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FAR_2

The document discusses financial accounting and reporting concepts, focusing on comprehensive income and accounting changes for various companies. It presents scenarios with financial data and asks whether certain statements regarding net income adjustments, depreciation methods, and inventory valuation changes are true or false. The document includes multiple-choice questions to assess understanding of these accounting principles.

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Rosalie Milanes
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7 views3 pages

FAR_2

The document discusses financial accounting and reporting concepts, focusing on comprehensive income and accounting changes for various companies. It presents scenarios with financial data and asks whether certain statements regarding net income adjustments, depreciation methods, and inventory valuation changes are true or false. The document includes multiple-choice questions to assess understanding of these accounting principles.

Uploaded by

Rosalie Milanes
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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FINANCIAL ACCOUNTING and REPORTING (FAR)

HANDOUT #2: FAR-02


TOPIC: COMPREHENSIVE INCOME AND ACCOUNTING CHANGES

1. Foolish One Company reported the following data for the current year:
Net sales 9,500,000
Cost of goods sold 4,000,000
Selling expenses 1,000,000
Administrative expenses 1,200,000
Interest expense 700,000
Gain from expropriation of land 500,000
Income tax 800,000
Income from discontinued operation 600,000
Unrealized gain on equity investment at FVOCI 900,000
Unrealized loss on debt investment at FVOCI 200,000
Unrealized loss on forward contract designated as a cash flow hedge 400,000
Actuarial loss on defined benefit plan due to actuarial assumptions 300,000
Foreign translation gain 100,000
Loss on credit risk of financial liability designated at FVPL 700,000
Revaluation surplus during the current year 2,500,000

I. The net amount of other comprehensive income should be reported at P1,900,000.


II. The net amount of other comprehensive income reclassified to retained earnings should be
reported at P2,400,000.
III. The comprehensive income should be reported at P2,900,000.
A. Statements I, II and III are true
B. Statements I, II and III are not true
C. Only statements I and II are true
D. Only statements I and III are true

2. Timeless Corp. reported net income of P7,400,000 for the current year. The auditor raised
questions about the following amounts that had been included in net income:

Equity in earnings of an associate – 25% interest 1,500,000


Dividend received from the associate 400,000
Unrealized loss on equity investment at FVOCI 550,000
Gain on early retirement of bonds payable 2,200,000
Debit adjustment of profit of prior year for error in underdepreciation, net of tax 750,000
Loss from fire 1,400,000
Unrealized gain on equity investment at FVPL 500,000
I. The adjusted net income should be reported at P8,700,000
II. Unrealized gain or loss on equity investment at FVOCI is a component of profit or loss
III. Any prior period error is accounted for as an adjustment of the beginning balance of
retained earnings
A. Statements I, II and III are true
B. Statements I, II and III are not true
C. Only statements I and II are true
D. Only statement III is true
3. On January 1, 2022, an entity purchased for P5,000,000 a machine with useful life of ten years
and residual value of P200,000. The machine was depreciated by the double declining balance
method and the carrying amount of the machine was P3,200,000 on December 31, 2023. The
entity changed to the straight line method on January 1, 2024 and the residual value did not
change.

I. The carrying amount of the asset should be reported at P2,825,000 on December 31, 2024.
II. A change from double declining balance to straight line depreciation is a change in
accounting estimate
A. Statements I and II are true
B. Statements I and II are not true
C. Only statement I is true
D. Only statement is true

4. Speak Now Inc. was incorporated on January 1, 2021. In preparing the financial statements for
the year ended December 31, 2023, the entity used the following original cost and useful life:

Building 15,000,000 15 years


Machinery 10,500,000 10 years
Furniture 3,500,000 7 years
On January 1, 2024, the entity determined that the remaining useful life is 10 years for the
building, 7 years for the machinery and 5 years for the furniture. The entity used the straight line
method of depreciation with no residual value.
What amount should be reported as total depreciation for 2024?
A. 2,650,000
B. 3,700,000
C. 2,550,000
D. 3,500,000

5. During 2024, Long Live Corp. decided to change from the FIFO method of inventory valuation to
the weighted average method. Inventory balances under each method were:

FIFO Weighted Average


December 31, 2021 4,500,000 5,400,000
December 31, 2022 7,800,000 7,100,000
December 31, 2023 8,300,000 7,800,000

The income tax rate is 25%.


I. The net effect of the accounting change should be reported as P500,000 decrease in
retained earnings.
II. A change from FIFO to weighted average of inventory valuation is a change in accounting
policy requiring prospective application.
A. Statements I and II are true
B. Statements I and II are not true
C. Only statement I is true
D. Only statement II is true
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