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PHINMA UNIVERSITY OF PANGASINAN 5. In calculating the carrying amount of the loan, the lender
ACC106 INTERMEDIATE ACCOUNTING 1
P3-EXAMINATION
NAME: _______________________________________
SECTION: _____________________________________
MCQ (60 items)
Encircle the letter of your answer. ERASURES are considered
wrong. Any form of cheating is PROHIBITED and will be dealt
in accordance with the University Student Manual.
1. On July 1, 2020, a company obtained a two-year 8% note
receivable for services rendered. At that time, the market
rate of interest was 10%. The face amount of the note and
the entire amount of the interest are due on June 30, 2022.
Interest receivable at December 31, 2020, was
a. 5% of the face value of the note.
b. 4% of the face value of the note.
c. 5% of the July 1, 2020 present value of the amount due on
June 30, 2012.
a. d. 4% of the July 1, 2020 present value of the amount due
on June 30, 2022.
2. Which of the following is true regarding non-interest
bearing note receivables?
a. they are always discounted to their present value on initial
recognition
b. they include a specified principal and specified interest
c. they cause no interest income to be recognized over their
term
d. they include an unspecified principal and an unspecified
interest
Use the following information for the next two questions:
On January 1, 2021, Paul Co. sold transportation equipment
with a historical cost of ₱20,000,000 and accumulated
depreciation of ₱7,000,000 in exchange for cash of ₱500,000
and a noninterest-bearing note receivable of ₱8,000,000 due
in 4 equal annual installments starting on December 31, 2021
and every December 31 thereafter. The prevailing rate of
interest for this type of note is 12%.
3. How much is the interest income in 2021?
a. 728,946
b. 678,334
c. 728,964
d. 704,236
4. How much is the current portion of the receivable on
December 31, 2021?
a. 1,271,036
b. 1,423,560
c. 3,380,102
d. 1,594,388
adds to the principal: (1) Indirect Origination Cost (2) Direct
Origination Cost (3) Origination fees
a. Yes, Yes, Yes
b. Yes, Yes, No
c. No, Yes, No
d. No , Yes, Yes
6. On January 1, 2021, Bryan Bank extended a P4,000,000,
12% loan to Luna, Inc. Bryan Bank incurred direct origination
costs of P365,098 and charged Luna, Inc. 6% origination fees.
The principal on the loan matures in 4-years’ time but the
interests are due annually. The adjusted effective interest
rate is 11%. On Dec. 31, 2022, Bryan Bank assessed that the
loan is credit-impaired. All accrued interest was collected;
however, Bryan Bank waived future interests and
restructured the loan to be payable as follows: P1,000,000 on
Jan. 1, 2023; P1,500,000 on Jan. 1, 2024; and P1,500,000 on
Jan. 1, 2025. The current rate of interest on Dec. 31, 2022 is
10%. How much is the impairment loss in 2021?
a. 365,098
b. 865,714
c. 499,716
d. 499,761
7. Receivables might be sold to
a. lengthen the cash-to-cash operating cycle.
b. take advantage of deep discounts on the cash realizable
value of receivables.
c. generate cash quickly.
d. finance companies at an amount greater than cash
realizable value.
8. An entity sells goods for ₱300,000 to a customer who was
granted a special credit period of 1 year. The entity normally
sells the goods for ₱240,000 with a credit period of one
month or with a ₱20,000 discount for outright payment in
cash. How much is the initial measurement of the receivable?
a. 300,000
b. 240,000
c. 260,000
d. 220,000
9. An entity is a large manufacturer of machines. A major
customer has places an order for a special machine for which
it has given a deposit to the entity. The parties have agreed
on a price for the machine. As per the terms of the sale
agreement, it is FOB or free on board contract and the title
passes to the buyer when goods are loaded into the ship at
the port. When should the revenue be recognized by the
entity?
a. When the customer orders the machine.
b. When the deposit is received.
c. When the machine is loaded at the port.
d. When the machine has been received by the customer.
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Use the following information for the next two questions: a. a periodic inventory system is in use and inventories are
Alas Company, a trading entity, buys and sells Product Zee. required for interim reports.
Movements in the inventory of Product Zee during the period b. inventories have been destroyed or lost by fire, theft or
are as follows: other casualty, and the specific data required for inventory
Date – Transaction – Units-Unit cost – Total cost valuation are not available.
Feb. 1 – Beginning inventory – 1000 – ₱15 – ₱15,000 c. there is a significant change in the mix of products being
Feb. 7 – Purchase – 3000 – 18 – 54,000 sold.
Feb. 12 – Sale – 3200 d. the relationship between the gross profit and sales remains
Feb. 21 – Purchase – 2000 – 21 – 42,000 stable over time.

10. How much is the ending inventory under the FIFO cost
formula?
a. 55,000
b. 56,400
c. 51,800
d. 54,388
11. How much is the ending inventory under the Weighted
Average cost formula? (The average is calculated on a
periodic basis.)
a. 55,000
b. 56,400
c. 51,800
d. 54,388
12. This costing method is appropriate for inventories that are
segregated for a specific project and inventories that are not
ordinarily interchangeable.
a. Specific identification c. Relative sales price
b. Standard cost d. Net realizable value
13. Which of the following costs are included in the cost of
inventories?
a. Transport costs for raw materials
b. Abnormal material usage
c. Storage costs relating to finished goods
d. Administrative and general overhead
14. The gross profit method of estimating ending inventory
may be used for all of the following, except:
a. internal as well as external interim reporting.
b. internal as well as external year-end reports.
c. estimate of inventory destroyed by fire or other casualty.
d. Rough test of the validity of an inventory cost determined
under either periodic or perpetual inventory system.
15. The gross profit method assumes that:
a. the amount of gross profit is the same as in prior years.
b. sales and cost of goods sold have not changed from
previous years.
c. inventory values have not increased from previous years.
d. the relationship between the selling price and cost of
goods sold is similar to prior years.
16. The gross profit method of estimating inventory would
not be useful when:
17. The gross profit method of inventory valuation is not valid
when:
a. there is substantial increase in the quantity of inventory
during the year.
b. there is substantial increase in the cost of inventory during
the year.
c. the gross profit percentage changes significantly during the
year.
d. all ending inventor is destroyed by fire before it can be
counted.
18. Which would not require an estimated of inventory?
a. Inventory destroyed by typhoon.
b. Proof of the reasonable accuracy of the physical count.
c. Interim financial statements are prepared.
d. Determination of the ending inventory to be reported in
the statements of financial position at year-end
19. Which of the follow would cause a decrease in the cost
ratio used in the retail inventory method?
a. Higher retail prices c. More employee discounts
b. Lower net markups d. Higher freight in charges
20. Which of the following is not required when using the
retail inventory method?
a. All inventory items must be categorized according to the
retail markup percentage.
b. Total cost and retail price of goods purchased.
c. Total cost and retail price of the goods available for sale.
d. Total sales for the period.
21. What is the effect of freight-in on the cost-retail ratio
when using the conservative
retail method?
a. Increases the cost-retail ratio
b. No effect on the cost-retail ratio
c. depends on the amount of the net markups
d. decreases the cost-retail ratio.
22. What is the effect of net markups on the cost-retail ratio
when using the conservative retail method?
a. Increases the cost-retail ratio
b. depends on the amount of the net markdowns
c. No effect on the cost-retail ratio
d. Decrease the cost-retail ratio
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23. PUCU Company sells merchandise at a gross profit of P Cost of Goods Available for Sale P 28,000,000
30%. On October 30, 2020, all of the merchandise were Less: Cost of Goods Sold 22,200,000
destroyed by fire. The following figures pertain to the Ending Inventory 5,800,000
operations for the ten months ended October 30, 2020: Less: Physical count P 4,000,000
Net Sales P 8,000,000 Cost of goods out on consignment
Beginning inventory 2,000,000 (P 1,000,000 x 60%) 600,000 4,600,000
Net purchases 5,200,000 Cost of Inventory Shortage P 1,200,000
What is the estimated cost of inventory destroyed by fire?
a. 4,800,000 b. 2,800,000 c. 1,600,000 d. 800,000 27. Yen Company used the average retail inventory method.
On December 31,2017, the following information relating to
Beginning inventory P 2,000,000 the inventory was gathered:
Add: Net Purchases 5,200,000 Cost Retail
Cost of Goods Available for Sale 7,200,000 Inventory, Jan 1 190,000 450,000
Less: Cost of Goods Sold (P 8,000,0000 x 70%) (5,600,000) Purchases 2,990,000 4,350,000
Ending Inventory destroyed by fire P 1,600,000 Purchase discounts 40,000
Freight in 150,000
Questions 24 through 26 are based on the following Markups 300,000
information: Markdowns 400,000
Shiro Company reported the following information for the Sales 4,400,000
current year: Sales return 100,000
Beginning inventory P 5,000,000 Sales discount 50,000
Purchases 26,000,000 Sales allowance 30,000
Freight In 2,000,000 What is the estimated cost of the inventory on December 31,
Purchase returns and allowances 3,500,000 2017?
Purchase discounts 1,500,000 a. 280,000 b. 360,000 c. 330,000 d. 295,000
Sales 40,000,000
Sales returns 3,000,000 Cost Retail
Sales allowances 500,000 Inventory, Jan 1 190,000 450,000
Sales discounts 1,000,000 Purchases 2,990,000 4,350,000
At year-end, unsold goods out on consignment with selling Purchase discounts (40,000)
price of P 1,000,000 are in the hands of a consignee. The Freight in 150,000
gross profit was 40% on sales. Markups 300,000
Markdowns
24. What is the cost of goods available for sale? (400,000)
a. 28,000,000 b. 31,000,000 c. 33,000,000 d. 29,500,000 GAS – Ave (cost ratio – 70%) 3,290,000 4,700,000
Net Sales (4,400,000 – 100,000)
Beginning inventory P 5,000,000 (4,300,000)
Purchases 26,000,000 Ending inventory at retail 400,000
Freight In 2,000,000 Average cost (400,000 X 70%) 280,000
Purchase returns and allowances ( 3,500,000)
Purchase discounts ( 1,500,000 ) 28 According to PFRS 9, a financial instrument is recognized
Cost of Goods Available for Sale P28,000,000 a. when the instrument has probable economic benefits that
can be measure reliably.
25. What is the cost of goods sold? b. only when the entity becomes a party to the contractual
a. 21,900,000 b. 22,200,000 c. 21,300,000 d. 24,000,000 provisions of the instrument.
c. when the entity enters into a binding contract to deliver a
Sales P 40,000,000 variable number of its own equity instrument.
Less: Sales returns ( 3,000,000) d. only when the instrument requires receipt of another
Net Sales 37,000,000 financial instrument under conditions that are potentially
Multiply by Cost Ratio (100% - 40%) 60%* favorable.
Cost of Goods Sold P22,200,000
29. Which of the following is a financial liability?
26. What is the estimated cost of inventory shortage? a. Income tax payable
a. 1,800,000 b. 2,700,000 c. 1,200,000 d. 2,100,000 b. Unearned revenue
c. Warranty obligation
d. Lease liability
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30. During the period, an entity acquires an investment. The 35. The following are taken from the records of Lunch Co. as
entity has a “hold to collect and sell” business model. The of year-end.
investment should be classified as
a. investment measured at fair value through other
comprehensive income.
b. investment measured at amortized cost.
c. investment measured at fair value through profit or loss.
d. any of these

31. Which of the following is measured at fair value with fair

value changes recognized in profit or loss?
a. Held to maturity investments
b. Financial assets designated at FVPL
c. FVOCI
d. All of these

32. If an entity’s business model’s objective is to hold

investments in order to collect contractual cash flows that are
solely payments for principal and interests, then investments
should be classified as
a. subsequently measured at fair value through other
comprehensive income.
b. subsequently measured at amortized cost. How much are the total financial assets disclosed in the
c. subsequently measured at fair value through profit or loss. notes?
d. any of these a. 142,400 b. 132,000 c. 132,800 d. 92,800

33. Under PFRS 9, financial assets are classified
a. on the basis of the entity’s business model only.
b. based on the nature of the financial assets, i.e., debt or
equity instrument.
c. as financial assets subsequently measured at FVPL, FVOCI
(election), FVOCI (mandatory) or Amortized cost.
d. all of these
34. According to PFRS 9, if an asset or a liability measured at
fair value has a bid price and an ask price, the price within the
bid-ask spread that is most representative of fair value in
the circumstances is used to measure fair value. Bid price is
a. the maximum price at which market participants are willing
to sell an asset.
b. the maximum price at which market participants are willing
to buy an asset.
c. the minimum price at which market participants are willing
to sell an asset.
d. the price that an entity will incur to bid farewell to an
asset.
Use the following information for the next three questions:
On January 1, 2021, JK Co. purchased 1,000 shares of BTS, Inc.
for ₱250,000.
Commission paid to broker amounted to ₱10,000. The equity
securities were designated by management to be measured
at fair value through profit or loss. On December 31, 2021,
the shares are quoted at ₱200 per share. It was estimated
that transaction cost of ₱20 per share will be incurred if the
shares were sold on that date.
36. How much is the unrealized gain (loss) on change in fair
value recognized in the 2021 profit or loss?
a. (70,000) b. (50,000) c. (40,000) d. 60,000
37. On January 3, 2022, all the shares were sold at ₱300 per
share. Commission paid for the sale amounted to ₱60,000.
How much is the realized gain (loss) from the sale?
a. 60,000 b. (10,000) c. 40,000 d. (40,000)
38. If JK Co. uses an allowance account to account for changes
in fair values, how much is the balance of this account on
December 31, 2021?
a. 70,000 debit c. 40,000 credit
b. 50,000 debit d. 50,000 credit

Use the following information for the next three questions:

On Jan. 1, 2021, August Co. purchased 10,000 shares of Betty,
Inc. for ₱1,000,000. August Co. paid broker’s commission of
₱15,000 on the acquisition. August Co. made an irrevocable
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choice to subsequently measure the shares at fair value
through other comprehensive income. The quoted prices per
share on Dec. 31, 2021 and Dec. 31, 2022 were ₱90 and ₱108,
respectively. On Jan. 3, 2023, August Co. sold all the shares at
₱105 per share. August Co. paid broker’s commission of
₱16,000 on the sale.
39. How much is the unrealized gain (loss) recognized in
Three Co.’s 20x1 profit or loss?
a. 115,000 b. (115,000) c. (85,000) d. 0
40. How much is the unrealized gain (loss) recognized in
August Co.’s 2022 other comprehensive income?
a. 180,000 b. 65,000 c. (115,000) d. 0
41. How much is the cumulative gain (loss) transferred to
retained earnings on Jan. 3, 2023?
a. 19,000 b. 34,000 c. (19,000) d. (34,000)
42.On January 1, 2021, August Co. purchased ₱1,000,000
bonds at a price that reflects a yield rate of 14%. The bonds
mature on January 1, 2024 and pay 12% annual interest.
The bonds are classified as held for trading securities. On
December 31, 2021, the bonds are selling at a yield rate of
10%. How much is the unrealized gain (loss) on the change in
fair value recognized in August’s 2021 profit or loss?
a. 78,336 b. 83,561 c. 81,144 d. 0
43. If the acquisition cost of investment in bonds is less than
the face amount, there is
a. discount. b. premium. c. loss. d. gain.
44. The use of the effective-interest method in amortizing
bond premiums and discounts results in
a. a greater amount of interest income over the life of the
bond issue than would result from use of the straight-line
method.
b. a varying amount being recorded as interest income from
period to period.
c. a variable rate of return on the book value of the
investment.
d. a smaller amount of interest income over the life of the
bond issue than would result from use of the straight-line
method.
45. If the effective interest rate is higher than the nominal
rate, there is
a. discount. b. premium. c. loss. d. gain.
46. The true or actual rate of interest that a bondholder earns
on the investment.
a. nominal rate c. effective interest rate
b. coupon rate d. stated rate
47. It is a type of serial bond wherein the holder is given the
right to extend the initial maturity to a longer maturity date.
a. extendible bond c. redeemable bond
b. retractable bond d. callable bond
48. Subsequent to their initial recognition, which financial
assets with quoted market prices in an active market are
measured at fair value?
Financial assets Financial Assets with
at amortized cost fair values through P/L
a. Yes No
b. Yes Yes
c. No Yes
d. No No
49. On January 1, 2021, Impressed Co. acquired 8%,
₱1,000,000 face amount, 4-year ‘term’ bonds for ₱936,603.
The bonds are measured at amortized cost and have a yield
rate of 10%. How much is the carrying amount of the
investment on December 31, 2022?
a. 1,000,000 b. 950,263 c. 965,289 d. 981,818
50. On October 1, Dennis Company purchased ₱200,000 face
value, 12% bonds at 98 plus accrued interest and brokerage
fees and classified them as amortized cost assets.
Interest is paid semiannually on January 1 and July 1.
Brokerage fees for this transaction were ₱700. At what
amount should this acquisition of bonds be recorded?
a. 196,000 b. 196,700 c. 202,000 d. 202,700
51. On April 30, 2021, Heidelberg Co. acquired ₱100,000 face
amount, 10% bonds dated January 1, 2021 at 102. The
purchase price includes accrued interest. How much is the
initial carrying amount of the investment?
a. 102,000 b. 99,500 c. 98,667 d. 105,333
52. On January 1, 2021, Honey Co. intends to buy 3-year,
zero-coupon bonds with face amount of ₱3,000,000 and
maturity value of ₱3,993,000. The effective interest rate is
16%. The bonds will be measured at amortized cost. How
much is estimated purchase price of the bonds on January 1,
2021?
a. 2,299,341 b. 2,356,214 c. 2,558,146 d. 2,789,123
53. On January 1, 20x1, Santa Co. acquired 10%, ₱1,000,000
bonds at 92. Commission paid to brokers amounted to
₱9,100. The bonds are classified as investment measured at
amortized cost. Principal is due on December 31, 20x3 but
interest is due annually every December 31. The carrying
amount of the investment on December 31, 20x1 is most
approximately equal to
a. 949,883. b. 958,364. c. 973,368. d. 938,341.
54. On January 1, 2021, Solicit Co. acquired 12%, ₱1,000,000
bonds for ₱1,049,737. The principal is due on January 1, 20x4
but interest is due annually every December 31.
The bonds are classified as investment measured at
amortized cost. The yield rate on the bonds is 10%. On
September 30, 20x2, all the bonds were sold at 110.
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Commission paid to the broker amounted to ₱10,000. How a. 405,000

much is the gain (loss) on the sale? b. 705,000
a. (67,686) b. 77,686 c. (77,686) d. (22,314) c. 300,000
D. 0
55. On January 1, 2021, Staircase Glass Co. purchased 10%,
₱1,000,000 callable bonds for ₱966,199. The bonds mature in 60. Under the equity method of accounting for investments,
4 years’ time. Interest is due annually every Dec. 31. an investor recognizes its share of the
The investment is classified as financial asset measured at earnings in the period in which the
amortized cost. The effective interest rate is 12%. If the a. Investor sells the investment
carrying amount of the investment on December 31, 2021 is b. Investee pays dividend
₱982,143, what is the expected holding period for the c. Investee declares a dividend
investment? d. Earnings are reported by the investee
a. 4 years b. 3 years c. 2 years d. none of these
-NOTHING FOLLOWS-
56.If there is any excess of the investor's share of the net fair
value of the associate's identifiable assets and liabilities over “Just believe in yourself. Even if you don’t, pretend
the cost of the investment, that is, negative goodwill, how that you do and, at some point, you will.”
should that excess be treated?
a. It should be written off against retained earnings.
b. It should be included in the carrying amount of the
investment. ― VENUS WILLIAMS, THE FIRST AFRICAN
c. It should be included as income in the determination of the
AMERICAN WORLD NO. 1 TENNIS PLAYER IN THE
investor's share of the associate's profit or loss for the period.
d. It should be disclosed separately as part of the investor's MODERN ERA
equity.

Use the following information for the next three questions:

On January 1, 2016, Z COMPANY acquired 30% of the voting
share capital of another entity for P2,000,000 which was
equal to the carrying amount of interest acquired. The
investee reported net income of P800,000 for 2016 and paid
dividend of P500,000 on December 31, 2016. The investee
reported net income of P1,000,000 for the six months ended
June 30, 2017 and P2,500,000 for the year ended December
31, 2017 but paid no dividend during 2017. On July 1, 2017,
the investor sold half of the investment for P1,500,000. The
fair value of the retained investment was P1,600,000 on July
1, 2017 and P1,900,000 on December 31, 2017. The retained
investment is to be held as non-trading measured at FVTOCI.

57. What is the carrying amount of the investment on

December 31, 2016?
a. 2,090,000
b. 2,390,000
c. 2,240,000
d. 2,000,000

58. What is the gain on sale of investment that should be

reported for 2017?
a. 245,000
b. 305,000
c. 350,000
d. 455,000

59. What amount of gain from remeasurement of investment

should be reported for 2017?