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Business Law
2. S and ABC Corporation entered into a “Deed of Sale of Shares of Stock” for the
acquisition of S of 1,000 of the unissued shares of the latter at P100.00 par value per
share. S was to give a down payment of 50% with the balance to be paid after 30 days.
What kind of contract was entered into between S and ABC Corporation?
a. Contract of Sale
b. Contract of purchase
c. Contract of subscription
d. Some other contract
Answer: a (p.782-783)
4. The partnership will bear the risk of the loss of the three things except
a. Things contributed to be sold.
b. Fungible things or those which cannot be kept without deteriorating.
c. Things contributed so that their only use and fruits will be for the common
benefit.
d. Things brought and appraised in the inventory.
Answer: b
Answer: c
10. Refer to the preceding number. Assume that Afable resigned after one year and three
months in office and Modena was elected to replace him. What is the term of office of
Madena?
a. One year
b. One year and nine months
c. One year and three months
d. Three years
1. President X of WXY Corporation requested you to explain the difference in net income
between the variable costing income statement presentation and the absorption method.
You would say that the difference:
a. is none if there is no change in the fixed costs in the beginning and ending
inventories
b. is equal to the fixed cost per unit times the number of units sold
c. is attributable to the variable costs in the inventory
d. is attributable to the fixed cost in ending inventory
4. Given the following events, which affect cash flows from operations?
(1) Cash sale
(2) Cash dividends paid
(3) Purchase of long-term debt
(4) Purchase of inventory
(5) Paid employees
a. 1 and 5
b. 1, 3, 4, and 5
c. 1, 2, and 5
d. 1, 4 and 5
6. Which of the following cost allocation methods would be use to determine the lowest
price that could be quoted for a special order that would utilize the capacity within a
production area?
a. Job order
b. Standard
c. Variable
d. Process
7. CGW Corporation sells product T at a unit price of P5 deriving annual gross sales of
P500,000. The variable cost to produce T is P4.50 per unit and total fixed cost is P10,000.
If CGW increases T’s unit price to P8 a decrease of sales to only 4,000 units would
result. The effect of the price increase on CGW’s net income from sales of product T will
be
a. 9,000 increase
b. 18,000 decrease
c. 4,000 decrease
d. no effect
Answer: a (p. 436-437)
Inscrease in USP (P3 x 4,000 units) P12,000
Decrease in volume (P0.50 X 6,000 units) 3,000
Net increase in profit P 9,000
8. On December 31, 2013, Pagudpod Company collected a receivable due from a major
customer. Which of the following ratios would be increased by this transaction?
a. Inventory turnover ratio
b. Quick ratio
c. Receivable turnover ratio
d. Current ratio
9. The following computations were made from Flappy Bird company’s 2013 books
Number of days in inventory 61
Number of days sales in trade accounts receivable 33
What was the number of days in Flappy Bird’s 2013 operating cycle?
a. 33
b. 94
c. 61
d. 47
10. The net present value of a proposed project is negative therefore, the discount rate must
be
a. Less than the project’s internal rate of return
b. Less than the risk free rate
c. Greater than the firm’s cost of equity
d. Greater than the project’s internal rate of return
Advance Accounting
Answer: d (p.269)
2. On September 30, 2013, Criselda’s, Inc. received from Ambo P550,000 representing
franchise fee. Franchise services were immediately started by Criselda’s and these were
contemplated on October 31, 2013 at cost amounting to P330,000. The franchise fee
revenue to be reported by Criselda’s in its October 31, 2013 income statement?
a. 0
b. 137, 500
c. 220,000
d. 550,000
3. For financial statement purposes, the instalment method of accounting may be used if the:
a. Collection period extend over more than 12 months.
b. Instalments are due in the different years.
c. Ultimate amount collectible is indeterminate.
d. Percentage of completion is inappropriate.
4. Drew Co. produces expensive equipment for sale on instalment contracts. When there is
doubt about eventual collectability, the income recognition method least likely to
overstate income is:
a. At the time the equipment is completed
b. The instalment method
c. The cost recovery model
d. at the time of delivery
5. According to the cost recovery method of accounting, gross profit on an instalment sale is
recognized as income:
a. after cash collections equal to the cost of sales have been recived
b. in proportion to the cash collections
c. on the date the final cash collection is received
d. on the date of sale
7. Which of the following would be used in the calculation of the income recognized in the
fourth and final year of a contract accounted for by the percentage-of-completion
method?
Actual total Costs Income previously recognized
a. Yes Yes
b. Yes No
c. No Yes
d. No No
Answer: d (p.245)
9. Jenny Construction Co. has two projects which it reported, as of December 31, 2009, the
following information:
In thousand pesos: Project A Project B
Contract Price P4,800 P860
2013 Cost incurred P3,400
% completed 75%
2014 Cost incurred P1,250 P140
% completed 25% 15%
Using the percentage completion method of revenue recognition, gross profit on Project
A to be recognized in 2013 would be:
a. P200,000
b. 300,000
c. 400,000
d. 900,000
10. Gema, Inc. began operations on January 1, 2013 and appropriately uses the instalment
method of accounting. The following data are available for 2013:
Instalment accounts receivable, 12/31/3013 P600,000
Instalment sales for 2008 1,050,000
Gross profit on sales 40%
Under the instalment method, Gema’s deferred gross profit at December 31, 2013 would
be:
a. P360,000
b. 270,000
c. 240,000
d. 180,000
Practical Accounting 1
What total amount should be included as related party disclosures in Faith’s 2013
financial statements?
a. 5,000,000
b. 3,000,000
c. 2,000,000
d. 0
Answer: a
PAS 24, par. 16 requires the disclosure of key management personnel.
The sales to affiliated entities shall be disclosed in Faith’s separate financial statements
but eliminated in consolidated financial statements.
2. The following information was taken from Kay company’s accounting records for the
current year:
There was no work in process inventory at the beginning or ending of the year. What is
the cost of goods sold for the current year?
a. P 9,500,000
b. P 9,650,000
c. P 9,750,000
d. P 9,950,000
Answer: a
[(4,300,000 – 150,000) + 2,000,000 + 3,000,000] – 350,000 = 9,500,000
3. On January 1, 2013, an SME acquired, free of charge, a herd of 100 cattle by way of
government grant when the fair value of the herd was P1,000,000. On average the
remaining life of the cattle is expected to be 10 years. The grant does not impose future
performance conditions on the entity. What amount of income from the government grant
should be recognized in 2013?
a. 100,000
b. 500,000
c. 1,000,000
d. 0
Answer: c
Under PFRS for SMEs, a grant that does not impose specific future performance
conditions is recognized in income when the grant is receivable.
4. Grace Company factored P5,000,000 of its accounts receivable. The transfer is recorded
as a sale by Grace Company. The factored retained 8% for sales adjustments and charged
P300,000 as a financing fee. For simplicity, the assumed and actual amounts of the
following items are equal:
a. 300,000
b. 400,000
c. 350,000
d. 650,000
Answer: a
Loss on factoring – finance fee
5. At the beginning of the current year, Love Company exchanged an old machine, with a
book value of P390,000 and a fair value of P350,000, and paid cash for another used
machine having a list price of P500,000. At what amount should the machine acquired in
the exchange be recorded on the books of Bell?
a. 350,000
b. 450,000
c. 460,000
d. 500,000
Answer: b
6. During 2013, Hope Company had outstanding 200,000 ordinary shares and 20,000 shares
of cumulative preference share capital with a P10 per share dividend. Each preference
share is convertible into five ordinary shares. Hope had a P3,000,000 net loss for 2013.
No dividends were paid or declared. What is the amount of basic loss per share?
a. 15.00
b. 16.00
c. 10.00
d. 10.67
Answer: b
7. Humility Company provides postretirement health care benefits to employees who have
completed at least ten years of service and are aged 55 years old or older when retiring.
Employees retiring have a medium size age 65. An employee is hired at 48 years old. The
attribution period for accruing the expected postretirement health care benefit obligation
to the employee is aged
a. 48 – 65
b. 48 – 58
c. 55 – 65
d. 55 – 62
Answer: b
The beginning attribution period is the date of hire. On such date, the employee is 48
years old. The end of the attribution period is after completing the minimum ten-year-
service. On such date the employee is 58 years old.
8. On December 1 of the current year, Purity Company received a donation of 2,000 shares
with P50 par value from a shareholder. On that date, the market value was P350. The
shares were originally issued for P250 per share.
a. 700,000
b. 500,000
c. 200,000
d. 0
Answer: d
Donated shares are recorded by means of a memorandum entry only.
9. Kindness Company, a publicly owned entity, assesses performance and makes operating
decisions using the following information for its reportable segments:
The total profit/loss included intersegment profit of P61,000. In addition, Purity has
P5,000 of common costs for its reportable segments, that are not allocated in reports
viewed by the chief operating decision maker.
a. 350,000
b. 345,000
c. 411,000
d. 406,000
10. Friendship Company on adaptation of PAS 41 has reclassified certain assets as biological
assets. The total value of the forest assets is P6,000,000 which comprises:
In Friendship Company’s statement of financial position, what total amount of the forest
assets shall be classified as biological assets?
a. 5,100,000
b. 5,700,000
c. 5,400,000
d. 6,000,000
Answer: a
Auditing Theory
1. Internal auditors should review the means of physically safeguarding assets from losses
arising from
a. Exposure to elements
b. Underusage of physical facilities
c. Misapplication of accounting principles
d. Procedures that are not justified
Answer: a
2. Which of the following services, if any, may a practitioner who is not independent
provide?
a. Compilations but not review
b. Reviews but not compilations
c. Reviews but not financial statements
d. Agreed-upon procedures but not compilations
Answer: a
3. The auditor may accept or continue an audit engagement only when the basis upon which
is to be performed has been agreed upon, through
I. Establishing whether the preconditions for an audit are present
II. Confirming that there is a common understanding between the auditor and
management and, where appropriate, those charged with governance of
the terms of the audit management
a. I only
b. II only
c. Both I and II
d. Neither I nor II
Answer: c
4. In assessing control risk for the purchasing cycle, the auditor will be least influenced by
a. The effectiveness of controls in other cycles
b. The existence within the purchasing cycle of internal control strengths that offset
weaknesses
c. The audit work performed in the purchasing cycle by the company’s internal
auditor
d. The availability of a company manual describing policies and procedures for the
purchasing cycle
Answer: a
5. Which of the following is not an auditor’s expert upon whose work an auditor may rely?
a. Actuary
b. Engineer
c. Appraiser
d. Internal Auditor
Answer: d
6. In conducting an audit in accordance with PSAs, the auditor is required to identify and
assess the risks of material misstatement at the financial statement level, and at the
assertion level for classes of transactions, account balances, and disclosures. Some of
these risks, in the auditor’s judgement, require special audit consideration, such as those
that involve fraud or complex transactions. Such risks are called
a. Business risks
b. Audit risks
c. Significant risks
d. Material risks
Answer: c
Answer: a
8. A sound internal control procedure should require that defective merchandise returned by
customers be presented initially to the
a. Receiving clerk
b. Accounts receivable supervisor
c. Billing Clerk
d. Shipping department supervisor
Answer: a
Answer: b
Answer: a