ReSA B44 FAR Final PB Exam Questions Answers and Solutions

ReSA - THE REVIEW SCHOOL OF ACCOUNTANCY
CPA Review Batch 44  Oct 2022 CPALE  25 September 2022  11:45 AM - 02:45 PM
FINANCIAL ACCOUNTING and REPORTING FINAL PRE-BOARD EXAMINATION
INSTRUCTIONS: Select the correct answer for each of the 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. Use pencil no. 2 only.
Multiple Choices – Theories:

1. Which of the following is not a purpose of the Conceptual Framework for Financial
Reporting according to the Revised Conceptual Framework for Financial Reporting?
a. To assist regulatory agencies in enforcing compliance of companies to the
requirements of the applicable IFRSs.
b. To assist all parties to understand and interpret the Standards.
c. To assist the International Accounting Standards Board (Board) to develop IFRS
Standards (Standards) that are based on consistent concepts.
d. To assist preparers to develop consistent accounting policies when no Standard
applies to a particular transaction or other event, or when a Standard allows a
choice of accounting policy.
2. The following statements concerning the qualitative characteristics of useful

financial information:
I.Verifiability, comparability, understandability and timeliness are qualitative
characteristics that enhance the usefulness of information that both is relevant
and provides a faithful representation of what it purports to represent.
II.To be useful, financial information must not only represent relevant phenomena,
but it must also faithfully represent the substance of the phenomena that it
purports to represent.
a. Only statement I is correct.

b. Only statement II is correct.
c. Both statements are correct.
d. Both statements are incorrect.
3. Cash equivalents do not include:

a. Two-month treasury bills
b. Commercial papers purchased with three months of maturity
c. Money market instrument (one month)
d. Equity investments at FV through profit or loss (expected to be sold in two
months)
4. Which of the following is recorded by a credit to accounts receivable but do not

affect the net realizable value of the accounts receivable?
a. estimated sales return at year-end.
b. provisions for estimated bad debts.
c. write-off of accounts receivable proven to be uncollectible.
d. sale of merchandise on account with 2/10, n/30 credit terms.
5. Which of the following shall be included in the reported balance of inventory in

the statement of financial position?
a. cost of goods shipped out on consignment to another entity.
b. cost of goods purchased with a buyback agreement.
c. cost of goods sold in transit – CIF terms.
d. cost of undelivered goods sold in bill and hold agreement.
6. Which of the following will not affect the investment income reported in profit or
loss if the equity investment is considered having significant influence?
a. share in excess representing increase in depreciation expense.
b. cash dividend received.
c. share in excess of inventories carrying value and fair value on acquisition date
when these inventories were sold during the year.
d. all of these affect the investment income.
7. What is the treatment of any gain on subsequent increase in fair value less cost of
disposal of a noncurrent asset classified as held for sale?
a. gain recognized directly in retained earnings.
b. gain recognized in profit or loss in full amount.
c. gain recognized in profit or loss limited to any previous cumulative impairment
losses.
d. gain shall not be recognized.
Page 1 of 22 0915-2303213  resacpareview@gmail.com

FINANCIAL ACCOUNTING & REPORTING
ReSA Batch 44 – October 2022 CPALE Batch
25 September 2022  11:45 AM to 02:45 PM FAR Final Pre-Board
Exam
8. Bri-PH Company acquired machinery on January 1, 2017 which it depreciated under the
straight-line method with an estimated life of fifteen years and no residual value.
On January 1, 2022, Bri-PH estimated that the remaining life of this machinery was
six years with no residual value. How should this change be accounted for by Bri-
PH?
a. as the cumulative effect of a change in accounting principle in 2022.
b. by setting annual depreciation equal to one-sixth of the book value on January
1, 2022 starting 2022.
c. by continuing to depreciate the machinery over the original fifteen-year life.
d. as a prior-period adjustment.
9. Eduardo Company constructs a laboratory building to be used as a research and

development facility, the cost of the laboratory building is matched against
earnings as?
a. depreciation reported as part of research and development cost at such time as
productive research has been obtained from the facility.
b. depreciation or immediate write-off depending on company policy.
c. reduction in the reported research and development expense in the year of
construction.
d. research and development expense in the period of construction.
10. Accounting for product warranty costs under an assurance-type warranty:

a. is required for income tax purposes.
b. charges an expense account when the seller performs in compliance with the
warranty.
c. is frequently justified on the basis of expediency when warranty costs are
immaterial.
d. represents accepted practice and should be used whenever the warranty is an
integral and inseparable part of the sale.
11. Elijah Company’s December 31, 2022 Statement of Financial Position is to be issued
of April 15, 2023. A long-term obligation contracted in 2020 for settlement on
January 15, 2023 was extinguished through cash payment on its due date. On January
1, 2023, a 5-year note was issued to replace the cash used up for the payment made
on April 15, 2023. Which of the following statements is correct?
a. There should be no liability to be reported in the 2022 statement of financial
position since the original obligation was already extinguished before the date
of the authorization for issuance.
b. The new obligation entered into on January 2023 should be reported in the 2022
statement of financial position as a non-current liability because it is due to
be settled beyond twelve months after the reporting period.
c. The original obligation should be reported in the 2022 statement of financial
position as a non-current liability because the entity has a right to defer
settlement of the liability for at least twelve months after the reporting period.
d. The original obligation should be reported in the 2022 Statement of Financial
Position as a current liability because the entity does not have a right to defer
settlement of the liability for at least twelve months after the reporting period.
12. Ivan Company had the following items of liability in its book as of December 31,
2022. Determine the correct classification of the following liabilities in the
Statement of Financial Position of Ivan Company as of December 31, 2022:
[1.] Liability with a due date which can be accelerated to within one year of the
statement of financial position date; a reasonable probability exists that the
due date will be accelerated.
[2.] Liability due on demand by creditor, probability of the creditor calling the
in the liability within one year of the statement of financial position date
is remote.
[3.] Liability due on demand by creditor, probability of the creditor calling the
in the liability within one year of the statement of financial position date
is reasonable but not likely.
[4.] Bonds issued due in three years from date of issuance and currently maturing
in 10 months after reporting period.
a. Only numbers 1 and 4 are current.

b. Only numbers 2 and 3 are current.
c. All are non-current liabilities.
d. All are current liabilities.

13. Laurence Company issued a P100,000, 10% bond at 99. The bond was: Exam
a. sold for P100,000 less P1,000 of accrued interest.
b. sold at a premium because the stated rate was higher than the yield rate.
c. sold at a discount because the stated rate was lower than the market interest
rate.
d. sold at a premium because the P1,000 accrued interest is added to the P100,000
face amount.
14. Identify the missing component (X) in the equation:
Retained Earnings, end = Net income to date + period-period adjustments – cash

dividends to date – property dividends to date – X
a. net unrealized loss on equity investmens at FV through OCI.

b. Share dividends declared to date.
c. Share split declared to date.
d. All of them may be the missing component.
15. Which of the following treasury share transactions do not affect the total
shareholder’s equity?
[1.] Acquisition of treasury shares.
[2.] Reissuance of treasury shares.
[3.] Declaration of treasury shares as dividends.
[4.] Retirement of treasury shares.
a. Number 1 only
b. Numbers 2 and 3 only
c. Numbers 3 and 4 only
d. Numbers 2, 3 and 4 only.
16. Danielle Company made the following journal entry on January 1, 2022 related to a
lease contract:
Lease receivable xx
Cost of sales xx
Sales xx
Inventory xx
Unearned interest income xx
Danielle Company must have a (an)?

a. sales-type lease
b. direct finance lease
c. operating lease
d. sale-leaseback transaction
17. Which of the following is included in the cost of the right-of-use asset of the
lessee?
a. free rent on the first year of lease contract granted by the lessor.
b. initial direct costs to effect the lease paid by the lessor.
c. reimbursements by the lessor of the lessee’s initial direct costs.
d. initial payment made by the lessee to the lessor at inception of the lease.
18. Sheen Company maintained a defined benefit plan for all employees. The service cost
component of Sheen Company shall exclude:
a. increase in the present value of a defined benefit obligation resulting from
employee service in the current period.
b. the change in the present value of the defined benefit obligation for employee
service in prior periods as a result of plan amendments.
c. decrease in the present value of defined benefit obligation due to effects of
changes in actuarial assumptions.
d. increase during a period in the present value of a defined benefit obligation
which arises because the benefits are one period closer to settlement.
19. The current income tax expense (CITE) is:

a. financial income multiplied by current year tax rate.
b. financial income multiplied by future enacted tax rate.
c. taxable income multiplied by future enacted tax rate.
d. taxable income multiplied by current year tax rate.

Exam
20. Under PFRS 8, which of the following is not a criterion used to determine reportable
segments?
a. Segment assets
b. Segment liabilities
c. Segment sales
d. Segment operating profit or loss
Multiple Choices – Problems
Situation 1 – The data relates to three different companies:

On December 31, 2022, Villanueva Company reported cash and cash equivalents of
P5,255,000 comprised of the following:
Petty cash fund (imprest balance) P5,000
Undeposited collections 120,000
Cash in Bank - JPBank checking account 900,000
Cash in Bank – JPBank payroll fund 1,950,000
Cash in Bank - JPBank dividend fund 750,000
Cash in Bank - Binaluyo Bank of Asia (Foreign currency) 800,000
Cash in Bank - money market instrument, 60 days 250,000
Redeemable preference shares, due in 2 months as of 12/31/22 480,000
Total cash and cash equivalents P5,255,000
Additional information as of December 31, 2022:

The petty cash fund includes unreplenished vouchers amounting to P2,350 and P2,550 of
bills and coins. Included in the undeposited collections were: NSF check received from
customer on December 29, 2022 for P15,000 and P20,000 of customers check received on
December 30, 2022 dated January 4, 2023. Included in the checks drawn and recorded
against JP Bank checking account were: P180,000 payable to Moira Company dated January
3, 2023 and P145,000 of check issued to Bellie Company dated June 15, 2022 (not encash
as of 12/31/2022). The $16,000 cash in Binaluyo Bank of Asia is not restricted, closing
rate on December 31, 2022 is P56 =$1. The redeemable preference shares were originally
purchased by Villanueva Company last November 1, 2022.
Tan Company had the following transaction in its accounts receivable during 2022:
Accounts receivable, beginning balance P2,700,000

Allowance for bad debts, beginning 33,750
Sales on account made to customers 3,950,000
Collection of accounts from credit customers 4,350,000
Sales discounts granted 50,000
Accounts written off as uncollectible 80,000
The following transactions were included in the recorded sales on account during 2022:
[1.] Invoice dated December 28, 2022 for P420,000 was shipped and received by the buyer
on December 31, 2022, terms FOB Destination point.
[2.] Invoice dated and recorded on November 29, 2022 for P600,000 was received by
another entity on December 1, 2022. The agreement of the parties is to remit the
selling price less commission upon sale of the goods. None of the goods have been
sold yet as of December 31, 2022.
The following summary was prepared from an aging of accounts receivable outstanding on
December 31, 2022:
Number of days outs. % of the ending balance % uncollectible
0 - 30 days 50% 2%
31 - 60 days 30% 5%
Over 60 days 20% 15%
Pyrus Company conducted a physical count on December 31, 2022, which revealed inventory
with a cost of P4,410,000. The following items were excluded from the physical count:
Goods held by Pyrus on consignment P700,000
Goods shipped by Pyrus FOB Destination to a customer on December 31,
2022 and was received by the customer on January 3, 2023 400,000
Goods shipped by Pyrus FOB Shipping Point to a customer on December 31,
2022 and was received by the customer on January 6, 2023 420,000
Goods shipped by a vendor FOB Destination on December 31, 2022 and was
received by Pyrus on January 10, 2023 910,000
Goods purchased FOB Shipping Point was shipped by the supplier on
December 31, 2022 and received by Pyrus on January 5, 2023 640,000

Exam
21. What amount should Villanueva Company report as cash and cash equivalents on December
31, 2022?
a. P5,638,650 c. P5,255,550
b. P5,542,650 d. P5,158,550
22. What amount should Tan Company recognized as bad debt expense in profit or loss for
period ending December 31, 2022?
a. P132,600 c. P86,350
b. P120,100 d. P56,750
23. What amount should Pyrus Company report as inventory as of December 31, 2022?
a. P2,160,000 c. P5,450,000
b. P4,350,000 d. P5,640,000
Situation 2 – Information relevant to three different companies follows:

Thirdy Company had the following portfolio of financial instrument as of December 31,
2022. All securities were acquired at the end of 2021:
Security Denomination Initial recorded value
First shares 200,000 shares P11,000,000
Second shares 20,000 shares 900,000
[1.] First shares were acquired and designated as equity investment at fair value
through profit or loss. The shares were acquired at P55 per share which included
P1.00 per share transaction cost. Half of the First shares were sold at P62 per
share on September 30, 2022. Each share is selling at P65 on December 31, 2022.
[2.] Second shares were acquired and designated as equity investments at FV through
other comprehensive income. The shares were purchased at P45 including P1.00
per share transaction cost. The FV of each share on December 31, 2022 was at
P50.
At the beginning of 2022, Tristan Co. purchased 250,000 ordinary shares of Daniella
Co. at P45 per share, giving Tristan 40% ownership and a significant influence over
Daniella. On this date, the book value Daniella’s net asset amounted to P23,125,000.
On the date of acquisition, the carrying amount of Daniella’s identifiable assets and
liabilities approximate their carrying amounts, except for the following:
[1.]Aggregate fair value of Daniella’s depreciable property, plant, and equipment is
P2,500,000 greater than its carrying value. Such item is depreciated over 8-
years remaining useful life on the date of acquisition.
[2.]The fair value of Daniella’s inventories was P2,000,000 greater than its carrying
amount. All of these inventories were sold in 2022.
[3.]A land costing P1,000,000 had fair value of P1,500,000.
During the year, the Daniella earned and reported net income of P10,200,000, and paid
cash dividends of P1,800,000 to Tristan Company.
Lance Company acquired on January 1, 2022 a 5 year, 8%, P5,000,000 face value bonds,
for P4,445,615 dated January 1, 2022. The bonds which pay interest every December 31
had 11% prevailing interest rate on the date of acquisition. Lance’s business model is
to collect contractual cash flows and the cash flows are solely payment of principal
and interest and to sell the bonds when circumstances warrants. The prevailing interest
rate on December 31, 2022 is 10%.
24. What amount should Thirdy Company report as unrealized gain (loss) in its Statement
of Comprehensive Income for the period ending December 31, 2022?
a. P100,000 c. P1,200,000
b. P1,000,000 d. P1,220,000
25. What amount should Tristan Company report its investment in the Statement of
Financial Position as of December 31, 2022?
a. P12,605,000 c. P14,300,000
b. P13,685,000 d. P14,315,000
26. What amount should Lance Company report its debt investment in the Statement of
Financial Position as of December 31, 2022?
a. P5,450,000 c. P4,683,013
b. P4,696,128 d. P4,534,633

Situation 3 – Information relevant to four different companies follows: Exam
Love Company reported an impairment loss of P500,000 in its income statement for the
year 2019. This impairment loss was related to an item of property, plant, and equipment
(a building) which was acquired on January 1, 2011 with a cost of P4,000,000 (no
salvage value). Depreciation on this building is computed on straight-line basis and
annual depreciation on cost is P160,000. Depreciation for the years 2020 and onwards
were computed based on the asset’s recoverable amount at December 31, 2019. On December
31, 2022, the fair value of the building is P3,240,000. Love Company uses revaluation
model to account this class of property, plant and equipment.
Thunder Company constructed its own building which qualifies for interest
capitalization. Thunder incurred the following cost and had the following outstanding
borrowings while the building is under construction.
January 1, 2021 P3,000,000
June 30, 2021 2,500,000
November 30, 2021 2,000,000
April 1, 2022 1,500,000
October 1, 2022 1,000,000
Outstanding borrowings:
Dated January 1, 2021 - 2,000,000; 8% (specific)
Dated January 1, 2021 - 3,000,000; 9% (general)
Dated January 1, 2022 - 3,875,000; 12% (general)
The construction was completed on December 31, 2022 and ready for its intended use.
Thor Company has a single investment property, which had original cost of P580,000 on
January 1, 2021. At December 31, 2021, its fair value was P600,000 and at December 31,
2022, it had a fair value of P590,000. On acquisition, the property had a useful life
of 40 years.
Mjolnir Company was able to patent one of its new machines with the Intellectual
Property Office of the Philippines on January 2, 2022. The cost of the patent recorded
by the client included the following items:
Purchase of special equipment for use in operations (5-year EUL) P1,500,000
Research salaries and fringe benefits for engineers and scientists 540,000
Cost of testing pre-production prototype 890,000
Legal cost of filing for patent 520,000
Fees paid to government patent office 260,000
Drawings required by patent office to be filed with patent application 145,000
The patent’s economic life is 10 years.
27. What amount should Love Company recognized in profit or loss as gain on recovery of
impairment and the balance of revaluation surplus, respectively in year 2022?
a. P93,750 and 1,566,250 c. P502,250 and P1,566,250
b. P406,250 and P1,160,000 d. P612,500 and P1,160,000
28. What is the capitalized interest, interest expense and cost of building should
Thunder report in its Financial Statements for year 2022?
a. P935,358 (capitalized interest); P11,312,858 (cost of building); P40,358
(interest expense)
b. P935,358 (capitalized interest); P11,272,858 (cost of building); P25,358
(interest expense)
c. P895,000 (capitalized interest); P11,312,500 (cost of building); P40,358
(interest expense)
d. P895,000 (capitalized interest); P11,272,500 (cost of building); P0 (interest
expense)
29. What should be the total expense recognized by Thor Company in the profit or loss
for the year ended December 31, 2022 under fair value and cost model, respectively?
a. P10,000 and P14,500, respectively. c. P14,500 and P10,000, respectively.
b. P14,750 and P14,500, respectively. d. P10,000 and P14,750, respectively.
30. What amount should Mjolnir Company report as patent in its Statement of Financial
Position as of December 31, 2022, and research and development expense in its 2022
profit or loss, respectively?
a. P925,000 and P2,930,000 c. P693,750 and P2,040,000
b. P832,500 and P1,430,000 d. P693,750 and P1,730,000
Situation 4 – Information relevant to four different companies follows: Exam
Candy Crush Company offers a coffee mug as a premium for every ten candy bar wrappers
presented by customers. Each candy bar is sold at P5. The purchase price of each mug
to the company is P1. Each mug can be sold for P3 if not use in premium promotional
program. The results of the premium plan for the years 2021 and 2022 are as follows:
All in units 2021 2022

Coffee mugs purchased 720,000 800,000
Candy bars sold 5,600,000 6,750,000
Total wrappers redeemed in 2,800,000 4,200,000
2021 wrappers expected to redeem in 2022 2,000,000
2022 wrappers expected to redeem in 2023 2,700,000
A customer is suing Lock Heart Company for P550,000 in damages because her child was
injured in November 2022 while riding an escalator that stopped suddenly in one of its
state-of-the-art stores in Makati when he tripped and fell while walking down an
escalator that was going up. Legal counsel that it is probable that the lawsuit will
be settled for between P200,000 and P550,000, with the following likely outcome: 20%
to be settled at P200,000; 30% to be settled at P370,000 and 50% to be settled at
P550,000.
Ludwig Company started its business in selling printers with three-year warranty. It
estimates its warranty cost as a percentage of peso sales. Based on past experience,
it is estimated that 3% will be repaired during the first year of warranty, 5% will be
repaired during the second year of warranty and 7% will be repaired in the third year.
The product warranty provides assurance based on agreed upon specification. In 2021
and 2022, the company was able to sell 12,000 units and 14,500 units, respectively at
a total price of P7,000 per unit. The company also incurred actual repair costs of
P6,500,000 and P12,500,000 in 2021 and 2022, respectively. The selling price of the
warranty is P2,000 per unit. The printer is selling at P5,000 if without the warranty.
Graceful Corp. has a three-year, 10%, long-term bond for P3,500,000 with a maturity
date of November 1, 2025. On October 1, 2022, it breaches a covenant related to this
debt and the loan becomes due on demand. Graceful reaches an agreement with the lender
on January 2, 2023, to provide a waiver of the breach not to demand payment until
December 31, 2023. The financial statements are authorized for issue on March 5, 2023.
31. What amount should Candy Crush Company report as unearned premium income in its
December 31, 2021 and December 31, 2022 Statement of Financial Position,
respectively?
a. P460,623 and P748,678 c. P570,652 and P776,193
b. P520,772 and P727,281 d. P582,352 and P730,660
32. What amount should Lock Heart Company shall reflect the situation in its December
31, 2022 Financial Statements?
a. P426,000 recognized as provision and P124,000 disclosed as contingent liability.
b. P373,333 recognized as provision and P176,667 disclosed as contingent liability.
c. P550,000 recognized as provision and no disclosure for contingent liability.
d. P550,000 recognized as provision and P200,000 disclosed as contingent liability.
33. What amount should Ludwig Company shall report the balance of warranty liability as
of December 31, 2022?
a. P7,625,000 c. P9,125,000
b. P8,825,000 d. P9,375,000
34. How should Graceful Corp. shall report the situation in its Financial Position as
of December 31, 2022?
a. Graceful shall report the bond payable as non-current because a grace period was
obtained related to the debt.
b. Graceful shall report the bond payable as non-current because a grace period was
not obtained related to the debt.
c. Graceful shall report the bond payable as current because a grace period was
obtained related to the debt regardless of the date of when the grace period was
obtained.
d. Graceful shall report the bond payable as current because a grace period was
obtained related to the debt after the end of the reporting period.

Situation 5 – Information relevant to three different companies follows: Exam
On January 1, 2021 Matthew Company bought an equipment by paying cash of P2,000,000
and issued a 10% 4-year note payable in equal annual installment of P1,000,000 at the
end of each year. Interest is payable at each year-end based on outstanding balance of
the note. At issuance date, Matthew recorded the transaction by recognizing a discount
on note payable of P160,442.
On December 31, 2022, Matthew recorded a credit to discount on notes payable of P48,037
when required payment of principal and interest due on this date was made. At the end
of 2023, the balance of unamortized discount is P17,857.
Solaire Corporation issued P1,500,000 of 8% bonds on October 1, 2020 due on October 1,

2023 at 105. The interest is to be paid twice a year on April 1 and October 1. When
the bonds was issued, the prevailing market rate was 10% without the conversion
privilege. The corporation closes its books annually on December 31. Each P1,000 bond
is convertible into 10 shares of P100 par value ordinary share. The bonds were retired
on April 1, 2023 at 102 and on this date, the prevailing market rate was 9% without
the conversion privilege.
City of Dreams Company has an overdue note payable to ReSA Bank of P10,000,000 and
recorded accrued interest of P1,000,000. On December 31, 2022, ReSA Bank agreed to the
following restructuring agreement:
• Reduce the principal obligation by P3,000,000
• Waive the P1,000,000 accrued interest
• Extend the maturity date to December 31, 2025.
• Annual interest of 8% of the new principal is to be paid on December 31, 2023,
December 31, 2024 and December 31, 2025.
• The prevailing market interest rate for similar debt instrument on the date of
restructuring is 12%
35. What is the carrying value of the bonds payable reported in Matthew Company’s
statement of financial position as of December 31, 2022?
a. P2,003,281 c. P1,936,816
b. P1,948,342 d. P1,922,162
36. How much gain (loss) should Solaire record upon retirement of these bonds?
a. P7,109 loss c. P37,177 loss
b. P7,109 gain d. P37,177 gain
37. How much is the gain on debt restructuring should City of Dreams recognized in
profit or loss?
a. P4,348,169 c. P4,592,669
b. P4,469,372 d. P4,672,512

Presented below is the equity section of Coca-Cola Corporation at December 31, 2022:
Share capital—ordinary, par value P20; authorized
75,000 shares; issued and outstanding
45,000 shares P 900,000
Share premium—ordinary 250,000
Retained earnings 500,000
Total Shareholder’s equity P1,650,000
During 2022, the following transactions occurred relating to equity:

3,000 shares were reacquired at P28 per share.
3,000 shares were reacquired at P35 per share.
1,800 shares of treasury shares were sold at P30 per share.
For the year ended December 31, 2022, Coca-cola reported net income of P450,000.
Blue Corporation has 50,000 shares of P10 par ordinary shares authorized. The following
transactions took place during 2022, the first year of the corporation’s existence:
Sold 5,000 ordinary shares for P18 per share.
Issued 5,000 ordinary shares in exchange for a patent with fair value of P100,000.

Malaki Corporation has an investment in 5,000 shares of Wallace Company ordinaryExam
shares
with a cost of P218,000. These shares are used in a property dividend to shareholders
of Malaki. The property dividend is declared on May 25 and scheduled to be distributed
on July 31 to shareholders of record on June 15. The market value per Wallace share is
P63 on May 25, P66 on June 15, and P68 on July 31.
38. Assuming Coca-cola accounts for treasury under the cost method, what amount should
it report as total equity on its December 31, 2022, statement of financial position?
a. P1,965,000 c. P1,985,000
b. P1,975,000 d. P1,995,000
39. At the end of the Blue Corporation’s first year of operations, total contributed
capital amounted to?
a. P180,000 c. P200,000
b. P190,000 d. P210,000
40. The net effect of property dividend declaration on retained earnings of Malaki
Corporation for year ended December 31, 2022 is a reduction of?
a. P218,000 c. P330,000
b. P315,000 d. P340,000

On January 1, 2022, One Direction Corporation signed a ten-year noncancelable lease
for certain equipment. The terms of the lease called for One Direction to make annual
payments of P150,000 at the end of each year for ten years with title to pass to One
Direction at the end of lease term. The equipment has an estimated useful life of 15
years and no residual value. One Direction uses the straight-line method of depreciation
for all of its fixed assets. One Direction accordingly accounted for this lease
transaction as a finance lease. The interest rate of 8% is implicit in the lease. One
Direction has an option to purchase the asset at the end of lease term at P120,000
which is reasonably certain to exercise by One Direction. Estimated residual value at
the end of 10 years is P100,000 and at the end of 15 years is P80,000. One Direction
incurred a total of P350,000 direct cost to enter the lease.
On January 1, 2022, Harry Styles Company enters into a seven-year lease of machinery.
The machinery has estimated useful life of 10 years. Lease payments are P2,220,000 per
year all payable at the beginning of each year. To obtain the lease, Harry Styles
Company incurs initial direct cost of P500,000. Harry Styles guarantees a residual
value of P400,000 at the end of lease term. The machine is expected to dismantle at a
cost of P75,000 after the lease contract.
Implicit rate in the lease contract 11%

Effective rate of interest (dismantling) 12%
On January 1, 2022, Zayn Corporation (lessor) enters into a ten-year lease of equipment
to Malik Corporation (lessee). Malik Corporation do not have enough cash for an outright
purchase of equipment. Zayn Corporation use the lease contract to sell the asset to
Malik Corporation. The equipment has estimated useful life of 15 years. Lease payments
are P380,000 per year all payable at the beginning of each year. The fair value of the
leased asset on this date P3,132,161. The rate implicit in the lease is 6%. Mulak
Corporation, a subsidiary of Malik Corporation guaranteed a residual value of P300,000.
The cost of the asset in the book of Zayn Corporation was P2,500,000.
41. One Direction should record for 2022:

a. lease expense of P150,000.
b. interest expense of P85,681 and depreciation expense of P131,210.
c. interest expense of P80,521 and depreciation expense of P85,101.
d. interest expense of P84,968 and depreciation expense of P88,806.
42. How much should Harry Styles Company report the right-of-use asset as of December
31, 2023 and the amount of depreciation expense for year 2023, respectively?
a. P8,257,132 and P1,075,483 c. P8,105,475 and P1,541,095
b. P8,927,417 and P1,705,483 d. P8,107,045 and P1,541,409
43. How much should Zayn Corporation report the balance of lease receivable – net as of
December 31, 2022 and the gross profit recognized at inception of the lease?
a. P2,917,291and P632,161 c. P2,686,921 and P799,681
b. P2,955,789 and P632,161 d. P2,739,722 and P799,681

Situation 8 – Information relevant to three different companies follows: Exam
Liam Company reported pretax income of P6,400,000 for the year ended December 31, 2022.
The company record shows the following differences:
Tax depreciation in excess of book depreciation P200,000
Fines and penalties 60,000
Proceeds from life insurance policy upon death of an officer* 340,000
Interest revenue on bank deposits 125,000
Impairment loss on goodwill 34,000
Provision for litigation expected to settle in 2023 and 2024 in
140,000
equal amounts
Installment sales recognized in the book to be collected 60% in
400,000
2023 and 40% in 2024
*The beneficiary of the insurance policy is Liam Company.
Tax rate is 25% in 2022 and 30% in the future as enacted by the congress. Payments in
previous quarters totaled P350,000.
Niall Incorporated’s partial income statement after its first year of operation (2022)
is as follows:
Income tax expense:
Current P1,050,000
Deferred 100,000
Total income tax expense P1,150,000
Niall Incorporated uses straight-line method of depreciation for financial reporting

purposes and accelerated depreciation method for tax purposes. The amount charged to
depreciation expenses on its book this year was P1,500,000. There were penalties paid
by Niall amounting to P240,000 because of late filing in BIR in previous quarters. No
other temporary differences existed between book income and taxable income except for
the amount of depreciation. tax rate is 25%.
On January 1, 2022, Tomlinson Company reported the fair value of plan assets at
P8,000,000 and defined benefit obligation at P7,100,000. Transactions affecting the
balances for the current year are as follows:
Current service cost P1,410,000

Past service cost 730,000
Contribution to the plan 2,880,000
Benefits paid to retirees on scheduled retirement date 2,000,000
Benefits paid to retirees earlier scheduled retirement date 650,000
Carrying value of benefit obligation of early retired employees 600,000
Actual return on plan assets ?
Actuarial loss on plan asset 45,000
Increase in defined benefit obligation due to changes in actuarial
assumption 360,000
Rate of return on high-quality corporate bonds 11%
Rate of return on government bonds 11.5%
44. How much should Liam Company report the deferred tax asset and deferred tax liability
as of December 31, 2022, respectively?
a. P42,000 and P185,000 c. P42,000 and P180,000
b. P85,000 and P100,000 d. P80,900 and P93,600
45. What amount should Niall Incorporated’s report as net income after in its Income
Statement for the year 2022?
a. P2,890,000 c. P3,290,000
b. P3,450,000 d. P3,210,000
46. How much is the balance of the FV of plan asset and defined benefit obligation as
of December 31, 2022 disclosed in Tomlinson’s Financial Statement?
a. P9,115,000 and P7,781,000 c. P9,065,000 and P7,831,000
b. P9,065,000 and P7,781,000 d. P9,115,000 and P7,831,000

47. Tomlinson Company: Exam
Statement 1: Total benefit expense for the year ending December 31, 2022 is
P2,496,000.
Statement 2: The amount presented in the statement of financial position as of
December 31, 2022 is P1,334,000 net defined benefit asset.
a. Only statement 1 is correct c. Both statements are correct
b. Only statement 2 is correct d. Both statements are incorrect
Situation 9 – Information relevant to two different companies follows:
Mighty Thor Corporation’s December 31, 2022 balance sheet reports the following
shareholders’ equity:
10% Cumulative Preference share capital, P100 par value per share,
30,000 shares issued and outstanding, liquidation value of P105 P3,000,000
Ordinary share capital, P100 par value, 60,000 shares issued 6,000,000
Share premium 500,000
Treasury shares, (ordinary) 5,000 shares at cost 600,000
Retained Earnings 4,000,000
Subscribed ordinary share (10,000 shares subscribed,
net of P400,000 subscription receivable 1,000,000
Revaluation surplus 700,000
Preference dividends have not been paid since last year up to the end of 2022.
48. What is the book value per share on ordinary share?

a. 173.08 c. P166.92
b. 163.04 d. P157.25
49. What is the book value per share on preference share?

a. 105.00 c. P120.00
b. 115.00 d. P125.00
Groot Corp. had P500,000 net income in 2022. On January 1, 2022, there were 200,000
shares of ordinary outstanding. On April 1, 20,000 shares were issued and on September
1, bought 30,000 shares of treasury shares. There are 30,000 options to buy ordinary
shares at P40 per share. The market price of the ordinary shares averaged P50 during
2022. The tax rate is 40%.
During 2022, there were 40,000 shares of cumulative preference shares outstanding. The
preference has P100 par, pays dividend of P3.50 per year, and is convertible into three
shares of ordinary. Groot issued P2,000,000 of 8% convertible bonds at face value
during 2021. Each P1,000 bond is convertible into 20 shares of ordinary.
50. How much is the basic earnings per share for 2022?
a. P1.71 c. P1.60
b. P1.76 d. P1.17
51. How much is the diluted earnings per share for 2022?
a. P1.71 c. P1.51
b. P1.68 d. P1.46
52. On January 2, 2021, Cleo Company receives a government loan of P2,000,000 paying a
coupon interest of 1% per year. The loan is repayable at the end of year 6. Cleo
Company’s borrowing cost is 7% per annum. The below-market interest is provided by
the government to enable Cleo Company to bear cost of 1% per annum on the nominal
value of the loan. Cleo Company should recognize income from government grant in
2022 amounting to?
a. P85,558 c. P87,261
b. P86,625 d. P88,972
Use the following information for the next two questions:

The shareholders' equity section of Peter Corporation as of December 31, 2021, contained
the following accounts:
Ordinary share capital, P20 par, 4,500,000 shares P4,500,000
authorized; 225,000 shares issued and outstanding
Share premium 2,500,000
Retained earnings 7,200,000

Peter Corporation’s board of directors declared a 10 Exam
percent bonus issue on April 1,
2022, when the market value of the share was P24 per share. Accordingly, new shares
were issued. Another P2.50 per cash dividends were declared on September 1, 2022 and
the equipment with carrying value of P650,000 currently having fair value of P720,000
was declared as dividends on December 1, 2022. Peter Corporation sustained a net loss
of P810,000 for the year ended December 31, 2022.
53. What amount should Peter Corporation report as retained earnings as of December 31,
2022?
a. P4,657,500 c. P4,511,250
b. P4,567,500 d. P5,321,250
54. How much is the total shareholder’s equity should Peter Corporation in its December
31, 2022 Statement of Financial Position?
a. P11,511,250 c. P13,151,250
b. P12,051,250 d. P13,671,250
Use the following information for the next two questions:

John Corp.'s transactions for the year ended December 31, 2022 included the following:
• Issued 500 of its 11% debenture bonds, due 2026, for P392,000 cash.
• Purchased a patent for P220,000 cash.
• Paid P120,000 bank loan to BDO.
• Sold an equity investment at FVTOCI for P796,000.
• Sold treasury shares with cost of P70,000 for P95,000.
• Acquired 50% of Ford Corp.'s ordinary shares for P180,000 cash which was borrowed
from a bank.
• Issued 5,000 shares of its preference shares for land having a fair value of
P320,000.
• Sold an old equipment having carrying value of P210,000 receiving P100,000, 10%
notes and P110,000 in cash.
55. John’s net cash provided by investing activities for 2022 was
a. P826,000 c. P396,000
b. P506,000 d. P296,000
56. John’s net cash provided by financing activities for 2022 was
a. P325,000 c. P445,000
b. P367,000 d. P547,000

57. Juancho Company had a net income after tax of P3,500,000 for the year ended December
31, 2022 after giving effect to the following events which occurred during the year.
The decision was made on May 31 to discontinue the bottles manufacturing segment.
The bottle manufacturing segment was sold on June 30. Operating profit from January
1 to May 30 for the bottle manufacturing segment amounted to P950,000 before tax.
Bottle manufacturing equipment with a book value of P1,900,000 was sold for
P1,150,000. The tax rate was 30%. For the year ended December 31, 2022, how much
was the company’s after-tax income from continuing operations?
a. P3,300,000 c. P3,440,000
b. P3,360,000 d. P3,500,000
58. An equipment was purchased by Miguel Company on January 1, 2020 for P5,000,000 with
estimated useful life of 10 years and no salvage value. On January 1, 2022, the
entity classified the asset as held for sale in accordance with PFRS 5. As of this
date the fair value of the asset is P3,300,000 and cost to sell is P100,000. As of
December 31, 2022, the entity believes that the criteria for classification as held
for sale can no longer be met. The fair value of the equipment is P3,800,000 and
cost to sell is P200,000 as of December 31, 2022 while the value in use amounted to
3,200,000. At what amount should the asset be reported in its 2022 statement of
financial position?
a. P3,200,000 c. P3,700,000
b. P3,500,000 d. P3,800,000
59. Nikko Company has several manufacturing plants all over the country. On December
29, 2022, a super typhoon hit the province of Bicol where one of the entity’s large
and major manufacturing plant is located. Because of the damages caused by the
calamity, the entity decided to abandon the plant which constitute a major line of
business. All work stops at the manufacturing plant during the year ended 2022.

The carrying amount of the entire manufacturing Exam
plant amounted only to P2,000,000
as of the end of the year. The operations of this manufacturing plant managed to
generate P100,000 profit from operations before tax. The prevailing tax rate was at
30%. The fair value less cost to sell was P1,980,000 at the end of the year. How
much should be reported as non-current asset held for sale as of December 31, 2022?
a. P0 c. P2,000,000
b. P1,980,000 d. P3,980,000
60. How much should be the reported net income of Nikko Company for the year ending
December 31, 2022?
a. P100,000 c. P80,000
b. P70,000 d. P56,000
61. Richard Company and its divisions are engaged solely in manufacturing. The data
pertain to the industries in which operations were conducted for the year ended
December 31, 2022:
Operating Intersegment External
Segment Sales Revenues
A P1,000,000 P5,000,000
B 1,500,000 3,000,000
C 4,000,000 8,000,000
D 500,000 1,300,000
E 2,000,000 2,800,000
F 200,000 900,000
Total P9,200,000 P21,000,000
What is the minimum total external revenue of the reportable segments of Richard
Company?
a. P2,100,000 c. P15,750,000
b. P6,900,000 d. P22,650,000
62. Jonar Company operates a copper mine in Northern Mindanao. The entity paid P5,000,000
in 2022 for the mining site and spent an additional P3,000,000 to prepare the mine
for extraction of the copper. After the copper is extracted in approximately four
years, the entity is required to restore the land to its original condition after
which the land can be sold for P1,000,000. The cash outflow possibility for the
restoration cost is P2,000,000. The credit adjusted risk-free rate of interest is
10%. The present value of 1 at 10% for 4 periods is 0.6830. The entity expects to
extract 4,000,000 tons of copper from the mine. Actual production was 500,000 tons
in 2022 and 450,000 tons were sold in 2022. What amount of depletion should Jonar
include in cost of goods sold in 2022?
a. P1,005,250 c. P1,045,750
b. P1,105,175 d. P941,175
63. On April 1, 2022 Elizabeth Company entered into a cash-settled share-based

transaction with a supplier whereby it acquired wood with a fair value of P2,000,000
in return for a cash payment based on the market value of Elizabeth’s shares.
Payment will be made on August 31, 2022 and based on the fair value of 50,000
shares. The share price was P41.00 per share on April 1, 2022 and P48.00 at year-
end of July 31, 2021. What amounts are reported in Victory Company’s financial
statements at the year-end of July 31, 2022 in respect of the transaction?
a. an expense of P2,050,000 and liability of P2,050,000
b. an expense of P2,400,000 and liability of P2,400,000
c. an expense of P2,000,000 and equity balance of P2,000,000
d. an expense of P2,050,000 and equity balance of P2,050,000
64. In the year ended December 31, 2022, William Company, a drinks manufacturer, sold
a vat of maturing whisky to Harry Company for P4,600,000. Willian Company has signed
a contract agreeing to repurchase the whiskey in eight years' time at P5,400,000.
What amount of revenue from sale should William recognized on December 31, 2022?
a. P5,400,000 c. P900,000
b. P4,600,000 d. P0

65. Megan Company issues P2,000,000 6% convertible Exam
bonds on June 1, 2022. Interest is
payable annually. The conversion option can be exercised in a number of years’ time.
The liability component is initially measured at P1,841,160 based on an 8% market
rate of interest for a similar nonconvertible bond. What amounts are recognized in
the statement of financial position at May 31, 2023?
a. a liability of P1,813,867 and equity of P186,133
b. a liability of P1,868,453 and equity of P158,840
c. a liability of P1,961,160 and equity of P38,840
d. b a liability of P1,988,453 and equity of P11,547
66. Sun and Moon Inc. factors P2,000,000 of its accounts receivables without recourse
for a finance charge of 5%. The finance company retains an amount equal to 10% of
the accounts receivable for possible adjustments. What would be recorded by Sun and
Moon as a gain (loss) on the transfer of receivables?
a. P100,000 gain c. P200,000 loss
b. P100,000 loss d. P300,000 loss
67. Mayka Company’s reporting period ends on June 30, 2022 and the financial statements
are authorized for issue on August 31, 2022. On July 30, 2022 a major drop in the
price of shares means that the value of the company’s investments has declined by
P1,300,000 since the period end. The fall in value is material. How should this
event be treated in the financial statements for the period ended June 30, 2022?
a. An adjusting event without separate disclosure
b. A non-adjusting event without separate disclosure
c. An adjusting event with disclosure that a major fall in the price of shares has
resulted in a loss of P1,300,000
d. A non-adjusting event with disclosure that a major fall in the price of shares
has resulted in a loss of P1,300,000
68. Everlasting Corporation provided the following information regarding its Research
JPB-04 included in the company’s Intangible account as of December 31, 2022:
Research JPB-04 is for a research project which consists of the following charges:
Salaries of research staff P18,000
Patent acquired solely for the use in the project 12,000
Special equipment acquired and useful for various
Similar research activities 10,000
Patent acquired for use in several research
Projects including JPB-04 16,000
The equipment and patents have been found to be useful for approximately four years.
Both the patents and equipment were acquired at the beginning of 2022. How much
should be recognized as research and development expense for the year 2022?
a. P56,000 c. P35,200
b. P36,500 d. P26,000
69. If the month-end bank statement shows a balance of P36,000, outstanding checks are
P12,000, a deposit of P4,000 was in transit at month end, and a check for P500 was
erroneously charged by the bank against the account, the correct balance in the
bank account at month end is?
a. P27,500 c. P20,500.
b. P28,500 d. P43,500
70. Rivera Company purchased a tooling machine on January 3, 2015 for P500,000. The
machine was being depreciated on the straight-line method over an estimated useful
life of 10 years, with no residual value. At the beginning of 2022, the company
paid P125,000 to overhaul the machine. As a result of this improvement, the company
estimated that the useful life of the machine would be extended an additional 5
years (15 years total). What should be the depreciation expense recorded for the
machine in 2022?
a. P34,375 c. P50,000
b. P41,667 d. P55,000
- END of EXAMINATION -

Exam
ANSWERS & SOLUTIONS/CLARIFICATIONS
1 A 26 C 51 C
2 C 27 B 52 A
3 D 28 D 53 C
4 C 29 A 54 B
5 A 30 B 55 B
6 B 31 C 56 D
7 C 32 A 57 B
8 B 33 B 58 B
9 A 34 D 59 A
10 D 35 B 60 D
11 D 36 A 61 C
12 D 37 D 62 D
13 C 38 A 63 B
14 B 39 B 64 D
15 C 40 A 65 B
16 A 41 D 66 B
17 D 42 B 67 D
18 D 43 A 68 B
19 D 44 C 69 B
20 B 45 D 70 A
21 D 46 B
22 A 47 A
23 C 48 A
24 C 49 D
25 A 50 B
21 PCF (remaining bills and coins only) 2,550

Undeposited collections (120,000 - 15,000 - 20,000) 85,000
Cash in Bank - Checking (900,000 + 180,000 + 145,000) 1,225,000
Cash in Bank - JPB payroll fund 1,950,000
Cash in Bank - JPB dividend fund 750,000
Cash in Bank - Binaluyo Bank of Asia (16,000 x 56) 896,000
Cash in Bank - money market instrument, 60 days 250,000
Total cash and cash equivalents 5,158,550
22 Accounts receivable, beginning 2,700,000

Sales on accout (3,950,000 - 600,000) 3,350,000
Collections from credit customers (4,350,000)
Sales discounts granted (50,000)
Accounts written off (80,000)
Accounts receivable, ending 1,570,000
0 - 30 days (1,570,000 x 50% x2%) 15,700

31 - 60 days (1,570,000 x 30% x 5%) 23,550
over 60 days (1,570,000 x 20% x 15%) 47,100
Allowance for bad debts, end 86,350
Allowance for bad debts, end 86,350

Accounts written off 80,000
Allowance for bad debts, beginning (33,750)
Bad debt expense 132,600

23 Unadjusted balance Exam
4,410,000
Goods held by Pyrus on consignment -
Goods shipped by Pyrus FOB Destination to a customer on December
31, 2022 and was received by the customer on January 3, 2023 400,000
Goods shipped by Pyrus FOB Shipping Point to a customer on
December 31, 2022 and was received by the customer on January 6,
2023 -
Goods shipped by a vendor FOB Destination on December 31, 2022 and
was received by Pyrus on January 10, 2023 -
Goods purchased FOB Shipping Point was shipped by the supplier on
December 31, 2022 and received by Pyrus on January 5, 2023 640,000
Adjusted inventory balance 5,450,000
24 First Shares (FVTPL) {65 - 54 x 100,000} - UGOL - PL 1,100,000

Second shares (FVTOCI) {(50 - 45) x 20,000} - UGOL - OCI 100,000
Total unrealized gain in comprehensive income 1,200,000
25 Initial cost (250,000 x 45) 11,250,000

Share of profit in associate:
Share in reported net income (10.2M x 40%) 4,080,000
Share in increase in deprn (2.5M / 8 x 40%) (125,000)
Share in increase in cost of sales (2M x 40%) (800,000) 3,155,000
Dividends (1,800,000)
CV of investment in associate as of 12/31/2022 12,605,000
26 FV of debt investment as of 12/31/2022:

PV of principal (5M x 1.10^-4) 3,415,067
PV of interest (5M x 8% x 3.169865) 1,267,946
FV of debt investment as of 12/31/2022 4,683,013
27 Impairment loss on 2019 500,000

Partial recovery (160,000 - 128,750) x 3 (93,750)
Limit on recovery 406,250
Recoverable amount 12/31/22 3,240,000

CV of asset 12/31/2022 (2,060,000 x 13/16) (1,673,750)
Increase in value 1,566,250
Gain on recovery (PL) (406,250)
Revaluation surplus 1,160,000
28 Weighted Average Accumulated Expenditures - 2021:

1/1/2021 3,000,000 x 12/12 = 3,000,000
6/30/2021 2,500,000 x 6/12 = 1,250,000
11/30/2021 2,000,000 x 1/12 = 166,667
Total WAAE in 2021 4,416,667
less: Total specific borrowings (2,000,000)
WAAE for general borrowings 2,416,667
Multiplied by WAR in 2021 9%
Potential interest to general borrowings (lower) 217,500
Actual interest on specific borrowing (2M x 8%) 160,000
Total capitalized interest in 2021 377,500
Total actual expenditures in 2021 (3M + 2.5M + 2M) 7,500,000
Total accumulated expenditures as of 12/31/2021 7,877,500
1/1/2022 7,877,500 x 12/12 = 7,877,500

4/1/2022 1,500,000 x 9/12 = 1,125,000 Exam
10/1/2022 1,000,000 x 3/12 = 250,000
Total WAAE in 2022 9,252,500
less: Total specific borrowings (2,000,000)
WAAE for general borrowings 7,252,500
Multiplied by WAR in 2022 (735,000 / 6,875,000) 10.69%
Potential interest to general borrowings 775,358
Actual interest on general borrowings (lower) 735,000

Actual interest on specific borrowing (2M x 8%) 160,000
Total capitalized interest in 2022 895,000
Actual expenditures in 2022 (1.5M + 1M) 2,500,000
Total accumulated expenditures as of 12/31/2021 7,877,500
Cost of asset constructed 11,272,500
No interest expense in 2022 since the capitalized interest for BG is the

actual.
29 Under FV method (600,000 - 590,000) 10,000

Under Cost method (580,000 / 40) 14,500
30 Legal cost of filing for patent 520,000

Fees paid to government patent office 260,000
Drawings required by patent office to be filed with patent
application 145,000
Total cost of patent 925,000
X 9/10
CV as of 12/31/2022 832,500
Research salaries and fringe benefits for engineers and scientists 540,000
Cost of testing pre-production prototype 890,000
Total R&D expense 1,430,000
31 2021 2022
Total wrapper expected to redeem in 2021 (2.8M + 2M)

/ 10 480,000
Total wrapper expected to redeem in 2022 (4.2M - 2M + 2.7M)/10 490,000
Total FV of candy bars (5,600,000 x 5) / 6,750,000 x

5 28,000,000 33,750,000
Total FV of units (480,000 x 3)/ 490,000 x 3 1,440,000 1,470,000
Total FV 29,440,000 35,220,000
Beginning balance - 570,652
Unearned premium liability - added 1,369,565 1,408,646
Less: earned during the year
2021 - 1,369,565 x 280,000 / 480,000 (798,913)
2022 - 1,369,565 x 200,000 / 480,000 (570,652)
2022 - 1,408,646 x 220,000 / 490,000 (632,453)

Balance of unearned premium as of 12/31 570,652 776,193
32 200,000 x 20% = 40,000

370,000 x 30% = 111,000
550,000 x 50% = 275,000
Provision 426,000

33 Total warranty expense (12,000 + 14,500) x 7,000 x 15% 27,825,000 Exam
Less: Total actual expenditures (6.5M + 12.5M) (19,000,000)
Warranty liability as of 12/31/2022 8,825,000
34 The bond is reported as current because there is a breach of agreement and the
grace period was obtained after the reporting period.
35 Date Principal NI (10%) EI (12%) Amort CV

1/1/21 3,839,558
12/31/21 1,000,000 400,000 460,747 60,747 2,900,305
12/31/22 1,000,000 300,000 348,037 48,037 1,948,342
12/31/23 1,000,000 200,000 233,801 33,801 982,143
12/31/24 1,000,000 100,000 117,857 17,857 (0)
36 PV of principal (1.5M x 1.05^-6) 1,119,323

PV of interest (1.5M x 4% x 5.075692) 304,542
Total 1,423,865
Retirement price of bonds (at 9%) 1,492,823

CV of bonds retired 1,485,715
Loss on retirement 7,109
37 Total debt outstanding (10M + 1M) 11,000,000

Less: PV of new cash flows
Principal (7M x 1.10^-3) 5,259,204
Interest (7M x 8% x 2.486852) 1,392,637 6,651,841
Difference 4,348,159
Divided by 11,000,000
% difference 39.53%
Note: Substantial modification
Total debt outstanding (10M + 1M) 11,000,000

Principal (7M x 1.12^-3) 4,982,462
Interest (7M x 8% x 2.401831) 1,345,026
Total PV of new liability 6,327,488
Gain on debt restructuring 4,672,512
38 Beginning SHE 1,650,000

Acquisition of TS (3,000 x 28) (84,000)
Acquisition of TS (3,000 x 35) (105,000)
Sale of TS (1,800 x 30) 54,000
Net income 450,000
Ending balance of SHE 1,965,000
39 Issuance of shares (5,000 x 18) 90,000

Issuance of shares 100,000
Total contributed capital 190,000
40 FV of property dividends declared (5,000 68) 340,000

less: gain on distribution (340,000 -
218,000) (122,000)
Net effect on RE (decrease) 218,000

41 PV of periodic payment (150,000 x 6.710081) 1,006,512 Exam
PV of CPO (120,000 x 1.08^-10) 55,583
Total PV of lease liability 1,062,095
Add: IDC 350,000
Cost of ROUA 1,412,095
Less: RV at the end of EUL (80,000)
Depreciable cost 1,332,095
Divided by EUL 15
Depreciation expense 88,806
Interest expense (1,062,095 x 8%) 84,968
42 PV of periodic payment (2,220,000 x 5.230538) 11,611,794

PV of guaranteed residual value (400,000 x 1.11^-
7) 192,663
Total PV of lease liability 11,804,457
Add: IDC 500,000
Add: PV of dismantling cost (75,000 x 1.12^-7) 33,926
Initial cost of ROUA 12,338,384
CV of ROUA 12/31/2023 (12,338,384 - (1,705,483 x

2)) 8,927,417
Depreciation expense (12.338,384 - 400,000) / 7 1,705,483
43 FV of asset (PV of lease payments) 3,132,161

Less: Cost (2,500,000)
Gross profit 632,161
Lease receivable net 12/31/22 (3,132,161 - 380,000 x

1.06) 2,917,291
44 Tax depreciation in excess of book depreciation 200,000

Installment sales 400,000
Total FTA 600,000
Multiplied by future enacted tax rate x 30%
DTL 180,000
Provision for litigation (FDA) 140,000
Multiplied by future enacted tax rate x 30%
DTA 42,000
45 Taxable income (1,050,000 / 25%) 4,200,000

Add: Future taxable amount (100,000 / 25%) 400,000
Less: Penalties paid (240,000)
Pretax financial income 4,360,000
Less: TITE (given) (1,150,000)
Net income after tax 3,210,000
46 F 8,000,000
A (8M x 11%) - 45,000 835,000
C 2,880,000
B (2,650,000)
F 9,065,000
D 7,100,000
I (7.1M x 11%) 781,000
S 2,500,000
B (2,600,000)
D 7,781,000

47 Current service cost 1,410,000 Exam
Past service cost 730,000
Net interest cost (8M-7.1M) x 11% (99,000)

Loss on early settlement (650,000 - 600,000) 50,000
Total benefit expense in PL 2,091,000
Actuarial loss on PA 45,000
Actuarial loss on DBO 360,000
Total benefit expense in OCI 405,000
Total benefit expense 2,496,000
Net defined benefit asset (9,065,000 - 7,781,000) 1,284,000
48 Total SHE 15,000,000

Less; Attributable to PS
Liquidation value (3M x 1.05) (3,150,000)
Dividends to PS (3M x 10% x 2) (600,000)

Attributable to ordinary 11,250,000
Divided by ordinary shares outs(6M+1M)/100 = 70,000 -
5,000 65,000
Book value per share of OS 173.08
49 Attributable to preference 3,750,000

Divided by preference shares outs 30,000
Book value per share of PS 125.00
50 1/1 200,000 12/12 200,000
4/1 20,000 9/12 15,000
9/1 (30,000) 4/12 (10,000)

WANOS 205,000
Net income 500,000

Preference dividends (40,000 x 3.50) (140,000)
Net income to ordinary 360,000
Divided by WANOS 205,000
BEPS 1.76
51 Net income 500,000

Interest expense (2M x 8% x 60%) 96,000
Adjusted net income 596,000
WANOS + POS 395,000
DEPS 1.51
52 PV of principal (2M x 1.07^-6) 1,332,684

PV of interest (2M x 1% x 4.766540) 95,331
Total PV of loan 1,428,015
Date NI (1%) EI (7%) Amort CV

1/2/2021 1,428,015
12/31/2021 20,000 99,961 79,961 1,507,977
12/31/2022 20,000 105,558 85,558 1,593,535
12/31/2023 20,000 111,547 91,547 1,685,082
Income from government grant - 2022 85,558

53 Retained earnings, beginning 7,200,000
Exam
Share dividends (225,000 x 10% x 24) (540,000)
Cash dividends (225,000 x 1.1) x 2.5 (618,750)
Property dividends (720,000)
Net loss (810,000)
Retained earnings, ending 4,511,250
54 Total SHE, beginning 14,200,000

Share dividends -
Cash dividends (225,000 x 1.1) x 2.5 (618,750)
Property dividends (720,000)
Net loss (810,000)
Total SHE, end 12,051,250
55 Purchase patent (220,000)

Sold ei at FVTOCI 796,000
Sold equipment 110,000
Purchased ordinary shares (180,000)
Net cash 506,000
56 Issued bonds 392,000

Paid bank loan (120,000)
Sold treasury shares 95,000
Borrowed from bank 180,000
Net cash 547,000
57 Net income after tax 3,500,000

less: discontinued operations
(900,000 - (1,150,000 - 1,900,000) = 200,000 x
70% 140,000
Net income from continuing operations 3,360,000
58 CV if not classified as NCAHFS (5M x 7/10) 3,500,000 lower

RA as of 12/31/2022 (3.8M - 200,000) 3,600,000
59 Abandoned asset only not NCAHFS or disposal group
60 Profit from operations 100,000

Less; Impairment loss (2M - 1,980,000) (20,000)
Profit before tax 80,000
Less: Tax expense (80,000 x 30%) (24,000)
Profit after tax 56,000
61 75% of total external revenue (21M x 75%) 15,750,000
Depletable Cost (5M +3M + (2M x 0.6830)-

62 1M 8,366,000
Divided: Total estimated tons 4,000,000
Cost per ton 2.09
Multiplied by tons sold 450,000
Cost of sales 941,175
63. The transaction is initially measured at the fair value of the amount payable
50,000 shares x P41 = P2,050,000. It is subsequently remeasured based on the year-end
share price. As this is a cash-settled transaction a liability is recognized rather
than equity. The year-end liability balance is calculated at P2,400,000 (50,000 shares
x P48)

64. The legal form of the transaction is a sale followed by a repurchase at aExam
later
date. It is however, clear from the scenario that the economic reality is that William
is using the maturing whisky as security for an eight-year loan with the bank.
65 1,841,160 x 1.08 - 120,000 1,868,453

Share premium (2M - 1,841,160) 158,840
66. 2,000,000 x 5% = 100,000 loss
67. D
68 Salaries 18,000
Patent solely for RD 12,000
Depreciation expense (10,000/4) 2,500
Amortization (16,000/4) 4,000
Total RD 36,500
69. P36,000 – P12,000 + P4,000 + P500 = P28,500.
70. 500,000 x 3/10 = 150,000 + 125,000 = 275,000 / 8 = 34,375

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ReSA - THE REVIEW SCHOOL OF ACCOUNTANCY

FINANCIAL ACCOUNTING and REPORTING FINAL PRE-BOARD EXAMINATION

Multiple Choices – Theories:

2. The following statements concerning the qualitative characteristics of useful

a. Only statement I is correct.

3. Cash equivalents do not include:

4. Which of the following is recorded by a credit to accounts receivable but do not

5. Which of the following shall be included in the reported balance of inventory in

Page 1 of 22 0915-2303213  resacpareview@gmail.com

9. Eduardo Company constructs a laboratory building to be used as a research and

10. Accounting for product warranty costs under an assurance-type warranty:

a. Only numbers 1 and 4 are current.

Page 2 of 22 0915-2303213  resacpareview@gmail.com

14. Identify the missing component (X) in the equation:

Retained Earnings, end = Net income to date + period-period adjustments – cash

a. net unrealized loss on equity investmens at FV through OCI.

Danielle Company must have a (an)?

19. The current income tax expense (CITE) is:

Page 3 of 22 0915-2303213  resacpareview@gmail.com

Multiple Choices – Problems

Situation 1 – The data relates to three different companies:

Additional information as of December 31, 2022:

Accounts receivable, beginning balance P2,700,000

Page 4 of 22 0915-2303213  resacpareview@gmail.com

Situation 2 – Information relevant to three different companies follows:

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All in units 2021 2022

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Solaire Corporation issued P1,500,000 of 8% bonds on October 1, 2020 due on October 1,

Situation 6 – Information relevant to three different companies follows:

During 2022, the following transactions occurred relating to equity:

Page 8 of 22 0915-2303213  resacpareview@gmail.com

Situation 7 – Information relevant to three different companies follows:

Implicit rate in the lease contract 11%

41. One Direction should record for 2022:

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Niall Incorporated uses straight-line method of depreciation for financial reporting

Current service cost P1,410,000

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48. What is the book value per share on ordinary share?

49. What is the book value per share on preference share?

Use the following information for the next two questions:

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Use the following information for the next two questions:

Situation 10 – Information relevant to three different companies follows:

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63. On April 1, 2022 Elizabeth Company entered into a cash-settled share-based

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Page 14 of 22 0915-2303213  resacpareview@gmail.com

21 PCF (remaining bills and coins only) 2,550

22 Accounts receivable, beginning 2,700,000

0 - 30 days (1,570,000 x 50% x2%) 15,700

Allowance for bad debts, end 86,350

Page 15 of 22 0915-2303213  resacpareview@gmail.com

24 First Shares (FVTPL) {65 - 54 x 100,000} - UGOL - PL 1,100,000

25 Initial cost (250,000 x 45) 11,250,000

26 FV of debt investment as of 12/31/2022:

27 Impairment loss on 2019 500,000

Recoverable amount 12/31/22 3,240,000

28 Weighted Average Accumulated Expenditures - 2021:

1/1/2022 7,877,500 x 12/12 = 7,877,500

Actual interest on general borrowings (lower) 735,000

No interest expense in 2022 since the capitalized interest for BG is the