DocumentP1

You correctly answered 14 out of 35 questions with an accuracy of 40.0%.

You gained 140 experience points!

Problem:

Crown Asia Compounders Corp

Incorporated in 1989 as Crown Asia Compounders Corp., the company is currently

engaged in the production of plastic compounds, pipes and related products for the

construction and telecommunication industries, particularly the manufacture of plastic

compounds, polyvinyl chloride (PVC) pellets and plastic pipes.

Over the past three years, the company sold 58.06% of its compounds to the local

market, and the rest to the export market. Pipe products, on the other hand, are purely

sold domestically.

As of Jan. 31, 2015, Crown Asia has a total of 245 employees, and an operating

capacity of 15,000 million tonnes per annum (MPTA) for its compounds business and

8,500 MTPA for its pipes business. It is controlled by the Villanueva and Perez families,

collectively owning 74.95% of the firm after the offering.

Crown Asia’s net income to rose by an annual 31.42% to P65.38 million in 2014, while

revenues inched up by 6.1% to P850.74 million in the same period.

Crown Asia plans to sell 158 million primary common shares at P1.41 apiece from April

10 to April 17, it said in its prospectus filed with the SEC.

The Securities and Exchange Commission (SEC) approved the transaction during its en

banc meeting.

Of the net proceeds, P66.2 million will be used for construction of polypropylene random

copolymer (P-PR) and high-density polyethylene (HDPE) manufacturing plant and

warehouse as well as purchase of equipment; P43.8 million for debt retirement; P25

million for modernization of existing compounds and pipes plants; and P68.99 million for

working capital purposes. The par value per common share is P1.00 apiece.

Abacus Capital & Investment Corp. was appointed as the issue manager and

underwriter.

At the completion of the offer the offer shares will comprise 25.05% of the company’s

issued and outstanding shares. Of the offer shares, 20% will be allocated to the

Philippine Stock Exchange trading participants, 10% to local small investors, and the

remaining 70% to the general public.

All of the Offer shares shall be primary shares to be taken from the existing authorized

capital stock of the company. No secondary shares shall form part of the Offer.

Infinity Inc.

The Villanueva family also owns a substantial ownership of Infinity Inc, a trading

company.

The following information was taken from the ledger of Infinity, Inc.

Prior period adjustment credit to retained earnings 5,000Gain on sale of PPE 21,000Cost of goods sold 380,000Income tax expense (saving):Continuing operations 32,000Discontinued operations 8,000Preference share, 8%, P100 par 500 shares issued 50,000Dividends 16,000Retained earnings, beginning, as originally reported 103,000Treasury shares, ordinary (5,000 shares at cost) 25,000Selling expenses 78,000Ordinary share, no par, 45,000 shares issued 180,000Sales revenue 620,000Interest expense 30,000Income from discontinued operations 20,000Loss due to lawsuit 11,000General expenses 62,000

Maine Company

The Perez family also owns Maine Company, a company that operates a chain of

restaurants.

Maine CompanyConsolidated Statements of Income

Years Ended December 31, 2016 and 2015(in millions, except per share data) 2016 2015RevenuesSales by company-related restaurants 13,200 11,100Revenues from franchised and affiliated restaurants

4,500 3,700

Total revenues 17,700 14,800Food and paper (cost of goods sold) 3,300 3,108

Payroll and employee benefits 3,200 3,000Occupancy and other operating expenses 2,900 2,800Franchised restaurants - occupancy expenses 949 850Selling, general, and administrative expenses 1,820 1,730Other operating expense, net 510 855Total operating expenses 12,679 12,343Operating income 5,021 2,457Interest expense 370 345Other nonoperating expense, net 140 168Income before income taxes 4,511 1,944Income tax expense 1,820 820Net income 2,691 1,124Per ordinary share basic:Net income 2.69 1.15Dividends per ordinary share 0.50 0.24

Maine CompanyConsolidated Balance Sheet

December 31, 2016 and 2015(in millions, except per share data 2016 2015AssetsCurrent assetsCash and cash equivalents 690 455Accounts and notes receivable 780 840Inventories 140 120Prepaid expense and other current assets 580 440Total current assets 2,190 1,855Other assetsInvestment in affiliates 1,150 1,055Goodwill, net 1,780 1,590Miscellaneous 990 1,100Total other assets 3,920 3,745Property and equipmentProperty and equipment, at cost 28,800 26,500Accumulated depreciation and amortization (8,850) (7,900)Net property and equipment 19,950 18,600Total assets 26,060 24,200Liabilities and shareholders’ equityCurrent liabilitiesAccounts payable 520 675Income taxes 70 14Other taxes 230 180Accrued interest 189 196Accrued restructuring and restaurant closing 110 385

costsAccrued payroll and other liabilities 890 795Current maturities of long-term debt 365 305Total current liabilities 2,374 2,550Long-term debt 8,700 9,500Other long-term liabilities and minority interests

690 520

Deferred income taxes 1,005 1,015Shareholders’ equityPreference shares, no par value, authorized 140 million shares, issued, none - -Ordinary shares, P0.01 par value, authorized 2 billion shares; issued 1,400 million shares 14 14Additional paid-in capital 1,786 1,662Unearned ESOP compensation (85) (101)Retained earnings 21,741 19,550Accumulated other comprehensive income (loss)

(815) (1,570)

Ordinary shares in treasury, at cost; 400 and 420 million shares (9,350) (8,940)Total shareholders’ equity 13,291 10,615Total liabilities and shareholders’ equity 26,060 24,200

Manor Corporation

Manor Corporation is a joint venture between the Villanueva and Perez families. The

company reported the following income statement and comparative balance sheets,

along with transaction data for 2016.

Manor CorporationIncome Statement

Year Ended December 31, 2016Sales revenue 662,000Cost of goods sold 560,000Gross profit 102,000Operating expensesSalary expense 46,000Depreciation expense-equipment 7,000Amortization expense - patent 3,000Rent expense 2,000Total operating expenses 58,000Income from operations 44,000Other items:Loss on sale of equipment (2,000)

Income before income tax 42,000Income tax expense 16,000Net income 26,000

Manor CorporationComparative Balance SheetsDecember 31, 2016 and 2015

2016 2015AssetsCurrent assetsCash and cash equivalents 19,000 3,000Accounts receivable 22,000 23,000Inventories 34,000 31,000Prepaid expenses 1,000 3,000Total current assets 76,000 60,000Long-term investments 18,000 10,000Equipment, net 67,000 52,000Patent, net 44,000 10,000Total Assets 205,000 132,000LiabilitiesCurrent liabilitiesAccounts payable 35,000 26,000Accrued liabilities 7,000 9,000Income tax payable 10,000 10,000Total current liabilities 52,000 45,000Long-term note payable 44,000 -Bonds payable 40,000 53,000Owner’s equityShare capital 52,000 20,000Retained earnings 27,000 19,000Less: Treasury shares (10,000) (5,000)Total liabilities and equity 205,000 132,000

Transaction data for 2016:

Purchase of equipment 98,000Payment of cash dividends 18,000Issuance of shares to retire bonds payable 13,000Purchase of long-term investment 8,000Purchase of treasury shares 5,000Issuance of long-term note payable to purchase patent 37,000Issuance of long-term note payable to borrow cash 7,000Issuance of shares for cash 19,000Sale of equipment (book value, P76,000) 74,000

Question 1How much is the increase in additional paid in capital after the initial public offer of

Crown Asia Compounders Corp?

64,780,000 68,760,000 72,400,000 86,600,800

Practical Accounting 1 - Uncategorized (Uncategorized)

Question 2How much is the expected gross proceeds of the initial public offer?

235,000,000 220,000,000 225,000,000 222,780,000


41 x 158,000,000 million issued shares = 222,780,000

Question 3The Philippine Stock Exchange (PSE) requires to exercise the preemptive right to

shareholders because it

allows managers to buy additional shares below the current market price

will result in higher dividends per share

is included in every corporate charter

protects the current shareholders against a dilution of their ownership interests


Question 4How much is the net income of Infinity Inc.?

48,000 60,000 70,000 75,000

SOLUTION:

Infinity Inc.Income Statement

Year Ended December 31, 2016Revenues and gains:Sales revenue 620,000Gain on sale of PPE 21,000

Total revenues and gains 641,000Expenses and lossesCost of goods sold 380,000Selling expenses 78,000General expenses 62,000Interest expense 30,000Loss due to a lawsuit 11,000Income tax expense 32,000Total expenses and losses 593,000Income from continuing operations 48,000Discontinued operations, P20,000 less income tax of P8,000

12,000

Net income 60,000


Question 5How much is the market valuation of the company after initial public offer?

890,675,456 889,341,317 825,091,780 855,817,541


41 x 158,000,000 million issued shares = 222,780,000

222,780,000 /25.05% = 889,341,317

Question 6How much is the ending balance of the retained earnings of Infinity, Inc.?

152,000 168,000 160,000 155,000

SOLUTION:


Year Ended December 31, 2016Revenues and gains:Sales revenue 620,000Gain on sale of PPE 21,000Total revenues and gains 641,000Expenses and lossesCost of goods sold 380,000Selling expenses 78,000General expenses 62,000

Interest expense 30,000Loss due to a lawsuit 11,000Income tax expense 32,000Total expenses and losses 593,000Income from continuing operations 48,000Discontinued operations, P20,000 less income tax of P8,000

12,000

Net income 60,000

EPS=(Income-Preference dividends)/Ordinary shares outstanding Preference dividends

= P50,000 x .08 = 4,000 Ordinary shares outstanding = 45,000 issued-5,000 treasury

shares=40,000 shares outstanding Earnings per share

Income from continuing operations (48,000-4,000)/40,000 shares

1.10

Income from discontinued operations (12,000/40,000 shares) .30Earnings per share (60,000 - 4,000)/40,000 shares 1.40

Infinity, Inc.Statement of Changes in EquityYear Ended December 31, 2016

Retained earnings balance, beginning, as originally reported

103,000

Prior-period adjustment credit 5,000Retained earnings balance, beginning as adjusted 108,000Net income for current year 60,000

168,000Dividends for current year (16,000)Retained earnings balance, ending 152,000


Question 7Which of the following statements is correct?

A major disadvantage of financing with preferred stock is that preferred stockholders

typically have supernormal voting right

Preferred stock is normally expected to provide steadier, more reliable income to

investors than the same firm’s common stock, and, as a result, the expected after-tax

yield on the preferred is lower than the after-tax expected return on the common stock

The preemptive right is a provision in all corporate charters that gives preferred

stockholders the right to purchase (on a pro rata basis) new issues of preferred stock

One of the disadvantages to a corporation of owning preferred stock is that 70% of

the dividends received represent taxable income to the corporate recipient, whereas

interest income earned on bonds would be tax free


Question 8How much is the earnings per share of Infinity Inc.?

1.20 1.80 1.40 1.60

SOLUTION:


Year Ended December 31, 2016Revenues and gains:Sales revenue 620,000Gain on sale of PPE 21,000Total revenues and gains 641,000Expenses and lossesCost of goods sold 380,000Selling expenses 78,000General expenses 62,000Interest expense 30,000Loss due to a lawsuit 11,000Income tax expense 32,000Total expenses and losses 593,000Income from continuing operations 48,000Discontinued operations, P20,000 less income tax of P8,000

12,000

Net income 60,000

EPS=(Income-Preference dividends)/Ordinary shares outstanding Preference dividends

= P50,000 x .08 = 4,000 Ordinary shares outstanding = 45,000 issued-5,000 treasury

shares=40,000 shares outstanding Earnings per share

Income from continuing operations (48,000-4,000)/40,000 shares

1.10

Income from discontinued operations (12,000/40,000 shares) .30

Earnings per share (60,000 - 4,000)/40,000 shares 1.40



In the statement of cash flows, a decrease in accounts receivable is reported as a

use of cash

Dividends do not show up in the statement of cash flows because dividends are

considered to be a financing activity, not an operating activity

In the statement of cash flows, a decrease in accounts payable is reported as a use

of cash

In the statement of cash flows, depreciation charges are reported as a use of cash


Question 10Which of the following statements is correct for Crown Asia Compounders Corp ?

Accounts receivable are reported as a current liability on the balance sheet

If a company pays more in dividends than it generates in net income, its retained

earnings as reported on the balance sheet will decline from the previous year's balance.

If a company uses some of its bank deposits to buy short-term, highly liquid

marketable securities, this will cause a decline in its current assets as shown on the

balance sheet

Dividends paid reduce the net income that is reported on a company’s income

statement



The statement of cash flows shows where the firm’s cash is located; indeed, it

provides a listing of all banks and brokerage houses where cash is on deposit

The statement of cash flows reflects cash flows from continuing operations, but it

does not reflect the effects of changes in working capital

The statement of cash flows reflects cash flows from operations and from

borrowings, but it does not reflect cash obtained by selling new common stock

The statement of cash flows shows how much the firm’s cash--the total of currency,

bank deposits, and short-term liquid securities (or cash equivalents)--increased or

decreased during a given year


Question 12Which item on Maine’s income statement has the most favorable trend during 2015-

2016?

Food and paper costs

Total revenues

Payroll and employee benefits

Net incomeSOLUTION:

(2,691-1,124/1,124) = 139.40%


Question 13Manor acquired a Brazilian company to become its subsidiary. When Manor acquired

this subsidiary, the exchange rate of the Brazilian currency, the real, was .40 euros. The

average rate applicable to retained earnings is 0.41 euros. The real’s current exchange

rate is 0.43 euros.

RealsAssets 900,000Liabilities 600,000Shareholders’ equityShare capital 30,000Retained earning 270,000

How much is the foreign currency translation adjustment?

0 6,300 8,000 12,000

SOLUTION:

This scenario will generate a positive translation adjustment, which is like a gain. The

gain occurs because the real’s current exchange rate, which is used to translate net

assets (assets minus liabilities), exceeds the historical exchange rates used for

shareholders’ equity.

Reals Exchange rate EurosAssets 900,000 0.43 387,000Liabilities 600,000 0.43 258,000Shareholders’ equityShare capital 30,000 0.40 12,000Retained earnings 270,000 0.41 110,700Accumulated other comprehensive income:Foreign currency translation adjustment

900,000 387,000


Question 14On Maine’s common-size balance sheet, goodwill would appear as

1,780 million up by 11.9% 0.068 10.06% of total revenue

SOLUTION:

(1,780/26,060) = 0.068


Question 15Maine’s inventory turnover for 2016 was

17 times 61 times 25 times 72 times

SOLUTION:

(P3,300/(P140 + P120)/2) = 25 times


Question 16How much is the net cash provided (used) by financing activities of Manor Corporation?

2,000 (11,000) 8,000 3,000SOLUTION:

Manor CorporationStatement of Cash Flows

Year Ended December 31, 2016Cash flows from operating activities:Net income 26,000Adjustments to reconcile net income to net cash provided by operating activities:Depreciation 7,000Amortization 3,000Loss on sale of equipment 2,000Decrease in accounts receivable 1,000Increase in inventories (3,000)Decrease in prepaid expenses 2,000Increase in accounts payable 9,000Decrease in accrued liabilities (2,000) 19,000Net cash provided by operating activities 45,000Cash flows from investing activitiesPurchase of equipment (98,000)Sale of equipment 74,000Purchase of long-term investment (8,000)Net cash used for investing activities (32,000)Cash flows from financing activitiesIssuance of shares 19,000Payment of cash dividends (18,000)Issuance of long-term note payable 7,000Purchase of treasury shares (5,000)Net cash provided by financing activities 3,000Net increase on cash 16,000Cash balance, December 31, 2015 3,000Cash balance, December 31, 2016 19,000


Question 17Maine’s average collection period for accounts and notes receivables is

32 days 2 days 17 days 1 day

SOLUTION:

P780 + (P840/2) / (P17,700/365) = 17 days


Question 18The average debt ratio for most companies is 0.64. Maine’s total debt position looks

risky middle ground safe cannot tell from the financial

SOLUTION:

Debt ratio is P26,060 - P13291)/P26,060 = 0.49. This debt ratio is generally lower than

the average for most companies.


Question 19On May 31, 2016, Maine’s ordinary shares sold for P30 per share. At that price, how

much did investors say P1 of the company’s net income was worth?

1 30 11.15 10.99

SOLUTION:

P30/P2.69 = P11.15


Question 20How much EVA did Maine’s generate for investors during 2016? Assume the cost of

capital was 5%.

2,040 million 1,943 million 3,061 million 2,691 million

SOLUTION:

EVA is economic value added and is used to evaluate a company’s operating

performance. EVA combines the concepts of accounting income and corporate finance

to measure whether the company’s operations have increased shareholder wealth. EVA

= Net income + Interest expense - Capital charge. P2,691 + P370 -

(P305+P9,500+10,615 x 0.05) = P2,040


Question 21How much is the net cash provided by operating activities of Manor Corporation?

45,000 60,000 32,000 65,000

SOLUTION:




Question 22

How much is the net increase in cash of Manor Corporation?

22,000 20,000 16,000 18,000

SOLUTION:




Question 23On May 31, 2016, Maine’s ordinary shares sold for P30 per share and dividends per

share were P0.50. Compute Maine’s dividend yield during 2016.

2.9% 4.1% 1.7% 5.0%

SOLUTION:

P0.50/P30 = 1.7%


Question 24Crown Asia Compounders Corp

How much is the net cash provided (used) by investing activities of Manor Corporation?

45,000 (32,000) (116,000) 65,000

SOLUTION:


Year Ended December 31, 2016Cash flows from operating activities:Net income 26,000Adjustments to reconcile net income to net cash provided by operating activities:Depreciation 7,000Amortization 3,000Loss on sale of equipment 2,000Decrease in accounts receivable 1,000Increase in inventories (3,000)Decrease in prepaid expenses 2,000Increase in accounts payable 9,000Decrease in accrued liabilities (2,000) 19,000Net cash provided by operating activities 45,000Cash flows from investing activitiesPurchase of equipment (98,000)Sale of equipment 74,000Purchase of long-term investment (8,000)Net cash used for investing activities (32,000)Cash flows from financing activitiesIssuance of shares 19,000Payment of cash dividends (18,000)Issuance of long-term note payable 7,000Purchase of treasury shares (5,000)Net cash provided by financing activities 3,000Net increase on cash 16,000

Cash balance, December 31, 2015 3,000Cash balance, December 31, 2016 19,000


Question 25Manor needs P500,000 for expansion. Assume Manor has net income of P300,000 and

100,000 shares outstanding. Its management is considering two financing plans. Plan is

to issue P500,000 of 6% bonds payable, and plan 2 is to issue 50,000 shares for

P500,000. Its management believes the new cash can be invested in operations to earn

income of P200,000 before interest and taxes.

Which is a better option?

Borrow P500,000 at 6%

Issue P50,000 shares of share capital

Both options are viable

Management will decide based on long-term leverage options

SOLUTION:

Companies finance their operations in 3 ways: by retained earnings, by issuing shares,

or by issuing bonds (notes payable).

Plan 1 Plan 2Borrow P500,000 at

6%Issue 50,000 shares of

share capital for P500,000

Net income before expansion 300,000 300,000Expected profit income before interest and income tax 200,000 200,000Less interest expense (500,000 x 0.06)

(30,000) 0

Expected project income before income tax 170,000 200,000Less: Income tax expense (40%) (68,000) (80,000)Expected project income 102,000 120,000Total company net income 402,000 420,000Earnings per share after expansion:Plan 1 Borrow (P402,000/100,000 shares) 4.02Plan 2 Issue shares

(P420,000/150,000 shares) 2.80

In this case, borrowing results in higher earnings per share than issuing new shares.

Borrowing has its disadvantages, however. Interest expense may be high enough to

eliminate net income and lead to losses. Also, borrowing creates liabilities that must be

paid during bad years as well as good years. In contrast, a company that issues shares

can omit its dividends during a bad year.


Question 26Jojy Corporation encounters the following product cost situations as part of its quarterly

reporting:

1 It only conducts inventory counts at the end of the 2nd quarter and end of the fiscal year. Its typical gross profit is 30%. The actual gross profit at the end of the 2nd quarter is determined to have been 32% for the first 6 months of the year. The actual gross profit at the end of the year is determined to have been 29% for the entire year.

2 It determines that, at the end of the 2nd quarter, due to peculiar market conditions, there is a net realizable value adjustment to certain inventory required in the amount of P90,00. Jojy expects that this market anomaly will be corrected by year-end, which indeed does occur in late December.

3 It suffers a decline of P65,000 in the market value of its inventory during the third quarter. This inventory value increases by P75,000 in the 4th quarter.

4 It suffers a clearly temporary decline of P10,000 in the market value of a specific part of its inventory in the first quarter, which recovers in the 2nd quarter.

The sales of the Company are as follows:

1st Quarter 10,000,0002md Quarter 8,500,0003rd Quarter 7,200,0004th Quarter 11,800,000

How much is the total cost of goods sold in the 4th quarter?

9,005,000 7,100,000 5,660,000 8,850,000SOLUTION:

1st Qrtr 2nd Qrtr 3rd Qrtr 4th Qrtr Full YearSales 10,000,000 8,500,000 7,200,000 11,800,000 37,500,000

COS % 70% - 70% - -COS, GP method

7,000,000 - 5,040,000 - -

COS based on actual count - 5,580,000

(1)- 9,005,000

(2)26,625,000

Temporary net realizable value decline in specific inventory (3)

- 90,000 - (90,000) -

Decline in inventory value with subsequent increase (4) - - 65,000 (65,000) -Temporary decline in inventory value (5) 10,000 (10,000) - - -Total COS 7,010,000 5,660,000 5,105,000 8,850,000 26,625,000

(1) 18,000,000 x (1-32% gross margin) - 7,000,000 (1st quarter cost of sales) (2)

37,500,000 sales x (1-29% gross margin) - 17,620,000 (Quarters 1-3 cost of sales) (3)

Eventhough anticipated to recover, the NRV decline must be recognized. (4) Full

recognition of market value decline, followed by recognition of market value increase,

but only in the amount needed to offset the amount of the initial decline. (5) No deferred

recognition to temporary decline in value.


Question 27Mint Manufacturing is a manufacturing business. During 2013 financial year, the

directors reviewed Mint’s accounting policies and identified inventories as an area

where it could change the current accounting policy with respect to inventory to better

reflect the actual economic substance of its business.

The directors decided to change the valuation method used for raw material from the

weighted average cost method to the FIFO method.

The value of the inventories is as follows:

Weighted average FIFO

December 31, 2012

160,000 140,000

December 31, 2013

190,000 160,000

Mint was unable to obtain figures as at January 1, 2012, for inventory in terms of FIFO

as it was determined to be impractical. Ignore any income tax effects.

How much is the net decrease in inventory value to be recorded as part of cost of sales

on December 31, 2013?

10,000 50,000 30,000 20,000

SOLUTION:

The changes in the closing carrying amounts of inventories due to the change in the

accounting policy are as follows:

Weighted average FIFO Decrease in valuesDecember 31, 2012

160,000 140,000 (20,000)

December 31, 2013

190,000 160,000 (30,000)

Due to the change in the accounting policy, the carrying values of inventories decreased

at the beginning of the period with P20,000 and the end of the period with P30,000. The

effect of this decrease is an increase in the cost of sales of P10,000 (30,000-20,000) for

the period ended December 31, 2012. Journal entry: December 31, 2013

Cost of sales 10,000Retained earnings 20,000Inventories 30,000


Question 28Philippine National Bank uses net reporting for most of their cash flow statement line

items. How much of the following items are subject to net reporting?

Acceptance and repayment of demand deposits

15,000,000

Deposits with no fixed maturity dates 5,000,000Cash advances to PNB customers 3,000,000Deposits from other PNB branches 2,000,000

20,000,000 17,000,000 18,000,000 25,000,000

SOLUTION:

IAS 7 permits financial institutions to report cash flow arising from certain activities on a

net basis. Net reporting are acceptable to the following transactions:


Question 29Cash receipts and payments on behalf of customer when the cash flows reflect the

activities of the customers rather than those of the bank, such as acceptance and

repayment of demand deposits;

2. Cash flows relating to deposits with fixed maturity dates;

3. Placements and withdrawals of deposits from other financial institutions;

4. Cash advances and loans to banks customers and repayments.

PTS: 1

29. Which of the following statements is correct?

Since depreciation is a source of funds, the more depreciation a company has, the

larger its retained earnings will be, other things held constant

A firm can show a large amount of retained earnings on its balance sheet yet need

to borrow cash to make required payments.

Common equity includes common stock and retained earnings, less accumulated

depreciation.

Common equity includes common stock and retained earnings, less accumulated

depreciation.


Question 30Siemens Cellular ships a consignment of its smartphone to a retail outlet of the

Consumer Products Division. Siemens Cellular’s cost of the consigned goods is P3,700,

and it shifts the inventory cost into a separate inventory count to track the physical

location of the goods. The entry is as follows:

Consignment out inventory

3,700

Finished goods inventory 3,700

A third party shipping company ships the smartphones from Siemens Cellular to

Consumer Products. Upon receipt of an invoice for this P550 shipping expense,

Siemens Cellular charges the cost to consignment inventory with the following entry:

Consignment out inventory

550

Accounts payable 550

Consumer Products sells half the consigned inventory during the month for P2,750 in

credit card payments, and earn a 22% commission on these sales, totaling P605.

According to the consignment arrangement, Siemens Cellular must reimburse

Consumer Products for the 2% credit card processing fee.

How much is due to Siemens Cellular?

2,090 2,750 2,695 2,550

SOLUTION:

Sales price to Consumer Product’s customer earned on behalf of Siemens Cellular 2,750Less: Amounts due to Customer Product in accordance with arrangement22% sales commission 605Reimbursement for credit card processing fee (2,750 x 2%) 55Due to Siemens Cellular 2,090


Question 31The CFO of Shalit Industries plans to have the company issue P300 million of new

common stock and use the proceeds to pay off some of its outstanding bonds. Assume

that the company, which does not pay any dividends, takes this action, and that total

assets, operating income (EBIT), and its tax rate all remain constant. Which of the

following would occur?

The company’s taxable income would fall.

The company’s interest expense would remain constant.

The company would have less common equity than before

The company’s net income would increase.


Question 32When an accounting error is being corrected, the Company should the disclose the

following except:

The nature of the error

The effect of the restatement on each line item in the financial statements.

The amount of the correction for each prior period presented.

That comparative information has been restated, or that the restatement for a

particular prior period has not been made because it would require undue cost.

SOLUTION:

When an accounting error is being corrected, the reporting entity is to disclose the

following:


Problem:Jojy Corporation encounters the following product cost situations as part of its quarterly

reporting:

1 It only conducts inventory counts at the end of the 2nd quarter and end of the fiscal year. Its typical gross profit is 30%. The actual gross profit at the end of the 2nd quarter is determined to have been 32% for the first 6 months of the year. The actual gross profit at the end of the year is determined to have been 29% for the entire year.

2 It determines that, at the end of the 2nd quarter, due to peculiar market conditions, there is a net realizable value adjustment to certain inventory required in the amount of P90,00. Jojy expects that this market anomaly will be corrected by year-end, which indeed does occur in late December.

3 It suffers a decline of P65,000 in the market value of its inventory during the third quarter. This inventory value increases by P75,000 in the 4th quarter.

4 It suffers a clearly temporary decline of P10,000 in the market value of a specific part of its inventory in the first quarter, which recovers in the 2nd

quarter.

The sales of the Company are as follows:

1st Quarter 10,000,0002md Quarter 8,500,0003rd Quarter 7,200,0004th Quarter 11,800,000

Question 33How much is the total cost of goods sold in the 1st quarter?

7,000,000 7,010,000 5,600,000 7,050,000

SOLUTION:

1st Qrtr 2nd Qrtr 3rd Qrtr 4th Qrtr Full YearSales 10,000,000 8,500,000 7,200,000 11,800,000 37,500,000COS % 70% - 70% - -COS, GP method

7,000,000 - 5,040,000 - -


(1)- 9,005,000

(2)26,625,000


- 90,000 - (90,000) -









Question 34How much is the total cost of goods sold in the 2nd quarter?

7,000,000 7,010,000 5,660,000 6,050,000

SOLUTION:


7,000,000 - 5,040,000 - -


(1)- 9,005,000

(2)26,625,000


- 90,000 - (90,000) -









Question 35How much is the total cost of goods sold in the 3rd quarter?

5,105,000 6,010,000 5,660,000 6,050,000

SOLUTION:


7,000,000 - 5,040,000 - -


(1)- 9,005,000

(2)26,625,000


- 90,000 - (90,000) -









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