— FINANCIAL ACCOUNTING & REPORTING OCTOBER 2017 BATCH FIRST PRE-BOARD EXAMINATION gg EE? fy August 3, 2017 10:30AM ~ 1:00PM INSTRUCTIONS: Select the correct answer for each of the following questions, Mark only one answer for each item by writing a VERTICAL LINE corresponding to the letter of your choice on the answer sheet provided. STRICTLY NO ERASURES ALLOWED. Use Pencil No. 1 ot No. 2 only. 1. Which of the following statements about Philippine GAAP is (are) false? L The Philippine Interpretatiohs Committee issuances are an indication that the IFRSs are principles- based. TI, The Securities and’ Exchange Commission (SEC) allows miér6 entities to use cash basis of accounting. 111, All reporting enterprises entities in the Philippines including regulated entities are required to follow full Philippine Financial Reporting Standards (PFRSs) in the preparation of financial statements. T only - b. Il only ¢. and Tl only @. 1,1 and 11 al Framework has the highest level of authority in financial accounting and tepotting Philippines +, p Financial Accounting Standgrds applies to all reporting enterprises, whether publicly -small and medium-sized entities Interpretations Committee (PIC) assists the FRSC and the public it serves. by entities are required to apply the PERS for SMEs in Philippine financial reporting? "Novelty Store with total assets of P 300 M and total liabilities of P 160 M Company with total assets of P 420 M and total liabilities of P 195 M ‘Capistrano, Tarlac, with toral assets of P 300 M and total liabilities of P120 M is food. Itis in the process of issuing securities in a domestic stock exchange. ational Accounting Standards Board is to is which regulate the financial accounting and reporting of multinational ind of accounting is (are) true? esigned is exactly the same as that which the accounting sion in the current millenninm is the uniform adoption of ‘countries of the world, | worldwide would have the advantage of comparability tion of financial information, . _&RC-ACE: FAR - 1" Pre board October 2017 Batch Page 2 of 12 4. Crafted the Implementing Rules and Regulations (IRR) of the Philippine Accountancy Act of 2004. 7. Which of the following statements about “due process” in accounting standatd setting and the ‘Conceptual Framework Is true? 1, AICPA professionals are given the opportunity to participate in the standard-setting process Tl The FRSC, the Board of Accountancy, the Philippine Institute of Certified Public Accountants patticipate in the due process of accounting standard-setting, as approving and endorsing bodies, with the Professional Regulation Commission as the final signing authority MH, Accounting standards become implementable only after it has been published in the PRC Official Gazette ‘The Conceptual Framework constitute the accounting laws of the accountancy profession and Sad. provisions will be meted corresponding sanctions by the regulatory bodies d I are trac ¢, I, Mand IV ere true a di All statements are true journal system of recording transactions and events is an application of which of the financial reporting? ¢. Timeliness ¢. Completeness global phenomenon is the primary factor that accelerated what is known as ‘nancial reporting standards onal education standatds ‘meet three criteria for recognition. Which of the following selected business i that ate presented to you by its management in 2017 will qualify as an signed on December 28, 2016 for P1,000,000 worth of merchandise ‘under terms 2/10, n/30 ellable lease contract for the use of a building with « useful life of 50 except in the choice of the appropriate fair matket value to be A. asset acquired through a non-reciprocal transfer in the Sinancial statements through ratios and trend on of financial condition and operating results he analysis & recognition of accountable events se aed hsTERCACEPAR - 1" Pre board Oetobor 2017 Batch oe 14. Which TWO of the following areas of an accountant? work are not part of financial accounting? 1) Reporting on parent and subsidiary selationships and transactions 2) Reporting on installment aales and long-term constmiction contracts 3) Reporting on profitability trends as well as ratios and measurements 4) Reporting on the faimess’of presentation of finaticial position and performance of am entity in conformity with GAAP, a. (1) and (2) b.@) and (4) c. () and@) d @ and @) 45. The basic financial statements, according the PAS 1, include all of the following except a. Statement of Changes in Financial Position. —¢. ‘Statement of Comprehensive Income . Statement of changes in financial position ~ ‘d. Statement of Changes in Equity 16, Which of the following statements about financial statements is (ate) incorrect? © hefishow the teslts Of the stewardship of management for the resources entrusted to it by the capital er te | They are the primary responsibility of both management and the external auditor after audit, [They are prepared aa oor ie dicted to the common information needs of wide ‘tange of statement users. | f. The financial statements prepared by banks, cooperatives and insurance companies should comply ist “ith repulitory accounting principles before they should comply with generally accepted accounting principles of the accountancy profession. ¢. Statements I, I and IV , Statements II, III and TV ‘of the following statements about financial accounting it incor? os ee bbe prepared by a certified public accountant. fal accounting is a social science that can be infinenced by changes in the legal, political and business environments. stated in any language or dialect of a geographical jurisdiction. linfotmation useful to users can be displayed on the face of the basic financial © Statements I and IIT only 4, Statements III end IV only F acquisition of asset and measurement base is (are) property and logically Measurement base 4, Fair value 2, Net realizable value 3. Equivalent cash price €-2 and 3 only a.1,2and3 ments may be made with the greatest degree of objectivity c. Appraised value of land at year-end end“ d._ Net Income 4s GAAP and the qualitative objectives most applied? ¢ Joumnalizing and preparing closing entries Preparing the financial stacements - accounting cycle is true? the debit account from the journal to the ledger sheet and income statement accounts, of in some tareOREAGE:FAR - 1 Pre board October 2017 Batch Page 4 of 12 A&, Mixed accounts should be split into theic real and nominal elements. a. Berots discovered at the end of the Period should be corrected in order ro generate mote reliable | Bnancial reports 25. The following six adjusting entries were recorded by RNQ Coxp. at the end of the fiscal yen (1) Bank service charge 500 () Wages expense 50,000 “Cash 500 Wages payable 50,000 @) Unearned rent 7,400 ©) Advertising expense 6,000 Rent revenue Propaid advertising 6,000 7,400 ~ @) Bad debts expense 18,000 (© Prepaid rent 12,000 Allowance for bad debts 18,000 Rent expense 12,000 fotiinal cntties which should be appropriately reversed, which of the six de reverse? Paw « should be reversed fing statements does not pertain directly to the Going-Concetn assumption of ei nd liabilities should be classified in the statement of financial position as to “current” or “non @ the ability of aa entity to operate as a going concer, such as a troubled-debt restructuring ‘should be disclosed in the notes to financial statements ‘and expenses should be recognized as these events occur, even if cash is not yet received or pega the Accrual assumption is related to the Going Concern assumption G. Comparability H. Freedom from error I, Completeness « E,G,H d. C,D,EandF conceptual framework includes a cost-benefit consteaint. ‘benefit constraint? Je greater than the costs of providing it n cost to users of the information aze not always evident or measurable, but must be considered, in decision by helping users form ‘or confirm /correct prior expectations ial information is free from bias and sare of significant information financial statements, the at times because of costy. GRG-AGE:FAR - 1" Pre board Cciober 2017 Batch Page 5 of 12 29. Eexpensing the cost of an inexpensive waste receptacle which has a useful life of 3 years is % A Violation of the definition of an asset , Is an application of cost / benefit constraint Ts an application of the time period assumption @. Is a violation of the expense recognition principle of systematic and rational allocation ee we the following statements about the concept of measurement ot valuation in Accounting és (are) rue? GAAP, as a general nile, the primary basis of measurement of assets upon acquisition is instances when assets are initially measured on the basis of fair value. tion of assets and liabilities in the balance sheet are a mixture of costs and values. IPRS, under no citcumstances is price-level accounting acceptable as an alternative Fin accounting in present-day GAAP. C.1, 1, and I only D. 1,11, [land IV “the 2017 trial balance, Rome Company's accountant committed the following errors BP iid cent account amounting to P4,000; understatement of the inventory account by of the sales account by P1,500; accounts receivables totaling to P123,000 was ‘balance as P213,000; accounts payable totaling to P153,000 was included as P135,000; ds payable was included as a credit cather than as a debit, P1,500; Revenue expenditures of capitalized to furniture and fixtures. n the debit and ctedit amounts in Rome Company's trial balance is +b. P26,000 c. P7500 d, P27,500 taken from Pa $ Company's adjusted trial balance; except for its land and building Inventory 300,000 Paris, capital °F 420,000 Prepaid supplies 11,000 Rent revenue © 11,500 Salaries expense 75,000 Sales f 800,000 Sales returns and allowances 23,000 Unearned rent income 35,000 Utilities expense 45,000 , the credit total would amount to e P1,561,000 d. P953,000 ages during the current year Increase (Decrease) Accounts payable P 80,000 — Bonds payable (100,000) * ~~ Discount on bonds payable (10,000) ~ Common stock 420,000 ‘Premium on common stock 60,000. 30,000 d declaration of P50,000,aed. Pam - VY FreboardOctober 2017 Batch Page 6 of 12 ‘Use the following information for numbers 34 and 35 i On April 12, 2017, upon the receipt of the March 2017 bank statement, the accountant of Salzburg Company ‘prepared the following bank reconciliation dated March 31; 2017 and immediately recorded the approptiate adjusting entry. Balance per bank statement, March 31, 2017 P 980,000 Add: Deposit in transit — Error in recording check No.125412 (P45,000 instead of P54,000) Service €Harges for March Hy 45,000 P 15,000 2,000 15,500 32,500 arch 31, 2017 P 292.500 ted total receipts of P265,000 and total disbursements d€ P215,000 for April 2017. § 8 of Match 31, 2017 cleated the bank on April 2017. However, the bank, in April 2017 alzburg Company P20,000 for a check that was supposed to be against the account of iarges for April 2017 was P1,200. Deposits in transit amounted to P42,000 ading amounted tg P33,000 as of April 2017. fo the cash in bank account is ©. P272,500 4. P257,000 jursements) to the cash in bank account is _-b. P209,700 ©. 220,300 4. P2i1,300 ish in Bank items as of December 31, 2017 included the following items: checking account P 1,500,000 g 1,200,000. account (per bank statement) 1,450,000 P 4,150,000 to the above-mentioned components is as follows: in relation to the BDO checking account ated on December 28, 2017 in the amount of P45,000 remains at hand ‘on December 29, 2017 in the amount of P30,000 dated January 2, 2018 was 2017 / ten and dated on December 30, 2017 in the amount of P25,000 was picked up uthas remained outstanding until January 4, 2018 ma to Savannah Company's BPI checking accounts P 1,450,000 230.000) P 1,200,000 count #10002 was due to a check for P300,000 dated January 2, 2018 ber 29, 2017, BPI checking account #10001 for P100,000 in to withdrawal ‘the MBTC checking account, deposit in transit at December 31, 2006, P60,000; service charge for"7 CRC-AGE: FAR - 1" Pre board October 2017 Batch eet 37. The total amount of income to be recognized in 2017 in relation to the above-mentioned transaction is oo b. 176,639 c. 163,871 4. 123,570 iB ated value of the note to be presented in the December 31, 2018 balance sheet is 000 b. 533,836 c. 519,536 d. 476,639 39. Venice Company reported the following items as part of cash and cash equivalents d commercial papers P* 300,000 cates of Indebtedness 350,000 |Bank Treasury bills, maturing on January 31, 2017 + 450,000 acquired three months from its maturity date of Januaty 31,2017 + 600,000 acquired 2 years ago, maturing on Januaty 31, 2017 800,000 from cash and cash equivalents is b. P1,700,000_, <, 1,900,000 d. P1,100,000 2017, Prague Company sold its goods costing P400,000 to Budapest Company. Prague ns a mark-up of 30% on cost. Budapest Company issued a promissory note that provides al installments that will yield 12%. The fizst installment would be made at the end of the ‘the last on December 31, 2021. Prague Company uses the calendar year for reporting ae Lb. 110,964 128,797 d. 144,253 if that follows is available ftom the general ledger, cash in bank ~ BPI and the bank statement iy for the month of August 2017: August 31, P250,000 ‘bank in August including interest of P2,500, P62,500 eginning of August, P47,650, at the end of August, P68,450 00; for August, P1,400 August P27,000; at the end of August P32,900 spany’s accountant in recording check No 12345 for P16,000 was IB for P1,250 was recorded as P12,500 gent by Masterdam Company for P28,000 was reconded against = BPIis <. 203,200 ad. 209,500 2018. On December 31, 2018, prior to the preparation of the torals were P890,000 and P520,000 respectively, Further 9,000 loan to Kyoto Company. ‘The loan calls for interest e it, gpr> year property insurance which it recorded initially 23450 1 which was recorded inital under the eapplieson Ue ‘year commencing on June 1, 2 hang sapsCREAACE: FAR - 1" Pre board October 2017 Batch Page 8 of 12 44 Dating the year, Maldives Company, in its tial balance reported revenues of P130,000 and expenses of before adjustments for the following items: P20,000 which was collected in advance, recorded ~ initally as a lability was earned by yearend; P10,000 of rentals initially recorded under prepaid rent expires by Yearend; P8,000 unrecorded and uncollected services rendered to customers; and P3,500 employees salaries ineurted by yearend, remains unrecorded and unpaid. After the adjusting and closing entries have been * posted, the balance of the Income Summary account is Pe b. P48,500 ©. P50,000 4. P64,500 showed the following information related to the accounts receivable in order to estimate ‘use of the aging, ‘The credit period of the company is 30 days on the average. Amount, (4,000,000 © ve | 1,500,000 *!: 1,000,000 « , t } 500,000 200,000 1 100,000 ¥ ce, Buttercup has the following percent of collectibility: ts which are overdue for less than 30 days 96% which are overdue 31 — 60 days 90% which are overdue 61-90 days 715% which are overdue 91 — 120 days 55% ts which are overdue 121 — 150 days 35% 1 ate overdue for over 150 days 5% accounts receivable? ce. P6,385,000 d. P6,860,000 Accounts receivable under the allowance method since the start of of bad debts ‘previously wiitren off were credited to the to the allowance account were made. Clover Company's usual [accounts was P260,000 at Januacy 1, 2017. During 2047, credit doubtful accounts were made at 2% of credit sales, P180,000 of ts previously written off amounted to P30,000. November 2017 and an aging of accounts recélvable was A summary of the aging is as follows: Balance in Each Estimated % Each Category Uncollectible 2,280,000 2% ‘ 420008 . 15% 2017 7i 1 Pre board October 2017 Batch dune” Page 9 of 12 Us the ilasing for items number 49 - 50 On January 1, 2017, Forget Me Not Company sold equipment with a carrying amount of P4,800,000 in exchange for a 6,000,000 noninterest bearing note due January 1, 2020. There was no established exchange ‘Puce for the equipment, The prevailing rate of interest for a ote OF this type on January 1, 2017 was 10%. The tesent value of 1 at 10% for three periods is 0.75. i 49. Taterest income reposted Forget Me Not Company's 2017 income statement is a. 90,000 As. 450,000 c. 500,000 d. 600,000 50. Gain (loss) on sale of equipment is «. 1,200,000 4. 2,700,000 ed from Orchid Company a P20,000, 8%, 5-year note that required five equal °P5,009. The note was discounted to yield a 9% rate to Heather. At the date of t recorded the note at its present value of P19,485. # ‘ bby Heather over the life of this note is 6 Bb. P5560 ©. P8,000 4. P9,000 2017, ‘Company engaged in the following tansactions. ed a P750,000, six-month loan from NFL Bank, discounted at 12%. The company pledged {000 of accounts teceivable as security for the loan. | 21,000,000 of receivable without recourse on 2 non-notification basis with Mimosa Company. Company charged a factoring fee of 2% of the'amount of receivables factored and withheld 10% the financing of receivables 1,585,000 1,578,000 ‘of the receivables 4. 1,576,000 cc. 120,000 4. 185,000. cing facilitated a P1,000,000, 8% loan. Interest is receivable at the end to be received at the end of five years. At the end of 2017, the first dias the borrower is experiencing financial difficulties. The borrower ‘The payment of all interest for 5 years shall be deferred until the end the principal payment shall be reduced to P500,000, The PV of 1 at 8% hhas been recognized in 2017 in connection with the loan. 31, 2017 is . 338,500 418,500 E Go. had an unadjusted credit balance of P1,000 in its allowance for ‘of Red Vélvet’s trade accounts receivable at that date revealed the Amount Estimated uncollectible 60,000! 5% ; 4000 10% 2000 1,400 ¢ as allowance for uncollectible accounts in its March 34, 2017 balance 4. P3,000FAR - 1" Pre board October 2017 Batch Page 10 of 12 57. Canying value of the note receivable as of December 31, 2016 is a, P 450,780 (BP 495,858 c. P 545,444 @. P.600,000 Use the allowing information jor numbers 58-59 ‘On December 31, 2018 Cookies ‘n Cream. Company factors P450,000 of its receivables to Vanilla Company ay ona zi recourse basis. The agreement includes a factoring fee of 8% and a 10% holdback both based on the holdback account at 10% of the uncollected receivables and will make oe Company at the end of each month for any excess. Cookies ‘n Cream an Allowance for Doubtful Accounts for these receivables of P12,000. by Cookies ‘n Cream Company from the factoring ‘b. 369,960 c. 372,600 4, 377,100 the factoring of the receivables “be 32,000 c. Toma ot 1uses a periodic inventory system and a fiscal year ending September 30. On September reported inventory on hand costing P 980,000. During the fiscal year en 0 , Java ‘Chip recorded purchases of P 5,700,000. A physical count on September 30, 2017 costing P 1,260,000 were on hand. The following material events occurred between 35,040 d. 44,000 ring 276; 000 was received and recorded on September 29. The goods atrived the goods FOB destination on September 0 was xeceived and recorded on September 28. The supplier shipped the eptember 26. The receiving report indicates that Java Chip received the ‘Feported in Java Chip’s income statement for the fiscal year ending -e= P 5,424,000 @. 5,241,000 ported in Java Chip’s balance sheet at September 30, 2017 should be 0 cP 1,536,000 4. 1,719,000 #t which it purchases from various supplicrs. The trial balance on 15,000,000 4,000,000 9,300,000 400,000 « Hi Total “cost 1,200,000 1,950,000 2,800,000-a CEARAR - 1*Preboard October 2017 Batch Page 11 of 12 63, On April 30, 2017 fed sea : , 2017, a fire damaged the i i vd fre * edace a ¢ office of Cinnamon Company. The following were gathere e oe Teoetrable 960,000 Sales 3,600,000 wentory — January 1 1,880,000 Purchases 1,680,000 Accounts payable 950,000 Additional information: i * An examination of the April bank statement and canceled checks revealed checks written during the P il 1-308 follows: 240,000 80,000 A 160,000 ppetiod amounted to P440,000 consisting of collections ‘refund from a vendor for merchandise returned in Apsil. 4 indebtedness of P1,040,000 at April 30. Customers owed another P60,000 that red. Of the acknowledged indebtedness, 40,000 may prove uncollectible. th suppliers zevesled untecotded obligations at April 30, of P540,000 for Apa including P100,000 for shipments in transit on that date. rate is 40%, t St of P260,000 was salvaged and sold for P140,000. The balance of the inventory was @ from customers with the . 1,300,000 c. 1,340,000 a. 1,440,000 mel Company shipped to a customer merchandise with selling price of P75,000, oint Selling price is 125% of cost was recorded in January 2018 when the check ry was detetmined by physical count on December 31, 2017. ¢. Overstated by P75,000 d, Correctly stated vi for the current year. oy == + -*90,000 units @P7.00 » — ® 75000 units @ P8.00 Ro) © 120,000 units @ P8.50 s of maw materials to work in process during the year. 50,000 units @ P14.00 3,100,000 2,950,000 48,000 units @ P15.00 ‘assuming that Vanilla Company uses the FIFO cost flow 8,235,000 d- 8,280,000 t value method to value inventory. Data regarding the1 Pre board October 2017 Batch Page 12 of 12 ory on hand December 31, 2017 for Blueberry Company is P950,000. The following Were not in this inventory amount: : ‘goods in transit, shipped FOB destination, invoice price P30,000 which included freight charge ‘held on consignment by Blueberry Company at a sales price of P28,000 which includes sales ion of 20% of the sales price. ods Sold to Hazelnut Company, FOB destisation, invoiced for P18,500 which includes P1,000 freight € to deliver the goods, Goods are in transit. The entity’s selling price is 40% of cost. ‘goods in transit, terms FOB shipping point, invoice price P50,000, freight cost, P2,500. ut on consignment to Butter Company, sales price P35,000, shipping cost of P2,000. st of the inventory on December 31, 2017 is, 5 b. 1,042,000 c. 1,043,000 d. 1,073,000 ought a 10-hectare Innd in Paranaque to be improved, subdivided into lots and eventually of the land was P5,800,000. Taxes and documentation expenses on the transfer to the ) PB0,000. The lots were classified as follows. ot Number Selling price Total clearing of lots perlot cost 10 100,000 None 20 80,000 100,000 40 70,000 300,000 . 50 60,000 00,000 Gost of Class CL lots under the relative sales value method is 1,220,000 ¢, 1,276,000 d. 1,700,000 was licensed to Jelly Company for royalties of 15% of sales of the ‘payable semi-annually on March 15 for sales in July-December of the prior in January-June of the same year. Espresso Company received the March 15. Sey 15 10,000 15,000 12,000 17,000 for July-December 2017 is P60,000 < P38,000 a. P41,000 P38,000 d. P41,000cRe -- The Professional CPA | Main: 3F C. Vilaroman Bldg, 873 P. Campa St. co (02) 735 8901 / 735 9031 / 0922 ‘email add: crc_ace@yahoo.< Baguio Rude! Blea. V; Lower Mabini cor Diego Siang, Baguio ity (074) 442-1440 FIRST PRE-BOARD EXAMINATION 7/0922-8499196 SUGGESTED ANSWERS defo REGULATORY FRAMEWORK FOR BUSINESS TRANSACTIONS 6B ot 7 3 a7 D 2 C2a — A cE The Professional CPA Review School \illaroman Bldg. £73 P. Campa St. cor Espans, Sampaloc, Manila (Go) 735 6901 J 735 9031 / 0922 861 0191 ‘emall add: 1c_ace@yatioo.com Davao 3/F GCAM Bldg. Monteverde St. Davao City (074) 442-1440 (G82) 285-8805 / 0925-7272223, FINANCIAL AGCTG & REPORTING OCTOBER 2017 BATCH ADVANCED FINANCIAL & REPORTING