BATCH 5

PROBLEM NO. 1
1. Let it Be Company provided the following selected information for the current year:
Cash balance, January 1 130,000
Accounts receivable, January 1 190,000
Collections from customers 2,100,000
Shareholders’ equity, January 1 380,000
Total assets, January 1 750,000
Total assets, January 31 880,000
Cash balance, December 31 160,000
Accounts receivable, December 31 360,000
Total liabilities, December 31 390,000
What is the net income for the current year?
a. 490,000

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b. 150,000
c. 110,000
d. 70,000

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PROBLEM NO. 2
2. Let it Be Company provided the following information for the current year:

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Net loss 100,000
Total assets at December 31 3,000,000
Share capital at December 31 1,000,000
Share premium at December 31 500,000
Dividends declared
Debt to equity ratio on December 31
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50%
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What is the retained earnings balance on January 1?
a. 1,100,000
b. 1,300,000
c. 500,000
d. 600,000
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PROBLEM NO. 3
3. Let it Be Company was incorporated on January 1, 2017, with ₱5,000,000 form the issuance of share capital and
borrowed funds of ₱1,500,000. During the first year of operations, net income was ₱2,500,000.
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On December 15,2017, the entity paid a ₱500,000 cash dividend. No additional activities affected shareholders’ equity in 2017.
On December 31, 2017, the liabilities had increased to ₱1,800,000.

On December 31,2017, what amount should be reported as total assets?

a. 6,500,000
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b. 9,300,000
c. 8,800,000
d. 6,800,000

PROBLEM NO. 4
4. Let it Be Company showed the following increase(decrease) in ledger account balances during the current year:

Cash 800,000
Accounts receivable (400,000)
Inventory 300,000
Equipment 950,000
Note payable- bank 500,000
 Accounts payable (600,000)
Share capital 700,000
Share premium 300,000

There were no transactions affecting retained earnings other than a ₱1,500,000 cash dividend and a ₱250,000 prior period
error from understatement of ending inventory.

What was the net income for the current year?

a. 2,000,000
b. 2,500,000
c. 3,250,000
d. 3,000,000

PROBLEM NO. 5

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Use the following data for the next six questions:
The following balances have been excerpted from Yesterday’s statement of financial position:
12/31/16 12/31/15

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Prepaid Insurance 6,000 7,500
Interest Receivable 3,700 14,500
Salaries Payable 61,500 53,000

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Accounts receivable 550,000 415,000
Allowance for bad debts 40,000 25,000

Yesterday Company reported the following during 2016 the following items:

Insurance premiums paid

Interest collected
Salaries paid
Sales
P 41,500
123,500
481,000
1,980,000
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Questions:
Based on the above data, answer the following:
5. How much is the insurance expense on the income statement for 2016?
a. ₱28,000 c. ₱43,000
b. ₱40,000 d. ₱55,000
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6. How much is the interest revenue on the income statement for 2016?
a. ₱90,500. c. ₱117,500.
b. ₱112,700. d. ₱156,500.
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7. How much is the salary expense on the income statement for 2016?
a. ₱366,500. c. ₱489,500.
b. ₱472,500. d. ₱595,500

8. No uncollectible accounts were written off during 2016. Had the cash basis of accounting been used instead, how
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much would have been reported as receipts for 2016?

a. ₱1,845,000 c. ₱1,885,000
b. ₱1,860,000 d. ₱2,115,000
9. Assuming that the company wrote-off ₱25,000. Had the cash basis of accounting been used instead, how much would
have been reported as receipts for 2016?
a. ₱1,820,000 c. ₱1,870,000
b. ₱1,845,000 d. ₱1,885,000

10. Assuming that the company wrote-off ₱25,000 and subsequently recovered ₱20,000. Had the cash basis of accounting
been used instead, how much would have been reported as receipts for 2016?
a. ₱1,825,000 c. ₱1,890,000
b. ₱1,840,000 d. ₱1,905,000
PROBLEM NO. 6
Use the following data for the next five questions:
HEY JUDE Company’s December 31, year end financial statement contained the following errors:

December 31, 2022 December 31, 2023

Ending inventory ₱100,000 understated ₱90,000 overstated
Depreciation expense 20,000 understated

An insurance premium of ₱75,000 was prepaid in 2022 covering the years 2022, 2023, and 2024. The same was charged to
expense in full in 2022. In addition, on December 31, 2023, a fully depreciated machinery was sold for ₱160,000 cash, but the
sale was not recorded until 2024. There were no other errors during 2022, 2023 and 2024 and no corrections have been made
for any of the errors. Ignore income tax considerations.

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Based on the above and the result of your audit, determine the following:

1. What is the total effect of the errors on the 2022 net income?

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a. Understated by ₱130,000 c. Overstated by ₱70,000
b. Understated by ₱155,000 d. No effect

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2. What is the total effect of errors on the 2023 net income?
a. Overstated by ₱55,000 c. Overstated by ₱215,000
b. Overstated by ₱30,000 d. Understated by ₱45,000

3. What is the total effect of the errors on the company’s working capital at December 31, 2023?
a.
b.

4.
Understated by ₱95,000 c. Overstated by ₱90,000
Understated by ₱70,000 d. No effect R
What is the total effect of the errors on the balance of the company’s retained earnings at December 31, 2023?
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a. Understated by ₱75,000 c. Overstated by ₱110,000
b. Understated by ₱50,000 d. No effect

5. What is the total effect of the errors on the balance of the company’s working capital at December 31, 2024?
a. Overstated by ₱65,000 c. Understated by ₱160,000
b. Understated by ₱95,000 d. No effect
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PROBLEM NO. 7
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Use the following data for the next four questions:

The shareholders’ equity section of the PENNY LANE Corporation showed the following data on December 31, 2021:
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Ordinary share capital, ₱3 par, 900,000 shares authorized, 750,000 shares issued and outstanding, ₱2,250,000

Share premium – Ordinary shares, ₱21,200,000

Share options outstanding, ₱560,000

Retained earnings, ₱1,640,000

The share options were granted to key executives and provided them the right to acquire 80,000 shares of ordinary shares at
₱35 per share. Each option has a fair value of ₱7 at the time the options were granted.
The following transactions occurred during 2022:

1. On January 20, key executives exercised 14,500 options outstanding on December 31, 2021. The market price per share was
₱44 at this time.

2. The company issued bonds of ₱5,000,000 at par on April 24, giving each ₱1,000 bond a detachable warrant enabling the holder
to purchase two shares of stock at ₱40 each for a 1-year period. The bonds would sell at ₱996 per ₱1,000 bond without the
warrant.

3. The company issued rights to stockholders (one right on each share, exercisable within a 30-day period) on July 1 permitting
holders to acquire one share at ₱45 with every 10 rights submitted. All but 18,000 rights were exercised on July 31, and the
additional stock was issued.

4. All warrants issued in connection with the bonds on April 24 were exercised on October 24.

5. On December 5, the market price per share dropped to ₱33 and options came due. Because the market price was below the

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option price, no remaining options were exercised.

6. Net income for 2022 was ₱864,500.

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Questions:

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Based on the above and the result of your audit, determine the following as of December 31, 2022:

1. Ordinary share capital

A. ₱2,605,150

2. Share premium
B. ₱2,532,150 C. ₱2,547,150 R
D. ₱2,809,150
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A. ₱25,749,600 B. ₱25,851,100 C. ₱25,606,950 D. ₱25,291,100

3. Retained earnings

A. ₱775,500 B. ₱2,504,500 C. ₱2,098,500 D. ₱2030,000

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4. Total shareholders’ equity

A. ₱30,395,250 B. ₱30,801,250 C. ₱30,326,750 D. ₱29,072,250

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PROBLEM NO. 8

Use the following data for the next four questions:

The shareholder’s equity section of IMAGINE CORPORATION’s statement of financial position as of December 31, 2021, is as
follows:

Share capital - Ordinary (P 15 par, 750,000 shares

authorized, 612, 500 issued and outstanding) 9,187,500

Share Premium 825,000

Total paid-in capital 10,012,500

Unappropriated retained earnings 3, 825,000

Appropriated retained earnings 825,000

Total retained earnings 4,650,000

Total shareholders’ equity 14,662,500

Imagine Corporation had the following shareholders’ equity transactions during 2022:

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Jan 15 Completed the building renovation for which ₱825,000 of retained earnings had been restricted.
Paid the contractor ₱815,500, all of which is capitalized.

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Mar. 3 Issued 100,000 additional ordinary shares for ₱27 per share.

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May 18 Declared a dividend of P0.50 per share to be paid on July 31, 2022, to shareholders of record on
June 30, 2022.

June 19 R
Approved additional building renovation to be funded internally. The estimated cost of the project
is ₱700,000, and retained earnings are to be restricted for that amount.
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July 31 Paid the dividend.

Nov. 12 Declared a property dividend to be paid on January 5, 2023. The dividend is to consist of
equipment that has a carrying amount of ₱360,000 and a fair value of ₱472,500 on November 12.
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Dec. 31 Net income for 2021 (before recognition of impairment loss on the equipment declared as
property dividend) is ₱1,200,500. The equipment’s fair value less cost to distribute on December
31 is ₱330,000.
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15. Share capital—ordinary on December 31, 2022, is

a. 10,687,500 b. 9,187,500 c. 11,887,500 d. 10,387,500

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16. Share premium on December 31, 2022, is

b. 825,000 b. 2,025,000 c. 2,625,000 d. 1,200,000

17. Unappropriated retained earnings on December 31, 2022, is

c. 4,434,250 b. 4,321,750 c. 4,209,250 d. 4,906,750

18. The total shareholders’ equity on December 31, 2022, is

d. 17,734,250 b. 17,261,500 c. 17,846,750 d. 18,319,250

PROBLEM NO. 9
Use the following data for the next three questions:
On January 1, 2021, Twist and Shout Company granted share options to each of its 150 employees. The share options will vest
at the end of 2023, provided the employees remain in the entity’s employ and provided the sales increase at least by an average
of 5% per year.

If the sales increase by an average of at least 5% per year, each employee shall receive 90 share options. If the sales increase by
an average of at least 10% per year, each employee shall receive 120 share options. If the sales increase by an average of at least
15% per year, each employee shall receive 150 share options.

The fair value of each share option is ₱27. No employees have left during the three-year vesting period. The sales over the vesting
period increased as follows:
2021 8%
2022 12%
2023 26%

Questions:

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1. How much is the salaries expense for 2021
a. ₱121,500 c. ₱486,000
b. ₱364,500 d. ₱324,000

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2. How much is the salaries expense for 2022
a. ₱121,500 c. ₱283,500
b. ₱202,500 d. ₱324,000

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3. How much is the salaries expense for 2023
a. ₱121,500 c. ₱283,500
b. ₱202,500 d. ₱324,000

END!
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