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ARTS CPA Review
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CONSOLIDATED TOPICS
PRACTICAL ACCOUNTING I MICHAEL B. BONGALONTA,CPA,MICB,MBA
A. BORROWING COST (PAS 23)
Problem 1 (adapted): The following transaction pertain to the general borrowings made during 2014 by Victory
Company in connection with the construction of the company’s new warehouse:
Principal Borrowing Costs

8% bank loan P2,400,000 P192,000
6% short-term note 1,600,000 96,000
8% long-term note 2,000,000 160,000
The construction started on January 1, 2014 and the warehouse was completed on December 31, 2014.
Expenditures on the warehouse were as follows:
January 1 P 400,000 September 30 P1,000,000

March 31 1,000,000 December 31 400,000
June 30 1,200,000
A. How much is the capitalizable borrowing cost of Victory Company?

B. Compute the cost of the new warehouse.
Answer:
Total borrowing costs (192,000 + 96,000 + 160,000) P 448,000

÷ Total borrowings (2,400,000 + 1,600,000 + 2,000,000) 6,000,000
Average capitalization rate 7.47%
Principal Average
Date Cost Incurred Rate Time Interest
01/01 P400,000 x 7.47% x 12/12 P29,880
04/01 1,000,000 x 7.47% x 09/12 56,025
07/01 1,200,000 x 7.47% x 06/12 44,820
10/01 1,000,000 x 7.47% x 03/12 18,675
12/31 400,000 x 7.47% X 00/12 0
Total borrowing cost to be capitalized P149,400
Problem 2 (adapted): Moses Company borrowed P4, 000, 000 on a 10% note payable to
finance a new warehouse which the entity is constructing for its own use. The only other
debt of Moses’ books is a P6, 000, 000.00, 12% mortgage payable on an office building. At
the end of the current year, average accumulated expenditures on the new warehouse
totaled P4, 750, 000. What amount should Moses capitalize as interest for the current year?
a. 400, 000
b. 475, 000
c. 490, 000
d. 522, 500
Answer: C
Average expenditures 4, 750, 000

Specific borrowing (4, 000, 000)
General borrowing 750, 000
Specific borrowing ( 4, 000, 000x10%) 400, 000

General borrowing (750, 000x12%) 90, 000
490, 000
B. GOVERNMENT GRANT (PAS 20)
Problem 3 (adapted): On January 2, 2007, Brand Company received a grant of P60,000,000 to

compensate it for costs it incurred in plating trees over a period of five years. Brand Company
will incur such cost in this manner:
Year Costs
2007 P2,000,000
2008 P4,000,000
2009 P6,000,000
2010 P8,000,000
2011 P10,000,000
What amount of income should Brand Company recognize at the end of year 2010?
Answer:
Year Grant Ratio Income Recognized
2007 P60,000,000 x2/30 = P4,000,000
2008 P60,000,000 x4/30 = P8,000,000
2009 P60,000,000 x6/30 = P12,000,000
2010 P60,000,000 x8/30 = P16,000,000
2011 P60,000,000 x10/30 = P20,000,000
Problem 4 (adapted): On January 2, 2011, Dumont Company received a consolidated grant of

P240,000,000. Three-fourths of the grant is to be utilized to purchase a college building for
students from underdeveloped or developing countries. The balance of the grant is for
subsidizing the tuition costs of those students for four years from the date of the grant. The
expected college life of the building is 10 years and the company uses the straight line
method of depreciation.
What amount of the grant is recognized as income for the year ended December 31, 2011?
Answer:
Grant related to asset
P240,000,000 x ¾ = P180,000,000 ÷ 10 years = P18,000,000
Grant related to income
P240,000,000 x ¼ = P60,000,000 ÷ 4 years = 15,000,000
Total P33,000,000
C. WASTING ASSETS(PFRS 6)
Problem 5 (adapted): In January 1, 2011, HUFF MINING COMPANY purchased a mineral mine for P36,000,000 with
removal ore estimated by biological survey at P2,160,000 tons. The property has an estimated value of P3,600,000 after
the ore has been extracted. Huff incurred P10,800,000 of development cost preparing the property for the extraction of
ore. During 2011, P270,000 tons were removed and P240,000 tons were sold. For the year ended December 31, 2011,
what amount of depletion should be included in cost of goods sold?
Solution:
Purchase price P 36,000,000

Development cost 10,800,000
Total cost of ore property P 46,800,000
Residual value (3,600,000)
Depletable amount P 43,200,000
Rate per ton (43,200,000/2,160,000) 20
Depletion for 2011 (270,000x20) P 5,400,000
Depletion in cost of goods sold (240,000x20) P 4,800,000
Problem 6 (adapted):BATON CORPORATION acquires a coal mine at a cost of

P5,000,000. Intangible development costs total P1,200,000. After extraction has
occurred, Baton must restore the property (estimated fair value of the obligation
is P600,000), after which it can be sold for P1,700,000. Baton estimates that
P50,000 tons of coal can be extracted.
If P9,000 tons were extracted during the first year, which of the following would
be included in the journal entry to record depletion?
A. Debit to Accumulated Depletion for P918,000
B. Debit to Inventory for P918,000
C. Credit to Inventory for P900,000
D. Credit to Accumulated Depletion for P1,530,000
Solution 34-7 Answer: B

Cost of coal mine P5,000,000
Development cost 1,200,000
Fair value of restoration cost 600,000
Salvage value (1,700,000)
Depletable cost P5,100,000
÷ total estimate 50,000
Depletion per ton P 102
X Tons extracted 9,000
Debit to inventory P 918,000
D. REVALUATION AND IMPAIRMENT OF ASSETS (PAS 36)
Problem 7 (adapted): On June 30, 2011, the statement of financial position of Louisiana Company reported the following:
Equipment at cost 5,000,000

Accumulated depreciation 1,500,000
The equipment was measured using the cost model and depreciated on straight line basis over a 10-year period. On December 31, 2011, the management
decided to change the basis of measuring the equipment from cost model to the revaluation model. The equipment was revalued to its fair value of
P4,550,000 with remaining useful life of 5 years. Ignoring the income tax, what amount should Louisiana report as revaluation surplus on December 31,
2011?
Solution
Answer b
Cost – June 30, 2011 5,000,000

Accumulated Depreciation (1,500,000)
Carrying amount – June 30, 2011 3,500,000
Depreciation from July 1 to December 31, 2011
(5,000,000/10 x 6/12) ( 250,000)
Carrying amount – December 31, 2011 3,250,000
Fair value – December 31, 2011 4,550,000

Carrying amount – December 31, 2011 3,250,000
Revaluation surplus – December 31, 2011 1,300,000
The fair value is already the sound value or revalued amount of the equipment.
Subsequent annual depreciation for 2011 (4,550,000/5) 910,000
Problem 8 (adapted): A division of Vixen Company has following non-current assets, which are stated at their carrying
amounts ate December 31, 2012:
Land and Buildings P320,000,000

Plant and machinery 110,000,000
Goodwill 70,000,000
The management of Vixen believes that the value in use of these assets may have become impaired, because a major
competitor has developed a superior version of the same product. As a result, sales are expected to fall. The following
additional information is relevant: The land and buildings are carried at a valuation. The depreciated historical cost is
P265,000,000 at December 31, 2012. All other non-current assets are carried at historical cost. The goodwill does not
have a market value. It is estimated that the land and buildings could be sold for P270,000,000 and the plant and
machinery could be sold for P50,000,000, net of direct selling costs. The value in use of the assets has been calculated at
P385,000,000. What is the impairment loss to be recognized by Vixen Company?
Answer:
Fair value less cost to sell (P270,000,000 and P50,000,000) P320,000,000

Value in use 385,000,000
Recoverable amount ( the higher between the
fair value less cost to sell and value in use) P385,000,000
Carrying amount P500,000,000

Less: Recoverable amount 385,000,000
Impairment loss P115,000,000
Problem 9 (adapted): Foster Company acquires 80% of the shares of Roster Ltd. on January 2, 2010 for Pj1,600,000.
At this date, the identifiable net asset of Roster Ltd. have a fair value of P1,500,000. Roster Ltd. is the smallest group of
assets that generate cash inflows from continuing use that are largely independent of the cash flows from other assets.
Roster Ltd. is a cash-generating-unit. During the year 2010, the amount of depreciation in relation to the identifiable
assets of Roster Ltd. is P150,000. At December 31, 2010, Foster Company determines that the recoverable amount of
roster Ltd. is P1,000,000.
a. What is the total amount of impairment loss on Roster Ltd?

Answer:850,000
b. What amount of the impairment loss should be charged agjainst the goodwill of foster Company?
Answer:100,000
c. What amount of the impairment loss should Foster Company recognize on the identifiable assets of Foster
Ltd.?
Answer:350,000
Solution:
Acquisition cost P1,600,000
Net asset acquired (P1,500,000 x 80%) 1,200,000
Goodwill P 400,000
In order to test Roster Ltd for impairment, the goodwill has to be grossed up. If goodwill of
P400,000 relates to 80%, then P500,000 (P400,000/80%) goodwill relates 100%. In other words,
the P400,000 goodwill is grossed up to P500,000.
Test of impairment:
Identifiable
Particulars Goodwill assets Total
Gross carrying amount P400,000 P1,500,000 P1,900,000
Accum. Dep. (150,000) (150,000)
Carrying amount, 12/31/10 P400,000 P1,350,000 P1,750,000
Minority interest 100,000 100,000
Notionally adjusted carrying value P500,000 P1,350,000 P1,850,000
Less: recoverable amount P1,000,000
Total impairment loss P 850,000
Allocation of Impairment Loss:

Identifiable
Particulars Goodwill assets Total
Gross carrying amount P400,000 P1,500,000 P1,900,000
Accum. Dep. (150,000) (150,000)
Carrying amount, 12/31/10 P400,000 P1,350,000 P1,750,000
Impairment loss 400,000 350,00 750,000
Carrying amount after impairment -0- P1,000,000 P1,000,000
Problem 10 (adapted): Marcus Company operates an oil platform in the sea. Marcus Company has provided the
amount of P10,000,000 for the financial costs of the restoration of the seabed, which is the present value of such costs.
Marcus Company has received an offer to buy the oil platform for P16,000,000 and the disposal costs would be P2,000,000.
The value in use of the oil platform is approximately P24,000,000 before the restoration costs. The carrying value of the oil
platform is P20,000,000.
What amount of impairment loss should Marcus Company recognize related to the oil platform?
a. None
b. P4,000,000
c. P6,000,000
d. P8,000,000
Solution 36-5 Answer a

Fair value less cost to sell (P16,000,000-
2,000,000) 14,000,000
Value in in use (P24,000,000-10,000,000) 14,000,000
Carrying value (P20,000,000-10,000,000) 10,000,000
Recoverable amount 14,000,000

Impairment loss None
E. R&D COST AND INTANGIBLE ASSET (PAS38)
Problem 11 (adapted): On December 31, 2011, Kate Conde Company exchanged 100,000 ordinary shares of P50 par
value for the following assets:
* A trademark valued at P1,500,000.
* A building, including land, valued at P6,500,000 (20% of the value is for the land).
* A franchise right. No estimate of the value is available at the date of exchange.
The ordinary share of Kate Conde Company is selling at P90 at the date of exchange.
What amount should be recognized as measurement of the franchise on the date of exchange?
a. 1,500,000
b. 1,000,000
c. 2,000,000
d. 0
Solution 37-1 Answer b

Fair value of shares issued (100,000 x 90) 9,000,000
Fair value of trademark (1,500,000)
Fair value of land (20% x 6,500,000) (1,300,000)
Fair value of building (80% x 6,500,000) (5,200,000)
Measurement of franchise 1,000,000
Problem 12 (adapted): Rose Anne Company developed a new machine that reduces the time required to insert the
fortune into its fortune cookies. Because the process is considered very valuable to the fortune cookie industry, Rose Anne
Company patented the machine. The following expenses were incurred in developing and patenting the machine:
Research and development laboratory expense 500,000

Metal used in the construction of the machine 160,000
Blueprint used to design the machine 60,000
Legal expenses to obtain patent 240,000
Wages paid for the employees’ work on the research and

development, and building of the machine (60% of the
time was spent on actually building the machine) 600,000
Expense of the drawing required by the patent office to
be submitted with the patent application 30,000
Fee paid to government patent office to process application 50,000
At year end, Rose Anne Company paid P350,000 in legal fees to successfully defend the patent against the infringement
suit by another entity. What total amount of the expenditures should be capitalized as cost of patent?
Answer
Legal expenses to obtain patent 240,000

Expense of drawing required by patent office 30,000
Fee paid to patent office 50,000
Total cost of patent 320,000
Metal used 160,000
Blueprint used to design machine 60,000
Wages paid (60% x 600,000) 360,000
Cost of machine 580,000
Laboratory expense 500,000
Wages paid (40% x 600,000) 240,000
R and D expense 740,000
Problem 13 (adapted): On January 1, 2011, RAM Company purchased MAR Company at a cost that result in recognition
of goodwill of P2,000,000. During the first quarter of 2011. RAM spent an additional P800,000 on expenditures designed to
develop and maintain goodwill by training and hiring new employees. Due to these expenditures, on December 31, 2011,
RAM estimated that the benefit period of goodwill was indefinite. In its December 31, 2011 statement of financial position,
what amount should RAM report ass goodwill?
Solution 37-12 Answer c

Cost of goodwill – January 1, 2011 2,000,000
Problem 14 (adapted): On January1, 2010, Better Company bought a trademark for P400,000, having a n estimated
remaining useful life of 16 years . After16 years revenues expected from this intangible will be zero. In January 2014,
Better paid P60,000 for legal fees in a successful defense of trademark. What amount of expenses should better company
recognize and charge against income during 2014?
Solution of Problem 30-3:
Amortization Expense-original cost (P400,000÷ 16) P25,000

Cost of litigation 60,000
Total expense P85,000
Problem 15 (adapted): An intangible asset costs P300,000 on January 1,2011. On January 1,2012 ,the asset was
evaluated to determine if it was impaired. As on January 1,2012, the asst was expected to generate future cash flows of
P25,000 per year (at the end of year). The appropriate discount rate is 5%. What total amount should be charged against
income in 2012, assuming that the asset had a total useful life at 10 years from date of acquisition?
Answer: C
Solution of Problem 30-9:
Amortization expense-2012(P177,696 ÷ 9) P19,744
Impairment loss (Schedule) 92,304
Total amount to be charged against income in 2012 P112,048
Book Value: (P300,000 – P30,000) P270,000
Estimated fair value:
Value in use (P25,000 × 7.10782) 177,696
Impairment loss P 92,304
Problem 16 (adapted): Sarrah Company is interested in computing the goodwill to be recognized in the purchase of ABC Company in
January 2012. The following information was taken from the records of ABC.
Net income Net assets
2007 360,000 1,600,000
2008 388,000 1,800,000
2009 288,000 1,900,000
2010 380,000 2,000,000
2011 394,000 2,100,000
1,810,000 9,400,000
It is agreed that goodwill is measured by capitalizing excess earnings at 40% with normal return on average net assets at 10%.
What is the “purchase price” of ABC Company?
SOLUTION :
Average net assets ( 9,400,000 / 5 ) 1,880,000
Average earnings ( 1,810,000 / 5 ) 362,000
Less: Normal earnings (10% x 1,880,000) 188,000
Excess earnings 174,000
Divide by capitalization rate 40%
Goodwill 435,000
Net assets – 2011 2,100,000
Total purchase price 2,535,000
The purchase price or acquisition cost includes the payment for the 2011 net assets and the
goodwill.
Problem 17 (adapted): Phar-Ti-Ra Company incurred research and development costs in the current year as follows:
Equipment acquired for use in various R and D projects 975,000
Depreciation on the above equipment 135,000
Materials used 200,000
Compensation costs personnel 500,000
Outside consulting fees 150,000
Indirect costs appropriately 250,000
What total research and development costs should be recognized as expense for the current year?

Depreciation on the above equipment 135,000
Materials used 200,000
Compensation costs personnel 500,000
Outside consulting fees 150,000
Indirect costs appropriately 250,000
Total 1,235,000
F. OTHER RELATES ASSET ACCOUNTS
A. BIOLOGICAL ASSETS (PAS 40)

Problem 18 (adapted): Fortitude Company purchased cattle at an auction for P 200,000 on July
1, 2014. Cost of transporting the cattle back to the company’s farm was P 2,000 and the
company would have to incur cost similar transportation cost if it was to sell the cattle in the
auction, in addition an auctioneer’s fee of 2% of sales price.
What amount should the biological assets initially recognized?
Answer:
Fair value P 200,000
Transportation costs (2,000)
Auctioneer’s fee (200,000 x 2%) (4,000)
Adjusted fair value P 194,000
Creep Company purchased 100 beef cattle at an account for P 800,000

Problem 19 (adapted):
on July 1, 2014. Transportation costs if it had sold its cattle in the auction. In addition there
would be a 2% auctioneer’s fee on the market price of the cattle payable by the seller. Creep
Company also incurred P 4,000 veterinary expenses. On December 31, 2014, the fair value
of the cattle in the most relevant market increases to P 880,000. On May 2, 2015, Creep
Company sold 18 cattle at the auction for P 160,000 and incurred transportation charges of P
1,200.
On June 15, 2015, the fair value of the remaining cattle was P 662,560 but on the same day,
42 cattle were slaughtered with total cost of P 33,600. The fair value of the carcasses on that
day was P 386,400 and the estimated transportation cost to sell the carcasses is P 3,600. No
other selling costs are expected.
On June 30, 2015, the fair value of the remaining 40 cattle was P 358,400. The estimated
transportation cost is P 3,200.
Question 1: What amount should the biological asset should be initially recognized on July 1,
2014?
Question 2: What amount should the biological asset be reported on December 31, 2014?
Question 3: What amount of gain as a result in the change in value of the biological asset to
be reported in the statement of comprehensive income for the year ended December 31,
2014?
Question 4: What is the net proceeds from the sale of cattle on May 2, 2015?
Question 5: What is the fair value of the inventory (carcasses) on June 15, 2015?
Answers:
Fair value in most relevant market P 800,000
Transportation costs ( 8,000)
Auctioneer’s fee (800,000 x 2%) ( 16,000)
Fair value at point of purchase P 776,000
Fair value in most relevant market P 800,000

Transportation costs ( 8,000)
Auctioneer’s fee (880,000 x 2%) ( 17,600)

Change in the fair value-to profit or loss P 78, 400
Selling price P 160,000

Less: selling expense
Transportation 1,200
Auctioneer’s fee (160,000 x 2%) 3,200 4,400
Net proceed from sale P 155,600
Fair value of remaining carcasses P 386,400

Less: Transportation costs 3,360
Fair value of inventory P 383,040
B. NON-CURRENT ASSET HELD FOR SALE (PFRS 5)
Problem 20 (adapted): On June 1, 2012, Starlet Company approved a plan to dispose of a business segment. It
is expected that the sale will occur on April 30, 2013. On December 31, 2012, the carrying value of net assets of
the segment was P4,000,000 and the net recoverable amount was P3,600,000. During 2012, the company paid
employees severance and relocation costs of P200,000 as a direct result of the discontinuing operation. The
revenues and expenses of the discontinuing segment during 2012 were:
Revenues Expenses
January 1 to June 1 3,000,000 4,000,000
June 1 to December 31 1,400,000 1,800,000
Income tax rate is 35%.
How much will be reported as loss from ordinary activities of the discontinued segment during 2012?
Answer :
Revenue :
January to June 1 3,000,000
June 1 to December 31 1,400,000 4,400,000
Expenses:
January 1 to June 1 4,000,000
June 1 to December 31 1,800,000 ( 5,800,000 )
Impairment loss:
Carrying value of net assets 4,000,000
Recoverable amount 3,600,000 ( 400,000 )
Termination costs:
Severance & relocation costs ( 200,000 )
Loss from ordinary activities ( 2,000,000)
Tax savings (2,000,000 x 35% ) 700,000
Net 1,300,000
PFRS 5, paragraph 33, provides that an entity shall disclose a single amount comprising
the total of post-tax profit or loss of the discontinued operation and the post-tax gain or
loss recognized on the measurement to fair value less cost to sell or on the disposal of the
assets or disposal group constituting the discontinued operation.
The ff. are disclosed in the notes to financial statements:
a.) The amount of revenue, expenses and income or loss attributable to the
discontinued operation during the current period and the related income tax.
b.) Any impairment loss – the impairment loss is recognized when as of the end of
reporting period and before the sale of the discontinued operation, the fair value
less cost to sell of the discontinued operation is lower than the carrying amount
of the net assets.
If the fair value less cost to sell of the discontinued operation is higher than the
carrying amount of the net assets, the expected gain is not recognized but only
disclosed.
c.) Any gain or loss from the actual disposal of the assets and settlement of the
liabilities of a discontinued operation is recognized on the date of sale or date of
settlement. Such gain or loss is reported as part of the discontinued operation.
d.) The termination cost of employees and other costs which are directly incurred
as a result of the discontinuance are shown as part of discontinued operation.
Problem 21 (adapted): Camper Company acquires a subsidiary with a view to selling it. The subsidiary meets
the criteria to be classified as held for sale. At the balance sheet date, the subsidiary has not been sold and six
months have passed since its acquisition. At the balance sheet date, the carrying value of the subsidiary is
P4,500,000; its estimated selling price is P6,000,000 and estimated cost to sell is P1,200,000. At how much should
the subsidiary be valued at balance sheet date?
Answer:
Estimated selling price P6,000,000
Less: Cost to sell 1,200,000
Fair value P4,800,000
Carrying value 4,500,000
Lower P4,500,000
Problem 22 (adapted): On July 1, 2012, Blazer Company has a building with cost of P4,000,000 and
accumulated depreciation of P1,600,000. On the same date, Blazer Company commits to a plan to sell the building
by February 1, 2013. The building has a fair value of P2,000,000 and it is estimated that the selling cost of the
building will be P150,000. As of July 1, 2012, the building has a remaining life of 15 years.
Question 1: What is the amount to be reported as the carrying value of the building-held for sale as of December
31, 2012?
Question 2: What is the amount of loss to be recognized by Blazer Company in its income statement as a result if
reclassification?
Answers :
Fair value date if reclassification P2,000,000

Less: Estimated selling cost 150,000
Adjusted fair value of the asset 1,850,000
Adjusted fair value date of transfer P1,850,000

Less: Book value date of transfer:
Cost P4,000,000
Accumulated depreciation 1,600,000 2,400,000
Loss on transfer P 550,000
PFRS 5, paragraph 25, further provides that once a noncurrent asset was reclassified as
held for sale the asset is no longer subject to depreciation. The rationale behind this
concept is that because the asset is now designated for disposal, the key accounting
point is no longer long-term cost allocation using depreciation but instead proper current
valuation of the asset. Accordingly, if current estimate reveals that the fair value of the
asset differs from its original fair value at the time of reclassification, the difference
should be recognized as a gain or loss that is to be reported in the current year income
statement.
C. DERIVATIVES
Problem 23 (adapted): On January 1, 2011, Pasa Company entered to a two year P 3 M variable interest rate
loans on the prevailing rate of 12%. In 2012, the interest rate is equal to the prevailing interest rate at the
beginning of the year. The principal loan is payable on December 31, 2011 and the interest is payable on
December 31 of each year. On January 1, 2011, Pasa Company entered into a “receive variable, pay fixed” interest
swap agreement with a speculator bank designated as cash flow hedge. The prevailing interest rate on January 1,
2011 is 14% and the PV of 1 at 14% for 1 period is .877. What amount should be reported as “interest rate swap
receivable” on December 31, 2011?
Answer:
Since the interest on January 1, 2012 is 14% which is 2% higher than the fixed rate of 12%,
it means that Pasa company shall receive P60,000 from the bank on December 31, 2012.
This receivable is recognized as a derivative asset on December 31, 2011 at a PV of
P52,620 as follows:
Interest rate swap receivable 52,620

Unrealized Gain – interest rate swap
(60,000 x .877) 52,620
Problem 24 (adapted): On June 30 of the current year, Clary company entered into a firm commitment to
purchase specialized equipment from Shigezaki Company for ¥80 Million on August 21. The exchange rate n June
30 is ¥100 = $1. To reduce the exchange rate risk that could increase the cost of the equipment in U.S. Dollars,
Clary pays $12,000 for a call option contract. This contract gives the option to purchase ¥80M at an exchange rate
of ¥100 = $1 on August 31. On August 31, the exchange rate is ¥93 = $1.
What amount in U.S. Dollarsdid Clary company save by purchasing the call option?
Answer
Dollar equivalent – Aug 31 (80,000,000/93) 860,215

Dollar equivalent – June 30 (80,000,000/100) 800,000
Total saving 60,215
Payment for call option 12,000
Net saving- gain on call option 48,215
Welch Co. purchased a put option on Reese common shares on
Problem 25 (adapted):
January 7, 2014, for P2,150. The put option is for 3000 shares, and the strike price is
P51. The option expires on July 31, 2014. The following data are available with respect
to the put option:
Date Market Price of Reese Shares Time Value of Put Option
March 31, 2014 P48 per share P1,200
June 30, 2014 P50 per share 540
July 6, 2014 P46 per share 160
If the change in fair value was recognized on March 31, 2014 and then again on June
30, 2014, what amount of loss the company recognize on the re-measurement of the
option on June 30, 2014?
a. P 660 c. P3,540
b. P2,150 d. P6,660
ANS: D
Fair value – June 30:
Time value P 540
Intrinsic value (P50 – P51) x 3,000 shares 3,000 P 3,540
Fair value – March 31:
Time value P1,200
Intrinsic value (P48 – P51) x 3,000 shares 9,000 P10,200
Loss P 6,660
G. CURRENT LIABILITIES
Problem 26 (adapted): Sample Company has the following selected accounts after posting adjusting entries:
Accounts Payable $ 50,000

Notes Payable, 3-month 80,000
Accumulated Depreciation—Equipment 14,000
Payroll and Benefits Payable 22,000
Notes Payable, 5-year, 8% 30,000
Estimated Warranty Liability 34,000
Payroll Tax Expense 6,000
Interest Payable 3,000
Mortgage Payable 200,000
Sales Tax Payable 16,000
Compute the amount of Current Liability.
Sol.
Current Liabilities
Notes payable, 3-month $ 80,000
Accounts payable 50,000
Estimated warranty liability 34,000
Payroll and benefits payable 22,000
Long-term debt due within one year 20,000
Sales tax payable 16,000
Interest payable 3,000
Total Current Liabilities $225,000
Problem 27 (adapted): Toyo Company owns a car dealership that it uses for servicing cars under warranty. In
preparing its financial statements, the entity needs to ascertain the provision for warranty that it would be required
to recognized at the end of the year. The entity experience with warranty claims is as follows 60% of all car sold in
a year have zero defect, 25% of all cars sold in a wear have normal defect, and 15% of all cars sold in a year have
significant defect. The cost of rectifying a “normal defect” in a car is P10,000. The cost of rectifying a “significant
defect” in a car is P30,000. The entity sold 500 cars during the year. What is the “expected value” of the provision
for warranty for the current year?
Solution:
Normal defect (25%x500xP10,000) 1,250,000
Significant defect (15%x500xP30,000) 2,250,000
Provision for warranty 3,500,000
Problem 28 (adapted): Cob Department store sells gift certificates redeemable only when merchandised is
purchase. These gift certificates have an expiration date of two years after issuance dare. Upon redemption or
expiration, Cobb recognizes the unearned revenue as realized. Information for the current year is as follow:
Unearned revenue, January 1, 2011 650,000

Gift certificates sold 2,250,000
Gift certificates redeemed 1,950,000
Expired gift certificates 100,000
Cost of gods sold 60%
On December 31, 2011, what amount should Cobb report as unearned revenue?
Solution:
Unearned revenue – January 1, 2011 650,000
Add: gift certificates sold 2,250,000
Total 2,900,000
Less: gift certificates redeemed 1,950,000
Expired gift certificates 100,000 2,050,000
Unearned revenue – December 31, 2011 850,000
Problem 29 (adapted): Black Company requires advance payments with special orders for machinery
constructed to customer specifications. These advances are non refundable. Information for the current year is as
follows:
Advances from costumer – January 1 1,180,000

Advances received with orders 1,840,000
Advances applied to orders shipped 1,640,000
Advances applicable to orders canceled 500,000
In Black’s December 31 statement of financial posit, what amount should be reported as current liability for
advances from costumers?
Solution:
Advances from costumer – January 1 1,180,000
Add: Advances received with orders 1,840,000
Total 3,020,000
Less: Advances applied to orders shipped 1,640,000
Advances applicable to orders canceled 500,000
Advances from costumer – December 31 880,000
Problem 30 (adapted): Kent Company, a division of National Realty Corporation maintains escrow accounts and
pays real states taxes for National’s mortgage costumers. Escrow funds are kept in interest-bearing accounts.
Interest, less a 10% service fee, is credited to the mortgagee’s account and use to reduce future escrow payments.
Additional information for 2011 follows:
Escrow accounts liability, January 1 700,000
Escrow payments received 1,580,000
Real estate taxes paid 1,720,000
Interest on escrow funds 50,000
What amount should Kent report as escrow accounts liability in its December 31, 2011 statement financial position?
Solution:
Escrow accounts liability – January 1 700,000
Add: escrow payments received 1,580,000
Interest on escrow funds 50,000 1,630,000
Total 2,330,000
Less: real estate taxes paid 1,720,000
Service fee (10% x 50,000) 5,000 1,725,000
Escrow accounts liability – December 31 605,000
H. LONG TERM LIABILITIES
Problem 31 (adapted): On June 30, 2002, Wayne, Inc., sold $600,000 (face value) of bonds. The bonds are dated June 30, 2002, pay
interest semiannually on December 31 and June 30, and will mature on June 30, 2005. The following schedule was prepared by the accountant for
2002.
Semi-Annual Interest to Interest Unamortized Bond

Interest Period be Paid Expense Amortization Amount Carrying Value
$30,000 $570,000
1 $24,000 $28,500 $4,500 25,500 574,500
Instructions
On the basis of the above information, answer the following questions. (Round your answer to the nearest dollar or percent.)
1. What is the stated interest rate for this bond issue?
2. What is the market interest rate for this bond issue?
3. What was the selling price of the bonds as a percentage of the face value?
4. Prepare the journal entry to record the sale of the bond issue on June 30, 2002.
5. Prepare the journal entry to record the payment of interest and amortization on December 31, 2002.
Solution
1. $24,000 ÷ $600,000 = .04 × 2 = 8%
2. $28,500 ÷ $570,000 = .05 × 2 = 10%
3. $570,000 ÷ $600,000 = .95 The bonds sold at 95.
4. June 30, 2002

Cash ...................................................................................................................... 570,000
Discount on Bonds Payable ......................................................................... 30,000
Bonds Payable ........................................................................................ 600,000
5. December 31, 2002

Interest Expense .............................................................................................. 28,500
Discount on Bonds Payable .............................................................. 4,500
Cash ........................................................................................................... 24,000
Problem 32 (adapted): On July 1 2011 Tara Company issued 4000 of its 8%, 1,000 face value bonds payable for
3,504,000.The bond were issued to yield 10%.The bonds are dated July 1, 2011 and mature on July 1
2021.Interest is payable semiannually on January 1 and July 1. Using the effective interest method, what amount
of the bond discount should be amortized for the six months ended December 31 2011?
Solution:
Interest expense (3,504,000x10%x6/12) 175,200

Interest paid (4,000,000x8%x5/12) (160,000)
Discount amortization for six months 15,200
Final Answer: 15,200
Problem 33 (adapted): On January 1 2011, West Company issued 9% bonds in the face amount of P5000000,
which mature on January 1 2021. The bonds were issued for P4695000 to yield 10% Interest is payable annually
on December 31. West uses the interest method of amortizing bond discount. In the December 31 2011 statement
of financial position, what is the carrying amount of the bond payable?
Solution:
Interest expense (4,695,000x10%) 469,500

Interest paid (5,000,000x9%) 450,000
Amortization of discount for 2011 19,500
Bond Payable 5,000,000
Discount on bond Payable (305,000-,19,500) (285,500)
Carrying amount-December 31 2011 4,714,500
Problem 34 (adapted): On January 1, 2011,Colt Company issued ten-year bonds with a face amount of P5 000
000 and a stated interest rate of 8% payable annually on January 1.The bonds were price to yield 10%
PV of 1 for 10 periods at 10% 0.3855
PV of an ordinary annuity of 1 for 10 periods10% 6.145
What is the issue price of the bonds?
Solution:
PV of principal (5 000 000 x .3855 ) 1 927 500
PV of annual interest payments (400 000 x 6.145) 2 458 000
Total Present Value or issue price of bonds 4 385 500
Problem 35 (adapted): Susan company issued 5,000 convertible bonds on Jan.1,2011,the bond have a three
years term and are issued at the 110 with a face value of P1,000 per bond. Interest is payable annually in arrears
at a nominal 6% interest rate.Each bond is convertible at anytime up to maturity into 100 ordinary shares with par
value of the P5.When the bonds are issued,the prevailing market interest rate for similar debt instrument without
conversion option is 9%.The present value of 1 at 9% for 3 periods is .77 and the present value of an ordinary
annuity of 1 at 9% for 3 periods is 2.53.What is the equity component of the issuance of the convertible bonds on
Jan.1,2011?
Solution:
PV of principle (5,000,000 x .77) 3,850,000
PV of annual interest payments (300,000 x 2.53) 759,000
Total present value of bonds 4,609,000
Issue price of convertible bonds (5,000,000 x 110) 5,500,000
Present value of bonds 4,609,000
Equity component – share premium 891,000
Problem 36 (adapted): On march .1,2011,case company issued P5,000,000 of 12% nonconvertible bonds at
103.Which are due on Feb.28,2016.In addition, each of which entitled the bondholder to purchase, for P50,on
ordinary share of case company ,par valueP25.On March.1,2011,the quoted market value of each warrant was
P4.The market value of the proceeds from the bond issue should be recognized as a increase in shareholders’
equity?
Solution:
Issue price of bonds with warrants (5,000,000 x 103%) 5,150,000
Market value of bonds without warrants (5,000,000 x 95%) 4,750,000
Residual amount allocated to warrants-equity components 400,000
I. ACCOUNTING FOR INCOME TAX (PAS 12)
Problem 37 (adapted): The following differences between financial and taxable income were reported by Dider
Corporation for the current year:
(a) Excess of tax depreciation over book depreciation .... $60,000

(b) Interest revenue on municipal bonds .................. 9,000
(c) Excess of estimated warranty expense over actual
expenditures ......................................... 54,000
(d) Unearned rent received ............................... 12,000
(e) Fines paid ........................................... 30,000
(f) Excess of income reported under percentage-of-completion accounting for
financial reporting over
completed-contract accounting used for tax reporting . 45,000
(g) Interest on indebtedness incurred to purchase tax-exempt
securities .................................... 3,000
(h) Unrealized losses on marketable securities recognized
for financial reporting .............................. 18,000
Compute the taxable income for the current year.
ANS:
Pretax financial income ................................ $900,000
Add (deduct) permanent differences:
(b) Tax-exempt interest ........................... (9,000)
(e) Fines paid .................................... 30,000
(g) Interest expense on funds used to purchase tax-exempt 3,000
securities .........................
Subtotal ................................... $924,000
Add (deduct) timing differences:

(a) Excess of tax over book depreciation .......... (60,000)
(c) Excess of warranty expense over actual 54,000
expenditures ..................................
(d) Unearned rent received ........................ 12,000
(f) Excess of percentage-of-completion income over (45,000)
completed contract income .....................
(h) Unrealized loss on marketable securities ...... 18,000
Taxable income ............................. $903,000
Problem 38 (adapted): Bart, Inc., a newly organized corporation, uses the equity method of accounting for its
30% investment in Rex Co.’s common stock. During 2003, Rex paid dividends of $300,000 and reported earnings
of $900,000. In addition,
• The dividends received from Rex are eligible for the 80% dividends received deductions.
• All the undistributed earnings of Rex will be distributed in future years.
• There are no other temporary differences.
• Bart’s 2003 income tax rate is 30%.
• The enacted income tax rate after 2003 is 25%.
In Bart’s December 31, 2003 balance sheet, the deferred income tax liability should be
Answer:
(b) The deferred income tax liability is the result of the undistributed earnings of an equity
investee, which are expected to be distributed as dividends in future periods. For accounting
purposes, investment revenue is $270,000 ($900,000 x 30%). For tax purposes, dividend
revenue is $90,000 ($300,000 x 30%), which will be partially offset by the 80% dividends
received deduction. Because of this 80% deduction, the difference ($270,000 − $90,000 =
$180,000) is partially a permanent difference (80% x $180,000 = $144,000 which will
never be subject to taxes) and partially a temporary difference (20% x $180,000 = $36,000
which will be taxable in future years). This future taxable amount of $36,000 will become
taxable after 2003, when the expected tax rate is 25%. Therefore, the deferred tax liability
is $9,000 (25% x $36,000). The entry to record the liability
is as follows:
Income tax expense—deferred 9,000
Deferred tax liability 9,000
J. ACCOUNTING FOR LEASES (PAS 17)

Problem 39 (adapted): Presented below are three different aircraft lease transactions that occurred for Midwest
Airways in 2002. All the leases start on January 1, 2002. In no case does Midwest receive title to the aircraft
during or at the end of the lease period; nor is there a bargain purchase option.
Lessor
Unruh Insurance Maris Leasing Gregg Leasing
Type of property 747 Aircraft 727 Aircraft L-1011 Aircraft
Yearly rental $5,908,781 $4,954,021 $2,851,861
Lease term 15 years 15 years 20 years
Estimated economic life 25 years 25 years 25 years
Fair market value of
leased asset $55,000,000 $49,000,000 $32,000,000
Present value of lease
rental payments $50,000,000 $42,000,000 $28,000,000
Instructions
(a) Which of the above leases are operating leases and which are capital leases? Explain your answer.
(b) How should the lease transaction with Unruh Insurance be recorded in 2002?
(c) How should the lease transaction with Maris Leasing be recorded in 2002?
Solution
(a) The Unruh Insurance lease is a capital lease since it meets one of the four criteria; i.e., the present value of
the lease payments exceeds 90% of the fair market value of the leased asset. The Gregg Leasing lease is a
capital lease since the lease term, 20 years, exceeds 75% of the estimated economic life of the leased asset.
The Maris Leasing lease is an operating lease since it meets none of the criteria.
(b) Leased Asset ............................................................................................................................. 50,000,000

Lease Liability ............................................................................................................. 50,000,000
Lease Liability ........................................................................................................................... 5,908,781

Cash ................................................................................................................................ 5,908,781
(c) Rental Expense ........................................................................................................................ 4,954,021

Cash ................................................................................................................................ 4,954,021
Problem 40 (adapted): On January 1, 2003, Day Corp. entered into a ten-year lease
agreement with Ward, Inc. for industrial equipment. Annual lease payments of $10,000 are
payable at the end of each year. Day knows that the lessor expects a 10% return on the lease.
Day has a 12% incremental borrowing rate. The equipment is expected to have an estimated
useful life of ten years. In addition, a third party has guaranteed to pay Ward a residual value of
$5,000 at the end of the lease.
The present value of an ordinary annuity of $1 at

12% for ten years is 5.6502
10% for ten years is 6.1446
The present value of $1 at
12% for ten years is .3220
10% for ten years is .3855
In Day’s October 31, 2003 balance sheet, the principal amount of the lease obligation was:
Answer:
(b) This is a capital lease since the lease term (ten years) is the same as the useful life of
the leased asset. In a capital lease, the lessee records an asset and a liability based on the
PV of the minimum lease payments. The minimum lease payments includes rentals and a
guaranteed residual value, if guaranteed by the lessee. In this case the minimum lease
payments include only the rentals, since the residual value is guaranteed by a third party.
The minimum lease payments are discounted using the lower of the lessee’s incremental
borrowing rate or the implicit rate used by the lessor, if known. In this case, the lessee
knows the implicit rate is 10%, which is lower than the incremental borrowing rate of 12%.
Thus, the present value or principal amount of the lease obligation is $61,446 ($10,000 x
6.1446) through the first year. Although accrued interest would be recognized at 10/31/03,
the principal amount does not change until 1/1/04.
Problem 41 (adapted): On July 1, 2014, Radium Inc. leased a delivery truck from Titanium Corp. under a 3-year
operating lease. Total rent for the term of the lease will be P360,000 payable as follows:
12 months at P5,000 per month P60,000
12 months at P7,500 per month 90,000
12 months at P17,500 per month 210,000
All payments were made when due. In Radium’s June 30, 2016 balance sheet, what amount should be reported as
accrued rent payable?
Solution:
Total rentals P360,000
Lease term (3 years) ÷36months
Monthly rental P10,000
July 1, 2014 to June 30, 2016 24 months
Monthly rentals ×P10,000
Rent expense for 2 years P240,000
Less: Payment (1st and 2nd years) 150,000
Accrued rent P90,000
If the operating lease agreement provides for varying periodic rentals, rent expense/income
should be recognized on a straight-line basis unless a systematic and rational basis is more
appropriate , meaning the total cash rental throughout the duration of the lease contract
must be determined and amortized over the lease term. The difference between the rent
expense (lessee) or rent income (lessor) over the cash paid (lessee) or cash received
(lessor) is either a prepaid or accrued rent (lessee) or either an accrued unearned income
(lessor).
Problem 42 (adapted): As an inducement to enter a lease, Athena, a lessor, grants Zeus Corp. a lessee, months
of free rent under a 5-year operating lease. The lease is effective July 1, 2014 and provides for a monthly rental of
P20,000 to begin April 1, 2015.In Zeus income statement for the year ended June 30, 2015. How much should be
reported as rent expense?
Solution:
Lease term (5 years) 60 months
Less: rent free months 9 months
Number of lease payments 51 months
Monthly rental ×P20,000
Total rentals P1,020,000
Lease term ÷ 5
Annual rent expense P204,000
If the lease agreement provides for a rent free months or holiday, the total cash rental must
be determined and amortized on a straight-line basis (over the lease term) unless another
systematic and rational basis is more appropriate.
Problem 43 (adapted): On January 1, 2014, Peter Pan Company sold equipment with the carrying amount of
P1,000,000 and a remaining economic life of 10 years to Koko Drilling for P1,500,000. Peter Pan immediately
leased the equipment back under a 10-year finance lease payment of P244,120 in December 2014.
In December 31, 2014 statement of financial position, how much should be the adjusted unearned gain on
equipment sale?
Solution:
Selling price P1,500,000
Carrying value 1,000,000
Deferred gain P 500,000
Less: Realized gain (P500,000÷10) 50,000
Deferred gain, Dec. 31, 2014 P450,000
The sale and leaseback is a finance lease, any gain is deferred and amortized over the lease
term.
Problem 44 (adapted): The following information pertains to a sale and operating leaseback of equipment by
Germanium Co. on December 31, 2014:
Sale price P640,000
Carrying amount P500,000
Monthly lease payment P 24,457
Estimated remaining life 25 years
Lease term 2 years
Implicit rate 12%
Fair value P540,800
What amount of deferred gain on the sale should Germanium report at December 31, 2014?
Solution:
Sales price P640,000
Fair value 540,800
Deferred P99,200
Fair value P540,800
Carrying value 500,000
Realized gain P40,800
If a state and leaseback transaction results in an operating lease and sales price is above
the fair value, the excess over fair value should be deferred and amortized over the period
for which the asset is expected to be used, while the excess of the fair market value over its
carrying value should be recognized immediately as a realized gain.
Problem 45 (adapted): On June 30, 2014, Potassium Company sold an equipment with an estimated economic
life of 10 years and immediately leased it back for 8 years. The equipment’s carrying amount was P450,000, the
sales price was P430,000. What amount should Potassium report as deferred loss on its June 30, 2014 statement
of financial position?
Solution:
Selling price P430,000
Carrying value 450,000
Loss recognized outright P20,000
Any loss on a finance lease sale and leaseback is recognized immediately in the company’s
income statement.
Final Answer: NONE
Problem 46 (adapted): Camia Company is in the business of leasing new sophisticated equipment. As a lessor,
Camia expects a 12% return on its net investment. All leases are classified as a direct financing lease. At the end
of the lease term, the equipment will revert to Camia Company.
On January 1, 2011 an equipment is leased to another entity with the following information.
Cost of equipment to Camia 5, 500, 000
Residual value-unguaranteed 400, 000
Annual rental payable in advance 959, 500
Useful life and lease term 8 years
Implicit interest rate 12%
First lease payment January 1, 2011
1. What is the unearned interest income on January 1, 2011?

2. What is the interest income for 2011?
Solutions:
Gross rentals (959, 500 x 8) P7, 676, 000
Residual value 400, 000
Gross investment 8, 076, 000
Net investment-equal to the cost of the equipment 5, 500, 000
Unearned interest income-january 1, 2011 P2, 576, 000
The difference between gross investment and net investment in the lease is the unearned
interest income. The gross investment is the sum in absolute amount of the gross rentals
and residual value, whether guaranteed or unguaranteed.
In indirect financing lease, the net investment is simply the cost of the leased asset plus any
initial direct cost.
Whether guaranteed or unguaranteed, the residual value is included in computation of total
financial income if the leased asset will revert to the lessor at the end of the lease term.
Otherwise, the residual value is ignored if title passes to the lesse at the end of lease term.
PV of rentals- equal to the cost of the equipment
or net investment 5, 500, 000
First payment on January 1, 2011(all principal payment) 959, 500
Lease receivable- January 1, 2011 4, 540, 500
Interest income for 2011 (4, 540, 500 x 12%) 544, 860
Final answer:
1. P2, 576, 000
2. P594, 860
K. ACCOUNTING FOR EMPLYEE BENEFITS(IASR 19)
Problem 47 (adapted): You gathered the following information related to Jomalig Company’s the defined benefit
plan for the year ended December 31, 2013:
• Current service cost of providing benefits for the year to December 31, 2013: P54 million
• Average remaining working life of employees: 10 years
• Benefits paid to retired employees in the year: P55.8 million
• Contributions paid to the fund: P37.8 million
• Present value of obligation to provide benefits: P3,960 million at January 1, 2013, and P4,500 million at
December 31, 2013
• Fair value of plan assets: P3,780 million at January 1, 2013, and P4,320 million at
December 31, 2013
• Net cumulative unrecognized gains at January 1, 2013: P453.6 million
• Past service cost: P207 million. All of these benefits have vested.
Discount rates and expected rates of return on plan assets:

1/1/13 1/1/14
Discount rate 5% 6%
Expected rate of return on plan assets 7% 8%
1. COMPUTE THE ACTUAL RETURN

2. COMPUTE THE NET INTEREST INCOME
3. COMPUTE THE BENEFIT EXPENSE
Unrecognized
Benefit Prepaid/ DBO FVPA Actuarial Past
expense (Accrued) Gains Service
Benefit (Losses) Cost
633.60 3,960.00 3,780.00 453.60
S 54.00 54.00
I 198.00 198.00
E
R (264.60) 558.00 293.40
A (5.76) (5.76)
P 207.00 207.00
Actuarial loss 136.80 (136.80)
Cash paid to employees (55.80) (55.80)
Cash paid to plan assets (37.80) 37.80
188.64 188.64
End 784.44 4,500.00 4,320.00 604.44
784.44
UNDER IAS 19R

Unrecognized
Benefit OCI Prepaid/ DBO FVPA Actuarial Past
expense (Accrued) Gains Service
P/L Benefit (Losses) Cost
633.60 3,960.00 3,780.00 453.60
Adjustment to (453.60) (453.60)
Retained
earnings
S 54.00 54.00
IE 198.00 198.00
II (189.00) 369.00 558.00
P 207.00 207.00
Actuarial loss (136.80) 136.80
Cash paid to (55.80) (55.80)

employees
Cash paid to (37.80) 37.80
plan assets
270.00 232.20 270.00
(232.20)
End 180.00 4,500.00 4,320.00 - -
180.00
L. STOCKHOLDER’S EQUITY
Problem 48 (adapted): The following items were shown on the balance sheet of Herman Corporation on
December 31, 2002:
Stockholders’ Equity
Paid-In Capital
Capital Stock
Common stock, $5 par value, 240,000 shares
authorized; ______ shares issued and ______ outstanding .................................................... $1,000,000
Additional paid-in capital

In excess of par value ............................................................................................................................... 120,000
Total paid-in capital .......................................................................................................................... 1,120,000
Retained Earnings .................................................................................................................................................... 500,000

Total paid-in capital and retained earnings ...................................................................................... 1,620,000
Less: Treasury stock (10,000 shares) ................................................................................................................. (120,000)
Total stockholders' equity ........................................................................................................................ $1,500,000
Instructions
Complete the following statements and show your computations.
(a) The number of shares of common stock issued was _______________.
(b) The number of shares of common stock outstanding was ____________.
(c) The sales price of the common stock when issued was $____________.
(d) The cost per share of the treasury stock was $_______________.
(e) The average issue price of the common stock was $______________.
(f) Assuming that 25% of the treasury stock is sold at $20 per share, the balance in the Treasury Stock
account would be $_______________.
Solution
(a) The number of shares of common stock issued was 200,000.
$1,000,000 ÷ $5 par value = 200,000 shares issued.
(b) The number of shares of common stock outstanding was 190,000.
200,000 issued less 10,000 in treasury = 190,000 shares outstanding
(c) The sales price of the common stock when issued was $1,120,000.
Common stock $1,000,000
Plus: In excess of par value 120,000
Total $1,120,000
(d) The cost per share of the treasury stock was $ 12.
$120,000 ÷ 10,000 = $12 per share.
(e) The average issue price of the common stock was $5.60.
$1,120,000 ÷ 200,000 shares = $5.60 per share.
(f) Assuming 25% of the treasury stock is sold at $20 per share, the balance in the
Treasury Stock account would be $90,000.
7,500 shares × $12 = $90,000.
Problem 49 (adapted):Blue Company has 2,000,000 shares of ordinary shares outstanding on

December 31, 2010. An additional 100,000 shares are issued on April 1, 2011, and 240,000
more on September1. On October 1, Blue issued P3, 000,000 of 9% convertible bonds. Each
P1, 000 bond is convertible into 40 shares of ordinary shares. At the time of issue of the
convertible bonds, the market rate of the bonds without the conversion option is equal to its
nominal rate. No bonds have been converted.
The number of shares to be used in computing basic earnings per share and diluted per
share on December 31, 2011 would be:
Solution:
Average # of shares for basic EPS:
01/01/11 2,000,000x12/12 = 2,000,000
04/01/11 100,000x 9/12 = 75,000
09/01/11 240,000x 4/12 = 80,000
2,155,000
Diluted EPS = Average # of shares
Basic EPS Diluted EPS
Average 2,155,000 2,155,000
Average ordinary shares issued as if
Converted (3,000,000/1,000x40x3/12) 30,000
Number of shares 2,155,000 2,185,000
Final Answer: 2,155,000&2,185,000 DILUTED EARNINGS PER SHARE
Problem 50 (adapted): On January 1, 2002, Yount Corporation had Retained Earnings of $478,000. During the
year, Yount had the following selected transactions:
1. Declared stock dividends of $30,000.
2. Declared cash dividends of $80,000.
3. A 2 for 1 stock split involving the issuance of 200,000 shares of $5 par value common stock for 100,000
shares of $10 par value common stock.
4. Suffered a net loss of $50,000.
5. Corrected understatement of 2001 net income because of an inventory error of $42,000.
Instructions
Compute the balance of retained earnings statement for the year.
Solution
YOUNT CORPORATION
Retained Earnings Statement
For the Year Ended December 31, 2002
Balance, January 1, as reported ..................................................................... $478,000

Correction for understatement of 2001 net income (inventory error)
42,000
Balance, January 1, as adjusted ..................................................................... 520,000
Less: Net loss ....................................................................................................... (50,000)
470,000
Less: Cash dividends ........................................................................................ $80,000
Stock dividends ....................................................................................... 30,000 (110,000)
Balance, December 31 ........................................................................................ $360,000
Problem 51 (adapted): The accounts shown below appear in the December 31, 2014 trial balance of
HALLOW CORPORATION:
Preference share authorized, P50 par P10,000,000

Unissued preference share 3,600,000
Ordinary share authorized, P20 par 4,000,000
Unissued ordinary share 2,000,000
Subscription receivable, preference share 380,000
Subscription receivable, ordinary share 360,000
Subscribed preference share 600,000
Subscribed ordinary share 440,000
Treasury share, preference share, at cost 1,360,000
Share premium 1,700,000
Accumulated profits and losses 2,000,000
All subscription receivables are due in year 2015

How much is the total shareholders’ equity of Hallow Corporation?
Solution
Preference share issued (P10,000,000-3,6000,000) P6,400,000

Ordinary share issued (4,000,000-2,000,000) 2,000,000
Subscribed preference share 600,000
Subscribed ordinary share 440,000
Accumulated profit 2,000,000
Treasury shares (1,360,000)
Shareholders’ equity P11,780,000
Problem 52 (adapted): Hallway Company issued 20,000 shares of its P10 par value ordinary shares and 40,000
share of its P10 par value convertible preference share for a total amount of P1,800,000. At this date, Hallway’s
ordinary share was selling P20 per share and the convertible preference share was selling for P30 per share. What
amount of proceeds should be allocated to the ordinary share?
Solution: When two classes of securities are issued at a single/basket price, then the
proceeds are allocated using the market value ratio of the securities.
Market value Ratio Allocation

Preference share (40,000xP30) P1,200,000 12/16 P1,350,000
Ordinary share (20,000xP20) 400,000 4/16 450,000
Journal entry to record the transaction:
Cash P1,800,000
Ordinary share capital P200,000
Share premium-ordinary 250,000
Preference share capital 400,000
Share premium-preference 950,000
Final answer: P450,000
Problem 53 (adapted): The following balances are shown in the shareholders equity of Kalinga Company on
January 1,2011.
Preference share capital, 100,000 share, P100 par P1,000,000

Ordinary share capital, 500,000 share, P10 par 5,000,000
Share premium – Preference 50,000
Share premium – Ordinary 200,000
Retained earnings 1,000,000
During 2011, the following transactions were completed retirement of 5,000 preference shares at P11 per share.
Purchase of 5,000 ordinary shares of treasury at P12 per share.
Share split ordinary share 2-for-1

Reissue of 2,000 shares of treasury at P8 per share
Net income for the year, P300,000
What is the total shareholders’ equity on December 31, 2011?
Solution
Shareholders equity – January 1 P6, 350,000

Retirement of Preference share (5,000 x 11) ( 55,000)
Purchase of treasury share (5,000 x 12) ( 60,000)
Share split – no effect -
Reissue of treasury shares (2,000 x 8) 16,000
Net income 300,000
Shareholders equity – December 31 P6,551,000
Problem 54 (adapted): The Accumulated Profits and Losses account of Gabby Company shows the following
postings:
Debit:
Share dividends P500,000
Uninsured fire loss 175,000
Prior years error 214,000
Reserve for bond redemption 300,000
Credit:
Beginning balance 1,120,000
Net income for years 760,000
Excess of par value 250,000
Gain on sale of treasury shares 150,000
Ending balance P1,091,000
What is the correct balance of the Accumulated Profits account to be reported in the company’s year-end financial
system?
Solution
Balance per ledger P1,091,000

Less: Items that were erroneously credited
to Accumulated Profits and Losses:
Excess of par P250,000
Gain on sales of treasury 150,000 400,000
Correct Accumulated Profits P 691,000
The uninsured fire loss, which is a nominal account, was not included in the reported net
income computation: as a result, income reported was over stated. Sa far as the effect on
the accumulated profits is concerned, the net income and the correction were properly
accounted for.
Final Answer: a) P 621,000
Allocation and Cash Dividends
Problem 55 (adapted): Generic Corporation paid dividends of P200,000 and 300,000 at the end of 2010 and
2011, respectively. The corporation has not paid any other dividends since its organization on January 2, 2010. The
outstanding shares are 20,000, 12% preference shares, par P100 and 30,000 ordinary shares, par P100.
Question 1: If preference shares is non-cumulative and nonparticipating, how much would be received in
2010 by the preference and ordinary shareholders, respectively?
Solution:
Dividends due to preference shares should be P240,000 (20,000 shares x P100 x

12%). However, since the dividends paid in 2010 was only P200,000, then the total amount
will be given to the preference shareholders and none to the ordinary shareholders.
Final Answer: d) P200,000 and 0

Question 2: If preference shares were cumulative and nonparticipating, how much would be the preference
and ordinary shareholders, respectively, receive in 2011?
Solution:
Total amount paid as dividends at the end of 2011 P300,000

Less: Dividends payable to the preference shares:
Unpaid dividends in 2010
(P240,000 – P200,000) P 40,000
Dividends for the current year (2011) 240,000 280,000
Dividends due to ordinary shares P 20,000
Final Answer: c) P280,000 and P 20,000
Problem 56 (adapted): On January 2, 2013, Mining Corporation declared a cash dividend of P600,000 to
shareholders to record on January 19, 2013 and payable on February 14, 2013. The following data pertain to 2012:
Net income for the year ended December 31, 2012 P190,000
Share premium, December 31, 2012 675,000
Accumulated profits, December 31, 2012 425,000
The P600,000 dividend includes a liquidating dividend of:
Solution:
Amount of dividends paid P600,000

Accumulated profits, December 31, 2012 425,000
Dividends out of capital/liquidating dividends P175,000
The net income for 2012 of 190,000 should not be added to the accumulated profits and
losses since the accumulated profits already include the net income.
Problem 57 (adapted): The following information pertains to Martial Corporation:
● Dividends on its 1,000 shares of 6%, P10 par value cumulative preference shares have not been declared or paid
for 3 years.
● Treasury shares that cost P15,000 were reissued for P8,000.
What amount of accumulated profits should be appropriated as a result of these items?
Solution:
● As a legal requirement, the company should appropriate accumulated profits equal to the
remaining coast of treasury shares. Since the treasury shares had been reissued, hence, no
appropriation is needed.
● Undeclared dividends do not require appropriation; only a disclosure is necessary in the
notes to financial statements.
● Reasons for appropriation are the following:
- As a legal requirement that the company should appropriate equal to the

remaining cost of the treasury shares;
- As a contractual restriction because there are bond indentures that require
appropriation of accumulated profits at a specified amount over the term of
the bonds;
- As a protection of working capital because it is necessary to maintain a strong
current position, hence, the company should disclose that the working capital
is not available for dividend distribution equal to the amount of appropriation.
- For the existence of possible or expected losses – appropriations may be created
for estimated losses arising from lawsuits, unfavorable contractual obligations
and other contingencies.
Final Answer: a) None
Problem 58 (adapted): The shareholders’ equity of Diskette Corporation’s December 31, 2011 balance sheet
consisted of the following account balances:
Ordinary shares, P50 par, 100,000

Authorized and outstanding P5,000,000
Accumulated profits and losses (2,000,000)
On January 2, 2012, the company put into the effect a shareholders-approved quasi-reorganization by reducing the
par value of the stock to P25 and eliminating the deficit against share premium. Immediately, after the quasi-
reorganization, what amount should the company report as share premium in its statement of financial position?
Solution:
Share premium prior to quasi-organization P3,000,000

Add: Share premium on the reduction of par
(P50 – P25 x 100,000) 2,500,000
Total share premium P5,500,000
Less: Amount of deficit charged to share premium 2,000,000
Share premium after the quasi-reorganization thru
Recapitalization P3,500,000
Problem 59 (adapted): Tarr Company’s shareholders’ equity on December 31, 2011 consisted of the following:
Preference share capital-12%, P50 par, 20,000 shares issued 1,000,000

Ordinary share capital, P25 par, 100,000 share issued 2,500,000
Share premium 200,000
Retained earnings 400,000
Retained earnings appropriated 100,000
Revaluation surplus 300,000
Dividends on preference share have not been paid since 2009. The preference share has a liquidating value of P55
and a call price of P58. What is the book value per preference share?
Solution:
Preference share capital 1,000,000

Liquidation premium-excess of liquidating value
Over par (20,000 x 5) 100,000
Preference dividend for current year only
(1,000,000 x 12%) 120,000
Total preference shareholders’ equity 1,220,000
Divide by preference shares outstanding 20,000
Book value per preference share 60
Final Answer: 61
In the absence of any contrary statement, the preference share is noncumulative and
nonparticipating. Thus, it is entitled to current year dividend only. The liquidating value of
the preference share is used instead of the call price because book value computation is on
the premise that the entity will dissolve and liquidate.
Problem 60 (adapted): Smart Company is an entity listed in a recognized stock exchange. Below is an extract
from its financial statement of comprehensive income for the year ended December 31, 2010.
Profit before tax 5,800,000
Income tax expense 1,500,000
Profit after tax 4,300,000
In addition, the entity paid during the year an ordinary dividend of P400,000 and a preference dividend of
P500,000 on its redeemable preference share.
An entity had P1,000,000 of P5 par value ordinary share in issue throughout the year and authorized share capital
of 500,000 ordinary shares. What amount should be reported as retained earnings per share for the year ended?
Solution:
Ordinary share (1,000,000/5) 200,000
Basic earnings per share (4,300,000/200,000) 21.50
Problem 61 (adapted): Night Company had 500,000 Ordinary shares issued and outstanding at December 31,
2013. During 2014, no additional ordinary shares were issued. On January 1, 2014, night issued 400,000
nonconvertible preference shares. During 2014, Night declared and paid 180,000 cash dividends on the ordinary
shares and 150,000 on the nonconvertible preference shares. Net income for the year ended Dec. 31, 2014 was
960,000. What should be the 2014 earnings per ordinary share of Night Company?
Solution:
Net income P 960,000
Less: Preference dividend 150,000
Net P 810,000
Divide Ordinary share Outstanding 500,000
Basic Earnings Per share P 1.62
Problem 62 (adapted): Vios Company had 100,000 ordinary shares outstanding on January 1, 2011. In addition,
on January 1, 2011, the entity had issued 10,000 convertible cumulative 5% preference shares with P100, par. The
preference shares were converted on September 1, 2011. Each preference shares were converted into six ordinary
shares. The preference dividends for the entire year were paid in full before the conversion. The entity has no other
potentially dilutive securities. Net income for 20011 was P2,000,000.What is the amount of diluted earning per
share?
Solution:
January 1 outstanding 100,000
September 1 conversion (100,000x6) 60,000
Total ordinary shares 160,000
Diluted EPS (2,000,000/160,000) 12.50
The issuance of ordinary shares on September 1 is not “averaged” anymore because the
convertible preference shares are outstanding on January 1. Under diluted EPS, the annual
dividend on convertible preference share is no longer deducted from net income.
Problem 63 (adapted): On January 1, 2011, G Company grants 5,000 shares to each member of its sales
department, conditional upon the employee’s remaining in the company’s employ for three years, and the
department selling more than 60,000 units of product Zip over the three-year period. The company estimates that
the fair value of the option on January 1, 2011 is P30 per option. During 2012, G Company increases the sales
target to 80,000 units. By the end of 2013, the company has sold 70,000 units, and share options are forfeited.
And there were 10 members remaining in the sales department for the three-year period. What amount of
remuneration expense should the company recognize in its December 31, 2013 profit or loss?
Solution:
Option shares 5,000
× Number of employees 10
Total option share 50,000
× Fair value of option, date of grant P30
Total value of remuneration P1,500,000
÷ Vesting period 3 years
Remuneration cost per year P 500,000
Irrespective of any modifications to the terms and conditions on which the equity
instruments were granted, or a cancellation or settlement of that grant of equity
instruments, the entity should recognize, as a minimum, the services received, measured at
the fair value of the instrument (which is the fair market value on the date of grant date)
unless those instruments do not vest because of failure to satisfy a vesting condition (other
than market condition) that was specified at the grant date. Furthermore, if the company
modifies the vesting conditions in a manner that is not beneficial to the employee/s does
not take the modified vesting conditions into account. And since the modification to the
performance condition is not beneficial to the employees, the company should not take into
account the modified performance condition, but continue to measure the services received
based on the original vesting conditions.
Problem 64 (adapted): On January 2, 2014, X Company grants 50 shares to 400 employees, conditional upon
the employees’ remaining in the company’s employ during the vesting period. The share will vest at the end of
2014 if the company’s earnings increased by more than 15%; or at the end of 2015 if the earnings increased by an
average of 12% over the two-year period; or at the end of 2015 if the earnings increased by an average of 10%
over the three-year period. The shares have fair value of P25 on January 2, 2014, which is equal to the share price
on the grant date. At the end of 2014, earnings had increased by 13% and the company expects that earnings will
continue to increase at a similar rate in 2015 and expects to vest in 2015. At the end of 2015, earnings increased
by only 9% and therefore shares do not vest at the end of 2015. The company expects that earnings will continue
to increase at similar rate. At the end of 2016, earnings increased by 9%. What amount of remuneration expense
should the company recognize in its December 31, 2016 profit or loss?
Solution:
Year 2014 400 x 50 shares x P25 x 1/2 = P250,000

2014 2015 2016

Required balance P250,000 P333,333 P500,000
Beginning balance 0 250,000 333,333
Remuneration costs P250,000 P 83,333 P166,667
Final answer: P166,667
Problem 65 (adapted): On January 1, 2011, Morey Company granted Dean, its president, 20,000 share
appreciation rights for past services. These rights are exercisable immediately and expire on January 1, 2013.
On exercise, Dean is entitled to receive cash for the excess of the share market price on the exercise date over the
market price on the grant date. Dean did not exercise any of the rights during 2011. The market price of Morey’s
share was ₱30 on January 1, 2011 and ₱45 on December 31, 2011. As a result of the share appreciation rights,
what amount should be recognized as compensation expense for 2011?
Solution:
Market price- December 31, 2011 45
Predetermined price on January 1, 2011 30
Fair value of share appreciation right 15
Compensation for 2011 (20,000 x 15) 300,000
The total compensation is recognized as expense entirely in 2011 because the share
appreciation rights are exercisable immediately.
Final Answer: 300,000
Problem 66 (adapted): On January 1, 2011 Module Company granted 100 share appreciation rights to each of its
500 employees on condition that the employees remain in its employ for the next three years. No employees left
the entity during the three- year vesting period. The employees exercised their share appreciation rights as follows:
December 31, 2013 100 employees
The fair value and intrinsic value of the share appreciation right are as follows:
Fair value Intrinsic value
December 31, 2011 15
December 31, 2013 20 15
December 31, 2014 21 20
The intrinsic value of the share appreciation right on the date of exercise is the amount paid out to the
employees. Determine the compensation expense for each year from 2011 to 2015 as a result of the share
appreciation rights.
Solution:
2011
Dec. 31 Salaries 250,000
Accrued salaries payable 250,000
Share appreciation rights
(500 employees x 100) 50,000
Multiply by fair value 15
Total fair value 750,000
Accrued liability- 12/31/2011 (750,000/3) 250,000
2012
Share appreciation rights 50,000
Total fair value 900,000
Accrued liability- 12/31/2012 (900,000/3 x2) 600,000

Accrued liability- 12/31/2011 (250,000)
Compensation expense for 2012 350,000
2013
Share appreciation rights not yet
exercised (500-100 x 100) 40,000
Accrued liability- 12/31/2013 800,000
Compensation expense for 2012 200,000
Salaries 150,000
Cash 150,000
Share appreciation rights exercised (100 x 100) 10,000

Multiply by intrinsic value 15
Total payment 150,000
Compensation related to rights not
yet exercised 200,000
Compensation paid for rights already
Exercised 150,000
Total compensation expense for 2013 350,000
2014
Dec. 31 Accrued salaries payable 485,000
Salaries 485,000
Share appreciation rights not yet
exercised (400-250 x 100) 15,000
Accrued liability- 12/31/2014 315,000
Decrease in accrued liability (485,000)
Salaries 500,000
Cash 500,000
Share appreciation rights exercised

(250 x 100) 25,000
Total payment 500,000
Reversal of accrued liability related to

rights not yet exercised (485,000)
Compensation paid for rights already
Exercised 500,000
Total compensation expense for 2013 15,000
2015
Cash 375,000
Share appreciation rights exercised
(150 employees x 100) 15,000
Total payment in 2015 375,000
Net compensation expense for 2015 60,000
M. Supplementary topics
Problem 67 (adapted): Malampaya Company showed income before income tax of P 6,500,000 on December 31,
2009. The year- end verification of the transactions of the company revealed the following errors:
P 1,000,000 worth of merchandise was purchased in 2009 and included in the ending inventory. However,
the purchase was recorded only in 2010.
A merchandise shipment valued at P 1,500,000 was properly recorded as purchase at year- end. Since the
merchandise was still at the port area, it was inadvertently omitted from the inventory balance of
December 31, 2009.
Advertising for December 2009, amounting to P 500,000, was recorded when payment was made by the
firm in January 2010.
Rental of P 300,000 on an equipment, applicable for six months, was received on November 1, 2009. The
entire amount was reported as income in 2009.
Insurance premium covering the period from July 1, 2009 to July 1, 2010, amounting to P 200,000 was
paid and recorded as expense on July 31, 2009. The entity did not make any adjustment at the end of the
year.
The corrected income before tax for 2009 should be:
Solution:
Net income per book 6,500,000
Unrecorded purchase of 2009 (1,000,000)
Merchandise shipment not included in December 31,
2009 inventory 1,500,000
Unrecorded advertising for December 2009 ( 500,000)
Unearned rent income (300,000 x 4/6) ( 200,000)
Prepaid insurance (200,000 x 6/12) 100,000_
Corrected net income 6,400,000
Problem 68 (adapted): The electricity account of Velvet Company for the year ended June 30, 2015 was as the
following:
Opening balances for the electricity accrual of July 1, 2014 P 30, 000
Payments made during the year:
08/01/14- for three months to July 31, 2014 60, 000
11/01/14- for three months to October 31, 2014 72, 000
02/01/15- for three months to January 31, 2015 90, 000
06/30/15- for three months to April 30, 2015 84, 000
What amount of electricity expense should Velvet Company report in its June 30, 2015 Statement of
Comprehensive Income?
Solution:
Total payment made P 306, 000
Accrued electricity, end balance (84,000x2/3) 56, 000
Total P 362, 000
Accrued electricity, beginning balance 30, 000
Electricity Expense P 332, 000
Problem 69 (adapted): For the year ended December 31, 2014 Light Incorporation reported the following:
Net Income P 180, 000

Preferrence Share Dividend declared 30, 000
Ordinary Share Dividend declared 6, 000
Unrealized holding loss, net of tax 3, 000
Retained Earnings 240, 000
Ordinary Share Capital 120, 000
Accumulated other Comprehensive Income
beginning balance, net of tax 15, 000
Whatwould Light report as its ending balance of Accumulated other Comprehensive Income?
Solution:
Beginning balance P 15, 000
Unrealized holding loss 3, 000
Ending balance P 12, 000
Problem 70 (adapted): On December 30, 2010, LUV U Company paid P1, 500,000 for land. On December 31,
2011, the current cost of the land was P3, 200,000. In January 2012, the land was sold for P2, 250,000. Under
current cost accounting, what is the increase in shareholders’ equity in 2011?
SOLUTION:
Current cost- December 31, 2011 3,200,000

Historical cost 1,500,000
Unrealized holding gain in 2011 1,700,000
Problem 71 (adapted): Rice Company accounts for inventory on FIFO basis. There were 8,000 units in inventory
on
January 1, 2011.
Historical cost Units Units sold

Purchased
First quarter 410,000 7,000 7,500
Second quarter 350,000 8,500 7,300
Third quart 425,000 6,500 8,200
Fourth quarter 630,000 9,000 7,000
Rice estimates that the current cost per unit of inventory was P57 on January 1, 2011 and P71 on December 31,
2011. In the statement of financial position restated to current cost, what amount should be reported as December
31, 2011 inventory?
SOLUTION: Inventory-December 31 (9,000 x 71) 639,000
Problem 72 (adapted): Information with respect to cost of goods sold of Bar Company for 2011 is as follows:
Historical cost Units
Inventory, January 1 1,060,000 20,000

Purchases during the year 5,580,000 90,000
Goods available for sale 6,640,000 110,000
Inventory, December 31 (2,520,000) 40,000
Cost of goods sold 4,120,000 70,000
Bar estimates that the current cost per unit of inventory was P58 on January 1, 2011 and P72 on December 31,
2011. In the income statement for 2011 restated to current cost, what amount should be reported as cost of goods
sold?
SOLUTION:
Current cost per unit-January 1 58

Current cost per unit-December 31 72
TOTAL 130
Average current cost (130/2) 65
Cost of goods sold at average current cost (70,000 x 65) 4,550,000
In the income statement for 2011 restated to current cost, what amount should be reported as realized holding
gain from inventory sold?
ANSWER:
Cost of goods sold at average current cost 4,550,000

Cost of goods sold at historical cost 4,120,000
Realized holding gain 430,000
Problem 73 (adapted): The following assets appear on the statement of financial position of Gardenia Company:
Cash in bank 2,000,000
Accounts receivable 4,000,000
Inventory 1,500,000
Financial asset at fair value 500,000
Patent 1,000,000
Advances to employees 200,000
Advances to suppliers 400,000
Prepaid expense 100,000
In preparing financial statements in a hyperinflationary economy, what total amount should the entity classify as
monetary asset?
Solution:
Cash in bank 2,000,000
Accounts receivable 4,000,000
Total monetary asset 6,200,000
PAS 21 defines monetary asset as “money held and asset to be received in fixed or
determinable amount of money”. The essential feature of a monetary asset is the right to
receive a fixed or determinable amount of money. Monetary assets are those whose
amounts are fixed in the sense that the amounts ultimately realizable are the same
amounts that appear on the historical financial statements. Monetary asset are by their very
nature already expressed in terms of current pesos and therefore realizable at no more or
less than their face or stated amounts. Accordingly, the inventory, financial asset at fair
value, patent, advances to suppliers and prepaid expenses are nonmonetary because they
do not represent fixed amount to be received. Their ultimate realizable amounts definitely
will differ from their carrying amounts.
Problem 74 (adapted): The following liabilities appear on the statement of financial position of Sunflower
Company:
Accounts payable 1,000,000
Accrued expenses 500,000
Bonds payable 3,000,000
Finance lease liability 4,000,000
Unearned revenue 300,000
Advances from customer 1,200,000
Estimated warranty liability 200,000
Deferred tax liability 400,000
In preparing financial statements in a hyperinflationary economy, what total amount should the entity classify as
monetary liabilities?
Solution:
Accounts payable 1,000,000
Accrued expenses 500,000
Bonds payable 3,000,000
Finance lease liability 4,000,000
Total monetary liabilities 8,500,000
PAS 21 defines monetary liabilities as “liabilities to paid in fixed or determinable amount of

money”. The essential feature of a monetary liability is the obligation to deliver a fixed
or determinable amount of money. Monetary liabilities are those whose amounts are
fixed in the sense that the amounts ultimately payable are the same amounts that appear
on the historical financial statements. Stated differently, liabilities are classified as monetary
because by their very nature they are already expressed in current pesos and therefore
payable at no more or no less than their face or stated amounts. Accordingly, the unearned
revenue, advances from customers, estimated warranty liability and deferred tax liability
are nonmonetary because they do not represent fixed amount of money to be paid. Their
ultimate amounts payable will surely differ from their carrying amounts.
Problem 75 (adapted): Dahlia Company was formed on January 1, 2005. Selected balances from historical cost
statement of financial statement on December 31, 2011 were:
Land (purchased on January 1, 2005) 2,400,000
Investment in long-term bonds (purchased on January 1, 2008) 1,200,000
Long term debt (issued on January 1,2005) 1,600,000
The general price index was 120 on January 1,2005, 150 on January 1,2008 and 300 on December 31,2011.
What amount should be reported in a hyperinflationary statement of financial position?
Solution:
Land (2,400,000 X 300/120) 6,000,000
Investment in bond- monetary 1,200,000
Long-term debt- monetary 1,600,000
Only nonmonetary items are restated when preparing hyperinflationary financial

statements. Monetary items are not restated anymore because they are automatically
stated in terms of current pesos at the end of the reporting period. The formula for
restatement is to multiply the historical amount by a fraction whose numerator is the
index number at the end of reporting period and whose denominator is the index number on
acquisition date.
FINANCIAL ACCOUNTING THEORY 5. Are the following statements true or false, according to PAS1 – revised 2009, Presentation of
PREWEEK SUMMARY II financial statements?
Statement (1) Statement (2)
a. False False
PAS 1 – Revised 2009 PRESENTATION OF FINANCIAL STATEMENTS b. False True
1. The major revision in PAS 1 (2009) is the preparation of a statement of comprehensive income c. True False
in lieu of the traditional income statement. The main objective of putting together realized, d. True True
unrealized and holding gains and losses in performance report is
a. To aggregate information in the financial statements on the basis of shared characteristics 6. Which of the following statements regarding fair presentation and compliance with generally
b. To improve and reorder sections PAS 1 to make it easier to read accepted accounting principles is (are) true?
c. To respond to the more expanded financial information needs of financial statement users I. The application of PFRSs, with additional disclosures when necessary, is presumed to
d. To improve comparability of financial statements result in financial statements that achieve fair presentation.
II. An entity whose financial statements comply with PFRSs shall make an explicit and
2. According to PAS 1 Presentation of financial statements, the notes within the financial unreserved Statement of such compliance in the notes.
statements contain information in addition to that presented in which TWO of the following? III. Inappropriate accounting treatment may be rectified either by disclosure of accounting
A. Report on sustainability C. Statement of financial position policies or by notes or explanatory material.
B. Chairman’s interest D. Statement of financial performance a. Statement I only c. Statements I and II only
a. A and B c. B and D b. Statement II only d. Statements I, II and III
b. B and C d. C and D
7. Which of the following statements is (are) true, concerning the Going Concern assumption?
3. Which of the following statements true or false, according to PAS 1 Presentation of financial I. When preparing financial statements, management is required to make an assessment of
statements, revised 2009? an enterprise’s ability to continue as a going concern which should be at least twelve
1) Provisions should be recognized in the statement of financial position months from balance sheet date.
2) A change in the revaluation surplus during the year should be reported in Statement of II. When an enterprise has a history of profitable operations and ready access to financial
Comprehensive Income resources it is not a detailed analysis as to is ability to operate as a going concern is not
Statement (1) Statement (2) necessary.
a. (1) – True (2) – True III. When the financial statements are not prepared on a going-concern basis, this fact should
b. (1) - False (2) - False disclosed
c. (1) – True (2) - False a. I and II only c. II and III
d. (1) - False (2) – True b. II and III only d. I, II, and III
4. PAS 1 Presentation of Financial Statements requires disclosure in the balance sheet of the 8. Which of the following statements about PAS 1 [2009] is (are) true?
following items: 1) The statement of comprehensive income supersedes the Income Statement as a basic
a. a statement of compliance with PFRS; component of general-purpose financial statements.
b. the measurement basis used for the revaluation of assets; 2) A new component of basic financial statements is a “third balance sheet” when
c. the carrying amount of property, plant and equipment; circumstances so warrant.
d. information about the key assumptions used in the depreciation of assets. 3) Since the statement of comprehensive income already includes recognized gains and
losses that are credited directly to equity, this eliminates the need for the statement of
changes in equity
[1] [2] [3] [1] [2] [3] b. Foreign exchange losses relating to appreciation of Japanese yen in relation to the
a. true true True c. true true false Philippine peso
b. false false False d. false true false c. Losses resulting from the annual lahar flows within the Pampanga area
d. None, all are ordinary gains and losses
9. A statement of financial position as at the beginning of the earliest comparative period should
be prepared by an entity in any of the following circumstances except 13. Assuming all the following securities are readily marketable, which one would not be classified
a. when an entity applies an accounting policy retrospectively as current Investment?
b. when an entity makes a retrospective restatement of items in the financial statements a. Debt securities maturing in five years, representing an investment of temporarily idle cash
c. when an entity reclassifies items in the financial statements funds
d. when an entity changes any of its estimates used in accounting b. Commercial papers which will be converted into cash when it matures in six months
c. Equity securities which the company intends to convert into cash when needed for
10. For financial reporting in the Philippines, are the following statements true or false? working capital purposes, but which have been held for several years without conversion
I. Philippine practice is to present in the balance sheet current assets before non-current d. Equity securities which will be converted into cash within three months to finance the
assets, current liabilities before non-current liabilities; and equity accounts before liabilities. construction of a building
II. Notes are normally presented in the following order: Statement of compliance with PFRSs,
Summary of significant accounting policies, supporting information for items presented on 14. According to PAS 1 – Presentation of Financial Statements, which of the following is not
the face of the FS; and lastly, other disclosure including contingent liabilities and non- among the criteria in classifying a liability as a current?
financial disclosures. a. Expected to be settled in the entity’s normal operating cycle
a. I – true; II - false c. I – true; II - true b. Due to be settled within twelve months after the balance sheet date
b. I – false; II - true d. I – false; II - false c. It is held primarily for the purpose of being traded
d. The entity has an unconditional right to defer settlement of the liability for at least twelve
11. Which of the following statements about “other comprehensive income” section of the months after the balance sheet date.
Statement of Comprehensive Income (SOC) is/are false?
I. The amount of revaluation surplus reported in the other comprehensive income section of 15. When an entity breaches an undertaking under a long-term loan contract on or before balance
the SOC must be the same as the amount of revaluation surplus ending balance in the sheet date, such that the effect of which the liability becomes payable on demand, the liability
general ledger is classified as noncurrent when
II. Foreign exchange gains and losses arising from purchase of property and equipment I. The lender has agreed by the balance sheet date to provide a grace period ending at least
should be reported under the other comprehensive income section of the SOC twelve months after the balance sheet date.
III. Unrealized gain or loss on change in value of Investment Property should be presented in II. The lender has agreed before balance sheet date and before the financial statements are
other comprehensive income section of the SOC authorized for issue not to demand payment as a consequence of the breach.
IV. Only the current year’s unrealized gains or loss on change in value of available for sale a. I only c. both I and II
securities should be shown under other comprehensive income of the SOC b. II only d. Neither I nor II
a. I and II only c. I, II and III only
b. III and IV only d. I, II, III and IV 16. According to PAS 1, (2009), which of the following should be disclosed in the financial
statement?
12. According to PAS 1 (2009) Presentation of Financial Statements, which of the following should I. Unrecognized contractual commitments and entity’s financial risk management objectives
be classified as extraordinary item in reporting results of operations? and policies
a. Gain resulting from the national government’s expropriation of a corporate property II. Sources of estimation uncertainty
III. Summary quantitative data about of puttable financial instruments classified as equity
IV. Important movements in key management personnel Statement (1) Statement (2) Statement (1) Statement (2)
a. I, II and II only c. I, III and IV only a. False False c. True False
b. II, II and IV only d. I, II, III and IV b. False True d. True True
17. PAS 1 Presentation of Financial Statements, requires the following note disclosures in relation 22. According to PAS8 Accounting policies, changes in accounting estimates and errors, which of
to dividends of an entity. The the following statements best describe “prospective application”?
a. amount of any cumulative preference dividends not recognized; I. Recognizing a change in accounting estimates in the current and future periods affected by
b. names of the recipients of the dividends; the change
c. addresses of all shareholders who are entitled to receive the dividends; II. Correcting the financial statements as if a prior period error had never been occurred
d. a schedule of cumulative dividends paid in prior periods. III. Applying a new accounting policy to transactions occurring after the date at which the
policy changed
18. Significant changes in the market value of trading securities occurring after the balance sheet IV. Applying a new accounting policy to transactions as if that policy had always been applied
date should a. I and II only c. I, II and III
a. Be considered in the valuation of the securities at balance sheet date and disclosed in the b. I and III only d. I, III and IV
notes to financial statements
b. Be treated as a prior period error in next year’s financial statements 23. According to PAS8 Accounting policies, changes in accounting estimates and errors, which
c. Not be considered in the valuation of the securities at balance sheet date but disclosed in one of the following terms best describes applying a new accounting policy to transactions as
the notes to financial statements if that policy had always been applied?
d. Result in an adjustment of the market value used in the lower of cost or market valuation a. Retrospective Application c. Prospective application
at balance sheet date b. Retrospective restatement d. Prospective restatement
19. A parent is not required to present consolidated financial statements 24. Are the following statements true or false, according to PAS8 Accounting policies, changes in
a. When the parent is wholly owned subsidiary accounting estimates and errors? An entity changes its accounting policy if
b. When the parent is virtually owned provided parent does not obtain the approval of the 1) It is required to do so by law
owners of the minority interest 2) The change will result in providing reliable and more relevant information
c. When the parent and the subsidiary are engaged in dissimilar activities Statement (1) Statement (2) Statement (1) Statement (2)
d. When there is a three-month time lag in the fiscal periods of the parent and its subsidiary a. False False c. True False
b. False True d. True True
20. Empire Corp. classifies expenses by logistics quality control, manufacturing, plant engineering,
sales and marketing, research and development, finance and administration. The classification 25. During the year to December 31, 2010 the following events occurred in relation to Sancho
basis is by Company.
a. Object of expenditure c. Area of responsibility 1) A counting error relating or the inventory at 31 December 2009 was discovered. This
b. Nature of expense d. Function performed required a reduction in the carrying amount of inventory at that date of P28,000.
2) The provision for uncollectible receivables at 31 December 2009 was P30,000. During
CHANGE IN ACCOUNTING POLICY, ESTIMATES AND ERRORS (PAS 8) 2010 P50,000 was written off the 31 December 2009 receivables.
21. Which of the following statements in relation to a change in accounting estimate is (area) true
or false, according to PAS 8 Accounting policies, changes in accounting estimates and errors? According to PAS8 Accounting policies, changes in accounting estimates and errors, what
1) Changes in accounting estimates are accounted for retrospectively adjustment is required to restate Saddleback’s retained earnings at 31 December 2009?
2) Changes in accounting estimates result from new information or new developments a. 0 c. P30,000
b. P28,000 d. P58,000 d. When ordered by management
26. A change in accounting policy should be applied 31. In relation to ‘Retained Earnings’, PAS 1 Presentation of Financial Statements, mandates the
a. Retrospectively only c. Prospectively only following disclosures:
b. Retrospectively & prospectively d. Current only I. Any changes during the reporting period
II. The related tax adjustments in respect to any changes during the period
27. In line with its Customer Loyalty Program, Amaya Company estimated in 2010, a premium III. The beginning balance
redemption rate of 40% of Sales. Experience in 2011 indicated that the estimate should have IV. The balance at reporting date
been based 50% of Sales. The effect of this 10% difference from the estimate is reported a. I, II, III and IV c. I, III and IV only
a. In 2011 income from continuing operations b. II, III and IV only d. III and IV only
b. As an accounting change, net of tax, below the 2011 income from continuing operations
c. As an accounting change requiring 2011 financial statements to be restated 32. In which section of the statement of financial position should cash that is restricted for the
d. As a correction of an error requiring 2011 financial statements to be restated settlement of liability due 18 months after the reporting period be presented, according to
PAS1?
28. The estimated life of a building that has been depreciated 30 years of an originally estimated a. current assets c. Non-current liabilities
life of 50 years has been revised to a remaining life of 10 years. Based on this information, the b. Equity d. Non-current assets
accountant should
a. Continue to depreciate the building over the original 50 year life 33. Which of the following items should be presented in the Statement of Changes in Equity or in
b. Depreciate the remaining book value or the remaining life of the asset the notes thereof?
c. Adjust accumulated depreciation to its appropriate balance, through net income based on A – Changes in ownership interests in subsidiaries that do not result in a loss of control
a 40-year life and then depreciate the adjusted book balance as though the estimated life B – Amounts of dividends recognized during the period and the related amount per share
had always been 40 years C – Total comprehensive income for the period
d. Adjust accumulated depreciation to its appropriate balance, through retained earnings D – Contributions by owners and effect of treasury stock transactions
based on a 40-year life and then depreciate the adjusted book value as though the E – Translation of foreign operations
estimated life had always been 40 years a. A, B, C only c. A, C, D only
b. B, C, D, and E only d. A, B, C, D and E
29. Which of the following accounting change should be reported by applying retroactively the new
method? 34. An entity purchases a building and the seller accepts payment partly in equity shares and
Change 1 – First-in, first-out method for inventories to Moving weighted average method partly in debentures of the entity. This transaction should be treated in the cash flow statement
Change 2 – Cost model to Revaluation model in accounting for property and equipment as follows:
a. Change 1 – yes; change 2 - no c. change 1 – no; change 2 - yes a. The purchase of the building should be investing cash outflow and the issuance of shares
b. Change 1 – no; change 2 - no d. change 1 – yes; change 2 - yes and debentures financing cash outflows
b. The purchase of the building should be investing cash outflow and the issuance of
30. Prospective application of a change in accounting policy required debentures financing cash outflows while the issuance of shares investing cash outflow
a. Anytime c. This does not belong in a cash flow statement and should be disclosed only in the notes
b. When the amount of adjustment to the opening balance of retained earnings can be to financial statements
reasonably determined d. Ignore the transaction totally since it is a non-cash transaction. No mention is required in
c. When the amount of adjustment to the opening balance of retained earnings cannot be either the cash flow statement or anywhere else in the financial statements
reasonably determined
STATEMENT OF CASH FLOWS (PAS 7) c. Cash flows from financing activities
35. Which two of the following transactions would be presented in a statement of cash flows, d. Does not appear in the cash flow statement
according to PAS7 Statement of cash flows?
A. Conversion of loans into shares 40. Joaquin Company owns 5% of Alondra RTW. A property dividend distributed by Alondra
B. Loan interest received consisted of merchandise with a fair value lower than the listed retail price. Joaquin in turn,
C. Loan interest owed gave the merchandise to its employees as a holiday bonus. How should Joaquin report the
D. Proceeds of loan issue receipt and distribution of the merchandise in its cash flow statement?
a. A and B c. A and C a. As both an inflow and outflow for operating activities
b. B and D d. C and D b. As both an inflow and outflow for investing activities
c. As an inflow for investing activities and outflow for operating activities
36. Which ONE of the following items should be presented under Cash flows from investing d. As a non-cash activity
activities, according to PAS7 Statement of cash flows?
a. Employee cost 41. In the cash flow statement, alternatively, interest received and dividend received may be
b. Property revaluation classified as cash flows
c. Redemption of debentures a. Operating activities c. Financing activities
d. Development cost capitalized in the period b. Investing activities d. Revenue activities
37. Which TWO of the following can be classified as Cash and cash equivalents under PAS7 42. The Sarin Company’s financial statements for the year ended 30 April 20X8 were approved by
Statement of cash flows? its finance director on 7 July 20X8 and a public announcement of its profit for the year was
A. Redeemable preference shares due in 180 days made on 10 July 20X8. The board of directors authorized the financial statements for issue on
B. Loan on notes held due for repayment in 90 days 15 July 20X8 and they were approved by the shareholders on 20 July 20X8. Under PAS10
C. Equity investments Events after the reporting period, after what date should consideration no longer be given as to
D. A bank overdraft whether the financial statements to 30 April 20X8 need to reflect adjusting and non-adjusting
a. A and C c. B and D events?
b. A and B d. C and D a. 7 July 20X8 c. 15 July 20X8
b. 10 July 20X8 d. 20 July 20X8
38. In accordance with PAS7 Statement of cash flows, and treating it as a nonrecurring event,
which classification of the cash flow arising from the sale of land and building would be most 43. Are the following statements true or false according to PAS10 Events after reporting period?
appropriate? 1) Notes to the financial statements should give details of all material adjusting events
a. Cash flows from operating activities included in those financial statements
b. Cash flows from investing activities 2) Notes to the financial statements should give details of material non-adjusting events
c. Cash flows from financing activities which could influence the economic decisions of users.
d. Does not appear in the cash flow statement Statement (1) Statement (2) Statement (1) Statement (2)
a. False False c. True False
39. In accordance with PAS7 Statement of cash flows, and treating it as a nonrecurring event, b. False True d. True True
which classification of the cash flow arising from the proceeds from an earthquake disaster
settlement would be most appropriate? 44. Are the statements about the classification of each of the following events after the end of the
a. Cash flows from operating activities reporting period but before the financial statements are authorized for issue true or false,
b. Cash flows from investing activities according to PAS10 Events after the reporting period?
1) A decline in the market value of investments would normally be classified as an adjusting On July 31, 2011 the board agreed to reduce the asking price to P 100,000. A deal was
event agreed with a buyer on August 31, 2011 and completion of the sale took place on November
2) The settlement of a long-running court case would normally be classified as a non- 30, 2011.
adjusting event
Statement (1) Statement (2) Statement (1) Statement (2) In accordance with IFRS 5 Non-current assets held for sale and discontinued operations. The
a. False False c. True False asset should be classified as held for sale on
b. False True d. True True a. February 28, 2011 c. July 31, 2011
b. May 31, 2011 d. August 31, 2011
45. The Vitex Company is preparing its financial statements for the year to 30 June 2010 The
Board of Directors reviews the final draft financial statements and authorize them for issue on FINACIAL INSTRUMENTS/CASH AND RECEIVABLES/FINANCIAL ASSETS/FINANCIAL
8 August 2010. The earnings figure and key date are issued to the public on 19 September LIABILITIES
2010, The financial statements are issued to shareholders on 6 October 2010 and approved 48. Which of the following statements about treasury shares true or false, according to PAS32
by shareholders on 10 November 2010. The period in respect of which the company should Financial instruments: presentation?
consider events after the end of reporting period in accordance with PAS10 Events after the 1) Treasury share purchases are recognized as financial assets.
reporting period, is from 20 June 2010 to 2) Any gain or loss on purchasing treasury shares is recognized as profit or loss.
a. August 8, 2010 Statement (1) Statement (2)
b. September 19, 2010 a. False False
c. October 6, 2010 b. False True
d. November 10, 2010 c. True False
d. True True
46. The Elder Company’s draft financial statements show the profit before tax for the year to
December 31, 2009 as P9 million. The board of directors is to authorize the financial 49. Are the following statements concerning the measurement of financial instruments after initial
statements for issue on 20 March 2010. A fire occurred at one of Elder’s sites on January recognition true or false, according to PAS 39 Financial instruments: recognition and
13,2010 with resulting damage costing P7 million, only P4 million of which is covered by measurement?
insurance. The repairs will take place and be paid for in April 20X8. The P4 million claim from 1) Held-for-trading financial assets are measured at amortised cost.
the insurance company will however be received on February 14, 2010. 2) Held-to-maturity investments are measured at fair value.
Taking account of these events in accordance with PAS 10 Events after the reporting period, Statement (1) Statement (2)
what should be Elder’s profit before taxation in its financial statements? a. False False
a. P 2 million c. P 13 million b. False True
b. P 9 million d. P 6 million c. True False
d. True True
47. The directors of The Klaus Company decided at a board meeting on February 28, 2011 that a
major machine tool should be sold. Trade magazines reported recent transactions in non- 50. Are the following statements about dividends true or false, according to PAS32 Financial
current assets of a similar age at P 100,000, but the board decided that the asking price instruments: presentation?
should be P 150,000. The board also decided that as a program of repairs to the tool needed 1) Dividends in respect of ordinary shares are debited directly in equity.
to be carried out, an agent should not be contracted with for the sale of the item until the 2) Dividends in respect of redeemable preference shares are debited directly in equity.
repairs were completed, which was on May 31, 2011. Statement (1) Statement (2)
a. False False
b. False True
c. True False d. Available for sale
d. True True
54. Are the following statements true or false, in accordance with PFRS7 Financial instruments:
51. The Freemantle Company has issued the following two types of financial instrument to raise disclosures?
capital: 1) The carrying amount of held-to-maturity investments must be disclosed in the statement
1) Convertible bonds which are redeemable for cash in five years time. The holders have the of financial position.
right to request the issue of a fixed number of new ordinary shares in lieu of cash. The 2) The amount of any impairment loss for each class of financial asset must be disclosed in
holders have not yet indicated whether they will exercise the right to receive the new the statement of comprehensive income.
ordinary shares. Statement (1) Statement (2) Statement (1) Statement (2)
2) Preference shares with no fixed date for redemption. The preference shares are a. False False c. True False
redeemable for cash at any time in the future at the option of Freemantle. Freemantle b. False True d. False True
must give 6 months written notice of its intention to redeem the preference shares and no
notice has yet been given. 55. The scope of PAS39 includes all of the following, except
a. Financial instruments that meet the definition of a financial asset
In accordance with PAS32 Financial instruments, presentation, the appropriate classifications b. Financial instruments that meet the definition of a financial liability
for these financial instruments are Convertible bonds Preference share: c. Financial instruments issued by the entity that meet the definition of an equity instrument
a. Compound financial instrument Equity instrument d. Contracts to buy or sell non-financial items that can be settled net
b. Financial liability Compound financial instrument
c. Compound financial instrument Equity instrument 56. Which of the following is not a category of financial assets defined in PAS 39?
d. Financial liability Compound financial instrument a. Financial assets at fair value through profit or loss
b. Available-for-sale financial assets
52. The Proctor Company has 300 7% preference shares in issue. They are redeemable on 31 c. Held-for-sale investments
December 20X9. How will the preference shares and the related preference dividend be d. Loans and receivable
presented in Proctor’s financial statements for the year ended 31 December 20X6, according
to PAS32 Financial instruments: presentation? Preference shares Preference dividend 57. All of the following are characteristics of financial assets classified as held-to-maturity
a. Non-current liability Deducted from equity investments except
b. Equity Deducted from equity a. They have fixed or determinable payments and a fixed maturity
c. Equity Finance cost b. The holder can recover substantially all of its investment (unless there has been credit
d. Non-current liability Finance cost deterioration)
c. They are quoted in an active market
53. The Greenday Company acquired 30,000 4% Government Bonds redeemable in 20X9 at the d. The holder has a demonstrated positive intention and ability to hold to them to maturity
quoted market price of P200. Greenday has no current intention to sell the Bonds and has a
policy to hold them as investments unless certain corporate criteria are met and the bonds are 58. What is the principle for recognition of a financial asset or a financial liability in PAS 39?
sold to maintain liquidity. In accordance with PAS39 Financial instruments: recognition and a. A financial asset is recognized when and only when, it is probable that future economic
measurement, which ONE of the following is the most appropriate classification for Greenday’s benefits will flow to the entity and the cost or value of the instrument can be measured
investment in the Government Bonds? reliably
a. Held for trading b. A financial asset is recognized when and only when, the entity obtains control of the
b. At fair value through profit or loss instrument and has the ability to dispose of the financial assets independent of the auction
c. Held to maturity of others
c. A financial asset is recognized when, and only when, the entity obtains the risks and 63. In accordance with PFRS 7 Financial Instruments disclosures, which of the following best
rewards of ownership of the financial asset and has the ability to dispose the financial describes credit risk?
asset a. The risk that one party to a financial instrument will cause a financial loss for the other
d. A financial asset is recognized when and only when, the entity becomes a party to the party by failing to discharge an obligation
contractual provisions of the instrument b. The risk that an entity will encounter difficulty in meeting obligations associated with
financial liabilities
59. At what amount is a financial asset of financial liability measured on initial recognition? c. The risk that the fair value associated with an instrument will vary due to changes in the
a. Fair value. For items that are not measured at fair value through profit or loss, transaction counterparty’s credit rating
costs are also included in the initial measurement d. The risk that an entity’s credit facilities will be withdrawn due to cash flow sensitivities
b. The consideration paid or received for the financial asset or financial liability
c. Acquisition cost, which is the consideration paid or receive plus any directly attributable 64. The following statements true or false according to PAS 32, Financial Statement presentation?
transaction costs to the acquisition or issuance of the financial asset or financial liability. 1) Transaction costs of issuing equity instruments are charged against income
d. Zero 2) The components of a compound financial instrument are classified separately in
accordance with their substance
60. What is the best evidence of the fair value of a financial instrument? Statement (1) Statement (2) Statement (1) Statement (2)
a. Its cost, including transaction costs directly attributable to its purchase, origination or a. False False c. True False
issuance b. False True d. True True
b. Its estimated value determined using discounted cash flow techniques, option pricing
models, etc. 65. In accordance with PFRS 7, Financial Instruments disclosures, which two of the following
c. Its quoted price if an active market exists for the financial instrument components of market risk?
d. The present value of the contractual cash flows less impairment a. Credit risk and Currency risk c. Interest rate risk and liquidity risk
b. Currency risk and interest rate risk d. Credit risk and Liquidity risk
61. In which of the following circumstances is derecognition of a financial asset not appropriate?
a. The contractual rights to the cash flows of the financial asset has expired. 66. Which of the following is not classified as a financial instrument in accordance with PAS 32
b. The financial asset has been transferred and substantially all the risks and rewards of Financial Instruments?
ownership has also been transferred. a. Convertible bond c. Warranty provision
c. The financial asset has been transferred and the entity has retained substantially all the b. Foreign currency contract d. Loan receivable
risks and rewards of ownership of the transferred asset.
d. The financial asset has been transferred and the entity has neither retained nor 67. The Amber Company acquired an available for sale financial instrument for P 80 on March 31,
transferred substantially all the risks and rewards of ownership of transferred asset. In 2010. The direct acquisition costs incurred were P14. On December 31, 2010, the fair value of
addition, the entity has lost control of the transferred asset. the instrument was P110 and the transaction costs that would be incurred on sale were
estimated at P12. Per PAS 39, what gain would be recognized in the financial statements for
62. In accordance with PFRS 7 Financial Instruments disclosures, which of the following best the year ended, December 31, 2010?
describes the risk that an entity will encounter if it has difficulty in meeting obligations a. Zero c. P 16
associated with its financial liabilities? b. P 4 d. P 42
a. Liquidity risk c. Financial risk
b. Credit risk d. Payment risk 68. The Scholari Company has issued the following two types of financial instruments to raise
capital:
1) Convertible bonds which are redeemable for cash in five years time. The holders have the c. The portion of any demand deposit, time deposit , or certificate of deposit maintained by a
right to request the issue of a fixed number of new ordinary shares in lieu of cash. The corporation which constitute support for existing borrowing arrangements of the
holders have not yet indicated whether they will exercise the right to receive the new corporation with the lending institution
ordinary shares. d. A balance held in a time or demand deposit account that is equal to the interest currently
2) Preference shares with no fixed date for redemption. The preference shares are due on a loan
redeemable for cash at any time in the future at the option of Scholari. Scholari must give
6 months written notice of its intention to redeem the preference shares and no notice has 72. Which of the following statements is false?
yet been given. a. Not all items included in cash constitute legal tender
In accordance with PAS 32 Financial Instruments presentation, the appropriate classification s b. Cash may be offset against a liability if the deposit of funds in a restricted account clearly
for these financial instruments are: constitutes the legal discharge of the liability
Convertible bonds Preference shares c. Petty cash fund of P 5,000 composed of currency and coins of P1,400 and unreplenished
a. Compound financial instrument Equity instrument petty cash vouchers of P 3,600 should be shown in the current asset section at P1,400
b. Financial liability Compound financial instrument only
c. Compound financial instrument Equity instrument d. Marketable securities and commercial papers may be shown as part of cash provided this
d. Financial liability Compound financial instrument is disclosed
69. The Verdi Company acquired 30,000, 4% Government Bonds redeemable in 2012 at the 73. What is the proper accounting for credit card sales if the credit card company is
quoted market price of P200. Verdi has no current intention to sell the bonds and has a policy Affiliated with a bank Not affiliated with a bank
to hold them as investments unless certain corporate criteria are met and the bonds are sold a. Sale on account Cash sales
to maintain liquidity. In accordance with PAS 39, Financial Instruments recognition and b. Sale on account Sale on account
measurement, which of the following is the most appropriate classification for Verdi’s c. Cash sale Cash sale
investment in the Government Bonds? d. Cash sale Sale on account
a. Held for trading c. Held to maturity
b. Available for sale d. At fair value through profit or loss 74 JB Company uses the allowance method in recognizing uncollectible accounts. Ignoring
deferred taxes, the entry to record the write-off of a specific uncollectible account
70. Ysobelle Company has an account receivable from Silver Corp. of P 55,000. Ysobelle also has a. Affects neither net income nor working capital
an account payable to Silver of P 15,000. Local law allows the enforceable right of offset of the b. Decreases both net income and accounts receivable
recognized amounts. It is, however, not normal business practice to settle the amounts net. At c. Affects both net income nor accounts receivable
what amount should the accounts receivable and accounts payable be presented in Ysobelle’s d. Decreases both net income and working capital
Statement of Financial Position per PAS 32?
Accounts Accounts payable Accounts Accounts payable 75. Shakey’s Co. uses the installment sales method to recognized revenue. Customers pay the
receivable receivable installment notes in 24 equal monthly amounts, which include 12% interest. What is the
a. P 55,000 P 15,000 c. P 40,000 nil installment notes receivable balance six months after the sale?
b. P 55,000 nil d. nil P 15,000 a. 75% of the original sales price
b. Less than 75% of the original sales price
71. A compensating balance is best reflected by which of the following? c. The present value of the remaining monthly payments discounted at 12%
a. A savings account maintained at the bank equal to the amount of all outstanding loans d. Less than the present value of the remaining monthly payments discounted at 12%
b. An amount of capital stock held in the company’s treasury equal to outstanding loan
commitments
76. All but one of the following are required before a transfer of receivables can be recorded as a III. Cash flow interest rate risk is the risk that the future cash flows of a financial instrument
sale? will fluctuate because of changes in market interest rates.
a. The transferred receivables are beyond the reach of the transferor and its creditors a. I and II only c. II and III only
b. The transferor has not kept effective control over the transferred receivables through a b. I and III only d. I, II and III
replacement agreement
c. The transferor maintains continuing involvement 81. Which of the following types of information is about exposure to risks arising from financial
d. The transferee can pledge or sell the transferred receivable instruments is not a required disclosure?
a. Qualitative and quantitative information about market risk
77. A net realized loss on a company’s available-for-sale portfolio of marketable equity securities b. Qualitative and quantitative information about credit risk
should be reflected in the current financial statements as c. Qualitative and quantitative information about operational risk
a. An extraordinary item shown as a direct reduction of retained earnings d. Qualitative and quantitative information about liquidity risk
b. A current loss resulting from holding marketable equity securities
c. A footnote or parenthetical disclosure only 82. Which of the following liabilities is a financial liability?
d. A valuation allowance and included in the equity section of the statement of financial a. Deferred revenue
position b. A warranty obligation
c. A constructive obligation
78. In accordance with PAS 39, which among the following is not among the criteria in classifying d. An obligation to deliver own shares worth a fixed amount of cash
Financial Assets at fair value through profit or loss?
a. Acquired principally for the purpose of trading it in the near term 83. What is the principle of accounting for a compound instrument (e.g., and issued convertible
b. Designated by the entity upon initial recognition as at fair value through profit or loss debt instrument)?
c. Non-derivative financial assets with fixed or determinable payments that are not quoted in a. The issuer shall classify a compound instrument as either a liability or equity based on an
an active market evaluation of the predominant characteristics of the contractual arrangement
d. A derivative that meets the definition in PAS 39 b. The issuer shall classify the liability and equity components of a compound instrument
separately as financial liabilities, financial assets, or equity instruments
79. MMR Company placed P1.5 M in the money market for 60 days subject to pre-termination. c. The issuer shall classify a compound instrument as a liability in its entirety, until converted
The P1.5 M should be into equity, unless the equity component is detachable and separately transferable, in
a. Included as part of cash and cash equivalent with appropriate disaggregation in the notes which cash the liability and equity components shall be presented separately
to the financial statements d. The issuer classify a compound instrument as a liability in its entirety, until converted into
b. Included as part of its marketable securities without need of any disclosure equity
c. Treated as short-term receivables with the appropriate disclosure in the notes to financial
statements INVENTORIES (PAS 2)
d. Considered as part of the marketable securities with the appropriate disclosures in the 84. Costs excluded from cost of inventory and recognized as expenses in the period when
notes to financial statements incurred are
a. Storage costs, unless necessary in the production process
80. PAS 32 defines various risk terminologies. Which of the following definitions is (are) correct? b. Borrowing costs incurred for inventories that require a substantial period of time to bring
I. Credit risk is the risk that one party to a financial instrument will fail to discharge an them to a salable condition
obligation and cause the other party to incur a financial loss. c. Foreign exchange differences which result from severe devaluation of a currency against
II. Liquidity risk (or funding risk) is the risk that an entity will encounter difficulty in raising which there is no hedging and that affects liabilities directly arising from the recent
funds to meet commitments associated with financial instruments. acquisition of inventories
d. Freight and handling costs in acquiring goods 89. In a perpetual inventory system, two entries are normally made to record each sales
transaction. The purpose is best described by which of the following statements?
85. On November 4,2010, Bona Company contracted to buy foreign goods requiring payment in a. One entry records the purchase of merchandise and the other, records the sale
dollars in one month after their receipt at Nova’s factory. Title to the goods passed on b. One entry records the cost of goods sold and the other reduces the balance in the
December 15, 2010. The goods were still in transit on December 31, 2010. Exchange rates of inventory account
the peso to the dollar were P34, P38, and P40 on Nov. 4, Dec.15, and Dec. 31, respectively. c. One entry records the subsidiary ledger, and the other updates the general ledger
According to PAS 1, Nova should account for the exchange rate fluctuation in 2010 as d. One entry recognizes the sales revenue and the other recognizes the cost of goods sold
a. A loss included in net income from operating activities
b. A loss included in net income after operating activities but before net income from 90. According to PAS 28, which of the following will not fall under the situation of “existence of
ordinary activities significant influence by an investor in the financial operating policy decisions of the investee
c. An extraordinary loss but not control of these decisions of the investee but not control of these decisions”
d. A gain included in net income after operating activities but before net income from a. Participation in policy making process
ordinary activities b. Material intercompany transactions
c. Power to govern the financial and operating policy decisions of an enterprise so as to
86. Excel Corp. manufactures and sells paper envelopes. The stock envelope was included in the obtain benefits from its activities
closing Inventory as of December 31, 2007, at a cost P50 each per pack. During the final audit, d. Technological dependency
the auditors noted that the subsequent sale price for the inventory at January 15, 2008 was
P40 each per pack. Furthermore, inquiry reveals that during the physical count, a water 91. Delta Corp. purchased 7,400 shares of Maiden Company’s common stock and classified it as
leakage has created damages to the paper and the glue. available-for-sale. The purchase price was P362,000, which is equal to 50% of Maiden
Company’s retained earnings balance. Maiden Company’s 46,000 shares of common stock
Accordingly, in the following, Excel has spent a total of P15 per pack for repairing and are actively traded. Delta should account for this using the
reapplying glue to the envelopes. The net realizable value and inventory write-down (loss) a. Cost method
amount to: b. Equity method
a. P40 and P10 respectively c. P25 and P25 respectively c. Cost method subject to fair value valuation in the balance sheet
b. P45 and P10 respectively d. P30 and P15 respectively d. Market value method subject to fair value valuation in the balance sheet
87. If the average retail inventory method is used, which of the following calculations would include 92. Arlene, Inc., owns 40% of the outstanding stock of Anthony Company, and opted to account
or exclude net markdowns? for its investment in Anthony under the equity method. During 2011, Arlene received a P4,000
Cost ratio Ending Invty. at retail Cost ratio Ending Invty. at retail cash dividend from Anthony. What effect did this dividend have on Arlene’s 2011 financial
a. Include Include c. Exclude Include statements?
b. Include Exclude d. Exclude Exclude a. Increased total assets c. Increased income
b. Decreased total assets d. Decreased investment account
88. Losses which are expected to arise from firm and non-cancellable commitments for the
furniture purchase of inventory items, if onerous or material should be 93. Lino Co. received a cash dividend from a common stock investment. Should Lino report an
a. Recognized in the accounts by debiting loss on purchase commitments and crediting increase in the investment account if it has classified the stock as available-for-sale or uses
estimated liability for loss on purchase commitments the equity method of accounting?
b. Disclosed in the notes to financial statements only Available for sale Equity method Available for sale Equity method
c. Ignored, because the contract is still executory, thus there are no value exchanges instrument instrument
d. Charged to retained earnings a. No No c. Yes No
b. Yes Yes d. No Yes c. Owner-occupied property
d. Investment property
94. Larry Corporation has bought a 25% share in Bing Company with a view to selling that
investment within six months. The investment has been classified as held for sale in 99. Under PAS 40 Investment property, which of the following additional disclosures must be
accordance with PFRS 5. How should the investment be treated in the final year accounts? made when an entity chooses the cost model as its accounting policy for investment property?
a. It should be accounted for under equity method a. The fair value of the property
b. The assets and liabilities should be presented separately from other assets in the balance b. The present value of the property
sheet as provided for under PFRS 5 c. The value in use of the property
c. The investment should be dealt with under PAS 39 d. The net realizable value of the property
d. Purchase accounting should be used for investment
100. Which of the following properties fall under the definition of investment property and therefore
95. PAS 28 does not require the equity method to be applied with an associate that has been within the scope of PAS 40 Investment property?
acquired and held with a view to its disposal within a certain time period. Per guidance from a. b. c. d.
PFRS 5, what is this time period within which the associate must be disposed of? Land held for long-term capital appreciation yes yes no no
a. Six months c. Two years Property occupied by an employee paying market rent no no yes yes
b. Twelve months d. In the near future A building owned by an entity and leased out under an
operating lease yes no no yes
96. On April 1, 2010 Becky, Inc. issued bonds which Joy Corp. purchased as a long-term
investment between interest dates at a discount. Ignoring documentary stamp charges, 101. When an owner-occupied property is transferred to investment property at fair value, a
broker’s commission and other expenses for the sale, how much cash should Joy pay Becky? decrease in the carrying amount of the property to its fair value at the date of transfer
a. More than the face value of the bond a. Is recognized in profit and loss, or, for a revalued property, charged against revaluation
b. Less than the face value of the bond plus accrued interest surplus to the extent of its credit balance
c. The same as the face value of the bond b. Is recognized in profit and loss at all times
d. The same as the face value of the bond plus accrued interest c. Is absorbed by Retained Earnings
d. Is carried directly to Equity
INVESTMENT PROPERTY (PAS 40)
97. Which TWO of the following statements best describe ‘owner-occupied property’, according to AGRICULTURE (PAS 41)
PAS40 Investment property? 102. Anemone Company owns a number of herds of cattle. Where should changes in the fair
A. Property held for sale in the ordinary course of business value of a herd of cattle be recognized in the financial statements, according to PAS 41
B. Property held for use in the production and supply of goods or services Agriculture?
C. Property held to earn rentals a. In profit or loss only
D. Property held for administrative purposes b. In other comprehensive income only
a. A and B c. C and D c. In profit or loss or other comprehensive income
b. B and C d. B and D d. In the statement of cash flow
98. Which ONE of the following terms best describes property held to earn rentals or for capital 103. According to PAS 41 Agriculture, which of the following would be classified as a product that
appreciation? is the result of processing after harvest?
a. Freehold property a. Cotton c. Wool
b. Leasehold property b. Bananas d. Cheese
104. According to PAS 41 Agriculture, which of the following criteria must be satisfied before a 109. Thumb Company had a plantation forest that is likely to be harvested and sold in 30 years.
biological asset can be recognized in an entity’s financial statements? The income should be accounted for in the following way:
I. The entity controls the asset as a result of past events a. No income should be recorded until first harvest and sale in 30 years.
II. It is probable that economic benefits relating to the asset will flow to the entity b. Income should be measured annually and reported using a fair value approach that
III. An active market for the asset exists recognizes and measures biological growth.
IV. The asset forms a homogenous biological group c. The eventual sale proceeds should be estimated and matched to the profit and loss
a. I and II only c. I, II and IV only account over the 30-year period.
b. II and III only d. I,II, III and IV d. The plantation forest should be valued every 5 years and the increase in value should be
shown in the statement of recognized gains and losses.
105. Which ONE of the following items would be classified as agricultural produce, according to
PAS 41 Agriculture? 110. A gain or loss arising on the initial recognition of biological asset and from change in the fair
a. Tree c. Butter value less estimated point-of-sale costs of a biological asset should be included in
b. Bush d. Apple a. the net profit or loss for the period
b. the statement of recognized gain and losses
106. According to PAS 41 Agriculture, which of the following items would be classified as c. a separate revaluation reserve
biological asset? d. a capital reserve within equity
a. Oranges c. Eggs
b. Chickens d. Land in mango orchard 111. When agricultural procedure is harvested, the harvest should be accounted for by using PAS
2 - Inventories or another applicable Philippine Accounting Standard. PAS 41, cost at the
107. Are the following statements about classification according to PAS 41 Agriculture true or false? date of harvest is deemed to be.
1) Sugar should be classified as agricultural produce. a. Its fair value less estimated point-of-sale costs at point harvest
2) Wool should be classified as agricultural produce. b. The historical cost of harvest
Statement 1 Statement 2 c. The historical cost less accumulated depreciation
a. False False d. Market value
b. False True
c. True False PROPERTY AND EQUIPMENT (PAS16)
d. True True 112. Which of the following are disclosure requirements under PAS16 Property, plant and
equipment?
108. Which of the following statements regarding biological assets and agricultural procedure is I. The existence and amount of restrictions on title
(are) true? II. A narrative discussion of future capital expenditure plans
I. The gain or loss on value change of a biological asset due to price change and physical III. The measurement bases used for determining the gross carrying amount
change is taken to profit and loss. a. I and II only c II and III.
II. A gain is recognized in the income statement when agricultural produce are harvested, b. I and III d. I, II and III
ready for sale.
III. An entity that owns a mango orchard reports both the land and the fruit trees at fair value 113. Which of the following statements regarding depreciation is true, according to PAS16
as biological assets. Property plant and equipment?
a. I and II only c. II and III only a. An asset must be depreciated from the date of its purchase to the date of sale
b. I and III only d. I, II and III b. The annual depreciation change should be constant over the life of the asset
c. The total cost of an asset must eventually be depreciated b. I and III d. I and IV
d. If the carrying amount of an asset is less than the residual value, depreciation is not
charged 118. According to PAS16 Property, plant and equipment, which of the following items should be
capitalized into the cost of property, plant and equipment?
A. Cost of preparing the site for installation
114. PAS 16 Property plant and equipment, allows entities the choice of measurement models. B. Cost of testing whether the asset works correctly
The models from which the choice can be made include. C. Cost of excess materials resulting from a purchasing error
I II III IV D. Initial operating losses while demand builds up
Liquidation Yes Yes No No a. A and B c. A, B and C
Accrual Yes No Yes No b. A and C d. A, B , C and D
Initial cost Yes No No Yes
Revaluation Yes No No No 119. According to PAS 16 –PPE which of the following statement about valuation of property and
equipment is (are) true?
a. I c. III I. No gain nor loss should be recognized in exchange of assets with no commercial value
b. II d. IV II. Asset restoration and dismantling costs to be incurred in the future according to the terms
of a contract should be capitalized at present value to the asset cost upon initial recording
115. What is the measurement basis of an asset that is acquired in non-monetary exchange? of the asset
With commercial substance With no commercial substance III. If the carrying value of an asset is equal to or is lesser than its scrap value depreciation
a. Fair value of asset given up Carrying amount of asset given up for the period is zero.
b. Carrying amount of asset given up Carrying amount of asset received a. Only I is true c. II and III are true
c. Carrying amount of asset received Fair value of asset received b. I and II are true d. All statements are true
d. Fair value of asset given up Fair value of asset given up
120. Heavy Inc. brought a private jet for the use of its top-ranking officials. The cost of the private
116. Which of the following statements regarding property and equipment is (are) true? jet is 15 million and can be depreciated either using a composite useful life or useful lives of
I. Under no circumstances can a revaluation decrease in a property account be charged to its major components. it is expected to be used over a period of 7 years. The engine of the jet
expense has a useful life of 5 years. The private jets tires are replaced every 2 years. The private jet
II. Start-up and similar pre-production cost are components of the cost of property and will be depreciated using the straight line method over
equipment a. 7 years composite useful life
III. If a component of a property item has a useful life which is different from that of the b. 5 years useful life of the engine, 2 years useful life of the tires and 7 years useful life
property item to which it relates, it should be accounted for as separate asset. applied to the balance of the cost of the jet
a. Only statement I is true c. Statement II and III are true c. 2 years useful life based on conservatism (the lowest useful life of all the parts of the jet)
b. Only statement III is true d. All of ten statements are true d. 5 years useful life based on a simple average of the useful lives of all major components
of the jet
117. Which two of the following statements are correct per PAS16 Property plant and equipment?
A. Land and buildings are accounted for separately, even when acquired together 121. Matrix Corp. imported machinery to install in its new factory premises before year-end.
B. A gain on sale of a second-hand machinery is classified as revenue However due to circumstances beyond its control, the machinery was delayed by a few
C. Assets are depreciated even if the fair value exceeds their carrying amount months and was received by year-end. Matrix learned from the bank that it was being
D. A non-current asset acquired as the result of an exchange of asset is not recognized charged interest on the loan it had taken to fund cost of the plant. What is the proper
a. I and II c. II and III treatment of freight and interest expense under PAS 16?
a. Both expenses should be capitalized 126. Normally, depreciation should not be recognized on the plant assets during their construction
b. Interest may be capitalized but freight should be expensed period .What is the exception?
c. Freight charges should be capitalized but interest cannot be capitalized under these a. When partial use of the asset can be identified with an income producing center and the
circumstances corresponding costs can be ascertained
d. Both expenses should be expended b. When the length of the construction period is unduly prolonged
c. When evidence indicates that operations will not produce sufficient revenue to cover all
122. When a balance is carried in an ‘asset revaluation surplus’ account in relation to an asset that costs including depreciation
has been derecognized it is acceptable under PAS 16 Property, plant and equipment, to: d. When the carrying amount of the property cannot be realized through sale
a. transfer the balance to ‘share capital’ account;
b. transfer the balance to retained earnings; 127. In relation to the financial statements, PAS 16 Property, plant and Equipment, requires that
c. transfer the balance to a provision account for future asset revaluation was derecognized; the following disclosures be made for each class of asset
d. transfer the balance to a provision account for future asset revaluations. I. The carrying amount at the beginning and the end of the reporting period
II. Accumulate depreciation
123. When an entity allocates depreciation tom the separate parts of an asset and each is III. Total additions and disposal
accounted for separately, the entity is using which of the following approaches to depreciation? IV. The total of impairment losses
a. periodic depreciation c. replacement cost depreciation V. Fair value at reporting date
b. segment depreciation d. component depreciation a. I, III and IV only c. I, II, III and IV only
b. I, II, IV and V only d. II, III IV and V only
124. Depreciation is computed on the original cost without deducting estimated salvage value
under which of the following depreciation methods? 128. The Garamond Company has determined that it needs to recognize an impairment loss on
each of two non-current assets; plant and land. The relevant amounts are follows:
Double-Declining Productive output Double-declining Productive output Building Land
balance balance Original cost P 700,000 P 1,400,000
a. Yes No c. No No Previous revaluations Nil P 450,000
b. Yes Yes d. No Yes Existing carrying amount P 700,000 P 1,850,000
Impairment loss to be recognized in year P 200,000 P 300,000
125. Which of the following statements regarding revaluation of asset is incorrect? According to PAS36 Impairment of assets, how should each of the impairment losses be
a. When an item of property and equipment is revalued, accumulated depreciation is either recognized?
restated proportionately with the change in the carrying amount of the asset eliminated Building Land
against the gross carrying amount of the asset and the net amount restated to the a. In profit or loss In profit or loss
revalued amount b. In profit or loss In other comprehensive income
b. When an item of property and equipment is revalued, the entire class of property in which c. In other comprehensive income In profit or loss
the asset belongs should be revalued d. In other comprehensive income In other comprehensive income
c. Revaluation of assets should be done annually
d. the revaluation surplus included in equity may be transferred directly to retained earnings
when the surplus is realized, either upon sale or disposal as the asset is used in the BORROWING COSTS (PAS 23 REVISED 2009)
enterprise. 129. Capitalization of borrowing costs shall be suspended
a. Only during temporary periods of delay
b. Only during extended periods of delay in which active deployment is delayed
c. Only upon agreement by management and the construction company d. Borrowing cost include amortization of ancillary costs incurred in connection with the
d. at no instance at all, as capitalization has already commenced arrangement of borrowings as well as exchange differences arising from foreign currency
borrowings to the extent that they are regarded as an adjustment to interest cost
130. According to PAS 23 Borrowing costs, which of the following statements about the
capitalization of borrowing costs as part of the cost of a qualifying asset is true 134. Which of the following may not be considered a “qualifying asset” under PAS 23?
a. If funds come from general borrowings, the amount to be capitalized is based on the a. A power generation plant that normally takes two years to construct
weighted average cost of borrowing b. An expensive private jet that can be purchased from a local vendor
b. Capitalization always continues until the asset is brought into use c. A toll bridge that usually takes more than a year to build
c. Capitalization always commences as soon as expenditure of the asset is incurred d. A ship that normally takes one to two years to complete
d. Capitalization always commences as soon as interest on relevant borrowings is being
incurred 135. Which of the following statements concerning borrowing costs are false?
a. Borrowing costs generally include interest costs, bank overdrafts, amortization of
131. On April 1, 2009 AGP Corporation took out a loan to finance the construction of a building. discounts or premiums related to borrowings finance charges with respect to finance
Work on the building commenced on July 1, 2009 and was completed on March 31 2010. leases
The building was brought into use July 1, 2010. b. Borrowing costs are interest and other costs incurred by an enterprise in relation to
borrowed funds
According to PAS 23 Borrowing costs, what is the period over which borrowing costs relating c PAS 23, the benchmark treatment for borrowing costs is to expense it in the period
to the project should be capitalized? incurred
a. April 1, 2009 - March 31, 2010 d. Borrowing costs include amortization of ancillary costs incurred in connection with the
b. April 1, 2009 - June 30, 2010 arrangement of borrowings as well as exchange differences arising from foreign currency
c. April 1, 2009 - March 31, 2010 borrowings to the extent that they are regarded as an adjustment to interest cost.
d. April 1, 2009 - June 30, 2010
136. Which of the following is not a disclosure requirement under PAS 23?
132. PAS 23 defines qualifying assets as assets that necessarily takes a substantial period of a. Accounting policy adopted for borrowing cost
time to get it ready for its intended use or sale. Which of the following is not a qualifying asset? b Amount of borrowing costs capitalized during the period .
a. Building that will take three years to construct c. segregation of assets that are “qualifying assets” on the balance sheet or as a disclosure
b. Inventories such as wine and cigars in the footnotes to financial statements
c. Machinery that is purchased under three-year installment period d. Capitalization rate used to determine the amount of borrowing costs eligible for
d. Manufacturing plant and power generation facilities capitalization.
133. Which of the following statements concerning borrowing cost is false? CONSTRUCTION CONTRACTS (PAS 11)
a. Borrowing costs generally include interest costs bank over drafts amortization of discount 137. Under PAS 11 Construction contracts, when it is probable that the total contract costs on a
or premiums related to borrowings, finance charges with respect to finance leases fixed price contract will exceed total contract revenue, the expected loss should be (select an
b. borrowing costs are interest and other costs incurred by an enterprise in relation to answer)
borrowed funds a. set off against profits on other contracts where available
c. Per PAS 23, the benchmark treatment for borrowing costs is to capitalize it as part of the b. recognized as an expense immediately, unless revenue to date exceeds cost to date
cost of the asset to which it relates c. apportioned to the years of the contract according to the stage of completion method
d. recognized as an expense immediately
139. According to PAS 11 Construction contracts, which TWO of the following could be valid Statement (1) Statement (2) Statement (1) Statement (2)
reasons why the expected revenue from a fixed price construction contract has increased a. False False c. True False
from the original contract value? b. False True d. True True
A. The costs in the contract have increased and the contract includes cost escalation causes
B. The contractor has incurred additional coasts due to errors made by is its employees 143. Are the following statements are true or false, according to PAS 38 Intangible assets?
C. The contractor has agreed variations to the contract with the client 1) Intangible assets cannot be treated as having an indefinite useful life
D. The contractor would receive an incentive payment if work continues at the present rate 2) Intangible assets with a finite useful life should be measured at cost and tested annually
for the next 2 years for impairment
a. A and B c. B and C Statement (1) Statement (2)
b. A and C d. C and D a. False False
b. False True
140. A construction company signed a contract to build a theater over a period of two years, and c. True False
with this contract, also signed a maintenance contract for five years. Both the contracts are d. True True
negotiated as a single package and are closely interrelated to each other. The two contracts
should be 144. Are the following statements are true or false, according to PAS 38 intangible assets?
a. Combined and treated as a single contract 1) Expenditure during the research phase of a project can never be capitalized as an
b. Segmented and considered two separate contracts intangible asset.
c. Recognized under the completed contract method 2) Expenditure during the development phase of a project may sometimes be capitalized
d. Treated differently ---- the building contract under the completed contract method and as an intangible.
maintenance contract under the percentage of completion method Statement (1) Statement (2)
a. False False
141. Easy Builders Inc. is in the middle of a two year construction contract when it receives a b. False True
letter from the customer extending the contract by a year and requiring the construction c. True False
company to increase its output in proportion of the number of years of the new contract to the d. True True
previous contract period. This is allowed recognizing additional revenue according PAS 11 if
a. Negotiations have reached an advance stage and it is probable that the customer will 145. Are the following statements are true or false, according to PAS 38 intangible assets?
accept the claim 1) Intangible assets acquired in a business combination should only be recognized if they
b. The contract is sufficiently advanced and it is probable that the specified performance have already been recognized by the entity being acquired
standards will be exceeded or met 2) Intangible assets acquired in a business combination should not be recognized
c. It is probable that the customer will approve the variation and the amount of revenue separately from good will
arising from the variation and the amount of revenue can be reliably measured Statement (1) Statement (2)
d. It is probable that the customer will approve the variation and the amount of revenue a. False False
arising from the variation, whether the amount of revenue can be reliably measured or not b. False True
c. True False
INTANGIBLES (PAS 38) AND OTHER ASSETS d. True True
142. Are the following statements true or false, according to Pas 38 intangible assets?
1) The cost of an asset should include the amount of any cash equivalents paid to acquire 146. If a reporting entity chooses to switch from the cost model to the revaluation model for
the asset. property, plant and equipment, the periodic depreciation charge will:
2) The cost of an asset should include non-cash consideration measured at fair value. a. Increase c. not be affected
b. decrease d. no longer reacquired your advice on the accuracy of the following statements made by one of its stakeholders.
Which one is it?
147. Which of the following statements are true? a. Costs incurred during the “research phase” can be capitalized
I. An intangible asset should be measured initially at cost b. Costs incurred during the “development phase” can be capitalized if criteria such as
II. If payment for an intangible asset is deferred beyond normal credit terms, its cost is the technical feasibility of the project being established are met
equivalent cash price c. Training costs of technicians used in research can be capitalized
III. Under PAS 22, (Business Combinations), if an intangible asset is acquired in a business d. Designing of jigs and tools qualify as research activities
combination an acquisition, the cost of that intangible asset is based on its fair value at
the date of the acquisition. 152. How should research and development cost be accounted for?
a. I and II c. II and III a. Must be capitalized when incurred and then amortized over the estimated useful life
b. I and III d. I, II and III b. Must be expensed in the period incurred, unless contractually reimbursable
c. Must be either capitalized or expensed when incurred depending upon the facts of the
148. Paragraph 63 of PAS 38 Intangible, prohibits the recognition of the following internally situation
generated identifiable intangibles: d. Must be expensed in the period incurred unless it can be clearly demonstrated that the
I II III IV expenditure will have significant future benefits
Brands No No No Yes
Mastheads No Yes Yes Yes 153. According to PAS38 – Intangible Assets, the cost of an intangible asset with indefinite useful
Publishing titles No No Yes Yes life should
Customer lists No Yes No Yes a. Be amortized over 20 years from the date when the asset is available for use
b. Be amortized over 20 years from the date when the asset is acquired
a. I c. III c. Be amortized over 40 years from the date when the asset is available for use
b. II d. IV d. Not be amortized, but annually tested for impairment
149. In relation to the amortization of intangible assets, if an intangible asset has a future life: 154. Which of the following factors should not be considered in determining the useful life of an
a. it must be amortized over a period not exceeding 40 years; intangible asset?
b. it must be amortized across a period not exceeding 5 years; a. Effects of obsolescence, changes in market demand for the product
c. it is not subject to an annual amortization changes b. Expected actions of competitors and potential competitors
d. it must be amortized over that its own economic life c. The period of control over the asset and legal or similar limits on the use of the asset,
such as expiry date of related leases or contractual or regulatory provisions
150. In relation to the amortization of intangible assets, the general rule in PAS 38 Intangibles, is d. The salvage value of the asset
that unless demonstrated otherwise:
a. the residual value does not enter into the demonstration of the amortization charge; 155. Patent C is purchased which supersedes Patent D. The life of Patent C is 12 years, that of
b. the residual need not be reviewed at the end of each annual reporting period; Patent D is eight (8) years. The cost of Patent D should be
c. all intangible assets have a residual value at least equal to the amount of maintenance a. Amortized over 40 years c. Amortized over 8 years
costs incurred; b. Amortized over 12 years d. Written off
d. the residual value is presumed to be zero
151. A newly set up dot.com entity has engaged you as its financial advisor. The entity has 156. Which of the following statements is true?
recently completed one of its highly publicized research and development projects and seeks
I. Computer software for a computer controlled machine tool that cannot operate without 160. According to PAS 38 – Intangible Assets, which among these criteria are required for the
specific software is an integral part of the related hardware and is treated as property, recognition of development costs of an internal project?
plant and equipment. I. Technical feasibility of completing and the intention to complete the intangible
II. Computer software that is not an integral part of the related hardware is treated as asset, and the ability to use or sell the intangible asset
intangible asset. II. The ability of the intangible asset to generate probable economic benefit, the
a. I only c. Both I and II existence of a market for the output of the intangible asset, or its usefulness, if to
b. II only d. Neither I nor II be used internally
III. The availability of adequate, technical, financial and other resources to complete,
157. Which of the following statements regarding measurement/valuation of Intangible Assets is use, or sell the intangible asset
false? IV. The ability to measure reliably the expenditure attributable to the intangible asset
a. After initial recognition an intangible asset is carried at cost less any accumulated during its development
amortization and any accumulated impairment losses. a. I and IV only c. I, II and IV only
b. After initial recognition and at the option of the enterprise, an intangible asset may be b. I, II and III d. I, II, III and IV
carried at revalued amount less any subsequent amortization or subsequent accumulated
impairment losses 161. Caramoan Inc. is developing a new production process. During 2010, P20,000, was incurred
c. Intangible asset received by way of government grant and recognized initially at a nominal of which P18,000 was incurred before October 1, 2010 and P2000 was incurred between
amount may be carried in the balance sheet at revalued amount October 1 and December 31, 2010. The enterprise is able to demonstrate that on October 1,
d. Intangible assets may be initially measured at revalued amounts 2010, the production process met the criteria for recognition as an intangible asset. The
recoverable amount of the know how embodied in the process (including future cash outflows
158. On January 1, 2010, Notion, Inc. purchased equipment for use in developing a new product. to complete the process before its availability for use) is estimated to be P5,000. The amount
Notion uses the straight-line depreciation method. The equipment could provide benefits over to be recognized as intangible asset is
a 10-year period. However, the new product development is expected to take five years. The a. P20,000 c. P 5,000
equipment has alternative use for other product development projects. Notion’s 2010 b. P18,000 d. P 2,000
expense equals
a. The total cost of the equipment c. One-tenth of the cost of equipment Government Grants (PAS 20)
b. One-fifth of the cost of the equipment d. Zero 162. In relation to a benefit included in the term ‘government assistance’, are the following
statements true or false according to PAS 20 Government grants and government assistance?
159. Which of the following statement is true? 1) The provision of infrastructure in developing areas is a benefit
I. Expenditure on research or from the research phase of an internal project should be 2) The imposition of trading constraints on competitors is a benefit
recognized as expense when incurred Statement (1) Statement (2)
II. If an enterprise cannot distinguish the research phase from the development phase of a. False False
an internal project to create an intangible asset, the expenditure on such project is b. False True
treated as if it were incurred in the research phase only c. True False
III. All expenditures incurred in the development phase of an internal project should be d. True True
expensed when incurred
163. Which of the following statements are correct according to PAS 20 Government grants and
a. I only c. I and III only government assistance?
b. I and II only d. I, II and III a. Any adjustment needed when a government grant becomes repayable is accounted for as
a change in accounting estimate
b. In respect of loans from the government at an interest rate of 0%, an imputed interest
charge should be made in profit or loss 168. Which of the following is false concerning repayment of government grants?
c. Where conditions apply to a government grant, the grant should be taken to equity when a. Repayment of a grant related to income should be applied first against any unamortized
there is assurance that the conditions will be met deferred credit set up in respect of the grant
d. A government grant should not be recognized until it is received in cash b. The excess of the repayment over the deferred credit set up (or with no deferred credit
exists) should be recognized immediately as an expense
164. This represents assistance by the government in the form of transfers of resources to an c. A government grant that becomes repayable should be accounted for a revision to an
enterprise in return for past or future compliance with certain conditions relating the operating accounting policy
activities of the enterprise d. Repayment of a grant related to an asset should be recorded by increasing the carrying
a. Government assistance c. Government grants amount of the asset reducing the deferred income balance by the amount repayable
b. Forgivable loans d. Government appropriations
IMPAIRMENT OF ASSETS (PAS 36)
165. This is the action by government designed to provide an economic benefit specific to an 169. Under PAS 36 Impairment of assets, which ONE of the following statements best describes
enterprise or range of enterprise of enterprises qualifying under certain criteria. ‘value in use’?
a. Government grants c. Forgivable loan a. The present value of estimated future cash flows expected to arise from the continuing
b. Government assistance d. Government appropriations use of an asset from its ultimate disposal
b. The amount of cash or cash equivalents that could currently be obtained by selling an
166. Government grants provides two approaches to accounting for government grants: (1) asset in an orderly disposal
capitalization approach and (2) income approach. Arguments in support of the income c. The net amount which an entity expects to obtain for an asset at the end of its useful life
approach include the following except: d. The amount at which an asset could be exchanged between knowledgeable, willing
a. Government grants are considered earned through compliance with the condition and parties in arm’s length transaction
meeting envisaged obligations
b. Government grants are receipts from a source other than shareholders or capital 170. Under PAS36 Impairment of assets, which ONE of the following statements best describes
providers the term ‘impairment loss’?
c. Government grants represent an incentive provided by the government without related 1) Willing buyers and sellers are usually found
costs 2) Prices are available to the public
d. Government grants are considered as extension of fiscal policies similar to income and Statement (1) Statement (2)
other taxes a. False False
b. False True
167. Which of the following are considered as government grants under PAS 20? c. True False
I. Free technical or marketing advice and the provision of guarantees d. True True
II. Government procurement policy that is responsible for increased sales of an
enterprise 171. Under PAS36 Impairment of assets, which ONE of the following statements best describes
III. Provisions of infrastructure by improvements to the general transport and the term “impairment loss”?
communication network a. The removal of an asset from an entity’s statement of financial position
IV. Supply of improved facilities (irrigation or water reticulation) which is available on an b. The amount by which the carrying amount of an asset exceeds its recoverable amount
ongoing indeterminate basis for the benefit of the entire local community c. The systematic allocation of an asset’s cost less residual value over its useful life
a. I and II only c. I, II, III, IV d. The amount by which the recoverable amount of an asset exceeds its carrying amount
b. I, II and III only d. None will qualify
172. According to PAS 36 Impairment of assets, which ONE of the following terms is defined as:
“The smallest identifiable group of assets that generates cash inflows that are largely 176. Under PAS 36 Impairment of Assets, the following assets are subject to impairment testing:
independent of the cash inflows from other assets”? I II III IV
a. Non-current assets Inventory Yes Yes No No
b. A cash-operating unit Assets arising from construction contracts Yes Yes No No
c. An operating segment Assets arising from employee benefits No Yes No Yes
d. A cash-generating unit Property, plant and equipment No Yes Yes No
173. PAS36 Impairment of assets should be applied in accounting for the impairment of which of a. I c. III
the following types of asset? b. II d. IV
a. Assets arising from construction contracts
b. Non-current assets held for sale 177. Which of the following statements is/are true?
c. Investment properties measured at fair value I. Cash generating unit is the smallest identifiable group of assets that generate cash
d. Non-current assets measured at cost flows from continuing use that are largely independent of the cash inflows from other
assets or group of assets.
174. According to PAS36 Impairment of assets, which TWO of the following are relevant in II. Corporate assets are assets other than goodwill that contribute to future cash flows of
determining a non-current asset’s ‘value in use’? both the cash generating unit under review and other cash generating unit.
A. The expected future cash flows from the asset III. An impairment loss on an asset, whether carried at cost or revalued amounts shall be
B. The carrying amount of the asset taken to profit and loss immediately
C. The future annual depreciation expense in respect of the asset a. I and II only c. I and III only
D. The time value of money b. II and III only d. I, II and III
a. A and B c. C and D
b. B and C d. A and D 178. Which of the following is (are) external sources of information on impairment of an asset?
I. Significant decline in market value of an asset which is more than would be expected as
175. On January 2002 The Prosper Company acquired a non-current asset with an estimated a result of passage of time or normal use
useful life of 8 years for P320,000. Non-current assets are accounted for under the cost II. Significant changes in technological, market, economic or legal environment with an
model and depreciation is charged by the straight-line method. adverse effect on the enterprise or in the market to which the asset is dedicated
On January 2007 an impairment review identified an impairment loss of P10,000 and the III. Evidence of obsolescence or physical damage of the asset
remaining useful life was revised to four years. Are the following statements true or false, a. I only c. II and III only
according to PAS36 Impairment of assets? b. I and II only d. I, II and III
1) Future depreciation expenses should be measured by reference to the carrying amount
after deducting the impairment loss. 179. According to PAS 36, which of the following is the best evidence of net selling price?
2) Future depreciation expenses should be measured by reference to the new estimate of a. Sales price in a building sale agreement in an arm’s length transaction adjusted for
the remaining useful life. incremental costs directly attributable to disposal of asset
Statement (1) Statement (2) b. Best estimate of knowledgeable, willing parties in arm’s length transaction less cost to sell
a. False False c. Best estimate of a knowledgeable subject specialist less direct cost of disposal
b. False True d. Fair value in an active market less selling expenses
c. True False 180. Which of the following is (are) internal sources of information about a possible impairment of
d. True True an asset?
I. Evidence of obsolescence or physical damage of the asset II. The increase in carrying amount of an asset other than goodwill attributable to a
II. Significant change with an adverse effect on the enterprise to the extent or manner in reversal of an impairment loss shall not exceed the carrying amount that would have
which an asset is used or expected to be used been determined (net of depreciation/amortization) had an impairment loss not been
III. Available evidence that the economic performance of an asset is, or will be worse than recognized for the asset in prior years.
expected III. To the extent that an impairment loss of a revalued asset was previously recognized in
a. I and II only c. I and III only profit or loss, a reversal of that impairment loss is also recognized in profit or loss.
b. II and III only d. I, II and III IV. According to PAS 36, a reversal of impairment loss cannot be charged to Goodwill.
a. I and II only c. I, II and III only
181. When allocating an impairment loss, such loss should be reduce the carrying amount of b. III and IV only d. I,II, III and IV
which asset first?
a. Property, plant and equipment c. Goodwill ASSETS HELD FOT SALE AND DISCONTINUED OPERATIONS (PFRS 5)
b. Intangible assets d. Current assets 185. Are the following statements about the requirements of PFRS5 Non-current assets held for
sale and discontinued operations true or false?
182. When assessing the recoverable amount of assets that have previously been subject to an 1) An asset that meets the criteria for classification as held for sale after the end of the
impairment loss, which of the following indicators assist in providing external evidence that an reporting period but before the authorization of the financial statements should be
impairment loss has reversed? measured in the statement of financial position at the lower of carrying amount and fair
a. The asset’s market value has decreased significantly during the period; value less costs to sell.
b. significant changes with an adverse effect on the entity have taken place; 2) To be classified as an asset held for sale, the sale must be expected to be completed
c. market interest rates have decreased during the period; within 12 months from the end of the financial year.
d. internal reporting sources indicate that the economic performance of the asset will not be Statement (1) Statement (2) Statement (1) Statement (2)
as good as expected a. False False c. True False
183. During 2009 Xanti Corporation, estimated that the carrying amount of goodwill was impaired
and wrote it down by P50,000. In a subsequent year, the company reassessed goodwill was 186. To which TWO of the following types of asset do the measurement provisions of PFRS5 Non-
decided that the old acquired goodwill still existed. The appropriate accounting treatment in current assets held for sale and discontinued operations apply?
the subsequent period is: A. Financial Asset C. Buildings
a. reverse the previous goodwill impairment loss; B. Intangible development assets D. Deferred tax assets
b. recognize the revalued amount of goodwill by an adjustment against the asset revaluation a. A and B c. B and D
surplus account; b. B and C d. A and D
c. ignore the reversal as it is prohibited by PAS 36 Impairment of Assets;
d. increase goodwill by an adjustment to retained earnings 187. In accordance with PFRS5 Non-current assets held for sale and discontinued operations, and
asset should be classified as held for sale when which of the following criteria are satisfied?
184. Which of the following statements relating to the recognition of a reversal of impairment loss Asset available for immediate Asset has a readily
Sale is highly probable
is (are) true? sale in present condition observable market
I. After a reversal of an impairment loss is recognized, the depreciation/amortization a. Yes Yes Yes
charge for the asset shall be adjusted in future periods to allocate the asset’s revised b. Yes Yes No
carrying amount less its residual value, if any, on a systematic basis over its remaining c. No No Yes
useful life. d. No Yes No
188. Which of the following statements about “non-current assets held for sale” (PFRS 5) is false? 192. Are the following statements in relation to a contingent liability true or false, according to PAS
a. Assets classified as held for sale are carried lower of carrying amount or fair value less 37 Provisions, contingent liabilities and contingent assets?
cost to sell 1) A obligation as a result of the entity creating a valid expectation that it will discharge
b. An entity shall classify a non-current asset as held for sale if its carrying amount will be its responsibilities is a contingent liability
recovered principally through a sale, or through continuing use 2) A present obligation that arises from past events but cannot be reliably measured is a
c. An asset classified as held for sale must be available for immediate sale in its present contingent liability
condition Statement (1) Statement (2)
d. An asset held for sale shall not be depreciated a. False False
b. False True
189. An entity has an asset that was classified as held for sale. However, the criteria for it to c. True False
remain as held for sale no longer apply. The entity should d. True True
a. Leave the non-current asset in the financial statements at its carrying value
b. Remeasure the noncurrent asset at fair value 193. The Snow Finch Company is closing one of its operating divisions, and conditions for making
c. Measure the noncurrent asset at the lower of its carrying amount before the asset was restructuring provisions in PAS 37 Provisions, contingent liabilities and contingent assets
classified as held for sale (as adjusted for subsequent depreciation, amortization, or have been met. The closure will happen in the first quarter of the next financial year. At the
revaluation) and its recoverable amount at the date of the decision not to sell current year end, the company has announced the formal plan publicly and is calculating the
d. Recognized the non-current asset at its carrying amount prior to its classification as held restructuring provision. Which ONE of the following costs should be included in the
for sale as adjusted for subsequent depreciation, amortization, or revaluation restructuring provision?
a. Retaining staff continuing to be employed
190. PFRS 5 states that non-current asset that is to be abandoned should not be classified as held b. Relocation costs relating to staff moving to other divisions
for sale because c. Contractually required costs of retraining staff being made redundant from the division
a. Its carrying amount will be recovered principally though continuing use being closed
b. It is difficult to value d. Future operating losses of the division being closed up to the date of closure
c. It is unlikely that the noncurrent asset will be sold within 12 months
d. It is unlikely that there will an active market for the non-current asset 194. Which of the following is within the scope of PAS37 Provisions, contingent liabilities and
contingent assets?
LIABILITIES; AND PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS a. Financial instrument carried at fair value
(PAS 37) b. Future payments under employment contracts
191. According to PAS 37 Provisions, contingent liabilities and contingent assets, which TWO of c. Future payments on vacant leasehold premises
the following best describe the sources of a legal obligation? d. An insurance company’s policy liability
A legal obligation is an obligation that derives from 195.The Silktail Company is being sued for damages. When preparing its 20X4 financial
A. Legislation statements the directors took the view that the likehood of any payments having to be made to
B. A contract the claimant was remote. In preparing the 20X5 financial statements their view was that it was
C. A published policy possible that such payments would have to be made, and in preparing 20X6 statements their
D. An established pattern of past practice view was that such payments were probable. For the 20X7 statements there was virtual
a. A and B c. C and D certainty that the payments would have to be made. The payments were made in the 20X8
b. A and C d. B and D accounting period. Under PAS37 Provisions, contingent liabilities and contingent assets, in
which set of financial statements should provision for the payments first be made?
a. 20X4 c. 20X6 b. The company has received a letter from a supplier complaining about an old unpaid
b. 20X5 d. 20X7 invoice.
c. The company is involved in a legal case which it may possibly lose, although this is not
196.According to PAS37 Provisions, contingent liabilities and contingent assets, for which of the probable.
following should a provision be recognized? d. The company has not yet paid certain claims under sales warranties.
a. Future operating losses
b. Obligations under insurance contract 200.The financial statements of the Farren Company for the year ended 31 December 20X6
c. Reductions in fair value of financial instruments included a provision for restructuring of P 7 million and an environmental provisions of P3
d. Obligations for plant decommissioning costs million. At 31 December 20X7, the environmental provision was no longer required and P2
million of the restructuring provision was no longer required. An additional provision of P2
197.For which TWO of the following should be provisions be recognized under PAS37 Provisions, million was needed for legal claims against the company. Is the proposed treatment of each
contingent liabilities and contingent assets? provision shown below correct or incorrect according to PAS37 Provisions, contingent
A. Divisional closure costs before a public announcement is made. liabilities and contingent assets?
B. Restructuring costs after a binding sale agreement has been signed. (1) The environmental provision is to be written back to profit or loss.
C. Rectification costs relating to defective products already sold. (2) P2 million of the restructuring provisions no longer required is to be re-allocated to cover
D. Future refurbishment costs due to introduction of a new computer system. the legal claims.
a. A and B c. A and C Statement (1) Statement (2)
b. B and C d. A and D a. Incorrect Incorrect
b. Incorrect Correct
198.The Dipper Company operates chemical plants. Its published policies include a commitment to c. Correct Incorrect
making good any damage caused to the environment by its operations. It has always honored d. Correct Correct
this commitment. Which of the following scenarios relating to Dipper would give rise to an
environmental provision as defined by PAS37 Provisions, contingent liabilities and contingent 201.Which of the following is not an essential characteristic for an item to be reported as a liability
assets? on the balance sheet?
a. On past experience it is likely that a chemical spill which would result in Dipper having to a. The liability is the present obligation of a particular enterprise.
pay fines and penalties will occur in the next year. b. The liability arises from past transactions or events.
b. Recent research suggests there is a possibility that the company’s actions may damage c. The liability is payable to a specifically identified payee.
surrounding wildlife. d. The settlement of the liability requires an outflow of resources embodying economic
c. The government has outlined plans for a new law requiring all environmental damage to benefits.
be rectified.
d. A chemical spill from one of the company’s plants has caused harm to the surrounding 202. The following statements relate to liabilities. Which is false?
area and wildlife. a. Liabilities should be given accounting recognition in the period in which money, goods or
services are received, or when a legally enforced claim against the company is
199.The Cullen Company is finalizing its financial statements. According to PAS37 Provisions, established.
contingent liabilities and contingent assets, which ONE of the following should be disclosed in b. Liabilities are measured at amounts established in exchanges, usually the amounts to be
the financial statements as a contingent liability? paid, sometimes discounted, sometimes measured be estimates of a definitive character
a. The company has accepted liability prior to the year end for unfair dismissal of an when the amount of the liability cannot be reliably measured more precisely.
employee and is to pay damages. c. Liabilities where the amount is an estimate and the parties to whom payment will be made
are uncertain are not considered as actual liabilities.
d. Contingent liabilities are not liabilities at the present and may or may not become liabilities
in the future. 207. How would a stock split affect each of the following?
A B C D
203. Lady, Inc., was served a legal notice on December 31, 2009 by the environmental protection Asset Increase No Effect No Effect Decrease
agency to fit smoke detectors in its factory on or before June 30, 2010 (before June 30 of the Total stockholder’s
Increase No Effect No Effect Decrease
following year). The cost of fitting smoke detectors in its factory is estimated at P250, 000. How equity
should: Lady, Inc. treat this in its financial statements for the year ended December 31, 2009? Additional paid in
No Effect No Effect Increase Decrease
a. Recognize a provision for P250, 000 in the financial statements for the year ended, capital
December 31, 2009.
b. Recognize a provision for P125, 000 in the financial statements for the year ended 208. On January 15, 2010, ABC Corporation declared 40% stock dividends on 10, 000
December 31, 2009 because the other 50% of the estimated amount will be recognized outstanding shares of its common stock, with a par value of P100 per share, when the market
next year in the financial statement for the year ended December 31, 2010. value of the common stock was P120 per share. Which of the following statements is false with
c. Because Lady, Inc. can avoid the future expenditure by changing the method of regards to this transaction?
operations and thus there is no present obligation for the future expenditure, no provision a. Retained earnings will decrease equal to the total par value of the stocks dividends
is required at December 31, 2009 but there is a need to disclose the possible obligation in declared
the notes to financial statements. b. Common stock will increase equal to the total par value of the stock dividends declared.
d. Ignore. Neither a provision nor disclosure is necessary. c. Additional paid in capital will increase at an amount equal to the difference between the
total market value over the total par value of the stock dividends declared.
204. A factory owned by XYZ Inc. was destroyed by fire, and XYZ lodged an insurance claim for d. The total assets and total stockholders’ equity will not be affected.
the value of the factory building, and amount equal to one year’s net profit. After several meetings
with the representatives of the insurance company, it was decided, before year-end, that XYZ STOCKHOLDERS EQUITY AND SHARE-BASED PAYMENTS (PFRS 2)
would receive compensation equal to 90% of received before year-end. How should XYZ treat this
in its financial statements? 209.Under PFRS 2 Share-based payment, which of the following will increase as a result of cash-
a. Record 90% of the claim as a receivable as it is virtually certain that the contingent asset settled share-based payment?
will be received. a. A current asset c. Equity
b. Do not recognize or disclose at all since it is a contingent asset. b. A non-current asset d. A liability
c. Record 100% of the claim as a receivable and adjust the 10% next year when the
settlement check is received. 210.According to PFRS 2, Share-based payment, which of the following statements about a cash-
d. Disclose the contingent asset in the notes to financial statements. settled share-based payment transaction is (are) true?
(1) The fair value of the liability should be remeasured at the end of each reporting period.
205. After a quasi- reorganization where a deficit is removed through absorption by Revaluation (2) The fair value of the liability should be remeasured at the date of settlement.
Surplus, the balance of retained earnings will a. Only statement I is true c. Both statements are true
a. Increase c. Either increase or decrease b. Only statement II is true d. Neither statement I nor statement II is true
b. Decrease d. Remain the same
211.Are the following statements about share options granted to employees in exchange for their
206.A gain or loss from one of the following transactions should not be included in determining services true or false, according to PFRS 2 Share-based payment?
income: (1) The services received should be measured at the fair value of the employees’ services.
a. Receipt of interest from bank deposits c. Sales of plant and equipment (2) Fair value should be measured at the date the options vest.
b. Sale of treasury shares d. Sales of products Statement (1) Statement (2)
a. False False a. I, II and III only c. II, III and IV only
b. False True b. I, II, III and IV only d. II, III and V only
c. True False
d. True True 217.The Taupo Company has entered into a contract with The Galilee Company. Galilee will
supply Taupo with a range of services. The payment for those services will be in cash and
212.When a public share issue is made, the offer comes from: based upon the price of Taupo’s ordinary shares on completion of the contract. In accordance
a. the company issuing the shares; with PFRS 2 Share-based payment, what type of share-based payment transaction does this
b. the Philippine Stock Exchange once it has reviewed the prospectus documentation; represent?
c. the broker handing the share issue for the company; a. Asset-settled share-based payment transaction
d. the applicant. b. Liability-settled share-based payment transaction
c. Cash-settled shared-based payment transaction
213.The bonus issue of shares has the following impact on the equity of a company; d. Equity-settled shared-base payment transaction
a. total equity increases;
b. total equity decreases; 218.On June 1, 2010, an entity offered its employees share options subject to the award being
c. one equity account increases and another equity account decreases by an equal amount; ratified in a general meeting of the shareholders. The award was approved by a meeting on
d. only the amount of issued share capital changes. September 5, 2010. The entity’s year-end June 30. The employees were to receive the share
options on June 30, 2013. At which date should the fair value of the share options be valued
214.A company issued share option is an instrument that gives the holder the right but not the for the purpose of PFRS 2?
obligation to: a. June 1, 2010 c. September 5, 2010
a. buy a certain number of shares in the company by a specified date at a stated price; b. June 30, 2010 d. June 30, 2013
b. sell a certain number of shares in the company by a specified date at a stated price;
c. receive a certain dividend declared by the company by a specified date; 219.In accordance with PFRS 2 Share-based payment, how, if at all, should an entity recognize
d. receive a bonus issue of shares in a proportion as notified by the company. the change in the fair value of the liability in respect of a cash-settled share-based payment
transaction?
215.The components of equity generally recognized by companies in a balance sheet are: a. Should not recognize in the financial statements but disclose in the notes thereto
I. Provisions b. Should recognize in the statement of changes in equity
II. Debentures c. Should recognize in other comprehensive income
III. Share Capital d. Should recognize in profit or loss
IV. Other Components of Equity (or Other Revenues)
V. Retained Earnings 220.Are the following statements about a cash-settled share-based payment transactions true or
a. I, II and III only c. II, III and V only false, according to PFRS 2 Share-based payment?
b. I, III, IV and V only d. III, IV and V only (1) The fair value of the liability should be remeasured at the end of each reporting period.
(2) The fair value of the liability should be remeasured at the date of settlement
216.The balance in the retained earnings account is affected by the transfer to that account of: CRC-ACE A B C D
I. Issued share capital; Statement (1) True True False False
II. Dividends paid or provided for. Statement (2) True False True False
III. Transfers to or from Other reserve accounts.
IV. Changes in accounting policies and errors 221.An entity issues fully paid shares to 200 employees on December 31, 2010. Normally shares
V. Interest paid to debenture holders issued to employees vest over a two-year period, but these shares have been given as a
bonus to employees because of their exceptional performance during the year. The shares
have a market value of P500, 000 on December 31, 2010, and an average fair value for the 225.The Sulafat Company has a 70% subsidiary Harbinger and is a venturer in Thabit, a joint
year of P600, 000. What amount would be expensed in the income statement for the above venture company. During the financial year to December 31, 20X7, Sulafat sold goods to both
share-based payment transaction? companies. Consolidated financial statements are prepared combining the financial
a. P600, 000 c. P300, 000 statements of Sulafat and Harbinger. Under PAS 24 Related party disclosures, in the separate
b. P500, 000 d. P200, 000 financial statements of Sulafat for 20X7, disclosure is required of transactions with
a. Neither Harbinger nor Thabit c. Thabit only
RELATED PARTIES (PAS 24) b. Harbinger only d. Both Harbinger and Thabit
222.According to PAS 24 Related party disclosures, which TWO of the following fall within the 226.The Druckman Company completed the following transactions in the year to 31 December
definition of an entity’s related party? 20X7:
A. Another entity in which the entity owns 5% of the voting rights (1) Sold a car for P9, 250 to the uncle of Drunkman’s finance director.
B. A post-employment benefit plan for the benefit of the employees of the entity’s parent (2) Sold goods to the value of P12, 400 to Quokka, a company owned by the daughter of
C. An executive director of the entity Druckman’s managing director. Quokka has no other connection with Druckman.
D. The partner of a key manager in a major supplier to the entity
a. A and B c. A and C Which transactions, if any, require disclosure in the financial statements of Drunckman under
b. B and C d. B and D PAS 24 Related party disclosures?
a. Neither transaction 1 c. Transaction (2) only
223.Are the following statements in relation to compensation true or false, according to PAS 24 b. Transaction (1) only d. Both transactions
Related party disclosures?
(1) Compensation includes social security contributions paid by the entity. 227.Eleanor is a director of The Tartarus Company. She also owns 65% of The Grison Company
(2) Compensation includes post-employment benefits paid on behalf of a parent of the entity and is a director of, but not a shareholder in, The Flounder Company. Eleanor’s husband is the
in respect of the entity. sole shareholder in The Koala Company. Eleanor’s daughter holds 5% of the share in The
Statement (1) Statement (2) Bluegill Company. The only involvement she has in the company is to receive dividends.
a. False False Which TWO companies would be classified under PAS 24 Related party disclosures as related
b. False True parties of Tartarus?
c. True False a. Koala and Grison c. Grison and Flounder
d. True True b. Koala and Bluegill d. Bluegill and Flounder
224.Are the following statements in relation to related parties true or false, according to PAS 24 228.The Atrato Company carried out the following four transactions during the year ended 31
Related party disclosures? March 20X8. Which TWO of the four are related party transactions according to PAS 24
(1) A party is related to another entity that it is jointly controlled by. Related Party Transactions?
(2) A party is related to another entity that it controls. A. Transferred goods from inventory to a shareholder owning 40% of the company’s ordinary
shares
Statement (1) Statement (2) B. Sold a company car to the wife of the managing director
a. False False C. Sold an asset to The Little Company, a sales agent
b. False True D. Took out a P1 million bank loan
c. True False a. A and B c. C and D
d. True True b. A and C d. A and D
d. The son of the chief executive officer of the entity
229.According to PAS 24 Related party disclosures, which ONE of the following is not a related
party of The Parnaby Company? 234.If there have been related party transactions during the year, an entity needs to make, at a
a. A shareholder of the Parnaby Company owning 30% of the ordinary share capital minimum, certain disclosures. Which of the following is not a required minimum disclosure
b. An entity providing banking facilities to The Parnaby Company under PAS 24?
c. An associate of The Parnaby Compnay a. The amount of the related party transactions
d. Key management personnel of The Parnaby Company b. The amount of the outstanding related party balances and their terms and conditions
along with details of guarantees given and received
230.The minimum disclosures prescribed under PAS 24 are to be made separately for certain c. The amounts of similar transactions with unrelated (third) parties to establish that
categories of related parties. Which one of the following is not in the list of categories specified comparable related party transactions have been entered at arm’s length
in PAS 24? d. Provisions for doubtful accounts related to the amount outstanding related party balances
a. Entities with joint control or significant influence over the entity and expense recognized during the year in respect of bad or doubtful debts due from
b. The parent company of the entity related parties
c. An entity that has a common director with the entity
d. Joint venture in which the entity is a joint venturer INTERIM REPORTING (PAS 34)
231. Which of the following statements about PAS 24 Related Parties is / are true? 235.Are the following statements in relation to an interim financial report true or false, according to
I. The main issue of PAS 24 is recognition and measurement of party transaction PAS34 Interim financial reporting?
II. Transactions between related parties are not conducted at “arms-length” and therefore (1) An interim financial report may consist of a complete set of financial statements.
financial information becomes unreliable unless disclosure is made of such related party (2) An interim financial report may consist of a condensed set of financial statements.
transaction Statement (1) Statement (2)
III. Control relationships should always be disclosed whether or not there are related party a. False False
transactions b. False True
a. I and II only c. I and III only c. True False
b. II and III only d. I, II and III d. True True
232. Which of the following falls within the definition of “related parties” as defined in PAS 24? 236.Are the following statements with respect to interim report true or false, according to PAS34
a. Providers of finance in the course of their normal dealings with an enterprise virtue only of Interim financial reporting?
those dealings (1) It is necessary to count inventories in full at the end of each interim accounting period.
b. A supplier with whom the reporting entity has a one-year contract for the supply of raw (2) The net realizable value of inventories is determined by reference to selling prices at the
materials interim date.
c. Government department and agencies Statement (1) Statement (2)
d. The wife of a key management personnel who has the authority to plan, direct, and a. False False
control the activities of the reporting enterprise b. False True
c. True False
233. Which of the following is not a related party as envisaged by PAS 24? d. True True
a. A director of the entity
b. The parent company of the entity 237.The Aconite Company is preparing interim financial statements for six months to 30 June 2010
c. A shareholder of the entity that holds 1% ownership in accordance with the minimum requirements of PAS 34 Interim financial reporting. Its
accounting year ends on 31 December each year. In the interim financial statements for the 240.An entity owns a number of farms that harvest produce seasonally. Approximately 80% of the
six months to 30 June 2010, a statement of financial position at 30 June 2010 and a statement entity’s sales are in the period August to October. Because the entity’s business is seasonal,
of comprehensive income for the six months to 30 June 2010 will be presented. In addition, PAS 34 suggests
which TWO of the following should be presented? a. Additional disclosure in the notes about the seasonal nature of the business
A. Statement of financial position at 30 June 2009 b. Disclosure of the seasonal nature of the business and disclosure of financial information
B. Statement of financial position at 31 December 2009 for the latest and comparative 12-month period in addition to the interim report
C. Statement of comprehensive income for the half year to 30 June 2009 c. Additional disclosure in the accounting policy note
D. Statement of comprehensive income for the half year to 31 December 2009 d. No additional disclosure
a. A and B c. A and C
b. B and C d. C and D 241.For external reporting purposes, it is appropriate to use estimated gross profit rates to
determine the cost of goods sold for
238.An entity operated in the travel industry and incurs costs unevenly through the financial year. Interim Reporting Year-end Reporting
Advertising costs of P2 million were incurred on March 2010 and staff bonuses are paid at a. Yes Yes
year-end based on Sales. Staff bonuses are expected to be around P20 million for the year; of b. Yes No
which P3 million would relate to the period ending March 31, 2010. What costs should be c. No Yes
included in the entity’s quarterly interim report to March 31, 2010? d. No No
a. Advertising costs, P2M; staff bonuses, P5M
b. Advertising costs, P2M; staff bonuses, P3M OPERATING SEGMENTS (PFRS 8)
c. Advertising costs, P0.5M; staff bonuses, P5M
d. Advertising costs, P0.5M; staff bonuses, P3M 242.Are the following statements relating to a discontinued operation true or false, according to
PFRS 5 Non-current assets held for sale and discontinued operation?
239.The Kaikeru Company is preparing its financial statements for the first half of its financial year (1) When the discounted criteria are met after the end of the reporting period, the operation
ending December 31, 2010. One class of inventory has a cost per unit of P5.00 and a net shall retrospectively be separately presented as a discontinued operation.
realizable value at June 30, 2010 of P4.80 per unit. The business is seasonal and the net (2) The net cash flows attributable to the operating, investing, and financing activities of a
realizable value at 31 December 2010 is expected to be P5.50. Kaikeru’s budget for the year discounted operation shall be separately presented.
scheduled a major refurbishment project for April to June 2010. For legal reasons the contract Statement (1) Statement (2)
for the refurbishment was not signed until July 8, 2010, on which date the work was started. a. False False
b. False True
Are the following statements true or false, according to PAS 34 Interim financial reporting? c. True False
(1) The inventory should be carried at its cost per unit of P5.00 at 30 June 2010. d. True True
(2) The cost of the major refurbishment project should be accrued at 30 June 2010.
Statement (1) Statement (2) 243.Which of the following is a requirement for a component of an entity to be classified as a
a. False False discounted operation in accordance with PFRS 5 Non-current assets held for sale and
b. False True discontinued operation?
c. True False a. Its activities cease permanently prior to the financial statements being authorized for issue
d. True True by management
b. It must comprise a separately reported segment in accordance with PFRS 8 Operating
segments
c. Its assets must have been classified as held for sale in the previous financial statements
d. It must have been a cash-generating unit or a group of cash generating units while being 247.The equity of The Kaiaho Company is traded on a recognized stock exchange. Kaiaho
held for use regularly reports the financial results of five different business units to its chief operating
decision maker. The relevant revenues for the year ended 31 December 20X7 for these five
244.Are the following statements true or false, according to PFRS 8 Operating segments? operations, as a percentage of total external and internal revenue, were as follows:
(1) If an entity changes the way it is structured internally so that its reportable segments % internal % external total
change, the comparative information for earlier periods must be restated 1 3 35 38
(2) Disclosure is always required of the total assets of each reportable segment. 2 10 14 24
Statement (1) Statement (2) 3 15 5 20
a. False False 4 0 9 9
b. False True 5 0 9 9
c. True False 28 72 100
d. True True
In accordance with PFRS 8 Operating segments, the reportable segments of Kaiaho are
245.The Lamda Company has correctly classified its manufacturing operations as a disposal group a. 1 and 2 only c. 1, 2, 3 and 4 only
held for sale and as discontinued operations during the year ended December 31, 2010. Are b. 1,2 and 3 only d. 1, 2, 3, 4, and 5
the following statements true or false, according to PFRS 5 Non-current assets held for sale
and discontinued operation? 248.Are the following statements true or false, according to PFRS8 Operating segments?
(1) The disposal group’s results for the year ended 31 December 2009 should be re- 1) If an entity changes the way it is structurally internally so that its reportable segments
presented as relating to discontinued operations in the comparative figures for the 2010 change, the comparative information for earlier periods must be restated
statement of comprehensive income 2) Disclosure is always required of the total assets of each reportable segment
(2) The disposal group’s assets at December 31, 2009 should be represented as held for sale Statement (1) Statement (2)
in the comparative figures for the 2010 statement of financial position a. False False
Statement (1) Statement (2) b. False True
a. False False c. True False
c. True False
d. True True 249. Are the following statements true or false, according to PFRS8 Operating segments?
1) A major customer is defined as one providing revenue which amounts to 10% or more of
246.Are the following statement true or false, according to PFRS 8 Operating segments? the combined revenue, internal and external, of all operating segments
(1) The measurement of the profit or loss to be disclosed for each reportable segment is 2) The identities of major customers need not to be disclosed
defined in PFRS 8 Statement (1) Statement (2)
(2) The profit or loss disclosed for a segment should relate to the total assets attributed to a. False False
that segment b. False True
Statement (1) Statement (2) c. True False
a. False False d. True True
b. False True
c. True False 250. It is the approach of looking to an entity’s organization and management structure and its
d. True True interim financial reporting system to identify the business and geographical segment for
external reporting purposes
a. Management approach c. Entity approach b. Methods (1) and (3) only d. Methods (1), (2), and (3)
b. Organizational approach d. scientific approach
255. The Apple Company, The Berry Company and The Cherry Company own 30%, 30% and 40%
251. An entity is in the entertainment industry and organizes outdoor concerts in four different respectively of the equity of Damson Company. Apple and Berry have signed an agreement
areas of the world: Europe, North America, Australia and Japan. The entity reports to the whereby the strategic decisions in respect of Damson are to be taken with the agreement of
board of directors on the basis of each of the four regions. The management accounts show both of them. Are the following statements true or false, according to PAS 31 Interests in joint
the profitability for each of the four regions, with allocations for that expenditure which is venture?
difficult to directly charge to a region. The concerts are of two types: popular and classical 1) Cherry is an investor in Damson
music. What is the appropriate basis for segment reporting in this entity? 2) Apple should account for its share in the profits of Damson by reference to the dividends
a. The segment should be reported by class of business, that is, popular and classical music. receivable from Damson
b. The segments should be reported by region, so Australia and Japan would be combined. Statement (1) Statement (2) Statement (1) Statement (2)
c. The segment information should be reported as North America and the rest of the world. a. False False c. True False
d. Segment should be reported for each of the four different regions. b. False True d. True True
INVESTMENT IN ASSOCIATES (PAS 28) 256. Are the following statements in respect of the conditions for joint control true or false,
252. Which of the following investments in an associate is not within the scope PAS28 Investment according to PAS31 Interests in joint ventures?
in associates? 1) The ventures must have a contractual arrangement as to how strategic decisions in
a. The holding of a significant proportion of the share capital in another entity respect of a joint venture are to be made
b. The contractually agreed sharing of control over an economic entity 2) Majority voting is acceptable for strategic decisions in respect of a joint venture
c. The power to participate in the financial and operating policy decisions of an entity Statement (1) Statement (2) Statement (1) Statement (2)
d. The mutual sharing in the risks and benefits of a combined entity a. False False c. True False
253. Which of the following investments in an associate is not within the scope of PAS28
Investment in associates? 257. Are the following statements about the sale of a non-current asset by a venturer to a joint
a. An associate held by a subsidiary and measured at amortized cost venture true or false, according to PAS31 Interest in joint ventures?
b. An associate held by a venture capital organization and measured at amortized cost (1) In all circumstances the venturer recognizes the whole of any impairment loss arising.
c. An associate held by a venture capital organization and measured at fair value with (2) In all circumstances the venturer recognizes the whole of any gain arising.
changes in fair value recognized in profit or loss CRC-ACE A B C D
d. An associate held by a subsidiary and measured at fair value with changes in fair value Statement (1) True True False False
recognized in profit or loss Statement (2) True False True False
INTERESTS IN JOINT VENTURES (PAS 31) 258. Which of the following methods of accounting for its share of each of the joint venture’s assets
254. Which of the following methods of accounting for its treasury share of each of the joint and liabilities are available to a venturer in a jointly controlled entity, according to PAS31
venture’s assets and liabilities are available to a venture in a jointly controlled entity, Interest in joint ventures?
according to PAS 31 Interests in joint ventures? a. Methods (2) and (3) only c. Methods (1) and (2) only
1) The equity method b. Methods (1) and (3) only d. Methods (1), (2), and (3)
2) Proportionate consolidation, combining its share of each with similar items it controls
3) Proportionate consolidation, showing separate line items for its share of each 259. The Fluming Company and The Talgarth Company own 60% and 40% respectively of the
a. Methods (2) and (3) only c. Methods (1) and (2) only equity of the The Hoophorn Company. Fluming and Talgarth have signed an agreement
whereby all the strategic decisions in respect of Hoophorn are to be taken with the agreement 263. An entity started trading in country A whose currency was the dollar. After several years, the
of them both. Are the following statements true or false, according to PAS27 Controlled and entity expanded and exported its products to country B, whose currency was the euro. The
separate financial statements, PAS28 Investments in associates and PAS31 Interests in joint subsidiary is essentially an extension of the entity’s own business, and the directors of the
ventures? two entities are common. The functional currency of the subsidiary is
1) Fluming should classify its investment in Hoophorn as an investment in a subsidiary a. The dollar c. The dollar on the euro
2) Talgarth should classify its investment in Hoophorn as an in an associate b. The euro d. Difficult to determine
Statement (1) Statement (2) Statement (1) Statement (2)
a. False False c. True False 264. Exchange differences arising from translation of financial statements of a foreign entry should
b. False True d. True True be accounted for as
a. Accumulated translation adjustment as a component of stockholders equity
THE EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATES (PAS 21) b. Accumulated translation adjustments as a component of net income
260. According to PAS21 The effects in foreign exchange rates, at which should an entity’s non- c. Retained earnings
current assets be translated when its functional currency figures are being translated into a d. None of these
different presentation currency?
a. The historical exchange rate ACCOUNTING FOR INCOME TAXES (PAS 12)
b. The closing rate 265. Which of the following are examples of deferred tax assets? Deferred tax assets are the
c. The average rate amount of income taxes recoverable in future periods in respect of
d. The spot exchange rate A B C D
a. The carry forward of unused tax losses Yes No Yes No
261. According to PAS21 The effects in foreign exchange rates, exchange differences should be b. Taxable temporary differences No No Yes Yes
recognized either in profit or loss or in other comprehensive income. Are the following c. Deductible temporary differences Yes Yes No Yes
statements about the recognition of exchange differences in respect of foreign currency d. Permanent differences No Yes No No
transactions reported in an entity’s functional currency true or false according to PAS21?
(1) Any exchange difference on the settlement of a monetary item should be recognised in profit 266. Which of the following must be disclosed separately, according to PAS 12 Income taxes?
or loss. I. The tax bases of major items on which deferred tax has been calculated
(2) Any exchange difference on the translation of a monetary item at a rate different to that used II. The amount of deductible temporary differences for which no deferred tax asset is
at initial recognition should be recognised in other comprehensive income. recognized
CRC-ACE A B C D III. Estimates of future tax rates
Statement (1) True True False False IV. The amount of income tax relating to each component of other comprehensive
Statement (2) True False True False a. I and II only c. II and IV only
b. II and III only d. I, II and IV only
262. Foreign operations that are an integral part of the operations of the entity would have the
same functional currency as the entity. When a foreign operation functions independently 267. Are the following statements true or false, according to PAS 12 Income taxes?
from the parent, the functional currency will be (1) Development costs have been capitalized and will be amortized, but were deducted in
a. That of the parent determining taxable profit in the period in which they were incurred. This will give rise to a
b. Determined using then guidance for determining an entity’s functional currency deferred tax asset.
c. That of the country of incorporation (2) The tax base for a machine for tax purposes is greater than the carrying amount in the
d. The same as the presentation currency financial statements up to the end of the reporting period. This will give rise to a deferred
tax asset.
Statement (1) Statement (2) 271. Which of the following differences would result in future taxable amounts?
a. False False a. Expenses or losses that are deductible after they are recognized in financial income
b. False True b. Revenues or gains that are taxable before they are recognized in financial income
c. True False c. Expenses or losses that are deductible before they are recognized in financial income
d. True True d. Revenues or gains that are recognized in financial income but are never included in
taxable income
268. According to PAS 12 Income taxes, are the following statements in relation to deferred tax
assets and liabilities true or false? 272. RGS Inc.’s financial reporting basis of its plant assets exceeded the tax basis because it uses
(1) Deferred tax liabilities are the amounts of income taxes payable in future periods in a different method of reporting depreciation for financial reporting purposes and tax purposes.
respect of taxable temporary differences. If there is no other temporary differences, RGS should report a
(2) Deferred tax assets are the amounts of income taxes recoverable in future periods in a. Current tax asset c. Deferred tax asset
respect of deductible temporary differences. b. Deferred tax liability d. Current tax payable
a. False False 273. The deferred tax consequence attributable to a deductible temporary difference and
b. False True operating loss carry forward is known as
c. True False a. Tax expense c. Tax asset
d. True True b. Current tax d. Tax liability
269. The HP Company has interest receivable which has a carrying amount of P60, 000 in its 274. Which of the following would result in a tax base of an asset that is nil or zero?
statement of financial position at 31 December 2010. The related interest revenue will be a. Trade accounts receivable have a carrying amount of P500, 000. The related revenue has
taxed on cash basis in 2011. HP has trade receivables that have a carrying amount of P200, already been included in taxable profit (or tax loss)
000 in its statement of financial position at 31 December 2010. The related revenue has been b. A machine has a remaining carrying value of P70, 000 which will be deductible in future
recognized in profit or loss for the year to 31 December 2010. According to PAS 12 Income periods either as depreciation or through a deduction on disposal
taxes, what is the total tax base of interest receivable and trade receivables for HP at 31 c. Interest receivable has a carrying amount of P80, 000. The related interest revenue will be
December 2010? taxed on a cash basis
a. P60, 000 c. P260, 000 d. Current liabilities include accrued fines and penalties with a carrying amount of P95, 000.
b. P200, 000 d. Zero Fines and penalties are not deductible for tax purposes
270. Are the following statements true or false, according to PAS 38 Intangible assets? 275. According to PAS 12, deferred tax assets and liabilities should be reported in the balance
(1) Expenditure during the research phase of a project may sometimes be capitalized as an sheet
intangible asset a. as current and non-current assets and liabilities depending the balance sheet
(2) Expenditure during the development phase of a project may sometimes be capitalized as classification of the related tax basis of the temporary difference
an intangible asset b. as current and non-current depending on the order of liquidity or maturity
Statement (1) Statement (2) c. as non-current asset and non-current liability
a. False False d. always net non-current asset or net non-current liability
b. False True
c. True False 276. A temporary difference that would result in a deferred tax asset is
d. True True a. Interest revenue on government bonds
b. Excess of tax depreciation over financial accounting depreciation
c. Accrued warranty expense B. A specific description of all leasing arrangements
d. Accrual commission income C. Restrictions imposed by lease arrangements
D. A reconciliation between the total of future minimum lease payments and their present
277. Which of the following statements is correct regarding the provisions for income taxes in the value
financial statements of a sole proprietorship? a. A and B c. A and C
a. The provision for income taxes should be based on business income using individual tax b. C and D d. B and D
rates.
b. The provision for income taxes should be based on business income using corporate tax 281. The Milky Way Company leased a warehouse with adjoining land for a period of 15 years. He
rate. fair values of the leasehold interests in the land and of the warehouse are P502, 000 and P
c. The provision for income taxes should be based on the proprietor’s total taxable income, 251, 000 respectively. The land has an indefinite economic life whereas the warehouse has a
allocated to the proprietorship at the percentage that business income bears to the useful life of 15 years. Title to the land is not expected to pass at the end of the lease. Under
proprietor’s total income PAS 17 Leases, what is the accounting treatment for these leased assets?
d. No provision for income taxes is required. Land Warehouse
a. Finance lease Finance lease
ACCOUNTING FOR LEASES (PAS 17) b. Operating lease Operating lease
c. Operating lease Finance lease
278. Under PAS 17 Leases, which of the following dates are used to identify the inception of a d. Finance lease Operating lease
lease?
A B C D 282. The classification of a lease is normally carried out
 The date of the lease agreement Yes Yes No No a. At the end of the lease term
 The date when title to the asset is transferred Yes No Yes No b. At the inception of the lease
 The date of the commitment by the parties to c. After a “cooling off” period of one year
No Yes No Yes d. When the entity deems it to be necessary
the principal provisions of the lease
279. Are the following statements in respect of a finance lease true or false, according to PAS 17 283.Lease M does not contain a bargain purchase option, but the lease term is equal to a
Lease? substantial portion of the estimated economic life of the leased property. Lease P does not
(1) Any initial direct costs incurred by a lease are added to the amount of the liability transfer ownership of the property to the lease at the end of the lease term, but the lease term
recognized in the statement of financial position is equal to more than ¾ of the estimated economic life of the leased property. How should the
(2) Any initial direct costs incurred by a lease are added to the amount of the asset lease classify these leases?
recognized in the statement of financial position Lease M Lease P
Statement (1) Statement (2) a. Capital lease Operating lease
a. False False b. Capital lease Capital lease
b. False True c. Operating lease Capital lease
c. True False d. Operating lease Operating lease
d. True True
284. Where there is a lease of land and buildings and the title to the land is not transferred,
280.Which of the following should be disclosed in a lessee’s financial statements in relation to its generally the lease is treated as if
operating leases, to comply with the requirements of PAS 17 Leases? a. Both land and buildings are finance leases
A. The total of future minimum sub-lease payments receivable b. Both land and buildings are operating leases
c. Land is operating lease; building is finance lease 289. According to PAS 19 Employee Benefits, which of the following items are included in plan
d. Land is finance lease; building is operating lease assets?
A B C D
285. The excess of the fair value of leased property at the inception of the lease over its cost or (1) Assets held by a lone-term employee benefit Yes Yes No No
carrying amount should be classified by the lessor as fund
a. Unearned income from a sales-type lease (2) Qualifying insurance policies Yes No Yes No
b. Unearned income from a direct-financing lease
c. Manufacturer’s or dealer’s profit from a sales-type lease 290. Under which category should the following items be accounted for according to PAS 19
d. Manufacturer’s or dealer’s profit from a direct-financing lease Employee Benefits?
(1) Lump sum benefit of 1% of the final salary for each year of service
286. As an inducement to enter a lease, Graf Co., a lessor, granted Zep, Inc., a lesse, 12 months (2) Actuarial gains
of free rent under a 5-year operating lease. The lease was effective on January 1, 2009, and a. Lump sum benefit should be accounted for under defined benefit plans
provides for monthly rental payments to begin January 1, 2010. Zep made the first rental Actuarial gains should be accounted for under defined benefit plans
payment on December 30, 2009. In its 2009 income statement, Graf should report rental b. Lump sum should be accounted for under short term employee benefits
revenue in an amount equal to Actuarial gains should be accounted for under defined benefit plans
a. Zero c. Lump sum benefit should be accounted for under defined benefit plans
b. Cash received during 2009 Actuarial gains should be accounted for under defined contribution plans
c. One-fourth of the total cash to be received over the life of the lease d. Lump sum benefit should be accounted for under short term employee benefits
d. One-fifth of the total cash to be received over the life of the lease Actuarial gains should be accounted for under defined contribution plans
EMPLOYEE BENEFITS (PAS 19) AND ASCCOUNTING AND REPORTING BY RETIREMENT 291. According to PAS26 Accounting for reporting by retirement benefit plans, which ONE of
BENEFIT PLANS (PAS 26) the following may be disclosed in the financial report of a defined benefit plan but would not
be shown in the financial report of a defined contribution plan?
287. According to PAS 19 Employee benefits, which of the following statements best describes a. Government bonds held
benefits which are payable as a result of an entity’s decision to end an employee’s b. Actuarial present value of promised retirement benefits
employment before the normal retirement date? c. Employee contributions
a. Post-employment benefits c. Retrenchment benefits d. Employer contributions
b. Termination benefits d. Defined benefits plans
292. PAS 26 Accounting for reporting by retirement benefit plan should be applied to which one of
288. According to PAS 19 Employee benefit, which of the following terms best describes other the following?
long-term employee benefits? a. The costs to companies of employee retirement benefits
a. Benefits not falling due wholly within twelve months of the end of the period in which the b. Reports to individuals on their future retirement benefits
service is rendered c. The financial statements relating to an actuarial business
b. Benefits which fall due within twelve months of the end of the period in which the service d. The general purpose financial reports of pension schemes
is rendered
c. Benefits payable as a result of an entity’s decision to end an employee’s employment 293. According to 26 Accounting for reporting by retirement benefit plan, investments held by
before the normal retirement date retirement benefit plans should be stated at which of the following values in their statement of
d. Benefits which are payable after completion of employment net assets?
a. Net realizable value c. Original cost less impairments
b. Fair value d. Value in use 298. The vested benefits of an employee represent
a. Benefits to be paid to the retired employee in the current year
294. An entity contributes to an industrial pension plan and provides a pension arrangement for its b. Benefits to be paid to the retired employee in the subsequent year
employees. A large number of other employees also contribute to the pension plan, and the c. Benefits accumulated in the hands of an independent trustee
entity makes contributions in respect of each employee. These contributions are kept d. Benefits that are not contingent on the employer’s continuing in the service of the
separate from corporate assets and are used together with any investment income to employer
purchase annuities for retired employees. The only obligation of the entity is to pay the
annual contributions. This pension scheme is a DEVELOPMENT STAGE ENTERPRISES
a. Multiemployer plan and a defined contribution scheme 299. A development stage enterprise
b. Multiemployer plan and a defined benefit scheme a. Issues an income statement that is the same as an established operating enterprises, and
c. Defined contribution plan only shows cumulative amounts from the enterprise’s inception as additional information
d. Defined benefit plan only b. Issues an income statement that shows only cumulative amounts from the enterprise’s
inception
295. Which of these events will cause a change in a defined benefit obligation? c. Issues an income statement that is that same as an established operating enterprise, but
a. Changes in mortality rates or the proportion of employees taking early retirement does not show cumulative amounts from the enterprise’s inception as additional
b. Changes in the estimated salaries or benefits that will occur in the future, changes in information
estimated employee turnover d. Issues a balance sheet, a statement of changes in equity, a statement of cash flows, but
c. Changes in the discount rate used to calculate defined benefit liabilities and the value of not an income statement
assets
d. All of the above 300. Financial reporting by a development stage enterprise differs from financial reporting for an
established operating enterprise in regards to
296. An entity has decided to improve its defined pension scheme. The benefit payable will be a. Footnote disclosures only
determined by reference to 60 years service rather than 80 years service. As a result, the b. Footnote disclosures and expense recognition principles only
defined benefit pension liability will increase by P 10 M. The average remaining service lives c. Revenue recognition principles and footnote disclosures
of the employees is 10 years. How should the increase in the pension liability by P10 M be d. Revenue recognition principles and footnote disclosures
treated in the financial statements?
a. The past service cost should be charged against retained profit EARNINGS PER SHARE (PAS 33)
b. The past service cost should be charged against profit or loss for the year 301. With respect to the computation of earnings per share, which of the following would be most
c. The past service cost should be spread over the remaining working lives of the employees indicative of a simple capital structure?
d. The past service cost should not be recognized a. Common stock, preferred stock, and convertible securities outstanding
b. Earnings derived from one primary line of business
297. Under a defined benefit plan, the retirement benefit expense in the current period includes all c. Ownership interest consisting solely of common stock
of the following except: d. Equity represented materially by liquid assets
a. Current service cost
b. Amount recognized in the current period with respect to past service cost of current and 302. Donna Corporation’s shares of stock were disapproved for listing in the stock exchange. It
retired employees, experience adjustment, and changes in actuarial assumption sells its stocks over the counter. It should:
c. the result of any plan termination, settlement or curtailment a. Disclose only earnings per share on the face of the income statement
d. Contribution to a separate fund b. Disclose earnings per share on the face of the income statement
c. Not consider options or warrants on the disclosure of earnings per share
d. Not disclose earnings per share on the face of the income statement because the shares I. Gain or loss on Purchasing Power arise from non-monetary assets and non-monetary
are not listed in the stock exchange liabilities
II. The gain or loss on the net monetary position is included in net income
303. When earnings per share is computed, dividends on preferred stock are III. Excess of monetary assets over monetary liabilities would yield a purchasing power
a. Added because they represent earnings to the preferred stockholders gain
b. Reported separately on the income statement IV. In the income statement, all amounts need to be restated into the measuring unit
c. Subtracted because they represent earnings to the preferred stockholders current at balance sheet date by applying a general price index
d. Ignored because they do no pertain to the common stock a. I and II only c. III and IV only
b. I and III only d. I, III and IV only
304. Earnings per share is calculated before accounting for which of the following items?
a. Preference dividend for the period c. Taxation 309. An entity is trying to determine which assets and which liabilities are monetary and non-
b. Ordinary dividend d. Minority interest monetary. Which of the following assets or liabilities are non-monetary?
a. Trade receivables c. Accrued expenses and other payables
FINANCIAL REPORTING IN HYPERINFLATIONARY ECONOMIES (PAS 29) b. Deferred tax liabilities d. Taxes payable
305. According to PAS 29 Financial reporting in hyperinflationary economies, which of the following
would indicate that hyperinflation exists? 310. Money loses purchasing power at such a rate that comparison of amounts from transactions
I. Non-monetary items increase in value, but not monetary items do not. and events that have occurred at different times, even within the same accounting period, is
II. The cumulative inflation rate over three years in approaching, or exceeds, 100% misleading. This financial accounting problem is addressed through
III. The general population prefers to keep its wealth in non-monetary assets a. Fair value accounting c. Price level accounting
IV. Inflation rates have exceeded interest rates in three successive years b. Revaluation of Property d. Peso accounting
a. I and II only c. I, II, and III only
b. II and III only d. I, II, III and IV CONSOLIDATED FINANCIAL STATEMENTS (PAS 27)
311. Which of the following items best describes the financial statements of a parent in which the
306. According to PAS29 Financial reporting in hyperinflationary economies, which of the following investments are accounted for on the basis of the direct equity interest?
would not indicate that hyperinflation exists? a. Single financial statements
a. Sales on credit are at lower prices than cash sales b. Combined financial statements
b. Inflation is approaching, or exceeds, 20% per year c. Separate financial statements
c. Monetary items do not increase in value d. Consolidated financial statements
d. People prefer to keep their wealth in non-monetary assets or a stable foreign currency
312. Which of the following statements is (are) true, according to PAS 27 Consolidated and
307. According to PAS 29 Financial reporting in hyperinflationary economies, which of the following separate financial statements?
are monetary items? 1) Consolidated financial statements must be prepared using uniform accounting policies
A B C D 2) The non-controlling interest in the net assets of subsidiaries may be shown by way of note
Trade payables Yes Yes No No to the consolidated statement of financial position
Inventories No No Yes Yes a. Only Statement (1) is true
Notes receivable No Yes Yes No b. Only Statement (2) is true
Loan repayable at par value No Yes No Yes c. Statements (1) and (2) are true
d. Neither Statement (1) nor (2) is true
308. Which of the following statements is (are) false, in relation to hyperinflationary economies?
313. The Royal Prince Company has issued a range of share options to employees. In accordance measurement bases may be used in measuring the non-controlling interest at the acquisition
with PFRS 2 Share-based payment, what are types of share-based payment transaction date?
does this represent? I. The nominal value of the shares in the acquiree not acquired
a. Asset settled share-based payment transaction II. The fair value of the shares in the acquiree not acquired
b. Liability-settled share-based payment transaction III. The non-controlling interest in the acquiree’s assets and liabilities at book value
c. Equity-settled share-based payment transaction IV. The non-controlling interest in the acquiree’s assets and liabilities at fair value
d. Cash-settled share-based payment transaction a. I and II c. II and IV
b. III and IV d. I and III
314. In accordance with PFRS 2 Share-based payment, how, if at all, should an entity recognize
the change in the fair value of the liability in respect of a cash-settled share-based payment 319. Which of the following costs should be included in the consideration transferred in a business
transaction? combination, according to PFRS 3 Business Combination?
a. Recognize in the statement of changes in equity A B C D
b. Recognize in other comprehensive income (1) Costs of maintaining an acquisitions
Yes No Yes No
c. Recognize in profit or loss department
d. Do not recognize in the financial statements but disclose in the notes thereto (2) Fees paid to accountants to effect
Yes No No Yes
the combination
315. In the separate financial statements of a parent entity, investments in subsidiaries that are not
classified as held for sale should be accounted for 320. The Jupiter Company acquired a 30% equity interest in Neptune Company many years ago.
a. At cost c. At cost or in accordance with PAS 39 In the current accounting period it acquired a further 40% equity interest in Neptune. Are the
b. In accordance with PAS 39 d. Equity method following statements true or false, according to PFRS3 Business combinations?
(1) Jupiter’s pre existing 30% equity interest in Neptune should be remeasured at fair value at
316. Where should minority interests be presented in the consolidated balance sheet? the acquisition date.
a. Within long-term liabilities (2) Pendle’s net assets should be remeasured at fair value at the acquisition date.
b. Between long-term liabilities and current liabilities Statement (1) Statement (2)
c. Within the parent shareholder’s equity a. False False
d. Within equity but separate from the parent shareholder’s equity b. False True
c. True False
317. Entity X controls an overseas entity, Y. Because of exchange controls, it is difficult to transfer d. True True
funds out of the country to the parent entity. X owns 100% of the voting power of Y. How
should Y be accounted for? 321. The National Company acquired 80% of The Local Company for a consideration transferred
a. Excluded from consolidation and equity method should be used of P100 million. The consideration was estimated to include a control premium of P24 million.
b. Excluded from consolidation and stated at cost Local’s net assets were P85 million at the acquisition date.
c. Excluded from consolidation and accounted for in accordance with PAS 39 (1) Goodwill should be measured at P32million if the non controlling interest is measured at its
d. Not excluded from consolidation because control is not lost share of Local’s net assets.
(2) Goodwill should be measured at P34 million if the non-controlling interest is measured at
BUSINESS COMBINATIONS (PFRS 3) fair value.
318.A parent entity is acquiring a majority holding in an entity whose shares are dealt in on a a. False False
recognized market. Under PFRS 3 Business combinations, which TWO of the following b. False True
c. True False a. Contingent consideration receivable in a business combination
d. True True b. Product warranties issued by an entity which is a manufacturer
c. Employee’s assets and liabilities under employment benefit plans
322. Should the following cost be included in the consideration transferred in a business d. Reinsurance contracts issued by the entity
combination, according to PFRS3 Business combinations?
(1) Cost of maintaining an acquisitions department 326. Are the following statements about PFRS 4 Insurance contracts true or false?
(2) Fees paid to accountants to effect the combination (1) PFRS 4 requires an insurer to consider the requirements of the LASB Framework in
Cost (1) Cost (2) selecting accounting policies for insurance contracts
a. No No (2) PFRS 4 requires an insurer to test for the adequacy of recognized insurance liabilities
b. No Yes Statement (1) Statement (2)
c. Yes No a. False False
d. Yes Yes b. False True
c. True False
323. Are the following statements about an acquisition true or false, according to PFRS3 Business d. True True
combinations?
(1)The acquirer should recognize the acquiree’s contingent liabilities if certain conditions are 327. Which TWO of the following are requirements of PFRS 4 Insurance contracts?
met. A. The offset of reinsurance assets against related insurance liabilities
(2) The acquirer should recognize the acquiree’s contingent assets if certain condition are met. B. An annual assessment of the adequacy of recognized insurance liabilities
Statement (1) Statement (2) C. An impartment test for reinsurance asset
a. False False D. Recognition of provisions for future claims relating to a catastrophe
b. False True a. A and B c. C and D
c. True False b. B and C d. A and D
d. True True
328. The rationale for the issuance of PFRS 4, Insurance Contracts is
324. The Pendle Company acquired a 30% equity interest in The Tereta Company many years ago. a. T ensure that insurance companies could comply with International Financial Reporting
In the current accounting period it acquired a further 40% equity interest in Tereta. Standards
Are the following statements true or false, according to PFRS3 Business combinations? b. To completely overhaul insurance accounting
(1) Pendle’s pre-existing 30% equity interest in Terata should be remeasured at fair value at c. As a response to recent scandals within the insurance industry
the acquisition date. d. Because of pressure from financial services authorities in several countries
(2) Pendle’s net assets should be remeasured at fair value at the acquisition date
Statement (1) Statement (2) 329. Which of the following types of insurance contracts would probably not be covered by PFRS
a. False False 4?
b. False True a. Motor insurance c. Medical Insurance
c. True False b. Life Insurance d. Pension plan
d. True True
330. Which of the following accounting practices has been outlawed by PFRS 4?
INSURANCE CONTRACT (PFRS 4) a. Catastrophe provisions
b. Shadow accounting
325. An entity should apply PFRS 4 Insurance contracts to which of the following? c. A test for the adequacy of recognized insurance liabilities
d. An impairment test for reinsurance assets (1) The extraction and processing of mineral resources for transport to market
(2) The commercial review of possible areas for mineral extraction before bidding for the
331. The Corella Company is applying PFRS 4 Insurance contracts. Which TWO of the following legal rights to explore a specific area
accounting policies may Corella continue to apply? Expenditure (1) Expenditure (2)
A. Recognizing provisions for possible future claims a. PFRS6 does not apply PFRS6 does not apply
B. Offsetting reinsurance income and expenses against the income and expenses of related b. PFRS6 does not apply PFRS6 does apply
reinsurance contracts c. PFRS6 does apply PFRS6 does not apply
C. Measuring insurance liabilities on an undiscounted basis d. PFRS6 does apply PFRS6 does apply
D. Using non-uniform accounting policies for the insurance contracts of subsidiaries
a. A and B c. A and C 336. The Strider Company is involved in the exploration of mineral resources. Its policy is to
b. C and D d. B and D recognize exploration assets and measure them initially at cost. It is currently exploring a
new gas field in Ruritania. The exploration license for the new Ruritanian gas field is about to
332. If an entity gives a product warranty that has been issued directly by a manufacturer, dealer, expire and Strider is now preparing to undertake an impairment review. Strider reports its
or retailer. Which International Reporting Standard is likely to cover this warranty? financial performance as ‘Mineral Production’ and ‘Energy Trading’ in its financial statements
a. PFRS 4 c. PAS 18 and PAS 37 in accordance with PFRS 8 Operating Segments. The Mineral Production segment
b. PAS 39 d. PAS 32 comprises two cash-generating units – ‘oil production’ and ‘gas production’. In accordance
with PFRS 6 Exploration for an evaluation of mineral resources, what is the highest level at
333. An insurance contract can contain both deposit and insurance elements. An example might which the impairment test can be undertaken?
be a reinsurance contract where the cedent receives a repayment of the premiums at a future a. A cash-generating unit based on the assets in the Ruritanian gas field.
time if there are no claims under the contract. Effectively, this constitutes a loan by the cedent b. Gas production cash-generating unit.
that will repaid in the future. PFRS 4 requires that c. Oil production and gas production cash-generating units combined.
a. Each payment by the cedent is accounted for as a loan advance and as a payment for d. A cash-generating unit at The Strider Company level.
insurance cover
b. The insurance premium is accounted for as a revenue item in the income statement 337.PFRS 6 applies to expenditures incurred
c. The premium is accounted for under PAS 18 a. When searching for an area that may warrant detailed explorations, even though the
d. The premium paid is treated purely as loan, and its accounted for under PAS 39 entity has not yet obtained the legal rights to explore a specific area.
b. When the legal rights to explore a specific area have been obtained, but the technical
EXPLORATION FOR, AND EVALUATION OF MINERAL RESOURCES (PFRS 6) feasibility and commercial viability of extracting a mineral resource are not yet
demonstrable.
334. Which TWO of the following models may be applied by entities for the measurement after c. When a specific area is being developed and preparations for commercial extraction are
recognition of exploration and evaluation assets, in accordance with PFRS6 Exploration for being made.
and evaluation of mineral resources? d. In extracting mineral resources and processing the resource to make it marketable or
A. Cost C. Realisation transportable/
B. Revaluation D. Present value
a. A and B c. C and D 338.Does PFRS 6 applies to expenditures incurred?
b. B and C d. A and D a. Yes, But only to the extent required by the entity’s accounting policy for recognized
exploration and evaluation assets.
335. Does PFRS6 Exploration for and evaluation of mineral resources apply to the following types b. Yes, but only to the extent that such expenditures is recoverable in future periods.
of expenditure? c. Yes, but only to the extent required by the entity’s accounting policy for recognizing assets.
d. No. Such expenditure is always expensed in profit or loss as incurred. c. As an adjustment to the carrying amount of loan assets with the increase in the reserve
reported directly in equity.
339.Which measurement model applies to exploration and evaluation assets subsequent to initial d. In profit or loss, but the balance sheet is not affected.
recognition?
a. Cost model. c. Either the cost or revaluation model. Government Accounting
b. Revaluation model. d. Recoverable amount model. 344.What are the rules on the use of government funds?
a. No obligations shall exceed allotment. c. No allotment shall exceed appropriation.
340.Which of the following is not a disclosure requirement by PFRS 6? b. No liquidation shall exceed obligation. d. All of these.
a. Information about commercial reserve quantities.
b. Accounting policies for exploration and evaluation expenditures including the recognition 345.Personal services include
of exploration and evaluation of assets. a. Traveling, training and seminar, telephone, internet, staff development
c. The amounts of assets, liabilities, income and expense, and operating and investing cash b. Advertising, rent, insurance and gasoline.
flows arising from the exploration and evaluation of mineral resources. c. Salaries, allowances and bonuses.
d. Information that identifies and explains the amounts recognized in the financial statements d. Bank charges, interest, losses on foreign exchange transactions.
arising from the exploration of mineral resources.
346.Which of the following describes the role of the Bureau of Treasury in relation to governemnt
Disclosures in the FS of Bank and Similar Financial Institutions (PAS 30) accounting responsibility?
341.Which types of entities are required to apply PAS 30? a. To design, prepare and approve the accounting system of government agencies.
a. All entities. b. To receive and keep national funds and manage or control the disbursements thereof.
b. Banks, insurance companies and other financial insitutions that are subject to prudential c. To keep the general accounts of the national government.
supervision by regulators. d. To prepare the annual financial report of the national government, its instrumentation and
c. Banks and similar financial institutions, one of whose principal activities is to take deposits Government-owned or controlled corporations.
and borrow with the objective of lending and investing, and which are within the scope of
banking or similar legislation PFRS for Small and Medium-Sized Entities
d. Internationally active banks and similar financial institutions. 347.Fair presentation requires a faithful representation of the effect of transactions, other events
and conditions in accordance with the definition and recognition criteria for the elements of
342.What types of information does PAS 30 require to be disclosed about the concentrations of accounting. Fair presentation, in accordance with the PFRS for SMEs, is presumed to result
assets and liabilities? from compliance with the PFRS for SMEs
a. Concentration of credit risk. a. by an entity that has public accountability.
b. Concentrations of assets, liabilities, and off-balance sheet items. b. with additional disclosures where necessary, by an entity that has public accountability.
c. Concentration of liquidity risk c. by an entity that does not have public accountability.
d. Concentration of net foreign currency positions. d. with additional disclosures where necessary, bu an entity that does not have public
accountanbility.
343.The regulator of Bank A requires the bank to set aside an amount equal to a fixed percentage
of its loan assets as a reserve for possible future impairment losses. How should Bank A 348.In accordance with the PFRS for SMEs, in presenting a statement of financial position, an
account for the change in this reserve under PAS 30? entity
a. Within equity as an appropriation of retained earnings. a. must make the current/noncurrent presentation distinction.
b. As an adjustment to the carrying amount of loan assets with the increase in the reserve b. must present assets and liabilities in order of liquidity.
reported as an expense in profit or loss.
c. must choose either the current/noncurrent or the liquidity presentation formats (i.e., a
‘free’ choice of presentation format. 353.Which of the following gains and losses can an entity elect (an accounting policy choice) to
d. must make the current/noncurrent presentation distinction except when a presentation recognize in other comprehensive income (i.e., in total comprehensive income outside profit
based on liquidity provides information that is reliable and more relevant. or loss)?
a. losses from discontinued operations.
Statement of Comprehensive Income & Income Statements for SMEs b. gains and losses arising from translating the financial statements of a foreign corporation.
349.In 2010 after an entity’s 2009 financial statements were approved for issue, the entity c. actuarial gains and losses of defined benefit plans.
discovered an error in the calculation of depreciation expense. The error occurred during d. gains and losses that management considers extraordinary items.
2008. The entity presents one year’s comparative figures. The effect of the correction of the
error in the entity’s 2010 financial statements will be Accounting Policies, Estimates and Errors
a. recognized in the entity’s profit or loss for the year ended December 31, 2010. 354.Prospective application of a change in accounting policy means applying the new accounting
b. recognized in the entity’s profit or loss for the year ended December 31, 2009. policy to transactions, other events and conditions
c. recognized outside of total comprehensive income, in the statement of changes in equity a. occurring after the date as at which the financial statements are authorized for issue.
as an adjustment to retained earnings at January 1, 2009. b. occurring between the date as at which the policy is changed and the date when the
d. recognized outside of total comprehensive income, in the statement of changes in equity financial statements are authorized for issue
as an adjustment to retained earnings at January 1, 2010. c. occurring after the date as at which the policy is changed.
d. as if that policy had always been applied.
350.For small and medium-sized entities, which of the following gains and losses are recognized in
other comprehensive income (i.e., in total comprehensive income outside of profit and loss)? 355.Retrospective application of a change in accounting policy means applying a new accounting
a. gains and losses from discontinued operations. policy to transactions, other events and conditions,
b. gains and losses arising on translating the financial statements of a foreign corporation. a. identified before the date when the financial statements are authorized for issue, as if that
c. gains on the revaluation of property, plant and equipment. policy had always been applied.
d. gains and losses that management considers extraordinary items. b. occurring between the date as at which the policy is changed and the date when the
financial statements are authorized for issue
351.Which of the following are presented in the statement of changes in equity? c. occurring after the date as at which the policy is changed.
a. investments by owners. d. as if that policy had always been applied.
b. distributions to owners.
c. changes in ownership interests in subsidiaries that do not result in a loss of control. 356.Which of the following statements is true?
d. all of the above. a. The effect of a change in accounting estimate is recognized retrospectively.
b. To the extent practicable, an entity must correct a prior period error prospectively in the
352.An SME whose only changes to its equity in the periods for which financial statements are first financial statements authorized for issue after its discovery.
presented arise from profit or loss, payment of dividends, correction of prior period error and c. When an entity discovers an error in its financial statements of a prior period, it must
changes in accounting policy immediately withdraw those financial statements and reissue them with the error
a. has the option to present a statement of income and retained earnings in place of a corrected.
statement of comprehensive income. d. To the extent practicable, an entity must correct a prior period error retrospectively in the
b. is required to present a statement of income and retained earnings in place of a statemnt first financial statements authorized for issue after its discovery.
of comprehensive income.
c. should present a statement of income. 357.When assessing financial assets held at amortized cost or cost for impairment an entity must
d. is required to present a statement of comprehensive income. assess which of the following assets individually?
a. only financial assets that are individually significant. b. An entity has three machines located in one plant. Each machine produces a completely
b. only equity instruments that are individually significant. different product and each machine is managed as a separate business unit. The entity
c. only equity investments. significantly scales down its operations by disposing of one of the machines and in doing
d. all financial assets except equity instruments. so discontinues manufacturing one of its three products.
c. An entity has three plants and all produce the same product. Each plant is located in a
358.A property developer must classify properties that it holds for sale in the ordinary course of separate continent and sells its output to customers local to the plant in which the product
business as is manufactured. The entity scales down its operations by disposing of one of the plants.
a. inventory c. financial assets d. Both (b) and (c) above.
b. property, plant and equipment d. investment property
359.Significant influence is
a. the power to participate in the financial and operating policy decisions of the investee but
is not in control or joint control over those policies.
b. active participation in the financial and operating policy decisions of the investee but is not
in control or joint control over those policies.
c. the power to govern the financial and operating policies of an entity so as to obtain
benefits from its activities.
d. the contractually agreed sharing of control over an economic activity.
360.A small and medium-sized entity must measure its property, plant and equipment after initial
recognition at
a. cost
b. cost less accumulated depreciation less any accumulated impairment losses.
c. cost less any accumulated depreciation less any accumulated impairment losses plus the
cost of day-to-day servicing.
d. cost plus the cost of day-to-day servicing.
361.For small and medium-sized entities, which of the following assets are measured at fair value
through profit and loss if such fair value can be determined reliably without undue cost or
effort?
A B C D
Investment property Yes No Yes No
Biological assets Yes Yes No No
Property and equipment No Yes Yes No
362. Which of the following is a discontinued operations?

a. An entity has three machines located in one plant. All of the machines produce the same
product. The entity significantly scales down its operations by disposing of one of the
machines.
INVESTMENT IN EQUITY – TALUSAN AND USMAN
THEORIES
1. It is any contract that evidences a residual interest in the assets of an entity after deducting all
of its liabilities.
a. Equity instrument
b. Debt instrument
c. Loan and receivable
d. Loans receivable
2. It is the date on which the stock and transfer book of the corporation is closed for registration.
Only those stockholders registered as of this date are entitled to receive dividends.
a. Date of declaration
b. Date of record
c. Date of payment
d. Date of mailing
3. Specifically, these securities represent ownership shares such as common stock, preferred
stock and other capital stock.
a. Equity securities
b. Debt securities
c. Marketable securities
d. Current investments
4. When current investments are carried at market value
a. Unrealized gains or losses are not recognized

b. Unrealized gains and losses are recognized and included in equity
c. Unrealized gains and losses are recognized and included in the determination of income
d. Current assets
5. Long-term investments are
a. Acquired primarily for accretion of wealth

b. Readily realizable
c. Classified as current assets
d. Intended to be held for more than one year
CHAPTER 16
INVESTMENT IN EQUITY SECURITIES
6. It when the shares are sold, they carry with them the right to receive dividends.
a. Between the date of declaration and the date of record

b. Between the date of declaration and the date of payment
c. Between the date of record and the date of payment
d. Between the date of payment and the date of declaration
7. It is when the shares can be sold and still the original shareholder has the right to receive the
dividends on payment date.
a. Between the date of declaration and the date of record

b. Between the date of declaration and the date of payment
c. Between the date of record and the date of payment
d. Between the date of payment and the date of declaration
8. It is the date when the dividends shall be recognized as revenue.
a. Date of declaration
b. Date of record
c. Date of payment
d. Date of mailing
9. Property dividends are recorded at
a. At cost
b. Present value
c. Fair value
d. Historical cost
10. When equity shares are of the same class acquired on different dates at different costs, a
problem will arise as to the determination of cost of shares sold when only a portion is
subsequently sold. In such a case, the entity shall determine the cost of the shares sold using
either
a. FIFO and average cost approach

b. LIFO and average cost approach
c. FIFO and LIFO
d. FIFO and retail cost approach
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11. When the liquidating dividends exceed the cost investment, the difference is
a. Debited to gain on investment

b. Credited to gain on investment
c. Debited to loss on investment
d. Credited to loss on investment
12. When liquidation is completed and the carrying amount of the investment is not fully
recovered, the balance is
a. Written off as a gain

b. Written off as a loss
c. Recovered
d. None of the above
13. Share dividends of the same class are recorded only by means of
a. Adjusting entry
b. Journal entry
c. Memorandum entry
d. No entry
14. I. Share dividends of the same class do not affect the total cost of the investment but
reduce the cost of the investment per share.
II. Share dividends of the same class affects the total cost of the investment.
a. Only I is true
b. Only II is true
c. Both statements are true
d. Both statements are false
15. From the following, select the most appropriate basis for the valuation of a new investment
when properties or services are exchanged for stock.
a. The par or stated value of the stock received

b. The book value of the property or services exchanged
c. The fair market value of the stock received
d. Either b or c, whichever is more clearly determinable
CHAPTER 16
16. Poster Inc. owns 35 percent of Elliott Corporation. During the calendar year 2002, Elliott had
net earnings of P300,000 and paid dividends of P36,000. Poster mistakenly accounted for the
investment in Elliott using the cost method rather than the equity method of accounting. What
effect would this have on the investment account and net income, respectively?
a. Understate, overstate
b. Overstate, understate
c. Overstate, overstate
d. Understate, understate
17. This approach means that the share dividends are assumed to be received and subsequently
sold at the cash received.
a. As if approach
b. BIR approach
c. Share split
d. Split down
18. It is a transaction whereby the outstanding shares are called in and replaced by smaller
number, accompanied by an increase in the par or stated value.
a. Share split
b. Split up
c. Split down
d. Special assessment
19. It is transaction whereby the outstanding shares are called in and replaced by a larger number,
accompanied by a reduction in the par or stated value of each share.
a. Share split
b. Split up
c. Split down
20. A restructuring of capital by effecting a change in the number of shares without capitalizing
retained earnings or changing the amount of its legal capital.
a. Share split
b. Split up
CHAPTER 16
c. Split down
21. A share right is
a. A legal right granted to shareholders for the renewal of shares to a corporation during a
specific time.
b. A legal right granted to shareholders to sell shares issued by a corporation
c. A legal right granted to employer
d. A legal right granted to shareholders to subscribe for new shares issued by a corporation at a
specified price during a definite period.
22. I. A share right is inherent in every share

II. A shareholder receives one right for every share owned.
a. Only I is true
b. Only II is true
c. Both statements are true
d. Both statements are false
23. The ownership of share rights is evidenced by instrument or certificates called
a. Share option
b. Share warrants
c. Preemptive right
d. Stock right
24. This means that the shares and the right are inseparable and are treated as one. In other words,
the share cannot be sold without also selling the right or vice versa. The shares are considered to
be selling
a. Right-on
b. Right-off
c. Ex-right
d. In-right
CHAPTER 16
25. The warrants evidencing the share rights are issued to the shareholders. The shares are said to
be selling
a. Right-on
b. Right-off
c. Ex-right
d. In-right
PROBLEM SOLVING
26. Wood Company owns 20,000 shares of Arlo Company's 200,000 shares of PI00 par, 6%
cumulative, nonparticipating preference share capital and 10,000 shares representing 2%
ownership of Arlo's ordinary Share capital.
During 2019, Arlo Company declared and paid preference dividends of P2,400,000. No
dividends had been declared or paid during 2018. In addition, Wood Company received a 5%
share dividend on ordinary share from Arlo Company when the quoted market price of Arlo's
ordinary share was P10.
What amount should be reported as dividend income for 2019?

a. 120,000
b. 125,000
C. 240,000
d. 245,000
SOLUTION (Question 26) Answer c
Dividend income on preference share

(20,000/200,000 = 10% x 2,400,000) 240,000
Use the following information for questions 27, 28 and 29.
During 2018, Lawan Company bought the shares of Burwood Company.

June 1 20,000 shares @ P100 2,000,000
December 1 30,000 shares @ P120 3,600,000
5,600,000
CHAPTER 16
Transactions for 2019

January 10 Received 20% share dividend.
July 20 Received cash dividend of P10 per share.
December 10 Sold 30,000 shares at P125 per share.
27. What amount should be reported as dividend income for 2019?

a. 300,000
b. 400,000
c. 600,000
d. 500,000
28. What is the gain on the sale of shares under FIFO approach?
a. 950,000
b. 1,150,000
c. 150,000
d. 550,000
29. What is the gain on sale of shares under average approach?

a. 390,000
b. 600,000
c. 950,000
d. 500,000
Original shares (20,000 + 30,000) 50,000

Share dividend (20% x 50,000) 10,000
Total Shares 60,000
Dividend income (60,000 x 10) 600,000
SOLUTION (Question 28) Answer b
FIFO approach June 1 December 1

Original shares 20,000 30,000
Share dividend -20% 4,000 6,000
Total shares 24,000 36,000
CHAPTER 16
Sale price (30,000 x 125) 3,750,000

Cost of shares sold:
From June 1 (24,000 shares) 2,000,000
From December 1 ( 6,000 shares)
(6,000/36,000 x 3,600,000) 600,000 2,600,000
Gain on sale 1,150,000
Average approach
Sale price 3,750,000
Cost of shares sold (30,000/ 60,000 x 5,600,000) 2,800,000
Gain on sale 950,000
30. Day Company received dividends from share investments during the current year:
 A share dividend of 4,000 shares from Parr Company when the market price of Parr's
share was P20. Day Company owns less than 1% ofParr's share capital.
 A cash dividend of P150,000 from Lark Company in which Day Company owns a 25%
interest. A majority of Lark's directors are also directors of Day Company.
What amount of dividend revenue should be reported for the current year?
a. 230,000
b. 150,000
c. 80,000
d. 0
SOLUTION (Question 30) Answer d
The share dividend from Parr Company is not an income.

The cash dividend from Lark Company is not also an income but a reduction of investment
because the interest is 25% and therefore the equity method is used.
31. Excelsia Company issued rights to subscribe to its stock, the ownership of 4 shares
entitling the shareholders to subscribe for 1 share at P100.
Jealina Company owns 50,000 shares of Excelsia Company with total cost of P5,000,000.
The share is quoted right-on at 125.
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What is the cost of the new investment if all of the stock rights are exercised by the investor?
a. 1,500,000
b. 1,250,000
C. 1,562,500
d. 1,450,000
Solution (Question 31) Answer a
Theoretical value of right (125 - 100/4+ 1) 5.00

Initial cost of rights (50,000 x 5) 250,000
Cash paid for new shares (50,000/4 = 12,500 x 100) 1,250,000
Cost of new investment 1,500,000
32. Wray Company provided the following data for the current year. On September 1, Wray
received a PS00,000 cash dividend From Seco Company in which Wray owns a 30% interest. On
October 1, Wray received a P60,000 liquidating dividend from King Company. Wray owns a 5%
interest in King. Wray owns a 10% interest in Bow Company, which declared and paid
P2,000,000 cash dividend on November 15.
What amount should be reported as dividend income for the curent year?
a. 700,000
b. 560,000
C. 500,000
d. 200,000
Solution (Question 32) Answer d

Cash dividend from Bow Company (10% x 2,000,000) 200,000
The cash dividend from Seco and the liquidating dividend from King are not income but
reduction of the investment account.
33. Adam Company owned 50,000 ordinary shares of Bland Company. These 50,000 shares
were purchased by Adam for P120 per share. On August 30, Bland distributed 50,000 share
rights to Adam. Adam was entitled to buy one new share of Bland Company for P90 cash and
two of these rights. On August 30, each share had a market value of P130 and each right had a
market value of P20.
What total cost should be recorded for the new shares that are acquired by exercising the rights?
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a. 2,250,000
b. 3,250,000
c. 3,050,000
d. 5,500,000
Solution (Question 33) Answer b
Initial cost of rights (50,000 x 20) 1,000,000

Cash paid for new shares (25,000 x 90) 2,250,000
Total cost of new shares 3,250,000
34. During the current year, Neil Company held 30,000 shares of Brock Company's 100,000
outstanding shares and 6,000 shares of Amal Company's 300,000 outstanding shares. During the
year, Neil received P300,000 cash dividend from Brock, P15,000 cash dividend and 10% share
dividend from Amal. The closing price of Amal share is P150.
What amount should be reported as dividend revenue for the current year?
a. 342,000
b. 315,000
c. 442,000
d. 15,000
Cash dividend from Amal (6,000/300,000 2% interest) 15,000
The cash dividend of P300,000 from Brock Company is not an income but a reduction of the
investment account because the interest is 30% and therefore the equity method is used.
Use the following information for questions 35, 36, 37 and 38.
2017
Jan. 1 Christopher Company purchased 20,000 shares of Bay Company, PI00 par, at
P110 per share.
Mar. 1 Bay Company issued rights to Christopher Company, each permitting the
purchase of 1/4 share at par. No entry was made. The bid price of the share was 140 and
there was no quoted price for the rights
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April 1 Christopher Company paid for the new shares charging the payment to the
investment account. Since Christopher Company felt that it had been assessed by Bay
Company, the dividends received from Bay Company in 2017 and 2018 were credited to
the investment account until the debit for payment of the new share was fully offset.
Dec. 31 Christopher Company received annual dividend of P250,000 from Bay Company.
2018
Dec. 31 Christopher Company received annual dividend of P250,000 from Bay Company.
2019
Jan 1 Christopher Company received 50% share dividend from Bay Company. On same
date, the shares received as share dividend were sold at P160 per share and the proceeds
were credited to income.
Dec. 31 The shares of Bay Company were split 2 for 1. Christopher Company found that
each new share was worth P5 more than the P110 paid for the original shares.
Accordingly, Christopher Company debited the investment account with the additional
shares received at P110per share and credited income.
2020
June 30 Christopher Company sold one-half of the investment at P92 per share and
credited the proceeds to the investment account.
35. What is the balance of the investment on December 31, 2020 was kept by Christopher
Company?
a. 3,150,000
b. 2,650,000
C. 2,200,000
d. 4,950,000
36. Using the average method, what is the correct balance of the investment on on December 31,
20220?
a. 2,200,000
b. 1,800,000
C. 900,000
d. 0
37. What is the net adjustment to retained earnings on December31, 2020?

a. 3,650,000 debit
b. 3,150,000 debit
c. 3,650,000 credit
d. 3,150,000 credit
CHAPTER 16
38. What amount of gain on sale of investment should be reported in 2020?

a. 1,400,000
b. 1,100,000
c. 2,500,000
d. 1,900,000
Shares Cost
1/1/2017 (20,000x 110) 20,000 2,200,000
4/1/2017 (5,000 x 100) 5,000 500,000
12/31/2017 Dividend received -- (250,000)
12/31/2018 Dividend received -- (250,000)
12/31/2019 (25,000 x 110) 25,000 2,750,000
6/30/2020 (25,000 x 92) (25,000) (2,300,000)
Investment account per book 25,000 2,650,000
Solution (Question 36) Answer c
Shares Cost
1/1/2017 (20,000 x 110) 20,000 2,200,000
4/1/2017 (5,000 x 100) 5,000 500,000
1/1/2019 (50% x 25,000) 12,500 --
Balance 37,500 2,700,000
1/1/2019 (12,500/37,500 x 2,700,000) (12,500) (900,000)
Balance 25,000 1,800,000
12/31/2019 (2 for 1 split) 25,000 --
Balance 50,000 1,800,000
6/30/2020 (25,000/50,000 x 1,800,000) (25,000) (900,000)
Balance December 31, 2020 25,000 900,000
Proof
Investment balance per book 2,650,000
Debit adjustment 500,000
Credit adjustment (900,000)
Credit adjustment (2,750,000)
Debit adjustment 1,400,000
Adjusted balance December 31, 2020 900,000
Adjusting entries- December 31, 2020

 Dividends received in 2017 and 2018 erroneously' credited to investment.
Equity investment 500,000
CHAPTER 16

 Proceeds from sale of investment on January 1, 2019 incorrectly credited to income.
Equity investment 900,000
Sale price (12,500 x 160) 2,000,000

Cost of shares sold (12,500/37,500 x 2,700,000) (900,000)
Gain on sale 1,100,000
 Shares received on December 31, 2019 from a 2 for 1 share split erroneously debited to
investment and credited to income (25,000 shares x 110 equals P2,750,000).
Retained earnings 2,750,000
Equity investment 2,750,000
 Proceeds from sale of investment on June 30, 2020 incorrectly credited to investment.
Equity investment 1,400,000
Gain on sale of investment 1,400,000
Sale price (25,000 x 92) 2,300,000

Net adjustment to retained earnings

Credit adjustment 500,000
Debit adjustment (900,000)
Debit adjustment (2,750,000)
Net debit adjustment (3,150,000)
Sale price (25,000 x 92) 2,300,000

39. On March 1, Evan Company purchased 10,000 ordinary shares at P80 per share. On
September 30, Evan Company received 10,000 share rights to purchase an additional 10,000
shares at P90 per share. On September 30, the share had a market value P95 and the share right
had a market value of P5.
CHAPTER 16
What amount should be reported for investment in share rights on September 30?
a. 150,000
b. 100,000
c. 50,000
d. 60,000
Initial measurement at fair value (10,000 rights x 5) 50,000
40. Rice Company owned 30,000 ordinary shares of Wood Company acquired on July 31 at a
total cost of P1,100,000. On December 1, Rice received 30,000 share rights from Wood. Each
right entitles the holder to acquire one share at P45. The market price of Wood's share on this
date was P50 and the market price of each right was P10, Rice sold the rights on December 31
for P450,000 less a P10,000 commission.
What amount should be reported as gain from the sale of the rights?
a. 150,000
b. 140,000
C. 250,000
d. 240,000
Net sale price (450,000 - 10,000) 440,000

Initial cost of rights sold (30,000 x 10) (300,000)
Gain on sale of rights 140,000
41.Ferrer company owns 40,000 shares of Hayden Company’s 400,000 shares of P100 par, 6%
cumulative, nonparticipating preference share capital and 20,000 shares representing 2%
ownership of Hayden ordinary share capital.
During 2018, Hayden Company declared and paid preference dividends of 2,200,000. No
dividends had been declared or paid during 2017. In addition, Ferrer Company received a 5%
share dividend on ordinary share from Hayden Company when the quoted market price of
Hayden ordinary share was P10.
CHAPTER 16

a. 120,000
b. 125,000
c. 220,000
d. 225,000
Dividend income on preference share (40,000/400,000 = 10% x 2,200,000) 220,000
42. On January 1, 2018, Jorah Company purchased 4,000 shares of another entity at P100 per
share. Transaction costs amounted to P12,000. The investment is measured at fair value through
other comprehensive income. A P5 dividend per share had been declared on December 15, 2017,
to be paid on March 31, 2018 to shareholders of record on January 31, 2018. No other
transactions occurred in 2018 affecting the investment.
What is the initial measurement of the investment on January 1, 2018?

a. 380,000
b. 392,000
c. 400,000
d. 412,000
Purchase price (4,000 x P100) 400,000

Brokerage 12,000
Total 412,000
Less: Dividend purchased (4,000 x P5) 20,000
Acquisition cost 392,000
43. On January 1, 2018, Zoya Company purchased 10,000 ordinary shares at P90 per share. On
December 31, 2018, the entity received 2,000 shares of the investee in lieu of cash dividend of
P10 per share. On this date, the investee’s share has a quoted market price of P60 per share.
CHAPTER 16
a. 120,000
b. 100,000
c. 20,000
d. 0
Solution (Question 43) Answer A
Dividend income (2,000 x 60)

120,000
44. Information pertaining to dividends from The Darkling Company’s investments in ordinary
shares during the year ended December 31, 2019 is as follows:
 The entity owned a 10% interest in Alina Company, which declared a cash dividend of
P500,000 on November 30, 2019 to shareholders of record on December 31, 2019 and
payable on January 15, 2020.
 On October 15, 2019, the entity received a liquidating dividend of P100,000 from Mal
Company. The entity owned a 5% interest in Mal Company.
What amount of dividend income should be reported for 2019?

a. 50,000
b. 150,000
c. 500,000
d. 600,000
Cash dividend (10% x 500,000) 50,000
Use the following information for questions 45, 46 and 47.
Kaz Company issued rights to subscribe to new share at P150 per share in the ratio of one new
share for every five rights held. The share has market value of P190 and the right has a market
value of P10. An investor held 10,000 shares acquired at a total cost of P1,800,000. The share
rights are accounted for separately.
CHAPTER 16
45. What is the journal entry to record the acquisition of the original investment?
a. Investment in Equity 1,800,000

Dividend Income 1,800,000
b. Investment in shares 1,900,000
Accounts Payable 1,900,000
c. Investment in equity securities 1,800,000
Cash 1,800,000
d. No entry
46. How many rights will the investor receive?
a. 10,000
b. 20,000
c. 30,000
d. 40,000
47. What is the initial measurement of the rights?
a. 180,000
b. 170,000
c. 165,000
d. 100,000
Investment in equity securities 1,800,000

Cash 1,800,000
The investor received 10,000 share rights because the investor owned 10,000 shares.
Initial measurement of rights (10,000 x 10) 100,000
48. On July 1, 2019, Jesper Corp. exchanged a land for 25,000 ordinary shares of Matthias
Company. On this date, the land’s carrying amount was P2,500,000 and its fair value was
P3,000,000. On July 1, 2019, the carrying amount of Matthias Company’s share was P60 and its
CHAPTER 16
market value was P150. On December 31, 2019, Matthias Company had 250,000 ordinary shares
and the carrying amount per share was P80.
What amount should be reported in the December 31, 2019 statement of financial position as
investment in Matthias Company?
a. 1,500,000
b. 2,500,000
c. 3,000,000
d. 3,750,000
Fair value of asset given (land) 3,000,000
49. Sam Company purchased 50,000 shares on January 15, 2018 representing 5% ownership
interest. The entity received a stock dividend of 20% on March 31, 2018 when the market price
of the share is P40. The investee paid a cash dividend of P5 per share on December 15, 2018.

a. 700,000
b. 400,000
c. 300,000
d. 150,000
Original shares acquired January 15 50,000

Stock dividend on March 31 (20% x 50,000) 10,000
Total shares 60,000
Dividend income – cash dividend on December 15 (60,000 x P5) 300,000

CHAPTER 16
50. On January 1, 2018, Bronn Company purchased 100,000 ordinary shares at P80 per share.
On September 30, 2018, the entity received 100,000 stock rights to purchase an additional
100,000 shares at P90 per share. The stock rights had an expiration date of February 1, 2019. On
September 30, 2018, each share had a market value of P114 and the stock right had a market
value of P6. What amount should be reported on September 30, 2018 as investment in stock
rights?
a. 100,000
b. 400,000
c. 500,000
d. 600,000
Cost of rights (100,000 x 6) 600,000

LEGEND:
ELYNE ROSE PIA ARAIZ
Answer ni Abe
1. Entity A is preparing its March 31, 20x1 bank reconciliation. The following information
was determined:
● The cash balance per books is P280,000 while the cash balance per bank statement is
P320,000.
● Credit memo - P20,000
● Debit memo - P15,000
● Deposits in transit - P75,000
● Outstanding checks - P25,000
● The disbursements per book are overstated by P45,000
● The bank debits are understated by P40,000
How much is the adjusted balance of cash?
P 330,000 same same same
2. Statement I: Dividends received from investments in equity securities that were

irrevocable elected on initial recognition to be subsequently measured at FVOCI are
recognized in profit or loss.
Statement II: When financial assets measured at amortized cost are reclassified to the FVPL
measurement category, the initial carrying amount of the financial assets under the new
classification is the reclassification date fair value on the financial assets.
a. TRUE, TRUE
b. TRUE, FALSE (check prob 21-3, FV at reclass date is new investment na. Initial CA
dapat yung purchase price) same same
c. FALSE, TRUE
d. FALSE, FALSE
3. On January 1, 20x1, Entity A receives a financial aid from the government amounting to
P1M as compensation for losses it has incurred on a recent calamity. How much income from
government grant will Entity A recognize in 20x1?
a. P53,334
b. Answer Not Given
c. P0.00 same
d. P1,000,000
e. P100,000
Dr. Cash – 1,000,000; Cr. Grant Income – 1,000,000 same
4. The “amortized cost” of loan is the amount at which

a. The loan receivable is measured initially minus principal repayment, plus or minus
the cumulative amortization of any difference between the initial amount recognized and
the principal maturity amount, minus reduction for impairment. Same same
b. The loan receivable is measured initially minus principal repayment
c. The loan receivable is measured initially
d. The loan receivable is measured initially minus principal repayment, plus or minus the
cumulative amortization of any difference between the initial amount recognized and the
principal maturity amount
5. ABC Company purchased 40,000 ordinary shares on October 1 for P6,600,000 to be

held for trading. On November 30, the investee distributed a 10% stock dividend when the
market price of the share was P250. On December 31, the entity sold 4,000 shares for
P1,000,000.
What amount of gain on sale of investment for the current year?
a. P400,000 same OKIE SAME
JE on sale of shares
Cash 1,000,000
Trading Securities 600,000 (4,000/44,000*6,600,000)
Gain on sale 400,000
b. 600,000
c. 500,000
d. 340,000
e. Answer not given
6. Accounts receivable shall be initially recognized at
Face Value same same same same

7. Cross Co. accepted delivery of merchandise which it purchased on account. As of
December 31, Cross had recorded the transaction, but did not include the merchandise in its
inventory. The effect of this on its financial statements for December 31 would be
a. Net Income, current assets, and retained earnings were understated same
b. Net income was overstated and current assets were understated
c. Net income was understated and current liabilities were overstated
d. Net income was correct and current assets were understated
8. Con Hotel Corporation recently purchased Hay Hotel and the land on which it is located
with the plan to tear down the Hay hotel and build a new luxury hotel on the site. The demolition
costs of the Hay Hotel should be
a. Capitalized as part of the cost of the new hotel same same
b. Depreciated over the period from acquisition to the date the hotel is scheduled to be torn
down
c. Written off as an extra ordinary loss in the year the hotel is torn down.
d. Capitalized as part of the cost of the land
9. Transactions for the month of June were:
Purchases Sales
June 1(balance) 1,200 @ P3.20 June 2 900 @ P5.50
June 3 3,300 @ 3.10 June 6 2,400 @ 5.50
June 7 1,800 @ 3.30 June 9 1,500 @ 5.50
June 15 2,700 @ 3.40 June 10 600 @ 6.00
June 22 750 @ 3.50 June 18 2100 @ 6.00
June 25 450 @ 6.00
Assuming that the perpetual inventory records are kept in pesos, the ending inventory on
a FIFO basis is
a. ANSWER NOT GIVEN Same (P10,425 / 2,700 units) same

b. P6,195
c. P5,760
d. P6,300
e. P5,700
10. Transit Co. had the following balances at December 31, 2009:
 Cash in Checking Account P35,000
 Cash in Money Market Account P75,000
 Treasury bill, purchased 11/1/2009, maturing 1/31,2010 P350,000
 Treasury bill, purchased 12/1/2009, maturing 3/31,2010 P400,000
Transit policy is to treat cash equivalents all highly liquid investments with a maturity of
three months or less when purchased. What amount should Transit report as cash and
cash equivalents in its December 31, 2009, balance sheet(statement of financial
position)?
a. answer not given

b. 385,000
c. 460,000 same same
d. 110,000
e. 860,000
11. Which of the following is a qualifying asset?

a. Biological asset measured at fair value less costs to sell
b. A Long term note receivable(financial asset)
c. A multi-million dollar executive jet plane that is ready for its intended use upon purchase
d. A second- hand heavy machinery that takes 2 years to refurbish
(renovate/redecorate) and customize for its intended use. same
12. On October 1, 20x1, the warehouse of ABC Co. and all the inventories contained therein
were damaged by flood. Off-site backup database shows the ff info
o Inventory Jan.1 14 500

o Accounts Payable Jan. 1 6 000
o Accounts Payable Sep. 30 3 000
o Payments to suppliers 50 000
o Freight-in 5 000
o Purchase Returns and Discounts 2 500
o Sales from Jan to Sep 75 000
o Sales Returns 5 000
o Sales Discounts 2 000
o Gross profit rate based on sales 20%
Additional Information:
Goods in transit as of October 1, 20x1 amounted to P 2 000, cost of goods out on

consignment is P 1 200 and materials damaged by flood can be sold at a salvage
value of P 500.
How much is the inventory loss due to the flood?
a. P6,800
b. Answer not given same (P6,540) nde ko makuha!!! :(
Solution:
c. P7,200
d. P8,200
e. P7,800
13. Information on Mix Co.’s equipment on June 30, 20x8 is shown below.
Equipment(at cost) 500 000
Accumulated Depreciation 150 000
Carrying Amount 350 000
The equipment consists of two machines, Machine A and Machine B. Machine A has a
cost of P 300 000 and a carrying amount of P 180 000. Machine B has a cost of P 200
000 and a carrying amount of P 170 000. Both machines are measured using the cost
model and depreciated using a straight line basis over a ten-year period.
On December 31, 20x8, Mix Co. decided to change from the cost model to the
revaluation model. Information on this date follows:
Fair Values Remaining Useful life
Machine A 180 000 6 years
Machine B 155 000 5 years

On June 30, 20x9, Machine A and Machine B have fair values of 163 000 and 136 500,
respectively and remaining useful lives of 5 years and 4 years, respectively. The tax rate
is 30%.
How much is the depreciation expense for the fiscal year ended June 30, 20x9?
a. 50,000
b. Answer not given
c. 67,000
d. 55,500
e. 59,900
14. ABC, Inc. acquired 50 000 ordinary shares of AAA for P5 per share and 125 000
ordinary shares of BBB Corp for P10 per share on January 2, 2016. Both AAA and BBB Corp
have 500 000 ordinary shares outstanding. Both securities are being held as long-term
investments. Changes in retained earnings for AAA and BBB for 2016 and 2017 are as follows
AAA BBB
 Retained Earning 1/1/16 1 000 000 (175 000)

 Cash Dividends 2016 (125 000) -
 Profit for 2016 200 000 325 000
 Retained Earnings 12/31/16 1 075 000 150 000
 Cash Dividends 2017 (150 000) (50 000)

 Profit for 2017 300 000 125 000
 Retained Earnings12/31/17 1 125 000 225 000
Market Value of Share
12/31/16 12/31/17
7 6.50
12 15
The carrying amount in the investment in BBB inc. as at December 31, 2017 is
P325,000
Explanation accdg sa source:
Ownership % in AAA = 50,000 / 500,000 = 0.10 or 10%
Since its ownership % is 10%, the company would use fair value method. Thus, the carrying amount
would be equal to the fair value at the end of the period, which is = 50,000 x 6.50 = P325,000.
15. Information on ABC Co. is shown below:
30-Jul Aug. 31
 Book balance 132,200 180,000

 Book debits 60,000
 Book credits ?
 Bank balance 100,600 169,000
 Bank debits 20,600
 Bank credits ?
 Notes collected by bank 10,000 35,000
 Debit memos 7,800 8,900
 Understatement of book receipts - 2,800
 Deposit in transit 45,000 43,800
 Outstanding checks 11,200 3,900
How much is the adjusted receipts in August?
a. 88,700
b. 87,800
c. Answer not given
d. 80,700
e. 78,800
16. Which of the following is outside the scope of PAS 41?

a. Mango trees and other plants that produce agricultural products repeatedly over a
long period of time same same
b. Chickens used in the production of meat
c. Rice plants and other crops that produce agricultural products only one
d. Daily cattle used in the production of milk
17. The interest method of amortizing discount provides for
Increasing amortization and increasing interest income
As a bond's book value increases, the amount of interest expense increases.
18. These are checks drawn and released to payees but are not yet presented to the bank
by payee.
a. Credit memos
b. Debit memos
c. Deposit in Transit
d. Outstanding checks same same same same
19. ABC received from a customer a one-year, P375,000 note bearing annual interest of 8%.
After holding the note for six months, ABC discounted the note at Super Bank at an effective
interest rate of 10%.
How much did ABC receive from the bank?
a. P392,857.50
b. P371,428.50
c. P405,000.00
d. Answer not given
e. P384,750.00 same OKIE
Solution:
20. Entity A acquires inventories and incurs the following costs:

Purchase price, gross of trade discount 100,000
Trade discount 20,000
Non-refundable purchase tax, not included in the purchase price above 5,000
Freight-in (Transportation costs) 15,000
Commission to broker 2,000
Advertisement costs 10,000
How much is the cost of the inventories purchased?
a. P102,000
b. P100,000 okie
Purchase price - Trade discounts 80,000
Non-refundable tax 5,000
Freight in 15,000
Cost of Inventories 100,000
c. P122,000 (di kasama trade and adv since adv is period cost)
d. P97,000
e. Answer not given
21. Depreciation of noncurrent operating assets in an accounting process for the purpose of
reporting declining asset values on the balance sheet
22. Which of the following is considered an agricultural produce?
Picked or harvested product
23. Which of the following reasons provides the best theoretical support for accelerated
depreciation?
Assets are more efficient in the early years and initially generate more revenue
24. An operating cycle

a. Begins with inventory and ends with cash same same
b. Is the average time required for a company to collect its receivables
c. Is used to determine current assets when the operating cycle is longer than one year
d. Is twelve months or less in length
30-Jul Aug. 31
 Book balance 132,200 180,000

 Book credits ?
 Bank balance 100,600 169,000
 Bank credits ?
How much is the adjusted disbursement in August
a. P13,300 same
b. P17,800
c. P14,300
d. Answer not given
e. P16,200
26. A cash short or over account

a. Is not generally accepted
b. Is a contra- account to cash
c. Is debited when the petty cash fund proves out short Same (tignan niyo dun sa
lecture natin about cash shortage and overage CHAPTER 1) same same
d. Is debited when the petty cash fund proves out over
27. When intangible assets are self-generated, costs incurred in development phase are
a. Expensed or capitalized, as a matter of accounting policy choice and professional
judgement
b. Expensed immediately, unless they meet all of the conditions for capitalization
under PAS 38 Intangible Assets same
c. Capitalized
d. Capitalized only to extent of the limits provided under the standards
28. Which of the following recording procedures would result in the highest cost of goods
sold for 2004?
1. Recording purchases at gross amounts
2. Recording purchases at net amounts, with the amount of discounts not taken shown under
"other expenses" in the income statement
1 same same
29. After being held for 40 days, a 120 day 12% interest-bearing note receivable was
discounted at a bank at 15%. What is the formula for the proceeds received from the bank?
a. Face value less the discount at 15%
b. Maturity value less the discount at 12%
c. Maturity value less discount at 15% same same
d. Face value less the discount at 12%
30. Bank reconciliations are normally prepared on a monthly basis to identify adjustments
needed in the depositor's records and to identify bank errors. Adjustments should be recorded
for
a. Outstanding checks and deposits in transit
b. All items, except bank errors, outstanding checks, and deposit in transit
c. Bank errors, outstanding checks, and deposit in transit

d. Book errors, bank errors, deposit in transit and outstanding checks
31. Which of the following is not a debit memo?

a. Direct deposits of customers to the depositor’s account same same
b. Bank service charge
c. NSF Checks
d. Automatic payment of bills by the bank on behalf of the depositor
32. Statement 1: Investment properties measured under the fair value model are not
depreciated even if the investment property is depreciable, e.g Building. [chap 22: no
depreciation is recorder for Investment Property]
Statement 2: Tupper Co replaces the escalator in its building that is classified as

investment property. The newly installed escalator has a cost of P1M while the carrying
amount of the old escalator that was replaced is P200K. Tupper Co shall recognize loss
of P800K from the replacement of the old escalator. [chap 26: Any allocated ca of the
useable old building is recognized as a LOSS if the new building is accounted for as
PPE or Investment Property]
a. TRUE, TRUE same

b. TRUE, FALSE
c. FALSE, TRUE
d. FALSE, FALSE
33. Changes in amortization method, useful life and residual value are changed in
accounting estimates and are accounted for
Prospectively in the financial statements
34. Which of the following cost may be capitalized?
An asset purchased for a specific R&D project if the asset’s useful life extends beyond
the current year.
35. The composite depreciation method
Excludes salvage value from the base of the depreciation calculation
36. Goods out on consignment are

a. Recorded in a Consignment out account which is an inventory account
b. All of these
c. recorded in a Consignment in account which is an inventory account
d. Included in the consignee’s inventory
37. When determining the cost of an inventory, which of the following should not be included?
a. Interest on loan obtained to purchase the inventory
b. Labor cost of the inventory when manufactured
c. Commission paid when the inventory is purchases
d. Depreciation of the equipment used in manufacturing same same
38. Quezon Co. records purchases at net amounts. On May 5 Quezon purchased
merchandise on account, ₱32,000, terms 2/10, n/30.
Quezon returned ₱2,000 of the May 5 purchase and received credit on account. At May 31 the
balance had not been paid.
The amount to be recorded as a purchase return is
a. 1,800
b. 1,960
c. 2,000
d. 2,040 same same
e. Answer not given
39. The imprest petty cash fund account is debited
When the fund is created, increased
Created, increased & reversed Same
40. The Company purchased an investment property on January 1, 2014 for a cost of
P2,200,000. The property had a useful life of 40 years and on December 31, 2016 had a fair
value of P3,000,000. On December 31, 2016 the property was sold for net proceeds of
P2,900,000. The entity used the cost model to account for the investment property. What is the
gain or loss to be recognized for 2016 regarding the disposal of the investment property?
700,000 gain same same
41. Which of the following properties falls under the definition of investment property and
therefore within the scope of PAS40 Investment property
I. Land held for long-term capital appreciation
II. Property occupied by an employee
III. Property being constructed on behalf of third parties
IV. A building owned by an entity and leased out under an operating lease
a. I, II
b. I, IV
c. II,III, IV
d. II, IV
I, II and III
42. ABC Company owned three investment properties with the following details:
Initial cost Fair Value Dec 31, 2016 Fair Value Dec 31, 2017
Property 1 2,700,000 3,200,000 3,500,000
Property 2 3,450,000 3,050,000 2,850,000
Property 3 3,300,000 3,850,000 3,600,000
Each property was acquired in 2016 with a useful life of 25 years. The accounting policy is
to use the fair value model for investment property. What is the gain or loss to be recognized
for 2017?
a. 450,000 loss
b. 300,000 gain
c. 189,000 loss
d. 150,000 loss (Cumulative Gain: 500,000 ; Loss for 2017: 150,000) same
e. Answer not given
43. When an entity uses fair value model, changes in the fair values of investment properties
are
a. Not recognized.
b. Recognized in other comprehensive income
c. Directly in equity
d. Recognized in profit or loss. Same same
44. On July 1 of the current year, an entity obtained a two-year 8% note receivable for
services rendered. At that time, the market rate of interest was 10%. The face amount of the
note and the entire amount of interest are due on the date of maturity. Interest receivable on
December 31 of the current year is.
4% of the face amount of the note same same
45. The cash balance of CAPSIZE OVERTURN Co. comprises the following:
Cash on hand 300,000
Cash in bank – savings – BPI 600,000
Cash in bank – current – BPI (240,000)

Cash in bank – deposit in escrow – Metrobank 300,000 escrow is third party
Cash in bank – current – Metrobank (60,000)
Cash in bank – current – BDO (90,000)
Total 810,000
Additional information:
• Cash on hand includes undeposited collections of P60,000.
• The cash in bank – savings maintained at BPI includes a P150,000 compensating balance
which is not restricted. What amount of cash is reported in the financial statements?
900,000 same
46. When using the periodic inventory system, which of the following generally would not be
separately accounted for in the computation of cost of goods sold?
a. Trade discounts applicable to purchases during the period

b. Purchase returns and allowances of merchandise during the period
c. Cash (purchase) discounts taken during the period
d. Cost of transportation-in for merchandise purchased during the period
47. Tent Retailers purchased merchandise with a list price of ₱90,000, subject to trade
discounts of 20% and 10%, with no cash discounts allowable. Tent should record the cost of this
merchandise as
a. P64,800 same same
b. P63,000
c. P70,200
d. P90,000
e. Answer not given
48. Statement I: Subsequent changes in the fair value of a financial asset measured at
amortized cost are ignored.
Statement II: According to PFRS 9 Financial Instruments financial assets measured at

amortized cost are initially measured at fair value.
a. True, True same same

b. False, false
c. True, false
d. False, true
49. The sum-of-the-years’-digits method of depreciation is being used for a machine with
a five-year estimated useful life. What would be the fraction applied to the cost to be
depreciated in the fourth year?
a. 2/15 same same
b. 4/15
c. ⅘
d. ⅖
50. Statement I: Investment in ordinary shares can be classified as financial assets

measured at amortized cost.
Statement II. ABC Co. changes its business model for managing financial assets during
the period. Any reclassification entry is also made on the date the business model was
changed.
a. TRUE, FALSE
b. TRUE, TRUE
c. FALSE, TRUE Same same
d. FALSE, FALSE
51. Yesterday, you wrote a ₱2M check and gave it to a supplier as payment for the goods
you have purchased. Today, you received your bank statement. You noticed that the ₱2M
check is not reflected in the statement. What should you do?
a. Post the incident on your Facebook page and wait for likes
b. Call your friends and celebrate, telling them that you just saved P2M
c. Call the supplier and demand him or her to go to the bank and present the check for
payment.
d. Treat the ₱2m check as outstanding check in your bank reconciliation for today
same same
52. Light Company bought a machine for ₱300,000 on January 1, 20x8. The machine's
useful life is 10 years and it is estimated to have a zero residual value and is depreciated using
the straight-line method. The revalued amount of the machine is as follows:
December 31 Fair values of the machine
20x8 ₱ 360,000
20x9 335,000
2x10 320,000
The enacted tax rate was 30% for each year.
The revaluation surplus in the equity section of Light Company’s December 31, 2x10 statement
of financial position is
a. 36,000
b. 42,500
c. Answer not given (P26,875)
d. 32,500
e. 40,000
53. When accounts receivable are factored
Accounts receivable is credited
54. ABC Company purchased 8,000, P1,000 face amount, 9% bond to yield 10%. The
carrying amount of the bonds on January 1, 2016 was P7,800,000. The bonds mature on June
30, 2019 and pay interest semiannually on June 30 and December 31. The entity sold 4,000
bonds on March 1, 2016 for P3,920,000 after the interest has been received.
What amount should be recognized as gain on sale of bonds?
A. P25,000
B. Answer not given
C. P20,000
D. P0
E. P15,000
Solution:
55. The debit for a non-refundable sales tax properly levied and paid on the purchase of
machinery preferably would be a charge to
The machinery account same same
56. According to PFRS 9 Financial Instruments, trade receivables that do not have a
significant component are initially measured at
a. Fair Value plus transaction costs same same
b. Fair Value
c. Any of these
d. Transaction price
74. Question
214,500
57. On January 1, 20x1, Entity A had the following general borrowings. A part of the
proceeds was used to finance the construction of a qualifying asset:
Principal
12% bank loan (1.5 years) ₱ 1,000,000
10% bank loan (3-year) 8,000,000
Expenditures made on the qualifying asset were as follows:
Jan. 1 ₱ 5,000,000
March 1 4,000,000
August 31 3,000,000
December 1 2,000,000
Construction was completed on December 31, 20x1. How much is the cost of the qualifying
asset on initial recognition?
a. Answer not given
Solution:
b. P13,010,000
c. P15,045,000
d. P14,920,000
e. P14,971,111
14,950,000 SAME
58. Which of the following statements is true?

a. Intangible assets usually have a residual value that must be considered in the
amortization of cost
b. An identifiable tangible asset developed internally is never recognized in the accounts as
an assets.
c. An intangible asset is usually amortized by a credit to an income account.
d. The only costs of an internally developed patent that should be capitalized as
patent costs are legal fees and other registration costs. same
59. Perlas Co. maintains a checking account at the Union Bank. The bank provides a bank
statement along with the canceled checks on the last day of each month. The July bank
statement included the following information:
 Balance, July 1 275,000
 Deposits 900.000
 Checks processed (700,000)
 Service charge 15,000
 NSF Check 60,000
 Monthly automatic loan payment deduction by bank (50,000)
Deposits outstanding [deposit in transit to] totaled P 50,000 and all checks written by the
depositor were processed by the bank except for a check of P75,000. [outstanding check]
A P100,000 July deposit from a credit customer was recorded as P10,000 debit Cash and credit
Accounts receivable. [90,000]
A check correctly recorded by the entity as P15,000 disbursements was incorrectly processed
by the bank as P150,000 disbursement. [135,000]
What is the cash balance per ledger on July 31?
a. Answer not given

b. P495,000
Solution:
c. P585,000
d. P445,000
e. P675,000
60. On October 1, 20x1, the warehouse of ABC Co. and all inventories contained therein
were razed by fire. Off-site back up of data base shows the following information:
Inventory, Jan. 1 20,000
Net purchases 190,000
Net sales from Jan. to Sept. 240,000
Gross profit rate based on cost 25%
Twenty percent of the inventory contained in the warehouse has been salvaged from the fire
while half is partially damaged and can be sold as scrap at thirty percent of its cost. How much
is the inventory loss due to the fire?
A. 18,000 B. 5,400 C. 9,000 d. 11,700 e. Answer not given (11,025?)
Solution: (Pacheck nalang nalilito ako dun sa sold as scrap at 30% of its cost)
61. Which of the following represents a debit memo?

a. Interest expense on a loan that is directly deducted from the depositor’s account
same same
b. Collections made by the bank on behalf of the depositor
c. Interest income earned by the depositor
d. Loan proceeds directly added by the bank to the depositor’s account
62. Investment properties are measured as follows.
Initial: Cost; Subsequent: Cost or Fair Value same same
63. Presented below is information pertaining to ABC Co.:
Cost Retail
Inventory, January 1 21,750 35,000
Purchases 138,250 200,750
Freight-In 5,000 -----
Purchase discounts 1,250 ------

Purchase returns (13,000) (21,500)
Departmental Transfers-In (Debit) 2,500 3,750
Departmental Transfers-Out (Credit) (2,000 ) (3,000)
Markups 15,000
Markup cancellations (5,000 )
Markdowns minus to ha 30,000
Markdown cancellations ( 7,500)
Normal spoilage (shrinkage and breakages) 500 included sa cost
Abnormal spoilage (theft and casualty loss) 12,500 17,500 expensed as incurred
Sales 109,500
Sales returns 6,250
Sales discounts 2,500
Employee discounts 1,250
How much is the ending inventory under the Average cost method?
a. 61,050
b. 60,00
c. 62,400
d. Answer not given (59,312.5) same
e. 60,750
64. On January 13, 2018, ABC Co. sold on account goods with selling price of P300,000
with terms of 2/10, n/30. Freight costs amounted to P5,000. The goods were received by the
buyer on January 15, 2018. ABC Co. collected the receivable on January 23, 2018.
How much net cash did ABC received from the buyer if the terms are FOB shipping point,
freight collect?
299,000
294, 000 same
Kasi FOB shipping, and freight collect na ung nakalagay. Lahat si buyer nakaassign so
ang marereceive nalang niya na cash is P294,000 (300k*0.02) no entry din yung seller sa
freight charges
Example din sa book problem:(Problem 4-3)

Cheat sheet ^
were damaged by flood. Off-site back up of data base shows the following information:
Accounts payable, Jan. 1 3,000
Accounts payable, Sept. 30 2,000
Payments to suppliers 50,000

Freight-in 500
Purchase returns 500
Sales from Jan. to Sept. 80,000
Sales returns 5,000
Sales discounts 2,000
Gross profit rate based on sales 30%
Goods in transit as of October 1, 20x1 amounted to ₱1,000, cost of goods out on

consignment is ₱1,200, and materials damaged by flood can be sold at a salvage value of
₱1,800. How much is the inventory loss due to the flood?
a. 3,860
Solution: (Di ko sinama ung goods in transit kasi kulang sa info? Pwedeng goods in
transit purchased FOB destination or sold FOB shipping point)

30-Jul Aug. 31
 Book balance 132,200 180,000

 Book credits ?
 Bank balance 100,600 169,000
 Bank credits ?
How much is the adjusted receipts in August?
87,800 same okie
Solution:
67. The following information applied to Fly Inc. for 2020:

 Merchandise purchased for resale ₱400,000
 Freight-in 16,000
 Freight-out 10,000 ignored
 Purchase returns 4,000
Fly's 2020 inventoriable cost was

412,000 same same
Purchase Price P400,000
Freight in 16,000
Less: Purchase Return 4,000
Cost of Inventory P412,000
68. Dirt Corporation schedule of depreciable assets at December 31, 20X7 was as follows:
Asset Cost Accum. Depcn Acquisition date Residual value
A 100,000 64,000 20X6 20,000
B 55,000 36,000 20X5 10,000
C 70,000 33,600 20X5 14,000
Dirt takes a full year’s depreciation expense in the year of an asset’s acquisition, and no
depreciation expense in the year of an asset’s disposition. The estimated useful life of each
depreciable asset is 5 years. Dirt depreciates asset A on the double-declining-balance
method. How much depreciation expense should Dirt record in 20X8 for asset A?
a. 14,400 same same

b. Answer not given
c. P25,600
d. P32,000
e. P6,400
DDM = 100%/5eul X 2 = 40% rate
20x6 100,000 COST X 40% = 40,000
20x7 (100k-40k) x 40% = 24,000
20x8 (100k-40k-24k) x 40% = 14,400

69. ECQ2 Co. received merchandise on consignment. As of January 31, the company
included the goods in inventory, but did not record the transaction. The effect of this on its
financial statements for January 31 would be
a. Net income, current assets, and retained earnings were overstated same
b. Net income was correct and current assets were understated
c. Net income, current assets and retained earnings were understated
d. Net income and current assets were overstated and current liabilities were
understated
70. On July 1, 20x1, Town Company purchased for ₱540,000 a warehouse building and the
land on which it is located. The following data were available concerning the property:
Current appraised value Seller’s original cost
Land 200,000 (⅖) 140,000
Warehouse building 300,000 (⅗) 280,000
Totals 500,000 5/5 420,000
Town should record the land at
⅖ land x 540,000 = 216,000

216,000
Current Appraised Value Seller’s Original Cost
Land 40% 200,000 140,000
Warehouse Building 60% 300,000 280,000
TOTAL 500,000 420,000
40% * 540,000 (purchase price) = P216,000
200,000
71. Subsequent to initial recognition, a loan receivable shall be measured at

a. Amortized cost using effective interest method same same
b. Cost
c. Fair Value
d. Amortized Cost using the straight line method
72. Which of the following is correct?

a. Manufacturing overhead costs are product costs same same
b. Selling costs are product costs
c. All of these are product costs
d. Interest costs are product costs
73. Statement 1: In some cases, a building that is being used partly as an owner-occupied
property and partly as held for rentals, under operating lease, is presented in the statement of
financial position as partly PPE and partly investment property.
Statement 2: Heidel Co. exchanges a piece of land for another land with Sol Co. Heidel
classifies the land as investment property. The land given to Sol has a fair value of P20
while the land received from Sol has a fair value of P24. Heidel Co paid P3 cash to Sol
on the exchange. Heidel Co. shall initially recognize the land received from Sol at P23.
a. TRUE, TRUE
b. TRUE, FALSE
c. FALSE, TRUE (Chap 23. Exchange with commercial substance: POV ng Payor that
the fair value given which is the land should be added sa cash payment) yas same
d. FALSE, FALSE
74. The cost of land typically includes the purchase price and all of the following costs
except
a. Assumption of any liens or mortgages on the property #7
b. Improvements, such as grading, filing, draining and clearing #11 sa costs chargeable to
land
c. Survey costs #9
d. Cost of private driveways and parking lots same same
75. ABC granted an 8%, 3-year, P6,000,000 loan to DEF Company on January 1, 2016. The
interest on the loan is payable every December 31. ABC incurred P520,600 of diret origination
cost but an origination fee of P200,000 was charged against DEF Company. The effective rate
on the loan as a result of the origination fee and cost is now 6%. What is the carrying value of
the loan on January 1, 2016 in ABC’s accounting books?
a. P6,113,026
b. P6,219,836
c. P6,000,000
d. Answer not given
e. P6,320,600 same same
Solution:
OR
76. The amount reported as "Cash" on a company's statement of financial position normally
should exclude
a. Postdated checks that are payable to the company
b. Petty Cash
c. Cash in a payroll account
d. Undelivered checks written and signed by the company
77. Perlas Co. maintains a checking account at the Union Bank. The bank provides a bank
statement along with the canceled checks on
the last day of each month. The July bank statement included the following information:
Balance, July 1 275,000 Deposits 900.000
Checks processed 700,000 Service charge 15,000
NSF Check 60,000 Monthly automatic loan payment deduction by bank 50,000
Deposits outstanding totaled P 50,000 and all checks written by the depositor were
processed by the bank except for check of P75,000.
A P100,000 July deposit from a credit customer was recorded as P10,000 debit Cash
and credit Accounts receivable.
A check correctly recorded by the entity as P15,000 disbursements was incorrectly

processed by the bank as P150,000 disbursement.
What is the balance per bank on July 31?
350,000 same same
Solution: (Same problem sa book to Problem 2-19)

78. When the estimate of an asset's useful life is changed,
Only the depreciation expense in the remaining years is changed same same
79. Dance Co. received merchandise on consignment. As of March 31, Dance Co. had
recorded the transaction as a purchase and included the goods in inventory. None of the
consigned goods have been sold during the period. The effect of this on its financial statements
for March 31 would be
a. No effect
b. Net income was correct and current assets and current liabilities were overstated
same same
c. Net income, current assets, and current liabilities were overstated
d. Net income and current liabilities were overstated.
80. The cost of a purchased franchise is classified in the statement of financial position as
a(n):
a. Current Asset
b. Operation Asset
c. Intangible Asset same
d. Deferred charge
81. On January 1, 20x1 Buckle Co. purchased a machine that had a list price of ₱46,320.
Buckle Co. paid cash of ₱18,000 and executed a one-year non-interest-bearing note for the
balance. The going rate of interest was 18%. The machine has a 6-year life and no residual
value. Depreciation expense on the SYD basis at the end of 20x1 is:
a. P8,092
b. P12,000
c. 13,234 same
Solution:
d. P14,690
82. If accounts receivable are pledged against borrowing, the amount of accounts receivable
pledged shall be
a. Excluded from total receivable with disclosure
b. Included in total receivable with disclosure same
c. Included in total receivable without disclosure
d. Excluded from total receivable without disclosure
83. The actual interest earned by the bondholder is

a. Stated rate same same
b. Market rate
c. Effective rate, yield rate or market rate
d. Effective rate
84. On December 31, 2017, the “Receivables” account of ABC Company shows P1,950,000.
Details of the subsidiary ledger show the following:
 Trade accounts receivable P775,000
 Trade notes receivable 100,000
 Trade installment receivable, normally due one to two years 300,000
 Customer’s accounts reporting credit balances arising from sales returns
30,000 Current Liability
 Advance payments for purchase of merchandise 150,000
 Customers’ accounts reporting credit balances arising from advance
payments Current Liability 20,000
 Cash advance to subsidiary
400,000 Long-term investment
 Claims from insurance company 15,000
 Subscription receivable due in 60 days 300,000
 Accrued interest receivable 10,000
How much must be presented as “trade and other receivables” under current assets?
a. Answer not given

b. P725,000
c. P1,290,000
d. P1,650,000 (same problem to sa book 4-1) SAME
Solution:
e. P1,125,000
85. On October 1, Tak, Inc. exchanged 8,000 shares of its ₱25 par value ordinary share for
a parcel of land to be used as site for a new plant. Tak's ordinary share had a fair value of ₱80
per share on the exchange date. Tak received ₱36,000 from the sale of scrap when an existing
building on the site was razed. The land should be carried at
Solution:
Exchange- with Commercial substance (POV recipient)
FV of asset given (8,000*80) 640,000
Less: cash received (36,000)
Land Account P604,000
b. P200,000
c. P640,000
d. P236,000
e. Answer not given
86. On June 15, 2020, Stilley Corporation accepted delivery of merchandise which it
purchased on account. As of June 30, Stilley had not recorded the transaction or included the
merchandise in its inventory. Stilley uses the periodic inventory system. The effect of the error
on Stilley’s balance sheet on June 30, 2020 would be
Assets and liabilities were understated but stockholders’ equity was not affected
87. Statement 1: An entity may classify assets other than land and/or building as investment
property.
Statement 2: The lump sum acquisition cost of land and building need not be
allocated to the land and building if both assets are classified as investment property
measured under the fair value model.
a. FALSE, TRUE
b. FALSE, FALSE same
c. TRUE, FALSE
d. TRUE, TRUE
88. Transactions for the month of June were:
Purchases Sales
June 1 (balance) 1,200 @ ₱3.20 June 2 900 @ ₱5.50

June 3 3,300 @ 3.10 June 6 2,400 @ 5.50
June 7 1,800 @ 3.30 June 9 1,500 @ 5.50
June 15 2,700 @ 3.40 June 10 600 @ 6.00
June 22 750 @ 3.50 June 18 2,100 @ 6.00
June 25 450 @ 6.00
Assuming that perpetual inventory records are kept in pesos, the ending inventory on a FIFO
basis is
a. P5,700
b. Answer not given (P10,425 / 2,700 pcs.) same
Solution:
c. P6,300
d. P5,760
e. P6,195
89. These are deposits made but not yet credited by the bank to the depositor’s bank
account.
a. Credit Memos
b. Debit Memos
c. Outstanding checks
d. Deposit in transit same same
90. Statement I: An entity acquires debt instruments to be held under a "hold to collect and
sell" business model. The entity shall classify the debt instruments either a fair value through
other comprehensive income or fair value through profit or loss.
Statement II: A financial asset held under a "hold to collect" business model is classified
under the amortized cost measurement category.
a. True, True same same

b. False, true
c. False, false
d. True, False
91. Which of the following would not be classified as cash?

a. Post Dated Checks same same
b. Certified Check
c. Personal Check
d. Manager’s Check
92. Statement 1: The accounts receivable account of Entity X has a gross balance of P100.
If the carrying amount of the accounts receivable is P85, the allowance for bad debts account
must have a balance of P15.
Statement 2: Entity Y uses the percentage of credit sales method in estimating credit losses on
its trade receivables. Entity Y’s estimate of credit losses is 3% of net credit sales. If Entity Y
reports net credit sales of P100, the bad debt expense for the year would be P3.
a. TRUE, TRUE same same
b. TRUE, FALSE
c. FALSE, TRUE
d. FALSE, FALSE
93. Under the equity method, dividends received from an associate

a. Does not affect the investment account (?????? DI KO RIN SURE CASH DIVI LANG
KASI SABI SA NOTE)
b. Does not affect the investment income for the period (Not sure tho sabi kasi sa
book cash dividends is not an income but a return or reduction of investment so
ayun hindi naapektuhan yung investment income)
c. Increases the investment account
d. Increases investment income for the period
94. On the December 31, 2017, Statement of Financial Position of ABC Co., the current
receivables consisted of the following:
 Trade accounts receivable 93,000
 Allowance for uncollectible accounts (2,000)
 Claim against shipper for goods lost in transit (November 2017) 3,000
 Selling price of unsold goods sent by Santos on consignment at 130% of cost (not
included in Santos’ ending inventory) 26,000
 Security deposit on lease of warehouse used for storing some inventories 30,000
At December 31, 2017, the correct total of ABC’s current accounts receivables was
91,000 same
Solution:
123,800
95. In preparing its bank reconciliation for the month of February, James Company has
made available the following information:
Balance per bank statement, February 28 ₱18,025
Deposit in transit, February 28 3,125
Outstanding checks, February 28 2,875
Check erroneously deducted by bank from James' account, February 10 125
Bank service charges for February 25
What is the corrected cash balance at February 28?
18,400 same same
Solution:
30-Jul Aug. 31
Book balance 132,200 180,000
Book debits 60,000
Book credits ?
Bank balance 100,600 169,000
Bank debits 20,600
Bank credits ?
Notes collected by bank 10,000 35,000
Debit memos 7,800 8,900
Understatement of book receipts - 2,800
Deposit in transit 45,000 43,800
Outstanding checks 11,200 3,900
How much is the adjusted balance of Cash in August?
a. P136,200
b. P132,600
c. P134,400
d. Answer not given
e. P208,900 same same
Solution:
97. A depreciable asset has an estimated 15 percent salvage value. At the end of its
estimated useful life, the accumulated depreciation would equal the original cost of the asset
under which of the following depreciation methods?
Straight-line and productive- output same
98. On October 1, ABC Company purchased P200,000 face value 12% bonds for 98 plus
accrued interest and brokerage fees and classified them as amortized cost assets. Interest paid
semiannually on January 1 and July 1. Brokerage fees for this transaction were P700. At what
amount should this acquisition of bonds be recorded?
a. Answer not given
b. P196,700 same
Investment in Bonds 196,700 (included ung brokerage fees) (200,000 x 98% + 700)
Accrued Interest 24,000
Cash 220,700
c. P202,700
d. P202,000
e. P196,000
99. On January 1, 2016, ABC Company purchased bonds with face amount of P4,000,000.
The business model of the entity in managing the financial asset is not only to collect
contractual cash flows that are solely payment of principal and interest but also to sell the bonds
in the open market. The entity paid P4,206,000 for the bond investment. The bonds mature on
December 31, 2018 and pay 10% interest annually on December 31 each year with 8%
effective yield. The bonds are quoted at 95 on December 31, 2016 and 90 on December 31,
2017. What amount of cumulative unrealized loss should be reported in the statement of
changes in equity on December 31, 2017?
473,878 same
Solution:
100. Entity A is preparing its March 31, 20x1 bank reconciliation. The following information
was determined:
 The cash balance per books is ₱280,000
 The cash balance per bank statement is ₱320,000.
 Credit memo – ₱20,000
 Debit memo – (₱15,000)
 Deposits in transit – ₱75,000
 Outstanding checks – (₱25,000)
 The disbursements per books are overstated by (₱45,000.)
 The bank debits are understated by (₱40,000)
How much is the adjusted balance of cash?
330,000 same same
Solution:
101. A cost may be capitalized (capital expenditure) if
Any of these
Principal
12% bank loan (1.5 years) ₱ 1,000,000
10% bank loan (3-year) 8,000,000
Jan. 1 ₱ 5,000,000
March 1 4,000,000
August 31 3,000,000
Construction was completed on December 31, 20x1.
How much borrowing costs are capitalized to the cost of the constructed qualifying asset?
a. 920,000
b. 1,045,000
c. 971,111
d. 1,026,667
e. Answer not given (950,000)same
Solution :
103. In order to calculate the third year's depreciation on an asset using the sum-of- the-
years'-digits method, which of the following must be known about the asset?
a. All of these same
b. Its acquisition cost
c. Its estimated useful life
d. Its estimated residual value
104. Merr Co. purchased a machine costing ₱125,000 for its manufacturing operations and
paid shipping costs of ₱20,000. Merr spent an additional ₱10,000 in testing and preparing the
machine for use. What amount should Merr record as cost of the machine?
Solution:
Purchase Price + Shipping cost + testing and preparing
125,000+20,000+10,000 = P155,000
b. P135,000
c. Answer not given
d. P145,000
e. P125,000
105. On March 31, 20x1, Winn Company traded in an old machine having a carrying amount
of ₱16,800 and paid a cash difference of ₱6,000 for a new machine having a total cash price of
₱20,500. On March 31, 20x1, what amount of loss should Winn recognize on this exchange?
2,300 same same
Solution:
Cash Price 20,500

Less: Cash payment 6,000
FMV 14,500
Carrying Amount (16,800)
Loss on exchange P 2,300
106. Entity A acquires equipment on January 1, 20x1. Information on costs is as follows:

 Purchase price, gross of ₱10,000 trade discount 800,000
 Non-refundable purchase taxes 20,000
 Delivery and handling costs 40,000
 Installation costs 30,000
 Present value of decommissioning and restoration costs 10,000
Assume the equipment has a useful life of 10 years and a residual value of ₱90,000.
Entity A uses the straight line method of depreciation. How much are the depreciation
expense in 20x1 and the carrying amount of the equipment on December 31, 20x2,
respectively?
a. DE - P80,000 ; CA 12/31/x2 - P580,000

b. DE - P80,000 ; CA 12/31/x2 - P810,000
c. DE - P80,000 ; CA 12/31/x2 - P640,000
d. Answer not given (DE – 79,000 CA – 722,000) dito q
e. DE - P80,000 ; CA 12/31/x2 - P730,000
Check not sure kung ibabawas ung trade discount pero ganto ung solution kapag di
binawas ung trade:
2017. What is the carrying amount of the bond investment to be reported on December 31,
2017?
4,073,878 same same
108. ABC Company sold its inventory for P300,000 to DEF on January 2, 2017 and received
a one-year note bearing an interest of 12% for the full amount. On December 31, 2017, ABC
determined based on DEF’s recent financial crisis and the amount due on January 2, 2018 will
not be collected and that only P210,000 of the principal will be collected with some delay until
the end of 2019. What is the amount of impairment loss ABC Company must recognize on its
receivable as of December 31, 2017?
----- nde ko sure pero baka isusubtract mo lang??? 126,000?????
109. Which of the following principles best describes the conceptual rationale for the methods
of matching depreciation expense with revenues?
a. Systematic and rational allocation same
b. Partial recognition
c. Immediate recognition
d. Associating cause and effect
110. Statement I: Dividends received from investments in equity securities that were
irrevocable elected on initial recognition to be subsequently measured at FVOCI are recognized
in profit or loss.
Statement II: When financial assets measured at amortized cost are reclassified to the
FVPL measurement category, the initial carrying amount of the financial assets under
the new classification is the reclassification date fair value on the financial assets.
TRUE, TRUE same
111. ABC Co. showed the following balances on December 31, 2018:
Accounts Receivable P2,000,000
Allowance for doubtful accounts (60,000)
The following transactions transpired for ABC Company during the year 2016:
a. On May 1, received a P300,000, six-month, 12% interest bearing note from Ed, a customer
in settlement of an account.
b. On June 30, factored P400,000 of its accounts receivable to a finance company. The finance
company charged a factoring fee of 5% of the accounts factored and withheld 20% of the mount
factored.
c. On August 1, ABC discounted the Ed Note at the bank at 15%.
d. On November 1, Ed defaulted on the P300,000 note. ABC company paid the bank the total
amount due plus a P12,000 protest fee and other bank charges.
e. On December 31, ABC Company assigned P600,000 of its accounts receivable to a bank
under a non notification basis. The bank advanced 80% less a service fee of 5% of the accounts
assigned. ABC Company signed a promissory note for the loan.
f. On December 31, ABC collected from Ed in full including interest on total amount due at 12%
since default date.
g. On December 31, it is estimated that 5% of the outstanding accounts receivable may prove
uncollectible.
Amount of cash received on December 31 assignment of accounts receivable.
456,000
Solution:
112. In preparing a bank reconciliation, interest paid by the bank on the account is
Added to the book balance same same
113. Information on ABC Co. is shown below: 30-Jul Aug. 31 Book balance 132,200
180,000 Book debits 60,000 Book credits ? Bank balance 100,600 169,000 Bank debits 20,600
Bank credits ? Notes collected by bank 10,000 35,000 Debit memos 7,800 8,900
Understatement of book receipts - 2,800 Deposit in transit 45,000 43,800 Outstanding checks
11,200 3,900 How much is the adjusted disbursement in August
13,300 same
Solution:
114. On June 30, 2018, ABC Co. purchased 25% of the outstanding ordinary shares of DEF
Co. at a total cost of P2,100,000. The book value of DEF’s net assets on acquisition date was
P7.2 million. For the following reasons, ABC was willing to pay more than book value for the
DEF shares:
• DEF has depreciable assets with a current fair value of P180,000 more than their book
value. These assets have a remaining useful life of 10 years.
• DEF owns a tract of land with a current fair value of P900,000 more than its carrying
amount.
• All other identifiable tangible and intangible assets of DEF have current fair values that
are equal to their carrying amounts.
DEF reported a net income of P1,620,000, earned evenly during the current year ended
December 31, 2018. Also in the current year, it declared and paid cash dividends of
P315,000 to its ordinary shareholders. Market value of DEF’s ordinary shares at
December 31, 2018, is P9 million. ABC’s financial year-end is December 31. What is the
total amount of goodwill of DEF based on the price paid by ABC?
1,080,000
115. Statement 1. R Co. receives a 3-year, noninterest-bearing note of P1,000,000. R Co

determined that the effective interest rate on the transaction is 10%. The initial carrying amount
of the note receivable is computed as P1,000,000 x PV of 1 @ 10%, n=3.
Statement 2. Wet Co. received a noninterest-bearing note of P3,000,000. The note is

collectible in three equal annual installments of P1,000,000, due at the end of each year.
Wet Co. determines that the effective interest on the transactions is 10%. The initial
carrying amount of the note receivable is computed as P1,000,000 x PV of 1 @ 10%,
n=3.
TRUE, FALSE (not sure) SAME, yung statement 2 ordinary annuity dapat
116. PPE purchased on long-term credit contracts should be initially recognized at
----
117. Entity A acquires equipment on January 1, 20x1. Information on costs is as follows:

Purchase price, gross of ₱10,000 trade discount 800,000
Non-refundable purchase taxes 20,000
Delivery and handling costs 40,000
Installation costs 30,000
Present value of decommissioning and restoration costs 10,000
How much is the initial cost of the equipment?
a. P890,000
b. Answer not given (880,000) (not sure) same!!!
c. P820,000
d. P900,000
e. P870,000
118. ABC, Inc. sells to wholesalers on terms, 2/15, n/30. ABC has no cash sales but 50% of
ABC’s customers take advantage of the discount. ABC uses the gross method of recording
sales and trade receivables.
An analysis of ABC’s trade receivables balance at December 31, 2017 revealed the following:
Age Amount Collectible %uncollectible
 0-15 days 200,000 100% 0 0
16-30 days 120,000 95% 5% 6,000
 31-60 days 10,000 90% 10% 1,000
Over 60 days 5,000 P1,000 P1,000 1,000
8,000
In its December 31, 2017 statement of financial position, what amount should ABC report
as allowance for discount?
a. 2,000
b. P3,240
c. P3,350
d. Answer not given
e. P4,000
119. Supporting records of ABC CORP’s trading securities portfolio show the following debt
and equity securities:
Security Cost. Fair Value
400 ordinary shares Con Co. P254,500 P243,000
P800,000 Tip Co. 7% bonds 796,500 774,000
P1,200,000 Turk Co. 7 ½ % bonds 1,207,500 1,218,900
Totals P2,258,500. P2,235,900
Interest dates on the bonds are January 1 and July 1. ABC Corp uses the income
approach to record the purchase of bonds with accrued interest. During 2017 and 2018,
ABC completed the following transactions related to trading securities:
2017
Jan 1 Received semiannual interest on bonds. Assume that the appropriate adjusting
entry was made on December 31, 2016
April 1 Sold P600,000 of 7 ½% Turk bonds at 102 plus accrued interest.
May 21 Received dividend of P1.25 per share on the Con ordinary share capital. The
dividend had not been recorded on the declaration date.
Jul 1 Received semiannual interest on bonds and then sold the 7% Tip bonds at 97 ½
Aug 25 Purchased 200 shares of New, Inc. ordinary share capital at P580 per share plus
brokerage fees of P500.
Nov 1 Purchased P500,000 of 8% Tol Co. bonds at 101 plus accrued interest.
Brokerage fees were P1,250. Interest dates are January 1 and July 1.
Dec 31 Market price of securities were:
Con ordinary shares P550
7 ½ Turk bonds 101 ¾ 8% Tol bonds 101
New ordinary shares P583.75
2018
Jan 2 Recorded the receipt of semiannual interest on bonds
Feb 1 Sold the remaining 7 ½% Turk bonds at 101 plus accrued interest.
What amount should be reported as gain on sale of trading securities in 2017?
A. P2,550
B. P6,000
C. P3,450
D. Answer not given
E. P8,550
Go elyne
120. 2. Lala Company reported the following information in relation to cash on December 31,
2020:
-Checkbook balance, P2,000,000
-Undeposited collections, P200,000
-Customer check amounting to P100,000 dated January 2, 2021 was included in the
December 31, 2020 checkbook balance.
-Another customer check for P250,000 deposited on December 22, 2020 was included
in the checkbook balance but returned by the bank for insufficiency of fund. This check
was redeposited on December 26, 2020 and cleared 2 days later.
-A P 200,000 check payable to supplier dated and recorded on December 30, 2020 was
mailed on January 16, 2021
-A petty cash fund of P25,000 comprised the following on December 31, 2020: Coins
and currencies P 2,500 Petty cash vouchers 20,000 Refundable deposit for returnable
containers 2,500
-A check of P20,000 was drawn on December 31, 2020 payable to petty cashier.
What total amount should be reported as Cash on December 31, 2020?
a. 2,422,500
b. 2,322,500 same
c. 2,300,000
d. Answer not given (2,282,500)
e. 2,325,000
121. ABC Company owns an office building that is being leased out to various companies.
ABC is required to provide security and maintenance services under the lease contracts. The
building was acquired on January 1, 2014 at a total cost P6,000,000. The accumulated
depreciation at the beginning of the year is P480,000. How much would be shown as
investment property in ABC’s 2016 financial statements?
P6,000,000? Same
buyer on January 15, 2018. ABC Co. collected the receivable on January 23, 2018. How much
net cash did ABC received from the buyer if the terms are FOB shipping point, freight prepaid?
a. P294,000
b. Answer not given
c. P299,000 kasi yung freight shoulder ng seller so A/R same
d. P289,000
e. P305,000
123. The following information was available from the inventory records of Moen Company for
January:
Units Unit Cost Total Cost
Balance at January 1 3,000 ₱9.77 ₱29,310
Purchases:
January 6 2,000 10.30 20,600
January 26 2,700 10.71 28,917
Sales:
January 7 (2,500)
January 31 (3,200)
Balance at January 31 2,000
Assuming that Moen does not maintain perpetual inventory records, what should be the
inventory at January 31, using the weighted average inventory method, rounded to the
nearest peso?
A. P20,520
B. P20,474 same
C. Answer not given 20,735
D. P20,720
E. P21,010
124. On January 1, 20x1, Entity A obtained a 12%, ₱6,000,000 loan, specifically to finance
the construction of a building. The proceeds of the loan were temporarily invested and earned
interest income of ₱180,000. The construction was completed on December 31, 20x1. How
much borrowing costs are capitalized to the cost of the constructed building?
540,000 same (actual interest - interest income)
125. ABC Company uses the allowance method of accounting for bad debts. The following
summary schedule was prepared from an aging of accounts receivable outstanding on
December 31 of the current year
No of days Outstanding Amount Probability of Collection
0-30 days P500,000 .98 .02 10,000
31-60 days 200,000 .90 .10 20,000
Over 60 days 100,000 .80 .20 20,000
The following additional information is available for the current year:
Net credit sales for the year P4,000,000
Allowance for Doubtful Accounts: Balance, January 145,000 (cr)
Balance before adjustment, December 31 2,000 (dr)
If ABC determines bad debt expense using 1.5% of net credit sales, the net realizable
value of accounts receivable on the December 31, Statement of Financial Position will
be
a. P738,000
b. P750,000
c. Answer not given
d. P740,000
e. P742,000 same
were damaged by flood. Off-site back up of data base shows the following information:
 Accounts payable, Jan. 1 6,000
 Accounts payable, Sept. 30 3,000
 Payments to suppliers 50,000
 Freight-in 5,000
 Purchase returns and discounts 2,500
 Sales from Jan. to Sept. 75,000
 Sales returns 5,000
 Sales discounts 2,000
 Gross profit rate based on sales 20%
 Goods in transit as of October 1, 20x1 amounted to ₱2,000

 cost of goods out on consignment is ₱1,200
 materials damaged by flood can be sold at a salvage value of ₱500.
6,540 same
ANSWER NOT GIVEN
127. ABC Company received from a customer a one-year, P500,000 note bearing annual
interest of 8%. After holding the note for 6 months, the entity discounted the note at the bank at
an effective interest rate of 10%. What amount of cash was received from the bank?
a. 513,000 same
b. Answer not given
c. P540,000
d. P523,810
e. P495,238
128. ABC Company had trading and nontrading investments held throughout 2016 and 2017.
The nontrading investments are measured at fair value through other comprehensive income.
The investments had a cost of P3,000,000 for trading and P3,000,00 for nontrading. The
investments had the following fair value at year-end:
December 31, 2016 December 31, 2017
 Trading 4,000,000 3,800,000

 Nontrading 3,200,000 3,700,000
What amount of cumulative unrealized gain or loss should be reported as component of other
comprehensive income in the statement of changes in equity on December 31, 2017?
a. Answer not given

b. 700,00loss
c. 500,00 gain
d. 700,000 gain same
Solution:
e. 500,000 loss
129. On June 1, 2016, ABC Corporation purchased as a long-term investment 4,000 of the
P1,000 face value, 8% bonds of DEF Corporation for P3,645,328. Interest is payable
semiannually on December 1 and June 1. The bonds mature on June 1, 2022. On November 1,
2017, ABC sold the bonds for a total consideration of P3,925,000. ABC intended to hold these
bonds until they matured. The carrying amount of the investment in bonds as of December 31,
2016 is
3,674,884
130. Which of the following should be taken into account when determining the cost of
inventory
a. Storage cost or part- finished goods same same
b. Interest on inventory loan
c. Abnormal freight in
d. Recoverable purchase tax
131. Which of the following checks from customers should not be considered as Cash?
a. Manager’s Check
b. Certified Check
c. Post dated check same same
d. Personal Check
132. In accordance with the PFRSs, which of the following methods of amortization is
normally not recommended for intangible assets?
Units of production
133. ABC, Inc. acquired 50,000 ordinary shares of AAA for P5 per share and 125,000
ordinary shares of BBB Corp for P10 per share on January 2, 2016. Both AAA Inc and BBB
Corp have 500,000 ordinary shares outstanding. Both securities are being held as long-term
AAA, Inc. BBB, Corp
 Retained earnings, 1/1/2016 P1,000,000 (P175,000)

 Cash dividends, 2016 (125,000)
 Profit for 2016 200,000 325,0000
 Retained earnings, 12/31/2016 1,075,000 150,000
 Cash dividends, 2017 (150,000) (50,000)
 Profit for 2017 300,000 125,000
 Retained earnings, 12/31/2017 1,125,000 225,000
Market value of share:
12/31/2016 12/312017
 P7.00 6.50
 P12.00 15.00
How much should be reported as accumulated net unrealized gain or loss - OCI in equity as of
December 31, 2017?
----
134. Which of the following is a true statement concerning research and development (R&D)
costs?
Kita ko lang sa internet lahat ng statement na to is true: okie
All research costs should be expensed as incurred
Development costs with probable future benefits should be capitalized
Lab research aimed at the discovery of new knowledge is considered to be research
135. On August 15, an entity sold goods for which it received a note bearing the market rate
of interest on that date. The four-month note was dated July 15. Note principal, together with all
interest, is due November 15. When the note was recorded on August 15, which of the following
accounts increased?
Interest Receivable same
Unearned Discount
136. 3. Perlas Co. maintains a checking account at the Union Bank. The bank provides a
bank statement along with the canceled checks on the last day of each month. The July bank
Balance, July 1 275,000
Deposits 900,000
Checks processed 700,000
Service charge 15,000
NSF Check 60,000
Monthly automatic loan payment deduction by bank 50,000
Deposits outstanding totaled P 50,000 and all checks written by the depositor were
processed by the bank except for check of P75,000.
A P100,000 July deposit from a credit customer was recorded as P10,000 debit Cash
and credit Accounts receivable.
A check correctly recorded by the entity as P15,000 disbursements was incorrectly

processed by the bank as P150,000 disbursement. What is the balance per bank on July
31?
a. 475,000
b. 350,000 same
c. Answer not given
d. 275,000
e. 400,000
137. Investment properties are measured as follows:

a. Initial: Cost ; Subsequent: Cost or Fair Value same same
b. Initial: Fair value; Subsequent: Fair Value
c. Initial: Cost ; Subsequent Fair Value
d. Initial: Cost or Fair Value ; Subsequent: Cost or Fair Value
138. Intangible assets have all of the following characteristics, except:
They provide benefits to current operations only
139. 5. Hera Company provided the following information:

 Balance per bank statement, May 31 1,300,000
 Balance per book – May 31 1,405,000
 Deposits outstanding 150,000
 Bank service charge (5,000)
 Checks outstanding (50,000)
 Correct bank balance-May 31 1,400,000
 Correct book balance-May 31 1,400,000
June data are as follows:
Bank Book
 Checks recorded 1,100,000 1,250,000

 Deposits recorded 800,000 900,000
 Service charges recorded 25,000
 Note collected by bank, P 250,000 plus interest 275,000
 NSF checks returned with June 30 statement 50,000
 Balances 1,200,000 1,050,000
What is the adjusted cash balance on June 30?
----
140. Ame, Inc. exchanged a truck with a carrying amount of ₱12,000 and a fair value of
₱20,000 for a truck and ₱5,000 cash. The fair value of the truck received was ₱15,000. At what
amount should Ame record the truck received in the exchange?
25,000 same
FV given plus cash payment - 20k + 5k
141. Which of these is not a major characteristic of a PPE?
Must be depreciable for more than a year
142. Which of the following costs is a research and development (R&D) cost?
Cost incurred during commercial production
If the discounting is treated as a borrowing, what amount of loss from discounting should ABC
recognize?
a. 5,250 same same
b. Answer not given
c. P9,750
d. P0
e. P20,250
144. Statement I: Under the effective interest method, the amortization of a bond discount
increases the carrying amount of the financial asset.
Statement II: If the face amount of an investment in bonds exceeds its carrying amount, the
excess is called a discount.
TRUE, TRUE same
Statement I: Kapag discount amort nagiincrease ung carrying amount
145. The following information was available from the inventory records of Mon Company for
January:
Units Unit Cost Total Cost
Balance at January 1 3,000 ₱9.77 ₱29,310

Purchases: January 6 2,000 10.30 20,600
January 26 2,700 10.71 28,917
Sales: January 7 (2,500)
January 31 (3,200)
Balance at January 31 2,000
Assuming that Mon maintains perpetual inventory records, what should be the inventory
at January 31, using the moving-average inventory method, rounded to the nearest peso?
a. 20,720 same same
Solution:
b. 20, 474
c. 21,010
d. Answer not given
e. 20,520
146. Entity A receives land from the government conditioned that the land will only be used in
Entity A’s primary business activities and should never be sold. If in case, Entity A decides not
to use the land in its primary business activities, it shall return the land to the government.
Which of the following standards is least likely to be relevant in accounting for the land?
a. PAS 20 (government grant related to bearer plants)
b. PAS 2 (Discusses inventories) same
c. PAS 16 (most likeley since PAS 16 discusses land related to agricultural activity,
bearer pland and PPE)
d. All of these are relevant
147. If a note receivable is discounted without recourse

a. The contingent liability may be disclosed in either a contra account to note
receivable or in a note to the financial statements same same
b. The transaction shall be accounted for as a secured borrowing as opposed to sale
c. Note receivable shall be credited
d. Liability for a note receivable discounted shall be credited
148. ABC Company purchased from DEF Corporation a P400,000, 8%, five-year note that
requires five annual year-end installments payments of P100,180. The note was discounted to
yield 9% rate to ABC. At the date of purchase, ABC recorded the note at its present value of
P389,700.
111,200
149. The following information relates to ABC Company’s accounts receivable for 2018:
Accounts receivable, January 1, 2017 P975,000
Credit sales for 2017 4,050,000
Sales returns for 2017 112,500
Impairment of receivables 2017 60,000
Collections from customers during 2017 3,225,000
Estimated future sales returns at December 31, 2017 75,000
Estimated sales discounts accounts at December 31, 2017 25,000
What amount should ABC report for accounts receivable at December 31, 2017 statement
of financial position?
a. 1,627,500
b. 1,527,500
c. 1,627,500
d. 1,800,000
e. Answer not given (652,500)
150. On December 31, 2009, West Company had the following cash balances:
Cash in banks P1,800,000
Petty cash funds (all funds were reimbursed on 12/31/09) P 50,000
Cash in banks includes P600,000 of compensating balances against short-term

borrowing arrangements at December 31, 2009. The compensating balances are not
legally restricted as to withdrawal by West.
In the current assets section of West's December 31, 2009, balance sheet (statement of
financial position), what total amount should be reported as cash?
a. Answer not given

b. P1,250,000
c. P1,200,000
d. P1,850,000 same same
e. P1,800,000
151. Silverchair Airlines purchased airline gate rights at Tomorrow International Airport for
P2,000,000 with a legal life if five years. However, Silverchair has the ability and right to extend
the rights every ten years for an indefinite period of time. Over what period of time should
Silverchair amortize the gate rights?
a. 15 years
b. The rights should not be amortized same same
c. 5 years
d. 40 years
net cash did ABC received from the buyer if the terms are FOB destination, freight prepaid?
294,000
305,000
net cash did ABC received from the buyer if the terms are FOB destination, freight collect?
289,000
bonds until they matured. The interest income for the year 2017 is
a. P310,715
b. P311,218
c. P306,608
d. P304,748
155. The use of a Discounts Lost account implies that the recorded cost of a purchased
inventory item is its
A. Invoice price plus the purchase discount lost
B. Invoice price less the purchase discount allowable where taken or not same
C. Invoice price less the purchase discount taken
D. Invoice price
156. A donated plant asset for which the fair value has been determined, and for which
incidental costs were incurred in acceptance of the asset, should be recorded at an amount
equal to its
Fair Value and incidental costs incurred
157. On January 1, 2018, ABC Co sells inventory with a list price of P100,000 on account
under credit terms of 15%, 20%, 3/10, n/30. Under the gross method, how much should be
debited to Accounts Receivable on January 1, 2018?
68,000
158. Which of the following items would be added to the book balance on a bank
reconciliation?
Credit Memos, Overstated disbursements, Understated deposits
159. During 2019 ABC Corporation transferred inventory to XYZ Co. and agreed to
repurchase the merchandise early in 2020. XYZ Co. then used the inventory as collateral to
borrow from ECQ Bank, remitting the proceeds to ABC. In 2020 when ABC repurchased the
inventory, XYZ used the proceeds to repay its bank loan. This transaction is known as product
financing. On whose books should the cost of the inventory appear at December 31, 2019?
a. ECQ Bank
b. XYZ Co.
c. ABC Corporation same
d. XTZ Bank, with ABC Corporation making appropriate disclosures of the transactions.
160. What is the proper accounting treatment for a stale check?

a. Ignored
b. Revert back to cash and credit to gain
c. Revert back to cash and recognize a loss
d. Revert back to cash and accounts receivable
161. Total interest income recognized over the life of a noninterest-bearing note is
a. Greater than the total interest received on the note
b. Zero
c. Less than the total interest received on the not
d. Equal to the Unearned Interest Income on initial recognition
162. 3. Perlas Co. maintains a checking account at the Union Bank. The bank provides a
bank statement along with the canceled checks on the last day of each month. The July bank
statement included the following information: Balance, July 1 275,000 Deposits 900.000 Checks
processed 700,000 Service charge 15,000 NSF Check 60,000 Monthly automatic loan payment
deduction by bank 50,000 Deposits outstanding totaled P 50,000 and all checks written by the
depositor were processed by the bank except for check of P75,000. A P100,000 July deposit
from a credit customer was recorded as P10,000 debit Cash and credit Accounts receivable. A
check correctly recorded by the entity as P15,000 disbursements was incorrectly processed by
the bank as P150,000 disbursement. What is the balance per bank on July 31?
a. 400,000
b. 475,000
c. Answer not given
d. 275,000
e. 350,000
163. The following information pertains to ABC’s long-term marketable equity securities
portfolio: December 31, 2017 December 31, 2016 Cost P200,000 P200,000 Fair Value 240,000
180,000 Differences between cost and fair values are considered to be temporary. The decline
in market value was properly accounted for at December 31, 2016. At December 31, 2017, what
is the net realizable holding gain or loss to be reported as:
a. OCI: P20,000 loss; Accumulated OCI: P20,000 loss
b. OCI : P60,000 gain; Accumulated OCI: P40,000 gain
c. Answer not given
d. OCI: P0; Accumulated OCI: P0
e. OCI:P40,000 gain; Accumulated OCI: P60,000 gain
164. Statement 1: An intangible asset is not amortized if it has an indefinite useful life.
Statement 2: Grind Co. self-generated a patent. Grind Co shall amortize the patent over the
patent’s estimated useful life, if shorter than 20 years.
a. TRUE, TRUE same
b. TRUE, FALSE
c. FALSE, TRUE
d. FALSE, FALSE
165. An analysis and aging of ABC Corp accounts receivable at December 31, 2017,
disclosed the following: Amount estimated to be uncollectible P1,800,000 Accounts receivable
17,500,000 Allowance for doubtful accounts (per books) 1,250,000 What is the net realizable
value of ABC’s receivables at December 31, 2017?
a. 17,500,000
b. 14,450,000
c. 16,250,000
d. 15,700,000
e. Answer not given
166. Information on Mix Co.’s equipment on June 30, 20x8 is shown below:
Equipment (at cost) ₱ 500,000
Accumulated depreciation 150,000
₱ 350,000
The equipment consists of two machines, Machine A and Machine B.
Machine A has a cost of ₱300,000 and a carrying amount of ₱180,000.
Machine B has a cost of ₱200,000 and a carrying amount of ₱170,000.
Both machines are measured using the cost model and depreciated on a straight line
basis over a ten-year period. On December 31, 20x8, Mix Co. decided to change from
the cost model to the revaluation model. Information on this date follows: Fair values
Remaining useful life Machine A ₱180,000 6 years Machine B ₱155,000 5 years On
June 30, 20x9, Machine A and Machine B have fair values of ₱163,000 and ₱136,500,
respectively, and remaining useful lives of 5 years and 4 years, respectively. The tax
rate is 30%. How much is the depreciation expense for the fiscal year ended June 30,
20x9?
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DEF shares: • DEF has depreciable assets with a current fair value of P180,000 more than their
book value. These assets have a remaining useful life of 10 years. • DEF owns a tract of land
with a current fair value of P900,000 more than its carrying amount. • All other identifiable
tangible and intangible assets of DEF have current fair values that are equal to their carrying
amounts. DEF reported a net income of P1,620,000, earned evenly during the current year
ended December 31, 2018. Also in the current year, it declared and paid cash dividends of
P315,000 to its ordinary shareholders. Market value of DEF’s ordinary shares at December 31,
2018, is P9 million. ABC’s financial year-end is December 31. What amount should ABC report
in its December 31, statement of financial position as its investment in DEF under the fair value
method?
P2,250,000
168. Statement 1: Trade receivables are classified as current assets only if they are
collectible within one year from the reporting date. Statement 2: The total balance of the
accounts receivable of Entity X is P100, net of P5 credit balance in the account of Customer A.
The adjusted balance of accounts receivable is P95.
a. TRUE, TRUE
b. TRUE, FALSE
c. FALSE, TRUE
d. FALSE, FALSE
169. On January 1, 2016, ABC Company purchased 100,000 ordinary shares at P80 per
share to be classified as nontrading through other comprehensive income. On September 30,
2016, the entity received 100,000 stock rights to purchase an additional 100,000 shares at P90
per share. The stock rights had an expiration date of February 1, 2017. On September 30, 2016,
each share had a market value of P114 and the stock right had a market value of P6. What
amount should be reported on September 30, 2016 as investment in stock rights?
600,000
Principal
12% bank loan (1.5 years) ₱ 1,000,000
10% bank loan (3-year) 8,000,000
Jan. 1 ₱ 5,000,000
March 1 4,000,000
August 31 3,000,000
Construction was completed on December 31, 20x1. How much is the cost of the
qualifying asset on initial recognition?
14,000,000
Solution:
171. On January 1, 20x1, Entity A received land with fair of ₱200,000 from the government
conditioned on the construction of a building on the lot. Entity A started immediately the
construction and it was completed on December 31, 20x1 for a total cost of ₱1,000,000. The
building has an estimated useful life of 10 years and zero residual value. How much is the
income from government grant in 20x1 and 20x2, respectively?
Remaining Income from grant : 160,000 ; total income: 40,000
172. These are additions made by the bank to the depositor’s bank account but not yet
recorded by the depositor.
A. Deposits in transit
B. Credit memo *( see CHAPTER 2 pg. 44) same
C. Outstanding checks
D. Debit memos
Security Cost. Fair Value 400 ordinary shares Con Co. P254,500 P243,000 P800,000
Tip Co. 7% bonds 796,500 774,000 P1,200,000 Turk Co. 7 ½ % bonds 1,207,500
1,218,900 Totals P2,258,500. P2,235,900 Interest dates on the bonds are January 1 and
July 1. ABC Corp uses the income approach to record the purchase of bonds with
accrued interest. During 2017 and 2018, ABC completed the following transactions
related to trading securities: 2017 Jan 1 Received semiannual interest on bonds.
Assume that the appropriate adjusting entry was made on December 31, 2016 April 1
Sold P600,000 of 7 ½% Turk bonds at 102 plus accrued interest. May 21 Received
dividend of P1.25 per share on the Con ordinary share capital. The dividend had not
been recorded on the declaration date. Jul 1 Received semiannual interest on bonds
and then sold the 7% Tip bonds at 97 ½ Aug 25 Purchased 200 shares of New, Inc.
ordinary share capital at P580 per share plus brokerage fees of P500. Nov 1 Purchased
P500,000 of 8% Tol Co. bonds at 101 plus accrued interest. Brokerage fees were
P1,250. Interest dates are January 1 and July 1. Dec 31 Market price of securities were:
Con ordinary shares P550 7 ½ Turk bonds 101 ¾ 8% Tol bonds 101 New ordinary
shares P583.75 2018 Jan 2 Recorded the receipt of semiannual interest on bonds Feb 1
Sold the remaining 7 ½% Turk bonds at 101 plus accrued interest. What is the total
interest and dividend income for 2017?
----
174. Statement 1: Fold Co. receives a 2-year, noninterest-bearing note of P1,200,000 in

exchange for the sale of an inventory item. If the customer had paid in cash at the sale date, the
purchase price would have been P800,000. At initial recognition, Fold Co. records unearned
interest of P400,000.
Statement 2: Gather Co. receives a P1,000,000 note during the year. The note does not
bear interest and is due in three years’ time (lumpsum). The carrying amount of the note
on initial recognition is equal to the present value of P1,000,000 discounted at an
effective interest rate using PV of 1 and an “n” of 3.
a. TRUE, FALSE
b. TRUE, TRUE
c. FALSE, TRUE
d. FALSE, FALSE
175. On October 1 of the current year, an entity received a one-year note receivable bearing
interest at the market rate. The face amount of the note receivable and the entire amount of the
interest are due on September 30 of next year. The interest receivable on December 31 of the
current year would consist of an amount representing
The accrued interest receivable on December 31 is for the period October 1 to December
31 of the current year (December 31 but not October 1)
176. The effective interest rate on bond is lower than the stated rate when bond sells
a. At maturity value
b. Above face amount same
c. Below face amount
d. At face amount
178. When using a periodic inventory system
----
179. On January 1, 20x1, Entity A received land with fair of ₱200,000 from the government
conditioned on the construction of a building on the lot. Entity A started immediately the
construction and it was completed on December 31, 20x1 for a total cost of ₱1,000,000. The
building has an estimated useful life of 10 years and zero residual value. How much is the
depreciation expense recognized in 20x3 under the gross and net presentations?
100,000
180. The effective interest rate on bond is higher than the stated rate when bond sells
Discount Amortization/ Carrying Amount is lower than face amount
181. PAS 23 does not require which of the following disclosures?

a. The capitalization rate used to determine the capitalize borrowing costs
b. The amount of borrowing costs capitalized during the period
c. Separate presentation of qualifying asset from other assets either on the face of
the statement of financial position or in the notes.
d. PAS 23 requires the disclosure of all of these information.
182. Statement 1: In some cases, a building that is being used partly as an owner-occupied
property and partly as held for rentals, under operating lease, is presented in the statement of
financial position as partly PPE and partly investment property. Statement 2: Heidel Co.
exchanges a piece of land for another land with Sol Co. Heidel classifies the land as investment
property. The land given to Sol has a fair value of P20 while the land received from Sol has a
fair value of P24. Heidel Co paid P3 cash to Sol on the exchange. Heidel Co. shall initially
recognize the land received from Sol at P23.
FALSE, TRUE
183. On January 1, 2016, ABC Company purchased 30% interest in an investee for
P2,500,000. On this date, the investee’s shareholder’s equity was P5,000,000. The carrying
amounts of the investee’s identifiable net assets approximated their fair value except for the
land whose fair value exceeded carrying amount by P2,000,000. The investee reported net
income of P1,000,000 for the current year and paid no dividend. On December 31, 2016, what
amount should be reported as investment in associate?
a. 2,760,000
b. 2,200,000
c. 2,700,000
d. 2,800,000 same
184. On January 1, 2018, ABC Company has investment in equity designated as at FVOCI
with a fair value of P600,000. These securities were acquired a year ago at a cost of P625,000.
On March 31, 2018, ABC exchanged these securities for a piece of land from Mars Company.
The carrying amount of the land in books of Mars Company was P480,000 and has a zonal
value of P800,000. At the time of exchange, the shares, which was publicly listed, has a fair
value of P650,000. The necessary journal entry on March 31, will include a
----
185. Queen Co. records purchases at net amounts. On May 5 Queen purchased
merchandise on account, ₱32,000, terms 2/10, n/30. Queen returned ₱2,000 of the May 5
purchase and received credit on account. At May 31 the balance had not been paid. By how
much should the Account payable be adjusted on May 31?
a. P640
b. P680
c. Answer not given
d. P600
e. P0.00
186. In a case of a patent infringement suit, the suit may be either successful or lost. The
results of the legal decision are accounted for as follows:
ABC Company provided some information on their financial records on December 31, 2017:
Accounts Receivable, January 1 P1,920,000
Collections of accounts receivable 6,240,000
Bad debts 200,000
Inventory, January 1 2,880,000
Inventory, December 31 2,640,000
Accounts payable, January 1 1,000,000
Accounts payable, December 31 1,500,000
Cash sales 1,200,000
Purchases 4,800,000
Gross profit on sales 2,160,000
What is the ending balance of accounts receivable on December 31, 2017?
a. 4,080,000 (not sure ginaya ko ung format sa Problem 13-7 sa book)

b. 3,120,000
c. 2,880,000
d. 1,680,000 (not sure din got this answer from Mindanao state Univ exam)
187. A method that ignores residual value in calculating periodic depreciation expenses in the
earlier part of an asset’s useful life is the
----
188. Credit balances in accounts receivable shall be classified as
a. Part of account payable

b. Deduction from accounts receivable
c. Long-term liabilities
d. Current liabilities
189. Transit Co. had the following balances at December 31, 2009:
Cash in checking account P 35,000
Cash in money market account P 75,000
Treasury bill, purchased 11/1/2009, maturing 1/31/2010 P350,000
Treasury bill, purchased 12/1/2009, maturing 3/31/2010 P400,000
Transit policy is to treat as cash equivalents all highly liquid investments with a maturity of
three months or less when purchased. What amount should Transit report as cash and cash
equivalents in its December 31, 2009, balance sheet (statement of financial position)?
a. P385,000
b. P110,000
c. P460,000
d. Answer not given
e. P860,000
190. The present value of a debt instrument is computed by
a. Dividing the future cash flows from the note by an appropriate PV factor
b. Multiplying the future cash flows from the note by an appropriate PV factor
c. Adding the future cash flows
d. Adding the future cash flows from the principal to the sum of the periodic interests
receivable
191. On January 2, 2017, ABC Co. acquired 2,00 shares of DEF Co. common stock for
P8,000 and classified these shares as fair value through other comprehensive income securities.
During 2017, ABC received P6,000 of cash dividends. ABC’s share of DEF’s 2017 earnings was
P5,000. The fair value of DEF’s stock on December 31, 2017, was P7 per share. ABC should
report what amount in 2017 related to DEF Co?
14,000
192. If there is evidence that an impairment loss on loan receivable has been
incurred, the amount of the loss is equal to the
Excess of the carrying amount of the loan receivable over the present value
of the cash flows related to the loan. Same
193. On october 1, 20x1, the warehouse of ABC Co. and all inventories contained therein
were razed by fire. Off-site backup of data base shows the following information:
Inventory Jan 1 20,000
Net purchases 190,000
Net sales from jan 1 to sep 240,000
Gross profit rate based on cost 25%
20%of the inventory contained has been salvaged from the fire
Half is partially damages and can be sold as scrap at 30% of it cost
How much is the inventory loss due to the fire?
a. P11,700
b. P5,400
c. Answer not given (di ko makuha 2,700 nalabas sakin)
d. P18,000
e. P9,000
194. As of december 31, 20x1, the petty cash fund of TUMULT COMMOTION Co. with a
general ledger balance of P15,000 comprises the following:
Coins and currencies: P2,550
Petty cash vouchers:
Gasoline for delivery equipment P3.000
Medical supplies for employees P2,040
IOU’s
A sheet of paper with names of several employees together with contribution to

bereaved employee, attached is a currency of 2,400
Checks:
Checks drawn to the order of the petty cash custodian 3,000
Personal checks drawn by the petty cash custodian 2,400
The entry to record the replenishment of the petty cash fund includes:
a. Answer not given
b. A credit to cash short/overage account of P810 and a credit to cash of P12,450
c. A debit to cash short/overage account of P2,190 and a credit to cash on hand of P9450
d. A debit to cash short/overage account of P2190 and a credit to cash in bank of P9450
195. The sale of a depreciable asset resulting in a loss indicates that the proceeds from the
sale were
a. Less than the assets carrying amount
b. Greater than the asset’s carrying amount
c. Greater than the asset’s cost
d. Less than the asset’s current market value
P1,000 face value, 8% bonds of DEF Corporation for P3.645,328. Interest is payable
semiannually on december 1 and june 1. The bonds mature on june 1, 2022. On November 1,
bonds until they mature.
The gain on sale of investment in bonds on November 1, 2017 is
a. P27,632
b. Answer not given
c. 21,195
d. 104,045
e. 80,235
197. Which of the following utilizes the straight - line depreciation method
a. Composite depreciation -No ; group depreciation - no
b. Composite depreciation - yes ; group depreciation - yes same
c. Composite depreciation - no ; group depreciation - yes
d. Composite depreciation - yes ; group depreciation - no
198. What is the proper accounting treatment for a stale check?
a. Revert back to cash and credit to gain
b. Revert back to cash and recognize as a loss
c. Ignored
d. Revert back to cash and accounts receivable
199. Statement 1: trade receivables are classified as current assets only if they are collectible
within one year from reporting date
Statement 2: the total balance of the accounts receivable of entity x is P100, net of P5
credit balance in the account of customer A. the adjusted balance of accounts receivable is P95.
a. False;true
b. True; true same
c. True; false
d. False; false
200. The advantage of relating a company’s bad debt expense to its outstanding receivable is
that this approach
a. Is the only generally accepted method by valuing accounts receivable
b. Makes estimates of uncollectible accounts unnecessary
c. Gives a reasonably correct statement of receivables in the balance sheet same
d. Best relates bad debt expense to the period of sale

201. if there is objective evidence that an impairment loss on loan receivable has been
incurred, the loss is equal to the
a. Excess of the present value of ash flows related to the laan over the carrying amount of
the loan receivable
b. Excess of the carrying amount of the loan over the principal amount of the loan
c. Excess of the principal amount of the loan
d. Excess of the carrying amount of the loan receivable over the present value of the cash
flows related to the loan same
202. During 2017, ABC Company purchased marketable equity securities as a short-term
investment and classified them as held for trading securities. The cost and fair value at
December 31, 2017, were as follows:
Security cost fair value
X 200 shares 8,400 10,200
Y 2,000 shares 51,000 45,900
Z 4,000 shares 94,500 88,500
ABC sold 1 ,000 shares of company Y stock on March 16, 2018, for P25 per share, incurring
P1,200 in brokerage commission and taxes. On the sale, ABC should report a realized loss of
a. Answer not given

b. P0 same
c. P500
d. P850
e. P1,700
203. Which of the following items would be added to the books balance on a bank
reconciliation
a. Deposits in transit
b. Check written for P63 entered as P36 in the accounting records same
c. Outstanding checks
d. Interest paid by the bank
204. Which of the following is an unidentifiable asset?
a. Unearned rent
b. Deferred charges
c. Private-to-private franchise
d. Goodwill same
205. These are deductions made by the bank to the depositor’s bank account but not yet
recorded by the depositor
a. Debit memos same

b. Outstanding checks
c. Deposits in transit
d. Credit memos
206. Jam co. has the following data related to an item of inventory
inventory , march 1 200units @ P4.20
Purchase, march 7 700units @ P4.40
purchase , march 16 140 units @ P4.50
Inventory, march 31 300units
The value assigned to cost of goods sold if jam uses FIFO is
a. 1,334
b. 3,270
c. 3,216
Solution:
d. 1,280
e. Answer not given
207. In which of the following instances is the capitalization of borrowing costs under PAS 23
would most likely be suspended
a. The construction bridge is disrupted by troubled waters

b. The construction of a building is discontinued because it is condemned by the
government and the consumption of development is uncertain
c. Active development is stopped to give time for engineers to reevaluate a design flaw
d. Construction is temporarily stopped for the curing of concrete. same
208. On January 1, 2017, ABC owns 15,000 ordinary shares representing 15% of the shares
outstanding of DEF Corporation. The ordinary shares were acquired on November 12, 2017 at a
cost of P1,500,000 and have a fair value of P1,600,000 on December 31,2017. On January 2,
2018, ABC sold half of its investment for P100 per share incurring a brokerage and commission
expense of P20,000
Assume that the above securities are designated as at fair value through other comprehensive
income, the unrealized gain (loss) on december 31, 2017 to be presented in the statement of
financial position is
a. (P100,000)
b. P0
c. P20,000
d. P100,000
e. Answer not given
209. Which of the following receivables may be presented as part of current assets?
a. Advances to affiliates, the settlement data is not yet agreed upon

b. Receivable from a subscriber of the entity’s own shares collectible within 12
months from ends of the reporting period
c. Loan receivables from the entity’s officers collectible beyond 12 months
d. Long-term receivables of a construction firm. The firm’s normal operating cycle extends
beyond one year.
210. Statement 1: R. Co. receives a 3-year non-interest bearing note of P1,000,000. R co

determined that the effective interest rate on the transaction is 10%. The initial carrying amount
of the note receivable is computed as P1,000,000 x PV of 1 @ 10% , n=3
Statement 2: wet. Co. received a non-interest bearing note of P3,000,000.The note is collectible
in 3 equal annual installments if P1,000,000, sue at the end of each year. Wet Co. determines
that the effective interest on the transactions is 10%. The initial carrying amount of the note
receivable is computed as P1,000,000 x PV of 1 @ 10%, n=3.
a. False, false
b. False, true
c. True, false
d. True, true
211. As an internal control, bank reconciliation statements are usually prepared
a. On a monthly basis same

b. Whenever the accountant needs to
c. Annual at year-end
d. On a daily basis
212. On october 1, 20x1, the warehouse of ABC Co.and all of
213. The “amortized cost” of loan receivable is the amount at which

a. the loan receivable is measured initially minus principal repayment, plus or minus
the cumulative amortization of any difference between the initial amount recognized and
the principal maturity amount, minus reduction for impairment
b. The loan receivable is measured initially minus principal repayment
c. The loan receivable is measured initially
d. The loan receivable is measured initially minus principal repayment, plus or minus the
cumulative amortization of any difference between the initial amount recognized and the
principal maturity amount
214. Which of the following is not a basic characteristic of a system of cash control
a. Combined responsibility for handling and recording cash

b. Use of a voucher system
c. Daily deposit if all cash received
d. Internal audit at regular intervals
215. PAS 23 does not require which of the following?
a. Separate presentation of qualifying assets from other assets either in the face of
the statement if financial position or in the notes
b. The capitalization rate used to determine the capitalizable borrowing costs
c. The amount of borrowing costs capitalized during the period
d. PAS 23 required the disclosure of all of these information
216. {similar to #18} On October 1, 20x1, the warehouse of ABC Co. and all the inventories
contained therein were damaged by flood. Off-site back up data base shows the following
information
Inventory Jan.1 10,000
Accounts Payable Jan. 1 3, 000
Accounts Payable Sep. 30 2,000
Payments to suppliers 50,000
Freight-in 500
Purchase Returns 500
Sales from Jan to Sep 80,000
Sales Returns 5,000
Sales Discounts 2,000
Gross profit rate based on sales 30%
Additional Information:
Goods in transit as of October 1, 20x1 amounted to P1,000, cost of goods out on
consignment is P1,200 and materials damaged by flood can be sold at a salvage value
of P1,800.
a. 4 400
b. 2 500
c. 4 900
d. 3 000
e. Answer not given
Solution:
If the discounting is treated as a sale, what amount off loss from discounting should
ABCrecognize?
a. 5 250
b. Answer not given
c. 9 750
d. 20 250
e. 0
218. Mar Manufacturing Company purchased a machine on January 2, 20x2. The invoice price
of the machine was P40,000, and the vendor offered a 2 percent discount for payment within
ten days. The following additional costs were incurred in connection with the machine.
Transportation-in 1,200
Installation cost 700
Testing costs prior to regular operation 550
If the invoice is paid within the discount period, Mar should record the acquisition cost of the
machine at
A. P41,650
B. P40,400
C. 41,100
D. P39,200
E. Answer not given
219. The entity starts the capitalization of borrowing costs to the cost of a qualifying asset
when
a. Expenditures for the asset are being incurred

b. Activities necessary to prepare the asset for its intended use or sale are being
undertaken
c. All of these conditions are met
d. Borrowing costs are being incurred
factored.
since default date.
uncollectible.
Amount of cash received on August 1 discounting
a. Answer not given (310,800)

b. 318,000
c. 300,000
d. 329,925
e. 306 075
221. ABC Co had the following account balances at December 31,2017:
Accounts receivable P 900,000
Allowance for doubtful accounts (before any provision for 1027 doubtful accounts expense)
P16,00
Credit sales for 2017 P1,750,00
ABC is considering the following methods of estimating doubtful accounts expense for 2017:
 Based on credit sales at 2%

 Based on accounts receivable at 5%
What amount should ABC charge to doubtful accounts expense under each method?
a. Percentage of credit sales: P35,000 ; percentage of accounts receivable: P45,000

b. Percentage of credit sales: P51,000 ; percentage of accounts receivable: P45,000
c. Percentage of credit sales: P51,000 ; percentage of accounts receivable: P29,000
d. Percentage of credit sales: P35,000 ; percentage of accounts receivable: P25,000
e. Answer not given (% of sales : 35K ; % of A/R : 29k)
222. At what amount should the investment in bonds be recorded?
a. 1 960 000
b. 2 070 000
c. 2 020 000
d. 2 010 000
e. Answer not given
223. Jerry company had the following account balances on December 31, 2020:
Petty cash fund 25,000
Cash on hand 250,000
Cash in bank-current account 2,000,000
Cash in bank-payroll account 500,000
Cash in bank-restricted account for plant addition for disbursement in early 2021 250,000
Cash in sinking fund set aside for bond payable, due june 30 2021 750,000
Time deposit 1,000,000
The petty cash fund included unreplenished December 2020 PCF vouchers of 2,500 and
employee IOUs of 2,500. The cash on hand included a P50,000 check payable to the entity
dated January 21, 2021
What total amount should be reported as Cash and Cash equivalents on December 31, 2020?
a. 4 470 000
b. 3 970 000
c. 3 720 000
d. 3 470 000
e. Answer not given
224. On January 2, 2016, ABC Corporation bought 15% of DEF Corporation’s capital stock
for P60,000 and classified it as fair value through other comprehensive income securities. DEF’s
profits for the years ended December 31,2016 and 2017 were P20,000 and P100,000,
respectively. During 2017, DEF declared a dividend of P140,000. No dividends were declared in
2016. On December 31, 2017, the fair value of the DEF stock owned by ABC had increased to
P90,000. How much should ABC show on its 2017 income statement as income from this
investment?
a. P21,000
b. Answer not given
c. P3,150
d. P15,000
e. 51,000
225. When does the cost of land affect an entity’s profit or loss?
a. As the asset is used through periodic charges for cost allocation

b. When the asset is impaired or when it is sold above or below its carrying amount
c. When the asset is revalued upwards
d. When the related revaluation is recognized on a piecemeal basis as the asset is used.
226. ABC Company had trading and nontrading investments held throughout 2016 and 2017.
The nontrading investments are measured at fair value through other comprehensive income.
The investments had a cost of P3,000,000 for trading and P3,000,00 for nontrading.
The investments had the following fair value at year-end:
December 31, 2016 December 31, 2017
Trading 4,000,000 3,800,000
Nontrading 3,200,000 3,700,000
What amount of unrealized gain or loss should be reported in the income statement for 2017?
a. P200,000 loss
b. Answer not given
c. P300,000 gain
d. P200,000 gain
e. P300,000 loss
227. All of the following costs should be expensed in the period they are incurred except for
a. Storage costs that are necessary in bringing the asset to its intended condition.
b. Depreciation of idle manufacturing capacity resulting from an unexpected plant
shutdown.
c. Costs which will not benefit any future period
d. Manufacturing overhead costs for a product manufactured and sold in the same
accounting period.
228. On July 1, 2017, ABC Co. purchased as investment measured at amortized cost
P1,000,000 of DEF, Inc. 's 8% bonds for P946,000, including accrued interest of P40,000. The
bonds were purchased to yield 10% interest. The bonds mature on January 1, 2024 and pay
interest annually on January 1. ABC uses the effective method of amortization. In its December
31,2017 balance sheet, what amount should ABC report as investment in bonds?
a. P953,300 (Jul 1. Acquisition so 6 months lang sakop neto hanggang 12/31/17)

b. P960,000
c. Answer not given
d. P916,600
e. P911,300
229. Statement I : According to PFRS 9 Financial Instruments, financial assets are classified
on the basis of the entity’s business model for managing financial assets.
Statement II : Only debt instruments can be classified under the amortized cost or the fair value
through other comprehensive income (mandatory) measurement categories.
a. FALSE, TRUE
b. TRUE, FALSE
c. TRUE, TRUE
d. FALSE, FALSE
DEF shares:
• DEF has depreciable assets with a current fair value of P180,000 more than their book
value. These assets have a remaining useful life of 10 years.
• DEF owns a tract of land with a current fair value of P900,000 more than its carrying
amount.
• All other identifiable tangible and intangible assets of DEF have current fair values that
are equal to their carrying amounts.
DEF reported a net income of P1,620,000, earned evenly during the current year ended
December 31, 2018. Also in the current year, it declared and paid cash dividends of
P315,000 to its ordinary shareholders. Market value of DEF’s ordinary shares at
December 31, 2018, is P9 million. ABC’s financial year-end is December 31.
What amount of investment income should ABC report in the income statement for the year
ended December 31, 2018, under the fair value method?
a. P78,750
b. Answer not given
c. P202,500
d. P228,750
e. P71,250
Asset Cost Accum. Depreciation Acquisition date Residual value
A 100,000 64,000 20X6 20,000
B 55,000 36,000 20X5 10,000
C 70,000 33,600 20X5 14,000
depreciable asset is 5 years.
Using the same depreciation method as used in 20x5, 20x6, and 20x7, how much
depreciation expense should Dirt record in 20X8 for asset B?
a. P11,000
b. Answer not given
c. P12,000
d. P9,000
e. P6,000
Security Cost. Fair Value
400 ordinary shares Con Co. P254,500 P243,000
P800,000 Tip Co. 7% bonds 796,500 774,000
P1,200,000 Turk Co. 7 ½ % bonds 1,207,500 1,218,900

Totals P2,258,500. P2,235,900
Interest dates on the bonds are January 1 and July 1. ABC Corp uses the income
approach to record the purchase of bonds with accrued interest. During 2017 and 2018,
ABC completed the following transactions related to trading securities:
2017
Jan 1 Received semiannual interest on bonds. Assume that the appropriate adjusting
entry was made on December 31, 2016
April 1 Sold P600,000 of 7 ½% Turk bonds at 102 plus accrued interest.
May 21 Received dividend of P1.25 per share on the Con ordinary share capital. The
dividend had not been recorded on the declaration date.
Jul 1 Received semiannual interest on bonds and then sold the 7% Tip bonds at 97 ½
Aug 25 Purchased 200 shares of New, Inc. ordinary share capital at P580 per share plus
brokerage fees of P500.
Nov 1 Purchased P500,000 of 8% Tol Co. bonds at 101 plus accrued interest.
Brokerage fees were P1,250. Interest dates are January 1 and July 1.
Dec 31 Market price of securities were:
Con ordinary shares P550
7 ½ Turk bonds 101 ¾ 8% Tol bonds 101
New ordinary shares P583.75
2018
Jan 2 Recorded the receipt of semiannual interest on bonds
Feb 1 Sold the remaining 7 ½% Turk bonds at 101 plus accrued interest.
What is the carrying amount of the remaining trading securities on December 31, 2017?
a. Answer not given

b. P1,452,250
c. P1,473,450
d. P1,450,450
e. P1,481,000
233. Property, plant, and equipment may properly include
a. Land held for speculation, rather than for use in the entity’s normal business activities
b. Deposits on machinery not yet received
c. None of these
d. Idle equipment classified as held for sale asset under PFRS 5
234. At the end of its first year of operations, December 31, 2017, ABC Company had
accounts receivable of P500,000 which were net of related allowance for doubtful accounts.
During 2017, ABC recorded charges to bad debts expense of P80,000 and wrote off
uncollectible accounts receivable of P20,000.
How much should ABC Company report in its December 31, 2017 balance sheet as accounts
receivable before the allowance for doubtful accounts?
a. P520,000
b. P500,000
c. P600,000
d. Answer not given
e. P560,000
235. Statement 1: Cut Co. received a long-term, noninterest-bearing note of P100,000. The
note requires a lump sum payment at maturity date Cut Co determines that the effective interest
rate on the transaction is 10% while the appropriate present value factor is 0.9. The interest
income in Year 1 is P9,000
Statement 2: Use the same information in the preceding statement, the interest income in Year
2 is P9,900
a. TRUE,TRUE (Di q sure pero ganto understanding ko)
Carrying Amount (100k*0.9) = 90,000
Interest Income (90k*0.1) = 9,000
Next Year:
Carrying Amount =99,0000
Interest Income =9,900
b. TRUE, FALSE
c. FALSE, TRUE
d. FALSE, FALSE
236. The following information pertains to ABC Co.’s accounts receivables at December 31,
2017:
Age Amount %Uncollectible
0 - 60 days 120,000 1%
61 -120 days 90,000 2%

Over 120 100,000 6%
During 2017, ABC wrote off P7,000 in receivables and recovered P4,000 that had been written
off in prior years. ABC’s December 31,2017, allowance for uncollectible accounts was P22,000.
Under the aging method, what amount of allowance for uncollectible accounts should ABC
report at December 31, 2017?
a. Answer not given

b. P13,000
c. P10,000
d. P9,000
e. P19,000
237. Which of the following should not be taken into account when determining the cost of
inventory?
a. Storage cost of pre- finished goods

b. Trade discounts
c. Import duties on shipping of inventory inward
d. Recoverable purchase taxes
238. A 90- day 15% interest-bearing note receivable is sold to a bank without recourse after
being held for 60 days. The proceeds are calculated using a 12% interest rate. The amount
credited to note receivable at the date of the discounting transaction would be
a. The face value of the note

b. The maturity value of the note
c. Less that the face value of the note
d. The same as the cash proceeds
239. On December 1, 20x1, Bod Co. purchased a P400,000 tract of land for a factory site.
Bod razed an old building on the property to make way for the construction of the new factory.
Bod sold the materials it salvaged from the demolition. Bod incurred additional costs and
realized salvage proceeds during December 20x1 as follows:
Demolition of old building P50,000
Legal fees for purchase contract and recording ownership 10,000
Title guarantee insurance 12,000
Proceeds from sale of salvaged materials 8,000
In its December 31, 20x1 statement of financial position, Bod should report a balance in the land
account of
a. P464,000
Purchase Price 400,000
Demolition - salvage value 42,000
Legal Fees 10,000
Title guarantee insurance 12,000
Land Account P464,000
b. Answer not given

c. P442,000
d. P422,000
e. P460,000
240. At the end of its first year of operations, December 31,2017, ABC, Inc. reported the
following information:
Accounts receivable, net allowance for doubtful accounts P9,500,000
Customer accounts written off as uncollectible during 2017 240,000
Bad debts expense for 2017 840,000
What should be the balance in accounts receivable at December 31, 2017, before subtracting
the allowance for doubtful accounts?
a. Answer not given

b. P10,100,000
c. P9,740,000
d. P10,580,000
e. P10,340,000
Asset Cost Accum. Depreciation Acquisition date Residual value
A 100,000 64,000 20X6 20,000
B 55,000 36,000 20X5 10,000
C 70,000 33,600 20X5 14,000
depreciable asset is 5 years.
Dirt depreciates asset C by the straight- line method. On June 30, 20x8, Dirt sold asset C for
P28,000 cash. How much gain (loss) should Dirt record in 2008 on the disposal of asset C?
a. (P5,600)
b. Answer not given
c. P2,800
d. (P2,800)
e. (P8,400)
242. The use of a Purchase Discounts account implies that the recorded cost of a purchased
inventory item is its
a. Invoice price less the purchase discount allowable whether taken or not
b. Invoice price plus any purchase discount lost
c. Invoice price
d. Invoice price less the purchase discount taken
243. ABC, Inc. acquired 50,000 ordinary shares of AAA for P5 per share and 125,000
ordinary shares of BBB Corp for P10 per share on January 2, 2016. Both AAA Inc and BBB
Corp have 500,000 ordinary shares outstanding. Both securities are being held as long-term
AAA, Inc. BBB, Corp
Retained earnings, 1/1/2016 P1,000,000 (P175,000)
Cash dividends, 2016 (125,000)
Profit for 2016 200,000 325,0000
Retained earnings, 12/31/2016 1,075,000 150,000
Cash dividends, 2017 (150,000) (50,000)
Profit for 2017 300,000 125,000
Retained earnings, 12/31/2017 1,125,000 225,000
Market value of share:
12/31/2016 12/312017
P7.00 6.50
P12.00 15.00
The income from investment in BBB, Inc. in 2016 is
a. P81,250
b. P2,500
c. Answer not given
d. P31,250
e. P0 (Si AAA, Inc. lang nakareceive ng dividend income)
244. On December 1, 2017, ABC Company assigned P400,000 of accounts receivable to

DEF Company as a security for a loan of P335,000. ABC Company charged a 2% commission
on the amount of the loan; the interest rate on the note was 10%. During December, ABC
collected P110,000 on assigned accounts after deducting P380 of discounts. ABC accepted
returns worth P1,350 and wrote off assigned accounts totaling P2,980.
What is the carrying value of the accounts receivable assigned as of December 31, 2017?
a. P0
b. P290,000
c. P289,620
d. Answer not given
e. P285,290
Solution:
Total A/R - Assigned 400,000
Less: Collections 110,000
Sales Discount 380
Sales Return 1,350
Worthless Accounts 2,980
Carrying Value of AR assigned 285, 290
245. On January 1, 2020, Kay Corporation established a petty cash fund of P400. On
December 31, 2020, the petty cash fund was examined and found to have receipts and
documents for miscellaneous expenses amounting to P364. in addition, there was cash
amounting to P44. What entry would be required to record replenishment of the petty cash fund
on December 31, 2020?
A. Dr. Miscellaneous expense P365; Dr. Cash short or over; Cr Cash in bank P364
B. Dr. Miscellaneous expense P364; Cr Cash short or over P8; Cr Petty cash P356
C. Dr. Petty cash fund P364; Cr Cash short or over P8; Cr Cash in bank P356
(Fluctuating ung ginamit ko) Same
D. Answer not given
E. Dr. Miscellaneous expense P364; Cr Cash short or over P8; Cr Cash in bank P356
246. The composite depreciation method
A. Is applied to a group homogenous assets

B. Does not recognize gain or loss on the retirement of specific assets in the group
C. Is an accelerated method of depreciation
D. Excludes salvage value from the base of the depreciation calculation
247. During 2017, ABC Company purchased marketable equity securities as investment.
These securities are classified as FVOIC. The cost and market value at December 31, 2017,
were as follows:
Security Cost Fair Value
A- 100 shares 2,800 3,400
B- 1,000 shares 17,000 15,300
C- 2,000 shares 31,500 29,500
ABC sold 1,000 shares of Company B stock on January 31, 2018 for P15 per share, incurring
P1,500 brokerage commission and taxes. On the sale, Rex should report a realized loss of
A. P2,000
B. P300
C. P1,800
D. Answer not given
E. P3,500
248. On January 1, 2018 , ABC Co sells inventory with a list price of P100,000 on account
under credit terms of 15%, 20%, 3/10, n/30
Under the gross method, how much should be debited to Accounts Receivable on January 1,
2018?
A. P65,960
B. P100,00
C. Answer not given
D. P85,000
E. P68,000
249. Pearls Co. maintains a checking account at the Union Bank. The bank provides a bank
statement along with the canceled checks on the last day of each month. The July bank
Balance, July 1 275,000 ; Deposits 900,000
Checks processed 700,000 : Service Charge 15,000
NSF Check 60,000 : Monthly automatic loan payment deduction by bank 50,000
Deposits outstanding totaled P50,000 and all checks written by the depositor were processed
by the bank except for check of P75,000.
A P100,000 July deposit from a credit customer was recorded as P10,000 debit Cash and credit
Accounts receivable.
A check correctly recorded by the entity as 15,000 disbursements was incorrectly processed by
the bank as receivable.
by the bank as receivable.
by the bank as P150,000 disbursement.
What is the cash balance per ledger on July 31?
A. Answer not given

B. 585,000
C. 495,000
Solution:
D. 675,000
E. 445,000
250. Peter, Inc. purchased a machine under a deferred payment contract on December 31,
20x1. Under the terms of the contract, Peter is required to make eight annual payments of
P140,000 each beginning December 31, 20x2. The appropriate interest rate is 8%. The
purchase price of the machine is
A. P868,900
B. 804,520
C. 1,120,000 (walang effective rate so di ko sure kung gagamit ba ng PV diyan-
140k*8 ginawa ko)
D. Answer not given
E. P1,389,190
251. Statement 1: When amortizing intangible assets, residual value is normally disregarded
unless the entity can reasonably expect, and had the ability, to sell the intangible asset at the
end of its useful life.
Statement 2: Trademarks are more commonly accounted for as intangible assets with indefinite
useful life. Therefore , they are not amortized but tested for impairment at least annually.
A. TRUE, FALSE
B. FALSE, FALSE
C. FALSE,TRUE (hula ko lang)
D. TRUE, FALSE
252. Clat company started construction of a new office building on January 1, 20x3, and
moved into the finished building on July 1, 20x4. Of the building’s P2,500,000 total cost,
P2,000,000 was incurred in 20x3 evenly throughout the year. Clay’s incremental borrowing rate
was 12% throughout 20x3, and the total amount of interest incurred by Clay during 20x3 was
P102,000. What amount should Clay report as capitalized interest at December 31,20x3?
A. P102,000
B. P120,000
C. P150,000
D. P240,000
253. On october 1 of the current year, an entity received a one-year note receivable bearing
interest at the market rate. The face amount of the note receivable and the entire amount of the
interest are due on September 30 of next year. The interest receivable on December 31 of the
current year would consists of an amount representing
A. Nine months of accrued interest income

B. Three months of accrued interest income (not sure tho basta alam ko dr Accrued
Interest Receivable ng Oct to Dec irerecord sa end year)
C. Twelve months of accrued interest income
D. The excess on October 1 of the present value of the note receivable over its face
amount.
254. ABC Co has a single investment property which had an original cost of P5.8M on
January 1, 2014. On December 31, 2016 the fair value was P6M and on December 31, 2017
the fair value was P5.9M. On acquisition, the property had a useful life of 40 years.
What is the expense recognized in profit or loss for 2017 under the fair value model and cost
model?
A. Fair Value: P147,500; Cost P145,000

B. Fair Value: P100,000; Cost P145,000
Solution:
C. Fair Value: P100,000; Cost P147,500
D. Answer not given
E. Fair Value P145,000; Cost P100,000
255. Which of the following is considered a biological asset?
A. Carcass
B. Pig same same
C. Piggy bank
D. Ham
256. ABC Company provided the following information:
Balance per bank statement, May 31 1,300,000; Balance per book- May 31 1,405,000
Deposit outstanding 150,000 : Bank Service Charge (5,000)
Check Outstanding (50,000)
Correct Bank Balance - May 31 1,400,000 ; Correct Book Balance - May 31 1,400,000
June Data are as follows: Bank Book
Checks recorded 1,100,000 1,250,000
Deposits recorded 800,000 900,000
Service charges recorded 25,000 -
Note collected by bank,
P250,000 with interest 275,000
NSF checks returned
With June 30 statement 50,000
Balances 1,200,000 1,050,000
What is the amount of outstanding checks on June 30?
A. Answer not given

B. 50,000
C. 100,000
D. 200,000
E. 150,000 (mininus ko lang ung Checks recorded sa book and bank HAHAHAH)
257. A method that ignores residual value in calculating periodic depreciation expenses in the
earlier part of an asset’s useful life is the
A. Productive-output method
B. Double declining balance method same same
C. Group composite method
D. Sum-of-the-year’s digits method
258. Good in transit which are shipped FOB shipping point should be
A. Included in the inventory of the seller

B. Not included in anyone’s inventory
C. Included in the inventory of the buyer same same
D. Included in the inventory of the shipping company
259. Which of the following statements is the assumption on which straight-line depreciation
is based?
A. Physical wear and tear are more important than economic obsolescence.
B. Service value declines as a function of time rather than use same same
C. Service value decline as a function of obsolescence rather than time
D. Operating efficiency of the asset decreases in later years.
260. A consideration in determining the useful life of an intangible asset is not the
A. Legal, regulatory, or contractual provisions

B. Provisions for renewal or extension
C. Initial cost
D. Expected actions of competitors (not sure tho)
261. ABC Co. showed the following balances on December 31,2018
a. On May 1, received a P300,000, six month, 12% interest bearing note from Ed, a
customer in settlement of an account
b. On june 30, factored P400,000 of its accounts receivable to a finance company. The
finance company charged a factoring fee of 5% of the accounts factored and withheld 20% of
the amount factored.
c. On August 1, ABC discounted the Ed Note at the bank at 15%
d. On November 1, Ed defaulted on the 300,000 note. ABC company paid the bank the
total amount due plus a p12,000 protest fee and other bank charges.
e. On December 31, ABC company assigned P600,000 of its account receivable to a bank
under a nonnotification basis. The bank advanced 80% less a service fee of 5% of the accounts
assigned. ABC company signed a promissory note for the loan.
f. On December 31, ABC collected from Ed in full including interest on total amount due at
12% since default date.
g. On December 31, it is estimated that 5% of the outstanding accounts receivable may
prove uncollectible.
The net realizable value of the accounts receivable is
A. P1,330,000
B. P1,900,000
C. P1,235,000
D. P1,520,000
E. Answer not given
Solution:
262. Of the methods to record cash discounts related to accounts receivable, which more
theoretically correct?
A. Gross method
B. All three methods are theoretically correct
C. Net method (Chapter 10 pg. 284 first paragraph) same same
D. Allowance method
263. According to PAS 23, borrowing costs are capitalized when
A. The entity chooses to capitalize them

B. They relate directly to the acquisition, construction or production of a qualifying asset
C. All of these are required (Chapter 25) same same
D. They are material and are expected to be incurred over more than one reporting period
264. Which of the following items would be added to the book balance on a bank
reconciliation?
A. Check written for P63 entered as P36 in the accounting records same (ang explanation
ko naman si book ang nagkamali kaya si book din ang gagawa ng paraan para maayos yun so
para ma attain yung P63 na check magdadagdag pa si book. Understatement siya of cash
receipts on the books of depositor so add sa book “JE dr CIB cr
A/R”)(HAHAHAHAHA NASAGUTAN KO NA TO NAGSAME AKO SA ANSWER NI ROSE)
same
B. Interest paid by the bank
C. Deposit in transit
D. Outstanding checks
265. Which of the following is a qualifying asset?
a. Investment property measured at fair value

b. Building that is ready for its intended use upon purchase
c. Inventories that are routinely produced in large quantities on a continuous basis
d. An application software (intangible asset) that takes 2 years to develop
266. ABC Company provides for doubtful accounts based 3% of credit sales. The following
data are available for 2017:
Credit sales during 2017. P21,000,000
Allowance for doubtful accounts 1/1/17 P170,000
Collection of accounts written off in prior years (customer credit was reestablished)
P80,000
Customer accounts written off as uncollectible during 2017 P300,000
What is the balance in allowance for doubtful accounts at December 31,2017?

a. P580,000
b. Answer not given
c. P500,000
d. P420,000
e. P630,000
267. The Oscar Corporation acquired land, buildings, and equipment from a bankrupts
company at a lump-sum price of P180,000. At the time of acquisition, Oscar paid P12,000 to
have the assets appraised. The appraised disclosed the following values:
a. P64,000, P64,000 and P64,000
b. P120,000, P80,000 and P40,000
c. Answer not given
d. P90,000, P60,000 and P30,000
e. P96,000, P64,000 and P32,000
268. On December 1, 2017, ABC Company assigned P400,000 of accounts receivable to
DEF Company as a security for a loan of P335,000. ABC Company charged a 2% commission
on the amount of the loan; the interest rate on the note was 10%. During December, ABC
collected P110,000 on assigned accounts after deducting P380 of discounts. ABC accepted
returns worth P1,350 and wrote off assigned accounts totaling P2,980.
How much cash did ABC receive from DEF at the time of transfer?
a. Answer not given
b. P335,000
c. P301,500
d. P328,300
e. P327,000
269. Statement 1: The cost of an internally generated patent that is subject to amortization is
confined to legal and registration fees only.
Statement 2: An intangible asset with finite useful life is amortized over the shorter of its useful
life and legal life
a. FALSE, TRUE
b. FALSE, FALSE
c. TRUE, TRUE
d. TRUE, FALSE
270. Which of the following checks from customers should not be considered as Cash?
a. Travelers Check
b. Cashiers’ Check
c. Postdated check same
d. Personal Check
271. Light Company bought a machine for ₱300,000 on January 1, 20x8. The machine's
useful life is 10 years and it is estimated to have a zero residual value and is depreciated using
the straight-line method. The revalued amount of the machine is as follows:
December 31 Fair values of the machine
20x8 ₱ 360,000
20x9 335,000
2x10 320,000
The enacted tax rate was 30% for each year.
The amount of revaluation surplus transferred to retained earnings in 20x9 is
a. P4,333
b. P10,000
c. P7,000
d. Answer not given
e. P6,667
272. Saan Co. purchased manufacturing equipment from Said Co. on January 1, 20x8 at a
total cost of P9,000,000. Saan uses the straight-line method of depreciation and estimates that
the equipment has a useful life of 10 years. On July 1, 20x8 and July 1,20x9 Saan performed
major regular inspections on the equipmen costing P380,000 and P425,000, respectively. The
costs of inspection satisfied the recognition criteria for capitalization. How much is the carrying
amount of the equipment on December 31, 2009?
a. P7,529,412
b. P7,875,000
c. P7,600,000
d. Answer not given
e. P7,920,000
a. On May 1, received a P300,000, six-month, 12% interest bearing note from Ed, a
customer in settlement of an account.
b. On June 30, factored P400,000 of its accounts receivable to a finance company.

The finance company charged a factoring fee of 5% of the accounts factored and
withheld 20% of the mount factored.
d. On November 1, Ed defaulted on the P300,000 note. ABC company paid the bank
the total amount due plus a P12,000 protest fee and other bank charges.
e. On December 31, ABC Company assigned P600,000 of its accounts receivable to a

bank under a non notification basis. The bank advanced 80% less a service fee of 5%
of the accounts assigned. ABC Company signed a promissory note for the loan.
f. On December 31, ABC collected from Ed in full including interest on total amount
due at 12% since default date.
g. On December 31, it is estimated that 5% of the outstanding accounts receivable may

prove uncollectible.
Amount of cash received on June 30 factoring
a. P200,000
b. P300,000
c. Answer not given
d. P304,000
e. P380,000
274. ABC Company acquired a building on January 1, 2016 for P9M. At the date, the building
had a useful life of 30 years. On December 31, 2016 the fair value of the building was P9.6M
and on December 31, 2017, the fair value is P9.8M. The building was classified as an
investment property and accounted for under the fair value model.
What amount should be carried in the statement of financial position and recognized in profit or
loss for 2017?
a. Carrying Amount: P9,000,000; Profit or Loss: P800,000 gain
b. Carrying Amount: P9,800,000; Profit or Loss: P200,000 gain
c. Answer not given
d. Carrying Amount: P8,700,000; Profit or Loss: P300,000 expense
e. Carrying Amount: P8,400,000; Profit or Loss: P300,000 expense
bonds until they matured.
The interest income for the year 2016 is
a. P211,612
b. P215,521
c. P212,829
d. Answer not given

e. P218,850
2017.
What amount of unrealized loss should be reported as component of other comprehensive

income on 2017?
a. Answer not given
b. P473,878
c. P0
d. P200,000
e. P131,398
277. On February 1, 2017, ABC Corporation factored receivables with a carrying amount of
P2,000,000, to DEF Corporation. ABC Corporation assesses a finance charge of 3% of the
receivables and retains 5% of the receivables.
Assume that ABC Company retained significant amount of risks and rewards of
ownership and had a continuing involvement on the factored financial asset, what
amount of loss from factoring should the company recognized?
a. Answer not given
b. P60,000
c. P0
d. P160,000
e. P100,000
278. When the allowance method of recognizing bad debts expense is used, the entry to
record the write-off of a specific uncollectible accounts would decrease
a. Working capital
b. Net Income
c. Net realizable value of accounts receivable
d. Allowance for doubtful accounts
279. ABC Company acquired 100,000 ordinary shares of DEF Company and 300,000
ordinary shares of XYZ Company. Both DEF Company and XYZ Company had 1,000,000
ordinary shares outstanding.
DEF Company reported net income of P3,000,000 and paid dividends of P2,000,000 during the
current year.
XYZ Company reported net income of P4,000,000 and paid dividends of P1,000,000 during the
current year.
What total amount of net income from the investments should be reported for the current year?
a. Answer not given
b. P1,500,000
c. P500,000
d. P1,400,000
e. P1,200,000
280. A 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. Deducted from the cost of the plant
b. Netted against the cost to clear the land and expensed as incurred
c. Classified as other income
d. Deducted from the cost of the land

281. On January 1, 2018, ABC Company has investment in equity designated as at FVOCI
with a fair value of P600,000. These securities were acquired a year ago at a cost of P625,000.
On March 31, 2018, ABC exchanged these securities for a piece of land from Mars Company.
The carrying amount of the land in books of Mars Company was P480,000 and has a zonal
value of P800,000. At the time of exchange, the shares, which was publicly listed, has a fair
value of P650,000. The necessary journal entry on March 31, will include a
a. Answer not given
b. Debit to loss on exchange, P25,000
c. Debit to financial asset at FVOCI, P600,000
d. Debit to land, P650,000
e. Credit gain on exchange, P25,000
282. Information on Mix Co.’s equipment on June 30, 20x8 is shown below:
Equipment (at cost) ₱ 500,000
Accumulated depreciation 150,000
₱ 350,000
The equipment consists of two machines, Machine A and Machine B.
Machine A has a cost of ₱300,000 and a carrying amount of ₱180,000.
Machine B has a cost of ₱200,000 and a carrying amount of ₱170,000.
Both machines are measured using the cost model and depreciated on a straight line
basis over a ten-year period. On December 31, 20x8, Mix Co. decided to change from
the cost model to the revaluation model. Information on this date follows:
Fair values Remaining useful life
Machine A ₱180,000 6 years
Machine B ₱155,000 5 years
On June 30, 20x9, Machine A and Machine B have fair values of ₱163,000 and
₱136,500, respectively, and remaining useful lives of 5 years and 4 years, respectively.
The tax rate is 30%.
How much is the carrying amount of the equipment on June 30, 20x9?
a. Answer not given
b. P335,000
c. P163,000
d. P299,500
e. P300,000
283. According to PAS 38 Intangible Assets, if an entity cannot identify in which phase a cost
is incurred, the cost
a. Is capitalized and amortized over the shorter of the intangible asset’s useful life and
legal life
b. Is allocated to research and development phases
c. Is expensed as a regular expense
d. Is regarded as incurred in research phase
284. Subsequent expenditures on intangible assets are
a. Expensed immediately
b. A or b as a matter of accounting policy choice
c. Capitalized only to extent that the litigation is successful
d. Expensed unless they meet the recognition criteria for intangible assets.
285. An entity starts the capitalization of borrowing costs to the cost of a qualifying asset
when
a. Expenditures for the asset are being incurred
b. Activities necessary to prepare the asset for its intended use or sale are being
undertaken.
c. Borrowing costs are being incurred
d. All of these conditions are met

factored.
since default date.
uncollectible.
Amount of cash received on December 31 collection of the account of Ed
a. P336,600
b. P312,000
c. Answer not given
d. P318,000
e. P330,000
buyer on January 15, 2018. ABC Co. collected the receivable on January 23, 2018.
How much net cash did ABC receive from the buyer if the terms are FOB destination, freight
prepaid?
a. Answer not given

b. 294,000
c. 289,000
d. 299,000
e. 305,000
 CHAPTER 14 
Investments in Debt
and Equity Securities
MULTIPLE CHOICE QUESTIONS
Theory/Definitional Questions
1 Definition of available-for-sale securities

2 Reporting of changes in fair value of securities in the income statement
3 Reporting of changes in fair value of securities on the balance sheet
4 Definition of held-to-maturity securities
5 Accounting for available-for-sale securities
6 Application of FASB Statement No. 115
7 Accounting for investments in common stock using the cost method
8 Accounting for trading securities
9 Accounting for goodwill amortization
10 Using the fair market value of stock received as a basis for valuation
12 Application of the equity method to account for investments in common
stock
13 Accounting for goodwill amortization
stock
stock
18 Use of consolidated financial statements
20 International vs. U.S. GAAP for investments in securities
21 Disclosures related to investments in securities
22 Using the cost method to account for an investment
23 Effect of using cost method when equity method was appropriate
24 Reclassification of available-for-sale securities to trading securities
533
534 Chapter 14  Investments in Debt and Equity Securities
Computational Questions
25 Computation of dividend revenue
26 Computation of investment income on available-for-sale securities
27 Computation of investment income on available-for-sale securities
28 Computation of balance in investment account on trading securities
29 Computation of carrying value of portfolio on balance sheet
30 Computation of unrealized loss related to securities transactions
31 Determine entry to record sale of a security
32 Computation of loss transfer of securities to determine net income
33 Record corresponding charges against unrealized losses
34 Computation of carrying value of investment in common stock
35 Computation of income on long-term investment
36 Computation of investment in common stock affected by goodwill
amortization
37 Computation of "Share of Net Income" of investment affected by goodwill
amortization
38 Determination of journal entry for temporary investment
39 Computation of investment loss on trading securities
40 Determination of credit to "Market Adjustment--Trading Securities"
account
41 Computation of unrealized loss on trading securities on income
statement
42 Computation of loss on securities investment on income statement
43 Computation of realized loss on short-term investment of marketable
equity securities
44 Computation of value of acquisition of bonds
PROBLEMS
1 Prepare journal entries relating to investments in common stock
2 Determine journal entries for trading and available-for-sale securities
valuations
3 Prepare journal entries for investment in common stock and computation
of carrying value of investment using cost and equity methods
4 Computation of amount reported for investment using equity method
5 Prepare journal entries and compute goodwill for common stock
investment
6 Prepare journal entries with supporting computations for long-term
investments
7 Reporting of capital stock investments on balance sheet and income
statement
Test Bank, Intermediate Accounting, 14th ed. 535
8 Prepare journal entries for temporary investments using asset/revenue

methods
9 Accounting for the sale
of securities
10 Recording the transfer of securities between categories
11 Accounting for changes from the equity method
12 Accounting for changes to the equity method
13 Explanation of “gains trading”
14 Changes from the “held-to-maturity” classification
15 Change to the equity method
16 Impairment of a loan
MULTIPLE CHOICE QUESTIONS

c 1. Which securities are purchased with the intent of selling them in the
LO2 near future?
a. Marketable equity securities
b. Available-for-sale securities
c. Trading securities
d. Held-to-maturity securities
c 2. Changes in fair value of securities are reported in the income statement for
LO5 which type of securities?
b 3. Changes in fair value of securities are reported in the stockholders' equity

LO5 section of the balance sheet for which type of securities?
d 4. Which category includes only debt securities?

LO2 a. Marketable equity securities
c 5. A debit balance in the account Market Adjustment--Available-for-Sale

LO5 Securities at the end of a year should be interpreted as
a. the net unrealized holding gain for that year.

b. the net realized holding gain for that year.
c. the net unrealized holding gain to date.
d. the net realized holding gain to date.
a 6. FASB Statement No. 115 generally applies when the level of ownership of
LO2 another company is at what percentage?
a. Less than 20%
b. 20%–30%
c. 30%–50%
d. More than 50%
b 7. When an investor uses the cost method to account for investments in

common
LO4 stock, cash dividends received by the investor from the investee should
normally be recorded as
a. a deduction from the investment account.
b. dividend revenue.
c. an addition to the investor’s share of the investee’s profit.
d. a deduction from the investor’s share of the investee’s profit.
b 8. A debit balance in the account Market Adjustment—Trading Securities at

the
LO5 end of a year should be interpreted as
a. the net realized holding gain to date.
b. the net unrealized holding gain to date.
c. the net realized holding gain for that year.
d. the net unrealized holding gain for that year.
d 9. Under the cost method of accounting for unconsolidated investments in

LO4 common stock, goodwill amortization
a. reduces the investment account.
b. increases the investment account.
c. reduces both investment income and the investment account.
d. is not recorded.
c 10. From the following, select the most appropriate basis for the valuation of a
new
LO3 investment when properties or services are exchanged for stock.
a. The par or stated value of the stock received
b. The book value of the property or services exchanged
c. The fair market value of the stock received
d. Either b or c, whichever is more clearly determinable
b 11. For which type of investments would unrealized increases and decreases
be
LO5 recorded directly in an owners' equity account?
a. Equity method securities
c 12. The equity method of accounting for an investment in the common stock of
LO2 another company should be used when the investment
a. is composed of common stock and it is the investor’s intent to vote the
common stock.
b. ensures a source of supply such as raw materials.
c. enables the investor to exercise significant influence over the investee.
d. gives the investor voting control over the investee.
c 13. Under the equity method of accounting for unconsolidated investments in

LO4 common stock, goodwill amortization
a. decreases amortization expense and reduces the investment account.
b. reduces investment income and increases the investment account.
c. reduces investment income and reduces the investment account.
d. is not recorded.
b 14. If the combined market value of trading securities at the end of the year is
less
LO5 than the market value of the same portfolio of trading securities at the
beginning of the year, the difference should be accounted for by
a. reporting an unrealized loss in security investments in the stockholders'
equity section of the balance sheet.
b. reporting an unrealized loss in security investments in the income
statement.
c. a footnote to the financial statements.
d. a credit to Investment in Trading Securities.
a 15. When an investor uses the equity method to account for investments in
LO4 common stock, the investment account will be increased when the investor
recognizes
a. a proportionate share of the net income of the investee.
b. a cash dividend received from the investee.
c. periodic amortization of the goodwill related to the purchase.
d. depreciation related to the excess of market value over book value of the
investee’s depreciable assets at the date of purchase by the investor.
b 16. When an investor uses the equity method to account for investments in
LO4 common stock, cash dividends received by the investor from the investee
should be recorded as
a. an increase in the investment account.
b. a deduction from the investment account.
c. dividend revenue.
d. a deduction from the investor’s share of the investee’s profits.
a 17. If the combined market value of available-for-sale securities at the end of

the
LO5 year is less than the market value of the same portfolio of available-for-sale
securities at the beginning of the year, the difference should be accounted
for by
a. reporting an unrealized loss in security investments in the stockholders'
equity section of the balance sheet.
b. reporting an unrealized loss in security investments in the income
statement.
c. a footnote to the financial statements.
d. a credit to Investment in Available-for-Sale Securities.
c 18. Consolidated financial statements are typically prepared when one company
LO2 has
a. accounted for its investment in another company by the equity method.
b. significant influence over the operating and financial policies of another
company.
c. the controlling financial interest in another company.
d. a substantial equity interest in the net assets of another company.
d 19. At the beginning of the year a company had a debit balance in the account
LO5 Market Adjustment--Trading Securities. During the year the company did
not
buy or sell any trading securities, but at the end of the year the related
market
adjustment account had a credit balance. This change indicates that
a. a loss on the income statement was recognized.
b. a gain on the
income statement was recognized.
c.the value of the
investment account increased.
d. the value of the investment account decreased.
b 20. The only significant difference between the provisions of international

LO9 accounting standards as promulgated by IAS 39 and U.S. accounting

standards under FASB Statement No. 115 is
a. IAS 39 requires accounting for all investments in debt securities to be on
a fair value basis while SFAS No. 115 does not.
b. IAS 39 allows all unrealized gains and losses on securities valued at fair
value to be reported in net income for the period while SFAS No. 115
does not.
c. IAS 39 requires trading securities to be reported on a fair value basis but
not securities available for sale.
d. IAS 39 does not permit the reporting of unrealized gains and losses on
securities other than trading securities to be recorded as part of equity.
d 21. Which of the following is true?

LO8 a. Trading securities can be classified as current of noncurrent depending
on management’s intent.
b. Held-to-maturity securities should not be classified as current under any
circumstance.
c. Trading securities should not be classified as current under any
circumstance.
d. Available-for-sale securities can be classified as current or noncurrent
depending on management’s intent.
b 22. On August 1, 2001, Colorite Corp. acquired 10,000 of the outstanding

shares
LO2 of Brown Co. On January 2, 2002, Colorite acquired an additional 20,000
shares of Brown Co., which brought the total ownership to 30,000 shares.
Using the normal guidelines for percentages of ownership and assuming
that Brown Co. had 100,000 shares outstanding during 2001 and 2002,
Colorite Corp. should account for the investment in Brown Co. by
a. using the cost method in 2001 and the equity method in 2002.
b. using the cost method in 2001, retroactively adjusting the investment
account to the equity method at the beginning of 2002, and using the
equity method in 2002.
c. using the equity method for 2001 and 2002.
d. using the cost method in 2001 and 2002 for the 10,000 shares acquired
in 2001, and using the equity method in 2002 for the 20,000 shares
acquired in 2002.
d 23. Poster Inc. owns 35 percent of Elliott Corporation. During the calendar year
LO4 2002, Elliott had net earnings of $300,000 and paid dividends of $36,000.
Poster mistakenly accounted for the investment in Elliott using the cost
method rather than the equity method of accounting. What effect would this
have on the investment account and net income, respectively?
a. Understate, overstate
b. Overstate, understate
c. Overstate, overstate
d. Understate, understate
c 24. If an investment in stock is reclassified from available- for- sale securities to

LO7 trading securities, the stock should be recorded on the date it is reclassified
at the
a. market value at the date of acquisition.
b. book value at the date of reclassification.
c. market value at the date of reclassification.
d. lower- of- cost- or- market value at the date of reclassification.
c 25. Northwick Company acquired 10,000 shares of the common stock of Shaver
LO4 Corp. in July 2002. The following January, Shaver announced a $100,000
net income for 2002 and declared a cash dividend of $.50 per share on its
100,000 shares of outstanding common stock. The Northwick Company
dividend revenue from Shaver Corp. in January 2002 would be
a. $0.
b. $2,500.
c. $5,000.
d. $10,000.
c 26. On January 2, 2001, Reynolds Corporation bought 15 percent of Scorpio

LO4 Corporation’s capital stock for $60,000 and classified it as available-for-sale
securities. Scorpio’s net incomes for the years ended December 31, 2001
and 2002, were $20,000 and $100,000, respectively. During 2002, Scorpio
declared a dividend of $140,000. No dividends were declared in 2001. On
December 31, 2002, the fair value of the Scorpio stock owned by Reynolds
had increased to $90,000. How much should Reynolds show on its 2002
income statement as income from this investment?
a. $3,150
b. $15,000
c. $21,000
d. $51,000
a 27. On January 2, 2002, Adler Co. acquired 2,000 shares of Boxworth Co.
LO4 common stock for $8,000 and classified these shares as available-for-sale
securities. During 2002, Adler received $6,000 of cash dividends. Adler’s
share of Boxworth’s 2002 earnings (net income) was $5,000. The fair value
of Boxworth's stock on December 31, 2002, was $7 per share. Adler should
report what amount in 2002 related to Boxworth Co.?
a. Revenue of $6,000
b. Revenue of $12,000
c. A $1,000 decrease in the investment account
d. A $1,000 increase in the investment account
b 28. On January 1, 2002, Young Co. paid $500,000 for 20,000 shares of
Montana
LO5 Co.’s common stock and classified these shares as trading securities.
Young does not have the ability to exercise significant influence over
Montana. Montana declared and paid a dividend of $.50 a share to its
stockholders during 2002. Montana reported net income of $260,000 for the
year ended December 31, 2002. The fair value of Montana Co.'s stock at
December 31, 2002, is $27 per share. What is the net asset amount (which
includes both investments and any related market adjustments) attributable
to the investment in Montana that will be included on Young's balance sheet
at December 31, 2002?
a. $530,000
b. $540,000
c. $569,000
d. $579,000
c 29. Martin Co. purchased the following portfolio of trading securities during 2002
LO5 and reported the following balances at December 31, 2002. No sales
occurred during 2002. All declines are considered to be temporary.
Security Cost Market Value at 12/31/02
X $ 80,000 $ 82,000
Y 140,000 132,000
Z 32,000 28,000
The carrying value of the portfolio at December 31, 2002, on Martin Co.’s
balance sheet would be
a. $222,000.
b. $240,000.
c. $242,000.
d. $252,000.
a 30. Martin Co. purchased the following portfolio of available-for-sale securities

LO5 during 2002 and reported the following balances at December 31, 2002. No
sales occurred during 2002. All declines are considered to be temporary.
X $ 80,000 $ 82,000
Y 140,000 132,000
Z 32,000 28,000
Martin Co. should report what amount related to the securities transactions
in its 2002 income statement?
a. $0
b. $2,000 unrealized loss
c. $10,000 unrealized loss
d. $12,000 unrealized loss
a 31. Marino Corporation purchased the following portfolio of trading securities

LO6 during 2002 and reported the following balances at December 31, 2002. No
sales occurred during 2002. All declines are considered to be temporary.
X $ 80,000 $ 82,000
Y 140,000 132,000
Z 32,000 28,000
The only transaction in 2003 was the sale of security Z for $34,000 on
December 31, 2003. The market values for the other securities at
December 31, 2003 were the same as at December 31, 2002. Marino's
entry to record the sale of security Z would include
a. a credit of $2,000 to Realized Gain on Sale of Trading Securities.
b. a debit of $2,000 to Realized Gain on Sale of Trading Securities.
c. a $2,000 debit to Market Adjustment-Trading Securities.
d. a $4,000 debit to Market Adjustment-Trading Securities.
c 32. In March of 2001, Moon Corp. bought 45,000 shares of McMahon Corp.’s
listed
LO7 stock for $450,000 and classified the shares as available-for-sale securities.
The market value of these shares had declined to $300,000 by December
31, 2001. Moon changed the classification of these shares to trading
securities in June of 2002 when the market value of this investment in
McMahon's stock had risen to $345,000. How much should Moon include
as a loss on transfer of securities in its determination of net income for 2002?
a. $0
b. $45,000
c. $105,000
d. $150,000
c 33. Walsh, Inc. began business on January 1, 2002, and at December 31, 2002,
LO5 Walsh had the following investment portfolios of equity securities:
Trading Available-For-Sale
Aggregate cost $150,000 $225,000
Aggregate market value 120,000 185,000
None of the declines is judged to be other than temporary. Unrealized

losses at December 31, 2002, should be recorded with corresponding
charges against
Stockholders’
Income Equity
a. $70,000 $ 0
b. $40,000 $30,000
c. $30,000 $40,000
d. $ 0 $70,000
c 34. In January 2002, Henry Corporation acquired 20 percent of the outstanding

LO4 common stock of Davis Company for $1,120,000. This investment gave
Henry the ability to exercise significant influence over Davis. The book
value of the acquired shares was $840,000. The excess of cost over book
value was attributed to an identifiable intangible asset that was undervalued
on Davis’ balance sheet and that had a remaining useful life of ten years.
For the year ended December 31, 2002, Davis reported net income of
$252,000 and paid cash dividends of $56,000 on its common stock. What is
the proper carrying value of Henry’s investment in Davis at December 31,
2002?
a. $1,080,800
b. $1,092,000
c. $1,131,200
d. $1,181,600
c 35. On January 1, 2002, Capitech Corporation acquired Logirun, Inc. as a

LO4 long- term investment for $250,000 (a 30 percent common stock interest in
Logirun). On that date, Logirun had net assets with a book value and
current market value of $800,000. During 2002, Logirun reported net
income of $90,000 and declared and paid cash dividends of $20,000. What
is the maximum amount of income that Capitech should report from this
investment for 2002?
a. $6,000
b. $21,000
c. $26,750
d. $27,000
b 36. On January 1, 2002, Mets Inc. purchased 30 percent of the outstanding

LO4 common stock of Pirates Corporation for $516,000 cash. Mets is
accounting for this investment using the equity method. On the date of
acquisition, the fair value of Pirates' net assets was $1,240,000. Mets has
determined that the excess of the cost of the investment over its share of
Pirates' net assets is attributable to goodwill, which will be amortized over
the maximum allowable period. Pirates’ net income for the year ended
December 31, 2002, was $360,000. During 2002, Pirates declared and paid
cash dividends of $40,000. There were no other transactions between the
two companies. On December 31, 2002, the investment in Pirates should
be recorded as
a. $392,400.
b. $608,400.
c. $612,000.
d. $624,000.
b 37. On January 1, 2002, Mets Inc. purchased 30 percent of the outstanding

LO4 common stock of Pirates Corporation for $516,000 cash. Mets is
accounting for this investment using the equity method. On the date of
acquisition, the fair value of Pirates' net assets was $1,240,000. Mets has
determined that the excess of the cost of the investment over its share of
Pirates' net assets is attributable to goodwill, which will be amortized over
the maximum allowable period. Pirates' net income for the year ended
December 31, 2002, was $360,000. During 2002, Pirates declared and paid
cash dividends of $40,000. There were no other transactions between the
two companies. Ignoring income taxes, Mets’ statement of income for the
year ended December 31, 2002, should include "Income From Investment
in Pirates Corporation Stock" in the amount of
a. $68,000.
b. $104,400.
c. $108,000.
d. $111,600.
b 38. On April 1, 2002, Ziba Inc. purchased as a temporary investment $100,000,

LO3 face amount, 10% U.S. Treasury notes; they pay interest semiannually on
January 1 and July 1. The notes were purchased at 102. Which of the
following entries correctly records this purchase?
a. Trading Securities--10% U.S. Treasury Notes............ 100,000
Interest Receivable.......................................................... 2,500
Premium on Trading Securities...................................... 2,000
Cash............................................................................. 104,500
b. Trading Securities--10% U.S. Treasury Notes............ 102,000
Cash............................................................................. 104,500
c. Trading Securities--10% U.S. Treasury Notes............ 100,000
Cash............................................................................. 104,500
d. Trading Securities--10% U.S. Treasury Notes............ 102,000
Cash............................................................................. 102,000
b 39. Edwards Company began business in February of 2001. During the year,
LO5 Edwards purchased the three trading securities listed below. On its
December 31, 2001, balance sheet, Edwards appropriately reported a
$4,000 credit balance in its Market Adjustment--Trading Securities account.
There was no change during 2002 in the composition of Edward’s portfolio
of trading securities. Pertinent data are as follows:
Market Value
Security Cost December 31, 2002
A $120,000 $126,000
B 90,000 80,000
C 160,000 157,000
$370,000 $363,000
What amount of loss on these securities should be included in Edward’s

income statement for the year ended December 31, 2002?
a. $0
b. $3,000
c. $7,000
d. $11,000
d 40. Edwards Company began business in February 2001. During the year,
LO5 Edwards purchased the three trading securities listed below. On its
December 31, 2001, balance sheet, Edwards appropriately reported a
$4,000 debit balance in its Market Adjustment--Trading Securities account.
There was no change in 2002 in the composition of Edward’s portfolio of
marketable equity securities held as a temporary investment. Pertinent data
are as follows:
Market Value
A $120,000 $126,000
B 90,000 80,000
C 160,000 157,000
$370,000 $363,000
What amount should Edwards credit to the Market Adjustment--Trading

Securities account at December 31, 2002?
a. $0
b. $3,000
c. $7,000
d. $11,000
b 41. Tyler Company began operations in 2001. The company's trading

securities
LO5 portfolio, which did not change in composition during 2002, is as follows:
December 31, 2002
Unrealized
Cost Market Gain (Loss)
Archer, Inc......................... $ 100,000 $ 100,000 $ 0
Kelly Company.................. 200,000 150,000 (50,000)
Pelt Company................... 250,000 260,000 10,000
$ 550,000 $ 510,000 $ (40,000)
December 31, 2001

Unrealized
Cost Market Gain (Loss)
Archer, Inc......................... $ 100,000 $ 135,000 $ 35,000
Kelly Company.................. 200,000 210,000 10,000
Pelt Company................... 250,000 180,000 (70,000)
$ 550,000 $ 525,000 $ (25,000)
Ignoring income taxes, what amount should be reported as an unrealized

loss on trading securities in Tyler’s 2002 income statement?
a. $0
b. $15,000
c. $25,000
d. $40,000
b 42. On August 31, 2002, Stiggins Company purchased the following available-
for-
LO7 sale securities:
Market Value
D $ 96,000 $ 84,000
E 152,000 158,000
F 162,000 146,000
On December 31, 2002, Stiggins reclassified its investment in security F

from available-for-sale securities to trading securities. What total amount of
loss on these securities should be included in Stiggins’ income statement for
the year ended December 31, 2002?
a. $0
b. $16,000
c. $22,000
d. $28,000
d 43. During 2001, Barney Company purchased marketable equity securities as a

LO6 short- term investment and classified them as trading securities. The cost
and market value at December 31, 2001, were as follows:
Market Value
X 200 shares $ 8,400 $ 10,200
Y 2,000 shares 51,000 45,900
Z 4,000 shares 94,500 88,500
$153,900 $144,600
Barney sold 1,000 shares of Company Y stock on March 16, 2002, for $25
per share, incurring $1,200 in brokerage commissions and taxes. On the
sale, Barney should report a realized loss of
a. $0.
b. $500.
c. $850.
d. $1,700.
b 44. On October 1, Dennis Company purchased $200,000 face value 12% bonds
LO3 for 98 plus accrued interest and brokerage fees and classified them as held-
to-maturity securities. Interest is paid semiannually on January 1 and July 1.
Brokerage fees for this transaction were $700. At what amount should this
acquisition of bonds be recorded?
a. $196,000
b. $196,700
c. $202,000
d. $202,700
PROBLEMS
Problem 1
In 2002, KZF Inc. purchased stock as follows:
(a) Acquired 2,000 shares of Gallery Arts Corp. common stock (par value $20) in
exchange for 1,200 shares of KZF Inc. preferred stock (par value $30). The
preferred stock had a market value of $75 per share on the date of the
exchange.
(b) Purchased 800 shares of Champion Corp. common stock (par value $10) at
$70 per share, plus a brokerage fee of $800.
At December 31, 2002, the market values of the securities were as follows:
Security Market Value

KZF Inc. $71
Gallery Arts Corp. 41
Champion Corp. 72
The investments in common stock are classified by KZF Inc. as available-for-sale

securities accounted for by the cost method. The fiscal year of KZF ends on
December 31.
(1) Prepare all entries relating to the investments in common stock for 2002.
(2) Prepare the entry to record the sale of 200 shares of Champion Corp. common
stock on January 15, 2003, at $74 per share.
(3) Prepare the entry to reclassify the remaining 600 shares of Champion Corp.
common stock from available-for-sale securities to trading securities on
January 31, 2003. The stock was selling at $67 per share on that date.
Solution 1
LO3, LO5, LO6
(1) Available-for-Sale Securities--Gallery Corp.
Stock (1,200 x $75)..................................................................... 90,000
Preferred Stock (1,200 x $30).......................................... 36,000
Paid- In Capital in Excess of Par (1,200 x $45)............. 54,000
Available-for-Sale Securities--Champion Corp.

Stock [(800 x $70) + $800]........................................................... 56,800
Cash .............................................................................. 56,800
Market Increase/
Security Cost Value Decrease
Gallery Corp. $ 90,000 $ 82,000 $(8,000) (2,000 x $41)
Champion Corp. 56,800 57,600 800 (800 x $72)
$146,800 $139,600 $(7,200)
Unrealized Increase/Decrease in Value of Available-for-

Sale Securities........................................................................ 7,200
Market Adjustment–Available-for-Sale Securities.... 7,200
(2) Cash (200 x $74)........................................................................ 14,800

Realized Gain on Sale of Trading Securities
[($74-$71) x 200]................................................................. 600
Available-for-Sale Securities--Champion Corp. Stock 14,200
(3) Investment in Trading Securities--Champion Corp. Stock

(600 x $67)................................................................................ 40,200
Unrealized Increase/Decrease in Value of Available-for-
Sale Securities--Equity.......................................................... 600
Unrealized Loss on Transfer of Securities--Income......... 2,400
Market Adjustment--Available-for-Sale Securities... 600
Investment in Available-for-Sale Securities--Champion
Corp. Stock................................................................. 42,600
Problem 2
Webster Inc. carries the following marketable equity securities on its books at
December 31, 2001 and 2002. All securities were purchased during 2001 and
there were no beginning balances in any market adjustment accounts.
Trading Securities:
Market Market
Cost December 31, 2001 December 31, 2002
V Company $ 50,000 $ 26,000 $ 40,000
W Company 26,000 40,000 40,000
X Company 70,000 60,000 50,000
Total $146,000 $126,000 $130,000
Available-for-Sale Securities:
Y Company $420,000 $360,000 $100,000

Z Company 100,000 120,000 140,000
Total $520,000 $480,000 $240,000
The cost method is used in accounting for all investments in securities.
(1) Give the entries necessary to record the valuations for both trading and
available-for-sale securities at December 31, 2001 and 2002.
(2) What net effect would these valuations have on 2001 and 2002 net income?
Solution 2
LO5
(1) 2001
Dec. 31 Unrealized Loss on Trading Securities ................... 20,000
Market Adjustment--Trading Securities...... 20,000
Unrealized Increase/Decrease in Value of

Available-for-Sale Securities.................................... 40,000
Market Adjustment--Available-for-Sale
Securities............................................................... 40,000
2002
Dec. 31 Market Adjustment--Trading Securities.................. 4,000
Unrealized Gain on Trading Securities............. 4,000
Dec. 31 Unrealized Increase/Decrease in Value of

Available-for-Sale Securities.................................. 240,000
Market Adjustment–Available-for-Sale
Securities............................................................. 240,000
(2) Effect of valuation entries on 2001 net income:

Recognized decline in value of trading securities.......... $(20,000)
Effect of valuation entries on 2002 net income:

Recognized increase in value of trading securities....... $4,000
Problem 3
On January 1, 2002, Alsop Corp. acquired 30 percent (13,000 shares) of Stone
Services Inc. common stock for $1,300,000 as a long- term investment. Data from
Stone’s 2002 financial statements include the following:
Net income.................................................................................... $330,000

Less cash dividends paid............................................................ 160,000
Increase in retained earnings..................................................... $170,000
The market value of Stone Services Inc. common stock on December 31, 2002,
was $98 per share. Alsop does not have any other noncurrent investments in
securities.
Prepare the necessary journal entries for Alsop’s investment in Stone Services Inc.
common stock under
(1) the cost method classified as available-for-sale securities.
(2) the equity method.
Solution 3
LO4, LO5
(1) Investment in Available-for-Sale Securities--Stone
Services Stock........................................................................ 1,300,000
Cash................................................................................ 1,300,000
Cash ($160,000 x 30%)............................................................... 48,000

Dividend Revenue......................................................... 48,000
Unrealized Increase/Decrease in Value of Available-

for-Sale Securities--Equity (13,000 shares x $2)...................... 26,000
Market Adjustment--Available-for-Sale Securities... 26,000
(2) Investment in Stone Services Inc........................................ 1,300,000

Cash................................................................................ 1,300,000
Cash......................................................................................... 48,000
Investment in Stone Services Inc. Stock................... 48,000
Investment in Stone Services Inc. Stock

($330,000 x 30%).......................................................................... 99,000
Income from Investment in Stone Services
Inc. Stock........................................................................ 99,000
Problem 4
On January 1, 2002, Gardner Associates purchased 30 percent of the outstanding
shares of stock of Gillen Corp. for $150,000 cash. The investment will be
accounted for by the equity method. On that date, Gillen’s net assets (book and fair
value) were $300,000. Gardner has determined that the excess of the cost of its
investment in Gillen over its share of Gillen’s net assets is attributable to goodwill,
which will be amortized over the maximum allowable period.
Gillen’s net income for the year ended December 31, 2002, was $60,000. During
2002, Gardner received $5,000 cash dividends from Gillen. There were no other
transactions between the two companies.
Compute the amount that would be reported on Gardner Associates’ books for the
investment in Gillen Corp. at December 31, 2002.
Solution 4
LO4
Investment in Gillen Corp. stock:
Original investment......................................................................... $150,000
Share of net income--30% of $60,000......................................... 18,000
Amortization of implied goodwill*.................................................. (1,500)
Dividends received.......................................................................... (5,000)
Total.............................................................................................$161,500
* Implied value of Gillen Corp.:

Implied value: $150,000/.30 = $500,000
Implied goodwill: $500,000 - $300,000 = $200,000
Gardner's share of goodwill: $200,000 x .3 = $60,000
Amortization of implied goodwill: $60,000/40- year life = $1,500
Problem 5
On July 1, 2002, Mountain Systems acquired 8,000 shares of Precision Services’
40,000 outstanding common shares at a cost of $240,000. The book value and fair
market value of Precision's net assets on that date was $880,000. The following
data pertain to Precision Services for 2002.
Net income reported in 2002:

January 1 - June 30....................................................................... $28,000
July 1 - December 31..................................................................... 36,000
Total............................................................................................. $64,000
Cash dividends declared and paid:

January 1 - June 30....................................................................... $30,000
July 1 - December 31..................................................................... 30,000
Total............................................................................................. $60,000
(1) Prepare the entry to record the original investment on July 1.

(2) Compute the goodwill (if any) on the purchase.
(3) Prepare the necessary entries (other than acquisition) for 2002 on Mountain
Systems’ books using the cost method.
(4) Prepare the necessary entries (other than acquisition) for 2002 on Mountain
Systems’ books using the equity method.
Solution 5
LO4, LO5
(1) Investment in Precision Services Stock........................... 240,000
Cash............................................................................. 240,000
(2) Goodwill computation:

Purchase price..................................................................... $240,000
Fair market value of net assets................................ $880,000
8,000/40,000 shares.................................................. x 20%
Fair market value of Mountain’s share of net assets..... 176,000
Goodwill................................................................................ $ 64,000
(3) Cost method:

Cash ($30,000 x 20%).............................................................. 6,000
Dividend Revenue...................................................... 6,000
Cash dividends received (July 1 - December 31).
(4) Equity method:

Cash...................................................................................... 6,000
Investment in Precision Services Stock.................. 6,000
Cash dividends received (July 1 - December 31).
Investment in Precision Services Stock ($36,000 x 20%).. 7,200

Income from Investment in Precision Stock........... 7,200
20% share of investee earnings (July 1 - December 31).
Income from Investment in Precision Stock

($64,000/40 yrs. x ½ yr.).......................................................... 800
Investment in Precision Services Stock.................. 800
Amortization of goodwill for 6 months.
Problem 6
Joseph Co. executed the following long- term investment transactions during the
current year.
Feb. 6 Purchased 1,000 shares of Large Auto Co. for $40 per share plus
brokerage costs of $225. These shares were classified as trading
securities.
Mar. 31 Purchased 60,000 of the 200,000 outstanding common shares of New

Tech Corp. for $600,000. Goodwill of $160,000 was included in the
purchase price.
June 20 Received a $2.20 per share dividend on Large Auto Co. shares.
June 30 New Tech Corp. reported second quarter earnings (total) of $40,000.
Sept. 4 Acquired 4,000 shares of Mega Conglomerate’s stock for $30 per share
plus $600 transaction costs. These shares were classified as available-
for-sale securities.
Dec. 31 Market values of Large Auto Co. and Mega Conglomerate stock were
$45 and $28 per share, respectively.
Prepare journal entries with appropriate supporting computations for the year’s
transactions.
Solution 6
LO4, LO5
Feb. 6 Investment in Trading Securities--
Large Auto Co. Stock................................................ 40,225
Cash....................................................................... 40,225
Mar. 31 Investment in New Tech Corp. Stock...................... 600,000

Cash....................................................................... 600,000
June 20 Cash (1,000 x $2.20)....................................................... 2,200

Dividend Revenue................................................ 2,200
June 30 Investment in New Tech Corp. Stock...................... 12,000

Income from Investment in New Tech Corp.
Stock....................................................................... 12,000
To record share of New Tech Corp. earnings
($40,000 x 30% ownership).
June 30 Income from Investment in New Tech Corp. Stock 1,000

Investment in New Tech. Corp. Stock............... 1,000
To record amortization of goodwill for three
months ($160,000/40 years x 3/12).
Sept. 4 Investment in Available-for-Sale Securities--Mega

Conglomerate Stock [(4,000 x $30) + $600].................. 120,600
Cash....................................................................... 120,600
Dec. 31 Market Adjustment–Trading Securities................... 4,775

Unrealized Gain on Trading Securities............. 4,775
Unrealized Increase/Decrease in Value of
Available-for-Sale Securities.................................... 8,600
Market Adjustment--Available-for-Sale Securities 8,600
Cost Market
Large Auto Co......................................................................... $ 40,225 $ 45,000
Mega Conglomerate.............................................................. 120,600 112,000
Problem 7
On July 1, 2002, The Woodward Group purchased for cash 35 percent of the
outstanding capital stock of Massey Studios. Both The Woodward Group and
Massey Studios have a December 31 year- end. Massey Studios, whose common
stock is actively traded in the over- the- counter market, reported its total net income
for the year to The Woodward Group and also paid cash dividends on November 15,
2002, to The Woodward Group and its other stockholders.
How should The Woodward Group report the above facts in its December 31, 2002,
balance sheet and its income statement for the year then ended? Discuss the
rationale for your answer.
Solution 7
LO4
The Woodward Group should follow the equity method of accounting for its
investment in Massey Studios because The Woodward Group is presumed,
because of the size of its investment, to be able to exercise significant influence
over the operating and financial policies of Massey Studios.
In 2002, The Woodward Group should report its interest in Massey Studios’
outstanding capital stock as a long- term investment. Following the equity method
of accounting, The Woodward Group should record the cash purchase of 35
percent of Massey Studios at cost, which is the amount paid.
Thirty- five percent of Massey Studios’ total net income from July 1, 2002, to
December 31, 2002, should be added to the carrying amount of the investment in
The Woodward Group’s balance sheet and shown as revenue in its income
statement to recognize The Woodward Group’s share of the net income of Massey
Studios after the date of acquisition. This amount should reflect adjustments similar
to those made in preparing consolidated statements, including adjustments to
eliminate intercompany gains and losses, and to amortize, if appropriate, any
difference between The Woodward Group’s cost and the underlying equity in net
assets of Massey Studios on July 1, 2002.
The cash dividends paid by Massey Studios to The Woodward Group should
reduce the carrying amount of the investment in The Woodward Group’s balance
sheet and have no effect on The Woodward Group’s income statement.
Problem 8
On February 1, 2002, Pyle Inc. had excess cash on hand. The controller suggested
to management that the company buy $200,000 of U.S. Treasury bonds selling at
102 and paying 8 percent interest. Interest payments on these bonds are made
semiannually on January 1 and July 1.
(1) Prepare entries to record the February purchase of U.S. Treasury bonds and
the subsequent collection of interest on July 1, using
(a) the asset approach.
(b) the revenue approach.
(2) Assuming that these bonds were acquired as an investment in trading

securities, explain whether the premium or discount should be amortized.
Solution 8
LO2, LO4
(1) (a) Investment--Trading Securities................................... 204,000
Interest Receivable (200,000 x 8% x 1/12)....................... 1,333
Cash.......................................................................... 205,333
Cash .............................................................................. 8,000

Interest Receivable................................................. 1,333
Interest Revenue..................................................... 6,667
(b) Investment--Trading Securities................................... 204,000

Interest Revenue........................................................... 1,333
Cash.......................................................................... 205,333
Cash .............................................................................. 8,000

Interest Revenue..................................................... 8,000
(2) Periodic amortization of the premium or discount is used when bonds are
acquired at a higher or lower price than their maturity value and it is expected
that they will be held until maturity. However, when bonds are acquired as a
temporary investment and it is not likely that the bonds will be held until
maturity, such procedures are normally not applied.
Problem 9
The following transactions of the Snyder Company were completed during the fiscal
year just ended:
(a) Purchased $100,000 of U.S. Treasury 7% bonds, paying 102.5 plus

accrued interest of $1,750. In addition, the company paid brokerage fees
of $500.
Snyder Company uses the revenue approach to record accrued interest.
Snyder classified these bonds as a trading security.
(b) Purchased 1,000 shares of Ferris Company common stock at $125 per
share plus brokerage fees of $950. Snyder classifies this stock as and
available-for-sale security.
(c) Received semiannual interest on the U.S. Treasury Bonds.
(d) Sold 150 shares of Ferris at $132 per share.
(e) Sold $16,000 of U.S. Treasury 7% bonds at 102 plus accrued interest of
$93.
(f) Purchased a $12,000, 6-month certificate of deposit. The certificate is

classified as a trading security.
Prepare the entries necessary to record the above transactions.
Solution 9
LO6
(a) Investment in Trading Securities--Treasury Bonds.................. 103,000
Interest Revenue............................................................................ 1,750
Cash......................................................................................... 104,750
1.025 x 100,000 = $102,500; $102,500 + 500 brokerage fee = $103,000
(b) Investment in Available-for-Sale Securities...............................125,950

Cash......................................................................................... 125,950
(c) Cash................................................................................................. 3,500

Interest Revenue.................................................................... 3,500
(d) Cash.................................................................................................19,800
Investment in Available-for-Sale Securities....................... 18,893
Gain on Sale........................................................................... 907
$132 x 150 shares = $19,800; 150/1,000 x $125,950 = $18,893;

$19,800 - $18,893 = $907.
(e) Cash................................................................................................. 16,413
Realized Loss on Sale of Securities........................................... 160
Investment in Trading Securities--Treasury Bonds.......... 16,480
Interest Revenue.................................................................... 93
($16,000 x 1.02) + ($16,000 x .035 x 1/6) = $16,413.
$16,000/$100,000 x 103,000 = $16,480.
(f) Investment in Trading Securities--Certificate of Deposit......... 12,000

Cash......................................................................................... 12,000
Problem 10
Lee Company had the following portfolio of securities at the end of its first year of
operations:
Year-End
Security Classification Cost Market Value
A Trading $18,000 $23,000
B Trading $25,000 $27,000
(1) Provide the entry necessary to adjust the portfolio of securities to market value.
(2) After adjusting the securities to market, Lee elects to reclassify Security B as an
available-for-sale security. On the date of the transfer, Security B’s market value is
$26,500. Provide the journal entry to reclassify Security B.
Solution 10
LO7
(1) Market Adjustment--Trading Securities.............................. 7,000
Unrealized Gain on Trading Securities...................... 7,000
(2) Investment in Available-for Sale Securities--Security B... 26,500

Unrealized Loss on Transfer of Securities......................... 500
Market Adjustment--Trading Securities..................... 2,000
Investment in Trading Securities--Security B........... 25,000
Entry reclassifies security as available-for-sale at current fair value of $26,500

and removes historical cost of trading security of $25,000.
Unrealized loss represents the difference between fair value at the beginning of
the period and fair value on date of transfer.
Problem 11
On January 1, 2001, Paxman Company purchased 50% of Monroe Company for cash
of $660,000. On that date the net assets of Monroe Company had a book value of
$1,200,000. The difference between fair value and book value is attributed to goodwill
and is amortized over 20 years. On January 1, 2002, Paxman sold 70% of its
ownership in Monroe for $525,000 and reclassified the remaining stock as available-for-
sale. Net income and dividends for 2001 and 2002 for Monroe are given below:
2001 2002
Net income .............................................................................. $80,000 $90,000
Dividends................................................................................. 18,000 25,000
Prepare the required journal entries made by Paxman Company relating to its
investment in Monroe for the years 2001 and 2002 assuming no change in market value
during the 2-year period.
Solution 11
LO10
2001
Investment in Monroe Company.......................................... 660,000
Cash................................................................................ 660,000
Investment in Monroe Company.......................................... 40,000

Income from Investment in Monroe Stock................. 40,000
($80,000 x 50% = 40,000)
Cash......................................................................................... 9,000
Investment in Monroe Company................................. 9,000
($18,000 x 50% = 9,000)
Income from Investment in Monroe Stock.......................... 3,000

[$660,000 - ($1,200,000 x 50%) = $60,000]
($60,000  20 = $3,000]
2002
Cash......................................................................................... 525,000
Gain on Sale of Monroe Stock.................................... 43,400
Book value at end of 2001 = $660,000 + $40,000 - $9,000 - $3,000 = $688,000.

$688,000 x 70% = $481,600.
$525,000 - $481,600 = $43,400.
Cash......................................................................................... 3,750
Problem 12
Park Company purchased 18% of the outstanding common stock of Ray Company on
January 1, 2001, when the net assets of Ray Company had a book value and fair value
of $400,000. Park Company paid $72,000 for this investment. On January 1, 2002,
Park purchased an additional 10% of the outstanding stock of Ray Company, paying
another $41,000. (Assume the book and fair values of the net assets is $410,000). Ray
Company reported income and dividends for 2001 and 2002 are given below:
2001 2002
Net income .............................................................................. $40,000 $50,000
Dividends................................................................................. 30,000 30,000
Prepare the journal entries made by Park during 2001 and 2002 related to its
investment in Ray Company, including the adjusting entries needed to reflect the
change from an available-for-sale security to the equity method.
Solution 12
LO10
2001
Jan. 1 Investment in Available-for-Sale Securities
Ray Company......................................................................... 72,000
Cash................................................................................ 72,000
Dec. 31 Cash (.18 x $30,000).................................................................... 5,400

2002
Jan. 1 Investment in Ray Company................................................ 114,800
Cash................................................................................ 41,000
Retained Earnings......................................................... 1,800
Investment in Available-for-Sale Securities--
Ray Company................................................................ 72,000
Computation of adjustment to retained earnings:

Equity in Ray Co. earnings (18% x $40,000)................... $7,200
Dividends received........................................................ (5,400)
Retroactive adjustment to change from cost to
equity method................................................................ $1,800
Dec. 31 Investment in Ray Company (.28 x $50,000)........................... 14,000

Income from Investment in Ray Company................ 14,000
Cash......................................................................................... 8,400
Investment in Ray Company....................................... 8,400
Problem 13
The Financial Accounting Standards Board had several goals in issuing Statement of
Financial Accounting Standards No. 115, “Accounting for Certain Investments in Debt
and Equity Securities,” and changing the accounting for certain debt and equity
securities from a lower-of-cost-or-market basis to a fair value basis. Among these goals
was the elimination of what is termed “gains trading.”
Explain the meaning of the term “gains trading.”
Solution 13
LO5
The term “gains trading” refers to the practice of management of selectively selling
securities the prices of which have appreciated and including the realized gains in
earnings. Gains trading results from the use of amortized cost accounting and the
available-for-sale classification.
The use of amortized cost permits recognition of holding gains through selected sales of
appreciated securities and the inclusion of these realized holding gains in earnings. At
the same time, use of amortized cost does not provide for the recognition of unrealized
losses. Managers thus can selectively manage earnings by choosing to sell those
securities that have appreciated while selectively excluding unrealized losses from
earnings. Debt and equity securities classified as available-for-sale are reported at fair
value but unrealized changes in fair value are excluded from earnings. Managers again
can selectively sell securities the prices of which have appreciated and include the
realized gains in earnings. Securities for which prices have dropped are held. The
available-for-sale treatment thus permits unrealized gains and losses to be excluded
from earnings since these unrealized gains and losses are reported in a separate
component of stockholders’ equity.
Problem 14
Investments in debt securities currently are permitted to be classified as held-to-maturity
and accounted for at amortized cost if an enterprise has the positive intent and ability to
hold these securities to maturity. The held-to-maturity classification is the most
restrictive of the three classifications specified in accounting standards. Despite the
restrictiveness of the held-to-maturity classification, certain changes in circumstances
may occur that would necessitate transferring an investment in a debt security from the
held-to-maturity classification without calling into question the investor’s general
intention to hold other similarly classified investments to maturity.
What types of circumstances would cause an investor in debt securities classified as

held-to-maturity to change that classification without calling into question the intent of
the investor to hold other similarly classified investments to maturity?
Solution 14
LO2
The following changes in circumstances may cause an investor to change its intent to
hold a certain security to maturity without calling into question its intent to hold other
debt securities to maturity in the future:
1. Evidence of a significant deterioration in the issuer’s creditworthiness. The

deterioration must be actual and not based on speculation.
2. A change in tax law eliminates or reduces the tax-exempt status of interest

on the debt security. This provision does not include a change in tax law
that revises the marginal tax rates applicable to interest income.
3. A major business combination or major disposition (such as the sale of a

segment) necessitates the sale or transfer of held-to-maturity securities to
maintain the enterprise’s existing interest rate risk position or credit risk policy.
4. A change in statutory or regulatory requirements significantly modifying

either what constitutes a permissible investment or the maximum level of
investments in certain kinds of securities, thereby causing an enterprise to
dispose of a held-to-maturity security.
5. A significant increase by the regulator in the industry’s capital requirements

that causes the enterprise to downsize by selling held-to-maturity securities.
6. A significant increase in the risk weights of debt securities used for

regulatory risk-based capital purposes.
Problem 15
On January 1, 2001, Arthur Company paid $450,000 for 10,000 shares of DW
Company voting common stock, which represented a 15% interest in DW. At this date,
the net assets of DW Company totaled $2.5 million. The fair values of DW Company’s
identifiable assets and liabilities were equal to their book values. Arthur did not have
the ability to exercise significant influence over the operating and financial policies of
DW as a result of this investment. Arthur received dividends of $0.80 per share from
DW on October 1, 2001. DW reported net income of $300,000 for the year ended
December 31, 2001. The stock was classified as available-for-sale. Market prices for
the 10,000 shares was $450,000.
On July 1, 2002, Arthur paid $1,550,000 for 30,000 shares of DW Company’s voting
common stock, which represents a 25% interest in DW. The fair value of the identifiable
assets, net of liabilities of DW was equal to their book values of $4,650,000. As a result
of this transaction, Arthur acquired the ability to exercise significant influence over the
operating and financial policies of DW. Arthur received a dividend of $0.85 per share
from DW on April 1, 2002, and $1.40 per share on October 1, 2002. DW reported net
income of $350,000 for the year ended December 31, 2002, and $150,000 for the six
months ended December 31, 2002. Arthur amortizes goodwill over 20 years.
Determine the amount of income from the investment in DW common stock that should
be reported on Arthur’s income statement for the year ended December 31, 2002, and
December 31, 2001 (restated).
Solution 15
LO10 2002 2001
Income from investment in DW Company......................................... $90,000
$45,000
Less: Goodwill amortization............................................................... 13,438
3,750
Income from investment....................................................................... 76,562
$41,250
Arthur’s share of DW income: 2002 2001

Income for 2001 (300,000 x .15)......................................................... $45,000
Income for 2002:

First half (200,000 x .15)…………………..……………………. $30,000
Second half (150,000 x .40)......................................................... 60,000
$90,000 $45,000
Goodwill amortization:
Goodwill on 2001 acquisition:
[$450,000 – (.15 x $2,500,000) = $75,000  20]..............................$ 3,750 $ 3,750
Goodwill on 2002 acquisition:
[$1,550,000 – (.25 x $4,650,000) = $387,500  20 x ½]................. 9,688
$13,438 $ 3,750
Problem 16
EMD Corp. loaned $200,000 to Alco Corp. on January 1, 2001. The terms of the loan
require principal payments of $40,000 each year for five years plus interest at 8%. The
first principal and interest payment is due on January 1, 2002. Alco made the required
payments during 2002 and 2003. Alco began to experience financial difficulties in 2003,
however, which made it necessary for EMD to reassess the likelihood of the loan being
collected. On December 31, 2003, EMD determines that the principal payments will be
collected, but that the collection of interest is unlikely.
(1) Compute the present value of the expected future cash flows as of December 31,
2003.
(2) Provide the journal entry to record the loan impairment as of December 31, 2003.
(3) Provide the journal entries for 2004 to record receipt of the principal payment on
January 1 and the recognition of interest revenue as of December 31, assuming that
EMD’s assessment of the likelihood of collecting the loan has not changed.
Solution 16
LO11
(1) Present value of expected future cash flows:
Date Payment Time of Discount Table Value Present Value at 8%

Jan. 1, 2004 $40,000 now 1.000 $ 40,000
Jan. 1, 2005 $40,000 1 year .9259 37,036
Jan. 1, 2006 $40,000 2 years .8573 34,292
Present value at December 31, 2003 $111,328
(2) Journal entry to record impairment:
12/31/2003 Bad Debt Expense………………………………… 8,672

Allowance for Loan Impairment........................ 8,672
(3) Journal entries made during 2004:
1/01/2004 Cash………………………………………………… 40,000

Loan Receivable………………….…………… 40,000
12/31/2004 Allowance for Loan Impairment............................. 5,706

Interest Revenue……………………………… 5,706
[($111,328 - $40,000) x .08 = 5,706]
CHAPTER 14 -- QUIZ A
Name _________________________
Section ________________________
T F 1. An investment in stock is initially recorded at cost and all commissions, taxes,

and other fees are expensed as incurred, under both the cost and equity
methods.
T F 2. Under some circumstances, consolidated financial statements are appropriate

even though the parent company owns less than 50 percent of the voting stock
of the subsidiary.
T F 3. Accounting practice allows companies not to consolidate certain

majority- owned subsidiaries if these subsidiaries have “nonhomogeneous”
operations, a large minority interest, or a foreign location.
T F 4. The cost method of accounting should always be used when the investor does
not exercise significant influence over the investee.
T F 5. The equity method may not be appropriate in some cases even though the
investor owns more than 20 percent of the voting stock of the investee.
T F 6. As a general rule, consolidated financial statements should be prepared only

when the parent corporation owns 80 percent or more of the outstanding
common stock of the subsidiary.
T F 7. Under the cost method, the investment account is periodically adjusted to

reflect changes in the underlying net assets of the investee.
T F 8. When an investment in equity securities has been accounted for under the
equity method, but circumstances dictate a change to the cost method,
retroactive application of the cost method is required.
T F 9. When the purchase price of stock is greater or less than the underlying book
value of the investee’s net assets, an adjustment is made by the investor to
the income reported by the investee in applying the equity method.
T F 10. No adjustment is made to the investment account when changing from the
equity method to the cost method.
CHAPTER 14 -- QUIZ B
Name _________________________
Section ________________________
T F 1. Unrealized holding gains and losses on investments in trading securities are

recognized on the income statement.
T F 2. Unrealized gains and losses on investments in available-for-sale securities are

recognized on the income statement.
T F 3. A debit balance in the account Market Adjustment—Available-for-Sale

Securities implies a corresponding owners' equity account with a credit
balance of the same amount.
T F 4. For balance sheet classification, securities are classified as short- term or long-
term investments based on management’s intended holding period.
T F 5. The net reported balance in the available-for-sale securities investment

account is the original cost plus a credit balance in the market adjustment
account or minus a debit balance in the market adjustment account.
T F 6. When investments in trading securities are sold, the realized gain or loss is the
difference in the market value since acquisition.
T F 7. Unrealized holding gains on investments in held-to-maturity securities are

recognized as a direct increase to owners' equity.
T F 8. Increases in the market value of trading securities and available-for-sale

securities investments cause the related market adjustment account to
decrease.
T F 9. Investments in trading securities may be classified as current or long- term.
T F 10. If an investor does not have a controlling interest in another company, the
investor may choose to use either the cost method or the equity method to
account for that investment in equity securities.
569
CHAPTER 14 -- QUIZ C
Name _________________________
Section ________________________
A. Cost method H. Equity method

B. Significant influence I. Merger
C. Parent company J. Consolidation
D. Long- term investments K. Nonconvertible investments
E. Subsidiary company L. Executory contract
F. Market method M. Available-for-sale securities
G. Control N. Trading securities
Select the term that best fits each of the following definitions and descriptions. Indicate
your answer by placing the appropriate letter in the space provided.
____ 1. A company that is owned or controlled by another company.
____ 2. The ability of an investor to impact the operating, investing, and financing
decisions of an investee but not absolutely determine those decisions.
____ 3. The ability of an investor to decisively influence the operating, investing,

and financial decisions made by an investee.
____ 4. An accounting method under which the initial investment is recorded and
maintained at cost with dividends being recognized as revenue when
received.
____ 5. An accounting method that combines the financial statement balances of

the parent and subsidiary companies as if they were one total economic
unit.
____ 6. A company that exercises control over other companies through majority
ownership of voting stock.
____ 7. An accounting method under which the initial investment is recorded at cost
and subsequently is increased by a proportionate share of earnings and
decreased by dividends.
____ 8. Investments that are either not readily marketable or not expected to be
converted to cash within a year.
____ 9. Securities purchased with the intent of selling them in the near future.
570
____ 10. Securities purchased without the intent of selling them in the near future.
CHAPTER 14 -- QUIZ SOLUTIONS

Quiz A Quiz B Quiz C
1. F 1. T 1. E
2. F 2. F 2. B
3. F 3. T 3. G
4. T 4. T 4. A
5. T 5. F 5. J
6. F 6. F 6. C
7. F 7. F 7. H
8. F 8. F 8. D
9. T 9. F 9. N
10. T 10. F 10. M
Chapter 28
PROPERTY, PLANT AND EQUIPMENT
Problem 28-1 (AICPA Adapted)

At the beginning of the current year, Town Company purchased for
P5,400,000, including appraiser’s fee of P50,000, a warehouse building
and the land on which it is located. The following data were available
concerning the property:
Current Seller’s
Apprased value original cost
Land 2,000,000 1,400,000
Warehouse building 3,000,000 2,800,000
5,000,000 4,200,000
What is the initial measurement of the land?

a. 2,140,000
b. 1,800,000
c. 2,000,000
d. 2,160,000
Solution 28-1 Answer d

Cost of land (2/5 x 5,400,000) 2,160,000
When a group of assets is acquired for a limp sum price, the total cost
should be allocated to the individual assets based on their relative fair
value or appraised value.
On August 1, 2010, Bamco Company purchased a new machine on a
deferred payment basis. A down payment of P100, 000 was made and 4
monthly installments of P250, 000 each are to be made beginning on
September 1, 2010. The cash equivalent price of the machine was
P950,000. Bamco incurred and paid installation costs amounting to
P30,000.
What is the amount to be capitalized as cost of the machine?

a. 950, 000
b. 980, 000
c. 1,100,000
d. 1,130,000
Cash price 950, 000

Installation cost 30, 000
Total cost 980, 000
PAS 16 provides that when payment for an item of property, plant, an

equipment is deferred beyond normal credit terms, its cost is the cash
price equivalent plus any directly attributable costs of bringing the asset
to working condition for its intended use, such as cost of site
preparation, initial delivery and handling cost, and installation cost.

Josey Company entered into a contract to acquire a new machine for is
factory. The machine, which had a cash price of P2, 000,000 was paid as
follows:
Down payment 400, 000
Note payable in 3 equal annual installments 1,200,000
20,000 ordinary shares with a par value of
P25 and fair value of P40 per share 800, 000
2,400,000
Prior to the machine’s use, installation cost of P50, 000 was incurred.
The machine has an estimated residual value of P100, 000.
What is the initial cost of the machine?

a. 2, 000, 000
b. 2, 400, 000
c. 2, 050, 000
d. 2, 450, 000
Cash price 2, 000, 000

Installation costs 50, 000
Total cost 2, 050, 000
Problem 28-4 (ACP)
Anxious Company acquired two items of machinery as follows:

 On December 31, 2010, Anxious Company purchased a machine
in exchange for a noninterest-bearing note requiring ten payments
of P500, 000. The first payment was made on December 31, 2011,
and the others are due annually on December 31. The prevailing
rate of interest for this type of note at date of issuance was 12%.
The present value of an ordinary annuity of 1 at 12% is 5.33 for
nine periods and 5.65 for ten periods.
 On December 31, 2010, Anxious Company acquired used
machinery by issuing the seller a two – year, non interest-bearing
note for P3,000,000. In recent borrowing, Anxious has paid a 12%
interest for this type of note. The present value of 1 at 12% for 2
years is .80 and the present value of an ordinary annuity of 1 at
12% for 2 years is 1.69.
What is the total cost of the machinery?

a. 5,065,000
b. 5,225,000
c. 5,565,000
d. 8,235,000
Present value of first note payable (500,000 x 5.65) 2,825,000

Present value of second note payable (3,000,000 x .80) 2,400,000
Total cost of machinery 5,225,000
In the absence of cash price, the cost of asset acquired by installment is

equal to the present value of the total installment payments.
The “present value factor of an ordinary annuity of 1” is used in

computing the present value of first note payable because the note is
payable by installment.
The “present value factor of 1” is used in computing the present value of

the second note payable because the note is payable lump sum after 2
years.
On December 31, 2010, Bart Company purchased a machine in
exchange for a noninterest – bearing note requiring eight payments of
P200, 000. The first payment was made on December 31, 2010, and the
others are due annually on December 31. At date of issuance, the
prevailing rate of interest for this type of note was 11%. Present value
factors are as follows:
Present value of an ordinary annuity of 1 at 11%

For 8 periods 5.146
Present value of an annuity of 1 in advance at 11%
For 8 periods 5.712
On December 31, 2010, what amount should be recorded as initial cost

of the machine?
a. 1,600,000
b. 1,029,200
c. 1,400,000
d. 1,142,400
Present value of future payments (200,000 x 5.712) 1,142,400

The “PV of an annuity of 1 in advance” is used because the machine was
purchased on December 31, 2010 and the first payment was made on
December 31, 2010.
Problem 28-6 (IAA)
Lax Company recently acquired two items of equipment. The
transactions are described as follows:
 Acquired a press at an invoice price of P3,000,000 subject to a 5%

cash discount which was taken. Costs of freight and insurance
during shipment were P50,000 and installation cost amounted to
P200,000.
 Acquired a welding machine at an invoice price of P2,000,000
subject to a 10% cash discount which was not taken. Additional
welding supplies were acquired at a cost of P100,000.
What is the total increase in the equipment account as a result of the

transactions?
a. 4,900,000
b. 5,000,000
c. 5,100,000
d. 5,200,000
First equipment:
Invoice price 3,000,000
Discount taken – 5% ( 150,000)
Freight and insurance 50,000
Installation cost 200,000 3,100,000
Second equipment
Invoice price 2,000,000
Discount not taken – 10% ( 200,000) 1,800,000
Total cost 4,900,000
Cash discounts, whether taken or not taken, trade discounts and rebates
are deducted in arriving at the cost of property, plant and equipment.
The welding supplies on the second equipment should not be capitalized
but reported as prepaid expense.
Precious Company had the following property acquisitions during the
current year:
 Acquired a tract of land with an existing building in exchange for
P50,000 shares of Precious Company with P100 par value that had
a market price of P120 per share on the date of acquisition. The
last property tax bill indicated assessed value of P2,400,000 for the
land and P600,000 for the building. Shortly after acquisition the
building was razed at cost of P100,000 in anticipation of a new
building construction in the current year.
 Received land from a major shareholder as an inducement to locate
a plant in the city. No payment was required but Precious paid
P50,000 for legal expenses for land transfer. The land is fairly
valued at P1,000,000.
What is the total increase in land as result of the acquisitions?

a. 7,000,000
b. 6,100,000
c. 7,150,000
d. 7,100,000
First land:
Fair value of shared issued
(50,000 x 120) 6,000,000
Cost of razing the old building 100,000 6,100,000
Second land 1,000,000
If shares are issued for noncash consideration, the proceeds should be

measured by the fair value of the consideration received or the fair value
of the shares issued in the absence of the fair value of the consideration
given. Accordingly, the cost of the first land is measured by the fair
value of the shares because the land has no known market value.
Contributions received from shareholders should be recorded at fair
value with the credit going to donated capital. However, the legal
expenses for the transfer of the donated property should not be
capitalized but deducted from donated capital.
Problem 28-8 (IAA)

Dawson Company has received a donation of land from a rich local
philanthropist. The land originally had a cost of P1,000,000. On the date
of the donation, the land had a market value of P1,500,000 and an
assessed value of P1,200,000. How much income should be recognized
from the donation?
a. 1,500,000
b. 1,200,000
c. 1,000,000
d. 0
Capital gifts or grants from nonshareholders shall be recorded as

income at their fair value when they are received or receivable.
Problem 28-9 (IAA)

Jazz Company purchased land with a current market value of
P2,400,000. The carrying amount of the land was P1,305,000. In
exchange for the land, Jazz issued 20,000 ordinary shares with par value
of P100 and market value of P140 per share. The shares are traded in an
established stock exchange.
What amount should Jazz record as cost of the land?

a. 1,305,000
b. 2,000,000
c. 2,400,000
d. 2,800,000
Current market value of land 2,400,000
Problem 28-10 (IAA)

Figaro Company acquired land and paid in full by issuing P600,000 of
its 10 percent bonds payable and 40,000 ordinary shares with par value
of P10. The share was selling at P19 and the bonds were trading at 102.
What amount should Figaro record as cost of the land?
a. 988,000
b. 1,000,000
c. 1,372,000
d. 1,387,200
Fair value of bonds payable (600,000 x 102) 612,000

Fair value of shares (40,000 x 19) 760,000
Total cost of land 1,372,000
Problem 28 – 11 (AICPA Adapted)
On September 1, 2010 Ron Company issued 100,000 treasury shares
with P25 par value for a parcel of land to be held for a future plant site.
The treasury shares were acquired by Ron at a cost of P30 per share.
Ron’s share had a fair market value of P40 on September 1, 2010. Ron
received P50,000 from the sale of scrap when an existing structure on
the site was razed. At what amount should the land be initially
measured?
a. 4,000,000
b. 3,950,000
c. 3,000,000
d. 2,500,000
Solution 28 – 11 Answer b
Fair value of treasury shares (100,000 x P40) 4,000,000

Scrap value of existing structure ( 50,000)
Cost of land 3,950,000
The market value of the treasury shares is used because the land has no
known fair value.
Problem 28 – 12 (PHILCPA Adapted)

Fairmont Company, a public entity, issued 5,000 ordinary shares with
P1,000 par value for a building. The following information relates to the
exchange:
Carrying amount of building 17,500,000

Face value of insurance policy for building 20,000,000
Current quoted price of share 4,400
What is the initial cost of the building?

a. 5,000,000
b. 17,000,000
c. 22,000,000
d. 20,000,000
Solution 28 – 12 Answer c
Fair value of shares issued (5,000 x 4,400) 22,000,000

In October of the current year, Ewing Company exchanges an old
packing machine, which cost P1,200,000 and was 50% depreciated, for
another used machine and paid a cash difference of P160,000. The fair
value of the old packaging machine was determined to be P700,000.
what is the cost of the machine acquired in the exchange on the books of
Ewing Company?
a. 860,000
b. 700,000
c. 760,000
d. 540,000
Solution 28 – 13 Answer a
Fair value of old machine 700,000

Cash payment 160,000
Cost of new machine 860,000
PAS 16 provides that an item of property, plant and equipment acquired

in a nonmonetary exchange or a combination of monetary and
nonmonetary exchange is measured at fair value of the asset given up
plus cash payment, unless the exchange transaction lacks commercial
substance or the fair value of either the asset given up or asset received
is not reliably measurable.

Caine Motor Sales exchanged a car from its inventory for a computer to
be used as a long-term asset. The following information relates to this
exchange:
Carrying amount of the car 600,000

List selling price of the car 900,000
Fair value of the computer 860,000
Cash difference paid by Caine 100,000
What amount of gain should Caine recognize on the exchange?

a. 260,000
b. 160,000
c. 200,000
d. 0
Fair value of computer 860,000

Less: Cash paid by Caine 100,000
Fair value of car – asset given 760,000
Less: Carrying amount of car 600,000
Gain on exchange 160,000

At the beginning of the current year, Bell Company exchanged an old
machine, with a book value of P390,000 and a fair value of P350,000,
and paid P100,000 cash for another used machine having a list price of
P500,000. At what amount should the machine acquired in the exchange
be recorded on the books of Bell?
a. 450,000
b. 460,000
c. 490,000
d. 500,000
Fair value of old machine 350,000

Cash payment 100,000
Cost of new machine 450,000
Eagle Company owns a tract of land that it purchased in 2007 for

P2,000,000. The land is held as a future plant site and has a fair value of
P2,800,000 on July 1, 2010. Hall Company also owns a tract of land
held as a future plant site. Hall paid P3,600,000 for the land in 2009 and
the land has a fair value of P3,800,000 on July 1,2010. On this date,
Eagle exchanged its land and paid P1,000,000 cash for the land owned
by Hall. The exchange had commercial substance. At what amount
should Eagle record the land acquired in the exchange?
a. 2,800,000
b. 3,000,000
c. 3,200,000
d. 3,800,000
Solution 28 – 16 Answer d
Fair value of land given – Eagle 2,800,000

Cash paid by Eagle 1,000,000

During the current year, Beam company paid P100,000 cash and traded
inventory, which had a carrying amount of P2,000,000 and a fair value
of P2,100,000, for other inventory in the same line of business with a
fair value of P2,200,000. What amount should Beam record as cost of
the inventory received in exchange?
a. 2,000,000
b. 2,100,000
c. 2,200,000
d. 2,300,000
Fair value of inventory given 2,100,000

Add: Cash payment 100,000
Total Cost of inventory received 2,200,000

Yola Company and Zaro Company are fuel oil distributors. To facilitate
the delivery of oil to their customers, Yola and Zaro exchanged
ownership of 1,200 barrels of oil without physically moving the oil.
Yola paid Zaro P300,000 to compensate for a difference in the grade of
oil. It is reliably determined that the exchange lacks commercial
substance. On the date of the exchange, cost and market value of the oil
were as follows:
Yola Company Zaro Company
Cost 1,000,000 1,400,000
Market Value 1,200,000 1,500,000
1. What amount should Yola Company record as cost of the oil

inventory received in exchange?
a. 1,000,000
b. 1,200,000
c. 1,300,000
d. 1,500,000
2. What amount should Zaro Company record as cost of the oil

inventory received in exchange?
a. 1,400,000
b. 1,500,000
c. 1,100,000
d. 1,200,000
Solution 28 – 18
Question 1 Answer c
Cost of oil inventory given 1,000,000

Add: Cash payment 300,000
Total cost of oil inventory received 1,300,000
Question 2 Answer c
Cost of oil inventory given 1,400,000

Less: Cash received 300,000
Cost of oil inventory received 1,100,000
The Exchange transaction is measured at the carrying amount of
the asset given up adjusted by the cash involved if the exchange lacks
commercial substance.
The exchange transaction lacks commercial substance if the cash
flows from the new asset are not significantly different from the cash
flows of the old asset.

Amiable Company exchanged a truck with a carrying amount of
P1,200,000 and a fair value of P2,000,000 for a truck and P200,000
cash. The cash flows from the new truck are not expected to be
significantly different from the cash flows of the old truck. The fair
value of the truck received was P1,800,000. At what amount should
Amiable record the truck received in the exchange?
a. 2,000,000
b. 1,400,000
c. 1,000,000
d. 1,800,000
Carrying amount of truck given 1,200,000

Cash received ( 200,000)
Cost of new truck 1,000,000
The exchange transaction lacks commercial substance because the

cash flows of the new asset are not significantly different from the
cash flows of the old asset. Accordingly, the asset received is measured
at the carrying amount of the asset given minus the cash received.
At the beginning of the current year, Winn Company traded in an old
machine having a carrying amount of P1,680,000 and paid a cash
difference of P600,000 for a new machine having a cash price of
P2,050,000. What amount of loss should Winn recognize on the
exchange?
a. 600,000
b. 230,000
c. 370,000
d. 0
Cash price of new machine 2,050,000

Less: Cash payment 600,000
Fair value of old machine 1,450,000
Less: Carrying amount 1,680,000
Loss on exchange ( 230,000)
Problem 28 – 21 (CGAC)
Prince Company and Albert Company, two unrelated entities, agreed to
exchange tractor trailers. Information relating to these assets is as
follows:
Prince Albert
Original acquisition cost 1,500,000 800,000
Accumulated depreciation 700,000 720,000
Fair value on date of exchange 900,000 150,000
In accordance with the agreement, Albert will pay P750,000 in cash to

Prince which is the difference in fair value.
1. What amount should Prince Company record as cost of the asset
received in exchange?
a. 150,000
b. 750,000
c. 950,000
d. 650,000
2. What amount should Albert Company record as cost of the asset

received in exchange?
a. 900,000
b. 830,000
c. 150,000
d. 230,000
Solution 28 – 21
Question 1 Answer a
Fair value of Prince (recipient) 900,000
Less: Cash received 750,000
Cost of new asset received in exchange 150,000
Question 2 Answer a
Fair value of Albert (payor) 150,000
Add: Cash Payment 750,000
Cost of new asset received in exchange 900,000

On January 1, 2010, Wilbur Company traded in an old machine for a
newer model. Data relative to the old and new machines follow:
Old machine
Original cost 800,000
Accumulated depreciation on January 1, 2010 600,000
Average published retail value 170,000
New machine
List price 1,000,000
Cash price without trade 900,000
Cash paid with trade in 780,000
What should be the cost of the new machine acquired in the exchange?
a. 900,000
b. 950,000
c. 980,000
d. 1,000,000
Since the old machine has no available fair value, the new machine
received in exchange is recorded at its cash price without trade in of
P900,000. The average published retail value of the old machine is not
necessarily its fair value. Moreover, the loss on exchange is computed as
follows:
Cash price without trade in 900,000

Less: Cash price with trade in 780,000
Trade in value of old machine 120,000
Less: Carrying amount 200,000
Loss on exchange ( 80,000)
Problem 28 -23 (IAA)
Jilmar Company acquired a delivery truck, making payment of
P2,680,000 analyzed as follows:
Price of truck 2,500,000
Charge for extra equipment 50,000
Value added tax – recoverable 300,000
Insurance for one year 120,000
Motor vehicle registration 10,000
Total 2,980,000
Trade in value of old truck ( 300,000)
Cash paid 2,680,000
The cost of the old truck was P1,500,000 with carrynig amount of
P200,000 and fair value of P50,000.
What is the cost of the new truck acquired in the exchange?

a. 2,300,000
b. 2,680,000
c. 2,250,000
d. 2,550,000
Solution 28 -23 Answer a

Cash paid 2,680,000
Value – added tax ( 300,000)
Insurance ( 120,000)
Motor vehicle registration ( 10,000)
Capitalizable cash payment 2,250,000
Fair value of old truck 50,000
Cost of new truck 2,300,000
Problem 28 -24 (PHILCPA Adapted)
Taiwan Company fabricated equipment for its office use ta the entity's
plant during the current year. The following data were taken from the
entity's records:
Materials Direct Labor
Finished goods 1,000,000 1,500,000
Office equipment 600,000 500,000
Factory overhead amounted to P1,200,000. Normal production of

finished goods is 50,000 units. Due to the fabrication of the office
equipment, finished goods produced totaled 35,000 units only in the
current year. The office equipment is to be charged with the overhead
which would have been apportioned to the 15,000 units which were not
produced.
What is the total cost of office equipment after the apportionment of

factory overhead?
a. 1,100,000
b. 1,400,000
c. 1,460,000
d. 2,300,000
Materials 600,000
Direct labor 500,000
Overhead (15,000/50,000 x 1,200,000) 360,000
Total cost of office equipment 1,460,000
In the absence of any statement, the overhead is allocated on the basis of

direct labor as follows:
Materials 600,000
Direct labor 500,000
Overhead (500,000/2,000,000 x 1,200,000) 300,000
Total cost of office equipment 1,400,000

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ARTS CPA Review

(Academic Review and Training School, Inc.)

A. BORROWING COST (PAS 23)

Principal Borrowing Costs

January 1 P 400,000 September 30 P1,000,000

A. How much is the capitalizable borrowing cost of Victory Company?

Total borrowing costs (192,000 + 96,000 + 160,000) P 448,000

Average expenditures 4, 750, 000

Specific borrowing ( 4, 000, 000x10%) 400, 000

B. GOVERNMENT GRANT (PAS 20)

Problem 3 (adapted): On January 2, 2007, Brand Company received a grant of P60,000,000 to

Problem 4 (adapted): On January 2, 2011, Dumont Company received a consolidated grant of

Purchase price P 36,000,000

Problem 6 (adapted):BATON CORPORATION acquires a coal mine at a cost of

Solution 34-7 Answer: B

D. REVALUATION AND IMPAIRMENT OF ASSETS (PAS 36)

Equipment at cost 5,000,000

Cost – June 30, 2011 5,000,000

Fair value – December 31, 2011 4,550,000

Land and Buildings P320,000,000

Fair value less cost to sell (P270,000,000 and P50,000,000) P320,000,000

Carrying amount P500,000,000

a. What is the total amount of impairment loss on Roster Ltd?

Allocation of Impairment Loss:

Solution 36-5 Answer a

Recoverable amount 14,000,000

E. R&D COST AND INTANGIBLE ASSET (PAS38)

Solution 37-1 Answer b

Research and development laboratory expense 500,000

Wages paid for the employees’ work on the research and

Legal expenses to obtain patent 240,000

Solution 37-12 Answer c

Solution of Problem 30-3:

Amortization Expense-original cost (P400,000÷ 16) P25,000

Solution 31-1 Answer c

F. OTHER RELATES ASSET ACCOUNTS

A. BIOLOGICAL ASSETS (PAS 40)

Creep Company purchased 100 beef cattle at an account for P 800,000

Fair value in most relevant market P 800,000

Fair value at point of purchase P 854,400

Selling price P 160,000

Fair value of remaining carcasses P 386,400

Fair value date if reclassification P2,000,000

Adjusted fair value date of transfer P1,850,000

Interest rate swap receivable 52,620

Dollar equivalent – Aug 31 (80,000,000/93) 860,215

Accounts Payable $ 50,000

Compute the amount of Current Liability.

Unearned revenue, January 1, 2011 650,000

Advances from costumer – January 1 1,180,000

H. LONG TERM LIABILITIES

Semi-Annual Interest to Interest Unamortized Bond

4. June 30, 2002

5. December 31, 2002

Interest expense (3,504,000x10%x6/12) 175,200

Final Answer: 15,200

Interest expense (4,695,000x10%) 469,500

(a) Excess of tax depreciation over book depreciation .... $60,000

Compute the taxable income for the current year.

Add (deduct) timing differences:

J. ACCOUNTING FOR LEASES (PAS 17)

(b) Leased Asset ............................................................................................................................. 50,000,000

Lease Liability ........................................................................................................................... 5,908,781

(c) Rental Expense ........................................................................................................................ 4,954,021