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 ",000,000
#ccounts recei$able 1%,000,000
&n$entory 10,000,000
'roperty, plant and e(uipment 2),000,000
#ccounts payable *,000,000
&ncome tax payable ",000,000
'reference share capital 3,000,000
+rdinary share capital 1),000,000
hare premium %,000,000
-etained earnings . /anuary 1 *,000,000
 et sales and other re$enue 0,000,000
!ost of goods sold %,000,000
xpenses 12,000,000
&ncome tax expense 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 2*,200,000
  b 2*,700,000
c 2*,)00,000
  d 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 %0,000,000
 b 37,000,000
c %),000,000
d %2,000,000
 'age 2

SOLUTION - PROBLEM 1

Ques!"# 1 A#s$e% A

!ash ",000,000
#ccounts recei$able 1%,000,000
&n$entory ;10,000,000  )00,000  300,000< *,200,000
Total current assets 2*,200,000

Ques!"# 2 A#s$e% C

 et sales and other re$enue 0,000,000

!ost of goods sold ; %,000,000<

xpenses ; 12,000,000<
&ncome before tax 20,000,000

Tax expense ;304 x 20,000,000< ; ",000,000<

 et income 1%,000,000

Tax expense ",000,000

'ayment during year ;),000,000<

&ncome tax payable 1,000,000

#ccounts payable ,200,000

&ncome tax payable 1,000,000
-edeemable preference 3,000,000
Total current liabilities 12,200,000

#ccounts payable per boo= *,000,000

>oods in transit 5+6 destination ; )00,000<

>oods held on consignment ; 300,000<
#djusted accounts payable ,200,000

Ques!"# & A#s$e% B

 et income 1%,000,000

Ques!"# ' A#s$e% D

+rdinary share capital 1),000,000

hare premium %,000,000
-etained earnings 23,000,000
Total shareholders: e(uity %2,000,000

-etained earnings . /anuary 1 *,000,000

 et income 1%,000,000
Total retained earnings 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 )00,000
#ccounts recei$able 2,)00,000
&n$entory 2,000,000
'repaid expenses 100,000
Total current assets ),100,000
!ash on hand including customer postdated chec= of '20,000 and employee
&+@ of '10,000 130,000
!ash
!ash in ban=
ban= (e% )*#+ s*e,e#   ;outstanding chec=s on December 31,
2017, '70,000< 370,000
Total cash )00,000
!ustomers: debit balances, net of customer deposit of ')0,000 1,*00,000

#llowance for doubtful accounts ; 1)

1)0,000<
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 7)0,000
Total accounts recei$able 2,)00,000

1 8hat
8hat is
is the
the adju
adjuste
sted
d cash
cash bala
balance
nce99
a )00,000
 b %70,000
c %30,000
d %00,000

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

a 1,*70,000
 b 1,20,000
c 1,00,000
d 1,*)0,000

3 8hat
8hat is
is the
the adju
adjuste
sted
d in$en
in$entor
tory9
y9
a 2,000,000
 b 2,37),000
c 2,)00,000
d 2,7)0,000

% 8hat total
total amount
amount of current
current assets
assets should
should be reporte
reported9
d9
a %,*00,000
 b %,30,000
c %,70,000
d %,"30,000
 'age %

SOLUTION – PROBLEM 2

Ques!"# 1 A#s$e% D

!ash on hand 130,000

!ustomer postdated chec= ; 20,000<

mployee &+@ ; 10,000<
#djusted cash on hand 100,000

!ash in ban= per ban= statement 370,000

+utstanding chec=s ; 70,000< 300,000

#djusted cash balance %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 1,*70,000

#llowance for doubtful accounts ; 1)0,000<

 et realiAable $alue 1,20,000

Ques!"# & A#s$e% C

&n$entory per boo= 2,000,000

@ndeli$ered goods incorrectly excluded from in$entory ;7)0,000 B 1)04< )00,000
#djusted in$entory 2,)00,000

Ques!"# ' A#s$e% B

!ash %00,000
#ccounts recei$able, net of allowance 1,20,000
#d$ances to employee  &+@ 10,000
&n$entory 2,)00,000
'repaid expenses 100,000
Total current assets %,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 *,)00,000

!ost of goods sold %,000,000
elling expenses 1,000,000
#dministrati$e expenses 1,200,000
&nterest expense 700,000
>ain from expropriation of land )00,000
&ncome tax 00,000
&ncome from discontinued operations "00,000
@nrealiAed gain on e(uity in$estment at 5C+!& *00,000
@nrealiAed loss on futures contract designated as a cash flow hedge %00,000
&ncrease in projected benefit obligation due to actuarial assumptions 300,000
5oreign translation adjustment . debit 100,000
-e$aluation surplus 2,)00,000

1 8hat amount should be reported as income from continuing operations9

a 3,100,000
b 2,300,000
c 1,00,000
d 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 3,%00,000
b 2,700,000
c 3,700,000
d 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 ),)00,000
b 2,*00,000
c 2,"00,000
 d ",100,000

'age "

SOLUTION - PROBLEM &

Ques!"# 1 A#s$e% B

 et sales *,)00,000

!ost of goods sold ;%,000,000<

>ross income ),)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 700,000 2,*00,000

&ncome before tax 3,100,000

Tax expense ; 00,000<

&ncome from continuing operations 2,300,000

Ques!"# 2 A#s$e% A

@nrealiAed gain on e(uity in$estment at 5C+!& *00,000

@nrealiAed loss . cash flow hedge ; %00,000<
#ctuarial loss . increase in '6+ ; 300,000<
Translation adjustment . debit ; 100,000<
-e$aluation surplus 2,)00,000
 et gain  +!& 2,"00,000

Ques!"# & A#s$e% D

@nrealiAed gain on e(uity in$estment at 5C+!& *00,000

#ctuarial loss on '6+ ; 300,000<

-e$aluation surplus 2,)00,000

 et amount of +!& #" %e/*ss!!e " (%"! "% "ss 3,100,000

Ques!"# ' A#s$e% A

&ncome from continuing operations 2,300,000

&ncome from discontinued operations "00,000
 et income 2,*00,000

Ques!"# 5 A#s$e% A

 et income 2,*00,000

 et gain . +!& 2,"00,000
!omprehensi$e income ),)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
was
was acco
accoun
unte
ted
d for
for unde
underr the
the /"s ,e3"
,e3" Duri
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 %00,000
 b 100,000
c )00,000
d 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 2,000,000
 b 2,)00,000
c 2,300,000
d 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 12,))0,000
 b 12,3)0,000
c 11,*)0,00
,000
d 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

Ques!"# 2 A#s$e% B

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< ; *,000,000<

xcess of cost o$er carrying amount 3,000,000

xcess attributable to e(uipment whose fair $alue is greater than carrying amount
;2)4 x %,000,000< ; 1,000,000<
>oodwill 2,000,000

Ques!"# & A#s$e% C

hare in net income ;2)4 x ,000,000< 2,000,000

#mortiAation of excess attributable to e(uipment ;1,000,000 B ) years< ; 200,000<

 et in$estment income 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

Ques!"# ' A#s$e% A

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< ; 1,2)0,000<

!arrying amount . December 31, 201 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?

C*%%4!# *,"u# F*!% 6*ue

!ash 1,000,000 1,000,000
#ccounts recei$able %,000,000 %,000,000
&n$entory . 5&5+ ,000,000 *,000,000
Fand ),)00,000 7,000,000
'lant and e(uipment . net 1%,000,000 22,000,000
Fiabilities 7,000,000 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 200,000
 b "00,000
c 00,000
d %00,000

2 8hat
8hat is the
the in$es
in$estme
tment
nt incom
incomee for 20179
20179
 a 0,000
 b %0,000
c %00,000
d )0,000

3 8hat
8hat is the
the in$es
in$estme
tment
nt incom
incomee for 2019
2019
a 1,00,000
 b 2,20,000
c 1,"0,000
d 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 1),3"0,000
 b 1),000,000
c 1",)"0,000
d 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 1%,000,000

Fiabilities ; 7,000,000<
 et assets at carrying amount 2),)00,000

#c(uisition cost 1),000,000

 et assets ac(uired ;%04 x 2),)00,000< ;10,200,000<

xcess of cost %,00,000

#ttributable to in$entory ;*,000,000 . ,000,000 G 1,000,000 x %04< ; %00,000<

#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< ; 3,20
3,200,
0,00
000<
0<
#ttributable to land ;7,000,000 . ),)00,000 G 1,)00,000 x %04< ; "00,000<
&mplied goodwill "00,000

s
Ques!"# 2 A#s$e% B

hare in net income for 2017;%04 x 3,000,000< 1,200,000

#mortiAation of excess . in$entory ; %00,000<

#mortiAation of excess . plant and e(uipment ;3,200,000 B 10 years< ; 320,000<
&n$estment income for 2017 %0,000

Ques!"# & A#s$e% A

hare in net income for 201 ;%04 x ),000,000< 2,000,000

#mortiAation of excess . plant and e(uipment ; 32

320,000<
#mortiAation of excess . land ; "00,000<
&n$estment income for 201 1,00,000

Ques!"# ' A#s$e% A

#c(uisition cost 1),000,000

&n$estment income 2017 %0,000

!ash di$idend for 2017 ;%04 x 1,000,000< ; %00,000<

&n$estment income for 201 1,00,000

!ash di$idend for 201 ;%04 2,000,000< ; 00,000<

!arrying amount . December 31, 201 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 %00,000
  b 200,000
  c 3"%,)"0
  d 3"3,*%0
2 8hat is the adjusted
adjusted carrying amount of the in$estment
in$estment on December 31, 20179
a ),300,000
 b ),171,*%0
c ),17%,)"0
d ),000,000

3 8hat amount should be recogniAed in +!& in the statement of comprehensi$e income for 2 0179
a 300,000
b 12),%%0
c 12,0"0
  d *2,000

% &f the entity elected the *!% 6*ue "(!"# , what total
total amount of income
income should
should be recogniAed
recogniAed for 
20179
a %00,000
b %*2,000
c "00,000
d 200,000

'age 12

SOLUTION - PROBLEM 

D*e I#e%es %e/e!6e I#e%es !#/",e A,"%!*!"# C*%%4!# *,"u#

/an 1, 2017 ),20,000

/an 30, 2017 200,000 12,20 17,720 ),1*0,20
Dec 31, 2017 200,000 11,""0 1,3%0 ),171,*%0

Ques!"# 1 A#s$e% D

&nterest /anuary to /une 12,20

&nterest /uly to December 11,""0
&nterest income for 2017 3"3,*%0
Ques!"# 2 A#s$e% A

Har=et $alue on December 31, 2017 ;),000,000 x 10"< ),300,000

Ques!"# & A#s$e% C

Har=et $alue on December 31, 2017 ),300,000

!arrying amount December 31, 2017 ;see table of amortiAation< ),171,*%0
@nrealiAed gain  +!& 12,0"0

Ques!"# ' A#s$e% C

Har=et $alue on December 31, 2017 ),300,000

#c(uisition cost, e9/u!# %*#s*/!"# /"s ),100,000
>ain from change in fair $alue 200,000
&nterest income ;4 x ),000,000< %00,000
Total income "00,000

'age 13

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

/anuary 1, 2017, an entity disclosed the following

following balances?

Fand %,000,000
Fand impro$ements 1,300,000
6uildings 20,000,000
Hachinery and e(uipment ,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 1%

SOLUTION – PROBLEM 7

Ques!"# 1 A#s$e% A

Fand . /anuary 1 %,000,000

Fand ac(uired for cash 2,000,000
Fand ac(uired by issuing shares ;2B10 x *,000,000< 1,00,000
Fand . December 31 7,00,000

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

!urrent appraiAed $alue ?

Fand 2,000,000
 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

Ques!"# 2 A#s$e% D

Fand impro$ements . /anuary 1 1,300,000

xpenditures for par=ing lot, street and sidewal= 1,200,000
6alance . December 31 2,)00,000

Ques!"# & A#s$e% C

6uildings . /anuary 1 20,000,000

6uilding ac(uired by issuing shares ;B10 x *,000,000< 7,200,000
6alance . December 31 27,200,000

Ques!"# ' A#s$e% B

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 ; 200,000<

Hachinery sold ; 700,000<
Hachinery e(uipment . December 31 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?

C*%%4
C*%%4!#
!#
 *,"u
*,"u#
# T*9 )*s!s
)*s!s D!e%
D!e%e#/
e#/ee

(uipment ),)00,000 %,000,000 1,)00,000

#ccrued liability . health care )00,000 0 )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 ),%00,000
 b 3,"00,000
c 3,300,000
d ),700,000

2 8hat amount should be reported as total tax expense for 20179

a %,)00,000
 b %,*)0,000
c %,0)0,000
d 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 1),000,000

5uture taxable amount?

(uipment
 !omputer software ;1,)00,000<

5uture deductible amount? ;2,000,000<

#ccrued liability )00,000

Taxable income 12,000,000

!urrent tax expense ;304 x 12,000,000< 3,"00,000

Ques!"# 2 A#s$e% A

Total tax expense ;304 x 1),000,000< %,)00,000

Ques!"# & A#s$e% A

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 3,)00,000

5air $alue of plan assets . /anuary 1 2,00,000
'ension benefits paid during the year 2)0,000
!urrent ser$ice cost for the year 1,7)0,000
'ast ser$ice cost for the year ;$esting period ) years< %2),000
#ctual return on plan assets 10,000
!ontribution to the plan 1,)00,000
#ctuarial loss due to change in assumptions on projected benefit obligation 200,000
Discount or settlement rate 1 04

1 8hat is the employee

employee benefit expense for the current year9
a 2,2%),000
 b 1,*0),000
c 2,)2),000
d 1,7)0,000

2 8hat is the net remeasurement loss for the

the current year9
a 200,000
 b 100,000
c 300,000
d %00,000

3 8hat is the projected benefit obligation on December 319

a ),))0,000
 b ),07),000
c ),77),000
d ),*7),000

% 8hat is the fair

fair $alue of plan assets on December 319
a %,%0,000
 b %,230,000
c %,300,000
d %,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 =
Ques!"# 1 A#s$e% A

!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< ; 20,000<

mployee benefit expense 2,2%),000

Ques!"# 2 A#s$e% C

#ctual return 10,000

&nterest income 20,000
-emeasurement loss on plan assets 100,000
#ctuarial loss on '6+ 200,000
 et remeasurement loss 300,000

Ques!"# & A#s$e% D

'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 ; 2)0,000<

'6+ . December 31 ),*7),000

Ques!"# ' A#s$e% B

5C'# . /anuary 1 2,00,000

#ctual return 10,000

!ontribution to the plan 1,)00,000

6enefits paid ; 2)0,000<

5C'# . December 31 %,230,000

Ques!"# 5 A#s$e% A

5C'# . December 31 %,230,000

'6+ . December 31 ;),*7),000<

'repaidBaccrued benefit cost . December 31 ;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 3,)00,000

5air $alue of e(uipment ),)00,000
-esidual $alue . unguaranteed "00,000
&nitial direct cost 200,000
#nnual rental payable in ad$ance *00,000
@seful life and lease term  years
&mplicit interest rate 124
'C of 1 at 124 for  periods 0 % 0
'C of an ordinary annuity of 1 at 124 for  periods % * 7
'C of an annuity due of 1 at 124 for  periods )) "
5irst lease payment /anuary 1, 201"

1 8hat
8hat is the
the gross
gross in$es
in$estme
tment
nt in the
the lease
lease99

a 7,00,000
 b 7,200,000
c ","00,000
d ",*00,000

2 8hat
8hat is the
the net in$est
in$estmen
mentt in the
the lease
lease99

a ),00%,000
 b ),2%%,000
c ),)00,000
d ),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 "00,%0
 b %*2,%0
c )3",7"0
d )21,20

) 8hat amount of cost of goods sold should be recogniAed in recording the lease9
a 3,2"0,000
 b 3,)00,000
c 3,7%0,000
d 3,%"0,000
 'age 20

SOLUTION – PROBLEM 10

Ques!"# 1 A#s$e% A

>ross rentals ;*00,000 x < 7,200,000

-esidual $alue "00,000
>ross in$estment 7,00,000

Ques!"# 2 A#s$e% B

'C of rentals ;*00,000 x ))"< ),00%,000

'C of residual $alue ;"00,000 x %0< 2%0,000
 et in$estment ),2%%,000

Ques!"# & A#s$e% C

>ross in$estment 7,00,000

 ot in$estment ),2%%,000
Total financial re$enue 2,))",000

Ques!"# ' A#s$e% D

 et in$estment . /anuary 1, 2017 ),2%%,000

#d$ance payment on /anuary 1, 2017 ; *00,000<

6alance . /anuary 1, 2017 %,3%%,000

&nterest income for 2017 ;1

;124 x %,3%%,000< )21,20

Ques!"# 5 A#s$e% D

!ost of e(uipment 3,)00,000

'C of unguaranteed residual $alue ; 2%0,000<

&nitial direct cost 200,000

!ost of goods sold 3,%"0,000

ales, excluding present $alue of unguaranteed residual $alue ),00%,000

!ost of goods sold 3,%"0,000
>ross profit on sale 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 ,000,000

'reference share capital, ')0 par, )0,000 shares 2,)00,000
124 6onds payable ),000,000

The prefer
preferenc
encee share
share capital
capital is 104 cumula
cumulatiti$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 &ssued "0,

"0,000 ordinary shar
hares at '2) per shar
hare
/ul
/uly 1 'ur
'urchas
chased
ed 100,
100,00
0000 ordi
ordina
nary
ry shar
hares at '1)
'1) to be hel
held as treas
easury
ury
+ct 1 !on$er
$erted bonds with face
ace amo
amount
unt of '2,000,
00,000
Dec
Dec 31 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 " 0 2
 b )2"
c ) 7 2
d ) % 2

2 8hat is the total

total number of potentially diluti$e
diluti$e ordinary shares at the beginning
beginning of year9
a )30,000
 b )00,000
c )*0,000
d )"0,000

3 8hat is the amount of diluted earnings per share9

a ) ) 2
 b %20
c % 0 7
d 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< ; 2)0,000<

 et income  ordinary %,7)0,000

/anuary 1 ;
; 00,000 x 12B12< 00,000

Hay 1 ; "0,000 x B12< %0,000

/uly 1 ;100,000 x "B12< ; )0,000<

+ctober 1 ; 2,000 x 0 x 3B12< %0,000

#$erage shares outstanding 30,000

6asic ' ;%,7)0,000 B 30,000< )72

Ques!"# 2 A#s$e% A

hare options *0,000

Treasury shares ;1,00,000 B 30< ; "0,000<

&ncremental ordinary shares from share options 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

Ques!"# & A#s$e% C

&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< 2)2,000
&nterest on bonds /"#6e%e  ;2
 ;2,000,000 x 124 x *B12 x 704< 12",000
Total interest expense 37,000

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

Ne !#/",e S3*%es EPS

6asic ' %,7)0,000 30,000 ) 7 2
hare options 30,000
Diluted ' %,7)0,000 "0,000 ) ) 2
6onds payable 37,000 3"0,000
Diluted ' ),12,000 1,220,000 % 2 0
'reference shares 2)0,000 100,000
Diluted ' ),37,000 1,320,000 % 0 7

'otential ordinary shares . bonds %00,000

-eported in basic ' ;%0,000<

-eported in diluted ' 3"0,000

'age 23

PROBLEM 12 – STATEMENT
STATEMENT OF CAS FLO>S

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

2018 2017
'roperty, plant and e(uipment 2,1*0,000 1,%%0,000
#ccumulated depreciation %)0,000 270,000
Fongterm in$estments 22),000 
'repaid expenses 3)1,000 31),000
Herchandise in$entory 1,*)0,000 1,2"0,000
#ccounts recei$able, net of allowance 1,)"0,000 1,00,000
!ash "*0,000 "%0,000
hare capitalordinary 3,000,000 2,%00,000
-etained earnings *0",000 ",000
Fongterm note payable 1,27),000 1,0*),000
#ccounts payable 30*,000 22,000
Di$idend payable 201,000 
#ccrued expenses 2),000 

2018 2017
 et credit sales 7,020,000 3,7)3,000

!ost of goods sold ;3,*1),000< ;1,1,000<

>ross profit 3,10),000 1,72,000

xpenses, including income tax ;2,)",000< ;1,37%,000<

 et income )1*,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 7)0,000
 b 22),000
c *7),000
d 7)0,000

3 8hat amount should be reported as net cash pro$ided by financing acti$ities

acti$ities in 2019
a "00,000
 b 70,000
c 7)0,000
d "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 ; 3",000<

&ncrease in in$entory ;"*0,000<
&ncrease in accounts recei$able ;%0,000<
&ncrease in accounts payable 27,000

&ncrease in accrued expenses 2),000

 et cash pro$ided  operating 3%),000

Ques!"# 2 A#s$e% C

&ncrease in '' ;7)0,000<

&ncrease in longterm in$estments ;22),000<
 et cash used  in$esting ;*7),000<
;*7),000<

Ques!"# & A#s$e% D

Di$idend paid in 201 ;100,000<

'roceeds from share capital "00,000
'roceeds from note payable 10,000
 et cash pro$ides  financing "0,000

-etained earnings  2017 ",000

 et income  201 )1*,000

Total 1,207,000

-etained earnings  201 ; *0",000<

Di$idend declared in 201 301,000

Di$idend payable . 201 ; 201,000<

Di$idend paid in 201 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 0,000

Fongterm in$estments ;100,000<

'lant assets 700,000

#ccumulated depreciation 

#ccounts payable ; ),000<

Di$idend payable 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 1,00),000
 b 1,1*0,000
c 1,27),000
d 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 2"

SOLUTION – PROBLEM 1&

Ques!"# 1 A#s$e% C

 et income 7*0,000

&ncrease in in$entory ; 0,000<

>ain on sale of longterm in$estment ; 3),000<
Depreciation 2)0,000
Decrease in accounts payable ; ),),000<
 et cash pro$ided . operating *20,000

Ques!"# 2 A#s$e% A

ale price of in$estment 13),000

!ost of in$estment sold . decrease in longterm in$estment ;100,000<

>ain on sale of longterm in$estment 3),000
 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 ; 110,000<

!ash payment for plant assets 1,1*0,000

!ash payment for plant assets ;1,1*0,000<

!ash payment for a$ailable for sale securities ; 300,000<
ale price of in$estment 13),000

ale of building 3)0,000

 et cash used  in$esting ;1,00),000<

Ques!"# & A#s$e% A

&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 ;3%0,000<

 et cash pro$ided . financing 20),000

Di$idend declared )00,000

Di$idend payable ;1"0,000<

Di$idend paid 3%0,000

P%"" 

 et cash pro$ided  operating *20,000

 et cash used . in$esting ;1,00),000<

 et cash pro$ided . financing 20),000

&ncrease in cash and cash e(ui$alents 120,000

'age 27
PROBLEM 1' – STATEMENT
STATEMENT OF CAS FLO>S

#n entity pro$ided the following data?

De/e
De/e,)
,)e%
e% &1;
&1; 201
2017
7 De/e
De/e,
,)e%
)e% &1;
&1; 2018
2018
Trade accounts recei$able, net of allowance %0,000 70,000
&n$entory 1,)00,000 1,%00,000
#ccounts payable *)0,000 *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 12,010,000
b 12,0"0,000
c 11,*"0,000
d 11,*0,000

2 8hat
8hat is the
the amoun
amountt of purc
purchas
hases
es for
for 2019
2019
a *,00,000
b ,300,000
c ,)00,000
d ,%00,000

3 8hat is the
the cash
cash disbursed
disbursed for purchases
purchases during
during 2019
a ,)00,000
b ,270,000
c ,300,000
d ,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 )00,000
 b ")0,000
c "00,000
d )00,000

'age 2
SOLUTION – PROBLEM 1'

Ques!"# 1 A#s$e% A

#- . December 31, 2017 %0,000

Total sales . 201 12,000,000
Total 12,%0,000
#- . December 31, 201 ; 70,000<
6ad debt writeoff ; )0,000<
!ollections from customers . 201 12,010,000 #

Ques!"# 2 A#s$e% B

&n$entory . December 31, 2017 1,)00,000

'urchases 201 ;SQUEE?E< ,300,000 6
>oods a$ailable for sale *,00,000
&n$entory . December 31, 201 ;1,%00,000<
!ost of goods sold  201 ,%00,000

Ques!"# & A#s$e% B

#ccounts payable . December 31, 2017 *)0,000

'urchases 201 ,300,000
Total *,2)0,000
#ccounts payable . December 31, 2017 ; *
* 0,000<
!ash disbursed for purchases 201 ,270,000 6

Ques!"# ' A#s$e% A

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< ))0,000

Cariable expenses 201 paid in 201 ;)04 x 1,200,000< "00,000
Cariable expenses paid in 201 1,1)0,000 #

Ques!"# 5 A#s$e% C

5ixed expenses each year 1,000,000

Depreciation ; 3)0,000<
6ad debt expense ; )0,000<
!ash disbursed for fixed expenses in 201 "00,000 !

END