fair value — December 31, 2018 7,737,600 Carrying amount ~ December 31, 2018 per schedule ‘Unrealized loss in OCI - 2018 Scanned with CamScanner13. 14, 1s, 16, 17. 18, 20. 21. 22, 23. 24, 25. 4,000,006 -/3,800,000 200,000 Investment incom 1,000,000 Net income [1,000,000 / 25%) 4,000,000 FIFU = 12,000 X 10.71 128,520 Date Units Unit Cost Total Cost Jan. 1 30,000 a 293,100 dane 20,000 10.30 206,000 Balance! $0,000 9.98 499,100 Jan. 7 (25,000) 9.98 (249,500) cons 22.000 0.7 289.170 Balance} 52,000 10.36 ‘538,770 Jan.31| (40.000) 10.36 (414.490) Balance, 12,000 124,370 Sales (2,700,000 + 9,000,000 ~ 2,100,000) 9,600,000 Available for sale (4,500,000 + 5,800,000) 10,300,000 COS (9,600,000 / 1.20) (8,000,000) Inventory 2,300,000 ~ . Cost of eqlipment 4,400,000 Capitalize borrowing cost ~ specific (3,600,000 x 10%) 360,000" Capitaliz borrowing cost — general (2,000,000 x 11%*) 220,000 Capitalized borrowing cost 580,000 *660,000 / 6,000,000 = 11% Interest on| general borrowing 660,000 Capitali 220,000) Interest expense “440,000 Cost 1,200,000 Accum. Depn, (1,200,000 / 8 x 2) (300,000) Carrying dmount ~ 900,000 Recoverable amount 600,000 Impairment logs 300,000 Carrying ¢mount — 12/31/2020, ho impairment (1,200,000 — 450,000) 750,000 Recoveraifle amount 570,000 Amount td be used for computing any reversal of impairment 570,000 Increased karrying amount 570,000 Carrying amount — 12/31/2020 per books (600,000 — 100,000) 500,000 Gain on rdversal of impairment 70,000 Carrying amount of patent — 1/1/18 (2,500,600 — 250,000) 2,250,000 Amortization for 2018 (2,250,000 / 5) 450,000) Carrying amount of patent -- 12/31/18 1,800,000 Carrying ‘tmount of franchise ~ 12/31/18 (5,800,000 — 580,000) ‘5,220,000 Total carrying amount of intangible assets 7.020.000 Total expenses (450+580+500+1,750) 3,280,000 Scanned with CamScanner A B A A c B- Loss ~ lawsuit ae - 2,500,000 Toxar oexeTePTiation (3,800,000 ~ 5,725,000) asa 27. Disclose P1,300,000 ° 28. 29.6 0%) (1%) yin Date Interest expense Interest paid Premium amortization Carrying amount Jan. 1, 2018 3,195,000 Dec. 31,2018 319,500 18 Dec. 31, 2019 318,450 330,000 1580 si 50 330,000 11,550 3,172,950 30. Total bonds payable (3,172,950 + 330,000) 3,502,950 Measurement of share capi 3,120.00 t apital (3,000,000 x 104%) 0 Gain on extinguishmeat > 2 382.950 B 31. Share capital 7,000,000 A 32. Share premiim 1,925,000 B 33, Retained earnings 1,750,000-.C 34, Shareholders’ equity 9,550,000 C Share capital Share premium RE ‘Treasury, 4,000,000 1,200,000 3,000,000 (1,500,000) 3,000,000 600,000 (0,250,000) "375,000 25,000 a 2.000.000 225,000 4750,000 1,125,000) 35. Deficit before adjustments 6,200,000 Inventory 300,000 Equipment 800.000 Total deficit to be eliminated 7,300,000 ‘Share premium (1,500,000 + 2,000,000) 3,500,000 Contribution by shareholders 2,800,000 B 36. “Year Cumulative compensation Expenst 2018 ( 4,000,000) 2,000,000 2,000,000 2019 (17,000 options x 20) 3,400,000 1,400,000 D 37. Proceeds (12,000 x 250) , 3,000,000 Share options (3,400,000 / 17,000 x 12,000) 2,400,000 Par value (12,000 x 100) 4,200,000) Share premium 4,200,000 B 38. January 1 (480,000 x 1.20 x 3 x 12/12) 1,728,000 February 1 _ (120,060 x 1.20 x 3 x 11/12) 396,000 May 1 (100,000 x 3 x 8/12) (200,000) October 1 (60,000 x 4/12) 15,000. ‘Weighted average outstanding shares 1.232.000 A 39, (32,560,000 — 900,000) / 1,939,000 16.33 Scanned with CamScanner4u, 41. 42. 43, 44, 4s. 46. 47. 48. 49. 50, 32,560,004 / (1,939,000 + 360,000) aes PV of the rentals (600,000 x 6.76) 4,056,000 PV of, teed residual value (150,000 x 0.39) 58.500 PV of the minimum lease payments (net investment) 4,114,500 4,114,500 + 600,000 = 3,514,500 x 10% 351,450 Financial ihoome 5,500,000 (500,000) Future deductible amount 1,500,000 Taxable income 6,500,000 Multiply by iax rate 30% Current tak expense £250,000 Current expense 1,950,000 Net defe pd tax expense (benefit) Increase|in DT liability (400 x 30%) + (100 x 25%) 145,000 Increase|in DT asset (1,500,000 x 30%) (450,000) (308,000) Total tax expense 1,645,000 i Service edst 450,000 Interest expense (3,400,000 x 7%) 238,000 Interest inzome (2,700,000 x 7%) (189,000) Benefit expense 422,000 | Acerued bpnefit cost — 468,000 Accrued bpnefit cost — January 1 1 Debit adjustment — prepaid during the year 232,000 Defined benefit cost (499,000 — 81,000) 418,000 Contributibn to the plan £50,000 Remeast ent gain — OCI (270,000 — 189,000) 81,000 Depreciation of the component (2,000,000 / 5) 400,000 ‘Depreciation on the balance (6,400,000 / 10) 640,000. ‘Total depyeciation of the machine 1,040,000 Initial cos} of exploration asset (4,000,000 x 5) 20,000,000 Depletion|(20,000,000 x 30%) (6,000,000) Carrying 4mount of exploration asset 14,000,000" 10,500,090 — 200,000 10,300,000 Rental intome 1,200,000. Gain froth FV change (12,000,000 — 10,300,000) 1,700;000 Interest expense ( 200,000) Property bax ( 250,000) Maintendnce 320,000) Net incor 2.130.000 st.c $5. D 59. C 63.8 67.D oes 56. C 60. B 64.6 68: B 53.D 57. B 61.D 65. D 6: ¢ 54. B 58, B 62. C 66. A 70. B Scanned with CamScannerBernblie of the PhiVinwines; Puafersionsl Regulation Camissian, Ailantla, PROFESSIONAL REGULATORY BOARD OF ACCOUNTANCY CPA Licensure Examination OCTOBER 06, 2018 01:00 P.M. ~ 04:00 P.M. ADVANCED FINANCIAL ACCOUNTING AND REPORTING INSTRUCTION: Setect the correct answer for each of the following questions, Mark only one answer for each item by shading the box corresponding to the letter of your choice on the answer sheet provided. STRICTLY NO ERASURES ALLOWED. Numbers 1,2 and 3 On December 31, 2018, 2018, the Statement of Financial Position of ABC Partnership with profit or loss ratio. of 5:3:2 of respective partners A, B and C. showed the following information: Cash 1,600,000 Total Liabilities 2,000,000 ‘Noneash assets 1,400,000 A, Capital 100,000 B, Capital 500,000 C, Capital 400,000 On January 1, 2019, the partners decided to liquidate the partnership in installment. All pertners are legally declared to be personally insolvent. . As of January 31, 2019, the following transactions occurred: Noncash assets with a carrying atnount P1,000,000 were sold at a gain of P100,000. Liquidation expenses for the month of January amounting to P50,000 were paid. It is estimated that liquidation expenses amounting to P150,000 will be incurred for the month of February, 2019. ~ 20% of the linbilities to third persons were settled. ‘Available cash was distributed to the parmers. ‘What is the amount of cash received by partner C on January 31,2197 269,000 240,000 300,000 350,000 go> ‘What is the share of B in the maximum possible loss on Jenuary 31, 20197 A. 275,000 B. 110,000 CC. 120,000 D. 165,000 3. What is the amount of total cash withheld on Jenvary 31,2019? A. 550,000 B. 1,600,000 C. 1,750,000 D. 1,700,000 Number 4 At the date of partnership formation of ABC partnership, the amount credited to A's capital is less than the fair market value of the property he contributed. Which of the following is the most valld reason? A. The property. contributed by A is impaired, | . B. The property contributed by A has been subjected to positive asset revaluation. C. Bonus has been given by partner A to the other partners. D. Goodwill arising from partnership formation hes been recognized. a Scanned with CamScannerNumber 5 At the time of retirement, a retiting partner receives more than the amount of his capite! contribution while Sk. remaining partners capital increase after the retirement. Which of the following is most valid reason’ A. Goodwill during retirement is recognized. B. Asset revaluation is recognized. C. Bonus is given by retiring pattner to remaining partners, D. Bonus is given by the remaining partners to retiring partner. { Number 6 At the time of partnership liquidation, which credits shall be settled first? A. Those amount owing to third persons, G Tpose amount owing to partners other than capital conteibutizn and share in profit. ‘ose amount owing \o partners with respect to cepital contribution. D. Those amount owing to partners with respect to share in profit. Numbers 7 and 8 ~ Surigao Company is bankrupt and has undergone corporate liquidation. Presented below is its statement of financial position before the start of liquidation: Cash 300,000 + Accounts Payable 100,000 Machinery 590,000 * Salaries Payable 200,000 Building 1,200,000 Income tex Payable 300,000. Loan Payable 400,000 Mortgage payable 500,000 Contributed capital 800,000 Deficit (300,000) Liquidation expenses amounting to P600,000 were paid. The loan payable is secured ky the machinery with fair value of P300,000, ‘The mortgage payable is soured by the fair value of the building, At the end of liquicaticn, the bolder of loan payable received P340,000. ‘What is the amount received by the holde of accounts payable at the end of liquidation? A. 85,000 B. 15,000 C. 40,000 D. 60,000 8. Whatis the A. 80,000 B. 40,000 C. 120,000 D. 200,000 jount of net free assets available at the end of liquidation? Scanned with CamScannerNomber 9 Wich of the following unsecured liabilities with priority of a liquidating corporation shail be settled frst? A. Liabilities for employee benetits B. Liabilities for corporate income tax C. Liabilities for corporate crime D. Liabilities for quasi-delict Numbers 10 and 11 On January 1, 2018, an entity sold a car to a customer at a price of P400,000 with a production cost of 300,000. It is the entity’s policy to employ installment method to recognize gross profit from installment sales. At the time of sale, the entity received cash amounting to 25% of the selling price and old car with trade- in allowance of P50,000. The said old car has fair value of P150,000. The customer issued a 5-year note for the balance to be payable in equal annual installments every December 31 starting 2018. The note payable is interest bearing with 10% rate due on the remaining balance of the note. ‘The customer was able to pay the first annual installment and corresponding interest due. However, after the payment of the second interest due, the customer defaulted on the second annual instathment which resulted to the repossession of the car sold with appraised value of P110,000. On December 31, 2019, the repossessed car was resold for P140,000 after reconditioning cost of P10,000. 10. What is the entity's realized gross profit for the year endéd December 31, 20187 A. 50,000 * ; B. 120,000 : C. 198,000 D. 128,000 11. What is the loss on repossession for the year ended December 31, 20192 30,000 20,000 10,000 40,000 ‘ pomp Nomber 12 If the sale transaction provides for periodic installments over an extended period of time and the collectability of the sales price cannot be reasonably estimated, what method of revenue recognition is the most appropriate? Cost recovery method Accrual basis Installment method Cash basis vom> Scanned with CamScannerNumbers 13 and 14 On January 1, 2018, an entity granted a franchise agreement to a franchisee. The contract provided that the franc’ isee shell pay an initial franchise fee of P500,000 and on-going payment of royalties equivalent to 8% of the sales of the franchisee. On January 1, 2018, the franchisee paid downpayment of P200,000 and issued’a 3-year noninterest bearing note for the balance payatile in three equal annual installments starting December 31, 2018. The ‘note hag present value of P240,183 with effective interest rate of 12%. On June 30, 2018, the entity completed the performance obligation of the franchise at a cost of P352,146. Aside from that, the entity incurred indirect cost of P22,009. The franchisee started operation on July 1, 2018 and reported sales revenue amounting to P50,000 for the year ended December 31, 2018. The franchisee paid the first installment on its due date. 13. If the collection of the note receivable is reasonably assured, what is the gross profit to be recognized by the entity for the year ended December 31, 2018 in relation to the initial franchise fee? A. 66,028 ac B. 44,014 €. 22,009 D. 88,037 14. If the collection of the note receivable is reasonably agsured, what is the net income te be reported by the entity for the year ended December 31, 20187 98,850 94,850 : 70,028 92,037 pomp Number 15 Under IFRS 15, in which of the following instances shall an entity recognize revenue through satisfaction of performance obligation at a point in tirne instead of satisfaction cf performance obligation over time? A. The customer simuitaneously receives and consumes the benefits Provided by the entity's performance as the entity performs, B. “Che entity's performance creates or enhances an asset that the customer controls as the asset is created or enhanced. C. The entity’s performance docs not create an asset with an alternative use to the entity and the entity has an enforcbable right to payment for performance completed to date. D. ‘The entity has transferred the legal title, control and physical possession of the asset at a specific date, Scanned with CamScannerNumbers 16, 17 and 18 On January 1, 2018, Hardrock Com; i di : 7 pany started the construction of a building at a fixed contract pri o£P1,000,000. Cin the same date, the customer paid a mobilization fee equal to'5% of coutane price thet willbe deductible from the first billing. The outcome of construction contract cannot be estimated ly During 2018, the entity billed the customer ib ring 2018, the equivalent to 30% of the contract price. During 201 entity billed again the customer amounting t #2020, the entity billed it 10 20% of the contract price. During 2020, the entity billed again the customer amounting to 40% of the contract price. The remaining billing was made at the year of completion of the project. ae entity made collection from the customer at the end of 2018, 2019 and 2020, in the amount of 120,000, P450,000 and P180,000, respectively. The entity provided the following data conceming the direct costs related to the s aid project: 2018 2019 2020 eens costs incurred at year-end 360,000 800,000 870,000 ‘emaining estimated costs to complete at year-end ' 840,000 250,000 50,000 16. What is the realized gross profit for the year ended December 31, 2019? A. 50,000 7 B. 200,000 C. 150,000 D. ° 17, What is the excess of construction in progress over progress billings or excess of progréss billings over construction in progress on Devember 31, 2020? G A. 30,000 excess billings B. 80,000 excess billings C. 20;000 excess construction in progress D. 50,000 excess construction in progress 18. What is the balance of accounts receivable on December 31, 20207 A. 150,000 . B. 100,000 C. 120,000 D. 50,000 Number 19 When it is probable that total contract costs will exceed total contract reverne, how shall the long-term contractor accotnt for the difference? A. The expected loss shall be recognised as an expense immediately. B. The expected profit shall be recognized as a profit immediately. . C. The expected loss shall be recognised as an expense taking into account the percentage of completion 1s of the end of the period. D. The expected loss shall be recognised as a profil taking into account the percentage of completion as of the end of the period. Scanned with CamScannerNumber 20 When the outcome ofa construction contract cannot be estimated reliably, what. accounting method shall be used Uy the long-term constructor for the recognition of construction revenue and construction cost? Percentage of completion method Cost recovery method Installment method ‘Accrual basis Sow> Numbers 21, 22 and 23 Siargao Company set up a branch in a province. The entity and its branch provided the following data for the second year of branch operation: Home Office Branch Sales revenue to,outside customer 1,000,000 500,000 Beginning inventory 30,000 30,000 Purchases from outside supplier 400,000 100,000 Shipment to branch 200,000 Shipment from home office 250,000 Ending inventory 80,000 50,000 _ Operating expenses 150,000 40,000 ~~ The home office to branch markup based on cost is 25% this year and last year. 20% of the beginning inventory of the. branch came from outside supplier. 24% of the ending inventory of the branch came from’the last year’s shipment from the home office while 50% of the ending inventory of the branch came from current year’s shipment Som the home office. 21, What is the net income reported by the branch in its separate income statement for the current yeer? 130,000 124,000 114,000 95,000 pomp 22, What is the ending inventory to be reported by the entity in its combined statement of financial position? A. 128,000 B. 115,000: C. 130,000 D. 122,600 23. What is the overstatement in the cost of goods sold reported by the branch in its separate income statement fof the current year? A. 54,000 | B, 50,000 | C. 52,000 | D. 47,400 | | | | Scanned with ComScannerNumber 24 What is the main reason for the difference between the branch's net income reported by the brarich and the true branch's net income computed by the home office? 2 Because of overstatement of branch’s cost of sales for goods coming from outsiders B. Because of overstatement of branch's cost of sales for goods coming from home office GC. Because of overstatement of total goods available for sale coming from home offies D. Because of overstatement of branch's ending inventory coming from home office Numbers 25 and 26 Bacolod Compuny recently set-up its standard costs for its direct lubor. The entity sets the benchmark at 2 direct labor hours per product at a standard rate of P100 per direct labor hour. During the year, the entity manufactured 10 products using 30 direct labor Hours at total direct labor costs of P2,400 or P80 per direct labor hour. 25. Whatis the direct labor rate variance? A. 600 favorable B. 400 unfavorable C. 200 favorable D. 800 unfavorable 26. What is the direct labor efficiency variance? A. 400 favorable B. 1,000 unfavorable C. 600 unfavorable D. _ 200 favorable Number 27 Simple Company employs actual costing for its production, The entity provided the following data concerning its production during the year: Decrease in direct materials during the year 500,000 Labor cost during the year 400,000 Actual factory overhead during the year 300,000 Increase in work in process during the yeer 200,000, Decrease in finished goods during the year 100,000 ‘What is the cost of goods manufactured during the year? A. 1,200,000 B. 1,000,000 2 C. 1/400,000 D. 1,100,000 Scanned with CamScannerNumbers 28 and 29 Tacloban Company is employing process costing regarding its production cycle. Sonversion costs are added uniformly during the production process white direct materials are added 1084 at the start of production process, 50% at the middle of the production Process and the remainder at the end of production process. The production data of the entity during the year are: Beginning Work in Process Inventory 10,000 units (30% incomplete es to conversion costs) Units started during the year 30,000 units Ending Work in Process Inventory 5,000 units (75% incomplete as to conversion costs) * There is no spoilage during the period. * The costs of beginning inventory consist of P103,000 costs of direct materials and P107,500 conversion costs, * Thetotal manufacturing costs consist of P236,000 costs of direct materials and P 146,250 conversion costs, 28. What is the cost per unit of direct material under FIFO process costing? A. 10 Bo c 8 D7 29. What is the cost per unit of conversion cost under FIFO process costing? AS B. 9 c.8 D7 Number 30 If the under or over applied factory overhead is significant, it shall be closed to Cost of goods sold only Finished goods and cost of goods sold proportionately Work in progess, finished goods and cost of goods proportionately Raw materiajs, work in process, finished goods, and cost of goods sold Proportionately pop> Number 31 In job order costing, normal rework cost which is attributable to a specific job shall be Expensed as jincurred Charged or chpitalized to that particular job. Closed to factory overhead account. Debited to wprk in process account, vom> Scanned with CamScannerNumbers 32 and 33 Entity A acquired the net assets of Entity B by issuing 10,000 ordinary shares with par value of P10 and bonds payable with face amount of P500,000, The bonds ate classified as financial liability at amortized cost, At the time of acquisition, the ordinary shares are publicly quoted at P20 per share. On the other hand, the bonds payable are trading at 110. Eatity A paid P10,000 share issuance costs and P20,000 bond issue costs. Entity A also paid P40,000 ‘acquisition related costs and P30,000 indirect costs of business combination. Before the date of acquisition, Entity A and Entity B reported the following data: Entity A Entity B Current assets 1,000,000 500,000 Nonewrent assets 2,000,000 1,000,000 Current liabilities 200,000 400,000 Noneurrent liabilities 300,000 500,000 Ordinary shares 500,000 200,000 Share premium 1,200,000 300,000 Retained earnings 800,000 100,000 At the time of acquisition, the current assets of Entity A have fair value of P1,200,000 while the Peucurrent assets of Entity B have fair value of P1,300,000. On the same date, the current liabilities of Entity B have fair value of P600,000 while the noncurrent liabilities of Entity A have fair value of 500,000. 32. What is the goodwill or gain on bargain purchase atising from business combination? A. 50,000 goodwill B. 150,000 gain on bargain purchase C. 120,000 goodwill D. 70,009 gain on bargain purchase 33. What is Entity A’s amount of total liabilities after the business combination? 2,240,000 2,510,000 2,320,000 2,130,000 pomp Number 34 Entity A acquired 80,000 out of 100,000 outstanding ordinary shares of Entity B which enabled the former to obtain control of the Iatter at an acquisition price of P1,000,000. Entity A paid P100,000 acquisition reluted costs and P50,000 indirect costs of business combination. At the date of acquisition, the net assets of Entity B are reported at P1,600,000. An asset of Entity B is overvalued by P60,000 while one liability is undervalued by P40,000. ‘What is the goodwill or gain on bargain purchase erising from business combination? A. 250,000 gain on bargain purchase B. 150,000 gain on bargain purchase C. 50,000 goodwill D. 200,000 gain on bargain purchase Scanned with CamScannerNumbers 35 and'36 On January 1, 2018, Entity A acquis i i i . quired 30,000 out of 100,000 outstanding urdin: shares of Entity B oes or 3% interest. For the six months ended June 30, 2018, Entity B paidow net income of On July 1, 2018, Entity A acquired additional 60,000 ordinary shates of Entity B or 60% interest at a Brice of P4 per share or total cost of P240,000. Entity A paid P20,000 acquisition related costs and P 10,000 indirect costs of business combination. The acquisition Price per share of the additional shares clearly reflected the fair value of the existing Piterest of Entity A in Entity B. Its the policy of Entity A to initially measure the noncontrolling interest 2* net assets of the acquiree at fair value. The fair value of the noncontrolling interest in net assets of the acquires is reliably measured at P50,000. At the acquisition date, the net assets of Entity B were reported at P400,000. An asset of Entity B was overvalued by P50,000 while one liability wass overvalued by P30,000. 35. What is the gain on remeasurement of the existing Investment in Entity B as a result of step acquisition? A. 18,000 B. 30,000 C. 24,000 _ D. 12,000 36. What is the goodwill or gain on bargain purchase as a result of the business combination? A. 18,000 goodwill ‘ B. 20,000 gain on bargain purchase C. 24,000 goodwill D. 30,000 goodwill Numbers 37 aad 38 On January 1, 2018, Entity A acquired 70% of outstanding ordinary shares of Entity B at a price of 210,000. On the same date, the net assets of Entity B were reported at P260,000. On January 1, 2018 Entity A reported retained earnings of P2,000,000 while Entity B reported retained earnings of P200,000. All the assets and liabilities of Entity B are fairly valued except machinery which is undervalued by 80,000 and inveritory which is overvalued by P10,000. The said machinery has remaining useful life of four years while 40% of the said inventory remained unsold at the end of 2018. For the year ended December 31, 2018, Entity A reported net income of P1,000,000 and declared dividends of P20,000 in the separate financial statements while Entity B reported net income of P150,000 and declared dividends of P20,000 in the separate financial statements. Entity A accounted the investment in Entity B nsing cost method in the separate financial statements 37. What is the nqncontolling interest in net assets on December 31, 20187 A. 124,800 B. 130,200 C. 126,000 D. 133,800 a 38. What is the amount of consolidated retained carnings on December 31; 20187, A. 3,012,200) B. 2,991,200 + C. 2,902,200} D. 2,945,200) Scanned with CamScannerNumbers 39, 40, 41 and 42 On January 1, 2019, Entity bargain purchase of P40,00 A acquired 60% of outstanding ordinary shures of Entity B at a gain on sale 0. For the year ended December 31, 2020, Entity A and Entity B reported 's revenue of P2,000,000 and P1,000,000 in their respective seperate income statements At the same year, Entity A and Entity B reported cost. of. goods sold of P1,200,000 and P700,000 in thoir rerpesttve Separate income statements, During 2019, Entity A sold inventory to Entity B at a selling price of P280,000 with gross profit rate of 40% based on cost, On the other hand, Entity B sold inventory to Entity A. at a selling price of P400,000 . with gross profit rate of 30% based on sales during 2020. On December 31, 2019, 25% of the goods coming from Entity A remained in Entity B's inventory but all were eventually sold to third persons during 2020. As of December 31, 2020, 40% of the goods coming from Entity B were eventually sold to third persons. For the year ended December 31, 2020, Entity A reported net income of P500,000 while Entity B reported net income of P200,000 and distributed dividends of P50,000. Entity A accounted for its inventory in Entity B using cost method in its separate financial statements. a 39. What is the consolidated sales revenue for the year ended December 31, 2020? A. 2,600,000 B. 2,320,000 €. 3,000,000 D. 2,720,000 40, What is the consolidated gross profit for the year ended December 31, 20207 A. 1,120,000 B. 1,048,000 C. 1,028,000 D. 1,152,000 41. What is the noncontrolling interest in net income for the year ended December 31, 20207 A, 100,800 B. 59,200 Cc. 51,200 D. 88,000 42. What is the consolidated net income attributable to. parent's shareholders for the year ended ‘December 31, 20207 A. 766,800 B. 596,800 606,800 D. 566,800 Scanned with CamScannerNumbers 43 and 44 sagamuary 1, 2019, Entity A acquired 80% of outstanding ordinary shares of Entity B at a gain on bargain purchase of P180,000. The following intercompany transactions occurred for between the two entities: * On January 1, 2019, Entity B sold a land to Entity A with a cost of P1,000;000 at a selling price of P1,100,000. The land was eventually sold by Entity A to third persons during 2020. * On January 1, 2019, Entity A sold a white machinery to Entity B with a cost of P200,000 and ahi amulated depreciation of P40;000 at a selling price of P180,000. The machinery is already 4 years old at the date of sale. The residual value of white machinery is immaterial, * On July 1, 2020, Entity accumulated depréciation old at the date of sale. Thi B sold a black machinery to Entity A at with a cost of P270,000 and OF P180,000 at a selling price of P60,000. The machinery is already 6 years residual value of black machinery is immaterial. For the year ended December 31, 2020, reported net income of P500,000 and inventory in Entity B using cost method i Entity A reported net income of P800,000 while Entity B istributed dividends of P150,000. Entity A accounted for its in its separate financial statements. 43. What is the consolidated depreciation expense of machinery for 20207 40,000 55,000 61,667 42,333 gowp 44. What is the consolidated carrying amount of machinery on December 31, 20207 . A. 225,000 B. 215,000 C...200,000 D. 210,000 Number 45 Under IFRS 3, in a business combination achieved in stages, if the acquisition date fair value of the net Pf the acauisition-date amounts of the identifiable assets acquired and the liabilities of the acquitee is lower than the aggregate of the (1) aequisition date fair value of the consideration wansferred by the acquirer; (2) ampunt of noncontrolling interest measured at fair value or proportionate share; and (3) acquisition date fair value of acquirer's previowsly held equity interest in the acquire, the difference shall be accounted for by the acquirer in its consolidated finaincial statement as A. Goodwill el test Gain on bargain purchase to be recognized as part of profit or loss Expense as ihcurred Deduction dikectly to retained earnings sified as noncurrent asset not subject to amortization but subject to an.-ual impairment pow Scanned with CamScannerNumber 46 Which of the following items will not affect the acquisition year's consolidated uet income in a business combination? A. Stock issuance cost B. Direct cost of business combination C. Gain om bargain purchase D. Amortization of difference between fair value and book value of rt assets of acquire Number 47 Under IAS 27, how shall the parent account for ity investment in subsidiary in the parent’s separate financial statements? A. It shall be accounted for using equity method. B. It shall be accounted for using fair value model. C. It shall be accounted for using cost method. D. Any of the above. Number 48 How shall contingent liability in relation to a business combination be accounted fer by the acquirer under the following IFRS? Full IFRS/IFRS 3 IFRS for SMEs A. Accrued ' Disclosed cnly B. Accrued Accrued C. Disclosed Disclosed only D. Disclosed Accrued Number 49 How shall goodwill arising from business combination be accounted for by the acquirer under the ‘following IFRS? Full IFRS/IFRS 3 IFRS for SMEs A. Not amortized but annually tested for impairment Amortized over a presumed life * of 10 years B. Not amortized but annually tested for impairment ‘Not amortized but annually tested for impairment C. Amortized for a presumed life of 10 years Amortized for a presumed life of 10 years D. Amortized for a presumed life of 10 years Not amortized but annually tested for Impairment Scanned with CamScannerNumbers 50 and 51 Entity A and Entity B incorporated Entity C to manufacture a microchip to be used by the incorporating entities ~s component for their final products of cellular phones and tablets. The contractual agreement ofthe incorporating entities provided that the decisions on relevant activities of Entity C will require the unanimous consent of both entities, Entity: A and Entity B hav; arrangement. The ordinary 3 60:40. At the end of first op ‘¢ rights to the assets, and obligations for the liabilities, relating to the shares of Entity C will be owned by Entity A and Entity B in the ratio of eration of Entity C, the financial statements provided the following data: __ Inventory 1,000,000 Accounts payable 2,000,000 Tend 3,000,000 Note payable 1,000,000 Building 5,000,000 Loan payable 4,000,000 Share capital 1,000,000 Retained earnings 1,000,000 Sales revenue 5,000,000 ‘The contractual Agreement of Entity A and Entity B also provided for the following concerning the assets and liabilities of Entity C: * Entity A owns the land and incurs the loan payable of Entity C. 7 Entity B owns the building and incurs the note payable of Entity C. The other assets and liabilities are owned or owed by Entity A and Entity B on the basis of their capital interest in Entity C. The sales reyenue of Entity C includes sales to Entity, A and Entity B in the amount of 1,000,000 and P2,000,000, respectively: As of the end of the first year, Entity A and Entity 1b were able to resell 30%’ and 60% of the inventory coming from Entity C ¢o third persons. . 50. What is the amount of total assets to be reported by Entity A concerning its interest in Entity C7 . 5,400,000 3,000,000 3,600,000 5,000,000 DOD 51, What is the ¢mount of sales revenue to be reported by Entity A concerning its interest in Entity C? A. 2,300,00h B. 2,106,00f C. 3,000,0 D. 2,500,004 Scanned with ComScannerNumbers 52 and 53 On January 1, 2018, Entity A, a public entity, and Entity B, a public entity, incorporated Entity C which’ has its'fiscal and operational autonomy. The contractual agreement of the incorporating entities provided shat the decisions on relevant activities of Entity C will require the unanimous consent of both entities. Entity A and Entity B will have rights to the net assets of Entity C. Entity A und Entity B invested P1,000,000 and P1,500,000, respectively, equivalent to 40:60 capital interest of Entity C. The financial statements of Entity C provided the following data for its two-year operation: Net income (loss) Dividends declared 2018 200,000 100,000 2019 (2,000,000) . 52. What is the balance of Investment in Entity C to be reported by Entity A in its Statement of Financial Position on December 31, 20197 A. 1,080,000 B. 1,040,000 C. 240,000 D. 200,000 53. What is the balance of Investment in Entity C to be reported by Entity B in its Statement of Financial Position on December 31, 2019? A. 1,500,000 B. 1,620,000 C. "360,000 D. 900,000 Numbers 54 and 55 . On January 1, 2018, Entity A, a public entity, and Entity B, a public entity, incorporated Entity C by investing P3,000,000 and P2,000,000 for capital interest ratio of 60:40. The contractual agreement of the incorporating entities provided that the decisions on relevant activ'ties of Entity C will require the unanimous consent of both entities, Entity A and Entity B will have rights to the net assets of Entity C. ‘The financial statements of Entity C provided the following data for 2018: © Entity © reported net income of P1,000,000 for 2018 and paid cash dividends of P400,000 on December 31, 2018. . + During 2018, Entity C sold inventory to Entity A with gross profit of P50,000. Eighty percent of those inventories were resold by Entity A to third persons during 2018 and the remainder was resold to third persons during 2019. + On July 1, 2018, Entity C sold a machinery to Entity B at u loss of P20,000. At the time of sale, the machinery has remaining useful life of 2 years. 54, What is the investment income to.be reported by Entity A for the year ended December 31, 2018? A. 603,000 . B. 606,000 C. 594,000 D. 597,000 $5. What is the balance of Investment ini Entity C to be reported by Entity B on December 31, 2018? A. 2,246,000 B. 2,241,000 C. 2,238,000 D. 2,248,000 Scanned with CamScannerNumer 56 Ayala Corporation and SM Holdings established MRT7 business. The contractual agreement provides that the relevant activities of the business will require unanimous consent of the two parties. MRT7 business is not incorporated before SEC. Ayala Corporation and SM Holdings equally own interest in the said msiness. How shall Ayala Corporation account for its investment in MRT7? A. It shall be accounted for using proportionate consolidation. B. It shall be accounted for as joint arrangement classified as joint operation. C. It shall be accounted for as joint arrangement classified as joint venture. D. It shall be accounted for as business combination, Number $7 iFone and Blakbery structure a joint arrangement in an incorporated entity, Cell. They each have a 50% ownership interest. The purpose of the arrangement is for Cell to manufacture parts for iFone and Blakbery’s own manufacturing processes. The arrangement ensures that the 2 parties operate the facility that prodvees the parts to their specifications, The parties agreed to purchase all the output produced by Cell in the ratio of their ownership percentage. Cell may not sell its output to third parties, unless this is approved by iFone and Blakbery. The arrangement is intended to operate at a break-even level. That is, the selling price is set by both parties and is designed to cover the costs of production and administrative expenses incurred by Cell. How shall Blakbery account for its investment in Cell? A. It shall be accounted for using proportionate consolidation. B. It shall be accounted for as joint venture. C. Itshall be accounted for as joint operation. D. It shall be accounted for investment in trading securities. Number 53 | t Entity A owns majority of the outsiending ordinary shares of Entity B which is operating in United States of America wherein the functional currency is the USA S, However, the presentation currency of Entity B is the Philippine Peso. because that is the presentation currency of Entity A. For the year ended December 31, 2020, Entity B presented its Statement of Financial Position in its functional currenty of ISA S: Current assets $10,000 Current liabilit $10,000 Noncurrent assets _ 40,000 Noncurrent liabilities 20,000 ' Ordinary share capital 5,000 ! Preference share capital 8,000 : Retained earnings 7,000 Total Assets $50,000 Total Liabilities and shareholders $50,000 + The ordinary hares are issued on January 1, 2019 while the preference shares are issued on July 1, 2019. > B reported $1,000 net income during 2020 and declared dividends in the amount of $200 on December 1, 2020. © The transleted amount of retairied earnings on December 31, 2019 is P300,000. ‘The following direct exchange zates are provided January 1, 2019 P40 July 1, 2019 42 December 31, 2019 43 December 1,2020 4 December 31, 2620 45 ‘Average rate 2020 44 What amount of franslation gain as component of other comprehensive income should be presented in the of statement df comprehensive income for the year ended December 31, 2020? A.. 38,600 > B, 28,200 C. 40,400 Di 41,800 Scanned with CamScannerNumbers 59 and 60 Kline Compan; i 1y purchased inventory on November 30, 2918 for $10,000 payable March 1, 2019. O: prcember 1, 2018, the entity entered into a forward contract to purchase $10,000in 90 days 1o hedge Purchase of inventory on November 30, 2018. The relevant exchange rates are: e Spot rato Forward rate lovember 30, 2018 4s Paz December 1, 2018 46 4B December 31, 2018 50 SI 59. What amount of foreign currency transaction gain from the forward contract should be included in net income for 20187 A. 50,000 B. 40,000 C. 30,000 D. oO 60. What amount of foreign currency transaction loss should be included in income from the revaluation of accounts payable for 2018? A. 40,000 B.. $0,000 €. 10,000 D. 0 Number 61 On November 1, 2020, Entity A entered into a firm commitment for the exportation of goods at a price of $2,000. Delivery will happen on January 31, 2020. In order to hedge this foreign currency denominated firm commitment, Entity A entered into a forward contract with a bank to sell $2,000. Entity A is operating in Philippine economy where the functional currency is Philippine peso. Entity A elects to use fair value hedge to account this hedge of firm commitment. The following direct exchangé rates are given: November 1, 2020 December 31,2020 \ January 31,2022 Spot rate P43 P40 Pad 90-day forward rate 41 43 4a 60-day forward rate 45 4 4l 30-day forward rate 47 46 42 ‘What is the carrying amount of firm commitment ass2t or liability on December 31, 2029? A. 10,000 liability B. 10,000 asset C. 2,000 asset D. 2,000 liability. Scanned wih CamScannerNumbers 62 and 63 On November 1, 2020, Entity A anticipated the purchase of inventory on January 31,2021 at a price of $1,000. In order to hedge this highly probable forecasted importation, Entity A acquired a cail option from a bevk giving it the right to purchase $1,000 at an option price of P40 by payirig an option premium of P300. Entity A is operating in Philippine economy where the functional currency is Philippine peso. The following data are provided: November 1,2020 December 31,2020 January 31, 2021 Spot rate i P40 P 44 P43 Fair value of call option ? 4,500 ? Entity A imported the goods on the date anticipated. Afterwards, Entity A was able to resell 30% of the goods imported during 2021 $2. What is the ‘unrealized holding gain to be recognized in the profit or loss ‘in the statement comprehensive income for the year ended December 31, 2020? A. 300 B. 200 cc. 500 D. 100 i 63. What is the unrealized holding loss to be recoguized as component of other comprehensive income in the statemept of comprehensive income for the year ended December 31, 2021? A. 3,000 B. 2,000 | cc. 1,000 D. 4,000 Number 64 Under LAS 21, foreign exchange differences arising from translating foreign currency denominated transaction to fun¢tional currency shall be recognized in A. Profit or lose | B. Other comprehensive income with reclassification adjustment C. Retained-earnings D. Other comprehensive income without reclassification adjustment Number 65 Unrealized holding gain or loss on intrinsic value (effective portion) of derivatives designated as cash value hedge shall be recognized in A. Profit or loss Scanned with CamScannerNumbers 66 and 67 1m the first year of operations of a nonprofit organization, the following transactions occurred: ° The nonprofit organization received P1,000,000 fund from a donor who stipulated that it shall be invested indefinitely and the dividend from such investment shall be used for research project of the organization. Dividend amounting to P150,000 was received during the year but only P50,000 was spent for the researc project. * The nonprofit organization received P300,000 fund from a donor who stipulated that it shall be used for the acquisition of service car. The nonprofit organization used P100,000 of the fund for the acquisition of a service car with useful life of 5 years, The car was acquired at the middle of the year. * The nonprofit organization received 500,000 fund who stipulated that it shall be used based on the Giscretion of the Board of Trustees of the nonprofit organization. The nonprofit organization used '100,000 for the acquisition of souvenir items which were sold by the nonprofit organization for P150,000. ‘The remaining 400,000 was designeted by the Board of Trustees for future fundraising Projects: 66. What is the amount of temporarily restricted net assets at the end of the year? A. 100,000 B. 300,000 ~ €. 200,000 D. 700,000 67. What is the amount of unrestricted net assets at the end of the year? 640,000 540,000 590,000 630,000 gapp Number 68 On January 1, 2020, a nonprofit organization received P1,000,000 cash donation from a donor who stipulated that ths amount should be invested indefinitely, in revenue producing investment. The deed of donation also provided that the dividend income shall be used for the acquisition of computers of the nonprofit organization. On December 31, 2020, the nonprofit organization received P100,000 cash as dividend income from the investment of the fund, On January 1, 2021, the nonprofit organization acquired a computer at a cost of P20,000 with a useful life of 5 years without residual value. How should the cash flows be reported in NPO's Statement «if Cash Flows for the year ended December 31, 20207 Cash receipts from operating activities‘by P100,000, Cash receipts from financing activities by P1,100,000, Cash disbursements for investing activities by P50,000. Cash disbursements for financing activities by P 1,000,000 pomp Scanned with CamScannerNumber 69 Oh December 31, 201 8, the Department of Finance billed its lessee on one of its buildings in the amount ef? 10,000. On January'31, 2019, the Department of Finance collected all of the accent receivable. On TebmAry 28, 2019, the Department of Finance remitted the entire collected amoont ta de Bureau of Treasury. What is the journal entry to record the remittance by the Department of Finance to the Bureau of Treasury? Debit ~ Accounts Receivable P10,000 and Credit ~ Rent Income P10,000 Debit ~ Accounts Receivable P10,000 and Credit -- Retained Eamings P10,000 Debit — Cash Collecting Officers P10,000 and Credit ~ Accounts Receivable P10,000 Debit Cash + Treasury/Agency Deposit, Regular - P10,000 and Credit Cash — Collecting Officer — P10,000 vow> Number 70 : 1 ie Bureau of Treasury received P20,000 cash remittance from Department of Agrarian Reform (DAR) fom its miscellaneous income, What is the journal entry of the Bureau of Treasury in its accounting books tovecord the receipt of cash remittance from ths income of a national government agency? A. Debit Cash in Bank, Local Bank P20,000 and Credit Cash-Treasury/Agency Deposit, Regular P20,000. : . B. Debit Cash in/Bank, Local Bank P20,000 and Credit Miscellaneous Income of DA P20;000. C. Debit Cash injBank, Local Bank P20,000 and Credit Savings of DA, Regular P20,000. D. Debit Cash in Bank, Local Bank P20,000 and Credit Cesh-Collecting Officer, DA P20,000. END: Scanned with CamScannerADVANCED FINANCIAL ACCOUNTING AND REPORTING 1B Capital Balance of C before liquidation Less: Share of C in Total Loss in Liquidation during January (P500,000* x 20%) Capital Balance of C after loss on liquidation but before absorption of A’s insolvency Less: Share of C in A’s debit balance (P150,000 x 2/5) ‘Cash received by C at the end of partnership liquidation ‘Cash balance before start of liquidation ‘Net proceeds from sale of noncash asset during January (1,000,000 + 100,000) Cash paid for liquidation expenses during January Cash paid for liabilities to third person during January (P2,000,000 x 20%) Cash withheld for unpaid liabilities to third persons (P2,000,000 x 80%) Less: Cash withheld for estimated future liquidating expenses Cash available for distribution to partners Less: Total capital of all partners (100,000+500,000+400,000) Total loss on liquidation for the first month of installment Capital of A before liquidation Share in loss on liquidation (50% x 500,000) Debit balance in capital of A 2D Estimated future liquidating expenses on January 31, 2019 Add: carrying amount of remaining noneash assets on January 31, 2019 (1,400,000 = 1,000,000) ‘Maximum possible loss on January 31, 2019 B's share in maximum possible loss (P550,000 x 30%) 32.¢ Cash withheld for future liquidating expenses 7 Add: Cash withheld for remaining unpaid liabil: 80%) Total cash withheld on January 31, 2019 ies to third persons (P2,000,000 x 4. 5. B 6 A %¢ Amount received by partially secured loan payable Less: Fair value of collateral ~ machinery Recovered diiount from the unsecured portion of partially secured loans payable Divided by unsecured portion of partially secured loan payable (400,000 - 300,000) Recovery percentage on unsecured credits Amount received by holder of accounts payuble (P100,000 x 40%) Scanned with CamScanner 400,000 090) 300,000 (60,000) 240,000 1,600,000 1,100,000 (50,000) (400,000) (1,600,000) 450,000) 500,000 000° 500,000% 100,000 (250,000) 150,000) 150,000 400,000 550,000 165,000 150,000 1,600,000 4,750,000 340,000 300,000) 40,000 100,000 40% 40,0008 A Accounts payhble ‘Add: ” Unseclired portion of partially secured loan payable (400,000 — P300,000) — xd credits including unsecured portion of partially secured loans payabie Multiply b: Net free very percentage of unsecured credits sets KA i 10.B Unadjusted installment sales Add:" Undervaluation of traded car (P150,000 — P50,000) Adjusted installment sales Less: Cost of production of car Adjusted gross profit Divided by Adjusted installment sales Adjusted gross profit rate based on sales Installment reveivable ‘Down payment 25% x 400,000) Trade in allowance Installment rebeivable balance Annual installment (250,000/5) Dowa payment Fair value of trade in Annual payment — first year Total collections 2018 Realized gross profit 2018 (40% x 300,000) ered cost of defaulted installment receivable (P290,000 x 60%) Gross profit hnder accrual basis 14, A, Gross profit uhder accrual basis Add: Interest Income for year 2018 (P240,183 x 12%) ‘Add: Contingent franchise fee revenue (P50,000 x 8%) _ Less: Indirect cost ~ Expense as incurred Net income under accrual basis Scanned with CamScanner Page 2 400,000 190.900 500,000 (300,000) 200,000 1506 10 40% 400,000 (100,000) 50,000) 250.000 50.000 100,000 150,000 50,000 300,000 120,000 110,000 40,000) 200,000 240.183 240,183 352.146 38.037 88,037 28,822 4,000 (22,009) 98,85018.D 16.C Contract price as of 2019 a Total costs as of 2019 (800,000+250,000) ‘urnulative gross loss for 2019 Realized gross loss for 2018 Realized gross profit for 2019 Contract price Total cost 2018 (360,000 + 840,000) Realized loss 2018 17. A Progress Billings as of December 31, 2020 (P1,000,000) x (30%+20%+40%) Less: Construction in Progress as of December 31, 2020 (Costs incurred to date) Excess of Progress Billings over Construction in Progress ov 12/31/2020 18.B Cumulative billings as of December 31, 2020 (P1,000,000) x (30%+20%+40%) Mobilization fee deductible from first billing (P1,000,000 x 5%) Total collections of receivables as of December 31, 2020 (120,000+450,000+180,000) Balance of Accounts Receivable on December 31, 2020 19a 20. B 2A Sales revenue of the branch Cost of goods sold of the branch (30,000+100,020+250,000-50,000) Operating expenses of the branch ‘Net income reported by the branch in its separate income statement 22.D Ending inventory of the home office at cost Ending inventory of the branch from outsider at cost (50,000 x 26%) Ending inventory of the branch from home office last yeur at cost (50,000 x 24%) / 1.25) Ending inventory of the branch from home office this year at cost (50,000 x 50%) / 1.25) Ending inventory of the entity combined statement of financiai position 23.D Overstatement of beginning inventory from home office Overstatement of shipment during the year (250,000 ~ 200,000) Unadjusted overvaluation of inventory from home office Overstatement of ending inventory from home office Overstatement of cost of goods sold Beginning inventory from home office (80% « 30,000) Cost (24,000 / 125%) Ending inventory from home office (74% x 50,090) Cost (37,000 / 125%) Overstatement of ending inventory from home office Scanned with CamScanner Page 3 900,000 870,000 30,000) 900,000 (50,000) 100,000 500,000 (330,000) ( 40,000) 130,000 80,000 13,000 9,600 122,600cen | von | Page 4 25.4 Actual directllabor cost per hour 80 Stan“ard direbt labor cost 100 Direct tabor rate variance ae Multiply by Hours used 30 Favorable variance 600 26.B i Actual direct!labor hours 30 Standard direct labor hours (10 x 2) 8 Direct labor efficiency variance a Multiply by standard direct labor cost —100_ Unfavorabid variance co 27.B i Decrease in direct materials during the year ~ 500,000 Labor cost dilring the year 400000 Actual factory overhead during the year 200,000 Total manufacturing costs during the year 1,200,000 Increase in work in process during the year 200,000) Cost of goods manufactured during the year 2.009.000 23.C 29.4 Hl Direct materials Conversion cost Beginning inventory 10,000 (10,000 x 49%)° 4,000 (10,000 x 30%) 3,000 Started and Completed 25,000 25,000 25,000 Ending Inventory —_5,000_(5,000x 10%) ___500___(5,000x 25%) 1.250 EUP under FIFO costing 29,500 29,250 ' Total costs for FIFO costing £236,000 P146,250 Divide by EWP under FIFO costing 29,500 units 29,250 units Cost per nit) under FIFO costing 30.C 3B Current liabilities at fair value Noncurrent lfabilities ‘Net assets offacquiree at feir value Shares issued at fair value (10,000 x 20) Bondi payable issued at fair (500,000 x 110%) Total considfration Net assets of acquiree at fair value Goodwill ‘P8/unit (28) (C) PS/unit (29) (A) 506,000 1,300,000 (600,000) 500,000) 700,000 200,000 550,000 750,000 700,000 50,000 Scanned with CamScanner33.D Total liabilities of A at carrying amount: Current liabilities 7 Noncurrent liabilities Total liabilities of B at fair value: Current liabilities Noncurrent liabilities Fair value of bonds payable issued (500,000 x 110%) Bond issue cost Total liabilities after combination 34.D ‘Net assets of acquiree at carrying amount Overvaluation of asset Ondervaluation of Liability Net assets of acquiree at fair value Consideration FMV NC (1,500,000 x 20%) “NOTE Ageregate Net assets of acquiree at fair value Gain on bargain purchase Page 5 200,000 300,000 600,000 500,000 530,000, 1,600,000 (60,000) 49,000) 1.500,000 1,000,000 300,000 1,300,000 1,500,000 200,000 NOTE: The assumed amount of NCI 250,008 is less than the proportionate share therefore the value of the NCI is the proportionate share 35.4 Existing interest (30,000 / 100,000) Existing interest on 1/1/2018 Share in net income of associate for six months (30% x 40,000) Carrying amount Fair value of existing interest (30,000 x 4) Gain on remeasurement 36.D Fair value of existing interest Cost of additional interest Fair value of noncontrolling interest Aggregate Fair value of net assets acquired Goodwill Scanned with CamScanner 120,000 240,000 50,000 410,000Page 6 uD ql aaa measurfmént of noncontrolling interest in net assets (P330,000 x 30%) 99,000 Degontolling interest in net income 40,800 Nividends dediared by Entity B for NCI owners (20,000 x 30%) (6,000) oncontrolling interests in net assets on December 31, 2018 133.800 ; j ae income reported by Entity B in its separate income statement 150,000, ‘Amortization pf undervaluation of machinery (80,000/4 years) ( 20,000) nortization bf overvaluation of inventory (10,000 x 60%) 6,000 Adjusted net income of Entity B 136,000 Multiply by néncontrolling interest percentage of ownership X30% Noncontrolling interest in net income for 2018 40.800 Net assets of Entity B~1/1/2018 260,000 Undervaluation of machinery 80,000 Overvaluation of inventory (10,000) Net assets of Hatity B at fair value 330,000 38.C | Net income reported by Entity A in its separate income statement 1,000,000 Gain on bargaln purchase . 21,000 Dividend income from Entity B (20,000 x 70%) ( 14,000) Share in adjusted net income of Entity B (136,000 x 70%) 23,200 Consolidated net income attributable to parent shareholders 1,102,200 Retained ings of Entity A on January 1, 2018 2,000,000, Consolidated net income attributable to parent sharehol 1,102,200 Dividends declared by Entity B during 2018 (200,000) Consolidated |retained earnings on December 31, 2018 2,902,200 39.4 Sales revenue fepdrted by Entity A for year 2020 2,000,000 Sales revenue reported by Entity B for year 2020 1,000,000 Intercompany sales during 2020 (400,000) Consclidated sales revenue for year 2020 2,600,000 40.B Gross profit off Entity A for year 2020 (2,000,000 — 1,200,000) 800,000 Gross profit of Entity B for year 2020 (1,000,900 300,000 Realized Gros$ Profit on January 1, 2026 inventory of Entity B 20,000 Unrealized Gross Profit December 31, 2020 of Entity A * (22,000) Consolidated gross profit for 2020 1,048,000 January 1, 202) inventory of Entity B 280,000 Cost (280,000) 140%) 200,000 Unrealized profit — 1/1/2020 £0,000 Realized profit in 2020 ~ sold portion in 2020 (25% x 80,000) 20,000 December 31, 2020 inventory of Entity A 400,000 Gross profit (3)% x 400,006) 120,000 Realized gross|profit — sold portion in 2020 (40% x 120,000) (48,000) Unrealized gross profit ~ December 31, 2020 72.000 Scanned with CamScanner41.¢ Page 7 ie wneome reported by Entity B in its separate income statement 200,000 ar Bross profit on upstream sale to Entity A ‘Justed net income of Entity B 128,000 Multiple by noncontrolling interest X_40% Noncontrolling interest in net income 51.200 42.D Net income reported by Entity A in its separate income statement Dividend income from Entity B (50,000 x 60%) Realized ‘&foss profit on downstream sale to Entity B ‘Share in adjusted net income of Entity B (128,000 x 60%) Consolidated net income attributable to parent's shareholders 430A Depreciation of White Machinery ( 40,000 Ace.Depreciation / 4 years expired life) 10,000 Depreciation of Black Macl chinery (180,000 Acc.Depreciation /-6 years expired life) 30,000 ‘Consolidated depreciation expense for 2020 40,000, NOTE: Consolidated depreciation expense is the depreciation expense as if no intercompany sale of fixed asset happened. 44.8 White machinery 200,000 Accumulated depreciation : 40,000) Carrying amount — January 1, 2019 460,000 Depreciation — 2019 (10,000) Depreciation — 2020 10,000) Carrying amount — December 31, 2020 149,000 Black machinery 270,000 Accumulated depreciation Carrying amount ~ July 1, 2020 S000 Depreciation for six months (30,000 x 6/12) (2s,000) Carrying amount — December 31, 2020 . 75,000 Total carrying amount (140,000 + 75,000) 745,000 NOTE: Consolidated carrying amount is the carrying amount as if no intercompany sale of fixed asset happened. 45.4 46.4 , . 47.D 48. A 49. A 50. C Land owned by Entity A 3,000,000 ‘Add: Interest of Entity A on co-owned inventory (P1,000,000 x 60%) "600,000 Total assets to be reported by Entity A concerning its interest in Entity C 3,600,000 Scanned wih ComScannerULB i Sales revenue rey ity C ted b; Loser “yemts|feported by Entity © Less: Unso}ft inventory’ of Entity A coming from Entity C (P1,000,000 x 70%) inventory of Entity B coming from Entity C (P2,000,000 x 40%} Sales revemustto third petsons . 4 Sales vevenut to be reported by Entity A (P3,500,000 x 60%) 52.C Entity A’s investment in Entity C - 1/1/2018 Share in 2018 net income of Entity C (2,000,000 x 40%) Share it: 2018 cash dividend of Entity C (100,000 x 40%) Share in 2019 net loss of Entity C (2,000,000 x 40%) Carrying amount — December 31, 2019 53.C Entity B’s investment in Entity C Share in 2018 net income of Entity C (200,000 x 60%) Share in 2018 cash dividend of Entity.C (100,000 x 60%) Share in 2018 net loss of Entity C (2,000,000 x 60%) Carrying amount - December 31, 2019 54.C Unadjusted irivestment income of Entity A for 2018 (P1,000,000 x 60%) Less: Unrealized gross profit in ending inventory of Entity A (P50,000 x 20% x 60%) Adjusted investment income of Entity A for 2018 55.A H Initial measurement of Investment in Entity C (Entity B's Book) Add: “Unadjusted investment income of Entity B for 2018 (P 1,000,000 x 40%) Add: Unrealized loss on sale of machinery (P20,000 x 40%) Less: Realized loss on sale of machinery (P20,000/2 x 6/12 x 40%) Less: 2018 dividend received from Entity C (P400,000 x 40%) December 31, 2018 Investment in Entity C: (B's Book ) 56.B { 5 57.C ; 58.4 Net assets at December 31, 2019 at Closing rate 2019 ($19,200 x P43) Ordinary at date af issuance rate (5,000 x 40) Preference shhre at date of issuance rate (8,000 x 42) Translated Retained Earnings December 31, 2019 Cumulative translation adjustment 2019 loss (debit) in OCT Net assets'at December 31, 2020 at December 31,2020 rate ($20,000 x 45) ‘Ordinary at date of issuance rate (5,000 x 40)) Preference shhre at date of issuance rate (8,000 x 42) Translated Rqtained Earnings December 21, 2020 £300,000 + (1,000 x 44) - (200 x 41)] Cumulative translation adjustment 2020 gain (otedit) in OCI Cumulative translation adjustment 2019 loss (debit in OCT Translation &djustment goin ‘credit) for the yrar 2020 + Cumulative tanslation adjustnient 2020 gain (credit) Scanned with CamScanner Page 8 5,000,000 (700,000) (800,000) 3,500,000 2,100,000 1,000,000 80,000 ( 40,000) 400,000) 240,000 1,500,000 120,000 (60,000) 2,000,000 400,000 8,000 825,600 (200,000) (336,000) (10,400) 900,000 (200,000) (336,000) 28,200 (10,400) 28,20059.6 Page 9 Forward coy , Forward eee Teceivable ~ 12/1/2018 ($10,000 x P48 forward rate) 480,000 Norward contrac gansble~ 12/31/2018 ($10,000 x P51 forward rate) '510°009 30,000 60.8 Accounts payable — Nov. — November 30, 2018 ($10,001 Accolunts payable — December 31,2018 &io 000. 7 30 mot mS pry Foreign currency loss Mf sp 500,000 61.B November 1, 2020 90-day . sy forward rate ($2,000 x 41) 82,000 December 31, 2020 30-day f , 2 Forward contra) 20-day forward rate ($2,000 x 46) 92.000 pore Since the forward rate increased the underlying asset also increased resulting to a forex Sain in the underlying asset. Therefore the firm commitment will have a debit balance, hence firm commitment asset. a 62.8 Option price 40 Market price Novernber 1, 2020 (40) Change in price 0 Multiply by $1,000 Intrinsic value of call option Novernber 1, 2020 0 Option price 40 Market price December 31, 2020 _" Change in price 4 Muitiply by $1,000 Intrinsic value of call option December 31, 2020 4,000 Fair value of call option — November 1, 2920 . 300 Intrinsic value — November 1, 2020 0 Time value of call option November 1, 2020 300 Fair value of call option — Decemiber 31, 2020 4,500 Intrinsic value of call option — December 31, 202 4,000 Time value of call option - December 31, 2020 500 Time value of call option — November 1, 2020 00) Unrealized gain in profit or loss 2020 200 63.C ion pri 40 Option price - ' Market price January 31, 2021 es ‘Change in price Multiply by | G ae Intrinsic value of call option January 31, 2021 00 Intrinsic value of call option — December 3), 2020 (4,000) ‘Unrealized loss in OCI 2021 4,000) Scanned with CamScannerPHA 65.B 66.8 Unused fund for acquisition of service car (300,000 — 100,000) Unspent dividend received for research ‘Temporarily restricted net assets Dividend received Spent for h project Unspent dividend received Fund for acquisition of service car Fund used for!acquisition Unused fund for acquisition of service car 67.4 Reclassificatién from temporarily restricted dividend received Reclassificatign from temporarily. restricted service car fund Fund subject to discretion of board of trustees > Gain on sale of souvenir items (150,000 — 190,000) Research expénse Depreciation expense of service car (100,000/5 x 6/12) Unrestricted net assets Sale price of souvenir items Cost of souvehir items Goin on sale 68.B 69.D 70. A Scanned with CamScanner 100,000 200,090 300,000 150,000 50,000) 190.000 300,000 499,900)PROFESSIONAL REGULATORY BOARD OF ACCOUNTANCY CPA Licensure Examination OCTOBER 07, 2018 08:00 A.M. ~ 11:00 A.M. MANAGEMENT ADVISORY SERVICES, INSTRUCTION: Select the correct answer for each of the following questions. Mark only one answer for each item by shading the box corresponding to the letter of vour choice on the answer sheet provided, STRICTLY NO ERASURES ALLOWED. Sinuation 1 - FORT Company makes 4 single product ~ « fire-resistant commexce, Gling cabinet ~ that is sells to office furniture distributions. The company has a simple ABC system that it-uses for internal decision snaking. The company has two overhead departments whose cost aré listed as follows’ Manufacturing overhead 50,000 Sellidg and administrative overhead 30.000 Total overhead costs pag.009 “Phe company has the following activity cost pools and activity measures: Activity Cost Pool Activity measure ‘Assembling units © Number of units ~ Processing orders Number of orders Supporting customers Number of customers Other Nov applicable ty coat pool have no acsivity- measure: they consist of the costs of ists neither of which are astigned to orders, customers Costs assigned to the “Other” acti ‘tanused capitol and organization ~ sustaining co! or the products. FORT Ccmpany distributes-the costs of manufscnuring overhead and of selling and administssev< Fea aie acuvity cost pools based on employee interviews, the results of which are reported below. Distribution of Resource Consuraption Across Activity Gost Pools [Assembling | Processing Supporing | Other | Toul ‘anit Orders Customers Manufacturing overhead 30% 35% 5% 10% 700 Selling & administrative 10% 45%. 25% 20% 700) (Foal activity 77500 units | 250 orders | 100 customers — 1, How much f the costs are allocated to the activity cost pool of Precessing orders? ‘A. P10,000 . P11,000 B. 31,000 D. P28,000 2, What is the activity zate for the activity cost pool of Supporting Customer? ‘A. P120 c. Pizd B. P100 D. P28 3. AiComp. ina éustomer of FORT Co, Astursing:A Corp ordered #0 units of fling cabinets and ordered 4G dance dating the yeat, how much ofthe overhead cost is attributed to A Comp? A. P2,836 : C. P2340 B. P49 D. P2,240 4. The selling price of the filiig cabinet is P59.50: The cost of dicect materials is P18 Th pling pice of he Sng igs 2500: Te or sas iS og og ines to A Corp?" A: P84 y + C.P680 B. PSE0 D.P2,920 Scanned with CamScannerSituation 2 = 6 Indiana Ent's capital structure is as follows: Bands payable, 10 yeas, 10% 10% preferred stocks, P200 per value, 10,000 shares issued and outstanding P 1,000,000 Common stocks, P50 per chare an 10,000 shares issued and outstandiny Retained earnings * men Total ‘The company’s earnings per common thare (EPS) is P12. The common share’s current market price/share is P60, while that of preferred shares is P250. The income tax zate is 30, For purpose of computing the company's overall cost of capital, the cost ‘of commen stocks and retained earnings is 5 A. 20% : ©. 16.32% B. 24% D..136 The cost of debt is AL 7% <. 10% B. 7.58% D.14.71% The cost of preferred stocks is . A. 8% C. 5.44% B. 6.8% D. 10% What is the weighted average cost of capital? A. 43.8% ©. 12.6% = B. 23.66% D.8.54% Simauon 3 — GOLD Company manuficturse and sells a seasonal product that has peak sales ia the third 10. Guanter, The following information concerns operations for year 2.~ the coming yar — and fr the first quarters of Year 3: Fie company’s single product sells for PB for nit. Budgeted sales for the next six quarters ate 28 follows (all sales are on credit): Budgeted unit sales: Year 2 Quarter 1 - 80,000 ‘Year 2 Quarter 2 - 120,000 Year 2 Quarter 3 - 200,800 Year 2 Quarter 4 - 100,000 “Year 3 Quarter 1 - 140,000 Year 3 Quarter 2 - 160,000 Sales are collected in the following pattern: 75% in the quarter the sales are made, and the remaining Boec ih the following quarter. On January 1, Year 2, the company’s balance sheet showed P130,000 3 aoe in ee cccivable, al of which will be collected in the first quarter of the year, Bad debs are negligible and can be ignored. . Tie Company desires an ending finished goods inventory at the end of each quarter equal to 506 of ae Gadgered onie sales for dhe next quarter. Oa Deceraber 31, Year 1, the company had 24,000 wniss on hand. Five (6) pound of enw materials are requited to complete one unit of product. The company requires Cading cw matctis inventory at the end of each quarter equal ro 10% of the following quarter's trodusdon needs. On December 31, Year 1, the eomprny had 46,000 pound of rsw materials on hand. : The eaw! matetial costs P.8D per pound. Raw gnaterini purchases ate paid for in the following pattern GO%e paid inthe quarter the purchases Are made; ind the remaining 407%' paid in the following Seasick’ On Januaty 1, Year 2, the compaay’s balance sheet showed P163,000 iovaccounts payable daeew materials purchases, all of which wil be poid for the Gist quarter of the year How wiuch is the total cash collections for the Year 2? . ‘A. P2,930,000 Cc. P 1,490 B. P3,930,000 D. P1,440,000 What ig the total required production (jn unies) for Year 2? Au: 406,000, C. P518,000, B. 336,000 © D. 256,000 Scanned with CamScanner12, 3 14, 15, 1 19, How many pounds.of ra A.2,617,000- ok B. P2663 C. 2,040,000 663,000 D. 1,796,000 an a Jor ount of expected total cath payments for Year 2? as Bigs B C. P2,093,600 D. P1,908,960 data rels Miler Inc. uses straight-line depreciation for both tax and financial reporting purposes. The following 'P150,000 200,000 225,000 225,000 175,000 weene \ materials are required to be purchased in Year 2? Inte to Machine No. 108, which cost P400,000 and is being written-off over a five-year life Xear ir All of these amounts arc on a before-tax basis. Miller is subject to 2 40% income tax rate. The be: AL 258 yeni c. B. 2.14 years. D. 2.44 years 3.41 years company strives for a 12% rate of return. The traditional payback p..tiod for Machine No. 108 would Red Company has.a revolving eredit line of P300,000 with a one-year maturity. The cerms cal) for a 6% interest rate and a ¥s% commitment fee on the unused portion of the line of credit. The average loan balance during the year was P100,00. What is annul cost of this financial arrangement? A. P7,500 C. P7,000 B. :P6,500 D. P6,000 The stage of the capital budgeting process which chooses projects for implement A. Search stage C: Identification stage B. Selection stage D. Management-control stage tation is che An oxganization offers its customer credit terms of $/19 net 20. One-third of the customers take the cash’ discouint and the remaining pay on. day 20. OA average, 20 units are sold per day, priced at 10,000 each. ‘The rate of sales is unifosi! theughour te yeai: Using a 360:day’year, the organization has days sales outstanding in accounts receivable, to the nearest full day of, A. 13 days C. 15 days B. 20 days D. 17 days BBD Corporation bought a piece of machinery. Selected data is presented below: Useful life 6 years Yearly inet cash inflow 48,000 Salvage value “0. Internal rate of return 18% Cost of capital 14% “The initial cost of the machinery was (round present value factor to four decimal places) A. Impossible to'determine from the information given. 8. P174,992. C. Pi65,812. D. P1$7,392, “he stage of the capital budgeting process which explores alternative capital investments that will achievs, oF sienen,pbiectves — m8 Eaefehtia stage ee A. Seageh sta B. Tue Baldo Company has a policy of maintaining aa inventory of finished goods equal to 30 per. CE. Ntstihemenelacigfe Di Selection stage. “*** tof the following month's sales. For the forthcoming month of March, Baldo has budgeted the beginning inventory at 30,000 units and the ending inventory at 33,000 units. This suggests that ‘A. Februazy sales are budgeted at 3,000 units less than March sales. Scanned with CamScanner