BALIUAG UNIVERSITY

CPA REVIEW

FINANCIAL ACCOUNTING PROBLEMS FAR-2017-02

FINANCIAL STATEMENTS

On December 31, 2017, A COMPANY showed the following current assets:

Cash 500,000
Accounts receivable 2,500,000
Inventory 2,000,000
Prepaid expenses 100,000
Total current assets 5,100,000

Cash on hand including customer postdated check of P20,000 and employee

IOU of P10,000 130,000
Cash in bank per bank statement (outstanding checks on
December 31, 2017, P70,000) 370,000
Total cash 500,000

Customers’ debit balances, net of customer deposit of P50,000 1,900,000

Allowance for doubtful accounts ( 150,000)
Sale price of goods invoiced to customers at 150% of cost on December 29, 2017
but delivered on January 5, 2018 and excluded from reported inventory 750,000
Total accounts receivable 2,500,000

1. What is the adjusted cash balance?

a. 500,000
b. 470,000
c. 430,000
d. 400,000

2. What is the net realizable value of accounts receivable?

a. 1,970,000
b. 1,820,000
c. 1,800,000
d. 1,950,000

3. What is the adjusted inventory?

a. 2,000,000
b. 2,375,000
c. 2,500,000
d. 2,750,000

4. What total amount of current assets should be reported?

a. 4,900,000
b. 4,830,000
c. 4,780,000
d. 4,630,000

5. B COMPANY reported the following current assets on December 31, 2017:

Cash in bank, net of P500,000 bank overdraft in another bank 4,000,000
Accounts receivable 7,500,000
Notes receivable 2,000,000
Note receivable discounted 500,000
Inventory, including P300,000 expected to be sold in the ordinary course
beyond 12 months 4,500,000
Financial assets at FVTPL 1,000,000
Financial assets at FVTOCI 1,500,000
Prepaid expenses, including cash surrender value of P200,000 500,000
Deferred tax assets 2,500,000

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 Equipment classified as “held for sale” 3,000,000

The accounts receivable included customers’ accounts of P5,000,000, net of customers’ credit
balances of P600,000, allowance for doubtful accounts P500,000, and selling price of unsold
goods out on consignment at a markup of 50% on cost and excluded from ending inventory
P3,000,000. What amount should be presented as total current assets on December 31, 2017?
a. 21,900,000
b. 22,400,000
c. 18,900,000
d. 21,600,000

6. C COMPANY provided the following data on December 31, 2017:

Cash 5,000,000
Financial assets at fair value (including long-term investment of P500,000
in ordinary shares of Ayala Company) 2,000,000
Inventories (including goods received on consignment of P200,000) 800,000
Prepaid expenses (including a deposit of P50,000 made on inventories to be
delivered in 18 months) 150,000
Property, plant and equipment (excluding P300,000 of equipment still in use,
but fully depreciated) 10,000,000
Goodwill (based on the estimate of the president) 1,000,000
Total assets 18,950,000

Cash in general checking account 3,500,000

Cash in fund to be used to retire bonds in 2017 1,000,000
Cash held to pay value added taxes 500,000
Total cash 5,000,000

What total amount of current assets should be reported on December 31, 2017?
a. 6,250,000
b. 6,200,000
c. 7,200,000
d. 7,250,000

7. D COMPANY provided the following information on December 31, 2017:

Accounts payable, net of debit balances of P100,000 in creditors’ accounts 1,900,000
Accrued expenses 500,000
Bonds payable due on December 31, 2018 3,000,000
Discount on bonds payable 200,000
Deferred tax liability 400,000
Income tax payable 700,000
Cash dividend payable 800,000
Stock dividend payable 300,000
Note payable – 6%, due March 1, 2018 1,500,000
Note payable – 8%, due October 1, 2018 1,000,000

The 2017 financial statements were issued on March 31, 2018. On March 1, 2018, the 6% note
payable was refinanced on a long-term basis. Under the loan agreement for the 8% note
payable, the entity has the discretion to refinance the obligation for at least 12 months after
December 31, 2017. The deferred tax liability is based on temporary differences that will
reverse in 2018. A sinking fund of P3,000,000 was set aside to pay the bonds payable upon
maturity. What amount should be reported as total current liabilities on December 31, 2017?
a. 8,300,000
b. 9,300,000
c. 9,000,000
d. 5,500,000

8. E COMPANY provided the following account balances and related information on December 31,
2017:
Cash and cash equivalents 3,700,000
Accounts receivable 1,500,000
Allowance for doubtful accounts ( 200,000)

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 Inventory 2,000,000
Prepaid insurance 300,000
7,300,000

Cash in bank, net of bank overdraft of P300,000 maintained in a separate bank 1,000,000
Cash set aside by the Board of Directors for the purchase of a plant site 2,000,000
Petty cash 10,000
Cash withheld from wages for income tax of employees 190,000
General cash 500,000
Total cash and cash equivalents 3,700,000

The accounts receivable included past due account in the amount of P100,000. The account is
deemed uncollectible and should be written off. The inventory included goods held on
consignment amounting to P150,000 and goods of P200,000 purchased and received on
December 31, 2017. Neither of these items have been recorded as a purchase. The prepaid
insurance included cash surrender value of life insurance of P50,000. What amount should be
reported as current assets on December 31, 2017?
a. 5,400,000
b. 5,100,000
c. 5,300,000
d. 5,200,000

9. F COMPANY reported that remuneration and other payments made to the chief executive officer
during the current year were:
Annual salary 2,000,000
Share options and other share based payments 1,000,000
Contributions to the retirement benefit plan 500,000
Reimbursement for travel expenses for business trips 1,200,000

What total amount should be disclosed as “compensation” to key management personnel?

a. 3,500,000
b. 4,700,000
c. 3,000,000
d. 2,500,000

The following trial balance of G COMPANY on December 31, 2017 has been adjusted except for
income tax expense:
Cash 600,000
Accounts receivable, net of allowance of P100,000 1,650,000
Prepaid taxes 300,000
Accounts payable ( 140,000)
Share capital ( 500,000)
Share premium ( 680,000)
Retained earnings ( 630,000)
Foreign currency translation adjustment 400,000
Revenue ( 3,600,000 )
Expenses 2,600,000

During 2017, estimated tax payment of P300,000 were charged to prepaid taxes. The entity has
not yet recorded income tax expense. There were no differences between financial and taxable
income. The rate is 30%.

Included in accounts receivable is P500,000 due from a customer. Ordinary terms granted to
this customer require payment in equal semiannual installmentsP125,000 every April 1 and
October 1.

10. In the December 31, 2017 statement of financial position, what amount should be reported as
total current assets?
a. 2,000,000
b. 2,200,000
c. 2,300,000
d. 2,250,000

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11. In the December 31, 2017 statement of financial position, what amount should be reported as
total retained earnings?
a. 1,680,000
b. 1,200,000
c. 1,330,000
d. 1,630,000

12. During 2017, H COMPANY decided to change from the FIFO method of inventory valuation to
the weighted average method. Inventory balances under each method were:

FIFO Weighted
Average
December 31, 2015 9,000,000 8,500,000
December 31, 2016 8,000,000 8,300,000
December 31, 2017 7,000,000 6,400,000

Ignoring income tax, what amount should be reported as the effect of this accounting change
in the statement of retained earnings for 2017?
a. 200,000 decrease
b. 200,000 increase
c. 300,000 decrease
d. 300,000 increase

13. I 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 assets at FVTPL 2,500,000
Unrealized gain on financial assets at FVTOCI 1,500,000
Unrealized gain on futures contract designated as a cash flow hedge 500,000
Actuarial loss during the year due to increase in PBO 400,000
Foreign translation adjustment – debit 100,000
Loss on credit risk of a financial liability designated at FVTPL 200,000
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

14. J COMPANY had net income of P5,500,000, a positive P500,000 net cumulative effect of a
change in accounting policy, a P1,500,000 unrealized loss on available for sale securities, a
positive P1,000,000 foreign currency translation adjustment, and a P3,000,000 increase in
share capital. What is the comprehensive income?
a. 8,500,000
b. 5,000,000
c. 5,500,000
d. 8,000,000

15. K COMPANY provided the following net of tax figures for the current year:

Net remeasurement loss on defined benefit plan 300,000

Unrealized gain on available for sale securities 1,500,000
Reclassification adjustment for gain on sale of available for sale securities
included in net income 250,000
Share warrants outstanding 400,000
Net income 7,700,000

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 What is the comprehensive income for the current year?
a. 8,650,000
b. 8,900,000
c. 8,950,000
d. 9,050,000

16. During the current year, L COMPANY reported in the statement of comprehensive income
P5,000 in interest revenue, P15,000 equity in associate’s earnings, and P25,000 gain on sale of
available for sale securities. The sale of securities increased the current portion of income tax
expense by P10,000. What is the total amount of reclassification adjustment of other
comprehensive income?
a. 5,000
b. 2,500
c. 35,000
d. 15,000

17. M COMPANY provided the following trial balance on December 31, 2016 which has been
adjusted except for income tax expense:
Cash 600,000
Accounts receivable – net 3,500,000
Cost in excess of billings on long-term contracts 1,600,000
Billings in excess of cost on long term contracts 700,000
Prepaid taxes 450,000
Property, plant and equipment – net 1,510,000
Note payable – noncurrent 1,620,000
Share capital 750,000
Share premium 2,030,000
Retained earnings unappropriated 900,000
Retained earnings restricted for note payable 160,000
Earnings from long-term contracts 6,680,000
Costs and expenses 5,180,000
12,840,000 12,840,000

 The entity used the percentage of completion method to account for the long-term
constructions contracts for financial statement and income tax purposes. All receivables
on these contracts are considered to be collectible within 12 months.
 During 2017, estimated tax payments of P450,000 were charged to prepaid taxes. The
entity has not recorded income tax expense. There were no temporary or permanent
differences. The tax rate is 30%.

On December 31, 2017, what amount should be reported as

1. Total retained earnings? 2,110,000

2. Total non-current liabilities? 1,620,000
3. Total current assets? 5,700,000

The relevant accounts and adjusted balances shown below were taken from N COMPANY’s trial
balance on December 31, 2017:
Cash deposit in banks 300,000
Gold bullion deposited in banks 2,000,000
Trade accounts receivable 1,400,000
Investments in debt instruments 3,000,000
Investments in equity instruments 1,600,000
Investments in equity instruments with significant influence 2,400,000
Prepaid expenses 120,000
Finance lease payable 250,000
Deferred revenue 120,000
Trade payables 650,000
Provision for estimated litigation losses 420,000
Issued debt instrument 1,800,000
Issued equity instrument 2,900,000

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18. What total amount of financial instrument – assets that are within the scope of IAS 39 and IFRS
9 should N COMPANY report for the year 2017? 6,300,000
19. What total amount of financial instruments – liabilities that are within the scope of IAS 39 and
IFRS 9 should N COMPANY report for the year 2016? 2,450,000

O COMPANY has the following financial assets as of December 31, 2017:

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

20. What amount of financial assets – measured at amortized cost? 900,000

21. What amount of financial asset under the category – investment in equity to profit or loss
should be separately reported in the December 31, 2017 statement of financial position?
600,000
22. What amount of financial asset under the category – investment in equity through other
comprehensive income should be separately reported in the December 31, 2017 statement of
financial position? 1,700,000
23. What amount of financial asset under the category – investment in debt security at fair value
should be separately reported in the December 31, 2017 statement of financial position?
700,000