I. Cash and Cash Equivalents – Theories and Problems
1. Which of the following statements about cash equivalents is true?
a. Cash equivalents include t
... [Show More] reasury bills, money market instruments, equity securities, commercial papers, and preference share with a specified redemption date
b. It presents an insignificant risk of changes in value because of the changes in inflation rate
c. Investments that have a maturity of 90 days or less is considered as a cash equivalent
d. It is shown on the top line of the balance sheet since it is the most common assets
2. Which of the following accounts is credited every time a petty cash disbursement is replenished?
a. Petty Cash Fund
b. Cash in Bank
c. Various Expense Accounts
d. Miscellaneous Fund
3. What is the reconciling entry in the depositor’s book to record outstanding check?
a. Debit Cash in Bank, Credit Accounts Receivable
b. Debit Accounts Payable, Credit Cash in Bank
c. Debit Cash in Bank, Credit Accounts Payable
d. No entry
4. On December 31, 2020, ABC Company reported a cash balance amounting to 6,747,040 which includes the following accounts
Cash in bank – savings account 1,285,000
Cash in bank – sinking fund 1,003,910
Cash in bank – restricted for building renovation 3,220,000
Cash in Foreign Currency (in equivalent peso) – restricted for expansion 1,145,800
Cash on hand 25,770
Petty Cash Fund 10,960
Commercial paper, due on August 9, 2021 55,600
Total cash and cash equivalents 6,747,040
• The cash on hand includes a customer check amounting to 7,000 payable to Smith dated January 11, 2021
• The petty cash fund includes unreplenished December 2020 petty cash vouchers amounting to 3,500.
• The sinking fund is set aside to settle a bond payable that is due on April 1, 2021.
What is amount should be reported as cash and cash equivalents on December 31, 2021?
a. 2,315,140
b. 2,325,640
c. 2,318,640
d. 5,535,140
Solution:
Cash in bank – savings account 1,285,000
Cash in bank – sinking fund 1,003,910
Cash on hand (25,770 – 7,000) 18,770
Petty Cash Fund (10,960 – 3,500) 7,460
Total cash and cash equivalents 2,315,140
5. The following information is the petty cash fund of ABC Inc. on December 31, 2020
Coins and Currencies 10,580
Vouchers
Supplies 800
Meal allowance 1,200
Gasoline 1,000
Employee’s check marked as NSF check 3,200
Check drawn representing the salary of petty cash custodian 22,500
Envelope with the names of employee that contributed for the bereaved family of an employee 1,000
If the petty cash ledger has the imprest balance of 40,000, how much is the cash shortage or overage?
a. Shortage of 720
b. Overage of 420
c. Shortage of 420
d. Overage of 720
Solution:
Coins and currencies 10,580
Salary of petty cash custodian 22,500
Total petty cash 33,080
Adjusting entry:
Expenses 3,000
Advances to employee 3,200
Cash shortage (squeezed) 720
Petty Cash Fund 6,920
6. ABC Corporation has the following information from their books on October 30:
Balance per bank 12,500
Receipts recorded but not deposited 5,500
Check printing charge 120
Notes collected by the bank 3,200
Outstanding check 2,000
NSF check 500
Compute for the cash balance per book on October 30 before any reconciliation adjustments
a. 12,920
b. 10,420
c. 14,920
d. 13,420
Solution:
Balance per bank 12,500
Receipts recorded but not deposited 5,500
Unrecorded check printing charge 120
Notes collected by the bank and not recorded by the book (3,200)
Outstanding check (2,000)
Unrecorded and undeposited NSF check 500
Cash balance per book on October 30 13,420
II. Receivables – Theories and Problems
1. Which of the following statements is true about receivables?
a. The subsequent measurement of long-term receivables is fair market value plus transactions costs
b. All note receivables explicitly contain interest rates that are important for future computations
c. A trade receivable may not be discounted if its due within one year
d. Present value of the receivables may be measured in relation to the fair value of the asset given up in exchange for the receivable
2. ABC company received a 9% note dated June 1, 2021. Principal and interest on the note are due on December 1, 2021. On the initial recognition, which of the following accounts increased?
a. Prepaid interest
b. Interest revenue
c. Interest receivable
d. Unearned interest income
3. If the credit risk has increased in a rebuttable presumption since the initial recognition when the payments are past due for _________
a. More than 60 days
b. More than 30 days
c. More than 120 days
d. More than 90 days
4. ABC corporation started its operations on January 1, 2017. The entity estimated the doubtful accounts based on 3.8% of annual credit sales in the prior years. On January 1, 2020, the entity decided to change the method of estimating the doubtful accounts using aging of receivables.
Days account outstanding Amount Probability of Collection
30 days or less 1,205,000 95%
31 – 60 days 865,000 80%
61 – 180 days 320,000 75%
181 – 365 days 82,900 50%
Over 365 days 24,600 0%
What amount should be reported as allowance for doubtful accounts on December 31, 2020?
a. 354,700
b. 254,700
c. 330,100
d. 230,100
Solution:
30 days or less (1,205,000 x 0.05) 60,250
31 – 60 days (865,000 x 0.2) 173,000
61 – 180 days (320,000 x 0.25) 80,000
181 – 365 days (82,900 x 0.5) 41,450
Allowance for doubtful accounts – December 31, 2020 354,700
5. On December 31, 2018, ABC company sold a factory machine with the carrying amount of 3,000,000 in exchange for a non-interest-bearing note of 6,000,000 requiring ten annual payments of 600,000. The first payment was made on December 31, 2019. The note has a market interest of 12%. The present value of an annuity of 1 at 12% is 5.65 for ten periods and 5.33 for nine periods.
What amount should be recognized as interest income for 2020?
a. 191,880
b. 406,800
c. 383,760
d. 203,400
Solution:
Sale price (600,000 x 5.65) 3,390,000
Market interest 0.12
Interest income for 2020 406,800
6. ABC Bank provide a loan of 3,000,000 to Thunderous Inc. on January 1, 2016. The loan requires principal payment 600,000 for five years plus interest of 8%. The payment of principal will begin on January 1, 2017. However, during 2018, Thunderous Inc. began to experience unexpected loss due to a natural disaster that interfered with their normal operations. ABC Bank started to re-assess the collectability of the loan. On December 31, 2018, it is determined that the principal payment will still be collected but the interest is unlikely.
The present value of 1 at 8%:
1 period 0.93
2 periods 0.86
3 period 0.79
What is the impairment loss for 2019?
a. 126,000
b. 1,548,000
c. 1,674,000
d. 252,000
Solution:
January 1, 2019 (600,000 x 1.00) 600,000
January 1, 2020 (600,000 x 0.93) 558,000
January 1, 2021 (600,000 x 0.86) 516,000
Total present value of the loan 1,674,000
Loan receivable 1,800,000
Present value of loan 1,674,000
Impairment loss 126,000
III. Inventories – Theories and Problems
1. Which of the following statements is true about inventories?
a. Goods in transit that are purchased in FOB destination point are included in the inventories of the buyer
b. Inventories are classified as intangible assets in the financial position
c. Estimating inventories is not allowed in computing for inventory
d. Inventory shortage is charged to cost of goods sold if it is considered as normal spoilage
2. The year-end report of ABC Corp. shows an understated merchandise inventory, this will affect _________ to be understated.
a. Cost of merchandise sold
b. Gross income
c. Cash
d. Accounts payable
3. Which of the following results to a write-down recognized as loss?
a. If the amount of the reversal exceeds the previous write down
b. If it arises from abnormal loss
c. If the amount of write-down exceeds net realizable value
d. If it arises from significant gain
4. ABC ’s Furniture provided the following information at the end of 2017
Finished goods in storeroom, including overhead of 480,000 3,200,000
Finished goods in transit, including freight charge of 40,000, FOB shipping point 500,000
Finished goods held by salesmen 200,000
Goods in process, at cost of materials and direct labor 520,000
Materials 1,300,000
Materials in transit, FOB destination point 1,015,000
Defective materials 13,000
Shipping supplies 265,000
What is the correct amount of inventory for the year 2017?
a. 6,643,000
b. 6,235,000
c. 5,350,000
d. 5,220,000
Solution:
Finished goods in storeroom, including overhead of 480,000 3,200,000
Finished goods held by salesmen 200,000
Goods in process, at cost of materials and direct labor 650,000
Materials 1,300,000
Total inventory 5,350,000
Goods in process 100%
Less: overhead (480,000/3,200,000) 20%
Goods in process excluding overhead 80%
Cost of goods in process (520,000/80%) 650,000
5. ABC’s Paper Company reported the following information on their raw material inventory during the month of January
Units
Date Received Cost Issued On Hand
1/1 Inventory 120 3,000
1/16 Purchase 2,000 1,000
1/28 Issue 4,000 160 5,000
What is the moving average unit cost of the inventory on January 31?
a. 140
b. 122
c. 160
d. 152
Solution:
Units Unit cost Total cost
January
1 3,000 120 360,000
16 (2,000) 120 240,000
1,000 120 120,000
28 4,000 160 640,000
5,000 152 760,000
(760,000/5,000) = 152
6. ABC’s Glass Factory has the following data at year end when they decided to conduct a physical inventory count: 5,800,700 of two-way mirrors with a replacement cost of 3,200,000. The factory is using first-in, first-out method to account for inventory. Afterwards, the Tan’s Glass Factory determined that two-way mirrors with the processing cost of 2,816,000 can be sold to the market for 9,262,000. Using the measurement at the lower cost and net realizable value, what is the correct amount of inventory to be reported at year end?
a. 1,000,700
b. 3,200,000
c. 5,800,700
d. 6,446,000
Solution:
Estimated sales price 9,262,000
Processing cost (2,816,000)
Net realizable value 6,446,000
FIFO cost 5,800,700
Net realizable value 6,446,000
FIFO cost < NRV
If the FIFO cost is lower than NRV, the FIFO will be the reported inventory cost at year end.
IV. Biological Assets – Theories and Problems
1. Which of the following statements is true about biological assets?
a. The measurement for biological assets differs initially and subsequently
b. An example of a biological assets is living animal, plants, and the land used for agricultural activity
c. The accounting treatment and disclosure for agricultural activity is prescribed in PAS 41
d. There are two types of biological assets: consumable and non-consumable
2. The following are additional required disclosure of biological assets if the fair value is not measured reliably except one:
a. Explanation why it is not measured reliably
b. Carrying amount of the biological assets less cost incurred to purchase and deliver
c. Accumulated depreciation and depreciation method used
d. Range in which the fair value is likely to lie
3. Which of the following is not a biological asset?
a. Tobacco plant
b. Sugarcane
c. Oil palm
d. Livestock for sale
4. ABC Farm and Livestock has the following information in their second year of operation: biological assets at acquisition cost on December 31, 2020, amounting to 750,000, fair value on initial recognition amounting to 820,000 on December 31, 2021. Changes in fair value happened on December 31, 2021 amounting to 135,000 and the fair value decreased due to lack of harvestable goods in 2021. It was determined that the cost of the decrease is 17% of the change in fair value. As of December 31, 2021, what is the carrying amount of the biological assets of ABC Farm and Livestock?
a. 1,412,050
b. 1,347,050
c. 1,167,050
d. 1,225,050
Solution:
Acquisition cost 750,000
Initial recognition of fair value 820,000
Change in fair value (135,000)
Decrease in fair value (135,000 x 0.17) (22,950)
Carrying amount 1,412,050
5. ABC Co. purchased a land in January 2017 to plant fruit trees. At time of purchase, the cost of the land is 3,540,000. After two years, the fruit trees had accumulated cost of 960,000. By 2020, it was expected to mature and bear fruits for 12 years. On December 31, 2020, when the trees produced fruits, the fair value is 146,000 with the cost of disposal of 74,500.
What is the carrying amount of property, plant, and equipment and the biological assets of Dionysus Co. on December 31, 2020?
a. 3,540,000 and 71,500
b. 4,420,000 and 71,500
c. 3,540,000 and 74,500
d. 4,420,000 and 74,500
Solution:
Plants – fruit trees 960,000
Depreciation (960,000/12) (80,000)
Carrying amount of plants 880,000
Land 3,540,000
Total property, plant, and equipment 4,420,000
Fair value 146,000
Cost of disposal (74,500)
Total biological assets 71,500
6. Based on the previous problem, what is the recognized gain in the change of fair value of the biological assets if the harvested fruits in 2021 cost 263,000 with the cost of the disposal that is 20% greater than 2020.
a. 102,000
b. 117,000
c. 117,100
d. 102,100
Solution:
Fair value – 2020 146,000
Less: cost of disposal - 2020 (74,500)
Total fair value 71,500
Fair value – 2021 263,000
Less: cost of disposal - 2021 (89,400)
Total fair value 173,600
Fair value – 2021 173,600
Fair value – 2020 71,500
Gain from change 102,100
V. Property, Plant, and Equipment – Theories and Problems
1. Which of the following statements is true about PPE?
a. All types of land and buildings are PPE
b. Biological assets such as bearer plants are PPE
c. Cost in measuring PPE consists of purchase price, direct and indirect costs, restoration cost, and maintenance cost
d. PPE are only acquired through cash and installment basis
2. The following are events that cause depreciation of an asset to stop except:
a. When it is disposed
b. When it is fully depreciated
c. When it is held for sale
d. When it is deemed by the management
3. According to PAS 16, the required review of depreciation method and estimated useful life of an PPE is every _____________
a. Month
b. Six months
c. Year
d. Two years
4. ABC Co. bought two fishing vessels in 2019. The first vessel was a new model amounting to 2,563,250. It was subjected to a cash discount of 2% which ABC Co. confidently accepted. Other costs to acquire the first vessel was also determined, the freight and installation cost is 32% of the original price of the first vessel.
The second vessel was a secondhand model bought from Sope Fishing Co. which offered 3.2% cash discount. However, ABC Co. did not take the discount and paid full price which amounts to 1,691,450. The cost of freight and installation is 15% of the original price.
How much is the total increase of equipment account after the series of purchase of fishing vessel? (Round off the answer)
a. 5,018,207
b. 4,124,156
c. 5,002,700
d. 4,254,718
Solution:
First fishing vessel
Invoice price 2,563,250
Discount (2%) (51,265)
Freight and installation (22%) (2,563,250 x 0.22) 563,915 3,127,165
Second fishing vessel
Invoice price 1,691,450
Discount (3.2%) (54,126)
Freight and installation (15%) (1,691,450 x 0.15) 253,718 1,891,042
3,127,165 + 1,891,042 = 5,018,207
5. On September 30, 2021, ABC Lab bought a dispersing machine for 5,350,000. It has an estimated useful life of 10 years with no residual value. The main drive of the machine needs to replace every five years. The cost of the main drive is 1,460,000 and it is included in the invoice price of the machine. Using straight-line method of depreciation, what amount of depreciation should be recorded on December 31, 2021?
a. 133,750
b. 827,000
c. 206,750
d. 73,000
Solution:
Depreciation – dispersing machine (5,350,000/10 x 3/12) 133,750
Depreciation main drive (1,460,000/5 x 3/12) 73,000
Total depreciation 206,750
6. ABC Inc. provided the following information for vehicular equipment:
Equipment cost – truck 3,653,000
Estimated useful life – years 7
Estimated useful life – miles 100,000
Residual value 500,000
Actual miles driven
2021 30,000
2020 28,000
2019 27,500
Using the double declining balance method, what is the accumulated depreciation on December 31, 2020?
a. 745,487.83
b. 1,789,149.93
c. 1,043,662.10
d. 641,125.93
Solution:
Straight line rate (100% / 7) 14.29%
Fixed rate (14.85% x 2) 28.57%
Depreciation - 2019 (3,653,000 x 0.2857) 1,043,662.10
Depreciation - 2020 (2,609,337.90 x 0.2857) 745,487.83
Accumulated depreciation - 2020 1,789,149.93 [Show Less]