ReSA - THE REVIEW SCHOOL OF ACCOUNTANCY

CPA Review Batch 46  October 2023 CPALE  Pre-Week Summary Lecture

FINANCIAL ACCOUNTING & REPORTING G. MACARIOLA  J. BINALUYO

FAR PREWEEK LECTURE (FARAP PREWEEK 1)

1. Which of the following statements is/are true?
Statement 1: The issuance of bonds with non-detachable share warrants is treated as
a compound financial instrument.
Statement 2: Equity-settled with cash alternative is treated as a compound financial
instrument if the choice is given to employer to settle in shares or in cash.
Statement 3: The issuance of non-convertible bonds is treated as a compound financial
instrument.
a. All of the statements are true
b. Only statement 1 is true
c. Only statement 2 is false
d. Only statement 3 is false

2. Which of the following statements is/are true?

Statement 1: If the contract is considered onerous, the provision is measured at
cost to fulfill the contract or at cost to cancel the contract whichever is lower.
Statement 2: Non-current asset classified as held for sale is initially measured at
the carrying value of the non-current asset and the fair value less cost to sell on
the date of reclassification whichever is lower.
Statement 3: If the asset is a qualifying asset, capitalized borrowing cost under
general borrowings is based on the actual interest or average interest whichever is
lower.
a. All of the statements are true
b. Only statement 1 is true
c. Only statement 2 is false
d. Only statement 3 is false

3. Which of the following statements is/are true?

Statement 1: In depreciating the depreciable asset used in mining activities, the
depreciation expense is based on its useful life or mining period where output method
is used whichever is shorter in all cases.
Statement 2: Intangible asset with finite life and indefinite life should be
amortized over its useful life or legal life whichever is shorter.
a. Only statement 1 is true
b. Only statement 2 is true
c. Both statements are true
d. Both statements are false

4. The following statements are based on PAS 38 (Intangible Assets):

Statement 1: Internally generated goodwill shall not be recognized as an asset.
Statement 2: No intangible asset arising from research or research phase of an
internal project shall be recognized.
Statement 3: Internally generated brands, mastheads, publishing titles, customer
lists and items similar in substance shall not be recognized as intangible assets.
a. All of the statements are true
b. Only statement I is true
c. Only statement II is false
d. Only statement III is false

5. Which of the following statements is/are true?

Statement 1: The recoverable value of PPE is the fair value less cost to sell or
value in use whichever is higher.
Statement 2: Under the profit or loss test in identifying the reportable segment,
the segment is considered reportable, if the segment’s profit or loss is at least
10% of the combined profits of all segments that reported a profit or combined losses
of all segments that reported a loss whichever is greater in absolute amount.
Statement 3: Trade receivables or payables are classified as current if they are to
be collected or paid within 12 months after the balance sheet date or within the
normal operating cycle whichever is longer.
a. All of the statements are true
b. Only statement 1 is true
c. Only statement 2 is false
d. Only statement 3 is false

Page 1 of 16 0915-2303213/0908-6567516  www.resacpareview.com

ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY FARAP Preweek 1
BATCH 46 – October 2023 CPA Licensure Examination

6. Which of the following statements is/are true?

Statement 1: The LESSEE should account the lease as an operating lease only if the
lease is a short term lease (i.e., the lease term is 12 months or less) or the lease
is considered as a “low value” lease.
Statement 2: The LESSOR should account the lease as a finance lease only if there
is a transfer of ownership to the lessee or presence of bargain purchase option or
the lease term is at least 75% of the useful of the asset or the present value of
the minimum lease payments is at least 90% of the fair value of the leased asset.
Statement 3: The LESSOR should recognize a dealer’s/manufacturer’s profit whether
the residual value is guaranteed or unguaranteed under the sales-type lease and
direct finance lease.
a. All of the statements are true
b. Only statement 1 is true
c. Only statement 2 is false
d. Only statement 3 is false

7. Which of the following statements is/are true?

Statement 1: Premium income is recognized in the current period upon actual
redemption of premiums made by the customer in the current period.
Statement 2: Income from customer loyalty award credits is recognized in the current
period upon actual redemption of award credits/loyalty points made by the customer
in the current period.
a. Only statement 1 is true
b. Only statement 2 is true
c. Both statements are true
d. Both statements are false

8. Which of the following statements is/are true?

Statement 1: If there is a breach of undertaking under a long-term debt agreement,
the company should classify the debt as current liability even if the lender agreed
after the balance sheet date but before the FS are authorized for issue, not to
demand payment for at least 12 months after the BS date.
Statement 2: If there is a refinancing of a short-term debt on a short-term basis,
the company should classify the debt as non-current liability only if the company
has a discretion/right to refinance as of the BS date.
a. Only statement 1 is true
b. Only statement 2 is true
c. Both statements are true
d. Both statements are false

9. Which of the following statements is/are true?

Statement 1: If the preference share is cumulative, the company should deduct the
full amount of preference dividend from net income in computing the investment
income /share in net income of the associate, whether declared or not.
Statement 2: If the preference share is cumulative, the company should deduct the
full amount of preference dividend from net income in computing the basic and diluted
earnings per share, whether declared or not.
a. Only statement 1 is true
b. Only statement 2 is true
c. Both statements are true
d. Both statements are false

10. Which of the following statements is/are true?

Statement 1: Contingent asset and contingent liability may be reported in the
statement of financial position if the amount is known and definite or measurable.
Statement 2: If the provision involves a large population of items, the provision
is measured by weighting all possible outcomes by their associated probabilities
known as the expected value method.
a. Only statement 1 is true
b. Only statement 2 is true
c. Both statements are true
d. Both statements are false

Page 2 of 16 0915-2303213/0908-6567516/02-82886922  resacpareview@gmail.com

ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY FARAP Preweek 1
BATCH 46 – October 2023 CPA Licensure Examination

11. Which of the following statements is/are true?

Statement 1: Reissuance of treasury shares at a gain or loss will increase issued
shares, outstanding shares and total shareholders’ equity.
Statement 2: Retirement of treasury shares at a gain or loss will decrease issued
shares, outstanding shares and total shareholders’ equity.
a. Only statement 1 is true
b. Only statement 2 is true
c. Both statements are true
d. Both statements are false

12. The statement of comprehensive income may include unrealized gains and losses from
which type of investment securities?
a. FVPL only
b. FVOCI only
c. FVPL & FVOCI
d. FVPLOCI

13. Which of the following transactions shall not be included in the statement of cash
flows?
a. Sale of land for cash at less than its carrying value
b. Purchase of treasury shares for cash at more than its cost
c. Increase or decrease in Accruals and Deferrals
d. Acquisition of building by means of issuing preference share

14. If an entity failed to amortize the premium on its investment in bond classified at
amortized cost, this may result to
a. Understatement of net income
b. Overstatement of net income
c. No effect on net income
d. Understatement on investment account

15. Which of the following items should be excluded from inventories at the balance sheet
date?
a. Goods sold under layaway sale where the buyer has not yet fully paid
the account as of the balance sheet date
b. Goods out on approval where the right of return has already expired
as of the balance sheet date
c. Goods in transit as of the balance sheet date purchased under Free
Alongside Ship (FAS) agreement
d. Goods in transit as of the balance sheet date sold under Delivered Ex-
Ship (DES) agreement

16. Share premium could NOT arise from

a. Gain on exercise of stock rights
b. Receipt of donated asset from a shareholder
c. Gain on exercise of stock options and warrants
d. Distribution of “large” bonus issue

17. CASHITO Company has issued a range of share appreciation rights to employees. In
accordance with IFRS 2 Share-based payment, what type of share-based payment transaction
does this represent?
a. Asset-settled share-based payment transaction
b. Equity-settled share-based payment transaction
c. Cash-settled share-based payment transaction
d. Liability-settled share-based payment transaction

18. Which of the following is false about the preparation of statement of comprehensive
income?
a. Income from Operation does not include items which are considered
Incidental/Peripheral.
b. Income or Loss from Continuing Operation plus Income or Loss from
Discontinued Operation equals Total Profit or Loss
c. Profit or Loss plus Other Comprehensive Income equals Total Comprehensive
Income
d. Other Comprehensive Income shall be disclosed on the face of Income
Statement after tax

Page 3 of 16 0915-2303213/0908-6567516/02-82886922  resacpareview@gmail.com

ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY FARAP Preweek 1
BATCH 46 – October 2023 CPA Licensure Examination

19. When an owner-occupied property is transferred to investment property at fair value,

a decrease in the carrying amount of the property to its fair value at the date of
transfer
a. Is recognized in profit and loss, or, for a revalued property,
charged against the revaluation surplus to the extent of its credit
balance
b. Is recognized in profit and loss at all times
c. Is absorbed by retained earnings
d. Is carried directly to equity

20. Which of the following is not true in relation to bearer plant?

a. It is a living plant that has a remote likelihood of being sold as
agricultural produce, except for incidental scrap sales
b. The bearer plant and the related agricultural produce are accounted as two
separate assets
c. Plants which have a dual use or exclusive to be harvested as agricultural
produce are not qualified as bearer plant
d. Bearer plant should be measured initially and every BS date at fair value
less estimated cost to sell

FINANCIAL ASSETS

The following relevant data for 2 different companies were as follows:

Company 1: ALABAMA Company had the following items in its “Cash and Cash Equivalents”
account as of December 31, 2023:

Petty cash fund including P2,000 unreplenished vouchers and P8,000 P10,000
remaining bills and coins
Postal money order including traveler’s check and manager’s check of 30,000
P5,000
BSP treasury bills (acquired 12/1/2023; due in 1/31/2024) 150,000
Short-term ordinary share investment (acquired 12/30/23 to be sold in
less than 3 months from the balance sheet date) 90,000
Total checks on hand (40% is customer’s post-dated check and 60% is 100,000
company’s undelivered check)
Cash in foreign bank of $2,000 - unrestricted 80,000
(average rate–P40; closing rate–P45)
Bond and Mortgage fund 500,000
Cash set aside for the acquisition of Assets to be disbursed in 2024. 900,000
(2/3 of cash for the purchase of Machineries and the remaining cash for
the purchase of Office Supplies)
Cash in bank to be used for payment of dividends, interests and taxes 200,000
Cash in bank – compensating balances (40% is unrestricted; 50% is
restricted related to short-term loan; 10% is restricted related to long- 1,000,000
term loan)

Company 2: The petty cash fund of ALASKA Company was counted on January 3, 2024. The
following items were found:

Total bills and coins 4,000

Petty cash vouchers not yet replenished
Postage stamps dated 12/29/23 450
Supplies dated 1/2/24 500
IOU of employee dated 12/31/23 750
Replenishment check of petty cash fund 7,000
Check drawn by office manager dated 12/30/23 1,000
Check drawn by employee dated 1/18/24 800
Check drawn by customer dated 12/25/23 2,000
An envelope containing contributions of employees
for the death of a fellow employee (no money 1,500
attached when opened)
Unused postage stamps 150

The petty cash fund was established at P15,000.

Page 4 of 16 0915-2303213/0908-6567516/02-82886922  resacpareview@gmail.com

ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY FARAP Preweek 1
BATCH 46 – October 2023 CPA Licensure Examination

1. Statement 1: The correct balance of Cash and Cash Equivalents on December 31, 2023
related to ALABAMA Company is P1,238,000.
Statement 2: The correct amount of the Petty Cash Fund on December 31, 2023 related
to ALASKA Company is P10,500.
a. Only statement 1 is TRUE
b. Only statement 2 is TRUE
c. Both statements are TRUE
d. Both statements are FALSE

ARIZONA Company provided the following data for the purpose of reconciling the cash balance
per books and per bank on September 30, 2023:
• Cash balance per books as of 9/30 - P939,000
• Deposits made but not yet recorded by the bank as of 9/30 – 35,000
• Checks issued to suppliers but not yet recorded by the bank as of 9/30 – 68,000
• Credit memo - 60,000; Debit memo - 20,000. These September memos are not yet reflected
per books as of September 30.
• Included in the September bank receipts was a deposit of ARIZONA Company for 25,000,
erroneously recorded by the bank to AMAZONA Company’s account.
• Included in the September bank disbursements was a check issued by ARINOLA Company
for 10,000, erroneously recorded by the bank in ARIZONA Company’s account.
• Included in the book receipts for September was a deposit for 45,000 which was recorded
as 54,000. No correction was made yet by ARIZONA Company.
• Included in the book disbursements for September was a check issued by ARIZONA Company
for 42,000 was recorded as 24,000. No correction was made yet by ARIZONA Company.

2. How much is the correct cash in bank on September 30?

a. 970,000 b. 927,000 c. 952,000 d. 945,000

ARKANSAS Company had the following transactions pertaining to its accounts receivable for
the year 2023:

Credit sales 5,700,000

Cash sales 3,150,000
Collection from credit customers net of 4% discount taken by the customers 4,536,000
Accounts ascertained worthless 75,000
Credit memo issued to credit customers 375,000
Cash refund for sales returns from cash sales 30,000
Recovery of accounts previously written off not included in total collections 120,000
Dishonored notes receivable at face value (excluding accrued interest of P 5,000 1,000,000
and protest fee of P1,000)

ARKANSAS Company’s beginning accounts receivable amounted to P1,425,000 and its beginning
allowance for bad debts amounted to P335,000. On December 31, 2023, the accounts receivable
included P2,900,000 past due accounts. After careful study of all past-due accounts, the
management estimated that the probable loss contained therein was 20%. In addition, 10% of
the current accounts receivable might prove uncollectible. The company is using the gross
method of accounting for cash discounts.

3. Statement 1: The correct bad debts expense for the year 2023 is P585,600.
Statement 2: The amortized cost of accounts receivable on December 31, 2023 is
P2,956,000.
a. Only statement 1 is TRUE
b. Only statement 2 is TRUE
c. Both statements are TRUE
d. Both statements are FALSE

On August 31, 2022, CALIFORNIA Company sold goods to SACRAMENTO Company. SACRAMENTO Company
signed a non-interest-bearing note requiring payment of P80,000 annually for five years.
The first payment was made on August 31, 2022. The prevailing rate of interest for this
type of note at the date of issuance was 12%. Information on present value factors is as
follows:

Page 5 of 16 0915-2303213/0908-6567516/02-82886922  resacpareview@gmail.com

ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY FARAP Preweek 1
BATCH 46 – October 2023 CPA Licensure Examination

Present value PV of Ordinary

Periods of 1 at 10% annuity of 1 at 10%
4 0.636 3.037
5 0.567 3.605

4. What is the amount of interest income for the year 2022?

a. 9,719 c. 11,536
b. 12,918 d. 14,736

On January 1, 2022, COLORADO Company sold an equipment costing P10,000,000 and accumulated
depreciation of P2,500,000. COLORADO received a P1,000,000 cash and a 10%, 7-year,
P7,000,000 note receivable every December 31 in equal annual installment of P1,000,000 plus
interest starting December 31, 2022. Interest effective on this note when received is at
8%.

5. Statement 1: The amount of gain or loss on sale on January 1, 2022 is P948,407.

Statement 2: The interest income for the period ending December 31, 2022 is P595,873.
a. Only statement 1 is true
b. Only statement 2 is true
c. Both statements are true
d. Both statements are false

On December 1, 2023, CONNECTICUT Company engaged the following transactions:

• The company pledge P600,000 of its accounts receivable as a security for a P500,000
loan with HATFORD Bank.
• Factored P1,300,000 of accounts receivable without recourse on a notification basis
with WADSWORTH Finance Company. WADSWORTH Finance Company charged a factoring fee
of 10% of the amount of receivable factored and withheld 15% of the receivable
factored.
• A customer’s P700,000, 7-month, 5% note receivable dated August 1, 2023 was
discounted with MARKTWAIN Bank at 8% discount rate on a without recourse basis.

6. How much is the total cash proceeds from the financing of receivables?
a. 1,681,008 c. 2,181,008
b. 2,200,508 d. 2,291,508

On March 1, 2023, DELAWARE Corporation purchased 3,000 of the ordinary shares of DOVER
Company at market value of P240 per share. Transfer taxes and broker’s commission totaling
P3,600 were paid. During the same year, the following transactions occurred, and additional
information are given below:

August 1: Sold 1,500 shares for P 125 per share.

November 1: 20% bonus issue of ordinary share was declared and distributed by DOVER.

• Market value of DOVER ordinary share at December 31, 2023 was P130.

The DOVER Company shares are designated at Fair Value through Profit or Loss.

7. How much is the total amount taken to profit or loss for the year 2023?
a. 0 c. 172,500
b. 126,000 d. 302,100

On December 31, 2022, FLORIDA Company appropriately reported a P100,000 unrealized loss.
There was no change during 2023 in the composition of the portfolio of non-trading equity
securities held at fair value through other comprehensive income.

Security Cost MV – December 31, 2023

A 1,200,000 1,300,000
B 900,000 500,000
C 1,600,000 1,500,000
TOTAL 3,700,000 3,300,000

8. What cumulative amount of unrealized gain/loss on these securities should be reported

in the statement of financial position on December 31, 2023?
a. 100,000
b. 200,000
c. 400,000
d. 0

Page 6 of 16 0915-2303213/0908-6567516/02-82886922  resacpareview@gmail.com

ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY FARAP Preweek 1
BATCH 46 – October 2023 CPA Licensure Examination

On July 1, 2022, GEORGIA Company acquired a 25% interest in the outstanding shares of
ATLANTA Company at a total cost of P1,750,000. The underlying equity of the shares acquired
by GEORGIA was P1,500,000. The difference was due to the following:

I. Land with current fair value of P750,000 more than its carrying amount.
II. Depreciable plant assets with current fair value of P150,000 more than the
carrying amount.
III. Inventories which are undervalued by P20,000.

All other identifiable assets of ATLANTA Company have fair values equivalent to their book
values. The depreciable plant assets have remaining useful lives of 10 years from the date
of acquisition of the investment. All of the inventories have been sold as of December 31,
2022.

GEORGIA received P100,000 dividends from ATLANTA in 2022. ATLANTA reported P1,350,000
profit during the year ended December 31, 2022. Interim reports from ATLANTA revealed that
it earned P650,000 during the first two quarters of 2022.

9. How much was the income from associate reported in GEORGIA’s profit and loss for the
year ended December 31, 2022?
a. 161,875
b. 166,250
c. 168,125
d. 175,000

On January 1, 2022, HAWAII Corporation purchased 3-year, 10%, 5,000 of P1,000 face value
bonds for P4,600,000. In relation to this acquisition, HAWAII incurred P160,000 broker’s
commission. As a result, the effective rate on the bond was 12%.

Meanwhile, HAWAII determined the following fair values at each yearend:

December 31, 2022 102

December 31, 2023 105

10. How much is the unrealized gain or loss to be reported in its 2022 Profit or Loss
Statement assuming the investment is FVPL?
a. 0
b. 500,000
c. 268,800
d. 340,000

11. How much is the carrying value of investments that should be reported in the statement
of financial position on December 31, 2023 assuming the investment is FVOCI?
a. 5,250,000 c. 4,831,200
b. 5,100,000 d. 4,910,944

12. How much is the carrying value of investments that should be reported in the statement
of financial position on December 31, 2023 assuming the investment is Investment at
Amortized Cost?
a. 5,250,000 c. 4,831,200
b. 5,100,000 d. 4,910,944

NON-FINANCIAL ASSETS

The inventory on hand at December 31, 2023 for IDAHO Company is valued as at a cost of
P500,000. The following items were not included in this inventory amount:
➢ Purchased goods shipped FOB destination costing P30,000. The goods were received
on December 30, 2023.
➢ Purchased goods in transit, terms FOB shipping point. Invoice price- P48,000;
freight costs of P3,000.
➢ Goods out on consignment to BOISE Company, sales price, P 35,000.
➢ Purchased goods shipped FOB Buyer still in transit. The invoice price is P47,500
including freight of P500.
➢ Inventory purchased and received with a buyback agreement costing P100,000.

Page 7 of 16 0915-2303213/0908-6567516/02-82886922  resacpareview@gmail.com

ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY FARAP Preweek 1
BATCH 46 – October 2023 CPA Licensure Examination

➢ Inventory purchased and received, Free Alongside, costing P 245,000. Delivery cost
alongside the Vessel is P3,000 while cost of shipment is P5,000.
➢ Mark-up based on sales is 20%. It was noted that 30% of the consigned goods were
sold as of December 31, 2023.

13. How much is the correct cost of inventory to be reported in IDAHO’s statement of
financial position on December 31, 2023?
a. 898,100
b. 839,400
c. 853,600
d. 850,600

ILLINOIS Company uses the FIFO method of valuing inventories. During August 2023, the
following inventory details were recorded.

Opening balance 300 units valued at P20 each

August 5 Purchase of 500 units at P24 each
August 10 Sale of 400 units
August 18 Purchase of 600 units at P25 each
August 23 Sale of 250 units

14. How much is the cost of inventories on August 31, 2023?

a. 17,678 c. 18,000
b. 18,600 d. 18,750

Information pertaining to the inventory of INDIANA Company as of December 31, 2023 follows:

A B C
Historical cost 2,000,000 2,500,000 3,500,000
Estimated selling price 2,200,000 3,600,000 4,000,000
Estimated cost to sell 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

INDIANA records losses that result from applying the lower of cost or NRV rule.

15. What amount should the inventory be valued on December 31, 2023?
a. 8,000,000 c. 7,700,000
b. 8,100,000 d. 7,800,000

The records of IOWA Company revealed the following information on September 30, 2023:

Cost Retail
Inventory, January 1, 2023 412,400 620,000
Purchases, 2,614,100 4,275,500
Freight in 40,000
Sales 3,200,000
Purchase return 10,000 28,000
Sales allowance 25,500
Purchase allowance 8,000
Sales returns 48,500
Sales discounts 22,500
Purchase discounts 6,200
Abnormal shrinkages 45,000 50,000
Normal shoplifting losses 150,000
Discounts granted to employees 15,500
Departmental transfer in 25,700 51,600
Departmental transfer out 31,500 68,000
Mark-ups 146,900
Mark-downs 116,000
Mark-up cancellations 25,000
Markdown-cancellation 18,000

Page 8 of 16 0915-2303213/0908-6567516/02-82886922  resacpareview@gmail.com

ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY FARAP Preweek 1
BATCH 46 – October 2023 CPA Licensure Examination

16. How much is the estimated cost of inventories on September 30, 2023 using the Average
method?
a. 1,508,000 c. 934,960
b. 1,037,570 d. 964,720

A new machine was acquired on July 31, 2022 by KANSAS Company with the following
considerations:

Down-payment 1,000,000
Total par value of 5,000 ordinary shares issued (FV is P140) 600,000
Notes payable in three equal annual installment every July 31,
starting 2023 (3 years non-interest bearing; effective rate on this
date 9%) 900,000
Estimated dismantling after five (5) year life of the machine (at
9% effective rate) 100,000

17. What is the initial cost of the machine on July 31, 2022?
a. P2,459,958 c. P2,582,291
b. P2,524,380 d. P2,611,388

18. Assuming the machine is depreciated using 1.5 declining balance and estimated to have
P100,000 of residual value. How much is the depreciation of the machine in 2023?
a. P757,314 c. P315,548
b. P662,650 d. P300,271

KENTUCKY Company purchased a tract of land with an old building. The old building has no
fair value on the date of acquisition. The entity razed an old building on the property to
construct a new building. Relevant information follows:

Purchase price of land and an old building 3,700,000

Demolition of old building 200,000
Proceeds from sale of salvaged materials 20,000
Legal fees for purchase contract and recording ownership 150,000
Title guarantee insurance 50,000
Payment of property taxes in arrears on land 100,000
Option paid for an alternative land not acquired 30,000
Special assessment for city improvements 120,000

19. How much is the correct cost of the Land?

a. 4,600,000
b. 4,120,000
c. 4,330,000
d. 4,300,000

On January 1, 2022, LOUISIANA Company purchased equipment with cost of P10,000,000, useful
life of 10 years and no residual value. The entity used straight line depreciation. On
December 31, 2022 and December 31, 2023, the entity determined that impairment indicators
are present. There is no change in useful life or residual value.

December 31, 2022 December 31, 2023

Fair value less cost of disposal 8,100,000 8,300,000
Value in use 8,550,000 8,200,000

20. What is the impairment loss for 2022?

a. 900,000
b. 450,000
c. 600,000
d. 0

21. What is the gain on reversal of impairment for 2023?

a. 400,000
b. 700,000
c. 600,000
d. 0

Page 9 of 16 0915-2303213/0908-6567516/02-82886922  resacpareview@gmail.com

ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY FARAP Preweek 1
BATCH 46 – October 2023 CPA Licensure Examination

On January 1, 2023, MAINE Company showed land with carrying amount of P10,000,000 and
building with cost of P60,000,000 and accumulated depreciation of P18,000,000.

The land and building were revalued on same date and revealed the fair value of land at
P15,000,000 and the building at P70,000,000. The original useful life of the building is 20
years and depreciation is computed on the straight line. The income tax rate is 30%.

22. What is the revaluation surplus on January 1, 2023?

a. 33,000,000
b. 23,100,000
c. 28,000,000
d. 19,600,000

MARYLAND Corporation purchased a patent for P135,000 on September 1, 2020. It had a useful
life of 10 years. On January 1, 2022, the company spent P33,000 to successfully defend the
patent in a lawsuit. MARYLAND Corporation estimated that as of that date, the remaining
useful life is 5 years.

23. What amount should be reported for patent amortization expense for 2022?
a. 30,900
b. 28,200
c. 30,000
d. 23,400

On January 1, 2023, MASSACHUSETTS Company acquired both a License and a Trademark in exchange
for 1,000 shares of MASSACHUSETTS, P100 par ordinary shares. The shares are selling for
P125 per share on January 1, 2023. The trademark is worth thrice as much as the license.
The license may be used for five years while the trademark has a remaining useful life of
6 years. MASSACHUSETTS Company intends to renew the trademark continuously because the said
trademark is expected to contribute to net cash flows indefinitely.

24. How much is the amortization expense for the year 2023?
a. 21,875 c. 23,958
b. 6,250 d. 0

On January 31, 2022, MICHIGAN Company signed an agreement to operate as franchisee of

LANSING Company for an initial franchise of P780,000. Of this amount, P300,000 was paid
when the agreement was signed and the balance was payable in four annual payments of P120,000
each, beginning January 31, 2023. The agreement provides that the down payment is not
refundable and no future services are required of the franchisor. The implicit rate for
loan of this type is 12%. The agreement also provides the 1.5% of the revenue from the
franchise must be paid to the franchisor annually. MICHIGAN’s revenue from the franchise in
2022 was P9,500,000.

25. What is the carrying value of the franchise as of December 31, 2022?
a. P603,571 c. P604,381
b. P598,034 d. P599,384

MINNESOTA Company acquired an investment property costing P1,000,000 on July 1, 2023. The
property is being leased out under operating lease and the lessee pays P30,000 on a quarterly
basis. MINNESOTA Company depreciates its properties using the straight-line method over a
5-year useful life. The fair values of the building at the end of 2023 and 2024 were
P1,200,000 and P 850,000, respectively. Estimated cost to sell is P50,000 on December 31,
2024.

26. How much is the total net increase/decrease in profit or loss for the year 2023
assuming the company is using the cost model?
a. 40,000
b. 140,000
c. 340,000
d. 160,000

27. How much is the carrying value of the investment properties on December 31, 2024
assuming the company is using the fair value model?
a. 1,200,000
b. 850,000
c. 800,000
d. 700,000

Page 10 of 16 0915-2303213/0908-6567516/02-82886922  resacpareview@gmail.com

ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY FARAP Preweek 1
BATCH 46 – October 2023 CPA Licensure Examination

The following information pertains to the living plant and agricultural produce of
MISSISSIPPI Company. On January 1, 2023, the cost of the living plant was P20,000,000 with
an estimated useful life of 10 years. The company is using the straight-line method of
depreciation. As of December 31, 2023, MISSISSIPPI Company determines the following:

Fair value of the fruits after the harvest on December 31, 2023 P5,000,000
Estimated cost to sell of the fruit 100,000
Estimated cost to sell of the living plant 500,000

With the assistance of valuation experts, MISSISSIPPI Company determines that the fair value
of the living plant including the fruit as of December 31, 2023 is P26,000,000.

28. Statement 1: The carrying value of the living plant on December 31, 2023 under PAS 16
is P20,500,000.
Statement 2: The carrying value of the living plant on December 31, 2023 under PAS 41
is P18,000,000.
a. Only statement 1 is true
b. Only statement 2 is true
c. Both statements are true
d. Both statements are false

On January 1, 2022, MISSOURI Company has a building with a cost of P4,000,000 and accumulated
depreciation of P3,100,000. The company commits to a plan to sell the building by January
1, 2023. On January 1, 2022, the building has an estimated selling price of P800,000 and it
is estimated that the selling costs associated with the disposal of the building will be
P120,000. On December 31, 2022, the estimated selling price of the building has increased
to P1,200,000 and the estimated selling costs remain at P120,000.

29. How much is the total net effect in profit or loss for the year 2022 in relation to
the noncurrent asset held for sale?
a. 0
b. 220,000 increase
c. 220,000 decrease
d. 400,000 increase

FINANCIAL LIABILITIES

MONTANA Company reported accounts payable of P540,000 on December 31, 2023 before any year-
end adjustments relating to the following:
• Goods with invoice cost of P30,000 were in transit to MONTANA on December 31, 2023.
The purchased goods on account shipped FOB shipping point were received and
recorded on January 3, 2024.
• Goods with an invoice cost of P15,000 which were shipped FOB shipping point on
December 26, 2023 were lost in transit. On December 29, 2023, MONTANA filed a
P15,000 claim against the courier. The related purchases were not recorded as of
December 31, 2023.
• Goods with an invoice cost of P10,000 shipped FOB destination on December 28, 2023
were received by MONTANA on December 29, 2023. The related purchases were recorded
on December 30, 2023.

30. What amount should MONTANA report as accounts payable on its December 31, 2023
statement of financial position?
a. 585,000 c. 570,000
b. 595,000 d. 590,000

On January 1, 2023, NEBRASKA Company acquired a tract of land for P 5,250,000. NEBRASKA
Company paid P1,250,000 down and signed a non-interest-bearing note for the balance which
is due on January 1, 2027. There was no established exchange price for the land and the
note had no ready market. The prevailing interest rate for this type of the note was 12%.

31. How much is the interest expense for the year 2024?
a. 305,040 b. 341,645 c. 382,642 d. 480,000

Page 11 of 16 0915-2303213/0908-6567516/02-82886922  resacpareview@gmail.com

ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY FARAP Preweek 1
BATCH 46 – October 2023 CPA Licensure Examination

On January 1, 2023, NEVADA Corporation issued 4-year bonds of P 5,000,000 for P5,662,260 to
yield 8%. Interest is payable annually on December 31 at 12%. NEVADA paid a bond issue cost
amounting to P345,320. The effective rate as a result of transaction cost is 10%.

32. How much is the carrying value of the bonds payable on December 31, 2023?
a. 6,007,580 c. 6,008,338
b. 5,316,940 d. 5,248,634

On January 1, 2023, NEW HAMPSHIRE Company issued P2,000,000 of 16% bonds at 102. Each
P1,000 bond has one detachable warrant that allows the holder to purchase ten shares of P50
par value stock at P70 per share. The bonds would have been issued at 99 without the
warrants.

33. Assuming that all the warrants were exercised, how much is the total net effect on
equity upon exercise of the warrants on December 31, 2024?
a. 1,400,000 b. 1,460,000 c. 460,000 d. 400,000

On December 31, 2023, NEW JERSEY Company had an outstanding P5 million face value convertible
bonds maturing on December 31, 2027. Each P1,000 bond is convertible into 20 shares of P25
par value ordinary shares. The unamortized discount as of December 31, 2023 is P225,000.
The balance of the Share Premium from Bond Conversion Privilege is P240,000. On December
31, 2023, bonds with a face value of P2,000,000 were converted into ordinary shares when
the market value of the ordinary shares is P50.

34. How much is the gain or loss taken to profit or loss on the conversion of the bonds?
a. 0 c. 1,006,000
b. 910,000 d. 2,006,000

On July 1, 2023, NEW MEXICO Company issued P 5,000,000, 14% bonds at 105. Each P1,000 bond
is convertible into 5 shares of P150 ordinary share. Without the conversion feature, the
bonds would have been sold at 102. At a later interest date, prior to maturity date of the
bonds, NEW MEXICO retired P2,000,000 face value bonds at 103. After appropriate premium
amortization and interest payment, the premium on bonds payable has a balance of P30,000 on
the date of retirement. Without the conversion privilege, these bonds would have been sold
on this date at 101.

35. How much is the gain or loss on retirement of bonds that should be taken to profit or
loss?
a. 8,000 loss c. 48,000 loss
b. 8,000 gain d. 48,000 gain

36. How much is the amount of gain on cancellation of conversion privilege taken to
equity?
a. 0 c. 40,000
b. 20,000 d. 60,000

NON-FINANCIAL LIABILITIES

On December 25, 2022, an employee filed a P3,000,000 lawsuit against NEW YORK Company for
damages suffered when one of NEW YORK’s equipment malfunctioned in August of 2022. The legal
counsel of the company believes that it is probable that NEW YORK will pay the damages
ranging between P500,000 to 1,000,000 but P820,000 is considered to be the best estimate of
the obligation. On March 31, 2023, the employee has offered to settle the lawsuit out of
court for P925,000 and the company accepted the offer and settled the amount. The financial
statements were authorized to be issued on March 1, 2023.

37. How much is the provision that should be recognized as of December 31, 2022?
a. 820,000 b. 925,000 c. 750,000 d. 1,000,000

NORTH CAROLINA Company sells plasma television sets with a two-year warranty and estimated
warranty costs as percentage of peso sales as follows: first year of warranty- 5%; second
year of warranty-8%. The company recorded sales of P 4,000,000 and P 7,000,000 in 2022 and
2023, respectively and incurred actual repair costs of P 150,000 and P 400,000 in 2022 and
2023, respectively.

Page 12 of 16 0915-2303213/0908-6567516/02-82886922  resacpareview@gmail.com

ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY FARAP Preweek 1
BATCH 46 – October 2023 CPA Licensure Examination

38. How much is the provision for warranty on December 31, 2023?
a. 880,000 c. 160,000
b. 910,000 d. 370,000

NORTH DAKOTA Company is considering to give bonus for its new company CEO. The plan states
that the bonus would be equal to 15% based on profits after deducting bonus and tax. Profit
before income tax and bonus for 2023 is P10,000,000. Income tax rate is 30%.

39. How much is the amount of bonus under the plan?

a. 1,304,348 b. 1,099,476 c. 950,226 d. 1,004,785

OHIO Company operates a customer loyalty program. The entity grants loyalty points for
goods purchased. The loyalty points can be used by the customers in exchange for goods of
the entity. During 2023, the entity sold goods for a total consideration of P2,000,000 for
which P100,000 was allocated to award credits/loyalty points and 2,000 points were granted.
The company expects that 60% of the award credits shall be redeemed. During 2023, 720 of
the award credits were redeemed.

40. How much is the total amount of income that should be recognized for the year 2023?
a. 1,900,000 b. 60,000 c. 1,960,000 d. 2,000,000

SHAREHOLDERS’ EQUITY
OKLAHOMA Company reported the following amounts in the shareholders’ equity section of its
December 31, 2021, balance sheet:

10% Preference shares, P10 par (100,000 shares authorized, P400,000

40,000 shares issued)
Ordinary shares, P5 par (50,000 shares authorized, 20,000 shares 100,000
issued)
Share premium 190,000
Retained Earnings 1,200,000

The following transactions occurred during 2022:

Feb. 1-Purchased 4,000 shares of its own outstanding ordinary shares for P80,000.
March 1-Ordinary shares were split 2 for 1.
April 30-Reissued 2,000 treasury ordinary shares for cash at P15 per share.
June 30-Issued 10,000 shares of preference shares at P15 per share.
August 1-Purchased 3,000 preference shares from June 30 issuance at P 12 per share.
Sept. 1-Declared a 10% stock dividend on the outstanding ordinary shares when the stock
is selling for P6 per share. Issued the share dividend on September 30.
Dec. 1-Declared the annual dividend on preference shares and the P2.00 per share dividend
on ordinary shares. These dividends are payable in 2023.
Dec. 31-Registered a net income for 2022 at P800,000.

Determine the adjusted balances of the following accounts on December 31, 2022:
A B C D

41. Total SHE 2,728,200 2,602,200 2,632,200 2,623,200

OREGON Company’s December 31, 2023 balance sheet reports the following shareholders’ equity:

10% Cumulative Preference share capital, P100 par value per share,
30,000 shares issued and outstanding, liquidation value of P105 P3,000,000
Ordinary share capital, P100 par value, 60,000 shares issued 6,000,000
Share premium 500,000
Treasury Stock, (ordinary) 5,000 shares at cost 600,000
Retained Earnings 4,000,000
Subscribed ordinary share, net of P400,000 subscription receivable 1,000,000
Revaluation surplus 700,000

Preference dividends have not been paid since last year up to the end of 2023.

42. What is the book value per share on ordinary share?

a. 173.08 b. 163.04 c. 166.92 d. 157.25

Page 13 of 16 0915-2303213/0908-6567516/02-82886922  resacpareview@gmail.com

ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY FARAP Preweek 1
BATCH 46 – October 2023 CPA Licensure Examination

On September 30, 2023, PENNSYLVANIA Company declared its non-current asset as a dividend
with a carrying value of P 2,000,000 and has a current fair value of P 1,800,000. On December
31, 2023, the non-current asset has a fair value of P 1,700,000. The non-current asset was
distributed on March 1, 2024 when its fair value was P 1,600,000.

43. What amount shall be taken to profit or loss as a result of remeasurement of liability
on December 31, 2023?
a. 0 b. 100,000 c. 200,000 d. 300,000

For two consecutive years, the RHODE ISLAND Company Company failed to recognize accruals,
prepayments and other transactions in its records. Reported net income and a listing of the
errors appear below:
2021 2022
REPORTED PROFIT 500,000 750,000
a. Failed to record accrued income 15,000 5,000
b. Understatement of ending inventory 60,000 40,000
c. Failed to record accrued interest on notes payable 20,000 15,000
d. Failed to recognized the asset portion of prepayments 35,000 10,000
e. Failed to record purchases on account. Purchases were 50,000 20,000
recorded when paid in the subsequent year. Inventories
were not included at the end.
f. Major Repairs incurred during the year were 100,000 200,000
erroneously expensed. Full year depreciation at annual
rate of 10% is provided in the year that the asset is
recognized.

44. What is the correct net income in 2022?

a. 890,000 c. 900,000
b. 870,000 d. 880,000

45. What is the net adjustment to Retained earnings on January 1, 2023?

a. 300,000 debit c. 120,000 credit
b. 300,000 credit d. 180,000 credit

OTHER TOPICS

SOUTH CAROLINA Company leased a new machine from COLUMBIA Company. On January 1, 2022, SOUTH
CAROLINA provided the following information pertaining to the lease:

Annual rental payable at beginning of each lease year, starting Jan. 1, 2022 P400,000
Lease term 10 years
Useful 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 an ordinary annuity of 1 for 10 periods 5.22
Present value of 1 for 10 periods at 14% 0.27
Guaranteed residual value 100,000

46. How much is the depreciation expense for the year 2022?
a. 240,700 c. 192,250
b. 200,583 d. 230,700

SOUTH DAKOTA Company leased equipment from PIERRE Inc. on July 1, 2022, for an 8-year
period. Equal payments under the lease are P600,000 and are due on July 1 of each year. The
first payment was made on July 1, 2022. The interest rate contemplated by SOUTH DAKOTA and
PIERRE is 10%. The carrying value of the equipment on PIERRE’s accounting records is
P2,800,000. Residual value of P100,000 at the end of lease term is guaranteed by SOUTH
DAKOTA. The lease is appropriately recorded as a sales-type lease.

Present value of an annuity of 1 in advance for 8 periods at 10% 5.87

Present value of an ordinary annuity of 1 for 8 periods at 10% 5.33
Present value of 1 for 8 periods at 10% 0.47

Page 14 of 16 0915-2303213/0908-6567516/02-82886922  resacpareview@gmail.com

ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY FARAP Preweek 1
BATCH 46 – October 2023 CPA Licensure Examination

47. How much is the SALES that should be recognized by PIERRE Inc.?
a. 2,800,000 c. 3,569,000
b. 2,753,000 d. 3,522,000

TENNESSEE reported pretax financial income for the current year 2023 at P3,000,000. Included
in the determination of the said net income were:

Permanent differences:
Non-deductible expenses P100,000
Non-taxable revenues 500,000
Temporary differences:
Unrealized gain trading securities 400,000
Impairment loss on machinery 500,000
Provision for bad debts 900,000
Excess tax depreciation over accounting depreciation 420,000

The income tax rate is 30% and is not expected to change in the future.

48. How much is the deferred tax liability on December 31, 2023?
a. 954,000 c. 246,000
b. 780,000 d. 420,000

On January 1, 2021, TEXAS Company reported the fair value of plan assets at P6,700,000 and
defined benefit obligation at P6,100,000. Transactions affecting the balances for the
current year are as follows:

Current service cost P1,125,000

Past service cost 325,000
Contribution to the plan 990,000
Benefits paid to retirees at scheduled date 800,000
Benefits paid to retirees at early (CV is P340,000) 300,000
Actual return on plan assets 469,000
Decrease in defined benefit obligation due to changes in 135,000
actuarial assumption
Discount rate 10%

49. How much is the amount of defined benefit cost reported in its statement of
comprehensive income as a component of profit or loss?
a. 1,350,000 c. 66,000
b. 1,385,000 d. 336,000

50. How much is the amount of defined benefit cost reported in its statement of
comprehensive income as a component of OCI?
a. 1,350,000 c. 66,000
b. 1,385,000 d. 336,000

On January 1, 2022, the shareholders of UTAH Company approve a plan that grants the company’s
five executives options to purchase 3,000 shares each of the company’s P50 par value ordinary
shares. The options are granted on January 2, 2022 and may be exercised anytime from January
1, 2025 to December 31, 2025.

Based on an option pricing model used by UTAH Company, the fair value of the option on the
date of grant was P40. The market price per share on January 1, 2022 was P95, while the
option price is P60. Other information follow:

• The executives must be in the employ of the company when exercising the options
• 1 executive left the company during 2023
• The remaining options vested and all vested options were exercised in 2025

51. How much is the compensation expense for the year ended 2023?
a.120,000 c. 400,000
b. 200,000 d. 80,000

Page 15 of 16 0915-2303213/0908-6567516/02-82886922  resacpareview@gmail.com

ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY FARAP Preweek 1
BATCH 46 – October 2023 CPA Licensure Examination

VERMONT Company has the following information for its five business segments for the year
2022:
Segment Intersegment revenue Segment Assets Revenue to external customers

A P 20,000,000 P 2,000,000 P 25,000,000

B 5,000,000 500,000 5,000,000
C 2,800,000 1,000,000 3,500,000
D 1,200,000 200,000 1,500,000
E 1,000,000 250,000 1,000,000

52. How much is the minimum amount that should be reported by the reportable segments?
a. 22,500,000 c. 49,500,000
b. 27,000,000 d. 6,600,000

FINANCIAL STATEMENTS
VIRGINIA Company’s transactions for the year ended December 31, 2023 included the following:
• Purchased equipment for P550,000 cash
• Sold land for P500,000 cash
• Cash dividend paid of P600,000
• Cash dividend received from equity investment of P1,000,000
• Interest paid of P100,000
• Interest received from debt investment of P800,000
• Issued 500 shares of ordinary shares for P 250,000
• Sold treasury shares for P125,000 cash
• Retired bonds payable for P450,000 cash
• Increased accounts receivable by P 100,000
• Increased accounts payable by P 200,000
• Decreased accrued expense by P300,000
• Decreased unearned income by P400,000
• Proceeds received from bank loan of P900,000
• Gain on conversion of ordinary shares of P10,000
• Acquired building by means of finance lease of P500,000
• Depreciation expense for the year of P700,000
• Issued preference shares for services received of P600,000
• Impairment loss on building of P350,000

53. Statement 1: the net cash used in investing activities for 2023 is P50,000.
Statement 2: The net cash used in financing activities for 2023 is P225,000.
a. Only statement 1 is TRUE
b. Only statement 2 is TRUE
c. Both statements are TRUE
d. Both statements are FALSE

WASHINGTON Company has 200,000 shares of ordinary shares outstanding on January 1, 2023.
On January 1, 2023, 100,000 shares of 10% cumulative preference share with par value of P10
were issued. The preference shares are convertible into 50,000 shares of ordinary shares.
On September 30, 2023, 9% convertible, P2,000,000 face value (equal to its liability
component) bonds were issued. Each 1,000 bonds are convertible into 40 ordinary shares.
Net income after income tax of P1,684,200 was reported by WASHINGTON for the entire year.
54. How much is the basic earnings per share?
a. 5.10 c. 4.80
b. 8.42 d. 7.92

55. How much is the diluted earnings per share?

a. 6.74 c. 7.41
b. 6.40 d. none of the choices

*END OF PREWEEK LECTURE*

“Don’t give up. All of your hard work will pay off soon.
Stick with what you’re doing no matter how hard it gets “

Page 16 of 16 0915-2303213/0908-6567516/02-82886922  resacpareview@gmail.com