Resa p1 First Pb 1015

RESA P1 FIRST PB 1015 MULTIPLE CHOICE 1.

Beloved Corporation’s trial balance contained the following account balances at December 31, 2014:

Equity investment to profit or loss, at cost Prepaid insurance Cash and Cash Equivalents Inventory, at cost Equipment and furniture  Accounts receivable receivable Land (held for capital appreciation)  Asset held for sale (fair (fair value – value – P400,000) Provision for returns and discounts Provision for depreciation Provision for inventory decline Fair value allowance on equity investment

150, 000 30, 000 330, 000 900, 000 990, 000 480, 000 1, 200, 000 500, 000 ( 50, 000 ) ( 120, 000 ) ( 100, 000 ) 70, 000

How much is the total current assets in Beloved’s December Decem ber 31, 2014 statement of financial position? a. P1,810,000 b. P1,910,000 c. P2,210,000 d. P2,310,000  ANS: C SOL: Equity investment to profit or loss, at cost 150,000 Prepaid insurance 30,000 Cash and cash equivalents equivalent s 330,000 Inventory, at cost 900,000  Accounts receivable receivable 480,000  Asset held for sale (fair value) 400,000 Provision for returns and discounts (50,000) Provision for inventory decline (100,000) Fair value allowance on equity investment 70.000 Total P2,210,000 REF: RESA 1017 TOP: Financial Statements DIF: Moderate 2. The following accounts are taken from the unadjusted trial balance of Flower Company on December 31, 2014: Cash, P340,000 ; Accounts receivable, P850,000 ; Allowance for bad debts, P8,000 ; Notes receivable, P360,000 ; Prepaid rent expense, P20,000 ; Trading security investment, investment, P300,000 ; Merchandise inventory, P600,000 ; Accounts payable, P500,000 ; Notes payable, P700,000 ;  Additional Information: Information: Cash consists of Cash in Bank per book (outstanding checks, P24,000)

P334, 000

Petty cash including unreplenished unreplenished petty expense vouchers of P300 Customer’s post-dated post-dated check dated March 4, 2015 Total

1, 000 5, 000 P340, 000

 Accounts receivable includes includes selling price of goods sent on consignment at at 125% of cost and and not included included in the inventory, P250,000 ; The note receivable consists of two 120-day 6% notes both are dated October 1, 2014. The first note with a face amount of P160,000 was discounted for which the company has retained significant amount of risk and rewards to the degree of retaining control ; Market value of the trading security investment, P280,000 ; Accounts payable includes cost of purchases in transit FOB shipping point and not included in the inventory, P80,000 ; What is the correct amount of total current assets? a. P2,325,100 b. P2,461,100 c P2,477,100 d P2,485,100  ANS: C SOL: Cash (340,000 – (340,000 – 300 - 5,000)  Acct receivable (850,000 + 5,000 5,000 - 250,000 -8,000) Note receivable Prepaid rent Merchandise inventory (600,000 + 200,000 + 80,000)  Accrued interest interest income (360,000 x 6% x 90/360) Trading investment investment (300,000 - 20,000) Total REF: RESA 1015 TOP: Asset DIF: Moderate 3.

= = = = = = = =

334,700 597,000 360,000 20,000 880,000 5,400 280,000 P2,477,l00

On January 1, 2015, Marlene Corporation sold for P105,000 an old machine having an original cost of P14,000 and a book value of P80,000. The terms of the sale were as follows: • P15,000 down payment • P30,000 payable on December 31 each of the next 3 years • The agreement agreement of sale sale made no mention mention of interest; interest; however, 9% would be a fair rate for this type of transaction. By what total amount should be reported in the statement of comprehensive income for the year ended December 31, 2015 related to the sale of the old machine and remeasurement of the financial asset (The present value of an ordinary annuity of 1 at 9% for 3 years is 2.531295.) a. P 6,834 b. P10,939 c. P17,773 d. P25,000  ANS: C SOL: Selling price; Down P15,000 Balance(30,000 Balance(30,000 x 2.531295) 75,939 P90,939 Carrying value, 80,000

Gain Interest income (75,939 x 9%) Total REF: RESA 1015 TOP: Financial Statement DIF: Moderate 4.

Lola Company reported the following information for 2015: Sales revenue Cost of goods sold Operating expenses Unrealized gain on FVOCI securities Cash dividends received on the securities Exchange differences on translating foreign operations Cash flow hedges – gains Remeasurement gain on defined benefit pension plans Share of other comprehensive income of associate Dividends paid on ordinary share capital Dividends paid on preference share debt security

P10,939 6,834 P17,773

P 500,000 ( 350,000 ) ( 55,000 ) 20,000 2,000 30,000 25,000 45,000 ( 65,000 ) ( 80,000 ) ( 30,000 )

For 2015, Lola would report comprehensive income of a. P 42,000 b. P107,000 c. P122,000 d. P152,000  ANS: C REF: RESA 1015 TOP: Financial Statement DIF: Easy 5.

Neutral Company provides bundled service offering to Beacon Company. It charges Beacon Company P70,000 for initial connection to its network and two on-going services-access to the network for one year and on call troubleshooting services for that year. Beacon Company pays the P70,000 on July 1, 2014. Neutral Company. Neutral Company determines that if it were to charge a separate fee for each service if sold separately the fee would be: connection, P10,000 ; access fee, P24,000 and troubleshooting fee, P46,000. What total amount of revenue should Neutral Company disclose in its December 31, 2014 statement of comprehensive income related to the above services? a. P 8,750 b. P20,125 c. P39,375 d. P61,250  ANS: C SOL: connection (10/80 x70,000) 8,750 access and trouble shooting (70/80 x70,000 x1/2) 30,625 Total 39,375 REF: RESA 1015 TOP: Financial Statement

DIF: Easy 6.

On December 01, 2014, Grand, Inc. sells production equipment to Crosse Manufacturing for P480,000. Gledhill includes a 1-year warranty service with the sale of all its equipment. The customer receives and pays for the equipment on December 31, 2014. Grand estimates the prices to be P476,000 for the equipment and P24,000 for the warranty. What is the amount of realize revenue related to the warranty should Grand recognize for the year 2014? a. P 1,920 b. P23,040 c. P21,120 d. P24,000  ANS: A SOL: Total selling price P480,000 x Ratio (P12,000/P500,000) 4.8% Deferred Warranty P23,040 x Ratio 11/12 Realized revenue P1,920 REF: RESA 1015 TOP: Warranty Liability DIF: Easy 7.

On September 30, 2014, when the carrying amount of the net assets of segment C was P15,000,000, X Company signed a binding contract to sell segment C for P12,500,000. The sale is expected to be completed by January 31, 2015. In addition, prior to January 31, 2015, the sale contract obliges X Company to terminate certain employees of segment C incurring termination cost of P1,000,000 to be paid on June 30, 2015. The company continued to operate segment C throughout 2014. Revenue of segment C throughout 2014 was P10,000,000, operating cost was P4,000,000. How much income should be reported as income from ordinary activities of the discontinued segment for 2014, before tax? a. P2,500,000 b. P5,000,000 c. P6,000,000 d. P7,500,000  ANS: A SOL: Total selling price P480,000 x Ratio (P12,000/P500,000) 4.8% Deferred Warranty P23,040 x Ratio 11/12 Realized revenue P1,920 REF: RESA 1015 TOP: Warranty Liability DIF: Easy 8.

On January 2, 2014, Chronic Company is committed to a plan to sell a manufacturing facility and has initiated actions to locate a buyer. Chronic Company does not intend to transfer the facility to a buyer until after it ceases all operations of the facility and eliminates the backlog of uncompleted customer orders. The facility was constructed for a total cost of P6,300,000. Its estimated useful life was for a period of 30 years and with an estimated salvage value of P300,000.

 As of January 2, 2014, the carrying value of the facility is P4,300,000 and a recoverable value of P4,500,000.  As of December 31, 2014, Chronic Company has yet to complete the customers’ orders and the facility has a recoverable amount of P4,000,000. On December 31, 2014, Chronic Company should classify the facility as a. Property, plant & equipment valued at P4,000,000 b. Property, plant and equipment at P4,100,000 c. Non-current asset held for sale and valued at P4,500,000 d. Non-current asset held for disposal and valued at P4,000,000  ANS: A SOL: Carrying value as of January 2, 2014 P4,300,000 Less: 2014 depreciation (P4,300,000 - 300,000 / 20 years) 200,000 Carrying value as of December 31, 2014 P4,100,000 Recoverable amount P4,000,000 REF: RESA 1017 TOP: Property, Plant and Equipment DIF: Easy 9.

Western Company reported a total cash and cash equivalent of P6,000,000 on December 31, 2014, which includes the following information among others: Two certificates of deposits, each totalling P500,000. These certificates of deposit have a maturity of 90 and 120 days respectively.  A check that is dated January 12, 2015 in the amount of P125,000.  A commercial paper of P2,100,000 which is due in 120 days. Currency and coins on hand amounted to P77,000.  A stale check of P50,000 

   

Western Company has agreed to maintain a cash balance of P500,000 in one of its banks at all times and it is not available for withdrawal and to ensure future credit availability (this amount was included in the above balance). How much is the correct amount of cash and cash equivalents that Western Company should report in its December 31, 2014 statement of financial position? a. P2,225,000 b. P2,648,000 c. P2,725,000 d. P4,825,000  ANS: C SOL: Balance per book P6,000,000 Time deposit, - 120 days ( 500,000 ) Postdated check ( 125,000 ) Stale Check ( 50,000 ) Maintaining balance ( 500,000 ) Commercial paper (2,100,000) Correct cash balance P2,725,000 REF: RESA 1017 TOP: Cash and Cash Equivalents DIF: Easy

10. The following limited information were made available from the cash record of Shella Company and its bank statement for the month of December 31, 2014: Book receipts Bank receipts November 30 deposit in transit (of which P20,000 remained to be outstanding as of December 31, 2014) Erroneous bank credit for December Erroneous book credit for November, corrected in December Erroneous bank debit in November, corrected in December Credit memo for December not yet recorded by Shella Credit memo for November, recorded by WORD in December Customer’s check received and deposited but posted as disbursement by Shella   What is the correct receipt for December? a. P1,695,000 b. P1,715,000 c. P1,735,000 d. P1,795,000  ANS: D SOL: Total Deposit in transit ~ Nov Deposit in transit ~ Dec. Credit memo ~ Nov. Credit memo - Dec. Errors Error Correct receipt REF: RESA 1017 TOP: Proof of Cash DIF: Moderate

P1,785,000

( 150,000 ) 120,000 ( 20,000) 60,000 P1,795,000

P1,785,000 1,932,000 260,000 10,000 20,000 5,000 120,000 150,000 60,000

P1,932,000 ( 240,000 ) 118,000

(

15,000 )

P1,795,000

11. The following information was included in the bank reconciliation for Yvette Co. for July: Checks & charges recorded by bank in July (including a July service charge of P10,000) P986,080 ; Service charge made by bank in June and recorded in books in July, P12,000 ; Total credits to cash in all journals in July, P977,600 ; Customer’s NSF check returned as a bank charge in July (no entry made in books), P60,000 ; Customer’s NSF check returned in June, recorded by the company in July, P75,000 ; Outstanding checks in July 31, P200,000 ; Checks issued in July for P20,000 recorded by the company as, P2,000 ; Erroneous bank charge in July, P20,000 ; Erroneous bank credit in June corrected in July, P30,000 ; Erroneous book receipt in June corrected in July, P5,000. What is the correct disbursement for the month of July? a. P949,600 b. P964,600 c. P973,600 d. P995,600  ANS: C SOL: Total P977,600 P986,080

Outstanding check – June Outstanding check - July Service charge June Service charge - July NSF check – June NSF check - July Error Error Correct REF: RESA 1017 TOP: Proof of Cash DIF: Moderate

( 162,480) 200,000 (12,000) 10,000 (75,000) 60,000 18,000 (5,000) P973,600

( 50,000 ) P973,600

12. Cross Company holds a portfolio of receivables with carrying amount of P2,000,000. The company enters into a factoring arrangement with Finance Company under which it transfers the portfolio via an assignment to Finance Company in exchange for P1,800,000 of cash. All sums collected from debtors are paid by Cross Company to a specifically nominated bank account opened by Finance Company. Cross Company agrees to reimburse Finance Company in cash for any shortfall between the amount collected from the receivable and consideration received of P1,800,000. Once the receivables have been repaid, any sums collected above P1,800,000 less any interest on the initial payment the date the debtors pay, will be paid to Cross Company. What amount of receivable should Cross Company continue to recognize immediately after the transfer? a. None b. P200,000 c. P1,800,000 d. P2,000,000  ANS: D REF: RESA 1017 TOP: Receivable Financing DIF: Moderate 13. Illuminations, Inc., an interior light design company, offers both trade and quantity discounts. Quantity discounts are shown below: Quantity purchased Discount rate 1-9 cans 0% 10-19 cans 5% more than 20 cans 8% Dealers also receive a 5% discount on list price per lighting fixture before any quantity discount is given. Cash buyers receive an additional 2% of the total retail price. The retail price of each super light is P140. How much is the net revenue from sale should be recognized if a certain customer purchases 35 pieces of super light on account and another customer purchases 15 pieces of super light on a cash basis? a. P4,263.00 b. P4,282.00 c. P6,137.95

d. P6,197.75  ANS: C SOL: 35 x 140 x 95% x 92% = 4,28.2.60 15 x 140 x 95% x 93% = 1,855.35 Total P6,137.95 REF: RESA 1017 TOP: Sales Revenue DIF: Easy 14. The Moonlight Corporation applies the lower of cost or net realizable value (NRV) inventory. Data regarding the items of its finished goods inventory are shown below: Shorts Pants Historical cost P 56,600 P 90,000 Estimated selling price 75,000 108,000 Estimated cost to complete 14,000 20,000 Replacement cost 20,000 40,000 Estimated cost to sell 21,000 15,000 Under the lower of cost or NRV rule, at what amount should the inventory be reported in the statement of financial position? a. P113,000 b. P144,000 c. P146,600 d. P147,000  ANS: B SOL: Celling price P75,000 P108,000 Cost to sell (21,000) (15,000) NRV P54,000 P93,000 Cost 56,600 90,000 Lower 54,000 90,000 REF: RESA 1017 TOP: Lower of Cost and Net Realizable Value DIF: Easy 15. The Kingdom Company sells Product A. During the year, the company moved to a new location, the inventory records for Product A were misplaced. The bookkeeper has been able to gather some information from the sales records and gives you the data shown below: July sales:

57,200 units at P100

July purchases: July 5 July 9 July 12 July 23

Date 10,000 12,500 15,000 14,000

Quantity P65.00 P62.50 P60.00 ?

Unit cost

On July 31, 16,000 were on hand and the cost is P981,000. Kingdom Company has always used a periodic FIFO inventory costing system. Gross profit on sales for July was P2,141,650. What is the unit cost of the beginning inventory? a. P62.00 b. P62.38 c. P63.00 d. P63.20  ANS: C SOL: Sales P5,720,000 Gross Profit 2,141,650 Cost of Sales 3,578,350 Inventory, End 981,000 Total Goods Available for Sale 4,559,350 Less: Total Purchases 3,192,250** Inventory, Beginning 1,367,000 Inventory beginning units 21,700 Unit Cost P 63 Inventory end 16,000 units P981,000 July 12 acquisition 2,000 @ 60 120,000 July 23 acquisition 14,000 @ 61.50 861,000 **Purchases; 10,000 x 65 + 12,500 x 62.50 + 15,000 x 60 + 14,000 x 61.50 = P3,192,250 REF: RESA 1017 TOP: Inventory Cost Flow DIF: Easy 16. White Farm Supply’s records for the first 3 months of its existence show purchases of Commodity A as follows: No. of Units Cost  August 5,500 P 280,500 September 8,000 416,000 October 5,100 270,300 Total 18,600 P 966,800 The inventory of Commodity A at the end of October using FIFO is valued at P363,900. Assuming that none of commodity A was sold during August and September, what value would be shown at the end of October if average cost was assumed? a. P351,900 b. P353,300 c. P358,662 d. P365,700  ANS: C SOL: Inventory end (FIFO) 363,900 6,900 October acquisition 270,000 5,100 September acquisition 93,000 @ 52 1,800 units  Ave. units cost 966,8000/18600 = P51.98

Inventory end (Average) 6,900 x 51.98 = P658,662 REF: RESA 1017 TOP: Inventory Cost Flow DIF: Moderate NARRBEGIN: Carnation, Incorporated Use the given information in answering the next item(s): Presented below is information related to Carnation, Incorporated: Cost Retail Inventory, January 1, 2014 P 250,000 P 390,000 Purchases 898,500 1,460,000 Purchase returns 60,000 80,000 Purchase discounts 18,000 -0Sales (net of 2% discounts) -01,234,800 Sales returns -095,550 Freight-in 80,000 -0NARREND: Carnation, Incorporated 17.  Assuming that Carnation, Inc. uses the average retail inventory method, how much would be the cost of its ending inventory at December 31, 2014? a. P393,607 b. P394,875 c. P395,121 d. P396,394  ANS: B REF: RESA 1017 TOP: Retail Inventory Method DIF: Moderate

18.  Assuming that Carnation, Inc. uses the FIFO retail inventory method, how much would be the cost of its ending inventory at December 31, 2014? a. P393,607 b. P394,875 c. P395,121 d. P396,394  ANS: D SOL: P 898.500 1,460,000 FC 80,000 0 PD (18,000) 0 PR (60,000) PR (80,000) NP 900.500 NP 1,380,000 = 65.2536% IB 250,000 IB 390,000 TGAS 1,150,500 TGAS 1,770,000 = 65,00% TGAS Net sales (1,234,800 - 95,550 / 98%

PI,770,000 1,162,500

Estimated inventory end Inventory end, average Inventory end, FIFO REF: RESA 1017 TOP: Retail Inventory Method DIF: Moderate

607,500 x 607,500 x

65.00% 65.25%

P607,500 - P394,B75 = P396,394

19. On September 14, 2014, a typhoon damaged a warehouse of Goodness Corporation. The entire company and many accounting records stored in the warehouse were completely destroyed. Although the inventory was not insured, a portion could be sold for scrap. Through the use of microfilmed records, the following data were gathered: Inventory, January 1 Purchases, January to September 14 Cash sales, January to September 14 Collection of accounts receivable, Jan. 1 to Sept. 14  Account receivable written-off  Accounts receivable, January 1  Accounts receivable, September 14 Sales return Salvage value of damaged inventory Gross profit percentage on sales

P 750,000 2,770,000 450,000 4,230,000 50,000 350,000 530,000 70,000 90,000 40%

How much is the value of inventory loss? a. P434,000 b. P484,000 c. P524,000 d. P574,000  ANS: B SOL: Inventory, January1  Add: Purchases, January to September14 Total goods available for sale Less: Estimated cost of sales(P4,910,000* x60%) Estimated inventory, end Less: Salvage value of damaged inventory Inventory loss

P 750,000 2.770.000 P3,520,000 2.946.000 P574,000 90,000 P 484,000

 Accounts receivable, end  Add: Collections of receivables Sales return Write-off Total Less: Accounts receivable, beginning Sales on account  Add; Cash sales Total sales Sales return

P 530,000 4,230,000 70,000 50,000 P4,880,000 350,000 P4,530,000 450,000 P4,980,000 (70,000)

Net sales REF: RESA 1017 TOP: Inventory DIF: Moderate

P4,910,000*

20. The closing raw materials inventory of Webster Manufacturing Company amounted to P345,000 at December 31, 2014. This total includes an item of raw material (material Zip) with a cost of P100,000 with an estimated net realizable value of P80,000. Immediately after the balance sheet date, material Zip was applied to production and the cost of the finished product where material Zip was applied revealed that the net selling price exceeds the cost of producing the finished goods. As of December 31, 2014, what amount of raw materials inventory should Webster Company report? a. P245,000 b. P265,000 c. P325,000 d. P345,000  ANS: D REF: RESA 1017 TOP: Inventory DIF: Easy 21. On October 1, 2014, Saint Company consigned 50 sewing machines to Matthew Company for sale at P20,000 each and paid P40,000 in transportation cost. On December 31, 2014, Matthew reported the sale of 30 sewing machines and 5 sewing machines were returned back to the consignor. Saint Company paid 4,000 freight cost for the returned units. The consignee is entitled to a commission of 15% commission on the selling price. The consignee remitted P465,000 after deducting a total commission of P135,000. If Saint Company has a net profit of P118,000 from the above transactions, what was the original unit price of the consigned units? a. P10,000 b. P10,500 c. P11,500 d. P12,000  ANS: D SOL: Sales 30 units @ P20,000 P600,000 Transport cost P40,000 x 35/50 (28,000) Return transport cost (4,000) Commission on sold units 600,000 x 15% (90,000) Net income (118,000) Cost of purchase or. sold units P360,000 / units sold 30,000 Original purchase price 12,000 REF: RESA 1017 TOP: Consignment DIF: Easy 22. On January 2, 2014, Dumont Company received a consolidated grant of P240,000,000. Three-fourths of the grant is to be utilized to purchase a college building for students from underdeveloped or developing countries. The balance of the grant is for subsidizing the tuition costs of those students for

four years from the date of the grant. The expected college life of the building is 10 years and the company uses a double declining method of depreciation for the building. What is the amount of the deferred income should be reported in the December 31, 2015 statement of financial position? a. P130,200,000 b. P145,200,000 c. P153,600,000 d. P174,000,000  ANS: B SOL: Building Tuition Fee 1/2/14 Deferred Grant P180, 000, 000 P60,000,000 Realized 2 years; 2014 (36,000,000) (15,000,000) 2015 (28,800,000) (15,000,000) 12/31/15 Deferred grant P115,2000,000 P30,000,000 REF: RESA 1017 TOP: Government Grant DIF: Moderate NARRBEGIN: Icon Company Use the given information in answering the next item(s): Items 23 to 25 are based on the following information:  A herd of 50, 1-year old and 50, 2-year old animals were held by Icon Company at January 1, 2015. The company also purchased 20 animals aged 1.5 and 20 animals aged 2.5 on July 1, 2015. The following are the fair value of the biological assets:  Age of animals Jan. 1, 2015 July 1, 2015 Dec. 31, 2015 1.0-year old P 2,500 P 3,000 P 3,500 1.5-year old 3,750 4,500 5,250 2.0-year old 5,000 6,000 7,000 2.5-year old 6,250 7,500 8,750 3.0-year old 7,500 9,000 10,500 No animals were born during 2015. NARREND: Icon, Company 23. How much of the increase in the fair value of the biological assets due to price change? a. P115,000 b. P130,000 c. P180,000 d. P190,000  ANS: C REF: RESA 1017 TOP: Biological Asset DIF: Moderate 24. a. b. c.

How much of the increase in the fair value of the biological assets due to physical change? P205,000 P240,000 P385,000

d. P420,000  ANS: D REF: RESA 1017 TOP: Biological Asset DIF: Moderate 25. What is the fair value of the biological assets as of December 31, 2015? a. P1,085,000 b. P1,145,000 c. P1,225,000 d. P1,470,000  ANS: C SOL: Price change: Pec.31 Price Jan.1 or July 1 1.0 year old 3,500 2,500 x 50 = 50,000 1.5 year old 5,250 4,500 x 20 = 15,000 2.0 year old 7,000 5,000 x 50 = 100,000 2.5 year old 8,250 7,500 x 20 = 15,000 Total P180,000 1.0 year eld 1.5 year old 2.6 ycsar old 2.5 year old TOTAL 2.0 year old 3.0 year old Total REF: RESA 1017 TOP: Biological Asset DIF: Moderate

7,000 - 3,500 x 50 = 7,000 - 5,250 x 20 = 10,500 - 7,000 x 50 = 10,500 - 3,750 x 20 = 70 x P7,000 79 x P10,500

75,000 35,000 175,000 35,000 420,000 490.000 735.000 PI,225,000

NARRBEGIN: Starry Company Use the given information in answering the next item(s): Starry Company cultures tiger prawns in one hundred one-acre brackish water ponds in a parcel of mangrove land in Laguna leased from the government. The grow-out or transformation phase of prawns takes about four months. As of December 31, 2014, the biological assets of the farm consisted of: Est. FV per pond  Age group attribute Batch qty. by no. of ponds culture-point of sale costs One-month culture 20 P 5,000 Two-month culture 25 10,000 Three-month culture 25 15,000 Four-month culture 15 20,000 Just Harvested 15 nil During the year, three hatches of culture were harvested and sales of prawns for the year totaled P6,000.000.  At December 31, 2015, the biological assets of the farm consisted of: Est. FV per pond

 Age group attribute One-month culture Two-month culture Three-month culture Four-month culture Just Harvested NARREND: Starry Company

Batch qty. by no. of ponds 15 25 20 30 10

culture-point of sale costs P 5,000 10,000 15,000 20,000 nil

26. What is the total fair value of closing aquaculture stocks on December 31, 2015? a. P 625,000 b. P 900,000 c. P1,150,000 d. P1,225,000  ANS: D REF: RESA 1017 TOP: Biological Asset DIF: Moderate 27. What is the amount of net income in 2015 from the aquaculture operations? a. P4,775,000 b. P5,800,000 c. P6,000,000 d. P6,200,000  ANS: D SOL: Revenue from sale P6,000,000 Increase in fair value of aquaculture stocks: Opening aquaculture stocks- at fair value: (7.0 x P.5,000 + 25 x PI0,000 + 25 x 15,000 + 15 x 20,000) PI,205,000 Closing aquaculture stocks - at fair value; (15 x P5.000 + 25 x P10.000 + 20 x P15.000 + 30 x P20.000) 1,225,000 200,000 Total net income from aquaculture P6,200,000 REF: RESA 1017 TOP: Biological Asset DIF: Moderate NARRBEGIN: Resolve Company Use the given following in answering the next item(s): Resolve Company has an investment in financial equity instrument in Marcus Company acquired at a cost of P900,000 in 2014. This investment was designated at initial recognition as fair value to other comprehensive income. Resolve Company’s investment in Marcus has a market value of P700,000, as a result, Resolve Company recognized the impairment loss of its investment in the 2014 other comprehensive income. During the year 2015, due to changes in financial climate, there has been a complete turn-around in Marcus Company’s financial instrument. The market value of the Resolve Company’s investment, market value at the close of 2015 was established at P950,000. On April 30, 2016, Resolve Company sold all the equity investment in Marcus Company at the prevailing market value of P1,000,000. NARREND: Resolve Company

28. What amount of impairment reversal should Resolve Company recognize in its 2015 profit or loss? a. none b. P50,000 c. P200,000 d. P250,000  ANS: A REF: RESA 1017 TOP: Financial Asset at Fair value DIF: Moderate 29. What amount of gain should Resolved Company disclose in the profit or loss of 2016 statement of comprehensive income? a. none b. P50,000 c. P200,000 d. P250,000  ANS: A REF: RESA 1017 TOP: Financial Asset at Fair Value DIF: Moderate NARRBEGIN: Sand Corporation Use the given information in answering the next item(s): Wand Company has 40,000 shares of equity instrument of Sand Corporation. These shares were acquired at P40 per share on Nov. 2, 2014. On December 31, 2014, Wand Company sold 30,000 shares of its investment in Sand Corporation for P50 per share. The remaining securities were sold on December 15, 2015 for P60 per share. NARREND: Sand Corporation 30. What amount of realized gain or loss should Wand Company recognize in 2015 from selling those shares? a. P100,000 b. P200,000 c. P300,000 d. P400,000  ANS: A REF: RESA 1017 TOP: Investment in Equity Securities DIF: Moderate 31. If the investment in equity was designated as investment at fair value to other comprehensive income at initial recognition, what amount of unrealized gain or loss should the company disclose in the statement of comprehensive income for the year ended in December 31, 2014? a. P100,000 b. P200,000 c. P300,000

d. P400,000  ANS: D REF: RESA 1017 TOP: Investment in Equity Securities DIF: Moderate 32. On July 1, 2015, Circle Company, a medium-sized entity, purchased 20% of the outstanding ordinary shares of Square Corporation for P1,000,000, when the fair value of Square’s net assets was P4,000,000. Circle has the ability to exercise significant influence over the operating and financial policies of Square. Circle Company uses the equity method. The following data concerning Square are available for 2015: 12 months ended 6 months ended Dec. 31, 2015 Dec. 31, 2015 Net income P 600,000 P 320,000 Dividends declared and paid 380,000 200,000 In its income statement for the year ended December 31, 2015, how much should Circle report from this investment? a. P20,000 b. P32,000 c. P54,000 d. P64,000  ANS: C SOL: 320,000 x 20% 10,000 = 54,000 goodwill amortization REF: RESA 1017 TOP: Investment in Associate DIF: Easy 33. On January 2, 2014, Faith Corporation, a medium-sized, bought 30 % of the outstanding ordinary shares of Love Corporation for P2,580,000 cash. Faith accounts for this investment by the equity method. At the date of acquisition of the stock, Love’s net assets had a book and fair value of P8,600,000. During 2014, Love declared and paid cash dividends of P200,000. Love Company also reported the following changes in equity that were not included in the profit or loss; a Revaluation surplus on property, plant and equipment, P800,000. The revaluation was done at the end of year 2014. The revalued asset has a remaining life of ten years. Love’s net profit for the year ended December 31, 2014 was P1,800,000. During 2015, Love Company declared a P400,000 dividend, acquired and equity investment designated at fair value to other comprehensive income and by the end of 2015 this investment has an unrealized gain of P300,000. Love’s profit for the year 2015 excluding the unrealized gain of P3 00,000 is, P2,000,000. On December 31, 2015, how much should Faith carry its investment in Love? a. P2,340,000 b. P3,060,000 c. P3,550,000 d. P3,710,000  ANS: D

REF: RESA 1017 TOP: Investment in Associate DIF: Difficult 34. On January 2, 2014, Power Company, a medium size entity, purchased 20% of Plant Corporation’s 200,000 ordinary shares for P3,000,000 including a P50,000 transaction cost. This investment gives Power the ability to exercise significant influence over Plant Corporation. During 2014, Plant reported net income of P1,750,000 and paid cash dividends of P1,000,000 on its ordinary shares. As of December 31, 2014, the shares of Plant Corporation are traded and are currently selling at P81.25 per share. In the statement of comprehensive income of year 2014, what net amount that is reported in relation to the investment? a. P200,000 b. P250,000 c. P400,000 d. P450,000  ANS: C SOL: Transaction cost (50,000) Dividend .Income 200,000 Unrealized gain 81.25 x 40,000 - 3,000,000 250.000 Net amount 400.000 REF: RESA 1017 TOP: Investment in Associate DIF: Moderate 35.  Assuming the shares of the investee are selling at P70 per share and cost to sell of P6 per share on December 31, 2014 and Power Company uses the cost method of accounting for the investment, what net amount is reported in the 2014 statement of comprehensive income of Power Company? a. P200,000 b. (P240,000) c. (P290,000) d. (P440,000)  ANS: B SOL: Fair value of investment 40,000 x 64 P2,560,000 Cost 3,000,000 Impairment loss (440,000) Dividend income 200,000 Net (P240,000) REF: RESA 1017 TOP: Investment in Associate DIF: Moderate 36. On January 2, 2014, M. Company pu rchased 200,000 shares (40%) of J. Company’s ordinary share for P4,500,000. During 2014, J. Company reported the following in its statement of comprehensive income a P4,000,000 net income and a P500,000 unrealized gain from its investment in equity at fair value to other comprehensive income. J. Company paid cash dividends of P3,000,000 on December 31, 2014.

On January 1, 2015, J. Company issued 300,000 shares at P22 per share but M. Company did not acquire any of these shares. What is the carrying value of the investment after the dilution? a. P 3,187,500 b. P 3,450,000 c. P 4,837,500 d. P 5,100,000  ANS: C SOL: Cost P4,500,000 Nat income 4,000,000 x .40 1,600,000 OCI 500,000 x .40 200,000 Dividend 3,000,000 x .40 (1,200,000) Carrying value P5,100,000 Share in the proceeds 6,600,000 x.1 650,000 Deemed sold 5,100,000 x 15/40 (1,912,500) Carrying value P4,837,500 REF: RESA 1017 TOP: Investment in Associate DIF: Moderate 37. On January 1, 2014, Glare Company purchased P3,000,000 face value bonds, 8%, 5-year bonds of Spare. The bonds mature on January 1, 2019 and pay interest semi-annually beginning July 1, 2014. Glare purchased the bonds to yield a 10% interest. What amount of interest income should Glare report in its 2014 income statement? a. 240,000 b. 277,284 c. 277,786 d. 278,707  ANS: C SOL: Cost 3,000,000 x .614 + 120,000 x 7.722 = P2,768,640 Discount amortization ( 1/1 – 6/30 ) Interest income 5% x 2,760,640 = 138,432 Interest receive 120,000 18,432  Amortized cost 6/30/14 P2,787,072 Interest income 1/1/14 to 3/30/14 Interest Income 7/1/14 to12/31/14 Total interest income REF: RESA 1017 TOP: Bonds DIF: Moderate

2,787,072 x 5%

130,432 139,353 277.786

38. Rosalie Corporation is located in London but does business throughout Europe. The company builds and sells equipment used in manufacturing pharmaceuticals. On December 31, 2015, Rosalie has trading securities valued at P63,000 ; goodwill valued at P450,000; prepaid insurance valued at P36,000; patents valued at P210,000; and a customer list valued at P390,000. On Rosalie Corporation’s

statement of financial position at December 31, 2015, what amount should be reported as intangible assets? a. P 660,000 b. P1,050,000 c. P1,113,000 d. P1,149,000  ANS: B REF: RESA 1017 TOP: Intangible DIF: Easy 39. The following information is available for Murphy Company:  Allowance for doubtful accounts at December 31, 2014 Credit Sales during 2015  Accounts receivable deemed worthless and written off during 2015

P 8,000 400,000 9,000

 As a result of a review and aging of accounts receivable in early January 2016, however, it has been determined that an allowance for doubtful accounts of P5,500 is needed at December 31, 2015. What amount should Murphy record as “bad debt expense” for the year ended December 31, 2015? a. P4,500 b. P5,500 c. P6,500 d. P13,500  ANS: C REF: RESA 1017 TOP: Estimation of Doubtful Accounts DIF: Easy 40. Wilkinson Corporation factored, with guarantee (recourse), P400,000 of accounts receivable with Huskie Financing. The finance charge is 3%, and 5% was retained to cover sales discounts, sales returns, and sales allowances. What amount of cash would Wilkinson receive on the sale of receivables? a. P368,000 b. P380,000 c. P388,000 d. P400,000  ANS: A REF: RESA 1017 TOP: Receivable Financing DIF: Easy