Father Saturnino Urios University
Accountancy Program
AIR- Cluster 1 (Drill #1)
Conceptual Framework
1. Which statement is true concerning the Conceptual Framework for Financial Reporting?
a. the Conceptual Framework is a reporting standard and defines standard for any particular measurement or
disclosure issue
b. the Conceptual Framework is concerned with general purpose financial statements including consolidated
financial statements
c. in cases of conflict, the requirements of the Conceptual Framework prevail over those of the relevant PFRS
d. All of these statements are true
2. The Conceptual Framework
a. includes conservatism which means when in doubt, choose the solution that is least likely to overstate assets
or income and understate liabilities or expenses
b. excludes conservatism because it is inconsistent with neutrality which encompasses freedom from bias
c. includes conservatism as a required quality of accounting information
d. includes conservatism as a desirable but not a required quality of accounting information
3. The “fundamental” qualitative characteristics are
a. reliability and comparability c. comparability
and consistency
b. materiality and timeliness d. relevance and faithful
representation
4. An “enhancing” quality described in the conceptual framework is that
a. information must be decision-useful to all potential users of financial reporting
b. general-purpose financial reporting is the primary source of information for users of financial reporting
c. users need reasonable knowledge of business and financial accounting matters to understand the information
contained in financial statements
d. all of the choices are correct
5. It is the inclusion of a degree of caution in the exercise of judgment needed in making estimates under
conditions of uncertainty such that assets and income are not overstated, or liabilities and expenses are not
understated
a. prudence c. objectivity
b. materiality d. relevance
6. Historical cost is the
a. amount of cash or cash equivalent that would have to be paid if the same or an equivalent asset was acquired
currently
b. amount of cash or cash equivalent paid or the fair value of the consideration given at the time of acquisition
c. amount of cash or cash equivalent that could currently be obtained by selling the asset in an orderly disposal
d. discounted value of the future net cash inflows that an item is expected to generate in the normal course of
business
Accounting Process
7. The normal balance of an account is on the
a. debit side of the account
b. credit side of the account
c. side represented by increase in the account balance
d. side represented by decrease in the account balance
8. An optional step in the accounting cycle is the preparation of
a. adjusting entries c. financial statements
b. closing entries d. a post closing trial balance 10
9. An accrued expense can best be described as an amount
a. paid and currently matched with earnings
b. paid and not currently matched with earnings
c. not paid and currently matched with earnings
VMBM, CPA
Father Saturnino Urios University
Accountancy Program
AIR- Cluster 1 (Drill #1)
d. not paid and not currently matched with earnings
10. A prepaid expense can best be described as amount
a. paid and currently matched with earnings
b. paid and not currently matched with earnings
c. not paid and currently matched with earnings
d. not paid and not currently matched with earnings
11. The debit and credit analysis of a transaction normally takes place
a. before an entry is recorded in a journal
b. when the entry is posted to the ledger
c. when the trial balance is prepared
d. at some other point in the accounting cycle
Cash and Cash Equivalents
12. Jeric Company provided the following information on December 31, 2014:
Cash in bank per book 7,400,000
Cash in bank per bank statement 8,180,000
Deposit in transit 1,200,000
Outstanding checks, including certified check of 1,500,000
P200,000
Note collected by bank for the entity, including 1,100,000
interest of P100,000
Service charge for December 20,000
DAIF checks of customers returned by bank 500,000
Error in recording a check in the book. The correct 100,000
amount as paid by the bank is P100,000 instead of
P200,000 as recorded in the book
Deposit in other bank closed by BSP 1,500,000
Currency and coins on hand 600,000
Petty cash fund 50,000
What is the total cash to be reported as current asset on December 31, 2014?
a. 8,080,000 b. 8,180,000 c. 8,530,000 d. 8,730,000
13. Arianne Company had the following cash balances on December 31, 2014:
Cash in bank- current account 5,000,000
Cash in bank- payroll account 1,000,000
Cash in bank- restricted account for plant addition, 500,000
expected to be disbursed in 2015
Cash in sinking fund set aside for bond payable due on 1,500,000
June 30, 2015
Petty cash fund (included unreplenished Dec 2014 50,000
petty cash expense vouchers of P5,000 and employee
IOU of P5,000)
Money market placement or commercial papers 1,500,000
Savings deposit 800,000
Treasury bills, purchased Nov 1 2014 and maturing Jan 2,500,000
31 2015
Time deposit, purchased Oct 1 2014 an maturing Jan 2,000,000
31 2015
Cash in bank- current account included P500,000 of compensating balance against short term borrowing
arrangement on December 31 2014. The compensating balance is legally restricted as to withdrawal. A check of 10
P1,000,000 dated Jan 31 2015 in payment of accounts payable was recorded and mailed on Dec 31 2014. What
amount should be reported as cash and cash equivalents on Dec 31 2014?
a. 15,350,000 b. 12,840,000 c. 11,340,000 d. 13,340,000
VMBM, CPA
Father Saturnino Urios University
Accountancy Program
AIR- Cluster 1 (Drill #1)
14. At year end, Arlene Company reported cash and cash equivalents comprising cash on hand P500,000, demand
deposit P4,000,000, certificate of deposit P2,000,000, post dated customer’s check P300,000, petty cash fund
P50,000, traveler’s check P200,000, manager’s check P100,000 and money order P150,000. What total amount
of cash should be reported at year end?
a. 7,000,000 b. 4,800,000 c. 6,800,000 d. 5,000,000
15. Michelle Company reported the following information in relation to imprest petty cash fund at year end:
Coins and currency 22,000
Petty cash vouchers:
Gasoline 3,000
Medical supplies 1,000
Repairs 1,500
IOU from an employee 3,500
Check drawn payable to the order of Rose Anne, petty cash custodian, representing
Her salary 15,000
Check for an employee returned by bank marked as “NSF” 3,000
A sheet of paper with names of several employees together with contribution for
A birthday party and attached to the sheet of paper is a currency of 5,000
The petty cash ledger account had a balance of P50,000. What amount of petty cash fund should be reported at
year end?
a. 42,000 b. 27,000 c. 37,000 d. 22,000
Bank Reconciliation
16. Cool Company prepared the following bank reconciliation for the month of November:
Balance per bank statement, November 30 3,600,000
Add: Deposit in transit 800,000
4,400,000
Less: Outstanding checks 1,200,000
Bank credit recorded in error 200,000 1,400,000
Balance per book, November 30 3,000,000
Data per bank statement for the month of December follow:
December deposits (including note collected of P1,000,000 for Cool Company) 5,500,000
December disbursements (including NSF, P350,000 and service charge, P50,000) 4,400,000
All items that were outstanding on November 30 cleared through the bank in December, including the bank
credit. In addition, P500,000 in checks were outstanding and deposits of P700,000 were in transit on December 10
31.
1. What is the balance of cash per ledger on December 31?
a. 4,100,000 b. 4,900,000 c. 4,700,000 d. 4,300,000
VMBM, CPA
Father Saturnino Urios University
Accountancy Program
AIR- Cluster 1 (Drill #1)
2. What is the amount of cash receipts per book in December?
a. 5,400,000 b. 4,400,000 c. 5,500,000 d. 6,400,000
3. What is the amount of cash disbursements per book in December?
a. 3,700,000 b. 3,300,000 c. 3,100,000 d. 3,500,000
17. The cash account in the ledger of Kate Company shows a balance of P1,652,000 at December 31. The bank
statement, however, shows a balance of P2,090,000 at the same date. The only reconciling items consist of a
bank service charge of 2,000, a large number of outstanding checks totaling P590,000 and a deposit in transit.
What is the deposit in transit in the December 31 bank reconciliation?
a. 150,000 b. 154,000 c. 440,000 d. 592,000
18. Ron Company provided the following data for the month of January of the current year:
Balance per book, Jan 31 3,130,000
Balance per bank statement, Jan 31 3,500,000
Collections on Jan 31 but undeposited 550,000
NSF Check received from a customer returned by the bank on Feb 5
With the Jan bank statement 50,000
Checks outstanding on Jan 31 650,000
Bank debit memo for safety deposit box rental not recorded by depositor 5,000
A creditor’s check for P30,000 was incorrectly recorded in the depositor’s
Book as 300,000
A customer’s check for P200,000 was recorded by the depositor as 20,000
The depositor neglected to make an entry in its books
For a check drawn in payment of an account payable 125,000
What is the adjusted cash in bank on Jan 31?
a. 3,130,000 b. 3,500,000 c. 3,400,000 d. 2,950,000
Accounts Receivable
19. Shelyn Company operates in an industry that has a high rate of bad debts. On December 31, 2013, the accounts
receivable balance was P8,000,000 and the allowance for doubtful accounts on January 1, 2013 was P900,000.
The year-end balance reported for the allowance for doubtful accounts is based on the following schedule:
Time outstanding Accounts receivable Percent uncollectible
Under 30 days 5,000,000 10%
31-180 days 1,500,000 20%
181-360 days 1,000,000 50%
More than one year 500,000 100%
During the year, accounts of P400,000 were written off and recoveries of previously written off accounts totaled
P100,000. What amount should be reported as doubtful accounts expense for 2013?
a. 1,800,000 b. 1,200,000 c. 900,000 d. 400,000
20. During the current year, Grace Company reported beginning allowance for doubtful accounts P200,000, sales
P9,500,000, sales returns and allowances P1,000,000, sales discounts P500,000, accounts written off P300,000
and recovery of accounts written off P50,000. It is estimated that 5% of net sales may prove uncollectible. What
is the allowance for doubtful accounts at year end?
a. 350,000 b. 375,000 c. 400,000 d. 425,000
21. John Company reported on Dec 31 2014 accounts receivable P5,000,000, debit balance in allowance for doubtful
accounts P50,000 and sales P20,000,000. The entity estimated that 8% of accounts receivable may prove
uncollectible. What amount should be reported as doubtful accounts expense for the current year?
10
a. 400,000 b. 450,000 c. 350,000 d. 500,000
22. Mark Company reported accounts receivable on December 31 2014 as follows:
Ayee Company 800,000
Bee Company 2,000,000
VMBM, CPA
Father Saturnino Urios University
Accountancy Program
AIR- Cluster 1 (Drill #1)
Cee Company 1,200,000
Day Company 1,000,000
All other accounts receivable 5,000,000
The entity determined that Aye Company receivable is impaired by P400,000 and Day Company receivable is
totally impaired. The other receivables from Bee and Cee are not considered impaired. The entity determined
that a composite rate of 5% is appropriate to measure impairment on the remaining accounts receivable. What
is the total impairment of accounts receivable for 2014?
a. 1,400,000 b. 1,650,000 c. 1,810,000 d. 1,830,000
Receivable Financing
23. On Dec 1 2014, Janna company assigned a non notification basis accounts receivable of P5,000,000 to a bank in
consideration for a loan of 80% of the accounts less a 5% service fee on the accounts assigned. The entity signed
a note for the bank loan. On Dec 31 2014, the entity collected assigned accounts of P2,000,000 less discount of
P200,000. The entity remitted the collections to the bank in partial payment for the loan. The bank applied first
the collection to the interest and the balance to the principal. The agreed interest is 1% per month on the loan
balance. The entity accepted sales returns of P100,000 on the assigned accounts and wrote off assigned
accounts totaling P300,000.
1. What is the balance of accounts receivable assigned on Dec 31 2014?
a. 3,000,000 b. 2,600,000 c. 2,400,000 d. 2,900,000
2. What is the equity of the assignor in assigned accounts on Dec 31 2014?
a. 2,600,000 b. 2,240,000 c. 360,000 d. 0
24. Andrew Company factored P5,000,000 of accounts receivable. Control was surrendered by the entity. The
finance company assessed a fee of 5% and retains a holdback equal to 10% of the accounts receivable. In
addition, the finance company charged 12% interest computed on a weighted average time to maturity of the
accounts receivable for 30 days. Assume 365 days
1. What is the amount initially received from the factoring of accounts receivable?
a. 4,250,000 b. 4,200,000 c. 4,700,685 d. 4,200,685
2. What total amount should be recognized as loss on factoring?
a. 299,315 b. 799,315 c. 250,000 d. 0
Notes & Loans Impairment
25. On Dec 31 2011, Party Company received two P50,000 notes receivable from customers in exchange for services
rendered. On both notes, interest is computed on the outstanding principal balance at the annual rate of 3% and
payable at maturity. The note from Pretty Corp made under customary trade terms, is due in nine months and
the note from Charm Inc is due in five years. The market rate of similar notes on Dec 31 2011 was 8%. The
compound interest factors to convert future values into present values at 8% follow:
Present value of P1 due in nine months 0.944
Present value of P1 due in five years 0.680
At what amounts should these two notes receivable be reported in Party’s December 31 2011 statement of
financial position?
Pretty Charm
a. 47,200 34,000
b. 48,260 39,100
c. 50,000 34,000
d. 50,000 39,100
26. Persevere Company is a dealer in equipment. On December 31, 2013, the entity sold an equipment in exchange
for a noninterest bearing note requiring five annual payments of P500,000. The first payment was made on
December 31, 2014.
The market interest rate for similar notes was 8%. The relevant present value factors are: 10
PV of 1 at 8% for 5 periods 0.68
PV of an ordinary annuity of 1 at 8% for 5 periods 3.99
1. In the December 31, 2013 statement of financial position, what is the carrying amount of note
receivable?
a. 2,500,000 b. 1,995,000 c. 1,700,000 d. 1,495,000
VMBM, CPA
Father Saturnino Urios University
Accountancy Program
AIR- Cluster 1 (Drill #1)
2. What amount of interest income should be reported for 2014?
a. 505,000 b. 101,000 c. 159,600 d. 119,600
3. What is the carrying amount of the note receivable on December 31, 2014?
a. 1,654,600 b. 2,154,600 c. 2,000,000 d. 1,495,000
27. Lara Bank granted a loan to a borrower on January 1, 2013. The interest on the loan is 10% payable annually
starting December 31, 2013. The loan matures in three years on December 31, 2015. Data related to the loan
are:
Principal amount 5,000,000
Origination fee charged against the borrower 340,000
Direct origination cost incurred 100,000
Indirect origination cost incurred 50,000
After considering the origination fee charged against the borrower and the direct origination cost incurred, the
effective rate on the loan is 12%.
1. What is the carrying amount of the loan receivable on January 1, 2013?
a. 4,760,000 b. 5,000,000 c. 4,810,000 d. 4,660,000
2. What is the interest income for 2013?
a. 571,200 b. 500,000 c. 476,000 d. 547,200
3. What is the carrying amount of the loan receivable on December 31, 2013?
a. 5,000,000 b. 4,760,000 c. 4,831,200 d. 4,910,944
28. Clarice Bank loaned P9,000,000 to a borrower on January 1, 2011. The terms of the loan were payment in full
on January 1, 2016, plus annual interest payment at 12%. The interest payment was made as scheduled on
January 1, 2012. However, due to financial setbacks, the borrower was unable to make the 2013 interest
payment. The bank considered the loan impaired and projected the cash flows from the loan on December 31,
2013. The bank has accrued the interest on December 31, 2012, but did not continue to accrue interest for 2013
due to the impairment of the loan. The projected cash flows are:
Date of cash flow Amount projected on December 31, 2013
December 31, 2014 1,500,000
December 31, 2015 2,000,000
December 31, 2016 2,500,000
December 31, 2017 3,000,000
The present value of 1 at 12% is 0.89 for one period, 0.80 for two periods, 0.71 for three periods, and
0.64 for four periods.
1. What is the loan impairment loss on December 31, 2013?
a. 2,370,000 b. 3,450,000 c. 6,630,000 d. 2,450,000
2. What is the interest income for 2014?
a. 795,600 b. 900,000 c. 180,000 d. 0
3. What is the carrying amount of the loan receivable on December 31, 2014?
a. 5,925,600 b. 4,845,600 c. 6,330,000 d. 7,500,000
Inventories
29. The inventory on hand on December 31, 2013 for Faith Company is valued at a cost of P950,000. The following 10
items were not included in this inventory amount:
Item 1: Purchased goods in transit, shipped FOB Destination, invoice price P30,000, which includes freight
charge of P1,500.
VMBM, CPA
Father Saturnino Urios University
Accountancy Program
AIR- Cluster 1 (Drill #1)
Item 2: Goods held on consignment by Faith Company at a sales price of P28,000, including sales
commission of 20% of the sales price.
Item 3: Goods sold to a customer, under terms FOB destination, invoiced for P18,500 which includes P1,000
freight charge to deliver the goods. Goods are in transit. The entity’s selling price is 140% of cost.
Item 4: Purchased goods in transit, terms FOB shipping point, invoice price P50,000, freight cost, P2,500.
Item 5: Goods out on consignment to a consignee, sales price P35,000.
What is the correct amount of inventory on December 31, 2013?
a.P1,042,000 b. P1,071,500 c. P1,040,000 d. P1,060,000
30. The audit of Joust Company revealed a physical inventory on December 31, 2013 with a cost of P4,000,000. The
following items were excluded from the count:
A special machine, fabricated to order for a customer costing P400,000, was finished and specifically segregated
on December 31, 2013. The customer was billed on that date and the machine excluded from inventory
although it was shipped on January 4, 2014.
Merchandise costing P50,000 shipped by a vendor FOB seller on December 28, 2013 and received by Joust
Company on January 10, 2014.
What is the correct amount of inventory on December 31, 2013?
a. 4,000,000 b. 4,400,000 c. 4,050,000 d. 4,450,000
Use the following information to answer items 31 and 32:
Childish Company provided the following information:
June July August
Sales on account 7,200,000 7,360,000 7,600,000
Cash sales 720,000 800,000 1,040,000
All merchandise is marked up to sell at invoice cost plus 20%. Inventory at the beginning of each month is 30% of
that month’s cost of goods sold.
31. What is the cost of goods sold for June?
a. 5,760,000 b. 6,000,000 c. 6,080,000 d. 6,600,000
32. What is the amount of purchases for July?
a. 6,528,000 b. 6,920,000 c. 8,304,000 d. 6,800,000
33. On July 1 2014, Czarina Company recorded purchases of inventory of P3,000,000 and P2,000,000 under credit
terms of 2/15, net 30. The payment due on the P3,000,000 purchase was remitted on July 16. The payment due
on the P2,000,000 purchase was remitted on July 31. Under the gross method and net method, respectively,
these purchases should be included at what amount in the determination of cost of goods available for sale?
a. 4,900,000 and 4,940,000 c. 4,940,000 and 4,900,000
b. 4,900,000 and 5,000,000 d. 5,000,000 and 4,900,000
34. Richard Company incurred the following costs during the current year:
Cost of purchases based on invoices 5,000,000
Trade discounts already deducted from invoices 500,000
Import duties 400,000
Freight and insurance on purchases 600,000
Other handling costs on imports 100,000
Commission paid to agents for arranging imports 200,000
Sales commission paid to sales agents 300,000
Salaries of accounting department 1,000,000 10
After sales warranty costs 250,000
What is the total cost of purchases?
a. 5,800,000 b. 6,300,000 c. 6,100,000 d. 6,600,000
VMBM, CPA
Father Saturnino Urios University
Accountancy Program
AIR- Cluster 1 (Drill #1)
35. On December 1 2014, Justin Company entered into a commitment to purchase 100,000 barrels of aviation fuel
for P55 per barrel on March 31 2015. The entity entered into this purchase commitment to protect itself against
the volatility in the aviation fuel market. By Dec 31, 2014, the purchase price of aviation fuel had fallen to P50
per barrel. However, by March 31 2015, when the entity took delivery of the 100,000 barrels the price of
aviation fuel had risen to P58 per barrel. What amount should be recognized as gain on purchase commitment
for 2015?
a. 500,000 b. 300,000 c. 800,000 d. 0
Inventory Valuation
36. Rich Company provided the following information:
Jan Units Unit Cost Total
1 Beg balance 10,000 150 1,500,000
5 Purchase 10,000 180 1,800,000
15 Sale 15,000
16 Sale return 1,000
25 Purchase 4,000 200 800,000
26 Purchase return 500 200 100,000
1. Under the FIFO, what amount should be reported respectively as cost of ending inventory and cost of goods
sold?
a. 1,780,000 and 2,220,000 c. 1,425,000 and 2,575,000
b. 1,790,000 and 2,210,000 d. 1,900,000 and 2,100,000
2. Under the perpetual average method or moving average, what amount should be reported respectively as
cost of ending inventory and cost of goods sold?
a. 1,690,000 and 2,310,000 c. 1,700,500 and 2,299,500
b. 1,790,000 and 2,210,000 d. 1,616,995 and 2,383,005
3. Under the periodic average method or weighted average, what amount should be reported respectively as
cost of ending inventory and cost of goods sold?
a. 1,616,995 and 2,383,005 c. 1,678,365 and 2,321,635
b. 1,790,000 and 2,210,000 d. 1,700,000 and 2,300,000
37. Donne Company provided the following data for the current year:
Inventory, Jan 1
Cost 3,000,000
Net realizable value 2,800,000
Net purchases 8,000,000
Inventory, Dec 31
Cost 4,000,000
Net realizable value 3,700,000
What amount should be reported as cost of goods sold under LCNRV?
a. 7,000,000 b. 7,100,000 c. 7,300,000 d. 7,200,000
Gross Profit/Retail Method
38. Gerald Company reported the following information for 2014:
Inventory, Jan 1 5,000,000
Purchases 26,000,000
Freight in 2,000,000
Purchases returns and allowances 3,500,000
Purchase discounts 1,500,000
Sales 30,000,000
Sales returns 3,000,000
Sales discounts 1,000,000
10
A physical inventory taken on Dec 31 2014 resulted in an ending inventory of P4,000,000. On Dec 31 2014,
unsold goods out on consignment with selling price of P1,000,000 are in hands of a consignee. The gross profit
was 25% on cost. on Dec 31 2014, what is estimated cost of inventory shortage?
a. 2,400,000 b. 2,900,000 c. 1,600,000 d. 3,100,000
VMBM, CPA
Father Saturnino Urios University
Accountancy Program
AIR- Cluster 1 (Drill #1)
39. On the night of Dec 31 2014, a fire destroyed most of the merchandise inventory of Alyssa Company. All goods
were completely destroyed except for partially damaged goods that normally sell for P100,000 and that had an
estimated net realizable value of P25,000 and undamaged goods that normally sell for P60,000.
Inventory, Jan 1 2014 600,000
Net purchases for 2014 4,300,000
Net sales for 2014 5,600,000
Total 2013 2012 2011
Net sales 9,000,000 5,000,000 3,000,000 1,000,000
Cost of sales 6,750,000 3,840,000 2,200,000 710,000
Gross income 2,250,000 1,160,000 800,000 290,000
What is the estimated amount of fire loss on Dec 31 2014?
a. 700,000 b. 615,000 c. 630,000 d. 580,000
40. Robert Company used the retail method to approximate the ending inventory. The following information is
available for the current year:
Cost Retail
Beg inventory 650,000 1,200,000
Purchases 9,000,000 14,700,000
Freight in 200,000
Purchase returns 300,000 500,000
Purchase allowances 150,000
Departmental transfer in 200,000 300,000
Net markups 300,000
Net markdowns 1,000,000
Sales 9,500,000
Sales discounts 100,000
Employee discounts 500,000
Estimated normal shoplifting losses 600,000
Estimated normal shrinkage 400,000
1. What is the estimated cost of ending inventory using the conservative approach?
a. 2,400,000 b. 2,460,000 c. 3,060,000 d. 2,700,000
2. What is the estimated cost of ending inventory using the average cost approach?
a. 2,560,000 b. 2,624,000 c. 3,264,000 d. 2,880,000
41. Beverly Company used the FIFO retail method of inventory valuation
Cost Retail
Beg inventory 1,400,000 2,000,000
Purchases 5,850,000 8,000,000
Net markup 1,500,000
Net markdown 500,000
Sales 7,500,000
What is the estimated cost of ending inventory using the FIFO approach?
a. 2,275,000 b. 2,375,000 c. 2,310,000 d. 2,205,000
10
VMBM, CPA
Father Saturnino Urios University
Accountancy Program
AIR- Cluster 1 (Drill #1)
End of Drill #1
10
VMBM, CPA
