Name: Hensel B.

Sevilla Course & Year: BSMA lll

Schedule: M-W 8:30 -10:00 AM

Unit 3- Other Topics and PFRS for SMEs

Topic 1- Noncurrent Asset Held for Sale and Discontinued Operation

PRETEST

1. A
2. D
3. B
4. B
5. C
6. D
7. A
8. A
9. A
10. D

ASSESSMENT

1.C 11.B 21.D 31.B

2.A 12.C 22.D 32.A
3.D 13.B 23.C 33.C
4.B 14.C 24.A 34.B
5.C 15.B 25.D 35.A
6.B 16.A 26.C 36.C
7.A 17.A 27.D 37.D
8.A 18.B 28.B 38.A
9.B 19.C 29.B 39.A
10.B 20.D 30B 40.B
Topic 2- Interim Financial Reporting

PRETEST

1. T
2. T
3. F
4. T
5. F
6. T
7. F
8. T
9. T
10. T

ASSESSMENT

ACTIVITY 1

1. C 11. D
2. D 12. A
3. B 13. B
4. B 14. C
5. C 15. D
6. A 16. A
7. B 17. D
8. D 18. A
9. B 19. A
10. C 20. D

ACTIVITY 2

Recognition and measurement in interim periods

1. QUIRK ACCIDENT Co. reports profit before tax of ₱1,500,000 in its 2 nd quarter interim
financial statements before consideration for the following:
a. Inventory with a carrying amount ₱200,000 has a net realizable value of ₱120,000. It is
expected that the decline in value will reverse in the 3 rd quarter.
b. An investment property measured under the cost model has a carrying amount of
₱350,000 but its recoverable amount is ₱210,000.
c. An investment in FVPL measured at acquisition cost of ₱200,000 has a fair value of
₱250,000 as at the end of 2nd the quarter. However, the increase in fair value is expected to
be only temporary.
d. No depreciation is recognized during the 2 nd quarter. The annual straight-line
depreciation of items of PPE is ₱600,000.
e. ABC Co. has a policy of providing 12 days paid vacation leaves for its employees. The
vacation leaves are vesting and accumulating. Total paid vacation leaves eligibility of
employees for the full year is ₱440,000. However, only ₱100,000 worth of paid vacation
leaves have been availed of during the quarter.
f. It was discovered that depreciation in the previous year was overstated by ₱20,000.

How much is the adjusted profit before taxes for the current quarter?
a. 3,180,000 b. 1,590,000 c. 1,070,000 d. 1,090,000

Costs incurred unevenly

2. HIRSUTE HAIRY Co. is preparing its interim financial statements for the period ended
March 31, 20x1. The following relate to the transactions during the first quarter:
a. Total sales for the interim period was ₱4,000,000.
b. Cost of sales was ₱1,800,000.
c. HIRSUTE is liable for 5% commission on its sales to its sales representatives and agents.
No commission has yet been paid as of March 31, 20x1.
d. The allowance for doubtful accounts has a balance of ₱20,000 as of January 1, 20x1.
The required balance as of March 31, 20x1 is ₱60,000. There were no write-offs or
recoveries during the period.
e. A building with historical cost of ₱4,800,000 is being depreciated over 5 years using
straight line method.
f. HIRSUTE prepaid a one-year insurance on its assets for ₱160,000 on January 1, 20x1.
g. Property taxes for 20x1 amounting to ₱104,000 was paid in January.
h. Advertising costs of ₱200,000 were incurred in February on promotional activities held on
Valentine’s Day.
i. Year-end staff bonuses are expected to be around ₱368,000. Employees become entitled
to the bonuses as they provide services to HIRSUTE during the year.
j. HIRSUTE’s president is entitled to a 10% bonus on profit before bonus and taxes.
k. Loss on sale of a used equipment on March 2, 20x1 was ₱120,000.
l. HIRSUTE incurred ₱48,000 on unanticipated repairs on its factory equipment on March
16, 20x1.
m. Due to the unexpected breakdown of the factory equipment on March 16, 20x1,
HIRSUTE has planned a major periodic overhaul of its other equipment to be held annually
starting on December 31, 20x1. The cost of the major planned periodic overhaul is
estimated at ₱192,000.
n. HIRSUTE leases one of its retail stores. Monthly rentals are ₱20,000, however, the lease
contracts provide for a contingent rent equal to 2% of the excess of sales over ₱3,600,000.
o. HIRSUTE’s budget for 20x1 included charitable contributions of ₱96,000 and employee
training costs of ₱52,000. None of those costs were incurred as of March 31, 20x1.
p. Other operating expenses incurred during the first quarter totaled ₱480,000.

How much is the profit (loss) for the first quarter ended March 31, 20x1?
a. 584,100 b. 635,400 c. 646,000 d. 581,400
Costs incurred unevenly
Use the following information for the next two questions:
PLUVIOUS RAINY Co.’s profits before tax for the 1 st and 2nd quarters of 20x1 were
₱3,520,000 and ₱3,680,000 before any necessary adjustments for the items listed below.
• • Total unfavorable manufacturing cost variances amounted to ₱96,000 in the 1st
Quarter. PLUVIOUS expects that the manufacturing cost variances will be
absorbed by year-end. There were no work-in-process inventories as of the end
of the 1st and 2nd quarters.
• • Newspaper advertisement costs of ₱360,000 were paid on April 1, 20x1. The
advertisement shall appear in the weekly newspaper publications over the
remaining months of the year.
• • PLUVIOUS’ held for trading securities acquired on February 4, 20x1 for
₱800,000 had a fair value of ₱400,000 on March 31, 20x1. PLUVIOUS had
expected that the fair value decline was only temporary. In fact, on June 30,
20x1, the recovery exceeded the previous write-down in investment by ₱80,000.
• • Research and development costs incurred during the 1 st and 2nd quarters
totaled ₱40,000 and ₱48,000, respectively. In July 20x1, technical feasibility has
been established and, therefore, development costs of ₱20,000 and ₱28,000
expensed in the 1st and 2nd quarters would have qualified for capitalization.
• • On January 20x1, PLUVIOUS recognized an account receivable denominated
in US dollars amounting to $4,000. The exchange rate on that date was ₱40:$1.
On March 31, 20x1, the exchange rate was ₱30:$1. PLUVIOUS had expected
that the change in the exchange rate was only temporary. In fact, on June 30,
20x1, the exchange rate was ₱45:$1. The receivable is collectible on September
2, 20x1.
• • A land with a carrying amount of ₱800,000 had a recoverable amount of
₱768,000 on March 31, 20x1.

3. How much is the adjusted profit before tax for the 1st quarter?

a. 2,921,000 b. 2,982,000 c. 2,884,000 d. 2,912,000

4. How much is the adjusted profit before tax for the 2nd quarters?
a. 4,052,000 b. 4,205,000 c. 4,000,000 d. 4,025,000

Provisions – Changes in estimates

Use the following information for the next two questions:
Among the transactions of EFFACE WIPEOUT Co. for the first two quarters of 20x1 were
the following:
• • EFFACE recognized a ₱400,000 write-down in its inventory during the first
quarter. EFFACE had expected that the write-down will reverse in the second
quarter, and in fact, in the second quarter, the recovery exceeded the
previous write-down by ₱80,000.
• • EFFACE provides warranty for its sales. In the first quarter, EFFACE
estimated a 5% warranty obligation on its first quarter sales of ₱4,000,000. In
the second quarter, a change in accounting estimate was made. It was
estimated that the cost of warranty should be 10% of total sales. The second
quarter sales amounted to ₱4,800,000.
• • EFFACE has been estimating its bad debt expense as 2% of credit sales.
However, in the second quarter, a change was made to the percentage of
ending receivable. Under this method, the required balance of the allowance
for doubtful accounts as of June 30, 20x1 is computed at ₱120,000. The
allowance has a balance of ₱20,000 at the beginning of the year. Total write-
offs during the first six months of 20x1 amounted to ₱48,000; recoveries
totaled ₱12,000. Credit sales for the 1st and 2nd quarters amounted to
₱4,000,000 and ₱8,000,000, respectively.

5. What is the net effect of the transactions listed above on profit or loss before tax in the
first quarter interim financial statements?
a. 680,000 b. (680,000) c. 280,000 d. (280,000)

6. What is the net effect of the transactions listed above on profit or loss before tax in the
second quarter interim financial statements?
a. (336,000) b. 336,000 c. (256,000) d. 256,000
Measurement of interim income tax expense
Use the following information for the next three questions:
BLASé BORED Co. expects to earn ₱400,000 pre-tax profit each quarter. BLASE has tax
rates of 20% on the first ₱800,000 of annual earnings and 30% on all additional earnings.
Actual earnings match expectations.

7. How much is the weighted average annual income tax rate?

a. 20% b. 25% c. 30% d. 33%

8. How much is the income tax expense recognized in the first quarter interim financial
statements?
a. 80,000 b. 100,000 c. 120,000 d. 132,000

9. How much is the income tax expense recognized in the third quarter interim financial
statements?
a. 80,000 b. 100,000 c. 120,000 d. 132,000

Measurement of interim income tax expense

Use the following information for the next three questions:

ASSIDUOUS DILIGENT Company expects to earn ₱40,000 pre-tax profit in each of the 1 st
and 2nd quarters of the year and ₱60,000 pre-tax profit in each of the last two quarters. The
tax rate as of the beginning of the year is 30%. However, following a newly enacted tax
legislation, the tax rate will be increased to 40% which shall take effect beginning on the last
quarter of the year. Actual earnings match expectations.
10. How much is the weighted average annual income tax rate?
a. 20% b. 25% c. 30% d. 33%

11. How much is the income tax expense recognized in the first quarter interim financial
statements?
a. 13,200 b. 16,500 c. 19,800 d. 15,400
12. How much is the income tax expense recognized in the third quarter interim financial
statements?
a. 13,200 b. 16,500 c. 19,800 d. 15,400

Income tax benefit

Use the following information for the next two questions:
AFFRAY ANSWER Company expects to incur losses of ₱60,000 in each of the first and
second quarters of the year but expects to earn pre-tax profits of ₱60,000 in each of the last
two quarters (thus having zero profit for the year). AFFRAY estimated a weighted average
income tax rate of 30%. Actual earnings match expectations.

13. How much is the income tax expense recognized in the first quarter interim financial
statements?
a. (18,000) b. 18,000 c. 4,500 d. 0

14. How much is the income tax expense recognized in the third quarter interim financial
statements?
a. (18,000) b. 18,000 c. 4,500 d. 0

Tax year and financial year do not coincide

Use the following information for the next two questions:
INDEMNIFY PAY Co.’s financial reporting year ends June 30 and reports quarterly. Its
taxable year ends December 31. For the financial year that begins July 1, 20x1 and ends
June 30, 20x2, INDEMNIFY earns ₱80,000 pre-tax profit each quarter. The estimated
average annual income tax rate is 30% in 20x1 and 40% in 20x2.
15. How much is the income tax expense recognized in the first quarter interim financial
statements?
a. 24,000 b. (24,000) c. 32,000 d. 28,000

16. How much is the income tax expense recognized in the third quarter interim financial
statements?
a. 24,000 b. (24,000) c. 32,000 d. 28,000
Net operating loss carryforward
Use the following information for the next two questions:
PARSIMONIOUS STINGY Co. reports quarterly and has an operating loss carryforward of
₱40,000 for income tax purposes at the start of the current financial year for which a
deferred tax asset has not been recognized. PARSIMONIOUS earns ₱40,000 in the first
quarter of the current year and expects to earn ₱40,000 in each of the three remaining
quarters. Excluding the carryforward, the estimated average annual income tax rate is
expected to be 40%.
17. How much is the income tax expense recognized in the first quarter interim financial
statements?
a. 9,000 b. 12,000 c. 16,000 d. 0

18. How much is the income tax expense recognized in the third quarter interim financial
statements?
a. 9,000 b. 12,000 c. 16,000 d. 0

Net operating loss carryforward

Use the following information for the next two questions:
STEPWISE GRADUAL Company reported a net operating loss carryforward of ₱80,000 in
its most recent annual financial statements. During the year, STEPWISE earned ₱40,000 in
each of the first two quarters and ₱60,000 in each of the last two quarters. Excluding the
carryforward, the estimated average annual income tax rate is 40%.
19. How much is the income tax expense recognized in the first quarter interim financial
statements?
a. 9,000 b. 9,600 c. 14,400 d. 12,000

20. How much is the income tax expense recognized in the third quarter interim financial
statements?
a. 9,000 b. 9,600 c. 14,400 d. 12,000
Topic 3- Cash and Accrual Basis Accounting and Single Entry

PRETEST

1. A
2. B
3. D
4. D
5. C

ASSESSMENT

ACTIVITY 1

Answer the following Problems.

For Problems 1 to 3: The following information was taken from the records of
JUGATE PAIRED Co.

Cash purchases – gross 1,200,000

Trade accounts payable – beg. 2,000,000
Trade accounts payable – end 1,600,000
Trade notes payable decreased by 800,000
Cash payments on payables 4,000,000
Purchase returns and discounts (inclusive of P60,000 receipts from
suppliers) 80,000
Inventory increased by 400,000

1. How much is the net purchases under cash basis of accounting?

a. 4,740,000
b. 2,820,000
c. 3,940,000
d. Some other answer 5,140,000

2. How much is the cost of goods sold under cash basis of accounting?
a. 3,960,000
b. 4,740,000
c. 3,960,000
d. Some other answer __________________

3. How much is the net purchases under accrual basis of accounting?

a. 3,960,000
 b. 1,620,000
c. 3,940,000
d. Some other answer __________________

4. How much is the goods sold under accrual basis of accounting?

a. 2,820,000
b. 3,540,000
c. 3,960,000
d. Some other answer __________________

5. AMEN Co. provided the following data regarding its financial position:

January 1, 2020
Current Asset P 5,000,000
Current Liability 2,000,000
Noncurrent Asset 8,000,000
Noncurrent Liability 4,000,000

The following changes occurred during 2020:

1. Current Asset increased to P6,000,000.
2. Current Liability increased by P500,000.
3. Noncurrent Asset decreased by P1,000,000.
4. Noncurrent Liability decreased to P2,500,000.
5. ADMU issued 100,000 ordinary shares with par value of P10 at
P20/share.
6. Cash dividends of P300,000 were declared during the year.

Note: No other transactions affect the equity except those stated.

What is the profit/(loss) for the year ended December 31,2020?

a. P1,700,000
b. (P700,000)
c. P2,700,000
d. (P1,700,000)

6. Incomplete accounting records using only a cash book is a characteristic of

a. Cash basis
b. Accrual basis
c. Single entry system
d. Double entry system
7. Compared to its cash basis net income for the current year, an entity's accrual
basis net income increased when it
a. Declared a cash dividend in the prior year that it paid in the current year
b. Wrote off more accounts receivable than it reported as uncollectible accounts
expense in the current year
c. Had lower accrued expenses on December 31 of the current year than on
January 1
d. Sold used equipment for cash at a gain in the current year

8. Compared to the accrual basis of accounting, the cash basis of accounting

understates income by the net decrease during the accounting period of
a. Both accounts receivable and accrued expenses.
b. Accrued expenses but not of accounts receivable
c. Neither accounts receivable nor of accrued expenses
d. Accounts receivable but not of accrued expenses

9. Prior to the current year, an entity used the cash basis of accounting. At the
current year-end, the entity changed to the accrual basis. The entity cannot
determine the beginning balance of supplies inventory. What is the effect of the
entity's inability to determine beginning supplies inventory on its accrual basis net
income and year-end accrual basis owners’ equity?
Net Income Owner’s equity
a. No effect No effect
b. No effect Overstated
c. Overstated No effect
d. Overstated Overstated

10. The premium on a three-year insurance policy expiring on December 31, 2014
was paid in total on January 1, 2012. The original payment was initially debited to
a prepaid asset account. The appropriate journal entry had been recorded on
December 31, 2012. The balance in the prepaid asset account on December 31,
2012 should be
a. Zero
b. The same as it would have been if the original payment had been debited
initially to an expense account
c. The same as the original payment
d. Higher than if the original payment had been debited initially to an expense
account.
11. Under this basis of accounting, income is recognized when cash is collected
regardless of when earned and expense is recognized when paid regardless of
when incurred.
a. Simple basis
b. Modified basis
c. Accrual basis
d. cash basis

12. These are omissions from and misstatements in the financial statements for one
or more periods arising from a failure to use or misuse reliable information.
a. change in accounting policy
b. change in accounting estimate
c. prior period error
d. change in reporting entity

13. Prior period error should be reported in

a. Income statement of the current year
b. Income statement on the year of error
c. Statement of changes in equity of the current year
d. Statement of changes in equity of the year of error

Sales
Use the following information for the next two questions:
The following information was taken from the records of INCONDITE CRUDE Co.

Cash sales – gross 2,000,000

Trade accounts receivable – beg. 2,400,000
Trade accounts receivable – end 1,600,000
Trade notes receivable increased by 1,200,000
Collections on receivables 4,000,000
Sales returns and discounts (inclusive of ₱20,000 payments to
customers) 80,000
Write-offs of accounts receivable 40,000
Recoveries of accounts receivable written-off (included in
collections) 16,000
Trade notes receivable discounted (Note receivable was directly
credited) 120,000

14. How much is the net sales under cash basis of accounting?
a. 4,604,000
b. 5,980,000
c. 6,524,000
 d. 1,980,000

15. How much is the net sales under accrual basis of accounting?
a. 4,604,000
b. 5,980,000
c. 6,524,000
d. 1,980,000

Purchases and Cost of goods sold

Use the following information for the next four questions:
The following information was taken from the records of JUGATE PAIRED Co.

Cash purchases – gross 1,200,000

Trade accounts payable – beg. 2,000,000
Trade accounts payable – end 1,600,000
Trade notes payable decreased by 800,000
Cash payments on payables 4,000,000
Purchase returns and discounts (inclusive of P60,000 receipts from
suppliers) 80,000
Inventory increased by 400,000

16. How much is the net purchases under cash basis of accounting?
a. 4,740,000
b. 2,820,000
c. 3,940,000
d. 5,140,000

17. How much is the cost of goods sold under cash basis of accounting?
a. 3,960,000
b. 4,740,000
c. 3,960,000
d. 5,140,000

18. How much is the net purchases under accrual basis of accounting?
a. 3,960,000
b. 1,620,000
c. 3,940,000
d. 4,740,000

19. How much is the goods sold under accrual basis of accounting?
a. 2,820,000
b. 3,540,000
 c. 3,960,000
d. 4,740,000

Other items of income

Use the following information for the next two questions:
INVETERATE HABITUAL Co. has the following information:
Accrued rent income – January 1 1,600,000
Accrued rent income – December 31 800,000
Unearned rent, January 1 1,200,000
Unearned rent, December 2,000,000
Rental payments received 4,000,000

20. How much is the rent income under cash basis of accounting?
a. 4,000,000
b. 2,400,000
c. 5,600,000
d. 4,800,000

21. How much is the rent income under accrual basis of accounting?
a. 4,000,000
b. 2,400,000
c. 5,600,000
d. 4,800,000

Other items of income

22. The following information was taken from the records of KATZENJAMMER
DISTRESS Co.

Accrued rent income – January 1 1,600,000

Accrued rent income – December 31 800,000
Unearned rent, January 1 1,200,000
Unearned rent, December 2,000,000
Rent income under accrual basis 2,400,000

How much is the rent income under cash basis?

a. 4,000,000
b. 2,400,000
c. 5,600,000
d. 4,800,000
Other items of expense
23. OBNUBIATE OBSCURE Co. has the following information:

Prepaid insurance – January 1 1,600,000

Prepaid insurance – December 31 800,000
Insurance payable decreased by 1,200,000
Insurance payments 4,000,000

How much is the rent expense under accrual basis?

a. 4,000,000
b. 3,400,000
c. 3,600,000
d. 4,800,000

Other items of expense

24. The following information was taken from the records of LEGERITY AGILITY Co.

Prepaid insurance – January 1 1,600,000

Prepaid insurance – December 31 800,000
Insurance payable decreased by 1,200,000
Rent expense under accrual basis 3,600,000

How much is the rent expense under cash basis?

a. 4,000,000
b. 2,400,000
c. 5,600,000
d. 4,800,000

Income tax
25. TOTEM REVERED SYMBOL Co. has the following information:

Payments made for income taxes 4,000,000

Income tax payable increased by 800,000
Deferred tax liability, January 1 1,200,000
Deferred tax liability, December 31 3,600,000
Deferred tax asset increased by 2,000,000

How much is the income tax expense to be presented in the statement of profit or
loss and other comprehensive income in accordance with PFRSs?
a. 9,200,000
b. 4,800,000
 c. 400,000
d. 5,200,000

Comprehensive illustration
Use the following information for the next two questions:
On January 1, 20x1, APOTHEGM SHORT SAYING Co. started its operations
with initial cash investment of ₱400,000. APOTHEGM provided ₱1,200,000 of
services in January and received full payment in April. APOTHEGM incurred
expenses of ₱480,000 in January which were paid in March. During March,
dividends of ₱200,000 were paid.

26. How much is the profit or loss for the first quarter under cash basis?
a. (480,000)
b. 520,000
c. 720,000
d. (780,000)

27. How much is the profit or loss for the first quarter under accrual basis?
a. (480,000)
b. 520,000
c. 720,000
d. (780,000)

Comprehensive illustration
28. TUSSLE WRETLE Co. reported profit of ₱800,000 in 20x1 under cash basis.
The following items are relevant in converting the cash basis profit into accrual
basis.

Inventory, January 1 4,000,000

Inventory, December 31 2,400,000
Receivables, January 1 1,200,000
Receivables, December 31 3,600,000
Payables increased by 2,000,000

How much is the profit under accrual basis?

a. 2,000,000
b. (2,000,000)
c. 5,200,000
d. (400,000)
Comprehensive illustration
29. INSIPID TASTELESS Co.’s accrual basis profit is computed as follows:

Sales 10,000,000
Cost of sales:
Inventory, Jan. 1 2,400,000
Net purchases 5,600,000
Cost of goods available for sale 8,000,000
Inventory, Dec. 31 (1,600,000) (6,400,000)
Gross profit 3,600,000
Other income 400,000
Operating expenses (2,800,000)
Profit for the year 1,200,000

Additional information:
 Operating expenses include depreciation of ₱280,000.
 Other income includes interest income of ₱320,000, ₱40,000 of which
pertains to amortization of discount on investment in bonds.
 Accounts receivable decreased by ₱400,000, prepaid expenses increased
by ₱200,000; accrued expenses increased by ₱80,000; and accounts
payable decreased by ₱240,000;.

How much is INSIPID’s cash basis profit?

a. 2,280,000
b. 1,480,000
c. 1,840,000
d. 680,000

Comprehensive illustration
30. PITH IMPORTANCE Co. started its operations in 20x1. Its income statement
prepared under cash basis of accounting is provided below.

PITH IMPORTANCE Co.

Income Statement
For the year ended December 31, 20x1

Revenue 10,000,000
Other income 80,000
Equipment (1,600,000)
Salaries expense (1,200,000)
Rent expense (720,000)
 Utilities expense (320,000)
Insurance expense (160,000)
Commission expense (100,000)
Finance cost (120,000)
Profit before tax 5,860,000
Income tax expense (1,600,000)
Profit for the year 4,260,000

Additional information:
a. Amounts due from customers at year-end were ₱1,000,000. Of this amount,
₱80,000 is doubtful of collection.
b. Interest income of ₱80,000 on a note receivable from a customer was
recognized in other income. However, an amortization of discount on the note
receivable of ₱8,000 was not recorded.
c. The cost of equipment purchased to be used in business was expensed
immediately. The equipment has an estimated useful life of 10 years. PITH
uses the straight line method of depreciation.
d. Salaries of ₱120,000 incurred in December 20x1 were paid on January 4,
20x2.
e. PITH rents its office space for ₱48,000 a month, payable quarterly in
advance. The contract was signed on December 31, 20x0.
f. The bill for December’s utility costs of ₱40,000 was paid on January 9, 20x2.
g. A one-year insurance policy was obtained on July 1, 20x1. Premiums are paid
annually in advance.
h. Commissions of 1% of revenues are paid on the same day cash is received
from customers.
i. PITH borrowed ₱4,000,000 for one year on August 1, 20x1. Interest
payments based on an annual rate of 12% are made quarterly.
j. There are no unpaid income taxes as of year-end. However, deferred tax
asset of ₱13,200 and deferred tax liability of ₱20,000 were not recognized.

How much is the profit for the year under accrual basis of accounting?
a. 6,569,000
b. 7,256,000
c. 7,486,000
d. 6,596,000
Topic 4- Accounting Changes and Error Correction

PRETEST

1. D
2. C
3. B
4. B
5. B

ASSESSMENT

ACTIVITY 1

The four types of accounting changes, including error correction, are:

Code
a. Change in accounting principle.
b. Change in accounting estimate.
c. Change in reporting entity.
d. Error correction.

Instructions Following are a series of situations. You are to enter a code letter to
the left to indicate the type of change.

C 1. Change from presenting nonconsolidated to consolidated financial

statements.
D 2. Change due to charging a new asset directly to an expense account.
B 3. Change from expensing to capitalizing certain costs, due to a change in
periods benefited.
A 4. Change from FIFO to LIFO inventory procedures.
D 5. Change due to failure to recognize an accrued (uncollected) revenue.
B 6. Change in amortization period for an intangible asset.
C 7. Changing the companies included in combined financial statements.
B 8. Change in the loss rate on warranty costs.
D 9. Change due to failure to recognize and accrue income.
B 10. Change in residual value of a depreciable plant asset.
D 11. Change from an unacceptable to an acceptable accounting principle.
B 12. Change in both estimate and acceptable accounting principles.
D 13. Change due to failure to recognize a prepaid asset.
B 14. Change from straight-line to sum-of-the-years'-digits method of
depreciation.
B 15. Change in life of a depreciable plant asset.
A 16. Change from one acceptable principle to another acceptable principle.
D 17. Change due to understatement of inventory.
B 18. Change in expected recovery of an account receivable.
ACTIVITY 2

1. FALSE 11. FALSE

2. TRUE 12. FALSE
3. FALSE 13. TRUE
4. TRUE 14. FALSE
5. FALSE 15. TRUE
6. TRUE 16. TRUE
7. TRUE 17. FALSE
8. TRUE 18. FALSE
9. FALSE 19. TRUE
10 TRUE 20. TRUE

ACTIVITY 2

1.B 11.A 21.C

2.B 12.B 22.B
3.B 13.B 23.D
4.D 14.C 24.C
5.A 15.D 25.A
6.C 16.C 26.C
7.C 17. C 27.D
8.D 18. B 28.A
9.B 19.A 29.G
10. C 20.C 30. B

Topic 5- Hyperinflation and Current Cost Accounting