Financial Accounting 2 Reviewer (From Chapter 16-24) Source: PRACTICAL ACCOUNTING
1.) On June 30, 2015, ABC Company prepaid a P1, 000, 000 premium on an annual insurance policy. The premium payment was a tax deductible expense in the 2015 cash basis tax return. The accrual basis income statement will report a P500, 000 insurance expense in 2015 and 2016. The income tax rate is 30%. On December 31, 2015, what amount should be reported as deferred tax liability? 2.) The shareholders of ABC Company approved a two-for-one split of the entity’s share capital, and an increase in authorized shares from 100, 000 shares with P20 par value to P200, 000 shares with P10 par value. The shareholders’ equity accounts immediately before the split shares were share capital P1, 000, 000, share premium P150, 000 and retained earnings P1, 350, 000. What should be the balances in the share premium and retained earnings, respectively, after the share split is affected? 3.) ABC Company was organized January 1, 2015 with 100, 000 authorized shares of P100 par value. The following transactions occurred during the year: January 15
Sold 30, 000 shares at P150 per share
February 14 Issued 2, 000 shares for legal services with a fair value of P300, 000. The shares on this date are quoted at P160 per share. March 27
Purchased 5, 000 treasury shares at cost of P12 per share.
October 31 Issued P4, 000, 000 convertible bonds at 110. The bonds are quoted at 97 without the conversion feature. November 5 Declared a 2-for-1 share split when the market value of the share was P160. December 17
Sold 10, 000 shares at P75 per share.
What total amount should be recognized as share premium on December 31, 2015? 4.) ABC Company, a real estate developer, is owned by five founding shareholders. On December 1, 2015, the entity declared a property dividend of a “one-bedroom flat” for each shareholder. The property dividend is
payable on January 31, 2016. On December 1, 2015, the carrying amount of a one-bedroom flat is P1, 000, 000 and the fair value is P1, 500, 000. However, the fair value is P1, 800, 000 on December 31, 2015 and P1, 900, 000 on January 31, 2016. What is the dividend payable on December 1, 2015? 5.) Refer to the problem in number 4. What amount of gain is included in profit or loss as a result of the settlement of the property dividend on January 31, 2016? 6.) At the beginning of the current year, ABC Company had retained earnings of P4, 000, 000. During the current year, the entity reported net income of P2, 000, 000, sold treasury shares at a “gain” of P720, 000, declared a cash dividend of P1, 200, 000, and declared and issued a small share dividend of 60, 000 shares with P10 par value when the fair value of the share was P20. What is the amount of retained earnings available for dividends at the end of the current year? 7.) ABC Company provided the following information for the year ended December 31, 2015: Retained earnings – unappropriated, January 1 200, 000 Overdepreciation of 2014 due to prior period error 100, 000 Net income for 2015 300, 000 Retained earnings appropriated for treasury shares (original balance is P500, 000. It is reduced by P200, 000 by reason of reissuance of the treasury shares) 300, 000 Retained earnings appropriated for contingencies (beginning balance, P700, 000. It is increased by current appropriation of P100, 000) 800, 000 Cash dividends paid to shareholders Change in accounting policy from FIFO to weighted average method – credit adjustment 150, 000
1,
What amount should be reported as unappropriated retained earnings on December 31, 2015? 8.) ABC Company granted all employees 2 weeks of paid vacation for each full year of employment. Unused vacation time can be accumulated and carried forward to succeeding years and will be paid at the salaries in effect when vacations are taken or when employment is terminated. There was no employee turnover in 2015. Additional information relating to the year ended December 31, 2015 is as follows:
Liability for accumulated vacations on January 1, 2015 000 Pre-2015 accrued vacations taken from January 1, 2015 to September 30, 2015, the authorized period for vacations 000 Vacations earned for work in 2015 adjusted to current rate 000
350,
200,
300,
The entity granted a 10% salary increase to all employees on October 1, 2015, the annual salary increase date. For the year ended December 31, 2015, what amount should be reported as vacation pay expense? 9.) ABC Company has a profit sharing bonus plan which requires the entity to pay 12% of the income for the year to employees who serve throughout the current year and who will continue to serve throughout the following year. The entity reported income of P80, 000, 000 for 2015. The entity expects to save 5% of the maximum possible bonus payment through staff turnover. The bonus will be paid on December 31, 2016. What is the bonus expense for 2015? 10.) ABC Company obtained the following information at the beginning of the current year prior to the adoption of PAS 19R: Projected benefit obligation 9, 000, 000 Fair value of plan assets Unrecognized actuarial loss 500, 000
10, 000, 000 1,
During the current year, the actuary determined the current service cost at P2, 500, 000 and the discount rate at 10%. The actual return on plan assets was P1, 200, 000. Contribution to the plan amounted to P500, 000. The actuarial loss due to increase in PBO during the year was P900, 000 and the average remaining service periods is 10 years. What is the employee benefit expense? 11.) In problem number 10, what is the net remeasurement gain or loss? 12.) In problem number 10, what is the prepaid or accrued benefit cost at year-end? 13.) On January 1, 2015, ABC Company estimated a projected benefit obligation of P4, 400, 000 based on a settlement rate of 12%. Pension benefits paid to retirees totaled P600, 000. Service cost for 2015 amounted to P1, 480, 000. The fair value of plan assets totaled P3, 500, 000 and P4, 000, 000 on January 1, 2015 and December 31, 2015, respectively. What is the projected benefit obligation on December 31, 2015?
14.) A director of ABC Company shall receive a retirement benefit of 10% of the final salary per annum for a contractual period of three years. The director does not contribute to the scheme. The anticipated salary over three years is P1, 000, 000 for 2015, P1, 200, 000 for 2016 and 1, 440, 000 for 2017. The discount rate is 5%. Using the projected unit credit method, what is the estimated pension liability on December 31, 2016? 15.) The directors of ABC Company whose P50 par value share capital is currently selling at P60 per share have decided to issue a stock dividend. The selling price is not expected to be affected by the stock dividend. The entity, which has an authorization for P1, 000, 000 shares, had issued 500, 000 shares, of which 100, 000 shares are now held as treasury. In order to capitalize P2, 400, 000 of retained earnings, what percentage should be declared as a stock dividend by the directors? 16.) On December 31, 2015, ABC Company declared a cash dividend of P800, 000 to shareholders of record on January 15, 2016 and payable on February 15, 2016. The entity reported the following information on December 31, 2015: Accumulated depletion Share capital 000, 000
200, 000 1,
Share premium
300, 000
Retained earnings
600, 000
How much is the liquidating dividend? 17.)
ABC Company provided the following information: Number of shares Preference share capital, P500 par value 2, 200 000 Treasury preference shares, at cost 100 000 Ordinary share capital without par value (at issue price) 3, 000 000 Retained earnings
Amount 1, 100, 110,
600, 2, 500, 000
Due to the substantial amount of retained earnings, the Board of Directors resolved to pay a 100% stock dividend on all shares outstanding, capitalizing amounts of retained earnings equal to the par value and the issue price of the preference and ordinary shares outstanding, respectively, and thereafter to pay a cash dividend of 10% on preference share and a cash dividend of P10 per ordinary share. What amount should be reported as retained earnings after affecting the dividend transactions?
18.) ABC Company was incorporated on January 1, 2015 with the following authorized capitalization: Ordinary share capital, 200, 000 shares, no par, P100 stated value
20, 000, 000
Preference share capital, 200, 000 shares, 10% fixed Rate, P50 par value 000, 000
10,
During 2015, the entity issued 150, 000 ordinary shares for a total of P18, 000, 000 and 50, 000 preference shares at P60 per share. In addition, on December 15, 2015, subscriptions for 20, 000 preference shares were taken at a purchase price of P100. These subscribed shares were paid for on January 15, 2016. Net income for 2015 was P5, 000, 000. What amount should be reported as total contributed capital on December 31, 2015? 19.) ABC Company had depreciation of P300, 000 in the income statement for 2015. In the tax return, ABC had depreciation of P500, 000. ABC’s income statement also included P50, 000 accrued warranty expense that will be deducted for tax purposes when paid. The tax rates are 30% for 2015 and 25% for future years. These were the only temporary differences. What is the deferred portion of the provision for income taxes?
