P1

You correctly answered 14 out of 35 questions with an accuracy of 40.0%.
You gained 140 experience points!

Problem:
Crown Asia Compounders Corp
Incorporated in 1989 as Crown Asia Compounders Corp., the company is currently
engaged in the production of plastic compounds, pipes and related products for the
construction and telecommunication industries, particularly the manufacture of plastic
compounds, polyvinyl chloride (PVC) pellets and plastic pipes.
Over the past three years, the company sold 58.06% of its compounds to the local
market, and the rest to the export market. Pipe products, on the other hand, are purely
sold domestically.
As of Jan. 31, 2015, Crown Asia has a total of 245 employees, and an operating
capacity of 15,000 million tonnes per annum (MPTA) for its compounds business and
8,500 MTPA for its pipes business. It is controlled by the Villanueva and Perez families,
collectively owning 74.95% of the firm after the offering.
Crown Asias net income to rose by an annual 31.42% to P65.38 million in 2014, while
revenues inched up by 6.1% to P850.74 million in the same period.
Crown Asia plans to sell 158 million primary common shares at P1.41 apiece from April
10 to April 17, it said in its prospectus filed with the SEC.
The Securities and Exchange Commission (SEC) approved the transaction during its en
banc meeting.
Of the net proceeds, P66.2 million will be used for construction of polypropylene random
copolymer (P-PR) and high-density polyethylene (HDPE) manufacturing plant and
warehouse as well as purchase of equipment; P43.8 million for debt retirement; P25
million for modernization of existing compounds and pipes plants; and P68.99 million for
working capital purposes. The par value per common share is P1.00 apiece.
Abacus Capital & Investment Corp. was appointed as the issue manager and
underwriter.
At the completion of the offer the offer shares will comprise 25.05% of the companys
issued and outstanding shares. Of the offer shares, 20% will be allocated to the
Philippine Stock Exchange trading participants, 10% to local small investors, and the
remaining 70% to the general public.
All of the Offer shares shall be primary shares to be taken from the existing authorized
capital stock of the company. No secondary shares shall form part of the Offer.
Infinity Inc.
The Villanueva family also owns a substantial ownership of Infinity Inc, a trading
company.
The following information was taken from the ledger of Infinity, Inc.
Prior period adjustment credit to retained earnings
Gain on sale of PPE
Cost of goods sold
Income tax expense (saving):
Continuing operations
Discontinued operations
Preference share, 8%, P100 par 500 shares issued
Dividends
Retained earnings, beginning, as originally reported
Treasury shares, ordinary (5,000 shares at cost)
Selling expenses
Ordinary share, no par, 45,000 shares issued
Sales revenue
Interest expense
Income from discontinued operations
Loss due to lawsuit
General expenses
5,000
21,000
380,000
32,000
8,000
50,000
16,000
103,000
25,000
78,000
180,000
620,000
30,000
20,000
11,000
62,000
Maine Company
The Perez family also owns Maine Company, a company that operates a chain of
restaurants.
Maine Company
Consolidated Statements of Income
Years Ended December 31, 2016 and 2015
(in millions, except per share data)
2016
Revenues
Sales by company-related restaurants
13,200
Revenues from franchised and affiliated
4,500
restaurants
Total revenues
17,700
Food and paper (cost of goods sold)
3,300
2015
11,100
3,700
14,800
3,108
Payroll and employee benefits

3,200
Occupancy and other operating expenses
2,900
Franchised restaurants - occupancy expenses
949
Selling, general, and administrative expenses
1,820
Other operating expense, net
510
Total operating expenses
12,679
Operating income
5,021
Interest expense
370
Other nonoperating expense, net
140
Income before income taxes
4,511
Income tax expense
1,820
Net income
2,691
Per ordinary share basic:
Net income
2.69
Dividends per ordinary share
0.50
Maine Company
Consolidated Balance Sheet
December 31, 2016 and 2015
(in millions, except per share data
2016
Assets
Current assets
Cash and cash equivalents
690
Accounts and notes receivable
780
Inventories
140
Prepaid expense and other current assets
580
Total current assets
2,190
Other assets
Investment in affiliates
1,150
Goodwill, net
1,780
Miscellaneous
990
Total other assets
3,920
Property and equipment
Property and equipment, at cost
28,800
Accumulated depreciation and amortization
(8,850)
Net property and equipment
19,950
Total assets
26,060
Liabilities and shareholders equity
Current liabilities
Accounts payable
520
Income taxes
70
Other taxes
230
Accrued interest
189
Accrued restructuring and restaurant closing
110
3,000
2,800
850
1,730
855
12,343
2,457
345
168
1,944
820
1,124
1.15
0.24
2015
455
840
120
440
1,855
1,055
1,590
1,100
3,745
26,500
(7,900)
18,600
24,200
675
14
180
196
385
costs
Accrued payroll and other liabilities
Current maturities of long-term debt
Total current liabilities
Long-term debt
Other long-term liabilities and minority
interests
Deferred income taxes
Shareholders equity
Preference shares, no par value, authorized
140 million shares, issued, none
Ordinary shares, P0.01 par value, authorized 2
billion shares; issued 1,400 million shares
Additional paid-in capital
Unearned ESOP compensation
Retained earnings
Accumulated other comprehensive income
(loss)
Ordinary shares in treasury, at cost; 400 and
420 million shares
Total shareholders equity
Total liabilities and shareholders equity
890
365
2,374
8,700
690
795
305
2,550
9,500
520
1,005
1,015
14
1,786
(85)
21,741
(815)
14
1,662
(101)
19,550
(1,570)
(9,350)
13,291
26,060
(8,940)
10,615
24,200
Manor Corporation
Manor Corporation is a joint venture between the Villanueva and Perez families. The
company reported the following income statement and comparative balance sheets,
along with transaction data for 2016.
Manor Corporation
Income Statement
Year Ended December 31, 2016
Sales revenue
Cost of goods sold
Gross profit
Operating expenses
Salary expense
Depreciation expense-equipment
Amortization expense - patent
Rent expense
Total operating expenses
Income from operations
Other items:
Loss on sale of equipment
662,000
560,000
102,000
46,000
7,000
3,000
2,000
58,000
44,000
(2,000)
Income before income tax

Income tax expense
Net income
Manor Corporation
Comparative Balance Sheets
December 31, 2016 and 2015
2016
Assets
Current assets
Cash and cash equivalents
19,000
Accounts receivable
22,000
Inventories
34,000
Prepaid expenses
1,000
Total current assets
76,000
Long-term investments
18,000
Equipment, net
67,000
Patent, net
44,000
Total Assets
205,000
Liabilities
Current liabilities
Accounts payable
Accrued liabilities
Income tax payable
Total current liabilities
Long-term note payable
Bonds payable
Owners equity
Share capital
Retained earnings
Less: Treasury shares
Total liabilities and equity
42,000
16,000
26,000
2015
3,000
23,000
31,000
3,000
60,000
10,000
52,000
10,000
132,000
35,000
7,000
10,000
52,000
44,000
40,000
26,000
9,000
10,000
45,000
53,000
52,000
27,000
(10,000)
205,000
20,000
19,000
(5,000)
132,000
Transaction data for 2016:

Purchase of equipment
Payment of cash dividends
Issuance of shares to retire bonds payable
Purchase of long-term investment
Purchase of treasury shares
Issuance of long-term note payable to purchase patent
Issuance of long-term note payable to borrow cash
Issuance of shares for cash
Sale of equipment (book value, P76,000)
98,000
18,000
13,000
8,000
5,000
37,000
7,000
19,000
74,000
Question 1
How much is the increase in additional paid in capital after the initial public offer of
Crown Asia Compounders Corp?
64,780,000
68,760,000
72,400,000
86,600,800
Practical Accounting 1 - Uncategorized (Uncategorized)
Question 2
How much is the expected gross proceeds of the initial public offer?
235,000,000
220,000,000
225,000,000
222,780,000
41 x 158,000,000 million issued shares = 222,780,000
Question 3
The Philippine Stock Exchange (PSE) requires to exercise the preemptive right to
shareholders because it
allows managers to buy additional shares below the current market price
will result in higher dividends per share
is included in every corporate charter
protects the current shareholders against a dilution of their ownership interests
Question 4
How much is the net income of Infinity Inc.?
48,000
60,000
70,000
75,000
SOLUTION:
Infinity Inc.
Income Statement
Revenues and gains:
Sales revenue
Gain on sale of PPE
Total revenues and gains
Expenses and losses
Cost of goods sold
Selling expenses
General expenses
Interest expense
Loss due to a lawsuit
Income tax expense
Total expenses and losses
Income from continuing operations
Discontinued operations, P20,000 less
income tax of P8,000
Net income
620,000
21,000
641,000
380,000
78,000
62,000
30,000
11,000
32,000
593,000
48,000
12,000
60,000
Question 5
How much is the market valuation of the company after initial public offer?
890,675,456
889,341,317
825,091,780
855,817,541
41 x 158,000,000 million issued shares = 222,780,000
222,780,000 /25.05% = 889,341,317
Question 6
How much is the ending balance of the retained earnings of Infinity, Inc.?
152,000
168,000
160,000
155,000
SOLUTION:
Infinity Inc.
Income Statement
Revenues and gains:
Sales revenue
Gain on sale of PPE
Expenses and losses
Cost of goods sold
Selling expenses
General expenses
Interest expense
Income tax expense
Net income
620,000
21,000
641,000
380,000
78,000
62,000
30,000
11,000
32,000
593,000
48,000
12,000
60,000
EPS=(Income-Preference dividends)/Ordinary shares outstanding Preference dividends

= P50,000 x .08 = 4,000 Ordinary shares outstanding = 45,000 issued-5,000 treasury
shares=40,000 shares outstanding Earnings per share
Income from continuing operations (48,000-4,000)/40,000
shares
Income from discontinued operations (12,000/40,000 shares)
Earnings per share (60,000 - 4,000)/40,000 shares
Infinity, Inc.
Statement of Changes in Equity
Retained earnings balance, beginning, as originally
reported
Prior-period adjustment credit
Retained earnings balance, beginning as adjusted
Net income for current year
Dividends for current year
Retained earnings balance, ending
1.10
.30
1.40
103,000
5,000
108,000
60,000
168,000
(16,000)
152,000
Question 7
Which of the following statements is correct?
A major disadvantage of financing with preferred stock is that preferred stockholders
typically have supernormal voting right
Preferred stock is normally expected to provide steadier, more reliable income to
investors than the same firms common stock, and, as a result, the expected after-tax
yield on the preferred is lower than the after-tax expected return on the common stock
The preemptive right is a provision in all corporate charters that gives preferred
stockholders the right to purchase (on a pro rata basis) new issues of preferred stock
One of the disadvantages to a corporation of owning preferred stock is that 70% of
the dividends received represent taxable income to the corporate recipient, whereas
interest income earned on bonds would be tax free
Question 8
How much is the earnings per share of Infinity Inc.?
1.20
1.80
1.40
1.60
SOLUTION:
Infinity Inc.
Income Statement
Revenues and gains:
Sales revenue
Gain on sale of PPE
Expenses and losses
Cost of goods sold
Selling expenses
General expenses
620,000
21,000
641,000
380,000
78,000
62,000
Interest expense
Income tax expense
Net income
30,000
11,000
32,000
593,000
48,000
12,000
60,000
EPS=(Income-Preference dividends)/Ordinary shares outstanding Preference dividends

= P50,000 x .08 = 4,000 Ordinary shares outstanding = 45,000 issued-5,000 treasury
shares=40,000 shares outstanding Earnings per share
Income from continuing operations (48,000-4,000)/40,000
shares
Income from discontinued operations (12,000/40,000 shares)
Earnings per share (60,000 - 4,000)/40,000 shares
1.10
.30
1.40
Question 9
In the statement of cash flows, a decrease in accounts receivable is reported as a
use of cash
Dividends do not show up in the statement of cash flows because dividends are
considered to be a financing activity, not an operating activity
In the statement of cash flows, a decrease in accounts payable is reported as a use
of cash
In the statement of cash flows, depreciation charges are reported as a use of cash
Question 10
Which of the following statements is correct for Crown Asia Compounders Corp ?
Accounts receivable are reported as a current liability on the balance sheet
If a company pays more in dividends than it generates in net income, its retained
earnings as reported on the balance sheet will decline from the previous year's balance.
If a company uses some of its bank deposits to buy short-term, highly liquid
marketable securities, this will cause a decline in its current assets as shown on the
balance sheet
Dividends paid reduce the net income that is reported on a companys income
statement
Question 11
The statement of cash flows shows where the firms cash is located; indeed, it
provides a listing of all banks and brokerage houses where cash is on deposit
The statement of cash flows reflects cash flows from continuing operations, but it
does not reflect the effects of changes in working capital
The statement of cash flows reflects cash flows from operations and from
borrowings, but it does not reflect cash obtained by selling new common stock
The statement of cash flows shows how much the firms cash--the total of currency,
bank deposits, and short-term liquid securities (or cash equivalents)--increased or
decreased during a given year
Question 12
Which item on Maines income statement has the most favorable trend during 20152016?
Food and paper costs
Total revenues
Payroll and employee benefits
Net income
SOLUTION:
(2,691-1,124/1,124) = 139.40%
Question 13
Manor acquired a Brazilian company to become its subsidiary. When Manor acquired
this subsidiary, the exchange rate of the Brazilian currency, the real, was .40 euros. The
average rate applicable to retained earnings is 0.41 euros. The reals current exchange
rate is 0.43 euros.
Assets
Liabilities
Shareholders equity
Share capital
Retained earning
Reals
900,000
600,000
30,000
270,000
How much is the foreign currency translation adjustment?

0
6,300
8,000
12,000
SOLUTION:
This scenario will generate a positive translation adjustment, which is like a gain. The
gain occurs because the reals current exchange rate, which is used to translate net
assets (assets minus liabilities), exceeds the historical exchange rates used for
shareholders equity.
Assets
Liabilities
Reals
900,000
600,000
Exchange rate
0.43
0.43
Euros
387,000
258,000
Shareholders equity
Share capital
Retained earnings
Accumulated other comprehensive
income:
Foreign currency translation
adjustment
30,000
270,000
0.40
0.41
900,000
12,000
110,700
387,000
Question 14
On Maines common-size balance sheet, goodwill would appear as
1,780 million
up by 11.9%
0.068
10.06% of total revenue
SOLUTION:
(1,780/26,060) = 0.068
Question 15
Maines inventory turnover for 2016 was
17 times
61 times
25 times
72 times
SOLUTION:
(P3,300/(P140 + P120)/2) = 25 times
Question 16
How much is the net cash provided (used) by financing activities of Manor Corporation?
2,000
(11,000)
8,000
3,000
SOLUTION:
Manor Corporation
Statement of Cash Flows

Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation
7,000
Amortization
3,000
2,000
Decrease in accounts receivable
1,000
Increase in inventories
(3,000)
Decrease in prepaid expenses
2,000
Increase in accounts payable
9,000
Decrease in accrued liabilities
(2,000)
Net cash provided by operating activities
Cash flows from investing activities
(98,000)
Sale of equipment
74,000
(8,000)
Net cash used for investing activities
Cash flows from financing activities
Issuance of shares
19,000
(18,000)
Issuance of long-term note payable
7,000
(5,000)
Net cash provided by financing activities
Net increase on cash
Cash balance, December 31, 2015
Question 17
Maines average collection period for accounts and notes receivables is
32 days
2 days
17 days
1 day
SOLUTION:
P780 + (P840/2) / (P17,700/365) = 17 days
26,000
19,000
45,000
(32,000)
3,000
16,000
3,000
19,000
Question 18
The average debt ratio for most companies is 0.64. Maines total debt position looks
risky
middle ground
safe
cannot tell from the financial
SOLUTION:
Debt ratio is P26,060 - P13291)/P26,060 = 0.49. This debt ratio is generally lower than
the average for most companies.
Question 19
On May 31, 2016, Maines ordinary shares sold for P30 per share. At that price, how
much did investors say P1 of the companys net income was worth?
1
30
11.15
10.99
SOLUTION:
P30/P2.69 = P11.15
Question 20
How much EVA did Maines generate for investors during 2016? Assume the cost of
capital was 5%.
2,040 million
1,943 million
3,061 million
2,691 million
SOLUTION:
EVA is economic value added and is used to evaluate a companys operating
performance. EVA combines the concepts of accounting income and corporate finance
to measure whether the companys operations have increased shareholder wealth. EVA
= Net income + Interest expense - Capital charge. P2,691 + P370 (P305+P9,500+10,615 x 0.05) = P2,040
Question 21
How much is the net cash provided by operating activities of Manor Corporation?
45,000
60,000
32,000
65,000
SOLUTION:
Manor Corporation
Net income
Depreciation
7,000
Amortization
3,000
2,000
1,000
(3,000)
2,000
9,000
(2,000)
(98,000)
Sale of equipment
74,000
(8,000)
Issuance of shares
19,000
(18,000)
7,000
(5,000)
26,000
19,000
45,000
(32,000)
3,000
16,000
3,000
19,000
Question 22
How much is the net increase in cash of Manor Corporation?
22,000
20,000
16,000
18,000
SOLUTION:
Manor Corporation
Net income
Depreciation
7,000
Amortization
3,000
2,000
1,000
(3,000)
2,000
9,000
(2,000)
(98,000)
Sale of equipment
74,000
(8,000)
Issuance of shares
19,000
(18,000)
7,000
(5,000)
Question 23
26,000
19,000
45,000
(32,000)
3,000
16,000
3,000
19,000
On May 31, 2016, Maines ordinary shares sold for P30 per share and dividends per
share were P0.50. Compute Maines dividend yield during 2016.
2.9%
4.1%
1.7%
5.0%
SOLUTION:
P0.50/P30 = 1.7%
Question 24
Crown Asia Compounders Corp
How much is the net cash provided (used) by investing activities of Manor Corporation?
45,000
(32,000)
(116,000)
65,000
SOLUTION:
Manor Corporation
Net income
Depreciation
7,000
Amortization
3,000
2,000
1,000
(3,000)
2,000
9,000
(2,000)
(98,000)
Sale of equipment
74,000
(8,000)
26,000
19,000
45,000
(32,000)
Issuance of shares
19,000
(18,000)
7,000
(5,000)
3,000
16,000
3,000
19,000
Question 25
Manor needs P500,000 for expansion. Assume Manor has net income of P300,000 and
100,000 shares outstanding. Its management is considering two financing plans. Plan is
to issue P500,000 of 6% bonds payable, and plan 2 is to issue 50,000 shares for
P500,000. Its management believes the new cash can be invested in operations to earn
income of P200,000 before interest and taxes.
Which is a better option?
Borrow P500,000 at 6%
Issue P50,000 shares of share capital
Both options are viable
Management will decide based on long-term leverage options
SOLUTION:
Companies finance their operations in 3 ways: by retained earnings, by issuing shares,
or by issuing bonds (notes payable).
Plan 1
Borrow P500,000 at
6%
Net income before expansion
Expected profit income before
interest and income tax
Less interest expense (500,000 x
300,000
200,000
(30,000)
Plan 2
Issue 50,000 shares of
share capital for
P500,000
300,000
200,000
0
0.06)
Expected project income before
income tax
Less: Income tax expense (40%)
Expected project income
Total company net income
Earnings per share after expansion:
Plan 1 Borrow (P402,000/100,000
shares)
Plan 2 Issue shares
(P420,000/150,000 shares)
170,000
(68,000)
200,000
(80,000)
102,000
402,000
120,000
420,000
4.02
2.80
In this case, borrowing results in higher earnings per share than issuing new shares.
Borrowing has its disadvantages, however. Interest expense may be high enough to
eliminate net income and lead to losses. Also, borrowing creates liabilities that must be
paid during bad years as well as good years. In contrast, a company that issues shares
can omit its dividends during a bad year.
Question 26
Jojy Corporation encounters the following product cost situations as part of its quarterly
reporting:
1
3
4
It only conducts inventory counts at the end of the 2nd quarter and end of
the fiscal year. Its typical gross profit is 30%. The actual gross profit at the
end of the 2nd quarter is determined to have been 32% for the first 6
months of the year. The actual gross profit at the end of the year is
determined to have been 29% for the entire year.
It determines that, at the end of the 2nd quarter, due to peculiar market
conditions, there is a net realizable value adjustment to certain inventory
required in the amount of P90,00. Jojy expects that this market anomaly
will be corrected by year-end, which indeed does occur in late December.
It suffers a decline of P65,000 in the market value of its inventory during
the third quarter. This inventory value increases by P75,000 in the 4th
quarter.
It suffers a clearly temporary decline of P10,000 in the market value of a
specific part of its inventory in the first quarter, which recovers in the 2nd
quarter.
The sales of the Company are as follows:

1st Quarter
10,000,000
2md Quarter
3rd Quarter
4th Quarter
8,500,000
7,200,000
11,800,000
How much is the total cost of goods sold in the 4th quarter?
9,005,000
7,100,000
5,660,000
8,850,000
SOLUTION:
Sales
COS %
COS, GP
method
COS based on
actual count
Temporary net
realizable value
decline in
specific
inventory (3)
Decline in
inventory value
with subsequent
increase (4)
Temporary
decline in
inventory value
(5)
Total COS
1st Qrtr
10,000,00
0
70%
7,000,000
2nd Qrtr
8,500,000
3rd Qrtr
7,200,000
4th Qrtr
11,800,000
Full Year
37,500,000
70%
5,040,000
5,580,000
(1)
9,005,000
(2)
26,625,000
90,000
(90,000)
65,000
(65,000)
10,000
7,010,000
(10,000)
5,660,000
5,105,000
8,850,000
26,625,000
(1) 18,000,000 x (1-32% gross margin) - 7,000,000 (1st quarter cost of sales) (2)
37,500,000 sales x (1-29% gross margin) - 17,620,000 (Quarters 1-3 cost of sales) (3)
Eventhough anticipated to recover, the NRV decline must be recognized. (4) Full
recognition of market value decline, followed by recognition of market value increase,
but only in the amount needed to offset the amount of the initial decline. (5) No deferred
recognition to temporary decline in value.
Question 27
Mint Manufacturing is a manufacturing business. During 2013 financial year, the
directors reviewed Mints accounting policies and identified inventories as an area where
it could change the current accounting policy with respect to inventory to better reflect
the actual economic substance of its business.
The directors decided to change the valuation method used for raw material from the
weighted average cost method to the FIFO method.
The value of the inventories is as follows:
December 31,
2012
December 31,
2013
Weighted average
160,000
FIFO
140,000
190,000
160,000
Mint was unable to obtain figures as at January 1, 2012, for inventory in terms of FIFO
as it was determined to be impractical. Ignore any income tax effects.
How much is the net decrease in inventory value to be recorded as part of cost of sales
on December 31, 2013?
10,000
50,000
30,000
20,000
SOLUTION:
The changes in the closing carrying amounts of inventories due to the change in the
accounting policy are as follows:
December 31,
2012
December 31,
2013
Weighted average
160,000
FIFO
140,000
Decrease in values
(20,000)
190,000
160,000
(30,000)
Due to the change in the accounting policy, the carrying values of inventories decreased
at the beginning of the period with P20,000 and the end of the period with P30,000. The
effect of this decrease is an increase in the cost of sales of P10,000 (30,000-20,000) for
the period ended December 31, 2012. Journal entry: December 31, 2013
Cost of sales
10,000
Retained earnings
Inventories
20,000
30,000
Question 28
Philippine National Bank uses net reporting for most of their cash flow statement line
items. How much of the following items are subject to net reporting?
Acceptance and repayment of demand
deposits
Deposits with no fixed maturity dates
Cash advances to PNB customers
Deposits from other PNB branches
20,000,000
17,000,000
18,000,000
15,000,000
5,000,000
3,000,000
2,000,000
25,000,000
SOLUTION:
IAS 7 permits financial institutions to report cash flow arising from certain activities on a
net basis. Net reporting are acceptable to the following transactions:
Question 29
Cash receipts and payments on behalf of customer when the cash flows reflect the
activities of the customers rather than those of the bank, such as acceptance and
repayment of demand deposits;
2. Cash flows relating to deposits with fixed maturity dates;
3. Placements and withdrawals of deposits from other financial institutions;
4. Cash advances and loans to banks customers and repayments.
PTS: 1
29. Which of the following statements is correct?
Since depreciation is a source of funds, the more depreciation a company has, the
larger its retained earnings will be, other things held constant
A firm can show a large amount of retained earnings on its balance sheet yet need
to borrow cash to make required payments.
Common equity includes common stock and retained earnings, less accumulated
depreciation.
Common equity includes common stock and retained earnings, less accumulated
depreciation.
Question 30
Siemens Cellular ships a consignment of its smartphone to a retail outlet of the
Consumer Products Division. Siemens Cellulars cost of the consigned goods is P3,700,
and it shifts the inventory cost into a separate inventory count to track the physical
location of the goods. The entry is as follows:
Consignment out
inventory
Finished goods inventory
3,700
3,700
A third party shipping company ships the smartphones from Siemens Cellular to
Consumer Products. Upon receipt of an invoice for this P550 shipping expense,
Siemens Cellular charges the cost to consignment inventory with the following entry:
Consignment out
inventory
Accounts payable
550
550
Consumer Products sells half the consigned inventory during the month for P2,750 in
credit card payments, and earn a 22% commission on these sales, totaling P605.
According to the consignment arrangement, Siemens Cellular must reimburse
Consumer Products for the 2% credit card processing fee.
How much is due to Siemens Cellular?
2,090
2,750
2,695
2,550
SOLUTION:
Sales price to Consumer Products customer earned on behalf of

Siemens Cellular
Less: Amounts due to Customer Product in accordance with
arrangement
22% sales commission
Reimbursement for credit card processing fee (2,750 x 2%)
Due to Siemens Cellular
2,750
605
55
2,090
Question 31
The CFO of Shalit Industries plans to have the company issue P300 million of new
common stock and use the proceeds to pay off some of its outstanding bonds. Assume
that the company, which does not pay any dividends, takes this action, and that total
assets, operating income (EBIT), and its tax rate all remain constant. Which of the
following would occur?
The companys taxable income would fall.
The companys interest expense would remain constant.
The company would have less common equity than before
The companys net income would increase.
Question 32
When an accounting error is being corrected, the Company should the disclose the
following except:
The nature of the error
The effect of the restatement on each line item in the financial statements.
The amount of the correction for each prior period presented.
That comparative information has been restated, or that the restatement for a
particular prior period has not been made because it would require undue cost.
SOLUTION:
When an accounting error is being corrected, the reporting entity is to disclose the
following:
Problem:
Jojy Corporation encounters the following product cost situations as part of its quarterly
reporting:
1
3
4
It only conducts inventory counts at the end of the 2nd quarter and end of
the fiscal year. Its typical gross profit is 30%. The actual gross profit at the
end of the 2nd quarter is determined to have been 32% for the first 6
months of the year. The actual gross profit at the end of the year is
determined to have been 29% for the entire year.
It determines that, at the end of the 2nd quarter, due to peculiar market
conditions, there is a net realizable value adjustment to certain inventory
required in the amount of P90,00. Jojy expects that this market anomaly
will be corrected by year-end, which indeed does occur in late December.
It suffers a decline of P65,000 in the market value of its inventory during
the third quarter. This inventory value increases by P75,000 in the 4th
quarter.
It suffers a clearly temporary decline of P10,000 in the market value of a
specific part of its inventory in the first quarter, which recovers in the 2nd
quarter.
The sales of the Company are as follows:

1st Quarter
2md Quarter
3rd Quarter
4th Quarter
10,000,000
8,500,000
7,200,000
11,800,000
Question 33
How much is the total cost of goods sold in the 1st quarter?
7,000,000
7,010,000
5,600,000
7,050,000
SOLUTION:
Sales
COS %
COS, GP
method
COS based on
actual count
Temporary net
realizable value
decline in
specific
inventory (3)
Decline in
inventory value
with subsequent
increase (4)
Temporary
decline in
inventory value
(5)
Total COS
1st Qrtr
10,000,00
0
70%
7,000,000
2nd Qrtr
8,500,000
3rd Qrtr
7,200,000
4th Qrtr
11,800,000
Full Year
37,500,000
70%
5,040,000
5,580,000
(1)
9,005,000
(2)
26,625,000
90,000
(90,000)
65,000
(65,000)
10,000
7,010,000
(10,000)
5,660,000
5,105,000
8,850,000
26,625,000
Question 34
How much is the total cost of goods sold in the 2nd quarter?
7,000,000
7,010,000
5,660,000
6,050,000
SOLUTION:
Sales
COS %
COS, GP
method
COS based on
actual count
Temporary net
realizable value
decline in
specific
inventory (3)
Decline in
inventory value
with subsequent
increase (4)
Temporary
decline in
inventory value
(5)
Total COS
1st Qrtr
10,000,00
0
70%
7,000,000
2nd Qrtr
8,500,000
3rd Qrtr
7,200,000
4th Qrtr
11,800,000
Full Year
37,500,000
70%
5,040,000
5,580,000
(1)
9,005,000
(2)
26,625,000
90,000
(90,000)
65,000
(65,000)
10,000
7,010,000
(10,000)
5,660,000
5,105,000
8,850,000
26,625,000
Question 35
How much is the total cost of goods sold in the 3rd quarter?
5,105,000
6,010,000
5,660,000
6,050,000
SOLUTION:
Sales
COS %
COS, GP
method
COS based on
actual count
Temporary net
realizable value
decline in
specific
inventory (3)
Decline in
inventory value
with subsequent
increase (4)
Temporary
decline in
inventory value
(5)
Total COS
1st Qrtr
10,000,00
0
70%
7,000,000
2nd Qrtr
8,500,000
3rd Qrtr
7,200,000
4th Qrtr
11,800,000
Full Year
37,500,000
70%
5,040,000
5,580,000
(1)
9,005,000
(2)
26,625,000
90,000
(90,000)
65,000
(65,000)
10,000
7,010,000
(10,000)
5,660,000
5,105,000
8,850,000
26,625,000

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You correctly answered 14 out of 35 questions with an accuracy of 40.0%.

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