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P1 - Quiz 1 - this document contains questions with answers

regarding our quiz in accounting
BS accountancy (University of Cebu)

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P1 – Quiz 1

True or False
1. PAS 1 Presentation of Financial Statements does not require an entity to make an explicit
statement of compliance with PFRSs. F – entities are required to make an explicit statement of
compliance with PFRSs.
2. According to PAS 1, an entity is never allowed, in circumstance, to depart from a provision of a
PFRS. F
3. According to PAS 1, material items are presented separately on the face of the financial statements
while individually immaterial items are not presented in the financial statements. F – immaterial
items with similar nature are aggregated and presented under a single line item.
4. Investment in associate are current assets. F – non-current assets
5. Investment properties are presumed to be non-current assets. T
6. The Statement of comprehensive income shows information on an entity’s financial position during
the period. F – it shows an entity’s financial performance
7. Revenue includes both income and gains. F – Income includes both revenue and gains
8. The Statement of profit or loss and other comprehensive income is the same with the Income
statement. F
9. The main difference between the function and the nature of expense methods is the segregation of
operating and non-operating items under the function of expense method. T
10. Freight-out is presented as distribution cost under the function of expense method. T
11. The Statement of comprehensive income shows profit or loss only. F – profit or loss and other
comprehensive income
12. An entity can present an income statement alone in lieu of the statement of comprehensive income.
F – a statement showing other comprehensive income must also be presented
13. Losses incurred on sales of noncurrent assets are presented under “Administrative expenses.”
FALSE – losses are included in the “Other expenses” category. If material, losses are presented
separately.
14. If profit is ₱100 while other comprehensive income is ₱80, total comprehensive income is ₱20.
FALSE - ₱180 (100 + 80)

Multiple Choices. Choose the best answer.

15. Which of the following statements is correct?

a. PAS 1 Presentation of Financial Statements prescribes the basis for presentation of general and
special purpose financial statements to improve both inter-comparability and intra-comparability.
b. Intra-comparability is also referred to as horizontal comparability while inter-comparability is also
referred to as vertical comparability.
c. Working capital is the net amount of a company’s relatively liquid resources. It is the excess of
total assets over total liabilities.
d. Equity is the residual interest in the net assets of an entity.

16. According to PAS 1, these are financial statements intended to serve the needs of users who do not
have the authority to demand financial reports tailored for their own needs.
a. General purpose financial statements
b. Common purpose financial statements
c. Regular financial statements
d. All-purpose financial statements

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17. The assessment of an entity’s going concern shall cover a minimum period of
a. one year c. three years
b. three months d. any of these

18. In which of the following instances would a liability that would otherwise be presented as current is
presented as noncurrent?
a. The liability is payable on demand but the entity estimates that it is probable that the lender will
not demand payment within 12 months after the reporting period.
b. The liability is payable on demand but the lender promises the entity after the reporting period
that the lender will not demand payment in the next 12 months.
c. The entity enters into a refinancing agreement after the reporting period but before the financial
statements are authorized for issue.
d. The entity enters into a refinancing agreement and the refinancing agreement is completed by
the balance sheet date.

19. In a classified balance sheet, deferred tax assets/liabilities are presented as

a. non-current items if the deferred taxes are not expected to reverse within 12 months after the
reporting period
b. noncurrent items
c. current items
d. a or c

20. General purpose financial statements are those statements that cater to the
a. common and specific needs of a wide range of external and internal users.
b. common needs of a wide range of external and internal users.
c. common needs of a wide range of external users.
d. specific needs of a wide range of external users.

21. In virtually all circumstances, a fair presentation is achieved by compliance with applicable IFRSs. A
fair presentation also requires an entity: (choose the incorrect statement)
a. to select and apply accounting policies in accordance with PAS 8 Accounting Policies, Changes
in Accounting Estimates and Errors. PAS 8 sets out a hierarchy of authoritative guidance that
management considers in the absence of a Standard or an Interpretation that specifically
applies to an item.
b. to present information, including accounting policies, in a manner that provides relevant,
reliable, comparable and understandable information.
c. to provide additional disclosures when compliance with the specific requirements in PFRSs is
insufficient to enable users to understand the impact of particular transactions, other events and
conditions on the entity’s financial position and financial performance.
d. to establish a system of internal control the responsibility for which is the entity’s management.
Furthermore, the entities financial statements should be audited by an independent external
party at least annually.

22. Each component of the financial statements shall be identified clearly. In addition, the following
information shall be displayed prominently, and repeated when it is necessary for a proper
understanding of the information presented:
I. The name of the reporting entity or other means of identification, and any change in that
information from the preceding balance sheet date;
II. Whether the financial statements cover the individual entity or a group of entities;
III. The balance sheet date or the period covered by the financial statements, whichever is
appropriate to that component of the financial statements;
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IV. The presentation currency, as defined in PAS 21 The Effects of Changes in Foreign Exchange
Rates
V. The level of rounding used in presenting amounts in the financial statements.

a. I, II, III c. I, II, IV, V

b. I, II, III, IV d. I, II, III, IV, V

23. When an entity’s balance sheet date changes and the annual financial statements are presented for
a period longer or shorter than one year, an entity shall disclose, in addition to the period covered
by the financial statements:
I. The reason for using a longer or shorter period
II. The fact that comparative amounts for the income statement, statement of changes in equity,
cash flow statement and related notes are not entirely comparable
III. The amounts charged to the beginning balance of the retained earnings, net of tax
IV. Pro-forma financial statements, as a supplemental information in the notes

a. I, II c. I, III, IV
b. I, III d. I, II, III, IV

24. All of the following statements are correct, except

a. The operating cycle of an entity is the time between the acquisition of assets for processing and
their realization in cash or cash equivalents.
b. When the entity’s normal operating cycle is not clearly identifiable, its duration is presumed to
be twelve months.
c. Current assets include assets (such as inventories and trade receivables) that are sold,
consumed or realized as part of the normal operating cycle even when they are not expected to
be realized within twelve months after the balance sheet date.
d. Some liabilities are part of the working capital used in the entity’s normal operating cycle. Such
operating items are classified as current liabilities even if they are due to be settled more than
twelve months after the balance sheet date.
e. When an entity presents current and non-current assets and current and non-current liabilities
as separate classifications on the face of its balance sheet, it shall classify deferred tax assets
(liabilities) as current assets (liabilities) if the deferred tax assets (liabilities) are expected to
reverse within twelve months after the end of reporting period.

25. Which of the following statements correctly relate to the provisions of PAS 1?
a. According to PAS 1, “cash and cash equivalents” shall always be presented as the first
line item in the balance sheet
b. The term “balance sheet” may be used in lieu of the “statement of financial position” and
the term “income statement” may be used in lieu of the “statement of profit or loss and
other comprehensive income.”
c. An entity is prohibited from presenting extraordinary items in the financial statements but
may disclose those items in the notes.
d. An entity may present its income and expenses in a single statement or in two
statements.

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Problem Solving

26. The ledger of Sipag Co. as of December 31, 20x1 includes the following:

10% Note payable 80,000

12% Note payable 120,000
14% Mortgage note payable 60,000
Interest payable -

Additional information:
- Sipag Co.’s financial statements were authorized for issue on April 15, 20x2.
- The 10% note payable is due on July 1, 20x2 and pays semi-annual interest every July 1 and December 31. On
January 28, 20x2, Sipag Co. entered into a refinancing agreement with a bank to refinance the entire note by
issuing a long-term obligation.
- The 12% note payable is due on March 31, 20x2 and pays annual interest every March 31. On January 31,
20x2, Sipag Co. extended the maturity of the note to March 31, 20x3 under the existing loan agreement. The
extension of maturity date is at the option of Sipag Co.
- The 14% mortgage note is due on December 31, 20x9. Per agreement with the creditor, Sipag Co. is to pay
quarterly interests on the note, failure to do so will render the note payable on demand. Sipag Co. failed to pay
the 3rd and 4th quarterly interests on the note during 20x1.

How much is the total current liabilities?

a. 119,000
b. 155,000
c. 172,000
d. 189,000

B Solution:

10% Note payable 80,000

Interest payable on the 12% note (120,000 x 12% x 9/12) 10,800
14% Mortgage note payable 60,000
Interest payable on the 14% note (60,000 x 14% x 6/12) 4,200
Current liabilities 155,000

Use the following information for the next three questions:

The ledger of Sipag Co. in 20x1 includes the following:
Jan. 1, 20x1 Dec. 31, 20x1
Current assets 1,200,000 ?
Noncurrent assets 4,000,000 ?
Current liabilities 900,000 1,000,000
Noncurrent liabilities ? 3,000,000

Additional information:
- Sipag Co.’s working capital as of December 31, 20x1 is twice as much as the working capital as of January 1,
20x1.
- Total equity as of January 1, 20x1 is ₱1,700,000. Profit for the year is ₱2,400,000 while dividends declared
amounted to ₱1,000,000. There were no other changes in equity during the year.

27. How much is the total noncurrent liabilities as of January 1, 20x1?

a. 2,600,000
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b. 2,800,000
c. 3,200,000
d. 3,400,000

A Solution:

Assets = Liabilities + Equity

(1,200,000 + 4,000,000) = (900,000 + Noncurrent liabilities) + 1,700,000
Noncurrent liabilities = 5,200,000 – 900,000 – 1,700,000
Noncurrent liabilities, Jan. 1, 20x1 = 2,600,000

28. How much is the total current assets as of December 31, 20x1?
a. 1,600,000
b. 800,000
c. 300,000
d. 2,200,000

A Solution:

Working capital = Current assets – Current liabilities

Working capital, Jan. 1, 20x1 = 1,200,000 – 900,000
Working capital, Jan. 1, 20x1 = 300,000

Working capital, Dec. 31, 20x1 = Working capital, Jan. 1, 20x1 times 2
Working capital, Dec. 31, 20x1 = 300,000 x 2 = 600,000
Working capital = Current assets – Current liabilities
600,000 = Current assets, Dec. 31, 20x1 – 1,000,000
Current assets, Dec. 31, 20x1 = 1,600,000

29. How much is the total noncurrent assets as of December 31, 20x1?
a. 4,500,000
b. 6,500,000
c. 5,800,000
d. 5,500,000

D Solution:

Equity
1,700,000 Jan. 1
Dividends 1,000,000 2,400,000 Profit for the year
Dec. 31 3,100,000

Assets = Liabilities + Equity

(1,600,000 + Noncurrent assets) = (1,000,000 + 3,000,000) + 3,100,000
Noncurrent assets, Dec. 31, 20x1 = 4,000,000 + 3,100,000 – 1,600,000
Noncurrent assets, Dec. 31, 20x1 = 5,500,000

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30. Sipag Co. had the following information for 20x1:

Accounts receivable turnover 10:1

Total assets turnover 2:1
Average receivables during the year ₱400,000
Total assets, January 1, 20x1 800,000

How much is the total assets as of December 31, 20x1?

a. 4,000,000
b. 3,800,000
c. 3,200,000
d. 2,800,000

C Solution:

Sales are computed as follows:

Net credit sales
Accounts receivable turnover =
Average accounts receivable

Net credit sales

10 =
400,000
Net credit sales = 4,000,000

Net credit sales

Total assets turnover =
Average total assets
Where:
Total assets, beg. + Total assets, end
Average total assets =
2
Net credit sales
Total assets turnover =
Average total assets
4,000,000
2 =
Average total assets
Average total assets = 4,000,000
2
Average total assets = 2,000,000

Total assets, Jan. 1 + Total assets, Dec. 31

Average total assets =
2
800,000 + Total assets, Dec. 31
2,000,000 =
2
Total assets, Dec. 31 = (2,000,000 x 2) - 800,000
Total assets, Dec. 31 = 3,200,000

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Use the following information for the next two questions:

The following items were presented for the purpose of determining comprehensive income.
Profit for the year 2,000
Increase in revaluation surplus 1,000
Remeasurements of the net defined benefit liability (asset) – loss (200)
Net change in translation of foreign operation (400)
Dividends declared (100)
Stock rights 300

31. How much is the other comprehensive income?

a. 400
b. 600
c. 800
d. 2,000

Profit for the year 2,000

Other comprehensive income:

Revaluation gain 1,000

Remeasurements of the net defined benefit
liability (asset) (200)
Translation loss on foreign operation (400)
Total other comprehensive income (a) 400

Total comprehensive income (b) 2,400

32. How much is the total comprehensive income?

a. 1,800
b. 2,200
c. 2,400
d. 2,800

C (see solution above)

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Use the following information for the next two questions:

The records of Sipag Co. show the following information:

Interest expense ₱24,000

Cost of inventories sold 600,000
Insurance expense 100,000
Advertising expense 20,000
Freight-out 10,000
Freight-in 4,000
Loss on sale of equipment 2,000
Legal and other professional fees 12,000
Rent expense (one-half occupied by sales department) 8,000
Sales commission expense 14,000
Doubtful accounts expense 16,000

33. How much is the total distribution (selling) costs?

a. 48,000
b. 56,000
c. 64,000
d. 108,000
A

Selling expenses Administrative expenses

Advertising expense P20K Insurance expense P100K
Freight-out 10 Legal and other professional fees 12
Rent expense (one half) 4 Rent expense (one half) 4
Sales commission expense 14 Doubtful accounts expense 16
Total selling expenses P48K Total administrative expenses P132K

34. How much is the total administrative expenses?

a. 24,000
b. 132,000
c. 226,000
d. 668,000

B (see solution above)

35. The records of Sipag Co. showed the following information:

Increase in accounts receivable 100,000
Collections on accounts 800,000
Cash sales 120,000
Increase in inventory 40,000
Freight-in 14,000
Freight-out 13,000
Decrease in accounts payable 60,000
Disbursements for purchases 480,000
Purchase discounts 4,000

How much is the gross profit for the year?

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a. 662,000
b. 656,000
c. 648,000
d. 626,000

Sales on account are computed as follows:

Accounts receivable
A/R, beg. -
Sales on account (squeeze) 900,000 800,000 Collections on accounts
100,000 A/R, end

Cost of sales is computed as follows:

Accounts payable
Purchase discounts 4,000 60,000 A/P, beg
Gross purchases
Disbursements for purchases 480,000 424,000 (squeeze)
A/P, end -

Inventory
Inventory, beg. -
Gross purchases 424,000 4,000 Purchase discounts
Freight in 14,000 394,000 Cost of sales (squeeze)
40,000 Inventory, end

Gross profit is computed as follows:

Cash sales 120,000
Credit sales 900,000
Total sales 1,020,000
Cost of sales (394,000)
Gross profit 626,000

36. The records of Sipag Co. showed the following information:

Accounts receivable, net, Jan. 1, 20x1 40,000

Accounts receivable, net, Dec. 31, 20x1 160,000
Accounts receivable turnover 4:1
Inventory, Jan. 1, 20x1 120,000
Inventory, Dec. 31, 20x1 60,000
Inventory turnover 3:1

How much is the gross profit for the year?

a. 120,000
b. 130,000
c. 132,000
d. 146,000

B Solution:

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Net credit sales

Accounts receivable turnover =
Average accounts receivable

Where:
A/R, beg. + A/R, end.
Average accounts receivable =
2

40,000 + 160,000
Average accounts receivable =
2
Average accounts receivable = 100,000

Net credit sales

Accounts receivable turnover =
Average accounts receivable

Net credit sales

4 =
100,000
Net credit sales = 400,000

Cost of sales
Inventory turnover =
Average inventory
Where:
Inventory, beg. + Inventory, end.
Average inventory =
2

Using the formulas given above, cost of sales is computed as follows:

120,000 + 60,000
Average inventory =
2
Average inventory = 90,000

Cost of sales
Inventory turnover =
Average inventory

Cost of sales
3 =
90,000
Cost of sales = 270,000

Gross profit is computed as follows:

Net credit sales 400,000
Cost of sales (270,000)
Gross profit 130,000

37. The records of Sipag Co. showed the following information:

Decrease in accounts payable 60,000
Disbursements for purchases 440,000
Increase in raw materials 100,000
Direct labor is 50% of raw materials used in production
Manufacturing overhead is 20% of prime costs
Increase in work-in-process inventory 40,000
Decrease in finished goods inventory 50,000

How much is the cost of goods sold?

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a. 380,000
b. 464,000
c. 514,000
d. 546,000

C Solution:

Accounts payable
60,000 A/P, beg.
Disbursements for purchases 440,000 380,000 Purchases (squeeze)
A/P, end -

Raw materials
inventory
RM Invty, beg. - Raw materials used in
Purchases 380,000 280,000 production (squeeze)
100,000 RM Invty, end.

Work-in-process inventory
WIP, beg. -
RM used in production 280,000 Cost of goods manufactured
Direct labor (50% of RM) 140,000 464,000 (squeeze)
Production overhead* 84,000
40,000 WIP, end.

Total goods put into process 504,000 504,000

*Prime cost = Direct materials + Direct labor

Prime cost = 280,000 + 140,000 = 420,000
Production overhead = 20% x 420,000 = 84,000

Finished goods inventory

FG, beg. 50,000
Cost of goods manufactured 464,000 514,000 Cost of goods sold (squeeze)
- FG, end

Total goods avail. for sale 514,000 514,000

38. Sipag Co. reported profit after tax of ₱210,000. Sipag Co.’s income tax rate is 30%. Operating expenses for the year is
15% of sales and 25% of cost of sales. Other expenses were 10% of sales. How much is the total sales?
a. 1,800,000
b. 2,000,000
c. 2,200,000
d. 2,240,000

B Solution:

Sales 100%

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Cost of sales (15% / 25%) (60%)

Gross profit 40%
Operating expenses (15% of 100%) or (25% of 60%) (15%)
Other expenses (10% of 100%) (10%)
Profit before tax 15%

The profit after tax given in the problem is translated to profit before tax as shown below:
Profit after tax (given) 210,000
Divide by: (100% less 30% tax rate) 70%
Profit before tax 300,000

Sales (300,000 Profit before tax ÷ 15%) 2,000,000

39. The records of Sipag Co. on December 31, 20x1 showed the following information:
Sales 2,000,000
Sales discounts 20,000
Cost of sales 800,000
Distribution costs 96,000
Administrative costs 240,000
Casualty loss on typhoon 40,000
Dividends received from investments in FVPL 24,000
Dividends received from investment in associate 48,000
Share in the profit of an associate 72,000
Dividends declared and paid 28,000
Interest expense 44,000
Unrealized gain on investments in FVPL 30,000
Unrealized gain on investments in FVOCI 38,000
Income tax expense 300,000
Loss on revaluation 26,000
Remeasurements of the net defined benefit liability (asset) - gain 22,000
Correction of understatement in depreciation in prior year 32,000
Translation adjustment of foreign operation - loss 8,000

How much is the profit for the year?

a. 886,000
b. 586,000
c. 612,000
d. 626,000

B Solution:

HACK TO CHOP Co.

Statement of profit or loss and other comprehensive income
For the year ended December 31, 20x1

Sales 2,000,000
Sales discounts (20,000)
Net sales 1,980,000
Cost of sales (800,000)

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Gross profit 1,180,000

Distribution costs (96,000)
Administrative costs (240,000)
Dividends received from investments in FVPL 24,000
Share in the profit of an associate 72,000
Unrealized gain on investments in FVPL 30,000
Casualty loss on typhoon (40,000)
Interest expense (44,000)
Profit before tax 886,000
Income tax expense (300,000)
Profit for the year 586,000
Other comprehensive income:
Items that will not be reclassified subsequently to profit or loss:
Loss on revaluation (26,000)
Unrealized gain on investments in FVOCI 38,000
Remeasurements of defined benefit pension plans 22,000
34,000
Items that may be reclassified subsequently to profit or loss:
Loss on translation of foreign operation (8,000)
Other comprehensive income for the year 26,000
TOTAL COMPREHENSIVE INCOME FOR THE YEAR 612,000

40. Sipag Co. has the following information on December 31, 20x1:
- Cost of sales is ₱260,000.
- Operating expenses are 13% of sales and 20% of cost of sales.
- Interest expense is 5% of sales.
- Income tax rate is 30%. There were no temporary differences during the year.

How much is the profit for the year?

a. 65,000
b. 140,000
c. 38,600
d. 47,600

D Solution:

Cost ratio is derived from the percentages of operating expenses over sales and cost of sales as follows:
Cost ratio = 13% / 20% = 65%
Amount
Sales 400,000 (260,000 COS ÷ 65%)
Cost of sales (260,000) (start)
Gross profit 140,000
Operating expenses (52,000) (400,000 x 13%) or (260,000 x 20%)
Interest expense (20,000) (400,000 x 5%)
Profit before tax 68,000
Income tax expense (20,400) (40,000 x 30%)
Profit after tax 47,600

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