De La Salle Araneta University

CBM 4A

Financial Reporting in Hyperinflationary Economy Multiple choice – Problems

1)The following assets appear on the financial position of Gardenia Company:

In preparing financial statements in a hyperinflationary economy, what total amount should the entity classify as monetary assets?

a.   6,200,000

b.   6,600,000

c.     6,700,000

d.   7,700,000

2. The following liabilities appear on the statement of financial position of Sunflower company:

In preparing financial statements in a hyperinflationary economy, what total amount should the entity classify as monetary liabilities?

a.   4,500,000

b.   8,500,000

c.     9,700,000

d.   8,900,000

4. Dahlia Company was formed on January 1, 2005. Selected balances from historical cost statement of financial position on December 31, 2011 were:

The general price index was 120 on January 1, 2005, 150 on January 1, 2008 and 300 on

December 31, 2011.

What amount should be reported in a hyperinflationary statement of financial position?

5. The use of comparative data may necessitate the restatement of a base period. Rosal Company has 2009 as a base period (100) and desires to compare the years 2009, 2010 and 2011 industry index numbers. The industry provides the following index numbers:

Recognizing 2009 as base year, what would be the restated index numbers?

6. Veranus company operates in a hyperinflationary economy and provides the following statement of financial position on December 31,2011:

The general price index had moved on December 31 of each year as follows: 2007 – 100, 2008 – 130, 2009 – 150, 2010 – 240 and 2011 – 300.

The property, plant and equipment were purchased on December 31, 2009. The noncurrent liabilities were loans raised on December 31, 2010.

7. The following liabilities and equity relate to Maximus Company operating in a hyperinflationary economy:

What amount should be reported as revaluation surplus and retained earnings after restatement?

8. Camia Company provided the following information about the inventory during 2011:

The relevant index numbers are:

What is the cost of goods sold in a hyperinflationary income statement? a. 7,315,909

b.   3,353,125

c.     6,475,000

d.   2,250,000

9. The historical income statement data of Smallville Company for 2011 are as follows

• • Sales are earned and expenses are incurred evenly throughout the year.
  • Inventory was acquired during the last week of each year.
  • Depreciable assets have a 5 – year life were acquired on January 1, 2008
  • The general index numbers were: 125 on January 1, 2008, 140 on January 1, 2011, 360 on December31, 2011.

If the entity is operating in a hyperinflationary economy, what amount should be reported as net loss?

a.   5,440,000

b.   1,350,000

c.     1,944,000

d.   4,824,000

10. On January 1, 2008, Santan Company purchased equipment for 3,000,000. The equipment was depreciated over 10 years using straight line method with no residual value. On October 1, 2011 the equipment was sold for 2,000,000. The relevant general price index numbers are:

January 1, 2008                                     100

December 31, 2008                               120

October 1, 2011                                     280

December 31, 2011                               300

What is the loss on sale of equipment in a hyperinflationary income statement?

11. Sampaguita Company purchased land for P3, 000,000 on December 31, 2010 when the index number was 120. The land was held until December 31, 2011 when it was sold for P4, 000,000. The index number on December 31, 2011 was 300. What amount should be reported in the income statement for 2011 in a hyperinflationary economy as gain or loss on sale of land?

a.   1,000,000 gain

b.   1,000,000 loss

c.     3,500,000 gain

d.   3,500,000 loss

12. Mariposa Company’s property, plant and equipment on December 31, 2011 were:

Year acquired                    Percent Depreciated                      Cost                       Index Number

Depreciation is calculated at 10% straight line. A full year’s depreciation is charged in the year of acquisition. There were no disposals in 2011.

What amount of depreciation should be included in the 2011 income statement adjusted for hyperinflation?

a.   1,480,000

b.   1,800,000

c.     1,620,000

d.        600,000

13. Acacia Company’s machinery and equipment account on December 31, 2011 is analyzed as follows:

Index numbers at the end of each year are 120 for 2008, 125 for 2010 and 350 for 2011. What should be reported in a hyperinflationary statement of financial position prepared on December 31, 2011 as the carrying amount of machinery and equipment?

a.   8,960,000

b.   7,800,000

c.     9,240,000

d.   3,200,000

14. On January 1, 2011, Gumamela Company had monetary assets of P5, 000,000 and monetary liabilities of P3, 000,000. During 2011, the entity’s monetary inflows and outflows were relatively constant and equal so that it ended the year with the same net monetary assets of P2, 000,000. The index number on January 1, 2011 was 125 and the index number on December 31, 2011 was

280. What is the gain or loss on purchasing power during the year?

a.   2,480,000 gain

b.   2,480,000 loss

c.     3,720,000 gain

d. 3,720,000 loss

15. Cherry Company’s financial position did not change during 2011. The general price index was 120 on January 1 and 300 on December 31, 2011. The statement of financial position on January 1 and December 31, 2011 is:

5,000,000

What is the purchasing power gain or loss for 2011?

a. 1,875,000 gain

b.   1,875,000 loss

c.     1,275,000 gain

d. 1,275,000 loss

16. Helen Company provided the following for the current year:

Monetary liabilities:

January 1                                                                             100,000

December 31                                                                     300,000

Increase in net monetary items as restated for

Hyperinflation                                                                3,500,000

Decrease in net monetary items as restated for

Hyperinflation                                                                3,000,000

General price index:

January 1                                                                 125

December 31                                                           300

What is the gain or loss on purchasing power for the current year? a. 460,000 gain

b.   460,000 loss

c.     250,000 gain

d.   250,000 loss

17. Rubia Company has a note receivable of P2, 400,000 which was received on October 1, 2010. The price index number are:

What is the fraction that should be used in restating the note receivable on December 31, 2011? a. 400/150

b.   400/250

c.     400/ 80

d.   400/400

18. Achilles Company provided the following for 2011:

Cash dividend paid on December 31, 2010                            200,000

The sales, purchases, expenses and income tax accrued evenly during the year. Index numbers for 2011 are 110 on January 1 and 280 on December 31. What is the gain or loss on purchasing power for 2011?

19. What is the unrealized holding gain to be reported in 2011?

a.   600,000

b.   500,000

c.     100,000

d.             0

20. What is the unrealized holding gain to be reported in 2012? a. 250,000

b.   150,000

c.     100,000

d.             0

21. What is the realized holding gain to be reported in 2013?

a.   300,000

b.   250,000

c.       50,000

d.             0

22. What is the gain on sale of land to be reported in 2013? a. 500,000

b.   250,000

c.     200,000

d.   150,000

23. What is the amount of depreciation that should be reported in the current cost income statement for 2011?

a.   1,500,000

b.   1,250,000

c.     1,000,000

d.   2,500,000

24. What is the realized holding gain on the equipment to be reported in 2011? a. 500,000

b.   250,000

c.     300,000

d.             0

25. What is the unrealized holding gain on the equipment to be reported in 2011? a. 1,250,000

b. 2,500,000

c.     2,000,000

d.   1,500,000

For nos. 26 – 28:

Kerr Company purchased a machine for P1, 150,000 on January 1, 2011, the entity’s first day of operation. At the end of the year, the current cost of the machine was P1, 250,000. The machine has no residual value, has a five- year life, and is depreciated by the straight line method.

26. What is the amount of depreciation that should be reported in the current cost income statement for 2011?

27. What is the realized holding gain on the equipment to be reported in the current cost income statement for 2011?

a. 30,000

b.   20,000

c.     10,000

d.          0

28. What is the unrealized holding gain on the equipment to be reported in the current cost income statement for 2011?

a.   90,000

b.   10,000

c.     80,000

d.          0

29. Details of Weaver Company’s property, plant and equipment on December 31, 2011 are:

Weaver calculates depreciation at 10% straight line. A full year’s depreciation is charged in the year of acquisition. There were no disposals of property.

What total amount should be reported as net current cost of the property, plant and equipment?

a.   1,160,000

b.   1,300,000

c.     1,680,000

d.   1,820,000

30. In the statement of financial position restated to current cost, what amount should be reported as inventory on December 31, 2011?

a.   1,080,000

b.   2,880,000

c.        975,000

d.       870,000

31. What is the unrealized holding gain on inventory on December 31, 2011?

a.   210,000

b.   135,000

c.     560,000

d.             0

32. In the current cost income statement for 2011, what amount should be reported as cost of goods sold?

a.   3,575,000

b.   2,880,000

c.     2,600,000

d.   2,375,000

33. In the current cost income statement for 2011, what is the realized holding gain?

a.   225,000

b.   135,000

c.     350,000

d.   505,000

For nos. 34 – 35:

Rice Company accounts for inventory on FIFO basis. There were 8,000 units in inventory on January 1, 2011.

34. In the statement of financial position restated to current cost, what amount should be reported as December 31, 2011 inventory?

a.   576,000

b.   585,000

c.     630,000

d.   639,000

35. In the income statement restated to current cost, what amount should be reported as cost of goods sold for 2011?

a.   1,920,000

b.   1,944,000

c.     2,100,000

d.   2,130,000

                                                                                                            64

For nos. 36 – 39:

Information with respect to cost of goods sold of bar Company for 2011 is as follows:

Historical cost                    Units

Bar estimates that the current cost per unit of inventory was P58 on January 1, 2011 and P72 on December 31, 2011.

36. In the income statement for 2011 restated to current cost, what amount should be reported as cost of goods sold?

a.   5,040,000

b.   4,550,000

c.     4,410,000

d.   4,060,000

37. In the income statement for 2011 restated to current cost, what amount should be reported as realizable holding gain from inventory?

38. Under current cost accounting, what amount should be reported as inventory on December 31, 2011?

a.   2,600,000

b.   2,880,000

c.     2,520,000

d.   2,320,000

39. Under current cost accounting, what amount should be reported as unrealized holding gain on inventory on December 31, 2011?