INTERMEDIATE ACCOUNTING 1

1. On December 31, 2022, the cash account of ABC Company has a debit balance of P3,500,000.
An analysis of the cash account shows the following details:

Undeposited collections P60,000

Cash in bank-BPI checking account 500,000

Cash in bank-PNB (overdraft) (50,000)

Undeposited NSF check received from a customer, 15,000
dated December 1, 2022
Undeposited check from a customer, dated January 15, 2023 25,000
Cash in bank-BPI (fund for payroll) 150,000
Cash in bank-BPI (savings deposit) 100,000
Cash in bank-BPI (money market instruments, 90 days) 2,000,000
Cash in foreign bank (restricted) 100,000
IOUs from officers 30,000
Sinking fund cash 450,000
Listed stock held as temporary investment 120,000
Total 3,500,000

Cash and cash equivalents on its December 31, 2022 statement of financial position should be
a. P2,760,000 c. P2,885,000
b. P2,810,000 d. P2,935,000

2. The current assets of XYZ Company on December 31, 2022 include the following:
Cash on hand P50,000
Petty cash fund 10,000
Cash in bank 200,000
Accounts receivable 400,000
Inventory 500,000
Marketable equity securities 145,000
Deferred charges 20,000
Total 1,325,000

A. Cash on hand includes:

● Customer’s check of P4,000 returned by bank on December 26, 2022 due to
insufficient funds but
● Subsequently redeposited and cleared by bank on January 5, 2023.
● Customer’s check for P6,000 dated January 15, 2023, received December 22,
2022.
● Postal money orders received from customers, P5,000.
● Cash withheld from wages for income tax of employees, P15,000

B. The petty cash fund consists of the following items on December 31, 2022:
● Currency and coins, P2,800.
● Employees’ values, P2,000.
● Currency in envelope marked “collections for birthday party”, P1,000.
● Unreplenished petty cash vouchers, P2,000.
● Check drawn payable to petty cashier, P2,200
 C. Included among the checks in payment of accounts payable drawn by the company
against its current account and recorded in December 2022 are:
● Check written and dated December 22, 2022 and delivered to payee on January
5, 2023, P10,000.
● Check written December 26, 2022 and dated January 21, 2023, delivered to
payee on December 26, 2022, P15,000.

How much is the adjusted cash on hand on December 31, 2022?

a. P40,000 c. P5,000
b. P1,328,000 d. P225,000

3. The following information relates to GRWM Cosmetic’s accounts receivable for 2022:

Accounts receivable, January 1, 2022 P650,000

Credit sales for 2022 2,700,000
Sales returns for 2022 75,000
Accounts written off during 2022 40,000
Collections from customers during 2022 2,150,000
Estmated future sales returns at December 31, 2022 50,000
Estimated uncollectible accounts at December 31, 2022 140,000

What amount should it report for accounts receivable before allowances for sales returns and
uncollectible accounts as of December 31, 2022?

a. P1,200,000 c. P1,085,000
b. P1,125,000 d. P925,000

4. In 2022, Clock Company purchased securities, and on December 31, 2022 had the following
equity securities:

Cost Market Unrealized

gain (loss)
In current assets:
Security A P80,000 P50,000 P(30,000)
Security B 15,000 20,000 5,000
P95,000 P70,000 P(25,000)

In noncurrent assets:
Security C P60,000 P70,000 P10,000
Security D 90,000 45,000 (45,000)
P150,000 P115,000 P35,000

Securities A and B are classified as held for trading, and Securities C and D are irrevocably
designated as FVOCI. Valuation allowances as of December 31, 2022 should be published with a
corresponding charge against:

Income Stockholders’ equity Income Stockholders’ equity

a. P0 P60,000 c. P25,000 P35,000
 b. P25,000 P0 d. P60,000 P0

5. On January 2022, Ariana Corporation acquired 20% of the outstanding common stock of A
Enterprises for P800,000. This investment gave the company the ability to exercise influence over
A. The book value of the acquired shares was P600,000. The excess of cost over book value was
attributed to an identifiable intangible asset which was undervalued on A’s balance sheet and
which had a remaining useful life of 10 years.

For the year ended December 31, 2022, A reported net income of P180,000 and paid cash
dividends of P40,000 on its common stock. What is the proper carrying value of the company’s
investment in A on December 31, 2022?
a. P772,000 c. P800,000
b. P780,000 d. P808,000

6. Mega Company provided the following properties owned by the group:

Land held for undetermined future use 1,000,000

Vacant building to be leased out under an operating lease 2,000,000
Property held for use in production 4,000,000
Property held by a subsidiary, in the ordinary course of business 3,000,000
Building owned by subsidiary and the subsidiary provides
security and maintenance services to the lessees 2,500,000
Land leased to a subsidiary under an operating lease 1,500,000
Equipment leased to an unrelated party under an operating lease 500,000
Building under construction for use as investment property 3,500,000

What amount of investment property should be reported in the consolidated financial

statements?
a. P6,500,000 c. P8,000,000
b. P5,500,000 d. P9,000,000

Young Corporation was incorporated on January 2, 2022. The following items relate to its
property and equipment transactions:
Cost of land, which included a dilapidated apartment building P3,000,000
Apartment building mortgage assumed, including
related interest due at the time of purchase 80,000
Delinquent property taxes assumed by the company 30,000
Payments to tenants to vacate the apartment building 20,000
Cost of razing the apartment building 40,000
Proceeds from sale of salvaged materials 10,000
Architects fee for new building 60,000
Building permit for new construction 40,000
Fee for title search 25,000
Survey before construction of new building 20,000
Excavation before construction of new building 100,000
Payment to building contractor 10,000,000
Assessment by city for drainage project 15,000
Cost of grading and leveling 50,000
Temporary quarters for construction crew 80,000
 Temporary building to house tools and materials 50,000
Cost of changes during construction to make new
building more energy efficient 90,000
Interest cost on specific borrowing incurred during construction 360,000
Payment of medical bills of employees accidentally injured
while inspecting building construction 18,000
Cost of paving driveway and parking lot 60,000
Cost of installing lights in parking lot 12,000
Premium for insurance on building during construction 30,000
Cost of open house party to celebrate opening of new building 50,000
Cost of windows broken by vandals distracted by the celebration 12,000

7. What is the total of the Cost of Land?

a. P2,980,000 c. P3,185,000
b. P3,270,000 d. P3,220,000

8. What is the total of the Cost of Building?

a. P10,810,000 c. P10,875,000
b. P10,860,000 d. P11,110,000

9. What is the total of the Cost of Land Improvements?

a. P12,000 c. P122,000
b. P72,000 d. P0

10. Jordan Company is contemplating exchanging a machine used in its operations for a similar
machine on May 31, 2022. It will exchange machines with either X Corporation or Y Company, or
will trade in the machine with Z, Inc., a dealer in these machines. The cash flows from the asset
received are expected to significantly differ from the cash flows of the asset given up. The data
relating to the machines are presented below:

Jordan X Y Z
Original cost of machine P162,500 P180,000 P150,000 P140,000
Accumulated depreciation
through May 31, 2022 98,500 70,000 65,000 0
Fair value on May 31, 2022 80,000 95,000 60,000 165,000

If the company exchanges its used machine and P15,000 cash for X’s used machine, the
gain/(loss) that the company should recognized from this transaction for financial reporting
purposes would be:
a. P0 2 c. P16,000
b. (P2,526) d. None of the above

11. MLDG Company purchased mining property for P10,400,000 with estimated 8,000,000 tons of
ore. The residual value of the property is P800,000. Building used in mine operations costs
P800,000 and have estimated life of fifteen years with no residual value. Mine machinery costs
P1,600,000 with an estimated residual value of P320,000 after its physical life of 4 years.

Following is the summary of the company’s operations for 2022, the first year of operations.
 Tons mined 800,000 tons
Tons sold 640,000 tons
Unit selling price per ton P4.40
Direct labor 640,000
Miscellaneous mining overhead 128,000
Operating expenses (excluding depreciation) 576,000

Inventories are valued on a first-in, first-out basis. Depreciation on the building is to be allocated
as follows: 20% to operating expenses, 80% to production. Depreciation on machinery is
chargeable to production.

How much is the depletion for 2022?

a. P768,000 c. P960,000
b. P192,000 d. P1,040,000

12. On January 1, 2021, Fortune Enterprises, Inc. developed a new machine that reduces the time
required to insert the fortunes into their fortune cookies. Because the process is considered
valuable to the fortune cookie industry, it had the machine patented. The following expenses were
incurred in developing and patenting the machine:
Research and development laboratory expenses P250,000
Metal used in construction of the machine 80,000
Blueprints expenses to design the machine 32,000
Legal expense to obtain patent 120,000
Wages and employees work on the research, development,
and building of the machine; 60% of the time was
spent in actual building of the machine 150,000
Expense of drawing required by the patent office to be
submitted with the patent application 17,000
Fees paid to Government patent office to process application 24,500

On January 2, 2022, it paid P35,200 in legal fees to successfully defend the patent against an
infringement suit by X Company. What is the carrying value of the patent on December 31, 2022?
a. P142,500 c. P175,500
b. P145,350 d. P178,697

13. Information concerning Alodia Company’s intangibles is as follows:

● On January 1, 2021, it signed an agreement to operate a franchise of X, Inc. for an initial
franchise fee of P85,000. Of this amount, P25,000 was paid when the agreement was
signed and the balance is payable in four annual payments of P15,000 each beginning
January 1, 2022. The present value on January 1, 2021, of the four annual payments
discounted at 14% (the implicit rate for a loan at this type) is P43,700. The agreement
also provides that 5% of the revenue from the franchise must be paid to the franchisor
annually. The company’s revenue from the franchise for 2021 was P900,000. Tina
estimates the useful life of the franchise to be ten years.
● The company incurred P78,000 of experimental and development costs in its laboratory
to develop a patent which was granted on January 2, 2021. Legal fees and other costs
associated with registration of the patent totaled P48,000. It estimates that the useful life
of the patent will be eight years.
 ● A trademark was purchased from Y Company for P40,000 on July 1, 2018. It estimates
that the useful life of the trademark will be 20 years from the date of acquisition. On July
1, 2021, the company incurred expenditures amounting to P68,000 in connection with a
successful defense of the trademark.

The unamortized cost of intangibles on December 31, 2021 is:

a. P10,870 c. P16,870
b. P14,870 d. None of the above

14. On April 1, 2022, Nimbaw Co. sold equipment to Natoy Co. Natoy Co. issued a 5-year, P500,000,
12% note to Nimbaw Co. The note requires the principal amount to be paid in five equal annual
installments and interest on the unpaid balance to be paid annually every March 31 starting
March 31, 2023. The prevailing interest rate for a note of this type is 9%.
Round off PV factors to four decimal places.

At what amount shall the note be initially measured on April 1, 2022?

a. 283,700 c. 500,000
b. 180,240 d. 463,940

15. Assuming that the ideal measure of short- term receivable in the balance sheet is the discounted
value of the cash to be received in the future, failure to follow this practice usually does not make
the balance sheet misleading because
a. Most short- term receivables are not interest- bearing
b. The allowance for uncollectible accounts includes a discount element
c. The amount of the discount is not material
d. Most receivables can be sold to a bank or factor

16. On July 1 of the current year, an entity obtained a two- year 8% note receivable for services
rendered. At that time, the market rate of interest was 10%. The face amount of the note and the
entire amount of interest are due on the date of maturity. Interest receivable on. December 31 of
the current year is
a. 5% of the face amount of the note
b. 4% of the face amount of the note
c. 5% of the present value of the note
d. 4% of the present value of the note

17. Which of the following items should be included in a company's inventory at the balance sheet
date?
a. Goods in transit which were purchased FOB destination
b. Goods received from another company for sale on consignment
c. Goods sold to a customer which are being held for the customer to call for at the customer’s
convenience
d. Goods in transit which were purchased FOB shipping point

18. To produce an inventory valuation which approximates the lower of cost or market using the
conventional retail inventory method, the computation of the ratio of cost to retail should:
a. Include markups but not markdowns c. Include markups and markdowns
b. Ignore both markups and markdowns d. Include markdowns but not markups
 19. Under PFRS 9, which of the following is not a category of financial assets?
a. Financial assets at amortized cost
b. Financial assets at fair value through profit or loss (FVPL)
c. Financial assets at fair value through accumulated profit or loss
d. Financial assets at fair value through other comprehensive income (FVOCI)

20. Which of the following statements best describes the term “significant influence”?
a. The mutual sharing in the risks and benefits of a combined entity
b. The contractually agreed sharing of control over an economic entity
c. The holding of a significant proportion of the share capital in another entity
d. The power to participate in the financial and operating policy decisions of an entity

INTERMEDIATE ACCOUNTING 2

1. Gummy Company offers a coffee mug as a premium for every ten candy bar wrappers presented
by customers. Each candy bar is sold at P5. The purchase price of each mug to the company is
P1. Each mug can be sold for P3 if not use in premium promotional program. The results of the
premium plan for the years 2021 and 2022 are as follows:

All in units 2021 2022

Coffee mugs purchased 720,000 800,000

Candy bars sold 5,600,000 6,750,000

Total wrappers redeemed in 2,800,000 4,200,000

2021 wrappers expected to redeem 2,000,000

in 2022

2022 wrappers expected to redeem 2.700,000

in 2023

What amount should Gummy Company report as unearned premium income in its December 31,
2021 and December 31, 2022 Statement of Financial Position, respectively?

a. P460,623 and P748,678 c. P570,652 and 776,193

b. P520,772 and P727,281 d. P582,352 and P730,660

2. A customer is suing Bebu Company for P550,000 in damages because her child was injured in
November 2022 while riding an escalator that stopped suddenly in one of its state-of-the-art
stores in Makati when he tripped and fell while walking down an escalator that was going up.
Legal counsel that it is probable that the lawsuit will be settled for between P200,000 and
P550,000, with the following likely outcome: 20% to be settled at P200,000; 30% to be settled at
P370,000 and 50% to be settled at P550,000.
 What amount should Bebu Company shall reflect the situation in its December 31, 2022 Financial
Statements?

a. P426,000 recognized as provision and P124,000 disclosed as contingent liability.

b. P373,333 recognized as provision and P176,667 disclosed as contingent liability.

c. P550,000 recognized as provision and no disclosure for contingent liability.

d. P550,000 recognized as provision and P200,000 disclosed as contingent liability.

3. Sammy Company started its business in selling printers with three-year warranty. It estimates its
warranty cost as a percentage of peso sales. Based on past experience, 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 7% will be repaired in the third year. The product warranty provides assurance
based on agreed upon specification. In 2021 and 2022, the company was able to sell 12,000
units and 14,500 units, respectively at a total price of P7,000 per unit. The company also incurred
actual repair costs of P6,500,000 and P12,500,000 in 2021 and 2022, respectively. The selling
price of the warranty is P2,000 per unit. The printer is selling at P5,000 if without the warranty.

What amount should Sammy Company shall report the balance of warranty liability as of
December 31, 2022?

a. P7,625,000 c. P9,125,000

b. P8,825,000 d. P9,375,000

4. Snoopy Corporation has a three-year, 10%, long-term bond for P3,500,000 with a maturity date of
November 1, 2025. On October 1, 2022, it breaches a covenant related to this debt and the loan
becomes due on demand. Snoopy reaches an agreement with the lender on January 2, 2023, to
provide a waiver of the breach not to demand payment until December 31, 2023. The financial
statements are authorized for issue on March 5, 2023.

How should Snoopy Corporation shall report the situation in its Financial Position as of December
31, 2022?

a. Snoopy shall report the bond payable as non-current because a grace period was obtained
related to the debt.

b. Snoopy shall report the bond payable as non-current because a grace period was not
obtained related to the debt.

c. Snoopy shall report the bond payable as current because a grace period was obtained
related to the debt regardless of the date of when the grace period was obtained.

d. Snoopy shall report the bond payable as current because a grace period was obtained
related to the debt after the end of the reporting period.
5. On January 1, 2021 Boston Kreme Company bought an equipment by paying cash of P2,000,000
and issued a 10% 4-year note payable in equal annual installment of P1,000,000 at the end of
each year. Interest is payable at each year-end based on outstanding balance of the note. At
issuance date, Boston Kreme recorded the transaction by recognizing a discount on note payable
of P160,442.

On December 31, 2022, Boston Kreme recorded a credit to discount on notes payable of P48,037
when required payment of principal and interest due on this date was made. At the end of 2023,
the balance of unamortized discount is P17,857.

What is the carrying value of the bonds payable reported in Boston Kreme Company’s statement
of financial position as of December 31, 2022?

NOTE: BONUS. KULAN NG “THE PREVAILING RATE IS 12%”

a. P2,003,281 c. P1,936,816

b. P1,948,342 d. P1,922,162

6. Almond Corporation issued P1,500,000 of 8% bonds on October 1, 2020 due on October 1, 2023
at 105. The interest is to be paid twice a year on April 1 and October 1. When the bonds was
issued, the prevailing market rate was 10% without the conversion privilege. The corporation
closes its books annually on December 31. Each P1,000 bond is convertible into 10 shares of
P100 par value ordinary share. The bonds were retired on April 1, 2023 at 102 and on this date,
the prevailing market rate was 9% without the conversion privilege.

How much gain (loss) should Almond record upon retirement of these bonds?

a. P7,109 loss c. P37,177 loss

b. P7, 109 gain d. P37,177 gain

7. DQ Company has an overdue note payable to SM Bank of P10,000,000 and recorded accrued
interest of P1,000,000. On December 31, 2022, SM Bank agreed to the following restructuring
agreement:

● Reduce the principal obligation by P3,000,000

● Waive the P1,000,000 accrued interest
● Extend the maturity date to December 31, 2025.
● Annual interest of 8% of the new principal is to be paid on December 31, 2023,
December 31, 2024 and December 31, 2025.
● The prevailing market interest rate for similar debt instrument on the date of restructuring
is 12%
 How much is the gain on debt restructuring should DQ recognized in profit or loss?

a. P4,348,169 c. P4,592,669

b. P4,469,372 d. P4,672,512

8. Presented below is the equity section of Cheesy Bacon Corporation at December 31, 2022:

Share capital-ordinary, par value P20; authorized 75,000 shares; issued P900,000
and outstanding 45,000 shares

Shared premium-ordinary 250,000

Retained earnings 500,000

Total Shareholder’s Equity P1,650,000

During 2022, the following transactions occurred relating to equity:

● 3,000 shares were reacquired at P28 per share.
● 3,000 shares were reacquired at P35 per share.
● 1,800 shares of treasury shares were sold at P30 per share.

For the year ended December 31, 2022, Cheesy Bacon reported net income of P450,000.
Assuming Cheesy Bacon accounts for treasury under the cost method, what amount should it
report as total equity on its December 31, 2022, statement of financial position?

a. P1,965,000 c. P1,985,000

b. P1,975,000 d. P1,995,000

9. Honey Butter Corporation has 50,000 shares of P10 par ordinary shares authorized. The
following transactions took place during 2022, the first year of the corporation’s existence:
● Sold 5,000 ordinary shares for P18 per share.
● Issued 5,000 ordinary shares in exchange for a patent with fair value of P100,000.

At the end of the Honey Butter Corporation’s first year of operations, total contributed capital
amounted to?

a. P180,000 c. P200,000

b. P190,000 d. P210,000
10. Delight Corporation has an investment in 5,000 shares of Yakult Company ordinary shares with a
cost of P218,000. These shares are used in a property dividend to shareholders of Delight. The
property dividend is declared on May 25 and scheduled to be distributed on July 31 to
shareholders of record on June 15. The market value per Yakult share is P63 on May 25, P66 on
June 15, and P68 on July 31.

The net effect of property dividend declaration on retained earnings of Delight Corporation for
year ended December 31, 2022 is a reduction of?

a. P218,000 c. P330,000

b. P315,000 d. P340,000

11. The shareholders’ equity section of Arteinian Corporation as of December 31, 2021, contained
the following accounts:

Ordinary share capital, P20 par, 4,500,000 shares authorized; 225,000 P4,500,000
shares issued and outstanding

Shared premium 2,500,000

Retained earnings 7,200,000

Arteinian Corporation’s board of directors declared a 10 percent bonus issue on April 1, 2022,
when the market value of the share was P24 per share. Accordingly, new shares were issued.
Another P2.50 per cash dividends were declared on September 1, 2022 and the equipment with a
carrying value of P650,000 currently having fair value of P720,000 was declared as dividends on
December 1, 2022. Arteinian Corporation sustained a net loss of P810,000 for the year ended
December 31, 2022.

What amount should Arteinian Corporation report as retained earnings as of December 31, 2022?

a. P4,657,500 c. P4,511,250

b. P14,567,500 d. P5,321,250

How much is the total shareholder’s equity should Arteinian Corporation in its December 31, 2022
Statement of Financial Position?

a. P11.511.250 c. P13,151,250

b. P12,051,250 d. P13,671,250

12. Odibas company reported the following difference between the book basis and tax basis of
assets and liabilities on 31 December 2017 which is the end of the 1st year of operations:
 Carrying Amount Tax Base

Installment accounts receivables 1,000,000 0

Litigation Liability 200,000 0

It is expected that the litigation liability will be settled in 2018. The difference i accounts receivable
will result in taxable amounts of P 600,000 in 2018 and P400,000 in 2019.

The entity has a taxable income of P 7,000,000 in 2017 and is expected to have taxable income
in each of the following in each of the following in each of the following 2 years. The income tax
rate is 30%.

What is the current tax expense?

a. 2,340,000
b. 2,100,000
c. 7,000,000
d. 7,800,000
13. Mikmik Co. was organized on January 2, 20x1, with 30,000 authorized shares of ₱10 par ordinary
shares. During 20x1 the corporation had the following capital transactions:
Jan. 5 Issued 20,000 shares at ₱ 15 per share.
July 14 Purchased 5,000 shares at ₱ 17 per share.
Dec. 27 Reissued the 5,000 shares held in treasury at ₱ 20 per share.

Mikmik used the cost method to record the purchase and reissuance of the treasury shares. In its
December 31, 20x1, balance sheet, what amount should Mikmik report as share premium in excess of
par?
a. 100,000
b. 125,000
c. 140,000
d. 115,000

14. Entity P had the following instruments outstanding all throughout 20x1:
12% convertible bonds payable issued at face amount, each ₱1,000 bond is convertible into 30 ordinary
shares ₱2,000,000 Ordinary shares, ₱10 par, 100,000 shares issued and outstanding 1,000,000

Profit for the year is ₱800,000. Entity A’s income tax rate is 30%.

What is the diluted earnings per share in 20x1?

a. 6.28
b. 6.05
c. 6.15
d. 5.98
15. Entity A received a subscription for 2,000 shares ate ₱18 per share on March 31, 20x1. Entity A’s
shares have apar value 5 ₱ per share. Entity A collected the subscription receivable on May 15, 20x1.
Which of the following statements is correct?
a. Entity A should credit share premium for 13,000 on March 31, 20x1. ₱
b. Entity A should credit share premium for 26,000 on March 31, 20x1 ₱ .
c. Entity A should credit share premium for 13,000 on May 15, 20x1. ₱
d. Entity A should credit share premium for 26,000 on May 15, 20x1.

16. Which of the following is not one of the basic shareholders rights?
a. The right to participate in earnings.
b. The right to maintain one's proportional interest in the corporation.
c. The right to participate in the proceeds of the sale of corporate assets
upon liquidation of the corporation.
d. The right to inspect the accounting records of the corporation.

17. An entity provided the following data for the year ended December 31, 2015:
Retained earnings unappropriated, January 1 200,000
Overdepreciation of 2014 due to prior period error 100,000
Net income for 2015 1,300,000
Retained earnings appropriated for treasury shares (original balance is P500,000
but reduced by P200,000 by reason of reissuance of the treasury shares) 300,000
Retained earnings appropriated for contingencies (beginning balance P700,000.
but increased by current appropriation of P100,000) 800,000
Cash dividends paid to shareholders 500,000
Change in accounting policy from FIFO to average – credit adjustment 150,000

What is the balance of unappropriated retained earnings on December 31, 2015?

a. 1,150,000
b. 1,350,000
c. 1,950,000
d. 1,750,000

18. On February 1, authorized ordinary share was sold on a subscription basis at a price in excess of par
value, and 20 percent of the subscription price was collected. On May 1, the remaining 80 percent of the
subscription price was collected. Share premium would increase on
February 1 May 1
a. No Yes
b. No No
c. Yes No
d. Yes Yes

19. Entity A reacquires 10,000 of its own shares for ₱50. The shares have par value of ₱10 and were
originally issued at ₱15 per share. Subsequently, Entity A reissues half of the reacquired shares at ₱58
per
share and retires the other half. The journal entry to record the retirement of the shares includes which of
the following? (Hint: Provide the entries for both the reissuance and the retirement.)
a. Debit to Retained earnings for 175,000 ₱
b. Credit to Share premium - retirement for 40,000 ₱
c. Debit to Share premium for 50,000 ₱
d. Debit to Retained earnings for 135,000

20. Legal capital is the portion of contributed capital that cannot be distributed to the owners during the
lifetime of the corporation unless the corporation is dissolved and all of its liabilities are settled first. For
no-par value shares, legal capital is
a. the aggregate par value of shares issued and subscribed.
b. the total consideration received or receivable from shares issued or subscribed.
c. the aggregate stated value of shares issued and subscribed.
d. the aggregate market value of shares issued and subscribed.

INTERMEDIATE ACCOUNTING 3
1. An entity was incorporated on January 1, 2015 with proceeds from the issuance of P7,500,000 in
shares and borrowed funds of P1,100,000. During the first year of operations, revenue from sales
and consulting amounted to P820,000, and operating costs and expenses totaled P640,000. On
December 15, the entity declared a P30,000 cash dividend, payable to shareholders on January
15, 2016. No additional activities affected owners’ equity in 2015. The liabilities increased to
P1,200,000 by December 31, 2015. What amount should be reported as total assets on
December 31, 2015?

a. 8,850,000
b. 8,820,000
c. 7,870,000
d. 8,750,000

2. To arrive at net cash provided by operating activities, it is necessary to report revenues and
expenses on a cash basis. This is done by:
a. re-recording all income statement transactions that directly affect cash in a separate cash flow
journal.
b. estimating the percentage of income statement transactions that were originally reported on a
cash basis and projecting this amount to the entire array of income statement transactions.
c. eliminating the effects of income statement transactions that did not result in a corresponding
increase or decrease in cash.
d. eliminating all transactions that have no current or future effect on cash, such as depreciation,
from the net income computation.

3. The first step in the preparation of the statement of cash flows requires the use of information
included in which comparative financial statements?
a. Statements of cash flows
b. Balance sheets
c. Income statements
d. Statements of retained earnings

4. The statement of financial position is useful for analyzing all the following, except:
a. Liquidity c. Profitability
b. Solvency d. Financial Flexibility
5. It refers to the availability of cash over the longer term to meet maturing
a. Liquidity c. Solvency
b. Solidity d. Profitability

6. The objective of the financial statements is to

a. Prepare a statement of financial position and statement of comprehensive income
b. Present relevant, reliable, comparable, and understandable information
c. Prepare financial statements in accordance with all applicable standards
d. Provide information about the financial position, financial performance and changes in financial
position that is useful to a wide range of users

7. Which statement in relation to financial statements is incorrect?

a. General purpose financial statements do not and cannot provide all of the information that
primary users need
b. General purpose financial statements are designed to show the value of the reporting entity
c. General purpose financial statements are intended to provide common information to users
d. Financial statements are largely based on estimates and judgment rather than exact depiction

Moo Farms, Inc. produce milk on its farm located in the Luzon region. At December 31, 2022, the
herds of cows are as follows:

• 1,000 cows (3-years old) all purchased in prior years.

• 500 heifers (1.5-years old when purchased on June 30, 2022)
• 250 heifers (2-years old) purchased on December 31, 2022

No animals were bord or sold during 2023.

At December 31, 2022

1.5 years old 14,500
2 years old 17,500
3 years old 19,000

At December 31, 2023

1.5 years old 16,000
2 years old 20,000
3 years old 23,500
4 years old 27,500

8. What is the gain from changes in FV – cost to sell due to price change during 2023?
a. 5,875,000
b. 6,375,000
c. 6,625,000
 d. 13,000,000

9. What is the gain from changes in FV – cost to sell due to physical change during 2023?

a. 5,875,000

b. 6,375,000

c. 6,625,000

d. 13,000,000

10. Juancho Company had a net income after tax of P3,500,000 for the year ended December 31,
2022 after giving effect to the following events which occurred during the year. The decision was
made on May 31 to discontinue the bottles manufacturing segment. The bottle manufacturing
segment was sold on June 30. Operating profit from January 1 to May 30 for the bottle
manufacturing segment amounted to P950,000 before tax. Bottle manufacturing equipment with a
book value of P1,900,000 was sold for P1,150,000. The tax rate was 30%. For the year ended
December 31, 2022, how much was the company’s after-tax income from continuing operations?

a. P3,300,000

b. P3,360,000

c. P3,440,000

d. P3,500,000

11. Richard Company and its divisions are engaged solely in manufacturing. The data pertain to the
industries in which operations were conducted for the year ended December 31, 2022:

Operating Segment Intersegment Sales External Revenues

A 1,000,000 5,000,000

B 1,500,000 3,000,000

C 4,000,000 8,000,000

D 500,000 1,300,000

E 2,000,000 2,800,000

F 200,000 900,000

Total 9,200,000 21,000,000

What is the minimum total external revenue of the reportable segments of Richard Company?

a. P2,100,000

b. P6,900,000
 c. P15,750,000

d. P22,650,000

12. Hardy Corp. acquires copyright from authors, paying in advance royalties in some cases and in
others, paying royalties within 30 days of year-end. Hardy reported royalty expense of P375,000
for the year ended December 31, 2020. The following data was included in the balance sheet:
● Prepaid royalties for 2019 amounting P40,000
● Royalties payable for 2019 amounting to P55,000
● Prepaid royalties for 2020 amounting to P20,000
● Royalties payable for 2020 amounting to P90,000

Under the cash basis, what amount of royalty expense should be reported in 2020 profit or loss?

a. 320,000

b. 330,000

c. 350,000

d. 360,000

13. On July 1, 2020 Kind Company incurred a loss of P300,000 on the disposal of an investment. The
operating income for full year ending December 31, 2020 was expected to be P500,000

a. 300,000

b. 500,000

c. 200,000

d. None

Raffy Co. provided the following data for 2022:

Purchase of building for cash (cash was borrowed from a bank) P2,800,000

Sale of delivery van for cash 1,920,000

Dividends paid (divided was declared in 2021) 2,000,000

Issuance of common stock for cash 1,600,000

Issuance of preference share for land 2,100,000

Purchase of machinery for cash 1,200,000

Payment of bank loan 1,560,000

Issuance of promissory note for cash 1,000,000

14. What is the net cash provided (used) by investing activities?

a. (2,080,000)
 b. 2,080,000

c. (4,180,000)

d 4,180,000

15. What is the net cash provided (used) by financing activities?

a. 3,840,000

b. 1,840,000

c. (1,040,000)

d. (960,000)

Sig Company acquired machinery for P500,000 on January 1, 2020 with a useful life of 10 years
and estimated residual value of P50,000

On December 31, 2021, the company classified the machinery as held for sale. The fair value of
the machinery on December 31, 2021 was P375,000 and the cost to dispose is estimated at
P25,000

On December 31, 2022, the company believed that the criteria for classification as held for sale
can no longer be met. Accordingly, the company dedicated not to sell the asset but to use it. On
December 31, 2022, the fair value of the machinery was P400,000 and the cost to sell is
estimated at P40,000. The value in use was determined at P370,000.

16. What is the impairment loss to be recognized on December 31, 2021?

a. Zero

b. 10,000

c. 35,000

d. 60,000

17. What is the measurement of the machinery that ceases to be classified as held for sale on
December 31, 2022?

a. 350,000

b. 360,000

c. 365,000

d. 370,000

18. What amount should be recognized in profit or loss as a result of the reclassification in 2022?

a. 15,000 gain
 b. 15,000 loss

c. 20,000 gain

d. 20,000 loss

19. Mikmik Company provided the following information for the current year:

Cash, January 1 P320,000

Net cash provided by operating activities 410,000

Net cash used by investing activities 390,000

Net cash provided by financing activities 200,000

What is the cash balance on December 31?

a. 1,320,000

b. 930,000

c. 540,000

d. 100,000

20. Maxx Company provided the following information for the current year

Income from continuing operations 2,000,000

Income from discontinued operations 250,000

Unrealized gain on financial asset classified as FVPL 400,000

Unrealized loss on equity investment classified as FVOCI 500,000

Unrealized gain on debt investment classified as FVOCI 600,000

Unrealized gain on forward contract designated as cash flow 200,000

hedge

Translation loss on foreign operation 100,000

Net actuarial gain on defined benefit plan 300,000

Loss on credit risk of a financial liability designated as FVPL 150,000

Revaluation surplus during the current year 1,250,000

What net amount should be reported as other comprehensive income for the current year?

a. 350,000

b. 2,250,000

c. 2,400,000

d. 2,650,000
SOLUTION:

INTERMEDIATE ACCOUNTING 1

1.
Undeposited collections P60,000
Cash in bank-BPI checking account 500,000
Cash in bank-BPI (fund for payroll) 150,000
Cash in bank-BPI (savings deposit) 100,000
Cash in bank-BPI (money market instruments, 90 days) 2,000,000

2.

Cash on hand P50,000

NSF Check (4,000)
Postdated Check (6,000)

3.

4. OCIs are presented in equity section in the balance sheet, pero tinatnanong is "charge" so related sa
expense or loss. under trading sec, since may unrealized loss, may corresponding charge sa income. sa
OCI, since may total unrealized gain, no corresponding charge will be presented in SHE.

5.
6.
Land held for undetermined future use 1,000,000
Vacant building to be leased out under an operating lease 2,000,000
Building owned by subsidiary and the subsidiary provides
security and maintenance services to the lessees 2,500,000
Building under construction for use as investment property 3,500,000

7.
Cost of land, which included a dilapidated apartment building P3,000,000
Fee for title search 25,000
Survey before construction of new building 20,000
Assessment by city for drainage project 15,000
Cost of grading and leveling 50,000

8.
Apartment building mortgage assumed, including
related interest due at the time of purchase 80,000
Payments to tenants to vacate the apartment building 20,000
Cost of razing the apartment building 40,000
Architects fee for new building 60,000
Building permit for new construction 40,000
Excavation before construction of new building 100,000
Payment to building contractor 10,000,000
Temporary quarters for construction crew 80,000
Temporary building to house tools and materials 50,000
Interest cost on specific borrowing incurred during construction 360,000
Premium for insurance on building during construction 30,000
‘
9.
Cost of paving driveway and parking lot 60,000
Cost of installing lights in parking lot 12,000

11.

Find the Depletion Rate

10,400,000 - 800,000 / 8,000,000 = 1.2 per year

1.2 x 800,000 = 960,000

12.
Legal life = 20
The question is carrying value not initial cost. So need mo pa kunin ang amortization
 Legal expense to obtain patent 120,000
Expense of drawing required by the patent office to be
submitted with the patent application 17,000
Fees paid to Government patent office to process application 24,500
Cost of Patent 161,500

161,500 / 20 = 8,075 x 2 (since na-acquire ang patent ng Jan. 2021 pero ang tanong ay Dec
2022, so 2 years)

161,500 x 16,150 = 145,350

13.

Franchise

Cash down payment 25,000

PV of Franchise 43,700
Initial Cost of Franchise 68,650
Divide by Useful Life 10
Unamortized Cost 6,870

Patent
Legal fees 48,000
Divide by Useful life 8
Unamortized Cost 6,000

Trademark
Cost 40,000
Divide by 20 20
Unamortized Cost 3,000

14.

Intermediate Accounting 2

1.
2.

3.

5.

6.
7.

8.
9.

10.

11.

INTERMEDIATE ACCOUNTING 3
8.

9.

10.

11. 75% of total external revenue (21M x 75%) = 15,750,000

12.
Royalties expense - accrual basis P375,000
Royalties payable - 2019 55,000
Prepaid royalties - 2020 20,000
Royalties payable - 2020 (90,000)
Prepaid royalties - 2019 (40,000)
Royalties expense - cash basis 320,000
14-15.

Investing Financing
Purchase of building for cash
(cash was borrowed from bank) (2,800,000) 2,800,000

Sale of delivery van for cash 1,920,000

Dividends paid (2,000,000)

Issuance of common stock for cash 1,600,000

Purchase of machinery for cash (1,200,000)

Payment of bank loan (1,560,000)

1,000,000
Net cash provided (used) (2,080,000) 1,840,000

16.

Cost 500,000
Less: Accu. Depn. (45k per year x 2) (90,000)
Carrying value 12/31/21 410,000

500,000 - 50,000 / 10 = 45,000 (depreciation annually)

Carrying Value 410,000

Fair value less cost of disposal (375k-25k) 350,000
Impairment Loss 60,000

17.

Cost 500,000
Less: Accu. Depn (45k x 3) (135,000)
Carrying Amount 12/31/22 365,000

Fair Value - Cost of Disposal (400k-40k) 360,000

Value in use 370,000
Recoverable amount 370,000

CHOOSE LOWER BETWEEN CARRYING AMOUNT AND RECOVERABLE AMOUNT

Recoverable amount 370,000
Carrying Amount 365,000

18.

Measurement of the machinery that ceases

to be classified as held for sale 365,000
Less: Carrying amount 12/31/22 - held for sale 350,000
Gain on reclassification 15,000

19.

Cash, January 1 320,000

Net cash provided by operating activities 410,000
Net cash used by investing activities (390,000)
Net cash provided by financing activities 200,000
Ending Cash Balance 540,000

20.

Unrealized loss on equity investment classified as FVOCI (500,000)

Unrealized gain on debt investment classified as FVOCI 600,000
Unrealized gain on forward contract designated as cash flow hedge 200,000
Translation loss on foreign operation (100,000)
Net actuarial gain on defined benefit plan 300,000
Loss on credit risk of a financial liability designated as FVPL (150,000)
Revaluation surplus during the current year 1,250,000
OCI 1,600,000