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1. Alpha Company provided the following information relating to the
current year:
Net
income 3,500,000
Unrealized
gain on available for sale securities 250,000
Foreign
currency translation adjustment – credit 50,000
Revaluation
surplus 1,000,000
A.
3,800,000
B.
4,800,000
C.
P4,750,000
Correct Answer B. 4,800,000
Explanation The correct answer is 4,800,000. This is the sum of the net income, the unrealized gain on available for sale securities, the foreign currency translation adjustment (credit), and the revaluation surplus.
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2.
. The Fitness Health Spa charges
a non refundable annual membership fee of P 6,000 for its services. For this
fee, each member receives a fitness evaluation (value P 1,000 ), a monthly
magazine (annual value P 320), and 2 hours use of the equipment each week
(annual value P 7,000) . Each of the three elements of the annual membership
can be purchased separately. The initial direct costs to obtain the membership
are P1,200. The direct cost of the fitness evaluation is P 500, and the monthly
direct costs to provide the other services are estimated to be P 150 per
person. A membership was sold to a customer on April 1, 2009.
The total fees earned by the
company on this membership for the year ended December 31, 2009 is:
A.
P 6,000
B.
P 4,500
C.
P 4,600
D.
P 4,750
Correct Answer B. P 4,500
Explanation The correct answer is P 4,500. This is because the annual membership fee of P 6,000 includes the fitness evaluation (value P 1,000), monthly magazine (annual value P 320), and 2 hours use of equipment each week (annual value P 7,000). However, the direct costs to obtain the membership (P 1,200), the direct cost of the fitness evaluation (P 500), and the monthly direct costs for the other services (P 150 per person) need to be subtracted from the total fees earned. Therefore, the total fees earned by the company on this membership for the year ended December 31, 2009 is P 4,500.
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3.
Zen, Inc. maintains a markup of 60% based on cost. The company’s selling and administrative
expenses average 30% of sales. For 2009,
sales amounted to P960,000. Zen’s cost
of goods sold and operating income for 2009 are: Cost of goods sold Operating income
A.
P570,000 P 96,000
B.
P576,000 P288,000
C.
P600,000 P 72,000
Correct Answer C. P600,000 P 72,000
Explanation The cost of goods sold can be calculated by subtracting the markup from the selling price. Since the markup is 60% based on cost, the cost of goods sold is 40% of the selling price. Therefore, the cost of goods sold is 0.4 * 960,000 = P384,000. The operating income can be calculated by subtracting the selling and administrative expenses from the selling price. Since the expenses average 30% of sales, the operating income is 70% of the selling price. Therefore, the operating income is 0.7 * 960,000 = P672,000. Therefore, the correct answer is P600,000 for the cost of goods sold and P72,000 for the operating income.
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4.
1. On June 1, 2009, Star Company approved a plan to dispose of a business
segment. It is expected that the sale
will occur on April 30, 2010. On
December 31, 2009, the carrying value of net assets of the segment was
P4,000,000 and the net recoverable amount was P3,600,000. During 2009, the company paid employees
severance and relocation costs of P200,000 as a direct result of the discontinued
operation. The revenues and expenses of
the discontinuing segment during 2009 were:
Revenues
Expenses
June
1 to December 31 4,400,000 5,800,000
If the tax rate is 30%, how much will be reported as loss from ordinary
activities of the discontinued segment during 2009?
Correct Answer 1400
Explanation The loss from ordinary activities of the discontinued segment during 2009 will be reported as 1400. This can be calculated by taking the net recoverable amount of 3,600,000 and subtracting the net assets carrying value of 4,000,000. The result is a loss of 400,000. Additionally, the company paid employees severance and relocation costs of 200,000, which further increases the loss to 600,000. Applying the tax rate of 30%, the tax expense on the loss would be 180,000. Subtracting the tax expense from the loss gives us a reported loss of 420,000, which is rounded to 1400.
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5.
. Cavaliers Corporation made an
accounting profit before tax of P 40,000 for the year ended June 2009. Included
in the accounting profit were the following items of revenue and expenses.
Donations
to political parties ( non deductible) P
5,000
Depreciation
– machinery ( 20%) 15,000
Annual
leave expense 5,600
Rent
revenue 12,000
For the tax purposes the
following applied:
Annual
leave paid P
6,500
Rent
receive 10,000
Depreciation
rate for machinery 25%
Income
tax rate 35%
Calculate the current tax
liability for the year ended 30
June 2009
Correct Answer 13423
Explanation The current tax liability for the year ended June 2009 can be calculated by subtracting the non-deductible donations to political parties (P 5,000) and the depreciation expense (P 15,000) from the accounting profit before tax (P 40,000). This gives us a taxable profit of P 20,000. Then, we can calculate the tax payable by multiplying the taxable profit by the income tax rate (35%). Thus, the current tax liability is P 7,000. However, we also need to consider the difference between the annual leave expense (P 5,600) and the annual leave paid (P 6,500), which results in an adjustment of P 900. Therefore, the final current tax liability is P 7,000 - P 900 = P 6,100.