Professional Documents
Culture Documents
2nd Floor Sommerset Bldg., Lopez Jaena St. Jaro, Iloilo City
Tel. No.: (033) 320-2728; 09106547262
Email Address: a1nursingreviewic@yahoo.com.ph
INSTRUCTIONS:
1. Detach one (1) answer sheet from the bottom of your Examinee ID/Answer Sheet Set.
2. Write the subject title “MANAGEMENT ADVISORY SERVICES” on the box provided.
3. Shade Set Box “A” on your answer sheet if your test booklet is Set A; Set Box “B” if your test booklet is Set B.
__________________________________________________________________________________________
1. The following statements characterized MAS Practice, except:
A. The risk associated to multifarious ongoing changes in business, environment and conditions greatly
contribute in making MAS Practice visibly important.
B. CPA advisors must always maintain Independence and integrity despite so many situations that may
negate their practical applicability.
C. The practice of advisory services is too broad to include those outside the traditional professional
services of CPA’s and allow him to deviate from the general code of professional involves from
problem-solving affecting the future operations of the client.
2. What is one primarily benefit of an enterprise resource planning (ERP) system?
A. It reduces inventory levels.
B. It permits companies to be more streamlined in production.
C. It replaces research and development in a company.
D. It requires an increased emphasis on product quality.
3. Which one of the following is classified as direct labor?
A. Flour in a bakery C. Bottles of cola in a bottling company
B. Wages of factory-janitors D. Coy machine cost of a copy shop
4. What is value chain management best defined as?
A. A large chain that keeps the machines from falling on the production floor
B. Management decisions that affect how quickly the production run occurs
C. The increment value of costs associated with hiring a new production floor leader
D. All activities associated with providing a product or service
5. For what reason is a production cost primarily tracked?
A. To keep with current cost trends to being products to market
B. To effectively allocate the cost of products to measure profitability
C. To determine what amounts are necessary for allocating overhead
D. To keep management’s bonuses increasing every year
6. The following activity and cost data were provided by: Hammer Corp., which would like help in estimating its
future maintenance costs:
Units – Maintenance Cost
3 P450
7 P530
11 P540
15 P700
Using the least-squares regression method to estimate the cost formula, the expected total cost for an activity
level of 10 units would be closest to;
A. P612.50 C. P595.84
B. P581.82 D. P601.50
A1 PASSERS REVIEW CENTER///1
7. Selected information about Buehler Corporation’s operations at high and at low levels of activity follow.
22. Within the relevant range. If sales go up by P1 for each firm which product line will experience the greatest
increase in profit?
A. Company A C. Company C
B. Company B D. Can’t be determined from the information given
23. At sales of P100, what is the difference in the margin of safety rate between the two product lines having the
highest profitability performance?
A. 87.71% C. 66.67%
B. 75.00% D. 10.71%
A1 PASSERS REVIEW CENTER///3
Vinzon Company produces and sells three products that, after with their relative quality and price structure as
follows:
De Luxe Premium Economy
Unit sales price
P400 P200 P100
Unit variable rate
150 120 75
Budget sales in
units 1,000 3,000 6,000
Direct fixed cost P2.5 million P4.0 million P1.2 million
24. After embedding the changes, what is the difference break even point its between the two least profitable
products in terms of pesos?
A. 57,143 C. 92,857
B. 150,000 D. 8,621
25. Which one of the following is a critical factor in budgeting for a service company?
A. Coordinating professional staff needs with and operated services.
B. Determining how to allocate the disproportionate costs.
C. Budgeting expenditures before anticipated receipts.
D. Determining client needs.
26. The performance report of the Bohol Division of South Inc. showed a difference between the budget and the
actual results for the year. Management determines this difference was controllable by the manager in charge.
Should the division manager be held responsible?
A. No, since budget difference over time.
B. Yes, because managers are responsible for controllable cost for their department.
C. Only if the difference is favorable.
D. Yes, manages are responsible for all cost in their division.
27. Which of the following includes people who make up the budget committee?
A. Sales manager, company president treasurer. C. Sales manager, controller, investors.
B. Company treasurer, creditors, controller. D. External auditors, controller, treasurer
28. How does a sales forecast from states budget?
A. A sales forecast includes the company, while a sales budget includes the industry.
B. A sales forecast includes the company and the industry, while a sales budget includes only the industry.
C. A sales forecast includes the company and the industry, while a states budget includes only the company.
D. They are both the same.
29. Burnham Park Company makes and sells umbrella. The company is in the process of preparing its selling and
administrative Expense Budget for the last half of the year. The following budget data are based on 20,000 units:
Item Variable Cost Monthly Fixed
Unit Sold Cost
Sales commissions P0.60 P3,000
Shipping P1.30
Advertising P0.30
Depreciation on office Equipment P4,000
Other Operating expenses P0.35 P34,000
Expenses are paid in the month incurred. If the company has budgets to spend P90,900 for the expenses, how
many unit does the company expect to sell in the last half of the year?
A. 20,000 C. 37,102
B. 22,000 D. 20,367
The materials cost P2 per pound. How much is the cost of direct per unit?
A. P 0.16 C. P20
B. P25 D. P 0.20
32. Bajada Company reported the following information for 2012;
September October November December January
Budgeted Sales P240,000 P310,000 P250,000 P360,000 P200,000
Budgeted purchases P90,000 P120,000 P128,000 P144,000 P88,000
39. If the direct materials variance is investigated further. It will reflect a price variance of:
A1 PASSERS REVIEW CENTER///5
A. Zero. C. P1,225 unfavorable.
B. P1,176 favorable. D. P1,250 unfavorable.
40. The Dongyi Company has a standard cost system. In July the company purchased and used 22,500
pounds of direct material at an actual cost of 53,000; the materials quantity variance was P1,875 UF; and the
standard quantity of materials allowed for July production was 21,750 pounds. The budgeted materials for the
period are 23,000 pounds for purchases and 24,000 for usage.
Also during the period, the company incurred 12,540 direct labor hours and paid 5,300,000 for plant payroll.
The materials price variance for July was 24,000.
A. P2,725 F. C. P3,250 F.
B. P2,725 U. D. P3,250 U.
41. The Reedy Company uses a standard costing system. The following data are available for
November:
Actual direct labor hours worked 5,800 hours
Standard direct labor rate P9 per hour
LAbor rate variance P1,150 favorable
Standard pounds per hour
Standard variable rate per hour P10
Normal Capacity in hours 6,000
The actual direct labor rate for November is:
A. P8.80. C. P9.00.
B. P8.90. D. P9.20.
42. Borden Enterprises uses standard costing. For the month of April, the company reported the following data:
Standard direct labor rate: P10 per hour
Standard hours allowed for actual production: 8,000.
Actual direct labor rate: P9.50 per hour
Labor efficiency variance: P4,800 F
The labor rate variance for April is:
A. P3,760 U. C. P2,850 F.
B. P3,760 F. D. P2,850 U.
Questions 43 and 44 are based on the following information:
The Lon Company makes and sells a single product called a Grix and employs a standard costing system. The
following standards have been established for one unit of Grix.
Standard Quantity of Hours Standard Cost per Grix
Direct Materials 6 board feet P7.00
Direct labor 0.8 hours P9.60
There were no inventories of any kind on August. During August, the following events occurred:
Purchased 15,000 board feet at the total cost of P24,000.
Used 12,000 board feet to produce 2,100 Grix.
Used 1,700 hours of direct labor time at a total cost of P20,060.
43. To record the purchase of direct materials, the general ledger would include what entry to the Materials
Price Variance Account?
A. P1,500 credit. C. P6,000 credit.
B. P1,500 debit. D. P6,000 debit.
44. To record the incurrence of direct labour cost and its use in production, the general ledger would include
what entry to the Labor Efficiently Variance account?
A. P480 credit. C. P1,200 debit.
B. P240 debit. D. P1,200 credit.
46. What is the variable overhead efficiency variance for the month?
A1 PASSERS REVIEW CENTER///6
A. P1,680 F. C. P1,155 U.
B. P1,190 U. D. P1,190 F.
AUDITING THEORY
1. Which of the following defines the specific requirements of the Securities and Exchange Commission (SEC)
regarding financial reporting of entitles registered with the SEC?
A. SRC Rule
B. SEC Circulars
C. SRC Rule 68
D. SEC Bulletins
2. SRC Rule 68, as amended, is effective for audited financial statements covering periods ended
and onwards, and for Interim financial statements starting the
, and thereafter.
3. Part I of SRC Rule 68, as amended, deals with the general financial reporting requirements of the SEC to
the following entities: (For each covered entity, indicate the required threshold must be met.)
6. Large and/or publicity accountable entities shall use as their financial reporting framework the
a.
b.
7. Small and medium-sized entitles (SMEs) shall use as their Financial Reporting Framework
the .
8. If an SME that uses the PFRS for SMEs In a current year the floor or ceiling of the size criteria at the end of
that current year, and the event that caused the change is considered “significant and continuing”, the entity
shall transition to the applicable financial reporting framework in the next accounting period.
The assessment of “significant and continuing” shall be based on management’s judgement taking into
consideration relevant qualitative and quantitative factors.
As a general, rule, would be considered significant.
11. In the case of branch offices or regional operating headquarters of foreign corporations, the SMR shall be
signed by its who is in charge of its operations within the Philippines.
12. The SMR of the entities covered under Part II of Rule 68, as amended, shall be signed
.
13. A regulated agency shall report to the SEC its action on a report of its independent auditor pertaining to the
following:
a. Any material findings involving fraud or error.
b. Losses or potential losses the aggregate of which amounts to at least 10% of the consolidated total
assets of the entity.
c. Any finding to the effect that the consolidated assets of the entity, on a going concern basis, are no
longer adequate to cover the total claims of creditors; and
d. Material internal control weaknesses which may lead to financial reporting problems.
14. A regulated agency shall submit the required report to the SEC within from the date the
report is submitted by the independent auditor.
In the case regulated agency falls to submit the required report, the Independent auditor shall, within
from the submission of his findings to the entity, file a report to the SEC.
15. Report of Independent Auditor when the Company Incurred Capital Deficiency.
The external auditor of a company which has incurred a capital deficiency shall provide in the audit report an
Indicating the following Information:
a. The fact that the company has incurred a capital deficiency that raises an issue on its going concern
status.
b. A brief discussion of a concrete plan of the company to address the capital deficiency and reference to
the note to financial statements that provides a complete disclosure of the said plan;
c. A statement that the auditor conducted sufficient audit procedures for verify the validity of the
aforementioned plan.
In case the company falls to present to the external auditor a concrete plan or sufficient supporting documents
to address the capital deficiency, the auditor shall provide an Indicating that the company
is no longer a going concern and should use liquidation basis in the preparation of its financial statements.
16. It is considered as a violation of Rule 68, as amended, If the audited financial statements covered by Part II
of the Rule with an auditors opinion other than unqualified arising from the following:
a.
b.
17. For , a qualified opinion from the Independent auditors shall not be considered a non-
compliance with Rule 68, as amended, if the qualification pertains to a deviation from the financial reporting
framework adopted by the Bangko Sentral ng Pilipinas as part of its prudential reporting requirements.
18. The financial statements that may be found by the SEC to be deficient and/or misstated, the Commission
shall make a determination whether such misstatement or Incompleteness is significantly material that would
necessitate the of the financial statements.
19. Corporation covered by PART II of Rule 68, as amended, shall not reissue their financial statements
without .
20. Under Rule 68, as amended, error means an act by one or more individual among management,
employees, or third parties that results in a misrepresentation of financial statements which reduces or
increases the consolidated total assets, total liabilities or income of the company by .
22. The financial statement of companies not covered by SRC Rule 68 should be accompanied
by a .
Such financial statements should have at least a:
a. Statement of Financial Position Fund Balance.
b. Income Statement (or a Statement of Receipts and Disbursements) and
c. Applicable explanatory notes.
23. Companies with no operation but are covered under Rule 68:
a) If no operation only for 1 year, a must be submitted by the company despite its non-
operation.
b) If no operation for the last 2 years, the need not be included in the audited
financial statements.
24. It is the responsibility of the entity’s management to provide all schedules, reports, computations/projection,
reconciliations, reports, analyses, and other financial Information collectively referred to as
in PAPS 1000ph.
25. Which of the following procedure is Inappropriate when the entity’s management is unable to provide the
audit Information requirements?
A. The auditor shall prepare the audit Information requirements.
B. The auditor shall consider assisting the client, for example by preparing a pro forma recondition
statement or schedule format for the client to complete or use as a guide.
C. The auditor shall discuss with the management and/or those changed with governance the possibility of
outsourcing the preparation of audit Information requirements to third party service providers.
D. The auditor shall evaluate the reasons why management is unable to prepare the audit Information
requirements.
26. In situations where the client provided Incomplete, and Insufficient audit Information requirements, the
auditor shall consider the following except.
A. Communication in writing the issues and concerns on the Incomplete and Insufficient audit Information
requirements with management and/or those changed with governance.
B. Discuss if the audit information requirements can be revised to meet adequacy the needs of the auditor.
C. Express a qualified or an adverse opinion.
D. Discuss with management and/or those charged with governance the possibility of outsourcing the
completion of the information to third party service providers.
27. The term “ “ is generally used at present to refer to a set of incomplete or unaudited
financial statements accompanied by a report of an external auditor who has not yet completed his audit of
such financial statements.
28. The BIR accepts incomplete or unaudited financial statements to accompany tentative ITRs. (True or
False)
29. To avoid any association with incomplete or unaudited financial statements, no report (even a report
containing a disclaimer of opinion) shall be issued by the auditor on such incomplete or unaudited financial
statements. (True or False)
30. PAPS 1001Ph (Guidance in Dealing with Tentative Financial Statements) shall be applied to situations
where the auditor has completed an audit and has concluded that there are scope limitations that affected the
audit giving rise to either a qualified opinion or disclaimer of opinion. (True or False)
31. The purpose of PAPS 1002Ph is to provide additional guidance on the application of the existing PSA 700,
specifically on the description of the applicable Philippine financial reporting framework when this is other than
Philippine Financial Reporting Standards. (True or False)
67. An auditor established a P180,000 tolerable misstatement for an asset with an account balance of
P3,000,000. The auditor selected a sample of every 20th item from the population that represented the
asset account balance and discovered a net overstatement of P10,500 (P11,100 overstatement minus
P600 understatements). Under these circumstances, the auditor most likely would conclude that
A. The asset account is fairly states because the tolerable misstatement exceeds the net of projected
actual overstatement and understatement.
B. The assets account is fairly stated because the total projected misstatement is less than the tolerable
misstatement.
C. There is unacceptably high risk that the actual misstatements in the population exceed the tolerable
misstatement because the total projected misstatement exceeds the tolerable misstatement.
D. There is an unacceptable high risk that the tolerance misstatement is more than the sum of actual
overstatements and understatements.
BUSINESS LAW
1. In an obligation to give a determinate thing, what is rights are available to the creditor?
First Answer- To compel specific performance
Second Answer- To record damages in case of breach of the obligation
Third Answer- To ask that the obligation be complied with at the expenses of the labior.
a. All answers are correct c. Only the first answer is correct
b. Only the first and second answers are d. All answers are wrong
correct
2. The following contacts, except one, are void an initio. Which is the exception?
a. That whose object is outside the commerce of men.
b. That whose object did not exist at the time of the transaction.
c. That which contemplates an impossible service.
d. That which is undertaken in fraud of creditors.
3. S, minor, owns a specific property valued at P50,000. B capacitated, by means of fraud induced S to sell
his property to him for P30,000, which S did so. The contact is in writing. Which is correct?
a. the contract is valid and binding from the start
b. the contract remains unenforceable because it falls under the Statute of Frauds.
c. The contract is rescissible because the ward suffered lesion by more than ¼ of the value.
d. The contract is voidable and B can ask for annulment within the period prescribed by law.
4. Legal compensation is allowed when one of the debts
a. Arises from a sale of real property made by a minor to a capacitated person
b. Arises from the obligation of a depositary
c. Consist in civil liability arising from a penal offense
d. Arises from a claim for support by gratuitous title
5. This is not a characteristics of a void or inexistent contract.
a. The right to raise a defense of illegality cannot be waived
b. The action or defense for declaration of the nullity or inexistent of the contract does not prescribed
c. Not subject to ratification
d. Defense of illegality of the contract is available to third persons whose interest are not directly affected
6. Reformation is not the proper remedy if
a. The mutual mistake of the parties causes the failure of the instrument to disclose their real agreement
b. One party was mistaken and the other acted fraudulently or inequitably in such a way that the instrument
does not show their true intention.
c. There was mistake, fraud, inequitable conduct or accident which prevented the meeting of the minds of
the contracting parties
d. The true intention of the contracting parties in not expressed in the instrument purporting to embody the
agreement by reason of mistake, fraud, inequitable conduct or accident
7. The following contracts are defective. Which one is unenforceable?
a. Contract of sale by which a guardian acquires the property of his ward without the approval of the court
b. Contract of sale by which a city mayor acquires a portion of the city part pursuant to a city ordinance
enacted by the City Council
c. Contracts whose object is outside the commerce of man
d. Those were both parties are incapable of giving consent to a contract
8. Which of the following is not a requisite of fraud?
a. There must be a misrepresentation or concealment
b. The fraud must be serious
c. A party is induced by fraud to enter into contract
d. The fraud is employed by both parties upon each other
Questions 50-52: A, B, C ad D owe W,Y and Z P9,000. On maturity, how much can W collect from A?
50. If debtors are joint and creditors are joint
a. P2,250 c. P9,000
b. P3,000 d. P750
51. If debtors are joint and creditors are solidary
a. P9,000 c. P3,000
b. P750 d. P2,250
52. If debtors are joint solidary and creditors are joint
a. P750 c. P9,000
b. P2,250 d. P3,000
53. Using the same data in No.28, but the share of debtors A, B, C and D in the indebtedness is 1:2:3:4 and
creditors W, Y and Z is 2:3:5. How much can Y collect from b if debtors are joint and creditors are joint?
a. P1,800 c. P675
b. P2,700 d. P540
54. How much can Z collect from d, if debtors are solidary and creditors are joint?
a. P1,800 c. P3,600
b. P1,125 d. P4,500
55. How much should A pay W, if debtor are joint and creditors are solidary?
a. P180 c. P2,250
b. P9,000 d. P900
56. A lost P100,000 in a card game called pusoy, but he had no more cash to apply in full the winner at the
time session ended. A promised to pay B, the winner, two weeks thereafter. A failed to pay despite the
lapse, of two months, so B filed in court a suit to collect the unpaid amount. Will the collection suit against A
prosper?
a. Yes, if A made a negotiable promissory note was made by A.
b. Yes, whether or not a negotiable promissory note was made by A.
c. No, if A has no property to pay the obligation
d. No, because pusoy is fundamentally game of chance.
BUSINESS LAW
1. B 35. C 69. C
2. D 36. C 70. D
3. A 37. D 71. C
4. A 38. A 72. B
5. D 39. D 73. B
6. C 40. D 74. C
7. D 41. D 75. C
8. D 42. B 76. A
9. D 43. A 77. B
10. B 44. D 78. C
11. D 45. D 79. B
12. A 46. A 80. B
13. D 47. D 81. D
14. A 48. C 82. D
15. A 49. D 83. C
16. C 50. D 84. B
17. D 51. D 85. C
18. A 52. D 86. C
19. D 53. D 87. C
20. C 54. D 88. C
21. B 55. D 89. C
22. B 56. D 90. A
23. B 57. D 91. D
24. B 58. D 92. B
25. B 59. D 93. B
26. B 60. B 94. A
27. A 61. D 95. D
28. A 62. A 96. C
29. A 63. B 97. D
30. C 64. C 98. D
31. C 65. B 99. D
32. C 66. B 100. C
33. B 67. C
34. A 68. D
TAXATION
1. Spouses A and B sold their family home a capital asset for P5,000,000. It was in 1980 at P2,000,000. The
fair market value as by the BIR is P6,000,000 but the fair market value as shown in the schedule of values
of the City Assessor is P5,500,000. Later, the spouses utilized P4,000,000 for the acquisition of their new
family home. The capital gains tax due is
a. P72,000 b. P60,000 c. P300,000 d. P360,000
2. Using the above data the cost basis of the new family home is
a. P4,000,000 b. P1,600,000 c. P1,000,000 d. P400,000
3. A corporation was merged with B Corporation, G, a stockholder of A Corporation was asked to surrender
his shares of stock of A Corporation which C acquired for P200,000 and in exchanged he received shares
of stock of B Corporation with a fair market value of P220,000 plus cash of P30,000. After the merger, C
later sold his B Corporation shares first P240,000. C will recognize a gain of:
Merger Sale
a. P30,000 P40,000
b. P50,000 P20,000
c. P30,000 P30,000
d. P50,000 P40,000
4. A transferred his commercial land which he acquired for P10M to B Corporation and as consideration he
received shares of stock of B Corporation with a fair market value of P10.2M and cash of P300,000. As a
result, A acquired control of B Corporation. Two months later, A sold the B Corporation shares for P10.5M.
the gain to be recognized on the transfer and on the sale is
Transfer Sale
a. P300,000 P500,000
b. P500,000 P300,000
c. P300,000 P300,000
d. P500,000 P500,000
5. A transferred his land in Manila which he acquired for P2M to B corporation and as consideration received
shares of stock of B Corporation with fair market value of P1.8M and as a result A gained control of B
Corporation. Later, A transferred his land in Makati which he acquired for P3M to C Corporation and as
consideration he received shares of stock of C Corporation with fair market value of P2.7M. even before
the transfer, A already owns 51% of C Corporation outstanding shares. The loss to be recognized by A is
B Cor. C Corp.
a. P0 P300,000
b. P0 P0
c. P200,000 P300,000
d. P200,000 P0
Use the following information for question 6 and 7.
A, sold 3 parcels of land held as capital assets, as follows:
Land1 Land2 Land3
Selling Price P160,000 P160,000 P160,000
Cost 100,000 100,000 100,000
Installment Payment:
Year 1 (year of sale) 40,000 40,000 40,000
2 120,000 60,000 60,000
10. In 1998, Cadena de Amor Corporation gave the following fringe benefits to its employees
To managerial employees ------------------------------------------------ P1,320,000
To rank and file employees----------------------------------------------- 5,000,000
The allowable deduction from the gross income of the corporation for the benefits given to employees is:
a. P2,000,000 c. P6,320,000
b. P2,148,000 d. P7,000,000
11. A vat taxpayer has the following data for a particular quarter during the current year:
Sale of shares of stock: P1,000,000
Held as inventory 500,000
Held as investment
Cost of the shares sold: 300,000
Held as inventory 600,000
Held as investment (thru local stock exchange)
The stock transaction tax is:
a. P0 c. P2,500
b. P1,500 d. P7,500
12. An invoice is issued for the sale of vat taxable goods shows the following:
If the vat taxpayer enjoys a partial exemption of 40% including VAT and the amount is VAT inclusive, how
much is the output tax?
a. P3,078 c. P3,447
b. P3,216 d. P3,628
13. A, a vat taxpayer, made the following purchases of capital goods from vat registered sellers for use in his
business (amounts are net of vat) for the 3rd quarter
Machine 1 was retired on September 30, 2011. The input tax in July is:
a. P2,800 c. P132,000
b. P108,000 d. P2,200
How much of the dividend income received by Mr. Araki is considered income from sources within the
Philippines?
a. Zero c. P144,000
b. P156,000 d. P300,000
28. A, married to M had the following during the taxable year:
Gross Income
From the practice of profession-------------------- P 700,000
Rental income in their conjugal property-------- 300,000
Allowable deductions
For the practice of profession----------------------- 520,000
For the property rented to tenants---------------- 140,000
First Answer- A scholarship grant to the employee by the employer shall not be treated as taxable fringe
benefit if the education or study involved is directly connected with the employer’s trade, business or
profession and there is a written contract between them that the employee is under obligation to remain in the
employ of the employer foe the period of time that they have mutually agreed upon.
Second Answer- The cost of educational assistance extended by an employer to the of an employee shall
be treated as taxable fringe benefits of the employee unless the assistance was provided through a
competitive scheme under the scholarship program of the company.
2nd Statement- Daily meal allowance for overtime work not exceeding twenty five (25%) percent of the
basic minimum wage is exempt fringe benefit
a. True, true c. True, false
b. False, true d. False, false
81. 1st Statement- Laundry allowance not exceeding P300 per month is exempt de minimis benefit.
2nd Statement- Medical cash allowance to dependents of employees not exceeding P750 per employee
per semester, or one hundred twenty five pesos (125) per month is exempt de minimis benefit.
a. True, true c.True, false
b. False, true d. False, false
82. 1st Statement- Flowers, fruits and books or other similar token items given to employees under certain
circumstances are exempt de minimis benefits.
2nd Statement- gift given during Christmas and major anniversary celebrations not exceeding P5,000 per
employee per annum is an exempt de minimis benefit.
a. True, true c. True, false
b. False, true d. False, false
83. 1st Statement- Rise subsidy of one thousand five hundred pesos or one sack of 50 kg. Rice per month
amounting to not more than one thousand five hundred pesos is an exempt de minimis benefit.
2nd Statement- Employee achievement awards, e.g., for length of service, or safety achievement,
which must be in the form of a tangible personal property other than cash or gift certificate, with an
annual monetary value not exceeding ten thousand pesos received by an employee under an established
written plan which does not discriminate in favour of highly paid employees is an exempt de minimis
benefit.
a. True, true c. True, false
b. False, true d. False, false
1st Statement- Beginning the year 2005 interest expense in connection with taxpayer’s business shall be
reduced by an amount equal to forty two percent (42%) of interest income subjected to final tax
2nd Statement- Interest incurred on money used to acquire property to be used in trade shall only be allowed as
a capital expenditure.
a. True, true c. True, false
b. False, true d. False, false
88. Which of the following is not correct?
a. An individual citizen of the Phils. Who is working and deriving income from abroad as an overseas contract
worker is taxable only on income from sources within the Phils.
b. A seaman who is a citizen of the Phils. And who receives compensation for services rendered abroad as a
member of the complement of a vessel engaged exclusively in international trade shall be treated as an
overseas contract worker.
c. An alien individual is taxable only on income derived from sources within the Phils.
d. A citizen of the Phils. Is taxable on income derived from sources within and without the Phils.
89. A work for a manufacturing firm but due to business reverses, the firm offered a voluntary redundancy program
in order to reduce overhead expenses. Under the program, an employee who offered to resign would be given
separation pay equivalent to his 3 months basis salary for every year of service. A accepted the offer and
received P800,000 as separation pay under the program. After all the employees who accepted the offer were
paid, the firm found its overhead still excessive. Hence, it adopted another program, where various unprofitable
departments were closed. As a result, B was separated from the services, B also received P800,000 as
separation pay. At the time of separation both A and B have rendered at least 10 years of service but A was 55
years old while B was 45 years old. As a result,
a. Both amounts are exempt from income tax. c. Only Mr. A is subject to income tax.
b. Both amounts are subject to income tax. d. Only Mr. B is subject to income tax.
90. Which of the following expenses is deductible from gross income?
a. Contribution to a newspaper fund for needy families when such newspaper organizes a drive solely for
charitable purpose.
b. Premiums paid by the self-employer for the insurance of his employees.
c. Contribution to the construction of a chapel of a university dividends to its stockholders.
d. Donation of prizes and awards to athletes in local and international competitions and sanctioned by their
respective sport associations.
91. Cash dividends received by a non-resident foreign corporation from a domestic corporation is
a. Exempt from income tax c. Part of taxable income
b. Subject to final tax d. Partly exempt, partly taxable
92. Cash dividends received by a domestic corporation from a domestic corporation is
a. Exempt from income tax c. Part of taxable income
b. Subject to final tax d. Partly exempt, partly taxable
93. Which of the following statements is not correct?
a. When a compulsory heir is given by will less than his legitime, the provisions of the will should be modified in
such a way that he will receive his legitime
b. The CIR may examine the bank deposit of a decedent for the purpose of determining his gross estate even if
the estate did not request for a compromise on the ground of financial incapacity
c. The P500,000 standard deduction for medical expenses for estate tax purpose is a legal mechanism to
further exempt the less privileged estate and heirs from tax burden
d. The sharing of heirs in testamentary succession must satisfy the rules on legitime
THEORY OF ACCOUNTS
1. Under PAS 32, which of the following assets is not financial asset?
a. Cash
b. An equity instrument of another entity
c. A contract that may or will be settled in the entity’s own instrument and is not classified as an equity
instrument of the entity
d. Prepaid expense
2. Which of the following liabilities is a financial liability
a. Deferred avenue.
b. A warranty obligation.
c. A constructive obligation.
d. An obligation to deliver own shares worth a fixed amount of cash.
3. Which of the following instrument would not be classified as a financial liability?
a. A preference share that will be redeemed by the issuer for cash on a future date.
b. A contract for the delivery as many of the entity’s ordinary shares as are equal in value to P100,000 on a
future date.
c. A written call option that gives the holder the right to purchase a fixed number of the entity’s ordinary shares
in return for a fixed price.
d. An issued perpetual debt instrument.
4. What is the principal of accounting for a compound instrument?
a. The issuer shall classify a compound instrument as either a liability or equity based on evaluation of the
predominant characteristics of the contractual arrangement.
b. The issuer shall classify the liability and equity components of a compound instrument separately as financial
liability or equity instrument.
c. The issuer shall classify a compound instrument as a liability in its entirely, until converted into equity, unless
the equity components is detachable and separately transferable, in which case the liability and equity
components shall be presented separately.
d. The issuer shall classify a compound instrument as a liability in its entirely, until converted equity.
5. What is the accounting for treasury share transaction?
a. On repurchase of treasury shares, a gain or loss is recognized equal to the difference between the amount at
which the shares were issued and the repurchase price for the shares.
b. On reissuance of treasury shares, a gain or loss is recognized equal to the difference between the previous
repurchase price and the reissuance price.
c. On repurchase or reissuance of previously repurchased own shares, no gain or loss is recognized.
d. Treasury shares are accounted for as financial assets.
6. How are the proceeds from issuing a compound instrument allocated between the liability and equity
components?
a. First, the liability component is measured at fair value, and then the remainder of the proceeds is allocated to
the equity component.
b. First, the liability component is measured at fair value, and then the remainder of the proceeds is allocated to
the liability component.
c. First, the fair values of both the equity components and the liability component are estimated. Then the
proceeds are allocated to the liability and equity components based on the relation between the estimated
fair value.
d. The equity component is measured at its intrinsic value. The liability component is measured at the par
amount less the intrinsic value of the equity component.
7. What are the conditions for offsetting of financial assets and financial liabilities?
a. A legal right of set-off.
b. A legal right of set-off and an intention to settle net simultaneously.
c. The existence of clearing mechanism or other market mechanism for net settlement and an expectation of
net settlement.
d. A netting agreement and an expectation of net settlement.
A1 PASSERS REVIEW CENTER///40
8. For what items is fair value required to be disclosed?
a. All financial instruments.
b. All financial instruments, except unquoted equity instruments and derivatives linked thereto.
c. All financial assets and financial liabilities, except for investment in unquoted instruments and derivatives
linked thereto.
d. All financial assets, except for investment in unquoted instruments and derivatives linked thereto.
9. Transaction costs that are directly attributable to the ”issuance of new shares” should be
a. Expensed immediately.
b. Changed to retained earnings.
c. Deducted from equity.
d. Deducted from equity, net of any related income tax benefit.
10. Cost of public offering of shares or costs that relate to the “stock market listing of shares” should be
a. Expensed immediately.
b. Considered a component of other comprehensive income.
c. Deducted from equity.
d. Deducted from equity, net of any related income tax benefit
11. Transaction costs directly attributable to the issuance of new shares include all of the following, except
a. Documentary stamp tax and other c. SEC registration fee for new shares
percentage tax d. Stock listing fee
b. Underwriting fee
12. Costs of public offering or listing of shares include
I. Road show presentation
II. Public relations consultant fee
III. Newspaper publication fee directly relating to the shares issue.
a. I only c. II and III only
b. I and II only d. I,II and III
13. What is the treatment of “joint costs” that relate jointly to the concurrent listing and issuance of new shares,
and listing of old existing shares?
a. The joint costs should be expensed immediately.
b. The joint costs should be deducted from equity, net of tax benefit.
c. The joint costs should deducted from equity, plus tax benefit.
d. The joint costs should be allocated between the newly issued and listed shares and the newly listed old
existing shares prorate based on the number of shares outstanding.
14. Joint costs related to the concurrent listing and issuance of new shares and listing of old existing shares
include all of the following, except
a. Fairness opinion and valuation report.
b. Tax opinion and opinion of counsel.
c. Audit and other professional advice relating to prospectus design and printing.
d. Documentary stamp tax.
15. Under PAS 33, contingent ordinary shares are treated as outstanding and included in the computation of
both basic and diluted earnings per share if the conditions are satisfied. Which of the following statements
is true?
I. Contingent ordinary shares are included in the calculation of basic earnings per share from the date the
condition is satisfied.
II. Contingent ordinary shares are included in the calculation of diluted earnings per share from the
beginning of the period or from the date of contingent agreement, if later.
a. I only c. Both I and II
b. II only d. Neither I nor II
16. Entity A has an ordinary “A” class, nonvoting share, which is entitled to a fixed dividend of 6% per annum.
The “A” class ordinary share will
a. Be included in the “per share” calculation after adjusting for the fixed dividend.
b. Be included in the “per share” calculation for EPS without adjustment for the fixed dividend.
c. Not be included in the “per share” calculation for EPS.
d. Be included in the calculation of diluted EPS.
17. Earnings per share are calculated before accounting for which of the following items?
a. Preference dividend for the period c. Taxation
b. Ordinary dividend d. Minority interest
18. Ordinary shares issued as part of a business combination are included in the EPS from
a. The beginning of the accounting period c. The end of the accounting period
b. The date of acquisition d. The midpoint of the accounting year
74. Equity acquires a subsidiary exclusively with a view to selling it. The subsidiary meets the criteria to be
classified as held for sale. At the end of reporting period, the subsidiary has not yet been sold, and six
82. Which is not a characteristic of the “full cost” method of accounting in the oil and gas industry/
1. D 35. B 69. A
2. D 36. D 70. B
3. C 37. D 71. D
4. B 38. C 72. D
5. C 39. C 73. B
6. A 40. A 74. B
7. B 41. D 75. C
8. C 42. C 76. A
9. D 43. B 77. D
10. D 44. A 78. C
11. B 45. C 79. D
12. D 46. A 80. C
13. D 47. A 81. A
14. D 48. A 82. C
15. C 49. A 83. D
16. C 50. C 84. A
17. B 51. C 85. A
18. B 52. B 86. C
19. A 53. B 87. C
20. B 54. D 88. A
21. B 55. A 89. D
22. D 56. A 90. D
23. D 57. B 91. C
24. D 58. C 92. C
25. C 59. C 93. C
26. B 60. C 94. B
27. C 61. C 95. A
28. C 62. D 96. C
29. D 63. A 97. D
30. B 64. D 98. B
31. B 65. D 99. A
32. C 66. A 100. B
33. B 67. D
34. C 68. A
AUDITING THEORY
INSTRUCTIONS:
1. Detach one (1) answer sheet from the bottom of your Examinee ID/Answer Sheet Set.
2. Write the subject title “AUDITHING THEORY” on the box provided.
3. Shade Set Box “A” on your answer sheet if your test booklet is Set A; Set Box “B” if your test booklet is Set
B.
MULTIPLE CHOICE:
For each of the following types of misstatements (Items 21-24) select the control that should have
prevented the misstatements.
21. A manufacturing company received a substantial sales return in the last month of the year, but the credit
memorandum for the return was not prepared until after the auditors had completed their filed work. The
returned merchandise was included in the physical inventory.
a. Credit memoranda are pre-numbered and all numbers are accounted for.
b. Aged trial balance accounts receivable is prepared.
c. A reconciliation of the trial balance of customer accounts with the general ledger control is prepared
periodically.
d. Receiving reports are prepared for all materials received accounts and such reports are accounted for
on a regular basis.
22. The sales manager credited a salesman, Jun with sales that were actually “house account” sales. Later
Jun divided his excess sales commission with the sales manager.
a. Sales order are reviewed and approved by persons independent of the sales department.
b. The summary sales entries are checked periodically by persons independent of sales.
c. Sales orders are pre-numbered and all numbers are accounted for.
d. The internal auditor compares the sales commission statements with the cash disbursements records.
23. Copies of sales invoices shows different unit prices for apparently identical items.
a. All sales invoices are checked as to all details after their preparation.
b. Differences reported by customers are satisfactorily investigated.
c. Statistical sales data are complied and reconciled with recorded sales.
d. All sales invoices are compared with the customers purchase orders.
24. A sales invoice for P52,000 was computed correctly but, by mistake, was key entered as P25,000 to the sales
journal and to the accounts receivable master file. The customer remitted only P25,000 the amount on his
monthly statement.
a. Unauthorized remittance deductions made by customers of other matters in dispute are investigated promptly
by a person independent of the accounts receivable function.
b. The customer’s monthly statements are verified and mailed by a responsible person other than the
bookkeeper who prepared them.
c. Sales invoice serial numbers, prices, discounts, extensions, and footings are independently checked.
d. Pre-listings and predetermined totals are used to control postings.
25. Auditors sometimes use comparison of ratios as audit evidence. For example, an unexplained decrease in the
ratio of gross profit to sales may suggest which of the following possibilities?
a.Unrecorded sales
b.Unrecorded acquisitions
c.Fictitious sales
d.Merchandise acquisition being charged to selling and general expenses
A1 PASSERS REVIEW CENTER///53
26. An auditor is performing substantive tests of transactions for sales. One step is to trace a sample of debit from
the accounts receivable master file back to supporting duplicate sales invoices. What would the auditor intended
to establish by this step?
a.All sales have been recorded.
b.Sales invoices represent existing sales.
c.All sales invoices have been properly posted to customer accounts.
d.Debit entities in the accounts receivable files are properly supported by sales invoices.
27. In a random sample of 1,000 records, an auditor determines that the sample deviation rate is 2 percent. The
auditor can state that the deviation rate in the population is:
a. Not less than 2 percent. c. Probably about 2 percent.
b. Not more than 3 percent. d. Not less than 1 percent.
28. As a result of analytical procedures, the independent auditor determines that the gross profit percentage has
declined from 30 percent in the preceding year to 20 percent in the current year. The auditor should:
a. Evaluate management’s performance in causing this decline.
b. Require note disclosure.
c. Consider the possibility of a misstatement in the financial statements.
d. Express a qualified opinion due to inability of the client company to continue as a going concern.
29. Which of the following is true of generalized audit software programs?
a. They can be used on any computer without modification.
b. They can be used only in auditing on-line computer systems.
c. They enable the auditor to perform all manual tests of controls procedures less expensively.
d. They each have their own characteristics that the auditor must carefully consider before using in a given audit
situation.
30. The negative form of accounts receivable confirmation request is useful except when?
a. A large number of small balances are involved.
b. Internal control surrounding accounts receivable is considered to be effective.
c. Individual account balances are relatively large.
d. The auditor has reason to believe the persons receiving the request are likely to give them consideration.
31. Which of the following is the best argument against the use of negative confirmations of accounts receivable?
a. There is no way of knowing if the intended recipients received them.
b. They each have their own characteristics that the auditor must carefully consider before using in a given audit
situations.
c. The inference drawn from receiving no reply may not be correct.
d. The cost per response is excessively high.
32. A factory foreman at Stable Corporation discharged an hourly worker but did not notify the payroll department.
The foreman then forged the worker’s signature on time cards and work tickets and, when giving out checks,
diverted the payroll checks drawn from discharge worker to his own use. The most effective procedure for
preventing this activity is to:
a. From time to time, rotate persons distributing the payroll.
b. Require written authorization for all employees added to or removed from the payroll.
c. Have someone other than persons who prepare or distribute the payroll obtain custody of unclaimed payroll
checks.
d. Have a paymaster who has no other payroll responsibility distribute the payroll checks.
33. A common audit procedure in the audit procedure in the audit of payroll transactions involves tracing selected
items from the payroll journal to employee time cards that have been approved by 7 supervisory personnel. This
procedure is designed to provide evidence in support of the audit proposition that:
a. Jobs on which employees worked were changes with the appropriate labor cost.
b. Only proper employees worked and their pay was properly computed.
c. All employees worked the number of hours for which their pay was computed.
d. Internal controls over payroll disbursements are operating effectively.
34. Buddy, the purchasing agent of Lander Hardware Wholesalers, has a relative who owns a retail hardware store.
Buddy arranged for hardware to be delivered by manufacturers to the retail store on COD basis, thereby
enabling his relative to buy at Lander’s wholesale prices. buddy was probably able to accomplish this because
of Lander’s poor internal control over.
a. Cash receipt c. Purchase requisition.
b. Perpetual inventory records. d. Purchase orders.
35. Which of the following is an internal control that would prevent paid cash disbursement documents from being
presented for payment as second time?
a. Cash disbursement documents should be approved by at least two responsible managements officials.
b. The date on cash disbursement documents should be within a few days of the date that the document is
presented for payment.
c. Unsigned checks should be prepared by individuals who are responsible for singing checks.
d. The officials signing the check should compare the check with the documents and should deface the
documents.
MULTIPLE CHOICE:
11. a created an irrevocable in favor of his 2 minor children. The trust provides that 50% of the net income
should be distributed yearly to the children, share alike, the balance to accumulate for eventual. The
taxable income of the trust is
a. P480,000 c. P230,000
b. P500,000 d. P0
12. The following expenses maybe deducted from gross income, except
a. Employer’s contribution to the Christmas party of his employees
b. Contribution to the construction of a chapel of a university that declares dividends to its stockholders
c. Premiums paid by the employer for the life insurance of his employees where the beneficiary is the
estate of the employee
d. Interest in taxes
13. Optional standard deduction
a. Is equal to 40% of the gross income from business or practice
b. Cannot be used as deduction of a chapel of a university that declares dividends to its stockholders
c. May be availed by all individual taxpayers
d. May be availed of by the taxpayer whether or not he signifies his desire to elect optional standard
14. M married to K, left Philippines in the middle of the year on July 1, 2009 to go to USA and work there as a
contract worker for two years, the following income provided as of December 31, 2009.
Philippines USA
a. January 1 to June 30 P300,000 $10,000
b. July 1 to December 31 P100,000 $20,000
15. ABC has an authorized capital stock of P5,000,000 divided into 50,000 shares with a par value of P100
per share. Of the 25,000 shares subscribed, 13,000 will belong to A, because of additional subscription of
P9,500 shares, and to pay his additional subscription accounting to P950,000. A transferred to the
corporation a parcel of land that he owns. The investigation conducted by the BIR revealed that A acquired
the property for only P500,000. A’s taxable gain is
a. P450,000 c. P500,000
b. P950,000 d. P0
16. A, a resident citizen, single had the following during the taxable year:
1. Contributions during the year:
a. To the Dept. Of Education- for priority activity in education Php 100,000
b. To religious and charitable organizations 20,000
c. To victims of typhoon and earthquake 40,000
d. To the government for public purpose 20,000
5. During the year, A sold a machine acquired three (3) years earlier. The machine had an accumulated
depreciation of P30,000
1. C 25. B 49. D
2. D 26. D 50. A
3. C 27. B 51. B
4. B 28. A 52. B
5. B 29. D 53. C
6. A 30. B 54. B
7. D 31. B 55. C
8. C 32. A 56. C
9. C 33. D 57. C
10. C 34. A 58. C
11. C 35. B 59. B
12. B 36. B 60. B
13. B 37. C 61. A
14. A 38. A 62. D
15. D 39. A 63. D
16. D 40. A 64. A
17. A 41. C 65. C
18. C 42. C 66. C
19. D 43. D 67. A
20. A 44. A 68. B
21. C 45. C 69. C
22. C 46. C 70. D
23. C 47. C
24. D 48. C
MULTIPLE CHOICES:
Rover sells two units of Product A for each unit it sells of Product B. rover faces a tax rate of 30%.
Rover desires a net after-tax income of P73,500. The breakeven point in units would be:
a. 21,750 units of Product A and 43,500 units of Product B
b. 22,500 units of Product A and 45,000 units of Product B
c. 43,500 units of Product A and 21,750 units of Product B
d. 45,000 units of Product A and 22,500 units of Product B
9. Cost behavior refers to:
a. How costs react to a change in the level of activity
b. Whether a cost is incurred in a manufacturing, merchandising, or service company
c. Classifying costs as either inventoriable or period costs
d. Whether a particular expense has been ethically incurred
10. Management accounting is considered successful when it:
a. Helps creditors evaluate the company’s performance
b. Helps managers improve their decision
c. Is accurate
d. Is relevant and reported annually
11. When 10,000 units are produced fixed cost are P14 per unit. Therefore, when 20,000 units are produced
fixed costs will:
a. Increase to P28 per unit c. Decrease to P7 per unit
b. Remain at P14 per unit d. Total P280,000
12. BLOF Manufacturing produces a unique valve and has the capacity to produce 50,000 valves annually.
Currently BLOF produces 40,000 valves and is thinking about increasing production to 45,000 valves next
year. What is the most likely behavior of total manufacturing costs and unit manufacturing costs given this
change?
a. Total manufacturing costs will increase and unit manufacturing cost will stay the same.
b. Total manufacturing cost will increase and unit manufacturing costs will decrease.
c. Total manufacturing cost will stay the same and unit manufacturing costs will stay the same.
d. Total manufacturing cost will stay the same and unit manufacturing costs will decrease.
13. Management accounting :
a. Focuses on estimating future revenues, costs and other measures to forecast activities and their
results
b. Provides information about the company as a whole
c. Reports information that has occurred in the past that is verifiable and reliable
d. Provides information that is generally available only on a quarterly or annual basis
14. In the cost classification system used by manufacturing firms, total manufacturing costs would include all of
the following EXCEPT:
a. Direct materials costs and conversion costs
b. Direct materials cost, direct manufacturing labor cost and manufacturing overhead cost
c. Indirect materials costs, indirect manufacturing labor costs and manufacturing overhead costs
d. Prime costs and manufacturing overhead costs
15. Which of the following items is NOT an assumption of CVP analysis?
a. Total costs can be divided into a fixed component that is variable with respect to the level of output.
b. When graphed total costs curve upward.
c. The unit-selling price is known and constant
d. All revenues and costs can be added and compared without taking into account the time value of
money.
16. Matulunging Kamay is a nonprofit organization that supplies electric fans during the summer for individuals
in need/ fixed costs are P200,000. The fans cost P20.00 each. The organization has a budgeted
appropriation of P480,000. How many people can receive a fan during the summer?
a. 12,000 people c. 24,000 people
b. 14,000 people d. 34,000 people
17. Which of the following cost(s) are inventoried when using variable costing?
a. Direct manufacturing costs
b. Variable marketing-costs
A1 PASSERS REVIEW CENTER///69
c. Fixed manufacturing costs
d. Both a and b are correct
THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 18 THROUGH 21:
Metro University is planning to hold a fundraising banquet at one of the local country clubs. It has two
options for the
Banquet:
OPTION 1: Quezon City Country Club
a. fixed rental cost of P1,000
b. P12 per person for food
Metro University has budgeted P1,800 for administrative and marketing expenses. It plans to hire a
band which will cost another P800. Tickets are expected to be P30 per person, local business
supporters will donate any other items required for the event.
Shirt Company’s manager have decide to revise their current assignment of overhead costs to reflect the
following ABC cost information:
Activities demanded
T-SHIRTS SWEATSHIRTS
0.75 DLH/unit 1.2 DLH/unit
45,000 DLHs 42,000 DLHs
60,000 inspections 17,500 inspections
25. Under the revised ABC system, total overhead costs allocated to Sweatshirts will be:
a. P 48,720 c. P224,920
b. P76,720 d. None of these answers are correct
26. Using an ABC system, next year’s estimates show manufacturing overhead costs will total P228,300 for
52,000 T-shirt. If all other T-shirt costs and sales prices remain the same, the profitability that can be
expected is
a. P5.41 per t-shirt c. P1.11 per t-shirt
b. P4.39 per t-shirt d. (P0.81) per t-shirt
27. If breakeven point is 100 units, each unit sells for P30, and fixed costs are P1,000, then on a graph the:
a. Total revenue line and the total cost line will intersect at P3,000 of revenue
b. Total cost line will be zero units sold
c. Revenue line will start at P1,000
d. All of these answers are correct
28. Put the following ABC implementation steps in order:
A. Compute the allocation rates.
B. Compute the total cost of the product.
C. Identify the products that are the cost object.
D. Select the cost allocation bases
a. DACB c. BADC
b. DBCA d. CDAB
29. Within the relevant range, if there is a change in the level of the cost driver, then
a. Total fixed costs and total variable costs will change
b. Total fixed costs and total variable costs will remain the same
c. Total fixed costs will remain the same and total variable costs will change
d. Total fixed costs will change and total variable costs will remain the same
30. Absorption costing:
a. Expenses marketing costs as cost of goods sold
b. Treats direct manufacturing costs as a period cost
c. Includes fixed manufacturing overhead as an inventoriable cost
d. Is required for internal reports to manager
31. If the unit level of inventory increases during an accounting period, then:
a. Less operating income will be reported under absorption costing than variable costing
b. More operating income will be reported under absorption costing than variable costing
c. Operating income will be the same under absorption costing and variable costing
A1 PASSERS REVIEW CENTER///71
d. The extract effect on operating income cannot be determined
35. Under absorption costing, income for the years 20X1, 20X2 and 20X3 would be
36. Under variable costing, income for the years 20X1, 20X2 and 20X3 would be
37. Ajipe Company manufactures circuit boards for other firms. Management is attempting to search for ways
to reduce manufacturing labor costs and has received a proposal from a consulting company to rearrange
the production floor next year. Using the information below regarding current operations and the new
proposal, which of the following decisions should management accept?
Currently Proposed
Required machine operators 5 4.5
Material-handling workers 1.25 1.25
Employee average pay P8 per hour P9 per hour
Hours worker per employee 2,100 2,000
Variable costs:
Direct materials P40
Direct labor 20
Manufacturing support 35
Marketing costs 15
Fixed costs:
Manufacturing support 45
Marketing costs 15
Total cost 170
Markup (50) 85
Targeted selling price P255
What is the change in operating profits if the one-time-only special order for 1,000 units is acceptance for P180
a unit by Welch?
a. P70,000 increase in operating profits c. P10,000 decrease in operating profits
b. P10,000 increase in operating profits d. P75,000 decrease in operating profits
39. A variance shows a deviation of actual results from standard or budgeted results. In deciding whether to
investigate a variance or not, management may consider the following factors, except
a. The amount of the variance and the cost of investigation
b. Whether the variance is favourable or unfavourable
c. The possibility that investigation will eliminate future occurrences of the variance
d. The trend of the variances over overtime.
40. Tricolor Company has the following information for the current year:
What is the difference between operating incomes under absorption costing and variable costing?
a. P70,000 c. P40,000
b. P50,000 d. P5,000
It is estimated that 10% of the fixed overhead costs assigned to TES456 will no longer be incurred if the company
purchases TES456 from the outside supplier.tagumpay Engine Company has the option of purchasing the part from
an outside supplier at P85 per unit.
41. If Tagumpay Engine Company purchases 1,000 TES456 parts from the outside supplier per month then its
monthly operating income will:
a. Increase by P2,000 c. Decrease by P3,000
b. Increase by P80,000 d. Decrease by P85,000
42. The maximum price that Tagumapy Engine Company should be willing to pay the outside supplier is:
a. P80 per TES456 part c. P98 per TES456 part
b. P82 per TES456 part d. P100 per TES456 part
43. Opportunity cost(s):
a. of a resource with excess capacity is zero
b. should be maximized by organizations
A1 PASSERS REVIEW CENTER///73
c. are recorded an expense in the accounting records
d. are most important to financial accountants
44. Maligaya Company is considering eliminating Model AE2 from its camera line because of losses over the
past quarter. The past three months of information for Model AE2 are Summarized below:
If Model AE2 is dropped from the product line, operating income will:
a. Increase by P10,000 c. Increase by P30,000
b. Decrease by P20,000 d. Decrease by P10,000
45. It is a sequence of economic activity in a nation’s economy that is typically characterized by four phases-
recession, recovery, growth and decline that repeat themselves over time.
a. Business cycle c. Accounting cycle
b. Operating cycle d. Life cycle
46. In a standard costing system, actual costs are compared with standard costs. The difference or variance
determined, and responsibility for such variance is assigned or identified to a particular person or
department, in order to
a. Determine who is at fact and render the appropriate punishment
b. Be able to set the correct selling price of the product
c. Use the knowledge about the variance to promote learning and continuous improvement in the
manufacturing operations
d. Trace the variances to the proper inventory accounts so that they may be valued at actual costs.
47. For January, the cost components of a picture frame include P0.35 for the glass, P.65 for the wooden
frame, and P0.80 for assembly. The assembly desk and tools cost P400, 1,000 frames are expected to be
produced in the coming year. What cost function best represents these costs?
a. Y= 1.80 + 400X c. Y= 2.20 + 1,000X
b. Y= 400 + 1.80X d. Y= 1.00 + 400X
48. An Enterprise Resource Planning System can best be described as:
a. A collection of programs that use a variety of unconnected databases.
b. A single database that collects data and feeds it into applications that support each of the company’s
business activities, such as purchases, production, distribution, and sales
c. A database that is primarily used by a purchasing department to department to determine the correct
amount of a particular supply item to purchase
d. A sophisticated means of linking two or more companies to failure their planning processes
49. In economics, it refers to a rise in the general level of price of goods And services in an economy over a
period of time.
a. Inflation c. Deflation
b. Recession d. Depression
50. SML Company manufactures three sizes of kitchen appliances: small, medium, and large.
Product information is provided below:
ANSWER KEY
MANAGEMENT ADVISORY SERVICES
1. C 18. B 35. B
2. D 19. 36. A
3. B 20. B 37. B
4. C 21. C 38. A
5. B 22. D 39. A
6. D 23. B 40. A
7. C 24. B 41. C
8. D 25. D 42. B
9. C 26. D 43. A
10. B 27. C 44. B
11. C 28. D 45. A
12. B 29. C 46. C
13. A 30. C 47. B
14. C 31. B 48. B
15. B 32. D 49. A
16. C 33. B 50. B
17. A 34. B
A1 PASSERS REVIEW CENTER///75
A1 PASSERS TRAINING, RESEARCH, REVIEW & DEVELOPMENT COMPANY
2nd Floor Sommerset Bldg., Lopez Jaena St. Jaro, Iloilo City
Tel. No.: (033) 320-2728; 09106547262
Email Address: a1nursingreviewic@yahoo.com.ph
AUDITING PROBLEMS
INSTRUCTIONS:
1. Detach one (1) answer sheet form the bottom of your Examinee ID/Answer Sheet Set.
2. Write the subject title “BUSINESS LAW AND TAXATION” on the box provided.
3. Shade Set Box “A” on your answer sheet if your test booklet is Set A; Set Box “B” if your test booklet is Set B.
____________________________________________________________________________________________
MULTIPLE CHOICES:
PROBLEM NO. 1
During 2010 and 2011, SUMAN CORPORATION experienced transactions involving property, plant, and
equipment (PPE). A number of errors were made in recording some of these transactions. For each item listed
below, determine the effect of the error (if any) by using the following codes:
2010 2011
Net Book Net Book
Value of 2010 Value of 2011
PPE at Net PPE at Net
Transaction 12/31/10 Income 12/31/11 Income
1. The cost of installing a new computer system in 2010 was not recorded in 2010. It was charged to
expense in 2011.
A. U U U U
B. U O U U
C. U O U O
D. U U O U
2. In clerical workers were trained to use the new computer system at a cost of P30,000, which was,
erroneously capitalized. The cost is to be written off over the expected life of the new computer system.
A. NE NE O O
B. NE NE U U
C. NE NE O U
D. NE NE U O
2010 2011
Net Book Net Book
Value of 2010 Value of 2011
PPE at Net PPE at Net
Transaction 12/31/10 Income 12/31/11 Income
3. Interest cost qualifying for capitalization in2010 was charged to interest expense in 2010.
A. NE U NE O
B. U U U U
C. U U U O
D. U O U U
4. In 2010 land was bought for an employee parking lot. The P2, 000 title search fee was charged to
expense in 2010.
A. U U U O
B. U O U O
C. U NE U NE
D. U U U NE
A1 PASSERS REVIEW CENTER///76
5. The cost of moving several manufacturing facilities from metropolitan locations to suburban areas in
2010 was capitalized. The cost was written off over a 10-year period beginning in 2010.
A. O U O U
B. U O U O
C. O O O U
D. NE NE NE NE
PROBLEM NO. 2
The shareholders’ equity section of BENSON CORPORATION’s balance sheet as of December 31,
2010 is a follows:
1. Jan. 5 10,000 shares of authorized and unissued common stock were sold for P8 per
share.
2. Jan. 16 Declared a cash dividend of 20 centavos per share payable February 15 to share-
holders of record o February 5.
3. Feb. 10 20,000 shares of shares of authorized and unissued common stock were sold for
P12 per share.
4. March 1 a 30% stock dividend was declared and issued. Market value per share is
currently P15.
5. April 1 A two-for-one split was carried out. The par value of the stock was to be
reduced to P2.50 per share. Market value on March 31 was P18 per share.
6. July 1 A 15% stock dividend was declared and issued. Market value is currently P10 per
share.
7. Aug. 1` A cash dividend of 20 centavos per share was declared, payable September 1 to
shareholders of record on august 21.
Based on the preceding information, determine the balances of the following at December 31,
2011.
LYKA COMPANY’S net incomes for the past three years are presented below:
During the 2012 year-end the following items come to your attention:
1. Lyka bought at truck on January 1, 2009 for P196,000 with a P16,000 estimated salvage value
and a six-year life. the company debited an expense account and credited cash on the
purchase date for the entire cost of the asset. (Straight-line method)
2. During 2012, Lyka changed from the straight-line method of depredating its cement plant to the
double-declining balance method. The following computations present depreciation on both
bases:
2012 2011 2010
Straight-line 36,000 36,000 36,000
Double-declining 46,080 57,600 72,000
The net income for 2012 was computed using the double-declining balance method, on the
January 1,2012 book value, over the useful life life remaining at that time. The depreciation
recorded in 2012 was P72,000.
3. Lyka, in reviewing its provision for uncollectibles during 2012, has determined that 1% is the
appropriate amount of bad debt expense to be charged to operations. the company had used ½
of 1% as its rate in 2011 and 2012 when the expense had been P18,000 and P12,000,
respectively. The company recorded bad debt expense under the new rate for 2012. The
company would have recorded P6,000 less of bad debt expense on December 31, 2012 under
the old rate.
11. What is the entry necessary to correct the blocks for the transaction in part 1 of the problem,
assuming that the books for the current year are still open?
A. Equipment 196,000
Depreciation expense 30,000
Accumulated depreciation 120,000
Retained earnings 106,000
B. Equipment 196,000
Accumulated depreciation 90,000
Retained earnings 106,000
C. Equipment 166,000
Accumulated depreciation 30,000
Retained earnings 136,000
D. Equipment 196,000
Depreciation expense 30,000
Accumulated depreciation 60,000
Retained earnings 166,000
12. What is the correct net income to be reported in 2010?
A. P330,000 C. P360,000
B. P336,000 D. P294,000
13. What is the correct net income to be reported in 2011?
A. P393,400 C. P441,600
B. P420,000 D. P480,000
14. What is the correct net income to be reported in 2012?
A. P510,000 C. P444,600
B. P428,400 D. P450,000
15. Which of the following is (are) the proper time period(s) to record the effects of a change in
accounting estimate?
A. Current period and prospectively
B. Current period and retrospectively
C. Retrospectively only
D. Current period only
Delivery Equipment
Date Particulars Debit Credit
1/1/09 Truck 1, 2, 3 and 4 P3,200,000
3/15/10 Replacement of Truck 3 tires 25,000
7/1/10 Truck 5 800,000
7/10/10 Reconditioning of Truck 4, which was 5,000
damaged In a collision
9/1/10 Insurance recovery on Truck 4 accident P33,000
10/1/10 Sale of Truck 2 600,000
4/1/11 Truck 6 1,000,000 150,000
5/2/11 Repainting of Truck 4 27,000
6/30/11 Truck 7 720,000
12/1/11 Cash received on lease of Truck 7 22,000
Accumulated Depreciation
Date Particulars Debit Credit
12/31/09 Depreciation expense P300,000
12/31/10 Depreciation expense 300,000
12/31/11 Depreciation expense 300,000
Additional Information:
1. On July 1, 2010, Truck 3 was traded in for a new truck, Truck 5, costing P850,000; the setting party
allowed a P50,000 trade in value for the old truck.
2. On April 1, 2011, Truck 6 was purchased for P1,000,000; Truck 1 and cash of P850,000 being given
for the new truck.
3. You are instructed y the senior in-charge of the audit to accept the depreciation rate of 20% by unit
basis.
4. Unit cost of Trucks 1 to 4 is at P800,000
16. What is the correct cost of Truck No. 5?
A. P850,000 C. P900,000
B. P800,000 D. P560,000
17. What is the correct depreciation expense for 2010?
A. P725,000 C. P605,000
B. P305,000 D. P600,000
18. What is the correct depreciation expense for 2011?
A. P552,000 C. P712,000
B. P592,000 D. P300,000
19. The entry to correct the depreciation charges for the years 2009 through 2011 should include a credit to
Accumulated Depreciation of
A. P645,000 C. P900,000
B. P937,000 D. P292,000
20. The balance of the Delivery Equipment account at December 31, 2011 should be
A. P5,770,000 C. P4,170,000
B. P3,320,000 D. P3,370,00
PROBLEM NO. 5
In connection with your audit of the BRAHE CORPORATION’s financial statements for the year ended
December 31, 2011, you noted the following items relative to the company’s intangible assets.
A patent was purchased from Tycho Company for P6,000,000 on January 2, 2010. Brahe estimated that the
remaining useful life of the patent to be 10 years. The patent was carried in Tycho’s accounting records at
P4,000,000 when Tycho sold it to Brahe.
During 2011, a franchise was purchased from Nova Company for P1,440,000. In addition, 5% of the revenue
from the franchise must be paid to Nove. Revenue from the franchise for 2011 was P7,500,000. Brahe
estimates the useful life of the franchise to be 10 years and takes full year’s amortization in the year of
purchase.
Brahe incurred research and development costs of P1,299,000 in 2011. Brahe estimates that these costs will
be recouped by December 31, 2014.
On January 1, 2011, Brahe, because of the recent events in the industry, estimates that the remaining life of
the patent purchased on January 2, 2010, is only 5 years from January 1, 2011.
PROBLEM NO. 6
SUMPAK CORP. Began operations in 2006. On July 15, 2011, a fire broke out in the company’s
warehouse destroying all inventory and many accounting records. The following information
was assembled from the microfilmed records. All sales and purchases are on account.
The following is a summary of prior year’s sales and gross profit on sales:
2008 2009 2010
26. What is the company’s average gross profit ratio based on its prior years ‘sales?
A. 26% C. 30%
B. 34% D. 29%
27. What is the company's total sales for the period January 1 through July 15 of the current year?
A. P1,504,200 C. P1,765,380
B. P1,511,000 D. 1,768,780
28. What is the company’s total purchases for the period January 1 through 15 of the current year?
A. P905,580 C. P1,044,420
B. P912,170 D. P1,009,670
29. What is the company’s estimated inventory on July 15, 2011, before the fire?
A. P186,605 C. P146,930
B. P244,430 D. P279,180
30. What is the inventory fire loss?
A. P146,930 C. P132,250
B. P186,605 D. P112,180
PROBLEM NO. 7
On January 1, 201, ODAHU, INC. issued P100,000, 10 year bonds when the market rate of interest was 8%.
Interest is payable on June 30 and December 31. The following financial information is available.
Sale P300,000
Cost of sales 180,000
Gross income 120,000
Interest expense ?
Depreciation expense (14,500)
Other expense (82,000)
Net Income ?
All purchases of inventory are on account. Other expenses are paid for in cash.
31. What is the carrying value of the bonds on December 31, 2011?
A. P112,661 C. P100,000
B. P113,592 D. P112,233
32. What is the interest expense for 2010?
A. P8,641 C. P9,069
B. P10,000 D. P4,544
33. How much was paid for inventory purchases?
A. P172,000 C. P184,000
B. P186,000 D. P174,000
34. What is Idahu’s net income for 2010?
A. P13,500 C. P23,000
B. P14,431 D. P14,859
35. How much was received from customers in 2010?
A. P283,000
B. P245,000
C. P293,000
D. P307,000
PROBLEM NO. 8
The inventory control account balance of SAMATHA CORP. At June 30, 2011 was P221,020 using the perpetual
inventory system. A physical count conducted on that day found inventory on hand worth P220,200. Net realizable
value for each inventory item held for sale exceeded cost. An investigation of the discrepancy revealed the
following:
a. Goods worth P6,600 held on consignment for Port Company had been included in the physical count.
b. Goods costing P1,200 were purchased on credit from Rome, Inc. on June 27, 2011 on FOB shipping
point terms. The goods were shipped on June 28, 2011 but, as they had not arrived by June 30, 2011,
were not included in the physical count. The purchase invoice was received and processed on June 30,
2011.
c. Goods costing P2,400 were sold on credit to Arriola Co. For P3,900 on June 28, 2011 on FOB
destination terms. The goods were still in transit on June 30, 2011. The sale invoice was processed on
June 29, 2011.
d. Goods costing P2,730 were purchased on credit (FOB destination) from Sanmig Co. On June 28, 2011.
The goods were received on June 29,2011 and included in the physical count. The purchase involve
was received on July 2, 2011.
e. On June 30, 2011, Samantha sold goods costing P6,300 on credit (FOB shipping point) to Pizza Co. For
P9,600. The goods were dispatched from the warehouse on June 30, 2011 but the sales invoice had not
been processed at that date.
f. Damaged inventory items valued at P2,650 were discovered during the physical count. These items
were still recorded on June 30, 2011 but were omitted from the physical count.
PROBLEM NO. 9
CALACHUCHI CORP.’s accounts receivable subsidiary ledger shows the following information:
The estimated bad debt rates below are based or Calachuchi Corp.’s receivable collection
experience.
The allowance for bad debts account had a debt balance of P5,500 on December 31, 2011,
before adjustment.
41. The company’s accounts receivable under “61-90 days” category should be
A. P32,600 C. P44,600
B. P44,320 D. P42,000
42. The company’s accounts receivable under “91-129 days” category should be
A. P38,320 C. P29,400
B. P40,000 D. P12,000
43. The allowance for bad debts to be reported on the statement of financial position at December 31,
2011, is
A. P9,699 C. P4,199
B. P15,199 D. 5,500
44. What entry should be made on December 31, 2011, to adjust the allowance for bad debts account?
A. Bad debt expense 15,199
Allowance for bad debt 15,199
B. Bad debt expense 4,199
Allowance for bad debt 4,199
C. Allowance for bad debt 5,500
Bad debt expense 5,500
D. Bad debt expense 9,699
Allowance for bad debt 9,699
45. What is the net realizable value of accounts at December 31, 2011?
A. P165,641 C. P196,039
B. P171,141 D. P186,340
PROBLEM NO. 10
TANYA COMPANY was organized on January 2, 2010, with authorized share capital of 50,000
shares of 10%, P200 par value preference and 200,000 shares of P10 par value ordinary. During
A1 PASSERS REVIEW CENTER///82
the company’s first two years of operations, the following equity transaction occurred.
2010
Jan. 2 Sold 10,000 ordinary shares at P16.
2 Sold 3,000 ordinary shares at P216.
Mar. 2 Sold ordinary shares as follows: 10,800 shares at P22; 2,700 shares at P25.
July 10 Acquired a nearby piece of land, appraised at P400,000, for 600 preference
share and 27,000 ordinary shares. (Preference share capital was recorded at
P216, the balance being assigned to ordinary shares).
Dec. 16 Declared the regular preference share dividend and a P1.50 ordinary share
dividend.
28 Paid the dividends declared on December 16.
31 The income summary account showed a credit balance of P450,000
2011
Feb. 27 Reacquired 12,000 ordinary shares at P19.
June 17 Resold 10,000 treasury shares at P23.
July 31 Resold all of the remaining treasury shares at P18.
Sep. 30 Sold 11,000 additional ordinary shares at P21.
Dec. 16 Declared the regular preference share dividend and an P0.80 ordinary share
dividend.
28 Paid the dividends declared on Dec.16.
31 The income summary account showed a credit balance of P425,000.
PROBLEM NO. 11
At the beginning of year 1, an entity grants to a senior executive 30,000 share options. The grant is conditional
upon the executive remaining in the entity’s employ until the end of year 3.
The share options can be exercised if the entity’s share price increases from P20 at the beginning of year 1 to
above P30 at the end of year 3. If the share price is above P30 at the end of year 3, the share options can be
exercised at any time during the next five years, i.e., by the end of year 8.
The entity estimates the fair value of the share options on grant date to be P5 per option. This estimate takes into
account the following market condition:
The possibility that the share price will exceed P30 at the end of year 3, i.e., the share options become
exercisable; and
The possibility that the share price will not exceed P30 at the end of year 3, i.e., the share options will be
forfeited.
The following actual events occurred in years 1 to 3:
YEAR 1
The share price has increased to P24
The entity’s estimate the fair value of the options is P4 at the end of year 1. This taxes into account whether
the market condition will be satisfied by the end of year 3.
YEAR 2
The share price has decreased to P22. However, the entity remains optimistic that the share price target will
be met by the end of year 3.
PROBLEM NO. 12
MARUJA CO. Was organized on January 2, 2011. The following items are from the company’s trial balance on
December 31, 2011.
Ordinary share capital P 1,500, 000
Share premium 150, 000
Merchandise inventory 69, 000
Land 1,000, 000
Building 1,400, 000
Furniture and fixtures 367, 000
Accounts receivable 165, 400
Accounts payable 389, 650
Notes payable bank 500, 000
Sales 6, 235, 200
Operating expenses (Including depreciation of 400,000) 1, 005, 150
PRACTICAL ACCOUNTING 1
INSTRUCTIONS:
1. Detach one (1) answer sheet from the bottom of your Examinee ID/Answer Sheet Set.
2. Write the subject title “PRACTICAL ACCOUNTING I “on the box provided
3. Shade Set Box ‘’A” on your answer sheet if your test booklet is Set A; Set box “B” if your if your test
booklet is Set B.
__________________________________________________________________________________
MULITIPLE CHOICE:
1. On December 31, 2011, the current receivable of Marty Company consisted of the following:
What is the correct total of current net receivables on December 31, 2011?
a. 1,150,000 c.1,350,000
b. 1,390,000 d. 1,650,000
2. Farmville Company had sales of P2, 500,000 during December 2011. Experience has shown that
merchandise equalling 6% of sales will be returned within thirty days and an additional 4% will be returned
within ninety days. Returned merchandise is readily resalable. In addition, merchandise equalling 15% of sales
will be exchanged for merchandise of equal or greater value. What amount should Farmville will report for net
sales in its statement of comprehensive income for the month of December 2011?
a. 2,125,000 c. 2,250,000
b. 1,875,000 d. 2,025,000
3. On December 1, 2011, Mandela Company gave Mosgov Company a P2, 000,000, 12% loan. Mosgov
received proceeds of P1, 940,000 after the deduction of a P60, 000 non-refundable loan origination fee.
Principal and interest are due sixty monthly instalments of P44, 500 beginning January 1, 2012. The
repayments yield effective interest rate of 12% at a present value of P2, 000, 000 and 13.4% at a present value
of P 1,940,000. What amount of accrued interest receivable should Mandela report on December 31, 2011?
a. 20, 000 c. 22, 333
b. 21, 663 d. 19, 400
4. Rogers Company factored P3, 000, 000 of accounts receivable to Musburger Company on August 1, 2011.
Control was surrendered by Rogers. Musburger accepted the receivables subject to recourse for non-payment.
Musburger assessed a fee of 2% and retain a holdback equal of 5% of the accounts receivable. In addition,
Musburger charged 15% interest computed on a weighted average time to maturity of the receivable of forty
days. The fair value of the recourse obligation is P300, 000. Assuming all receivables are collected. What is the
cost of factoring the receivables?
a. 110, 000 c. 259, 315
b. 260, 000 d. 109, 315
5. Indira Company offers three-year warranty on its products. Indira previously estimated warranty costs to be
5% of sales. Due to a technological advancement in production at the beginning of 2011, Indira now believed
4% of sales to be a better estimate of warranty costs warranty costs of P300,000 and P400,000 were reported
in 2009 and 2010, respectively. Sales for 2011 were P9,000,000. What should be reported as warranty
expense for 2011?
a. 360, 000 c. 220, 000
b. 500, 000 d. 450, 000
A1 PASSERS REVIEW CENTER///86
6. Fidel Company began operations on January 1, 2010 and used the FIFO method of inventory costing.
Management is contemplating a change to the average method to be consistent with Fidel’s parent company.
The following information has been developed:
2010 2011
Ending inventory
FIFO 150,000 400,000
Average 300,000 200,000
Income under FIFO 2,500,000 3,000,000
Beginning inventories
Ending inventories
Purchase were made throughout the year on terms 5/10, n/30. All returns and allowances took place within 5
days of purchase and prior to any payment on the account, what is the amount of “Discounts lost” for the
purchases?
a. 115,000 c. 120,000
b. 105,000 d. 100,000
10. Edison Company began the year with 500 units of inventory. The sale price of each unit was varied
throughout the month of January. During January, Edison completed the following inventory transactions:
Units Unit Cost Unit Sale Price
January 3 Purchase 200 P3, 000
10 Sale 400 P4, 000
14 Sale 100 4, 200
20 Purchase 400 3200
22 Sale 500 4500
30 Purchase 200 3,300
Using the average retail inventory method, what is the estimated cost of sales?
a. 3,250,500 c. 3,400, 000
b. 3,151,500 d. 3,300,000
14. Information regarding Marshall Company’s portfolio of available for sale securities in as follows:
Aggregate cost on December 31, 2011 1,500,000
Unrealized gains on December 31, 2011 50,000
Unrealized losses on December 31, 2011 200,000
Net realized gains during 2011 70,000
On December 31, 2010, Marshall reported an unrealized loss of P60,000in other comprehensive income to
reduce this securities should be reported as other comprehensive income in the other shareholders equity on
December 31, 2011?
a. 200,000 c. 90,000
b. 150,000 d. 80,000
15. Guevara Company‘s statement of comprehensive income for the year ended December 31, 2011 reported
income before taxes of P3, 000,000. The auditor questioned the following amounts that had been included in
income:
Guevara owns 30% of James preference share but has no interest in ordinary shares. What should be
reported as income before taxes?
a. 2,750,000 c. 2,350,000
b. 2,600,000 d. 2,050,000
23. On December 1, 2011, Landsman Company purchased for P3, 000,000 a tract of land as a factory site.
Landsman razed an old building on the property and used the materials it salvaged from demolition for the new
factory. Landsman incurred additional costs and realized salvage proceeds during De4cember 2011 as follows :
What is the derivative asset or liability under the interest swap agreement on December 31, 2012? (Round off
PV factor to two decimal places)
a. 264,000 asset c. 192,000 asset
b. 264,000 liability d. 192,000 liability
32. The total debits and credits in selected accounts of Condor Company after closing entries were posted on
December 31, 2011 are given below:
Debits Credits
Materials 200,000 800,00
Goods in process 500,000 700,000
Materials purchases 2,000,000 2,000,000
Purchase discount 80,000 80,000
Transportation in 150,000 150,000
Direct labor 1,000,000 1,000,000
Manufacturing overhead 5900,000 500,000
Finished goods 250,000 700,000
What is the total cost that should be capitalized as intangible noncurrent asset in respect of the new
process?
a. 3,750,000 b. 3,700,000 c. 3,500,00 d. 3,550,000
40. In 2010, Vanna Company paid P1, 000,000 to purchase land containing total estimated 160,000 tons of
extractable mineral deposits. The estimated value of the property after the mineral has been removed is P200,
000. Extraction activities began in 2011, and by the end of the year, 20,000 tons had been recovered and sold.
In 2012, geological studies indicated that the total estimated tons of extractable mineral deposits had been
underestimated by 60,000 tons. During 2012, 50,000 tons were extracted and 48,000 tons were sold. What is
the depletion included in cost of sales for 2012?
a. 175,000 b. 168,000 c. 200,000 d. 192,000
A1 PASSERS REVIEW CENTER///92
A1 PASSERS TRAINING, RESEARCH, REVIEW & DEVELOPMENT COMPANY
2nd Floor Sommerset Bldg., Lopez Jaena St. Jaro, Iloilo City
Tel. No.: (033) 320-2728; 09106547262
Email Address: a1nursingreviewic@yahoo.com.ph
PRACTICAL ACCOUNTING II
INSTRUCTIONS:
1. Detach one (1) answer sheet from the bottom of your Examinee ID/Answer Sheet Set.
2. Write the subject title “PRACTICAL ACCOUNTING II “on the box provided
3. Shade Set Box ‘’A” on your answer sheet if your test booklet is Set A; Set box “B” if your if your test
booklet is Set B.
_______________________________________________________________________________________
MULTIPLE CHOICE:
1. The following amounts were taken from the statement of affairs for ABC Company:
2. J and P formed a joint venture to purchase and sell a special type of merchandise. The ventures agreed to
contribute cash of P30, 000 each to be used in purchasing the merchandise, and to share profits and losses
equally. They also agreed that each shall record his purchases, sales, and expenses in their own books.
Upon termination of the joint venture, the following data are made available:
J P
Joint Venture P26,000 CR P23,400 CR
Inventory Taken 800 2,500
Expenses paid from JV Cash 1,200 2,200
3. Partners A, B and C share profits and losses in the ratio of 5:3:2. At the end of a very unprofitable year, they
decided to liquidate the firm. The partner’s capital account balances at this time are as follows: A. P616, 000 :
B. P697,200 : C.P420,000. The liabilities accumulate to P840, 000, Including a loan of P280, 000 from
A. The cash balance is P168, 000. All partners are personally solvent. The partners plan to sell the assets in
instalment.
If B received P100, 800 from the first distribution of cash, how much did C receive at that time?
A. 56,000 C. 33,600
B. 22,400 D. 61,600
On January 1, 2011, a fire damaged the accounting records of Peace. The following data were taken from the
salvage files:
12/31/2010 12/31/2011
Architect’s estimated cost of completion 1,875,000 2,000,000
Cost incurred 750,000
Percentage of completion 60%
Income recognized to data 125,000 300,000
Assuming NCI is measured at fair value, what is the amount of goodwill to be reported in the consolidated
statement of financial position on July 1, 2010 if there is a control premium of P27, 500?
A. P71,654 C. 99,154
B. 128,769 D. 113,962
12. On January 2, 2010, POKEMON sign an agreement to operate as a franchise of DIGIMON for an initial
franchise fee of P 10,000,000 for 10 years. Of this amount p2, 000,000 was paid when the agreement was signed
and the balance payable in four equally annual payments beginning on December 30, 2010.POKEMON signed a
non interest bearing note for the balance. POKEMONS rating indicates that it can borrow money at 24% for a loan
of this type. PV of annuity of 1 for 4 periods at 24% is 2.40. Assume that the substantial services amounting to
1,020,000 had already been rendered by DIGIMON and that additional indirect franchise cost of P272, 000 was also
incurred. If the collection of the note is not reasonably assured, the realized gross profit for the year ended
December 31, 2010 is:
A. 5,780,000 C. 2,148,000
B. 2,420,800 D. 5,508,000
13. On December 1, 2009, LOJ. Inc authorized Silber Company to operate as a franchise for an initial franchise fee
of P150, 000. Of this amount, P60, 000 was received upon signing the agreement and the balance, represented by
a note. Is due in three annually payments of P30,000 each beginning December 31,2010. The present value on
December 31, 2009, for three annual payment appropriately discounted a P72, 000. According to the agreement,
the non-refundable down payment represents a fair measure of the service already performed by LOJ and
substantial future services are still to be rendered. However, collectability of the note reasonably certain.
LOJ’s December 31,2009 balance should report unearned franchise foe from Cloe Company in the amount of
A. 132,000 C. 60,000
B. 90,000 D. 72,000
A1 PASSERS REVIEW CENTER///94
14. On January 1, 2011, Mr. CPA got a franchise of Jollibee. The franchise agreement provides a P500, 000 initial
franchise fee, payable P100, 000 upon signing of the franchise contract and the balance in four annual instalments
starting Dec 31, 2011. At present value using 12% as discount rate, the four instalments would approximate P199,
650. The fees once paid are not refundable. The franchise may cancelled subject to the provisions of the
agreement. Should there be unpaid franchise fees attributed to the balance of the initial franchisor entitled to a 5%
continuing fee on gross sales payable monthly within the first ten days of the following month. The first year of
operations yielded gross sales of P9 million. The collectability of the note is not assured.
Using the percentage of completion method, what is the realized gross profit (loss) for the year 2011?
A. 650,000 C. (20,000)
B. (70,000) D. 480,000
17. Joy is trying to decide whether to accept a bonus of 25% of net income after salaries and a bonus of a salary of
P243,750 plus a bonus of 10% of net income after salaries and bonus as a means of allocating profit among the
partners. Salaries traceable to the other partners are estimated to be P450, 000. What amount of income would be
necessary so that Joy would consider the choice to be equal?
A. 2,750,000 C. 2,275,000
B. 3,156,250 D. 2,993,750
18. The following statement of financial position for the peripheral of CC, DD and EE were taken from the
books on October 1, 2010.
In addition, Company A incurred the following expenditure, costs to issue equity amounting to P900, 000.
Professional fees paid to independent values: P 280,000. Professional fees paid to lawyers taking part in the
negotiation process - P350, 000. Fees to accountant for processing SEC registration of shares- P60, 000. Fees to
advisors and bankers - P230, 000. Since the parties cannot agree on the true value of the Acquired on the data of
acquisition. They contractually agreed that additional consideration of P8, 000,000 will be paid in the event the net
earnings of Company B.
The partnership began its operation on October 1, 2010 and net income for the year ended Dec. 31, 2010 is
P695, 000. Which of the following is true?
A. The bonus to CC is P58,040
B. Net income after salaries, interest and bonus is P 386,960.
C. DD’s total share in the net income is P216,875
D. EE’s share on the profit after salaries, interest and bonus is P135,430
The gross profit rate on instalment sales was 10% higher than regular sales. For 2011, the gross profit on instalment
sales was 3% lower than in 2010. Total realized gross profit for 2011 is
A. P252,700 C. P602,700
B. P286,300 D. P636,300
20. A home office ships inventory to its branch at 125% of cost during 2010. The required balance of the unrealized
intercompany profit account is P438, 750 for year 2009. During year 2010, the home office sent merchandise to the
branch costing 3,920,000. At the start of the year 2011, the branch’s balance sheet shows P1, 575,000 of inventory
that was acquired from the home office.
A. 856,250 C. 907,750
B. 1,103,750 D. 1,025,000
21. On January 2, 2010, F Corp. sold used equipment for P150, 000 resulting into gain of P45, 000. On that date, G
paid P25, 000 cash and signed a P125, 000, 10% interest bearing note. And was payable in three annual
instalments of P41, 667 beginning January 2, 2011. If appropriately accounted fort he sale under instalment method.
G made a timely payment of the first instalment on January 2, 2011, of P54, 167 which included an interest of
P12500. What amount of deferred gross profit should F report at December 31, 2011?
A. 28,750 C. 30,000
B. 25,000 D. 37,500
22. Ding, Dong and Dang decided to dissolve their partnership on May 31, 2010. On this date, their capital
balances were as follows:
Ding P87, 500
Dong 105,000
Dang 35,000
The following provision for sharing profits and losses is provided in the agreement:
Income is distributed only as far as it is available.
Available income is to be distributed in the following sequence:
1. Ding, who is the managing partner gets a salary of P180, 000 a year, the remaining partners gets a salary Of
P72, 000 each.
2. Interest is imputed on the average capital balances at 12% per annum
23. The Ivonne Inc. opened an agency in Sampaloc, Manila in 2008. The following is a summary of the transaction
of the agency:
The company maintains its gross margin on agency sales at 30% excluding freight cost on shipment agency. The
agency’s net income must be:
A. 4,995 C. 5,995
B. 5,390 D. 6,390
24. J, F and K formed a joint venture to purchase3 a piece of lot and to erect an apartment building for sale J is to
manage the venture hence, he will receive a bonus of 10% of the venture’s gain before deducting the bonus as an
expense. Any remaining gain or loss to be divided equally among the ventures. The venture is completed on august
31, 2010, on this date, the accounts of F and K show the following balances:
F K
Account with J 56,000Cr 56,000Cr
Account with F 112,000Cr
Account with K 63,000Dr.
Also, Company A issued 300,000 shares with par value of P10 per share and market price of P45 per share in
exchange for 60% ownership of the outstanding shares of the Company B. The net assets of Company B on this
date is P24, 375,000. Company opted to use the partial goodwill method in this transaction.
C. Branch collections of P75, 000 were deposited for the account of the home office on Dec 29, 2010; sixty percent
was credited on the home office bank account as of Jan. 9, 2011; and the balance was returned to the deposited
marked NSF.
D. Merchandise shipments of P200, 000 made by the home office on Dec. 28, 2010 were received by the branch on
Jan 4, 2011. However only ninety percent of this shipment was charged by the home office to Baguio branch; the
balance was debited to other branch.
Compute the unadjusted balance of the home office current account as of Dec. 31, 2010
A. 442,600 C. 242,600
B. 232,600 D. 212,600
29. Prominence Inc. is a contractor for the fabrication of motor service centers. At the end of 2010, the
following projects were in progress:
Contract Price Cost Incurred Est’d Cost to Complete
Project 1 P 3,800,000 P 2,070,000 P 1,380,000
Project 2 9,000,000 5,670,000 2,430,000
Project 3 13,250,000 1,800,000 10,200,000
During the year 2011, the following costs were incurred:
Project 1 – P1, 030,000 (estimated cost to complete, P775, 000)
Project 2 - P2, 580, 000 (project completed)
Project 3 – P5,700,000 (est’d cost to complete, P5,000,000)
Project 4 – P1,500,000 (contract price, P7,200,000; est’d cost to complete, P4,500,000)
Using the zero profit method, the total gross profit to be reported in 2011 would be:
A. P-0 C. P750,000
B. P675,000 D. 825,000
30. XYZ Company is engaged in merchandising both at Home office in Manila and Branch in Davao, Selected
accounts in the trial balance of the Home Office, and the branch at December 31, 2010 follow :
Debits Home Office Branch
Inventory, January 115,000 57,750
Branch Current 291,500
Purchases 950,000
Shipment from Home Office 525,000
Freight in from Home Office 27,500
Sundry expenses 250,000 125,000
Credits
Home Office Current 266,500
Sales 775,000 700,000
Shipments to branch 550,000
Allowance for overvaluation of branch inventory
Jan 1 5000
How much is the net adjustments to Cebu Branch Current Account and to the Home Office Current Account?
Cash 1,200,000
Inventories 7,500,000
Plant assets 31,000,000
Liabilities 13,500,000
Furthermore, it was determined that the merchandise inventory of S&S Company had a fair market value of
P8,250,000 and the plant assets of P25,650,000. What should be the amount reflected as goodwill (gain) by
R&R Company in its separate financial statements as a result of the business combination?
The NCI is initially measured at fair value. Quoted price on the date of acquisition of S&S shares is P175,000
per share.
A. P0 C. P13,800,000
B. P16,275,000 D. P18,400,000
33. on January 1, 2010,m congratulations, Inc. issues 12,000 shares of its P10 per value stock to acquire the
net assets of Successful, Inc. Underlying book value and fair value information for the balance sheet items of
successful at the time of acquisition are as follows:
Book Value Fair value
Cash P80, 000 P80,000
Accounts receivable 120,000 120,000
Inventory 60,000 115,000
Land 50,000 70,000
Building and Equipment 400,000 350,000
Less Accumulated depreciation (120,000)
Total assets 590,000 735,000
Accounts Payable P30, 000 P30, 000
Bonds Payable P200, 000 P180, 000
Common Stock (P5 per value) 150,000
Additional paid-in Capital 70,000
Retained Earnings 140,000
Total Liabilities and Equities 590,000
What is the amount of additional paid in capital by Congratulations related to the issuance of shares?
A. P463,000 C. P448,000
B. P463,000 D. 473,000
34. Cinco, a partner of Antonio and Danan, decided to withdraw from ACD partnership. Cinco’s share in the
profits and losses was 25%, while that Antonio and Danan are 50% and 25%respectively. In the final
settlement of his interest, he was paid 95,000, although the capital balance before his retirement was only
85,000. The 10,000 difference implied that an equipment of the partnership was undervalued. Prior to
recording Cinco’s withdrawal, and adjustment was made by the partnership to bring the equipment to its fair
value.
The total of partners capitals before anyu adjustments and before Cinco’s withdrawal was 340,000. What
would be the partnership’s net assets after the withdrawal of Cinco?
A. 285,000 C. 295,000
B. 245,000 D. 325,000
35. The following data were taken from the statement of realization and liquidation of ABC Corp. For the
The ending capital balances of capital stock and retained earnings are P200, 000 and P36, 000, respectively.
How much is the ending balance of cash?
A. P116,000
B. P70,000
C. P116,000
D. P90,000
THEORY OF ACCOUNTANT
INSTRUCTIONS:
1. Detach one (1) answer sheet from the bottom of your Examinee ID/Answer Sheet Set.
2. Write the subject title “PRACTICAL ACCOUNTING “on the box provided
3. Shade Set Box ‘’A” on your answer sheet if your test booklet is Set A; Set box “B” if your if your test
booklet is Set B.
MULTIPLE CHOICES:
12. All of the following are in minimum line items for current liabilities, except
a. Trade and other payables c. Current provisions
b. Accounts payables d. Current tax liability’
13. All of the following are considered nondistributable equity reserves, except
a. Share premium reserve c. Foreign translation credit adjustment
b. Revaluation surplus d. Unappropriated retained earnings
14. The summary of significant accounting policies shall disclose
a. The composition of property, plant and equipment and the depreciation method used
b. The composition of property, plant and equipment only
c. The depreciation method used only
d. None of the above
15. All of the following will require related party disclosure in the financial statements of an entity, except
a. Sold goods to another entity owned by the son of the entity’s chief director
b. Sold goods to the aunt of the entity’s chief director
c. Sold goods to shareholders of the entity who owns 10% of the ordinary shares but is a member of the board
of directors.
d. Sold a fully depreciated car to an associate
16. Between the date of the financial statements and the date these statements were authorized for issue, the
following events took place. All of the following are considered non adjusting events, except.
a. Major ordinary share transactions
b. Issuing guarantees
c. Significant decline in the market value of available for sale securities
d. Determination of bonus payment since entity has already the present obligation at the reporting date.
17. Between the date of the financial statements and the date these statements were authorized for issue. The
following events took place. All of the following are considered adjusting events, except:
a. Resolution of a court case
b. Plan to discontinue an operation
c. Sale of finished goods that may give evidence about the net realizable value at the reporting date.
d. Determination of proceeds from asset sold before the reporting period.
18. This form of an income statement is also known as the “cost of sales method”
a. Natural form c. Account form
b. Functional form d. Report form
19. An entity’s profit or loss differs from its total comprehensive income. Which of the following may be the reasons?
a. Dividends received
b. Dividends paid
c. Foreign currency translation adjustment
d. Impairment loss on noncurrent asset held for sale
20. Which of the following would not result to reclassification adjustment in the statement of comprehensive income?
a. Permanent decline in market value of available for sale securities
b. Ineffective portion of a cash flow hedge instrument
c. Realization of evaluation surplus
d. Gain or loss from disposal of available for sale securities
21. A statement of changes in equity will show all of the following, except
a. Total comprehensive income
b. Changes in accounting policies treated retrospectively
c. Dividends received
d. Contributions by shareholders
22. How is impairment loss treated if it relates to a disposal group?
a. It is allocated to the assets based on their carrying amounts
b. The impairment loss is first allocated to goodwill, if any and any remainder is allocated to the other assets
based on their carrying amounts.
c. It is deferred until the group is actually disposed of.
d. It is not recognized since it violates prudence.
23. An entity classified a noncurrent asset as held for sale in accordance with PFRS 5 on October 1, 2011. The year
end is December 31, 2011. On July 1, 2012, some of the criteria as held for sale were not met, thus the asset can
no longer be classified as held for sale. The entity will adjust for depreciation in 2012 for
a. 7 months c. 9 months
b. 8 months d. No adjustment for depreciation
24. According to PFRS 5, which of the following is true?
51. Which of the following is true regarding the allowance method for recording inventory write-down?
a. Inventory is measured at cost.
b. If the allowance at thebe and of the year exceeds the allowance at the beginning of the year, the
difference will decrease cost of sales.
c. If the allowance at the beginning of the year exceeds the allowance at the end of the year, the difference
will not be recognized.
d. The presence of an allowance account indicates that cost exceeds net realizable value of inventory at
year-end.
52. Which of the following would cause a decrease in the cost ratio used in the retail inventory method?
a. Higher retail prices c. More employee discounts
b. Lower net mark-ups d. Higher freight in costs
53. All of the following are products after harvest, except
a. Leaf c. Lumber
b. Tea d. Cured tobacco
54. Which of the following is not within the scope of PAS 41 agriculture?
a. Accounting for a herd cattle
b. Initial measurement of wool from sheep
c. Ripening of mangoes for commercial sale
d. Government grant received in respect of trees in plantation forest?
55. Which of the following should not be considered financial asset?
a. Held to maturity securities c. Investment associate
b. Leased assets d. Bank account
56. Which of the following is true?
a. Interchange of management personnel is not an indicator of significance influence.
b. The existence of convertible bonds may be considered whether significant influence is present.
c. Under the equity method, the investor and investee are viewed as two separate legal units.
d. Investment preference shares may have significant influence
57. An associate recognized revaluation surplus on its equipment on it’s in the current year. How will it affect
the investment in associate balance?
a. No effect
b. It will increase the investment with a corresponding increase in investment income.
c. It will increase the investment balance with a corresponding increase in the investor’s equity.
d. It will decrease in investment balance.
58. An investor uses the equity method. On the date of purchase, the investee’s FIFO inventory and land fair
values exceeded their carrying amounts. How will these excesses affect investor’s share in the investee’s net
income?
64. If an asset was acquired in the exchange and there is cash involved, how will the recipient of cash compute
the cost of the new asset received?
a. Fair value of the asset given plus cash received
b. Fair value of the asset received plus cash received
c. Fair value of the asset given minus cash received
d. Carrying amount of the asset given minus cash received
65. Which of the following is considered government assistance?
a. Improvement in communication network
b. Imposition on trading constraints on competitors
c. Free marketing advice
d. Improvement in parks and other recreational areas
66. Which of the following is false concerning government grant?
a. Nonmonetary government grant is recorded at fair value.
b. Grants related to depreciable assets must recognize as an income over the useful life of the asset using
the straight line.
c. Grants that become repayable because of violations are treated as changes in accounting estimate.
d. Grants in recognition of specific costs are recognized as income over the same period as the relevant
expense.
67. Which of the following is not capitalized as part of the cost of a building?
a. Architect fee
b. Renovation costs prior use
c. Property tax incurred after date of acquisition
d. Cost of temporary housing for construction workers
68. If a qualifying asset is financed by both specific and general borrowing capitalizable borrowing cost include
a. Actual borrowing cost on specific borrowing minus any investment income from temporary investment of
proceeds from borrowing
b. Average expenditures of the asset multiplied by the average capitalization rate
c. Actual borrowing cost on specific borrowing
d. Actual borrowing cost on general borrowing minus investment income from temporary investment of
borrowing?
69. Revaluation surplus is based on
I. fair value
II. Replacement cost in the absence of fair value
a. I only c. Both I and II
b. II only d. Neither I nor II
70. Revaluation surplus that is realized because of the use of the asset or its disposal may be transferred to
a. Retained earnings c. Other comprehensive income
b. Share premium d. Profit or loss
71. A purchased patent with a remaining legal life of 15 years should be
a. Amortized over 15 years
b. Amortized over its useful life if shorter than 15 years
c. Amortized over its useful life when longer than 15 years
d. Not amortized but tested for impairment annually.
72. The term “betterment “refers to
A1 PASSERS REVIEW CENTER///106
a. An expenditure made for new facilities which increase “capacity”
b. An expenditure made to restore “capacity “after abandonment or retirement
c. An expenditure made to improve existing facilities by increasing “capacity”
d. An expenditure made to help insure continuity of service capacity.
73. Which of the following expenditure may properly be capitalized?
a. Expenditure for massive advertising campaign.
b. Insurance on plant during construction
c. Research and development related to long term asset which is giving the entity a competitive market
advantage.
d. The search and other legal cost related to a piece of property which was not acquired.
74. In which of the following depreciation method is residual value not a factor in determining depreciation
charge in the early years of the assets life?’
a. Straight line c. Productive output
b. Service hours d. Declining balance
75. An addition that is an integral part of an older asset normally would be depreciated over
a. The useful life of the addition
b. The useful life of the addition or the original asset, whichever is shorter
c. The useful life of original asset
d. Either the useful life of addition or the original asset, as a matter of professional judgement
76. Information needs to compute a depletion charge per unit includes the
a. Estimated of total amount of resources available for removal
b. Amount of resources removed during this period
c. Cumulative amount of resources removed
d. Amount of resources sold during this period.
77. 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. Expenditures for activities in relation to evaluating the technical feasibility and commercial viability of
extracting mineral resource.
78. The amortization method used for an intangible asset shall reflect the pattern in which the assets economic
benefits are consumed by entity, if such pattern cannot be determined reliably. What is the amortization
method used?
a. Straight line
b. Production method
c. Diminishing balance method
d. Ratio of current year’s sales to the total expected sales
79. Which is not a considered a research and development activity?
a. Routine ongoing efforts to refine, enrich or improve quality of existing product.
b. Laboratory research aimed at discovery of new knowledge.
c. Conceptual formulation and design of possible product or processes.
d. Design, construction and operation of a pilot plant.
80. At the beginning of the current year, an entity purchased equipment for use in developing a new product.
The entity uses the straight line depreciation method. The equipment could provide benefits over a 10 year
period. However, the new product developments expected to take five years, and the equipment can be used
only for this project. The entity’s expense for the current year equals
a. The total cost of the equipment.
b. One - fifth of the cost of the equipment
c. One - tenth of the cost of the equipment
d. Zero
THEORY OF ACCOUNTS
INSTRUCTION: Select the correct answer for each of the following questions. Mark only one answer for
each item by shading the box corresponding to the letter of your choice on the answer sheet provided.
STRICTLY NO ERASURES ALLOWED. Use the pencil no. 1 only.
________________________________________________________________________________________
MULTIPLE CHIOCE:
11. The acquisition of some or all the stock held by minority stockholders of subsidiary ---whether acquired by the
parent, the subsidiary itself, or another affiliate shall be accounted for by the
A. Pooling of interest method
B. None of these
C. Purchase method
D. Purchase method rather than by the pooling of interest method
12. Which of the following is a disadvantage of the corporate form of business organization?
A. No mutual agency C. Limited liability of stockholders
B. Transferability of ownership D. Government regulation
13. Accrual – basis accounting
A. Omits adjusting at the end of the period
B. Leads to the reporting of more complete information than does cash basis accounting.
C. Is not acceptable under GAAP
D. Results in higher income than cash basis accounting
14. Depletion is computed in same manner as which depreciation method?
A. Unit of production C. Sum of years digit
B. Double declining balance D. Straight line
15. Operating income using direct costing as compared to absorption costing would be higher
A. Under no circumstances
B. When the quantity of beginning inventory is more than the quality of ending inventory
C. When the quantity of beginning inventory equals the quantity of ending inventory
D. When the quantity of beginning inventory is less than the quantity of ending inventory
16 The ratio at which the currencies of two counties are exchanged at a particular time.
A. Foreign currency C. Closing rate
B. Foreign entity D. Exchange rate
17. The possession of direct and indirect power to direct or cause the direction of the management and policies of
an enterprise through ownership by contract or otherwise.
A. Principal owners C. Control
B. Related parties D. Immediate family
18. Entries in the purchases journal are posted to the
A. Accounts receivable ledger and the accounts payable ledger
B. General ledger only
C. General ledger and the accounts payable ledger
D. General ledger and the accounts receivable ledger
19. Cost of goods manufactured is used to compute
A. Manufacturing overhead applied B. Finished goods inventory
A. Cash, Accounts Receivable, Jun Cruz, Capital, Notes Payable Sales Revenue, Salary Expense
B. Accounts Receivable, Notes Payable, Cash, Jun Cruz, Capital Sales Revenue, Salary Expense
C. Notes Payable, Accounts Receivable, Cash, Sales Revenue Jun Cruz, Capital, Salary Expense
D. Cash, Accounts Receivable, Notes Payable, Jun Cruz, Capital Sales Revenue and Salary Expense
22. Value engineering is used to reduce costs from
A. Initial budgeted cost to allowable cost C. Life- cycle sale price to allowable cost
B. Initial budgeted cost to target cost D. Target cost to allowable cost
23. The purpose of the statement of cash flows is
A. All of these
B. Determine the ability to pay dividends and interest
C. Evaluate management decisions
D. Predict future cash flows
24. Which is the most widely held class of stock?
A. Par value preferred stock C. No par preferred stock
B. No par common stock D. Par value common stock
25. Dividends paid to stockholders are reported on the statement of cash flows as a(an)
A. Combination of the above C. Operating activity
B. Financing activity D. Investing activity
26. Which account causes the main difference between merchandisers adjusting and closing process and that of as
service business?
A. Interest revenue C. Accounts receivable
B. Cost of goods sold D. Advertising expense
27. Ten-year, 11 percents bonds payable of P500, 000 were issued for P532, 000. Assume that the straight – line
amortization method is appropriate. The total annual interest expense on these bonds is
A. P58,200
B. P51,800
C. P55,000
D. A different amount each year because the bonds book value decreases as the premium amortized.
28. Why does a pharmacy need a different kind of accounting system than a physician uses?
A. They have different kinds of journals and ledgers
B. They have different kinds of business transactions
C. They have different kinds of employees
D. They work different hours
29. A plan or program of activities together with costs of undertaking them to meet goals or targets which emphasize
on expected results
A. Obligations C. Performance budget
B. Supplemental budget D. All of these
30. Owners of record of known beneficial owners of 10 percent or more of the voting interest of the enterprise
A. None of these C. Principal owners
B. Immediate family D. Related parties
31. Which of the following is the period cost?
A. Selling expense C. Materials inventory
B. Manufacturing overhead D. Direct labor
32. It is generally referred to as a financial plan for carrying out activities in the future
A. Budget C. Government budget
B. None of these D. Government accounting
33. For which of the following products is a process costing system most appropriate?
A. Houses C. Breakfast cereal
B. Automobiles D. Furniture
34. Which of the following items is a nonmonetary asset?
A. Merchandise inventory C. Cash
B. Sinking fund-unremitted reach D. Investment in bonds
A1 PASSERS REVIEW CENTER///110
35. Cash is P10, 000, net accounts receivable amount to P22,000 inventory is P55,000, prepaid expenses total P3,
000, and current liabilities are P40, 000. What is the acid test ratio?
A. 2.25 C. 0.80
B. 0.25 D. 2.18
36. In the absence of discontinued operations and changes in accounting principles, the following main captions
should appear in the income statement, if extraordinary items are reported
A. Income before extraordinary items less extraordinary items
B. Income before extraordinary items
Extraordinary items (less applicable income tax of P) (Note)
C. None of these
D. Income aft6er extra ordinary items less Applicable income taxes of P (Note)
37. Statements which present the assets, liabilities, stockholders equity, revenues, and expenses of a parent
company and its subsidiaries as if the group were a single enterprise
A. Balance sheet and income statement C. Balance sheet
B. Consolidated financial statements D. Income statement
38. The amount credited for a receipt of cash on account is
A. Accounts payable C. Cash
B. Service revenue D. Accounts receivable
39. Sales total P440,000, cost of goods sold is P210,000, and operating expenses are P 160,000. How much is
gross margin?
A. P440,000 C. 70,000
B. P230,000 D. 210,000
40. It is the systematic recording, classifying, summarizing, governmental transactions in terms of the money and
other resources consistent with accounting and budgetary laws.
A. Local government C. Government budgeting
B. National government D. Government accounting
41. The credit balance in Allowance for Uncollectible is P14, 300 prior to the adjusting entries at the end of the
period. The aging of accounts indicates that an allowance of P78, 900 is needed. The amount of expense to record
is.
A. P93,200
B. P14,300
C. P78,900
D. P64,600
56. Which of the following quantitative techniques is used to determine the fixed and variable elements of a semi
variable cost?
a. Queuing theory c. Linear programming
b. Simple method d. Least squares
57. In a make or buy decision
a. Only conversion costs are relevant
b. Only variable costs are relevant
c. Fixed costs that can be avoided in the future are relevant
d. Fixed costs that will continue regardless of the decision are relevant
58. Which of the following transactions would increase a company’s positive current ratio?
a. Use the equity method to reflect earnings of an investee
b. Sell a temporary investment at a loss
c. Repay the principal on a short term note
d. Borrow money on a short term note
59. How much will an investor pay for P100, 000 bond priced at 101, plus brokerage commission of P1, 100?
a. P101,975 c. P101,100
b. P101,875 d. P100,000
60. The currency other than reporting currency of an enterprise is
a. Foreign currency c. Foreign currency loan
b. Foreign ratio d. Closing rate
61. You have purchased some unclaimed freight for P20, 000 and can sell it immediately for P30, 000. What
accounting concept principle governs the amount at which to record the goods you purchased?
a. Going concern concept c. Cost principle
b. Entity concept d. Reliability principle
62. The income statement item that is likely to be most useful for predicting income from year to year is
a. Net income b. Discontinued operations
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c. Income from continuing operations d. Extraordinary items
63. Financial plan for the general expenditure of government
a. Special budget c. Supplemental budget
b. Deficiency budget d. General budget
64. Discounting a note receivable is a way to
a. All of these c. Update an account
b. Collect on a note d. Increase interest
65. An understatement in reported net income may arise from the failure to record
a. The amortization of discount in bonds payable c. An occurred liability
b. A deferred income d. A prepaid insurance
66. Pocholo Corporation owns 30 percent of the voting stock of Maxie, Inc. Maxi reports a net income of P100, 000
and declares and pays cash dividends’ of P40, 000. Which method should Pocholo use to account for this
investment?
a. Cost c. Equity
b. Market value d. Consolidation
67. The matching principle provides guidance in accounting for
a. Owner’s equity c. Liabilities
b. Expense d. Assets
68. The recording phase of financial accounting covers the following steps, except:
a. Business documents are received and c. Transactions are posted to the ledger
prepared d. Financial statements are prepared
b. Transactions are journalized
69. A payment on account was recorded by debiting Inventory and crediting cash. This entry was posted. The
correcting entry is
a. Accounts payable x
Inventory x
b. Inventory x
Accounts payable x
c. Cash x
Inventory x
d. Cash x
Accounts Payable x
70. Trading investments are reported at the
A. Total equity value D. Lower of the total cost or total market value of
B. Total cost of the investment the investment
C. Total market value of the investment
71. A party that controls, is controlled by, or is under common control with an enterprise either directly through one
or more intermediaries
A. None of these C, Subsidiary
B. Affiliate D. Parent company
72. Which of the following items appears on the bank side of bank reconciliation?
A. Outstanding check C. NSF Check
B. Interest revenue earned on bank balance D. Book error
73. In considering in financial reporting, how did the Accounting Principles Board conclude that such reporting
should be viewed?
A. As useful only if activity is evenly spread throughout the year so that estimates are unnecessary
B. as a special type of reporting that need not follow generally accepted accounting principles
C. As reporting for a basic accounting period
D. As reporting for an integral part of an annual period
74. discounting a note receivable create a (an)
A. Protest fee C. Contingent liability
B. Interest expense D. Cash disbursement
75. Stockholders of one company give up their stock in exchange for the stock of the other company; they continue
to be stockholders; but now in the expanded entity
A. None of these C. Acquisition method of recording a combination
B. Leverage or trading on equity D. Pooling of Interests
76. Expenditures in the government are broadly classified into
A. Current operating C. Obligations incurred
B. Obligation of Allotment D. Capital outlays
77. Which of the following definitions fits subsidiary
A. An enterprise that is controlled by another enterprise
B. None of these
C. Ownership, directly or indirectly through subsidiaries, of more than half of the voting power of an enterprise
A1 PASSERS REVIEW CENTER///113
D. An enterprise that has one or more subsidiaries
78. Family members whom a principal owner or member of management might control or influence or by whom they
might be controlled or influenced because of the family relationship
A. None of these C. Related parties
B. Principal owners D. Immediate family
79. A financial plan to augment the general budget
A. Deficiency budget C. Special budget
B. General budget D. Supplemental budget
80. In foreign exchange transactions, the ratio at which the currencies of two countries are exchanged at a particular
time
A. Closing rate C. Exchange rate
B. Spot rate D. Forward rate
81. Under the revenue principle, revenue is recorded
A. at the end of accounting period C. After it has been earned, but not before
B. At the latest acceptable time D. At the earliest acceptable time
82. Using direct materials in production and charging direct labor costs to a job in debits to
A. Finished Goods Inventory C. Direct materials and direct labor
B. Work in Process Inventory D. Materials inventory and manufacturing wages
83. Which of the following items is revenue expenditure?
A. Legal fee paid to acquire land
B. Survey of fee paid during the acquisition of land
C. Building permit paid to construct a warehouse on the land
D. Property tax paid on the land one year after it is acquired
84. How are financial ratios used in decision making?
A. They can help identify the reasons for success and failure in business but decision making requires
information beyond the ratios.
B. They remove the uncertainty of the business environment.
C. They aren’t useful because decision making is too complex
D. They give clear signals about the appropriate action to take
85. Cash outflows for financing activities
A. Other principal payments to creditors who have extended long term credit
B. All of these
C. Payment of dividends
D. Repayment of amounts borrowed
86. The ratio of security to long term liabilities, which measures the protection against the presently outstanding debt
and indicates the available sources of additional funds, is computed as follows:
A. Total liabilities over total assets C. Long term liabilities over fixed assets
B. Stockholders equity over total liabilities D. Fixed assets over long term liabilities
87. Net income was P240, 000 in 1074, P210, 000 in 1975, and 252, 000 in 1976. The change from 1975 to 1976 is
a (an)
A. Decrease of 10 percent C. Decrease of 12:15 percent
B. Increase of 20 D. Increase of 5 percent
88. When earnings per share is computed dividends on preferred stock are
A. added because they represent earnings to be preferred stockholders
B. Reported separately on the income statement
cause they represent earnings to the preferred stockholders
D. Ignored because they do not pertain to the common stock
89. Which of the following accounts would be included in the calculation of a company’s acid test ratio?
A. Accounts receivable: No Inventories: No
B. Accounts receivable: No Inventories: Yes
C. Accounts receivable: Yes Inventories: Yes
D. Accounts receivable: Yes Inventories: No
90. Which of the following methods of reporting attempts to eliminate the effect of the changing value of the peso?
A. Historical cost restated for changes in the general price levels
B. Replacement value
C. Discontinued net present value of future cash flows
D. Retirement value
91. What are the rules on the use of government funds?
A. No obligation shall exceed allotment C. All of these
B. No allotment shall exceed appropriation D. No liquidation shall exceed obligation
92. If the note payable in the preceding question had been the cash proceeds from issuance would have been
A. P9,100 B. P9,625
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C. P9,700 D. P10,000
93. A management consultant is scheduling a long term research and development project. The time table is very
tight due to the rainy season and to in adequate research staff the requirements are extensive and complex, what is
the appropriate approach for planning and controlling the government highway project.
A. Time series or trend regression analysis C. Queuing theory analysis
B. Cost volume earnings analysis D. Program evaluation review technique (PERT)
94. Investment in activity –based costing systems justice only they lead to
A. More accurate inventory values C. Better cost driver analysis
B. Better management decisions D. More accurate product costs
95. A supportive argument for the pooling method of accounting or a business combination is that
A. A portion of the total cost is assigned to individual asset
B. Goodwill is generally a part of acquisition
C. The company is clearly the dominant and continuing
D. It was developed within the boundaries of the history cost system and is compatible with it
96. Posting is the process of transferring information from the
A. Ledger to the trial balance C. Journal to the trial balance
B. Ledger to the financial statement D. Journal to the ledger
97. Truelove Corporation is a stable, going concern which each invest about P50,000 in new plant and equipment
as an equip amount of older equipment is retired. It has been reporting income or both tax and financial statement
purposes by using straight line depreciation, but it has not changed to accelerated depreciation for tax purposes.
This difference in depreciation methods caused a deferred tax credit which over the years will build up.
A. Rapidly and then a slowly decline C. And then remain relatively constant
B. Indefinitely D. Rapidly and slowly increase
98. Used by national government that provides uniform accounting for incurring and liquidating obligations. The
books used in this phase of accounting are the general journal, the journal and analysis of obligations, the journal
disbursements by disbursing officers, the journal of warrants issued, and the journal of checks issued.
A. Advice of allotment C. All of these
B. Obligation of allotment D. Obligation of accounting office
99. A company has current ratio of 2 to 1. The ratio will decrease if the company
A. Receivable a 5% stock dividend on one of its marketable securities
B. Sells merchandise for more than cost and records the sale using the perpetual inventory method
C. Plays a large account payable which had been a current liability
D. Borrow cash on a six-month note
100. In a capital lease, the lease records
A. A leased asset and lease liability
B. Depreciation on the leased asset
C. All of these
D. Interest on the leased liability
***END***
AUDITING THEORY
INSTRUCTION: Select the correct answer for each of the following questions. Mark only one answer for
each item by shading the box corresponding to the letter of your choice on the answer sheet provided.
STICTLY NO ERASURES ALLOWED. Use pencil no. 1 only.
When an auditor qualifies an option because of in adequate disclosure, the auditor should describe the nature of the
omission in a separate explanatory paragraph and modify the scope and opinion paragraphs.
When an auditor qualifies an option because of inadequate disclosure, the auditor should describe the nature of the
commission in a separate explanatory paragraph and modify the introductory paragraphs.
A. First statement is correct, the second and third statements are correct
B. First and third statements are not correct, the second statement is correct
C. All statements above are not correct
D. First and second statements are not correct, the third statement is correct
2. To be competent, audit evidence should be either persuasive or relevant, but need not be both.
The difficulty and expense of obtaining audit evidence concerning an account balance is a valid basis for omitting
the test.
Clients accounting data can be sufficient audit evidence to support the financial statements
A. First and second statements are not correct, the third statement is correct
B. All above statements are not correct
C. First and third statements are not correct, the second statement is correct
D. First statement is correct, the second and third statements are not correct
3. An auditor would most likely be concerned with internal control policies and procedures that provide reasonable
assurance about the entity’s ability to process and summarize financial data.
An auditor would most likely be concerned with internal control policies and procedures that provide reasonable
assurance about the efficiency of management’s decision making process.
A. Both statements are correct
B. The first statement is not correct, the second statement is correct
C. Both statements are not correct
D. The first statement is correct, the second statement is not correct.
4. Select the correct statement;
A. An auditor’s analytical procedures most likely would be facilitated if the entity corrects material weaknesses in
internal control before the beginning of audit.
B. Auditor’s analytical procedures most likely would be facilitated if the entity’s develops its data from sources
solely within the entity
C. Auditor’s analytical procedures most likely would be facilitated if the entity segregates obsolete inventory
before the physical inventory count
D. An auditor’s analytical procedures most likely would be facilitated if the entity uses a standard cost system
that produces variants reports.
5. An auditor assesses control risk because it indicates where inherent risk may be the greatest.
An auditor assesses control risk because it determines whether sampling risk is sufficiently low.
An auditor assesses control risk because it includes the aspects of non sampling risk that are controllable.
A. All above statements are correct
B. First statement is correct; the second and third statements are not correct
C. The second statement is correct; the first and third statements are not correct
D. All above statements are not correct
6. The objective of a review of interim financial information is to provide the accountant with a basis for reporting
whether material modifications should be made to conform with generally accepted accounting principles.
The objective of a review of interim financial information is to provide the accountant with a basis for reporting
whether the financial statements are presented fairly in accordance with generally accepted accounting principles.
The objective of a review of interim financial information is to provide the accountant with a basis for reporting
whether the financial statements are presented fairly in accordance with standards of interim reporting.
A. First and second statements are correct, third statement is not correct
B. First statement is correct, second and third statements are not correct
C. All statements are not correct
D. First and third statements are correct, second statement is not correct
The objective of the tolerable rate in sampling for the tests of controls of an internal control is to determine that
financial statements taken as a whole are not materially in error.
The objective of the tolerable rate in sampling for the tests of controls of an internal control is to estimate the
reliability of substantive tests.
A. First statement is correct ; the second and third statements are not correct
B. First and second statements are not correct ; the third statements is correct
C. First and third statements are not correct ; the second statements is correct
D. All above statements are not correct
8. A written engagement letter formalizing the level of the service to be rendered is a required documentation in an
audit in accordance with generally accepted auditing standard
A. True, False C. False; True
B. Both statements are False D. Both statements are True
9. In the context of an audit of financial statements, substantive test are audit procedures that will increase
proportionately with the auditor’s reliance on internal control.
In the context of an audit of financial statements, substantive test are audit procedures that will increase
proportionately with the auditor’s reliance on internal control.
A. First statement is not correct; the second statement is correct
B. Both statements are correct
C. Both statements are not correct
D. First statement is correct; the second statement is not correct
10. The various evidences obtained directly by the auditor through observation such as tests counts of inventory and
those obtained directly from independent sources are considered relatively more persuasive compared to evidences
secured solely from within the entity.
Evidence secured from within the entity like prenumbered purchase order forms is considered least persuasive type
of audit evidence compared to externally created documents such as bank statements received from the client.
A. First statement is not correct, the second statement is correct
B. Both statements are correct
C. First statement is correct, the second statement is not correct
D. Both statements are correct
11. In designing audit programs which of the following objectives should be given more weight:
A. That the auditor can make constructive suggestions to management
B. That the audit evidence gathered supports the auditor’s conclusions
C. That inherent risk is assessed at a sufficiently low level
D. The most of the required procedures can be performed as interim work
12. Analytical procedures used in planning an audit should focus on identifying possible scope limitations and
gathering evidence in assessing control risk environmental factors.
Analytical procedures used in planning an audit should focus on aggregating data at a low level and substantiating
management’s assertions that are embodied in the financial statements.
Analytical procedures used in planning an audit should focus on discovering material weaknesses in the internal
control structure and reporting them to the entity’s management for corrective action.
A. First and second statements are not correct; the third statement is correct
B. All above statements are not correct
C. First and second statements are not correct; the third statement is correct
D. First and third statements are not correct; the second statement is correct
13. Nonsampling risk includes only those aspects of audit-risk that are not due to sampling.
Inherent risk is the susceptibility of an assertion to a material misstatement assuming that there are no related
internal control structure, policies and procedures.
Sampling risk arises from the possibility that, when a test of controls or a substantive test is restricted to a sample,
the auditor’s conclusions may be different from the conclusions he would reach if the test were applied on the same
way to all items in the account balance or class of transactions.
A. First and second statements are not correct; the third statement is correct
B. All above statements are not correct
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C. First statements is correct; the second and third statements are not correct
D. All above statements are correct
14. Cut-off tests designed to detect credit sales made before the end of the year that have been recorded in the
subsequent year provide assurance about management’s assertion of completeness.
Cut-off tests designed to detect credit sales made before the end of the year that have been recorded in the
subsequent year provide assurance about management’s assertion of rights.
In the process of obtaining an understanding of an entity’s internal control in a financial statement audit, the auditor
is not obligated to perform procedures to understand the design of the internal control policies.
In the process of obtaining an understanding of an entity’s internal control in a financial statement audit, the auditor
is not obligated to search for significant deficiencies
In the operation of the internal control
A. Second and third statement are not correct; the first statement is correct
B. First and third statements are not correct; the second statement is correct
C. All above statements are not correct
D. First and second statements are not correct; the third statement is correct
18. The expected population deviation rate of client billing errors is 2%. The auditor has established a tolerable rate
of 4%. In the review of client invoices the auditor should use
A. Discovery sampling C. Stratified sampling
B. Variable sampling D. Attribute sampling
19. Identify the correct combination of procedure which auditors most likely perform to obtain evidence about fixed
asset additions:
A. Recomputing calculations and obtaining written management representations
B. Observing operating activities and comparing balances to prior period balances
C. Confirming ownership corroborating transactions through inquiries of client personnel
D. Inspecting documents and physically examining assets
20. When evaluating an entity’s accounting estimates, one of the auditor’s objectives is to determine whether the
estimates are not subject to bias.1
When evaluating an entity’s accounting estimates, one of the auditor’s objectives is to determine whether the
estimates are consistent with industry guidelines.
When evaluating an entity’s accounting estimates, one of the auditor’s objectives is to determine whether the
estimates are based on objective assumptions.
A. First statement is correct; second and third statements are not correct.
B. All above statements are not correct
C. All statements are correct
D. The third statement is correct; first and second statements are not correct
21. When there has been a change in accounting principle that materially affects the compatibility of the
comparative financial statements presented and the auditor concurs with the change, the auditor should (select the
best answer)
A. Refer to the change in explanatory paragraph
B. Refer to the change in explanatory paragraph and concur explicitly with the change
C. Issue an “except for” qualified opinion
D. Concur explicitly with the change
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22. In statiscal sampling methods used in substantive testing, when would an editor most likely to stratify a
population into meaningful groups?
A. If the population has highly variable recorded amounts
B. If probability proportion to size sampling is used
C. If the auditor estimated tolerable mis statement is extremely small
D. If the standard deviation of recorded amounts is relatively small
23. An auditor should design the written audit program so that all materials transactions will be selected for
substantive testing.
An auditor should design the written audit program so that substantive test prior to the balance sheet date will be
minimized.
An auditor should design the written audit program so that each account balance will be tested under either test of
controls or test of transactions.
A. The first statement is correct; the second and third statement are not correct
B. All above statements are not correct
C. All above statements are correct
D. The third statement is correct; first and second statements are not correct
24. Choose the element of the audit planning process most likely to be agreed upon with he client before
implementation of the audit of strategy.
A. The determination of the evidence to be gathered to provide a sufficient basis for the auditor’s opinion
B. The determination of the timing of inventory observation procedures to be performed
C. The determination of the pending legal matters to be included in the inquiry of the clients attorney
D. The determination of the procedures to be undertaken to discover litigation, claims and assessments
25. The working papers serve to satisfy the auditor’s responsibilities concerning the code of professional of ethics.
The working papers serve to monitor the effectiveness of the CPA firm’s quality control procedures..
The working papers serve to document the level of independence maintained by auditor.
A. First and third statements are not correct, the second statement is correct
B. Second and third statement are not correct; the first statement is correct
C. All above statements are not correct
D. First and second statements are not correct, the third statement is correct
26. Identify reason why employers bond employees who handle cash receipts:
A. Because fidelity bonds reduce the possibility of employing dishonest individuals and force employees in
position of trust to take periodic vacation s vacation and rotate their assigned duties
B. Because fidelity bonds reduce the possibility of employing dishonest individuals and facilitate an
independent monitoring of the receiving and depositing of cash receipts
C. Because fidelity bonds reduce the possibility of employing dishonest individuals and deter dishonesty making
employee aware those insurance companies may investigate and prosecute dishonest acts.
D. Because fidelity bonds reduce the possibility of employing dishonest individuals and protects employees who
make unintentional errors from possible monetary damages resulting from their errors
27. What should be the direction of the audit testing when determining the completeness of the recording of
transaction?
A. From the original source documents C. From the general ledger balances
B. From general journal entries D. From the adjusted trial balance
28. Identify the correct statement
A. As part of understanding the internal structure culture , an auditor is not required to consider factors that
affect the risk of material misstatement
B. As part of understanding the internal control structure, an auditor is not required to ascertain whether internal
control structure policies and procedures have been placed in operation.
C. As part of understanding the internal control structure, an auditor is not required to identify the types of
potential misstatements that can occur
D. As part of understanding the internal control structure, an auditor is not required to obtain knowledge about
the operating effectiveness of the internal control structure
In evaluating the reasonableness of an accounting estimate, an auditor most likely would concentrate in key factors
and assumptions that are objective and not susceptible to bias.
In evaluating the reasonableness of an accounting estimate, an auditor most likely would concentrate in key factors
and assumptions that are deviations from historical patterns.
A. Third statement is correct; first and second statements are not correct.
B. All above statements are correct
C. First statement is correct; second and third statements are not correct
D. Second statement is correct; first and third statements are not correct
31. Identify the required documentation in an audit in accordance with generally accepted auditing standards
A. A written audit program describing the necessary procedure to be performed
B. A written engagement letter formalizing the level of service to be rendered
C. A memorandum setting forth the scope of audit
D. A flowchart depicting the segregation of duties and authorization of transactions
32. Compared to systematic selection, block selection is least desirable for use by an auditor.
Comparing stratified selection, with block selection the least desirable for use by an auditor is the block selection.
Block selection the least desirable for use by an auditor for use by an auditor compared to to systematic selection,
stratified selection and sequential selection.
A. Only second statement is correct; all others are not correct statements are not correct.
B. Only first statement is correct; all others are not correct statements are not correct
C. All above statements are correct
D. All above statements are not correct
33. Select which of the following statements regarding the auditor’s primary objective in performing procedures to
obtain an understanding of internal control structure is correct
A. The primary objective is to provide the auditor with evidential matter to use in assessing inherent risk
B. The primary objective is to provide the auditor with a basis for modifying tests of controls
C. The primary objective is to provide the auditor with knowledge necessary for audit planning.
D. The primary objective is to provide the auditor with an evaluation of the consistency of application of
managements policies
34. Select the correct statement about the reliability of evidential matter:
A. To be reliable, evidential matter should be convincing rather than persuasive
B. Reliability of evidential matter refers to the amount of corroborative evidence obtained
C. Information obtained indirectly from outside sources is the most reliable evidential matter
D. An effective internal control structure provides more assurance about reliability of evidential matter
35. Which of the following is considered the principal advantage of statistical method of attribute sampling over
nonstatistical methods?
A. The statistical method of attribute sampling provides a scientific basis for planning the tolerable rate.
B. The statistical method of attribute sampling provides a scientific basis for planning the sample size
C. The statistical method of attribute sampling provides a scientific basis for planning the risk of assessing
control risk too low
D. The statistical method of attribute sampling provides a scientific basis for planning the expected population
deviation rate
36. An accountant’s compilation report should be dated as of the date of completion of the compilation.
An accountant’s compilation report should be dated as of the date of transmittal of the compilation report.
A. Both statement are correct
B. First statement is not correct; the second statement is correct
C. First statement is correct, the second statement is not correct
D. Both statements are not correct
An advantage of statistical sampling over nonstatistical sampling is that statistical sampling helps an auditor to
reduce the level of audit risk and materiality to a relatively low amount .
An advantage of statistical sampling over nonstatistical sampling is that statistical sampling helps an auditor to
minimize the failure to detect error and fraud.
A. All above statements are correct
B. First statement is correct, the second and third statement are not correct
C. The third statement is correct, the first and second statements are not correct
D. All above statements are not correct
43. If an auditor is satisfied that there is only a remote likelihood of a loss resulting from the resolution of a matter
involving an uncertainty, the auditor should express an unqualified opinion with a separate explanatory paragraph.
If an auditor is satisfied that there is only a remote likelihood of a loss resulting from the resolution of a matter
involving an uncertainty, the auditor should express a qualified opinion or disclaimer of opinion, depending upon the
materiality of the loss.
If an auditor is satisfied that there is only a remote likelihood of a loss resulting from the resolution of a matter
involving an uncertainty, the auditor should express a qualified opinion or disclaimer of opinion, depending on
whether the uncertainty is adequately disclosed.
A. Second statement is correct; the first and third statements are not correct.
B. All the above statements are not correct
C. First statement is correct, the second and third statement are not correct
D. The third statement is correct; the first and third second are not correct
The procedure you most likely perform in auditing the statement of cash flows is to compare the amounts included in
the statement of cash flows to reconcile the cut off bank statements to verify the accuracy of the year end bank
balances.
The procedure you most likely perform in auditing the statement of cash flows is to compare the amounts included in
the statement of cash flows is to vouch all bank transfer for the last week of the year and first week of the
subsequent year..
A. All the above statements are not correct
B. First statement is correct, the second and third statement are not correct
C. The first statement is not correct; the second and third statement are correct
D. All the above statements are correct
49. analyses of capital stock ant other owners equity accounts are working papers that would most likely be
included in an auditors permanent file.
Documentation indicating that the audit work was adequately planned and supervised are working papers that
would most likely be included in an auditors permanent file.
A. True; True C. False; True
B. False; False D. True; False
50. An auditor would most likely have substantial doubt an entity’s ability to continue as a going concern if research
and development projects are postponed.
An auditor would most likely have substantial doubt about an entity’s ability to continue as a going concern if
significant related party transactions are pervasive.
An auditor would most likely have substantial doubt about an entity’s ability to continue as a going concern if stock
dividends replace annual cash dividends.
A. All the above statements are not correct
B. First statement is correct, the second and third statement are not correct
C. Second statement is correct; the first and third statement are not correct
D. Third statement is correct, the first and second statement are not correct
Nonsampling risk includes only those aspects of audit risk that re not due to sampling
Inherent risk is the susceptibility of an assertion to a material statement, assuming that there are no related internal
control structures, policies or procedures.
A. First statement is not correct, the second and third statement are correct
B. All the above statements are not correct
C. All above statement are correct
D. First statement is correct, second and third statement are not correct
52. When differences are discovered during the clients annual physical inventory count, this would most likely
cause an auditor to consider whether material misstatements exist in an entity’s financial statements.
When reportable conditions previously communicated have not been corrected, this would most likely cause an
auditor to consider whether material misstatements exist in an entity’s financial statements.
When supporting records that should be readily available are frequently not produced when requested, this would
most likely cause an auditor to consider whether material misstatements exist in an entity’s financial statements.
A. Second statement is correct, the first and third statements are not correct
B. First statement is correct, the second and third statement are not correct
C. Third statement is correct, the first and second statement are not correct
D. All above statements are correct
53. Operational auditing is primarily oriented toward future improvements to accomplish the goals of management
Operational auditing is primarily oriented toward the accuracy of data reflected in management’s financial-records.
A. Second statement is not correct, the second statement is correct
B. First statement is correct, the second statement are is not correct
C. Both statements are correct
D. Both statements are not correct
54. When evaluating an entity’s accounting estimates, what is one of auditor’s objectives?
A. To determine whether the estimates are based an objective assumptions
B. To determine whether the estimates are reasonable in the circumstances
C. To determine whether the estimate are consistent with industry guidelines
D. To determine whether the estimates are not subject to bias
55. To permit effective planning of the audit, the auditor must have an understanding of the internal control structure.
As part of understanding the internal control structure, the auditor is required to consider factors that affect the risk
of material statement
To permit effective planning of the audit, the auditor must have an understanding of the internal control structure. As
part of understanding the internal control structure, the auditor is required to ascertain whether internal control
structure policies and procedures have been placed in operation.
A. First statement is not correct, and the second statements is correct
B. Both statements are correct
C. Both statements are not correct
D. First statement is correct, and the second statements is not correct
56. Identify which of the following an auditor would least likely verify when auditing inventories:
A. That the financial statement presentation of inventories is appropriate
B. That damaged goods and obsolete items have been properly accounted for
C. That the client has used proper inventory pricing
D. That all inventory owned by the client is on hand at the time of the count
57. What is an advantage of using statistical sampling on nonstatistical sampling methods?
A. The statistical methods afford greater assurance than nonstatiscal sample of equal size
B. The statistical methods can more easily convert the sample into a dual purpose test useful for substantive
testing
C. The statistical method provide an objective basis for quantitatively evaluating sample risk
D. The statistical methods eliminate the need to use the judgement in determining appropriate sample sizes.
58. The tolerable rate of deviations for a test of a control is generally (select the best answer)
A. Identical to the expected rate of errors in related accounting records
B. Lower than expected rate of errors in the related accounting records
A1 PASSERS REVIEW CENTER///123
C. Unrelated to the expected rate of errors in the related account ting records
D. Higher than the expected rate of errors in the related accounting records
59. An auditor uses the knowledge provided by the understanding of internal control and the final assessed level of
control risk primarily to determine the nature, timing and extent of the substantive test.
An auditor uses the knowledge provided by the understanding of internal control and the final assessed level of
control risk primarily to determine the nature, timing and extent of the tests of controls.
An auditor uses the knowledge provided by the understanding of internal control and the final assessed level of
control risk primarily to determine the nature, timing and extent of the compliance test
A. Second statement is correct, the first and third statements are not correct
B. All above statements are correct
C. All above statements are not correct
D. First statement is correct, the second and third statements are not correct
60. A basic premise underlying the application of analytical procedures is that plausible relationships among data
may reasonably be expected to exist and continue in the absence of known conditions to the contrary.
In the context of an audit of financial statements, substantive test are audit procedures that may be either test of
transactions, direct tests of financial balances of analytical tests.
A basic premise underlying the application of analytical procedure is that this procedure cannot replace tests of
balances and transactions.
A. Third statement is correct, but first and third second are not correct
B. All above statements are correct
C. First and second statements are correct, but the third statements is not correct
D. Second statement is correct, but both first and third statements are not correct
***END***
MULTIPLE CHOICE:
1. On January 1, 1996, a group of stockholders set up Toledo, Inc. they contributed cash of P1, 500, 000 and
borrowed P220, 000. During the year, revenues from sales totalled P164, 000, while total cost and expenses
were P128, 000. Toledo declared a cash dividend of P6, 000 on December 15, payable to the stockholders on
January 15, 1997. There no additional activities affecting stockholders equity. By December 31, 1996, liabilities
increased to P240, 000. Total assets should be reported on Toledo’s December 31, 1996, liabilities increased
to P240, 000. Total assets should be reported on Toledo’s December 31, 1996 balance sheet at
A. P 1,750,000 C. P1,770,000
B. P 1,764,000 D. P1,756,000
3. Stanford Co. had 300,000 shares of common stock issued and outstanding at December 31, 1995.
No common stock was issued during 1996. On January 1, 1996, Stanford issued 200,000 shares of
nonconvertible preferred stock,. During 1996, Stanford declared and paid P75, 000 cash dividends on the
common stock and P60, 000 on the preferred stock. Not income for the year ended December 31, 1996 was
P330, 000.
What amount should Ramagate report as accumulated amortization in its December 31, 1996 balance sheetr?
A. P152,000
B. P200,000
C.P250,000
D.190,000
5. Shown below are selected data from the balance sheet of Arizgoti Corp., a grocery store:
Current liabilities P150,000,000
Noncurrent liabilities P120,000,000
Cash P20,000,000
Accounts receivable P100,000,000
Inventory P195,000,000
Total assets P450,000,000
A. 0.8 to 1
B. 1.25 to 1
C. 2.1 to 1
D. 0.133 to 1
In a trial a balance prepared on December 31, 1997, the sum of the debit column is:
A. P860,000 C. P790,000
B. P1,440,000 D. P1,240,000
7. Pinetown Corp. Has current assets of P180, 000 and current liabilities of P360,000. Which of the following
transactions would improve Pinetown’s current ratio?
A. Refinancing a P60, 000 long term mortgage with with a short term note.
B. Collecting P20,000 of short term accounts receivable
C. Purchasing P100,000 of merchandise inventory with a short term accounts payable
D. Paying P40,000 of short term Accounts payable
8. The net income for the year ended December 31 for Lambourne Corporation was P3, 520,000. Additional
information are as follows:
Purchases of plant assets P2,800,000
Depreciation of plant assets P1,480,000+
Dividends declared on plant assets 970,000
Net decrease in noncash current assets 290,000+
Loss on sale of equipment 130,000+
What should be the cash provided from operating activities in Lambourne Statement of cash flows for the year
and ended December 31?
A. P5,420,000 C. P7,250,000
B. P5, 130,000 D. P5,290,000
9. On June 30, 1996, Louisiana Corp. Prepaid a P38, 000 premiums on an annual insurance policy. The
premium payment was a tax deductible expense in Louisiana’s 1996 cash basis tax return. The accrual basis
income statement will report a P19, 000 insurance expense in1996 and 1997.
A1 PASSERS REVIEW CENTER///126
Louisiana’s income tax rate is 35% in 1996. Based on a new law, tax rate is 30% in subsequent years.
In Louisiana’s December 31, 1996 balance sheet, what amount related to the insurance should be reported as
deferred income tax liability?
A. P11,400 C. P13,300
B. P6,650 D. P5,700
10. During January 1997, Sydney Corp. won a litigation award for P15, 000 which was tripled to P45,000 to
include punitive damages. The defendant, who is financially stable, has appealed only the P30, 000 punitive
damages. The defendant, who is financially stable, has appealed only the P30, 000 punitive damages.
In its 1997 financial statements, Sydney should report what amount of pretax gain?
A. P15,000 C. P95,000
B. P50,000 D. P45,000
11. A machinery was acquired by Clydeband Corp. In January 1994 at a cost of P1, 000,000. Estimated
salvage value of the machinery is P200,000 at a estimated useful life of eight years, under the straight line
method. In January 1996, clydeband has determined that there was a permanent impairment in the value of
the machinery. Thus, the carrying amount should be P350,000 only, with remaining useful life of two years and
a salvage value of P50,000
The machinery should be reported in Clydeband’s December 31, 1996 balance sheet at a carrying amount of:
A. P300,000 C. P700,000
B. P350,000 D. P200,000
12.on July 1, 1996, Clichy Corp. purchased Enry Corp. ‘s ten year , 8% bonds with a face amount P1,000,000
for P840,000. The bonds mature on June 30,2004 and pay interest semi-annually on June 30 and December
31. Using the interest method, Clichy recorded bond discount amortization of P3, 600 for the six month ended
December 31, 1996
From this long term investment, Clichy should report 1996 revenue of:
A. P40,000 C.P33,600
B. P36,400 D.P43,600
13. Hearst Co. Sold selected merchandise on a consignment basis during 1996. Heart’s 1996 accounting
records show the following:
Information:
Inventory January 1 P244,000+
Inventory on hand December 31 2890,000-
Inventory out on consignment December 31 40,000
Purchases 1,080,000
Freight-in 20,000
Freight-out 70,000
Freight out to consignees 10,000
What should amount Hearst report as cost of goods sold in its 1996 income statement?
A. P1,054,000 C. P1,024,000
B. P1,094,000 D. P1,014,000
14. During 1996, Melbourne, Inc. had the following activities related to its financial operations:
Payment for the early retirement of
Long term bonds payable (carrying value, P740, 000) P750, 000
Distribution in 1996 of cash dividend declared in 1995
To preferred shareholders 62,000
Carrying value of convertible preferred stock converted
Into common shares 120,000
Proceeds from sale of treasury stock
(Carrying value at cost, P86, 000) 95,000
In Melbourne’s 1996 statement of cash flows, net cash used in financing activities should be:
A. P535,000 C. P597,000
B. P716,000 D. P717,000
15. Cascade Range Inc. is determining the amount of its pretax financial income for 1997 by making
adjustment to taxable from the Company’s 1997 income tax return. The tax return indicates taxable income of
P380,000 on which a tax liability of P133,000 has been recognized (P380,000 x 35% = P 133,000)
A1 PASSERS REVIEW CENTER///127
Following are list of items that may be required to determine pretax financial income from the amount of
taxable income
1. Accelerated depreciation for income tax purposes was P134,000, straight line depreciation on these
assets is P80,000 .
2. Goodwill of amortization of P45,000 was not included as a deduction in the tax return, but may be
deducted in the income statement
3. Several expenses were included in the income tax return on an estimated basis. These items will be in
the income statement at these same amounts but are the subject to change if new information in the future
indicates that the original estimates were inaccurate.
4. Interest on treasury bills was not included in the tax return. During the year, P24, 700 was received on
these investments. Cascade Ranges pretax financial income amounts to :
A. P458, 700
B. P389,000
C. P359,700
D. P413,700
16.Doaktown Inc. had the following amounts of long term debt outstanding at December 31,1996
14- ½% term note, due 1997 P6,000
11-1/8% term note, due 2000 214,000
8% note, due in 11 equal annual principal
Payments, plus interest beginning
December 31, 1997 220,000
7% guaranteed debentures, due 2001 ___________
P640, 000
Doaktown’s annual sinking fund requirement on the guaranteed debentures is P8,000 per year.
What amount should Doaktown report as current maturities of long term debt in its December 31, 1996 balance
sheet?
A. P20,000 C. P14,000
B. P26,000 D. P8,000
17. on October 1, 1995 Pontiac, Inc. Committed itself to a formal plan to sell its Hempstead division assets. On
that date, Pontiac estimated that the loss from the disposal of assets in February 1996 would be P500,000. Pontiac
also estimated that the loss from the disposal of assets in February 1996 would be P500, 000. Pontiac also
estimated that Hempstead would incur operating losses of P2, 000,000 for the period of October 1, 1995 thought
December 31, 1995 and P1, 000,000 for the period January 1, 1996 through February 28, 1996. These estimates
were materially correct.
Disregarding income taxes, what should Pontiac report as loss from discontinued operations in its comparative
1995b and 1996 income statements respectively?
A. P2,500,000 and P1,000,000 C. P3,500,000 and P0
B. P0 and P3,500,000 D. P2,000,000 and P1,500,000
18. Elmira Corp. Purchased bonds at a discount of P20,000. Subsequently, Elmira sold their bonds at a premium of
P28,000. During the period that Elmira held this investment, amortization of the discount amounted to P4,000.
What amount should Elmira report as a gain on the sale of bonds?
A. P24,000 C. P52,000
B. P48,000 D. P44,000
19. The working capital of Donostia Company is P600, 000 and its current ratio is 3 to 1. The amount of current
assets is:
A. P900,000 C. P600,000
B. P1,200,000 D. P1,800,000
20. Salem Co. estimates its uncollectible accounts expense to be 2% of credits sales. Salem’s credit sales for 1997
were P1, 000,000. During 1997, Salem wrote off P18, 000 of uncollectible accounts. Salem’s allowance for
uncollectible accounts had a P15,000 balance on January 1, 1997.
In its December 31, 1997 income statement, what amount should Salem report as uncollectible accounts expense?
A. P23,000 C. P20,000
B. P18,000 D. P17,000
21. The bookkeeper of Dijon Co. recently prepared the following bank reconciliation:
A1 PASSERS REVIEW CENTER///128
Dijon Co.
Bank reconciliation
December 31, 1997
Balance per bank statement P126,420
Add:
Deposit in transit P8, 700
Checkbook printing charge 210
Error made in recording check no. 25
(issued in December) 1600
NSF check 5,000 15, 510
_________
141, 930
Deduct:
Outstanding checks 4,480
Note collected by bank (includes
P50 interest) 9,500 13,980
___________
_____________
Balance per books P127, 950
---------------------
Dijon has P9,100 cash on hand on December 31,1997. The amount Dijon should report as cash on the balance
sheet as of December 31, 1997 should be:
A. P120,260 C. P130,640
B. P139,740 D. P132,240
22. The peso value LIFO inventory method was adopted by Peterborough Co. as of January 1, 1996. LIFO inventory
layers are computed through a single inventory pool and internally computed price index. Following is
Peterborough’s a peso value inventory at current year cost and at base year cost:
27. Cambridge Co. purchased a machine costing P1, 250,000 for its manufacturing operations and paid shipping
costs of P200, 000. Cambridge spent an additional P100, 000 testing and preparing the machine for use.
What amount should Cambridge record as the cost of the machine?
A. P1,350,000 C. P1,250,000
B. P1,450,000 D. P1,550,000
28. Edmonton Corp. Owns 80% of Fargo Corp’s common stock. Fargo’s stock outstanding at December31, 1997 is
as follows:
10% cumulative preferred stock P100,000
Common stock 700,000
Fargo reported net income of P60, 000 for the year ended December 31, 1997
What amount should Edmonton record as equity in earnings of Fargo for the year ended December 31, 1997?
A. P56,000 C. P40,000
B. P48,000 D. P50,000
29. On November 1, 1996, Cornwall Corp. Was awarded a judgement of P3,000,000 in connection with lawsuit. The
decision is being appealed by the defendant, and it is expected that the appeal process will be completed by the
end of 1997. Cornwall’s attorney feels that it is highly probable that an award will be upheld on appeal, but the
judgement may be reduced by an estimated 40%. In addition to a footnote disclosure, what amount should be
reported as a receivable in Cornwall’s balance sheet at December 31, 1996?
A. P1,800,000 C. P0
B. P1,200,000 D. P3,000,000
30. Drachten Company has the following information as of January 1, 1996 on its property, plant and equipment
account:
Historical cost:
Land P25,000,000
Buildings and improvement 150,000,000
Machinery and equipment 200,000,000
Total P375,000,000
Accumulated depreciation:
Buildings and improvements P18,750,000
Machinery and equipment 50,000,000 68,750,000
There were no additions or disposalsw during 1996. Depreciation expense is computed on the straight line method
over 20 years for buildings and improvements; 10years for machinery and equipment were appraised as follows:
Appraised values:
Land P50,000,000
Buildings and improvements 250,000,000
Machinery and equipment 325,000,000
P625,000,000
Sound values:
Buildings and improvements P225, 000,000
Machinery and equipment 225,000,000
Drachten should report revaluation increment (appraisal increase) in property, plant and equipment under the
stockholders equity of
A. P143,750,000 C. P318,750,000
B. P207,500,000 D. P193,750,000
31. Davenport Corp. Retired 50,000 shares of P5 par value common stock it held in treasury at an average cost of
P26 per share on December 31, 1996. The balances in Davenport’s stockholders equity accounts before recording
the retirement of the treasury stock are:
Common stock- P1,080,000 additional paid in capital –P 1,500,000 treasury stock at cost – P1,300,000 and
retained earnings P1,800,000
Davenport should report common stock outstanding in its December 31, 1996 balance sheet of:
A. P1,080,000 C. P830,000
B. P500,000 D. P0
32. The following balances were reported by Phoenix Co. at December 31, 1996 and 1995:
12/31/96 12/31/95
Shares issued
And outstanding
On October 1, 1996, Royal Oak issued 10% stock dividend on its common stock, and paid P200,000 cash dividends
on the preferred stock. Net income for the year ended December 31, 1996 was P1, 920,000.
If a 40% stock dividend is declared when the stock is selling for P5 per share, what amount should be transferred
from the retained earnings account to the paid in capital in excess of par account?
A. P0 B. P800
A1 PASSERS REVIEW CENTER///131
C. P2000 D. P1,200
35. At December 31, 1996, the following information was available from New Jersey Co.’s accounting records:
COST RETAIL
1996 1995
Accounts receivable P400,000 P200,000
Accounts payable 150,000 300,000
Under the accrual method, what amount of income before income tax should Purdue report in its December 31,
1996 income statement?
A. P950,000 C. P550,000
B. P250,000 D. P650,000
37. Cordoba, Inc. had the following activities during 1996: Acquired 2,000 shares of stock in Ventura Inc, for P26,
000. Sold an investment in Rosewood for P35, 000 when the carrying value was P33, 000.
Acquired a P50, 000, 4-year certificate of deposit from a bank (during the year, interest of P3, 750 was paid to
Cordoba). Collected dividends of P1, 200 on stock investments.
In Cordoba’s 1996 statement of cash flows, net cash used in investing activities should be:
A. P37,250
B. P41,000
C. P39,800
D. P38,050
38. Bismarck’s Corp. Account balance during 1996 showed the following changes (all increases)
There were no changes in retained earnings for 1996 other than P26, 000 dividend payment and the years
earning’s.
39. Carmel Inc. reported net income of P150,000 for 1996. Changes occurred in several balance sheet accounts
during 1996 as follows:
Investment in Crystal, Inc. stock
Carried on the equity basis P5, 500 increase
Accumulated depreciation, caused by a
Major repair to machinery 2,100 decreases
Premium on bonds payable 1,400 decrease
Deferred income tax liability (long-term) 1,400 decrease
In Carmel’s 1996 cash flows statement, the reported net cash provided by operating activities should be:
A. P142,800 C. P148,300
B. P144,900 D. P150,400
What amount of appropriated retained earnings should Hatfield report in its 1996 balance sheet?
A. P4,350,000 C. P9,600,000
B. P8,850,000 D. P3,600,000
41. The balance in retained earnings of Brive Gailarde Company at the beginning of the year was P650,000. During
the year, Brive la Gailarde Company earned revenue of P4, 500,000 and incurred expenses of P3, 800,000
dividends of P500,000 were declared and paid, and the balance of the cash account increased by P220,000. The
Company’s net income and the yearend balance in the retained earnings account, respectively, are:
A. P700,000 and P850,000 C. P200,000 and P850,000
B. P200,00 and P1,070,000 D. P700,000 and P1,070,000
42. Chiavari Corporation had total assets of P4,000,000 and stockholders’ equity of P2,080,000 at the beginning of
the year. During the year, assets increased by P520,000 and liabilities decreased by P820,000
43. Twin falls Co. filed a patent infringement suit against Calgary, Inc. in May 1993 seeking P2, 850,000 for
damages. Twin Falls was awarded P2,250,000 in damage by court verdict in November 1996;butb Calgary
appealed the decision and its appeal is hot expected to be decided before 1998. The counsel of Twin Falls
believes that it is probable that Twin Falls will be successful against Calgary and estimates an amount in the range
between P1, 200,000 And P1, 650,000 with P1, 500,000 considered as the most likely amount.
Twin Falls should record as income from lawsuit in the year ended December 31, 1996 the amount of:
A. P0 C. P1,500,000
B. P2,250,000 D. P1,200,000
44. Savanna corp. sells 1 and 2 year mail order subscriptions for its compact discs of the month business.
Subscriptions are collected in advance and credited sales. Following is an analysis of the recorded sales activity:
1995 1996
In Savannah’s December 31, 1996 balance sheet, the balance of unearned subscriptions revenue should be:
A. P1,700,000
B. P2,475,000
C. P2,350,000
D. P2,325,000
A. P482,250
46. On August 1, 1996, Basildon Corp.’s P2, 000,000 one yea, noninterest bearing note due July 31, 1997 was
discounted at Alaska Bank at 10.08%. Basildon uses the straight line method of amortizing bond discount.
What amount should Basildon report for notes payable in is December 31, 1996 balance sheet?
A. P2,000,000
B. P1,910,000
C. P1,874,000
D. P1,784,000
MULTIPLE CHOICE:
1. Cygnus Inc. a new corporation formed and organized because of the recent consolidation of Pulsar Inc. and
Quasar Inc. shall issue common shares with a par value of P100 for the total contributions of Pulsar and
A1 PASSERS REVIEW CENTER///134
Quasar, including the allowances for goodwill equal to earnings in excess of 10% of net assets; capitalized at
20%. Relevant data on Pulsar and Quasar follows:
PULSAR QUASAR
Total assets P9,000,000 P11,520,000
Total liabilities 5,400,000 4,320,000
Annual earnings (average) 576,000 864,000
If all material services have been substantially performed, collectability of note is reasonably assured but the
refund period has not expired, what is the journal entry to record the transaction?
A. Cash P20,000
Notes receivable 50,000
Franchise fees P70,000
B. Cash P20,000
Notes Receivable 50,000
Unearned Franchise fees P70,000
C. Cash P20,000
Notes Receivable 50,000
Franchise fees P50,000
Unearned Franchise fees P20,000
D. Cash P20,000
Notes Receivable P50,000
Franchise fees P20,000
Unearned Franchise fees 50,000
3. Quintanar Inc., a Bicol based agricultural corporation, opened a branch in Lucena City and ships
merchandise there at 140% of cost. For 19X5, Lucena branch submitted the following data:
4. Tadao Company, a wholly owned subsidiary of Hayashi Inc. issued 10% five year bonds at the face amount
of P2, 675,000 on January 1, 19X5. Interest is due and payable every year on January 1, starting 19X5. On
December 31, 19X6 Hayashi acquired in the open market Tadao’s outstanding bonds to the extent of 40% at
yield of 12% , plus one year accrued interest. Present value of P1 in four years at 12% interest payable
annually is 0.635518, and present value of P1 each year for four years at 12% is 3.037349. Ignoring tax
impact, (1) the amount of cash paid by Hayashi for Tadao’s bonds on December 31,19X6, and (2) the gain
(loss) on the extinguishment of bounds( rounded to nearest peso) are:
A. (1) P1,112,000 (2) P65,000
B. (1) P1,070,000 (2) P42,000
C. (1) P1,047,000 (2) P42,000
D. (1) P1,005,000 (2) P107,000
5. Windows Inc. shipped to its Laguna Branch merchandise billed at P165, 000. Additional shipments were
made during the period and billed at P66, 000. Laguna Branch however returned some defective merchandise
worth P4, 620 (at billed price). At the end of the period, the branch reported an ending inventory of P92, 400
and a net loss of P14, 300. If window’s shipments s to its Laguna Branch is billed at 20% of cost, what is the
correct cost of the branch’s ending inventory?
A. P77,000 B. P73,000
A1 PASSERS REVIEW CENTER///135
C. P110,880 D. P115,500
6. Pinto Co. paid P900, 000 for a 90% interest in Swan Co. on January 2, 19X1 at a price P90, 000 in excess
of the underlying book value. This excess was allocated P72,000 to undervalued equipment with a 3 year
remaining life and P18,000 to goodwill with a 10 year write off period.
How much goodwill will the 19X5 consolidated balance sheets of Pinto and Swan reflect?
A. P18,000 C. P9,000
B. P15,000 D. P10,000
7. Sabrina is admitted into the firm of Nina, Owen and Prudence. Then latter agreed to sell to Sabrina one fourth of
their respective equities and profit shares. Sabrina paid a total price of P1, 000,000. Before Sabrina’s admission,
Nina, Owen and Prudence have capital balances of P2,000,000, P1,000,000 and P500,000, and they a share profits
at the ratio of 6:3:1. Partnership assets are fairly stated and implied goodwill is to be recognized prior Sabrina’s
admission. Compute the new capital of the partnership.
A. P3,500,000 C. P5,000,000
B. P4,000,000 D. P4,500,000
8. If the construction in progress account has balance of P1,000,000 while progress billings on construction
contract has P800,000 how will these accounts be reflected on the balance sheet of the Ace Construction
Company at the end of year 10?
A. Progress Billings will be shown as current liability
B. The difference between the two accounts will be shown as current liability
C. Construction in progress will be shown as current asset.
D. The difference between the two Accounts will be shown as current asset since Construction in progress is
bigger
9. On May 1, 19X9, the business assets of Jose and Pedro appear below:
JOSE PEDRO
Jose and Pedro agreed to form a partnership contributing their respective assets and equities subject to the
following adjustments:
*accounts receivable of P20, 000 in Jose’s books and P40, 000 in Pedro’s books are uncollectible.
*inventories of P6, 000 and P7, 000 are worthless in Jose’ and Pedro’s respective books.
*other assets of P2, 000 and P3, 000 in Jose’s and Pedro’s respective books are to be written off.
The capital accounts of the partners after adjustments will be
A. Jose, P592,000 and Pedro; P750,000
B. Jose, P600,000 and Pedro; P700,000
C. Jose, P592,000 and Pedro; P756,300
D. Jose, P600,000 and Pedro; P750,000
10. On January 1, 19X5, Kuala Company purchased 90% equity of Lumpur Company .On January 3, 19X5, Lumpur
sold equipment (with original cost of P750, 000 and carrying cost of P375, 000) to Kuala for P540, 000. The
equipment has a remaining life of three years and was depreciated using the straight-line method by both
companies. In Kuala’s consolidated balance sheet as of December 31, 19X5, the depreciation should be reported
at:
A. P100,000 C. P62,500
B. P90,000 D. P125,000
11. Moore admits Nolan as a partner in the business. Balance sheet accounts of Moore on September 30, just
before admission of Nolan, show:
Cash P2600
Account receivable 12,000
Merchandise inventory 18,000
Accounts payable P6, 200
Moore, Capital 26,400
A1 PASSERS REVIEW CENTER///136
It is agreed that for purposes of establishing Moore’s interest, the following adjustments shall be made:
OMAR KHAYYAM
Total assets P1, 000,000 P1, 382,400
Total liabilities 648,000 518,400
Capital stock, par P100 450,000 750,000
Annual earnings (average) 69,120 103,680
Assuming fractional shares are not considered, Shariff, a holder of 500 Omar shares, will receive how many
preferred and common stock from Rubaiyat as a result of the consolidation?
A. Preferred : 960 Common: 288
B. Preferred : 576 Common: 230
C. Preferred: 1,152 Common: 115
D. Preferred: 480 Common :576
13. When Mikki and Mylene, partners who share earnings equally, were incapacitated in an airplane accident, a
liquidator was appointed to wind up their business. The accounts showed cash, P35,000; other assets, P110,000;
Liabilities, P20,000; Mikki, capital, P71,000; and Myleene, capital, P564,000. Because of highly specialized nature
of the noncash assets, the liquidator anticipated that considerable time would be required to dispose of them. The
expenses of liquidating the business (advertisng, rent, travel, etc. ) are estimated at P10,000.
How much cash can be distributed safely to each partner at this point?
A. P5,000 to Mikki; and P0 to Mylene
B. P5,000 to Mikki; and P500 to Mylene
C. P3,000 to Mikki; and P0 to Mylene
D. P5,000 to Mikki; and P1,000 to Mylene
14. Shall Petula Company re4alize and, there upon, accordingly report a gain or loss when Clark Company, its
partially owned subsidiary, issues with consent of minority and interests additional shares to (1) Petula and (2)
general Public?
A. (1) Yes (2) No
B. (1) No (2) No
C. (1) No (2) Yes
D. (1) Yes (2) Yes
15. Web. Inc., Xerxes Inc., and Yet.,. agree to consolidate. Data relative to their net assets and appraised values
and average adjusted annual earnings follow:
Net Adjusted
Asset’s Earnings
Web P400,000 P60,000
Xerxes 600,000 60,000
Yeti 1,000,000 80,000
Parties collectively agreed that the new corporation, Vogue Inc., is to issue a single class of stock. If the distribution
of new shares will be based on the earnings ratio, what is the distribution ratio to the shareholders of Web, Xerxes
and Yeti, respectively?
A. 30:20:50 C. 30:30:40
B. 30:40:30 D. 20:30:50
A1 PASSERS REVIEW CENTER///137
16. Halo Co. purchases all of the issued and outstanding shares of Iglo Co. for P4, 000,000. Iglo’s capital balances
prior to acquisition show:
The fair value of current assets is P400, 000 while that of property and equipment is P1, 600,000. All the liabilities
are correctly started. Guam issued sufficient shares so that the fair market value of the stock equals the fair market
value of Newark’s net assets.
How many shares of stocks will Guam issue to recognize goodwill of P200,000?
A. 40,000 C. 45,000
B. 50,000 D. 55,000
18. Quasar Inc.. was formed and organized because of recent consolidation of Meteor Company and Nova
Company. Quasar shall issue its common shares with a par value of P100 for the total contributions of Meteor and
Nova, including allowances for goodwill equal to earnings in excess of 10% of net assets, capitalized at 20%.
Relevant data on Meteor and Nova follows:
METEOR NOVA
Total assets P6,000,000 P7,680,000
Total liabilities 3,600,000 2,880,000
Annual earnings (average) 384,000 576,000
What will be the net income of Angeles Branch to be reported in Rommel’s combined income statement?
A. P25,270 C. P22,430
B. P18,740 D. P19,100
20. Fosforo Inc. manufactures matches per the design and specification of its clientele, and accordingly uses the job
order cost system. In April19X6, it finished 50,000 pieces of Job at Shangri-la at the cost of P0.50 per unit for direct
materials and P0.40 per unit for direct labor. Factory overhead is applied at 100% of direct labor. Job Shangri-la
incurred 500 defective units (considered normal) that had to re worked at a cost of P0.10 per unit, in addition to the
predetermined factory overhead rate. What is the total cost of work on the defective unit and to what account should
this be charged?
A1 PASSERS REVIEW CENTER///138
A. P50, work in process
B. P100, factory overhead control
C. P100, work in process
D. P50, factory overhead control
21. The Angeles City Branch of Rommel enterprises, Manila, was billed for merchandise shipments from home
office at cost plus 25% in 19X4 and cost plus 20% in 19X5. Other pertinent data for 19X5 show:
The net income (loss) of the Angeles City branch for 19X5 is:
A. (P13,130) C. P3,330
B. P8,230 D. (P4,900)
22. The Avenida Rizal Branch of Bram Stoker Store is billed by home office for merchandise shipments of 40% over
cost.. The following information relates tom Avenidas operations for calendar year 19X6:
Sales P4,500,000
Local purchases 1,000,000
Shipments from home office 2,450,00
Avenida reports an ending inventory of P700,000 of which P175,000 is identified to come local purchases. Per home
offices reckoning, how much is Avenida’s gross profit?
A. P2,300,000 C. P1,750,000
B. P2,750,000 D. P2,200,000
23. The Olongapo – SMBA branch of Freeport Corporation submitted the following trial balance of 30 June 19X6:
Cash P28,600
Accounts receivable 173,800
Shipments from office 462,000
Home office- Current P324,500
Sales 369,600
Expenses 29,700
Total P694,100
Olongapo reported an ending inventory of P138, 600. Shipments are billed at a mark up of 40% on cost. What is the
real net income of Olongapo branch?
A. P92,400 C. P70,600
B. P138,600 D. P108,900
24. Jane, a senior partner in an engineering firm, has a profit share of 30% in 19X6. During 19X6, Jane withdrew
P130,00 against her capital but invested property with a fair value of P25,000. If Jane’s ending capital is P60, 000
lesser than her beginning capital, Compute Jane’s beginning capital for 19X6.
A. P150,000
B. P175,000
C. P210,000
D. P240,000
25. The annual appropriation (General fund) of Agency FFF for 19X6 of P5, 000,000 was released by DBM minus
the 5% reserve on allotments. Agency FFF incurred total obligations during the year of P4, 000,000, of which P1,
000,000 relates to procurement of equipment. Records show that by year’s end P1, 250,000 of the total obligations
have been liquidated. What is the appropriate entry in the books of Agency FFF to record the receipt of Advise of
allotment from DBM?
A1 PASSERS REVIEW CENTER///139
A. Current Surplus Unappropriated P5,000,000 Dr.
Current Surplus Appropriated 5,000,000 Cr.
B. No entry
C.National Clearing Account
Appropriation Allotted P4, 750,000 Dr.
Appropriation Allotted 4,750,000 Cr.
D. National Clearing Account
Appropriation Allotted P5,000,000 Dr
Appropriation Allotted 5,000,000 Cr
26. Neneng’s Meat Corporation uses a process cost system and sells a variety of cooked meat, skin and cuttings.
Four joint products [produced out of the process are as follows:
The split off point for this products occurs in division B and the cost incurred up to this point are: P20, 000 for direct
materials, P15,000 for direct labor, and P7,000 for factory overhead . What are the joint cost allocated to each of
the joint products by using the physical output method for Lit-tid and Tad-yang, respectively?
A. P1,000 and P9,000 C. P20,000 and P15,000
B. P3,000 And P24,387 D. P2,710 and P24,387
27. Jerez Inc. acquires 75% interest in KCB Inc. for P3, 120,000. The capital balance of KCB prior to acquisition
show capital each stock; P2, 600,000; additional paid in capital, P1, 040,000; and deficit, P130, 000. What is the
total minority interest to be shown in the consolidated balance sheet?
A. P877,500 C. P650,000
B. P910,000 D. P950,375
28. Dreams corporation opened its Paseo branch exactly a year ago and the latter submitted the following
information on its operations:
Sales P264,000
Expenses 137,500
Purchases 71,500
Ending inventory
From purchases 16,500
From home office 66,000
Paseo remitted P151, 250 to home office . Shipments to branch are billed at cost-plus 20%. During the period, home
office shipped merchandise to Paseo at a billed amount of P148, 500. What is Paseo’s closing inventory at cost?
A. P55,000 C. P82,500
B. P71,500 D. P69,300
29. Vandros Inc. sol on January 19X4 a reconditioned dump truck to We-haul Inc. for P1,200,000 which resulted in a
gain to Vandros of P420,000, We-haul paid P310,000 and covered the balance with a chattel mortgage at P10%
interest per annum. The mortgage is payable in five equal annual amortizations starting January 2, 19X5 is:
A. P93,450 C. P62,300
B. P249,200 D. P311,500
30. Purity Water Company bottles spring water. The spring water is filtered in Department A and then flows through
the Department B where it is bottled. Party’s only direct materials cost occurs in the bottling process. The quantity
schedules are follows:
DEPARTMENT A
Units started in process P110,000
Units transferred to Dept. B 80,000
Ending units in process 30,000
DEPARTMENT B
Units received from Dept. A 80,000
Units transferred to finished
Goods inventory 61,400
Ending units in process 18,600
Ending units in process in both departments are 72% complete as to conversion costs. Department B would have
how many equivalent gallons of production on the basis of conversion cost
A.P74,792 B.80,000
A1 PASSERS REVIEW CENTER///140
C.61,400 D.68,929
31. Capitalizing on alleged inside information, Dupe and Fluke formed a partnership to purchase, sell or otherwise
trade in Bre –X mining shares. Bre- X recently made significant finding gold deposits in its property in Busang,
Indonesia. They started cautiously by making initial but modest cash contribution of P137, 500,000 each. They
agree to divide earnings equally and further agreed to settle and close the partnership after six months of furious but
ferocious (insider) trading. Below is a synopsis of the transactions for six months:
Purchases of shares:
By Dupe P1,237,500,000
By Fluke 495,000,000
Sales of shares
by dupe 1,339,250,00
by fluke 462,000,000
Interest Charges
paid by Dupe 3,200,000
paid by Fluke 1,375,000
Dividend income
received by Dupe 1,100,000
received by Fluke 2,750,000
How much will Dupe receive (or pay) in final settlement of the partnership?
A. (34,512,500) C. P2,885,500
B. P66,137,500 D. P31,625,000
32. The Avenida Rizal Branch of Bram Stoker store is billed by home office for merchandise shipments at 40%
above cost. The following information relates to Avenida’s operations for 19X6:
Sales P4,500,000
Local purchases 1,000,000
Shipment from home office 2,450,000
Avenida reports an ending inventory of P700,000 of which P175,000 is identified to have come from local
purchases. What is Avenida’s ending inventory, at cost?
A. P375,000 C. P735,000
B. P550,000 D. P700,000
33. Gochic Inc. purchases 80% interest in hals Inc. for P2,700,000 Hals assets have a fair value of P3,375,000. Hals
capital balances before acquisition show capital stock of P2,700,000, additional paid in capital of P675,000 and
retained earnings of P405,000. In the consolidated financial statements prepared after acquisition, how much will
be reflected as minority interest?
A.P675,000 C.P540,000
B.P856,000 D.P756,000
34. Gilmore Inc. uses the instalment method of accounting for revenue. The following information are obtained from
its books:
19X4 19X5
Instalment sales P375,000 P412,000
Cost of instalment sales 131,250 164,800
Instalment accounts receivables
On 19X4 sales 225,000 125,000
On 19X5 sales 275,000
36. Tondo Branch of Tyler Company was billed for merchandise shipments at 125% of cost. At the end of its first
month of operation, Tondo branch submitted the following information:
Closing inventory
from home office 75,000
from local purchases 20,000
37. Rhapsody Inc. is an 80% owned subsidiary of Sonata Company. On December 31, 19X5, working paper
elimination for the consolidated final statements of Sonata and Rhapsody amounting to P3, 000,000. Rhapsody’s
bonds were to mature on December 31, 2001. Ignoring tax impact, working paper eliminations entry for December
31, 19X6 includes a
A. P3,000,000 credit to Retained earnings- Rhapsody
B. P500,000 debit to minority Interest in Net assets of Rhapsody
C. P2,400,000 credit to Retained earnings-Rhapsody
D. P3,000,000 credit to Retained earnings – Sonata
On the consolidated balance sheet after acquisition, how much will be the additional paid in capital of the controlling
interest, assuming that all the requirements for pooling of interest, have been met?
A. P 1,000,000 C. P 1, 160,000
B. P 1,200,000 D. P 800,000
39. The following information pertains to a river- control project or Rathaus Konstrukt Inc. In Tabuk, Kalinga which
was commented in 19X3 and completed the following year:
68. Which of the two methods ( the present of the automated has higher income at the level of sales of 26,000
units?
a. Present, P 60,000 c. Present, P 240,000
b. Automated P60,000 d. Automated, P 240,000
69. A fira has the following capital structures : 70 debt and 320 equity interest rate on debt is 12 and on common
stock is 14 if the weighted average cost of the capital is 9.66 then what is the marginal tax rate?
a. 350 c 600
b. 400 d. 650
70. Samantha Manufacturing recently completed and sold an order of 50 units that had the following costs:
Direct materials P1, 500
Direct labor 8,500
Variable overhead 4,000
Fixed overhead 1,400
TOTAL P 15,400
The company has now been requested to prepare a bid order for another set of 50 units of the same product.
If an 80 learning curve were applied, Samantha’s total cost on this order would be estimated at
a. P 6,400 c. P 9,900
b. P 8,600 d. P 15,400
47. Timepieces Company manufactures and sells watches that carry a 2- year unconditional warranty against
product failure. Based on a reliable statistical, timepieces knows that between the sale and the lapse of the product
warranty; 10% of units sold will require an average cost of P 250 per unit for repairs. The following data reflect the
recent experience of the company for the past 3 years.
The entire amount of P 950,000 was charged to rent expense in 2010 . Monthly rentals were paid as scheduled from
August to December 31, 2010 under the operating lease?
a. 530,000 c. 125,000
b. 500,000 d. 450,000
50. Brisbane company reported the following information for 2010 Sales revenue of P 2,800,000 cost of goods sold
of P 1,000,000, distribution costs of P 400,000, administrative expenses of P 350,000, depreciation of P 250,000,
interest expense of P 80,000 and income tax expense of P 280,000. All sales were made for cash and all expenses
other than depreciation and bond premium amortization of P 20,000 were paid in cash. All current assets and
current liabilities remained unchanged. What is the net cash provided by operating activities during 2010?
a. 440, 000 c. 670,000
b. 690,000 d. 710. 000
3. Perpetual Periodic
18.FV of land and building (lower than PV of minimum lease payments) 5,950,000 B
19. Net. Income to ordinary shareholders (900,000 x 15) 13,500,000
Dividends on preference shares 500,000
Total net income 14,000,000
Divide by : (900,000 plus (400,0000) 1,200,000
Diluted EPS 11.67 C
39. B=552,250-10B
1,108=550,000
Bonus =(550.000/1.10) 500,000 B
41. BI 500,000
Net purchases 5,300,000
TGAS 5,800,000
Less: Adjusted EI (600,000 + 80,000) 680,000
COS 5,120,000 A
42. 10% preference shares issued (4M-3M equals 1 M/100 par 10,000
Subscription price (300,000/25%) 1,200,000
Less: Par value 500,000
Increase in share premium from subscription 700,000
Proceeds from shares issued (1M par +500T share premium) 1,500,000
Divide by shares issued 10,000
Average issue price 150 B
AUDITING PROBLEMS
INSTRUCTION: Select the correct answer for each of the following questions. Mark only one answer for
each item by shading the box corresponding to the letter of your choice on the answer sheet provided.
STICTLY NO ERASURES ALLOWED. Use pencil no. 1 only.
MULTIPLE CHOICE:
PROBLEM I
The following information was obtained in the audit of the cash account of CHELSEE COMPANY as of December
31, 2010. Assume that the CPA satisfied himself as to the propriety of the cash book the bank statements and the
returned checks, except as noted:
3. Included with cancelled checks returned with the December bank statement were the checks listed below
4. The Chelsee Company discounted its. Own 60 day note for P 90,000 with the bank on December 1, 2010.
The discount rate was 6 percent. The accountant recorded the proceeds as a cash receipt at the face value
of the note.
5. The accountant records customers dishonoured checks as a reduction of cash receipts. When the
dishonoured checks are red posited they are recorded as regular cash receipt. Two NSF checks for P 1,800
and P 2,200 were returned by the bank during December. Both checks were redeposit and were recorded by
the accountant.
6. Cancellations of Chelsee Company checks are recorded by a reduction of cash disbursement
7. December bank charges were P200; in addition, a P100 service charge was made in December for the
collection of a note receivable in November. These charges were not recorded on the books.
8. Check no. 1434 listed in the November outstanding checks was drawn in 2008. Since the payee cannot be
located, the president of Chelsee Company agreed to the CPA’s suggestion that the check be written back
into the accounts by a journal entry.
9. Outstanding checks at December 31,2010, totalled P 49,400 including checks 1432 and 1584
10. The cut-off bank statement disclosed that the bank had recorded a deposit of P 24,000 on January 2, 2011.
The accountant had recorded this deposit on the books of December 31, 2010 and then mailed the deposit
to the bank.
PROBLEM NO. 2
CALACHUCHI CORP.
ACCOUNT BALANCE INVOICE
CUSTOMER DEC DATE AMOUNT
31,2010
Aruy , Inc. P35,180 12/06/10 14,600
11/29/10 21,180
Naku Co. 20,920 09/27/10 2,000
08/20/10 8,920
Syak Corp. 30,600 12/08/10 20,000
10/25/10 10,600
Trip Co 45,140 11/17/10 23,140
10/09/10 22,000
Uy Co. 31,600 12/12/10 19,200
12/02/10 12,400
Xak Co. 17,400 09/12/10 17,400
The estimated bad debt rates below are based on Calachuchi crop’s receivable collection experience.
Age of Accounts Rate
0-30 days 1%
31-60 days 1.5%
61-90 days 3%
91-120 days 10%
Over 120 days 50%
The allowance for bad debts account had a debit balance of P5,500 on December 31, 2010 before
adjustment.
6. The company’s accounts receivable under 61-90 days category should be
a. P 32,600 c. P 44,600
b. P44,320 d. P 42,000
7. The company’s accounts receivable under 91-120 category should be
a. P 38,320 c. P 29,400
b. P 40,000 d. P 12,000
8. The allowance for bad debts to be reported on the statement on financial position at December 31, 2010 is
a. P 9,699 c. P 4,199
b. P 15, 199 d. P5, 500
9. What entry should be made on December 31, 2010, to adjust the allowance for bad debts account?
a. Bad debt expense 15,199
Allowance for bad debts 15,199
b. Bad debt expense 4,199
Allowance for bad debts 4,199
c. Allowance for bad debts 5,500
Bad debts expense 5,500
d. Bad debt expense 9,699
Allowance for bad debts 9,699
PROBLEM NO. 3
The MALAWI COMPANY is an importer and wholesaler. Its merchandise is purchased from a number of
suppliers and is warehoused until sold to consumers.
In conducting his audit for the year ended December 31,2010, the company CPA determined that the system of
internal control was good. Accordingly, he observed the physical. Inventory at an interim date, November 30, 2010 ,
instead of at year end.
11. What is the correct amount of net purchases for the month of December 2010?
a. P83,000 c. P82,500
b. P91,500 d. P101,500
12. The correct inventory on November 30, 2010 is
a. P206,500 c. P237,000
b. P214,500 d. P218,500
13. What is the gross profit for eleven months ended November 30, 2010?
a. P234,000 c. P224,000
b. P217,000 d. P237,500
14. What is the cost of sales ratio for eleven months ended November 30, 2010?
a. 73% c. 28%
b. 70% d. 72%
15. What is the estimated inventory on December 31, 2010?
a. P183,100 c. P184,400
b. P175,900 d. P190,000
PROBLEM NO. 4
You have been asked by the proprietor of the SOMALIA CO. to verify the accountability of the cashier
bookkeeper, who was allowed to take a vacation leave a few days ago
A. The bank reconciliation statements prepared by the cashier bookkeeper are presented below:
Outstanding checks:
No. 2520 P2, 000
2521 1,400
2522 1,900 (3,300)
Erroneous bank charge 2,000
Erroneous bank credit (500)
Book balance P20,200
B. The cash in Bank account in the general ledger shows the following debits and credits during December
Cash in bank
Dec. Dec.
1balance P 20,200 1Checks Issued P2,000
2 Received from customers 4,500 5 Checks Issued 5,200
7 Received from customers 5,000 14 Checks Issued 31,000
12 Received from customers 20,000 24 Checks Issued 46,000
17 Received from customers 30,000 28 Checks Issued 7,600
23 Received from customers 9,000
27 Received from customers 70,000
31 Received from customers 48,500 31balaced 102,400
Total P198,200 Total P198,200
C. the following summarized transactions were taken from the bank statements for the months of December 2010.
Balance, December 1, 2010
Total deposits
The total deposits per bank statement include:
a. Collection of notes receivable P 5,000
b. Correction of November erroneous bank charge 2,000
c. December 10 deposit of Lava, Inc. Credited in error to Somalia 600
Total P3, 500
D. cash on hand per count in the morning of January 2, 2011 amounted to P 6, 300
E. before leaving his company for a one week vacation, the proprietor had left several signed blank checks that the
cashier bookkeeper had cashed for his personal use.
Indicators that the assets of the unit were impaired. The carrying amounts of the assets and liabilities of the
unit at December 31, 2010 were:
POTPOT: determined the value use of the unit to be P 5,350,000. The receivables were considered to be collectible,
except those considered doubtful.
During the year 2011, POTPOT increased the depreciation charge on building to P650, 00 per annum, and to P
500,000 per annum for factory machinery. The inventory on hand at January 1, 2011 was sold by the end of the
year, at December 31, 2011, POTPOT Company, due to a retum in the market to use of the traditional barrels for
wines and an increase in wine production, assessed the recoverable amount of the cash generating unit to be P
300,000 greater than the carrying amount of the unit. As a result, POTPOT recognized a reversal of the impairment
loss.
21. What amount of impairment loss on December 31, 2010 should be allocated to inventory?
a.P56,000 c.P32,000
b.P 28, 829 d.P 0
22. What is the factory Machinery net carrying amount (after allocation of impairment kiss) on December
31,2010?
a.P 1, 735, 135 c.P 1,800, 000
b.P 1, 674, 000 d.P 1, 728, 000
23. What amount or reversal of impairment loss should be recognized on December 31, 2011?
a.P 300, 000 c.P 168, 000
b.P 268, 000 d.P 200, 000
24. Assume that the recoverable amount at December 31, 2011 was P 200,000 greater than the carrying
amount of the cash generating unit. What is the net carrying amount of the buildings after recognition of the
impairment recovery?
a.P 1,313, 219 c.P 1, 800, 000
b.P 1, 768, 781 d.P 1,750, 000
25. Assume that the recoverable amount at December 31, 2011 was P 200,000 greater than the carrying
amount of the cast generating unit and that the recoverable amount of the Buildings was P 1,750,000. What
is the next carrying amount of the factory machinery after the recognition of the impairment recovery?
a.P 1,332,000
b.P1,313,219
c.P1,228,000
d.P 1,324,000
BORDO COMPANY’S investment had the following market values at December 31, 2010
Omar Co. ordinary P 3,060,000
Goding, Inc. preference 1,290,000
Sonata Co. ordinary 33,450,000
Jordan Co. ordinary 1,700,000
Assume that all of the above securities were acquired in 2009 and none of the indicated declines in market value
are considered other than temporary.
26. Which of the following should be reported in Bordo’s 2009 income statement?
a.Unrealized loss of P 60,000 c.Unrealized loss of P 200, 000
b.Unrealized loss of P 585, 000 d.Unrealized loss of P 150, 000
27. What amount of loss in the above securities should be included in Bordo’s statement of comprehensive
income for the year ended December 31, 2009 as component of other comprehensive income?
a.P 675,000 c.P 585, 000
b.P 465, 000 d.P525,000
28. Assume that Jordan Co.s ordinary shares market decline is other than temporary. What valuation entry is
required for this investment at December 31, 2009 under this change in assumption?
A1 PASSERS REVIEW CENTER///155
a.Impairment loss 525,000
Investment in AFS securities 525,000
b.Unrealized loss on AFS securities 525,000
Investment in AFS securities 525,000
c.Impairment loss 525,000
Unrealized loss on AFS securities 525,000
d.No valuation entry is necessary 525,000
Assume that the investment categories remain the same and that all declines in 2009 and 2010 are
temporary except for the 2009 decline in Jordan Co.s ordinary shares
29. In its 2009 income statement, Bordo should report
a.Unrealized gain of P 150, 000 c.Gain on impairment recovery of P 200,
b.Unrealized gain of P 410, 000 000
d.Unrealized gain of P 210, 000
30. What amount of gain should be included in Bordo’s statement of comprehensive income for the year ended
December 31, 2010 as component of other comprehensive income?
a.P 0 c.P 325,000
b.P 200,000 d.P525,000
2008 P 127,000
2009 150,000
2010 128,500
You are performing the audit for the year ended December 31,2010. During your examination you discover the
following errors
a. As a result of errors in the physical count, ending inventories were misstate as follows:
December 31, 2009 P14, 000 overstated
December 31, 2010 P23, 000 understated
b. On December 29, 2010. Dominica recorded as a purchase, merchandise in transit which cost P
15,000. The merchandise was shipped FOB Destination and had not arrived by December 31. The
merchandise was not included in the ending inventory.
c. Dominica records sales on the accrual basis but failed to record sales on account made the end of
each year as follows
2008 P4, 000
2009 5,000
2010 3,500
e. On March 1, 2009, a 10% stock dividend was declared and distributed. The par value of the shares
amounted to 10,000 and market value was P 13,000. The stock dividend was recorded as follows
Miscellaneous expense 13,000
Ordinary share capital 10, 000
Retained earnings 3,000
f. On July 2009, Dominica acquired a three year insurance policy. The three year premium of P6,000
was paid on that date , and entire premium was recorded as insurance expense.
g. On January 1, 2010 Dominica retired bonds with a book value of P 120, 000 for P 106, 000 the gain
was incorrectly deferred and is being amortized over 10 years as a reduction of interest expense on
other outstanding obligations.
31. What is the adjusted net income for the year ended December 31, 2008?
a.P 133,000 c.P121,000
b.P 117, 000 d.P 113, 000
32. What is the adjusted net income for the year ended December 31, 2009/
a.P 151, 000 c.P 104, 400
b.P 187, 000 d.P 203, 600
A1 PASSERS REVIEW CENTER///156
33. What is the adjusted net income for the year ended December 31, 2010?
a.P129, 600 c.P 104, 400
b.P131,000 d.P 203, 600
34. What adjusting entry should be made on December 31, 2010, to correct the error describe in item B?
a. Purchases 15,000
Accounts payable 15,000
b. Accounts payable 15,000
Purchases 15,000
c. Accounts payable 15,000
Cash 15,000
d. No adjusting journal entry is necessary
35. The adjusting entry on December 31, 2009, to correct the error described in item E should include a debit to
a. Retained earnings of P 16, 000
b. Ordinary share capital of P 10,000
c. Share premium of P 3,000
d. Miscellaneous expenses of P 3,000
PROBLEM NO. 8
In making the first adult of the Delivery Equipment account of DELTA CORPORATION as of December 31,
2010, you encounter the following facts.
DATE PARTICULARS DEBIT CREDIT
1/1/08 Tracks 1,2,3, and 4 P3,200,000
3/15/09 Replacement of Truck 3 tires 25,000
7/01/09 Truck 5 800,000
7/10/09 Reconditioning of truck 4, which was damaged in a collision 35,000
9/1/09 Insurance recovery on truck 4 accident P33,000
10/01/09 Sale of truck 2 600,000
4/01/10 Truck 6 1,000,000 150,000
5/2/10 Repainting of truck 1 27,000
6/30/10 Truck 7 720,000
12/1/10 Cash received on lease of truck 7 22,000
Accumulated Depreciation
DATE PARTICULARS DEBIT CREDIT
12/31/08 Depreciation expense P300,000
12/31/09 Depreciation expense 300,000
12/31/10 Depreciation expense 300,000
Additional information:
1. On July 1,2009, Truck 3 was traded in for a new truck , truck 5 costing P 850,000 the selling party allowed a
P 50, 000 trade in value for the old truck
2. On April 1, 2010, truck 6 was purchased for P 1,000,000; truck 1 and cash of p 850,000 being given for the
new truck
3. You are instructed by the senior in charge of the audit to accept the depreciation rate of 20% by unit basis
4. Unit cost of trucks 1 to 4 is at P 800,000 each
PROBLEM NO. 9
The GUNDING Co. is on calendar year basts. The following data were found during your audit.
a. Goods in transit shipped FOB shipping point on December 28 by a supplier in the amount of P 100,000 had
been excluded from the inventory and further testing revealed that the purchase had been recorded.
b. Goods costing P 30, 000 had been received, included in inventory, and recorded as a purchase. However,
upon your inspection the goods were found to be defective and would be immediately returned.
c. Materials costing P170,000 and billed on December 30 at a selling price of P 264,000 had been segregated
in the warehouse of shipment to a customer. The materials had been excluded from inventory as a signed
purchase order had been received from the customer. Terms FOB destination.
d. Goods costing P 70, 000 was out on consignment with Gundara Inc. since the monthly statement from
Gundara listed those materials as on hand, the items had been excluded from the final inventory and
invoiced on December 31 at P 80,000.
e. The sale of P 150,000 worth of materials and costing p 120,000 had been shipped FOB point of shipment on
December 31. However, this inventory was found to be included in the final inventory.
f. Goods costing P 100,000 and selling for P140,000 had been segregated , but not shipped at December 31,
and were not included in the inventory. A review of the customer’s purchase order set forth terms as FOB
destination. The sale had not been recorded.
g. Your client has an invoice from a supplier, terms FOB shipping point, but the goods had not arrived as yet.
However, these materials costing P134,000 had been included in the inventory count, nut no entry had been
made for their purchase.
h. Merchandise costing p 200,000 had been recorded as a purchase but not included in Inventory. Terms of
sale are FOB shipping point according the supplier warehouse which had arrived by December 31.
Further Inspection of the clients records revealed the following December 31 balances: Inventory, P 1,350,000;
Accounts receivable, P 630,000 ; accounts payable, P 690,000; sales P6,032,000; Purchases, P 3, 150,000; Net
Income , P727,000.
Based on the preceding information, determine the adjusted balances of the following:
46. Inventory
a.P700,000 c.P1,900,000
b.P934,000 d.P1,840,000
47. Accounts receivable
a.P286,000 c.P146,000
b.P380,000 d.P405,000
48. Purchases
a.P3,354,000 c.P3,254,000
b.P3,150,000 d.P3,120,000
49. Sales
a.P5,848,000 c.P5,683,000
b.P6,376,000 d.P5,768,000
50. Net Income
A1 PASSERS REVIEW CENTER///158
a.P769,000 c.P829,000
b.P569,000 d.P709,000
PROBLEM 10:
Presented below are COMBANTRIN COMPANY’S comparative statements of financial position and income
statements
COMBANTRIN COMPANY
COMPARATIVE STATEMENTS OF FINANCIAL POSITION
December 31, 2010 and 2009
Assets 2010 2009
Current assets
Current assets
Accounts payable P212,000 P198,000
Accrued expenses 98,000 76,000
Dividends payable 10,000 _________
Total current liabilities 350,000 274,000
Notes payable-due 2012 125,000 __________
Total liabilities 475,000 274,000
Shareholder equity:
Ordinary share capital 600,000 550,000
Retained earnings 188,000 144,000
Total shareholders’ equity 788,000 694,000
Total liabilities and shareholders’ equity P1,263,000 P968,000
COMBANTRIN COMPANY
CONDENSED COMPARATIVE INCOME STATEMENTS
For the Years Ended December 31, 2010 and 2009
MULTIPLE CHOICE:
1. A, B and C are partners in a universal partnership of profits engaged in operation of taxis. The partners
contributed:
A- 100 Toyota Vios
B- 3,000 aqm land
C- Fuel and oils
Which of the following is correct?
a. In case of loss due to fortuitous event, the partnership bears the loss
b. The partnership becomes the owner of the things contributed to the partnership
c. The partners retained the ownership over the things they contributed hence; they will bear the risk of
loss.
d. The partnership begins from the moment of the execution of the contract , except if stipulated
otherwise
2. Which of the following statements is not correct?
a. The creditor acquires real right to the fruits of the thing from the time they have been delivered
b. An oral sale of land made by its owner in unenforceable
c. The buyer acquires real right to the fruits of the thing from the perfection of the sale
d. A sale of land made by an agent without a written authority from the owner is void
3. A 16 years old sold his property to B, who did not notice that A is a minor. One year later B sold the property
to C who knew that A is a minor. Can A ask for annulment of the sale?
a. Yes, because C is in bad faith
b. No, because B is in good faith
c. No, because B is not capable of returning the property
d. Yes, whether C is in good faith or in bad faith because the title of B is voidable
4. A promissory note reads I Promise to pay A,B, C and D P24,000 Sgd. E, F and G. B can collect from E
a. P 24,000 c. P 6,000
b. P 8,000 d. P 2,000
5. Today, S sold to B in S is name the land of O, without authority from O, B bought the land in good faith. The
contract provides that the delivery will be 30 days from today. The contract is
a. Valid if S owns the land on the day of delivery
b. Void , because S was not the owner of the land when the contract was perfected
c. Unenforceable, because S had no authority to sell the land
d. Voidable, because S is guilty of fraud
6. A, B and C are solidary debtors of D for P90, 000 where the due date is on April 1, 2011. On January 1,
2011, A paid D P90, 000. Later A demanded reimbursement from B. if B effects reimbursement to A on July
1, 2011. Which of the following is correct?
a. B pays A P60,000 plus interest from January 1,2011 to July 1, 2011
b. B pays A P30,000 plus interest from January 1,2011 to July 1, 2011
c. B pays A P30,000 plus interest from April 1,2011 to July 1, 2011
d. B pays A P45,000 plus interest from April 1,2011 to July 1, 2011
7. S sold his agricultural land to B for P1M .The FMV is P1.5 M. B. paid s in counterfeit peso bills. The sale is
a. Void, because the cause is illegal
b. Valid, because the cause is the selling price of PIM
c. Rescissible, because of lesion which is more than ¼ of the value of the property
d. Voidable, because of the fraud committed by B.
8. As regard cash dividend, which of the following is correct/
a. Declared by the board of majority vote and ratified by the stockholders by the majority vote.
b. Declared by the board of majority vote and ratified by the stockholders by ½ vote of the outstanding
capital stock
c. Declared by the board of majority vote and need not be ratified by the stockholders
d. Declared by the board by 3/2 vote and need not be ratified by the stockholders
9. A barrowed from B P2M and the secure its payment A orally agreed to deliver his 8 hectare agricultural land
by way of antichresis and to pay 12% interest per annura. Which is correct?
a.The contracts of loan and antichresis are both valid
b.The contracts of loan is valid but antichresis is void
c.The contracts of antichresis is valid but loan is void
d.Both contracts of loan and antichresis are void
19. In which of the following is demand necessary to make the debtor in delay in the performance of his
obligation?
a.When the time of performance is of the essence
b.When the time of performance has been stipulated
A1 PASSERS REVIEW CENTER///162
c.When the law so provides
d.When demand would be useless
20. With written authority from his principal, the agent sold orally the land of the principal. The sale is
a.Rescissible c.Uncoforceable
b.Voidable d.Void
21. Without authority from B, A orally sold B’s house in B’s name. The sale is
a.Rescissible c.Uncoforceable
b.Voidable d.Void
22. S sold B his land on September 19, 2010. On September 25, an absolute deed of sale was executed and
notarized on September 30, the sale was registered with the Registry of Deeds , On October 5, B took
actual possession of the land by building a fence thereon. When did B acquire ownership of the land?
a.On September 19 c.On September 30
b.On September 25 d.On October 5
23. S sold to B his car on September 19, 2010. On September 25, an absolute deed of sale was executed and
notarized . on September 30, the sale was registered with the LTO. On October 5, B took actual possession
of the car. When did B acquire title to the car?
a.On September 19 c.On September 30
b.On September 25 d.On October 5
24. A and B are co owners of a percel of land A donated his share to C can B redeem the said share from C?
a.Yes, because the law looks with disfavour at co-ownership
b.No, because legal redemption applies only in case of onerous transfers
c.No, unless he enforce his right through count action
d.Yes, but in proportion to his interest in the land as co-owner
25. D’owes C a sum of money with M as mortgagor of his land to secure the loan. Is the mortgage valid even if
the mortgagor is not the debtor?
a.Yes, provided M is the absolute owner of the property mortgaged
b.Yes, provided it is in writing and registered
c.No, the mortgagor must be the debtor himself
d.No, unless the mortgagor is a co-debtor
26. In three of the following case s, the agency cannot be revoked without a just cause except:
a.It is means of fulfilling an obligation already existing
b.A bilateral contract depends upon it
c.It is coupled with interest common to the great and principal
d.Partner is appointed manager in the articles of partnership
27. P appoints A as guarantee commission agent to sell his products A sold them to B who failed to pay despite
the diligent efforts of A in collecting is A still liable for the purchase price?
a.Yes, because of the guarantee commission given to him
b.No, because he was not at fault in the collection
c.No, if her returns to guarantee commission
d.Yes, but he is not entitled anymore to the commissions
28. P appointed A1 and A2 as his agents for a common transaction and they agreed that they shall be solidarity
liable for P for damages in case of violations of their obligations as such. What is the agent at fault the only
one liable for damages even if solidarity has been stipulated?
a.If the other agent is not at fault
b.Both of them shall be liable always since solidarity was agreed upon
c.If the one at fault shall answer for all the damages
d.If the one at fault acted in excess of authority
29. A, B, and C entered into an oral contract of partnership each contributing P2M each of the common fund but
failed to register the partnership with the SEC. In the partnership valid/
a.No, because every contract of partnership having a capital of three thousand pesos or more in money
or property must be in public instrument and registered with the SEC
b.Yes, because public instrument is necessary is case of contributions of immovable’s
c.Yes, because a partnership contract does not require a specific form to be valid
d.No, because registration with the SEC is essential for a partnership to be valid and acquire judicial
personality
30. A and B are co-owners of a parcel of land from where they share the profits equally as co-heirs in
inheritance. Is there a partnership
a.There is a prima facie presumption of partnership because of the equal sharing of profits
b.There is no partnership because co-ownership by itself does not establish a partnership despite the
sharing of profits
c.There is no partnership since in partnership, division of profits is not always necessary among partners
d.There is a prima facie presumption of partnership they being co-owners and co-possessors
39-40
39. M male a negotiable promissory note payable to the order of P. later made a special endorsement to A. Then
B stole the note from A and indorsed it to C who received the note in good faith. Later C indorsed the note
to D. which of the following is correct?
a.D can collect from M but not from A c.C can collect from endorsers P and B
b.If M will not pay , D can collect from P
40. Using the preceding number, if M pays D in good faith, which of the following is incorrect?
a.The obligation of M is extinguished c.The obligation of P is extinguished
b.A can collect from M d.A should collect from B, the thief
41. When a property is transferred during lifetime to relieve the transferor from the burden of the management of
such property, and the transfer of its subject to tax, the basis of the tax is
a.The FMV at the time of donation
b.The FMV at the time of death of the donor
c.The FMV at the time the donor required the property
d.The cost of the property in the hands of the donor
42. Which of the following taxes had been replaced by the VAT?
a.Percentage tax on international air and shipping carriers doing business in the Philippines
b.Tax on life insurance premiums
c.Caterer a tax on operators of restaurant and eating places
d.Tax on agents of foreign insurance companies
52. The following are related to the tax assessment of a tax payer
Assessment received January 1,2010
Petition for reconsideration filed with BIR February 1,2010
Documents supporting the petition filed with BIR February 7, 2010
Decision of BIR denying the petition received by the taxpayer March 22, 2010
Second request for reconsideration filed with BIR March 30, 2010
Decision of denial of second request for reconsideration was received April 12, 2010
How much of the individual income received by Mr. Araki considered income from sources within the
Philippines?
A1 PASSERS REVIEW CENTER///166
a.Zero
b.P156,000
c.P300,000
d.P144,000
61. Which of the following is not a condition imposed by the constitution for the exercise of the power of eminent
domain?
a.The consent of the owner of the private property to sell the same to the government
b.The payment of just compensation
c.The observance of due process in making of private property
d.The existence of public use of the taking of a private property
62. Mr. Bagongbahay acquired his old principal residence in 1990 at a cost of P4M. he sold the said property on
January 1, 2010 for P16M, although the FMV on that date was P20M. within the reglementary period,
Bagongbahay acquired his new principal residence for P 12M.
Which of the following is incorrect?
a.Bagongbahay has to pay capital gains tax of P 300,000
b.The cost basis for the new principal residence is P3.2 M
c.The utilized amount of the gross selling price is P 12M
d.If the proceeds were not used to buy a new principal residence, the capital gains
63-64- For the month of August and September 2010, ABC Bank has the following income/loss
INTEREST INCOME WITH MATURITY AUGUST SEPTEMBER
- Of less than 5 years P800,000 P1M
- Of more than 5 years 800,000 1M
rentals 400,000 800,000
Net trading gain (Loss) (100,000) 200,000
68-70
68. A , caregiver , is under three year employment contract with a hospital in USA . His wire , B and a minor
child live in the Philippines. He earns P70,000 (converted) a month for the annual income of P840,000, A
shall pay income tax
a.For the entire amount it being taxable in the Philippines
b.Of nothing because as OFW, he is considered a non resident citizen
c.For half the full amount because the other half pertains to his wife
d.For the ½ share of his wife because the wife is a resident citizen
69. Using the above data, if A puts 30% of his earnings in a dollar deposit account with a local , interest income
therein
a.Is taxable for the full amount at 7.5% final withholding tax
b.Of P 126,000 shall be taxed at 7.5% final withholding tax
c.Maybe exempt from income tax provided he presents proof of non residency to the bank
d.Of P840, 000 shall be taxed at 7.5% final withholding tax
70. If the dollar deposits account above is joint ( with B) with the same percentage of earning invested , interest
income in that account
a.Is capable for the full amount at 7.5 % final withholding tax
b.Of P126,000 shall be taxed at 7.5% final withholding tax
72. Using the above data, assuming A filed his income tax return on April 20, 2008 and the return is not
fraudulent, when is the last day for the BIR to make an assessment ?
a.April 20, 2011 c.April 20, 2013
b.April 15, 2011 d.April 15, 2013
73. Using the above data , if the BIR issued a deficiency income tax assessment on March 10, 2010, when is
the last day for the BIR to collect?
a.March 10, 2013 c.March 10, 2015
b.April 15, 2013 d.April 15, 2015
74. A filed his ITR for 2008 on April 15, 2009 and will pay his tax liability in instalment. The return shown an
income tax due of P100,000 and income tax withheld of P60,000. If A pays the 2 nd instalment only on
October 15, 2009, the amount to be paid (excluding compromise penalty)is
a.P26,000 c.P55,000
b.P35,000 d.P37,500
75. On April 15, 2010 , A filed his income tax return for his 2009 income and paid the tax due thereon. In 2011. A
discovered that he made an overpayment in his income tax return. He filed a written claim for refund of tax
erroneously collected with the CIR on October 1, 2011. On April 14, 2012, without receiving a decision on
his claim for refund, A filed in the CTA a petition for review on his claim for refund of tax erroneously
collected. Which of the following is incorrect?
a.The CTA did not acquire jurisdiction over the petition for review because the appeal is premature, there
being no decision yet on said claim for refund
b.The CTA jurisdiction is to review by appeal decisions of the BIR Commissioner so if there is no
decision there is nothing to review
c.The CTA acquired jurisdiction over the petition since it is the right of a taxpayer to go to the CTA with or
without decision rendered by the BIR Commissioner
d.The CTA acquired jurisdiction over the petition as the peremptory period of 2 years within which a
claim for refund is about to expire and the failure of the CIR to act on the claim is tantamount to
denial of the claim
76. One of the following is not exempt from VAT
a.Lease of the residential units with a monthly rental not exceeding P10,000
b.Services subject to percentage tax
c.Services rendered by individuals pursuant to employer –employee relationship
d.Export sales by persons who are vat-registered
77. A sold a personal property held as capital asset be acquired 9 years ago with an acquisition cost P50,000 for
P 270,000. The payment shall be made of the following terms. Cash down payment of P40,000 and
additional P 10,000 at the end of the year sale. The property sold has been mortgaged for P 160,000 which
assumed by the buyer issued a note payable for the balance which is to be paid equally in two years
following the year of sale. The contract price is.
a.P 270,000 c.P 120,000
b.P110,000 d.P130,000
78. The taxable profit for the first year is
a.P120,000 c.P30,000
b.P60,000 d.P15,000
79. XYZ filed its income tax return and paid the tax due for calendar year 2008 showing a tax liability of
P175,000. However, upon audit, it was discovered that its income tax return was false or fraudulent
because it did not report other taxable income. Per investigation the correct income tax due is P 350,000.
The corporation was duly informed of this finding through a preliminary assessment notice. Failing to protect
on time against the preliminary assessment notice, a formal letter of demand and assessment notice was
issued on May 31, 2010 calling for payment of deficiency income tax on or before July 15, 2010. The
amount due on July 15, 2010 is
a.P 306,250
b.P 437, 500
c.P240, 625
d.P612, 500
MULTIPLE CHOICE:
11. Cielo’s Hotdog Stand sells hotdogs for P25 each. The variable costs per hotdog are P10. Cielo’s fixed costs
are currently P 8,000 per month. Cielo is considering expending her business to three hotdog stands which
will increase fixed costs per month by P 12,000.
If Cielo’s does expand her business to three stands, how many additional hotdogs will need to be sold per
year in order to break even
a.800 c.9600
b.600 d.7200
12. Do Dante Corporation is contemplating to method a new product that requires an increases in fixed costs by
P 1,400,000 for production of 50,000 units or less and P1,800,000 for more than 50,000 units. The variable
costs ratio is 60 percent of sales. The product is expected to sell for P80 per unit. How any units must Don
Dante sell just breakeven?
a.43,750 c.50,000
b.56,250 d.Either 43,750 or 56,250
13. In most companies , machines break down occasionally and employees are often less than perfect which
type of standard acknowledges these characteristics when determining the standard cost of a product?
a.Efficiency standard c.Practical standard
b.Ideal standard d.Budgeted standard
Assuming O’maimai cost of capital is 16 percent , what is the asset net present value? ( ignore income
taxes)
a. P 16,306
b.P30,000
c.P4,514
d.P4,800
22. Pacam, Inc. Requires all its capital investment to generate an internal rate of return of 14 percent the
company is considering an investment costing P80,000 that is expected to generate equal annual cash
inflows for 5 years. The present value of 1 . end of 5 years is 0.51937 and the present value inequity of 1 is
3.4331 based on 14 percent required rate of return.
To meet the 14% minimum acceptable rate return, the estimated annual cash inflow (ignoring income taxes)
is :
a.P23,803 c.P274,648
b.P51,550 d.P154,033
Lakewood uses required rate of return of 12% in its capital budgeting decisions. remittal tax rate of 40%. The
company uses straight-line depreciation. The present value of annuity of 1 at 12% for years 4,56376. The details of
the present value
YEAR ANNUAL CASH SAVINGS
1 0.89286
2 0.79719
3 0.71178
4 0.63552
5 0.56743
6 0.50663
7 0.45235
29. Which of the following statements is true regarding a company’s segment margin?
a.It is primarily used to make short term decisions such as cost volume profit (CVP) analysis and special
order decisions
b.It ignores all fixed costs
c.It is primarily a measure of long term profitability
d.It should not be used to make decisions on whether or not to drop a product line
30. Which of the following statements about the balanced scorecard approach is false?
a.It requires managers to focus on financial measures more than nonfinancial measures
b.It looks at performance from the following perspectives, financial, customer, internal business and
learning and growth
c.It helps balance short term operating performance with long term strategies
d.It recognizes that traditional measures of performance are often not adequate to fully assess
company’s performance
31. Determining the market share for a company’s product would be a measure of performance , which
perspective of the balanced scorecard?
a.Internal business c.Financial
b.Customer d.Learning and growth
32. Which of the following statement about quality costs is true?
a.Even in theory , external failure costs can never be reduced to zero
b.The less of company’s spreads on prevention costs, the less they will have to spend on internal failure
costs in the future
c.If a company produces and sells a defective product, external failure cost are likely to exceed all the
other types of quality costs
d. Low level of internal failure costs usually indicators that more attention needs to be paid to
prevention and appraisal costs
33. HNW Ltd. Manufactures and sells food processors. A popular consumer magazine has recently evaluated
food processors and has ranked HNWs processors as being of “poor quality”. As a result HNWs
management team has begun to analyze all costs associated with their food processors in more detail and
the following data has been compiled:
Scrap costs P 80,000
Quality training 75,000
Warranty claims 100,000
Rework costs 50,000
Inspection of incoming 30,000
materials
Product quality audits 60,000
Statistical process control 40,000
36. At what level of sales (in units) for two month period should Polica Devices be indifferent between closing
the plant or keeping it open?
a.38,400 units c.39,000 units
b.39,400 units d.38,000 units
37. Vera Cruz Company has projected cost of goods sold P 2 million including fixed costs of P100,000 and
variable costs are expected to be 75 percent of net sales. What will be the projected net sales/
a.P 2,133,333 c.P2,666,667
b.P2,400,000 d.P3,200,000
38. Gibo Zamora sells helium balloons in Luneta Park on Saturdays as a means on making some extra
spending money. He buys balloons from a party store at P12 each and sells them at a price of P30.00 each.
Demand of the balloons ranges between 35 and 45 per day. Gibo normally purchases 40 balloons. The
helium losca its resilence in a couple of days, so balloons not sold cannot be saved for the following
Saturday. Gibo usually just releases the balloons that do not sell. As he watched the most recent batch of
the five balloons floating into space, he thought surely, there must be some way to void this waste.
What is the estimated on Gibo profit if the helium canister is rented assuming there are 5 balloons being
unsold?
a.No effect c.Increase the profit by P90
b.Increase the profit by P150 d.Decrease the profit by P80
Use the following data for Ulap Company in answering numbers 39 and 40
2010 2009
Net sales P5,520,000 P4,000,000
Cost of goods sold 3,795,000 3,000,000
Gross profit P1,725,000 P1,000,000
39. Assume that the selling price increased by 20 percent effective January 1, 2010. What is the amount of
increase in sales due to change in selling price and units sold, respectively?
a.P920,000 and P 600,000 c.P720,000 and P800,000
b.P 1,104,000 and P416,000 d.P (1,380,000) and P2,900,000
40. Independent of question number 39 , assuming that the cost price per unit decreased by 4 percent effective
January 1, 2010. How much were the change in sales due to change in quantity sold and change in cost of
goods sold due to change in unit cost?
Change in sales change to cost of Goods Sold Due
Change in Quantity to change in unit cost
a.P1,270,800 increase P158,125 decrease
b.P249,200 increase P953,125 decrease
c.P1,262,400 increase P151,800 decrease
d.P1,262,400 increase P953,125 decrease
The committee members would like to charge P300 per person for the evening activities
Assuming that only 250 persons are expected to attend the extravaganza, what ticket price must be
charged to breakeven?
a.P420 c.P320
b.P350 d.P390
44. Gabgalang Company uses a monthly cost formula for overhead of P50,000 + 30,000 for each direct labor
hour worked. For the coming year, gabgalang plans to manufacture 200,000 units. Each unit requires five
minutes of direct labor. Gabgalang total budgeted overhead for the coming year is
a.P550,000 c.P1,100,000
b.P1,200,000 d.P650,000
45. How will a favorable volume variance affect net income under each following methods?
ABSORPTION VARIABLE
a.Reduce no effect
b.Reduce increase
c.Increase no effect
d.Increase reduce
46. The following information has been extracted from Bautista & Magsombol Company’s financial records for
its first year of operations?
Based on absorption costing, Bautista & Magsombol’s income in its first year of operations will be
a.P21,000 higher than it would be under variable costing
b.P70,000 higher than it would be under variable costing
c.P30,000 higher than it would be under variable costing
d.Higher than it would be under variable costing, but he exact difference cannot be determinable from
this information
47. Balara Company has intra company service transfers from Internal Division , a cost center, to World Division
, a profit center. Under stable economic conditions, which of the following transfer prices is likely to be most
conductive to evaluating whether both divisions have met their responsibilities?
a.Actual cost b.Market price
A1 PASSERS REVIEW CENTER///174
c.Standard variable cost d.Negotiated price
48. De Chavez Company is considering an investment in a new casting machine to replace its existing one.
Information on the existing machine and the replacement machine follows:
Marketing costs:
Variable 2.00
Fixed 1.00
Grace must decide to continue making the product or buy it from outside supplier. The supplier has offered
to make the product at the same level of quality that the company can make it. Fixed marketing costs would
be unaffected, but variable marketing costs would be reduced by 25% if the company were to accept the
proposal. What is the minimum amount per unit that Grace can pay the suppliers without decreasing its
operating income?
a.P9.50 c.P11.50
b.P10.50 d.P12.50
54. The Salinas Division of Soriano Company expects the following result for 2011.
Unit sales 70,000
Unit selling price P10
Unit variable cost P4
Total fixed cost
Total fixed costs P300, 000
Total investment P500, 000
What is the minimum price that Salinas could for the order and still maintain its expected residual income?
a.P5.00 c.P5.60
b.P4.75 d.P9.00
55. Morr Co. has a total annual cash requirement of P 9,075,000 which are be paid uniformly. Morr has the
opportunity to invest the money at 24% per annum. The company spends, on the average P40 for every
cash conversion to markeable securities.
What is the optimum average cash balance?
a.P60,000 c.P55,000
b.P45,000 d.P27,500
56. The dividends and stock price of Feudo Company are expected to grow at 7 percent per year by the end of
this year. Feudos common stock sells for P25 per share, it last dividend was P2.50 and the company will pay
P2,675 at the end of the current year. Feudo should pay P 2.50 flotation cost.
What are the expected returns on retained earnings for Feudo Company?
a.17.7 percent c.18.89 percent
b.18.45 percent d.19.72 percent
57. Baguio Company’s accounts receivable were P600, 000 at the beginning of the year and P 800,000 the end
of the year. Cash sales for the year were P300, 000. The accounts receivable turnover for the year was 5
times. Baguio Company’s total sales for the year were
a.P 800,000
b.P 3,300,000
c.P1,300,000
d.P3,800,000
58. The Baraguio Corporation purchases 60,000 headbands per year. The average purchase lead time is 20
working days. Maximum lead time is 27 working days. The corporation works 240 days per year.
The appropriate safety stock level and the recorder point for the company are
Almires desires to reduce the normal completion time of job WW and at the same time, report the highest possible
income for this year. Almires should crash
a.Activity B-C 1 week and Activity EF 1 week
b.Activity B-C 2 weeks
c.Activity D-E 1 week and activity B-C 1 week
d.Activity D-E 1 week and activity E-F 1 week
60. The capital asset pricing model (CAPM) computes the expected return on a security by adding the risk rate
return to the incremental yield of the expected market return which is adjusted by the company’s beta. What
is MNO’s expected rate of return if the equity market is expected to earn 12 percent; the treasury bonds are
currently yielding 5 percent. The beta coefficient for MNO is estimated to be 0.60. MNO is subject to an
effective corporate income tax rate of 40%.
a.12.00 percent c.12.20 percent
b.9.20 percent d.7.20 percent
61. Trading on the equity refers to the
a.Amount or working capital
b.Amount of capital provided by owners
c.Use of barrowed money to increase the return to owners
A1 PASSERS REVIEW CENTER///176
d.Number of times interest in caned
62. Demand for a product tends to be price inelastic if
a.The product is considered a hourly item
b.Few goods complements for the product are available
c.The population in the market area is large
d.People spend a large share of their income on the product
63. Because of the existence of economies of scale , business fines may find that
a.Each additional unit of labor is less efficient than the previous unit
b.As more labor is added to a factory, increases in output will diminish in the short run
c.Increasing the size of a factory will result in lower average cost
d.Increasing the size of a factory will result in lower total costs
64. For a given level of tax collections , prices and interest rates, a decrease in governmental purchases will
result in a (an)
a.Increase aggregate demand c.Increase in aggregate supply
b.Decrease in aggregate demand d.Decrease in aggregate supply
65. The most effective fiscal polity program to help reduce demand pull inflation would be to
a.Decrease the rate of growth of the money supply
b.Increase both taxes and government spending
c.Decrease taxes and increase government spending
d.Increase taxes and decrease government spending
CABRAL industries received an order for a piece of special machinery from Tigok Company. Just as CABRAL
completed the machine, Tigok declared bankruptcy, defaulted on the order , and for feted the 10 percent deposit
paid on these selling price P72,500
CABRAL’s manufacturing manager identified the cost already incurred in the production of the special machinery for
Tigok as follows
Direct material P16,600
Direct labor 21,400
Manufacturing overhead
Variable P10,700
Fixed 5,350 16,050
Fixed selling and administrative costs 5,405
Total P59, 455
Another company , kay Corporation , will buy the special machinery if it is reworked to Kay’s specification. CABRAL
offered to sell the reworked machinery to Kay as a special order for P68, 400 Kay agreed to pay the price when it
takes delivery in two months. The additional identifiable costs to rework the machinery to Kay specifications are as
follows.
Direct materials P6,200
Direct labor 4,200_____
Total P10,400
A second alternative available to CABRAL is to convert the special machinery to the standard model . which sells
for P62,500. The additional identifiable costs for this conversion are as follows.
Direct materials P2,850
Direct labor 3,300
Total P6,150
The third alternative for CABRAL is to sell the machine as is for a price P52,000, However , the potential buyer of
the unmodified machine does not want it for 60 days. This buyer has offered a P7,000 down payment , with the
reminder upon delivery.
MANAGEMENT SERVICES
INSTRUCTION: Select the correct answer for each of the following questions. Mark only one answer for
each item by shading the box corresponding to the letter of your choice on the answer sheet provided.
STICTLY NO ERASURES ALLOWED. Use pencil no. 2 only.
Based on the factor above, what would be Andy’s net cash flow from investing activities for 2010?
A. P95,000 decrease C. P10,000 increase
B. P65,000 decrease D. P5,000 increase
15. Which of the following activities is not a batch level activity?
A. Production line set up C. Installation of vehicle engine
B. Production line inspection D. Scheduling
16. The Soderling Company is in the process of preparing a purchases budget for the second quarter of 201.
Forecast of sales for the second quarter follow:
April 14,900 units
May 13,500 units
June 16,200 units
The March sales were P12, 500 units. Cost of goods sold is expected to be P8 per unit. Soderling would like to
have ending inventory each month equal to 151 of the following month’s predicted sales.
What is the total cost of purchases in April?
A. P119,200 C. P108,000
B. P117,600 D. P104,560
17. the most effective fiscal program to help reduce demand pull inflation would be to
A. Decrease the rate growth of the money supply
B. Increase both taxes and government spending
C. Decrease taxes and increase government spending
D. Increase taxes and decrease government spending
18. Murray Legal Services Company has fixed costs of P56,000 and variable cost of P120 per hour of service
rendered. Clients are charged an hourly rate of P120 per hour . According to Company budget, the company
expect to provide clients with 1,200 hours of service
20. The amount of batch level cost that should be allocated to the carburetor product line would be
A. P14,250 C. P9,625
B. P13,200 D. P8,800
21. The amount of facility level coat that should be assigned to air filters is
A. P37,500 C. P62,500
B. P50,000 D. P100,000
A1 PASSERS REVIEW CENTER///180
22. If carburettors and air filters require the same amount of direct labor, what will be effect if labor hours are
used as the allocation base for product level cost?
A. Air filters will be over costed
B. Carburettors will be over costed
C. Air filters and carburetors will be over costed
D. Air filters and carburetors will be under costed
23. Gonzales Company has annual demand of 5,000 units for its lone product. If the unit carrying cost is P0.40
and optimal order quantity is 500 units, what would be the annual ordering costs?
A. P20 C. P100
B. P40 D. P200
24. Which of the following statements is true?
A. As an advantage of the payback period is that it consider the time value of money
B. The internal ratio of return of a project will be equal to its unadjusted rate of return.
C. If an investment opportunity is acceptable based on its net present value, it will also be acceptable
based on its internal rate of return
D. All methods of capital planning are based on cash flows only
Total fixed costs are P400, 000. Actual sales are 300,000 units (sales mix is one unit of product A and two units
of product B). What is the degree of operating leverage?
A. 3 times C. 2 times
B. 2.5 times D. 1.5 times
29. The difference between variable costing and absorption costing net income centers on how to account for
A. Direct material cost C. Variable indirect costs
B. Fixed indirect costs D. Variable and fixed indirect cost
30. Roddick Company reports the following December 31, 2010 balance sheet data:
Current liabilities P280, 000
Bonds payable, 16% 120,000
Preferred stock, P100 par 200,000
Common stock, P 25 per value, 16,800 shares 420,000
Premium on common stock 240,000
Retained earnings (adjusted) 180,000
Total liabilities and Stockholders equity P1, 440,000
If the market’s required rate of return on Ana stock is 25% what is the current stock price?
A. P 4.00 C. P8.00
B. P7.50 D. P12.50
39. A highly automated plant would generally have
A. More variable than fixed cost C. All fixed costs
B. More fixed than variable costs D. All variable costs
40. Justine Corp. Plans to replace a [production machine that was acquired several years ago. The old machines
acquisition cost was P450, 000 with salvage value of P50, 000. The machine being considered is worth P800, 000
and the supplier is willing to accept the old machine at a trade in value of P60, 000. Should the company decide or
not to acquire the new machine, it needs to repair the old one at a cost of P200, 000. Tax-wise, the trade in
transaction will not have any implication but the cost to repair is tax-deductible. The effective corporate tax rate is
35% of net income subject to tax.
For purpose of capital budgeting, the net investment in the new machine is
A. P540,000 C. P660,000
B. P610,000 D. P800,000
Selling expenses are expected to be 20% of sales. Pre-tax profit amounts to P500 per unit. The selling price per
unit must be set as at:
A. P2,000 C. P2,625
B. P2,500 D. P3,125
42. An IT auditor is least likely to use computer software to
A. Construct parallel simulations C. Prepare spreadsheets
B. Access client data files D. Assess computer control risk
43. Using 360 day year, what is the annual cost of trade credit if a supplier gives a credit term of 2/10 n/60 and the
customer delays payment as a means of short term credit financing?
A. 14.69% C. 12.24%
B. 14.40% D. 12.00%
44. Host firm choose accelerated depreciation method because
A. Reported net income is higher
B. Tax payments are made sooner, resulting in lower deferred tax liability
C. Operating expenses are correspondingly reduced
D. Income taxes are deferred, providing the firm with a significant present value benefit.
45. Elena Company’s budgeted sales for the coming year are P40, 500,000 of which are 80 to be expected to be
credit sales at terms of n/30. Elena estimates that a proposed relaxation of credit standards would increase credit
sales 200 and increase in the average collection period from 30 days to 40 days. Cost of money is 15%. Based on
a 360 day year, how much opportunity cost is involved with the proposed relaxation of credit standard?
A. P243,000 C. P900,000
B. P540,000 D. P1,620,000
46. Simple regression analysis provides the means to evaluate a line of regression which is fitted to a plot of data
and represents
A. The way cost change in respect to independent variable
B. The way cost change in respect to dependent variable
C. The variability of expense with peso of operation
D. The variability of expense with peso of production
47. If the investment turnover decreased by 20% and profit margin decreased by 30%, then ROI would
A. Increase by 30% C. Decrease by 44%
B. Decrease by 20% D. Not be determined without more information
48. Each unit of product Ivanovic taxes five direct labor hours to make. Quality standards are high and 8% of units
produced are normally rejected due to substandard quality. Next month’s budgets are as follows:
Beginning inventory of finished goods 3,000 units
Planned ending inventory of finished goods 7,600 units
Budgeted sales of Ivanovic 36,800 units
All stocks of finished goods must have successfully passes the quality control check. What is the direct labor budget
for the month?
A. 198,720 hours C. 223,500 hours
B. 200,000 hours D. 225,.500 hours
49. Which of the following statements pertains to a batch processing system?
A. Data are immediately available to users upon entry
B. It permits both immediate posting and inquiry of master files as transactions occur
C. It accumulate transaction records into groups for processing against the master file
D. It is in direct communication with computer, giving it the capability to handle transactions as they are entered.
50. Sharapova Company has total debt of P360,000 and shareholders equity of P500,000sharapova is seeking
capital to fund an expansion . sharapova is planning to issue an additionalP300,000 in common stock and is
negotiating with a bank to borrow additional funds. The bank requires a debt to equity ratio of 0.75.
What is the maximum additional amount Sharapova will be able to borrow?
A. P240,000 C. P440,000
B. P330,000 D. P600,000
51. Which is not considered in determining the cash conversion cycle?
A. Age of receivable C. Age of marketable securities
B. Inventory conversion period D. Payable deferral period
52. Stosur Company is a producer and distributor of various motorized recreational scooter, bike and motorcycle
products. The first division handles scooters and would like to earn a long run rate of return 0f 20%. The first division
Compute the per unit selling price that will provide the desired rate of return.
A. P2.82 C. P3.22
B. P2.94 D. P3.50
53. The following data was taken from the records of Wilfred Corporation:
2009 2010
Inventory, 12/31 P120, 000 P100,000
Receivable 12/31 88,000 62,000
Cash sales 800,000 1,000,000
Average age, inventory 30 days 45 days
Average age, receivable 24 days 36 days
What is the 2010 gross profit? (Assume 360 day year)
A. P870,000
B. P820,000
C. P200,000 `
D. P120,000
54. Electronic fund transfer (EET) is a service provided by financial institutions worldwide that is based on electronic
data interchange (EDI) technology. Which of the following risk is not greater in an EET environment than in a
manual system using paper transactions?
A. Unauthorized access and activity
B. Duplicate transaction processing
C. Highest per transaction
D. Inadequate backup and recovery capabilities
55. At the end of 2010, ABC Plastic Products had P240, 000,000 total capital. ABC Management desires to increase
its production machinery during 2010 by P40, 000,000 in order to provide for new product lines. Bond financing will
be
13% and wills ell at par. Preferred will be sold at a par value of P100 and will have a 12 percent dividend payment.
Common stock, which currently is selling at P30 per share, can be sold at P28, net of related flotation costs. Internal
funding available from retained earnings is estimated to be P5, 000,000. The firm has a 9% dividend yield and a
growth rate is 40%. ABC’s present capital structure listed below is considered optimal.
In order to maintain the present capital structure , how much the new capital assets must be financed by equity
capital?
A. P24,000,000 C. P25,000,000
B. P24,500,000 D. P25,500,000
56. The income statement for Martin Company for 2010 shows cost of sales of P7, 420. The following information is
also available.
Inventory, `1/1 P520
Inventory, 12/31 610
Accounts payable, 1/1 280
Accounts payable, 12/31 480
The industry in which Boston Company operates is quite sensitive to cyclical movements in the economy. Thus,
profits very considerably from year to year according to general economic conditions.. the company has a large
amount of unused capacity and is studying ways of improving profits.
57. New equipment has come onto the market that would Boston Company to automate a portion of its operations.
Variable costs would be reduced by P9 per unit. However, fixed costs would increase to a total of P225,000 each
month.
How much income for the month would the company earn if the new equipment is purchased?
A. P45,000 C. P60,000
B. P30,000 D. P75,000
58. How many units as increase or decrease in breakeven point if the equipment is purchased?
A. Zero C. 3,200 units
B. 2,500 units D. 4,000 units
59. The degree of operating leverage during the month where the new equipment is used is:
A. 3.0 times C. 6.0 times
B. 4.5 times D. 5.0 times
60. Refer to the original data. Rather than purchase new equipment, the president is thinking about changing the
company’s marketing method. Under the new method, sales would increase by 20% each month and net income
would increase by one third. Fixed costs could be slashed to only P48, 000 per month. Compute the break even
point for the company after the change in marketing method.
A. 8,000 units
B. 9,000 units
C. 10,000 units
D. 12,500 units
61. Assuming that during the month following the month that the new equipment has been started in use, the unit
sales increased by 4,500 units. The variable expenses per unit and the monthly fixed costs as affected by the
acquisition of the new equipment are expected to remain constant..
62. The break in peso sales for New York Company is:
A. P6,000,000 C. P7,500,000
B. P2,571,429,
63. The president believes that a P160, 000 increases in the monthly advertising budget, combined with an
intensified effort by the sales staff, will result in P800, 000 increases in monthly sales. If the president is right, what
will be the effect on the company’s monthly net income or loss?
A. P120,000 increase C. P120,000 decrease
B. P80,000 increase D. P80,000 decrease
64. Refer to the original data. The sales manager is convinced that a 10% reduction in the selling price, combined
with P600, 000 increases in the monthly advertising budget, will cause unit sales to double. What will the new profit
or loss if these changes are adopted?
A. P60,000 C. P45,000
B. P(60,00) D. P(45,000)
65. Refer to the original data. The marketing department thinks that a fancy new package for the laptop computer
battery would help sales. The new package could increase packaging costs by P7.50 per unit. Assuming no other
changes, how many units would have to be sold each month to earn a profit of P97, 500?
A. 21,818 C. 25,450
B. 23,000 D. 28,000
At how much will the building and equipment and land be recorded, respectively?
A. P1,400,000 and P500,000 C. P1,550,000 and P500,000
B. P1,400,000 and P300,000 D. P1,550,000 and P300,000
42. The condensed balance sheet accounts of Lani Inc. and magi Inc, are shown below:
Lani Magi
Lani buys all of the issued and outstanding shares of Magi at P140 per share. In the consolidated balance sheet, the
total asset is:
A. P4,000,000
B. P3,150,000
C. P4,025,000
D. P4,075,000
43. Triad Corporation’s shipments to and from Olongapo City branch are billed at 120% of cost. On December 31,
Olongapo branch reported the following data, at billed prices: inventory, January 1, of P33,600; shipments received
from home office of P840,000: shipments returned of P48,000; and inventory, December 31, of P36,000. What is the
balance of the allowance for over valuation of branch inventory on December 31 before adjustments?
A. P5,600 C. P6,000
B. P137,600 D. P145,600
44. Paro Company acquires all the shares of Subido Co. for a consideration valued at P5, 000,000. Costs of
registering and issuing securities used in the business combination were P60, 000, and direct costs amounted to
P40,000. Subido’s stockholders equity is P4, 000,000.
After the business combination, how much is the goodwill under the purchase method?
A. P1,060,000 C. P1,040,000
B. P1,100,000 D. P1,000,000
45. Pre-consolidation data on the balances sheet accounts of Mulligan Corp; and Northrop Corp. Show:
Mulligan Northrop
Assets P212,500 P150,000
The shareholders of Mulligan and Northrop agree to consolidate whereby Obet Inc. a new corporation, it p acquire
the net assets of the constituent corporation. Obets share are to be issued in exchange for shares of Mulligan and
Northrop on 5-for -1 basis. The consolidation is appropriately reckoned as pooling of interests. if the share of Obet
have a par value of P25, what is the additional paid in capital to be recorded in its books?
A. P0 C. P78,125
B. P37,500 D. P46,875
46. Nona Inc. acquired on January 1, 19X6 all the issued and outstanding common share of Olga Inc. for P310, 000
in a transaction properly treated as a purchase. On this day, the assets and liabilities of Olga. Inc. show
Cash P30,000
Merchandise inventory 90,000
Plants and equipment 160,000
Goodwill, net 50,000
Liabilities (60,000)
Per appraisal, plan t and equipment and merchandise inventory were valued at P190, 000 and P75,000,
respectively. What is the amount of goodwill resulting from this transaction?
A. P125,000 C. P75,000
B. P40,000 D. P0
47.Rado owns a 70% interest in a partnership, and has an capital balance of P80,0000. Seto owns a 30% interest
and has a capital balance of P60,0000. Tato invest P50, 000 for a 20 percent
Under the goodwill method, how much goodwill will be recorded and to whom will it be given?
A. P12,000 goodwill to radio and Seto C. P15,000 goodwill to Rado and Seto
B. P15,000 goodwill to Tato D. P60,000 goodwill to Rado and Seto
48. Ingram Julian and Keno form a partnership and agree to maintain average investment of P100, 000, P50, 000
and P 50,000, respectively. Interest on an excess or deficiency (as the case may be) in capital contributions to be
computed at 6%. After interest allowances, residual sums shall be shred by Ingram, Julian and Keno at 5:3:2. A net
loss of P2, 500 is incurred by the partnership for the first six months. Average amounts invested by the partners
during these six months. Average amounts invested by the partners during these six-months are:
Ingram P120,000
Julian 55,000
Keno 40,000
***END***
AUDITING PROBLEMS
PCF voucher dated Dec. 31,19X7
For Miscellaneous expenses 100
Cash in the bank balance per books 48,200
A bank debit memo for P10, 200
representing returned customer check
marked “DAUD” including a service charge of P200 has not been recorded
on December 31, 19X7.
3. Marketable securities at cost declined by P50, 000 in 19X7. In 19X7, a sale was made at a gain of P10, 000
and P60, 000 was credited to Sales.
4. One percent of total sales has to be set up for uncollectible accounts, the allowance of which is maintained
by the home office.
5. Accumulated depreciation balance for 19X5 and 19X6 were P175, 000 and P350, 000, respectively.
6. The bank loan carries a 20% interest per annum which was secured on July 1, 19X6. The amount of P250,
000 has been paid in 19X7 together with the accrued interest thereon. Interest on this loan was paid up to July
1, 19X7. A second loan worth P1, 000,000 was secured on July 1, 19X7 to buy additional equipment. The
interest for one year at 18% was deducted in advance and charged to operating expenses.
10. The payables include the accrued interest for 19X7 on the bank loan, which amount was debited to
operating expenses.
Based on the foregoing information and any additional assumption which may be given in each number, you
have to answer the following 40 questions. Your choice must be the one nearest to the correct answer.
1. The journal entry to correct the recording of stock premium will credit.
A. Subscribed common stock
INSTRUCTION: Select the correct answer for each of the following questions. Mark only one answer for
each item by shading the box corresponding to the letter of your choice on the answer sheet provided.
STRICTLY NO ERASURES ALLOWED. Use the pencil no. 1 only.
SITUATIONAL
Situation 1. You were requested by the board of the directors of the WW Industries to audit its books for the
year ending December 31, 19X7. The condensed comparative balance sheet items of the company for
December 31, 19X6 and 19X7 are shown below.
19X7 19X6
Cash P50, 000 P100, 000
Marketable securities 150,000 200,000
Receivables 500,000 350,000
Inventories 750,000 550,000
Property and equipment (net) 4,750,000 3,000,000
Patents 250,000 300,000
Branch 500,000 0
***END***
A1 PASSERS TRAINING, RESEARCH, REVIEW & DEVELOPMENT COMPANY
2nd Floor Sommerset Bldg., Lopez Jaena St. Jaro, Iloilo City
Tel. No.: (033) 320-2728; 09106547262
Email Address: a1nursingreviewic@yahoo.com.ph
MULTIPLE CHOICES:
1. Takes place when two persons in their own right, are creditor and debtor of each other
A. Remission C. Novation
B. Confusion D. Compensation
2. Whenever in an obligation a period is designated, it is presumed to have been established for the benefit of:
A. Both creditor and the debtor C. The debtor
B. The creditor D. The third party
3. An act of liberality whereby a creditor condones the obligation of the debtor:
A. Confusion C. Remission
B. Compensation D. Novation
4. When the thing deteriorates pending the fulfilment of the suspensive condition without the fault of the debtor, the
impairment is
A. To be borne by the party who is caused the deterioration
B. To be borne partly by the debtor and partly by the creditor
C. To be borne by the debtor
D. To be borne by the creditor
5. A owes P10, 000. With consent of both, C pays B P5, 000. Now B and C and the creditors of A to the amount of
P5,000 each. Suppose A bus only P5, 000. Which is correct?
A. B and C should divide the P5,000 equally C. A may choose whom to pay
B. C should be preferred D. B should be preferred
7. An obligation where only the prestation has been agreed upon but the debtor may render another in substitution
is:
A. Conjoint obligation C. Simple obligation
B. Facultative obligation D. Alternative obligation
8. XYZ are solidarily liable to A for P30, 000 which mature on July 1, 1993. On May 1, 1993, X paid A fort he whole
amount of the debt. If on December 1, 1993, X will be reimbursed by Y; the latter will be liable for:
A. P10,000 with interest from July 1993 to December 1, 1993
B. P10,000 without interest
C. P10,000 with interest from May 1, 1993 to July 1, 1993
A1 PASSERS REVIEW CENTER///193
D. P10,000 with interest from May 1, 1993 to December 1, 1993
9. A thing is not deemed lost when it:
A. Perishes
B. Disappear in such a way its existence is unknown or it can not be recovered
C. Goes out of commerce
D. Deteriorates
10. Which of the following is not a fundamental obligation of the agent?
A. To subordinate his interest in favor of his principal if there is a conflict of interest
B. To borrow if he is authorized to lend
C. To render an accounting of the transactions
D. Not to carry out the agency even if that is the instruction if he knew it would result in a loss or damage to his
principal
11. a form of delivery which takes place after the seller of the property continues possession of said property no
longer as owner but as a mere possessor:
A. Traditio constitutum possessorium
B. Ttraditio calvis
C. Tradito brevi manu
D. Quasi-tradition
12. When goods are delivered to the buyer on sale or return for a period of seven days, ownership of the goods
passes to the buyer,
A. Upon delivery of the goods C. Upon acceptance by the buyer of the offer of
B. Upon expiration of seven days the seller
D. Upon perfection of the contract
13. A sold to B a parcel of land for P30,000. The sale is evidenced by memorandum of agreement of sale written in
Cebuano dialect. One week later, A sold the same parcel of land to C for 40,000 which was evidenced by a formal
deed of sale. upon buying the property C who is aware of the first sale, immediately took possession of the land and
registered the deed of sale on her favor with the register of deeds. When informed of the second sale, B
subsequently registered an adverse claim to the property. The parcel of land shall belong to:
A. B, because sha has got an older title
B. C, because the sale was made on a formal deed of sale
C. C, because she is the first to register the deed of sale
D. C, because she is the first to take possession of the land
14. 1st statement: if the agent contracts in the name of the principal and the principal does not ratify the contract, the
contract shall be void if the party with whom agency contracted is aware of the limits of the powers granted by the
principal.
2nd statement: a third person cannot set up the fact that the agent has exceeded his powers if the principal has
ratified or has signified his willingness to ratify the agents acts.
A. Both statements are false C. 1st statement is false, 2nd statement is true
B. Both statements are true D. 1st statement is false, 2nd statement is false
15. In case redemption is made, which of the following will not be paid by the seller to the buyer?
A. Expenses incidental to the sale paid by the buyer
B. All necessary expenses on the thing sold and to be redeemed
C. The consideration of the sale paid by this buyer
D. Interest on the price paid by the buyer
16. Dacion en pago as distinguished from sale:
A. The object is always existing and specific C. There is no pre existing obligation
B. There is a greater degree of freedom in fixing D. The cause is the price
the price
17. Ben pledged his watch to V.Y.. Domingo Agencia for P5, 000, On due date, Ben failed to redeem his watch. The
pawnshop sold the watch at a public auction to the highest bidder at P4, 000
A. The pawnshop can recover the deficiency of P1,000 from Ben
B. The pawnshop cannot recover the deficiency of P1,000 unless there is stipulation
C. The pawnshop cannot recover the deficiency of P1,000 even if there is a stipulation
D. The pawnshop can recover the deficiency of P1,000 even without a stipulation
18. The following are instances of pledged created by operation of law, except:
A. Hotel keeper retains the thing brought into the hotel by guest who cannot pay his hotel bills
B. An agent retains in pledge the thing which is the object of the agency
C. A mechanic retains the car her repaired until he is paid
D. A depository retains the thing in pledge until full payment of what is due him
19. Basco pledged his Omega watch to Cruz pawnshop for P10,000. Basco failed to pay the pawnshop the P10,000
on due date.. Cruz sold the Omega at a public auction to the highest bidder P8,000.
A. Cruz can recover the deficiency of P2,000 from Basco
B. Cruz cannot recover the deficiency of P2,000 even if there is a stipulation
C. Cruz can recover the deficiency of P2,000 even without a stipulation
D. Cruz cannot recover the deficiency of P2,000 unless there is stipulation
20. A distribution by a corporation of shares held by it in another corporation is
A1 PASSERS REVIEW CENTER///194
A. Stock dividend C. Sale of treasury stock
B. Sale of capital assets D. Property dividend
21.if the proceeds of the sale of the thing pledged sold at public auction is less than the principal obligation , can
the creditor recover the deficiency from the debtor?
1st answer: No, the creditor is not entitled to recover the deficiency from the debtor.
2nd answer: Yes, if there is a stipulation to that effect in the contract of pledge.
A. 1st answer correct, 2nd answer wrong C. Both answers are correct
B. Both answers are wrong D. 1st answer wrong, 2nd answer correct
22. Partner who does not participate in the management though he shares in the profits or losses:
A. Nominal C. Silent
B. Ostensible D. Liquidating
23. Which of the following liabilities of the partnership shall rank first in the order of payment?
A. Those owing to partners in respect to capital
B. Those owing to creditors other than partners
C. Those owing to partners other than capital and profits
D. Those owing to partners in respect to profits
24. Alan, Ben and Cris are partners with capital contribution of P15, 000, P10, 000 and P5, 000 respectively.
Suppose on dissolution, the assets of their partnership amounts to only P46,000 and it owes Dan the amount of
P50,000. Cris owes Ely on his personal account P6, 000. The partners have no separate personal property except
Cris separate property amounts to P7, 000. Which is correct?
A. Dan and Ely shall divide Cris separate property equally
B. Dan and Ely shall divide Cris separate property pro- rata
C. Dan shall be preferred as regards Cris separate property
D. Ely shall be preferred as regards Cris separate property
25. X,Y and Z, capitalist partners, each contributed P10,000 and A, the industrial partner contributed his industry.
The partnership is indebted to B in the amount of P90,000. The remaining assets of the partnership amounted to
only P30,000. Suppose B got the P30, 000, how can he recover the deficiency of his credit?
A. B can recover P15,000 each from X,Y,Z and A
B. B can recover P60,000 from either X,Y, and Z
C. B can recover P15,000 each from X,Y and Z, but A is exempt because he is an industrial partner
D. B can recover P20,000 each from X,Y and Z only
26. The change in the relation of the partners caused by any partner ceasing to be associated in the carrying on of
the business is:
A. Winding up C. Liquidation
B. Dissolution D. Termination
27. Which of the following is not correct? In a limited partnership composed of A, B and C, the contributed may be
as follows:
A. A- property (limited partner); B-services (general partner); C- cash ( general partner)
B. A- cash ( limited partner); B- property (general partner); C- services (general partner)
C. A- services (limited partner); B- cash ( general partner); C- services ( general partner)
D. A- cash (limited partner); B- cash ( general partner) C- services ( general partner)
28. Partner who is both a secret and silent partners:
A. Limited C. Dormant
B. Nominal D. Ostensible
29. A person who directly represents himself or consents or allows him to be represented as a partner in an existing
partnership or with one or more persons who are not actually partners is:
A. Partner by estoppels C. Ostensible partner
B. Silent partner D. Nominal partner
30. They are issued to those who helped in incorporating the company or for services rendered in launching the
welfare of the company:
A. Preferred stock C. Founders stock
B. Stock in escrow D. Promotion stocks
31. Any direction of a corporation may be removed from office by a vote of the stockholders holding or representing:
A. Majority of stockholders present C. 2/3 of the outstanding capital stock
B. ¾ of the outstanding capital stock D. Majority of the outstanding capital stock
32. Three (3) of the following are attributes of a corporation. Which is the exception?
A. Created by agreement of the incorporators
B. An artificial being
C. Has right of succession
D. Has powers, attributes and properties expressively authorized by the law incident to its existence
33. As regards to corporate by-laws, which of the following rules is not correct?
A. To adopt by-laws, majority of the outstanding capital stock is needed
B. To delegate to the Board of Directors or trustees the power to amend or repeal the bylaws, 2/3 of the
outstanding capital stock is needed
A1 PASSERS REVIEW CENTER///195
C. To revoke the power delegated to the Board of Directors to adopt new by-laws, 2/3 of the outstanding capital
stock or of its member is needed.
D. To amend or repeal the by-laws, majority of the Board of Directors and of outstanding capital stock is needed.
34. ABC partnership becomes insolvent due to mismanagement and cannot pay its liability to XYZ corp. With the
approval of its directors and stockholders, XYZ Corp.., entered into a management contract with ABC Partnership
to manage their partnership business with the agreement that 50% of the net profits will be applied to the payment
of the partnership debt to the corporation.
Question 1. Can XYZ. Validly enter into the above management contract?
Question 2. Is XYZ Corp. Considered as partner of ABC partnership by the fact that is receiving a share of the net
profits of the partnership?
ANSWER I: Yes, a corporation has the power to enter into such management contract provided by the contract is
approved by the Board of Directors and majority of outstanding capital stock.
ANSWER 2: No, XYZ Corp. Cannot be considered a partner because it is receiving a share of the net profits not as
actual share of the profits but merely as payment for the partnership’s obligation to corporation.
A. 1st answer correct; 2nd answer wrong
B. 1st answer wrong; 2nd answer correct
C. Both answers are correct
D. Both answers are wrong
35. The power to deny pre-emptive rights as corporate power is classified as:
A. Incidental power C. Implied power
B. Express power D. Discretional power
36. As regards treasury stocks, which is not correct?
A. They have no voting rights as long as they remain in the treasury
B. They may be distributed as property dividend if there are retained earnings from operations
C. They are not entitled to dividends
D. They are considered part of earned or surplus profits and therefore distributable as dividends
37 Issued to those who in some way worked for incorporating the company or for services rendered i launching the
welfare of the corporation is called:
A. Common stock C. Founders stock
B. Promotion stock D. Shares in escrow
38. The drawee bank is not primarily liable:
A. Cashier’s check C. Manager’s check
B. Certified check D. Traveller’s check
39. If the instrument is payable to the order of the third person
A. He is liable to all parties subsequent to the payee
B. He is not liable to any party
C. He is liable to the payee and to all subsequent parties
D. He is liable to all parties subsequent to the maker or drawer
40. Which of the following is not negotiable?
A. Pay to D or order P10,000 , on or before December 31, 1997. (sgd B)
B. Pay to A or order P10,000, notice of dishonor waived. (sgd B)
C. Pay to B or order P5,000 , or deliver two horses at the option of the holder. (sgd. C)
D. Pay to C or order P10,000 and to deliver 10 sacks or rice. (sgd. D)
41. A bill of exchange drawn on a bank and payable on demand is a’,
A. Check C. Domestic bill
B. Treasury bill D. Bill of lading
42. Which is not correct? The acceptor by accepting the instrument
A. Admits the existence of the drawer , the genuineness of his signature and his capacity and authority to draw
the instrument
B. Admits the existence of the payee and his capacity to indorse
C. Engages that he will pay it according to the tenor of his acceptance
D. Admits the existence of the endorser, the genuineness of his signature and his capacity and authority to
draw the instrument
43. CASE 1: angel buys a diamond ring for P50, 000 for which he issued a check. Later Angel found out the
diamond to be an ordinary glass.
CASE 2: Ben obtains the signature of Cris for autograph purpose. Ben writes a promissory note above Cris
signature and endorses the note to Dan, a holder in due course.
What kind of defences may be availed of by the marker?
A. Real defense in 1st case , personal defense in 2nd case
B. Personal defense in 1st case, real defense in 2nd case
C. Real defense in both cases
D. Personal defense in both cases
44. Maturity of undated negotiable instrument issued payable 30days after sight is computed from:
A. Date of first endorsement C. Date of first presentation for acceptance
B. Date of last endorsement D. Date of issue
45. When is negotiable instrument payable to order?
A1 PASSERS REVIEW CENTER///196
A. When drawn payable to the order of a specified person to him or his order
B. When payable to the order of a fictitious or non-existing person, and such fact was known to the person
making it.
C. When the name of payee does not purport to be the name of any person
D. When the only or last endorsement is an endorsement in blank
46. Which of the following is not the characteristic of a bill of exchange?
A. Original parties are the drawer, drawee, payee C. Drawer is primarily liable
and acceptor D. Contains unconditional order`
B. Acceptance is generally required
47. a taxed payer is assessed for taxes for filing false tax return and for failure to pay taxes. The taxpayer files an
administrative protest with the BIR contesting said assessment. May the BIR during the pendency of the protest file
a criminal action against the taxpayer for filing a false return? Which of the following answers is not correct?
A. Yes, for what is involved in this case is not the collection of taxes but a criminal prosecution for collection for
violation of the Tax Code
B. The protest of taxpayer against the assessment cannot stop the prosecution for violation of the Tax Code
C. Yes, because there is no requirement for the precise computation and assessment of the tax before there
can be a criminal prosecution
D. No, the filing of the criminal action is premature and precipitate since the protest has not yet been resolved
48. Which of the following cases constitute objectionable double taxation?
A. A license fee and a tax imposed on the same business or occupation for selling the same articles
B. A tax imposed both on the occupation of fishing and on fishpond operation
C. Person engaged in leasing or selling real property are subject to real estate dealers tax and their sales are
also subject to 10% VAT
D. A tax of 1% is imposed for bank reserve deficiency while a penalty of 1/10 of 1% a day is also imposed as a
consequence of such reserve deficiency.
49 Police power as distinguished from Eminent Domain Power:
A. Just compensation is received by owner of the property
B. Maybe exercised by private individuals
C. Superior to the impairment clause of the constitution
D. Property is taken by the government for public purpose
50. A tax where in both the incidence of the liability for the payment of the tax as well as the burden of the tax falls
on the same person:
A. Direct tax C. Indirect tax
B. Personal tax D. Property tax
51. The running of prescriptive period of assessment and collection of taxes is suspended unde3r the following
circumstances, except one:
A. When the tax payer is out of the country
B. When the BIR commissioner is prohibited from assessing or collecting the tax
C. When the taxpayer requests for reinvestigation
D. When the warrant of distrait and levy is duly served
52. The seizure by the government of personal property to enforce the payment of taxes to be followed by its public
sale if the taxes are not voluntarily paid:
A. Confiscation C. Forfeiture
B. Distraint D. Levy
53. The following constitute double the taxation, except when
A. Both taxes are imposed in the same year
B. Both taxes are levied for the same purpose
C. Both taxes are imposed by the same taxing authority
D. Both taxes are imposed upon the same person
54. The BIR Commissioner may compromise payment of internal revenue taxes when:
1st ground: a reasonable doubt as to the validity of the claim against the tax payer exists
2nd ground: when the tax or any portion thereof appears to be unjustly or excessively assessed.
A. Both grounds are wrong C. Both grounds are correct
B. 1st ground wrong, 2nd ground correct D. 1st ground correct, 2nd wrong
55.under the following cases, except one, a working wife may claim the additional exemptions for dependent
children. Which is the exception?
A. The husband has no income of his own
B. The husband has no compensation income, his income comes only from profession
C. The husband waived the additional exemptions in favor of the wife
D. The husband is non- resident citizen and his income is purely from sources outside the Philippines
56. CASE 1: Mr. Ramos inherited from his parents large parcels of undeveloped land acquired by them years ago
with total cost of P500, 000. Mr. Ramos now sells all of these parcels for P2 million. How much of the gains should
Mr. Ramos report for income tax purposes?
CASE 2: Suppose that when Mr Ramos inherited these parcels of land, they ere already developed real estate
subdivisions with small lots being sold on instalment basis. He now sells all these parcels for P4 million. How much
of the gain should be reported by Mr. Ramos for income tax purposes?
A1 PASSERS REVIEW CENTER///197
ANSWER TO CASE 1: NONE, because the properties are capital assets and the transaction is subject to capital
gain tax and not income tax.
ANSWER TO CASE 2: Mr. Ramos should report gains from the Sale amounting to P3.5 million because the
properties sold are ordinary assets. The transaction is subject to income tax.
A. Both answers to both cases are correct
B. Both answers to both cases are wrong
C. Answer to case 1 wrong, answer to case 2 correct
D. Answer to case 1 correct, answer to case 2 wrong
57. Mr. Lacson filed an income tax return for the calendar year 1989 on March 10, 1990. The BIR assessed a
deficiency income tax on April 10, 1992. When is the last day for the BIR to make assessment?
A. April 15, 1993 C. April 15, 1992
B. April10,1992 D. March 10, 1993
58. The following tax payers can claim tax credit, except one:
A. Domestic corporation
B. Members or beneficiaries of partnership or trust
C. Filipino citizens
D. Non-resident alien
59. 1st statement: if the tax is not billed separately in the inventory, the VAT shall be determined by multiplying the gross
selling price including the amount intended to cover the tax by the factor 1/11.
2nd statement: if the tax is billed erroneously, the VAT shall be determined by multiplying the gross selling price including
the tax billed erroneously by the factor 1/11.
A. Both statements are wrong C. Only 1st statement is correct
nd
B. Only 2 statement is correct D. Both statements are correct
60. 1ST STATEMENT: In case tax exempt products are sold domestically to a VAT registered person, the VAT otherwise
due on such product shall be considered as input tax creditable against his output tax payable:
2Nd STATEMENT: Export sales by a VAT registered person are subject to zero rating and so he can claim and enjoy a
credit for the tax invoiced to him on his purchases. If he is not VAT registered, his export sales are exempt, but he is not
entitled to tax credit for inputs.
A. Both statements are true C. Both statements are false
B. 1st statements false; 2nd statements true D. 1st statement true, 2nd statement false
61. Which one of the following is not considered a percentage tax?
A. ½ of 1 % stock transaction tax on shares traded through local stock exchange
B. 10-20% stock transaction tax on shares not traded through a local stock exchange
C. 10% overseas communication stock
D. 3% tax on keepers of garage
62. The following are some instances where a VAT registered person may apply for cancellation of registration,
except one:
A. A change of ownership in the case of single proprietorship
B. A person who has registered prior to planned business operation, fails to actually start his business
C. A person has retired from business
D. A person who voluntarily registered under the VAT system can only revert to exempt status after the lapse of
12months from the date of registration
63. Matubo Corp. Donated P100,000 for the purpose of cementing a barangay road where its factory is located.
1st STATEMENT: The donation is exempt from donor’s tax
2ND STATEMENT: The Corporation may claim a full deduction for income tax purposes
A. Both statements are incorrect C. Both statements is correct
B. Only 1st statement is correct D. Only 2nd statement is correct
64. Which percentage of vanishing deduction shall be applied if the prior decedent died with in more than three
years but not more than four years prior to the death of the present decedent or if the property was transferred to
the present decedent by gift within the same period prior to his death.
A. 20% C. 80%
B. 60% D. 40%
65. Mr. Soltero, a resident citizen, died on August 2, 1996. When will notice of death be filed as required by the Tax
Code?
A. April 15, 1997 C. November 2, 1996
B. October 2, 1996 D. February 2, 1997
66. The following are motives of tax payers that preclude transfer in contemplation of death except one:
A. To relive the tax payer of the burden of C. To avoid payment of estate tax
management D. To make dependent financially independent
B. To save income and property taxes
67. Which of the f following statements is not true and incorrect?
A. A tax assessment is necessary to a criminal [prosecution for wilful attempt to defeat and evade payment of taxes.
B. A conviction for tax evasion is not a bar for collection of unpaid taxes
C. Criminal proceedings under the Tax Code is now a mode of collection of internal revenue taxes, fees and charges
D. If the tax payer is acquitted in a criminal violation of the tax code, this acquittal does not exonerate him from
his civil liability to pay the taxes.
MANAGEMENT SERVICES
INSTRUCTION: Select the correct answer for each of the following questions. Mark only one answer for each
item by shading the box corresponding to the letter of your choice on the answer sheet provided. STICTLY NO
ERASURES ALLOWED. Use pencil no. 2 only.
MULTIPLE CHOICE:
1. In deciding whether to manufacture a part or buy it from an outside vendor, a cost that is irrelevant to the
short- run decision is
A. Variable overhead
B. Fixed overhead that will be avoided if the part is bought from an outside vendor
C. Direct labor
D. Fixed overhead that will continue even if the part is bought from an outside vendor
2. The working capital of RED Company at December 31,1996n was P10, 000.000. Selected information for
the year 1996 for Red is as follows
6. In preparing its cash budget for July 1997, ART Company made the following projections
For July 1997 what where the estimated cash disbursements for inventories?
A. P1,050,000 C. P1,175,000
B. P1,055,000 D. P935,000
7. KAREN Company is considering replacing an old machine with a new machine. Which of the following items is
economically relevant to KAREN’s decisions? Ignore income tax consideration
A. Carrying amount of old machine-Yes
Disposal value of new machine- Yes
B. Carrying amount of old machine-Yes
Disposal value of new machine- No
C. Carrying amount of old machine-No
Disposal value of new machine- Yes
D. Carrying amount of old machine-No
Disposal value of new machine- No
8. DIGNA Company had the following transactions in 1997, their first year of operations
14. The following computations were made from BIRD Company’s 19979 books
How much will be contributed to profit before income taxes by the 1,001 st unit sold?
A. P500 C. P650
B. P150 D. P0
16. JOY Company is preparing a flexible budget for 1997 and requires a breakdown of the cost of steam used it its
factory into the fixed and variable elements. The following data on the cost of steam used and direct labor hours
worked are available for the last six months of 1997:
Assuming that JOY uses the high –low point’s method of analysis, the estimated variable cost of steam per direct-
labor hour should be:
A. P6.00 C. P5.82
B. P4.00 D. P5.42
17. On December 31, 1997, ALLAN Company collected a receivable due from a major customer. Which of the
following ratios would be increased by this transaction?
A. Inventory turnover ratio C. Receivable turnover ratio
B. Quick ratio D. Current ratio
18. A system that permits suppliers and buyers to have direct access to portions of each other’s databases,
including inventory date, to enhance service and deliveries is
A. Cooperative purchasing C. Electronic data interchange
B. Interactive processing D. Electronic mail
19. WILLIAM’s Company is budgeting sales to 42,000 units of product Y for March 1997. To make one unit of
finished product, three kilos of raw materials A are required. Actual beginning and desired ending inventory of raw
materials A and product Y as follows:
There is no work on process inventory for product Y at the beginning and end of March. For the month of March,
how many kilos of raw material A is WILLIAM planning to purchase?
A. 132,000 C. 126,000
B. 136,000 D. 142,000
20. The method of project selection which considers the time value in a capital – budgeting decision is accomplished
by computing the
A. Accounting rate of return on initial investment
B. Payback period
C. Accounting rate of return on average investment
D. Discounted cash flow
21. MARY Company recently acquired machine at a cost P64, 000. It will be depreciated on a straight line basis
over eight years with no estimated salvage value. MARY estimates that this machine will produce an annual net
cash inflow (before income taxes) of P18, 000. Assuming an income tax rate of 35%, what is the approximate
payback period on this investment?
A. 4.4 years C. 7.1 years
B. 12.8 years D. 3.6 years
22. In a decentralized company in which division may buy goods from one another, the transfer pricing system
should be designed primarily to
A. Aid in the appraisal and motivation of managerial performance
B. Increase the consolidated value of inventory
C. Allow division managers to buy from outsiders
D. Minimize the degree of autonomy or division managers.
23. In preparing its budget for July 1997, JOY Company has the following accounts receivable information
available:
24. Which of the following ratios should be used in evaluating the effectiveness with which the company uses its
assets?
During 1997, AL officers exercised stock options for 1,000 shares of stock at an option price of P8 per share. What
was the effect of exercising the stock option?
A. No ratios were affected C. Debt to equity ratio decreased to 12%
B. Asset turnover increased to 5.4% D. Earnings per share increased by P0.33
26. The statement below about project feasibility studies are true, EXCEPT:
A. Since data gathering is a basic step in its preparation, all the necessary and required information will
always be available
B. It also covers the social desirability aspects of a proposal undertaking
C. Any change which can materially alter the assumptions used in the preparation of the forecast will render it
useless.
D. It is important for government agencies in order to determine entitlement to government incentives.
27. In considering special order situation that will enable a company to make use of presently idle capacity, which of
the following costs would be irrelevant?
A1 PASSERS REVIEW CENTER///202
A. Depreciation C. Materials
B. Variable overhead D. Direct labor
28.If a company wishes to establish a factory overhead budget system in which estimated costs can be derived
directly from estimated activity levels, it should prepare a:
A. Flexible budget
B. Discretionary budget
C. Fixed budget
D. Capital budget
29. A CPA should reject management advisory services engagement if
A. It would require him to make management decisions for an audit client
B. The proposed engagement is not accounting related
C. His recommendation are to subjected to a review by the client
D. He audits the financial statements of a subsidiary of the prospective client
30. CARE Company’s 1997 fixed manufacturing overhead cost totalled P100, 000 and variable selling costs totalled
P80, 000. Under direct costing, how should these costs be classified?
31. The capital budgeting technique known as internal rate of return uses
A. Cash flow over entire life of project – No
Time value of money- Yes
B. Cash flow over entire life of project – Yes
Time value of money- Yes
C. Cash flow over entire life of project – Yes
Time value of money- No
D. Cash flow over entire life of project – No
Time value of money- No
32. Selected information from the accounting record of BEST Company is as follows
What is the total expected value or pay off with perfect information?
A. P2.40 C. P9.00
B. P9.15 D. P7.40
39. Non financial performance measures are important to engineering and operations manager in assessing the
quality levels of their products. Which of the following indicators can be used to measure product quality?
I. Returns and allowances III. Production cycle time
II. Number and types of customer complaints
A. I,II, and III C. I and II only
B. II and III only D. I and III only
40. DENNY Company is planning to purchase a new machine for P600, 000. The new machine will be depreciated
on the straight line basis over, six year period with no salvage, and a full year’s depreciation will be taken in the year
of acquisition. The new machine is expected to produce cash flow from operation, net of income taxes of P150, 000
a year in each of the next six years. The accounting (book value) rate of return on the initial investment is expected
to be
A. 16.7% C. 8.3%
B. 12.0% D. 25%
41. The economic order quantity formula can be used to determine the optimum size of a
PRODUCTION RUN PURCHASE ORDER
A. Yes No
B. Yes Yes
C. No No
D. No Yes
42. The use of a healer label in conjunction with magnetic tape is most likely to prevent errors by the:
A. Maintenance technician C. Computer operator
B. Computer programmer D. Key[punch operator
43. RON Company is considering a proposal to replace existing machinery used for the manufacture of product A.
the new machine are expected to cause increased annual fixed costs of P120,000; however, variable costs should
decrease by 20% due to a reduction in direct labor hours and more efficient usage of direct materials. Before this
change was under consideration, RON had budgeted product as sales and costs for 1997 as follows:
Sales P2, 000,000
Variable costs 70% of sales
Fixed costs P400, 000
Assuming that RON implemented the above proposal by January 1, 1997. What would be the increase in budgeted
operating profit for product for 1997?
A. P360,000 C. P480,000
B. P280,000 D. P160,000
44. A quantitative technique used to discover and evaluate possible cause and effect relationship is:
A. Correlation analysis C. Program evaluation review technique (PERT)
B. Linear programming D. Poison distribution models
45. In a quality control program, which of the following is (are) categorized as internal failure costs?
I. Rework II. Responding to customer III. Statistical quality control
complaints procedures
A. I,II and III C. III only
B. I only D. II only
46. Which of the following items coast of least likely to appear in performance report based on responsibility
accounting techniques for supervisor of an assembly line in a large manufacturing situation?
A. Materials C. Repairs and maintenance
B. Supervisor’s salary D. Direct labor
47. A management advisory services engagement generally involves the following activities in what order?
I. Post engagement follow up V. Preparing for and sand starting the
II. Implementing the recommendation engagement
III. Conducting the engagement VI. Evaluating the engagement
IV. Negotiating the engagement VII. Preparing the and presenting the report and
recommendations
A1 PASSERS REVIEW CENTER///204
A. VII, VI, V, IV, III, II, I C. IV, III, V, VII , II, VI and I
B. III. IV, V, VI, VII, I and II D. IV, V, III, VII, II, VI and I
48. When using one of the discounted one cash flow methods to evaluate the desirability of a capital budgeting
project, which of the following factors generally is not important?
A. The method of financing the project under consideration
B. The impact of the project on income taxes to be paid
C. The timing of cash flows relating to the projects
D. The amount of cash flows relating to the projects
49. Which of the following cost allocation methods would be used to determine the lowest price that could be quoted
for a special order that would utilize idle capacity within a production area?
A. Job order C. Variable
B. Standard D. Process
50. JET Company sells 20,000 radius evenly throughout the year. The cost of carrying one unit in the inventory for
one year is P8, and the purchase order cost per order is P32. What is the economic order quantity?
A. 200 C. 283
B. 400 D. 625
MULTIPLE CHIOCE: MARK FULLY with PENCIL No. 2 the letter of your choice on the answer sheet provided.
Make the mark DARK but do not use too much pressure. ERASURES ARE STRICTLY NOT ALLOWED
1. Flynn Company failed to accrue warranty to costs of P600, 000 in its December 31, 2009 financial statements. In
addition, a change from straight-line to accelerated depreciation made at the beginning of 2010 resulted in a
cumulative effect of P2, 000,000. Both the P600, 000 and P2, 000,000 are before taxes. What amount before tax
should Flynn report as prior period error in the 2010 statement of changes equity?
A. 600,000 C. 2,000,000
B. 2,600,000 D. 1,400,000
2. Tiger Company received a government grant related to depreciable assets five years ago on January 1, 2005 in
the amount of P1, 000,000. This grant as deducted from the capital cost of the asset purchased at a total amount
P6,000,000 on the same date with a useful life of 10 years and no residual value. On January 1, 2010, the entire
P1, 000,000 because repayable due to the lack of compliance with the conditions attached to the grant by the
government. What is the total amount to be recognized as depreciation expense for 2010 in relation to the asset and
repayment of the grant?
A. 600,000 C. 700,000
B. 1,100,000 D. 1,000,000
3. The inventory control account balance of Ray-Ray Company at December 31, 2010 was P1, 600,000 using the
perpetual inventory system. A physical count conducted on that day found inventory on hand worth P3, 450,000. Net
realizable value for each inventory item held for sale exceeded cost. An investigation of the discrepancy revealed
the following:
a. On December 31, 2010, Ray-Ray sold goods costing P200, 000 FOB shipping terms to Daimler Company for
P300, 000. The goods were dispatched on December 31, 2010 but the sales invoice had not been recorded
until January 5, 2011.
b. Goods costing P500, 000 sold to Lincoln Company, FOB shipping point, were shipped on December 30, 2010
but not recorded on such date and inadvertently included in the physical count due to a clerical error.
c. Goods costing P150, 000 were sold on credit to Chrysler Company for P220, 000 on December 27, 2010 on
FOB destination terms. The goods were still in transit on December 30, 2010. The sale invoice was raised
and processed on December 31, 2010.
d. Goods worth P100,000 held on consignment for Michelin Company had been included in the physical count
but not recorded as a purchase,
e. Goods costing P300, 000 were purchased on credit from Porsche Company on December 24, 2010 FOB
shipping point. The goods were shipped on December 28, 2010 but, as they had not arrived by December
4. On January 1, 2009, Hope Company grants to 300 employees a share based on payment with cash and share
alternative. The provisions include the right to cash payment to the value of 100 phantom shares for each employee
or 200 ordinary shares for each employee with a par value of P40. The grant is conditional upon the completion of
three years vesting data. At grant date, the share price is P50. At the end of 2009, 2010 and 2011 the share prices
are P60, P75 and P78, respectively. Hope does not expect to pay dividends in the next three years. After taking into
account the effect of post vesting transfer restrictions,. Hope Company estimates that the grant dates fair value of
the share alternative P35. On January 1, 2012, the employee selected the share alternative. What is the amount of
compensation expense to be recognized for the year ended December 31, 2010?
A.2,340,000 C.1,100,000
B.2,400,000 D.1,700,000
5. Sandy Seafood Corporation regularly hedges its purchase requirements for its restaurants for the following month
using the variety of hedging instruments such as forwards, furniture and options. Sandy uses the information to
enter into these contracts based on its prediction on which way prices on heading. On December 1, 2010, Sandy
Company entered into the following three contracts for its January 1, 2011 purchases:
All three contracts to be settled on January 1, 2011. Sandy paid P400, 000 to purchase the call option. All derivative
contracts are designated as cash flow hedges. What is the net unrealized gain to be recognized as other
comprehensive income in 2010?
A. 3,600,000 C. 3,500,000
B. 3,100,000 D. 0
6. Kearns Company is in the business financing the acquisition of tractor trucks and trailers. As a lessor, Kearns
expects a 10% return on its net investment with insignificant amount of direct cost. All leases are classified as direct
financing leases. At the end of the lease term, the tractor track and trailer’s ownership is not transferred to the
lessee and will revert back to Kearns. On January 1, 2010 a tractor truck is leased to another company for 6 years
with payments to b made on December 31 of each year beginning December 31, 2010. The cost of the tractor truck
is P4, 204,000 and the guaranteed residual value is P500, 000. What is the amount of financial revenue that Kearns
will earn over the 6 year lease term? (Round off present value factors to 2 decimal places)
A. 1,196,000 C. 1,976,000
B. 1,696,000 D. 1,581,000
7. Gentle Company is planning to acquire Mable Company on December 31, 2010. The cumulative income of
Mable for past 5 years was P4, 400,000 that includes expropriation gain of P500, 000 in 2008. Mable’s Company
net assets averaged at a fair value of P6,000,000 for the same period, while the current fair value of assets on
December 31, 2010
Was P5, 500,000. The rate of return in Mable’ line of business on average net assets was determined to be 8% and
goodwill is determined by capitalizing average earnings at 10%. What is the amount of goodwill from the purchase
by Gentle of Mable?
A. 1,000,000 C. 1,500,000
B. 2,500,000 D. 2,200,000
8. Stellar Company has the following investments on December 31, 2010:
Cost Market
Trading equity securities
Millar Corporation 2,000,000 2,200,000
Villar Corporation 1,300,000 1,500,000
A1 PASSERS REVIEW CENTER///206
Stellar Company 850,000 1,000,000
Gellar Company 1,500,000 1,000,000
How much unrealized gain related to these investments should be reported in Stellar Company’s statement of
comprehensive income for the year ended December 31, 2010?
A. 450,000
B. 50,000
C. 400,000
D. 300,000
9. The following information relates to the defined benefit plan of Yvette Company:
The actual return was equal in the expected return in 2010 and unrecognized actual gains are due to decrease
In the projected benefit obligation as a result of changes in actual assumptions. What is the accrued pension cost
on December 31, 2010?
A. 1,500,000 C. 1,050,000
B. 1,950,000 D. 1,300,000
10. Keiths Company is determining the amount of taxable profit from the 2010 statement of comprehensive income
that indicates an accounting profit of P1, 200,000. The following is the list of items that may be required to determine
taxable profit.
11. Halina Company sells household furniture. Customers who purchase furniture on this instalment basis make
payments in equal monthly instalments over a two year period, with no down payment required. Halima’s gross
profit on instalment sales is 40%.
For financial accounting purposes, sales revenue is recognized at the time sale. For income tax purposes, however
the instalment method is used. There are no other book and income tax accounting differences. Halina’s income tax
rate in 2010 and in future years is 30%. If there is a deferred tax liability of P120, 000 arising from the difference
between book and tax treatment of the instalment sales, what should be reported as instalment accounts receivable
on December 31, 2010?
A. 900,000 C. 1,000,000
B. 400,000 D. 1,400,000
12. Merriman Company operates in a hyperinflationary economy and provides the following assets, liabilities and
equity items on December 31, 2010:
A1 PASSERS REVIEW CENTER///207
Property, plant and equipment 2,000,000
Inventory 1,200,000
Cash 300,000
Accounts receivable-net 800,000
Share capital issued 500,000
Share premium 700,000
Accounts payable 400,000
Bonds payable 700,000
Retained earnings 1,500,000
Revaluation surplus 750,000
Treasury shares acquired on December 31, 2008 350,000
The general price index had moved on December 31 of each year as follows 2006-100, 2007- 125, 2008- 140,
2009-150, and 2010-300. The share capital was issued on December 31, 2006 while the property, plant and
equipment were acquired on December 31, 2007. The bonds payable was issued on December 31, 2008.
Inventories during 2010 were acquired evenly throughout the year and the revaluation surplus was recognized on
December 31, 2010. What is the balance of Merriman’s retained earnings on December 31, 2010adjusted for
hyperinflation?
A. 2,800,000 C. 3,000,000
B. 3,550,000 D. 4,350,000
13. On June 30, 2010, the statement of financial position of Brenda Company reported equipment at a cost of P7,
000,000 and an accumulated depreciation of P1, 750,000. The equipment was measured using the cost model and
depreciated on a straight line basis over a ten year period. On the sane date, the directors of Brenda decided to
change the basis of measuring the equipment from the cost model to the revolution model. The equipment was
revalued at a replacement cost of P9, 000,000 and an expected remaining useful life of five years with no residual
value from the date of revaluation. If the income tax rate is 30%, what amount should Brenda report as revaluation
surplus on December 31, 2010?
A. 945,000 C. 840,000
B. 1,400,000 D. 1,050,000
14. Affleck Company provided the following data for the year 2010:
Sales 5,500,000
Cost of gold sold 2,300,000
Rent income 150,000
Operating expenses 1,000,000
Casually loss 200,000
Tax expense 650,000
December 31 January 1
Prepaid operating expenses 400,000 550,000
Accounts payable 300,000 900,000
Inventory 800,000 500,000
Accounts receivable 500,000 150,000
Salaries payable 150,000 100,000
Unearned rent income 30,000 90,000
Income tax payable 80,000 140,000
Operating expense include depreciation and doubtful account expense of P120, 000 and P30, 000 respectively.
Using the direct what is the cash payment for operating expenses in 2010?
A. 850,000 C. 800,000
B. 650,000 D. 750,000
15. Cameron Company acquired delivery equipment on January 1, 2007 at a cost of P3,500,000 and a residual
value of P500,000 and depressed it at 10% per annum, using the straight line method. On January 1, 2010, the
entity decided to use the sum of year’s digits method to depreciate its delivery equipment with no change in residual
value and remaining useful life. What is depreciation expense for the year ended December 31, 2010?
A. 300,000 C. 260,000
B. 650,000 D. 525,000
16. The following information relates to the defined benefit plan of Brandon Company on January 1, 2010:
The actuary provided the following data for the year ended December 31, 2010:
The vesting period for the employees covered by the past service cost is 10years while the average remaining
service life of the employees is 5 years. What is the proposal benefit obligation on December 31, 2010?
A. 5,300,000 C. 5,400,000
B. 5,200,000 D. 5,800,000
17. The Aniston Company has different kinds of farm animals on January 1, 2010. During 2010, several acquisitions
occurred related to these farm anima’s. A detailed summary of these transactions is as follows:
There were no farm animals sold during the year and neither were there any newborns nor deaths. What is the
carrying amount of the biological asset s on December 31, 2010?
A. 3,160,000 C. 2,800,000
B. 2,350,000 D. 2,380,000
18. On January 1, 2010, Hogan Company leased land and building for 40 years and after that time, title to the land
and building will pass to Hogan. The useful life of the building is also 40 years. On January 1, 2010, the present
value of the 40 animal lease payments of P500, 000 at the end of each year is P5, 962,500 at a rate of 8%. It was
ascertained that land’s fair value is P2, 380,000 while the building’s fair value is P3, 570,000. What total amount of
asset should be recognized initially in relation to the lease?
A. 5,962,500 C. 3,570,000
B. 5,950,000 D. 2,380,000
19. Tory Company is a listed entity. Tory’s financial statements for the year ended December 31, 2010 reported
basic earnings per share of P15 on each of its 900,000 ordinary shares. On April 1, 2010, Tory issued 100,000
preference shares that can be converted to 400,000 ordinary shares. During the year, Tory paid dividends of
P600,000 to ordinary shareholders and P500,000 to shareholders of the convertible preference shares. What is the
amount of diluted earnings per share for 2010?
A. 10.76 C. 11.67
B. 11.25 D. 10.38
The SEC approved the quasi-reorganization and Mathew Company determined that some assets and liabilities
amounted to P300, 000. After quasi-reorganization, what is the amount of profit to be accumulated before Mathew
can declare dividends to its shareholders?
A. 1,900,000
B. 1,000,000
C. 1,400,000
D. 0
21. The shareholders equity of Wilma Company on December 31, 2010 included the following capital balances:
Preference share dividends are in arrears for 3 years as of January 1, 2010 and will be paid par and a liquidation
premium of P250, 000 upon liquidation. What is the book value per ordinary share on December 31, 2010?
A. 40.00 C. 40.60
B. 39.00 D. 36.50
22. The following information has been extracted from the accounting recorded of Armani Company at the end of
each year:
2010 2009
Borrowings 1,500,000 3,000,000
Dividends 0 500,000
Share capital 6,000,000 4,000,000
Share premium 2,500,000 1,000,000
Accumulated profits 2,200,000 1,500,000
During the year Armani paid half of its borrowing. Also on January 1, 2010, the company declared and issued a 25%
stock dividend and on June 1, 2010, one of its shareholders donated real property with a fair value of P800, 000. All
other movements in contributed capital came from the issuance of shares for cash. Net income for the year ended
December 31, 2010 was P2, 500,000 and all dividends declared were paid. What is the net cash used in financing
activities in the 2010 statement of cash flows?
A. 300,000 C. 600,000
B. 1,100,000 D. 2,100,000
23. De Niro Company declared cash dividends twice during 2010. The first was on June 30, 2010 to shareholders of
record on July 31, 2010 and paid on August 10, 2010 amounting to P500,000. The second one was declared
December 20, 2010 to shareholders of record on January 10, 2011 to be paid on February 1, 2011 amounting
toP300, 000. Property dividends were also declared and paid in the form of inventories with a carrying amount of
P1, 000,000. The fair value of inventories on March 1, 2010, the date of declaration was P1, 200,000 and the fair
value of May 1, 2010, the date of payment was P1, 400,000. In addition, De Niro declared a 10% stock dividend on
its P10 par value ordinary shares on December 30, 2010, to be issued on January 31, 2011, at which time De Niro
had 200,000 ordinary shares issued and outstanding that had a fair value of P15 per share. At the time the shares
were issued in 2011, the fair value was P20 per share. What was the decrease in retained earnings during 2010 as
a result of dividends during the year?
A. 1,500,000 C. 2,500,000
B. 2,300,000 D. 2,100,000
24. During 2010, an erotic novel written by Dr. Dante Dela Cruz was sold to Ace Publishing Corporation, for
royalties of 10% on sales. Royalties are received semi-annually on March 31; for sales in July through December of
the prior year, and on September 30, for sales in January through June of the same year.
Royalty income of P650,000 was received on March 31, 2011 and P800,000 on September 30, 2011
Dr. Dante learned from Ace that sales subject to royalty were estimated at P10, 000,000 for the last half of
2011.
26. During 2010, Apolinario Company pays an insurance premium of P90,000 on a P3,000,000 life insurance policy
covering the president, Mr. Casket. Apolinario is the beneficiary under the life policy. The cash surrender value of the
policy will increase from P120, 000 to P150, 000 by the end of 2010. Dividends of P10, 000 were received fro, the
insurance company in 2010. Mr Casket died at the end of October 2010 and the policy indicates that the cash
surrender value is P145, 000 at that date. What is the gain on life insurance?
A. 2,835,000 C. 2,855,000
B. 2,840,000 D. 3,000,000
27. During 2010, Atty. Jack De Vera became involved in a tax dispute with the BIR resuming the non-payment of
taxes with regard to his undisclosed income. At December 31, 2010. Atty. De Vera tax adviser believed that an
unfavourable outcome was probable and a reasonable estimate of additional taxes was P1, 500,000 but could be as
much a P2, 100,000. However, before the 2010 financial statements were issued, Atty. De Vera through several
connections received and accepted a BIR settlement offer of P12, 200,000. What amount t of accrued liability
should be reported by atty. De Vera on December 31, 2010?
A. 1,500,000 C. 1,200,000
B. 1,800,000 D. 2,100,000
28. The following information was taken from Angelina Corporation 2010 statement of comprehensive income:
The company has 30 percent tax rate. Angelina reported a deferred tax liability of P500, 000 on January 1, 2010
and P200, 000 on December 31, 2010 while there were no deferred tax assets at the beginning and of 2010.
Assuming no other differences existed between accounting profit and taxable profit, what was the amount of taxable
profit for 2010?
A. 2,000,000 C. 1,000,000
B. 3,000,000 D. 1,400,000
29. Nicholas Company issued fully paid shares to 300 employees on December 31, 2010. Normally, shares issued
to employees vest over a three year period but these shares have been given as bonus to employees because of
their above average performance during the year. The shares have a market value of P2, 100,000 on December 31,
2010 and an average fair value of P1, 800,000 for the year. What amount would be expensed for this share based
payment transaction?
A. 600,000’ C. 700,000
B. 2,100,000 D. 1,800,000
30. Falcon Company’s bank statement for the month of December included the following information:
In comparing the bank statement to its own cash records, Falcon found the following
Deposits made but nit yet recorded by bank
Checks written and ailed but not yet recorded by the bank
In addition, Falcon discovered that it had drawn erroneously recorded a check for P73, 000 that should have been
recorded for P37, 000. What is Falcon’s cash balance per ledger December 31, 2010?
A. 1,456,000 C. 1,356,000
B. 1,284,000
A1 PASSERS REVIEW CENTER///211
31. Arguille Company is preparing its financial statements fro the year ended December 31, 2010. Accounts payable
amounted to P2, 500,000, before any necessary year and adjusting entry related to the following items
:
At December 31, 2010. Arguille has a P150,000 debt balance in its accounts payable to a supplier resulting
from P150,000 advance payment for goods to be delivered in 2011
A check in the amount of P300, 000 was written to vendors and recorded on December 31, 2100. This
withdrawal caused Arguille’s account in BDO to be overdrawn by P100, 000. The check was mailed on
January 2, 2011
What amount should Arguille report as accounts payable on December 31, 2010?
A. 2,950,000
B. 2,800,000
C. 3,050,000
D. 2,650,000
32. Keaton Company determined that due to obsolescence, equipment with an original cost of P9,000,000 and
accumulated depreciation on December 31, 2009 of P3,000,000 had suffered permanent impairment and as a
result should be written down to its recoverable amount of P4,000,000 as of the end of the year. In addition, the
remaining useful life of the equipment was reduced from 6 years to 4 years. In its December 31, 2010 statement of
financial position, what amount should Keaton report as accumulated depreciation?
A. 6,000,000 C. 7,000,000
B. 4,000,000 D. 4,500,000
33. On January 1, 2010, Cervelli Corporation, granted share options for P50, 000 of its P100 par value ordinary
shares to its key employees. The market price of its ordinary shares on that date was P180 per share and the option
price was P120. “The Monte Carlo “option pricing determine total compensation expense to P2, 000,000. The
options are exercisable beginning January 1, 2013, provided those key employees are still in the employ of Cervelli
at the time the options are exercised. The share options expire on January 1, 2014. On January 1, 2013, when the
market price of the share was P200, all 50,000 share options were exercised. What was the amount of share
premium recorded by Cervelli from the issuance of ordinary shares?
A. 1,000,000 C. 5,000,000
B. 3,000,000 D. 4,000,000
34. Donovan Corporation provided the following transactions for the year ended December 31, 2010:
Borrowed P2, 000,000 from a local bank and disbursed the entire amount for the purchase of real property.
Sold available for sale securities costing 500,000 at a gain of P100,000
Paid dividends of P700,000
Issued 50,000 ordinary shares for P3,000,000 for cash
Purchased machinery and equipment for P800,000 cash
Made advances tom other companies amounting to P2,000,000 and collected P100,000 as interest at year
end
Filing and registration of a patent amounted to P150,000
What was the net cash used in investing activities for 2010?
A. 2,350,000 C. 3,350,000
B. 4,350,000 D. 4,200,000
35. Ondoy Company completed least hold improvements costing P5, 000,000 in December 31, 20017. The
improvements had an estimated useful life of 6 years and were depreciated using the straight line method. The
related lease which would have terminated on December 31, 2012, was renewable for an additional for five year
term and exercisable until December 3, 2010. On December 31, 2010. Ondoy exercised the renewal option. What is
the carrying amount of the leasehold improvement on December 31, 2010?
A. 2, 250,000 C. 2,000,000
B. 2,625,000 D. 2,500,000
36. Piedra Company reported retained earnings balance of P3, 500,000 at January 1, 2010. In preparing the 2010
financial statement, Piedra determined that rentals received in advance of P600, 000 in March 2009 for a three year
period beginning January 1, 2009 had been received and recognized as income in full in 2009. Piedra has a tax rate
of 30%. What is the corrected balance retained earnings on January 1, 2010?
A. 3,220,000 C. 3,900,000
B. 4,100,000 D. 3,780,000
37. Donald Company reported revenue of P5, 000,000 in its rash basis income tax return for the year ended
December 31, 2010. Additional information as follows:
Under the accrual basis, what is the rental revenue for 2010?
A. 4,700,000 B. 4,750,000
A1 PASSERS REVIEW CENTER///212
C. 4,650,000 D. 5,350,000
38. On January 1, 2008, Maldives Corporation established a share appreciation rights plan for its executive. It
entitled them to receive cash at any time during the next four years or until December 31, 2011 for the difference
between the market price of its ordinary shares and the pre established price of P100 on 50,000 shares. Current
market price of the shares is as follows:
On December 31, 2010, Maldives executive exercised 30,000 share appreciation rights. What amount of
compensation expense should Maldives recognize for the year ended December 31, 2010?
A. 512,500
B. 400,000,.kl
C. 312,500
D. 375,000
39. Miami C heats Corporation has an incentive compensation plan under which the president receives a
bonus equal to 10 percent of the company’s income after deduction for bonus but before income tax. Income
before bonus and income tax is P5, 500,000. Miami Cheat has an income tax rate of 30%. What is the bonus
for the year?
A. 550,000
B. 500,000
C. 400,000
D. 450,000
Dividends on the preference shares are arrears for two years. On December 31, 2010, Garisson wants to pay
cash dividends of P12.00 per share to its ordinary shareholders. What total amount of dividends should be
declared on December 31, 2010?
A. 5,120,000
B. 4,900,000
C. 5,200,000
D. 4,980,000
42. The shareholders equity of Mc Nutty Corporation at the of 2010 and 2009 is as follows:
2010 2009
10% preference share capital P100 par 4,000,000 3,000,000
12% cumulative preference share capital P50 par 5,000,000 2,500,000
Ordinary share capital P20 par 10,000,000 7,000,000
Share premium-10% preference shares 1,500,000 300,000
Share premium-12% preference shares 1,500,000 800,000
Share premium- ordinary shares 5,000,000 2,000,000
Subscribed 10% preference share capital 500,000
Subscribed ordinary share capital 1,000,000
Subscription receivable-preference share (300,000)
Subscription receivable- ordinary share (800,000)
Retained earnings 3,000,000 2,000,000
Treasury shares at cost (500,000) (500,000)
Mc Nutty has 100,00 authorized 10% preference shares, 200,000 authorized 12% preference shares and
1,000,000 authorized ordinary shares. During 2010, subscribers of the ordinary share capital from 2009 fully
A1 PASSERS REVIEW CENTER///213
paid their subscription that represents 50% of the total subscription price and Mc Nutty issued the
corresponding shares, while the subscribers of 10% preference share capital paid 75% of the subscription
price. All other increases in share capital and share premium represent shares issued for cash. What is the
average issue price per share of the 105 preference shares issued in 2010?
A. 220
B. 150
C. 200
D. 180
43. On January 1, 2010, Hermanos Company purchased P5, 000,000race value boxes of Ocho’s Company to
be held as “available for sale securities” for P5,317,000 that includes direct transaction cost of P117,000 at an
effective rate of 10%. These bonds have a nominal rate of 12% and pay interest annually every December 31.
Hermanos Company uses the effective interest method of amortization. The entire issue will be redeemed at
its maturity on December 31, 2013. Ocho’s debt securities are actively traded in bond market and market price
December 31, 2010 is P5, 500,000. What is the unrealized gain in Hermanos statement of changes in equity
on December 31, 2010?
A. 251,300
B. 114,700
C. 500,000
D. 183,000
44. Moreland Company owes owed its lenders P5, 000,000 in the form of 12% four year are dated January 1,
2008. Because of Moreland’s financial difficulties in 2011 as a result of a major- major problem, unpaid interest
had accumulated on this note for 2 years or a total of P1, 200,000 as of December 31, 2011. To pay of this
debt, Moreland offered equity interest in the company in the form of 40,000 P50 par value ordinary shares that
are currently trading at P60 per share and inventory currently carried in Moreland’s books at P2, 500,000, but
with a fair value of P2, 800,000. The lenders accepted the offer to release Moreland from the debt and accrued
interest. How much is the gain on extinguishment of debt that will be recognized by Moreland in the 2011
statement of comprehensive income?
A. 1,700,000
B. 1,000,000
C. 1,400,000
D. 1,300,000
45. On January 1, 2010, Willis Company issued P6, 000 of 12% bonds payable maturing in five years. The
bonds pay interest semi-annually on July 1 and January 1. Each P1, 000 bonds includes nondetachable share
warrant that gives the bond holder the right to purchase twenty, P100 per value ordinary share Willis at a price
of P150 per share within the next three years. The bonds and warrants were issued at 110. The value of the
warrants at the time of issuance was P800, 000. However it was ascertained that Willis Company‘s bonds
would have sold for only P5, 600,000 without the share warrants. On December 31, 2010, the bondholders
exercised all the share warrants wand Willis issued the corresponding shares. What is the credit to share
premium in 2010 from the issuance of the shares through the exercise of the share warrants?
A. 7,000,000
B. 6,000,000
C. 6,800,000
D. 6,825,000
46. The petty cash fund of Brian Company showed the following details: