INTERMEDIATE ACCOUNTING III – FINAL EXAMINATION 4.

The income statement of Aroma Company showed net income of P8,000,000 and
2nd SEMESTER SY 2019-2020 depreciation of P200,000. All sales were for cash except a P50,000 sale resulting in the
acceptance of one-year 12% note receivable and a P100,000 sale resulting in the
acceptance of a tract of land valued at P100,000. Accrued salaries on December 31, 2019
Danny Rand has a retail merchandise business and maintains three main accounts with and 2020 were P50,000 and P40,000 respectively. Interest expense includes P5,000 of
balances at the beginning of the current year: Cash P425,000, Merchandise P385,000, and amortization of bond discount. Income tax expense includes P50,000 of deferred tax
Equity P810,000. The merchandise account is debited for purchases and credited for sales. liability. What is the net cash provided by operating activities for the current year?
During the current year, the business paid trade creditors P1,260,000 and suffered a net loss
of P200,000. Also, Danny Rand made an additional investment of P250,000 and withdrawal of An entity provided the following transactions for the preparation of a statement of cash flows
P85,000 both made in cash. All sales and purchases were on credit. for the current year:
Other ledger preclosing balances at year-end included the following: Net Income for the current year 4,250,000
Accounts Receivable 215,000 Cash Dividend paid 3,175,000
Accounts Payable 375,000 Cash received from sale of equipment costing P1,200,000
Expenses (paid in cash) 190,000 With carrying amount of P750,000 800,000
Merchandise (unadjusted debit balance) 450,000 Cash paid for equipment purchased 2,500,000
Issued bonds payable at face amount in exchange for land 3,000,000
1. What is the cash balance at year-end? Dividend income received from associate 300,000
2. What is the merchandise balance at year-end? Cash paid to Note Payable - bank 800,000
Cash received from issue of share capital with par of P2,000,000 2,400,000
3. An entity revealed the following changes in the accounts for the current year: Cash paid for treasury shares @ cost P600,000 650,000
Increase ( Decrease ) Cash paid for equity securities irrevocably designated as FVOCI 1,800,000
Cash 1,950,000 Cash balance on January 1 2,350,000
Accounts Receivable 1,240,000 Changes in certain accounts during the year
Inventory (810,000) Financial asset held for trading 1,250,000 increase
Equipment (900,000) Accounts receivable, net of allowance 1,000,000 decrease
Accounts Payable 520,000 Inventory 800,000 decrease
During the current year, the entity, not in a good financial condition, issued on the same Accumulated Depreciation 650,000 increase
date 3,500 ordinary shares of P100 par value for P150 which is the market value per share Patent 500,000 decrease
and 6,500 ordinary shares as payment of bonds with face amount of 1,000,000 with bond Deferred tax Asset 150,000 increase
discount of P80,000 and interest of P60,000. The fair value of the bonds at the time of Investment in Associate (non-cash) 450,000 increase
issuance was quoted at 102. Dividends of P1,180,000 was paid in cash during the year. Accounts Payable 700,000 decrease
The entity borrowed P2,000,000 from the bank and paid off note of P1,000,000 and Note Payable – Bank 1,200,000 increase
interest of P90,000. The bank loan is unpaid at year-end. 5. What is the net cash provided by operating activities?
Interest payable at year-end was P240,000 and at the beginning of the year was P70,000. 6. What is the cash balance on December 31?
Equipment with fair value of P380,000 was donated by a shareholder during the year.
What is the net income for the current year?
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On January 1, 2019 the entity purchased 25 units of automobiles by issuing a note requiring What is the profit / (loss) to be reported in the 2020 income statement?
six instalments of P5,000,000 payable every January 1 beginning January 1, 2019. The
prevailing market rate of interest for such note is 10%. (Use two decimal places only) 12. Sunspear Company provided the following statement of financial position accounts on
3 of the units will be used as service vehicles of the employees and the remaining as December 31, 2019 based on historical cost:
inventory. The useful life of the service vehicle is 8 years. During the year, the entity sold 18
units at P 1,450,000 per unit. The general price index had moved on December 31 of each year: 2015-100, 2016-130, 2017-
The current replacement cost of the automobiles at year-end is P 1,090,000 per unit. 150, 2018-180, and 2019-200.
7. What is the realized holding gain to be reported for 2019? The land was revalued on December 31, 2017. The noncurrent liabilities were loans raised on
8. What is the unrealized holding gain to be reported for 2019? December 31, 2018.
What is the balance of retained earnings after adjusting for hyperinflation?
Regency Company reported net income for 2018 and 2019 at P350,000 and P540,000
respectively. The entity has a deficit of P120,000 on January 1, 2018. The audit disclosed the
needs of adjustments as follows:
2018 2019
Understatement of ending inventory 29,000 33,000 13. Howard Company provided the following
Jan 1 Dec 31
Omission of depreciation on newly acquired equipment 25,000 25,000 data for the current year: Cash Sales 2,320,000
Overstatement of commission receivable 22,000 18,000 Sales on Account 950,000
Overstated Accrued Salaries 24,000 16,000 On July 1 of the current year, an Cash purchases 1,640,000
A purchase of merchandise was not recorded until the equipment was acquired for P200,000. Credit Purchases 460,000
following year, but included in the year’s inventory 60,000 40,000 The terms are P50,000 down and the Expenses Paid 750,000
9. What is the adjusted net income for 2019? balance to be paid after one year. The Interest Received 80,000
Accounts Receivable 280,000 415,000
10. What is the retained earnings balance at the end of 2019? useful life of the equipment is 10 years
Accounts Payable 275,000 180,000
with no residual value.
Interest Receivable 10,000 25,000
What is the net income (loss) under Inventory 540,000 730,000
11. Mayer Company kept the records on a cash basis. At the end of 2020, the accountant accrual basis? Accrued Expenses 48,000
prepared the following cash basis income statement. Prepaid Expenses 36,000
REVENUE 2019 2020 Equipment 80,000 100,000
Cash Accrued Revenue 73,000 288,000
91,000
1,910,000
Prepaid
Accounts Revenue
Receivable 108,000 436,000
66,000
EXPENSES Accrued Expenses 65,000 49,000
Inventory 475,000
1,460,000 Prepaid Expenses 56,000 46,000
Land - acquired Jan 1, 2016 825,000
PROFIT 450,000
Building - acquired Jan 1, 2016 1,600,000
The following accrued and prepaid
Accum. Depreciation - BLDG 400,000 Frozen company provided the following share transactions for the current year:
amounts were ignored at the end of
Equipment - acquired Jan 1, 2017 975,000 January 1 Shares Outstanding 44,000
2019 and 2020:
Accum. Depreciation - EQPT 325,000 February 28 Issued for cash 12,000
Share Capital - issued Jan 1, 2016 1,250,000 April 1 Share Split 2 for 1
Noncurrent Liabilities 640,000
Current Liabilities 890,000 SET D Page 2 of 7
Retained Earnings 794,000
Revaluation Surplus 300,000
 Apr 30 Acquired Treasury Shares 24,000 were issued for each bond. Accrued interest on the bonds were recognized and paid on that
June 30 Issuance for land 28,000 date, The net income for the year was P2,000,000. The income tax rate is 30%.
August 15 25% Share Dividend 17. What amount should be reported as basic earnings per share?
September 1 Reissued Treasury Shares 18,000 18. What amount should be reported as diluted earnings per share?
November 1 Split Down 4 to 1
The comprehensive income for the year amounted to P2,481,275 which includes the
following:
Share of profit of associate 108,750 On January 1, 2019, Strange Karma Company provided the following information which were
Revaluation surplus 450,000 acquired in lump-sum by issuing bonds and shares amounting to P11,000,000 on July 1, 2017:
Unrealized Gain on financial asset – FVPL 205,700 Land 2,400,000
Unrealized loss on equity investment – FVOCI 341,250 Equipment, net 4,250,000
Income from discontinued operations 480,700 Furniture & Fixtures, net 3,150,000
Unrealized Gain on debt investment – FVOCI 264,750 There were no additions or disposals since July 1, 2017. The useful life of the equipment is 10
Loss on Purchase Commitment 188,250 years and the furniture is 12 years both with no salvage value. On June 30, 2019, the entity
Translation loss on foreign operation 103,400 decided to initially adopt the policy to carry assets at revalued amount. On this date, the
Impairment loss on goodwill 412,600 replacement cost of land is P2,800,000 and equipment P5,800,000. The sound value of the
Remeasurement Gain on Defined Benefit Plan 306,800 furniture and Fixtures is P3,300,000. The income tax rate is 30%. The entity recognized a
14. What amount should be reported as basic earnings per share? deferred tax liability on revaluation date.
15. What is the number of outstanding shares at the end of the year? On July 1, 2019 after revaluation date, the entity change the depreciation method. 200%
declining balance for the equipment and SYD for the furniture. Piecemeal realization of
16. Affable company purchased an equipment for P4,000,000 on January 1, 2017. The revaluation surplus is simply straight line.
equipment had a useful life of 6 years with residual value of P400,000. On April 1, 2020, the land was classified as held for sale. The fair value of the land is
On May 1, 2019, the entity classified the equipment as held for sale. On such date, the P2,600,000 and the cost of disposal is P80,000. On December 31, the fair value of the land is
fair value cost less of disposal of the equipment was P2,620,000. P2,670,000 and cost of disposal is P60,000. The land was sold on January 31, 2021 at
On December 31, 2019, the entity believed that the criteria for classification as held for P2,595,000.
sale can no longer be met. Accordingly, the entity decided not to sell the equipment but
to continue to use it. On this date, the fair value less cost of disposal of the equipment 19. What is the balance of revaluation surplus on December 31, 2019?
was P2,160,000. 20. What is the carrying amount of the property, plant and equipment on December 31,
What amount should be included in profit or loss in 2019 as a result of the reclassification 2019?
of the equipment from PPE to held for sale and held for sale to PPE? 21. What is the balance of accumulated depreciation on December 31, 2020?
22. What amount should be recognized as gain due to the increase of fair value less cost of
disposal of land on Dec 31, 2020?

On January 1, 2019 Costello Company had 200,000 ordinary shares outstanding. On Apr 1,
2019, the entity issued 60,000 ordinary shares and 9,000 9% convertible bonds with face
amount of P1,000. 6,000 bonds were converted on October 1, 2019 and 10 ordinary shares
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23. Sheldon Company began operations on January 1, 2018. The entity reported sales Income tax rate: The income tax rate was 32% ever since the entity began preparing
revenue in the income statement of P4,600,000 for 2019 and P3,200,000 for 2018. Interim Financial Reports. During 2020, a new tax law was enacted and published on
The entity wrote off uncollectible accounts totalling P50,000 and paid suppliers 2,900,000 January 15, 2020.
during 2019 and reported the following balances:
Dec 31 Jan 1 24. GROSS PROFIT – Quarter 3
Accounts Receivable 1,000,000 1,300,000 25. BONUS –Quarter 4
Accounts Payable 1,200,000 1,500,000 26. Income Tax Expense – Quarter 3
Allowance for uncollectible accounts 90,000 60,000 27. Profit before Tax – Year – end
Advances from customers 300,000 200,000
Inventory 2,100,000 1,800,000
What is the gross profit under cash basis? Statute Company reported the following current assets at December 31, 2018:
Cash and Cash Equivalent 15,356,000
The following information relates to the year ended March 31, 2020 Receivables 4,926,000
 Total Sales for the year was P 7,500,000. Earnings for each quarter were 20%, 25%, Inventory 6,315,000
30%, and 25% respectively. TOTAL CURRENT ASSETS 26,597,000
 Purchases every quarter were P420,000, P560,000, P750,000, and P680,000.
Information with respect to the cash and cash equivalents on December 31, 2018.
INVENTORY Mar 31, 2019 Jun 30, 2019 Sep 30, 2019 Dec 31, 2019 Mar 31, 2020 Cash in Bank
@ COST 260,000 240,000 180,000 240,000 280,000 Checking account @ Primary Bank- #01 (100,000)
 V a r i a b l e o p e r a ti
Checking account @ Primary Bank - #02n g e x
2,500,000 p e
@ NRV 240,000 210,000 190,000 235,000 270,000
Time Deposit @ Primary Bank for plant expansion 1,200,000
while fixed operating expenses of P 1,000,000 are allocated equally. Foreign Bank Account-unrestricted 2,100,000
 The allowance for doubtful accounts on April 1, 2019 was P18,500. Doubtful accounts Payroll account @ Secondary Bank 800,000
expense were estimated at 3% of sales. At the end of the year, the entity determined Time Deposit @ Secondary Bank, matures June 30, 2019,
that allowance based on outstanding accounts was P120,000. Write-offs during the acquired September 30, 2016 500,000
year amounted to P70,000.
Cash on Hand
 Unanticipated costs include: Repairs of P64,000 made on May 31,2019 and
Currency and coins 125,000
Advertising costs of P46,000 were incurred on August 1, 2019.
Value added tax fund 284,000
 Staff bonuses are paid at the end of the year. It was based on 8% of sales in excess of
Sinking Fund Cash 1,200,000
P5,500,000. At the end of the first quarter, total sales at the end of the year is Travellers check 330,000
estimated at P5,250,000. At the end of the second quarter, total sales at the end of Not-sufficient-fund check 155,000
the year is estimated at P7,000,000. No change of estimate was made at the end of Cash Surrender Value 150,000
the second quarter but No change of estimate was made at the end of the third Long-Term Refundable Deposit 100,000
quarter it was estimated that total sales for year will only be P5,800,000. Postage stamps 22,000
IOUs from employees 440,000
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 28. What amount should be reported as inventory at year-end?
Cash Equivalents 29. What amount total should be reported as Short-Term Investments and net accounts
Money Market Instrument 180,000 receivables?
Money Orders 450,000 30. What amount of current assets should be reported at year-end?
Treasury Bills, matures Feb 1, 2019, acquired Oct 1, 2018 620,000
Treasury Shares @ cost 1,000,000
Investment in Shares @ Fair Value through profit or loss 500,000 The shareholders’ equity 6% Preference Share Capital, P200, par 1,600,000
Investment in Shares @ Cost 600,000 section of Defenders’ Ordinary Share Capital, P50 par 4,000,000
Investment in Bonds @ Amortized Cost 2,200,000 Corporation on December 31, Retained Earnings 2,450,000
An examination of the Receivables revealed the following: 2018: Reserves 1,605,000
Trade accounts, net of customer’s account with credit balance of 50,000 1,532,000 Treasury Shares, @ cost P60 (240,000)
Allowance for doubtful accounts (280,000)
Advances to suppliers 284,000 Information with regards to the transactions affecting shareholders’ equity during 2019:
Advances to Officers, not currently collectible 850,000
Advances to affiliated entities 750,000 1. The profit before adjustments was P2,456,200. Info #2-13 were not included in the
Subscription Receivables – not currently collectible 420,000 determination of profit before adjustments unless clearly stated.
Claim against shipper for goods lost in transit 850,000 2. Issuance of share capital include the following:
Selling price of unsold goods sent out on consignment at 130% of cost 520,000 a. For cash, 20,000 ordinary shares @ P60 per share and 1,000 preference
Total Receivables 4,826,000 shares @ P240 per share.
Inventory data at year end: b. In exchange for land with a fair value of P1,960,000, 5,000 preference shares
Items counted in the bodega 2,365,000 and 15,000 ordinary shares. (market value of shares in issuance “2a”)
Items in receiving department, refused by us because of damage 460,000 3. Received a donation of two different lots (Land) with no consideration and
Items on counter for sale at selling price (20% Profit on sales) 600,000 restrictions.
Items not included in the count specifically segregated per sales contract a. Lot 1 (Land) from a shareholder with fair value of P1,018,000
already paid by the customer 560,000 b. Lot 2 (Land) from a nonshareholder with fair value of P1,250,000
Items in transit, purchased FOB Shipping Point, invoice not yet received 400,000 4. Included in the Reserves section is Share Premium of P600,000 at the beginning of the
Items ordered, invoice received but goods not received. Freight is paid by seller 480,000 year. This includes both ordinary and preference shares issuance only. All
Items shipped today, invoice mailed, FOB shipping point. 650,000 outstanding preference shares for 2018 were originally issued for P225 per share.
Items in transit, sold FOB Destination at cost (20% Profit on sales) Share premium in relation to treasury shares and donated capital will only be
no invoice made as of year end 800,000 recorded during the year.
Total Inventory 6,415,000 5. Treasury Shares
Items in the bodega included in the count, a. 1,000 treasury shares @ P60 were reissued @ P64 and another 1,000 shares
Damaged and unsalable 250,000 were retired.
For administrative use 350,000 b. A new class of 5,000 shares were reacquired @ P55 per share during the year.
On consignment at selling price included in the count 1,000 of these shares were reissued @ P50 per share and another 2,000
at cost (40% profit on sales) 700,000 shares were reissued @ P60 per share.

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6. A cash dividend was declared at the end of the year giving outstanding ordinary d. Fair value option were applied to the 600 Nelson Bonds with face amount of
shareholders P5 per share. P1,000 per bond.
7. The reserves section at the beginning of the year contains only a legal appropriation. e. The 50,000 shares of 200,000 issued Murdock shares were acquired on
During the year a contractual appropriation was made for the P500,000 sinking fund. January 1, 2018. The acquisition cost equals the fair value of the Murdock
Also, the entity create a policy to appropriate for contingencies of P400,000. Corp net assets. Murdock Corp declared dividends were P1,200,000 in 2018
8. On January 1, 2018 a revaluation was made for the land and building. On December and P1,400,000 in 2019.
31, 2018, the revaluation surplus account has a P940,000 balance of which P400,000 f. The 5,000 Jones Shares were irrevocably designated at fair value through OCI.
was attributable to the land. The building at the date of revaluation had a remaining 3,000 shares were sold on October 1, 2019.
life of 10 years. The revalued land was classified as held for sale on June 30, 2019. 11. There was a translation loss (debit) of P40,000 during 2018 and a translation gain
The fair value of the land was P2,500,00 and cost of disposal was P100,000. On (credit) of P20,000 during 2019.
November 30, 2019, the land was sold for P2,600,000. 12. The entity entered into three contracts to purchase a
9. The OCI reserves include a P100,000 remeasurement gain from a defined benefit commodity that is a part of its inventory. Each contract MARKET VALUE
plan. The fair value of the plan assets was P1,250,000 and projected benefit were made on November 1, 2018 to purchase 10,000 Nov 1, 2018 96
obligation was P1,600,000 at the beginning of the year. During the year, benefits of kilos @ P100 per kilo on different dates. The market Dec 31, 2018 102
P250,000 were paid to the retirees and P454,000 were contributed to the plan. At value of the commodity were: Mar 31, 2019 98
the end of the year, it was determined that the current service cost is P234,000, a. A futures contract designated as cash flow Sep 30, 2019 97
actual return on plan assets of P240,000 and an increase in PBO due to actuarial hedge to purchase on March 31, 2020. (ignore Dec 31, 2019 96
assumptions of P200,000. The discount rate is 8%. time value of money)
10. The investment portfolio of Defenders’ Corporation b. A noncancellable commitment to purchase on March 31, 2019.
c. An option to purchase on September 30, 2019. P15,000 was paid on the
INVESTMENTS Jan 1, 2018 Dec 31, 2018 Dec 31, 2019
Rand Shares 500,000 450,000 240,000 option contract which was designated as cash flow hedge.
Cage Shares 480,000 480,000 288,000 NOTE: Purchases made were already included in determination of profit before
Castle Bonds 320,000 330,000 350,000 adjustments.
Nelson Bonds 630,000 642,000 612,000
Murdock Shares 2,400,000 2,350,000 2,450,000 13. On Sept 1, 2019, the entity approved a formal plan to sell a business segment. The
Jones Shares 840,000 780,000 300,000 sale will occur early next year 2018 2019
a. The 2,000 Rand shares by requirement is classified as fair value through profit for an estimated amount of NET SALES 760,000 824,000
or loss. 1,000 of these shares were sold on August 31, 2019 for P260 per P1,200,000. The only INVENTORY - beginning 126,000
share. warehouse of the segment was PURCHASES 645,000 418,000
destroyed by fire. All of its FREIGHT IN 34,000 22,000
b. The 16,000 Cage shares @P20 par value are unquoted equity instruments.
inventory were destroyed. The INVENTORY - ending 235,000
On April 1, 2019 Cage declared a 25% share dividend which were issued
before the end of the month. On June 30, 2019, Cage declared a P2 per share following information were OPERATING EXPENSES 165,000 154,000

cash dividend. 8,000 of these shares were sold on December 1, 2019 @ P32 provided by the discontinued
per share. segment:
c. Castle Bonds were measured at fair value through other comprehensive On December 31, 2019, the carrying amount of the remaining assets of the segment
income. (amortization is already included in the profit before adjustments) was P1,280,000 and fair value less cost of disposal was P1,140,000. During 2019, the
SET D Page 6 of 7
 entity paid employee termination costs of P195,000 as a direct result of the
discontinued segment.
HINT: Determine first the components of RESERVES at the beginning of the year. While doing so, break
each information by amounts, number of shares, computation and even the concepts. If possible,
provide journal entries separately.

5 QUESTIIONS for these problem and to be provided after three hours.

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