EASY

1. Which is the correct accounting for a finance lease in the accounts

of the lessee (assuming fair value is used)?
(a)Dr Asset account
Cr Liability account } with fair value

Dr Income statement
Cr Asset account } with depreciation of asset

Dr Income statement
Cr Liability account } finance charge for period

Dr Liability account
Cr Cash } cash paid in period

(b)Dr Liability account

Cr Asset account } with fair value

Dr Income statement
Cr Asset account } with depreciation of asset

Dr Liability account
Cr Income statement } finance charge for period

Dr Liability account
Cr Cash } cash paid in period

(c)Dr Asset account

Cr Liability account } with fair value

Dr Asset account
Cr Income statement } with depreciation of asset

Dr Liability account
Cr Income statement } finance charge for period

Dr Liability account
Cr Cash } cash paid in period

(d)Dr Asset account

Cr Liability account } with fair value

Dr Income statement
Cr Asset account } with depreciation of asset

Dr Liability account
Cr Income statement } finance charge for period

Dr Liability account
Cr Cash } cash paid in period
2. The credit total of a trial balance exceeds the debit total by P700.
In investigating the cause of the difference, the following errors
were determined: a credit to accounts receivable of P1,100 was not
posted; a P10,000 debit to be made to the Purchases account was
debited to Accounts payable instead; a P6,000 credit to be made to
the Sales account was credited to the Accounts receivable account
instead; the Interest payable account balance of P9,000 was included
in the trial balance as P10,800. How much is the correct balance of
the trial balance?
a. 16,700
b. 17,100
c. 14,900
d. 13,500

3. Information on a country’s inflation rate is shown below:

Year CPI Change in CPI Annual inflation rate

  (a) (b) % = (b ÷ a) x 100%
Jan. 1, 20x1 400
Dec. 31, 20x1 520 120 30.00%
Dec. 31, 20x2 720 200 38.46%
Dec. 31, 20x3 880 160 22.22%

What is the cumulative inflation rate in 20x3 to be used in

determining if there is hyperinflation?
a. 100%
b. 120%
c. 133.33%
d. 140%

4. On January 1, 20x1, SPAT QUARREL Co. acquired a biological asset at

its fair value of P40,000. Necessary costs incurred on the purchase
totaled P8,000. It was estimated that if the biological asset is to
be sold currently, costs to sell would amount to P2,000. How much is
the loss recognized on January 1, 20x1?
a. 38,000
b. 30,000
c. 10,000
d. 0

5. BLASé BORED Co. expects to earn P400,000 pre-tax profit each

quarter. BLASE has tax rates of 20% on the first P800,000 of annual
earnings and 30% on all additional earnings. Actual earnings match
expectations. How much is the income tax expense recognized in the
third quarter interim financial statements?
a. 80,000
b. 100,000
c. 120,000
 d. 132,000

6. VENERABLE RESPECTED Co.’s defined benefit plan provides a lump sum

retirement benefit of P8,000,000 to all employees
 who are still employed at the age of 55 after twenty years of
service, or
 who are still employed at the age of 65, regardless of their length
of service.

Mr. Juan is hired at the age of 33. What is the attribution period for
Mr. Juan’s benefit and how much benefit is attributed each year?
Attribution period Benefit attributed each year
a. age 33 to 55 400,000
b. age 33 to 55 347,826
c. age 35 to 55 400,000
d. age 45 to 65 400,000

7. In September 2006, West Corp. made a dividend distribution of one

right for each of its 120,000 shares of outstanding common stock.
Each right was exercisable for the purchase of 1/100 of a share of
West's P50 variable rate preferred stock at an exercise price of P80
per share. On March 20, 2008, none of the rights had been exercised,
and West redeemed them by paying each stockholder P0.10 per right.
As a result of this redemption, West stockholder's equity was
reduced by
a. 120
b. 2,400
c. 12,000
d. 36,000

8. On January 1, 20x1, ABRIDGE TO SHORTEN Company issued a 4-year,

P1,000,000 noninterest bearing note payable due in four equal annual
installments. The effective interest rate is 12%. ABRIDGE prepared
the following pro-forma amortization table on an electronic
spreadsheet:

A B C D E
Cash Interest Present
1 Date paid expense Amortization value
2 Jan. 1, 20x1        
Dec. 31,
3 20x1        
Dec. 31,
4 20x2        
Dec. 31,
5 20x3        
Dec. 31,
6 20x4        
The current portion of the note payable as of December 31, 20x2 is
equal to
a. D4
b. D3
c. D5
d. E5

9. On January 1, 20x1, HEARTEN ENCOURAGE CHEER Company issued a 4-year,

P1,000,000, noninterest-bearing note due on December 31, 20x4. The
effective interest rate is 12%. HEARTEN prepared the following pro-
forma amortization table on an electronic spreadsheet:

A B C D
Interes
t Discoun Present
1 Date expense t value
2 Jan. 1, 20x1      
Dec. 31,
3 20x1      
Dec. 31,
4 20x2      
Dec. 31,
5 20x3      
Dec. 31,
6 20x4      

The amount to be placed on cell D2 is computed as

a. (1M x PV of P1 @12%, n=4) + (1M x PV of ordinary annuity of P1 @
12%, n=4)
b. (1M x PV of P1 @12%, n=4)
c. (1M x PV of ordinary annuity of P1 @12%, n=4)
d. (1M x PV of P1 @12%, n=4) + (1M x 10% x PV of ordinary annuity of
P1 @ 12%, n=4)

10. On January 1, 20x1, SPECULATE THINK Insurance Co. issues a one-

year, fire insurance contract for a total premium of P48,000. How
much is the earned portion of the premium for the month ended
January 31, 20x1?
a. 2,000
b. 46,000
c. 4,000
d. 0