ACC 109: INTERMEDIATE ACCOUNTING, PART 4 3RD GRADING PERIOD

CASH FLOWS, ACCOUNTING FOR ERRORS AND EVENTS QUIZ

AFTER THE REPORTING PERIOD

NAME: ____________________________________________ SCORE:____________________

SECTION: _________________________________________ DATE: ____________________

GENERAL INSTRUCTIONS:
A. TEST PAPER, PENS/PENCIL, CALCULATOR AND DRINKING WATER ARE ONLY ALLOWED TO
BE USED DURING THE TEST. ALL OTHER THINGS MUST BE PLACED IN FRONT OF THE
ROOM.
B. WRITE YOUR ANSWER ON THE SPACE BEFORE EACH NUMBER.
C. STRICTLY NO ERASURES, SUPERIMPOSITIONS, CUTTING OF PAPER, OR ANY OTHER
MEANS IN ALTERING YOUR ANSWER.
D. USE BLACK OR BLUE INK IN WRITING YOUR FINAL ANSWER. ERASABLE INKS ARE
PROHIBITED.
E. NON-COMPLIANCE FOR INSTRUCTIONS A-D WILL GIVE THE STUDENT CORRESPONDING
DEDUCTIONS.
F. TIME ALLOTMENT: TAKE HOME
G. POINTING SYSTEM: PART I&II - 1 PT EACH; PART III – 1 PT PER BOX; PART IV
– 1 PT EACH; PART V – 2 PTS FOR EACH REQUIREMENT

PART I: TRUE OR FALSE

________1. The net cash flow from operations must be reported using the direct
method.
________2. The direct method is generally favored by analysts and other users
of cash flow statements.
________3. Noncash items, such as depreciation expense, must be added to net
income to arrive at net cash provided by (used in) operating activities when
the indirect method is used.
________4. According to PAS 7 Statement of Cash Flows, an entity shall disclose
the components of cash and cash equivalents and shall present a reconciliation
of the amounts in its statement of cash flows with the equivalent items
reported in the statement of financial position.
________5. When using the indirect method, losses are subtracted from net income
in computing cash flow from operations.
________6. The indirect method of reporting net cash flow from operations shows
the operating cash receipts and cash payments.
________7. All transactions with investment securities, held for trading
securities, FVOCI securities, and amortized cost securities are reported in
the investing section of the statement of cash flows.
________8. The receipt of dividends should be classified as an operating
activity only, while the payment of dividends is to be classified as a
financing activity only according to PAS 7.
________9. When the indirect method is used, separate disclosure of interest
paid and income taxes paid is required.
________10. Net cash provided by (used in) operating, financing, and investing
activities are combined to derive the amount of cash and cash equivalents at
the end of the year.
________11. The primary distinction between a change in accounting estimate and
the correction of an error is the timing of availability of information; a
change in estimate is based on new information not previously available.
________12. All changes in accounting policy are accounted for by retrospective
application.
________13. A company changes its depreciation method for machinery and
equipment from sum-of-the-years'-digits depreciation to the straight-line
method. This is a change in accounting estimate.
________14. A company reduces the lives of several patents from 17 to 10 years
because of rapid technological change. This is a change in accounting
policy.

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ACC 109: INTERMEDIATE ACCOUNTING, PART 4 3RD GRADING PERIOD
CASH FLOWS, ACCOUNTING FOR ERRORS AND EVENTS QUIZ
AFTER THE REPORTING PERIOD

________15. An analysis of the allowance for doubtful accounts showed the

balance should be reduced by ₱27,500 due to recent changes in economic
conditions. This is a change in accounting estimate.
________16. A company changes from a non-acceptable to an acceptable accounting
principle. This is a change in accounting policy.
________17. A company changes its depreciation method at the same time it
recognizes a change in the estimated useful life of the asset. This is a
change in accounting policy.
________18. The understatement of merchandise inventory is an example of an
error that counterbalances after two years.
________19. Failure to record amortization is an example of a non-counter
balancing error.
________20. An understatement in ending inventory results to overstatement of
profit during the period.

PART II
Instruction: State whether the following events are adjusting or non-adjusting
events after the reporting period. All events took place after the end of the
reporting period but before the financial statements are authorized for issue

________1. The entity guarantees the debt of another entity.

________2. Settlement of a contingent event at an amount below the provision
recognized as at the end of the reporting period.
________3. Major acquisition of a competitor company.
________4. The actual sale of noncurrent assets held for sale provides
information on the asset’s fair value less costs to sell as at the end of
the reporting period.
________5. The resolution of a contingent event which provides evidence of the
entity’s obligation to pay bonus to a key management personnel for the
services he has rendered during the reporting period.
________6. The conditions under PFRS 5 Non-current Assets Held for Sale and
Discontinued Operations for classifying a noncurrent asset or disposal group
as held for sale are met.
________7. Change in income tax rate.
________8. The discovery that the accumulated patent amortization is
understated.
________9. A board resolution to change the depreciation method used for
buildings.
________10. Adoption and announcing of a formal plant to close a business
segment.

PART III
Indicate how the error will affect the current year’s financial statements by
writing “O” if the effect on the column is overstated, “U” if it is understated,
“NE” if no effect. (3 points for each number)

The auditors of Cinacaya Co. have found the following errors in the company’s
accounting records.
Net Retained Working
ERRORS
Income Earnings capital
1. Cinacaya fails to record a sale on account for
80,000.
2. The inventory was miscounted at year-end and
overstated by 5,000.
3. Cinacaya fails to record depreciation expense of
3,500 for the year.

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ACC 109: INTERMEDIATE ACCOUNTING, PART 4 3RD GRADING PERIOD
CASH FLOWS, ACCOUNTING FOR ERRORS AND EVENTS QUIZ
AFTER THE REPORTING PERIOD

4. The company receives a utility bill for 400 on

December 29, but fails to record the bill.
5. Available-for-sale securities were not marked to
market. Later analysis reveals that the securities
increased in value by 4,000 as of the end of the
current year.
6. Cinacaya fails to accrue wages of 17,000 at the end
of the year.
7. Trading securities were not marked to market. Later
analysis reveals that the securities declined in
value by P8,000 as of the end of the current year.

PART IV

Indicate if it’s an operating activity (OA), investing activity (IA), and

financing activity (FA). Indicate also if it’s an inflow (+) or outflow (-).

________1. Paid the weekly payroll

________2. Paid an account payable
________3. Issued bonds payable for cash
________4. Declared and paid a cash dividend
________5. Paid cash for a new piece of equipment
________6. Purchased treasury stock for cash
________7. Paid cash for stock in another company
________8. Received interest on a long-term bond investment
________9. Received cash for sales
________10. Sold a long-term stock investment for cash at book value

PART V: PROBLEM SOLVING

1. Siapno Company had the following account balances for 2002:

31-Dec 1-Jan
Accounts Payable 67,200 58,200
Prepaid Rent Expense 24,600 37,200
Accounts Receivable (net) 84,000 66,600

Siapno's 2002 profit is ₱450,000. What amount should Siapno include as net cash
provided by operating activities in its 2002 statement of cash flows?

2. Honest Corporation’s 2002 income statement reported cost of goods sold as

₱135,000. Additional information is as follows:
31-Dec-02 31-Dec-01
Inventory 30,000 22,500
Accounts Payable 13,000 19,500

If Honest uses the direct method, what amount should Honest report as cash paid
to suppliers in its 2002 statement of cash flows?

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ACC 109: INTERMEDIATE ACCOUNTING, PART 4 3RD GRADING PERIOD
CASH FLOWS, ACCOUNTING FOR ERRORS AND EVENTS QUIZ
AFTER THE REPORTING PERIOD

Use the following for the next three questions:

Frye Company uses the direct method to prepare its statement of cash flows. The
company had the following cash flows during 2002:
Cash receipts from the issuance of ordinary shares 400,000
Cash receipts from customers 200,000
Cash receipts from dividends on long-term investments 30,000
Cash receipts from repayment of loan made to
220,000
another entity
Cash payments for wages and other operating expenses 120,000
Cash payments for insurance 10,000
Cash payments for dividends 20,000
Cash payments for taxes 40,000
Cash payment to purchase land 80,000

3. The net cash provided by (used in) operating activities is

4. The net cash provided by (used in) investing activities is

5. The net cash provided by (used in) all activities is

6. Trust Co. reported a retained earnings balance of ₱400,000 at December 31,

20X8. In August 20X9, Trust determined that insurance premiums of ₱60,000
for the three-year period beginning January 1, 20X8, had been paid and fully
expensed in 20X8. Trust has a 30% income tax rate. What amount should Trust
report as adjusted beginning retained earnings in its 20X9 statement of
retained earnings?

7. Dhe Aquo Magchicheat Corp. failed to accrue warranty costs of ₱50,000 in its
December 31, 20X4, financial statements. In addition, a change from
straight-line to accelerated depreciation made at the beginning of 20X5
resulted in a cumulative effect of ₱30,000 on Dhe Aquo Magchicheat's
retained earnings. Both the ₱50,000 and the ₱30,000 are net of related
income taxes. What amount should Dhe Aquo Magchicheat report as prior period
adjustment in 20X5?

The next three items are based on the following:

Declaration, Inc., is a calendar year corporation. Its financial statements for
the years 20x2 and 20x1 contained errors as follows:
20x2 20x1
Beginning inventory ₱1,000 understated ₱3,000 overstated
Depreciation expense ₱800 understated ₱2,500 overstated

8. Assume that the proper correcting entries were made at December 31, 20x1. By
how much will 20x2 income before income taxes be overstated or understated?

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ACC 109: INTERMEDIATE ACCOUNTING, PART 4 3RD GRADING PERIOD
CASH FLOWS, ACCOUNTING FOR ERRORS AND EVENTS QUIZ
AFTER THE REPORTING PERIOD

9. Assume that no correcting entries were made at December 31, 20x1. Ignoring
income taxes, by how much will retained earnings at December 31, 20x2, be
overstated or understated?

10. Assume that no correcting entries were made at December 31, 20x1, or
December 31, 20x2, and that no additional errors occurred in 20x3. Ignoring
income taxes, by how much will working capital at December 31, 20x3, be
overstated or understated?

11. Bren Co.'s beginning inventory at January 1, 20x3, was understated by

₱26,000, and its ending inventory was overstated by ₱52,000. As a result,
Bren's cost of goods sold for 20x3 is at what amount?

The next three items are based on the following:

The bookkeeper of Papasa Aquo Nangdi Nagchicheat Company, which has an accounting
year ending December 31, made the following errors:
• A ₱1,000 collection from a customer was received on December 29, 20x0, but
not recorded until the date of its deposit in the bank, January 4, 20x1.
• A supplier's ₱1,600 invoice for inventory items received in December 20x0
was not recorded until January 20x1. (Inventories at December 31, 20x0 and
20x1, were stated correctly, based on physical count.)
• Depreciation for 20x0 was understated by ₱900. In September 20x0, a ₱200
invoice for office supplies was charged to the Utilities Expense account.
Office supplies are expensed as purchased.
• December 31, 20x0, sales on account of ₱3,000 were recorded in January 20x1.

Assume that no other errors have occurred and that no correcting entries have
been made. Ignore income taxes.

12. Profit for 20x0 is at what amount?

13. Assume the same facts as above. Working capital at December 31, 20x0, was

14. Assume the same facts as above. Total assets at December 31, 20x0, were

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ACC 109: INTERMEDIATE ACCOUNTING, PART 4 3RD GRADING PERIOD
CASH FLOWS, ACCOUNTING FOR ERRORS AND EVENTS QUIZ
AFTER THE REPORTING PERIOD

15. BOWDLERIZE TO EDIT Company’s current reporting period ends on December 31,
20x1. The following transactions occurred after the end of reporting period:
a. On January 5, 20x2, BOWDLERIZE declared ₱4,000,000 dividends.
b. On January 15, 20x2, BOWDLERIZE issued 1,000 shares with par value per
share of ₱200 for ₱1,200 per share.
c. On January 20, 20x2, BOWDLERIZE installed an oil rig. Current legislation
requires that the oil rig be uninstalled at the end of its useful life and
the site where it was installed be restored. BOWDLERIZE estimates the
present value of the decommissioning and restoration cost at ₱2,000,000.
d. On February 1, 20x2, a building with a carrying amount as of December 31,
20x1 of ₱1,000,000 was totally razed by fire.
e. On February 10, 20x2, BOWDLERIZE received notice of a litigation in
relation to an accident that happened on December 31, 20x1. BOWDLERIZE
estimates a probable loss of ₱400,000.
f. On March 5, 20x2, BOWDLERIZE purchased a subsidiary for ₱20,000,000 in a
business combination accounted for using the acquisition method. Goodwill
of ₱5,000,000 was recognized on the business combination.

The financial statements were authorized for issue on March 1, 20x2.

Requirement: Compute for the total amount of adjusting events.

16. PANTALOON TROUSER Company’s current reporting period ends on December 31,
20x1. The following transactions occurred after the end of reporting period:
a. On January 20, 20x2, a pending litigation was resolved requiring a
settlement amount of ₱200,000. The 20x1 year-end financial statements
included a provision for loss on litigation of ₱240,000.
b. Inventories costing ₱2,000,000 were recognized at their net realizable
value of ₱1,800,000 in the 20x1 year-end financial statements. During
January 20x2, the inventories were sold for ₱1,760,000. Actual selling
costs amounted to ₱60,000.
c. The year-end accounts receivable include a ₱200,000 receivable from XYZ,
Inc. No allowance for doubtful accounts was recognized on this receivable
as of December 31, 20x1. On February 3, 20x2, XYZ filed for bankruptcy. It
was estimated that the receivable will not be collected.
d. The fair value of financial assets measured at fair value through profit
or loss significantly declined to ₱160,000 on February 28, 20x2. The
financial assets are recognized in the 20x1 year-end financial statements
at ₱600,000 which is their fair value as of December 31, 20x1.
e. On March 5, 20x2, a case was resolved requiring a settlement amount of
₱400,000. The 20x1 year-end financial statements included a provision for
loss on litigation of ₱300,000.

PANTALOON Company’s profit for the year ended December 31, 20x1 before
consideration of the above transactions is ₱4,400,000. The financial statements
were authorized for issue on March 1, 20x2.

Requirement: Compute for the adjusted profit for the year. Provide journal
entries.

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