PSBA Refresher Course November 2021 Batch FAR Problem Quiz # 1

Accounting Process to Inventories

1. An entity operates in an industry that has a high rate of bad debts. On December 31, 2022, before any year-
end adjustments, the accounts receivable balance was P4,800,000 and its allowance for doubtful accounts
balance was P240,000. The year-end balance reported for the allowance for doubtful accounts is based on the
following schedule:
Time Outstanding Accounts Receivable Percent Uncollectible
Under 30 days 3,000,000 5%
31 - 180 days 900,000 10%
181 - 360 days 600,000 30%
More than one year 300,000 100%
The accounts which have been outstanding for more than one year and 100% uncollectible would be written
off immediately. What should be the doubtful accounts expense for the year ended December 31, 2022?
a. 420,000
b. 480,000
c. 300,000
d. 180,000

2. The following accounts were abstracted from an entity’s unadjusted trial balance at December 31, 2022:
Debit Credit
Accounts receivable 2,000,000
Allowance for doubtful accounts 20,000
Net credit sales 8,000,000
The entity estimates that 3% of net credit sales will become uncollectible. What amount of allowance for
doubtful accounts should the entity report on December 31, 2022?
a. 240,000
b. 260,000
c. 220,000
d. 80,000

3. On December 31, 2022, an entity had the following cash balances:

Cash in bank 8,000,000
Cash on hand 2,500,000
Time deposit – three months due January 15, 2023 1,700,000
Saving deposit 800,000
Cash in bank includes P600,000 of compensating balance against short-term borrowing arrangement on
December 31, 2022. The balance is not legally restricted as to withdrawal. A check of P300,000 dated January
15, 2023 in payment of accounts payable was recorded and mailed on December 31, 2022. What amount of
cash and cash equivalents should an entity report on December 31, 2022?
a. 12,700,000
b. 13,000,000
c. 12,500,000
d. 13,300,000

4. An entity had the following account balances on December 31, 2022:

Cash in bank – current account 3,500,000
Cash in bank – income tax payments only 1,000,000
Cash on hand 500,000
Cash in bank – restricted account for plant additions, expected to
be disbursed in 2023 2,800,000
Commercial papers 900,000
The cash on hand includes a P150,000 check payable to the entity dated January 15, 2023. The commercial
papers had a total term of 3-years but was purchased by the entity 2 months prior to maturity. What amount
of cash and cash equivalents should the entity report on December 31, 2022?
a. 8,550,000
b. 5,750,000
c. 4,750,000
d. 4,850,000
5. An entity purchased equipment for P5,750,000 on January 1, 2020 with a useful life of 10 years and no residual
value. On January 1, 2022, the entity classified the equipment as held for sale. The fair value of the equipment
on such date is P3,795,000 and the cost to disposal is P115,000. On January 1, 2023, the fair value of the
equipment is P4,370,000 and the cost of disposal is P230,000. On January 1, 2023, the entity determined that
the criteria as held for sale can no longer be met and decided not to sell the asset but continue using it. What
amount of impairment loss should be recognized in 2022?

a. 920,000
b. 460,000
c. 345,000
d. 0

6. On August 31, 2022, an entity signed a contract to sell one of its major business segments. On this date, the
carrying amount of the assets of the segment was P24,000,000 and the fair value less cost of disposal of the
assets of the segment was P18,000,000. The sale is expected to be completed by February 6, 2023. The
contract also specified the entity to terminate some employees. The entity incurred termination cost of
P3,000,000 payable on March 31, 2023. During 2022, the segment recognized revenue and expenses of
P25,000,000 and P21,000,000 respectively. The income tax rate is 25%. What amount of loss from
discontinued operation should the entity report for the year 2022?

a. 5,000,000
b. 3,750,000
c. 2,000,000
d. 1,500,000

7. An entity identified and reported the following operating segments:

Segment Segment revenue Profit Assets
A 15,000,000 3,400,000 7,800,000
B 9,000,000 1,800,000 5,200,000
C 4,000,000 600,000 2,700,000
D 1,500,000 150,000 600,000
E 800,000 90,000 400,000
F 250,000 30,000 350,000
Which segments are considered reportable?
a. Segments A and B
b. Segments A, B and C
c. Segments A, B, C and D
d. Segments A, B, C, D and E

8. An entity reported the following items for the quarter ending March 31:
Loss on disposal of land 670,000
Property tax paid for the current year 1,200,000
Cumulative loss resulting from a change from FIFO to
weighted average inventory cost flow 280,000
What total amount of expense should the entity reported for the quarter ending March 31?
a. 670,000
b. 1,870,000
c. 970,000
d. 1,250,000
9. On January 1, 2022, an entity purchased for P3,000,000 a machine with a useful life of 5 years and residual
value of P300,000. The machine was depreciated by the double declining balance method and the accumulated
depreciation of the machine was P1,920,000 on December 31, 2023. The entity changed to the straight-line
method on January 1, 2024 and the residual value did not change. What is the depreciation of the machine for
the year 2024?
a. 360,000
b. 260,000
c. 216,000
d. 156,000
10. An entity reported the following items during the current year
Unrealized gain – debt investment at FVOCI 467,000
Unrealized gain – equity investment at FVOCI 348,000
Revaluation surplus 682,000
Unrealized loss – forward contract designated as cash flow hedge 145,000
Loss on credit risk of a financial liability designated at FVPL 239,000
What net amount of OCI that may not be recycled to profit or loss should the entity report?
a. 322,000
b. 83,000
c. 930,000
d. 791,000

11. On January 1, 2022, an entity sold goods to a customer in which the customer issued a noninterest-bearing
note requiring annual payment of P400,000 for 5 years. The first payment was made on December 31, 2022.
The prevailing interest rate for this similar note is 12%. The present value factor of an ordinary annuity for 5
periods at 12% is 3.60. What is the carrying amount of the note receivable on December 31, 2022?
a. 1,212,800
b. 1,612,800
c. 1,600,000
d. 1,440,000

12. The financial statements of an entity were authorized for issue on March 31, 2023 and the end of the reporting
period is on December 31, 2022. The entity provided the following data:

• The entity had reported a contingent liability on December 31, 2022 related to a court case which was not
heard until February 2023. On March 1, 2023, the judge handed down a decision against the entity for
damages amounting to P1,000,000.
• The entity declared dividend to its shareholders amounting to P800,000 on January 31, 2023.

• On February 15, 2023, the entity discovered that depreciation for the year 2022 was understated by
P340,000.
• On March 15, 2023, the entity purchased equipment costing P2,500,000.
What total amount of adjusting events should the entity recognize?
a. 1,340,000
b. 3,840,000
c. 4,640,000
d. 2,140,000

13. On January 1, 2022, an entity changed its inventory method from weighted average to FIFO for both financial
and income tax reporting. The change resulted in a P600,000 increase in the January 1, 2022 inventory
balance. The income tax rate is 25%. How should the cumulative effect of the change be reported in the
entity’s 2022 financial statements?
a. P450,000 increase in the profit or loss for 2022.
b. P450,000 increase in the beginning balance of retained earnings
c. P600,000 increase in the profit or loss for 2022.
d. P600,000 increase in the beginning balance of retained earnings

14. An entity showed the following liability account balances on December 31, 2022:
Accounts payable 4,500,000
Bonds payable 6,000,000
Cash dividends payable 3,500,000
Income tax payable 5,500,000
Note payable – bank 2,000,000
The bank loan matures on July 31, 2023. On January 15, 2023, the entire balance of the note was refinanced
on a long-term basis. The 2022 financial statements were authorized for issue on March 1, 2023. What
amount should be reported as total current liabilities on December 31, 2022?
a. 21,500,000
b. 19,500,000
c. 13,500,000
d. 15,500,000
15. At the beginning of the year, an entity had supplies amounting to P35,000. During the year, the entity
purchased supplies costing P400,000 and at the end of the year, the supplies had a balance of P49,000. All
purchases of supplies are debited to an expense account and the entity prepares reversing entries. The adjusting
entry at year-end will include a
a. Debit to supplies expense of P14,000
b. Credit to supplies expense of P14,000
c. Debit to supplies expense of P49,000
d. Credit to supplies expense of P49,000

16. An entity reported the following assets on December 31, 2022:

Cash and cash equivalents 1,550,000

Accounts receivable 2,550,000
Equity investments 1,100,000
Inventory 640,000
Prepaid expense 230,000
Land 3,700,000
Equipment, net of accumulated depreciation of P380,000 4,900,000
Patent, net of amortization 670,000
Franchise, indefinite life 1,300,000
The accounts receivable is composed of the following:
Accounts receivable 3,000,000
Allowance for doubtful accounts (450,000)
Net realizable value 2,550,000
Equity investments include investments held for trading totaling P600,000 and nontrading investments at
FVOCI totaling P500,000. Land includes “Land held for sale” amounting to P850,000. What amount of
current assets should the entity report?
a. 6,270,000
b. 5,570,000
c. 6,420,000
d. 6,920,000
17. An entity factored with recourse P6,000,000 of accounts receivable to a finance company on July 1, 2022.
The finance company assessed a fee of 5% and retains a holdback equal to 10% of the accounts receivable. In
addition, the finance company charged 8% computed on a weighted average time to maturity of the
receivables of 30 days. The fair value of the recourse obligation is P50,000. The finance company has fully
collected the accounts. What is the total loss on factoring that the entity should recognize?
a. 339,452
b. 389,452
c. 939,452
d. 989,452
18. An entity accepted from a customer P2,000,000, 120-day, 12% note dated August 31, 2022. On September
30, 2022, the entity discounted with recourse the note at a certain bank. The discount rate is 15%. The entity
accounted for the transaction as conditional sale with recognition of a contingent liability. What amount of
proceeds from discounting the note should the entity recognize?
a. 2,080,000
b. 2,020,000
c. 2,002,000
d. 2,000,000
19. On November 1, 2022, an entity entered into a commitment to purchase 200,000 barrels of aviation fuel for
P60 per barrel on March 31, 2023. The company entered into this purchase commitment to protect itself
against the volatility in the aviation fuel market. By December 31, 2022 the purchase price of aviation fuel
had fallen to P55 per barrel. However, by March 31, 2023, when the company took delivery of the 200,000
barrels the price of aviation fuel had risen to P68 per barrel. How much should be recognized as gain on
purchase commitment for the year 2023?
a. 1,000,000
b. 1,600,000
c. 2,600,000
d. 0
20. An entity reported P7,000,000 of inventory on December 31, 2022, based on physical count. Additional
information is as follows:
* Excluded from the physical count were goods billed to a customer, FOB shipping point, on December 31,
2022. The goods had a cost of P400,000 and had been billed at P550,000. The shipment is ready for pick-
up by the delivery contractor on January 5, 2023.
* Goods were in transit from a vendor. The invoice cost was P300,000 and goods were shipped FOB
shipping point on December 31, 2022.
* Included in the count were goods held on consignment amounting to P680,000.
* Excluded from the count were goods out on consignment costing P240,000.
What amount of inventory should the entity report on December 31, 2022?
a. 7,410,000
b. 6,860,000
c. 6,620,000
d. 7,260,000

21. An entity uses the moving average method to determine the cost of its inventory. The entity recorded the
following information pertaining to its inventory during the current year:
Units Unit cost Total cost
Balance 40,000 30.00 1,200,000
Purchase 35,000 33.00 1,155,000
Sale 15,000
Sale return 5,000
Purchase 12,000 35.25 423,000
Purchase return 2,500 35.25 88,125
What is the moving average cost per unit at the end of the current year?
a. 35.25
b. 31.89
c. 32.00
d. 31.40

22. An entity’s accounting records indicated the following for 2022:

Inventory, January 1 7,000,000
Purchases 11,000,000
Sales 22,000,000
Sales return 1,500,000
Sales allowance 650,000
Sales discount 350,000
A physical inventory taken on December 31, 2022 resulted in an ending inventory of P4,500,000. The gross
profit on sales remained constant at 40% in recent years. The entity suspects some inventory may have been
taken by a new employee. On December 31, 2022, what is the estimated cost of missing inventory?
a. 1,590,000
b. 1,800,000
c. 1,410,000
d. 1,200,000

23. An entity purchased 1,000 llamas on January 1, 2022. These llamas will be sheared semiannually, and their
wool sold to specialty clothing manufacturers. The llamas were purchased for P1,480,000. During 2022, the
increase in fair value due to growth and price changes of the llamas was P94,000, the wool harvested but not
yet sold is valued at P180,000, and the decrease in fair value of the llamas due to harvest is P11,500. What
amount of net gain from biological assets should the entity report for the year 2022?

a. 180,000
b. 262,500
c. 274,000
d. 82,500
24. An entity uses the average cost retail method to estimate its inventory. Data relating to the inventory on
December 31, 2022 are as follows:
Cost Retail
Inventory, January 1 600,000 900,000
Purchases 3,180,000 4,200,000
Net markup 480,000
Net markdown 180,000
Sales 3,600,000
Estimated normal shoplifting losses 120,000
Estimated normal shrinkage is 5% of sales

What is the estimated cost of inventory on December 31, 2022?

a. 1,020,000
b. 1,050,000
c. 1,176,000
d. 1,142,400

25. An entity provided the following data for the year 2022:
Inventory – January 1:
Cost 3,000,000
Net realizable value 2,800,000
Net purchases 8,000,000
Inventory – December 31:
Cost 4,000,000
Net realizable value 3,700,000

What amount of loss on inventory writedown or gain on reversal of inventory writedown should the entity
report for the year 2022?

a. 300,000 gain
b. 300,000 loss
c. 100,000 loss
d. 100,000 gain

END