P1 Prelim 2012

Father Saturnino Urios University Accountancy Program Butuan City

Accounting 520 Prelim exam Anbert Angelo C. Cayna, CPA

Instruction: Shade the letter of your choice in the answer sheet provided. No erasures allowed. 1. Jen Company is completing the preparation of its draft financial statements for the year ended December 31, 2010. The financial statements are authorized for issue on March 31, 2011. On March 15, 2011, a dividend of P1,750,000 was declared and a contractual profit share payment of P350,000 was made, both based on the profit for the year ended December 31, 2010. On February 1, 2011, a customer went into liquidation having owed the entity of P340,000 for the past 5 months. No allowance had been made against this debt in the draft financial statements. On December 30, 2011, a manufacturing plant was destroyed by fire resulting in a financial loss of P2,600,000. What total amount should be recognized in profit or loss for the year ended December 31, 2010 to reflect adjusting events after the end of reporting period? a. 1,750,000 b. 3,290,000 c. 2,600,000 d. 690,000 Dysas 1st #1 D 2. Yola Corporation, a diversified company, is required to report the operating profit or loss of its industry segments. For the year ended December 31, 2011, segment Wy’s sales to segment Zee were P100,000. Segment Wy’s share of Yola’s allocated general corporate expenses was P20,000. In the computation of Wy’s 2011 operating profit or loss, the amount of the aforementioned items to be included is: a. 120,000 b. 100,000 c. 80,000 d. 20,000 Dysas 1st #2 B 3. The following information pertains to Aria Corporation and its divisions for the year ended December 31, 2011: Sales to unaffiliated customers 20,000,000 Intersegment sales of products similar to those sold to unaffiliated customers 6,000,000 Interest earned on loans to other industry segments 400,000 Aria and all of its divisions are engaged solely in manufacturing operations. Aria has a reportable segment if that segment’s revenue exceeds: a. 2,640,000 b. 2,600,000 c. 2,040,000 d. 2,000,000 Dysas 1st #4 B 4. Alpha Company provided the following information relating to the current year: Net income 3,500,000 Unrealized gain on trading securities 250,000 Foreign currency translation adjustment-credit 50,000 Revaluation surplus 1,000,000 How much is the comprehensive income? b. 3,800,000 b. 4,700,000 c. 4,550,000 d. 4,800,000 Dysas 1st #5 C 5. The income statement of Hyper Company for the year ended December 31, 2011 is given below: Sales 6,000,000 (2,800,000 Cost of goods sold ) Gross income 3,200,000 Gain on sale of equipment 100,000 Total income 3,300,000 Operating expenses (500,000) Casualty loss (300,000) Income before tax 2,500,000 Income tax (875,000) Net income 1,625,000  The tax rate is 30%.  Third quarter sales were 30% of total sales.  For interim reporting purposes, a gross profit rate of 40% can be justified.  Variable operating expenses are allocated in the same proportion as sales. Fixed operating expenses are allocated based on the expiration of time. Of the total operating expenses, P400,000 relate to variable expenses.  The equipment was sold on July 6, 2011.  The casualty loss occurred on September 1, 2011. What is the income before tax for the third quarter ended September 30, 2011? c. 275,000 b. 375,000 c. 500,000 d. 300,000 Dysas 1st #7 B 6. The records of Big Corporation at December 31, 2011 showed the following balances: Uncollectible accounts expense 2,000,000 Freight out 3,500,000 Cost of sales 40,000,000 Loss on sale of equipment 1,500,000 Loss from typhoon 3,000,000 Sales 90,000,000 Interest income 4,000,000

Administrative expenses 10,000,000 Finished goods inventory, January 1 60,000,000 Sales commissions 7,000,000 Finished goods inventory, December 31 55,000,000 Income tax rate 30% Big shall report as income after income tax from continuing operations the amount of: a. 30,000,000 b. 21,000,000 c. 27,000,000 d. 18,900,000 Dysas 1st #6 D 7. Moon Company reports quarterly to its stockholders. Condensed financial information is presented. Selected information for the year ended 2011 is shown below: a. Machinery repairs P100,000 incurred in the first quarter are expected to benefit each quarter equally. b. Advertising costs are allocated among the remaining quarters of the annual period, including the quarter in which the costs are incurred on the basis of historical pattern of sales: 20%, 30% 15% and 35% in the first through fourth quarters respectively. Advertising expense amounted to P120,000 and was incurred in the second quarter. How much of the above expenses should be reported for the second quarter? a. 120,000 b. 70,000 c. 65,000 d. 0 Dysas 1st #9 B 8. The following is a statement of retained earnings for the current year provided by Laser Company: Balance at beginning of year 85,000 Additions: Change in estimate of amortization expense for the year 2,500 Gain on sale of land 18,000 Interest revenue 4,500 Profit and loss for the current year 13,000 38,000 Total 123,000 Deductions: Increased depreciation due to change in estimated life 5,000 Dividends declared and paid 11,000 Loss on sale of equipment 3,000 Loss from major casualty 7,000 26,000 Balance at end of year 97,000 What net income should have been reported in the income statement for the year? a. 23,000 b. 13,000 c. 12,000 d. 25,500 Dysas 1st #10 A The worksheet below presents the comparative statement of financial position items of Kim Company at December 31, 2011 and 2010: 2011 2010 Cash 4,037,500 3,500,000 Accounts receivable 5,640,000 5,840,000 Inventories 9,250,000 8,575,000 Property, plant and equipment 16,535,000 14,835,000 (5,825,000 (5,200,000 Accumulated depreciation ) ) Investment in associate 1,525,000 1,375,000 Loan receivable 1,312,000 0 Accounts payable 5,075,000 4,775,000 Income taxes payable 150,000 250,000 Dividends payable 400,000 500,000 Liability under finance lease 2,000,000 0 Ordinary shares, P10 par 2,500,000 2,500,000 Share premium 7,500,000 7,500,000 Accumulated profits 14,850,000 13,400,000 Additional information: a) On December 31, 2010, Kim acquired 25% of Ming’s Co.’s ordinary shares for P1,375,000. On that date, the book value of Ming’s only assets and liabilities, which approximated their fair values, was P5,500,000. Ming reported profit of P600,000 for the year ended December 31, 2011. No dividend was paid on Ming’s ordinary shares during the year. b) During 2011, Kim loaned P1,500,000 to Lim Co., an unrelated company. Lim made the first semi-annual principal repayment of P187,500., plus interest at 10%, on December 31, 2011. c) On January 2, 2011, Kim sold equipment costing P300,000, with a carrying amount of P175,000, for P200,000 cash. d) On December 31, 2011, Kim entered into a finance lease for an office building. The present value of the annual rental payments is P2,000,000, which equals the fair value of the building. Kim made the first rental payment of P300,000 when due on January 2, 2012. e) Profit for 2011 was P1,850,000. f) Kim declared and paid cash dividends of P500,000 for 2011. Based on the preceding information, determine the following: 9. Net cash provided by operating activities:

a. 2,025,000 b. 2,150,000 c. 2,175,000 d. 2,000,000 10. Net cash used by investing activities: a. 962,500 b. 1,300,000 c. 1,262,500 d. 1,112,500 11. Net cash used by financing activities: a. 500,000 b. 350,000 c. 800,000 d. 900,000 Dysas #13, 14, and 15 1st bda 12. Your count of the undeposited receipts under the custody of the cashier of Nova Company on September 30, 2011 showed the following composition: Currency and coins P 4,950 Unused postage stamps 90 Checks: Date Payee Drawer 9/25/2011 Nova Co. Phil. Corp. 1,200 9/28/2011 Nova Co. Detour 900 9/30/2011 DLPC Nova Co. 1,050 Travel expense voucher paid out of cash 600 Total per count P 8,790 Assuming the cashier’s accountability to be P8,500, what was the amount of shortage/overage on September 30, 2011? a. P200 overage b. 760 overage c. 1,500 shortage d. no shortage/overage Dysas 1st #38 B 13. The statement of financial position at December 31, 2011 of Lore Company showed a cash balance of P105,600. An examination of the books disclosed the following: a. The sales book was left open up to January 5, 2012 and cash sales totalling P15,000 were considered as sales in December 2011. b. Checks of P9,300 in payment of liabilities were prepared before December 31, 2011, recorded in books, but not mailed or delivered to payees. c. Customer’s post-dated checks totalling P7,800 are being held by the cashier as part of cash. The company’s experienced shows that post-dated checks are eventually realized. d. Customer’s check deposited with but returned by bank, NSF, on December 27, 2011. Return was not recorded in the books, P1,500. e. The cash accounts includes P40,000 earmarked for the purchase of an office equipment which will be delivered soon. How much cash balance is to be shown on December 31, 2011 statement of financial position? a. 105,600 b. 60,500 c. 58,400 d. 50,600 Dysas 1st #39 D 14. The cash account of Gravy Company as of December 31 was composed of the following: On deposit in current account with PBC bank P 90,000 Cash collection not yet deposited to the bank 35,000 A customer's check returned by the bank for insufficient fund 15,000 A check drawn by the VP of the company dated January 15 7,000 A check drawn by a supplier dated December 28 for goods returned by Gravy 6,000 A check dated May 31 drawn by Gravy against the Prudential Bank in payment of customs duties, since the importation did not materialize, the check was returned by the customs broker. This check was an outstanding check in the reconciliation of the Prudential Bank account 41,000 Petty cash fund of which P5,000 is in currency; P3,600 in the form of employee's IOUs and P1,400 is supported by approved petty cash vouchers for expenses all dated prior to closing of the books on December 31 10,000 Total P 204,000 Less: Overdraft with Prudential Bank secured by a chattel mortgage on the inventories (30,000) Balance per ledger P 174,000 At what amount will the amount “cash” appear on the December 31 balance sheet? a. 131,000 b. 147,000 c. 172,000 d. 174,000 Dysas 1st #40 B 15. Zoe Company’s year–end is December 31, 2011 and the 2011 financial statements were authorized for issue on March 31, 2012. Zoe had the following events after the reporting period:  On February 1, 2012, Zoe determined that the total cost of the equipment purchased is P3,300,000. The asset was purchased on November 12, 2011 and recorded at P2,000,000.  On March 15, 2012, Zoe discovered that its 2011 salary expense was understated by P150,000.  On March 20, 2012, Zoe issued 100,000 ordinary shares at par of P10 per share. How much should be reported as adjusting events on December 31, 2011? a. 1,300,000 b. 1,450,000 c. 2,300,000 d. 2,450,000 Cpar #4 1st B 16. Comparison of the balance sheet of Reach at the end of 2011 with its balance sheet at the end of 2010 showed a decrease in total assets of P69,000 and owner’s equity by P15,000, the change in liabilities during the year was:

17.

18.

19.

20.

21.

22.

a. Increase of P84,000 c. decrease of P54,000 b. Decrease of P84,000 d. increase of P54,000 Dysas 2nd #17 C The trial balance of Sheila Company reflected the following account balances on December 31, 2011: Accounts receivable 400,000 Allowances for doubtful accounts 50,000 Cash in bank 500,000 Accumulated depreciation 300,000 Property, plant and equipment 2,000,000 Inventory 600,000 Deferred charge 40,000 Cash surrender value 60,000 Land held for future sales 200,000 What is the amount of the current assets? a. 1,490,000 b. 1,650,000 c. 1,450,000 d. 500,000 Dysas 2nd #18 C You were approached by the parish priest to determine if there is a cash shortage or overage of the parish finances as of September 30, 2011. He stated that he does not maintain a good internal control over its cash transactions. The parish records show a balance of cash on hand and in bank of P29,025.00. You counted the cash on hand amounting to P14,560.00. A pledge of P200.00 was collected by the bank and for which a service charge of P15.00 did not appear in the parish records. The bank statement balance is P18,500.00. Outstanding checks amounted to P6,850.00. Based from the foregoing information, there is a shortage or cash shortage or cash overage of: a. P930.00 cash shortage c. P930.00 cash overage b. P11,650.00 cash shortage d. P11,650.00 cash overage Dysas 2nd #22 C The trial balance of West Company showed the following liability account balances on December 31, 2011: Accounts payable (including a debit balance of P350,000 due to overpayment) 4,500,000 Bonds payable, due March 31, 2012 6,000,000 Premium on bonds payable 200,000 Deferred tax liability 3,500,000 Income tax payable 5,500,000 Note payable-bank 2,000,000 The bank loan matures on July 31, 2012. On December 31, 2011, the entire balance of the note was refinanced on a long-term basis. The 2011 financial statements were authorized for issue on March 1, 2012. What amount should be reported as total current liabilities on December 31, 2011? a. 16,550,000 b. 16,200,000 c. 18,550,000 d. 18,200,000 Cpar 1st #2 A On January 1, 2009, Mara Company purchased equipment for P3,000,000 with a 5- year useful life and no residual value. On January 1, 2010, Mara incurred repairs for P500,000 and inappropriately capitalized the entire amount. The error was discovered on January 1, 2011 and the asset’s residual value was estimated to be P400,000 also on this date. What amount should be recognized as a prior period error in the opening balance of retained earnings on January 1, 2011? a. 500,000 b. 375,000 c. 125,000 d. 0 Cpar 1st #7 B Gilas Company provided the following items at the end of the current year: Cash on hand (including bank draft of P100,000 and postdated check of P50,000) 2,350,000 Cash in bank per bank statement 1,500,000 Treasury bonds 1,700,000 3-year time deposit purchased 2 months prior to maturity 1,200,000 Credit memo authorizing return of goods to vendor 550,000 Debit balance in accounts payable due to overpayment 300,000 Loan proceeds credited by the bank to the depositor's bank account 600,000 Cash surrender value 150,000 Cash fund set aside to acquire equipment next year 300,000 A review of the records revealed that the deposit in transit and outstanding checks were P600,000 and P900,000 respectively. What total amount should be reported as cash and cash equivalents? a. 6,400,000 b. 4,700,000 c. 5,000,000 d. 4,600,000 Cpar 1st #12 B The financial statements of Emma Company contained the following errors: December 31, 2011 inventory understated 500,000 December 31, 2012 inventory overstated 800,000 Depreciation for 2011 overstated 250,000 December 31, 2012 accrued rent income overstated 300,000 December 31, 2012 accrued salaries understated 150,000 The understatement of the 2011 ending inventory pertains to goods in transit purchased FOB shipping point which were not recorded in 2011 but paid in 2012. On December 31, 2012, fully depreciated machinery was sold for P100,000 cash but the sale was not recorded until 2013. What is the effect of the errors on retained earnings on December 31, 2012? a. 1,150,000 understated c. 900,000 understated

b. 1,150,000 overstated d. 900,000 overstated 11-31 p551 D fin 2 23. Malampaya Company showed income before income tax of P6,500,000 on December 31, 2012. The year-end verification of the transactions revealed the following errors:  P1,000,000 worth of merchandise was purchased in 2012 and included in the ending inventory. However, the purchase was recorded only on 2013.  A merchandise shipment valued at P1,500,000 was properly recorded as purchase at year-end. Since the merchandise was still at the port area, it was inadvertently omitted from the inventory on December 31, 2012.  Advertising for December 2012, amounting to P500,000, was recorded when payment was made in January, 2013.  Rent of P300,000 on an equipment applicable for six months was received on November 1, 2012. The entire amount was reported as income upon receipt.  Insurance premium covering the period from July 1, 2012 to July 1, 2013, amounting to P200,000 was paid and recorded as expense on July 31, 2012. The entity did not make any adjustment at the end of the year. What is the corrected income before tax for 2012? a. 6,900,000 b. 6,400,000 c.6,500,000 d. 6,300,000 11-23 p545 B fin 2 24. Increases (decreases) in the accounts of Java Company for the current year are as follows: Cash 1,500,000 Accounts receivable 3,500,000 Inventor y 3,900,000 Investments (1,000,000) Equipment 3,000,000 Accounts payable (800,000) Bonds payable 2,000,000 During the year, the entity sold for cash 100,000 shares with P20 par for P30 per share. Dividend of P4,500,000 was paid in cash. The entity borrowed P4,000,000 from the bank and paid off note of P1,000,000 and interest of P600,000. The entity had no other loan payable. Interest of P400,000 was payable on December 31. Interest payable on January 1 was P100,000. Equipment on P2,000,000 was donated by a shareholder during the year. What is the net income for the current year? a. 7,900,000 b. 8,900,000 c. 5,900,000 d. 6,900,000 10-23 p506 C fin2 25. Elysee Company was incorporated on January 1 of the current year by issuing share capital with par value of P50,000,000 for P60,000,000. Land and building were purchased for P25,000,000 with a down payment of P10,000,000. A one-year note was signed for the remainder. A check was written for P4,500,000 to pay for equipment. A check of P1,500,000 was written to acquire software. One piece of computer equipment was sold at its original price and the cash collected was deposited in the entity’s checking account. The balance of the checking account on January 31 was P45,000,000. What is the sale price of the computer equipment? a. 3,000,000 b. 1,500,000 c.1,000,000 d. 2,000,000 10-25 p507 C fin2 Selected accounts, cash receipts and disbursements of Emmyrelle Company are as follows: December 31 January 1 Accounts receivable 250,000 300,000 Notes receivable 150,000 100,000 Accounts payable 120,000 160,000 Notes payable 200,000 150,000 Prepaid insurance 30,000 10,000 Cash receipts for 2012 include: Cash sales Collection of accounts receivable, net discounts of P40,000 Collections of notes receivable Bank loan-one year, dated December 31, 2012 Purchase returns and allowances Cash disbursements for 2012 include: Cash purchases Payments on accounts payable, net of discounts of P20,000 Payments on notes payable Insurance Other expenses Sales returns and allowances 26. Under accrual basis, what is the amount of gross sales for the current year? a. 2,420,000 b. 2,470,000 c. 1,920,000 27. Under accrual basis, what is the amount of gross purchases for the current year?

500,000 1,800,000 80,000 100,000 60,000 130,000 1,500,000 400,000 220,000 650,000 50,000 d. 1,970,000

a. 1,960,000 b. 2,020,000 c. 1,830,000 d. 1,890,000 9-27 p456 AA fin 2 28. Pak Company’s professional fees expense account had a balance of P820,000 on December 31, 2012, before considering year-end adjustments relating to the following:  Consultants were hired for a special project at a total fee not to exceed P650,000. The entity has recorded P550,000 of this fee based on billings for work performed in 2012.  The attorney’s letter requested by the auditors dated January 31, 2013 indicated that legal fees of P60,000 were billed on January 15, 2013 for work performed in November 2012, and unbilled fees for December 2012 were P70,000. What amount should be reported for professional fees expense for the year ended December 31, 2012? a. 1,050,000 b. 950,000 c. 880,000 d. 820,000 9-38 p461 fin2 B 29. On January 1, 2012, Poe Construction Company changed to the percentage of completion method from cost recovery method of income recognition. On December 31, 2011, the entity compiled the data showing that income under the cost recovery method aggregated P7,000,000. If the percentage of the completion method had been used, the accumulated income through December 31, 2011 would have been P9,000,000. If the income tax rate is 30%, the cumulative effect of accounting change should be reported in the 2012 a. Retained earnings statement as P2,000,000 credit adjustments to the beginning balance. b. Income statement as P2,000,000 credit. c. Retained earnings statement as a P1,400,000 credit adjustment to the beginning balance. d. Income statement as a P1,400,000 credit. 6-27 p325 C fin2 30. Banko Construction Company has used the cost recovery method of accounting since it began operations in 2009. In 2012, for justifiable reasons, management decided to adopt the percentage of completion method. The following schedule, reporting income for the past 3 years, has been prepared by entity. 2009 2010 2011 Total revenue from 25,000,00 42,000,00 completed contracts 0 0 40,000,000 Less: Cost of completed 18,000,00 29,000,00 contracts 0 0 28,000,000 13,000,00 Income from operations 7,000,000 0 12,000,000 Casualty loss 0 0 (2,000,000) 13,000,00 Income from operations 7,000,000 0 10,000,000 Analysis of the accounting records disclosed the following income by contracts, earned in the years 2009-2011 using the percentage of completion method. 2009 2010 2011 7,000,00 Contract 1 0 5,000,00 8,000,00 Contract 2 0 0 3,000,00 7,000,00 Contract 3 0 0 2,000,000 1,000,00 Contract 4 0 6,000,000 (1,000,000 Contract 5 ) What pretax amount should be reported as the cumulative effect of change in accounting policy in the statement of retained earnings for 2012? a. 6,000,000 b. 8,000,000 c. 7,000,000 d. 0 6-28 p326 A fin2