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College of Accountancy

Financial Accounting and Reporting- Special Qualifying Exam April 28, 2010

Instructions: Mark properly the letter of the best answer on the scannable answer sheet. Good

1. A petty cash system is des guadric

a. Account for all small cash receipts and disbursements
b. Cash checks for employees
c. Handle cash sales
d. Pay small miscellaneous expenses

2. Bank statements provide information about all of the following except

a. Bank charges for the period c. Checks cleared during the period
b. NSF checks d. Errors made by the company

3. The amount reported as Cash on a companys statement of financial position normally

should exclude
a. Postdated checks payable to the company
b. Undelivered checks to the payee written and signed by the company
c. Petty cash fund
d. Postdated checks issued by the company

4. If a note is exchanged for property and no interest rate is stated, the note is recorded at
a. Face value of the note
b. Carrying value of the property
c. Maturity value of the note
d. Fair market value of the property or note

5. A form of receivables financing which is equivalent to an absolute sale of accounts

receivable is
a. Discounting of notes receivable c. assignment of accounts receivable
b. Pledge of accounts receivable d. factoring

6. A company writes off as uncollectible an account receivable from a bankrupt customer.

The company has an adequate amount in its Allowance for Bad Debts. This transaction
a. Have no effect on total current assets
b. Decrease profit for the period
c. Decrease total current assets
d. Decrease the amount of owners equity

7. Which of the following would not be reported as Inventory?

a. Agricultural produce held by a farm.
b. Partially completed goods held by a manufacturing company.
c. Land acquired for resale by a real estate firm.
d. Machinery acquired by a manufacturing company for use in the production process.

8. In periodic inventory system that uses the weighted average cost flow method, the
beginning inventory is
a. Net purchases minus the cost of goods sold
b. Total goods available for sale minus the net purchases
c. Total goods available for sale minus the cost of goods sold
d. Net purchases minus the ending inventory
9. The average retail method is based on the assumption that the
a. Ratio of gross margin to sales is approximately the same each period
b. Ratio of cost to retail changes at a constant rate
c. Beginning inventory and the cost of goods sold contain the same proportion of high-
cost and low-cost ratio goods
d. The gross margin percentage applicable to ending inventory and to the goods sold
during the period is the same

10. When a company purchases land with a building on it, and immediately tears down the
building so that the land can be used for the construction of a plant, the costs incurred
to tear down the building should be
a. Added to the cost of the land
b. Added to the cost of the plant
c. Expensed as incurred
d. Amortized over the estimated time period between the tearing down of the building
and the completion of the plant

11. The property, plant and equipment category in the statement of financial position
includes the following, except
a. Delivery truck acquired on installment, certificate of ownership being held by the
finance company
b. Equipment that is idle temporarily
c. Building under construction
d. Land acquired and put on the market for resale

12. The recoverable amount of a cash generating unit is

a. The higher between the selling price less cost to sell and the discounted cash flow
from the use and disposal of the unit
b. The discounted cash flow from the use and disposal of the unit
c. The selling price less cost to sell
d. The lower between the selling price less cost to sell and the discounted cash flow
from the use and disposal of the unit

13. All costs incurred to establish the technological feasibility of a computer software
product to be marketed or leased should be
a. Capitalized as an inventory
b. Charged to expense when incurred
c. Capitalized as property, plant and equipment
d. Capitalized as an intangible asset

14. Unrealized holding gains and losses which are taken to profit or loss are from securities
that are classified as
a. Investment in associate c. Trading
b. Available for sale d. Held to maturity

15. A correct measurement is

a. Held to maturity securities at market value
b. Investment in associate at market value
c. Available for sale securities at amortized cost
d. Available for sale securities at market value
16. A debt security is transferred from available for sale of held to maturity securities. At
the transfer date, the securitys carrying amount exceeds its market value. What
amount is used to transfer date to record the security in the held to maturity
a. At market value with the difference between market and cost subject to
b. At cost, with difference between market and cost subject to amortization
c. At cost
d. At maturity value

17. When the word accrued is used in connection with a current liability. It means that
a. The liability is being contested and may not be paid.
b. The liability will not become due in the subsequent accounting period.
c. An expense has been incurred for which cash has to be paid.
d. An expense has been incurred, but is unpaid at the financial statement date.

18. If an amount being measured involves a large population of items and an outflow of
resources embodying economic benefits is probable and be reasonably estimated to be
within a continuous range of possible outcomes, and each point in the range is as likely
as any other, the amount to be accrued should be
a. The midpoint of the range c. the lower limit of the range
b. The upper limit of the range d. zero

19. Which of the following statements is incorrect?

a. A provision is a liability of certain timing and amount.
b. The amount recognized as a provision should be the best estimate of the
expenditure required to settle the present obligation at the balance sheet date.
c. Accruals are liabilities to pay for goods or services that have been received or
supplied but have not been paid.
d. An enterprise should not recognize a contingent liability.

20. The proceeds from a bond issued with detachable stock purchase warrants should be
accounted for
a. A part of the proceeds is assigned to bonds payable and another part to
shareholders equity for the warrants
b. A part of the proceeds is recorded as unearned revenue and another part as bonds
c. Entirely as bonds payable
d. Entirely as shareholders equity

21. How would the carrying value of a bond payable be affected by amortization of each of
the following?
Discount Premium
a. No effect No effect
b. Decrease Increase
c. Increase Decrease
d. Increase No effect

22. Which of the following is true when the effective interest method of amortizing bond
premium is used?
a. Interest expense decreases each period.
b. Interest expense increases each period.
c. Interest rate varies from period to period.
d. Interest expense remains the same for each period.
23. The par value of ordinary share capital represents
a. The liquidation value of the share capital
b. The legal nominal value assigned to the share capital
c. The book value of the share capital
d. The amount received by the corporation when the share was originally issued

24. Gains or losses on the purchase and resale of treasury share is reflected in
a. Paid-in capital only
b. Income, paid-in capital and retained earnings
c. Paid-in capital and retained earnings accounts
d. Income and paid-in capital accounts

25. Under PFRS 2, Share Based Payment, the value of the options that lapse after vesting
a. Remain in equity
b. Be converted into a liability
c. Be credited to income during the period that the options lapse
d. Be credited to expense during the period the options lapse

26. When should a lessor recognize as income a nonrefundable lease bonus paid by a lessee
on signing an operating lease?
a. At the expiration of the lease c. when received
b. At the inception of the lease d. over the life of the lease

27. In an operating lease, rent collected in advance by the lessor should be treated as
a. Prepaid expense c. accrued asset
b. Unearned revenue d. accrued liability

28. Initial direct costs incurred by the lessor in connection with specific leasing activities as
in negotiating and securing leasing arrangements, in a direct finance lease, are
a. Included in the initial measurement of the finance lease receivable and reduce the
amount of income over the lease term
b. Recognized as an expense, usually as part of the cost of sales
c. Ignored
d. Recorded as deferred costs and amortized over the useful life of the asset

29. The justification for the method of determining periodic deferred tax expense is based
on the concept of
a. Objectivity in the calculation of periodic expense
b. Consistency of tax expense measurements with actual tax planning strategies
c. Recognition of assets and liabilities
d. Matching of periodic expense to periodic income

30. Which of the following is not a component of a post-employment benefit cost?

a. Current service cost c. amortization of past service cost
b. Interest cost d. contributions to the plan
31. Bataan companys checkbook balance at December 31, 2009 was P50,000.
Check payable to Bataan, dated December 31, 2009 in
payment of a sale made in December 2009 not
included on December 31, 2009 checkbook balance P20,000
Check payable to Bataan, deposited December 15, but
returned by bank on December 30, marked NSF.
The deposit and the return were both reflected in
the checkbook 5,000
Check drawn on Bataan Companys account, payable to
A vendor dated December 30, but not yet mailed to
payee as of December 31, 2009. The check is not
yet recorded. 3,000

The amount to be shown as Cash on Bataan Companys statement of financial position

December 31, 2009 is
a. P48,000 b. P68,000 c. P70,000 d. P65,000

32. The petty cash fund of Seven Trading at the end of the fiscal year ended June 30, 2009,
is composed of the following:
Currencies P3,800
Coins 1,200
Paid vouchers:
Office Supplies 1,750
Postage Stamps 2,000
Loans to employees 6,000
Check drawn by the manager, returned by bank
Marked NSF 2,750
Check drawn by the company, payable to the order
of the petty cash custodian, representing
her salary 12,500
The amount of petty cash fund that should be shown on the statement of financial
Position at June 30, 2009 of Seven Trading is
a. P20,250 b. P30,000 c. P70,000 d. P65,000

33. Gem Company had the following cash balances at December 31, 2009:
Petty Cash Fund P1,500
Customers certified check 5,000
Customers NSF Check 2,000
Customers postdated check 4,000
Unrestricted demand deposits 486,000
Companys checks written and deducted from the
demand deposits but not scheduled to be
mailed until 1/2/10 12,000
Time deposits restricted for use expected use in 2010 300,000

In exchange for a guaranteed line of credit, Gem Company has agreed to maintain a
minimum balance of P100,000 in its unrestricted demand deposit account. How much
should Gem Company report as Cash in its December 31,2009 statement of financial

a. P504,500 b. P404,500 c. P480,500 d. P399,500

38. The following purchase transactions occurred during the last few days of Whilsel Companys
business year, which ends October 31, or in the first few days after that date. A periodic Inventory
system is used.
1. An invoice for P6,000 terms FOB Shipping point, was received and entered
November1. The invoice shows that the material was shipped October 29, but
the receiving report indicates receipt of goods on November 3.
2. An invoice for P2,700 terms FOB destination, was received and entered
November 2. The receiving report indicates that the goods were received
October 29.
3. An invoice for P3,150, terms FOB shipping point was received October 15, but
never entered. Attached to it is a receiving report indicating that the goods were
received October 18. Across the face of the receiving report is the following
notation Merchandise not of same quality as ordered- returned for credit
October 13.
4. An invoice for P3,600 terms FOB shipping point, was received and entered
October 27. The receiving report attached to the invoice indicates that the
shipment was received October 27 in satisfactory condition.
5. An invoice for P4,300 terms FOB destination was received and entered October
28. The receiving report indicates that the merchandise was received November

Inventory was determined by physical count on October 31 as P77,500. What is the

correct Inventory amount that should be shown in the October 31 statement of financial
a. P85,500 b. P74,850 c. 80,350 d. P86,200

39. The Inventory account of Nike Trading at December 31, 2009 included the following items:
Goods purchased in transit, FOB shipping point P130,000
Merchandise out on consignment at sales price
(including markup of 30% on cost) 104,000
Goods held on consignment 56,000
Goods out on approval at sales price(cost P25,000) 32,500

Based on the above information, the inventory account at December 31,2009 should be
reduced by
a. P84,500 b. P81,500 c. P91,600 d. P87,500

40. Webster Company uses the FIFO retail method of inventory valuation. Following are the
information available:
Cost Retail
Beginning Inventory P24,000 P60,000
Purchases 120,000 220,000
Net markups 20,000
Net markdowns (40,000)
Sales revenue 180,000

If the lower of cost or NRV rule is disregarded, what would be the estimated cost of ending
a. P48,000 b. P41,600 c. P38,400 d. P40,000
41. The following were incurred by the Keng, Inc. in 2009:
Cost of land P4,500,000
Expenses of land survey 30,000
Expenses for search of land title 6,000
Temporary building to house materials and workers 50,000
Demolition of old building 40,000
Payments to tenants to vacate the premises of
old building 60,000
Payments to some construction worker for injuries
sustained (no insurance was carried) 85,000
Interest on temporary loan for construction 90,000
Cost of paving parking area adjoining building 45,000
Excavation expenses for foundation of building 150,000
Cost of construction 9,800,000

What is the cost of the land?

a. P4,636,000 b. P4,461,000 c. P4,661,000 d. P4,536,000

42. During 2009, Bing Company constructed its own equipment costing P5,000,000. The
weighted average accumulated expenditure on these assets during 2009 was P2,500,000. TO
help finance the construction, P1,800,000 was borrowed at 10% on January 1, 2009, and funds
not needed for construction were temporarily invested in short-term securities, yielding
P45,000 in interest revenue. Other than the construction funds borrowed, the only other debt
outstanding during the year was a P2,500,000, 10-year, 9% notes payable dated January 1,
2009. What is the amount of interest that should be capitalized by Bing during 2009?
a. P250,000 b. P198,000 c. P243,000 d. P135,000

43. On December 31,2005, Un Company purchased an equipment with an estimated useful life
of 10 years. The equipment was expected to have a residual value of P5,000 at the end of its
service life. The sum-of-the-years digits method was used in computing depreciation. For the
year ended December 31,2009, the depreciation applicable to this equipment was P42,000.
What was the acquisition cost of the equipment?
a. P335,000 b. P330,000 c. P293,750 d. P325,000

44. France Company determined that due to obsolescence, equipment with original cost of
P1.8M and accumulated depreciation at January 1, 2009 of P840,000 had suffered permanent
impairment and as a result should have a carrying value of only P600,000 as of the beginning of
the year. In addition, the remaining useful life of the equipment was reduced from eight to
three years. In its December 31, 2009 statement of financial position, what amount should
France report as accumulated depreciation?
a. P1,400,000 b. P1,200,000 c. P1,500,000 d. P1,360,000

45. Mars Corporation bought Patent A for P40,000 and Patent B for P60,000. Mars also paid
acquisition cost of P5,000 for Patent A and P7,000 for Patent B. Both patents were challenged
in legal actions. Mars paid P20,000 in legal fees for a successful defense of Patent A and
P30,000 in legal fees for an unsuccessful defense of Patent B. What amount should Mars
disclose as total cost of patents on its year-end statement of financial position?
a. P45,000 b. P162,000 c. P65,000 d. P112,000
46. Silahis Trading made investments in available-for-sale securities. The market adjustment
account has a credit balance of P12,900 at December 31,2008. An analysis of the investments
on December 31, 2008 showed the following:
No. of Shares Cost Market
Asia Textile ordinary 600 P307,500 P270,000
S-Mart Inc. ordinary 225 76,500 90,000
RJ Company 2,000 269,500 280,600
P653,500 P640,600
On July 1, 2009, the shares of S-Mart, Inc. were sold for P70,000. On December 31,2009, Asia
Textile shares were quoted at P440 per share while RJ Company shares were quoted at P138
per share. How much is the required increase in the market adjustment account at the end of
a. P43,500 b. P10,600 c. P37,000 d. P30,600

47. Bayview Company bought 1,000 shares of PLDT stock as available for sale securities on
January 10,2009 at P150 per share and paid P2,250 as brokerage fees. On December 5, 2008, a
P10 dividend per share of PLDT had been declared to be paid on April 30,2009 to shareholders
of January 31, 2009. There were no other transactions in 2009 affecting the investment in PLDT.
At what amount should the available for sale securities be initially recognized on January
a. P152,250 b. P150,000 c. P142,250 d. P162,250

48. On January 1, 2009, Inkjet Company acquired 40% of GIC Company by purchasing 8,000
shares for P1,440,000. On the date of acquisition, Inkjet calculated that its share of the excess
of the fair value over the book value of GICs depreciable assets was P150,000 and that the
purchased goodwill was P120,000. At the end of 2009, GIC reported profit of P450,000 and paid
dividends of P7.00 per share. Inkjet depreciates depreciable assets over a 12-year remaining
life. What is the amount of income Inkjet would report from its investment in GIC for the year
ended December 31,2009?
a. P105,500 b. P172,600 c. P56,000 d. P167,500

49. Carlston, Inc. purchased 10% of Toy Companys 100,000 outstanding ordinary shares on
January 1, 2009, for P500,000. On December 31, 2009, Carlston purchased an additional 20,000
shares of Toy for P1,500,000. There was no goodwill as a result of either acquisition, and Toy
had not issued any additional shares during 2009. Toy reported earnings of P3,000,000 for
2009. What amount should Carlston report in its December 31, 2009 balance sheet as
investment in Toy?
a. P1,700,000 b. P2,900,000 c. P2,000,000 d. P2,300,000

50. Apple Company sells contracts agreeing to service equipment for a three-year period.
Information for the year ended December 31,2009 is as follows:
Cash receipts from service contracts sold P960,000
Service contract revenue recognized 780,000
Unearned service contract revenue, 1/1/09 540,000
In its December 31,2009 statement of financial position, what amount should Apple report as
unearned service contract revenue?
a. P550,000 b. P720,000 c.P240,000 d. P390,000
51. The Cybernet Company launched a new sales promotional program. For every 10 chewing
gum box tops returned to Cybernet customers receive an attractive prize. Cybernet estimates
that 40% of the chewing gum box tops reaching the consumer market will not be redeemed.
Additional information as follows:
Units Amount
Sales of chewing gum(in boxes) 3,000,000 P3,600,000
Purchase of prizes by Cybernet 80,000 40,000
Prizes distributed to customers 42,000
At the end of the year Cybernet recognized a liability equal to the estimated cost of potential
prizes outstanding. What is the amount of this estimated liability?
a. P39,000 b. P21,000 c. P69,000 d. P49,000

52. The Quickbite Company distributes to consumers coupons which may be presented(on or
before a stated expiration date) to grocers on certain products of Quickbite. The grocers are
reimbursed when they send the coupons to Quickbite. In Quickbites experience, 50% of such
coupons are redeemed, and generally on a month elapses between the date a grocer receives
coupons from the consumers and the data Quickbite receives it. During 2009, Quickbite issued
two separate series of coupons as follows:

Issued on Total Value Consumer expiration date Amounts Disbursed

1/1/09 P125,000 6/30/09 P59,000
7/1/09 180,000 12/31/09 75,000

The only journal entries to data recorded debits to coupon expense and credits to cash of
P134,000. The December 31,2009 statement of financial position should include a liability for
unredeemed coupons of
a. P90,000 b. P-0- c. P31,000 d. P15,000

53. On December 31,2008, the liability section of Texas Companys Statement of financial
position included bonds payable of P10M and unamortized premium on bonds payable of
P180,000. Further verification revealed that these bonds were issued on December 31, 2007
and will become due on December 31, 2017. Interest of 12% is payable on June 30 and
December 31 of each year. On April 1, 2009, Texas retired P4,000,000 of these bonds at 97 plus
accrued interest. The total amount of cash paid for the retirement of bonds on April 1, 2009
a. P4,180,000 b. P3,950,000 c. P4,040,000 d.P4,000,000

54. On January 1, 2009 London Company issued its 9% bonds in the face amount of P2.0M
which mature on January 1, 2019. The bonds were issued for P1,878,000 to yield 10% resulting
in a bond discount of P122,000. London uses the interest method of amortizing bond discount.
Interest is payable annually on December 31. What is the carrying value of the bonds at
December 31, 2009?
a. P1,896,000 b. P1,896,780 c. P1,898,000 d. P1,885,800

55. Fresh Company has outstanding 7%, 10-year, P2,000,000 face value bong. The bond was
originally sold to yield 6% annual interest. Fresh uses the effective interest method to amortize
bond premium. On june 30,2008 the carrying amount of the outstanding bond was P2,100,000.
What amount of unamortized premium on bond should Fresh report in its June 30,2009
statement of financial position?
a. P140,000 b. P114,000 c. P100,000 d. P86,000
56. Queenie Corporation was incorporated on January 2, 2009. The following information
pertaining to Queenies ordinary share transactions:
1/2/09 Number of shares authorized 80,000
2/1/09 Number of shares issued 60,000
7/1/09 Number of shares reacquired but not cancelled 5,000
12/1/09 Two-for-one stock split
What is the number of shares of Queenies ordinary share outstanding at December 31, 2009?
a. 115,000 b. 120,000 c. 150,000 d. 110,000

57. Melissa Corporation granted share options to its employees with a fair value of P4,500,000
on January 1, 2009. The options vest in three years and the options are exercisable starting
January 1,2012 until December 31,2013. On December 31, 2009 it was estimated that 5% of
employees will leave the company during the vesting period. This estimate was revised to 6%
during the year 2010. On December 31, 2011, employees record indicates that 90% of the
employees stayed and became entitled to the options. What would be the expense charged
during the year ending December 31, 2009?
a. P1,500,000 b. P1,110,000 c.P1,425,000 d. P1,350,00

58. Jane Company has granted 200 share appreciation rights to each of its 300 employees on
January 1,2009. The rights are due to vest on December 31, 2010 with payment being made on
December 31,2011. During the year 2009, the company estimated that all options would vest;
although only 90% of the options actually vested. Share prices are as follows:
January 1, 2009 P20
December 31, 2009 24
December 31, 2010 27
December 31, 2011 30
What liability will be recorded on December 31, 2009 as a result of the share appreciation
a. P270,000 b. P189,000 c. P d. P120,000

59. Peter Company leased office premises to Fox, Inc. for a five-year term beginning January 2,
2009. Under the terms of the operating lease rent for the first year is P80,000 and rent for years
2 through 5 is P125,000 per annum. However, an an inducement to enter the lease, Peter
granted Fox the first six months of the lease rent-free, In its December 31,2009 income
statement, what amount should Peter report as rental income?
a. P116,000 b.P108,000 c.P120,000 d.P80,000

60. On December 31, 2009, Lazarus Corporation leased equipment under a finance lease.
Annual lease payments of P200,000 are due December 31 for 10 years. The equipments useful
life is 10 years and the interest rate implicit in the lease is 10%. The finance lease obligation was
recorded on December 31, 2009 at P1,350,000 and the first lease payment was made on that
date. What amount should Lazarus include in current liabilities for this finance lease in its
December 31, 2009 statement of financial position?
a. P65,000 b. P200,000 c. P85,000 d. P115,000

61. On January 1, 2009, Hooks Company sold equipment with carrying amount of P100,000 and
a remaining useful life of 10 years to Maco Company for P150,000. Hooks immediately leased
the equipment back under a 10-year finance lease with a present value of P150,000 and will
depreciate the equipment using the straight-line method. Hooks made the first annual lease
payment of P24,412 in December 2009. What is the unearned gain on equipment sale in Hooks
December 31, 2009 statement of financial position?
a. P50,000 b. P25,588 c. P-0- d. P45,000
62. Camiguin Company reported depreciation of P250,000 on its 2009 tax return. However, in
its income statement, Camiguin reported depreciation of P100,000. The difference in
depreciation a temporary difference that will reverse over time. Assuming Camiguins tax rate is
constant 30% what amount should be added to the deferred income tax liability in 2009?
a. P45,000 b. P37,500 c. P30,000 d.P75,000

63. On June 30, 2009, Star Company prepaid a P190,000 premium on an annual insurance
policy. Premium payment was a tax-deductible expense in Stars 2009 cash basis tax return. The
accrual basis income statement will report a P95,000 insurance expense each in 2009 and 2010.
Stars income tax rate is 35% in 2009 and 38% thereafter. In Stars Decemeber 31, 2009
statement of financial position, what amount related to the insurance should be reported as
deferred income tax liability?
a. P36,100 b. P33,250 c. P66,500 d. P72,200

64. On January 1, 2009, Stinx Company had the following balances in its memorandum records:
Fair value of plan assets, P3,200,000; Accrued benefit obligation P3,200,000. Other data related
to the retirement benefit plan for 2009 are as follows:
Current service cost P140,000
Unrecognized prior service cost 0
Contribution to the plan 204,000
Benefits paid 200,000
Actual return on plan assets 185,000
Discount rate 9%
Expected rate of return 6%

The retirement benefit expense for 2009 is

a. P 143,000 b. P436,000 c. P243,000 d. P236,000

65. Glad Company has these balances relating to its defined benefit plan:
Present Value of the obligation P3,300,000
Fair value of plan assets 3,700,000
Unrecognized actuarial losses 300,000
Unrecognized past service cost 200,000

The present value of available future refunds and reductions in future contributions is
P100,000. What amount of prepaid (accrued) retirement benefit cost will be shown on the
statement of financial position?
a. P500,000 b. P900,000 c. P600,000 d. 7,500,000