FINANCIAL ACCOUNTING AND REPORTING

ANSWERS CAN BE FOUND ON THE LAST PAGE

MULTIPLE CHOICE
1. Davidson Corp. granted 1,000 share options to its employees on January
2,2017, for services performed during 2016 and 2017. At the end of
the grant, the fair value of the share options is P60,000. The options
are exercisable on January 2, 2018, and expires on June 30, 2018. On
July 1, 2018, it was determined that none of the options were
exercised. On December 31, 2018, the company should __________.
A. Make a prior period adjustment to retained earnings for
compensation expense recognized in 2016 and 017
B. Restate its financial statements for 2016 and 2017 and reduce
compensation expense for each year
C. Record P60,000 of compensation expense in 2018
D. Not adjust or reverse compensation expense

2. Acacia Co. qualifying as an SME proved the following data for 2018:
Gross Profit on sales P 1,500,000
Royalty revenue 200,000
Dividend received from an associate – cost model 20,000
Administrative expenses 600,000
Amortization of goodwill 10,000
Distribution costs 250,000
Research and development costs (5 years) 100,000

Based on the information given for Acacia Co., consider these

statements.
I. Under the fair value and cost model, dividend received from an
associate is recognized as income.
II. Under PFRS for SMEs, it is appropriate to amortize goodwill.
III. Research and Development cost should not be amortized but
recognized immediately as expense when incurred.

The statement/s that is/are CORRECT is/are _________.

A. I, II and III
B. I and II only
C. II and III only
D. I and III only

3. Melbourne Co. leased equipment to Victoria Co. under a non-

cancellable lease with a transfer of title. Melbourne will record
 depreciation expense on the leased asset and interest revenue related
to the lease as __________.
A. Depreciation Expense Interest revenue
no yes
B. Depreciation Expense Interest revenue
no no
C. Depreciation Expense Interest revenue
yes yes
D. Depreciation Expense Interest revenue
yes yes

4. The items which are amounts reclassified to profit or loss in the

current period but were recognized in other comprehensive income in
the current or previous period are _____.
A. Prior period errors
B. Correcting entries
C. Unusual and irregular items
D. Reclassification adjustments

5. In a period of declining prices, the use of the following inventory

cost flow method that would result in the higher cost of goods sold
is _________.
A. Moving average method
B. Specific identification method
C. FIFO
D. Weighted average method

6. Closing entries are best described as _________.

I. Made at the end of an accounting period
II. Prepared after the adjusting entries and financial statements
have been prepared
III. Prepared for the purpose of reducing all nominal and temporary
accounts to zero
A. I and II only
B. I and III only
C. I only
D. I, II, and III

7. Gain or loss from disposal of investment property is the difference

between the _____.
A. Gross disposal proceeds and fair value of the asset
B. Net disposal proceeds and carrying amount of the asset
C. Gross disposal proceeds and carrying amount of the asset
D. Fair value and carrying amount of the asset

8. The qualitative characteristic of faithful representation, according

to IASB Framework for the Preparation and Presentation of Financial
Statements, includes __________.
 A. Comparability and consistency
B. Timeliness, predictive value, and feedback value
C. Neutrality, completeness, and free from error
D. Predictive value, confirmatory value and materiality

9. All of the following qualify as an underlying EXCEPT ______.

A. Commodity price
B. Insurance index
C. Stock shares
D. Exchange rate

10. A non-publicly accountable entity can claim compliance with PFRS

for SMEs in the financial statements when __________.
I. The entity prepares the financial statements in accordance with
local tax requirements that are substantially the same as the
PFRS for SMEs
II. The entity prepares the financial statements in accordance with
local tax requirement that are, except in name, word for word
the same as the PFRS for SMEs
III. The entity prepares the financial statements in accordance with
PFRS for SMEs
IV. The entity prepares the financial statements in accordance with
full PFRS.
A. III and IV only
B. I and III only
C. II and III only
D. II, III, and IV only

11. The statement that is best defined as an accrual is adjusting

entries where ______________.
A. Cash flow and revenue expense recogniti9on are simultaneous
B. Revenue or expenses are recognized in the absence of cash flow
evidence
C. Revenue or expense recognition precedes cash flow
D. Cash flow precedes revenue or expense recognition

12. SME Apricot Co. acquired on January 1, 2014, a trademark of a line

of herbal products for P450,000. The SME expects to continue marketing
the products using trademark indefinitely. An analysis of the
surrounding circumstances provides evidence that the line of
trademarked products may generate net cash inflows for an indefinite
period, though, an estimate of the useful life of the trademark is
not possible.
A competitor developed a technological breakthrough in 2017 expected
to result in a product that will reverse the demand for the SME’s
patented product line. At December 31, 2017, the recoverable amount
of the trademark was P80,000. It is expected that the demand for the
 SME’s product line will remain until December 31, 2019, when the
competitor launches the new product. The SME intended to continue the
manufacturing the patented products until December 31, 2019.
SME Apricot Co.’s amortization of trademark for the years 2014 and
2017, respectively, shall be ________.
A. P15,000 and 150,000
B. P45,000 and P105,000
C. P45,000 and P45,000
D. P7,500 and 135,000

13. In its financial statements, Galaxy Corp. uses the equity method
of accounting for its 30% ownership of Sundy Corp. At December 31,
2018, Galaxy has a receivable from Sundy. The receivable is to be
reported in Galaxy’s 2018 financial statements as _________.
A. None of the receivable should be reported, but the entire
receivable should be offset against Sundy Corp.’s payable to
Galaxy Corp.
B. Seventy percent of the receivable should be separately reported,
with the balance offset against 30% of Sundy Corp. payable to
Galaxy Corp.
C. The total receivable should be included as part of the
investment in Sundy Corp., without separate disclosure
D. The total amount of the receivables should be disclosed
separately

14. The gain or loss from extinguishment of a financial liability by

issuing equity instruments is presented as __________.
A. Component of finance cost
B. Separate line item in the income statement
C. Component of other comprehensive income
D. Other income or other expense

15. Norton Co. did not recognize in its 2017 financial statements the
net deferred tax asset (i.e., deferred tax asset net of related
valuation allowance) when a loss from discontinued segments was
carried forward for tax purposes. This was so because it was more
likely than not that none of this deferred tax asset would be
realized. The company had no temporary differences. The tax benefit
of the loss carried forward reduced current taxes payable on 2018
continuing operations. The 2018 income statement would include the
tax benefit from the loss brought forward in ____________.
A. Income from continuing operations
B. Gain or loss from discontinued segments
C. Cumulative effect of accounting changes
D. Extraordinary gain
16. For IFRS reporting, the valuation methods used for intangible
assets are _________.
A. Revaluation model or the fair value model
B. Cost model or the fair value through profit or loss model
C. Cost model or the fair value model
D. Cost model or revaluation model

17. The item from the following which is an application of the principle
of systematic and rational allocation is
A. Amortization of intangible assets
B. Research and development costs
C. Officers’ salaries
D. Sales commissions

18. Ansel Co. sells appliances that include a three-year warranty.

Service calls under the warranty are performed by an independent
mechanic under a contract with Ansel. Based on the experienced,
warranty costs should be recognized by Ansel __________.
A. Evenly over the life of the warranty
B. When the machines are sold
C. When the service calls are performed
D. When payments are made to the mechanic

19. Paulo Co. issued ten-year P2,000,000 debenture bonds on January 2,

2018. The bonds pay interest semiannually. The company uses the
effective interest method to amortized bond premiums and discounts.
The carrying value of the bonds on this date was P1,859,530. A journal
entry was recorded for the first interest payment on June 30, debiting
interest expense for P130,160 and crediting cash for P120,000. The
annual stated interest rate for the debenture bonds is _______.
A. 12%
B. 6%
C. 14%
D. 7%

20. Continuing Professional Development (CPD) is required for _______.

A. Both the renewal of the CPA license and accreditation to
practice accountancy profession
B. Accreditation to practice accountancy profession
C. Neither renewal of CPA license nor accreditation to practice
accountancy profession
D. Renewal of CPA license

21. Fraternity Co. disclosed in the notes to its financial statements

that a significant number of its unsecured trade accounts receivable
are with companies that operate in the same industry. This disclosure
is required to inform financial statement users of the existence of
_______.
 A. Risk of measurement uncertainty
B. Off-balance sheet risk of accounting loss
C. Concentration of credit risk
D. Concentration of market risk

22. London Co. maintains a defined benefit pension plan for its
employees. The service cost component of London’s net periodic
pension cost is measured using the __________.
A. Projected benefit obligation
B. Unfunded vested benefit obligation
C. Expected return on plan assets
D. Unfunded accumulated benefit obligation
SITUATIONAL
Situation 1 – Information relevant to three different companies follows.
Jonald Co. made available the following information relative to
its defined benefit plan for the year 2018: Benefit obligation, January
1, P4,500,000; Fair value of plan assets, January 1, P5,000,000; Current
service cost, P1,700,000; Discount rate, 10%; Benefits paid to retirees,
P1,000,000; Contribution to the plan, P1,200,000; Actual return on plan
assets, P600,000; Net actuarial gain due to remeasurement of benefit
obligation, P200,000; Past service cost due to amendment of the benefit
plan, P300,000.
Alexander Co. commenced construction of a new plant on March 1,
2018. The cost of P36,000,000 was paid in full to the contractor on March
1,2018 and was funded from existing general borrowings. The construction
was completed on October 31, 2018. The borrowings during 2018 comprised
of the following; PhilTrust Bank at 6%, P8,000,000; UnionBank at 8%,
P10,000,000; MetroBank at 9%, P30,000,000
Esmeralda Co. provided the following information
Dec. 31, 2017 Dec. 31, 2018
Physical inventory, at cost P 800,000 P 1,200,000
Sales 6,000,000
Cost of sales 3,100,000
Accounts receivable, trade 1,500,000 1,700,000
Accounts payable, trade 1,700,000 1,900,000

In 2018, accounts written off amounted to P120,000. Sales returns with

credit memo amounted to P150,000 and purchase returns, P80,000. Cash
receipts from customer after P220,000 discounts totaled P7,900,000 while
cash payments to trade creditors amounted to P5,500,000 after discounts
of P300,000. Cash paid to customers for good returned P100,000 which was
debited to accounts receivable.
23. Jonald Co.’s benefit obligation at December 31, 2018 is
____________.
A. P5,840,000
B. P5,650,000
C. P5,750,000
D. P5,200,000

24. The amounts that Alexander Co. should recognized as borrowing cost
to be capitalized in relation to the plant and the amount of interest
expense for 2018, respectively, shall be ________.
A. P0 and P3,980,000
B. P1,990,080 and P1,989,920
C. P1,989,920 and P1,990,080
D. P3,980,000 and P0

25. The amount that Esmeralda Co. should report as gross sales for 2018
under the accrual basis is ____________.
A. P8,370,000
B. P8,590,000
C. P8,490,000
D. P8,120,000

26. The amount that Esmeralda Co. should report as gross purchases for
2018 under the accrual basis is ________.
A. P6,000,000
B. P6,080,000
C. P5,780,000
D. P5,500,000
Situation 2 – Information pertaining to four difference companies follow:

• Information on the inventory of Gaspar Co.:

Cost, P12.00; Estimated selling price, P13.60; Estimated disposal
cost, P.20; Normal gross margin, P2.20; Replacement cost, P10.90.

• In June 2018, Nangkil Co. determined that actual costs incurred

associated with the equipment used in its assembly line
significantly exceeded original expected costs. At June 30, 2018,
the company compiled the following information:
Original cost of the equipment, P1,600,000; Accumulated
depreciation, P600,000; Expected net future cash inflows
(undiscounted) related to the continued use and eventual disposal
of the equipment, P900,000; Fair value of the equipment, P750,000.

• Theame Co. uses the revaluation model for intangible assets. On

March 1, 2017, it acquired intangible assets with an indefinite
life for P300,000. On December 31, 2017, it was determined that
the recoverable amount for these intangible assets was P270,000.
 On December 31,2018, it was determined that the intangible assets
had a recoverable amount of P282,000.

• On July 1, 2018, Alberton Co, has an equipment with a cost of

P500,000 and accumulated depreciation of P375,000. On that date,
the company classified the equipment as held for sale and decided
to sell it within one year. On this same date, the equipment had
an estimated selling price of P50,000 and a remaining useful life
of 2 years. It is estimated that selling cost associated with the
disposal of the equipment will be P5,000. On December 31,2018, the
estimated selling price of the equipment had increase to P75,000
with estimated selling cost of P10,000.

27. Under the lower of cost or net realizable value rule, the
measurement of the inventory item of Gaspar Co. should be at _______.
A. P10.90
B. P10.70
C. P12.00
D. P11.20

28. The amount of impairment loss that should be reported on the income
statement of Nangkil Co. for the period ended June 30, 2018 is
A. P100,000
B. P700,000
C. P250,000
D. P750,000

29. The impairment gain or loss to be recognized by Theame Co. on the

intangible assets in the 2017 and 2018 income statement shall be
___________.
A. 2017 2018
P30,000 loss P12,000 gain
B. 2017 2018
P0 P0
C. 2017 2018
P30,000 loss P0
D. 2017 2018
P30,000 loss P18,000 gain

30. The amount to be recognized by Alberton Co. as gain on reversal of

impairment at December 31,2018 is __________.
A. P20,000
B. P30,000
C. P36,875
D. P46,875
Situation 3 – Relevant data for three different companies follows.
 • Harvesus Co. had outstanding on December 31, 2018, 10%, P5,000,000
face value convertible bonds maturing on December 31, 2021.
Interest is payable annually on December 31. Each P1,000 bond is
convertible into 50 shares of Harvesus’ P20 par value ordinary
shares. The unamortized premium balance on December 31,2018 is
P128,000. The paid in capital arising from bond conversion
privilege account has a balance of P100,000. On December 31, 2018,
an individual holding 500 of the bonds exercise the conversion
privilege when the market price of Harvesus’ ordinary share was
P30 each.

• Montreal Co. had 100,000 of P15 par value ordinary shares on January
1, 2018. During 2018, the following transactions pertaining to its
ordinary shares occurred.
Purchased 5,000 shares as treasury at P30 each.
The ordinary share was split 3-for-1.
Reissued 4,000 treasury shares at P16 each.
• Jericho Co. issued on January 1, 2017, share appreciation rights
to its president exercisable for one year beginning January 1,2019
provided that the president is still in the employ of the company
at that date of exercise. Each right provides for a cash payment
equal to the excess of the company’s share price over P50. The
equivalent number of shares for share appreciation right will be
based on the level of the company at the date of exercise as
follows:
Level of sales P200,000,000 to P500,000,000 Over P500,000,000

Equivalent shares granted 12,000 15,000

Actual sales achieved by Jericho and the share price at the end of each
year are as follows:
Sales 2017 – P330,000,000 2018 – P520,000,000
Share Price 2017 – P88 2018 – P95

31. Under IAS 32, Harvesus Co.’s entry to recorded the conversion
should include a credit to share premium of ________.
A. P0
B. P10,000
C. P12,800
D. P22,800

32. Montreal Co.’s total cost of the remaining treasury shares and the
number of outstanding shares at December 31, 2018 respectively, shall
be ______________.
A. P110,000 and 289,000
B. P330,000 and 285,000
C. P330,000 and 289,000
D. P110,000 and 285,000
33. Jericho Co.’s compensation expense recognized in the accounts for
the year ended December 31, 2017 is _______.
A. P228,000
B. P0
C. P190,000
D. P285,00

34. Jericho Co.’s compensation expense recognized in the accounts for

the year ended December 31, 2018 is _____
A. P447,000
B. P228,000
C. P337,000
D. P675,000
Situation 4 – Data given for three different companies follows:

• Thirdie Co. started business in 2017. It sells printers with a

three-year warranty. Thirdie estimated its warranty costs as a
percentage of peso sales. Based on past experiences, it is
estimated that 3% will be repaired during the first year of
warranty, 5% will be repaired during the second year of warranty
and 10% will be in the third year. In 2017 and 2018. The company
was able to sell 8,000 and 9,800 units, respectively at a selling
price of P4,000 per unit. The company also incurred actual repair
costs of P650,000 and P1,500,000 in 2017 and 2018, respectively.
Sales and repair occur evenly throughout the period.

• Victoria Co. issues on December 31, 2016, 20-year bonds of

P5,000,000 for P5,851,160 to yield 10%. Interest is payable
annually on December 31, 11%. On June 30, 2018, Vitoria retires
2,000 of its own P1,000 bonds at 96 plus accrued interest. The
accounting period of Victoria is the calendar year. The company
uses the effective interest method of amortization.

• Bernadette Co. records it’s purchases at gross amount but wishes

to change to recording purchases net of purchase discounts.
Discount available on purchases recorded from October 1,2017 to
September 30, 2018, before conversion are: Purchases,
P500,000;Purchase discounts taken, P4,000; Accounts payable,
P150,000.

35. The amount of liability for warranty to be reported in Thirdie

Co.’s December 31, 2018 statement of financial position and the
predicted warranty expense covering 2017 and 2018 sales still under
warranty at December 31, 2018, respectively, shall be ____________.
A. P11,856,000 and P12,816,000
 B. P12,816,000 and P11,856,000
C. P10,666,000 and P10,468,000
D. P10,468,000 and P10,666,000

36. Victoria Co.’s gain or loss on the retirement of bond is _________.

A. P400,097 loss
B. P80,000 loss
C. P400,097 gain
D. P80,000 gain

37. The carrying amount of Victoria Co.’s remaining bonds at December

31, 2018 is __________.
A. P3,489,626
B. P3,470,663
C. P5,000,000
D. P3,000,000

38. Bernadette Co.’s entry to record the conversion in the recording

of purchases from the gross to the net method shall include the
following EXCEPT __________.
A. Debit to Purchase discount of P4,000
B. Debit to Purchase discount lost of P5,000
C. Debit to Accounts payable of P1,000
D. Debit to Purchases of P10,000
Situation 5 – Information provided relative to four different companies
follows:

• Benshaw Co. regularly buys shirts from Davis Co. and is allowed
trade discount of 20% and 10% from the list price. Benshaw purchased
shirts from Davis on April 11, 2018 And received an invoice with a
list price amount of P50,000 and payment terms of 2/10,n/30.
Benshaw uses the net method to record purchases.

• On July 1, 2018, Dormer Co. purchased a new machine on a deferred

payment basis. A down payment of P100,000 was made and 4 monthly
installments of P250,000 each are to be made beginning August 1,
2018. The cash equivalent price of the machine was P950,000. Dormer
incurred and paid installation cost amounting to P30,000.

• In 2013, Josefe Co. incurred the following costs related to a new

solar-powered car:
Salaries of Laboratory employees researching how to build new
car,P500,000; Legal fees for the patent application for the new
car, P40,000; Engineering follow-up occurred during the early
stages of commercial production (the follow-up occurred during
2018), P100,000; Marketing research to promote the new car,
P60,000; Design, testing and construction of prototype, P800,000.
 • Privado Co. is engaged in raising dairy livestock. Data provided
in 2018 follows:
Carrying amount in January, P2,500,000; Increase due to Purchases,
P1,000,000; Gain arising from change in fair value less cost of
disposal attributable to price change, P200,000; Gain arising from
change in fair value less cost of disposal attributable to physical
change, P300,000; Decrease due to sales, P400,000; Decrease due to
harvest, P100,000.

39. Benshaw Co. should record the purchases from Davis Co. at_________.
A. P34,300
B. P36,000
C. P35,280
D. P35,000

40. The amount to be capitalized by Dormer as the cost of the machine

is ________.
A. P1,100,000
B. P1,130,000
C. P980,000
D. P950,000

41. The amount that should be reported by Josefe Co. as research and
development expense in the 2018 income statement is _______.
A. P1,130,000
B. P1,500,000
C. P1,440,000
D. P500,000

42. The carrying amount of the biological assets of Privado Co. on

December 31, 2018 is _________.
A. P4,400,000
B. P3,500,000
C. P4,000,000
D. P3,000,000
Situation 6 – Information pertaining to four different companies follow.

• The information on provided by the Guiyan Corp. with respect to

the cash and cash equivalents at December 31, 2018 follows:
Checking account at Bank of Asia (overdraft), P510,000; Checking
account at Sterling Bank, P2,200,000; Employee’s postdated check,
P120,000; Foreign bank account which is unrestricted and in
equivalent peso, P2,500,000; IOU from the company president,
P500,000; Money order, P160,000; NSF Customer check, P100,000;
Payroll account, P800,000; Petty cash fund comprising P25,000 in
currency and expense receipts for P50,000, P75,000; Postage stamps,
 P10,000; traveler’s check, P300,00; Treasury bonds, P1,500,000;
Value added tax account, P600,000.

• Included in the bank reconciliation of Denver Corp. on December

31, 2018 were the following:
Credit memo for November recorded in December, 60,000; Credit memo
for December not yet recorded, P80,000; Deposit in transit at
December 31, 2018, P100,000; Erroneous bank charge in December
corrected by the bank in December, P8,000; Erroneous receipt by
the company during December where no correction was made until the
following year, P10,000; Total company receipts for December,
P850,000; Total credits per bank in December, P800,000.

• Adelpha Corp. sells various merchandise both for cash and on

credit. Accounts receivable transaction during 2018 follows:
Accounts written off as worthless, P6,400; Cash received from cash
customers, P206,200; Cash received from credit customers where
P231,000 was received from credit customers who took advantage of
the 4% discount within the discount period, P330,000; Credit
memoranda issued to credit customers for sales returns and
allowances, P26,400; Cash refunds given to cash customers for sales
returns and allowances, P17,100; Recoveries on accounts written
off as uncollectible in prior periods which are not yet included
in the above collections, P6,800; Sales for cash and credit,
P791,000.

The December 31,2017 statement of financial position balances for

accounts receivable and allowances for bad debts are P85,800 and
P7,900, respectively. An aging of the receivables indicates that
P15,500 of the accounts receivable balances are deemed
uncollectible.

• Redentor Corp. purchased for P108,000, on July 2,2018, 2,000 shares

of Paula Corp.’s newly issues 6% cumulative P20 par value
preference share capital. Each share also had one stock warrant
attached, which entitled the holder to acquire, at P19, one share
of Paula P10 par value ordinary share capital for each two warrants
held. The market price, on this date of the preference share capital
(without warrants) was P50 per share and the market price of the
stock warrants was P10 per warrant. On September 2,2018, all the
stock warrants were sold for P19,800.

43. The correct amount to be reported by Guiyan Corp. as unrestricted

cash on December 31, 2018 is _________.
A. P6,585,000
B. P6,635,000
C. P6,285,000
 D. P6,085,000

44. Denver Corp.’s amount of deposit in transit at November 30, 2018

is __________.
A. P42,000
B. P40,000
C. P50,000
D. P32,000

45. Adelpha Corp.’s balance of accounts receivable that would be shown

in the December 31, 2018 statement of financial position and the bad
debts expense to be reported in profit or loss for the year ended
December 31, 2018, respectively shall be __________.
A. P304,575 and P7,900
B. P304,575 and P8,300
C. P298,175 and P15,500
D. P298,175 and P7,200

46. Redentor Corp.’s gain on sale of the stock warrants is ________.

A. P1,800
B. P800
C. P9,800
D. P0
Situation 7 – Information relevant to four deferent companies follows:

• The following notes payable, issued by Square Co., we’re

outstanding during the entire construction of an asset that
qualified for interest capitalization.
P8,000,000 notes payable bearing interest at 10%
P10,000,000 notes payable bearing interest at 5,5%
None of the borrowings were specified for the construction of the
qualified asset.

• On June 1,2018, Dreamer Co. entered into a real estate lease

agreement for a new building. The lease is an operating lease and
is fully executed on that day. According to the terms of the lease,
payments of P30,000 per month are scheduled to begin on October
1,2018 and to continue each month thereafter for 56 months. The
lease terms span five years. Dreamer has a calendar year-end.

• Millenial Co. incurred on March 1, 2018, an apparently permanent

inventory loss from market decline in the amount of P600,000.

• The following information pertains to Manaoag Co. and its operating

segments for the year ended December 31, 2018:

Total Revenues: P100,000,000

 Sales to external customers (included in total): P20,000,000

47. The interest rate that should be used by Square Co. to calculate
capitalized interest on the construction is ________.
A. 7.5%
B. 5.5%
C. 7.75%
D. 10%

48. Dreamer Co.’s lease expense for 2018 is ________.

A. P84,000
B. P196,000
C. P210,000
D. P90,000

49. The amount of inventory loss that should be recognized by Millenial

Co. in it’s quarterly income statement for the 3 months ended March
31, 2018 is ________.
A. P400,000
B. P600,000
C. P200,000
D. P150,000

50. External revenue reported by Manaoag Co.’s reportable segment must

at least be _______.
A. P60,000
B. P20,000,000
C. P15,000,000
D. P40,000,000
Situation 8 – Data for four different companies follows.

• On December 5, 2018, Manchester Co. established a petty cash fund

of P20,000. On December 31, 2018, the petty cash fund was examined
and found to have receipts and documents for miscellaneous expenses
amounting to P18,200. In addition, there was cash amounting to
P2,200.

• Norway Co. uses the net price method of accounting for cash
discounts. In one of its transactions on December 5, 2018, Norway
sold merchandise with a list price of P1,000,000 to a client who
was given a trade discount of 20%, 10% and 5%. Credit terms given
by Norway were 4/10,n/30. The goods were shipped FOB destination,
freight collect. Total freight charge paid by the client was
P25,000. On December 10, 2018, the client returned damaged goods
originally billed at P100,000.
 • Ben Hur Co. entered on March 15, 2018 into a firm commitment to
purchase on May 31, 2018 a machinery from Osaka Co. for
100,000,000yen. The exchange rate on March 15 is 100yen = 1USD.
Ben Hur paid 10,000USD for a call option contract in order to
reduce the exchange rate risk that could increase the cost of the
machinery in USD. The contract gave Ben Hur the option to purchase
100,000,000yen at an exchange rate of 100yen = 10SD on May 31. The
exchange rate on May 31 is 95yen=1USD

• Glorietta Co. acquired at the beginning of 2018 nontrading equity

instrument for P5,000,000 with transaction cost of P550,000 and
irrevocably designated as financial asset at fair value through
other comprehensive income. The fair value was P6,200,000 at
December 31 and the transaction cost that would be incurred on the
sale of the investment is estimated at P500,000.

51. The entry that would be required by Manchester Co. on December 31,
2018 to record the replenishment of the petty cash fund is ________.
A. Petty Cash 18,200
Cash 17,800
Cash short and over 400
B. Miscellaneous Expense 18,200
Cash 17,800
Cash short and over 400
C. Miscellaneous Expense 17,800
Cash short and over 400
Cash 18,200
D. Miscellaneous Expense 18,200
Petty cash 17,800
Cash short and over 400

52. The net realizable value of Norway’s accounts receivable at

December 31, 2018 is _______.
A. P559,000
B. P650,000
C. P624,000
D. P536,640

53. Ben Hur Co. savings in purchasing the call options amounts to
_________.
A. 42,632USD
B. 62,632USD
C. 52,632USD
D. 50,000USD

54. As provided in PFRS 9, the amount of gain that Glorietta Co. should
recognize in other comprehensive income for 2018 is _________.
A. P650,000
 B. P1,200,000
C. P550,000
D. P0
Situation 9 - Data available for four different companies follows.

• Sabrina Co. reported an impairment loss of P250,000 in its income

statement for the year , 2015. This loss was related to an item of
property, plant and equipment which was acquired on January 1, 2007
with a cost of P2,000,000 of no residual value. Depreciation on
the asset is computed on a straight line basis and annual
depreciation on cost is P80,000. Depreciation for the year 2016
was computed on the asset's recoverable amount at December 31,
2015. On December 31, 2018, Sabrina decided to measure the asset
using revaluation model. This asset was then appraised at a fair
value of P1,650,000.

• Delfina Co. suffered damages from a storm surge on December 31,

2018. The entire inventory and most of the accounting records were
completely destroyed. Information salvaged from remaining records
follows:
January 1: Inventory, P750,000; Accounts receivable, P350,000
December 31: Purchases, P2,750,000 Cash sales, P450,000;
Collections of accounts receivable P4,200,000; Accounts
receivable, 550,000; Gross profit rate on sales, 40%.

• Industria Co. acquired a patent on June 20, 2015 for P2,100,000.

Management expects that the patent will be useful to the company
for its remaining useful life of 10 years. On January 10, 2017,
Industria spent P350,000 in successfully defending the patent
against a competitor. During 2018, management determines that the
estimated remaining life of the patent should be reduced to only
five years, including the current year. Industria 's policy is to
amortized the cost of intangible assets using straight-line method
to the nearest month.

• Develos Co. insures the life of its president for P15,000,000,

Develos being the beneficiary of an ordinary insurance policy, The
premium, is P400,000. The policy is dated January 1,2014. The cash
surrender value on December 31, 2017 and 2018 are P120,000 and
P160,000, respectively. Develos follows the calendar year as its
fiscal year. 1, 2014. The president died on October 1, 2018 and
the policy was collected on December 31, 2018. No premium was
refunded on the insurance settlement.

55. The amount of the gain on impairment recovery and the revaluation
surplus, if any, that Sabrina. Co. should report in 2018 shall be
_______.
 A. Gain on impairment Revaluation surplus
recovery P0. P0
B. Gain on impairment Revaluation surplus
recovery P203,125 P610,000
C. Gain on impairment Revaluation surplus
recovery P1,500,000 P1,030,000
D. Gain on impairment Revaluation surplus
recovery P250,000 P1,280,000

56. The amount of inventory that was lost by Delfin Co. from the storm
surge is ________.
A. P1,350,000
B. P1,560,000
C. P590,000
D. P750,000

57. Industria Co.’s amortization expense for the year 2018 is

_________.
A. P294,000
B. P358,750
C. P315,000
D. P336,000

58. Develos Co.’s gain on life insurance settlement is _________.

A. P15,620,000
B. P15,780,000
C. P15,320,000
D. P16,000,000
Situation 10 – Data gathered from three different companies follows.

• Consuelo Co. converted P5,000,000 bonds of its 10% convertible

bonds into 100,000 ordinary shares, P50 par value on January 1,
2018, after recording interest and amortization On the conversion
date, the carrying amount of the bonds were P5,500,000 and the paid
in capital arising from the conversion privilege recognized in the
accounts is P200,000. The market value of the bonds without the
conversion privilege was P6,000,000, and Consuelo's ordinary share
was publicly trading at P60 each.

• Dervick Co. had retained earnings of P3,300,000 at the beginning

of 2018. Throughout 2018, the company had 20,000 shares of P100
par value ordinary shares that are issued and outstanding. During
2018, Dervick reported profit of P5,500,000, purchased treasury
shares for P600,000, declared cash dividends of P1,800,000,
reissued all treasury shares at a gain of P100,000, and declared
and issued a 10% ordinary share bonus issue when the market value
was P180 per share.
 • Nestor Co.’s owners equity was affected by the following
transactions during 2018. At the beginning of the year, there are
100,000 ordinary shares outstanding.

February 1: 21,000 ordinary shares were sold in the market.

April 1: Purchased 5,000 ordinary shares to be held in treasury.
July 1: Issued P1,000,000, 5-year, 10% bonds at face value. Each
1,000 bond is convertible into 50 ordinary shares
July 1: 35,000 ordinary shares were sold.
October 1: A 10% bonus issue was declared and distributed.

Profit for the year ended December 31, 2018 is P2,926,000. The tax
rate is 30%.

59. Under IAS 32, the amount of share premium that should be recognized
by Consuelo Co. as a result of the conversion is _______.
A. P500,000
B. P1,000,000
C. P700,000
D. P1,200,000

60. The retained earnings balance of Dervick Co. at December 31, 2018
is _______.
A. P3,300,000
B. P6,640,000
C. P7,000,000
D. 6,740,000

61. Nestor Co.’s number of shares to be used in the calculation of

diluted earnings per share in 2018 is __________.
A. 171,300
B. 173,800
C. 150,425
D. 146,300

62. Nestor Co.’s 2018 basic earnings per share and dilutes earnings
per share, respectively, shall be _______.
A. P19.45 and P16.84
B. P20.00 and P16.84
C. P20.00 and P17.04
D. P19.45 and P17.04
Situation 11 - The following information pertain to two different
companies:

• Delmar Company has two classes of shares outstanding, 10%, P100

par preference share capital and P10 par ordinary share capital.
 During the fiscal year ending June 30 2018, the company had the
following transactions affecting shareholders’ equity:
Number of shares Price per share
Issue of preference share 5,000 P140
Issue of ordinary shares 20,000 70
Retirement of preference
shares 1,000 150
Purchase of Treasury shares
5,000 80
– Ordinary shares
Share split (par value
2 for 1
reduced to P5)
Reissue of Treasury shares-
5,000 52
ordinary shares

The balances of the accounts in the shareholders’ equity section as

of June 30, 2017 Statement of financial position follows: preference
share capital, 30,000 shares, P3,000,000; Ordinary share capital,
100,000 shares, P1,000,000; Preference share premium, P1,200,000;
Ordinary share premium, P8,000,000; and Retained earnings,
P2,550,000.
Dividends were paid at the end of the fiscal year on the ordinary
shares at P6 per share and on the preference shares at the preference
rate. Profit after tax for the year is P750,000.

• Jansen Company provided the following information:

Trade accounts
receivable, net Inventory Accounts Payable
Dec. 31, 2017 P840,000 P1,500,000 P950,000
Dec. 31, 2018 780,000 1,400,000 P980,000

Total sales where 12,000,000 for 2018 and 11,000,000 for 2017.Cash
sales were 20% of total sales each year. Cost of goods sold was
P8,400,000 for 2018. Each year there was off. P50,000 bad debts
estimate and P50,000 write off.

63. The balance of additional paid in capital of Delmar company on June

30, 2018 is _______.
A. P9,200,000
B. P2,620,000
C. P10,600,000
D. P10,620,000

64. The balance of retained earnings of Delmar company on June 30,2018

is ______.
A. P1,540,000
B. P3,300,000
C. P1,550,000
D. P1,560,000
65. The cash collected by Jansen Company from customers during 2018 is
______.
A. P12,060,000
B. P11,890,000
C. P12,010,000
D. 11,960,000

66. The cash disbursed by Jansen Company for purchases during 2018 is
________.
A. P8,500,000
B. P8,270,000
C. P8,200,000
D. P8,300,000
Situation 12 - Information for four different companies follows.

• Northgate Co. leased equipment from Sander Co. on July 1, 2018,

for an eight-year period expiring June 30, 2026. Equal annual
payments under the lease are P200,000 and are due on July 1, of
each year. The first payment was made on July 1 2018. The rate of
interest contemplated by Northgate and Sander is 10%. The cash
selling price of the equipment is Pl,240,000 and the cost of the
equipment on Sander's accounting records was Pl,100,000.

• Granada Co. provided the following information relative to its 2018

profit and loss:
Profit before income taxes P 2,880,000
Income tax expense
Current P 970,000
Deferred 90,000 1,060,000
Profit P 1,820,000

Granada’s first year of operation was 2018. The company’s tax

rate is 30. Management decided to use accelerated depreciation
for tax purposes and the straight-line method for financial
reporting purposes. The amount charged to depreciation expense in
2018 was P820,000.

• Alhambra Co. Provided the following information concerning its plan

assets to cover a defined benefit plan for the year 2018. The
interest rate used by the entity is 10%.
January 1 December 31
Fair value of the plan assets P5,000,000 P5,800,000
Contribution to the plan 500,000
Benefits paid to retirees 100,000

• Mikahil Co. had the following loans outstanding in 2018: Specific

construction loan, 8% interest, P1,000,000; General purpose loan,
10% interest, P20,000,000. The entity begun the self-construction
 of a building on January 1, 2018 and the building was completed on
December 31, 2018. The following expenditures were made during the
year: January 1, P3,000,000; July 1, P6,000,000, November 1,
P9,000,000.

67. The amount of the profit on the sale and the interest income that
Sander Co. would record for the year ended December 31, 2018 shall
be _________.
A. P140,000 and P52,000
B. P340,000 and P104,000
C. P140,000 and P104,000
D. P340,000 and P52,000

68. The amount that Granada Co. did deduct for depreciation on its tax
return for 2018, assuming the temporary difference existed between
the book income and taxable income, was ________.
A. P1,060,000
B. P820,000
C. P1,120,000
D. P910,000

69. Alhambra Co.’s actuarial gain/loss in 2018 taken to other

comprehensive income is _________.
A. P400,000 loss
B. P100,000 gain
C. P400,000 gain
D. P100,000 loss

70. The total cost of Mikahil Co.’s new building is ______.

A. P18,000,000
B. P19,800,000
C. P18,730,000
D. P19,440,000
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