CPA REVIEW SCHOOL OF THE PHILIPPINES

Manila

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

FINAL PREBOARD EXAMINATION SOLUTIONS

1. Unadjusted balance 5,000,000

Bank overdraft 50,000
NSF check (15,000)
Customer’s postdated check (35,000)
Treasury bonds (1,500,000)
Restricted cash in foreign bank account (100,000)
Cash and cash equivalents 3,400,000 B

2. Items accounted for in the petty cash fund (35,000 + 5,000 + 12,000) 52,000
Imprest balance 50,000
Cash overage (shortage) 2,000

Petty cash fund expense 35,000

Receivable 5,000
Cash 38,000
Cash short/over 2,000 D

3. Invoice amount (6,000,000 x 80% x 90%) 4,320,000

Sales return (400,000)
Gross accounts receivable 3,920,000
Allowance for sales discount (3,920,000 x 5%) (196,000)
Allowance for freight charges (200,000)
Net realizable value 3,524,000 C

4. Trade and other receivables (5,000,000 – 500,000 + 300,000) 4,800,000 A

5. Deposit in transit – June 30 400,000

Deposits made by Sunrise (9,200,000 – 750,000) 8,450,000
Deposits by Sunrise acknowledged by the bank (9,000,000 – 500,000) (8,500,000)
Deposit in transit – July 31 350,000 A

6. Total writeoffs (2019 to 2021) 855,000

Recoveries (2019 to 2021) (95,000)
Balance 760,000

Percent uncollectible (760,000 / 38,000,000) 2%

Allowance for doubtful accounts – January 1, 2022 100,000

Doubtful accounts expense (20,000,000 x 2%) 400,000
Recoveries 50,000
Accounts written off (300,000)
Allowance for doubtful accounts – December 31, 2022 250,000 C

7. Interest income (1,940,000 x 13.4% x 1/12) 21,663

Interest receivable (2,000,000 x 12% x 1/12) 20,000 C
Amortization of unearned interest income 1,663

8. Unrealized gain in OCI (5,500,000 – 4,700,000) 800,000 C

9. Correct inventory (4,500,000 + 400,000 + 1,000,000) 5,900,000 C

10. Sales in 2021 7,500,000

Cost of goods sold in 2021 (5,475,000)
Gross profit in 2021 2,025,000
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Gross profit rate based on sales (2,025,000 / 7,500,000) 27%

Inventory – January 1, 2022 2,355,000

Net purchase in 2022 (3,200,000 + 200,000 – 45,000 – 55,000) 3,300,000
Cost of goods sold in 2022 (4,500,000 x 73%) (3,285,000)
Inventory – December 31, 2022 2,370,000 A

11. Goods available for sale at cost - average (1,500,000 + 3,875,000 – 200,000) 5,175,000
Goods available for sale at retail – average (2.2M + 4.950M – 300k + 150k – 100k) 6,900,000

Cost ratio – average

Goods available for sale at retail 6,900,000

Inventory shortage (100,000)
Employee discount (200,000)
Sales (4,000,000)
Ending inventory at retail 2,600,000
Cost ratio - average (5,175,000 / 6,900,000) x 75%
Ending inventory at cost 1,950,000 A

12. Cost 2,000,000

NRV 1,800,000
Measurement (lower) 1,800,000 C

13. Cost 2,000,000

Share in the NI of investee for 2022 (1,500,000 x 30%) 450,000
Dividends received in 2022 (500,000 x 30%) (150,000)
Share in the NI of investee for 2023 (1,000,000 x 30%) 300,000
Carrying amount of investment in associate – June 30, 2023 2,600,000

Proceeds 2,000,000
Carrying amount sold (2,600,000 x ½) (1,300,000)
Gain on sale in 2023 700,000 B

14. Cost 4,000,000

Carrying amount of net assets acquired (9,000,000 x 40%) (3,600,000)
Excess cost 400,000
Equipment (900,000 x 40%) (360,000)
Inventory (100,000 x 40%) (40,000)
Goodwill (Excess fair value) -

Share in NI (1,200,000 x 40%) 480,000

Amortization of excess cost – equipment (360,000 / 18) (20,000)
Amortization of excess cost – inventory (40,000)
Investment income 420,000 B

15. Purchase price 3,200,000

Legal fee 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

16. Cost of the building (80,000 + 50,000 – 30,000 + 3,500,000) 3,600,000 B

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17. Carrying amount of CGU 13,000,000

Recoverable amount 8,500,000
Impairment loss 4,500,000
Allocated to Goodwill (1,000,000)
Allocated to other noncash assets 3,500,000

CA Fraction Impairment
Land 2,500,000 25 / 100 875,000
PPE 7,500,000 75 / 100 2,625,000 C
10,000,000 3,500,000

18. Carrying amount (25,000,000 – 6,750,000) 18,250,000

Recoverable amount (higher)
Fair value less cost of disposal 10,000,000
Value in use (1,500,000 x 5,65) 8,475,000 10,000,000
Impairment loss 8,250,000 A

19. Research and development expense (600,000 + 2,000,000 + 800,000) 3,400,000 C

20. Capitalized borrowing cost (6,000,000 x 10% x 11/12 = 550,000 – 100,000) 450,000
Actual expenditures 6,000,000
Cost of the plant 6,450,000 B

21. Total warranty expense for 2022 and 2023 (12,000,000 x 12%) 1,440,000
Total payments in 2022 and 2023 (100,000 + 250,000) (350,000)
Unadjusted warranty liability on December 31, 2023 1,090,000 A

22. Premium expense in 2023 (50,000 – 5,000 + 3,000 = 48,000 x 40) 1,920,000 D

23. Stand-alone price per coupon (20 x 80%) 16

Product (15,000 x 80) 1,200,000 1,200 / 1,440 1,000,000

Coupons (15,000 x 16) 240,000 240 / 1,440 200,000
1,440,000 1,200,000

Rebate liability at year-end (200,000 – 50,000) 150,000 D

24. Stand-alone price per coupon (500 x 60%) 300

Product (15,000 x 500) 7,500,000 75 / 90 6,250,000

Coupons (5,000 x 300) 1,500,000 15 / 90 1,250,000 B
9,000,000 7,500,000

25. Carrying amount – January 1, 2022 7,360,000

Discount amortization for 6 months
Interest expense (7,360,000 x 10% x 6/12) 368,000
Interest paid (8,000,000 x 9% x 6/12) 360,000 8,000
Carrying amount – June 30, 2022 7,368,000

Carrying amount retired (7,368,000 x 2/8) 1,842,000

Retirement price (2,000,000 x 103%) 2,060,000
Loss on retirement (218,000) A

26. Carrying amount of bonds converted (2,800,000 x 1,200 / 3,000) 1,120,000

Share premium – conversion privilege (700,000 x 1,200 / 3,000) 280,000
Par value of shares (1,200 x 30 x 20) (720,000)
Share premium – issuance 680,000 B
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27. Current service cost 500,000

Past service cost 300,000
Loss on settlement in advance (950,000 – 1,200,000) 250,000
Interest expense (6,000,000 x 10%) 600,000
Interest income (3,500,000 x 10%) (350,000)
Employee benefit expense 1,300,000 A

28. Date Payment Interest Principal CA of lease liability

12/31/2022 5,400,000
12/31/2022 800,000 - 800,000 4,600,000
12/31/2023 800,000 460,000 340,000 4,260,000 B

29. Lease liability (500,000 x 4.21) 2,105,000

Cost of right of use asset (6,000,000 x 2,105,000 / 5,000,000) 2,526,000 B
30. 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
31. Current tax expense (5,100,000 x 25%) 1,275,000
Deferred tax expense (400,000 x 25%) 100,000
Total tax expense 1,375,000 A
32. Allowance for doubtful accounts 1,000,000
Excess of CA of warranty over tax base (2,500,000 – 500,000) 2,000,000
Deposit received 1,500,000
Cumulative future deductible amounts 4,500,000
Tax rate x 25%
Deferred tax asset at year-end 1,125,000 A
33. January 1 (80,000 x (60 – 50)) 800,000
September 30 (38,000 x (30 – 10)) 760,000
November 30 (4,000 x (40 – 15)) 100,000
Total share premium at year-end 1,660,000 B
Shares issued on January 1 80,000
Treasury shares (4,000)
Balance 76,000
5-for-1 share split x 5
Outstanding shares before the share dividend 380,000
Par value per share after the share split (50 / 5) 10
Cost per treasury share after the share split (75 / 5) 15
34. Cumulative liability on December 31, 2023 (30,000 x 80 x 2/3) 1,600,000 C
Cumulative liability on December 31, 2022 (30,000 x 50 x 1/3) 500,000
Compensation expense for 2023 1,100,000
35. Compensation expense for 2022 (10,000 x 30) 300,000 A
36. Accrued interest payable on June 30, 2022 (7.2M – 2.4M = 4.8M x 10% x 9/12) 360,000 B
37. Interest expense for 2022 (3,756,000 x 10%) 375,600
Interest paid for 2022 (4,000,000 x 9%) 360,000
Discount amortization for 2022 15,600
Discount on bonds payable – December 31, 2022 (244,000 – 15,600) 228,400 A
38. Retained earnings – beginning 3,000,000
Appropriation RE for treasury shares (40,000 x 20) (800,000)
Net income 600,000
Unappropriated retained earnings at year-end 2,800,000 D
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39. Share dividend payable (100,000 x 5% x 20) of P100,000 is equity. D

40. Weighted averages ordinary shares outstanding (200,000 x 1.1 x 12/12) 220,000
Basic EPS (4,500,000 / 220,000) 20.45 A

41. Weighted averages ordinary shares outstanding (200,000 x 1.1 x 12/12) 220,000
Potential ordinary shares on July 1 (3,000 x 40 x 1.1 x 6/12) 66,000
Balance 286,000

Net income 4,500,000

After-tax interest (3,000,000 x 12% x 6/12 x 75%) 135,000
Adjusted net income 4,635,000

Diluted EPS (4,635,000 / 286,000) 16.21 B

42. Total Preference Ordinary

1,000,000
Fixed pref. div. (3M x 5%) (150,000) 150,000
Alloc. to ordinary (2M x 5%) (100,000) 100,000
Balance for participation 750,000 450,000 300,000
Total dividends 600,000 400,000 A
Par Balance
Preference 3,000,000 3/5 450,000
Ordinary 2,000,000 2/5 300,000
Total 5,000,000 750,000

43. Net increase in equity (8,900,000 – 2,700,000) 6,200,000

Share capital (6,000,000)
Share premium (600,000)
Dividends declared 1,300,000
Net income 900,000 B

44. Cash basis capital (200,000 + 500,000 – 100,000) 600,000 C

45. Accrual basis sales (1,750,000 + 300,000 – 500,000) 1,550,000 B

46. Inventory loss of P800,000 is fully recognized C

47. Minimum external revenue of reportable segments (20,000,000 x 75%) 15,000,000 B

48. Net income 790,000

Gain on sale of investment (135,000 – 100,000) (35,000)
Increase in inventory (80,000)
Depreciation 250,000
Decrease in accounts payable (5,000)
Net cash flow provided by operating activities 920,000 C

Net change in accumulated depreciation -

Accumulated depreciation of equipment sold (600,000 – 350,000) 250,000
Depreciation for the year 250,000

49. Increase in financial asset at FVOCI (300,000)

Proceeds from disposal of long-term investment 135,000
Proceeds from disposal of equipment 350,000
Purchase of equipment for cash (1,190,000)
Net cash flow used in investing activities (1,005,000) A
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Net increase in plant assets 700,000

Cost of equipment sold 600,000
Purchase of equipment by issuing long-term debt (110,000)
Purchase of equipment for cash 1,190,000

50. Dividend paid (500,000 – 160,000) (340,000)

Increase in short-term bank debt 325,000
Increase in share capital 100,000
Increase in share premium 120,000
Net cash flow provided by financing activities 205,000 A

THEORY

51. C 56. C 61. B 66. B

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

END