MINDANAO STATE UNIVERSITY

College of Business Administration and Accountancy

ACCOUNTANCY DEPARTMENT
Marawi City

ACCOUNTING 123
FINAL Examination
1st Semester, A.Y. 2015-2016

I. MULTIPLE CHOICES. Read carefully the questions below and

choose the best answer among the choices. Write the letter (in
CAPITAL) corresponding to your answer on the blanks provided. DO
NOT USE FRICTION PENS. Erasures or alterations of any kind will
not be given points.

_______1. On October 31, Year 1, a company with a calendar year-

end paid P90,000 for services that will be performed evenly over
a six-month period from November 1, Year 1, through April 30,
Year 2. The company expensed the P90,000 cash payment in October,
Year 1, to its services expense general ledger account. The
company did not record any additional journal entries in Year 1
related to the payment. What is the adjusting journal entry that
the company should record to properly report the prepayment in
its Year 1 financial statements?
a. Debit prepaid services and credit services expense for
P30,000.
b. Debit prepaid services and credit services expense for
P60,000.
c. Debit services expense and credit prepaid services for
P30,000.
d. Debit services expense and credit prepaid services for
P60,000.

_______2. Which of the following statements is correct as it

relates to changes in accounting estimates?
a. Most changes in accounting estimates are accounted for
retrospectively.
b. Whenever it is impossible to determine whether a change in an
estimate or a change in accounting principle occurred, the change
should be considered a change in principle.
c. Whenever it is impossible to determine whether a change in
accounting estimate or a change in accounting principle has
occurred, the change should be considered a change in estimate.
d. It is easier to differentiate between a change in accounting
estimate and a change in accounting principle than it is to
differentiate between a change in accounting estimate and a
correction of an error.

_______3. A company is preparing its year-end cash flow statement

using the indirect method. During the year, the following
transactions occurred:

Dividends paid P300

Proceeds from the issuance of common stock 250
Borrowings under a line of credit 200
Proceeds from the issuance of convertible bonds 100
Proceeds from the sale of a building 150

What is the company's increase in cash flows provided by

financing activities for the year?
a. P50

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b. P150
c. P250
d. P550

_______4. A company reports the following information as of

December 31:

Sales revenue P800,000

Cost of goods sold 600,000
Operating expenses 90,000
Unrealized holding gain on available-for-sale
securities, net of tax 30,000

What amount should the company report as comprehensive income as

of December 31?
a. P30,000 c. P140,000
b. P110,000 d. P200,000

_______5. Carr, Inc. purchased equipment for P100,000 on January

1, 2002. The equipment had an estimated 10-year useful life and a
P15,000 salvage value. Carr uses the 200% declining balance
depreciation method. In its 2003 income statement, what amount
should Carr report as depreciation expense for the equipment?
a. P13,600 c. P17,000
b. P16,000 d. P20,000

_______6. A shoe retailer allows customers to return shoes within

90 days of purchase. The company estimates that 5% of sales will
be returned within the 90-day period. During the month, the
company has sales of P200,000 and returns of sales made in prior
months of P5,000. What amount should the company record as net
sales revenue for new sales made during the month?
a. P185,000 c. P195,000
b. P190,000 d. P200,000

_______7. On January 1, a company enters into an operating lease

for office space and receives control of the property to make
leasehold improvements. The company begins alterations to the
property on March 1 and the company's staff moves into the
property on May 1. The monthly rental payments begin on July 1.
The recognition of rental expense for the new offices should
begin in which of the following months?
a. January c. May
b. March d. July

_______8. Palmyra Co. has net income of P11,000, a positive

P1,000 net cumulative effect of a change in accounting principle,
a P3,000 unrealized loss on available-for-sale securities, a
positive P2,000 foreign currency translation adjustment, and a
P6,000 increase in its common stock. What amount is Palmyra's
comprehensive income?
a. P4,000 c. P11,000
b. P10,000 d. P17,000

_______9. A company's first IFRS reporting period is for the Year

ended December 31, Year 2. While preparing the Year 2 statement
of financial position, management identified an error in which a
P90,000 loss accrual was not recorded. P40,000 of the loss
accrual related to a Year 1 event and P50,000 related to a Year 2
event. What amount of loss accrual should the company report in
its December 31, Year 1, IFRS statement of financial position?

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a. P0 c. P50,000
b. P40,000 d. P90,000

_______10. A company whose stock is trading at P10 per share has

1,000 shares of P1 par common stock outstanding when the board of
directors declares a 30% common stock dividend. Which of the
following adjustments should be made when recording the stock
dividend?
a. Treasury stock is debited for P300.
b. Additional paid-in capital is credited for P2,700.
c. Retained earnings is debited for P300.
d. Common stock is debited for P3,000.

_______11. A company has the following items on its year-end

trial balance:

Net sales P500,000

Common stock 100,000
Insurance expense 75,000
Wages 50,000
Cost of goods sold 100,000
Cash 40,000
Accounts payable 25,000
Interest payable 20,000

What is the company's gross profit?

a. P230,000 c. P400,000
b. P275,000 d. P500,000

_______12. Burns Corp. had the following items:

Sales revenue P45,000

Loss on early extinguishment of bonds 36,000
Realized gain on sale of
available-for-sale securities 28,000
Unrealized loss on sale of
available-for-sale securities 17,000
Loss on write-down of inventory 3,100

Which of the following amounts would the statement of

comprehensive income report as other comprehensive income or
loss?
a. P11,000 other comprehensive income.
b. P16,900 other comprehensive income.
c. P17,000 other comprehensive loss.
d. P28,100 other comprehensive loss.

_______13. A manufacturer has the following per-unit costs and

values for its sole product:

Cost P10.00
Current replacement cost 5.50
Net realizable value 6.00
Net realizable value less normal profit margin 5.20

In accordance with IFRS, what is the per-unit carrying value of

inventory in the manufacturer's statement of financial position?
a. P5.20 c. P6.00
b. P5.50 d. P10.00

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_______14. Baler Co. prepared its statement of cash flows at
year-end using the direct method. The following amounts were used
in the computation of cash flows from operating activities:

Beginning inventory P 200,000

Ending Inventory 150,000
Cost of goods sold 1,200,000
Beginning accounts payable 300,000
Ending accounts payable 200,000

What amount should Baler report as cash paid to suppliers for

inventory purchases?
a. P1,200,000
b. P1,250,000
c. P1,300,000
d. P1,350,000

_______15. Which of the following transactions is included in the

operating activities section of a cash flow statement prepared
using the indirect method?
a. Gain on sale of plant asset.
b. Sale of property, plant and equipment.
c. Payment of cash dividend to the shareholders.
d. Issuance of common stock to the shareholders.

_______16. Polk Co. acquires a forklift from Quest Co. for

P30,000. The terms require Polk to pay P3,000 down and finance
the remaining P27,000. On March 1, year 1, Polk pays the P3,000
down and accepted delivery of the forklift. Polk signed a note
that requires Polk to pay principal payments of P1,000 per month
for 27 months beginning July 1, year 1. What amount should Polk
report as an investing activity in the statement of cash flows
for the year ended December 31, year 1?
a. P3,000
b. P9,000
c. P12,000
d. P30,000

_______17. Blythe Corp. is a defendant in a lawsuit. Blythe's

attorneys believe it is reasonably possible that the suit will
require Blythe to pay a substantial amount. What is the proper
financial statement treatment for this contingency?
a. Accrued and disclosed.
b. Accrued but not disclosed.
c. Disclosed but not accrued.
d. No disclosure or accrual.

_______18. Martin Pharmaceutical Co. is currently involved in two

lawsuits. One is a class-action suit in which consumers claim
that one of Martin's best selling drugs caused severe health
problems. It is reasonably possible that Martin will lose the
suit and have to pay P20 million in damages. Martin is suing
another company for false advertising and false claims against
Martin. It is probable that Martin will win the suit and be
awarded P5 million in damages. What amount should Martin report
on its financial statements as a result of these two lawsuits?
a. P0
b. P5 million income.
c. P15 million expense.
d. P20 million expense.

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_______19. Abbott Co. is preparing its statement of cash flows
for the year. Abbott's cash disbursements during the year
included the following:

Payment of interest on bonds payable P500,000

Payment of dividends to stockholders 300,000
Payment to acquire 1,000 shares of
Marks Co. common stock 100,000

What should Abbott report as total cash outflows for financing

activities in its statement of cash flows?
a. P0
b. P300,000
c. P800,000
d. P900,000

_______20. A company calculated the following data for the

period:

Cash received from customers P25,000

Cash received from sale of equipment 1,000
Interest paid to bank on note 3,000
Cash paid to employees 8,000

What amount should the company report as net cash provided by

operating activities in its statement of cash flows?
a. P14,000
b. P15,000
c. P18,000
d. P26,000

_______21. A company records items on the cash basis throughout

the year and converts to an accrual basis for year-end reporting.
Its cash-basis net income for the year is P70,000. The company
has gathered the following comparative balance sheet information:
Beginning of year End of year
Accounts payable P 3,000 P1,000
Unearned revenue 300 500
Wages payable 300 400
Prepaid rent 1,200 1,500
Accounts receivable 1,400 600

What amount should the company report as its accrual-based net

income for the current year?
a. P68,800
b. P70,200
c. P71,200
d. P73,200

_______22. Which of the following transactions qualify as a

discontinued operation?
a. Disposal of part of a line of business.
b. Planned and approved sale of a segment.
c. Phasing out of a production line.
d. Changes related to technological improvements.

_______23. A company decided to sell an unprofitable division of

its business. The company can sell the entire operation for
P800,000, and the buyer will assume all assets and liabilities of
the operations. The tax rate is 30%. The assets and liabilities
of the discontinued operation are as follows:

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Buildings P5,000,000
Accumulated depreciation 3,000,000
Mortgage on buildings 1,100,000
Inventory 500,000
Accounts payable 600,000
Accounts receivable 200,000

What is the after-tax net loss on the disposal of the division?

a. P140,000
b. P200,000
c. P1,540,000
d. P2,200,000

_______24. On January 1, year 1, Newport Corp. purchased a

machine for P100,000. The machine was depreciated using the
straight-line method over a 10-year period with no residual
value. Because of a bookkeeping error, no depreciation was
recognized in Newport's year 1 financial statements, resulting in
a P10,000 overstatement of the book value of the machine on
December 31, year 1. The oversight was discovered during the
preparation of Newport's year 2 financial statements. What amount
should Newport report for depreciation expense on the machine in
the year 2 financial statements?
a. P9,000
b. P10,000
c. P11,000
d. P20,000

_______25. A company's activities for year 2 included the

following:

Gross sales P3,600,000

Cost of goods sold 1,200,000
Selling and administrative expense 500,000
Adjustment for a prior-year understatement
of amortization expense 59,000
Sales returns 34,000
Gain on sale of available-for-sale securities 8,000
Gain on disposal of a discontinued business segment 4,000
Unrealized gain on available-for-sale securities 2,000

The company has a 30% effective income tax rate. What is the
company's net income for year 2?
a. P1,267,700
b. P1,273,300
c. P1,314,600
d. P1,316,000

_______26. What is the purpose of reporting comprehensive income?

a. To summarize all changes in equity from nonowner sources.
b. To reconcile the difference between net income and cash flows
provided from operating activities.
c. To provide a consolidation of the income of the firm's
segments.
d. To provide information for each segment of the business.

_______27. Which of the following is a component of other

comprehensive income?
a. Minimum accrual of vacation pay.
b. Cumulative currency-translation adjustments.

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c. Changes in market value of inventory.
d. Unrealized gain or loss on trading securities.

_______28. Young & Jamison's modified cash-basis financial

statements indicate cash paid for operating expenses of P150,000,
end-of-year prepaid expenses of P15,000, and accrued liabilities
of P25,000. At the beginning of the year, Young & Jamison had
prepaid expenses of P10,000, while accrued liabilities were
P5,000. If cash paid for operating expenses is converted to
accrual-basis operating expenses, what would be the amount of
operating expenses?
a. P125,000
b. P135,000
c. P165,000
d. P175,000

_______29. Garson Co. recorded goods in transit purchased F.O.B.

shipping point at year end as purchases. The goods were excluded
from ending inventory. What effect does the omission have on
Garson's assets and retained earnings at year end?
Assets Retained earnings
a. No effect Overstated
b. No effect Understated
c. Understated No effect
d. Understated Understated

_______30. Acme Co.'s accounts payable balance at December 31 was

P850,000 before necessary year-end adjustments, if any, related
to the following information:
 At December 31, Acme has a P50,000 debit balance in its
accounts payable resulting from a payment to a supplier for
goods to be manufactured to Acme's specifications.
 Goods shipped F.O.B. destination on December 20 were
received and recorded by Acme on January 2, the invoice cost
was P45,000.
In its December 31 balance sheet, what amount should Acme report
as accounts payable?
a. P850,000
b. P895,000
c. P900,000
d. P945,000

_______31. Bard Co., a calendar-year corporation, reported income

before income tax expense of P10,000 and income tax expense of
P1,500 in its interim income statement for the first quarter of
the year. Bard had income before income tax expense of P20,000
for the second quarter and an estimated effective annual rate of
25%. What amount should Bard report as income tax expense in its
interim income statement for the second quarter?
a. P3,500
b. P5,000
c. P6,000
d. P7,500

_______32. Which of the following transactions should be

classified as investing activities on an entity's statement of
cash flows?
a. Increase in accounts receivable.
b. Sale of property, plant and equipment.
c. Payment of cash dividend to the shareholders.
d. Issuance of common stock to the shareholders.

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_______33. A company provides the following information:
Year 1 Year 2 Year 3
Cash receipts from customers:
From Year 1 sales P95,000 P120,000
From Year 2 sales 200,000 P75,000
From Year 3 sales 50,000 225,000

What is the accrual-based revenue for Year 2?

a. P200,000
b. P275,000
c. P320,000
d. P370,000

_______34. An enterprise must separately report information about

an operating segment when the segment's revenue meets what
minimum percentage of the combined revenue of all reported
operating segments?
a. 5%
b. 10%
c. 20%
d. 50%

_______35. For the year ended December 31, Ion Corp. had cash
inflows of P25,000 from the purchases, sales, and maturities of
held-to-maturity securities and P40,000 from the purchases,
sales, and maturities of available-for-sale securities. What
amount of net cash from investing activities should Ion report in
its cash flow statement?
a. P0
b. P25,000
c. P40,000
d. P65,000

_______36. Which of the following statements in relation to share

options granted to employees in exchange for their services is
true?
I. The services received shall be measured at the fair value of
the employees’ services
II. Fair value shall be measured at the date the options vest.
a. I only
b. II only
c. Both I and II
d. Neither I nor II

_______37. An SME acquired a trademark for leading consumer

product. The trademark has a remaining legal life of five years
but is renewable every ten years at little cost. The entity
intends to renew the trademark continuously and evidence supports
an ability to do so. There is evidence that the trademarked
product will generate net cash inflows for the acquiring entity
for an indefinite period. The useful life of the intangible asset
is
a. Five years
b. Presumed to be 10 years, if the entity is unable to make a
reliable estimate of its finite useful life
c. Fifteen years
d. Indefinite

_______38. An SME sold goods with list price of P1,000,000 to a

costumer on normal credit terms of 30 days interest-free credit.

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Ten days after the sale, the customer paid the entity P690,000 in
full as final settlement of a debt that arose from the sale of
the goods. The amount received from the customer included P50,000
value added tax collected by the entity on behalf of the national
government. The settlement amount is net of P200,000 trade
discount, P100,000 volume rebate and P10,000 prompt settlement
discount. At what amount should the entity measure revenue from
the sale of the goods?
a. 1,000,000
b. 640,000
c. 700,000
d. 690,000

_______39. On January 1, 2011, an SME acquired goods for sale in

the ordinary course of business for P1,000,000, including P50,000
refundable purchase taxes. The supplier usually sells goods on 30
days’ interest-free credit. However, as a special promotion, the
purchase agreement for these goods provided for payment to be
made in full on December 31, 2011. In acquiring the goods,
transport charges of P20,000 were incurred. An appropriate
discount rate is 10%. What is the cost of purchase?
a. 1,020,000
b. 863,550
c. 970,000
d. 883,550

_______40. On January 1, 2013, an SME acquired a building to be

held as investment property in a remote location for P1,000,000.
After initial recognition, the entity measured the investment
property using the cost-depreciation-impairment model, because
the fair value cannot be measured reliably without undue cost or
effort on an ongoing basis. On December 31, 2013, management
assessed the building’s useful life at 50 years from the date of
acquisition and presumed the residual value be NIL because the
fair value cannot be determined reliably. On December 31, 2013,
the entity declined and unsolicited offer to purchase the
building for P1,300,000. This is a one-time offer that is
unlikely to be repeated in the foreseeable future. What is the
carrying amount of the building on December 31, 2013?
a. 1,000,000
b. 1,300,000
c. 1,274,000
d. 980,000

HAPPY SEMESTRAL BREAK! 

There’s a place out there for you,
More than just a prayer or anything you ever dreamed of.
You can be the kings and queens of anything if you believe.
It’s written in the stars that shine above.
- There’s A Place for Us by Carrie Underwood (Modified)

Understand that the right to choose your own path is a sacred privilege.
Use it. Dwell in possibility.

Real knowledge, like everything else of value,

is not to be obtained easily.
It must be worked for,
studied for,
thought for,
and, most of all,
must be prayed for.
-Islamic Pearls of Wisdom

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