eo UNIVERSITY OF THE EAST Caloocan Campus ‘COLLEGE OF BUSINESS ADMINISTRATION DEPARTMENT OF ACCOUNTANCY, BUSINESS LAW AND TAXATION wn. uo.odu.ph/ealoocan 105 Samson Road, Caloocan Cly BAC 916 - FINANCIAL ACCOUNTING & REPORTING, Part Il ‘1° SEMESTER, SCHOOL YEAR 2016 - 2017 MIDTERM DEPARTMENTAL EXAMINATION GENERAL DIRECTION: You are given a two ~ part examination, consisting of Theoty eee problem Solving Part. Read and analyze the foregoing questions and choose the baat answer by shading the fetter of your choice in your respective Scanlron Answor ‘Sheet. Stncly no erasures allowed in the Scantron Answer Sheet ‘THEORIES (20 Items) 2 41. Which ofthe following is not an objective of cash flow statements? : en iprovide information to enable assessment of the abilty of the entity fo generate future cash flows b. {0 provide information to enable assessment of the ability of the ently fo pay dividends and meet financial obligations to provide information to enable assessment of the abilty of the entity to generate long term profitability 4. {0 provide information to enable assessment ofthe abilty of the entity to finance changes in the nature and scope of activities 2, Which of the following statements provides information about how much money was borrowed or repaid during the period? vn. statement of comprehensive income _—_c. statement of financial position ». cash flow statement d, statement of changes in equity 3, How would cash received from the sale of shares in another company be classified in @ ‘cash flow statement? a. operating activities «. financing activities b. investing activities, d. none of the above 4, Which ofthe following statements is correct? ‘a. The income statement is prepared on an accrual basis while the cash flovi statement is prepared on a cash basis. ', Both the income staternent and the cash flow statement are prepared on an accrual basis. cc. The income statement is prepared on a cash basis. 4d. The cash flow statement reports on the position at a point in time while the Income statement reports on performance over a period of time. ‘5. In preparing a cash flow statement, cash flows from operating activities ‘are always equal to acorual accounting prof. b. are calculated as the difference between revenues and expenses. \ ©, can be. caleulated by appropriately adding to or deducting from profit timing differences and non-cash tems in the income statement. ‘d. can be calculated by appropriately adding to or deducting from profit those items inthe income statement that do affect cash. c Page 1 of 76. Which of the following is a change in accounting policy? D1. A change in the estimated useful if of machinery, © 2, Acchange from straightine an accelerated depreciation method q a. tonly 4 and 2 b. 2only «neither 1 nor 2 \ A. 7, Mich of he toloing i 9 ried decane fe statement of comprehensive veome when reporting a change in accounting polly? conn effect on current period poft and the cumulative offect. The effet on curent period pro and cash from operations. @. The effect on profit and earings per share, 4. Allof these. 8, How are the effects of discontinued operations reported? Ho aT gain oF loss on disposal should be reported as an extraordinary Hem, ee sai af the discontinued operation are included in current period profit but the gain of loss on disposal is recognized directly in eauity - oe Tecra fis ofthe discontinued operation and the gain or loss on its disposal are included in the profit for the period and disclosed. 4. ratios its of the eiscontinued operation are recognized directly in equity but the gain of loss on disposals included in profit forthe current period, 9, when @ company discontinues an operation and disposes of tho discontinued ‘operation (component), the gain or loss on disposal reported: ‘2.8 a prior period adjustment. », as an extraordinary item. 38 gn amount after continuing operations and before profit for the period 4. directly in equity. £ so, ich ofthe folowing isa characteristic of a change in accounting estimate? i rr Does et efect the financial stalements of prior periods. @: Reauires the reporting of pro ~ forma amounts for prior periods. 2 Never needs tobe disclosed in the notes fo ancialstatements § Should be reported trough restatement ofthe financil statements ( 111. change in accounting policy from one that is not generally acceptable to one that is ‘generally accepted should be treated as ‘2. An error and corrected by prior — period adjustment. B. Acchange in accounting policy and the cumulative effect included in net income. eA change in accounting policy and prior ~ period financial statements are restated to proft or loss. dA change in accounting policy and adjustments are made prospectively. ~ (Cretan cnvetng tom cash bao ssn of counting, ish fh foowng “adjustments should be made to cash payments for expenses to arrive at the accrual basis expense? —— bo a, Add ending prepaid expense A [eae b. Add beginning accrued expenses , Add beginning prepaid expenses x 4, Deduct beginning preps seg enelismece, A i> 1% FS 4a:the premium on a three-year insurance policy expiring on December 31, 2016 was paid in total on January 1, 2014, Assuming that the original payment was recorded as a prepa asec, how wold tal aes ‘and shareholders’ equity be affected during ‘a. Total assets would decrease and shareholders’ equity would increase b. Both total assets and shareholders’ equity would decrease Page 2 0f7,©. Both total assets and shareholders’ equity would increase Neither total assets nor shareholders’ equity would change +44,Total net income over the life of an entity is jal net higher under the cash basis than under the acerual Dat 2 Lower under the cash basis than under the acorual basis > “The samo under the cash basis as under the accrual basis . Not susceptible to measurement 15,A company's merchandise inventory increased during the period, wate accounts pans caved duting the period. How would these Increases of docrsnaes be Bayete coc re ducted fom cash payment to merchancise suppl to ave at accrual ‘cost of goods sold? . festa goods ary is deducted while decrease in aocounts payable is added. A a. Increase In rveriory is deducted and decrease in accounts payable is also Gach deducted, ; a earn inventory is added and decrease in accounts payable is also added Increase in inventory is added while decrease in accounts payable is deducted DTD. te.wticn of the folowing is not @ valid statement reiting to the accrual basis of ‘accounting? eee are recorded inthe period that they are earned rather than in the period Jn which cash is collected. I “ob, Eaponses are recorded in the period that they are incurred rather than in the period in which cash is pa. Reza bass rest fo more complete fina 4, Aesrual accounting emphasizes the timing of cash receipts and cash disbursements inthe recognition of income and expenses. al information compared to the cash 417.Which of the following items would be presented in a cash flow statement? ‘a. Payment of dividends through a share investment scheme; . Acquisition of an investment in a subsidiary for consideration consisting of an exchange of non-current assets and labilties; 1 - . Proceeds from the issue of debentures; } 4. Refinancing of long-term debt Ss ae 18.The folowing tem would not appear in a cash flow statement 1a. Receits of eash from customers B. Conversion of preference shares to onary shares; Payment of creditors: a. Proveeds on disposal of non-current assets. & 18. Which of the folowing sources of ink : i ncn te feng sous of maton ot lf be edn detemning 32. Statement of prof or loss and other comprehensive income. ©. Customer subsiar ledger, ©. General ledger account receivable account. . General ledger allowance for uncollctible accounts | BF za.wmienottne towing wou not epesent cash iw nor outow? Saat cer ak &: Shar ison dared ard issued © Rhurseos of reson ahaee. d. Ordinary shares issued to acquire productive facilities. Page 3 0f7b h 6B 2 pee LA PROBLEMS (15 tems @ 2 points each) cided to change from the FIFO method of inventory ce mothed. ventory balances under each method 21.During 2015, Angat Company da‘ Valuation to the weighted avera were: FEO December 31, 2013 70,000,000 77,000,000 December 31, 2014 18,000,000 7,500,000 December 31, 2015 6,000,000, 5,000,000 Ignoring income tax, in its 2015 statement of retained earnings, what amount should ‘Angat report as the effac ofthis accounting chango? a. P3,500,000 e. 3,000,000 ». 4,500,000 4, P 500,000 22.The transactions of Ganerm Company forthe year 2015 inclided the following ‘Gash borrowed fram bank for purchase of land 6,000,000 Purchase of land for cash 6,000,000, Sale of secures for cash 1,000,000, Dividend dectared (of which P2,000,000 was paid during the year) 3,000,000 Issuance of ordinary shares for cash 7,000,000, Payment of bank loan including interest of P500,000 3,500,000 Increase in customers’ deposits ‘500,000 ‘The 2015 cash flow statement should report net cash provided by financing activites at 2. 8,000,000 ¢.P7,500,000 ». 6,500,000 4. P7;000,000 28. Cruz Company had the following activities during 2018: 1, Acquired ordinary shares of Rich Company for P3,000,000. tv, Sold an investment in Valdez Company for P4,500,000 when the carrying ‘amount was P3,800,000. Iv @, Acquired a PS,000,000 one-year certiicate of deposit from a bank. During the yar, interest of P400,000 was received from the bank. J ©. Collected dividends of P800,000 on stock investments, In the 2015 cash flow statement, net cash used in investing activities should be 1a. P3,500,000 «©. P4,300,000 ’. P3,900,000 <6. P4,700,000 24.In 2015, a tsunami completely destroyed a building belonging to Sun Comapny. The cost of the building was 8,000,000 and had accumulated depreciation of PS,000,009 atthe time of loss. Sun received a cash settlement from an insurance company and reported a casualty loss of P500,000. In its 2015 cash flow statement, the net change reported in the cash flows from investing activities should be a. 3,000,000 decrease <, P3,500,000 increase Bay B. P2.500 000 neease 4.P 500,000 decrease awrane 25.Shine Company has provided the flowing 2018 cunt account balances January December 34 Accounts receivable 1,109.97 1,500,000 2,800,000 ‘Alowanes fr dovbtul acounts 200,000 "400,000 Prepaid insurance - 0.925 600,000 450,000 Accounts payable 4 0.000 900,000 1,200,000 Page 4 0f7‘Shine's net income for 2015 was P8,000,000. Net cash provided by operating activities should be 2 a. P7,350,000 ©. 7,150,000 9,550,000 dd. P8,650,000 26.Jeta Company reported inet income of 10,000,000 for 2015. Changes occurred in several statement of fiancial position accounts during 2016 as follows Investment in stock, caried at equity Premium on bonds payable ~ Accumulated depreciation, caused by major repait to-equipment Deferred tax liability 2,800,000 increase '500,000 decrease 1,000,000 decrease "400,000 increase In the 2015 cash flow statement, the cash provided by operating activities should be a. P7,400,000 ., P9,400,000 b. P6,400,000 <. P7,000,000 27.During 2015, Zita Company has the following activiies related to its financial ‘operations: Payment for the eary retirement of long-term bonds payable (carrying amount of bonds payable P5,000,000) / Distribution in 2015 of cash dividend declared in 2014 ‘Carrying amount of convertible preferred stock converted into common shares © Proceeds trom sale of treasury stock (cost, 2,000,000) 5,500,000 3,000,000 2,000,000 2,800,000 In the 2015 cash flow statement, net cash used in financing activities should be ‘a. 6,000,000 '. P8,500,000 b. P3,000,000 d. P6,500,000 28.0n January 1, 2016, the capital of Jherome Company was P1,500,000 and on December 31, 2018, the capital was P2,500,000. During the current year, the proprietor withdrew merchandise costing P400,000 with sale value of P600,000, and paid @ P 1,000,000 note payable of the business with interest of 10% for one year with {a check drawn on a personal checking account. What is the net income for 20167, ‘a. 1,000,000 ‘600,000 b. 1,400,000 4. 300,000 29, Minorca Company provided the following data for 2016: Fey 100 January 4 December 31 ‘Share capital (P100 par value) 5,000,000 5,750,000, ‘Share premium '500,000 ‘850,000 Retained earnings 3,500,000 4,500,000 * During 2016, the entity declared and paid cash dividend of 1,000,000 and also deciared and issued a stock outstanding during 2016. What a. 1,900,000 dividend. There were no other changes issued and Is the net income for 20167 °c. 1,000,000 2,900,000 Page Sof 7ina Company showed 30.The December 31, 2016 statement of financial position of Copina ‘shareholders’ equity of P8,000,000. Equity transactions during the year were: ‘ ’ '* An adjustment of retained earnings for 2015 over depreciation aaa * Gain on sate of treasury shares 4,400,000 ‘+ Dividend declared, of which P400,000 was paid 200.000 '* Net income for 2016 a Test ct sen 25090 mid neg un ee [eee 31. The following increases in Figuron Company's account balances occurred during the . eye eS eg j current year: C SOOO Assets Sena, #50 © 9,000,000 «2 : Liabilities i ceccr 3,000,000 as hee Share capital : 5,000,000 Share Premium raz.cas | 166 500,000 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 felained earnings forthe year. Whats the net income forthe current year?” a. 2,500,000 2,700,000 ®. 2'300,000 4. 6,000,000 32.Gatdula Company maintains its accounting records on the cash basis but restates its financial statements to the accrual basis. The enfity had P6,000,000 in cash basis net income for 2016. The following information pertains to the entity's operations: = December 31 January 4 {mon ‘Accounts receivable 4,000,000 2,000,000 Accounts payable 1500,000 3,000,000 sic Under accrual method, what amount of net income should be reported for 20167. - ‘a. 2,500,000 8,500,000 b, 5,500,000 4. 9,500,000 wf A 38.Ng Company borrowed money under various loan agreement involving’ notes ; discounted and notes requing interest payments at matury. During the voor ened December 31, 2016, the ently paid interest totaling P6,000,000, “the sistomen ar financial poston included the folowing : January 1 December 31 ‘ Prepaid interest 700,000 ~ 4,500,000 Interest payable — 2,000,000 + 3,500,000 \What amount of interest expense should be reported for 20162 : ‘a. §,500,000 ©. 7,500,000 H b. 4,500,000 4.6,500,000 ean ~ eon 5 qT q 8-9 a 100.02} ¢ oO { ‘ sagoas| ee 1 ! x5 zal (RL | Soe Free fot hcg 286‘34. During 2016, Dulguime Company, a service ervanizaion had the following: 200, 000 © ay Cash Sales 000 3, 000, 000 Secours Re 1400, 000 #02 0% ‘Acoounts Receivable, Dec. 31, 2015 Recounts Receivable, Dec. 31,2016 485, 000 4s 1 Dulguime desices to prepare a cash basis income statement, How much should be, ‘eported as Sales for 2016 on cash basis? a. P2, 915, 000 ©, 3,285,000 b. P.3, 200, 000, J.P 3,115,000 36. The following information is available for Ace Company for 2016: Disbursements for purchases 4,050,000 Increase in rade accounts payable omee Decrease in merchandise inventory 30,000 ‘What isthe cost of goods sold for 20167 a. 1,155,000 . 1,005,000 . 1,095,000 d. 945,000 End of Midterm Exam Page 7 of 7