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P1

1. On December 31, 2010, Moss Co. issued P1,000 bonds was issued with fifty detachable stock
warrants, each of which entitled the bondholder to purchase one share of P5 par common stock for
P25. Immediately after issuance, the market value of each warrant was P4. On December 31, 2010,
what amount should Moss record as discount or premium on issuance of bonds?
a. P40,000 premium
b. P90,000 premium
c. P110,000 discount
d. P200,000 discount

2. The following balances were reported by Mall Co. at December 31, 2010 and 2009:
12/31/2010 12/31/2009
Inventory P260,000 P290,000
Accounts Payable P75,000 P50,000
Mall paid suppliers P490,000 during the year ended December 31, 2010. What amount should Mall
report for cost of goods sold in 2010?
a. P545,000
b. P495,000
c. P485,000
d. P435,000

3. On January 2, 2008, Lava, Inc. purchased a patent for a new consumer product for P90,000. At the
time of purchase, the patent was valid for fifteen years; however, the patents useful life was
estimated to be ten years due to the competitive nature of the product. On December 31,2011, the
product was permanently withdrawn from sale under governmental order because of a potential
hazard in the product. What amount should Lava charge against income during 2011, assuming
amortization is recorded at the end of each year?
a. P9,000
b. P54,000
c. P63,000
d. P72,000

4. Cap Corp. reported accrued investment interest receivable of P38,000 and P46,500 at January 1
and December 31, 2010 respectively. During 2010, cash collections from the investments included
the following:
Capital gain distributions P145,000
Interest P152,000
What amount should Cap report as interest revenue from investment for 2010?

5. In 2007, Chain Inc. purchased a P1,000,000 life insurance policy on its president, of which Chain is
the beneficiary. Information regarding the policy for the year ended December 31, 2010, follows:
Cash surrender value, 1/1/10 P87,000
Cash surrender value, 12/31/10 P108,800
Annual advance premium paid 1/1/10 P140,000
During 2010, dividends of P6,000 were applied to increase the cash surrender value of the policy.
What amount should Chain report as life insurance expense for 2010?
a. P40,000
b. P25,000
c. P19,000
d. P13,000
e. P8,000
f. P3,000
6. The following information pertains to a sale and leaseback of equipment of Mega Co. on December
31, 2011:
Sales price P400,000
Carrying amount P300,000
Monthly lease payment P3,250
Present value of lease payments P36,000
Estimated remaining life 25 years
Lease term 1 year
Implicit rate 12%
What amount of deferred gain on the sale should Mega report at December 31, 2010?

7. Nome Co. sponsors a defined benefit plan covering all employees. Benefits are based on years of
service and compensation levels at the time of requirement. Nome determined that, as of September
30, 2011, its accumulated benefit obligation was P380,000, and its plan assets had a P290,000 fair
value. The projected benefit obligation on September 30, 2011, was P400,000. In its September 30,
2011 balance sheet, what amount should Nome report as pension liability?

8. Black Co. requires advanced payments with special orders for machinery constructed to customer
specifications. These advances are non-refundable. Information for 2011 is as follows:
Customer advances- balance 12/31/2010 P118,000
Advances received with orders in 2011 P184,000
Advances applied to orders shipped in 2011 P164,000
Advances applicable to orders cancelled in 2011 P50,000
In Blacks December 31, 2011 balance sheet, what amount should be reported as a current liability
for advances from customer?
a. P0
b. P88,000
c. P138,000
d. P148,000
e. P164,000

9. Dean Co. acquired 1005 of Morey Corp. prior to 2010. During 2010, the individual companies
included in their financial statements the following
Dean Morey
Officers salaries P75,000 P50,000
Officers expenses 20,000 10,000
Loans to officers 125,000 ---
What amount should be reported as related-party disclosures in the notes to Deans 2010
consolidated financial statements?
a. P150,000
b. P155,000
c. P175,000
d. P330,000
10. Marr Co. sells its products in reusable containers. The customer is charged a deposit for each
container delivered and receives a refund for each container returned within two years after the year
of delivery. Mar accounts for the containers not returned within the time limit as being retired by sale
at the deposit amount. Information for 2011 is as follows:
Container deposits at Dec 31, 2010, from deliveries in
2009 P150,000
2010 P430,000 P580,000
Deposits for containers delivered in 2011
Deposits for containers returned in 2011 from deliveries in
2009 P90,000
2010 P250,000
2011 P286,000
In Marrs Dec 31, 2010 balance sheet, the liability for deposits on returnable containers should be
a. P494,000
b. P584,000
c. P674,000
d. P734,000
e. P894,000

11. The following pertains to Eagle Co.s 2010 sales-


Cash sales
Gross P80,000
Returns and Allowance 4,000

Credit sales
Gross 120,000
Discount 6,000
On Jan 1, 2010 customers owed Eagles P40,000. On Dec 31, 2010, customers owed Eagle P30,000.
Eagle uses the direct writeoff method for bad debts. No bad debts were recorded in 2010. Under the
cash basis of accounting, what amount of net revenue should Eagle report for 2010?
a. P76,000
b. P170,000
c. P190,000
d. P200,000

E1. Statement 1: The columns in the special journals depend on the financial data needed by the
business.
Statement 2: The chart of accounts shows the ledger accounts that will be used in
journalizing/recording transactions
a. True, True
b. True, False
c. False, True
d. False, False

E2. Crazy Company has recognized a provision for lawsuit at P400,000 in its statement of financial
position at Dec 31, 2011. At Dec 31, 2012, the risk adjusted present value of the best estimate of the
amount acquired to settle the lawsuit is P900,000 but portion of the increase during 2012 included 7%
that is attributed to the unwinding of the discount and the remainder of the increase is attributed to
better information becoming available on which to base the estimates. In the statement of
comprehensive income for the year ended Dec 31, 2012, what amount of loss from the lawsuit Crazy
Company must be disclosed?
E3.
Masa Histas Spa and Massage
Trial Balance
Jan 31, 2011

Account Title Debit Credit


Cash 185,000
Accounts receivable 165,000
Massage supplies 40,000
Furniture and Fixtures 220,000
Building 300,000
Accounts Payable 130,000
Capital 500,000
Massage Income 410,000
Salaries expense 50,000
Utilities expense 70,000
Supplies expense 10,000
TOTAL 1,040,000 1,040,000
How much is the total noncurrent assets?

E4. A credit entry decreases the balance of


a. Owners equity
b. Liabilities
c. Income
d. Assets

E5. An example of a cash flow from an investing activity is


a. Receipt of cash from an owner upon issuance of stock
b. Receipt of cash from the issuance of bonds payable
c. Payment of cash to purchase bonds of another corporation
d. Payment of cash to an owner to repurchase common stock

D5. The following information is made available on Dec 31 of the current year:
Balance per bank 110,820 Balance per book 113,240
Outstanding check 13,650 Deposit in transit 10,920
Bank collection 1,200 Bank service charge 1,850

A deposit of 2,000 was erroneously recorded as P200 by the bank.


A check issued for 3,000 was erroneously recorded as P300 in the books.
How much is the adjusted balance per book on Dec 31?
a. 109,890 c. 108,090
b. 108,990 d. 110,090

D2. The following data are made available to you by the management of CORVEAU Trading:
Credit sales P500,000
Inventory turnover 7x
Current Liabilities 80,000
Current ratio 2 to 1
Quick ratio 1.25 to 1
Average collection ratio 36 days
Number of working days 360
Compute: Cash________________
A3. Hudson, Inc. is a calendar-year corporation. Its financial statements for the years 2011 and 2010
contained errors as follows:
2009 2010
Ending Inventory 30,000 overstated 80,000 overstated
Depreciation expense 20,000 understated 60,000 overstated
Assume that the proper correcting entries were made at Dec 31, 2009. By how much will 2010
income before taxes be overstated or understated?

A4. Fleming Company provided the following information on selected transaction during 2011:
Dividends paid to preferred stockholders P150,000
Loans made to affiliated corporations 750,000
Proceeds from issuing bonds 900,000
Proceeds from issuing preferred stock 1,050,000
Proceeds from sale of equipment 450,000
Purchases of inventories 1,200,000
Purchases of land by issuing bonds 300,000
Purchases of treasury stock 600,000
The net cash provided (used) by investing activities during 2011 is
a. (P600,000) c. P150,000
b. (P300,000) d. P450,000

D1. The results of operation of Yummy Convenient Store, not VAT registered sole proprietorship,
owns by Lovely Chua, for the first three quarters of 2010 as follows
Gross Income Deductions
First Quarter 300,000 150,000
Second Quarter 350,000 200,000
Third Quarter 250,000 150,000
How much is the taxable income for the third quarter assuming Mrs. Chua is married and has three
qualified dependent children?
a. 100,000 c. 400,000
b. 250,000 d. 425,000

A2. The following statements are based on PAS 16 (Property, Plant & Equipment):
Statement I: After recognition of an asset, an item of property, plant and equipment shall be
carried at its cost less accumulated depreciation and any accumulated impairment losses.
Statement II: After recognition of an asset, an item of property, plant and equipment whose fair
value can be measured reliability shall be carried at a revalued amount, being its fair value at the date
of revaluation, less any subsequent accumulated depreciation and subsequent accumulated
impairment losses.
Statement III: Revaluations shall be made with sufficient regularity to ensure that the carrying
amount does not differ materially from that which would be determined using fair value at the end of
the reporting period.
a. All of the statements are true.
b. Only statement I is true.
c. Only statement II is false.
d. Only statement III is false.

A1. The buyer paid the shipper freight charges and later asked the reimbursement from the seller.
The term agreed must have been
a. FOB destination point, freight prepaid
b. FOB destination point, freight collect
c. FOB shipping point, freight prepaid
d. FOB shipping point, freight collect

D10. The following information was provided by the bookkeeper of Maya Inc.,
- Sales for the month of June totalled 286, 000 units
- The following purchases were made in June:
Date Quantity Unit Cost
June 4 50,000 13
8 62,500 12.5
11 75,000 12
24 70,000 12.4
- There were 108,500 units on hand on June 1 with a total cost of 1,450,000.
Maya Inc., uses a periodic FIFO costing system. The companys gross profit for June was 2,058,750.
How many units were on hand on June 30?
a. 80,000
b. 177,500
c. 28,500
d. 149,000

D9. (Refer to D8) What is Eds diluted earnings per share for 2010?
a. 31.42
b. 17.14
c. 23.56
d. None of the above

D8.The following information was obtained from the audited financial statements of Eds Inc. for the
year ended Dec 31, 2010:
Operating Income 3500000
Selling, administrative and other 1800000
Operating expenses
Finance Cost 250000
10% Non-convertible Bonds 2500000
Income tax rate 35%
Additional data:
a. There were 35000 ordinary shares outstanding throughout the year.
b. On January 1, 2010, there were options outstanding to purchase 20000 ordinary shares at
P30 per share. The average market price during the year was P40 per share.

What is Eds basic earnings per share for 2010?


a. 31.42
b. 23.56
c. 31.57
d. None of the above

Sunflower Company sells a variety of imported goods. By selling on credit, Sunflower cannot expect
to collect 100% of its accounts receivable. At Dec 31, 2009, Sunflower reported the following on its
statement of financial position:
Accounts receivable 2,197,500
Less: Allowance for Bad debts (133,500)
Net Accounts receivable 2,064,000
During the year ended Dec 31, 2010, Sunflower earned sales revenue of P537,702,500 and collected
cash of P528,070,500 from customers. Assume bad debts expense for the year was 1% of sales
revenue and that Sunflower wrote off uncollectible accounts receivable totalling P5,439,500.
What is the accounts receivable balance at Dec 31, 2010?
a. 5,439,500
b. 6,000,000
c. 6,390,000
d. 6,500,000

D6. Amount of share premium


a. 276,180
b. 267,480
c. 254,180
d. 226,180
D5. Number of Ordinary shares
a. 100,000
b. 108,000
c. 108,700
d. 120,880

MECCA Corp. reported the following amounts in the shareholders equity section of its Dec 31, 2010,
balance sheet:
Preference shares, P10 par (100,000 shres authorized,
40,000 shares issued) P400,000
Ordinary shares, P5 par (50,000 shares authorized,
20,000 shares issued) P100,000
Share Premium 192,000
Accumulated profits 1,200,000
The following transactions occurred during 2010:
a. Paid the annual 2010 P1 per share dividend on preference shares and P0.50 per share dividend
on ordinary shares. These dividends had been declared on Dec 31, 2009.
b. Purchase 4,000 shares of its own outstanding ordinary shares for P80,000.
c. Reissued 1,400 treasury shares for equipment with a fair value at P50,000.
d. Issued 10,000 shares of preference shares at P15 per share.
e. Declared a 10% stock dividend on the outstanding ordinary shares when the stock is selling for
P12 per share.
f. Issued the share dividend.
g. Declared the annual 2010 P1 dividend on preference shares and the 0.50 per share dividend on
ordinary shares. These dividends are payable in 2011.
h. Appropriated accumulated profits for BOD-approved planned plant expansion, P600,000.
i. Registered a net income for 2010 at P940,000.

D4. Number of preference shares


a. 400,000
b. 500,000
c. 550,000
d. 750,000
Mercury Inc.
INCOME STATEMENT
For the year ending December 31, 2010
Sales 1,690,750
Cost of goods sold 875,000
Gross Income 815,750
Operating expenses 620,000
Interest expense 47,000 667,000
Income before tax 148,750
Income tax expense 52,062
Net Income P96,688

Additional Information:
a. Dividends in the amount of P30,000 were declared and paid during 2010.
b. Depreciation expense is included in operating expense.
c. No unrealized gains or losses have incurred on the available-for0sale security during the year.

Compute the cash paid for operating expenses.


a. 550,000
b. 555,000
c. 600,000
d. 605,000

The following information was obtained from the audited financial statement of Red, Inc. for the year
ended Dec 31, 2010:
Operating income 4,500,000
Selling, administrative and other 2,300,000
Operating expenses
Finance Cost 650,000
10% Non-convertible bonds 2,500,000
Income tax rate 35%

Additional data:
- There were 25,000 ordinary shares outstanding throughout the year.
- On Jan 1, 2010, there were options outstanding to purchase 40,000 ordinary shares at P30
per share. The average market price during the year was P50 per share.

What is Red basic earning per share for 2010?


a. 40.00
b. 40.30
c. 41.40
d. 42.00

D1. The following are Philippines Companys equity accounts at Dec 31, 2009:
Ordinary share capital, par value P10;
Authorized 200,000 shares; issued and
Outstanding 120,000 shares 1,200,000
Share premium 180,000
Retained Earnings 720,000
Philippines Company uses the cost method of accounting for treasury shares. The following
transactions occurred in 2010:
- Acquired 8,000 ordinary shares for P144,000
- Sold 6,500 treasury shares at P20 per share
- Retired the remaining treasury shares
What is the share premium balance on Dec 31, 2010?
a. 181,000
b. 200,000
c. 205,000
d. 211,000

A2. Erap Company uses the retail inventory method to value its merchandise inventory. The following
information is available for the current year:
Cost Retail
Beginning Inventory 900,000 1,500,000
Purchases 12,700,000 16,700,000
Freight in 300,000 ---
Purchases allowance 50,000
Purchases returns 350,000 600,000
Net markups --- 400,000
Net markdowns --- 800,000
Employee discount --- 300,000
Theft and other losses --- 500,000
Sales --- 15,000,000
Sales allowance --- 100,000
Sales returns --- 400,000

If the ending inventory is to be measured using lower of cost or average market, what is the estimated
cost of sales of Erap Company?
a. 12,150,000
b. 12,075,000
c. 11,550,000
d. 11,925,000

D8. A corporation accounting records provided the following information:


12/31/2008 12/31/2009
Current assets 240,000 ?
Non-current assets 1,600,000 1,500,000
Current Liabilities ? 130,000
Non-current liabilities 580,000 ?

All assets and liabilities of the company are reported in the schedule above. Working capital of 92,000
remained unchanged from 2008 to 2009. Net income in 2009 was P88,000. No dividends were
declared during 2009 and there were no other changes in equity, total non-current liabilities at Dec
31, 2009 would be
a. 616,000
b. 392,000
c. 568,000
d. 480,000

D6. The following information was taken from Basilan Co. accounting records for the year ended Dec
31, 2009.
Sales 10,000,000
Decrease in goods in process inventory 200,000
Decrease in raw material inventory 350,000
Increase in finished goods inventory 500,000
Raw materials purchased 2,100,000
Direct labour payroll 1,000,000
Factory overhead 800,000
Selling expenses 300,000
Freight out 900,000
General and administrative expense 1,600,000
Basilans profit before tax is
a. 3,550,000
b. 4,250,000
c. 3,250,000
d. 4,150,000

D5. In 2008, Fred Company had the following financial data


Cash Revenue P8,000,000
Cash expense 4,000,000
Depreciation expense 2,000,000
Income before tax 2,000,000
Income tax expense 500,000
Net income 1,500,000
At the beginning of 2009, the company purchased additional assets at a cost of P5,000,000 on cash
basis. Each year, these assets provide additional cash revenue of P5,000,000 and incur cash
expenses of P2,000,000. The assets have a 10-year life and the company uses the straight line
depreciation for all assets. The existing assets produced the same cash revenue and incur the same
expenses as in 2008. Assume income tax is paid every April 15 for each year.
The net cash inflows from the operating activities in 2009 should be
a. 13,000,000
b. 12,500,000
c. 7,000,000
d. 6,500,000

D4. August 1, 2008, Blue Corporations P6,000,000 one-year, non-interest bearing note due July 31,
2009, was discounted at red Bank at 10.17%. Blue uses the straight line method of amortizing
discount. What should Red report for note payable in its Dec 31, 2006 balance sheet?
a. 6,000,000
b. 5,949,150
c. 5,389,800
d. None

D1. On Nov 1, 2008, Blaine Company discounted with recourse at 12% a one-year, noninterest
bearing, and P2,150,000 note receivable maturing on Jan 31, 2008. What amount of contingent
liability for this note must Blaine discloses in its financial statements for the year ended 2008?
a. 2,150,000
b. 1,892,000
c. 2,000,000
d. None of the above

D2. Benjamin Company failed to recognize accruals and prepayments since the inception of its
business three years ago. The earnings before tax of 35%, accruals and prepayments at the end of
2009 are;
Earnings before tax P1,400,000
Prepaid insurance 20,000
Accrued wages 25,000
Rent revenue collected in advance 30,000
Interest receivable 50,000
The corrected earnings after tax should be
a. 1,415,000
b. 1,400,000
c. 1,275,000
d. 919,750

D3. Mira Inc. sells products to department stores in Cagayan de Oro. The beginning and ending
balances of the companys inventory and accounts payable during 2008 follow:
Jan 1, 2008 Dec 31, 2008
Inventory 231,460 155,980
Accounts payable 102,970 76,470
Miras cost of goods sold was reported at P1,380,500 on its income statement and uses the indirect
method in preparing the statement of cash flows. How much was the cash payments made to its
suppliers?
a. 1,380,500
b. 1,331,520
c. 1,407,000
d. 1,240,480

D7. The following errors were made in preparing a trial balance: P1,350 balance of inventory was
omitted; the P450 balance of prepaid insurance was listed as a credit; and the P300 balance of
salaries expense was listed as utilities expense. The debit and credit totals of the trial balance would
differ by
a. 1,350
b. 2,100
c. 1,800
d. 2,250

D9. Rainbow Company has the following information pertaining to its biological assets:
A herd of 100, 2-years old animals was held at Jan 1, 2010. Ten animals aged 2.5 years were
purchased on July 1, 2010 for 5,400 and ten animals were born on July 1, 2010. No animals
were sold or disposed of during the period. Per unit fair value less estimated point-of-sale
costs were as follows:
2.0-year old animal at Jan 1, 2010: P5,000
Newborn animal at July 1, 2010: P3,500
2.5-year old animal at July 1, 2010:P5400
Newborn animal at Dec 31, 2010: P3,600
0.5-year old animal at Dec 31, 2010: P4,000
2.0-year old animal at Dec 31, 2010: P5,250
2.5-year old animal at Dec 31, 2010: P5,550
3,0-year old animal at Dec 31, 2010: P6,000
How much of the increase in the fair value of the biological assets due to physical change?
a. 75,000 c. 110,000
b. 79,500 d. 118,500

D10. The stockholders equity section of Ella Company appears below as of Dec 31, 2008:
10% cumulative preference shares, P52 per value
100,000 shares, outstanding 95,000 shares 4,940,000
Ordinary shares, P5 par, authorized and issued
10,000,000 shares 50,000,000
Share premium 20,500,000
RE, Dec 31, 2005 132,600,000
Net income 35,540,000 168,140,000
P243,580,000
Net income for 2008 reflects an income tax rate of 35%. Included in the net income figure is an
expropriation loss of P8,000,000 before tax. The basic earnings per share should be
a. 3.50
b. 3.554
c. 4.20
d. 4.46

The following information pertains to Pylon Company for 2009:


a. the company had net monetary items of P1,600,000 on Jan 1.
b. Sales of P6,000,000 and purchases of P2,400,000 were made evenly throughout the year.
c. Operating expenses of P1,800,000 and income tax expense of P1,200,000 were made
evenly throughout the year.
d. Cash dividends of P400,000 were declared on Nov 30 and paid on Dec 31. Selected values
of the CPI-U during 2009 appear below:
Jan 1 110.0
Average for year 121.0
Nov 30 131.0
Dec 31 133.1
The purchasing power loss of 2009 expressed in constant year-end pesos is?________

On Jan 1, 2010, Dayag Company has a receivable balance of P1,000,000. During 2010, it generated
sales amounting to P20,000,000, of which 60% is made on credit. 2010 receivable collections totalled
P9,000,000. What is the accounts receivable return?
a. 12x c. 4.8x
b. 6x d. 2x

On Jan 1, 2009, Sahara Company granted some of its executives options to purchase 45,000 share
of the entitys P50 par ordinary share capital at an option price of P60 per share. The Black-Scholes
option pricing model determines total compensation expense to be P3,300,000. The options are
exercisable immediately over a three-year period beginning Jan 1, 2009. No share options were
exercised in 2009. What is the impact on Saharas total shareholders equity for the year ended Dec
31, 2009, as a result of the share options under the fair value method?

D4. On Jan 1, 2005, Nuggets Company entered into a lease contract with Denver Company for a new
equipment that had a selling price of P2,120,000. The lease contract provides that annual payments
of P420,000 will be made for a six year. Nuggets made the first payment on Jan 1, 2005, subsequent
payments are made on Jan 1, of each year. Nuggets guarantees a residual value of P367,122 at the
end of the lease term. After considering the guaranteed residual value, the rate implicit in the lease is
determined to be 12%. Nuggets has an incremental borrowing rate of 15%. The economic life of the
equipment is 9 years. Nuggets depreciates its equipment using straight line method.

Based on the aove and the result of your audit, compute for the following:
Cost of the leased equipment to be recognized by Nuggets Company
a. 1,912,772 b. 2,013,908 c. 2,120,000 d. 0

On July 1, 2011, CLARK COMPANY sold a machine to Subic Inc. and simultaneously leased it back
for one year. Details of the transaction are summarized below:
Sales price 2,160,000
Carrying value on June 30, 2011 1,890,000
Estimated remaining life at June 30, 2011 6 years
Monthly rental under leaseback 20,000
Present value at lease rentals on July 1, 2011 114,120
How much profit should CLARK COMPANY recognize on July 1, 2011 on the sale of the machine?
a. 136,945 c. 172, 945
b. 72,000 d. 270,000

Roxanne Nierras Company had the following capital during 2008 and 2009:
Preference share capital, P100 par, 10% cumulative, 100,000 shares P10,000,000
Ordinary share capital, P100 par, 400,000 shares 40,000,000

Roxanne Nierras reported profit of P8,000,000 for the year ended during Dec 31, 2009. Roxanne
Nierras paid no preference share dividends during 2008 and paid P1,500,000 preference share
dividends during 2009. On January 31, 2010, prior to the date the financial statements are authorized
for issue, Roxanne Nierras distributed 10% ordinary share dividend.

In its 2009 income statement, what amount should Roxanne Nierras report as basic earnings per
share?

A2. On July 1,2010, Julibabes Corporation acquired a held to maturity security in Clamor Companys
10 year 12% bonds, with face value of P5,000,000 for P5,386,300. Interest is payable semi-annually
on Jan 1 and July 1. The bonds mature on July 1, 2015. Bonds effective rate is 10%. On Dec
31,2011, Juliebabes Corporation sold its debt instrument for P5,500,000.
What amount of gain should Juliebabes Corporation recognize as a result of disposal?

Mr. Borja obtained one year loan from METRO BANK in the amount of P3,000,000 with interest of
15% per annum. The loan was granted to Mr. Borja on Dec 1, 2007 with interest for 1 year of
P450,000 deducted in advance.
In 2008, how much interest can be deducted if Mr. Borja will liquidate the loan on March 1, of the said
year?
a. 420,000 b. 350,000 c. 112,500 d. Answer is not given

In your examination of the books and accounts of PLUM Company for the year 2009, you have noted
that the entire past due accounts of the company amounting to P200,000 should be set as Allowance
for Doubtful Accounts. On these past due accounts, management with proper recommendation from
the companys legal counsel, has decided to write off accounts with balance totalling P40,000. As of
Dec 31, 2009, the balance of Allowance for Doubtful Accounts was P125,000.
The addition provision required for the companys doubtful account is:________
The Winnie Company determined that the amortization rate on its patents is unacceptably low due to
current advances in technology. The company decided at the beginning of 2008 to decrease the
estimated useful life on all existing patents from 10 years to 8 years. Patents were purchased on Jan
1, 2003 for P3,000,000. The estimated residual value is zero.

The winnie Company decided on Jan 1, 2008 to change its depreciation method for manufacturing
equipment from an accelerated method to the straight-line method. The straight-line method is to be
used for new acquisitions as well as for previously acquired equipment. As of Jan 1, 2008, the total
historical cost of depreciable assets is P8,000,000 and the accumulated depreciation on those assets
as of Jan 1, 2008 is 5 years and the expected residual value is P300,000. What is the total charge
against 2008 income as a result of accounting changes?
a. 1,047,500
b. 1,107,500
c. 1,360,000
d. 1,420,000

At the close of its fiscal year on March 31, 2008, Barbie Industries, Inc., which uses the periodic
inventory system, was in process of relocating its plant. This resulted in some confusion relating to
the inventory cut-off as indicated by the following:
a. Merchandise on hand costing 17,940 was included in the inventory although the purchase invoice
was not recorded until April 12, 2008.
b. merchandise shipped on April 1, 2008 was included in the inventory. The cost of this merchandise
was 22,190 and the sales was recorded as 31,380on March 31, 2008.
c. Merchandise costing 12,250 was included in the inventory although it was shipped to a customer
onn March 31, 2008, FOB shipping point; the company recorded the sale of 19,246 on that date.
d. Merchandise costing 18, 200 was not counted.
e. Merchandise in transit (shipped to the company, FOB destination) was recorded as a purchase as
of April 2, 2008 and its cost of 17,287 was not included in the March 31,2008 inventory.
As a result of the above error, by how much was the purchases account of Barbie industries, Inc. for
the year ended March 31, 2008, overstated or understated?
a. 17,940 understated
b. 17,287 understated
c. 35,227 understated
d. not affected

On Jan 1, 2008, Bill Company purchased investment securities for P1,500,000. The securities are
classified as trading. By Dec 31, 2008, the securities had a fair value of P2,100,000 but had not yet
been sold.
The company also recognized a P400,000 restructuring charge during the year. The restructuring
charge is composed of an impairment write down on a manufacturing facility. Tax rules do not allow a
deduction for the write down unless the facility is actually sold. The facility was not sold at the end of
the year.
Including the unrealized gain on the trading securities and the restructuring charge, the accounting
income before tax for the year was P5,000,000. The income tax rate for the current year and future
years is 35%. What is Bills current tax expense?
a. 1,680,000 b. 1,750,000 c. 1,820,000 d. 1,920,000

The skyline Company provides the following data at Dec 31, 2008:
Operating revenue 5,600,000
Operating expenses 3,000,000
Income tax rate 35%
Ordinary share capital outstanding during 200,000 shares
The year
On Jan 1, 2008, there were options outstanding to purchase 40,000 ordinary shares at P40 per
share. The average market price during the year was P20 per share. The balance sheet reports
2,000,000 at 10% nonconvertible bonds at Dec 31, 2008. The interest expense is included in the
operating expense. What is the amount of earnings per share?
a. 7.58 b. 8.45 c. 8.89 d. 9.58

Dix Companys equity at Dec 31, 2009 consisted of the following;


8% cumulative preference share capital , P50 par
Liquidating value P55 per share;
Authorized, issued and outstanding 20,000 shares 1,000,000
Ordinary share capital, P25 PAR, 200,000 shares authorized;
100,000 shares issued and outstanding 2,500,000
Retained earnings 400,000

Dividends on preference share have been paid through 2007 but have not been declared for 2008
and 2009. At Dec 31, 2009, Dixs book value per ordinary share was
a. 25.00 b. 27.20 c. 26.40 d. 29.00

E1. Taylor has just acquire the net assets of Jack for P100,000. In acquiring Jack, the owners of
Taylor felt that Jack had unrecorded goodwill. They decided to capitalize the estimated annual
superior earnings of Jack at 20% to determine the amount of goodwill. The computation resulted in an
estimated goodwill of 10,000. A rate of 10% on net assets before recognition of goodwill was used to
determine normal annual earnings of Jack, because it is the rate that is earned on net assets in the
industry in which Jack operates. All other assets of Jack were properly recorded. The estimated
annual earnings of Jack were
a. 10,000 b. 9,000 c. 2,000 d. 11,000

E2.On Jan 1, 2006, Cherry Company issued its 10%, 5-year convertible debt instrument with a face
amount of P5,000,000 for P5,217,344. Interest is payable every Dec 31 of each year. The debt
instrument is convertible into 50,000 ordinary shares with a par value of P100. When the debt
instrument were issued, the prevailing market rate of interest for similar debt without conversion
option is 11%. The Company incurred transaction cost of P70,000 related to the issue of the
compound instrument. (Carry PV factors up to 3 decimal places)
How much of the net proceeds represent the equity component?

6. The stock investment account showed the following details:


Stock Investment in PAL
Jan 1 Audited balance
2,000 shares 40,000
March 1 Bought shares 4,500
Feb 28 Cash dividend 1,000
Apr 1 Sales of right 3,000
June 30 Sale of shares 5,000

The following transaction occurred:


A cash dividend of P0.50 per share was received on Feb 28

The adjusting entry is:


Debit Credit
a. Stock investment 1,000 Dividend income 1,000
b. Retained earnings 1,000 Dividend income 1,000
c. Dividend income 1,000 Stock investment 1,000
d. None of the above

7. The Melaren Company is going through some financial problems in 2008. A group of creditors
holding P1,000,000 of 14% of Debenture bonds issued by Melaren agreed to accept 80,000 share of
P10 per common stock in full payment of the obligation. Interest equivalent to one year period is still
outstanding. Melaren stock has a market value of P12 per share in 2008. An unamortized premium of
P15,000 for the P1,000,000 onds outstanding.

What amount of gain in restructuring of debt should be reported by Melaren in 2008?


a. 0 b. 55,000 c. 195,000 d. 255,000

On November 1, 2010, Yes Co., sold some limited edition art prints to Yakitate Co. for Y47,850,000 to be paid
on January 1,2011. The current exchange rate on November 1,2010 was Y110=$1,so that payment at the
current exchange rate would be equal to $435,000. Yes enters into a forward contract with a large bank to
guarantee the number of dollars to be received. According to the terms of the contract, if Y47,850,000 is worth
less than $435,000, the bank will pay Yes difference in cash. Likewise, if Y47,850,000 is worth more than
$435,000, Yes must pay the bank the difference in cash. The exchange rate on December 31,2012 is Y120=$1

What amount in US$ will Yes report as derivative asset or liability on December 31,2012?(indicate whether it is
an asset or liability)

The following data are taken from the shareholders equity section of the balance sheet of FLOOD CORP.

Dec 31,2006 Dec.31,2007


Ordinary shares(100 per value) 625,000 637,500
Share premium in excess of par 312,500 362,500
Retained earnings 625,000 653,750

During 2008, the company declared and paid cash dividends of 93,750 and also declared and issued a stock
dividend. There were no other changes in stock issued and outstanding during 2008.
Net income for 2006 is:

Oaf Corporation has determined that its fine china division is a cash-generating unit. The carrying amount of
the assets at December 31,2009 are as follows:

Factory 210,000
Land 150,000
Equipment 120,000
Inventory 60,000

Oaf Corporation calculated the value in use of the division to be 510,000. assuming that the fair value less
costs to sell of the land is 145,00, how much is the carrying amount of equipment after allocating impairment
loss?
Santos Ltd. Cash-generating unit has been assessed for impairment and it has been determined that the unit
has incurred an impairment loss of 480,00. the carrying amounts of the assets were as follows:

Building 6,000,000
Equipment 2,000,000
Land 3,500,000
Fittings 2,500,000

The cash-generating unit has not recorded any amount if goodwill. If the fair value less cost to sell the building
is 5,860,000,what amount of impairment loss should be allocated to the equipment?
A.68,572 C.85,714
B.85,000 D.148,750

The following information was extracted from the records of Obduracy Corporation as at December 31,2009:

Assets(liability) carrying amount Tax base


Account receivable 150,000 175,000
Motor vehicles 165,000 125,000
Provision for warranty (12,000) 0
Deposits received in advance (15,000) 0

The depreciation rates for accounting and taxation are 15% and 25% respectively. Deposits are taxable when
received and warranty costs are deductible when paid. An allowance for doubtful debts of 25,000 has been
raised against accounts receivable for accounting purposes, but such debts are deductible only when written
off as uncollectible.

The net journal entry to record deferred tax for the year ended December 31,2009 assuming no deferred items
had been raised in prior years, will increase(decrease profit by

Victoria Inc. needs 2,000,000 to finance its expansion program. Victoria is negotiating a loan with Metropolis
Bank which requires the company to maintain a compensating balance of 10% of the loan in a loan principal on
deposit in a current account in a bank. Victoria Inc. currently maintains a balance of 20,000in its current
account. The current account earns interest of 2% per annum; the interest on the loan is 12% per annum(Hint:
compute first the principal amount of the loan) What is the effective interest rate on the loan?
A.13.2% C.13%
B.11.8% D.12%

Your audit of the debt securities held for trading purposes of DAP CORP. disclosed the following entries during
the fiscal year ended June 30,2009:

Date Particulars Debit Credit


Nov 1 Acquired 10 shares of 10,000 face value bonds
At 102 plus accrued interest 108,000
Jan 1 Interest received 9,000
Mar31 Proceeds from sale of 30,000 par value bonds
Including accrued interest
Required:
How much is gain or loss on sale of investment on March 31, 2009?
A.400 gain C.1,850 loss
B.275 loss D.950 loss

On January 1, 2004, The Pokemon Company granted 10,000 share options to each of its ten executives. The
share options will vest immediately if and when the entitys share price increases from 50 to 70 provided the
executive remains in service when the share price target is achieved.

The Pokemon Company applied a binomial option pricing model and estimated that the fair value of the share
options grant date is 25 per option. From this option pricing model, the entity has determined that the most
likely outcome of the condition is that the share price target will be achieved at the end of 5 years, on
December 31,2008. Hence, the expected vesting period is 5 years.

Pokemon Company also estimates that two executives will have left by December 31,2008. During the years
2004,2005,2006,2007, the entity continues to estimate that two executives will leave by December 31,2008.
However, a total of three executives left, one each in 2006,2007,2008. The share price target is achieved on
December 31,2009 and another executive left during 2009 before the price target is achieved. What is the
compensation expense for 2008?
A.400,000 C.150,000
B.200,000 D.0

On July 1,2008, Tom Company acquired a 25% interest in the outstanding shares of Jerry Company at a total
cost 1,750,000. The underlying equity of the shares acquired by Tom was 1,500,000. The difference was due
to the following:

a. Land with current fair value of 750,000 more than its carrying amount.
b. Depreciable plant assets with current fair value of 150,000 more than carrying amount
c. Inventories which are undervalued by 20,000

All other identifiable assets of Jerry Company have fair values equivalent to their book values. The depreciable
plant assets have remaining useful lives of 10 years from the date of acquisition of the investment. All of the
inventories have been sold as of December 31,2008.

Tom received 100,000 dividends form Jerry in 2008. Jerry reported a 1,350,000 net income during the year.
Interim reports from Jerry revealed that it earned 650,000 during the first two quarter of 2008. There are no
differences in accounting policies between the two companies, nor do differences in accounting policies
between the two companies, nor do differences in reporting dates exist. Assume that there is no indication of
impairment in the shares as of December 31,2008. How much was the income from associate reported in
Toms income statement for the year ended December 31,2008?
A.161,875 C.168,125
B.166,250 D.175,000

At the beginning of year 1, Opaque Corp. grants share options to each of its 100 employees working in the
sales department. The share options will vest at the end of year 3, provided that the employees remain in the
entitys employ and provided that the volume of sales of a particular product increases by at least an average
of 5 per cent per year. If the volume of sales of the product increases by an average of between 5 per cent and
10 per cent per year, each employee will receive 100 share options. If the volume of sales increases by an
average of between 10 per cent and 15 per cent each year, each employee will receive 200 share options. If
the volume of sales increases by an average of 15 per cent or more, each employee will receive 300 share
options. On grant date, Opaque Corp. estimates that the share options have a fair value of 20 per option.

By the end of year 1, seven employees have left and the entity expects that a total of 20 employees will leave
by the end of year 3. product sales have increased by 12 per cent and the entity expects this rate of increase
to continue over the next 2 years.

By the end of year 2, a further five employees have left. The entity now expects only three more employees will
leave during year 3. product sales have increased by 19 per cent. The entity now expects that sales will
average 15 per cent or more over the three-year period.

By the end of year 3, further two employees have left. The entitys sales have increased by 17 per cent.

Compute for the amount to be recognized as compensation expense in year 3.

In 2005, Dochi Company purchased a 5,000,000 life insurance policy on its president, of which Dochi is the
beneficiary. Information regarding the policy for the year ended December 31,2009 follows:

Cash surrender value, Jan.1,2009 435,000


Annual advance premium paid Jan.1,2009 200,000
Life insurance expense recognized 95,000

During 2009, dividends of 300,000 were applied to increase the cash surrender value of the policy. The cash
surrender value of December 31,2009 is
A.570,000 C.540,000
B.510,000 D.465,000

VJ Chemical Company spent 200,000 on researches and development cost for an invention during 2003. On
January 1,2004, the invention was patented at a nominal cost that was expensed in 2004. The legal wife of the
patent was 15 years and the estimated useful life was 9 years. In January,2008 VJ paid 25,000 for legal fees in
a successful defense of the patent. What should be the amortization expense for 2008?
A.-0- C.2,778
B.2,273 D.5,000

Bubble Company determined that due to obsolescence, equipment with an original cost of 9,000,000 and
accumulated depreciation at January 1,2010, of 4,200,000 had suffered permanent impairment, and as a result
should have a carrying value of only 3,000,000 as of the beginning of the year. In addition, the remaining
useful life of the equipment was reduced form 8 years to 3. In its December 31,2010 statement of financial
position, what amount should Bubble report as accumulated depreciation?
A.1,000,000 C.6,000,000
B.5,200,000 D.7,000,000

Benjo Corp.s trademark was licensed to Aries Co. for royalties of 15% of sales of the trademarked items.
Royalties are payable semi-annually on March 15 for sales in July through December of the prior year, and on
September 15 for sales in January through June of the same year. Benjo received the following royalties form
Aries:

March 15 September 15
2006 5,000 7,500
2007 6,000 8,500
Aries estimated that sales of the trademarked would total 80,000 for july through December 2007. In Benjos
2007 income statement, the royalty revenue should be
A.20,500 C.22,000
B.26,500 D.28,000

In preparing its bank reconciliation for the month of February, Shone Company has available the following
information:

Balance per bank statement, February 28 18,025


Deposit in transit, February 28, 3,125
Outstanding checks, February 28 2,875

Check erroneously deducted by bank from Shones


Account, February 10 125
Bank service charges for February 25

What is the corrected cash balance at February 28?


A.18,125 C.18,275
B.18,150 D.18,400
Still Trading made investments in available for sale securities. The unrealized gain or loss account has a debit
balance of 38,700 at December 31,2006 showed the following:

No.of shares Cost Market


A. common 600 shares 922,500 810,000
B. common 225 shares 229,500 270,000
C. common 2,000 shares 808,500 841,800

On July 1, 2008, the shares of B common were sold for 210,000. On December 31,2008, A shares were
quoted at 1,320 per share and C common shares were quoted at 414 per share.
How much is the required increased in the Unrealize gain or loss account at the end of 2008?
A.130,500 C.91,800
B.111,000 D.31,800

National Bank began business in February of 2007. During the year, National Bank purchased the three
trading securities listed below. In its December 31,2007 balance sheet, National Bank appropriately reported a
40,000 debit balance in its Fair value Adjustment-Trading Securities account. There was no change during
2008 in the composition of National Banks portfolio of trading securities. Pertinent data are as follows:

Security Cost December31,2008 Market value


A 1,200,000 1,260,000
B 900,000 950,000
C 1,600,000 1,620,000
Total 3,700,000 3,830,000

What amount of gain on these securities should be included in Nationals bank income statement for the year
ended December 31,2008?
A. None C.90,000
B.40,000 D.130,000
CONCORD CO. purchased real property for 3,225,000 which included 67,500 for realty tax arrears for prior
years. A mortgage of 1,500,000 was assumed by CONCORD CO. on the purchase. Twenty percent of the
purchased price should be allocated to the land and the balance to the building.

In order to make the building suitable for the use of CONCORD CO., remodeling costs had to be incurred in
the amount of 337,500. this however necessitated the demolition of a portion of the building, which resulted in
recovery of salvage material sold for 11,250 cash.

Landscaping and parking lot cost the company a total of 120,000 while repairs in the main hall were 16,875.

The cost of the land was:

Valenciano Company provides the following data December 31, 2006:

Operating revenue 1,120,000


Operating expenses 600,000
Income tax rate 32%
Ordinary share outstanding during the entire year 26,000 shares

On January 1,2006, there were options outstanding to purchase 15,000 ordinary share at 25 per share. The
average market price during the year was 35 per share. The balance sheet reports 240,000 of 7% non-
convertible bonds at December 31,2006. (interest expense is included in operating expenses. How much is the
diluted EPS for 2006?

Alpha Company has granted 250 share appreciation rights to each of its 500 employees on January 1,2006.
The rights are due to vest on December 31,2009 with payment being made on December 31,2010. Only 80%
of the awards vest. Share prices are

January 1,2006 predetermined price 150


December 31,2006 180
December 31,2009 210
December 31, 2010 190

How should the settlement of the share appreciation rights be accounted for on December 31,2010?

A. payment of 4,000,000 and no gain is recorded


B. payment of 6,000,000 and no gain is recorded
C. payment of 2,000,000 and gain of 4,000,000 recorded
D. payment of 4,000,000 and gain of 2,000,000 recorded

The Allowance for Doubtful Accounts has a credit balance of 150,000 at December 31,2009. During 2010,
uncollectible accounts of 35,000 had been written off. The company estimates its bad debt expense to be 2%
of net sales. The balance of the companys net sales for 2010 amounted to
A.12,600,000 C.21,850,000
B.16,100,000 D.14,350,000

PRIME Co. received from a customer a one year, 500,000 note bearing annual interest of 8%. After holding the
note for six months, PRIME discounted the note at Asian Bank at an effective interest rate of 10%.
At the date of discounting, PRIME should recognize
A.40,000 interest revenue B.23,810 interest revenue
C.13,000 interest revenue D.4,762 interest expense
In analyzing the shareholders equity section of the PEARSON CORP. the following information was
abstracted from the accounts at December 31,2008:

Total income since incorporation P 7,875,000


Total cash Dividends paid 2,437,500
Proceeds from sale of donated stock 834,750
Total value of stock dividends distributed 562,500
Excess of proceeds over cost of treasury stock sold 131,250

What should be the balance of the retained earnings account as of December 31,2008?
A.4,875,000 B. 6,218,750
C.7,031,250 D.10,031,250

On October 1,2010, Rodel Corporation, a real estate developer, sold land to Gerry Company for 5,000,000.
Gerry paid cash of 600,000 and signed a ten-year 4,400,000 note bearing interest at 12%. The carrying
amount of the land was 4,000,000 on the date of sale. The note was payable in forty quarterly principal
installments of 110,000 beginning January 2,2011. Rodel appropriately accounts for the sale under the cost
recovery method. On January 2,2011, Gerry paid the first principal installment of 110,000 and interest of
132,000. For the yea ended December 31,2011, what total amount of income should Rodel recognize from the
land sale and the financing?
A.0 B. 208,000
C.508,200 D.309,640

On January 1,2006, Zaft Company enters into a forward contract that requires the entity to repurchase 2,000
shares for 240,000 on December 31,2007. No consideration is paid or received at inception of the contract.
The market rate of interest is 10% of the same type of transaction. What amount of financial liability should Zaft
Company recognize on January 1,2006?

On January 1,2010, Blocked Company leased a building to Hide Company for a ten-year term at an annual
rental of 500,000. At inception of the lease, Blocked received 2,000,000 covering the first two years rent of
1,000,000 and a security deposit of 1,000,000. This deposit was not to be returned to Hide upon expiration of
the least but will applied to payment of rent for the last two years of the lease. What portion of 2,000,000
should be shown as a current and non-current liability in Blockeds December 31,2010 statement of financial
position?

Charge Co. has three financial statement element for which the December 31,2010 carrying amount is different
from the tax basis.

Carrying Amount Tax Basis Difference


Equipment 310,000 215,000 95,000
Prepaid officers insurance policy 76,000 -0- 76,000
Warranty liability 52,000 -0- 52,000

What is the total amount of future taxable differences?

The following accounts appear on the adjusted trial balance of Grand Company on December 31,2009

Petty cash fund 10,000


Payroll fund 100,000
Sinking fund cash 500,000
Sinking fund securities 1,000,000
Accrued interest receivable-sinking fund securities 50,000
Plant expansion fund 600,000
Cash surrender value 150,000
Investment property 3,000,000
Advances to subsidiary 200,000
Investment in joint venture 2,000,000

How much should be reported as non current investment on December 31,2009?

On December 31,2009, Bart Company purchased a machine in exchange for a non-interest bearing note
requiring eight payments of 200,000. the first payment was made on December 31,2009 and the others are
due annually on December 31. At date of issuance, the prevailing rate of interest for this type of note was 11%.
Present value factors are as follows:

Present value of an ordinary of 1 at 11% for 8 periods 5,146


Present value of annuity of 1 in advance at 11% for 8 periods 5,712

On December 31,2009, the machine should be recorded at


A.1,600,000 C.1,400,000
B.1,029,200 D.1,142,200

On December 31, 2009, Sadanga Company finished consultation services and accepted in exchange a
promissory note with a face value of 300,000 a due date of December 31,2012, and a stated rate of 5%, with
interest receivable at the end of each year. The fair value of the services is not readily determinable and the
note is not readily marketable. Under the circumstances, the note is considered to have an appropriate
imputed rate of 10%.

The carrying amount of the note receivable as of December 31,2010 is


A.300,000 C.262,694
B.273,963 D.247,920

A2. Thea received 12,000 from a tenant on Dec 1 for four months rent of an office. This rent was for Dec, Jan,
Feb, March. If lane debited Cash and credited Unearned Rental Income for P12,000 on Dec 1, the necessary
adjustment Dec 31 would include
a. a debit to Rental Income of 3,000
b. a credit to Rental Income of 3,000
c. a debit to Unearned Rental Income of P9,000
d. a credit to Unearned Rental Income of P9,000

A3. Athena Bottling purchased for P800,000 a trademark for a very successful softdrink it markets
under the name OK!. The trademark was determined to have an indefinite life. A competitor recently
introduced a product that is in direct competition with the OK! product, thus suggesting the need for
an impairment test. Data gathered by Athena suggest that the useful life of the trademark is still
indefinite, but the cash flows expected to be generated by the trademark have reduced either to
P30,000 per year (with a probability of 80%) or to the P60,000 per year (with 20% probability). The
appropriate risk-free interest is 5%. The appropriate risk adjusted interest rate is 10%.
The loss of impairment of trademark is
a. 440,000 b. 320,000 c. 200,000 d.80,000
A1. The net income of Nick Co. was 5,465,000 for the current year. Presented are the changes in
Nicks Statement of Financial Position during the year.
Deferred Tex Liability 54,000 decrease
Accumulated Depreciation due to major
repair to equipment 63,000 decrease
Long term investment at equity 136,500 decrease
Unearned Interest Income 40,350 decrease
What amount should be reported as net cash provided by operating activities in the statement of cash
flows for the current year?________

A1. Sub Company had net assets according to its books of P1,000,000 on Jan 1, 2010. On the same
date, Parr Company owned 9,000 of the 12,000 outstanding shares of Subs only class of stock, and
its investment in Sub Company account had a balance of P795,000. If, on Jan 1, 2010, Sub
repurchased 2,000 shares from Parr for 200,000, the gain on the sale of the stock recognized by Parr
was
a. 3,000 b. 7,000 c. 10,000 d. 23,333

MMDS Company is engaged in the operation of public highways and skyways in Metro Manila. On
Nov 2, 2009, a catastrophe devastated some of the companys operated highways and skyways. The
company suffered P5.6 million loss due to catastrophe. On Jan 1, 2010, the Philippine government
decided to compensate the company for the incurred loss. The government loaned P5 billion at 5%
per annum with maturity period of 5 years. The current market rate for similar type of loan after
considering credit ricks attached was 10%. The conditions stipulated on the loan agreement provide
that the proceeds will be used for reconstruction of the skyways and highways.
On Jan 1, 2010, how much should the company recognize as government grant (round off to the
nearest million)?

A6. During 2008, CUTE COMPANY purchased trading equity securities as a short-term investment.
The cost and market values at Dec 31, 2008 were as follows:
Securities Cost Market Value
A-1,000 shares 200,000 300,000
B-10,000 shares 1,700,000 1,600,000
C-20,000 shares 3,100,000 2,900,000
Cute sold 10,000 shares of Company B stock on Jan 15, 2009 for P130 per share, incurring P50,000
in brokerage commission and taxes.
On this sale, Cute should report a loss of ___________________

A7. SWEET COMPANY, a public company, issued 5,000 ordinary shares with 1,000 par values for a
building. The following information relates to the exchange:
Net book value of the building 17,500,000
Insurance amount for the building 25,000,000
Current quoted price of stock 4,400/share
The building should be recorded at
a. 5,000,000 b. 17,000,000 c. 22,000,000 d. 25, ,000,000

The inventory on hand on Dec 31, 2006 of LEISA CORP, is valued at a cost of P300,000. The
following items were not included in the inventory:
a. Purchased goods in transit shipped FOB Destination, with price of 30,000 which included freight
charge of P5,000.
b. Goods held on consignment by LEISA CORP at a sales price of 10,000, excluding a 20%
commission on the sales price. Freight paid by LEISA CORP was P1,000.
c. Goods sold in transit shipped FOB Destination, with invoice price of 49,000 which included freight
charges of 4,000 to deliver the goods.
d. Purchased goods in transit shipped FOB Shipping Point with invoice price of 60,000. Freight costs
amount to 6,000.
Goods out on consignment with sales price of P30,000. Shipping costs amount to P3,000. What is the
correct inventory on Dec 31, 2006 assuming LEISAs selling price is 150% of costs?
a. 419,000 b. 416,000 c. 410,000 d. 17,500

Jet Company had the following ordinary share transaction during the current year:
1/1 Ordinary Shares outstanding 300,000
2/1 Issued a 10% stock dividend 30,000
3/1 Issued Ordinary Shares in a purchase combination 90,000
7/1 Issued Ordinary Shares for cash 80,000
12/31 Ordinary Shares outstanding 500,000
What was the weighted average number of shares outstanding?
a. 400,000 b.442,500 c. 445,000 d. 460,000

15. During 2009, Congruent Company introduced a new product carrying a two-year warranty against
defects. The estimated warranty cost related to pesos sales are 2% within 12 months following sales
and 4% in the 2nd twelve months following sales. Sales and actual warranty expenditures foe years
ended Dec 31, 2009 and 2010 were as follows:
Sales Actual Warranty Expenditures
2009 6,000,000 90,000
2010 10,000,000 300,000
16,000,000 390,000
At Dec 31, 2010, Congruent should report an estimated warranty liability of ?
10. Kangaroo Company has a defined benefit pension plan. Kangaroos policy is to fund net periodic
pension cost annually, payment to an independent trustee being made two months after the end of
each year. Data relating to the pension plan for 2008 are as follows:
Net pension cost for 2008 190,000
Present value of benefit obligation, Dec 31, 2008 480,000
Fair value of plan assets, Dec 31, 2008 310,000
Unrecognized net gain, Dec 31, 2008 20,000
What amount should Kangaroo Company report in its balance sheet as of Dec 31, 2008?
a. none b. 190,000 assets c. 190,000 liability d. 330,000 liability

6. On Dec 31, 2007, Over Corporation borrowed from Whelm Bank, signing a 5-year non-interest
earing note for P100,000. The note was issued to yield 10% interest. Unfortunately, during 2009,
Over began to experience financial difficulty. As a result, at Dec 31, 2009, Whelm Bank determined
that it was probable that it would receive back only 75,000 at maturity. The market loss of interest on
loans of this nature is now 11%. How much should be recognized as loan impairment loss in 2009?
a. 11,952 b. 18,782 c. 20,292 d. 5,743
A2. On Jan 1, 2009, Dyer Company acquired as a long-term investment of 20% ordinary share
interest in Eason Company. Dyer paid P7,000,000 for this investment when the fair value of Easons
net asset was P35,000,000. Dyer can exercise significant influence over Easons operating and
financial policies. For the year ended Dec 31, 2009, Eason reported net income of 4,000,000 and
declared and paid cash dividends of 1,600,000. How much revenue from this investment should Dyer
report for 2009?
a. 320,000 b. 480,000 c. 800,000 d. 1,120,000

5. Eton Company reports the following information at Dec 31, 2008:


Cash (in the form of coins, currencies, savings accounts and checking accounts) for a total of
P3,400,000
Investment in equity securities of P1,000,000. These are ordinary share investments in several
companies whose shares are traded actively in the Makati Stock Exchange.
Investment in government treasury bills of P2,000,000. These T-bills have a 2 year term and
were purchased during Dec, at which time the remaining term to maturity is two months.
Commercial papers (short-term receivables from other companies) amounting to P1,500,000
with a term of nine months. They were purchased in late Nov, at which time the remaining term
to maturity to four months.
How much should be reported as cash and cash equivalents at Dec 31, 2008?
a. 3,400,000 b. 5,400,000 c. 6,400,000 d. 6,900,000

2. Henri Company purchased for cash on Jan 1, 2003, three machines which cost a P1,800,000.
Estimated selling prices of the machines were:
Machine 1 600,000
Machine 2 750,000
Machine 3 900,000
The machines were believed to have a useful life of 10 years without residual value. The company
records depreciation annually on a monthly basis. On Jan 1, 2006, Machine 1 was sold for 375,000
cash. The proceeds were credited to the Machinery account.
On July 1, 2008, Machine 3 was traded in for a new machine (No.4) which had a cash price of
750,000, Henri paying 300,000 for the difference with the trade in value of the old machine.
What should be the balance of Accumulated depreciation-Machinery on Dec 31, 2008 after adjusting
the books?

9. The following information was obtained from the statement of financial position of Paris, Inc. on
Dec 31, 2010:
6% convertible 10-year bonds at par 2,000,000
Ordinary share capital, P20 par, 2,200,000
110,000 shares issued and outstanding
Retained Earnings 950,000
Each P1,000 bond can be converted into 40 ordinary shares. On Sept 30, 2010 the bonds were all
converted into ordinary shares. Norway reported net income of P600,000 in 2010. The income tax
rate is 35%.
What is Paris diluted earnings per share 2010?

7. On July 1, 2008, the Obnoxious Corporation was registered with the SEC. its authorized share
capital consists of 100,000 ordinary shares with par value P20.00 per share.
On July 15, 2008, it issued 10,000 shares at P23 per share. On Oct 15, 2008, the Obnoxious
Corporation paid to the majority shareholders the sum of 80,000 for a certain parcel of land; and
issued 5,000 ordinary shares for the building on the land. The land was appraised at P130,000. The
building has a cost of P150,000 and its depreciated value is P90,000. It was appraised at P120,000.
On April 15, 2009, the corporation purchased 5,000 of its own ordinary shares for P100,000. On June
15, 2009, 2,000 of treasury shares were sold at P24 per share.
How much is the total share premium of Obnoxious Corporation on June 30, 2009?

6. On January 1, 2008, Calcium Inc. signed a long-term lease for an office building. The term the
lease required Calcium to pay 100,000 annually, beginning Dec 31, 2008 and continuing each for 30
years. The lease qualifies as financial lease. On Jan 1, 2008, the present value of the lease payments
is 1,125,000 at 8% interest rate implicit in the lease.
In Calciums Dec 31, 2008 balance sheet, how much should be the finance lease liability?
a. 1,025,000 b. 1,115,000 c. 1,125,000 d. 2,900,000

E3. Foster Co. adjusted its allowance for uncollectible accounts at Year-end. The general ledger
balances for the accounts receivable and the related allowance account were 1,000,000 and 40,000,
respectively. Foster uses the percentage of receivables method to estimates its allowance for
uncollectible accounts. Accounts receivable were estimated to be 5% uncollectible. What amount
should Foster record as an adjustment to its allowance for uncollectible accounts at year-end?
a. 10,000 decrease b. 10,000 increase c. 50,000 decrease d. 50,000 increase

3. During 2005, Patrick Company experienced financial difficulty and is likely to default on a
1,000,000, 15%, 3 year note dated Jan 2, 2004, payable to Landbank. On Dec 31, 2005, the bank
agreed to settle the note and unpaid interest of P150,000 for 2005 for P100,000 cash and available
for sale securities having a current market value of 750,000. Patricks acquisition cost of the securities
is 770,000. Ignoring income taxes, what amount should Patrick report as a gain as a result of the debt
restructuring in its 2005 income statement?

E1. The current liability of an entity include fines and penalties for environmental damage. The fines
and penalties are stated at 10 million. The fines and penalties are not deductible for tax purposes.
What is the tax base of fines and penalties?
a. 10 million b. 3 million c. 13 million d. 0

5. IMORTAL Company acquired a machine on Jan 1, 2008, at a cost of 120,000. It was expected to
have a economic useful life of 10 years. Imortal uses the straight line method in depreciating its
machinery and equipment and reports on a calendar year basis. On Dec 31, 2010, the machine was
appraised as having a gross replacement cost of 150,000. Imortal applies the revaluation model in
valuing this class of property, plant and equipment after its initial recognition.
How much should be credited to revaluation surplus on Dec 31, 2010?
a. 30,000 b. 105,000 c. 21,000 d. 9,000

DIFFICULT ROUND (Choices may be omitted to increase level of difficulty.)

1. On June 30, 2010, Orient Company had outstanding 8%, P 3,000,000 face amount, 15-year
bonds maturing on June 30, 2017. Interest is payable on June 30 and December 31. The
unamortized balances on June 30, 2010 bond discount and deferred bond issue costs accounts were
P 105,000 and P 30,000, respectively. Orient reacquired all of these bonds at 94 on June 30, 2010,
and retired them.

Ignoring income taxes, how much gain should Orient report on this early extinguishments of
debt?
a. P 45,000 c. P 105,000
b. P 75,000 d. P 180,000

3. The shareholders equity of Diskette Corporations December 31, 2009 balance sheet
consisted of the following account balances:

Ordinary shares, P50 par, 100,000 shares authorized and outstanding P 5,000,000
Share premium 3,000,000
Accumulated profits and losses (deficit) (2,000,000)

On January 2, 2010, the company put into effect a shareholder-approved quasi-


reorganization by reducing the par value of the stock to P25 and eliminating the deficit
against share premium. Immediately after the quasi-reorganization, what amount should the company
report as share premium in its balance sheet?

a. None c. P 3,500,000
b. P 3,000,000 d. P 5,500,000

4. On January 2, 2009, Cinderella Company enters into a forward contract to purchase on


January 2, 2011, a specified number of barrels of oil at a fixed price. Cinderella Company is
speculating that the price of oil will increase and plans to net settle the contract if the price increases.
Cinderella Company does not pay anything to enter into the forward contract on January 2, 2009.
Cinderella Company does not designate the forward contract as a hedging instrument. At the end of
2009, the fair value of the forward contract has increased to P 400,000 and at the end of 2010 its fair
value has declined to P 350,000.

What amount of forward loss should Cinderella Company recognize at the end of the
year 2010?

5. The net income for the year ended December 31, 2010 for Dwarf Company was P 1,800,000.
Additional information follows:

Depreciation on plant assets P 900,000


Depreciation of leasehold improvements 510,000
Provision for doubtful account on short-term receivables 180,000
Provision for doubtful account on long-term receivables 150,000
Interest paid on short-term borrowings 120,000
Interest paid on long-term borrowings 90,000

Based on the information given, what should be the net cash provided by operating activities
in the statement of cash flows for the year ended December 31, 2010?

a. P 3,390,000 c. P 3,540,000
b. P 3,510,000 d. P 3,750,000

7. Impressed company, a division of Philippine Realty Corporation maintains escrow accounts


and pays real estate taxes for Philippines mortgage customers. Escrow funds are kept in interest-
bearing accounts. Interest, less a 10% service fee, is credited to the mortgagees account and used
to reduce future escrow payments. Additional information follows:

Escrow accounts liability, January 1, 2010 P 900,000


Escrow payments received during 2010 1,500,000
Real estate taxes paid during 2010 1,900,000
Interest on escrow funds during 2010 90,000

What amount should Impressed Company report as escrow accounts liability in its December
31, 2010 balance sheet?

a. P 491,000 c. P 581,000
b. P 500,000 d. P 590,000

9. Man Company purchased 10% of Kind Corporations 200,000 outstanding shares of ordinary
shares on January 2, 2010 for P 2,500,000. On October 31, 2010, Man Company purchased another
40,000 shares of kind for P 6,000,000. There was no goodwill as a result of either acquisition and
Kind had not issued any stock dividends during 2010. Kind reported earnings of P 6,000,000 for the
year ended December 31, 2010.

What amount should Man Company report in its December 31, 2010 balance sheet as
Investment in Kind?
a. P 8,500,000 c. P 9,400,000
b. P 9,300,000 d. P 10,300,000
EASY ROUND

1. Marketable available-for-sale securities were acquired at January 1, 2010 for P 18,000. The
fair value at December 31, 2010 amounted to P 22,500. How should the fair value adjustment be
recognized in the companys financial statements?

a. P 4,500 through profit or loss c. P 4,500 as adjunct-equity


b. P 4,500 as contra equity d. P 4,500 as note disclosure

8. On January 2, 2010, Cream Company received a consolidated grant of P 240,000,000. Three-


fourths of the grant is to be utilized to purchase a college building for students for underdeveloped or
developing countries. The balance of the grant is for subsidizing the tuition costs of those students for
four years from the date of the grant. The expected college life of the building is 10 years and the
company uses the straight-line method of depreciation.

What amount of the grant is recognized as income for the year ended December 31, 2010?

a. P 15,000,000 c. P 33,000,000
b. P 18,000,000 d. P 60,000,000

2. A depreciable assets carrying value is determined to be P 45,000 at year-end. On the same


date, net selling price is determined to be P 36,000 while the allocated value in use is P 39,000. How
much should be recognized as impairment loss?

a. P0 c. P 6,000
b. P 3,000 d. P 9,000
3. Seven Seas Company had share capital of two million shares P 1 each fully paid up. On
January 2, 2008, Seven Seas Company issued one million P 1 ordinary shares. The full price of the
new shares was P 1.50 and they were 50% paid up on issue. The dividend participation is to be 50%
until fully paid up. The shares remained 50% paid at December 31, 2008. During the year 2008, the
average fair value of one ordinary share was P 2.00. Net income for the year was P 8,000,000.

What should be reported as basic earnings per share?

a. P 2.67 c. P 3.20
b. P 3.05 d. P 4.00

AVERAGE

A7. On July 1, 2009, ECV Corporation exchanged 20,000 shares of its P200 par value stock for
land. A few months ago, the land is appraised by an independent appraiser at P 5,000,000. ECV is
currently trading at the stock exchange at P 300. The earnings per share is P 40.

How much should be debited to land account?

D8. Jabar Corp. holds 10,000 ordinary shares, par value P 10, as treasury shares, which was
purchased in year 2007 at a cost of P 120,000. On December 8, 2008, Jabar sold all the 10,000
shares for 210,000. The sale would result in a credit to Paid-in capital from sale of treasury shares in
the amount of?

D6. Silverio, Domingo, Reyes, and Pastor are partners, sharing earnings in the ratio of 3/21, 4/21,
6/21 and 8/21, respectively. The balances of their capital accounts on December 31, 2008 are as
follows:

Silverio P 1,000
Domingo 25,000
Reyes 25,000
Pastor 9,000

The partners decide to liquidate and they accordingly convert the non-cash assets
into P 23,200 of cash. After paying the liabilities amounting to P 3,000, they have P22,200 to
divide. Assume a debit balance of any partners capital is uncollectible.

After P22,200 was divided, the capital balance of Domingo was:

A4. A pre-tax accounting income of P3,000,000 is subject to the following adjustments:


Non-deductible expense as permanent difference: P 270,000.
Future taxable amount as temporary difference: P 330,000.
If tax rate is set to 34%, what is the amount of income tax payable for the period?

10. Rainbow Company has the following information pertaining to its biological assets:
A herd of 100, 2-year old animals was held at January 1, 2010. Ten animals aged 2.5 years were
purchased on July 1, 2010 for P 5,400 and ten animals were born on July 1, 2010. No animals were
sold or disposed of during the period. Per unit fair values less estimated point-of-sale costs were as
follows:
2.0-year old animal at January 1, 2010: P 5,000
Newborn animal at July 1, 2010: P 3,500
2.5-year old animal at July 1, 2010: P 5,400
Newborn animal at December 31, 2010: P 3,600
0.5-year old animal at December 31, 2010: P 4,000
2.0-year old animal at December 31, 2010: P 5,250
2.5-year old animal at December 31, 2010: P 5,550
3.0-year old animal at December 31, 2010: P 6,000

How much of the increase in the fair value of biological assets due to physical change?
a. P 75,000 c. P 110,000
b. P 79,500 d. P 118,500

6. The following facts relate to Sydney Company for the year 2010:

Deferred tax liability , January 1, 2010 P 400,000


Deferred tax asset, January 1, 2010 0
Taxable income for 2010 1,600,000
Pre-tax financial income 1,750,000
Cumulative temporary difference at 12/31/10
Giving use to future taxable amount 2,400,000
Cumulative temporary difference at 12/31/10
Giving use to future deductible amount 350,000
Income tax rate for all years 32%

What is the amount of deferred tax expense (net) for 2010?


a. P 112,000 c. P 368,000
b. P 256,000 d. P 400,000

2. The following information relates to the defined benefit pension plan for the Citywide Company
for the year ending December 31, 2010:

PV of benefit obligation, January 1 P 6,700,000


PV of benefit obligation, December 31 7,200,000
Fair value of plan assets, January 1 7,500,000
Fair value of plan assets, December 31 7,900,000
Expected return on plan assets 675,000
Amortization of deferred gain 48,750
Employer contribution 300,000
Benefits paid to retirees 600,000
Settlement rate 10%

How much would be the current service cost for the year?
a. P 88,500 c. P 193,500
b. P 141,000 d. P 430,000

A4. Dream Company, a lessor of office machines, purchased a new machine for
P 500,000 on January 1, 2010, which was leased the same day to Girl Company. The machine is
expected to have a ten-year life and will be depreciated P 50,000 per year. The lease is for a three-
year period expiring January 1, 2013 and provides for annual rental payments of P 100,000 beginning
January 1, 2010. In addition, Girl paid P 60,000 as a lease bonus to obtain a three-year lease.

In its 2010 income statement, what amount should Dream report as operating profit on this
leased asset?

Difficult Question #1: Goren Corporation had the following amounts, all at retail:

Beginning Inventory P 36,000 Purchases 1,000,000


Purchase returns 60,000 Net Mark-ups 180,000
Abnormal shortage 40,000 Net Markdowns 28,000
Sales 720,000 Sales returns 18,000
Employee discounts 16,000 Normal shortage 26,000

What is Gorens ending inventory at retail?

D2. David and Goliath began the year with capital balances of P 40,800 and
P 112,000, respectively. On April 1, David invested an additional P 15,000 into the partnership and on
August 1, Goliath invested an additional P 20,000. David and Goliath have agreed to distribute
partnership net income of P 80,000 according to the following plan:

David Goliath
Interest on average capital
6% 6%
balances
Bonus on net income
before the bonus but after
10%
the interest on average
capital balances
Salaries P 25,000 P 30,000
Residual (If Positive) 70% 30%
Residual (If Negative) 50% 50%

The share of David and Goliath on the net income is: ________________

E1. On December 1, 2010, Nam Company leased office space for five years at a monthly rental of
P600,000. On the same date Nam paid the lessor the following amounts:
Bonus to obtain lease 300,000
First months rent 600,000
Last months rent 600,000
Security deposit (refundable at lease expiration) 800,000
Installation of new walls and offices 3,600,000

Nams 2010 expense relating to utilization of the office space should be


a. 1,400,000
b. 1,200,000
c. 665,000
d. 600,000
D1. On December 31, 2010, Qatar Company had 500,000 shares of common stock outstanding. On
October 1, 2011, an additional 100,000 shares of common stock were issued. In addition, Qatar had
P10, 000,000 of 6% convertible bonds outstanding at December 31, 2010, which are convertible into
225,000 shares of common stock. No bonds were converted into common stock in 2011. The net
income for the year ended December 31, 2011 was P3,000,000. Assuming the income tax rate was
30%, the diluted earnings per share for the year ended December 31, 2011, which will be presented
in the audited financial statements, will be:
Hint: Round off to the nearest centavo.
E2. Bernal Construction bought machinery with a useful life of 5 years at a cost of P200,000
estimated salvage value was P50,000. The company uses the sum of years digit method of
de[recitation.
The annual depreciation expense for the fifth year applicable to the machinery is:
a. P10,000 b. P30, 000 c. P40,000 d. P50,000
E3. Out Company accepted a P10,000, 2% interest-bearing note from Look Company on December
31, 2008, in exchange for a machine with a list price of P8,000 and a cash price of P7,500. The note
is payable on December 31, 2010. In its 2008 income statement, Out should report the sale at:
a. P 7,500 c. P8,000
b. P10,000 d. P10,400

E4. Mai Company had 200,000 ordinary shares of P20 per value and 20,000 share of P100 par.6 %
cumulative, convertible preference share capital outstanding for the entire year ended December 31,
2010. Each preference share is convertible into 5 ordinary shares. Mais net income for 2009* was
P840,000. For the year ended December 31, 2010, the diluted earnings per share should be:

E5. Kenya Enterprises developed a new machine that reduces the time required to mix the chemicals
used in one of its leading products. Because the process is considered very valuable to the company,
Kenya patented the machine.
Kenya incurred the following expenses in developing and patenting the machine:
Research and development laboratory expenses P750,000
Materials used in the construction of the machine 240,000
Blueprints used to design the machine 96,000
Legal expenses to obtain patent 360,000
Wages paid for the employees work on the research,
Development, building of the machine (60% of the
Time was spent in actually building the machine) 900,000
Expense of drawing required by the Bureau of Patents
To be submitted with the patent application 51,000
Fees paid to Bureau of Patents to process application 75,000

One year late, Kenya Enterprises paid P525,000 in legal fees to successfully defend a patent against
an infringement suit by Gaya-gaya Company.

What is the total cost of the new machine?


a. P1,362,000
b. P0
c. P780,000
d. P876,000

E6. Gong Company started construction of its administration building at and estimated cost of
P50,000,000 on January 1, 2012. The construction Is expected to be completed by December 31,
2013. Gong has the following debt obligations outstanding during 2012:
Construction loan 12% interest, payable
Semiannually, issued December 31, 2009 P20,000,000
Short-term loan 10% interest, payable monthly,
And principal payable by maturity on May 31, 2011 P14,000,000

Long-term plan 11% interest, payable on January


1 of each year, principal payable on January 1, 2014 P10,000,000

Assume that the weighted average of the accumulated expenditures during 2010 was P36,000,000.
What amount of interest incurred in 2010 would be included in the cost of the building being
constructed?
a. P4,900,000
b. P4,067,200
c. P2,400,000
d. P0

E7. In 2006, Bryce company acquired land by paying P300,000 and signing a note with a face value
of P4,000,000 principal on the note. Bryce was in financial difficulty and was unable to make any
payments. Bryce and the bank agreed to amend the note as follows:
The P320,000 interest due on December 31, 2010 was forgiven.
The principal of the note was reduced by P200,000 and the maturity date made December 31,
2011.
Bryce would be required to make one interest payment totaling P342,000 on December
31,2011.
Assuming Bryce Company incurred a total transaction cost of P30,000 directly related to the
restructuring, what amount og net gain should be reported in its 2010 profit or loss?
a. None c. 454,815
b. 148,000 d. 484,815

E8. The following are JD Companys biological assets:


Price of the asset in the market P5,000
Estimated commissions to brokers and dealers 500
Estimated transport and other costs necessary to get
Asset to the market 300

The entitys biological assets should be valued at:


a. P4,700 c. P4,400
b. P4,500 d. P4,200
E9. Loeb Corp. frequently borrows from the bank In order ti maintain sufficient operating cash.
The following loans were at a 12% interest rate, with interest payable at maturity. Loed repaid
each loan on its scheduled maturity date.

Date of loan Amount Maturity Date Term of Loan


11/1/2009 5,000 10/31/2010 1 year
2/1/2010 15,000 7/31/2010 6 months
5/1/2010 8,000 1/31/2011 9 months

Loeb records interest expense when the loans are repaid. As a result, interest expense of 1,500
was recorded in 2010. If bo correction is made, by what amount would 2010 interest expense be
understated?
a. 540 b. 620 c. 640 d. 720

-------------------------------
1. Marketable available-jon-sale securities were acquired at January 1, 2011 for P18,000. The
fair value at December31, 2011 amounted to P22,500. How should the fair value adjustment
be recognized in the companys financial statements?
a. P4,500 through profit or loss
b. P4,500 as contra-equity
c. P4, 500 as adjunct-equity
d. P4,500 as note disclosure only
2. Due to adverse economic circumstances and poor management, Garfield Company has
negotiated a restructuring of its P8,500,000 note payable to Paramount Bank. Paramount Bank
has agreed to reduce the face value of the note from P8,500,000 to P6,000,000, reduce the
interest rate from 14% to 10%, and extend the due date one year fron the date of restructuring.
The restructuring will occur on August 31, 2012, the last day of Garfields annual reporting
period. There is no unpaid interest on the restructuring loan at this time.

What is the gain on the debt restructuring?


a. 0 c. 2,500,000
b. 1,900,000 d. 2,710,000

3. The balance sheet at December 31,2011 of Mall Company showed a cash balance of
P183,500. An examination of the books disclosed the following

Cash sales of P24,000 from January 1 to 5, 2012 were predated as of December 28 to 31,
2011 and charged to the cash account. Customers checks totaling P9,000 deposited with and
returned by the bank HSF on December 27, 2011 were not recorded in the books. Checks of
P11,200 in payment of liabilities were prepared before December 31, 2011 and recorded in the
books, but withheld by the treasurer. Post-dated checks totaling to P6,800 are being held by
the cashier as part of Cash. The companys experience shows that the post-dated checks are
eventually realized. The Cash account includes P40,000 being reserved for the purchased of
a mini-computer which will be delivered soon. Personal checks of officers, P5,400 were
redeemed on December 31, 2011, but returned to cashier on January 2, 2012.

How much is the cash balance that should be shown in the December 31, 2011 balance
sheet?
a. P87,100 c. P138,300
b. P109,500 d. P183,500

4. A depreciable assets carrying value is determined to be P45,000 at year-end. On the same


date, net selling price is determined to be P36,000 while the allocated value in use is P39,000.
How much should be recognized as impairment loss?
a. P0 c. P6,000
b. P3,000 d. P9,000
5. Conan Company uses the moving average cost method of valuing inventories. During August
2012, the following inventory details were recorded:

Opening balance 3000 units valued at P20 each


August 5 purchase of 5000 units at P24 each
August 10 issue of 4000 units
August 18 purchase of 6000 units at P25 each
August 23 issue of 2500 units

The value of the month0end inventory for August 2012 was:


a. P172,500 c. P180,000
b. P176,500 d. P187,500
6. The following is an extract from the balance sheets of Forward Company for the years ended
July 31, 2011 and July 31, 2012:

2012 2011
Inventory 500,000 800,000
Receivables 600,000 500,000
Trade payables 350,000 300,000
Accruals of expense 50,000 200,000

What effect would the movements in these items during the year have on cash generated from
operations, as reported in the cash flow statement of Forward Company?
a. P100,000 outflow c. P250,000 outflow
b. P100,000 inflow d. P250,000 inflow
7. Various goods worth of P50,000 are acquired. The purchase is subject to 5% trade discount
and 2/10, n/30. Assuming the gross method of recording purchases is used, what amount
should be recorded as inventory for this acquisition?
a. P50,000 c. P46,550
b. P47,500 d. P46,500
8. On December 31, 2012, Raven Company has 200,000 ordinary shares outstanding with a par
value of P100 per share. Information revealed that Raven had a 9% convertible debenture,
P1,000,000 face value bonds. The bond has a carrying value og P1,067,830 as of January 2,
2012 based on a prevailing rate of 7%. Each 1,000 bond is convertible into 20 ordinary shares.
The bonds were dated January 1, 2012. Net income after tax of 32% for 2012 was P418,000.

How much should Raven Company report as earnings per share in its December 31, 2012
financial statements?
a. P1.90 c. P2.13
b. P2.09 d. P2.89
9. Star purchases a machine for P500,000 on January 1, 2011. The machine has an expected
useful life of five years and no residual value. Tax allowable deductions of 50% of cost can be
claimed for each of the first 2 years of the assets life. The rate of corporate tax is 30% and the
post-tax discount rate is expected to be 5% for the next five years.

What amount of deferred tax liability should be shown in the December 31, 2011 balance
sheet of Star Company?
a. None c. P43,000
b. P35,000 d. P45,000

10. Antonio Company is planning to dispose a collection of rare assets. Antonio designates these
assets as a disposal group. The carrying amount of these assets immediately before
classification as held for sale was P20,000,000. Upon being classified as held for sale, these
rare assets we revalued to P18,000,000. The company feels that it would cost P1,000,000 to
sell the disposal group.

What would be the carrying amount of the disposal group in the companys accounts after the
classification?
a. P17,000,000 c. P19,000,000
b. P18,000,000 d. P20,000,000
11. Antonia Company grants 150 share options to each of its 400 employees on January 2, 2011,
and exercisable starting December 31, 2013 for a 2-year period. Each grant is conditional
upon the employee working for the entity over the next three years. Antonia estimates that the
fair value of each option is P40. On the basis of weighted average probability, the entity
estimates that 20% of the employees will leave during the three-year period and forfeit their
rights to the share options. During the year 2011, 20 employees leave and Antonia Company
still believes that 20% is a fair estimate of employee departures. During 2012 a further 22
employees leave. Due to the low turn-over as of December 31, 2012, Antonia revises its
estimates of employee departures over the three-year period from 20% to 15%. During 2013, a
further 18 employees leave.

What is the compensation expense to be recognized by Antonia Company for the share
options in 2013?
a. P800,000 c. P9401,000
b. P900,000 d. P1,700,000
12. On December 31, 2011, Woods Company changed its defined benefit pension plan to defined
contribution plan. Woods agrees with the employees to pay them P18,000,000 in total on the
introduction of a defined contribution plan. The employees forfeit any pension entitlement for
the defined benefit plan. The pension liability recognized in the balance sheet at December 31,
2011 was P20,000,000. How would this curtailment accounted for in the balance sheet at
December 31, 2012?

a. A settlement gain of P2,000,000 should be shown


b. The pension liability should be credited fto reserves and a cash payment of P18,000,000
should be shown in expense in the Income Statement.
c. The cash payment should go to reserves and the pension liability should be shown as a
credit to the Income Statement.
d. A credit to reserves should be made of P2,000,000
13. The 2011 Income Statement of Ireneo Company shows operating expenses of P265. The
following information is also available:
Prepaid expenses, 1/1/2011: P15
Accrued expenses, 1/1/200: P42
Accrued expenses, 12/31/2011 P21
Prepaid expenses, 12/31/2011: P35
How much was the cash paid for operating expenses?
a. P306 c. P264
b. `P269 d. P224
14. The Palita Company purchased a varnishing machine for P150,000 on January 1, 2011. The
company received a government grant of P13,500 in respect of this asset. Company policy
was to depreciate the asset over 4 years on a straight-line basis and to treat the grant as
deferred income. Under PAS20 Government grants and government assistance, what should
be the carrying amounts of the machine and the deferred income (DI) balance at December
31, 2012 respectively?
a. P75,000 and P6,750 c. P81,750 and P6,750
b. P112,500 and P10,125 d. P75,000 and P13,500

15. Island Company owes P2,000,000 plus P180,000 of accrued interest to First State Bank. The
debt is a 10-year, 10% note. During 2010m\, Islands business deteriorated due to a faltering
regional economy. On December 31, 2012, First State Bank agrees to accept an old machine
and cancel the entire debt. The machine has a cost of P3,900,000, accumulated depreciation
of P2,210,000, and a fair market value of P1,900,000.
How much should Island Company report in its profit or loss as a result of the financial
liabilitys derecognition?
a. P210,000 c. P310,000
b. P280,000 d. P490,000
16. A 5-year operating lease provides for a monthly rental of a P80,000 calls for the recognition in
the accounting books of an average quarterly rent expense amounting to P204,000. As an
unducement to enter a lease, the lessor granted the lessee how many months of free rental?
a. 3 months c. 9 months
b. 6 months d. 12 months
17. The Delap Company accounts for non-current assets using the cost model. On 25 April 2011
Delap classified a non-current asset as held for sale in accordance with PFR55 Non-current
assets held for sale and discontinued operations. At that date, the assets carrying amount was
P32,000, its fair value was estimated at P22,000 and the costs to sell at P3,200. On 15 May
2011, the asset was sold for net proceeds aof P18,400. In accordance with PFR55, what
amount should be included as an impairment loss in Delaps statement of comprehensive
income for the year ended 30 June 2011?
a. P13,600 c. P10,000
b. P13,200 d. none

18. The Niagara Company owns three properties which are classified as investment properties
according to PAS 40 Investment property.. details of the properties are given below:

Initial cost Fair value at Fair value at


31 Dec 2011 31 Dec 2012
Property 1 270,000 320,000 350,000
Property 2 345,000 305,000 285,000
Property 3 330,000 385,000 360,000

Each property was acquired in 2008 with a useful life of 50 years. The companys accounting
policy is to use the fair value model for investment properties. What is the gain or loss to be
recognized in Niagaras profit or loss for the year ending 31 Dec 2012?
a. P15,000 loss c. P30,000 gain
b. P18,900 loss d. P45,000 loss
19. On December 31, 2010, Jonlee Company has 950,000 shares of common stock authorized
and 320,000 shares outstanding. The following assets occurred during 2011: (February 15)
Declared 10% stock dividend; (June 15) Purchased 70,000 shares; (July 15) Reissued 24,000
shares; (December 15) Declared 2-for-1 stock split. At December 31, 2011, how many shares
of common stock are outstanding?
a. 548,000 c. 640,000.
b. 612,000 d. 704,000
20. The Rattigan Company purchases P2,000,000 of bonds. The asset has been designated as
one at fair value through profit or loss. One year later, 10% of the bonds are sold for P400,000.
Total cumulative gains previously recognized in Rattigans financial statements in respect of
the asset are P100,000. In accordance with PAS39 Financial instruments: recognition and
measurement, what is the amount of the gain on disposal to be recognized in profit or loss?
a. P90,000 c. P190,000
b. P100,000 d. P200,000

21. The Minor Company leased a freehold building for 20 years, the useful life of the building, with
effect from 1 January 2011. At that date the fair value of the leasehold interest was P7.5 million
of which P6.0 million was attributable to the building. Annual rental of P800,000 are payable in
advance on 1 December 2011, according to PAS17 Leases?
a. None c. P640,000
b. P160,000 d. P800,000

22. Revenue under accrual basis for the year amounted to P3,750,000 which accounts receivable
written off amounted to P28,750. If the balance of accounts receivable increased by P620,000,
then how much revenue should be reported for the year under cash basis?
a. P3,101,250 c. P3,158,750
b. P3,130,000 d. P4,341,250

23. The Elder Comoanys draft financial statements show the profit before taxation for the year to
Dec 31, 2012 as p9 million. The board of directors is to authorize the financial statements for
issue on Mar 20, 2013. A fire occurred at one of Elders sisters on January 13, 2013 with
resulting damage costing P7 million, only P4 million of which is coered by insurance. The
repairs will take place and be paid for in April 2013. The P4 million claim from the insurance
company will however be received on Feb 14 2013. Taking account of these events in
accordance with PAS10 Events after the reporting period, what should be Elders profit before
taxation in its financial statements?
a. P2 million c. P9 million
b. P6 million d. P13 million

24. The Matter Company operates a production line which is treated as a cash generating unit for
impairment review purposes. At Dec 31 2012 the carrying amounts of the non-current assets
allocated to this cash-generating unit are as follows: Intangibles-goodwill P11.000.000 and
Tangibles-plant and machinery P22,000,000.

At Dec 31, 2012 the recoverable amount of the production line is estimated at P27,000,000.
According to PAS36 Impairment of assets, what are the revised carrying amounts of the
intangible and tangible non-current assets within this cash generating unit respectively?
a. P5 million and P22 million c. P11 million & P16 million
b. P9 million and P18 million d. P 8 million & P19 million

25. On Jan 2 2011, Smart Company purchased 20% of Sun Companys common shares for a cost
of P4,500,000. During 2011, Sun reported net income of P4,000,000 and paid cash dividends
of P3,000,000 on its common stock. What is the balance of Smarts Investment in Sun
account and the amount of income from investment on Dec 31, 2011 respectively?
a. P4,300,000 & P200,000 c. P 4,500,000 & P 800,000
b. P4,400,000 & P200,000 d. P4,700,000 & P800,000

26. An entity has a property that was originally acquired for P500,000. The property was revalued
to P800,000 and the P300,000 was recognized in other comprehensive income as a
revaluation surplus in accordance with PAS 16. The carrying amount for the property is
P750,000 due to finding that the land on which the property stands is contaminated, the entity
has undertaken an impairment review. The fair value of the property is now estimated to be
only P300,000 and the value in use in use of the property is calculated as being P400,000. The
recoverable amount of the property is therefore P400,000. What amount of impairment that
has occurred on the property?
a. none c. P300,000
b. P 50,000 d. P350,000

27. A business sells goods which carry a one-year repair warranty. If minor repairs were to be
required on all goods sold in 2012, the repair cost would be P100,000. If major repairs were
needed on all goods sold, the coat would be P500,000. It is estimated that 80% of goods sold
in 2012 will have no defects, 15% will have minor defects, and 5% will have major defects.
What amount of provision on product warranty should the company recognize?
a. none c. P25,000
b. P15,000 d. P40,000

28. An audit client was sued by a customer. The potential litigation loss ranges from P3.5 M to P5
M. No single amount within the range represents the best estimate of the potential damage.
Since it is probable that the client will lose the case, it accrued P3.5 M of litigation losses. How
much is this amount misstated?
a. P750,000 understated c. P1,500,000 understated
b. P750,000 overstated d. No misstatement

29. Welch Co purchased a out option on Reese common shares on January 7, 2010, for P2,150.
The put option is for 3000 shares, and the strike price is P51. The option expires on July 31,
2010. The following data are available with respect to the put option:
Date Market Price of Reese Shares Time Value of Put option
March 31, 2010 P48 per share P1,200
June 30, 2010 P50 per share 540
July 6, 2010 P46 per share 160

If the change in fair value was recognized on March 31, 2010 and then again on June 30, 2010,
what amount of loss the company recognized on the re-measurement of the option on June
30,2010?
a. P 660 c. P3,540
b. P2,150 d. P6,660
30. On January 1, 2011, Axis Company, a medium-sized entity acquired 30% of the ordinary
shares that vary voting rights at a general meeting of shareholders of Maxim Company for
P6,000,000. For the year-ended Dec. 31, 200 Maxim Company recognized a profit of
P8,000,000 and declared and paid dividend of P4,000,000. The fair value of Axis Company
investment on Dec 31, 2011 is P5,800,000. Axis Company uses the cost less impairment loss
model of accounting its investment because Maxim Company shares have no published price
quotations. What amount revenue should Axis Company report in its statement of
comprehensive income related to its investment in Maxim Company for the year ended
December 31, 2011?
a. P200,000 c. P1,200,000
b. P1,000,000 d. P2,400,000

---------------------------------

1. Seven Seas Company had share capital of 2 million shares P1 each fully paid up. On January
2, 2010, Seven Seas Company issued 1 million P1 ordinary shares. The full price of the new
shares was P 1.50 and they were 50% paid up on issue. The dividend participation is to be
50% until fully paid up. The shares remained 0% paid at December 31, 2010. During year
2010, the average fair value of one ordinary share was P2.00. net income for the year was P8
million.

What should be reported as basic earnings per share?

2. On January 1, 2007, Hill Company purchased a P 4 million ordinary life insurance policy on its
president. Additional data for the year 2012 are: Cash surer der value, Jan 1, p 200,000; Cash
surrender value, Dec 31, P220,000; annual insurance premium paid on jaunary 1, 2010,
P80,000; Dividend received on Aug 1, P10,000. Hill Company is the beneficiary under th life
insurance policy.
How much should Hill report as life insurance expense for 2010?

A1. Maker Company purchased a held to maturity instruments with a face value of P5,000,000 on
January 2, 2010. The bonds will mature on January 2, 2015 and the nominal rate of interest in
12%, interest is payable annually every December 30. The market rate of interest on this date
is 10%.
PV factor of 12% after 5 years 0.567
PV factor of 10% after 5 years 0.621
PV factor of annuity of 12% after 5 years 3.605
PV factor of annuity of 10% after 5 years 3.791
How much dud Maker pat in acquiring the instruments?

3. The shareholders equity of Diskette Corporations December 31, 2009 balance sheet
consisted of the following account balance:
Ordinary shares, P50 par, 100,000 shares
authorized and outstanding P5,000,000
Share premium 3,000,000
Accumulated profits and losses (deficit) (2,000,000)

On January 2,2010, the company put into effect a shareholder-approved quasi-reorganization


by reducing the par value of the stock to P25 and eliminating the deficit against share
premium. Immediately after the quasi-reorganization, what amount should the company report
as share premium in its balance sheet?

A2. The following capital accounts are shown in the balance sheet of Yellow Corporation:
Ordinary share, 10,000 shares, par value P100 P1,000,000
Premium on ordinary share 20,000
Share premium-treasury share 30,000
Accumulated profits and losses 750,000
Treasury share, 2,000 shares at cost 250,000.
The entire 2,000 treasury shares were sold for P200,000.

What would be the balance of the Accumulated Profits and Losses account after this sale?

A3. On January 2, 2007, Brand Company received a grant of P60,000,000 to compensate it for costs
it incurred in planting trees over a period of years. Brand Company will incur such cost in this manner:
Year Costs
2007 P2,000,000
2008 P4,000,000
2009 P6,000,000
2010 P8,000,000
2011 P10,000,000
What amount of income should Brand Company recognize at the end of the year 2010?

4. On January 2, 2010, Cream Company received a consolidated grant of P240,000,000. Three-


fourths of the grant is to be utilized to purchase a college building for students from
underdeveloped or developing countries. The balance of the grant is for subsidizing the tuition
costs of those students for four years from the date of the grant. The expected college life of
the building is 10 years and the company uses the straight-line method of depreciation.
What amount of grant is recognized as income for the year ended December 31, 2010?

5. The net income for the year ended December 21, 2010 for Dwarf Company was P1,800,000.
Additional information follows:

Depreciation on plant assets P900,000


Depreciation of leasehold improvements 510,000
Provision for doubtful account on short-term receivables 180,000
Provision for doubtful account on long-term receivables 150,000
Interest paid on short-term borrowings 120,000
Interest paid on long-term borrowings 90,000

Based on the information given, what should be the net cash provided by operating activities in
the statement of cash flows for the year ended December 31, 2011?

-------------------------------------------------------

1. Dream Company, a lessor of office machines, purchased a new machine for P500,000 on
January 1, 2008, which was leased the same day to Girl Company. The machine is
expected to have a ten-year life and will be depreciated P50,000 per year. The lease is for
a three-year period expiring January 1, 2011 and provides for annual rental payments of
P100,000 beginning January 1, 2008. In addition, Girl paid P60,000 as a lease bonus to
obtain a three-year lease.

In its 2008 income statement, what amount should Dream report as operating profit on this
leased asset?
a. P50,000 c. P100,000
b. P70,000 d. P110,000
2. On December 31, 2009, Jonlee Company has 950,000 shares of common stock authorized
and 320,000 shares outstanding. The following assets occurred during 2010: (February 15)
Declared 10% stock dividend; (June 15) Purchased 70,000 shares; (July 15) Reissued
24,000 shares; (December 15) Declared 2-for-1 stock split. At December 31, 2010, how
many shares of common stock are outstanding?
a. 548,000 c. 640,000
b. 612,000 d.704,000
A1. . The following capital accounts are shown in the balance sheet of Yellow Corporation:
Ordinary share, 10,000 shares, par value P100 P1,000,000
Premium on ordinary share 20,000
Share premium-treasury share 30,000
Accumulated profits and losses 750,000
Treasury share, 2,000 shares at cost 250,000.
The entire 2,000 treasury shares were sold for P200,000.

What would be the balance of the Accumulated Profits and Losses account after this sale?
a. P250,000 c.P730,000
b. P700,000 d. P750,000

3. Strap Inc., provides an incentive compensation plan under which its president receives a
bonus equal to 10% of the corporations income in excess of P600,000 before income tax
but after deduction of the bonus.
If income before income tax and bonus is P1,500,000 and the tax rate is 32%, the amount of
the bonus would be:
a. P120,000 c. P174,000
b. P132,000 d. P192,000
4. Various goods worth of P50,000 are acquired. The purchase is subject to 5% trade
discount and 2/10, n/30. Assuming the gross method of recording purchases is used, what
amount should be recorded as inventory for this acquisition?
a. P50,000 c. P46,550
b. P47,500 d. P46,500
5. Antonio Company is planning to dispose a collection of rare assets. Antonio designates
these assets as a disposal group. The carrying amount of these assets immediately before
classification as held for sale was P20,000,000. Upon being classified as held for sale,
these rare assets we revalued to P18,000,000. The company feels that it would cost
P1,000,000 to sell the disposal group.

What would be the carrying amount of the disposal group in the companys accounts after
the classification?
a. P17,000,000 c. P19,000,000
b. P18,000,000 d. P20,000,000
6. The 2010 Income Statement of Ireneo Company shows operating expenses of P265. The
following information is also available:
Prepaid expenses, 1/1/2011: P15
Accrued expenses, 1/1/200: P42
Accrued expenses, 12/31/2011 P21
Prepaid expenses, 12/31/2011: P35
How much was the cash paid for operating expenses?
c. P306 c. P264
d. `P269 d. P224
7. A 5-year operating lease provides for a monthly rental of P80,000 calls for the recognition
in the accounting books of an average quarterly rent expense amounting to P204,000. As
an inducement to enter a lease, the lessor granted the lessee how many months of free
rental?
a. 3 months c. 9 months
b. 6 months d. 12 months
8. Revenue under accrual basis for the year amounted to P3,750,000 while accounts
receivable written off amounted to P28,750. If the balance of accounts receivables
increased by P620,000, then how much revenue should be reported for the year under
cash basis?
a. P3,101,250 c. P3,158,750
b. P3,130,000 d. P4,341,250
9. On Jan 2 2010, Smart Company purchased 20% of Sun Companys common shares for a
cost of P4,500,000. During 2010, Sun reported net income of P4,000,000 and paid cash
dividends of P3,000,000 on its common stock. What is the balance of Smarts Investment
in Sun account and the amount of income from investment on Dec 31, 2010 respectively?
a. P,300,000 & P200,000 c. P 4,500,000 & P 800,000
b. P4,400,000 & P200,000 d. P4,700,000 & P800,000
10. Abacus Company prepares four-column bank reconciliation. Check no. 143 was written for
P66,700 in the books but the check cleared the bank for the correct amount of P75,700.

What would be the correct treatment in the reconciliation?


a. On the book side, deduct P9,000 from payments and add P9,000 to ending balance.
b. On the book side, add P9,000 to payments and deduct P9,000 from the ending balance.
c. On the book side, deduct P9,000 from payments and deuct P9,000 to ending balance.
d. On the book side, add P9,000 to receipts and add P9,000 to ending balance.
11. An audit client was sued by a customer. The potential litigation loss ranges from P3.5 M to
P5 M. No single amount within the range represents the best estimate of the potential
damage. Since it is probable that the client will lose the case, it accrued P3.5 M of litigation
losses. How much is this amount misstated?
a. P750,000 understated c. P1,500,000 understated
b. P750,000 overstated d. No misstatement
E1. A 5-year operating lease provides for a monthly rental of P80,000 calls for the recognition in the
accounting books of an average quarterly rent expense amounting to P204,000. As an inducement to
enter a lease, the lessor granted the lessee how many months of free rental?
a. 3 months c. 9 months
b. 6 months d. 12 months
E2. The 2010 Income Statement of Ireneo Company shows operating expenses of P265. The
following information is also available:
Prepaid expenses, 1/1/2011: P15
Accrued expenses, 1/1/200: P42
Accrued expenses, 12/31/2011 P21
Prepaid expenses, 12/31/2011: P35
How much was the cash paid for operating expenses?
a. P306 c. P264
b. `P269 d. P224

E3. Antonio Company is planning to dispose a collection of rare assets. Antonio designates these
assets as a disposal group. The carrying amount of these assets immediately before classification as
held for sale was P20,000,000. Upon being classified as held for sale, these rare assets we revalued
to P18,000,000. The company feels that it would cost P1,000,000 to sell the disposal group.

What would be the carrying amount of the disposal group in the companys accounts after the
classification?
c. P17,000,000 c. P19,000,000
d. P18,000,000 d. P20,000,000
E4. On December 31, 2009, Jonlee Company has 950,000 shares of common stock authorized and
320,000 shares outstanding. The following assets occurred during 2010: (February 15) Declared 10%
stock dividend; (June 15) Purchased 70,000 shares; (July 15) Reissued 24,000 shares; (December
15) Declared 2-for-1 stock split. At December 31, 2010, how many shares of common stock are
outstanding?
c. 548,000 c. 640,000
d. 612,000 d.704,000
D1. The following facts relate to Sydney company for the year 2010:
Deferred tax liability, January 1, 2010 P400,000
Deferred tax asset, January 1, 2010 0
Taxable income for 2010 1,600,000
Pretax financial income 1,750,000
Cumulative temporary difference at 12/31/10
Giving use to future taxable amount 2,400,000
Cumulative temporary difference at 12/31/10
Giving use to future deductible amount 350,000
Income tax rate for all years 32%

What is the amount of deferred tax expense (net) for 2010?

D2. The following information relates to the defined benefit pension plan for the Citywide Company for
the year ending December 31, 2010:
PV for benefit obligation, January 1 P6,700,000
PV of benefit obligation, December 31 7,200,000
Fair value of plan assets, January 1, 2006 7,500,000
Fair value of plan assets, December 31 7,900,000
Expected return on plan assets 675,000
Amortization of deferred gain 48,750
Employer contribution 300,000
Benefits paid to retirees 600,000
Settlement rate 10%

How much would be the current service cost for the year?

D3. Rainbow Company has the following information pertaining to its biological assets:
A herd of 100, 2-year old animals was held at January 1, 2010. Ten animals age 1-2.5 years were
purchased on July 1, 2010 for P5,400 and ten animals were born on July 1, 2010. No animals
were sold or disposed of during the period. Per unit fair values less estimated point-of-sale costs
were as follows:
2.0-year old animal at January 1, 2010;P5,000
Newborn animal at July 1, 2010; P3,500
2.5 year old animal at July 1,2010; P5,400
Newborn animal at December 31, 2010; P3,600
0.5-year old animal at December 31, 2010; P5,250
2.5-year old animal at December 31, 2010; P5,550
3.0-year old animal at December 31, 2010; P6,000
How much of the increase in the fair value of the biological assets due to physical change?

D4. Man Company purchased 10% of Kind Corporations 200,000 outsatnding shares of ordinary
shares on January 2, 2010 for P2,500,000. On October 31, 2010, Man Company purchased
another 40,000 shares pf Kind for P5,000,000. There was no goodwill as a result of either
acquisition and Kind had not issued any stock dividends during 2010. Kind reported earnings of
P6,000,000 for the year ended December 31, 2010.

What amount should Man Company report in its December 31, 2010 balance sheet as Investment
in Kind?
D5. Impressed Company, a division of Philippine Realty Corporation, maintains escrow accounts and
pays real estate taxes for Philippines mortgage customers. Escrow funds are kept in
interest0bearing accounts. Interest, less a 10% service fee, is credited to the mortgagees account
and used to reduce future escrow payments. Additional information follows:
Escrow accounts liability, January 1, 2010 P900,000
Escrow payments received during 2010 1,500,000
Real estate taxes paid during 2010 1,900,000
Interest on escrow funds during 2010 90,000

What amount should Ipressed Company report as escrow accounts liability in its December 31,
2010 balance sheet?

Bebe Ganda acquired an asset that had a cost of P390,000. The asset being depreciated over a 5-
year period using the sum-of-the-years digit method. It has a salvage value estimated at P30,000. If
the asset is to be sold at the end of the third year for a P20,000 gain, then how much would it have to
be sold?

The information below relates to Lillee Companys cash in bank:


Balance per bank statement, December 31, 2010 P27,910
Collections recorded but not yet deposit in bank 1,950
NSF check- not recorded on books nor redeposited 2,000
Bank charges not recorded 40
Note collected by bank and not recorded on books 2,800
Outstanding checks 3,000

The cash balance in the books of Lillee Company on December 31, 2010 is:
a. P26,020 b. P32,100 c. P22,200 d.P26,100

On January 1, 2005, Rosalyn Company sold goods to Miko Company costing P300,000 and received
in exchanged a P750,000 non-interest bearing note with a maturity date of January 1, 2009. The note
has no ready market but an effective interest of 11% is considered appropriate for a note of this type
which will approximate the inventorys fair value at the time of sale.
On July 1, 2007, Rosalyn Company which was in need of immediate cash discounted the note issued
by Miko Company to Clark Finance at 14%.

The total amount of income to be recognized in 2005 in relation to the above-mentioned transaction
is:
a. P532,500 b. P450,000 c. P248393 d. P194,048

Rosalyn Company reported the following items as part of cash and cash equivalents.
SEC registered commercial papers P300,000
Central Bank Certificate of Indebtedness 350,000
3-month Central Bank Treasury Bills, maturing on January 31, 2006 450,000
3-year Treasury note, acquired three months from its maturity date of Jan. 31, 2006 600,000
3-year Treasury note, acquired two years ago, Maturing on Jan. 31, 2006 800,000

The amount to be included from cash and cash equivalents is:


a. P2,500,000 b. P1,700,000 c. P1,900,000 d. P1,100,000

Rosalyn Publishing provides home delivery of day, evening and Sunday newspapers to subscriber
who lives in the suburbs. Customer may pay a yearly subscription fee in advance or pay monthly after
delivery of their newspapers. The following data are available for subscriptions receivable and
unearned subscriptions at the beginning and end of July 2007:

July 1 July 31
Subscriptions receivable P190,000 P230,000
Unearned subscriptions 570,000 490,000

The income statement shows subscriptions revenue for July of P1,120,000. The amount of cash
received from customers for subscriptions during July is:
a. P1,240,000 b. P1,160,000 c. P1,180,000 d. P 1,000,000

A 50% markup on price is equivalent to a markup on cost of


a. 25%
b. 33%
c. 50%
d. 100%

On January 2, 2010, Potpot Delivery Company traded in an old delivery truck for a newer model. Data
relative to old and new trucks follow:

Old truck
Original Cost..P800,000
Accumulated Depreciation as of January 2, 2010 600,000
Average published retail value 170,000

New truck
List price. 1,000,000
Cash price without trade-in.. 900,000
Cash price with trade-in 780,000

What would be the cost of the new truck for financial accounting purposes?

The following information relates to the defined benefit pension plan of the Orifice Company for the
year ending December 31, 2009:

Projected benefit obligation, January 1 P9,200,000


Projected benefit obligation, December 31 9,458,000
Fair value of plan assets, January 1 10,070,000
Expected return on plan assets 900,000
Actual return on plan assets 990,000
Amortization of unrecognized actuarial gain (based on average
remaining service life of 10 years) 65,000
Employer contributions 850,000
Benefits paid to retirees 780,000
Settlement rate 10%

The amount to be recognized in the statement of financial position as of December 31, 2009 is?

Justin Bieber Inc. sells electric stoves. It uses perpetual inventory system and allocates cost to
inventory on a first-in, first-out basis. The companys reporting date is December 31. At December 1,
2010, inventory on hand consisted of 350 stoves at P820 each and 43 stoves at P850 each. During
the month ended December 31, 2010, the following inventory transactions occurred (all sales and
purchases are on credit):

2010
Dec 1 Sold 300 stoves for P1,200 each.
3 Five stoves were returned by the customers. They had originally had a cost of P820
each and were sold for P1,200 each.
9 Purchased 55 stoves at P910 each.
10 Purchased 76 stoves at P960 each.
15 Sold 86 stoves for P1,350 each.
17 Returned one damaged stove to the supplier. This store had been purchased on
December 9.
22 Sold 60 stoves for P1,250 each.
26 Purchased 72 stoves at P980 each.

What is Justin Biebers gross profit in December 2010?

During 2008, Pen Corporation acquired common stock of Rap Company as follows:
Lot Date No. of shares Cost per share Total cost
A January 25 800 560 448,000
B April 5 600 600 360,000
Rap Company issued a 20% stock dividend on February 14, 2008. Common stock rights were issued
on October 30, 2008 entitling holders to purchase one new common share at P450 for each ten
shares held. On this date, the rights were being traded at P20 each and the stock ex-rights were
being traded at P620 per share.
On November 8, 2008, Pen sold 500 rights that pertained to Lot A. Sales price was P25 per right. The
corporation paid a brokerage fee of P500 on the sale of the stock rights. Pen exercised the remaining
rights on November 11, 2008.

The gain on sale of rights is:

1. Masagna Corporation purchased P100,000 8% bonds for P92418 on January 1, 2007.


Masagna classified the bonds as available for sale. The bonds were purchased to yield 10%
interest. Interest is payable annually every January 1. The bonds mature on January 1, 2012.
On January 2, 2009, Masagna classified the bonds as held to maturity.

The prevailing interest rates of the bonds are as follows;


December 31,2006 10%
December 31,2007 11%
December 31,2008 12%
December 31,2009 11.5%
Interest income for year 2008
a. 8,000
b. 9,366
c. 9,242
d. 9818

2. Autobots Bottling purchased for P 800,000 a trademark for a very successful soft drink it
markets under the name OK! The trademark was determined to have a definite life. A
competitor recently introduced a product that is in direct competition with OK! product, thus
suggesting the need for a impairment test. Data gathered by Autobots suggests that the useful
life of the trademark is still indefinite, but the cash flows expected to be generated by the
trademark have been reduced either to P30,000 per year( with a probability of 80%) or to
P60,000 per year (with 20% probability). The appropriate risk-free interest rate is 5%. The
appropriate risk adjusted interest rate is 10%.

The loss on impairment of trademark is


a. 440,000
b. 320,000
c. 200,000
d. 80,000

3. On January 1,2006, VANITY CORP, acquired a factory equipment at a cost of P450,000. The
equipment is being depreciated using the straight-line method over its projected useful life of
10 years with P50,000 salvage value.
On December 31, 2007, a determination was made that the future net cash flows expected
from the continued use of the asset shall be P40,000 per year. The asset also had a fair value
less cost to sell at P220,000 on the same date. You ascertained that this was properly
computed and that recognition of the impairment was warranted. (the prevailing interest rate is
10 %)
On December 31,2009, the assets replacement cost was determined to be P555,000 with a
total life of 12 years from the date of acquisition. You also ascertained that this valuation is
reasonable in the circumstance.
You have been asked to assist the companys accountant in the application of PAS 26, the
standard on impairment of assets.
What is the recoverable value of the asset on December 31, 2007?
a. 236,722
b. 213,397
c. 220,000
d. 320,000

4. Lovely Companys December 31 year-end financial statement contained the following errors:
(Overstated)/ Understated
2008 2009
Depreciation expense (P20,000) P 18,000
Ending inventory 180,000 (75,000)
Rent of P30,000 was collected in advance in 2008 covering the years 2008, 2009 and 2010.
The company credited the whole amount to rental income. An insurance premium of P25,000
was paid in advance in 2008 covering the insurance premium of the companys fixed assets
for five years commencing in 2008. The company charged the whole amount to expense in
2008.
The net effect of the errors on the 2008 net income:
a. P200,000 under
b. P160, 000 under
c. P200,000 over
d. P160,000 over

5. CONCORD CO. purchased real property for P3,225,000 which included P67,5000 for realty
tax arrears for prior years. A mortgage of P1,500,000 was assumed by CONCORD CO. on the
purchased. Twenty percent of the purchased price should be allocated to the land and the
balance to the building.

In order to make the building suitable for the use of CONCORD CO., remodeling costs had to
be incurred in the amount of P337,500. This however necessitated the demolition of a portion
of the building, which resulted in recovery of salvage material sold for P11,250 cash.

Landscaping and parking lot cost the company a total of P120,000 while repairs in the main
hall were P16,875.

The cost of the building was:

6. On January 1, 2005 , Tribecca Corporation signed a 10-year operating lease for an office
space. De Jesus has the option to renew the lease for an additional 5-year period on or before
December 31, 2008. Tribecca finished the construction of general improvements to the leased
property at accost of P2,700,000 on January 1, 2007 with a useful life of 10 years. Tribecca
uses the straight-line method to depreciate all its fixed assets. The company took a full years
depreciation in 2005. On December 31,2007, Tribecca Corporation exercised its renewal
option to extend the lease term for an additional 5 years . what is the depreciation expense on
the leasehold improvement in 2008?

a. P337,500
b. P270,000
c. P262,500
d. P196,875

7. Edzel, president of the Vanilla Cream Company, has a bonus arrangement with the company
under which she receives 10% of the net income after deducting taxes and bonuses each
year. For the current year, the net income before deducting either provision for income taxes or
the bonus is P4,650,000.
The bonus is deductible for income tax purposes and the tax rate is 35%
Determine the amount of Edzels bonus.
8. On September 5, 2010, a fire damaged the warehouse of Tiger Company. All inventory items
and many accounting records stored in the warehouse was destroyed. However, a portion of
the inventory could be sold for scrap. The companys backup files provide the following
information:

Inventory, Jan.1 750,000


Cash sales, Jan 1- Sept. 5 445,000
Purchases, Jan 1- Sept. 5 2,770,000
Collection of accounts receivable, Jan 1- Sept. 5 4,230,000
Accounts receivable, Jan 1 350,000
Accounts receivable, Sept. 5 530,000
Salvage value of inventory 15,000
Gross profit ratio 32%

What is the estimated inventory fire loss?


a. 208,400
b. 506,200
c. 203,600
d. 218,600

9. In cash flow hedge, the gain on the hedging instrument in the first period after designation is
1,000,000 and the loss on the hedged item is 800,000. How much will be recognized in profit
or loss?
a. 1,000,000
b. 800,000
c. 200,000
d. 0
10. Garnet Ltd. Is asset rich but cash poor. In an attempt to alleviate its liquidity problems, it
entered into an agreement on July 1, 2008 to sell its processing plant to Ivory Company for
4,672,000. At the date of sale, the plant had a carrying amount of 4,000,000 and a remaining
useful life of 5 years. Ivory immediately leased the processing plant back to Garnet Ltd.. the
terms of the lease agreement were:

Lease term 3 yrs


Annual rental payment in arrears(commencing June 30, 2008) 1,650,000
Residual value of plant at the end of lease term 900,000
Residual value guaranteed by Garnet 600,000
Interest rate implicit in the lease 6%
The lease is cancelable, but only with the permission of the lessor.

At the end of the lease term, the plant is to be returned to Garnet Company. In setting up the
lease agreement, Garnet incurred 94,140 in legal fees and stamp duty cost. The annual rental
payment includes 150,000 to reimburse the lessor for maintenance cost incurred on behalf of
the lessee. How much is the recognized gain on sale and leaseback reported by Garnet
Company for the year ended December 31,2007?
a. 672,000
b. 224,000
c. 112,000
d. 0
e. On January 1, 2009 Good Company purchased a plating machine costing 135,000.
Good received a grant of 13,500 towards the capital cost. Company policy is to treat
the grant as reduction in the cost of the asset. What should be the depreciation
expense in respect of this machine for the year ended December 31, 2010,
assuming that depreciation is calculated on a 20 % reducing the balance basis?

f. On January 1, 2005 Goodnight Company purchased as long-term investment


5,000,000 face value of Mwah Corporations 8% bonds for 4,683,000 to yield 10%
interest per year. The bonds mature on January 1, 2009 and pay interest annually
on January 1. Goodnight uses the interest method of amortization. On January 2,
2007, Goodnight Company sold the debt security when the market rate was 12%
What amount should Goodnight Company report as gain or loss on the sale of the debt
instrument?
g. An entity issued a convertible bond on January 1,2012, that matures in 5 yrs. The
bond can be converted into ordinary shares at any time. The entity has calculated
that the liability and equity components of the bond are 3,000,000 for the liability
component and 1,000,000 for the equity component, giving a total amount of the
bond 4,000,000. The interest rate on the bond is 6% and local tax legislation allows
a tax deduction for the interest paid in cash. Calculate the deferred tax asset or
(liability) arising on the bond as at the year ending December 31,2012. The local tax
rate is 30%.
h. Santos Ltd. cash-generating unit has been assessed for impairment and it has been
determined that the unit has incurred an impairment loss of 480,000. The carrying
amounts of the assets were the following:

Building 6,000,000
Equipment 2,000,000
Land 3,500,000
Fittings 2,500,000

The cash-generating unit has not recorded any amount of goodwill. If the fair value less cost to
sell the building is 5,860,000, what amount of impairment loss should be allocated to the
equipment?

1. Property was purchased on December 31,2005, for 20,000,000 CU(current unit). The general
price index in the country was 60.1 on that date. On December 31,2007 , the general price
index risen to 240.4. If the entity operates in hyperinflationary economy, what would be the
carrying amount in the financial statements of the property after restatement?

2. Cress operates a profit sharing plan which pays a proportion of the net profit for the year to the
employees. Payment is only made to those employees still employed 6 months after the year
end. At the end of 2006, the maximum bonus payable in June 2007 is 100,000. However,
some employees will leave and Caress only expects to pay 80,000.

What liability for profit sharing should be establishes at December 31,2006?


3. MMDS Company is engaged in the operation of public highways and skyways in Metro Manila.
On November 2, 2009, a catastrophe devastated some of the companys operated highways
and skyways. The company suffered 5,600,000,000 loss due to catastrophe. On January 1,
2010, the Philippine government decided to compensate the company for the incurred loss.
The government loaned 5,000,000,000 at 5% per annum with maturity period of 5 years. The
current market rate for similar type of loan after considering credit risks sttached was 10 %.
The conditions stipulated on the loan agreement provide that the proceeds will be used for
reconstruction of the skyways and highways.

On January 1,2010, how much should the company recognize as government grant(round off
to the nearest million)?

4. Fast Co. was organized on January 1, 2009 at which date it issued 100,000 ordinary shares of
P10 par value at P15 per share. During the period January 1, 2009 thru December 31,2009,
Fast reported net income of 450,000 and paid cash ddividend of 230,000. January 1, 2010
Fast purchased 6,000 treasury shares at P12 per share. on December 31,2010, Fast sold 4,00
treasury shares at P8 per share and retires the remainder. Fast uses cost method of
accounting for treasury shares.
What is the total shareholders equity on December 31,2010?

5. A farmer under accrual basis has the following data for the year:

Beginning inventory:
Livestock and farm products raised in the farm 60,000
Livestock and farm products purchased the previous year 30,000
Ending inventory:
Livestock and farm products raised in the farm 100,000
Livestock and farm products purchased 80,000
Sales of Livestock and farm products purchased raised and 120,000
purchased
Cost of Livestock and farm products purchased during the 100,000
year
Miscellaneous receipts:
Gain on sale work, breeding or dairy animals 30,000
Gain on sale of farm equipment and machinery 10,000
Hire of tractor 20,000
Hire of teams like hire of carabaos or horses 6,000
Others 4,000
How much is his gross income/
6. Teaser Co. sold an item of plant and machinery on January 1, 2010 for 2,540,000, its fair value
when its cost is 4,340,000 and accumulated depreciation is 2,170,000. Teaser Co. leased the
item back on that date for 5 yrs, the items remaining useful life. Lease payment are 745,000
on January 1 each year.
What is the profit on disposal to be recognized in profit or loss statement for 2010?

7. Animalistic Farming Co. has a flock of shepp which were shorn shortly before year end. On
October 16, 2010, the time of shearing, the fair value of the wool less costs to sell was
determined to be 15,000 and this value had risen to 16,500 by December 31,2010(reporting
date). The company estimates that it would incur 500 to transport the wool to the nearest
market.
On February 14,2011, the wool was subsequently sold for 17,000(after deducting costs to sell).
How much is the net gain recognized in 2011?
1. Bernal Construction bought machinery with useful life of 5 yrs at a cost of 200,000. The
estimated salvage value was 50,000. The company uses the sum of years digit method of
depreciation.
The annual depreciation expense for the fifth year applicable to the machinery is:

a. 10,000
b. 30,000
c. 40,000
d. 50,000

2. In 2006, Bryce Company acquired land by paying 300,000 and signing a note with a face value
of 4,000,000. On the note due date, December 31, 2010, Bunny owed 320,000 of accrued
interest and 4,000,000 principal on the note. Bryce was in financial difficulty and unable to
make any payments. Bryce and the bank agreed to amend the note as follows:
The 320,000 interest due on December 31, 2010 was forgiven
The principal of the note was reduced by 200,000 and the maturity date made
December 31, 2011
Bryce would be required to makr one interest payment totaling 342,000 on
December 31, 2011.
Assuming Bryce Company incurred a total transaction cost of 30,000 directly related to the
restructuring. What amount of net gain should be reported in its 2010 profit or loss?
a. None
b. 148,000
c. 454,815
d. 484,815

3. The following pertains to JD Companys biological assets:


Price of the asset in the market 5,000
Estimated commissions to brokers and dealers 500
Estimated transport and other costs necessary to get asset to 300
the market
Selling price in a binding contract to sell 5,200
The entitys biological assets should be valued at
a. 4,700
b. 4,500
c. 4,400
d. 4,200

4. Loeb Corp. frequently borrows from the bank in order to maintain sufficient operating cash.
The following loans were at a 12% interest rate, with interest payable at maturity. Loeb repaid
each loan on its scheduled maturity date.
Date of loan Amount Maturity Date Term of loan
11/1/2009 5,000 10/31/2010 1 year
2/1/2010 15,000 7/31/2010 6 months
5/1/2010 8,000 1/31/2011 9 months
Loeb records interest expense when the loans are repaid. As a result, interest expense of
1,500 was recorded in 2010. If no correction is made, by what amount would 2010 interest
expense be understated?
a. 540
b. 620
c. 640
d. 720

5. The accounts below were taken from the unadjusted trial balance of Laarni Company as at
December 31, 2008:

Cash, net bank overdraft of 300,000 1,200,000


Notes receivable(including discounted note of 200,000) 1,000,000
Trade accounts receivable, net of customers credit balances 1,400,000
of 100,000
Merchandise inventory 1,600,000
Trade accounts payable, net of credit balances of 200,000 1,600,000

The correct amount of current assets at December 31, 2008 is


a. 5,300,000
b. 5,400,000
c. 5,600,000
d. 5,800,000

6. A analysis of the ending inventory account of Smiling Company on December 31,2008


disclosed the inclusion of the following item:
Merchandise in transit purchase on terms:
FOB shipping point 330,000
FOB destination 200,000
Merchandise out on consignment at sales price 390,000
(including mark up of 30% on cost)
Merchandise sent to customer for approval 80,000
(costs of goods sold, 60,000)
Merchandise held on consignment 70,000

The inventory account should be reduced by:


a. 380,000
b. 407,000
c. 444,000
d. 710,000

7. Salvador Companys shareholders equity is comprised of 100,000 shares, 20 per value,


4,000,000 of share premium and retained earnings of 6,000,000. If a 40% share dividend is
declared when the share is selling for 50, the amount to be transferred from the earnings to
share premium account is
a. 0
b. 800,000
c. 1,200,000
d. 2,000,000
8. Benjo Corporations trademarked items. Royalties are payable semiannually on March 15 for
sales in July through December of the prior year and on September 15 for sales in January
through June of the same year. Benjo received the following royalties from Aries:

March 15 September 15
2006 5,000 7,500
2007 6,000 8,500

Aries estimated that sales of the trademarked items would total 80,000 for July through
December 2007. In Benjos 2007 income statement, the royalty revenue should be:
a. 20,500
b. 26,500
c. 22,000
d. 28,000

9. The following information is from Moon Corporation first year of operation:


Merchandise purchased 450,000
Ending merchandise inventory 123,000
Collection from customers 150,000
All sales are on account and goods sell at 30% above costs
What is the accounts receivable balance at the end of the companys first year of operation?
a. 275,100
b. 78,900
c. 595,000
d. 435,000

10. Bubble Company determined that due to obsolescence, equipment with an original cost of
9,000,000 and accumulated depreciation at January 1,2010 of 4,200,000 has suffered
permanent impairment and as a result should have a carrying value of only 3,000,000 as of
the beginning of the year. In addition, the remaining useful life of the equipment was reduced
from 8 to 3 years. In its December 31, 2010 statement of financial position, what amount
should Bubble report as accumulated depreciation?

a. 1,000,000
b. 5,200,000
c. 6,000,000
d. 7,000,000

1. On June 30 of the current year, when the Buzz Companys share was selling at 40, its equity
accounts were as follows:

Share capital, par 25;authorized 150,000 shares;55,000 1,375,000


shares issued of which 5,000 shares are in treasury
Retained earnings 2,000,000
Treasury shares,at cost 150,000
A 100% stock dividend was declared and all of the treasury shares were issued as stock
dividend and the balance from the unissued shares. How much retained earnings should be
capitalized?
a. 1,250,000
b. 1,200,000
c. 1,275,000
d. 1,125,000
2. Cater Company pays its sales representatives fixed salaries and commissions on net sales.
Commissions are computed and paid on monthly basis( in the month following the month of
sales) net of fixed salaries. However, if the fixed monthly salaries exceed their sales
commissions earned for the month, such excess is not charged back them. Pertinent data for
the month of March 2008 are as follows:

Sales rep Fixed salary Net sales Commission rate


A 25,000 1,000,000 2%
B 35,000 2,000,000 3%
C 45,000 3,000,000 3%

What amount should Cater Company accrue as sales commission payable in March 2008?

3. Cline Companys December 31 year end financial statements contained the following errors:

December 31,2008 December 31,2009


Ending inventory 3,000 understated 4,400 overstated
Depreciation expense 800 understated

An insurance premium of 7,200 was prepaid in 2008 covering the years 2008,2009 and 2009.
The prepayment was recorded with a debit to insurance expense. In addition, on December
31,2009, fully depreciated machinery was sold for 3,800 cash, but the sale was not recorded
until 2009. There were no other errors during 2008 or 2009 and no corrections have been
made for any of the errors. Ignore income tax considerations.

What is the total effect of the errors on the balance of Clines retained earnings at December
31, 2009?

4. On January 1, 2010, Nuggets Company entered into a lease contract with Denver Company
for a new equipment that had a selling price of 2,120,000. The lease contract provides that
annual payments of 420,000 will be made for 6 years. Nuggets made the first payment on
January 1,2010 , subsequent payments are made on January 1 of each year. Nuggets
guarantee a residual value of 367,122 at the end of the lease term. After considering the
guaranteed residual value, the rate implicit in the lease ids determined to be 12%. Nuggets has
an incremental borrowing rate of 15%. The economic life of the equipment is 9 years. Nuggets
depreciates its equipment using straight line method.
Based on the above result of your audit, comput for the following:
Cost of the leased equipment to be recognized by Nuggets Company
a. 1,912,772
b. 2,013,908
c. 1,120,000
d. 0
5. On December 31,2009, Rafferty Company leased equipment under a finance lease. Annual
lease payment of 200,000 are due December 31for 10 years. The equipments useful life is 10
years and the interest rate implicit in the lease is 10%. The lease obligation was recorded on
December 31,2009 at 1,350,000 and the first lease payment was made on that date. What
amount should Rafferty include in noncurrent liabilities of this finance lease in its December
31,2009 statement of financial position?
a. 1,085,000
b. 1,065,000
c. 1,035,000
d. 950,000
6. A court case decided on December 21, 2010 awarded damages against Pylon. The judge has
announced that the amount of damage will be set at a future date,expected to be in March
2011. Pylon has received advice from its lawyers that the amount of the damage could be
anything between 20,000 and 7,000,000. As of December 31,2010, how much should be
recognized in the statement of financial position regarding this court case?
a. 20,000
b. 7,000,000
c. 3,510,000
d. 0
7. You were engaged to audit the accounts of Macy Company. The following disbursements were
made in relation to the construction of its building which started January 1,2009 and was
completed December 31,2009.
January 1 10,000,000
March 31 5,000,000
July 1 6,000,000
August 1 3,000,000
December 31 1,000,000

The client is not sure as to how it should treat the interest related to the above construction.
Assuming the building is a qualifying asset, interest related to the construction should be:
a. Capitalized as part of the cost of the building
b. Charged to expense
c. Either a or b
d. Neither a or b
8. An audit client was sued by a customer. The potential litigation loss ranges from 3.5 M to 5 M.
No single amount within the range represents the best estimate of the potential damage. Since
it is probable that the client will lose the case, it accrued 3.5 M of of litigation losses. How much
is this amount misstated?
a. 750,000 understated
b. 750,000 overstated
c. 1,500,000 understated
d. No misstatement
9. Eyasi Inc. began operating in January 1,2010. At the end of the first year of operation, Eyasi
reported 7.5 M income before income taxes on its income statement but only 700,000 taxable
income on its tax return. Analysis of the 6.8 M difference revealed that 6.2 M was a permanent
difference and 6 M was a temporary difference related to a current asset. At the end of 2011,
the accumulated temporary tax liability difference related to future years is 1.1 M. the enacted
tax rate is 35 % for 2010 and 2011
The journal entry to adjust the deferred tax liability at the end of 2011 should include a
a. Debit to deferred tax liability of 175,000
b. Credit to deferred tax liability of 175,000
c. Debit to deferred tax asset of 175,000
d. Credit to deferred tax liability of 386,000

10. January 1, 2009 Citimart Inc. was granted 5,000 acres of land in a village, located near the
slums outside the city limits, by a local government authority. The condition attached to this
grant was that the company should clean up this land and lay roads by employing laborers
from the village in which land is located. The government has fixed the minimum wage payable
to the workers. The entire operation will take 3 years and is initially estimated to costs 160 M.
The fair value of this land on the date of grant was 240 M and is expected to increase by at
least 20 % annually because of the improvements to be done by the company. In relation to
the attached condition, the company incurred costs of 80 M in 2009 and 70M in 2010. On
December 31,2010 the company estimated that it will incur additional cost of 30 M in 2011.
How much should be recognizrd as income from government grant for the year ended
December 31,2010 ?
a. 120 M
b. 105 M
c. 80 M
d. 70 M

1. The following information pertains to Acacia Inc. for the year ended December 31,2010

Credit sales during 2010 4,450,000


Collection of accounts written off in prior periods 170,000
Worthless accounts written off in 2010 191,000
Allowance for doubtful accounts, Jan. 1,2010 155,000

Acacia Inc. provides for doubtful accounts based on 1 % of credit sales.


What is the balance of the allowance for doubtful accounts at December 31,2010?

a. 345,750
b. 66,750
c. 200,750
d. 242,750

2. On Jan. 1, 2007, Rosalyn Company sold its goods costing 400,000 to Milton Company,
Rosalyn Company maintains a mark up of 30 % on costs. Milton Company made an initial
payment of 20,000 and issued a promissory note for the balnce. The note provides for equal
annual installments that will yield 12%. The first installment would be made at the end of the
year 2007 and the last on Dec. 31,2011.
The amount of cash to be received by Rosalyn Company as payment for interest at Dec.
31,2008 is:
a. 50,533
b. 36,448
c. 52,601
d. 60,000
3. Downtown Company purchased merchandise during 2008 on credit for 2,500,000 terms
2/10;n/30. All the gross liability except 400,000 was paid within the discount period. The
remainder was paid within 30 day term. At the end of the year, Dec. 31, 2008, 90 % of the
merchandise had been sold and 10 % remained in inventory. The company uses the periodic
inventory system and there was no inventory at the beginning of 2008.
Under the net method of recording purchases, the cost of goods sold to be reported in
Downtown Companys income statement for 2008 is :
a. 2,058,000
b. 2,205,000
c. 2,212,000
d. 2,250,000
4. The land account was debited for 300,000 on March 31 2007 for an adjoining piece of land
which acquired in exchange for 15,000 shares of Rizal Corp own stock with a par value of 10.
At the time of the exchange, the shares were selling at 24. 20,000 were paid and charged to
professional fees.
The adjusting entry is
Debit Credit
a. Land 140,000 Prem on Capital stock 140,000
b. Land 160,000 Capital stock 150,000
Cash 10,000
c. Land 80,000 Professional fees 20,000
Prem on Capital stock 20,000
d. None of the above

5. Last Oct. 10,2007 Linda Corp. exchange 2,000 shares of its 10 par common stock for parcel
of land to be held for future plant site. Lindas common stock was listed and traded at 27 per
share on that same date, Oct. 10,2007. The appraisal value of the land on Oct. 10 was 30,000
Because of this exchange, Lindas additional paid in capital will increase by:
a. 0
b. 20,000
c. 34,000
d. 40,000

6. Durian corp. purchased 40 % of Associate Companys outstanding ordinary shares on Jan.


2,2010 for 270 M. the book value of Associate Companys net assets at the purchase date
totaled 450 M. Book values and fair values were the same for all financial statement items
except for inventory and buildings, for which fair values exceeded book values by 12.5 M and
aa2.5 M respectively. All inventory on hand at the purchase date was sold during 2010. The
buildings have average remaining useful lives of 15 years. Associate Company reported net
income of 110 M for the year ended Dec.31,2010, and paid cash dividend of 40 M. the fair
value of Durians investment in Associate was 300 M at Dec.31,2010. What is the investment
balance in Dec.31,2010?
a. 270 M
b. 300M
c. 290M
d. 298M
7. The following transactions were completed by Subway Corp. during 2008:
Issued 100,000 new shares of 10 par ordinary shares at 12 per share
Purchase 80,000 treasury shares at 11 per share
Sold 35,000 treasury shares at 13 per share
Declared 2 cash dividends on the outstanding ordinary shares
Retained earnings balance on Jan.1 was 1 M while on Dec. 31,2008, itshowed a balance of
750,000 of which 495,000 was appropriated for treasury shares. Ordinary share capital on
Jan.1,2008 consisted of 500,000. What was the net income for the year 2008?
a. 950,000
b. 860,000
c. 635,000
d. 365,000
8. Rizal Corp. decided that the allowance for bad debts should be adjusted to equal the
estimated amount required base on aging the accounts as of Dec. 31, following data gathered
Allowance for bad debts, Jan.1,2007
Provision for bad debts during 2007(2% of 3,000,000 sales)
Bad debts written off in 2007
Estimated bad debts per aging of accounts on Dec. 31,2007
The bad debts provision should be adjusted by:
Debit Credit
a. Bad debts expense 15,000 Allow. For bad debts 15,000
b. Allow. For bad debts 45,000 Accounts receivable 45,000
c. Allow. For bad debts 25,000 Bad debts expense 25,000
d. None of the above

Bebe Ganda acquired an asset that had a cost of P390,000. The asset being depreciated over a 5-
year period using the sum-of-the-years digit method. It has a salvage value estimated at P30,000. If
the asset is to be sold at the end of the third year for a P20,000 gain, then how much would it have to
be sold?

The information below relates to Lillee Companys cash in bank:


Balance per bank statement, December 31, 2010 P27,910
Collections recorded but not yet deposit in bank 1,950
NSF check- not recorded on books nor redeposited 2,000
Bank charges not recorded 40
Note collected by bank and not recorded on books 2,800
Outstanding checks 3,000

The cash balance in the books of Lillee Company on December 31, 2010 is:
b. P26,020 b. P32,100 c. P22,200 d.P26,100

On January 1, 2005, Rosalyn Company sold goods to Miko Company costing P300,000 and received
in exchanged a P750,000 non-interest bearing note with a maturity date of January 1, 2009. The note
has no ready market but an effective interest of 11% is considered appropriate for a note of this type
which will approximate the inventorys fair value at the time of sale.
On July 1, 2007, Rosalyn Company which was in need of immediate cash discounted the note issued
by Miko Company to Clark Finance at 14%.

The total amount of income to be recognized in 2005 in relation to the above-mentioned transaction
is:
b. P532,500 b. P450,000 c. P248393 d. P194,048

Rosalyn Company reported the following items as part of cash and cash equivalents.
SEC registered commercial papers P300,000
Central Bank Certificate of Indebtedness 350,000
3-month Central Bank Treasury Bills, maturing on January 31, 2006 450,000
3-year Treasury note, acquired three months from its maturity date of Jan. 31, 2006 600,000
3-year Treasury note, acquired two years ago, Maturing on Jan. 31, 2006 800,000
The amount to be included from cash and cash equivalents is:
b. P2,500,000 b. P1,700,000 c. P1,900,000 d. P1,100,000

Rosalyn Publishing provides home delivery of day, evening and Sunday newspapers to subscriber
who lives in the suburbs. Customer may pay a yearly subscription fee in advance or pay monthly after
delivery of their newspapers. The following data are available for subscriptions receivable and
unearned subscriptions at the beginning and end of July 2007:

July 1 July 31
Subscriptions receivable P190,000 P230,000
Unearned subscriptions 570,000 490,000

The income statement shows subscriptions revenue for July of P1,120,000. The amount of cash
received from customers for subscriptions during July is:
b. P1,240,000 b. P1,160,000 c. P1,180,000 d. P 1,000,000

A 50% markup on price is equivalent to a markup on cost of


e. 25%
f. 33%
g. 50%
h. 100%

On January 2, 2010, Potpot Delivery Company traded in an old delivery truck for a newer model. Data
relative to old and new trucks follow:

Old truck
Original Cost..P800,000
Accumulated Depreciation as of January 2, 2010 600,000
Average published retail value 170,000

New truck
List price. 1,000,000
Cash price without trade-in.. 900,000
Cash price with trade-in 780,000

What would be the cost of the new truck for financial accounting purposes?

The following information relates to the defined benefit pension plan of the Orifice Company for the
year ending December 31, 2009:

Projected benefit obligation, January 1 P9,200,000


Projected benefit obligation, December 31 9,458,000
Fair value of plan assets, January 1 10,070,000
Expected return on plan assets 900,000
Actual return on plan assets 990,000
Amortization of unrecognized actuarial gain (based on average
remaining service life of 10 years) 65,000
Employer contributions 850,000
Benefits paid to retirees 780,000
Settlement rate 10%

The amount to be recognized in the statement of financial position as of December 31, 2009 is?

Justin Bieber Inc. sells electric stoves. It uses perpetual inventory system and allocates cost to
inventory on a first-in, first-out basis. The companys reporting date is December 31. At December 1,
2010, inventory on hand consisted of 350 stoves at P820 each and 43 stoves at P850 each. During
the month ended December 31, 2010, the following inventory transactions occurred (all sales and
purchases are on credit):

2010
Dec 1 Sold 300 stoves for P1,200 each.
3 Five stoves were returned by the customers. They had originally had a cost of P820
each and were sold for P1,200 each.
9 Purchased 55 stoves at P910 each.
10 Purchased 76 stoves at P960 each.
15 Sold 86 stoves for P1,350 each.
17 Returned one damaged stove to the supplier. This store had been purchased on
December 9.
22 Sold 60 stoves for P1,250 each.
26 Purchased 72 stoves at P980 each.

What is Justin Biebers gross profit in December 2010?

During 2008, Pen Corporation acquired common stock of Rap Company as follows:
Lot Date No. of shares Cost per share Total cost
A January 25 800 560 448,000
B April 5 600 600 360,000
Rap Company issued a 20% stock dividend on February 14, 2008. Common stock rights were issued
on October 30, 2008 entitling holders to purchase one new common share at P450 for each ten
shares held. On this date, the rights were being traded at P20 each and the stock ex-rights were
being traded at P620 per share.
On November 8, 2008, Pen sold 500 rights that pertained to Lot A. Sales price was P25 per right. The
corporation paid a brokerage fee of P500 on the sale of the stock rights. Pen exercised the remaining
rights on November 11, 2008.

The gain on sale of rights is: