ASSUMPTION COLLEGE OF NABUNTURAN

Nabunturan, Davao de Oro Province

INTERMEDIATE ACCOUNTING 3
FINAL EXAMINATION
May 22, 2021

Name: ______________________________________ Score: _______________________

TEST I. THEORY

1. Financial statement must be prepared at least

a. Annually
b. Quarterly
c. Semiannually
d. Every two years
2. An objective of financial reporting is to provide
a. Information about the investors in the entity
b. Information about the liquidation value of the entity
c. Information useful in assessing cash flow prospects
d. Information that will attract new investor
3. The term net asset represents
a. Retained earnings
b. Current assets less current liabilities
c. Total contributed capital
d. Total assets less total liabilities
4. Comprehensive income always
a. Is the same as net income.
b. Is greater than net income.
c. Is less than net income.
d. Could be greater than or less than net income.
5. A change in accounting policy requires what kind of adjustment to the financial statements?
a. Current period adjustment
b. Prospective adjustment
c. Retrospective adjustment
d. Current and prospective adjustment
6. Interim financial statements are usually presented on a
a. Monthly basis
b. Quarterly basis
c. Semiannual basis
d. Nine-month basis
7. Which is not considered a derivative instrument?
a. Currency futures
b. Call option
c. Bank certificate of deposit
d. Interest rate swap
8. Which feature of treasury share would most likely be opposed by ordinary shareholders?
a. Convertible
b. Callable
c. Redeemable
d. Participating
9. Which of the following shareholder rights is most commonly enhanced in an issue of preference shares?
a. The right to vote for board of directors.
b. The right to maintain one’s proportional interest.
c. The right to receive a full cash dividend before dividends are paid to other classes of share capital.
d. The right to vote on major corporate issues.
10. Options and warrants are dilutive if
a. The exercise price is lower than the average market price.
b. The exercise price is higher than the average market price.
c. The exercise price is equal to the average market price.
 d. The option shares represent 20% of ordinary shares.
11. Under the treasury share method, the number of potential ordinary shares is equal to
a. Option shares
b. Option shares minus assumed treasury shares
c. Option treasury shares
d. Option shares actually issued during the year
12. What is the justification underlying the concept of potential ordinary shares in a diluted EPS computation?
a. Form over substance
b. Substance over form
c. Form and substance considered equally
d. Accounting practice
13. When an entity adjusted the historical cost income statement by applying specific price index to
depreciation, the income statement is prepared according to
a. Fair value accounting
b. Purchasing power accounting
c. Current cost accounting
d. Nominal peso accounting
14. Could current cost financial statements report holding gains during the period for which of the following?
a. Goods sold
b. Inventory
c. Goods sold and inventory
d. Neither goods sold nor inventory
15. Entities with total assets or total liabilities below the floor threshold of P 3,000,000 are known as
a. Micro-business entities
b. Macro-business entities
c. Medium-sized entities
d. Small entities

PART II. PROBLEM SOLVING

1. Abegail Company reported the following statement of financial position on December 31, 2020.

Curent assets 2,000,000

Investments 400,000
Tangible assets 7,150,000
Intangible assets 400,000
Total 9,950,000

Current liabilities 1,500,000

Long term liabilities 2,000,000
Equity 6,450,000
Total 9,950,000

 Equity has preference share capital, no par value, P 5 stated value, authorized 300,000 shares,
issued 150,000 for P 1,000,000, and ordinary share capital, P 20 par value, authorized 400,000
shares, issued 100,000 shares of P 30 per share.
 Tangible assets include building P 5,000,000 less accumulated depreciation P 1,600,000,
equipment P 1,400,000 less accumulated depreciation P 400,000, land P 1,250,000, and land
held for future plant site P 1,500,000.
 The current asset include: Cash P 400,000, accounts receivable P 750,000 less P 50,000 for
allowance for doubtful accounts, inventories P 800,000, and prepaid expenses P 100,000.
 The investments include the cash surrender value of a life insurance contract P 50,000,
investment in securities, short term, P 100,000, and long term, P 250,000.
 Intangible assets include a franchise P 100,000, goodwill P 200,000 and discount on bonds
payable P 100,000.
 Current liabilities include accounts payable P 400,000, notes payable- short term debt P 450,000,
and long-term P 300,000, taxes payable P 150,000, and appropriation for contingencies P
200,000.
  Long term liabilities comprised solely of 12% bonds payable due on December 31, 2023.

Required:

Prepare in good form a properly classified statement of financial position with appropriate notes.

PROBLEM 2

Jolly Company was organized on January 1, 2020, 25,000 ordinary shares of P 100 par value being assumed in
exchange for property, plant and equipment valued at P 3,000,000 and cash of P 1,000,000.

The following data summarize activities for the year.

1. Net income for the current year was P 1,000,000.

2. Raw materials on hand on December 31 were equal to 25% of raw materials purchased.
3. Manufacturing costs were distributed as follows:
Materials used 50%
Direct Labor 30%
Factory Overhead 20% (includes depreciation of building, P 100,000)
4. Goods in process remaining in the factory on December 31 were equal to 331/3% of the goods finished
and transferred to stock.
5. Finished goods remaining in stock were equal to 25% of the cost of goods sold.
6. Expenses were 30% of sales.
7. Cost of goods sold was 150% of the expenses total.
8. Ninety percent of sales were collected. The balance was considered collectible.
9. Seventy five percent of the raw materials purchased were paid for. There were no expense accruals or
prepayments at the end of the year.

Required:

Prepare an income statement for the year ended December 31, 2020.

PROBLEM 3

Lezil Company showed the following charges and credits to retained earnings for 2020:

Balance- January 1 2,600,000

Loss from fire 50,000
Goodwill impairment 250,000
Stocks dividends 700,000
Loss on sale of equipment 200,000
Compensation of prior period not accrued 500,000
Loss on retirement of preference share at more than issue price 350,000
Share premium 600,000
Gain on early retirement of bonds payable 100,000
Gain on life insurance settlement 450,000
Correction of prior period error- credit 400,000
Net income for the year 3,000,000
Appropriation for treasury shares during the year 1,000,000

Required:

Prepare a statement of retained earnings for 2020.

PROBLEM 4

Vanessa Company encountered the following cost situations as part of the quarterly financial reporting:

 The entity conducted inventory count at the end of the second quarter and end of the fiscal year.
 Typical gross profit rate 30%
Actual gross profit rate at the end of the second quarter 35%
Actual gross profit rate at the end of the year 25%
 Quarterly sales:
First Quarter 10,000,000
 Second Quarter 8,000,000
Third Quarter 7,000,000
Fourth Quarter 15,000,000
 There was a temporary decline in inventory value of P 100,000 in the first quarter which was recovered
fully in the second quarter.
 There was a net realizable value adjustment of P 150,000 in the third quarter.
The inventory value increased by P 200,000 at the end of the fourth quarter.

Required:

1. Compute the cost of goods sold for the quarter

2. Compute the gross income for each quarter.

PROBLEM 5

Jayvee Company is subject to the requirements of segment reporting. In the income statement for the current
year, the entity reported revenue of P 50 Million excluding intersegment sales of P 10M, expenses of P 47M and
net income of P 3M. Expenses included payroll costs of P 15M.

The combined total assets of all reporting segments at year-end amounted to P 45,000,000.

a. What is the minimum amount of sales to a major customer?

b. What is the minimum amount of external revenue to be disclosed by reportable segments?

PROBLEM 6

On January 1, 2020, Nova Mae Company entered into a two-year P 4,000,000 variable interest rate loan at the
prevailing interest rate of 12%.

In 2021, the interest rate is equal to the prevailing interest rate at the beginning of the year. The principal loan is
payable on December 31, 2021 and the interest is payable on December 31 of each year.

On January 1, 2020, the entity entered into a receive variable, pay fixed interest swap agreement with a
speculator bank. The interest rate swap agreement is designated as a cash flow hedge.

Required:

Prepare journal entries for 2020 and 2021 assuming:

1. The prevailing interest rate on January 1, 2021 is 14%.

2. The present value of 1 at 14% for one year is 0.877.
3. The prevailing interest rate on January 1, 2021 is 11%.
4. The present value of 1 at 11% for one period is 0.901.

PROBLEM 7

On September 1, 2020, Jaime Grill determined that it will need to purchase 100,000 kilos of tuna fish on January
31, 2021.

Because of the volatile fluctuation in the price of tuna fish, on September 1, 2020, the entity negotiated a forward
contract with a reputable financial institution for entity to purchase 100,000 kilos of tuna fish on January 31, 2021
at a price of P 8,000,000 or P 80 per kilo. The forward contract is designated as a cash flow hedge.

The market price of tuna fish per kilo is P 78 on December 31, 2020 and P 75 on January 31, 2021.

Required:

Prepare journal entries for 2020 and 2021.

PROBLEM 8

Victoria Company, which began operations on January 1, 2019, has elected to use cash basis accounting for
tax purposes and accrual basis accounting for the financial statements.

The entity reported sales of P 1,750,000 and P 800,000 in the tax returns for the years ended December 31,
2020 and 2019, respectively.
The entity reported accounts receivable of P 300,000 and P 500,000 in the statement of financial position on
December 31, 2020 and 2019, respectively.

Under accrual basis, what amount should be reported as sales un the income statement for the current year
ended December 31, 2020?

PROBLEM 9

At the beginning of the current year, Felisa Requiz started a retail merchandise business. During the current
year, the business paid trade creditors P 2,000,000 in cash and suffered a net loss of P 350,000.

The ledger preclosing balances at year-end included the following:

Accounts Receivable 600,000

Accoounts 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.

1. What is the amount of purchases for the year?

2. What is the amount of sales for the year?
3. What is the cash balance at year-end?
4. What is the merchandise inventory at year-end?

PROBLEM 10

Atlanta Company reported net income for 2019 P 4,000,000 and 2020 P 5,000,000. An audit revealed certain
errors.

A collection of P 100,000 for a customer was received on December 29, 2020 but not recorded until January 4,
2021.

Supplier’s invoice on account of P 160,000 for inventory received in December 2020 was not recorded until
January 2021.

Inventories on December 31, 2019 and 2020 were correctly stated.

Depreciation for 2019 was understated by P 90,000.

In September 2020, a P 20,000 invoice for office supplies was charged to purchases.

Office supplies are expensed when incurred.

Sales on account of P 300,000 in December 2020 were recorded in 2021.

Required:

a. Determine the correct net income for 2019 and 2020.

b. Prepare adjusting entries on December 31, 2020.
PROBLEM 11

Juanito Company provided the following comparative statement of financial position.

Assets 2020 2019

Cash and cash equivalents 750,000 950,000
Accounts Receivable 1,750,000 1,100,000
Inventory 2,550,000 1,800,000
Prepaid expenses 100,000 150,000
Property, plant and equipment 5,300,000 4,300,000
Accumulated depreciation - 1,150,000 - 800,000
Total 9,300,000 7,500,000

Liabilities and Equity

Accounts Payable 1,250,000 1,000,000
Accrued Expenses 50,000 200,000
Share Capital 4,750,000 4,250,000
Retained Earnings 3,250,000 2,050,000
Total 9,300,000 7,500,000

Additional information

a. The statement of retained earnings for 2020 showed net income of P 1,500,000 and cash dividend paid
of P 300,000.
b. During the current year, the entity purchased equipment for cash and issued share capital for cash.

Required:

Prepare a statement of cash flows for the current year using the indirect method.

PROBLEM 12

Nizza Company reported the following shareholders’ equity at year-end:

Preference Share Capital, 10% cumulative,

P 100 par, 40,000 shares 4,000,000
Ordinary share capital, P 50 par, 200,000 shares 10,000,000
Subscribed Ordinary Share capital, net of subsciption
receivable of P1,500,000 2,000,000
Treasury ordinary shares, 20,000 shares at cost 1,200,000
Share Premium 3,000,000
Accumulated Profits 5,000,000

Preference dividends have not been paid for 3 years and the preference share has a P 110 liquidation price.

Required:

Compute the book value per preference share and per ordinary share.

PROBLEM 13

Rodney Company had the following ordinary share transactions for the current year.

January 1 Beginning balance, 120,000 shares, P 50 par

June 1 Issued 12,000 shares at P 60 per share

September 30 Purchased 24,000 ordinary shares at P 55 per share to be held as treasury

The entity reported net income of P 3,630,000, after an expropriation loss of P 605,000 for the current year.

Required:

a. Compute the average shares outstanding.

b. Compute the basic earnings per share.
PROBLEM 14

Brigido Company provided the following information at year-end:

2019 2020
Ordinary share capital 90,000 shares 90,000 shares
Convertible Preference share capital 10,000 shares 10,000 shares

During 2020, the entity paid dividends of P 10 per ordinary share and P 24 per preference share.

The preference share capital is convertible into 20,000 ordinary shares. The net income for 2020 was P
2,850,000.

Required:

a. Basic Earnings per Share

b. Diluted earnings per share

PROBLEM 15

Olga Company reported the following liabilities in the statement of financial position:

Accounts Payable 1,000,000

Accrued Expenses 500,000
Bonds Payable 3,000,000
Finance Lease Liability 4,000,000
Unearned Revenue 300,000
Advances from customers 1,200,000
Estimated Warranty Liability 200,000
Deferred Tax Liability 400,000

In preparing financial statements in a hyperinflationary economy, what total amount should be classified as
monetary liabilities?

PROBLEM 16

Dolly Company reported the following property, plant and equipment on December 31, 2020:

Year Acquired Percent Depreciated Historical Cost Current Cost

2018 30 1,000,000 1,400,000
2019 20 300,000 380,000
2020 10 400,000 440,000

The entity calculated depreciation at 10% straight line. There were no disposals of property.

A full year depreciation was charged in the year of acquisition and no depreciation in the year of disposal.

What total amount should be reported as net current cost of the property, plant and equipment on December 31,
2020?

“Dreams and dedication are a powerful combination.”

-William Longgood

God bless!

JOLLY ANN C. KUAN, CPA, MBA