Instruction: Answer the following problems/ theory questions.

For computational, show your solution and encircle your

final answer/s. One whole. To be submitted on Monday, 2/19/18, up to 5 PM.

FOR THE NEXT 5 QUESTIONS ABC Corporation reported the following amounts of net income for the years ended
December 31, 2015, 2016 and 2017 as follows: 2015 - P127,000; 2016 - 150,000; 2017 - 128,500. During your
examination, you discover the following errors:
a. As a result of errors in the physical count, ending inventories were misstated as follows:
December 31, 2016 P14,000 understated
December 31, 2017 P23,000 overstated
b. On December 29, 2017, ABC recorded as a purchase, merchandise in transit, which cost P15,000. The merchandise
was shipped FOB Destination and had not arrived by December 31. The merchandise was not included in the ending
inventory.
c. ABC records sales on the accrual basis but failed to record sales on account made near the end of each year as
follows
2015 - P4,000; 2016 - 5,000; 2017 - 3,500
d. The company failed to record accrued office salaries as follows:
December 31, 2015 P10,000
December 31, 2016 14,000
e. On March 1, 2016, a 10% stock dividend was declared and distributed. The par value of the shares amounted to
P10,000 and market value was P13,000. the stock dividend was recorded as follows:
Miscellaneous expense P13,000
Common stock 10,000
Retained earnings 3,000
f. On July 1, 2016, ABC acquired a three-year insurance policy. The three-year premium of P6,000 was paid on that
date, and the entire premium was recorded as insurance expense.
g. On January 1, 2017, ABC retired bonds with a book value of P120,000 for P106,000. The gain was incorrectly
deferred and is being amortized 10 years as a reduction of interest expense on other outstanding obligations.

Questions:
1 What is the adjusted net income for the year ended December 31, 2015?
2 What is the adjusted net income for the year ended December 31, 2016?
3 What is the adjusted net income for the year ended December 31, 2017?
4 What adjusting entry should be made on December 31, 2017 to correct the error described in item B?
5 The adjusting entry on December 31, 2016 to correct the error described in item E should include a debit to (account
title and amount)

6 The differences in Marylet Inc.’s statement of financial position accounts at December 31, 2017 and 2016, are
presented below.
Increase
(Decrease)
Assets
Cash and cash equivalents P120,000
Available-for-sale securities 300,000
Accounts receivable, net --
Inventory 80,000
Long-term investments (100,000)
Plant assets 700,000
Accumulated depreciation --
P1,100,000
Liabilities and Stockholders’ Equity
Accounts payable and accrued liabilities P (5,000)
Dividends payable 160,000
Short-term bank debt 325,000
Long-term debt 110,000
Share capital, P10 par 100,000
Share premium 120,000
Retained earnings 290,000
P1,100,000
The following additional information relates to 2017:
• Net income was P790,000.
• Cash dividends of P500,000 were declared.
• Building costing P600,000 and having a carrying amount of P350,000 was sold for P350,000.
• Equipment costing P110,000 was acquired through issuance of long-term debt.
• A long-term investment was sold for P135,000. There were no other transactions affecting long-term
investments.
 • 10,000 ordinary shares were issued for P22 a share.

In Marylet’s 2017 statement of cash flows, net cash provided by operating activities was
A. P1,160,000 B. P1,040,000 C. P920,000 D. P705,000

7 The trial balance of Chase Company included the following at year-end:

Inventory, including inventory expected in the ordinary course of operations to be sold beyond
12 months amounting to P700,000 1,000,000
Trade receivables 1,200,000
Prepaid insurance 80,000
Investments held for trading at fair value 200,000
Available for sale investments at fair value 800,000
Cash 300,000
Deferred tax asset 150,000
Bank overdraft 250,000

What amount should be reported as total current assets at year-end?

FOR THE NEXT 3 REQUIREMENTS: The following trial balance of Mint Company on December 31, 2017 has been
adjusted except for income tax expense:
Cash 600,000 Share capital 750,000
Accounts receivable, net 3,500,000 Share premium 2,030,000
Cost in excess of billing on long-term contracts 1,600,000 Retained earnings unappropriated 900,000
Billing in excess of cost on long-term contracts 700,000 Retained earnings restricted for note payable 160,000
Prepaid taxes 450,000 Earnings from long-term contracts 6,680,000
Property, plant and equipment, net 1,510,000 Cost and expenses 5,180,000
Note payable – noncurrent 1,620,000

The entity uses the percentage of completion method to account for long-term construction 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

8 Total retained earnings?

9 Total noncurrent liabilities?
10 Total current assets?

11 Mirr Company was incorporated on January 1, 2017 with proceeds from the issuance of P750,000 in shares and
borrowed funds of P110,000. During the first year of operations, revenue from sales and consulting amounted to
P82,000, and operating costs and expenses totaled P64,000. On December 15, the entity declared a P3,000 cash
dividend, payable to shareholders on January 15, 2018. No additional activities affected owners’ equity in 2017. The
liabilities increased to P120,000 by December 31, 2017. What amount should be reported as total assets on
December 31, 2017?

12 On January 1, 2015, Warren Company purchased a P600,000 machine with a 5-year life and no residual value. The
machine was depreciated by an accelerated method for book and tax purposes. The carrying amount was P240,000
on December 31, 2016. On January 1, 2017, the entity changed to the straight line method for financial reporting
purposes. The income tax rate is 30%. On January 1, 2017, what amount should be reported as deferred tax liability
as a result of the change?

13 During 2017, Orca Company changed from FIFO to weighted average method of inventory valuation. The FIFO
inventory was P71,000 on January 1 and P79,000 on December 31. The average inventory was P77,000 on January
1 and P83,000 on December 31. The income tax rate is 30%. In the 2017 financial statements, what amount should
be reported as gain or loss on the cumulative effect of this change?

14 Ocean Company’s comprehensive insurance policy allows its assets to be replaced at current value. The policy has
P50,000 deductible clause. One of the waterfront warehouses was destroyed in a hailstorm. Hailstorms occur
approximately every four years. The entity incurred P20,000 for dismantling the warehouse and plans to replace it.
The current carrying amount of the warehouse is P300,000 and its replacement cost is P1,100,000. What amount of
gain should be reported as a separate component of income from continuing operations?

15 On December 1, 2017, Greer Company committed to a plan to dispose of its business component’s assets. The
disposal meets the criteria to be classified as discontinued operation. On that date, the entity estimated that the loss
 from disposition of the assets would be P700,000 and the component’s operating loss in 2017 was P200,000. What
amount should be reported as pretax loss from discontinued operation?

16 A company had the following items relevant to 2017 earnings:

• Loss from an earthquake, P200,000.
• Gain on disposal of a segment, P100,000.
• P160,000 loss due to expropriation of one of the plants by a foreign government.
The company’s income from continuing operations (pretax) prior to reporting the above items is P1,300,000. The
effective tax rate is 35 percent. 200,000 ordinary no par shares were outstanding throughout the entire year. The
company should report income from continuing operations of

17 ABC accounts for noncurrent assets using the revaluation model. On June 30, 2017, the entity classified a land as
held for sale. At that date, the carrying amount was P2,900,000 and the balance of the revaluation surplus was
P200,000. On June 30, 2017, the fair value was estimated at P3,300,000 and the cost of disposal at P200,000. On
December 31, 2017, the fair value was estimated at P3,250,000 and the cost of disposal at P250,000. The impairment
loss and revaluation surplus to be reported on the financial statements, respectively.

18 ABC Company purchased equipment for P5,000,000 on January 1, 2017 with a useful life of 10 years and no residual
value. On December 31, 2017, the entity classified the asset as held for sale. The fair value of the equipment on
December 31, 2017 is P4,200,000 and the cost of disposal is P50,000. On December 31, 2018, the fair value of the
equipment is P3,500,000 and the cost of disposal is P100,000. On December 31, 2018, 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. The amount of gain or loss resulting from reclassification in 2018 is (label your answer)

FOR THE NEXT 2 REQUIREMENTS: An entity reported revenue of P50,000,000, excluding intersegment sales of
P10,000,000, expenses of P47,000,000 and net income of P3,000,000 for the current year. Expenses included payroll
costs of P15,000,000. The combined assets of all segments totalled P45,000,000.

19 What is the minimum amount of sales to a major customer?

A. 5,000,000 B. 4,000,000 C. 4,500,000 D. 6,000,000

20 What is the minimum amount of external revenue to be disclosed by reportable segments?

A. 30,000,000 B. 45,000,000 C. 33,750,000 D. 37,500,000

21 Villar Company has two divisions, Western and Eastern. Both qualify as operating segments. In 2017, the firm
decided to discontinue operation and dispose of the assets and liabilities of the Eastern Division. It is probable that
the disposal will be completed early 2018. The relevant information to Villar Company for 2017 and 2016 are as
follows:
2017 2016
Sales – Western 7,000,000 6,000,000
Total operating expenses – Western 5,500,000 4,200,000
Sales – Eastern 3,000,000 2,300,000
Total operating expenses – Eastern 1,000,000 1,500,000
Carrying amount of assets – Western 10,000,000 9,000,000
Fair value less cost to sell – Western 10,500,000 9,700,000
Carrying amount of assets – Eastern 4,000,000 5,000,000
Fair value less cost to sell – Eastern 3,700,000 5,200,000

During 2017, Villar disposed a portion of the Eastern Division and recognized a pretax loss of P500,000 on the
disposal. The income tax rate for Villar Company is 30 percent. What is the amount of income from discontinued
operation that Villar should report in its 2017 statement of comprehensive income?

22 T/F Entities should disclose all in interim reports, events after the end of reporting period as well as seasonal revenue,
cost and expenses.
23 T/F For interim reporting purposes, it is not necessary to count inventories in full at the end of each interim period.
24 T/F The chief internal auditor who reports to the board of directors usually plays a very important role in any
organization and would generally qualify as chief operating decision maker.
25 T/F An operating segment identified as reportable in the preceding period but it no longer meets the quantitative
threshold in the current period shall continue to be reported separately in the current period if management judges the
segment to be of continuing significance.
26 T/F If an operating segment is identified as reportable in the current period but not reportable in the prior period, prior
segment data presented for comparative purposes may be restated when management deems it necessary.
27 T/F The restated amount of a non-monetary item is reduced, in accordance with appropriate PFRSs, when it exceeds
its the recoverable amount.
28 ABC Company provided the following statement of financial position accounts on December 31, 20F based on
historical cost:
Cash P100,000
Accounts receivable 1,200,000
Inventory 800,000
Land 400,000
Building 1,000,000
Accumulated depreciation-building 200,000
Equipment 500,000
Accumulated depreciation-equipment 250,000
Accounts payable 600,000
Share capital-issued January 1, 20A 2,000,000
Accumulated profits or losses 950,000
Date acquired Index Number
Land January 1, 20A 100
Building January 1, 20A 100
Equipment January 1, 20C 125
End of reporting period December 31, 20F 260
Average index number 20F 250
If you are to prepare a statement of financial position on December 31, 20F restated for general price index, what will be
the amount of restated total assets?

29 The following information pertains to Furama Company for 2017:

a. The company had net monetary items of P1,600,000 on January 1.
b. Sales of P6,000,000 and purchases of P2,400,000 were made evenly throughout the year.
c. Operating expenses of P1,800,000 and income tax expense of P1,200,000 were incurred evenly throughout the
year.
d. Cash dividends of P400,000 were declared on November 30 and paid on December 31. Selected values of the
CPI-U during 2017 appear below:
Jan. 1 110.0
Average for year 121.0
Nov. 30 131.0
Dec. 31 133.1
The purchasing power loss for 2012 expressed in constant year-end pesos is

30 T/F Corresponding figures for the previous reporting period, based on a historical cost approach are restated by
applying a general price index so that the comparative financial statements are presented in terms of the measuring
unit current at the end of the reporting period.
31 T/F Corresponding figures for the previous reporting period, even when based on current cost approach, are restated
by applying a general price index so that the comparative financial statements are presented in terms of the
measuring unit current at the end of the reporting period.

32 Kerr Company purchased a machine for P115,000 on January 1, 2017, the company’s first day of operations. At the
end of the year, the current cost of the machine was P125,000. The machine has no salvage value, a five-year life,
and is depreciated by the straight-line method. For the year ended December 31, 2017, the amount of the current cost
depreciation expense which would appear in current cost financial statements is

FOR THE NEXT 3 REQUIREMENTS: On January 1, 2017, an entity purchased land for P5,000,000. On December 31,
2017, the land had a current cost of P5,500,000. On December 31, 2018, the entity sold the land for P6,500,000. On such
date, the current cost of the land is P5,900,000.

33 What is the unrealized gain to be reported in the income statement for 2017?
34 What is the realized holding gain to be reported in the income statement for 2018?
35 What is the gain on sale of land to be reported in the income statement for 2018 under current cost accounting?