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FINALS QUIZ – FIN3

Multiple Choice
Identify the choice that best completes the statement or answers the question.

1. The accounts and balances shown below were gathered from Paynter Corporation's
trial balance on December 31, 2019. All adjusting entries have been made.

Wages Payable ........................................... 25,600

Cash .................................................... 17,700
Mortgage Payable ........................................ 151,600
Dividends Payable ....................................... 14,000
Prepaid Rent ............................................ 13,600
Inventory ............................................... 81,800
Sinking Fund Assets ..................................... 52,400
Short-Term Investments .................................. 15,200
Premium on Bonds Payable ................................ 4,600
Stock Investment in Subsidiary .......................... 102,400
Taxes Payable ........................................... 22,800
Accounts Payable ........................................ 24,800
Accounts Receivable ..................................... 36,600

Paynter Corporation's working capital is

a. 62,500.
b. 73,100.
c. 77,700.
d. 125,700.

2. Kaila Company carried a provision of P2,000,000 in its draft financial statements on

December 31, 2019 in relation to an unresolved court case. On January 31, 2020, when
the financial statements on December 31, 2019 had not yet been authorized for issue,
the case was settled and the court decided the final total damages payable by Kaila to
be P2,800,000. What amount should be the adjustment on December 31, 2019 in
relation to this event?
a. 2,800,000
b. 2,000,000
c. 800,000
d. 0

3. During 2019, Orton Company earned net income of 384,000 which included depreciation
expense of 78,000. In addition, the company experienced the following changes in the
account balances listed below:
Increases Decreases
Accounts payable 45,000 Accounts receivable 12,000
Inventory 36,000 Accrued liabilities 24,000
Prepaid insurance 33,000
Based upon this information what amount will be shown for net cash provided by
operating activities for 2019?
a. 492,000
b. 465,000
c. 285,000
d. 267,000

4. For the year ended December 31, 2019, Transformers Inc. reported the following:
Net income 60,000
Preference dividends declared 10,000
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Ordinary share dividends declared 2,000

Unrealized holding loss, net of tax 1,000
Retained earnings, beginning balance 80,000
Share capital – Ordinary 40,000
Accumulated Other Comprehensive Income,
Beginning Balance 5,000
What would Transformers report as total stockholders' equity?
a. 172,000
b. 168,000
c. 128,000
d. 120,000

5. Leonard Corporation reports the following information:

Correction of overstatement of depreciation expense
in prior years, net of tax 215,000
Dividends declared 160,000
Net income 500,000
Retained earnings, 1/1/2019, as reported 1,000,000
Leonard should report retained earnings, December 31, 2019, at
a. 785,000.
b. 1,125,000.
c. 1,340,000.
d. 1,555,000.

6. For the year ended December 31, 2019, Transformers Inc. reported the following:
Net income 60,000
Preference dividends declared 10,000
Ordinary share dividends declared 2,000
Unrealized holding loss, net of tax 1,000
Retained earnings 80,000
Share capital – Ordinary 40,000
Accumulated Other Comprehensive Income,
Beginning Balance 5,000
What would Transformers report as its ending balance of Accumulated Other
Comprehensive Income?
a. 6,000
b. 5,000
c. 4,000
d. 1,000

7. Kaila Company’s prepaid insurance was P100,000 at Dec. 31, 2019 and P50,000 at
Dec. 31, 2018. . Insurance expense was P40,000 for 2019 and P30,000 for 2018.

What amount of cash disbursements for insurance would be reported in Kaila’s 2019
net cash flows from operating activities presented on a direct basis?
a. 40,000
b. 60,000
c. 90,000
d. 110,000

8. On January 2, 2019 Kaila Co. intends to sell its building with a carrying value of
P3,800,000 but with a fair value of P4,200,000 but will continue to use the asset until the
construction of a new building is completed. The current building has a remaining useful
life of 10 years.
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On January 2, 2019, Kaila Co. should classify the building as

a. Property , plant and equipment valued at P3,800,000
b. Property, plant and equipment valued at P4,200,000
c. Non current asset held for sale and valued at P3,800,000
d. Non current asset held for sale and valued at P4,200,000

9. Athan Company’s draft financial statements showed the profit before tax for the year
ended December 31, 2018 at P9,000,000. The board of directors authorized the
financial statements for issue on March 20, 2019. A fire occurred at one of Athan’s site
on January 15, 2019 with resulting damage costing P7,000,000, only P4,000,000 of
which is covered by insurance. The repairs will take place and be paid for in April 2019.
The P4,000,000 claim from the insurance entity will however be received on February
14, 2019. What amount should be reported as profit before tax in Athan’s financial
statements?
a. 13,000,000
b. 9,000,000
c. 2,000,000
d. 6,000,000

10. On January 1, 2016, 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 2019, a decision was made to change to the double-declining balance method of
depreciation for this machine.

1. Assuming a 30% tax rate, the cumulative effect of this accounting change on
beginning retained earnings, is
a. 67,200.
b. 0.
c. 78,960.
d. 112,800.

2. The amount that Nobel should record as depreciation expense for 2019 is
a. 60,000.
b. 84,000.
c. 120,000.
d. none of the above.

11. Use the following information (in thousands):

Revenues ¥1,200,000
Income from continuing operations 150,000
Net Income 135,000
Income from operations 330,000
Selling & administrative expenses 750,000
Income before income tax 300,000

Determine the amount of discontinued operations.

a. ¥(30,000)
b. ¥120,000
c. ¥150,000
d. ¥(15,000)
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12. On December 31, 2019 Dean Company changed its method of accounting for inventory
from the average cost method to the FIFO method. This change caused the 2019
beginning inventory to increase by 420,000. The cumulative effect of this accounting
change to be reported for the year ended 12/31/2019, assuming a 40% tax rate, is
a. 420,000.
b. 252,000.
c. 168,000.
d. 0.

13. Jerome Corporation acquires copyright from authors, paying advance royalties in some
cases and in others, paying royalties within 30 days of year end.Jerome reported royalty
expense of P 375,000 for the year ended December 31, 2019. The following data are
included in the corporation’s December 31 balance sheet.
2018 2019
Prepaid royalties P60,000 P50,000
Royalties payable 75,000 90,000

How much would be the royalty payments for the year?

a) 350,000
b) 370,000
c) 380,000
d) 400,000

14. The following items were among those that were reported on Joseph’s Company’s
income statement for the year ended December 31, 2019:

Legal and Audit 340,000.00

Rent for the office space 480,000.00
Interest expense 420,000.00
Loss on sale of equipment 70,000.00
Office staff salaries 400,000.00

The office space is used equally by Joseph’s sales and accounting dept. What amount of
the above –listed items should be classified as general and administrative expenses in
Joseph’s income statements?

a. 980,000.00
b. 1,050,000.00
c. 1,220,000.00
d. 1,000,000.00

15. Sunshine Company had total assets of P4,000,000 and shareholders’ equity of
P2,080,000 at the beginning of the year. During the year, assets increased by P520,000
and liabilities decreased by P820,000. What was Sunshine’s shareholders’ equity at the
end of the year?
a. 3,420,000
b. 3,700,000
c. 3,380,000
d. 1,340,000

16. Given the following:

Net income 600,000
EPS 4.25
Dividend/ordinary shares 2.00
Weighted average ordinary shares outstanding 120,000
Determine the amount of the preference share dividend.
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a. 360,000
b. 240.000
c. 120,000
d. 90,000

17. Fleming Company provided the following information on selected transactions during
2019:
Dividends paid to preference shareholders’ 150,000
Loans made to affiliated corporations 750,000
Proceeds from issuing bonds 900,000
Proceeds from issuing preference shares 1,050,000
Proceeds from sale of equipment 450,000
Purchases of inventories 1,200,000
Purchase of land by issuing bonds 300,000
Purchases of treasury shares 600,000

1. The net cash provided (used) by investing activities during 2019 is

a. (600,000).
b. (300,000).
c. 150,000.
d. 450,000.

2. The net cash provided (used) by financing activities during 2019 is

a. (1,650,000).
b. 450,000.
c. 750,000.
d. 1,200,000.

18. Joseph company and its division are engaged solely in manufacturing operations. The
following data pertain to the industries in which operations were conducted for the year
ended December 31, 2019:

Segments Total Revenue Operating Profit Identifiable Assets

A 20,000,000,00 3,600,000,00 40,000,000,00
B 16,000,000,00 2,800,000,00 36,000,000,00
C 12,000,000,00 2,400,000,00 28,000,000,00
D 6,000,000,00 1,200,000,00 16,000,000,00
E 9,000,000,00 1,400,000,00 14,000,000,00
F 3,000,000,00 600,000,00 6,000,000,00
66,000,000,00 12,000,000,00 140,000,000,0

In its segment information for 2019, how many reportable segments does Joseph
company have?

a) three
b) four
c) five
d) six

19. Langley Company's December 31 year-end financial statements contained the following
errors:
Dec. 31, 2018 Dec. 31, 2019
Ending inventory 7,500 understated 11,000 overstated
Depreciation expense 2,000 understated
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An insurance premium of 18,000 was prepaid in 2018 covering the years 2018, 2019,
and 2020. The prepayment was recorded with a debit to insurance expense. In addition,
on December 31, 2019, fully depreciated machinery was sold for 9,500 cash, but the sale
was not recorded until 2020. There were no other errors during 2019 or 2020 and no
corrections have been made for any of the errors. Ignore income tax considerations.

1. What is the total net effect of the errors on Langley's 2019 net income?
a. Net income understated by 14,500.
b. Net income overstated by 7,500.
c. Net income overstated by 13,000.
d. Net income overstated by 15,000.

2. What is the total net effect of the errors on the amount of Langley's working capital
at December 31, 2019?
a. Working capital overstated by 5,000
b. Working capital overstated by 1,500
c. Working capital understated by 4,500
d. Working capital understated by 12,000

3. What is the total effect of the errors on the balance of Langley's retained earnings
at December 31, 2019?
a. Retained earnings understated by 10,000
b. Retained earnings understated by 4,500
c. Retained earnings understated by 2,500
d. Retained earnings overstated by 3,500

20. At Ruth Company, events and transactions during 2019 included the following. The tax
rate for all items is 30%.
(1) Depreciation for 2017 was found to be understated by 30,000.
(2) A litigation settlement resulted in a loss of 25,000.
(3) The inventory at December 31, 2017 was overstated by 40,000.
(4) The company disposed of its recreational division at a loss of 500,000.

The effect of these events and transactions on 2019 income from continuing operations
net of tax would be
a. 17,500.
b. 38,500.
c. 66,500.
d. 416,500.

21. Net income for Xela Ltd. for the year ended December 31, 2019 was 140,000. On
December 1, 2019, the company sold equipment with a cost of 52,000 and
accumulated amortization of 40,000 for 20,000 cash. In addition, on December 1,
2019, the company paid a cash dividend of 18,000.

Which of the following correctly reflects the impact of the equipment sale and the
dividend on the cash flow statement?
a) Addition to net income, in operating cash flows section, of 8,000; financing outflow of
18,000
b) Investing inflow of 20,000; financing inflow of 12,000
c) Deduction from net income, in operating cash flows section, of 8,000; financing
outflow of
18,000
d) Investing inflow of 8,000; financing inflow of 20,000
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22. Jerome company owns an office building and leases the offices under a variety of
rentals agreements involving rent paid in advance monthly or annually. Not all tenants
make timely payments of their. The following data were taken from the balance sheets
of Jerome Company:

Rentals receivable were P96,000 and 124,000 for 2018 and 2019, respectively;
unearned rentals were P320,000 and P240,000 for 2018 and 2019, respectively.

During 2019, Jerome received P800, 000 cash from tenants.

What amount of rental revenue should Jerome record for 2019?

a) 692,000
b) 748,000
c) 852,000
d) 908,000

23. Jerome Company’s December 31, 2019 balance sheet reported the following current
assets:
Cash 4,000,000
Accounts receivable 7,500,000
Inventory 4,000,000
Deferred tax asset 1,200,000
Equipment classified as “held for sale” 300,000
17,000,000

An analysis of the accounts receivable disclosed that accounts receivable comprised

the following:

Trade accounts receivable 5,000,000

Allowance for doubtful accounts (500,000)
Selling price of Jerome Company’s unsold goods sent
to another entity on consignment at 150% of cost and excluded
from Jerome’s ending inventory 3,000,000
7,500,000

At December 31, 2019, the total current assets should be

a. 16,000,000
b. 15,700,000
c. 14,500,000
d. 14,800,000

24. Katsis Limited had the following cash flows during the reporting period:

Purchase of intangibles 30 000

Proceeds from sale of plant 28 000
Receipts from customers 832 000
Payments to suppliers 593 000
Interest received 17 600
Income taxes paid 45 500

The net cash connected to operating activities was:

a. 239 100; c. 269 100;

b. 256 600; d. 211 100.

25. Presented below are changes in the accounts of Java Company for 2019.
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Increase
(Decrease
Cash 1,500,000
Accounts receivable (net) 3,500,000
Inventory 3,900,000
Investments (1,000,000)
Equipment 3,000,000
Accounts payable (800,000)
Bonds payable 2,000,000

During 2019, Java sold 100,000 shares of its P20 par stock for P30 per share and
received cash in full. Dividend of P4,500,000 was paid in cash during the year.
Java borrowed P4,000,000 from the bank and made interest payment of P600,000.
Java had no other loan payable. Interest of P400,000 was payable at December
31, 2019. Interest payable at December 31, 2018 was P100,000. Equipment of
P2,000,000 was donated by a shareholder during the year.

What was the net income for the year 2019?

a. 9,200,000
b. 4,800,000
c. 4,900,000
d. 4,300,000

26. At the balance sheet date, December 31, 2018. ABC Inc. carried a receivable from XYZ,
a major customer, at 10 million. The “authorization date” of the financial statements is on
February 16, 2019. XYZ declared bankruptcy on Valentine’s Day (February 14, 2019).
ABC Inc. will
(a) Disclose the fact that XYZ has declared bankruptcy in the footnotes.
(b) Make a provision for this post-balance sheet event in its financial statements
(as opposed to disclosure in footnotes).
(c) Ignore the event and wait for the outcome of the bankruptcy because the
event took place after the year-end.
(d) Reverse the sale pertaining to this receivable in the comparatives for the prior
period and treat this as an “error” under IAS 8.

27. Jerome Company prepared a draft of its 2019 balance sheet. The draft statement
reported total assets of P 4,375,000. Included in this total assets figure were the following
items:

Treasury stock of Jerome Company at cost, which approximates

market value on December 31 120,000
Unamortized patent 56,000
Cash surrender value of life insurance on corporate executives
68,500
Unrealized holding losses on available for sale securities 42,000

At what amount should the total assets be correctly reported in the December 31, 2019
balance sheet?
a. 4,208,500
b. 4,213,000
c. 4,250,500
d. 4,255,000

28. Following data are selected information for Marbel Company for the current year:

Cash balance, January 1 130,000

Accounts receivable, January 1 190,000
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Collections from customers 2,100,000

Shareholders’ equity, January 1 380,000
Total assets, January 1 750,000
Total assets, December 31 880,000
Cash balance, December 31 160,000
Accounts receivable, December 31 360,000
Total liabilities, December 31 390,000

The net income for the current year is

a. 490,000
b. 150,000
c. 110,000
d. 70,000

29. For the year ended December 31, 2019, Transformers Inc. reported the following:
Net income 60,000
Preference dividends declared 10,000
Ordinary share dividends declared 2,000
Unrealized holding loss, net of tax 1,000
Retained earnings, beginning balance 80,000
Share capital – Ordinary 40,000
Accumulated Other Comprehensive Income,
Beginning Balance 5,000
What would Transformers report as the ending balance of Retained Earnings?
a. 139,000
b. 133,000
c. 128,000
d. 127,000

30. Jerome, Inc. sells products to department stores in Metro Manila. The beginning and
ending balances of the company’s inventory and accounts payable during 2019 follow:

01/01/2019 12/31/2019
Inventory P150,000 P120,000
Accounts payable 102,000 78,000

Jerome’s cost of sales was reported at P1,380,000 on its income statement and uses
the indirect method in preparing the statement of cash flows.

How much was the cash payments made to its suppliers?

a. 1,286,000
b. 1,374,000
c. 1,626,000
d. 1,680,000

31. Joshtin Co.’s worksheet for the preparation of its 2019 statement of cash flows included
the following:
December 31 January 31
Accounts receivable 29,000 23,000
Allowance for uncollectible accounts 1,000 800
Prepaid rent expense 8,200 12,400
Accounts payable 22,400 19,400

Joshtin’s 2019 net income is 15,000. What amount should Joshtin include as net cash
provided by operating activities in the statement of cash flows?
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a. 151,400
b. 151,000
c. 148,600
d. 145,400

32. 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?

a. net cash inflow 155 000; c. net cash outflow 155 000;
b. net cash inflow 212 000; d. net cash inflow 212 000.

33. On January 1, 2018, Janik Corp. acquired a machine at a cost of 500,000. It is to be

depreciated on the straight-line method over a five-year period with no residual value.
Because of a bookkeeping error, no depreciation was recognized in Janik's 2018 financial
statements. The oversight was discovered during the preparation of Janik's 2019 financial
statements. Depreciation expense on this machine for 2019 should be
a. 0.
b. 100,000.
c. 125,000.
d. 200,000.

34. In 2019, Krasny Corporation discovered that equipment purchased on January 1,2017,
for €52,500 was expensed at that time. The equipment should have been depreciated
over 5 years, with no residual value. The effective tax rate is 30%.Krasny’s 2019 journal
entry to correct the error would include
a. a credit to Equipment for €52,500
b. a debit to Retained Earnings for €52,500.
c. a credit to Retained Earnings for €22,050.
d. a credit to Deferred Tax Liability for €15,750.

35. Ventura Corporation purchased machinery on January 1, 2019 for 630,000. The
company used the sum-of-the-years’-digits method and no salvage value to depreciate
the asset for the first two years of its estimated six-year life. In 2020, Ventura changed
to the straight-line depreciation method for this asset. The following facts pertain:
2019 2020
Straight-line 105,000 105,000
Sum-of-the-years’-digits 180,000 150,000

1. Ventura is subject to a 40% tax rate. The cumulative effect of this accounting
change on beginning retained earnings is
a. 135,000.
b. 120,000.
c. 72,000.
d. 0.

2. The amount that Ventura should report for depreciation expense on its 2021
income statement is
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a. 120,000.
b. 105,000.
c. 75,000.
d. none of the above.