No. 125 Brgy.

San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@gmail.com

iCARE FAR Final Preboard

1. Reclassification adjustments are

a. Amounts in other comprehensive income that are transferred to profit or loss
b. Amounts in profit or loss that are transferred to other comprehensive income
c. Amounts in profit or loss that are transferred to retained earnings
d. Amounts in retained earnings that are transferred to other comprehensive income

2. Neutrality, completeness and freedom from error describe the fundamental quality of
a. Relevance c. Faithful representation
b. Verifiability d. Understandability

3. Which of the following would not qualify as an underlying?

a. Commodity price c. Equity shares
b. Exchange rate d. Insurance index

4. An investor uses the equity method of accounting for a 30% ownership in an investee. At
year-end, the investor has a receivable of P100,000 from the investee. How should the
receivable be reported in the investor’s financial statements for the current year?
a. None of the receivable should be reported but the entire receivable should be offset against
the investee’s payable to the investor.
b. P75,000 should be reported separately and P25,000 should be offset against the investee’s
payable to the investor
c. The full amount of P100,000 should be included in the investment in associate balance
without separate disclosure
d. The full amount P100,000 should be disclosed separately.

5. An adjusting entry to accrue wages incurred but not yet paid is an example of
a. Aligning recorded costs with appropriate accounting periods
b. Aligning recorded revenue with appropriate accounting periods
c. Reflecting unrecorded expenses incurred during an accounting period
d. Reflecting unrecorded revenue earned during an accounting period

6. When are closing entries prepared?

a. At the end of the accounting period, after adjusting entries and financial statements have
been prepared
b. At the end of the accounting period, after adjusting entries but before financial statements
have been prepared
c. At the end of the accounting period after financial statements have been prepared but before
adjusting entries
d. At the end of the accounting period, but before adjusting entries and financial statements
have been prepared.

7. Property, plant and equipment are measured using the

a. Revaluation model only c. Cost model or fair value model
b. Cost model or revaluation model d. Revaluation model or fair value model

1|P a g e RSORIANO/BVILLALUZ/JABIERA
 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@gmail.com

8. An entity disclosed in the notes to financial statements a significant number of unsecured

accounts receivable with entities that operate in the same industry. This disclosure is required to
inform users of financial statements the existence of
a. Risk of measurement uncertainty c. Concentration of credit risk
b. Off-statement of financial position risk of accounting loss d. Concentration of market risk

9. If the balance shown in the bank statement is less than the correct cash balance and neither
the entity nor the bank has made any errors, there must be
a. Deposits in transit c. Deposits credited by the bank
b. Bank charges d. Outstanding checks

10. It is a group of assets to be disposed of by sale or otherwise, together as a group in a single

transaction, and liabilities directly associated with those assets that will be transferred in the
transaction.
a. Disposal group c. Noncurrent asset
b. Discontinued operation d. Cash generating unit

11. All of the following can be classified as cash and cash equivalents, except
a. Equity investments
b. Bank overdraft
c. Redeemable preference shares acquired and due in 60 days
d. Commercial papers held and due for repayment in 90 days

12. At the end of the current year, an entity had cash accounts at three different banks. One
account is segregated solely for payment into a bond sinking fund. A second account, used for
branch operations, is overdrawn. The third account, used for regular corporate operations, has
a positive balance. How should these accounts be reported?
a. The segregated and regular accounts should be reported as current assets net of the
overdraft.
b. The segregated account should be reported as a noncurrent asset, the regular account
should be reported as a current asset, and the overdraft should be reported as a current liability.
c. The segregated and regular accounts should be reported as current assets and the overdraft
should be reported as a current liability.
d. The segregated account should be reported as a noncurrent asset and the regular account
should be reported as a current asset net of the overdraft.

13. Deposits in foreign bank which are subject to foreign exchange restriction should be
classified
a. Separately as noncurrent asset with appropriate disclosure.
b. Separately as current asset with appropriate disclosure.
c. Be written off as a loss.
d. As part of cash and cash equivalents.

14. Which of the following should not be considered cash?

a. IOUs c. Coin and currency
b. Petty cash fund d. Money orders

15. A compensating balance

a. If legally restricted and related to a short-term loan = Current Asset.
b. Must be included in cash and cash equivalent.

2|P a g e RSORIANO/BVILLALUZ/JABIERA
 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@gmail.com

c. If not legally restricted as to withdrawal = Current Asset.

d. If legally restricted and related to a long-term loan = Current Asset.

16. Noncurrent asset classified as held for sale shall be presented as

a. Current asset c. Noncurrent investment
b. Other noncurrent asset d. Property, plant and equipment

17. Faithful representation includes

a. Comparability and consistency
b. Timeliness and consistency
c. Neutrality, completeness and free from error
d. Verifiability and understandability

18. Enhancing qualitative characteristics of useful information include

a. Predictive value and feedback value
b. Comparability, understandability, verifiability and timeliness
c. Consistency and materiality
d. Free from error and neutrality

19. Which best describes accrual basis of accounting?

a. Revenue or expense recognition precedes cash flow
b. Cash flow precedes revenue or expense recognition
c. Revenue or expense recognition and cash flow are simultaneous
d. Cash flow coincides with or follows but never precedes revenue or expense recognition

20. Closing entries are prepared

a. At the end of accounting period, after adjusting entries and financial statements have been
prepared in order to reduce nominal and temporary accounts to zero.
b. At the end of accounting period, after adjusting entries but before financial statements have
been prepared in order to reduce nominal and temporary accounts to zero.
c. At the end of accounting period, after financial statements have been prepared but before
adjusting entries in order to reduce nominal and temporary accounts to zero.
d. At the end of accounting period, but before adjusting entries and financial statements have
been prepared in order to reduce nominal and temporary accounts to zero.

21.If the present value of a note issued in exchange for a property is less than face amount, the
difference should be:
a. Included in the cost of the asset.
b. Included in interest expense in the year of issuance.
c. Amortized as interest expense over the term of the note.
d. Amortized as interest expense over the useful life of the asset.

22.After initial recognition, bonds payable shall be measured at

a. Carrying value.
b. Face value.
c. Fair value.
d. Amortized cost using the effective interest method.
e. Amortized cost using the nominal interest method.

3|P a g e RSORIANO/BVILLALUZ/JABIERA
 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@gmail.com

23.An entity did not record an accrual for a present obligation but disclose the nature of the
obligation and the range of the loss. How likely is the loss?
a. Remote
b. Reasonably possible
c. Probable
d. Certain

24. Which of the following is the proper accounting treatment of a contingent asset?
a. An accrued account.
b. Deferred earnings.
c. An account receivable with an additional disclosure explaining the nature of the transaction.
d. A disclosure only.

25.When par value shares are sold, the entire proceeds shall be credited to…
a. The share capital account.
b. The share premium account.
c. An income account.
d. The share capital account to the extent of the par value of the shares issued with any excess
being credited to the share premium account.

26. The total cost of treasury shares shall be reported as…

a. Deduction from total contributed capital.
b. Deduction from share premium.
c. Deduction from retained earnings.
d. Deduction from total shareholders’ equity.

27. Which shareholders' equity account is used to pay dividends?

a. Common stock.
b. Treasury stock.
c. Accumulated deficit.
d. Retained earnings.

28. Earnings per share should always be reported for which of the following?
a. Gross profit.
b. Income from continuing operations.
c. Income from discontinued operations.
d. Pre-tax income.

29. When applying the treasury share method for diluted EPS, the market price of the ordinary
share used for the assumed acquisition of treasury shares is the:
a. Market price at the beginning of the year.
b. Market price at the end of the year.
c. Average market price during the year.
d. Market price at the actual date of acquiring treasury shares.

30. The total compensation expense in a share option plan normally is measured at
a. Fair value of share options on date of grant.
b. Fair value of share options on date of exercise.
c. Intrinsic value of share options on date of grant.
d. Intrinsic value of share options on date of exercise.

4|P a g e RSORIANO/BVILLALUZ/JABIERA
 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@gmail.com

31. Compensation for a share-based payment to employees classified as liability is measured at

a. The change in fair value for each reporting period
b. The total fair value at grant date
c. The present value of cash payment
d. The total cash outlay for the period

32. Which entities are required to apply deferred tax accounting?

a. Public entities.
b. Non-public entities.
c. Both public and non-public entities.
d. Neither public entities nor non-public entities.

33. It is the amount of income tax payable in respect of taxable income.

a. Current tax expense
b. Total income tax expense
c. Deferred tax expense
d. Deferred tax benefit

34. Which statement is true concerning the recognition and measurement of a defined
contribution plan?
a. The contribution shall be recognized as expense in the period it is payable.
b. Any unpaid contribution at the end of the period shall be recognized as accrued liability.
c. Any excess contribution shall be recognized as prepaid expense but only to the extent that
the prepayment will lead to a reduction in future payments or a cash refund.
d. All of these statements are true about a defined contribution plan.

35. Which statement is incorrect concerning the recognition and measurement of a defined
benefit plan?
a. Actuarial assumptions are required to measure the obligation and expense and there is a
possibility of actuarial gains and losses.
b. The obligation is measured on a discounted basis.
c. The defined benefit plan must be fully funded.
d. The expense recognized for a defined benefit plan is not necessarily the amount of
contribution due for the period.

36. Lease payments under an operating lease shall be recognized as an income by the lessor
on
a. Straight line basis over the lease term.
b. Diminishing balance basis.
c. Sum of units basis.
d. Cash basis.

37. In computing depreciation of a right of use asset under a lease, the lessee should deduct
a. The residual value guarantee and depreciate over the lease term.
b. An unguaranteed residual value and depreciate over the lease term.
c. The residual value guarantee and depreciate over the useful life of the asset.
d. An unguaranteed residual value and depreciate over the useful life of the asset.

38. PFRS for SMEs states that after initial recognition, the acquirer must measure goodwill
acquired in a business combination
a. at cost less accumulated amortization and accumulated impairment.
b. at cost less accumulated amortization.
c. at cost less accumulated impairment.

5|P a g e RSORIANO/BVILLALUZ/JABIERA
 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@gmail.com

d. at fair value.

39. Under PFRS for SMEs, an entity must account for its investments in associates after initial
recognition using
a. either the cost model or the fair value model (using the same accounting policy for all
investments in associates).
b. either the cost model or the fair value model (model can be selected on an investment-by-
investment basis).
c. either the cost model, the equity method or the fair value model (using the same accounting
policy for all investments in associates).
d. either the cost model, the equity method or the fair value model (model can be selected on an
investment-by-investment basis).

40. Aloha had the following account balances on December 31, 2021.
Petty cash fund 50,000
Cash in bank – current account 4,000,000
Cash in bank – set a side for bond payable due December 31, 2022 2,000,000
Cash on hand 500,000
Treasury bills 1,000,000
The petty cash find included unreplenished December 2021 petty cash expense vouchers
P5,000 and employee IOU P5,000. The cash on hand included a P100,000 customer check
dated January 15, 2022. In exchange for a guaranteed line of credit, Aloha Company has
agreed to maintain a minimum balance of P200,000 in the unrestricted current bank account.

What total amount should be reported as cash and cash equivalents by Aloha on December 31,
2021?
a. 6,440,000 c. 7,540,000
b. 7,440,000 d. 5,440,000

41. Allura Company adopted the imprest system and established a petty cash fund balance of
P50,000. At the end of the current year, it was discovered that receipts evidencing expenses
amounted to P35,000, employee IOU P5,000 and currency P12,000. The fund was replenished
at year-end.

Which is included in Allura’s entry to record the replenishment of the petty cash fund?
a. Debit cash short or over P2,000 c. Credit petty cash fund P38,000
b. Credit cash short or over P5,000 d. Credit cash in bank P38,000
Problems 42-43:
Faye Company had the following bank reconciliation on June 30:
Balance per bank statement – June 30 3,000,000
Deposit in transit 400,000
Debit memo for service charge 50,000
Total 3,450,000
Outstanding checks ( 900,000)
Credit memo for note collected ( 750,000)
Balance per book – June 30 1,800,000

The records of the bank and Faye Company for the month of July showed the following:
Bank credits, including credit memo for note collected P500,000 9,000,000
Bank debits, including P150,000 debit memo for NSF check 7,000,000
Cash receipts per ledger 9,200,000
Cash disbursements per ledger 6,550,000

6|P a g e RSORIANO/BVILLALUZ/JABIERA
 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@gmail.com

42. What amount was reported by Faye as deposit in transit on July 31?
a. 350,000 c. 200,000
b. 600,000 d. 500,000

43. What amount was reported by Faye as outstanding checks on July 31?
a. 550,000 c. 250,000
b. 450,000 d. 900,000

44. On March 25,2020, Koran Company sold merchandise with a list price of P2,000,000. Koran
gave the customer a 20% and 10% trade discount. Credit terms of 5/10, n/30 were given to the
customer. The goods were shipped FOB destination, Freight collect. Freight of P100,000 was
paid by the customer and goods were returned to Koran at the invoice mount of P200,000 on
March 27, 2020. Koran assesses that most likely its customers take advantage of the discount
period based on past experience and therefore recognizes allowance for sale discount.

What is the net realizable value of Koran’s accounts receivable on March 31, 2021?
a. 1,078,000 c. 1,068,000
b. 1,140,000 d. 1,240,000

45. Mae Company reported the following information at year-end:

Trade accounts receivable 930,000
Allowance for uncollectible accounts ( 20,000)
Claim against shipper for goods lost in transit in November 30,000
Selling price of unsold goods sent out by Mae on consignment at 130% of cost
and not included in Mae’s ending inventory 260,000
Security deposit on lease of warehouse used for storing some inventories 300,000

What total amount should be reported by Mae as trade and other receivables under current
assets at year-end?
a. 940,000 c. 1,240,000
b. 1,200,000 d. 1,500,000

46. On January 1, 2021, Ott Company sold goods to Fox Company. Fox signed a noninterest-
bearing note requiring payment of P600,000 annually for seven years. The first payment was
made on January 1, 2021. The prevailing rate of interest for this type of note at date of issuance
was 10%.
PV of an ordinary annuity of 1 at 10% for 6 periods 4.36
PV of an ordinary annuity of 1 at 10% for 7 periods 4.87

What amount should be recorded by Ott as sales revenue in January 2021?

a. 3,216,000 c. 2,616,000
b. 2,922,000 d. 2,142,000

47. On December 1, 2021, Nicole Company gave Dawn Company a P2,000,000, 12% loan.
Nicole Company paid proceeds of P1,940,000 after the deduction of a P60,000 nonrefundable
loan origination fee. Principal and interest are due in sixty monthly installments of P44,500,
beginning January 1, 2022. The repayments yield an effective interest rate of 12% at a present
value of P2,000,000 and 13.4% at a present value of P1,940,000.

What amount should Nicole report as accrued interest receivable on December 31, 2021?
a. 19,400 c. 20,000
b. 22,333 d. 21,663

7|P a g e RSORIANO/BVILLALUZ/JABIERA
 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@gmail.com

48. Joy Company conducted a physical count on December 31, 2021 which revealed inventory
with a cost of P4,410,000. The following items were excluded from the physical count:
Merchandise held by Joy on consignment 610,000
Merchandise shipped by Joy FOB destination to a customer on
December 31, 2021 and was received by the customer on January 5, 2022 380,000
Merchandise shipped by Joy FOB shipping point to a customer on
December 31, 2021 and was received by the customer on January 5, 2022 460,000
Merchandise shipped by a vendor FOB destination on December 31, 2021
was received by Joy on January 5, 2022 830,000
Merchandise purchased FOB shipping point was shipped by the supplier
on December 31, 2021 and received by Joy on January 5, 2022 510,000

What amount should be reported by Joy inventory on December 31, 2021?

a. 5,300,000 c. 3,800,000
b. 4,690,000 d. 4,920,000

49. Steven Company provided the following information during the first year of operations:
Total merchandise purchases for the year 7,000,000
Merchandise inventory on December 31 1,400,000
Collections from customers 4,000,000
Steven marked all merchandise to sell at 40% above cost. All sales are on a credit basis and all
accounts receivable are collectible.

What amount should Steven report as accounts receivable on December 31?

a. 1,000,000 c. 5,000,000
b. 3,840,000 d. 5,800,000

50. Wine Company recorded purchases at net amount. On December 10, the entity purchased
merchandise on account, P4,000,000, terms 2/10, n/30. The entity returned P300,000 of the
December 10 purchase and received credit on account. The account had not been paid on
December 31.

What adjusting entry should Wine prepare on December 31?

a. No adjusting entry
b. Debit accounts payable and credit purchase discount P74,000
c. Debit purchase discount lost and credit accounts payable P74,000
d. Debit purchase discount lost and credit accounts payable P80,000

51. Chicago Company reported for an inventory historical cost P2,000,000, current replacement
cost P1,400,000, net realizable value P1,800,000, net realizable value less normal profit margin
P1,700,000 and fair value P1,900,000.

What amount should Chicago report the inventory under LCNRV?

a. 2,000,000 c. 1,800,000
b. 1,400,000 d. 1,900,000

8|P a g e RSORIANO/BVILLALUZ/JABIERA
 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@gmail.com

52. Carmela Company acquired nontrading equity instrument for P4,000,000 on March 31,
2021. The equity instrument is classified as financial asset at fair value through other
comprehensive income. The transaction cost incurred amounted to P700,000. On December
31, 2021, the fair value of the instrument was P5,500,000 and the transaction cost that would be
incurred on the sale of the investment is estimated at P600,000.

What amount of gain should Carmela recognize in other comprehensive income for 2021?

a. 200,000 c. 800,000
b. 900,000 d. 0

53. At the beginning of current year, Well Company purchased 10% of Rea Company’s
outstanding ordinary shares for P4,000,000. Well Company is the largest single shareholder in
Rea and Well’s officers are a majority of Rea’s board of directors. The investee reported net
income of P5,000,000 for the current year and paid cash dividend of P1,500,000.

What amount should Well Company report as investment in Rea Company at year-end?
a. 4,500,000 c. 4,000,000
b. 4,350,000 d. 3,850,000

Problems 54-55 :
On January 1, 2021, Rome Company acquired 30% of the ordinary shares of another entity for
P2,000,000 which was equal to the carrying amount of interest acquired. The investee reported
net income of P1,500,000 for 2021 and paid dividend of P500,000 on December 31, 2021. The
investee reported net income of P1,000,000 for the six months ended June 30, 2022 and
P2,500,000 for the year ended December 31, 2022 but paid dividend of P1,000,000 on October
1, 2022. On July 1, 2022, Rome Company sold half of the investment for P2,000,000. The fair
value of the retained investment is P2,200,000 on July 1, 2022 and P2,400,000 on December
31, 2022. The retained investment is to be measured at FVPL.

54. What amount of gain on sale of investment should Rome report for 2022?
a. 850,000 c. 775,000
b. 700,000 d. 500,000

55. What total amount should Rome report as unrealized gain on the retained investment in
2022?
a. 1,100,000 c. 900,000
b. 1,200,000 d. 200,000

56. Hazel Company entered into a call option contract with a bank at the beginning of current
year. This contract gave the entity the option to purchase 10,000 shares at P100 per share. The
option expires on April 30. The shares are trading at P100 per share at the beginning of current
year, at which time the entity paid P10,000 for the call option. The market price per share is
P120 on April 30 and the time value of the option has not changed.

In order to settle the option contract, what would Hazel Company most likely do?
a. Pay the bank P200,000
b. Purchase the shares at P100 per share and sell the shares at P120
c. Receive P200,000 from the bank
d. Receive P190,000 from the bank

9|P a g e RSORIANO/BVILLALUZ/JABIERA
 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@gmail.com

57. On November 1, 2021, Cassandra Company sold some limited edition art prints to Noritake
Company for ¥47,850,000 to be paid on January 31, 2022. The current exchange rate on
November 1, 2021 was ¥110 = $1, so the total payment at the current exchange rate would be
equal to $435,000. Cassandra Company entered into a forward contract with a large bank to
guarantee the number of dollars to be received. According to the terms of the contract, if
¥47,850,000 is worth less than $435,000, the bank will pay Cassandra Company the difference
in cash. Likewise, if ¥47,850,000 is worth more than $435,000, Cassandra Company must pay
the bank the difference in cash. The exchange rate on December 31, 2021 is ¥120 = $1.

What amount in U.S. dollars should Cassandra report as derivative asset or liability on
December 31, 2021?
a. 398,750 asset c. 36,250 asset
b. 398,750 liability d. 36,250 liability

58. Grab Company purchased a ten-ton draw press at a cost of P3,600,000 with terms 5/15,
n/45. Payment was made within the discount period. Shipping cost was P90,000 which included
P4,000 for insurance in transit. Installation cost totaled P240,000 which included P80,000 for
taking out a section of a wall and rebuilding it because the press was too large for the doorway.

What amount should Grab capitalize as cost of the ten-ton draw press?
a. 3,420,000 c. 3,750,000
b. 3,670,000 d. 3,715,200

59. Joshua Company entered into a contract to acquire a new machine which had a cash price
of P2,000,000. Prior to use, installation cost of P50,000 was incurred. The machine has an
estimated residual value of P100,000.
Down payment 400,000
Note payable in 3 equal annual installments
1,200,000
20,000 ordinary shares with a par value of P25 and fair value of P40 per share 800,000

What amount should Joshua record as cost of the machine?

a. 2,000,000 c. 2,050,000
b. 2,400,000 d. 2,450,00

Marshall Company reported accounts payable on December 31, 2022 at P4,500,000 before any
necessary year-end adjustments relating to the following transactions:

• On December 27, 2022, Marshall wrote and recorded checks to creditors totaling
P2,000,000 causing an overdraft of P500,000 in Marshall’s bank account on December
31, 2022. The checks were mailed on January 5, 2023.

• On December 28, 2022, Marshall purchased and received goods for P750,000, terms
2/10, n/30. Marshall records purchases and accounts payable at net amount. The
invoice was recorded and paid January 3, 2023.

• Goods shipped FOB destination on December 24, 2022 from a vendor to Marshall were
received January 8, 2023. The invoice cost was P325,000.

60. On December 31, 2022, what amount should be reported as accounts payable?
a. 7,235,000
b. 7,250,000
c. 7,553,500

10 | P a g e RSORIANO/BVILLALUZ/JABIERA
 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@gmail.com

d. 7,575,000

61. On January 2, 2022, Scott Company issued 3-year bonds with face amount of
P2,500,000 at 98. Additionally. The entity paid bond issue cost of P70,000. The nominal
rate is 10% and the effective rate after considering the bond issue cost is 12%. The
interest is payable annually on December 31. The entity used the effective interest
method.

What is the carrying amount of the bonds payable on December 31, 2022?
a. 2,415,600
b. 2,420,000
c. 2,424,000
d. 2,500,000

62. The following information pertains to the transfer of real estate pursuant to a debt
restructuring by Clint Company to Natasha Company in full liquidation of Clint
Company’s liability to Natasha Company:

Principal amount of the liability liquidated P1,200,000

Accrued interest on the liability liquidated 300,000
Carrying value of real estate transferred 1,000,000
Fair value of real estate transferred 1,200,000

What amount of pretax gain on extinguishment should Clint Company report for the current
year?
a. Zero.
b. 200,000.
c. 300,000.
d. 500,000

63. Cold Sea Company has several contingent liabilities on December 31, 2022:

• In May 2022, Cold Sea Company became involved in litigation. In December 2022, the
court assessed a judgment for P1,600,000 against Cold Sea Company. The entity is
appealing the amount of the judgment. The attorneys believed it is probable that the
assessment can be reduced on appeal by 50%. The appeal is expected to take at least
a year.

• In July 2022, Pasig City brought action against Cold Sea Company for polluting the
Pasig River with its waste products. It is probable that Pasig City will be successful but
the amount of damages the entity might have to pay should not exceed P1,500,000.

• Cold Sea Company has signed as guarantor for a P1,000,000 loan by BPI to Hot Sea
Company, a principal supplier to Cold Sea Company. At this time, there is only a remote
likelihood that Cold Sea Company will have to make payment on behalf of Hot Sea
Company.

• Cold Sea Company has long owned a manufacturing site that has not been discovered
to be contaminated with toxic waste. The entity has acknowledged its responsibility for
the contamination. An initial clean up feasibility study has shown that it will cost at least
P500,000 to clean up the toxic waste.

11 | P a g e RSORIANO/BVILLALUZ/JABIERA
 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@gmail.com

• Cold Sea Company has been sued for patent infringement and lost the case. A
preliminary judgment of P300,000 was issued and is under appeal. The entity’s
attorney’s agree that it is probable that the entity will lose this appeal.

• On November 6, 2022, a truck of Cold Sea Company was in a road accident with an
auto. Cold Sea Company received a notice on January 15, 2023 of a lawsuit for
P700,000 damages for personal injuring suffered by the owner of the auto. The
company’s legal counsel believed it is probable that the owner will be awarded an
estimated amount in the range between P200,000 and P450,000, and no amount is a
better estimate of a potential liability than any other amount because each point in the
range is as likely as any other. The 2022 financial statements were issued on March 1,
2023.

How much is the total amount to be recognized as provisions on December 31, 2022?
a. 3,425,000
b. 3,550,000
c. 3,800,000
d. 4,425,000

For the next two items:

Adverse financial and operating circumstances warrant that Captain Rogers Company should
undergo a quasi-reorganization on December 31, 2022.

The following information may be relevant in accounting for quasi-reorganization:

• Inventory with a fair value of P2,000,000 is currently recorded in the accounts at cost of
P2,500,000.

• Plant assets with a fair value of P7,000,000 are currently recorded at P8,500,000, net of
accumulated depreciation.

• Individual shareholders contribute P4 million to create additional capital to facilitate the

reorganization. No new shares are issued.

• The par value of the share is reduced from P25 to P5.

Immediately before these events, the shareholders’ equity appears as follows:

Share capital, P25 par, 100,000 shares P2,500,000

outstanding
Share premium 1,750,000
Deficit (3,000,000)

64. After the quasi-reorganization, what amount should be reported as share premium?
a. 1,750,000
b. 2,750,000
c. 3,250,000
d. 3,750,000

65. Subsequent to the quasi-reorganization, what amount of retained earnings shall be

restricted and cannot be declared as dividends according to the SEC?
a. Zero
b. 3,000,000

12 | P a g e RSORIANO/BVILLALUZ/JABIERA
 No. 125 Brgy. San Sebastian
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c. 3,500,000
d. 5,000,000

66. Mystical Company provided the following information at year-end:

10% cumulative preference share capital, P100 par P2,000,000

Ordinary share capital, P100 par 4,000,000
Subscribed ordinary share capital 2,000,000
Subscription receivable – not currently collectible 500,000
Share premium 1,000,000
Retained earnings 2,400,000
Treasury shares – ordinary, 10,000 shares at cost 800,000

Preference dividends are in arrears for 3 years.

What is the book value per ordinary share?

a. 150
b. 160
c. 187.50
d. 200

67. Vicar Company initiated a performance-based employee share option plan on January 1,
2022. The performance base for the plan is net sales in the year 2024. The plan
provides for share options to be awarded to the employee as a group on the following
basis:

Level Net sales range Options granted

1 Less than 2.5 million 10,000
2 P2.5 million – 4,999,999 20,000
3 P5 million – 10 million 30,000
4 More than 10 million 40,000
The options become exercisable on January 1, 2025. The options exercise price is P200 per
share. On January 1, 2022, each option had a fair value of P90. The share market prices
were:

January 1, 2022 P250

December 31, 2022 300
December 31, 2023 350
December 31, 2024 320
The entity reported the following sales each year:
2022 P4,500,000
2023 5,500,000
2024 7,000,000

What amount should be recognized as compensation expense for 2024?

a. 600,000
b. 900,000
c. 1,200,000
d. 1,800,000

13 | P a g e RSORIANO/BVILLALUZ/JABIERA
 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
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For the next two items:

MAGIC Company, a domestic corporation, started operations in the last week of March 2022.
The company opted to report its financial statements for the nine months ended December 31,
2022.

The pretax financial income for the period was P2,400,000. In preparing the income tax return
for the period, the tax accountant determined the following differences between 2022 financial
income and taxable income:

a) Because of non-compliance with some local government requirements, the city treasurer
assessed fines and penalties totaling P45,000.

b) The company made a donation amounting to P50,000. Tax laws consider a donation of
this kind as non-deductible in full amount.

c) Cash dividends received from equity investments in a domestic corporation, P10,400.

d) Rent was paid in advance for one year amounting to P480,000. The financial statements
of MAGIC Company reported prepaid rent of P120,000.

e) The company uses straight-line depreciation for all its depreciable assets and sum-of-
the-years' digits for tax purposes, resulting to a difference in depreciation expense of
P100,000.

Currently, the income tax rate is 30%. There are no changes in tax rates that have been
enacted or substantially enacted for future years.

68. Total income tax expense is

a. P613,380
b. P679,380
c. P720,000
d. P745,380

69. How much is the deferred tax liability on December 31, 2022?
a. P30,000
b. P36,000
c. P60,000
d. P66,000

For the next three items:

Wabasha Company provides retirement benefits to employees through defined benefit plan.
The trustee administering the plan and your analysis of the plan provided the following
information for the year ended December 31, 2022:

Plan assets at fair value, January 1 P625,000

Benefit obligation, January 1 675,000
Contribution to the fund 1,180,000
Current service cost 1,000,000
Discount rate 9%
Actuarial loss on defined benefit obligation 25,000
Actuarial loss on plan assets 1,000
Past service cost because of plan amendment 150,000
Benefits paid 60,000

14 | P a g e RSORIANO/BVILLALUZ/JABIERA
 No. 125 Brgy. San Sebastian
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Telephone : (043) 723 8412
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70. How much is the retirement benefit expense taken to profit or loss for the year 2022?
a. P1,004,500
b. P1,154,500
c. P1,155,500
d. P1,179,500

71. How much is the retirement benefit cost that is taken to other comprehensive income for
the year 2022?
a. Zero
b. P1,000
c. P25,000
d. P26,000

72. How much is the net defined benefit liability/asset that will be shown in the December
31, 2022 statement of financial position?
a. P49,500 liability
b. P49,500 asset
c. P50,500 liability
d. P50,500 asset

Logan Company and its divisions are engaged solely in manufacturing operations. The entity
reported the following segment profit or loss for the year 2022:

Segment: Profit (loss):

1 5,100,000
2 1,500,000
3 (3,000,000)
4 600,000
5 (300,000)
3,900,000

73. In the segment information for 2022, what are the reportable segments?
a. 1 and 2
b. 1, 2, and 3
c. 1, 2, 3, and 4
d. 1, 2, 3, 4, and 5

Dowell Company reported the following carrying amount of assets and liabilities at year-end:
Property 10,000,000
Plant and equipment 5,000,000
Inventory 4,000,000
Trade receivables 3,000,000
Trade payables 6,000,000
Cash 2,000,000

The value for tax purposes for property and for plant and equipment was P7,000,000
and P4,000,000, respectively. the entity has made a provision for inventory
obsolescence of P2,000,000 which is not allowable for tax purposes. Further, an
impairment loss against trade receivables of P1,000,000 has been made. This charge
will not be allowed in the current year for tax purposes. The tax rate is 30%.

15 | P a g e RSORIANO/BVILLALUZ/JABIERA
 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
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74. What amount should be reported as (1) deferred tax liability and (2) deferred tax asset at
year-end?
a. (1) 1,200,000; (2) 900,000
b. (1) 900,000; (2) 1,200,000
c. (1) 300,000; (2) 0
d. (1) 0; (2) 300,000

For the next five items:

Manny Company, a grocery retailer, operates a customer loyalty program. The entity grants
program members loyalty points when they spend a specified amount on groceries. Program
members can redeem the points for further groceries as these points have no expiry date.
During 2022, the sales amounted to P7,000,000 based on stand- alone selling price. During the
year, the entity granted 10,000 points. But management expected that only 80% or 8,000 points
will be redeemed. The stand-alone selling price of each loyalty point is P100. On December 31,
2022, 4,800 points have been redeemed. In 2023, management revised its expectations and
now expected that 90% or 9,000 points will be redeemed altogether. During 2023, the entity
redeemed 2,400 points.

On July 1, 2023, The Pacman Company borrowed P2,000,000 on a 10% five-year note payable
with an effective yield of 12%. On December 31, 2023, the fair value of the note is determined to
be P1,590,000 based on market and interest factors. The entity has elected the fair value option
for reporting the financial liability.

Due to adverse economic circumstances and poor management, Super Mario Company had
negotiated a restructuring of the 9% P6,000,000 note payable to Helena Bank due on January
1, 2019. There is no accrued interest on the note. The bank has reduced the principal obligation
from P6,000,000 to P5,000,000 and extend the maturity to 3 years on December 31, 2023.
However, the new interest rate is 13% payable annually every December 31. The present value
of 1 at 9% for three periods is 0.77 and the present value of an ordinary annuity of 1 at 9% for
three periods is 2.53.

During the year, Luigi Company issued at P220 per share, 15,000 convertible preference shares
of P200 par value. One preference share may be converted into three ordinary shares of P50
par value at the option of the preference shareholder. At year-end, all the preference shares
were converted into ordinary shares. The market value of the ordinary share at the conversion
date was P80.

75. What total amount of revenue (sales and through points) should be realized for 2022?
a. P6,125,000
b. P6,650,000
c. P7,000,000
d. P8,000,000

76. What amount should be reported as revenue from loyalty points for 2023?
a. P175,000
b. P200,000
c. P210,000
d. P700,000

77.Which of the following statements is/are true in relation to the note payable?
Statement I – The discount or premium amortization will have an effect on the carrying
value of the note payable.

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Statement II – The interest expense for 2023 is P111,346.

Statement III – The entry to recognize change in fair value on December 31 includesa
debit to note payable of P277,106.
Statement IV – The carrying amount of the note at year-end is P1,590,000.

a. Statement IV only.
b. Statements I, II, and III only.
c. Statements I, II, and IV only.
d. Statements I, II, III, and IV.

78. What amount should be reported as gain on modification of debt for 2019?
a. Zero.
b. P350,000
c. P500,000
d. P505,500

79. What amount should be credited to ordinary share and share premium as a result of the
conversion?
a. P2,250,000 and P1,050,000
b. P3,000,000 and P750,000
c. P3,300,000 and P300,000
d. P3,600,000 and P400,000

80. Macky Company is a medium-sized entity and incurred the following cost and
other relevant items for the year ended December 31, 2023:

Interest on construction loan – specific borrowing P600,000

Research cost 400,000
Development cost 1,200,000
Cost of ending inventory under FIFO 2,000,000
NRV of ending inventory 1,500,000
Transaction cost for investment in associate under the
fair value method 100,000
Cost of trademark acquired on January 1, 2023 1,000,000

How much total expense shall be recognized in 2023 from the foregoing?
a. P1,900,000
b. P2,500,000
c. P2,800,000
d. P2,900,000

-END-
GOD BLESS AS ALWAYS!!!

17 | P a g e RSORIANO/BVILLALUZ/JABIERA