Professional Documents
Culture Documents
NAME: Date:
Instructor: Aileen N. Mendoza Section: Score:
DIRECTION: Choose the letter of the correct answer from the options given. Write the letter of your chosen
answer to a separate sheet of paper. Attach a handwritten solution for problem solving questions. No solution,
No credit.
1. Which situation would not require that noncurrent liabilities be reported as current?
a. The long-term debt is callable by the creditor.
b. The creditor has the right to demand payment due to a contractual violation
c. The long-term debt matures within the upcoming year
d. All of these require the current classification.
4. All else equal, a large increase in unearned revenue in the current period would be expected
to produce what effect on revenue in a future period?
a. Large increase in future revenue
b. Large decrease in future revenue
c. No effect
d. Large decrease because unearned revenue indicates collection problems.
6. How would the proceeds received from the advance sale of nonrefundable tickets for a
theatrical performance be reported in the statement of financial position before the
performance?
a. Revenue for the entire proceeds
b. Revenue to the extent of related costs expanded
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c. Unearned revenue to the extent of related costs expended
d. Unearned revenue for the entire proceeds
7. B Company offered a cash rebate of P20 on each P150 package of ballpen sold during the
current year. Historically, 10% of customers’ mail in the rebate form.
During the year 600,000 packages of ballpen are sold, and 25,000 P20 rebates are mailed to
customers.
What amount of rebate expense should be reported for the current year?
a. 1,200,000 b. 1,500,000 c. 500,000 d. 600,000
8. Using the same information of no. 9, what amount should be reported as rebate liability at
year end?
a. 700,000 b. 500,000 c. 350,000 d. 400,000
Answer: 7 – A
Rebate expense ( 10% x 600,000 x 20) = 1,200,000
Answer: 8 – A
Rebate expense 1,200,000
Rebate paid (500,000)
Rebate liability 700,000
9. A Company sold 80,000 sold reversible shirts under a new sales promotional program during
the year. Each shirt carried one coupon which entitled the customer to a P50 cash rebate.
The entity estimated that 70% of the coupons will be redeemed even though only 35,000
coupons had been processed during the current year.
What amount of rebate expense should be reported for the current year?
a. 4,000,000 b. 2,800,000 c. 1,750,000 d. 2,250,000
Answer: 9- B
Coupons to be redeemed (70% x 80,000) 56,000
Multiply by cash per coupon 50
Rebate expense 2,800,000
10- B
Rebate expense 2,800,000
Rebate paid (1,750,000)
Rebate liability 1,050,000
11. TORRY Co. started a new promotional program. For every 10 box tops returned, customers
receive a basketball.
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The entity estimated that only 60% of the box tops reaching the market would be returned.
Units Amount
Sales of product 100,000 30,000,000
Basketballs purchased 5,500 4,125,000
Basketballs distributed 4,000
12. Using the same information from the previous no. (11):
What amount should be reported as year-end estimated liability associated with that
promotion?
a. 4,125,000 b. 1,500,000 c. 3,000,000 d. 4,500,000
Solution: (11)
Cost of basketball (4,125,000/5,500) = 750
Premium expense = 6,000 x 750 = 4,500,000
13. A retail store received cash and issued gift certificates that are redeemable in merchandise.
How would the deferred revenue account be affected by the redemption and nonredemption of
certificates, respectively?
a. decrease and no effect c. no effect and no effect
b. decrease and decrease d. no effect and decrease
14. Walnut company received from a customer an 1-year, P200,000 note bearing annual
interest of 8%. After holding the note for 8 months,Walnut discounted the note at a local
bank at an effective rate of 12%. What is the maturity value of the note? (5 points)
a. 216,000 b. 169,500 c. 200,000 d. 226,000
Explanation:
The maturity value of the note is the principal of P200,000 plus the interest due of
P16,000 (P200,000 x 8%)
15. A method of estimating bad debts that focuses on the income statement rather than
the statement of financial position is the allowance method based on:
a. direct writeoff
b. aging the trade accounts receivable
c. credit sales
d. trade accounts receivable
Answer: C
16. The unavoidable costs under an onerous contract represent the “least net cost of exiting
from the contract” whichever is equal to
a. Cost of fulfilling the contract
b. Penalty arising from failure to fulfill the contract
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c. Lower of the cost of fulfilling the contract or the penalty arising from failure to fulfill the
contract
d. Higher of the cost of fulfilling the contract or the penalty arising from failure to fulfill the
contract
18. The most relevant measurement of liabilities at initial recognition should always reflect
a. The expectation of the management
b. historical cost
c. The credit standing of the entity
d. The single most likely minimum possible amount
22. A present obligation that is probable and for which the amount can be reliably estimated
should
a. Not be accrued but disclosed
b. Be accrued by debiting retained earnings and crediting a liability
c. Be accrued by debiting an expense and crediting retained earnings
d. Be accrued by debiting an expense and crediting a liability
23. In packages of the product, CURIOUS Co. included coupons that may be presented at retail
stores to obtain discounts on other CURIOUS products. Retailers were reimbursed for the face
amount of coupons redeemed plus 10% of that amount for handling costs. The entity honoured
requests for coupon redemption by retailers up to three months after the consumer expiration
date. The entity estimated that 70% of all the coupons issued would ultimately be redeemed.
The consumer expiration date is December 31, 2022. The total face amount of the coupons
issued was P600,000 and the total payments to retailers during 2022 amounted to P220,000.
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24. Using the same information form No. 23:
What amount should be reported as liability for unredeemed coupons on December 31, 2022?
a. 308,000 b. 200,000 c. 242,000 d. 0
25. A department store received cash and issued a gift certificate that is redeemable in
merchandise. When the gift certificate was issued
a. revenue account should be decreased
b. deferred revenue account should be decreased
c. revenue account should be increased
d. deferred revenue account should be increased
Answer: D
26. Under a debt restructuring involving substantial modification of terms, the future cash flows
under the new terms shall be discounted using
a. original effective interest rate c. prime interest rate
b. market rate of interest d. interest rate under the new terms
28. What depreciation method is most appropriate for the significant part of an aircraft?
a. Straight line method for all parts of the aircraft.
b. Production method based on air miles flown for the jet engine and straight line method
for all other parts of the aircrafts
c. Production method based on air miles flown for all parts of the aircraft.
d. Diminishing balance method for all parts of the aircraft.
29. The discount resulting from the determination of the present value of a note payable should
be reported as
a. deferred credit
b. direct deduction from the face amount of the note
c. deferred change
d. addition to the face amount of the note
30. On December 31, 2019, ABC Co. had a P750,000 note payable due July 31, 2020. 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,
2020. In February 2020, the entity completed a P1,500,000 bond offering. On March 31, 2020,
the entity issued the 2019 financial statements.
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What amount of the note payable should be included in current liabilities on December 31,
2019?
a. 750, 000 b. 500, 000 c. 250, 000 d. 0
**The entire amount of P750,000 is reported as current liability because the note payable is due
to be settled within one year regardless of the issuance of bonds payable.
31. XYZ Co. transferred real estate to ABC Company pursuant to a debt restructuring in full
liquidation of XYZ Co.’s liability to ABC:
Answer: B
Carrying amount of liability 1,500,000
Carrying amount of real estate 1,000,000
Gain on extinguishment of liability 500,000
32. A Co. entered into a troubled debt restructuring agreement with National Bank.
The bank agreed to accept land with a carrying amount of P800,000 and a fair value of
P1,000,000 in exchange for a note payable with a carrying amount of P1,500,000.\
Answer: A
Carrying amount of note payable 1,500,000
Carrying amount of land 800,000
Gain on extinguishment of debt 700,000
33. . For a debt restructuring involving a substantial modification of terms, which of the
following specified by the new terms would be compared to the carrying amount of the debt to
determine if the debtor should report a gain on extinguishment?
a. The total future cash payment
b. the present value of the new debt at the original interest rate
c. the present value of the new debt at the modified interest rate.
d. the amount of future cash payments.
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d. All of these are correct
35. If the fair value of the equity instruments issued cannot be reliably measured the equity
instruments issued to extinguish a financial liability shall be measured at
a. fair value of the liability extinguished
b. par value of the equity instruments issued
c. carrying amount of the liability extinguished
d. book value of the equity instruments issued
36. The gain or loss from extinguishment of a financial liability by issuing equity instruments is
presented as
a. other income or other expense
b. separate line item in the income statement
c. component of other comprehensive income
d. component of finance cost
37. An entity shall initially measure equity instruments issued to, extinguish a financial liability
at
a. fair value of the equity instruments issued
b. fair value of the liability extinguished
c. par value of the equity instruments issued
d. carrying amount of the liability extinguished
38. An entity operates chemical plants. The published policies include a commitment to making
good any damage caused to the environment by the operations. The entity has always honoured
this commitment.
39. It is a contract in which the unavoidable costs of meeting the obligation under the contract
exceed the economic benefits to be received under the contract.
a. onerous contract
b. executory contract
c. executed contract
d. sale contract
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Inventory, including goods received on consignment
P200,000 800,000
Bond investment at FVPL 1,000,000
Prepaid expenses, including a deposit of P50,000 made on
Inventory to be delivered in 18 months 150,000
Total Current assets 8,950,000
41. MAGNANIMOUS Co. reported the following liability account balances on December 31, 2022:
Accounts payable 1,900,000
Bonds Payable, due Dec. 31, 2024 3,400,000
Discount on bonds payable 200,000
Deferred tax liability 400,000
Dividends payable 500,000
Income Tax payable 900,000
Note payable, due Dec. 31, 2023 600,000
On December 31, 2022, what total amount should be reported as current liabilities?
a. 7,100,000 c. 3,900,000
b. 4,300,000 d. 3,300,000
Answer: C
AP 1,900,000
Dividends Pay 500,000
Income Tax Pay 900,000
Note payable 600,000
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Included in it’s ending inventory 260,000
Security deposit on lease of warehouse used for
Storing some inventories 300,000
Total 1,500,000
What total amount should be reported as trade and other receivables under current assets at
year end?
a. 940,000 c. 1,240,000
b. 1,200,000 d. 1,500,000
Answer: A
Trade AR 930,000
Allowance (20,000)
Claim receivable 30,000
42. Which of the following transactions would be initially recorded in the prepaid expense
account?
a. a company prepays annual real estate at the beginning of the fiscal year
b. a company pre-pays a year-long subscription to a local newspaper, the cost of which it
considers small
c. a retail company makes significant sales of gift certificates shortly before the holiday
season, the majority of which it doesn’t expect will be spent until after the new year.
d. a company orders office supplies which it expects to use within the current month.
43. A Company has several items in its safe at December 31, 2022. Which of these items would
not be included in its cash and cash equivalents in its 2022 balance sheet?
a. a check written to the company for P1,200 from a customer, that has not yet been
deposited
b. a treasury bill for 5,000 that matures in January of 2022
c. a note receivable signed by a loyal customer which matures in march of 2023
d. a certificate of stock with a market value of 100 per share, which is classified as an
investment security
44. A Company began April 2020 with a cash balance of P68,000 in its operating account. During
the month of April, it issued new checks totaling P14,000 to vendors. Of these newly issued
checks, P9,000 cleared the bank in April. It also transferred P8,000 to its payroll account to
employees during the month. It received P22,000 in checks from its customers in April and
deposited P18,000 of those checks during the month. Also during April P6,000 of checks issued
during March of 2020 cleared the bank. What is the company’s cash balance in its operating
account at the end of April, 2020?
Solution: Answer: A
45. ABC Company is reconciling its cash balance at December 31, 2021. Which of the
following items would require an adjusting entry to the cash account by ABC Company?
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a. ABC paid for merchandise from one of its suppliers via check before the supplier
notified ABC that the goods were out of stock. ABC cancelled its order and contacted its
bank to void the check.
b. ABC received multiple checks and direct deposits from customers during the year, and
several of these cash receipts were applied to the wrong customer’s account
c. ABC transferred funds to its payroll impress account on December 19 via same-day
wire. ABC recorded the transfer in the general ledger on the day it was made. The funds
were used to issue checks from the payroll account and the majority of these checks
were still outstanding at December 31.
d. At December 31, several thousand pesos in checks were sitting on the controller’s desk,
signed and waiting to be mailed.
Answer: A
Explanation:
ABC has cancelled its check with the bank, but this adjustment is not yet reflected in its ledger.
Therefore, ABC would need to make an adjustment to its ledger to increase its cash balance.
The prevailing interest for a note of this type on January 1, 2021 was 10%. The present
value of 1 at 10% for 3 periods is 0.75.
48. Accounting for the interest in a noninterest bearing note receivable is an example of
what aspect of accounting theory?
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49. On January 1, 2021, a borrower was granted a loan by Qatar Bank. The loan interest
is payable annually starting December 31, 2021 at an interest rate of 10%. The loan
matures in five years on December 31, 2025.
The principal amount of the loan is P4,000,000. The borrower was charged with
origination fees in the amount of 350,000. The bank incurred P61,500 origination cost.
50. Which of the statements is true with regards to a credit to accounts payable when
purchases are made?
a. as if the discount is to be taken, if using the gross method
b. as if the discount is to be taken, using either gross or net method
c. as if the discount is not to be taken, using the net method
d. as if the discount is to be taken, using the net method
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