FINANCIAL ACCOUNTING AND REPORTING TEST BANK

PROBLEM 1 – STATEMENT OF FINANCIAL POSITION The following trial balance of an entity on December 31, 2017 has been adjusted except for income tax expense. Cash 6,000,000 Accounts receivable 14,000,000 Inventory 10,000,000 Property, plant and equipment 25,000,000 Accounts payable 9,000,000 Income tax payable 6,000,000 Preference share capital 3,000,000 Ordinary share capital 15,000,000 Share premium 4,000,000 Retained earnings – January 1 9,000,000 Net sales and other revenue 80,000,000 Cost of goods sold 48,000,000 Expenses 12,000,000 Income tax expense 11,000,000 126,000,000 126,000,000 During the year, estimated tax payments of P5,000,000 were charged to income tax expense. The tax rate is 30% on all types of revenue. Inventory and accounts payable included goods purchased in transit, FOB destination, costing P500,000, and unsold goods held on consignment at year-end, costing P300,000. The perpetual system is used. The preference share capital is redeemable mandatorily on December 31, 2018. 1. What amount should be reported as current assets on December 31, 2017? a. 29,200,000 b. 29,700,000 c. 29,500,000 d. 30,000,000 2. What amount should be reported as current liabilities on December 31, 2017? a. 14,200,000 b. 17,200,000 c. 12,200,000 d. 9,200,000 3. What is the net income for 2017? a. 20,000,000 b. 14,000,000 c. 23,000,000 d. 9,000,000 4. What amount should be reported as total shareholders’ equity on December 31, 2017? a. 40,000,000 b. 37,000,000 c. 45,000,000 d. 42,000,000 Page 2 SOLUTION - PROBLEM 1 Question 1 Answer A Cash 6,000,000 Accounts receivable 14,000,000 Inventory (10,000,000 - 500,000 - 300,000) 9,200,000 Total current assets 29,200,000 Question 2 Answer C Net sales and other revenue 80,000,000 Cost of goods sold ( 48,000,000) Expenses ( 12,000,000) Income before tax 20,000,000 Tax expense (30% x 20,000,000) ( 6,000,000) Net income 14,000,000 Tax expense 6,000,000 Payment during year (5,000,000) Income tax payable 1,000,000 Accounts payable 8,200,000 Income tax payable 1,000,000 Redeemable preference 3,000,000 Total current liabilities 12,200,000 Accounts payable per book 9,000,000 Goods in transit FOB destination ( 500,000) Goods held on consignment ( 300,000) Adjusted accounts payable 8,200,000 Question 3 Answer B Net income 14,000,000 Question 4 Answer D Ordinary share capital 15,000,000 Share premium 4,000,000 Retained earnings 23,000,000 Total shareholders’ equity 42,000,000 Retained earnings – January 1 9,000,000 Net income 14,000,000 Total retained earnings 23,000,000 Page 3 PROBLEM 2 - STATEMENT OF FINNACIAL POSITION 3. On December 31, 2017, an entity showed the following current assets: Cash 500,000 Accounts receivable 2,500,000 Inventory 2,000,000 Prepaid expenses 100,000 Total current assets 5,100,000 Cash on hand including customer postdated check of P20,000 and employee IOU of P10,000 130,000 Cash in bank per bank statement (outstanding checks on December 31, 2017, P70,000) 370,000 Total cash 500,000 Customers’ debit balances, net of customer deposit of P50,000 1,900,000 Allowance for doubtful accounts Sale price of goods invoiced to customers at 150% of cost on December 29, ( 150,000) 2017 but delivered on January 5, 2018 and excluded from reported inventory 750,000 Total accounts receivable 2,500,000 1. What is the adjusted cash balance? a. 500,000 b. 470,000 c. 430,000 d. 400,000 2. What is the net realizable value of accounts receivable? . a. 1,970,000 b. 1,820,000 c. 1,800,000 d. 1,950,000 3. What is the adjusted inventory? a. 2,000,000 b. 2,375,000 c. 2,500,000 d. 2,750,000 4. What total amount of current assets should be reported? a. 4,900,000 b. 4,830,000 c. 4,780,000 d. 4,630,000