Problems
Problem 1-1 Multiple choice
1. A complete set of financial statement includes all of the following components, except.
a. Statement of financial position, statement of comprehensive income and statement of cash
flows.
b. Statement of changes in equity.
c. Notes, comprising a summary of significant accounting policies and other explanatory
information.
d. Reports and statement such as environmental reports and value added statements.
2. What is the objective of financial statements?
a. To provide information about financial position financial performance and changes in financial
position of an entity that is useful to a wide range of users in making economic decision.
b. To prepare and present a statement of financial position, statement of comprehensive income.
Statement of cash flows and statement of changes in equity.
c. To prepare and present relevant, reliable, comparable and understandable information to
investors and creditors.
d. To prepare and present financial statements in accordance with all applicable PFRS and
Interpretations.
3. What is the objective of providing information about financial position, financial performance and
cash flows of an entity, financial statements should provide information about all of the following,
except.
a.
b.
c.
d.
Assets, liabilities and equity
Income and expenses, including gains and losses
Contribution by and distribution to own in their capacity as owners.
Nature of business activities
4. Which of the following statements is true concerning the objective of financial statements?
I.
II.
a.
b.
c.
d.
Financial statements do not provide all the information that users may need to make economic
decisions since they largely portray the financial effects of past events and do not necessarily
provide nonfinancial information.
Financial statements show the results of the stewardship of management or the accountability
of management for the resources entrusted to it.
I only
II only
Both I and II
Neither I nor II
5. The primary responsibility for the preparation and presentation of the financial statements of an
entity is reposed in the.
a.
b.
c.
d.
Management of the entity
Internal auditor
External auditor
Controller
Problem 1-2 Multiple choice (IFRS)
1. An entity decided to extend the reporting period from a year to a 15-month period. Which of the
following is not required in case of change in reporting period?
a. The entity shall disclose the reason for using a longer period than a period 12 months.
b. The entity shall change the reporting period only if other similar entities in the geographical
area in which it generally operates have done so in the current year.
c. The entity shall disclose that comparative amounts used in the financial statements are not
entirely comparable.
d. The entity shall disclose the period covered by the financial statements.
2. Which of the following is not a component of the financial statements?
a.
b.
c.
d.
Statement of financial position
Statement of changes in equity
Report of board of directors
Notes to financial statements
3. Which of the following is included in a complete set of financial statements?
a.
b.
c.
d.
A statement by the board of directors of compliance with local legislation
A statement of changes in equity
Summarized statements of financial position for the last five years
Value added statement
4. Financial statements include a statement of financial position, a statement of comprehensive income,
a statement of changes in equity and a statement of cash flows. Which of the following is also included
within the financial statements?
a.
b.
c.
d.
A statement of retained earnings
Accounting policies
An auditor’s report
A director’s report
5. An entity shall clearly identity each financial statement and shall display all of the following
information prominently, except.
a. Name of the reporting entity or other means of identification, and any change in that
information from the previous year.
b. Names of major shareholders of the entity
c. The presentation currency and level of rounding used in presentation the financial statements
d. Whether the financial statement cover the individual entity or a group of entities and the date
of the end of reporting period or the period covered by the financial statements.
Problem 1-3 Multiple choices (PAS 1)
1. Which of the following statements is incorrect concerning fair preservation of financial statements?
a. Fair presentation requires the faithful representation of the effects of transaction and other
events.
b. Financial statements shall present fairly the financial position, financial performance and cash
flows of an entity
c. In virtually all circumstances, a fair presentation is achieved by compliance with applicable PFRS
d. An entity whose financial statements comply with PFRS shall not make an explicit and
unreserved statement of such compliance in notes
2. Which of the following cannot be considered fair presentation of financial statements?
a. To present information in a manner that provides relevant and faithful representation of the
effects of transactions and other events.
b. To provide additional disclosures when compliance with specific PFRS is insufficient to
understand the financial position and financial performance.
c. To select and apply accounting policies in accordance with applicable PFRS.
d. To rectify inappropriate accounting policies either by disclosure of the accounting policies
used or by notes or explanatory information.
3. Which of the following statements indicates a going concern?
a.
b.
c.
d.
Management intends to liquidate the entity
Management intends to cease the operations of the entity.
Management has no realistic alternative but to cease the operation of the entity
None of these
4. An entity is permitted to depart from a particular standard if all of the following conditions are
satisfied except.
a. In extremely rare circumstances
b. When management concludes that compliance the standard would be misleading
c. When the departure from the standard is necessary to achieve fair presentation.
d. When the conceptual framework for financial reporting prohibits such a departure
5. The effects of transactions and either events on economic resources and claims are depicted in the
period in which those effects occur even if the resulting each receipts and payments occur in a different
period.
a.
b.
c.
d.
Accrual accounting
Cash accounting
Modified accrual accounting
Modified cash accounting
6. Financial statements must be prepared at least
a.
b.
c.
d.
Annually
Quarterly
Semiannually
Every two years
7. Technically, offsetting in financial statements is accomplished when
a.
b.
c.
d.
The allowance for doubtful accounts is deducted from accounts receivable.
The accumulated depreciation is deducted from property, plant and equipment.
The total liabilities are deducted from total assets to arrive at net assets.
Gain or loss from disposal of noncurrent assets is reported by deducting from the proceeds
the carrying amount of the asset and the related disposal cost.
8. The presentation and classification of items in the financial statements shall be retained from one
accounting period to the next.
a.
b.
c.
d.
Consistency of presentation
Materiality
Aggregation
Comparability
9. A third statement of financial position as at beginning of the earlier comparative period presented is
required.
I.
II.
III.
a.
b.
c.
d.
When an entity applies an accounting policy retrospectively
When an entity makes a retrospective restatement of items in their financial statements.
When an entity reclassifies items in the financial statements
I and II only
I and III only
II and III only
I, II and III
10. An entity shall prepare how many statements of financial position as a result of retrospective
application, retrospective restatements and reclassification of items in the financial statements?
a.
b.
c.
d.
Two
Three
Four
One
Problem 1-4 Multiple choice (IFRS)
1. Items of dissimilar nature or function
a. Must always be presented separately in financial statements.
b. Must not be presented separately in financial statements
c. Must be presented separately in financial statements if those items are materials.
d. Must be presented separately in financial statements even if those items are
immaterial.
2. Materiality depends on
a. The nature of the omission or misstatement
b. The absolute size and nature of the omission or misstatement
c. The relatives size and nature of the omission or misstatement
d. The judgment of management
3. An entity must disclose comparative information for
a. The previous comparable period for all amounts reported.
b. The previous comparable period for all amounts reported for all narrative and
descriptive information.
c. The previous comparable period for all amounts and for all narratives and descriptive
information when it is relevant to an understand
d. The previous two comparable period for all amounts reported.
4. When the classification of items in the financial statements is changed, the entity
a. Must not reclassify the comparative amounts
b. Can choose whether to reclassify the comparative
c. Must reclassify the comparative amounts unless it is impracticable to do so.
d. Must reclassify the current year amounts only.
5. An entity shall present
a. The statement of cash flows more prominently than the other statements
b. The statement of financial position more prominently than the other statements
c. The statement of comprehensive income more prominently than the other statements
d. Each financial statement with equal prominence.
Problem 1-5 Multiple choice (IAA)
1. What is the objective of financial reporting under the conceptual framework for financial
reporting?
a. To provide information about the financial position performance and cash flows of an
entity
b. To prepare and present a statement of financial position and a statement of
comprehensive income.
c. To provide financial information about an entity that is useful to existing and
potential investors, lenders and other creditors in making decisions about providing
resources to the entity
d. To prepare financial statement in accordance with all applicable standard and
interpretations.
2. The primary focus of financial reporting has been on meeting the needs of which of the
following?
a. Managers of an entity
b. Existing and potential investors, lenders and other creditors
c. National and local taxing authorities
d. Independent CPAs
3. Which of the following statements best describes the term “financial Position”?
a. The net income and expenses of an entity
b. The net of financial assets less liabilities of an entity
c. The potential to contribute to the flow of cash and cash equivalent to the entity.
d. The assets, liabilities and equity of any entity
4. Which of the following best describes the term “financial performance”?
a. The revenue, expenses and net income or loss for a period of an entity.
b. The assets, liabilities and equity of an entity
c. The total assets minus total liabilities
d. The total cash inflows minus total cash outflows
5. The overall objective of financial reporting is to provide information.
a. That is useful for decision making
b. About assets, liabilities and equity
c. About financial performance during a period
d. That allows owners to assess performance of management
6. Which is an objective of financial reporting?
a. To provide information that is useful in making investing and credit decisions.
b. To provide information that is useful to management
c. To provide information to those investing in the entity
d. To provide information about ways to solve internal and external conflict about the
entity
7. What is an objective of financial reporting?
a. To provide information that is useful to management
b. To provide information that clearly portrays nonfinancial transactions.
c. To provide information that is useful to assess the amounts, timing and uncertainly of
prospective cash receipts.
d. To provide information that excludes claims against the resources.
8. An objectives of financial reporting is to provide
a. Information about the investors in the entity
b. Information about the liquidations value of the resources of the entity
c. Information that is useful in assessing cash flow prospects
d. Information that will attract new investors.
9. The information provided by financial reporting the phrase “assessing cash flow prospects” is
interpreted to mean
a. Cash basis accounting is preferred over accrual basis accounting
b. Information about the financial effects of cash receipts and cash payments is generally
considered the best indicator of an entity’s present and continuing ability to generate
favorable cash flows.
c. Over the long run trends in revenue and expenses are generally more meaningful that
trends in cash receipts and disbursements.
d. All of the choices are correct regarding “assessing cash flow prospects”.
10. Which of the following statements in relation to financial reporting is incorrect?
a. General purpose financial reports to not and cannot provide all of the information that
primary users need.
b. General purpose financial reports are designed to show the value of the reporting
entity
c. General purpose financial reports are intended to provide common information to
users.
d. Financial reports are largely based on estimate and judgment rather than exact
depiction.
Problem 1-6 Multiple choice (AICPA Adapter)
1. The objective of financial reporting is based on
a. The need for conservatism
b. Reporting on management’s stewardship
c. Generally accepted accounting principles
d. The needs of the users of the information
2. During a period when an entity is under the direction of a particular management, financial
reporting will directly provide information about.
a. Both entity performance and management performance
b. Management performance but not entity performance
c. Entity performance but not management performance
d. Neither entity performance nor management performance
3. The information provided by financial reporting pertains to
a. Individual business entities rather than to industries or an economy as a whole or to
members of society as consumers.
b. Individual business entities and an economy as a whole or to members of society as
consumers.
c. Individual business entities and an economy as a whole, rather than to industries or to
members of society as consumers.
d. Individual business entities, industries and an economy as a whole, rather than to
members of society as consumers
4. Which of the following is not an objective of financial reporting?
a. Financial reporting shall provide information about resources, claims against those
resources and changes in them.
b. Financial reporting shall provide information useful in evaluating stewardship of
management.
c. Financial reporting shall provide information useful in investment, credit and similar
decision.
d. Financial reporting shall provide information useful in assessing cash flow prospects.
5. Which of the following is not an objective of financial reporting?
a. To provide information about assets and claims against those assets
b. To provide information that is useful in assessing sources and uses of cash
c. To provide information that is useful in lending and investing decisions
d. To provide information about the liquidation value of an entity
Problem 1-7 Multiple choice (IAA)
1. Which of the following would most likely prepare the most accurate financial forecast for an
entity based on empirical evidence?
a. Investors using statistical models to generate forecasts
b. Corporate management
c. Financial analysis
d. Independent certified public accountants
2. The most useful information to existing and potential investors, lenders and other creditors in
predicting future cash flows is
a. Information about current cash flows
b. Currents earning based on accrual accounting
c. Information regarding the accounting policies used by management
d. Information regarding the result obtained by using a wide variety of accounting policies
3. The accrual basis of accounting is most useful for
a. Determining the amount of income tax liability
b. Predicting short-term financial performance
c. Predicting long-term financial performance
d. Determining the amount of dividends to shareholders
4. The financial statements prepared under GAAP
a. Do not articulate with one another
b. Reflecting a single measurement basis which is historical cost.
c. Are not highly precise because estimate and judgment must be made.
d. Contain a limited number of future projection
5. In measuring financial performance, accrual accounting is used because
a. Cash flows are considered less important
b. It provides a better indication of ability to generate cash flows than cash basis.
c. It recognizes revenue when cash is received and expenses when cash is paid
d. It is of the implicit assumptions.
PROBLEMS
Problem 2-1 Multiple choice (IAA)
1. The components financial statements included all of the following except
a. Statement of financial position
b. Income statement
c. Statement of cash flows
d. Statement of retained earnings
2. The major financial statements include all. Except
a. Statement of financial position
b. Statement of change in financial position
c. Statement of comprehensive income
d. Statement of changes equity
3. Which of the following represents a form of communication through financial reporting but not
through financial statement?
a. Statement of financial position
b. President’s letter
c. Income statement
d. Notes to financial statement
4. The statement of financial position is useful for analyzing all of the following except
a. Liquidity
b. Solvency
c. Profitability
d. Financial flexibility
5. The amount of time that is expected to elapse until an asset is realized or otherwise converted
into cash is referred to as.
a. Solvency
b. Financial flexibility
c. Liquidity
d. Exchange ability
6. The statement of financial position provide a basis for all of the following except
a. Computing rate of return
b. Evaluating capital structure
c. Determining increase in cash due to operation
d. Assessing liquidity and financial flexibility
7. The information reported is the statement of financial position is useful for all of the following,
except
a. To compute rate of return
b. To analyze cash inflows and outflows for the period
c. To evaluate capital structure
d. To asses future cash flow
8. Which criticism is not normally aimed as the statement of financial position
a. Failure to reflect current value information
b. The extensive use of separate classification
c. An extensive use of estimate
d. Failure to include items of financial value
9. The statement of financial position
a. Omits many items that are financial value
b. Make very limited use of judgment and estimate
c. Use fair value for most assets and liabilities
d. All of the choices are correct regarding the statement of financial position
10. Which of the following is a limitation of the statement of financial position?
a. Many items that are of financial value are omitted
b. Judgment and estimate are used
c. Current fair value is not reported
d. All of these are considered limitation of the statement of financial position
Problem 2-2 multiple choice (PAS 1)
1. Current and noncurrent presentation of assets and liabilities provides useful information when
the entity
a. Supplies goods or service within a clearly identifiable operating cycle
b. Is a financial institution
c. Is a public utility
d. Is a nonprofit organization
2. A presentation of assets and liabilities in increasing or decreasing order of liquidity provides
information that is faithfully represent and more relevant for.
a. Financial institution
b. Public utility
c. Government-owned entity
d. Service provider
3. It is the time between acquisition of assets for processing and their realization in cash.
a. Operating cycle
b. Cash to receivable cycle
c. Business cycle
d. Cash to inventory cycle
4. When the normal operating cycle is not clearly identifiable, the duration assumed to be
a. Twelve months
b. Six months
c. Three months
d. Twenty four months
5. Which obligations are classified as current even if the obligation are due to be settled after more
than twelve months from the end of reporting.
a. Trade payable
b. Current portion of noncurrent financial liabilities
c. Bank overdraft
d. Dividends payable
6. An entity shall classify an asset as current under all of the following conditions, except
a. The entity expects to realize the asset or intends to sell or consume the asset within the
entity’s normal operating cycle.
b. The entity holds the asset for the purpose of trading.
c. The entity expects to realize the asset within twelve months after the reporting period.
d. The asset is cash or a cash equivalent that is restricted to settle a liability for more than
twelve months after the reporting period.
7. An entity shall classify an as liability as current under all of the following conditions, except
a. The entity expects to settle the liability within the entity’s normal operating cycle
b. The entity holds the liability primarily for the purpose of trading
c. The liability is due to be settled within twelve months after the reporting period
d. The entity has an unconditional right to defer settlement of the liability for at least
twelve months after reporting period.
8. In the Philippines the common practice is to present in the statement of financial position.
a. Current assets before noncurrent assets, current liabilities and equity after liabilities
b. Noncurrent assets before current assets, noncurrent liabilities before current liabilities
and equity after liabilities
c. Current assets before noncurrent assets, noncurrent liabilities before liabilities and
equity after liabilities.
d. Noncurrent assets before current assets, current liabilities before noncurrent liabilities
and equity after liabilities.
9. A financial liability that is due to be settled within twelve months after the end of reporting
period is classified as noncurrent when.
I.
An agreement to refinance or reschedule payment on a long-term basis is completed on
or before the end of reporting period and before the financial statement are authorized
for issue.
II.
The entity has the discretion to refinance or rollover the obligation for at least twelve
months after the end of reporting period under an existing loan facility.
a. I only
b. II only
c. Both I and ii
d. Neither I nor II
10. When an entity breaches an understanding under a long-term loan agreement on or before the
end of reporting period with the effect that the liability becomes payable on demand.
I.
II.
The liability is classified as current even if the lender has agreed after the end of
reporting period and before the issuance of the statements not to demand payment as
a consequence of the branch.
The liability is classified as noncurrent if the lender agreed on or before the end of
reporting period to provide a grace period for at least twelve months after the end of
reporting period within which to rectify the breach.
a. I only
b. II only
c. Either I or II
d. Neither I nor II
Problem 2-3 Multiple choice (PAS 37)
1. A contingent liability
a. Definitely exits as a liability but the amount and due date are indeterminable
b. Is accrued even though not reasonably estimated
c. Is the result of loss contingency
d. Is not recognized in the financial statements.
2. Which of the following statements is incorrect concerning contingent liability?
a. A contingent liability is not recognized in the financial statements.
b. A contingent liability is disclosed only.
c. If the contingent liability is remote, no disclosure is required.
d. A contingent liability is both probable and measureable
3. It is a possible asset that arises from past event and whose existence will be confirmed only by
the occurrence or nonoccurrence of one or more uncertain future events not wholly within the
control o the entity.
a. Contingent asset
b. Other asset
c. Suspense account
d. Current asset
4. Which of the following statements is incorrect concerning contingent asset?
a. A contingent asset is not recognized in the financial statements because this may result
to recognition of income that may never be realized.
b. When the realization of income is virtually certain the related assets is longer contingent
asset and its recognition is appropriate.
c. A contingent asset is only disclosed when the occurrence of the future event is possible
or remote.
d. The related gain arising from the contingent asset is recognized usually when it is
realized.
Problem 2-4 Multiple choice (IFRS)
1. In presenting of statement of financial position, an entity
a. Must make the current and noncurrent presentation
b. Must present assets and liabilities in the order of liquidity
c. Must choose either the current and noncurrent or the liquidity presentation, meaning
free choice of presentation
d. Must make the current and noncurrent presentation, except when a presentation based
on liquidity provides information that is reliable and more relevant.
2. Assets to be sold, consumed or realized as part of the normal operating cycle are
a. Current assets
b. Noncurrent assets
c. Classified as current or noncurrent in accordance with other criteria
d. Noncurrent investment
3. Liabilities that are expected to be settled within yhe normal operating cycle are classified as.
a. Noncurrent liabilities
b. Current or noncurrent liabilities in accordance with other criteria
c. Current liabilities
d. Equity
4. An entity must present each of the lines items required by PFRS
a. Even if the amount recognized for the line item is nil
b. Unless the amount recognized for the line item is material or relevant
c. Unless the line item is either immaterial or relevant
d. Under all circumstances
Problem 2-5 Multiple choice (IFRS)
1. 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 asset
b. Equity
c. Noncurrent liabilities
d. Noncurrent assets
2. Which one of the following is not required to be presented as minimum information on the face
of the statement of financial position?
a. Investment property
b. Investment accounted for under the equity method
c. Biological asset
d. Contingent liability
3. Which of the following must be included in the statement of financial position?
a. Contingent asset
b. Property, plant and equipment analyzed by class
c. Share capital and reserve analyzed by class
d. Deferred tax
4. Which of the following must be included on the face of the statement of financial position?
5.
6.
7.
8.
9.
a. Investment property
b. Number of shares authorized
c. Contingent liability
d. Shares in an entity owned by the entity
Which of the following statement is relation in the statement of financial position is true?
I.
Biological assets must be shown in the statement of financial position.
II.
The number of share authorized for issue may be shown in the statement of financial
position or the statement of changes in equity or in the notes.
a. I only
b. II only
c. Both I and II
d. Neither I nor II
Which of the following statements in relation to the line items shown in the statement of
financial position is true?
I.
Provision shall be recognized in the statement of financial position.
II.
Liabilities included in disposal group classified as held for sale shall be shown separately
on the face of the statement of financial position
a. only
b. II only
c. Both I and II
d. Neither I nor II
In which section of the statement of financial position should employment taxes due for
settlement in 15 months time be presented?
a. Current liabilities
b. Current assets
c. Noncurrent liabilities
d. Noncurrent assets
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
The short-term obligation of an entity at the end of reporting period include 90-day notes
payable renewable for another 90- day period. The notes payable shall be classified in the
statement of financial position as
a. Current liabilities
b. Deferred charges
c. Noncurrent liabilities
d. Intermediate debt
10. At the end of reporting period, an entity has a 120-day note payable outstanding, the entity has
followed the policy of replacing the note rather than repaying it over the last three years. The
entity’s treasurer says that this policy is expected to continue indefinitely and the arrangement
is acceptable to the bank to which the note was issued. The proper classification of the note in
the year-end statement of financial position is
a.
Dependent on the intention of management
b. Dependent on the actual to refinance
c. Current liability, unless specific refinancing are met
d. Noncurrent liability
Problem 2-6 Multiple choice (AICPA Adapter)
1. In analyzing statements, which financial statement would a potential investor primarily use to
assess liquidity and financial flexibility?
a. Statement of retained earnings
b. Income statement
c. Statement of changes in equity
d. Statement of financial position
2. Which of the following is an essential characteristic of an asset?
a. The claim to an asset’s benefit are legally enforceable
b. An asset is tangible
c. An asset is obtained at a cost
d. An asset provides future benefits
3. Working capital is
a. The group of assets which enables the entity to operate profitably
b. Total current assets
c. Total current assets minus total current liabilities
d. Capital invested in business
4. An example of an item which is not an element of working capital is.
a. Accrued interest on note receivable
b. Treasury share
c. Good in process
d. Temporary investment
5. Conceptually, asset valuation accounts are
a. Assets
b. Neither assets nor liabilities
c. Part of shareholders equity
d. Liabilities
6. The term ‘net assets’ represents
a. Retained earnings
b. Current assets loss current liabilities
c. Total paid in capital
d. Total assets loss total liabilities
7. When classifying assets as current and noncurrent for reporting purpose
a. The amount at which current assets are reported must effect realizable cash value
b. Prepayment are included in other assets rather than as current assets
c. The time period by which current assets are distinguished form noncurrent assets is
determined by the seasonal nature of the business
d. Assets are classified as current if these are reasonably expected to be realized in cash or
consumed during the normal operating cycle.
8. The operating cycle concept
a. Causes the distinction between current and noncurrent items to depend on whether
they will affects cash within one year
b. Permits some assets to be classified as current even though they are more than one
year removed from becoming cash.
c. Has become obsolete
d. Affects the income statement but not be the statement of financial position
9. The basis for classifying assets as current or noncurrent is a period of time normally elapsed
from the time the accounting entity expends cash to the time it converts
a. Inventory back into cash or 12 months, whichever is shorter
b. Receivable back into cash or 12 months, whichever is longer
c. Tangible fixed assets back into cash, or 12 months whichever is longer
d. Inventory back into cash or 12 months, whichever is longer
Problem 2-7 multiple choice (AICPA Adapted)
1. Which of the following should be classified as current asset?
a. Trade installment accounts receivable normally collectible in 18 months.
b. Cash designated for the redemption of callable preference share
c. Cash surrender value of a life insurance policy
d. A deposit on machinery ordered delivery of which will be made within six months
2. Which of the following should not be considered as a current asset?
a. Installment notes receivable due over 18 months in accordance with normal trade
practice
b. Prepaid taxes which cover assessments of the following operating cycle of the entity
c. Trading securities purchased by the temporary investment of cash available for current
operations.
d. The cash surrender value of a life insurance policy carried by an entity, the beneficiary
on the president
3. Current assets should never include
a. A receivable from customer not collectible within one year
b. Current tax asset
c. Goodwill arising in a business combination
d. Premium paid on a bond investment
4. An entity records all sales using the installment method of accounting. Installment sale contracts
call for 36 equal monthly cash payments. The amounts of deferred gross profit relating to
collections 12 months beyond the reporting period shall be reported in the.
a. Current liability section as a deferred revenue
b. Noncurrent liability section as a deferred
c. Current asset section as ac contra account
d. Noncurrent asset section as contra account
5. An entity uses the installment method to recognize revenue. Customers pay the installment
notes receivable in 24 equal monthly amounts which include 12% interest. What is the carrying
amount of the installment notes receivable six months after the sale?
a. 75% of the original sales price
b. Less than 75% of the original sales price
c. The present value of the remaining monthly payments discounted at 125
d. Less than the present value of the remaining monthly payments discounted at 12%
Problem 2-8 Multiple choice (IAA)
1. The essential characteristics of an asset include all, except
a. The asset is the result of past event.
b. The asset provides future economic benefit
c. The cost of the asset can be measured reliably
d. The asset is tangible
2. Which statement Is incorrect regarding assets?
a. An asset represent a probable future economic benefits
b. An asset is obtained or controlled as a result of probable future event
c. Asset reported in the statement of financial position include current and noncurrent
assets.
d. Assets include costs that have not yet been matched with revenue.
3. Equity investments held to finance future construction of additional plant should be classified as
a. Current assets
b. Property, plants and equipment
c. Intangible assets
d. Long-term investment
4. Which of the following is not a noncurrent investment?
a. Cash surrender value of life insurance
b. Franchise
c. Land held for speculation
d. A sinking fund
5. The term “deficit” refers to
a. An excess of current assets over current liabilities
b. An excess of current liabilities over current assets
c. A debit balance in retained earnings
6.
7.
8.
9.
10.
d. A loss that is reported as a prior period error
The correct order to present current assets to
a. Cash ,inventories prepaid items, accounts receivable
b. Cash, inventories, accounts receivable, prepaid items
c. Cash , accounts, receivable, prepaid items, inventories
d. Cash, accounts, receivable, inventories, prepaid items
Which should be classified as a noncurrent asset?
a. Plant expansion fund
b. Prepaid rent
c. Supplies
d. Goods in process
Which of the following items would normally be excluded from the computation of working
capital?
a. Advance from customer
b. The portion of long-term debt that matures within one year after the reporting period
c. Prepaid insurance
d. Cash surrender value of life insurance policy
Accrued revenue would normally appear in the statement of financial position under
a. Noncurrent assets
b. Current liabilities
c. Noncurrent liabilities
d. Current assets
An operating cycle
a. Is twelve months or less in length
b. Is the average time required for an entity to collect accounts receivable
c. Is used to determine current assets when the operating cycle is longer than one year
d. Start with inventory and ends with cash
Problem 2-9 multiple choice (IAA)
1. For a liability to exist
a. Three must be a past event
b. The exact amount must be known
c. The identity of the party to whom the liability is owned must be known
d. There must be an obligation to pay cash in the future
2. Which of the following best describes the term “liability”?
a. An excess of equity over current assets
b. Resources to meet financial commitments when due
c. The residual interest in the asset of the entity after deduction all of the liabilities
d. A present obligation arising from past even
3. Which item is not a current liability?
a. Unearned revenue
b. Stock dividends payable
c. The currently maturing portion of long term debt
d. Trade accounts payable
4. Noncurrent liabilities include
a. Obligation not expected to be liquidated within the operating cycle
b. Obligation payable at some date beyond the end of reporting cycle
c. Deferred tax liability
d. All of these are noncurrent liabilities
5. Which is not within 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 service in the future
c. A note payable with no specific maturity date
d. A present obligation that is estimated in amount
Problem 2-10 (ACP)
Indicate the proper classification or presentation of the items listed below. Use the following
classification:
A.
B.
C.
D.
E.
F.
Current assets
Noncurrent assets
Current liabilities
Noncurrent liabilities
Equity
Note to financial statement
Items
1.
2.
3.
4.
5.
6.
7.
Accrued interest on bonds payable
Accrued rental income
Accrued interest on note receivable
Advances to suppliers
Advances to affiliated entities
The entity is a defendant in a law suit for a certain amount. The loss is reasonably possible
Destruction of entire plant by earthquake after the end of reporting period but before issuance
of statements
8. Fully depreciated machinery still in use
9. Share capital
10. Retained earning unappropriated
Problem 2-11 (ACP)
Indicate the proper classification or presentation of the following items:
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Financial assets held for trading
Investment in associate
Estimated warranty liability
Sinking fund for the payment of bond payable due next year
Installment accounts receivable, average nrmal collection period 18 months
Leasehold improvement
Reserves
Share premium
Discount on bonds payable
Trademark
Problem 2-12 (ACP)
State the proper classification and presentation of the following items
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
Goodwill
Long-term refundable deposit
Premium on bonds payable due in 5 years
Building that is being construction for use as investment property
Franchise
Treasury shares
Deficit
Equipment classified as “held for sale”
Unearned rent revenue
Accumulated depreciation
Cash dividends payable
Revaluation surplus
Land held for future plant site
Small tools used in business
Correction f an error made last year when computing depreciation resulting to overstatement of
income last year
Allowance for doubtful accounts
Deferred tax asset
Deferred tax liability
Financial asset at fair value through other comprehensive
Accrued benefit cost
Patent
Income tax payable
Subscription revenue received in advance
Stock dividend payable
Cash surrender value of life insurance
Problem 2-13 (IAA)
Accounts payable
350,000
Accounts receivable
450,000
Property, plant and equipment
5,600,000
Accumulated depreciation
1,200,000
Mortgage payable, due in 5 years
1,500,000
Share capital, P100 par
4,000,000
Share premium
500,000
Cash and cash equivalent
800,000
Accrued expense
100,000
Inventories
900,000
Long-term investment
950,000
Note payable, long-term debt
500,000
Note payable, short-term debt
200,000
Office supplies unused
50,000
Patent
800,000
Prepaid rent
150,000
Retained earnings
1,350,000
Required
Prepare in good form a properly classified statement of financial position in accordance with Philippine
financial reporting standard.
Answer:
Assets
Accounts receivable
Property, plant and equipment
Accumulated depreciation
Cash and cash equivalent
Accrued expense
450,000
5,600,000
(1,200,000)
800,000
(100,000)
Inventories
900,000
Long-term investment
950,000
Office supplies unused
50,000
Patent
800,000
Prepaid rent
150,000
Total
8,400,000
Liabilities and Equity
Accounts payable
350,000
Mortgage payable, due in
5 years
1,500,000
Share capital, P100 par
4,000,000
Share premium
500,000
Note payable, long-term
debt
500,000
Note payable, short-term
debt
200,000
Retained earnings
1,350,000
Total
8,400,000
Problem 2-14 (IAA)
Simple company provided the following account balances on December 31, 20115
Share capital
5,000,000
Share premium
500,000
Retained earnings
880,000
Serial bonds payable (P50,000 due every july 1 of
each year)
Employees income tax payable
Notes payable
2,500,000
20,000
100,000
Accrued expense
30,000
Accrued interest on note payable
10,000
Income tax payable
60,000
Allowance for doubtful accounts
50,000
Advances from customers
100,000
Accounts receivable
500,000
Accumulated depreciation-building
1,600,000
Accumulated depreciation-machinery
1,300,000
Financial assets at amortized cost
1,500,000
Land
1,500,000
Machinery
2,000,000
Factory supplies
50,000
Notes receivable
150,000
Building
Cash
Claim receivable
4,000,000
420,000
20,000
Finished goods
400,000
Franchise
200,000
Goods in process
600,000
Prepaid insurance
20,000
Raw materials
200,000
Financial asset at fair value
250,000
Tools
40,000
Goodwill
100,000
Plant expansion fund
500,000
Accounts payable
300,000
Required:
Prepare a statement of financial position
Cash
Assets
420,000
Allowance for doubtful accounts
(50,000)
Claim receivable
20,000
Advances from customers
100,000
Finished goods
400,000
Accounts receivable
500,000
Franchise
200,000
Accumulated depreciation-building
(1,600,000)
Goods in process
600,000
Accumulated depreciation-machinery
(1,300,000)
Prepaid insurance
20,000
Financial assets at amortized cost
1,500,000
Raw materials
200,000
Land
1,500,000
Financial asset at fair value
250,000
Machinery
2,000,000
Tools
Factory supplies
50,000
Notes receivable
150,000
Building
4,000,000
Goodwill
Plant expansion fund
Total
40,000
(100,000)
500,000
9,400,000
Liabilities and Equity
Share capital
5,000,000
Share premium
500,000
Retained earnings
880,000
Serial bonds payable (P50,000 due every July 1 of
each year)
Employees income tax payable
Notes payable
2,500,000
20,000
100,000
Accrued expense
30,000
Accrued interest on note payable
10,000
Income tax payable
60,000
Accounts payable
Total
300,000
9,400,000
Problem 2-15 (IAA)
Account receivable
400,000
advances to officers-not currently collectible
100,000
Sinking fund
400,000
Building
5,000,000
Long-term refundable
50,000
Cash and cash equivalents
500,000
Cash surrender value
60,000
Equipment
1,000,000
Lease right
100,000
Accrued interest on notes receivable
10,000
Inventories
1,300,000
Land
1,500,000
Land held for speculation
500,000
Notes receivable
250,000
Computer software
3,250,000
Prepaid expenses
70,000
Financial assets held for trading
280,000
Unearned rent income
40,000
Retained earnings (deficit)
(1,800,000)
Share premium – preference
500,000
Premium on bonds payable
1,000,000
Preference share capital
2,000,000
Share premium – ordinary
200,000
Notes payable
300,000
SSS payable
10,000
Accounts payable
400,000
Accrued salaries
100,000
Accumulated depreciation – building
2,000,000
Accumulated depreciation – equipment
200,000
Allowance for doubtful accounts
20,000
Bonds payable
5,000,000
Dividends payable
120,000
Ordinary share capital
5,000,000
Withholding tax payable
30,000
Preference share redemption fund
350,000
Required:1547
Prepare a statement of financial position
Problem 2-16 (IAA)
Relax company provide the following information on December 31, 2015
Cash
400,000
Account receivable
800,000
Allowance for doubtful accounts
50,000
Inventories
1,000,000
Land
500,000
Building
5,000,000
Accumulated depreciation-building
2,000,000
Machinery
3,000,000
Accumulated depreciation-machinery
1,200,000
Equipment
400,000
Accumulated depreciation-equipment
100,000
Investment in associate
1,300,000
Prepaid expense
100,000
Note payable
750,000
Accounts payable
350,000
Income tax payable
50,000
Accrued expense
60,000
Mortgage note payable in quarterly installment of
P100,000
2,000,000
Estimated liability for damages
140,000
Retained earnings appropriated for plant
expansion
1,000,000
Retained earnings appropriated for contingencies
100,000
Share capital
3,000,000
Share premium
300,000
Retained earnings unappropriated
1,250,000
Trademark
150,000
Secret processes and formulas
200,000
Bank loan payable due June 30, 2017
500,000
Required:
Prepare a statement of financial position.
Problem 2-17 (IAA)
Dilemma Company provide the following information on December 31, 2015
Cash
800,000
Accounts receivable
750,000
Allowance for doubtful accounts
50,000
Prepaid expenses
160,000
Inventory
1,000,000
Financial assets at fair value
690,000
Land
500,000
Building in process
5,000,000
Patent
200,000
Machinery and equipment
1,500,000
Accumulated depreciation
300,000
Discount on bonds payable
200,000
Accounts payable
900,000
Accrued expenses
150,000
Note payable due July 1. 2017
250,000
Bonds payable
2,000,000
Share capital
3,000,000
Retained earnings
4,000,000
Retained appropriated for contingences
150,000



The financial assets at fair value include Dilemma Company shares acquired at cost of 250,000.
The bonds pay 10% interest semiannually on April 1 and October 1 and mature April 1, 2018. No
interest has been accrued on the bonds.
Forty thousand shares, P100 par, are authorized, of which 30,000 shares are issued including
2,000 shares in the treasury.

The retained earnings appropriated balance of P 150,000 was created in anticipation for the
result of a pending lawsuit. Shortly after the end of reporting period, the suit was amicably
settled and the entity paid P 100,000.
Required:
Prepare statement of financial position
Problem 2-18 (IAA)
Socorro company provided the following information on December 31, 2015
current assets
3,100,000.00
current liablities
1,000,000.00
other assets
5,900,000.00
long term liabilitiies
1,000,000.00
capital
7,000,000.00
cash (including P200,000 invested in money market and resticted foreign deposit of
P300,000)
1,000,000.00
land held for undetermined use
500,000.00
accounts receivable less allowance of P 50,000
700,000.00
Inventories
600,000.00
socorro Corporation share capital nat cost
300,000.00
Total current assets
3,100,000.00
store supplies
50,000.00
Building less allowance of P500.000
3,000,000.00
Equipment less allowance of P250,000
750,000.00
financial assets at amortized cost
1,000,000.00
Trademark
300,000.00
Advances to officers-indefinite repayment
150,000.00
patent
250,000.00
Land
400,000.00
Total other asets
5,900,000.00
Accounts payable
500,000.00
Note payable, due December 31, 2016
100,000.00
Income tax payable
150,000.00
Share premium
250,000.00
Total current liabilities
1,000,000.00
Unearned leasehold income (five years starting 2016)
350,000.00
stock dividends payable
150,000.00
Serial bonds payable (P100,000 maturing annually)
500,000.00
Total long-term liabilities
1,000,000.00
Retained earnings
1,500,000.00
Share capital, P100 par
5,000,000.00
Retained earnings appropriated for plant expansion
Total capital
500,000.00
7,000,000.00
Required:
Prepare statement of financial position with supporting notes and computations
Problem 2-19 (IAA)
Magna Company reported the following statements of financial position on December 31, 2015
Current assets
Investment
tangible assets
intangible assets
2,000,000.00
400,000.00
7,150,000.00
400,000.00
9,950,000.00
current liabilities
1,500,000.00
long term liabilities
2,000,000.00
Equity
6,450,000.00
9,950,000.00







Equity has preference share capital, no par value, P5 stated value, authorized 300,000 shares,
issued 150,000 shares for P1,000,000 and ordinary share capital, P20 par value, authorized
shares of P30 per share.
Tangible assets include: cash P5,000,000 less accumulated depreciation P1,600,000, equipment
P1,400,000 less accumulated depreciation P400,000, land P1,250,000, and land held for future
plant site P1,500,000.
The current assets include: cash P400,000, accounts receivable P750,000 less P50,000 for
allowance for doubtful accounts, inventories P800,000, and prepaid expenses P100,000
The investment include the cash surrender value of a life insurance contract P50,000,
investment in securities short-term, P100,000, and long-term, P250,000.
Intangible assets include a franchise P100,000, goodwill P200,000 and discount on bonds
payable.
Current liabilities include accounts payable P400,000, notes payable short-term debt P450,000,
and long-term P300,000 taxes payable P150,000, and appropriation contingencies P200,000.
Long-term liabilities comprised solely of 12% bonds payable due on December 31, 2018
Required:
Prepare in good form a properly classified statement of financial position with appropriate notes.
Problem 2-20 (IAA)
Summa Company provided the following account balances on December 31, 2015
Account payable
1,000,000
Accounts receivable net of allowance for doubtful
accounts P50,000
600,000
Accrued taxes
50,000
Accrued interest receivable
30,000
Authorized share capital 50,000 shares, P100 par
5,000,000
Building net of accumulated depreciation of
P2,500,000
3,000,000
Cash on hand
50,000
Cash in bank
650,000
Bond sinking fund
2,000,000
Furniture and equipment net of accumulated
depreciation of P900,000
1,500,000
Inventory
1,200,000
Investment property
700,000
Land
1,000,000
Deferred tax liability
650,000
Bonds payable due June 30, 2016
2,000,000
Notes payable
850,000
Notes receivable
200,000
Patent
370,000
Other accrued liabilities
150,000
Prepaid expenses
100,000
Share premium
300,000
Retained earning appropriated for contingencies
200,000
Retained earnings
2,700,000
Share subscription receivable
500,000
Subscribed share capital 2,000 shares
1,000,000
Unissued share capital
2,000,000
Required:
Prepare a statement of financial position with appropriate notes.
Problem 2-21 (AICPA Adapter)
Boracay Company prepared the following condensed statement of financial position on December 31,
2015.
current assets
4,000,000.00
current laiabilities
1,500,000.00
working capital
2,500,000.00
add other assets
1,800,000.00
working capital plus other assets
4,300,000.00
deduct other liabilities
100,000.00
net assets
4,200,000.00
money market placement - three months
500,000.00
cash in bank
700,000.00
accounts receivable
800,000.00
notes receivable
200,000.00
financial assets at fair value
400,000.00
Inventories
1,300,000.00
Goodwill
100,000.00
Total current assets
4,000,000.00
The inventory account was found to include the cost of office supplies of P50,000 and office equipment
acquired at the of 2015 at a cost of P250,000. Other assets included land and building acquired on
January 1, 2014 for P4,000,000, less mortgage of P2,000,000 and accrued interest on the mortgage of
bP200,000. At the time of purchase, the land was worth P1,000,000. The building on December 31, 2015
has a remaining life of 18 years.
Current liabilities represented balances that were payable to trade creditors. Other liabilities consisted
of withholding tax payable. However, no recognition was given to accrued salaries of P250,000.
The entity was originally organized in 2014 when 30,000 ordinary shares with par value of P100 were
issued in exchange for assets with fair value of P3,200,000
Required:
Prepare a statement of financial position
Problem 2-22 (IAA)
Dakak Company provided the following statement of financial position on December 31, 2015
Current asset 2,700,000
Other asset s 6,600,000
9,300,000
*
*
*
current liabilities 2,500,000
other liabilities 2,000,000
Equity
4,800,000
9,300,000
Analysis of current assets disclose the following
Cash and cash equivalent
500,000
Financial assets held for trading
600,000
Accounts receivable
750,000
Inventories
850,000
2,700,000
Other asset
Property, plant and equipment cost P6,000,000
4,000,000
Advances to subsidiary
2,250,000
Goodwill recorded on the book to cancel losses
Incurred by the entity in prior years
350,000
6,600,000
current liabilities include
accrued expenses
100,000
customers deposit
advances from officer (not payable currently)
accounts payable
note payable bank due December 31, 2017
*
400,000
200,000
1,000,000
800,000
2,500,000
other liabilities include
Bonds payable in annual installment of P500,000
200,000
Share capital, 50,000 shares, P100 par was originally issued end credited for a total
consideration of P5,500,000 but the losses of the entity for past years were charged against the
share capital balance.
Required:
Prepare a properly classified statement of financial position.
Problem 2-23 (AICPA Adapter)
Violago Company provided the following account balances at year-end. .
Account receivable
1,600,000
Financial assets at fair value through profit or loss
500,000
Financial assets at amortized cost
1,300,000
Cash
1,100,000
Inventory
3,000,000
Equipment and furniture
2,500,000
Accumulated depreciation
1,500,000
Patent
400,000
Prepaid expenses
100,000
Equipment held for sale
1,800,000
What total amount should be reported as current assets at year-end?
a. 8,100,000
b. 6,300,000
c. 8,000,000
d. 7,600,000
Answer:
Accounts receivable
Financial assets at fair value through profit or loss
Cash
Inventory
Prepaid expenses
Equipment held for sale
1,600,000
500,000
1,100,000
3,000,000
100,000
1,800,000
8.100,000
Problem 2-24 (AICPA Adapter)
at year-end, the current assets of Hazel Company revealed cash and cash equivalents of P700,000,
accounts receivable of P1,200,000 and inventories of P600,000. The examination of accounts receivable
disclosed the following:
Trade accounts
Allowance for doubtful accounts
Claim against shipper for goods lost in transit
Selling price of unsold goods sent by hazel
On consignment at 130% of cost and not
Included in ending inventory
930,000
(20,000)
30,000
260,000
1,200,000
What total amount should be reported as current assets at year-end?
a. 2,412,000
b. 2,440,000
c. 2,240,000
d. 2,500,000
Answer:
Cash and cash equivalent
Accounts receivable (1,200,000-260,000)
Inventories (600,000+200,000)
700,000
940,000
800,000
2,440,000
Problem 2-25 (IAA)
Gracia Company reported the following current assets at year-end:
Cash including fund of P500,000 with trustee
Accounts receivable
Inventory, including P200,000 cost of goods in transit
Purchased FOB point of destination
1,500,000
2,500,000
2,000,000
Advances to officers collectible currently
Dividends receivable
100,000
100,000
Total current assets
6,500,000
What total amount should be reported as current assets?
a.
b.
c.
d.
5,400,000
5,300,000
5,800,000
5,900,000
Answer
cash (1,500,000-500,000)
accounts receivable
inventories (2,000,000-200,000)
1,000,000
2,500,000
1,800,000
5,300,000
Problem 2-26 (IAA)
Jewel Company reported the following current assets at year-end.
Cash and cash equivalents
Accounts receivable
Allowance for doubtful accounts
Inventory
Deferred charges
Employees account – current
Advances to subsidiary
Claim against shipper for goods lost in transit
3,200,000
1,420,000
120,000
2,800,000
200,000
240,000
260,000
200,000
Total current assets
200,000
What total amount should be reported as current assets?
a.
b.
c.
d.
7,740,000
7,780,000
7,940,000
8,200,000
Answer
Cash
Accounts receivable
Allowance for doubtful accounts
Employees’ accounts – currents
Claim against shipper for goods lost in transit
3,200,000
1,420,000
120,000
240,000
200,000
7,740,000
Problem 2-27 (PHILCPA Adapter)
Caticlan Company provided the following data on December 31, 2015
Cash including sinking fund of P500,000 for bond
Payable due on June 30, 2016
Notes receivable
Note receivable discounted
Accounts receivable-unassigned
Accounts receivable-assigned
Equity of assignee in accounts receivable assigned
Inventory, including P600,000 cost of goods in transit
Purchased FOB destination the goods were
Received on January 3, 2015
Allowance for doubtful accounts
2,000,000
1,200,000
700,000
3,000,000
800,000
500,000
2,800,000
100,000
What total amount of current assets should be reported on December 31, 2015.
a. 7,900,000
b. 8,400,000
c. 7,400,000
d. 7,700,000
Answer:
Cash
Note receivable
Note receivable discounted
Accounts receivable – unassigned
Accounts receivable – assigned
Inventory (2,800,000-600,000)
Allowance for doubtful
2,000,000
1,200,000
(700,000)
3,000,000
800,000
2,200,000
(100,000)
8,400,000
Problem 2-28 (IFRS)
Daria Company reported the following accounts at year-end
Inventory, including inventory expected in the
Ordinary course of operation to be sold
Beyond 12 months amounting to P700,000.
Trade receivable
Prepaid insurance
Financial assets held for trading
Financial assets at fair value through other
1,000,000
1,200,000
100,000
200,000
Comprehensive income
Cash
Deferred tax asset
Bank overdraft
800,000
800,000
300,000
250,000
What total amount should be reported as current assets at year-end?
a.
b.
c.
d.
2,800,000
2,550,000
3,600,000
2,100,000
Answer
Inventory
Trade receivable
Prepaid insurance
Financial assets held for trading
cash
1,000,000
1,200,000
100,000
200,000
300,000
2,800,000
Problem 2-29 (AICPA Adapter)
Mill Company reported the following account balances on December 31, 2015
Accounts payable
Bonds payable, due 2016
Discount on bonds payable
Dividend payable
Note payable, due 2017
1,500,000
2,500,000
300,000
800,000
2,000,000
What total amount should be reported as current liabilities?
a.
b.
c.
d.
4,500,000
5,100,000
6,500,000
7,800,000
Answer:
Accounts payable
Bonds payable
Discount on bonds payable
Dividends payable
1,500,000
2,500,000
(300,000)
800,000
4,500,000
Problem 2-30 (AICPA Adapter)
Gar Company reported the following account balances on December 31, 2015:
Accounts payable
Bonds payable
Premium on bonds payable
Deferred tax liability
Dividend payable
Income tax payable
Note payable, due January 31, 2016
1,900,000
3,400,000
200,000
100,000
500,000
900,000
600,000
The deferred tax liability is based on temporary differences that reverse in 2017. On December 31, 2015,
what total amount should be reported as current liabilities?
a.
b.
c.
d.
7,100,000
4,300,000
3,900,000
4,100,000
Answer:
Accounts payable
Dividends payable
Income tax payable
Note payable
1,900,000
500,000
900,000
600,000
3,900,000
Problem 2-31 (PHILCPA Adapter)
Burna Company disclosed the following liabilities:
Accounts payable, after deducting debit balances
In suppliers’ accounts amounting to P100,000.
Accrued expense
Credit balances of customers accounts
Stock dividend payable
Claims for increase in wages and allowances by
Employees, covered in a pending lawsuit
Estimated expense in redeeming prize coupons
What total amount should be reported as current liabilities?
a.
b.
c.
d.
6,700,000
6,600,000
7,100,000
7,700,000
Answer:
Accounts payable (100,000+4,000,000)
Accrued expenses
Credit balances of customers’ accounts
Estimated expenses in redeeming prize coupon
4,100,000
1,500,000
500,000
600,000
6,700,000
Problem 2-32 (PHILCPA Adapter)
Gumamela Company provided the following data at year-end:
4,000,000
1,500,000
500,000
1,000,000
400,000
600,000
Trade accounts payable, including cost of goods
Received on consignment of P150,000.
Accrued taxes payable
Customers’ deposit
Manila company as guarantor
Bank overdraft
Accrued electric and power bills
Reserve for contingencies
1,350,000
125,000
100,000
200,000
55,000
60,000
150,000
What total amount should be reported as current liabilities?
a.
b.
c.
d.
1,840,000
1,740,000
1,650,000
1,540,000
Answer:
Trade accounts payable (150,000-1,350,000)
Accrued taxes payable
Customers’ Deposit
Bank overdraft
Accrued electric and power bills
1,200,000
125,000
100,000
55,000
60,000
1,540,000
Problem 2-33 (AICPA Adapter)
Mazda Company reported the following liability balances on December 31, 2015
10% note payable issued on October 1, 2014 maturing
October 1, 2016
12% note payable issued on March 1, 2014 maturing on
March 1, 2016
2,000,000
1,000,000
The 2015 financial statement were issued on March 31, 2016. The entity has the discretion to refinance
the 10% note payable for least twelve months after December 31, 2015 the 12% note payable was
refinanced on a long-term basis. What amount of the notes payable should be classified as noncurrent
on December 31, 2015?
a.
b.
c.
d.
6,000,000
4,000,000
2,000,000
0
Problem 2-34 (AICPA Adapter)
Willem Company reported the following liabilities on December 31, 2015:
Accounts payable
Short-term borrowings
Mortgage payable, current potion P600,000
Other bank loan, due june 30, 2016
750,000
450,000
3,500,000
1,000,000
The P1,000,000 bank loan was refinanced with a 5 year loan on January 15, 2016, with principal
payment due January 15, 2017. The financial statements were issued February 28,2016. What total
amount should be reported as current liabilities on December 31, 2015?
a.
b.
c.
d.
1,150,000
2,250,000
1,250,000
850,000
Problem 2-35 (IAA)
On December 31, 2015. Ace Company had P40,000,000 note payable due March 1, 2016. On December
31, 2015 the entity arranged a line of credit with the bank which allowed the entity to borrow up to
P35,000,000 at 1% above the prime rate for three years. On February 1, 2016, the entity borrowed
P25,000,000 from the bank and used P5,000,000 additional cash to liquidate P30,000,000 note payable.
The financial statement were issued on March 31, 2016. What amount of the note payable should be
reported as current liability on December 31, 2015?
a.
b.
c.
d.
40,000,000
10,000,000
5,000,000
0
Problem 2-36 (IAA)
Jam Company had P2,000,000 note payable due on march 1, 2016. The entity borrowed P1,500,000 on
December 31, 2015 which has a five-year term and used the proceeds to pay down the note payable and
used other cash to pay the balance at maturity. The financial statements were issued on March 31,
2016. What amount of the note payable should be classified as current on December 31, 2015?
a.
b.
c.
d.
2,000,000
1,500,000
500,000
0
Problem 2-37 (IAA)
Cara Company provided the following information for the current year
Current assets
Property, plant and equipment
Current liabilities
Noncurrent liabilities
January 1
December 31
240,000
1,600,000
?
580,000
?
1,700,000
130,000
?
Working Capital of P92,000 remained unchanged from beginning to the end of current year. Net income
for the current year was P61,000 No dividends were declared during the current year and there were no
other changes in owners’ equity. What is the amount of noncurrent liabilities on December 31?
a.
b.
c.
d.
310,000
432,000
580,000
616,000
Answer:
Problem 2-38 (AICPA Adapter)
When preparing a draft of year-end statement of financial position. Mont Company reported net assets
totaling P8,750,000. Included in the asset were the following:
Treasury shares of Mont Company at cost which
Approximate- market value
Idle machinery
Cash surrender value of life insurance
Allowance for inventory writedown
What amount should be reported as net assets?
a.
b.
c.
d.
8,500,000
9,000,000
8,450,000
8,350,000
Answer:
Net assets
Treasury share
8,750,000
250,000
8,500,000
Problem 2-39 (AICPA Adapter)
250,000
100,000
150,000
50,000
Magnolia Company reported the following unadjusted current assets and shareholders’ equity at yearend
Cash
Investment in trading equity securities (including
750,000 cost of magnolia Company shares)
Trade accounts receivable
Inventories
Total shareholders’ equity
150,000
1,000,000
850,000
370,000
2,370,000
The investment and inventories are reported at cost which approximated market value. what amount
should be reported as total shareholders’ equity at year-end?
a.
b.
c.
d.
5,000,000
6,000,000
5,250,000
6,750,000
Answer
Share capital
Retained earnings
5,000,000
1,000,000
(750,000)
5,250,000
Problem 2-40 (PHILCPA Adapter)
Peach Company prepared a draft of the year-end statement o financial position. The draft statement
reported total assets of P4,375,000 which include the following:
Treasury share of Peach Company at cost, which
Approximate market value
Unamortized patent
Deferred charges
Cumulative translation loss
What amount should be reported as total assets?
a.
b.
c.
d.
4,208,500
4,213,000
4,250,000
4,225,000
Answer:
Assets
Treasury share
4,375,000
(120,000)
120,000
56,000
68,000
42,000
Cumulative translation loss
(42,000)
4,213,000
Problem 2-41 (AICPA Adapter)
Gold Company provided the following trial balance on June 30, 2015
Cash overdraft
Account receivable
Inventory
Prepaid expenses
Land classified as held for sale
Property, plant and equipment net
Accounts payable and accrued expenses
Share capital
Share premium
Retained earnings
100,000
350,000
580,000
120,000
1,000,000
950,000
3,000,000
320,000
250,000
1,500,000
830,000
3,000,000
Checks amounting to P300,000 were written to vendors and recorded on June 29, 2015 resulting in a
cash overdraft of P100,000. The checks were mailed on July 9, 2015. Land classified as held for sale was
sold for cash on July 15, 2015. The entity issued the financial statements on July 31, 2015.
1. What total amount should be reported as current assets?
a. 2,250,000
b. 2,050,000
c. 1,950,000
d. 1,250,000
2. What total amount should be reported as shareholders equity?
a. 2,580,000
b. 1,750,000
c. 1,330,000
d. 2,900,000
Problem 2-42 (AICPA Adapter)
Trey Company provided the following trial balance on December 31, 2015 which had been adjusted
except for income tax expense:
Cash
Accounts receivable net
Prepaid taxes
Inventory
Property, plant and equipment
Accounts payable
Share capital
Retained earnings
Foreign currency translation adjustment
Revenue
Expenses
5,000,000
8,000,000
1,500,000
6,000,000
17,000,000
10,000,000
20,000,000
5,000,000
2,500,000
15,000,000
10,000,000
50,000,000
50,000,000
During 2015, estimated tax payment of P1,500,000 were charged to prepaid taxes. The entity has not
yet recorded income tax expense. The tax rate is 30%. The accounts receivable included P3,000,000 due
form a customer. Special terms granted to this customer require payment in equal semiannual
installment ofnP500,000 every April 1 and October 1.
1. On December 31, 2015, what total amount should be reported as current assets?
a. 21,000,000
b. 18,500,000
c. 17,000,000
d. 19,500,000
2. On December 31, 2015, what amount should be reported as total retained earnings?
a. 10,000,000
b. 8,500,000
c. 5,750,000
d. 6,000,000
Problem 2-43 (PHILCPA Adapter)
Kabugao Company provided the following data on December 31, 2015
Cash in bank net of bank overdraft of P500,000.
Petty cash (unreplenished petty cash expenses P10,000)
Notes receivable
Accounts receivable net of accounts with credit balances
Of P150,000
Inventory
Bond sinking fund
Total current assets
Accounts payable net of accounts with debit balances of
P1,000,000
Notes payable
Bonds payable due June 30, 2016
Accrued expenses
Total current liabilities
5,000,000
50,000
4,000,000
6,000,000
3,000,000
3,000,000
21,050,000
7,000,000
1,000,000
3,000,000
2,000,000
16,000,000
1. What total amount should be reported as current assets on December 31, 2015?
a.
b.
c.
d.
19,040,000
20,040,000
23,540,000
24,040,000
2. What total amount should be reported as current liabilities on December 31, 2015
a.
b.
c.
d.
19,000,000
16,000,000
15,500,000
15,000,000
Problem 2-44 (AICPA Adapter)
Mint Company provided the following account balances on December 31, 2015, which had been
adjusted except for income tax expense
Cash
Accounts receivable net
Cost in excess of billing on long-term contracts
Billing in excess of cost on long-term contracts
Prepaid taxes
Property, plants and equipment, net
Note payable- noncurrent
600,000
3,500,000
1,600,000
700.000
450,000
1,510,000
1,620,000
Share capital
Share premium
Retained earnings unappropriated
Retained earnings restricted for note payable
Earnings from long-term contracts
Cost and expenses
750,000
2,030,000
900,000
160,000
6,680,000
5,180,000
All receivable on long-term contarcts are considered to be collectible within 12 months. During the year,
estimated tax payment of P450,000 were charged to prepaid tyaxes. The entity has not recorded income
tax expense. The tax rate is 30%.
On December 31, 2015, what amount should be reported as.
1. Total retained earnings?
a. 1,950,000
b. 2,110,000
c. 2,400,000
d. 2,560,000
2. Total noncurrent liabilities?
a. 1,620,000
b. 1,780,000
c. 2,320,000
d. 2,480,000
3. Total current assets
a. 5,000,000
b. 4,100,000
c. 5,700,000
d. 6,150,000
Problem 2-45 (AICPA Adapted)
Shaw Company provided the following trial balance on December 31, 2015 which had been adjusted
except for income tax expense.
Cash
Accounts receivable
Inventory
Property, plant and equipment
Accounts payable and accrued liabilities
Income tax payable
Deferred tax liability
Share capital
Share Premium
Retained earnings, January 1
Net sales and other revenue
675,000
2,695,000
2,185,000
10,245,00
1,800,000
1,500,000
750,000
2,500,000
3,000,000
3,350,000
15,000,000
Costs and expenses
Income tax expense
10,000,000
21,000,000
27,900,00
27,900,00
The accounts receivable included ₱1,000,000 due from a customer and payable in quarterly installments
of ₱125,000. The last payment is due December 30, 2017. During the year, estimated tax payment of
₱600,000 was charged to income tax expense. The income tax rate is 30%.
On December 31, 2015, what amount should be reported as:
1. Total current assets?
a) 6,030,000
b) 5,555,000
c) 5,530,000
d) 5,055,000
2. Total current liabilities?
a) 2,700,000
b) 3,300,000
c) 4,050,000
d) 3,450,000
3. Retained earnings?
a) 8,350,000
b) 7,750,000
c) 6,850,000
d) 6,250,000
Problem 2-46 (PHILCPA Adapted)
Camarines Company provided the following data on December 31, 2015:
Cash
Accounts receivable
Merchandise Inventory
Prepaid expenses
Trade accounts payable, net of debit balance of ₱50,000
Interest payable
Income tax payable
Money claims of the union, pending final decision
Mortgage payable, due in four annual installments
2,000,000
3,000,000
1,900,000
100,000
2,450,000
150,000
300,000
500,000
2,000,000
A review showed that the cash of ₱2,000,000 included cash in bank of ₱1,650,000, a customer's check of
₱100,000 marked NSF, an employee IOU of ₱50,000 and ₱200,000 deposited with the court for a case
under litigation.
The cash in bank of ₱1,650,000 is the balance per bank statement. On December 31, 2015, outstanding
checks amounted to ₱250,000.
The accounts receivable included the following:
Customer's debit balance
Advances to subsidiary
Advance to suppliers
Receivables from officers
Allowance for doubtful accounts
Selling price of merchandise invoiced at 120% of
cost, undelivered and excluded from inventory
1,600,000
400,000
200,000
300,00
(100,000)
600,000
1. What amount should be reported as total current assets?
a)
b)
c)
d)
6,050,000
6,350,000
5,550,000
6,100,000
2. What amount should be reported as total current liabilities?
a)
b)
c)
d)
3,450,000
3,400,000
3,950,000
3,700,000
Problem 2-47 (IAA)
Petite Company provided the following data on December 31, 2015:
Cash
Financial assets at fair value through profit or loss
(including long-term investment of ₱500,000 in
ordinary shares of Ayala Company)
Inventories (including goods received on
consignment of ₱200,000)
Prepaid expenses (including a deposit of ₱50,000
made in inventories to be delivered in 18 months)
Property, plant and equipment (excluding
₱300,000 of equipment still in use but fully
depreciated)
5,000,000
2,000,000
800,000
150,000
10,000,000
Goodwill
Total assets
1,000,000
18,950,000
Analysis of the cash account showed the following:
Cash in general checking account
Sinking fund set aside to retire bonds in 2017
Cash held to play value added taxes
3,500,000
1,000,000
500,000
5,000,000
What total amount of current assets should be reported on December 31, 2015?
a.
b.
c.
d.
6,250,000
6,200,000
7,200,000
7,250,000
Problem 2-48 (AICPA Adapted)
On December 31, 2015, Ivan Company showed the following current assets:
Cash
Accounts receivable
Inventory
Deferred tax asset
Prepaid expenses
Total current assets
Cash on hand including customer’s postdated
check of ₱20,000 and employee IOU of ₱10,000
Cash in bank per bank statement (outstanding
checks on December 31, 2015, ₱70,000)
Total cash
Customers’ debit balance, net of customers’
deposit of ₱50,000
Allowance for doubtful accounts
Sales price of goods invoiced to customers at 150%
of cost on December 29, 2015 but delivered on
January 5, 2016 and excluded from reported
inventory
Subscription receivable collectible currently
Total accounts receivables
500,000
3,500,000
2,000,000
400,000
100,000
6,500,000
130,000
370,000
500,000
1,900,000
(150,000)
750,000
1,000,000
3,500,000
What total amount should be reported as current assets on December 31, 2015?
a.
b.
c.
d.
6,230,000
5,830,000
5,900,000
5,800,000
Problem 2-49 (PHILCPA Adapted)
Daet Company provided the following account balances and related information on December 31, 2015:
Cash and cash equivalents
Accounts receivable
Allowance for doubtful accounts
Inventory
Prepaid insurance
3,700,000
1,500,000
(200,000)
2,000,000
300,000
7,300,000
 The cash and cash equivalents included the following:
Cash in bank . net of bank overdraft of ₱300,000
maintained in a separate bank
Cash set aside by the Board of Directors for the
purchase of a plant site
Petty cash
Cash withheld from wages for income tax of
employees
General cash
1,000,000
2,000,000
10,000
190,000
500,000
3,700,000
 The accounts receivable included past due account in the amount of ₱100,000 on which a loss of
50% is anticipated. The account should be written off.
 The merchandise inventory included goods held on consignment amounting to ₱150,000 and
goods of ₱200,000 purchased and received on December 31, 2015. Neither of these items had
been recorded as a purchase.
 The prepaid insurance included cash surrender value of life insurance of ₱50,000.
What total amount should be reported as current assets on December 31, 2015?
a.
b.
c.
d.
5,400,000
5,100,000
5,300,000
5,200,000
Problem 2-50 (AICPA Adapted)
Charice Company provided the following information on December 31, 2015:
 Accounts payable for goods and services purchased on open account amounted to ₱500,000
and accrued expenses totaled ₱300,000 on December 31, 2015.
 On December 15, 2015, the entity declared a cash dividend of ₱7 per share, payable on January
15, 2016, to shareholders of record on December 31, 2015. The entity had 100,000 shares
issued and outstanding throughout 2015.
 On July 1, 2015, the entity issued ₱5,000,000, 8% bonds for ₱4,400,000 to yield 10%. The bonds
mature on June 30, 2020, and pay interest annually every June 30.
On December 31, 2015, the bonds were trading in the open market at 86 to yield 12%. The
entity used the effective interest method to amortize bond discount.
 The pretax financial income was ₱8,500,000 and taxable income was ₱6,000,000. The difference
is due to ₱1,000,000 permanent difference and ₱1,500,000 of taxable temporary difference
which is expected to reverse in 2016.
 The entity is subject to income tax rate of 30% and made estimated income tax payments during
the year of ₱1,000,000.
What total amount should be reported as current liabilities on December 31, 2015?
a.
b.
c.
d.
3,500,000
2,700,000
2,300,000
2,500,000
Problem 2-51 (IAA)
Kumaykay Company provided the following schedule of liabilities on December 31, 2015:
Accounts payable
Bank note payable – 10%
Bank note payable – 11%
Interest payable
Mortgage note payable – 10%
Bonds payable
6,500,000
3,000,000
5,000,000
150,000
2,000,000
4,000,000
 The ₱3,000,000. 10% note was issued March 1, 2015 payable on demand. Interest is payable
every six months.
 The one-year ₱5,000,000. 11% note was issued January 15, 2015. On December 31, 2015 the
entity negotiated a written agreement with the bank to replace the note with a 2-year,
₱5,000,000. 10% note to be issued January 15, 2016.
 The 10% mortgage note was issued October 1, 2013, with a term of 10 years. Terms of the note
gave the holder the right to demand immediate payment if the entity fails to make a monthly
interest payment within 10 days from the date the payment is due.
On December 31, 2015 the entity is three-months behind in paying the required interest
payment.
 The bonds payable are ten-year, 8% bonds issued June 30, 2006. Interest is payable semiannually on June 30 and December 31.
What total amount should be reported as current liabilities on December 31, 2015?
a.
b.
c.
d.
15,650,000
11,650,000
20,650,000
13,650,000
PROBLEMS
Problem 3-1 Multiple Choice (PAS 1)
1. Which of the following is not a purpose of notes to financial statements?
a. To present information about the basis of preparation of the financial statements and
the specific accounting policies used.
b. To disclose the information required by Philippine Financial Reporting Standards that is
not presented elsewhere in the financial statements.
c. To provide additional information which is not presented in the financial statements but
that is necessary for a fair presentation.
d. To provide information about the financial position, financial performance and cash
flows of an entity that is useful to a wide range of users in making economic decisions.
2. What is the proper order of presenting the notes to financial statements?
I.
Statements of compliance with PFRS
II.
Other disclosures, such as contingent liabilities, unrecognized contractual commitments
and other nonfinancial disclosures.
III.
Supporting information for items presented on the face of the financial statements.
IV.
Summary of significant accounting policies.
a. I,II,III and IV
b. I.IV,III and II
c. I.III,IV and II
d. I.IV,II and III
3. Which of the following statements is true concerning compliance with PFRS?
I.
An entity whose financial statements comply which Philippine Financial Reporting
Standards shall make an explicit and unreserved statement of such compliance in the
notes.
II.
An entity shall not describe financial statements as complying with PFRS unless they
comply with all the requirements of each applicable Philippine Financial Reporting
Standard.
a. I only
b. II only
c. Both I and II
d. Neither I nor II
4. An entity is required to disclose certain nonfinancial information. Which of the following is not
embraced in this disclosure?
a. A description of the nature of the entity’s operations and the principal activities
b. The name of the parent entity and the ultimate parent of the group
c. Domicile and legal form of the entity, the country of incorporation and address of the
registered office.
d. Names and addresses of the corporate directors and officers.
5. Notes to financial statements should not be to used to
a. Describe significant accounting policies.
b. Describe depreciation method employed.
c. Describe the principles and methods peculiar to the industry which entity operates.
d. Correct an improper presentation in the financial statements.
Problems 3-2 Multiple Choice (IFRS)
1. The cross-reference between each line item in the financial statements and any related
information disclosed in the notes to financial statements
a. Is voluntary
b. Is mandatory
c. Depends on the industry
d. Is either voluntary or mandatory
2. The presentation of the notes to financial statements in a systematic manner
a.
b.
c.
d.
Is Voluntary
Is mandatory
Is mandatory, as far as practicable
Depends on the industry
3. An entity shall disclose in the summary of significant accounting policies
a. The measurement basis used.
b. All the measurement bases specified in IFRS.
c. The measurement basis and the accounting policies used in preparing the financial
statements.
d. All of the measurements bases and the accounting policy choices specified in IFRS.
4. Disclosure of information about key sources of estimation uncertainty
a. Is voluntary
b. Is mandatory
c. Is either voluntary or mandatory
d. Depends on the industry
5. Disclosure of information about judgements
a. Is voluntary
b. Is mandatory
c. Is either voluntary or mandatory
d. Depends on the industry
Problems 3-3 Multiple choice (IAA)
1. Which of the following statements in incorrect regarding notes to financial statements?
a. IFRS requires specific note disclosures including disaggregation of inventories into
classification such as merchandise, production supplies, work in process and finished goods.
b. IFRS requires a maturity analysis for receivables.
c. IFRS requires that all notes should be clear, simple to understand and nontechnical in
nature.
d. All of the choices are correct regarding notes to financial statements.
2. Notes to financial statements
a. Must be quantifiable.
b. Must qualify as an element.
c. Amplify or explain items presented in the financial statements.
d. All of the choices are correct regarding notes to financial statements.
3. Which of the following is not a method of disclosing pertinent information?
a. Supporting schedule
b. Parenthetical explanation
c. Cross reference and contra item
d. All of these are methods of disclosing pertinent information
4. The disclosure of accounting policies is important to financial statement readers in determining
a. Net income for the year.
b. Whether accounting policies are consistently applied from year to year.
c. The value of obsolete goods included in ending inventory.
d. Whether the working capital position in adequate for future operations.
5. Accounting policies disclosed in the notes to financial statements typically include all of the
following except
a. The cost flow assumption
b. The depreciation method
c. Significant estimates
d. Significant inventory purchasing policies
6. Significant accounting policies may not be
a. Selected on the basis of judgement.
b. Selected from existing acceptable alternatives.
c. Unusual or innovative in application.
d. Omitted from financial statement disclosure.
7. Which of the following should be defines as international distortion of financial statement?
a. Error
b. Fraud
c. Error and Fraud
d. Neither error nor fraud
8. An example of an inventory accounting policy that should be disclosed in a summary of
significant accounting process is
a. Composition of inventory into raw materials, work in process and finished goods
b. Major backlog of inventory orders
c. Method used for pricing inventory
d. All of these should be disclosed in the summary of significant accounting policies.
9. The standard adequate disclosure is best described by which of the following?
a. All information related to the business of an entity and operating objective is required to be
disclosed in the financial statements.
b. Information about each account balance appearing in the financial statements is to be
included in the notes to financial statements.
c. Enough information should be disclosed in the financial statements so a person wishing to
invest in the entity can make a wise decision.
d. Disclosure of any financial facts significant enough to influence the judgment of an informed
user.
10. Application of the standard of adequate disclosure
a. Is theoretically desirable but not practical because the cost of complete disclosure exceeds
the benefit.
b. Is violated when important financial information is buried in the notes to financial
statements.
c. Is demonstrated by the use of supplementary information presenting the effects of changing
prices.
d. Requires that the financial statements should be consistent and comparable.
Problems 3-4 Multiple Choice (AICPA Adapted)
1. What is the purpose of information presented in the notes to financial statements?
a. To provide disclosures required by generally accepted accounting principles
b. To correct improper presentation in the financial statements
c. To provide recognition of amounts not included in the total of the financial statements
d. To prevent management response to auditor comments
2. Which of the following information should be disclosed in the summary of significant accounting
principles?
a. Redefining of debt subsequent to the reporting period
b. Guarantee of indebtedness of others
c. Criteria for determining which statements are treated as cash equivalents
d. Adequacy of pension plan assets relative to the defined benefit obligation
3. Which of the following should be disclosed in a summary of significant accounting policies?
a. Type of executor contract
b. Amount for cumulative effect of change in accounting policy
c. Claims of equity holders
d. Depreciation method followed
4. Which of the following is not a required disclosure of accounting policies?
a. The measurement basis used
b. Key management personnel involved in drafting the summary of significant accounting
policies
c. Disclosures required by PFRS
d. The nature of operations and the policies that the users of the financial statements would
expect to be disclosed
PROBLEMS
Problem 4-1 Multiple Choice (PAS 24)
1. A party is related to an entity if the party, directly or indirectly, through one or more
intermediaries
a. Controls, is controlled by or is under common control with the entity.
b. Has an interest in the entity that gives it significant influence over the entity.
c. Has joint control over the entity.
d. All of these define a related party.
2. Related parties include all of the following except
a.
b.
c.
d.
Parent subsidiary and fellow subsidiaries
Associate
Key management personnel and close family members of such key management personnel.
Two venturers simply because they share joint control over a joint venture.
3. A related party transaction is a transfer of resources or obligations
a.
b.
c.
d.
Between related parties when a price is charged.
Between related parties, regardless of whether a price is charged.
Between unrelated parties when a price is charged.
Between unrelated parties, regardless of whether a price is charged.
4. What is control of one party by another party?
a.
b.
c.
d.
The holding of significant proportion of the ordinary shares
The contractually agreed sharing of control over an economic entity
The power to participate in the financial and operating policy decisions of an entity
The power to govern the financial and operating policies of an entity so as to obtain benefits
5. Unrelated parties include all of the following, except
a. Providers of finance in the course of their normal dealings with an entity by virtue only of
those dealings.
b. Government agencies
c. Single customer with whom an entity transacts a significant volume of business merely by
virtue of the resulting economic dependence.
d. Postemployment benefit plan for the benefit of employees of the entity.
6. This is a pricing policy between related parties which sets the price by reference to comparable
good sold in an economically comparable market to a buyer unrelated to the seller.
a. No price method
b. Cost plus method
c. Resale price method
d. Uncontrolled price method
7. Close family members of an individual include all of the following, except
a.
b.
c.
d.
The individual’s spouse and children
Children of the individual’s spouse
Dependents of the individuals or individual’s spouse
Brothers and sisters of the individual.
8. If there have been transactions between related parties, an entity shall disclose
a.
b.
c.
d.
Nature of the relationship
Information about the transaction and outstanding balance
Nature of the relationship and information about the transaction and outstanding balance
Nature of the relationship, information about the transaction and outstanding balance, and
information about similar transaction.
9. The minimum disclosures about related party transactions include all of the following, except
a.
b.
c.
d.
The amount of the transaction
Amount of outstanding balance
Allowance for doubtful accounts related to the outstanding balance
Nature of the relationship
10. An entity that entered into certain related party transactions would be required to disclose all of
the following information, except
a.
b.
c.
d.
Nature of the relationship between the parties in the transactions
Nature of any future transactions planned between the parties and the terms involved
Peso amount of the transactions
Amounts due from or to related parties at the end of reporting period.
Problem 4-2 Multiple choice (IFRS)
1. Which of the following is not a related party?
a.
b.
c.
d.
A director of the entity
The parent of the entity
A shareholder of the entity that holds one percent stake in the entity
The son of the chief executive officer of the entity
2. Which of the following would not be considered “compensation” in relation to disclosure of key
management personnel compensation
a.
b.
c.
d.
Short term benefits
Short based payments
Termination benefits
Reimbursement of out of pocket expenses.
3. Which of the following is not a mandated disclosure about related party transactions?
a. Relationship between parent and subsidiaries irrespective of whether there have been
transactions between the related parties.
b. Names of all the associates that an entity has dealt with during the year.
c. Name of the entity’s parent and, if different, the ultimate controlling party
d. If neither the entity’s parent nor the ultimate controlling entity produces financial
statements available for public use, then the name of the next most senior parent that does
so.
4. Which of the following is not a required minimum disclosure about related party transaction?
a. The amount of related party transaction
b. The amount of outstanding balance and the terms and conditions including guarantee.
c. The amount of similar transaction with unrelated parties to establish that comparable
related party transaction has been entered to arm’s length.
d. Provision for doubtful debt related to the outstanding balance.
5. Which of the following is not required as a separate related party disclosure?
a.
b.
c.
d.
Entity with joint control or significant influence over the entity
The parent of the entity
An entity that has a common director with the entity
Joint venture in which the entity is a venturer
Problem 4-3 Multiple choice (IFRS)
1. All of the following fall within the definition of an entity’s related party, except
a.
b.
c.
d.
Joint venture in which the entity is a venturer
A postemployment benefit plan for the benefit of the employees
An executive director of the entity
The partner of a key manager is a major supplier of the entity
2. Which of the following should be included in key management personnel compensation?
a.
b.
c.
d.
Social security contributions
Postemployment benefits
Social security contributions and postemployment benefits
Social security contributions, postemployment benefits and dividends to shareholders
3. An entity has a subsidiary and is a venturer in a joint venture. During the financial year end, the
entity sold goods to both subsidiary and joint venture. Consolidated financial statements are
prepared combining the financial statements of the entity and the subsidiary. In the separate
financial statements of the entity for the current year, disclosure is required for transactions
with
a.
b.
c.
d.
Neither subsidiary nor joint venture
Subsidiary only
Joint venture only
Both subsidiary and joint venture
4. An entity completed the following transactions in the current year:
I.
Sold a car to the uncle of the entity’s finance director
II.
Sold goods to another entity owned by the daughter of the entity’s managing director.
Which transaction would require disclosure in the financial statements of the entity?
a.
b.
c.
d.
I only
II only
Both I and II
Neither I nor II
5. An entity has entered into a joint venture with an affiliate to secure access to additional
inventory. Under the joint venture agreement the entity will purchase the output of the
venture at prices negotiated on an arm’s length basis. Which of the following must be disclosed
about the related party transaction?
a. The amount due to the venture at the end of reporting period.
b. The peso amount of the purchases.
c. The amount due to the venture at the end of reporting period and the peso amount of the
purchases.
d. Neither the amount due to the venture at the end of reporting period nor the peso amount
of purchases.
6. A parent entity has a wholly-owned subsidiary. During the current year, the parent sold goods
to the subsidiary. The subsidiary paid a part of the debt before the year-end and the
encountered financial difficulties. The subsidiary is not expected to be able to pay the
remainder of the balance and therefore it has been provided as uncollectible. Administration
costs are incurred as a result of the parent credit controllers chasing the debt. All of the
following are required to be disclosed in relation to this arrangement, except
a.
b.
c.
d.
The administrations costs of the credit control department incurred in chasing the debt
Details of any guarantee received in relation to the outstanding balance.
The provision in relation to the debt being uncollectible.
The amount of transaction and outstanding balance.
7. All of the following are related party transactions. Except
a. Transferred goods from inventory to a shareholder owning thirty percent of the ordinary
shares
b. Sold an entity car to the wife of managing director
c. Sold an asset to associate
d. Took out a huge bank loan
8. Which of the following is not a related party of an entity?
a. A shareholder of the entity owning twenty percent of the ordinary shares
b. An entity providing banking facilities to the entity
c. An associate of the entity
d. Key management personnel of the entity
9. Which of the following most likely would be a related party transaction requiring disclosure?
a. The entire borrowed P 1,000,000 from the Southwest Bank issuing a noninterest-bearing
note.
b. The entity borrowed P 500,000 from the Eastwest Bank with no scheduled terms for how or
when funds will be repaid
c. The entity borrowed P 2,000,000 from Northwest Bank at a rate significantly above the
market rate prevailing at the time for such a borrowing.
d. All of these are related party transactions requiring disclosure.
10. Disclosures of related party transactions include all of the following, except
a.
b.
c.
d.
Nonmonetary exchange by affiliates
Sales of inventory by a subsidiary to the parent
Expenses allowances for executives which exceed normal business practice
An entity’s agreement to act as surety for a loan to the chief executive officer.
Problem 4-4 (IFRS)
Jambalaya Company reported the following renumeration and the other payments made to the entity’s
chief executive officer during the current year:
Annual Salary
Share options and other share-based payments
Contributions to retirement benefit plan
Reimbursement of travel expenses for business trips
2,000,000
1,000,000
500,000
1,200,000
What total amount should be disclosed as “compensation” to key management personnel?
a.
b.
c.
d.
3,500,000
4,700,000
3,000,000
2,500,000
Problem 4-4 (AICPA Adapted)
Dean Company acquired 100% of Morey Company in the prior year. During the current year, the
individual entities included in their financial statements the following:
Key officer’s salaries
Officers expenses
Loans to officers
Intercompany sales
Dean
750,000
200,000
1,250,000
1,500,000
Morey
500,000
100,000
500,000
What total amount should be reported as related party disclosures in the notes to Dean’s consolidated
financial statements for the current year?
a.
b.
c.
d.
1,500,000
1,550,000
1,750,000
3.000,000
PROBLEMS
Problems 5-1 Multiple choice (IAA)
1. Financial statement are authorized for issue
a. When the board of directors reviews and authorizes the financial statement for issue.
b When the shareholders approve the financial statements at their annual meeting.
c. When the financial statement are filed with the regulatory agency.
d. When a supervisory board made solely of nonexecutive approves the financial
statement.
2. Non-adjusting events after reporting period which require disclosure include all of the
following, except
a. Plan to discontinue an operation.
b. Expropriation of asset by government after end of reporting period.
c. Destruction of a major production plant by fire at the end of reporting period.
d. A business combination after end of reporting period.
3. Adjusting events after the reporting period include all of the following, except
a. The settlement of court case after the issuance of the financial statements that
confirms that the entity had already a present obligation.
b. Bankruptcy of a customer which occurs after the end of reporting period but before
issuance of financial statements.
c. Discovery of errors that show that the financial statements were incorrect.
d. determination after the end of reporting period and before issuance of financial
statements of the cost of asset purchased before end of reporting period.
4. Which of the following events after the end of reporting period would generally required
disclosure?
a. Retirement of key management personnel
b. Settlement of litigation when event that gave rise to then occurred in a prior period.
c. Strike of employees
d. issue of a large amount of ordinary shares
5. Which of the following events after the reporting period would require adjustment?
a. Loss of plant as a result of fire
b. change in the market price of investment
c. Loss on inventory resulting from flood loss
d. Loss on a lawsuit the outcome of which wad deemide uncertain at year end
PROBLMEN 5-2 MULTIPLE CHOICE (IFRS)
1. Events after the reporting period are favorable or unfavorable events that occur between
a. The end of the reporting period and the date of the next annual financial statements.
b. The end of the reporting period and the date of the next interim or annual financial
Statements.
c. The end of the reporting period and the date when the financial statements are
authorized for issue.
d. The end of reporting period and the date of the next interim statements.
2. Adjusting events are those that
a. Provide evidence of conditions that existed at the end of the reporting period.
b. Are indicative of conditions that arose after the end of the reporting period.
c. Are indicative of conditions that arose after the approval of the financial statements
by shareholders.
d. Provide for conditions that existed after the date the financial statements were issued.
3. All of the following events after reporting period should be classified as non-adjusting,
except.
a. The entity announced the discontinuation of an operation.
b. The entity entered into an agreement to purchase the leased building
c. Destruction of a major production plant by fire.
d. A mistake in the calculation of allowance for uncollectible accounts receivable.
4. The factory was damaged in a storm surge after the end of reporting period but before
issuance of financial statements. What is the treatment of the damage from storm surge?
a. An adjusting event
b. A non-adjusting event
c. Neither an adjusting event and a non-adjusting event
d. Both an adjusting event and a non-adjusting event
5. Events that occur after the current year-end but before the financial statements are issued
and affect the realizability of accounts receivable should be
a. Discussed only in the management commentary of the annual report.
b. disclosed only in the notes to financial statements.
c. Used to record an adjustment to bad debt expense for the current year.
d. Used to record an adjustment directly to retrained earnings.
Problem 5-3 multiple choice (IFRS)
1. At the end of the current reporting period, an entity carried a receivable from a major
customer who declared bankruptcy after the end of the reporting period and before the
issuance of financial statements. What should be reported at the current year-end?
a. Disclose the fact that the customer has declared bankruptcy.
b. Make a provision for the event after reporting period in the financial statements.
c. Ignore the event and wait for the outcome of the bankruptcy.
d. Reverse the sale pertaining to the receivable in the comparative statements for the
prior period.
2. An entity decided to build and operate an amusement park next year. The entity has applied
for a letter of guarantee which was issued before the issuance of the financial statements of
the current year. What is the adjustment required at the current year-end?
a. Book a long-term payable for the amount of guarantee.
b. Disclose the guarantee as a contingent liability.
c. Increase the contingency reserve.
d. Do nothing
3. An entity built a new factory building during the current year. Subsequent to the current year
and before issuance of financial statements, the building was destroyed by fire and claim
against the insurance entity proved futile because the cause of the fire was negligence on the
part of the caretaker of the building.
What should be reported at the current year-end?
a. Write off the carrying amount of the building.
b. Make a provision for one-half of the carrying amount of the building.
c. Make a provision for three-fourths of the carrying amount of the building.
d. Disclose the non-adjusting event in the notes to financial statement.
4. An entity deals extensively with foreign currency transaction. Subsequent to the end of
reporting period and before the date authorization of the issuance of the financial statements.
There were abnormal fluctuation in foreign currency rate. What should be reported at the
current year-end?
a. Adjust the foreign exchange year-end balances to reflect the abnormal adverse
fluctuation.
b. Adjust the foreign exchange year-end balances to reflect all abnormal fluctuations and
not just adverse movements.
c. Disclose the post-reporting period event.
d. Ignore the post-reporting period event.
Problem 5-4 Multiple choice (AICPA Adapted)
1. A development stage entity is define as one devoting substantially all efforts to establishing a
new business and
a. Planned principal operations have not commenced.
b. Planned principal operations have commenced but there has been no significant
revenue.
c. Planned principal operations have not commenced or have commenced but there has
been no significant revenue.
d. Planned principal operation have commenced and there has been significant revenue.
2. A development stage entity
a. Issues an income statement that shows only cumulative amounts from the entity’s
inception.
b. Issues an income statements that is the same as an established operating entity, but
does not show cumulative amounts from the entity’s inception as additional
information.
c. Issues an income statement that is the same as an established operating entity,
and shows cumulative amounts from the entity’s inception as additional information
d. Does not issue an income statement
3. Financial reporting by a development stage entity differs from financial reporting for an
established operating entity regard to note disclosures
a. Only
b. And expense recognition principles only
c. And revenue recognition principles only
d. And revenue and expense recognition principles
4. Define accumulated during the development stage of an entity should be
a. Reported as organization cost
b. Reported as part of shareholders equity
c. Capitalized and written off in the first year of principal operations
d. Capitalized and amortized over a five-year period beginning when principal operations
commence
5. A statement of cash flows for a development stage entity
a. Is not presented
b. Shows only cumulative amount from the entity’s inception
c. Is the same as that of an established operating entity, but does not show cumulative
amount from the entity’s inception
d. Is the same as that of an established operating entity and shows cumulative amount
from the entity’s inception
Problem 5-5 (IFRS)
The audit of Anne Company for the year ended December 31,2015 was completed on March
1,2016.
The financial statement were signed by the managing director on March 15, 2016 and approved
by the shareholder on March 31, 2016
The Following events have occurred:
1.
On January 15, 2016, a customer owning P900,000 to Anne filed for bankruptcy.
The financial statement include an allowance for doubtful accounts pertaining to this
customer only of P100,000.
2.
The entity’s issued share capital comprised 100,000 ordinary share with P100 par value.
The entity issued additional 25,000 share on March 1, 2016 at par value.
3.
Specialized equipment costing P525,000 purchased on September 1, 2015 was
destroyed by fire on December 15, 2015.
The entity has booked a receivable of P400,000 from the insurance entity.
After the insurance entity completed the investigation on February 1, 2016, it was
discovered that the fire took place due to negligence of the machine operator.
As a result, the insurer’s liability was zero on the claim.
Required:
Prepared adjusting entries on December 31, 2015 for the events after reporting period
Problem 5-6 (IFRS)
Norway Company reported that the year-end is December 31, 2015 and the financial
Statements are authorized issue on March 15, 2016.
1.
On December 31, 2015. Norway Company had a receivable of P100.000 from a
customer that is due 60 days after the end of reporting period. On January 15, 2016, a
received was appointed for the said customer. The receiving informed Norway that the
P100,000 would be paid in full by June 30, 2016
2.
Norway Company measured investments in share held for trading at fair value through
profit or loss. On December 31, 2015. These investment were recorded at the market
value of P5,000,000. During the period up to February 15, 2016, there was a steady
decline in the market value of all the share in the portfolio, and on February 15, 2016,
the market value had fallen to P2,000.000.
3.
Norway Company had reported a contingent liability on December 31, 2015 related to a
court case in which Norway Company was the defendant. The case was not heard until
the first week of February 2016. On February 11, 2016, the judge handed down a
decision against Norway Company. The judge determined that Norway Company was
liable to pay damages and cost totaling P3,000.000.
4.
On December 31, 2015, Norway Company had a receivable from a large customer in the
amount of P3,500,000. On January 31, 2016. Norway Company was advised by the
liquidator of the said customer that the customer was insolvent and would be unable to
repay the full amount owed to Norway Company. The liquidator advised Norway
Company in writing that only 10% of the receivable will be paid on April 30, 2016.
Required:
Prepared adjusting entries on December 31, 2015 to reflect the events after reporting period.
Problem 5-7 (IFRS)
Caroline Company provided the following information on December 31, 2015:
1/15/2016
P3,000,000 of accounts receivable was written off due to the bankruptcy of a
major customer.
2/14/2016
A shipping vessel of Caroline with carrying amount of P5,000,000 was
completely lost at sea because of hurricane.
3/11/2016
A court case involving Caroline as the defendant was settled and the entity was
obligated to pay the plaintiff P1,500,000. Caroline previously recognized a
P1,000,000 liability for the suit because management deemed it probable that the
entity would lose the case.
3/25/2016
One of Caroline’s factories with a carrying amount of P15,000,000 was
completely razed by forest fires the erupted in it’s vicinity.
The management of the entity completed the draft of the financial statement for 2015 on
February 10, 2016, the board of directors authorized the financial statement for issue. They
Entity announced the profit and other selected information on March 22, 2016. The financial
Statement were made available to shareholder’s on April 2, 2016 at the annual shareholder’s
Meeting where the financial statement were filed with the regulatory agency the very next day.
Required:
1. Prepared adjusting entries on December 31, 2015 to reflect the adjusting events after
reporting period.
2. Prepared the necessary disclosures to reflect the non-adjusting events after reporting period.
Problem 5-8 (IFRS)
Elaine Company prepared draft financial statements that showed the profit before tax for the
Year ended December 31, 2015 at P9,000,000. The board of directors authorized the financial
Statements for issue on March 20, 2016. A fire occurred at one of Elaine’s sites on January 15,
2016 with resulting damage amounting to P7,000,000 only P4,000,000 of which is covered by
Insurance. The repairs will take place and be paid for in April 2016. The P4,000,000 claim from
the insurance entity will however be received on February 14, 2016. What amount should be
reported as profit before tax in the financial statement.
a. 2,000,000
b. 9,000,000
c. 4,000,000
d. 6,000,000
Problem 5-9 (PHILCPA Adapted)
During 2015 Marian Company was used by a competitor for P5,000,000 for infringement of a
patent. Based on the advice of the legal counsel. The entity accrued the sum of P3,000,000 as
a provision in the financial statement for the year ended December 31, 2026. Subsequently, on
March 15, 2016, the supreme court decided in favor of the party alleging infringement of the
patent and ordered the defendant to pay the aggrieved party a sum of P3,500,000. The financial
statements were prepared by the board of directors on March 31, 2016. What amount should be
recognized as accrued liability on December 31, 2015.
a. 5,000,000
b. 3,500,000
c. 3,000,000
d. 1,500,000
Problem 5-10 (IFRS)
Carla Company carried a provision of P2,000,000 in the draft financial statements for the year
ended December 31, 2015 in relation to an unresolved court case. On January 31, 2016, when
the financial statement for the year ended December 31, 2015 had not yet been authorized for
issue, the case was settled and the court decided the final total damages to be adjusted on
December 31, 2015 in relation to this event?
a. 3,000,000
b. 2,000,000
c. 1,000,000
d.
0
Problem 5-11 (IFRS)
Pink Company is completing the preparation of the draft financial statements for the year ended
December 31, 2015. The financial statement are authorized for issue on March 31, 2016. On
January 31, 2016, a divided of P2,000,000 was declared and a contractual profit share payment
of P2,00,000 was made, both based on the profit for the year ended December 31, 2015. On
February 15, 2016, a customer went into liquidation having owed the entity P900,000 for the
past 5 months. No allowance had been made against this debt in the draft financial statements.
On March 1, 2016, a manufacturing plant was destroyed by fire resulting in a financial loss of
P2,500,000. What total amount should be recognized in profit or loss for the year ended
December 31, 2015 to reflect adjusting events after the end of reporting period?
a. 2,000,000
b. 3,600,000
c. 2,500,000
d. 1,100,000