exam IA part 2 (1-100) Flashcards
The shareholders’ equity of ABC Construction, Inc. on December 31, 20x1 includes the following:
8% Preference shares, 20,000 shares, ₱100 par value
3,000,000
10% Preference shares, 10,000 shares, ₱300 par value
4,500,000
Ordinary shares, 50,000 shares, ₱100 par value
7,500,000
Share premium in excess of par
2,250,000
Retained earnings
3,350,000
Total shareholders’ equity
20,600,000
The 8% stock is cumulative and fully participating. The 10% stock is noncumulative and fully participating. Dividends have not yet been paid for 3 years.
How much is the book value per ordinary share?
a. 192.30
b. 200.30
c. 202.30
d. 205.30
b. 200.30
The issuance of shares of preferred stock to shareholders
a. increases preferred stock outstanding.
b. has no effect on preferred stock outstanding.
c. increases preferred stock authorized.
d. decreases preferred stock authorized
a. increases preferred stock outstanding.
According to PFRS 16, right-of-use assets are presented in the lessee’s statement of financial position
a. separately from the other assets of the lessee.
b. together with other assets as if they were owned, with disclosure of the line items that include the right-of-use assets.
c. a or b
d. not presented in the lessee’s financial statements but only in the lessor’s financial statements
c. a or b
On February 1, authorized ordinary share was sold on a subscription basis at a price in excess of par value, and 20 percent of the subscription price was collected. On May 1, the remaining 80 percent of the subscription price was collected. Share premium would increase on
Feb 1 - May 1 a. No - Yes b. No - No c. Yes - No d. Yes - Yes
c. Yes - No
Which of the following is an appropriate presentation of treasury stock?
a. As a marketable security
b. As a deduction at cost from total stockholders’ equity
c. As a deduction at cost from total contingent liabilities
d. As a deduction at par from total stockholders’ equity
b. As a deduction at cost from total stockholders’ equity
According to PFRS 16, lease liabilities are presented in the lessee’s statement of financial position
a. separately from the other liabilities of the lessee.
b. together with other liabilities, with disclosure of the line items that include the lease liabilities.
c. a or b
d. not presented in the lessee’s financial statements but only in the lessor’s financial statements
c. a or b
Legal capital is the portion of contributed capital that cannot be distributed to the owners during the lifetime of the corporation unless the corporation is dissolved and all of its liabilities are settled first. For no-par value shares, legal capital is
a. the aggregate par value of shares issued and subscribed.
b. the total consideration received or receivable from shares issued or subscribed.
c. the aggregate stated value of shares issued and subscribed.
d. the aggregate market value of shares issued and subscribed.
b. the total consideration received or receivable from shares issued or subscribed.
Which of the following is not one of the basic shareholders rights?
a. The right to participate in earnings.
b. The right to maintain one’s proportional interest in the corporation.
c. The right to participate in the proceeds of the sale of corporate assets upon liquidation of the corporation.
d. The right to inspect the accounting records of the corporation.
d. The right to inspect the accounting records of the corporation.
Alhambra Company offers three payment plans on its 12-month contracts. Information on the three plans and the number of children enrolled in each plan for September 1, 2005 through August 31, 2006 contract year follows:
Initial payment Monthly fees Number of
Plan per child per child children
#1 P500 P0 15
#2 200 30 12
#3 50 9
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Alhambra received all initial payments on September 1, 2005, and P3,240 of monthly fees during the period September 1 through December 31, 2005. In its December 31, 2005 balance sheet, what amount should Alhambra report as deferred revenue?
a. 9,900
b. 3,300
c. 6,600
d. 4,380
c. 6,600
Entity A had 200,000 ordinary shares outstanding all throughout 20x1. In 20x2, the following share issuances occurred:
* On April 1, 20,000 shares were issued for cash.
* On September 30, a 10% bonus issue (share dividend) was declared.
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* On November 1, a 2-for-1 share split was issued.
Entity A had the following profits: ₱2,200,000 in 20x2 and ₱1,800,000 in 20x1. What are the earnings per share to be disclosed in Entity A’s 20x2 comparative financial statements?
20x2 - 20x1
a. 4.22 - 4.02
b. 4.37 - 4.07
c. 4.65 - 4.09
d. 4.78 - 4.12
c. 4.65 - 4.09
If the current tax expense is less than the income tax expense during the period, there must be a
a. deferred tax benefit
b. deferred tax expense
c. income tax payable
d. prepaid income tax
b. deferred tax expense
Which of the following statements is correct regarding the accounting for leases?
a. The lessor depreciates the leased asset under a finance lease.
b. The lessee depreciates the leased asset under a “short-term” or a “low-valued asset” lease.
c. When discounting lease payments the lessor and the lessee use the interest rate implicit in the lease.
d. An entity can never be both a lessor and a lessee of a same leased asset.
c. When discounting lease payments the lessor and the lessee use the interest rate implicit in the lease.
For a bond issue which sells for less than its face amount, the market rate of interest is
a. Dependent on the rate stated on the bond.
b. Equal to rate stated on the bond.
c. Less than rate stated on the bond.
d. Higher than rate stated on the bond.
d. Higher than rate stated on the bond.
Dividends receivable from a subsidiary have a carrying amount of P4,000. The dividends are not taxable. How much is the tax base of the asset?
a. 4,000
b. 2,400
c. 1,600
d. 0
a. 4,000
On January 1, 20x1, CONFOUND Co. guaranteed a ₱4,000,000 loan obtained by CONFUSE, Inc. from a bank. On December 31, 20x1, CONFUSE defaulted on its loan and it became probable that CONFOUND will be held liable to the bank for the ₱4,000,000 loan taken by CONFUSE. How much is the provision to be recognized?
a. 4,000,000
b. 2,000,000
c. 1,000,000
d. 0
a. 4,000,000
An entity is the defendant in a patent infringement lawsuit. The entity’s lawyers believe there is a 30% chance that the court will dismiss the case and the entity will incur no outflow of economic benefits. However, if the court rules in favor of the claimant, the lawyers believe that there is a 20% chance that the entity will be required to pay damages of ₱800,000 (the amount sought by the claimant) and an 80% chance that the entity will be required to pay damages of ₱400,000 (the amount that was recently awarded by the same judge in a similar case). Other outcomes are unlikely.
The court is expected to rule in late December 20x2. There is no indication that the claimant will settle out of court. A 7% risk adjustment factor to the probability-weighted expected cash flows is considered appropriate to reflect the uncertainties in the cash flow estimates. An appropriate discount rate is 10% per year. How much is the provision for lawsuit at December 31, 20x1?
a. 436,360
b. 446,908
c. 326,836
d. 0
c. 326,836
On December 1, 20x1, ABC Co. hired Juanita Perez to begin working on January 2, 20x2 at a monthly salary of ₱4,000. ABC’s balance sheet on December 31, 20x1 will show a liability of
a. ₱4,000.
b. ₱48,000.
c. ₱480,000.
d. No Liability
d. No Liability
Caroline Co.’s equity structure at December 31, 20x1 is shown below:
10% Preference sh., ₱100 par (liquidation value ₱120 per share)
1,000,000
Ordinary shares, ₱100 par
3,000,000
Subscribed share capital - ordinary shares
100,000
Subscription receivable
(60,000)
Retained earnings
900,000
Treasury shares (at cost) - 2,000 ordinary shares.
(260,000)
Total shareholders’ equity
4,680,000
- The preference shares are cumulative. Dividends are in arrears for three years. How much is the book value per ordinary share?
a. 150
b. 111.72
c. 112.37
d. 141.38 - The preference shares are noncumulative. Dividends are in arrears for three years. How much is the book value per ordinary share?
a. 118.62
b. 112.62
c. 98.87
d. 122.39 - The preference shares are cumulative. All dividends are paid up to end of the current year. How much is the book value per ordinary share?
a. 120.00
b. 119.82
c. 118.62
d. 122.07
1) b. 111.72
2) a. 118.62
3) d. 122.07
Entity A has 20 employees who are each entitled to one day paid vacation leave for each month of service rendered. Unused vacation leaves are carried forward and can be used in future periods if the current period’s entitlement is not used in full. However, unutilized entitlements are forfeited when employees leave the entity. All the employees have rendered service throughout the current year and have taken a total of 150 days of vacation leaves. The average daily rate of the employees in the current period is ₱1,000. However, a 5% increase in the rate is expected to take into effect in the following year. Based on Entity A’s past experience, the average annual employee turnover rate is 20%. How much will Entity A accrue at the end of the current year for unused entitlements?
a. 0
b. 90,000
c. 75,600
d. 94,500
c. 75,600
Which of the following statements is false?
a. Bonds carry no corporate ownership privileges.
b. A bond is a financial contract.
c. Bond prices remain fixed over time.
d. A bond issuer must pay periodic interest.
c. Bond prices remain fixed over time.
On January 1, 20x1, ABC Co. acquired transportation equipment in exchange for ₱100,000 cash and ₱1,000,000, noninterest-bearing note payable due in 4 equal annual installments. The first installment is due on January 1, 20x1. The succeeding installment payments are due every December 31. The prevailing rate of interest for this type of note is 12%. How much is the interest income in 20x1?
a. 120,000
b. 102,055
c. 72,055
d. 50,702
c. 72,055
As of December 31, 20x1, ROUSE AWAKEN Co. has adopted a detailed formal plan to close one of its toys divisions and put up a new division to manufacture warfare weapons. The plan was communicated through a public announcement and all of those affected by the closure were informed. ROUSE estimates the following costs in relation to the closure of the division:
Termination benefits of employees terminated as a
result of the closure
₱4,000,000
Costs of retraining and relocating retained employees
8,000,000
Payment for unpaid purchases made by the division
16,000,000
New systems and distribution networks for the weapons
division
80,000,000
Marketing costs for the weapons to be manufactured by
the new division
24,000,000
Expected losses during the first year of operations of
the weapons division
80,000,000
How much is the provision to be recognized?
a. 4,000,000
b. 12,000,000
c. 84,000,000
d. 20,000,000
a. 4,000,000
On January 1, 20x1, Entity Y leases out an equipment to Entity X. Information on the lease is as follows:
Lease term
3 years
Annual rent payable at the end of each year
100,000
Interest rate implicit in the lease
10%
The lease provides for the transfer of ownership of the equipment to the lessee at the end of the lease term. The relevant present value factor is as follows:
1. How much is the gross investment on January 1, 20x1?
a. 500,000
b. 400,000
c. 300,000
d. 200,000
- How much is the net investment on January 1, 20x1?
a. 238,664
b. 242,883
c. 248,685
d. 252,086 - How much is the unearned interest on January 1, 20x1?
a. 51,315
b. 52,313
c. 48,992
d. 47,652
1) c. 300,000
2) c. 248,685
3) a. 51,315
On January 1, 20x1, ABC Co. issued a 3-year, ₱1,000,000 noninterest-bearing note payable to XYZ, Inc., a related party. The prevailing interest for similar type of obligation is 12%.The proceeds received from the note is ₱1,000,000, equal to the face amount. How much is the “Day 1” difference? Gain (Loss)
a. 288,220
b. (288,220)
c. 222,880
d. (222,880)
a. 288,220