1.

During 2016, Foster Company appropriately changed to FIFO method from the weighted method for financial
statement and income tax purposes. The change will result in P150,000 increase in the beginning inventory on
January 1, 2016. The tax rate is 30%. What is the prior period specific effect of this accounting change?
a. 150,000
b. 105,000
c. 45,000
d. 0

2. On January 1, 2014, Brazilia Company purchased for P4,800,000 a machine with a useful life of ten years and a
residual value of P200,000. The machine was deprecated by the double declining and the carrying amount of the
machine was P3,072,000 on December 31,2015. The entity changed to the straight line method on January 1,
2016. The residual value did not change. What is the depreciation expense on this machine for the year ended
December 31,2106?
a. 287,200
b. 384,000
c. 460,000
d. 359,000

3. Samar Company reported the following events during the year ended December 31,2017:
 A counting error relating to the inventory on December 31,2016 was discovered.
 This required a reduction in the carrying amount of inventory at that date of P280,000.
 The provision for uncollectible accounts receivable on December 31,2016 was P300,000.
 During 2017, P500,000 was written off related to the December 31,2016 accounts receivable.
What adjustment is required to restate retained earnings on January 1,2017?
a. 280,000
b. 300,000
c. 580,000
d. 0

4. On January 1,2016 Raven Company discovered that it had incorrectly expensed a P2,100,00 machine purchased
on January 1,2013. The entity estimated the machine’s original useful life to be ten years and the residual value
at P100,000. The entity used the straight line method of depreciation and is subject to a 30% income tax rate. In
December 31,2016 financial statements, what amount should be reported as a prior period error?
a. 1,659,000
b. 1,029,000
c. 1,050,000
d. 1,680,000

5. On December 31,2016, Astor Company sold merchandise for P750,000 to Day Company. The terms of the sale
were net 30, FOB shipping point. The merchandise was shipped on December 31,2016, and arrived at Day on
January 5,2017. Due to a clerical error, the sale was not recorded until January 2017 and the merchandise sold
at a 25% mark up on cost was included in inventory on December 31,2016. What was the effect of the errors on
cost of goods sold for 2016?
a. Understated by P750,000
b. Understated by 600,000
c. Understated by 150,000
d. Correctly stated
6. Victoria Company revealed the following:
Ending inventory Depreciation
2015 200,000 understated 50,000 understated
2016 300,000 overstated 90,000 overstated
At what amount should retained earnings be retroactively adjusted on January 1,2107?
a. 260,000 increase
b. 260,000 decrease
c. 410,000 decrease
d. 210,000 decrease

7. Henson Company had determined the 2015 and 2016 net income to be P4,000,000 and 5,000,000, respectively.
In a first time audit of the financial statements, the following errors are discovered:
 Merchandise inventory was incorrectly determined – P50,000 overstatement for 2015 and P150,000
overstatement for 2016
 Revenue received in advance in 2015 of 300,000 was credited to a revenue when received.
Of the total, P50,000 was earned in 2015, 200,000 was earned in 2016 and the remainder will be earned in
2017.
 P400,000 gain on sale of equipment in 2016 was erroneously credited to retained earnings.
What is the corrected net income 2016?
a. 5,500,000
b. 5,450,000
c. 5,400,000
d. 5,550,000

8. Galaxy Company provided the following information:

2017 2016
Revenue 1,350,000 1,000,000
Expenses 980,000 650,000
Net income 370,000 350,000

Total assets 1,570,000 1,050,000

Total liabilities 500,000 350,000
Total equity’s 1,070,000 700,000

The entity failed to record P120,000 of accrued wages at the end of 2016. The wages were recorded and paid in
January 2017. The correct accruals were made on December 31,2017.
What is the corrected net income for 2017?

9. After the issuance of the 2016 financial statements, Narra Company discovered a computational error of
P150,000 in the calculation of December 31,2016 inventory. The error resulted in a 150,000 overstatement in
the cost of goods sold for the year ended December 31,2016. In October 2017, the entity paid the amount of
P500,000 in settlement of litigation instituted against it during 2016. In the financial statements for 2017, what is
the pretax adjustment of the retained earnings on January 1,2017?
a. 150,000 credit
b. 350,000 debit
c. 500,000 debit
d. 650,000 credit

10. On January 1,2012, Roma Company purchased equipment for P4,000,000. The equipment has a useful life of ten
years and a residual value of P400,000. On January 1,2016, the entity determined that useful life of the
equipment was twelve years from the date of acquisition and the residual value was 460,000. What is the
depreciation of the equipment for 2016?