CPA REVIEW SCHOOL OF THE PHILIPPINES

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FINANCIAL ACCOUNTING AND REPORTING VALIX/VALIX/ESCALA/SANTOS/DELA CRUZ

First Preboard Examination

1. Unadjusted total current assets 7,800,000

Outstanding checks (200,000)
Customer deposit (current liability) 50,000
Correct total current assets 7,650,000 B

2. Employee income taxes withheld 900,000

AR – credit balance 750,000
Estimated expense – warranty 500,000
Estimated damages 1,500,000
Accounts payable 3,000,000
Accrued interest payable (5,000,000 x 12% x 3/12) 150,000
Total current liabilities 6,800,000 A

3. Unadjusted total assets 8,750,000

Treasury shares ( 250,000)
Cumulative translation loss – OCI (300,000)
Total assets 8,200,000 B

4. 40,000,000 A

5. Litigation loss 250,000

Loss on disposal of recreational division 600,000
Total loss (850,000)
Tax benefit (850,000 x 50%) 255,000
Decrease in net income (595,000) A

6. Income before tax per book 5,000,000

Liquidating dividend (400,000)
Correction of error (500,000)
Gain in OCI (1,000,000)
Correct income before tax 3,100,000 B

7. Carrying amount (5,000,000 – 3,750,000) 1,250,000

FVLCOD (500,000 – 50,000) 450,000
Impairment loss – April 1, 2021 800,000 A

8. FVLCOD – December 31, 2021 (750,000 – 100,000) 650,000

FVLCOD – April 1, 2021 450,000
Gain on reversal of impairment 200,000 D

9. 3,000,000 decrease (Inventory obsolescence is a change in acc. estimate.) A

10. Balance per book 8,500,000

Net proceeds credited to entity’s bank account 950,000
Book error (200,000 -20,000) (180,000)
NSF check (250,000)
Bank service charge ( 20,000)
Adjusted balance per book 9,000,000 A

11. Balance per bank statement (SQUEEZE) 8,200,000 A

Deposit in transit 1,000,000
Outstanding checks (300,000 – 100,000) (200,000)
Adjusted balance per bank 9,000,000
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12. Undeposited collections 60,000

Cash in bank – BDO checking account 500,000
Cash in bank – BDO for payroll 150,000
Cash in bank – BDO saving deposit 100,000
Money market instrument 2,000,000
Cash in bank – BDO VAT account 450,000
Cash and cash equivalent 3,260,000 D

13. Cost of goods available for sale 9,000,000

Ending inventory (1,500,000)
Cost of goods sold 7,500,000
Sales ratio x 1.40
Sales 10,500,000

Credit sales (10,500,000 x 80%) 8,400,000

Collection (6,000,000)
Write – off ( 50,000)
Gross AR 2,350,000
Allowance for doubtful accounts (420,000 – 50,000) ( 370,000)
Net realizable value 1,980,000 A

Doubtful accounts expense (8,400,000 x 5%) 420,000

14. List price 5,000,000

30% trade discount (1,500,000)
Balance 3,500,000
20% trade discount ( 700,000)
Invoice amount 2,800,000
Sales discount (2,800,000 x 2%) ( 56,000)
Collection from sales 2,744,000
Freight 200,000
Collection from customers 2,944,000 C

15. Net purchase 4,900,000

Purchase discount lost (5,000,000 x 2%) 100,000
Accounts payable related to purchase 5,000,000
Accounts payable – beg. (1,500,000 / 1.50) 1,000,000
Accounts payable – ending balance 6,000,000 A

16. Cost 5,200,000

NRV (8,000,000 – 2,400,000) 5,600,000
Lower 5,200,000 C

17. Cost of goods sold 4,600,000

Inventory losses 200,000
Goods sold FOB Destination (100,000)
Inventory writedown (2,000,000 – 1,700,000) 300,000
Cost of goods sold to be reported 5,000,000 D

18. Beginning inventory - 2020 1,260,000

Net purchase - 2020 6,570,000
Ending inventory - 2020 (2,355,000)
Cost of goods sold - 2020 5,475,000

Cost ratio (5,475,000 / 7,500,000) 73%

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Beginning inventory – 2021 2,355,000

Net purchase – 2021 3,300,000
Cost of goods sold – 2021 (4,500,000 x 73%) (3,285,000)
Ending inventory – 2021 2,370,000 A

19. GAS – cost (1,500,000 +3,875,000 – 200,000) 5,175,000

GAS – retail, average (2,200 + 4,950 – 300 + 150 – 100*) 6,900,000

*net markdown (500,000 – 400,000)

Cost ratio – average (5,175,000 / 6,900,000) 75%

EI at retail (6,900,000 – 4,000,000 - 200,000 – 100,000) 2,600,000

EI at cost (2,600,000 x 75%) 1,950,000 A

20. Cost 3,500,000

NRV 3,200,000

Lower 3,200,000 C

*Apply PAS 2 after harvest.

21. Share rights (50,000 x 10) 500,000

Payment (50,000 / 2 = 25,000 x 90) 2,250,000
Cost of new investment 2,750,000 B

22. Cost of the investment 1,700,000

FV of identifiable net assets acquired (4,000,000 x 40%) 1,600,000
Goodwill on purchase 100,000

Cost 1,700,000
Share in NI (700,000 x 40%) 280,000
Dividend received (200,000 x 40%) (80,000)
Share in revaluation surplus (1,300,000 x 40%) 520,000
CA of investment in associate 2,420,000 A

23. CA – January 1, 2021 4,562,000

Discount amortization – 2021
Interest income – 2021 (4,562,000 x 10%) 456,200
Interest received – 2021 (5,000,000 x 8%) 400,000 56,200
CA – December 31, 2021 4,618,200
X 10%
Interest income – 2022 461,820 B

24. Unamortized discount from purchase of bonds (100,000 – 20,000) 80,000

Premium on the sale of the bond investment 140,000
Gain on sale of bonds 220,000 B

25. 8,000,000 – 7,600,000 400,000 A

26. Cost of the machine (200,000 x 5.712) 1,142,400 D

27. Interest expense for 2022 (1,142,400 – 200,000 = 942,400 x 11%) 103,664 B

28. Fair value of treasury shares (100,000 x 40) 4,000,000

Proceeds from sale of scrap ( 50,000)
Initial cost of land 3,950,000 B
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29. 2,800,000 + 1,000,000 3,800,000 D

30. Net cost of the machine (5,400,000 – 400,000) 5,000,000

Depreciation – 2021 (5,000,000 x 20%) (1,000,000)
Carrying amount – December 31, 2021 4,000,000
Depreciation – 2022 (4,000,000 x 20%) ( 800,000)
Carrying amount - December 31, 2022 3,200,000 D

31. Purchase price 3,200,000

Title investigation 50,000
Landfill 190,000
Clearing cost 100,000
Timber sold (30,000)
Land survey 40,000
Cost of the land 3,550,000 A

32. Demolition cost 200,000

Architect fee 300,000
Construction cost 8,500,000
Temporary building 290,000
Excavation 110,000
Cost of the building 9,400,000 A

33. Net invoice cost (1,600,000 x 95%) 1,520,000

Transportation 50,000
Installation 140,000
Engineer’s salary (60,000 x 2/3) 40,000
Cash allowance (100,000)
Cost of the machine 1,650,000 A

34. Average capitalization rate (1,290,000 / 15,000,000) 8.6%

Capitalized borrowing cost (12,000,000 / 2 = 6,000,000 x 8.6%) 516,000 B

35. Cost (5,000,000 + 50,000 + 120,000) 5,170,000

Depreciation for 2021 (4,870,000 / 10) ( 487,000)
CA – December 31, 2021 4,683,000
Additions 360,000
Residual value (300,000)
Depreciable amount – 2022 4,743,000
Remaining life ÷ 9
Depreciation for 2022 527,000 D

Carrying amount of CGU 4,850,000

Recoverable amount 4,050,000
Impairment loss 800,000
Allocate to goodwill (100,000)
Allocate to other assets 700,000

Carrying amount Fraction Allocated impairment

Patent 850,000 850 / 4,250 140,000
Plant and equipment 3,400,000 3,400 / 4,250 560,000
Total 4,250,000 700,000

Patent’s FVLCOD 750,000

Patent’s CA after allocated impairment loss (850,000 – 140,000) 710,000
Impairment loss to be allocated to plant and equipment 40,000
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The patent should not be reduced below P750,000.

36. Impairment loss of plant and equipment (560,000 + 40,000) 600,000 C

37. Impairment loss of patent (850,000 – 750,000) 100,000 B

Excess impairment of P40,000 is allocated to plant and equipment

38. Carrying amount – January 1, 2025 (20,000,000 – 4,000,000) 16,000,000

Recoverable amount 12,000,000
Impairment loss on January 1, 2025 4,000,000

CA – January 1, 2027, as if no impairment (20M – 6M) 14,000,000

CA – January 1, 2027 per book (12,000,000 – 1,500,000) 10,500,000
Gain on reversal of impairment 3,500,000 C

*Subsequent depreciation after impairment (12,000,000 / 16) 750,000

39. Fair value 18,000,000

Increased CA after reversal of impairment 14,000,000
Revaluation surplus 4,000,000 A

40. Purchase price of the mining property 36,000,000

Development cost 10,800,000
Residual value (3,600,000)
Depletion base 43,200,000
Removable ore ÷ 2,160,000
Depletion rate 20
Tons sold x 240,000
Depletion included in cost of goods sold 4,800,000 C

41. Proceeds from disposal 750,000

Carrying amount of the patent (450,000 x 12/15) (360,000)
Gain on disposal 390,000 D

42. 3,400,000 C

43. Coupon expense – Series B (2,000,000 x 1.1 x 60%) 1,320,000

Total payment to retailers ( 405,000)
Liability for coupons 915,000 B

44. First contract year (800,000 x 40%) 320,000

Second contract year (800,000 x 60%) 480,000
Total cash receipt in 2021 800,000

Income earned in 2021 for first contract year (320,000 / 2) 160,000

Income earned in 2022 for the first contract year (320,000 / 2) 160,000
Income earned in 2022 for the second contract year (480,000 / 2) 240,000
Income earned in 2023 for the second contract year (480,000 / 2) 240,000

Deferred revenue – December 31, 2021 (800,000 – 160,000) 640,000 B

45. 7,200,000 x 3/12 1,800,000 A

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46. B = 0.25 (600,000 – B)

B = 150,000 – 0.25B

B + 0.25B = 150,000

1.25B = 150,000

B = (150,000 / 1.25)

B = 120,000 A

47. PV of rentals (1,000,000 x 3.79) 3,790,000

PV of purchase option (500,000 x 0.62) 310,000
PV of lease payments 4,100,000
Initial direct cost 400,000
Lease incentive (100,000)
Cost of right of use asset 4,400,000 B

48. Carrying amount of the bonds (600,000 + 12,000) 612,000

Share premium – conversion privilege 50,000
Par value (600,000 / 1,000 x 10 x 50) (300,000)
Share premium – issue of capital 362,000 D

49. Rent income 3,000,000

Income from lease bonus (500,000 / 5) 100,000
Amortization of initial direct cost (150,000 / 5) ( 30,000)
Insurance and property tax (100,000)
Depreciation (150,000)
Net rental income 2,820,000 A

50. Gross profit (1,580,000 – 1,335,000) 245,000

Interest income (1,580,000 – 250,000 = 1,330,000 x 12% x 6/12) 79,800 C

Theory

51. D 56. B 61. A 66. B

52. B 57. D 62. A 67. C
53. A 58. B 63. D 68. D
54. A 59. C 64. B 69. C
55. D 60. D 65. A 70. C

END