Father Saturnino Urios University

Accountancy Program
AIR- Cluster 1 (Drill #4)

VMBM, CPA

Single Entry/ Cash & Accrual Basis

1. Marilyn Company provided the following increases in account balances that occurred
during the current year:
Assets
Liabilities
Share capital
Share premium

9,000,000
3,000,000
5,000,000
500,000

Except for a P2,000,000 dividend payment, the years earnings and a P200,000 prior
period error from understatement of ending inventory, there were no other changes in
retained earnings for the year. What is the net income for the current year?
a. 2,500,000
b. 2,300,000
c. 2,700,000
d. 6,000,000
Understatement of ending invty=Overstatement of Net Income/Retained
Earnings
Equity, end (9M-3M)
Dividend payment
Prior period error
Share Capital
Share premium
Net income

6,000,000
2,000,000
(200,000)
(5,000,000)
(500,000)
2,300,000

2. Miralyn Company revealed the following changes in the accounts for 2014:
Increase(decrease)
During
the
Cash
1,000,000
current
year,
the
Accounts receivable, net of allowance
1,900,000
entity
issued
Inventory
2,200,000
10,000
ordinary
Equipment
(1,500,000)
shares
of Accounts payable
P100
par
500,000
value
for Bonds payable
P150
per
(2,000,000)
share.
Dividend
of P4,000,000 was paid in cash during the year. The entity borrowed P3,000,000 from the
bank and made interest payment of P200,000. The bank loan is unpaid on Dec 31 2014
and the interest payable on Dec 31 2014 was P100,000. There is no interest payable on
Jan 1 2014. Equipment with fair value of P500,000 was donated by a shareholder during
the year. What is the net income for the current year?
a. 2,000,000
b. 6,000,000
c. 4,500,000
d. 4,000,000
Net Changes in accounts
1M+1.9M+2.2M-1.5M-500k+2M 5,100,000
Dividend declared
4,000,000
Issuance of shares
(1,500,000)
Increase in loan
(3,000,000)
Donation (share premium)
(500,000)
Interest payable
(100,000)
Net income
4,000,000
3. She Company began operations on Jan 1 2013. The financial statements contained the
following errors:
2013
2014
Ending inventory 800,000 under
400,000 over
Depreciation
150,000 under
Insurance
50,000 over
50,000 under
expense
Prepaid
50,000 under
insurance

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Father Saturnino Urios University

Accountancy Program
AIR- Cluster 1 (Drill #4)

VMBM, CPA

In addition, on Dec 31 2014, a fully depreciated equipment was sold for P100,000 cash but
the sale was not recorded until 2015. Ignore income tax. What is the total effect of errors
on
1. Net income for 2014?
a. 1,350,000 under b. 1,350,000 over c. 1,150,000 under d. 1,150,000 over

2013

2014

Ending invty

800,000

(800,000)
(400,000)

Depreciation
Insurance
expense
Sale
Net income
effects

(150,000)
50,000

(50,000)

700,000

100,000
(1,150,000)

2. Working capital on Dec 31 2014?

a. 300,000 under b. 300,000 over
Ending inventory
Cash
Working capital

Retained
earnings

(450,000)

c. 400,000 under

d. 400,000 over

(400,000)
100,000
(300,000)

3. Retained earnings on Dec 31 2014?

a. 1,150,000 over b. 700,000 under

c. 450,000 over

d. 450,000 under

4. Debbie Company reported sales revenue of P4,600,000 in the income statement for the
current year. Additional information for the current year is as follows:
January 1
December 31
Accounts receivable
1,000,000
1,300,000
Allowance for doubtful
60,000
110,000
accounts
Advances from customer
200,000
300,000
The entity wrote off uncollectible accounts totaling P50,000 during the current year.
Under cash basis, what amount should be reported as sales revenue for the current
year?
a. 4,900,000
b. 4,250,000
c. 4,350,000
d. 4,400,000
ACE-(DADA-EBBE)
Sales
Deferred, ending
Accrued, beginning
Total
Less:
Deferred, beginning
Accrued, ending
Written off accounts
Sales, cash basis

4,600,000
300,000
1,000,000
5,900,000
(200,000)
(1,300,000)
(50,000)
4,350,000

5. Faye Company has apprehensions of possible pilferage in the stock of merchandise at Dec
31 2014. The following data were available for the current year:
January 1
December 31
Physical inventory, at cost
600,000
1,000,000
Sales
4,000,000
Cost of sales
2,400,000
Accounts receivable
1,200,000
1,850,000
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Father Saturnino Urios University

Accountancy Program
AIR- Cluster 1 (Drill #4)

VMBM, CPA

Accounts payable
1,500,00
1,850,000
During the current year, accounts written off amounted to P100,000. Sales returns with
credit memo were P150,000 and purchase returns, P50,000. Cash receipts from customers
after P200,000 discounts totaled P6,000,000 while cash payments to trade creditors
amounted to P4,000,000. Cash paid to customers for goods returned was P50,000. On this
transaction, accounts receivable was debited. Under accrual basis, what is the amount of
gross sales?
a. 6,600,000
b. 6,550,000
c. 6,650,000
d. 6,350,000
CAB (DADA-BEEB)
A/R, end
Written off
Cash receipts (200k+6M)
Error
Sales returns
A/R, beg
Gross sales, accrual

1,350,000
A/R
50,000
100,000
Cash
50,000
6,200,000
(50,000)
Correct entry:
150,000
S/R
50,000
(1,200,000)
Cash
50,000
6,550,000
AJE:
S/R
50,000
A/R
50,000

Statement of Cash flows

6. Jess Company provided the following information for the current year:
Dividend received
500,000
Dividend paid
1,000,000
Cash received from customers
9,000,000
Cash paid to suppliers and employees
(6,000,000)
Interest received
200,000
Interest paid on long term debt
(400,000)
Proceeds from issuing share capital
1,500,000
Proceeds from sale
of long term 2,000,000
investments
Income taxes paid
(300,000)
What is the net cash provided by operating activities?
a. 3,300,000
b. 3,000,000
c. 2,700,000
d. 2,000,000
Determination of Profits/Losses
operating
-collection of income
operating/investing
-payment of expenses
-trading securities

interest
dividends

received/interest

paidreceived-

dividends paid- financing/operating

7. During 2014, Riza Company had the following activities related to financial operations:
Payment for the early retirement of long (4,000,000)
term bonds payable (carrying amount of
bonds payable, P5,000,000)
Payment in 2014 of cash dividend declared (2,000,000)
in 2013
Preference share capital converted into 1,000,000
ordinary share capital
Proceeds from sale of treasury shares (cost 1,500,000
of treasury shares P1,000,000)
What amount should be reported as net cash used in financing activities?
a. 4,500,000
b. 3,500,000
c. 2,500,000
d. 5,500,000
-

about debt & equity

B/P

5,000,000
Page 3 of 10

Father Saturnino Urios University

Accountancy Program
AIR- Cluster 1 (Drill #4)
Cash
Gain

VMBM, CPA

4,000,000
1,000,000 adjust in operating activities

8. Andrew Company had the following activities during the current year:
Acquired share capital of another entity
(2,000,000)
Sold an investment with carrying amount of 1,500,000
P2,000,000 for
Acquired one-year certificate of deposit from a (5,000,000)
bank. During the current year, interest of
P500,000 was received from the bank
Collected Dividends on share investments
300,000
Gain on sale of equipment
60,000
Proceeds from sale of equipment
100,000
Purchase of bonds with face value of (1,800,000)
P2,000,000
Amortization of bond discount
20,000
Dividends declared
450,000
Dividends paid
380,000
Proceeds from sale of treasury shares (CA of treasury 750,000
P650,000)
What amount should be reported as net cash used in investing activities?
a. 7,200,000
b. 7,260,000
c. 6,700,000
d. 6,400,000
Involve non-operating assets/activities (proceeds from sale/acquisition of assets)
-PPE,intangible
-investments (short/long term) excluding trading securities and cash equivalent
Discontinued Operation and Noncurrent Asset Held for Sale
9. Erica Company is a diversified entity with nationwide interests in commercial real estate
development, banking, mining, and food distribution. The food distribution division was
deemed to be inconsistent with the long term direction of the entity. On Oct 1 2014, the
board of directors voted to approve the disposal of this division. The sale is expected to
occur in August 2015. The food distribution had the following revenue and expenses in
2014: Jan 1 to Sept 30, revenue of P10,000,000 and expenses of P25,000,000; Oct 1 to
Dec 31, revenue of P10,000,000 and expenses of P12,000,000. The carrying amount of the
divisions assets on Dec 31 2014 was P50,000,000 and the recoverable amount was
estimated to be P55,000,000. The sale contract required the entity to terminate certain
employees incurring an expected termination cost of P1,000,000 to be paid by Dec 15,
2015. The income tax rate is 30%. What amount should be reported as income from
discontinued operations for 2014?
a. 5,600,000
b. 9,100,000
c. 4,900,000
d. 8,400,000
35M(revenues)+10M(revenues)-25M(expenses)-12M(expenses)11M(termination cost)
=7,000,000*70%= 4,900,000 Income, net of tax
No Impairment loss= CA 50,000,000> RA 55,000,000
Non current asset or disposal group classified as held for sale when the sale
is highly probable and the asset is available for immediate sale in the present
condition, CA is recovered through a sale
If abandoned asset? not considered held for sale, carrying amount is recovered
through continuing use
Measurement: lower of carrying amount or fair value less cost of disposal
Subsequent increase in FVLCD- gain to be included in P/L but not in
excess of the cumulative
impairment loss previously recognized
When entity decides not to sell the asset but to continue use it
asset should be measured at
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Father Saturnino Urios University

Accountancy Program
AIR- Cluster 1 (Drill #4)

VMBM, CPA

the lower of carrying amount on the basis that it had never been
classified as held for sale and Carrying amount
Recognition: as Current asset from reclassification date, shown separately from
other assets and
Liabilities
--no depreciation of the asset while being classified as Current asset
10.Jackie Company purchased an equipment for P5,000,000 on Jan 1 2014. The equipment
had a useful life of 5 years with no residual value. On Dec 31 2014, the entity classified
the asset as held for sale. On such date, the fair value less cost of disposal of the
equipment was P3,500,000.
On Dec 31 2015, the entity believed that the criteria for classification as held for sale can
no longer be met. Accordingly, the entity decided not to sell the asset but to continue to
use it. On Dec 31 2015, fair value less cost of disposal of the equipment was P2,700,000.
1. What amount of impairment loss should be recognized in 2014?
a. 1,500,000
b. 1,000,000
c. 500,000
d.0
5,000,000*4/5= 4,000,000 (CA) vs 3,500,000 (FVLCD)= 500,000 impairment loss
2. What amount should be included in profit and loss in 2015 as a result of the
reclassification of the equipment to property, plant and equipment?
a. 800,000 gain
b. 800,000 loss
c. 300,000 gain
d.
300,000 loss
From Jan 1, 2015-Dec 31 2015 no depreciation should be recognized,
CA, per book 12/31/15
New measurement
Loss on reclassification
01/01/14
Equipment 5,000,000
Cash
5,000,000
12/31/14
Depreciation 1,000,000
Accum. Depreciation
Equipment Held for sale
Accum. Depreciation
Equipment

3,500,000
2,700,000
800,000

1,000,000
4,000,000
1,000,000
5,000,000

Impairment loss
500,000
Equipment held for sale

500,000

12/31/15
Equipment
2,700,000
Loss on reclassification
800,000
Equipment held for sale
3,500,000
12/31/16
Depreciation 900,000
Accum. Depreciation
(2,700,000/3 rem. Yrs)

900,000

Operating Segment and Interim Reporting

11.Kath Company identified the following segment for the current year:
Segment
Revenue
Profit
Asset
A
10,000,000
1,750,000
20,000,000
B
8,000,000
1,400,000
17,500,000
C
6,000,000
1,200,000
12,500,000
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Father Saturnino Urios University

Accountancy Program
AIR- Cluster 1 (Drill #4)
D
E
F

VMBM, CPA

3,000,000
4,000,000
2,000,000

550,000
575,000
525,000

7,500,000
5,500,000
3,000,000

3,300,000

600,000

6,600,000

What are the reportable segments?

a. segments A,B,C
b. segments A,B,C, and D
c. segments A,B,C,D and E
d. segments A,B,C,D,E, and F
If 10% or more of the total Revenue, Profit/Loss*, Assets= reportable
*profit/loss= 10% or more of the greater between the combined profit of all profitable
segments and combined
losses of all unprofitable segments
OVERALL SIZE TEST 75% threshold
Total reportable segments must be 75% or more of total external revenue of
the entity, if not,
use the aggregate criteria
Aggregate criteria (if majority)
1. Product/service
4. Customers
2. Production
5. Regulated environment
3. Marketing
Major customers- 10% or more of the combined external revenue of all segments to be
reportable
12.Gabriel Company reported P950,000 net income for the quarter ended Sept 30 2014 which
included the following after-tax items:
A P600,000 expropriation gain realized in May 2014 was allocated equally to the
second, third and fourth quarters of 2014
A P160,000 cumulative effect loss resulting from a change in inventory valuation
method was recognized on August 31 2014.
In addition, the entity paid P480,000 on Feb 1 2014, for 2014 calendar year real
property tax. Of this amount, P120,000 was allocated to the third quarter of 2014
What is the net income for the quarter ended Sept 30 2014?
a. 1,030,000
b. 1,110,000
c. 1,150,000
d. 910,000
Interim reporting- the same acctg principles applied as with the annual reporting
1. Income statement- income/gains recognized in the interim period earned
only, and
losses/expenses recognized in the interim period incurred.
2. Expenses- direct, use cause and effect
Indirect, use systematic allocation
Net income
950,000
Expropriation gain (600,000/3 quarters)
(200,000)
Cumulative loss
, change in acctg policy
-should be at R/E not income statement 160,000
Adjusted net income
910,000
13.Daniel Company, a calendar year corporation, had the following income before tax
provision and estimated effective annual tax rates for the first three quarters:
Quarter
Income before income tax
Effective annual tax rate
First
6,000,000
40%
Second
7,000,000
40%
Third
4,000,000
45%
What is the income tax provision in the interim income statement for the third quarter?
a. 1,800,000
b. 2,450,000
c. 2,550,000
d. 7,650,000
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Father Saturnino Urios University

Accountancy Program
AIR- Cluster 1 (Drill #4)
17,000,000*45%=
2nd qtr recognized tax
1st qtr recognized tax
Tax for third quarter

VMBM, CPA

7,650,000
(2,400,000)
(2,800,000)
2,450,000

Hyperinflation and Current Cost

14.Mercy Company provided the following information for the year ended Dec 31 2014
Net monetary assets-Jan1
800,000
* 300/100= 2,400,000
Sales
5,000,000 * 300/200= 7,500,000
Purchases
3,000,000 * 300/200= (4,500,000)
Expenses
1,000,000 * 300/200= (1,500,000)
Income tax
600,000
*300/200= (900,000)
Cash dividend
200,000
(200,000)
1,000,000
2,800,000
The sales, purchases, expenses and income tax accrued evenly during the year.
Selected general price index numbers are 100 on Jan 1 and 300 on Dec 31. What is the
gain or loss on purchasing power during the year?
a. 1,800,000 gain b. 1,800,000 loss c. 1,700,000 gain d. 1,700,000 loss
Constant Peso Acctg- restatement of historical financial statement through use of index
number
Monetary items- not restated
Gain/Loss on purchasing power (only for monetary items)= Net monetary assets,
restated- Net monetary
assets @ cost
Formula for restatement:
=Index number at end of reporting period x Historical cost
Index number on acquisition date*
*All items in income statement use average index
15.Juno Company reported the following information for the current year:
Units
Historical cost
Inventory- Jan 1
10,000
530,000
Purchases
45,000
2,790,000
Goods available for sale
55,000
3,320,000
Inventory- Dec 31
(15,000)
(945,000)
Cost of goods sold
40,000
2,375,000
The current cost per unit was P58 on Jan 1 and P72 on Dec 31
Under current cost accounting, what is the cost of goods sold?
a. 2,600,000
b. 2,880,000
c. 2,375,000

d. 2,320,000

40,000*(58+72/2)= 2,600,000
16.Sallyneth Company acquired an equipment on Jan 1 2014 for P5,000,000. Depreciation is
computed using the straight line method. The estimated useful life of the equipment is 5
years with no residual value. A specific price index applicable to the equipment was 150
on Jan 1 2014 and 225 on Dec 31 2014
What is the realizable holding gain on the equipment to be reported in 2014?
a. 500,000
b. 300,000
c. 250,000
d.0
225/150*5,000,000= 7,500,000
(7,500,000+5,000,000)/2=6,250,000(ave cost)/5
1,250,000
depn based
on ave CC
(1,000,000) depn based on HC
250,000
realized holding gain
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Father Saturnino Urios University

Accountancy Program
AIR- Cluster 1 (Drill #4)

VMBM, CPA

17.On Jan 1 2014, Harry Company purchased land for P5,000,000. On Dec 31 2014, the land
has a current cost of P5,500,000. On Dec 31 2015, the entity sold the land for P6,500,000.
On such date, the current cost of the land is P5,900,000.
What is the realized holding gain to be reported in the income statement for 2015?
a. 1,500,000
b. 1,000,000
c. 900,000
d. 400,000
CC at time of sale
5,900,000
Historical cost
(5,000,000)
Realized holding gain in 2015
900,000
Less unrealized HG in 2014
(500,000)
Realized HG to be reported
400,000
Current cost accounting- restatement of historical cost in terms of current replacement
cost
- recognition of holding gain/loss
Use average current cost= Cost of sales and Depreciation
Realized Holding Gains/Losses
For inventory sold= COS, at average current cost- COS, at historical cost
For depreciable property= Depn based on ave. current sales- Depn based on historical
cost
For nondepreciable property= Current cost at the time of sale- Historical cost
Unrealized Holding Gains/Losses
For ending invty= Current cost @ end of the year-Historical cost
For depreciable property- Net Current cost (CC-accumulated Depn)-Carrying amount
For nondepreciable property= Current cost at end of the year-Historical Cost
Notes & Comprehensive Income
18.The financial statements of Troy Company were authorized for issue on March 31 2015 and
the end of the reporting period is Dec 31 2014.
On Dec 31 2014, the entity had an account receivable of P3,000,000 from a customer.
On Feb 1 2015, the liquidator of the said customer advised the entity in writing that the
customer was insolvent and that only P1,000,000 would be paid on Dec 31 2015.
-existing as of the end of the BS date, loss of P2,000,000
The entity had reported a contingent liability on Dec 31 2014 related to a court case. On
March 1 2015, the judge handed down a decision against the entity for damages
amounting to P2,500,000.
What total amount should be reported as adjusting events on Dec 31 2014?
a. 4,500,000
b. 2,500,000
c. 5,500,000
d. 2,000,000
19.Claus Company provided the following information for the current year:
Income from continuing operations
5,000,000
Income from discontinued operations
1,000,000
Unrealized gain on financial asset at FVTPL
2,500,000
Unrealized gain on financial asset at FVTOCI 1,500,000
Unrealized
gain
on
futures
contract 500,000
designated as a cash flow hedge
Actuarial loss during the year due to 400,000
increase in PBO
Foreign translation adjustment-debit
100,000
Loss on credit risk of a financial liability 200,000
designated at FVTPL
Revaluation surplus during the year
2,000,000
What amount should be reported as comprehensive income for the year?
a. 3,300,000
b. 9,300,000
c. 6,000,000
d. 9,500,000
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Father Saturnino Urios University

Accountancy Program
AIR- Cluster 1 (Drill #4)
Net income (continuing/discontinuing)
OCI that may be reclassified to P/L:
1. Cash flow hedge derivative
2. Translation
OCI that may not be reclassified to P/L
1. FVTOCI
2. Actuarial G/L-PBO
3. Loss Credit risk
4. Revaluation surplus
Total

VMBM, CPA

6,000,000
500,000
(100,000)
1,500,000
(400,000)
(200,000)
2,000,000

400,000

2,900,000
9,300,000

SME
20.An SME prepared the following postclosing trial balance on Dec 31 2014:
Property, plant and equipment
2,300,000
Intangible assets
850,000
Investment in associate
1,100,000
Deferred tax asset
40,000
Inventory
500,000
Trade receivables
600,000
Cash on hand
1,150,000
Investment in nonputtable ordinary shares- 550,000
listed (FV can be measured,

FVTPL)
Investment in nonconvertible nonputtable
preference shares-unlisted (FV cant be

500,000

measured, cost)
Investment in term bonds
Demand deposit in bank
Loan receivable from employee-fixed term
Loan receivable from associate-on demand
Bank loans
Other long term employee benefits
Obligations under finance leases
Trade payables
Warranty obligation
Rent payable
Interest payable
Current tax liability
Bank overdraft on demand
Share capital
Retained earnings
1. What is the total amount of basic financial
a. 4,810,000
b. 3,710,000

400,000
200,000
10,000
300,000
1,100,000
250,000
400,000
550,000
20,000
10,000
20,000
210,000
40,000
4,000,000
1,900,000
assets?
c. 3,750,000

d. 3,160,000

2. What is the total amount of basic financial liabilities?

a. 2,330,000
b. 2,120,000
c. 1,720,000

d. 1,930,000

21.An SME incurred and paid the following expenditures in acquiring an administration
building and the land on which it is built during 2014:
Jan 1
Jan 1
Jan 1

20%
of
the
price
is 50,000,000
attributable to land
Nonrefundable transfer taxes 1,000,000
not
included
in
the
P50,000,000 purchase price
Legal
cost
directly 200,000
attributable
to
the
acquisition
Page 9 of 10

Father Saturnino Urios University

Accountancy Program
AIR- Cluster 1 (Drill #4)
Jan 1
Expensed

June 30
Expensed
During 2014

VMBM, CPA

Reimbursing the previous 100,000

owner for prepaying the
nonrefundable
local
government property taxes
for the six-month period
ending June 30 2014
Nonrefundable annual local 200,000
govt property taxes for the
year ending June 30 2015
Day to day repairs and 250,000
maintenance

Expensed
On Dec 31 2014, SME assessed that the useful life of the building is 40 years with residual
value of P2,000,000. On the same date, fair value less cost of disposal of the land and
building is P60,000,000. What is the initial carrying amount of the land and building,
respectively?
a. 10,240,000 and 40,960,000
b. 10,200,000 and 40,800,000
c. 10,000,000 and 40,000,000
d. 12,000,000 and 48,000,000
51,200,000*80%= 40,960,000
51,200,000*20%= 10,240,000
SME- almost same with FULL PFRS
Investment property- use cost model (by circumstance)
-presented under PPE

END OF DRILL #4

Page 10 of 10