RESA 46 FAR FINAL PB AND ANSWER KEY.pdf

ReSA - THE REVIEW SCHOOL OF ACCOUNTANCY CPA Review Batch 46  Oct 2023 CPALE  17 Sept 2023  11:45 AM - 02:45 PM FINANCIAL ACCOUNTING and REPORTING FINAL PRE-BOARD EXAMINATION INSTRUCTIONS: Select the corre...

ReSA - THE REVIEW SCHOOL OF ACCOUNTANCY CPA Review Batch 46  Oct 2023 CPALE  17 Sept 2023  11:45 AM - 02:45 PM FINANCIAL ACCOUNTING and REPORTING FINAL PRE-BOARD EXAMINATION INSTRUCTIONS: Select the correct answer for each of the questions. Mark only one answer for each item by shading the box corresponding to the letter of your choice on the answer sheet provided. STRICTLY NO ERASURES ALLOWED. Use pencil no. 2 only. The Retained Earnings account of GDM Company shows the following debits and credits for the year 2023: RETAINED EARNINGS Date Debit Credit Balance Jan.1 Balance P900,000 (a) Amortization of Patent 60,000 (b) Gain on reversal of impairment of Building 140,000 (c) Cumulative effect of change in accounting policy (from Average method to FIFO method) 150,000 (d) Loss on sale of treasury stock 20,000 (e) 20% stock dividend on 100,000, P10 par value shares issued and outstanding (FV at the same date at P12.00) 240,000 (f) Accrual of salaries 100,000 (g) Premium on ordinary shares issued 70,000 (h) Share issuance cost related to ordinary share issued above (g) 8,000 (i) Share options outstanding 25,000 (j) Loss on write-down of inventories 10,000 (k) Gain on sale of ordinary share as a result of exercise of stock rights 30,000 (l) Warranty expense 60,000 (m) Correction of prior period error 40,000 (n) Cash dividends payable 195,000 (o) Premium income 16,500 (p) Donated capital 37,000 (q) Bad debts expense 8,000 (r) Decrease in fair value of investment 55,000 properties using the Fair value model (s) Net income for the period 720,000 (t) Earned portion of rent collected in advance 31,000 (u) Amortization of discount on bonds payable 9,000 (v) Amortization of premium on Investment at amortized cost 10,000 (w) Increase in fair value of Investment at FVPL 80,000 (x) Cumulative balance of unrealized gain on Investment at FVOCI 35,000 (y) Share warrants outstanding 12,000 (z) Actuarial loss on remeasurement of defined benefit obligation 120,000 Additional information: a. The 20% stock dividend in item (e) was declared on October 1, 2023 distributable on February 14, 2024. The company recorded the transaction as follows: Retained Earnings 240,000 Share dividends distributable 200,000 Share premium 40,000 b. The company’s share premium from treasury account balance before any subsequent reissuance and retirement amounted to P22,000. c. The cumulative balance of Unrealized gain credited to Retained earnings was due to the sale of equity investment during the year. 1. Statement 1: The correct restated retained earnings on January 1, 2023 is P1,090,000. Statement 2: The total net adjustments to Share premium/APIC is P160,000. a. Only statement 1 is TRUE b. Only statement 2 is TRUE c. Both statements are TRUE d. Both statements are FALSE Page 1 of 28 0915-2303213  [email protected]  FINANCIAL ACCOUNTING & REPORTING ReSA Batch 46 – October 2023 CPALE Batch 17 Sept 2023  11:45 AM to 02:45 PM FAR Final Pre-Board Exam 2. How much is the adjusted net income for the year 2023? a. 675,500 b. 730,500 c. 748,500 d. 693,500 3. How much is the correct retained earnings on December 31, 2023? a. 1,460,500 b. 1,370,500 c. 1,405,500 d. 1,412,500 The following relevant data for 2 different companies were as follows: Company 1: Venus Company acquired an equipment on January 1, 2021 costing P1,550,000 for its operations. The equipment has an estimated useful life of 14 years and an estimated salvage value of P150,000. It’s the company’s policy to depreciate all equipment using the straight- line method. On January 1, 2023, Venus Company made a revision of the useful life of the equipment and determined that the total revised useful life of the equipment is 10 years from the date of acquisition and a new residual value of P100,000. Company 2: Earth Company has been using the FIFO method of inventory costing since it began operations in 2022. In 2024, the company changed to the Weighted Average method. The following are the December 31 inventory balances under each method: FIFO Weighted Average 2022 450,000 560,000 2023 895,000 995,000 Earth Company reported net income of P500,000 and P400,000 under FIFO method for the years 2022 and 2023, respectively. 4. Statement 1: The correct depreciation expense for the year 2023 is P156,250 related to Venus Company. Statement 2: The correct net income for the year 2023 is P390,000 related to Earth Company. a. Only statement 1 is TRUE b. Only statement 2 is TRUE c. Both statements are TRUE d. Both statements are FALSE 5. Statement 1: The total net adjustments to Retained Earnings on January 1, 2023 is P0 related to Venus Company. Statement 2: The total net adjustments to Retained Earnings on January 1, 2024 is P100,000 decrease related to Earth Company. a. Only statement 1 is TRUE b. Only statement 2 is TRUE c. Both statements are TRUE d. Both statements are FALSE For two consecutive years, Saturn Company failed to recognize accruals, prepayments and other transactions in its records. Reported net income and a listing of the errors appear below: 2022 2023 REPORTED PROFIT 490,000 670,000 a. Failed to record accrued expense 34,000 28,000 b. Overstated ending inventory 63,000 28,000 c. Failed to record accrued interest on notes 12,000 6,000 receivable d. Failed to recognized unearned portion of revenue 24,000 20,000 e. Failed to record purchases on account. Purchases --- 25,000 were recorded when paid in the subsequent year. Inventories were properly included at the end f. Failed to recognized prepaid (unexpired portion) 4,800 6,200 insurance at the end of the year g. Repairs and maintenance incurred during the year --- 120,000 was erroneously capitalized as part of cost of the asset. Full year depreciation at annual rate of 10% is provided in the year that the asset is recognized 6. Statement 1: The correct net income for the year 2022 is P385,800. Statement 2: The correct net income for the year 2023 P793,400. a. Only statement 1 is TRUE b. Only statement 2 is TRUE c. Both statements are TRUE d. Both statements are FALSE Page 2 of 28 0915-2303213  [email protected]  FINANCIAL ACCOUNTING & REPORTING ReSA Batch 46 – October 2023 CPALE Batch 17 Sept 2023  11:45 AM to 02:45 PM FAR Final Pre-Board Exam Jupiter Company’s transactions for the year ended December 31, 2023 included the following: a) Sold long-term investment securities with a carrying value of P100,000 for P130,000 cash. b) Cash dividends of P500,000 were declared but P340,000 were only paid during the period. c) Issued 10,000 ordinary shares for cash amounting to P220,000. d) Purchased machinery and equipment for P1,300,000. Included in the total purchase was a machinery costing P100,000 acquired through issuance of long-term notes. e) Purchased of treasury shares for cash costing P80,000. f) Increased of accounts receivable by P 100,000 g) Decreased of inventories by P150,000 h) Increased of accounts payable by P 200,000 i) Obtained a short-term bank loan of P500,000 j) Depreciation expense for the year was P210,000 k) Building costing P600,000 with accumulated depreciation of P350,000 was sold for P230,000. l) Net Income for the year was P800,000. 7. Statement 1: The net cash provided by operating activities is P1,250,000. Statement 2: The net cash used in investing activities is P840,000. Statement 3: The net cash provided by financing activities is P300,000. a. Only statement 1 is TRUE b. Only statements 1 and 2 are TRUE c. All of the above statements are TRUE d. None of the above statements are TRUE 8. Assuming a beginning cash balance of P5,000,000, how much is the correct ending cash balance? a. 4,290,000 b. 7,390,000 c. 5,710,000 d. 2,610,000 CPL Company’s December 31, 2023 balance sheet reported the following shareholders’ equity: 10%, Preference share capital, P100 par value per share, 20,000 shares issued and outstanding, liquidation value of P105 P2,000,000 Ordinary share capital, P100 par value, 72,000 shares issued 7,200,000 Share premium 500,000 Treasury shares, (ordinary) 4,000 shares at cost 600,000 Retained Earnings 4,000,000 Subscribed ordinary share (12,000 shares subscribed, net of P400,000 subscription receivable) 800,000 Revaluation surplus 700,000 Preference dividends have not been paid since last year up to the end of 2023. 9. Statement 1: The book value per ordinary share is P158.75, assuming the preference is cumulative and non-participating. Statement 2: The book value per preference share is P154.00, assuming the preference is non-cumulative and participating. a. Only statement 1 is TRUE b. Only statement 2 is TRUE c. Both statements are TRUE d. Both statements are FALSE AST Company started operations in 2021 with 250,000 P10 par value ordinary shares and 20,000, 9%, P100 par value preference shares. This capitalization did not change until 2023. AST paid dividends amounting to P100,000, P250,000 and P540,000 at the end of 2021, 2022 and 2023, respectively. 10. If the preference shares were cumulative and non-participating, how much is the dividend per ordinary share in 2023? a. P1.40 b. P1.44 c. P9.50 d. P9.00 11. If the preference shares were non-cumulative and fully participating, how much is the cash dividends distributable to preference shareholders in 2023? a. P12.00 b. P1.20 c. P240,000 d. P300,000 Page 3 of 28 0915-2303213  [email protected]  FINANCIAL ACCOUNTING & REPORTING ReSA Batch 46 – October 2023 CPALE Batch 17 Sept 2023  11:45 AM to 02:45 PM FAR Final Pre-Board Exam Badyangpogi Company invested 50,000 ordinary shares of the total 200,000 outstanding ordinary shares of JPB Corporation on January 1, 2022. The shares were acquired at P140. The following are relevant information of JPB Corporation for the years 2022 and 2023: 2022 2023 Net income for the year P4,000,000 P5,000,000 JPB’s shares outstanding at December 31, 2023 follow: Ordinary share P4,000,000 10%, Preference share 1,000,000 During 2023, JPB declared and distributed preference dividends amounting to P90,000 to its preference shareholders. Badyangpogi received cash dividend of P10 per ordinary share. JPB did not declare any kind of dividends during 2022. The share capital of JPB did not change during 2023. 12. Statement 1: The share in net income for 2022 is P1,000,000, assuming the preference share is non-cumulative. Statement 2: The share in net income for 2023 is P1,225,000, assuming the preference share is cumulative. a. Only statement 1 is TRUE b. Only statement 2 is TRUE c. Both statements are TRUE d. Both statements are FALSE SCI Corporation had P500,000 net income in 2022. On January 1, 2022, there were 200,000 shares of ordinary outstanding. On April 1, 20,000 shares were issued and on September 1, bought 30,000 shares of treasury shares. There are 30,000 options to buy ordinary shares at P40 per share on January 1, 2022. The market price of the ordinary shares averaged P50 during 2022. The tax rate is 40%. During 2022, there were 40,000 shares of cumulative preference shares outstanding. The preference has P100 par, pays dividend of P3.50 per year, and is convertible into three shares of ordinary. SCI issued P2,000,000 of 8% convertible bonds at face value during 2021. Each P1,000 bond is convertible into 20 shares of ordinary. 13. How much is the basic earnings per share for 2022? a. P1.71 c. P1.60 b. P1.76 d. P1.17 14. How much is the diluted earnings per share for 2022? a. P1.71 c. P1.51 b. P1.61 d. P1.46 On January 1, 2023, CTE Company acquired a tract of land for P5,000,000. CTE Company paid P1,000,000 down and signed a non-interest-bearing note for the balance which is payable in 4 equal annual payments every December 31 of each year. There was no established exchange price for the land and the note had no ready market. The prevailing interest rate for this type of the note was 12%. The present value of note on January 1, 2023 is P3,037,300. 15. Statement 1: The non-current portion of notes payable on December 31, 2023 is P1,689,989 Statement 2: The interest expense for the year 2024 is P288,213. a. Only statement 1 is TRUE b. Only statement 2 is TRUE c. Both statements are TRUE d. Both statements are FALSE Pinas Company reported the following notes receivable balances from different companies as of December 31, 2023: Luz Company,12% 2,000,000 Vi Company, non-interest ? Min Company, non-interest ? Page 4 of 28 0915-2303213  [email protected]  FINANCIAL ACCOUNTING & REPORTING ReSA Batch 46 – October 2023 CPALE Batch 17 Sept 2023  11:45 AM to 02:45 PM FAR Final Pre-Board Exam Additional information: (a) The notes receivable from Luz Company was received from sale of goods in the normal course of business. The note is dated January 1, 2023 and is due on December 31, 2024. The first annual interest collection on the loan on December 31 was correctly recorded. (b) The notes receivable from Vi Company with a face value of P3,000,000 was received on January 1, 2023 in exchange for the consultation services received. The note is due on December 31, 2025. The fair value of the services is not readily determinable. (c) The notes receivable from Min Company with a face value of P4,000,000 dated December 31, 2023 was received for the sale of an old machine having an original cost of P5,000,000 and a book value of P3,500,000. The terms of the sale require Min to make a down payment of P1,000,000 and the balance payable in 3 equal installments every December 31. The fair value of the machine is not readily determinable. The prevailing rate of interest for these notes was 12%. Present value of P1 at 12% for three periods is 0.712. Present value of P1 at 12% for two periods is 0.797. Present value of P1 at 12% for one period is 0.893. The present value of an ordinary annuity of 1 for two periods is 1.690. The present value of an ordinary annuity of 1 for three periods is 2.402. 16. Statement 1: The interest income for the year 2023 related to notes receivable from Luz Company is P240,000. Statement 2: The service income to be recognized on January 1, 2023 related to notes receivable from Vi Company is P2,136,000. Statement 3: The gain on sale of machine related to notes receivable from Min Company is P98,000. a. Only statement 1 is TRUE b. Only statement 2 and 3 are TRUE c. Only statements 1 and 2 are TRUE d. All of the above statements are TRUE KLM Company’s Accounts Payable on December 31, 2023, totaled P1,000,000 before any necessary year-end adjustments relating to the following transactions: ❑ On December 21, 2023, KLM purchased and recorded goods with an invoice price of P300,000, terms 2/10, n/30 from KEN Company. This amount had not been paid as of December 31, 2023. KLM Company is using the net method for all purchases. ❑ Goods shipped FOB Destination on December 23, 2023 from a vendor were lost in transit. The invoice cost of P35,000 was not recorded as of December 31, 2023. ❑ Goods shipped FOB Shipping Point on December 26, 2023 from a vendor were still in transit as of December 31, 2023. The invoice cost of P150,000 was recorded on December 31, 2023. ❑ Goods purchased and recorded goods with an invoice price of P50,000 from NETH Company on December 28, 2023, terms 3/15, n/45. KLM Company paid its account in full on January 5, 2024. 17. How much is the total adjusted accounts payable on December 31, 2023? a. 1,006,000 b. 1,007,500 c. 992,500 d. 1,000,000 On January 2, 2023, Kundol Corporation purchased 25,000 ordinary shares at P25 per share of Upo Company representing 30% interest in Upo Company. Kundol also paid transaction cost of P15,000. The book values of the assets and liabilities of Upo on the date of acquisition were 900,000 and 100,000, respectively. Upo’s identifiable net assets equal their fair values except for Land which has a fair value in excess of carrying amount of P300,000, Building which has a book value in excess of fair value of P400,000 and Inventories with a book value of P200,000 and fair value of P250,000. The building has an estimated remaining useful life of 10 years on the date of acquisition. During the year, 70% of the inventories were sold. Upo reported the following in its Statement of Comprehensive Income for the year ended 2023: Net Income of P450,000 and P100,000 increase in revaluation surplus. Kundol received cash dividends of P200,000 during the year. The fair value of the net assets acquired is P5,000,000. Fair value of the shares at year-end is P30 per share. 18. Statement 1: The company should recognize a gain on bargain purchase of P400,000. Statement 2: The total income that should be reported in profit or loss is P136,500. a. Only statement 1 is TRUE b. Only statement 2 is TRUE c. Both statements are TRUE d. Both statements are FALSE Page 5 of 28 0915-2303213  [email protected]  FINANCIAL ACCOUNTING & REPORTING ReSA Batch 46 – October 2023 CPALE Batch 17 Sept 2023  11:45 AM to 02:45 PM FAR Final Pre-Board Exam 19. Statement 1: The carrying value of the Investment in Upo Company on December 31, 2023 is P606,500. Statement 2: Impairment loss of P143,500 should be reported in profit or loss for the year 2023. a. Only statement 1 is TRUE b. Only statement 2 is TRUE c. Both statements are TRUE d. Both statements are FALSE AJD Corporation has two classes of share capital outstanding: 12%, P100 par value preference shares and P50 par value ordinary shares. Balances on January 1, 2023 were: Preference Share Capital – 5,000 shares P500,000 Ordinary Share Capital – 50,000 shares 2,500,000 Share premium – Preference 200,000 Share premium – Ordinary 2,000,000 Accumulated profits 4,000,000 The following data summarize the transactions for 2023: a. Issue of 20,000 shares of ordinary at P50 per share on January 20. b. Purchase of 5,000 of the company’s own ordinary shares from stockholders at P60 per share on February 20. c. A 2 for 1 share split on the ordinary on April 1. d. 20% stock dividend to ordinary shares was declared on April 30 and distributed on May 20. The prevailing fair value of share on this date was P60 per share. e. Reissuance of 3,000 reacquired shares at P40 per share on May 3. f. Donation of 15,000 shares of ordinary by shareholders on June 5. g. Reissuance of 10,000 donated stocks at P40 per share on July 1. h. Declaration of P12 cash dividends to preference shares and P3 per share dividends to ordinary on November 30 to stockholders as of December 20 payable on January 30 of the next year. i. The company appropriated 20% of the adjusted unappropriated accumulated profits (after other appropriations) for plant expansion. The net income for the year after adjustments was P1,200,000 and Cumulative unrealized loss of investment at FVOCI was P200,000. 20. Statement 1: The adjusted balance of the Ordinary share capital on December 31, 2023 is P4,150,000. Statement 2: The total Share premium on December 31, 2023 is P2,630,000. Statement 3: The total Contributed capital on December 31, 2023 is P7,820,000. a. Only statement 1 is TRUE b. Only statements 1 and 2 are TRUE c. All of the above statements are TRUE d. None of the above statements are TRUE 21. How much is the total Shareholder’s equity as of December 31, 2023? a. 10,458,000 b. 10,898,000 c. 10,868,000 d. 11,318,000 The following relevant data for 3 different companies were as follows: Company 1: On January 1, 2023, JMI Company acquired 25%, equivalent to 30,000 shares of JOSE Company for P3,000,000. All identifiable assets and liabilities of JOSE show carrying values equal to their fair values. On December 31, 2022, JOSE reported a net income of P5,000,000. JMI received from JOSE a total cash dividend of P400,000. Fair value of the shares on December 31, 2022 is P140 per share. On January 1, 2024, JMI sold 12,000 shares of JOSE at fair value existing at end of 2023. A loss of significant influence occurred as a result of sale. During 2024, JOSE reported a net income of P2,000,000 and distributed a total dividend of P600,000. Fair value at the end of 2024 is P160 per share. Company 2: On January 1, 2022, CSA Company purchased 2,000 of the P1,000 face value, 9%, 5-year debt instruments for P1,852,262. The debt instruments mature on January 1, 2027 and pay interest annually beginning December 31, 2022. The debt instruments were purchased to yield an 11% rate of interest. The bonds were classified as Investment at amortized cost. Page 6 of 28 0915-2303213  [email protected]  FINANCIAL ACCOUNTING & REPORTING ReSA Batch 46 – October 2023 CPALE Batch 17 Sept 2023  11:45 AM to 02:45 PM FAR Final Pre-Board Exam On August 31, 2023, CSA decided to change its current business model to a business model in managing the financial assets wherein any changes in fair value of the investment are taken to other comprehensive income. The fair values of investment were 95, 103, 104 on December 31, 2022, 2023 and 2024, respectively. Company 3: JFC Company acquired an investment property costing P1,500,000 on January 1, 2022. The property is being leased out under operating lease and the lessee pays P10,000 on a monthly basis. JFC company depreciates its properties using the straight- line method over a 5-year useful life. JFC company is using the fair value model. The fair values of the building at the end of 2022 and 2023 were P1,900,000 P1,200,000, respectively. On January 1, 2024, the property was reclassified to property, plant and equipment because of the change in the use of the property. 22. Statement 1: The gain or loss on reclassification that should be recognized in profit or loss by JMI Company on January 1, 2024 is P350,000. Statement 2: The gain or loss on reclassification that should be recognized in profit or loss by CSA Company on January 1, 2024 is P157,628. Statement 3: The gain or loss on reclassification that should be recognized in profit or loss by JFC Company on January 1, 2024 is P700,000. a. Only statement 1 is TRUE b. Only statements 1 and 2 are TRUE c. All of the above statements are TRUE d. None of the above statements are TRUE 23. How much is the unrealized gain or loss that should be reported in Other Comprehensive Income on December 31, 2024 as a result of change in fair value during the year, assuming the investment was reclassified to FVOCI related to JMI Company? a. 800,000 c. 350,000 b. 360,000 d. 440,000 24. How much is the carrying value of investment that should be reported in the statement of financial position on December 31, 2024 related to CSA Company? a. 2,080,000 c. 1,931,633 b. 2,060,000 d. 1,902,372 25. How much is the total net effect in profit or loss for the year 2023 related to JFC Company? a. 120,000 b. 80,000 c. 200,000 d. 320,000 The following relevant data for 5 different companies were as follows: Company 1: TWICE Company has the following property items on December 31, 2023: Land held for capital appreciation P2,000,000 Building owned and leased out under finance lease 2,000,000 Machinery being leased out under operating lease 1,000,000 Building that is being constructed for future use as PPE 3,000,000 Condominium building that is being constructed intended for sale in the ordinary course of business 4,000,000 Owner-Managed hotel building 4,500,000 Building being used for administrative purposes 3,500,000 Hotel building for which rentals are significant 5,000,000 Company 2: A physical count on December 31, 2023 revealed that BTS Company had inventory with a cost of P4,400,000. The following items were excluded from this amount: - Merchandise inventory of P600,000 was held on consignment by BTS. - Goods costing P400,000 were shipped by BTS “Ex-ship” to a customer on December 31, 2023. The customer received the goods on January 3, 2024. - Merchandise costing P500,000 was shipped by BTS “Free alongside” to a customer on December 29, 2023. The customer received the goods on January 6, 2024. - Goods costing P800,000 shipped by a vendor FOB destination on December 31, 2023 were received by BTS on January 7, 2024. - Goods costing P700,000 was shipped by a supplier “CIF” on December 30, 2023 and received by BTS on January 10, 2024. Page 7 of 28 0915-2303213  [email protected]  FINANCIAL ACCOUNTING & REPORTING ReSA Batch 46 – October 2023 CPALE Batch 17 Sept 2023  11:45 AM to 02:45 PM FAR Final Pre-Board Exam Company 3: On Dec. 31, 2023, BLACKPINK Company reported Cash and Cash Equivalents of P5,040,000 which is comprised of the following: Petty cash fund 225,000 Cash in Bank – BDO Checking Account 750,000 Cash in Bank – BPI (overdraft) (75,000) Check from customer dated December 1, 2023, 37,500 returned by the bank marked NSF Check from customer, dated January 5, 2024 37,500 Cash in Bank – Security bank including unrestricted 225,000 compensating balances of P25,000 Money order and Traveler’s check 150,000 Cash in Bank – PNB (money market, 90 days) 3,000,000 Restricted cash in Foreign Bank 150,000 IOUs 90,000 Bond sinking fund 450,000 Company 4: MOMOLAND Corporation provided you the following differences between 2023 financial income and taxable income: Unearned rent income P500,000 Prepaid advertising expense 300,000 Installment sale which will be taxable upon collection 800,000 Accrued salaries expense 400,000 Bad debts expense using a method under accrual basis 100,000 Impairment loss on Building 150,000 Excess book depreciation over tax depreciation 350,000 Provision for litigation 250,000 Unrealized gain on FVPL 120,000 Excess warranty expense over warranty paid 90,000 Fines, Penalties and Surcharges 30,000 Company 5: ENHYPEN Corporation reported the following lists related to its agricultural activity for the year ended December 31, 2023: Dairy cattle 3,000,000 Grapes (harvested) 500,000 Sheep 2,000,000 Carcass 100,000 Fruit trees 1,500,000 Wine 800,000 Milk 900,000 Wool 700,000 26. How much should be classified as Investment Properties by TWICE Company on December 31, 2023? a. 7,000,000 c. 9,000,000 b. 6,500,000 d. 7,500,000 27. What is the correct amount of inventories to be reported by BTS Company on December 31, 2023? a. 4,900,000 c. 5,500,000 b. 5,400,000 d. 6,000,000 28. How much is the total Cash and Cash Equivalents to be reported by BLACKPINK Company for the year ended December 31, 2023? a. 5,040,000 c. 4,350,000 b. 5,115,000 d. 4,590,000 29. What is the total future taxable amount related to MOMOLAND Company? a. 1,840,000 c. 1,570,000 b. 1,220,000 d. None of the choices 30. What amount of biological assets should ENHYPEN Company report in its December 31, 2023 statement of financial position? a. 6,500,000 c. 6,600,000 b. 5,000,000 d. 7,200,000 Page 8 of 28 0915-2303213  [email protected]  FINANCIAL ACCOUNTING & REPORTING ReSA Batch 46 – October 2023 CPALE Batch 17 Sept 2023  11:45 AM to 02:45 PM FAR Final Pre-Board Exam On December 31, 2023, JDD Company presented the following information: Ordinary share capital, P100 par P5,000,000 Share premium 2,000,000 Retained earnings (2,000,000) JDD decided to undergo quasi reorganization. As a result, the company’s property, plant and equipment with a book value of P4,000,000 should be written down to its fair value of P3,000,000 and an Inventory with a fair value of P1,000,000 is currently recorded in the accounts costing P1,500,000. Also, unrecorded accounts payable as of this date was P300,000. The par value of the share capital is reduced to P50 per share. 31. Statement 1: The balance of share premium after quasi-reorganization is P700,000. Statement 2: The balance of shareholders’ equity after the quasi-reorganization is P3,200,000. a. Only statement 1 is TRUE b. Only statement 2 is TRUE c. Both statements are TRUE d. Both statements are FALSE The following relevant data for 2 different companies were as follows: Company 1: POOH Company is experiencing financial difficulty during 2023 and is negotiating a trouble debt restructuring to relieve its financial stress. POOH Company owed P500,000 plus accrued interest of P50,000 to ACCA Bank to be paid on December 31, 2023. ACCA bank accepted an equity interest from POOH Company in a form of 10,000 ordinary shares. The fair value of ordinary shares is P40 per share while the par value of the ordinary shares is P30 per share. The fair value of the liability to be settled on December 31, 2023 was P420,000. Company 2: INAMI Company has an overdue note payable to KAH Bank of P800,000 and recorded accrued interest of P96,000 as of December 31, 2023. KAH Bank agreed to the following restructuring agreement on December 31, 2023 wherein the prevailing market interest rate for similar debt instrument on this date is 12%: Reduce the principal obligation by P100,000. Waive the P96,000 accrued interest. Extend the maturity date to December 31, 2025. Annual interest of 10% of the new principal is to be paid on December 31, 2024 and December 31, 2025. Present value of P1 at 12% for 2 periods is 0.7972. Present value of an ordinary annuity of P1 at 12% for 2 periods is 1.6901. Present value of P1 at 10% for 2 periods is 0.8264. Present value of an ordinary annuity of P1 at 10% for 2 periods is 1.7355. 32. Statement 1: The gain on debt restructuring to be reported by POOH Company in profit or loss as a result of the restructuring is P150,000. Statement 2: The gain on debt restructuring to be reported by INAMI Company in profit or loss as a result of the restructuring is P219,653. a. Only statement 1 is TRUE b. Only statement 2 is TRUE c. Both statements are TRUE d. Both statements are FALSE The shareholders' equity section of CUL Corporation as of December 31, 2023, contained the following accounts: Ordinary share capital, P20 par, 4,500,000 shares P4,500,000 authorized; 225,000 shares issued and outstanding Share premium 2,500,000 Retained earnings 7,200,000 CUL Corporation’s board of directors declared a 10 percent bonus issue on April 1, 2024, when the market value of the share was P24 per share. Accordingly, new shares were issued. Another P2.50 per cash dividends were declared on September 1, 2024 and the equipment with carrying value of P650,000 currently having fair value of P720,000 was declared as dividends on December 1, 2024. CUL Corporation sustained a net loss of P810,000 for the year ended December 31, 2024. Page 9 of 28 0915-2303213  [email protected]  FINANCIAL ACCOUNTING & REPORTING ReSA Batch 46 – October 2023 CPALE Batch 17 Sept 2023  11:45 AM to 02:45 PM FAR Final Pre-Board Exam 33. How much is the total shareholder’s equity should CUL Corporation in its December 31, 2024 Statement of Financial Position? a. 11,511,250 c. 13,151,250 b. 12,051,250 d. 13,671,250 The following relevant data for 2 different companies were as follows: Company 1: LUCID Company granted 100 share options to each of its 100 employees on January 1, 2021. The option plan allows the employees to purchase a share of the entity’s P100 par value ordinary share at P130 per share. On January 1, 2021, the fair value of each option is P40. The option plan requires the employees receiving the options to be in the service of the company for the next three years. Options are exercisable starting January 1, 2024 and options expire at the end of 2025. At January 1, 2021, it was estimated that 20% of the employees will leave during the next three years. Actual and revised estimate of employees leaving the company during 2021, 2022 and 2023 are as follows: 2021: 20 employees left; revised estimate is 15% of remaining employees 2022: 10 employees left; revised estimate is 10% of remaining employees 2023: 18 employees left Company 2: On January 1, 2022, INTERVAL Corporation granted a total of 10,000 share appreciation rights on selected officers on the condition that the employees remain employed at least until December 31, 2024. Each SAR provides for a cash payment equal to the excess of the company’s share market price on exercise date over P130. The entity estimates the fair values of the SARs at the end of each year as follows: 2022: P16.80 2023: P21.20 2024: P29.40 The market values of the ordinary shares are presented for the following dates: January 1, 2022 P130.00 December 31, 2022 P145.00 December 31, 2023 P150.00 December 31, 2024 P160.00 34. Statement 1: The compensation expense for the year 2023 is P85,333 related to INTERVAL Company. Statement 2: The share options outstanding balance as of December 31, 2023 is P208,000 related to LUCID Company. a. Only statement 1 is TRUE b. Only statement 2 is TRUE c. Both statements are TRUE d. Both statements are FALSE On January 1, 2020, NFS Corporation issued its 8%, 5-year convertible debt instruments with a face amount of P8,000,000 for P7,700,000. Interest is payable every December 31 each year. The debt instruments are convertible into 50,000 ordinary shares with a par value of P100. When the debt instruments were issued, the bonds without the conversion option would have been sold for P7,393,312 yielding 10%. On December 31, 2022, P6,000,000 face value of the convertible debt instruments were converted. On December 31, 2023, P1,000,000 face value bonds were retired at 104. Without the conversion privilege, these bonds would have sold on this date at 101. 35. What amount should the company recognize as a result of retirement on December 31, 2023? a. Gain of 8,336 taken to Profit or Loss b. Loss of 8,336 taken to Profit or Loss c. Gain of 8,336 taken to OCI d. Gain of 8,336 taken to Equity On January 1, 2023, MAGIGINGCPAAKO Company obtained a loan of P2,000,000 at an interest rate of 10% specifically to finance the construction of its new building. Funds not yet needed during the construction were temporarily invested in a short-term debt security yielding a P20,000 interest revenue. The construction began on April 30, 2023 and the building was completed on December 31, 2023. Costs incurred during the year were as follows: April 30 – P200,000 October 1 – P500,000 August 1 – P400,000 December 1 – P100,000 Page 10 of 28 0915-2303213  [email protected]  FINANCIAL ACCOUNTING & REPORTING ReSA Batch 46 – October 2023 CPALE Batch 17 Sept 2023  11:45 AM to 02:45 PM FAR Final Pre-Board Exam On March 1, 2023, MAGIGINGCPAAKO Company purchased several machineries that will be used in the production of goods at a purchase price of P1,000,000. The company paid import duties of P30,000 and non-refundable purchase taxes of P20,000. The company also incurred a P50,000 installation and assembly cost. On April 30, 2023, MAGIGINGCPAAKO Company acquired a piece of Land in exchange for 50,000 shares of the company’s P5 par value ordinary shares. When the company acquired the Land, the shares were selling for P10.00 per share. 36. How much is the total initial cost of the depreciable Property, Plant and Equipment? a. 2,300,000 b. 2,413,33 c. 2,913,333 d. 2,800,000 On January 1, 2020, Dalen Company issued P5,000,000 face value, 5-year bonds at 109. Each P1,000 bond was issued with one non-detachable share warrant, each of which entitled the bondholder to purchase 15 shares of P10 par ordinary share at P20. At issuance date, the market value of each of the bonds without warrant sell at 99. The stated rate on the bonds is 11% payable annually every December 31. 37. Assuming that ¾ of the warrants were exercised at a time when the market value of the ordinary share is P25, how much is the total net effect on equity upon exercise of the warrants? a. 937,500 b. 1,125,00 c. 1,500,000 d. 562,500 Rhea Corporation acquired 20,000 shares of August Corporation on February 1, 2023 at P1,000,000 including a P2 per share brokers’ fees and commissions. A P50,000 cash dividends were received from Rome Corporation on July 1, 2023. Rome Corporation’s shares were split 3 for 1 on November 1, 2023. The shares were selling at P30 per share on December 31, 2023. Cost to sell on this is P5 per share. The investments were classified as Investment at Fair Value through Profit or Loss. 38. How much is the unrealized gain or loss that should be reported in the statement of comprehensive income? a. 0 b. 540,000 UG c. 540,000 UL d. 840,000 UG JTT Company incurred P400,000 of research and development costs to develop a product for which a Patent A was granted on January 2, 2019. Legal fees and other costs associated with registration of the patent A totaled P100,000. The estimated useful life of patent A is 10 years. On November 1, 2023, JTT paid P150,000 for legal fees in an unsuccessful defense of the patent. Patent B was acquired on July 1, 2021 for P 300,000. The asset has a legal life of 15 years but due to rapidly changing technology, management estimates a useful life of only ten years. On January 2, 2023, management is uncertain that the process can actually be made economically feasible, and decides to write down the patent. The value in use is P 145,000 while the fair value less cost to sell is P135,000. Amortization will be taken over 4 years from that time. 39. How much is the total carrying value of the Patent on December 31, 2023? a. 145,000 c. 108,750 b. 255,000 d. 306,667 The following relevant data for 3 different companies were as follows: Company 1: TITO Company inaugurated a premiums promotional campaign at the beginning of 2021. Two stickers are included for every sachet of shampoo sold. These stickers will be used to redeem a hair brush. To claim one hair brush, a customer shall present 30 stickers. Each sachet of shampoo is sold at P15 while the hair brush had a cost of P5 each. The following is the summary of the promotional campaign for years 2021 and 2022: 2021 2022 Total sachet of shampoo sold 300,000 562,500 Total stickers presented for redemption 405,000 825,000 The company estimates that only 80% of the stickers will be presented for redemption. The hair brush can be sold separately at P10 if not use in premium promotional program. Page 11 of 28 0915-2303213  [email protected]  FINANCIAL ACCOUNTING & REPORTING ReSA Batch 46 – October 2023 CPALE Batch 17 Sept 2023  11:45 AM to 02:45 PM FAR Final Pre-Board Exam Company 2: VIC Company started its business in selling printers with three-year warranty. It estimates its warranty cost as a percentage of peso sales. Based on past experience, it is estimated that 3% will be repaired during the first year of warranty, 5% will be repaired during the second year of warranty and 7% will be repaired in the third year. The product warranty provides service other than agreed upon specification. In 2021 and 2022, the company was able to sell 10,000 units and 12,500 units, respectively at a total price of P7,000 per unit. The company also incurred actual repair costs of P3,500,000 and P9,500,000 in 2021 and 2022, respectively. The selling price of the warranty is P2,000 per unit. The printer is selling at P5,000 if without the warranty. Company 3: The liability for compensated absences of JOEY Company had a beginning balance of P555,000, it represents the probable unused sick leave and vacation leave in 2021 and prior to 2021 carried over to 2022. The company’s policy is to allow the employees to carry over unused leaves over two years from year of grant, thereafter, it shall expire. Salary rate for current year (2022) increased by 7%. The balance cumulative unused sick leave and vacation leave are as follows: Prior to 2021 leaves carried over to 2022 300 days Leaves earned in 2022 carried over to 2023 600 days 2021 leaves earned carried over to 2022 625 days Prior to 2021 leaves used in 2022 720 days Of the total leaves used in 2022, from prior to 2021 leaves used in 2022, 285 were earned by employee prior to 2021. 40. How much is the unearned premium income at the end of December 31, 2022 that should be reported by TITO Company? a. 24,142 b. 37,524 c. 48,283 d. 49,817 41. How much is the unearned warranty income at the end of December 31, 2022 that should be reported by VIC Company? a. 10,625,000 b. 16,000,000 c. 21,666,667 d. 29,333,333 42. How much is the liability for compensated absences at the end of December 31, 2022 that should be reported by JOEY Company? a. 302,625 b. 418,340 c. 507,180 d. 523,735 On January 1, 2022, Cielo Company leased a cutting machine from Heth Company. The lease is for five years with bargain purchase option of P100,000. It is reasonably certain that Cielo will exercise the option at the end of the lease period. The machine has an estimated useful life of 8 years with zero residual value. The lease calls for Cielo to make annual payments of P250,000 due at the beginning of each year. Cielo uses the straight-line method of depreciation and pays 10% interest on borrowed money. The lease contract also requires Cielo to make additional variable lease payments based on the increase in consumer price index (CPI) at the start of each year compared to the CPI on January 1, 2021. The CPI is 110 on January, 2022, and 120 on January 1, 2023. 43. What is the carrying amount of the right-of-use asset at the end of 2022? a. 895,820 b. 899,819 c. 967,203 d. 995,224 On January 1, 2022, Cynthia Corporation signed a ten-year noncancelable lease for certain machinery. The terms of the lease called for Dire to make annual payments of P150,000 at the end of each year for ten years with title to pass to Cynthia at the end of this period. The machinery has an estimated useful life of 15 years and no residual value. Cynthia uses the straight-line method of depreciation for all of its fixed assets. Cynthia accordingly accounted for this lease transaction as a finance lease. The interest rate of 8% is implicit in the lease. Cynthia has an option to purchase the asset at the end of lease term at P120,000 which is reasonably certain to exercise by Cynthia. Estimated residual value at the end of 10 years is P100,000 and end of 15 years is P80,000. Cynthia incurred a total of P350,000 direct cost to enter the lease. Page 12 of 28 0915-2303213  [email protected]  FINANCIAL ACCOUNTING & REPORTING ReSA Batch 46 – October 2023 CPALE Batch 17 Sept 2023  11:45 AM to 02:45 PM FAR Final Pre-Board Exam 44. How much should Cynthia recognize related to the above transactions for the year 2022? a. lease expense of 150,000. b. interest expense of P80,521 and depreciation expense of 85,101. c. interest expense of P84,968 and depreciation expense of 88,806. d. interest expense of P85,681 and depreciation expense of 131,210. For the calendar year 2023, Mylene Corporation reported depreciation of P1,200,000 in its income statement. On its 2023 income tax return, Mylene reported depreciation of P1,800,000. Mylene's income statement also included P225,000 accrued warranty expense that will be deducted for tax purposes when paid. Mylene's enacted tax rates are 30% for 2023 and 2024, and 24% for 2025 and 2026. The depreciation difference and warranty expense will reverse over the next three years as follows: Depreciation Difference Warranty Expense 2024 P240,000 P 45,000 2025 210,000 75,000 2026 150,000 105,000 P600,000 P225,000 45. How much is the deferred tax asset on December 31, 2023? a. 180,000 b. 158,400 c. 67,500 d. 56,700 The adjusted trial balance of BABANGONMULI Company includes the following accounts at December 31, 2023: Sales revenue P 5,000,000 Commission income 28,000 Interest expense 180,000 Inventory, 12/31/23 520,000 Purchase, net of returns 2,800,000 Sales commission 500,000 Administrative salaries 720,000 Office supplies expense 110,000 Dividends declared 800,000 Dividend income 16,000 Gain on sale of equipment 100,000 Rent expense 400,000 Unrealized gain on investment at fair value through profit 55,000 or loss Unrealized gain on investment at fair value through other comprehensive income 88,000 Depreciation expense – store equipment 70,000 Depreciation expense – office equipment 50,000 Freight-in 80,000 Freight-out 120,000 Additional information: Merchandise inventory, January 1, 2023, P450,000 Income tax rate, 30% Rent expense is allocated 60% selling, 40% administrative. 46. How much is the total comprehensive income for the year 2023? a. P167,300 b. P228,900 c. P255,300 d. P327,000 Page 13 of 28 0915-2303213  [email protected]  FINANCIAL ACCOUNTING & REPORTING ReSA Batch 46 – October 2023 CPALE Batch 17 Sept 2023  11:45 AM to 02:45 PM FAR Final Pre-Board Exam The following information pertains to WAGKANGSUMUKO Corporation defined benefit plan for the year 2023: Defined benefit obligation, January 1, 2023 P 2,500,000 Fair value of plan assets, January 1, 2023 2,000,000 Actual return on plan assets 300,000 Fair value of plan assets, December 31, 2023 2,100,000 Present value of additional DBO settled 175,000 Defined benefit obligation, December 31, 2023 2,400,000 Current service cost 500,000 Discount rate 10% Benefits paid to retirees (at scheduled retirement) 620,000 Contribution made during the year 600,000 47. What amount of defined benefit cost should be reported in 2023 profit or loss? a. 550,000 b. 555,000 c. 545,000 d. 450,000 48. What amount of net remeasurement gain/loss should be reported in 2023 other comprehensive income? a. 155,000 b. 45,000 c. 150,000 d. 50,000 KAYAKOPABA Company and its divisions are engaged solely in manufacturing. The data pertain to the industries in which operations were conducted for the year ended December 31, 2023: Intersegment External Operating Segment Sales Revenues A P1,000,000 P5,000,000 B 1,500,000 3,000,000 C 4,000,000 8,000,000 D 500,000 1,300,000 E 2,000,000 2,800,000 F 200,000 900,000 Total P9,200,000 P21,000,000 49. How many are considered reportable segments? a. Three b. Four c. Five d. Six SAWAKASNATAPOSDIN Company provided you the following information in preparing its interim financial report in 2023: Inventory loss from market decline of P200,000 occurred in May 2023. None of this loss was recovered by the end of the year. Sold a piece of Land in February 2023 resulting to a loss of P50,000 Depreciation per month of 100,000 related to Machinery purchased at the beginning of the year. 50. How should these items be reflected in the company's quarterly income statements? Three Months Ended 3/31/23 6/30/23 9/30/23 12/31/23 a. 400,000 550,000 350,000 350,000 b. 350,000 500,000 300,000 300,000 c. -0- 550,000 300,000 300,000 d. 350,000 550,000 300,000 300,000 51. Which of the following statements is/are true? Statement 1: Recovery from accounts previously written off reduces the balance of bad debt allowance Statement 2: Compensating balances required by a bank should always be excluded from “cash and cash equivalent” a. Only statement 1 is true b. Only statement 2 is true c. Both statements are true d. Both statements are false Page 14 of 28 0915-2303213  [email protected]  FINANCIAL ACCOUNTING & REPORTING ReSA Batch 46 – October 2023 CPALE Batch 17 Sept 2023  11:45 AM to 02:45 PM FAR Final Pre-Board Exam 52. Which of the following statements is/are true? Statement 1: Cash loans made by a financial institution is reported as Operating activities in the Cash Flow Statement Statement 2: The effect of asset ceiling in a defined benefit plan is the excess fair value of plan assets over the present value of future available refund or reduction in contribution a. Only statement 1 is true b. Only statement 2 is true c. Both statements are true d. Both statements are false 53. Which of the following statements is/are true? Statement 1: Any subsequent increase in fair value less cost to sell related to non-current asset classified as held for sale would result to a recognition of gain on recovery without limitation Statement 2: Total contributed capital includes subscription receivable if collectible within one year from the BS date a. Only statement 1 is true b. Only statement 2 is true c. Both statements are true d. Both statements are false 54. Which of the following statements is/are true? Statement 1: Bearer Plant should be depreciated if it bears agricultural produce more than one period and to be sold in the ordinary course of business Statement 2: Accounting for Assurance-type warranty and Service-type Warranty should follow the PFRS 15 and PAS 37, respectively. a. Only statement 1 is true b. Only statement 2 is true c. Both statements are true d. Both statements are false 55. Which of the following statements is/are true? Statement 1: Amortization of discount increases interest expense on the part of the bondholder Statement 2: In a sales-type lease, the dealer’s profit under the unguaranteed residual value is higher than the dealer’s profit under the guaranteed residual value a. Only statement 1 is true b. Only statement 2 is true c. Both statements are true d. Both statements are false 56. Which of the following statements is/are true? Statement 1: FVPL Investments should be reported at fair value every BS date whether equity or debt investment Statement 2: If the type of government grant is related to asset under deduction from asset approach, an income from government grant shall be recognized when the related expense is incurred a. Only statement 1 is true b. Only statement 2 is true c. Both statements are true d. Both statements are false 57. Which of the following statements is/are true? Statement 1: Current and Prior year dividends are deducted from net income in computing the earnings per share if the preference is cumulative. Statement 2: Intangible assets refer to identifiable non-monetary asset without physical substance. a. Only statement 1 is true b. Only statement 2 is true c. Both statements are true d. Both statements are false Page 15 of 28 0915-2303213  [email protected]  FINANCIAL ACCOUNTING & REPORTING ReSA Batch 46 – October 2023 CPALE Batch 17 Sept 2023  11:45 AM to 02:45 PM FAR Final Pre-Board Exam 58. Which of the following statements is/are true? Statement 1: If both fair values of the asset received and given up are not determinable in an exchange of PPE, the exchange is considered as without commercial substance Statement 2: Factoring and Discounting without recourse would result to a derecognition of notes receivable a. Only statement 1 is true b. Only statement 2 is true c. Both statements are true d. Both statements are false 59. Which of the following statements is/are true? Statement 1: Any changes in fair value of FVPL should be treated as future taxable amount Statement 2: FOB Shipping point, Freight Collect means that the buyer paid the shipper freight charges and later asked for reimbursement from the seller a. Only statement 1 is true. b. Only statement 2 is true c. Both statements are true d. Both statements are false 60. Which of the following statements is/are true? Statement 1: Total cessation gain or loss is reported in profit or loss if the reclassification of the remaining interest in associate is reclassified to FVPL only Statement 2: Reissuance of treasury shares at a gain or loss for cash will increase the shareholder’s equity a. Only statement 1 is true b. Only statement 2 is true c. Both statements are true d. Both statements are false 61. Which of the following statements is/are true? Statement 1: If the notes receivable is not paid on maturity date, the accounts receivable will increase by its face value of the notes, accrued interest and other charges if any Statement 2: Non-trade receivables are classified as current assets if collectible within one year or within the normal operating cycle whichever is longer a. Only statement 1 is true b. Only statement 2 is true. c. Both statements are true d. Both statements are false 62. Which of the following statements is/are true? Statement 1: In proof of cash, the adjustment in receipts and disbursements for the current month is increase, if the error is committed in current month by way of understating the receipts and disbursements and corrected also the error in current month Statement 2: If the ending inventory for the current period is understated, the effect of the error in net income for the current period is understated and overstated in subsequent period a. Only statement 1 is true b. Only statement 2 is true c. Both statements are true d. Both statements are false 63. Which of the following statements is/are true? Statement 1: Alternatively, dividend and interest received are reported under investing activity Statement 2: Discontinued operation, net of tax should be reported on the face of other comprehensive income a. Only statement 1 is true b. Only statement 2 is true c. Both statements are true d. Both statements are false Page 16 of 28 0915-2303213  [email protected]  FINANCIAL ACCOUNTING & REPORTING ReSA Batch 46 – October 2023 CPALE Batch 17 Sept 2023  11:45 AM to 02:45 PM FAR Final Pre-Board Exam 64. Which of the following statements is/are true? Statement 1: Interest income is based on nominal interest for both FVPL investment and Interest-bearing notes receivable with realistic rate Statement 2: Share dividends payable and Share appreciation rights payable are both reported as liabilities a. Only statement 1 is true b. Only statement 2 is true. c. Both statements are true d. Both statements are false 65. Which of the following is true about accounts payable? 1. Accounts payable should not be reported at their present value. 2. When accounts payable are recorded at the net amount, a Purchase Discounts account will be used. 3. When accounts payable are recorded at the gross amount, a Purchase Discounts Lost account will be used. a. 1 only b. 2 only c. 3 only d. Both 2 and 3 are true. 66. Star Corporation markets a 10-year bond issue dated January 1, 2023. The bonds pay interest semi-annually on January 1 and July 1. If these bonds are issued on August 1, 2023, how many months accrued interest must be paid by the purchaser and over how many months would any discount on the bonds be amortized? Months of accrued interest Amortization Period a. 7 120 months b. 7 113 months c. 1 120 months d. 1 113 months 67. Which of the following items is not matched correctly with its basis of valuation for purposes of reporting in the Statement of Financial Position? a. Cash → Face value b. Long-term interest-bearing note with unrealistic rate → Face value c. Inventories → Lower of cost or net realizable value d. Accounts receivable→ Amortized cost 68. Which statement is incorrect concerning the elements directly related to the measurement of performance? a. Gains represent other items that meet the definition of income and do not arise in the course of ordinary regular activities. b. Losses represent other items that meet the definition of expenses and do not arise in the course of ordinary regular activities. c. The definition of expenses encompasses losses as well as those expenses that arise in the course of ordinary regular activities. d. The definition of revenue encompasses both income and gains. 69. Reversing entries are not made for Statement I: Adjusting entries related to depreciation, doubtful accounts and ending inventory. Statement II: Adjusting entries related to prepayment of costs initially recorded as assets or receipts in advance initially recorded as liabilities. a. I only b. II only c. Both I and II d. Neither I nor II 70. Which statement is incorrect concerning the conceptual framework? a. The framework is not a Philippine Financial Reporting Standard and therefore does not define standard for any particular measurement or disclosure issue b. The framework is concerned with special purpose financial statements including consolidated financial statements c. There is nothing in the framework that overrides any PFRS d. The framework applies to the financial statements of all commercial, industrial and business reporting enterprises, whether in public or private sector - END of EXAMINATION – Page 17 of 28 0915-2303213  [email protected]  FINANCIAL ACCOUNTING & REPORTING ReSA Batch 46 – October 2023 CPALE Batch 17 Sept 2023  11:45 AM to 02:45 PM FAR Final Pre-Board Exam ANSWERS & SOLUTIONS/CLARIFICATIONS 1 A 26 A 51 D 2 A 27 C 52 A 3 C 28 C 53 D 4 C 29 B 54 D 5 A 30 A 55 D 6 A 31 C 56 A 7 C 32 C 57 B 8 C 33 B 58 A 9 B 34 C 59 D 10 A 35 D 60 B 11 C 36 B 61 A 12 C 37 B 62 B 13 B 38 D 63 A 14 C 39 C 64 A 15 C 40 C 65 A 16 C 41 D 66 D 17 A 42 C 67 B 18 B 43 C 68 D 19 A 44 C 69 C 20 B 45 D 70 B 21 B 46 B 22 D 47 B 23 B 48 A 24 A 49 B 25 Bonus 50 B 1. A UNRESTATED Retained Earnings, 1/1/23 P900,000 Cumulative effect of change in accounting policy - credit 150,000 Correction of prior period error - credit 40,000 RESTATED Retained Earnings, 1/1/23 P1,090,000 Loss on sale of treasury stock P(20,000) 20% stock dividend (40,000) Premium on ordinary shares issued, net of share issuance cost (70,000 – 8,000) 62,000 Share options outstanding 25,000 Gain on exercise of stock rights 30,000 Donated capital 37,000 Share warrants outstanding 12,000 Net adjustments to Share premium - increase P106,000 2. A UNADJUSTED NET INCOME P720,000 Amortization of Patent (60,000) Gain in reversal of impairment 140,000 Accrual of salaries (100,000) Loss on write-down of inventories (10,000) Warranty expense (60,000) Premium income 16,500 Bad debts expense (8,000) Decrease in FV of IP using the FV model (55,000) Rent income 31,000 Amortization of discount on bonds payable (9,000) Amortization of premium on IAC (10,000) Increase in FV of investment at FVPL 80,000 ADJUSTED NET INCOME P675,500 Page 18 of 28 0915-2303213  [email protected]  FINANCIAL ACCOUNTING & REPORTING ReSA Batch 46 – October 2023 CPALE Batch 17 Sept 2023  11:45 AM to 02:45 PM FAR Final Pre-Board Exam 3. C RESTATED Retained Earnings, 1/1/23 P1,090,000 Large stock dividend (20%) (200,000) Cash dividend (195,000) Adjusted net income 675,500 Cumulative UG due to sale of FVOCI 35,000 Retained Earnings, 12/31/23 P1,405,500 4. C Revised cost, 1/1/23 P1,350,000 (1,550,000 – 150,000) x 12/14 + 150,000 Revised depreciable cost,1/1/23 (1,350,000 – 100,000) 1,250,000 Divided by: Remaining useful life (10 yrs. – 2 yrs.) 8 yrs. Depreciation expense - 2023 P156,250 NET INCOME - FIFO P400,000 Beginning inventory – 2023 (understated) (110,000) Ending inventory – 2023 (understated) 100,000 NET INCOME – WEIGHTED AVERAGE P390,000 5. A The net adjustments to RE, 1/1/23 related to Venus Company is zero because the change should be treated PROSPECTIVELY (change in accounting estimate), hence, there will be no adjustment to RE of prior periods. The net adjustments to RE, 1/1/23 related to Earth Company is P100,000 INCREASE (understatement of 2023 EI of P100,000) because the change should be treated RETROSPECTIVELY (change in accounting policy). The understatement of ending inventory in 2022 of P110,000 will counterbalance in 2023, hence, there will be no effect at all in RE as of 12/21/23 or 1/1/24. 6. A 2022 2023 UNADJUSTED REPORTED PROFIT P490,000 P670,000 a. Failed to record accrued expense (34,000) 34,000;(28,000) b. Overstated ending inventory (63,000) 63,000;(28,000) c. Failed to record accrued interest on notes receivable 12,000 (12,000);6,000 d. Failed to recognized unearned portion of revenue (24,000) 24,000;(20,000) e. Failed to record purchases on account. Purchases were --- recorded when paid in the subsequent year. Inventories (25,000) were properly included at the end f. Failed to recognized prepaid (unexpired portion) 4,800 (4,800);6,200 insurance at the end of the year g. Repairs and maintenance incurred during the year was --- (120,000) erroneously capitalized as part of cost of the asset. Full 12,000 year depreciation at annual rate of 10% is provided in the year that the asset is recognized ADJUSTED PROFIT P385,800 P577,400 Page 19 of 28 0915-2303213  [email protected]  FINANCIAL ACCOUNTING & REPORTING ReSA Batch 46 – October 2023 CPALE Batch 17 Sept 2023  11:45 AM to 02:45 PM FAR Final Pre-Board Exam 7. C OPERATING INVESTING FINANCING Net income P800,000 a. (30,000) P130,000 b. P(340,000) c. 220,000 d. (1,200,000) e. (80,000) f. (100,000) g. 150,000 h. 200,000 i. 500,000 j. 210,000 k. 20,000 230,000 Provided by or P1,250,000 P(840,000) P300,000 (Used in) 8. C OPERATING P1,250,000 INVESTING (840,000) FINANCING 300,000 INCREASE IN CASH during the year P710,000 BEGINNING CASH BALANCE 5,000,000 ENDING CASH BALANCE P5,710,000 9. B TOTAL SHE = 2,000,000 + 7,200,000 + 500,000 – 600,000 + 4,000,000 + 800,000 + 400,000 + 700,000 = P15,000,000 SHE TO ORDINARY SHAREHOLDERS = P15,000,000 – (105 x 20,000 shares) – (P10 per share x 20,000 shares x 2 years) = P13,300,000 OUTSTANDING ORDINARY SHARES = 72,000 + 12,000 – 4,000 = 80,000 shares BOOK VALUE PER ORDINARY SHARE = P13,300,000 / 80,000 shares = P166.25 (assuming the preference is cumulative and non-participating) TOTAL SHE = 2,000,000 + 7,200,000 + 500,000 – 600,000 + 4,000,000 + 800,000 + 400,000 + 700,000 = P15,000,000 EXCESS SHE TO ORDINARY & PREFERENCE = P15,000,000 – (105 x 20,000 shares) – (P10 per share x 20,000 shares x 1 year) - (100 x 80,000 shares) – (P10 x 80,000) = P3,900,000 EXCESS SHE ALLOCATED TO PREFERENCE = P2M/P10M x P3,900,000 = P780,000 SHE TO PREFERENCE SHAREHOLDERS = (105 x 20,000 shares) + (P10 per share x 20,000 shares x 1 year) + 780,000 = P3,080,000 BOOK VALUE PER PREFERENCE SHARE = P3,080,000 / 20,000 shares = P154.00 (assuming the preference is non-cumulative and participating) 10. A CASH DIVIDENDS TO ORDINARY SHAREHOLDERS in 2023 = P540,000 – (P10,000 prior year’s preference dividend) – (P180,000 current year’s preference dividend) = P350,000 CASH DIVIDEND PER ORDINARY SHARE = P350,000 / 250,000 shares = P1.40 11. C EXCESS CASH DIVIDENDS TO ORDINARY & PREFERENCE = P540,000 – (P180,000 current year’s preference dividend) - (P225,000 current year’s ordinary dividend) = P135,000 EXCESS CASH DIVIDENDS ALLOCATED TO PREFERENCE = P2M/P4.5M x P135,000 = P60,000 CASH DIVIDENDS DISTRIBUTABLE TO PREFERENCE SHARE = P180,000 + P60,000 = P240,000 Page 20 of 28 0915-2303213  [email protected]  FINANCIAL ACCOUNTING & REPORTING ReSA Batch 46 – October 2023 CPALE Batch 17 Sept 2023  11:45 AM to 02:45 PM FAR Final Pre-Board Exam 12. C FULL AMOUNT OF PREFERENCE DIVIDEND = 10% x P1,000,000 = P100,000 OWNERSHIP = 50,000 shares / 200,000 shares = 25% SHARE IN NET INCOME - 2022 = 25% x P4,000,000 = P1,000,000 (assuming the preference share is non-cumulative) SHARE IN NET INCOME - 2023 = 25% x (P5,000,000 – P100,000) = P1,225,000 (assuming the preference share is cumulative) 13. B WANOSO = (200,000 x 12/12) + (20,000 x 9/12) – (30,000 x 4/12) = 205,000 shares BEPS = P500,000 – (P3.50 x 40,000 shares) / 205,000 shares = P1.76 14. C Adjustment to Adjustment to EPIS numerator denominator OPTIONS - (50-40)/50 x 0 (#1) 30,000 = 6,000 shares CONVERTIBLE BONDS 8% x P2,000,000 x 12/12 x 60% P2,000,000/P1,000 2.40(#3) = P96,000 x 20 = 40,000 shares CONVERTIBLE PREFERENCE SHARE P3.50 x 40,000 1.17 (#2) shares 40,000 x 3 = P140,000 = 120,000 shares BEPS = P500,000 – (P3.50 x 40,000 shares) / 205,000 shares = P1.76 DEPS = P500,000 – (P3.50 x 40,000 shares) / 205,000 shares + 6,000 = P1.71 DEPS = P500,000 / 211,000 shares + 120,000 = P1.51 DEPS = P500,000 + 96,000 / 331,000 shares + 40,000 = P1.61 15. C Statement 1: Date PP Applied to Interest Applied to P Balance, end 01/01/2023 3,037,300 12/31/2023 1,000,000 364,476 635,524 2,401,776 12/31/2024 1,000,000 288,213 711,787 1,689,989 Statement 2: Interest expense - 2024 = P2,401,776 x 12% x 12/12 = P288,213 16. C Interest income – 2023 related to LUZ = P2,000,000 x 12% x 12/12 = P240,000 Service income on 1/1/23 related to VI = P3,000,000 x.712 = P2,136,000 Gain on sale related to MIN = P0. The result was a LOSS on sale of P98,000 instead of GAIN on sale. Page 21 of 28 0915-2303213  [email protected]  FINANCIAL ACCOUNTING & REPORTING ReSA Batch 46 – October 2023 CPALE Batch 17 Sept 2023  11:45 AM to 02:45 PM FAR Final Pre-Board Exam DOWN PAYMENT P1,000,000 PV OF FCO (1,000,000 x 2.402) 2,402,000 SALES PRICE OF MACHINE 3,402,000 CV OF MACHINE (3,500,000) LOSS ON SALE P(98,000) 17. A Before adjustments P1,000,000 Adjustment for discount lost (2% x 300,000) 6,000 Accounts payable after adjustment P1,006,000 18. B Cash paid to Associate P625,000 (25,000 x P25/share) Fair value of net assets acquired (900,000 – 100,000) + 300,000 – 400,000 (225,000) + 50,000 = P750,000 x 30% GOODWILL P400,000 Share in net income – UNADJUSTED P135,000 (P450,000 x 30% x 12/12) Share in Overstatement of DE 12,000 (P400,000/10 x 12/12) x 30% Share in Understatement of COGS (10,500) (P50,000 x 70%) x 30% SHARE IN NET INCOME – ADJUSTED P136,500 19. A COST (P625,000 + P15,000) P640,000 Share in net income - adjusted 136,500 Share in OCI (P100,000 x 30%) 30,000 Share in cash dividends (200,000) CV, 12/31/23 before impairment P606,500 Impairment loss: *RV = 25,000 shares x P30 = P750,000 0 versus CV = 606,500 CV, 12/31/23 after impairment P606,500 20. B ISSUED SHARES TREASURY SHARES OUTSTANDING SHARES Beg. balance 50,000 0 50,000 a. 20,000 - 70,000 b. - 5,000 65,000 c. 70,000 x 2 = 140,000 5,000 x 2 = 10,000 130,000 d. 130,000 x 20% = 26,000 - 156,000 e. - (3,000) 159,000 f. - 15,000 144,000 g. - (10,000) 154,000 ORDINARY shares issued balance,12/31 = 140,000 + 26,000 = 166,000 PAR VALUE of ORDINARY share after share split = P50 / 2 = P25 ORDINARY share capital, 12/31 = 166,000 x P25 par value = P4,150,000 Page 22 of 28 0915-2303213  [email protected]  FINANCIAL ACCOUNTING & REPORTING ReSA Batch 46 – October 2023 CPALE Batch 17 Sept 2023  11:45 AM to 02:45 PM FAR Final Pre-Board Exam TOTAL SHARE PREMIUM, 1/1 (200,000 + 2,000,000) P2,200,000 (e.) Reissuance of TS at a gain 3,000 shares x ( P40 – P30 ) 30,000 (g.) Reissuance of donated shares at P40 – proceeds credited to donated capital 400,000 10,000 shares x P40 SHARE PREMIUM, 12/31 P2,630,000 ORDINARY SHARE CAPITAL, 12/31 P4,150,000 PREFERENCE SHARE CAPITAL, 12/31 500,000 SHARE PREMIUM,12/31 2,630,000 TOTAL CONTRIBUTED CAPITAL, 12/31 P7,280,000 21. B SHE, 1/1/23 P9,200,000 a.Proceeds from issuance of OS (20,000 x P50) 1,000,000 b.Purchase of TS (5,000 x P60) (300,000) e.Reissuance of TS (3,000 x P40) 120,000 g.Reissuance of donated shares (10,000 x P40) 400,000 h.Declaration of cash dividends: * Preference = P12 x 5,000 shares = P60,000 * Ordinary = P3 x 154,000 shares = P462,000 (522,000) Net income 1,200,000 Cumulative UL-FVOCI (200,000) SHE, 12/31/23 P10,898,000 22. D Fair value of remaining investments, 1/1/24 P2,520,000 (18,000 shares x P140) Carrying value of remaining investments,1/1/24 (2,310,000) 3,000,000 + (5,000,000 x 25%) – 400,000 = 3,850,000 x 18/30 GAIN ON RECLASSIFICATION taken to PROFIT P210,000 OR LOSS related to JMI Company Fair value, 1/1/24 P2,060,000 (P2,000,000 x 1.03) Amortized cost,1/1/24 (1,902,372) (1,852,262 x 1.11 – 180,000 x 1.11 – 180,000) GAIN ON RECLASSIFICATION taken to OCI P157,628 related to CSA Company NO GAIN OR LOSS ON RECLASSIFICATION shall be recognized by JFC Company on 1/1/24 upon transfer from Investment Properties to PPE. Journal entry to record the transfer on 1/1/24 is Debit to PPE of P1,200,000 and Credit to Investment Properties of P1,200,000. 23. B Fair value of remaining investments, 1/1/24 P2,520,000 (18,000 shares x P140) Fair value of remaining investments, 12/31/24 (2,880,000) (18,000 shares x P160) UNREALIZED GAIN on 12/31/23 taken to OCI P360,000 Page 23 of 28 0915-2303213  [email protected]  FINANCIAL ACCOUNTING & REPORTING ReSA Batch 46 – October 2023 CPALE Batch 17 Sept 2023  11:45 AM to 02:45 PM FAR Final Pre-Board Exam 24. A FAIR VALUE OF NEW INVESTMENT (FVOCI) on 12/31/24 = P2,000,000 x 1.04 = P2,080,000 25. None of the Choices Rent income for the year P120,000 (P10,000 x 12 months) Unrealized LOSS due to change in FV (700,000) (1,900,000 – 1,200,000) NET EFFECT IN PROFIT OR LOSS (P580,000) 26. A Land held for capital appreciation P2,000,000 Hotel building for which rentals are significant 5,000,000 TOTAL INVESTMENT PROPERTIES P7,000,000 27. C CORRECT COST OF INVENTORIES, 12/31 = P4,400,000 + P400,000 + P700,000 = P5,500,000 28. C Petty cash fund P225,000 Cash in Bank – BDO Checking Account 750,000 Cash in Bank – Security bank including unrestricted 225,000 compensating balances of P25,000 Money order and Traveler’s check 150,000 Cash in Bank – PNB (money market, 90 days) 3,000,000 CORRECT CASH AND CASH EQUIVALENTS, 12/31/23 P4,350,000 29. B Unearned rent income P500,000 FDAAB Prepaid advertising expense 300,000 FTALE Installment sale which will be taxable upon collection 800,000 FTALE Accrued salaries expense 400,000 FDAAB Bad debts expense using a method under accrual basis 100,000 FDAAB Impairment loss on Building 150,000 FDAAB Excess book depreciation over tax depreciation 350,000 FDAAB Provision for litigation 250,000 FDAAB Unrealized gain on FVPL 120,000 FTALE Excess warranty expense over warranty paid 90,000 FDAAB Fines, Penalties and Surcharges 30,000 NDE TOTAL FUTURE TAXABLE AMOUNTS = P300,000 + P800,000 + P120,000 = P1,220,000 30. A Dairy cattle P3,000,000 Sheep 2,000,000 Fruit trees 1,500,000 TOTAL BIOLOGICAL ASSETS P6,500,000 31. C Share premium before quasi-reorganization P2,000,000 Increase in share premium as a result of reduction in par 2,500,000 (P100 – P50) x 50,000 shares Decrease in share premium as a result of absorption of deficit (3,800,000) Share premium after quasi-reorganization P700,000 Page 24 of 28 0915-2303213  [email protected]  FINANCIAL ACCOUNTING & REPORTING ReSA Batch 46 – October 2023 CPALE Batch 17 Sept 2023  11:45 AM to 02:45 PM FAR Final Pre-Board Exam Total adjusted deficit = 2,000,000 + (4,000,000 – 3,000,000) + (1,500,000 – 1,000,000) + 300,000 = P3,800,000 Ordinary share capital (P50 x 50,000 shares) P2,500,000 Share premium 700,000 Retained earnings 0 TOTAL SHE AFTER QUASI-REORGANIZATION P3,200,000 32. C GAIN ON DEBT RESTRUCTURING related to POOH Company: = P550,000 – (10,000 shares x P40) = P150,000 CV of the debt P896,000 PV of modified cash flow P700,000 x.7972 = P558,040 70,000 x 1.6901 = 118,307 676,347 GAIN ON DEBT RESTRUCTURING P219,653 related to INAMI Company 33. B SHE, 12/31/23 (4,500,000 + 2,500,000 + 7,200,000) P14,200,000 Cash dividends declared (225,000 x 1.10 ) x P2.50 (618,750) Property dividends declared (at FV) (720,000) Net loss (810,000) SHE, 12/31/24 P12,051,250 34. C Cumulative compensation expense as of 12/31/23 P141,333 (10,000 x P21.20) / 3 years x 2 years Cumulative compensation expense as of 12/31/22 (56,000) (10,000 x P16.80) / 3 years x 1 year COMPENSATION EXPENSE – 2023 related to P85,333 INTERVAL Company SHARE OPTIONS OUTSTANDING on 12/31/23 related to LUCID Company: = (100-18-10-20 = 52 employees x 100 options = 5,200 options = (5,200 options x P40) /3 years x 3 years = P208,000 35. D Retirement price on equity (3% x P1,000,000) P30,000 CV of bond conversion privilege cancelled (7,700,000 – 7,393,312) x 1/8 38,336 Gain on cancellation of BCP taken to EQUITY P8,336 36. B Borrowing cost DURING the construction period P133,333 (2,000,000 x 10% x 8/12) Interest revenue (20,000) Capitalized interest - 2023 P113,333 Actual expenditures P1,200,000 (200,000 + 400,000 + 500,000 + 100,000) Capitalized interest 113,333 Initial cost of Building P1,313,333 Page 25 of 28 0915-2303213  [email protected]  FINANCIAL ACCOUNTING & REPORTING ReSA Batch 46 – October 2023 CPALE Batch 17 Sept 2023  11:45 AM to 02:45 PM FAR Final Pre-Board Exam Initial cost of Machineries : = P1,000,000 + P30,000 + P20,000 + P50,000 = P1,100,000 COST OF BUILDING P1,313,333 COST OF MACHINERIES 1,100,000 TOTAL COST OF DEPRECIABLE PPE P2,413,333 37. B Total net effect on equity = Cash received upon exercise of the warrants: 5,000 bonds x 1 warrant per bond x 15 shares per warrant x exercise price of P20/share = P1,500,000 x ¾ = P1,125,000 Alternative solution = OS of P562,500 + SP of P937,500 – SWO of P375,000 = P1,125,000 Journal entry: Cash 1,125,000 SWO 375,000 OS 562,500 SP 937,500 38. D Fair value, 12/31/23 P1,800,000 (20,000 x 3 = 60,000 shares x P30)