ACC 226: PFRS FOR SMALL ENTITIES & IFRS FOR SMES (8813)

Assignment

INTRUCTIONS: For problem-solving, show solution and properly label all answers. If applicable, round off
to two decimal places only and double rule the final answers.

Statement of Financial Position

1. Which of the following must be included on the face of an entity’s statement of financial position?
a. Investment property
b. Number of shares authorized
c. Contingent liability
d. Shares in an entity owned by that entity

2. The essential characteristics of an asset include all of the following, except

a. The asset is the result of past transaction or event.
b. The asset provides future economic benefit.
c. The cost of the asset can be measured reliably.
d. The asset is tangible.

3. An operating cycle
a. Is twelve months or less in length.
b. Is the average time required for an entity to collect its receivable.
c. Is used to determine current assets when the operating cycle is longer than one year.
d. Starts with inventory and end with cash.

4. In which section of the statement of financial position should cash that is restricted for the settlement
of a liability due 18 months after the reporting period be presented?
a. Current assets
b. Equity
c. Noncurrent liability
d. Noncurrent assets

5. Investment securities held for the purpose of retiring bonds payable shall be classified as
a. Current assets.
b. Investments.
c. Deferred bond liability.
d. Intangible assets.

6. Which of the following items would normally be excluded from the computation of working capital?
a. Advances from customers.
b. The portion of long-term debt that matures within one year after the reporting period and will
be paid from the regular cash account.
c. Prepaid insurance.
d. Cash surrender value of life insurance.
7. Which of the following does not meet the definition of a liability?
a. The signing of a three-year employment contract at a fixed annual salary.
b. An obligation to provide goods or services in the future.
c. A note payable with no specified maturity date.
d. An obligation that is estimated in amount.

8. Which of the following represents a liability?

a. The obligation to pay for goods that an entity expects to order from suppliers next year.
b. The obligation to provide goods that customers have ordered and paid for during the current
year.
c. The obligation to pay interest on a five-year note payable that was issued the last day of the
current year.
d. The obligation to distribute an entity’s own shares next year as a result of a stock dividend
declared near the end of the current year.

9. The following statements pertain to liabilities. Which statement is not valid?

a. Current liabilities shall not be offset against asset that are to be applied to their liquidation.
b. Unasserted claims are never accrued because to do so would require an entity to implicitly admit
liability.
c. Commitments to make future purchases of raw materials shall be accrued if losses become
probable and if the amount is reasonably estimable.
d. Estimated liabilities shall be accrued because they are known to exist and are only uncertain as
to amount.

10. An entity has a loan due for repayment in six months’ time but the entity has the option to refinance
for repayment two years later. The entity plans to refinance this loan. In which section of the
statement of financial position should this loan be presented?
a. Current liabilities.
b. Current assets.
c. Noncurrent liabilities.
d. Noncurrent assets.

11. The following data are available for purposes of stating the financial position of Angela Company on
December 31, 2022:

Cash 1,200,000
Investment securities held for trading (including long-term investment
of P500,000 in ordinary shares of X Company) 2,000,000
Inventories (including goods received on consignment of P200,000) 800,000
Prepaid expenses (including a deposit of P50,000 made on an inventories
to be delivered in 18 months) 150,000
Property, plant and equipment (excluding P300,000 of equipment still
in use, but fully depreciated) 10,000,000
Goodwill (based on estimate by the president) 1,000,000
Total 15,150,000

Cash in general checking account 600,000

Cash in fund to be used to retire bonds in 2024 500,000
 Cash held to pay value added taxes 100,000
Total cash 1,200,000

What total amount of current assets should be reported on December 31, 2022?
a. P2,900,000 b. P2,950,000 c. P3,400,000 d. P3,450,000

12. Mikaela Company was incorporated on January 1, 2022, with P5,000,000 from the issuance of share
capital and borrowed funds of P1,500,000. During the first year, net income was P2,500,000. On
December 15, Mikaela Company paid a P500,000 cash dividend. No additional activities affected
shareholders’ equity in 2022. On December 31, 2022, Mikaela Company’s liabilities had increased to
P1,800,000. On December 31, 2022, what amount should be reported as total assets?
a. P6,500,000 b. P6,800,000 c. P8,800,000 d. P9,300,000

13. Juan Gabriel Company’s December 31, 2022 statement of financial position reported the following
current assets:

Cash 4,300,000
Accounts receivable 7,500,000
Inventory 4,000,000
Deferred tax asset 1,200,000
Total 17,000,000

An analysis of the accounts receivable disclosed that accounts receivable comprised the following:

Trade accounts receivable 5,000,000

Allowance for doubtful accounts ( 500,000)
Selling price of Juan Gabriel Company’s unsold goods sent to
a consignee at 150% of cost and excluded from Juan Gabriel
Company’s inventory 3,000,000
7,500,000

On December 31, 2022, what amount should be reported as total current assets?
a. P14,800,000 b. P15,300,000 c. P15,800,000 d. P16,000,000

14. An analysis of Claire Joy Company’s liabilities disclosed the following:

Accounts payable, after deducting debit balances in suppliers’ accounts

amounting to P100,000 4,000,000
Accrued expenses 1,500,000
Credit balance of customers’ accounts 500,000
Stock dividend payable 1,000,000
Claims for increase in wages and allowances by employees of the entity,
covered in pending lawsuit 400,000
Estimated expenses in redeeming prize coupons 600,000

What amount should be reported as total current liabilities?

a. P6,600,000 b. P6,700,000 c. P7,100,000 d. P7,700,000
15. Clarence Company provided the following on December 31, 2022:

• Accounts payable amounted to P500,000 and accrued expenses totaled P300,000 on December
31, 2022.
• On December 15, 2022, Clarence Company declared a cash dividend of P7 per share on 100,000
outstanding shares, payable on January 15, 2023.
• On July 1, 2022, the entity issued P5,000,000, 8% bonds for P4,400,000 to yield 10%. The bonds
mature on June 30, 2027 and pay interest annually every June 30.
• The pretax financial income was P8,500,000 and taxable income was P6,000,000. The difference
is due to P1,000,000 permanent difference and P1,500,000 of taxable temporary difference to
reverse in 2023. The income tax rate is 30%. Clarence Company made estimated income tax
payments during the year of P1,000,000.

What amount should be reported as total current liabilities on December 31, 2022?
a. P2,300,000 b. P2,500,000 c. P2,700,000 d. P3,500,000

16. Jaymar Company provided the following trial balance on December 31, 2021 which has been adjusted
except for income tax expense:

Cash 600,000
Accounts receivable, net 3.500,000
Cost in excess of billings on long-term contracts 1,600.000
Billing in excess of cost on long-term contracts 700,000
Prepaid taxes 450,000
Property, plant and equipment , net 1,510,000
Note payable — noncurrent 1,620,000
Share capital 750,000
Share premium 2,030,000
Retained earnings unappropriated 900,000
Retained earnings restricted for note payable 160,000
Earnings from long-term contracts 6.680,000
Costs and expenses 5,180,000

The entity used the percentage of completion method to account for long-term construction contracts
for financial statement and income tax purposes. All receivables on these contracts are considered to
the collectible within 12 months. During 2021, estimated tax payments of P450,000 were charged to
prepaid taxes. The entity has recorded income tax expense. There were no temporary or permanent
differences. The tax rate is 30%. On December 31, 2021, what amount should be reported as

Total retained earnings?

a. 1,950,000 b. 2,110,000 c. 2,400,000 d. 2,560,000

Total noncurrent liabilities?

a. 1,620,000 b. 1,780,000 c. 2,320,000 d. 2,480,000

Total current assets?

a. 5,000,000 b. 4,I00,000 c. 5,700,000 d. 6,225,000
 17. Glen Company was incorporated on January 1, 2018 with proceeds from the issuance of P750,000 in
shares and borrowed funds of P110.000. During the first year of operations, revenue from sales and
consulting amounted to P82,000, and operating costs and expenses totaled P64,000. On December
15, the entity declared a P3.000 cash dividend, payable to shareholders on January 15, 2014, No
additional activities affected owners’ equity in 2018. The liabilities increased to P120,000 by
December 31, 2018. What amount should be reported as total assets on December 31. 2018?
a. 885,000 b. 882,000 c. 787,000 d. 875,000

18. Jay Company had a note payable P500,000 due June 15, 2019. The entity signed an agreement on
December 1, 2018 to borrow up to P500.000 to refinance the note payable on a long-term basis with
no payments due until 2020. The financing agreement stipulated that borrowing may not exceed 80%
of the value of the collateral. At the date of the issuance of 2018 financial statements, the, value of
the collateral was P600,000 and is not expected to fall below this amount. On December 31, 2018,
what amount of the note payable should be classified as noncurrent?
a. 500,000 b. 480,000 c. 20,000 d. 0

19. Brian Company provided the following selected account balances on December 31. 2021:

Cash 60,000
Trading investments, including P300,000 of Brian Company’s shares 400,000
Trade accounts receivable 340,000
Inventories 148,000
Share Capital 2,224,000
Retained earnings ( 224,000)

What is the total amount of equity on December 31, 2021?

a. 2,224,000 b. 2,000,000 c. l,924,00 d. 1,700,000

20. Lyle Company disclosed the following liability balances on December 31. 2018:
Accounts payable 1,900,000
Bonds Payable due December 31, 2019 3,400,000
Premium on bonds payable 200,000
Deferred tax liability 400,000
Dividends payable 500,000
Income tax payable 900.000
Note payable, due January 31, 2020 600,000

The deferred tax liability is based on temporary differences that will reverse in 2019. What total
amount should he reported as current liabilities on December 31. 2018?
a. 7,500,000 b. 4,300,000 c. 3,900,000 d. 6,900,000

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