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The following trial balance of an entity on December 31, 2018 has been adjusted except for income tax
expense.
Cash 6,000,000
Accounts receivable 14,000,000
Inventory 10,000,000
Property, plant and equipment 25,000,000
Accounts payable 9,000,000
Income tax payable 6,000,000
Preference share capital 3,000,000
Ordinary share capital 15,000,000
Share premium 4,000,000
Retained earnings – January 1 9,000,000
Net sales and other revenue 80,000,000
Cost of goods sold 48,000,000
Expenses 12,000,000
Income tax expense 11,000,000 __________
126,000,000 126,000,000
During the year, estimated tax payments of P5,000,000 were charged to income tax expense. The tax
rate is 30% on all types of revenue. Inventory and accounts payable included goods purchased in
transit, FOB destination, costing P500,000, and unsold goods held on consignment at year-end, costing
P300,000. The perpetual system is used. The preference share capital is redeemable mandatorily on
December 31, 2019.
4. What amount should be reported as total shareholders’ equity on December 31, 2018?
a. 40,000,000
b. 37,000,000
c. 45,000,000
d. 42,000,000
Page 2
SOLUTION - PROBLEM 1
Question 1 Answer A
Cash 6,000,000
Accounts receivable 14,000,000
Inventory (10,000,000 - 500,000 - 300,000) 9,200,000
Total current assets 29,200,000
Question 2 Answer C
Question 3 Answer B
Question 4 Answer D
An entity acquired 40% of another entity’s shares on January 1, 2018 for P15,000,000. The investee’s
assets and liabilities at that date were as follows:
The plant and equipment have a 10-year remaining useful life. The inventory was all sold in 2018. The
entity sold the land in 2019 for P8,000,000 and reported a gain of P2,500,000.
The investee reported net income of P3,000,000 for 2018 and P5,000,000 for 2019. The investee paid
P1,000,000 cash dividend on December 31, 2018 and P2,000,000 on December 31, 2019.
4. What is the carrying amount of the investment in associate on December 31, 2019?
a. 15,360,000
b. 15,000,000
c. 16,560,000
d. 13,800,000
Page 4
SOLUTION – PROBLEM 2
Question 1 Answer B
Cash 1,000,000
Accounts receivable 4,000,000
Inventory 8,000,000
Land 5,500,000
Plant and equipment 14,000,000
Liabilities ( 7,000,000)
Net assets at carrying amount 25,500,000
Question 2 Answer B
Question 3 Answer A
Question 4 Answer A
Page 5
The business model for this investment is to collect contractual cash flows and sell the bonds in the
open market. On December 31, 2018, the bonds were quoted at 106.
2. What is the adjusted carrying amount of the investment on December 31, 2018?
a. 5,300,000
b. 5,171,940
c. 5,174,560
d. 5,000,000
3. What amount should be recognized in OCI in the statement of comprehensive income for 2018?
a. 300,000
b. 125,440
c. 128,060
d. 92,000
4. If the entity elected the fair value option, what total amount of income should be recognized for
2018?
a. 400,000
b. 492,000
c. 600,000
d. 200,000
Page 6
SOLUTION - PROBLEM 3
Question 1 Answer D
Question 2 Answer A
Question 3 Answer C
Question 4 Answer C
An entity had the following financial statement elements for which the December 31, 2018 carrying
amount is different from the December 31, 2018 tax basis:
The difference between the carrying amount and tax basis of the equipment is due to accelerated
depreciation for tax purposes.
The accrued liability is the estimated health care cost that was recognized as expense in 2018 but
deductible for tax purposes when actually paid.
In January 2018, the entity incurred P3,000,000 of computer software cost. Considering the technical
feasibility of the project, this cost was capitalized and amortized over 3 years for accounting purposes.
However, the total amount was expensed in 2018 for tax purposes.
The pretax accounting income for 2018 is P15,000,000. The income tax rate is 30% and there are no
deferred taxes on January 1, 2018.
3. What amount should be reported as deferred tax liability on December 31, 2018?
a. 1,050,000
b. 1,200,000
c. 900,000
d. 150,000
4. What amount should be reported as deferred tax asset on December 31, 2018?
.
a. 750,000
b. 600,000
c. 150,000
d. 0
Page 8
SOLUTION – PROBLEM 4
Question 1 Answer B
Question 2 Answer A
Question 3 Answer A
Question 4 Answer C
Page 10
SOLUTION - PROBLEM 5
Question 1 Answer A
Question 2 Answer C
Question 3 Answer D
Question 5 Answer A
Page 11
An entity is a dealer in equipment and uses leases to facilitate the sale of its product. The entity expects
a 12% return. At the end of the lease term, the equipment will revert to the lessor.
a. 7,800,000
b. 7,200,000
c. 6,600,000
d. 6,900,000
5. What amount of cost of goods sold should be recognized in recording the lease?
a. 3,260,000
b. 3,500,000
c. 3,740,000
d. 3,460,000
Page 12
SOLUTION – PROBLEM 6
Question 1 Answer A
Question 2 Answer B
Question 3 Answer C
Question 4 Answer D
Question 5 Answer D
Page 13
Page 14
SOLUTION – PROBLEM 7
Question 1 Answer C
Question 3 Answer A
Proof
Total sales were P12,000,000 for 2019 and P11,000,000 for 2018. Cash sales were 20% of total
sales each year. Cost of goods sold was P8,400,000 for 2019.
Variable expenses for 2019 amounted to P1,200,000 and varied in proportion to sales. Variable
expenses had been paid 50% in the year incurred and 50% the following year.
Fixed expenses, including P350,000 depreciation and P50,000 bad debt expense, totaled
P1,000,000 each year. Eighty percent of fixed expenses involving cash were paid in the year
incurred and 20% the following year. Each year there was a P50,000 bad debt estimate and a
P50,000 writeoff.
4. What amount of cash was disbursed for variable expenses during 2019?
a. 1,150,000
b. 1,200,000
c. 1,100,000
d. 600,000
5. What amount of cash was disbursed for fixed expenses during 2019?
a. 500,000
b. 650,000
c. 600,000
d. 500,000
Page 16
SOLUTION – PROBLEM 8
Question 1 Answer A
Question 2 Answer B
Question 3 Answer B
Question 4 Answer A
Question 5 Answer C
END