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Chapter 1
Statement of Financial Position
NAME: Date: Professor: Section: Score: QUIZ 1:
- 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.
- 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
- 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
- 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.
- 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
independent external party at least annually management. Furthermore, the entities financial statements should be audited by an d. to establish a system of internal control the responsibility for which is the entity’s P a g e | 2
- 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.
- 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. .
- 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; 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
- 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
P a g e | 4 NAME: Date: Professor: Section: Score: QUIZ 2:
1. Below are the account balances prepared by the bookkeeper for SQUELCH TO SILENCE Company as of December 31, 20x1: Assets Liabilities Cash 30,000 Accounts payable 40, Accounts receivable, net 88,000 Notes payable 200, Inventory 80, Prepaid income tax 16, Prepaid assets 10, Investment in subsidiary 20, Land held for sale 56, Property, plant and equipment 100, Totals 400,000 240, Additional information:
- Cash consists of the following: Petty cash fund (unreplenished petty cash expenses, ₱3,000) 4, Cash in bank (20,000) Payroll fund 28, Tax fund 14, Cash to be contributed to a sinking fund set up for the retirement of bonds maturing on December 31, 20x3 4, Total Cash 30,
- Checks amounting to ₱61,000 were written to suppliers and recorded on December 30, 20x1, resulting to a bank overdraft of ₱20,000. The checks were mailed on January 5, 20x2.
- Accounts receivable consists of the following: Accounts receivable 80, Allowance for uncollectability ( 10,000) Credit balance in customers’ accounts ( 6,000) Selling price of unsold goods sent on consignment to QUELL, Inc. at 120% of cost and excluded from SQUELCH’s inventory 24, Accounts receivable, net 88,
- The inventory includes cost of goods amounting to ₱20,000 that are expected to be sold beyond 12 months but within the ordinary course of business. Also, the inventory includes cost of consigned goods received on consignment from Alpha-Numerix Co. amounting to ₱10,000.
- Prepaid income tax represents excess of payments for quarterly corporate income taxes during 20x1 over the actual annual corporate income tax as of December 31, 20x1.
- Prepaid assets includes a ₱4,000 security deposit on an operating lease which is expected to expire on March 31, 20x3. The security deposit will be received on lease expiration.
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- The land qualified for classification as “asset held for sale” under PFRS 5 Non-current Assets Held for Sale and Discontinued Operations as of December 31, 20x1.
- Accounts payable is net of ₱12,000 debit balance in suppliers’ accounts. Accounts payable includes the cost of goods held on consignment from Alpha-Numerix Co. which were included in inventory.
- The notes payable are dated July 1, 20x1 and are due on July 1, 20x4. The notes payable bears an annual interest rate of 10%. Interest is payable annually. How much is the adjusted working capital?
a. 334,
b. 289,
c. 264,
d. 215,
2. The ledger of INFIRM SICK Co. as of December 31, 20x1 includes the following: 10% Note payable 80, 12% Note payable 120, 14% Mortgage note payable 60, Interest payable - Additional information:
- INFIRM 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, INFIRM 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, INFIRM 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 INFIRM.
- The 14% mortgage note is due on December 31, 20x9. Per agreement with the creditor, INFIRM is to pay quarterly interests on the note, failure to do so will render the note payable on demand. INFIRM failed to pay the 3 rd^ and 4 th^ quarterly interests on the note during 20x1. How much is the total current liabilities?
a. 119,
b. 155,
c. 172,
d. 189,
P a g e | 7 SOLUTIONS TO QUIZ 2:
1. D Solution: The adjusted cash is computed as follows: Cash – unadjusted 30, Unreplenished petty cash expenses Unreleased checks recorded as disbursement resulting to overdraft ( 3,000) 61, Contribution to sinking fund ( 4,000) Adjusted cash balance 84, The adjusted accounts receivable is computed as follows: Accounts receivable 80, Allowance for uncollectibility (10,000) Adjusted accounts receivable, net 70, The adjusted inventory is computed as follows: Inventory* Cost of unsold goods sent out on consignment excluded from inventory (24,000 ÷ 120%) 80, 20, Cost of goods held on consignment (10,000) Adjusted inventory 90, *The cost of inventory expected to be sold beyond 12 months but within the normal operating cycle is properly included as part of cost of inventories presented as current assets. The adjusted prepaid assets are computed as follows: Prepaid assets 10, Security deposit (to be presented as noncurrent) (4,000) Adjusted prepaid assets 6, The adjusted accounts payable is computed as follows: Accounts payable (40,000 + 12,000 debit balance) 52, Unreleased checks recorded as disbursement resulting to overdraft 31, Cost of goods held on consignment ( 10,000) Adjusted accounts payable, net 103, Accrued interest on the notes payable is computed as follows: (P200,000 x 10% x 6/12) 10, The current assets and current liabilities are computed as follows: Current assets Current liabilities Cash Accounts receivable, net Advances to suppliers Inventory Prepaid income tax 84, 70, 12, 90, 16, Accounts payable Advances from customers Interest payable 103, 6, 10,
P a g e | 8 Prepaid assets Land held for sale Total current assets 6, 56, 334, Total current liabilities 119, The adjusted working capital is computed as follows: Working capital = Current assets – Current liabilities Working capital = P 334,000 – P 119, Working capital = P 215,
2. B Solution: 10% Note payable Interest payable on the 12% note (120,000 x 12% x 9/12) 14% Mortgage note payable Interest payable on the 14% note (60,000 x 14% x 6/12) Current liabilities 80, 10, 60, 4, 155,
3. A Solution:
Assets = Liabilities + Equity (1,200,000 + 4,000,000) = (900,000 + Noncurrent liabilities ) + 1,700, Noncurrent liabilities = 5,200,000 – 900,000 – 1,700, Noncurrent liabilities, Jan. 1, 20x1 = 2,600,
4. A Solution:
Working capital = Current assets – Current liabilities Working capital, Jan. 1, 20x1 = 1,200,000 – 900,000 Working capital, Jan. 1, 20x1 = 300, Working capital, Dec. 31, 20x1 = Working capital, Jan. 1, 20x1 times 2 Working capital, Dec. 31, 20x1 = 300,000 x 2 = 600, Working capital = Current assets – Current liabilities 600,000 = Current assets, Dec. 31, 20x1 – 1,000, Current assets, Dec. 31, 20x1 = 1,600,
5. D Solution:
Dividend s Dec. 31 Equity Jan. 1 Profit for the year Assets = Liabilities + Equity (1,600,000 + Noncurrent assets) = (1,000,000 + 3,000,000) + 3,100, Noncurrent assets, Dec. 31, 20x1 = 4,000,000 + 3,100,000 – 1,600, 1,700, 1,000,0002,400, 3,100, 000
