CONCEPTUAL FRAMEWORKS AND ACCOUNTING STANDARD

(PROBLEMS)

1. The following information is provided by Sherna Company:

Purchase of inventory 1,950,000
Purchase of land (with vendor financing of Php 2,000,000 for 2 years) 4,500,000
Purchase of plant 3,500,000
Sale of plant 500,000
Ordinary shares (buyback) 800,000

What amount should be reported as investing net cash outflow?

a. Php. 5,500,000
b. Php. 5,600,000
c. Php. 6,550,000
d. Php. 4,300,000

2. Shadow Inc. made available the following information:

Loans made to affiliated corporations 500,000
Issued bonds payable 406,000
Proceeds from sale of equipment 15,000
Purchased treasury shares 210,000
Cash dividends paid 115, 000

What should be reported in Shadow’s statement of cash flows for financing activities?
a. Inflow of Php. 421, 000 and Outflow of Php. 825,000
b. Inflow of Php. 406, 000 and Outflow of Php. 210,000
c. Outflow of Php. 325,000 and Inflow of Php. 406,000
d. Outflow of Php. 175, 000 and Inflow of Php. 15,000

3. Midnight Co. sells appliance service contracts, agreeing to repair appliances for a two-year
period. Midnight’s past experience is that, of the total pesos spent from repairs on service contracts,
40% is incurred evenly during the first contract year and 60% evenly during the second contract
year.

Receipts from service contract sales for the two years ended December 31, 2019, are as follows:
2018. . . . . . . . . . . . . .Php. 500,000 2019. . . . . . . . . . . . . . Php. 600,000
Receipts from contract re credited to unearned service contract revenue. Assume that all contract
sales are made evenly during the year. What amount should Midnight Co. report as unearned
service contract revenue at December 31, 2019?
a. Php. 360,000 b. Php. 480,000
c. Php. 630,000 d. Php. 470,000

4. Selene Company accounted for noncurrent assets using the revaluation model. On October 1,
2018, the entity classified a land as held for sale. At that date, the carrying amount of the land was
Php. 5,000,000 and the balance in the revaluation surplus was Php. 1,500,000. At same date, the
fair value of the land was estimated at Php. 5,500,000 and the cost of disposal at Php. 100,000. On
December 31, 2018, the fair value less cost of disposal of the land did not change. The land was
sold on January 31, 2019 for Php. 6,000,000. What amount should be reported as gain on disposal
of land in 2019?
a. Php. 1,000,000
b. Php. 2,600,000
c. Php. 500,000
d. Php. 600,000

5. The accounts and balances shown below were taken from Luna Company’s trial balance on
December 31, 2021. All adjusting entries have been made.
Wages payable, Php. 250,000; Cash, Php. 175,000; Bonds payable, Php. 600,000; Dividends
payable, Php. 140,000; Prepaid rent, Php. 136,000; Inventory, Php. 820,000; Investment in-
Sinking Fund Assets, Php. 525,000; Investment to profit or loss securities, Php. 153,000; Premium
on Bonds payable, Php. 48,000; Investment in subsidiary, Php. 1,020,000; Patents-net, Php.
150,000; Accumulated depreciation-PPE, Php. 400,000; Land held for future business site, Php.
900,000.
How much should be reported in Luna Company’s December 31, 2021 statement of financial
position as noncurrent assets?
a. Php. 2,225,000 b. Php. 3,395,000
c. Php. 3,795,000 d. Php. 2,375,000