FINANCIAL ACCOUNTING PROBLEMS Problem I (Current assets)
An entity provided the following trial balance on June 30, 2015: Cash overdraft Accounts receivable, net *nventory "repaid e'penses and held for resale
20 2 00,000! &00,000 1,200,000 200,000 2,000,000
"roperty, plant and e#uip$ent, net Accounts payable and accrued e'penses +hare capital +hare pre$iu$ -etained earnings
1,%00,000 ()0,000 3,000,000 500,000 1,((0,000
Chec.s a$ounting to "(00,000 were written to vendors and recorded on June 30 resulting in cash overdraft of "200,000/ he chec.s were $ailed on July %/ and held for resale was sold for cash on July 15/ he financial state$ents were issued on July 31/ n June 30, 2015, what total a$ount should be reported as current assets a/ ),500,000 b/ ),100,000 c/ ),300,000 d/ 2,500,000
Problem 2 (Total (Total assets)
An entity was incorporated on January 1, 2015 with proceeds fro$ the issuance of "&,500,000 in shares and borrowed funds of "1,100,000/ uring the first year of operations, revenue fro$ sales and consulting a$ounted to "420,000, and operating costs and e'penses totaled "()0,000/ n ece$ber 15, the entity declared a "30,000 cash dividend, payable to shareholders on January 15, 201(/ 201(/ o additi additional onal activi activitie tiess affec affected ted owners6 owners6 e#uity e#uity in 2015/ 2015/ he liabi liabilit lities ies increa increased sed to "1,200,000 by ece$ber 31, 2015/ 7hat a$ount should be reported as total assets on ece$ber 31, 2015 a/ b/ c/ d/
4,450,000 4,420,000 &,4&0,000 4,&50,000
Problem (Current l!ab!l!t!es)
An entity had the following liabilities on ece$ber 31, 2015: Accounts payable 8nsecured notes, 49 due &1201( Accrued e'penses Contingent liability eferred ta' liability +enior bonds, &9, due 331201(
55,000 )00,000 35,000 )50,000 25,000 1,000,000
he contingent liability is an accrual for possible loss on a "1,000,000 lawsuit filed against the entity/ he legal counsel e'pects the suit to be settled in 201( and has esti$ated that the entity will be liable for da$ages in the range of ")50,000 to "&50,000/ he deferred ta' liability is e'pected to reverse in 201(/ 7hat a$ount should be reported on ece$ber 31, 2015 for current liabilities a/ 515,000 b/ %)0,000 c/ 1,)%0,000 d/ 1,515,000
"age
2
Problem " (Net !n#ome)
An entity reported net inco$e of "&,)10,000 for the current year/ he auditor raised #uestions about the following a$ounts that had been included in net inco$e: 8nreali;ed loss on e#uity invest$ents at fair value through other co$prehensive inco$e
5)0,000 ! 2,200,000 &50 &50,000 ! 1,)00,000 ! 500,000
7hat a$ount should be reported as ad=usted net inco$e a/ b/ c/ d/
(,500,000 &,200,000 4,200,000 4,&00,000
Problem $ (Reta!ne% earn!n&s)
An entity provided the following infor$ation on ece$ber 31, 2015: otal reported inco$e since incorporation otal cash dividends paid 8nreali;ed holding loss on trading invest$ent otal share dividends distributed "rior period ad=ust$ent recorded January 1, 2015 > credit
1,&00,000 400,000! 120,000! 200,000! &5,000
7hat a$ount should be reported as retained earnings on ece$ber 31, 2015 a/ a / b/ b/ c/ c / d/ d/
(55,000 &00,000 540,000 &&5,000
Problem ' (Cas #omutat!on)
An entity reported reported the chec.boo. balance balance on ece$ber 31, 2015 at "4,000,000/ *n addition, addition, the entity held the following ite$s in the safe on that date: Chec. payable to the entity, dated January 2, 201( in pay$ent of a sale, not !n#lu%e% in in ece$ber 31 chec. boo. balance Chec. Chec. payabl payablee to the entity entity, deposit deposited ed ece$ber ece$ber 15 and includ included ed in ece$ber 31 chec.boo. balance, but returned by ban. on ece$ber 30 sta$ped ?+@/ he chec. was redeposited on January 2, 201( and cleared on January 5, 201( Chec. drawn on the entity6s account, dated and recorded on ece$ber 31, 2015 but not $ailed until January 15, 201( Coins and currencies on hand hree>$onth $oney $ar.et instru$ents 7hat is the correct a$ount of ?cash on ece$ber 31, 2015 a/ b/ c/ d/
&,500,000 %,300,000 4,300,000 %,400,000
1,000,000
3,000,000 2,500,000 400,000 1,500,000
"age
2
Problem " (Net !n#ome)
An entity reported net inco$e of "&,)10,000 for the current year/ he auditor raised #uestions about the following a$ounts that had been included in net inco$e: 8nreali;ed loss on e#uity invest$ents at fair value through other co$prehensive inco$e
5)0,000 ! 2,200,000 &50 &50,000 ! 1,)00,000 ! 500,000
7hat a$ount should be reported as ad=usted net inco$e a/ b/ c/ d/
(,500,000 &,200,000 4,200,000 4,&00,000
Problem $ (Reta!ne% earn!n&s)
An entity provided the following infor$ation on ece$ber 31, 2015: otal reported inco$e since incorporation otal cash dividends paid 8nreali;ed holding loss on trading invest$ent otal share dividends distributed "rior period ad=ust$ent recorded January 1, 2015 > credit
1,&00,000 400,000! 120,000! 200,000! &5,000
7hat a$ount should be reported as retained earnings on ece$ber 31, 2015 a/ a / b/ b/ c/ c / d/ d/
(55,000 &00,000 540,000 &&5,000
Problem ' (Cas #omutat!on)
An entity reported reported the chec.boo. balance balance on ece$ber 31, 2015 at "4,000,000/ *n addition, addition, the entity held the following ite$s in the safe on that date: Chec. payable to the entity, dated January 2, 201( in pay$ent of a sale, not !n#lu%e% in in ece$ber 31 chec. boo. balance Chec. Chec. payabl payablee to the entity entity, deposit deposited ed ece$ber ece$ber 15 and includ included ed in ece$ber 31 chec.boo. balance, but returned by ban. on ece$ber 30 sta$ped ?+@/ he chec. was redeposited on January 2, 201( and cleared on January 5, 201( Chec. drawn on the entity6s account, dated and recorded on ece$ber 31, 2015 but not $ailed until January 15, 201( Coins and currencies on hand hree>$onth $oney $ar.et instru$ents 7hat is the correct a$ount of ?cash on ece$ber 31, 2015 a/ b/ c/ d/
&,500,000 %,300,000 4,300,000 %,400,000
1,000,000
3,000,000 2,500,000 400,000 1,500,000
"age
3
Problem * (Ima!rment o+ a##ounts re#e!,able)
An entity reported the following accounts receivable on ece$ber 31, 2015: Custo$er A Custo$er B Custo$er C Custo$er All other accounts receivable not individually significant
1,000,000 1,500,000 2,000,000 2,500,000 3,500,000
he entity deter$ined that Custo$er A receivable is totally i$paired and Custo$er B receivable is i$paired by "&00,000/ he other receivables fro$ Custo$ers C and are not considered i$paired/ he entity deter$ined that a co$posite rate of 109 is appropriate to $easure i$pair$ent on the re$aining accounts receivable/ 7hat is the total i$pair$ent loss of accounts receivable for 2015 a/ b/ c/ d/
2,500,000 2,050,000 1,050,000 2,&50,000
Problem - (Current net re#e!,ables)
An entity reported current receivables on ece$ber 31, 2015 which consisted con sisted of the following: rade accounts receivable Allowance for uncollectible accounts Clai$ against shipper for goods lost in transit in ove$ber 2015 +elling price of unsold goods sent by the entity on consign$ent at 1309 of cost and not included in the ending inventory +ecurity deposit on lease of warehouse used for storing inventories
%30,000 20,000 30,000 2(0,000 300,000
7hat is the correct total of #urrent net receivables on ece$ber 31, 2015 a/ 1,500,000 b/ 1,200,000 c/ 1,2)0,000 d/ %)0,000
Problem . (Measurement o+ notes re#e!,ables)
n ece$ber 31, 2015, an entity received two "2,000,000 notes receivable fro$ custo$ers/ n both notes, interest is calculated on the outstanding principal balance at the annual rate of o f 39 and a nd payable at $aturity/ $aturity/ he first note, $ade under custo$ary trade ter$s, is due in nine $onths and the second note is due in five years/ he $ar.et interest rate for si$ilar notes on ece$ber 31, 2015 was 49/ he " of 1 at 49 due in nine $onths is /%)), and the " of 1 at 49 due in 5 years is /(4/ n ece$ber 31, 2015, what total carrying a$ount should be reported for the two notes receivable a/ b/ c/ d/
3,2)4,000 3,)%),)00 3,3(0,000 3,5(),000
"age
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Problem /0 (Measurement o+ loan re#e!,able)
A ban. granted a 10>year loan to a borrower in the a$ount of "1,500,000 with stated interest rate of (9/ "ay$ents are due $onthly and are co$puted to be "1(,(50/ he ban. incurred ")0,000 of direct loan origination cost and "20,000 of indirect loan origination cost/ *n addition, the ban. charged the borrower a )>point nonrefundable loan origination fee/ 7hat is the carrying a$ount of the loan receivable to be reported initially by the ban. a/ b/ c/ d/
1,))0,000 1,)40,000 1,500,000 1,520,000
Problem // (Cost o+ !n,entor1)
An entity reported inventory on ece$ber 31, 2015 at "(,000,000 based on a physical count at cost and before any necessary year>end ad=ust$ents relating to the following:
*ncluded in the physical count were goods billed to a custo$er @B shipping point on ece$ber 30, 2015/ hese goods had a cost of "125,000 and were pic.ed up by the carrier on January &, 201(/
7hat a$ount should be reported as inventory on ece$ber 31, 2015 a/ b/ c/ d/
5,4&5,000 (,000,000 (,1&5,000 (,300,000
Problem /2 (Comutat!on o+ a##ounts a1able)
An entity reported accounts payable on ece$ber 31, 2015 at "),500,000 before any necessary year>end ad=ust$ents relating to the following transactions:
n ece$ber 2&, 2015, the entity wrote and recorded chec.s to creditors totaling "2,000,000 causing an overdraft of "500,000 in the entity6s ban. account on ece$ber 31, 2015/ he chec.s were $ailed on January 10, 201(/ n ece$ber 24, 2015, the entity purchased and received goods for "&50,000, ter$s 210, n30/ he entity recorded purchases and accounts payable at net a$ount/ he invoice was recorded and paid January 3, 201(/
n ece$ber 31, 2015, what a$ount should be reported as accounts payable a/ b/ c/ d/
&,5&5,000 &,250,000 &,235,000 &,553,500
"age 5 Problem / (Reta!l !n,entor1 meto%)
n ece$ber 31, 2015, an entity provided the following infor$ation: *nventory, January 1 "urchases Additional $ar.up
Cost
Reta!l
&35,000 ),1(5,000
1,015,000 5,&&5,000 210,000
+ales for the year totaled "5,500,000/ Dar.down a$ounted to "100,000/ 8nder the aro!mate lo3er o+ a,era&e #ost or NR4 retail $ethod, what is the inventory on ece$ber 31, 2015 a/ 1,050,000 b/ 1,)00,000 c/ %%),000 d/ %40,000
Problem /" (Gross ro+!t meto%)
An entity budgeted the following sales/
+ales on account Cash sales
5une
1,400,000 140,000
5ul1
Au&ust
1,4)0,000 200,000
1,%00,000 2(0,000
All $erchandise is $ar.ed up to sell at invoice cost plus 209/ Derchandise inventory at the beginning of each $onth is 309 of that $onthEs pro=ected cost of goods sold/ 7hat is the a$ount of anticipated purchases for 5ul1 a/ b/ c/ d/
1,(32,000 2,0&(,000 1,&00,000 1,&30,000
Problem /$ (B!olo&!#al assets)
An entity provided the following infor$ation about assets in forest plantation: @reestanding trees and under trees -oads in forest Ani$als related to recreational activities -ubber trees and grape vines
5,000,000 %00,000 500,000 2,000,000 1,500,000
7hat total a$ount should be reported as biological assets a/ b/ c/ d/
5,000,000 4,500,000 (,500,000 %,%00,000
Problem /' (Ma#!ner1)
n +epte$ber 1, 2015, an entity purchased a new $achine on a deferred pay$ent basis/ A down pay$ent of "200,000 was $ade and ) annual install$ents of "(00,000 each are to be $ade beginning on +epte$ber 1, 201(/ he cash e#uivalent price of the $achine was "2,300,000/ ue to an e$ployee stri.e, the entity could not install the $achine i$$ediately and thus incurred "30,000 of storage cost/ Cost of installation e'cluding the storage cost a$ounted to "40,000/ 7hat is the total cost of the $achine a/ b/ c/ d/
2,300,000 2,340,000 2,)10,000 2,(00,000
"age ( Problem /* (Borro3!n& #ost)
uring 2015, an entity constructed an asset costing "10,000,000/ he weighted average accu$ulated e'penditures on the asset during the year totaled "(,000,000/ o help pay for construction, "),)00,000 was borrowed at 109 on January 1, 2015, and funds not needed for construction were te$porarily invested in short>ter$ securities, yielding "%0,000 in interest revenue/ ther than the construction funds borrowed, the only other debt outstanding during the year was a "5,000,000, 10>year, %9 note payable dated January 1, 2012/ 7hat is the a$ount of interest that should be capitali;ed during 2015 a/ b/ c/ d/
(00,000 300,000 )%),000 %)),000
Problem /- (6elet!on)
*n 2015, an entity purchased property with natural resources for "24,000,000/ he property had a residual value of "5,000,000/ Fowever, the entity is re#uired to restore the property to the original condition at a discounted a$ount of "2,000,000/ *n 2015, the entity spent "1,000,000 in develop$ent cost and "3,000,000 in building/ *n 201(, an a$ount of "),000,000 was spent for additional develop$ent on the $ine/ "roduction began in 201( and the tons e'tracted totaled 3,000,000 in 201( and 2,500,000 in 201&/ he re$aining tons totaled &,000,000 and 3,500,000, respectively on ece$ber 31, 201( and ece$ber 31, 201&/ 7hat a$ount of depletion should recogni;ed in 201& a/ 10,500,000 b/ 12,250,000 c/ %,000,000 d/ 4,&50,000
Problem /. (Re,aluat!on)
n June 30, 2015, an entity reported the following infor$ation: G#uip$ent at cost Accu$ulated depreciation
30,000,000 10,500,000
he e#uip$ent was $easured using the cost $odel and depreciated on a straight line basis over 10> year period/ n ece$ber 31, 2015, the $anage$ent decided to change the basis of $easuring the e#uip$ent fro$ the cost $odel to the revaluation $odel/ he e#uip$ent was revalued to the fair value of "2&,000,000 with re$aining useful life of 5 years/ he inco$e ta' rate is 309/ 7hat a$ount should be reported as revaluation surplus on ece$ber 31, 2015 a/ b/ c/ d/
&,500,000 5,250,000 (,300,000 %,000,000
"age & Problem 20 (Comuter so+t3are)
uring the current year, an entity incurred the following costs to develop and produce a routine, low>ris. co$puter software product: Co$pletion of detailed progra$ design or wor.ing $odel Cost incurred for coding and testing to establish technological feasibility ther coding costs after establish$ent of technological feasibility ther testing costs after establish$ent of technological feasibility Costs of producing product $asters for training $aterials uplication of co$puter software and training $aterials fro$ product $aster "ac.aging product
1,300,000 1,000,000 2,)00,000 2,000,000 1,500,000 2,500,000 %00,000
7hat a$ount should be capitali;ed initially as software cost a/ b/ c/ d/
5,)00,000 3,&00,000 5,%00,000 (,%00,000
Problem 2/ (Start u #osts)
An entity, a $a=or winery, begins construction of a new facility in Dindanao/ he following costs are incurred in con=unction with the start>up activities of the new facility: "roduction e#uip$ent ravel costs of salaried e$ployees icense fees raining of local e$ployees for production and $aintenance operations Advertising costs
4,150,000 )00,000 1)0,000 1,200,000 450,000
7hat a$ount of start up costs should be e'pensed a/ %,&50,000 b/ 1,(00,000 c/ 1,3%0,000 d/ 0
Problem 22 (Intan&!ble assets)
n January 1, 2013, an entity purchased patent at a cost of "1,%20,000 at which date the re$aining legal life was 1( years/ n January 1, 2015, the useful life of the patent was deter$ined to be only 4 years fro$ the date of ac#uisition/ n January 1, 2015, the entity paid "400,000, of which three>fourths was for a trade$ar., and one>fourth was for the other entity6s agree$ent not to co$pete for a 5>year period in the line of business covered by the trade$ar./ he entity considered the life of the trade$ar. indefinite/ Doreover, the entity agreed to pay "50,000 to the other entity as consulting fee each year for 5 years payable every January 1/ 7hat is the a$orti;ation of intangible assets for 2015 a/ b/ c/ d/
320,000 240,000 250,000 3&0,000
"age 4 Problem 2 (Goo%3!ll)
n ece$ber 31, 2015, an entity purchased for ")0,000,000 cash all of the outstanding ordinary shares of another entity when the subsidiary6s state$ent of financial position showed net assets of "32,000,000/ he subsidiary6s assets and liabilities had fair value different fro$ the carrying a$ount as follows: "roperty, plant and e#uip$ent, net ther assets ong>ter$ debt
Carr1!n& amount 50,000,000 5,000,000 30,000,000
Fa!r ,alue 5&,500,000 0 24,000,000
7hat a$ount should be reported as goodwill in the ece$ber 31, 2015 consolidated state$ent of financial position of the ac#uirer and its wholly>owned subsidiary a/ b/ c/ d/
3,500,000 2,500,000 &,500,000 4,000,000
Problem 2" (F!nan#!al asset at +a!r ,alue trou& oter #omreens!,e !n#ome)
n January 1, 2015, an entity purchased nontra%!n& e#uity securities which are irrevocably designated at fair value through other co$prehensive inco$e: Pur#ase r!#e
+ecurity A +ecurity B +ecurity C
1,000,000 2,000,000 ),000,000
Transa#t!on #ost
Mar7et 8 /29/920/$
100,000 200,000 )00,000
1,500,000 2,)00,000 ),&00,000
n July 1, 201(, the entity sold +ecurity C for "5,200,000/ 7hat a$ount should be credited to retained earnings as a result of the sale of the invest$ent in 201( a/ 400,000 b/ 500,000 c/ 300,000 d/ 0
Problem 2$ (Interest on loans)
An entity fre#uently borrowed fro$ the ban. in order to $aintain sufficient operating cash/ he following loans were at a 129 interest rate with interest payable at $aturity/ he entity repaid each loan on scheduled $aturity date/ 6ate o+ loan ove$ber 1, 201) @ebruary 1, 2015 Day 1, 2015
Amount 500,000 1,500,000 400,000
Matur!t1 %ate ctober 31, 2015 July 31, 2015 January 31, 201(
Term o+ loan 1 year ( $onths % $onths
he entity recorded interest e'pense when the loans are repaid/ As a result, interest e'pense of "150,000 was recorded in 2015/ *f no correction is $ade, by what a$ount would interest e'pense be understated for 2015 a/ b/ c/ d/
5),000 (2,000 (),000 &2,000
"age % Problem 2' (Comensate% absen#es)
An entity has 35 e$ployees who wor. 4>hour days and are paid hourly/ n January 1, 2013, the entity began a progra$ of granting the e$ployees 10 days of paid vacation each year/ acation days earned in 2013 $ay first be ta.en on January 1, 201)/ ;ear
:ourl1
4a#at!on 6a1s Earne% b1 Ea# Emlo1ee
2013 201) 2015
25/40 2&/00 24/50
10 10 10
4a#at!on 6a1s Use% b1 Ea# Emlo1ee
0 4 10
he entity has chosen to accrue the liability for co$pensated absences at the current rate of pay in effect when the co$pensated ti$e is earned/ 7hat is the accrued liability for co$pensated absences on ece$ber 31, 2015 a/ b/ c/ d/
%),%20 %0,&20 &%,400 %5,&(0
Problem 2* (F!nan#e lease = lessee)
An entity leased e#uip$ent for the entire nine>year useful life, agreeing to pay "1,000,000 at the start of the lease ter$ on January 1, 2015, and "1,000,000 annually on each January 1 for the ne't eight years/ he present value on January 1, 2015 of the nine lease pay$ents over the lease ter$ using the rate i$plicit in the lease which the lessor .nows to be 109 was "(,330,000/ he January 1, 2015 present value of the lease pay$ents using the incre$ental borrowing rate of 129 was "5,%&0,000/ he entity $ade a ti$ely second lease pay$ent/ 7hat a$ount should be reported as finance lease liability on ece$ber 31, 201( a/ b/ c/ d/
5,330,000 ),4(3,000 ),%&0,000 ),)(&,000
Problem 2- (F!nan#e lease = lessor)
An entity leased e#uip$ent to an unrelated party on July 1, 2015 for an eight>year period e'piring June 30, 2023/ G#ual pay$ents under the lease are "(00,000 and are due on July 1 of each year/ he first pay$ent was $ade on July 1, 2015/ he i$plicit rate of interest conte$plated is 109/ he cash selling price of the e#uip$ent is "3,500,000 and the carrying a$ount is "2,400,000/ he lease is appropriately recorded as a sales type lease/ 7hat total a$ount of inco$e should be recorded for the year ended ece$ber 31, 2015 a/ b/ c/ d/
&00,000 525,000 %%0,000 4)5,000
"age 10 Problem 2. (Sale an% leaseba#7)
n January 1, 2015, an entity sold a $achine for "5,000,000/ he fair value of the $achine was "(,500,000 on the date of sale/ he $achine had a carrying a$ount of "&,000,000 and re$aining life of 15 years/ he entity i$$ediately leased bac. the $achine for 5 years at an annual rental that was deter$ined to be sufficiently lower than the $ar.et rent/ 7hat total a$ount of loss should be recogni;ed i$$ediately in 2015 a/ )00,000 b/ 400,000 c/ 500,000 d/ 0
Problem 0 (Emlo1ee bene+!t 8 IFRS /.R)
An entity provided the following infor$ation for the current year: Current service cost *nterest on pro=ected benefit obligation *nterest inco$e on plan assets oss on plan settle$ent "ast service cost during the year Actual return on plan assets Actuarial loss during the year Contribution to the plan
500,000 (00,000 350,000 250,000 300,000 450,000 200,000 1,500,000
7hat is the e$ployee benefit e'pense for the current year a/ b/ c/ d/
1,300,000 1,050,000 1,500,000 1,100,000
Problem / (A#tual return on lan assets)
An entity provided the following data related to the pension plan/ 6e#ember /> 20/$
efined benefit obligation "lan assets at fair value et actuarial loss iscount rate G'pected rate of return
4,)00,000 %,000,000 1,))0,000 109 49
6e#ember /> 20/'
11,100,000 %,%00,000 1,500,000 %9 &9
he contribution was "1,2(0,000 in 201( and benefits paid totaled "1,125,000/ 7hat was the actual return on plan assets in 201( a/ b/ c/ d/
%00,000 &(5,000 (00,000 )(5,000
"age 11 Problem 2 (4a#at!on a1 eense)
An entity grants all e$ployees two wee.s of paid vacation for each full year of e$ploy$ent/ 8nused vacation ti$e can be accu$ulated and carried forward to succeeding years and will be paid at the salaries in effect when vacations are ta.en or when e$ploy$ent is ter$inated/ here was no e$ployee turnover in 2015/ Additional infor$ation relating to the year ended ece$ber 31, 2015 is as follows: iability for accu$ulated vacations on January 1, 2015 "re>2015 accrued vacations ta.en fro$ January 1, 2015 to +epte$ber 30, 2015 the authori;ed period for vacations! acations earned for wor. in 2015 ad=usted to current rate
350,000 200,000 300,000
he entity granted a 109 salary increase to all e$ployees on ctober 1, 2015, the annual salary increase date/ 7hat a$ount should be reported as vacation pay e'pense for 2015 a/ b/ c/ d/
)50,000 335,000 315,000 300,000
Problem (Term!nat!on bene+!ts IFRS /.R)
An entity is co$$itted to close a factory in 10 $onths and shall ter$inate the e$ploy$ent of all the re$aining e$ployees of the factory/ 8nder the ter$ination plan, an e$ployee lea,!n& be+ore #losure o+ +a#tor1 shall receive on ter$ination date a cash pay$ent of "20,000/ Fowever, an e$ployee that ren%ers ser,!#e unt!l #losure of the factory shall receive "(0,000/ here are 120 e$ployees at the factory/ he entity e'pects 20 e$ployees to leave before closure and 100 e$ployees to render service until closure/ 7hat a$ount should be recogni;ed as ter$ination benefit a/ b/ c/ d/
2,)00,000 (,)00,000 2,000,000 ),000,000
Problem " (In#ome ta)
An entity reported "%,000,000 inco$e before provision for inco$e ta'/ he following data are provided for the current year: -ent received in advance *nco$e fro$ e'e$pt $unicipal bonds epreciation deduction for inco$e ta' purposes in e'cess of depreciation reported for financial reporting purposes a' pay$ent during the current year *nco$e ta' rate 7hat a$ount of current inco$e ta' liability should be reported at year>end a/ b/ c/ d/
1,&40,000 2,240,000 2,540,000 2,440,000
1,(00,000 2,000,000 1,000,000 500,000 309
"age
12
Problem $ (Bon%s a1able)
An entity has outstanding a &9, ten>year "100,000 facevalue bond/ he bonds was originally sold to yield (9 annual interest/ he entity uses the effective interest $ethod to a$orti;e bond pre$iu$ and does not elect the fair value option for reporting financial liabilities/ n June 30, 2015, the carrying a$ount of the outstanding bond was "105,000/ 7hat a$ount of una$orti;ed pre$iu$ on bond should be reported on June 30, 201( a/ b/ c/ d/
1,050 3,%50 ),300 ),500
Problem ' (Sare=base% #omensat!on)
n January 1, 2015, an entity granted to e$ployees 10,000 share options/ n January 1, 201(, the entity granted to e$ployees an additional 20,000 share options/ 6ate
January 1, 2015 ece$ber 31, 2015 January 1, 201( ece$ber 31, 201(
Fa!r ,alue o+ sare 20 22 25 30
he shares vest at the end of a four>year period/ here are no forfeitures/ 7hat a$ount should be recorded as co$pensation e'pense for 201( a/ b/ c/ d/
1&5,000 205,000 225,000 500,000
Problem * (Reta!ne% earn!n&s)
An entity provided the following data for the year ended ece$ber 31, 2015: -etained earnings unappropriated, January 1 verdepreciation of 201) due to prior period error et inco$e for 2015 - -etained earnings appropriated for treasury shares original balance is "500,000 but reduced by "200,000 by reason of reissuance of the treasury shares! -etained earnings appropriated for contingencies beginning balance "&00,000/ but increased by current appropriation of "100,000! Cash dividends paid to shareholders Change in accounting policy fro$ @*@ to average H credit ad=ust$ent 7hat is the balance of unaror!ate% retained earnings on ece$ber 31, 2015 a/ b/ c/ d/
1,150,000 1,350,000 1,%50,000 1,&50,000
200,000 100,000 1,300,000 300,000 400,000 500,000 150,000
"age 13 Problem - (6!lute% earn!n&s er sare)
An entity reported the following capital structure: utstanding shares: rdinary shares Convertible preference shares
20/$
20/'
110,000 10,000
110,000 10,000
uring 2015, the entity paid preference dividends of "3 per share/ he preference shares are convertible into 20,000 ordinary shares/ et inco$e for 2015 was "450,000/ he inco$e ta' rate is 309/ 7hat a$ount should be reported as diluted earnings per share for 2015 a/ b/ c/ d/
(/31 (/5) &/04 &/)5
Problem . (Cas bas!s)
An entity had the following beginning and ending balances in prepaid e'penses and accrued liabilities for the current year: Beginning balance Gnding balance
Prea!% eenses 5,000 10,000
A##rue% l!ab!l!t!es 4,000 20,000
ebits to operating e'penses totaled "100,000/ 7hat a$ount was paid for operating e'penses during the current year a/ 43,000 b/ %3,000 c/ 10&,000 d/ 11&,000
Problem "0 (Current #ost)
An entity disclosed supple$ental infor$ation on the effects of changing prices/ he entity co$puted the increase in current cost of inventory as follows: *ncrease in current cost no$inal peso! *ncrease in current cost constant peso!
1,500,000 1,200,000
7hat a$ount should be disclosed as the inflation co$ponent of the increase in current cost a/ 2,&00,000 b/ 1,500,000 c/ 1,200,000 d/ 300,000
"age 1) Problem "/ (A##rual bas!s)
An entity ac#uired rights to a patent under a licensing agree$ent that re#uired an advance royalty pay$ent when the agree$ent was signed/ he entity re$itted royalties earned and due under the agree$ent on ctober 31 each year/ Additionally, on the sa$e date, the entity paid, in advance, esti$ated royalties for the ne't year/ he entity ad=usted prepaid royalties at year>end/ he entity provided the following infor$ation for the year ended ece$ber 31, 2015: January 1 ctober 31 ece$ber 31
"repaid royalties -oyalty pay$ent charged to royalty e'pense Iear>end credit ad=ust$ent to e'pense
(50,000 1,100,000 250,000
n ece$ber 31, 2015, what a$ount should be reported as prepaid royalties a/ b/ c/ d/
250,000 )00,000 450,000 %00,000
Problem "2 (A##rual bas!s)
An entity had a balance of "420,000 in the professional fees e'pense account on ece$ber 31, 2015, before considering year>end ad=ust$ents relating to the following:
Consultants were hired for a special pro=ect at a total fee not to e'ceed "(50,000/ he entity had recorded "550,000 of this fee based on billings for wor. perfor$ed in 2015/ he attorney6s letter re#uested by the auditors dated January 31, 201(, indicated that legal fees of "(0,000 were billed on January 15, 201( for wor. perfor$ed in ove$ber 2015, and unbilled fees for ece$ber 2015 were "&0,000/
7hat a$ount should be reported for professional fees e'pen se for 2015 a/ 1,050,000 b/ %50,000 c/ 440,000 d/ 420,000
Problem " (6!s#losures)
An entity reported the following infor$ation in the year>end financial state$ents: Capital e'penditures @inance lease pay$ents *nco$e ta'es paid ividends paid *nterest pay$ents
1,000,000 125,000 325,000 200,000 220,000
7hat total a$ount should be reported as supple$ental disclosures in the state$ent of cash flows prepared using the indirect $ethod a/ 5)5,000 b/ &)5,000 c/ 1,125,000 d/ 1,4&0,000
"age
15
Problem "" (Oerat!n& a#t!,!t!es)
An entity reported net inco$e of "3,000,000 for the current year/ Changes occurred in certain accounts as follows: G#uip$ent Accu$ulated depreciation ote payable
250,000 )00,000 300,000
increase increase increase
uring the year, the entity sold e#uip$ent costing "250,000 with accu$ulated depreciation of "150,000 for a gain of "50,000/ *n ece$ber of the current year, the entity purchased e#uip$ent costing "500,000 with "200,000 cash and a 129 note payable of "300,000/ 7hat a$ount should be reported as net #as ro,!%e% b1 oerat!n& a#t!,!t!es a/ b/ c/ d/
3,)00,000 3,500,000 3,550,000 3,(00,000
Problem "$ (Oerat!n& a#t!,!t!es)
An entity reported net inco$e of "5,000,000 for the current year/ epreciation e'pense was "1,%00,000/ he following wor.ing capital accounts changed: Accounts receivable ontrading e#uity invest$ent *nventory ontrade note payable Accounts payable
1,100,000 increase 1,(00,000 increase &30,000 increase 1,500,000 increase 1,220,000 increase
8nder the indirect $ethod, what net a$ount of ad=ust$ents is re#uired to reconcile net inco$e to net cash provided by operating activities a/ ),%50,000 b/ 1,050,000 c/ 1,2%0,000 d/ 310,000
"age
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SOLUTIONS Problem / Ans3er A
Cash (00,000 >200,000 overdraft! Accounts receivable *nventory "repaid e'penses and held for resale otal current assets
)00,000 &00,000 1,200,000 200,000 2,000,000 ),500,000
Problem 2 Ans3er A
iabilities +hare capital -etained earnings otal liabilities and e#uity
1,200,000 &,500,000 150,000 4,450,000
-evenue fro$ sales and consulting perating costs and e'penses et inco$e ividend declared -etained earnings
420,000 ()0,000! 140,000 30,000! 150,000
Problem Ans3er C
Accounts payable 8nsecured notes Accrued e'penses +erial bonds otal current liabilities
55,000 )00,000 35,000 1,000,000 1,)%0,000
he contingent liability is only disclosed/ 8nder *@-+, the deferred ta' liability is noncurrent regardless of the reversal period/ Problem " Ans3er C
et inco$e per boo. 8nreali;ed loss> other co$prehensive inco$e erroneously deducted "rior period error erroneously deducted
&,)10,000 5)0,000 &50,000 500,000! 4,200,000
he gain on early retire$ent of bonds payable and the loss fro$ fire are properly included in net inco$e/
Problem $ Ans3er 6
otal reported inco$e otal cash dividends paid otal share dividends distributed "rior period ad=ust$ent H credit -etained earnings H ece$ber 31, 2015
1,&00,000 400,000! 200,000! &5,000 &&5,000
he unreali;ed holding loss on trading invest$ent is ignored because it is already included in the reported inco$e since incorporation/
"age
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Problem ' Ans3er C
Chec.boo. balance +@ chec. 8ndelivered chec. drawn Coins and currencies otal cash
4,000,000 3,000,000! 2,500,000 400,000 4,300,000
he chec. payable to the entity is properly not included because it is postdated January 2, 201(/ echnically, the three>$onth $oney $ar.et instru$ents are cash e#uivalents but not cash/
Problem * Ans3er A
Custo$er A Custo$er B otal other receivables otal i$pair$ent loss
1,000,000 &00,000 400,000 2,500,000
Custo$er C Custo$er ther accounts receivable otal other receivables for collective assess$ent of i$pair$ent
2,000,000 2,500,000 3,500,000 4,000,000
8nder *@-+ significant accounts receivable not i$paired should be co$bined with other accounts receivable not individually significant for collective assess$ent of i$pair$ent/
Problem - Ans3er 6
rade accounts receivable Allowance for uncollectible accounts Clai$ against shipper otal current net receivables
%30,000 20,000! 30,000 %)0,000
he selling price of unsold goods on consign$ent should be e'cluded fro$ accounts receivable but the cost should be included in inventory/ he security deposit is classified as noncurrent/
Problem . Ans3er 6
ong>ter$ note receivable H second note *nterest on note 2,000,000 ' 39 ' 5 years! otal $aturity Dultiply by " factor "resent value of note receivable +hort>ter$ note receivable H first note otal carrying a$ount of notes receivable
2,000,000 300,000 2,300,000 /(4 1,5(),000 2,000,000 3,5(),000
he long>ter$ note receivable should be discounted even if is interest>bearing because the interest rate is unreasonably low co$pared to the $ar.et rate/ he short>ter$ note receivable is reported at face a$ount because the discount is usually not $aterial/
"age
14
Problem /0 Ans3er B
@ace a$ount irect origination cost rigination fee charged against borrower )9 ' 1,500,000! *nitial carrying a$ount
1,500,000 )0,000 (0,000! 1,)40,000
he direct origination cost is a deferred charge and the origination fee received fro$ the borrower is unearned inco$e and the two should be included in the $easure$ent of loan receivable/ he indirect origination cost is an outright e'pense/
Problem // Ans3er 6
"hysical count
(,000,000 300,000 (,300,000
he goods billed to a custo$er are properly included in inventory because the ter$ is @B shipping point and the goods are delivered January &, 201(/
Problem /2 Ans3er C
Accounts payable per boo. -eversal of undelivered chec.s
),500,000 2,000,000 &35,000 &,235,000
he undelivered chec.s should be restored to the cash balance and accounts payable/ he goods purchased and received on January 2, 201( should be e'cluded fro$ accounts payable because the ter$ is @B destination/
Problem / Ans3er 6
*nventory H January 1 "urchases Additional $ar.up
Cost &35,000 ),1(5,000 ),%00,000 &09
-etail 1,015,000 5,&&5,000 210,000 &,000,000 5,500,000! 100,000! 1,)00,000
%40,000
he lower of average cost or - retail $ethod is the sa$e as the conservative or conventional $ethod/ hus, the $ar.down is ignored in co$puting the cost ratio/
"age
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Problem /" Ans3er 6
Cost of goods sold: June 1,%40,000 1209! July 2, 0)0,000 1209! August 2,1(0,000 1209! *nventory H July 1 309 ' 1,&00,000! "urchases (S?UEE@E) July
1,(50,000 1,&00,000 1,400,000 510,000 1,&30,000 2,2)0,000 5)0,000! 1,&00,000
he a$ount of purchases for July is co$puted by wor.ing bac. fro$ the cost of goods sold/
Problem /$ Ans3er A
@reestanding trees
5,000,000
he land under trees and roads in forest should be included in property, plant and e#uip$ent/ 8nder *@-+, ani$als related to recreational activities as in ga$e par.s, and bearer plants, such as rubber trees and grape vines should be accounted for as property, plant and e#uip$ent/
Problem /' Ans3er B
Cash e#uivalent price *nstallation cost otal cost of $achine
2,300,000 40,000 2,340,000
he storage cost is an outright e'pense/
Problem /* Ans3er C
Average e'penditures +pecific borrowing
(,000,000 ),)00,000! 1,(00,000 ))0,000 %0,000! 1)),000 )%),000
"age 20 Problem /- Ans3er 6
"urchase price evelop$ent cost H 2015 evelop$ent cost H 201( Gsti$ated restoration cost otal cost -esidual value epletable a$ount "roduction in 201( -e$aining esti$ate H ece$ber 31, 201( otal esti$ate H January 1, 201(
24,000,000 1,000,000 ),000,000 2,000,000 35,000,000 5,000,000! 30,000,000 3,000,000 &,000,000 10,000,000
-ate per unit 30,000,000 10,000,000! epletion for 201( 3,000,000 ' 3!
3/00 %,000,000
"roduction in 201& -e$aining esti$ate H ece$ber 31, 201& otal esti$ate H January 1, 201&
2,500,000 3,500,000 (,000,000
epletable a$ount epletion 201( -e$aining depletable a$ount
30,000,000 %,000,000! 21,000,000
ew rate 21,000,000 (,000,000!
3/50
epletion 201& 2,500,000 ' 3/50!
4,&50,000
Problem /. Ans3er C
Accu$ulated depreciation H (302015 epreciation fro$ July 1 to ece$ber 31, 2015 30,000,000 10 ' (12! Accu$ulated depreciation H 12312015 Cost Accu$ulated depreciation Carrying a$ount @air value -evaluation surplus eferred ta' liability 309 ' %,000,000! et revaluation surplus
10,500,000 1,500,000 12,000,000 30,000,000 12,000,000! 14,000,000 2&,000,000 %,000,000 2,&00,000! (,300,000
Problem 20 Ans3er C
ther coding cost after establish$ent of technological feasibility ther testing costs after establish$ent of technological feasibility Costs of producing product $asters otal capitali;ed cost of co$puter software
2,)00,000 2,000,000 1,500,000 5,%00,000
he co$pletion of detailed progra$ design and the cost incurred to establish technological feasibility should be e'pensed i$$ediately/ he duplication of co$puter software and pa c.aging product should be charged to inventory/
"age 21 Problem 2/ Ans3er B
ravel costs of e$ployees raining of local e$ployees otal start up costs to be e'pensed
)00,000 1,200,000 1,(00,000
he production e#uip$ent should be capitali;ed/ he license fees and advertising costs should be e'pensed but not within the purview of start up costs/ Problem 22 Ans3er A
"atent > January 1, 2013 A$orti;ation for 2013 and 201) 1,%20,000 1( ' 2! Carrying a$ount H January 1, 2015
1,%20,000 2)0,000! 1,(40,000
"urchase price rade$ar. 3) ' 400,000! onco$petition agree$ent
400,000 (00,000! 200,000
"atent 1,(40,000 ( years re$aining! onco$petition agree$ent 200,000 5 years! otal a$orti;ation for 2015
240,000 )0,000 320,000
he patent has a re$aining life of ( years because the revised life is 4 years fro$ the date of ac#uisition and two years already e'pired/ he trade$ar. is not a$orti;ed because the life is indefinite/ he annual consulting fee is an outright e'pense/
Problem 2 Ans3er A
et assets per boo. @air value of property, plant and e#uip$ent greater @air value of other assets ;ero @air value of long>ter$ debt lower et assets at fair value Ac#uisition cost
32,000,000 &,500,000 5,000,000! 2,000,000 3(,500,000 )0,000,000 3,500,000
he net assets should be recogni;ed at fair value in a business co$bination/ Problem 2" Ans3er A
"urchase price of security C ransaction cost otal cost
),000,000 )00,000 ),)00,000
*f the e#uity invest$ent is $easured at fair value through other co$prehensive inco$e @C*!, the transaction cost is capitali;ed Dar.et value of security C 12312015 Fistorical cost 8nreali;ed gain H C* 123120015
),&00,000 ),)00,000 300,000
5ournal entr1 on 5ul1 /> 20/'
Cash 8nreali;ed gain H C* @inancial asset H @C* -etained earnings
5,200,000 300,000 ),&00,000 400,000
8nder the final version of *@-+ %, any change in fair value of an e#uity invest$ent $easured at @C* is per$anently e'cluded fro$ profit or loss under all circu$stances but $ay transferred to e#uity or retained earnings/
"age 22 Problem 2$ Ans3er A
January 1, 2015 to ctober 31, 2015 500,000 ' 129 ' 1012! @ebruary 1, 2015 to July 31, 2015 1,500,000 ' 129 ' (12! Day 1, 2015 to ece$ber 31, 2015 400,000 ' 129 ' 412! Correct interest e'pense -ecorded interest e'pense *nterest e'pense understated
50,000 %0,000 (),000 20),000 150,000 5),000
Problem 2' Ans3er A
otal vacation days H 2013, 201) and 2015 otal vacation days used 4 K 10! 8nused vacation days
30 14 12
@ro$ 201) @ro$ 2015 otal unused vacation days > @*@
2 10 12
201) 35 e$ployees ' 4 hours ' 2 ' "2&! 2015 35 ' 4 ' 10 ' "24/50! Accrued liability H 12312015
15,120 &%,400 %),%20
Problem 2* Ans3er B 6ate 112015 112015 11201(
Pa1ment
/0 !nterest
Pr!n#!al
1,000,000 1,000,000
> 533,000
1,000,000 )(&,000
Present ,alue (,330,000 5,330,000 ),4(3,000
he relevant present value is the a$ount co$puted using the 109 i$plicit rate/ he first pay$ent on January 1, 2015 is applied all to principal
Problem 2- Ans3er 6
"resent value H &12015 cash price! "ay$ent on &12015 H all applicable to principal "resent value H &12015 *nterest inco$e fro$ July 1, 2015 to June 30, 201( 109 ' 2,%00,000! Cash price Carrying a$ount
3,500,000 (00,000! 2,%00,000 2%0,000 3,500,000 2,400,000 &00,000 1)5,000 4)5,000
"age 23 Problem 2. Ans3er B
@air value of $achine Carrying a$ount *$pair$ent loss +ale price @air value eferred loss *$pair$ent loss A$orti;ation of deferred loss 1,500,000 5 years! otal loss to be recogni;ed in 2015
(,500,000 &,000,000 500,000! 5,000,000 (,500,000 1,500,000! 500,000 300,000 400,000
*f the leasebac. is an operating lease and the sale price is below fair value of the asset co$pensated by below $ar.et rent: a/ he difference between the sale price and the fair value is a deferred loss to be a$orti;ed over the lease ter$/ b/ *f the fair value is below the carrying a$ount, the carrying a$ount is written down to fair value and the writedown is recogni;ed i$$ediately as an i$pair$ent loss/
Problem 0 Ans3er A
Current service cost *nterest on pro=ected benefit obligation *nterest inco$e on plan assets oss on plan settle$ent "ast service cost during the year otal e$ployee benefit e'pense
500,000 (00,000 350,000! 250,000 300,000 1,300,000
Problem / Ans3er B
"lan assets at fair value H 12212015 Contribution to plan 201( Actual return on plan assets (S?UEE@E) otal Benefits paid in 201( "lan assets at fair value H 1231201(
%,000,000 1,2(0,000 &(5,000 11,025,000 1,125,000! %,%00,000
he actual return or plan assets is ? sueee% by wor.ing bac. fro$ ending plan assets at fair value/
Problem 2 Ans3er C
Accu$ulated vacations H 112015 acation ta.en in 2015 iability balance H 112015
350,000 200,000 150,000
acations earned in 2015 Ad=ust$ent of accu$ulated vacations H 112015 109 ' 150,000! otal vacation pay e'pense
300,000 15,000 315,000
"age 2) Problem Ans3er A
er$ination benefit 120 e$ployee ' "20,000! otal pay$ent until closure er$ination benefit Additional benefit considered as short>ter$ benefit +hort>ter$ benefit 100 e$ployees ' )0,000!
2,)00,000
(0,000 20,000! )0,000 ),000,000
8nder *@-+, the additional a$ount paid to e$ployees who render service until closure is no longer a ter$ination benefit but short>ter$ benefit/
Problem " Ans3er A
@inancial inco$e -ent received in advance a' e'e$pt inco$e a' depreciation in e'cess of financial depreciation a'able inco$e
%,000,000 1,(00,000 2,000,000! 1,000,000! &,(00,000
Current ta' e'pense 309 ' &,(00,000! a' pay$ent during the year Current ta' liability
2,240,000 500,000! 1,&40,000
Problem $ Ans3er C
*nterest paid &9 ' 100,000! *nterest e'pense (9 ' 105,000! "re$iu$ a$orti;ation Carrying a$ount H (302015 @ace a$ount "re$iu$ on bonds payable H (302015 A$orti;ation &12015 to (30201( 8na$orti;ed pre$iu$ H (30201(
&,000 (,300 &00 105,000 100,000 5,000 &00! ),300
Problem ' Ans3er A
+hare options on January 1, 2015 10,000 ' 20! +hare options on January 1, 201( 20,000 ' 25!
200,000 500,000
he share options are $easured at fair value on the date of grant and allocated over the vesting period/ +hare options on January 1, 2015 200,000 ) years! +hare options on January 1, 201( 500,000 ) years! otal co$pensation e'pense for 201(
50,000 125,000 1&5,000
"age 25 Problem * Ans3er B
-etained earnings H January 1 "rior period error H overdepreciation et inco$e -etained earnings appropriated for treasury shares reverted to unappropriated balance *ncrease in retained earnings appropriated for contengencies Cash dividends paid Change in accounting policy > credit -etained earnings unappropriated > ece$ber 31
200,000 100,000 1,300,000 200,000 100,000! 500,000! 150,000 1,350,000
Problem - Ans3er B
rdinary shares outstanding "otential ordinary shares fro$ convertible preference shares otal ordinary shares iluted G"+ 450,000 net inco$e 130,000!
110,000 20,000 130,000 (/5)
Problem . Ans3er B
perating e'penses Beginning prepaid e'penses Gnding prepaid e'penses Beginning accrued liabilities Gnding accrued liabilities perating e'penses paid
100,000 5,000! 10,000 4,000 20,000! %3,000
Problem "0 Ans3er 6
*ncrease in current cost H no$inal *ncrease in current cost H constant *ncrease in current cost due to inflation
1,500,000 1,200,000 300,000
Problem "/ Ans3er 6
"repaid royalties H January 1 *ncrease in prepaid royalties credited to e'pense "repaid royalties H ece$ber 31
(50,000 250,000 %00,000
"age 2( Problem "2 Ans3er B
"rofessional fees e'pense per boo. Accrued legal fees H ove$ber Accrued legal fees H ece$ber Ad=usted professional fees e'pense
420,000 (0,000 &0,000 %50,000
he entity already recorded "550,000 out of total consultants6 fee of "(50,000/ he balance of "100,000 is not recogni;ed because no wor. has been perfor$ed as yet/
Problem " Ans3er A
*@-+ re#uires the following disclosures when preparing the state$ent of cash flows: *nco$e ta'es paid *nterest pay$ents otal
325,000 220,000 5)5,000
Problem "" Ans3er B
*ncrease in accu$ulated depreciation Add : Accu$ulated depreciation of e#uip$ent sold epreciation for the year et inco$e epreciation for the year operating
)00,000 150,000 550,000 3,000,000 550,000 50,000! 3,500,000
Problem "$ Ans3er C
epreciation *ncrease in accounts receivable *ncrease in inventory *ncrease in accounts payable et ad=ust$ent to net inco$e as an addition he increase in nontrading e#uity invest$ent is an investing activity/ he increase in nontrade note payable is a financing activity/
1,%00,000 1,100,000! &30,000! 1,220,000 1,2%0,000
"age
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SITUATION PROBLEM I 8 BAND RECONCILIATION
An entity had the following ban. reconciliation on June 30, 2015: Balance per ban. state$ent, June 30 eposit transit otal utstanding chec.s Balance per boo., June 30
3,000,000 )00,000 3,)00,000 %00,000! 2,500,000
he ban7 statement for the $onth of July showed the following: eposits including "200,000 note collected for the depositor entity! isburse$ents including "1)0,000 +@ chec. and "10,000 service charge!
%,000,000 &,000,000
All reconciling ite$s on June 30 cleared through the ban. in July/ he deposit in transit a$ounted to "1,000,000 and the outstanding chec.s totaled "(00,000 on July 31/ 1/ 7hat is the a$ount of cash in ban. that should be reported on July 31, 2015 a/ b/ c/ d/
5,000,000 5,)00,000 ),550,000 ),%00,000
2/ 7hat is the cash balance per ledger on July 31, 2015 a/ b/ c/ d/
5,350,000 5,550,000 ),500,000 5,)00,000
3/ 7hat is the a$ount of cash receipts for boo. for the $onth of July a/ b/ c/ d/
%,400,000 4,(00,000 %,)00,000 %,(00,000
)/ 7hat is the a$ount of cash disburse$ents per boo. for the $onth of July a/ b/ c/ d/
&,300,000 (,&00,000 (,450,000 (,550,000
"age
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SOLUTION 8 SITUATION PROBLEM I ?uest!on / Ans3er B
Balance per ban. H June 30 July ban. deposits July ban. disburse$ents Balance per ban. H July 31 July deposits in transit July outstanding chec.s Ad=usted ban. balance
3,000,000 %,000,000 &,000,000! 5,000,000 1,000,000 (00,000! 5,)00,000
?uest!on 2 Ans3er A
Balance per ledger H July 31 S?UEE@E! ote collected by ban. in July +@ chec. in July +ervice charge in July Ad=usted boo. balance
$>$0>000 200,000 1)0,000! 10,000! 5,)00,000
he balance per boo. on July 31 is ?s#uee;ed by wor.ing bac. fro$ the ad=usted balance/
?uest!on Ans3er C
eposits per ban. state$ent for July ote collected by ban. in July eposit in transit H June 30 eposit in transit H July 31 Cash receipts per boo. for July
%,000,000 200,000! )00,000! 1,000,000 %,)00,000
?uest!on " Ans3er 6
isburse$ents per ban. state$ent for July +@ chec. in July +ervice charge in July utstanding chec.s H June 30 utstanding chec.s H July 31 Cash disburse$ents per boo. for July
&,000,000 1)0,000! 10,000! %00,000! (00,000 (,550,000
"age
2%
SITUATION PROBLEM 2 8 ACCOUNTS RECEI4ABLE
@ro$ inception of operations, an entity provided for uncollectible accounts e'pense under the allowance $ethod and provisions were $ade $onthly at 29 of credit sales/ o year>end ad=ust$ents to the allowance account were $ade/ he balance in the allowance for doubtful accounts was "1,000,000 on January 1, 2015/ uring 2015, credit sales totaled "20,000,000, interi$ provisions for doubtful accounts were $ade at 29 of credit sales, "200,000 of bad debts were written off, and recoveries of accounts previously written off a$ounted to "50,000/ An aging of accounts receivable was $ade for the first ti$e on ece$ber 31, 2015 as follows: Class!+!#at!on ove$ber H ece$ber July H ctober January H June "rior to January 1, 2015
Balan#e (,000,000 2,000,000 1,500,000 500,000
Un#ollet!ble 109 209 309 509
Based on the review of collectibility of the account balances in the ?prior to January 1 2015 aging category, additional accounts totaling "100,000 are to be written off on ece$ber 31, 2015/ Gffective ece$ber 31, 2015, the entity adopted the aging $ethod for esti$ating the allowance for doubtful accounts/ 1/ 7hat is the re#uired allowance for doubtful accounts on ece$ber 31, 2015 a/ b/ c/ d/
1,(50,000 1,%50,000 1,&00,000 1,)50,000
2/ 7hat a$ount should be reported as doubtful accounts e'pense in the inco$e state$ent for 2015 a/ 1,200,000 b/ 1,(50,000 c/ %00,000 d/ %50,000 3/ 7hat is the year>end ad=ust$ent to the allowance for doubtful accounts on ece$ber 31, 2015 a/ b/ c/ d/
%00,000 %00,000 500,000 500,000
debit credit debit credit
)/ 7hat is the net reali;able value of accounts receivable on ece$ber 31, 2015 a/ b/ c/ d/
%,%00,000 4,250,000 4,350,000 4,200,000
"age 30 SOLUTION 8 SITUATION PROBLEM 2 ?uest!on / Ans3er A
(,000,000 ' 109 2,000,000 ' 209 1,500,000 ' 309 500,000 H 100,000 ' 509 -e#uired allowance H ece$ber 31, 2015
(00,000 )00,000 )50,000 200,000 1,(50,000
?uest!on 2 Ans3er C
Allowance for doubtful accounts H January 1 -ecoveries of accounts written off oubtful accounts e'pense (S?UEE@E) otal Accounts written off 200,000 K 100,000! Allowance for doubtful accounts H ece$ber 31
1,000,000 50,000 %00,000 1,%50,000 300,000! 1,(50,000
he doubtful accounts e'pense is sueee% by wor.ing bac. fro$ the ending allowance for doubtful accounts/
?uest!on Ans3er 6
Correct doubtful accounts e'pense -ecorded doubtful accounts e'pense 29! ' 20,000,000 sales! *ncrease in allowance > credit
%00,000 )00,000 500,000
?uest!on " Ans3er B
ove$ber H ece$ber July H ctober January H June "rior January 1, 2015 500,000 H 100,000! Accounts receivable H ece$ber 31, 2015 Allowance for doubtful accounts et reali;able value
(,000,000 2,000,000 1,500,000 )00,000 %,%00,000 1,(50,000! 4,250,000
"age 31 SITUATION PROBLEM 8 GROSS PROFIT MET:O6
n ece$ber 31, 2015, a fire da$aged the warehouse and factory of an entity co$pletely destroying the goods in process inventory/ here was no da$age to the raw $aterials, finished goods and factory supplies he physical inventory revealed the following/ 5anuar1 /
-aw $aterials
1,&00,000 ),300,000 (,000/000 500,000
6e#ember /
2,000,000 0 ),500,000 )00,000
he gross profit $argin historically appro'i$ated 0 o+ sales / he sales for the year a$ounted to "20,000,000/ -aw $aterial purchases totaled "),000,000/ irect labor costs for the year a$ounted to "5,000,000, and $anufacturing overhead has been applied at (09 of direct labor/ 1/ 7hat is the cost of raw $aterials used a/ 5,&00,000 b/ 3,&00,000 c/ 3,400,000 d/ 3,(00,000 2/ 7hat is the total $anufacturing cost a/ 13,000,000 b/ 11,400,000 c/ 11,&00,000 d/ 11,(00,000 3/ 7hat is the cost of goods sold a/ 12,000,000 b/ 1(,000,000 c/ 13,000,000 d/ 1),000,000 )/ 7hat is the cost of goods in process inventory destroyed by fire a/ 3,500,000 b/ 3,400,000 c/ 2,500,000 d/ 1,500,000
"age
32
SOLUTION 8 SITUATION PROBLEM ?uest!on / Ans3er B
-aw $aterials H January 1 "urchases -aw $aterials available for use -aw $aterials H ece$ber 31 -aw $aterials used
1,&00,000 ),000,000 5,&00,000 2,000,000! 3,&00,000
?uest!on 2 Ans3er C
-aw $aterials used irect labor Danufacturing overhead (09 ' 5,000,000! otal $anufacturing cost
3,&00,000 5,000,000 3,000,000 11,&00,000
he change in the factory supplies is no longer considered because it is already part of the $anufacturing overhead applied/
?uest!on Ans3er 6
Cost of goods sold &09 ' 20,000,000!
1),000,000
he cost ratio is &09 because the gross profit rate is 309 on sales/
?uest!on " Ans3er A
otal $anufacturing cost
11,&00,000 ),300,000 1(,000,000 3,500,000! 12,500,000 (,000,000 14,500,000 ),500,000! 1),000,000
he cost of ending goods in process is co$puted by wor.ing bac. fro$ the cost of goods sold/
"age
33
SITUATION PROBLEM " 8 IN4ESTMENT IN ASSOCIATE
n January 1, 2015, an entity ac#uired a 109 interest in an investee for "3,000,000/ he invest$ent was accounted for under the #ost meto% / uring 2015, the investee reported net inco$e of "),000,000 and paid dividend of "1,000,000/ n January 1, 201(, the entity ac#uired a further 159 interest in the investee for "4,500,000/ n such date, the carrying a$ount of the net assets of the investee was "3(,000,000 and the fair value of the 109 e'isting interest was "3,500,000/ he fair value of the net assets of the investee is e#ual to carrying a$ount e'cept for an e#uip$ent whose fair value was "),000,000 greater than carrying a$ount/ he e#uip$ent had a re$aining life of 5 years/ he investee reported net inco$e of "4,000,000 for 201( and paid dividend of "5,000,000 on ece$ber 31, 201(/ 1/ 7hat a$ount of invest$ent inco$e should be recogni;ed in 2015 a/ b/ c/ d/
)00,000 100,000 500,000 300,000
2/ 7hat is the goodwill arising fro$ the ac#uisition on January 1, 201( a/ 3,000,000 b/ 2,000,000 c/ 2,500,000 d/ 0 3/ 7hat total a$ount of inco$e should be recogni;ed by the investor in 201( a/ b/ c/ d/
2,000,000 2,500,000 2,300,000 1,400,000
)/ 7hat is the carrying a$ount of the invest$ent in associate on ece$ber 31, 2015 a/ b/ c/ d/
12,550,000 12,350,000 11,%50,000 12,&50,000
"age
3)
SOLUTION 8 SITUATION PROBLEM " ?uest!on / Ans3er B
ividend inco$e 109 ' 1,000,000!
100,000
8nder cost $ethod, the invest$ent inco$e is based on dividend declared or paid/
?uest!on 2 Ans3er B
G'isting 109 interest re$easured at fair value ew 159 interest otal cost H January 1, 201( et assets ac#uired 259 ' 3(,000,000! G'cess of cost over carrying a$ount G'cess attributable to e#uip$ent whose fair value is greater than carrying a$ount 259 ' ),000,000!
3,500,000 4,500,000 12,000,000 %,000,000! 3,000,000 1,000,000! 2,000,000
?uest!on Ans3er C
+hare in net inco$e 259 ' 4,000,000! A$orti;ation of e'cess attributable to e#uip$ent 1,000,000 5 years! et invest$ent inco$e
2,000,000 200,000! 1,400,000
@air value of 109 interest Fistorical cost -e$easure$ent gain et invest$ent inco$e otal inco$e in 201(
3,500,000 3,000,000 500,000 1,400,000 2,300,000
*f the invest$ent in associate is achieved in stages the old interest is re$easured at fair value through profit or loss/
?uest!on " Ans3er A
otal cost 11201( et invest$ent inco$e +hare in cash dividend 259 ' 5,000,000! Carrying a$ount H 1231201(
12,000,000 1,400,000 1,250,000! 12,550,000
"age
35
SITUATION PROBLEM $ 8 PROPERT;> PLANT AN6 E?UIPMENT
January 1, 2015, an entity disclosed the following balances: and and i$prove$ents Buildings Dachinery and e#uip$ent
),000,000 1,300,000 20,000,000 4,000,000
uring the current year, the following transactions occurred: L A tract of land was ac#uired for "2,000,000 cash as a building site/ L
A plant facility consisting of land and building was ac#uired in e'change for 200,000 shares of the entity/ n the ac#uisition date, each share had a #uoted price of ")5 on a stoc. e'change/ he plant facility was carried on the seller6s boo.s at "1,(00,000 for land and "5,)00,000 for the building at the e'change date/ Current appraised values for the land and the building, respectively, are "2,000,000 and "4,000,000/ he building has an e'pected life of forty years with a "200,000 residual value/
L
*te$s of $achinery and e#uip$ent were purchased at a total cost of "),000,000/ Additional costs incurred were freight and unloading "100,000 and installation "300,000/ he e#uip$ent has a useful life of ten years with no residual value/
L
G'penditures totaling "1,200,000 were $ade for new par.ing lot, street and sidewal.s at the entity6s various plant locations/ hese e'penditures had an esti$ated useful life of fifteen years/
L
-esearch and develop$ent costs were "1,100,000 for the year/
L
A $achine costing "200,000 on January 1, 2004 was scrapped on June 30, 2015/ +traight line depreciation had been recorded on the basis of a 10>year life with no residual value/ A $achine was sold for "500,000 on July 1, 2015/ riginal cost of the $achine sold was "&00,000 on January 1, 2012, and it was depreciated on the straight line basis over an esti$ated useful life of eight years and a residual value of "50,000/ 1/ 7hat is the total cost of land on ece$ber 31, 2015 a/ b/ c/ d/
&,400,000 &,(00,000 4,000,000 (,400,000
2/ 7hat is the total cost of land i$prove$ents on ece$ber 31, 2015 a/ b/ c/ d/
1,200,000 3,(00,000 1,300,000 2,500,000
3/ 7hat is the total cost of buildings on ece$ber 31, 2015 a/ 24,000,000 b/ 25,)00,000 c/ 2&,200,000 d/ 2&,000,000 )/ 7hat is total cost of $achinery and e#uip$ent on ece$ber 31, 2015 a/ b/ c/ d/
12,)00,000 11,500,000 11,000,000 11,&00,000
