1.

Receivables not measured initially at their transaction price are measured initially at
a. Fair value
b. Fair value less costs to sell
c. Fair value minus transaction costs that are directly attributable to the acquisition of
the financial asset
d. Fair value plus transaction costs that are directly attributable to the acquisition of
the financial asset

2. Seventeen Corp. has the following data relating to accounts receivables at the end of the
current year:
Accounts Receivable P1, 880, 000
Allowance for doubtful accounts 94, 000
Allowance for sales discounts 10, 000
Allowance for sales returns 15, 000
Allowance for freight 3, 000

What is the net realizable value of the accounts receivable?

a. P2,708,000 c. P1,758,000
b. P1,880,000 d. P1,752,000

SOLUTION:
Accounts Receivable P1, 880, 000
Less:
Allowance for doubtful accounts 94, 000
Allowance for sales discounts 10, 000
Allowance for sales returns 15, 000
Allowance for freight 3, 000 122,000

Net realizable value of the accounts receivable P1,758,000

3. Consistency and feedback relate most closely to which two of the following accounting
concepts, respectively?
a. Predictive value and confirmatory value
b. Recognition and full disclosure
c. Conservatism and cost/benefit
d. Recognition and matching

4. Carat Corporation has determined it is not a going concern, and will likely go bankrupt. Which
basis of accounting will Carats adopt?
a. Tax basis
b. Remain with GAAP
c. Cash basis
 d. Liquidation basis

5. When applying the revenue test to determine if a segment is a reportable segment, the
segment's revenues are compared to the total for the entity. Which of the following revenue
items should be included in the revenue calculation?
a. Sales to unaffiliated customers
b. Interest earned from loans to other segments
c. Sales of products

6. When the allowance method of recognizing uncollectible accounts is used, which of the
following statements is true regarding the impact a collection of an account previously written
off would have on Accounts Receivable and Allowance for Doubtful Accounts balances?
a. Accounts Receivable would not change and Allowance for Doubtful Accounts would
decrease.
b. Accounts Receivable would not change and Allowance for Doubtful Accounts would
increase.
c. Accounts Receivable would increase and Allowance for Doubtful Accounts would
decrease.
d. Accounts Receivable would increase and Allowance for Doubtful Accounts would not
change.

7. Which of the following inventory valuation methods produce(s) the same peso amount as the
balance in ending inventory under both periodic and perpetual inventory systems?
FIFO LIFO

a. Yes Yes

b. No Yes

c. Yes No

d. No No

8. Mark company reported the below information as of December 31st. Ignoring income taxes,
what amount should the company report comprehensive income as of December 31st?

Sales revenue P350,000

Cost of Goods Sold 150,000
Operating Expenses 110,000
Foreign currency translation gain 25,000

a. P125,000
b. P115,000
c. P90,000
d. P150,000
 SOLUTION:
Sales revenue P350,000
Less:
Cost of Goods Sold 150,000
Operating Expenses 110,000
Total P 90,000
Add:
Foreign currency translation gain 25,000
Comprehensive Income – Dec. 31 P115,000

9. 2 minus 1 Company issues a discounted, non-interest-bearing note in exchange for borrowed

funds. Choose whether the cash received will be higher or lower than the face value of the note,
and whether the effective annual interest rate will be higher or lower than the discount rate:
Cash Received vs. Face Value of Note Effective Rate vs. Discount Rate

a. Higher Lower

b. Lower Higher

c. Higher Higher

d. Lower Lower

10. NCT Company exchanged inventory with NEO Company in a transaction that lacks commercial
substance. Both NCT's and NEO's inventory had fair values that exceeded their costs by 30%.
Since NEO's inventory was more valuable, however, NCT paid NEO cash to compensate for the
difference. Who, if anyone, will recognize a gain on the exchange?
a. NCT only
b. NEO only
c. Both NCT and NEO
d. Neither NCT nor NEO

11. Which of the following statements is correct regarding donated assets?

a. Donated assets are not recorded on a company's balance sheet if the donor requests
that the gift remain anonymous.
b. Donated assets are recorded at historical cost on a company's balance sheet.
c. Under GAAP the donation of an asset will result in a credit to either revenue or gain.
d. Under GAAP no gain can be recorded on a donated asset until and unless it is sold to a
third party.
12. A company reacquired some of its own stock to be held as treasury stock and used for its
employee's 401K plan. In their statement of cash flows how would this cash outflow be
reported?
a. Under operating activities.
b. Either under operating activities or financing activities.
c. Under financing activities.
d. Either under investing activities or financing activities.

13. DARL+ING Company uses the equity method to account its January 1, 2014 purchase of HOT
Inc.'s common stock. On January 1, 2014, the fair values of HOT's FIFO inventory and plant
exceeded their carrying amounts. How do these excesses of fair values over carrying amounts
affect DARL+ING 's reported equity in HOT's 2014 earnings?

Inventory Excess Plant Excess

a. Decrease Decrease
b. Decrease No Effect
c. Increase Increase
d. Increase No Effect

14. The IASB Framework outlines two underlying assumptions of financial statements. These are:
Assumption 1 Assumption 2
a. Accrual basis of accounting Relevance and reliability
b. Cash basis of accounting Insolvency assumption
c. Accrual basis of accounting Going concern assumption
d. Cash basis of accounting Perpetual life concept

15. On June 1, 2013, KONICS Company collected a P12,000 note receivable that had been issued on
June 1, 2012. The note carried a 6% interest rate. The interest revenue recognized on the
maturity date is P720.
a. True
b. False
c. Neither true nor false
d. Either true or false

16. PAS 2 does not apply to the measurement of inventories held by

a. Producers of agricultural and forest products, and agricultural produce after harvest,
and minerals and mineral products, to the extent that they are measured at net
realizable value in accordance with well-established practice in those industries.
b. Commodity broker-traders who measure their inventories at fair value less ies at fair
value less costs to self.
c. Both a and b
d. Neither a nor b
17. Wonu Corporation issues bonds On May 1, year 1. The bonds are issued at 102 plus accrued
interest, 100 of its 6%, P1,000 bonds. The bonds are dated January 1, year 1. The bonds mature
on January 1, year 5. Interest is payable semiannually on January 1 and July 1. Wonu paid the
investment bank P7,000 for the bond issue costs. Based on the information above, Brayden
would realize net cash receipts from the bond issuance of
a. 97,000
b. 102,000
c. 99,000
d. 95,000

SOLUTION:
100,000 of bonds are issued at 102 plus accrued interest (4 months, from January 1 to May 1)
less bond issue costs of 7,000. The cash received for the bonds is 102% of 100,000, or P102,000.
The cash received for the accrued interest is P2,000 (P100,000 x 6% x 4/12). Therefore, cash
receipts total P97,000 (P102,000 + P2,000 – P7,000).

18. In a statement of cash flows, receipts from the issuance of debt in order to purchase a
manufacturing machine should be classified as cash inflows from
a. Capital Investing activities.
b. Operating activities.
c. Financing activities.
d. Investing activities.

19. On January 8, Hoshi entered into a finance lease with a vendor for equipment. The finance lease
for seven years. The equipment had no guaranteed residual value. Under the lease terms, Hoshi
had to pay P400,000 annually on January 8.

At the inception of the lease, the present value of an annuity due for seven years was 4.15.
What amount should Hoshi capitalize as leased equipment?

A. P400,000
B. P1,660,000
C. P2,060,000
D. P2,800,000

SOLUTION:
The equipment should be capitalized as the present value of the minimum lease payments. The
present value of the minimum lease payments at January 8 is calculated as the present value of
the annuity due factor times the payment, or P1,660,000 (4.15 × P400,000).
20. As of December 31, year 1, Woozi Company had 100,000 shares of common stock issued and
outstanding. In year 2, Woozi issued a 10% stock dividend on July 1. At the end of year 2 there
were 30,000 unexercised stock options to purchase shares of common stock at P20 per share.
During year 2, the average market price of Woozi’s common stock was P36 per share. Year 2 net
income was P860,000. For year 2, what are the diluted earnings per common share?

a. 6.62
b. 6.97
c. 7.81
d. 6.14

SOLUTION:
Common shares outstanding at the beginning of the year were 100,000. 10,000 shares were
issued as a stock dividend. The treasury stock method is used to determine the number of
incremental shares in computing diluted earnings per share.

Proceeds from exercise (30,000 shares × P20) P600,000

Shares issued upon exercise 30,000
Less: Treasury shares purchasable (P600,000/P36) 16,667
Incremental shares 13,333

The incremental shares of 13,333 are added to the 110,000 shares.

Diluted Earnings Per Share = P860,000/123,333 shares = 6.97.

21. According to the FASB conceptual framework, what does the concept of reliability in financial
reporting include?
a. Effectiveness.
b. Certainty.
c. Precision.
d. Neutrality.

22. Vernon, a consultant, keeps accounting records on a cash basis. In year 2, Vernon collected
P300,000 in fees from clients. At 12/31/Year 1, Vernon had an accounts receivable of P50,000.
At 12/31/Year 2, Gary had accounts receivable of P70,000, and unearned revenue of P6,000. If
Vernon used accrual basis, what would service revenue be for year 2?
a. 250,000
b. 320,000
c. 300,000
d. 314,000
 SOLUTION:
Cash Collected P300,000
Beginning Balance Accounts Receivable (P50,000)
Ending Balance Accounts Receivable P70,000
Unearned Revenue (P6,000)
-----------------------------------------------------------------------------
Service Revenue P314,000

23. NCT 127 Corp's beginning inventory at January 1, Year 1 was understated by P32,000 and the
ending inventory was overstated by P57,000. As a result, ABC Corp's cost of goods sold for year
3 was:
a. understated by 89,000
b. understated by 25,000
c. overstated by 89,000
d. overstated by 25,000

SOLUTION:
The 32,000 understatement of beginning inventory causes and understatement of cost of goods
available for sale which leads to a 32,000 understatement of cost of goods sold.

The 57,000 overstatement of ending inventory creates a 57,000 understatement of cost of

goods sold. This cost of goods sold, in total is understated by 89,000.

24. On September 1, Year 3, Bobbyindaeyo Corp. sold land to Hanbin Corp. for P300,000. The initial
cost of the land to Bobbyindaeyo Corp was P275,000. Hanbin and Bobbyindaeyo Corp are both
subsidiaries of Gnani Corp. On the consolidated balance sheet, what would be the value of the
land?
a. P300,000
b. P325,000
c. P275,000
d. P250,000

ANSWER:
Since this would be an intercompany transaction, when the consolidated financial statements
are produced, the gain that Bobbyindaeyo Corp record would be eliminated and the land would
be written down to its original value.
25. What is the amount of depreciation in year 3 of the assets useful life assuming the following
facts;
Cost of asset P11,000
Salvage Value P1,000
Useful life is four years
Sum of years digit method is used to calculate

a. 4,000
b. 2,000
c. 3,000
d. 1,000

SOLUTION:
The sum of years digits is calculated based on the useful life (1+2+3+4) = 10

The depreciable base is Cost of asset - salvage value (11,000-1,000) = 10,000

Depreciation Schedule:

1st year (4/10) x 10,000 = 4,000

2nd year (3/10) x 10,000 = 3,000

3rd year (2/10) x 10,000 = 2,000

4th year (1/10) x 10,000 = 1,000

26. Everyone_woo Corporation reported the following items in Year 3: Foreign currency translation
loss: 3,000; distributions to owners: 15,000; net income: 125,000; unamortized prior service cost
on pension plan: 12,000; deferred gain on an effective cash flow hedge: 8,000. What amount
should Everyone_woo report as other comprehensive income (loss) in Year 3?

a. 20,000
b. 35,000
c. 32,000
d. 7,000

SOLUTION:
Foreign currency translation loss 3,000
Prior service cost 12,000
Gain on cash flow hedge (8,000)
Comprehensive income 7,000
27. The8 Corp has a fixed asset with a carrying value of P100,000, expected future cash flows of
P90,000, present value of expected future cash flows of P70,000, and a market value of P75,000.
What amount of impairment loss should The8 record for this asset?

a. P10,000
b. P25,000
c. P0
d. P30,000

SOLUTION:
Carrying Value P100,000
Asset’s FV 75,000
Impairment Loss P 25,000

28. On January 2, Year 4, Scoups Corp. discovered that it had incorrectly expensed a P210,000
machine purchased on January 2, Year 1.

Scoups estimated the machine’s original useful life to be 10 years and its salvage value to be
P10,000. Scoups uses the straight-line method of depreciation and is subject to a 30% tax rate.
In its December 31, Year 4, financial statements, what amount should Scoups report as a prior
period adjustment?

a. P102,900
b. P105,000
c. P165,900
d. P168,000

SOLUTION:
When Raft incorrectly expensed the machine in Year 1, earnings before tax were understated by
P210,000. Had Raft properly capitalized this asset, it would have recorded P20,000 depreciation
expense per year in Year 1, Year 2, and Year 3. Depreciation expense is calculated on a straight-
line basis as P20,000 per year:

(P210,000 – P10,00) / 10 years

Over the three years, Raft would have recorded a total of P60,000 of depreciation expense.
Therefore, as of January 2, Year 4, expenses have been overstated by P150,000, (P210,000 –
P60,000), and the tax effect of the adjustment is 30% x P150,000, or P45,000. Therefore, the
prior period adjustment to retained earnings net of taxes is P105,000, (P150,000 – P45,000).
Item 29-30.

At the end of the current year, a fire damaged the warehouse and factory of an entity
completely destroying the goods in process inventory. There was no damage to either the raw
materials or finished goods. The physical inventory revealed the following:

January 1 December 31
Raw Materials 1,780,000 2,000,000
Goods in process 4,300,000 0
Finished goods 6,000,000 4,500,000
Factory supplies 500,000 400,000

The gross profit margin historically approximated 30% of sales. The sales for the year amounted
to 20,000,000. Raw material purchases totaled P4,000,000. Direct labor costs amounted to
P5,000,000 and manufacturing overhead was applied at 60% of direct labor.

29. What is the total manufacturing cost?

a. 11,700,000
b. 13,000,000
c. 11,800,000
d. 11,600,000

30. What is the cost of the goods in process inventory destroyed by the fire?
a. 3,800,000
b. 3,500,000
c. 3,600,000
d. 3,400,000

SOLUTION:
RM purchased 4,000,000
Less: Increase in RM inventory 300,000
RM used 3,700,000
DL 5,000,000
Factory overhead (60% x 5M) 3,000,000
Total manufacturing cost 11,700,000 (#29)
Add: WIP beginning 4,300,000
Total good placed in process 16,000,000
Less: WIP END (SQUEEZED) 3,500,000 (#30)
Cost of goods manufactured (18.5M - 6M) 12,500,000
Finished goods beginning 6,000,000
Cost of goods manufactured (14M + 4.5M) 18,500,000
Less: Finished goods end 4,500,000
Cost of goods sold (20M x 70%) 14,000,000

Item 31-33

During the current year, an entity incurred the following costs to develop and produce a low-risk
computer software product:

Completion of detailed program design or working model 1,300,000

Cost incurred for coding and testing to establish technological feasibility 1,000,000

Other coding cost after establishment of technological feasibility 2,400,000

Other testing cost after establishment of technological feasibility 2,000,000

Cost of producing product masters for training materials 1,500,000

Duplication of computer software and training materials from product master 2,500,000

Packaging product 500,000

31. What amount should be capitalized initially as software cost?

a. 5,400,000
b. 3,700,000
c. 5,900,000
d. 6,900,000

c. 5,900,000
Software cost (2,400,000 + 2,000,000 + 1,500,000) = 5,900,000
32. What amount should be reported in inventory at year-end?
a. 2,500,000
b. 3,400,000
c. 4,000,000
d. 4,500,000

b. 3,400,000
Inventory cost (2,500,000 + 900,000) = 3,400,000

33. What total amount of the cost incurred should be expensed immediately?
a. 8,200,000
b. 2,300,000
c. 6,700,000
d. 4,400,000

b. 2,300,000
R and D expense (1,300,000 + 1,000,000) = 2,300,000

34. Hannie Company acquired an equity financial instrument for P4,000,000 on June 15,2016. The
financial instrument is classified as financial asset at fair value through other comprehensive
income. Direct acquisition cost amounted to P700,000. On December31, 2016, the fair value of
the instrument was P5,500,000 and the transaction costs that would be incurred on the sale of
the investment are estimated at P640,000. What gain should be recognized in profit or loss for
the year ended December 31, 2016?
a. P900,000 b. P800,000

c. P0 d. P200,000

35. Boo S. Company provided the following data for 2016:

i. Received P500,000 cash dividend from Joshu Company.
ii. Received P60,000 liquidating dividend from Dino Company. Boo owns 5% interest in Dino.
iii. Junhui Company declared P2,000,000 cash dividend from which Boo owns 2% interest in
Junhui’s equity. Dividends are payable on the 15 th of January the following year.

What amount should Boo report as dividend income for 2016?

a. P540,000 b. P100,000
c. P600,000 d. P40,000
 SOLUTION:
Cash dividend from William Company 500,000

Cash dividend from Gonzales Company (2,000,000*.02) 40,000

540,000

36. Which is (are) correct concerning the FRSC?

I. The FRSC replaces the ASC as the standard setting body in the Philippines.
II. The FRSC is composed of 15 members with a Chairman and 14 representatives from
various sector.
III. The Chairman and members of the FRSC shall have a term of 2 years renewable for
another term.
IV. Any member of the ASC shall be disqualified from being appointed to the FRSC.

a. I and II only c. III and IV only

b. I, II, and III only d. I, II, III and IV
Answer: A

37. Which statement is incorrect regarding the Financial Reporting Standards Council (FRSC)?
a. Established by the Board of Accountancy (BOA) to assist the BOA in carrying out its power
and function to promulgate accounting standards in the Philippines.
b. Has 15 members with a Chairman
c. FRSC members serve for a term of three years renewable for another term
d. Has 6 representatives from public practice.
Answer: D

38. The purpose of the International Financial Reporting Standards (IFRS) is to

a. Promote uniform accounting standards among the countries of the world
b. Arbitrate accounting disputes between auditors and international entities
c. Issue enforceable standards which regulate the financial reporting of multinational entities
d. Develop a uniform currency in which the financial transactions of entities throughout the
world would be measured
Answer: A

39. A machine has a cost of P60,000, has an annual depreciation of P12,000, and has accumulated
depreciation of P30,000 on December 31, 2016. On April !, 2017, when the machine has a fair
value of P24,000, it is exchanged for a similar machine with a fair value of P72,000 and the
proper amount of cash is paid. The loss to be recognized on exchange is
a. P6,000 c. P21,000
b. P3,000 d. P0
Answer:
Fair value of asset given up 24,000
Carrying smount, 4/1/17
 Cost 60,000
Acc. Dep. [30,000 + (12,000 x 3/12)] 33,000 27,000
Loss (3,000)

40. Musk, Inc. received from customer a one year, 750,000 note bearing annual interest of 9%. After
holding the note for six months, Musk discounted the note at National Bank at an effective
interest rate of 12%. What amount of cash did Musk receive from the bank?
a. 700,950 c. 719,400
b. 780,713 d. 768,450

Answer: 750,000 x 9% = 67,500 + 750,000 = 817,500 x 12% x 6/12 = 49,050

817,500 – 49,050 = 768,450

41. Sandy Company exchanged inventory with Landy Company in a transaction that lacks
commercial substance. Both Sandy’s and Landy’s inventory had fair values that exceed their
costs by 30%. Since Landy’s inventory was more valuable, however, Sandy paid Landy cash to
compensate for the difference. Who, if anyone, will recognize a gain on the exchange?

a. Sandy only c. Both Sandy and Landy

b. Landy only d. Neither Sandy nor Landy
Answer: B

Number 42 and 43

An entity purchased equipment for P8,000,000 on January 1, 2019 with a useful life of 10 years
and no residual value.

On December 31, 2020, the entity classified the equipment as held for sale. The fair value of the
equipment on December 31, 2020 was P6,000,000 and the cost of disposal P200,000.

On December 31, 2021, the entity believed that the criteria for classification as held for sale can
no longer be met. On such date, the fair value of the equipment was P5,000,000 and the cost of
disposal was P100,000. The value in use was determined to be P5,500,000. Accordingly, the
entity decided not to sell the asset but to continue to use it.

42. What is the impairment loss to be recognized on December 31, 2020?

a. 2,200,000 c. 1,600,000
b. 600,000 d. 0
Cost 8,000,000
Accumulated dep (8M/10 x 2) (1,600,000)
Carrying amount – Dec 31,2020 6,400,000
Fair value less cost of disposal
(6,000,000 – 200,000) 5,800,000
 Impairment loss for 2020 600,000

43. What amount should be recognized in profit or loss as a result of the reclassification in 2021?
a. 100,000 c. 200,000
b. 300,000 d. 0
carrying amount – dec 31, 2021, as if not held for sale
(8M – 2.4M) 5,600,000
Recoverable amount equal to value in use 5,500,000
Measurement 5,500,000

Measurement 5,500,000
Carrying amount per book 5,800,000
Loss on reclassification for 2021 ( 300,000)

44. Predictive value is an ingredient of the fundamental quality of

a. Reliability c. Representation faithfulness
b. Relevance d. Verifiability

Answer: B

45. Using the data for Llanah Corporation, compute the liabilities at year – end
Total assets, end P80,000
Share Capital, end 15,000
Retained earnings, beg 22,000
Net income 15,000
Dividends declared 7,000

a. P65,000 c. P43,000
b. P35,000 d. P50,000

Answer:
Total asset 80,000
Equity (15,000 + 22,000 + 15,000 – 7,000) (45,000)
Total liabilities 35,000

46. Mini Corp. acquires a patent from Maxi Co. in exchange for 2,500 shares of Mini Corp.’s P5 par
value ordinary shares and P75,000 cash. When the patent was initially issued to Maxi Co., Mini
Corp.’s shares were selling at P7.50 per share. When Mini Corp. acquired the patent, its shares
were selling for P9 a share. Mini Corp. should record the patent at what amount?

a. P87,500 c. P97,500
b. P93,750 d. P75,000

Answer
FV of shares issued (2,500 x 9) 22,500
Cash paid 75,000
Cost of patent 97,500
 47. At the year end, Mayce Co. held investments with the intent of selling them in the near term.
The investments consisted of P300,000, 9%, seven year bonds, purchased for 278,000, and
equity securities purchased for P75,000. At the year end, the bonds were selling on the open
market for P320,000 and the equity securities had a market value of 90,000. What amount
should Mayce report as trading securities in its year-end balance sheet?

a. P410,000 c. P395,000
b. P390,000 d. P373,000

Answer: 320,000 + 90,000 = 410,000

48. When an investor uses the fair value method to account for investments in ordinary shares held
in either a trading or nontrading portfolio, cash dividends received by the investor from the
investee should normally be recorded as

a. An addition to the investors shares of the investee’s profit

b. Dividend income
c. A deduction from the investor’s share of the investee’s profit
d. A deduction from the investment account

Answer: B

Number 49,50,51,52

Situation 1 – An entity issued 10-year bonds payable with face amount of P4,000,000 on January 1,2018.
The interest is payable annually on December 31 at the 6% stated interest rate. The bonds were issued
to yield 9%, The present value of 1 at 6% for 10 periods is 0.56 and the present value of an ordinary
annuity of 1 at 6% for 10 periods is 7.36. The present value of 9% for 10 periods is 0.42 and the present
value of an ordinary annuity of 1 at 9% for 10 periods is 6.42.

Situation 2 – On January 1,2018, an entity signed a 7-year finance lease for a building. The fair value of
the building was P8,415,000. The entity made the first annual lease payment of P1,530,000 on January
1,2018. The entity’s incremental borrowing rate was 12% and the interest rate implicit in the lease was
9% and known to the lease. The present value of an annuity due for 7 periods at 12% is 5.10 and the
present value of an annuity due for 7 periods at 9% is 5.5.

49. What is the market price of the bounds on January 1,2018?

a. 1,680,000
b. 3,991,200
c. 3,220,800
d. 4,000,000

Answer:
PV of interest (4M x 6% = 240,000 x 6.42) 1,540,800
 PV of principal (4M x 0.42) 1,680,000
Market price of bonds payable – jan. 1,2018 3,220,800

50. What is the bond interest expense for 2018?

a. 246,000
b. 360,000
c. 193,248
d. 289,872

Answer:
Interest expense for 2018 3,220,800 x 9% 289,872

51. What amount should be reported as lease liability on December 31,2018?

a. 8,415,000
b. 6,885,000
c. 5,974,650
d. 6,273,000

Answer:
PV of rentals equal to fair value (1,530,000 x 5.50) 8,415,000
First payment on Jan. 1, 2018 in advance – principal only (1,530,000)
Lease liability – December 31, 2018 6,885,000

52. What is the interest expense on the lease liability for 2018?
a. 619,650
b. 757,350
c. 826,200
d. 0

Answer:
Interest expense for 2018 (6,885,000 x 9%) 619,650

53. The following may be reclassified into a different category, except

a. Debt investment of FVOCI
b. Debt investment amortized cost
c. Debt investment held for trading
d. Debt investment at FVPL under the FV option

Answer: D

54. The following data have been accumulated for Grace Mfg. Inc.
Raw materials – beginning
Inventory (Jan. 1,2017) 10,000 units @ P6.00
Purchases 8,500 units @ P7.00
11,000 units @ P7.50
Transferred 21,500 units of raw materials to work in process:
Work in process – beginning 5,600 units
Inventory (Jan. 1, 2017) @ P13.50
 Direct labor P250,000
Manufacturing overhead P325,000
Work in process – ending 4,200 units
Inventory (Mar. 31,2017) @ P13.75
If Grace uses the FIFO method for valuing raw materials inventories, compute for the costs of
goods manufactured for the quarter ended march 31,2017?
a. P699,150 c. P734,850
b. P717,000 d. P746,850

Answer:
RM 1/1 (10,000 x 6) 60,000
Purchases [(8,500 x P7) + (11,000 x P7.50)] 142,000
RM available for use 202,000
Less: RM 3/31 (8,000 x P7.50) 60,000
RM used 142,000
Direct labor 250,000
Manufacturing overhead 325,000
Total manufacturing costs 717,000
Work in process 1/1 (5,600 x P13.50) 75,600
Total cost placed in process 792,600
Less: work in process 3/31 (4,200 x P13.75) 57,750
Cost of goods manufavctured 734,850

55. It is the process of incorporating in the balance sheet or income statement an item that meets
the definition of an element of financial statements.

a. Realization c. Recognition
b. Allocation d. Measurement

Answer: c

56. A gain arising from a change in the fair value of an investment property for which an entity has
opted to use the fair value model is recognized in
a. Net profit or loss for the year
b. General reserve in the shareholder’s equity
c. Valuation reserve in the stockholder’s equity
d. None of the above

Answer: A

Number 22, 23, and 24

57. JMP Inc. had net sales in 2020 of P700,000. At December 31, 2020, before adjusting entries, the
balance in selected accounts were: accounts receivable P125,000 debit and allowance for
doubtful accounts P1,200 credit. JMP estimates that 2% of its net sales will prove to be
uncollectible. What is the cash realizable value of the receivables reported on the statement of
financial position at December 31,2020?
a. P109,800 c. P112,200
 b. P111,000 d. P122,500

Answer:
Accounts receivable 125,000
Less: required allowance 1,200 + 2% (700,000) 15,200
Net realizable value 109,800

58. A property that cost P2,600,000 is measure for reporting purposes at P4,000,000, which is the
amount of cash (or cash equivalents) that could be obtained by selling the property in an orderly
disposal. Which measurement basis does this describe?
a. Current cost c. Realizable value
b. Historical cost d. Present value of future cash flows

Answer: C

59. Laire Corporation purchased 16,000 ordinary shares of Comma Co. for P528,000. During the
year, Comma paid a cash dividend of P13 per share. At year-end, Comma shares were selling for
P38 per share. Laire Corporation purchased the shares to meet a non-trading regulatory
requirement. What amount of total income will Laire Corporation report in its income statement
for the year?
a. None c. P208,000
b. P80,000 d. P288,000

Answer: 16,000 x 13 = 208,000

60. During 2018, an entity decided to change from the FIFO inventory valuarion to the weighted
average method. The income tax rate is 30%.
FIFO Weighted average
January 1 inventory 7,500,000 8,300,000
December 31 inventory 8,000,000 8,500,000

What amount should be reported as the cumulative effect of this accounting change for 2018?
a. 560,000 increase c. 350,000 increase
b. 560,000 decrease d. 350,000 decrease

Answer:
Weighted average – January 1 8,300,000
FIFO – January 1 7,500,000
Increase 800,000
Tax effect (800,000 x 30%) ( 240,000)
Cumulative effect 560,000 increase

61. If bonds were issued at a premium, the effective interest rate is

a. Higher than the nominal interest rate
b. Lower than the nominal interest rate
c. Equal to the nominal interest rate
d. Not determinable
 Answer: B

62. At December 31,2017, MARSI Co. had the following balances in the accounts it maintains at First
State Bank:
Checking account #101 P175,000
Checking account #201 ( 10,000)
Money market account 25,000
90-day certificate of deposit, due 2/28/18 50,000
180-day certificate of deposit, due 3/15/18 80,000

In its December 31,2017 statement of financial position, what amount should MARSI report as
cash and cash equivalents?
a. P190,000 c. P240,000
b. P200,000 d. P320,000

Answer:
(175,000 – 10,000 + 25,000 + 50,000) 240,000

63. Inventory records for Epstein’s Chemicals revealed the following:

March 1, 2017, inventory: 1,000 gallons @ P7.20 = P7,200

Purchases Sales
Mar. 10 600 gals @ P7.25 Mar 5 400 gals
16 800 gals @ P7.30 14 700 gals
23 600 gals @ P7.35 20 500 gals
26 700 gals

Ending inventory assuming FIFO in a perpetual inventory system would be:

a. P4,960 c. P5,080
b. P5,060 d. P5,140

Answer:
Inventory, March 1 1,000 units
Purchases 2,000
Sales (2,300)
Inventory, March 31 700 units

From march 23 (600 gals @ P7.35) 4,410

From march 16 (700-600 gals) x P7.30 730
Inventory march 31 5,140

64. Gold Inc. factors P2,000,000 of its accounts receivables with without guarantee (without
recourse) for a finance charge of 3%. The finance company retains an amount equal to 10% of
the accounts receivable for possible adjustments. What amount of gain or loss should be
recorded in relation to the transfer of receivables?
a. P0 c. P60,000 gain
b. P60,000 loss d. P260,000 loss
 Answer:
SP 2M x 97% 1,940,000
CV of AR sold 2,000,000
Loss from transfer (60,000)

65. Pulp Corporation is located in London but doe business throughout Europe. The company builds
and sells equipment used in manufacturing pharmaceuticals. On December 31, 2020, Rosalie has
trading securities valued at P63,000; goodwill valued at P450,000; prepaid insurance valued at
P36,000; patents valued at P210,000; and a customer list valued at P390,000. On Pulp
Corporation’s statement of financial position at December 31,2020, what amount should be
reported as intangible assets?
a. P660,000 c. P1,113,000
b. P1,050,000 d. P1,149,000

Answer: 450,000 + 210,000 + 390,000 = 1,050,000

66. On January 1, 2020 Ring Company acquired 460,000, P100, 2% bonds for P94 each. Issue costs
amount to P22,600 in total. The redemption value of the zero-coupon bonds is higher than the
par value, which gives rose to an implicit annual rate if interest of 5%. The bonds are measures
at amortized cost and interest received in arrears. What is the carrying amount of bonds as of
December 31, 2020?
a. P44,458,270 c. P44,505,730
b. P44,482,000 d. P44,560,930

Answer:
1/1/20 (460,000 x 94) + 22,600 43,262,600
Discount amortization;
Int income 43,262,600 x 5% 2,163,130
Int received 46,000,000 x 2% 920,000 1,243,130
12/31 amortized cost 44,505,730

67. West co. recorded the below inventory information during the month of February. West uses
LIFO method to cost inventory. What amount should West report as inventory at the end of
February under each of the following methods of recording inventory?

Unit Unit cost Total cost units on hand

Balance 2/1 800 P2 P1,600 800
Purchases 2/8 1,000 P3 P3,000 1,800
Sold on 2/14 1,500 300
Purchases 2/17 2,000 P1 P2,000 2,300
Sold on 2/23 1,600 700
purchases on 2/28 800 P4 P3,200 1,500

a. Perpetual 3,700; Periodic 4,200

b. Perpetual 4,200; Periodic 3,700
c. Perpetual 3,700; Periodic 3,700
d. Perpetual 4,200; Periodic 4,200
 Answer:
Perpetual (300 x P2) + (400 x P1) + (800 x P4) 4,200
Periodic (800 x P2) + (700 x P3) 3,700

68. The following may be included in the cost of inventories, except

a. Administrative overheads
b. Storage costs
c. Wasted materials, labor and other production cost
d. Selling cost

Answer : D

69. How does a lessor treat broker’s fee under an operating lease?
a. Expensed immediately
b. income
c. Deferred and amortized as expense over the lease term
d. Capitalized as cost of the leased asset

Answer: c

70. Which is an example of the expense recognition principle of associating cause and effect?
a. Sales commission
b. Officer’s salaries
c. Allocation of insurance cost
d. Depreciation on property, plant and equipment

Answer: a