RIZAL TECHNOLOGICAL UNIVERSITY

Boni Avenue, Mandaluyong City

Junior Philippine Institute of Accountants

SET B
NAME: 1st SEM._SCHOOL YEAR 2017-2018
MOCK COMPREHENSIVE EXAMINATION FINANCIAL ACCOUNTING 3

Subject in the Actual CPA Board Examination:

FINANCIAL ACCOUNTING AND REPORTING

Pray before taking the examination. God bless us.

MULTIPLE CHOICE: Indicate our answer by writing the letter representing your answer of your choice
in the provided answer sheet.
1. An entity changed from an accounting principle that is not generally accepted to one is that generally
accepted. The effect of the change shall be reported, net of the applicable income tax, in the current
a. Retained earnings statement as an adjustment of the opening balance.
b. Income statement as component of income from continuing operations.
c. Income statement as component of discontinued operations.
d. Retained earnings statement after net income but before dividends.

2. A general price level statement of financial position is prepared and presented in terms of
a. The general purchasing power of the peso in the base period
b. The average general purchasing power of the peso for the latest reporting period
c. The general purchasing power of the peso at the time the financial statements are issued
d. The general purchasing

3. A complete set if financial statement includes the following components, except

a. Statement of financial position, statement of comprehensive income and statement of cash flows.
b. Statement of changes of equity.
c. Reports and statements such as environmental reports and value added statements.
d. Notes, comprising a summary of significant accounting policies and other explanatory information.

4. Which of the following accounting treatment is proper for a change in reporting entity?
a. Restatement of current period financial statements.
b. Restatement of financial statements of all prior periods presented.
c. Note disclosure and supplementary schedule.
d. Adjustment to retained earnings and note disclosure.

5. When an entity adjusted the historical cost income statement by applying specific price index to depreciation
and cost of goods sold, the income statement according to
a. Current cost accounting c. Nominal peso accounting
b. Fair value accounting d. Purchasing power accounting

6. To meet the objective of providing information about financial position, financial performance and cash flows
of an entity, financial statements should provide information about all the following, except
a. Assets, liabilities and equity.
b. Income and expenses, including gains and losses.
c. Contributions by and distribution to owners in their capacity as owners.
d. Nature of the entity’s business activities.

7. Interim financial reports means a financial report containing

a. A condensed set of financial statements
b. A complete set of financial statements
PAGE 1 of 9
 c. Either a complete set or a condensed set of financial statements
d. Neither a complete set nor a condensed set of financial statements

8. Could current cost financial statement report holding gains during the period of which the following?
a. Goods sold c. Neither goods sold nor inventory
b. Inventory d. Goods sold and inventory

9. The statement of financial position provides a basis for all of the following, except
a. Computing rate of return. c. Evaluating capital structure.
b. Assessing liquidity and financial d. Determining increase in cash due to
flexibility. operations

10. What is the practical limit to the number of reportable segments?

a. Five segments
b. Ten segments
c. No precise limit but if the number increases above five, the entity shall consider whether a practical limit
has been reached
d. No precise limit but if the number increases above ten, the entity shall consider whether a practical limit
has been reached

11. An accountant recommends the adjustments of the financial statements for price level changes should not
support the recommendation by stating that
a. The restatement of asset cost to a common peso basis is a useful extension of the original cost basis of
asset valuation.
b. Assets are measured at current replacement cost
c. Purchasing power gains or losses are recognized
d. Historical pesos are not comparable to present-day pesos

12. An entity shall disclose in the summary of significant accounting policies.

a. The measurement basis used in preparing the financial statement and the accounting policies used that are
relevant to an understanding of the financial statements.
b. All the measurement bases specified in PFRS irrespective of whether they were used by the entity in
preparing the financial statements.
c. All of the measurement bases and the accounting policy choices available to the entity specified in PFRS
irrespective of whether they used by the entity in preparing the financial statements.
d. The measurement basis used in preparing the financial statements.

13. The operating segments is a reportable segment if

a. The operating profit is 10% or more of the combined operating profit of profitable segments
b. The operating loss is 10% or more of the combined operating loss of non-profitable segments
c. The absolute amount of the operating profit or loss is 10% or more of the entity’s combined operating
profit or loss
d. None of these

14. Under IFRS, dividends paid may be reported in which section of the statement cash flows?
a. Financing c. Operating or financing
b. Operating or investing d. Investing, financing or operating

15. A related party transaction is a transfer of resources or obligations.

a. Between unrelated parties when a price is charged.
b. Between related parties, regardless of whether a price is charged.
c. Between unrelated parties, regardless of whether a price is charged.
d. Between related parties when a price is charged.

16. Cash equivalents is a short term highly liquid investment that is readily convertible into known amount of
cash and
a. Is so near maturity that it presents insignificant risk of change in interest rate
b. Is acceptable as a means to pay current liabilities

PAGE 2 of 9
 c. Has a current market value that is greater than the original cost
d. Bears an interest rate that is at least equal to decline interest rate at the date of liquidation

17. The primary purpose of a statement if cash flow is

a. To provide relevant information about cash receipts and payments of an entity during a period.
b. To help investors and creditors to assess the entity’s ability to generate positive future net cash flows.
c. To disclose separately noncash transactions
d. To assess the ability of the entity to pay dividends

18. Which of the following is not a related party?

a. A direct of the entity
b. The parent of the entity
c. A shareholder of the entity that holds 1% stake in the entity
d. The son of the chief executive officer of the entity

19. Accrual accounting adheres to which of the following principles?

a. Historical cost principle
b. Matching principle
c. Matching principle and historical cost principle
d. Neither matching principle nor historical cost principle

20. The process of recording business transactions

a. Bookkeeping c. Posting
b. Identifying d. Journalizing

21. Which of the following events after the reporting period would require adjustment of the accounts before
issuance of the financial statements?
a. Loss on the lawsuit the outcome of which was deemed uncertain at year-end.
b. Loss on an uncollectible account receivable resulting from a customer’s major flood loss.
c. Change in the quoted market price of the financial asset held as an investment.
d. Loss of plant as a result of fire.

22. Which statement is true about accrual accounting and cash basis accounting?
a. Under accrual accounting, if the earning process is not complete, revenue is nevertheless recorded if the
cash has already been received.
b. Under the cash basis, if cash has been collected, revenue can be recorded even if the earning process is not
complete.
c. Under the cash basis, revenue is recognized when the receivable is initially recorded.
d. All of these statements are true.

23. Prior to the current year, an entity used the cash basis of accounting. At the end of the current year, the entity
cannot determine the beginning balance of supplies inventory. What is the effect of the inability to determine
beginning supplies inventory on the accrual basis net income and year end accrual basis owner’s equity,
respectively?
a. Overstated and No effect c. No effect and No effect
b. Overstated and Overstated d. No effect and Overstated

24. Adjusting events are those that

a. Provide conditions that existed after the date the financial statements were authorized for issue.
b. Are favorable or unfavorable and indicative of conditions that arose after the end of the reporting period.
c. Provide evidence of conditions that existed at the end of the reporting period.
d. Are indicative of conditions that arose after the end of the reporting period.

25. An entity that changed the method of inventory valuation from weighted average to FIFO shall account for the
change as
a. A change in estimate and account for it prospectively.
b. A change in accounting policy and account for it prospectively.
c. A change in accounting policy and account for it retrospectively.

PAGE 3 of 9
 d. A correction of an error and account for it retrospectively.

26. In the statement of changes in equity, the effects of the retrospective application of a change in accounting
policy is presented
a. Separately for each component of equity.
b. In aggregate for the total equity.
c. In aggregate for the total equity and separately for the total amount attributable to owners of the parent
and to non-controlling interest.
d. Separately for the total amount attributable to owners of parent and to non-controlling interest.

27. These are the specific principles, bases, conventions, rules and practices applied in the preparation and
presentation of financial statements.
a. Accounting principles c. Accounting concepts
b. Accounting standards d. Accounting policies

28. An entity classified as noncurrent asset accounted for under the cost model as held for sale at the current year-
end. Because no offers were received at an acceptable price, the entity decided at the end of the next year not
to sell the asset but to continue to use it. The asset shall be measured at the end of the next year at what
amount?
a. The lower of the carrying amount and recoverable amount.
b. The lower of carrying amount on the basis that the asset had never been classified as held for sale and
recoverable amount.
c. The higher of carrying amount and recoverable amount.
d. The higher the carrying amount on the basis that the asset had never been classified as held for sale and
recoverable amount.

29. A component of an entity is classified as a discontinued operation

I. When the entity has actually disposed of the operation.
II. When the operation meets the criteria to be classified as “held for sale.”
a. Either I or II c. I only
b. Neither I nor II d. II only

30. Which of the following is a requirement for a component of an entity to be classified as a discontinued
operation?
a. Its activities must cease a permanently prior to the financial statements being authorized for issue by
management.
b. It must comprise a separately reportable segment.
c. It must have been a cash generating unit or a group of cash generating units while being held for use.
d. Its assets must have been classified as held for sale in the previous financial statements.

MULTIPLE CHOICE PROBLEM SOLVING. Indicate your answers by writing the letter representing your
answer of your choice on the provided answer sheet. Show your solution in good form at the back of your paper.

31. BB Co. operates two bars, one in Palawan and one in Manila. During 2017, the entity decided to close the bar
in Palawan and sell the property. It is most likely for the disposal to be completed early next year.

The revenue and expenses for 2017 and for the preceding years are as follows:

2017 2016
Sales - Manila 60 000 000 48 000 000
Cost of goods sold- Manila 26 000 000 22 000 000
Other Expenses-Manila 14 000 000 13 000 000
Sales - Palawan 20 000 000 43 000 000
Cost of goods sold-Palawan 8 000 000 22 000 000
Other Expenses- Palawan 1 000 000 18 000 000

PAGE 4 of 9
 During the latter part of 2017, the entity sold much of the furniture of BB Co. bar in Palawan and recognized a
pretax loss of P5 000 000 on the disposal. The income tax rate is 35%

What amount should be reported as income or loss from discontinued operations 2017?

a. 4 900 000 loss c. 5 600 000 loss

b. 3 900 000 income d. 4 900 000 income
For problem 32 and 33

Rice Company accounted for inventory on FIFO Basis. There were 8 000 units in inventory on January 1,
2017.

Historical Cost Units Purchased Units Sold

First Quarter P410 000 7 000 7 500
Second Quarter P550 000 8 500 7 300
Third Quarter P425 000 6 500 8 200
Fourth Quarter P630 000 9 000 7 000
P2 015 000 31 000 30 000

The current cost per unit inventory was P57 on January1 2017 and P71 on December 31 2017.

32. In the statement of financial position restated to current cost, what amount should be reported as December 1
2017 inventory?
a. P630 000 c. P585 000
b. P576 000 d. P639 000
33. In the income statement restated to current cost, what amount should be reported as cost of goods sold for
2015?
a. P1 944 000 c. P2 130 000
b. P1 920 000 d. P2 100 000
34. Gumamela Corporation had the ff. transactions during first year of operations:

Sales(75% collected in the first year) P5 700 000

Disbursements for cost & expenses P4 000 000
Purchase of Machinery for cash P3 200 000
Proceeds from issuance of ordinary shares P3 500 000
Payments on short term borrowings P175 000
Proceeds from short term borrowings P350 000
Depreciation on Machinery P300 000
Disbursement of income tax P425 000
Bad debt written off P250 000

What is the cash balance at year end?

a. P175 000 c. (P125 000)

b. P325 000 d. P1 200 000
For problem 35 and 36

35. Jack Company provided the ff. data for the current year:

Sales P6 400 000

Cost of Goods Sold 2 800 000
Operating Expenses 1 200 000
December 31 January 1
Prepaid Expenses P800 000 P500 000
Accounts Payable 1 000 000 850 000
Inventory 2 100 000 700 000
Accounts Receivable 900 000 825 000
PAGE 5 of 9
 What amount should be reported as purchases for the current year under accrual and cash basis?

a. P5 300 000; P5 550 000 c. P5 550 000; P5 300 000

b. P4 050 000; P4 200 000 d. P4 200 000; P4 050 000
For problem 37 to 39

Luxor Company operated in a hyperinflationary economy and provided the ff. information on December 31
2017:

Plant, Property, and Equipment P600 000

Inventory P3 600 000
Cash P400 000
Share Capital- December 31 2013 P350 000
Non-current liabilities P800 000
Current liabilities P1 000 000
Retained Earnings P3 250 000

The index number had moved on December 31 of each year:

 2013- 100 ; 2014 - 130 ; 2015 – 150 ; 2016- 240; 2017- 300.
 The PPE were purchased on December 31 2015.
 The non-current liabilities were loans raised on December 31 2016.

What is the amount of total assets, total liabilities and retained earnings after adjusting for hyperinflation?

a. 4 850 000; 1 500 000; 2 625 000 c. 4 800 000; 1 200 000; 2 350 000
b. 3 950 000; 1 200 000; 2 750 000 d. 5 600 000; 1 800 000; 2 750 000
For problem 40 and 41

Ostrich Co. maintains a markup of 40% based on cost. The entity’s operating expenses average 20% of sales.
Sales for that year amounted to P8 400 000 for current year.

What is the net income and cost of goods sold for the current year?

a. 720 000; 6 000 000 c. 1 680 000; 6 000 000

b. 2 400 000; 720 000 d. 4 320 000; 720 000
For problem 42 and 43

Complex company is preparing a statement of cash flows for the year ended December 31 2017. It has the ff.
account balances:

December 31 2016 December 31 2017

Machinery P1 800 000 P3 600 000
Accumulated Depreciation P980 000 P3 600 000
Loss on sale of Machinery P30 000

During 2017, complex sold for P300 000, a machine that cost P440 000 and purchased several items of
machinery.

What is the depreciation expense and cost of machine purchased during 2017?

a. 240 000; 2 580 000 c. 180 000; 3 160 000

b. 110 000; 2 100 000 d. 150 000; 2 240 000
44. During 2017, KKLK Co. determined that machinery previously depreciated over a seven-year life had a total
estimated useful life of only five years. An accounting change was made in 2017 to reflect the change.

If the change had been made in 2016, accumulated depreciation would have been P800 000 on December 31
2016 instead of P600 000. As a result of the change, the 2017 depreciation expense was P50 000 greater. The
tax rate was 30%.

PAGE 6 of 9
 What amount should be reported in the income statement for the year ended December 31 2017 as the
cumulative effect on prior years for changing the estimated useful life of the machinery?

a. 200 000 c. 50 000

b. 0 d. 150 000
45. Kyah Corp. provided the following information on December 31, 2017:

-On December 31, 2017, Kyah Corp. declared a cash dividend of P3.00 per share to shareholders of record on
December 31. The dividend is payable on January 15, 2018. Kyah has issued 500,000 ordinary shares of
which 45,000 shares are held in the treasury.

-Also, on December 31, bonds payable of P30 Million are outstanding. The bonds pay 9% interest every
October 1 and mature installments of P2,100,000 every October 1, beginning October 1, 2018.

- At December 31,2016, customer advances were P10 million . During 2017, Kyah collected P40 millions of
customer advances and advances of P15 Million were earned.

How much of the foregoing is classified as current liabilities?

a. 38 600 000 c. 19 140 000

b. 18 465 000 d. 39 140 000
46. King company reported the following adjusted account balances at year end:

Share Capital P 10 000 000

Share premium 4 000 000
Treasury shares @ cost 1 500 000
Dividends 700 000
Actuarial loss on defined benefit plan 600 000
Retained earnings – unappropriated 5 000 000
Retained earnings – appropriated 4 000 000
Revaluation surplus 2 500 000
Cumulative translation adjustment- credit 3 000 000
Sales 6 000 000
Total expenses 2 400 000
Accounts payable 1 800 000
What is the shareholders’ equity at year end?

a. 17 100 000 c. 25 700 000

b. 11 700 000 d. 27 500 000
47. In 2017, Baht Company discovered that the equipment purchased on January 1, 2015 for P1 000 000 was
expensed at that time. The equipment should have been depreciated over 8 years with no residual value. The
tax rate is 30%. What as included in the journal entry in 2017 to correct the error?

a. Debit Retained earnings P750 000 c. Debit Retained Earnings P525 000
b. Credit Retained Earnings P525 000 d. Credit Retained Earnings P750 000
For problems 48 and 49

Big Pepper Co. is in process of adjusting the books at the end of 2017. The accounting records revealed the
following information:

- The entity failed to accrue sales commissions at the end of 2015 and 2016 as follows:
2015 220 000
2016 140 000
In each case, the sales commissions were paid and expensed in January of the following year.
- Errors in ending inventory for the last three years were discovered to be as follows:
2015 400 000 understated
2016 540 000 overstated
2017 150 000 understated

PAGE 7 of 9
 The unadjusted retained earnings balance on January 1 2017 is P12 600 000 and the unadjusted net income for
2017 was P3 000 000. Dividends of P1 750 000 were declared during 2017.

48. What is the adjusted net income for 2015?

a. 3 150 000 c. 3 530 000

b. 3 830 000 d. 3 680 000

49. What is the adjusted balance of retained earnings on December 31 2017?

a. 13 850 000 c. 13 850 000

b. 13 320 000 d. 11 000 000
For problems 50 and 51

On June 31 2017, Express Corporation had an equipment with a cost of P6 000 000 and accumulated
depreciation of P2 400 000.

On the same date, the entity classified the equipment as held for sale and decided to sell the equipment within
one year.

On June 30, 2017, the equipment had an estimated selling price of P1 600 000 and a remaining useful life of 2
years with estimated disposal cost of P50 000.

On December 31 2017, the estimated selling price of equipment is P1 800 000 with estimated cost of disposal
of P100 000.

What amount should be recognized as impairment loss on June 31 2017 and gain on reversal of impairment on
December 31 2017?

a. 2 000 000; 300 000 c. 2 300 000; 200 000

b. 2 050 000; 150 000 d. 2 150 000; 150 000
For problems 52 to 54

In 2017, Golden company started operations with an inventory costing P400 000. For the first quarter of 2017,
the purchases & sales were as follows:

January February March Total

Purchases 60 000 200 000 280 000 540 000
Sales 300 000 490 000 500 000 1 290 000

The goods are sold at a gross profit of 30% of sales

For interim statement purposes, the inventory at the end of January, February, and March, respectively, are?

a. 250 000; 107 000; 37 000 c. 30 000; 53 000; 130 000

b. 210 000; 343 000; 350 000 d. 108 000; 207 000; 234 000
55. Safety company was incorporated on January 1 of the current year by issuing share capital with the par value
of P50 000 000 for P70 000 000.

Other transactions that affected the cash account during January:

- Land and building were purchased for P35 000 000 with a down payment of P15 000 000. A one year
note was signed for the remainder.
- A check was written for P2 500 000 to pay for equipment.
- A check of P1 500 000 was written to acquire software.
- The balance of the checking account on January 31 was P55 000 000.
What was the sale price of the computer equipment?
a. P2 500 000 c. P4 000 000
b. P1 500 000 d. P2 000 000

PAGE 8 of 9
 56. The ff. information is available from Trendsetter Company’s accounting records on December 31, 2017:

Cash received from customers P960 000

Cash received for rent P12 000
Cash paid for suppliers and employees P390 000
Taxes Paid P290 000
Gain on sale of equipment P60 000

What is the net cash flows from operating activities for 2017?

a. P232 000 c. P642 000

b. P352 000 d. P292 000
For problem 57 and 58

Zoey Company provided the ff. data for the current year:

Gain on sale of machinery P80 000

Proceeds from sale of machinery P200 000
Purchase of bond investment(face value, P3 000 000) P1 600 000
Amortization of bond discount P10 000
Dividend declared P380 000
Dividend paid P240 000
Proceeds from sale of treasury shares(cost P950 000) P1 050 000
What is the net cash provided used in financing & investing activities?

a. P1 950 000; P1 590 000 c. P1 330 000; P2 210 000

b. P810 000; P1 400 000 d. P1 590 000; P1 950 000
For problem 59 and 60

Corner Corp. is subject to the requirements of segment reporting. In the income statement for the current year,
the entity reported revenue of P60 000 000 excluding intersegment sales of P12 000 000; expenses of P 50
000 000; and net income of *P5 000 000. Expenses include payroll costs of P15 000 000.

The combined total assets of all operating segments at year end amounted to P63 000 000.

59. What is the minimum amount of sales to major customers?

a. 5 000 000 c. 4 500 000

b. 4 000 000 d. 6 000 000
60. What is the minimum amount of external revenue to be disclosed by the reportable segments?

a. 37 500 000 c. 30 000 000

b. 39 000 000 d. 22 500 000

Checked by:
Prepared by:
Prof. Felecitas C. Tuazon, CPA
Ma. Cristine Lorraine Rico Fortaleza Faculty, Accountancy
VP for Internal Linkages, RTU-JPIA
Recommending Approval:
Lester John Chavez Parilla
VP for Non-Academics, RTU-JPIA Prof. Elizabeth E. Salvador, CPA
Department Head, Accountancy

Approved by:
Prof. Amelia M. Arganda, CPA
CBET, Dean

PAGE 9 of 9