FINANCIAL ACCOUNTING PROBLEMS

Problem I (Current assets)

An entity provided the following trial balance on June 30, 2015:
Cash overdraft ( 200,000) Property, plant and equipment, net 1,900,000
Accounts receivable, net 700,000 Accounts payable and accrued expenses 640,000
Inventory 1,200,000 Share capital 3,000,000
Prepaid expenses 200,000 Share premium 500,000
Land held for resale 2,000,000 Retained earnings 1,660,000
Checks amounting to P600,000 were written to vendors and recorded on June 30 resulting in cash
overdraft of P200,000. The checks were mailed on July 9. Land held for resale was sold for cash on
July 15. The financial statements were issued on July 31. On June 30, 2015, what total amount
should be reported as current assets?
a. 4,500,000
b. 4,100,000
c. 4,300,000
d. 2,500,000

Problem 2 (Total assets)

An entity was incorporated on January 1, 2015 with proceeds from the issuance of P7,500,000 in
shares and borrowed funds of P1,100,000. During the first year of operations, revenue from sales
and consulting amounted to P820,000, and operating costs and expenses totaled P640,000. On
December 15, the entity declared a P30,000 cash dividend, payable to shareholders on January 15,
2016. No additional activities affected owners’ equity in 2015. The liabilities increased to
P1,200,000 by December 31, 2015. What amount should be reported as total assets on December
31, 2015?
a. 8,850,000
b. 8,820,000
c. 7,870,000
d. 8,750,000

Problem 3 (Current liabilities)

An entity had the following liabilities on December 31, 2015:
Accounts payable 55,000
Unsecured notes, 8% due 7/1/2016 400,000
Accrued expenses 35,000
Contingent liability 450,000
Deferred tax liability 25,000
Senior bonds, 7%, due 3/31/2016 1,000,000
The contingent liability is an accrual for possible loss on a P1,000,000 lawsuit filed against the
entity. The legal counsel expects the suit to be settled in 2016 and has estimated that the entity will
be liable for damages in the range of P450,000 to P750,000. The deferred tax liability is expected to
reverse in 2016. What amount should be reported on December 31, 2015 for current liabilities?
a. 515,000
b. 940,000
c. 1,490,000
d. 1,515,000

Problem 4 (Net income)

An entity reported net income of P7,410,000 for the current year. The auditor raised questions about
the following amounts that had been included in net income:
Unrealized loss on equity investments at fair value through other comprehensive
income ( 540,000 )
Gain on early retirement of bonds payable 2,200,000
Adjustment of profit of prior year for error in depreciation, net of tax effect ( 750,000 )
Loss from fire ( 1,400,000 )
Gain from change in fair value attributable to the credit risk of financial liability
designated at fair value through profit or loss 500,000
What amount should be reported as adjusted net income?
a. 6,500,000
b. 7,200,000
c. 8,200,000
d. 8,700,000

Problem 5 (Retained earnings)

An entity provided the following information on December 31, 2015:
Total reported income since incorporation 1,700,000
Total cash dividends paid ( 800,000)
Unrealized holding loss on trading investment ( 120,000)
Total share dividends distributed ( 200,000)
Prior period adjustment recorded January 1, 2015 - credit 75,000
What amount should be reported as retained earnings on December 31, 2015?
a. 655,000
b. 700,000
c. 580,000
d. 775,000

Problem 6 (Cash computation)

An entity reported the checkbook balance on December 31, 2015 at P8,000,000. In addition, the
entity held the following items in the safe on that date:
Check payable to the entity, dated January 2, 2016 in payment of a sale,
not included in December 31 check book balance 1,000,000
Check payable to the entity, deposited December 15 and included in
December 31 checkbook balance, but returned by bank on
December 30 stamped “NSF”. The check was redeposited on
January 2, 2016 and cleared on January 5, 2016 3,000,000
Check drawn on the entity’s account, dated and recorded on
December 31, 2015 but not mailed until January 15, 2016 2,500,000
Coins and currencies on hand 800,000
Three-month money market instruments 1,500,000
What is the correct amount of “cash” on December 31, 2015?
a. 7,500,000
b. 9,300,000
c. 8,300,000
d. 9,800,000

Problem 7 (Impairment of accounts receivable)

An entity reported the following accounts receivable on December 31, 2015:

Customer A 1,000,000
Customer B 1,500,000
Customer C 2,000,000
Customer D 2,500,000
All other accounts receivable not individually significant 3,500,000
The entity determined that Customer A receivable is totally impaired and Customer B receivable is
impaired by P700,000. The other receivables from Customers C and D are not considered impaired.
The entity determined that a composite rate of 10% is appropriate to measure impairment on the
remaining accounts receivable. What is the total impairment loss of accounts receivable for 2015?
a. 2,500,000
b. 2,050,000
c. 1,050,000
d. 2,750,000

Problem 8 (Current net receivables)

An entity reported current receivables on December 31, 2015 which consisted of the following:
Trade accounts receivable 930,000
Allowance for uncollectible accounts 20,000
Claim against shipper for goods lost in transit in November 2015 30,000
Selling price of unsold goods sent by the entity on consignment at 130% of
cost and not included in the ending inventory 260,000
Security deposit on lease of warehouse used for storing inventories 300,000
What is the correct total of current net receivables on December 31, 2015?
a. 1,500,000
b. 1,200,000
c. 1,240,000
d. 940,000

Problem 9 (Measurement of notes receivables)

On December 31, 2015, an entity received two P2,000,000 notes receivable from customers. On
both notes, interest is calculated on the outstanding principal balance at the annual rate of 3% and
payable at maturity. The first note, made under customary trade terms, is due in nine months and the
second note is due in five years. The market interest rate for similar notes on December 31, 2015
was 8%. The PV of 1 at 8% due in nine months is .944, and the PV of 1 at 8% due in 5 years is .68.
On December 31, 2015, what total carrying amount should be reported for the two notes receivable?
a. 3,248,000
b. 3,494,400
c. 3,360,000
d. 3,564,000

Problem 10 (Measurement of loan receivable)

A bank granted a 10-year loan to a borrower in the amount of P1,500,000 with stated interest rate of
6%. Payments are due monthly and are computed to be P16,650. The bank incurred P40,000 of
direct loan origination cost and P20,000 of indirect loan origination cost. In addition, the bank
charged the borrower a 4-point nonrefundable loan origination fee. What is the carrying amount of
the loan receivable to be reported initially by the bank?
a. 1,440,000
b. 1,480,000
c. 1,500,000
d. 1,520,000

Problem 11 (Cost of inventory)

An entity reported inventory on December 31, 2015 at P6,000,000 based on a physical count at cost
and before any necessary year-end adjustments relating to the following:
 Included in the physical count were goods billed to a customer FOB shipping point on
December 30, 2015. These goods had a cost of P125,000 and were picked up by the carrier on
January 7, 2016.
 Goods shipped FOB shipping point on December 28, 2015 from a vendor to the entity were
received on January 4, 2016. The invoice cost was P300,000.
What amount should be reported as inventory on December 31, 2015?
a. 5,875,000
b. 6,000,000
c. 6,175,000
d. 6,300,000

Problem 12 (Computation of accounts payable)

An entity reported accounts payable on December 31, 2015 at P4,500,000 before any necessary
year-end adjustments relating to the following transactions:
 On December 27, 2015, the entity wrote and recorded checks to creditors totaling P2,000,000
causing an overdraft of P500,000 in the entity’s bank account on December 31, 2015. The
checks were mailed on January 10, 2016.
 On December 28, 2015, the entity purchased and received goods for P750,000, terms 2/10, n/30.
The entity recorded purchases and accounts payable at net amount. The invoice was recorded
and paid January 3, 2016.
 Goods shipped FOB destination on December 20, 2015 from a vendor to the entity were
received January 2, 2016, The invoice cost was P325,000.
On December 31, 2015, what amount should be reported as accounts payable?
a. 7,575,000
b. 7,250,000
c. 7,235,000
d. 7,553,500

Problem 13 (Retail inventory method)

On December 31, 2015, an entity provided the following information:
Cost Retail
Inventory, January 1 735,000 1,015,000
Purchases 4,165,000 5,775,000
Additional markup 210,000
Sales for the year totaled P5,500,000. Markdown amounted to P100,000. Under the approximate
lower of average cost or NRV retail method, what is the inventory on December 31, 2015?
a. 1,050,000
b. 1,400,000
c. 994,000
d. 980,000

Problem 14 (Gross profit method)

An entity budgeted the following sales.
June July August
Sales on account 1,800,000 1,840,000 1,900,000
Cash sales 180,000 200,000 260,000
All merchandise is marked up to sell at invoice cost plus 20%. Merchandise inventory at the
beginning of each month is 30% of that month's projected cost of goods sold. What is the amount of
anticipated purchases for July?
a. 1,632,000
b. 2,076,000
c. 1,700,000
d. 1,730,000

Problem 15 (Biological assets)

An entity provided the following information about assets in forest plantation:
Freestanding trees 5,000,000
Land under trees 900,000
Roads in forest 500,000
Animals related to recreational activities 2,000,000
Rubber trees and grape vines 1,500,000
What total amount should be reported as biological assets?
a. 5,000,000
b. 8,500,000
c. 6,500,000
d. 9,900,000

Problem 16 (Machinery)
On September 1, 2015, an entity purchased a new machine on a deferred payment basis. A down
payment of P200,000 was made and 4 annual installments of P600,000 each are to be made beginning
on September 1, 2016. The cash equivalent price of the machine was P2,300,000. Due to an employee
strike, the entity could not install the machine immediately and thus incurred P30,000 of storage cost.
Cost of installation excluding the storage cost amounted to P80,000. What is the total cost of the
machine?
a. 2,300,000
b. 2,380,000
c. 2,410,000
d. 2,600,000

Problem 17 (Borrowing cost)

During 2015, an entity constructed an asset costing P10,000,000. The weighted average
accumulated expenditures on the asset during the year totaled P6,000,000. To help pay for
construction, P4,400,000 was borrowed at 10% on January 1, 2015, and funds not needed for
construction were temporarily invested in short-term securities, yielding P90,000 in interest
revenue. Other than the construction funds borrowed, the only other debt outstanding during the
year was a P5,000,000, 10-year, 9% note payable dated January 1, 2012. What is the amount of
interest that should be capitalized during 2015?
a. 600,000
b. 300,000
c. 494,000
d. 944,000

Problem 18 (Depletion)

In 2015, an entity purchased property with natural resources for P28,000,000. The property had a
residual value of P5,000,000. However, the entity is required to restore the property to the original
condition at a discounted amount of P2,000,000. In 2015, the entity spent P1,000,000 in
development cost and P3,000,000 in building. In 2016, an amount of P4,000,000 was spent for
additional development on the mine. Production began in 2016 and the tons extracted totaled
3,000,000 in 2016 and 2,500,000 in 2017. The remaining tons totaled 7,000,000 and 3,500,000,
respectively on December 31, 2016 and December 31, 2017. What amount of depletion should
recognized in 2017?
a. 10,500,000
b. 12,250,000
c. 9,000,000
d. 8,750,000

Problem 19 (Revaluation)

On June 30, 2015, an entity reported the following information:

Equipment at cost 30,000,000
Accumulated depreciation 10,500,000
The equipment was measured using the cost model and depreciated on a straight line basis over 10-
year period. On December 31, 2015, the management decided to change the basis of measuring the
equipment from the cost model to the revaluation model. The equipment was revalued to the fair
value of P27,000,000 with remaining useful life of 5 years. The income tax rate is 30%. What
amount should be reported as revaluation surplus on December 31, 2015?
a. 7,500,000
b. 5,250,000
c. 6,300,000
d. 9,000,000

Problem 20 (Computer software)

During the current year, an entity incurred the following costs to develop and produce a routine,
low-risk computer software product:
Completion of detailed program design or working model 1,300,000
Cost incurred for coding and testing to establish technological feasibility 1,000,000
Other coding costs after establishment of technological feasibility 2,400,000
Other testing costs after establishment of technological feasibility 2,000,000
Costs of producing product masters for training materials 1,500,000
Duplication of computer software and training materials from product master 2,500,000
Packaging product 900,000
What amount should be capitalized initially as software cost?
a. 5,400,000
b. 3,700,000
c. 5,900,000
d. 6,900,000

Problem 21 (Start up costs)

An entity, a major winery, begins construction of a new facility in Mindanao. The following costs
are incurred in conjunction with the start-up activities of the new facility:
Production equipment 8,150,000
Travel costs of salaried employees 400,000
License fees 140,000
Training of local employees for production and maintenance operations 1,200,000
Advertising costs 850,000
What amount of start up costs should be expensed?
a. 9,750,000
b. 1,600,000
c. 1,390,000
d. 0

Problem 22 (Intangible assets)

On January 1, 2013, an entity purchased patent at a cost of P1,920,000 at which date the remaining
legal life was 16 years. On January 1, 2015, the useful life of the patent was determined to be only 8
years from the date of acquisition. On January 1, 2015, the entity paid P800,000, of which three-
fourths was for a trademark, and one-fourth was for the other entity’s agreement not to compete for
a 5-year period in the line of business covered by the trademark. The entity considered the life of
the trademark indefinite. Moreover, the entity agreed to pay P50,000 to the other entity as
consulting fee each year for 5 years payable every January 1. What is the amortization of intangible
assets for 2015?
a. 320,000
b. 280,000
c. 250,000
d. 370,000

Problem 23 (Goodwill)

On December 31, 2015, an entity purchased for P40,000,000 cash all of the outstanding ordinary
shares of another entity when the subsidiary’s statement of financial position showed net assets of
P32,000,000. The subsidiary’s assets and liabilities had fair value different from the carrying
amount as follows:
Carrying amount Fair value
Property, plant and equipment, net 50,000,000 57,500,000
Other assets 5,000,000 0
Long-term debt 30,000,000 28,000,000
What amount should be reported as goodwill in the December 31, 2015 consolidated statement of
financial position of the acquirer and its wholly-owned subsidiary?
a. 3,500,000
b. 2,500,000
c. 7,500,000
d. 8,000,000

Problem 24 (Financial asset at fair value through other comprehensive income)

On January 1, 2015, an entity purchased non-trading equity securities which are irrevocably
designated at fair value through other comprehensive income:
Purchase price Transaction cost Market – 12/31/2015
 Security A 1,000,000 100,000 1,500,000
Security B 2,000,000 200,000 2,400,000
Security C 4,000,000 400,000 4,700,000
On July 1, 2016, the entity sold Security C for P5,200,000. What amount should be credited to
retained earnings as a result of the sale of the investment in 2016?
a. 800,000
b. 500,000
c. 300,000
d. 0

Problem 25 (Interest on loans)

An entity frequently borrowed from the bank in order to maintain sufficient operating cash. The
following loans were at a 12% interest rate with interest payable at maturity. The entity repaid each
loan on scheduled maturity date.
Date of loan Amount Maturity date Term of loan
November 1, 2014 500,000 October 31, 2015 1 year
February 1, 2015 1,500,000 July 31, 2015 6 months
May 1, 2015 800,000 January 31, 2016 9 months
The entity recorded interest expense when the loans are repaid. As a result, interest expense of
P150,000 was recorded in 2015. If no correction is made, by what amount would interest expense
be understated for 2015?
a. 54,000
b. 62,000
c. 64,000
d. 72,000

Problem 26 (Compensated absences)

An entity has 35 employees who work 8-hour days and are paid hourly. On January 1, 2013, the
entity began a program of granting the employees 10 days of paid vacation each year. Vacation days
earned in 2013 may first be taken on January 1, 2014.
Hourly Vacation Days Earned Vacation Days Used
Year Wages by Each Employee by Each Employee
2013 25.80 10 0
2014 27.00 10 8
2015 28.50 10 10
The entity has chosen to accrue the liability for compensated absences at the current rate of pay in
effect when the compensated time is earned. What is the accrued liability for compensated absences
on December 31, 2015?
a. 94,920
b. 90,720
c. 79,800
d. 95,760

Problem 27 (Finance lease - lessee)

An entity leased equipment for the entire nine-year useful life, agreeing to pay P1,000,000 at the
start of the lease term on January 1, 2015, and P1,000,000 annually on each January 1 for the next
eight years. The present value on January 1, 2015 of the nine lease payments over the lease term
using the rate implicit in the lease which the lessor knows to be 10% was P6,330,000. The January
1, 2015 present value of the lease payments using the incremental borrowing rate of 12% was
P5,970,000. The entity made a timely second lease payment. What amount should be reported as
finance lease liability on December 31, 2016?
a. 5,330,000
b. 4,863,000
c. 4,970,000
d. 4,467,000
Problem 28 (Finance lease - lessor)

An entity leased equipment to an unrelated party on July 1, 2015 for an eight-year period expiring
June 30, 2023. Equal payments under the lease are P600,000 and are due on July 1 of each year. The
first payment was made on July 1, 2015. The implicit rate of interest contemplated is 10%. The cash
selling price of the equipment is P3,500,000 and the carrying amount is P2,800,000. The lease is
appropriately recorded as a sales type lease. What total amount of income should be recorded for
the year ended December 31, 2015?
a. 700,000
b. 525,000
c. 990,000
d. 845,000

Problem 29 (Sale and leaseback)

On January 1, 2015, an entity sold a machine for P5,000,000. The fair value of the machine was
P6,500,000 on the date of sale. The machine had a carrying amount of P7,000,000 and remaining
life of 15 years. The entity immediately leased back the machine for 5 years at an annual rental that
was determined to be sufficiently lower than the market rent. What total amount of loss should be
recognized immediately in 2015?
a. 400,000
b. 800,000
c. 500,000
d. 0

Problem 30 (Employee benefit – IFRS 19R)

An entity provided the following information for the current year:

Current service cost 500,000
Interest on projected benefit obligation 600,000
Interest income on plan assets 350,000
Loss on plan settlement 250,000
Past service cost during the year 300,000
Actual return on plan assets 850,000
Actuarial loss during the year 200,000
Contribution to the plan 1,500,000
What is the employee benefit expense for the current year?
a. 1,300,000
b. 1,050,000
c. 1,500,000
d. 1,100,000

Problem 31 (Actual return on plan assets)

An entity provided the following data related to the pension plan.

December 31, 2015 December 31, 2016
Defined benefit obligation 8,400,000 11,100,000
Plan assets at fair value 9,000,000 9,900,000
Net actuarial loss 1,440,000 1,500,000
Discount rate 10% 9%
Expected rate of return 8% 7%
The contribution was P1,260,000 in 2016 and benefits paid totaled P1,125,000. What was the actual
return on plan assets in 2016?
a. 900,000
b. 765,000
c. 600,000
d. 465,000

Problem 32 (Vacation pay expense)

An entity grants all employees two weeks of paid vacation for each full year of employment.
Unused vacation time can be accumulated and carried forward to succeeding years and will be paid
at the salaries in effect when vacations are taken or when employment is terminated. There was no
employee turnover in 2015. Additional information relating to the year ended December 31, 2015 is
as follows:
Liability for accumulated vacations on January 1, 2015 350,000
Pre-2015 accrued vacations taken from January 1, 2015 to September 30, 2015
(the authorized period for vacations) 200,000
Vacations earned for work in 2015 adjusted to current rate 300,000
The entity granted a 10% salary increase to all employees on October 1, 2015, the annual salary
increase date. What amount should be reported as vacation pay expense for 2015?
a. 450,000
b. 335,000
c. 315,000
d. 300,000

Problem 33 (Termination benefits IFRS 19R)

An entity is committed to close a factory in 10 months and shall terminate the employment of all the
remaining employees of the factory. Under the termination plan, an employee leaving before
closure of factory shall receive on termination date a cash payment of P20,000. However, an
employee that renders service until closure of the factory shall receive P60,000. There are 120
employees at the factory. The entity expects 20 employees to leave before closure and 100
employees to render service until closure. What amount should be recognized as termination
benefit?
a. 2,400,000
b. 6,400,000
c. 2,000,000
d. 4,000,000

Problem 34 (Income tax)

An entity reported P9,000,000 income before provision for income tax. The following data are
provided for the current year:
Rent received in advance 1,600,000
Income from exempt municipal bonds 2,000,000
Depreciation deduction for income tax purposes in excess of depreciation
reported for financial reporting purposes 1,000,000
Tax payment during the current year 500,000
Income tax rate 30%
What amount of current income tax liability should be reported at year-end?
a. 1,780,000
b. 2,280,000
c. 2,580,000
d. 2,880,000

Problem 35 (Bonds payable)

An entity has outstanding a 7%, ten-year P100,000 face value bond. The bonds was originally sold
to yield 6% annual interest. The entity uses the effective interest method to amortize bond premium
and does not elect the fair value option for reporting financial liabilities. On June 30, 2015, the
carrying amount of the outstanding bond was P105,000. What amount of unamortized premium on
bond should be reported on June 30, 2016?
a. 1,050
b. 3,950
c. 4,300
d. 4,500

Problem 36 (Share-based compensation)

 On January 1, 2015, an entity granted to employees 10,000 share options. On January 1, 2016, the
entity granted to employees an additional 20,000 share options.
Date Fair value of share
January 1, 2015 20
December 31, 2015 22
January 1, 2016 25
December 31, 2016 30
The shares vest at the end of a four-year period. There are no forfeitures. What amount should be
recorded as compensation expense for 2016?
a. 175,000
b. 205,000
c. 225,000
d. 500,000

Problem 37 (Retained earnings)

An entity provided the following data for the year ended December 31, 2015:
Retained earnings unappropriated, January 1 200,000
Over depreciation of 2014 due to prior period error 100,000
Net income for 2015 1,300,000
R Retained earnings appropriated for treasury shares (original balance is P500,000
but reduced by P200,000 by reason of reissuance of the treasury shares) 300,000
Retained earnings appropriated for contingencies (beginning balance P700,000.
but increased by current appropriation of P100,000) 800,000
Cash dividends paid to shareholders 500,000
Change in accounting policy from FIFO to average – credit adjustment 150,000

What is the balance of unappropriated retained earnings on December 31, 2015?

a. 1,150,000
b. 1,350,000
c. 1,950,000
d. 1,750,000

Problem 38 (Diluted earnings per share)

An entity reported the following capital structure:

2015 2016
Outstanding shares:
Ordinary shares 110,000 110,000
Convertible preference shares 10,000 10,000
During 2015, the entity paid preference dividends of P3 per share. The preference shares are
convertible into 20,000 ordinary shares. Net income for 2015 was P850,000. The income tax rate is
30%. What amount should be reported as diluted earnings per share for 2015?
a. 6.31
b. 6.54
c. 7.08
d. 7.45

Problem 39 (Cash basis)

An entity had the following beginning and ending balances in prepaid expenses and accrued
liabilities for the current year:
Prepaid expenses Accrued liabilities
Beginning balance 5,000 8,000
Ending balance 10,000 20,000
Debits to operating expenses totaled P100,000. What amount was paid for operating expenses
during the current year?
a. 83,000
b. 93,000
c. 107,000
d. 117,000

Problem 40 (Current cost)

An entity disclosed supplemental information on the effects of changing prices. The entity
computed the increase in current cost of inventory as follows:
Increase in current cost (nominal peso) 1,500,000
Increase in current cost (constant peso) 1,200,000
What amount should be disclosed as the inflation component of the increase in current cost?
a. 2,700,000
b. 1,500,000
c. 1,200,000
d. 300,000

Problem 41 (Accrual basis)

An entity acquired rights to a patent under a licensing agreement that required an advance royalty
payment when the agreement was signed. The entity remitted royalties earned and due under the
agreement on October 31 each year. Additionally, on the same date, the entity paid, in advance,
estimated royalties for the next year. The entity adjusted prepaid royalties at year-end. The entity
provided the following information for the year ended December 31, 2015:
January 1 Prepaid royalties 650,000
October 31 Royalty payment charged to royalty expense 1,100,000
December 31 Year-end credit adjustment to expense 250,000
On December 31, 2015, what amount should be reported as prepaid royalties?
a. 250,000
b. 400,000
c. 850,000
d. 900,000

Problem 42 (Accrual basis)

An entity had a balance of P820,000 in the professional fees expense account on December 31,
2015, before considering year-end adjustments relating to the following:
 Consultants were hired for a special project at a total fee not to exceed P650,000. The entity had
recorded P550,000 of this fee based on billings for work performed in 2015.
 The attorney’s letter requested by the auditors dated January 31, 2016, indicated that legal fees
of P60,000 were billed on January 15, 2016 for work performed in November 2015, and
unbilled fees for December 2015 were P70,000.
What amount should be reported for professional fees expense for 2015?
a. 1,050,000
b. 950,000
c. 880,000
d. 820,000

Problem 43 (Disclosures)

An entity reported the following information in the year-end financial statements:

Capital expenditures 1,000,000
Finance lease payments 125,000
Income taxes paid 325,000
Dividends paid 200,000
Interest payments 220,000
What total amount should be reported as supplemental disclosures in the statement of cash flows
prepared using the indirect method?
a. 545,000
b. 745,000
c. 1,125,000
d. 1,870,000

Problem 44 (Operating activities)

An entity reported net income of P3,000,000 for the current year. Changes occurred in certain
accounts as follows:
Equipment 250,000 increase
Accumulated depreciation 400,000 increase
Note payable 300,000 increase
During the year, the entity sold equipment costing P250,000 with accumulated depreciation of
P150,000 for a gain of P50,000. In December of the current year, the entity purchased equipment
costing P500,000 with P200,000 cash and a 12% note payable of P300,000. What amount should
be reported as net cash provided by operating activities?
a. 3,400,000
b. 3,500,000
c. 3,550,000
d. 3,600,000

Problem 45 (Operating activities)

An entity reported net income of P5,000,000 for the current year. Depreciation expense was
P1,900,000. The following working capital accounts changed:
Accounts receivable 1,100,000 increase
Non-trading equity investment 1,600,000 increase
Inventory 730,000 increase
Nontrade note payable 1,500,000 increase
Accounts payable 1,220,000 increase

Under the indirect method, what net amount of adjustments is required to reconcile net income to
net cash provided by operating activities?
a. 4,950,000
b. 1,050,000
c. 1,290,000
d. 310,000