QUIZ 2 NCAHS/ DISCONTINUED OPERATION

ABC Company purchased an equipment for P5,000,000 on January 1, 2020. The equipment
had a useful life of 5 years with no residual value. On December 31, 2020, the entity classified
the asset as held for sale. On such date, the fair value less cost of disposal of the equipment
was P3,500,000. On December 31, 2021, the entity believed that the criteria for classification as
held for sale can no longer be met. Accordingly, the entity decided not to sell the asset but to
continue to use it. On December 31, 2021, the fair value less cost of disposal of the equipment
was P2,700,000. What is the carrying amount of the equipment in December 31, 2022?

a.
1,800,000
b.
2,000,000
c.
3,000,000
d.
2,700,000
Feedback
The correct answer is: 1,800,00
PFRS 5 prohibits assets that will be abandoned from being classified as held for sale. However,
if the assets to be abandoned are a major line of business or geographical area of operations,
they are reported in discontinued operations at the date at which they are abandoned.
Select one:
True

False
Feedback
The correct answer is 'True'.
An entity classified a noncurrent asset accounted for under the cost model as held for sale at
the current year-end. Because no offers were received at an acceptable price, the entity
decided at the end of next year not to sell the asset but to continue to use it. the asset shall be
measured at the end of next year at what amount?

a.
The higher of carrying amount on the basis that the asset had never been classified as held for
sale and recoverable amount
b.
The lower of carrying amount on the basis that the asset had never been classified as held for
sale and recoverable amount
c.
The higher of carrying amount and recoverable amount
d.
The lower of carrying amount and recoverable amount
Feedback
The correct answer is: The lower of carrying amount on the basis that the asset had never been
classified as held for sale and recoverable amount
ABC Company accounted for noncurrent assets using the cost model. On July 1, 2020, the
entity classified an equipment as held for sale. At that date, the carrying amount was
P5,000,000, and fair value was estimated at P3,500,000 and the cost of disposal at P100,000.
On December 31, 2020, the equipment was sold for net proceeds of P2,500,000. What amount
should be reported as an impairment loss for 2020?

a.
1,600,000
b.
1,500,000
c.
900,000
d.
2,500,000
Feedback
The correct answer is: 1,600,000
ABC Company purchased an equipment for P5,000,000 on January 1, 2020. The equipment
had a useful life of 5 years with no residual value. On December 31, 2020, the entity classified
the asset as held for sale. On such date, the fair value less cost of disposal of the equipment
was P3,500,000. On December 31, 2021, the entity believed that the criteria for classification as
held for sale can no longer be met. Accordingly, the entity decided not to sell the asset but to
continue to use it. On December 31, 2021, the fair value less cost of disposal of the equipment
was P2,700,000. What amount should be included in profit or loss in 2021 as a result of the
reclassification of the equipment to property, plant and equipment?

a.
300,000 gain
b.
300,000 loss
c.
800,000 gain
d.
800,000 loss
Feedback
The correct answer is: 800,000 loss
An entity recently moved to a new building. The old building is being actively marketed for sale
and the entity expects to complete the sale in four months. Which statement is incorrect
regarding the old building?

a.
It will be classified as a current asset
 b.
It will be reclassified as an asset held for sale
c.
It will be classified as noncurrent asset
d.
It will no longer be depreciated
Feedback
The correct answer is: It will be classified as noncurrent asset
ABC Company accounted for non-current assets using the revaluation model. On October 1,
2020, the entity classified a land as held for sale. At that date, the carrying amount of the land
was P5,000,000 and the balance in revaluation surplus was P1,500,000. At same date, the fair
vale of the land was estimated at P5,500,000 and cost of disposal at P100,000. On December
31, 2020, the fair value less cost of disposal of the land did not change. The land was sold on
January 31, 2021 for P6,000,000. What is the carrying amount of the land on December 31,
2020?

a.
5,000,000
b.
5,500,000
c.
3,500,000
d.
5,400,000
Feedback
The correct answer is: 5,400,000
On July 1, 2020, ABC Company decided to discontinue its Electronics division, a separately
identifiable component of business. On December 31, 2020, the division has not been
completely sold. However, negotiations for the final and complete sale are progressing in a
positive manner and it is probable that the disposal will be completed within a year. Analysis of
the records for the year disclosed the following relative to the Electronics Division: Operating
loss for the year is P8,000,000; Loss on disposal of some Electronics Division assets during
2020 is P500,000; Expected operating loss in 2021 preceding final disposal is P1,000,000; and
Expected gain in 2021 on disposal of division is 2,000,000. What amount should be reported as
pretax loss from discontinued operation in 2020?

a.
7,500,000
b.
8,500,000
c.
8,000,000
d.
9,500,000
Feedback
The correct answer is: 8,500,000
When an entity decided to sell a business component, the gain in the disposal should be

a.
Netted against the loss from operations of the component as a part of discontinued operation
b.
Included in other comprehensive income
c.
Presented as an adjustment to retained earnings
d.
Presented as other income
Feedback
The correct answer is: Netted against the loss from operations of the component as a part of
discontinued operation
ABC Co. is committed to a plan to sell its headquarters building and has initiated actions to
locate a buyer. ABC will continue to use the building until the construction of a new
headquarters is completed. Thus, ABC classified the building as noncurrent asset held for sale.
Select one:
True

False
Feedback
The correct answer is 'False'.
ABC Company accounted for noncurrent assets using the cost model. On July 1, 2020, the
entity classified an equipment as held for sale. At that date, the carrying amount was
P5,000,000, and fair value was estimated at P3,500,000 and the cost of disposal at P100,000.
On December 31, 2020, the equipment was sold for net proceeds of P2,500,000. What amount
should be reported as loss on disposal for 2020?

a.
2,500,000
b.
1,500,000
c.
1,600,000
d.
900,000
Feedback
The correct answer is: 900,000
ABC Co. is preparing its December 31, 2020, current year financial statements. On January 5,
2021, a land included in ABC’s property, plant and equipment that did not qualify as held for sale
as of December 31, 2020 was actually sold. Thus, the company adjusted its 2020 financial
statements to classify the land as held for sale before the authorized issuance of the financial
statements on March 1, 2021
Select one:
True

False
Feedback
The correct answer is 'False'.
Which statement is incorrect concerning the presentation of the discontinued operation in the
statement of financial position?

a.
Depreciable assets of the component held for sale shall be depreciated
b.
Liabilities of the component held for sale are presented separately under current liabilities
c.
Assets of the component held for sale are presented separately under current assets
d.
Assets of the component held for sale are measured at the lower between fair value less cost of
disposal and carrying amount
Feedback
The correct answer is: Depreciable assets of the component held for sale shall be depreciated
ABC Company accounted for non-current assets using the revaluation model. On October 1,
2020, the entity classified a land as held for sale. At that date, the carrying amount of the land
was P5,000,000 and the balance in revaluation surplus was P1,500,000. At same date, the fair
vale of the land was estimated at P5,500,000 and cost of disposal at P100,000. On December
31, 2020, the fair value less cost of disposal of the land did not change. The land was sold on
January 31, 2021 for P6,000,000. What amount should be reported as gain on disposal of land
in 2021?

a.
500,000
b.
1,000,000
c.
600,000
d.
2,600,000
Feedback
The correct answer is: 600,000
ABC Co. is committed to sell a manufacturing facility and has initiated actions to locate a buyer.
At the plan commitment date, there is a backlog of uncompleted customer orders. ABC intends
to sell the manufacturing facility with its operations. Any uncompleted customer orders at the
sale date will be transferred to the buyer. The transfer of uncompleted customer orders at the
sale date will not affect the timing of the timing of the transfer of the facility. Thus, ABC still
classified the facility as noncurrent asset held for sale.
Select one:
True

False
Feedback
The correct answer is 'True'.
ABC Company is a diversified entity with nationwide interests 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 entity. On October 1, 2020, the board of
directors voted to approve the disposal of this division. The sale is expected to occur in August
2021. The food distribution had the following revenue and expenses in 2020: January 1 to
September 30 - revenue of P35,000,000 and expenses of P25,000,000; October 1 to December
31 – revenue of P10,000,000 and expenses of P12,000,000. The carrying amount of the
division’s assets on December 31, 2020 was P50,000,000 and the recoverable amount was
estimated to be P48,000,000. The sale contract required the entity to terminate certain
employees incurring an expected termination cost of P1,000,000 to be paid by December 15,
2021. The income tax rate is 30%. What amount should be reported as income from
discontinued operations for 2020?

a.
3,500,000
b.
5,000,000
c.
5,600,000
d.
4,200,000
Feedback
The correct answer is: 3,500,000
ABC Company purchased an equipment for P5,000,000 on January 1, 2020. The equipment
had a useful life of 5 years with no residual value. On December 31, 2020, the entity classified
the asset as held for sale. On such date, the fair value less cost of disposal of the equipment
was P3,500,000. On December 31, 2021, the entity believed that the criteria for classification as
held for sale can no longer be met. Accordingly, the entity decided not to sell the asset but to
continue to use it. On December 31, 2021, the fair value less cost of disposal of the equipment
was P2,700,000. What amount of impairment loss should be recognized in 2020?

a.
1,000,000
 b.
1,500,000
c.
0
d.
500,000
Feedback
The correct answer is: 500,000
ABC Company purchased an equipment for P5,000,000 on January 1, 2020. The equipment
had a useful life of 5 years with no residual value. On December 31, 2020, the entity classified
the asset as held for sale. On such date, the fair value less cost of disposal of the equipment
was P3,500,000. On December 31, 2021, the entity believed that the criteria for classification as
held for sale can no longer be met. Accordingly, the entity decided not to sell the asset but to
continue to use it. On December 31, 2021, the fair value less cost of disposal of the equipment
was P2,700,000. What is the carrying value of the equipment on December 31, 2020 before
classification as held for sale?

a.
4,500,000
b.
3,500,000
c.
5,000,000
d.
4,000,000
Feedback
The correct answer is: 4,000,000
ABC Co. is committed to a plan to sell its headquarters building and has initiated actions to
locate a buyer. ABC has an intention to transfer ownership of a building to a buyer after it
vacates the building. Thus, ABC classified the building as noncurrent asset held for sale
Select one:
True

False
Feedback
The correct answer is 'True'.
How should the assets and liabilities of a disposal group classified as held for sale be shown in
the statement of financial position?

a.
The assets of the disposal group shall be shown separately as current assets and the liabilities
of the disposal group shall be shown separately as current liabilities
 b.
The assets and liabilities shall be offset and presented as a single amount
c.
The assets and liabilities shall be presented as a single amount and as deduction from equity
d.
There should be no separate disclosure of assets and liabilities that form part of a disposal
group
Feedback
The correct answer is: The assets of the disposal group shall be shown separately as current
assets and the liabilities of the disposal group shall be shown separately as current liabilities
QUIZ #3 ACCOUNTING CHANGES

On January 1, 2020, ABC Corp. changed its inventory method to FIFO from LIFO for both
financial and income tax reporting purposes. The change resulted in an 800,000 increase
in the January 1, 2020 inventory. Assume that the income tax rate for all years is 30%.
The cumulative effect of the accounting change should be reported by ABC Corp in its
2020

a.
retained earnings statement as an 800,000 addition to the beginning balance.

b.
income statement as an 800,000 cumulative effect of accounting change.

c.
income statement as a 560,000 cumulative effect of accounting change.

d.
retained earnings statement as a 560,000 addition to the beginning balance.
Feedback
The correct answer is:
retained earnings statement as a 560,000 addition to the beginning balance.
On January 1, 2020, ABC Co. purchased a machine for 792,000 and depreciated it by the
straight-line method using an estimated useful life of eight years with no salvage value.
On January 1, 2023, ABC Co. revised its remaining useful life and will have a salvage
value of 72,000. An accounting change was made in 2023 to reflect these additional data.
The accumulated depreciation for this machine should have a balance at December 31,
2023 of 438,000.What is the revised remaining useful life of the machine?

a.
3 years

b.
8 years

c.
6 years

d.
5 years
Feedback
The correct answer is:
3 years
On January 1, 2020 , ABC Company purchased a machine (its only depreciable asset) for
300,000. The machine has a five-year life, and no salvage value. Sum-of-the-years'- digits
depreciation has been used for financial statement reporting and the elective straight-
line method for income tax reporting. Effective January 1, 2023, for financial statement
reporting, ABC Company decided to change to the straight-line method for depreciation
of the machine. Assume that ABC Company can justify the change.
ABC's income before depreciation, before income taxes, and before the cumulative effect
of the accounting change (if any), for the year ended December 31, 2023, is 250,000. The
income tax rate for 2023, as well as for the years 2020-2022, is 30%. What amount should
ABC report as net income for the year ended December 31, 2023?

a.
91,000

b.
60,000

c.
154,000

d.
175,000
Feedback
The correct answer is:
154,000
ABC Company decided that market conditions were such that the provision for inventory
obsolescence on December 31, 2020 should be increased by 2,000,000. If the same basis
of calculating inventory obsolescence had been applied on December 31, 2019, the
provision would have been 1,500,000 higher than the among recognized in the statement
of comprehensive income.

What adjustment should be made to net income of 2019 presented as comparative figure
in 2020?

a.
3,500,000 increase

b.
1,500,000 decrease

c.
1,500,000 increase

d.
0
Feedback
The correct answer is:
0
On January 1, 2020, A Corporation acquired equipment at a cost of 500,000. Lynn
adopted the double-declining balance method of depreciation for this equipment and had
been recording depreciation over an estimated life of five years, with no residual value.
At the beginning of 2021, a decision was made to change to the straight-line method of
depreciation for this equipment. Assuming a 30% tax rate, the cumulative effect of this
accounting change on beginning retained earnings, net of tax, is

a.
60,000

b.
0

c.
110,000

d.
77,000
Feedback
The correct answer is:
0
First Statement: Conforming with the depreciation method prevalent in a particular
industry is a justification of change in depreciation method
Second Statement: A change in the future benefit from the asset is not a justification of
change in depreciation method.

a.
Only first statement is false

b.
Both statements are true

c.
Only first statement is true

d.
Both statements are false
Feedback
The correct answer is:
Both statements are false
Which of the following disclosures is not required for a change from LIFO to FIFO?
 a.
The cumulative effect on prior years, net of tax, in the current retained earnings
statement

b.
The justification for the change

c.
Restated prior year statement of financial position

d.
All of these are required.
Feedback
The correct answer is:
Restated prior year statement of financial position
Which of the following statements are true?
1. Retrospective application refers to the application of a different accounting 2,7 to
recast previously issued financial statements—as if the new principle had always
been used
2. When it is impossible to determine whether a change in principle or change in
estimate has occurred, the change is considered a change in principle.
3. When companies make changes that result in different reporting entities, the
change is reported retrospectively
4. Adoption of a new principle in recognition of events that have occurred for the
first time or that were previously immaterial is treated as an accounting change.

a.
Statement I, III, and IV

b.
Statement I, II, and III

c.
Statement I and II

d.
Statement II and IV
 e.
Statement I, II, III, and IV
Feedback
The correct answer is: Statement I and II
Which of the following statements are false?
1. An error in the financial statements is not classified as an accounting changes
2. A change in residual value of an asset arising because additional information has
been obtained is an accounting change that should be reported in the period of
change and future period if the change affects both
3. An example of correction of an error in previously issued financial statements is a
change from cash basis to accrual basis of accounting
4. A change from an accounting principle that is not generally accepted to one that
is generally accepted should be reported as component of income from
continuing operations

a.
III only

b.
IV only

c.
II and III

d.
II and IV
Feedback
The correct answer is:
IV only
Equipment was purchased at the beginning of 2020 for 204,000. At the time of its
purchase, the equipment was estimated to have a useful life of six years and a salvage
value of 24,000. The equipment was depreciated using the straight-line method of
depreciation. At the beginning of 2023, the estimate of useful life was revised and the
expected salvage value was changed to 15,000. The amount recorded for depreciation for
2023, reflecting these changes in estimates is 19,800. What is the revised useful life of
the equipment?

a.
6 years

b.
5 years

c.
3 years

d.
8 years
Feedback
The correct answer is:
8 years
Which of the following statements is false?
1. Companies report changes in accounting estimates prospectively
2. When a company changes an accounting principle, it should report the change by
reporting the cumulative effect of the change in the current year’s income
statement.
3. An indirect effect of an accounting change is any change to current or future cash
flows of a company that result from making a change in accounting principle that
is applied retrospectively.
4. One of the disclosure requirements for a change in accounting principle is to
show the cumulative effect of the change on retained earnings as of the beginning
of the earliest period presented.

a.
Statement II, the cumulative effect of change is reported as an adjustment to the
beginning balance of retained earnings in the current period

b.
Statement II, the cumulative effect of change is reported as an adjustment to the
beginning balance of retained earnings in the prior period

c.
Statement III, a change in accounting estimate that is applied prospectively

d.
Statement III, Statement III, a change in accounting estimate that is applied
retrospectively
Feedback
The correct answer is:
Statement II, the cumulative effect of change is reported as an adjustment to the
beginning balance of retained earnings in the current period
First Statement: A change in accounting estimate does not affect the financial statements
of period period
Second Statement: Accounting changes are classified into change in accounting policy
and change in accounting estimate because of the materiality of change

a.

Both statements are true

b.

Only first statement is false

c.

Both statements are false

d.

Only first statement is true

Feedback
The correct answer is:
Only first statement is true
ABC Company failed to accrue expenses of P200,000 on December 31, 2019. In addition,
a change from straight line to double declining made at the beginning of 2020 resulted in
a cumulative effect of 500,000 on retained earnings. What pretax amount should be
reported as prior period error?

a.
200,000

b.
700,000

c.
500,000

d.
0
Feedback
The correct answer is:
200,000
Which of the following statements are true?

1. A change in the period benefited by a deferred cost because additional

information has been obtained is an accounting change that should be reported
by restating the financial statements of all prior periods presented
2. When an entity changes from double declining balance depreciation to sum of
year’s digit method, it should report the cumulative effect of the change.
3. Retrospective treatment of change in accounting period is not allowed because a
change in accounting estimate is a normal recurring correction or adjustment
4. A change from straight line method of depreciation to double declining method
would require recomputation of depreciation for current and future years

a.
I, III and IV

b.
I, II, III and IV

c.
IV only

d.
III and IV
Feedback
The correct answer is:
III and IV
A company changes from straight-line to double declining method of calculating
depreciation, which will be similar to the method used for tax purposes. The entry to
record this change should include a

a.
Debit to Depreciation Expense.

b.
Debit to Accumulated Depreciation.

c.
Credit to Retained Earnings in the amount of the difference on prior years.

d.
Credit to Deferred Tax Liability
Feedback
The correct answer is:
Debit to Depreciation Expense.
ABC Co. purchased machinery that cost 810,000 on January 4, 2020. The entire cost was
recorded as an expense. The machinery has a nine-year life and a 54,000 residual value.
The error was discovered on December 20, 2022. Ignore income tax considerations
Before the correction was made, and before the books were closed on December 31,
2020, retained earnings was understated by

a.
642,000

b.
558,000

c.
726,000

d.
810,000.
Feedback
The correct answer is:
642,000
The estimated life of a building that has been depreciated 20 years of an originally
estimated life of 40 years has been revised to a remaining life of 10 years. Based on this
information, the accountant should
 a.
Continue to depreciate the building over the original 40-year life

b.
Depreciate the remaining book value over 10 years.

c.
Adjust accumulated depreciation to its appropriate balance, through net income, based
on a 30-year life, and then depreciate the adjusted book value as though the estimated
life had always been 30 years.

d.
djust accumulated depreciation to its appropriate balance through retained earnings,
based on a 30-year life, and then depreciate the adjusted book value as though the
estimated life had always been 40 years.
Feedback
The correct answer is:
Depreciate the remaining book value over 10 years.
During the current year, ABC Company decided to change from FIFO to Weighted
Average method of inventory valuation. Inventory balances under each method were as
follows:

FIFO Weighted Average

9,200,00
January 1 9,700,000
0
9,900,00
December 31 10,300,000
0

What amount should be reported as the pretax effect of the accounting change in the
statement of changes in equity for the current year?

a.
900,000 addition
 b.
500,000 addition

c.
500,000 deduction

d.
900,000 deduction
Feedback
The correct answer is:
500,000 addition
First Statement: An entity that changed from cash basis to accrual basis of accounting
during the period should report prior period adjustment resulting from the correction of
an error
Second Statement: The effect of change in accounting policy that is inseparable from the
effect of a change in accounting estimate should be reported as a separate disclosure
after income from continuing operations in the period of change and future periods if the
change affects both.

a.
Only Second statement is false

b.
Both statements are false

c.
Only Second Statement is true

d.
Both statements are true
Feedback
The correct answer is:
Only Second statement is false
ABC Co. purchased machinery that cost 810,000 on January 4, 2020. The entire cost was
recorded as an expense. The machinery has a nine-year life and a 54,000 residual value.
The error was discovered on December 20, 2022. Ignore income tax considerations.
ABC's income statement for the year ended December 31, 2020, should show the
cumulative effect of this error in the amount of
 a.
0

b.
642,000.

c.
558,000

d.
726,000
Feedback
The correct answer is:
0
QUIZ #4 OPERATING SEGMENT

For an operating segment to be considered a reporting segment under the “reported

revenue” threshold, its reported revenue must be 10% or more of

a.
the consolidated revenue of all operating segments.

b.
the combined enterprise revenues, eliminating all relevant intracompany transfers and
balances.

c.
the combined revenues, excluding intersegment revenues, of all operating segments.

d.
the combined revenues, including intersegment revenues, of all operating segments.
Feedback
The correct answer is:
the combined revenues, including intersegment revenues, of all operating segments.
ABC Company has three manufacturing divisions each of which was determined to be a
reportable segment. Sales aggregated P8,000,000 in the current year, of which Segment
One contributed 25%. Traceable costs were 300,000 for Segment One out of 1,000,000. In
addition, Segment One incurred 200,000 interest expense. Common costs are
appropriately allocated on the basis of each division’s sales in relation to ABC’s
aggregate sale. In the current year, ABC Company incurred costs of 500,000 that were not
directly traceable to any of the divisions. It is an entity policy that interest expense is
included in the measure profit or loss that is reviewed by the chief operating decision
maker. What should be reported as operating profit for Segment One?

a.
1,575,000

b.
1,377,000

c.
1,375,000

d.
1,500,000
Feedback
The correct answer is:
1,375,000
Which of the following statements are false?
1. In financial reporting for operating segments, an entity shall disclose the type of
product and service from which each reportable segment derives revenue.
2. An operating segment is considered reportable when segment’s assets is 10% or
more of the combined assets of all segments
3. Similar operating segments may be combined if the segments have similar
economic characteristics.
4. The segment absolute value of its profit or loss is 10% or more of the lesser of (1)
the combined reported profit of all operating segments that reported a profit or (2)
the absolute value of the combined reported loss of all operating segments that
reported a loss.

a.
II only

b.
IV only

c.
I and III

d.
II and IV
Feedback
The correct answer is:
IV only
Which of the following is included in entity wide disclosure?
1. Information about products
2. Information about geographical areas
3. Information about major customers
4. Information about intersegment revenue

a.
I and II only

b.
I, II, and IV
 c.
I, II, III and IV

d.
I, II and III
Feedback
The correct answer is:
I, II and III
ABC Company has three manufacturing divisions each of which was determined to be a
reportable segment. Sales aggregated P8,000,000 in the current year, of which Segment
One contributed 25%. Traceable costs were 300,000 for Segment One out of 1,000,000. In
addition, Segment One incurred 200,000 interest expense. Common costs are
appropriately allocated on the basis of each division’s sales in relation to ABC’s
aggregate sale. In the current year, ABC Company incurred costs of 500,000 that were not
directly traceable to any of the divisions. . It is an entity policy that interest expense is
included in the measure profit or loss that is reviewed by chief operating decision
maker.What amount of common cost should be allocated to Segment One?

a.
123,000

b.
121,428

c.
122,946

d.
125,000
Feedback
The correct answer is:
125,000
ABC Company has three manufacturing divisions each of which was determined to be a
reportable segment. Sales aggregated P11,500,000 in the current year, of which Segment
One contributed 30%. Traceable costs were P2,500,000 for Segment One. Common costs
are appropriately allocated on the basis of each division’s sales in relation to ABC’s
aggregate sale. Common cost allocated to Segment One is 240,000. What is the total cost
incurred by ABC Company that were not directly traceable to any of the divisions?

a.
650,000

b.
240,000

c.
800,000

d.
900,000
Feedback
The correct answer is:
800,000
Which of the following must be disclosed about each reportable segment if the amounts
are used by the chief operating decision maker?
1. Depreciation expense
2. Allocated expense
3. Interest expense
4. Income tax expense

a.
II,III and IV

b.
I, II and III

c.
I, III and IV

d.
I, II, III and IV
Feedback
The correct answer is:
I, III and IV
ABC Company has three lines of business, each of which was determined to be a
reportable segment. Sales aggregated P10,500,000 in the current year, of which Segment
One contributed 40%. Traceable costs were P1,500,000 for Segment One out of a total of
5,500,000 for the entity as a whole. The entity allocates common costs of 1,500,000 based
on the ratio of segment’s income before common costs to the total income before
common costs. What amount should be reported as operating profit for Segment One?

a.
2,700,000
 b.
1,890,000

c.
2,100,000

d.
1,200,000
Feedback
The correct answer is:
1,890,000
An entity reported the following segment profit or loss for the current year:

Segment
7,000,000 profit
1
Segment
3,000,000 profit
2
Segment
4,000,000 loss
3
Segment
1,000,000 profit
4
Segment
500,000 loss
5
‘
What are the reportable segments?

a.
Segments 1 and 2

b.
Segments 1,2,3,4 and 5

c.
Segments 1,2,3 and 4
 d.
Segments 1, 2 and 3
Feedback
The correct answer is:
Segments 1, 2 and 3
ABC Company has the following 2020 financial data:
Sales to unaffiliated customers 1,800,000
Intersegment sales 270,000
Combined revenues of all segments 2,070,000
ABC Company should have additional reportable segment if

a.
the sum of its segments external revenue does not exceed 1,552,500

b.
the sum of its segments external revenue does not exceed 1,350,000

c.
the sum of its segments revenue including intersegment revenue does not exceed
1,552,500

d.
the sum of its segments revenue including intersegment revenue does not exceed
1,350,000
Feedback
The correct answer is:
the sum of its segments external revenue does not exceed 1,350,000
An entity shall disclose which of the following general information?
1. Factors used to identify the reportable segments
2. Types of products and services
3. Names of the board of directors
 a.
I and III

b.
I and II

c.
I, II and III

d.
II and III
Feedback
The correct answer is:
I and II
Statement 1: The total external and internal revenue of all reportable segment is 75% or
more of the entity’s internal revenue
Statement 2: The term chief operating decision maker must be disclosed by title in the
financial reporting for segments

a.
Both statements are true

b.
Only Statement 2 is true

c.
Only Statement 1 is true

d.
Both statements are false
Feedback
The correct answer is:
Both statements are false
An enterprise has ten reporting segments. Six segments show an operating profit and
four segments show an operating loss. In determining which segments are classified as
reporting segments under the “reported profits” test, which of the following statements
is correct?

a.
The test value for all segments is 10% of consolidated net profit.

b.
The test value for loss segments is 10% of the greater of (a) the absolute value of the
sum of those segments reporting losses, or (b) 10% of consolidated net profit.

c.
The test value for all segments is 10% of the greater of (a) the absolute value of the sum
of those segments reporting profits, or (b) the absolute value of the sum of those
segments reporting losses.

d.
The test value for profitable segments is 10% or more of those segments reporting a
profit, and the test value for loss segments is 10% or more of those segments reporting a
loss.
Feedback
The correct answer is:
The test value for all segments is 10% of the greater of (a) the absolute value of the sum
of those segments reporting profits, or (b) the absolute value of the sum of those
segments reporting losses.
ABC Company has three lines of business, each of which was determined to be a
reportable segment. Sales aggregated P10,500,000 in the current year, of which Segment
One contributed 40%. Traceable costs were P1,500,000 for Segment One out of a total of
5,500,000 for the entity as a whole. The entity allocates common costs of 1,500,000 based
on the ratio of segment’s income before common costs to the total income before
common cost. What amount of the common costs should be allocated to Segment One?

a.
410,000

b.
810,000

c.
600,000

d.
1,500,000
Feedback
The correct answer is:
810,000
An entity reported the following for the current year:

Sales to unaffiliated customers 70,000,000

Intersegment Sales 10,000,000
Expenses 20,000,000
Net Income 50,000,000
Combined Total Assets 45,000,000

Under the revenue test, what is the minimum revenue of a reportable segment?

a.
5,000,000

b.
8,000,000

c.
4,500,000

d.
7,000,000
Feedback
The correct answer is:
8,000,000
An entity reported the following for the current year:

Sales to unaffiliated customers 70,000,000

Intersegment Sales 10,000,000
Expenses 20,000,000
Net Income 50,000,000
Combined Total Assets 45,000,000
What is the minimum sales to a major customer?

a.
5,000,000

b.
7,000,000

c.
4,500,000

d.
8,000,000
Feedback
The correct answer is:
7,000,000
The approach is used in segment reporting is known as

a.
Revenue Approach

b.
Management Approach

c.
Segment Approach

d.
Enterprise Approach
Feedback
The correct answer is:
Management Approach
An entity reported the following for the current year:
Sales to unaffiliated customers 70,000,000
Intersegment Sales 10,000,000
Expenses 20,000,000
Net Income 50,000,000
Combined Total Assets 45,000,000

What is the minimum amount of external revenue to be disclosed by reportable

segments?

a.
60,000,000

b.
33,750,000

c.
52,500,000

d.
37,500,000
Feedback
The correct answer is:
52,500,000
Which of the following statements are true?
1. Operating segment that do not meet any of the quantitative thresholds may be
considered reportable and separately disclosed if the information is for internal
use
2. The threshold for reporting major customers is more than 10% of total revenue
3. Segment reporting shall apply to both the separate financial statements of an
entity and the consolidated financial statements of a group
4. The total external revenue of all reportable segments is 75% or more of the entity’s
external revenue
 a.
II, III and IV

b.
I, II, III and IV

c.
II and IV

d.
IV only

e.
III and IV
Feedback
The correct answer is:
III and IV
Statement 1: If a financial report contains both the consolidated financial statements of
the parent and the parent’s separate financial statements, segment information is
required in the consolidated financial statements only.
Statement 2: Segment reporting shall apply to separate financial statements of an entity
only.

a.
Only Statement 2 is true

b.
Both statements are false

c.
Only Statement 1 is true

d.
Both statements are true
Feedback
The correct answer is:
Only Statement 1 is true
QUIZ #5 SINGLE ENTRY AND CASH AND ACCRUAL BASIS

To convert to the accrual basis, cash basis sales is increased by credit sales during the period
but are not yet collected and increased by cash receipts on advances for sales not yet made.

Select one:

True

False

Feedback
The correct answer is 'False'.
ABC Company reported the following balances for the current year:

December 31 January 1
Inventory 2,600,000 2,900,000
Accounts payable 750,000 500,000

The entity paid suppliers P4,900,000 during the current year. Under accrual basis, what amount
should be reported as cost of goods sold for the current year?

a.
4,350,000

b.
5,450,000

c.
4,950,000
 d.
4,850,000

Feedback
The correct answer is:
5,450,000
When converting from cash basis to accrual basis of accounting, which of the following
adjustments should be made to cash paid for operating expenses to determine the accrual basis
operating expenses?

a.
Subtract ending prepaid expense

b.
Subtract beginning prepaid expense

c.
Subtract interest expense

d.
Add beginning accrued liabilities

Feedback
The correct answer is:
Subtract ending prepaid expense
ABC Company maintains the accounting records on the cash basis but restates the financial
statements to the accrual basis. The entity had P6,000,000 in cash basis net income for the
current year. The following information pertains to the entity’s operations:

January 1 December 31
Accounts receivable 2,000,000 4,000,000
Accounts payable 3,000,000 1,500,000

Under accrual basis, what amount of net income should be reported for the current year?

a.
9,500,000

b.
5,500,000

c.
2,500,000

d.
6,500,000

Feedback
The correct answer is:
9,500,000
ABC Company began operations on January 1, 2020. The entity has elected to use cash basis
of accounting for tax purposes and accrual basis for financial reporting. The entity reported
sales of P8,750,000 and P4,000,000 in the tax returns for 2021 and 2020, respectively. The
entity reported accounts receivable of P1,500,000 and P2,500,000 on December 31, 2021 and
December 31, 2020, respectively. What amount should be reported as sales in the income
statement for 2021?

a.
7,250,000

b.
7,750,000

c.
9,750,000

d.
3,000,000

Feedback
The correct answer is:
7,750,000
ABC Company provided the following data for the current year:

January 1 December 31
Accounts receivable 1,200,000 1,350,000
Accounts payable 1,500,000 1,850,000

During the current year, accounts written off amounted to P100,000. Sales returns totaled
P250,000, of which P50,000 was paid to customers. Purchase returns amounted to P400,000,
of which P100,000 was received from suppliers. Cash receipts from customers after P500,000
discounts totaled P8,000,000 while cash payments to trade creditors amounted to P5,000,000.
What is the amount of gross purchases under accrual basis?

a.
5,650,000

b.
5,750,000

c.
5,300,000

d.
5,050,000

Feedback
The correct answer is:
5,650,000
ABC Company reported shareholders’ equity of P8,000,000 on December 31, 2020. The entity
reported the following transactions during the year:

An adjustment of retained earnings for 2019 over depreciation 200,000

Gain on sale of treasury shares 500,000
Dividend declared, of which P400,000 was paid 1,400,000
Net income for 2020 2,000,000

The share capital balance of P5,000,000 remained unchanged during the year. What is the
balance of retained earnings on January 1, 2020?
 a.
2,100,000

b.
2,200,000

c.
1,700,000

d.
2,600,000

Feedback
The correct answer is:
1,700,000
ABC Company reported sales revenue of P4,600,000 in the income statement for the current
year. Additional information for the current year is as follows:

January 1 December 31
Accounts receivable 1,000,000 1,300,000
Allowance for doubtful accounts 60,000 110,000
Advances from customers 200,000 300,000

The entity wrote off uncollectible accounts totaling P50,000 during the current year. Under cash
basis, what amount should be reported as sales revenue for the current year?

a.
4,900,000

b.
4,250,000

c.
4,400,000

d.
4,350,000

Feedback
The correct answer is:
4,350,000
When converting from cash basis to accrual basis accounting, which of the following
adjustments should be made to cash receipts from customers to determine accrual basis
revenue?

a.
Add ending accounts receivable

b.
Subtract beginning unearned service revenue

c.
Subtract ending accounts receivable

d.
Add cash sales

Feedback
The correct answer is:
Add ending accounts receivable
If ending balance of accounts receivable exceeds the beginning accounts receivable

a.
Net income for the period is less than the amount of cash basis income

b.
Cash collections during the year are less than the amount of revenue earned

c.
No cash was collected during the period

d.
Cash collections during the period exceed the amount of revenue earned
Feedback
The correct answer is:
Cash collections during the year are less than the amount of revenue earned
ABC Company provided the following increases in account balances that occurred during the
current year:
 Assets 9,000,000
Liabilities 3,000,000
Share capital 5,000,000
Share premium 500,000

Except for a P2,000,000 dividend payment, the year’s earnings and a P200,000 prior period
error from understatement of ending inventory, there were no other changes in retained
earnings for the year. What is the net income for the current year?

a.
2,700,000

b.
2,300,000

c.
2,500,000

d.
6,000,000

Feedback
The correct answer is:
2,300,000
Accrual accounting is used because
 a.
It provides a better indication of ability to generate cash flows that the cash basis

b.
It recognizes revenue when cash is received and expenses when cash is paid

c.
Cash flows are considered less important

d.
It is allowed under IFRS

Feedback
The correct answer is:
It provides a better indication of ability to generate cash flows that the cash basis
Under the cash basis of accounting

a.
Accounts receivable would be reported in the statement of financial position

b.
Depreciation of assets having an economic life of more than one year is not recognized

c.
The matching principle is ignored

d.
Revenues are recorded when earned

Feedback
The correct answer is:
The matching principle is ignored
ABC Company revealed the following changes in the accounts for 2020:

Increase (Decrease)
Cash 1,000,000
Accounts receivable, net of allowance 1,900,000
Inventory 2,200,000
Equipment (1,500,000)
Accounts payable 500,000
Bonds payable (2,000,000)
Loan payable 3,000,000
Accrued interest payable 100,000
During the year, the entity issued 10,000 ordinary shares of P100 par value for P150 per share.
Dividend of P4,000,000 was paid in cash during the year. The entity borrowed P3,000,000 from
the bank and made interest payment of P200,000. The bank loan is unpaid on December 31,
2020 and the interest payable on December 31, 2020 was P100,000. There is no interest
payable on January 1, 2020. Equipment with fair value of P500,000 was donated by a
shareholder during the year. What is the net income for the current year?

a.
6,000,000

b.
4,000,000

c.
4,500,000

d.
2,000,000

Feedback
The correct answer is:
4,000,000
During 2020, ABC Company reported cash sales of P3,000,000 with related returns and
allowances of P100,000 and gross credit sales of P5,000,000 with related discounts of
P400,000. On January 1, 2020, customers owed the entity P1,000,000. On December 31, 2020,
customers owed the entity P1,500,000. The entity used the direct write-off method for bad
debts. No bad debts were recorded in 2020. Under cash basis, what amount of sales revenue
should be reported for the current year?

a.
7,000,000

b.
8,500,000

c.
8,000,000
 d.
7,500,000

Feedback
The correct answer is:
7,000,000
Under the cash basis of accounting, revenue is recorded

a.
When earned and realized

b.
When earned and realizable

c.
When realized

d.
When earned

Feedback
The correct answer is:
When realized
Total net income over the life of an entity is
 a.
The same under the cash basis as under the accrual basis

b.
Higher under the cash basis than under the accrual basis

c.
Not susceptible to measurement

d.
Lower under the cash basis than under the accrual basis

Feedback
The correct answer is:
The same under the cash basis as under the accrual basis
Under the accrual basis of accounting, cash receipts and disbursements may

a.
Precede, coincide with, or follow the period in which revenue and expenses are recognized

b.
Coincide with but never precede the period in which revenue and expenses are recognized

c.
Only coincide with the period in which revenue and expenses are recognized

d.
Precede but never follow the period in which revenue and expenses are recognized

Feedback
The correct answer is:
Precede, coincide with, or follow the period in which revenue and expenses are recognized
ABC Company provided the following data for the current year:

January 1 December 31
Accounts receivable 1,200,000 1,350,000
Accounts payable 1,500,000 1,850,000

During the current year, accounts written off amounted to P100,000. Sales returns totaled
P250,000, of which P50,000 was paid to customers. Purchase returns amounted to P400,000,
of which P100,000 was received from suppliers. Cash receipts from customers after P500,000
discounts totaled P8,000,000 while cash payments to trade creditors amounted to P5,000,000.

What amount of gross sales under accrual basis?

a.
8,250,000

b.
8,850,000

c.
9,600,000

d.
8,950,000

Feedback
The correct answer is:
8,950,000
Under International Financial Reporting Standards

a.
Events are recorded in the period in which the events occur

b.
Net income will be lower under the cash basis that accrual basis accounting

c.
The cash basis method of accounting is accepted

d.
All of the choices are correct

Feedback
The correct answer is:
Events are recorded in the period in which the events occur
QUIZ #6 SINGLE ENTRY CASH AND ACCRUAL AND ERROR CORRECTION

ABC Company began operation on January 1, 2019. The financial statements contained the
following errors:

2019 2020
Ending inventory 800,000 under 400,000 over
Depreciation 150,000 under
Insurance expense 50,000 over 50,000 under
Prepaid insurance 50,000 under

In addition, on December 31, 2020, a fully depreciated equipment was sold for P100,000 cash
but the sale was not recorded until 2021. Before income tax, what is the total effect of the errors
on working capital on December 31, 2020?

a.
400,000 over

b.
300,000 under

c.
400,000 under

d.
300,000 over
Feedback
The correct answer is:
300,000 over
ABC Company borrowed money under various loan agreement involving notes discounted and
notes requiring interest payments at maturity. During the current year, the entity paid interest
totaling P6,000,000. The statement of financial position included the following:

January 1 December 31
Prepaid interest 500,000 1,500,000
Interest payable 2,000,000 2,500,000

What amount of interest expense should be reported for the current year?

a.
4,500,000

b.
5,500,000

c.
7,500,000

d.
6,500,000

Feedback
The correct answer is:
5,500,000
Failure to record the expired amount of prepaid rent expense would not

a.
Understate expense

b.
Overstate owners’ equity

c.
Overstate net income

d.
Understate liabilities

Feedback
The correct answer is:
Understate liabilities
The failure to record a purchase of merchandise on account even though the goods are properly
included in the physical inventory results in

a.
An understatement of cost of goods sold and liability and an overstatement of asset

b.
An understatement of liability and an overstatement of equity
 c.
An understatement of asset and net income

d.
An overstatement of asset

Feedback
The correct answer is:
An understatement of liability and an overstatement of equity
ABC Company began operation on January 1, 2019. The financial statements contained the
following errors:

2019 2020
Ending inventory 800,000 under 400,000 over
Depreciation 150,000 under
Insurance expense 50,000 over 50,000 under
Prepaid insurance 50,000 under

In addition, on December 31, 2020, a fully depreciated equipment was sold for P100,000 cash
but the sale was not recorded until 2021. Before income tax, what is the total effect of the errors
on net income for 2020?

a.
1,350,000 under

b.
1,350,000 over
 c.
1,150,000 under

d.
1,150,000 over

Feedback
The correct answer is:

1,150,000 over
If the beginning inventory in the current year is overstated, and that is the only error in the
current year, the income for the current year would be

a.
Understated and assets understated

b.
Understated and assets overstated

c.
Overstated and assets overstated

d.
Understated and assets correctly stated
Feedback
The correct answer is:
Understated and assets correctly stated
ABC Company assigned some of its patents to other entities under a variety licensing
agreements. The following data are gathered for the current year

January 1 December 31
Unearned royalties 600,000 400,000
Royalties receivable 900,000 850,000

During the current year, the entity received royalty remittance of P2,000,000. What amount
should be reported as royalty income for the current year?

a.
2,250,000

b.
2,150,000

c.
2,200,000

d.
1,950,000

Feedback
The correct answer is:
2,150,000
ABC Company began operation on January 1, 2019. The financial statements contained the
following errors:

2019 2020
Ending inventory 800,000 under 400,000 over
Depreciation 150,000 under
Insurance expense 50,000 over 50,000 under
Prepaid insurance 50,000 under

In addition, on December 31, 2020, a fully depreciated equipment was sold for P100,000 cash
but the sale was not recorded until 2021. Before income tax, what is the total effect of the errors
on Retained earnings December 31, 2020?

a.
700,000 under

b.
450,000 under

c.
450,000 over

d.
1,150,000 over

Feedback
The correct answer is:
450,000 over
ABC Company began operation on January 1, 2019. The financial statements contained the
following errors:

2019 2020
Ending inventory 800,000 under 400,000 over
Depreciation 150,000 under
Insurance expense 50,000 over 50,000 under
Prepaid insurance 50,000 under

In addition, on December 31, 2020, a fully depreciated equipment was sold for P100,000 cash
but the sale was not recorded until 2021. Before income tax, what is the total effect of the errors
on net income for 2019?

a.
700,000 over

b.
700,000 under

c.
650,000 under

d.
650,000 over

Feedback
The correct answer is:
700,000 under
ABC Company reported that the financial statements contained the following errors:

December 31, 2019 December 31, 2020

Ending inventory P48,000 understated P40,500 overstated
Depreciation P11,500 understated

An insurance premium of P330,000 was prepaid in 2019 covering years 2019, 2020 and 2021.
The entire amount was charged to expense in 2019. In addition, on December 31, 2020, a fully
depreciated machinery was sold for P75,000 cash, but the sale was not recorded until 2021.
There were no other errors during 2019 and 2020, and no corrections have been made for any
of the errors. Ignore income tax.

What is the total effect of the errors on ABC’s 2020 net income?

a.
177,500 understatement

b.
192,500 understatement

c.
123,500 overstatement

d.
27,500 overstatement
Feedback
The correct answer is:
123,500 overstatement
ABC Company reported pretax incomes of P505,000 and P387,000 for the years ended
December 31, 2019 and 2020, respectively. However, the auditor noted that the following errors
had been made:
a. Sales for 2019 included amounts of P191,000 which had been received in cash during
2019, but for which the related goods were shipped in 2020. Title did not pass to the buyer until
2020.
b. The inventory on December 31, 2019, was understated by P43,200
c. The company’s accountant, in recording interest expense for both 2019 and 2020 on
bonds payable, made the following entry on an annual basis:
Interest expense 75,000
Cash 75,000
The bonds have a face value of P1,250,000 and pay a nominal interest rate of 6%. They were
issued at a discount of P75,000 on January 1, 2019, to yield an effective interest rate of 7%
d. Ordinary repairs to equipment had been erroneously charged to the Equipment account
during 2019 and 2020. Repairs of P42,500 and P47,000 had been incurred in 2019 and 2020,
respectively. In determining depreciation charges, Chile applies a rate of 10% to the balance in
the Equipment account at the end of the year.
What is the corrected pretax income for 2020?

a.
488,992

b.
575,392

c.
480,042
 d.
484,292

Feedback
The correct answer is:
488,992
An entity received merchandise on consignment at year-end and had recorded the transaction
as a purchase and included the goods in inventory. The effect of this on the financial statements
would be

a.
Net income and current liabilities were overstated

b.
Net income was correct and current assets and current liabilities were overstated

c.
No effect

d.
Net income, current assets and current liabilities were overstated
Feedback
The correct answer is:
Net income was correct and current assets and current liabilities were overstated
In an entity uses the periodic inventory system, what is the impact on net income of including
goods in transit FOB shipping point in purchases but not in ending inventory?
 a.
Overstate net income

b.
Understate net income

c.
Not sufficient information to determine effect in net income

d.
No effect on net income

Feedback
The correct answer is:
Understate net income
If at year-end, an entity erroneously excluded some goods from the ending inventory and also
erroneously did not record the purchase, these errors would cause

a.
The cost of goods available for sale and net income to be understated

b.
No effect on net income, working capital and retained earnings
 c.
The ending inventory and cost of goods sold to be understated

d.
The ending inventory and retained earnings to be understated

Feedback
The correct answer is:
No effect on net income, working capital and retained earnings
Failure to record accrued salaries at the end of an accounting period results in

a.
Overstated revenue

b.
Overstated retained earnings

c.
Understated retained earnings

d.
Overstated assets
Feedback
The correct answer is:
Overstated retained earnings
Failure to record depreciation expense at the end of an accounting period results in

a.
Overstated expense

b.
Understated income

c.
Overstated assets

d.
Understated assets

Feedback
The correct answer is:
Overstated assets
Which of the following types of errors will not self-correct in the next year?
 a.
Accrued expense not recognized at year-end

b.
Prepaid expenses not recognized at year-end

c.
Accrued revenues that have not been collected not recognized at year-end

d.
Depreciation expense overstated for the year

Feedback
The correct answer is:
Depreciation expense overstated for the year
ABC Company reported pretax incomes of P505,000 and P387,000 for the years ended
December 31, 2019 and 2020, respectively. However, the auditor noted that the following errors
had been made:
a. Sales for 2019 included amounts of P191,000 which had been received in cash during
2019, but for which the related goods were shipped in 2020. Title did not pass to the buyer until
2020.
b. The inventory on December 31, 2019, was understated by P43,200
c. The company’s accountant, in recording interest expense for both 2019 and 2020 on
bonds payable, made the following entry on an annual basis:
Interest expense 75,000
Cash 75,000
The bonds have a face value of P1,250,000 and pay a nominal interest rate of 6%. They were
issued at a discount of P75,000 on January 1, 2019, to yield an effective interest rate of 7%
d. Ordinary repairs to equipment had been erroneously charged to the Equipment account
during 2019 and 2020. Repairs of P42,500 and P47,000 had been incurred in 2019 and 2020,
respectively. In determining depreciation charges, Chile applies a rate of 10% to the balance in
the Equipment account at the end of the year.
What is the corrected pretax income for 2019?

a.
225,300

b.
311,700

c.
307,450

d.
303,200

Feedback
The correct answer is:
311,700
Retrospective application means correcting a prior period error as if the error had never
occurred.

Select one:

True

False

Feedback
The correct answer is 'False'.
ABC Company reported that the financial statements contained the following errors:

December 31, 2019 December 31, 2020

Ending inventory P950,000 overstated P800,000 understated
Depreciation P250,000 understated

An insurance premium of P600,000 was prepaid in 2019 covering years 2019, 2020 and 2021.
The entire amount was charged to expense in 2019. No corrections have been made for any of
the errors. Ignore income tax. What is the total effect of the errors on retained earnings on
December 31, 2020?

a.
Overstatement of P1,550,000

b.
Understatement of P1,550,000

c.
Overstatement of P750,000

d.
Understatement of P750,000

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The correct answer is:
Understatement of P750,000