SUMMER REVIEW SESSION NO.

5
Financial Accounting 1- Review Materials

1 During 2014, Rising Sun Company paid P 700,000 and exchanged an equipment which has a carrying amount of P 2,000,000 and
a fair value of P 2,100,000 for another equipment in the same line of business with fair value of P 2,800,000.

If the exchange lacks the necessary commercial substance, Rising Sun Company should record the inventory at:

a. P 2,000,000 b. P 2,700,000 c. P 3,800,000 d. P 2,900,000

2 Visage started constructing a building for its own use in January 2014. During 2014, Visage incurred interest of P 75,000 related
to the building construction and P 30,000 on the other borrowings. On the same year, the company incurred P 60,000 interest
computed in the weighted average amount of accumulated expenditures for the building.

How much interest cost should Visage capitalize?

a. P 30,000 b. P 60,000 c. P 75,000 d. P 105,000

3 The following transactions pertain to the general borrowings made during 2014 by Victory Company in connection with the
construction of the company’s new warehouse.

Principal Borrowing Cost

8% bank loan P 2,400,000 P 193,000

6% short-term note 1,600,000 96,000

8% long-term note 2,000,000 160,000

The construction started on January 1,2014 and the warehouse was completed on December 31, 2014. Expenditures on the ware
house were as follows:

January1 P 400,000 September 30 P 1,000,000

March 31 P 1,000,000 December 31 P 400,000

June 30 P 1,200,000

How much is the capitalizable borrowing cost of Victory Company?

a. None b. P 149,400 c. P 298,600 d. P 448,000

4 On December 31, 2014, Noah Company purchased a P 4,000,000 tract of land for a factory site. Noah razed an old building on
the property and sold the materials it salvaged from the demolition. Noah incurred additional costs and realized salvaged
proceeds during December 2014 as follows:

Demolition of Building P 300,000

Legal fees for purchased contract and recording 50,000

ownership

Title guarantee insurance 30,000

Proceeds from sale of salvaged materials 10,000

In its December 31, 2014 balance sheet, at what amount should the land be reported?
a. P 4,080,000 b. P 4,370,000 c. P 4,380,000 d. P 4,390,000

5 On January 2, 2012, Phosphorus Company acquired equipment to be used in its manufacturing operations. The equipment has
an estimated useful life of 10 years and an estimated salvage value of P 50,000. The depreciation applicable to this equipment
was P 240,000 for 2014 computed under the sum-of-years digit method.

What was the acquisition cost of the equipment?

a. P 1,650,000 b. P 1,700,000 c. P 2,400,000 d. P 2,450,000
 6 On March 1, 2012, Hopeful Company bought an equipment costing P 1,200,000. Hopeful’s depreciation policy is to depreciate
long-lived assets using the double-declining balance method. The equipment has an estimated useful life of 10 years with a
minimum amount of salvage value at the end of its useful life.

What is the carrying value of the asset as of December 31, 2014?

a. P 480,000 b. P 614,000 c. P 640,000 d. P 768,000

7 In January 2014, Taken Corporation paid the national government a fee in the amount of P 129,000,000 for an area of interest
with removable ore estimated by geological surveys at 4,320,000 tons. Taken Company is required by the national government
to restore the specific area of interest after the extraction of the estimated units of reserves. On January 1, 2014, the present
value og restoration costs discounted at 10% based on the expected 10 years the mineral reserves are extracted, is P 3,850,000.
The company incurred P 2,150,000 of development costs in preparing the property for the extraction of ore. During 2014,
540,000 tons were removed.

For the year ended December 31, 2014, how much amount of amortization should the company recognize?
a. P 6,966,000 b. P 7,082,100 c. P 7,173,000 d. P 7,290,000

8 Coward Company purchased a building on January 10, 2010 for a total of P 10,000,000. The building has been depreciated using
the straight-line method with a 25-year useful life and o residual value. As of January 1, 2014, Coward is evaluating the building
for possible impairment. The building has a remaining useful life of 15 years and is expected to generate cash inflows of P
450,000 per year. The estimated recoverable amount of the building on January 1, 2014 is P 5,310,000.

How much, if any, is the impairment loss that should be recognized on January 1, 2014
a. None b. P 2,100,000 c. P 3,090,000 d. P 5,200,000

9 What is the amount of depreciation to be recognized in year 2014?

a. P 340,000 b. P 354,000 c. P 400,000 d. P 560,000

10 Maiden Company has two cash-generating units, Yellow and Blue. There is no goodwill within the units’ carrying values. The
carrying values are Yellow P 10,000,000 and Blue P 15,000,000. Maiden Company has an office building that has not been
included in the above values and can be allocated to the units on the basis of their carrying values. The office building has
carrying value of P 5,000,000. The recoverable amounts are based on value-in-use of P 9,000,000 for Yellow and P 19,000,000
for Blue.

What amount of impairment loss should Maiden Company recognize n the cash-generating-unit Yellow?
a. None b. P 1,000,000 c. P 2,000,000 d. P 3,000,000

11 What amount of impairment loss should Maiden Company recognize on the cash-generating-unit Blue?

a. None b. P 1,000,000 c. P 2,000,000 d. P 3,000,000

12-15

BDO Checkbook balance P 15,000

BDO Bank Statement balance 18,000
BPI- payroll account 10,000
Time deposit. 5,000
Cash in sinking fund 50,000
Vouchers paid out of collections, not yet recorded 9,000
Treasury bill 7,000
Money market placement 5,000
RCBC Current account (including compensating balance of
P5, 000 legally restricted related to non-current liability) 45,000
Landbank Current account (including compensating balance of P10 ,000 not legally restricted) 25,000
Investment securities traded in PSE 19,000
Value Added Tax Account 4,000
Cash in foreign bank restricted due to exchange control 6,000
Change fund 13,000
Treasury bonds 15,000
Unrestricted foreign bank account in dollars (Current Exchange rate $1=P50) $3,000
Credit memo from a vendor for a purchase return 3,000
Traveler’s check 1,000
Customer’s NSF check 4,500
Petty cash fund (of which P 10,000 in the form of paid vouchers
and P3,000 IOUs signed by employees) 20,000

Cash balance, 12/31/17__________________Cash equivalents _________________Long-term Investments __________________

Other Non-current Assets________________Receivable ______________________Investment Securities____________________
Current Liability ________________________Current Assets__________________________

16. Which statement is incorrect regarding investment property?

a. Gains or losses arising from changes in the fair value of investment property must be included in net profit or
loss for the period in which it arises.
b. The cost of the purchased investment property includes its purchase price and any directly attributable expenditure
c. Transfer from investment property to property, plant, and equipment are appropriate only when the entity adopts
the fair value model under PAS 38.
d. Investment property includes property that is being constructed or developed for use as an investment property

17. Which statement is incorrect regarding PPE?

a. Items of PPE should be recognized as assets when it is probable that the future economic benefits associated
with the asset will flow to the enterprise and the cost of the asset can be measured reliably.
b. If an asset acquired in exchange for another asset is not measured at fair value, its cost is measured at the
carrying amount of the asset given up.
c. Depreciation is not recognized if the fair value of the asset exceeds its carrying amount, even if the asset’s
residual value does not exceed its carrying amount.
d. Depreciation should be charged to the income statement, unless it is included in the carrying amount of another
asset.

18. Choose the incorrect statement.

a. The objective of external financial statements is to communicate the economic effects of completed
transactions and other events in the entity.
b. The double-entry system of accounting has been used for centuries
c. General purpose financial statements were developed primarily because all outside users have the same
information needs.
d. The practiceof accounting requires considerable professional judgment.

18. Which of the following statements is correct?

a. The use of a general journal implies that there is no need for special journals.
b. Each subsidiary ledger has a related control account in the general journal.
c. Assume a company always records prepaid expenses as assets upon payment of cash, and deferred revenues as
liabilities upon receipt of cash. If this company records reversing entries, generally only adjusting entries for accrued
expenses and accrued revenues should be reversed.
d. All entries in the general journal are supported by details contained in the special journals.

20. The statement of changes in equity should disclose the following, except
a. total comprehensive income
b. capital transactions with owners and distributions to owners
c. effect of the change in an accounting estimate
d. effects of retrospective restatement

21. Which of the following expenditures would never qualify as an exploration and evaluation asset?
a. Expenditure for acquisition of rights to explore
b. Expenditure for exploratory drilling
c. Expenditures related to the development of mineral resources
d. Expenditure for activities in relation to evaluating the technical feasibility and commercial viability of extracting a
mineral resource

22. An entity imported machinery to install in its new factory before year-end. However, due to circumstances
beyond its control, the machinery was delayed by a few months but reached the factory premises before year-end.
While this was happening, the entity learned from the bank that it was being charged interest on the loan it
had taken to fund the cost of the plant. What is the proper treatment of freight and interest expense under PAS 16?
a. Both expenses should be capitalized
b. Interest may be capitalized but freight should be expressed
c. Freight charges should be capitalized but interest cannot be capitalized under these circumstances
d. Both Expenses should be expensed

23. Capitalization of borrowing costs

a. Shall be suspended during temporary periods of delay
b. May be suspended only during extended periods of delay in which active development is delayed
c. Shall be suspended only during extended periods of delays in which active development is delayed
d. Should never be suspended once capitalization commences

24. BMC, Inc. is evaluating whether to apply the lower of cost or net realizable value rule to total inventory, to groups of
similar items, or to each item. Which application should it use if it wants to show the lowest inventory amount?
a. Groups of similar items.
b. Total inventory.
c. Separately to each time.
d. It does not matter, as all applications result in the same amount.

25. The following are external indicators of impairment except,

a. Market Value changes
b. Negative changes in technology, markets, economy or laws
c. Increase in Market Interest Rates
d. Worse economic performance than expected
 SUMMER REVIEW SESSION NO. 5
Financial Accounting 2- Review Materials

1. Which of the following items would be excluded from current liabilities?

a. A long-term liability callable or due on demand by the creditor even though the creditor has given no indication that
the debt will be called.
b. Normal accounts payable which had been assigned by the creditor to the finance company.
c. Long-term debt callable within one year or less because the debtor violated a debt provision.
d. Short-term debt which at the discretion of the entity can be rolled over at least twelve months after the
balance sheet date.

2. Which of the following statements regarding provisions is incorrect?

a. Provisions should be recognized for penalties or clean-up costs for unlawful environmental damage.
b. Provisions should be recognized for product warranties
c. Provisions should be recognized for outstanding premiums offered to customers
d. Provisions should be recognized for future operating losses

3. A contingent liability is
a. A liability of uncertain timing or amount.
b. A possible obligation depending on whether some uncertain future event occurs.
c. A present obligation but payment is not probable or the amount cannot be measured reliably.
d. Either b or c.

4. A temporary difference which would result in a deferred tax liability is

a. Accrual of estimated litigation loss
b. Accrual of estimated warranty cost
c. Subscriptions received in advance
d. An installment sale which is included in financial income at the time of sale and included in taxable income when
collected

5. A future taxable amount is exemplified by:

a. revenue that is included in the tax return before it is included in pretax accounting income
b. gain that is included in the tax return before it is included in pretax accounting income.
c. expense that is included in the tax return after it is included in pretax accounting income.
d. expense that is included in the tax return before it is included in pretax accounting income.

6. In computing the weighted-average number of shares outstanding during the year, which of the following midyear
events must be treated as if it had occurred at the beginning of the year?
a. Sale of convertible preference share.
b. Purchase of treasury stock.
c. Sale of additional ordinary shares.
d. Declaration and distribution of bonus issue.

7. When computing basic earnings per share on ordinary shares, dividends on cumulative, nonconvertible preference
shares should be
a. deducted from net income only if the dividends were declared or paid in the current period.
b. ignored
c. deducted from net income only if net income is greater than the dividends.
d. deducted from net income regardless of whether the dividends were not paid or declared in the
period.

8. The classification of the lease is normally carried out

a. At the end of the lease term.
b. After “cooling off” period of one year.
c. When the entity deems it necessary.
d. At the inception of the lease.

9. The noncancellable 25-year lease were that PROCESSOR would gain title to the property upon payment of a
sum equal to the fair market value of the machine at the termination of the lease. PROCESSOR accounted for
the lease as a finance lease and recorded an asset and a liability in the finance records. The asset recorded under
this lease should properly be amortized/depreciated over
a. 5 years (the period of actual ownership).
b. 22.5years (the period of actual ownership).
c. 30 years (the total asset life).
d. 25 years (the term of the lease).