CPA REVIEW SCHOOL OF THE PHILIPPINES

Manila
FINANCIAL ACCOUNTING AND REPORTING JULY 2022
FIRST PREBOARD EXAMINATION BATCH 92
SITUATION 1 – data about four unrelated entities
Darwin Company reported the following information on December 31, 2022:
Cash 1,500,000
Accounts receivable - assigned 2,000,000
Accounts receivable - unassigned 1,200,000
Inventory, including goods expected in the ordinary course of operations to be sold beyond 12 1,000,000
months amounting to P700,000
Bond investment held for trading 300,000
Equity investment at FVOCI 800,000
Investment in associate 2,500,000
Land held for sale 2,000,000
Deferred tax asset 150,000
Tanzania Company reported operating expenses other than interest expense for the year at 40% of cost of goods
sold but only 20% of sales. Interest expense is 5% of sales. The amount of purchase is 120% of cost of goods sold
and ending inventory is twice as much as the beginning inventory. The net income for the year is P2,250,000 and
the income tax rate is 25%.
On January 1, 2022, Racelle Company purchased land at a cost of P6,000,000. The entity applied the revaluation
model for this asset. The fair values of the land on December 31, 2022 and December 31, 2023 were P7,000,000
and P8,500,000 respectively. On July 1, 2024, the entity decided to sell the land and classified the asset as held
for sale. The fair value on July 1, 2024 is P7,600,000 and the estimated disposal cost is negligible. On December
31, 2024 the land was sold for P8,000,000.
On December 1, 2022. Greer Company committed to a plan to dispose of a business component’s assets. The
disposal met the requirements to be classified as discontinued operation. On such date, the entity estimated that
the loss from disposition of the assets would be P700,000 and the component’s operating loss was P200,000 for
2022.
1. What amount should Darwin report as total current assets on December 31, 2022?
a. 6,000,000
b. 8,000,000
c. 6,800,000
d. 8,800,000
2. What amount should Tanzania report as purchases?
a. 6,000,000
b. 7,200,000
c. 3,000,000
d. 3,600,000
3. What amount should Racelle recognize as gain or loss on sale of land in 2024?
a. 2,000,000 gain
b. 1,000,000 gain
c. 400,000 gain
d. 500,000 loss
4. What is the pre-tax loss from discontinued operations that Greer should report for 2022?
a. 900,000
b. 200,000
c. 700,000
d. 0
 Page 2
SITUATION 2 – data about four unrelated entities
After the issuance of the 2022 financial statements, Narra company discovered a computational error of P140,000
in the calculation of the December 31, 2022 inventory. The error resulted in a P140,000 overstatement in the cost
of goods sold for the year ended December 31, 2022. In October 2023, the entity paid the amount of P500,000 in
settlement of litigation instituted against it during 2022. No provision for this possible loss was made in 2022.
The income tax rate is 25%.
Eagle Company operates in several different industries. Total sales and total common costs amounted to
P14,000,000 and P6,500,000 respectively for the current year. For internal reporting purposes, Eagle allocated
common costs based on the ratio of segment sales to total sales. Segment D contributed 25% of the total sales and
incurred specific costs of P1,100,000.
Ambeth Company reports operating results from its North America division to the chief operating decision maker.
The entity revealed the following segment information for the current year:
Revenue 3,800,000
Profit 1,200,000
Assets 1,800,000
Number of employees 2,500
The results for all operating segments in total are:
Revenue 40,000,000
Profit 10,000,000
Assets 20,000,000
Number of employees 25,000
Snider Company is preparing interim financial statements for the first quarter ending March 31. Expenses in the
first quarter totaled P4,000,000 of which 25% was variable. The fixed expenses included television advertising
expense of P1,600,000 representing air time to be incurred evenly during the current year and depreciation
expense of P600,000 for the year, for an equipment that was available for use on January 1.
5. In the financial statements of 2023, what adjustment should Narra make to its retained earnings on January 1,
2023?
a. 140,000 credit
b. 105,000 credit
c. 270,000 credit
d. 360,000 credit
6. What amount should Eagle report as net income of Segment D?
a. 3,500,000
b. 1,875,000
c. 2,400,000
d. 775,000
7. Which piece of information determines that the North American division is a reportable segment?
a. Revenue
b. Profit
c. Assets
d. Number of employees
8. What amount should Snider report as total expenses for the first quarter ended March 31?
a. 4,000,000
b. 2,800,000
c. 4,150,000
d. 2,350,000
 Page 3
SITUATION 3 – data about four unrelated entities
On December 31, 2022, Roma Company reported cash of P9,950,000 which comprised the following:
Undeposited collections 600,000
Cash in bank – BPI checking account 4,000,000
Undeposited NSF check received from customer, dated December 1, 2022 150,000
Undeposited check from customer, dated January 15, 2023 250,000
Cash in bank – BPI fund for payroll 1,000,000
Cash in bank – BPI money market instrument, 90 days 2,000,000
Cash in foreign bank restricted 1,500,000
Cash in bank – BPI dividend payment account 450,000
Total 9,950,000
On June 1, 2022, Pitt Company sold merchandise with a list price of P5,000,000 to Burr on account. Pitt allowed
trade discounts of 30% and 20%. On June 11, 2022, the customer paid in full. Credit terms were 2/10, n/30 and
the sale was made FOB shipping point. Pitt prepaid P200,000 of delivery costs for Burr as an accommodation.
Marian used the allowance method of accounting for doubtful accounts. The following summary was prepared
from an aging of accounts receivable outstanding on December 31, 2022:
Number of days outstanding Amount Probability of collection
0 – 30 days 5,000,000 98%
31 – 60 days 2,000,000 90%
Over 60 days 1,000,000 80%
Net credit sales for the year 2022 were P40,000,000 and the allowance for doubtful accounts before adjustment
on December 31, 2022 had a debit balance of P20,000. Marian based the estimate of doubtful accounts on the
aging of accounts receivable.
Cynthia Company factored P750,000 of accounts receivable at year-end. Control was surrendered. The factor
accepted the accounts receivable subject to recourse for nonpayment. The fair value of the recourse obligation is
P20,000. The factor assessed a fee of 2% and retained a holdback equal to 4% of the accounts receivable. In
addition, the factor charged 12% interest computed on a weighted-average time to maturity of 51 days. The
accounts receivable was fully collected by the factor at year-end.
9. On December 31, 2022, what amount should Roma report as cash and cash equivalents?
a. 7,600,000
b. 8,200,000
c. 6,050,000
d. 8,050,000
10. What amount was received by Pitt from Burr as remittance in full?
a. 2,744,000
b. 2,940,000
c. 2,944,000
d. 3,140,000
11. What amount should Marian recognize as doubtful accounts expense for the year 2022?
a. 470,000
b. 480,000
c. 500,000
d. 520,000
12. What amount of loss on factoring the accounts receivable should Cynthia report at year-end?
a. 12,575
b. 15,000
c. 27,575
d. 47,575
 Page 4
SITUATION 4 – data about four unrelated entities
On August 31, 2022, Rose Company discounted with recourse a note at the bank at discount rate of 15%. The
discounting transaction is accounted for as a conditional sale with recognition of a contingent liability. The note
was received from the customer on August 1, 2022, is for 90 days, has a face amount of P5,000,000, and carries
an interest rate of 12%. The customer paid the note to the bank on October 30, 2022, the date of maturity.
On December 31, 2022, Wan Company sold used equipment with a carrying amount of P1,000,000 in exchange
for a noninterest bearing note of P2,500,000 requiring ten annual payments of P250,000. The first payment was
made of December 31, 2023. The market interest for similar note was 12%. The present value of an ordinary
annuity of 1 at 12% is 5.65 for ten periods and 5.33 for nine periods.
On January 1, 2022, Ocean Bank loaned P4,000,000 to one of its customers. The loan is due on December 31,
2026, has an interest rate of 9% and interest is payable annually every December 31. On December 31, 2022, the
entity had recognized a 12-month expected credit loss of P172,800. On December 31, 2023, the entity assessed
that there was a significant increase in credit risk of the loan but no objective evidence of impairment. On such
date, the entity concluded that there is a 35% probability of default over the remaining term of the loan and it is
expected that only 70% of the loan will be collected. Interest for the years 2022 and 2023 were collected. The
present value of 1 at 9% for 3 periods is 0.77.
Happy Company conducted a physical count on December 31, 2022, which revealed inventory with a cost of
P4,410,000. The following items were excluded from the physical count:
Goods held by Happy on consignment 610,000
Goods shipped by Happy FOB Destination to a customer on December 31, 2022 and 380,000
was received by the customer on January 3, 2023
Goods shipped by Happy FOB Shipping Point to a customer on December 31, 2022 460,000
and was received by the customer on January 6, 2023
Goods shipped by a vendor FOB Destination on December 31, 2022 and was received 830,000
by Happy on January 10, 2023
Goods purchased FOB Shipping Point was shipped by the supplier on December 31, 2022 510,000
and received by Happy on January 5, 2023
13. What amount should Rose recognize as loss on note receivable discounting on August 31, 2022?
a. 50,000
b. 21,250
c. 28,750
d. 25,000
14. What is the carrying amount of the note receivable on December 31, 2023 to be recognized by Wan?
a. 1,332,000
b. 2,250,000
c. 1,412,500
d. 1,162,500

15. What amount of impairment loss should Ocean report for 2023?
a. 1,844,000
b. 645,400
c. 472,600
d. 0
16. What amount should Happy report as inventory on December 31, 2022?
a. 5,300,000
b. 4,690,000
c. 3,800,000
d. 4,920,000
 Page 5

SITUATION 5 – data about four unrelated entities

On November 1, 2022, Fenn Company sold 200,000 gallons of heating oil to Marie Company at P30 per gallon.
100,000 gallons were delivered on December 23, 2022 and the remaining 100,000 gallons were delivered on
January 10, 2023. Payment terms were: 50% due on November 1, 2022, 25% on the first delivery and the
remaining 25% due on the second delivery.
Breeze Company used the moving average method and provided the following data relating to an inventory item:

Units Unit Cost Total Cost

January 1 Beginning balance 5,000 200 1,000,000
January 10 Purchase 5,000 250 1,250,000
January 15 Sale 7,000
January 16 Sale return 1,000
January 30 Purchase 16,000 150 2,400,000
January 31 Purchase return 5,000 150 750,000
Greece Company provided the following information pertaining to its ending inventory:

Product A Product B
Estimated selling price 4,000,000 6,000,000
Cost 3,000,000 3,600,000
General administration cost 600,000 1,600,000
Estimated selling cost 1,200,000 1,400,000

Greece recorded cost of goods sold of P5,000,000 before applying the LCNRV measurement.

On October 1, 2022, South Company entered into a 6-month, P5,200,000 purchase commitment for a supply of a
special product to be acquired on March 31, 2023. On December 31, 2022, the market value of this material had
fallen to P5,000,000. On March 31, 2023, the market value of the purchase commitment is P4,900,000.

17. What amount of revenue should Fenn recognize for 2022?

a. 6,000,000
b. 3,000,000
c. 4,500,000
d. 1,500,000

18. What amount of inventory should Breeze report on January 31?

a. 2,790,000
b. 2,550,000
c. 2,650,000
d. 3,300,000

19. What amount of cost of goods sold should Greece report in its income statement for the current year?

a. 5,000,000
b. 5,200,000
c. 4,800,000
d. 7,400,000

20. What amount should South debit to purchases on March 31, 2023?

a. 5,200,000
b. 5,000,000
c. 4,900,000
d. 5,050,000
 Page 6
SITUATION 6 – data about four unrelated entities
Caramel Company’s accounting records indicated the following for 2022:
Inventory, January 1 7,000,000
Purchases 11,000,000
Sales 22,000,000
Sales return 1,500,000
Sales allowance 650,000
Sales discount 350,000
A physical inventory taken on December 31, 2022 resulted in an ending inventory of P2,500,000. The entity also
confirmed it had goods out on consignment costing P500,000. The gross profit on sales remained constant at 30%
in recent years. The entity suspects some inventory may have been taken by a new employee.
Boom Company used the FIFO retail method on inventory valuation. The entity provided the following
information for the year 2022:
Cost Retail
Beginning inventory 1,200,000 1,500,000
Net purchases 4,200,000 5,900,000
Net markups 200,000
Net markdowns 100,000
Net sales 5,500,000
Bull Company purchased 1,000 llamas on January 1, 2022. These llamas will be sheared semiannually, and their
wool sold to specialty clothing manufacturers. The llamas were purchased for P1,480,000. During 2022, the
increase in fair value due to growth and price changes of the llamas was P94,000, the wool harvested but not yet
sold is valued at P180,000, and the decrease in fair value of the llamas due to harvest is P11,500.
During 2022, Fay Company acquired trading securities with the following data on December 31, 2022:
Security Cost Market Value
A – 1,000 shares 200,000 300,000
B – 10,000 shares 1,700,000 1,600,000
C – 20,000 shares 3,100,000 2,900,000
5,000,000 4,800,000
Fay sold 10,000 shares of Security B on January 15, 2023 for P150 per share.
21. What is the estimated cost of missing inventory that Caramel should recognize?
a. 1,150,000
b. 1,350,000
c. 650,000
d. 1,105,000
22. What amount should Boom recognize as cost of goods sold for 2022?
a. 4,000,000
b. 3,850,000
c. 3,960,000
d. 3,940,000
23. What net amount of income should Bull recognize for the year 2022?
a. 180,000
b. 262,500
c. 274,000
d. 82,500
24. What amount of gain or loss on sale of trading investment should Fay report for 2023?
a. 200,000 gain
b. 200,000 loss
c. 100,000 gain
d. 100,000 loss
 Page 7

SITUATION 7 – data about four unrelated entities

On January 1, 2022, Lady Company purchased nontrading equity securities for P5,000,000. The investment was
irrevocably designated to be measured at FVOCI. The entity also paid P360,000 in the form of transaction costs.
The securities had fair values of P6,000,000 on December 31, 2022 and P6,600,000 on December 31, 2023.

Alpha acquired 20,000 shares of Beta Company on January 1, 2022 at P120 per share. Beta Company had 80,000
shares outstanding with a carrying amount of P8,000,000. The difference between the carrying amount and fair
value of Beta Company on January 1, 2022 is attributable to a broadcast license which is an intangible asset. Beta
recorded earnings of P3,600,000 and P3,900,000 for 2022 and 2023, respectively and paid per-share dividend of
P16 in 2022 and P20 in 2023. Alpha Company has a 20-year straight-line amortization policy for the broadcast
license.

On January 1, 2022, Byte Company acquired 20% of the ordinary shares of another entity for P6,000,000. On
such date, all identifiable assets and liabilities were recorded at fair value and the acquisition resulted in goodwill
on the purchase of P300,000. The investee reported net income of P3,000,000 and P4,000,000 for the years ended
December 31, 2022 and December 31, 2023 respectively. No dividends were paid. In December 2022, the investee
sold inventory to Byte for P900,000. The cost was P600,000. This inventory remained unsold by Byte on
December 31, 2022. However, it was sold by Byte in 2023.

On January 1, 2022, Jent Company acquired bonds with face amount of P4,000,000 for P4,206,000. The business
model in managing the financial asset is to collect contractual cash flows that are solely payments of principal
and interest, and to sell the bonds in the open market. The bonds mature on December 31, 2024 and pay 10%
interest annually on December 31 each year with 8% effective yield. The bonds are quoted at 95 on December
31, 2022 and 90 on December 31, 2023.

25. What amount of unrealized gain in OCI should the Lady report for the year 2023 in its statement of
comprehensive income?

a. 640,000
b. 600,000
c. 1,240,000
d. 1,600,000

26. What amount of investment income should Alpha report for 2023?

a. 975,000
b. 995,000
c. 955,000
d. 935,000

27. What amount of investment income should Byte report for 2022?

a. 600,000
b. 540,000
c. 660,000
d. 420,000

28. What amount of cumulative unrealized loss should Jent report in its statement of changes in equity on
December 31, 2023?

a. 406,000
b. 606,000
c. 473,878
d. 131,398
 Page 8
SITUATION 8 – data about four unrelated entities
Lulu Company reported the following items on December 31, 2022:
Land held for undetermined future use 2,500,000
Building leased out under an operating lease 6,000,000
Machine held for rentals 800,000
Building used in production of goods 5,000,000
Building under construction for use as investment property when completed 3,400,000
Chain Company purchased a P2,000,000 ordinary life insurance policy on its president. The entity is the
beneficiary under the life insurance policy. The policy year and the entity’s accounting year coincide. The entity
provided the following data for the current year:
Cash surrender value, January 1 87,000
Cash surrender value, December 31 108,000
Annual advance premium paid on January 1 40,000
Life insurance expense for the current year 13,000
Trese Company uses 300,000 units of wood in its operations. On November 1, 2022, the entity purchased a call
option to buy 300,000 units of wood at P30 per unit on August 1, 2023 for P40,000. The entity designated the call
option as a cash flow hedge. On December 31, 2022, the market price of the wood is P38 per unit and decreased
to P25 per unit on August 1, 2023.
Lax Company acquired two items of machinery:

• On December 31, 2022, Lax purchased a machine in exchange for a noninterest bearing note requiring ten
payments of P500,000. The first payment was made on December 31, 2023 and the others are due annually
on December 31. The prevailing interest rate for this type of note at issuance date was 12% The present
value factors of an ordinary annuity of 1 at 12% for nine periods and ten periods are 5.33 and 5.65
respectively.

• On December 31, 2022, Lax acquired used machinery by issuing the seller a two-year noninterest bearing
note for P3,000,000. In recent borrowing, the entity has paid 12% interest for this type of note. The present
value of 1 at 12% for two periods is 0.80 and the present value of an ordinary annuity of 1 at 12% for two
periods is 1.69.
29. What total amount of investment property should the Lulu report on December 31, 2022?
a. 12,700,000
b. 9,400,000
c. 11,900,000
d. 8,500,000
30. What amount of dividends did Chain receive from its life insurance policy?
a. 21,000
b. 9,000
c. 6,000
d. 0

31. What amount of unrealized gain in other comprehensive income should Trese recognize for the year 2022?
a. 2,360,000
b. 2,400,000
c. 40,000
d. 0

32. What amount should Lax report as total cost of the machinery?

a. 5,065,000
b. 5,225,000
c. 5,565,000
d. 8,235,000
 Page 9
SITUATION 9 – data about three unrelated entities
Peach Company received a government grant of P2,000,000 related to a building that it acquired in January 2022.
Peach’s policy is to treat the grant as deferred income. Peach acquired the building from an industrialist identified
by the government. If Peach did not purchase the building, which was located in the slums of the city, it would
have been repossessed by the government agency. Peach acquired the building for P12,000,000 with a useful life
of 10 years and no residual value. On January 1, 2024, the entire amount of the grant became repayable by reason
of noncompliance with conditions attached to the grant.
Leonora Company incurred the following costs in acquiring land as a factory site:
Purchase price 2,400,000
Cost of tearing down old building on the land 240,000
Legal fee for title investigation 15,000
Title insurance 10,000
Architect fee 125,000
Liability insurance during construction 25,000
Excavation cost 40,000
Payment to building contractor 8,800,000
Special assessment by city for public improvement 30,000
Interest cost incurred specifically for construction of building 300,000
On January 1, 2022, Hothead Company took out a loan of P12,000,000 in order to finance specifically the
renovation of a building. The renovation started on the same date. The loan carried annual interest at 10%. Work
on the building was substantially complete on October 31, 2022. The loan was repaid on December 31, 2022 and
P100,000 investment income was earned in the period to October 31 on the proceeds of the loan not yet used for
renovation.
33. What amount of loss on repayment of grant should Peach recognize in 2024?
a. 1,200,000
b. 2,000,000
c. 1,400,000
d. 400,000

34. What amount should Leonora report as cost of the land?

a. 2,425,000
b. 2,455,000
c. 2,495,000
d. 2,695,000

35. What amount should Leonora report as cost of the building?

a. 9,505,000
b. 9,490,000
c. 9,250,000
d. 9,530,000

36. What amount of borrowing cost should Hothead capitalize as cost of the building?
a. 1,200,000
b. 1,100,000
c. 1,000,000
d. 900,000

37. What amount of borrowing cost should Hothead report as interest expense?
a. 400,000
b. 200,000
c. 100,000
d. 0
 Page 10

SITUATION 10 – data about four unrelated entities

On January 1, 2022, Xavier Company acquired a machine for P5,500,000. The machine was depreciated using
the sum of years’ digits method based on a useful life of 10 years and no residual value. On January 1, 2023, the
entity changed to the straight-line method of depreciation. The entity can justify the change.

Harriet Company operates a copper mine in Central Visayas. The entity paid P5,000,000 in 2022 for the mining
site and spent an additional P3,000,000 to prepare the mine for extraction of the copper. After the copper is
extracted in approximately four years, the entity is required to restore the land to its original condition after which
the land can be sold for P1,000,000. The cash outflow possibility for the restoration cost is P2,000,000. The credit
adjusted risk-free rate of interest is 10%. The present value of 1 at 10% for 4 periods is 0.68. The entity expects
to extract 4,000,000 tons of copper from the mine. Actual production was 500,000 tons in 2022 and 450,000 tons
were sold in 2022.

On January 1, 2022, Cool Company owned equipment costing P5,200,000 with residual value of P400,000. The
useful life of the asset is 10 years and was depreciated using the straight-line method. The age of the asset is 4
years. On January 1, 2022, the equipment had a replacement cost of P8,000,000 with a residual value of P200,000.
The appraisal of the equipment showed a total revised life of 12 years and the entity decided to carry the equipment
at revalued amount. The income tax rate is 25%.

On January 1, 2022, Harmony Company acquired a building for P10,000,000. The building has a useful life of
20 years and no residual value. On December 31, 2026 and December 31, 2028, the entity tested the asset for
impairment. The fair values of the building on December 31, 2026 and December 31, 2028 were P6,000,000 and
P9,000,000 respectively.

38. What amount should Xavier record as depreciation for 2023?

a. 360,000
b. 440,000
c. 500,000
d. 550,000

39. What amount of depletion should Harriet include in cost of goods sold in 2022?

a. 1,170,000
b. 1,045,000
c. 940,500
d. 900,000

40. What amount of revaluation surplus should Cool report on December 31, 2022?

a. 1,050,000
b. 1,400,000
c. 2,450,000
d. 1,837,500

41. What amount of impairment loss should Harmony report in 2026?

a. 1,500,000
b. 2,500,000
c. 4,000,000
d. 0

42. What amount of gain on reversal of impairment should Harmony report in 2028?

a. 1,500,000
b. 2,000,000
c. 1,300,000
d. 3,800,000
 Page 11

SITUATION 11 – data about four unrelated entities

On January 1, 2022, Reed Company acquired all assets and liabilities of another entity. The acquiree has a number
of operating divisions, including one whose major industry is the manufacture of toy train. The toy train division
is regarded as a cash generating unit. In paying P10,000,000 for the net assets of the acquiree, Reed calculated
that it had acquired goodwill of P1,200,000. The goodwill was allocated to each of the divisions, and the assets
and liabilities are acquired at fair value at acquisition date. On December 31, 2022, the carrying amounts of the
assets of the toy train division were:

Building 1,000,000
Inventory 750,000
Trademark 500,000
Goodwill 250,000

There is a decline interest in toy trains because of the aggressive marketing of computer-based toys. The entity
measured the value in use of the toy train division on December 31, 2022 at P1,800,000.

Siberian Company incurred P1,600,000 of research and development cost to develop a product for which a patent
was granted on January 1, 2022. Legal fees and other costs associated with the registration of the patent totaled
P300,000. On December 31, 2022, the entity paid P450,000 for legal fees in successful defense of the patent.

Skull Company acquired a patent with a remaining legal and useful life of six years on January 1, 2020 for
P10,800,000. On January 1, 2022, a new patent is received for an improved version of the same drug. The new
patent has a legal and useful life of twenty years.

The owners of an Ames Company are planning to sell the business to new interests. The cumulative net earnings
for the past 4 years were P6,000,000 including casualty loss of P200,000. The fair value of net assets of the entity
was P16,000,000. Goodwill is determined by capitalizing average earnings at 8%.

43. What amount of impairment loss should Reed allocate to inventory?

a. 250,000
b. 150,000
c. 100,000
d. 200,000

44. What amount should Siberian capitalize as cost of the patent?

a. 750,000
b. 300,000
c. 2,050,000
d. 2,350,000

45. What amount should Skull recognize as amortization of patent for 2022?

a. 1,800,000
b. 400,000
c. 360,000
d. 300,000

46. What is the amount of goodwill if Ames Company is acquired?

a. 1,550,000
b. 1,450,000
c. 3,375,000
d. 2,125,000
 Page 12
SITUATION 12 – data about four unrelated entities
Montana Company incurred the following costs in 2022:
Acquisition of R and D equipment with a useful life of
4 years in various R and D projects 900,000
Start-up costs incurred when opening a new plant 210,000
Advertising expense to introduce a new product 1,050,000
Engineering costs incurred to advance a product to full
production stage (technical feasibility not achieved) 600,000
Bitter Company spent P18,000,000 on a new software package that is to be used internally. The amount was spent
after the application development stage. The economic life of the software is expected to be 3 years. The
equipment on which the package is to be used is being depreciated over 5 years.
Bronson Company reported income before tax of P6,250,000 which includes the following items:
Equity in earnings of Pepper Company – 35% interest 2,000,000
Dividend received from Pepper Company 400,000
Adjustment of profit of prior years for depreciation error (1,750,000)
Unrealized gain on forward contract as cash flow hedge 520,000
Gain on sale of land 190,000
Gain on credit risk of bonds payable designated at FVPL 345,000
Alpha Company and its divisions are engaged solely in manufacturing. The data pertain to the industries in which
operations were conducted for the year ended December 31, 2022:

Operating Segment Intersegment Sales Revenue from External Customers

A 1,000,000 5,000,000
B 1,500,000 3,000,000
C 4,000,000 8,000,000
D 500,000 1,300,000
E 2,000,000 2,800,000
F 200,000 900,000
Totals 9,200,000 21,000,000
47. What amount should be recorded as research development expense in 2022?
a. 825,000
b. 1,110,000
c. 1,500,000
d. 1,710,000
48. What amount should Bitter report as amortization of the software for the current year?
a. 6,000,000
b. 18,000,000
c. 3,600,000
d. 0
49. What is the correct net income of Bronson for the current year?
a. 7,600,000
b. 6,735,000
c. 7,080,000
d. 6,545,000
50. What is the minimum total external revenue of the reportable segments of Alpha?
a. 22,650,000
b. 15,750,000
c. 6,900,000
d. 3,020,000
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THEORY
51. Based on the Revised Conceptual Framework, the enhancing qualitative characteristics
a. Comparability and understandability
b. Verifiability and timeliness
c. Comparability, understandability and verifiability
d. Comparability, understandability, verifiability and timeliness
52. The accounting record where a transaction is initially recorded is
a. Ledger
b. Account
c. Trial balance
d. Journal
53. Which should be classified as current asset?
a. Bond sinking fund
b. Intangible assets, such as patent and trademark
c. Noncurrent asset held for sale
d. Equity investments at fair value through other comprehensive income
54. The following items of other comprehensive income may be recycled to profit or loss, except
a. Unrealized loss on debt investments at fair value through other comprehensive income
b. Unrealized gain on futures contract designated as cash flow hedge
c. Revaluation surplus
d. Gain as a result of translating financial statements of a foreign operation
55. Prior period errors
a. Do not include the effect of a mistake in the application of accounting policy
b. Do not affect the presentation of prior period comparative financial statements
c. Do not require further disclosure
d. Are reflected as adjustment to the opening retained earnings balance of the earliest period presented
56. Cash equivalents do not include
a. Money market instrument
b. Treasury bills
c. Held for trading equity investments
d. Commercial papers
57. Which of the following is recorded by a credit to accounts receivable?
a. Sale of merchandise on account
b. Estimating the allowance for uncollectible accounts
c. Estimating annual sales returns
d. Writeoff of accounts receivable
58. Measurement of inventory requires the determination of all of the following, except
a. The costs to be included in inventory
b. The physical goods to be included in inventory
c. The cost of goods held on consignment
d. The cost flow assumption
59. Which of the following does not describe the allowance method of recording inventory writedowns?
a. The presence of an allowance account indicates that cost exceeds net realizable value of inventory.
b. Loss on inventory writedown or reversal of such loss is reported separately but part of cost of goods sold.
c. Loss on inventory writedown or reversal of such loss is buried in cost of goods sold.
d. The cumulative loss on inventory writedown is maintained through an allowance account.
60. Which of the following will not affect investment income under the equity method?
a. Share in the profit or loss of the investee
b. Cash dividends received
c. Amortization of excess cost pertaining to equipment
d. Excess fair value on purchase of investment
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61. What is the treatment of any gain on subsequent increase in fair value less cost of disposal of a noncurrent
asset classified as held for sale?
a. The gain shall be recognized in full.
b. The gain shall not be recognized
c. The gain recognized is limited to any previous cumulative impairment losses
d. The gain is recognized directly in retained earnings
62. Trading bond investments are reported at
a. Amortized cost
b. Face amount
c. Fair value
d. Maturity
63. When bonds are purchased at a discount, the effective interest rate is
a. Higher than the stated interest rate
b. Lower than the stated interest rate
c. Equal to the stated interest rate
d. Cannot be determined
64. All of the following are based on a highly probable forecast transaction except
a. Forward contract
b. Futures contract
c. Option
d. Interest rate swap
65. Which of the following expenditures would never qualify as an exploration and evaluation asset?
a. Costs for acquisition of rights to explore
b. Costs for exploratory drilling
c. Costs related to the development of mineral resources
d. Costs for activities to evaluate the technical feasibility of extracting a resource
66. When the revaluation model is used for reporting property, plant and equipment, the gain should be included
a. In retained earnings
b. In gain from revaluation in the income statement
c. In revaluation surplus as component of other comprehensive income
d. In extraordinary gain in the income statement
67. Which condition must exist in order for an impairment loss to be recognized?
a. Carrying amount is less than fair value
b. Carrying amount is not recoverable
c. Carrying amount is less than value in use
d. Carrying amount is recoverable
68. The cost of an internally generated asset includes all of the following except
a. Cost of materials and services used in generating the intangible asset
b. Compensation of personnel directly engaged in generating the intangible asset
c. Fees to register a legal right
d. Cost on training staff to operate the asset
69. How is goodwill arising on the acquisition of an associate dealt with in the financial statements?
a. It is amortized
b. It is tested for impairment separately
c. It is written off as a loss
d. It is not recognized separately but part of the investment balance
70. Which of the following would be considered research and development?
a. Routine effort to refine an existing product
b. Periodic alteration to existing production line
c. Marketing research to promote a new product
d. Construction of a prototype

END