1st Long Quiz With Answers

Long Quiz Name: _________________________ Section: ________________________

Score:_________ Date:__________

Smart Company has the following financial assets as of December 31, 2014 (a) A P300,000 accounts receivable that is not held for trading (b) An P800,000 investment in equity instrument quoted in an active market that is not held for trading (c) A P500,000 investment in equity instrument that is not held for trading and does not have quoted price, and hose fair value cannot be reliably measured (d) A P600,000 purchased debt security with the objective to hold the asset to collect the contractual cash flows that are solely payment of interest and principal. (e) A P700,000 purchased debt security in an active market that Smart Company plants to hold to maturity. Smart Company has a business model with the objective of trading the security to make profit for changes in the fair value of debt securities. (f) A P400,000 investment in equity instrument that is quoted in an active market. Smart Company has no intention to sell the investment (g) A P600,000 investment in equity that is held for trading 1.

What amount of financial assets – measured at amortized cost? a. 300,000 b. 600,000

c. d.

700,000 900,000

2.

What amount of financial asset under the category – investment in equity to profit or loss should be separately reported in the December 31, 2014 statement of financial position? a. 300,000 c. 700,000 b. 600,000 d. 900,000

3.

What amount of financial asset under the category – investment in equity through other comprehensive income should be separately reported in the December 31, 2014 statement of financial position? a. 1,200,000 c. 1,700,000 b. 1,300,000 d. 2,400,000

4.

What amount of financial asset under the category – investment in debt security at fair value should be separately reported in the December 31, 2014 statement of financial position? a. 600,000 c. 1,300,000 b. 700,000 d. 2,000,000

As of December 31, 2011, Freeze Company has a legal right to set off cash flows due Frozen Company against amounts due from Froze Company and has the intention to settle net or simultaneously. The following are the payables of Freeze Company to Frozen Company: P2,000,000 on March 31, 2012; P6,000,000 on June 30, 2012 and P5,000,000 on October 31, 2012. Freeze Company has the following receivables from Frozen Company: P1,000,000 on January 15, 2012; P8,000,000 on June 30, 2012 and P2,000,000 on December 15, 2012. 5.

What amount of financial asset should Freeze Company report in its December 31, 2011 statement of financial position? a. None c. 8,000,000 b. 5,000,000 d. 11,000,000

6.

What amount of financial liability should Freeze Company report in its Decemebr 31, 2011 statement of financial position? a. None c. 7,000,000 b. 5,000,000 d. 13,000,000

7.

X Company, a parent company has reported following current account in its financial records as of December 31, 2014: Cash and cash equivalents 3,000,000 Loans and receivables 20,000,000 Merchandise inventory 2,000,000 Prepaid expenses 500,000 Total 25,500,000 Included in the loans and receivables is a P5,000,000 loan to M Company, a subsidiary. The loan is repayable on demand but the demand feature is primarily a form of protection or a tax-driven feature of the loan and it is the intention of both parties that the loan will remain outstanding for foreseeable future.

What is the correct amount of current asset should X Company report in its December 31, 2011 financial position? a. 20,500,000 c. 25,000,000 b. 23,500,000 d. 25,500,000 8.

Cooler Company owns the following investments: Investment equity through profit or loss Investment in equity to other comprehensive income Investment in debt

600,000 350,000 470,000

Cooler Company has a business model of collecting all contractual cash flows for the interest and principal until maturity for all debt securities. Cooler will report securities in its long-term investments section of a. Exactly P950,000 b. Exactly P1,070,000 c. Exactly P1,420,000 d. P820,000 or an amount less than P820,000, depending on the circumstances 9.

Flexible Company has a business model of managing debt security investment by trading on regular basis. The Company has reported the following fair value of investments before the preparation of its December 31, 2014 statement of financial position: Equity investment to profit or loss Equity investment through other comprehensive income Debt investment

P1,500,000 2,000,0000 4,000,000

Included in the equity investment to profit or loss is a P900,000 current fair value of equity investment originally classified as investment to profit or loss acquired three years ago. The company held the investment for three years due to a large unexpected downturn in the stock market. What amount of investment to profit or loss should Flexible Company report in its December 31, 2014 statement of financial position? a. 2,000,000 c. 4,500,000 b. 3,100,000 d. 5,500,000 The accounts and balances shown below were taken from Basic Company’s trial balance on December 31, 2015. All adjusting entries have been made. Wages payable, P250,00; Cash, P175,000; Bonds payable, P600,000; Dividends Payable, P140,000; Prepaid Rent, P136,000; Inventory, P820,000; Investments in Sinking Fund Assets, P525,000; Investment to profit or loss securities, P153,000; Premium on Bonds Payable, P48,000; Investment in Subsidiary, P1,020,000; Taxes Payable, P228,000; Accounts Payable P248,000; Accounts Receivable. P366,000; Property, Plant & Equipment, P1,200,000; Patents – net, P150,000; Accumulated Depreciation – PPE, P400,000, Land held for future business site, P900,000. 10. How much should be reported in Basic’s December 31, 2014 statement of financial position as current and non-current assets, respectively? a. 1,650,000 and 2,375,000 c. 1,800,000 and 2,225,000 b. 1,650,000 and 3,395,000 d. 1,800,000 and 3,795,000 11. How much should be reported in Basic’s December 31, 2014 statement of financial position as current and non-current liabilities, respectively? a. 776,000 and 552,000 c. 916,000 and 640,000 b. 866,000 and 648,000 d. 916,000 and 648,000

12. Beloved Corporation’s trial balance contained the following account balances at December 31, 2014: Investment to profit or loss associate 150,000 Prepaid insurance 30,000 Cash and cash equivalents 330,000 Inventory 900,000 Equipment and furniture, net 990,000 Patent, net 120,000 Accounts receivable 480,000 Land (held for capital appreciation) 1,2000,000 How much is the total current assets in Beloved’s December 31, 2014 statement of financial position? a. 1,890,000 c. 2,190,000 b. 2,010,000 d. 2,430,000 13. Halo, Inc. reported the following items in its December 31, 2014 trial balance. Accounts payable Advances to employees Unearned Rent Revenue Estimated liability under warranties Cash surrender value of officer’s life insurance Bonds payable Discount on bonds payable Trademark

1,089,000 45,000 288,000 258,000 75,000 5,000,000 225,000 6,410,000

How much should be reported as total liabilities in its December 31, 2014 statement of financial position? a. 6,410,000 c. 6,845,000 b. 6,800,000 d. 7,410,000 14. Head Company prepared a draft of its 2014 statement of financial position. The draft statement reported current liabilities totaling P2,000,000. However, none of the following items were included in the preliminary at December 31, 2014. Accounts payable 300,000 Bonds payable, due 2015 500,000 Unamortized discount on bonds payable 60,000 Dividends payable – January 31, 2015 160,000 Notes payable, due 2016 400,000 Unamortized bonds issue costs 20,000 At which amount should Head’s current liabilities be correctly reported in the December 31, 2014 statement of financial position? a. 2,880,000 c. 2,960,000 b. 2,900,000 d. 3,020,000 15. Pilot Company had the following items at December 31, 2014: Accounts payable Unsecured notes, 9% due July 1, 2015 Accrued expenses Provision for litigation Deferred income tax liability Bonds payable, due March 31, 2015

330,000 800,000 210,000 2,700,000 150,000 6,000,000

The contingent liability is an accrual of probable losses of a 6,000,000 lawsuit filed against Pilot Company. Pilot’s legal counsel expects the suit to be settled in 2106. The counsel has estimated that Pilot will be liable for damages in the amount of P2,700,000. The deferred income tax liability is not related to an asset for financial reporting and is expected to reverse in 2016. What is the amount of current liabilities that Pilot should report in its December 31, 2014 statement of financial position? a. 6,690,000 c. 9,390,000 b. 7,340,000 d. 11,960,000

16. Penny Company had the following items at December 31, 2011: Accounts payable 8% Notes payable – First bank due July 1, 2012 Accrued expenses 9% Bonds payable, due March 31, 2015

500,000 1,000,000 600,000 5,000,000

The Company has an existing loan facility arrangement with First Bank where in the bank can no cancel unilaterally the loan and the scheduled maturity of this facility is on December 31, 2014. Penny Company intends to roll over the P1,000,000 through the three-year facility arrangement. What amount of current liabilities should Penny Company report in its December 31, 2012 statement of financial position? a. 1,100,000 c. 1,600,000 b. 1,500,000 d. 2,100,000 17. As of December 31, 2014, the current liabilities at Maze Company totaled P1,500,000 before any year-end adjustments relating to the following: On December 19, 2014, a supplier authorized Maze Company to return for full credit, goods shipped and billed at P45,000 on December 9, 2014. The returned credit memo was received by Maze Corporation on January 2, 2015. During December 2014, Maze received P75,000 from a customer as an advance payment for a merchandise which Maze will make according to the customer’s specification. For this transaction, Maze has a P75,000 credit balance in its accounts receivable from said customer on December 31, 2014. On December 28, 2014, the company wrote and recorded checks to creditors totaling P400,000 which would cause on overdraft of P100,000 in the company’s bank account on December 31, 2014. The checks mere mailed to January 9, 2015. What amount should Maze Company report as total current liabilities in its December 31, 2014 statement of financial position? a. 1,155,000 c. 1,855,000 b. 1,630,000 d. 1,930,000 18. Bride Company began operations on January 1, 2014 with P1,000,000 from the issuance of shares and borrowed funds of P450,000.Net income for 2014 was P300,000 and Bride paid a P225,000 cash dividend on December 19, 2014. No additional transactions affected owner’s equity in 2014. At December 31, 2014, liabilities of the company had increased to P597,000. In Bride’s December 31, 2014 statement of financial position, how much should be reported as its total assets? a. 1,525,000 c. 1,750,000 b. 1,672,000 d. 1,760,000 19. A draft of Bell Company’s 2014 statement of financial position reported total assets of P1,093,750 of which the following items were included: Treasury shares of Bell Company at cost, which approximates market value on December 31 Unamortized patents Cash surrender value of life insurance on corp. executives Translation reserve – Debit

30,000 14,000 17,125 10,5000

At what amount should Bell’s total assets be correctly reported in its December 31, 2014 statement of financial position? a. 1,052,125 c. 1,062,625 b. 1,053,250 d. 1,063,750 20. Party Company reported total assets of P1,050,000 and total liabilities of P680,000 in its December 31, 2014 statement of financial position. The following transactions occurred during 2015:  On August 1, Party Company issued an additional 5,000 ordinary shares at P25 per share.  The Company paid dividends totaling P80,000  Net income during the year was P110,000  Reacquired treasury shares of 2,000 at P30; subsequently, reissued 1,000 for P39 per share.  No other changes occurred in Shareholders’ Equity during the year.

What is the balance of Party’s Shareholders’ Equity section in its December 31, 2015 statement of financial position? a. 400,000 c. 525,000 b. 504,000 d. 685,000 21. Help Company adjusted trial balance at December 31, 2014 includes the following account balances: Ordinary share capital, P3 par 3,000,000 Subscription receivable due 2015 300,000 Share premium 4,000,000 Treasury shares, at cost 250,000 Net unrealizable loss on equity securities, net 100,000 Reserve for unissued earthquake losses 750,000 Accumulated profits 1,000,000 Ordinary shares subscribed 500,000 Reserve for treasury shares 250,000 What amount should Help Company report as total shareholder’s equity in its December 31, 2014 statement of financial position? a. 8,400,000 c. 9,150,000 b. 8,900,000 d. 9,200,000 22. Lincoln Company provided the following account balances on December 31, 2014: Accounts payable, P125,000; Accrued taxes, P50,000; Cash surrender value of life insurance, P30,000; Ordinary share capital. P1,000,000; Dividends payable-preference, P150,000; Mortgage payable (P200,000 due in six months), P1,2000,000; Notes payable – 20% due on January 2, 2015, P1,5000,000; Share premium, P250,000; Preference share capital, P45,000; Accumulated profits – December 31, 2014, P550,000; Unearned rent income, P25,000; Dividends payable – ordinary, P100,000 How much should Lincoln Company report as Shareholders’ equity on December 31, 2014? a. 1,450,000 c. 2,250,000 b. 1,650,000 d. 2,500,000 23. For the year ended December 31, 2014, Transformers Inc. reported the following: Net income Preference share capital dividends declared Ordinary share capital dividend declared Unrealized holding loss, net of tax Retained earnings, beginning balance Ordinary share capital Accumulated Other Comprehensive Income, beginning balance What would Transformers report as the ending balance of Retained Earnings? a. 1,390,000 c. b. 1,330,000 d.

600,000 100,000 20,000 10,000 800,000 400,000 50,000

1,280,000 1,270,000

24. Green Company had 60,000 shares of P100 par, 5% cumulative preference shares outstanding as at December 31, 2014. There were no dividends in arrears as of December 31, 2012. The Company did not declared dividends during 2013. During 2014, Green paid cash dividends of P200,000 on its preference shares. How should Green present the dividends in arrears in its 2014 financial statements? a. Accrued liability of P300,000 b. Disclosure of P300,000 c. Accrued liability of P400,000 d. Disclosure of P400,000

25. The draft financial statements of Clarion Company for the year ended December 31, 2014 are currently under consideration by directors. The net asset for the year is shown as P3,500,000. Since December 31, 2014 the following events have occurred, but not have been reflected in any way in the draft financial statements to that date. Item 1 – A substantial quantity of slow-moving inventory was sold for P320,000. The inventory had cost P600,000 and have been valued for the accounts at December 31, 2014 at its estimated net realizable value of P400,000. Item 2 – A trade receivable paid the amount owing of P130,000 un full. At December 31, 2014 where were doubts as to whether it would be paid, and a specific provision for the full amount had been made in the accounts. What is the adjusted amount of net asset should Clarion Company report in its December 31, 2014 statement of financial position? a. 3,420,000 c. 3,550,000 b. 3,500,000 d. 3,630,000 26. The draft financial statements of Unleashed Company for the year ended December 31, 2014 are currently under consideration by directors. The shareholders’ equity for the year is shown as P2,600,000. Since December 31, 2014 the following events have occurred, but not have been reflected in any way in the draft financial statements to that date. Item 1 – It was discovered that an error was made in arriving at the inventory figure at December 31, 2014. Inventory which had a cost of P300,000 with a net realizable value of P400,000 were omitted. Item 2 – In December 2014 plants to merge with Sahara Company were announced and the company will be issuing ordinary shares with a total value of P3,000,000 What is the adjusted amount of shareholders’ equity should Unleashed Company report in its December 31, 2014 statement of financial position? a. 2,600,000 c. 3,000,000 b. 2,900,000 d. 5,900,000 27. Loves Marketing Corporation sells merchandise with a cot of P300,000 to Intel Corporation for P420,000 and a credit period of six months. Loves Marketing Corporation normal selling price would have been P375,000 with a credit period of one month and with a discount of P15,00 for cash on delivery. What amount of revenue from sales should Loves Marketing Corporation recognize? a. 360,000 c. 405,000 b. 375,000 d. 420,000 28. Diesel fuel held as inventory at 1 November 3014 was P125,00 and there were invoices awaited for P17,000. During the year to 31 October 2015, diesel fuel invoices of P854,000 were paid, and a delivery worth of P13,000 had yet to invoiced. At 31 October 2015, diesel fuel inventory was valued at P98,000. The diesel fuel to be charged as an expense in the profit or loss of the year to 31 October 2015 is a. 851,000 c. 885,000 b. 877,000 d. 911,000 29. The electricity account of Velvet Company for the year ended June 30, 2015 were as follows: Opening balances for electricity accrual of July 1, 2014 Payments made during the year: 08/01/14 – for three months to July 31, 2014 11/01/14 – for three months to October 31, 2014 01/01/15 – for three months to January 31, 2015 06/30/15 – for three months to April 30, 2015

30,000 60,000 72,000 90,000 84,000

What amount of electricity expense should Velvet Company report in its June 30, 2015 statement of comprehensive income? a. 306,000 b. 324,000 c. 332,000 d. 342,000

30. As invoice for telephone charge consists of two elements. One is quarterly rental charge, payable in advance for each of three-month period; the other is a quarterly charge for calls made payable in arrears. At April 1, 2014, the previous invoice dated March 31, 2014 had included rental charge of P9,000. Estimated call charges during March 2014 were P8,000. During the following 12 months, invoices totaling P214,500 were received on June 1, September 1, December and March 1, 2015, each containing rental charges of P9,000 as well as charges. Estimated call charges during March 2015 were P12,000. The amount to be charged to profit or loss statement for the year ended March 31, 2015 in respect of telephone cost is: a. 214,500 c. 221,500 b. 218,500 d. 232,500 31. Ortia C0. had the following account balances Sales 120,000 Cost of goods sold 60,000 Salary expense 10,000 Depreciation expense 20,000 Dividend revenue 4,000 Utilities expense 8,000 Rental revenue 20,000 Interest expense 12,000 Sales returns 11,000 Advertising expense 13,000 What would Ortiz report as total expenses if the company uses the natural presentation? a. 63,000 c. 127,000 b. 123,000 d. 134,000 32. Korte Company reported the following information for 2014: Sales revenue Cost of goods sold Operating expenses Unrealized holding gain on equity securities Cash dividends received on securities For 2014, Korte would repor comprehensive income before tax of a. 117,000 b. 115,000 c. 97,000 d. 20,000

500,000 350,000 55,000 20,000 2,000

33. For the year ended December 31, 2014, Traffic Inc. reported the following: Net income Preference share dividends declared Ordinary share dividend declared Unrealized holding loss, net of tax Retained earnings Ordinary share capital Accumulated Other Comprehensive Income, Beginning balance, net of tax

180,000 30,000 6,000 3,000 240,000 12,000 15,000

What amount of Traffic report as its ending balance of Accumulated Other Comprehensive Income? a. 18,000 b. 15,000 c. 12,000 d. 3,000 34. Presented below is selected information pertaining to the Bone Company: Cash balance, January 1, 2011 Accounts receivable, January 1, 2011 Collections from customers in 2011 Capital account balance, January 1, 2011 Total assets, January 1, 2011

13,000 19,000 210,000 38,000 75,000

Cash investments added July 1, 2011 Total assets, December 31, 2011 Cash balance, December 31, 2011 Accounts receivable, December 31, 2011 Merchandise taken for personal use during 2011 Total liabilities

5,000 101,000 20,000 36,000 11,000 41,000

How much is the net income for 2011? a. 22,000 b. 26,000 c. 28,000 d. 30,000 35. Presented below certain account balances of Home Products Company Ending inventory 48,000 Rental income 6,500 Interest expense 12,700 Purchase returns and allowances 10,500 Beginning accumulated profits 114,400 Ending accumulated profits 134,000 Freight-in 10,100 Dividends income 71,000 Sales returns 12,400 Sales discounts 7,800 Selling expenses 99,400 Sales 390,000 Income tax 21,856 Beginning inventory 45,300 Purchases 190,000 Purchase discounts 2,500 Administrative expenses 82,500 Based on the data given above, how much would be the net income during the current year? a. 46,444 b. 48,400 c. 50,320 d. 68,000 36. The net sales of Grass Manufacturing Company in 2014 is P580,000. The cost of goods manufactured is P480,000. The beginning inventories of Goods in Process and Finished Goods are P82,000 and P65,000, respectively. The ending inventories are Goods in process – P75,000, Finished Goods – P55,000. The Selling Expenses and General and Administrative Expenses are 5% and 2.5% of Cost of sales, respectively. How much would be the net profit before tax in the year 2014? a. 45,725 b. 53,250 c. 83,000 d. 90,000 37. The following information was taken from the accounting records of Gomez Company for the year ended December 31, 2014: Decrease in finished goods inventory 700,000 Increase in raw materials inventory 300,000 Freight out 900,000 Factory overhead 6,000,000 Direct labor 4,000,000 Raw materials purchased 8,600,000 There was no work in process inventory at the beginning or at the end of the year The cost of goods sold is –

a. b. c. d.

17,600,000 18,200,000 18,400,000 19,000,000

38. Banana Corporation’s trial balance of income statement accounts for the year ended December 31, 2014 included the following: Debit Credit Sales 600,000 Cost of sales 240,000 Administrative expenses 60,000 Loss on sales of equipment 36,000 Commission to sales persons 40,000 Interest revenue 20,000 Freight out 12,000 Loss due to expropriation of company assets 40,000 Bad debts expense 12,000 Additional information: Finished goods inventory January 1, 2014 December 31, 2014 Banana’s income tax rate is 32% How much is the cost of goods manufactured a. 200,000 b. 212,000 c. 280,000 d. 292,000

400,000 360,000