Reference no: EM132633689

The following information were made available to you by Katz Corp. in line with your audit of its financial statements as of and for the period ended December 31, 2016:

Sales                                                                                P53,000,000
Purchases                                                                           32,000,000
Sales discount                                                                       2,000,000
Purchase discount                                                                  1,200,000
Sales returns and allowance                                                        1,000,000
Purchase returns and allowance                                                          800,000
Correction of merchandise inventory, beginning error, net of
Income tax - credit                                                                            400,000
Merchandise Inventory, January 1 (adjusted)                                              3,400,000
Merchandise Inventory, December 31                                                      3,500,000
Distribution costs                                                                               5,000,000
General and administrative expenses                                                         4,000,000
Interest expense                                                                                   2,000,000
Gain on early extinguishment of long-term debt                                             500,000
Foreign translation adjustment, net of income tax - credit                                  250,000
Revaluation surplus for the period, net of income tax                                           700,000
Unrealized loss on financial assets at fair value through other
comprehensive income or losses, net of income tax                                             550,000
Investment income - equity method                                                                 3,000,000
Gain on expropriation of asset                                                                       2,000,000
Income tax expense                                                                                     5,000,000
Proceeds from sale of land with a carrying value of P5,300,000                             4,800,000
Dividends declared                                                                                             1,300,000
Accumulated profits, January 1, 2016                                                                    4,200,000

Question 1: These are events that provide evidence of conditions that existed at the end of the reporting period

A. Events after the reporting period C. Adjusting events
B. Subsequent events D. Non-adjusting events

Question 2: An error or fraud discovered after the end of the reporting period but before the issuance of financial statements is to be treated as

A. Non-adjusting event C. Adjusting event
B. Prior period correction of error D. Change in accounting estimate

Question 3: At the end of reporting period, December 31, 2015, ABC Inc. carried a receivable from XYZ, a major customer, at P10 million. The "authorization date" of the financial statements is on February 16, 2016. XYZ declared bankruptcy on Valentine's Day (February 14, 2016). ABC Inc. will

A. Disclose the fact that XYZ has declared bankruptcy in the footnotes.
B. Make a provision for this event in its financial statements (as opposed to disclosure in footnotes).
C. Ignore the event and wait for the outcome of the bankruptcy because the event took place after the year-end.
D. Reverse the sale pertaining to this receivable in the comparatives for the prior period and treat this as an "error" under PAS 8.

Question 4: During the year 2016, Smarts Corp. was sued by a competitor for P 15 million for infringement of a trademark. Based on the advice of the company's legal counsel, Smarts Corp. accrued the sum of P 10 million as a provision in its financial statements for the year ended December 31, 2016. Subsequent to the reporting period, on February 15, 2017, the Supreme Court decided in favor of the party alleging infringement of the trademark and ordered the defendant to pay the aggrieved party a sum of P 14 million. The financial statements were prepared by the company's management on January 31, 2017, and approved by the board (authorized for issue) on February 20, 2017.

Provision for 2016 should be

A. P 10 million B. P 14 million C. P 15 million D. P 0

Question 5: On February 10, 2017, after issuance of its financial statements for 2016, Smarts Company entered into a financing agreement with SVCR Bank, allowing Smarts Company to borrow up to P 2,000,000 at any time through 2019. Amounts borrowed under the agreement bear interest at 2% above the bank's prime interest rate and mature two years from the date of loan. Smarts Company presently has P 750,000 of notes payable with First National Bank maturing March 15, 2017. The company intends to borrow an amount of P 1,250,000 under the agreement with SVCR and liquidate the notes payable to First National. The agreement with SVCR also requires Smarts to maintain a working capital level of P 3,000,000 and prohibits the payment of dividends on common stock without prior approval by SVCR Bank.

From the above information only, the total short-term debt of Smarts Company as of the December 31, 2016 is

A. P 0 B. P 750,000 C. P 1,000,000 D. P 2,000,000