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CANNON BALL BAL L REVIEW I. Balance Sheet Sheet or Statement Statement of Financial Financial Positi Positi on
a) Assets and liabilities shall be presented in the order of liquidity (for (for financial institutions) or current and current and non-current presentation for entities with a clearly identifiable normal operating cycle. b) Current Assets include: Cash and cash equivalents (elaborated later in the cash section), Accounts receivable and trade notes receivable, Inventory (Merchandise, FG, WIP and RMI), Non-trade receivable that are collectible within 12 months, Prepaid expenses, Trading security investments including derivatives, Short AL L OTHER ASSETS SHAL L BE CLASSIFIED CL ASSIFIED term investments and Noncurrent assets held for resale. ALL AS NONCURRENT. NONCURRE NT. c) Current Liabilities include: Accounts payable and Trade notes payable, Accrued expenses and Income tax payable, Nontrade liabilities that are payable on demand and due within 12 months and Liabilities that are OT HER LIAB LI AB ILITIES ILIT IES SHAL L B E CLASSIFIED CL ASSIFIED A S NONCURRENT. held for trading purposes. AL L OTHER d) Non-trade liabilities that are due due within 12 months shall be classified as noncurrent if: •
• •
The entity has the unconditional right to defer the settlement within 12 12 months from the balance sheet date. (end of the reporting period) The liability liability has been refinanced on or or before before the balance sheet date. The entity entity has the the discretion discretion to refinance the liability on a long-term basis.
e) SHAREHOLDERS’ EQUITY SHALL INCLUDE: •
•
•
• •
•
Share capital, capital, which is both the par value or stated value of issued shares meaning meaning shares that have have been fully paid or the entire consideration from the subscription received. Share premium, premium, which includes the excess over par or stated value from issuance, gains on share transactions and other equity items such as “donated capital, share options outstanding, share warrants outstanding and share premium on convertible bonds payable” Share capital PLUS PLUS Share premium equals the contributed capital of an entity. entity. But shall also include “Subscribed share capital net of subscriptions receivable and share dividends distributable or payable”. However, if the subscriptions receivable is collectible within 12 months, it shall be presented as part of current assets under the heading “Trade and other receivables”. Retained earnings or Accumulated profits and losses. Other comprehensive income – Income and expenses that are not included in Profit or Loss as required by a standard or an interpretation. interpretation. (Discussed later in the income statement statement portion) Treasury shares at COST as a deduction from equity.
Problems
1.
Jenna Company’s December 31, 2016 statement of financial position reported the following current assets: Cash (net of an overdraft of P500,000 in another bank) Accounts receivable Inventory Prepaid expenses Deferred tax asset Land classified as “held for sale”
3,500,000 7,500,000 3,000,000 1,200,000 500,000 2,000,000 18,200,000
An analysis of the accounts accounts receivable disclosed that accounts receivable comprised the following: Trade accounts receivable (net of a P300,000 credit balance i n a customer’s account) Allowance for doubtful accounts Selling price of Jenna Company’s unsold goods sent to Baguio Company on consignment at 150% of cost and excluded from Jenna’s ending inventory What is the total current assets at December 31, 2016? a. 17,200,000 c. b. 14,700,000 d.
14,500,000 17,000,000
5,000,000 (500,000) 3,000,000 7,500,000
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2.
The following data are available for the financial position of Jake Company on December 31, 2016: Cash, including sinking fund of P800,000 Notes receivable (P500,000 pledged) Accounts receivable-unassigned Accounts receivable-assigned Notes receivable discounted Equity in assigned accounts Inventory, including P200,000 cost of goods in transit p urchased FOB shipping point. The goods were received on January 5, 2017 Allowance for doubtful accounts Financial Assets held for trading (Cost P800,000)
2,000,000 1,500,000 200,000 400,000 300,000 50,000 4,000,000 150,000 1,000,000
How much of the current assets should be shown in the statement of financial position as of December 31, 2016? a. 7,850,000 b. 7,650,000 c. 7,900,000 d. 8,150,000 3.
Included in Stephan Corporation’s liability account balances at December 31, 2016 were the following:
12% note payable issued on April 15, 2013 maturing on April 15, 2017 10% note payable issued on February 1, 2014 maturing on January 31, 2020
10,000,000 5,000,000
Stephan’s December 31, 2016 financial statements were issued on April 10, 2017. As of December 22, 2016, the lender of the P10,000,000 has agreed to postpone payment until January 1, 2018. The 10% note payable maturing on January 31, 2017 includes a loan covenant. The term of the note gives the lender to demand payment if Stephan fails to make a monthly interest payment. As of December 31, 2016, Stephan is three months behind in paying the required interest. However, the holder has agreed as of December 30, 2016 not to demand payment in 2017 and for Stephan to rectify the breach with in 2017. What is the total amount to be presented as noncurrent liability relating to these notes? a. 10,000,000 b. 5,000,000 c. 15,000,000 d. 0
4.
Jay Company provided the following information on December 31, 2016: Accounts payable, net of debit balances of P100,000 in creditors’ accounts Accrued expenses Bonds payable due December 31, 2017 Discount on bonds payable Deferred tax liability Income tax payable Cash dividend payable Stock dividend payable Note payable – 6%, due March 1, 2017 Note payable – 8%, due October 1, 2017
1,900,000 500,000 3,000,000 200,000 400,000 700,000 800,000 300,000 1,500,000 1,000,000
The 2016 financial statements were issued on March 31, 2017. On March 1, 2017, the 6% note payable was refinanced on a long-term basis. Under the loan agreement for the 8% note payable, the entity has the discretion to refinance the obligation for at least twelve months after December 31, 2016. The deferred tax liability is based on temporary differences that will reverse in 2017. A sinking fund of P3,000,000 was set aside to pay the bonds payable upon maturity. What amount should be reported as total current liabilities on December 31, 2016? a. 8,300,000 b. 9,300,000 c. 9,000,000 d. 5,500,000 ANSWERS: D, A, C, A
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II. Income Statement and Statement of Compr ehensive Income a) Income encompasses both revenue and gains. Examples include: Revenue from the sale of goods and services, investment income (equity method), dividend income, interest income, gains on sale, unrealized gain on FA at FVPL. b) Expenses encompasses both expenses and losses. Examples include: Cost of sales, Selling expenses or distribution cost, General and administrative expenses and other expenses. These are the classification of expenses under the “function” of expense approach. The other presentation of expenses is the “Nature” of expenses where expenses are not reallocated to the functions that ha ve been enumerated. c) Under the “nature” of expense approach, there is no cost of sales instead the amount of inventory purchases is presented and the increase or decrease in inventory is also presented. d) Income less expenses is the “income before taxes”. After deducting income tax expense this will amount to the entity’s net income unless the entity has “discontinued operations”. If the entity has DO, the net amount is what is known as “income from continuing operations”. e) After adding or deducting the amount of income or loss from discontinued operations, this is the only time that the entity will now present its NET INCOME OR LOSS. f) Single Statement App roach: The OCI items shall now be added or deducted from the net income to compute for the “Comprehensive Income” g) Two Statement Approach: The Net income from the income statement is transferred as the first line item in the statement of comprehensive income, then from that point the OCI items are added or deducted from net income to also compute for the “Comprehensive Income”. h) There are two types of OCI items, those that are reclassified to profit or loss (RA) and those that are reclassified to Retained Earnings (RE). OCI includes the following • • • • • • •
Unrealized gain or loss on equity investments measured at FVOCI (RE) Unrealized gain or loss on debt investments measured at FVOCI (RA) Unrealized gain or loss from derivative contracts designated as cash flow hedge (RA) Revaluation Surplus (RE) Remeasurement Gains and losses for defined benefit plans (RE) Change in fair value arising from credit risk for financial liabilities measured at FVPL (RE) Translation gains and losses of foreign operations (RA)
Problems
1.
The income statement accounts of Gringo Company for the year 2016 included the following: Net sales Cost of goods sold Distribution cost Administrative expenses Interest expense Other expense Interest income Gain from expropriation Investment income Income tax Income from discontinued operations Unrealized gain FA at FVTOCI Foreign currency translation adjustment loss Revaluation surplus Dividends declared Investments by stockholders Correction of an error-debit
9,500,000 4,000,000 600,000 1,200,000 700,000 400,000 200,000 100,000 200,000 800,000 600,000 1,100,000 200,000 2,500,000 1,000,000 400,000 3,000,000
1. The 2016 statement of comprehensive income should report income before income taxes at what amount? a. 3,000,000 b. 3,100,000 c. 2,300,000 d. 3,500,000
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2. The 2016 statement of comprehensive income should report income from continuing operations at what amount? a. 3,200,000 b. 3,100,000 c. 2,300,000 d. 2,900,000 3. The 2016 statement of comprehensive income should report net income at what amount? a. 3,400,000 b. 3,100,000 c. 2,300,000 d. 2,900,000 4. The 2016 statement of comprehensive income should report comprehensive income at what amount? a. 5,700,000 b. 6,300,000 c. 5,900,000 d. 6,500,000 2.
The following information was taken from Ozz Company’s accounting records for the year ended December 31, 2016: Sales Decrease in goods in process inventory Decrease in raw materials inventory Increase in finished goods inventory Raw materials purchased Direct labor payroll Factory overhead Freight in Freight out General and administrative expenses
10,000,000 200,000 350,000 500,000 2,100,000 1,000,000 800,000 300,000 900,000 1,600,000
How much is Ozz Company’s income before tax? a. 4,150,000 b. 4,000,000 c. 3,250,000 d. 3,750,000
3.
Mark Company provided the following information for the current year: Income from continuing operations Income from discontinued operation Unrealized gain on financial asset at FVTPL Unrealized gain on financial asset at FVTOCI Unrealized gain on futures contract designated as a cash flow hedge Actuarial loss during the year due to increase in PBO Foreign translation adjustment – debit Revaluation surplus during the year Loss on credit risk of financial liability designated at FVPL What amount should be reported as comprehensive income for the year? a. 3,500,000 b. 1,500,000 c. 6,000,000 d. 9,500,000 ANSWERS: B, C, D, B, C, D
5,000,000 1,300,000 2,500,000 1,500,000 500,000 400,000 100,000 2,000,000 300,000
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III. ACCOUNTING CHANGES AND ERRORS a) Change in Accounti ng Polici es: • •
•
Change from one acceptable to another acceptable accounting method. Required by a standard or interpretation or voluntary because will result in info that is more relevant and reliable. Follow the transitional provision or adjust retroactively by adjusting the beginning balance of RE (Retrospective Application)
b) Chang in Accounting Estimate: •
• •
Change in the useful life, residual value and depreciation method of assets, rates for doubtful accounts expense and method of estimating the allowance for doubtful accounts and the rate used for warranties. Results in the availability of new information or more experience. Treated prospectively by recognizing the effect in profit or loss.
c) Prior Period Errors: Errors in prior period financial statements as a result of omissions and other misstatements including mathematical errors and misapplication of accounting policies. Also retrospectively adjust the beginning balance of retained earnings and the affected asset or liability (Retrospective Restatement) •
•
Problems
1.
During 2016, King Company decided to change from the FIFO method of inventory valuation to the weighted average method. Inventory balances under each method were:
December 31, 2014 December 31, 2015 December 31, 2016
FIFO 9,000,000 8,000,000 7,000,000
Average 8,500,000 8,600,000 7,900,000
Ignoring income tax, in its 2016 statement of changes in shareholders’ equity, what amount should King report as an adjustment to retained earnings as a result of this accounting change? a. 100,000 increase b. 100,000 decrease c. 600,000 increase d. 600,000 decrease
2.
On January 1, 2013, Lyle Company purchased for P5,000,000 a machine with a useful life of ten years with no residual. The machine was depreciated by the straight-line method of depreciation. On January 1, 2016 the entity determined that the residual value of this equipment at the end of its useful life is P500,000 and the total life of the asset from acquisition was 15 years. What amount should be reported as depreciation for 2016? a. 250,000 b. 500,000 c. 292,000 d. 200,000
3.
On January 1, 2014, Wesley Company purchased for P6,000,000 a machine with a useful life of 5 years and a residual value of P600,000. The machine was depreciated by the double declining balance method and the accumulated depreciation of the machine was P3,840,000 on December 31, 2015. Wesley changed to the straight-line method on January 1, 2016 and the residual value did not change. In its 2016 statement of financial position, what amount should Wesley report as ac cumulated depreciation for this machine? a. 4,360,000 b. 4,560,000 c. 4,704,000 d. 3,840,000
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4.
While preparing its financial statements for 2016, June Company discovered computational errors in its 2015 and 2014 depreciation expense. These errors resulted in overstatement of each year’s income by P25,000, net of income taxes. The following amounts were reported in the previously issued financial statements:
Retained earnings, January 1 Net income Retained earnings, December 31
2015 700,000 150,000 850,000
2014 500,000 200,000 700,000
June’s net income for the year 2016 is correctly reported at P500,000 and dividends of P100,000 were declared. What is the balance of retained earnings on December 31, 2016? a. 1,200,000 b. 1,250,000 c. 1,300,000 d. 1,225,000
5.
Rubio Company failed to accrue warranty costs of P200,000 in its December 31, 2016 financial statements. In addition, a change from straight-line to accelerated depreciation made at the beginning of 2017 resulted in a cumulative effect of P400,000. Both the P200,000 and the P400,000 are before cumulative effect of taxes amounts. What amount before tax should Rubio report as prior period error in the 2017 statement of retained earnings? a. 200,000 c. 400,000 b. 600,000 d. 0
ANSWERS: C, A, A, A , A IV. EVENTS AFTER THE REPORTING PERIOD
a) An event, which could be favorable or unfavorable, that occurs between the reporting period and the date that the financial statements are authorized for issue. b) Adju st in g event : An event after the reporting period that provides further evidence of conditions that existed at the end of the reporting period, including an event that indicates that the going concern assumption in relation to the whole or part of the enterprise is not appropriate. c) Non-adjusting event: An event after the reporting period that is indicative of a condition that arose after the reporting period. Problem
1.
The audit of Atomic Company for the year ended December 31, 2016 was completed on March 1, 2017. The financial statements were signed by the managing director on March 15, 2017 and approved by the shareholders on March 31, 2017. The next events have occurred. *
On January 15, 2017, a customer owing P900,000 to Atomic filed for bankruptcy. The financial statements include an allowance for doubtful debts pertaining to this customer of P100,000
*
Specialized equipment costing P525,000 purchased on September 1, 2016 was destroyed by fire on December 15, 2016. Atomic Company has booked a receivable of P400,000 from the insurance company. After the insurance company completed its investigation on February 1, 2017, it was discovered that the fire took place due to the negligence of the machine operator. As a result, the insurer’s liability was zero on this claim.
*
Atomic Company’s issued capital comprised 100,000 equity shares with P100 par value. The company issued additional 25,000 shares on March 1, 2017.
Atomic Company should report a net amount of “adjusting events” on Dece mber 31, 2016 at a. 1,300,000 b. 1,200,000 c. 3,800,000 d. 3,700,000 ANSWER: B
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V. DISCONTINUED OPERATION AND NONCURRENT ASSET HELD FOR SALE
a) Discontinued operation is a major line of business or geographical area of operations that has been disposed of or “classified as held for sale” or a subsidiary acquired with the exclusive intention to sell. b) The Income or Loss from Discontinued Operation to be presented as ONE line item below income from continuing operations and NET of TAX shall include the Net Operating Income, Gain or loss on disposal of assets, Impairment Loss for the remeasurement to FV less Cost of Disposal and the T ermination cost to be accrued. c) The assets and liabilities are also presented separately from the assets and liabilities from continuing operations and presented as CURRENT ASSETS AND CURRENT LIABILITIES. Problems
1.
Russel Company is a diversified company with nationwide interests in commercial real estate developments, banking, mining and food distribution. The food distribution division was deemed to be inconsistent with the long-term direction of the company. On October 1, 2016 the board of directors voted to approve the disposal of this division. The sale is expected to occur in November 2017. The food distribution had the following revenue and expenses in 2016: January 1 to September 30, revenue of P50,000,000 and expenses of P30,000,000; October 1 to December 31, revenue of P12,000,000 and expenses of P10,000,000. The carrying amount of the division’s assets at December 31 , 2016 was P50,000,000 and the recoverable amount was estimated to be P45,000,000. The sale contract requires Russel to terminate certain employees incurring an expected termination cost of P2,000,000 to be paid by June 30, 2016. During 2016, Russel sold a portion of the food distribution’s assets at a pretax loss of P3,000,000. The income tax rate is 30%. What is Russel Company’s income from discounted operations in it’s income statement for the year ended December 31, 2016? a. 12,000,000 b. 8,400,000 c. 17,000,000 d. 11,050,000
2.
On May 1, 2016, Aqua Company approved a plan to dispose of a business segment. It is expected that the sale will occur on March 31, 2017. On December 31, 2016, the carrying amount of the net assets of the segment was P2,000,000 and the fair value was P1,800,000. During 2016, the company paid em ployee severance and relocation costs of P100,000 as a direct result of the discontinued operation. The revenues and expenses of the discontinued segment during 2016 were: January 1 to April 30 May 1 to December 31
Revenues 1,500,000 700,000
Expenses 2,000,000 900,000
How much will be reported as loss from discontinued segment for the year 2016? a. 1,000,000 b. 500,000 c. 700,000 d. 800,000 ANSWERS: B, A
d) NCA held for sale are PPE that are intended for sale and the sale is highly probable meaning expected to be sold within one year for the date of classifying it as held for sale. e) Remeasured at Lower of CA and FV less Cost to Sell. But always depreciate first if using the cost model or revaluate if using the revaluation method before reclassifying. f) If the FV less Cost to sell increases at balance sheet date, recognize the gain but the loss should not exceed the impairment loss recognized at reclassification. g) If put back in operations, and classified again as PPE, remeasure at the lower of Recoverable Amount (take note: higher of FV-C2S and Value in Use) and CA if the asset was not reclassified as held for sale.
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Problems
1.
Purple Company accounted for noncurrent assets using the cost model. On July 1, 2016, the entity classified equipment as held for sale. At that date, carrying amount was P5,000,000, the fair value was estimated at P3,500,000 and the cost of disposal at P100,000. The fair value less cost of disposal on December 31, 2016 increased to P3,800,000. On January 31, 2017, the equipment was sold for net proceeds of P3,000,000. 1. What amount should be included as an impairment loss on the date of reclassification? a. 1,600,000 b. 2,500,000 c. 1,500,000 d. 900,000 2. What amount of gain from remeasurement shall be recognized on December 31, 2016? a. 300,000 b. 400,000 c. 700,000 d. 0 3. What is the loss on disposal recognized in 2017? a. 800,000 b. 400,000 c. 500,000 d. 0
2. Lavender Company accounted for noncurrent assets using the revaluation model . On October 1, 2016, the entity classified a land as held for sale. At that date, the carrying amount of the land was P6,000,000 and the balance in the revaluation surplus was P2,000,000. At same date, the fair value of the land was estimated at P7,500,000 and the cost of disposal at P200,000. The land was sold on January 31, 2017 for P8,000,000. 1. What amount should be included as an impairment loss on the date of reclassification? a. 200,000 b. 500,000 c. 0 d. 600,000 2. What is the carrying amount of the NCA on December 31, 2016? a. 7,500,000 b. 6,000,000 c. 8,000,000 d. 7,300,000 3. What amount should be reported as gain on disposal of land in 2017? a. 1,000,000 b. 2,000,000 c. 500,000 d. 700,000 3. Indigo Company purchased an equipment for P5,000,000 on January 1, 2016. The equipment had a useful life of 5 years with no residual value. On December 31, 2016, the entity classified the asset as held for sale. On such date, the fair value less cost of disposal of the equipment was P3,500,000. On December 31, 2017, the entity believed that the criteria for classification as held for sale can no longer be met. Accordingly, the entity decided not to sell the asset but to continue to use it. On December 31, 2017, the fair value less cost of disposal of the equipment was P2,700,000, while the value in use was 2,500,000. 1. What amount of impairment loss should be recognized in 2016? a. 1,500,000 b. 1,000,000 c. 500,000 d. 0
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2. What amount should be included in profit or loss in 2017 as a result of the reclassification of the equipment to property, plant and equipment? a. 800,000 gain b. 800,000 loss c. 300,000 gain d. 300,000 loss 3. What is the depreciation for 2018? a. 1,000,000 b. 875,000 c. 900,000 d. 675,000 ANSWERS: A, B , A, A, D, D, C, B, C VI. OPERATING SEGMENTS
a) An operating segment is reportable if it meets at least 10% of one of the QUANTITATIVE THRESHOLDS. b) The Revenue Test is based on the total revenue of all the operating segments whether from intersegment sales or sales to external segments. c) The Profit or loss Test is based on the greater value whether profit or loss when the total profit is combined or the total losses are combined. d) The Asset Test is based on the total assets of all the operating segment. e) The upper limit is 10 reportable segments. Management also has the final decision if a segment is Reportable even if it does not m eet any of the QT. f) The reportable segments identified using the QT must report at least 75% of the external revenue. If not, other segments shall become reportable until the 75% requirement is met. g) A Major customer is an EXTERNAL Customer that provides at least 10% of the external revenue. The identity of the segment and amount of revenue to the EC shall be disclosed. 1.
Athena Company and its divisions are engaged solely in manufacturing operations. Athena identified its operating segments for the year ended 2016. The following data pertain to the industries in which operations were conducted for the year ended December 31, 2016. Segments A B C D E F
Total Revenue 13,000,000 8,500,000 10,000,000 3,000,000 3,500,000 2,000,000 40,000,000
Operating Profi t 4,000,000 2,000,000 1,500,000 800,000 1,000,000 700,000 10,000,000
Identifiable Assets 25,000,000 29,000,000 7,000,000 8,000,000 5,000,000 6,000,000 80,000,000
In its segment information for 2016, how many reportable segments does Athena have? a. Six b. Three c. Four d. Five 2.
Kanye Corporation and its divisions are engaged solely in manufacturing. The following data pertain to the industries in which operations were conducted for the year ended December 31, 2016:
Division
A B C D E
Operating Profi t (Loss) 30,000,000 10,000,000 (8,000,000) (2,000,000) 5,000,000
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In its 2016 financial statements, Kanye Corporation should disclose an operating segment if operating profit or loss is at least a. 1,000,000 b. 4,500,000 c. 3,500,000 d. 5,500,000 3.
Cannon Company, a publicly owned corporation, is subject to the requirements for segment reporting. In its income statement for the year ended December 31, 2016, Canno n reported revenue of P60,000,000, operating expenses of P45,000,000 and net income of P15,000,000. Operating expenses include payroll costs of P5,000,000. Cannon’s combined identifiable assets of all industry segments at December 31, 2016 were P32,000,000. Total segment revenue was determined to be P70,000,000. 1. What is the minimum amount of external revenue that must be reported by the reportable operating segments? a. 52,500,000 b. 42,750,000 c. 35,000,000 d. 45,000,000 2. What is the minimum amount an external customer to be regarded as a major customer? a. 7,000,000 b. 4,000,000 c. 4,500,000 d. 6,000,000
ANSWERS: D, B, D, D VII.INTERIM REPORTING
a) b) c) d) e) f) g)
Interim reports are financial statements prepared for an interim period, meaning shorter than a full year. A complete set may be prepared or condensed financial statements. Revenues shall be recognized using the same methods for the year. Expenses that generated the revenue shall be matched against the revenues reported. Expenses that are not directly associated are allocated or recognized as incurred. Gains and losses including losses on inventory writedown are not allocated but recognized immediately. Effects of changes in estimated and tax rates are recognized in the following interim period.
Problems
1.
The following transactions for Angelina Enterprises occurred during the second quarter of 2016: • • • • •
Sales amounted to P5,000,000 and related cost of goods sold was P3,000,000 Selling expenses for the given period was P250,000 Depreciation is usually recorded by Angelina at annual amount of P1,200,000. Real property taxes for the year in the amount of P600,000 were paid on April 1, 2016. An inventory loss arising from a temporary market decline of P400,000 had occurred on June 30, 2016.
Ignoring income taxes, what is the net income for the second quarter ending June 30, 2016? a. 1,150,000 b. 900,000 c. 1,300,000 d. 750,000 2.
Adelaide Company had the following transactions during the quarter ended March 31 2016: Loss from hurricane Payment of the fire insurance premium for the year 2016
500,000 400,000
What is the total expenses should be included in the income statement for the quarter ended March 31, 2016? a. 900,000 b. 633,333 c. 600,000 d. 525,000
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3. Anne Company’s P4,000,000 net income for the quarter ended Septem ber 30, 2016 included the f ollowing after-tax items: ➢
A P1,200,000 gain realized on April 30, 2016 was allocated equally to the second, third and fourth quarters of 2016.
➢
A P200,000 cumulative effect loss resulting from a change in inventory valuation method was recognized on August 31, 2016.
➢
A casualty loss suffered by the Company on September 11, 2016 in the amount of P600,000 was allocated to the last two quarters of the calendar year.
➢
Anne paid P400,000 on February 1, 2016, for 2016 calendar-year real property tax. Of this amount, P100,000 was allocated to the third quarter of 2016.
On December 31, 2016, Anne paid it’s employees year -end bonuses totaling P2,000,000. From this amount, none was recorded in computing for the 3 rd quarter net income. What is Anne Company’s correct net income for the quarter ended September 30, 2016? a. 3,000,000 b. 3,100,000 c. 4,000,000 d. 4,200,000
4.
Salonika Company has historically reported bad debts expense of 5% of sales in each quarter. For the current year, the company allowed the same procedure in the three quarters of the year. However, in the fourth quarter, the company, in consultation with its auditor, determined that bad debt expense for the year should be P4,500,000. Sales in each quarter of the year were as follows: first quarter, P20,000,000; second quarter, P15,000,000; third quarter, P25,000,00; fourth quarter, P40,000,000. How much bad debts expense should be recognized for the fourth quarter? a. 2,000,000 b. 1,500,000 c. 3,000,000 d. 4,000,000
ANSWERS: B, B , A, B
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