1.

Treasury shares may be reissued as dividends, in which case the _____ of the shares be charged to
retained earnings
a. historical value
b. cost
c. fair value
d. selling price

2. ordinary shares issued as a result of the conversion of a debt instrument to ordinary shares are
incuded from the date
a. it was converted
b. interest ceases to accrue
c. as of the balance sheet
d. prior to the date of the balance sheet

3. When treasury stock is purchased for more than the par value, what accounts should be debited?
a. Additional paid in capital for the purchase price
b. Treasury stock for the purchase price
c. Treasury stock for the par value and additional paid in capital for the excess of purchase price over
the par value
d. Treasury stock for the par value and retained earnings for the excess of the purchase price over the
par value

4. Which of the following statements is false?

a. No reference need be made to donated treasury stock since the acquisition of such stock does not
restrict retained earnings.
b. A loss from sale of treasury stock should be charged to additional paid in capital from treasury stock
and then retained earnings.
c. Treasury shares should be shown as a deduction, at cost, from total stockholder’s equity.
d. Treasury shares should be shown as a deduction, at cost from total stockholder’s equity, and the
restriction on retained earnings occasioned by their acquisition must also be stated.

5. If the stock dividend is less than twenty percent, it is considered as a small stock dividend and the
market value of the shares is debited to retained earnings. The resulting “additional paid-in capital”
is credited on the
a. Date of record
b. Date of issuance
c. Date of declaration
d. Date of payment

6. The term residual interest means that ordinary shareholders

a. Are entitled to a dividend every year in which the entity earns a profit.
b. Have the right to specific assets of the entity.
c. Bear the ultimate risks and uncertainties and receive the benefits of ownership.
d. Can negotiate individual contracts on behalf of the entity.

7. When ordinary shares are issued in payment for services, the least appropriate basis for recording the
transaction is the
a. Fair value of the services received
b. Par value of the shares issued
c. Fair value of the shares issued
d. Any of these provides an appropriate basis for recording the transaction

8. The cumulative feature of preference shares

a. Limits the amount of cumulative dividends to the par value of the preference shares.
b. Requires that dividends not paid in any year must be made up in a later year before dividends are
distributed to ordinary shareholders.
c. Means that the shareholder can accumulate preference shares equal to the par value of ordinary
shares.
d. Enables a preference shareholder to accumulate dividends equal to the par value of the shares and
receive the shares in place of the cash dividends.

9.Which of the following is not a legal restriction related to profit distribution?

a. The amount distributed must be in compliance with the laws governing corporations.
b. The amount distributed can never exceed the net income reported for the year.
c. Profit distribution must be formally approved by the board of directors.
d. Dividends must be in full agreement with the capital contracts as to preferences.

10. Trading on the equity is

a. The ratio of the cash dividend to net income.
b. A return on assets that is higher than the cost of financing these assets.
c. The amount each share would receive if the entity were liquidated.
d. The revaluation surplus.

11.If the stock dividend is less than twenty percent, it is considered as a small stock dividend and the
market value of the shares is debited to retained earnings. The resulting “additional paid-in capital”
is credited on the
a. Date of record
b. Date of declaration
c. Date of issuance
d. Date of payment

12.Dork Company provided the following information for the 2008:

Total Assets at December 31 4,500,000
Share Capital at December 31 2,000,000
Share Premium at December 31 200,000
Treasury Stock (at cost) 300,000
The debt-to-equity ratio is 25% at December 3, 2008. What is the retained earnings unappropriated on
December 31, 2008?
a.1, 400,000
b.1, 100,000
c.2, 300,000
d.1, 700,000

13.The Diss Co. launched a sales promotional campaign on June 30, 2006. For every ten empty packs
returned to Diss, customers will receive an attractive food container. The company estimates that
only 30% of the packs reaching the market will be redeemed. Additional information are as follows:
Units Amount
Sales of food packs 3,000,000 P9,000,000
Food containers purchased 60,000 180,000
Prizes distributed to customers 37,000

At the end of the year, Diss recognized a liability equal to the estimated cost of potential prizes
outstanding. What is the amount of this estimated liability?
a. 69,000
b. 90,000
c. 159,000
d. 180,000
The following information relates to Tiss Company’s obligations as of December 31, 2005. For each of
the numbered items, determine the amount if any, that should be reported as current liability in Tiss’s
December 31, 2005 balance sheet.

14.Accounts payable:
Accounts payable per general ledger control amounted to P5,440,000, net of P240,000 debit balances in
suppliers’ accounts. The unpaid voucher file included the following items that not had been recorded
as of December 31, 2005:
a) A Company – P224,000 merchandise shipped on December 31, 2005, FOB destination; received on
January 10, 2006.
b) B, Inc. – P192,000 merchandise shipped on December 26, 2005, FOB shipping point; received on
January 16, 2006.
c) C Super Services – P144,000 janitorial services for the three-month period ending January 31, 2006.
d) MERALCO – P67,200 electric bill covering the period December 16, 2005 to January 15, 2006.
On December 28, 2005, a supplier authorized Tiss to return goods billed at P160,000 and shipped on
December 20, 2005. The goods were returned by Tiss on December 28, 2005, but the P160,000 credit
memo was not received until January 6, 2006.
a. P5,923,200
b. P5,712,000
c. P5,601,600
d. P5,841,600

15. Payroll:
Items related to Tiss’s payroll as of December 31, 2005 are:
Accrued salaries and wages P776,000
Payroll deductions for:
Income taxes withheld 56,000
SSS contributions 64,000
Philhealth contributions 16,000
Advances to employees 80,000
a. P776,000
b. P992,000
c. P832,000
d. P912,000

16. Litigation:
In May, 2005, Tiss became involved in a litigation. The suit is being contested, but Tiss’s lawyer believes
it is possible that Tiss may be held liable for damages estimated in the range between P2,000,000 and
P3,000,000, and no amount is a better estimate of potential liability than any other amount.
a. P0
b. P2,000,000
c. P3,000,000
d. P2,500,000

17. Bonus obligation:

Tiss Company’s president gets an annual bonus of 10% of net income after bonus and income tax.
Assume the tax rate of 30% and the correct income before bonus and tax is P9,600,000. (Ignore the
effects of other given items on net income.)
a. P722,600
b. P395,000
c. P2,240,000
d. P628,000

18. Note payable:

A note payable to the Bank of the Philippine Islands for P2,400,000 is outstanding on December 31,
2005. The note is dated October 1, 2004, bears interest at 18%, and is payable in three equal annual
installment of P800,000. The first interest and principal payment was made on October 1, 2005.
a. P800,000
b. P908,000
c. P72,000
d. P872,000

19. Purchase commitment:

During 2005, Tiss entered in a noncancellable commitment to purchase 320,000 units of inventory at
fixed price of P5 per unit, delivery to be made in 2006. On December 31, 2005, the purchase price of this
inventory item had fallen to P4.40 per unit. The goods covered by the purchase contract were delivered
on January 28, 2006.
a. P0
b. P1,600,000
c. P1,408,000
d. P192,000

20. Deferred taxes:

On December 31, 2005, Tiss’s deferred income tax account has a 2005 ending credit balance of
P772,800, consisting of the following items:
Caused by temporary differences in accounting Deferred tax
For gross profit on installment sales P376,000 Cr.
For depreciation on property and equipment 576,000 Cr
For product warranty expense 179,200 Dr
P772,800 Cr.
a. P772,800
b. P952,000
c. P196,800
d. P0

21. Product warranty:

Tiss has a one year product warranty on selected items in its product line. The estimated warranty
liability on sales made during 2004, which was outstanding as of December 31, 2004, amounted to
P416,000. The warranty costs on sales made in 2005 are estimated at P1,504,000. Actual warranty costs
incurred during the current 2005 fiscal year are as follows:
Warranty claims honored on 2004 sales P 416,000
Warranty claims honored on 2005 sales 992,000
Total warranty claims honored P1,408,000
a. P0
b. P1,504,000
c. P96,000
d. P512,000

22. Premiums:
To increase sales, Tiss Company inaugurated a promotional campaign on June 30, 2005. Tiss placed a
coupon redeemable for a premium in each package of product sold. Each premium costs P100. A
premium is offered to customers who send in 5 coupons and a remittance of P30. The distribution cost
per premium is P20. Tiss estimated that only 60% of the coupons issued will be redeemed. For the six
months ended December 31, 2005, the following is available:
Packages of product sold 160,000
Premiums purchased 16,000
Coupons redeemed 64,000
a. P1,728,000
b. P1,152,000
c. P1,600,000
d. P576,000

23.Due to Five Six Finance company:

Tiss’s accounting records show that as of December 31, 2005, P1,280,000 was due to Five Six Finance
Company for advances made against P1,600,000 of trade accounts receivable assigned to the finance
company with recourse.
a. P0
b. P1,600,000
c. P320,000
d. P1,280,000

Miss Corporation’s post-closing trial balance at December 31, 2006 was as follows:
Miss Corporation
 Post-Closing Trial Balance
December 31, 2006

Debit Credit
Accounts payable P 495,000
Accounts receivable P 963,000
Reserve for depreciation 360,000
Reserve for doubtful accounts 54,000
Premium on common stock 1,800,000
Gain on sale of treasury stock 450,000
Bonds payable 720,000
Building and equipment 1,980,000
Cash 396,000
Cash dividends payable on preferred stock 7,200
Common stock (P1 par value) 270,000
Inventories 1,116,000
Land 684,000
Available-for-sale securities at fair value 513,000
Trading securities at fair value 387,000
Net unrealized loss on available-for-sale
securities 45,000
Preferred stock (P50 par value) 900,000
Prepaid expenses 72,000
Donated capital 800,000
Stock warrants outstanding 208,000
Retained earnings 415,800
Treasury stock – common, at cost 324,000
Totals P6,480,000 P6,480,000

At December 31, 2006, Miss had the following number of common and preferred shares:

Common Preferred
Authorized 900,000 90,000
Issued 270,000 18,000
Outstanding 252,000 18,000

The dividends on preferred stocks are P0.40 cumulative. In addition, the preferred stock has a
preference in liquidation of P50 per share.

24.Additional paid-in capital

a. P3,213,000
b. P3,258,000
c. P3,050,000
d. P2,600,000

25.Total contributed capital

a. P4,428,000
b. P4,220,000
c. P3,770,000
d. P1,170,000

26.Unappropriated retained earnings

a. P415,800
b. P739,800
c. P91,800
d. P37,800

27.Total stockholders’ equity

a. P4,266,800
b. P4,519,800
c. P4,888,800
d. P4,474,800

The following items have not been reflected in the financial statements of BLUES CORP. for the year
ended December 31, 2007. You are asked if the information should be adjusted and disclosed in the
financial statements, disclosed only in the financial statement, or no adjustment or disclosure.

28.Blues owns a small warehouse located on the banks of a river in which it stores inventory worth
approximately P250,000. Blues is not insured against flood losses. The river last overflowed its banks
200 years ago.
a. Adjusted and disclosed in the financial statements.
b. Only disclosure is required in the financial statements.
c. No adjustment or disclosure required in the financial statements.

29.Blues offers an unconditional warranty on its toys. Based on past experience, Blues estimates its
warranty expense to be 1% of sales. Sales during 2007 were P5,000,000.
a. Adjusted and disclosed in the financial statements.
b. Only disclosure is required in the financial statements.
c. No adjustment or disclosure required in the financial statements.

30.On October 30, 2007, a safety hazard related to one of Blues’s toy products was discovered. It is
considered probable that Blues will be liable for an amount in the range of P50,000 to P250,000.
a. Adjusted and disclosed in the financial statements.
b. Only disclosure is required in the financial statements.
c. No adjustment or disclosure required in the financial statements.

31.On November 29, 2007, Blues initiated a lawsuit seeking P125,000 in damages from a patent
infringement.
a. Adjusted and disclosed in the financial statements.
b. Only disclosure is required in the financial statements.
c. No adjustment or disclosure required in the financial statements.

32.On December 15, 2007, a former employee filed a lawsuit seeding P50,000 for unlawful dismissal.
Blues’s attorneys believe the suit is without merit. No court date has been set.
a. Adjusted and disclosed in the financial statements.
b. Only disclosure is required in the financial statements.
c. No adjustment or disclosure required in the financial statements.

33.On December 12, 2007, Conchita guaranteed a bank loan of P500,000 for its president’s personal
use.
a. Adjusted and disclosed in the financial statements.
b. Only disclosure is required in the financial statements.
c. No adjustment or disclosure required in the financial statements.

34.On January 5, 2008, a warehouse containing a substantial portion of Blues’s inventory was destroyed
by fire. Blues expects to recover the entire loss, except for a P125,000 deductible from insurance.
a. Adjusted and disclosed in the financial statements.
b. Only disclosure is required in the financial statements.
c. No adjustment or disclosure required in the financial statements.

35.On January 5, 2008, inventory purchased FOB shipping point from a foreign country was detained at
that coutnry’s border because of political unrest. The shipment is valued at P750,000. Blues’s
attorneys have stated that it is probable that Blues will be able to obtain the shipment.
a. Adjusted and disclosed in the financial statements.
b. Only disclosure is required in the financial statements.
c. No adjustment or disclosure required in the financial statements.
36.On January 30, 2008, Blues issued P5,000,000 bonds at a premium of P250,000.
a. Adjusted and disclosed in the financial statements.
b. Only disclosure is required in the financial statements.
c. No adjustment or disclosure required in the financial statements.

37.On February 14, 2008, the BIR assessed Blues an additional P200,000 for the 2001 tax year. Blues’s
attorneys and tax accountants have stated that it is likely that the BIR will agree to a P150,000
settlement.
a. Adjusted and disclosed in the financial statements.
b. Only disclosure is required in the financial statements.
c. No adjustment or disclosure required in the financial statements.

Maria Rosa, president of the Clues 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 the provision for income taxes or the bonus is P4,650,000. The
bonus is deductible for tax purposes, and the tax rate is 32%.

38.The amount of Blues’s bonus is

a. P 465,000.00
b. P 364,285.71
c. P 339,270.39
d. P 296,069.42

39.The appropriate provision for income tax for the year is

a. P 1,488,000.00
b. P 1,393,258.43
c. P 1,371,428.57
d. P 1,379,433.48

40.The entry to record the bonus (which will be paid in the following year) is
a. Bonus expense 296,069.42
Bonus payable 296,069.42
b. Bonus expense 339,270.39
Bonus payable 339,270.39
c. Bonus expense 465,000.00
Bonus payable 465,000.00
d. No entry

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