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1. Crispin Santos started a retail merchandise business on January 1, 2017. During the scal year ended December 31, 2017, he paid his trade creditors P2,000,000 in cash and suffered a net loss of P350,000. Among his ledger account pre closing balances on December 31, 2017 were the following: Accounts receivable 600,000 Accounts payable 750,000 Capital (total investment in cash) 2,000,000 Expenses (paid in cash) 100,000 Merchandise (unadjusted debit balance) 700,000 There were no withdrawals. All sales and purchases were on credit. The merchandise account is debited for purchases and credited for sales. The sales for 2017 amounted to a. 2,750,000 b. 2,050,000 c. 2,650,000 d. 700,000 2. What was the cash balance on December 31, 2017? a. 1,350,000 b. 2,000,000 c. 1,450,000 (I. 3,450,000 3. What was the merchandise inventory on December 31, 2017? a. 700,000 b. 450,000 c. 750,000 (I. 0 12. Pear Company's income statement for the year ended December 31, 2017, as prepared by Pear's controller, reported income before tax of PS,000,000. The auditor questioned the following amounts that had been included in income before tax: Equity in earnings of Cinn Company 1,600,000 Dividend received from Cinn 320,000 Adjusted of prot of prior year for arithmetical error in depreciation 1,400,000 Pear owns 40% of Cinn's common stock. The 2017 income statement should report income before tax at a. 3,400,000 b. 4,680,000 c. 4,800,000 d. 6,080,000 13. On March 15, 2013, Rex Company paid property taxes of P180,000 on its factory building for calendar year 2013. On April 1, 2013 Rex made P300,000 in unanticipated repairs to its plant equipment. The repairs will benet operations for the remainder of the calendar year. What total amount of these W should be included in Rex's quarterly income statement for the three months ended June 30, 2013? a. 75,000 b. 145,000 c. 195,000 d. 345,000 14. Midway Company had the following transactions during 2017. El P1,200,000 pretax loss on foreign currency exchange due to a major unexpected devaluation by the foreign government. El P500,000 pretax loss from discontinued operations of a division. [I P800,000 pretax loss on equipment damaged by a tsunami. This was the rst tsunami ever to strike in Midway's area. Midway also received P4,000,000 from its insurance company to replace a building, with a carrying value of P3,300,000, that had been destroyed by the tsunami. What amount of loss shon Midway report in its 2017 income statement as part of continuing operations? a. 100,000 b. 1,300,000 c. 4,100,000 d. 2,500,000 15. Taylor Company, a publicly owned corporation, assesses performance and makes operations decisions using the following information for its reportable segments: Total revenue 7,680,000 Total prot and loss 406,000 Included in the total prot and loss are Went prot of P61,000. In addition, Taylor has P5,000 of common costs for its reportable segments that are not allocated in reports used internally. For purposes of segment reporting, Taylor report segment prot of a. 350,000 b. 345,000 c. 411,000 :1. 406.000 16. Ocean Corporation's comprehensive insurance policy allows its assets to be replaced at current value. The policy has a P250,000 deductible clause. One of Ocean's waterfront warehouse was destroyed in a winter storm. Such storms occur approximately every four years. Ocean incurred P100,000 of cost in dismantling the warehouse and plans to replace it. The following data relate to the warehouse: Current carrying amount 1,500,000 Replacement cost 5,500,000 What amount of gain should Ocean report as a component of income from continuing operations? a. 5,150,000 b. 3,900,000 c. 3,650,000 d. 0 17. Clay Company has three lines of business, each of which was determined to be reportable segment. Clay Company sales aggregated P'7,500,00 in 2013, of which Segment No.1 contributed 40 %. 'lraceable costs were P1,750,000 for Seglnent No.1 out of a total of P5,000,000 for the company as a whole. For external reporting, Clay allocates common costs of P1,500,000 based on the ratio of a segment's income before common costs to the total income before common costs. In its 2013 nancial statements, how much should Clay report as operating prot for Segment No. 1? a. 1,250,000 b. 1,000,000 c. 650,000 d. 500,000 18. XYZ Company has three segments, A, B and C. Segment C, the closing division, is deemed inconsistent with the long term direction of the enterprise. Management has decided to dispose 01' Segment C. On November 15, 2017, the board of directors of XYZ Company voted to approve the disposal and an announcement was made. On that date the carrying amount of Segment C's net assets was P90,000,000 and the recoverable amount of the net assets was \"0,000,000. Segment C's revenue and expenses for 2017, respectively, were P50,000,000 and P32,000,000, including an interest of P5,000,000 attributable to Segment C. There was no further impairment of assets between November 15 and December 31, 2017. Before income tax, how much is the 2017 income or loss from the discontinued segment? a. 13,000,000 income b. 18,000,000 income c. 30,000,000 income d. 2,000,000 loss 19. Glory Company manufactures kerosene heaters for home use. The December 31 nancial statements contained the following errors: 2012 2013 Ending inventory 200,000 under 300,000 over Depreciation 50,000 under An insurance premium of P150,000 was prepaid in 2012 to cover 2012, 2013 and 2014. The entire amount was charged to expense In 2012. On December 31, 2013, fully depreciated machinery was sold for P250,000 cash but the sale was not recorded until 2014. There were no other errors during 2012 and 2013 and no corrections have been made for any of the errors. Ignoring income tax, what is net e'ect of the errors on the retained earnings on December 31, 2013? a. 300,000 overstated b. 250,000 understated c. 50,000 overstated d. 50,000 understated 20. On September 30, 2017, when the carrying amount of the net assets of a business segment was P70,000,000, XYZ Company signed a legally binding contract to sell the business segment. The sale is expected to be completed by January 31, 2018 at a selling price of expected to be completed by January 31, 2018 at a selling price of P60,000,000. In addition, prior to January 31, 2018, the sale contract obliges XYZ Company to terminate the employment of certain employees of the business segment incurring an expected termination cost of P2,000,000 to be paid on June 30, 2018. The segment's revenue and expenses for 2017 were P40,000,000 and P45,000,000 respectively. Before income tax, how much will be reported as loss from the discontinued segment for 2017? a. 17,000,000 b. 12,000,000 c. 15,000,000 d. 7,000,000 21. Victoria Company's statements for 2011 and 2012 included errors as follows: Year Ending inventory Depreciation 2011 200,000 understated 50,000 understated 2012 300,000 overstated 90,000 overstated How much retained earnings should be retroactively adjusted at =January 1, 2013? a. 260,000 increase b. 260,000 decrease c. 410,000 decresse d. 210,000 decrease 22. Siasi Company is a diversied company with nationwide interest in commercial real estate development, banking, mining and food distribution. The food distribution division was deemed to be inconsistent with the long-term direction of the company. On October 1, 2017 the board directors voted to approve the disposal of this division. The sale is expected to occur in August 2018. 993 food distribution had the following revenue and expenses in 2017: January 1 to September 30, revenue of P35,000,000 and expenses of P27,000,000; October 1 to December 31, revenue of P15,000,000 and expenses of P10,000,000. The carrying amount of the division's assets at December 31, 2017 was P56,000,000 and the recoverable amount was estimated to be P56,500,000. The sale contract requires Siasi to terminate certain employees incurring an expected termination cost of P4,000,000 to be paid by December 15, 2018. The income statement for the year ended December 31, 2017 will report income from discontinued operations at a. 9,500,000 b. 6,175,000 c. 9,000,000 d. 5,850,000 23. During 2013, Paul Company discovered that the ending inventories reported on its nancial statements were incorrect by the following amounts: 2011 60,000 understated 2012 75,000 overstated Paul uses the periodic inventory system to ascertain year-end quantities that are converted to peso amounts using the FIFO cost method. Prior to any adjustments for these errors and ignoring income tax, Paul's retained earnings at ,langm 1, 2013 would be a. Correct b. 15,000 overstated c. 75,000 overstated d. 135,000 overstated 24. The following information pertains to Alena Company on December 31 of the current year: Property, plant and equipment 35,000,000 Accounts receivable 20,000,000 Prepaid insurance 2,500,000 Short-term note payable 3,000,000 Cash 5,000,000 Bonds payable 40,000,000 Total assets 101,500,000 Land 20,000,000 Accounts payable 8,000,000 Allowance for doubtful accounts 1,000,000 Merchandise inventory 13,000,000 Available for sale securities to be held indenitely 7,000,000 Wages payable 2,000,000 Total liabilities 56,000,000 Premium on bonds payable 3,000,000 The December 31 working capital is a. 46,500,000 b. 33,500,000 c. 26,500,000 d. 35,500,000 25. Conn Company reported a retained earnings balance of P4,000,000 at December 31, 2012. In August 2013, Conn determined that insurance premiums of P900,000 for the three-year period beginning January 1, 2012, had been paid and fully expensed in 2012. Assume Conn has a 35 9% income tax rate. What amount should Conn report as adjusted beginning retained earnings in its 2013 statement of retained earnings? a. 3,400,000 b. 4,390,000 c. 4,600,000 d. 3,610,000 4. After its rst year of operations, Mercury Company had the following data on its operations. Manufacturing costs were distributed as follows: Cost of goods sold 4,320,000 Materials used 50% Direct labor 30% Manufacturing overhead 20% Goods in process, December 31, were 10% of the total manufacturing cost. Finished goods remaining in stock were 20% of the total cost of goods manufactured. The direct labor cost was a. 1,800,000 b. 2,400,000 c. 3,000,000 d. 5,400,000 5. Presented below are changes in all the account balances of Camadillo Company for the current year, except for retained earnings. Increase (Decrease) Cash 790,000 Accounts receivable, net 240,000 Inventory 1,270,000 Investments (470,000) Accounts payable (380,000) Bonds payable 820,000 Share capital 1,250,000 Share premium 130,000 There were no entries in the retained earnings account except for net income and a dividend declaration of P190,000 which was paid in the current year. What was the net income for the current year? a. 1,200,000 b. 1,190,000 c. 200,000 d. 10,000 6. Vane Company's trial balance of income statement accounts for 2017 included the following: Debit Credit Sales 5,750,000 Cost of sales 2,400,000 Administrative expenses 700,000 Loss on sale of equipment 100,000 Sales commissions 500,000 Interest revenue 250,000 Freight out 150,000 Loss on early retirement of long-term debt 200,000 Uncollectible accounts expense 150,000 4,200,000 6,000,000 Finished goods inventory January 1 4,000,000 December 31 3,600,000 In Vaue's 201'}1r income statement, what amount should be reported as cost of goods manufactured? a. 2,000,000 b. 2,150,000 c. 2,300,000 :1. 2,950,000 7. An analysis of the records of Isla Company disclosed changes in account balances for 2017 and the supplementary data listed below. Cash 480,000 decrease Accounts receivable 300,000 increase Merchandise inventory 3,100,000 increase Accounts payable 420,000 increase During the year, Isla borrowed P4,000,000 in notes from the bank and paid 011' notes of P3,000,000 and interest of P240,000. Interest of P100,000 is accrued on December 31, 2017. There was no interest payable at the end of 2016. In 2017, Isla transferred certain trading securities to the business and these were sold for P1,500,000 to nance purchase of merchandise. Isla made weekly withdrawals in 2017 of P10,000. What was the net income for 2017? a. 1,520,000 b. 1,920,000 c. 1,400,000 d. 420,000 8. The following information for 201'}1r is provided by Bangladesh Company: Sales 50,000,000 Cost of goods sold 30,000,000 Selling expenses 5,000,000 General and administrative expenses 4,000,000 Interest expense 2,000,000 Gain on early extinguisbment of long-term debt 500,000 Correction of inventory error, net of income tax - credit 1,000,000 Investment income - equity method 3,000,000 Gain on expropriation 2,000,000 Income tax expense 5,000,000 Dividends declared 2,500,000 What was the 2017 income from continuing operations? a. 9,000,000 b. 8,000,000 c. 9,500,000 d. 7,000,000 9. Moon Corporation reports quarterly to its stockholders. Condensed financial information is presented. Selected information for the year 2013 is shown below. Machinery repairs of P500,000 incurred in the first quarter are expected to benefit each quarter equally. I Advertising costs are allocated among the remaining quarters of the annual period, including the quarter in which the costs are incurred on the basis of historical pattern of sales: 20%, 30%, 15%, and 35% in the first through fourth quarters respectively. Advertising expense amounted to P600,000 and was incurred in the second quarter. How much of the expense should be reported for the second quarter? a. 1,100,000 b. 325,000 c. 350,000 d. 600,000 10. Thorpe Company's income statement for the year ended December 31, 2017 reported net income of P7,410,000. The auditor raised questions about the following amounts that had been included in net income: Unrealized loss on available for sale securities (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) The loss from fire was an infrequent but not an unusual occurrence in Thorpe's line of business. Thorpe's 2017 income statement should report net income at a. 6,500,000 b. 6,610,000 c. 8,160,000 d. 8,700,000 11. Kell Corporation's P950,000 net income for the quarter ended September 30, 2013, included the following after tax items: [ A P600,000 expropriation gain, realized on April 30, 2013, was allocated equally to the second, third, and fourth quarters of 2013. I A P160,000 cumulative-effect loss resulting from a change in inventory valuation method was recognized on August 1, 2013. In addition, Kell paid P480,000 on February 1, 2013, for 2013 calendar-year property taxes. Of this amount, P120,000 was allocated to the third quarter of 2013. For the quarter ended September 30, 2013, Kell should report net income of a. 910,000 b. 1,030,000 c. 1,110,000 d. 1,150,000
