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When the classification of items in its financial statements is changed, the
entity
must not reclassify the comparative amount
can choose whether to reclassify the comparative amounts
must reclassify the comparative amounts, unless it is impracticable to do so
must prepare at least 4-year comparative statements of financial position
Ans.
must reclassify the comparative amounts, unless it is impracticable to do so
Which of the following statements is incorrect in relation to fair presentation?
An entity shall not describe financial statements as complying with PFRS
unless they comply with all the requirements of PFRS.
An entity whose financial statements comply with PFRS shall make an explicit
and unreserved statement of such compliance in the notes.
An entity can rectify in appropriate accounting policies either by disclosure of
the accounting policies used or by notes or explanatory material
Fair presentation requires the faithful representation of the effects of
transactions in accordance with the definition criteria for assets, liabilities,
income, and expenses.
Ans.
An entity can rectify in appropriate accounting policies either by disclosure of
the accounting policies used or by notes or explanatory material
An entity decided to extend the report period from a 12-month period to
a 15-month period. Which of the following is .not required in case of
change in reporting period?
The entity should disclose the period covered by the financial
statements.
The entity should disclose the reason for using a longer period than a
period of 12 months.
The entity should disclose that comparative amounts used in the
financial statements are not entirely comparable.
The entity should change the reporting period only if other similar
entities in the geographical area in which it generally operates have
done so in the current year.
Ans.
The entity should change the reporting period only if other similar entities in
the geographical area in which it generally operates have done so in the
current year.
Items of dissimilar nature or function
must always be presented separately in financial statements
must not be presented separately in financial statements (ie must be
aggregated in the financial statements)
must be presented separately in financial statements if those items are
material
must be disclosed only in the notes
Ans.
must be presented separately in financial statements if those items are
material
On July 1, 20CY, Rica Company handed over to a client a new computer
system. The contract price for the supply of the system and after-sales
support for 12 months was P1,000,000. Rica Company estimates the
cost of the after-sales support at P150,000 and it normally marks up
such cost by 50%.
The total revenue reported by Rica Company in its 20CY statement of
comprehensive income is
425,000
500,000
775,000
887,500
Ans.
887,500
An entity presents an analysis of expenses using a classification based on
the nature of expenses
the function of expenses
either the nature of expenses or the function of expenses within the entity,
whichever provides information that is reliable and more relevant
either the nature of expenses or the function of expenses within the entity,
whichever the entity would prefer to present
Ans.
either the nature of expenses or the function of expenses within the entity,
whichever provides information that is reliable and more relevant
The following information provided by Maricar Company in
preparing this year’s comprehensive income statement:
Sales
8,000,000
Cost of sales
4,200,000
Depreciation and amortization expense
700,000
Employee beneft expense
900,000
Impairment of property, plant and equipment
200,000
Finance costs
800,000
Share of proft of associates
1,200,000
Translation loss on foreign operations
500,000
Loss on sale of fnancial instruments held for trading
300,000
Gain on sale of available-for-sale securities
450,000
Remeasurement gains on trading securities
400,000
Remeasurement gains on available for sale securities
300,000
Actuarial loss on employee benefts
100,000
Reduction of revaluation surplus as a result of a devaluation
200,000
Derivative gains on call options (speculation)
100,000
Gain on forward contract designated as a cash fow hedge
150,000
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The amount included in the proft or loss section of the current year’s
comprehensive income statement is
3,050,000
2,950,000
3,200,000
3,550,000
Ans.
3,050,000
Separate line items in an analysis of expenses by function include
purchases of materials, transport costs, employee benefits,
depreciation, extraordinary items
purchases of materials, distribution costs, administrative costs,
employee benefits, depreciation, taxes
depreciation, purchases of materials, employee benefits and advertising
costs
cost of sales, administrative expenses, distribution expenses etc.
Ans.
cost of sales, administrative expenses, distribution expenses etc.
Which of the following terms cannot be used to describe a line item in the
statement of comprehensive income?
Revenue
gross profit
profit before tax
extraordinary item
Ans.
extraordinary item
Rica Company reported the following changes in all the account
balances for the current year, except for retained earnings:
Increase
(Decrease)
Cash
790,000
Accounts receivable,
240,000
net
Inventory
1,270,000
Investments
(470,000)
Accounts payable
(380,000)
Bonds payable
820,000
Share capital
1,250,000
Share premium
130,000
There were no entries in the retained earnings account except for Profit
and a dividend declaration of P190,000 which was paid in the current
year. What is the Profit for the current year?
10,000
200,000
1,190,000
1,200,000
Ans.
200,000
Retained earnings is a subcategory of
Contributed capital
Capital stock
Liabilities
Equity
Ans.
Equity
Which of the following reports is not a component of the financial
statements according to PAS 1?
Statement of Financial Positions.
Statement of Changes in Equity
Director’s Report.
Notes to Financial Statements
Ans.
Director’s Report.
Changes in account balances of Agamata Business Consultancy (ABC)
for 2013 are as follows:
Increase
(Decreas
e)
Cash
P2,500,0
00
Accounts
receivable net
1,750,00
0
Inventory
1,000,00
0
Investments
(250,000
)
Accounts payable
(1,500,0
00)
Bonds payable
2,000,00
0
Share capital
3,000,00
0
Share premium
500,000
Unrestricted
Retained Earnings
750,000
Restricted
Retained Earnings
250,000
What should be the 2013 net income, assuming there were no entries
in the retained earnings account except for the net income and a
dividend declaration of P1,000,000 which was paid in the current
year?
P3,500,000
P1,750,000
P2,000,000
P1,000,000
Ans.
P2,000,000
PAS 1 requires the following items to appear on the face of the
Statement of Changes in Equity:
The net amount of cash from the issue of my securities during the
period
The cumulative effect of changes in accounting policy and the correction
of errors
Total comprehensive income for the period
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Profit or loss for the period
II, III, and IV
II and IV only
I, III, and IV
I,II,III and IV
Ans.
I,II,III and IV
On December 31, 2010, the stockholders’ equity section of Alexandra
Corp was as follows:
Common stock, par value P10; authorized
30,000 shares; issued and outstanding 9,000 shares P
90,000
Additional paid-in capital
116,000
Retained earnings
146,000
Total stockholders’ equity
P352,000
On March 31, 2011, Alexandra declared a 10% stock dividend.
Accordingly, 900 shares were issued when the fair market value was
P16 per share. For the 3 months ended March 31, 2011, Alexandra
sustained a net loss of P32,000. The balance of Alexandra’s retained
earnings as of March 31, 2011 should be
P99,600
P105,000
P108,600
P114,000
Ans.
P99,600
Which of the following should be presented in the statement of changes in
equity?
Investment by owners
Distributions to owners
Change in ownership interest in subsidiary that does not result in a loss of
control
All of the above
Ans.
All of the above
Choose the correct statement
The elements in the owners’ equity section of a statement of financial position
are classified primarily by source.
Appropriated retained earnings are those earnings that have been set aside
for the payment of dividends.
All tangible operational assets are depreciable; therefore, they are usually
reported net of depreciation.
Statement of Financial Position items are grouped according to date of their
acquisition.
Ans.
The elements in the owners’ equity section of a statement of financial position
are classified primarily by source.
The elements of the equity section of the statement of financial position
should be classified primarily by:
Source
Maturity date
Class of capital stock
Liquidity
Ans.
Source
The cross-reference between each line item in the financial statements
and any related information disclosed in the notes to the financial
statements
is voluntary
is mandatory
depends on the industry
depends on the size of the entity
Ans.
is mandatory
Which information should be disclosed in the summary of significant
accounting policies?
Guarantee of indebtedness of others.
Adequacy of pension plan assets relative to vested benefits.
Refinancing of debt subsequent to the end of reporting period.
Criteria for determining which investments are treated as cash equivalents.
Ans.
Criteria for determining which investments are treated as cash equivalents.
The presentation of the notes to the financial statements in a systematic
manner
is voluntary
is mandatory
is mandatory, as far as is practicable
depends on the size of the entity
Ans.
is mandatory, as far as is practicable
Which of the following about note disclosures are considered mandatory
rather than voluntary (optional)?
I. Disclosure of information about key sources of estimation uncertainly
II. Disclosure of information about judgement that management has
made in the process of applying accounting policies.
III. The presentation of notes to the financial statements in a systematic
manner.
IV. The cross- reference between each line in the financial statements
and any related information disclosed in the notes to the financial
statements.
I and II only
III and IV only
I, II, and III only
I, II , III and IV
Ans.
I, II , III and IV
The cross-reference between each line item in the financial statements
and any related information disclosed in the notes to the financial
statements
is voluntary
is mandatory
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depends on the industry
depends on the size of the entity
Ans.
is mandatory
The presentation of the notes to the financial statements in a systematic
manner
is voluntary
is mandatory
is mandatory, as far as is practicable
depends on the size of the entity
Ans.
is mandatory, as far as is practicable
Which of the following about note disclosures are considered mandatory
rather than voluntary (optional)?
I. Disclosure of information about key sources of estimation uncertainly
II. Disclosure of information about judgement that management has
made in the process of applying accounting policies.
III. The presentation of notes to the financial statements in a systematic
manner.
IV. The cross- reference between each line in the financial statements
and any related information disclosed in the notes to the financial
statements.
I and II only
III and IV only
I, II, and III only
I, II , III and IV
Ans.
I, II , III and IV
Which information should be disclosed in the summary of significant
accounting policies?
Guarantee of indebtedness of others.
Adequacy of pension plan assets relative to vested benefits.
Refinancing of debt subsequent to the end of reporting period.
Criteria for determining which investments are treated as cash equivalents.
Ans.
Criteria for determining which investments are treated as cash equivalents.
Amortization of premium on bonds payable is subtracted from net income in
the reconciliation of net income to cash flows from operation because
It is a financing cash outflow
It reduced income without causing a cash outflow
Interest expense understates the cash paid for interest by the amount of the
premium amortization
It increase income with a cash flow
Ans.
Interest expense understates the cash paid for interest by the amount of the
premium amortization
The following information is available for Santana Company for the
current year:
December 31
January 1
Cash
1,500,000
1,000,000
Retained earnings
7,000,000
5,400,000
Cash flow from operating
activities
?
Cash flow from investing
activities
(4,800,000)
Cash flow from financial
activities
1,800,000
Dividends declared and paid
2,000,000
Net income
3,600,000
How much was the cash flow operating activities?
3,500,000
2,500,000
4,500,000
3,600,000
Ans.
3,500,000
In a cash flow statement, if used equipment is sold at a gain, the amount
shown as a cash flow from investing activities equals the carrying amount of
the equipment
Plus the gain
Plus the gain and less the amount of tax attributable to the gain
Plus both the gain and the amount of tax attributable to the gain
With no addition or subtraction
Ans.
Plus the gain
Black town Company had the following account balances for the current
year:
December 31
January 1
Accounts payable
500,000
650,000
Inventory
300,000
250,000
Accounts receivable
800,000
900,000
Prepaid expenses
400,000
600,000
· All purchases of inventory were on account.
· Depreciation expense of P900,000 was recognized during the
year.
· Equipment was sold during the year and gain of P300,000 was
recognized.
Black town provided following cash flow information for the current
year:
Cash collected from customers
9,500,000
Cash paid for inventory
(4,100,000)
Cash paid for other expenses
(1,400,000)
Cash flows from operations
4,000,000
What was black town Company’s net income for the current year?
3,300,000
3,400,000
3,000,000
3,900,000
Ans.
3,300,000
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Bumper Company’s statement of cash flows for the current year shows
cash flow from operations of P1,840,000. The following items also
appear on the statement of financial position and income statement.
Depreciation expense
400,00
0
Accounts receivable increase
120,00
0
Inventory decrease
280,00
0
Accounts payable decrease
80,000
What is the net income for the current year?
1,360,000
2,320,000
1,440,000
1,840,000
Ans.
1,360,000
Corinthians Company prepared the following balance sheet data.
December 31,
2013
December 31,
2012
Cash and cash
equivalents
518,500
675,00
0
Accounts receivable (net)
360,000
345,000
Merchandise inventory
750,000
654,000
Prepaid insurance
4,500
6,000
Buildings and equipment
5,515,500
4,350,000
Accm dep’n – buildings &
equipment
(2,235,000)
(1,995,000)
Total Assets
4,913,50
0
4,035,00
0
Accounts payable
613,50
0
945,00
0
Salaries payable
75,000
105,000
Notes payable – bank
(current)
150,000
600,000
Notes payable – bank
(long-term)
1,200,000
-
Common stock, P20 par
value
2,000,000
1,800,000
Premium on common
shares
700,000
600,000
Retained earnings
(deficit)
175,000
(15,000)
Total liabilities &
stockholder’s
equity
4,913,50
0
4,035,00
0
Cash needed to purchase new equipment and to improve the
company’s working capital position was raised by borrowing from
the bank with a long-term note.
Allowance for bad debts on December 31, 2012 and December 31,
2013 were P25,000 and P40,000 respectively. The bad debts
expense for 2013 amounted to P40,000 while write-offs amounted
to P25,000
Equipment costing P75,000 with a book value of P15,000 was sold
for P18,000; the gain on sale was included in net income.
Corinthians Company issued 10,000 common shares as settlement
for the acquisition of a building acquired in June 2013. The
building’s fair value at the time of purchase was P300,000 while
the shares market value was P28.75
The company paid cash dividends of P110,000 and reported
earnings of P300,000 for 2013. There were no entries in the
retained earnings account other than to record the dividend and
net income for the year.
The cash provided by (used in) operating activities is
126,000
166,000
186,000
192,000
Ans.
126,000
Mahogany Company had the following accounts balances for the current
year:
December 31
January 1
Accounts payable
500,000
700,000
Inventory
300,000
450,000
Accounts receivable
800,000
750,000
All purchases of inventory were on account. Mahogany Company
provided the following income information statement information for
the current year:
Revenue
9,800,000
Cost of goods sold
(4,000,000)
Other expenses
(1,300,000)
Depreciation expenses
(1,000,000)
Loss on sale of equipment
(100,000)
Net income
3,400,000
The statement of cash flows should show net cash flow from operating
activities at
4,500,000
4,400,000
4,600,000
4,300,000
Ans.
4,400,000
During the financial year Marina Limited had sales of $720 000. The
beginning balance of Accounts receivable was $103 000, and the ending
balance was $139 000. Bad debts amounting to $34 000 were written
off during the period. The cash receipts from customers during the year
amounted to:
$718 000;
$650 000;
$790 000;
$722 000.
Ans.
$650 000;
Sun Company provided the following data for the preparation of the
statement of cash flows for the current year:
Increase in accounts receivable
300,000
Decrease in income tax payable
170,000
Depreciation
1,000,000
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Net income
250,000
Gain on sale equipment
440,000
Loss on sale building
210,000
Using the indirect method, how much should be reported as cash flow
from operating activities?
780,000
700,000
880,000
550,000
Ans.
550,000
Corinthians Company prepared the following balance sheet data.
December 31,
2013
December 31,
2012
Cash and cash
equivalents
518,500
675,00
0
Accounts receivable (net)
360,000
345,000
Merchandise inventory
750,000
654,000
Prepaid insurance
4,500
6,000
Buildings and equipment
5,515,500
4,350,000
Accm dep’n – buildings &
equipment
(2,235,000)
(1,995,000)
Total Assets
4,913,50
0
4,035,00
0
Accounts payable
613,50
0
945,00
0
Salaries payable
75,000
105,000
Notes payable – bank
(current)
150,000
600,000
Notes payable – bank
(long-term)
1,200,000
-
Common stock, P20 par
value
2,000,000
1,800,000
Premium on common
shares
700,000
600,000
Retained earnings
(deficit)
175,000
(15,000)
Total liabilities &
stockholder’s
equity
4,913,50
0
4,035,00
0
Cash needed to purchase new equipment and to improve the
company’s working capital position was raised by borrowing from
the bank with a long-term note.
Allowance for bad debts on December 31, 2012 and December 31,
2013 were P25,000 and P40,000 respectively. The bad debts
expense for 2013 amounted to P40,000 while write-offs amounted
to P25,000
Equipment costing P75,000 with a book value of P15,000 was sold
for P18,000; the gain on sale was included in net income.
Corinthians Company issued 10,000 common shares as settlement
for the acquisition of a building acquired in June 2013. The
building’s fair value at the time of purchase was P300,000 while
the shares market value was P28.75
The company paid cash dividends of P110,000 and reported
earnings of P300,000 for 2013. There were no entries in the
retained earnings account other than to record the dividend and
net income for the year.
The cash provided by (used in ) financing activities is
640,000
940,000
340,000
440,000
Ans.
640,000
Fragile Company uses the direct method to prepare it statement of cash
flows. The entity had the following cash flows during the current year:
Cash receipts from issuance of ordinary
shares
4,000,000
Cash receipts from customers
2,000,000
Cash receipts from dividends on long-
term investments
300,000
Cash receipts from repayment of loan
made to another entity
2,200,000
Cash payments for wages and other
1,200,000
operating expenses
Cash payments for insurance
100,000
Cash payments for dividends
200,000
Cash payments for taxes
400,000
Cash payments to purchase land
800,000
The net cash provided by operating activities is?
600,000
400,000
300,000
200,000
Ans.
600,000
During the financial year Marina Limited had sales of P720 000. The beginning
balance of Accounts receivable was P103 000, and the ending balance was
P139 000. Bad debts amounting to P34 000 were written off during the
period. The cash receipts from customers during the year amounted to:
P718 000;
P650 000;
P790 000;
P722 000;
Ans.
P650 000;
Aries Limited had a net profit after tax of P850,000 for the financial
year. Included in this profit was:
· Depreciation expense of P120,000
· Gain on sale of Investments of P28,000
Also, Accounts Receivable increased by P39,000 and Inventories
decreased by P12,000. The cash flow from operating activities during
the year was:
P785,000
P915,000
P731,000
P969,000
Ans.
P915,000
The direct method
Shows each major class of gross cash receipts and gross cash payments.
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Adjusts accrual basis net profit or loss for the effects of non-cash transactions.
Both shows each major class of gross cash receipts and gross cash payments
and adjusts accrual basis net profit or loss for the effects of non-cash
transactions.
Niether shows each major class of gross cash receipts and gross cash
payments nor adjusts accrual basis net profit or loss for the effects of non-
cash transactions.
Ans.
Shows each major class of gross cash receipts and gross cash payments.
Which of the following will be classified as cash flows from operating
activities?
Cash receipts from royalties, fees, commissions and other revenue.
Cash payments to acquire equity or debt instruments of other enterprises.
Cash receipts from issuing shares and other equity instruments.
Cash payments to owners to acquire or redeem the enterprise’s shares.
Ans.
Cash receipts from royalties, fees, commissions and other revenue.
Which of the following is not added to net income as an adjustment to
reconcile net income to cash from operating activities in the statement
of cash flows?
Increase in an accrued liability
Amortization of discount on bonds payable
Loss on sale of operation asset
Increase in deferred tax asset
Ans.
Increase in deferred tax asset
Shery Limited had the following cash flows during the reporting
period:
· Purchase of intangibles - P30,000
· Proceeds from sale of plant - P28,000
· Receipts from customers - P832,000
· Payments to suppliers - P593,000
· Interest received - P17,600
· Income taxes paid - P45,500
The net cash connected to operating activities was:
P239,100
P256,600
P269,100
P211,100
Ans.
P211,100
In preparing a statement of cash flows under the indirect method , cash flows
from operating activities
Is calculated as the difference between revenue and expenses plus the
beginning cash balance
Is always equal to the sum of cash flows from investing activities and cash
flows from financing activities
Can calculated by appropriately adding to or deducting from net income those
items in the income statement that affect cash and accrual for current asset
and current liabilities
Can be calculated by appropriately adding to or deducting from net income
those items in the income statement that do not affect cash.
Ans.
Can be calculated by appropriately adding to or deducting from net income
those items in the income statement that do not affect cash.
Which should not be disclosed in the cash flow statement using the indirect
method?
Interest paid, net of amounts capitalized
Cash flow per share
Income taxes paid
Dividends paid on preferred stock
Ans.
Cash flow per share
Brett Limited had a net profit after tax of $850 000 for the financial
year. Included in this profit was:
· Depreciation expense of $120 000
· Gain on sale of Investments of $28 000
Also, Accounts Receivable increased by $39 000 and Inventories
decreased by $12 000. The cash flow from operating activities during
the year was:
$785 000;
$731 000;
$915 000;
$969 000.
Ans.
$915 000;
During the financial year, Cresswell Limited had a Cost of Sales
amounting to $260 000. Beginning and ending balances were:
Beginning
balance
Ending
balance
Inventory
$46 000
$55 000
Accounts Payable
$18 000
$26 000
A discount of $2 000 for prompt payment was received. The amount of
cash paid for goods purchased during the year was:
$259 000;
$263 000;
$275 000;
$279 000.
Ans.
$259 000;
Top Toms Co has been trading for a number of years and is currently
going through a period of expansion. An extract from the statement of
cash flows for the year ended 31 December 20CY for Top Toms Co is
presented as follows (in thousands):
Net cash from operating activities
995
Net cash used in investing activities
(540)
Net cash used in financing activities
(200)
Net increase in cash and cash equivalents
255
Cash and cash equivalents at the beginning of
the period
200
Cash and cash equivalents at the end of the
period
455
Which of the following statements is correct according to the
extract of Top Toms Co’s statement of cash flows?
Select one:
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The company has good working capital management
Net cash generated from financing activities has been used to fund the additions to non-current
assets
Existing non-current assets have been sold to cover the cost of the
additions to non-current assets
Net cash generated from operating activities has been used to fund the
additions to non-current assets
Ans.
Net cash generated from operating activities has been used to fund the
additions to non-current assets
Which of the following cash flows does not appear in statement of cash flows
using the indirect method?
Net cash flow from operating activities
Cash received from customers
Cash inflow from sale of equipment
Cash outflow for dividend payment
Ans.
Cash received from customers
Using the indirect method, cash flows from operating activities would be
increased by which of the following?
Gain on sale of investments
Increase in prepaid expense
Decrease in accounts payable
Decrease in accounts receivable
Ans.
Decrease in accounts receivable
The net income for the current year for Roger Company was P3,520,000.
Additional data are as follows:
Purchase of plant assets
2,800,000
Depreciation of plants assets
1,480,000
Dividends declared
970,000
Net decrease in noncash current assets
290,000
Loss on sale of equipment
130,000
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What should be the net cash provided by operating activities in the
statement of cash flows for the current year using the indirect method?
5,420,000
5,130,000
7,250,000
5,290,000
Ans.
5,420,000
When preparing a reconciliation of net income to cash from operations ,
an increase in the ending inventory will result in an adjustment to
reported net income because
Cash increase because inventory is a current asset
Inventory is an expense deducted in computing net income bur is not a
use of cash
The net increase in inventory is part of the difference between cost of
goods sold and cash paid to suppliers
All changes in noncash accounts must be disclosed
Ans.
The net increase in inventory is part of the difference between cost of goods
sold and cash paid to suppliers
Which of the following cash flows does not appear in a cash flow statement
using indirect method?
Net cash flow from operating activities
Cash inflow from sale of equipment
Cash received from customers
Cash outflow for dividend payment
Ans.
Cash received from customers
Kersley Company has provided the following account balances for the
preparation of the statement of cash flows for the current year:
January 1
December 31
Accounts receivable
1,150,000
1,450,000
Allowance for uncollectible
40,000
50,000
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accounts
Prepaid rent expense
620,000
410,000
Accounts payable
970,000
1,120,000
Kersley’s net income for the year is P7,500,000. Net cash provided by
operating activities should be
7,270,000
7,430,000
7,550,000
7,570,000
Ans.
7,570,000
Cash advances and loans from bank overdrafts should be reported as:
Operating activities.
Financing activities
Investing activities
other significant noncash activities
Ans.
Operating activities.
How should gain on sale of an office building owned by the entity be presented
in a statement of cash flows?
As an inflows in the investing activities section because it pertains to long
term asset
As an inflow in the financing activities section because the building was
constructed with a long term loan from a bank that need to be repaid from the
sale proceeds
As a deduction from the net income in the operating activities section prepaid
under the indirect method
Added to the sale proceeds and presented in the investing activities section
Ans.
As a deduction from the net income in the operating activities section prepaid
under the indirect method
A change in unearned revenue would be classified into which of the following
categories for purposes of disclosure in the statement of cash flow?
Operating cash flow
Investing cash flow
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Financing cash flow
As an item reconciling earnings and operating cash flows
Ans.
As an item reconciling earnings and operating cash flows
Supplemental disclosures required only when the statement of cash
flows is prepared using the indirect method include
A schedule reconciling net income with net cash flows from operating
activities.
Amounts paid for interest and taxes
Amount deducted for depreciation and amortization
Significant noncash investing and financing activities
Ans.
Amounts paid for interest and taxes
An entity other than a financial institution receives dividends from investment
in shares. How should it disclose the dividends received in the statement of
cash flows?
Operating cash inflow.
Either as operating cash inflow or as investing cash inflow.
Either as operating cash inflow or as financing cash inflow.
As an adjustment in the "operating activities" section of the cash flow because
it is included in the Profit for the year and as a cash inflow in the "financing
activities" section of the statement of cash flows.
Ans.
Either as operating cash inflow or as investing cash inflow.
Brook Company provided the following information for the preparation of
the statement of cash flows for the current year:
Decrease in inventory
300,000
Increase in wages payable
100,000
Restructuring charge
2,300,000
Depreciation
1,000,000
Net income
500,000
The restructuring charge consists of two elements, namely P1,500,000
for the write down in value of certain assets and P800,000 for
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recognition of an obligation to relocate employees. None of the
relocation has yet taken place.
Under the indirect method, how much should be reported as cash flow
from operating activities?
4,200,000
1,900,000
3,600,000
4,000,000
Ans.
4,200,000
Aklan Company reported net income of P10,000,000 for 2009. Changes
occurred in several balance sheet accounts during 2009 as follows:
Investment in shares, carried at
equity
P2,500,000
increase
Premium on bonds payable
500,000
decrease
Accumulated depreciation, caused
by major repair
1,000,000
decrease
Deferred tax liability
400,000
increase
In the 2009 cash flow statement, the cash provided by operating
activities should be
P7,400,000
P9,400,000
P6,400,000
P7,000,000
Ans.
P7,400,000
Sinulog Company has provided the following 2009 current account
balances:
Jan. 1
Dec. 31
Accounts receivable
P1,500,0
00
P2,800,0
00
Allowance for doubtful
accounts
200,000
400,000
Prepaid insurance
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600,000
450,000
Accounts payable
900,000
1,200,00
0
Sinulog’s net income for 2009 was P8,000,000. Net cash provided
by operating activities should be
P7,350,000
P7,150,000
P9,550,000
P8,650,000
Ans.
P7,350,000
Corinthians Company prepared the following balance sheet data.
December 31,
2013
December 31,
2012
Cash and cash
equivalents
518,500
675,00
0
Accounts receivable (net)
360,000
345,000
Merchandise inventory
750,000
654,000
Prepaid insurance
4,500
6,000
Buildings and equipment
5,515,500
4,350,000
Accm dep’n – buildings &
equipment
(2,235,000)
(1,995,000)
Total Assets
4,913,50
0
4,035,00
0
Accounts payable
613,50
0
945,00
0
Salaries payable
75,000
105,000
Notes payable – bank
(current)
150,000
600,000
Notes payable – bank
(long-term)
1,200,000
-
Common stock, P20 par
value
2,000,000
1,800,000
Premium on common
shares
700,000
600,000
Retained earnings
(deficit)
175,000
(15,000)
Total liabilities &
stockholder’s
equity
4,913,50
0
4,035,00
0
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Cash needed to purchase new equipment and to improve the
company’s working capital position was raised by borrowing from
the bank with a long-term note.
Allowance for bad debts on December 31, 2012 and December 31,
2013 were P25,000 and P40,000 respectively. The bad debts
expense for 2013 amounted to P40,000 while write-offs amounted
to P25,000
Equipment costing P75,000 with a book value of P15,000 was sold
for P18,000; the gain on sale was included in net income.
Corinthians Company issued 10,000 common shares as settlement
for the acquisition of a building acquired in June 2013. The
building’s fair value at the time of purchase was P300,000 while
the shares market value was P28.75
The company paid cash dividends of P110,000 and reported
earnings of P300,000 for 2013. There were no entries in the
retained earnings account other than to record the dividend and
net income for the year.
The cash provided by (used in) investing activities is
(922,500)
(1,222,500)
(962,500)
(1,262,500)
Ans.
(922,500)
The following was taken from the comparative financial statements of
Champaca Company for the current year:
Net income for the current year
750,000
Sales revenue
4,500,000
Cost of goods sold (except depreciation)
2,750,000
Depreciation expenses
500,000
Amortization of intangible assets
200,000
Interest expense on short-term debt
300,000
Dividend declared and paid during year
350,000
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January 1
December
31
Accounts receivable
220,000
150,000
Inventory
350,000
400,000
Accounts payable
475,000
520,000
Interest payable
100,000
85,000
Under the indirect method, how much should be reported as net cash
flow from operating activities?
1,500,000
1,515,000
1,450,000
2,020,000
Ans.
1,500,000
Cash receipts from royalties, fees and commissions and other revenue are
Cash outflows for operating activities
Cash inflows from operating activities
Cash inflows from investing activities
Cash outflows for financing activities
Ans.
Cash inflows from operating activities
Box Company provided the following information during the current
year.
Dividend
received
500,000
Proceeds
from sale of
long-term
investments
2,000,0
00
Dividend
paid
1,000,0
00
Cash paid to
suppliers
and
employees
6,000,0
00
Cash
received
from
customers
9,000,0
00
Interest
paid on long
term debt
400,000
Proceeds
from
issuing
share
capital
1,500,0
00
Income
taxes paid
300,000
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Interest
received
200,000
Cash
balance, Jan
1
1,800,0
00
What is the net cash provided by operating activities for the current
year?
3,000,000
2,700,000
3,300,000
2,000,000
Ans.
3,000,000
The following information pertains to Lax Company during the current
year.
Dividend received
500,000
Dividend paid
1,000,000
Cash received from customers
9,000,000
Proceeds from issuing share capital
1,500,000
Interest received
200,000
Proceeds from sale of long term
investments
2,000,000
Cash paid to suppliers and employees
6,000,000
Interest paid on long term debt
400,000
Income taxes paid
300,000
Cash balance, January 1
1,800,000
What is the net cash provided by operating activities for the current
year using direct method?
3,000,000
3,300,000
2,700,000
2,000,000
Ans.
3,000,000
How should a gain from the sale of used equipment for cash be reported in a
cash flow statement using the indirect method?
In investing activities as a reduction of the cash inflow from the sale
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In investment activities as a cash outflow
In operating activities as a deduction from income
In operating activities as an addition to income
Ans.
In operating activities as a deduction from income
In preparing a statement of cash flows , the reconciliation of net income to
cash from operating activities does not include
Loss on sale of operational asset
Bond discount or premium amortization for the period
Gain on sale of bedt and equity securities classified as trading securities
Adjustment to record debt or equity securities classified as available for sale
securities
Ans.
Adjustment to record debt or equity securities classified as available for sale
securities
Which of the following cannot be classified as Cash flows from operating
activities?
Interest payments to lenders and other creditors.
Cash flows arising from income taxes.
Dividend payments to owners.
Cash receipts from short term borrowings.
Ans.
Cash receipts from short term borrowings.
In a cash flow statement using the indirect approach for operating activities,
an increase in inventory should be presented as
Outflow of cash
Addition to net income
Inflow and outflow of cash
Deduction from net income
Ans.
Deduction from net income
In preparing a cash flow statement, cash flows from operating activities
Are always equal to accrual accounting income
Are calculated as the differences between revenues and expenses
Can be calculated by appropriately adding to or deducting from net income
those items in the income statement that do not affect cash
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Can be calculated by appropriately adding to or deducting from net income
those items in the income statement that do affect cash
Ans.
Can be calculated by appropriately adding to or deducting from net income
those items in the income statement that do not affect cash
Colon Company uses the direct method to prepare its statement of cash
flows. The company had the following cash flows during 2009:
Cash receipts from the issuance of ordinary
shares
P400,0
00
Cash receipts from customers
200,00
0
Cash receipts from dividends on long-term
investments
30,000
Cash receipts from repayment of loan made to
another company
220,00
0
Cash payments for wages and other operating
expenses
120,00
0
Cash payments for insurance
10,000
Cash payments for dividends
20,000
Cash payments for taxes
40,000
Cash payment to purchase land
80,000
The net cash provided by (used in) operating activities is?
P60,000
P40,000
P30,000
(P20,000)
Ans.
P60,000
Star Company provided the following data for the preparation of
statement of cash flows for the current year using the direct method:
Cash balance, beginning
1,500,00
0
Cash paid to purchase
7,800,00
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inventory
0
Cash received from sale of
building
5,600,00
0
Cash paid for interest
450,000
Cash paid to repay a loan
1,000,00
0
Cash collected from
customers
10,000,0
00
Cash received from issuance
of ordinary shares
1,200,00
0
Cash paid for dividend
780,000
Cash paid for income taxes
1,320,00
0
Cash paid to purchase
machinery
1,950,00
0
How much was the cash flow for operating activities?
1,750,000
970,000
880,000
430,000
Ans.
430,000
During the financial year, Cresswell Limited had a Cost of Sales
amounting to P260 000. Beginning and ending balances were:
Beginning
Ba lance
Ending
Balance
Inventory
P46 000
P55 000
Accounts Payable
P18 000
P26 000
A discount of P2 000 for prompt payment was received. The amount of
cash paid for goods purchased during the year was:
P259 000
P263 000;
P275 000;
P279 000;
Ans.
P259 000
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When preparing a statement of cash flows using the direct method,
amortization of patent is?
shown as an increase in cash flows from operating activities.
shown as reduction in cash flows from operating activities.
included with supplemental disclosures of noncash transactions.
not reported in the statement of cash flows or related disclosures.
Ans.
included with supplemental disclosures of noncash transactions.
Seawall Company provided the following data for the operation of the
statement of cash flows for the current year:
Dividends declared and paid
800,000
Cash flow from investing activities
(2,500,00
0)
Cash flows from financing activities
(800,000)
December
31
January 1
Cash
2,100,000
1,200,000
Other assets
21,000,000
22,700,000
Liabilities
10,500,000
11,700,000
Share capital
2,000,000
2,000,000
Retained earnings
10,600,000
10,200,000
How much was reported as cash flow from operating activities ?
4,200,000
2,400,000
4,500,000
5,400,000
Ans.
4,200,000
Under the direct method, which of the following would represent cash
paid?
Loss on sale of plant asset
Gain on sale of plant asset
Interest expense , adjusted for changes in interest payable and
amortization of bond premium or discount
Depreciation expense , adjusted for change in depreciation method
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Ans.
Interest expense , adjusted for changes in interest payable and amortization of
bond premium or discount
Jeanette Corp.'s transactions for the year ended December 31, 2013
included the following:
· Purchased real estate for P220,000 cash which was
borrowed from a bank.
· Sold available-for-sale securities for P200,000.
· Paid dividends of P240,000.
· Issued 500 shares of common stock for P100,000.
· Purchased machinery and equipment for P50,000 cash.
· Paid P180,000 toward a bank loan.
· Reduced accounts receivable by P40,000.
· Increased accounts payable P80,000.
Jeanette's net cash used in investing activities for 2013 was
P70,000
P270,000
P20,000
P150,000
Ans.
P70,000
In preparing a statement of cash flows, which of the following transactions
would be considered an investing activity?
Sale of a business segment
Issuance of bonds payable at a discount
Purchase of treasury stock
Sale of capital stock
Ans.
Sale of a business segment
In a statement of cash flows, the cash flows from investing activities section
should report
the issuance of common stock in exchange for a factory building.
stock dividends received.
a major repair to machinery charged to accumulated depreciation.
the assignment of accounts receivable.
Ans.
a major repair to machinery charged to accumulated depreciation.
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Cash inflows from investing result from
decreases in liabilities.
increases in liabilities.
decreases in noncash assets.
increases in noncash assets.
Ans.
decreases in noncash assets.
Marie Company provided the following information for the current year:
Purchased a building for P1,200,000. Paid P400,000 and signed a
mortgage with the seller for the remaining P800,000.
Executed a debt-equity swap and replaced a P600,000 loan by
giving the lender ordinary shares worth P600,000 on the date the
swap was executed
Purchased land for P1,000,000. Paid P350,000 and issued ordinary
shares worth P650,000.
Borrowed P550,000 under a long-term loan agreement. Used the
cash from the loan proceeds as follows: P150,000 for the purchase
of additional inventory, P300,000 to pay cash dividend, and
P100,000 to increase the cash balance.
What amount should be reported as net cash used in investing activities
in the statement of cash flows?
400,000
750,000
1,200,000
2,200,000
Ans.
750,000
Capiz Company had the following activities during 2009:
· Acquired ordinary shares of Iloilo Company for P3,000,000.
· Sold an investment in Guimaras Company for P4,500,000
when the carrying amount was P3,800,000.
· Acquired a P5,000,000 one-year certificate of deposit from a
bank. During the year, interest of P400,000 was received from the
bank.
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· Collected dividends of P800,000 on investments in equity
securities.
In the 2009 statement of cash flows, net cash used in investing
activities should be?
P3,500,000
P4,300,000
P3,900,000
P4,700,000
Ans.
P3,500,000
Hager Company sold some of its plant assets during 20CY. The original
cost of the plant assets was P900,000 and the accumulated depreciation
at date of sale was P840,000. The proceeds from the sale of the plant
assets were P90,000. The information concerning the sale of the plant
assets should be shown on Hager's statement of cash flows (indirect
method) for the year ended December 31, 20CY, as a(n)
subtraction from Profit of P30,000 and a P60,000 increase in cash flows
from financing activities.
addition to Profit of P30,000 and a P90,000 increase in cash flows from
investing activities.
subtraction from Profit of P30,000 and a P90,000 increase in cash flows
from investing activities.
addition of P90,000 to Profit
Ans.
subtraction from Profit of P30,000 and a P90,000 increase in cash flows from
investing activities.
In 2009, a fire completely destroyed a building belonging to Negros Company.
The cost of the building was P8,000,000 and had accumulated depreciation of
P5,000,000 at the time of fire. Negros received a cash settlement from an
insurance company and reported a casualty loss of P500,000. In its 2009
statement of cash flows, the net change reported in the cash flows from
investing activities should be?
P3,000,000 decrease
P3,500,000 increase
P2,500,000 increase
P 500,000 decrease
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Ans.
P2,500,000 increase
Marcum Corp.'s transactions for the year ended December 31, 2009
included the following:
· Purchased real estate for P220,000 cash which was borrowed
from a bank.
· Sold available-for-sale securities for P200,000.
· Paid dividends of P240,000.
· Issued 500 shares of common stock for P100,000.
· Purchased machinery and equipment for P50,000 cash.
· Paid P180,000 toward a bank loan.
· Reduced accounts receivable by P40,000.
· Increased accounts payable P80,000.
Marcum's net cash used in investing activities for 2009 was
P70,000
P20,000
P270,000
P150,000
Ans.
P70,000
Fleming Company provided the following information on selected
transactions during 2018:
Dividends paid to preferred
stockholders
$
500,000
Loans made to affiliated
corporations
1,400,00
0
Proceeds from issuing bonds
1,600,00
0
Proceeds from issuing preferred
stock
2,100,00
0
Proceeds from sale of equipment
800,000
Purchases of inventories
,400,000
Purchase of land by issuing bonds
600,000
Purchases of treasury stock
1,200,00
0
The net cash provided (used) by investing activities during 2018 is?
$(1,200,000).
$(600,000).
$200,000.
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$800,000
Ans.
$(600,000).
Howell, Inc. reported net income of $88,000 for the year ended
December 31, 2018. Included in net income were depreciation expense
of $16,800 and a gain on sale of equipment of $3,400. The equipment
had an historical cost of $80,000 and accumulated depreciation of
$48,000. Each of the following accounts increased during 2018:
Land
$11,00
0
Prepaid rent
$13,60
0
FVTOCI securities
$2,000
Bonds payable
$10,00
0
What is the amount of cash provided by or used by investing activities
for Jarvis, Inc. for the year ended December 31, 2018?
( $ 9,600)
$33,400
$22,400
$24,400
Ans.
$22,400
Xanthe Corporation had the following transactions occur in the current
year:
· Cash sale of merchandise inventory.
· Sale of delivery truck at book value.
· Sale of Xanthe common stock for cash.
· Issuance of a note payable to a bank for cash.
· Sale of a security held as an available-for-sale investment.
· Collection of loan receivable.
How many of the above items will appear as a cash inflow from
investing activities on a statement of cash flows for the current year?
Five items
Four items
Three items
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Two items
Ans.
Three items
Antique Corp. reported net income of P420,000 for 2009. Changes
occurred in several balance sheet accounts as follows:
Equipment
P35,000
increase
Accumulated
depreciation
56,000
increase
Note payable
42,000
increase
Additional information:
· During 2009, Antique sold equipment costing P35,000, with
accumulated depreciation of P16,800, for a gain of P7,000.
· In December 2009, Antique purchased equipment costing
P70,000 with P28,000 cash and a 12% note payable of P42,000.
· Depreciation expense for the year was P72,800.
In Antique's 2009 statement of cash flows, net cash used in investing
activities should be
P 2,800
P30,800
P16,800
P49,000
Ans.
P 2,800
Smiley Corp.'s transactions for the year ended December 31, 2018
included the following:
· Purchased real estate for $1,250,000 cash which was
borrowed from a bank.
· Sold available-for-sale securities for $1,000,000.
· Paid dividends of $1,200,000.
· Issued 500 shares of common stock for $500,000.
· Purchased machinery and equipment for $250,000 cash.
· Paid $900,000 toward a bank loan.
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· Reduced accounts receivable by $200,000.
· Increased accounts payable $400,000.
Smiley's net cash used in investing activities for 2018 was
$1,500,000.
$750,000.
$500,000.
$250,000.
Ans.
$500,000.
In preparing Titan Inc.’s statement of cash flows for the year ended
December 31, 2018, the following amounts were available:
Collect note receivable
$615,000
Issue bonds payable
639,000
Purchase treasury stock
300,000
What amount should be reported on Titan, Inc.’s statement of cash flows
for investing activities?
$615,000
$315,000
$1,254,000
$339,000
Ans.
$615,000
The following information on selected cash transactions for 2018 has
been provided by
Mancuso Company:
Proceeds from sale of land
$315,00
0
Proceeds from long-term
borrowings
600,000
Purchases of plant assets
216,000
Purchases of inventories
1,020,00
0
Proceeds from sale of Mancuso
common stock
360,000
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What is the cash provided (used) by investing activities for the year
ended December 31, 2018, as a result of the above information?
$99,000
$384,000.
$315,000.
$1,275,000.
Ans.
$99,000
In a statement of cash flows, receipts from sales of property, plant, and
equipment would be classified as cash inflows from
liquidating activities.
operating activities.
investing activities.
financing activities.
Ans.
investing activities.
In 2013, a fire completely destroyed a building belonging to Jiffrey Company.
The cost of the building was P8,000,000 and had accumulated depreciation of
P5,000,000 at the time of fire. Jiffrey received a cash settlement from an
insurance company and reported a casualty loss of P500,000. In its 2013
statement of cash flows, the net change reported in the cash flows from
investing activities should be
P3,000,000 decrease
P3,500,000 increase
P2,500,000 increase
P 500,000 decrease
Ans.
P2,500,000 increase
The following cash flow activities are regarded as investing cash flows:
income taxes paid;
interest paid;
acquisition of subsidiary net of cash acquired;
proceeds from issue of debentures.
Ans.
acquisition of subsidiary net of cash acquired;
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Equipment which cost $426,000 and had accumulated depreciation of
$228,000 was sold for $222,000. This transaction should be shown on the
statement of cash flows (indirect method) as a(n)
addition to net income of $24,000 and a $222,000 cash inflow from financing
activities.
deduction from net income of $24,000 and a $198,000 cash inflow from
investing activities.
deduction from net income of $24,000 and a $222,000 cash inflow from
investing activities.
addition to net income of $24,000 and a $198,000 cash inflow from financing
activities.
Ans.
deduction from net income of $24,000 and a $222,000 cash inflow from
investing activities.
In 20CY, a typhoon completely destroyed a building belonging to Carpet
Corporation. The building cost P2,500,000 and had accumulated
depreciation of P1,200,000 at the time of the loss. carpet received a
cash settlement from the insurance and reported a loss of P525,000.
In Carpet’s 20CY cash flow statement, how much would be the net
changes that would be reported in the cash flows from investing
activities section?
Select one:
P525,000 increase
P775,000 increase
P250,000 increase
P1,300,000 increase
Ans.
P775,000 increase
Napier Co. provided the following information on selected transactions
during 2018:
Purchase of land by issuing bonds
$1,000,00
0
Proceeds from issuing bonds
3,000,000
Purchases of inventory
3,800,000
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Purchases of treasury stock
600,000
Loans made to affiliated
corporations
1,400,000
Dividends paid to preferred
stockholders
400,000
Proceeds from issuing preferred
stock
1,600,000
Proceeds from sale of equipment
300,000
The net cash provided (used) by investing activities during 2018 is
$300,000.
$(1,100,000).
$(2,100,000).
$(4,500,000).
Ans.
$(1,100,000).
Equipment that cost $875,000 and had a book value of $390,000 was
sold for $450,000. Data from the comparative balance sheets are:
12/31/18
12/31/17
Equipment
$5,400,0
00
$4,875,0
00
Accumulated
Depreciation
1,650,00
0
1,425,00
0
Equipment purchased during 2018 was
$1,400,000.
$825,000.
$525,000.
$915,000.
Ans.
$1,400,000.
Hager Company sold some of its plant assets during 20CY. The original
cost of the plant assets was $900,000 and the accumulated depreciation
at date of sale was $840,000. The proceeds from the sale of the plant
assets were $90,000. The information concerning the sale of the plant
assets should be shown on Hager's statement of cash flows (indirect
method) for the year ended December 31, 20CY, as a(n)
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subtraction from net income of $30,000 and a $60,000 increase in cash
flows from financing activities.
addition to net income of $30,000 and a $90,000 increase in cash flows
from investing activities.
subtraction from Profit of P30,000 and a P90,000 increase in cash flows
from investing activities.
addition of $90,000 to net income
Ans.
subtraction from Profit of P30,000 and a P90,000 increase in cash flows from
investing activities.
Warner Limited had the following cash flows during a reporting period:
· Acquisition of subsidiary, net of cash flows $250 000
· Dividends paid $65 000
· Repayment of borrowings $90 000
· Interest paid on borrowings $57 000
· Proceeds from sale of plant $215 000
What is the amount of the cash flows in relation to financing activities of
Warner Limited for the reporting period?
net cash inflow $155 000;
net cash outflow $155 000;
net cash inflow $212 000;
net cash inflow $212 000.
Ans.
net cash outflow $155 000;
The following information was taken from the 2018 financial statements
of Dunlop Corporation:
Bonds payable, January 1, 2018
$ 800,000
Bonds payable, December 31, 2018
4,800,000
During 2018
· A $720,000 payment was made to retire bonds payable with
a face amount of $800,000.
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· Bonds payable with a face amount of $320,000 were issued
in exchange for equipment.
In its statement of cash flows for the year ended December 31, 2018,
what amount should Dunlop report as proceeds from issuance of bonds
payable?
$4,000,000
$4,400,000
$4,480,000
$5,120,000
Ans.
$4,480,000
During 20Y2, Stout Inc. had the following activities related to its
financial operations:
Carrying value of convertible preferred stock in Stout,
converted into common shares of Stout
540,000
Payment in 20Y2 of cash dividend declared in 20Y1 to
preferred shareholders
279,000
Payment for the early retirement of long-term bonds
payable (carrying amount P3,930,000)
3,975,00
0
Proceeds from the sale of treasury stock (on books at cost
of P387,000)
450,000
The amount of net cash used in financing activities to appear in Stout's
statement of cash flows for 20Y2 should be
P2,985,000.
P3,264,000
P3,804,000
P3,822,000.
Ans.
P3,804,000
Corinthians Company prepared the following balance sheet data.
December 31,
2013
December 31,
2012
Cash and cash
equivalents
518,500
675,00
0
Accounts receivable (net)
360,000
345,000
Merchandise inventory
750,000
654,000
Prepaid insurance
4,500
6,000
Buildings and equipment
5,515,500
4,350,000
Accm dep’n – buildings &
(2,235,000)
(1,995,000)
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equipment
Total Assets
4,913,50
0
4,035,00
0
Accounts payable
613,50
0
945,00
0
Salaries payable
75,000
105,000
Notes payable – bank
(current)
150,000
600,000
Notes payable – bank
(long-term)
1,200,000
-
Common stock, P20 par
value
2,000,000
1,800,000
Premium on common
shares
700,000
600,000
Retained earnings
(deficit)
175,000
(15,000)
Total liabilities &
stockholder’s
equity
4,913,50
0
4,035,00
0
Cash needed to purchase new equipment and to improve the
company’s working capital position was raised by borrowing from
the bank with a long-term note.
Allowance for bad debts on December 31, 2012 and December 31,
2013 were P25,000 and P40,000 respectively. The bad debts
expense for 2013 amounted to P40,000 while write-offs amounted
to P25,000
Equipment costing P75,000 with a book value of P15,000 was sold
for P18,000; the gain on sale was included in net income.
Corinthians Company issued 10,000 common shares as settlement
for the acquisition of a building acquired in June 2013. The
building’s fair value at the time of purchase was P300,000 while
the shares market value was P28.75
The company paid cash dividends of P110,000 and reported
earnings of P300,000 for 2013. There were no entries in the
retained earnings account other than to record the dividend and
net income for the year.
The cash provided by (used in ) financing activities is
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640,000
940,000
340,000
440,000
Ans.
640,000
Napier Co. provided the following information on selected transactions
during 2018:
Purchase of land by issuing bonds
$1,000,0
00
Proceeds from issuing bonds
3,000,00
0
Purchases of inventory
3,800,00
0
Purchases of treasury stock
600,000
Loans made to affiliated corporations
1,400,00
0
Dividends paid to preferred
stockholders
400,000
Proceeds from issuing preferred stock
1,600,00
0
Proceeds from sale of equipment
300,000
The net cash provided by financing activities during 2018 is?
$3,200,000.
$3,600,000.
$4,200,000.
$4,600,000.
Ans.
$3,600,000.
The transactions of Tsape Company for the year 2009 included the
following:
Cash borrowed from bank for purchase of land
P6,000,0
00
Purchase of land for cash
6,000,00
0
Sale of securities for cash
1,000,00
0
Dividend declared (of which P2,000,000 was paid during
3,000,00
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the year)
0
Issuance of ordinary shares for cash
7,000,00
0
Payment of bank loan including interest of P500,000
3,500,00
0
Increase in customers’ deposits
500,000
The 2009 statement of cash flows should report net cash provided by
financing activities at
P8,000,000
P7,500,000
P8,500,000
P7,000,000
Ans.
P8,000,000
Smiley Corp.'s transactions for the year ended December 31, 2018
included the following:
Purchased real estate for $1,250,000 cash which was borrowed from a
bank.
· Sold available-for-sale securities for $1,000,000.
· Paid dividends of $1,200,000.
· Issued 500 shares of common stock for $500,000.
· Purchased machinery and equipment for $250,000 cash.
· Paid $900,000 toward a bank loan.
· Reduced accounts receivable by $200,000.
· Increased accounts payable $400,000.
Smiley's net cash used in financing activities for 2018 was?
$450,000.
$350,000.
$900,000.
$850,000.
Ans.
$350,000.
A company borrows $10,000 and signs a 90-day nontrade note payable. In
preparing a statement of cash flows (indirect method), this event would be
reflected as a(n)
addition adjustment to net income in the cash flows from operating activities
section.
cash outflow from investing activities.
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cash inflow from investing activities.
cash inflow from financing activities.
Ans.
cash inflow from financing activities.
Financing activities are the?
Activities that result in changes in the size and composition of equity
capital and borrowings of the enterprise.
Acquisition and disposal of long-term assets and other investments not
included in cash equivalents.
Principal revenue-producing activities of the enterprise.
Borrowings and subsequent payments of the borrowings only .
Ans.
Activities that result in changes in the size and composition of equity capital
and borrowings of the enterprise.
Dividends paid to stockholders are reported on the cash flow statement
as
Both financing and investing activity
Financing activity
Operating activity
Investing activity
Ans.
Financing activity
During 2009, Siquijor has the following activities related to its financial
operations:
Payment for the early retirement of long-term bonds
payable (carrying amount of bonds payable
P5,000,000)
P5,500,000
Distribution in 2009 of cash dividend declared in 2008
3,000,000
Carrying amount of convertible preference shares
converted into ordinary shares
2,000,000
Proceeds from sale of treasury shares (cost,
P2,000,000)
2,500,000
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In the 2009 statement of cash flows, net cash used in financing
activities should be
P6,000,000
P8,500,000
P3,000,000
P6,500,000
Ans.
P6,000,000
Cash outflows for financing activities include all, except
Principal payments to creditors who have extended long-term credit
Interest payment on loans
Payment of dividends
Repayment of amounts borrowed on a short-term bank loan
Ans.
Interest payment on loans
During 2013, Jerwin has the following activities related to its financial
operations:
Payment for the early retirement of long-term bonds
payable (carrying amount of bonds payable
P5,000,000)
P5,500,0
00
Distribution in 2009 of cash dividend declared in 2008
3,000,00
0
Carrying amount of convertible preference shares
converted into ordinary shares
2,000,00
0
Proceeds from sale of treasury shares (cost,
P2,000,000)
2,500,00
0
In the 2013 statement of cash flows, net cash used in financing
activities should be
P6,000,000
P3,000,000
P8,500,000
P6,500,000
Ans.
P6,000,000
The balance in retained earnings at December 31, 2017 was $1,440,000 and
at December 31, 2018 was $1,164,000. Net income for 2018 was $1,000,000.
A stock dividend was declared and distributed which increased common stock
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$500,000 and paid-in capital $220,000. A cash dividend was declared and
paid. The amount of the cash dividend was?
$496,000.
$556,000.
$776,000.
$1,276,000.
Ans.
$556,000.
A company borrows P10,000 and signs a 90-day nontrade note payable. In
preparing a statement of cash flows (indirect method), this event would be
reflected as a(n)
addition adjustment to Profit in the cash flows from operating activities
section.
cash outflow from investing activities.
cash inflow from investing activities.
cash inflow from financing activities.
Ans.
cash inflow from financing activities.
Howell, Inc. reported net income of $88,000 for the year ended
December 31, 2018. Included in net income was a gain on early
extinguishment of debt of $120,000 related to bonds payable with a
book value of $2,400,000. Each of the following accounts increased
during 2018:
Notes receivable
$90,000
Deferred tax liability
$20,000
Treasury stock
$240,000
What is the amount of cash used by financing activities for Jarvis, Inc.
for the year ended December 31, 2018?
$2,520,000
$2,540,000
$3,800,000
$ 450,000
Ans.
$2,520,000
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Lange Co. provided the following information on selected transactions
during 2009:
Purchase of land by issuing bonds
P200,00
0
Proceeds from issuing bonds
300,000
Purchases of inventory
650,000
Purchases of treasury shares
90,000
Loans made to affiliated corporations
250,000
Dividends paid to preference shareholders
80,000
Proceeds from issuing preference shares
240,000
Proceeds from sale of equipment
50,000
The net cash provided by financing activities during 2009 is?
P370,000
P460,000
P570,000
P120,000
Ans.
P370,000
In preparing Titan Inc.’s statement of cash flows for the year ended
December 31, 2018, the following amounts were available:
Collect note receivable
$615,000
Issue bonds payable
639,000
Purchase treasury stock
300,000
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What amount should be reported on Titan, Inc’s statement of cash flows
for financing activities?
$ 24,000
$1,254,000
$339,000
$315,000
Ans.
$339,000
In preparing a statement of cash flows, sale of treasury stock at an amount
greater than cost would be classified as a(n)
transfer activity
operating activity
investing activity
financing activity
Ans.
financing activity
The balance in retained earnings at December 31, 20Y1 was P1,440,000 and
at December 31, 20Y2 was P1,164,000. Profit for 20Y2 was P1,000,000. A
stock dividend was declared and distributed which increased common stock
P500,000 and paid-in capital P220,000. A cash dividend was declared and
paid. The amount of the cash dividend was
P496,000
P556,000
P776,000
P1,276,000
Ans.
P556,000
In a statement of cash flows, which of the following items is reported
as a cash flow from financing activities?
I. Payments to retire mortgage notes
II. Interest payments on mortgage notes
III. Dividends payments
I, II, and III
I only
II and III
I and III
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Ans.
I and III
Which of the following would be classified as a financing activity on a
statement of cash flows?
Declaration and distribution of a stock dividend
Payment of a bond payable
Sale of a loan receivable
Payment of interest to a creditor
Ans.
Payment of a bond payable
Jennifer Co. provided the following information on selected
transactions during 2013:
Purchase of land by issuing
bonds
P200,00
0
Proceeds from issuing
bonds
300,000
Purchases of inventory
650,000
Purchases of treasury
shares
90,000
Loans made to affiliated
corporations
250,000
Dividends paid to
preference shareholders
80,000
Proceeds from issuing
preference shares
240,000
Proceeds from sale of
equipment
50,000
The net cash provided by financing activities during 2013 is
P370,000
P570,000
P460,000
P120,000
Ans.
P370,000
Selected information from Dinkel Company's 2018 accounting records is
as follows:
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Proceeds from issuance of common stock
$ 800,000
Proceeds from issuance of bonds
2,400,000
Cash dividends on common stock paid
290,000
Cash dividends on preferred stock paid
120,000
Purchases of treasury stock
240,000
Sale of stock to officers and employees not
included above
200,000
Dinkel's statement of cash flows for the year ended December 31, 2018,
would show net cash provided (used) by financing activities of?
$120,000.
$(470,000).
$290,000.
$2,750,000
Ans.
$2,750,000
If dividends are declared after the reporting period but before the financial
statements are authorized for issue
The dividends are not reflected in the financial statements
No liability shall be recognized at the end of the reporting period
No disclosure shall be included in the financial statements
The dividends shall be accrued as at the end of the reporting period
Ans.
No liability shall be recognized at the end of the reporting period
The following data are provided by Colossians Company. The end
of the reporting period is December 31, 2009 and the financial
statements are authorized for issue on March 15, 2010.
On December 31, 2009, Colossians Company had a receivable of P
400,000 from a customer that is due 60 days after the end of
reporting period. On January 15, 2010, a receiver was appointed
for the said customer. The receiver informed Colossians that the P
400,000 would be paid in full by June 30, 2010.
Colossians Company measures its investments in listed shares as
held for trading at fair value through profit or loss. On December
31, 2009, these investments were recorded at the market value of
P 5,000,000. During the period up to February 15, 2010, there was
a steady decline in the market value of all the shares in the
portfolio, and at February 15, 2010, the market value had fallen to
P 2,000,000.
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Colossians Company had reported a contingent liability on
December 31, 2009 related to a court case in which Colossians
Company was the defendant. The case was not heard until the first
week of February 2010. On February 11, 2010, the judge handed
down a decision against Colossians Company. The judge
determined that Colossians Company was liable to pay damages
and costs totaling P 3,000,000.
On December 31, 2009, Colossians Company had a receivable from
a large customer amounting to P3,500,000. On January 31, 2010
Colossians Company was advised by the liquidator of the customer
that the customer was insolvent and would be unable to repay the
full amount owed.. The liquidator advised Colossians Company in
writing that only 10% of the receivable will be paid on April 30,
2010.
Colossians Company should report a total amount of “adjusting events”
on December 31, 2009 at
6,150,000
9,150,000
9,550,000
6,500,000
Ans.
6,150,000
Per PAS 10 Events after the Reporting Period, these are events that provide
evidence of conditions that existed at the end of the reporting period
Events after the reporting period
Subsequent events
Adjusting events
Non-adjusting events
Ans.
Adjusting events
Most likely an adjusting event
Declaration of dividends after the reporting period
A major business combination after the reporting period
Commencing major litigation arising solely out of events that occurred after
the reporting period
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The discovery of fraud or errors that show that the financial statements are
incorrect
Ans.
The discovery of fraud or errors that show that the financial statements are
incorrect
Which of the following subsequent events would require adjustment of the
accounts before issuance of the financial statements?
Loss of plant as a result of fire
Changes in the quoted market prices of securities held as an investment
Loss on an uncollectible account receivable resulting from a customer’s major
flood loss
Loss on a lawsuit, the outcome of which was deemed uncertain at year end
Ans.
Loss on a lawsuit, the outcome of which was deemed uncertain at year end
Timothy Company carried a provision of P 2,000,000 in its draft
financial statements on December 31, 2009 in relation to an
unresolved court case. On January 31, 2010, when the financial
statements on December 31, 2009 had not yet been authorized for
issue, the case was settled and the court decided the final total
damages payable by Timothy to be P2,800,000.
The amount of adjustment to the December 31, 2009 statement of
financial position in relation to this event is
2,800,000
2,000,000
800,000
0
Ans.
800,000
Thessalonians Company is completing the preparation of its draft
financial statements for the year ended December 31, 2009. The
financial statements are authorized for issue on March 31, 2010.
On March 15, 2010, a dividend of P 1,750,000 was declared and a
contractual profit share payment of P 350,000 was made, both
based on the profit for the year ended December 31, 2009.
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On February 1, 2010, a customer went into liquidation having owed
the entity P 340,000 for the past 5 months. No allowance had been
made against this debt in the draft financial statements.
On March 20, 2010, a manufacturing plant was destroyed by fire
resulting in a financial loss of P 2,600,000.
The profit or loss for the year ended December 31, 2009 to reflect
adjusting events is
1,750,000
3,290,000
2,600,000
690,000
Ans.
690,000
Each of the following events occurred after the reporting date of 31
March 2CY, but before the financial statements were authorised for
issue. Which would be treated as a non-adjusting event under IAS 10
Events After the Reporting Period?
Select one:
A sale of goods in April 20CY which had been held in inventory at 31 March 20CY. The sale was
made at a price below its carrying amount at 31 March 20CY.
A public announcement in April 20CY of a formal plan to discontinue an
operation which had been approved by the board in February 20CY.
The settlement of an insurance claim for a loss sustained in December 20PY.
Evidence that P20,000 of goods which were listed as part of the inventory in the statement of
financial position as at 31 March 20CY had been stolen.
Ans.
A public announcement in April 20CY of a formal plan to discontinue an
operation which had been approved by the board in February 20CY.
A new drug named “EEE” was introduced by Genius Inc. in the market on
December 1, 20Y1. Genius Inc.’s financial year ends on December 31, 20Y1. It
was the only company that was permitted to manufacture this patented drug.
The drug is used by patients suffering from an irregular heartbeat. On March
31, 20Y2, after the drug was introduced, more than 1,000 patients died. After
a series of investigations, authorities discovered that when this drug was
simultaneously used with “BBB,” a drug used to regulate hypertension, the
patient’s blood would clot and the patient suffered a stroke. A lawsuit for
P100,000,000 has been filed against Genius Inc. The financial statements were
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authorized for issuance on April 30, 20Y2. Which of the following options is the
appropriate accounting treatment for this post–balance sheet event under PAS
10?
The entity should provide P100,000,000 because this is an “adjusting event”
and the financial statements were authorized to be issued after the accident.
The entity should disclose P100,000,000 as a contingent liability because it is
an “adjusting event.”
The entity should disclose P100,000,000 as a “contingent liability” because it
is a present obligation with an improbable outflow.
Assuming the probability of the lawsuit being decided against Genius Inc. is
remote, the entity should disclose it in the footnotes, because it is a non-
adjusting material event.
Ans.
The entity should disclose P100,000,000 as a “contingent liability” because it
is a present obligation with an improbable outflow.
International Inc. deals extensively with foreign entities, and its financial
statements reflect these foreign currency transactions. Subsequent to the
balance sheet date, and before the “date of authorization” of the issuance of
the financial statements, there were abnormal fluctuations in foreign currency
rates. International Inc. should
Adjust the foreign exchange year-end balances to reflect the abnormal
adverse fluctuations in foreign exchange rates
Adjust the foreign exchange year-end balances to reflect all the abnormal
fluctuations in foreign exchange rates (and not just adverse movements).
Disclose the post–balance sheet event in footnotes as a non-adjusting event.
Ignore the post–balance sheet event
Ans.
Disclose the post–balance sheet event in footnotes as a non-adjusting event.
Most likely a non-adjusting event
The settlement after the reporting period of a court case that confirms that
the entity had a present obligation at the end of the reporting period
The bankruptcy of a customer that occurs after the reporting period
The determination after the reporting period of the amount of profit-sharing or
bonus payments and the entity had a present legal or constructive obligation
at the end of the reporting period to make such payments
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Decline in market value of investments between the end of the reporting
period and the date when the financial statements are authorized for issue
Ans.
Decline in market value of investments between the end of the reporting
period and the date when the financial statements are authorized for issue
Excellent Inc. built a new factory building during 20Y1 at a cost of P20 million.
At December 31, 20Y1, the net carrying value of the building was P19 million.
Subsequent to year-end, on March 15, 20Y2, the building was destroyed by fire
and the claim against the insurance company proved futile because the cause
of the fire was negligence on the part of the caretaker of the building. If the
date of authorization of the financial statements for the year ended December
31, 20Y1, was March 31, 20Y2, Excellent Inc. Should
Write off the net carrying value to its scrap value because the insurance claim
would not fetch any compensation
Make a provision for one-half of the net carrying value of the building
Make a provision for three-fourths of the net carrying value of the building
based on prudence
Disclose this non-adjusting event in the footnotes
Ans.
Disclose this non-adjusting event in the footnotes
ABC Ltd. decided to operate a new amusement park that will cost P1 million to
build in the year 20Y1. Its financial year-end is December 31, 20Y1. ABC Ltd.
has applied for a letter of guarantee for P700,000. The letter of guarantee was
issued on March 31, 20Y2. The audited financial statements have been
authorized to be issued on April 18, 20Y2. The adjustment required to be made
to the financial statement for the year ended December 31, 20Y1, should be
Booking a P700,000 long-term payable
Disclosing P700,000 as a contingent liability in 2005 financial statement
Increasing the contingency reserve by P700,000
Do nothing
Ans.
Do nothing
During 2015, Orca Corp. decided to change from the FIFO method of
inventory valuation to the weighted-average method. Inventory
balances under each method were as follows:
FIFO
Weighted-
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average
January 1, 2015
P71,000
P77,000
December 31, 2015
P79,000
P83,000
Orca’s income tax rate is 30%.
In its 2015 financial statements, what amount should Orca report as the
gain or loss on the cumulative effect of this accounting change?
P2,800
P4,000
P4,200
P0
Ans.
P0
On December 31, 2011 Dean Company changed its method of accounting for
inventory from the average cost method to the FIFO method. This change
caused the 2011 beginning inventory to increase by $420,000. The cumulative
effect of this accounting change to be reported for the year ended 12/31/11,
assuming a 40% tax rate, is
$420,000
$252,000
$168,000.
$0.
Ans.
$252,000
Per PAS 8, these are the specific principles, bases, conventions, rules and
practices applied by an entity in preparing and presenting financial
statements.
Accounting policies
Generally accepted accounting principles
Accounting principles
Philippine Financial Reporting Standards
Ans.
Accounting policies
Denny Company completed construction of its warehouse on January
1, 2008 at a cost of P2,000,000. Denny Company uses the cost model
as its accounting policy. The warehouse was to be depreciated under
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the straight-line method over useful period of 10 years with no
expected residual value.
On January 1, 2011 Denny Company changes its accounting policy in
the measurement of its warehouse from cost model to revalued
model. The following information was derived from the independent
appraiser hired by Denny Company: (a) no changes in the original
useful life of the warehouse; (b) the expected residual value remains
at P0; (c) sound value of the warehouse on January 1, 2010 and
January 1, 2011 were computed as P2,236,500 and P2,520,000.
The depreciation expense for 2010 in the 2011 comparative income
statement is
200,000
248,500
280,000
315,000
Ans.
200,000
During 20Y3, a construction company changed from the cost-recovery
method to the percentage-of-completion method for accounting
purposes but not for tax purposes. Gross profit figures under both
methods for the past three years appear below:
Cost-
Recovery
Percentage-of-
Completion
20Y1
P 475,000
P 800,000
20Y2
625,000
950,000
20Y3
700,000
1,050,000
P1,800,000
P2,800,000
Assuming an income tax rate of 40% for all years, the affect of this
accounting change on prior periods should be reported by a credit of
P600,000 on the 2011 income statement.
P390,000 on the 2011 income statement
P600,000 on the 2011 retained earnings statement
P390,000 on the 2011 retained earnings statement.
Ans.
P390,000 on the 2011 retained earnings statement.
Jacob, Inc., changed from the average cost to the FIFO cost flow
assumption in 2012. the increase in the prior year`s income before
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taxes is €1,100,000. The tax rate is 35%. Jacob’s 2012 journal entry to
record the change in accounting policy will include.
a debit to Retained Earnings for €1,100,000.
a credit to Retained Earnings for €1,100,000.
a debit to Inventory for €715,000.
a credit to deferred Tax Liability for €385,000
Ans.
a credit to deferred Tax Liability for €385,000
An entity changed from an accounting principles that is not generally accepted
to one that is generally accepted. The effect of the change shall be reported ,
net of applicable income tax , in the current year
Income statement as component of income from continuing operations
Income statement as component of discontinued operations
Retained earnings statement as an adjustment of the opening balance
Retained earnings statement after Profit but before dividends
Ans.
Retained earnings statement as an adjustment of the opening balance
Per PAS 8, it is applying a new accounting policy to transactions, other events
and conditions as if that policy had always been applied.
Retrospective application
Prospective restatement
Retrospective restatement
Prospective application
Ans.
Retrospective application
XYZ Inc. changes its method of valuation of inventories from weighted-average
method to first-in, first-out (FIFO) method. XYZ Inc. should account for this
change as
A change in estimate and account for it prospectively
A change in accounting policy and account for it prospectively
A change in accounting policy and account for it retrospectively
Account for it as a correction of an error and account for it retrospectively
Ans.
A
change
in
accounting
policy
and account
for it retrospectively
On December 31, 20CY Dean Company changed its method of accounting for
inventory from the average cost method to the FIFO method. This change
caused the 20CY beginning inventory to increase by P420,000. The cumulative
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effect of this accounting change to be reported for the year ended 12/31/CY,
assuming a 40% tax rate, is
P420,000
P252,000
P168,000
P0
Ans.
P252,000
Iceman Corporation began operations in 2010. The company has
been using the first-in, first-out method in costing its raw materials.
However, during 2012, Iceman Corporation decided to change to
average costing method. Inventory balances under each method
were as follows:
December 31,
2010
December 31,
2011
December 31,
2012
FIFO
P
490,000
P
438,000
P
576,000
Averag
e
465,000
374,000
482,000
In its 2012 statement of changes in retained earnings, Iceman
Corporation should report a cumulative effect of this accounting change
of
P25,000
P64,000
P89,000
P183,000
Ans.
P64,000
During 20CY, Titus Company decided to change from the FIFO method of
inventory valuation to the weighted average method. Inventory
balances under each method were as follows:
FIFO
Weighted
Average
January 1
7,100,000
7,700,000
December 31
7,900,000
8,300,000
Ignoring income tax, in its 20CY statement of retained earnings, what
amount should Titus report as the cumulative effect of this accounting
change?
1,000,000 addition
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1,000,000 deduction
600,000 addition
600,000 deduction
Ans.
600,000 addition
Which of the following statement is not correct?
A change from an in appropriate accounting policy to a proper one shall
be accounted for as an accounting error
A change from an in appropriate accounting policy to a proper one shall
be accounted for as an accounted for as a changed in accounting policy
A change from an inappropriate accounting policy to a proper one shall
be accounted for retrospectively
A change from an I appropriate accounting policy to a proper one may
require an adjustment to beginning retained for the earliest period
reported
Ans.
A change from an in appropriate accounting policy to a proper one shall be
accounted for as an accounted for as a changed in accounting policy
The effect of a change in accounting policy that is inseparable from the effect
of a change in accounting estimates shall be reported
By restating the financial statement of all prior period presented
As a correction of an error
As a component of income from continuing operations in the period of change
and future periods if the change affects both
As a separate disclosure after income from continuing operations , in the
period of change and future periods if the changed affects both.
Ans.
As a component of income from continuing operations in the period of change
and future periods if the change affects both
Denny Company completed construction of its warehouse on January
1, 2008 at a cost of P2,000,000. Denny Company uses the cost model
as its accounting policy. The warehouse was to be depreciated under
the straight-line method over useful period of 10 years with no
expected residual value.
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On January 1, 2011 Denny Company changes its accounting policy in
the measurement of its warehouse from cost model to revalued
model. The following information was derived from the independent
appraiser hired by Denny Company: (a) no changes in the original
useful life of the warehouse; (b) the expected residual value remains
at P0; (c) sound value of the warehouse on January 1, 2010 and
January 1, 2011 were computed as P2,236,500 and P2,520,000.
The revaluation surplus recognized on January 1, 2011 as a result of
the change in accounting policy from cost to revalued model is
0
520,000
636,500
1,120,000
Ans.
1,120,000
During 2011, Eden Company made the following accounting policy
changes:
Change from straight-line method to the declining balance method
of depreciation for its manufacturing equipment. The equipment
was acquired on January 1, 2009 for P1,200,000; expected useful
life of 10 years with no expected residual value.
Change from completed contract to percentage of completion with
respect to a specially made unit for a contract price of P750,000.
The total estimated cost of manufacturing the unit remained the
same at P400,000 since Eden Company started on the project in
2009. Cost incurred for 2009, 2010 and 2011 were P120,000,
180,000 and P100,000 respectively.
The adjustment to the opening balance of the retained earnings as
shown in the 2011 statement of changes in equity as a result of the
above-mentioned changes in accounting policy is
0
192,000
262,500
454,500
Ans.
262,500
On January 1, 2009, Neal Corporation acquired equipment at a cost of
$540,000. Neal adopted the sum-of-the-years -digits method of depreciation
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for this equipment and had been recording depreciation over an estimated life
of eight years, with no residual value. At the beginning of 2012, a decision was
made to change to the straight-line method of depreciation for this equipment.
The depreciation expense for 2012 would be?
$28,125
$45,000
$67,500.
$108,000.
Ans.
$45,000
During 2009, Titus Company decided to change from the FIFO
method of inventory valuation to the weighted average method.
Inventory balances under each method were as follows:
FIFO
Weighted
Average
January 1
7,100,000
7,700,000
December 31
7,900,000
8,300,000
Ignoring income tax, in its 2009 statement of retained earnings, what
amount should Titus report as the cumulative effect of this accounting
change?
1,000,000 addition
1,000,000 deduction
600,000 addition
600,000 deduction
Ans.
600,000 addition
On January 1, 2009, Knapp Corporation acquired machinery at a cost of
$250,000. Knapp adopted the double-declining balance method of
depreciation for this machinery and had been recording depreciation over an
estimated useful life of ten years, with no residual value. At the beginning of
2012, a decision was made to change to the straight-line method of
depreciation for the machinery. The depreciation expense for 2012 would be?
$12,800
$18,286
$25,000
$35,714
Ans.
$18,286
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It is an adjustment of the carrying amount of an asset or a liability or the
amount of the periodic consumption of an asset that results from the
assessment of the present status and expected future benefit and obligation
associated with the asset and liability.
Change in accounting estimates
Change in accounting policy
Correction of a prior period error
Change in reporting entity
Ans.
Change in accounting estimates
Which of the following is not correct regarding the provision of PAS 8?
A change in accounting estimates is reflected in the current and future period.
A change in depreciation method is classified as a change in accounting
estimates.
A change in depreciation method is classified as a change in accounting policy.
PAS 8 generally reflect a preference for restating prior results to improve
comparability of financial statements.
Ans.
A change in depreciation method is classified as a change in accounting policy.
Which of the following is not a justifications for a change in depreciations
method?
A change in the estimated useful life of an asset as a results of unexpected
obsolescence.
A change in the pattern of receiving the estimated future benefits from an
asset.
To conform with the depreciations method prevalent in a particular industry.
A change in the estimated future benefits from the asset.
Ans.
To conform with the depreciations method prevalent in a particular industry.
The effect of a change in an accounting estimate shall be recognized
prospectively by including it in profit or loss in:
The period of the change, if the change affects that period only.
The period of the change and prior periods, if the change affects both.
Either the period of the change, if the change affects that period or the period
of the change and prior periods, if the change affects both
Neither the period of the change, if the change affects that period nor the
period of the change and prior periods, if the change affects both
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Ans.
The period of the change, if the change affects that period only.
Which statement is incorrect concerning accounting estimate?
As a result of the uncertainties inherent in business activities, many items in
financial statements cannot be measured with precision but can only be
estimated.
The use of reasonable estimate is an essential part of the preparation of
financial statements and does not undermine their reliability.
An estimate may need revision if changes occur in the circumstances on which
the estimate was based or as a result of new information or more experience.
By its very nature, the revision of an estimate relates to a prior period and is a
correction of error.
Ans.
By its very nature, the revision of an estimate relates to a prior period and is a
correction of error.
On January 1, 2009, Piper Co., purchased a machine (its only
depreciable asset) for $300,000. The machine has a five-year life, and
no salvage value. Sum-of-the-years'-digits depreciation has been used
for financial statement reporting and the elective straight-line method
for income tax reporting. Effective January 1, 2012, for financial
statement reporting, Piper decided to change to the straight-line
method for depreciation of the machine. Assume that Piper can justify
the change. Piper's income before depreciation, before income taxes,
and before the cumulative effect of the accounting change (if any), for
the year ended December 31, 2012, is $250,000. The income tax rate
for 2012, as well as for the years 2009-2011, is 30%. What amount
should Piper report as net income for the year ended December 31,
2012?
$60,000
$91,000
$154,000
$175,000
Ans.
$154,000
On January 1, 2009, Hess Co. purchased a patent for $595,000. The patent is
being amortized over its remaining legal life of 15 years expiring on January 1,
2024. During 2012, Hess determined that the economic benefits of the patent
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would not last longer than ten years from the date of acquisition. What
amount should be reported in the statement of financial position for the
patent, net of accumulated amortization, at December 31, 2012?
$357,000
$408,000
$420,000
$436,375
Ans.
$408,000
On January 1, year 1, Taft Co. purchased a patent for $714,000. The
patent is being amortized over its remaining legal life of fifteen years
expiring on January 1, year 16. During year 4, Taft determined that the
economic benefits of the patent would not last longer than ten years
from the date of acquisition. What amount should be reported in the
balance sheet for the patent, net of accumulated amortization, at
December 31, year 4?
$428,400
$489,600
$504,000
$523,600
Ans.
$489,600
When an independent valuation expert advises an entity that the
residual value of its plants and machinery had drastically change and
the change is material , the entity shall
Retrospectively change the depreciations charged based on the revised
residual value.
Change the depreciations charged and treat it as a corrections of an
error.
Change the annual depreciations for the current year and future year.
Ignore the effect of the change on annual depreciations because change
in residual value would normally affect the future only since this is
expected to be recovered in the future.
Ans.
Change the annual depreciations for the current year and future year.
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Which of the following should be reported as a change in accounting
estimates?
Change in the reported beginning inventory amount due to a discovery
of a bookkeeping error.
Change from the completed contract method to the percentage of
completion method for revenue recognition on long term constructions
contracts.
Increase in the rate applied to net credit sales from one percent to two
percents in determining losses from uncollectible receivables.
Change made to comply with a new PFRS.
Ans.
Increase in the rate applied to net credit sales from one percent to two
percents in determining losses from uncollectible receivables.
Which of the following is characteristic of a change in an accounting
estimates?
It usually need not be disclosed.
It does not effect the financial statement of prior period.
It should be reported through the restatement of the financial statement.
It makes necessary the reporting of pro forma amounts for prior period.
Ans.
It does not effect the financial statement of prior period.
Per PAS 8, it is an adjustment of the carrying amount of an asset or a liability,
or the amount of the periodic consumption of an asset, that results from the
assessment of the present status of, and expected future benefits and
obligations associated with, assets and liabilities.
Correction of error
Prior period error
Change in accounting estimate
Prospective application
Ans.
Change in accounting estimate
Which of the following is the proper time period in which to record a
change in accounting estimates
Current period and future period.
Current period and retroactively.
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Retroactively only.
Current period only.
Ans.
Current period and future period.
The effect of a change in accounting estimate shall be recognized
currently and prospectively by including it in income or loss of
I. The period of change if the change effect that period
only
II. The period of hange and future period if the change
affect both
I only
II only
Both I and II
Neither I nor II
Ans.
Both I and II
Prospective recognition of the effect of a change in an accounting estimates
means that the change is applied to transaction from the?
Date of the change in estimates.
End of the current reporting period.
Beginning of the year of change.
Date of issuance of financial statement.
Ans.
Date of the change in estimates.
On January 1, year 1, Flax Co. purchased a machine for $528,000 and
depreciated it by the straight-line method using an estimated useful life of
eight years with no salvage value. On January 1, year 4, Flax determined that
the machine had a useful life of six years from the date of acquisition and will
have a salvage value of $48,000. An accounting change was made in year 4 to
reflect these additional data. The accumulated depreciation for this machine
should have a balance at December 31, year 4, of?
$292,000
$308,000
$320,000
$352,000
Ans.
$292,000
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A change in the residual value of an asset arising because additional
information has been obtained is?
An accounting change that should be reported in the period of change and
future period if the changed affects both.
An accounting changed that should be reported by restating the financial
statement of all prior periods presented.
A correction of an error.
Not an accounting change.
Ans.
An accounting change that should be reported in the period of change and
future period if the changed affects both
.
When an entity changed the expected service life of an asset because
additional information has been obtained , which of the following should be
reported?
Cumulative effect of change in accounting policy.
Proforma effect of retroactive application.
Prior period error.
An accounting changed that should be reported in the period of change and
future period if the change affects both.
Ans.
An accounting changed that should be reported in the period of change and
future period if the change affects both.
On January 1, 2009, Nobel Corporation acquired machinery at a cost of
$600,000. Nobel adopted the straight-line method of depreciation for this
machine and had been recording depreciation over an estimated life of ten
years, with no residual value. At the beginning of 2012, a decision was made
to change to the double-declining balance method of depreciation for this
machine. Assuming a 30% tax rate, the cumulative effect of this accounting
change on beginning retained earnings, is?
$67,200.
$0.
$78,960.
$112,800
Ans.
$0.
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A change in the unit depletion rate would be accounted for as a
Correction of an accounting error.
Change in accounting policy.
Change in accounting estimates.
Change in accounting estimates effected through a change in accounting
policy.
Ans.
Change in accounting estimates.
On January 1, 2009, Nobel Corporation acquired machinery at a cost of
$600,000. Nobel adopted the straight-line method of depreciation for this
machine and had been recording depreciation over an estimated life of ten
years, with no residual value. At the beginning of 2012, a decision was made
to change to the double-declining balance method of depreciation for this
machine. The amount that Nobel should record as depreciation expense for
2012 is?
$60,000
$84,000
$120,000
none of the above
Ans.
$120,000
When an entity changed from the straight line method of depreciation for
previously recorded assets to the double declining balance method , which of
the following should be reported ?
Cumulative effect of change in accounting policy.
Proforma effect of retroactive applications.
Change in accounting estimates.
Prior period error.
Ans.
Change in accounting estimates.
For the prior year , an entity estimated its two year equipment warranty cost
based on a certain amount per unit sold in the prior year. Experience during
the current year indicated that the estimates should have been higher than
the previous year. The effect of these increase in the estimates is reported
In income from continuing operations of the current year.
As an accounting change , net of tax , below income continuing operations of
the current year.
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As an accounting change requiring financial statements of the prior year to be
restated.
As A correction of an error requiring financial statements of the prior year to
be restated.
Ans.
In income from continuing operations of the current year.
On January 1, 2008, Lake Co. purchased a machine for $792,000 and
depreciated it by the straight-line method using an estimated useful life of
eight years with no residual value. On January 1, 2011, Lake determined that
the machine had a useful life of six years from the date of acquisition and will
have a residual value of $72,000. An accounting change was made in 2011 to
reflect these additional data. The accumulated depreciation for this machine
should have a balance at December 31, 2011 of?
$438,000.
$462,000
$480,000.
$528,000
Ans.
$438,000.
A change in the period benefited by a deferred cost because additional
information has been obtained is
An accounting change that should be reported in the period of change and
future period if the change affect both.
An accounting change that should be reported by restating the financial
statements of all prior presented.
A correction of an error.
Not an accounting changed.
Ans.
An accounting change that should be reported in the period of change and
future period if the change affect
both.
A change in the estimated useful life of a building
Is not allowed by generally accepted accounting principles .
Affect the depreciations on the building beginning with the year of the change.
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Must be handle as a retroactive adjustment to all accounts affected , back to
the year of the acquisitions of the building.
Creates a new accounts to be recognized in the income statement reflecting
the difference in net income up to the beginning the year of change.
Ans.
Affect the depreciations on the building beginning with the year of the change.
How should the effect of a change in accounting estimates be accounted for?
By restating amounts reported in financial statements of prior periods.
By reporting pro forma amounts for prior period.
As a prior periods adjustment to beginning retained earnings.
In the period of change and future period if the changed affects both.
Ans.
In the period of change and future period if the changed affects both.
A change in amortization rate, such as on a copyright should be accounted
for?
retroactively.
by recording a prior period adjustment.
Prospectively
Currently
Ans.
Prospectively
The effect of a changes in the expected pattern of consumption of economic
benefits of a depreciable assets shall be?
Included in the determinations of income or loss in the period of change only.
Included in the determination of income or loss in the period of change and
future period.
Included in the statement of retained earnings as an adjustment of the
beginning balance.
Included as component of other comprehensive income.
Ans.
Included in the determination of income or loss in the period of change and
future period.
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The estimated life of building that has been depreciated 30 years of an
originally estimated life of 50 years has been revised to a remaining life of 10
years . Based o this information the accountant shall
Continue to depreciates the building over the original 50 year life.
Depreciate the remaining book value over the remaining life of the asset.
Adjust accumulative depreciation to its appropriate balance , through net
income base on a 40 – year life then depreciate the adjusted book value as
though the estimated life had always been 40 years.
Adjust accumulated depreciation to its appropriate balance , trough retained
earnings ,based on 40- year life and then depreciate the adjusted book value
as though the estimated life had always been 40 year.
Ans.
Depreciate the remaining book value over the remaining life of the asset.
In 2009, a firm changed from straight-line (SL) method of
depreciation to double declining balance (DDB). The firm’s 2008 and
2009 comparative financial statements will reflect method or
methods
2008 2009
SL SL
SL DDB
DDB DDB
SL either SL or DDB
Ans.
SL
DDB
A change from the straight line method of depreciations to an accelerated
method shall be accounted for as
Change in accounting policy.
Change in accounting estimates.
Prior period error.
Accounting error.
Ans.
Change in accounting estimates.
On January 1, 2013, Warren Co. purchased a P600,000 machine, with a
five-year useful life and no salvage value. The machine was depreciated
by an accelerated method for book and tax purposes. The machine’s
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carrying amount was P240,000 on December 31, 2014. On January 1,
2015, Warren changed to the straight line method for financial reporting
purposes. Warren can justify the change. Warren’s income tax rate is
30%.
In its 2015 income statement, what amount should Warren report as the
cumulative effect of this change?
P120,000
P 84,000
P 36,000
P0
Ans.
P0
When an independent valuation expert advises an entity that the salvage
value of its plant and machinery had drastically changed and thus the change
is material, the entity should?
Retrospectively change the depreciation charge based on the revised salvage
value.
Change the depreciation charge and treat it as a correction of an error.
Change the annual depreciation for the current year and future years.
Ignore the effect of the change on annual depreciation, because changes in
salvage values would normally affect the future only since these are expected
to be recovered in future.
Ans.
Change the annual depreciation for the current year and future years.
An accounting estimate may be revised
if changes occur regarding the circumstances on which the estimate was
based.
anytime.
if an error was made in prior periods.
if it will increase net income.
Ans.
if changes occur regarding the circumstances on which the estimate was
based.
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On October 1, 2011 Acts Company approved the disposal of its
subsidiary. The sale of which was expected to be completed by July
of 2012.
The following information in relation to the subsidiary is as follows:
January 1 –
September 30
October 1 –
December 31
Revenu
es
17,500,000
7,500,000
Expens
es
13,500,000
5,000,000
The carrying amount of the subsidiary’s net assets at December
31, 2011 was P28,000,000 and the fair value less cost to sell was
P30,500,000.
The sale contract requires Acts Company to terminate certain
employees and the expected cost is estimated at P2,000,000.
Income tax rate for 2011 is 30%
The amount reported as income (loss) from discontinued operations is
3,150,000
4,900,000
4,550,000
6,300,000
Ans.
3,150,000
On September 30, 2009, when the carrying amount of the net assets of a
business segment was P70, 000,000, Young Company signed a legally binding
contract to sell the business segment. The sale is expected to be completed
by January 31, 2010 at selling price of P60, 000,000. In addition, prior to
January 31, 2010 the sale contract obliges Young Company to terminate the
employment of certain employees of the business segment incurring an
expected termination cost of P2, 000,000 to be paid on June 30, 2010. The
segment’s revenue and expenses for 2009 were P40, 000,000 and P45,
000,000 respectively. Before income tax, how much will be reported as loss
from discontinued operation for 2009?
17,000,000
12,000,000
15,000,000
7,000,000
Ans.
17,000,000
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Enron Company decided on August 1, 2009 to dispose of a component of its
business. The component was sold on November 30, 2009. Enron’s income for
2009 included income of P5, 000,000 from operating the discontinued
segment from January 1 to the sale date. Enron incurred a loss on the
November 30 sale of P4, 500,000. Ignoring income tax, what amount should
be reported in the 2009 income statement as income or loss under
“discontinued operation”?
4,500,000 loss
5,000,000 income
500,000 loss
500,000 income
Ans.
500,000 income
The following statement relate to a discontinue operation .Which
statement is true?
I. When the discontinue criteria are met after the
date of the reporting period , the operations shall
retrospectively be separately presented as a discontinue
operations
II. The net cash flow attributable to the operating
investing , and financing activities of a discontinue operations
shall be separately presented.
I only
II only
Both I and II
Neither I nor II
Ans.
II only
A discontinued operations is a component of an entity that either has
been disposed of or is classified as held for sale and
I. Represents a separate major line of business or geographical
area of operations.
II. Is a Part of a single co- ordinate plan to dispose of a separate
major line of business or business or geographical area of operations.
III. Is a subsidiary acquire exclusively with a view to resale.
.
I only
I and II only
I and III only
I, II and III
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Ans.
I, II and III
On November 1, 2011 Romans Company approved the disposal of
its subsidiary. The sale of which was expected to be completed by
March of 2012.
The following information in relation to the subsidiary is as follows:
January 1 – October
30
November 1 –
December 31
Revenu
es
8,500,000
2,500,000
Expens
es
7,500,000
3,000,000
The carrying amount of the subsidiary’s net assets at December
31, 2011 was P18,000,000 and the fair value less cost to sell was
P16,000,000.
The sale contract requires Romans Company to terminate certain
employees and the expected cost is estimated at P1,000,000.
The amount reported as income (loss) from discontinued operations
is
(2,500,000)
(1,500,000)
(500,000)
500,000
Ans.
(2,500,000)
A discontinued operation is defined as
Derivative
Financial assets
Financial liability
Equity instrument
Ans.
Derivative
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An entity manufacture and sell household products . The entity experienced
losses associated with its small appliance group. Operations and cash flow for
this group can be clearly distinguished from the rest of the entity operations .
The entity plans to sell the small appliance group with its operations . What is
the earliest point at which the entity shall report the small appliance group as
a discontinued operations.
When the entity classifies it as held for sale
When the entity received an offer for the segments
When the entity first sell any of the assets of the segment
When the entity sells the majority of the assets of the segment
Ans.
When the entity classifies it as held for sale
Which of the following is a requirement for a component of an entity to be
classified as a discontinued operation?
Its activity must cease permanently prior to the financial statement being
authorized for issue by management.
It must comprise a separately reportable segment in accordance with PFRS 8
operating segments.
Its assets must have been classified as held for sale in the previous financial
statement.
It must have been cash generating units while being held for use
Ans.
It must have been cash generating units while being held for use
Which is incorrect concerning the presentations of the discontinued operations
in the statements of financial positions?
Asset of the component held for sale are presented separately from all other
assets of the entity
Asset of the component held for sale are measured at the higher of fair value
less cost to sell and their carrying amount
Liabilities of the component held for sale are presented separately from all
other liabilities of the entity
Depreciations assets of the component held for sale shall not be depreciated
Ans.
Asset of the component held for sale are measured at the higher of fair value
less cost to sell and their carrying amount
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A component of an entity is classified as a discontinued operation
I. When the entity has actually disposed of the operation
II. When the operation meets the criteria to be classified as “held for
sale”
Both I and II
Neither I nor II
I only
II only
Ans.
Both I and II
Booker Company committed to sell its comic book division (a component
of the business) on September 1, 2009. The carrying amount of the
division was P4,000,000 and the fair value was P3,500,000. The disposal
date is expected to be June 1,2010. The division reported an operating
loss of P200,000 for the year ended December 31, 2009. Ignoring
income tax, what amount should be reported as loss from discounted
operation in 2009?
500.000
200,000
700,000
0
Ans.
700,000
What is the presentation of the results from discontinued operation in the
income statements?
The entity shall disclose a single amount on the face of the income statement
with analysis in the notes or a sections of the income statement separate from
continuing operations
The amount of discontinue operations shall be broken down over each
category of revenue and expense
Discontinued operations shall be shown as a movement on retained earnings
Discontinued operations shall be shown as a line item after gross profit with
the taxation being shown as part of income tax expense.
Ans.
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The entity shall disclose a single amount on the face of the income statement
with analysis in the notes or a sections of the income statement separate from
continuing operations
Which of the following is a discontinued operation?
An entity has three machines located in one plant. All of the machines produce
the same product. The entity significantly scales down its operations by
disposing of one of the machines.
An entity has three machines located in one plant. Each machine produces a
completely different product and each machine is managed as a separate
business unit. The entity significantly scales down its operations by disposing
of one of the machines and in doing so discontinues manufacturing one of its
three products.
An entity has three plants that all produce the same product. Each plant is
located in a separate continent and sells its output to customers local to the
plant in which the product is manufactured. The entity scales down its
operations by disposing of one of the plants.
Both (b) and (c) above
Ans.
Both (b) and (c) above
On November 1, 2016, management of Myto Corporation committed to a plan
to dispose of Timms Company, a major subsidiary. The disposal meets the
requirements for classification as discontinued operations. The carrying value
of Timms Company was P8,000,000 and management estimated the fair value
less costs to sell to be P6,500,000. For 2016, Timms Company had a loss of
P2,000,000. How much should Myto Corporation present as loss from
discontinued operations before the effect of taxes in its income statement for
2016?
P0
P1,500,000
P2,000,000
P3,500,000
Ans.
P3,500,000
On the Statement of Comprehensive Income, income from discontinued
operations is shown
As a separate section of income from continuing operations
As a separate item after income from continuing operations, before income tax
As a separate item after income from continuing operations, net of income tax
Combined with revenues and expenses of continuing operations.
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Ans.
As a separate item after income from continuing operations, net of income tax
It comprises operations and cash flow that can be clearly distinguished ,
operationally and for financial reporting purposes from the rest of the
entity
Component of an entity
Disposal group
Business segments
Corporate asset
Ans.
Component of an entity
The discontinued operations section of the Statement of Comprehensive
Income is comprised of which one of the following?
Post-tax gain or loss from the disposal of discontinued business segment
Post-tax Income from the discontinued operation of the business segment and
post-tax gain or loss from the disposal of the discontinued operations or post-
tax gain or loss from measurement to realizable value of net assets.
Pretax Income from the discontinued operation of the business segment and
pretax gain or loss from the disposal of the discontinued operations or pretax
gain or loss from measurement to realizable value of net assets.
Pretax gain or loss from the disposal of the discontinued business segment.
Ans.
Post-tax Income from the discontinued operation of the business segment and
post-tax gain or loss from the disposal of the discontinued operations or post-
tax gain or loss from measurement to realizable value of net assets.
On November 1, 2011 Romans Company approved the disposal of
its subsidiary. The sale of which was expected to be completed by
March of 2012.
The following information in relation to the subsidiary is as follows:
January 1 – October
30
November 1 –
December 31
Revenu
es
8,500,000
2,500,000
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Expens
es
7,500,000
3,000,000
The carrying amount of the subsidiary’s net assets at December
31, 2011 was P18,000,000 and the fair value less cost to sell was
P16,000,000.
The sale contract requires Romans Company to terminate certain
employees and the expected cost is estimated at P1,000,000.
The amount reported under “disposal group held for sale” in Romans
Company’s December 31, 2011 statement of financial position is
16,000,000
18,000,000
15,000,000
15,500,000
Ans.
16,000,000
A component of an entity is classified as a continue operations
I. When the entity has actually disposed of the
operations
II. When the operations meets the criteria to be
classified as “ held” for sale.”
Either I or II
Neither I nor II
I only
II only
Ans.
Either I or II
Which of the following criteria does not have to be met in order for an
operations to be classified as discontinued
The operations shall represents a separate major line of business or
geographical area.
The operations is part of a single plan to dispose of a separate major
line of business or geographical area.
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The operations is a subsidiary acquired exclusively with a view to re
sale.
The operations must be sold within three months of the year - end
Ans.
The operations
must be sold within three months of the year - end
An asset shall be classified as current asset when it satisfies any of
the following criteria, except
It is expected to be realized or held for sale or consumption in the
normal course of the entity’s normal operating cycle.
It is held primarily for the purpose of being traded
It is expected to be realized within twelve months after the balance
sheet date
It is cash or cash equivalent that is restricted from being exchanged or
used to settle a liability for at least twelve months after the balance
sheet date
Ans.
It is cash or cash equivalent that is restricted from being exchanged or used to
settle a liability for at least twelve months after the balance sheet date
The following totals are taken from the December 31, 2009, balance
sheet of Streamer Company:
Current assets
P350,00
0
Long-term assets
800,000
Current liabilities
240,000
Long-term liabilities
270,000
Additional information:
· Cash of P38,000 has been placed in a fund for the retirement of
long-term debt. The cash and long-term debt have been offset and are
not reflected in the financial statements.
· Long-term assets include P50,000 in treasury shares.
· Cash of P14,000 has been set aside to pay taxes due. The cash
and taxes payable have been offset and do not appear in the financial
statements.
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· Advances on salespersons' commissions in the amount of P21,000
have been made. Also, sales commissions payable total P24,000. The
net liability of P3,000 is included in Current Liabilities.
After making any necessary changes, compute for the totals of
Streamer's current assets
P385,000
P423,000
P350,000
P364,000
Ans.
P385,000
The accounts and balances below were taken from Minnie Company’s
trial balance on December 31, 2012. All appropriate adjusting entries
have been made.
Cash overdraft
50,000
Accounts payable
and accrued
expenses
80,000
Current tax payable
120,000
6% note; due date 2/1/13
170,000
8% note; due date 2/1/13
210,000
Deferred tax liability
270,000
8%
serial
bonds,
P50,000
maturing annually
200,000
Provision for employee benefits
120,000
Dividends payable (distributable)
60,000
5% loan payable – December 31,
2016
1,000,00
0
Additional information in relation to the reported liabilities:
The 6% note was refinance on January 14, 2013, in which Minnie
Company and BDO Financial signed a new loan facility that expires
in three years.
The 8% note includes a provision that grants Minnie Company full
discretion to refinance the obligation. On January 15, 2013, Minnie
Company and MBTC Financial signed a new loan facility that
expires in three years
The amount reported as noncurrent liabilities in the December 31,
2012 income statement
1,630,000
1,690,000
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1,680,000
1,750,000
Ans.
1,630,000
Elias Company reported liabilities on December 31, 2013 as follows:
Accounts payable and accrued interest
1,000,000
12% note payable issued November 1, 2012
maturing July 1, 2014
2,000,000
10% debentures payable, next annual principal
installment of P500,000 due February 1, 2014
7,000,000
On December 31, 2013, the entity consummated a noncancelable
agreement with the lender to refinance 12% note payable on a long-
term basis. The December 31, 2013 financial statements were issued
on March 31, 2014.
In the December 31, 2013 statement of financial position, what total
amount should be reported as current liabilities?
3,500,0001,500,0003,000,0002,500,000Elias Company reported
liabilities on December 31, 2013 as follows:
Accounts payable and accrued interest
1,000,000
12% note payable issued November 1, 2012
maturing July 1, 2014
2,000,000
10% debentures payable, next annual principal
installment of P500,000 due February 1, 2014
7,000,000
On December 31, 2013, the entity consummated a noncancelable
agreement with the lender to refinance 12% note payable on a long-
term basis. The December 31, 2013 financial statements were issued
on March 31, 2014.
In the December 31, 2013 statement of financial position, what total
amount should be reported as current liabilities?
3,500,000
1,500,000
3,000,000
2,500,000
Ans.
1,500,000
If (P2,450) net of tax is the reclassification adjustment in cluded in other
comprehensive income in the year the securities are sold, what is the gain
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(loss) that is included in income from continuing operations before income
taxes? Assume a 30% tax rate.
P(2,450)
P(3,500)
P 2,450
P3,500
Ans.
P3,500
The following information provided by Maricar Company in preparing
this year’s comprehensive income statement:
Sales
8,000,000
Cost of sales
4,200,000
Depreciation and amortization expense
700,000
Employee benefit expense
900,000
Impairment of property, plant and equipment
200,000
Finance costs
800,000
Share of profit of associates
Translation loss on
foreign operations
1,200,0
00
500,000
Loss on sale of financial
instruments held for
300,000
trading
Gain on sale of
available-for-sale
securities
450,000
Remeasurement gains
on trading securities
400,000
Remeasurement gains
on available for sale
300,000
securities
Actuarial loss on
employee benefits
100,000
Reduction of
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revaluation surplus as a
result of
200,000
a devaluation
Derivative gains on call
options (speculation)
100,000
Gain on forward
contract designated as
a cash
150,000
flow hedge
The amount included in the other comprehensive income of the
current year’s comprehensive income statement is
(350,000)
(500,000)
(250,000)
50,000
Ans.
(350,000)
Searles does not elect the fair value option for recording financial assets
and liabilities. What amount of comprehensive income should Searles
Corporation report on its statement of income and comprehensive
income given the following net of tax figures that represent changes
during a period?
Pension liability adjustment
recognized in OCI
P
(3,000
)
Unrealized gain on available-for-
sale securities
15,00
0
Reclassifi cation adjustment, for
securities gain in cluded in Profit
(2,500
)
Stock warrants outstanding
4,000
Profit
77,00
0
P86,500
P89,000
P89,500
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P90,500
Ans.
P86,500
Sales, P102,000; Cost of goods sold, P40,000; Wages, P31,800; Purchase
of land, P8,000; Increase in accounts receivable, P3,600; Depreciation
expense, P4,000; Gain on sale of equipment, P1,400; Issuance of bonds,
P16,000 at face value; Increase in accounts payable, P5,200; Patent
amortization expense, P2,600; Decrease in inventory, P2,000; Loss on
sale of land P1,000; Decrease in wages payable, P600; Declaration and
payment of dividend, P6,800.
Net cash flows from operating activities is?
P22,800P36,800P38,000P33,200Sales, P102,000; Cost of goods sold,
P40,000; Wages, P31,800; Purchase of land, P8,000; Increase in
accounts receivable, P3,600; Depreciation expense, P4,000; Gain on sale
of equipment, P1,400; Issuance of bonds, P16,000 at face value;
Increase in accounts payable, P5,200; Patent amortization expense,
P2,600; Decrease in inventory, P2,000; Loss on sale of land P1,000;
Decrease in wages payable, P600; Declaration and payment of dividend,
P6,800.
Net cash flows from operating activities is?
P22,800
P36,800
P38,000
P33,200
Ans.
P33,200
Star Company provided the following data for the preparation of
statement of cash flows for the current year using the direct method:
Cash balance, beginning
1,500,00
0
Cash paid to purchase
inventory
7,800,00
0
Cash received from sale of
building
5,600,00
0
Cash paid for interest
450,000
Cash paid to repay a loan
1,000,00
0
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Cash collected from
customers
10,000,0
00
Cash received from issuance
of ordinary shares
1,200,00
0
Cash paid for dividend
780,000
Cash paid for income taxes
1,320,00
0
Cash paid to purchase
machinery
1,950,00
0
How much was the cash flow for operating activities?
1,750,000
970,000
880,000
430,000
Ans.
430,000
The accounts and balances were taken from Disneyland Company’s
adjusted trial balance on December 31, 2019.
Inventory
170,00
0
Investment in subsidiary
220,00
0
Cash and cash equivalents
100,00
0
Patents
110,00
0
Prepaid rent
120,00
0
Sinking fund asset
130,00
0
FVTPL Securities
140,00
0
Machineries and Equipment
890,00
0
Allowance
for
doubtful
accounts
40,000
Goodwill
200,00
0
Available for sale securities
150,00
0
Land held for future business
300,00
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site
0
Land “held for sale”
250,00
0
Deferred tax asset
280,00
0
Trade and other receivables
(assigned accounts 170,000)
450,00
0
Cash surrender value of life
insurance
90,000
Accumulated Depreciation – M
& E
390,00
0
The amount reported as non-current assets in the December 31, 2019
Statement of Financial Position is
1,700,0001,890,0001,980,000 2 ,230,000The accounts and balances
were taken from Disneyland Company’s adjusted trial balance on
December 31, 2019.
Inventory
170,00
0
Investment in subsidiary
220,00
0
Cash and cash equivalents
100,00
0
Patents
110,00
0
Prepaid rent
120,00
0
Sinking fund asset
130,00
0
FVTPL Securities
140,00
0
Machineries and Equipment
890,00
0
Allowance
for
doubtful
accounts
40,000
Goodwill
200,00
0
Available for sale securities
150,00
0
Land held for future business
site
300,00
0
Land “held for sale”
250,00
0
Deferred tax asset
280,00
0
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Trade and other receivables
(assigned accounts 170,000)
450,00
0
Cash surrender value of life
insurance
90,000
Accumulated Depreciation – M
& E
390,00
0
The amount reported as non-current assets in the December 31, 2019
Statement of Financial Position is
1,700,000
1,890,000
1,980,000
2 ,230,000
Ans.
1,980,000
In presenting a statement of financial position, an entity
must make the current/non-current presentation distinction
must present assets and liabilities in order of liquidity
must choose either the current/non-current or the liquidity presentation
formats (ie a ‘free’ choice of presentation format)
must make the current/non-current presentation distinction except when
a presentation based on liquidity provides information that is reliable
and more relevant
Ans.
must make the current/non-current presentation distinction except when a
presentation based on liquidity provides information that is reliable and more
relevant
The accounts and balances below were taken from Minnie Company’s
trial balance on December 31, 2012. All appropriate adjusting entries
have been made.
Cash overdraft
50,000
Accounts payable
and accrued
expenses
80,000
Current tax payable
120,000
6% note; due date 2/1/13
170,000
8% note; due date 2/1/13
210,000
Deferred tax liability
270,000
8%
serial
bonds,
P50,000
maturing annually
200,000
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Provision for employee benefits
120,000
Dividends payable (distributable)
60,000
5% loan payable – December 31,
2016
1,000,00
0
Additional information in relation to the reported liabilities:
The 6% note was refinance on January 14, 2013, in which Minnie
Company and BDO Financial signed a new loan facility that expires
in three years.
The 8% note includes a provision that grants Minnie Company full
discretion to refinance the obligation. On January 15, 2013, Minnie
Company and MBTC Financial signed a new loan facility that
expires in three years
The amount reposted as current liabilities in the December 31,
2012 balance sheet
590,000
650,000
600,000
540,000
Ans.
650,000
Madsen Company reported the following information for 20CY:
Sales revenue
510,000
Cost of goods sold
350,000
Operating expenses
55,000
Unrealized holding gain on FVOCI securities
40,000
Cash dividends received on the securities
2,000
For 20CY, Madsen would report other comprehensive income of
137,000
135,000
42,000
40,000
Ans.
40,000
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Per PAS 1, they shall not be classified as current.
Assets and liabilities of disposal groups
Financial assets and liabilities
Trade and other payables
Deferred tax assets and liabilities
Ans.
Deferred tax assets and liabilities
Which of the following should not be considered as a current asset in the
balance sheet?
Installment notes receivable due over 18 months in accordance with normal
trade practice
Prepaid taxes which cover assessment of the following operating cycle in the
business
Trading securities purchased as a temporary investment of cash available for
current operation
The cash surrender value of a life insurance policy carried by a corporation,
the beneficiary, on its president
Ans.
The cash surrender value of a life insurance policy carried by a corporation,
the beneficiary, on its president
Violago Company’s trial balance reflected the following account
balances at December 31, 2009:
Accounts receivable
1,600,0
00
FVTPL securities
500,000
FVTOCI securities
1,300,0
00
Cash
1,100,0
00
Inventory
3,000,0
00
Equipment and furniture
2,500,0
00
Accumulate depreciation
1,500,0
00
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Patent
400,000
Prepaid expenses
100,000
Land held for future business site
1,800,0
00
In Violago Company’s December 31, 2009 statement of financial
position, the current assets should be
9,400,000
6,300,000
8,000,000
7,600,000
Ans.
6,300,000
Separate line items in an analysis of expenses by function include
purchases of materials, transport costs, employee benefits,
depreciation, extraordinary items
purchases of materials, distribution costs, administrative costs,
employee benefits, depreciation, taxes
depreciation, purchases of materials, employee benefits and advertising
costs
cost of sales, administrative expenses, distribution expenses etc.
Ans.
cost of sales, administrative expenses, distribution expenses etc.
At the balance sheet date, December 31, 20Y1, ABC Inc. carried a receivable
from XYZ, a major customer, at P10 million. The “authorization date” of the
financial statements is on February 16, 20Y2. XYZ declared bankruptcy on
Valentine’s Day (February 14, 20Y2). ABC Inc. will
Disclose the fact that XYZ has declared bankruptcy in the footnotes.
Make a provision for this post–balance sheet event in its financial statements
(as opposed to disclosure in footnotes).
Ignore the event and wait for the outcome of the bankruptcy because the
event took place after the year-end.
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Reverse the sale pertaining to this receivable in the comparatives for the prior
period and treat this as an “error” under PAS 8.
Ans.
Make a provision for this post–balance sheet event in its financial statements
(as opposed to disclosure in footnotes).
If a change in accounting estimates affects balance sheet items, PAS
8
Accounting Policies, Changes in Accounting Estimates, and Errors, requires that
the following disclosures be made:
I. The nature of the change.
II. The amount of the change that has an effect in the current
period.
III. The amount of the change that affects future periods.
IV. The effect of the change on comparative numbers.
I, II, III and IV;
I, III and IV only;
II, III and IV only;
I, II and III only.
Ans.
I, II and III only.
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Related Questions
Which statement is incorrect regarding reclassification of financial assets?
Group of answer choices
None of these.
Reclassifications are only permitted on the change of an entity's business model and are expected to occur only infrequently.
An entity shall restate any previously recognized gains, losses (including impairment gains or losses) or interest.
An entity shall account for transfers between categories prospectively, at the beginning of the period after the change in the business model.
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Which of the following statements about Accounting Changes is incorrect?
When retrospective application is impracticable, the entity shall apply the new policy as at the beginning of the earliest period for which restatement is practicable, which may be the current period. A corresponding adjustment to each affected component of equity affected shall be made.
Retrospective application is applying the new policy to the transactions, other events and conditions occurring after the date as at which the policy is changed and recognizing the effect of the change in the accounting estimate in the current and future periods affected by the change.
An entity shall correct material prior period errors retrospectively in the first set of financial statements authorized for issue after their discovery by restating the comparative amounts for the prior period(s) presented in which the error occurred.
Changes in accounting policies do not include applying an…
arrow_forward
Which of the following is incorrect regarding measurement period?
a. If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the acquirer shall report in its financial statements provisional amounts for the items for which the accounting is incomplete.
b. During the measurement period, the acquirer shall also recognise additional assets or liabilities if new information is obtained about facts and circumstances that existed as of the acquisition date and, if known, would have resulted in the recognition of those assets and liabilities as of that date.
c. The measurement period ends as soon as the acquirer receives the information it was seeking about facts and circumstances that existed as of the acquisition date or learns that more information is not obtainable.
d. During the measurement period, the acquirer shall prospectively adjust the provisional amounts recognised at the acquisition date…
arrow_forward
Assume that a business is headed for certain bankruptcy and it is evident that its liabilities greatly exceed its assets. Which principle would be violated if its financial statements wereprepared using standard U.S. GAAP?a. Entity assumptionb. Continuity assumptionc. Historical cost principled. Stable-monetary-unit assumption
arrow_forward
In paragraph 44 of Statement of Financial Accounting Standards No. 141, “Business Combinations,” the Financial Accounting Standards Board directed that if the sum of the fair values of assets acquired and liabilities assumed in a business combination exceeds the cost of the acquired enterprise, such excess should be allocated as a pro rata reduction of amounts that otherwise would have been assigned to noncurrent assets other than specified exceptions.Instructions
What support, if any, do you find for the action of the FASB? Explain.
arrow_forward
Which statement is incorrect regarding reclassification of financial assets?
Group of answer choices
The effective interest rate and the measurement of expected credit losses are not adjusted as a result of the reclassification from AC measurement category to FVTOCI and vice versa.
The effective interest rate is determined on the basis of the fair value of the asset at the reclassification date when an entity reclassifies a financial asset out of FVTPL measurement category.
All reclassifications out of FVTOCI measurement category result in ‘reclassification adjustment’.
Reclassifications to FVTPL measurement category result to amounts recognized in profit or loss.
arrow_forward
Derecognition is the removal of all or part of a recognised asset or liability from an entity’s statement of financial position in accordance with the Conceptual Framework 2018. The above aim is to normally achieve derecognising via the following below statements:
Which of the statements as mentioned below is NOT correct to achieve the above aim?
1) Derecognizing any assets or liabilities transferred, consumed, collected, fulfilled or expired
2) Derecognizing any resultant income or expense
3) Recognizing any resultant income or expense
4) Continuing to recognize assets or liabilities retained (2)
arrow_forward
Which of the following statements about accounting recognition is (are) true?
In accounting, there are instances when a gain/loss would arise upon initial recognition of an asset.
No asset can simultaneously be an asset of more than one entity
At times, two or more entities may share the benefits that an asset provides
An appropriate basis for recognizing an asset is when a particular enterprise acquires the right to utilize and control access to the asset’s benefits
I and II only I,
II and III only
I and IV only
I, II, III and IV
arrow_forward
When an entity changed at the end of the reporting period longer or shorter than one year, an entity shall disclose all of the following except:
a. Period covered by the financial statements
b. The reason for using a longer or shorter period
c. The fact that amounts presented in the financial statements are not entirely comparable
d. The fact that similar entities in the geographical area in which the entity operates have done so in the current year
arrow_forward
Which of the following statement is correct regarding accounting changes that result in financial statements that are effect the statements of a different reporting entity?
a.The financial statements of all prior periods presented are adjusted retrospectively.
b.No restatements or adjustments are required if the changes involve the cost r equity methods of accounting for investments.
c.Cumulative-effect adjustments should be reported as a separate item in the financial statements pertaining to the year of the change.
d.No restatements or adjustments are required if the changes involve the cost or equity methods of accounting for investments.
arrow_forward
During the current year, an entity acquires another entity in a transaction properly accounted for as a business acquisition. At the time of the acquisition, some of the information for valuing assets was incomplete. How should the acquirer account for the incomplete information in preparing its financial statements immediately after the acquisition?
a. Record the uncertain items at a provisional amount measured at the date of acquisition.
b. Record a contra account to the investment account for the amount involved
c. Do not record the uncertain items until complete information is available
d. Record the uncertain items at the carrying amount of the acquire
arrow_forward
How shall an acquirer in a business combination account for the changes in fair value contingent consideration classified as equity instrument if the changes result from events after the acquisition date?
a. The changes in fair value of contingent consideration classified as equity shall be recognized as gain or loss in profit or loss because they are not measurement period adjustments.
b. Contingent consideration classified as equity shall not be re-measured and its subsequent settlement shall be accounted for within equity.
c. The changes in fair value of contingent consideration classified as equity shell be retrospectively restated to beginning retained earnings because they are prior period error.
d. The change in fair value of contingent consideration classified as equity shall be retroactively adjusted to goodwill/gain on bargain purchase because they are measurement period adjustments.
arrow_forward
A gain arising from a
change in the fair value of
an investment property
for which an entity has
opted to use the fair value
model is recognized in
A. Net profit or loss for the year.
B. General reserve in the
shareholders' equity.
C. Valuation reserve in the
shareholders' equity.
OD. None of the above.
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