CPA REVIEW SCHOOL OF THE PHILIPPINES

Manila

FINANCIAL ACCOUNTING AND REPORTING VALIX/VALIX/SANTOS

FINAL PREBOARD EXAMINATION SOLUTIONS BATCH 94

1. C 4. A 7. D
2. B 5. C
3. D 6. B

8. Cash 600,000
Accounts receivable (2,800,000 – (125,000 x 4)) 2,300,000
Inventory 2,000,000
Total current assets 4,900,000
Accounts payable 1,800,000
Income tax payable (1,250,000 – 600,000) 650,000
Liability for refundable security deposit 700,000
Total liabilities 3,150,000
Net sales and other revenue 15,000,000
Cost and expenses (10,000,000)
Income before tax 5,000,000
Correct income tax expense (5,000,000 x 25%) ( 1,250,000)
Net income 3,750,000
Retained earnings – January 1 3,500,000
Retained earnings – December 31 7,250,000
Share capital 2,700,000
Share premium 3,050,000
Total shareholder’s equity 13,000,000 B

9. Sales 19,500,000
Investment income 300,000
Other income 600,000
Total income 20,400,000
Expenses:
Raw materials and consumables used 7,000,000
Decrease in finished goods 500,000
Employee benefit expense 3,000,000
Depreciation 900,000
Impairment loss 1,600,000
Finance cost 700,000
Other expense 900,000 (14,600,000)
Income before tax 5,800,000
Tax expense ( 1,400,000)
Income from continuing operation 4,400,000
Loss from discontinued operation, net of tax ( 400,000)
Net income 4,000,000
Other comprehensive income
Translation gain 600,000
Remeasurement gain 400,000 1,000,000
Comprehensive income 5,000,000
The entity elected to use the natural presentation of expenses. A

10. B

11. Net income 1,700,000

Depreciation 500,000
Loss on sale of equipment 50,000
Decrease in accounts payable ( 100,000)
Decrease in inventory 75,000
Increase in accounts receivable ( 25,000)
Net cash flow provided by operating activities (indirect method) 2,200,000
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Collection from customers (375,000 + 4,900,000 – 400,000) 4,875,000

Payment to suppliers (2,000,000 + 150,000 – 225,000 = 1,925,000 + 350,000 – 250,000) (2,025,000)
Other expenses ( 650,000)
Net cash flow provided by operating activities (direct method) 2,200,000 B
12. C
13. Carrying amount of preference shares (2,500,000 + 750,000) 3,250,000
Redemption price (2,250,000)
Gain on redemption credited to share premium – ordinary 1,000,000
Basic EPS (3,750,000 + 1,000,000 = 4,750,000 / 150,000) 31.67 D
14. January 1 (200,000 x 12/12) 200,000
October 1 (20,000 x 5 = 100,000 x 3/12) 25,000
Weighted averages ordinary shares outstanding – basic EPS 225,000
Potential ordinary shares (100,000 x 9/12) 75,000
Denominator for diluted EPS 300,000
Basic EPS (8,400,000 – 120,000 = 8,280,000 / 225,000) 36.80
Diluted EPS (8,400,000 / 300,000) 28.00 A
15. Petty cash fund 65,000
Demand deposit (3,900,000 – 350,000 + 250,000 – 550,000) 3,250,000
Time deposit 650,000
Saving deposit 700,000
Cash and cash equivalents 4,665,000 C
16. Unadjusted cash in bank balance per bank statement – October 31 7,200,000
Deposit in transit 800,000
Outstanding check (1,000,000)
Bank error (600,000 – 60,000) 540,000
Adjusted cash in bank balance – October 31 7,540,000 D
17. Expense 6,000
Receivable 2,000
Cash in bank 8,000 B

18. D
19. Dividends received of P300,000 is recognized on profit or loss.
Fair value – December 31, 2023 (100,000 x 40) 4,000,000
Carrying amount – January 1, 2023 4,500,000
Unrealized loss in OCI for 2023 ( 500,000)
Proceeds 3,600,000
Historical cost 4,500,000
Debit adjustment to retained earnings ( 900,000) B
20. Interest income for 2023 (5,468,000 x 15%) 820,200
Financial assets measured at amortized cost are subject to reclassification and impairment. A
21. 11 – 25 days (1,600,000 x 5%) 80,000
26 – 60 days (500,000 x 15%) 75,000
Over 60 days (300,000 x 50%) 150,000
Required allowance for doubtful accounts 305,000
Gross accounts receivable 5,400,000
Less allowance for sales discount (3,000,000 x 40% x 2%) ( 24,000)
Allowance for doubtful accounts ( 305,000)
Net realizable value 5,071,000 B
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22. Selling price 10,600,000

Carrying amount of accounts receivable (12,000,000 – 500,000) (11,500,000)
Loss on factoring ( 900,000) C
23. Carrying amount – January 1, 2023 1,948,500
Interest income for 2023 (1,948,500 x 9%) 175,365
Annual payment ( 500,900)
Carrying amount – December 31, 2023 1,622,965
Interest income for 2024 (1,622,965 x 9%) 146,067
Annual payment ( 500,900)
Carrying amount – December 31, 2024 1,268,132 B
24. Beginning inventory 1,000,000
Net purchase (4,500,000 – 500,000 + 300,000 + 150,000) 4,450,000
Cost of goods available for sale 5,450,000
Ending inventory – FIFO (400,000 x (4,450,000 / 800,000)) 2,225,000
Ending inventory – Weighted average (400,000 x (5,450,000 / 1,000,000)) 2,180,000
Ending inventory at cost – FIFO 2,225,000
Net realizable value (400,000 x 4.50) 1,800,000
Ending inventory to be reported (LCNRV) 1,800,000 C
25. Goods available for sale at cost (600,000 + 3,000,000) 3,600,000
Goods available for sale at retail – conservative (1.5M + 5.5M + 500k) 7,500,000
Cost ratio – conservative (3,600,000 / 7,500,000) 48%
Ending inventory at retail (7,500,000 – 1,000,000 – 4,500,000) 2,000,000
Ending inventory at cost (2,000,000 x 48%) 960,000 D
26. Specific borrowing (1,500,000 x 6% x 9/12) 67,500
General borrowing (2,500,000 – 1,500,000 = 1,000,000 x 10% x 9/12) 75,000
Actual expenditures 3,600,000
Cost of the building 3,742,500 B
27. 450,000 + 600,000 1,050,000 D
28. Cost 7,200,000
Accumulated depreciation – December 31, 2024 (7,200,000 / 10 x 2) (1,440,000)
Carrying amount – January 1, 2025 5,760,000
Depreciation for 2025 (5,760,000 x 8/36) ( 1,280,000)
Carrying amount – December 31, 2025 4,480,000 A
29. Cost 10,000,000
Accumulated depreciation – December 31, 2027 (10M / 20 x 5) ( 2,500,000)
Carrying amount – December 31, 2027 7,500,000
Fair value – December 31, 2027 6,000,000
Impairment loss for 2027 1,500,000
Carrying amount – January 1, 2028 with impairment 6,000,000
Depreciation for 2028 and 2029 (6,000,000 / 15 = 400,000 x 2) ( 800,000)
Carrying amount – December 31, 2029 5,200,000
Carrying amount – December 31, 2029 as if not impaired (10M – (10M / 20 x 7)) 6,500,000
Fair value 11,700,000
Increased carrying amount to compute gain on reversal of impairment 6,500,000
Carrying amount – December 31, 2029 5,200,000
Gain on reversal of impairment for 2029 1,300,000
Revaluation surplus in 2029 (11,700,000 – 6,500,000) 5,200,000
Proceeds from disposal 10,500,000
Carrying amount – December 31, 2031 (11.7M – (11.7M / 13 x 2) ( 9,900,000)
Gain on disposal in 2031 600,000 C
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30. Fair value – December 31, 2023 (22,500,000 x 9) 202,500,000

Carrying amount – January 1, 2023 (168,750,000 x 9/10) (151,875,000)
Gain from change in fair value in 2023 50,625,000 D

31. Revaluation surplus – from PPE to Investment Property (32M – 25M) 7,000,000
Profit or loss – Inventory to Investment Property (9,000,000 – 6,000,000) 3,000,000 B

32. Copyright 1 (800,000 / 20 x 16) 640,000

Copyright 2 (720,000 / 15 x 12.5) 600,000
Patent (1,000,000 / 10 x 8) 800,000
Carrying amount of intangible assets and adjustment to RE – Jan. 1, 2023 2,040,000

Copyright 1 (640,000 / 16) 40,000

Copyright 2 (600,000 / 12.5) 48,000
Patent (800,000 / 8) 100,000
Total amortization for 2023 188,000 B

33. Research and development expense (2,000,000 + 1,000,000) 3,000,000

Computer software cost 1,250,000 C

34. Agricultural produce still growing on the bearer plant 75,000 C

35. 6,000,000 + 500,000 + 900,000 – 100,000 7,300,000 D

36. Carrying amount (6,000,000 – 1,200,000) 4,800,000

FVLCOD 3,840,000
Impairment loss in 2024 960,000

Carrying amount on December 31, 2025, not held for sale (6M – 1.8M) 4,200,000
Recoverable amount (higher of FVLCOD and value in use) 4,320,000

Measurement when reclassified to PPE (lower) 4,200,000

Carrying amount on December 31, 2025 per books 3,840,000
Gain on reclassification 360,000 A

37. B
38. B
39. C

40. Carrying amount – December 31, 2023 7,543,200

Carrying amount – January 1, 2023 7,512,000
Discount amortization for the year 2023 31,200
Interest paid (8,000,000 x 9%) 720,000
Interest expense for 2023 751,200

Effective interest rate (751,200 / 7,512,000) 10% A

41. Carrying amount of the note (2,500,000 + 300,000) 2,800,000

Carrying amount of the land (1,800,000)
Gain on extinguishment 1,000,000 A

42. Transaction price allocated to points (10,000,000 x 2,500,000 / 12,500,000) 2,000,000

Cumulative revenue as of December 31, 2024 (2,000,000 x 37,400 / 68,000) 1,100,000

Revenue from points in 2023 (2,000,000 x 24,000 / 60,000) ( 800,000)
Revenue from points in 2024 300,000 C
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43. January 1, 2023 Sales (6,000,000 x ½) 3,000,000

January 1, 2023 to December 31, 2023 (3,000,000 x 2%) 60,000
January 1, 2024 to December 31, 2024 (3,000,000 x 5%) 150,000
January 1, 2025 to December 31, 2025 (3,000,000 x 8%) 240,000
July 1, 2023 Sales (6,000,000 x ½) 3,000,000
July 1, 2023 to June 30, 2024 (3,000,000 x 2%) 60,000
July 1, 2024 to June 30, 2025 (3,000,000 x 5%) 150,000
July 1, 2025 to June 30, 2026 (3,000,000 x 8%) 240,000
January 1, 2024 Sales (8,000,000 x ½) 4,000,000
January 1, 2024 to December 31, 2024 (4,000,000 x 2%) 80,000
January 1, 2025 to December 31, 2025 (4,000,000 x 5%) 200,000
January 1, 2026 to December 31, 2026 (4,000,000 x 8%) 320,000
July 1, 2024 Sales (8,000,000 x ½) 4,000,000
July 1, 2024 to June 30, 2025 (4,000,000 x 2%) 80,000
July 1, 2025 to June 30, 2026 (4,000,000 x 5%) 200,000
July 1, 2026 to June 30, 2027 (4,000,000 x 8%) 320,000

Products still under warranty as of December 31, 2024

January 1, 2025 to December 31, 2025 (3,000,000 x 8%) 240,000

January 1, 2025 to June 30, 2025 (3,000,000 x 5% x 6/12) 75,000
July 1, 2025 to June 30, 2026 (3,000,000 x 8%) 240,000
January 1, 2025 to December 31, 2025 (4,000,000 x 5%) 200,000
January 1, 2026 to December 31, 2026 (4,000,000 x 8%) 320,000
January 1, 2025 to June 30, 2025 (4,000,000 x 2% x 6/12) 40,000
July 1, 2025 to June 30, 2026 (4,000,000 x 5%) 200,000
July 1, 2026 to June 30, 2027 (4,000,000 x 8%) 320,000
Adjusted warranty liability on December 31, 2024 1,635,000 D

44. B
45. C
46. B

47. New cost per treasury share after the split (30 /4) 7.50

Cash (40,000 x 20) 800,000

Treasury shares (40,000 x 7.50) 300,000
Share premium – treasury shares 500,000 B

48. Ordinary shares in exchange for land and legal services (2.5M + 500k) 3,000,000
Preference shares for cash, net of issue cost (1,800,000 – 50,000) 1,750,000
Subscribed ordinary shares (20,000 x 350) 7,000,000
Ordinary shares in exchange for building (300 x 12,000) 3,600,000
Preference shares in exchange for building (7,000,000 – 3,600,000) 3,400,000
Subscription receivable on subscribed ordinary shares (7M – 2.5M) (4,500,000)
Contributed capital 14,250,000 A

49. Average issue price (10,400,000 / 400,000) 26.00

Share capital (50,000 x 20) 1,000,000
Share premium (50,000 x 6) 300,000
Retained earnings 200,000 C
Cash (50,000 x 30) 1,500,000
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50. 2022 2023

Income before tax – average 3,000,000 4,000,000
Difference in ending inventory - 2022 400,000 ( 400,000)
Difference in ending inventory – 2023 - 1,000,000 (Squeeze)
Income before tax – FIFO 3,400,000 4,600,000 (3,450,000 / 75%)

Net income for 2022 – FIFO (3,400,000 x 75%) 2,550,000

FIFO ending inventory – December 31, 2023 (1,800,000 + 1,000,000) 2,800,000 B

51. Preference Ordinary

Fixed preference dividend (40,000 x 100 x 6% x 2) 480,000
Allocation to ordinary (200,000 x 10 x 6%) 120,000
Balance for participation 600,000* 300,000^
Total dividends 1,080,000 420,000 A

*Participation for preference (900,000 x 4,000,000 / 6,000,000)

^Participation for ordinary (900,000 x 2,000,000 / 6,000,000)

52. Percent declared (8,000 / 40,000) 20%

Retained earnings (8,000 x 100) 800,000

Share capital 800,000 D

53. Deficit before the adjustments 1,500,000

Reduction in inventory (5,000,000 – 3,500,000) 1,500,000
Reduction in property, plant and equipment (13,000,000 – 9,000,000) 4,000,000
Total deficit 7,000,000
Share premium (2,600,000)
Reduction in share capital 4,400,000 C

54. B

55. Total shareholders’ equity (1,000,000 + 3,000,000 + 9,000,000) 13,000,000

Preference shareholders’ equity
Par 1,000,000
Liquidation premium (2 x 100,000) 200,000
Preference dividend (1,000,000 x 10%) 100,000 1,300,000
Ordinary shareholders’ equity 11,700,000

Book value per ordinary share (11,700,000 / 30,000) 390 A

56. Fair value of share alternative (50,000 x 50) 2,500,000

Fair value of liability – January 1, 2023 (40,000 x 47.50) 1,900,000
Share options outstanding 600,000

Year Cumulative – liab Expense – liab Expense – equity Total

2023 (40k x 51 x 1/3) 680,000 680,000 200,000 880,000
2024 (40k x 63 x 2/3) 1,680,000 1,000,000 200,000 1,200,000
2025 (40k x 65 x 3/3) 2,600,000 920,000 200,000 1,120,000

If employee selects cash, the total share options outstanding is transferred to share premium. B

57. PV of rentals (2,000,000 x 3.31) 6,620,000

PV of guaranteed residual value (1,000,000 x 0.74) 740,000
Initial lease liability 7,360,000
Lease bonus 600,000
PV of dismantling and restoration cost 780,000
Initial cost of the right of use asset 8,740,000

Depreciation for 2023 (8,740,000 – 1,000,000 / 4) 1,935,000

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Date Payment Interest Principal Carrying amount of lease liability

Jan. 1, 2023 7,360,000
Dec. 31, 2023 2,000,000 588,800 1,411,200 5,948,800
Dec. 31, 2024 2,000,000 475,904 1,524,096^ 4,424,704*

^current portion on December 31, 2023; *noncurrent portion on December 31, 2023 B

58. D

59. Sales (700,000 x 4.97) 3,479,000

Cost of goods sold (2,000,000 – (400,000 x 0.4)) (1,840,000)
Gross profit on the sale 1,639,000 A

60. Initial lease liability (900,000 x 4.21) 3,789,000

Additional financing provided by lessor (8,500,000 – 7,500,000) ( 1,000,000)
Rights retained by the seller – lessee 2,789,000

Cost of right of use asset (6,000,000 x 2,789,000 / 7,500,000) 2,231,200 C

61. Pretax financial income 6,000,000

Nondeductible expenses (10,000 + 90,000) 100,000
Financial income subject to tax 6,100,000
Excess accounting rent income – future taxable amount (120k – 70k) ( 50,000)
Excess tax depreciation – future taxable amount (280k – 220k) ( 60,000)
Taxable income 5,990,000 C

62. Pretax financial income 8,000,000

Future taxable amount – land (12,000,000 – 8,000,000) (4,000,000)
Future taxable amount – equipment (5,000,000 – 3,500,000) (1,500,000)
Future deductible amount – inventory (3,600,000 – 2,000,000) 1,600,000
Future deductible amount – accounts receivable (1,900,000 – 1,500,000) 400,000
Future deductible amount – liabilities (6,000,000 – 5,500,000) 500,000
Taxable income 5,000,000

Current tax expense (5,000,000 x 25%) 1,250,000

Deferred tax expense (benefit)
Increase in deferred tax liability (5,500,000 x 25%) 1,375,000
Increase in deferred tax asset (2,500,000 x 25%) ( 625,000) 750,000
Total tax expense 2,000,000 D

63. D

64. Current service cost 925,000

Gain on plan settlement (200,000)
Interest expense on PBO (5,500,000 x 6%) 330,000
Interest income on plan assets (4,750,000 x 6%) (285,000)
Employee benefit expense 770,000

Fair value of plan assets – beginning 4,750,000

Contribution to the plan 1,350,000
Actual return on plan assets 485,000
Benefits paid (995,000)
Settlement payment before normal retirement (800,000 – 200,000) (600,000)
Fair value of plan assets – ending 4,990,000 B

65. Variable expense (8,000,000 x 25%) 2,000,000

Fixed expense excluding advertising and depreciation (6M – 3.2M – 1.2M) 1,600,000
Advertising expense (3,200,000 x 3/12) 800,000
Deprecation (1,200,000 x 3/12) 300,000
Total expense for the first quarter 4,700,000 B
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66. Accounts payable 1,500,000

Notes payable 1,000,000
Bank loan payable 2,000,000
Accrued rent payable 300,000
Accrued interest payable 100,000
Basic financial liabilities 4,900,000 B

67. Cost (4,000,000 + 500,000) 4,500,000

Carrying amount of net assets acquired (13,000,000 x 20%) (2,600,000)
Excess cost 1,900,000
Excess cost – building (2,000,000 x 20%) ( 400,000)
Implied goodwill 1,500,000

Share in the net income (5,000,000 x 20%) 1,000,000

Amortization of excess cost – building (400,000 / 20) ( 20,000)
Amortization of excess cost – goodwill (1,500,000 / 10) ( 150,000)
Investment income 830,000 A

68. Fair value (100,000 x 110) 1,100,000

Carrying amount before change in fair value (1,000,000)
Gain from change in fair value – profit or loss 100,000 A

The investment in ordinary shares shall be measured at FVPL because the shares are listed.

69. C
70. C

END