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ADVANCED FINANCIAL ACCOUNTING AND REPORTING NATIONAL FEDERATION OF JUNIOR PHILIPPINE INSTITUTE OF ACCOUNTANTS NATIONAL CAPITAL REGION 2017 Search for the NCR Frontliners October 8, 2017 Multiple Choice Identify the choice that best completes the statement or answers the question. ____

1. How should a company undergoing reorganization report the gains and losses resulting from the reorganization? a. on the statement of retained earnings b. on the income statement, combined with the gains and losses from operations c. on the statement of stockholders' equity d. on the income statement, separate from other gains and losses e. on the statement of cash flows

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2. The statement of financial affairs should be prepared a. under the going concern assumption b. under the concept of conservatism c. under the assumption that liquidation will occur d. under the continuity concept e. only for a company in Chapter 7 bankruptcy

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3. Which of the following is not one of the more common reorganization plan elements? a. plans for plant expansion b. plans for generating additional monetary resources c. plans to settle the debts of the company that existed when the order for relief was entered d. plans proposing changes in the company's operations e. plans for changes in the management of the company

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4. What is normally required before a reorganization plan can be implemented? a. The plan must be presented by the company and confirmed by the court b. The plan must be approved by each class of creditors and each class of stockholders, and confirmed by the court c. The plan must be presented by the company, approved by two-thirds of each class of stockholders, and confirmed by the court d. The plan must be presented by the company, approved by three-fourths of each class of stockholders, and confirmed by the court e. The plan must be approved by three-fourths of each class of creditors, approved by threefourths of each class of stockholders, and confirmed by the court

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5. Jason Corporation about to be liquidated, has the following amounts for its assets and liabilities:

Current assets Land Building Equipment Accounts payable Income taxes payable Mortgage payments Note payable

Book value 200,000 70,000 500,000 300,000 240,000 60,000 510,000 80,000

Net realizable value 140,000 100,000 350,000 160,000 -

The mortgage is secured by the land and building, and the note payable is secured by the equipment. Jason expects that the expenses of administering the liquidation will total P40,000 How much should Jason expect to pay on the accounts payable? a. 240,000 b. 128,000 c. 120,000 d. 96,000 1

ADVANCED FINANCIAL ACCOUNTING AND REPORTING e. 146,000 ____

6. Miguel Corporation owned the following assets when it came out of a bankruptcy:

Inventory Land Buildings Equipment

Book value 200,000 80,000 300,000 400,000

Fair value 160,000 150,000 340,000 250,000

Miguel Corporation had a fresh start reorganization value of P1,000,000. What amount of goodwill should have been recognized in recording the reorganization? a. 20,000 b. 100,000 c. 60,000 d. 210,000 e. 98,000 ____

7. How are assets and liabilities valued on a Statement of Financial Affairs? Assets Liabilities A. Fair value Book value B. Book value Amount required for settlement C. Book value Book value D. Fair value Amount required for settlement E. Net realizable value Amount required for settlement a. b. c. d. e.

Entry A Entry B Entry C Entry D Entry E

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8. Assuming all of the following expenses have priority, in what order are they prioritized? a. Administrative expenses, employee claims for wages, unpaid taxes, claims for the return of customer deposits b. Employee claims for wages, unpaid taxes, administrative expenses, claims for the return of customer deposits c. Unpaid taxes, administrative expenses, employee claims for wages, return of customer deposits d. Administrative expenses, employee claims for wages, claims for the return of customer deposits, unpaid taxes e. Unpaid taxes, return of customer deposits, employee claims for wages, administrative expenses

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9. Which statement is false regarding a plan for reorganization? a. The plan is the heart of every bankruptcy b. The provisions of the plan specify the treatment of all creditors and equity holders upon approval by the Court c. The plan shapes the financial structure of the entity that emerges d. The plan may contain numerous provisions as solutions to financial difficulties e. The plan may contain provisions for changes in the management of the company

____ 10. Which statement is false regarding the acceptance and confirmation of a reorganization plan? a. The plan must be voted on by the creditors and the stockholders of the company b. A separate vote is required of each class of stockholders c. Any class of creditors that is not damaged by a reorganization is assumed to have accepted the plan without voting d. Even if creditors and stockholders approve of the plan, the court can reject the plan e. Acceptance of the plan requires the approval of two-thirds in number of claims and onehalf in dollar amount of creditors that cast votes

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ADVANCED FINANCIAL ACCOUNTING AND REPORTING ____ 11. Agency AA's allotment and Notice of Cash Allocation (NCA) for the year were P5,000,000 and P3,000,000, respectively. Checks issued amounted to P1,500,000. What closing entry should be made for the unused NCA as of year-end? a. Cash - National Treasury, MDS (P1,000,000); Subsidy income from National Government (P1,000,000) b. Subsidy income from National Government (P1,500,000); Cash- National Treasury, MDS (P1,500,000) c. Subsidy income from National Government (P3,500,000); Cash- National Treasury, MDS (P3,500,000) d. Memorandum entry ____ 12. Caring Hospital has the following account balances: Interest income Bad debt expense Unrestricted gifts Charity care Amounts charged to patients Contractual adjustments Revenue from parking spaces

25,000 15,000 70,000 75,000 384,000 90,000 52,000

What is the hospital's net patient service revenue? a. 204,000 b. 219,000 c. 294,000 d. 271,000 ____ 13. USC, a nonprofit university, received the following cash contributions from donors during the year 2014: Unrestricted contributions Contributions restricted by donors for scholarship programs Contributions from a donor who stipulated that the money be spent in accordance to the wishes of the hospital’s board of trustees Contributions restricted by donors for equipment acquisitions

250,000 100,000 75,000 125,000

Assuming the university spent P 75,000 of the donors' contributions for scholarship programs on financing this year' scholars, how much should be included in its current funds revenue for the year ended December 31, 2014? a. 350,000 b. 325,000 c. 400,000 d. 250,000 ____ 14. CC Corp. owns a subsidiary in Japan whose balance sheet in Japanese Yen for the last years follows: December 31, 2013 December 31, 2014 Figures in Yen Assets Cash and Cash equivalents 30,000 25,000 Receivables 122,500 147,500 Inventory 160,000 170,000 Property and Equipment, net 255,000 230,000 Total assets 567,500 572,500 Liabilities and Equity Accounts Payable 55,000 75,000 Long-term debt 322,500 285,000 Common stock 115,000 115,000 Retained earnings 75,000 97,500 Total Liabilities and Equity 567,500 572,500 Relevant exchange rates are (Yen to Peso): 3

ADVANCED FINANCIAL ACCOUNTING AND REPORTING

January 1, 2013 December 31, 2013 December 31, 2014 September 12, 2013

45 42.50 47.50 40

CC formed the subsidiary on January 1, 2013. Income of the subsidiary was earned evenly throughout the years and the subsidiary declared dividends worth ¥ 15,000 on September 12, 2013 and none were declared during 2014. How much is the cumulative translation adjustment for 2014? a. 625,000 b. 568,750 c. 1,006,250 d. 875,000 ____ 15. On October 31, 2014, Ideagem Philippines took delivery from a British firm of inventory costing £725,000. Payment is due on January 31, 2015. At the same time, Ideagem paid P8,250 cash to acquire a 90-day call option for £725,000.

Strike Price Spot Rate Forward Rate Fair value of Call Option

October 31, 2014 3.60 3.61 3.72 8,250

December 31, 2014 3.60 3.62 3.77 17,000

January 31, 2015 3.60 3.64 3.78 ?

Given the information above, compute for the following: Foreign exchange gain or loss on option contract due to change in time value on December 31,2014 if changes in time value will be excluded from the assessment if hedge effectiveness, and foreign exchange gain or loss due to change in intrinsic value on January 31, 2015 if changes in time value will be excluded from the assessment of hedge effectiveness. a. 1,500 gain; 14,500 gain b. 5,250 loss; 14,000 gain c. 5,250 loss; 7,250 gain d. 1,500 gain; 7,250 gain ____ 16. On May 1, 2014, Janice Company anticipated the purchase of 85,000 units merchandise from a foreign vendor. The purchase would probably occur on October 28, 2014 and require the payment of 1,250,000 foreign currencies (FC). On May 1, 2014, the company purchased a call option to buy 1,250,000 FC at a strike price of 1FC= 0.27. An option premium of P14,000 was paid. Changes in the value of the option will be excluded from the assessment of hedge effectiveness. For the year 2014, the following rates are as follows:

Spot Rate Strike Price FV of call option

May 1 0.25 0.27 14,000

May 31 0.28 0.27 17,500

June 30 0.30 0.27 39,000

October 28 0.32 0.27 ?

The foreign exchange gain (loss) on option contract to be recognized in equity on June 30 a. (37,500) b. 25,000 c. (25,000) d. 37,500

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ADVANCED FINANCIAL ACCOUNTING AND REPORTING ____ 17. On April 1, 2014, AV Corp. acquired 80% of the outstanding stocks of SR Corp. for P2,500,000. SR Corp.'s stockholders' equity at the end of 2014 is as follows: Common stock, P80 par P2, 000,000, additional paid-in capital P500,000, and Retained Earnings P750,000. The fair value of the non- controlling interest is P685,000. All the assets of SR were fairly valued except for its inventories which are undervalued by P90,000, Land which is undervalued by P50,000, and the Patent which is undervalued by P125,000. The said patent has a remaining useful life of five years. Both companies use the straight line method for depreciation and amortization. Shareholders' equity of AV Corp. on December 31,2014 is composed of: Common stock, P50 par P3,500,000, APIC P750,000, and retained earnings P2,460,000. Goodwill, if any, should be decreased by P22,500 every year-end. No additional issuance of capital stocks occurred. During 2015, AV and SR started selling inventories to each other. Of the P2, 850,000 total sales of AV, 25% were sold to SR, and SR is also sold inventories to AV at a sales price of P250, 000. Gross profit rates of AV and SR are 30% of sales and 20% above cost, respectively. As of year- end, P225, 000 worth of inventories from SR are still left with AV and inventories amounting to P75,000 from AV are still left with SR. Also, on October 31, 2015, SR sold AV a piece of equipment for P350,000. The book value of the said equipment was P275,000. The gain was reflected in the income statement of SR. The equipment has remaining useful life of four years from the date of sale. For the year ended December 31,2015, compute for: Non- controlling interest in the net income of subsidiary a. 79,630 b. 76,750 c. 67,525 d. 75, 625 ____ 18. SLEX enters into an arrangement under which it will build and operate a toll bridge. Company B is entitled to charge users for driving over the toll bridge for the period from the completion of construction until 1 million cars have driven across the bridge, at which point the concession arrangement will end. SLEX incurred a total cost of P1 billion for the construction of the toll bridge. How shall SLEX account for its infrastructure asset? a. It shall be classified and treated as financial asset b. It shall be bifurcated into intangible asset and financial asset c. It shall be classified and treated as intangible asset to be amortized using straight line method of presumed life of 10 years. d. It shall be classified and treated as intangible asset to be amortized on the basis of usage or unit method of 1 million cars. ____ 19. Which of the following transactions will increase the normal balance of home office account in the separate statement of financial position of the branch? a. Collection by the home office of branch’s receivable b. Debit memo received from the home office c. Credit memo issued by the home office d. Payment by the branch of home office’s loans payable ____ 20. On December 31, 2017, the home office of Trisha Supply Company recorded a shipment of merchandise to its Glenda branch as follows: Glenda branch Shipments to Glenda branch Unrealized profit in Glenda branch inventory Cash (for freight charges)

30,000 25,000 4,000 1,000

The Glenda branch sells 40% of the merchandise to outside entities during the rest of December 31, 2017. The books of the home office and Trisha branches are closed on December 31 of each year. On January 5, 2018, the Glenda branch transfers half of the original shipments to the Sandy branch and the Glenda branch pays P500 freight on the shipment. At what amounts should the 60% of the merchandise remaining unsold at December 31, 2017 be included in the inventory of the Glenda branch on December 31, 2017? a. 15,000 b. 17,400 c. 15,600 5

ADVANCED FINANCIAL ACCOUNTING AND REPORTING d. 18,000 ____ 21. When the outcome of the construction contract can be estimated reliably, which of the following accounting treatment is proper? a. The construction revenue shall be recognized only to the extent of contract costs incurred that it is probable will be recoverable. b. The construction costs shall be deferred without reference to the stage of completion of the contract activity at the end of the reporting period. c. When it is probable that total contract costs will exceed total contract revenue, the expected loss shall be recognized as an expense immediately without reference to the stage of completion of the contract activity at the end of the reporting period. d. The balance construction in progress account will be equal to cumulative construction revenue recognized even if it is probable that total contract costs will exceed total contract revenue. ____ 22. Ana’s Inc. granted a franchise to Mocca for the Makati area. The franchisee was to pay a franchisee of P500,000, payable in five equal annual installments starting with the payment upon signing of the agreement. The franchise was to pay monthly 3% of gross sales of the preceding month. Should the operations of the outlet prove to be unprofitable, the franchise may be canceled with whatever obligations owing Ana’s, Inc. in connection with the P500,000 franchise fee waived. The prevailing interest rate is 14%. The first year generated a gross sales of P2,500,000. What is the amount of unearned franchisee fee after the first year of operations? a. 575,000 b. 291,400 c. 391,400 d. 500,000 ____ 23. Baste Company owns an 80% controlling interest in the Bastion Company. Bastion regularly sells merchandise to Baste, which then sold to outside parties. The gross profit on all such sales is 40%. On January 1, 2016, Baste sold land and a building to Bastion. The value of the parcel is 20% to land and 80% to structures. The data are the following:

Internally generated net income, 2016 Internally generated net income, 2017 Intercompany merchandise sales, 2016 Intercompany merchandise sales, 2017 Intercompany inventory, December 31, 2016 Intercompany inventory, December 31, 2017 Cost of real estate sold on January 1, 2016 Sales price of real estate on January 1, 2016 Depreciable life of building

Baste 1,560,000 10,320,000

Bastion 750,000 705,000 300,000 360,000 45,000 60,000

1,800,000 2,400,000 20 years

For 2016, what is the consolidated comprehensive income attributable to controlling interest? a. 1,569,600 b. 1,575,000 c. 1,875,000 d. 1,597,500 ____ 24. Corporation Lizzy acquired 2,000 shares of the voting stock of Corporation Lizette in the open market at P48 per share. Direct costs associated with the acquisition total of P4,000. Balance sheets of both companies on January 1, 2017, immediately after the acquisition of shares of Lizzy, are as follows:

Cash Temporary investments Receivables (net) Investment in Corporation Lizette Machinery and equipment (net) Land

Corporation Lizzy 50,000 80,000 95,000 100,000 100,000 50,000

Corporation Lizette 10,000 40,000 10,000 45,000 20,000 6

ADVANCED FINANCIAL ACCOUNTING AND REPORTING Total assets Accounts payable Common stock (P20 par) Excess over par Retained earnings Total liabilities and SHE

475,000 75,000 250,000 90,000 60,000 475,000

125,000 25,000 50,000 30,000 20,000 125,000

The fair values of Lizzy and Lizette assets on January 1m 2017 are presented below. Liabilities of both companies are properly valued at their respective book value: Lizzy 50,000 100,000 95,000 100,000 110,000 100,000 555,000

Cash Temporary investment Receivables (net) Investment in Corporation Lizette Machinery Land

Lizette 10,000 50,000 8,000 40,000 30,000 138,000

The total consolidated assets must be a. 520,000 b. 613,000 c. 522,600 d. 518,600 ____ 25. Joel and Jonats formed a joint venture on January 1, 2013 to operate two stores to be managed by each venturers/participants. They agreed to contribute cash as follows: Joel Jonats

30,000 20,000

Profits and losses are to be divided in the capital ratio. All venture transactions are for cash. Cash receipt and disbursements of the business during the 4-month period handled through the participant’s venturer’s bank accounts are as follows:

Receipts Disbursements

Joel 78,920 62,275

Jonats 65,425 70,695

On April 30, the remaining non-cash venture assets in the hands of the participants/venturers were sold for P60,000. The venture is terminated and settled is made between Joel and Jonats. The P60,000 is divided between the participants/venturers as follows: a. Joel (16,180); Jonats (43,820) b. Joel (21,905); Jonats (38,095) c. Joel (26,180); Jonats (33,820) d. Joel (48,095); Jonats (11,905) ____ 26. Caris Philippines, a private not-for-profit health care entity located in Quezon City, charged a patient of P8,600 for services. It actually billed this amount to the patient’s third-party payor. The third-party payor submitted a check for P7,900 with a note stating that the “reasonable amount is paid in full per contract”. Which of the following statements is true? a. The patient is responsible for paying the remaining P700. b. The health-care facility will rebill the third-party payor for the remaining P700. c. The health-care facility recorded the P700 as a contractual adjustment that it will not collect. d. The third-party payor retained the P700 and will convey it to the health-care facility at the start of the next fiscal period. ____ 27. Which of the following is correct? 7

ADVANCED FINANCIAL ACCOUNTING AND REPORTING a. Where the joint operators have designed the joint arrangement so that its activities primarily aim to provide the parties with an output it will be classified as a joint control. b. All joint arrangements are not structured through a separate vehicle are classified as joint ventures. c. For a joint venture, the rights pertain to the rights and obligations associated with individual assets are liabilities, where with a joint operation, the rights and obligations pertain to the net assets. d. In considering the legal form of the separate vehicle if the legal form establishes right to individual assets and obligations, the arrangement is a joint operation. If the legal form established right to net assets of the arrangement, then the arrangement is a joint venture. ____ 28. Rommel, Inc acquired a 60% interest in Mikee Company several years ago. During 2014, Mikee sold inventory costing P75,000 to Rommel for P100,000. A total of 16% of this inventory was not sold to outsider until 2015. During 2015, Mikee sold inventory costing P96,000 to Rommel for P120,000. A total of 35% of this inventory was not sold to outsiders until 2016. In 2015, Rommel reported cost of sales of P380,000 while Mikee reported P210,000. What is the consolidated cost of sales? a. 594,400 b. 473,440 c. 474,400 d. 522,400 ____ 29. Omni Company uses a job order cost system and has two production departments, T and P. Budgeted information for the year is as follows:

Machine hours Direct materials Direct labor Factory overhead

Department T 500 P400,000 350,000 455,000

Department P 25,000 P600,000 100,000 300,000

Both Department T and Department P apply factory overhead to production orders through the use of predetermined factory overhead application rates, which are based upon the yearly budget. Department T applies factory overhead on a direct labor cost basis while Department P does so on a machine hours basis. Actual information relating to Job 194 during the year was as follows:

Machine hours Direct materials Direct labor Factory overhead control

Department T 150 P18,000 P11,000 P14,500

Department P 2,500

Total 2,650

P4,500 P24,600

P15,500 P39,100

If Omni Company contracted to sell Job 194 for P100,000, and if estimated selling and administrative expenses are 5% of the selling price, what is the estimated profit on Job 194? a. 17,200 b. 22,400 c. 28,600 d. 33,700 ____ 30. Which of the following is true? a. The EUP computed under the weighted average costing may be equal with the EUP arrived at using FIFO costing. b. In a process cost system, abnormal lost units if discreet are only extended to the unit column but not to the EUP column, c. If loss is continuous and normal, lost units are not included in the quality schedule of the cost of production report d. Unit material cost is computed by taking total material costs charged to the department for the period and dividing by the physical units in the process during the period. ____ 31. The following information was available from Villaflor Hospital’s financial records on donor contributions for various hospital expenses. The donations were received during the year-end December 31, 2017. The hospital is a private non-profit organization. 8

ADVANCED FINANCIAL ACCOUNTING AND REPORTING Not under the authority of NPO’s Board of Trustees Expensed Not expensed Under the authority of NPO’s Board of Trustees Expanded Not expanded

100,000 300,000 600,000 75,000

How much total unrestricted revenues were recognized in the statement of activities of Villaflor in 2017? a. 600,000 b. 775,000 c. 700,000 d. 675,000 ____ 32. Which of the following statements is true? a. Applied overhead consists of estimated activity times predetermined overhead rate. b. In order to obtain more accurate product costs, many companies now allocate overhead using just-in-time method c. If actual overhead is less than applied overhead, upon closing, overhead is underapplied and cost of goods sold is credited d. Actual overhead exceeds applied overhead and the amount is immaterial, upon closing, overhead is underapplied and cost of goods sold will increase. ____ 33. The operator of the BOT arrangement shall recognize and measure revenue in accordance with a. PAS 11 b. PAS 18 c. PAS 23 d. PAS 11 and PAS 18 ____ 34. Magic granted a franchise to Major for the Makati area. The franchisee was to pay a franchisee of P250,000, payable in five equal annual installments starting with the payment upon signing of the agreement. The franchise was to pay monthly 3% of gross sales of the preceding month. Should the operations of the outlet prove to be unprofitable, the franchise may be canceled with whatever obligations owing Magic in connection with the P250,000 franchise fee waived. The prevailing interest rate is 14%. The first year generated a gross sales of P1,250,000. What is the amount of unearned franchise fee after the first year of operations? a. 287,500 b. 145,700 c. 195,700 d. 250,000 ____ 35. DMCI has used the cost-to-cost percentage of completion method of recognizing profits. Tony assumed leadership of the business after the recent death of his father Ton. In reviewing the records, Tony finds the following information regarding a recently completed building project for which the total contract price was P50 million. Construction in progress account balance 2015 Construction cost incurred during 2017 Gross profit (loss) recognized in 2015 Gross profit (loss) recognized in 2016 Gross profit (loss) recognized in 2017

10,000,000 20,500,000 1,000,000 3,500,000 (500,000)

How much cost was incurred in 2016? a. 16,500,000 b. 25,500,000 c. 9,000,000 d. 46,000,000 ____ 36. Which of the following terms is not descriptive of SMEs? a. private entities b. listed companies c. small and medium-sized entities 9

ADVANCED FINANCIAL ACCOUNTING AND REPORTING d. non-publicly accountable entities ____ 37. Which of the following shall be treated as part of PPE according to PAS 36 on intangible assets? a. operating systems b. application software c. digitally stored database d. outsourced online program ____ 38. A chemical company manufactures joint products Pep and Vim, and a by-product Zest. Costs are assigned to the joint products by the market value method, which considers further processing costs in subsequent operations. For allocating joint costs to the by-product, the market value or reversal cost method is used. The total manufacturing costs for 10,000 units were P172,000 during the quarter. Production and cost date follow:

Units produced Sales price per unit Further processing cost per unit Selling and administrative expense per unit Operating profit per unit

Pep 5,000 P50 10

Vim 4,000 P40 5

Zest 1,000 P5 2 1

The value of Zest to be deducted from the joint cost is a. 5,000 b. 3,000 c. 2,000 d. 0 ____ 39. Which choice correctly describes the following statements? 1

2

3

a. b. c. d.

If an entity cannot distinguish the research phase from the development phase, it should treat an expenditure on a project as if it were incurred in the research phase only and recognize an expense accordingly. If it is difficult to distinguish between a change in accounting estimate and a change in accounting policy, then the change is treated as a change in estimate and must be accounted for currently and prospectively. In rare circumstances, when a retirement benefit plan has attributes of both defined benefit plan and defined contribution plan, the plan is deemed as a defined contribution plan. Only Statement I is false Only Statement II is true Only Statement III is true Only Statement III is false.

____ 40. The Ezra Company acquired an 80% interest in the Elaine Company when Elaine’s equity comprised share capital of P100,000 and retained earnings of P500,000. Elaine’s current statement of financial position shows share capital of P100,000, a revaluation reserve of P400,000 and retained earnings of P1,400,000. Under PAS 27, Consolidated and Separate Financial Statements, what figure in respect of Elaine’s retained earnings should be included in the consolidated statement of financial position? a. 720,000 b. 1,440,000 c. 1,040,000 d. 1,520,000 41. On December 30, 2016, Harold Museum, a not-for-profit organization, received a P7,000,000 donation of Genie Co. shares with donor-stipulated requirements as follows: I. II. III.

Shares valued at P5,000,000 are to be sold, with the proceeds used to erect a public viewing building. Shares valued at P2,000,000 are to be retained, with the dividends used to support current operations. As a consequence of the receipt of the Day shares, how much should Harold report as temporarily restricted net assets on its 2016 statement of financial position (balance sheet)? 10

ADVANCED FINANCIAL ACCOUNTING AND REPORTING a. b. c. d.

P0 P2,000,000 P5,000,000 P7,000,000

42. Which of the following are the issues not addressed in IFRIC Interpretation 16 Hedges of a Net Investment in a Foreign Operation? a. b. c. d.

the nature of the hedged risk and the amount of the hedged item for which a hedging relationship may be designated where in a group the hedging instrument can be held what amounts should be reclassified from equity to profit or loss as reclassification adjustments on disposal of the foreign operation significance of financial instruments for the entity's financial position and performance.

43. HARLEY QUINN Hospital, a nonprofit affiliated with a religious group, reported the following information for the year ended December 31, 2016:    

Gross patient service revenue at the hospital’s full established rates Bad debts expense Contractual adjustment with the third-party payors Allowance for discounts to hospital employees

980,000 10,000 115,000 15,000

On the hospital’s statement of operations for the year ended December 31, 2016, what amount should be reported as net patient service revenue? a. b. c. d.

P840,000 P865,000 P850,000 P955,000

44. A subsidiary’s fiscal year-end is June 30 and the parent’s fiscal year-end is December 31. The effect of this difference is significant to the consolidated financial statements. In preparing consolidated financial statements a. The subsidiary should be consolidated using more recent interim financial statements. b. The subsidiary should not be consolidated but its financial results are disclosed in the notes to the consolidated financial statements. c. The subsidiary should be consolidated using its June 30 annual financial statements d. The subsidiary should not be consolidated but accounted for by the equity method in the consolidated financial statements. 45. On October 31, 2015, Pyramid Philippines took delivery from a British firm of inventory costing £725,000. Payment is due on January 31, 2016. At the same time, Pyramid paid P8,250 cash to acquire a 90-day call option for £725,000.

Strike Price Spot Rate Forward Rate FV of Call Option

October 31, 2015 P 3.60 3.61 3.72 P 8,250

December 31, 2015 P 3.60 3.62 3.77 P 17,000

January 31, 2016 P 3.60 3.64 3.78 ?

Given the information above, compute for the following: Foreign exchange gain or loss on option contract due to change in time value on December 31, 2015 if changes in the time value will be excluded from the assessment of hedge effectiveness, and foreign exchange gain or loss due to change in intrinsic value on January 31, 2016 if changes in the time value will be excluded from the assessment of hedge effectiveness. a. b.

P1,500 gain ; P7,250 gain P1,500 gain ; P14,500 gain 11

ADVANCED FINANCIAL ACCOUNTING AND REPORTING c. d.

P5,250 loss ; P7,250 gain P5,250 loss ; P14,500 gain

46. John Company's profit before tax for the six months ended June 30, 2014 was P5,000,000. However, the business is seasonal and profit before tax for the six months ended December 31, 2014 is almost certain to be P9,000,000. Profit before tax equals taxable profit for this entity. John operates in a country where income tax is at a rate of 30% if annual profit is below P11,000,000 and a rate of 35% where annual profit exceeds P 1 1,000,000. These tax rates apply to the entire profit for the year. What should be the income tax expense in John's interim financial statements for the half year ended June 30, 2014? a. b. c. d.

2,100,000 1,750,000 1,500,000 2,450,000

47. The doctrine of marshalling of assets a. b. c. d.

Is applicable only if the partnership is insolvent. Allows partners to first contribute personal assets to unsatisfied partnership creditors. Is applicable if either the partnership is insolvent or individual partners are insolvent. Amount owed to personal creditors and to the partnership for debit capital balances are shared proportionately from the personal assets of the partners.

48. Given the following information (For ¥1):

Transaction Date Balance Sheet Date Settlement Date

Transaction Date Balance Sheet Date Settlement Date

120-day =43 P 42 45

SPOT RATES Bid Offer =43 P =45 P 48 49 49 55 FORWARD RATES 90-day 60-day =45 P =44 P 46 47 48 49

30-day =46 P 49 52

On October 1, 2016, Tim McGraw Co. sold merchandise worth ¥2,750 to a Japanese company, payable on January 31, 2017. To hedge this foreign currency exposure, Tim McGraw contracted to sell ¥2,750 on October 1, 2016 to be delivered on January 31, 2017. On December 31, 2016, the balance sheet date, how much is the net forex gain/loss from this hedging activity? a. b. c. d.

P =2,750 loss P =2,750 gain P =30,250 loss P =30,250 gain

49. Which of the following is incorrect in recognizing emission rights and associated liabilities acquired in a business combination? a. b. c. d.

In a business combination, the emission rights of the acquiree, regardless of how the acquiree received these rights, are rights purchased by the acquirer. They are treated in the same manner as emission rights purchased directly by the entity. Since net liability approach is permitted for purchased emission rights and therefore can be applied to emission rights of the acquiree in a business combination The acquirer recognizes the emission rights held by the acquiree as an asset at fair value and recognizes a provision for the actual emissions made up to that date at fair value.

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ADVANCED FINANCIAL ACCOUNTING AND REPORTING 50. Which is not a basic financial report that non-profit organization must prepare? a. b. c. d.

Statement of Financial Position Statement of Comprehensive Income Statement of Activity Statement of Cash Flow

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ADVANCED FINANCIAL ACCOUNTING AND REPORTING ADVANCED FINANCIAL ACCOUNTING AND REPORTING Answer Key MULTIPLE CHOICE 1. 2. 3. 4. 5.

6. 7. 8. 9. 10. 11. 12.

ANS: D TOP: Corporate liquidation ANS: C TOP: Corporate liquidation ANS: A TOP: Corporate liquidation ANS: B TOP: Corporate liquidation ANS: D SOL: Free assets P220,000 - priority claims P100,000 = P120,000 P120,000/P300,000 unsecured = payment of 40% on unsecured dollars. 40% x P240,000 A/P = P96,000 TOP: Corporate liquidation ANS: B TOP: Corporate liquidation ANS: E TOP: Corporate liquidation ANS: D TOP: Corporate liquidation ANS: A TOP: Corporate liquidation ANS: E TOP: Corporate liquidation ANS: B TOP: Government accounting ANS: C SOL: Amounts discharged to patients 384,000 Contractual adjustments (90,000) Net patient service revenue 294,000

TOP: Not for profit organizations 13. ANS: C SOL: Unrestricted contributions Contributions from a donor who stipulated that the money be spent in accordance to he wishes to the hospital’s board of trustees Contributions used for scholarship Current fund revenue

250,000 75,000 75,000 400,000

TOP: Not for profit organizations 14. ANS: B SOL: ¥ Net assets, 1/1/10 Net income, 2013 Div. declared, 9/1/10 Net income, 2014 Net assets translated using the rate at the end of the year Exchange difference (Translation adjustment)

115,000 90,000 (15,000)

212,500

Exchange rate 45 43.75 40 45

47.50

Peso 5,175,000 3,937,500 (600,000) 1,012,500 9,525,000 10,093,750 568,750

TOP: Foreign currency transactions and translations 15. ANS: A SOL: October 31, 2014 December 31, 2014 January 31, 2014 Intrinsic value 7,250 14,500 29,000 Time value 1,000 2,500 14

ADVANCED FINANCIAL ACCOUNTING AND REPORTING

12/31/11 Time value= 1,500 gain 1/31/11 intrinsic value= 14,500 gain TOP: Derivatives 16. ANS: D SOL: May 1 Intrinsic value Time value

0 14,000

May 31 June 30 12,500 37,500 5,000 1,500

Equity =P37,500 gain Earnings= P3,500 loss (5,000 - 1,500)

17. 18. 19. 20.

TOP: Foreign currency transactions and translations ANS: C TOP: Business combination ANS: D TOP: Joint Venture ANS: B TOP: Home Office & Branch Accounting ANS: B SOL: Shipments from home office 29,000 Freight in 1,000 Total available for sale 30,000 60% Ending inventory of branch 18,000 Shipments from home office Over allowance Shipments from home office at cost Freight Total available for sale at cost Ending inventory of branch at cost

29,000 (4,000) 25,000 1,000 26,000 60% 15,600

TOP: Home Office & Branch Accounting 21. ANS: C TOP: Construction Accounting 22. ANS: B SOL: Unearned franchise fee: p100,000 x 2.914 = P291,400 Since the franchise maybe canceled with any outstanding balance to be waived, then that amount still to be collected is considered unearned. TOP: Franchise Accounting 23. ANS: A SOL: Internally generated net income, 2016 - parent Gain on sale of real estate, 1/1/2016 Realized gain, 12/31/2016 ((80% x P600,000)/20) Adjusted internally generated net income Internally generated net income, 2016 Subsidiary Unrealized profit in ending inventory (40% x P45,000) Consolidated net income NCI net income (20% x P732,000) Attributable to controlling interest

1,560,000 (60,000) 24,000 984,000 750,000 (18,000)

732,000 1,716,000 146,400 1,569,600

TOP: Consolidation After Acquisition 15

ADVANCED FINANCIAL ACCOUNTING AND REPORTING 24. ANS: D SOL: Total consolidated assets must be the total book value of Lizzy excluding investment in Lizette, and fair market value of Lizette plus goodwill from business combination, if any. Percent of control: (2,000/50,000)/20 = 80% Cost of investment Fair value of stocks issues (2,000 x 48) Fair value of investment (138,000 - 25,000) x 80% Goodwill

96,000 90,400 5,600

Total consolidated assets Book value of the assets of Lizzy excluding investment (475,000 - 100,000) Fair value of the assets of Lizette Goodwill from the business combination Total

375,000 138,000 5,600 518,600

TOP: Consolidation After Acquisition 25. ANS: C SOL: Total receipts 204,345 Disbursement 132,970 Profit 71,375

Capital P/S Total Cash held Settlement

Joel 30,000 42,825 72,825 46,645 26,180

Jonats 20,000 28,550 48,550 14,730 33,820

TOP: Joint Venture 26. ANS: C TOP: Not for Profit Organizations 27. ANS: D TOP: Joint Venture 28. ANS: C SOL: Cost of sales of Rommel Cost of sales of Mikee Less: Intercompany sales 2015 Mark-up on beginning inventory (100,000 - 75,000) x 16% Add: Mark-up on ending inventory (120,000 - 96,000) x 35% Consolidated cost of sales TOP: Consolidation After Acquisition 29. ANS: A SOL: Selling price Cost of goods sold: Direct materials cost Direct labor cost (11,000 + 4,500) Factory overhead Dept. T (455,000/350,000 x 11,000) Dept. P (300,000/25,000 x 2,500) Selling and administrative expenses (5% x 100,00) Net profit

380,000 210,000 (120,000) (4,000) 8,400 474,400

100,000 18,000 15,500 14,300 30,000

77,800 5,000 17,200 16

ADVANCED FINANCIAL ACCOUNTING AND REPORTING

30. 31. 32. 33. 34. 35.

TOP: Job Order Costing ANS: A TOP: Process Costing ANS: B TOP: Not for Profit Organizations ANS: D TOP: Activity Based Costing ANS: D TOP: Service Concession ANS: B TOP: Franchise Accounting ANS: A SOL: Contract price Gross profit recognized: 2015 1,000,000 2016 3,000,000 2017 (500,000) Total cost incurred Less: Incurred in 2015 Construction in process 10,000,000 Less: Gross profit recognized (1,000,000) Incurred in 2017 Cost incurred in 2016

5,000,000

4,000,000 46,000,000

(9,000,000) (20,500,000) 16,500,000

TOP: Construction Accounting 36. ANS: B TOP: SME 37. ANS: D TOP: Property, Plant and Equipment 38. ANS: C SOL: MV of by-product Zest 5 Less: Selling and administrative expense 2 Operating profit 1 Share in joint cost per unit 2 x Units produced 1,000 Share in joint cost 2,000 TOP: Joint and by-Product Costing 39. ANS: B TOP: Retirement Benefits 40. ANS: A SOL: This is the parent company’s share of the post acquisition retained earnings of the subsidiary. This is determined by deducting the parent company’s share of the retained earnings of the subsidiary at the date of acquisition from the parent company’s share of the retained earnings of the subsidiary at the end of the current reporting period. Elaine’s retained earnings, date of acquisition Less: Elaine’s retained earnings, end of the current reporting period x Controlling interest % Elaine’s retained earnings included in the consolidated financial position

500,000 1,400,000 900,000 80% 720,000

TOP: Consolidation After Acquisition 41. Answer: C FASB ASC 958 requires classification of an organization’s net assets and its revenues, expenses, gains, and losses based on the existence or absence of donor-imposed restrictions. It requires that the amount for each of three classes of net assets—permanently restricted, temporarily restricted, and unrestricted—be displayed in a statement of financial position and that the amounts of change in each of those classes of net assets be displayed in a statement of activities. A temporary restriction is a donor-imposed restriction that permits the donee organization to use up or expend the donated assets as specified; it is satisfied either by the passage of time or by actions of the organizations involved.

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ADVANCED FINANCIAL ACCOUNTING AND REPORTING Accordingly, the P5,000,000 contribution of Genie Co. shares represents temporarily restricted net assets until the shares are sold and the proceeds used to erect a public viewing building. The P2,000,000 contribution of Genie Co. shares represents permanently restricted net assets because the shares are to be retained permanently. 42. Answer: D Letter D is one of the objectives of IFRS 7 Financial Instruments: Disclosures. 43. Answer: C Health Care Organizations, provides that for contractual adjustments and discounts is recognized on the accrual basis and deducted from gross patient service revenue to determine net patient revenue. Bad debts expense is reported as an operating expense, not as a contra to gross patient service revenue. Thus: Gross patient service revenue Contractual adjustments Allowance for discounts - employees Net Patient Service Revenue

980,000 (115,000) (15,000) 850,000

44. Answer: A Appendix B of PFRS 10, paragraph B92-93 states that: “B92 The financial statements of the parent and its subsidiaries used in the preparation of the consolidated financial statements shall have the same reporting date. When the end of the reporting period of the parent is different from that of a subsidiary, the subsidiary prepares, for consolidation purposes, additional financial information as of the same date as the financial statements of the parent to enable the parent to consolidate the financial information of the subsidiary, unless it is impracticable to do so. B93 If it is impracticable to do so, the parent shall consolidate the financial information of the subsidiary using the most recent financial statements of the subsidiary adjusted for the effects of significant transactions or events that occur between the date of those financial statements and the date of the consolidated financial statements. In any case, the difference between the date of the subsidiary's financial statements and that of the consolidated financial statements shall be no more than three months, and the length of the reporting periods and any difference between the dates of the financial statements shall be the same from period to period.” Accordingly, the financial statements of the subsidiary should be adjusted at least as of September 30. 45. Answer: B Intrinsic Value Time Value

Oct. 31, 2015 7,250 1,000

Dec. 31, 2015 14,500 2,500

Jan. 31, 2016 29,000 -

12/31/11 Time value = 1,500 gain 1/31/12 Intrinsic value = 14,500 gain 46. Answer: B Income tax expense for half year ended 6/30/2014(5,000,000 x 35%) Profit from January 1 to June 30, 2014 Profit from July 1 to December 31, 2014 Expected profit for the year 47.

1,750,000 5,000,000 9,000,000 14,000,000

Answer: C The doctrine of marshalling of assets applicable if either the partnership is insolvent or individual partners are insolvent.

48. Answer: A Solution: Hedged item: ¥2,750 * (P48 – P43) = P13,750 gain Hedging instrument: ¥2,750 * (P43 – P49) = P16,500 loss Net loss: P2,750 49. Answer: C Paragraph 11 of IFRS 3 states that to qualify for recognition, the identifiable assets acquired and liability assumed must meet the definitions of assets and liabilities in The Conceptual Framework for Financial Reporting at the acquisition date. Paragraph 18 to IFRS 3 states that the acquirer measures the identifiable assets acquired and the liabilities assumed at their acquisition-date fair values.

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ADVANCED FINANCIAL ACCOUNTING AND REPORTING Emission rights meet the recognition criteria of an identifiable asset and are therefore recognized at the acquisition date. They are intangible assets and therefore under paragraphs 39 and 40 of IAS 38 Intangible Assets are valued by reference to an active market as defined in IAS 38. If no active market exists, the emission rights are valued on a basis that reflects the amount the acquirer would have paid for the asset in an arm’s length transaction between knowledgeable, willing parties, based on the best information available. 50. Answer: B The basic financial reports of a nonprofit organization include: Statement of financial position (also called a balance sheet): This summarizes the assets, liabilities and net assets of the organization at a specified date. It’s a snapshot of the organization’s financial position on that date. Statement of activity (also called an income and expense statement): This reports the organization’s financial activity over a period of time. It shows income minus expenses, which results in either a profit or a loss. Statement of cash flow: This summarizes the resources that become available to the organization during the reporting period and the uses made of such resources. It’s especially useful in real-time because it reports income that has been received and expenses that have been paid. A statement of projected cash flow is helpful for the board and organization to be able to anticipate any shortfalls for planning purposes. Statement of functional expenses: Reports all expenses as related either to program services or to supporting services. Expenses under program services are shown divided among the various programs. Expenses under supporting services are generally divided between (1) management and general expenses and (2) fundraising expenses.

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ADVANCED FINANCIAL ACCOUNTING AND REPORTING

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