CPA REVIEW SCHOOL OF THE PHILIPPINES

Manila

FINANCIAL ACCOUNTING AND REPORTING VALIX/VALIX/SANTOS

FIRST PREBOARD EXAMINATION SOLUTIONS

1. Unadjusted current assets 18,500,000

Bond sinking fund ( 500,000)
Selling price of unsold goods (3,000,000)
Cost of unsold goods (3,000,000 / 1.5) 2,000,000
Total current assets 17,000,000 B
2. Accounts payable 2,800,000
Short-term borrowings 2,100,000
Mortgage payable – current portion 700,000
Total current liabilities 5,600,000 D
3. Property tax 250,000
Doubtful accounts 1,600,000
Officers’ salaries 1,500,000
Insurance 850,000
Administrative expense 4,200,000 C
4. Unrealized gain on bond investment – FVOCI 1,200,000
Unrealized gain on forward contract designated as cash flow hedge 400,000
Translation loss on foreign operations ( 200,000)
Net unrealized gain in OCI – may be recycled to profit or loss 1,400,000 A
5. Carrying amount (10,000,000 – 7,500,000) 2,500,000
FVLCOD (1,000,000 – 100,000) 900,000
Impairment loss 1,600,000 B
6. FVLCOD – 12/31/2023 (1,500,000 – 200,000) 1,300,000
FVLCOD – 4/1/2023 900,000
Gain on reversal of impairment 400,000 D
7. Revenue 500,000
Expenses (800,000)
Operating loss (300,000)
Loss on disposal (100,000)
Pretax loss (400,000)
Tax effect (400,000 x 25%) 100,000
Loss from discontinued operations (300,000) B
8. Machine 2,100,000
Accum. Depn. (2,100,000 – 100,000 / 10 x 3) 600,000
Income tax payable (1,500,000 x 25%) 375,000
Retained earnings 1,125,000 C
9. Total expense for the first quarter (1,400,000 + (200,000 / 4)) 1,450,000 B
10. External revenue (3,000,000 / 10%) 30,000,000
Internal revenue 15,000,000
Segment revenue 45,000,000
Minimum segment revenue to be reportable segment (45,000,000 x 10%) 4,500,000 A
11. Cash on hand (1,000,000 – 150,000) 850,000
Petty cash fund (50,000 – 10,000 – 5,000) 35,000
Security Bank current account 2,000,000
Sinking fund 2,500,000
Asia bank time deposit 900,000
Cash and cash equivalents 6,285,000 C
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12. Petty cash expense 33,000

Cash short / over 5,000 D
Receivable from employee 10,000
Cash in bank 48,000

13. Sale of merchandise on account, 2/10, n/30 4,000,000

Collection within the discount period (1,470,000)
Sales discount (1,470,000 / 98% x 2%) ( 30,000)
Collection beyond the discount period (1,000,000)
Sales return granted ( 100,000)
Gross accounts receivable 1,400,000
Allowance for sales return ( 20,000)
Allowance for doubtful accounts (1,400,000 x 10%) ( 140,000)
Net realizable value 1,240,000 A

14. Allowance for doubtful accounts before adjustment 200,000

Doubtful accounts expense (10,000,000 x 75% x 4%) 300,000
Recovery of accounts previously written off 30,000
Accounts written off (150,000)
Allowance for doubtful accounts after adjustment 380,000 D

15. Carrying amount of the note receivable – January 1, 2023 (800,000 x 3.99) 3,192,000
Interest income for 2023 (3,192,000 x 8%) 255,360
Payment ( 800,000)
Carrying amount of the note receivable – December 31, 2023 2,647,360 B

16. Carrying amount of the loan receivable – December 31, 2024 4,000,000
PV of expected cash flows (4,000,000 x 70% x 0.77) 2,156,000
Balance 1,844,000
Probability of default x 35%
Required allowance for impairment – December 31, 2024 645,400 B

17. Note payable – December 1, 2023 1,300,000

Less: principal payment (970,000 – (1,300,000 x 12% x 1/12)) ( 957,000)
Note payable – December 31, 2023 343,000 C

18. Finance charge (5,000,000 x 5%) 250,000

Loss on recourse liability 125,000
Total loss on factoring 375,000 C

19. Maturity value (5,000,000 + (5,000,000 x 12% x 6/12)) 5,300,000

Discount (5,300,000 x 15% x 4/12) ( 265,000)
Proceeds from discounting 5,035,000
Carrying amount of note (5,000,000 + (5,000,000 x 12% x 2/12)) (5,100,000)
Loss on discounting ( 65,000) A

20. Finished goods in storeroom, at cost 2,000,000

Finished goods in transit, purchased FOB Shipping Point 250,000
Finished goods held by salesmen, at cost 100,000
Goods in process, at cost 1,000,000
Materials on hand 900,000
Factory supplies 400,000
Cost of inventory 4,650,000 C

21. Average unit cost (5,580,000 / 120,000) 46.5 per unit

Cost of inventory (46.5 x 30,000) 1,395,000 D
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22. Cost 10,000,000

LCNRV (4,400,000 + 3,000,000 + 1,400,000 + 800,000) 9,600,000
Allowance for inventory writedown (loss for the year) 400,000 B

23. Loss on purchase commitment in 2023 (200 – 170 = 30 x 30,000) 900,000

Increase in market price in 2024 (210 – 170 = 40 x 30,000) 1,200,000
Gain on purchase commitment to be recognized (limited to loss only) 900,000 B

24. Sales in 2022 3,000,000

Cost of goods sold in 2022 (2,800,000 – 50,000 – 500,000) (2,250,000)
Gross profit in 2022 750,000
Gross profit rate in 2022 (750,000 / 3,000,000) 25%
Gross profit rate in 2023 (25% + 5%) 30%
Cost of goods available for sale in 2023 (500,000 + 4,000,000 – 250,000) 4,250,000
Cost of goods sold in 2023(4,500,000 x 70%) (3,150,000)
Ending inventory – December 31, 2023 1,100,000 A

25. Goods available for sale – cost (1,650,000 + 3,725,000 – 200,000) 5,175,000
Goods available for sale – retail (2,200,000 + 4,950,000 – 300,000 + 150,000 – 100,000) 6,900,000
Cost ratio – average (5,175,000 / 6,900,000) 75%
Goods available for sale – retail 6,900,000
Sales (4,000,000)
Employee discounts ( 200,000)
Normal shortage ( 100,000)
Ending inventory – retail 2,600,000
Ending inventory – cost (2,600,000 x 75%) 1,950,000 C
26. 3-year old cattle (580,000 – 520,000 = 60,000 x 10) 600,000
3.5 – year old carabao (362,500 – 312,500 = 50,000 x 8) 400,000
1.5 – year old cattle (500,000 – 425,000 = 75,000 x 4) 300,000
1 – year old carabao (250,000 – 200,000 = 50,000 x 6) 300,000
Gain attributable to physical change 1,600,000 D
27. Fair value of share rights (40,000 x 10) 400,000
Cash payment (40,000 / 2 = 20,000 x 80) 1,600,000
Cost of the new investment 2,000,000 A
28. Unrealized loss in OCI for 2024 (2,300,000 – 2,900,000) 600,000 B
29. Initial cost of the investment in associate 2,560,000
Share in the net income of the investee (1,600,000 x 40%) 640,000
Amortization of excess cost – equipment (320,000 / 4) ( 80,000)
Amortization of excess cost – building (240,000 / 12) ( 20,000)
Dividends received (1,000,000 x 40%) ( 400,000)
Carrying amount of investment in associate 2,700,000 B
30. Fair value – December 31, 2024 (5,000,000 x 115%) 5,750,000
Carrying amount – December 31, 2023 (5,000,000 x 120%) 6,000,000
Loss from change in fair value ( 250,000) B
31. Derivative liability on December 31, 2023 (4,000,000 x 1% = 40,000 x 0.901) 36,040 D
32. Annual premium 160,000
Increase in cash surrender value (94,000 – 84,000) ( 10,000)
Dividend received in 2026 ( 12,000)
Life insurance expense in 2026 138,000 C
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33. Machine A (50,000 x 120) 6,000,000

Machine B (3,000,000 x 95% = 2,850,000 + 50,000 + 200,000) 3,100,000
Machine C (200,000 x 5.146) 1,029,200
Total cost 10,129,200 A

34. Fair value of the car (1,720,000 – 200,000) 1,520,000

Carrying amount of the car 1,200,000
Gain on exchange 320,000 B

35. Income from government grant (20,000,000 x 2,000,000 / 10,000,000) 4,000,000 D

36. Interest on bank loan (3,000,000 x 12%) 360,000

Interest on long-term loan (5,000,000 x 8%) 400,000
Total interest 760,000

Average capitalization rate (760,000 / 8,000,000) 9.5%

January 1 (2,000,000 x 12/12) 2,000,000

June 30 (2,000,000 x 6/12) 1,000,000
December 31 (1,000,000 x 0/12) 0
Weighted average expenditures 3,000,000

Capitalized borrowing cost (3,00,000 x 9.5%) 285,000

Actual expenditures 5,000,000
Cost of the building 5,285,000 B

37. Fair value of the land 1,800,000

Legal fees, including fee for title search 10,000
Payment of land mortgage and related interest due at the time of sale 50,000
Payment of delinquent property taxes assumed 20,000
Grading and drainage on the land site 15,000
Cost of the land 1,895,000 C

38. Cost of razing the apartment building 30,000

Architect fee on new building 200,000
Payment to building contractor 8,000,000
Interest cost on specific borrowing during construction 300,000
Insurance premium on building during construction 25,000
Cost of building 8,555,000 A

39. Carrying amount – 12/31/2023 (12,800,000 – (12.8M x 25%)) 9,600,000

Depreciation for 2024 (9,600,000 x 25%) 2,400,000 B

40. Cost of wasting asset 960,000

Depletion in 2023 (960,000 / 2,400,000 = 0.40 x 1,000,000) (400,000)
Carrying amount of wasting asset – December 31, 2023 560,000
Development cost 490,000
Balance 1,050,000
Depletion in 2024 (1,050,000 / 1,400,000 = 0.75 x 600,000) ( 450,000)
Carrying amount of wasting asset – December 31, 2024 600,000
Development cost 500,000
Balance 1,100,000
Depletion in 2025 (1,100,000 / 2,500,000 = 0.44 x 700,000) ( 308,000) A
Carrying amount of wasting asset – December 31, 2025 792,000

41. Carrying amount – January 1, 2023 (25,000,000 – 6,750,000) 18,250,000

Recoverable amount – higher of FVLCOD and value in use 16,950,000
Impairment loss 1,300,000 C
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42. Carrying amount of cash generating unit 16,000,000
Recoverable amount 7,000,000
Impairment loss 9,000,000
Allocated to goodwill (2,000,000)
Allocated to other noncash assets 7,000,000
Allocated impairment to building (7,000,000 x 8/14) 4,000,000
Allocated impairment to equipment (7,000,000 x 4/14) 2,000,000
Allocated impairment to inventory (7,000,000 x 2/14) 1,000,000
Carrying amount of building, after allocated impairment (8M – 4M) 4,000,000
FVLCOD of building 5,500,000
*Building should not be reduced below P5,500,000.
Excess impairment to be reallocated is P1,500,000 (4,000,000 – 2,500,000)
Impairment loss of building (8,000,000 – 5,500,000) 2,500,000
Impairment loss of equipment (2,000,000 + (1,500,000 x 4/6)) 3,000,000 B
Impairment loss of inventory (1,000,000 + (1,500,000 x 2/6)) 1,500,000
43. Sound value (9,200,000 – (9,200,000 – 200,000 / 12 x 2)) 7,700,000
Carrying amount (6,500,000 – (6,500,000 – 500,000 / 12 x 2)) 5,500,000
Revaluation surplus on January 1, 2023 2,200,000
Realized to retained earnings in 2023 and 2024 (2,200,000 / 10 x 2) ( 440,000)
Revaluation surplus on December 31, 2024, before sale 1,760,000 D
44. Sound value (45,000,000 – (45,000,000 / 25 x 3)) 39,600,000
Carrying amount (25,000,000 – (25,000,000 / 25 x 3)) 22,000,000
Revaluation surplus before tax 17,600,000
Deferred tax liability on January 1, 2023 (17,600,000 x 25%) ( 4,400,000)
Revaluation surplus – January 1, 2023 after tax 13,200,000 A
45. Carrying amount of patent – January 1, 2023 (3M – (3M / 15 x 5) 2,000,000
Amortization for 2023 (2,000,000 / 5) 400,000 C
46. Research and development expense (200,000 / 5 = 40,000 + 400,000 + 800,000 + 1,200,000) 2,440,000 A
47. Premium expense (675,000 x 60% = 405,000 / 3 = 135,000 x 15) 2,025,000
Actual distribution (110,000 x 15) (1,650,000)
Premium liability 375,000 B
48. Loss of P2,000,000 C
49. Allocated consideration to award credits (8,000,000 x 2/10) 1,600,000
Revenue from award credits in 2023 (1,600,000 x 30,000 / 80,000) 600,000 C
50. Face amount of bonds 5,000,000
Premium on bonds (5,000,000 x 10%) 500,000
Accrued interest (5,000,000 x 12% x 3/12) 150,000
Bond issue cost ( 200,000)
Cash received from issue of bonds 5,450,000 A
THEORY
51.C 61.D
52.B 62.C
53.D 63.A
54.D 64.D
55.B 65.D
56.B 66.B
57.C 67.C
58.A 68.C
59.C 69.B
60.C 70.C
END