St.

Anthony’s College Business Education Department

San Jose de Buenavista, Antique 2 nd Semester, A.Y. 2019-2020
FINAL EXAMINATION AEC 217-INTERMEDIATE ACCOUNTING III

I. MULTIPLE CHOICE. Select the best answer. Write the LETTER of your answer on a sheet of paper.
Deadline is on or before June 7, 2020.(2pts each)
1. Of the following questions, which one would NOT be answered by the statement of cash flows?
a. Where did the cash come from during the period?
b. What was the cash used for during the period?
c. Were all the cash expenditures of benefit to the company during the period?
d. What was the change in the cash balance during the period?

2. The statement of financial position data of Big Hit Company at the end of 2019 and 2018 follow:
2019 2018
Cash P 100,000 P 140,000
Accounts receivable (net) 240,000 180,000
Inventory 280,000 180,000
Prepaid expenses 40,000 100,000
Buildings and equipment 360,000 300,000
Accumulated depreciation—buildings and equipment (72,000) (32,000)
Land 360,000 160,000
Totals P 1,308,000 P 1,028,000

Accounts payable P 272,000 P 220,000

Accrued expenses 48,000 72,000
Notes payable—bank, long-term 160,000
Mortgage payable 120,000
Common stock, P10 par 936,000 636,000
Retained earnings (deficit) 32,000 (60,000)
Total P 1,308,000 P 1,028,000
Land was acquired for P200,000 in exchange for common stock, par P200,000, during the year; all
equipment purchased was for cash. Equipment costing P20,000 was sold for P8,000; book value of the
equipment was P16,000 and the loss was reported as an ordinary item in net income. Cash dividends of
P40,000 were charged to retained earnings and paid during the year; the transfer of net income to
retained earnings was the only other entry in the Retained Earnings account. In the statement of cash
flows for the year ended December 31, 2019, for Big Hit Company, the net cash provided by operating
activities was
a. P 104,000
b. P132,000
c. P112,000
d. P96,000.
3. Using the same information in No.2, the net cash provided (used) by investing activities was
a. P52,000
b. P(80,000)
c. P(272,000)
d. P(72,000)
4. Using the same information in No.2, the net cash provided (used) by financing activities was
a. P 0
b. P(40,000)
c. P(80,000)
d. P120,000

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St. Anthony’s College Business Education Department
San Jose de Buenavista, Antique 2 nd Semester, A.Y. 2019-2020
FINAL EXAMINATION AEC 217-INTERMEDIATE ACCOUNTING III

5. The notes to financial statements should NOT be used to

a. Describe significant accounting policies
b. Describe depreciation method employed
c. Describe the principles and methods peculiar to the industry in which the entity operates
d. Correct an improper presentation in the financial statements
6. Notes to financial statements
a. Are relatively unimportant facts
b. Document the source of financial statement facts
c. Are an integral part of financial statements
d. Are irrelevant and immaterial facts
7. Which of the following should be included in the summary of significant accounting policies?
a. Property, plant and equipment recorded at cost with the depreciation computed principally by
straight line method
b. A business component was sold during the current year
c. Breakdown of sales attributable to business components
d. Future ordinary share dividends are expected to approximate sixty percent of earnings
8. Which of the following is correct about interim reporting?
a. All entities that issue an annual report must issue interim financial report.
b. The integral view is the more appropriate approach in preparing interim financial report.
c. A complete set of financial statements must be presented for an interim period.
d. The same accounting principles used for the annual report should be employed for the interim
report.
9. Interim financial reporting should be viewed as
a. useful if activity is spread evenly through the year
b. if the interim period were an annual accounting period
c. reporting for an integral part of an annual period
d. a special type of reporting that need not follow GAAP
10. BTS Company reported the following income statement for the current year:
Sales 6,000,000
Cost of goods sold 2,800,000
Gross income 3,200,000
Gain on sale of equipment 100,000
Total income 3,300,000
Operating expenses (500,000)
Casualty Loss (300,000)
Income before tax 2,500,000
Additional Information:
 Third quarter sales were 30% of total sales
 For interim reporting purposes, a gross profit rate of 40% can be justified
 Variable operating expenses are allocated in the same proportion as sales
 Fixed operating expenses are allocated based on the expiration of time
 Of the total operating expenses, P400,000 relate to variable expenses and P100,000 related to fixed
expenses
 The equipment was sold on June 1
 The casualty loss occurred on September 1
What amount should be reports as income before tax for the third quarter ended September 30?
a. 275,000
b. 375,000

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St. Anthony’s College Business Education Department
San Jose de Buenavista, Antique 2 nd Semester, A.Y. 2019-2020
FINAL EXAMINATION AEC 217-INTERMEDIATE ACCOUNTING III

c. 500,000
d. 300,000
11. At the beginning of the current year, Jimin started a retail merchandising business. During the current
year, the business paid trade creditors P2,000,000 in cash and suffered a net loss of P350,000. The ledger
preclosing balances at year-end included the following:
Accounts Receivable 600,000
Accounts Payable 750,000
Capital (total investment in cash) 2,000,000
Expenses (paid in cash) 100,000
Merchandise (unadjusted debit balance) 700,000
There were no withdrawals. All sales and purchases were on credit. The merchandise account is debited
for purchases and credited for sales. What is the amount of sales for the year?
a. 2,750,000
b. 2,050,000
c. 2,650,000
d. 700,000
12. Using the same information in No. 11, what is the cash balance at year-end?
a. 1,350,000
b. 2,000,000
c. 1,450,000
d. 3,450,000
13. Using the same information in No. 11, what is the merchandise inventory at year-end?
a. 700,000
b. 450,000
c. 750,000
d. 0
14. Accrual accounting adheres to which of the following?
a. Materiality Principle and Conservatism Principle
b. Time Period and Consistency
c. Matching Principle and Historical Cost Principle
d. Full Disclosure and Objectivity Principle

15. Jin Company provided the following selected accounts, cash receipts and disbursements for the current
year:
December 31 January 1
Accounts Receivable 250,000 300,000
Notes Receivable 150,000 100,000
Accounts Payable 120,000 160,000
Notes Payable 200,000 150,000
Prepaid Insurance 30,000 10,000
Cash Receipts for current year:
Cash sales 500,000
Collections of accounts receivable, net of discounts of P40,000 1,800,000
Collections of notes receivable 80,000
Bank loan – one year, dated December 31 100,000
Purchase returns and allowances 60,000
Cash Disbursements for current year:
Cash purchases 130,000
Payments on accounts payable, net of discounts of P20,000 1,500,000
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St. Anthony’s College Business Education Department
San Jose de Buenavista, Antique 2 nd Semester, A.Y. 2019-2020
FINAL EXAMINATION AEC 217-INTERMEDIATE ACCOUNTING III
Payments on notes payable 400,000
Insurance 220,000
Other expenses 650,000
Sales returns and allowances 50,000
Under the accrual basis, what is the amount of gross sales for the current year?
a. 2,420,000
b. 2,470,000
c. 1,920,000
d. 1,970,000
16. Using the same information in No. 15, what is the amount of gross purchases for the current year?
a. 1,960,000
b. 2,020,000
c. 1,830,000
d. 1,890,000
17. An entity recently moved to a new building. The old building is being actively marketed for sale in four
months. Which statement is INCORRECT regarding the old building?
a. It will be classified as an asset held for sale.
b. It will be classified as a current asset.
c. It will no longer be depreciated.
d. It will be measured at historical cost.
18. V Company purchased an equipment for P5,000,000 on January 1, 2019. The equipment has a useful life
of 5 years with no residual value. On December 31, 2019, the entity classified the equipment as held for
sale. On such date, the fair value less cost to disposal of the equipment was P3,500,000. On December 31,
2020, the entity believed that the criteria for classification as held for sale can no longer be met.
Accordingly, the entity decided not to sell the equipment but to continue to use it. On December 31, 2020,
the fair value less cost of disposal of the equipment was P2,700,000. How should the equipment be
reported on December 31, 2020?
a. 2,700,000
b. 1,800,000
c. 2,000,000
d. 3,000,000
19. RM Company has two divisions, North and South. Both qualify as business components. In 2019, the entity
decided to dispose of the assets and liabilities of division South and it is probable that the disposal will be
completed early next year. The revenue and expense of RM Company are as follows:
2019 2018
Sales-North 5,000,000 4,600,000
Total non-tax expenses-North 4,400,000 4,100,000
Sales-South 3,500,000 5,100,000
Total non-tax expenses-South 3,900,000 4,500,000
During the later part of 2019, the entity disposed of a portion of division South and recognized a pretax
loss of P2,000,000 on the disposal. What amount should be reported as pretax loss from discontinued
operations in 2019?
a. 2,000,000
b. 2,400,000
c. 1,400,000
d. 1,600,000
20. Accounting changes are often made and the monetary impact is reflected in the financial statements of a
company even though, in theory, this may be a violation of the accounting concept of
a. Materiality
b. Consistency

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St. Anthony’s College Business Education Department
San Jose de Buenavista, Antique 2 nd Semester, A.Y. 2019-2020
FINAL EXAMINATION AEC 217-INTERMEDIATE ACCOUNTING III
c. Conservatism
d. Objectivity

21. Suga Company changed its method of pricing inventories from LIFO to FIFO. What type of accounting
change does this represent?
a. A change in accounting estimate for which the financial statements for prior periods included for
comparative purposes should be presented as previously reported.
b. A change in accounting principle for which the financial statements for prior periods included for
comparative purposes should be presented as previously reported.
c. A change in accounting estimate for which the financial statements for prior periods included for
comparative purposes should be restated.
d. A change in accounting principle for which the financial statements for prior periods included for
comparative purposes should be restated.
22. The equipment was purchased at the beginning of 2017 for P340,000. At the time of its purchase, the
equipment was estimated to have a useful life of six years and a salvage value of P40,000. The equipment
was depreciated using the straight-line method of depreciation through 2019. At the beginning of 2020,
the estimate of useful life was revised to a total life of eight years and the expected salvage value was
changed to P25,000. The amount to be recorded for depreciation for 2020, reflecting these changes in
estimates, is
a. P20,625
b. P33,000
c. P38,000
d. P39,375
23. An example of a correction of an error in previously issued financial statements is a change
a. from the LIFO method of inventory valuation to the FIFO method
b. in the service life of plant assets, based on changes in the economic environment
c. from the cash basis of accounting to the accrual basis of accounting
d. in the tax assessment related to a prior period
24. J-Hope Inc. is a calendar-year corporation. Its financial statements for the years ended December 31, 2018
and December 31, 2019 contained the following errors:
2018 2019
Ending inventory P20,000 overstatement P32,000 understatement
Depreciation expense P8,000 understatement P16,000 overstatement
Assume that the 2018 errors were not corrected and that no errors occurred in 2017. By what amount will
2018 income before income taxes be overstated or understated?
a. P28,000 overstatement
b. P12,000 overstatement
c. P28,000 understatement
d. P12,000 understatement

25. Using the same information in No. 24, assume that no correcting entries were made at December 31,
2018, or December 31, 2019. Ignoring income taxes, by how much will retained earnings at December 31,
2019 be overstated or understated?
a. P32,000 overstatement
b. P28,000 overstatement
c. P40,000 understatement
d. P12,000 understatement

26. The following statement of financial position was prepared by the bookkeeper for Big Hit Company as of
December 31, 2019.
Big Hit Company
Balance Sheet
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St. Anthony’s College Business Education Department
San Jose de Buenavista, Antique 2 nd Semester, A.Y. 2019-2020
FINAL EXAMINATION AEC 217-INTERMEDIATE ACCOUNTING III
As of December 31, 2019

Cash P 85,000 Accounts payable P 90,000

Accounts receivable (net) 52,200 Long-term liabilities 100,000
Inventory 57,000 Stockholders' equity 218,500
Investments 76,300
Equipment (net) 106,000
Patents 32,000 ______
P 408,500 P 408,500
The following additional information is provided:
 Cash includes the cash surrender value of a life insurance policy P9,400, and a bank overdraft of
P2,500 has been deducted
 The net accounts receivable balance includes:
(a) Accounts receivable—debit balances P60,000
(b) Accounts receivable—credit balances P4,000
(c) Allowance for Doubtful Accounts P3,800
 Inventory does not include goods costing P3,000 shipped out on consignment. Receivables of P3,000
were recorded on these goods.
 Investments include investments in common stock, trading P19,000 and available-for-sale P48,300,
and franchises P9,000
 Equipment costing P5,000 with accumulated depreciation P4,000 is no longer used and is held for
sale. Accumulated depreciation on the other equipment is P40,000.
How much is the correct amount of total current assets?
a. P210,300
b. P220,700
c. P219,700
d. P211,300
27. Using information in No. 26, how much is the correct amount of total noncurrent assets?
a. P204,700
b. P194,300
c. P195,300
d. P203,700
28. Using information in No. 26, how much is the correct amount of total current liabilities?
a. P94,000
b. P196,500
c. P96,500
d. P0
29. Using information in No. 26, how much is the correct amount of total noncurrent liabilities?
a. P102,500
b. P196,500
c. P100,000
d. P0
30. Using information in No. 26, how much is the correct amount of total stockholder’s equity?
a. P212,500
b. P217,500
c. P205,600
d. P218,500
END
Prepared by: Approved:

MISS AIZA C. ALOJAMIENTO, CPA MRS. MA. ADELA LUDOVINA V. EVANGELIO, CPA, MMBM
Instructor Dean, Business Education Department
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St. Anthony’s College Business Education Department
San Jose de Buenavista, Antique 2 nd Semester, A.Y. 2019-2020
FINAL EXAMINATION AEC 217-INTERMEDIATE ACCOUNTING III

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St. Anthony’s College Business Education Department
San Jose de Buenavista, Antique 2 nd Semester, A.Y. 2019-2020
FINAL EXAMINATION AEC 217-INTERMEDIATE ACCOUNTING III

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AEC 217- INTERMEDIATE ACCOUNTING III
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St. Anthony’s College Business Education Department
San Jose de Buenavista, Antique 2 nd Semester, A.Y. 2019-2020
FINAL EXAMINATION AEC 217-INTERMEDIATE ACCOUNTING III