Financial Accounting and Reporting Test Bank

FINANCIAL ACCOUNTING AND REPORTING TEST BANK 8152017 – 1 PROBLEM 1 – ST STATEMENT ATEMENT OF FINANCIAL FINANC IAL POSITION POSITI ON

The following trial balance of an entity on December 31, 2017 has been adjusted except for income tax expense !ash #ccounts recei$able &n$entory 'roperty, plant and e(uipment #ccounts payable &ncome tax payable 'reference share capital +rdinary share capital hare premium -etained earnings . /anuary 1 et sales and other re$enue !ost of goods sold xpenses &ncome tax expense

",000,000 1%,000,000 10,000,000 2),000,000 *,000,000 ",000,000 3,000,000 1),000,000 %,000,000 *,000,000 0,000,000 %,000,000 12,000,000 11,000,000 12",000,000

 12",000,000

During During the year, estimated estimated tax payments payments of '),000,000 '),000,000 were charged charged to income tax expense The tax rate is 304 on all types of re$enue &n$entory and accounts payable included goods purchased in transit, 5+6 destination, costing ')00,000, and unsold goods held on consignment at yearend, costing '300,000 The perpetual system is used The preference share capital is redeemable mandatorily on December 31, 201 1 8hat amount should be reported as current cu rrent assets on December 31, 20179 a b c d

2*,200,000 2*,700,000 2*,)00,000 30,000,000

2 8hat amount should be reported as current cu rrent liabilities on December 31, 20179 a 1%,200,000 b 17,200,000 c 12,200,000 d *,200,000 3 8hat is the net income for 20179

a 20,000,000 b 1%,000,000 c 23,000,000 d *,000,000

% 8hat amount should be reported as total shareholders: e(uity on December 31, 20179 a b c d

%0,000,000 37,000,000 %),000,000 %2,000,000

'age

2

SOLUTION - PROBLEM 1 Ques!"# 1 A#s$e% A

!ash #ccounts recei$able &n$entory ;10,000,000  )00,000  300,000< Total current assets

",000,000 1%,000,000 *,200,000 2*,200,000

Ques!"# 2 A#s$e% C

et sales and other re$enue !ost of goods sold xpenses &ncome before tax Tax expense ;304 x 20,000,000< et income Tax expense

0,000,000 ; %,000,000< ; 12,000,000< 20,000,000 ; ",000,000< 1%,000,000 ",000,000

'ayment during year &ncome tax payable

;),000,000< 1,000,000

#ccounts payable &ncome tax payable -edeemable preference Total current liabilities

,200,000 1,000,000 3,000,000 12,200,000

#ccounts payable per boo=

*,000,000

>oods in transit 5+6 destination >oods held on consignment #djusted accounts payable

; )00,000< ; 300,000< ,200,000

Ques!"# & A#s$e% B

et income

1%,000,000

Ques!"# ' A#s$e% D

+rdinary share capital hare premium -etained earnings Total shareholders: e(uity

1),000,000 %,000,000 23,000,000 %2,000,000

-etained earnings . /anuary 1 et income Total retained earnings

*,000,000 1%,000,000 23,000,000

'age

3

PROBLEM 2 - STATEMENT STATEMENT OF FINNACIAL FINNAC IAL POSITION POSITI ON

3 +n December December 31, 2017, 2017, an entit entity y showed the the following following curren currentt assets? assets? !ash #ccounts recei$able &n$entory 'repaid expenses Total current assets

)00,000 2,)00,000 2,000,000 100,000 ),100,000

!ash on hand including customer postdated chec= of '20,000 and employee &+@ of '10,000 !ash !ash in ban= ban= (e% )*#+ s*e,e# ;outstanding chec=s on December 31, 2017, '70,000< Total cash

130,000 370,000 )00,000

!ustomers: debit balances, net of customer deposit of ')0,000 #llowance for doubtful accounts ale price of goods in$oiced to customers at 1)04 of cost on December 2*, 2017 2017 but deli deli$e $ere red d on /anuar /anuary y ), 201 and exclud excluded ed from from repor reporte ted d in in$entory Total accounts recei$able

1 8hat 8hat is is the the adju adjuste sted d cash cash bala balance nce99 a b c d

)00,000 %70,000 %30,000 %00,000

2 8hat is the the net realiAable realiAable $alue $alue of accounts accounts recei$able9 recei$able9 

a b c d

1,*70,000 1,20,000 1,00,000 1,*)0,000

3 8hat 8hat is is the the adju adjuste sted d in$en in$entor tory9 y9 a b c d

2,000,000 2,37),000 2,)00,000 2,7)0,000

% 8hat total total amount amount of current current assets assets should should be reporte reported9 d9 a b c d

%,*00,000 %,30,000 %,70,000 %,"30,000

1,*00,000 ;

1) 1)0,000<

7)0,000 2,)00,000

'age % SOLUTION – PROBLEM 2 Ques!"# 1 A#s$e% D

!ash on hand

130,000

!ustomer postdated chec= mployee &+@ #djusted cash on hand !ash in ban= per ban= statement +utstanding chec=s #djusted cash balance

; 20,000< ; 10,000< 100,000 370,000 ; 70,000<

300,000 %00,000

Ques!"# 2 A#s$e% B

!ustomers: debit balances

1,*00,000

!ustomer deposit erroneously netted

)0,000

!ustomer postdated chec=

20,000

#ccounts recei$able #llowance for doubtful accounts et realiAable $alue

1,*70,000 ; 1)0,000< 1,20,000

Ques!"# & A#s$e% C

&n$entory per boo= @ndeli$ered goods incorrectly excluded from in$entory ;7)0,000 B 1)04< #djusted in$entory

2,000,000 )00,000 2,)00,000

Ques!"# ' A#s$e% B

!ash #ccounts recei$able, net of allowance #d$ances to employee  &+@ &n$entory 'repaid expenses Total current assets

%00,000 1,20,000 10,000 2,)00,000 100,000 %,30,000

'age ) PROBLEM & – STA STATEMENT OF COMPREENSI.E COMPREENSI.E INCOME

#n entity reported the following data for the current year? et sales !ost of goods sold elling expenses #dministrati$e expenses &nterest expense >ain from expropriation of land &ncome tax &ncome from discontinued operations @nrealiAed gain on e(uity in$estment at 5C+!& @nrealiAed loss on futures contract designated as a cash flow hedge &ncrease in projected benefit obligation due to actuarial assumptions 5oreign translation adjustment . debit -e$aluation surplus

*,)00,000 %,000,000 1,000,000 1,200,000 700,000 )00,000 00,000 "00,000 *00,000 %00,000 300,000 100,000 2,)00,000

1 8hat amount should be reported as income from continuing operations9 a b c d

3,100,000 2,300,000 1,00,000 2,*00,000

2 8hat net amount should should recogniAed in other comprehensi$e income for the year9 a 2,"00,000 b 3,100,000 c 3,%00,000 d 00,000 3 8hat net amount in in +!& should be presented as may not be recycled to profit or loss9 a b c d

3,%00,000 2,700,000 3,700,000 3,100,000

% 8hat amount should be reported as net income9 a 2,*00,000 b 2,300,000 c 3,100,000 d 2,%00,000 ) 8hat amount amount should be reported reported as comprehensi$e income9 income9 a b c

),)00,000 2,*00,000 2,"00,000

d

",100,000

'age

"

SOLUTION - PROBLEM & Ques!"# 1 A#s$e% B

et sales

*,)00,000

!ost of goods sold >ross income

;%,000,000< ),)00,000

>ain from expropriation of land

)00,000

Total income

",000,000

elling expenses

1,000,000

#dministrati$e expenses

1,200,000

&nterest expense &ncome before tax Tax expense &ncome from continuing operations

Ques!"# 2

700,000

2,*00,000 3,100,000 ; 00,000< 2,300,000

A#s$e% A

@nrealiAed gain on e(uity in$estment at 5C+!& @nrealiAed loss . cash flow hedge #ctuarial loss . increase in '6+ Translation adjustment . debit -e$aluation surplus et gain  +!&

*00,000 ; %00,000< ; 300,000< ; 100,000< 2,)00,000 2,"00,000

Ques!"# & A#s$e% D

@nrealiAed gain on e(uity in$estment at 5C+!&

*00,000

#ctuarial loss on '6+ -e$aluation surplus

; 300,000< 2,)00,000

et amount of +!& #" %e/*ss!!e " (%"! "% "ss

3,100,000

Ques!"# ' A#s$e% A

&ncome from continuing operations &ncome from discontinued operations

2,300,000 "00,000

et income

2,*00,000

Ques!"# 5 A#s$e% A

et income et gain . +!& !omprehensi$e income

2,*00,000 2,"00,000 ),)00,000

'age 7

PROBLEM ' – IN.ESTMENT IN.ESTMENT IN ASSOCIATE ASSOCIATE

+n /anuary 1, 2017, an entity ac(uired a 104 interest in an in$estee for '3,000,000 The in$estment ,e3" Duri was was acco accoun unte ted d for for unde underr the the /"s ,e3" During ng 2017, 2017, the the in$e in$est stee ee repor reporte ted d net inco income me of '%,000,000 and paid di$idend of '1,000,000 +n /anuary 1, 201, the entity ac(uired a further 1)4 interest in the in$estee for ',)00,000 +n such date, the carrying amount of the net assets of the in$estee was '3",000,000 and the fair $alue of the 104 existing interest was '3,)00,000 The fair $alue of the net assets of the in$estee is e(ual to carrying amount except for an e(uipment whose fair $alue was '%,000,000 greater than carrying amount The e(uipment had a remaining life of ) years The in$est in$estee ee report reported ed net income income of ',000, ',000,000 000 for 201 and paid paid di$ide di$idend nd of '),000, '),000,000 000 on December 31, 201 1 8hat amount amount of in$estm in$estment ent income income should should be recogniAed recogniAed in in 20179 a b c d

%00,000 100,000 )00,000 300,000

2 8hat is is the implied implied goodwill goodwill arising arising from from the the ac(uisiti ac(uisition on on /anuary /anuary 1, 2019 2019 a 3,000,000 b 2,000,000 c 2,)00,000 d 0 3 8hat total total amount amount of income income should be recogniAed recogniAed by the in$estor in$estor in 2019 a b c d

2,000,000 2,)00,000 2,300,000 1,00,000

% 8hat is the the carrying carrying amount of of the in$estme in$estment nt in associate associate on December December 31, 31, 2019 a b c d

12,))0,000 12,3)0,000 11,*)0,00 ,000 12,7) ,7)0,000 000

'age SOLUTION - PROBLEM ' Ques!"# 1 A#s$e% B

Di$idend income ;104 x 1,000,000<

100,000

@nder cost method, the in$estment income is based on di$idend declared or paid


xisting 104 interest remeasured at fair $alue

3,)00,000

ew 1)4 interest

,)00,000

Total cost . /anuary 1, 201

12,000,000

et assets ac(uired ;2)4 x 3",000,000< xcess of cost o$er carrying amount

; *,000,000< 3,000,000

xcess attributable to e(uipment whose fair $alue is greater than carrying amount ;2)4 x %,000,000< >oodwill

; 1,000,000< 2,000,000


hare in net income ;2)4 x ,000,000< #mortiAation of excess attributable to e(uipment ;1,000,000 B ) years< et in$estment income

2,000,000 ; 200,000< 1,00,000

5air $alue of 104 interest

3,)00,000

Eistorical cost

3,000,000



-emeasurement gain

)00,000

et in$estment income

1,00,000

Total income in 201

2,300,000

&f the in$estment in associate is achie$ed in stages the old interest is remeasured at fair $alue through profit or loss


Total cost /anuary 1, 201

12,000,000

et in$estment income

1,00,000

hare in cash di$idend ;2)4 x ),000,000< !arrying amount . December 31, 201

; 1,2)0,000< 12,))0,000

'age * PROBLEM 5 – IN.ESTMENT IN ASSOCIATE ASSOCIATE

#n entity ac(uired %04 of another entity:s shares on /anuary 1, 2017 for '1),000,000 The in$estee:s assets and liabilities at that date were as follows?

!ash #ccounts recei$able &n$entory . 5&5+ Fand 'lant and e(uipment . net Fiabilities

C*%%4!# *,"u#

F*!% 6*ue

1,000,000 %,000,000 ,000,000 ),)00,000 1%,000,000 7,000,000

1,000,000 %,000,000 *,000,000 7,000,000 22,000,000 7,000,000

The plant and e(uipment ha$e a 10year remaining remaining useful life The in$entory in$entory was all sold in 2017 The entity sold the land in 201 for ',000,000 and reported a gain of '2,)00,000 The in$estee reported net income of '3,000,000 for 2017 and '),000,000 for 201 The in$estee paid '1,000,000 cash di$idend on December 31, 2017 and '2,000,000 on December 31, 201 1 8hat is is the implied implied a goodwi goodwill ll arising arising from from the the ac(uisitio ac(uisition9 n9 a b c d

200,000 "00,000 00,000 %00,000

2 8hat 8hat is the the in$es in$estme tment nt incom incomee for 20179 20179

a b c d

0,000 %0,000 %00,000 )0,000

3 8hat 8hat is the the in$es in$estme tment nt incom incomee for 2019 2019 a b c d

1,00,000 2,20,000 1,"0,000 2,0,000

% 8hat is the the carrying carrying amount of of the in$estme in$estment nt in associate associate on December December 31, 31, 2019 a b c d

1),3"0,000 1),000,000 1",)"0,000 13,0 ,00,000 000

'age

10

SOLUTION – PROBLEM 5 Ques!"# 1 A#s$e% B

!ash

1,000,000

#ccounts recei$able

%,000,000

&n$entory

,000,000

Fand

),)00,000

'lant and e(uipment Fiabilities et assets at carrying amount

1%,000,000 ; 7,000,000< 2),)00,000

#c(uisition cost

1),000,000

et assets ac(uired ;%04 x 2),)00,000< xcess of cost

;10,200,000< %,00,000

#ttributable to in$entory ;*,000,000 . ,000,000 G 1,000,000 x %04< #ttr #ttrib ibut utab able le to plan plantt and and e(ui e(uipm pmen entt ;22, ;22,00 000, 0,00 000 01% 1%,0 ,000 00,0 ,000 00 G ,00 ,000, 0,00 000 0 x %04< %04< #ttributable to land ;7,000,000 . ),)00,000 G 1,)00,000 x %04< &mplied goodwill

; %00,000< ; 3,20 3,200, 0,00 000< 0< ; "00,000< "00,000

s


hare in net income for 2017;%04 x 3,000,000< #mortiAation of excess . in$entory #mortiAation of excess . plant and e(uipment ;3,200,000 B 10 years< &n$estment income for 2017

1,200,000 ; %00,000< ; 320,000< %0,000

Ques!"# & A#s$e% A

hare in net income for 201 ;%04 x ),000,000< #mortiAation of excess . plant and e(uipment #mortiAation of excess . land &n$estment income for 201

2,000,000 ; 32 320,000< ; "00,000< 1,00,000


#c(uisition cost

1),000,000

&n$estment income 2017

%0,000

!ash di$idend for 2017 ;%04 x 1,000,000< &n$estment income for 201

;

%00,000< 1,00,000

!ash di$idend for 201 ;%04 2,000,000< !arrying amount . December 31, 201

; 00,000< 1),3"0,000

'age

11

PROBLEM  – BOND IN.ESTMENT AT F.OCI

#n entity purchased '),000,000 of 4, )year bonds on /anuary 1, 2017 with interest payable on /une 30 and December 31 The bonds were purchased for '),100,000 plus transaction cost of '10,000 at an effecti$e interest rate of 74 The business model for this in$estment is to collect contractual cash flows and sell the bonds in the open mar=et +n December 31, 2017, the bonds were (uoted at 10" 1 8hat amount of interest income should be reported for 20179

a b c d

%00,000 200,000 3"%,)"0 3"3,*%0

2 8hat is the adjusted adjusted carrying amount of the in$estment in$estment on December 31, 20179 a b c d

),300,000 ),171,*%0 ),17%,)"0 ),000,000

3 8hat amount should be recogniAed in +!& in the statement of comprehensi$e income for 2 0179

a b c d

300,000 12),%%0 12,0"0 *2,000

% &f the entity elected the *!% 6*ue "(!"# , what total total amount of income income should should be recogniAed recogniAed for 20179 a b c d

%00,000 %*2,000 "00,000 200,000

'age 12 SOLUTION - PROBLEM  D*e

I#e%es %e/e!6e

/an 1, 2017 /an 30, 2017 Dec 31, 2017

200,000 200,000

I#e%es !#/",e

12,20 11,""0

A,"%!*!"#

17,720 1,3%0

C*%%4!# *,"u#

),20,000 ),1*0,20 ),171,*%0

Ques!"# 1 A#s$e% D

&nterest /anuary to /une &nterest /uly to December &nterest income for 2017

12,20 11,""0 3"3,*%0


Har=et $alue on December 31, 2017 ;),000,000 x 10"<

),300,000


Har=et $alue on December 31, 2017 !arrying amount December 31, 2017 ;see table of amortiAation< @nrealiAed gain  +!&

),300,000 ),171,*%0 12,0"0

Ques!"# ' A#s$e% C

Har=et $alue on December 31, 2017 #c(uisition cost, e9/u!# %*#s*/!"# /"s >ain from change in fair $alue &nterest income ;4 x ),000,000< Total income

),300,000 ),100,000 200,000 %00,000 "00,000

'age

13

PROBLEM 7 – PROPERT:; PROPERT:; PLANT AND EQUIPMENT EQUIPMENT

/anuary 1, 2017, an entity disclosed the following following balances? Fand Fand impro$ements 6uildings Hachinery and e(uipment

%,000,000 1,300,000 20,000,000 ,000,000

During the current year, the following transactions occurred? I # tract of land land was ac(uired for for '2,000,000 cash as a building site site I

# plant facility facility consisting consisting of land and building was ac(uired in exchange for 200,000 shares of the entity entity +n the ac(uisition ac(uisition date, each share had a (uoted price of '%) on a stoc= exchange exchange The

plant facility was carried on the seller:s boo=s at '1,"00,000 for land and '),%00,000 for the building at the exchange date !urrent appraised $alues for the land and the building, respecti$ely, respecti$ely, are '2,000,000 and ',000,000 The building has an expected life of forty years with a '200,000 residual $alue I

&tems of machinery and e(uipment e(uipment were purchased at a total cost of '%,000,000 #dditional costs incurred were freight and unloading '100,000 and installation '300,000 The e(uipment has a useful life of ten years with no residual $alue

I xpenditures totaling '1,200,000 were were made for new par=ing lot, street street and sidewal= at the entity:s entity:s $arious plant locations These expenditures had an estimated useful life of fifteen years I

-esearch and de$elopment costs were '1,100,000 for for the year

I

# machine machine costing costing '200,000 '200,000 on /anuary /anuary 1, 1, 2010 was scrapped scrapped on /une /une 30, 2017 2017 traight traight line depreciation had been recorded on the basis of a 10year life with no residual $alue

I # machine was sold for for ')00,000 on /uly 1, 2017 +riginal cost of the machine sold was '700,000 on /anuary 1, 201%, and it was depreciated on the straight line basis o$er an estimated useful life of eight years and a residual $alue of ')0,000 1 8hat is the total cost of land on December 31, 20179 b 7,00,000 c 7,"00,000 d ,000,000 e ",00,000 2 8hat is the total total cost of land impro$ements on December 31, 20179 a 1,200,000 b 3,"00,000 c 1,300,000 d 2,)00,000 3 8hat is the total total cost of buildings on December 31, 20179 a 2,000,000 b 2),%00,000 c 27,200,000 d 27,00 ,000,000 000 % 8hat is total cost of machinery and e(uipment on December 31, 20179 a 12,%00,000 b 11,)00,000 c 11,000,00 ,000 d 11,700,00 ,000

'age SOLUTION – PROBLEM 7


Fand . /anuary 1 Fand ac(uired for cash Fand ac(uired by issuing shares ;2B10 x *,000,000< Fand . December 31

%,000,000 2,000,000 1,00,000 7,00,000

Juoted price of shares issued for land and building ;200,000 x '%)<

*,000,000

!urrent appraiAed $alue ? Fand

2,000,000

1%

6uilding

,000,000

Total

10,000,000

The total cost of the land and building is e(ual to the (uoted price of the shares which is allocated prorata to the land and building based on the current appraised $alue


Fand impro$ements . /anuary 1 xpenditures for par=ing lot, street and sidewal= 6alance . December 31

1,300,000 1,200,000 2,)00,000


6uildings . /anuary 1 6uilding ac(uired by issuing shares ;B10 x *,000,000< 6alance . December 31

20,000,000 7,200,000 27,200,000


Hachinery and e(uipment  /anuary 1

,000,000

Hachinery and e(uipment purchased

%,000,000

5reight and unloading

100,000

&nstallation

300,000

Hachinery scrapped Hachinery sold Hachinery e(uipment . December 31

; 200,000< ; 700,000< 11,)00,000

'age 1) PROBLEM 8 - INCOME INCOME TA< TA<

#n entity had the following financial statement elements for which the December 31, 2017 carrying amount is different from the December 31, 2017 tax basis?

(uipment #ccrued liability . health care

C*%%4 C*%%4!# !#  *,"u *,"u# #

T*9 )*s!s )*s!s

),)00,000 )00,000

%,000,000 0

D!e% D!e%e#/ e#/ee

1,)00,000 )00,000

!omputer software cost

2,000,000

0

2,000,000

The difference between the carrying amount and tax basis of the e(uipment is due to accelerated depreciation for tax purposes The accrued liability is the estimated health care cost that was recogniAed as expense in 2017 but deductible for tax purposes when actually paid &n /anuary 2017, the entity incurred '3,000,000 of computer software cost !onsidering the technical feasibility of the project, this cost was capitaliAed and amortiAed o$er 3 years for accounting purposes Eowe$er, the total amount was expensed in 2017 for tax purposes The pretax accounting income for 2017 is '1),000,000 The income tax rate is 304 and there are no deferred taxes on /anuary 1, 2017 1 8hat amount amount should be reported reported as current current tax tax expense expense for for 20179 a b c d

),%00,000 3,"00,000 3,300,000 ),700,000

2 8hat amount should be reported as total tax expense for 20179 a b c d

%,)00,000 %,*)0,000 %,0)0,000 3,*00,000

3 8hat amount amount should should be report reported ed as deferred deferred tax tax liabilit liability y on December December 31, 20179 20179 a 1,0)0,000 b 1,200,000 c *00,000 d 1)0,000 % 8hat amount should be reported as deferred tax asset on December 31, 20179 

a 7)0,000 b "00,000 c 1)0,000 d 0

'age 1" SOLUTION – PROBLEM 8 Ques!"# 1 A#s$e% B

#ccounting income 5uture taxable amount? (uipment

1),000,000

!omputer software

;1,)00,000<

5uture deductible amount? #ccrued liability

;2,000,000< )00,000

Taxable income

12,000,000

!urrent tax expense ;304 x 12,000,000<

3,"00,000


Total tax expense ;304 x 1),000,000<

%,)00,000


Deferred tax liability ;304 x 3,)00,000<

1,0)0,000

Ques!"# ' A#s$e% C

Deferred tax asset ;304 x )00,000<

1)0,000

'age 17 PROBLEM = - BENEFIT COST

#n entity pro$ided the following pension plan information? 'rojected benefit obligation . /anuary 1 5air $alue of plan assets . /anuary 1 'ension benefits paid during the year !urrent ser$ice cost for the year 'ast ser$ice cost for the year ;$esting period ) years< #ctual return on plan assets !ontribution to the plan #ctuarial loss due to change in assumptions on projected benefit obligation Discount or settlement rate

3,)00,000 2,00,000 2)0,000 1,7)0,000 %2),000 10,000 1,)00,000 200,000 1 04

1 8hat is the employee employee benefit expense for the current year9 a b c d

2,2%),000 1,*0),000 2,)2),000 1,7)0,000

2 8hat is the net remeasurement loss for the the current year9 a b c d

200,000 100,000 300,000 %00,000

3 8hat is the projected benefit obligation on December 319 a b c d

),))0,000 ),07),000 ),77),000 ),*7),000

% 8hat is the fair fair $alue of plan assets on December 319 a b c d

%,%0,000 %,230,000 %,300,000 %,0)0,000

1 8hat amount amount should should be report reported ed as accrued accrued benefit benefit cost cost on Decembe Decemberr 319 a 1,7%),000 b 1,7)0,000 c 1,0%),000 d 700,000

'age 1 SOLUTION - PROBLEM =


!urrent ser$ice cost

1,7)0,000

'ast ser$ice cost

%2),000

&nterest expense ;104 x 3,)00,000<

3)0,000

&nterest income ;104 x 2,00,000< mployee benefit expense

; 20,000< 2,2%),000


#ctual return &nterest income -emeasurement loss on plan assets #ctuarial loss on '6+ et remeasurement loss

10,000 20,000 100,000 200,000 300,000


'6+ . /anuary 1

3,)00,000

!urrent ser$ice cost

1,7)0,000

'ast ser$ice cost

%2),000

&nterest expense

3)0,000

#ctuarial loss

200,000

6enefits paid '6+ . December 31

; 2)0,000< ),*7),000


5C'# . /anuary 1 #ctual return !ontribution to the plan 6enefits paid 5C'# . December 31

2,00,000 10,000 1,)00,000 ; 2)0,000< %,230,000


5C'# . December 31 '6+ . December 31 'repaidBaccrued benefit cost . December 31

%,230,000 ;),*7),000< ;1,7%),000<

'age 1* PROBLEM 10 - SALES T:PE LEASE

#n entity is a dealer in e(uipment and uses leases to facilitate the sale of its product The entity expects a 124 return #t the end of the lease term, the e(uipment will re$ert to the lessor lessor +n /anuary 1, 2017, an e(uipment is leased to a lessee with the following information? !ost of e(uipment to the entity 5air $alue of e(uipment -esidual $alue . unguaranteed &nitial direct cost #nnual rental payable in ad$ance @seful life and lease term &mplicit interest rate 'C of 1 at 124 for  periods 'C of an ordinary annuity of 1 at 124 for  periods 'C of an annuity due of 1 at 124 for  periods 5irst lease payment

3,)00,000 ),)00,000 "00,000 200,000 *00,000  years 124 0 % 0 % * 7 )) " /anuary 1, 201"

1 8hat 8hat is the the gross gross in$es in$estme tment nt in the the lease lease99 a b c d

7,00,000 7,200,000 ","00,000 ",*00,000

2 8hat 8hat is the the net in$est in$estmen mentt in the the lease lease99 a b c d

),00%,000 ),2%%,000 ),)00,000 ),7%0,000

3 8hat 8hat is the total total fina financi ncial al re$en re$enue9 ue9 a 2,1*",000 b 2,7*",000 c 2,))",000 d 1,*)",000 % 8hat amount should be recogniAed as interest interest income for 20179 a b c d

"00,%0 %*2,%0 )3",7"0 )21,20

) 8hat amount of cost of goods sold should be recogniAed in recording the lease9 a b c d

3,2"0,000 3,)00,000 3,7%0,000 3,%"0,000

'age 20 SOLUTION – PROBLEM 10 Ques!"# 1 A#s$e% A

>ross rentals ;*00,000 x < -esidual $alue >ross in$estment

7,200,000 "00,000 7,00,000


'C of rentals ;*00,000 x ))"< 'C of residual $alue ;"00,000 x %0< et in$estment

),00%,000 2%0,000 ),2%%,000


>ross in$estment ot in$estment Total financial re$enue

7,00,000 ),2%%,000 2,))",000

Ques!"# ' A#s$e% D

et in$estment . /anuary 1, 2017

),2%%,000

#d$ance payment on /anuary 1, 2017 6alance . /anuary 1, 2017

; *00,000< %,3%%,000

&nterest income for 2017 ;1 ;124 x %,3%%,000<

)21,20


!ost of e(uipment

3,)00,000

'C of unguaranteed residual $alue &nitial direct cost

; 2%0,000< 200,000

!ost of goods sold

3,%"0,000

ales, excluding present $alue of unguaranteed residual $alue !ost of goods sold >ross profit on sale

),00%,000 3,%"0,000 1,)%%,000

'age 21 PROBLEM 11 – EARNINGS PER SARE

#n entity reported the following information on /anuary 1, 2017? +rdinary share capital, '10 par, 00,000 shares 'reference share capital, ')0 par, )0,000 shares 124 6onds payable

,000,000 2,)00,000 ),000,000

The prefer preferenc encee share share capital capital is 104 cumula cumulati ti$e $e and con$ert con$ertibl iblee into into 100,000 100,000 ordina ordinary ry shares shares Di$idends on preference shares are in arrears for two years The 124 bonds are con$ertible into 0 ordinary shares for each '1,000 bond @nexercised share options to purchase *0,000 ordinary shares at '20 per share were outstanding at the beginning and ending end ing of 2017 The a$erage mar=et price of the ordinary share was '30 per share and the mar=et price on December 31, 2017 was '%0 per share Hay 1 /ul /uly 1 +ct 1 Dec Dec 31

&ssued "0, "0,000 ordinary shar hares at '2) per shar hare 'ur 'urchas chased ed 100, 100,00 000 0 ordi ordina nary ry shar hares at '1) '1) to be hel held as treas easury ury !on$er $erted bonds with face ace amo amount unt of '2,000, 00,000 The The net net incom ncomee for for 2017 2017 was was '),0 '),000 00,0 ,000 00 The The tax tax rate ate is is 304 304

1 8hat is the amount of basic earnings per share9 a b c d

" 0 2 )2" ) 7 2 ) % 2

2 8hat is the total total number of potentially diluti$e diluti$e ordinary shares at the beginning beginning of year9 a b c d

)30,000 )00,000 )*0,000 )"0,000

3 8hat is the amount of diluted earnings per share9 a b c d

) ) 2 %20 % 0 7 3 * 7

'age

22

SOLUTION - PROBLEM 11 Ques!"# 1 A#s$e% C

et income

),000,000

'reference di$idend ;104 x 2,)00,000< et income  ordinary

; 2)0,000< %,7)0,000

/anuary 1

; ; 00,000 x 12B12<

00,000

Hay

; "0,000 x B12<

%0,000

1

/uly 1 +ctober 1

;100,000 x "B12< ; 2,000 x 0 x 3B12<

; )0,000< %0,000

#$erage shares outstanding

30,000

6asic ' ;%,7)0,000 B 30,000<

)72


hare options

*0,000

Treasury shares ;1,00,000 B 30< &ncremental ordinary shares from share options

; "0,000< 30,000

+rdinary shares from con$ersion of preference shares

100,000

+rdinary shares from con$ersion of bonds payable ;),000 x 0<

%00,000

'otential ordinary shares

)30,000


&ncremental ' on 'reference shares ;2)0,000 B 100,000<

2 ) 0

&nterest on bonds #" /"#6e%e ;3 ; 3,000,000 x 124 x 704< &nterest on bonds /"#6e%e ;2 ;2,000,000 x 124 x *B12 x 704< Total interest expense

2)2,000 12",000 37,000

&ncremental ' on bonds ;37,000 B%00,000<

6asic ' hare options Diluted ' 6onds payable Diluted '

* %

Ne !#/",e

S3*%es

EPS

%,7)0,000

30,000 30,000 "0,000 3"0,000 1,220,000

) 7 2

%,7)0,000 37,000 ),12,000

) ) 2 % 2 0

'reference shares Diluted '

2)0,000 ),37,000

100,000 1,320,000

% 0 7

'otential ordinary shares . bonds

%00,000

-eported in basic ' -eported in diluted '

;%0,000< 3"0,000

'age 23 PROBLEM 12 – STATEMENT STATEMENT OF CAS FLO>S

#n entity presented the following comparati$e financial information?

'roperty, plant and e(uipment #ccumulated depreciation Fongterm in$estments 'repaid expenses Herchandise in$entory #ccounts recei$able, net of allowance !ash hare capitalordinary -etained earnings Fongterm note payable #ccounts payable Di$idend payable #ccrued expenses

2018

2017

2,1*0,000 %)0,000 22),000 3)1,000 1,*)0,000 1,)"0,000 "*0,000 3,000,000 *0",000 1,27),000 30*,000 201,000 2),000

1,%%0,000 270,000  31),000 1,2"0,000 1,00,000 "%0,000 2,%00,000 ",000 1,0*),000 22,000  

2018

et credit sales

2017

7,020,000

3,7)3,000

!ost of goods sold >ross profit

;3,*1),000< 3,10),000

;1,1,000< 1,72,000

xpenses, including income tax et income

;2,)",000< )1*,000

;1,37%,000< %*,000

#ccounts recei$able and accounts payable relate to merchandise for sale in the normal course of business The allowance for bad debts was the same at the end of 201 and 2017 and no recei$ables were charged against the allowance #ccounts payable are recorded net of any discount and are always paid within the discount period The proceeds from the note payable were used to finance the ac(uisition of property, plant and e(uipment +rdinary shares were sold to pro$ide add itional wor=ing capital 1 8hat amount should be reported as net cash pro$ided by operating acti$ities acti$ities in 2019 a 3%),000 b 1"),000 c )%",000

d )10,000 2 8hat amount should be reported as net cash used in in$esting acti$ities acti$ities in 2019 a b c d

7)0,000 22),000 *7),000 7)0,000

3 8hat amount should be reported as net cash pro$ided by financing acti$ities acti$ities in 2019 a b c d

"00,000 70,000 7)0,000 "0,000

'age 2% SOLUTION – PROBLEM 12 Ques!"# 1 A#s$e% A

et income

)1*,000

Depreciation ;%)0,000  27,000<

10,000

&ncrease in prepaid expenses &ncrease in in$entory &ncrease in accounts recei$able &ncrease in accounts payable

; 3",000< ;"*0,000< ;%0,000< 27,000

&ncrease in accrued expenses

2),000

et cash pro$ided  operating

3%),000


&ncrease in '' &ncrease in longterm in$estments et cash used  in$esting

;7)0,000< ;22),000< ;*7),000< ;*7),000<


Di$idend paid in 201 'roceeds from share capital 'roceeds from note payable et cash pro$ides  financing

;100,000< "00,000 10,000 "0,000

-etained earnings  2017

",000

et income  201

)1*,000

Total -etained earnings  201

1,207,000 ;

*0",000<

Di$idend declared in 201

301,000

Di$idend payable . 201 Di$idend paid in 201

; 201,000< 100,000

'age

2)

PROBLEM 1& – STATEMENT STATEMENT OF CAS FLO>S

1 #n entity entity pro$id pro$ided ed the follow following ing increase increasess ;decre ;decrease ases< s< in the stateme statement nt of financia financiall positi position on accounts !ash and cash e(ui$alents

120,000

#$ailable for sale securities

300,000

#ccounts recei$able, net &n$entory Fongterm in$estments 'lant assets #ccumulated depreciation

 0,000 ;100,000< 700,000 

#ccounts payable Di$idend payable

; ),000< 1"0,000

hortterm ban= debt

32),000

Fongterm debt

110,000

hare capital, '10 par

100,000

hare premium

120,000

-etained earnings

2*0,000



et income for the current year was '7*0,000



!ash di$idend of ')00,000 was declared



6uilding costing '"00,000 and with carrying amount of '3)0,000 was sold for '3)0,000







(uipment costing '110,000 was ac(uired through issuance of longterm debt # longterm in$estment was sold for '13),000 There were no other transactions affecting longterm in$estment The shares were issued for cash

1 8hat 8hat is the the net net cas cash h (%"6!e by operating acti$ities9 a 1,1"0,000 b 1,0%0,000 c *20,000 d 70),000 2 8hat 8hat is the the net net cas cash h use in in$esting acti$ities9 a b c d

1,00),000 1,1*0,000 1,27),000 1,"00,000

3 8hat 8hat is the the net net cas cash h (%"6!e by financing acti$ities9 a 20),000 b 1)0,000 c %),000 d 20,000

'age

SOLUTION – PROBLEM 1& Ques!"# 1 A#s$e% C

et income

7*0,000

&ncrease in in$entory >ain on sale of longterm in$estment Depreciation Decrease in accounts payable et cash pro$ided . operating

; 0,000< ; 3),000< 2)0,000 ; ), ),000< *20,000


ale price of in$estment

13),000

!ost of in$estment sold . decrease in longterm in$estment >ain on sale of longterm in$estment

;100,000< 3),000

2"

et increase in accumulated depreciation



#dd #dd acc accum umul ulat ated ed depr deprec eciiatio ation n on on bui buillding ding sol sold ;"0 ;"00, 0,00 000 0 . 3)0 3)0,0 ,000 00<<

2)0, 2)0,00 000 0

Depreciation for the year

2)0,000

et increase in plant assets

700,000

#dd cost of building sold

"00,000

Total ac(uisition during year

1,300,000

(uipment ac(uired by issuing longterm debt !ash payment for plant assets

; 110,000< 1,1*0,000

!ash payment for plant assets !ash payment for a$ailable for sale securities ale price of in$estment

;1,1*0,000< ; 300,000< 13),000

ale of building et cash used  in$esting

3)0,000 ;1,00),000<


&ncrease in share capital

100,000

&ncrease in share premium

120,000

!ash recei$ed from issue of shares

220,000

'roceeds from shortterm debt

32),000

Di$idend paid et cash pro$ided . financing

;3%0,000< 20),000

Di$idend declared

)00,000

Di$idend payable Di$idend paid

;1"0,000< 3%0,000

P%""

et cash pro$ided  operating et cash used . in$esting et cash pro$ided . financing &ncrease in cash and cash e(ui$alents

*20,000 ;1,00),000< 20),000 120,000

'age

27

PROBLEM 1' – STATEMENT STATEMENT OF CAS FLO>S

#n entity pro$ided the following data?

Trade accounts recei$able, net of allowance &n$entory #ccounts payable 





De/e De/e,) ,)e% e% &1; &1; 201 2017 7

De/e De/e, ,)e% )e% &1; &1; 2018 2018

%0,000 1,)00,000 *)0,000

70,000 1,%00,000 *0,000

Total sales were '12,000,000 for 201 and '11,000,000 for 2017 !ash sales were 204 of total sales each year !ost of goods sold was ',%00,000 for 201 Cariable expenses for 201 amounted to '1,200,000 and $aried in proportion to sales Cariable expenses had been paid )04 in the year incurred and )04 the following year 5ixed 5ixed expens expenses, es, includ including ing '3)0,00 '3)0,000 0 deprec depreciat iation ion and ')0,000 ')0,000 bad debt expens expense, e, totale totaled d '1,000,000 each year ighty percent of fixed expenses in$ol$ing cash were paid in the year incurred and 204 the following year ach year there was a ')0,000 bad debt estimate and a ')0,000 writeoff

1 8hat is the the cash cash collecte collected d from from customer customerss during during 2019 2019 a b c d

12,010,000 12,0"0,000 11,*"0,000 11,*0,000

2 8hat 8hat is the the amoun amountt of purc purchas hases es for for 2019 2019 a b c d

*,00,000 ,300,000 ,)00,000 ,%00,000

3 8hat is the the cash cash disbursed disbursed for purchases purchases during during 2019 a b c d

,)00,000 ,270,000 ,300,000 ,200,000

% 8hat amount amount of cash cash was disbursed disbursed for for $ariable $ariable expenses expenses during 2019 2019 a 1,1)0,000 b 1,200,000 c 1,100,000 d "00,000

) 8hat amount amount of cash cash was disbursed disbursed for for fixed fixed expenses expenses during during 2019 2019 a b c d

)00,000 ")0,000 "00,000 )00,000

'age 2

SOLUTION – PROBLEM 1' Ques!"# 1 A#s$e% A

#- . December 31, 2017 Total sales . 201 Total #- . December 31, 201 6ad debt writeoff !ollections from customers . 201

%0,000 12,000,000 12,%0,000 ; 70,000< ; )0,000< 12,010,000

#


&n$entory . December 31, 2017 'urchases 201 ;SQUEE?E< >oods a$ailable for sale &n$entory . December 31, 201 !ost of goods sold  201

1,)00,000 ,300,000 *,00,000 ;1,%00,000< ,%00,000

6

Ques!"# & A#s$e% B

#ccounts payable . December 31, 2017 'urchases 201 Total #ccounts payable . December 31, 2017 !ash disbursed for purchases 201

*)0,000 ,300,000 *,2)0,000 ; * * 0,000< ,270,000

6


Cariable cost ratio ;1,200,000 B 12,000,000<

104

Cariable expenses . 2017 ;104 x 11,000,000<

1,100,000

Cariable expenses 2017 paid in 201 ;)04 x 1,100,000< Cariable expenses 201 paid in 201 ;)04 x 1,200,000< Cariable expenses paid in 201

))0,000 "00,000 1,1)0,000

#

1,000,000 ; 3)0,000< ; )0,000< "00,000

!


5ixed expenses each year Depreciation 6ad debt expense !ash disbursed for fixed expenses in 201

END

Financial Accounting and Reporting Test Bank

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