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accounting notes 3

Accountancy (University of the Philippines System)

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BULACAN STATE UNIVERSTY

College of Business Administration
QUALIFYING EXAMINATION – LEVEL 2 (FinAcct 1, 2 & Cost Acctg.)

Name: __________________________________ Date: __________ Score: ____ / 100 items

1. Good Company leased a new machine from Bye Corporation on May 1, 2014 under a lease with
the following information:
Annual rental payable at beginning of each lease year P400,000
Lease term 10 years
Economic life of machine 12 years
Implicit interest rate 14%
Present value of an annuity of 1 in advance for 10 periods
At 14% 5.95
Present value of 1 for 10 periods at 14% 0.27
Good has the option to purchase the machine on May 1, 2024, by paying P500,000, which
approximates the expected fair value of the machine on the option exercise date. On May 1,
2014, how much should Good record the leased asset?
a. 1,980,000 c. 2,380,000
b. 2,245,000 d. 2,515,000

2. Manganese Company, a lessee, records a finance lease of machinery on January 1, 2014. The
seven annual lease payments of P200,000 are made at the end of each year. The present value of
the lease payments at 10% is P973,700. Manganese uses the interest method of amortization
and sum-of-the-years’-digit depreciation (no residual value). What is the carrying value of the
liability and the amount of depreciation, respectively, on December 31, 2015?
a. 0 and 0 c. 758,177 and 243,425
b. 758,177 and 208,650 d. 871,070 and 278,200

3. The following information pertains to an operating sale and leaseback of equipment by Cheerful
Co. on December 31, 2014:
Sales price P480,000
Carrying amount 520,000
Monthly lease payment 37,316
Present value of lease payments / Fair market value 420,000
Estimated remaining life 12 years
Lease term 1 year
Implicit rate 12 %
What amount of deferred gain on the sale should Cheerful report at December 31, 2014?
a. None c. 60,000
b. 40,000 d. 100,000

4. Steam Company disclosed the following information for the year ended December 31, 2014:
Bonds payable P300,000
Share premium on ordinary share 50,000
Donated capital 40,000
Treasury shares at cost 20,000

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Ordinary share capital, par P100 500,000

Ordinary share option warrants 100,000
Investments in Available for sale securities 70,000
Share premium 15,000
Retained earnings 135,000
What is the total shareholders’ equity of Steam Company for the year ended December 31,
2014?
a. 720,000 c. 820,000
b. 760,000 d. 860,000

5. Corridor Company issued 6,000 shares of its P100 par ordinary share to Max L. as compensation
for 1,000 hours of legal services performed. Max L. usually bills P500 per hour for legal services.
On this date of issuance, the share was selling at a public trading at P150 per share. By what
amount should the share premium account of Corridor Company increase as a result of the
issuance of those shares?
a. 300,000 c. 900,000
b. 600,000 d. 3,000,000

6. Ribbon Company issued 10,000 of its 6% preference share; par P100, at P125 per share. Each
share carried a detachable share warrant for one share of Ribbon’s ordinary share, P40 par, at a
specified option price of P50 per share. Immediately after issuance, the market value of Ribbon’s
preference share was P1,140,000 and the warrants was P60,000. What portion of the proceeds
should be credited to ordinary share warrants outstanding?
a. None c. 62,500
b. 60,000 d. 250,000

7. On July 1, 2014, Solo Company has 200,000 shares of P10 par ordinary share outstanding and
the market price of the share is P12 per share. On the same date, Solo declared a 1 for 2 reverse
share split. The par of the share was increased from P10 to P20. Immediately before the split,
the total Share Premium was P900,000. What should be the balance in Solo’s Share Premium
account after the reverse stock/share split is effected?
a. None c. 1,300,000
b. 900,000 d. 1,700,000

8. Imitation Company’s capital structure at December 31, 2013 is shown below:

Shares issued and outstanding:
Ordinary share 200,000
Nonconvertible preference share 50,000
On October 1, 2014, Imitation issued a 10% share dividend on its ordinary shares, and paid
P200,000 cash dividends on the preference shares. Net income for the year ended December 31,
2014 was P1,920,000. How much should be the 2014 earnings per share of Imitation Company?
a. 7.82 c. 8.72
b. 8.20 d. 9.36

9. On January 1, 2011, Monochromatic Company had 56,000 ordinary shares outstanding that did
not change during 2011 and 2010. The company granted options to certain executives to
purchase 9,000 shares of its ordinary share at P70 each. The average market price of ordinary

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share was P105 per share during 2011. What is the total number of shares to be used in
computing diluted earnings per share for 2011?
a. 56,000 c. 62,000
b. 59,000 d. 65,000

10. An analysis of Cool Company’s liabilities disclosed the following:

Accounts payable, after deducting debit balances in
suppliers’ accounts amounting to P22,500 (accounts
payable included non-trade liabilities of P32,500) P105,000
Accrued expenses 15,000
Credit balances of customers’ accounts 13,500
Stock dividends payable 70,000
Claims for increase in wages and allowances by employees
Of the company, covered in a pending lawsuit 125,000
Estimated liabilities for premiums 60,000
How much should be presented as total current liabilities in the statement of financial position?
a. 6,000 c. 183,500
b. 168,500 d. 216,000

11. The balance in Stem Corporation’s accounts payable account at December 31, 2014 was
P1,350,000 before any necessary year-end adjustments relating to the following:
 Goods were in transit to Stem from a vendor on December 31, 2014. The invoice cost
was P75,000. The goods were shipped FOB shipping point on December 29,2014 and
were received on January 2, 2015.
 Goods shipped FOB destination on December 21, 2014, from a vendor to Stem, were
received on January 6, 2015. The invoice cost was P37,500.
 On December 27,2014, Stem wrote and recorded checks totaling P60,000 which were
mailed on January 10,2015.
In Stem’s December 31, 2014 statement of financial position, how much should be the accounts
payable?
a. 1,410,000 c. 1,462,500
b. 1,425,000 d. 1,485,000

12. Bugs Appliance Company’s accountant has been reviewing the firm’s past television sales. For
the past years, Bugs has been offering a special service warranty on all televisions sold. With the
purchase of a television, the customer has the right to purchase a 3-year service contract for an
extra P600.
Information concerning past television and warranty contract sales is given below:
2012 2011
Television sales in units 550 460
Sales price per unit P 5,000 P 4,000
Number of service contracts sold 350 300
Expenses relating to television warranties P38,520 P13,400
BUGS’ accountant has estimated from past records that the pattern of repairs has been 40% in
the year of sale, 36% first year after sale and 24% on 2 nd year of sale. Sales of the contracts are
made evenly during the year.
What is the adjusted balance of the unearned service contract as December 31, 2012?
a. 111,600 b. 168,600

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c. 211,200 d. 243,600

13. Apex Company’s employees earn two weeks of paid vacation for each year of employment.
Unused vacation time can be accumulated and carried forward to succeeding years and will be
paid at the salary in effect when the vacation is taken. As of December 31, 2014, when Paul’s
salary was P6,000 per week. Paul had earned 18 weeks’ vacation time and had used 12 weeks of
accumulated vacation time. At December 31, 2014, how much should Apex carry as a liability for
Paul’s accumulated vacation time?
a. None c. 36,000
b. 12,000 d. 72,000

14. On January 1, 2011, Break Company agreed to grant its employees ten vested vacation days each
year, with the provision that vacation days earned in a particular year could not be taken until
the following year. For the year ended December 31, 2011, all ten of Break’s employees earned
P300 per day each and earned ten vacation days each. These vacation days were taken during
the first half of 2012. Wage rates remained the same for 2012. In Break’s 2011 profit or loss, how
much expense should be reported for compensation absences?
a. None c. 15,000
b. 3,000 d. 30,000

15. The Puncher Corporation launched a sales promotional campaign on June 30, 2011. For every
ten empty packs returned to Puncher, customers will receive an attractive food container. The
company estimates that only 30% of the packs reaching the market will be redeemed. Additional
data are as follows:
Units Amount
Sales of food packs 3,000,000 P9,000,000
Food containers purchased 60,000 180,000
Prizes distributed to customers 37,000
At the end of the year, Puncher recognized a liability equal to the estimated cost of potential
prizes outstanding. What is the amount of this estimated liability?
a. 69,000 c. 159,000
b. 90,000 d. 180,000

16. On July 1, 2011, Sydney Company started a sales promotional campaign. In each box of cereal
sold, Sydney inserted a coupon redeemable for a premium. To receive a premium, each
customer must submit five coupons. Sydney’s cost for each premium is P6. Sydney estimated
that 60% of the coupons issued would be redeemed. For the six months ended December 31,
2011, the following information is available:
Boxes of cereal sold 800,000
Coupons redeemed 200,000
How much should be the estimated liability for premium claims outstanding at December 31,
2011?
a. 240,000 c. 423,000
b. 336,000 d. 576,000

17. During 2014, Hansel Company issued 3,000 of its 9%, P1,000 face value bonds at 102. In
connection with the sale of these bonds, Hansel paid the following expenses:
Promotion costs P50,000

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Engraving and printing ` 60,000

Underwriter’s commission 200,000
What amount should Hansel record as bond issue costs to be amortized during the term of the
bonds?
a. 50,000 c. 110,000
b. 60,000 d. 310,000

18. On March 1, 2014, Mother Goose Corporation issued at 103 excluding accrued interest, 1,000 of
its 15%, P1,000 bonds. The bonds are dated January 1, 2014 and mature on January 1, 2024.
Interest is payable semi-annually on January 1 and July 1. Mother Goose paid transaction costs
P60,000. Mother Goose would realize net cash receipts from the bond issuance of:
a. 995,000 c. 1,055,000
b. 1,030,000 d. 1,095,000

For items 19 & 20: On January 1, 2009, Faith Company issued its 8%, 5-year convertible debt
instrument with a face amount of P8,000,000 for P7,700,000. Interest is payable every December 31
of each year. The debt instrument is convertible into 50,000 ordinary shares with a par value of
P100. When the debt instruments were issued, the prevailing market rate of interest for similar debt
without conversion option is 10%.
On December 31, 2011, all the convertible debt instruments were retired for P8,000,000. The
prevailing rate of interest on a similar debt instrument as of December 31, 2011 is 9% without the
conversion option.
19. What is the carrying value of the debt instruments as of December 31, 2011?
a. 7,393,473
b. 7,492,820
c. 7,602,102
d. 7,722,313

20. On the date of retirement, what amount of the proceeds represents the equity component?
a. 136,878
b. 140,729
c. 165,760
d. 305,760

21. Which of the following would be most indicative of a simple capital structure?
a. Equity represented materially by liquid assets
b. Common stock, preferred stock, and convertible securities outstanding
c. Earnings derived from one primary line of the business
d. Ownership interests consisting solely common stock

22. When EPS is computed, dividends on preferred stocks are

a. Added because they represent earnings to preferred shareholders
b. Subtracted because they represent earnings to preferred shareholders
c. Reported separately on the income statement
d. Ignore because so they do not pertain to the common stock

23. When shares are issued for services received, the measure should be the
a. Fair value of such services c. Fair value of shares issued

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b. Par value of shares issued d. Book value of shares issued

24. It is an equity that is subordinate to all other classes of equity instrument.

a. Ordinary share c. Warrants
b. Potential ordinary share d. Options

25. Which of the following differences would result in future taxable amounts?
a. Expenses or losses that are deductible after they are recognized n financial income
b. Revenues or gains that are recognized in financial income but are never included in taxable
income
c. Revenues or gains that are taxable before they are recognized n financial income
d. Expenses or losses that are deductible before they are recognized n financial income

26. Which of the following statements is correct regarding the provision for income taxes in the
financial statements of a sole proprietorship?
a. The provision for income taxes should be based on business income using individual tax rates
b. The provision for income taxes should be based on business income using corporate tax rates
c. No provision for income taxes is required
d. The provision for income taxes should be based on the proprietor’s total taxable income,
allocated to the proprietorship at the percentage that business income bears to the
proprietor’s total income

27. Under PAS 26, investments held by retirement benefit plans should be stated at which of the
following values in their statement of net assets?
a. Net realizable value c. Value in Use
b. Fair value d. Par value

28. Under PAS 19, plan assets include all of the following, except
a. Non-transferable financial instruments issued by the reporting enterprise
b. Assets held by a long-term benefit fund
c. Qualifying insurance policies
d. Assets that are available to be used only to pay fund employee benefits and are not available
for payments to creditors even in bankruptcy

29. If the lessor and lessee use different interest rates to account for a finance lease, then
a. The lessor will use different account titles to record the leasing transaction
b. Total expense and revenues will be different
c. Total expenses and revenues will be equal
d. The lessee and lessor cannot use different interest rates

30. Which of the following loss contingencies is usually not accrued?

a. Product warranty obligations c. Risk or loss from fire
b. Premium offer obligations d. Non-collectability of receivables

31. Which of the following provides the best explanation for why warranty expense should be
estimated and recorded in the year of related sales?
a. Matching c. Materiality
b. Full disclosure d. Revenue Recognition

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32. Which of the following is an essential characteristic of a liability?

a. The identity of the creditor must be known
b. It must be an obligation to transfer assets or provide services in the future
c. It may be the result of future transactions
d. The exact amount due must be known

33. A gain or loss from one of the following transactions should not be included in determining
income.
a. Sale of treasury shares c. Sale of products
b. Receipt of interest from bank deposits d. Sale of plant and equipment

34. Major factors contributing to the growth of corporation business includes all of the following,
except:
a. The facility to accumulate large amounts of resources
b. Easy transferability of the share of ownership
c. Limited liability of the shareholders
d. The lack of government regulation

35. Which could never be subject to interperiod tax allocation?

a. Rent revenue c. Estimated warranty expense
b. Depreciation expense on assets d. Interest revenue on municipal bonds

36.Brad Company has correctly computed its economic order quantity as 500 units. However,
management would rather order in quantities of 600 units. How will Brad's total annual
purchase order cost and total annual carrying cost for an order quantity of 600 units
compare to the respective amounts for an order quantity of 500 units?
A. higher purchase order cost and lower carrying cost
B. lower purchase order cost and higher carrying cost
C. higher purchase order cost and higher carrying cost
D. lower purchase order cost and lower carrying cost

37. Ziffel Company had the following account balances and results from operations for the
month of July: direct materials consumed, $10,400; direct labor, $8,000; factory overhead,
$8,800; July 1, work in process inventory, $2,400; July 31, work in process inventory, $1,800;
finished goods inventory, July 1, $1,200; finished goods inventory, July 31, $1,000. The total
manufacturing cost for the month of July was:
A. $27,800
B. $28,000
C. $18,400
D. $27,200

38. Cherokee Company applies factory overhead on the basis of direct labor hours. Budget and
actual data for direct labor and overhead for the year are as follows:

Budget Actual
Direct labor hours.................................................................. 600,000 650,000
Factory overhead costs.......................................................... $720,000 $760,000

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The factory overhead for Cherokee for the year is:

A. overapplied by $20,000
B. overapplied by $40,000
C. underapplied by $20,000
D. underapplied by $40,000

39. The Waitkins Company estimated Department A's overhead at $255,000 for the period
based on an estimated volume of 100,000 direct labor hours. At the end of the period, the
factory overhead control account for Department A had a balance of $265,500; actual direct
labor hours were 105,000. What was the over- or under-applied overhead for the period?
A. $2,250
B. $(2,250)
C. $15,000
D. $(15,000)

40. Howell Corporation has a job order cost system. The following debits (credits) appeared in
Work in Process for the month of July:

July 1, balance.................................................................................................. $ 12,000

July 31, direct materials.................................................................................... 40,000
July 31, direct labor.......................................................................................... 30,000
July 31, factory overhead................................................................................. 27,000
July 31, to finished goods................................................................................. (100,000)

Howell applies overhead to production at a predetermined rate of 90% based on the direct
labor cost. Job 1040, the only job still in process at the end of July, has been charged with
factory overhead of $2,250. What was the amount of direct materials charged to Job 1040?
A. $6,750
B. $2,250
C. $2,500
D. $4,250

41. A hospital has a $100,000 expected utility bill this year. The Janitorial, Accounting, and
Orderlies Departments are service functions to the Operating, Hospital Rooms, and
Laboratories Departments. Floor space assigned to each department is:

Department......................................................................................... Square Footage

Janitorial.............................................................................................. 1,000
Accounting.......................................................................................... 2,000
Orderlies.............................................................................................. 7,000
Operating............................................................................................ 4,000
Hospital Rooms................................................................................... 30,000
Laboratories........................................................................................ 6,000
.................................................................................................. 50,000

How much of the $100,000 will eventually become the Hospital Rooms Department total
costs, assuming use of the direct method of allocation based on square footage?

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A. $60,000
B. $72,000
C. $75,000
D. $80,000

42. An example of a fringe benefit is:

A. the employer portion of SSS , Pagibig and Philhealth
B. the direct labor wage rate
C. the straight rate for overtime hours
D. withheld taxes

43. Uno Manufacturing Corporation has found that the production of a certain product is
subject to an 80% learning curve. Production is in lots of 100 units, with 8 hours required for
the first lot each time the product is manufactured. The total time to produce 400 units is:
A. 19.52 hours
B. 24 hours
C. 32 hours
D. 20.48 hours

44. An employee is paid a base rate of $800 per week for 52 weeks. The employee is entitled to
a two-week vacation each year. Factory Overhead Control is debited each week for accrued
vacation pay of:
A. $15.38
B. $30.77
C. $20
D. $32

45. Avery Co. uses a predetermined factory overhead rate based on direct labor hours. For the
month of October, Avery's budgeted overhead was $300,000 based on a budgeted volume
of 100,000 direct labor hours. Actual overhead amounted to $325,000 with actual direct
labor hours totaling 110,000. How much was the overapplied or underapplied overhead?
A. $5,000 overapplied
B. $5,000 underapplied
C. $30,000 overapplied
D. $30,000 underapplied

46. Estimated factory overhead is $600,000, and the hours usage of machinery is expected to be
150,000. Factory overhead is applied at the rate of $10 per direct labor hour. The wage rate
for direct labor is $6 per hour, and the total number of estimated direct labor hours for the
period is:
A. 100,000
B. 150,000
C. 300,000
D. 60,000

47. J. D. Doonesbury Company manufactures tools to customer specifications. The following

data pertain to Job 1501 for April:

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Direct materials used......................................................................................... $ 4,200

Direct labor hours worked................................................................................. 300
Direct labor rate per hour.................................................................................. $ 8.00
Machine hours used.......................................................................................... 200
Applied factory overhead rate per machine hour.............................................. $ 15.00

What is the total manufacturing cost recorded on Job 1501 for April?
A. $9,600
B. $10,300
C. $11,100
D. $5,400

48. Selected cost data (in thousands) concerning the past fiscal year's operations of the Moscow
Manufacturing Company are presented below.

Inventories
Beginning Ending
Materials................................................................................ $75 $ 85
Work in process..................................................................... 80 30
Finished goods....................................................................... 90 110

Materials used, $326

Total manufacturing costs charged to production during the year (including direct materials,
direct labor, and factory overhead applied at the rate of 60% of direct labor cost), $686
Cost of goods available for sale, $826
Selling and general expenses, $25

The cost of goods sold during the year was:

A. $716
B. $691
C. $801
D. $736

49. Rudolpho Corporation makes aluminum fasteners. Among Rudolpho's 19-- manufacturing
costs were:

Materials and supplies:

Aluminum....................................................................................................... $400,000
Machine parts................................................................................................. 18,000
Lubricants for machines.................................................................................. 5,000

Direct materials amounted to:

A. $23,000
B. $400,000
C. $405,000
D. $418,000

50. At the end of the year, Paola Company had the following account balances after applied

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factory overhead had been closed to Factory Overhead Control:

Factory Overhead Control............................................................................ $ 1,000 CR

Cost of Goods Sold....................................................................................... 980,000 DR
Work in Process............................................................................................ 38,000 DR
Finished Goods............................................................................................. 82,000 DR

The most common treatment of the balance in Factory Overhead Control would be to:
A. carry it as a deferred credit on the balance sheet
B. report it as miscellaneous operating revenue on the income statement
C. credit it to Cost of Goods Sold
D. prorate it between Work in Process and Finished Goods

51. A company expects to produce an average of 75,000 units per year, but last year production
equaled 60,000 units. For the coming year, estimated production is 90,000 units. Estimated
overhead costs are $900,000, and overhead is applied at the rate of $10 per unit. The
company bases its overhead rates on:
A. theoretical (engineering) capacity
B. a short-term planning approach
C. historical capacity costs
D. expected actual capacity

52. Rapid Falls Corp. has three producing departments, A, B, and C, with 50, 30, and 20
employees, respectively, in each department. Factory payroll costs other than direct labor
are accumulated in a Payroll Department account and are assigned to producing
departments on the basis of number of employees. The total payroll in each department
was: A, $300,000; B, $275,000; C, $325,000; and Payroll, $50,000. Other costs accumulated
in the Payroll Department amounted to $200,000. The amount of Payroll Department costs
chargeable to Department C is:
A. $125,000
B. $100,000
C. $40,000
D. $50,000

53. The measurement of performance and the control of costs is aided the most by:
A. organizational charts
B. continuous supervision
C. preparation for the future
D. budgets and standards

54. In service businesses using job order costing, the most commonly used base for applying
overhead to jobs is:
A. machine hours
B. direct materials consumed
C. direct labor cost
D. meals, travel, and entertainment

55. For its economic order quantity model, a company has a $10 cost of placing an order and a

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$2 annual cost of carrying one unit in stock. If the cost of placing an order increases by 20%,
the annual cost of carrying one unit in stock increases by 25%, and all other considerations
remain constant, the economic order quantity will:
A. decrease
B. increase
C. remain unchanged
D. either increase or decrease, depending on the reorder point

56. In a perpetual inventory system, the sale of items for cash consists of two entries. One entry
is a debit to Cash and a credit to Sales. The other entry is a debit to
Work in Process Inventory and a credit to Finished Goods Inventory.
Finished Goods Inventory and a credit to Cost of Goods Sold.
Cost of Goods Sold and a credit to Finished Goods Inventory.
Finished Goods Inventory and a credit to Work in Process Inventory.

57. Plastic used to manufacture dolls is a

no yes yes yes

yes no yes no
yes yes no yes
yes yes yes no
58. Which of the following would not generally be considered a fixed overhead cost?

Straight-line Units-of-production
depreciation
insurance depreciation

no no no
yes no yes
yes yes no
no yes no

59. The term "relevant range" as used in cost accounting means the range over which
a. costs may fluctuate.
b. cost relationships are valid.
c. production may vary.
d. relevant costs are incurred.
The relevant range is the range where fixed cost will not change due
to changes in volume within the relevant range. The term cost
relationship means it is either a fixed, mixed, or variable cost. Relevant
range is used to determine the range of volume where a cost will be
fixed within these volumes, therefore, the costs won’t fluctuate (a.)
Production volumes will almost always vary (d.) and all costs used
to make a decision are relevant which is not directly related to the
term relevant range.

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60. The process of ___________ causes the need for cost accounting.
a. Conversion
b. sales
c. controlling
d. Allocating

61. Financial accounting and cost accounting are both highly concerned with
a. preparing budgets.
b. determining product cost.
c. providing managers with information necessary for control purposes.
d. determining performance standards.

62. Broadly speaking, cost accounting can be defined as a(n)

a. external reporting system that is based on activity-based costs.
b. system used for providing the government and creditors with information about a
company's internal operations.
c. internal reporting system that provides product costing and other information used by
managers in performing their functions.
d. internal reporting system needed by manufacturers to be in compliance with Cost
Accounting Standards Board pronouncements.

63. Compared to an ABC system, a traditional costing system reports:

A. a lower unit cost for high-volume products and a higher unit cost for low-volume
products
B. a higher unit cost for high-volume products and a lower unit cost for low-
volume products
C. the same unit costs for high- and low-volume products as does an ABC system
D. either higher or lower unit cost for high-volume products than an ABC system
depending upon the level of fixed costs

64. A company manufactures plastic products for the home and restaurant market. The company
also does contract work for other customers and utilizes a job order costing system. The
flexible budget covering next year's expected range of activity is:

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Direct labor hours............................................. 50,000 80,000 110,000

Machine hours.................................................. 40,000 64,000 88,000
Variable overhead costs................................... $100,000 $160,000 $220,000
Fixed overhead costs........................................ 150,000 150,000 150,000
Total overhead costs......................................... $250,000 $310,000 $370,000

A predetermined overhead rate based on direct labor hours at expected actual capacity is
used to apply total overhead. Management has estimated that 100,000 direct labor hours will
be used next year. The predetermined overhead rate per direct labor hour to be used to apply
total overhead to individual jobs next year is:
A. $3.70
B. $3.88
C. $3.36
D. $3.50

65. The department that has the responsibility for the financial administration of a company is:
A. Tax
B. Controller's
C. Cost
D. Treasury

66. Lipton Company shows the following account balances in their financial records as of December
31, 2010:

Checking account at Morgan bank, P(20,000); Checking account at Land bank, P500,000; Payroll
account – National bank, P100,000; Foreign bank account-restricted, P750,000; Postage stamps,
P22,000; Employees’ postdated check, P30,000; I.O.U. from president’s brother, P75,000;
Traveler’s check P50,000; No-sufficient funds check, P18,000; Petty cash fund (P16,000 in
currency and expenses receipts for P84,000), P100,000 and Cashier’s checks, P36,000
What is the correct cash balance to be reported in the balance sheet of Lipton Company on
December 31, 2010?
a. 582,000 c. 702,000
b. 686,000 d. 704,000

67. The cash account in the current asset section of the balance sheet for Heater Company showed a
balance of P555,000. It was found to include the following items:

Petty cash fund (P1,000 is in the form of paid vouchers), P5,000; Checking account balance, per
bank statement (A P25,000 check is still outstanding), P255,000; Unearned receipts (including a
post-dated check for P5,000), P120,000; Currencies and coins awaiting deposit, P55,000; Bond
sinking fund – cash, P100,000; Check drawn by manager, returned by bank marked NSF, P20,000.
What is the correct cash balance for Heater Company’s balance sheet?
a. 404,000 c. 430,000
b. 429,000 d. 529,000

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68. On the December 31, 2011 balance sheet of Microwave Company, the current receivables
consisted of the following:

Trade accounts receivable P232,500

Allowance for uncollectible accounts ( 5,000)
Claim against shipper for goods lost in transit (Oct. 2012) 7,500
Selling price of unsold goods sent by Microwave to consignee 65,000
Security deposit on lease of warehouse used for storing inventories 75,000
Total P375,000
At December 31, 2011, how much should be Microwave’s total current net receivables?
a. 235,000 c. 310,000
b. 300,000 d. 375,000

69. On December 20, 2010, Rolex Company purchase goods costing P100,000. The term was FOB
destination. Some of the cost incurred in connection with the sale and delivery of the goods
were as follows: Packaging for shipment, P2,000; Shipping P3,000 and special handling charges,
P4,000. These goods were received on December 31, 2010. In the December 31, 2010 statement
of financial position, what amount of these goods should be included in inventory?

a. 100,000 c. 107,000
b. 104,000 d. 109,000

70. Timber Company provided the following data for the purpose of reconciling the cash balance per
book.
Balance per book P170,000
Outstanding checks (including certified check of P20,000) 100,000
Deposit in transit 40,000
December NSF checks (of which P10,000 had been re-deposited
And cleared on December 27) 30,000
Erroneous credit to Timber’s account, representing proceeds of
loan granted to another company 60,000
Proceeds of note collected by bank for Timber, net of service
charge of P4,000 150,000
Erroneous bank charge 3,000
A check of P5,000 in payment of account was recorded by the
company as 500
The correct cash balance to be shown in the company’s December 31, 2010 balance sheet is:
a. 285,500 c. 335,500
b. 295,500 d. 345,500

71. Information pertaining to the inventory of Paper Company as of December 31, 2010 follows:
A B C
Historical cost 2,000,000 2,500,000 3,500,000

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Estimated selling price 2,200,000 3,600,000 4,000,000

Estimated cost of disposal 300,000 800,000 600,000
Normal profit margin 440,000 720,000 800,000
Current replacement cost 2,500,000 3,000,000 2,700,000
Paper records losses that result from applying the lower of cost or NRV rule, what amount
should the inventory be valued on December 31, 2010?
a. 7,800,000
b. 7,900,000
c. 8,000,000
d. 8,100,000

72. Based on the physical inventory taken on December 31, 2010, Marian Company has an ending
inventory costing P950,000 but with a fair value less cost to sell of P750,000. During the year
2011, Marian Company has yet to sell this inventory due primarily to the nature of the business.
On December 31, 2011 the inventory has a fair value less cost to sell of P1,100,000. In the
December 31, 2011 balance sheet, what amount should the inventory be valued?
a. 750,000 c. 950,000
b. 900,000 d. 1,100,000

73. The records of Morning Company show the following for the current year:
Cost Retail
Beginning Inventory 340,000 640,000
Purchases 4,500,000 7,300,000
Freight in 100,000
Purchase return 150,000 250,000
Purchase allowance 90,000
Departmental transfer in 100,000 160,000
Net markup 150,000
Net markdown 500,000
Sales 6,600,000
Sales allowance 50,000
Sales returns 150,000
Employee discount 100,000
Spoilage and breakage 200,000

What is the amount of estimated ending inventory under the conventional retail and average
cost retail, respectively?
a. 480,000 and 512,000
b. 480,000 and 450,000
c. 450,000 and 480,000
d. 512,000 and 480,000

74. On October 1, 2010, Smart Corporation purchase an industrial building by an issue of P5,000,000
ordinary shares of P1 par each to the vendor. Smart Corporation’s shares have been actively
traded on the stock exchange but its quoted price has been erratic, ranging from a low of P3.50
to a high of P13.50 for the year. On the date of purchase of the building, Smart Corporation’s

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shares are quoted at P8.80. At the time of acquisition the industrial building has a fair value of
P35,000,000. At what amount should the building be initially recorded?
a. 17,500,000 c. 44,000,000
b. 35,000,000 d. 67,500,000

75. During 2009, Sun Company exchanged its equipment which has a carrying amount of P2,000,000
for other equipment in the same line of business with fair value of P2,100,000. The exchange
was completed without any delivery or receipt of cash. Also, the exchange is considered with the
necessary commercial substance. What is the cost of the new equipment and the amount of gain
or loss to be recorded, respectively?
a. 2,100,000 and 0
b. 2,100,000 and 100,000 gain
c. 2,000,000 and 0
d. 2,000,000 and 100,000 gain

76. The following information is provided for related to cash generating unit as of December 31,
2012:
Carrying Value if no Individual
Carrying value previous impairment recoverable amount
Goodwill none P100,000 none
Boiler machine P200,000 240,000 P250,000
Strainer machine 40,000 50,000 48,000
Total P240,000 P390,000 P298,000
There is an indicator of reversal, the new total recoverable amount of the cash generating unit is
determine to be P330,000. What is the amount of impairment reversal should be recognized
related to the boiler machine?
a. None c. 40,000
b. 8,000 d. 48,000

77. In your audit of Glamour Company as of December 31, 2010, you gathered the following:
Balance per book, P600,000; Bank charges, P1,500; Balance per bank, P605,000; Deposit in
transit, P180,000; Customer note collected by bank, P225,000; Interest on customer note,
P9,000; customer check returned NSF, P37,500; Depositor’s note charged to account, P150,000.
What is the total amount of outstanding checks?
a. 140,000
b. 150,000
c. 160,000
d. 165,000

78. On January 1, 2010, F Company’s Loans and Receivable has an outstanding balance of P500,000.
Below are the transactions in its Loans and Receivables and other related accounts during 2010:

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Sales on account, P7,200,000; Accounts receivable written due to impairment, P50,000; Notes
receivable to settle accounts, P800,000; Purchases on account, P7,800,000; Payments to
creditors, P6,400,000; Purchase discounts, P520,000; Sales returns P30,000; Collections received
to settle accounts, P4,900,000; Notes given to settle accounts, P500,000; Purchase returns,
P140,000; Payments of notes, P200,000; Discounts taken by customers, P80,000; Collection on
notes receivable, P360,000; Provision for future returns and discounts on outstanding
receivables, P25,000.
What is the carrying value of the Loans and Receivable on December 31, 2010?
a. 1,815,000
b. 1,840,000
c. 2,255,000
d. 2,280,000

79. Meadow Manufacturing Company incurred the following costs related to its manufacture and
distribution of its inventory for the month of December 2010:
Costs of materials used (including the total costs of indirect material consumed in the production
process of P20,000), P300,000; Costs of labor (including the total costs indirect for laborers who
were assigned in the production area, P35,000),P400,000; Other indirect costs that were
allocated on a reasonable basis, P100,000; Costs of transport from factory to company’s
stockroom, P20,000; Storage cost, P10,000; Administrative costs, P45,000 and delivery cost,
P5,000. What amount should Meadow assigned to its inventory prior to its distribution?
a. 765,000
b. 775,000
c. 820,000
d. 830,000

80. The accounting records of Token Company show the following information for 2011:
In store:
Inventory, December 31, P290,000; Inventory, January 1, P220,000; Purchase, P960,000; Freight
in, P20,000; Freight out, P60,000.
Out on consignment:
Inventory, December 31, P40,000; Inventory, January 1, P24,000; Shipment from consignor,
P120,000; Freight out to consignees, P10,000; Freight out, P16,000.
What would be the cost of sales of Token for 2011?
a. 904,000 c. 1,014,000
b. 970,000 d. 1,024,000

81. On June 1, 2010 Concept Corp. sold merchandise with a list price of P200,000 to Randall on
account. Concept allowed trade discounts of 30%, 20% and 10%. Credit terms were 2/15, n/40
and the sale was made FOB shipping point. Concept prepaid P4,000 of delivery costs for Randall
as an accommodation. On June 3, 2010, Concept received from Randall returned merchandise

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with an invoice price of P50,000 due to minor defects. On June 14, 2010, Randall settled its
account in full to Concept. How much net cash remittance did Concept receive?
a. 49,784 c. 60,760
b. 53,784 d. 74,088

82. During January 2010 Forlorn Company recorded the following information pertaining to its
inventory:
Units Unit Cost Total cost
January 1 balance 20,000 P10 P200,000
January 15 sales 15,000
January 18 purchase 20,000 11 220,000
January 20 purchase 15,000 12 180,000
January 25 sales 24,000
January 30 purchase 14,000 15 210,000
January 31 sales 10,000

Using the moving average method, what amount of inventory should Forlorn Company report in
its January 31, 2010 statement of financial position?
a. 240,000
b. 260,000
c. 280,000
d. 300,000

83. The inventory on hand at December 31, 2010 for Victory Company is valued at a cost of
P947,800. The following items were not included in this inventory amount:
A. Purchased goods in transit, shipped FOB destination. Invoice price P32,000, which includes
freight charges of P1,600 X
B. Goods held on consignment by Victory at a sales price of P28,000, including sales
commission of 20% of the sales price. X
C. Goods sold to Sensual Company, under terms FOB destination, invoiced for P24,400 which
includes P1,000 freight charges to deliver the goods. The goods are in transit.
D. Purchased goods in transit, terms FOB shipping point. Invoice price P48,000, Freight costs,
P3,000.
E. Goods out on consignment to Can Company, sales price, P36,400. Shipping cost of P2,000.

Mark-up cost for all sales is 30%. What is the correct cost of inventory to be reported in Victory’s
financial statements?

a. 1,022,400
b. 1,041,800
c. 1,046,800
d. 1,078,800

84. Marker Company has the following information pertaining to its merchandise inventory as of
Dec. 31, 2014

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Inventory on hand (including merchandise received on consignment of P20,000) P200,000

Inventory purchased with a buyback agreement 100,000
Merchandise in transit, FOB shipping point, excluding P5,000 freight cost 155,000
Merchandise in transit, Free Alongside including delivery cost alongside the
Vessel of P6,000 but excluding the cost of shipment of P3,000 250,000
Merchandise in transit, CIF (excluding insurance costs and freight of P8,000) 175,000
What amount should Marker Company report as value of its inventory in its 2014 balance sheet?
a. 749,000
b. 760,000
c. 770,000
d. 876,000

85. Owl Company reported the following investment in long-term marketable equity securities
investment to other comprehensive incomes in its December 31, 2013, statement of financial
position:
Investment in non-current equity securities, at cost P2,600,000
Fair value adjustment ( 400,000)
Fair market value, December 31, 2013 P2,200,000
On December 31, 2014, the market value of the portfolio was P2,500,000. How much should Owl
report in its 2014 statement of comprehensive income as a result of the increase in the market
value of the investments in 2014?
a. None
b. 200,000
c. 300,000
d. 400,000

86. On November 1, 2010, Ribbon Company invested in P600,000 in equity securities representing
20,000 ordinary shares of Carbon Company. Ribbon Company incurred transaction cost of
P5,000 related to the acquisition of the security. On December 31, 2010, this investment has a
market value of P580,000. On April 15, 2011, Ribbon Company sold the investment for P630,000.
What amount of realized gain should Ribbon Company recognized on the disposal of the security
assuming the security was classified as investment in profit or loss?
a. 20,000 c. 45,000
b. 30,000 d. 50,000

87. Mutant Company purchased 20,000 shares of Twister Company ordinary shares on February 29,
2011, for P924,000. Mutant received a P40,000 cash dividend on twister shares on July 1, 2011.
Twister declared a 10% share dividend on December 1, 2011, to shareholders of record as of
December 31, 2011. The dividend was distributed on January 31, 2011. The market price of the
shares was P38 on December 1, 2011, P40 on December 31, 2011 and P42 on January 1, 2012.

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What is the carrying value of the investment and the amount of dividend income respectively,
that should appear in the December 31, 2011 financial statement?
a. 880,000 and 40,000
b. 924,000 and 120,000
c. 924,000 and 40,000
d. 964,000 and 120,000

88. Guess Company purchased 50,000 shares (5% ownership) of Casio Company on January 15,
2012. Guess received a share dividend of 15% on March 31, 2012 when the market price of the
share is P40. On November 30, Guess paid P20/share special assessment on the shares. On
December 15, 2012 Guess received a cash dividend of P8 per share. In the income statement for
the year ended December 31, 2012, what amount should Guess report as dividend income?
a. 60,000
b. 150,000
c. 400,000
d. 460,000

89. The Mimic Company imported a new machine at a peso equivalent of P330,000. The company
has to pay additional cost of importing the asset such as P10,000 import duties and P15,000non-
refundable purchase taxes. Costs of transporting the asset was P5,000 and cost of preparing the
asset for its intended use include P5,000 installation. How much is the initial cost of the new
machine?
a. 330,000 c. 360,000
b. 355,000 d. 365,000

90. On September 1, 2010, Mendez Corporation purchased a new machine on a deferred payment
basis. A down payment of P20,000 was made and 4 annual instalments of P60,000 each are to
be made beginning on September 1, 2010. The cash equivalent price of the machine was
P230,000. Due to an employee strike, Mendez could not install the machine immediately, and
thus incurred P3,000 of storage costs. Costs of installation (excluding the storage costs)
amounted to P8,000. The amount to be capitalized as the cost of the machine is:
a. 230,000 c. 241,000
b. 238,000 d. 260,000

91. A general feature of FS preparation that requires an entity to present separately each material
class of similar items and present separately items of dissimilar nature or function unless they
are immaterial.
a. Consistency of presentation c. Comparative information
b. Materiality and aggregation d. Fair presentation and compliance with PFRS

92. An employee asks for an authorized reimbursement of transportation charges out of the Imprest
petty cash fund. To document this transaction, the petty cashier should

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a. Debit “transportation expense” c. Credit “cash”

b. Debit “Receivable from employee” d. Prepare the petty cash voucher

93. Which of the following is an incorrect application of the Imprest system of cash control?
a. Cash receipts must be deposited on a regular basis
b. Cash disbursement must be made in the form of checks, regardless of amount
c. Material cash disbursement must be made in the form of checks
d. Insignificant cash disbursements must be made out of the petty cash fund

94. Balance per bank is LESS than the correct balance. No error was committed. There must be
a. Deposits credited by the bank but not yet recorded by the company
b. Outstanding check
c. Deposits in transit
d. Bank charges not yet recorded by the company

95. Which is not required note disclosure for inventories under PAS 2?
a. The carrying amount of inventories pledge as security for liabilities
b. The events or circumstances that led to reversal of write down of inventories
c. The accounting policy adopted in measuring inventories, including the cost formula used
d. The suggested selling price of inventories in the form of goods stated in the balance sheet.

96. Capitalization of borrowing costs shall be suspended

a. Only during temporary periods of delay
b. Only during extended periods of delay in which active development is delayed
c. Only upon agreement by management and the construction company
d. At no insurance at all, as capitalization has already commenced

97. Which is not a requisite of “reliability” of FS?

a. The statements are presented in accordance with GAAP
b. The statements are examined by independent auditors who prepare adequate statements
c. An effective system of internal control is maintained
d. Income tax returns are properly filed

98. Which is not considered a research and development activity?

a. Routine on-going efforts to refine enrich or improve quality of existing product
b. Laboratory research aimed at discovery of new knowledge
c. Conceptual formulation and design of possible product or process
d. Design, construction and operation of a pilot plant

99. Unrealized gains or losses on Held To Maturity securities are

a. Recognized in the income statement

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b. Recognized in asset section of the balance sheet

c. Recognized in equity section of the balance sheet
d. Not recognized
Held-to-maturity securities
--> Intent and ability to hold to maturity
--> Reported at amortized cost
Finacc 1 page 695 – Gain and loss – Financial Asset at amortized cost.

100. Goodwill arising from an investment in associate is

a. Charged immediately to profit or loss
b. Separately recognized as an intangible asset subject to impairment
c. Included in the carrying amount of the investment and not amortized
d. Included in the carrying amount of the investment and amortized over the useful life

***END***
Good Luck!!!

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