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Polytechnic University of the Philippines Junior Philippine Institute of Accountants College of Accountancy

MULTIPLE CHOICE THEORY 1. Bank reconciliations are normally prepared on a monthly basis to identify adjustments needed in the depositors records and to identify bank errors. Adjustments should be recorded for a. all items except bank errors, outstanding checks, and deposits in transit. b. Book errors, bank errors, deposits in transit and outstanding checks c. Bank errors, outstanding checks, and deposits in transit. d. Outstanding checks and deposits in transit. 2. Which a. adjust b. c. d. of the following is not true? Entries made to the Petty Cash account only to increase or decrease the size of the fund or to the if not replenished at year end. The Imprest petty cash system in effect adheres to the rule disbursement by check. The Petty Cash account is debited when the fund is replenished. All of these are not true.

3. Manila Company prepares an accounts receivable aging schedule with a series of computations as follows, 2% of the total peso balance of accounts from 1-69 days past due; plus 5% of the total peso balance of accounts from 61-120 days past due, and so on. How would you describe the total of the amounts determined in the series of computations? a. When added to the total of accounts written off during the year, this new sum is the desired credit balance of the allowance account. b. It is the amount of the desired credit balance of the allowance for doubtful accounts to be reported in the year-end financial statements. c. It is the amount that should be added to the allowance for doubtful accounts at year-end. d. It is the amount of bad debts expense for the year. 4. When a specific customers account id written off by a company using allowance method, the effect on net income and net realizable value (NRV) f the accounts receivable is: Net Income NRV of Accounts receivable a. None None b. Decrease Decrease c. Increase Increase d. Decrease None 5. Which a. b. c. d. of the following would not be reported as inventory? Machinery acquired by a manufacturing company for use in the production process. Partially completed good held by a manufacturing company. Stock and bonds held for resale by a brokerage firm. Land acquired for resale by a real estate firm.


A company using periodic inventory system neglected to record a purchase of merchandise on account at year-end. This merchandise was omitted from the year-end physical count. How will these errors affect inventory at year-end and cost of goods sold for the year? Inventory Cost of Goods Sold a. Understate Overstate b. Understate No effect c. No effect Understate d. No effect Overstate 7. The gross profit method of estimating inventory would not be useful when: a. Inventories have been destroyed or lost by fire, theft, or other casualty and the specific data required for inventory valuation are not available. b. A periodic inventory system is in use and inventories are required for interim statements. c. The relation between gross profit and sales remains stable over time. d. There is a significant change in the mix of the products being sold. 8. Which statement is accurate about calculating the cost ratio to be used with the retail inventory method? a. The beginning inventory is excluded and markdowns are not deducted when using the conventional method. b. The beginning inventory is included and markdowns are not deducted when using the conventional method.

c. The beginning inventory is excluded and markdowns are not deducted when using the FIFO cost method. d. The beginning inventory is included and markdowns are nit deducted when using the FIFO cost method.


An asset is being constructed for the enterprises own use. The asset has been financed with specific borrowing. Using the alternative treatment method in accordance to PAS 23, the interest cost incurred during the construction period as a result of expenditures for the asset is: a. A part of the historical cost of acquiring the asset to be written off over the term of the borrowing to finance the construction of the asset. b. A part of the historical cost of acquiring the asset to be written off over the estimated useful life of asset. c. Recorded as a deferred charge and amortized over the term of the borrowing. d. Interest expense in the construction period. 10. The company purchased land to be used as the site for the construction of a plant. Timber was cut from the building site so that construction of the plant could begin. The proceeds from the sale of the timber should be: a. Netted against the cost to clear the land and expensed as incurred. b. Deducted from the cost of the plant. c. Deducted from the cost of the land. d. Classified as other income. 11. Laguna, Inc. purchased certain plant assets under a deferred payment contract. The agreement was P180,000 per year for ten years. The plant asset should be valued at: a. present value of P180,000 annuity for ten years at an imputed interest rate. b. Future value of P180,000 for ten years at an imputed interest rate. c. P1,800,000 imputed interest. d. P1,800,00 12. A company using the group depreciation method for its delivery trucks retired one of its delivery truck the average service life of the group was reached. Cash proceeds were received from a salvage company. The net carrying amount of these group asset accounts would be decreased by the: a. Cash proceeds received and original cost of the truck b. Original cost of the truck less cash proceeds. c. Original costs of the truck d. Cash proceeds received. 13. A method that ignored salvage value in calculating periodic depreciation expense is the a. Double-declining balance method b. Sum-of-the-years-digits method c. Productive-output method d. Group composite method 14. The sale of the depreciable asset results in gain if the selling price is a. Greater than its salvage value b. Greater than its book value c. Less than its book value d. Equal to its book value 15. A machine with a four-year estimated useful life and an estimated 15% salvage value was acquired of January 2, 2003. The increase in accumulated depreciation for 2004 using the double declining balance method would be: a. Original cost x 85% x 50% x 50% b. Original cost x 85% x 50% c. Original cost x 50% x 50% d. Original cost x 50% 16. Samar Super Store is selling an old delivery truck. The truck is fully depreciated, with no salvage value. Which of these statements will apply? a. Samar must write off both the original cost of the truck and the accumulated depreciation when truck is sold. b. Samar will record a gain on the sale of the truck. c. A gain will be reported on the income statement d. All of these.

17. Which of the following principles best describes the conceptual rationale for the methods of matching depreciation expense with revenues? a. Systematic and rational allocation b. Associating cause and effect c. Immediate recognition d. Partial recognition 18. When an estimate of an assets useful life is changed a. There is no change in the amount of depreciation expense recorded for future years. b. Only the depreciation expense in then remaining years is changed. c. Depreciation expense for all past periods must be changed. d. Non e of the above is true. 19. When similar assets are exchanged at a loss, the basis if the new asset is usually. a. The book value of the old assets plus any cash paid on the trade-in. b. The fair market value of the new asset. c. The list price of the new asset. d. Either a or b. 20. the term intangible assets is used in accounting to denote. a. Such items as patents, copyrights, and claims against customers that can be valued on a monetary basis. b. Properties without physical characteristics that have long-term effects on a business enterprise. c. Assets with lesser economic significance because of the nature of such assets. d. Current or non-current property items without physical characteristics. 21. A consideration not relevant in determining the useful life of an intangible asset is the: a. Legal, regulatory or contractual provisions b. Provisions for renewal or extension c. Expected actions of competitors d. Initial cost 22. Intangible assets are said to be without physical substance; hence, one of the items listed is nit such an asset. a. Patent b. Franchise c. Leasehold d. Marketable securities 23. Which of the following research and development related costs should be capitalized and amortized over current and future periods? a. Costs of testing equipment that will also be used in another separate research development project scheduled to begin next year. b. Research findings purchased from another company to add a particular research project currently in process. c. Labor and material cost incurred in building a prototype model. d. Administrative salaries allocated to research and development. 24. Of the following, select the item that is not properly classified as long-term investment. a. Stock of an unconsolidated subsidiary bank. b. Cash sinking fund for retirement bonds. c. Warehouse in process of construction. d. Land held as future plant site. 25. When an investor uses the cost method to account for investments n common stock, cash dividends received by the investor from the investee should normally be recorded as: a. A deduction from the investors share of the investees profit. b. An addition to the investors share of the investees profit. c. Deduction from the investment account. d. Dividend revenue 26. All of the following items are indication s that an investor can exercise significant influence over the operating and financial policies of a company except a. Ownership of 49% of the voting stock of the company. b. Interchange of managerial personnel. c. Material intercompany transactions. d. Computer timeshating.

27. When an investor uses the equity method to account for investments in common stock, the investment will be increased when the investor recognizes: a. Depreciation related to the excess of the market value over the book value of the inveatees depreciable assets at the date of purchase of the investor. b. Periodic amortization of the goodwill related to the purchase. c. A proportionate share of net income of the investee. d. A cash dividend received from the investee. 28. How should the value of the stock rights received by an existing investor as a result of a preemptive right to be accounted for at the time the stock rights are received? a. The market value of the stock rights at the time of the issuance should be debited to investment in stock rights and credited to retained earnings. b. The market value of the stock rights at the time of issuance should be debited to the investment in stock rights and credit to investment account. c. A portion of the book value of the common stock should be allocated to the new right received using the relative fair value method. d. No value should be assigned to stock rights. 29. The market value of the current portfolio of marketable equity securities by the Cebu Corporation less than cost. The difference should be accounted for by a. Reporting unrealized loss in security investments directly in the stockholders equity section of the balance sheet. b. Reporting an unrealized loss in security investments in the income statement. c. A direct reduction to the investment account. d. A note to the financial statements. 30. Which of the following is true? a. Available-for sale securities can be classified as current or non-current depending in managements intent. b. Trading securities can be classified as current or non-current depending on managements intent. c. Held-to-maturity securities should not be classified as current under any circumstance. d. Trading securities should not be classified a current or non-current under any circumstance. MULTIPLE CHOICE PROBLEMS 31. The cash account in the current asset section of the balance sheet of Agusan Hardware consist of: Petty cash fund (of w/c P960 is in the form of paid vouchers) Bond sinking fund cash Receivable from employees Checking account in City Bank, per bank statement (including check Outstanding of P2,480) Currencies and coins awaiting deposit Deposit in bank closed by central Bank The correct cash account balance for the balance sheet is: a. P368,000 b. P239,040 c. P236,560 P4,000 80,000 4,800 194,000 41,600 48,000 P372,000 d. P45, 512

32. The cash account shows a balance of P45,000 before reconciliation. The bank statement does not include deposit P2,300 made in the last day of the month. The bank statement shows a collect on by the bank of the P940 and the customers check for P320 was returned because it was NSF. A customers check for P450 was recorded on the books at P540, and a check written for P79 was recorded as P97. The correct balance in the cash account was: a. P47,848 b. P45,728 c. P45,548 d. P45,512

33. On

January 1, 2004, the books of the Bataan Corporation showed a credit balance in the allowance for doubtful accounts of P11,250. During 2004, P18,750 of accounts were written off as uncollectible and P9,000 of accounts previously written off were recovered. Based on prior experience, Bataan estimated that 2% of 2004s credit sales will prove to be uncollectible. The net credit sales for 2004 were P900,000. As of December 31, 2004, the balance in the allowance for doubtful accounts should be: a. P29,250 b. P19,500 c. P18,000 d. P10,500 34. Bulacan company held a P24,00, 3-month, 15% note. One month before maturity, it discounted the note at 10% at local bank. Approximately, how much interest did Bulacan earn on the note?

a. P900

b. P692

c. P240

d. P248

35. On June 1, 2004, Cavite Industries sold merchandise with list price of P35,000 to Bantangas Hardwares account. Cavite allowed trade discounts of 30% and 20%. Credit terms were 2/15, n/40 and the sale were made FOB shipping point. Cavite prepared P1,400 of delivery costs for Batangas as an accommodation, June 12, 2004, Cavite received from Batangas a remittance in full payment amounting to: a. P21,980 b. P20,608 c. P20,580 d. 19,208 36. Pasig Supermart began operations in 2002. During the first two years of operations, Pasig made undiscovered errors in taking its year-end inventories that overstated 2002 ending inventory by P37,500 and overstated 2003 ending inventory by P30,000. The combined effect of these errors in the reporters income is: 2002 2003 2004 a. Under P37,500 Under P67,500 Not affected b. Over P37,500 Under P7,500 Under P30,000 c. Over P37,500 Over P67,500 Under P30,000 d. Over P37,500 Over P30,000 Not affected 37. On October 31, 2003, a flood at Valenzuela Grains only warehouse cause severe damage to its entire inventory. Based on recent history, Valenzuela has a gross profit of 25% of net sales. The following information is available form Valenzuelas records for the ten months ended October 31: Inventory, January 1 P416,000 Purchases 3,296,000 Purchase returns 48,000 Sales 4,480,000 Sales discounts 320,000 A physical inventory disclosed usable damage goods which Valenzuela estimates can be sold for P56,000. Using the gross profit method, the estimated cost of goods sold for the ten months ended October 31 should be: a. P3,360,000 b. P3,120,000 c. P3,064,000 d. P544,000 38. The Marikina Shoes uses the retail inventory method. Information relating to the computation of inventory at December 31, 2004 is as follows. Cost Retail Inventory, January 1 P25,600 P64,000 Sales 464,000 Purchases 216,000 480,000 Freight-in 6,080 Net mark-ups 32,000 Net markdowns 16,000 What is the ending inventory at cost at December 31, 2004, using the retail inventory method and the cost or market estimation? a. P43,200 b. P41,280 c. P36,000 d. P34,400 39. A tract of land with a building was acquired for P3,600,000. The closing statement indicated that the value was P2,400,000 and the building value was P1,200,000. Shortly after acquisition, the building were demolished at a cost of P240,000. A new building was constructed for P1,800,000 plus the following excavation fees, P72,000; architectural design fees, P96,000; and building permit, P24,000. What are the costs of the land and building, respectively? a. P3,840,000 and P3,192,000 c. P2,640,000 and P3,192,000 b. P3,840,000 and P1,992,000 d. P2,640,000 and P1,992,000 40. Quezon City Factory borrowed P2,800,000 on a 10% note payable to finance a new warehouse Quezon os constructing for its own use. The only other debt on Quezon Citys books is a P4,200,000, 12% more payable on a n office building. At the end of the current year, average accumulated expenditures on new warehouse totaled P3,325,000. What is the amount of interest that Quezon City Factory should capitalize for the current year? a. P365,750 b. P343,000 c. P332,500 d. P280,000 41. Makati Commercial purchased land, land improvements and building from Mandaluyong Enterprises P1,152,000 and furniture and equipment from San Juan Trading for P448,000. The total cash outlays the two transactions amounted to P1,600,000. The appraised values of the assets are as follows: building, P480,000; furniture, P280,000; equipment, P200,000; land, P840,000; and land improvement, P120,000. What is the allocated cost of the building?

a. P480,000 b. P400,000 c. P384,000 d. P192,000 42. On January 2, 2004, Binangonan Fisheries bought an equipment under a contract tat required a down payment of P25,000, plus 24 monthly payments of P12,500 each, for total cash payments of P325,000. The cash equipment price of the machinery was P275,000. The machinery ahs an estimated useful life of 10 years and estimated salvage value of P12,500. Binangonan uses straight line method of depreciation. In its 2004 income statement , what amount should Binangonan report as depreciation on this equipment? a. P32,500 b. P31,250 c. P27,500 d. P26,250 43. Angono Publishing takes a full years depreciation expense in the year of disposition. Data relating to one of Angonos depreciable assets at December 31, 2004 are as follows: Acquisition year 2002 Cost P225,000 Residual Value 15,000 Accumulated depreciation 81,000 Estimated useful life 10 years Using the same depreciation method as used in 2002 and 2003, how much depreciation expense should Angono record in 2004 for this asset? a. P30,545 b. P28,800 c. P23,040 d. P21,000 44. Morong Commercial purchased a computer hardware on January 1, 2003 for P360,000. The economic life and residual value are estimated to be 5 years and P40,000 respectively. The sum-of-the-years-digits method is used. In January 1, 2004, the company decides to change to straight-line method. What is the depreciation expense for 2004? a. P108,000 b. P86,400 c. P63,000 d. P53,333

45. Paraaque

Construction recently exchanged an old truck, which cost P864,000 and was one-third depreciated, and P560,000 cash for used crane having a current fair value of P1,040,000. At what amount should the crane be recorded on the books of Paraaque? a. P1,136,000 b. P1,040,000 c. P864,000 d. P560,000 Items 46 and 47 are based on the following information. On January 1, 2001, a new building was purchased at a cost of P1,800,000. Depreciation was computed on a straight-line basis at 4% per year. On January 1, 2004, the building was appraised and was reported to have fair value of P2,160,000 and an estimated useful life of 15 years. This was the first revaluation made on building since its acquisition. 46. What is the revaluation surplus recognized in the accounts? a. P576, 000 b. P504,000 c. P360,000 d. P90,000 d. P72,000

47. What is the revised depreciation surplus recognized in the acquisition? a. P144,000 b. P120,000 c. P110,400

48. During

December 2004, Cainta Company determined that there had been a significant decrease in the market value of its equipment used in its manufacturing process. At December 31, 2004, Cainta compiled the information below: Original cost of equipment P160,000 Accumulated depreciation 96,000 Value in use 56,000 Net selling price of equipment 40,000 What is the amount of impairment loss that should be reported on Caintas income statement for the year ended Dec. 31, 2004? a. P120,000 b. P104,000 c. P24,000 d. P8,000 49. Antipolo Mining acquired a tract of land containing extractable natural resources. Antipolo is required thye purchase contract to restore the land to a condition suitable for recreational use after it ahs extract the natural resources. Geological surveys estimated that the recoverable reserves will be 1,500,000 tons and that land will have a value of P600,000 after restoration. Relevant cost information follows: Land, P5,100,000; and estimated restoration cost, P900,00. What should be the depletion charge per ton of extracted material? a. P312,000 b. P270,000 c. P240,000 d. P120,00

50. On October 1, 2004, Teresa Resources exchanged 12,000 shares of its common stock (P10 par value) held in treasury for a copyright owned by Baras, Inc. The treasury shares were acquired in 1998 at a cost of P240,000. At the exchange date, Teresas common stock was quoted at P26 per share, and the copyright had a net carrying value on Baras book of P270,000. Teresa should record the copyright at: a. P312,000 b. P270,000 c. P240,000 d. P120,000 51. During 1999, Tanay Fisheries spent P132,000 on research and development costs for a new product. This product was patented January 1, 2001, at a small cost that was expensed in 2000. The patent had a legal life of 17 years and an estimated useful life of 8 years. In January 2004, Tanay paid P12,000 for legal fees in successful defense of the patent. The amortization of then patent for 2004 should be: a. P19,500 b. P16,500 c. P3,000 d. -0-

52. On

January 2, 2004, Pakil Costrucution bought a trademark from Pillia Enterproses ofr P375,000. Pakil retained an independent consultant, who estimated the trademarks remaining life to be 30 years. Its unamortized cost in Pillilias accounting records was P285,00. Pakil decode to amortize the trademark on the maximum period allowed. In Pakils December 31, 2004 balance sheet, what amount should be reported as accumulated amortization? a. P18,750 b. P15,000 c. P7,125 d. P5,700 53. Paete Wood Products purchased a patent on January 2, 2004 for P42,840. The patent was being amortized over its remaining legal life of 15 years expiring on January 2016. During 2004, Paete determined that the economic benefits of the patent would not last longed that 10 years from the date of acquisition. What amount should be charged to patent amortization expense for the year ended Dec. 31, 2004? a. P8,568 b. P4,896 c. P4,284 d. P2,856

54. On

July 1, 2004, Pagsanjan Resort signed an agreement to operate as a franchisee of Fast Foods, Inc. for an initial franchise fee of P480,000. Of this amount, P160,000 was paid when the agreement was signed and the balance is payable in four equal annual payments. The payment is not refundable and no future services are required for the franchise. Pagsanjans credit ratings indicate that it can borrow money for a loan of this type. Information on present and future value factors is as follow: Present value of 1 at 14% for 4 periods 0.59 Present value of an ordinary annuity of 1 at 14% for 4 periods 2.91 What is the cost of the franchise acquired on July 1, 2003? a. P540, 800 b. P480,000 c. P392,800

55. On January 2, 2004, Taguig Company acquired 1,500 shares of P5 par value common stock along with the
shares of P25 par value preferred stock of Pateros Foods in a single transaction for P78,000. Currently, Pateros common stock and preferred stock are trading for P35 per share and P84 per share respectively. On Jan. 2, Taguig allocate the cost of the investment in Pateros common stock and preferred stock as follows: Common Stock Preferred Stock a. P52,500 P31,500 b. P52,500 P25,500 c. P48,750 P29,250 d. P34,667 P43,333 56. The Allowance for Market Decline account had a balance of P28,000. In 2004, there were no transactions involving marketable equity securities. As of December 31, 2004, its cost and market value data for the current portfolio were as follows: Security Cost Market A Company Common P122,500 P101,600 B Company Preferred P156,000 P136,000 C Company Common P140,000 P150,400 Malabons income statement for 2004 would include a(an) a. recovery of unrealized loss on security investments of P28,000. b. Recovery of unrealized loss on security investments of P8,000 c. Unrealized loss on security investments for P20,000. d. Unrealized loss on security investments for P8,000. Items 57, 57. and 59 are based on the following information. Navotas products acquired 30% of Obando Companys voting stock for P160,000 on January 2, 2003. Navotas 30% interest in Obando gave Navotas the ability to exercise significant influence over Obandos operating and financial policies. During 2003, Obando earned P64,000 and paid dividends of P40,000. Obando reported earnings of P80,000 for the 6 months ended June 30, 2004 and P160,000 for the year ended December 31,

2004. On July 1, 2004, Navotas sold half of its stock in Obando for P120,000 cash. Obando paid dividends of P48,000 on October 1, 2004. 57. Before income taxes, what amount should Navotas include in its 2003 income statement as a result of the investement. a. P64,000 b. P40,000 c. P19,200 d. P12,000 58. In Navotas December 31,2003 balance sheet, what should be the carrying amount of this investment? a. P184,000 b. P179,200 c. P197,200 d. P160,000 59. In its 2004 income statement, what amount should Navotas report as gain from the sale of half of its investment? a. P36,400 b. P28,000 c. P24,400 d. P19,600 Items 60-61 are based on the following information: Muntinlupa Services had the following transactions I the capital stock of San Pedro Corp. Jan. 5 Bought 600 common shares, P50 par, at P44. June 15 Received 10% stock dividend Aug. 31 received P4 cash dividend for each share of stock Oct. 10 Received stock rights to buy one new share at P50 for every 5 shares held. Market value of right, P2; Market value of stock ex-right, P78. 60. The unit cost of the stock after the stock dividend on June 15 is: a.P45 b. P40 c. P42.50 61. After the receipt of the stock right on Oct. 10, the unit cost per share is a. P41 b. P40.75 c. P40.25 d. P37.50 d. P39

62. During 2004, Meycauayan Jewelers purchased marketable equity securities as a short term investment and classified them as trading securities. The cost and market values at Dec. 31, 2003 were as follows. Security Cost Market Value X Co. preferred, 200 shares P67,200 P81,600 Y Co. common, 2,000 shares 408,000 367,200 Z Co. common, 4,000 shares __756,000 708,000 P1,231,200 P1,156,800 Meycauayan sold 1,000 shares of Y Company stock on March 1, 2004 for P200 per share, incurring P9,600 in brokerage commissions and taxes. On the sale, Meycauayan should report a realized loss of a. P13,600 b. P6,800 c. P4,000 d. P-063. On January 2, 2003, Marilao Trading purchased as long-term investment, 8,000 shares at Bocaue Fireworks common stock, for P40 per share. On Dec. 31, 2003, the market price of Bocaues stock was P35 per share reflecting a temporary decline in market price. On Dec. 31, 2004, Marilao sold 6,400 shares Bocaues stock for P30 per share. For the year 2004, Marilao should report a loss on disposal of long-term investment of|: a. P80,000 b. P72,000 c. P64,000 d. P32,000

64. Pampangas Best owns 5,000 shares of the outstanding common stock of Tarlac Sugar Central, which has
several hundred thousand shares publicly traded. These 5,000 shares were purchased by Pampanga in 2003 for P80 per share. On Aug. 30, 2004, Tarlac distributed stock rights to Pampanga. Pampanga entitled to buy one new share of Trade common stock for P72 cash and two of these rights. On August 2004, each share of stock had a market value of P14.40. What cost should be recorded for each new share that Pampanga acquired by exercising the rights? a. P105.60 b. P100.80 c. P91.20 d, P72.00


1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15.


16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30.


PROBLEMS: 31. 32. 33. 34. 35. 36. 37. 38. 39. 40. 41. 42. 43. 44. 45. 46. 47. C C B B B A B B B C D B D B C A A 48. 49. 50. 51. 52. 53. 54. 55. 56. 57. 58. 59. 60. 61. 62. 63. 64. D B A D A B C C B C C C B D B C C