EASY

1. The accountant of Villanueva Company made the following adjusting entry on

December 31,2009.
Advertising Materials 49,000
Advertising Expense 49,000
If advertising materials are paid at one time on June 1 and are used every throughout the
year, the original transactions entry made was

a. Debit Advertising Expense and Credit Cash, 98,000

b. Debit Advertising Expense and Credit Cash, 117,600
c. Debit Advertising Expense and Credit Cash, 84,000
d. Debit Advertising Materials and Credit Cash, 98,000

2. It is an existing liability of uncertain timing or uncertain amount. ____________________

3. 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. Increase No effect
c. Increase Decrease
d. Decrease Increase

4. Which of the following is usually considered cash?

a. Certificates of deposit
b. Checking accounts
c. Money market savings certificates
d. Postdated checks

5. A method of estimating uncollectible accounts that emphasizes asset valuation rather than
income measurement is the allowance based on
a. Aging the receivable
b. Direct writeoff
c. Gross sales
d. Credit sales less returns and allowances

6. If an item of property, plant and equipment is acquired in exchange for a asset and the
exchange lacks commercial substance, the cost of the asset acquired is measured at
a. Fair value of the asset given up
b. Fair value of the asset received
c. Carrying amount of the asset given up
d. Carrying value amount of the asset received

7. On January 1,2008, Jovanne Corporation purchased P1,000,000 10% bonds designed as held
to maturity. The bonds were purchased to yield 12%. Interest payable annually every
December 31. The bonds mature on December 31, 2009 Jovanne Corp. sold P500,000 face
value bonds at 101,the bonds were selling at 103 on December 31,2010. (Round off present
value factor to four decimal places)
How much should be reported as component of equity on December 31,2010?
a. P39,034 b.P29,034 c. P31,895 d. P26,895 e. -0-
 8. An improvement made to a machine increased its fair market value and its production
capacity by 25 percent without extending the machine’s useful life. The cost of the
improvement should be
a. Expensed
b. Debited to accumulated depreciation
c. Capitalized in the machine account
d. Allocated between accumulated depreciation and the machine account

9. The partners of Makaluluoy Co. started liquidating their business on July 1,2009 at which
time the partners were sharing profits and losses at 40% to Galz and 60% to Gladz the
partners. The statement of Financial Position of the partnership appeared as follows:
Makaluluoy Co.
Statement of Financial Positon
As of July 1, 2009

ASSETS LIABILITIES AND CAPITAL

Cash P 8,800 Accounts Payable P32,400
Receivables 28,000 Galz, Capital 31,000
Inventory 39,400 Gladz, Capital 33,200
Equipment,net 34,400 Gladz, Loan 14,000
Total Assets P 110,600 Total Liab and Capital P 110,600

Receivables include P5,400 from partner Galz and P200 from partner Gladz. During the
month of July, the partners collected P600 of the receivables with no loss. The partners also
sold during the month the entire inventory in which they realized a total of P32,400.

How much cash can be safely distributed to partner Galz on July 31, 2009?___________

10. The unadjusted trial balance of Barr Company at December 31, 2007, included the following
accounts:

Debit Credit
Allowance for doubtful accounts 16,000
Sales 7,225,000
Sales return 125,000

Barr estimates its uncollectible receivables at 2% of net sales. For 2007, Barr should report
doubtful accounts expense of
a. 158,000
b. 144,500
c. 142,000
d. 126,00
AVERAGE

1. If the acquisition cost of an “available for sale” bond investment is more than face value, the
difference is
a. Bond premium to be recognized as outright loss.
b. Included as part of the carrying value of the bond investment but not amortized.
c. Included as part of the carrying value of the bond investment and subsequently
amortized over the remaining life of the bond using the straight line method.
d. Included as part of the carrying value of the of the bond investment and subsequently
amortized over the remaining life of the bond using the effective interest method.

2. Michael Company is a wholesaler of scented candles. The activity for item number 1234
during June is presented below:

Date Transaction Units Cost

June 01 Inventory balance 6,000 20.00
04 Purchases 9,000 24.00
12 Sales 10,800
19 Purchases 14,400 26.00
22 Sales 11,400
29 Purchases 4,800 27.00

Under the FIFO periodic inventory system, how much is the ending inventory of item #1234
at June 30?
a. P280,800 c. P302,400
b. P278,400 d. P316,800

3. An entity purchased certain plant assets under a deferred payment contract. The agreement
was to pay P10,000 per year for five years. The plant assets should be valued at
a. P50,000
b. P50,000 plus imputed interest
c. Present value of P10,000 annuity for five years at an imputed interest
d. Present value of a P10,000 annuity for five years discounted at the bank
prime interest rate

4. On January 1, 2003, Walton Company purchased a machine for P2,000,000 and established
an annual straight-line depreciation rate of 10% with no residual value. During 2007 Walton
determined that the machine will not be economically useful in its production process after
December 31, 2007. Walton estimated that the machine had no residual value at December
31, 2007, and would be disposed of in early 2008 at a cost of P50,000. In its income
statement for the year ended December 31, 2007, what amount and type of charge should
Walton report for the machine?
Depreciation Impairment
a. 0 1,250,000
b. 200,000 1,000,000
c. 200,000 1,050,000
d. 1,200,000 50,000
5. A marketable debt security is transferred from available for sale to held to maturity securities.
At the transfer date, the security’s carrying amount exceeds its market value. What amount is
used at the transfer date to record the security in the held to maturity portfolio?
a. Market value, regardless of whether the decline in market value below cost is
considered permanent or temporary
b. Market value, only if the decline in market value below cost in considered permanent
c. Carrying amount, if the decline in market value below cost is considered temporary
d. Carrying amount, regardless of whether the decline in market value below cost is
considered permanent or temporary

6. A statement of Financial Position for the Zejome partnership divided its profit or loss as the
ration of 50:25:25 for partners Ze, Jo and Me, respectively show the following balances just
before liquidation:
Cash P 648,000
Other Assets 3,213,000
Liabilities 1,080,000
Ze, Capital 1,188,000
Jo, Capital 837,000
Me, Capital 756,000
On the first month of liquidation, certain assets are sold for P 1,728,000. Liquidation expense
of P54,000 are paid, and liquidation expenses are anticipated. Liabilities are paid amounting
to 291,600 and sufficient cash is retained to insure the payment to creditors before making
payments to partners. On the first payment to partners, Partner Z receives P337,500.
a. 9,030,400 b. 788,400 c. 808,400 d. 1088,000 e. 162,000

7. On January 1, 2007, Wren Company leased a building to Brill under an operating lease for
ten years at P500,000 per year, payable the first day of each lease year. Wren paid P150,000
to a real estate broker as finder’s fee. The building is depreciated P120,000 per year. For
2007, Wren incurred insurance and property tax expense totaling P90,000. Wren’s net rental
income for 2007 should be
a. 275,000
b. 290,000
c. 350,000
d. 365,000

8. It is a lease that transfers substantially all the risks and rewards incident to ownership of an
asset.
e. Finance lease
f. Operating lease

a. I only
b. II only
c. Both I and II
d. Neither I nor II
 9. On January 1, 2007, Colt Company issued ten-year bonds with a face amount of P5,000,000
and a stated interest rate of 8% payable annually on January 1. The bonds were priced to
yield 10%. Present value factors are as follows:

Present value of 1 for 10 periods at 10% 0.3855

Present value of an ordinary
Annuity of 1 for 10 periods at 10% 6.145

The total issue price of the bonds was

a. 5,000,000
b. 1,927,500
c. 5,614,500
d. 4,385,500

10. In reconciling the Cash in Bank of Inner Company with the bank statement balance for the
month of November 2008, the following data are summarized:

Book debits for November, including October CM

for note collected, P60,000 P800,000
Book credits for November, including NSF of P20,000
and service charge of P800 for October 620,000
Bank credits for November including CM for November
for bank loan of P100,000 and October deposit in transit
for P80,000 700,000
Bank debits for November including October outstanding
checks of P170,800 and November service charge of P200 600,000

What is the amount of outstanding checks for November?

a. P 20,000 b. P 170,200 c. P171,000 d. P191,000
DIFFICULT

1. Mikee manufacturing acquired a new milling machine on April 1, 2003. The machine has a
special component that requires replacement before the end of the useful life. The asset was
originally recorded in two accounts, one representing the main unit and the other for the
special component. Depreciation is recorded by the straight-line method to the nearest month,
residual values being disregarded. On April 1, 2009, the special component is scrapped and is
replaced with a similar component. This component is expected to have a residual value of
25% of cost at the end of useful life of the main unit, and because of the materiality, the
residual value will be considered in calculating depreciation. Specific asset information is as
follows:

Main milling machine

Purchase price in 2003 P 62,400
Residual value 4,400
Estimated useful life 10 years

First special component

Purchase price P 10,000
Residual value 250
Estimated useful life 6 years

Second special component

Purchase price 15,250

What is the depreciation charge to be recognized for the year 2009?

a. P 8,800 b. P6,775 c. P5,930 d. P9,100 e. 7,907

2. Michael Co. engaged your services to compute the goodwill in the purchased of Romel Co.
which provided the following:
Year Net Income Net Assets
2006 P1,400,000 P6,000,000
2007 1,600,000 8,000,000
2008 2,000,000 8,800,000
2009 2,200,000 9,200,000

Goodwill is measured by capitalizing excess earnings at 25% with the normal return on
average net assets at 15%. The purchase price of Rommel Co. is ___________________
a. 11,200,000 b. 11,600,000 c. P11,000,000d.10,600,000
3. Aianleah partnership’s balance sheet at December 31,2009 reported the following:
Total Assets P300,000
Total Liabilities 60,000
Aian, Capital 120,000
Leah, Capital 120,000

On January 2, 2009 Aianleah dissolved the partnership and transferred all assets and
liabilities to a newly formed corporation. At the date of incorporation, the fair value of the net
assets was P36,000 more than the carrying amount of the partnership on the partnership
books, of which 21,000 was assigned to tangible and 15,000 to intangible assets. Aian and
Leah were each issued 7,000 shares of the corporation’s P15 par value common stock.
Immediately following incorporation, APIC should be _____________

4. On January 1, 2009, Philip Company sold equipment with a carrying amount of P800,000 to
Ariel Company. As payment, Ariel gave Philip Company a P 1,200,000 note. The note bears
an interest of 5% and is to be repaid in the three annual installments of P 400,000 (plus
interest on the outstanding balance). The first payment was received on December 31,2009.
The market price of the equipment is not reliably determinable. The prevailing rate of interest
for the note of this type is 10%. (Round off PV factor to four decimal places and your final
answer to the nearest peso)
The interest income to be recognized in 2010 is _____________________

5. On January 1, 2007 , Celocia Company granted 100 shares option each to 500 employees,
conditional upon the employee’s remaining in the company’s employ during the vesting
period. The share options vest at the end of a three-year period. On the grant date, each share
option vest has a fair value of P30. The par value per share is 100 and the option price is
P120.

On December 31, 2008, 30 employees have left and it is expected that on the basis of
weighted average probability, a further 30 employees will leave before the end of the three-
year period. On December 31,2009, only 20 employees actually left and all of the share
options are exercised on such date.

How much is the compensation expense that should be recognized for the year 2009?
___________________________

6. The work in process inventory of Napurdoy Co. was completely destroyed by fire on June
1,2009. You were able to establish physical inventory figures as follows:
Jan. 1, 2009 June 1, 2009
Raw Materials P60,000 P120,000
Work in process 200,000 -
Finished Goods 280,000 240,000
Sales from January 1 to May 31 were P 546,750. Purchase of raw materials were P 200,000
and freight on purchases, P30,000. Direct labor during the period was P160,000. It was
agreed with insurance adjusters that an average gross profit rate of 35% based on cost be
used and that direct labor cost was 1605 of factory overhead.

The work in process destroyed by fire is ___________

7. Markova Co. started to manufacture in 2009 copy machines that are sold on the installment
basis. Markova recognized revenue when equipment is sold for financial reporting purposes,
and when installment payments are received for tax purposes. In 2009, Markova recognized
gross profit of P6,000,000 for financial reporting purposes and P1,500,000 for tax purposes.
The amounts of gross profit expected to be recognized for tax purposes in 2010 and 2011 are
P2,500,000 and P2,000,000, respectively. Markova guarantees the copy machines for two
years Warranty expense accrued in 2009 is P2,500,000 but only P 500,000 of warranty cost is
paid in 2009. It is expected that in 2010 and 2011, P 1,000,000 and P 1,000,000 respectively,
of warranty cost will be paid. In addition during 2009, P500,000 interest net of 20% final
income tax was received and earned, and a P100,000 insurance premium on life insurance
policies that covered the life of Markova’s president was paid. Markova is the beneficiary for
this policy. The tax rate is 35%. Pretax accounting income in 2009 was P2,000,000. Any net
operating loss will be carried to 2010.

What is the deferred tax asset on December 31,2009?__________________

8. On January 1, 2008, Alison Company issued its 10%, 5-year convertible debt instrument with
a face amount of P5,000,000 for P5,100,000. Interest is payable every December 31 of each
year. The debt instrument is convertible into 50,000 ordinary shares with a par value of P100.
When the debt instruments 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 total proceeds represent the equity component?

a. P100,000 b. P225,500 c. 283,059 d. 285,050

9. The following statements pertain to liabilities. Which statement is not valid?

a. Current liabilities should not offset against assets that are to be applied to their
liquidation
b. Unasserted claims should never be accrued because to do so would require a
company to implicitly admit liability
c. Commitment to make future purchases of raw materials should be accrued if losses
become probable and if the amount is reasonably estimable.
d. Estimated Liabilities should be accrued because they are known to exist and are only
uncertain as to amount.

10. An entity, cash basis taxpayer, prepares accrual basis financial statements. In its year-end
balance sheet, the entity’s deferred income tax liabilities increased compared to the prior
year. Which of the following changes would cause this increase in deferred tax liabilities?
g. An increase in prepaid insurance
h. An increase in rent receivable
i. An increase in warranty obligation

a. I only
b. I and II
c. II and III
d. III only
11. A public limited company, Sy Dairy Products, produces milk on its farms. As of January 1, 2009,
Sy has stocks of P2,000 cows (average age, 3 years old) and 200 heifers (average age, 2 years old).
Sy purchased 400 heifers, average 2 years old, on July 1, 2009. No animals were born or sold during
the period. The unit values less estimated point of sale cost were:

3-year old animal at December 31,2009 P5,000

2-year old animal at December 31, 2009 4,000
2-year old animal at July 1, 2009 and Jan. 1, 2009 3,500
3-year old animal at Jan. 1, 2009 4,500
2.5 year old animal at December 31, 2009 4,300
4-year old animal at December 31, 2009 5,700

Increase in value of Biological asset due to price change is ______________

a. P 1,300,000 b. P 3,020,000 c. P 1,720,000 d. P 2,520,000

12. An analysis of Pagbantay Inc. disclosed the increase (decrease) in account balances for 2009 and
the following supplement data:
Cash P21,000
Accounts Receivables 25,000
Inventory (10,000)
Equipment 70,000
Accounts Payable (5,000)

 Sold 5,000 shares, P5 par stock at P8 per share, received cash in full
 Paid dividends of P15,000 during the year
 Borrowed P50,000 from the bank and made interest payments of P5,000 and Johnson
had no other loan payments
 Interest payable at year end, P1,000
 Equipment donated during the year, P20,000 by the shareholders

Profit for the year 2009 is _______________

a. 10,000 b. 15,000 c. 20,000 d. 25,000
ANSWERS:

EASY
1. B
2. PROVISION
3. C
4. B
5. A
6. C
7.
8. C
9. 320
10.142,000

AVERAGE
1. D
2. D
3. C
4. C
5. A
6. E
7. A
8. A
9. D
10. 170,000

DIFFICULT
1. A
2. B
3. 66,000
4.
5. 720,000
6.
7.
8. C
9. B
10.B

11. A
12. B