1/22/23, 9:17 PM Final Examination: Attempt review

Dashboard / Courses / SY 2021-2022 Sem 1 / ACT113-MN512 21-22-1 / FINAL EXAMINATION / Final Examination

Started on Wednesday, 26 January 2022, 8:54 PM

State Finished
Completed on Wednesday, 26 January 2022, 10:09 PM
Time taken 1 hour 15 mins
Grade 14.00 out of 15.00 (93%)

Question 1
Correct

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Computational. ABC operates a defined benefit plan which provides for benefit of 10% of final salary for each year of service. The benefits will
vest after 6 years of service. Beginning of 2017, ABC improves the benefit to 12% of the final salary for every year of service including prior
years. On the date of amendment, the present value of the additional benefits increased as follows:
Employees with more than 6 years of service as of the amendment date 450,550
Employees with less than 6 years of service as of the amendment date
3 years before vesting period - 330,000
4 years before vesting period - 120,000
Determine the amount that will be shown in profit or loss, under PAS19R.

a. P 295,092

b. 590,550

c. 900,550 

d. 0

Question 2
Correct

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Computational. On January 1, 2019, an entity sold a building with remaining life of 20 years, and immediately leases it back for 5 years. The
following information is available:
Sale price - 20,000,000
Fair value of building - 18,000,000
Carrying amount of building - 10,000,000
Annual rental payable at the end of each year - 1,500,000
Implicit interest rate - 6%
Determine the following at the commencement at seller-lessee’s perspective (use 3-decimal PVF). How much is the gain or loss on right
transferred? (Round off final answer to whole number)

Answer: 6,080,889 

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Question 3

Correct

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Computational. An entity entered into a lease of building on January 1, 2019 with the following information: Annual rental payable at the end
of each year - 500,000 Lease term - 5 years Useful life of building - 20 years Implicit interest rate - 10% The lease contained an option for the
lease to extend for a further 5 years. At the commencement date, the exercise of the extension option is not reasonably certain. After 3 years,
however, on January 1, 2022, the lessee decided to extend the lease for a further 5 years. New annual rental payable at the end of each year -
600,000 New implicit interest rate - 8% On January 1, 2022, the present value of lease liability is (Round off final answer to whole number)

Answer: 2,944,700 

Question 4
Correct

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Computational. The records for ABC Co. show this data for 2020:
• Gross profit on installment sales recorded on the books was P300,000. Gross profit from collections of installment receivables was P220,000.
• Life insurance on officers was P3,800. (ABC Company is the beneficiary.)
• Machinery was acquired in January for P300,000. Straight-line depreciation over a ten-year life (no salvage value) is used. For tax purposes,
accelerated depreciation is used and ABC may deduct 14% for 2020.
• Interest received on tax exempt Iowa State bonds was P9,000.
• The estimated warranty liability related to 2020 sales was P19,600. Repair costs under warranties during 2020 were P13,600. The remainder
will be incurred in 2021. For tax purposes. Expenses related to warranty is to be deducted when repair costs are actually rendered.
• Pretax financial income is P450,000. The tax rate is 30%.
The total income tax expense for the year 2020 would be (ignore unit of currency, use comma as separator)

Answer: 133,440 

Question 5
Correct

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Computational. On January 1, 2019, an entity leased a machinery for 4 years which is the same as the useful life of the machinery at annual
rental or fixed payment of P120,000. The lease provides for a transfer of ownership of the underlying asset to the lessee at the end of the
lease term. The implicit interest rate of the lease is 12%. (Do not round off the PVF). The lease payment is to be made at the end of each year.
Determine the noncurrent portion of the lease liability at the end of 2019. (Round off final answer to whole number)

Answer: 202,806 

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Question 6

Incorrect

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Computational. Lessee Company leased a machine on January 1, 2019 with the following pertinent information: Implicit interest rate - 10%
Incremental interest rate - 12% Useful life of the machine - 12 years Lease term - 10 years Fixed rental payment at the end of each year -
900,000 The Lessee Company has the option to purchase the machine upon the lease expiration on January 1, 2029 by paying P400,000. The
lessee is reasonably certain to exercise the purchase option at the commencement date of the lease. The estimated residual value of the
machine at the end of the 12-year life is P500,000. The carrying value of the right-of-use asset at the end of 2019 is

Answer: 4,752,312 

Question 7
Correct

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Computational. A reconciliation of Gentry Company's pretax accounting income with its taxable income for 2022, its first year of operations, is
as follows:
Pretax accounting income - P3,000,000
Excess tax depreciation - (90,000)
Taxable income - P2,910,000
The excess tax depreciation will result in equal net taxable amounts in each of the next three years. Enacted tax rates are 40% in 2022, 35% in
2023 and 2024, and 30% in 2025. The total deferred tax liability to be reported on Gentry's statement of financial position at December 31,
2022, is

a. P31,500.

b. P27,000.

c. P30,000. 

d. P36,000.

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Question 8

Correct

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Computational. ABC’s employees are entitled 15-day vacation leaves and 15 day sick leaves every year. At the beginning of 2019, the liability
for compensated absences (as presented per books) was for 1,200 days combined vacation and sick leaves forwarded from the previous
years, as employees are allowed to carrying over unused sick leave and vacation leaves up to two years, upon which any unused leaves re
forfeited. In 2018, additional 900 days unused leaves were forwarded to the subsequent year. From the unused leaves prior to 2019, 450 were
used in 2019 and 300 were forfeited. There was a 10% increase in employees’ salaries during the current year. The unadjusted balance of the
accrued liability for compensated absences per books reflected the beginning balance of the account. Adjustment for accrual at year-end is
yet to be made. The Accrued Compensated Absences account at the beginning of the period is P360,000. What is the correct Accrued
Liability from Compensated Absences as of December 31, 2019,

a. P405,000

b. P360,000

c. P396,000

d. P445,500 

Question 9
Correct

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Computational. On September 1, 2018, Hazel Company offered special termination benefits which consisted of lump sum and periodic future
payments. The offer expired on November 30, 2018. Actual or reasonably estimate amounts at December 31, 2018 relating to the offer are:
Lump sum payments made on 1/1/2019 - 475,000
Periodic payments of P60,000 annually for 3 years beginning January 1, 2020, at present value on December 31, 2018 - 155,000
Reduction of accrued pension costs on December 31, 2018 for the terminating employees - 45,000
In its December 31, 2018 balance sheet, Hazel should report a total liability for special termination benefits at

a. 630,000 

b. 655,000

c. 585,000

d. 475,000

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Question 10

Correct

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Computational. On January 1, 2019 ABC provided the following information related to its employees’ other long term benefits for the year
ended December 31, 2019:
Current service cost - P30,000
Benefits paid - 31,000
Contribution to the fund - 21,000
Fair value of plan assets:
January 1 - 2,100,000
December 31 - 2,400,000
Present value of the liability
January 1 - 2,200,000
December 31 - 2,500,000
Past service cost for the current year - 115,000
On January 1, 2019, the discount rate of return is 5%, and 6% on January 1, 2020. What amount should be recognized as employee benefit
expense in income statement for the current year?

a. P21,000 

b. 145,000

c. P115,000

d. P150,000

Question 11
Correct

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Computational. The following differences between financial and taxable income were reported by ABC Corporation for the current year:
(a) Excess of tax depreciation over book depreciation - P60,000
(b) Interest revenue on municipal bonds - 9,000
(c) Excess of estimated warranty expense over actual expenditures - 54,000
(d) Unearned rent received - 12,000
(e) Fines paid - 30,000
(f) Excess of income reported under percentage-of-completion accounting for financial reporting over completed-contract accounting used
for tax reporting - 45,000
(g) Interest on indebtedness incurred to purchase tax-exempt securities - 3,000
Unrealized losses on marketable securities recognized for financial reporting - 18,000
Assume that ABC Corporation had pretax accounting income [before considering items (a) through ] of P900,000 for the current year.
Taxable income for the current year is (ignore unit of currency, use comma as separator)

Answer: 903,000 

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Question 12

Correct

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Computational. ABC provided the following for the current year related to its defined benefit plan:
Benefits paid to employees - 500,000
Present value of the benefits settled - 480,000
Contribution to the plan - 2,500,000
Current service cost - 1,800,000
Actual rate of return - 20%
Expected rate of return - 18%
Settlement discount rate - 22%
Fair value of plan assets, January 2018 - 6,000,000
Define benefit obligation, January 2018 - 5,500,000
During 2017, the present value of the reduction of future contribution was P600,000, and P1,070,000 as of 2018. Fair value of plan assets and
Defined benefit obligation ending balances, respectively are

a. P9,200,000 and P8,030,000 

b. P9,200,000 and P8,010,000

c. P9,220,000 and P8,030,000

d. P9,220,000 and P8,010,000

Question 13
Correct

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Computational. ABC began operating on January 1, 2020. At the end of the first year of operation, ABC reported P7,000,000 income before
income tax on its statement of financial performance and P2,500,000 taxable income on its tax return. Analysis of the P4,500,000 revealed
that P3,500,000 was a difference without future tax consequence, and the other P1,000,000 was a temporary difference related to prepaid
rent which is expected to reverse in 2022. At the end of 2021, the accumulated temporary tax liability difference related to future years is P1,
500,000. The P500,000 increase is due to an accrued income taxable only when actual collection is made, which is expected on the year 2022.
The current and enacted future tax rate is 30%. Assume that the income before tax in 2021 and 2022 are P6,500,000 and P7,200,000,
respectively. There is no permanent difference during these years. Following the rules applicable in accounting for deferred taxes, compute
the deferred tax liability as of the end of 2020. (ignore unit of currency, use comma as separator)

Answer: 300,000 

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Question 14

Correct

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Computational. Werpa Company leased an equipment on January 1, 2019 with the following information:
Fixed annual lease payment at the end of each year - P1,000,000
Lease term - 6 years
Useful life - 8 years
Implicit rate - 10%
Werpa has guaranteed a P200,000 residual value on 2024 to the lessor.
Assume that the fair value of the asset at the end of the lease term is P175,500, determine the amount of loss to be recognized.

Answer: 24,500 

Question 15

Correct

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Computational. The following differences enter into the reconciliation of financial income and taxable income of Abbott Company for the
year ended December 31, 2021, its first year of operations. The enacted income tax rate is 30% for all years.
Pretax accounting income - P700,000
Excess tax depreciation - (320,000)
Litigation accrual - 70,000
Unearned rent revenue deferred on the books but appropriately recognized in taxable income - 50,000
Interest received on government obligations - (20,000)
Taxable income - P480,000
1.Excess tax depreciation will reverse equally over a four-year period, 2022-2025.
2.It is estimated that the litigation liability will be paid in 2025.
3.Rent revenue will be recognized during the last year of the lease, 2025.
4.Interest received on government obligations is expected to be P20,000 each year until their maturity at the end of 2025.
Deferred tax asset for the year ended 2021 is

Answer: 36,000 

◄ CASE VI

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