MOCK CPA BOARD EXAMINATION UL CPA REVIEW CENTER

UNIVERSITY OF LUZON
COLLEGE OF ACCOUNTANCY
CPA REVIEW CENTER

MOCK CPA BOARD EXAMINATION/MAY 13, 2021/9:000 AM – 11:00 AM

FINANCIAL ACCOUNTING

INSTRUCTION: YOU WILL USE THE GOOGLE FORM ANSWER SHEET. PLEASE ACCOMPLISH THIS
EXAMINATION WITH ALL HONESTY AND INTEGRITY.

1. The objective of general purpose financial reporting is:

a. provide financial information about the reporting entity that is useful to existing and potential
investors, lenders and other creditors in making decisions about providing resources to the
entity.
b. to inform government statistics.
c. to support the entity’s tax return.
d. to meet all the information needs of all the users of an entity’s financial statements.
e. to inform economic decision-making by a broad range of users (including managers, investors,
creditors and prudential regulators).

2. Which of the following could most closely be associated with the objective of financial reporting:
a. have a bias toward understating assets and income and overstating liabilities and expenses.
b. transparency and neutrality.
c. financial stability through conservatism/prudence.
d. management discretion in reporting financial information.

3. The fundamental qualitative characteristics are:

a. comparability and relevance.
b. relevance and reliability.
c. relevance, reliability and comparability.
d. relevance and faithful representation.
e. comparability, relevance and faithful representation.

4. Verifiability means knowledgeable and independent observers:

a. would reach complete agreement that a depiction is a faithful representation.
b. cannot reach consensus that a depiction is a faithful representation.
c. could reach consensus, but not necessarily complete agreement, that a depiction is a faithful
representation.
d. None of the above

5. Expenses are recognised in comprehensive income (profit or OCI):

a. using the matching basis—on the basis of a direct association between the costs incurred and
the earning of specific items of income.
b. using the accrual basis—items are recognised as assets, liabilities, equity, income or expenses
when they satisfy the definitions and recognition criteria for those items.
c. at the discretion of management.
d. None of the above.

6. Recognition criteria determine when to recognise an item. Measurement is determining the

monetary amounts at which to measure an item. Uncertainties about the extent of future cash
flows:
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a. only affect the decision about whether to recognize.

b. only affect the estimation of the amount at which to measure the item.
c. could affect both recognition and measurement.
d. None of the above

7. How many measurement bases does IFRSs specify for the measurement of assets?
a. one—historical cost
b. one—fair value
c. two—historical cost and fair value
d. many—including historical cost, fair value, value in use, estimated selling price less costs to
complete and sell, etc

8. The Conceptual Framework:

a. is an IFRS.
b. overrides all other IFRS requirements.
c. does not define standards for any particular measurement or disclosure issue.
d. is in the hierarchy that management must in the absence of a specific IFRS requirement apply
in developing an accounting policy that results in information that is relevant.

9. An entity recognises the goods or services received or acquired in a share-based payment

transaction when it receives the goods or services:
a. only if the share-based payment is cash-settled.
b. irrespective of whether it is cash-settled or equity-settled.
c. only if the share-based payment is equity-settled.
d. None of the above.

10. The fair value of shares granted unconditionally by an entity to its employees are recognised as
an expense:
a. on grant date (the entity presumes that the employee services have been received).
b. in the future periods (the entity presumes that the employee services will be received in the
future).
c. either (a) or (b) accounting policy choice.
d. None of the above.

11. For equity-settled share-based payment transactions, an entity measures the goods or services
received
a. at the fair value of the goods and services.
b. at the fair value of the equity instruments.
c. at the fair value of the goods or services received, unless that fair value cannot be estimated
reliably.
d. None of the above.

12. The measurement date for an equity-settled share-based payment

a. grant date
b. exercise date
c. when the entity obtains the goods or the counterparty renders service
d. when the warranty period for the goods or services expires

13. In fair value measurement, how would you categorise the following?

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Unit 1 Unit 2
a. Level 1 Level 1
b. Level 1 Level 2
c. Level 2 Level 1
d. Level 3 Level 2

14. The assessment of the fair value of an entity’s financial instruments includes observable market
information for a similar instrument and our own assumptions. In what level would this be
categorised?
a. Level 1
b. Level 2
c. Level 3
d. Level 4

15. Entity A sells 100 of receivables to bank for 85. Entity A continues to collect and remit amounts
collected to bank, for which bank pays a fee to Entity A. Entity A has no obligation for credit losses
or for slow payment by debtors. How is this transaction accounted for?
a. Entity A removes receivables from its balance sheet and shows no liability for 85 proceeds.
b. Entity A keeps 100 receivables on its balance sheet and shows a liability for 85.
c. Entity A keeps 100 receivables on its balance sheet and shows no liability for 85.
d. Entity A removes receivables from its balance sheet and shows a liability for 85.

16. Entity A has inventory it plans to sell in 3 months. Entity A is worried about price decline during
the 3 months and so enters into forward contract to hedge price risk of its inventory. Relationship
meets conditions for hedge accounting and Entity A documents the hedge. What is the accounting
for this transaction?
a. Recognise forward contract as an asset or liability at FV and change in FV in P&L. Recognise
the change in FV of the inventory in P&L and as an adjustment to the carrying amount of the
inventory.
b. Recognise forward contract as an asset or liability at FV and change in FV in OCI. Recognise
the change in FV of the inventory in OCI and as an adjustment to the carrying amount of the
inventory.
c. Recognise forward contract as an asset or liability at FV and the change in the FV of the
forward contract in OCI. Do not recognise the change in the FV of the inventory as inventory
is measured at cost.
d. None of the above.

17. Provisions are measured at the best estimate of the amount required to settle the obligation at
the reporting date. When the provision involves a large population of items, the estimate of the
amount:
a. reflects the weighting of all possible outcomes by their associated probabilities.
b. is determined to be the individual most likely outcome.
c. is the individual most likely outcome adjusted to consider the other possible outcomes.
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d. None of the above.

18. A is defending a patent infringement lawsuit. Court is expected to rule in 12/20X2. 30% chance
court will dismiss the case. If not, 20% chance A pays P200,000 & 80% chance pay P100,000.
Apply a 7% risk adjustment factor to the probability-weighted expected cash flows to reflect the
uncertainties in the cash flow estimates. An appropriate discount rate is 10% per year.
At 31/12/20X1 A recognise a provision of?
a. 0
b. P100,000
c. P84,000
d. P89,880
e. P81,709

19. 10-year non‑cancellable operating lease over a building. Lease rentals for years 1–5 = 0 & P5,000
for each of years 6–10. In Year 1 the lessee must recognise expense of:
a. P0
b. P2,000
c. P2,500
d. P5,000

20. On 1/1/20X1 A sold a machine to a bank and leased it back for 3 yrs. Facts about the machine &
the leaseback: SP = P200,000; Carrying Amount = P70,000; Fair Value = P200,000; remaining
economic life = 3 yrs; residual value = 0; lease payments = P77,606 per year (payable in arrears);
interest rate implicit in the lease = 8% per year. What would A recognise in profit or loss for the
year ended 31/12/20X1?
a. P130,000 gain on sale of PPE & CU77,606 lease rental expense.
b. P23,333 depreciation expense & P16,000 finance cost (no income).
c. P43,333 income (amortised deferred gain on sale of PPE); P23,333 depreciation expense; &
P16,000 finance cost.
d. 43,333 income (amortised deferred gain on sale of PPE); P66,667 depreciation expense; &
P16,000 finance cost.

21. Entity A purchased an item of PPE on 1 January 20X1 for P1,000. The estimated useful life of the
PPE is 10 years and the residual value was estimated to be zero. These estimates have not
changed. The tax authorities in the jurisdiction in which Entity A operates grant allowances over
five years for such PPE. The applicable tax rate is 30 per cent. At 31 December 20X1, the deferred
tax balance and profit or loss effect are:
a. Liability of P30, income of P30
b. Asset of P30, income of P30
c. Liability of P30, expense of P30
d. Asset of P30, expense of P30

22. A government grant is:

a. assistance from the government in the form of a transfer of resources to an entity in return for
past or future compliance with specified conditions relating to the operating activities of the
entity.
b. unconditional assistance from the government in the form of a transfer of resources to an
entity.
c. any type of assistance from the government to the entity from which the entity has benefited
directly.
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d. None of the above

23. The accounts and balances shown below were gathered from Pudge Corporation’s trial balance
on December 31, 2019. All adjusting entries have been made.

Wages Payable P 25,600

Cash 17,700
Mortgage Payable (P1,000 monthly over the next 10 years) 120,000
Prepaid Rent 13,600
Inventory 81,800
Short-Term Investments 15,200
Taxes Payable 22,800
Accounts Payable 24,800
Accounts Receivable 36,600

Pudge Corporation’s working capital is

a. P79,700.
b. P(28,300).
c. P56,100.
d. P(51,900).

24. The following changes in Greylan Corporation’s account balances occurred during 2019:

Increase
Assets P250,000
Liabilities 50,000
Capital Stock 210,000

Greylan paid dividends of P19,000 during the year. There were no changes in Retained Earnings
for 2019 except dividends and net income. What was Greylan’s net income for 2019?
a. P19,000
b. P9,000
c. P231,000
d. P10,000

25. The December 31, 2019, SFP of Carrie, Inc., reported total assets of P1,150,000 and total liabilities
of P750,000. The following information relates to the year 2020:
• Carrie, Inc., issued an additional 10,000 shares of common stock at P20 per share on July 1,
2020.
• Carrie, Inc., paid dividends totaling P90,000.
• Net income for 2020 was P105,000.
• No other changes occurred in stockholders’ equity during 2020.

The stockholders’ equity section of the December 31, 2020, SFP would report a balance of
a. P400,000.
b. P600,000.
c. P215,000.
d. P615,000.

26. Huggins Company has total debt of P200,000 and stockholders’ equity of P400,000. Huggins is
seeking capital to fund an expansion. Huggins is planning to issue an additional P150,000 in
common stock, and is negotiating with a bank to borrow additional funds. The bank’s loan
covenant includes a maximum debt ratio of 0.8. What is the maximum additional amount Huggins
will be able to borrow after the common stock is issued?

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a. P2,400,000
b. P4,200,000
c. P2,000,000
d. P600,000

27. Mays Company’s income statement for the year ended December 31, 2020, reported net income
of P360,000. The financial statements also disclosed the following information:

Amortization P 25,000
Depreciation 60,000
Increase in accounts receivable 140,000
Increase in inventory 48,000
Decrease in accounts payable 76,000
Increase in salaries payable 28,000
Dividends paid 120,000
Purchase of equipment 150,000
Increase in long-term note payable 300,000

Net cash provided by operating activities for 2020 should be reported as

a. P89,000.
b. P209,000.
c. P239,000.
d. P329,000.

28. The following choices are the cash flow patterns for four different companies in the same
industry. Assume that the numbers are all significant (i.e., they are all in the millions and none are
nearly zero). Which of the following cash flow patterns describes the company that is likely having
the most problems?
Operating Investing Financing
a. + – –
b. + – +
c. – – +
d. – + +

29. During 2020, Ryan Corporation acquired buildings for P300,000, paying P100,000 cash and
signing a 10 percent annual rate note payable due in 10 years for the balance. The transaction
(not the interest) should be shown in the cash flow statement for Ryan Corporation in 2020 as
a. a P300,000 reduction in cash flows from investing activities and a P100,000 increase in cash
flows from financing activities.
b. only a P300,000 reduction in cash flows from investing activities.
c. only a P100,000 reduction in cash flows from investing activities.
d. only a P200,000 increase in cash flows from financing activities.

30. Based on its past collection experience, Amanda Company provides for bad debts at the rate of 2
percent of sales. On January 1, 2020, the credit balance of Allowance for Bad Debts was P10,000.
During 2020, Amanda wrote off P18,000 of uncollectible receivables and recovered P5,000 on
accounts written off in prior years. If sales for 20120 totaled P1,000,000, the bad debt expense
for 2020 should be
a. P17,000.
b. P20,000.
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c. P23,000.
d. P35,000.

31. Sanzberro Company sold P46,000 of pipe to Laughlin District 4 on April 12 of the current year
with terms 1/15, net/60. Sanzberro uses the gross method of accounting for cash discounts. What
entry would Sanzberro make on April 12?

a. Accounts Receivable 46,000

Sales 46,000
b. Accounts Receivable 46,000
Sales 45,540
Sales Discounts 460
c. Accounts Receivable 45,540
Sales 45,540
d. Accounts Receivable 45,540
Sales Discounts 460
Sales 46,000

32. Dahlman Appliance Center sells washing machines that carry a three-year warranty against
manufacturer’s defects. Based on company experience, warranty costs are estimated at P30 per
machine. During the year, Dahlman sold 40,000 washing machines and paid warranty costs of
P200,000. In its income statement for the year ended December 31, Dahlman should report
warranty expense of
a. P200,000.
b. P1,000,000.
c. P1,200,000.
d. P1,400,000.

33. Derela Company uses the allowance method of accounting for bad debts. The following summary
schedule was prepared from an aging of accounts receivable outstanding on December 31 of the
current year.

Number of Days Probability

Outstanding Amount of Collection
0–30 days P500,000 0.98
31–60 days 200,000 0.90
Over 60 days 100,000 0.80

The following additional information is available for the current year:

Net credit sales for the year P4,000,000

Allowance for Bad Debts:
Balance, January 1 45,000 (cr)
Balance before adjustment, December 31 2,000 (dr)

If Derela bases its estimate of bad debts on the aging of accounts receivable, bad debt expense
for the current year ending December 31 is
a. P47,000.
b. P48,000.
c. P50,000.
d. P52,000.

34. Chalmers Company had the following cash balances at December 31, 2020:

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Cash in banks P375,000

Petty cash funds 5,000

Cash in banks includes P120,000 of compensating balances against long-term borrowing

arrangements at December 31, 2020. The compensating balances are legally restricted as to
withdrawal by Chalmers. In the Current Assets section of Chalmers’ December 31, 2020, SFP, what
total amount should be reported as Cash?
a. P380,000
b. P375,000
c. P260,000
d. P255,000

35. Which of the following describes the flow of product costs through the inventory accounts of a
manufacturer?
a. raw materials, work in process, finished goods
b. raw materials, overhead, finished goods
c. raw materials, direct labor, overhead, finished goods
d. purchases, finished goods

36. The SD Company makes the following entry in its accounting records:

Cost of Goods Sold 275

Inventory 275

This entry would be made when merchandise is

a. sold and the periodic inventory method is used.
b. sold and the perpetual inventory method is used.
c. purchased and the perpetual inventory method is used.
d. purchased and the periodic inventory method is used.

37. Bench Company’s Accounts Payable balance at December 31, 2020, was P1,900,000 before
considering the following transactions:

• Goods were in transit from a vendor to Bench on December 31, 2020. The unpaid invoice price
was P100,000, and the goods were shipped FOB shipping point on December 29, 2020. The goods
were received on January 4, 2021.
• Goods shipped to Bench FOB shipping point on December 20, 2020, from a vendor were lost
in transit. The invoice price was P50,000. On January 5, 2021, Bench filed a P50,000 claim against
the common carrier.

In its December 31, 2020, statement of financial position, Bench should report Accounts Payable
of
a. P1,950,000.
b. P1,900,000.
c. P2,050,000.
d. P2,000,000.

38. On May 1, Crazy Company recorded purchases of inventory of P80,000 and P100,000 under credit
terms of 2/15, net/30. The payment due on the P80,000 purchase was remitted on May 14. The
payment due on the P100,000 purchase was remitted on May 29. Under the net method and the
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gross method, these purchases should be included at what respective net amounts in the
determination of cost of goods available for sale?

Net Method Gross Method

a. P178,400 P176,400
b. P176,400 P176,400
c. P176,400 P178,400
d. P180,000 P176,400

39. Steal Me Company’s accounting records indicated the following information:

Inventory, beginning of 2020 P1,000,000

Purchases during 2020 5,000,000
Sales during 2020 6,400,000

A physical inventory taken on December 31, 2020, revealed actual ending inventory at cost was
P1,150,000. Steal Me’s gross profit on sales has regularly been about 25 percent in recent years.
The company believes some inventory may have been stolen during the year. What is the
estimated amount of stolen inventory at December 31, 2020?
a. P50,000
b. P200,000
c. P350,000
d. P370,000

40. Blunder Company began operations in 2012. During the first two years of operations, Blunder
made undiscovered errors in taking its year-end inventories that understated 2012 ending
inventory by P40,000 and overstated 2013 ending inventory by P50,000. The errors were not
discovered until the company received its first audit in 2014. What was the combined effect of
these errors on reported income?

2012 2013 2014

a. understated P40,000 overstated P50,000 not affected

b. understated P40,000 overstated P10,000 not affected

c. understated P40,000 overstated P90,000 understated P50,000

d. overstated P40,000 understated P50,000 overstated P10,000

41. The Barber Corporation acquired land, buildings, and equipment from a bankrupt company at a
lump-sum price of P180,000. At the time of acquisition, Barber also paid P12,000 to have the
assets appraised. The appraisal disclosed the following values:

Land P120,000
Buildings 80,000
Equipment 40,000

What cost should be assigned to the land, buildings, and equipment, respectively?
a. P64,000, P64,000, and P64,000
b. P96,000, P64,000, and P32,000
c. P90,000, P60,000, and P30,000

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d. P120,000, P80,000, and P40,000

42. On October 15, Lithia Company incurred the following costs for one of its printing presses:

Purchase of stapling addition P80,000

Installation of addition 12,000
Replacement parts for renovation of press 50,000
Labor and overhead in connection with renovation of press 15,000

Neither the addition nor the renovation increased the estimated useful life of the press. The
replacement parts are upgrades over the old parts and will increase future cash flows. What
amount of the costs should be capitalized?
a. P0
b. P65,000
c. P130,000
d. P157,000

43. Cragun Company purchased a machine that was installed and placed in service on January 2,
2012, at a total cost of P480,000. Residual value was estimated at P80,000. The machine is being
depreciated over ten years using the double-declining-balance method. For the year 2013, Cragun
should record depreciation expense of
a. P64,000.
b. P76,800.
c. P80,000.
d. P96,000.

44. On December 30, Blue Corporation entered into a contract to acquire a new machine for its
factory. The machine was placed into service early in January. The machine, which could have
been purchased for a cash price of P280,000, was instead paid for as follows:

Down payment ` P 10,000

Note payable in ten equal monthly installments 240,000
1,000 shares of Blue common stock valued at P50 per share 50,000

Prior to the machine’s use, installation costs of P15,000 were incurred. The machine has an
estimated useful life of ten years and an estimated salvage value of P20,000. What should Blue
record as depreciation expense for the first year under the straight-line method?
a. P26,000
b. P27,500
c. P28,000
d. P29,500

45. Battle Mountain Mining Company acquired a tract of land containing silver. Battle Mountain
Mining is required by the purchase contract to restore the land to a condition suitable for
recreational use after it has extracted the silver. Geological surveys estimate that the recoverable
reserves will be 2,500,000 tons and that the land will have a value of P2,000,000 after restoration.
Other relevant cost information is as follows:

Land P18,000,000
Estimated restoration costs 3,000,000
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What should be the depletion charge per ton of extracted silver?

a. P8.00
b. P7.60
c. P7.20
d. P6.40

46. The Dahlman Company purchased a tooling machine at the beginning of 2003 for P120,000. The
machine was being depreciated on the straight-line method over an estimated useful life of 20
years, with no salvage value. At the beginning of 2013, when the machine had been in use and
depreciated consistently for ten years, the company paid P20,000 to overhaul the machine. As a
result of this improvement, the company estimated that the useful life of the machine would be
extended an additional five years. What would be the depreciation expense recorded for the
above machine in 2013?
a. P4,000
b. P5,333
c. P6,000
d. P7,333

47. On March 1, 2013, Chesnut, Inc., purchased as a temporary investment P100,000, face amount,
12% Treasury notes, which pay interest semiannually on January 1 and July 1. The notes were
purchased at 102. Which of the following journal entries correctly records this purchase?
a. Investment in Trading Securities 100,000
Interest Receivable 2,000
Premium on Trading Securities 2,000
Cash 104,000
b. Investment in Trading Securities 102,000
Interest Receivable 2,000
Cash 104,000
c. Investment in Trading Securities 100,000
Interest Receivable 2,000
Cash 102,000
d. Investment in Trading Securities 102,000
Cash 102,000

48. Jensch Corporation purchased the following portfolio of trading securities during 2013 and
reported the following balances at December 31, 2013. No sales occurred during 2013. All
declines are considered to be temporary.

Security Cost Market Value at 12/31/13

X P 84,000 P 82,000
Y P130,000 132,000
Z 32,000 28,000

The only transaction in 2014 was the sale of security Z for P34,000 on December 31, 2014. The
market values for the other securities on December 31, 2014, were the same as at December 31,
2013. Marino's entry to record the sale of security Z would include a
a. credit of P6,000 to Realized Gain on Sale of Trading Securities.
b. debit of P4,000 to Realized Gain on Sale of Trading Securities.
c. P2,000 debit to Market Adjustment—Trading Securities.
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d. P2,000 credit to Realized Gain on Sale of Trading Securities.

49. Consistent Company has been paying regular quarterly dividends of P1.50 and wants to pay the
same amount in the third quarter of 20014. Given the following information, (1) what is the total
amount that Consistent will have to pay in dividends in the third quarter in order to pay P1.50
per share and (2) what is the total amount of dividends to be distributed during the year assuming
no equity transactions occur after June 30?

2014
Jan. 1 Shares outstanding, 800,000; P2 par (1,500,000 share authorized)
Feb. 15 Issued 50,000 new shares at P10.50
Mar. 31 Paid quarterly dividends of P1.50 per share
May 12 Converted P1,000,000 of P1,000 bonds to common stock at the rate of 100 shares of
stock per P1,000 bond
June 15Issued an 11% stock dividend
30 Paid quarterly dividends of P1.50 per share

(1) (2)
a. P1,581,750 P6,020,250
b. P1,054,500 P6,020,250
c. P1,518,750 P4,745,250
d. P1,054,500 P1,275,000

50. Kenny Company began operations on January 2013, by issuing at P15 per share one-half of the
950,000 shares of P1 par value common stock that had been authorized for sale. In addition,
Kenny has 500,000 shares of P5 par value, 6% preferred shares authorized. During 2013, Kenny
had P1,025,000 of net income and declared P237,500 of dividends.

During 2014, Kenny had the following transactions:

Jan. 10 Issued additional 100,000 shares of common stock for P17 per share.
Apr. 1 Issued 150,000 shares of the preferred stock for P8 per share.
July 19 Authorized the purchase of a custom-made machine to be delivered in January 2014.
Kenny restricted P295,000 of retained earnings for the purchase of the machine.
Oct. 23 Sold an additional 50,000 shares of the preferred stock for P9 per share.
Dec. 31 Reported P1,215,000 of net income and declared a dividend of P635,000 to
stockholders of record on January 15, 2015, to be paid on February 1, 2015.

Total Stockholders’ Equity on December 31, 2014:

a. P11,842,500
b. P7,912,500
c. P10,475,000
d. P8,250,000

51. On January 1, and enterprise establishes a petty cash account and designates one employee as
petty cash custodian. The original amount included in the petty cash fund is 500, and it will be
used to make small cash disbursements. The fund will be replenished on the first of each month,
after the petty cash custodian presents receipts for disbursements to the general cashier.

The following disbursements are made in January:

Office supplies 173
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Postage 112
Entertainment 42

The balance in the petty cash box at the end of January is 163.

The entry required at the end of January is

a. Office supplies expense 173

Postage expense 112
Entertainment 42
Cash 327

b. Office supplies expense 173

Postage expense 112
Entertainment 42
Petty cash 327

c. Office supplies expense 173

Postage expense 112
Entertainment 42
Cash short or over 10
Cash 337

d. Office supplies expense 173

Postage expense 112
Entertainment 42
Cash 317
Cash short or over 10

52. The company counted its ending inventory on December 31. None of the following were included
when the total amount of the company’s ending inventory was computed:

 P15,000 in goods located in Derrald’s warehouse that are on consignment from another
company.
 P20,000 in goods that were sold by Derrald and shipped on December 30 and were in transit
on December 31; the goods were received by the customer on January 2. Terms were FOB
destination.
 P30,000 in goods that were purchased by Derrald and shipped on December 30 and were in
transit on December 31; the goods were received by Derrald on January 2. Terms were FOB
shipping point.
 P40,000 in goods that were sold by Derrald and shipped on December 30 and were in transit
on December 31; the goods were received by the customer on January 2. Terms were FOB
shipping point.

The company’s reported inventory (before any corrections) was P200,000.

The adjusted inventory is:
a. P265,000
b. P290,000
c. P250,000
d. P200,000

The next four questions are based on the following:

Simpson Company applies revaluation accounting to plant assets with a carrying value of
P800,000, a useful life of 4 years, and no salvage value. Depreciation is calculated on the straight-
line basis. At the end of year 1, independent appraisers determine that the asset has a fair value
of P750,000.
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53. The journal entry to record depreciation for year one will include a
a. debit to Accumulated Depreciation for P200,000.
b. debit to Depreciation Expense for P50,000.
c. credit to Accumulated Depreciation for P50,000.
d. debit to Depreciation Expense for P200,000.

54. The journal entry to adjust the plant assets to fair value and record revaluation surplus in year
one will include a
a. debit to Accumulated Depreciation for P50,000.
b. credit to Depreciation Expense for P150,000.
c. credit to Plant Assets for P150,000.
d. credit to Revaluation Surplus for P150,000.

55. The financial statements for year one will include the following information
a. Accumulated depreciation P200,000.
b. Depreciation expense P50,000.
c. Plant assets P750,000.
d. Revaluation surplus P50,000.

56. The entry to record depreciation for this same asset in year two will include a
a. debit to Accumulated Depreciation for P200,000.
b. debit to Depreciation Expense for P250,000.
c. credit to Accumulated Depreciation for P150,000.
d. debit to Depreciation Expense for P200,000.

57. All of the following are true regarding recovery of impairments for intangible assets except:
a. After a recovery of impairment has been recognized, the carrying value of the asset reported
on the statement of financial position will be the higher of the fair value less cost to sell or the
value-in-use.
b. No recovery of impairment is allowed for Goodwill.
c. A recovery of impairment will be reported in the "Other income and expense" section of the
income statement.
d. The amount of the recovery is limited to the carrying value of the asset that would have been
reported had no impairment occurred.

58. On August 1, 2011, Li Inc. purchased a license with a cost of P5,265,000 and a useful life of 10
years. At December 31, 2013, when the carrying value of the asset was P3,992,625, the company
determined that impairment indicators were present. The fair less cost to sell the license was
estimated to be P3,693,200. The asset's value -in-use is estimated to be P3,802,5000. Li's 2013
income statement will report Loss on Impairment of
a. P109,300.
b. P190,125.
c. P299,425.
d. P1,272,500.

59. On June 2, 2013, Lindt Inc. Purchased a trademark with a cost P9,440,000. The trademark is
classified as an indefinite-life intangible asset. At December 31, 2013 and December 31, 2014, the
following information is available for impairment testing:
12/31/2013 12/31/2014
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Fair value less costs to sell P9,115,000 P9,050,000

Value-in-use P9,350,000 P9,550,000

The 2014 income statement will report

a. no Impairment Loss or Recovery of Impairment.
b. Impairment Loss of P90,000.
c. Recovery of Impairment of P90,000.
d. Recovery of Impairment of P200,000.

60. At the financial statement date of December 31, 2013, the liabilities outstanding of Packard
Corporation included the following:
1. Cash dividends on ordinary shares, P60,000, payable on January 15, 2014.
2. Note payable to Galena State Bank, P470,000, due January 20, 2014.
3. Serial bonds, P1,000,000, of which P250,000 mature during 2014.
4. Note payable to Third National Bank, P300,000, due January 27, 2014.

The following transactions occurred early in 2014:

January 15: The cash dividends on ordinary shares were paid.
January 20: The note payable to Galena State Bank was paid.
January 25: The corporation entered into a financing agreement with Galena State Bank,
enabling it to borrow up to P500,000 at any time through the end of 2016. Amounts borrowed
under the agreement would bear interest at 1% above the bank's prime rate and would mature 3
years from the date of the loan. The corporation immediately borrowed P400,000 to replace the
cash used in paying its January 20 note to the bank.
January 26: 40,000 ordinary shares were issued for P350,000. P300,000 of the proceeds
was used to liquidate the note payable to Third National Bank.
February 1: The financial statements for 2013 were issued.

Determine the amount of current and noncurrent liability at December 31, 2013.

Current Noncurrent
a. P720,000 P1,300,000
b. P780,000 P1,050,000
c. P720,000 P1,010,000
d. P1,080,000 P750,000

61. The 10% bonds payable of Nixon Company had a net carrying amount of P570,000 on December
31, 2013. The bonds, which had a face value of P600,000, were issued at a discount to yield 12%.
The amortization of the bond discount was recorded under the effective-interest method. Interest
was paid on January 1 and July 1 of each year. On July 2, 2014, several years before their maturity,
Nixon retired the bonds at 102. The interest payment on July 1, 2014 was made as scheduled.
What is the loss that Nixon should record on the early retirement of the bonds on July 2, 2014?
Ignore taxes.
a. P12,000.
b. P37,800.
c. P33,600.
d. P42,000.

62. On January 2, 2014 Pod Company purchased 25% of the outstanding ordinary shares of Jobs, Inc.
and subsequently used the equity method to account for the investment. During 2014 Jobs, Inc.
reported net income of P420,000 and distributed dividends of P180,000. The ending balance in
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the Equity Investments account at December 31, 2014 was P320,000 after applying the equity
method during 2014. What was the purchase price Pod Company paid for its investment in Jobs,
Inc?
a. P170,000
b. P260,000
c. P380,000
d. P470,000

Use the following information for the next four questions.

The summarized statements of financial position of Al Company and Dubs Company as of December
31, 2014 are as follows:
Al Company
Statement of Financial Position
December 31, 2014
Assets P1,200,000

Liabilities P 150,000
Share capital—ordiany 600,000
Retained earnings 450,000
Total equities P1,200,000
Dubs Company
Statement of Financial Position
December 31, 2014
Assets P900,000

Liabilities P225,000
Share capital—ordiany 555,000
Retained earnings 120,000
Total equities P900,000

63. If Al Company acquired a 20% interest in Dubs Company on December 31, 2014 for P195,000 and
the fair value method of accounting for the investment were used, the amount of the debit to
Equity Investments would have been
a. P135,000.
b. P111,000.
c. P195,000.
d. P180,000.

64. If Al Company acquired a 30% interest in Dubs Company on December 31, 2014 for P225,000 and
the equity method of accounting for the investment were used, the amount of the debit to Equity
Investments would have been
a. P285,000.
b. P225,000.
c. P180,000.
d. P202,500.

65. If Al Company acquired a 20% interest in Dubs Company on December 31, 2014 for P135,000 and
during 2015 Dobbs Company had net income of P75,000 and paid a cash dividend of P30,000,
applying the fair value method would give a debit balance in the Equity Investments account at
the end of 2015 of
a. P111,000.
b. P135,000.

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c. P150,000.
d. P144,000.

66. If Al Company acquired a 30% interest in Dubs Company on December 31, 2014 for P202,500 and
during 2015 Dubs Company had net income of P75,000 and paid a cash dividend of P30,000,
applying the equity method would give a debit balance in the Equity Investments account at the
end of 2015 of
a. P202,500.
b. P216,000.
c. P225,000.
d. P217,500.

67. Counterbalancing errors do not include

a. errors that correct themselves in two years.
b. errors that correct themselves in three years.
c. an understatement of purchases.
d. an overstatement of unearned revenue.

68. Bal, Inc. is a calendar-year corporation whose financial statements for 2013 and 2014 included
errors as follows:
Year Ending Inventory Depreciation Expense
2013 P162,000 overstated P135,000 overstated
2014 54,000 understated 45,000 understated

Assume that purchases were recorded correctly and that no correcting entries were made at
December 31, 2013, or at December 31, 2014. Ignoring income taxes, by how much should Black's
retained earnings be retroactively adjusted at January 1, 2015?
a. P144,000 increase
b. P36,000 increase
c. P18,000 decrease
d. P9,000 increase

Next two questions are based on the following.

Gee Enterprises records all transactions on the cash basis. Greg Gee, company accountant, prepared
the following income statement at the end of the company’s first year of operations:

Sales P252,000
Selling and administrative expenses:
Salaries expense P78,000
Rent expense 45,000
Utilities expense 29,000
Equipment 30,000
Commission expense 37,800
Insurance expense 6,000
Interest expense 3,000 228,800
Net income P 23,200

Additional information is as follows:

(a) Amounts due from customers at year-end were P28,000. Of this amount, P3,000 will probably
not be collected.
(b) Salaries of P11,000 for December 2013 were paid on January 5, 2014. Ignore payroll taxes.

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(c) Gee rents its building for P3,000 a month, payable quarterly in advance. The contract was
signed on January 1, 2013.
(d) The bill for December’s utility costs of P2,700 was paid January 10, 2014.
(e) The equipment of P30,000 was purchased on January 1, 2013. The expected life is 5 years, no
salvage value. Assume straight-line depreciation.
(f) Commissions of 15% of sales are paid on the same day cash is received from customers.
(g) A 1-year insurance policy was issued on company assets on July 1, 2013. Premiums are paid
annually in advance.
(h) Gee borrowed P50,000 for one year on May 1, 2013. Interest payment based on an annual
rate of 12% are made quarterly, beginning with the first payment on August 1, 2013.
(i) The income tax rate is 40%. No prepayments of income taxes were made during 2013.

69. The net income under accrual basis should be:

a. P39,450
b. P65,750
c. P23,200
d. P13,920

70. Selling and administrative expenses under accrual basis should be:
a. P228,800
b. P214,250
c. P217,250
d. P283,000

END OF EXAMINATION.

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