INTERMEDIATE ACCOUNTING II – MIDTERM EXAMINATION b.

b. The accumulated benefit obligation exceeds the fair value of plan assets but a past
1st SEMESTER SY 2021-2022 service cost exists
c. Plan assets at fair value exceed the accumulated benefit obligation
MULTIPLE CHOICE. Provide answers in the answer sheet (excel file). Use CAPITAL LETTERS d. Plan assets at fair value exceed the defined benefit obligation
only.
6. Interest cost included in the net pension cost recognized under a defined benefit plan
1. Which is not a characteristic of a defined contribution plan? represents the
a. The employer contribution each period is based on a formula a. Shortage between the expected and actual returns on plan assets
b. The benefits to be received are usually determined by an employee’s highest salary b. Change in the nature of benefits
c. The accounting for a defined contribution plan is straightforward and uncomplicated c. Increase in the projected benefit obligation due to the passage of time
d. The benefit of gain or the risk of loss from the assets contributed to the plan are d. Increase in the fair value of plan assets due to the passage of time
borne by the employee
7. Which event will not cause a change in a defined benefit obligation?
2. The “service cost” of a defined benefit plan comprises all of the following, except a. Change in mortality rate or the proportion of employees taking early retirement
a. Current service cost b. Change in the estimated salaries or benefits that will occur in the future
b. Past service cost c. Change in the estimated employee turnover
c. Gain or loss on plan settlement d. Change in the return on plan assets
d. Net interest
3. Which component of defined benefit cost shall be recognized through other 8. These are compensated or paid absences that are carried forward and can be used in
comprehensive income? future periods and the employees are entitled to a cash payment for unused
a. Current service cost c. Past service cost entitlement on leaving the entity
b. Net interest d. Remeasurements a. Accumulating and vesting c. Accumulating and non-vesting
b. Non-accumulating and vesting d. non-accumulating and non-vesting
4. The return on plan assets
a. Is equal to the change in the fair value of the plan assets during the year 9. These are employee benefits that are payable as a result of an entity’s decision to
b. Includes interest, dividends and change in the fair value of the plan assets during the terminate an employee’s employment before the normal retirement date, or an
year employee’s decision to accept an offer of benefits in exchange for termination of
c. Is equal to the discount rate times the fair value of the plan assets at the beginning of employment
the period a. Termination benefits c. Short-term employee benefits
d. Is equal to the expected rate of return times the fair value of the plan assets at the b. Other long-term employee benefits d. Postemployment employee benefits
beginning of the period
10. A liability for compensated absences should
5. A pension asset is reported when a. Be accrued during the period when the compensated time is expected to be used by
a. The accumulated benefit obligation exceeds the fair value of plan assets employees
b. Be accrued during the period following vesting
SET A Page 1 of 11
 c. Be accrued during the period when earned Accumulated Benefit Obligation 950,000 1,225,000
d. Not be accrued unless a written contractual obligation exists. Projected Benefit Obligation 1,200,000 1,750,000
What is the total amount of past service cost as a result of the plan amendment?
Jamby Company has established a defined benefit pension plan for an employee. Annual a. 525,000 b. 550,000 c. 800,000 d. 825,000
payments under the pension plan are equal to the employee’s highest lifetime salary
2019 2020 2021
multiplied by 3% multiplied by number of years with the entity. Wright Company adopted a
On December 31, 2019, the employee had worked for Jamby Company for 15 years. The Service Cost 1,500,000 1,700,000 1,720,000
defined benefit plan on
salary in 2019 was P500,000. The employee is expected to retire in 5 years and the salary Funding Payment 1,700,000 1,750,000 1,680,000
January 1, 2019. The
increases are expected to average 4% per year during that period. The employee is expected Asset Ceiling 300,000 300,000 300,000
pension funding payment is
to live for 6 years after retiring and will receive the first annual pension payment one year made to the trustee on Actual return on Plan Assets 150,000 200,000
after retirement. The discount rate is 12%. The relevant present value and future value factors December 31 each year Discount Rate 8% 8%
are: 15. What is the employee benefit expense reported during 2020?
Future value of 1 at 4% for 5 periods 1.217 a. 1,716,000 b. 1,684,000 c. 1,700,000 d. 1,820,000
PV of an ordinary annuity of 1 at 12% for 6 periods 4.111 16. What is the net remeasurement gain/(loss) reported in the statement of financial
PV of 1 at 12% for 5 periods 0.567 position on December 31, 2021?
a. (88,000) RMSMNT l. b. 14,000 RMSMNT g. c. (74,000) d. 48,000
11. What is the projected benefit obligation on December 31, 2020? 17. What is the prepaid pension cost on December 31, 2021?
a. 762,554 b. 733,116 c. 789,907 d. 638,269 a. 280,000 b. 174,400 c. 300,000 d. 212,600

12. What is the current service cost included in the computation of projected benefit At the beginning of the current year, Dakak Company reported the following information in
obligation for 2021? relation to a defined benefit plan:
a. 18,255 b. 75,046 c. 12,994 d. 53,416 Fair Value of Plan Assets 7,000,000
Projected Benefit Obligation 7,500,000
During the current year, the entity determined that the current service cost was P1,400,000
13. Sisters of Mercy Company provided the following information relating to a defined and the discount rate is 10%. The actual return on plan assets during the year was P840,000.
benefit plan for the current year: Other related information for the current year:
Current Service Cost 1,600,000 Contribution to the plan 1,200,000
Actual Return on Plan Assets 350,000 Benefits Paid to retirees 1,500,000
Interest Income on Plan assets 400,000 Decrease in PBO due to changes in Actuarial Assumptions 200,000
Past Service Cost during the year 50,000 Present Value of defined benefit obligation settled 500,000
Annual interest on pension liability 500,000 Settlement Price of Defined Benefit Obligation 400,000
What amount should be reported as defined benefit cost for the current year? 18. What is the net amount of remeasurements?
a. 1,700,000 b. 1,750,000 c. 1,800,000 d. 2,150,000 a. 100,000 b. 140,000 c. 200,000 d. 340,000
19. What is the fair value of plan assets on December 31?
14. Pacers Company amended a pension plan at the beginning of the current year a. 7,000,000 b. 7,140,000 c. 7,540,000 d. 8,200,000
Before Amendment After Amendment 20. What is the projected benefit obligation on December 31?

SET A Page 2 of 11
 a. 7,450,000 b. 7,650,000 c. 7,950,000 d. 9,650,000

Alexa Company’s employees earn vacation time at the rate of two hours per 40-hour work
period. The vacation pay vests immediately, meaning an employee is entitled o the pay even Brainiac Company has 40 employees who work 8 hours a day and are paid hourly.
if employment terminates. On January 1, 2019, the entity began a program of granting the employees 10 days of paid
During 2021, the total wages paid to employees equalled P8,660,000 including P160,000 for vacation each year and Hourly Vacation Days EARNED Vacation Days USED
vacations actually taken in 2021 but not including vacations related to 2021 that will be taken increasing by 2 days every YEAR Wage by each employee by each employee
in 2022 and P100,000 of vacations actually taken in 2021 and were included in vacations two years. 2019 150 10 0
related to 2020. The vacation pay liability on January 1, 2021 is P180,000. Vacation days earned in 2020 200 10 7
21. What amount should be reported as vacation pay expense for 2021? 2019 may first be taken 2021 250 12 8
a. 260,000 b. 280,000 c. 420,000 d. 540,000 on January 1, 2020.
22. What amount should be reported as vacation pay liability on December 31, 2021? The entity has chosen to accrue liability for compensated absences existing at the end of each
bonus year at the current wage rate for that year.
a. 260,000 b. 280,000 c. 420,000 d. 540,000 25. What is the vacation pay expense for 2020?
a. 480,000 b. 640,000 c. 784,000 d. 800,000

On September 1, 2020, Stern Company offered a special termination benefit to employees 26. What is the accrued liability on December 31, 2021?
who had reached the early retirement age specified in the entity’s pension plan. a. 960,000 b. 1,120,000 c. 1,280,000 d.
The termination benefits consisted of lump sum and periodic future payments. 1,360,000
Additionally, the employee accepting the entity offer receive the usual early retirement
pension benefits. The offer expired on November 30, 2020. 27. Under IFRS, a lessee is required to recognize
Actual or reasonably estimated amounts on December 31, 2020 relating to the employees a. Lease liability but not right of use asset c. Right of use asset and lease liability
accepting the offer are as follows: b. Right of use asset but not lease liability d. Neither right of use asset nor lease liability
Lump sum payments made on January 1, 2021 585,000
Present Value of periodic payments of P60,000 annually for 3 years 28. The right of use asset is reported as
which will begin January 1, 2021 155,000 a. Intangible asset c. Investment property
Reduction of accrued pension cost on December 31, 2019 for b. Noncurrent as separate line-item d. Property, plant and equipment
terminating employees 75,000
23. What amount should be recognized as expense as a result of the termination benefits 29. A lease liability is measured at
in 2019? a. The absolute amount of lease payments
a. 665,000 b. 585,000 c. 230,000 d. 75,000 b. The present value of lease payments
24. On December 31, 2019, what amount should be reported as total liability for c. The present value of fixed lease payments
termination benefits? d. The fair value of the underlying asset
a. 585,000 b. 665,000 c. 740,000 d. 815,000
30. Which is not part of the lease payments?
a. Any residual value guarantee of the lessee
SET A Page 3 of 11
b. Any residual value at the end of the lease term
c. The rental payments called for by the lease
d. Any payment the lessee must make to purchase the underlying asset under a
purchase option that is reasonably certain to be exercised
31. Which statement concerning residual value guarantee is appropriate for the lessee?
a. The asset and related liability should be decreased by the present value of the
residual value.
b. The asset and related liability should be increased by the present value of the residual
value.
c. The asset and related liability should be increased by the absolute amount of the
residual value.
d. The asset and related liability should be decreased by the absolute amount of the
residual value.
32. The lessee’s lease liability for a finance lease would be periodically reduced by
a. Lease payment plus the depreciation of the asset
b. Lease payment less the depreciation of the asset
c. Lease payment less the portion allocable to interest
d. Lease payment
33. In computing depreciation of a right of use asset under a lease, the lessee should
deduct
a. The residual value guarantee and depreciate over the useful life of the asset.
b. An unguaranteed residual value and depreciate over the useful life of the asset.
c. The residual value guarantee and depreciate over the lease term.
d. An unguaranteed residual value and depreciate over the lease term.
34. Rent received in advance by the lessor in an operating lease should be recognized as
revenue
a. When received c. At the lease inception
b. At the lease expiration d. In the period specified by the lease
35. The lessor should report the underlying asset under an operating lease and income
therefrom as which of the following?
a. The asset should be kept off the statement of financial position and the lease income
should go other comprehensive income.
b. The asset should be reported in the statement of financial position according to its
nature and the lease income should go to the income statement.
c. The asset should be kept off the statement of financial position and the lease income
should go to the income statement.
d. The asset should be reported in the statement of financial position according to its
nature and the lease income should go to other comprehensive income.
36. The classification of a lease as either operating lease or finance lease on the part of
lessor is based on
a. The lease payments being at least 50% of fair value.
b. The economic life of the underlying asset.
c. The length of the lease.
d. The transfer of the risks and rewards of ownership.
37. Where there is a lessee of land and building and the title to the land is not
transferred, generally the lease is treated as if
a. The land is finance lease and the building is a finance lease.
b. The land is a finance lease and the building is an operating lease.
c. The land is an operating and the building is a finance lease.
d. The land is an operating lease and the building is an operating lease.
38.The inception of the lease is the
a. Date of the lease agreement
b. Date of commitment by the parties to the principal provisions of the lease.
c. Earlier of the date of the lease agreement or date of commitment by the parties to
the principal provisions.
d. Later of the date of the lease agreement or date of commitment by the parties to the
principal provisions
39.Which of the following conditions would require lease capitalization?
a. The lease does not transfer title of the underlying asset to the lessee.
b. There is purchase option that is not reasonably certain to be exercised.
c. The present value of the lease payments is significantly more than the fair value of
the underlying asset.
d. The lease term is significantly below the useful life of the underlying asset.
40. Net investment in a direct financing lease is equal to
a. Cost of the asset
b. Cost of the asset minus guaranteed residual value
SET A Page 4 of 11
c. Cost of the asset plus unguaranteed residual value c. Fair value of the asset or present value of the lease payments whichever is lower.
d. Cost of the asset plus initial direct cost paid by the lessor d. Fair value of the asset or present value of the lease payments whichever is higher.

41. Which is the correct accounting treatment for a finance lease in the accounts of a 46. What is the treatment of unguaranteed residual value in determining the cost of
lessor? goods sold under a sales type lease?
a. Treat as a receivable equal to net investment in the lease and recognize finance a. The unguaranteed residual value is ignored
payments in cash by reduction of debt. b. The unguaranteed residual value is added to the cost of the underlying asset
b. Treat as a noncurrent asset equal to net investment in lease and recognize all finance c. The unguaranteed residual value is deducted from the cost of the underlying asset at
payments in income statement. present value
c. Treat as a receivable equal to gross amount receivable on lease and recognize finance d. The unguaranteed residual value is deducted from the cost of the underlying asset at
payments in cash by reducing debt. absolute amount
d. Treat as a receivable equal to net investment in the lease and recognize finance
payments by reducing debt and taking interest to income statement. Dobby Company leased a machinery on January 1, 2020 with the following information:
Annual Rental payable at the end of each year 1,000,000
42. The primary difference between a direct financing lease and a sales type lease is the Residual Value Guarantee 500,000
a. Manner in which rental collections are recorded as rental income Payment to lessor to obtain a lease 250,000
b. Depreciation recorded each year by the lessor Actual Cost of dismantling and restoring the asset as required by contract 390,000
c. Recognition of the manufacturer or dealer profit at the inception of the lease. Incentive received from the lease 50,000
d. Allocation of initial direct costs incurred by the lessor over the lease term. Lease Term 4 years Useful Life 6 years
Implicit Interest Rate & Market Rate of Interest 10%
43. In a direct financing lease, unearned interest income Present Value of OA of 1 at 10% for 4 periods 3.17
a. Does not arise. Present Value of 1 at 10% for 4 periods 0.68
b. Should be recognized at the lease expiration. 47. What is the lease liability on December 31, 2020?
c. Should be amortized over the lease term using the interest method. a. 2,510,000 b. 2,861,000 c. 3,159,000 d. 3,620,000
d. Should be amortized over the lease term using the straight-line method. 48. What is the carrying amount of right of use asset on December 31, 2022?
a. 2,237,600 b. 1,368,800 c. 1,237,700 d. 993,800
44. Under a sales type lease, what is the meaning of gross investment in the lease?
a. Present value of lease payments On December 31, 2017, Action Company signed a 7-year finance lease for an airplane. The
b. Absolute amount of lease payments airplane’s fair value was P8,415,000.
c. Sum of absolute amount of lease payments and unguaranteed residual value The entity made the first annual lease payment of P1,530,000 on January 1, 2018.
d. Present value of lease payments plus present value of unguaranteed residual value The entity’s incremental borrowing rate was 12%, and the interest rate implicit in the lease,
which was known by Action, was 9%. The rounded present value factors for an annuity due
45. The sales revenue recognized at the commencement of the lease by a manufacturer are:
or dealer lessor is the 9% for 7 years 5.5 12% for 7 years 5.1
a. Fair value of the asset 49. What amount should be reported as lease liability on December 31, 2017?
b. Present value of the lease payments a. 6,885,000 b. 8,415,000 c. 6,273,000 d. 7,803,000
SET A Page 5 of 11
 50. What is the interest expense for 2018?
a. 841,500 b. 826,200 c. 757,350 d. 619,650

51. On December 31, 2020, Raffy Company leased equipment with annual lease Camia Company is in the business of leasing new sophisticated equipment. As lessor, the
payments of P200,000 due December 31 for 10 years. entity expects a 12% return.
The equipment’s useful life is 10 years and the interest rate implicit in the lease is At the end of the lease term, the equipment will revert to Camia Company.
10%. On January 1, 2020 an equipment is leased to another entity under a direct financing lease.
The lease obligation was recorded on December 31, 2020 at P1,350,000 and the first Cost of equipment to Camia 5,500,000
lease payment was made on that date. Residual value – unguaranteed 400,000
What amount should be included in current liabilities in relation to the lease on Annual rental payable in advance 959,500
December 31, 2021? Useful life and lease term 8 years
a. 65,000 b. 85,000 c. 93,500 d. 106,500 Implicit interest rate 12%
First lease payment January 1, 2020
55. What is the unearned interest income on January 1, 2020?
Abe Company, lessor, leased an equipment under an operating lease. The lease term is 5 a. 1,616,500 b. 1,776,000 c. 2,176,000 d. 2,576,000
years and the lease payments are made in advance on January 1 of each year as shown in the 56. What is the unearned interest income on December 31, 2022?
following schedule: a. 439,376 b. 1,096,661 c. 1,479,339 d. 1,536,037
January 1, 2017 1,000,000 57. What is included in the journal entry to record the revert of the equipment to Camia,
January 1, 2018 1,200,000 if the fair value of the equipment is P250,000 on January 1, 2028?
January 1, 2019 1,300,000 a. Debit Inventory P250,000 c. Credit Gain Lease Receivable P250,000
January 1, 2020 1,700,000 b. Debit Cash P150,000 d. Debit Loss on Finance Lease P150,000
January 1, 2021 1,800,000
52. What is the rent income for 2019?
a. 1,300,000 b. 1,400,000 c. 1,450,000 d. 1,500,000 Lyle Company entered into a finance lease on January 1, 2020. A third party guaranteed the
53. On Dec 31, 2020, what amount should be recognized as accrued rent receivable? residual value of the asset under the lease estimated to be P1, 200,000 on January 1, 2025,
a. 100,000 b. 400,000 c. 600,000 d. 700,000 the end of the lease term.
Annual lease payments are P1,000,000 due each December 31, beginning December 31, 2020.
54. On January 1, 2018, Simplex Company leased a machine to another entity for a five- The last payment is due December 31, 2024.
year period. The annual rentals will be paid by the lessee beginning December 31, The remaining useful life of the asset was six years at the commencement of the lease.
2018. The lease agreement called for a 15% increase in annual rental per annum. Both the lessor and lessee used 10% as the interest rate. The PV of 1 at 10% for 5 periods
The rental due on December 31, 2020 was P198,375. is .62, and the PV of an ordinary annuity of 1 at 10% for 5 periods is 3.79.
What should be the balance of accrued rent receivable on December 31, 2021? 58. What is the net lease receivable on December 31, 2022?
a. 60,080 b. 70,875 c. 44,494 d. 25,860 a. 1,734,490 b. 2,724,754 c. 2,485,900 d. 2,386,140
59. What is the loss recognized by Lyle Company, if the lessee purchases the underlying
asset on June 30, 2023 for P2,000,000?
a. 724,754 b. 860,992 c. 394,061 d. 530,229
SET A Page 6 of 11
 Gem Company leased equipment from Wee Company on July 1, 2017 for an eight-year period
Biden Company used leases as a method of selling products. In 2017, the entity completed expiring June 30, 2025.
construction of a passenger ferry. Equal payments under the lease are P600,000 and are due on July 1 of each year. The first
On January 1, 2017, the ferry was leased to the Super Ferry Line on a contract specifying that payment was made on July 1, 2017. The rate of interest contemplated by Meg and Wee is
ownership of the ferry will transfer to the lessee at the end of the lease period. 10%.
Annual lease payments do not include executory costs. The cash selling of the equipment is P3,520,000 and the carrying amount is P2,800,000. The
Original cost of the ferry 8,000,000 lease is appropriately recorded as a sales type lease.
Fair value of ferry at lease date 13,000,000 63. What amount of interest revenue should be recorded for the year ended December
Lease payments payable in advance 1,500,000 31, 2018?
Estimated residual value 2,000,000 a. 146,000 b. 276,600 c. 292,000 d. 352,000
Implicit interest rate 12%
Date of first lease payment January 1, 2017 64. On January 1, 2017, Lee Company sold equipment to an unaffiliated entity at the fair
Lease term 20 years value of P5,000,000.
Present value of an annuity due of 1 at 12% for 20 periods 8.37 The equipment had a carrying amount of P4,500,000 and a remaining life of 10 years.
Present value of 1 at 12% for 20 periods 0.10 That same day, Lee Company leased back the equipment at P15,000 per month for 2-
60. What is the interest income for 2018? years with no option to renew the lease or repurchase the equipment. The present
a. 1,326,600 b. 1,305,792 c. 1,332,672 d. 1,365,600 value of the lease payments using the appropriate interest rate was P318,650 on
61. What is the carrying amount of lease receivable on December 31, 2019? January 1, 2017. What is the gain on right transferred to the buyer-lessor?
a. 12,595,072 b. 12,250,865 c. 11,250,865 d. 11,969,879 a. 500,000 b. 468,135 c. 286,785 d. 213,215

On January 1, 2017, Easy Company sold an equipment with remaining life of 12 years and
On January 1, 2017, Galavant Company entered into a lease agreement with Blacksheep immediately leased it back for 5 years at the prevailing market rental.
Company for a machine which was carried in the accounting records of Gallant at P2,000,000. Sale price at fair value 7,200,000
Total payments under the lease which expires on December 31, 2026, aggregate P3,550,800 Carrying amount of equipment (Historical Cost 8,000,000) 5,400,000
of which P2,400,000 represents cost of the right of use asset to Blacksheep. Annual rental payable at the end of each year 800,000
Payments of P355,080 are due each January 1 of each year. Implicit interest rate 11%
The interest rate of 10% which was stipulated in the lease is considered fair and adequate Present value of an ordinary annuity of 1 at 11% for five periods 3.70
compensation to Gallant for the use of its funds.
Blacksheep expects the machine to have a 10-year life, no residual value and be depreciated 65. What is the carrying amount of the right of use asset on the books of the seller lessee
on a straight-line basis. The lease is conceived as a sales type lease. on December 31, 2019?
62. What is the pretax total income derived by Gallant from the lease for the year ended a. 555,000 b. 1,184,000 c. 740,000 d. 888,000
December 31, 2017?
a. 204,492 b. 355,080 c. 604,492 d. 755,080

SET A Page 7 of 11
66. It is the aggregate amount included in the determination of profit for the period in 71. A temporary difference which would result in a deferred tax asset is
respect of current tax and deferred tax. a. Tax, penalty or surcharge
a. Tax expense c. Current tax expense b. Dividend received on share investment
b. Deferred tax expense d. Deferred tax benefit c. Excess tax depreciation over accounting depreciation
d. Rent received in advance included in taxable income at the time of receipt but
67. The purpose of interperiod tax allocation is to deferred for accounting purposes.
a. Allow reporting entities to fully utilize tax losses carried forward from a previous year.
b. Recognize an asset or liability for the tax consequences of temporary differences that 72. Which statement is correct about the presentation of deferred tax asset and liability?
exist at the end of the reporting period. a. Current deferred tax asset is netted against current deferred tax liability.
c. Allow reporting entities whose tax liabilities vary significantly from year to year to b. Noncurrent deferred tax asset is netted against noncurrent deferred tax liability.
smooth payments to taxing agencies. c. Deferred tax asset is never netted against deferred tax liability.
d. Amortize the deferred tax liability shown in the statement of financial position. d. Deferred tax asset is netted against deferred tax liability if they relate to the same tax
authority.
68. Intraperiod tax allocation 73. An item that would create a permanent difference in pretax financial income and
a. Involves the allocation of income taxes between current and future periods. taxable income would be
b. Arises because certain revenue and expenses appear in the financial statements either a. Using accelerated depreciation for tax purposes and straight-line depreciation for
before or after they are included in the income tax return. book purposes.
c. Arises because different income statement items are taxed at different rate. b. Purchasing equipment previously leased under an operating lease in prior years.
d. Associates tax effect with different items in the income statement. c. Using the percentage of completion method on long term construction contracts.
d. Paying fines for violation of laws.
69. When temporary difference will result in taxable amounts in future years 74. All of the following would require intraperiod tax allocation, except
a. A deferred tax asset is recognized in the current year a. Discontinued operation c. Prior period error
b. A deferred tax liability is recognized in the current year b. Change in accounting estimate d. Income from continuing operations
c. A deferred tax asset may be recognized in the current year if certain conditions are met
d. A deferred tax liability may be recognized in current year if certain conditions are met 75. Taxable income
a. Differs from accounting income due to differences in interperiod tax allocation.
70. A deferred tax asset shall be recognized for all deductible temporary differences and b. Differs from accounting income due to differences in interperiod tax allocation and
operating loss carryforward when permanent differences.
a. It is probable that taxable income will be available against which the deferred tax asset c. Is based on international financial reporting standards
can be used. d. Is reported in the income statement.
b. It is probable that accounting income will be available against which the deferred tax
asset can be used.
c. It is possible that taxable income will be available which the deferred tax asset can be
used.
d. It is possible that accounting income will be available against which the deferred tax
asset can be used.
SET A Page 8 of 11
 76. Aloha Company provided the following information at year-end: a. 248,500 b. 266,500 c. 280,000 d. 293,500
Carrying amount Tax base
Accounts receivable 1,500,000 1,750,000 79. Cascade Company is determining the amount of the pretax accounting income for the
Motor vehicle 1,650,000 1,250,000 current year by making adjustment to taxable income from the income tax return.
Provision for warranty 120,000 0 The tax return showed taxable income of P4,000,000 on which a tax liability of
Deposit received in advance 150,000 0 P1,200,000 has been recognized.
The depreciation rates for accounting and taxation are 15% and 25% respectively. The The entity provided the following items that may be required to determine pretax
deposits are taxable when received and warranty costs are deductible when paid. accounting income from the amount of taxable income:
An allowance for doubtful debts of P250,000 has been raised against accounts receivable  Accelerated depreciation for income tax purposes was P500,000. Straight line
for accounting purposes but such debts are deductible only when written off as financial depreciation on these assets is P400,000.
uncollectible. The current tax rate is 30%. The future enacted tax rate applicable  Goodwill impairment loss of P300,000 was not included as a deduction in the tax
beginning the following year is 25%. The pretax financial income during the current year return but may be deducted in the income statement.
is P1,640,000.  Interest income on treasury bills was not included in the tax return. During the
What amount should be reported as income tax expense for the current year? year, P600,000 was received on these investments.
a. 558,000 b. 492,000 c. 498,000 d. 483,000 What is the pretax accounting income for the current year?
a. 4,400,000 b. 4,300,000 c. 4,200,000 d. 4,100,000

Huckleberry Company reported in the income statement for the current year pretax income 80. In December 31, 2019 statement of financial position, Sheen Company had income
of P400,000. The following items of revenues and expenses are treated differently on the tax tax payable of P260,000 and a deferred tax asset of P400,000.
return and on the book: The entity had reported a deferred tax asset of P300,000 on January 1, 2019.
TAX RETURN BOOK Estimated tax payments of P100,000 were made during 2019.
Royalty Income 40,000 20,000 On December 31, 2019, the entity determined that it was probable that the deferred
Rent Income 150,000 200,000 tax asset would be realized.
Interest Income on saving deposit 0 120,000 In the income statement for 2019, what amount should be reported as total income
Development Cost 200,000 0 tax expense?
Depreciation Expense 300,000 225,000 a. 260,000 b. 220,000 c. 360,000 d. 160,000
Warranty Expense 0 185,000
Premium on officers’ life insurance 0 60,000 Regal Company paid P400,000 in January 2019 for fire insurance premiums on a two-year
Payment of Penalty 0 15,000 policy. Additionally, the financial statements for the year ended December 31, 2019 revealed
The enacted tax rate is 30%. that the entity paid P1,050,000 in income tax during the year and also accrued estimated
77. What is the current tax expense for the current year? litigation loss of P2,000,000.
a. 70,500 b. 88,500 c. 97,500 d. 106,500 The lawsuit was resolved in February 2020 at which time a P2,000,000 loss was recognized for
tax purposes. The entity used the cash basis for tax purposes. The tax rate is 30%.
78. What is the net income for the current year? 81. What amount is the income tax expense presented in the 2019 income statement?
a. 480,000 b. 510,000 c. 420,000 d. 450,000
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 82. If the Income Tax Expense on 2020 is P1,020,000, what amount is current tax expense During 2017 and 2018, the accounts of Simple Company have the same basis for accounting
on 2020? BONUS and tax purposes, except with the following accounts and related accounting and tax
a. 480,000 b. 510,000 c. 420,000 d. 450,000 treatments:
Lion Company reported in the income statement for the first year of operations pretax
In January 2017 the entity paid P600,000 for fire insurance premiums on a three-year policy
accounting income of P6,000,000. The current year tax rate is 30% and the enacted rate for
and prepaid the amount. The entity used the cash basis for tax purposes.
future years is 25%.
The following differences existed between the tax return and accounting record: In January 2017, the entity incurred cost of P6,000,000 in relation to the development of a
Tax return Accounting record computer software product. The software cost was appropriately capitalized and amortized
Uncollectible accounts expense 200,000 300,000 over 4 years for accounting purposes using straight line. However, the total amount was
Depreciation expense 800,000 500,000 expensed in 2017 for tax purposes.
Tax-exempt interest revenue 50,000
83. What is the current tax expense? The equipment was acquired on January 1, 2017 for P30,000,000. The useful life is 5 years
a. 1,695,000 b. 1,725,000 c. 1,785,000 d. 1,800,000 with no residual value. The equipment is depreciated using the straight line for accounting
purposes and sum of years’ digits method for tax purposes.
84. What is the net deferred tax expense? During 2017, the entity received advance rental from clients of P1,400,000. These were
a. 50,000 b. 60,000 c. 75,000 d. 90,000 recognized as income for tax purposes during 2017 but will be recognized equally on 2018
and 2019 for accounting purposes when earned.

Shear Company began operations in 2017. Included in the 2017 financial statements were bad During 2018, The entity accrued estimated litigation loss of P1,500,000. The lawsuit was
debts expense of P400,000 and profit from an instalment sale of P1,000,000. For tax resolved in March 2019 at which time a P1,600,000 was paid for damages. The entity used the
purposes, the bad debts will be deducted and the profit from the instalment sale will be cash basis for tax purposes.
recognized in 2018. The tax rate is 30%. The pretax accounting income is P12,000,000 for 2017 and P8,800,000 for 2018. The tax rate
Shear Company reported the following balances in its year-end financial statements: is 30% and there are no deferred taxes on January 1, 2017.
2018 2017
Income Tax Expense 320,000 450,000 The balance of the income tax payable on January 1, 2017 was P1,240,000. Income taxes
Income Tax Payable 220,000 160,000 amounting to P2,000,000 and P1,500,000 were remitted to the BIR during 2017 and 2018
85. What amount of income tax expense was filed for tax purposes for the year ended respectively.
December 2018?
87. What is the net deferred tax expense for 2017?
a. 320,000 b. 230,000 c. 140,000 d. 500,000
a. 2,250,000 b. 2,010,000 c. 2,310,000 d. 2,100,000
88. What is the income tax payable on December 31, 2017?
86. During 2018, what total amount was remitted to the BIR as payment for income tax?
a. 740,000 b. 590,000 c. 530,000 d. 950,000
a. 440,000 b. 270,000 c. 390,000 d. 210,000
89. What is the net deferred tax expense / (benefit) for 2018?
a. (240,000) b. (120,000) c. (150,000) d. 90,000
90. What is the income tax payable on December 31, 2018? BONUS / 1,730,000
a. 1,820,000 b. 2,240,000 c. 1,910,000 d. 1,880,000

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