FINANCIAL ACCOUNTING AND REPORTING

INSTRUCTIONS: Sele
Select
ct the best answer
answer for each of the follo
following
wing questio
questions.
ns. ALL questions are compulsory and
attempted. Mark on
MUST be attempted. only
ly one ans
answer
wer for ea
each
ch item on the an answer
swer sheet
sheet pr
provid
ovided.
ed. Stri
Strictly
ctly NO ERASUR
ERASURES
ES
ALLOWED. Erasures will render your examination answer sheet INV
INVALID.
ALID. Use PENCIL NO
NO.. 2 only.
only. GOODLUCK! 

1. The fo
follow
llowing
ing ar
are
e rep
repres
resente
ented d both tto
o the FR
FRSC
SC an
and
d the d. An entit
entity
y shall
shall pre
presen
sentt a comple
complete
te set of nanc
nancial
ial
AASC, except statements (including comparative information) at
a. Secu
Securit
rities
ies an
andd Exc
Excha
hange
nge Co
Commi
mmissi
ssion
on least annually
annually..
b. Ban
Bangkgkoo Sentr
Sentralal ng
ng PPili
ilipin
pinas
as
c. Co
Commmmisissi
sion
on oon
n Au
Audi
ditt Use the following information for the next two questions.
d. Bu
Burereau
au of Inte
Intern
rnal
al Rev
Revenuenuee
Presented below is the statement of nancial position of
2. Whic
Which h statemen
statementt is tr
true
ue ab
about
out th
the
e IAS
IASB’s
B’s d
devel
evelopme
opment
nt Simple
Simp le Corporat
Corporation
ion pr
prepar
epared
ed by the chi
chief
ef accounta
accountant
nt for
the current year, 2015.
of IFRSs?
a. ThThe
e IA
IASB
SB giv
gives
es pre
prece
cede
denc
ncee to the bal
balan
ance
ce sheet
sheet
Simple Corporation
over Prot or Loss.
Statement of Financial Position
b. The IASB gives precedence
precedence to fair value accoun
accounting
ting December 31, 2015
over amortized cost. Current assets P 435,000
c. Both a and b. Investments 640,000
d. Ne
Neit
ithe
herr a no
norr b. Property plant, and equipment 1,720,000
Intangible assets 305,000
3. Which
Which of the followi
followingng ste
stepsps in the acco
accoun
untin
ting g cycl
cyclee P3,100,000
are listed in a logical order?
a. Post
Post the clos
closing
ing enentri
tries,
es, tak
take
e a pos
post-c
t-clos
losining
g tria
triall Current liabilities P 330,000
balance, and journalize the closing entries. Long-term liabilities 1,000,000
b. Posostt th
the
e jojour
urna
nall en
entr
trie
ies
s to the
the ge
gene
nera
rall leled
dge
gerr Shareholders’ equity 1,770,000
account
acc ounts,
s, pre
preparparee a work
workshee
sheet,
t, and then tak takee a P3,100,000
trial balance.
c. Takake
e a trtria
iall ba
bala
lanc
nce,
e, pr
prep
epar
are
e a wowork
rksh
shee
eet,t, th
then
en Consider the following information:
prepare nancial statements. 1. Th
Thee curr
curren
entt ass
assets
ets sec
sectio
tion
n in
inclu
clude
des:
s: cash P100,00
P100,000, 0,
d. Pr
Prepar
eparee the inincome
come st statem
atement,
ent, p
prep
repare
are th
thee bal
balance
ance ac
acco
coun
unts
ts rerece
ceiv
ivab
able
le P170
P170,0,000
00 le
less
ss P1P10,
0,00
0000 forfor
sheet and then prepare a trial balance. allowance for doubtful accounts, inventories P180,000,
and unearn
unearned ed reven
revenueue P5,00
P5,000.0. The cas
cash
h balanc
balance e is
4. The ac
accoun
countant
tant of Re
Review
view C
Compa
ompany
ny mad
made
e the fo
follo
llowing
wing co
comp
mpos
osed
ed of P1P114
14,0
,000
00,, le
less
ss a bank
bank ov
over
erdr
draf
aftt of
adjusting entry on December 31. P14,000. Inventori
Inventories
es are stated
stated on the lower of FIFO
Prepaid Rent P1,800 cost or market.
Rent Expense P1,800 2. Th
Thee inv
invest
estmen
mentsts sec
sectio
tion
n inclu
includes
des:: the cash surre
surrend
nder
er
value of a life insurance contract P40,000; investment
If annual rent is paid in advance every October 1, the in ordinar
ordinary
y shar
shares,
es, shor
short-ter
t-term
m (trading
(trading)) P80,
P80,000
000 and
original transaction
transaction entry made was long-t
lon g-ter
erm
m (avail
(availabl
able-f
e-for
or-sa
-sale)
le) P27
P270,0
0,000
00;; and bondbond
a. Deb
Debit
it Pr
Prepai
epaid
dRRent
ent and
and cr
credit
edit C
Cash,
ash, P1,8
P1,800.
00. sinkin
sinkingg fund P25
P250,0
0,000
00.. ThThee cost
cost and
and fair
fair value
value of
b. Deb
Debit
it R
Rent
ent E
Expen
xpense
se an
and
d cr
credit
edit Cash
Cash,, P1
P1,800
,800.. investments in ordinary shares are the same.
c. Debit Rent Expense and credit Cash, P2,400.
d. Deb
Debit
it R
Rent
ent E
Expen
xpense
se an
and
d cr
credit
edit Cash
Cash,, P7
P7,200
,200.. 3. Pr
Prop
oper
erty
ty,, pl
plan
ant,
t, and
and eq
equi
uipm
pmen
entt in
incl
clud
udes
es:: buil
buildi
ding
ngss
P1,040,000 less accumulated deprec
P1,040,000 depreciation
iation P360,000;
P360,000;
5. Whi
Which of th thee fol
olllow
owin
ing
g is the
the fou
foundati
ation of the equipme
equipmentnt P450,00
P450,0000 less accu
accumula
mulated
ted deprec
depreciati
iation
on
Conceptual Framework? P180,000; land P500,000; and land held for future use
a. The objective of general purpose nancial P270,000.
reporting. 4. In
Inta
tang
ngib
ible
le as
asse
sets
ts inincl
clu
ude
de:: a fr
fran
anch
chis
ise
e P1
P165
65,0
,000
00::
b. A reporting entity concept. goodwill
good will P100
P100,000
,000;; and discount
discount on bon
bonds
ds paya
payable
ble
c. The qualitative characteristics of, and the P40,000.
constraint on, useful nancial information. 5. Cu
Curr
rren
entt lia
liabi
bilit
lities
ies incl
includ
ude:
e: accou
accounts
nts pay
payabl
able
e P90
P90,00
,000;
0;
d. The
The ele
elemen
ments
ts of nan
nanci
cial
al st
state
atemen
ments.
ts. notes payable - short term P80,000 and long - term
P120,000: and taxes payable P40,000.
6. Cont
Contri
ribu
buti
tion
ons
s fr
from
om an and d di
dist
stri
ribu
buti
tion
ons
s to owne
owners
rs ar
are
e
consid
consider
ered
ed as inc income
ome and expen expenses
ses,, respe
respecti
ctive
vely,
ly, 6. Long - term liabilities
liabilities are compose solely of 10% bonds
under payable due 2022.
a. The
The nan
nancia
ciall capit
capital
al conce
conceptpt 7. Sh
Shar
areho
eholde
lders'
rs' equity
equity has
has:: pr
prefe
efere
renc
nce
e shar
shares,
es, no par
b. The
The ph
physi
ysical
cal capita
capitall co
conc
ncept
ept value
value,, aut
autho
horiz
rized
ed 200,0
200,000
00 sha
share
res,
s, issue
issuedd 70,00
70,0000
c. Both a and b shares
shares for P450,000
P450,000;; and ordina
ordinary
ry shar
shares,
es, P1.0
P1.000 par
d. Neieith
the
er a nor b value
value,, aut
author
horize
ized
d 400,0
400,000
00 sha
share
res,
s, issue
issuedd 100,0
100,000
00
shares
shares at an aver
average
age pri
price
ce of P10. In add additio
ition,
n, the
7. Whic
Which
h statement
statement is iincorncorrec
rectt rega
regardirding
ng pr
presen
esentatio
tationn of corporation has retained earnings of P320,000.
nancial statements?
a. An en
entitity
ty sh
shal
alll prep
prepar
aree itits
s nan
nancicial
al st
stat
atem
emen
entsts,,
with
without
out ex except
ception
ion,, us
usin
ingg th the
e acaccr
crua
uall ba
basi
siss of
accounting.
b. An en
enti
tity
ty sh
shal
alll pres
presen
entt sepa
separa rate
tely
ly ea
each
ch mamateteri
rial
al
cl
class
ass of si simil
milar
ar ite
items
ms and items of a di dissi
ssimil
milarar
nature or function unless they are immaterial.

c. An ent
entit
income ity
y sh
andshal
alll no
nott o
expenses, ose
sett as
asse
unless sets
ts and or
required lia
liabi
bili
liti
ties
es or
permitted
by a PFRS.

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QUESTIONS: Increase
2015 2014 (Decrease)
Compute
Compu te the adju
adjuste
sted
d amo
amoun
untt to be rerepor
ported
ted on the
company’s statement of nancial position as of December equipment
31, 2015: Accumulated
depreciation—
8. Cur
Current
ent asse
assets
ts buildings and
a. P548,000 c. P588,000 equipment (90,000) (40,000) 50,000
b. P574,000 d. P534,000 Land 450,000 200,000 250,000
b. P520,000 d. P790,000 P1,635,000 P1,285,000 P350,000
9. Curr
Curren
entt li
liab
abil
ilit
itie
ies
s
a. P224,000 c. P210,000 Accounts payable P 3
3440,000 P 2
2775,000 P65,000
b. P229,000 d. P215,000 Accrued expenses 60,000 90,000 ( 3
300,000)
Notes payable—
bank, long-term 200,000 (200,000)
Use the following information for the next two questions. Mortgage payable 150,000 150,000
T
Tawi2
awi2 Company’s income statement for the year ended Share capital, P10
December 31, 201
December 2015
5 rep
reporte
orted
d net pro
prot
t of P10,
P10,000
000,000
,000.. par 1,045,000 795,000 250,000
The auditor raised questions about the followin
following
g amounts Retained earnings
that had been included in the net prot: (decit) 40,000 (75,000) 115,000
Unrealized loss on decline in value of P1,635,000 P1,285,000 P350,000
available for sale securities P 500,000
Loss on write-o of inventor
inventory y due to a Land was acquired for P250,000 in exchange for ordinary
government ban net of tax 1,500,000 share
sha res,
s, par P25
P250,0
0,000
00,, du
duri
ring
ng the yeyear;
ar; all equ
equip
ipmen
mentt
Ad
Adjus
justme
tment
nt o
off pro
prott of p
prio
riorr ye
year
ar net-
net-de
debit
bit 2,0
2,000
00,00
,000
0 purchased
purch ased was for cash. Equipmen
Equipmentt costing P2
P25,000
5,000 was
Loss from expropriation of property, sold for P10,000; book value of the equipment was P20,000
net of tax 3,500,000 and the los
loss
s was rep
report
orted
ed as an ordin
ordinary
ary item in net
net
Exchange dierences gain on translating income
income.. Cas
Cash h divi
dividen
dendsds of P5P50,0
0,000
00 were
were char
charged
ged to
foreign operations 4,500,000 retained earnings and paid during the year; the transfer of
Revaluation surplus realization 1,000,000 net income to retained earnings was the only other entry in
the Retained Earnings account.
The loss from expropriation
expropriation was unusual in occurr
occurrence
ence in
T
Tawi2’s
awi2’s lin
line
e of business.
business. Based of the foreg
Based foregoin
oing
g in
infor
format
mation
ion,, compu
compute
te for the
following.
10. Tawi2 Company’s
Company’s 2015
2015 state
statement
ment of comp
compreh
rehensi
ensive
ve
income should report prot at 13. Net cash pr
provided
ovided by o
operating
perating ac
activities.
tivities.
a. P9,000,000 c. P7,000,000 a. P120,000 c. P140,000
b. P6,500,000 d. P8,500,000 b. P130,000 d. P165,000

11. Tawi2 Company’s

Company’s 2015
2015 state
statement
ment of comp
compreh
rehensi
ensive
ve 14. Net cash prov
provided
ided by (used in) n
nancing
ancing activ
activities.
ities.
income should total compreh
comprehensive
ensive income at a. P150,000 c. (P100,000)
a. P12,000,000 c. P5,000,000 b. P350,000 d. (P250,000)
b. P11,000,000 d. P4,000,000

15. The followi

following
ng pertain
pertainss to Miraor, IInc.
nc. on Decem
December
ber 31
12
12.. Gar
Garyy Com
Compan
panyy had
had ne
nett in
incom
comee of P700
P700,00
,0000 for
for the of ththee cucurrrent
ent ye
year
ar:: Ch
Chec
ecki
king
ng ac acco
coun
untt ba
bala
lanc
nce
e
year ended December 31, 2015 after giving eect to P925,000
P925,000;; an overdraft in special checking account at
the following events which occurred during the year: same
sam e ba
bank
nk as nor
normal
mal chec
checkin
kingg accou
account P17,000;;
nt of P17,000
• The decision was made January 2 to discontin
discontinue
ue certica
cert icate
te of dep
deposit
osit P400,000;
P400,000; cash held in a bond
the travel agency segment. sinking fund P200,000; postdated check from customer
• The travel agency
agency segmen
segmentt was sold Jun
Junee 30. P11,000
P11, 000;; certied
certied check from customer P9,800; P9,800; NSF
• Operating loss from January 1, to June 30 for the check received from customer P15,000; cash advance
trav
travel
el agen
agency
cy segm
segmenentt am
amou
ount
nted
ed to P60,
P60,00
000
0 to subs
subsidia
idiary
ry of P30
P300,00
0,000;
0; postage
postage stamp
stampss on han
hand
d
before tax benet. P620; utility deposit paid to electric company P8,000;
• T
Travel
ravel agency aassets
ssets with a book v
value
alue of P350,0
P350,000
00 currency and coins in a petty cash fund (the company
were sold for P200,000 has not replenished the fund to the imprest amount of
P5
P5,0 00)) P800.
,000 P800. Th The
e corre
correct
ct amo
amoun untt that shoul
should
d be
Gary’s tax rate was
was 40% for 2015. For the
the year ended reported
reporte d as cash is
December
Decemb er 31,
31, 20
2015
15,, Gar
Gary’s
y’s after
after-ta
-tax
x inc
income
ome from
from a. P908,800 c. P1,318,600
continuing operations was b. P918,600 d. P1,322,800
a. P574,000 c. P784,000
b. P700,000 d. P826,000 16.
16. You obtai
obtained
ned the babank
nk sta
statem
tement
ent,, pai
paid
d chec
checks,
ks, and
otherr memo
othe memoran
randada rel
relatin
ating
g to Lucy
Lucy Comp
Company’
any’s
s ban
bankk
Use the following information for the next two questions. account for December 20 2015.
15. In reconciling
reconciling the bbank
ank
ba
balan
lance
ce at De
Decem
cember
ber 31,
31, 20
2015
15,, you
you obs
observ
erved
ed the
The statement of nancial
nancial position d
data
ata of Davao Compan
Company
y
following facts:
at the end of 2015 and 2014 follow:
Balance
Balancepper
er bank
bank statem
statement
ent,, 1
12/
2/31/
31/15
15 P1
P1,46
,465,8
5,800
00
Increase Outstanding checks, 12/31/15 624,750
2015 2014 (Decrease) Receipts of 12/31/15, deposited 1/2/15
Cash P 125,000 P 175,000 (P50,000) 95,550
Accounts Proceeds of bank loan, 12/15/15,
receivable (n
(net) 300,000 225,000 75,000 discounted
year, omittefor
d fr90
omdays
recoat
rds10% per 195,000
Inventory 350,000 225,000 125,000
Prepaid expenses 50,000 125,000 ( 75,000) Deposit of 12/23/15, omitted from 53,000
Buildings and 450,000 375,000 75,000 bank statement
Check 733 of Lucky Co., charged by 82,100

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the bank in error to Lucy Co. th

the
e con
contra
tract
ct and the cash
cash ow
ows s tha
thatt th
the
e entity
entity
Proceeds of note receivable of Lucy Co. expects to receive.
collected by bank, 12/10/15, not 40,300 c. Ex
Expe
pect
cted
ed cr
cred
edit
it loss
losses
es consi
conside
derr th
thee am
amouount
nt and
entered in cash records (Principal, timing of payments.
P40,000; Interest, P400; Collection d. A credit loss cannot arise if the entity expects to be
charge, P100) paid in full even if later than when contractually
Erroneous debit memo of 12/31/15, to due.
charge company’s account with
settlement of bank loan, paid by 100,000 21.
21. On Jan
Januar
uary
y 1, 20
2015
15,, Alask
Alaska
a Cor
Corpor
porati
ation
on pu
purc
rcha
hased
sed
check no. 9344 on same date P1,00
P1,000,0
0,00000 10
10%% bonds
bonds for P1, P1,05
051,5
1,510
10 (in
(incl
clud
uding
ing
Deposit of another client on 12/6/15 broker’s
broker’s commissio
commission
n of P20,00
P20,000).
0). Interest is p
payable
ayable
credited in error to Lucy Co. 25,000 annuall
ann ually
y every Dec
December
ember 3131.. The bon
bondsds mature
mature on
The cash balance per books of Lucy Company on December 31, 2017. The prevailing market rate for the
December 31, 2015 is bonds is 9% at December 31, 2015. (Round o present
a. P1,491,000 c. P961,800 value factors to four decimal places)
b. P1,146,700 d. P911,400 If the bonds are classied as held-to-maturity (HTM),
the amount to be reported on the entity’s December
17
17.. Whi
Which
ch sta
statem
tement
ent is inc
incor
orre
rect
ct regar
regardi
ding
ng loa
loans
ns and 31, 2015 statement of nancial position is
receivables? a. P1,034,340 c. P1,025,330
a. An ententity
ity sh
shall
all me
measu
asure
re loan
loanss and recreceiv
eivabl
ables
es on b. P1,035,630 d. P1,017,610
initial
initial rec
recogn
ognition
ition at fair value plu pluss transact
transaction
ion
cost
sts
s that are directl ectly
y attrttribu
ibutabl
able to the 22. On April 1, 20
2015,
15, Etcha Co. pur
purchased
chased 25,0
25,000
00 ordinary
ordinary
acquisition
acquisit ion of the nancial asset. shares of Pwera Co. at P180 per share which reected
b. The ffair
air v
value
alue of a lo
long-t
ng-term
erm lloan
oan oorr re
receiv
ceivable
able tthat
hat bo
book
ok valu
value
e as of th
that
at da
date
te.. At th
the
e ti
time
me of the
the
carries
carrie s no interes
interestt can be estimated as the presen presentt pu
purrchas
chase,
e, PwPwer
era
a hahad
d 10100,
0,00000
0 orordi
dina
nary
ry shar
shares
es
value of all future cash receipts discounted using outstanding.
outstandi ng. The share
shares
s are inten
intended
ded as a long term
the prevailing market rate of interest for a similar investment.. The rst quar
investment quarter
ter statement endending
ing March
March
instrument with a similar credit rating. 31, 2015 of Pwera recorded prprot
ot of P480,000. For the
c. Short
Short-te
-term
rm rec
receiv
eivab
ables
les wit
with
h no sta
stated
ted int
inter
erest
est rat
ratee year ended December 31, 2015, Pwera reported prot
may be measured at the original invoice amount if of P2,400,000.
P2,400,000. Pwera paid Etc
Etchaha dividends
dividends of P60,000
the eect of discounting is immaterial. on June 1, 2015 and again P60,000 on December 31,
d. Loans and receivables are derivative nancial
assets
asse ts with xed or dete determi
rminabl
nablee paym
payments
ents that 2015.
2015. onThe
share shares
shares 31,
December of Pw
Pwera
era ar
2015. are
e sellin
selling
g at P190 per
are not quoted in an active market.
Etcha is entitled to appoint two directors to the board,
18. On JanJanuary 1, 2015, Com omfforte
orterr Comp
Compananyy sosold
ld which consists of eight members. The remaining of the
equipment with a carrying amount of P800,000 to Cold voting rights are held by two other companies, each of
Company.. As payment, Cold gave Comforter Company
Company which is entitled
entitled to appoint thr
three
ee directors.
directors. The boar
boardd
a P1,200,000 note.
note. The note bears an interest ra rate
te of makes
mak es dedecis
cision
ions
s on the ba basis
sis of sim
simpl
plee major
majority
ity.
5% and is to be repaid in three annual installments of Because board meetings are often held at very short
P400,000
P400 ,000 (plus
(plus inte
interes
restt on the outs
outstand
tanding
ing balance)
balance).. notice, Etcha does not always have representation on
The rst payment
payment was receiv
receiveded on Decemb
December er 31, 2015. the board. Often the sugg
suggestions
estions of the repr
representative
esentative
The marke
markett price of the equipmen
equipmentt is not reliab
reliably
ly of Etcha are ignored, and the decisions of the board
determinable.
determin able. The prev
prevailing
ailing rate of in
interest
terest for no
notes
tes seem to take little notice of any representations made
of this type is 10%. by the director from Etcha Corp.
The interest
interest income to be rrecognized
ecognized in 2016 is Based on the above information, the carrying amount
a. P 40,000 c. P 74,708 of the investment in Pwera Co. as of December 31,
b. P 69,587 d. P109,735 2015 should be
a. P4,750,000 c. P4,860,000
19
19.. The Pre
Premie
mierr Na
Natio
tional
nal Bank has a not
note
e recei
receivab
vable
le of b. P4,500,000 d. P4,950,000
P200,0
P200,000
00 from
from ththee Mar
Marvel
velou
ous
s Co
Compa
mpanyny th
that
at it is
carryin
carry ingg at fac
face e val
valueue and is due due on Dec Decembemberer 31,
31, 23. Losses rec
recognized
ognized usin
usingg the equity method in e
excess
xcess of
2019
2019.. In
Inte
terres
estt on the no note
te pay
payabable
le at 9% each each the entity’s investment in ordinary shares are applied
Decemb
Dec ember er 31. The
The MarMarvevelou
louss Compa
Company ny pai
paidd the rst to which of the following?
interest due on December 31, 2015, but informed the a. Pr
Pref
efer
eren
encece sh
shar
ares
es
bank that it would probably miss the next two years' b. Trade
rade rrec
ecei
eiva
vabl
bles
es
interest payments because of its nancial diculties. c. Lo
Long
ng-te
-term
rm rec
recei
eiva
vabl
bles
es
After
After that
that,, it exp
expected
ected to res resume
ume its annannual
ual intere
interest
st d. Secured loanloanss
payments
paym ents,, but it woul
would d mak
make e the pri
princip
ncipal
al paym
payment
ent
one year late, with interest paid for that additional year
at the time
time of the pr princ
incip
ipal
al pay
paymen
ments.ts. How mu much
ch
should be recognized as loan impairm impairmentent loss in 2015?
(Rou
(Round
nd o pres presenentt valu
valuee fafact
ctor
ors
s to four
four deci
decima
mall
places.)
a. P12,752 c. P19,965
b. P31,669 d. P32,812
20. Which of the followi
followingng is incorr
incorrect
ect regard
regarding
ing expecte
expected d
credit
credit loss
losses
es on nannancial
cial assets in acco accordrdance
ance with
PFRS 9?
a. Exp
Expec ected
ted cred
creditit los
losses
ses are a probprobabi
abilit
lity-
y-wei
weighghted
ted
estimate of credit losses (ie the present value of all
ca
cashsh shor
shortftfal
alls
ls)) ov
over
er the
the exexpe
pect
cted
ed lilife
fe of the
the
nancial instrument.
b. A cas
cash h shor
shortfatfall
ll is th
thee die
diere
rence
nce bebetwe
tweenen the cacash
sh
ows that are due to an entity in accordance with

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TC

24
24.. On Janu
January
ary 1, 2014
2014,, Job Corp
Corporaoratio
tion
n enter
enters s in
into
to a estimates are made, of the amount the inventories
forward
forw ard contr
contract
act to pur
purcha
chasese on Janu
January
ary 1, 2012016,6, a are expected to realize.
specied number
number of bar
barrels
rels of oil at a xed p price.
rice. Job d. Mate
Ma teri
rial
als
s an
andd ot
othe
herr su
supp
ppli
lies
es held
held fo
forr us
use
e in the
Corpor
Cor porati
ation
on is specu
speculat
latin
ingg tha
thatt the pr pric
ice
e of oioill wi
will
ll production of inventories are written down below
increase
increa se and plans to net settle the contract if the price cost even if the nished products
products in which they will
increases.
increa ses. Job Corpor
Corporation
ation does n not
ot pay anyanything
thing to be in
incor
corpor
porate
ated
d ar
are
e ex
expe
pecte
cted
d to be sol
sold
d at or
enter into the forward
forward con
contract
tract on January 1, 2014. Job above cost.
Corporation
Corporatio n does not designate the forward contract as
a hedging
hedging inst
instrume
rument.
nt. At the end of 20 2014,
14, the faifairr 28. Yumul Company pr
provided
ovided the followin
following
g data:
valu
valuee of thethe fo
forw
rwar
ard
d cont
contraract
ct hahas s inincr
crea
easesed
d to Cost Retail
P400,000
P400 ,000.. At the end of 20 2015,
15, the faifairr value of th the
e Beginning inventory P 160,000 P 400,000
forward contract has decdeclined
lined to P350
P350,000.
,000. How much Purchases 2,800,000 3,200,000
should be recognized in 2015 prot or loss related to
this forward contract? Freight in 40,000
Markup 300,000
a. P400,000 c. P50,000 Markup cancellation 30,000
b. P350,000 d. P 0 Markdown 160,000
Markdown
25. Oran
Orangg Dampuan
Dampuan CoCo.. whole
wholesale
sales
s bicy
bicycles
cles.. It use
uses
s the cancellation 40,000
perpetual inventory
inventory sysystem.
stem. The company
company's 's reporti
reporting
ng Sales 3,000,000
date is 31 December
December.. At 1 December 2 2015,
015, inventor
inventoryy Physical
Phys ical invento
inventory
ry at
on hand consisted of 350 bicycles at P820 each and 43 year end 500,000
bicycles
bicycles at P85
P8500 each
each.. Dur
During
ing th
the
e month ended
ended 31 Es
Esti
tima
mate
tedd norma
mall
December 2015, the following inventory
inventory transaction
transactions s shrinkage is 4% of
took place (all purchase and sales transactions are on sales
credit):
Assu
Assumi
ming
ng the
the co
comp
mpan
any
y uses
uses the
the av
aver
erag
age
e reta
retail
il
De
Dec.
c. 02 Sold
Sold 300
300 bic
bicyc
ycle
les
s for
for P1
P1,2
,200
00 ea
eachch.. inventory method, the estimated inventory shortage is
03 Five
ive bicy
icycles were retur turned by a custo tom
mer
er.. a. P104,000 c. P200,000
They had original
originally
ly cost P820 each and were b. P130,000 d. P 4,000
sold for P1,200 each.
09 Pu
Purrchas
chased
ed 55 bibicy
cycl
cles
es at P9
P910
10 eaeach
ch.. 29. Items of proper
property,
ty, plant and equ
equipme
ipment
nt acquir
acquired
ed for
13 Pu
Purrchas
chased
ed 76 bibicy
cycl
cles
es at P9
P960
60 eaeach
ch.. safety or environmental reasons
15 So
Sold
ld 86 bi
bicy
cycl
cles
es fo
forr P1
P1,3
,350
50 ea
each
ch..
16 Returned o on
ne d daamaged b biicycles t o tth he a. Quali
Qualify
prope fy
property, asplant
rty, ass
assets
ets
andbe
becau
causese the tacq
equipment
equipmen acqui
uisit
sition
ionincrea
directly
directly of such
su
increasesch
ses
supplier.. This bicyc
supplier bicyclele had been pur purchased
chased on the future economic
economic benets
benets of exiexistin
stingg item of
9 December
Decembe r. property, plant and equipment.
22 So
Sold
ld 60 bi
bicy
cycl
cles
es fo
forr P1
P1,2
,250
50 ea
each
ch.. b. Quali
Qu alify
fy as assets
assets becau
becausese they
they enable
enable an entity
entity to
26 Pu
Purrchas
chased
ed 72 bibicy
cycl
cles
es at P9
P980
80 eaeach
ch.. derive future economic benets from related assets
29 Two bicycles, sold on 22 December, w we
ere in excess of what could be derived had those items
ret
return
urned
ed by a cus customer
tomer.. The bic bicycle
ycless were not been acquired.
badly
bad ly da
damag
maged ed so it was deci decidededd to wri
write
te c. Do nonott qual
qualifify
y as assets
assets bec
becaus
ause
e the acquis
acquisitiition
on of
them o. They had or originally
iginally c
cost
ost P910 each.
each. such
such pr prope
operty
rty,, pl
plant
ant and
and equip
equipmen
mentt dodoeses not
not
dir
directl
ectly y inc
increa
reasese the future
future economic
economic benbenets
ets of
The cost of inventory as of December 31, 2015 using existing item of property, plant and equipment.
moving
moving avera
average
ge met
method
hod is (Round unit costs to the d. Do not
not qua
qualif
lify
y as assets
assets b becau
ecause
se the acqu
acquisit
isition
ion ooff
nearest peso) such
such pr prop
oper
erty
ty,, pl
plan
antt and
and eq equi
uipm
pmenentt is no nott
a. P133,672 c. P145,349 nece
necessssarary
y for
for an en enti
tity
ty to ob obta
tain
in the
the fu futu
ture
re
b. P143,485 d. P145,285 economic benets from its other assets.
26.
26. The
The clos
closin
ing
g inve
invent
ntor
ory
y at co
cost
st of a cocomp
mpan
any
y at 31 30. On Apri
Aprill 1, 2015, the new mach
machiner
inery
y was ordered
ordered at a
December 2015
2015 amounte
amountedd to P284,70
P284,700.0. The follo
following
wing quoted price
price of P56,000.
P56,000. On July 1, 2
2015,
015, it arr
arrived
ived at
items were included at cost in the total: Do
Dodik
dik Cor
Corp.’p.’s
s pl
plant
ant wit
with
h an actua
actuall invoic
invoice
e pri
price
ce of
•

400
sold coats,
sold forr Pwhich
fo 150 ehad
ac
achh.costOP80
ingeach
wing to and
a dnormally
efec
efectt in P58,000, which it paid immediately. During July 2015, a
new concrete
concrete plat
platfor
form
m was constr
constructe
uctedd at a cost of
manufacture, they were all sold after the reporting P4,00
P4,000 0 to pro
proper
perly
ly inst
install
all the mach
machine
ine.. In Aug
August
ust
date at 50% of their normal price. Selling expenses 2015, testing was performed at a cost of P7,000 to
amounted to 5% of the proceeds. ensure the machine was operating properly.
properly. On August
• 800 skirts
skirts,, which had
had cos
costt P20 each
each.. Thes
Thesee too 31, 2015, the machine
machine was enter
entered
ed into service
service.. Minor
were
wer e foun
found d to be defe
defecti
ctive.
ve. Remeemediadiall wo
work
rk in repairs
repairs and main
maintena
tenance
nce costs on the new mac machine
hine
Febru
ebruar
aryy 202016
16 co
cost
st P5 perper sk
skir
irt,
t, an
and d sell
sellin
ing
g amoun
amo unted
ted to P3,00
P3,0000 in Septem
September
ber 20
2015
15.. No oth
other
er
expense
exp enses s for the batch tot
totaled
aled P800.
P800. They we were
re costs
cos ts wer
were
e in
incu
curr
rred
ed prprior
ior to DeDecem
cembe
berr 31,
31, 2015
2015..
sold for P28 each. Similar
Simi lar machiner
machineryy is dep
deprec
reciated
iated on a stra
straigh
ight-lin
t-line
e
basis over 10 years and typically has no residual value.
What should the inventory value be accord
according
ing to PAS 2 What should be the depreciation expense for the year
Inventories after considering the above items? ended 31 December 2015?
a. P281,200 c. P282,800 a. P2,300 c. P2,875
b. P282,100 d. P329,200 b. P2,233 d. P3,350

27. Which is incor

incorrect
rect regar
regarding
ding writedo
writedown
wn of inventory to
net realizable value?
a. In
Inv
ventori
tories
es are usu sua
all
lly
y wri
writte
tten down to net
realizable value item by item.
b. Eac
Eachh servic
service
e of a servi
service
ce pr
provi
ovider
der is tr
treat
eated
ed as a
separate item.
c. Est
Estima
imates
tes of ne
nett rea
reali
lizab
zable
le value
value are
are bas
based
ed on the
the
most reliable evidence, available at the time the

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31. Roxanne
Roxanne Co. purch
purchased
ased e equipment
quipment for P500,000
P500,000.. The d. A research and development project
equip
equ ipmen
mentt had an estima
estimated
ted 10
10-y
-year
ear ser
servic
vice
e li
life.
fe. acquired in a business combination is recognized
Roxanne’s policy for 10-year assets is to use the 150% as an asset.
declining
declinin g balance depreciation method for the rst ve
years of the asset’s life and then switch to the straight- 36.
36. Wh
Which
ich statem
statement
ent is in incor
corre
rect
ct re
regar
gardin
ding
g in intan
tangi
gibl
ble
e
lin
line
e depreci
depreciati
ation
on meth
methodod.. Wha
Whatt amount
amount sho should
uld assets contained in or on a physical substance such as
Roxann
oxannee repor
reportt as accu
accumul
mulate
ated
d dep
depre
reci
ciati
ation
on for a compact
compact disc (in the case of comp computer
uter software)
software),,
equipment at the end of the sixth year? legal documentation
documentation (in the case of a license or patent)
a. P300,000 c. P278,147 or lm?
b. P322,518 d. P311,425 a. In det
deter
ermin
minin
ing
g whether
whether an asse
assett that inc
incorp
orpora
orates
tes
both intangible
intangible and tangible
tangible elements
elements shoushould ld be
32
32.. Wh
Whic
ich
h of th the
e fofoll
llow
owin
ing
g wi
will
ll mo
mostst li
lik
kel
ely
y resesul
ultt to treated
treated propert
property,
y, plant
plant and equi
equipmen
pmentt or as an
reclassication? intangible
intangib le asset, an entity uses judgment to assess
a. An enti
entity
ty de
deci
cide
dedd to di
disp
spos
ose
e of an inveinvest
stme
mentnt which element is more signicant.
property without development. b. Comp
Compututer
er sof
softw
twar
are
e foforr a co comp
mpututer
er-c
-conontr
trol
olle
led
d
b. An entity begins to redevelop an existing machi
mac hine
ne too
tooll tha
thatt canno
cannott operat
operate e witho
without ut that
that
investme
inv estment nt pro
propert
perty
y for con
continu
tinued
ed futu
future
re use as specic software is an integral part of the related
investment property
property.. hardware and it is treated as property, plant and
c. Co
Comm
mmen ence
ceme
mentnt of devel
develop
opme
ment
nt with
with a vi view
ew to equipment.
sale. c. When
When thethe soft
softwa
ware
re is not
not an in
inte
tegr
gral
al part
part of the the
d. All
All of
of tthe
he ab
abov
ove.
e. related hardware, computer software is treated as
an intangible asset.
33. Cute Corp
Corporat
oration
ion owns the followi
following
ng prop
properti
erties
es at 1 d. ThThee operat
operatin
ingg syst
system
em of a com
compuputer
ter is tr
treat
eated
ed as
January 2015:
2015: an intangible asset.
asset.

Property A 37. On 1 January 20 2015

15 an entity pur
purchased
chased a new sofsoftware
tware
An oce
oce build
building
ing use
usedd by Cu Cute
te for
for adm
admini
inistr
strati
ative
ve pa
pack
ckage
age to opera
operate
te its prprodu
oducti
ction
on equ
equip
ipmen
mentt for
pu
purp
rpose
osess wit
with
h a dedepr
preci
eciate
atedd his
histor
toric
ical
al cost
cost of P2 P600,0
P60 0,000
00,, inc
inclu
ludin
ding
g P50,00
P50,0000 re
refun
funda
dable
ble pu
purc
rchas
hasee
million. At 1 January 22015
015 it had a remain
remaining
ing life of 20 taxes. The purchase price was funded by incurring a
years.
yea rs. After
After a re-or
re-orga
gani
nizat
zation
ion on 1 July
July 2015
2015,, ththe
e loan of P605
P605,000
,000 (includ
(including
ing P5,000
P5,000 loan orig
originat
ination
ion
property
proper ty was leased to a third party and reclassied as fees
fees).
). Th
The e loan
loan is secu
secure
red
d agai
agains
nstt the
the sosoft
ftwa
warre
an investment property applying Cute’s policy of the licenses.
fair value model.
model. An indep
independent
endent value
valuerr assessed the In January 2015 the entity incurred the following costs
property to have a fair value of P2.3 million at 1 July
2015, which had risen to P2.34 million at 31 December in customizing the software so that it is more suited to
2015. the systems used by the entity:
• Labor – P120,000
Property B • Depreciation of plant and equipment used to
perform the modications – P15,000.
Another oc
Another oce e bui
buildin
lding
g sub-
sub-leas
leased
ed to a subs
subsidia
idiary
ry of
Cute.. At 1 Jan
Cute January
uary 22015
015,, it had a fair value
value of P1.P1.5
5
In Jan
Januar
uaryy 2015
2015 the ent entity
ity’s
’s pr
prod
oduc
uctio
tion
n sta
sta we
were
re
mi
millllio
ion
n wh
whic
ich
h ha
hadd rise
risen
n to P1 P1.6
.65
5 mi
mill
llio
ion
n at 31
trained in how to operate
operate the new softwar
software.
e. Training
December 2015.
2015. At 1 January 20152015 it had a remainin
remainingg
costs included:
life of 15 years.
• Cost of an expert external instructor – P7,000
In relation to these properties, the net amount to be • Labor – P3,000.
recogn
recognized
ized in pro
prot
t or loss in the enti
entity’s
ty’s separate
separate In February 2015 the entity’s production team tested
nancial statements for the year ended December 31, the softwa
software
re and th the
e inf
infor
ormat
mation
ion techn
technolo
ology
gy tea
team
m
2015 is made further modications necessary to get the new
software to function as intended by management. The
a. P540,000 c. P190,000 following costs were incurred in the testing phase:
b. P490,000 d. P140,000 • Material
Mate rial,, net of P3,0
P3,000
00 rec
recover
overed
ed from
from the

34. An intangi
intangible
ble asset shall b bee recogn
recognized
ized if, and onl
only
y if it •
sale ofLabor
the scrapped output – P21,000
– P11,000
is probable that the expected futur future
e economic benets
• Depreciation of plant and equipment while it
that are attributable to the asset will ow to the entity
and the cost of the asset can be meas measure
uredd rel
reliabl
iablyy. was used to perform the modications – P5,000.
The probab
probability
ility recogn
recognition
ition criterion is always The new softwar
software
e was ready for use on 1 March 2015.
cons
consid
ider
ered
ed to be sati satis
sed
ed for
for in
inta
tang
ngibible
le asasse
sets
ts However, because of low initial order levels, the entity
acquired incurred a loss of P23,000 on operating the software
a. Separat
aratel
ely
y. during March.
b. In a b busi
usine
nessss combi
combina
natio
tion.
n.
c. Either a or b What is the cost of the software?
d. Neith
eitheer a nor b a. P550,000 c. P722,000
b. P685,000 d. P732,000
35. Which statement is corcorrect
rect regar
regarding
ding initial rrecognitio
ecognition
n
of research and development costs? 38. At the end of the repo
reportin
rting
g period,
period, a toma
tomato to grower’s
grower’s
a. Research costs may be capitalized. vines are six months old and bearing fully developed
b. All development costs should be rip
ripe
e tomatoes
tomatoes.. The acc accumu
umulat
lated
ed cost of the fr fruit
uit--
capitalized. bear
bearin
ingg vi
vine
nes
s is P12,
P12,50
5000 an
andd thei
theirr fa
fair
ir valu
value
e is
c. If an entity cannot distinguish the research P100,000
P100 ,000.. It is expected
expected to cost the entit
entityy P5,000 to
phase of an internal project to create an intangible sell the
the tomato crop
crop at mark
market.
et. Once the the tomatoes
tomatoes
asset
asset from
from the de devel
velop
opmen
mentt phase
phase,, the entity
entity have been harvested the then-worthless vines will be
treats the expenditure for that project as if it were abandoned. At the end of the reporting period:
incurred in the development phase only. a. The entit
entity
y measur
measureses the to
tomat
matoes
oes at P8
P82,5
2,500
00,,
the tomato vines at P12,500 and recognizes a
gain of P82,500 for the increase in fair value.

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b. The entity measure

measuress the tomato-bearing vines newspape
news paperr. A store lea lease,
se, eect
eective
ive December
December 16,
at P95
P95,000
,000 and rec
recogni
ognizes
zes a gain of P82,
P82,500
500 2014, calls for xed rent of P4,800 per month payable
for the increase in fair value. 1 mont onth from th thee eec
eecti
tive
ve date and mo monnth
thly
ly
c. The en
entit
tity
y meas
measur
ures
es the to
tomat
mato-b
o-bear
earin
ing
g vine
vines
s thereafter
thereaf ter.. In additio
addition,
n, rent equal ttoo 5% of net sales
at P100,000 and recognizes a gain of P87,500 overr P1,
ove P1,20
200,0
0,000
00 pe
perr calen
calendar
dar yeyear
ar is pay
payabl
able
e on
for the increase in fair value. January 31 of the followin
followingg year.
year. Net sales for 2015
d. The en
entit
tity
y meas
measur
ures
es the to
tomat
matoes
oes at P9
P95,0
5,000
00,, were P2,200,000.
P2,200,000. In its Decemb
Decemberer 31, 2015 sta
statement
tement
the tomato vines at P0 and recognizes a gain of of nancial position, Pythagoras should report accrued
P82,500 for the increase in fair value. liabilities of
a. P56,800 c. P56,300
39. Which statement is in
incorr
correct
ect regarding
regarding ‘beare
‘bearerr plants’? b. P51,500 d. P53,900
a. Tea bushes,
bushes, gr
grape
ape vi
vines,
nes, oi
oill palm
palms
s and ru
rubbe
bberr tree
trees
s

b. usually
Bear
Bearer meet
antsthe
er plants
pl aredenition
are w
withi n theofscope
ithin a bearer
scope of P plant.
PAS
AS 1
16.
6. 43. Funnufa
anfact
manu
ma Ind
ctur
urin ugstr
ing trie
ies
suipm
equi
eq pent
urc
pmen t has
ases
onesJul
Julyyne1,
w 2014
20s14.
pec
eci
. ial
aliiTh
ze
zed
d
The
e
c. The produce growing on bearer plants, for equip
equipmen
mentt cash
cash pric
price
e is P79P79,00
,000.
0. Funan
unan sig
signs
ns a
examp
example,le, tea lea
leaves
ves,, gr
grape
apes,s, oil palm
palm fruit
fruit and deferr
deferred
ed paym
paymentent cont
contract
ract that pr provid
ovides
es for a dow
down n
latex, is within the scope of PAS 41. payment of P10,000 and an 8-year note for P103,472.
d. In
Inci
cide
dent
ntal
al sc
scra
rap
p sa
sale
less would prevent the plant from The note is to be paid in 8 equal annual payments of
satisfying the denition of a bearer plant. P12,934. The payments includeinclude 10% interest an and
d are
made
mad e on JuJune
ne 30 of eac eachh yeyear,
ar, beginn
beginnining
g June
June 30 30,,
40. Whic
Whichh statement
statement is inco
incorr
rrect
ect reg
regard
arding
ing impair
impairment
ment of 2015.
assets classied as ‘held-for-sale’
‘held-for-sale’ in accord
accordance
ance with
The total interest expense for the year ended
PFRS 5?
December 31, 2015 is
a. Impa
Impairm
irment
ent mmust
ust bbe
e con
conside
sidered
red bboth
oth aatt the ttime
ime o off
a. P6,900 c. P6,612
classication as held for sale and subsequently.
b. P6,599 d. P5,982
b. Imme
Immediat
diately
ely pr
prior
ior to c
class
lassify
ifying
ing an
an asse
assett as he
heldld for
sale, any impairment loss is recognized in prot or
44.
44. On Dece
Decembmber
er 31,
31, 2015
2015,, X Co
Corp
rp.. wa
wass in
inde
debt
bted
ed to
loss
loss ununle
less
ss the
the as asse
sett had
had beenbeen meas
measur ured
ed at
Zyland Co.
Co. on a P1,000,000,
P1,000,000, 10% note. Only int interest
erest
revalued amount under PAS 16 or PAS 38, in which
had been paid to date, and the remaining life of the
case the impaimpairm
irment
ent is treated
treated as a rev revalua
aluation
tion
note was 2 years.
years. Beca
Because
use X Corp.
Corp. was in nanc
nancial ial
decrease.
diculties,
diculties, the parties agreed that X Corp. would settle
c. Af
After
ter cl
classi
assicat
cation
ion as held for s sale,
ale, im
impair
pairment
ment lloss
oss
the debt on the following terms:
is the die
amounts dieren
of rence
theceasset
betw
betweeneen fair
and thevalue
adju
adjusted
sted carryi
carrying
less costs ng
to • Settle one-half of the note by transferring
transferring land with
sell. a recorded value of P400,000 and a fair value of
d. Any
Any impmpaiairrme
ment
nt loloss
ss ththat
at aris
arises
es by ususin
ing
g the
the P450,000.
meas
me asur
urem
emen
entt prprin
inci
cipl
ples
es in PF PFRS
RS 5 mu mustst be • Sett
Settle
le one-
one-fo
four
urth
th of ththe
e no
note
te by tr tran
ansf
sfer
erri
ring
ng
reco
recogngniz
ized
ed in pro
prott or loss
loss,, excep
eptt for ass
assets
ets 10,000, P1 par, ordinary shares with a fair market
previously carried at revalued amounts. value of P15 per share.
• Modify the terms of the remaining one-fourth of the
41. The balan
balance
ce in Iwig Co.Co.'s
's accoun
accounts ts payabl
payable e acc
account
ount at note by reducing the interest rate to 5% for the
Dece
Decembmber
er 31 31,, 20
2015 15 wawas s P400
P400,0,000
00 be befo
forre ananyy remaini
rem aining
ng 2 years
years and reduci
reducing
ng the princip
principal
al to
nece
necessssar
ary
y year
year-en
-end d adadju
just
stme
mentntss rela
relati
ting
ng to the the P150,000.
following:
What total gains should X Corp. record in 2015 from
• On Dece
Decemb mber
er 28,28, 2015
2015,, Iw Iwig
ig purc
purchahase
sedd anandd this troubled debt restructuring?
received
receive d goods for P40,0
P40,000,00, terms 2/12/10,
0, n/30. Iwig a. P100,000 c. P213,024
record
recordss pur
purcha
chases
ses and acco accounts
unts payable at net b. P200,000 d. P313,024
amoun
amo unts.
ts. The invoic
invoice e was re recor
corded
ded and pa paid
id
January 3,3, 2016. 45. Hosea Corpora
Corporation
tion gives wa
warranties
rranties at th
the
e time of sale
• Goods
Goo ds were
were in tra transi
nsitt to Iwig
Iwig from
from a ven vendor
dor on to purchase
purchasersrs of its produ
product.
ct. Under
Under the terms of the
De
Dece
cemb
mber
er 3131,, 20 2015
15.. Th
Thee ininvo
voic
icee cost
cost wawas s contract for sale the manufacture
manufacturerr undertakes to make
P50,000. The goods we were
re ship
shipped
ped ff.o.b.
.o.b. ship
shipping
ping good, by repair or replac
replacement,
ement, manufacturing defects
point on December 29, 2015 and were received on that become apparent within one year from the date of
January 4,4, 2016. sale.. On the basi
sale basiss of exper
experienc
ience,
e, it is probable
probable (ie
• Goods shipped f.o.b. destination on December 21, more likely than not) that there will be some claims
20
2015
15 fr
from
om a vendvendor or to Iw Iwig
ig were
were receieceive
vedd on under the warranties.
January 6,6, 2016. The invoi
invoice
ce cost was P25,0
P25,000.00. Sa
Sales
les of P10 millio
million
n wer
were
e mad
made
e eve
evenl
nly
y thr
throug
ougho
hout
ut
• Goods
Goo ds shipp
shipped
ed to Iwig,
Iwig, f.o.b.
.o.b. shi
shipp
pping
ing point
point on 2015.
Decembe
Dec emberr 20, 20152015,, frofrom
m a vendor
vendor were lost in
transit. The invoice p price
rice was P20,000. On January At 31 December 2015 the expenditures for warranty
5, 20
2016
16,, Iwig
Iwig le
led d a P20P20,00
,000
0 claim
claim again
against st the
the repairs and replacements for the product sold in 2015
common carrier
carrier.. are expected to be made 50 per cent in 2015 and 50
per cent
cent in 2016. Assu
Assume
me for simp
simplici
licity
ty that all the
In Iwig's
Iwig's Decembe
Decemberr 31, 2015 state
statement
ment of nan
nancial
cial 20
2016
16 outo
outows
ws of eco
econom
nomicic benet
benets
s relat
related
ed to the
position, the accounts payable should be warran
warranty
ty repairs
repairs and replace
replacement
ments
s tak
take e plac
place
e on 30
a. P439,200 c. P509,200 June 2016.
2016.
b. P489,200 d. P534,200
Experience indicates that 95 per cent of products sold
require no warranty repairs; 3 per cent of products sold
require minor repairs costing 10 per cent of the sale
42
42.. Pyt
Pytha
hagor
goras
as Co
Co.. must
must det
deter
ermin
mine
e the
the Dec
Decemb
ember
er 31,
31, price; and 2 per cent of products sold require major
re
repai
pairs
rs or repla
replacem
cemenentt costi
costing
ng 90 per cent
cent of sale
sale
2015
20 15 ses.
expen
expensesyear
ye.ar-e
-end
nd P2,
A ac
accr
crua
P2,00
000uals
0 ls
adv for
fo
advertr ising
ertis ad
adve
ingvert
rtis
isin
bill ing
bill g an
was andd eived
rec rent
re
recei nt
ved price.
January 7, 2016. It related to costs of P1,500 for The entity has no reason to believe future warranty
warranty
advertisements in December 2015 issues and P500 for claims will be dierent from its experience.
adve
advert
rtis
isem
emenents
ts in Janu
Januar
ary
y 2, 20162016 is issu
sues
es of thethe

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At 31 December 2015 the appropriate discount factor deduction to equity.

for cash ows expected to occur on 30 June 2016 is c. Joint
Joint cos
costs,
ts, whi
which
ch inc
inclu
lude
de fee for fair
fairnes
ness
s opin
opinion
ion
0.95238.. Furthermor
0.95238 Furthermore,e, an appropriate risk adjus
adjustment
tment and valuation
valuation rep
report,
ort, tax opin
opinion
ion cost and other
factor
factor to re
reec
ectt the unce
uncerta
rtaint
inties
ies in the cas
cash
h ow joint costs, amounting
amounting to P47
P475,000
5,000 will be
be allocated
es
esti
tima
mate
tes
s is an in incr
crem
emen
entt of 6 peperr cent
cent to th
the
e using the proportion of newly sold shares to the
probability-weighted expected cash ows. totall number
tota number of sharshares
es outs
outstand
tanding
ing immediat
immediately
ely
after the new share issuance.
At 31 December 2015 the entity recognizes a warranty
provision measured at: d. The total costs incur
incurred
red of P1,000,000 will be
a. P210,000 c. P113,300 treated as a contra shareholders’
shareholders’ equity account.
b. P222,600 d. P106,000
49.
49. On Janu
January
ary 1, 20
2015
15,, Entity
Entity D enter
enterss in
into
to a forwar
forward
d
46.
46. The
The N CorpCorpor
orat
atio
ionn is auth
author
oriz
ized
ed to is issu
suee 100,
100,00
0000 contract that requires the entity to repurchase 1,000
ordinary shares, P17 par value. At the beginning of the shar
shares
es for P60
P60,0,000
00 on DecDecem
embeberr 31,
31, 2015
2015.. No
year
year,, 1818,0
,000
00 orordidina
nary
ry shar
shareses wewerre isissu
sued
ed anand
d consideration
consider ation is paid or received
received at the inception of the
outstand
outs tanding.
ing. Thes
These e share
shares s had been issuissued
ed at P24. contract. The market interest rate is 10% on January 1,
Du
Duriring
ng the
the year
year,, the
the cocomp
mpan
anyy enente
tere
red
d ininto
to the
the 2015
201 5 and 12% on December
December 31, 2015.
2015. The for forwar
ward
d
following transactions: contra
contract
ct decre
decrease
ased
d Entity
Entity D’s equit
equityy on Januar
Januaryy 1,
Jan. 16 - Issued
Issued 1,300 or ordinary
dinary sha
shares
res at P25 p per
er share. 2015 by
Mar.. 21 - Ex
Mar Exch
chan
anged
ged 12,00
12,000 0 ordin
ordinar
aryy shar
shares
es for a a. P60,000 c. P53,574
building.
building. The ordiordinary
nary share
sharess were selling at b. P54,546 d. P 0
P27 per share.
May 7 - Rea
Reacquire
cquired d 500 ordina
ordinary
ry shares at P26 per 50. Cer
Cerrito
ritos
s Corp
Corporat
oration
ion began operat
operations
ions on Janu
January
ary 1,
share to be held in treasury. 20
2012
12.. Du
Durin
ring
g its rs
rstt three
three years
years of oper
operati
ations
ons,,
July 1 - Accepted subscri subscriptions
ptions to 1,000 ordina
ordinary
ry Cerritos reported net income and declared dividends as
shares at P28
P28 per share
share.. The contrac
contractt called follows:
for 10% down payment with the balance due Ne
Nett iinc
ncom
ome
e Di
Divi
vide
dend
nds
s dec
decla
larred
on June 30 next year. 2012 P 80,000 P 0
Sept. 20 - Sold 500 treasury shares at P29 per share. 2013 250,000 100,000
2014 300,000 100,000
Total
Total contrib
contributed
uted capital at D
December
ecember 31 is
a. P615,000 c. P613,500
The following
following infor
information
mation rela
related
ted to 2015
2015::
b. P818,000 d. P816,500
Priorunderstatement
period adjustment:
of 2013 depreciation
47. The followin
following
g balances ar
are
e shown in the sh
sharehold
areholders'
ers'
equity of tamarind company on December 31, 2014: expense (before taxes) P 40
4 0,000
Cumulative decrease in income from
Preference share capital, P10 par,
change in inventory methods (before
100,000 shares P1,000,000
taxes) 70,000
Ordinary share capital, P10 par,
Income before income tax 480,000
500,000 shares, 5,000,000
Dividends declared (of this amount,
Share premium - preference 50,000
P50,000 will be paid on January 15,
Share premium – ordinary 200,000
2016) 200,000
Retained earnings 100,000
Eective tax rate 35%
T
Total
otal P6,350,000
P6,350,000
As at De
Decem
cember
ber 31,
31, 2015
2015,, the re
retai
tained
ned ear
earnin
nings
gs of
During 2015, the following transactions pertaining to
Cerritos Corporation is
the shareholders' equity were completed:
a. P520,500 c. P430,000
• Retirement of 5,000 preference shares at P11 per
b. P484,500 d. P470,500
share.
• Purc
Purcha
hase
se of 5,0
5,000
00 ordin
ordinar
aryy sha
share
res
s at P12 per
per 51.
51. Th
The
e shar
shareh
ehol
olde
ders
rs’’ eq
equi
uity
ty of Wind
Windy
y CoComp
mpan
any
y on
share. December 31, 2015, consists of the following capital
• Share split, ordinary, 2 for 1. balances:
• Reissue of 2,000 treasury shares at P8 per share.
Preference share capital, 10%
• Prot for 2015, P300,000. cumulative, 3 years in arrears, P100
par, P110 liquidation price 150,000
The total shareholders'
shareholders' eq
equity
uity on Dec
December
ember 31, 20
2015
15 is shares P15,000,000
a. P6,556,000 c. P6,350,000 Ordinary share capital, P100 par,
b. P6,551,000 d. P6,251,000 200,000 shares 20,000,000
48
48.. Op
Openen Se
Sesam
samee Com
Compa
pany
ny ununder
dertak
takes
es an IPO for the
the
list
listin
ing
g and
and is
issu
suan
ance
ce of 700,
700,00
0000 new
new shar
shares
es anand
d Subscribed ordinary share capital, net
300,
300,00000
0 ex
exis
isti
ting
ng shar
shares
es.. In rela
relati
tion
on to this
this,, the
the of subscription receivable of
company incurred the following costs: P4,000,000 6,000,000
Documentary stamp tax P 25,000 T
Treasury
reasury shares-ord
shares-ordinary,
inary, 50,000
50,000
Fairness oop
pinion a
an
nd v
va
aluation rre
eport 125,000 shares at cost 4,000,000
T
Tax
ax opinion 75,000 Share premium 3,000,000
Newspaper publication 200,000 Retained earnings 20,000,000
Listing fee 300,000
Other joint costs 275,000 The book value
value per shar
share
e of ordi
ordinary
nary is
P1,0000,000 a. P156.00 c. P172.00
b. P190.00 d. P286.67
Which statement is incorrect?

a. The
The comp
compan
P300,000 anyy wi
will
ll rec
immediately ecog
toogni
nize
ze or
prot th
the
e li
list
loss.stin
ing
g fe
fee
e of 52. Edmund Halv
Halvor
or of the contr
controller's
oller's oce of East Au
Aurora
rora
Corporation was given the assignment of determining
b. The docuocumen enta
tary
ry stam
tamp ta tax
x and
and new ewsp
spa
aper
the basic and diluted earnings per share values for the
pu
publ
blic
icat
atio
ion
n fe fee
e amou
amount ntin
ing
g to P2 P25,
5,00
000
0 anand
d
year ending December 31, 2015.
P200,000
P200 ,000,, res
respect
pectivel
ively,
y, will be recrecogn
ognized
ized as a

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TC

shares at P20 per share 500,000

Additional information
information:: T
Tax
ax rate 40%
a. The compa
company ny is aautho
uthorize
rizedd to iss
issue
ue 8,0
8,000,0
00,000,
00, P1
P10
0 par Average market price of ordinary P25 per
value,
valu e, ordi
ordinary
nary shshare
ares.
s. As of DeceDecember
mber 3131,, 2014, shares share
3,00
,000,00
,000 share ares had been is issu
sueed and we werre
There were no changes during the year in the number
outstanding.
of ordinary shares, preference shares, or convertib
convertible
le
b. The per
per shar
sharee mark
marketet pri
prices
ces of the orordi
dinar
nary
y shar
shares
es on
bonds outstanding. There is no treasury share.
selected dates were as follows.
Price per Share Compute diluted earnings per share.
July 1, 2014
2014 P20.00 a. P1.70 c. P1.66
January 1,1, 2015 21.00 b. P1.62 d. P1.26
April 1, 2015 25.00

July
A ugu1,st2015
20
1,15
2015 11.00
1 0.50 54. At the
onsbegin
options
opti beginning
ning of
to each of its
year 1, an
200 entity
employ
employees. gran
grants
ees. ts 100
Each shar
share
gra
grant e
nt is
November 1, 2015 9.00 conditio
cond itional
nal upo
uponn the empl
employee
oyee rem
remaini
aining
ng in service
service
December 31, 2015 10.00 over the next
next three yeayears.
rs. The enti
entity
ty estima
estimates
tes that
c. A tota
totall of 700,
700,00000 0 shar
shares
es of an auth
author
orize
izedd 1,200,0
1,200,000
00 the fair value
value of each option is P21.
P21. On the basis of a
shares of convertib
convertible le preferred shares had been issued weighted average probability,
probability, the entity estimates that
on July 1, 2014.
2014. The shar sharee was issued at iits ts par value 60 employees will leave during the three-year period
of P25,
P25, andand it ha hass a cumul
cumulati
ative
ve div
divid
idend
end of P3 per and therefore forfeit their rights to the share options.
share. The share is conv convertible
ertible into ord
ordinary
inary shar
shares
es at
the rate of one share of convertible preference for one Suppose that
that 15 employees lleave
eave during year
year 1. Also
share
sha re of ordinar
ordinary y. The rat rate
e of con
conver
versiosion
n is to be suppose that by the end of year 1, the entity’s share
automa
automatictical
ally
ly adjus
adjusted
ted for shashare
re sp
split
lits
s and sh shar
are
e price
price has dropped,
dropped, and the entientity
ty reprice
reprices
s its share
dividends.
dividen ds. Dividends
Dividends are paid quartquarterly
erly on September options, and that the repriced share options vest at the
30, December 31, March 31, and June 30. end of year
year 3. The entit
entity
y estimates that a further 335
5
d. East AAuro
urora
ra Co
Corpor
rporatio
ationn is su
subjec
bjectt to a 40
40% % in
income
come ta
tax
x employee
empl oyees
s will leav
leave
e durin
during
g years 2 and 3. During
During
rate. year 2, a further 10 employees leave, and the entity
e. The afafter
ter-ta
-taxx pro
prot
t for the yea
yearr ende
ended d Dece
Decembe
mberr 31, estimates that a further 10 employees will leave during
2015 was P13,550,000. year 3. During year 3, a total of 8 employees leave.
The entity estimates that, at the date of repric
repricing,
ing, the
The following
following specic ac
activities
tivities took pl
place
ace durin
during
g 2015. fair value of each of the original share options granted
1. January 1 — A 5% o rrd dinary s h ha
are d iiv
vidend w a as
s (ie before taking into account the repricing) is P10 and
issued. The divid
dividend
end had been d declare
eclared d on December that the fair value of each repriced share option is P13.
1, 2014, to all shareholders of record on December 29,
2014. The amount to be
be recog
recognized
nized as ex
expense
pense in year 2 is
2. April
ril 1 — A ttot
otaal of
of 220
00,00
,000 p prrefer
efereence shshar
ares
es wa
wass a. P159,000 c. P150,750
converted intointo ordi
ordinary
nary shar
shares.
es. The compacompany ny issued b. P105,000 d. P135,750
new ordinary shares and retired the preference shares.
3. July 1 — A 2-for-1 o rrd dinary s h ha
are split b e ec
came 55.
55. An enti
entity
ty gran
grants
ts to an empl
employe
oyeee th
the
e rig
right
ht to choos
choose e
eecti
ee ctive
ve on th this
is date
date.. TheThe boboar
ardd of didire
recto
ctors
rs had eit
eithe
herr 1,000
1,000 phphan
antom
tom shar
shares,
es, ie a ririgh
ghtt to a cash
cash
authorized the split on June 1. payment equal to the value of 1,000 shares, or 1,200
4. Augu
August st 1 — A ttot
otal
al of 30
300,
0,00
0000 orordi
dina
nary
ry shar
shares
es we
werre shares. The gran
grantt is conditional
conditional upo
uponn the comp
completion
letion
issued to acquire a factory building. of three
three years’ serv
service.
ice. If the employee
employee choo chooses
ses the
5. November 1 — A to tottal o
off 2
244,000 or ord
dinary shshaares share
shar e alter
alternativ
native,
e, the shares must be held for three
were purchased on the open market at P9 per share. years after vesting date.
These shares were to be held as treasury shares and At grant date, the entity’s share price is P50 per share.
were still in the treasury as of December 31, 2015. At the end of years 1, 2 and 3, the share price is P52,
6. Ordinary
ary sh
sha
ares cacassh di
div
vidend
ends — Ca Cassh div
diviidend
ends P55 and P60 respectively
respectively. The entity does not e expect
xpect
to ord
ordinar
inaryy shar
sharehol
eholders
ders were decldeclared
ared and paid as to pay dividends
dividends in the nenext
xt three year
years.
s. After
After taking
follows. into account
account the eects
eects of the post-ve
post-vestin
sting
g transfer
transfer
April 15 — P0.30 per share restrictions, the entity estimates that the grant date
October 15 — P0.20 per share fair value of the share alternative is P48 per share.
7. Prefer
eferen
ence
ce shar
shares
es cash
cash di
divi
vide
dend
nds
s — Ca
Cash
sh di
divi
vide
dend
nds
s
to preference shareholders were declared and paid as Com
omppute for the
the am
amou
ounnt to be recogn
ognize
zed
d as
scheduled. compensation expense in year 2.
a. P21,868 c. P19,334
Deter
Det ermin
mine
e the nunumbe
mberr of sha
share
ress used
used to compu
compute
te b. P36,667 d. P19,200
dilu
dilute
ted
d ea
earrni
ning
ngs
s pe
perr shar
share
e fo
forr the
the ye
year
ar ende
ended
d
December 31, 2015. 56
56.. During
During 2015
2015,, Grant
Grant Industries,
Industries, Inc. constr
constructe
ucted
d a new
a. 7,891,000 c. 7,836,000 manufact
manu facturin
uringg facility
facility at a cost of P12,000,00
P12,000,000.
0. The
b. 7,981,000 d. 7,286,000 weighted average accumulated expenditures for 2015
were calculated
calculated to b bee P5,400,000.
P5,400,000. The compa
companyny had
53. The informati
information
on below pertains to Prance
Prancerr Company.
Company. the following debt outstanding at December 31, 2015:
Prot for the year P1,200,000 • 10 percent, ve-year note to nance construction
8% convertible bonds issued at par of the manuf
manufact
acturi
uring
ng facili
facility,
ty, da
dated
ted Janua
January
ry 1,
(P1,000 per bond). Each bond is 2015, P3,600,000.
convertible into 40 ordinary • 12 percent, 20-year bonds issued at par on April
shares 2,000,000 30, 2011, P8,400,000.
6% convertible, cumulative • 8 percent, six-year note payable, dated March 1,
preference shares, P100 par 2014, P1,800,000.

value. Each share

into 3 ordinary is convertible
shares. 3,000,000 Determine the amount of interest to be capitalized by
Grant Industries for 2015.
Ordinary shares, P10 par value 6,000,000
a. P360,000 c. P557,280
Share options (granted in a prior
b. P563,220 d. P591,840
year) to purchase 50,000 ordinary

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TeamPR
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Additional information
Additional
57. Which of the follow
following
ing state
statements
ments is trutrue?
e? • The company can claim a deduction of P15,000 (15%)
a. If a lease
lease quali
qualies
es as a nan
nancece leas
leasee for the les
lessor,
sor, for depreciation
depreciation on equipment, but the motor vehicle is
it will also always qualify as a nance lease for the fully depreciated for tax purposes.
lessee. • The equipment sold during the year had been
b. It is po
possi
ssibl
ble
e for neither
neither the lessor
lessor nor
nor les
lessee
see to purcha
pur chased
sed for P30
P30,000
,000 two year
yearss befo
before
re the date of
depreciate the asset under lease. sale.
c. A lessee's
lessee's dedebt
bt equi
equity
ty rati
ratio
o is not inincre
creased
ased if th the
e • The company
company tax rate is 30%.
30%.
lease is a nance lease, whereas, it would be if the
asset were purchases outright. 60. The cur
current
rent tax expense
expense for 20
2015
15 is
d. The
There is alway ays
s "ac"accoun
ountiting
ng symm mme etry"
try" for a. P6,030 c. P7,500
recording and reporting leases between the lessor b. P6,930 d. P8,040
and lessee.
61. The defer
deferred
red tax expense
expense (benet)
(benet) for 2015 iis
s
58. Por
Porke
keee Corp
Corp.. sell
sells
s equipme
equipment
nt with a car
carryin
rying
g amount
amount a. P6,570 c. (P2,430)
P150,0
P15 0,000
00 to ChChope
opeee Cor
Corp.
p. for P17
P170,0
0,000
00 wh
when
en the b. (P3,270) d. (P1,080)
equipmen
equipment's
t's fair value is P10
P100,00
0,000,
0, and then ente
enters
rs
into a cancellable operating lease agreement to use Use the following information for the next two questions:
the equipment
equipment for two years. In the curr
current
ent year, how
much prot would Porkee Corp. record on the sale of To
To encourag
encourage e employees older than 60 years to extend
the equipment? th
thei
eirr em
emplploy
oyme
ment
nt with
with th the
e enti
entity
ty,, La
Lame
mentntat
atio
ions
ns
a. P20,000 c. P70,000 Corporati
Corp oration
on pro
promise
misess its 60-
60-year
year-old
-old empl
employee
oyees
s a lump
lump--
b. P50,000 d. Nil sum benet equal to 1 per cent of nal salary for each year
of service they remain employed by the entity after their
59
59.. The
The Walon
alonek
eke
e Co
Comp
mpananyy has
has a poli
policy
cy of usin
using
g nonon-
n- 60th
60th bi birth
rthda
dayy pr
prov
ovide
ided
d they
they reremai
mainn in the emp
employ
loy of
current assets until they can no longer be operated and Lamentations Corporation until they are 65, at which time,
are worthless. On 1 January 2012015
5 it acquired an item o off in accordance with local laws, employees are required to
pl
plan
antt and
and mamach
chin
iner
ery
y for
for P1
P100
00,0
,000
00.. It is bein
beingg reti
retire
re.. Th
The
e bene
benet
t is papaya
yabl
ble
e to the emplo
employe
yees
es on
depreciated over 10 years
years on a stra
straight-line
ight-line bbasis.
asis. For retirement.
tax purposes there is an allowance of 20% per annum on
Employee A’s 60
Employee 60th
th birt
birthday
hday is on 1 Jan
January
uary 2
2014
014.. Her
a reducing
reducing balance
balance basi
basis.
s. Ther
There
e are two rates of tax:
salary for the year ended 31 December 2014 is P100,000.
15% on trading prots and 25% on gains on disposals.
What deferred tax balance should Waloneke recognize at At 31 Dece
Decembmber
er 2014
2014 the
the en
enti
tity
ty made
made the
the foll
follow
owin
ingg
actuarial assumptions:
31 December 2015, according to PAS12 Income taxes?
• Employ
Emp loyee
ee A’s sal
salary
ary should
should incr
increas
ease
e by 5 per cencentt
a. Deferred tax asset of P2,500
(compound) each year.
b. Deferred tax asset of P1,500
c. Deferred tax liability of P2,500 • There is a 20 per cent probability
probability that employee A’s
d. Deferred tax liability of P1,500 employme
empl oyment
nt with the enti
entity
ty will terminate
terminate before
before 1
January 2019.
2019.
Use the following information for the next two questions. • The appropriate
appropriate discount
discount rate is 10 per
per cent per y
year
ear..

The accountin
accounting
g prot before tax for the year ended Employee A’s salary for 2015 is P105,000.
December 31, 2015 for Regiel Ltd amounted to P18,500
and included: At 31 Dec
Decemb
emberer 20
2015
15 the entit
entity
y re
revivised
sed its actuar
actuarial
ial
assumptions as follows:
Depreciation – motor vehicle (25%) P 4,500
• Employee A’s salary should increase by 15 per cent
Depreciation - equipment (20%) 20,000
Rent revenue 16,000 (compound) each year.
Royalty revenue (exempt from tax) 5,000 • There is a 10 per cent probability
probability that employee A’s
Doubtful debts expense 2,300 employ
emp loymen
mentt with
with the entit
entity
y wil
willl termin
terminate
ate be
befor
fore
e
Entertainment eex
xpense (non-deductible) 1,500 reaching retirement date of 1 January 2019.
Proceeds on sale of equipment 19,000 • The appropriate discount rate remains 10 per cent per
Carrying amount of equipment sold 18,000 year.
Annual leave expense 5,000 The entity does not fund its obligatio
obligation
n to pay lump-sum
benets. (Round o future and present value factors to
The draft statement of nancial position at December 31, four decimal places)
2015 contained the following assets and liabilities:
2015 2014 62. Calc
Calculat
ulate
e the amount that the entity
entity would
would recog
recognize
nize
Assets in prot or loss for the year ended 31 December 2015.
Cash P 11,500 P 9,500 a. P1,146 c. P1,437
Receivables 12,000 14,000 b. P1,080 d. P1,534
Allowance for doubtful debts (3,000) (2,500)
Inventory 19,000 21,500 63. Calc
Calculat
ulate
e the amount that the entity
entity would
would recog
recognize
nize
Rent receivable 2,800 2,400 in other comprehensive income for the year ended 31
Motor vehicle 18,000 18,000 December 2015.
Acc. Dep. - motor vehicle (15,750) (11,250) a. P1,014 c. P350
Equipment 100,000 130,000 b. P1,080 d. Nil
Acc. Dep. - equipment (60,000) (52,000)
Deferred tax asset ? 5,550 64. On Januar
Januaryy 1, Les
Lessor
sor Compa
Companyny signe
signed
d a 1-year rental
rental
P135,200 with quarterly payments of P100,000 due at the end of
Liabilities ea
each
ch quart
quarter
er.. In add
addit
itio
ion,
n, the le less
ssee
ee must
must papay
y
Accounts payable 15,655 21,500 cont
contin
inge
gent
nt rent
ent of 5% of al alll sale
sales
s in excxces
ess
s of
Provision for annual leave 4,500 6,000 P10,00
P10 ,000,0
0,000
00.. Th
Thee conting
contingent
ent rent
rent is paid in one
Current tax liability ? 7,600 payment on December 3 31.
1. The same le lessee
ssee has use
usedd
Deferred tax liability ? 2,745 the building for the past 5 years, and in each of those
37,845 years the lessee reached the contingent rent threshold

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TeamPR
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of P10,000,000 in sales. Sales of the lessee for the rst 68. The followin
following g accountin
accountingg policy options in fullfull IFRSs are
are
two quarters are as follows: not included in the IFRS for SMEs, except
a. Fininanc
ancial
ial in
instr
strum
ument
ent opt
option
ions,s, inc
inclu
ludin
ding g availa
available-
ble-
Quarter ended Amount
for-sale, held-to-maturity and fair value options.
March 31 P3,200,000
b. Th
The e rev
eval
alua
uati
tion
on mo
mode
dell foforr pr
prop
oper
erty
ty,, pl
plan
antt and
and
June 30 3,000,00
3,000,000
0
equipment, and for intangible assets.
c. Pr
Prop
opor
orti
tion
onat
ate
e cocons
nsol
olid
idat
atio
ionn for
for in
inve
vest
stme
ment
ntss in
What amount of rent expense should be reected in
jointly-controlled
jointly-co ntrolled e
entities.
ntities.
Lessee’s quarterly income statement for the three
d. The use of fair value model for investment
months ended June 30?
property.
a. P100,000 c. P130,000
b. P125,000 d. P160,000
69
69.. Wh
Whic
ich
h of th
the
e foll
follow
owin
ing
g is no
nott a recog
ecogni
niti
tion
on and
and

measurement
for SMEs? simplication of the full IFRSs in the IFRS
65
65.. The
The Ma Madd
ddyy Co
Compmpan any
y is prep
prepar
arin
ing
g in
inte
teri
rim
m nan
nancicial
al
a. Financial instruments
instruments meeting specied criteria are
stat
statem
emenents
ts fo
forr th
thee si
six
x mont
months
hs to 30 June June 202016
16 in
measured at cost or amortized c cost.
ost. All others ar
are
e
accordance with the minimum requirements of PAS34. Its
measured at fair value through prot or loss.
acco
accoununti
ting
ng ye
year
ar ends
ends on 31 De Dececemb
mber er each
each yeyearar..
Which
Whic h of the foll
followi
owing
ng comp
comparat
arative
ive statemen
statementt is not b. The IFRS for SMEs does not requir require
e separate
appropriate? accounting for ‘embedded derivatives’.
a. Statement of nancial position at 30 June 2015 c. Good
Goodwill
will and other
other indenite-
indenite-life
life intangi
intangible
ble assets
b. Stat
Statemen
ementt of prprot
ot or loss and
and otother
her cocompr
mprehen
ehensiv
sive
e are not subject to impairment.
income for the half year to 30 June 2015 d. Resear
searc
ch and devel elop
opm
ment
ent costs sts must be
c. StState
atemen
mentt of cha
chang
nges
es in eq
equit
uity
y for tthe
he hahalf
lf ye
year
ar to recognized as expenses.
30 June 2015
d. StState
atemen
mentt of cas
cashh ow
owss for th
the
e hal
halff year
year to 30 Jun
Junee 70.
70. Th
Thee Retr
etryy Com
Compan
pany y use
uses s cas
cash-b
h-basi
asis
s acc
accouounti
nting
ng for
2015 their records.
records. During 20 2015,
15, Retry
Retry collected P500P500,000
,000
from its customers, made payments of P200,000 to its
66
66.. Whi
Which
ch of the follow
following
ing are nonott con
consid
sider
ered
ed exter
external
nal supp
supplilier
ers
s foforr inve
invent
ntor
ory,
y, anandd papaid
id P1P14040,0,000
00 fo forr
users of SMEs’ nancial statements? operating costs.
costs. Retr
Retryy wants to prepare
prepare acc
accrual-basis
rual-basis
a. Ban
Banks
ks tha
thatt ma
mak ke lo
loan
anss to SM
SMEs.
Es. statements. In gathe gathering
ring information
information for th thee accrua
accrual-l-
b. Vendors
endors ththat
at sel
selll to SMEs and us use
e SMEs
SMEs’’ nan
nancia
ciall basi
basiss nan
nancicial
al stat
statem
emenents
ts,, Ret
etry
ry didisc
scov
overered
ed the
the
statements to make credit and pricing decisions. following:
c. Cr
Cred
edit
it rat
ratin
ingg agen
agenciecies
s and others
others ththat
at use SM
SMEs’
Es’ a. Cu
Custo
stomer
mers s owe
owedd Retretry
y P50,00
P50,000 0 at the beginn
beginniningg
nancial statements to rate SMEs. and P35,000 at the end of the year.
d. SMEs
SMEs’’ sharehol
shareholderderss that are
are also
also manage
managersrs of their
their b. Retry
Retry owed sup supplie
pliers
rs P20,0
P20,00000 at the beg
beginni
inning
ng and
SMEs. P27,000 at the end of the year.
c. Retry's
etry's beginn
beginning
ing inve
invento
ntory
ry was P42,
P42,00000,0, and its
67. If an SME that uses the PFRS for SM SMEs
Es in a curr
current
ent year ending inventory was P44,000.
breaches the oor or ceiling of the size criteria at the d. Retetry
ry ha
had d pr
prep
epaiaid
d expen
xpensesess of P5P5,0
,000
00 at thethe
end of that current year, and the event that caused the beginning and P7,400 at the end of the year.
change is considered “signicant and continuing”, the e. Retetry
ry ha
hadd acaccr
crue
uedd expe
expens nses
es of P1P12,
2,00
000 0 at the
the
entity should beginning and P19,000 at the end of the year.
a. Trarans
nsit
itio
ion
n to th
the
e ap
applplic
icab
able
le n
nan
anci
cial
al rep
epor
orti
ting
ng f. Deprec
Depreciati
iation
on for
for the year was P51,P51,000
000..
framework in the next accounting period. Dete
Deterrmi
mine
ne th
the
e ac
accr
crua
uall basi
basis
s net
net in
inco
come
me of Ret
etry
ry
b. Trarans
nsit
itio
ion
n to th
the
e ap
applplic
icab
able
le nan
nancicial
al rep
epor
orti
ting
ng Company for the year ended December 31, 2015.
framework in the current accounting period. a. P79,600 c. P91,400
c. Trarans
nsit
itio
ion
n to th
the
e ap
applplic
icab
able
le nan
nancicial
al rep
epor
orti
ting
ng b. P84,400 d. P98,400
framework from the previous accounting period.
d. Use the same nanancia
nciall re
report
porting
ing fram
framewor
ework.
k.

 - end - 

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 JuniorPhilippineInstituteofAccountants
CollegeofBusinessAdministration
UniversityoftheEast-Caloocan

QualifyingExamevie!er"#$%
&inancialAccountingandeporting

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I. D
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sth
the
ebo
bodyauthorizedbylawt
edbylawtopromulga
opromulgaterulesan
terulesandregulati
dregulationsaffe
onsaffectingthep
ctingthepractice
ractice
oftheaccountancyprofessionsinthePhilippines.
a
a.. Philippi
PhilippineInst
neInstitut
ituteofCertif
eofCertifiedPub
iedPublicA
licAccou
ccountan
ntants
ts
b
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dofAcc
ccou
ount
ntan
ancy
cy
c
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Securiti
itiesan
esandEch
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mmissi
ssion
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lation
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issionn

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ount
ntan
ancy
cy

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national
onalacco
accounti
untingst
ngstand
andards
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!ules$based
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erthatp
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plesbas
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athert
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Principle-ba
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ccountingconcept
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theusageofaccru
faccrualsand
alsanddeferral
deferrals.
s.

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ity c
c.. Con
Consi
nsis
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Cashbas
asisisof
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nting
ng d
d.. ,oin
, oing
gco
conc
ncer
ern
n

d.
d . Goin
G oingc
gcon
once
cern
rn

-. Anitemcannotbereco
Ani
Anite
tem
mc
can
annotberecogniz
gnizedinthebala
edinthebalanceshe
ncesheetortheinco
etortheincomestate
mestatementun
mentunlessit
lessit
meetsthetwocriteriaof

Crri
C riittte
e
erri
riio
on
on 1 Cr
Cri
riittte
e
erri
riio
o
onn "
a.
a. Co
Com
omp mpl pllee
ettte
en
ene
nes
ess
ss +e
+ea
ea assu
suurre
rem
eme
me en
nt
nt rre
e
ellliiia
a
ab
b
biiillliit
itty
y
b.
b. Pro
Prob
robabab
ab ble
lee
leeco econ
cono
no
om
mic
micb
icbe
ben
ene
ne
efi
fit
fitts
s +e
+ea a
asu
sure
suremme
meen ntr
ntre
treli
elia
lia
abbil
bilit
ility
y
c.
c. +a+at
atte
e
erri
riia
al
alliiitttyy !e
!eellle
e
e(
(
(aa
an
n
nc
c
cee tto
o ot
o tth
h
hee
errs
rs
d.
d.  e
eu
eututtrra
raallliiittty
y !
!e
el
elle e
e(
(
(a
a
ann
nc
c
ce
e tto
o ot
o tth
h
hee
errs
rs

b.
b . Prob
P robab
able
leec
econ
onom
omic
icbe
bene
nefi
fits
ts Meas
M easur
urem
emen
entr
trel
elia
iabi
bili
lity
ty

/. #he
#he IASB
IASB &rame
&ramewo
wor0
r0 outli
outline
nes
s twounderlyin
twounderlying
g as
assum
sumpt
ption
ions
s of fin
finan
ancia
cial
l state
statemen
ments
ts..
#heseare

Assumption1 Assumption"
 a. Accrua
ccrual
lba
basis
sisofac
o facco
coun
untin
ting
g !e
!ele
le(a
(ance
ncea and
ndre
reli
liab
abil
ility
ity
b. Cashb
hbasiso
sof
fa
accounting Insol(encya
yassumption
c. Accr
Accrua
ual
lba
basis
sisofac
o facco
coun
untin
ting
g ,o
,oiing
ngco
conc
ncern
ernassump
a ssumpti tion
on
d. Cashb
hbasiso
sof
fa
accounting Perpetuall
llifec
econcept

c.Accrualbasisofaccounting;goingconcernassumption

. 2hichofthef
2hichofthefollow
ollowingstatem
ingstatementsconcer
entsconcerning
ningthe&r
the&ramew
amewor0isin
or0isincorr
correct3
ect3
a. Primary
m ary respo
responsi
nsibil
bility
ity for
for the
the prepa
preparat
ration
ion and
and presen
presenta
tatio
tion
n of the
the fin
finan
ancia
ciall
statementsrestswiththemanagement.
b. #he
#he &r
&ram
amew ewor
or0
0 pr
pro(
o(id
ides
es that
that the
the tran
transa
sact
ctio
ions
ns must
must be ac
accocoun
unteted
d for
for in
accordancewiththeirlegalform.
c. &inan
&inancia
cial
l statem
statemenents
ts mu
must
st no
not
t e
eclu
clude
de complematt
complemattersin
ersin or
orde
der
r to achie
achie(e
understandability.
d. 2herean
2hereanyconf
yconflic
lictaris
tarisesbe
esbetwe
tweenth
enthe e FrameworkandaPFRS%there'uirement
%there'uirement
oftheP&!Spre(ails.

b. he!rame"or#provi
he!rame"or#providesthat
desthatthetrans
thetransact
actionsmustbea
ionsmustbeaccoun
ccountedforin
tedforin
accordance"iththeirlegalform.

4. In respe
respect
ct to inf
inform
ormat
ationinclu
ioninclude
ded
d in finan
financia
cial
l sta
statem
temen
ents%the
ts%the ac
accou
count
ntingconc
ingconcep
ept
t of
5prudence6ensuresthat7
a. #hefinancialstatementsreportwhattheypurporttoreport .
b. Adegreeofcautionintheeerciseof*udgmentsaboutestimatesismade.
c. Anappropria
An appropriate
tebalanceis
balanceisachie(edbetweentherele(ance
achie(edbetweentherele(anceandthe
andthe reliabilityof
informationthathasbeenincluded.
d. Informatio
Informationispro(idedtousers
nispro(idedtouserswithinthetim
withinthetimeperiodinwhichitismostli0elyto
eperiodinwhichitismostli0elyto
bearontheirdecisions.

b. Adegreeofcautioninthee$erciseof%udgmentsab
Adegreeofcautioninthee$erciseof%udgmentsaboutestimatesism
outestimatesismade.
ade.

II. &ash
ha
and
d&
&ash
h'
'(uivalents

8. Informat
Informationabo
ionabouttheso
utthesourc
urcesand
esandusesof
usesofanente
anenterpris
rprise9scas
e9scashandca
handcashe'u
she'ui(ale
i(alentsis
ntsis
pro(idedinthe

a. Bala
Balanc
nce
esh
shee
eett c. Statemen
Statementof
tofcha
changesi
ngesine'
ne'uity
uity
b. In
Inco
come
mest
stat
atem
emenentt d. Cash
Cashflow
flowst
statem
atemenentt

d. &ashf
&ashflo
lo"s
"state
tateme
ment
nt

:. #hefollowingda
#hefollowingdataperta
tapertaintoSa
intoSanghaya
nghayaCorporatio
Corporationon;e
non;ecember
cember)1%"<1
)1%"<177

Current ac
 count at BPI P )%<<<%<<<


Current ac count at P  B =/<%<<<>

Payroll account 1%<<<%<<<
&ore
&oreig
ign n ban0
b an0 ac accocoununtt ? rrestr
estricicted
ted =in p eso> 4/<%<<<
Postage tamps 1%<<<
Emploloy yee9s
e9s po  st da  ted ch  ec0 -%<<<
I@ from co  ntrol
roller9
ler9ss sister 1<%<<<
Cr
Cred
edit
it m
 emo from a  ((end
 endoror for a purc
p
 urcha
hase se return "<%<<<
#ra(eler 9s che c0 /<%<<<
ot$s
ot$suuff
ffic
icieient
nt funds$chec0 1/%<<<
+oney order )<%<<<
Petty c
cash ffund = =-%<<< iin c
currency e epenses r receipts ffor 
%<<<> 1<%<<<
#reasury
reasury bill b
 ills%
s% d
 ue ))11
))114 4 =purch
=purchase
ased d 1")11> )<<%<<<
#reasur
reasury y bill
b
 ills%
s% d
 ue 1)1
1 )11
144 ==pur
 purch
chas
aseded 1  11> 11<%<<<
Basedontheabo(einformation%computeforthecashandcashe'ui(alentthatwould
bereportedonthe;ecember)1%"<1balancesheet.
 a. P-%
P-%))
))-%<
-%<<<
<< c. P-
P-%-<-%<<
%<<<
b. P-%
P-%)8
)8-%<
-%<<<
<< d. P-%
P-%-
-<:
<:%<
%<<<
<<

Current ac  count at BPI )%<<<%<<<

Payroll account  1%<<<%<<<
#ra(elerDs chec0  /<%<<<
+oney order  )<%<<<
Petty cash fund =the a  mount in currency only>  -%<<<
#re
reas
asur
uryy bills% due ))114  )<<%<<<
b. P)*+,)*

1<
1<.. ou no
note
ted
d th
the
e fo
foll
llow
owin
ing
g co
comp
mpos
osit
itio
ion
n of Fiya
Fiyas
s Co
Comp
mpan
any9
y9s
s 5cas
5cash
h ac
acco
coun
unt6
t6 as of
;ecember)1%"<1

;emand de posit  P )%<<<%<<<


#ime deposit $ )<  days  "%<<<%<<<
S& ch  ec0 of cu stomer  -<%<<<
+oney mar0et placement =due Gune )<% "<14>  1%/<<%<<<
Sa(
a(in
ings
gs de
depo
 pos sit in
 a c lo
lossed b an0  1<<%<<<
I@ fro m em  ployee  "<%<<<
Pension fun d  "%<<<%<<<
Petty cash fun d  1<%<<<
Cust
Cu stom
omerer che
c hec0 d date
 ateddG Ganu
 anuar
ary y1
1%
%" <14  /<%<<<
Customer
Custo mer chec0
chec0 outstanding for 18 months  -<%<<<
:%4<%<<<

Additionalinformationareasfollows7
a> Chec0ofP1<<%<<<inpaymen
Chec0ofP1<<%<<<inpaymentofaccountspaya
tofaccountspayablewasreco
blewasrecordedon;ecem
rdedon;ecember
ber
)1%"<1butmailedtosuppliersonGanuary4%"<14.

b> Chec0ofP)<<%<<<
Chec0ofP)<<%<<<datedGa
datedGanuary1/%
nuary1/%"<14inp
"<14inpaymento
recordedandmailedon;ecember)1%"<1. aymentofaccoun
faccountspayabl
tspayablewas
ewas

c> #hecompanyuse
#hecompanyusesthecalendar
sthecalendaryear
year.#hecashreceip
.#hecashreceipts*ourn
ts*ournalwasheldopen
alwasheldopen
untilGanuary1/%"<14%duringwhichtimeP-<<%<<<wascollectedandrecorded
on;ecember)1%"<11.

#hecashandcashe'ui(alenttobeshownonthe;ecember)1%)<1balancesheetis

a. P/%
P/%<1
<1<%<
<%<<<
<<
b. P%
P%/1
/1<%<
<%<<<
<<
c. P
P%//<%<<
%<<<
d. P%
P%"/
"/<%<
<%<<<
<<

;emand deposit P )%<<<%<<<


#ime dep  osit  "%<<<%<<<
Petty cas h fund  1<%<<<
nde
n deli(
li(er
ered
ed che
ch
 ec0 =pay
=p
 ayme
ment
nt to
 s uppliers>  1<<%<<<
Post d ated che
ch
 ec0 =p
=pay
 ayme
ment
nt to
 s uppliers>  )<<%<<<
2indow dre
 ssing  =-<<%<<<>
a.P*/*

III.
III. Ban
an#
#0e
0econ
conci
cili
liati
atio
on
nan
andP
dPro
roof
ofo
of
f&a
&ash
sh

11. #he*ournalentrie
#he*ournalentriesfor
sforaban0r
aban0reconciliati
econciliation
on
a. +ayincludeadeb
+ayincludeadebittoaccoun
ittoaccountspayablef
tspayableforanS
oranS&chec
&chec0.
0.
b. +ayincludeac
+ayincludeacredit
redittoaccountsre
toaccountsrecei(ablef
cei(ableforanS&
oranS&chec0.
chec0.
 c. +ayincludead
+ayincludeadebittoo
ebittooffice
fficeepensefo
epenseforban0se
rban0ser(icecharg
r(icecharges.
es.
d. Areta0enf
Areta0enfromth
romthebal
ebalance
anceperb
perban0o
an0only
nly..

c. Mayincludeade
Mayincludeadebittooff
bittoofficee$pens
icee$penseforban
eforban#serv
#servicecharge
icecharges.
s.

1". A
Aproofofc
proofofcashisa
ashisa
a. Proofof
Proofofcomp
company9
any9sli
sli'uid
'uidposi
position
tion..
b. Proofoftheeiste
Proofoftheeistenceof
nceofacashd
acashdepositinab
epositinaban0.
an0.
c. !econ
!econcil
ciliat
iatio
ion
n ofthe ca
cashrecei
shreceipt
pts
s and
and pa
payme
ymentsduringthe
ntsduringthe pre(io
pre(ious
us pe
perio
riod%
d%
togetherwiththebeginningandendingbalancesofcash.
d. !econ
!econcil
ciliat
iatio
ion
n ofthe ca
cash
sh recei
receiptsand
ptsand papayme
ymentsduri
ntsduring
ng thecurren
thecurrent
t pe
perio
riod%
d%
togetherwiththebeginningandendingbalancesofcash.

d. 0eco
0econc
ncil
ilia
iati
tion
on of th
the
e ca
cash
sh rece
receip
ipts
ts an
and
d paym
paymen
ents
ts duri
during
ng th
the
e cu
curr
rren
entt
period*together"iththebeginningandendingbalancesofcash.

1)
1).. #he
#he boo0
boo00e 0eep
eper
er of Samb
Sambis
isig
ig Comp
Compan
any
y re
rece
cent
ntly
ly pr
prep
epar
ared
ed the
the foll
follow
owin
ing
g ba
ban0
n0
reconciliationon;ecember)1%"<17

Balance per ban0 statement "<%<<<%<<<

Add7;epositintransit 1%/<<%<<<
Chec
Ch ec0bo
0boo0
o0 a nd o the
ther b an0 c harge  /<%<<<
ErrormadebySambisiginrecordingchec01<</=issuedin
;ecember>  1/<%<<<
Cust
Cu stom
omer
er c hec0 mar0
ma
 r0ed
ed ;  AI&  /<<%<<<  "
"%%"<<%<<<
#otal ""%"<<%<<<
;educt7 @uts
@u
 tsta
tand
ndin ing
g chec0s  1%:<<%<<<
ote
teco
coll
lle
ected
tedbbyb
yban0=i
0=in
nclu
cludesP
sP"
"<<%<
%<<
<<in
<inte
tere
res
st> "%)<
%)<<%<<
%<<< -%"<<%<<
%<<<
Balance per boo0 18%<<<%<<<

SambisighasP1%<<<%<<<cashonhandon;ecember)1%"<1.#heamounttobe
reportedascashonthebalancesheetasof;ecember)1%"<1shouldbe7
a.

b. P1:
P1:%
%<<
<<%<
%<<<
<< d. P"<
P"<%%<
<<%<
<%<<<
<<
c. P18%
P18%<
<<%<
<%<<<
<< e. P1:
P1:%%4/
4/<%<
<%<<<
<<

Bala
alance per boo0  18%<<<%<<<
Chec0boo0 and other ban0 charge  =/<%<<<>
Chec0 m  ar0ed
0ed as
 ; AI&  =/<<%<<<>
otes collected  "%)<<%<<<
Cash on hand  1%<<<%<<<
Boo0 error  =1/<%<<<>
Ad*ustedcashbalance c.
c. 1
1*2
*2
*
*


1-. !econciliationof
!econcilia tionofAdliwaCorporat
AdliwaCorporation9sban0accountato(ember)<%"<1follows7
ion9sban0accountato(ember)<%"<1follows7

Balanc
Balanceep  er b an0 s
 tatement P )%1/<%<<<
)
 %1/<%<<<
;eposit in transit -/<%<<<
Chec0s outstanding =-/%<<<>
Correc
rect cash b alance P )%///%<<<


Balance per boo0s P )%//8%<<<


Ban0 ser(ice charge =)%<<<>
 Correc
rect cash b alance P )%///%<<<


;ecemberdataareasfollows7
Ban0 Boo0s
Chec0s re corded P)%-/<%<<< P)%/-<%<<<
;eposits re corded "%-)<%<<< "%4<<%<<<
Colle
Collect
ction
ion by
 b an0 ==P<
P<<%<%<<
<<<< p lus interest> )<%<<< $
S& cchec
 hec0
0 rretu
eturne
rned
dw  ith ;ece
;
 ecemb
mber er b an0 statement 1/%<<< $
Balances "%4-/%<<< "%41/%<<<

#hechec0soutstandingon;ecember)1%"<1amountto7
a.

b. P-/%<<< d. P:<%<<<
c. P1)/%<<<
e. one
oneof
ofth
thea
eabo
bo(e
(e

Chec0s rrecorded bby b

boo0 ==;ecember> )%/-<%<<<
Chec0s rrecorded bby b
ban0 ==;ecember> =)%-/<%<<<>
Chec
Chec0s
0s outst
o
 utstan
andi
ding
ng =o(ember> -/%<<<
Chec0soutstandingon;ecember)1 b./+*

I3. 0eceivables

1/. Creditbalances
Creditbalanc esinaccountsrecei
inaccountsrecei(ablesshouldbeclassified
(ablesshouldbeclassifiedas
as
a. Curr
Curren
entl
tlia
iabi
bili
liti
ties
es c. Addit
Addition
ionto
tocu
curre
rrent
ntas
asset
sets
s
b. Parto
Partofa
facco
ccoununtstspa
paya
yable
ble d. ;eductionfromacc
;eductionfromaccounts
ountsrecei(able
recei(able

b. Partofaccou
Partofaccountspaya
ntspayable
ble

1. Firayag
Firayag Company
Company pro(
pro(idedthe
idedthe followin
following
g tran
transact
sactionsaffecting
ionsaffecting accounts
accountsrecei(a
recei(able
ble
fortheyear"<17

Sales =cash an d credit> /%:<<%<<<

Cash
Cas h recei
recei(ed
(ed from
from credit
credit custo
custome
mersrs =too0
=too0 ad
ad(an
(antatage
ge of -1<%
-1<% n)
n)<< )%<"-%<<<
discountfeature>
Cash re
rece
 cei(
i(ed
ed fr om cash customers "%1<<%<<<
Accountsrecei(ablewrittenoffasworthless /<%<<<
Credit
Cre dit memora
memorand ndum
um issue
issued
d to credit
credit cu
custo
stome
mers
rs fo
for
r sal
sales
es return
returnss an
and
d "/<%<<<
allowances
Cashr
hrefundsg
sgi(ent
ntoc
ocashhc
customersfsfor
rs
salesr
sreturnsa
sanda
dallowances "<%<<<
!eco(eri
!eco (eries
es on acco
accounts
unts recei
recei(ab
(able
le writt
written
en off as uncollec
uncollectibl
tible
e in prior
prior 8<%<<<
periodsbutnotincludedincashrecei(edfromcustomersstatedabo(e

#hebalancesonGanuary1%"<1wereasfollows7

Accountsrecei(able :/<%<<<
Allowancefordoubtfulaccounts 1<<%<<<

#heentitypro(idedforuncollectibleaccountlossesbycreditingallowancefordoubtful
accountsintheamountofP4<%<<<forthecurrentyear.

2hatarethebalancesofaccountsrecei(ableandallowancefordoubtfulepenseon
;ecember)1%"<13

a. 1%)<<%<<< " <<%<<< b. 1

1%%)<<%<<<% 1)<%<<<
1 )<%<<<
 c. 1%-"%<<<% ) <<%<<< d. 1%-4%<<<% "<<%<<<


Accounts!ecei(able
Beg. b al :/<%<<<
Credit s
sales H)%8<<%<<< HH)%1/<%<<< Collections
/<%<<< 2ritten o ff 
"/<%<<< Credit memo
a./*+*

Allowancefor;A
1<<%<<< Beg. bbal.
 al.
2rit
2ritte
ten
n o ff /<%<<< 4<%<<< ;A epense

!eco(eryof
 8<%<<< A!
a.1*

HCreditsales#otalsales?cashsales
)%8<<%<<</%:<<%<<<?"%1<<%<<<
HHCollectionCashrecei(edJdiscountorcashrecei(ed1$discountrate
)%1/<%<<<)%<"-%<<<.:
!eco(eredaccountsrecei(ablearesubse'uentlycollected%henceitisnotincluded
incomputingforendingbalanceofaccountsreceu(able

3. Inventories

14. @n;ecember
@n;ecember)1%"<1
)1%"<1%% astor
a storm
msurg
surge
e damagedthewareho
damagedthewarehouseof
useof Siuala
SiualaCom
Company
pany..
#hefollowingpertainstothedatareco(ered.

4anuary /
/ December +
+/
In(entory 1%/<<%<<<
Purchases /%/<<%<<<
Cash sales :<<%<<<
Coll
Co llec
ecti
tion
ons
s of
 accou
counts recei(able 8%-<<%<<<
Accountsrecei(able 4<<%<<< 1%1<<%<<<
,ross profit on sales -<K

2hatisthein(entorylossfromthestormsurge3
a. 1%4"%4"<%<<<
b. "%"%"<%<<<
c. 1%18<%<<<
 d. "%4<
%4<<%<<<

Accounts !ecei(able In(entory

Beg bal  4<<%<<<  Beg bal. 1%/<<%<<<
Sal es = s'ueeze> 8%8<<% <<<  Pur chases /% /<<% <<<
/%8"<%<<
Collections  8%-<<%<<<  C@,SH <
Ending bal 1%1<<%<<< c./*/,*
H Costof,
Costof,oodsSold
oodsSold#
#otalsales=1$,ros
otalsales=1$,rossProfi
sProfitonsale
tonsales>
s>
=8%8<<%<<<J:<<%<<<>=1$.-<>
/%8"<%<<<
3I. '(uityI
yInvestments

18.&rade*asCompanyac'uiredane'uityfinancialinstrumentforP-%<<<%<<<onGune1/%
"<1.#hefinancialinstrumentisclassifiedasfinancialassetatfair(aluethroughother
comprehensi(eincome.;irectac'uisitioncostamountedtoP4<<%<<<.@n;ecember
)1%"<1%thefair(alueoftheinstrumentw
)1%"<1%thefair(alueoftheinstrumentwasP/%/<<%<<<and
asP/%/<<%<<<andthetransaction
thetransactioncoststhat
coststhat
wouldbeincurredonthesaleofthein(estmentareestimatedatP-<%<<<.2hatgain
shouldberecognizedinprofitorlossfortheyearended;ecember)1%"<13
a. P:<<%<<<
b. P8<<%<<<
c. P<
d. P"<<%<<<

c.P
1:. AlipioCompany
AlipioCompanypro(ided
pro(idedthefollow
thefollowingdatafo
ingdatafor"<1
r"<177
i. !ecei
!ecei(ed
(edP/<<
P/<<%<<<
%<<<ca
cashd
shdi(iden
i(idendfr
dfrom2
om2illia
illiamCo
mCompan
mpanyy.
ii. !ecei
!ecei(edP
(edP<%<<%<<<li'
<<li'uid
uidati
atingdi(i
ngdi(ide
dendfro
ndfrom#ri
m#rinid
nidadCo
adCompa
mpany
ny.Ali
.Alipioow
pioownsns
/Kinterestin#rinidad.
iii
iii.. ,onza
,onzalesCo
lesCompmpan anydecl
ydeclar
aredP"%
edP"%<<
<<<%<
<%<<<ca
<<cashdi(
shdi(id
iden
endfrom
dfrom whi
whichAl
chAlip
ipio
io
th
owns"Kinterestin,onzales9se'uity.
owns"Kinteresti n,onzales9se'uity.;i(idendsarepayabl
;i(idendsarepayableonthe1/
eonthe1/ of
Ganuarythefollowingyear.
2hatamountshouldAlipioreportasdi(idendincomefor"<13
a. P/-<%<<<
b. P1<<%<<<
c. P<<%<<<
d. P-<%<<<

a.P)*
Cash didi(i
 (ide
dend
nd from 2ill2i
 llia
iam
mC ompany /<<%<<<
Cash d
di(idend ffrom ,
,onzales C
Company =="%<<<%<<<H.<"> -<%<<<
/-<%<<<

3I
3II.
I. Pr
Prop
oper
erty
ty*
*Pl
Plan
anta
tand
nd'(
'(ui
uipm
pmen
entt

"<.#hefollowingcosts'ualifyforrecognitionecept
a. Cost
Costof
ofsit
siteo
eofo
fope
perat
ration
ion
b. Costof
Costofop
opening
eninga
anew
newfacil
facility
ity
c. Costofempl
Costofemployeebene
oyeebenefitsofpe
fitsofpersons
rsonsdoingtheins
doingtheinstallation
tallation
d. Prof
Profes
essi
sion
onal
alfe
fees
es

c.&ostofemployeebenefitsofpersonsdoingtheinstallation
 "1
"1.. #h
#he
e cost
cost mod
model mea
means th
that
at th
the
e PPE
PPE are
are car
carri
ried
ed at cost
cost les
less
s an
any
y acc
accum
umula
ulated
ted
depreciationandanyaccumulatedimpairmentloss.

#here(aluationmodelmeansthatthePPEarecarriedatthefair(alueatthedateof
re(a
re(alu
luat
atio
ion
n leless
ss an
any
y subs
subse' e'ue
uent
nt ac
accu
cumu
mula
late
ted
d de
depr
prec
ecia
iati
tion
on an
and
d subs
subse'
e'ue
uent
nt
accumulatedimpairmentloss
a. Boths
Bothstatatem
temenentsa
tsare
refal
false
se
b. Both
Bothsta
statem
temenents
tsare
aretru
truee
c. @nlyth
@nlythefi
efirst
rststa
statem
tement
entist
istrue
rue
d. @nlythe
@nlythefirs
firststa
tstatem
tement
entisfa
isfalse
lse..

b.Bothstatementsaretrue

"".@nGanuary1%"<1%#horCompanytoo0outaloanofP1"%<<<%<<<inordertofinance
specificallythereno(ation
specificallythereno(ationofabuilding.#helo
ofabuilding.#heloancarried
ancarriedannualinterest
annualinterestat1<K.2or0
at1<K.2or0
onthebuilding%startedfromGanuary1%w
onthebuilding%startedfromGanuary1%wassubstantiallyc
assubstantiallycompletedon@ctober)
ompletedon@ctober)1of
1of
thesameyear.#heloadwasrepaidon;ecember)1%"<1andP1/<%<<<in(estment
incomewasearnedintheperiodto@ctober)1ontheproceedsoftheloannotyet
usedforthereno(ation.Computefortheamountofborrowingcosttobeincludedin
thecostofthebuilding.
a. P1%</
%</<%<
%<<
<<
b. P1%)/
%)/<%<
%<<
<<
c. P1%"%"<
<<%<
%<<
<<
d. P8/<%<<<

d.P,*

Interest incurred =1"%<<<%<<<  %1<  1<1">  1%<<<%<<<

Interest inc ome  =1/<%<<<>
Capitalized borrowing cost 8/<%<<<

3I
3III
II.
. 5t
5tat
atem
emen
entof
tof!i
!ina
nanc
ncia
ialPo
lPosi
siti
tion
on

").CoulsonCompanyreportedthefollowingassetson;ecember)1%"<1

Cash  =includes  P1%<<<%<<<  sin0ing  fund  and  P -<<%<<< -%<<<%<<<

postdatedchec0>>
Accounts!ecei(able %8<<%<<<
In(entory -%/<<%<<<
;eferred #a Asset "%/<<%<<<
on
oncu
curr
rren
entt Asset F eld fo
 r S ale )%<<<%<<<

#heaccountsrecei(ableiscomprisedofthefollowingamount
Customers9debitbalance%netofcustomers9creditbalanceof /%<<<%<<<
P"<<%<<<
Allowancefordoubtfulaccounts =4<<%<<<>
Sellingprinceofunsoldin(entor
Sellingprinceofunsoldin(entorysentouton
ysentoutonconsignmenta
consignmentatt "%/<<%<<<
1"/Kofcostandalreadyincludedintheendingin(entoryat
cost
Accounts!ecei(able %8<<%<<<

@n;ecember)1%"<1%whatamountshouldbereportedastotalcurrentassets3
a. P1/%<
P1/%<<<
<<%<
%<<<
<<
b. P14%<
P14%<<<
<<%<
%<<<
<<
c. P14%/
%/<<
<<%%<<<
d.
d. P1%
P1%<
<<%
<%<<
<<<
<
 Cash =-%<<<%<<<$1%<<<%<<<$-<<%<<<> "%<<%<<<
Accounts!ecei(able=/%<<<%<<<J"<<%<<<$4<<%<<<J-<<%<<<> -%:<<%<<<
In(entory -%/<<%<<<
CA held for sale )%<<<%<<<
a./**

I6.
I6. 5tat
5tatem
emen
ento
tof
f&o
&omp
mpre
rehe
hens
nsiv
iveI
eInc
ncom
ome
e

"-. BenedictComp
Benedict Companypro(ided
anypro(idedthefollowingdataforthecurrentyear
thefollowingdataforthecurrentyear
Income from co
cont
 ntin
inui
uing
ng operations /%<<<%<<<

Increali
n om
nre ezed
from
alized  adiscon
g dis
in contin
on
o tinue
ued
 n a(ail
a do
(ailab  pe
able
le forras
tio
alness ecurities <
:<<
<%%<
<<
<<
<
nrealize
nre alized d gainon futures
futures concontrac
tractt designa
designated
ted as a cashflow -<<%<<<
hedge
Act
Actuuar
ariial
al los
oss s du
durring
ng the
the year
year full ully rec
ecogogni
niz
zed
ed in the
the othe
otherr )<<%<<<
comprehensi(eincome
&orei
reign tr
tran
 ansl
slat
atio
ionn ad
ad*u
 *ust
stme
ment nt $ d ebit 1<<%<<<
!e(a
!e (alu
luat
atio
ionn sur
su
 rplus d uring the year "%/<<%<<<

2hatisthecomprehensi(eincomeforthecurrentyear3
a. P8%-<%-<<%<
%<<
<<
b. P:%<<%<<<%<
%<<
<<
c. P8%< %<<
<<%<
%<<
<<
d. P8%"<%"<<%<
%<<
<<

Income from co
cont
 ntin
inui
uing
ng operations /%<<<%<<<

Income from discon

dis
 contin
tinue
ued
d o perations <<%<<<

nreali
nrealized
zed g ain on
o n a(ail
a
 (ailab
able
le for s
 ale s ecurities :<<%<<<
nrealized gainonfuturescontract -<<%<<<
Actuarialloss =)<<%<<<>
Loss on
 fo
fore
 reiign tra
transl
 nslatiation
on a d*ustment =1<<%<<<>
!e(aluation surplus "%/<<%<<<
b.7**

6. 5tatementof
of&a
&ash!l
!lo"s

"/. 2hichofthefollowi
2hichofthefollowing
ngisnotan
isnotanob*ecti(e
ob*ecti(eofcash
ofcashflow
flowstatements3
statements3
a. #o pr
pro(
o(id
ide
e in
info
form
rmatatio
ion
n to en
enab
able
le as
asse
sess
ssme
ment
nt of the
the ab
abil
ilit
ity
y of the
the en
enti
tity
ty to
generatefuturecashflows.
b. #opro(ideinform
opro(ideinformatio ationto
nto enableassess
enableassessment
ment oftheabili
oftheabilityof
tyof theent
theentitytopay
itytopay
di(idendsandmeetfinancialobligations
c. #o pr
pro(
o(id
ide
e in
info
form
rmatatio
ion
n to en
enab
able
le as
asse
sess
ssme
ment
nt of the
the ab
abil
ilit
ity
y of the
the en
enti
tity
ty to
generatelongtermprofitability.
d. #opro(ideinformationtoenab
opro(ideinformationtoenableassessm
leassessmentoftheabilityoftheentity
entoftheabilityoftheentitytofinance
tofinance
changesinthenatureandscopeofacti(ities.

d.oprovideinformation
d.oprovideinforma tionto
toenab
enableassessm
leassessmentoftheabilit
entoftheabilityoftheentityto
yoftheentityto
financechangesinthenatureandscopeofactivities.

".Fowwouldcashrecei(edfromthesaleofshares
".Fowwouldcashrec ei(edfromthesaleofsharesin
inanothercompan
anothercompanybeclassif
ybeclassifiedina
iedina
cashflowstatement3
a. @per
@peratin
ating
gact
acti(it
i(itie
ies
s c. &inancin
&inancinga
gact
cti(it
i(itie
ies
s
b. In(estin
In(esting
gact
acti(
i(itie
ities
s d. o
one
neof
ofth
thea
eabo
bo(e
(e

b.Investingactivities
6I. 'rror&o
&orrection

"4.Gac0sonCompany9sstatementincludederrorsasfollows7

ear Ending In
 (entory ;epreciation
"<1/ "<<%<<< o (erstated /<%<<< understated

"<1 )<<%<<< u nderstated 1<<%<<< o(erstated


Fowmuchshouldretainedearningsberetroacti(elyad*ustedatGanuary1%"<143
a. ;edu
;educt
ctP
P"/
"/<%
<%<<
<<<< c. AddP
AddP)/
)/<
<%<<<
%<<<
b. Add
AddP"
P"/<
/<%<
%<<<
<< d. Ad
Add
dP1
P1/<
/<%<
%<<<
<<

Effe
fect
cton
one
et
tIn
Inco
come
me Ad*
Ad*ustm
ustmen
ent
tto
tore
reta
tain
ined
ede
earnin
arnings
gs
nderstateddepreciationon
@(erstated ;educt /<%<<<

"<1/
nders
nd erstate
tated
de nding nderstated =due to Add )<<%<<<
)
 <<%<<<

in(entory on "

"<1 o(erstated C@,S>
@(erstateddepreciationon
nderstated Add 1<<%<<<

"<1
c.8etad%ustment9Add+*

"8. Achangein
Achangein accounti
accountingpolicyfrom
ngpolicyfrom onethatis notgenerallyaccep
notgenerallyacceptabl tabletoone
etoone tha
that
t is
generallyacceptableshouldbetreatedas
a. Anerrorandcorre
Anerrorandcorrectedby
ctedbyprior$pe
prior$periodad*us
riodad*ustment.
tment.
b. Achangein
Achangein ac accou
count
ntingpoli
ingpolicy
cy an
and
d thecumula
thecumulati(
ti(e
e effec
effect
t inc
includ
ludedin
edin the
the ne
nett
income.
c. Achangeinaccou
Achangeinaccountingpolic
ntingpolicyandpriorperio
yandpriorperiodfinancia
dfinancialstatem
lstatementsarer
entsarerelatedto
elatedto
profitorloss.
d. Achangei
Achangeinacco
naccounting
untingpolicyan
policyandad*ust
dad*ustmentsa
mentsaremade
remadeprospecti(
prospecti(ely
ely..

a.Anerrorandcorrectedbyprior-periodad%ustment.

6II.
6II. Ac
Accr
crua
ualB
lBas
asis
isa
and
nd&
&as
ash
hBa
Basi
sis
s

":. Accrualbasisprofitismoreuse
sprofitismoreusefulfor
fulfor
a. Predictingtheper
Predictingtheperformance
formanceofanentity
ofanentityforthe
forthesucceedin
succeedingreport
greportingperio
ingperiod.
d.
b. ;eterminingtheam
;eterminingtheamountofinc
ountofincometa
ometapayable
payabletotheg
tothego(ernmen
o(ernment.t.
c. ;eterminingtheamoun
;eterminingtheamountthatwillbepaidasinteresttocre
tthatwillbepaidasinteresttocreditorsanddi(iden
ditorsanddi(idendsto
dsto
shareholders.
d. Predictingthelon
Predictingthelongtermpe
gtermperformanc
rformanceofanen
eofanentity
tity..

a.Predictingtheperformanceofanentityforthesucceedingreportingperiod.

)<. 2hencon(ertingfromcashbasisto
2hencon(ertingfromcashbasisto accrualbasisofaccounting%whichofthefollowing
ad*ustmentsshouldbemadetocashcollec
ad*ustmentsshould bemadetocashcollectionsfromcustom
tionsfromcustomerstoarri(eatthe
erstoarri(eattheaccrual
accrual
basesofsales3
a. Addbeg
Addbeginni
inning
ngacco
accounts
untsrece
recei(ab
i(able
le
b. Subtract
Subtractbeg
beginni
inninga
ngaccou
ccounts
ntsrece
recei(ab
i(able
le
c. Subtracten
Subtractending
dingaccoun
account
trecei(a
recei(able
ble
d. Addendin
Addendingacc
gaccoun
ountsre
tsrecei
cei(able
(able

d. Addending
Addendingaccoun
accountsrecei
tsreceivable
vable
 )1. SyCompanyreportedsalesre(enueofP"%)<<%<
SyCompanyreportedsalesre(enueofP"%)<<%<<<initsincomestatementfortheyear
<<initsincomestatementfortheyear
ended;ecember)1%"<1.Additionalinformationareasfollows7
1")1"<1/ 1")1"<1
Accountsrecei(able "%<<<%<<< "%<<%<<<
Allowanceforuncollectibleaccounts 4<%<<< 1"<%<<<

;uringtheyear.Sywroteoffuncollectible
;uringtheyear.Sywroteoffuncollectibleaccountstotalling
accountstotallingP)<%<<<.nderc
P)<%<<<.ndercashbasis
ashbasis
ofaccounting%Sywouldha(ereported"<1salesof
a. P1%4
%4<%<<
%<<< c. P1%4"%4"<%<<
%<<<
b. P1%"
%"<%<<
%<<< d. one
oneof
ofth
thea
eabo
bo(e
(e

Accounts!ecei(able
Beg.bal. "%<<<%<<<
Sales "%)<<%<<<
2rite$off )<%<<<
Collections a./*2:*
Endingbal. "%<<%<<<
)"
)".. &errerCom
&errerComp pany0eptits
any0eptits rec
record
ords
s on a ca
cash
sh ba
basis
sis.At
.At theend of "<
"<1
1%
% theacco
theaccount
untan
antt
preparedthefollowingcashbasisincomestatement7

!e(enue 1%:1<%<<<
Epenses 8<:%<<<
et income 1%1<1%<<<

In prep
preparin
aring
g the income
income stateme
statement%
nt% thefollowing
thefollowing amounts
amounts of accr
accru
ued%prepaidand
unearneditemswereignoredattheendof"<1/and"<17

"<1/ "<1
Accruedre(enue :1%<<< 4)%<<<
nearned re(enue %<<< 1<8%<<<
Accruedepenses -:%<<< /%<<<
Prepaid e penses -%<<< /%<<<

#henetincomeontheaccrualbasisfor"<1shouldbe7
a. P1%1
%14%<<
%<<<
b. P1%<
%<4%<<
%<<<
c. P1%<)
%<)/%<<
%<<<
d. P1%1<
%1<)%<<
%<<<

nad*usted ne  t income 1%1<1%<<<

;ecrease in accrued re (enue =18%<<<>
Increa
rease in unearned re  (enue =-"%<<<>
HIn
HIncrease in accrued epense =1%<<<>
HHI
HHIncrease in prepaid epenses 1<%<<<
Ad*ustednetincome c./*+*

H E pe
pense Account 1%<<<
Accrued Epense =Liability>  1%<<<
#hus%anincreaseinatradecurrentliabilityaccountisadeductionfromnetincomeof
cashbasistoarri(eataccrualbasisnetincome

HHPrepaid
HHPrep aid Epe
E
 pens
nsee =Asset> 1<%<<<
Epens
ense Account  1<%<<<
#hus%an
#hus %anincr
increaseintradecurr
easeintradecurrentassetacco
entassetaccountisan
untisanaddit
additiontonetincomeofcash
iontonetincomeofcash
basistoarri(eataccrualbasisnetincome
6III.
III. BondsP
sPay
ayab
able
le

))
)).. @n Ganu
Ganuarary
y 1% "<
"<1
1.
. +adr
+adrid
id Comp
Compan
any
y is
issu
sued
ed :K bo bond
nds
s in the
the face
face am
amou
ount
nt of
P-%<<<%<<<%whichmatureonGanuary"%"<"/.#hebondswereissuedforP)%4/%<<<
toyield1<KresultinginbonddiscountofP"--%<<<.singtheeffecti(einterestmethod%
compu
com pute
te fo
for
r the un
unam
amort
ortize
ized
d bo
bond
nd disco
discoun
unt
t if the intere
interest
st is pa
payab
yable
le an
annu
nuall
ally
y on
;ecember)1.
a.
b. P"/:%<< d. P1/%<<
c. P""8%-<< e. P)4/%<<

;ate =A> =B>

=C> =;>
ominal Effecti(e
;iscount CarryingMalue
Interest Interest
Amortization =Pre(ious;J
=-%<<<%<<<. =;.1<>
=B$A> C>
<:>
111 )%4/%<<<
1")11 )<%<<< )4/%<< 1/%<< )%441%<<

namotizedbonddiscount&aceamount?carrying(alue
-%<<<%<<<?)%441%<<
11,*)<B=

)-. @nGanuary1% "<1%;elosSantosCompanyissu

"<1%;elosSantosCompanyissued) ed) year
year bondswithface
bondswithface (alueof
P/%<<<%<<<at:8.Additionally%theentitypaidbondissuecostofP1-<%<<<.#henominal
rateis1<Kandtheeffecti(e
rateis1<Kandtheeffecti(erateis
rateis1"K.#heinterestis
1"K.#heinterestispayableannuall
payableannuallyon;
yon;ecember
ecember
)1.#heentityusedtheeffecti(einterestmethodinamortizingbonddiscountandissue
cost.

2hatisthecarryingamountofbondspayableon;ecember)1%"<13
a. P-%8)%8)1%"
%"<<<
b. P-%8%88%8
%8<<<
c. P-%4 %4
<%<
%<<<<
d. P-%:-%:-)%"
%"<<<

Issue price =/
=/%<
 %<<<
<<%<
%<<<
<<  .: 8> -%:<<%<<<
Bond iss ue cost =1-<%<<<>
Carrying (a lue% 111 -%4<%<<<

;ate =A> =B> =C> =;>

ominal Effecti(e ;iscount CarryingMalue
Interest Interest Amortization =Pre(ious;J
=/%<<<%<<<.1> =;.1"> =B$A> C>

111 -%4<.<<<
1")11 /<<%<<< /41%"<< 41%"<< a.)*,+/*1
6I3. Intan
tangibles

)/.2hichofthefollowingaretheessentialcharacteristicsofanintangibleasset3
a. Identifiability
Identifiability%controlle
%controlledbytheenterprise%
dbytheenterprise%epecte
epectedfutureeconomi
dfutureeconomicbenefits
cbenefitsand
and
indefiniteusefullife.
b. Identifiiability
Identifiiability%control
%controlledbythe
ledbytheenterpris
enterprise%andi
e%andindefinite
ndefiniteusefull
usefullife.
ife.
c. Identifia
Identifiabilit
bility
y%own
% ownedbytheenterpris
edbytheenterprise%epect
e%epectedecono
edeconomicbenef
micbenefitsanddefini
itsanddefinite
te
usefullife.
d. Identifiability
Identifiability%controlle
%controlledbythe
dbytheenterprise
enterpriseandep
andepectedfu
ectedfutureecono
tureeconomicbenefi
micbenefits
ts

d.Identifiability%controlledbytheenterpriseandepectedfutureeconomicbenefits

). 2hichofthefollowingareconsideredasresearchandde(e
2hichofthefollowin gareconsideredasresearchandde(elopmentacti(ity3
lopmentacti(ity3
i. Labo
Laboratory
ratoryres
research
earchaim
aimeda
edatdi
tdisco
sco(ery
(eryofn
ofnew0
ew0nowle
nowledge
dge
ii. ;esign%
;esign%con constru
structio
ctionan
nandtes
dtesti
ting
ngofp
ofpre$p
re$produ
roductio
ctionp
nproto
rototype
typesan
sandmo
dmodels
dels
iii. !outin
!outined edesig
esignonofto
ftool
ols%*
s%*ig
igs%m
s%mol
oldsa
dsandd
nddie
ies.
s.
i(.
i(. Concept
Conceptual ualform
formulat
ulation
ionand
anddesi
designof
gnofp
prod
roduct
uctor
orproc
process
essalte
alternat
rnati(es
i(es..
a. i%
i%ii
ii%i
%iii
iian
andi
di(
(
b. ii
ii%i
%iiia
iiand
ndi(
i(on
onlyly
c. i%
i%ii
iian
andidi(o
(onl
nly y
d. iand
iandi( i(on
only
ly..

c.i*iiandivonly

63. BiologicalA
As
sset

Ingatemencompanyhasaherdof1<"yearoldanimalsonGanuary1%"<1/.@ne
animalaged"./yearswaspurchasedonGuly1%"<1/forP1<8%andoneanimalwas
bornonGuly1%"<1/.oanimalsweresoldordisposedofduringtheyear.#hefair(alue
lesscostofdisposalperunitisasfollows7
" year old animal on  Ganuary 1 1<<
"./ year old animal on  Guly 1 1<8
ew born animal on  Gu ly 1 4<
" year o ld a nimal on
 ;ece
;e
 cemb mber
er ) 1 1</
"./ y ear o ld an
ani
 imal
mal on
 ;ece
;e
 cembmber
er ) 1 111
ew b orn a nimal on  ;ec
;e
 cembe
emberr ) 1 4"
)
<.y
/eyaeraorld
o la
d nan
imimal
ani al on
ma l on
 ;ece
;e
 ;ece
 cemb
;e mber
erer
cemb
mber) 1) 1 1<
8"<

)4.2hatisthefair(alueofthebiologicalassetson;ecember)13

a. 1%-<< c. 1%--<
b. 1%)"< d. 1%)<
&air ( alue of
 ) y o an
anim
 imal als
s on
 ;e
;ece
 cem
mber
ber =111"<> 1%)"<
&air (alue of
 < ./ yo a nimal on
 ;e
;ece
 cemb
mber
er =1
  8 <> 8<
a./*)

)8. 2hatisthegain
2hatisthegainfromchan
fromchangeinf
geinfair(alue
air(alueduetopr
duetopricecha
icechange3
nge3
a.
b. ":" d. ")4
c. """ e. //

1< " year old animals N=1

N=1</$1<
$1<<> 1<O /<
1 "./ ye ar old an
 imal N=
N=1
111$1<
$1<8>  1O )
1 newborn on Guly N=4"$4<>  1O   "
 d.

63I.
63I. Pro
Proper
perty*
ty*Pl
Plant
antand
and'(
'(uip
uipmen
ment<0e
t<0eval
valuat
uation
ion==

):. ueen
ueen #ela Comp
Company owne
ownedd an e'uipme
e'uipment
nt costingP/%"<
costingP/%"<<
<%<< with
with origina
original
l residual
residual
(alueof
(alue of P-<<%<<<.#helifeoftheassetis1<yearsandwasdepreci
P-<<%<<<.#helifeoftheassetis1<yearsandwasdepreciatedusing
atedusingthe
the
straightlinemethod.

#hee'uipmenthasareplacementcostofP8%<<<%<<<withresidual(alueofP"<<%<<<.
#heageoftheassetis-years.

#heappraisalofthee'uipmentshowed
#heappraisalofthee'uipme ntshoweda
a totalre(isedusefu
totalre(isedusefullifeof1"
llifeof1" year
yearsandthe
sandthe
entitydecidedtocarrythee'uipmentatre(aluedamount.

Beforeincometa%whatamountshouldbeinitiallyreportedasre(aluationsurplus3
a.
b. %8
%8<%<<< d. "%<<%<<<
c. 1%8<%<<< e. 1%<<%<<<

Cost !eplacement Cost Appreciation

E'uipment /%"<<%<<< 8%<<<%<<< "%8<<%<<<
!es
esid
idua
uall (alue ="<<%<<<> ="<<%<<<> $
;epreci
;ep reciable
able a  mount /%<<<%<<< 4%8<<%<<< "%8<<%<<<
Accumulated
depreciation
=-1<-%8<<%<<<> 1%:"<%<<<
=-1<4%8<<%<<<> )%1"<%<<< 1%"<<%<<<
Balance )%<8<%<<< -%8<%<<< d./*2*

63II.
63II. Dil
Dilute
uted'ar
d'arnin
ningsP
gsPer5
er5har
hare
e

-<.BaneCompanyhadearningspershareofP1"<forthecurrentyear%beforeta0ingany
diluti(esecuritiesintoconsideration.ocon(ersionoreerciseofdiluti(esecuritiestoo0
placeduringtheyear.Fowe(er
place duringtheyear.Fowe(er%possible
%possible con(ersio
con(ersionof
nof con(e
con(ertibl
rtiblepreferen
epreferenceshares
ceshares

wouldha(ereducedearnin
woul dha(ereducedearningspershareto
gspershareto P11:.#he
P11:.#he effectof
effectof poss
possibleeerc
ibleeerciseof
iseof
ordinarysharewarrantswouldha(ereducedearningspersharebyanadditionalP".
2hatamountshouldbereportedasdilutedearningspershare3
a. 1"1 c. 114
b. 1"< d. 11:
Basic ea  rnings pe r sh
 are 1"<
Effect o
of possible c
con(ersion oof p
preference shares =1>
Effe
Effect
ct of
 poposs
 ssib
ible
le e
eer
 erci
cise
se of
 w  arrants =">
;ilutedearningspershare c.//:
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al-liabilities-summary-DIYpdf/
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Pw red byTCD wwwtcpdf.org)

2011
2011 NANATI TION
ONALAL CPCPA A MO
MOCK CK BOBOARARD D EXAMINA
XAMINAT TION
In partnership with the Professional Review & Training Center, Inc. and I sla Lipana & Co .

T H EO R Y O F A CC OU NT S
INS TRUCTIONS: Select the
the best answ
answer
er for eac
each
h of the foll
following qu estions.
owing Mark onl
only
y
on
one
e an
answ
swer
er for
for each item on the ans
each answer
wer sheet provided. AVOID ERASURES . An swer s
with era
erasu
sures
res may ren
render
der your
your exam ination answe
answerr sheet INVALID. U se PENCIL
NO.2 on ly. GOODLUCK!

1. 1. Choose the incorr ect statemen t. d. Whe

When n a comp
compan any
y rec
record
ordss r eversing entries,
a. The o bj ective of exter nal fin ancial statements adju sting en tries like d eferr ed expenses
is to co mmun icate th e eco no m ic effects of recorded initially as assets upon payment of
comp leted tr an sactions and other events in the cash generally are n ot rever sed.
entity.
b. Gen er al purpose fin ancial statements were 6. Which
ich of the foll
followin
owing g statements is c orr ect?
developed primarily because all outside us users
ers a. Th
The use of a g en er al j our nal imp lies t h at there
e use
have
have the
the sam
samee infor m ation need s. is n
noo need for sp ecial j our nals.
c. The d oub le-entry system of accoun ting h as b. Each s ub sidiary ledg er has a r elated control
been used for c entur ies. accoun t in the gen er al j our nal.
d. The practice of accoun ting requ ires c. Assum e a compacompany ny always records prepaid
consid er able p rofession al judgm ent. expenses as assets upon payment of cash, a nd
d eferr ed revenu es as liabil itiess up on r eceipt of
liabilitie
2. Whi ch statement is incorr ect r egar ding Ph ili ppine
hich cash. If t h is company r eco rd s r ever sing
Financial Rep or ting Standards (PFRSs)? en tr ies, g ener ally only adju sting entr ies f or
ett out r ecogn ition , measurement,
a . P F RS s s e accrued expenses and accr ued revenu es
presentation and disclosure requ irements should be r ever sed.
dealing with transactions and
and even
events that are
ts that d. All e ntr ies in the gen er al j ourn al are supp or ted
imp o rtan t in general purpose fin ancial by details c ontain ed in the s pecial jour n als.
statem ents.
b. PFRSs are based on the Fr amework, which 7. OJ Inc. decided to extend its r eporting p er iod from
add r es
ess
ses the concepts und erlying the a year
year (12 -month period) to a 15 -m onth period.
infor m ation presented in g en er al purpose Which of the following is(ar e) not r equ ired unundder
financial s tatem ents. PAS in case of change in r eporting period?
change
c. PF
PFRS
RSss a re design ed to ap
are appl
plyy to the gen er al
purpose
purp ose financial statemen ts and oth er I. reason for using a
XYZ Inc. shou ld d isclose the reason
financial r epor ting of all p r ofit-or ien ted en tities. long er perio d than a p erio d of 12 m o n th s
d. PF
PFRS are design ed to ap
RSss are appl y to not-for -pr ofit
ply II. XYZ Inc. shou ld chanchangege the r eporting period
activities in the pr ivate sector . only if other similar en tities in the g eogr aph ical
area whiich it g enerally oper
in wh operate
atess havhave
e
3. Which of the follo
followin
wing g statem en ts r egar ding the done so in he curr ent year; other wise its
in tth
conc ptu l framework is c orr ect?
e a financial statem ents wou
would nott be c omp ar able
ld no
a. Th
The
e fr
fram
amewewor k is concerned with sp ecial-
ork to other s
purpose
purp ose financial s tatem ents. II
III. XYZ Inc. sh ould disclose that comp ar ative
I. XYZ
b. The framework app lies to financial statements am oun ts u used in th e financial state
sed statemen
ments ts are
of bu sin ess rep or ting enterpr ises in the private not e ntirely comp ar able
sector but not in tthe
he publ ic sector
public
c. In cas
cases
es wh
wher
ere
e ther
there
e is conflict between th e a. I and II
fra
framewor
mework k and an PFRS, the requ irem ent of b. II and III
the framework will prevail c. III o nly
d. Th eframeworkdealswithconceptsofcap ital d. II only

4. If an item of income is no t material, then t he 8. At a m in imum , based on P AS 1, the face o f the

m ann er of pr esenting that inform ation, or whether Statement of o f Financial Position sh all includ e all
a ll of
or not it is d isclosed: the following lin e item s, e xcept
following
a. will have an imp act on the econom ic decision s a. BiBiol
olog
ogic al assets
ical
of user s; b. In vestmen t property
b. should not affect the e conom ic d ecision s of c. Agr icu ltur alpr odu ce
users; d. Defe
Deferrerredd tax asse
assets
ts and liabilities
 c. should not be includ ed in the d eter mination of
profit or loss f or the p eriod; 9. The statement of changes in equ ity s hould disclose
d. will be includ ed dir ectly in r etain ed ear n ing s. the following,, except
following
a. total comp r ehen sive in come
5. Whi
hich
ch of the following statements is f alse?
following b. effect of the
the ch
change in an accoun ting
ange
a. Depr eciation expense, bad debt expense, a nd estim ate
warranty
warrant y expense are estimated expense c. capital transactions w ith owners aand
nd
beca use they all depend up on future events.
because distribu tions to
t o owners
b. Rever sing entr ies areare madeade to elim in ate the d. o f r etr ospective r estatemen t
effects of
need to monitor the effect of year-end
adju sting en tr ies du r ing ththe
e next accoun ting
next 10. Revenue sh ould be measured at
period a. Fair value of the con sider ation r eceived or
c. Dep r eciation expense and accr u ed r evenu es receivable
o f deferr ed items.
are e xamp le of b. Cost of the consider ation received or
receivable
c. Am oun t of cash received or r eceivable
d. Book value of the consid eration r eceived or
receivable

Page 1 of 7

developm ent pha phase the enter prise treats

se,, the treats
11. Which of the
the follow ing cr iter ia d
following doo not h ave to be the expend itur e for that pr oject as if
order for an oper ation to b e c lassified as
met in order it were inc urr ed in the developm ent
discontinu ed? se only.
phase
pha
a. The o p eration sh ould represen
representt a sepsepara
arate
te d. A rese
resear
arch
ch an and d developm ent project
o f bu sin ess o r g eogr aph ical ar ea
line of acqu ir ed in a bu sin ess comb ination is not
b. The o p er ation is part o off a sing le p lan to recogn ized as an asset.
dispose of a separate m ajor line of
bu siness o r g eographical area 16. Which is incorr ect con cer n ing the recogn ition and
Which
c. The o peration is a s ub sid iar y a cqu ir ed measurement of an i ntang ible ass sseet?
exclu sively with a view to resale a. If an intangible as sett is acqu ir ed sep ar ately,
asse
d. The o p er ation must be sold within thr ee th e c o oss t comp rises its purchase price,
months of the y ear-end . includ ing imp ort du ties and taxes and
a ny directly attribu table expenditure of
12. Which statement is incorr ect r eg arding investment preparing the asse assett for i ts intend ed use.
property ? b. If an intang ible assetasset is acqu ir ed in a bu sin ess
a. Gains or lossesses ar ising from ch ang es in the comb in ation that is an acqu isition, th the
e cost
cost is
fair value of investm ent proper ty must be base d on its fair valu e at the date of
includ ed in net profit or lo ss for
for the period acqu isition.
in which it ar ises. c. If a n in tang ible asset is acqu ir ed free of char g e
b. The cost of the purchased i nvestm ent or by way of government grant, th e cost is
erty includ es i ts purchase price an
property
prop and
d equ al to
t o its f air value.
any d irectly attribu table expend iture d. If paym
paymen entt for
for aan asset is deferred
n intangible asset
c. Transfer from investm ent property to beyond nor mal cr edit terms, its cost is equ al to
property, plant, and equ ipm ent are the t otal payments over th e cr edit p er iod.
app r opriate on
only
ly whenhen th e entity adopts
the
the f air value m od el u nd er PAS 38 . 17. Which of ththe
e following expend itur es wou ld never
following
ify as an explor ation a
qualify
qual and
nd evaluation asset?
d. Investm ent property includes property that
is being const
constru
ruct
cted
ed or d eveloped fu
fuse
se as a. Expend itur e for acqu isition of r igh ts t o exp lore
b. Exp end itur e for explor atory dr illing
an investment p roperty
c. Exp end itur es r elated to the d evelopm ent of
13. Which statement is incorr ect r eg ard ing PPE? m ineral r esources
a. Item
Items of PPE should be r ecogn ized as
s of d. Expend itur e for activities in relation to
assets
asse ts wh
when en it is probable that that the futur
futuree evalu ating the techn ical fea
eassibility and
economic benefits associated with the comm er cial viability of extr acting a m in er al
sset wi
asse will
ll flflow
ow to th e enter pr ise and the
the resource
asset can be m easur ed reliably.
cost of the asset
b. If an asse t acqu ir ed in exchang e 18. Whi ch statement is incorr ect r eg arding r ecogn ition
Which
fo
forr an
anot
othe
herr as sett is not m sur ed at
asse ea
eas of ent grants as incom e?
government
governm
fair value, its cost is measured at the a. Grants in recogn ition of sp ecific expenses
carr ying a m oun t of the asset g iven up. shou ld be r ecogn ized as incom e ov
should over
er ththe
e
c. Depr eciation should be char ged to the
charged period of the r elated expense.
inco m e statement, un less it is includ ed in b. Gran
Grantsts r elated to depreciable ass ets sh ou ld be
sse
th
thee carr ying am oun t of another asset. recognized as income over the periods an and in
d. Depr eciation is no n ot recognized if the proportion to the depreciation of the related
fair value of the asset exceed s it s assets.
carr ying amoun t, even if the asse sset’s c . Gra ntss related to
Grant nond epr eciable ass sseets
residu al value does not exceed its carr ying requ iring fulfillment of cer tain conditions
amoun t. sho uld be recogn ized as incom e imm ediately
should
after m eeting the c ond ition.
14. An en tity imp orted machiner y to in stall in its new d. A grgrant
ant receivable as comp ensation for cos costs
ts
fact
factory
ory befor
beforee year-end. However , du
due to alr eady incurr ed oror for imm ediate fin ancial
cir cum stances beyond its con tr ol, the machinery supp or t, with no future r elated costs, sh ould be
was delayed by a fe few
w months
months butbut rea
reach
ched
ed the recognized as income in the period in which it
factory pr emises before year-e
year-end.
nd. While this was is r eceivable.
happ ening, the entity learned from the bank that it
was being ch charg
arged
ed interest on the loan it had 19. Whatt is the a ccep tab le app r oach in accoun ting for
19. Wha
ta
take
kenn to fund
fund tthe cost o f the p lan t. What is the
he cost government gran ts?
proper
pro per treat mentt of freight and interest expense
treatmen
a. G ov ernm ent gr
grants should be r ecognized
 und er PAS 16?
as income over the per iods necessary to match
a. Bot
Both h exp
expens es should be cap italized
enses
them with the r elated costs
b. In ter est m ayay be capitalized but freigh t
b. Gove
Governme
rnme nt grants
grant s should be credited
should b e expr essed
directly to donated cap ital
c. Freigh t charges should be capitalized but
c. G ov ernment gr
g rants should be credited
in ter est cann ot be capitalized und er th ese
directly to retain ed earn ing s
circum stances
d. G ov ernm ent gr
grants should be deferr ed and
d. Both expenses should be expensed amor tized over a maximum p er iod of 20 year s

15 . Which statement is correct regarding initial

2 0. W hich of ththe
e following is not consid ered a
following
recognition of research and developm ent costs?
borrowing cost?
a. All rese
research
arch cost
costss should be charged to
a. Interest on shor t-term and long -term
exp ense.
borr owing s
b. All developm ent costs should be
b. Finance charges in respect of fin ance
cap italized.
leases
c. If a n en ter pr ise cann ot d istingu ish th e
c. Dividend spaidonp r eferr edstock
research
rese arch phas e of an int ernal project to
phase
create an intang ible asse sse t from
rom the
Page 2 of 7

d. All
All of the ab
above
ove are consider ed borr owing
are c. An un
u ncond itional government grant r elated to a
costs biological asset that has b een measu
measured red at fair
value less p oint of sale costs sh ould b e
21. When a qu alifying asset is financed by bot oth
h recognized as incom e w hen the grant becomes
speci fic and gener al borr owing s, the in ter est rrat
specific ate
e to be receivable.
used in compu ting cap italizab le b orr owing costs d. Bi
Biol
olog
ogic
ical
al ass
assets measured at fair value
ets are measured
attribu ted to g en er al borr owing s shou ld be less costs to sell at initial reco gn ition and at
a. the lowest inter est rat e on the general
rate each sub sequ ent r ep or ting per iod.
borrowing s
b. the h igh est in terest rat e on the general
rate 28. Which of the follfollowin
owingg valu es is unlikely to be used
borrowing s in f air value mea
measuremen
surementt for b iological assets?
c. th e weigh ted average interest rate on a. Qu Quototed
ed price in a market
general b orr owing s b. The most recent market tr an saction price
d. the average of the lowest and high est c. The present valu e of the expected expected net cash
in ter est rates on the g ener al borr owing s flows from the assets
d. Externalind epend entvaluation
22. C ap italization of b orr owing costs
a. Shall be sus suspend
pendeded during temp orary periods of 29. Which of
o f the following statemen ts r eg ar ding
following
delay discontinu ed operations is t rue?
b. May be suspended only dur ing extend ed period s of a. The asset
assetss and liabilities of a d isposal group
delay in which active d evelopm ent is d elayed classified as h eld for sale by an en tity may be
c. Should ne never
ver be su susp
spend ed once capitalization
ended offset and shown as a sing le item on the
comm ences Statement of Financial Position of the e ntity.
d. Sh all be susp
suspende
endedd only during extend ed periods b. The asset
assetss and liabilities of a d isposal group of
of d elays in which active d evelopm en t is d elayed an e ntity must be sh own separ ately i n the
asset and li abilities sections ofo f the S tatem ent
23.
23. Th
Thee foll
follow
owin
ing
g ma
may
y be inc lud ed in th e cost of of Financial P siti n of the ntity a nd cann ot b e
o o e
inventor ies, except offset.
a. over h eads.
Adm in istr ative c. An a dju stm en t in a subsequent per iod to the
b. Wasted m aterials, labor a nd other production selling pr ice of a component of an en tity sold
costs. must be reported as a r etrospective
c. Storage costs. adju stm ent in the p rior -period financial
d. Sellingcosts. statements of the en tity in which the
discontinu ed operation was reported.
24. BMC, Inc. is e valu ating whether to apply the lower d. The g ain or loss on disposal of a component of
of cost or net r ealizable value r ule t o total an en tity classified as a discontinu ed op er ation
inven tor y, to groups of sim ilar item s, o r to each need not be d isclosed sep ar ately from the loss
item . Which app licatio n sho uld it u se if it wants to fr om oper ation s of
o f the d iscontinu ed segm en t.
show the lowest inventory amoun t?
a. Separ atelytoeach tim e. b. 30. Which of
o f the following is c orr ect?
following
Total inventory. a. Discon tinu ed oper ations are shown
shown as the last
c. Grou
Groups ps of simil ar items. category on the Statement of Comp rehensive
d. It do
doeses no
nott matter, as al
alll a pp lications r esult in Income after income f r om continu ing
the sam
same e amoun t. op er ations.
b. The D iscon tinu ed Oper ations section of the
25. The r etail met
method has been used by a retail
hod Statement of Comp r eh ensive In com e con sists
depart
departmen
mentt store
store during its first year of only of the g ain or loss on disposal of the
op er ations. As of the end of the year, compare ( A) discontinu ed component net o f the tax e ffect.
the m arkdowns w it h ((B
B) th e m arkdown c. The D iscon tinu ed Oper ation s section of the
cancellations: Statement of Comp r eh ensive In com e con sists
a. A will be equ al to B only of the incom e or loss f rom op er ating the
b. A will be less than or equ al to B discontinu ed component n et of the tax effect.
c. Awill begreaterthanorequ altoB d. The D iscontinu ed Op er ations section of th e
d. A c ann ot b e equ al to B Statement of Comp r eh ensive In com e con sists
of the i ncome or loss f r om op er ating the
26. Which of the
th e foll
follow
owin g is an app r op riate
ing discontinu ed component n et of the tax effect
comb in ation of a biological ass et and its
asset as wel as the gain or loss on disposal of the
welll as
agr icu ltur al p r odu ce? discontinu ed compone
component nt net of the tax effect.
Biolog icalassets Agr icultur alpr o du ce
a. Sh eep Yar n 31. The following are exter n al ind ic ator s of
imp air m en t, except
b. Trees in a p lan tation Lo gs
for est a. Market value d eclin es.
c. Dairy cattle Butter b. Negative changes in techn ology, m arkets,
economy, or laws.
d. Pigs Car cass
c. Increa eas ses in market in terest r ates.
d. WoWorrse economic performance than expected.
i i i
27. Which
s andstatement
assets
asset oo
agr icu ltur asl pnrc rrceec?t concer n ng biological
du 32.
32. Wh
Whic h statement is incorr ect concer ning the
ich
a. Inventories comp r ising agr icu ltur al reversal of an i mp air ment loss?
produce that an entity has harve sted from its
harvested a. The incr eased carr ying amoun t due to r ever sal
biological
biolog ical asse
assetsts are
are measu
easure d on
red initial shou ld not be more than what the d epreciated
recognition at fair value. historical cost would have been if the
b. Changes in fair value o f a biolo
biological ssets o r
gical asse imp air m en t h ad n
not
ot b een r ecognized.
an a gr icultur al produce are includ ed in the b. Rever sal of an i mp air m ent loss is r ecogn ized as
determination of incom e of the c urr ent p eriod. inco m e in the inc o me s tatem ent.
c. Adju st d epreciation for future periods.

Page 3 of 7

d. Rever sal of an imp air ment loss for goodwill is a. It is a c ontr a-stockh old er s' equ ity accoun t.
recogn ized as income in the incom e s tatement. b. It is an a ccoun t that app ear s only on the books
of the i nvestor.
c. It incr ea
easses when am or tization entries are
33.
33. Wh
Whic h statement is incorr ect in deter mining
ich made un til it reaches its m aturity value.
recoverable amount? d. It dec
decrea
reases
ses whe
whenn a mortization entries a re
a. If the carr ying am oun t is les esss than fair made un til its b alance reac
reaches
hes zero at the
valu e less co
cost
stss to sell or value in use, it m aturity d ate.
is not necessary to calcu late the o ther am o un t.

b. If fair valu e less co stss to sell cann ot be

cost 41. Use of the effective in ter est method in amor tizing a
determined, then recoverable amount is value premium on bonds p ayable w ould result in
in u se. a. A constant am oun t of prem ium am or tization
c. For assets to be disposed of, r ecover able each period ov
over
er the lif e o f the b ond s
life
amoun t is f air valu e less costs to sell. b. An incr easing am oun t of pr em ium amor tization
d. Alloftheabovestatementsarecorr ect each period ov
over
er the lif e o f the b ond s
life
c. A decreasing am ount of prem ium am ortization
34. Whi
Which
ch ooff the following app ear s on the bank side o
following off each period ov
over
er the lif e o f the b ond s
life
the bank r econcili ation? d. Cannonott be deter mined from th e infor mation
a. Outstand ing checks given.
b. In ter est earned on b ank b alance
c. NSF check 42. Which
Which of the foll owing t r an saction s does not r esu lt
following
d. Book err or in a decrease in r etained ear ning s?
a. Declar ation and issuance of d ividend s for the
35. If the b alance shown on a compa
company's
ny's b ank period.
statement is l ess than the correct c ash b alance, b. In curr ence of a net loss for the p er iod.
and n either the company nor the bank has made c. Acquisition of trea
treasur
sury stock for mor e than par
y stock
any errors, there must be value but less thanthan the origin al issue price,
a. deposits c r edited by the bank but not yet when the cost m ethod is u sed.
recorded by the company. d. Corr ection of an err
error in which d epr eciation
b. outstand ingchecks. expense was und er stated in a p rior period.
c. bank char
charges
ges not yeyett reco
recorde
rded
d b y the
comp any. 43. What do an app r opr iation of r etained ear ning s an and
d
d. dep osits in tr ansit. a d eclar ation of cash dividend (for th the
e same a mount)
same
have in comm on?
have
36. Whic
Whichh of tthe
he foll
followin
owing ethod to generate
g is a meth a. Bo tthh incr ea
easse the am oun t of app ropr iated
cash from a ccoun ts r eceivable? retained earnings
Assignment Factoring b. Both have the same consequ
consequences
ences for
a. No Y es stockh old ers
b. Yes Y es c. Bot
Both h p er man en tly redu
reduces
ces future ability to pay
c. Yes No dividend s.
d. No No oth r esult in a de
d. B oth decr
crease in un app r opr iated
ease
retained earnings.
37. Whic
Whichh of th
the
e foll
following items would be exclud ed
owing
from current liabilities? 44. A temporary differ ence which would r esu lt in a
a. A long -ter m liability callable o r due o n deferred tax liability is
demand by the creditor even thoug though
h the a. Accr ual ofo f estimated litig ation loss
creditor has given no ind ication that the debt b. Accr u al of
o f estimated warr anty cost
will be called. c. Sub scr ip tions r eceived in advance
b. Nor m al accoun ts payable which had been d. An in stallm ent sale which i s includ ed in
assign ed by the cred itor to the fin ance financial income at the t ime of sale anandd
comp any. includ ed in taxab le inc om e w hen collected
c. Long -term debt callable within one year or less
deb tor v iolated a d ebt p rovision.
beca use the debtor 45. It is the am oun t attr ibu ted to an asset or liability
d. Sho
Short-
rt-ter
term
m de
debt
bt wh ich at the discretion of the
which for tax pu r poses
entity cacan be r lled ov
o er at least twelve
over a. Carr ying am oun t
months after the b alance s heet date. b. Taxbase
c. Measurement base
38. Which of the following statements r egar d ing provision s is
following d. Taxab le amoun t
incorr ect?
 a. Provisions should be r ecognized for p enalties o r c lean-u p costs for 46. A future taxab le amoun t is exemp lified by:
unlawful envir on mental damage. a. r evenu e that is includ ed in the tax return
b. Provisions should be r ecognized for p rodu ct w arr anties befor e it is included in pretax accoun ting
c. Provisionsshouldberecognizedforfutur eoperatinglosses
inco m e
d. Provisions should be r ecognized for o u tstan ding premiu ms o ffered
to customers
b. g ain that is includ ed in the tax retur n before it
the tax
is inc lud ed
in pretax accoun ting income.
39. A con ting ent liability is c. exp
expens
ense
e that is includ ed in
that tax retur n after
in the tax
a. A liability of uncer tain timing or am oun t. in pretax accoun ting income.
it is includ ed
b. A possible oblig ation depend ing on d. expe
expens
nse that is in clud ed in the tax return
e that
whether some un certain future event occurs. befor e it is included in pretax accoun ting
inco m e.
c. A present obligation bu butt pa
paym
ymen
entt is not
probable or the the amount cann ot be measured
reliably. 47. The c lassification of the lease is n or mally carr ied
47. The
d. Eitherborc. o ut
a. At the end of the lea se ter m.
eas
4 0. W hi ch o
off the follo off a p r emium on
wing i s true o
following b. After “cooling off” p er iod of on e year.
bonds payable? c. Attheincep tionofthelease.

Page 4 of 7

d. Whe
hen
n the entity d eem s it n ecessary. 54. Whic
Which
h of the
the follo wing is not a comp onen t of the
following
retirement benefit expense und er the defined benefit
48. An eigh t-year capital lease specifies equal plan?
minimum annual lea easse payme
payments.
nts. Part of this payment a. In ter est c ost
represents interest and part represen
representsts a r edu ction in b. Expected
Expec ted retur n on plan assets
return
the net lea
the net easse liability. The portion of the m in imum c. Ben efitsp aid tor etir ee
ees
s
lease payment in th the
e fo
four
urth
th yea
yearr app licable to the d. Am or tization of pr ior service c ost
reduction of the net lea
easse liability s hould be
a. the sa
same he th ird year
me as in tthe 55. Acco un ting policies should be foll
followed
owed -
b. less tthan
han in the thir d year a. When the financial results a r e imp roved
hen the
c.lessth anin th efifthyear d . b. Consistently
more
mor e tha
than fifth y ear
n in the fifth c. Never
d. Rarely
49. PROCESSOR Inc. lea eassed a new m achine having an
expected useful life of 30 years from Carbide Co. 56. A cumu lative effect of cha
change in an accoun ting
nge
Ter ms of the noncancellable 25 -year lea se were
eas policy is measured as th e
measured
th at PROCESSOR would g ain title to the the proper ty
upon paymen
paymentt of a sum equ al to the the fair mar
market
ket a. the difference between the p r io r
value of the m achin e at the ter min ation of the periods’
lease. PROCESS OR accoun ted fo forr th
the
e lea
ease
se as a pre tax profit und er the old method
fin ance lea
eas
se and recorde
recorded d an asset and a liability an
and
d wh
what
at wo
woululd
d ha ve been reported if the
have
in the fin ance recor
records
ds.. The asse
assett rec
record ed und er
orded ne
neww metho
method d ha
hadd been used in the prior
th is lea
easse should properly be years
am or tized /d epreciated over b. post tax d iffer ence between th e prior
the post
a. 5 ye
year
ars (the per iod of actual own ership).
s (the period pr ofit und er the old m ethod
b. 22 .5 ye
y ear
ars
s (th
(the period of actual an
and
d wh
what
at wo
woululd
d ha ve been reported if the
have
own er ship). ne
neww metho
method d ha
hadd been used in the prior
c. 25year s(theter mofthelease). d . years
30 years
years (the total asset life). c. the difference between the total of the
prior period profit and the curr ent
50.
50. Th
Thee exce
excessss of the fair value of leased pro
eas proper
perty
ty at period profit und er the new m ethod and
the inception of the lea se over its cost or carr ying
eas the total of the prior per iod pr ofit and
am oun t sh ould be classified by the lessor as current period profit undu nd er the old
o ld method
a. Un ear ned incom e from a sales-type lea
easse. d. the
the post tax d iffer ence between th e total of
post tax
b. Un ear ned incom e from a dir ect-financing the p rior p eriod profit and curr en t
lea
easse. period profit und er the new m ethod and
c. Manu facturer’s or d ealer’s pr ofit from a the total of the prior per iod pr ofit and
sales-type lea
easse. current period profit undu nd er the old
o ld method
d. Manu facturer’s or d ealer’s pr ofit from a
dir ect-financing lease.
eas 57. Whi
Whichch statement is correct r egar ding changes in
accoun ting policies?
51.
51. Wh
Whii c
ch
h of th
the
e foll
following is a corr ect statement of
owing a. An en tity is not per mitted to chang e an
one of the c riteria for finance l ease? accoun ting policy.
cy.
a. The leaeasse tr ansfer s own ership of the b. Changes in accoun ting p olicies includ e applying
prope rty to the lessor. an accoun ting po
poli
licy o a k ind of tr ansaction or
cy tto
b. The lease c on tain s a purchase op tion. event that did not exist in the p ast.
c. The lea
easse term is equ al ttoo or m ore than c. If a ch
chan ge in accoun ting policy is requ ir ed by
ang
75% of the estim ated economic life of the a new FRSC sta stand ard or interpretation, the
ndard
leased
eas property. change is accoun ted fo r a ass requ ired by that
d. The m in imum lease p ay m ents (exclud ing new p ronouncem ent.
executory
executor y costs) equ als or exceeds 90% of d. If a new p ronouncement does not include
the f air valu e o
off the leased proper ty. specific tr ansition provisions, the change
in accoun ting policy is a pp lied prosp ectively.
5 2. Whic h of th
the
e foll
following statemen ts ch ar acter izes
owing
defined benefit p lans 5 8. W hich of the foll
followin
owing g i tem s i s r ep or ted only in
a. They are comp ar atively simp le in current and future p eriods?
constr uction a an
nd raise few accoun ting a. corr ection of a p r ior p eriod error
issues for emp loyers b. effectsofachangeinaccoun ting estim ates c c..
b. Retir ement b enefits are based on the plan’s change in accoun ting policies
effects of a change
 benefit formu la d. al o f the ab ove
alll of
c. Retir ement ben efits de
de pe nd on h ow wel
pe nd elll
pension fund assets hav e b een man aged
have 59.. If it is i mp r acticable to deter min e t he c umu lative
59
d. All of the ab ove change in accoun ting p olicy to any of the
effect of a change
prior periods, the change in accounting policy s hould
53. What is measured by the p rojected ben efit be accoun ted for
oblig ation? a. As a corr ection of pr ior per iod error
b.Onaprospectivebasis
a. The p ension expense, computed b byy the p lan for mu la app lied sea rcsum
c.toAy ofusla etrivieceetffoec dtatceh,ang e i n the Statement o f
assum ing future salary lev els. Comp r eh en sive In come
b. The p ension expense, computed b byy the p lan for mu la app lie d.toAyseanr saodfjussetrmviecnetto todraetea,in ed ear n ing s in the f irst
using existing salary levels. period presented
c. The pension oblig ation, computed by the p lan formu la app lied to years of service t o
assum ing future salar y levels.
date, ass 60 In compu ting the weigh ted-aver ag e numb er of
d. The p ension ob lig ation, computed by the p lan for mu la app lie.d to y shears
ea esofou setsrtvaicneditnog du r ing the year, which of the
date, u sing existing salary levels. following midyear events must be treated as if it
had occurredat
occurredat the beginn ing of the y ear?
a. Declaration and d istribu tion of b onu s

Page 5 of 7

issue. a. r ecogn ition in the incom e statem en t;

b. Purch ase of treasury stock . b. r ecogn ition in the balance s h eet;

c. off add ition al ordinar y shar es.

Sale o c. recogn ition in the
the cash flow statement;
cash
d. off convertible p r eference sh ar e.
Sale o d.notedisclosurein thefinancialstatem ents.

61. When c ompu ting b asic ea r n ing s p er share on 67. Which statement is incorr ect r eg arding even ts after
or din ar y shares, d ividend s on cumu lative, balance s heet d ate?
nonconvertible p reference shares should be a. Ev
Even ts after the b alance sheet date that
ents
a. ded
deduct
ucted
ed fr om net income only if the dividend s
from provide further evidence of conditions th tha
at
were declared or p aid in the current period. existed at the b alance sheet date will
b. d
dee duc
ducte
ted
d fromrom ne t incom e regardless of requ ire adju stm ents to the fin ancial
whether the dividend s were not p aid or declared statemen ts.
in the p er iod. b. Events or cond ition s that arose after the
c. ded
deducucted
ted fr
from
om ne
nett income only if net incom e is balance sheet da
d a te d oe s not requ ire
greater than the d ividend s. adju stm ents to the f in ancial statem en ts.
d. ign or ed. c. If an entity declares dividend s after the
balance sheet da date
te,, th
thee entity shall r ecogn ize
62. Which statement is incorr ect r egar d ing cash flow
Which those dividends as a liability at the balance
statemen ts? sheet date.
a. All enterpr ises that pr epare fin ancial d. An en tity shall no nott prepa
preparere its financial
statements in confor mity with GAAP are statements on a going concer n basis
requ ired to presen
presentt a cash flow statemen t. if management determines after the
b. Cash flows must be an alyzed b etween balance sheet date either that it intend s to
oper ating , investing and fin ancing activities. liqu idate the en tity or or to cea easse tr ading, or
c. Th
Thee ccash flow statement analyses changes in
ash that it hhaas no realistic alternative but to do so.
cash and cash equ ivalents d duuring a p eriod.
d. F or o per ating cash flows, the ind ir ect method 68. Unr elated par ties includ e all
a ll of the following,
of pr esen tation is encourag ed, bu t the dir ect except
method is a cceptable. a. Pr ovid ers o f finance
b. Two venturers simp ly because they sh ar e j oint
63. PAS 7 Cash Flow Statements, r equ ir es that con trol over the joint v en ture
investing and fin anc ing tr ansactio n s that do not r equ ire c. Single customer with whom whom the entity transacts
the use of cash or cash equ ivalents shou ld be: significant v olum of
e o f bu sin ess m er ely by vir tu e of the
a. exclud edfr omacash flow statem ent; resulting economic d ependence
b. includ ed in in a cash flow statemen t before d. Key management per sonn el a and
nd close family
op er ating , investing and fin ancing activities;
es; members of such ind ividu al
c. prese
present
nted
ed iinn the cas h flow statemen t after
ash
op er ating activities and befor e investing and 69. The m inimum d isclosur es p r escr ibed und er PAS
fin ancing activities ;
es; 24 are
are to be ma
madede separ ately for cer tain categories of
d. pres
presente
entedd iin cash flow statem en t after the
n a cas related parties. Which of the following is not among
op er ating , investing and fin ancing activities have the list of categories specified under thethe Stan
Standard
dard for
for
been presented. the purposes of separate d isclosure?
a. Entities with join t con tr ol or sign ificant influ ence
6 4. Whic h of th the
e follow ing infor mation sh ould be
following over the entity
includ ed in Melay, Inc.’s 2010 summary of b. The parent company of the entity
sign ifican t accoun t p olicies? c. An en tity ttha
hatt ha
hass a comm
common on d ir ector with the
a. Property, plan t and equ ipm ent is recorded en tity
at c ost w it h depreciation co m
mp
pute d d. Joint ventures in which the en tity is a v en tur er
principally by the str aight-line m ethod.
b. During 2010, the D elay Segment was sold. 70. Under PFRS 8 Oper ating Segm ents, separate
c. Bu siness segment 2010 sales are Alay P1 segments of an en tity must b e identified as r ep ortable
M, Belay P2M, and Cela
Celay y P3M. segments until at least:
eas
d. Futur e co
com mo
mon shares dividend s are a. 100% of tot l entity r esu lt is includ ed;
a
expected to app roximate 60% of ear ning s. b. 80% of total entity liabilities are includ ed;
c.75% oftotalentityr evenu eisinclud ed;
65
65.. The management of an en tity comp letes draft of
The d. 70% of total entity assets are in clud ed.
financial sta
statemen
tements year end ed December 31 ,
ts for the year
2008
200 8 on Feb
Februa ry 28, 2009. On Mar ch 15, 2009, the
ruary 71. Interim period is a f inancial reporting period
board of directors reviews the financial statements and a. equ al tot o six m onths
author izes tthe
hem for issue. The entity announces its
m for b. shorterthanoneyear c.
pr ofit and selected other financial inform ation on March long er than o n e y ear d.
20, 2009 . The financial statements are mad e available equ al to
t o thr ee m onths
to shareholder s and
and othe rs on April 1, 2006. The
others
sh ar eholder s appr oved the f in ancial statements at their
statements 72. Financial liabilities includ e
annual meeting o n May 10, 2009 2009 a nd the app r oved
and a.Ban kover dr aft.
fin ancial statem
statement
ents s are then filed with SEC and BI
then BIR
R o
on
n b. Loan s r eceivable.
May 30, 2009. For purpo ses o f identifying events after
purposes c. Income tax p ayab le.
balance sheet date, the financial statements d. Cumu lative, red eem able pr efer ence sh ar es at
were authorized for issue on the o ption of the issuer
a. March15 ,2 0 09 c. March 20 , 2009
b. May 10, 2009 d. May 30, 2009 73. The foll
followin
owing g tr ansfers/r eclassification s of fin ancial
assets are p er mitted, except
66. Non -adju sting events that are ind icative of a. Tr ansfer from h eld-to-matur ity investmen ts to to
cond itions that arose after the b alance s h eet date are availab le-for-sale c ategory.
given the follo wing tr eatmen t:
following b. Reclassification of non-der ivative f in ancial
assets
asse o f the f air value through pr ofit or
ts out of

Page 6 of 7

category if the f inanci al asset is n o long er

loss
h ld for the purpose of selling it in the
e the nea
nearr
term in p ar ticular circum stances.
term 78.
78. Fi
Fina
nanc iall repor ting by a developm ent stage
ncia
c. Reclassification of non-derivative f inancial en ter pr ise d iffer s from financial reporting for
for an
assets d esign ated at f air value through p r ofit established oper ating enter pr ise in in reg
regard
ard to no
note
te
or loss b
byy the entity upon initi al recogn ition out
initial disclosures
of the f air value through p r ofit or loss a. On ly
category. b. And expense r ecogn ition pr inciples only
d. Tr an sfer from the avail ab le-for -sale category to c. And r evenu e r ecogn ition p rinciples o nly
the loans and r eceivables categ
category
ory a f inancial d. And revenu e and exp ense recognition
asset that would h ave met the d efin ition of pr inciples
loan s and r eceivab les (if the financial asset had
not b een design ated as available-for-sale), if 79. An en tity shall disclose in the summ ary of
the entity has the in ten tion and ab ility tot o h old sign ificant accoun ting policies es::
assett for the for eseeable f uture.
that fin ancial asse a. the
the meas
measururem
emenentt b asis (or b ases) used in
preparing the f inancial statements.
7 4. In w hich of the following circum stances is b. all th
the
e mea easu
sure
remmen
entt bas es sp ecified
ases in
derecognition of a f inancial asset not appr opriate? the PFRS for SM SMEsEs irr esp ective of whether
a. The contractual righ ts to to th
the
e cash
cash flows of the thhee y we r e us ed
ed by the en tity in
financial asset
assetss have expir ed
have preparing its f inancial s tatem ents.
b. The fin ancial a asset ha b een tr an sferr ed and
sset c. th
the e measu
measure mentt basis (or bases) used in
remen
sub stantially all the risks and re rewa
wardrdss of preparing the financial statements and the
owner ship of the tr ansferr ed ass asset
et ha
haveve also accoun ting policies used that are r elevant to an
been transferr ed un derstand ing of the f inan cial s tatements.
c. The financial asse
assett ha
hass been tr ansferr ed and the d. all of th the e mea easu
sure
remmen
entt ba
base
ses
s an andd the
entity has r etain ed sub stantially all the r isks and accoun ting policy choices available to the
reward of ownership of the transferr ed assesset en tity (ie sp ecified in the the PFRS for SMEs)
d. The financial ass et has been tr ansferr ed and the
asset irr esp ective of whether they were used by the

entity has neith er r etained n or transferr ed en tity in pr ep ar ing its f in ancial statemen ts.
sub stantially all the risks an and d rewarewardrdss of
owner ship of the transferr ed asset. In add ition, 80. An entity:
the e ntity has lost con tr ol of the t r an sferr ed asse
sset a. mus ustt chos
chosee to prpres entt eith er a statement of
esen
inco m e an
andd r etained earnings or a st stat
atem
emenentt
75. When two or more venturers comb ine their of comp r ehensive income a nd a statement of
an
op er ations, r es
esources an d exp ertise to changes in equ ity (ie a free free accoun ting policy
manufacture, m ar
arke t an d distribu te jointly a choice available to to all entities th at prepare
particular pro ductt such as aircraft is an examp le o f
produc th eir financial statem ents in acc accorda
ordance
nce with
a. Joint ven ture the PFRS for S MEs).
b. J ointlycontrolledoperation c c.. b. whose only changes to its equ ity in th e per iods
Join tly con tr olled asse
sset for whi ch financial statem ents ar e presented
which
d. Jointly con tr olled en tity ar ise from pr ofit or loss, payment of dividend s,
corr ection s of pr ior per iod erro
errors,
rs, and changes
76. A featur e of government accoun ting that provides in accoun ting policy is requ ir ed to pr pres
esen
entt a
for
for the
the ceil
ceiling or maximum am oun t an ag
ing agen
ency
cy ca
can
n statemen t of income and r etain ed earn ing s in
spe nd or incur in the performance of its functions is
spend statement of comp r eh ensive incom e
place of a statement
known as an
and d a statem entt of changes in equ ity.
statemen
a. Bu
Budg
dget
etary accoun ting
ary c. wh
who ose oonly changes to its equ ity in th e period s
nly
b. Resp onsibility accoun ting for whi ch financial statem ents ar e presen
which presented
ted
c. Ob lig ation accoun ting ar ise from pr ofit or loss, payment of dividend s,
d. Fun
und d accoun ting corr ection s of pr ior per iod erro
errors,
rs, and changes
in accoun ting policy is per mitted b bu
ut not
77. A statement of financial p osition repor ts requ ired to presen statement of income and
presentt a statement
unrestricted, temp or arily restricted and retained earning s in place of a statem ent of
perm anently restricted nenett asse ts is requ ir ed for
assets comp r ehen sive income and a statem entt of
statemen
which of the following ? changes in equ ity.
I. A p ubli c un iversity d. th at ch ooses to present
that statement of income
present a statement
II. A p rivate, n onp rofit h ospital and retained earnings mu st also pre prese
sent
nt a
statement of comp r ehen sive income a an
nd a
a. Bo
Both and II
th I and statemen t ofo f changes in equ ity.
b. I only
c. Neither I nor II
d. II only

End o f E xamina tion

Thank you for participating in the 2011 National Mock CPA B oard E xam inations!

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Pw red byTCD wwwtcpdf.org)

The interest rate that is printed on the bond certificate is Not referred to as the:

A. Stated rate.
B. Contract rate.
C. Nominal rate.
D. Effective rate
20.Most corporate bonds are:

A. Mortgage bonds.
B. Debenture bonds.
C. Secured bonds.
D. Collateral bonds.
21.The method used to pay interest depends on whether the bonds are:

A. Registered or coupon.
B. Mortgaged or unmortgaged.
C. Indentured or debentured.
D. Callable or redeemable.
22.The rate of interest that actually is incurred on a bond payable is called the:

A. Face rate.
B. Contract rate.
C. Effective rate.
D. Stated rate.
23. Interest expense is:

A. The effective interest rate times the amount of the

th e debt outstanding during the interest period.
B. The stated interest rate times the amount of the debt outstanding during the interest period.
C. The effective interest rate times the face amount of the debt.
D. The stated interest rate times the face amount of the debt
24.Bonds usually sell at their:

A. Maturity value.
B. Face value.
C. Present value.
D. Statistical expected value.
25.Straight-line amortization of bond discount or premium:
p remium:

A. Can be used for amortization of discount or premium in all cases and circumstances.
B. Provides the same amount of interest expense
expen se each period as does the effective interest method.
C. Is appropriate for deep discount bonds.
D. Provides the same total amount of interest expense over the life of the bond issue as does the
effective interest method.

26. An amortization schedule for bonds issued at a premium:

A. Summarizes the amortization of the premium, a contra-asset account with a credit balance.
B. Is reported in the balance sheet
C. Is a schedule that reflects the changes in the debt over its term to maturity.
D. All of the above are correct.

31. Bonds are issued on June 1 that have interest payment dates of April 1 and October 1. Bond interest
expense for the year ended December 31, 2011, is for a period of:

A. Three months.
B. Four months.
C. Six months.
D. Seven months.

32.Ordinarily, the proceeds from the sale of a bond issue will be equal to:

A. The face amount of the bond.

B. The total of the face amount plus all interest payments.
C. The present value of the face amount plus the present value of the stream of interest payments.
D. The face amount of the bond plus the present value of the stream of interest payments.

33.A $500,000 bond issue sold for 98. Therefore, the bonds:
A. Sold at a discount because the stated rate of i nterest was lower than the effective rate.
B. Sold for the $500,000 face amount less $10,000 of accrued interest.
C. Sold at a premium because the stated rate of interest was higher than the yield rate.
D. Sold at a dis count because the effective interest rate was lower than the face rate.

34.When the interest payment dates are March 1 and September 1, and the bonds are issued on July 1,
the amount of interest expense reported in the December 31 income statement for the year of issue
would be for:
A. Six months.
B. Four months.
C. Ten months.
D. Twelve months.

37.For a bond issue that sells for more than the bond face amount, the effective interest rate is:
A. The rate printed on the face of the bond.
B. The Wall Street Journal prime rate.
C. More than the rate stated on the face of the bond.
D. Less than the rate stated on the face of the bond.

38.When bonds are sold at a premium and the effective interest method is used, at each s ubsequent
interest payment date, the cash paid is:

A. Less than the effective interest.

B. Equal to the effective interest.
C. Greater than the effective interest.
D. More than if the bonds had been sold at a discount.
d iscount.

39.When bonds are sold at a discount and the effective interest method is used, at each subsequent
interest payment date, the cash paid is:
A. More than the effective interest.
B. Less than the effective interest.
C. Equal to the effective interest.
D. More than if the bonds had been sold at a premium.
p remium.

40.When bonds are sold at a discount and the effective interest method is used, at each interest
payment date, the interest expense:
A. Increases.
B. Decreases.
C. Remains the same.
D. Is equal to the change in book value.

41.When bonds are sold at a premium and the effective interest method is used, at each i nterest
payment date, the interest expense:
A. Remains constant.
B. Is equal to the change in book value.
C. Increases.
D. Decreases.
42.When bonds are sold at a discount, if the annual
annu al straight-line amortization amount is compared to
the annual effective interest amortization amount over the life of the bond issue, the annual amount of
the straight-line amortization of discount is:
A. Higher than the effective interest amount every year.
B.Higher than the effective interest amount in the early years and less than the effective interest
amount in the later years.
C.Less than the effective interest amount in the early years and more than the effective interest
amount in the later years.
D. Less than the effective interest amount every year.
49.Zero-coupon bonds
A. offer a return in the form of a deep discount off the face value.
B. result in zero interest expense for the issuer.

C. result in zero interest revenue for the investor.

D. are reported as shareholders' equity by the
th e issuer.
50.The market price of a bond issued at a discount is the present value of its principal amount at the
market (effective) rate of interest
A. Less the present value of all future interest payments at the rate of interest stated on the bond.
B. Plus the present value of all future interest payments at the rate of interest stated on the bond.
C. Plus the present value of all future interest payments at the market (effective) rate of interest.

D. Less the present value of all future interest payments at the market (effective) rate of interest.

75.In each succeeding payment on an installment note:

A. The amount of interest paid increases.
B. The amount of principal paid increases.
C. The amount of interest paid is unchanged.
D. The amounts paid for both interest and principal increase proportionately.

76.When a long-term note is given in exchange for equipment, the amount considered as paid for the
machine is:
A. The invoice price.
B. The wholesale price.
C. The present value of c ash outflows discounted at the stated rate.
D. The present value of the note payments discounted at the market rate.

77.When the interest payment dates are March 1 and September 1, and notes are issued on July 1, the
amount of interest expense to be accrued at December 31 of the year of issue would:
A. Not be required.
B. Be for six months.
C. Be for four months.
D. Be for ten months.

78.When an equipment dealer receives a long-term note in exchange for equipment, the present value
of the future cash flows received on the notes:
A. Is treated as a current liabil ity at the exchange date.
B. Is recorded as interest revenue at the exchange date.
C. Is recorded as interest receivable at the exchange date.
D. Is credited to sales revenue at the exchange date.

80.To evaluate the risk and quality of an individual bond issue, savvy investors rely heavily on:
A. Bond ratings provided by financial investment services such as Moody's.
B. Newspaper articles.
C. Bond interest payments.
D. The company's audit report.

81.Which of the following i ndicates the margin of safety provided to creditors?

A. Rate of return on shareholders' equity.
B. Times interest earned ratio.
C. Gross margin.
D. Debt to equity ratio.

82. Bonds payable should be reported as a long-term liability in the balance sheet of the is suing
corporation at the:
A. Face amount price less any unamortized discount or plus any unamortized premium.
B. Current bond market price.
C. Face amount less any unamortized premium or plus any unamortized discount.
D. Face amount less accrued interest since the last interest payment d
date.
ate.
D. Face amount less accrued interest since the last interest payment date.
d ate.

83.The unamortized balance of discount on bonds payable is reported in the balance sheet as:
A. A prepaid expense.
B. An expense account.
C. A current liability.
D. A contra-liability.

84. Eagle Company issued ten-year bonds at 96 during the current year. In the year-end financial
statements, the discount should be:
A. Deducted from bonds payable.
B. Added to bonds payable.
C. Included as an expense in the year of issue.
D. Reported as a deferred charge.

BONDS PAYABLE

Easy:

1. A bond indenture is

a. a contract between the corporation issuing the bonds and the underwriters selling the
bonds
b. a contract between the corporation issuing the bonds and the bond trustee, who is acting
on behalf of the bondholders.
c. the amount due at the maturity date of the bonds
d. the amount for which the corporation can buy back the bonds prior to the maturity date

2. An unsecured bond is the same as a

a. term bond.
b. zero coupon bond.
c. debenture bond.
d. bond indenture.
indenture.

3. Bonds that are subject to retirement at a stated peso amount prior to maturity at the option
of the issuer are called

a. options.
b. early retirement bonds.
c. Debentures
d. callable bonds.

4. When the effective-interest method is used, the amortization of the bond premium

a. has no effect on the interest expense in any period

b. increases interest expense each period
c. increases interest expense in some periods and decreases interest expense in other
periods
d. decreases interest expense each period
5. The Torrez Corporation issues 1,000, 10-year bonds, 8%, P1,000 bonds dated January 1, 2017,
at 97. The journal entry to record the issuance will show a

a. debit to Cash of P1,000,000.

b. credit to Cash for P970,000.
c. credit to Bonds Payable for P1,000,000.
d. credit to Discount on Bonds Payable for P30,000.

6. If the market rate of interest is greater than the contractual rate of interest, bonds will sell

a. at a discount.
b. at face value.
c. at a premium.

d. only after the stated rate of interest is increased.

7. On January 1, 2017, P1,000,000, 5-year, 10% bonds, were issued for P970,000. Interest is paid
semiannually on January 1 and July 1. If the issuing corporation uses the straight-line
straight -line
method to amortize discount on bonds payable, the semiannual amortization amount is

a. P6,000
b. P3,000
c. P5,000
d. P5,808

8. Sinking Fund Income is reported in the income statement as

a. gain on sinking fund transactions

b. other income
c. income from operations
d. extraordinary

9. On June 1, P400,000 of bonds were purchased as a long-term

long -term investment at 101 and P500
was paid as the brokerage com
commission.
mission. If the bonds bear interest at 12%, which is paid
semiannually on January 1 and July 1, what is the total cost to be debited to the investment
account?

a. 401,500
b. 400,000
c. 403,500
d. 404,500

10. When a corporation issues bonds, the price that buyers are willing to pay for the bonds does
not depend on which of the following below

a. market rate of interest

b. face value of the bonds
c. denominations the bonds are sold
d. periodic interest to be paid on the bonds

11. If P1,000,000 of 8% bonds are issued at 102 1/2, the amount of cash received from the sale is

a. 1,080,000
b. 975,000
c. 1,000,000
d. 1,025,000
12. Debenture bonds are

a. issued on the general credit of the corporation and do not pledge specific assets as
collateral.
b. issued only by the federal government
c. bonds secured
secured by spec
specific
ific assets of the issuing corp
corporation
oration
d. bonds that have a single maturity date

13. When the bonds are sold for more than their face value, the carrying value of the bonds is
equal to

a. face value plus the unamortized discount

b. face value minus the unamortized premiu
premiumm
c. face value plus the unamortized premium
d. face value

14. The balance in Discount on Bonds Payable that is applicable to bonds due in 2020 would be
reported on the balance sheet in the section entitled

a. intangible assets
b. current assets
c. long-term liabilities
d. current liabilities

15. Bonds with a face amount P1,000,000, are sold at 97. The entry to record the issuance is

a. Cash (970,000); Premium on Bonds Payable (30,000); Bonds Payable (1,000,000)

b. Cash (1,000,000); Premium on Bonds Payable (30,000); Bonds Payable (970,000)
c. Cash (970,000); Discount on Bonds Payable (30,000); Bonds Payable (1,000,000)
d. Cash (970,000); Bonds Payable (970,000)

16. If bonds payable are not callable, the issuing corporation

a. must get special permission from the SEC to repurchase them

b. is more likely to repurchase them if the interest rates increase
c. cannot repurchase them before maturity
d. can repurchase them in the open market

17. Bonds payable issued with scheduled maturities at various dates are called

a. Serial bonds
b. Term bonds
c. Callable bonds
 d. Convertible bond

18. If P3,000,000 of 10% bonds are issued at 97, the amount of cash received from the sale is

a. 3,300,000
b. 2,910,000
c. 3,090,000
d. 3,000,000

19. The journal entry a company records for the issuance of bonds when the contract rate and
the market rate are the same is

a. debit Cash, credit Premium on Bonds Payable and Bonds Payable

b. debit Cash and Discount on Bonds Payable
Payable,, credit Bonds Payable
c. debit Bonds Payable, credit Cash
d. debit Cash, credit Bonds Payable

20. The amortization of discount on bonds purchased as a long-term investment

a. decreases the amount of interest expense

b. increases the amount of the investment account
c. increases the amount of interest expense
d. decreases the amount of the investment account

21. The cash and securities comprising a sinking fund established to redeem bonds at maturity
in 2020 should be classified on the balance sheet as

a. current assets
b. intangible assets
c. investments
d. fixed assets

22. The balance in Premium on Bonds Payable

a. should be reported in the paid-in capital section of the balance sheet

b. should be allocated to the remaining periods for the life of the bonds by the straight-line
method, if the results obtained by that method materially differ from the results that
would be obtained by the interest method
c. would be added to the related bonds payable on the balance sheet
d. should be reported on the balance sheet as a deduction from the related bonds payable

23. Sinking Fund Cash would be classified on the balance sheet as

 a. an investment
b. a current asset
c. a fixed asset
d. an intangible asset

24. If bonds are issued at a discount, it means that the

a. market interest rate is lower than the contractu

contractual
al interest rate.
b. financial strength of the issuer is suspect.
c. bondholder will
will receive eeffectively
ffectively le
less
ss interest than the ccontractual
ontractual rate of interest.
d. market interest rate is higher than the contractual interest rate.

25. If the market rate of interest is 10%, a P10,000, 12%, 10-year bond that pays interest
semiannually would sell at an amount

a. less than face value.

b. equal to the face value.
c. that cannot be determined.
d. greater than face value.

26. If the straight-line method of amortization of bond premium or discount is used, which of
the following statements is true?

a. Annual interest expense will decrease over the life of the bonds with the amortization of
bond discount.
discount.

b. Annual interest expense will remain the same over the life of the bonds with the
amortization of bond discount.
c. Annual interest expense will increase over the life of the bonds with the amortization of
bond premium.
premium.
d. Annual interest expense will increase over the life of the bonds with the amortization of
bond discount.
discount.

27. The market interest rate related to a bond is also called the

a. straight-line rate
b. contract interest rate
c. effective interest rate
d. stated interest rate

28. A legal document that indicates the name of the issuer, the face value of the bond and such
other data is called

a. a bond indenture.

b. convertible bond.
c. trading on the equity.
d. a bond certificate.

29. A corporation would not be successfully

successfully trading on equity if it gathered funds by

a. issuing common stock

b. issuing bonds
c. issuing notes
d. issuing preferred stock
30. The account Investment in Bonds is reporte
reported
d

a. at cost as a long-term asset

b. at cost as a long-term asset less Discount on Bond Investments or plus Premium on Bond
Investments
c. at fair market value because that is all that is required
d. at cost as a long-term liability along with the current portion reported as a current
liability

31. The amortization of premium on bonds purchased as a long-term investment

a. decreases the amount of the investment account

b. increases the amount of interest revenue
c. increases the amount of the investment account
d. decreases the amount of interest expense

32. Any unamortized premium should be reported on the balance sheet of the issuing
corporation as

a. a direct deduction from the face amount of the bonds in the liability section
b. a direct deduction from retained earnings
c. an addition to the face amount of the bonds in the liability section
d. as paid-in capital

33. One potential advantage of financing corporations through the use of bonds rather than
common stock is

a. the interest expense is deductible for tax purposes by the corporation

b. the interest on bonds must be paid when due
c. the corporation must pay the bonds at maturity
d. a higher earnings per share is guaranteed for existing common shareholders

34. Sinking Fund Investments would be classified on the balance sheet as

a. a current asset
b. an investment
c. a deferred debit
d. a fixed asset

35. If P1,000,000 of 8% bonds are issued at 103, the amount of cash received from the sale is

a. P1,000,000
b. P 970,000
c. P1,030,000
d. P1,060,000

36. If bonds are initially sold at a discount and the straight line method of amortization is used,
interest expense in the earlier years

a. Will be less than the coupon rate of interest.

b. Will be less than what it would have been had the scientific method of amortization
been used
c. Will be the same as what it would have been had the scientific method of amortization
been used
 d. Will exceed what it would have been had the scientific method of amortization been
used

37. Bonds with a face value of P3 million and a stated interest rate of 12% payable semi-
annually on March 1 and September 1 were purchased on August 1. The total payments for
the purchase equal P3,000,000. The best explanation for the excess amount paid over face
value is that

a. The bonds were purchased at face value plus accrued interest

b. The bonds were purchased at a premium
c. No explanation is possible without knowing the maturity date of the bond issue.
d. The bonds were purchased at a discount plus accrued interest

38. The bond indenture may provide that funds for the payment of bonds at maturity be
accumulated
accumulate d over the life of the issue. The amounts set aside are kept separate from other
assets in a special fund called a(n)

a. sinking fund
b. special assessments fund
c. general fund
d. enterprise fund

39. If you elect to not take a discount on trade credit, the effective interest rate on the funds thus
obtained __________ as the time you take to pay increases

a. remains constant
b. falls
c. falls first, then rises
d. rises

40. If the market rate of interest is 8%, the price of 6% bonds paying interest semiannually with
a face value of P100,000 will be

a. Less than P100,000

b. Equal to P100,000
c. Greater than P100,000

d. Greater than or less than P100,000, depending

depending on the maturity date of the bonds
41. The Royce Corporation issues 1,000, 10-year bonds, 8%, P1,000 bonds dated January 1, 2017,
at 97. The journal entry to r ecord the issuance will show a

a. credit to Bonds Payable for P970,000.

b. credit to Cash for P970,000.
c. debit to Cash of P1,000,000.
d. debit to Discount on Bonds Payable for P30,000.

42. Debtors are interested in the

t he times-interest-earned ratio because they want to

a. know what rate of interest the corporation is paying

b. be sure their debt is b
backed
acked by ccollateral
ollateral
c. have adequate protection against a potential drop in earnings jeopardizing their interest
payments
d. know the tax effect of lending to a corporation

43. The interest rate specified in the bond indenture is called the
 a. effective rate
b. discount rate
c. contract rate
d. market rate

44. The Tomas Corporation issues 1,000, 10-year

10 -year bonds, 8%, P1,000 bonds dated January 1, 2017,
at 97. The journal entry to record the issuance will show a

a. debit to Cash for P970,000.

b. credit to Discount on Bonds Payable for P30,000.
c. debit to Cash of P1,000,000.
d. credit to Bonds Payable for P970,000.

45. The balance in Discount on Bonds Payable

a. would be subtracted from the related bonds payable on the balance sheet
b. should be allocated to the remaining periods for the life of the bonds by the straight-line
method, if the results obtained by that method materially differ from the results that
would be obtained by the interest method
c. would be added to the related bonds payable to determine the carrying amount of the
bonds
d. should be reported on the balance sheet as an asset because it has a debit balance

46. A corporation issues for cash P14,000,000 of 8%, 20-year bonds, interest payable annually, at
a time when the market rate of interest is 9%. The straight-line method is adopted for the
amortization of bond discount or premium. Which of the following statements is true?

a. The amount of annual interest paid to bondholders remains the same over the life of the
bonds.
b. The carrying amount decreases from its amount at issuance date to P14,000,000 at
maturity.
c. The amount of annual interest expense decreases as the bonds approach maturity.
d. The amount of annual interest paid to bondholders incre
increases
ases over the 20
20-year
-year life of the
bonds.

47. When the corporation issuing the bonds has the right to repurchase the bonds prior to the
maturity date for a specific price, the bonds are

a. callable bonds
b. convertible bonds
c. unsecured
unsecure d bonds
d. debenture bonds

48. When callable bonds are redeemed below carrying value

a. Retained Earnings is credited

b. Loss on Redemption of Bonds is debited
c. Gain on Redemption of Bonds is credited
d. Retained Earnings is debited

49. Bonds usually sell at a discount when investors are willing to invest in the bonds
 a. At the coupon interest rate
b. At rate lower than the stated interest rate
c. When the need arises.
d. At rate higher than the stated
stat ed interest rate

50. On June 1, P400,000 of bonds were purchased as a long-term

long -term investment at 97 and P500 was
paid as the brokerage commission. If the bonds bear interest at 12%, which is paid
semiannually on January 1 and July 1, what is the total cost to be debited to the investment
account?

a. 400,000
b. 388,000
c. 388,500
d. 400,500

51. A corporation issues for cash P1,000,000 of 10%, 20-year bonds, interest payable annually, at
a time when the market rate of interest is 12%. The straight-line
straight -line method is adopted for the
amortization of bond discount or premium. Which of the following statements is true?

a. The amount of the annual interest expense gradually decreases over the life of the
bonds.
b. The amount of unamortized premium decreases
decreases from its balance at issuance date to a
zero balance at maturity.
c. The amount of the annual interest expense is computed at 10% of the bond carrying
amount at the beginning of the year.
d. The amount of unamortized discount decreases from its balance at issuance date to a
zero balance at maturity.

52. When the market rate of interest on bonds is higher than the contract rate, the bonds will
sell at

a. their face value

b. their maturity value
c. a premium
d. a discount

53. If bonds are issued at a premium,

premium, the stated interest rate is

a. lower than the market rate of interest.

b. higher than the market rate of interest.
c. adjusted to a higher rate of interest.
d. too low to attract investors.
54. A long-term investment in debt securities is carried at

a. equity
b. market

c. cost
d. lower of cost or market

55. On July 1, 2013,

2 013, Rex Company purchased as a long-term investment P5,000,000 face value,
8% bonds for P4,615,000 to yield 10% per year. The bonds pay interest semiannually on
January 1 and July 1. On Decemb
Decemberer 31, 2013, what amount shou
should
ld be re
reported
ported as ac
accrued
crued
interest receivable?

a. 230,750
b. 0
c. 200,000
d. 400,000

SOLUTION:

5,000,000 x 8% x 6/12= 200,000

56. When the maturities of a bond issue are spread over several dates, the bonds are called

a. debenture bonds
b. bearer bonds
bonds
c. serial bonds
d. term bonds

57. Sinking Fund Cash would be classified on the balance sheet as

a. a fixed asset
b. an intangible asset
c. an investment
d. a current asset

Average:

58. Bonds that are secured by investment in equity securities are called

a. Term bonds

b. Collateral trust bonds

c. Debenture bonds
d. Commodity-bac
Commodity-backed
ked bonds
59. The journal entry a company records for the issuance of bonds when the contract rate is
greater than the market rate would be

a. debit Cash and Discount on Bonds Payable

Payable,, credit Bonds Payable
b. debit Cash, credit Premium on Bonds Payable and Bonds Payable

c. debit Bonds Payable, credit Cash

d. debit Cash, credit Bonds Payable

60. Long-term debt that matures within one year and is to be converted into stock should be
reported

a. as noncurrent
b. in a special section between liabilities and stockholders’ equity
c. as noncurrent and accompanied with a note explaining the method to be used in its
liquidation
d. as a current liability

61. The present value of P40,000 to be received in one year, at 6% compounded annually, is
(rounded to nearest peso)

a. 40,000
b. 2,400
c. 42,400
d. 37,736

62. Cedric Company issues P10,000,000 face value of bonds at 96 on January 1, 2009. The bonds
are dated January 1, 2009, pay interest semiannually at 8% on June 30 and December 31, and
mature in 10 years. Straight-line amortization is used for discounts aand
nd premiums. On
September
Septemb er 1, 2012, P6,000,000 of the bonds are called at 102 plus accrued interest. What gain
or loss would be recognized on the called bonds on Septembe
Septemberr 1, 2012?

a. P453,333 loss
b. P360,000 loss
c. P272,000 loss
d. P600,000 loss

SOLUTION:

{P9,600,000 + [P400,000 × (3 2/3 ÷ 10)]} × .60 = P5,848,000 P6,120,000

P6,120,000 - P5,848,000 = P272,000

63. The Saymore Company issued 10-year bonds on January 1, 2017. The 6% bonds have a face
value of P800,000 and pay interest every January 1 and July 1. The bonds were sold for
P690,960 based on the market interest rate of 8%. Saymore uses the effective-interest
effective-interest method
to amortize bond discounts and premium
premiums. s. On July 1, 2017, Saymore should record interest
expense (round to the nearest peso) of

a. 55,277
b. 24,000
c. 27,638
d. 48,000

64. On July 1, 2010, Joven Co. issued 1,000 of its 10%, P1,000 bonds at 99 plus accrued interest.
The bonds are dated April 1, 2010 and mature on April 1, 2020. Interest is payable
semiannually on April 1 and October 1. What amount did Joven receive from the bond
issuance?
 a. 965,000
b. 1,000,000
c. 1,015,000
d. 990,000

SOLUTION:

(P1,000,000 × .99) + (P1,000,000 × .10 × 3/12) = P1,015,000

65. An entity neglected to amortize the premium on outstanding bonds payable. What is the
effect of the failure to record premium amortization on interest expense and bond carrying
value, respectivel
respectively?
y?

a. Understate and overstate

b. Overstate and understate
c. Understate and understate
d. Overstate and overstate

66. The 10% bonds payable of Francis Company had a net carrying amount of P5,700,000 on
Decemberr 31, 2012. The bonds, which had a face value of P6,000,000, were issued at a
Decembe
discount to yield 12%. The amortization of the bond discount was recorded under the
effective-interest
effective-interest method. Interest was paid on January 1 and
a nd July 1 of each year. On July 1,
2013, several years before the maturity, Francis retired the bonds at 102. The interest
payment on Juy 1, 2013 was made as scheduled. What amount should be recorded as loss on
the early retirement of the bonds on July 1, 2013?

a. 336,000

b. 120,000
c. 420,000
d. 378,000

67. Balance sheet and income statement data indicate the following:

Bonds payable, 8% (issued 1990, due 2015) P1,200,000

Preferred 8% stock, P100 par (no change during the year)
Preferred 200,000
Common stock, P50 par (no change during the year) 1,000,000
Income before income tax for year 320,000
Income tax for year 80,000
Common dividends paid 60,000
Preferred
Preferred dividends paid 16,000

What is the number of times bond interest charges were earned (round to two decimal
places)?

a. 4.33
b. 5.67
c. 3.24
d. 3.50

68. Tim Corporation retires its P100,000 face value bonds at 102 on January 1, following the
payment of interest. The carrying value of the bonds at the redemption date is P96,250. The
entry to record the redemption will include a

a. debit of P5,750 to Gain on Bond Redemption

b. credit of P3,750 to Loss on Bond Redemption
c. debit of P2,000 to Premium on Bonds Payable
 d. credit of P3,750 to Discount on Bonds Payable

SOLUTION:

P100,000 - P96,250 = P3,750 discount

69. In current accounting practice, the valuation method used for bonds payable is

a. Historical cost
b. Discounted cash flow valuation at current yield rate
c. Maturity amount
d. Discounted cash flow valuation at yield rate at issuance

70. On January 1, 2011, Garry Co. redeemed its 15-year bonds of P2,500,000 par value for 102.
They were originally issued on January 1, 1999 at 98 with a maturity date of January 1, 2014.
The bond issue costs relating to this transaction were P150,000. Garry amortizes discounts,
premiums, and bond issue costs using the straight-line method. What amount of loss should
Garry recognize on the redemption of these bonds (ignore taxes)?

a. 0
b. 90,000
c. 60,000
d. 50,000

SOLUTION:

(P2,500,000 × 1.02) - (2,300,000 + (200,000)/15 x 12) = 90,000

71. On July 1, 2009, Keann, Inc. issued 9% bonds in the face amount of P5,000,000, which mature
on July 1, 2015. The bonds were issued for P4,695,000 to yield 10%, resulting in a bond
discount of P305,000. Keann uses the effective-interest
effective-interest method of amortizing bond discount.
Interest is payable annually on June 30. At June 30, 2011, Keann's unamortized bond
discount should be

a. 244,000
b. 215,000
c. 264,050
d. 255,000

SOLUTION:

2009 - 2010 P4,695,000 + [(P4,695,00

[(P4,695,0000 × .1) - (P5,000,000 × .09)]= P4,714,500
2010 - 2011 P4,714,500 + (P471,450 – P450,000) = P4,735,950
P5,000,000 - P4,735,950 = P264,050

72. Brandon Co. is indebted to Cole under a P400,000, 12%, three-year note dated December
December 31,
2009. Because of Brandon's financial difficulties developing in 2011, Brandon owed accrued
interest of P48,000 on the note at
a t December 31, 2011. Under a troubled debt restructuring,
restructuring, on
December 31, 2011, Cole agreed to settle the note and accrued interest for a tract of land
December
having a fair value of P360,000. Brandon's acquisition cost of the land is P290,000. Ignoring
income taxes, on its 2011 income statement Brandon should report as a result of the troubled
debt restructuring

a. Gain on Disposal (70,000); Restructuring

Restructuring Gain (88,000)
 b. Gain on Disposal (110,000); Restructu
Restructuring
ring Gain (0)
c. Gain on Disposal (70,000; Restructur
Restructuring
ing Gain (40,000)

d. Gain on Disposal (158,000); Restructu

Restructuring
ring Gain (0)

SOLUTION:

P360,000 - P290,000 = P70,000

(P400,000 + P48,000) - P360,000 = P88,000

73. A P300,000 bond was redeemed at 98 when the carrying value of the bond was P296,000.
The entry to record the redemption would include a

a. loss on bond redemption of P2,000.

b. gain on bond redemption of P4,000.
c. loss on bond redemption of P4,000.
d. gain on bond redemption of P2,000.

74. On October 1, 2010 Ace Corporation issued 5%, 10-year bonds with a face value of P500,000
at 104. Interest is paid on October 1 and April 1, with any premiums or discounts amortized
on a straight-line basis.

The entry to record the issuance of the bonds would include a

a. credit of P12,500 to interest Payable

b. credit of P20,000 to Premium on Bonds Payable
c. credit of P480,000 to Bonds Payable
d. debit of P20,000 to Discount on Bonds
B onds Payable

SOLUTION:

(P500,000 × 1.04) - P500,000 = P20,000 premium

75. The Raymore Company issued 10-year bonds on January 1, 2017. The 15% bonds have a face
value of P100,000 and pay interest every January 1 and July 1. The bonds were sold for
P117,205 based on the market interest rate of 12%. Raymore uses the effective-interest
method to amortize bond discounts and premiums. On July 1, 2017, Raymore should record
interest expense (round to the nearest peso) of

a. 7,500
b. 14,065
c. 7,032
d. 8,790

76. The proceeds from bonds issued with nondetachable share warrants shall he accounted for
 a. Partly as bonds payable and partly as shareholders’ equity
b. Entirely as bonds payable
c. Partly, us unearned revenue and partly as bonds payable
d. Entirely as shareholders' equity

77. Which of the following is true of accrued

a ccrued interest on bonds that are sold between interest
dates?

a. The accrued interest will be paid to the seller when the bonds mature
b. The accrued interest is computed at the effective rate
c. The accrued interest is extra income to the buyer
d. None of the above

78. Zern Corporation retires its P100,000 face value bonds at 105 on January 1, following the
payment of interest. The carrying value of the bonds at the redemption date is P103,745. The
entry to record the redemption will include a

a. debit of P3,745 to Premium on Bonds Payable

b. credit of P3,745 to Loss on Bond Redemption
c. debit of P5,000 to Premium on Bonds Payable
d. credit of P1,255 to Gain on Bond Redemption

SOLUTION:
P103,745 - P100,000 = P3,745 premium

79. The entry to record the amortization of a premium on bonds payable is

a. debit Bonds Payable, credit Interest Expense

b. debit Interest Expense, credit Premium on Bond Payable
c. debit Interest Expense, debit Premium on Bonds Payable, credit Cash
d. debit Premium on Bonds Payable, credit Interest Expense Commented [u1]: For me, this is the best answer since the
Commented
question only asks for the amortization of the premium not
also for the payment of the interest.
80. Bonds Payable has a balance of P1,000,000 and Premium on Bonds Payable has a balance of
P8,000. If the issuing corporation redeems the bonds at 101, what is the amount of gain or
loss on redemption?

a. P8,000 gain
b. P2,000 gain
c. P2,000 loss
d. P8,000 loss
81. On January 1, 2006, Vino Corp. issued 1,000 of its 10%, P1,000 bonds for P1,040,000. These
bonds were to mature on JJanuary
anuary 1, 22016
016 but we
were
re callable at 101 any time af
after
ter Decem
December
ber
31, 2009. Interest was payable semiannually on July 1 and January 1. On July 1, 2011, Vino
called all of the bonds and
a nd retired them. Bond premium was amortized on a straight-line
basis. Before
Before income taxe
taxes,
s, Vino's gain or loss in 2011 on this ea
early
rly extinguishm
extinguishment
ent of deb
debtt
was

a. P 8,000 gain
b. P30,000 gain
c. P12,000 gain
d. P10,000 loss

SOLUTION:

1,040,000 - (40,000/20) x 11) - (1,000,000 x 1.01) = 8,000

82. To compute the price to pay for a bond, what present value concept is used?

a. Only the present value Of 1 concept

b. Both the present value of 1 concept and present value of an annuity of 1 concept
c. Only the present value of an annuity
a nnuity of 1 concept
d. Neither the present value of 1 concept 'nor the present value of annuity of 1 concept

83. Bonds that are secured by investment in equity securities are called

a. Term bonds
b. Collateral trust bonds
c. Debenture bonds
d. Commodity-backed
Commodity-bac ked bonds

84. The 10% bonds payable of Nikki Company had a net carrying amount of P570,000 on
Decemberr 31, 2012. The bonds, which had a face value of P600,000, were issued aatt a discount
Decembe
to yield 12%. The amortization of the bond discount was recorded under the effective-
interest method. Interest was paid on January 1 and July 1 of each year. On July 2, 2013,
several years before their maturity, Nikki retired
retired the bonds at 102. The interest payment on
July 1, 2013
2013 was made as sscheduled.
cheduled. WWhat
hat amount should be reco
recorded
rded as loss on the early
retirement of the bonds on July 2, 2013?

a. 12,000
b. 42,000
c. 37,800
d. 33,600

85. A corporation issues P100,000, 8%, 5-year bonds on January 1, 2017, for P104,200. Interest is
paid semiannually on January 1 and July 1. If the corporation uses the straight-line method
of amortization of bond premium, the amount of bond interest expense to be recognized on
July 1, 2017,
2017, is

a. P4,420.
b. P3,580.
c. P4,000.
d. P8,420.
86. On January 1, 2010, Gerald Company sold property to Gabriel Company. There was no
established exchange price for the property, and Gabriel gave Gerald a P2,000,000 zero-
interest-bearing
interest-bearing note payable in 5 equal annual installments of P400,000, with the first
payment due December
December 31, 2010. The prevailing rate of interest for a note of this type is 9%.
The present value of the note at 9% was P1,442,000 at January 1, 2010. What should be the
balance of the Discount on Notes Payable account on the books of Gabriel at DeceDecember
mber 31,
2010 after adjusting entries are made, assuming that the effective-interest method is used?

a. 428,220
b. 558,000
c. 0
d. 446,400

SOLUTION:

P2,000,000 - P1,442,000 - (P1,442,000 × .09) = P428,220

87. The journal entry a company records for the issuance of bonds when the contract rate is less
than the market rate would be

a. debit Cash and Discount on Bonds Payable

Payable,, credit Bonds Payable
b. debit Cash, credit Bonds Payable
c. debit Cash, credit Premium on Bonds Payable and Bonds Payable
d. debit Bonds Payable, credit Cash

88. On January 1, 2010, David loaned P45,078 to Jacob. A zero-interest-bearing note (face
amount, P60,000) was exchanged solely for cash; no other rights or privileges were
exchanged. The note is to be repaid on December 31, 2012. The prevailing rate of interest for
a loan of this type is 10%. The present value of P60,000 at 10% for three years is P45,078.
What amount of interest income should David recognize in 2010?

a. 6,000
b. 18,000

c. 13,524
d. 4,508

SOLUTION:

P45,078 × .10 = P4,508

89. On its December 31, 2010 balance sheet, Ren Corp. reported bonds payable of P6,000,000
and related unamortized bond issue costs of P320,000. The bonds had been issued at par. On
January 2, 2011, Ren retir
retired
ed P3,000,0
P3,000,000
00 of the o
outstanding
utstanding bonds at p
par
ar plus a ccall
all premiu
premium
m
of P70,000. What amount should Ren report in its 2011 income statement as loss on
extinguishment
extinguishme nt of debt (ignore taxes)?

a. 160,000
b. 230,000
c. 70,000
d. 0

SOLUTION:

(P3,000,000 + P70,000) - [(P6,000,000 - P320,000) × 1/2] = P230,000

90. Bonds Payable has a balance of P1,000,000 and Discount on Bonds Payable has a balance of
P15,500. If the issuing corporation redeems the bonds at 99, what is the amount of gain or
loss on redemption?

a. P 5,500 loss
b. P15,500 gain
c. P 5,500 gain
d. P15,500 loss

91. Which of the following is true for a bond maturing on a single date when the effective
interest method of amortizing bond discount is used?

a. Interest expense remains constant each 6 month period

b. Interest expense as a percentage of the bond’s book value varies from period to period
c. Interest expense increases each 6 month period
d. Nominal interest rate exceeds effective interest rate

92. A ten-year bond was issued in 2009 at

a t a discount with a call provision to retire the bonds.
When the bond issuer exercised the call provision on an interest date in 2011, the carrying
amount of the bond was less than the call price. The amount of bond liability removed from
the accounts in 2011 should have equaled the

a. call price
b. call price less unamortized discount
c. face amount less unamortized discount
d. face amount plus unamortized discount

93. Costs incurred in connection with the issuance of ten-year bonds which sold at
a t a slight
premium shall be

a. Expensed in the year in which incurred

b. Reported in the balance sheet as a deduction from bonds payable and amortized over
over
the ten-year bond term
c. Capitalized as organization cost
d. Charged to retained earnings when the bonds are issued

94. On January
a stated 1, 2013,
interest rateRomeo Co. issued
of 6%, payable eight-year
allybonds
semiannually
semiannu with
on June a face
30 and value of P1,000,000
December and
31. The bonds
were sold to yield 8%. Table values are:

Present value of 1 for 8 periods at 6% .627

Present value of 1 for 8 periods at 8% .540
Present value of 1 for 16 periods at 3% .623
Present value of 1 for 16 periods at 4% .534
Present value of annuity for 8 periods at 6% 6.210
Present value of annuity for 8 periods at 8% 5.747
Present value of annuity for 16 periods at 3% 12.561
Present value of annuity for 16 periods at 4% 11.652

The issue price of the bonds is

a. 889,560
b. 999,600
c. 883,560
d. 884,820
SOLUTION:

534,000 + 349,560 = 883,560

95. The market price of a bond issued at a discount is the present value of its principal amount
at the market rate of interest

a. Plus the present value of all future interest payments at the rate of interest stated on the
bond
b. Less the present value of all future interest payments at the market rate of interest
c. Plus the present value of all future interest payments at the market rate of interest
d. Less the present value of all future interest payments at the rate of interest stated on the
bond

96. When bonds are sold between interest dates, any accrued interest is credited to

a. Interest payable
b. Bonds payable
c. Interest receivable
d. Interest revenue

97. When interest expense is calculated using the effective interest method, interest expense
equal the

a. Maturity value of the bonds multiplied by the effective interest rate

b. Actual amount of interest paid
c. Book value of the bonds multiplied by the stated interest rate
d. Book value of the bonds multiplied by the effective interest rate

98. Bonds Payable has a balance of P1,000,000 and Discount on Bonds Payable has a balance of
P12,500. If the issuing corporation redeems the bonds at 98, what is the amount of gain or
loss on redemption?

a. P 7,500 gain
b. P34,500 loss
c. P 7,500 loss
d. P34,500 gain

99. The present value of P30,000 to be received in two years, at 12% compounded annually, is
(rounded to nearest peso)

a. 37,632
b. 30,000
c. 23,700
d. 23,916

100. On January 1, 2010, Kei Co. sold P1,000,000 of its 10% bonds for P885,296 to yield 12%.
Interest is payable semiannually on January 1 and July 1. What amount should Kei report as
interest expense for the six months ended June 30, 2010?
 a. 50,000
b. 60,000
c. 53,118
d. 44,266

SOLUTION:

P885,296 × .06 = P53,118

101. Balance sheet and income statement data indicate the following:

Bonds payable, 6% (issued 2000, due 2020) P1,200,000

Preferred
Preferred 8% stock, P100 par (no change during the year) 200,000
Common stock, P50 par (no change during the year) 1,000,000
Income before income tax for year 340,000
Income tax for year 80,000
Common dividends paid 60,000
Preferred
Preferred dividends paid 16,000

What is the number of times bond interest charges were earned (round to two decimal
places)?

a. 4.72
b. 5.72
c. 6.83
d. 4.83

102. The proceeds from a bond issued with nondetachable share warrants shallbe accounted
for

a. Entirely as shareholders’ equity

b. Partly as unearned revenue and partly as bonds payable
c. Entirely as bonds payable
d. Partly as bonds payable and partly as stockholders’ equity

103. Bonds Payable has a balance of P900,000 and Premium on Bonds Payable has a balance
of P10,000. If the issuing corporation redeems the bonds at 102, what is the amount of gain
or loss on redemption?

a.
b. P1,100
P1,100 gain
loss
c. P8,000 gain
d. P8,000 loss
104. On January 1, 2010, Jomar Co. issued its 10% bonds in the face amount of P3,000,000,
which mature on January 1, 2020. The bonds were issued for P3,405,000 to yield 8%,
resulting in bond premium of P405,000. Jomar uses the effective-interest method of
amortizing bond premium. Interest is payable annually on December 31. At December 31,

2010, Jomar's adjusted unamortized bond premium should be

a. 364,500
b. 304,500
c. 377,400
d. 405,000

SOLUTION:

P405,000 - [(P3,000,000 × .10) - (P3,405,000 × .08)] = P377,400

105. The journal entry a company records for the payment of interest, interest expense, and
amortization of bond premium is

a. debit Interest Expense, credit Cash

b. debit Interest Expense, credit Interest Payable and Premium on Bonds Payable
c. debit Interest Expense, credit Cash and Premium on Bonds Payable
d. debit Interest Expense and Premium on Bonds Payable, credit Cash

106. The debt to total assets

a ssets ratio is computed by dividing

a. total liabilities by total assets

b. current liabilities by total assets
c. long-term liabilities by total assets
d. total assets by total liabilities

107. An entity incurred printing and engraving, and registration cost in selling bonds. What
will be the effect of these costs on the interest rate of the bonds?

a. It will decrease the effective interest rate

b. It will increase the effective interest rate.
c. It will have no effect on either effective or nominal interest rate.
d. It will increase the nominal interest rate.

108. Selling the bonds at a premium has the effect of

a. increasing the amount of cash paid for interest each 6 months.

b. causing the total cost of borrowing to be higher than the bond interest paid.

c. raising the effective interest rate above the stated interest rate.
d. causing the total cost of borrowing to be lower than the bond interest paid.
109. On January 1, 2013, Romeo Co. issued eight-year bonds with a face value of P1,000,000
and a stated interest rate of 6%, payable semiannually on June 30 and December 31. The
bonds were sold to yield 8%. Table value
valuess are:

Present value of 1 for 8 periods at 6% .627

Present value of 1 for 8 periods at 8% .540

Present value of 1 for 16 periods at 3% .623
Present value of 1 for 16 periods at 4% .534
Present value of annuity for 8 periods at 6% 6.210
Present value of annuity for 8 periods at 8% 5.747
Present value of annuity for 16 periods at 3% 12.561
Present value of annuity for 16 periods at 4% 1.652

The present value of the principal is

a. 534,000
b. 540,000
c. 627,000
d. 623,000

SOLUTION:

1,000,000 × .534 = 534,000

110. If bonds are issued at a premium, this indicates that

a. The nominal rate of interest exceeds the yield rate

b. No necessary relationship exists between the two rates
c. The yield rate of interest exceeds the nominal rate
d. The yield and nominal rates coincide

111. Which of the following is not an advantage of issuing bonds instead of common stock?

a. Tax savings result

b. Earnings per share on common stock may be lower.
c. Stockholder control is not affected.
a ffected.
d. Income to common shareholders may increase.

112. Cyril Company issues P5,000,000 face value of bonds at 96 on January 1, 2009. The bonds
are dated January 1, 2009, pay interest semiannually at 8% on June 30 and December 31, and

mature in 10 years. Straight-line amortization is used for discounts aand

nd premiums. On
September
Septemb er 1, 2012, P3,000,000 of the bonds are called at 102 plus accrued interest. What gain
or loss would be recognized on the called bonds on Septembe
Septemberr 1, 2012?

a. P136,000 loss
b. P226,667 loss
c. P180,000 loss
d. P300,000 loss

SOLUTION:

{P4,800,000 + [P200,000 × (3 2/3 ÷ 10)]} × .60 = P2,924,000 P3,060,000

P3,060,000 - P2,924,000 = P136,000

113. An example of an item which is not a liability is

a. dividends payable in stock.

 b. advances from customers on contracts.
c. accrued estimated warranty costs.
d. the portion of long-term debt due within one year

114. Note disclosures for long-term debt generally include all of the following except

a. call provisions and conversion privileges

b. restrictions imposed by the creditor
c. names of specific creditors
d. assets pledged as security

115. A 20 year bond was issued at a premium with a call provision to retire the bonds. When
the bond issuer exercised the call provision on an interest date, the call rpice exceeded the
carrying value of the bonds. The amount of the bond liability removed from the accounts
should have equaled the

a. Call price plus unamortized premium

b. Current market price
c. Cash paid
d. Face amount plus unamortized premium

116. On January 1, 2011, Kareen Company issued its 10% bonds in the face amount of
P1,000,000 that mature on January 1, 2021. The bonds were issued for P886,000 to yield 12 %
resulting in bond discount of P114,000. Kareen Company uses the interest method of
amortizing bond discount. Interest is payable on January 1 and July 1.For the year ended
Decemberr 31, 2011, Kareen should report bond interest expense at
Decembe

a. 106,510
b. 50,000
c. 53,160
d. 100,000

SOLUTION:

Date Interest paid Interest expense Discount Amortization Book value

Jan 1, 2011 886,000
July 1, 2011 50,000 53,160 3,160 889,160
Jan 1, 2012 50,000 53,350 3,350 892,510
Total 100,000 106,510 6,510

Interest paid (1,000,000 x 10% x 6/12) 50,000

Interest expense
886,000 x 12% x 6/12 53,160
889,160 x 12% x 6/12 53,350
106,510

117. On January 1, 2010, Fracy Co. issued eight-year bonds with a face value of P1,000,000
and a stated interest rate of 6%, payable semiannually on June 30 and December 31. The
bonds were sold to yield 8%. Table value
valuess are:

Present value of 1 for 8 periods at 6% .627

Present value of 1 for 8 periods at 8% .540
Present value of 1 for 16 periods at 3% .623
Present value of 1 for 16 periods at 4% .534
 Present value of annuity for 8 periods at 6% 6.210
Present value of annuity for 8 periods at 8% 5.747
Present value of annuity for 16 periods at 3% 12.561
Present value of annuity for 16 periods at 4% 11.652

The present value of the interest is

a. 376,830
b. 344,820
c. 372,600
d. 349,560

SOLUTION:

(P1,000,000 × .03) × 11.652 = P349,560

118. The effective interest rate on bonds is higher than the stated rate when bonds sell

a. Above face value

b. At face value
c. Below face value
d. At maturity Value

119. What is the market rate of interest for a bond issue which sells for more than its par
value?

a. Independent of rate stated on the bond

b. Equal to rate stated on the bond
c. Higher than rate stated on the bond
d. Less than rate stated on the bond

120. Willy Co. took advantage of market conditions to refund debt. This was the fourth
refunding operation carried
carried out by Willy within the last three years. The excess of the
carrying amount of the old debt over the amount paid to extinguish it should be reported as
a

a. part of continuing operations

b. gain, net of income taxes
c. loss, net of income taxes
d. deferred credit to be amortized over the life of the new debt

121. A corporation issues for cash P1,000,000 of 8%, 20-year bonds, interest payable annually,
at a time when the market rate of interest is 7%. The straight-line method is adopted for the
amortization of bond discount or premium. Which of the following statements is true?

a. The carrying amount increases from its amount at issuance date to P1,000,000 at
maturity.
b. The amount of annual interest expense decreases as the bonds approach maturity.
c. The amount of annual interest paid to bondholders incre
increases
ases over the 20
20-year
-year life of the
bonds.
d. The carrying amount decreases from its amount at issuance date to P1,000,000 at
maturity.

122. Which of the following must be disclosed relative to long-term debt maturities and
sinking fund requirements?
 a. The amount of future payments for sinking fund requirements and long-term debt
maturities during each of the next five years

b. The amount of scheduled interest payments on long-term debt during each of the next
five years
c. The present value of future payments for sinking fund requirements and long-term
long -term debt
maturities during each of the next five years
d. The present value of scheduled interest payments on long-term debt during each of the
next five years

123. When the market rate of interest was 12 12%,

%, Newman Corporation issued P1,000,000, 11%,
10-year bonds that pay interest annually. The selling price of this bond issue was

a. 321,970
b. 943,494
c. 621,524
d. 1,000,000

124. A corporation issues for cash P8,000,000 of 8%, 30-year bonds, interest payable
semiannually. The amount received
received for the bonds will be

a. present value of 30 annual interest payments of P640,000

b. present value of 30 annual interest payments of P640,000, plus present value of
P8,000,000 to be repaid in 30 years
c. present value of 60 semiannual interest payments of P320,000, plus present value of
P8,000,000 to be repaid in 30 years
d. present value of P8,000,000 to be repaid in 30 years, less present value of 60 semiannual
interest payments of P320,000

125. The journal entry a company records for the payment of interest, interest expense, and
amortization of bond discount is

a. debit Interest Expense and Discount on Bonds Payable, credit Cash

b. debit Interest Expense, credit Cash and Discount on Bonds Payable
c. debit Interest Expense, credit Cash
d. debit Interest Expense, credit Interest Payable and Discount on Bonds Payable

126. The issuer of a 10 year term bond sold at par three years ago with
wi th interest payable May 1
and November 1 each year shall report in its Decembe
Decemberr 31 balance sheet

a. Contingent liability
b. Liability for accrued interest
c. Addition to bonds payable
d. Increase in deferred charges
127. When the market rate of interest was 11%, Welch Corporation issued P100,000, 8%, 10-
year bonds that pay interest semiannually. Using the straight-line method, the amount of
discount or premium to be amortized each interest period would be

a. 17,926
b. 4,000
c. 896
d. 1,793

128. An entity neglected to amortize the discount on outstanding bonds payable. What is the
effect of the failure to record discount amortization on interest expense and bond carrying
value, respectivel
respectively?
y?

a. Overstate and understate

b. Overstate and overstate
c. Understate and understate
d. Understate and overstate

129. A P300,000 bond was redeemed at 103 when the carrying value of the bond was
P311,000. The entry to record the redemption would include a

a. gain on bond redemption of P9,000.

b.
c. gain onbond
loss on bondredemption
redemptionof
ofP9,000.
P2,000.
d. loss on bond redemption of P2,000.

130. Unamortized debt discount shall be reported in the balance sheet of the issuer as a

a. Direct deduction from the face value of the debt

b. Direct deduction from the present value of the debt
c. Deferred charge
d. Part of the issue costs

131. The entry to record the amortization of a discount on bonds payable is

a. debit Interest Expense, credit Discount on Bonds Payable

b. debit Interest Expense, credit Cash
c. debit Bonds Payable, credit Interest Expense
d. debit Discount on Bonds Payable, credit Interest Expense

132. Which of the following is true of a premium on bonds payable?

 a. The premium on bonds payable is an account that appears only on the books of the
investor
b. The premium or bonds payable is a contra stockholders’ equity account
c. The premium on bonds payable decreases
decreases when amortization
a mortization entries are made until its
balance reaches
reaches zero at the maturity date.
d. The premium on bonds payable increases when amortization entries are made until it
reaches its maturity value

133. The times interest earned ratio is computed by dividing

a. income before income taxes and interest expense by interest expense

b. income before taxes by interest expense
c. net income and interest expense by interest expense
d. net income by interest expense

134. On June 30, 2011, William Co. had outstanding 8%, P3,000,000 face amount, 15-year
bonds maturing on June 30, 2021. Interes
Interestt is payable on June 30 and Decembe
Decemberr 31. The
unamortized balances in the bond discount and deferred bond issue costs accounts on June
30, 2011 were P105,000 and P30,000, respectively. On June 30, 2011, William acquired all of
these bonds at 94 and retired them. What net carrying amount should be used in computing
gain or loss on this early extinguishment of debt?

a. 2,820,000
b. 2,895,000
c. 2,865,000

d. 2,970,000
SOLUTION:

P3,000,000 - (P105,000 + P30,000) = P2,865,000

135. How would the amortization of premium on bonds payable affect each of the following?

a. Carrying value of the bond (Decrease); Net income (Decrease)

b. Carrying value of the bond (Increase); Net income (Increase)
c. Carrying value of the bond (Decrease)
(Decrease);; Net income (Increase)
d. Carrying value of the bond (Increase); Net income (Decrease)

136. The net amount of a bond liability that appears in the balance sheet is the

a. Face value of the bond plus related discount or minus related premium
b. Call price of the bond plus bond discount or minus bond premium
c. Face value of the bond plus related premium or minus related discount

d. Maturity value of the bond plus related discount or minus related premium

137. A bond issued on June 1 of the current year has interest payment dates of April 1 and
October 1. Bond interest expense for the current year ended December 31 is for a period of

a. 3 months
b. 7 months
c. 6 months
d. 4 months
138. Mark Company's December 31, 2012 statement of financial position contained the
following items in the long-term liabilities section:

9% Registered debenture
debentures,
s, callable in 2013, due in 2015 3,500,000
11% Collateral trust
trust bond, cconvertible
onvertible into ordinary shares be
beginning
ginning in 3,000,000
2013, due in 2016
10% Subordinate debenture
debenturess (P500,000 maturing annually beginning 2013) 1,500,000

What is the total amount of terms bonds?

a. 3,500,000
b. 3,000,000
c. 5,000,000
d. 6,500,000

139. When the market rate of interest was 11%, Waverly Corporation issued P1,000,000, 12%,
8-year bonds that pay interest semiannually. The selling price of this bond issue was

a. 1,000,000
b. 720,495
c. 1,052,310
d. 1,154,387

140. On January 1, 2004, Allan Corporation issued P4,500,000 of 10% ten-year bonds at 103.
The bonds are callable at the option of Allan at 105. Allan has recorded amortization of the
bond premium
premium on the str
straight-line
aight-line method (which was not materially diff
different
erent from th
thee
effective-interest
effective-interest method).

On December 31, 2010, when the fair market value of the

t he bonds was 96, Allan repurchased
P1,000,000 of the bonds in the open market at 96. Allan has recorded interest and
amortization for 2010. Ignoring income taxes and assuming that the gain is material, Allan
should report this reacquisition as:

a. a loss of P61,000
b. a gain of P61,000
c. a gain of P49,000
d. a loss of P49,000

141. A corporation called an outstanding bond obligation four years before maturity. At that
time there was an unamortized discount of P300,000. To extinguish this debt, the company
had to pay a call premium of P100,000. Ignoring income tax considerations, how should
these amounts be treated for accounting purp
purposes?
oses?

a. Charge P400,000 to a loss in the year of extinguishment

b. Amortize P400,000 over four years
c. Either amortize P400,000 over four years or charge P400,000 to a loss immediately
immediately,,
whichever management selects
d. Charge P100,000 to a loss in the year of extinguishment and amortize P300,000 over four
years

SOLUTION:

P300,000 + P100,000 = P400,000

142. The covenants and other terms of the agreement between the issuer of bonds and the
 lender are set forth in the
t he

a. bond coupon
coupon
b. registered bond
c. bond indenture
indenture
d. bond debenture
debenture

143. The main role of the trustee for debenture holders is to protect the interests of:

a. employees.
b. debenture holders.
c. directors.
d. suppliers.

144. The interest expense recorded on an interest payment date is increased

a. by the amortization
amortization of discount
discount on bonds payable.
payable.
b. only if the market rate of interest is less than the stated rate of interest on that date.
c. by the amortization
amortization of pre
premium
mium on bonds payable.
d. only if the bonds were sold at face value.

145. The discount resulting from the determination of the present value of a note payable
shall be reported in the statement of financial position as

a. Deferred charge separate from the note

b. Direct deduction from the face amount of the note
c. Deferred credit separate from the note
d. Addition to the face amount of the note.

146. On January 1, 2010, Edwin Company sold property to Fredie Company which originally
cost Edwin P760,000. There was no established exchange price for this property. Danis gave
Edwin a P1,200,000 zero-interest-bearing note payable in three equal annual installments of
P400,000 with the first payment due December 31, 2010. The note has no ready market. The
prevailing rate of interest for a note of this type is 10%. The present value of a P1,200,000
note payable in three equal annual installments of P400,000 at a 10% rate of interest is
P994,800. What is the amount of interest income that should be recognized by Edwin in

2010, using the effective-

effective-interest
interest method?
a. 99,480
b. 120,000
c. 0
d. 40,000

147. In recent year Jed Corporation had net income of P250,000, interest expense of P50,000,
and a times interest earned ratio of 9. What was Jed Corporation's income bef
before
ore taxes for
the year?

a. 500,000
b. 450,000
c. 400,000
d. None of the above

148. How would the amortization of discount on bonds payable affect each of the following?

a. Carrying value of bond (Decrease); Net income (Decrease)

b. Carrying value of bond (Increase); Net income (Increase)
 c. Carrying value of bond (Decrease); Net income (Increase)
d. Carrying value of bond (Increase); Net income (Decrease)

149. When the interest payment dates of a bond are May 1 and November 1, and a bond
issue is sold on June 1, the amount of cash received by the issuer will be

a. Increased by accrued interest from May 1 to June 1

b. Decreased by accrued interest from May 1 to June 1

c. Increased by accrued interest from June 1 to November 1

d. Decreased by accrued interest from June 1 to November 1

Difficult:

150. A 10 year term bond was issued at a discount with a call provision to retire the bonds.
When the bond issuer exercised the call provision on an interest date, the carrying amount
of the bond was less than the call price. The amount of bond liability removed from the
accounts should have equaled the

a. Call price less unamortized discount

b. Face amount plus unamortized discount
c. Call price
d. Face amount less unamortized discount

151. For a bond issue which sells for less than its par value the market rate of interest is

a. Dependent on rate stated on the bond

b. Equal to rate stated on the bond
c. Less than rate stated on the bond
d. Higher than rate stated on the bond

152. When bonds are retired prior to maturity with proceeds from a new bond issue,any gain
or loss from the early extinguishment of debt should be

a. Amortized over the remaining original life of the retired bond issue
b. Amortized over the life of the new bond issue
c. Recognized in income from continuing operations in the period of extinguishment
d. Recognized in retained earnings in the period of extinguishment

153. On January 1 of the current year, an entity issued bonds at a discount. The entity
incorrectly used the straight line method instead of the effective interest method to amortize
the discount. How were the following amounts, as of December 31 of the current year
affected by the error?

a. Bond carrying amount (Understated); Retained earnings (Understated)

b. Bond carrying amount (Understated); Retained earnings (Overstated)
c. Bond carrying amount (Overstated); Retained earnings (Understate
(Understated)
d)
d. Bond carrying amount (Overstated); Retained earnings (Overstated)

154. What is the effective interest rate of a bond measured at amortized cost?
 a. The stated rate of the bond
b. The interest rate currenly charged by the entity or by others for similar bond
c. The interest rate that exactly discounts estimated future cash payments through
through the
expected life of the bond or when appropriate, a shorter period to the net carrying
amount of the bond
d. The basic risk-free interest rate that is derived from observable government bond prices.

155. When bonds are redeemed by the issuer prior to their maturity date,any gain or loss on
the redemption is

a. Amortized over the period remaining to maturity and reported as part of income from
continuing operations
b. Reported as component of other comprehensive income
c. Reported as part of income from continuing operations in the period of redemption
d. Amortized over the period remaining to maturity and reported as other comprehe
comprehensive
nsive
income

156. On January 1, 2012, an entity issued bonds at a discount. The bonds mature on
Decemberr 31, 2017. The entity incorrectly used the straight line method instead of the
Decembe
effective interest method to amortize the discount. How is the carrying amount of the bonds
affected by the error?

a. December 31, 2012 (Understated)

(Understated);; December 31, 2017 (Overstated)
b. December 31, 2012 (Overstated); December 31, 2017 (No effect)
c. December 31, 2012 (Overstated); December 31, 2017 (Understated)
d. December 31, 2012 (Understated); December
December 31, 2017 (No effect)

157. If bonds are initially sold at a discount and the straight line method of amortization is
used, interest expense in the earlier years

a. Will be the same as what it would have been had the scientific method of amortization
been used
b. Will be less than the coupon rate of interest.
c. Will exceed what it would have been had the scientific method of amortization been
used
d. Will be less than what it would have been had the scientific method of amortization
been used

Undefined:
158. Glen Company had the following long-term debt:
 Sinking fund bonds, maturing in installments 2,200,000
Industrial revenue bonds, maturing in installments 1,800,000
Subordinated bonds, maturing on a single date 3,000,000

What is the total amount of serial bonds?

a. 3,000,000
b. 4,000,000
c. 4,800,000
d. 7,000,000

159. Zola Company had the following long-term debt:

Bonds maturing in installments, secured by machinery 1,000,000

Bonds maturing on a single date, secured by realty 1,800,000
Collateral trust bonds 2,000,000

What is the total amount of debenture bonds?

a. 2,000,000
b. 1,000,000
c. 1,800,000
d. 0

160. Blue Company reported the following long-term debt on December 31, 2015:

9% registered debenture
debentures,
s, callable in 2016, due in 2017 3,500,000
11% collateral trust bonds, convertibl
convertiblee into ordinary shares beginning
in 2016, due in 2017 3,000,000
10% subordinated debentures, P500,000 maturing annually beginning
in 2016 1,500,000

What is the total amount of term bonds?

a. 3,000,000
b. 3,500,000
c. 5,000,000
d. 6,500,000

161. On March 1, 2015, Cain Company issued at 103 plus accrued interest 4,000 of 9%, P1,000
face value bonds. The bonds are dated January 1, 2015 and mature on January 1, 2025.
Interest is payable semiannually on January 1 and July 1. The entity paid bond issue cost of

P200,000.

What is the net cash received from the bonds issuance?

 a. 4,320,000
b. 4,180,000
c. 4,120,000
d. 3,980,000

162. During the current year, Eddy Company incurred the following costs on connection
with the issuance of bonds:

Promotion cost 200,000

Printing and engraving 150,000
Legal fees 800,000
Fees paid to independent accountants for registration 100,000
Commissions paid to underwriter 1,500,000

What amount should be recorded as bond issue costs to be amortized over the term of the
bonds?

a. 2,550,000
b. 2,750,000
c. 1,500,000
d. 1,050,000

163. On July 1, 2015, Carr Company issued at 104,

10 4, five thousand of 10% P1,000 face value
bonds. The bonds
bonds were issu
issued
ed through an underwriter to whom the eentity
ntity paid b
bond
ond issue
cost of P125,000.

On July 1, 2015, what amount should be reported as bond liability?

a. 4,875,000
b. 5,075,000
c. 5,200,000
d. 5,325,000

164. Aye Company is authorized to issue P5,000,000 of 6%, 10-year bonds dated July 1, 2015
with interest payments on June 30 and December
December 31. When the bonds are issued on
November 1, 2015, the entity received cash of P5,150,000 including accrued interest.

What is the discount or premium from the issuance of the bonds payable?

a. 150,000 bond premium

b. 50,000 bond premium

c. 150,000 bond discount
d. No bond premium and discount

165. In January 1, 2015, Carrow Company issued 10% bonds in the face amount of P1,000,000
that mature on January 1, 2025. The bon
bonds
ds were issued for P886,000 to yield 12%, resulting
resulting
in bond discount of P114,000.

The entity used the interest method of amortizing bond discount. Interest is payable on
January 1 and July 1.

For the year ended Decembe

Decemberr 31, 2015, what amount should be reported as bond interest
expense?

a. 106,510
b. 100,000
 c. 53,160
d. 50,000

166. On January 1, 2015, West Company issued 9% bonds in the face amount of P5,000,000,
which mature on January 1, 2025. The bonds were issued for P4,695,000 to yield 10%.
Interest is payable annually on December 31. The entity used the interest method of
amortizing bond discount.

On December 31, 2015, what is the carrying amount of the bonds payable?

a. 4,695,000
b. 4,714,500
c. 4,704,750
d. 5,000,000

167. Webb Company had an outstanding 7%, 10-year P5,000,000 face value bond. The bond
was originally sold to yield 6% annual interest. The entity used the effective interest method
to amortize bond premium. On January 1, 2015, the carrying amount of the bond payable
was P5,250,000.

What amount of unamortized premium on bond payable should be reported on December

31, 2015?

a. 225,000
b. 172,500
c. 215,000
d. 52,500

168. On December 31, 2015, Marie Company reported bonds payable of P7,360,000 and
accrued interest payable of P200,000. The bonds are retired on December 31, 2015 for
P8,160,000 including accrued interest.

What amount should be reported as gain or loss on extinguishment of bonds payable?

payable?

a. 800,000 gain
b. 800,000 loss
c. 600,000 gain
d. 600,000 loss

169. On December 31, 2015, Boheme Company reported a 9% bonds payable due December
31, 2020 with a carrying amount of P15,405,0
P15,405,000.
00. The bonds were issued on December 31,
2011 and had a face amount of P15,000,000 with interest payable semiannually
semiannually on June 30
and December 31 of each year. On December 31, 2015, the entity retired P5,000,000 of these
bonds at 98.

What amount should be reported as gain or loss on the retirement of the bonds for 2015?

a. 235,000 gain
b. 235,000 loss
c. 100,000 gain
d. 100,000 loss

170. On January 1, 2015,2 015, Luyang Company issued 3-year bonds with face value of P5,000,000
at 98. Additionally, the entity paid bond issue cost of P140,000. The nominal rate is 10% and
the effective rate is 12%. The interest is payable annually on December 31. The entity used
 the effective interest method in amortizing bond discount and issue cost.

What is the carrying amount of the bonds payable on December

December 31, 2015?

a. 4,840,000
b. 4,831,200
c. 4,848,000
d. 5,000,000

171. On January 1, 2015, Masbate Company issued 5-year bonds with face value of P5,000,000
at 110. The entity paid bond issue cost of P80,000 on same date. The stated interest rate on
the bonds is 8% payable annually every DecDecember
ember 31. The bonds are issued to yield 6% per
annum. The entity used the effective interest method of amortization.

On December 31, 2015, what is the carrying amount of the bonds payable?

a. 5,000,000
b. 5,400,000
c. 5,435,200
d. 5,430,000

172. On January 1, 2015, Samal Company issued P5,000,000, 8% serial bonds, to be repaid in
the amount of P1,000,000 each year. Interest is payable annually on December 31. The bonds
were issued to yield 10% a year. The bond proceeds were P4,757,000
P4,757,000 based on the present
value at January 1, 2015 of five annual payments. The entity amortized the bond discount by
the interest method.

On December 31, 2015, what is the carrying amount of the bonds payable?

a. 4,832,700
b. 3,832,700
c. 4,805,600
d. 3,805,600

173. White Company issued P2,000,000 face value of 10-year bonds on January 1. The bonds
pay interest on January 1 and July 1 and had a stated rate of 10%.

If the market rate of interest is 8%, what is the issue price of the bonds?

a. 2,262,000
b. 2,113,000
c. 2,159,000
d. 2,279,000

174. On January 1. 2015, Ezekiel Company receivereceivedd P1,077,200 for P1,000,000 face amount
12% bonds. The bonds were sold to yield 10%. Interest is payable semiannually every
January 1 and July 1. The entity has eelected
lected the fair value optio
option
n for measurin
measuringg the financ
financial
ial
liability.

On December 31, 2015, the fair value of the bonds is determined to be P1,064,600 due to
market and interest factors.

What is the carrying amount of the bonds payable on January 1, 2015?

a. 1,000,000
b. 1,077,200
 c. 500,000
d. 538,600

What is the interest expense for 2015?

a. 120,000
b. 100,000
c. 107,720
d. 129,264

What is the gain or loss from change in fair value of the bonds for 2015?

a. 64,600 gain
b. 64,600 loss
c. 12,600 gain
d. 12,600 loss

What is the carrying amount of the bonds payable on December

December 31, 2015?

a. 1,064,600
b. 1,077,200
c. 1,000,000
d. 1,064,920

175. At the beginning of current year, Taguig Company issued a 3-year bonds with face
value of P5,000,000 at 99. The nominal rate is 10% and the interest is payable annually on
Decemberr 31. Additionally, the entity paid bond issue cost of P150,000.
Decembe

What is the interest expense for the current year using the effective interest method?

a. 550,000
b. 528,000
c. 576,000
d. 559,680

176. Bonds payable not designated at fair value through profit or loss shall be measured
initially at

a. Fair value
b. Fair value plus bond issue cost
c. Fair value minus bond issue cost
d. Face amount

177. After initial recognition, bonds payable shall be measured at

 a. Amortized cost using the effective interest method.
b. Fair value through profit or loss.
c. Amortized cost using the effective interest method and fair value through other
comprehensive
comprehens ive income.
d. Amortized cost using the effective interest method and fair value through profit or loss.

178. The “amortized cost” of bonds payable means

a. Face amount plus premium on bonds payable

b. Face amount minus discount on bonds payable
c. Face amount minus bond issue cost
d. Face amount plus premium on bonds payable, minus discount on bonds payable and
minus bond issue cost

179. Which is a true statement for electing the fair value option for measuring bonds
payable?

a. The effective interest method of amortization must be used to calculate interest expense.
b. Discount or premium is disclosed in the notes to the financial statements.
c. The fair value of the bond and the principal obligation must be disclosed.
d. If the fair value option is elected, it must be applied to all bonds.

180. Under the fair value option, bonds payable shall be measured initially at
a. Fair value
b. Fair value plus bond issue cost
c. Fair value minus bond issue cost
d. Face amount

181. Costs incurred in connection with the issuance of ten-year bonds which sold at a slight
premium shall be

a. Charged to retained earnings

b. Expensed in the year incurred
c. Capitalized as organization cost
d. Reported as a deduction from bonds payable

182. How would the amortization of premium on bonds payable affect the carrying amount
of bond and net income, respectively?

a. Increase and decrease

b. Increase and increase
c. Decrease and decrease
 d. Decrease and increase

183. How would the amortization of discount on bonds payable affect the carrying amount
of bond and net income, respectively?

a. Increase and decrease

b. Increase and increase
c. Decrease and decrease
d. Decrease and increase

184. Which of the following statements is true regarding accrued interest on bonds that are
sold between interest dates?

a. The accrued interest is computed at the effective rate.

b. The accrued interest will be paid to the seller when the bonds mature.
c. The accrued interest is extra income to the buyer.
d. All of the statements are not true.

185. The proceeds from the sale of bonds

a. Will always be equal to the face amount

b. Will always be less than the face amount
c. Will always be more than the face amount
d. May be equal to or more than or less than the face amount depending on market interest
rate

186. An extinguishment of bonds payable originally issued at a premium is made by

purchase of the bonds between interest dates. Which of the following statements is true at
the time of extinguishme
extinguishment?
nt?

a. Any costs of issuing the bonds must be amortized up to the purchase date.
b. The premium must be amortized up to the purchase date.
c. Interest must be accrued from the last interest date to the purchase date.
d. All of these statements are true.

187. Bonds for which the bondholders’ names are not registered with the issuer are called

a. Bearer bonds
b. Term bonds
c. Debenture bonds
d. Serial bonds

188. Bonds that pay no interest unless the issuer is profitable are known as

a. Registered bonds
b. Junk bonds
c. Mortgage bonds
d. Income bonds

189. On theory, the proceeds from the sale of a bond would be equal to

a. The face amount of the bond

 b. The present value of the principal amount due at the end of the life of the bond plus the
present value of the interest payments made during the life of the bond
c. The face amount of the bond plus the present value of the interest payments made
during the life of the bond
d. The sum of the face amount of the bond and the periodic interest payments

190. Under international accounting standard, the valuation method used for bonds payable
is

a. Historical cost
b. Discounted cash flow valuation at current yield rate
c. Maturity amount
d. Discounted cash flow valuation at yield rate at issuance

191. An entity issued a bond with a stated rate of interest that is less than the effective
interest rate on the date of issuance. The bond was issued on one of the interest payment
dates. The bond was issued on one of the interest payment dates. What should the entity
enti ty
report on the first interest payment date?

a. An interest expense that is less than the cash payment made to bondholder
bondholders.
s.
b. An interest expense that is greater than the cash payment made to bondholders.
c. A debit to the unamortized bond discou
discount.
nt.
d. A debit to the unamortized bond premium.

192. A five-year term bond was issued on January 1, 2012 at a premium. The carrying
amount of the bond on December 31, 2013 would be

a. The same as the carrying amount on January 1, 2013

b. Higher than the carrying amount on January 1, 2013
c. Higher than the carrying amount on December 31, 2014
d. Lower than the carrying amount on December 31, 2014

193. A five-year term bond was issued on January 1, 2012 at a discount. The carrying amount
of the bond on December 31, 2013 would be

a. Higher than the carrying amount on January 1, 2013

b. Lower than the carrying amount on January 1, 2013
c. The same as the carrying amount on January 1, 2013
d. Higher than the carrying amount on December 31, 2014

194. On January 1, 2016, Mariel Company issued bonds payable with face amount of
P8,000,000 and 10% stated interest rate at 95.
95 . The bonds have a 5 -year term and interest is
payable annually every December 31. The entity elected the fair value option. On December
31, 2016 the fair value of the bonds is 105. It is reliably determined that the fair value
increase comprised P150,000 attributable to credit risk and the remainder attributable to
change in the market interest rate.

What amount of gain or loss should be recognized in profit or loss for 2016 to conform with
the fair value option?

a. 650,000 gain
b. 650,000 loss
c. 800,000 gain
d. 800,000 loss

195. When interest expense for the current year is more than interest paid, the bonds
 were issued at

a. A discount
b. A premium
c. Face amount
d. Cannot be determined

196. When interest expense for the current year is less than interest paid, the bonds
were issued at

a. A discount
b. A premium
c. Face amount
d. Cannot be determined

197. When the effective interest method is used, the periodic amortization would

a. Increase if the bonds were issued at a discount

b. Decrease if the bonds were issued at a premium
c. Increase if the bonds were issued at a premium
d. Increase if the bonds were issued at either a discount or a premium

198. A discount on bond payable is charged to interest expense

a. Equally over the life of the bond

b. Only in the year the bond is issued
c. Using the effective interest method
d. Only in the year the bond matures

199. On January 1, 2016, Rizal CompCompanyany issued 4-year bonds with face amount of P4,000,000
P4,000,000
at P4,395,800. The 12% stated rate is payable semiannually every June 30 and December
December 31.
In addition, the entity paid P137,430 in connection with the issuance of the bonds.

What is the effective rate of interest on the bonds on the date of issue?

a. 12%

b. 11%
c. 10%
d. 9%

200. On January 1, 2016, Taguig Company issued 3-year bonds with face amount of
P5,000,000 at 99. The nominal rate is 10% and the interest is payable annually on December
December
31. The entity paid bond issue cost of P150,000.

What is the interest expense for 2016 using the effective interest method? (round off present
value factors to four decimal places)

a. 550,000
b. 528,000
c. 576,000
d. 559,680
Liabilities

Problem: Ducky Company

Ducky Company reported the following information

in formation at the end of reporting period:

Accounts Payable 1,000,000

Advances to employees 45,000

Unearned rent revenue 300,000

Estimated liability under warranties 250,000

Cash surrender value of officer’s life i nsurance 75,000

Bonds payable 5,000,000

Discount on bonds payable 500,000

Trademark 50,000

What amount should be reported in the statement of financial position as total liabilities?

Answer: 6,050,000

Problem: Burma Company

Burma Company disclosed the following information about liabilities at year-end:

Accounts payable, after deducting debit balances

in suppliers’ accounts amounting to P100,000 4,000,000

Accrued expenses 1,500,000

Credit balances of customers’ accounts 500,000

Share dividend payable 1,000,000

Claims for increase in wages and allowance by

 employees of the entity covered in a pending lawsuit 400,000

Estimated expenses in redeeming prize coupons presented

by customers 600,000

What total amount should be presented as current liabilities at year-end?

Answer: 6,700,000

Problem: Mill Company

Mill Company revealed the following account balances on December 31, 2017:

Accounts payable 1,500,000

Bonds payable, due 2018 2,500,000

Discount on bonds payable 300,000

Dividends payable 800,000

Note payable, due 2019 2,000,000

What total amount should be reported as current liabilities?

Answer: 4,500,000

Problem: Gar Company

Gar Company disclosed the following liability account balances on December 31, 2017:

Accounts payable 1,900,000

Bonds payable 3,400,000

Premium on bonds payable 200,000

Defered tax liability 400,000

Dividends payable 500,000

Income tax payable 900,000

Note payable, due January 31, 2018 600,000

The deferred tax liability is based on temporary differences that will reverse in 2019.

On December 31, 2017, what total amount should be reported as current liabilities?

Answer: 3,900,000

Problem: Bake Company

Accounts payable 800,000

Bonds payable, due 2018 3,000,000

Premium on bonds payable 150,000

Deferred tax liability 250,000

The deferred tax liability is not related to an asset for financial accounting purposes and is expected to
reverse in 2018.

What total amount should be reported as current liabilities on December 31, 2017?

Answer: 3,950,000

Problem: Grace Company

Grace Company reported the following liability account balances on December 31, 2017:
Accounts payable 2,000,000

Bonds payable, due 2018 4,000,000

Discount on bonds payable 400,000

Deferred tax liability 500,000

Dividend payable due on February 15, 2019 1,000,000

Income tax payable 800,000

Note payable due in January 15, 2019 1,200,000

What total amount should be reported as current liabilities on December 31, 2017?

Answer: 6,400,000

Problem: Brite Company

Brite Company reported the following liabilities on December 31, 2017:

Accounts payable 550,000

Unsecured note payable, 8%, due July 1, 2018 4,000,000

Accrued expenses 350,000

Contingent liability 450,000

Deferred tax liability 250,000

Senior bonds payable, 7% due March 31, 2018 5,000,000

What total amount should be reported as current liabilities?

Answer: 9,900,000

Problem: Gumamela Company

Gumamela Company provided the following data on December 31, 2017:

Trade accounts payable, including cost of goods

 received on consignment of P150,000 1,350,000

Accrued taxes payable 125,000

Customers’ deposit 100,000

Gumamela Company as guarantor 200,000

Bank overdraft 55,000

Accrued electric and power bills 60,000

Reserve for contingencies 150,000

What total amount should be reported as current liabilities?

Answer: 1,540,000

Problem: Able Company

Able Company had the following accounts of long-term debt outstanding on December 31, 2017:

14% term note, due 2018 30,000

11% term note, due 2020 1,070,000

8% note, due in 11 equal annual principal

p rincipal payments,

plus interest beginning December 31, 2018 1,100,000

7% guaranteed debentures, due 2019 1,000,000

Total 3,200,000

The annual sinking fund requirement on the guaranteed debentures is P40,000 per year.

What total amount should be reported as current liabilities on December 31, 2017?
Answer: 130,000

Problem: Tagkawayan Company

Tagkawayan Company reported the following liability balances on December 31, 2017:

12% note payable issued on March 1, 2016, maturing

on March 1, 2018 5,000,000

10% note payable issued on October 1, 2016, maturing

October 1, 2018 3,000,000

The 2017 financial statements were issued on March 31, 2018.

On January 31, 2018, the entire P5,000,000 balance of the 12% note payable was refinanced through
issuance of a long-term obligation payable lump sum.

Under the loan agreement for the 10% note payable, the entity has the discretion to refinance the
obligation for at least twelve months after December 31,2017?

Answer: 5,000,000

Problem: Witt Company

Witt Company reported the following liability account balances on December 31, 2017:

6% note payable issued October 1, 2016

maturing October 1, 2018 500,000

8% note payable issued April 1, 2016

maturing April 1, 2018 800,000

The 2017 financial statements were issued on March 31, 2018.

On March 1, 2018, the entire P800,000 balance of 8% note was refinanced by issuance of a long-term
obligation payable lump sum.

On December 31, 2017, what amount of the notes payable should be

b e classified as current?

Answer: 1,300,000

Problem: Eliot Company

Eliot Company reported the following liabilities on December 31, 2017:

Accounts payable and accrued interest 1,000,000

12% note payable issued November 1, 2016

maturing July 1, 2018 2,000,000

10% debentures payable, next annual principal

installment of P500,000 due on February 1, 2018 7,000,000

On December 31, 2017, the entity consummated a noncancelable agreement with the lender to
refinance the 12% note payable on a long-term basis.

On December 31, 2017, what total amount should be reported as current liabilities?

Answer: 1,500,000

Problem: Largo Company

On December 31, 2017, Largo Company had a P750,00 0 note payable outstanding due July 31, 201 8. The

entity planned to refinance the note by issuing long-term bonds.

Because the entity temporarily had excess cash, it prepaid P250,000 of the note on January 15, 2018.

In February 2018, the entity completed a P1,500,000 bond offering. The entity will use the bond offering
proceeds to repay the note payable at maturi ty.

On March 31, 2018, the 2017 fi nancial statements were authorized for issue.

What amount of the note payable should be included in current liabilities on December 31, 2017?

Answer: 750,000

Problem: Dean Company

Dean Company has a P2,000,000 note payable due June 30, 2018. On December 31, 2017, the entity
signed an agreement to borrow up to P2,000,000 to refinance the note payable on a long-term basis.

The financing agreement called for borrowing not to exceed 80% of the value of the collateral the entity
was providing.

On December 31, 2017, the value of the collateral was P1,500,000.

On December 31, 2017, what amount of the note payable should be reported as current liability?

Answer: 800,000

Problem: Dana Company

Dana Company had P2,000,000 note payable due on June 30, 2018. Under the existing loan facility, the
entity had the discretion to refinance or roll over the note payable for at least twelve months after the
end of reporting period.

On December 31, 2017, what amount of the note payable should be reported as noncurrent liability?

Answer: 2,000,000

Problem: Willen Company

Willen Company reported the following liabilities on December 31, 2017.

Accounts payable 750,000

Short-term borrowings 400,000

Mortgage payable, current portion P100,00 3,500,000

Bank loan payable, due June 30, 2018 1,000,000

The P1,000,000 bank loan was refinanced with a 5-year loan on January 15, 2018, with the first principal
payment due January 15, 2019.

The financial statements were issued February 28, 2018.

What total amount should be reported as current liabilities on December 31, 2017?

Answer: 2,250,000
Effective Interest Method

Problem: Marsh Company

On January 1. 2019, Marsh Company issued 10% bonds payable in the face amount of P6,000,000. The
bonds mature on January 1, 2029. The bonds were issued P5,316,000 to yield 12% resulting in bond
discount of P684,000. The entity used the effective interest method of amortizing bond discount.
Interest is payable semiannually on January 1 and July 1.

For the six months ended June 30, 2019, what amount should be reported as bond interest expense?

Answer: 318,960

Problem: Tara Company

On July 1, 2019, Tara Company issued 4,000 bonds of 8%, P1,000 face amount for P3,504,000. The
bonds were issued to yield 10%. The bonds are dated July 1, 2019 and mature on July 1, 2028. Interest is
payable semiannually on January 1 and July 1.

What amount of the bond discount should be amortized for the six months ended December 31, 2019?

Answer: 15,200

Problem: Moon Company

On January 1, 2019, Moon company issued 10% bonds payable in the face amount of P4,500,000. The
bonds mature on January 1, 2029. The bonds were issued for P3,987,000 to yield 12%, resulting in bond
discount of P513,000. The entity used the effective interest method of amortizing bond discount.
Interest is payable semiannually on January 1 and July 1.

For the six months ended June 30, 2019, what amount should be reported as bond interest expense?

Answer: 239,220

Problem: Ward Company

On January 1, 2019, Ward Company issued 9% bonds with face amount of P4,000,000, which mature on
January 1, 2029. The bonds were issued for P3,756,000 to yield 10%, resulting on bond discount of
P244,000. The entity used the interest method of amortizing bond discount. Interest is payable annually
on December 31.

1. On December 31, 2019, what is the balance of the discount on bonds payable?
Answer: 228,400

2. What is the carrying amount of bonds payable on December 31, 2019?

Answer: 3,771,600

Problem: Wolf Company

On January 1, 2019, Wolf Company issued 10% bonds in the face amount of P5,000,000, which mature
on January 1, 2029. The bonds were issued for P5,675,000 to yield 8%, resulting on bond premium oh
P675,000,000. The entity used the interest method pf amortizing bond premium. Interest is payable
annually on December 31.

1. On December 31, 2019, what is the balance of the premium on bonds payable?
Answer: 629,000

2. What is the carrying amount of bonds payable on December 31, 2019?

Answer: 5,629,000

Problem: Webb Company

Webb Company has outstanding 7%, 10-year P5,000,000 face amount bond. The bond was originally
sold to yield 6%annual interest. The entity used the effective interest method to amortized bond
premium. On January 1, 2019, the carrying amount of the outstanding bond was P5,250 ,000.

1. What amount of premium on bond payable should be reported on December 31, 2019?
Answer: 215,000
 2. What is the carrying amount of bonds payable on December 31, 2019?
Answer: 5,215,000

Problem: West Company

On January 1, 2019, West Company issued 9% bonds in the face amount of P5,000,000, which mature on
January 1, 2029. The bonds were issued for P4,695,000 to yield 10%. Interest is payable annually on
December 31. The entity used the interest method.

1. What is the interest expense for 2019?

Answer: 450,000

2. What is the carrying amount of the bonds payable on December 31, 2019?
Answer: 4,704,750

Problem: Luyang Company

On January 1, 2019, Luyang Company issued 3-year bonds with face amount of P5,000,000 at 98.
Additionally, the entity paid bond issue cost of P140,000.

The nominal rate is 10% and the effective rate after considering the bond issue cost is 12%. The interest
is payable annually on December 31. The entity used the effective interest method.

What is the carrying amount of the bonds payable on December 31, 2019?

Answer: 4,831,200

Problem: Carol Company

On January 1, 2019, Carol Company issued 10% bonds in the face amount of P5,000,000 that mature on
January 2025. The bonds were issued for P4,580,000 to yield 12% resulting in bond discount of
P420,000.

The entity used the interest method. Interest is payable semiannually on January 1 and July 1.

1. What amount should be reported as interest expense for 2019?

Answer: 551,088

2. What is the carrying amount of the bonds payable on December 31, 2019?
Answer:
Problem: Masbate Company

On January 1, 2019, Masbate Company issued 5-year bonds with face amount of P5,000,000 at 110. The
entity paid bond issue cost of P80,000 on same date.

The stated interest rate on the bonds is 8% payable annually every December 31.

The bonds are issued to yield 6% per annum after considering the bond issue cost. The entity used the
effective interest method of amortization.

On December 31, 2019, what is the carrying amount of the bonds payable?

Answer: 5,345,200

Problem: Bontoc Company

On January 1, 2019, Bontoc Company issued P5,000,000, 8% serial bonds to be repaid in the amount of
P1,000,000 each year. Interest is payable annually on December 31. The bonds were issued to yield 10%
a year.

The bonds proceed were P4,757,000 based on the present value at January 1, 2019 of five annual
payments. The entity amortized the bond discount by the interest method.

On December 31, 2019, what is the carrying amount of the bonds payable?

Answer: 3,832,700

Problem: Moon Company