CRC-ACE REVIEW SCHOOL
The Professional CPA Review School
 735-9031 / 735-8901
PRACTICAL ACCOUNTING 2
INSTRUCTION: Choose the correct answer from the following problems by writing a vertical line on the letter
of your choice answer on the answer sheet provided. NO ERASURES ALLOWED. USE PENCIL NO. 1 OR 2 ONLY.
Questions 1 through 4 are based on the following:
Simang purchases 5 percent of Bosyo’s outstanding stock on October 1, 2001 for P74,750. An additional
10 percent of Bosyo is acquired for P149,000 on July 1, 2002. Both of these purchases were accounted
for as available-for-sale investments. A final 20 percent is purchased on December 31, 2003, for
P342,000. With this final acquisition, Simang achieves the ability to significantly influence the decisionmaking process of Bosyo.
Bosyo’s stockholders’ equity has a book value of P1,000,000 as of January 1, 2001. Information
follows concerning the operations of this company for the 2001-2003 period. Assume all income
occurred evenly throughout the years and dividends were paid every November 1 of each year.
Year
Reported Income
Dividends
2001
P200,000
P 80,000
2002
300,000
160,000
2003
240,000
90,000
On Bosyo’s financial records, the book values of all assets and liabilities are the same as their fair market
values. Any excess is allocated to unrecorded patent and is to be amortized over a 15-year period.
Amortization for a portion of a year should be based on months.
1. How much income from this investment was recognized on the books of Simang for the year 2001?
a. P10,000
b. P4,000
c. P2,500 *
d. P2,212.50
2. How much income from this investment was recognized on the books of Simang for the year 2002?
a. P45,000
b. P24,000 *
c. P30,000
d. P28,617
3. How much income from this investment was recognized on the books of Simang for the year 2003?
a. P13,500
b. P84,000
c. P36,000
d. P33,383 *
4. Determine the balance of investment that will be reported on the balance sheet of Simang for the year
ended December 31, 2003.
a. P565,750
b. P587,962.50 *
c. P514,462.50
d. P589,462.50
Questions 5 and 6 are based on the following:
Winston has the following account balances as of February 1, 2000:
Inventory
P 600,000 Common stock (P10 par value) P 800,000
Land
500,000 Retained earnings, Jan. 1,2000 1,100,000
Buildings (net) (fair value P1,000,000) 900,000 Revenues
600,000
Expenses
500,000
Arlington pays P1.4 million cash and issues 10,000 shares of its P30 par value common stock (valued at
P80 per share) for all of Winston’s outstanding stock and Winston is dissolved. Stock issuance costs
amount to P30,000. Prior to recording these newly issued shares, Arlington reports a Common Stock
account of P900,000 and Additional Paid-in Capital of P500,000.
5. Determine the goodwill that would be included in the February 1, 2000, financial statement of Arlington.
a. P200,000
b. P230,000
c. P100,000 *
d. P130,000
6. Assume that Arlington pays cash of P2.0 million. No stock is issued. An additional P40,000 is paid in
direct combination costs, determine the retained earnings, 1/1/00 balance that would be included in the
February 1, 2000 financial statement of Arlington.
a. P1,100,000 *
b. P1,200,000
c. P1,260,000
d. P1,160,000
Questions 7 and 8 are based on the following:
Partners A, B, C, and D have been operating ABCD Partnership for ten years. Due to a significant
reduction in the demand for their product over recent years, the partners have agreed to liquidate the
partnership. At the time of liquidation, balance sheet accounts consisted of cash, P103,500; noncash
assets, P300,000; liabilities to outsiders, P60,000; capital credit balances for partners A, B, and C,
P90,000, P150,000, and P120,000, respectively; and a debit capital balance for partner D of P16,500.
Partners share equally in income and loss. It is estimated that the administrative cost of liquidation will
total P4,500. While preparing for liquidation, an unrecorded liability of P7,500 was discovered.
7. Assuming the available cash of P103,500 was distributed, how much must be the share of partner B?
a. P31,500
b. P30,750 *
c. P65,167
d. none
8. For how much must the noncash assets be sold for partner D to received at least P5,000?
a. P429,500
b. P501,500
c. P398,000 *
d. P386,000
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 2
Questions 9 and 10 are based on the following:
The Walker, Wilson, and Winston Partnership is being liquidated. All liabilities have been paid. The
balance of assets on hand is being realized gradually. The following are details of partners’ accounts:
Capital Account
Balances
Drawing Account
Balances
Loans to
Partnership
P/L
Ratio
Walker
P200,000
P15,000 Cr.
P150,000
5
Wilson
250,000
20,000 Dr.
2
Winston
100,000
30,000 Cr.
50,000
3
9. If you are to rank the partners from the most vulnerable to the least vulnerable, the ranking will be as
follows:
a. Walker, Wilson, and Winston, respectively. c. Winston, Wilson and Walker, respectively
b. Wilson, Walker, and Winston, respectively. d. Winston, Walker and Wilson, respectively.
*
10. If partner Walker receives P150,000, how much partner Wilson receives?
a. P144,000 *
b. P51,000
c. P86,000
d. PP129,000
11. The total of the partners’ capital accounts was P110,000 before the recognition of partnership goodwill in
preparation for the withdrawal of a partner whose income and loss sharing ratio is 2/10. He was paid
P28,000 by the firm in final settlement for his interest. The remaining partners’ capital accounts,
excluding their share of the goodwill, totalled P90,000 after his withdrawal. Compute the total goodwill
of the firm agreed upon.
a. P20,000
b. P48,000
c. P8,000
d. P40,000 *
Questions 12 through 14 are based on the following:
A, B and C have capital balances of P112,000, P130,000 and P58,000, respectively, and share profits in
the ratio 3:2:1. D invest cash in the partnership for a one-fourth interest.
12. Assume D receives a one-fourth interest in the assets of the partnership, which includes credit for
P25,000 of goodwill that is recognized upon admission. How much cash D invest?
a. P100,000
b. P75,000 *
c. P125,000
d. P50,000
13. Assume D receives a one-fourth interest in the assets of the partnership and D is credited with P20,000
of the bonus from the old partners that is recognized upon D’s admission. How much cash D invest?
a. P73,333 *
b. P100,000
c. P93,333
d. P80,000
14. Assume D receives a one-fourth interest in the assets of the partnership and B is credited with P15,000
of the bonus from D, how much cash D invest?
a. P115,000
b. P105,000
c. P160,000 *
d. P120,000
Questions 15 and 16 are based on the following:
Several years ago Killough and Seago formed Hokie Partnership. The partnership agreement states that
each partner is to receive a salary of P10,000 per month and 5% interest on beginning-of-the-year
capital balances; any remainder would be divided between Killough and Seago in the ratio 2:3,
respectively. The unadjusted trial balance of Hokie Partnership as of December 31, 20x6, appears as follows:
Debits
Credits
Cash
P 500,000
Accounts payable
P 350,000
Accounts receivable
300,000
Notes payable
200,000
Inventory, January 1, 20x6
400,000
Killough, capital
750,000
Furniture & fixtures, net
150,000
Seago, capital
620,000
Building, net
300,000
Sales
800,000
Killough, drawing
100,000
Seago, drawing
120,000
Purchases
600,000
Operating expenses
250,000
Total
P2,720,000
Total
P2,720,000
Additional information:
1. December 31, 20x6, inventory was P550,000. 20x6 purchases of P600,000 were recorded using
the periodic inventory method.
2. Depreciation for 20x6 on furniture and fixtures and building is determined to be 10% and 20%
respectively, of net valuation.
3. On July 1, 20x6, the partnership recorded a P100,000 additional capital contribution by Seago.
Killough made no additional capital contributions during the year.
15. Determine the share of partner Killough on the net income of 20x6.
a. P46,100 *
b. (P21,100)
c. (P19,100)
d. P44,100
16. Determine the ending capital balance of partner Seago on December 31, 20x6.
a. P480,100
b. P521,100
c. P478,900 *
d. P694,100
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 3
Questions 17 through 19 are based on the following:
Alley and Barvey established a partnership on December 1, 20x4. They agreed that Alley will contribute
cash of P20,000; Land of P15,000 and Building of P50,000. Alley’s accounts payable of P10,000 is to be
assumed by the partnership. Barvey will contribute cash of P30,000 and furniture and fixtures of P25,000.
17. Assume that each partner is to be credited for the full amount of net assets invested, how much are the
capital balances of each partner?
a. P85,000 for Alley and P55,000 for Barvey
c. P65,000 for Alley and P65,000 for Barvey.
b. P75,000 for Alley and P55,000 for Barvey *
d. P75,000 for Alley and P75,000 for
Barvey.
18. Assume that each partner initially should have an equal interest in partnership capital with no
contribution of intangible asset (bonus method). How much are the capital balances of each partner?
a. P85,000 for Alley and P55,000 for Barvey
c. P65,000 for Alley and P65,000 for
Barvey. *
b. P75,000 for Alley and P55,000 for Barvey
d. P75,000 for Alley and P75,000 for Barvey.
19. Assume that each partner initially should have an equal interest in partnership capital, and any
contributed goodwill should be recognized (goodwill method). How much are the capital balances of
each partner?
a. P85,000 for Alley and P55,000 for Barvey
c. P65,000 for Alley and P65,000 for Barvey.
b. P75,000 for Alley and P55,000 for Barvey
d. P75,000 for Alley and P75,000 for
Barvey.*
20. On June 1, 20x6, M Corporation, franchisor, received P200,000 from MM representing down payment on
the franchise agreement signed that day. MM gave M a non-interest bearing promissory note for the
balance of P1,000,000 payable in four equal semi-annual instalments. Franchise service was substantially
completed by M on November 15 at a cost of P900,000. On December 1, 20x6, the first semi-annual
instalment became due and was accordingly paid by MM. The interest for this kind of note will be 18%
per annum. M appropriately uses the accrual method in recording franchise revenues. In its Dec. 31,
20x6 financial statements, how much will M report as franchise revenue earned for the year?
a. P1,200,000
b. P1,010,000
c. P300,000
d. P110,000 *
Questions 21 through 23 are based on the following:
V Construction Company has used the cost-to-cost percentage of completion method of recognizing
profits. Michael V assumed leadership of the business after the recent death of his father, Rudy V. In
reviewing the records, Michael V finds the following information regarding a recently completed building
project for which the total contract price was P5,000,000.
Construction in progress account balance 20x2
P1,000,000
Construction cost incurred during 20x4
2,050,000
Gross profit (loss) recognized in 20x2
100,000
Gross profit (loss) recognized in 20x3
350,000
Gross profit (loss) recognized in 20x4
(
50,000)
21. How much cost was incurred in 20x3?
a. P1,650,000 *
b. P2,550,000
c. P900,000
d. P4,600,000
22. How much must be the balance of Construction in Progress account at the end o 20x3?
a. P1,550,000
b. P2,650,000
c. P3,000,000 *
d. P4,600,000
23. How much is the estimated cost to complete the project at the end of 20x3?
a. P4,250,000
b. P1,600,000
c. P1,550,000
d. P1,700,000 *
Questions 24 and 25 are based on the following:
Octopus Retail Company sells goods for cash, on normal credit (2/10, n/30). However, on July 1, 20x4,
the company sold a used computer for P22,000; the inventory carrying value was P4,400. The company
collected P2,000 cash and agreed to let the customer make payments on the P20,000 whenever possible
during the next 12 months. The company management stated that it had no reliable basis for estimating
the probability of default. The following additional data are available: (a) collections on the instalment
receivable during 20x4 were P3,000 and during 20x5 were P2,000, and (b) on December 1, 20x5,
Octopus Retail repossessed the computer (estimated net realizable value, P7,000).
24. Determine the realized gross profit on instalment sales for the year 20x4.
a. P1,600
b. P4,000 *
c. P2,400
d. P5,600
25. Determine the gain or loss on repossession recognized in 20x5.
a. P3,000 loss
b. P3,000 gain
c. P4,000 loss
d. P4,000 gain *
26. Klumper Corporation is a diversified manufacturer of industrial goods. The company’s activity-based
costing system contains the following six activity cost pools and activity rates:
Activity Cost Pool
Activity Rates
Labor related
P6 per direct labor-hour
Machine related
P4 per machine hour
Machine setups
P50 per setup
Production orders
P90 per order
Practical Accounting 2
Second Pre-Board Examination
Shipments
Product sustaining
May 2007 Batch
Page 4
P14 per shipment
P840 per product
Activity data have been supplied for the following two products:
Total expected activity
K425
M67
Number of units produced per year
200
2,000
Direct labor-hours
80
500
Machine-hours
100
1,500
Machine set ups
1
4
Production orders
1
4
Shipments
1
10
Product sustaining
1
1
Determine the total and average per unit cost of product M67.
a. P1,874 and P9.37, respectively.
c. P169,034 and P845.17, respectively.
b. P10,540 and P5.27, respectively. *
d. P1,689,700 and P844.85, respectively.
27. Lubricants, Inc., produces a special kind of grease that is widely used by race car drivers. The grease is
produced in two processing department: Refining and Blending. Raw materials are introduced at various
points in the Refining Department.
The following incomplete Work in Process account is available for the Refining Department for
March:
Work in Process – Refining Department
--------------------------------------------------------------------------------------------------------------------March 1 inventory (20,000 gallongs
Completed and transferred
Materials 100% complete, labor
?
to blending ( ? gallons)
Overhead 90% complete)
38,000
March costs added:
Raw oil materials (390,000 gallons) 495,000
Direct labor
72,000
Overhead
181,000
--------------------------------------------------------------------------------------------------------------------March 31 inventory (40,000 gallons;
Materials 75% complete; labor
Overhead 25% complete
?
The March 1 work in process inventory in the Refining Department consists of the following cost
elements: raw materials, P25,000; direct labor, P4,000; and overhead, P9,000.
Assuming that the company uses the weighted average method, determine the total costs transferred
out to Blending Department.
a. P740,000 *
b. P786,000
c. P748,000
d. P702,000
28. Chocolaterie de Geneve Company makes chocolate truffles that are sold in popular embossed tins. The
company has two processing departments – Cooking and Molding. In the Cooking Department, the raw
ingredients for the truffles are mixed and then cooked in special candy-making vats. In the Molding
Department, the melted chocolate and other ingredients from the Cooking Department are carefully
poured into molds and decorative flourishes are applied by hand. After cooling, the truffles are packed
for sale. The company uses a process costing system. The T-account below show the flow of costs
through the two departments in April:
Work in Process – Cooking
---------------------------------------------------------------------------------------------------------------Balance 4/1
8,000
160,000
Transferred out
Direct materials
42,000
Direct labor
50,000
Overhead
75,000
Work in Process – Molding
----------------------------------------------------------------------------------------------------------------Balance 4/1
4,000
240,000
Transferred out
Transferred in
160,000
Direct labor
36,000
Overhead
45,000
Determine the work in process ending inventory for the month of April.
a. P15,000
b. P5,000
c. P20,000 *
d. P10,000
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 5
29. The Polaris Company uses a job-order costing system. The following data relate to October, the first
month of the company’s fiscal year.
a. Raw materials purchased on account, P210,000.
b. Raw materials issued to production, P190,000 (P178,000 direct materials, and P12,000 indirect materials).
c. Direct labor cost incurred, P90,000; indirect labor cost incurred, P110,000.
d. Depreciation recorded on factory equipment, P40,000.
e. Other manufacturing overhead costs incurred during October, P70,000.
f. The company applies manufacturing overhead cost to production on the basis of P8 per machinehour. There were 30,000 machine-hours recorded for October.
g. Production orders costing P520,000 according to their job cost sheets were completed during
October and transferred to Finished Goods.
h. Production orders that had cost P480,000 to complete according to their job cost sheets were
shipped to customers during the month. These goods were sold on account at 25% above cost.
Compute the ending balance in Work-in process account, assuming that Work-in Process has a
beginning balance of P42,000.
a. P30,000 *
b. P22,000
c. P70,000
d. P28,000
Questions 30 and 31 are based on the following:
Leeds Architectural Consultants began operation on January 2. the following activity was recorded in the
company’s Work in Process account for the first month of operations:
Work in Process
---------------------------------------------------------------------------------------------------------------------Costs of subcontracted work
230,000
To completed projects
390,000
Direct staff costs
75,000
Studio overhead
120,000
Leeds Architectural Consultants is a service firm, so the names of the accounts it uses are different from
the names used in manufacturing firms. Cost of Subcontracted Work is comparable to Direct Materials;
Direct Staff Costs is the same as Direct Labor; Studio Overhead is the same as Manufacturing Overhead;
and Completed Projects is the same as Finished Goods. Apart from the difference in terms, the
accounting methods used by the company are identical to the methods used by manufacturing
companies.
Leeds Architectural Consultants uses a job-order costing system and applies studio overhead to
Work in Process on the basis of direct staff cots. At the end of January, only one job was still in process.
Theis job (Lexington Gardens Project) had been charged with P6,500 in direct staff cots.
30. Compute the predetermined overhead rate that was in use during January.
a. 160% of direct staff costs. *
c. 52.17% of costs of subcontracted work
b. 62.5% of direct staff costs.
d. 192% of costs of subcontracted work.
31. Determine the cost of subcontracted work charged to the job still in process.
a. P35,000
b. P28,500
c. P18,100 *
d. P10,400
Questions 32 and 33 are based on the following:
Paul Claro is employed by Aerotech Products and assembles a component part for one of the company’s
product lines. He is paid P14 per hour for regular time and time and a half (i.e., P21 per hour) for all
work in excess of 40 hours per week.
32. Assume that during a given week Paul is idle for five hours due to machine breakdowns and that he is
idle for four more hours due to material shortages. No overtime is recorded for the week Allocate Paul’s
wages for the week between direct labor cost and manufacturing overhead cost.
a. Direct labor, P434; Factory overhead, P126 *
c. Direct labor, P434; Factory
overhead, P189
b. Direct labor, P560; Factory overhead, P0
d. Direct labor, P651; Factory overhead, P126
33. Assume that during the following week, Paul works a total of 48 hours. He has no idle time for the
week. Allocate Paul’s wages for the week between direct labor cost and manufacturing overhead cost.
a. Direct labor, P560; Factory overhead, P168
c. Direct labor, P672; Factory overhead, P0
b. Direct labor, P672; Factory overhead, P56 *
d. Direct labor, P560; Factory
overhead, P56
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 6
Questions 34 through 36 are based on the following:
The following data refer to Fresno Fashions Company for the year 20x2:
Sales revenue
P950,000
Work-in-process inventory, 12/31/x2
30,000
Work-in-process inventory, 1/1/x2
40,000
Selling and administrative expense
150,000
Income tax expense
90,000
Purchases of raw material
180,000
Raw-material inventory, 12/31/x2
25,000
Raw-material inventory, 1/1/x2
40,000
Direct labor
200,000
Utilities: plant
40,000
Depreciation: plant and equipment
60,000
Finished-goods inventory, 12/31/x2
50,000
Finished-goods inventory, 1/1/x2
20,000
Indirect material
10,000
Indirect labor
15,000
Other manufacturing overhead
80,000
34. Determine the cost of goods manufactured for 20x2.
a. P610,000
b. P580,000
c. P220,000
35. Determine the cost of goods sold for 20x2.
a. P610,000
b. P580,000
c. P570,000 *
36. Determine the net income for 20x2.
a. P610,000
b. P580,000
c. P220,000
d. P600,000 *
d. P140,000
d. P140,000 *
**** Thought is creative, Fear attracts like energy, Love is all there is ****
**** THE END – GOOD LUCK ****
PRACTICAL ACCOUNTING 2
1
C
11
D
21
A
31
C
2
B
12
B
22
C
32
A
3
D
13
A
23
D
33
B
4
B
14
C
24
B
34
D
5
C
15
A
25
D
35
C
6
A
16
C
26
B
36
D
7
B
17
B
27
A
8
C
18
C
28
C
9
D
19
D
29
A
10
A
20
D
30
A
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 7
CRC-ACE REVIEW SCHOOL
 7358901/7359031
PRACTICAL ACCOUNTING 2
FIRST PRE-BOARD EXAMINATION
MAY 2007 BATCH
JANUARY 21, 2006 (SUN) 1:30-3:30 PM.
INSTRUCTION: Choose the correct answer from the following problems by writing a vertical line on the
letter of your choice answer on the answer sheet provided. NO ERASURES ALLOWED. USE PENCIL NO. 1 ONLY.
1.
Crunchem Cereal Company incurred the following actual costs during 20x5.
Direct materials used
P275,000
Direct labor
120,000
Manufacturing overhead
252,000
The firm’s predetermined overhead rate is 210 percent of direct-labor cost. The January 1, 20x5
inventory balances were as follows:
Raw materials
P30,000
Work in process
39,000
Finished goods
42,000
Each of these inventory balances was 10 percent higher at the end of the year.
What was the cost of goods sold for the year?
a. P635,900
b. P647,000
c. P638,900 *
d. P655,100
2.
Shawn Toy Company incurred the following costs to produce job number TB78, which consisted of 1,000
teddy bears that can walk, talk, and play cards.
Direct material:
4/1/x0 Requisition number 101: 400 yards of fabric at P8.00 per yard
4/5/x0 Requisition number 108: 500 cubic feet of stuffing at P3.00 per cubic foot
Direct labor:
4/15/x0 Time card number 72: 500 hours at P24 per hour
Manufacturing overhead:
Applied on the basis of direct-labor hours at P20 per hour.
On April 30, 700 of the bears were shipped to a local toy store.
Determine the cost of goods sold for job number TB78.
a. P26,700
b. P18,690 *
c. P8,010
d. P10,680
3.
The controller for Tender Bird Poultry, Inc. estimates that the company’s fixed overhead is P1,000,000
per year. She also has determined that the variable overhead is approximately P1.10 per chicken raised
and sold. Since the firm has a single product, overhead is applied on the basis of output units, chickens
raised and sold.
Calculate the predetermined overhead rate under each of the following output predictions: 200,000
chickens, 300,000 chickens, and 400,000 chickens.
a. P1.10; P1.10; P1.10, respectively.
c. P6.10; P4.43; P3.60, respectively. *
b. P5.00; P3.33; P2.50, respectively.
d. P3.90; P2.23; P1.40, respectively.
4.
Design Arts Associates is an interior decorating firm in St. Louis. The following costs were incurred in the
firm’s contract to redecorate the mayor’s offices.
Direct materials
P35,000
Direct professional labor
60,000
The firm’s budget for the year included the following estimates:
Budgeted overhead
P4,000,000
Budgeted direct professional labor
2,500,000
Overhead is applied to contracts using a predetermined overhead rate calculated annually. The rate is
based on direct professional labor cost.
Calculate the total cost of the firm’s contract to redecorate the mayor’s offices.
a. P191,000 *
b. P131,000
c. P132,500
d. P96,000
5.
Hudson Bay Leatherworks, which manufactures saddles and other leather goods, has three
departments. The Assembly Department manufactures various leather products, such as belts, purses,
and saddlebags, using an automated production process. The Saddle Department produces handmade
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 8
saddles and uses very little machinery. The Tanning Department produces leather. The tanning process
requires little in the way of labor or machinery, but it does require space and process time. Due to the
different production processes in the three departments, the company uses three different cost drivers
for the application of manufacturing overhead. The cost drivers and overhead rates are as follows:
Cost driver
Predetermine Overhead Rate
Tanning Department
Square feet of leather
P3 per square foot
Assembly Department
Machine time
P9 per machine hour
Saddle Department
Direct-labor time
P4 per direct-labor hour
The company’s deluxe saddle and accessory set consists of a handmade saddle, two saddlebags, a belt,
and a vest, all coordinated to match. The entire set uses 100 square feet of leather from the Tanning
Department, 3 machine hours in the Assembly Department, and 40 direct-labor hours in the Saddle
Department.
Job number DS-20 consisted of 20 deluxe saddle and accessory sets.
Determine the total overhead applied to job number DS-20 in the Assembly Department?
a. P487
b. P9,740
c. P540 *
d. P27
6.
Charleston Jewelry Company uses normal costing, and manufacturing overhead is applied to work-inprocess on the basis of machine hour. On January 1, 20x2 there were no balances in work-in-process or
finished-goods inventories. The following estimates were included in the 20x2 budget.
Total budgeted manufacturing overhead
P235,000
Total budgeted machine hours
47,000
During January, the firm began the following production jobs:
A79:
1,000 machine hours
N08:
2,500 machine hours
P82:
500 machine hours
During January, job numbers A79 and N08 were completed, and job number A79 was sold. The actual
manufacturing overhead incurred during January was P26,000.
How much must be the adjustment to cost of goods sold if the over or underapplied overhead is
immaterial in amount?
a. P6,000 increase * b. P6,000 decrease
c. P26,000 increase
d. no effect.
Questions 7 and 8 are based on the following:
Petrotech Company refines a variety of petrochemical products. The following data are from the firm’s
Mexico City plant.
Work in process, November 1
200,000 gallons
Direct materials
100% complete
Conversion
25% complete
Units started in process during November
950,000 gallons
Work in process, November 30
240,000 gallons
Direct materials
100% complete
Conversion
80% complete
7. Compute the equivalent units of direct material and conversion cost for the month of November using
weighted average method of process costing.
a. 1,150,000 and 1,102,000, respectively. *
c. 950,000 and 1,052,000, respectively.
b. 1,102,000 and 1,150,000, respectively.
d. 1,052,000 and 950,000, respectively.
8. Compute the equivalent units of direct material and conversion cost for the month of November using
the first-in, first-out method of process costing.
a. 1,150,000 and 1,102,000, respectively.
c. 950,000 and 1,052,000, respectively. *
b. 1,102,000 and 1,150,000, respectively.
d. 1,052,000 and 950,000, respectively.
9.
The Portsmouth plant of Best Foods Corporation produces salad dressing. The following data pertain to 20x0.
Percentage of Completion
Units
Direct materials Conversion
Work in process, January 1
20,000 pounds
80%
60%
Work in process, December 31
15,000 pounds
70%
30%
During the year the company started 120,000 pounds of material in production.
By what amount will the use of weighted average (WA) method be different from first-in, first-out
(FIFO) method in computing the equivalent units of production.
a. WA greater than FIFO by 16,000 for direct materials.
b. WA greater than FIFO by 12,000 for conversion costs.
c. No difference. WA same as FIFO.
d. Both (a) and (b) are correct. *
Questions 10 and 11 are based on the following:
Montana Lumber Company grows, harvests, and processes timber for use in construction. The following
data pertain to the firm’s sawmill during November.
Work in process, November 1:
Direct material
P 65,000
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 9
Conversion
180,000
Costs incurred during November:
Direct material
P425,000
Conversion
690,000
The equivalent units of activity for November were as follows:
Weighted average
FIFO
Direct material
7,000
4,250
Conversion
1,740
1,000
10. Calculate the cost per equivalent unit for both direct material and conversion cost, during the month of
November using the weighted average method of process costing.
a. Direct material, P70; Conversion cost, P500. *
b. Direct material, P115.29; Conversion cost, P870.
c. Direct material, P60.71; Conversion cost, P396.55.
d. Direct material, P100; Conversion cost, P690.
11. Calculate the cost per equivalent unit for both direct material and conversion cost, during the month of
November using the FIFO method of process costing.
a. Direct material, P70; Conversion cost, P500.
b. Direct material, P115.29; Conversion cost, P870.
c. Direct material, P60.71; Conversion cost, P396.55.
d. Direct material, P100; Conversion cost, P690. *
12. Calgary Glass Company manufactures window glass for automobiles. The following data pertain to the
Plate Glass Department.
Work in process, June 1:
Direct material
P 37,000
Conversion
36,750
Costs incurred during June:
Direct material
P150,000
Conversion
230,000
The equivalent units of activity for June were as follows:
Weighted average FIFO
Direct material
17,000
15,000
Conversion
48,500
46,000
What is the cost per equivalent unit last May for direct material and conversion cost?
a. Direct material, P18.50; Conversion cost, P14.70. *
b. Direct material, P11.00; Conversion cost, P5.50.
c. Direct material, P10.00; Conversion cost, P5.00.
d. Direct material, P12.47; Conversion cost, P5.80.
Questions 13 and 14 are based on the following:
The data below pertain to Birmingham Paperboard Company, a manufacturer of cardboard boxes.
Work in process, February 1
10,000 units
Direct material
P 5,500
Conversion
17,000
Cost incurred during February:
Direct materials
P110,000
Conversion
171,600
The equivalent units of activity for February were as follows:
Weighted average FIFO
Direct mate rial
110,000
100,000
Conversion
92,000
88,000
During February, 90,000 units were completed and transferred out.
13. Using weighted average method of process costing, determine the cost of goods completed during
February.
a. P274,500
b. P279,000 *
c. P278,200
d. P257,870
14. Using the FIFO method of process costing, determine the cost of February 28 work in process inventory.
a. P25,900 *
b. P25,100
c. P29,600
d. P46,230
15. On January 1, 20x2 the Molding Department of Portland Plastic Company had no work-in-process
inventory due to the implementation of a just-in-time inventory system. On January 31, the following
journal entry was made to record the cost of goods completed and transferred out of the Molding
Department.
Finished Goods Inventory
P176,000
Work-in-Process Inventory: Molding Department
P176,000
The company uses weighted average process costing.
What would the amount have been in the journal entry above if Portland Plastic Company had used the
FIFO method of process costing?
a. Lower than P176,000.
c. Same as P176,000. *
Practical Accounting 2
Second Pre-Board Examination
b. Higher than P176,000.
May 2007 Batch
Page 10
d. Cannot be determined.
Questions 16 and 17 are based on the following:
Knickknack, manufactures two products: odds and ends. The firm uses a single, plantwide overhead rate
based on direct labor hours. Production and product costing data are as follows:
Odds
Ends
Production quantity
1,000 units
5,000 units
Direct material
P 40
P 60
Direct labor (not including setup time)
P 30 (2 hrs at P15)
P 45 (3 hrs at P15)
Manufacturing overhead
P 96 (2 hrs at P48)
P144 (3 hrs at P48)
Total cost per unit
P166
P249
Knickknack, Inc. prices its products at 120 percent of cost, which yields target prices of P199.20 for odds
and P298.80 for ends. Recently, however, knickknack has been challenged in the market for ends by a
European competitor, Bricabrac Corporation. A new entrant in this market, Bricabrac has been selling
ends for P220 each. Knickknack’s president is puzzled by Bricabrac’s ability to sell ends at such a low
cost. She has asked you (the controller) to look into the matter. You have decided that Knickknack’s
traditional, volume-based product-costing system may be causing cost distortion between the firm’s two
products. Ends are a high-volume, relatively simple product. Odds, on the other hand, are quite complex
and exhibit a much lower volume. As a result, you have begun work on an activity-based costing
system.
Activity Cost Pool
Budgeted Overhead Cost Driver
Budgeted level of Cost Driver
Machine related costs
P450,000
Machine hours
9,000 hrs.
Setup and inspection
180,000
Number of production runs
40 runs
Engineering
90,000
Engineering change orders
100 change orders
Plant-related costs
96,000
Square footage of space
1,920 sq. ft.
P816,000
You have gathered the following additional information:
• Each odd requires 4 machine hours, whereas each end requires 1 machine hour.
• Odds are manufactured in production runs of 50 units each. Ends are manufactured in 250 unit
batches.
• Three quarters of the engineering activity, as measured in terms of change orders, is related to
odds.
• The plant has 1,920 square feet of space, 80 percent of which is used in the production of odds.
16. Compute the new product cost per unit for odds and ends, using the ABC system.
a. Odds, P181.34; Ends, P504.30
c. Odds, P434.30; Ends, P76.34.
b. Odds, P504.30; Ends, P181.34 *
d. Odds, P76.34; Ends, P434.30.
17. Using the same pricing policy as in the past, compute the target prices for odds and ends using ABC
system.
a. Odds, P217.608; Ends, P605.16
c. Odds, P521.16; Ends, P91.608
b. Odds, P605.16; Ends, P217.608 *
d. Odds, P91.608; Ends, P521.16.
Questions 18 through 20 are based on the following:
AltiCorp, Ltd. Manufactures a special valve in the burns of hot air balloons. The firm uses the first-in,
first-out (FIFO) process-costing method for product costing. The costs entered into Work-in-Process
Inventory are standard costs, based on standard set annually. The standards for direct material and
direct labor, which are based on equivalent units of production, are as follows:
Direct material per unit
1 pound at P10 per pound
Direct labor per unit
2 hours at P12 per hour
The following data pertain to the month of April.
(1) The beginning inventory consisted of 2,500 units, which were 100 percent complete as to direct
material and 40 percent complete as to direct labor.
(2) An additional 10,000 units were started during the month.
(3) The ending inventory consisted of 2,000 units, which were 100 percent complete as to direct
material and 40 percent complete as to direct labor.
(4) Costs applicable to April production are as follows:
Actual Cost Standard Cost
Direct material purchased and used (11,000 pounds)
P121,000
P100,000
Direct labor (25,000 hours actually worked)
P316,725
P247,200
18. The entry to record purchases of raw materials under standard costing system must be:
a. Materials Inventory
121,000
Accounts Payable
100,000
Material Purchase Price Variance
21,000
b. Materials Inventory
Accounts Payable
121,000
c. Materials Inventory
100,000
121,000
Practical Accounting 2
Second Pre-Board Examination
Materials Purchase Price Variance
Accounts Payable
d. Materials Inventory
Materials Purchase Price Variance
Accounts Payable
May 2007 Batch
Page 11
21,000
121,000
110,000
11,000
121,000 *
19. The entry to record issuance of raw materials to production under standard costing system must be:
a, Work in Process Inventory
100,000
Materials Quantity Variance
10,000
Materials Inventory
110,000 *
b. Work in Process Inventory
Materials Quantity Variance
Materials Inventory
110,000
11,000
121,000
c. Work in Process Inventory
Materials Inventory
Materials Quantity Variance
121,000
d. Work in Process Inventory
Materials Quantity Variance
Materials Inventory
100,000
21,000
121,000
100,000
21,000
20. The entry to distribute the payroll under standard costing system must be:
a. Work in Process Inventory
247,200
Labor Efficiency Variance
52,800
Labor Rate Variance
16,725
Payroll
316,725 *
b. Work in Process Inventory
Payroll
316,725
c. Work in Process Inventory
Payroll
247,200
d. Work in Process Inventory
Payroll
Labor Efficiency Variance
Labor Rate Variance
316,725
316,725
247,200
247,200
52,800
16,725
21. Able Control Company, which manufactures electrical switches, uses a standard costing system. The
standard manufacturing overhead costs per switch are based on direct-labor hours and are as follows:
Variable overhead (5 hours at P8.00 per hour)
P 40
Fixed overhead (5 hours at P12.00 per hour) *
60
Total overhead
P100
* Based on capacity of 300,000 direct-labor hours per month.
The following information is available for the month of October.
• 56,000 switches were produced, although 60,000 switches were scheduled to be produced.
• 275,000 direct-labor hours were worked at a total cost of P2,550,000.
• Variable overhead costs were P2,340,000.
• Fixed overhead costs were P3,750,000.
Determine the applied factory overhead.
a. P5,600,000 *
b. P6,000,000
c. P6,090,000
d. P5,500,000
The entry to record the two overhead variance must be:
a. Applied Factory Overhead
P6,000,000
Controllable Variance
250,000
Volume Variance
240,000
Factory Overhead Control
P6,490,0000
b. Applied Factory Overhead
Controllable Variance
Volume Variance
Factory Overhead Control
P5,600,000
250,000
240,000
c. Applied Factory Overhead
Factory Overhead Control
P6,090,000
P6,090,000 *
P5,600,000
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 12
Controllable Variance
Volume Variance
d. Applied Factory Overhead
Controllable Variance
Volume Variance
Factory Overhead Control
250,000
240,000
P5,500,000
250,000
340,000
P6,090,000
Questions 22 through 25 are based on the following:
Sonimad Sawmill manufactures two lumber products from a joint milling process. The two products
developed are mine support braces (MSB) and unseasoned commercial building lumber (CBL). A
standard production run incurs joint costs of P300,000 and results in 60,000 units of MSB and 90,000
units of CBL. Each MSB sells for P2.00, and each CBL sells for P4.00.
22. Calculate the amount of joint cost allocated to CBL on a physical-units basis.
a. P120,000
b. P180,000 *
c. P75,000
d. P225,000
23. Calculate the amount of joint cost allocated to MSB on a relative-sales-value basis.
a. P120,000
b. P180,000
c. P75,000 *
d. P225,000
24. Assume the CBL is not marketable at split-off but must be further planed and sized at a cost of P200,000
per production run. During this process, 10,000 units are unavoidably lost; these spoiled units have no
value. The remaining units of CBL are saleable at P10 per unit. The MSB, although saleable immediately
at the split-off point, are coated with a tarlike preservative that costs P100,000 per production run. The
MSB are then sold for P5 each. Using the net-realizable-value basis, compute the completed cost
assigned to each unit of CBL.
a. P5.3125 *
b. P2.9167
c. P4.7222
d. P4.8148
25. If Sonimad Sawmill chose not to process the MSB beyond the split-off point, the share from the joint
milling process would increase or decrease by what amount?
a. Increase by P100,000.
c. Increase by P25,000.
b. Decrease by P100,000.
d. Decrease by P25,000. *
Questions 26 through 28 are based on the following:
The controller of Yorktown Corporation instructs the cost supervisor to distribute the service
department’s costs to producing departments. There are three service departments, and each receives
services from the other two. After all factory overhead is distributed among the producing and service
departments, the account balances and the interdependencies of service departments were tabulated as
follows:
Department Overhead
Before Distribution of
Services Provided
General
Department
Service Departments Powerhouse Personnel
Factory
Mixing
P200,000
25%
35%
25%
Refining
90,000
25
30
20
Finishing
105,000
20
20
20
Powerhouse
16,000
10
20
Personnel
29,500
10
15
General Factory
42,000
20
5
P482,500
100%
100%
100%
26. Using the direct method of allocating service departments costs to producing departments, determine
the total factory overhead of Mixing department after allocation of service department costs.
a. P234,015 *
b. P119,049
c. P129,436
d. P482,500
27. Using the step method of allocating service departments costs to producing departments, determine the
total factory overhead of Refining department after allocation of service department costs. (Powerhouse
is allocated first, personnel is second and general factory last).
a. P234,144
b. P118,806 *
c. P129,550
d. 482,500
28. Using the reciprocal method of allocating service departments costs to producing departments,
determine the equation to get the total factory overhead of Finishing department after allocation of
service department costs.
a. P200,000 + 25%(Po) + 35%(Pe) + 25%(GF).
b. P90,000 + 25%(Po) + 30%(Pe) + 20%(GF).
c. P105,000 + 20%(Po) + 20%(Pe) + 20%(GF). *
d. P105,000 +25%(Po) + 25%(Pe) + 20%(GF).
29. The following events pertain to Barracuda Beach Wear, Inc. during June, 20x2.
1. Raw material costing P180,000 was purchased on account.
2. Direct-labor costs of P65,000 were incurred, but not yet paid in cash. Actual manufacturing
overhead costs of P105,000 also were incurred, but not yet paid in cash.
3. Goods with raw material costs of P180,000 were finished, and conversion costs of P170,000
were applied.
4. Goods costing P348,000 were sold on account for P420,000.
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 13
Prepare the entry to record the no. 3 transaction using backflush costing.
a. Work in Process Inventory
350,000
Materials Inventory
180,000
Conversion Costs Applied
170,000
b. Finished Goods Inventory
Raw and In Process Inventory
Conversion Costs Applied
350,000
c. Finished Goods Inventory
Materials Inventory
Conversion Costs Applied
350,000
d. Work in Process Inventory
Raw and In Process Inventory
Conversion Costs Applied
350,0000
180,000
170,000
180,000
170,000 *
180,000
170,000
Questions 30 through 32 are based on the following:
The SL Manufacturing Company produces items made to order and uses a job order cost system to
record and distribute costs. The following information applies to job 86 for 30,000 units.
Cost of normal spoilage (500 units) (assume normal spoilage was ignored
in the computation of the factory overhead application rate)
P200,000
Cost of abnormal spoilage (100 units)
P 40,000
Salvage value of spoiled units
P100 per unit
Cost of reworking defective units (required only labor; assume normal
rework costs were ignored in the computation of the factory overhead
application rate)
P50 per unit
Normal defective units
140
Abnormal defective units
20
Cash received from sale of scrap materials (assume scrap was ignored in the
computation of the factory overhead application rate)
P3,000
Cost of disposing of waste materials (assume the cost of disposing of waste
was included in the factory overhead application rate)
P400
Prepare the entries to record:
30. Determine the cost charged to expense for normal and abnormal spoilage.
a. P200,000
b. P40,000
c. P240,000
d. P30,000 *
31. Determine the amount charged to factory overhead control for cost of rework of normal and abnormal
defective units.
a. P7,000
b. P1,000 *
c. P8,000
d. none
32. To what account does the sale of scrap most likely credited?
a. Sales
b. Cost of sales
c. Work in Process * d. FOC
33. The following cost and inventory data are taken from the accounting records of Malusog Company for
the year completed:
Costs incurred:
Direct labor cost
P 70,000
Purchases of raw materials
118,000
Indirect labor
30,000
Maintenance, factory equipment
6,000
Advertising expense
90,000
Insurance, factory equipment
800
Sales salaries
50,000
Rent, factory facilities
20,000
Supplies
4,200
Depreciation, office equipment
3,000
Depreciation, factory equipment
19,000
Beginning of the year End of the year
Inventories:
Raw materials
P 7,000
P 15,000
Work in process
10,000
5,000
Finished goods
20,000
35,000
Determine the cost of goods sold shown in the income statement during the year.
a. P265,000
b. P250,000 *
c. P260,000
d. P300,000
34. Elaine Corporation, located in London, UK, has collected the following data on the costs of electricity and
machine hours for the last three months of 20x7:
Cost of electricity
Machine hours
Practical Accounting 2
Second Pre-Board Examination
October
November
December
The production manager thinks that
a. ₤20,000 + 5(x)
b. ₤20,000 + 50(x) *
May 2007 Batch
Page 14
₤170,000
3,000
220,000
4,000
120,000
2,000
a pattern exist for electricity costs. Determine the cost function.
c. ₤10,000 + 5(x)
d. ₤10,000 + 50(x)
35. The Jake Department is the first of a two-stage production process. Spoilage is identified when the units
have completed the Jake process. Spoilage were cause by defect in the internal control thus, are
charged to factory overhead control. The following information concerns Jake’s conversion costs in May
20x7:
Units Conversion costs
Beginning work in process (50% complete)
2,000
P10,700
Units started during May
8,000
74,800
Spoilage - abnormal
500
Units completed and transferred
7,000
Ending work in process (80% complete)
2,500
Using the weighted average method, what was Jake’s cost of abnormal loss?
a. P4,400
b. P4,500 *
c. P5,000
d. P4,000
**** Thought is creative, Fear attracts like energy, Love is all there is ****
**** THE END – GOOD LUCK ****
Practical Accounting 2
Second Pre-Board Examination
PRACTICAL ACCOUNTING 2
BATCH
1 PRE-BOARD EXAMS
(Tuesday)
st
May 2007 Batch
Page 15
OCTOBER 2007
JULY 24, 2007
INSTRUCTIONS: Select the correct answer for each of the following questions. Mark only one
answer for each item by writing a VERTICAL LINE corresponding to the letter of your choice on the
answer sheet provided. STRICTLY NO ERASURES ALLOWED. Use Pencil No. 1 or No. 2 only.
1.
a.
b.
c.
d.
On January 1, 2007, OPS Company purchased 20% of the common shares of WIN
Corporation for P200,000. WIN's net income for the year 2007 was P150,000 and it paid cash
dividends of P180,000 on its common shares. As such, WIN's total dividends paid have exceeded
its income earned since it was acquired by OPS. Amortization of the purchase price discrepancy
was P10,000 since the date of acquisition. What is the balance in the investment in WIN account at
the end of 2007 under the cost and equity methods?
Cost Method
Equity Method
P194,000
P184,000
P194,000
P194,000
P200,000
P184,000
P200,000
P194,000
2.
Consolidated financial statements are prepared primarily to satisfy the needs of which of the
following users?
a.
Non-controlling shareholders of the subsidiary
b.
Bureau of Internal Revenue
c.
Controlling shareholders of the subsidiary
d.
Shareholders of the parent company
Use the following information for numbers 3-4
On January 1, 2005, BB Company acquired 25% of the common shares of GG Corporation for
P550,000, giving it significant influence. At that time, GG's financial statements included common
shares of P300,000 and retained earnings of P1,300,000. There was no difference between the book
value and fair value of GG's identifiable assets and liabilities.
3.
During 2005, GG incurred a loss of P100,000 and paid dividends of P40,000. An asset
valuation test at December 31, 2005 indicated that GG's goodwill had become impaired by 10%. Which
of the following represents BB's investment income (loss) from its investment in GG for 2005?
a.
P10,000 investment income
b.
P15,000 investment loss
c.
P25,000 investment loss
d.
P40,000 investment loss
4.
During 2006, GG had net income of P200,000 and paid dividends of P80,000. Assume that an
evaluation of goodwill at 2005 and 2006 indicated no goodwill impairment since the date of acquisition.
BB's Investment in GG account would have which of
the following balances at December 31, 2006?
a.
P505,000
Practical Accounting 2
Second Pre-Board Examination
b.
c.
d.
May 2007 Batch
Page 16
P545,000
P550,000
P575,000
Use the following information for numbers 5-6
On January 1, 2007, PL Ltd. purchased 25% of the outstanding common shares of SK Inc. and
thereby obtained significant influence over the policy decisions of SK. On September 1, 2007, PL
purchased another 35% of SK's outstanding common shares and thereby obtained control over the
policy decisions of SK. PL accounts for this investment using the cost method and reported net
income of P300,000. SK reported net income of P120,000 for the year ended December 31, 2007.
This income was earned evenly throughout the year. Neither company paid any dividends during
the year.
5.
a.
b.
c.
d.
What is consolidated net income for the year ended December 31, 2007?
P360,000
P420,000
P344,000
P372,000
6.
What is the minority interest net income in the Consolidated Income Statement on December
31, 2007?
a. P 48,000
b. P 16,000
c. P 72,000
d. P 64,000
Use the following information for numbers 7-8
PJ owns 80% of the common shares of QK and 40% of the common shares of RL. In addition,
QK owns 15% of the common shares of RL.
7.
RL?
Based strictly on its share ownership, which of the following best represents PJ's relationship to
a.
b.
c.
d.
No significant influence
Significant influence
Joint control
Control
8.
On PJ's separate entity financial statements, what percentage of RL's income would flow to PJ
under
the equity method of accounting?
a.
40%
b.
52%
c.
55%
d.
65%
9.
On March 1, 2007, PQR acquired 15% of the outstanding shares of ZZZ. Based solely on
PQR's shareholdings in ZZZ, at how much method should PQR report its investment in ZZZ on its
December 31, 2007 financial statements?
a.
Acquisition Cost
b.
Fair value
c.
Cost affected by Share in NI & Dividends
d.
Proportionate consolidation
Use the following information for numbers 10-12
Thick Company acquired 80% of the common shares of Slim Corporation on January 1, 2000. The
following summary information is from the companies’ financial records:
THICK COMPANY
Practical Accounting 2
Second Pre-Board Examination
Cost of goods sold
Amortization expense
Cost of goods sold
Amortization expense
May 2007 Batch
Page 17
2005
P 400,000
100,000
2006
P 500,000
120,000
SLIM CORPORATION
2005
2006
P 200,000
P 300,000
65,000
70,000
During 2005, Slim’s sales included P100,000 for goods sold to Thick at a gross profit margin of
30%. Of these goods, P20,000 remained in inventory at December 31, 2005. Slim also sold
P110,000 of goods to Thick in 2006 at a gross profit margin of 30%, and P30,000 remained in
ending inventory. Ignore income
taxes for these companies.
10.
On Thick’s consolidated financial statements for the year ended December 31, 2006, cost of
goods sold would be shown at which of the following amounts?
a.
P687,000
b.
P690,000
c.
P693,000
d.
P800,000
11.
When Thick acquired its 80% interest in Slim on January 1, 2000, it paid P1,000,000 for the
shares. At that time, Slim’s assets and liabilities had fair value equal to book value, except for its
equipment, which had fair value of P200,000 and book value of P180,000 and a remaining useful life of
10 years. Which of the following amounts for amortization expense would be shown on Thick’s
consolidated expense for 2006?
a.
P188,000
b.
P188,400
c.
P190,000
d.
P191,600
12.
The partnership agreement for the partnership of Brisbane and Ric provided for salary
allowances of P450,000 to Brisbane and P350,000 to Ric, and the residual profit was allocated equally.
During 2007, Brisbane and Ric each withdraw cash equal to 80 percent of their salary allowances. If
during 2008, the partnership had profit in excess of P1,000,000 without regard to salary allowances and
withdrawals, Brisbane’s equity in the partnership would
a. Increase more than Ric’s c. Increase the same as Ric’s
b. Decrease more than Ric’s
d. Decrease the same as Ric’s
13.
Roxanne Alvarez is trying to decide whether to accept a salary of P40,000 or a salary of
P25,000 plus a bonus of 10% of the net income after salaries and bonus as a means of allocating profit
among the parties. Salaries traceable to the other partners are estimated to be P100,000. What amount
of income would be necessary so that Rozanne Alvarez would consider to be equal?
a. . P165,000
b. P290,000 c. P265,000 d. P305,000
14.
Ric and Jason shares net income or losses 40% and 60%, respectively. On January 2, 2007,
Gen was admitted to the Ric- Gen Jason Partnership by the investment of the net assets of her highly
profitable single proprietorship. The partners agreed to the following current fair values of the
identifiable net assets of Gen’s single proprietorship; Current assets P70,000, Plant assets P230,000,
Liabilities P200,000.
The balance sheet of the Ric and Jason partnership on December 31, 2006, follows:
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 18
Ric and Jason Partnership
Condensed Balance Sheet
December 31,2006
Current Assests
Plant assets (net)
P100,000
500,000
Liabilities
Ric, Capital
Jason, Capital
P600,000
P300,000
200,000
100,000
P600,000
Gen’s capital account was credited for P120,000, the partners agreed further that the carrying
amounts of the net assets of the Ric and Jason partnership were equal to their current fair values,
and that the accounting records of the old partnership should be used for the new partnership. The
following income-sharing plan was adopted for the new partnership:
1. A bonus of 10% of net income after deduction of the bonus to Gen as managing
partner.
2. Remaining net income or loss as follows: 30% to Ric; 40% to Jason and 30% to Gen.
For the year ended December 31, 2007, the Ric-Gen Jason Partnership had net income of P55,000
before the bonus Gen.
Compute: (1) the capital of Jason after Gen’s admission on January in the partnership, and (2)
share of Jason in the net income:
a. (1) P88,000; (2) P20,000
b. (1) P88,000; (2) P19,800
c. (1) P192,000; (2) P25,000
d. (1) P120,000; (2) P20,000
15.
C and D wish to acquire the partnership interest of their partner E on July 10, 2007.
Partnership assets are to be used to acquire E’s partnership interest, the balance sheet for the CDE
Partnership on that date shows the following:
CDE Partnership
Balance Sheet
July 10, 2007
Cash
Receivables (net)
Equipment (net)
Goodwill
P 74,000
36,000
135,000
30,000
P 275,000
Liabilities
C, capital
D, capital
E, capital
P 45,000
120,000
60,000
50,000
P 275,000
C, D, and E share earning in the ratio of 3:2:1, respectively. E wants to retire from the partnership. If
E is paid P54,000 and bonus method is used, what is the capital account balance of C and D:
a.
b.
C
P117,000
P120,000
D
P58,400 c.
P60,000 c.
C
P117,600
P122,400
D
P60,000
P61,600
16.
Partners R, E, and H share net income and losses in a 5:3:2 ratio, respectively. At the end of a
very unprofitable year, they decided to liquidate the partnership. The partners’ capital account balances
on this date were as follows: R P22,000; E P24,900 and H P15,000. The liabilities in the balance sheet
amounted to P30,000, including a loan of P10,000 form R. The cash balance was P6,000.
The partners plan to sell the noncash assets on a piece meal basis and to distribute cash as rapidly as it
becomes available. All three partners are personally solvent.
If R received a total of P20,000 as a result of the liquidation, what was the total amount realized by the
partnership on the sale of the non cash assets?
a. P61,900 b. . P85,900 c. P73,900 d. P24,000
17.
Dennis, Brisbane and Ric form a partnership on January 1, 2007 investing P15,000, P10,000 and
P10,000 respectively; profits are to be shared in the ratio of 2:1:1 respectively. It is agreed that 6% (1/2
of 1% per month) is to be charged on withdrawals that decrease capitals below the original
investments. On March 1, Dennis withdraws P5,000. Business is unsatisfactory and it is decided to
dissolve the partnership. Partnership assets realize P5,000 and the accountant distributes this cash to
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 19
the proper parties on November 1, 2007. All parties are solvent and proper settlement is made among
partners the same day.
How much will Dennis contribute to the partnership for the final settlement?
a. P2,500 b. P2,600 c. P2,700 d. . P2,800
18.
Partners A, B, C and D, who share profits 5:3:1:1 respectively, decide to dissolve. Capital
balances at this time are P60,000, P40,000, P30,000 and P10,000 respectively. Before selling the firm’s
assets, the partners agree to the following:
1. Partnership furniture and fixtures, with the book value of P12,000, is to be taken over by
partner A at a price of P15,000.
2. Partnership claims of P20,000 are to be paid off and the balance of cash on hand, P30,000,
is to be divided in a manner that will avoid the need for any possible of cash from a partner.
How much the P30,000 cash be distributed to the partners?
a.
b.
c.
d.
A
B
P0
P 0
P(2,500) P11,500
P0
P20,000
P0
P20,000
C
P30,000
P20,500
P10,000
P20,000
D
P 0
P500
P 0
P 0
19.
D, E and F attorneys, decide to form a partnership and agree to distribute profits in the ratio of
5:3:2. It is agreed, however, that D and E shall guarantee fees from their own clients of P60,000 and
P50,000 respectively, that any deficiency is to be charged directly against the account of the partner
with fees exceeding the guarantee. Fees earned during 2007 are classified as follows:
From clients of D
P100,000
From clients of E
40,000
From clients of F
10,000
Operating expenses for 2007 are P20,000.
From the above data, compute the net effect on partners’ capital increase or (decrease) by:
a.
b.
c.
d.
20.
the
D
E
P100,000 P26,000
P 40,000 P(20,000)
P 90,000 P(20,000)
P 50,000
P 30,000
F
P24,000
--P20,000
P20,000
A balance sheet for the partnership of J, K, and L who share profits 2:1:1 respectively, shows
following balances just before liquidation:
Cash
Other assets Liabilities J, Cap.
K, Cap. L, Cap.
P48,000 P238,000
P80,000
P88,000 P62,000 P56,000
In the first month of liquidation, P128,000 was received on the sale of certain assets. Liquidation
expenses of P4,000 were paid, and additional liquidation expenses of P3,200 are anticipated before
liquidation is completed. Creditors were paid P22,400. Available cash distributed to the partners.
The cash to be received by each partner based on the above data:
a.
b.
c.
d.
J
K
P56,000 P28,300
P86,000 P61,000
P29,400 P32,700
P88,000 P62,000
L
P28,300
P55,000
P26,700
P56,000
21.
Raymond, Jane, and Venus are partners and share profits and losses as follows: Salaries of
P20,000 to Raymond; P15,000 to Jane; and none to Venus. If net income exceeds salaries, then a bonus
is allocated to Raymond. The bonus is 5 % of net income after deducting salaries and the bonus.
Residual profits or residual losses are allocated 10 % to Raymond; 20 % to Jane, and 70 % to Venus.
After the allocation was recorded and the books were closed, the partners discovered an error and that
correction of the error would reduce the net income from P70,000 to P30,000. The error involved
understated depreciation expense.
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 20
How much is the necessary adjustment to Raymond’s capital?
a. Increase by P25,000 b. Increase by P19,500 c. Decrease by P5,500 d. Decrease by P7,667
22.
Gloria, Noli and Loren are partners in a business and share in its earnings at the respective rates
of 50%, 30%, and 20%. At the beginning of the new fiscal year, they admit Fidel who is to invest in the
firm sufficient cash funds to give him a one-third interest in the capital and in the earnings. The
following closing balance is taken from the old firm’s books:
Cash
Marketable securities
P200,000
150,000
Accounts receivable
450,000
________
Accounts payable
P100,000
60,000
Loans payable – bank
Gloria, capital
Noli, capital
350,000
200,000
Loren, capital
1. P800,000
__90,000
2. P800,000
The securities have a market value of P100,000, and an allowance of P50,000 is required to cover
bad debts. No other adjustment of the net assets is necessary, but the three old partners must
among themselves bring the balances in their capital accounts into agreement with their interest in
the earnings. The settlement among the old partners
a. Gloria will receive from Noli, P30,000.
c. Noli pays Loren, P8,000.
b. Gloria will receive from Loren, P38,000. d. Loren pays Gloria, P30,000.
23.
The condensed balance sheet of the partnership of TJ, RJ, and VJ with corresponding profit
and loss sharing percentages as of June 30, 2005 was as follows:
Net assets
P400,000 TJ, capital (50%)
RJ, capital (30%)
P200,000
120,000
________ VJ, capital (20%)
__80,000
3. P400,000
4. P400,000
As of said date, TJ retired from the partnership. By mutual agreement, he was paid P225,000 for
his interest in the partnership. The resultant goodwill was to be recorded. After TJ’s retirement,
the total net assets of the partnership was
a. P225,000 b. P200,000 c. P175,000 d. P250,000
24.
Las Vegas retired from the partnership of Las Vegas, New York, and New Jersey. Las Vegas’s
cash settlement from the partnership was based on new goodwill determined at the date of retirement
plus the carrying amount of the other net assets. As a consequence of the settlement, the capital
accounts of New York and New Jersey were decreased. In accounting for Las Vegas’s withdrawal, the
partnership could have used the
Bonus Method
a.
b.
c.
d.
Goodwill Method
No
Yes
No
No
Yes
Yes
Yes
No
25.
Partners Lovelle and Carlo share income and loss equally after each has been credited in all
circumstances with annual salary allowances of P15,000 and P12,000, respectively. Under this
arrangement, Lovelle will benefit by P3,000 more than Carlo in which of the following circumstances?
a.
b.
c.
d.
Only is the partnership has earnings of P27,000 or more for the year.
Only if the partnership does not incur a loss for the year.
In all earnings or loss situations.
Only if the partnership has earnings of at least P3,000 for the year.
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 21
26.
Metcalf, Petersen, and Rusell are partners with capital balances of P50,000, P30,000, P20,000,
respectively. The partners share income and loss equally. For an investment of P50,000 cash, Andersen
is to be admitted as a partner with a one-fourth interest in capital and income. Based on this
information, the amount of Andersen’s investment can best be justified by which of the following?
a. Andersen will receive a bonus from the other partners upon her admission to the partnership.
b. Assets if the partnership were overvalued immediately prior to Andersen’s investment.
c. c. The books value of the partnership’s net assets was less than their fair value immediately prior to
Andersen’s investment.
d. d. Andersen is apparently bringing goodwill into the partnership, and her capital account will be credited for the
appropriate amount.
27.
A partnership is formed by two individuals who were previously sole proprietors. Property
other than cash which is part of the initial investment in the partnership would be recorded for financial
accounting purposes at the:
a. Proprietors’ book values or the fair value of the property at the date of the investment, whichever is higher
b. Proprietors’ book values or the fair value of the property at the date of the investment, whichever is lower.
c. Proprietors’ book values of the property at the date of the investment.
d. Fair value of the property at the date of the investment.
28.
If L is the total capital of a partnership before the admission of a new partner, I is the total
capital of the partnership after the investment of a new partner, M is the amount of the new partner’s
investment, B is the amount of the capital credit to the new partner, then there is:
a. L bonus to the new partner if I = L + M and B < M.
b. Goodwill to the old partners if I > (L + M) and B = M.
c. Neither bonus nor goodwill if I = L – M and B > M.
d. Goodwill to the new partner if I > (L + M) and B < M.
29.
On April 30, 2004, Philip, Winston, and Marl form a partnership by combining their separate
business proprietorships. Philip contributed cash of P50,000. Winston contributed property with a
P36,000 carrying amount, a P40,000 original cost, and P80,000 fair value. The partnership accepted
responsibility for the P35,000 mortgage attached to the property. Crown contributed equipment with a
P30,000 carrying amount, a P75,000 original cost, and P55,000 fair value. The partnership agreement
specifies that profits and losses are to be shared equally but is silent regarding capital contributions.
What partner has the largest April 30, 2004, capital account balances?
a. Philip b. Winston c. Marl d. All capital account balances are equal
30.
In the AMS-ALMS partnership, Ams and Alms had a capital ratio of 3:1 and a profit and loss
ratio of 2:1, respectively. The bonus method was used to record Abs’ admittance as a new partner.
What ratio should be used to allocate, to Ams and Alms, the excess of Abs’ contribution over the
amount credited to Abs’ capital account?
a. Ams and Alms’ new relative capital ratio.
c. Ams and Alms’ old capital ratio.
b. Ams and Alms’ new relative profit and loss ratio. d. Ams and Alms’ old profit and loss ratio.
31.
When Nora retired from the partnership of Nora, Norman, and Norla, the final settlement of
Nora’s interest exceeded Nora’s capital balance. Under the bonus method, the excess:
a.
b.
c.
d.
Was recorded as goodwill.
Was recorded as an expense.
Reduced the capital balances of Norman and Norla
Had no effect on the capital balances of Norman and Norla.
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 22
32.
In a partnership liquidation, the final cash distribution to the partners should be made in
accordance with the:
a. Partners’ profit and loss sharing ratio.
b. Balances of the partners’ loan and capital accounts.
c. Ratio of the capital contribution by the partners.
d. Ratio of the capital contributions less withdrawals by the partners.
33.
When property other than cash is invested in a partnership, at what amount should the noncash property be credited to the contributing partner’s capital account?
a. Contributing partner’s tax basis.
b. Contributing partner’s original cost.
c. Assessed valuation for property tax purposes.
d. Fair value at the date of contribution.
34.
Partners Cora and Zon share income in a 2:1 ratio, respectively. Each partner receives an annual
salary allowance of P6,000. If the salaries are recorded in the accounts of the partnership as an expense
rather than treated as an allocation of income, the total amount allocated to each partner for salaries
and net income would be
a. Less for both Cora and Zon.
b.
b. Unchanged for both Cora and Zon. c.
More for Cora and less for Zon
d. More for Zon and less for Cora.
35.
The partnership of Eugene, Alfred and Jericho shared profits and losses equally. When Eugene
withdrew from the partnership, the partners agreed that there was unrecorded goodwill in the
partnership. Under the bonus method, the capital balances of Alfred and Jericho were
a. Not affected.
b. Each reduced by one-half of the total amount of the unrecorded goodwill.
c. Each reduced by one-third of the total amount of the unrecorded goodwill.
d. Each reduced by one-half of Eugene’s share of the total amount of the unrecorded goodwill.
36.
In accounting for the liquidation of a partnership, cash payments to partners after all nonpartner creditors’ claims have been satisfied , but before the final cash distribution, should be according
to:
a. The partners’ relative profit and loss sharing ratios.
b. The final balances in partner capital accounts.
c. The partners’ relative share of the gain or loss on liquidations.
d. Safe payments computations.
37.
If A is the total capital of a partnership before the admission of a new partner, M is the total
capital of the partnership after the admission of the new partner, I is the amount of the new partner’s
investment, and E is the amount of capital credited to the new partner, then there is
a.
b.
c.
d.
Goodwill to the new partner if M > (A + I) and E < I
Goodwill to the old partners if M = A + I and E > I
A bonus to the new partner if M = A + I and E > I
Neither bonus nor goodwill if M > (A + I) and E > I
38.
Joy, Inna and Izza, sharing profits and losses 50%, 30%, and 20%, respectively, have capital
credit balances of P40,000, P30,000, and P20,000, respectively. They decided to admit a new partner,
Rita, to a 30% interest in the partnership upon Rita’s investment of an amount equal to 5/6 of her
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 23
capital credit with no assets adjustment recognized. Immediately after the admission of Rita, the capital
credit balance of Inna will be:
a. P28,200
b. P30,000
c. P31,800
d.
P33,000
Use the following information for numbers 39-40
Lehcar, Co.
Consolidated
P 106,000
P 146,000
Plant Assets (net)
270,000
374,286
Investment in A Co. (cost)
100,000
-
-
8,100
Total
P 476,000
P 528,386
Current liabilities
P
15,000
P 28,000
-
39,386
Capital Stock
350,000
350,000
Retained Earnings
111,000
111,000
P 476,000
P 528,386
Current Assets
Goodwill
Minority
Total
Lehcar Co., acquired 70% of the outstanding capital stock of OC Co. The separate balance sheet
of Lehcar Co. immediately after the business combination and the consolidated balance sheet are
show above. P10,000 of the excess payment of the investment in OC Co. was ascribed to
undervaluation of the plant assets, and the balance to goodwill. The current assets of OC Co.
include a P2,000 receivable from Lehcar Co. which arose before the business combination.
39.
What is the total of current assets on OC Co.’s separate balance sheet at the time Lehcar Co.
acquired its 70% interest?
a. P38,000
b. P40,000
c. P42,000
d.
P104,000
40.
Based on the same figures given above, the total stockholders’ equity of OC Co.’s separate
balance sheet at the time Lehcar, Co. acquired its 70% interest is
a. P 64,000
b. P121,287
c. P131,620
d. P117,000
Use the following information for numbers 41-42
On October 1, 2007, separate statements of Steven Co. and Sydney Co. appear below:
Steven
Cash
Accounts Receivable
Inventories
Plant and equipment
Liabilities
P 59,700
Sydney
P
7,500
136,000
23,900
57,300
9,250
286,300
13,600
P 539,300
P 54,250
P 123,800
P 11,900
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 24
Capital Stock
Additional Paid-in Capital
Retained Earnings
100,000
10,000
25,000
-
290,500
32,350
P 539,300
P
54,250
Steven Co. acquired an 80% interest in Sydney Co. On the acquisition date, October 1, 20007, the
fair market values of Sydney Co.’s assets were properly reflected in its accounts. P40,000 was paid
for this acquisition.
41.
In the preparation of a consolidated balance sheet, the elimination entry as to goodwill in the
consolidated working paper will be
a.
A credit to the Investment account by P6,120.
b.
A credit to the Investment account by P7,650.
c.
A charge to the Investment account by P3,178.
d.
A credit to the Plant and Equipment account by P6,120.
42.
To complete the eliminating entries, the other accounts affected are the capital stock and
retained earnings of Sydney Co. in these amounts.
a.
b.
c.
d.
Capital Stock
P 8,265 P 6,470 P 6,470 P 8,000
Retained Earnings P 28,558 P 28,558 P 25,880 P 25,880
Use the following information for numbers 43-44
BNC Co. acquired its 60% interest in EFL Co. four years ago for P200,000 and has accounted for
its investment by the equity method. At the time of the acquisition, the purchase premium has been
identified as follows:
Inventory
Equipment
Building
= P 8,000 (sold in year following purchase)
= 30,000 (15-year life)
= 12,000 (40 year life)
For the first three years after acquisition, EFL Co. had reported total earnings of P90,000 and paid
total dividends of P50,000. In 2007, the current year, the parent company earned P60,000 and paid
P40,000 for dividends, while the subsidiary earned P30,000 and paid P20,000 for dividends.
43.
The consolidated net income for 2007 was,
a. P86,167
b. P75,700
c. P87,700
d. P 90,000
44.
On BNC Company’s books, the investment’s carrying value at the end of the current year
would be?
a. P200,000
b. P212,800
c. P222,000
d. P230,000
45.
To comply with certain requirements, companies A, B, and C agree to consolidate. The new
corporation will be known as DDD Corporation, and the following pertinent information were
gathered:
Company A
Total assets
Total liabilities
Annual net income
Company B
Company C
P 1,100,000 P 1,500,000
800,000
900,000
105,000
240,000
P 1,200,000
800,000
136,000
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 25
Additional information:
a.
The total assets and the total liabilities are at audited values, and they have been agreed upon as
the basis for the consolidation.
b.
DDD Corporation will issue 10%, P100 par value, cumulative preferred shares for the net
assets contributed, and P100 par value common stocks for earnings in excess of a 15% normal rate of
return capitalized at 20%.
c.
Cash equivalents to 30% of the par values of the common stock to be issued will be paid by the
stockholders of the three companies and will be treated as premium on common shares.
a.
b.
c.
d.
The total preferred shares to be issued and premium on common shares are:
13,000 shares and P429,000
12,900 shares and P377,500
13,000 shares and P487,500
13,700 shares and P539,000
end of examination
PRACTICAL ACCOUNTING 2
2nd PRE-BOARD EXAMS
2:00-4:30
OCTOBER 2007 BATCH
AUGUST 19, 2007 (Sun)
INSTRUCTIONS: Select the correct answer for each of the following questions. Mark only one
answer for each item by writing a VERTICAL LINE corresponding to the letter of your choice on the
answer sheet provided. STRICTLY NO ERASURES ALLOWED. Use Pencil No. 1 or No. 2 only.
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 26
Use the following information in answering questions 1 and 2
The income statement of Vita Plus Partnership for the year ended December 31, 2007
appear below:
Vita Plus Partnership
Income Statement
For the year ended December 31, 2007
Sales
Less: Cost of Goods Sold
Gross Profit
Less: Operating Expenses
Net Income
P300,000
190,000
P110,000
30,000
P 80,000
Additional Information:
1. Melon and Dalandan began the year with capital balances of P40,800 and P112,000,
respectively.
2. On April 1, Melon invested an additional P15,000 into the partnership and on August 1,
Dalandan invested an additional P20,000 into the partnership.
3. Throughout 2007, each partner withdrew P400 per week in anticipation of partnership net
income. The partners agreed that these withdrawals are not to be included in the computation of
average capital balances for purposes of income distribution.
Melon and Dalandan have agreed to distribute partnership net income according to the following
plan:
MELON
DALANDAN
1. Interest on average capital balances
6%
6%
2. Bonus of net income before the bonus but after interest
on average capital balances
10%
3. Salaries
P25,000
P30,000
4. Residual (if positive)
70%
30%
5. Residual (if negative)
50%
50%
The share of Melon and Dalandan on the net income, respectively is:
a. P40,473 and P39,527
b. P40,282 and P39,718
c. P40,342 and P39,658
d. P38,935 and P41,065
The ending capital balance of Dalandan is:
a. P152,328
b. P150,727
c. P150,918
d. P150,858
Use the following information in answering questions 3 and 4
On January 2, 2007, P Company purchased 1,500 shares of the outstanding common stock of S
Company for P140,000 and additional payment of. P4,000 indirect cost and P5,000 direct cost. On
that date, the assets and liabilities of S Company had fair market values as indicated below.
Balance sheets of the companies on January 2, 2007, after acquisition are as follows:
P Company
S Company
Practical Accounting 2
Second Pre-Board Examination
Book Value
Fair value
Cash
P 80,000
P 14,000
P 14,000
Accounts Receivable
56,000
28,000
28,000
Inventory
56,000
22,000
28,000
Land
28,000
54,000
60,000
Building, net
163,000
72,000
98,000
Equipment, net
224,000
56,000
39,000
Investments in S Company
149,000
P 756,000
P 246,000
Accounts Payable
P 42,000
16,000
16,000
8% Bonds Payable
62,000
52,000
Common Stock – P Company, P40 par
320,000
Common Stock – S Company, P25 par50,000
Additional Paid-In Capital – P Company
100,000
Additional Paid-In Capital – S Company
56,000
May 2007 Batch
Page 27
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 28
Retained Earnings – P Company
294,000
Retained Earnings – S Company
62,000
P 756,000
P 246,000
3. As a result of business combination, the amount of total net assets is
a. P714,250
b.P764,000
c.P718,250
d.P768,000
4. The Retained earnings balance is
a. P294,000
b.P356,000
c. P294,250
d. P290,000
A statement of the capital accounts of Roel and Bless follows:
ROEL
BLESS
Balance, January 1
P 72,000
P 96,000
Add: Additional Investments, July 1
32,000
16,000
Net Income for the Year:
Salaries
12,000
14,400
Interest on Capital
5,280
6,240
Remainder
10,362
8,478
Totals
P131,642
P141,118
Deduct Drawings:
Monthly Amounts
P 9,600
P 10,800
Additional Drawings, Dec. 31
2,042
318
P 11,642
P 11,118
Balance, December 31
P120,000
P130,000
5. If the net income remains the same the following year, and if there is neither a change in the
partnership agreement nor any additional investments, how much more or less will Roel’s total
share of the net income be than it was this year?
a. More by P6.00
b. Less by P6.00
c. P27,648
d. P29,112
Partner’s Rachel, Cecil, and Arlene share profits and losses 5:3:2, respectively, and their balance
sheet on October 31, 2007 follows:
Cash
P 240,000
Accounts Payable
P 600,000
Other Assets
2,160,000
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 29
Rachel, Capital
444,000
Cecil, Capital
780,000
Arlene, Capital
576,000
P 2,400,000
P 2,400,000
6.The assets and liabilities are recorded at their current fair value. Lark is to be admitted as a new
partner with
a 1/5 interest in capital and earnings. Rachel was credited a bonus of P15,000. How much should
Lark
contribute?
a. P456,000
b. P450,000
c. P480,000
d. P487,500
Use the following information in answering questions 7 and 8
S Co. had net income of P400,000 and paid dividends of P200,000 during the year 2007. S Co.’s
stockholders’ equity on December 31, 2006 and December 31, 2007 is summarized as follows:
Dec. 31,2006
Dec. 31, 2007
10% cumulative preferred stock, P100 par
P 300,000
P 300,000
Common stock, P1 par
1,000,000
1,000,000
Additional paid-in capital
2,200,000
2,200,000
Retained earnings
500,000
700,000
Stockholders’ Equity
P4,000,000
P4,200,000
On January 2, 2007, P Co. purchased 400,000 common shares of S Co. at P4 per share and also
paid P50,000 direct cost of acquiring the investment. P uses equity method in accounting for its
investment in S.
7. P Co.’s income from Shine for 2007 should be:
a. P160,000
b. P155,000
c. P148,000
d. P143,750
8. The balance of the investment in Shine account at December 31, 2007 should be:
a.
b.
c.
d.
P1,725,750
P1,730,000
P1,650,000
P1,742,750
Use the following information in answering questions 9 and 10
Parent Company sells land with a book value of P5,000 to Subsidiary Company for P6,000 in 2004.
Subsidiary Company holds the land during 2005. Subsidiary Company sells the land for P8,000 to
an outside entity in 2006.
9. In 2004 the unrealized gain:
a. To be eliminated is affected by the minority interest percentage.
b. Is initially included in the subsidiary’s accounts and must be eliminated from Parent Company’s
income from Subsidiary Company under the equity method.
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 30
c. Is eliminated from consolidated net income by a working paper entry that includes a credit to
the land account for P1,000
d. Is eliminated from consolidated net income by a working paper entry that includes a credit to
the land account for P6,000.
10. Which of the following statements is true?.
a. Under the equity method, Parent Company’s investment in Subsidiary account will be P1,000
less than its underlying equity in Subsidiary throughout 2005.
b. No working paper adjustments for the land are required in 2005 in Parent Company has applied
the equity method correctly
c. A working paper entry debiting gain on sale of land and crediting land will be required each year
until the land is sold outside the consolidated entity.
d. In 2006, the year of Subsidiary’s sale to an outside entity, the working paper adjustment for the
land will include a debit to gain on sale of land for P2,000.
Use the following information in answering questions 11 and 12
Perry Corporation sold machinery to its 80 percent-owned subsidiary, Samuel Corporation, for
P100,000 on December 31, 2006. The cost of the machinery to Perry was P80,000, the book value
at the time of sale was P60,000, and the machinery had a remaining useful life of five years (Perry
uses equity in accounting for its investment in Samuel).
11. How will the intercompany sale affect Perry’s income from Samuel and Perry’s net income for
2006?
Perry’s Income
from Samuel
Perry’s
Net Income
Perry’s Income
from Samuel
Perry’s
Net Income
a.
No effect
No effect
c.
Decreased
No effect
b.
Increased
No effect
d.
Decreased
Decreased
10. How will the consolidated assets & consolidated net income for 2006 be affected by the
intercompany sale?
Consolidated
Net Assets
Consolidated Net Income
Consolidated Net Assets
Consolidated Net Income
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 31
a.
No effect
Decreased
c.
Increased
No effect
b.
Decreased
Decreased
d.
No effect
No effect
Use the following information in answering questions 13 and 14
Punk Corp. manufactures and sells heavy industrial equipment. On July 1, 2006 Punk sold
equipment that it manufactured at a cost of P300,000 to its 100 percent owned subsidiary, Sunk
Company, for P400,000. Sunk is depreciating the equipment over a five-year period using the
straight-line method.
13. The equipment and accumulated depreciation that appear in the consolidated balance sheet
for Punk and subsidiary at December 31, 2006 will include amounts related to this transaction of:
a. P300,000 and P30,000
c. P400,000 and P40,000
b. P300,000 and P60,000
d. P400,000 and P80,000
14. If Punk account for its investment in Sunk as a one-line consolidation, working paper entries to
consolidate the financial statements of Punk and Sunk for 2006 will include which of the entries:
a. Sales
c. Sales
P100,000
P400,000
Cost of Sales
Cost of Sales
P100,000
P300,000
b. Sales
P100,000
Equipment
P100,000
Investment in S
d. Sales
P400,000
Cost of Sales
P100,000
P400,000
The following selected accounts appeared in the trial balance of Genius Sales as of December 31,
2007:
Installment receivable-2006 sales
P 6,000
Repossessions
P 1,200
Installment receivable-2007 sales
80,000
Installment sales
170,000
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 32
Inventory, December 31, 2006
28,000
Regular sales
154,000
Purchases
222,000
Deferred gross profit – 2006
21,600
Operating Expenses
46,000
Additional information:
Installment receivable – 2006 sales, December 31, 2006
P 57,100
Inventory of new and repossessed merchandise as of December 31, 2007
38,000
Gross Profit percentage on installment sales in 2006 is 10% higher than the gross profit percentage
on regular sales in 2007
Repossession was made during the year and was recorded correctly. It was a 2006 sales and the
corresponding uncollected account at the time of repossession was P3,100.
15. Net Income for 2007 is
a. P54,180
b. P6,740
c. P52,940
d. P53,600
On January 1, 2007, M Products Corp. issues 12,000 shares of its P10 par stock to acquire the net
assets of L Steel Company. Underlying book value and fair value information for the balance sheet
of L Steel Company at the time of acquisition are as follows:
Balance sheet Items
Book value
Fair value
Cash
P60,000
P60,000
Accounts receivable
100,000
100,000
Inventory
60,000
115,000
Land
50,000
70,000
Building and Equipment
400,000
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 33
350,000
Less: Accumulated Depreciation
(150,000)
Total Assets
P520,000
Accounts payable
P10,000
10,000
Bonds payable
200,000
180,000
Common stock (P5 par value)
150,000
Additional paid-in capital
70,000
Retained earnings
90,000
Total Liabilities and Capital
P520,000
L Steel shares were selling at P18 and M Product shares were selling at P50 just before the merger
announcement. Additional cash payments made by M Corporation in completing the acquisition
were:
Finder’s fee paid to firm that located L Steel
P10,000
Audit fee for stock issued by M Products
3,000
Stock registration fee for new shares of M Products 5,000
Legal fees paid to assist in transfer of net assets
9,000
Cost of SEC registration of M Products shares
1,000
16. How much is the increase in the total assets to be recorded by M Products?
a. P809,000
b. P591,000
c. P781,000
d. P667,000
I Inc., K Inc., and E Inc. agreed to a business combination that meets all the requirements for
purchase of interests. Their condensed balance sheets before combination show:
I
K
E
Assets
P7,000,000 P875,000
P9,625,000
Liabilities
P4,987,500 P306,250
P2,625,000
Capital stock, par P100
2,625,000
437,500
1,750,000
Additional paid in capital
218,750
700,000
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 34
Retained earnings (deficit)
(612,500)
( 87,500)
4,550,000
P7,000,000 P875,000
P9,625,000
17. It was agreed that I Inc. will be the continuing entity and shall issue 4,375 shares to K and
52,500 shares to E. To what extent will the stockholders equity of I increase after the
combination?
a. P7,568,750
b. P2,187,000
c. P5,687,500
d. P875,000
On July 2007, Jonathan Company sold P2,400,000 real estate that had a cost P1,440,000, receiving
P350,000 cash and mortgage note for the balance payable in monthly installments. Installment
received in 2008 reduced the principal of the note to a balance of P2,000,000. The buyer defaulted
on the note at the beginning of 2009, and the property was repossessed. The property had an
appraised value of P1,150,000 at the time of repossession. Compute the gain (loss) on
repossession, assuming that:
18. Profit is recognized when the sale is made (point of sale)
Gross profit is recognized in proportion to periodic collection
a.
P(850,000)
P(450,000)
b.
(850,000)
(50,000)
c.
850,000
(450,000)
d.
(50,000)
50,000
Abogado Company uses the installment method of reporting for accounting purposes. The
following data were obtained.
2004
2005
2006
Installment sales
P600,000
P810,000
P990,000
Cost of installment sales
_420,000
_486,000
_643,500
Gross profit
P180,000
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 35
P324,000
P346,500
Installment contract receivables, December 31:
2004
2005
2006
2004 sales
P360,000
P270,000
P120,000
2005 sales
600,000
390,000
2006 sales
780,000
In 2006, one of the customers defaulted in his payment and the company repossessed the
merchandise with an estimated market value of P30,000. The sales was in 2004 and the unpaid
balance on the date of repossession was P45,000.
19. Compute for 2006 (1) the gain (loss) on repossession; (2) total realized gross profit, and (3) the
deferred gross profit.
(1)
(2)
(3)
a.
P (1,500)
P 189,000
P 451,500
b.
129,000
465,000
c.
750
(1,500)
189,000
465,000
d.
1,500
73,500
273,000
Lea Mae Stores sell appliances for cash and also on the installment plan. Entries to record cost of
sales are made monthly. The following information appears on the trial balance of the company as
of December 31, 2007.
Cash
Practical Accounting 2
Second Pre-Board Examination
P153,000
Installment Accounts Receivable, 2006
48,000
Installment Accounts Receivable, 2007
91,000
Inventory – New Merchandise
123,200
Inventory – Repossessed Merchandise
24,000
Accounts Payable
P98,500
Deferred Gross Profit, 2006
45,600
Capital Stock
170,000
Retained Earnings
93,900
Sales
343,000
Installment Sales
200,000
Cost of Sales
255,000
Cost of Installment Sales
128,000
Gain or Loss on Repossession
800
Selling and Administrative Expenses
_128,000
May 2007 Batch
Page 36
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 37
_______
P951,000
P951,000
The accounting department has prepared the following analysis of cash receipts for the year:
Cash sales (including repossessed merchandise)
P424,000
Installment accounts receivable, 2006
104,000
Installment accounts receivable, 2007
109,000
Other
36,000
Total
P673,000
Repossessions recorded during the year are summarized as follows:
2006
Uncollected balance
P8,000
Loss on repossession
800
Repossessed merchandise
4,800
20. How much must be the total realized gross profit net of loss from repossession in 2007?
a. P161,710
b. P157,640
c. P158,440
d. P73,710
Lily, Susan, and Yen agreed to invite Lucy to join the partnership. Lucy was presently working as a
marketing specialist of a dynamic firm and presently receiving a salary of P35,000 per month. In
order to encourage Lucy to join the partnership, the partners agreed to the following profit
distribution:
12% interest on contributed capital is to be given to each partner.
Salaries of P20,000, P30,000, P40,000, and P35,000 per month is to be given to Lily, Susan, Yen,
and Lucy respectively.
Lucy is to receive a minimum guaranteed share equal to her present salary and interest on her
capital.
Lily is to receive an aggregate share of P300,000 per year.
Balance of profits is to be distributed in the ratio of 2:2:3:3 between Lily, Susan, Yen, and Lucy
respectively.
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 38
The partners’ capital contributions are: Lily, P200,000; Susan, P150,000; and Yen, P100,000. Lucy is
willing to invest sufficient cash so that her capital interest in the partnership net assets will give
her a ¼ interest.
21. How much must the partnership earned during the year so that Lily will receive the agreed
aggregate amount and Lucy to receive at least the minimum guaranteed share?
a. P1,752,000
b. P1,698,000
c. P1,477,000
d. P1,521,000
Use the following information in answering questions 22 and 23
On Jan. 1, 2003, PI Co. acquired 75 percent of outstanding shares of SU Co. at book value. For the
year 2005, PI Co. purchased merchandise from SU Co. while S also purchased merchandise from PI
Co. Data regarding intercompany sales, inventories and profit percentages are as follows:
PI Co.
SU Co.
Intercompany sales
P200,000
P75,000
Intercompany inventories:
January 1, 2005
20,000
10,000
December 31, 2005
15,000
20,000
Gross profit percentages on intercompany
As a percentage of selling price
60%
50%
On July 1, 2005, Su Co. sold equipment to PI Co. at a gain of P20,000. This equipment is estimated
to have a useful life of five years from the date of sale.
Income statements for the two companies exclusive of the recording of Equity in Earnings –
Subsidiary for year 2005 are as follows:
PI Co.
SU Co.
Sales
P 1,500,000
P 400,000
Cost of sales
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 39
600,000
200,000
Expenses
300,00
100,000
Gain on sale of equipment
.
20,000
P 600,000
P 120,000
22. The consolidated cost of sales is:
a. P800,000
b. P528,500
c. P521,500
d. P527,000
23. The income from investment using equity method:
a. P72,375
b. P71,542
c. P72,750
d. P75,750
PC Corp. owns 70 percent pf SO Co.’s common stock acquired January 1, 2004. Total amortization
of excess from the investment is at a rate of P20,000 per year. SO regularly sells merchandise to
PC at 150 percent of SO’s cost. PC’s December 31, 2004 and 2005 inventories include goods
purchased intercompany of P112,500 and P33,000, respectively. The separate incomes (*do not
include investment income) of PC and SO for 2005 are summarized as follows:
PC
SO
Sales
P 1,200,000
P 800,000
Cost of sales
(600,000)
(500,000)
Other expenses
(400,000)
(100,000)
Separate income
P 200,000
P P200,000
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 40
24. Total consolidated income should be allocated to Retained Earnings and minority interest
income in the amounts of:
a. P344,550 and P61,950, respectively
c. P406,500 and P61,950, respectively
b. P358,550 and P60,000, respectively
d. P338,550 and P67,950, respectively
Mystic, Inc. was involved in two default and repossession cases during the year:
A refrigerator was sold to Mary More for P19,000. Including a 35% markup on selling price. More
paid a down payment of 20%, four of the remaining 10 equal payments, and then defaulted on
further payments. The refrigerator was repossessed, at which time the fair value was determined
to be P8,000.
An oven that cost P12,000 was sold to Panadero, Inc. for P16,000 on the installment basis.
Panadero made a downpayment of P2,400 and paid P800 a month for 6 months,
after which it defaulted. The oven was repossessed and the estimated value at the time of
repossession was determined to be P7,500.
25. Determine the gain/(loss) on repossession that Mystic must report in its financial statement.
a. P2,972
b. P4,100
c. P4,880
d. (P2,420)
The Felix Contracting Co. uses the percentage of completion method of recognizing profit. Data for
a recently awarded project is given below:
Contract price
P80,000,000
2006
2007
2008
Estimated costs per year
P20,100,000
P30,150,000
P16,750,000
Progress billings per year
10,000,000
25,000,000
45,000,000
Cash collections
8,000,000
23,000,000
49,000,000
26. Using the data provided above, calculate Felix’s gross profit for 2007. Assume that the
estimated costs were actually incurred during the year.
a. P5,850,000
b. P3,900,000
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 41
c. P3,250,000
d. P9,750,000
27. The Marvin Co. as a receivable from a foreign customer that is payable in the local currency of
the foreign customer. The amount receivable for 900,000 local currency units (LCU) has been
restated into P315,000 on Marvin’s Dec. 20X5, balance sheet. On Jan. 15, 20X6, the receivable was
collected in full and converted when the exchange rate was 3 LCU to P1. What journal entry should
Marvin make to record the collection of this receivable?
a. Cash
300,000
Accounts receivable
300,000
b. Cash
300,000
Transaction loss
15,000
Accounts receivable
315,000
c. Cash
300,000
Deferred transaction loss
15,000
Accounts receivable
315,000
d. Cash
315,000
Accounts receivable
315,000
On Nov. 15, 20X8, Celt, Inc. a Philippine company, ordered merchandise FOB shipping point from a
German company for 200,000 marks. The merchandise was shipped and invoiced to Celt on Dec.
10, 20X8. Celt paid the invoice on Jan. 10, 20X9. The spot rates for marks on the respective dates
are as follows:
Nov. 15, 20X8
P.4955
Dec. 10, 20X8
.4875
Dec. 31, 20X8
.4675
Jan. 10, 20X9
.4475
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 42
28. In Celt’s Dec. 31, 20X8 income statement, the foreign exchange gain is:
a. P9,600
b. P8,000
c. P4,000
d. P1,600
On April 1, 2007, Onawaki entered into franchise agreement with Lhyve to sell their products. The
agreement provides for an initial franchise fee of P4,218,750 payable as follows: P1,181,250 cash
to be paid upon signing of the contract and the balance in five equal annual payment every
December 31, starting at the end of 2007. Onawaki signs 12% interest bearing note for the
balance. The agreement further provides that the franchise must pay a continuing franchise fee
equal to 5% of its monthly gross sales. On August 30 the franchisor completed the initial services
required in the contract at a cost of P1,350,000 and incurred indirect costs of P232,500. The
franchise commenced business operations on September 3, 2007. The gross sales reported to the
franchisor are September sales, P110,000; October sales, P125,000; November sales P138,000;
and December sales, P159,000. The first installment payment was made on due date.
29. Assume the collectibility of the note is reasonably assured. How much is the income earned
from the franchise agreement.
a. P2,868,750
b. P2,936,225
c. P2,895,350
d. P3,168,725
Shore Co. records its transactions in US Dollar. A sale of goods resulted in a receivable
denominated in Japanese yen, and a purchase of goods resulted in a payable denominated in
French francs. Shore recorded a foreign exchange gain on collection of the receivable and an
exchange loss on settlement of the payable. The exchange rates are expressed as so many units of
foreign currency to one dollar. Did the number of foreign currency units exchangeable for a dollar
increase or decrease between the contract and settlement dates?
Yen Exchangeable for US$1
30. Francs exchangeable for US$1
a.
b.
c.
d.
Increase
Decrease
Decrease
Increase
Increase
Decrease
Increase
Decrease
Candido Co. entered into a contract to build a small bridge for Guagua. The contract price for the
bridge was P7,500,000 and Candido estimated a total costs of P6,900,000 in 2006. The company
incurred P2,300,000 of cost during 2006. By the end of 2007 it was apparent that Candido had
underestimated the real costs. The estimated total cost of project skyrocketed to P7,800,000.
Construction cost incurred in 2007 totaled P4,000,000. The project was completed in 2008 at a
final cost of P7,800,000. No progress billing were made under the contract and no cash was
selected by the end of 2008.
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 43
31. The amount of gross profit (loss) that must be recognized in 2007 must be:
a. P300,000 loss
b. P200,000 profit
c. P500,000 loss
d. P100,000 loss
The following information pertains to a river-control project of Rainy Construction Inc. in Tabuk,
Kalinga which was commenced in 2006 and completed the following the year:
Cost incurred to-date
at June 30, 2006
P9,750,000
at June 30, 2007
15,750,000
Estimated total cost at completion
at June 30, 2006
19,500,000
at June 30, 2007
20,250,000
32. The project is a P22,500,000 fixed-price construction contract and Rainy uses the percentageof-completion method of accounting. What is the income reported by Rainy on its Kalinga project
on June 30, 2007?
a. P750,000
b. P1,500,000
c. P1,750,000
d. P250,000
DR
CR
Ordinary shares – 30,000 fully shares
30,000
Retained Earnings
50,000
Equipment
42,000
Accumulated Depreciation
12,000
Inventory
20,000
Accounts Receivable
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 44
10,000
Patents
15,000
Accounts Payable
8,000
Cash
13,000
100,000
100,000
At this date REH is acquired by BNC with REH going into liquidation
Ordinary shareholders of REH Company are to receive 2 fully paid ordinary shares in BNC for every
share held or alternatively P2.50 in cash payable half at the exchange date and half in one year
thereafter.
Accounts Payable and cost of liquidation amounting to P5,000 were paid by REH prior to turnover
to BNC.
5,000 ordinary shares elect to receive cash
BNC shares are selling at P1.10
The incremental borrowing rate of BNC is 10% per annum.
33. What is the cost of combination?
a. P66,931
b. P67,500
c.P66,000
d.P61,931
Use the following information in answering questions 34 and 35
The following balance sheets were prepared for Avril Corp. and Blink Co. on January 1, 2007, just
before they entered into a business combination.
Avril Corp.
Blink Co
Cash
P 210,000
P 5,000
Accounts Receivable
75,000
20,000
Merchandise Inventory
200,000
50,000
Building and Equipment
400,000
100,000
Accumulated Depreciation
(100,000)
(25,000)
Goodwill
50,000
Total Assets
P 785,000
P 200,000
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 45
Accounts PayableP 125,000
P 70,000
Bonds Payable
200,000
30,000
Common Stock
P30 par value
210,000
P20 par value
50,000
Additional paid-in capital
50,000
10,000
Retained Earnings
200,000
40,000
Total Liabilities & Stockholders’ Equity
P 785,000
P 200,000
On that date, the fair market value of Blink’s inventories and building and equipment were
P78,000 and P124,000 respectively, while bonds payable has a fair value of P42,000. The fair
values of all other asset and liabilities of Blink (except for goodwill) were equal to their book
values. Avril Corp. acquired the net assets of Blink Co. by issuing 2,500 shares of its P30 par value
common stock (current fair value P36 per share) and purchase price in cash amounting to
P12,000. Contingent consideration that is determinable (probable and reasonably estimated)
amounted to P2,000 (discounted value). Additional cash payment made by Avril Corp. in
completing the acquisition were: Legal fee for contract of business combination, P8,000;
Accounting and legal fees for SEC registration, P11,000; Printing costs of stock certificates, P6,000;
Finder’s fee, P7,000; Indiret cost, P5,000.
34. As a result of the business combination, the amount of total assets in the books of Avril
Company.
a. P1,016,000
b. P963,000
c. P967,000
d. P1,1012,000
35. As a result of the business combination, the amount of retained earnings in the books of Avril
Company.
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 46
a. P195,000
b.P193,000
c. P200,000
d.P240,000
On January 1, 2007, ABC Corporation purchased 75% of the common stock of XYZ Company.
Separate balance sheet data for the companies at the combination date are given below:
ABC
XYZ
Cash
P 84,000
P 721,000
Trade Receivable
504,000
91,000
Merchandise Inventory
462,000
133,000
Land
273,000
112,000
Plant assets
2,450,000
1,050,000
Accumulated Depreciation
(840,000)
(210,000)
Investment in XYZ
1,372,000
Total Assets
4,305,000
P 1,897,000
Accounts Payable
P 721,000
P 497,000
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 47
Capital Stock
2,800,000
1,050,000
Retained Earnings
784,000
350,000
Total Equities
4,305,000
P 1,897,000
On the date of combination the book values of XYZ’s net assets was equal to the fair value of the
net assets except for XYZ’s inventory which has a fair value of P210,000.
36. On the date of acquisition in the consolidated balance sheet, how much is the total assets?
a. P3,533,250
b. P4,984,000
c. P6,543,250
d. P5,171,250
End Examination –
Practical Accounting 2
Second Pre-Board Examination
PRACTICAL ACCOUNTING 1
BATCH
SECOND PRE-BOARD EXAMS
12:30AM
May 2007 Batch
Page 48
MAY 2007
MAR 4, 2007; 10:30AM-
GENERAL INSTRUCTIONS: Select the correct answer for each of the following questions. Mark only one
answer for each item by writing a VERTICAL LINE corresponding to the letter of your choice on the answer
sheet provided. STRICTLY NO ERASURES ALLOWED. Use PENCIL NO. 1 or NO. 2 only.
Use the following information for numbers 1 –3
On September 30, 2007, Harry Company acquired a smelting machine for P180,000 paying a down payment
of P30,000 and the balance to be paid in equal annual instalments starting September 30, 2008. There was
no stated interest provided in the note, however, an 8% interest rate is considered to be appropriate for a
note of this type.
Harry Company incurred P12,000 for installation and testing. A grinder was removed to make way to the
smelting machine at a cost of P2,000. Harry Company uses the straight-line method of depreciation. The
machine is expected to have a useful life of 8 years and a salvage value of P4,000.
On January 1, 2010, it was determined that the machine would be useful for at least five years to include 2010.
The expected salvage value remains at P4,000.
1. The amount of depreciation expense to be included in Harry Company’s 2007 income statement is:
a. P5,875 b. P5,000 c. P4,938 d. P5,938
2.
The amount to be reported as interest expense in Harry Company’s 2008 income statement is
a. P12,000 b. P11,592 c. P9,192 d. P9,000
3.
The carrying amount of the machine to be reported in Harry Company’s December 31, 2010
balance sheet is:
a. P94,850 b. P98,850 c. P113,700 d. P77,600
Use the following information for numbers 4 –5
On January 1, 2006 Hermione Company acquired a five-year, 10%, P1,000,000 face value debt security of
Ginny Company and paid P912,000 and has classified it as an available-for-sale security. Direct transaction
costs paid by Hermione Company amounted to P16,000.
The fair value of the Ginny Company debt security at December 31, 2006 and 2007 were P915,000 and
P945,000 respectively.
4.
The amount of interest income to be included in Hermione Company’s 2006 income
statement is:
a. P109,440 b. P100,000 c. P111,360 d. P92,800
5.
The amount of net unrealized gain/loss presented in the stockholders’ equity section of Hermione
Company’s 2007 balance sheet is
a. unrealized loss of P7,083 c. unrealized gain of P17,000
b. unrealized loss of P55,000 d. unrealized gain of P17,277
Use the following information for numbers 6 – 8
Ron Company started operations in January 2, 2006 and has acquired three assets which it classified under
property, plant and equipment for a lump sum price of P2,400,000. The carrying amount and fair values of
each are provided as follows:
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 49
Carrying amount
Fair value
P 1,200,000
P 1,680,000
Latching machine
300,000
420,000
Office equipment
400,000
700,000
Delivery trucks
Depreciation method
Delivery trucks
Straight-line
Latching machine Double-declining balance
Office equipment Sum-of-the-year’s digits
Salvage value Estimated useful life
P 80,000
5,000
15,000
8 years
4 years
6 years
6.
Assuming that the delivery trucks were sold in October 12, 2007 for P1,200,000, the amount of
gain/loss to be included in Ron Company’s income statement is
a. loss of P130,000 b. gain of P57,500 c. gain of P137,500 d. gain of 75,000
7.
The carrying amount of the office equipment to be presented in the December 31, 2008 balance
sheet of Ron Company is
a. P182,143 b. P171,429 c. P200,000 d. P210,714
8.
The total depreciation expense to be reported in the 2009 income statement of Ron Company is
a. P293,571 b. P123,571 c. P106,571 d. P122,946
Use the following information for items 9 – 13
On November 1, 2007 Draco Company bought 15,000 Crabbe Company shares acquired at a total cost
of P180,000. Draco Company intends to profit on the short-term price fluctuations of the abovementioned securities and appropriately classifies them as held for trading.
On November 15, 2007 Draco Company acquired 12,000 common shares and all of the 5,000, 8%,
P100 par value preferred stocks of Goyle Company for a lump sum price of P680,000. At the date of
acquisition the common stocks were quoted at P20 per share, while the preferred were selling at P102.
Draco Company classified these securities as available-for-sale.
At December 31, 2007, Draco Company determined the following information in relation to the quoted
prices of the stocks in the market: Crabbe company common, P13 per share; Goyle Company common,
P15 per share; Goyle Company preferred P96 per share.
In January 4, 2008 Draco Company was able to sell all of its Crabbe Company shares for P14.80 each.
The proceeds were used to acquire 100,000 Neville Company shares and were classified as trading
securities.
In February 2008 Goyle Company declared and distributed a cash dividend to all its shareholders
totalling to P240,000. Goyle Company has 100,000 outstanding common shares when the dividends
were declared
Draco Company, on March 12, 2008, exchanged its preferred stock investment in Goyle Company for a
paper copier, which has a carrying amount of P377,000. At the time of exchange, Goyle Company’s
preferred stocks were quoted at P94. The copier has an estimated useful life of 5 years, no salvage value
and to be depreciated using the straight-line method
On March 31, 2008, the quoted prices of the equity investments were as follows: Neville Company
common, P2.45 per share; Goyle Company common shares, P18 per share.
9.
The amount of unrealized gain/loss to be presented in Draco Company’s 2007 balance sheet is
a. unrealized loss of P90,000
c. unrealized loss of P5,000
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 50
b. unrealized loss of P20,000 d. unrealized gain of P15,000
10.
The amount reported as dividend income in Draco Company’s quarterly income statement ending
March 31, 2008 is
a. P 0 b. P64,000 c. P28,800 d. P70,000
11.
The amount initially capitalized as the cost of the paper copier included in Draco Company’s
property, plant and equipment account is
a. P377,000 b. P480,000 c. P470,000 d. P462,400
12.
The net effect to net income (increase/decrease) brought about by Draco Company’s
investment in equity securities for the quarter ending March 31, 2008 is
a. increase of P121,600 b. increase of P81,600 c. increase of P114,000 d. increase of P104,000
13.
The amount of unrealized gain/loss to be presented in Draco Company’s balance sheet as of March
31, 2008 is
a. unrealized gain of P36,000 c. unrealized loss of P54,000
b. unrealized loss of P24,000 d. unrealized loss of P1,600
Use the following information for numbers 14 – 18
Dumbledore Company started operations on January 6, 2006 and will engage itself in the importation
and distribution of the following casual shoes, Gryfindor & Slytherin, as well as sport shoes, Ravenclaw
and Hupplepuff. Dumbledore Company’s initial purchase amounted to P3,000,000. It borrowed
P2,000,000 to partially finance the acquisition of the initial inventory from Gringgots Bank which
stipulated a 10% interest rate. The following inventory information was provided for the year 2006.
Gryffindor
2006
1/6
7/1
10/15
Initial inventory
Purchases
Purchases
2/8
7/15
9/23
11/9
12/7
Sales
Sales
Sales
Sales
Sales
Ravenclaw
Hupplepuff
Units
Cost/unit
Units
Cost/unit
Units
Cost/unit
Units
Cost/unit
1,800
1,900
1,200
450
475
500
2,000
1,800
1,700
300
330
360
2,000
1,750
2,000
375
400
440
2,100
1,900
2,200
400
420
425
Gryffindor
2006
Slytherin
Slytherin
Ravenclaw
Hupplepuff
Units
SP/unit
Units
SP/unit
Units
SP/unit
Units
SP/unit
800
500
650
500
600
510
540
540
550
550
1,100
300
700
500
700
330
365
365
390
390
1,400
350
800
950
650
415
445
445
520
520
1,400
1,100
400
800
1,300
460
496
496
522
522
Dumbledore Company uses a periodic inventory system and applies the FIFO cost approach to its
casual shoes while it applies the weighted-average method for its sport shoes.
The following information were likewise provided at December 31, 2006
Gryffindor
Slytherin
Ravenclaw
Hupplepuff
Replacement costs
490
320
433
445
Normal profit margin
60
45
40
50
Estimated selling price
580
410
510
530
Practical Accounting 2
Second Pre-Board Examination
Estimated cost of disposal
May 2007 Batch
Page 51
165
45
79
125
14.
Prior to the any adjustments to present inventory at the lower of cost or market, the amount of
inventory for Gryffindor casual shoes at December 31, 2006 is:
a. P908,750 b. P833,750 c. P873,087 d. P767,750
15.
Prior to the any adjustments to present inventory at the lower of cost or market, the amount of
inventory for Ravenclaw sports shoes at December 31, 2006 is:
a. P600,000 b. P704,000 c. P648,348 d. P689,600
16.
The total cost of inventory recognized as expenses in the 2006 income statement of Dumbledore
Company is:
a. P6,342,402 b. P6,189,402 c. P6,316,402 d. P6,275,150
17.
The difference in the ending inventory balance of Hupplepuff sport shoes prior to the application
of the lower of cost or net realizable value rule to the ending inventory balance if the cost flow method
applied was FIFO
a. P12,000 b. P24,000 c. P18,000 d. P6,000
18.
Prior to the application of the lower of cost or net realizable value rule, the amount of inventory at
the end for Slytherin casual shoes if the LIFO periodic method was used is:
a. P111,000 b. P137,000 c. P211,800 d. P185,800
Use the following information for items 19 - 24
At the end of 2006, Hagrid Company reported the following balances in relation to its property, plant
and equipment account:
Property, plant and equipment
Land
5,000,000
Building
4,000,000
Accumulated depreciation-building
Machinery
1,000,000
1,200,000
3,000,000
600,000
600,000
8,600,000
Accumulated depreciation-machinery
The building and the machinery had been depreciated for 5 years, under the straight-line method and
are assumed to have no salvage value. The building was estimated to have a useful life of 20 years while
the machine was expected to last for 10 years.
At the start of 2007, an appraisal was made by an independent party and the following net appraisal
values were provided: Land, P6,500,000; Building, P3,600,000; Machinery, 690,000.
In October 11, 2007, ¼ of Hagrid Company’s land which was being used as parking space for its
employees was sold for P1,800,000.
At December 31, 2007, after an assessment conducted by Hagrid Company in relation to all of its plant
assets, evidences showing that the assets were impaired were identified.
The fair value Hagrid Company’s plant assets net of any related cost of disposal were as follows: Land,
P5,500,000; Building P2,900,000 and Machinery, P458,400.
The estimated future cash flows from the continued use of the machinery is as follows:
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 52
Net future cash flows
2008
200,000
2009
150,000
2010
110,000
2011
60,000
The applicable risk-free rate of interest is determined as of this date to be 6%
19.
The amount of depreciation expense recorded in 2007 by Hagrid Company is
a. P320,000 b. P378,000 c. P360,000 d. 338,000
20.
The amount of revaluation surplus transferred directly to retained earnings in 2007 is
a. P393,000 b. P375,000 c. P415,000 d. P433,000
21.
The net recoverable amount of the machinery in determining any amount of impairment is
a. P458,400 b. P461,300 c. P520,000 d. P410,800
22.
The amount of impairment loss included in the 2007 income statement of Hagrid Company is
a. P18,700 b. P90,700 c. P93,600 d. P21,600
23.
Total depreciation expense to be reported in the 2008 income statement of Hagrid Company is
a. P378,000 b. P353,325 c. P321,743 d. P322,468
24.
The balance of the revaluation surplus to be presented as part of the total stockholders’ equity
section of Hagrid Company’s 2008 balance sheet is
a. P1,125,000 b. P1,217,857 c. P1,592,857 d. P2,074,000
Use the following information for 25 – 28
On January 1, 2006, Snape Company acquired 20,000 newly issued shares directly from Luscious
Company, which at the time of the issuance has 100,000 shares outstanding. Total acquisition costs
amounted paid by Snape Company was P220,000.
In 2006, Luscious Company reported a net income of P1,500,000 and has declared dividends of P9 per
share on December 15, 2006, for holders on record as of January 15, 2007 and payment date was set at
February 14, 2007. The fair value of Luscious Company shares was P12 each
On January 10, 2007 Snape Company sold 15,000 Luscious Company shares for a total consideration of
P335,000. The remaining 5,000 shares were sold on January 26, 2007 for a total cash amount of
P59,000.
25.
The amount to be income to be included in Snape Company’s 2006 income statement arising from
its equity security investment is
a. P0 b. P300,000 c. P180,000 d. P250,000
26.
The carrying amount of the investments in Luscious Company shares to be presented in the 2006
balance sheet of Snape Company is
a. P240,000 b. P220,000 c. P340,000 d. P290,000
27.
The amount of gain/loss on the sale of the shares of stocks to be included in the 2007 income
statement of Snape Company is
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 53
a. gain of P39,000 b. gain of P174,000 c. gain of P155,000 d. gain of P19,000
Use the following information for 28 – 30
On January 1, 2007, Tom Riddle Magic Company started operations and issued 100,000 of its P5 par
value common stock for P12 each. It likewise issued, 5,000 shares as payment for P60,000 legal & other
professional services rendered by Voldemort & Associates. By yearend, Tom Riddle Magic Company
reported a net income of P780,000. No dividends were declared.
In 2008, Tom Riddle Magic Company acquired 25,000 of its own shares for a total consideration of
P225,000. In the middle of 2008, 15,000 of these acquired shares were issued for P13 each. In August
7,000 treasury shares were sold for P8.50 each. In October 2008, the remaining shares were retired. On
December 31, 2008, Tom Riddle Magic Company declared dividends of P4 per share and reported
earning of P1,400,000.
28.
Tom Riddle Company’s additional paid-in capital at December 31, 2007 is
a. P 700,000 b. P 735,000 c. P 760,000 d. P 525,000
29.
The net gain/loss arising from the acquisition and subsequent sale of the treasury shares included in
the 2008 income statement of Tom Riddle Company’s income statement is
a. P 63,500 b. P 56,500 c. P 60,000 d. P 0
30.
The total stockholders’ equity of Tom Riddle Company included in its 2008 balance sheet is
a. P 3,061,500 b. P 3,005,000 c. P3,039,500 d. P 2,281,500
31.
On January 1, 2007, McGonagal Company acquired a patent named “Transfigure” and paid
P400,000. It was expected that the commercial life of this patent is 15 years, however, its registration has a
remaining period of only 12 years.
At the start of 2008, McGonagal Company won its patent infringement case against Dursley
Company. Legal costs incurred in successfully defending the patent was P40,000.
a.
The amount of amortization expense to be recognized in 2008 in relation to the patent, assuming
further that McGonagal Company is using the straight-line method
P 33,333 b. P 26,666 c. P 36,973 d. P 29,529
Use the following for numbers 32 - 33
On March 1, 2007, Padfoot Company began construction of a small building. The following
expenditures were incurred for construction: March 1, P750,000; April 1 P840,000; May 1, P1,800,000;
June 1, P3,000,000; July 1, P1,000,000
The building was completed and occupied on July 1. To help pay for construction P600,000 was
borrowed on March 1 on a 12%, three-year note payable. The only other debt outstanding during the
year was a P5,000,000, 10% note issued two years ago.
32.
The weighted-average accumulated expenditure is
a. P 3,280,000 b. P 1,010,000 c. P 1,093,000 d. P 3,030,000
33.
The avoidable interest cost is
a. P 113,000 b. P 315,000 c. P 432,500 d. P 73,583
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 54
34.
Mad Eye Moody has an agreement with the sales manager that he is to receive a bonus of 5% of
net income after deduction of the bonus and income taxes. Mad Eye Company reported income before
deduction of the bonus and income taxes of P1,500,000. Income taxes are 35% and the bonus is deductible
for tax purposes.
a. P 47,215 b. P 50,388 c. P 98,063 d. P 48,750
Use the following for 35 – 36
Goblet of Fire Company gives its customers coupons redeemable for a poster plus a Moaning Myrtle CD.
One coupon is issued for each P1 of sales. On the surrender of 100 coupons and P5 cash, the poster and
CD are given to the customer. It is estimated that 80% of the coupons will be presented for redemption.
Sales for 2006 were P1,050,000, and the coupons redeemed totalled 510,000. Goblet of Fire Company
bought 30,000 posters at P2.00/poster and 30,000 CDs at P6/CD.
Sales for 2007 were P1,260,000, and the coupons redeemed totalled 1,275,000.
35.
The amount to be reported as premiums expense for 2006 is
a. P 15,300 b. P 31,500 c. P 25,200 d. P67,200
36.
The estimated liability to be reported in the December 31, 2007 balance sheet in relation to the
premium offer is
a. P 15,750 b. P 1,890 c. P 12,960 d. P 5,040
37.
The cash account shows a balance of P42,000 before reconciliation. The bank statement does not
include a deposit of P2,300 made on the last day of the month. The bank statement shows a collection by
the bank of P940 and a customer's check for P220 was returned because it was NSF. A customer's check
for P450 was recorded on the books as P540, and a check written for P79 was recorded as P97. The correct
balance in the cash account was
a. P 42,648
b. P42,792 c. P 40,348 d. P 41,208
38.
Wormtail Company assigned P500,000 of accounts receivable to Scabbers Finance Company as
security for a loan of P420,000. Scabbers Finance Company charged a 2% commission on the amount of
the loan; the interest rate on the note was 10%. During the first month, Wormtail Company collected
P110,000 on assigned accounts after deducting P380 of discounts. Wormtail Company accepted returns
worth P1,350 and wrote off assigned accounts totaling P3,700.
The amount of cash Wormtail Company received from Scabbers Finance at the time of the
transfer
a.
was
P 378,000 b.
P 410,000 c.
P 411,600 d.
-end of exam-
PRACTICAL ACCOUNTING 1
1
2
3
4
5
C
C
A
C
A
11
12
13
14
15
C
A
D
A
C
21
22
23
24
25
B
A
D
B
C
31
32
33
34
35
A
B
A
A
C
P 420,000
Practical Accounting 2
Second Pre-Board Examination
6
7
8
9
B
A
B
B
16
17
18
19
A
B
A
B
May 2007 Batch
Page 55
26
27
28
29
A 36 B
A 37 A
B 38 C
D
10 B 20 D 30 A
1.
While preparing the 2006 trial balance, Rosalyn Company’s accountant committed the following errors:
omission of the prepaid rent account amounting to P4,000; understatement of the inventory account by
P72,000; overstatement of the sales account by P1,500; accounts receivables totaling to P123,000 was
included in the trial balance as P213,000; accounts payable totaling to P153,000 was included as
P135,000; discount on bonds payable was included as a credit rather than as a debit, P1,500; Revenue
expenditures of P35,000 was erroneously capitalized to furniture and fixtures.
The difference between the debit and credit amounts in Rosalyn Company’s trial balance is
a.
P2,500 b.
P26,000 c.
P7,500 d.
P27,500
2.
The following items were taken from Rosalyn Company’s adjusted trial balance; except for its land
and building accounts
Accounts receivable
P 200,000
Inventory
300,000
Accounts payable
120,000
Rosalyn, capital
420,000
Accrued Interest Expenses
35,000
Prepaid supplies
11,000
Accrued Interest Revenue
20,000
Rent revenue
11,500
Advances from customers
49,500
Salaries expense
75,000
Cost of sales
400,000
Sales
800,000
Furniture and fixtures
410,000
Sales returns and allowances
23,000
Interest expense
65,000
Unearned rent income
35,000
Interest revenue
90,000
Utilities expense
45,000
In Rosalyn Company’s post-closing trial balance, the credit total would amount to
a.
P903,500 b.
P938,000 c.
P1,561,000 d.
P953,000
3.
Rosalyn Company reported the following changes during the current year
Increase (Decrease)
Cash
Accounts receivable
Allowance for bad debts
P 400,000
300,000
50,000
Accounts payable
Bonds payable
Discount on bonds payable
Increase
(Decrease)
P 80,000
(100,000)
(10,000)
Practical Accounting 2
Second Pre-Board Examination
Inventory
Prepaid rent
Plant and equipment
Accumulated depreciation
May 2007 Batch
Page 56
(150,000)
(50,000)
1,000,000
Common stock
120,000
Premium on common stock
60,000
Treasury stock at costs
30,000
100,000
There were no other entries in the Retained earnings account except for the dividend declaration of
P50,000, which was paid in the current year
Net income for the year
a.
P1,200,000 b.
P1,260,000 c.
P1,280,000 d.
P1,360,000
Use the following information for numbers 4 and 5
On April 12, 2006, upon the receipt of the March 2006 bank statement, the accountant of Rosalyn
Company prepared the following bank reconciliation dated March 31, 2006 and immediately recorded
the appropriate adjusting entry.
Balance per bank statement, March 31, 2006
P 980,000
Add: Deposit in transit
P
34,500
Error in recording check No.125412 (P45,000 instead of P54,000)
9,000
Service charges for March
1,500
Less: Outstanding checks
45,000
P 15,000
Erroneous bank credit
Loan proceeds including interest for March
2,000
15,500
Balance per books, March 31, 2006
32,500
P 992,500
The bank statement reported total receipts of P265,000 and total disbursements of P215,000 for April
2006. All reconciling items as of March 31, 2006 cleared the bank on April 2006. However, the bank,
in April 2006 erroneously debited Rosalyn Company P20,000 for a check that was supposed to be
against the account of Rosaline Company. Service charges for April 2006 was P1,200. Deposits in
transit amounted to P42,000 while checks still outstanding amounted to P33,000 as of April 2006.
4.
a.
The total cash debits (receipts) to the cash in bank account is
P288,000 b.
P273,000 c.
P272,500 d.
P257,000
5.
a.
The cash credits (disbursements) to the cash in bank account is
P213,300 b.
P209,700 c.
P220,300 d.
P211,300
6.
Rosalyn Company’s Cash in Bank items as of December 31, 2006 included the following items:
P 1,500,000
Cash in Bank – BDO checking account
1,200,000
Cash in Bank – BPI checking account
Cash in Bank - MBTC checking account (per bank statement)
Total
P
•
1,450,000
4,150,000
Additional information in relation to the above-mentioned components is as follows:
The following items were noted in relation to the BDO checking account:
• Check No.123543 written and dated on December 28, 2006 in the amount of P45,000 remains
at hand as of December 31, 2006
• Check No. 123546 written on December 29, 2006 in the amount of P30,000 dated January 2,
2007 was picked up at December 31, 2006
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 57
•
Check No. 123550 written and dated on December 30, 2006 in the amount of P25,000 was
picked up at December 31, 2006 but has remained outstanding until January 4, 2007
• The following information is in relation to Rosalyn Company’s BPI checking accounts:
BPI checking account #10001 P 1,450,000
BPI checking account #10002
(250,000)
Total
P 1,200,000
• The overdraft in BPI checking account #10002 was due to a check for P300,000 dated January
2, 2007 and was claimed by the payee on December 29, 2006.
• A compensating balance was being maintained in BPI checking account #10001 for P100,000
in relation to a long-term loan
•
The following items were identified in relation to the MBTC checking account, deposit in transit at
December 31, 2006, P75,000; outstanding checks at December 31, 2006, P60,000; service charge for
December, P2,500; interest income for December, P1,000
The correct amount to be reported as Cash in Bank is
a.
P4,440,000 b.
P4,540,000 c.
P4,240,000 d.
P4,523,500
Use the following information for numbers 7 - 10
On January 1, 2005, Rosalyn Company sold goods to Miko Company costing P300,000 and receive in
exchange a P750,000 non-interest bearing note with a maturity date of January 1, 2009. The note has
no ready market but an effective interest of 11% is considered appropriate for a note of this type which
will approximate the inventory’s fair value at the time of sale.
On July 1, 2007, Rosalyn Company which was in need of immediate cash discounted the note issued by
Miko Company to Clark Finance at 14%
7.
The total amount of income to be recognized in 2005 in relation to the above-mentioned
transaction is
a.
P494,048 b.
P450,000 c.
P248,393 d.
P194,048
8.
The carrying value of the note to be presented in the December 31, 2006 balance sheet is
a.
P675,676
b.
P750,000 c.
P548,393 d.
P608,717
9.
The proceeds from the discounting of the note on July 1, 2007
a.
P675,000 b.
P690,263 c.
P626,250 d.
P592,500
10.
The gain/loss arising from the discounting of the note on July 1, 2007 is
a.
(P157,500) b.
(P49,696) c.
P98,452 d.
(P123,750)
11.
Rosalyn Company reported the following items as part of cash and cash equivalents
SEC registered commercial papers
P 300,000
Central Bank Certificates of Indebtedness
350,000
3-month Central Bank Treasury bills, maturing on January 31, 2006
450,000
3-year Treasury note, acquired three months from its maturity date of January 31, 2006
600,000
3-year Treasury note, acquired 2 years ago, maturing on January 31, 2006
800,000
The amount to be included from cash and cash equivalents is
a.
P2,500,000 b.
P1,700,000 c.
P1,900,000 d.
P1,100,000
Use the following information for numbers 12 - 14
On January 1, 2007, Rosalyn Company sold its goods costing P400,000 to Milton Company. Rosalyn
Company maintains a mark-up of 30% on cost. Milton Company made an initial payment of P20,000
and issued a promissory note for the balance. The note provides for equal annual installments that will
yield 12%. The first installment would be made at the end of the current year and the last on December
31, 2011.
12.
The amount of cash to be received by Rosalyn Company at December 31, 2007 is
a.
P100,000 b.
P138,889 c.
P164,474 d.
P121,655
13.
The amount of cash to be received by Rosalyn Company as payment for interest at December 31,
2008 is
a.
P50,533 b.
P38,131 c.
P52,601 d.
P60,000
14.
The carrying amount of the notes receivable at December 31, 2009 is
a.
P200,000 b.
P233,797 c.
P291,951 d.
P147,463
Use the following information for numbers 15 -16
Practical Accounting 2
Second Pre-Board Examination
15.
a.
16.
a.
May 2007 Batch
Page 58
The information that follows is available from the general ledger, cash in bank – BPI and the bank
statement of Rosalyn Company for the month of August 2006:
• Bank statement balance, August 31, P1,430,000
• Note collected by the bank in August including interest of P2,500, P62,500
• NSF checks in August, P25,000
• Outstanding checks at the beginning of August, P47,650, at the end of August, P68,450
• Bank service charges for July, P1,200; for August, P1,400
• Deposit in transit at the beginning of August P27,000; at the end of August P32,900
• Error committed by Rosalyn Company’s accountant in recording check No 12345 for P16,000 was
recorded as P1,600 and check No. 12348 for P1,250 was recorded as P12,500
• Error committed by Rosalyn Company’s accountant in recording deposits for its BPI checking
account of P12,000 was recorded under its BDO checking account, and deposits for its BDO
checking account of P16,000 was recorded as deposits to its BPI checking account
• Bank error in recording a disbursement by Roslyn Company for P28,000 was recorded against
Rosalyn Company’s account
The unadjusted balance per book, cash in bank – BPI is
P1,415,350 b.
P1,385,500 c.
P1,414,150 d.
P1,393,500
The adjusted cash in bank – BPI balance is
P1,393,600 b.
P1,422,450 c.
P1,415,100 d.
P1,397,600
Use the following information for numbers 17 - 19
Rosalyn Company was incorporated on January 1, 2006. All sales are on account under the terms 3/10,
1/20, n/30. Rosalyn Company uses the aging of the receivables approach in providing bad debts.
Provided below is the aging schedule which Rosalyn Company’s accountant prepares at the end of the
accounting period.
Days past due Probability of collectibility
95%
1 – 30 days
31 – 60 days
80%
61 – 90 days
60%
91 – 120 days
over 120 days
30%
10%
During 2006, Rosalyn Company reported sales of P14,500,000. Initial bad debts expense has been
provided during the year at 2.5% of gross sales. Write-offs during the year amounted to P75,000. In
July 2006, Rosalyn Company received a P50,000 face value note from a customer as payment for goods
sold in February. The note carries an interest rate of 10% and will mature on June 30, 2008. Total cash
collections for 2006 amounted to P12,961,000; of which P3,686,000 were collected within 10 days from
the date of sale, P2,475,000 were collected beyond 10 days but within 20 days from the date of sale and
the rest after 20 days, including recoveries totaling to P40,000.
At the end of the year, a schedule of the receivable was provided
Age of the Receivables Percentage
35%
1 – 30 days
17.
a.
18.
a.
19.
31 – 60 days
25%
61 – 90 days
20%
91 – 120 days
10%
7%
121 – 150 days
over 150 days
3%
The accounts receivable balance at December 31, 2006 is
P1,275,000 b.
P1,315,000 c.
P1,415,000 d.
P1,554,000
The allowance for bad debts account balance prior to the preparation of the aging schedule is
P362,500 b.
P402,500 c.
P287,500 d.
P327,500
The amount of bad debts expense to be reported in the 2006 income statement is
Practical Accounting 2
Second Pre-Board Examination
a.
P362,500 b.
May 2007 Batch
Page 59
P468,422 c.
P256,578 d.
P221,578
20.
Only 2 adjustments appear in the adjustment column of worksheets for Rosalyn Company one to
record P150 depreciation of office equipment and; the other to record the use of P120 office supplies. If the
trial balance column totals are P7,290, what are the totals of the adjusted trial balance column?
a.
P7,560 b.
P7,440 c.
P7,410 d.
P7,290
21.
Rosalyn Supplies, Inc. lost most of its inventory in a fire in December just before the year-end
physical inventory was taken. Corporate records disclosed the following: beginning inventory, P1,207,000;
purchases, P3,600,000; purchase returns, P225,000; sales, P5,250,000; sales returns, P120,000. Rosalyn
Company’s markup on cost has averaged 25% during the past few years. Merchandise with a selling price of
P100,000 remained undamaged after the fire, and the damaged merchandise has a salvage value of P56,200.
Rosalyn Company does not carry fire insurance on its inventory. It is estimated that the year-end inventory
would have been subject to a normal 5% write-down for obsolescence.
The estimated fire loss incurred by Rosalyn Supplies is
a.
P302,900 b.
P341,800 c.
P324,710 d.
P321,900
22.
Rosalyn Company’s cash in bank balance as of May 31, 2006 included the following information:
Ending balance, May 31
P 38,280
Deposits made but not yet recorded by the bank
5,100
Checks written and mailed but not yet recorded by the bank
3,460
In comparing the cash records to the bank statement Rosalyn Company found the following:
Bank service charge for May
P 100
Interest paid by bank to Rosalyn for May
1,500
In addition, Rosalyn Company discovered that it had erroneously recorded a check for P1,450 that should
have been recorded for P1,540.
The correct cash balance at May 31 is
a.
P39,920 b.
P39,830 c.
P39,770 d.
P39,590
Use the following information for numbers 23 - 24
Rosalyn Company had the following information in relation to its inventory accounts in 2006
Increase in Raw materials:
P 14,000
Increase in Work in process: P 24,000
Decrease in Finished goods: P 33,500
Likewise the following costs & expenses were incurred in 2006
Raw materials purchased
P
Direct labor cost
Indirect factory labor
Taxes and depreciation on factory building
Taxes and depreciation on sales room and office
Freight-out
Freight-in
Sales salaries
Office salaries
Utilities (60% applicable to factory, 20% to sales room, and 20% to office)
23.
a.
Total manufacturing cost is
P255,000 b.
P251,000 c.
P283,000 d.
P240,000
24.
a.
Rosalyn Company’s cost of goods sold for the year is
P249,500 b.
P197,500 c.
P264,500 d.
P244,500
150,000
60,000
30,000
10,000
7,500
3,000
4,000
20,000
12,000
25,000
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 60
25.
On July 1, 2006, Rosalyn Company sold goods to Mike Company for P2,100,000. Rosalyn
Company received as payment a non-interest bearing note requiring payments of P300,000 annually for
seven years. The first payment was made on July 1, 2006. The prevailing rate of interest for a note of this
type at the time of issuance was 8%. If Rosalyn Company’s accountant reported the transaction as sales of
P2,100,000, the net income for 2006 would be overstated by
a.
P413,136 b.
P357,661 c.
P468,611 d.
P538,089
Use the following information for numbers 26 to 29
Rosalyn Corporation had 800 units of product MLR on hand on March 1, 2006 costing P20 each.
Purchases of product MLR during the month of March were as follows: March 10: 1,900 units @
P22; March 18: 2,300 units @ P25; March 28: 800 units @ P30.
Rosalyn Corporation sells its inventory at a mark up of 25% of cost. Sales for the month of March were
as follows: March 5, 600 units; March 12, 900 units; March 16, 700 units; March 22, 1,800 units; March
29
900 units.
26.
The amount to be reported as inventory in Rosalyn Company’s March 31, 2006 balance sheet
assuming that Moving-average cost flow method is applied is
a.
P24,066 b.
P21,616 c.
P21,825 d.
P21,708
27.
Assuming that Rosalyn Company is using the FIFO periodic cost flow method, the amount
included as inventory in its unadjusted trial balance as of March 31, 2006 is
a.
P24,000 b.
P18,200 c.
P26,500 d.
P16,000
28.
The cost of sales to be reported in the income statement for the month of March 2006 under the
FIFO perpetual cost flow method is
a.
P117,684 b.
P112,800 c.
P121,100 d.
P123,300
29.
Rosalyn Company as of December 31, 2006 provided the following balances:
Cash, net of a P5,000 overdraft
P 50,000
Trading securities, (fair value at December 31, 2006, P19,000)
16,000
Receivables, net of allowance for bad debts P2,000 and customer credit balances of P4,000
30,000
Inventory (P5,000 of which are held on consignment)
60,000
Prepayments, includes P2,000 of supplies already used up
10,000
Property, plant and equipment, net of accumulated depreciation
90,000
45,000
Accounts payable, (net of suppliers’ debit balance of P6,000)
Notes payable - bank, maturing annually at P50,000
Income tax payable
Stock dividends distributable
Net working capital is
a.
P25,000 b.
P27,000 c.
P22,000 d.
450,000
40,000
6,000
P19,000
30.
Rosalyn Corporation had the following bank reconciliation at September 30, 2007
Balance per bank statement, 9/30/07 P 46,500
Add: Deposit in Transit
10,300
Less: Outstanding checks
12,600
Balance per books, 9/30/07
P 44,200
Data per bank statement for the month of October 2007 follows:
Deposits
P 58,400
Disbursements
49,700
All reconciliation items at September 30, 2007, cleared through the bank in October. Outstanding
checks at October 31, 2007, totaled P7,500. The amount of cash disbursements per books in October
is.
a. P44,600 b. P49,700 c. P54,800 d. P57,200
31.
Rosalyn Publishing provides home delivery of day, evening and Sunday newspapers to subscriber
who lives in the suburbs. Customer may pay a yearly subscription fee in advance or pay monthly after
delivery of their newspapers. The following data are available for subscriptions receivable and unearned
subscriptions at the beginning and end of July 2007:
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 61
July 1
July 31
Subscriptions receivable P 190,000 P 230,000
Unearned subscriptions
570,000
490,000
The income statement shows subscriptions revenue for July of P1,120,000. The amount of cash
received from customers for subscriptions during July is.
a.
b. P1,160,000 c. P1,180,000 d.
P1,240,000
P1,000,000
32.
Rosalyn Corp. acquires patent rights from other enterprises and pays advance royalties in some case,
and in others, royalties are paid within 90 days after year end. The following data are included in Rosalyn
Corp December 31 balance sheet:
2006
2007
Prepaid royalties P 55,000 P 45,000
Royalties payable
80,000
75,000
During 2007 Rosalyn remitted royalties of P300,000. In its income statement for the year ended
December 31, 2007, Rosalyn Corp. should report royalty expense of
a. P330,000 b. P310,000 c. P305,000 d. P295,000
33.
Rosalyn Company, a publicly owned corporation was incorporated in January 1, 2004 and reported
the following net income for the past 3 years: 2004: P1,600,000; 2005: P1,900,000; 2006: P2,400,000
The following items were discovered in 2006 while preparing Rosalyn Company’s 2006 financial
statements
• Depreciation of P32,000 for 2006 on delivery trucks was not recorded
• The physical inventory count on December 31, 2005, improperly excluded merchandise costing
P190,000 that had been temporarily stored in a public warehouse
• The physical inventory count on December 31, 2006, improperly included merchandise being held
on consignment in the amount of P89,000
• An equipment was purchased on January 3, 2006, for P32,000 and was charged to Repairs and
Maintenance. The equipment has an estimated life of 8 years and no residual value. Rosalyn
Company uses the straight-line method for this type of equipment
• Rosalyn Company failed to accrue sales commissions payable at the end of each of the last 2 years
as follows: December 31, 2005, P40,000; December 31, 2006, P25,000
• Wages payable on December 31 have been consistently omitted from the records of that date and
have been entered as expenses when paid in the following year.
December 31, 2004: P 140,000 December 31, 2005: 160,000 December 31, 2006: 180,000
• Invoices for office supplies purchased have been charged to expense accounts when received.
Inventories of supplies on hand at the end of each year have been ignored, and no entry has been
made for them
December 31, 2004: P 13,000 December 31, 2005: 7,400 December 31, 2006: 14,200
The adjusted net income for 2006 is
a. P2,118,800 b. P2,116,200 c. P2,681,200 d. P1,989,200
34.
Rosalyn Corporation began operations in 2004. The company has been using the first-in, first-out
method in costing its raw materials. However, during 2006, Rosalyn decided to change to average costing
method. Inventory balances under each method were as follows:
Dec 31, 2004 Dec 31, 2005 Dec 31, 2006
FIFO
P490,000
P438,000
P 576,000
Average
465,000
374,000
482,000
In its 2006 financial statements, Rosalyn Company should report a cumulative effect of this accounting
change of
a. P25,000 b. P64,000 c. P89,000 d. P183,000
35.
Rosalyn Company on December 31, 2006 reported an inventory balance of P2,575,000 which was
based on a physical count conducted as of December 29, 2006. An analysis of the purchase records of
Rosalyn Company revealed the following information:
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 62
•
Goods costing P120,000 purchased fob shipping point were sent by the seller on December 30,
2006 and was received by Rosalyn Company on January 5, 2007.
• Goods costing P150,000 purchased fob destination were sent by the seller on December 27, 2006
and was received by Rosalyn Company on January 2, 2007.
• Goods costing P175,000 shipped to Rosalyn Company fob destination on December 28, 2007 and
was received on December 31, 2006.
• Goods costing P125,000 received on December 30, 2006 from Milady Company on consignment.
Rosalyn was to sell the goods at a mark-up of 25% of cost. 80% of the goods remained unsold at
December 31, 2006.
• Goods costing P130,000 and P125,000 were sent out on consignment to Mac Company on
December 28, 2006 and Myles Company on December 31, 2006 respectively. The goods remained
unsold at December 31, 2006.
The correct amount of inventory to be reported as of December 31, 2006 by Rosalyn Company is
a. P3,000,000 b. P2,875,000 c. P3,125,000 d. P2,825,000
PRACTICAL ACCOUNTING 1
1
2
3
4
5
6
D
D
B
A
C
B
11
12
13
14
15
16
B
B
A
B
D
B
21
22
23
24
25
26
D
D
A
C
B
A
7
C
17
B
27
D
8
D
18
D
28
B
9
D
19
C
29
B
10
B
20
B
30
A
31
32
33
34
35
D
C
A
B
A
Use the following information for numbers 1 - 4
On January 1, 2006, Heart & Soul Company acquired 150,000 of Downey Company’s P10 par value
ordinary shares which it classified as available-for-sale securities. Heart & Soul Company paid
P850,000 and issued 5,000 of its 8%, P100 par value preference shares. Heart & Soul Company’s
preference shares have no active market, thus, making its fair value not reliably determinable.
Downey Company which has 750,000 outstanding ordinary shares prior to its issuance to Heart &
Soul Company is currently quoted at P11.
Downey Company reported net income of P1,800,000 for 2006 and declared dividend of P2.25 per
share. At December 31, 2006, the Downey Company’s ordinary shares were quoted at P12.50.
In 2007, Downey Company, became the subject of a senate inquiry regarding the use of prohibited
materials. The market value of Downey Company slid down continuously and experts noted the
decline as permanent. Due to the continuous decline in market value and the ongoing
investigation by the government against Downey Company, management has considered its
investment as impaired. The last quote price for the Downey shares at December 31, 2007 was
P2.00.
1.
The investment income to be reported in Heart & Soul Company’s 2006 income statement
is
a. P360,000 b. P337,500 c. P300,000 d. P0
2.
The net unrealized gain (loss) to be reported in the December 31, 2006 balance sheet is
a. P0 b. P187,500 c. P262,500 d. P225,000
Practical Accounting 2
Second Pre-Board Examination
3.
May 2007 Batch
Page 63
The impairment loss recognized in Heart & Soul Company’s 2007 income statement is
a. P1,350,000 b. P1,425,000 c. P1,200,000 d. P1,312,500
4.
On January 1, 2006, Affair to Remember Company acquired 25,000 of the 100,000 ordinary
voting shares of Benning Company paying P4,000,000. Benning Company’s net assets amounted to
P15,000,000 at the time of acquisition. The carrying amount of Benning Company’s net assets
approximates its fair values, except for Land and Building which were both understated by
P800,000 and P600,000 respectively. Benning Company uses the straight-line method in recording
depreciation. Furthermore, the building still has an expected life of 10 years.
For 2006 Benning Company reported a net income of P2,200,000 and declared dividends of
P1,000,000.
The investment income reported in Affair to Remember Company’s 2006 income
statement is
a. P550,000 b. P435,000 c. P535,000 d. P635,000
5.
On July 1, 2006, Forrest Gump Company purchased a 2-year insurance policy and paid a
premium of P20,000. Forrest Gump Company has a December 31 yearend. Which of the following
statements about insurance expense or its related prepaid insurance account is true?
a.
Under the cash basis of accounting, insurance expense for the year ended December 31,
2006 will be P5,000.
b.
Under the accrual basis of accounting, there will be a balance of P10,000 in the prepaid
insurance account on December 31, 2006.
c.
Under the cash basis of accounting, there will be a balance of P15,000 in the prepaid
insurance account on December 31, 2006.
d.
Under the accrual basis of accounting, there will be a balance of P15,000 in the prepaid
insurance account on December 31, 2006
Use the following information for numbers 6 - 10
2006
On July 1, 2006, Ever After Company acquired all of Barrymore Company’s 50,000, 7% P100 par
value cumulative, non-participating preference shares and 200,000 of its P4 par value ordinary
voting shares which represents a 10% holding for a total consideration of P6,180,000. Ever After
Company classified the instruments as available-for-sale securities.
On August 1, 2006, Barrymore Company declared a dividend wherein 1 Barrymore Company
ordinary share shall be distributed for every 5 preference shares owned. Likewise, Barrymore
Company declared a 20% stock dividend to its ordinary shares.
2007
On July 1, 2007, Barrymore Company declared cash dividends to cover all dividends to both
ordinary and preference shares in which each ordinary share received P3 each. The dividends was
distributed to holders on record as of August 15, 2007 on September 30, 2007.
On August 1, 2007, Ever After Company sold 30% of its ordinary share investment in Barrymore
Company for a total consideration of P700,000. Ever After Company uses the average cost
method in determining the attributable cost to each share.
Additional information in relation to Barrymore Company’s net income and quoted market values
of its ordinary and preference shares are as follows:
2007
2006
Practical Accounting 2
Second Pre-Board Examination
Net Income
May 2007 Batch
Page 64
P6,500,000 P5,800,000
Preference shares Ordinary shares
2006
2007
July 1
August 1
December 31
1.
Preference shares Ordinary shares
P102
99
97
P5.40
5.00
4.80
July 1
August 1
December 31
94
95
98
5.30
6.00
5.10
The investment income to be reported in Ever After Company’s 2006 income statement is
a. P0 b. P51,000 c. P50,000 d. P250,000
2.
The net unrealized gain (loss) included in the equity section of Ever After Company’s
December 31, 2006 balance sheet is
a. P150,000 b. (P130,000) c. (P181,000) d. (P208,600)
3.
The amount reported as investment income- (dividends) for 2007 is
a. P875,000 b. P1,050,000 c. P1,450,000 d. P1,225,000
4.
Gain or loss on the sale of the stocks in 2007.
a. P115,000 b. P135,700 c. P360,700 d. P376,000
5.
The net unrealized gain/loss included in the equity section of Ever After Company’s
December 31, 2007 balance sheet is
a. P48,200 unrealized loss c. P178,200 unrealized loss
b. P81,800 unrealized gain d. P 29,300 unrealized gain
Use the following information for numbers 11 – 16
On January 1, 2006, Braveheart Company purchased 2,000 units of Gibson Company’s 8%, P1,000
par value debt instruments paying interest semi-annually every June 30 and December 31. The
debt instruments have a maturity date of January 1, 2011. The purchase price of the securities was
based on a yield of 12% which was the prevailing rate of interest in the market.
On July 1, 2007, Braveheart Company sold ½ of its Investment in Gibson Company’s debt
instruments for 1,120,000.
On January 1, 2008, Braveheart Company decided to reclassify its remaining available-for-sale
portfolio into held-to-maturity securities.
The prevailing interest rates that determine the market value of the debt securities are as follows:
Date
Interest rates
January 1, 2006
12%
December 31, 2006
9%
December 31, 2007
7%
1.
The amount initially recorded under Available-for-sale securities (debt securities) is
a. P1,423,236 b. P1,693,564 c. P1,705,608 d. P1,716,618
2.
is
The interest income to be included in the 2006 income statement of Braveheart Company
a. P204,673 b. P206,013 c. P205,994 d. P224,810
3.
The net unrealized gain(loss) to be reported in Braveheart Company’s December 31, 2006
balance sheet is
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 65
a. P182,451 b. P228,464 c. (P65,928) d. P169,252
4.
The gain or loss arising from the sale of the available-for-sale securities in 2007
a. P244,189 b. P267,196 c. P231,641 d. P218,339
5.
The total interest income in 2007 is
a. P211,700 b. P158,399 c. P130,709 d. P105,097
6.
The net unrealized gain (loss) related to AFS to be transferred to net unrealized gain (loss)
related to HTM is
a. P124,983 b. P138,285 c. P19,610 d. P0
Use the following information for numbers 17 -20
Cameron & Julia (C&J) Company started operation in February of 2006 and purchased the
following securities:
Trading Securities Portfolio
Shrek Company
About Mary Company
Fair value
P 4,800,000
5,200,000
3,800,000
Charlie’s Angels Company
Available-for-sale Portfolio
Fair value
Runaway Bride Company P 6,100,000
Pretty Woman
5,450,000
Notting Hill Company
3,750,000
No disposals were made during 2006. The fair values of the investment securities as of December
31, 2006 are as follows:
Trading Securities Portfolio
Shrek Company
About Mary Company
Fair value
P 4,760,000
5,200,000
3,740,000
Charlie’s Angels Company
Available-for-sale Portfolio
Fair value
Runaway Bride Company P 6,140,000
Pretty Woman
5,475,000
Notting Hill Company
3,742,000
During 2007, C&J Company sold its About Mary Company securities for P5,180,000 and its
Charlie’s Angel Company shares for P3,840,000. By mid-September, C&J Company exchanged its
Pretty Woman Company portfolio for a piece of land. The carrying amount of the land was
P3,875,000 and a zonal value of P5,555,000. At the time of exchange, the Pretty Woman Company
shares, which was publicly listed, has a fair value of P5,595,000. At the end of November C&J
Company acquired several shares of Best Friends Company for P2,100,000 which it classifies as
part of its trading securities
The fair values of the investment securities as of December 31, 2007 are as follows:
Trading Securities Portfolio
Fair value
Shrek Company
P 4,765,000
Best Friends Company
2,140,000
7.
Available-for-sale Portfolio
Fair value
Runaway Bride Company P 6,160,000
Notting Hill Company
3,735,000
The net unrealized gain/loss included C&J Company’s December 31, 2006 balance sheet is
a. P43,000 loss
b. P100,000 loss c. P57,000 gain d. P65,000 gain
8.
The gain or loss from the exchange of assets in 2007 included in C&J Company’s income
statement
a. P145,000 gain b. P120,000 gain c. P105,000 gain d. P0
9.
The gain or loss arising from the sale of the trading securities is
a. loss of P80,000 b. loss of P20,000 c. gain of P20,000 d. gain of P80,000
10.
The net unrealized gain reported in C&J Company’s December 31, 2007 balance sheet is
a. gain of P90,000 b. gain of P58,000 c. gain of P45,000 d. gain of P13,000
Practical Accounting 2
Second Pre-Board Examination
1.
May 2007 Batch
Page 66
The raw materials inventory account of Stallone Company at December 31, 2007 consist of
50,000 units of Rocky each costing P22. As of December 31, 2007, the market price of the
Rocky Company was only P19 each. The additional cost per unit manufacture the product is
P12. The finished product has an estimated selling price of P39 with an estimated disposal cost
of P2 per unit.
The amount of inventory write-down to be reported as part of expenses in 2007 is
a. P 0 b. P150,000 c. P50,000 d. P300,000
2.
Minority Report Company lost most of its inventory in a fire in December 2007 just before
the year-end physical inventory was taken. The company’s books disclosed the following:
Purchases for the year
P 390,000
Sales P650,000
Purchase returns
30,000 Sales returns 24,000
Merchandise with a selling price of P21,000 remain undamaged after the fire. Damaged
merchandise with an original selling price of P15,000 had a net realizable value of P5,300.
A partial comparative income statements for 2006 and 2005 also disclosed the following:
2006. 2005
Sales 500,000
560,000
Cost of goods sold
Inventory, January 1 94,500 110,000
Purchases (net)
378,000
317,700
Available for sale
472,500
427,700
Inventory, December 31
(170,000)
(94,500)
Cost of goods sold
302,500
333,200
Gross profit 197,500
226,800
Using the average gross profit rate for the past two years, Minority Report company’s loss as a
result of the fire is
a. P136,500
b. P132,800
c. P61,000
d. P57,300
3.
On January 1, 2007, Always Company sold a machine in exchange for a non-interest
bearing note requiring eight payments of P20,000. The first P20,000 was received on January 1,
2007 and the others are due annually on December 31 starting December 31, 2007. At date of
issuance, the prevailing rate of interest for this type of note was 10%. Present value factors are as
follows:
Annuity due of 1 at 10% for 8 periods
5.868
Ordinary annuity of 1 at 10% for 7 periods 4.868
PV of 1 at 10% for 8 periods 0.466
PV of 1 at 10% for 7 periods 0.513
The current portion of the note receivable to be reported in Always Company’s December 31,
2007 balance sheet is
a. P12,544
b. P11,290
c. P10,264
d. P8,264
4.
The following information relates to Armageddon Company’s accounts receivable for 2007:
Accounts receivable, 1/1/07 P 650,000
Credit sales for 2007 2,700,000
Sales returns for 2007 75,000
Accounts written off during 2007
40,000
Collections from customers during 2007
2,150,000
Allowance for doubtful accounts 1/1/07
90,000
The net realizable value of accounts receivable at December 31, 2007 amounted to
P975,000.
The uncollectible accounts expense of Armageddon Company for 2007 is
a. P20,000
b. 50,000
c. P60,000
d. P70,000
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 67
5.
The following information is taken from the December 31, 2007 trial balance of Wild Things
Company, a flower shop owned by Reese, which maintained its books on the cash basis during the
year.
Debits:
Cash, P25,600; Accounts receivable, 12/31/06, P16,200; Inventory, 12/31/06, P62,000;
Furniture and fixtures, P118,200; Land improvements, P45,000; loan drawing, P0; Purchases,
P305,100; Salaries, P174,000; Payroll taxes, P12,400; Insurance, P8,700; Rent, P34,200;
Utilities, P12,600; Living expenses, P13,000
Credits:
Accumulated depreciation, 12/31/06, P32,400; Accounts payable, 12/31/06, P17,000; Reese
capital, 12/31/06, P124,600; Sales, P653,000.
Reese has developed plans to expand into the wholesale flower market and is in the process of
negotiating a bank loan to finance the expansion but the bank is requesting the 2007 financial
statements prepared on the accrual basis. During the course of a review engagement, the
accountant obtained the following information:
• Amounts due from customers totalled P32,000 at December 31, 2007. An analysis of these
receivables revealed that an allowance for uncollectible accounts of P3,800 should be
provided.
• Unpaid invoices for flower purchases totalled P30,500 at December 31, 2007.
• The inventory totalled P72,800 based on a physical count of the goods at December 31,
2007.
• On May 1, 2007, Reese paid P8,700 to renew its comprehensive insurance coverage for one
year. The premium on the previous policy, which expired on April 30, 2007 was P7,800.
• Depreciation on furniture and fixtures was P12,000 for 2007.
• Accrued expenses were as follows: Utilities, P900 at December 31, 2006 and P1,500 at
December 31, 2007; Payroll taxes, P1,100 at December 31, 2006 and P1,600 at December
31, 2007.
• The salaries account includes P4,000 per month paid to the proprietor. Reese also receives
P250 per week for living expenses.
In its 2007 income statement prepared on the accrual basis, Wild Things Company would
report purchases of
a. P318,600
b. P307,800
c. P291,600
d. P280,800
1.
Independence Day Company sells one product which it purchases from various suppliers.
The trial balance at December 31, 2007, included the following accounts: Sales (33,000 units
@ P16), P528,000; Sales discounts, P7,500; Purchases, P368,900; Purchase discounts, P18,000;
Freight-in, P5,000; Freight-out, P11,000.
Independence Day Company’s inventory purchases during 2007 were as follows:
Units Unit Cost
Total Cost
Purchases, quarter ended March 31 12,000 P8.25 P 99,000
Purchases, quarter ended June 30 15,000 7.90 118,500
Purchases, quarter ended September 30
13,000 7.50 97,500
Purchases, quarter ended December 31
7,000 7.70
53,900
47,000
P368,900
Independence Day Company’s inventory at January 1, 2007 consisted of 8,000 units purchased
for P65,600. Independence Day Company uses the FIFO method of inventory costing.
Independence Day Company’s cost of goods sold for the year ended December 31, 2007 is
a. P315,100
b. P267,300
c. P262,500
d. P254,300
2.
The accountant of Spanglish Corp. has just completed the bank reconciliation schedule at
June 30, 2007 which included the following information: unadjusted balance per bank statement,
P288,500; bank charge for printing checkbook, P1,650; outstanding checks, P38,000; check #522
for P1,200 incorrectly entered in the cash payments journal as P2,100; interest on the deposit
placement with the bank automatically credited to the company’s account, P20,000; adjusted cash
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 68
balance per books, P302,500. There were no other missing elements in the bank reconciliation
except the deposits in transit. The amount of deposits in transit must be
a. P57,250
b. P52,000
c. P33,250
d. P32,350
3.
John Q. manufactures desks. Most of the company’s desks are standard models and are
sold on the basis of catalog prices. At December 31, 2007, the following per unit data are available
relating to the company’s inventory of finished desks:
2007 catalog selling price
P 480
FIFO cost per inventory list, 12/31/07
450
Estimated cost to manufacture (at 12/31/07 and early 2008)
440
Sales commissions and estimated other costs of disposal 60,000
2007 catalog selling price
540
The 2007 catalog was in effect through November 2007 and 2008 catalog is effective as of
December 1, 2007. All catalog prices are net of the usual discounts. Generally, the company
attempts to obtain gross margin on selling price of 20% and has usually been successful in doing
so. There are 2,100 desks at December 31, 2007.
The December 31, 2007 inventory should be reported at
a. P882,000
b. P924,000
c. P945,000
d. P1,008,000
1.
On January 1, 2007, Ice Age Corp entered into a 4-year licensing agreement with Big Daddy
Corp. allowing Big Daddy to use Ice Age’s cartoon characters on all the lunchboxes that Big
Daddy manufactures. Big Daddy is required to pay Ice Age royalties equal to 10% of annual
lunchbox sales. Big Daddy guaranteed Ice Age a P120,000 minimum royalty over the life of the
agreement and paid Ice Age the minimum amount on January 1, 2007. For the year ended
December 31, 2007, Big Daddy’s lunchbox sales totalled P500,000. Ice Age should report in its
2007 income statement royalty revenue of
a. P30,000
b. P50,000
c. P80,000
d. P120,000
2.
Manhattan Corp. uses the average retail inventory method to estimate ending inventory
for its monthly financial statements. In the past, Manhattan has had a stable cost-to-retail
relationship for its inventory due to buying only from one supplier and marking up the goods by a
fixed percentage. Because of lack of competition, Manhattan has not previously needed to mark
down any of its goods. During 2007, however, two department store chains have opened which
provided intense competition and Manhattan has found itself buying products from a variety of
manufacturers with lower costs, reducing markup on many of its goods and marking down various
items of inventory. The following data pertain to a single department of Manhattan for March
2007: Inventory, March 1: at cost – P200,000, at retail – P300,000; purchases: at cost –
P1,001,510, at retail – P1,464,950; freight-in – P45,400; purchase returns: at cost – P21,000, at
retail – P28,000; additional markups – P25,000; markup cancellations – P2,650; net markdowns –
P8,000; normal spoilage and breakage – P36,000; sales – P1,347,300.
The cost of the March 31 inventory is
a. P289,380
b. P282,800
c. P265,055
d. P257,600
3.
Happy Feet Corp. is in the process of adjusting and correcting its books at the end of 2007.
A review of the records revealed the following:
• Adidas failed to accrue salaries expense of P25,000 at the end of 2006 and P40,000 at the
end of 2007.
• Happy Feet discovered errors in its inventory-taking procedures that have caused
inventories for the last 2 years to be incorrect as follows: December 31, 2005 –
understated by P120,000; December 31, 2006 – overstated by P175,000.
• Depreciation expense of P90,000 on a newly acquired equipment in 2007 was overlooked.
The retained earnings account had a balance P1,135,000 at January 1, 2007. Net income for
2007 before correcting the errors was P740,000. The adjusted net income for 2007 is
a P.840,000
b. P825,000
c. P810,000
d. 785,000
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 69
4.
Sweet November Corporation purchased a machine in January 2002 for P600,000. The
machine was being depreciated on the straight-line method over an estimated useful life of 10
years, with no salvage value. At the beginning of 2007, the company paid P196,000 to overhaul
the machine. As a result of this improvement, the company estimated that the useful life of the
machine would be extended an additional 3 years.
The depreciation expense for 2007 should be
a. P62,000
b. P61,230
c. P60,000
d. P37,500
1.
Original Sin Corp. acquired in 2007 land with an old building for a lump sum price of P12
million. The following additional costs were incurred: accrued property tax on the properties,
P180,000; legal fees for transfer of title, P360,000; land survey, P150,000; cost of razing old
building, P400,000;
1.
assessment by government for street improvements, P120,000; construction cost of new
building, P36,500,000. Materials salvaged from the old building were sold for P30,000.
Interest on construction loan incurred during construction period amounted to P100,000.
Original Sin Corp. also paid a one-year fire insurance premium for the new building of
P165,000.
The cost of land is
a. P12,520,000
P13,210,000
b. P13,060,000
c. P13,180,000
d.
2.
Bodyguard Corp. has been in its plant facility for 15 years. The plant assets’ book value is
currently P10,800,000. During 2007, various expenditures were made to the plant facility. The
entire plant was repainted at a cost of P385,000. Because of increased demands for its product,
the company increased its plant capacity by building a new addition for P6,750,000. The roof was
asbestos cement slate; for safety purposes it was removed and replaced with a wood shingle roof
at a cost of P1,200,000. The electrical system was completely updated at a cost of P845,000. It is
estimated that the useful life of the building will not change as a result of this updating. A series of
major repairs were made at a cost of P1,125,000, because parts of the wood structure were
rotting. These extensive repairs are estimated to increase the useful life of the building.
The amount that should be charged to expense in 2007 is
a. P2,355,000
b. P1,230,000
c. P1, 125,000
d. P385,000
Use the following information for numbers 35 -37
In 2003, Indiana Jones Company, as a result of its acquisition of 30% in Ford Company’s voting
ordinary shares has gained significant influence over Ford Company’s financial and operational
decisions. There were no fair value-book value differences at the time of the acquisition.
Furthermore, the acquisition cost of P750,000 did not include any amount for goodwill. Ford
Company’s capital structure includes 10,000, P50, 8% cumulative preference shares which
were outstanding since 2000, Ford Company’s inception year.
At the start of 2006, the carrying value of the Investment in Ford Company (associate entity) was
P1,800,000. Ford Company reported a net income of P2,000,000. No dividends were declared.
This was the first time that Ford Company did not declare any dividends since its inception.
Due to the global-wide economic crisis and unfortunate events resulting into heavy damages of
Ford Company’s facilities, it reported net losses of P6,000,000 and P3,200,000 in 2007 and 2008
respectively.
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 70
Fortunately in 2009, Ford Company has overcome the economic slump and has reported a net
income of P1,650,000.
3.
Investment income to be reported in Indiana Jones Company’s 2006 income statement
a. P600,000 b. P588,000 c. P576,000 d. P 0
4.
Investment loss included in the 2008 income statement is
a. P972,000 b. P576,000 c. P588,000 d. P600,000
5.
Investment income included in the 2009 income statement is
a. P495,000 b. P483,000 c. P135,000 d. P87,000
MANAGEMENT SERVICES
SECOND PRE-BOARD EXAMS
OCTOBER 2007 BATCH
AUG 18, 2007 (Sat) 12:30-3:00
INSTRUCTIONS: Select the correct answer for each of the following questions. Mark only one answer for
each item by writing a VERTICAL LINE corresponding to the letter of your choice on the answer sheet
provided. STRICTLY NO ERASURES ALLOWED. Use Pencil No. 1 or No. 2 only.
In most cases, businesses hire management consultants to do the following except:
Help define specific problems and develop solutions
Train client personnel
Help improve intra-company communications
Implement recommendations
Periodic internal performance reports based upon a responsibility accounting system should not
Distinguish between controllable and uncontrollable costs
Be related to the organization chart
Include allocated fixed overhead in determining performance evaluation
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 71
Include variances between actual and budgeted controllable costs
. A company develops a budget that is based on the behavior of costs and revenues over a range of sales
for the upcoming year. This is an example of a
a. Production budget b.
Cash budget c.
Capital budget d.
Flexible budget
4.The sum of the costs necessary to effect a one-unit increase in the activity level is a (N)
a. Margin of safety c.
b. Opportunity cost d.
Marginal cost
Incremental cost
5.When an organization is operating above the breakeven point, the degree of amount that sales may
decline before losses are incurred is called the
a. Residual income rate c.
Margin of safety
b. Marginal rate of return d.
Target (Hurdle) Rate of return
??.
Residual income is a performance evaluation that is used in conjunction with return on investment
(ROI) or instead of ROI. In many cases, residual income is preferred over ROI because.
Residual income is a measure over time while ROI represents the results for a single time period.
Residual income concentrates on maximizing absolute pesos of income rather than a
percentage return as with ROI.
The imputed interest rate used in calculating residual income is more easily derived than the target rate that
is compared to the calculated ROI.
Average investment is employed with residual income while year-end investment is employed with ROI.
??.
The responsibility for safeguarding financial assets and arranging financing is given to the
a. Controller c. Comptroller
b. Chief financial officer d. Treasurer
??.
Of most relevance in deciding how or which costs should be assigned to a responsibility center is the
degree of
a. Avoidability b.
??.
Causality c.
Controllability d.
Variability
A company’s return on investment is affected by a change in:
Capital TurnoverProfit
Margin on SalesCapital
TurnoverProfit Margin
on Salesa.
Yes
Yesc.
No
Nob.
Yes
No d.
No
Yes
a.
b.
Yes
Yesc.
No
Nob.
Yes
No d.
No
Yes
Yes
No d.
Profit Margin on
SalesCapital
TurnoverProfit Margin
on Salesa.
Yes
Yesc.
No
Nob.
Yes
No d.
No
Yes
No
Yesc.
Yes
No d.
Yes
Nob.
No
c.
No
No d.
No
Capital TurnoverProfit
Margin on Salesa.
Yes
Yesc.
No
Nob.
Yes
No d.
No
Yes
Nob.
Yes
d.
Yes
No
Yes
No d.
No
No
Yes
Profit Margin on
Salesa.
Yes
Yesc.
No
Nob.
Yes
No d.
No
Yes
Nob.
Yes
No d.
No
Yes
Yes
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 72
Yes
*** Items 10 through 12 are based on the Metropolis Manufacturing Corp, which produces two products for
which the following data have been tabulated. Fixed manufacturing costs is applied at a rate of P 1.00
per machine hour.
Per unit XY-7 BD-4
Selling price P 4.00 P 3.00
Variable manufacturing cost 2.00
Fixed manufacturing cost P .75 P
Variable selling cost P 1.00 P 1.00
1.50
.20
The sales manager has had a P 160,000 increase in the budget allotment for advertising and wants to apply
the money to the most profitable product. The products are not substitutes for one another in the eyes
of the company’s customers.
Suppose the sales manager chooses to devote the entire P 160,000 to increased advertising for XY7. The minimum increase in sales unit of XY-Z required to offset the increased advertising would be
a. 640,000 units b.
160,000 units c.
80,000 units d.
128,000 units
Suppose the sales manager chooses to devote the entire P 160,000 to increased advertising for BD4. The minimum increase in sales pesos of BD-4 required to offset the increased advertising would be
a. P 160,000 b. P 320,000 c.
P 960,000 d.
P 1,600,000
Suppose Metropolis has only 100,000 machine hours that can be made available to produce XY-Z
and BD-4. If the potential increase in sales units for either product resulting from advertising is far in excess
of these production capabilities, which product should be advertised and what is the estimated increase in
contribution margin earned?
Product XY-Z should be produced, yielding a contribution margin of P 75,000.
Product XY-Z should be produced, yielding a contribution margin of P 133,333.
Product BD-4 should be produced, yielding a contribution margin of P 250,000.
Product BD-4 should be produced, yielding a contribution margin of P 187,500.
*** Items 13 through 20 are based on the following information: Carmela Industries, Inc. operates its
production department only when orders are received for one or both of its two products, two sizes of
metal discs. The manufacturing process begins with the cutting of doughnut-shaped rings from
rectangular strips of sheet metal; these rings are then pressed into discs. The sheets of metal, each 4
feet long and weighing 32 ounces, are purchased at P 1.36 per running foot. The department has been
operating at a loss for the past year as shown below.
Sales for the year P 172,000
Less: Expenses 177,200
Net loss for the department P
5,200
The following information is available:
Ten thousand 4-foot pieces of metal yielded 40,000 large discs, each weighing 4 ounces and selling for
P2.90 and 40,000 small discs, each weighing 2.4 ounces and selling for P1.40.
The corporation has been producing at less than normal capacity and has had no spoilage in the cutting
steps of the process. The skeletons remaining after the rings have been cut are sold for scrap at P .80
per pound.
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 73
The variable conversion cost of each large disc is 80% of the disc’s direct material cost, and variable
conversion cost of each small disc is 75% of the disc’s direct material cost. Variable conversion costs are
the sum of direct labor and variable overhead.
Fixed costs were P 86,000.
The material net cost per ounce is
a. P .20 b.
P .16 c.
P .17 d.
P .18
The prorated materials costs per unit for the large and small discs, respectively, are
a. P.64 and P 3.8 b.
P .80 and P.48 c.
P .68 and P .40 d.
P.72 and P.43
The net cost of good material per metal strip is
a. P5.76 b.
P 6.40 c.
P 5.12 d.
P 5.44
The amounts allocated for conversion cost for the large and small discs, respectively, are
a.
P.38 and P3.6 b.
P .64 and P.36 c.
P.23 and P.13 d. P .46 and P .23
Total variable costs per unit for the large and small discs, respectively, are
a. P1.02 and P .86 b.
P1.44 and P .84 c.
P.91 and P.53 d.
P1.18 and P .66
Contribution margins per unit for the large and small discs, respectively, are
a. P1.88 and P .54 b.
P1.46 and P.56 c.
P 1.99 and P .87 d.
P 1.72 and P .74
If the materials cost for large and small discs is P.85 and P .51, respectively, and the normal
production capacity is 50,000 units, what is the breakeven point?
a.
45,806 b.
43,608 c.
39,908 d.
41,206
Refer to the data preceding Q, 13. The total contribution margins for the large and small discs,
respectively, are:
a.
b.
P 68,800 and P 29,600 c.
P 79,600 and P 34,800 d.
P 58,400 and P 22,400
P 75,200 and P 21,600
*** Items 21 and 22 are based on the Bradd Corp. which plans to sell 200,000 units of finished product in
July and anticipates a growth rate in sales of 5% per month. The desired monthly ending inventory in
units of finished product is 80% of the next month’s estimated sales. There are 150,000 finished units in
the inventory on June 30. Each unit of finished product requires 4 pounds of direct materials at a cost
of P1.20 per pound. There are 800,000 pounds of direct materials in the inventory on June 30.
Bradd’s production requirement in units of finished product for the 3-month period ending
September 30 is
a. P 712,025 units b.
P 630,000 units c.
P 664,000 units d.
P 665,720 units
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 74
Without prejudice to the answer to the preceding question, assume Bradd plans to produce 600,000
units of finished product in the 3-month period ending September 30, and to have direct materials inventory
on hand at the end of the 3-month period equal to 25% of the use in that period. The estimated cost of
direct materials purchases for the 3-month period ending September 30 is
a. P 2,200,000 b.
P 2,400,000 c.
P 2,640,000 d.
P 2,880,000
*** Items 23 and 24 are based on the following information. Historically, Power Hill Products has had no
significant bad debt experience with its customers. Cash sales have accounted for 10% of total sales,
and payments for credit sales have been received as follows.
40% of credit sales in the month of the sale
30% of credit sales in the first subsequent month
25% of credit sales in the second subsequent month
5% of credit sales in the third subsequent month
The forecast for both cash and credit sales is as follows:
Month SalesJanuaryP 95,000February
65,000March 70,000April 80,000May
85,000
JanuaryP 95,000February 65,000March
70,000April 80,000May 85,000
February 65,000March 70,000April
80,000May 85,000
March 70,000April 80,000May 85,000
April 80,000May 85,000
May 85,000
SalesJanuaryP 95,000February
65,000March 70,000April 80,000May
85,000
P 95,000February 65,000March
70,000April 80,000May 85,000
65,000March 70,000April 80,000May
85,000
70,000April 80,000May 85,000
80,000May 85,000
85,000
What is the forecasted cash inflow for the Power Hill Products for May?
a. P 70,875 b.
P 76,500 c.
P 79,375 d.
P 83,650
Due to deteriorating economic conditions Power Hill Products has now decided that its cash forecast
should include a bad debt adjustment of 2% of credit sales, beginning with sales for the month of April.
Because of this policy change, the total expected cash inflow related to sales made in April will
a. Be unchanged c.
Decrease by P 1,440.00
b.
Decrease by P 1,260.00 d.
Decrease by P 1,530,00
Each unit of Product XK-46 requires 3 direct labor hours. Employee benefit costs are treated as
direct labor costs. Data on direct labor are as follows:
Number of direct employees 25
Weekly productive hours per employee 35
Estimated weekly wages per employee P 245
Employee benefits (related to weekly wages) 25%
The standard direct labor cost per unit of Product XK-46 is
a. P 21.00 b. P 26.25 c. P 29.40 d. P 36.75
*** Items 26 through 30 are based on the following information. Landmark Manufacturing Corp. has a
process accounting system. A monthly analysis compares actual results with both a monthly plan and a
flexible budget. Standard direct labor rates used in the flexible budget are established at the time the
annual plan is formulated and held constant for the entire year.
Standard direct labor rates in effect for the fiscal year ending June 30 and standard hours allowed for the
output in April are:
Standard DL Rate per
HourStandard DLH
Allowed for
OutputLabor Class
III
P 8.00
500Labor Class II
P 7.00
Standard DL Rate per
HourStandard DLH Allowed for
OutputLabor Class III
P 8.00
500Labor
Class II
P 7.00
500Labor Class I
P 5.00
500
Standard DLH Allowed for
OutputLabor Class III
P 8.00
500Labor Class II
P 7.00
500Labor Class I
P 5.00
500
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 75
500Labor
Class I
P
5.00
500
Labor Class III
P 8.00
500Labor Class II
P 7.00
500Labor
Class I
P
5.00
500
Labor Class II
P
7.00
500Labor Class I
P 5.00
500
Labor Class I
P
5.00
500
P 8.00
500Labor Class II
P
7.00
500Labor
Class I
P 5.00
500
500Labor Class
II
P 7.00
500Labor Class I
P 5.00
500
P 7.00
500Labor Class I
5.00
500
I
P 5.00
P
500Labor Class
P 5.00
500
500
500
The wage rates for each labor class increased on January 1 under the terms of a new union contract
negotiated in December of the previous fiscal year. The standard wage rates were not revised to reflect
the new contract.
The actual direct labor hours (DLH) worked and the actual direct labor rates per hour experienced for the
month of April were as follows:
Actual Direct Labor Rate
per hourActual
Direct Labor
hoursLabor Class
III P 8.50550Labor
Class IIP
750650Labor Class
I`P 5.40375
Labor Class III P
8.50550Labor Class
IIP 750650Labor
Class I`P 5.40375
Labor Class IIP
750650Labor Class
I`P 5.40375
Labor Class I`P 5.40375
Actual Direct Labor Rate per
hourActual Direct Labor
hoursLabor Class III P
8.50550Labor Class IIP
750650Labor Class I`P 5.40375
Actual Direct Labor
hoursLabor Class III P
8.50550Labor Class IIP
750650Labor Class I`P
5.40375
P 8.50550Labor Class IIP
750650Labor Class I`P 5.40375
550Labor Class IIP
750650Labor Class I`P
5.40375
P 750650Labor Class I`P 5.40375
650Labor Class I`P 5.40375
P 5.40375
375
What is the total direct labor variance?
a. P 1,575 unfavorable b.
P 750 unfavorable c.
P 325 unfavorable d.
The direct labor rate variance is
a. P 750 U b.
P 825 U c.
P 750 F d.
P 825 F
The direct labor efficiency variance is
a. P 750 U b.
P 625 F c.
P 600 U d.
P 825 U
What is the labor yield variance for Landmark in Aprl?
a. P 500 b.
P 750 c.
P 825.50 d.
P 1,500
What is the labor mix variance for Landmark in April?
a. P 50.00 b.
P 325.00 c.
P 66.67 d.
P 180.00
P 500 unfavorable
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 76
*** Items 31 and 32 are based on the following information. Booz Inc., a manufacturers of a portable
radios, purchases the components from subcontractors to use to assemble into a complete radio. Each
radio requires three units each of Part XBEZ52, which has a standard cost of P 1.45 per unit. During May
2007, Booz experienced the following with respect to Part ZBEZ52.
Units
Purchases (P 18,000) 12,000
Consumed in manufacturing 10,000
Radios manufactured
3,000
During May 2007, Booz Inc. incurred a purchase price variance of
a. P 450 unfavorable b.
P 450 favorable c.
P 500 favorable d.
P 600 unfavorable
During May 2007, Booz Inc. incurred a materials efficiency variance.
a. P 1,450 unfavorable b.
P 1,450 favorable c.
P 4,350 unfavorable d.
P 4,350 favorable
*** Items33 through 37 are based on the following information. Wallmart Inc., manufactures water
pumps and uses a standard cost system. The standard factory overhead costs per water pump are
based on direct labor hours and are as follows:
Variable overhead (4 hours at P 8/hour) P 32
Fixed overhead (4 hours at P 5 hour) 20
Total overhead cost per unit P 52
* Based on a capacity of 100,000 direct labor hours per month.
The following additional information is available for the month of November.
22,000 pumps were produced although 25,000 had been scheduled for producton.
94,000 direct labor hours were worked at a total cost of P 940,000.
The standard direct labor rate is P9 per hour.
The standard direct labor time per unit is 4 hours.
Variable overhead costs were 740,000
Fixed overhead costs were P 540,000.
.
The fixed overhead spending variance for November was
a. P 40,000 unfavorable c. P 460,000 unfavorable
b.
P 70,000 unfavorable d. P 240,000 unfavorable
??.
The variable overhead spending variance for November was
a. P 60,000 favorable c.
b. P 12,000 favorable d.
??.
P 48,000 unfavorable
P 40,000 unfavorable
The variable overhead efficiency variance for November was
a. P 48,000 unfavorable c. P 96,000 unfavorable
b. P 60,000 favorable d. P 200,000 unfavorable
??.
The direct labor price variance for November was
a. P 54,000 unfavorable c.
b. P 94,000 unfavorable d.
??.
P 60,000 favorable
P 148,000 unfavorable
The direct labor efficiency variance for November was
a. P 108,000 favorable c.
b. P 120,000 favorable d.
P 60,000 favorable
P 54,000 favorable
Ɛ
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 77
??.
Hilton Corp. invested in a 2-year project having an internal rate of return of 12% (IRR = 12%). The
project is expected to produce cash flow from operations, net of income taxes, of P 60,000 in the first year
and
P 70,000 in the second year. The present value of P 1 for one period at 12% is 0.893 and for
two periods at 12% is 0.797. How much will the project cost?
a. P 103,610 b.
P 109,370 c.
P 116,090 d.
P 122,510
??.
On January 1, a company invested in an asset with a useful life of 3 years. The company’s expected
rate of return is 10%. The cash flow and present and future value factors for the 3 years are as follows:
YearCash Inflow from the
AssetPresent Value
of P 1 at 10%Future
Value of P 1 at
10%1
P
8,000
.91
1.102
P
9,000
.83
1.213
P10,000
.75
1.33
1
P 8,000
.91
1.102
P
9,000
.83
1.213
P10,000
.75
1.33
2
3
P 9,000
.83
1.213
P10,000
.75
1.33
P10,000
.75
1.33
Cash Inflow from the
AssetPresent Value
of P 1 at 10%Future
Value of P 1 at
10%1
P
8,000
.91
1.102
P
9,000
.83
1.213
P10,000
.75
1.33
P 8,000
.91
1.102
P
9,000
.83
1.213
P10,000
.75
1.33
P 9,000
.83
1.213
P10,000
.75
1.33
P10,000
.75
1.33
Present Value of P 1
at 10%Future
Value of P 1 at
10%1
P
8,000
.91
1.102
P
9,000
.83
1.213
P10,000
.75
1.33
.91
1.102
P 9,000
.83
1.213
P10,000
.75
1.33
Future Value of P
1 at 10%1
P 8,000
.91
1.102
P 9,000
.83
1.213
P10,000
.75
1.33
1.102
P 9,000
.83
1.213
P10,000
.75
1.33
.83
1.213
P10,000
.75
1.33
.75
1.33
1.213
P10,000
1.33
.75
1.33
All cash inflows are assumed to occur at year-end. If the asset generates a positive net present value of P
2,000, what was the amount of the original investment?
a. P20,250 b. P22,250 c. P 30,991 d. P 33,991
??
Emerald company is planning to spend P 84,000 for a new machine, to be depreciated on the
straight-line basis over 10 years with no salvage value. The related cash flow from operations, net of income
taxes, is expected to be P 10,000 a year for each of the first 6 years and P 12,000 for each of the next 4
years. What is the payback period?
a. 4.4 years b.
7.6 years c.
7.8 years d.
8.0 years
??
Refer to No. 40 Emerald Corp. has also estimated the salvage value of the new machine at the end
of year 1 to be P 64,000. Salvage value will decline by P 5,000 each year thereafter. What is the bailout
payback period?
a. 2 years b.
3 years c.
4 years d.
5 years
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 78
??
Boston Corp. purchased a new machine with an estimated useful life of 5 years with no salvage
value of P 45,000. The machine is expected to produce cash flow from operations, net of income taxes, as
follows:
1st year P 9,000 4th year P 9,000
2nd year 12,000 5th year 8,000
3rd year 15,000
Boston will use the sum-of-the-years’ digit method of depreciate the new machine in its accounting records
as follows:
1st year P 15,000 4th year P 6,000
2nd year
12,000 5th year 3,000
3rd year
9,000
What is the payback period?
a. 2 years b.
3 years c. 4 years d.
5 years
?? . Orlando Corp. has the opportunity to invest in a 2-year project that is expected to produce cash
flows from operations, net of income taxes, of P 100,000 in the first year and P 200,000 in the second year.
Orlando requires an internal rate of return of 20%. The present value of P1 for one period at 20% is 0.833
and for two periods at 20% is 0.694. For this project, Orlando should be willing to invest immediately a
maximum of
a. P283,300 b.
P 249,900 c.
P 222,100 d.
P 208,200
????.
An investment in a new piece of equipment costing P 50,000 is expected to yield the following each
year of the equipment’s 5-year useful life:
Revenues (all cash) P 40,000
Operating costs (all cash) (18,000)
Depreciation (10,000)
Contribution to net income P 12,000
The present value of P 1 received annually for 5 years and discounted at the company’s cost of capital is
4.10 assuming that all cashflows occur at year-end. The benefit/cost ratio (profitability index) for this
piece of equipment, ignoring tax effects, is
a. .984 b. 1.200 c. 1.804 d. 3,280
*** Items 45 through 49 are based on Hinder Industries, which has developed two new products but has
only enough plant capacity to introduce one of these products this year. The company controller has
gathered the following data to assist management in deciding which product should be selected for
production.
Hinder’s fixed overhead includes proportional rent and utilities, machinery depreciation, and supervisory
salaries. Selling and administrative expenses are not allocated to products.
Cost per unit:Power
DrillPower SawRaw
materials
P 22.00 P
18.00Machining at P
12/hr.
9.00
7.50Assembly at P
10/hr.
15.00
5.00Variable O/H at P
8/hr
18.00
9.00Fixed O/H at P 4/hr.
9.00
4.50Total unit cost
P 73.00 P
44.00Suggested selling
price
P 88.98 P
49.95Actual research and
development costs
P180,000 P
95,000Proposed
Advertising and
Power DrillPower SawRaw
materials
P 22.00 P
18.00Machining at P
12/hr.
9.00
7.50Assembly at P
10/hr.
15.00
5.00Variable O/H at P
8/hr
18.00
9.00Fixed O/H at P 4/hr.
9.00
4.50Total unit cost
P 73.00 P
44.00Suggested selling
price
P 88.98 P
49.95Actual research and
development costs
P180,000 P
95,000Proposed
Advertising and
promotion costs
Power SawRaw materials
P 22.00 P
18.00Machining at P
12/hr.
9.00
7.50Assembly at P
10/hr.
15.00
5.00Variable O/H at P
8/hr
18.00
9.00Fixed O/H at P 4/hr.
9.00
4.50Total unit cost
P 73.00 P
44.00Suggested selling
price
P 88.98 P
49.95Actual research and
development costs
P180,000 P
95,000Proposed
Advertising and
promotion costs
Practical Accounting 2
Second Pre-Board Examination
promotion costs
300,000 250,000
Raw materials
P 22.00
P 18.00Machining at P
12/hr.
9.00
7.50Assembly at P
10/hr.
15.00
5.00Variable O/H at P
8/hr
18.00
9.00Fixed O/H at P 4/hr.
9.00
4.50Total unit cost
P 73.00 P
44.00Suggested selling
price
P 88.98 P
49.95Actual research and
development costs
P180,000 P
95,000Proposed
Advertising and
promotion costs
300,000 250,000
Machining at P 12/hr.
9.00
7.50Assembly
at P 10/hr.
15.00
5.00Variable O/H at
P 8/hr
18.00
9.00Fixed O/H at P 4/hr.
9.00
4.50Total unit cost
P 73.00 P
44.00Suggested selling
price
P 88.98 P
49.95Actual research and
development costs
P180,000 P
95,000Proposed
Advertising and
promotion costs
300,000 250,000
Assembly at P 10/hr.
15.00
5.00Variable
O/H at P 8/hr
18.00
9.00Fixed
O/H at P 4/hr.
9.00
4.50Total
unit cost
P 73.00
P 44.00Suggested
selling price
P
88.98 P 49.95Actual
research and
development costs
P180,000 P
95,000Proposed
Advertising and
promotion costs
300,000 250,000
Variable O/H at P 8/hr
18.00
9.00Fixed
O/H at P 4/hr.
9.00
4.50Total
unit cost
P 73.00
P 44.00Suggested
selling price
P
88.98 P 49.95Actual
research and
development costs
P180,000 P
May 2007 Batch
Page 79
300,000
250,000
300,000
250,000
P 22.00 P
18.00Machining at P
12/hr.
9.00
7.50Assembly at P
10/hr.
15.00
5.00Variable O/H at P
8/hr
18.00
9.00Fixed O/H at P 4/hr.
9.00
4.50Total unit cost
P 73.00 P
44.00Suggested selling
price
P 88.98 P
49.95Actual research and
development costs
P180,000 P
95,000Proposed
Advertising and
promotion costs
300,000 250,000
9.00
7.50Assembly at P
10/hr.
15.00
5.00Variable O/H at P
8/hr
18.00
9.00Fixed O/H at P 4/hr.
9.00
4.50Total unit cost
P 73.00 P
44.00Suggested selling
price
P 88.98 P
49.95Actual research and
development costs
P180,000 P
95,000Proposed
Advertising and
promotion costs
300,000 250,000
15.00
5.00Variable O/H at P
8/hr
18.00
9.00Fixed O/H at P 4/hr.
9.00
4.50Total unit cost
P 73.00 P
44.00Suggested selling
price
P 88.98 P
49.95Actual research and
development costs
P180,000 P
95,000Proposed
Advertising and
promotion costs
300,000 250,000
P 18.00Machining at P
12/hr.
9.00
7.50Assembly at P
10/hr.
15.00
5.00Variable O/H at P
8/hr
18.00
9.00Fixed O/H at P 4/hr.
9.00
4.50Total unit cost
P 73.00 P
44.00Suggested selling
price
P 88.98 P
49.95Actual research and
development costs
P180,000 P
95,000Proposed
Advertising and
promotion costs
300,000 250,000
18.00
9.00Fixed
O/H at P 4/hr.
9.00
4.50Total
unit cost
P 73.00
P 44.00Suggested
selling price
P
88.98 P 49.95Actual
research and
development costs
P180,000 P
95,000Proposed
9.00Fixed O/H at P
4/hr.
9.00
4.50Total unit cost
P 73.00 P
44.00Suggested selling
price
P 88.98 P
49.95Actual research and
development costs
P180,000 P
95,000Proposed
Advertising and
7.50Assembly at P
10/hr.
15.00
5.00Variable O/H at P
8/hr
18.00
9.00Fixed O/H at P 4/hr.
9.00
4.50Total unit cost
P 73.00 P
44.00Suggested selling
price
P 88.98 P
49.95Actual research and
development costs
P180,000 P
95,000Proposed
Advertising and
promotion costs
300,000 250,000
5.00Variable O/H at P
8/hr
18.00
9.00Fixed O/H at P 4/hr.
9.00
4.50Total unit cost
P 73.00 P
44.00Suggested selling
price
P 88.98 P
49.95Actual research and
development costs
P180,000 P
95,000Proposed
Advertising and
promotion costs
300,000 250,000
Practical Accounting 2
Second Pre-Board Examination
95,000Proposed
Advertising and
promotion costs
300,000 250,000
Fixed O/H at P 4/hr.
9.00
4.50Total
unit cost
P 73.00
P 44.00Suggested
selling price
P
88.98 P 49.95Actual
research and
development costs
P180,000 P
95,000Proposed
Advertising and
promotion costs
300,000 250,000
Total unit cost
P 73.00
P 44.00Suggested
selling price
P
88.98 P 49.95Actual
research and
development costs
P180,000 P
95,000Proposed
Advertising and
promotion costs
300,000 250,000
Suggested selling price
P 88.98 P 49.95Actual
research and
development costs
P180,000 P
95,000Proposed
Advertising and
promotion costs
300,000 250,000
Actual research and
development costs
P180,000 P
95,000Proposed
Advertising and
promotion costs
300,000 250,000
Proposed Advertising and
promotion costs
300,000 250,000
????.
May 2007 Batch
Page 80
Advertising and
promotion costs
300,000 250,000
promotion costs
300,000 250,000
9.00
4.50Total
unit cost
P 73.00
P 44.00Suggested
selling price
P
88.98 P 49.95Actual
research and
development costs
P180,000 P
95,000Proposed
Advertising and
promotion costs
300,000 250,000
4.50Total unit cost
P 73.00 P
44.00Suggested selling
price
P 88.98 P
49.95Actual research and
development costs
P180,000 P
95,000Proposed
Advertising and
promotion costs
300,000 250,000
P 73.00 P
44.00Suggested selling
price
P 88.98 P
49.95Actual research and
development costs
P180,000 P
95,000Proposed
Advertising and
promotion costs
300,000 250,000
P 44.00Suggested selling
price
P 88.98 P
49.95Actual research and
development costs
P180,000 P
95,000Proposed
Advertising and
promotion costs
300,000 250,000
P 88.98 P 49.95Actual
research and
development costs
P180,000 P
95,000Proposed
Advertising and
promotion costs
300,000 250,000
P 49.95Actual research and
development costs
P180,000 P
95,000Proposed
Advertising and
promotion costs
300,000 250,000
P180,000 P
95,000Proposed
Advertising and
promotion costs
300,000 250,000
P 95,000Proposed
Advertising and
promotion costs
300,000 250,000
300,000
250,000
250,000
For Hinder’s power drill, the unit costs for raw materials, machining, and assembly represent
a. Conversion costs c.
Committed costs
b. Relevant costs d.
Prime costs
????.
The difference between the P 49.95 selling price of Hinder’s power saw and its total unit cost of P
44.00 represents the unit
a. Contribution margin ratio c.
Contribution
b. Gross profit d.
Residual income
????.
The total overhead cost of P 13.50 for Hinder’s power saw is
a. Carrying cost c. Sunk cost
b.
Discretionary cost d. Mixed cost
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 81
????. Research and development cost for Hinder’s two new products are
a. Conversion costs c. Relevant costs
b. Sunk costs d.
Avoidable costs
????. The costs included in Hinder’s fixed overhead are
a. Sunk costs c.
Committed costs
b. Discretionary costs d. Opportunity costs
50. Direct labor cost is a
Conversion
a. No
b. No
c. Yes
d.
??
Cost Prime Cost
No
Yes
Yes
Yes
No
Indirect materials are a
Conversion Cost Manufacturing Cost
a.
Yes Yes
Yes
b.
Yes Yes No
c.
No Yes Yes
d.
No No No
Prime Cost
*** Items 52 and 53 are based on information presented in the next column, which was taken from Valerie
Corp.’s records for the fiscal year ended November 30.
Direct materials used P 300,000
Direct labor
100,000
Variable factory overhead
50,000
Fixed factory overhead
80,000
Selling and administration costs – variable 40,000
Selling and administration costs – fixed
20,000
??
If Valerie Corp. uses variable (direct) costing, the inventoriable costs for the current fiscal year are
a. P 400,000 b.
??
P 450,000 c.
P 490,000 d.
P 530,000
. Using absorption (full)costing, inventoriable costs are
a. P 400,000 b.
P 450,000 c.
P 530,000 d.
P 590,000
????. In the profit-volume chart below, EF and GH represent the profit-volume graphs of a single-product
company for 2006 and 2007, respectively:
P
Do
0
G
E
F (2006)
H (2007)
Volume
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 82
If 2006 and 2007 unit sales prices are identical, how did total fixed costs and unit variable costs of 2007
change compared with 2006?
2007 Total Fixed costs 2007 Unit Variable Costs
a. Decreased
Increased
b. Decreased Decreased
c. Increased Increased
d. Increased Decreased
*** Items 55 through 60 are based on the officers of Borromeo Corp, who are reviewing the profitability of
the company’s four products and the potential effects of several proposals for varying the product mix.
An excerpt from the income statement and other data follow:
TotalsProduct
PProduct
QProduct
RProduct
SSalesP
62,600 P
10,000P
18,000P
12,600P
22,000Cos
t of goods
sold
44,274
4,750
7,056
13,968
18,500Gro
ss profitP
18,326 P
5,250P
10,944P
(1,368)P
3,500Oper
ating
expenses
12,012
1,990
2,976
2,826
4,220Inco
me before
income
taxesP
6,314 P
3,260P
7,968
P(4,194)P
TotalsProduct
PProduct
QProduct
RProduct
SSalesP
62,600 P
10,000P
18,000P
12,600P
22,000Cos
t of goods
sold
44,274
4,750
7,056
13,968
18,500Gro
ss profitP
18,326 P
5,250P
10,944P
(1,368)P
3,500Oper
ating
expenses
12,012
1,990
2,976
2,826
4,220Inco
me before
income
taxesP
6,314 P
3,260P
7,968
P(4,194)P
Product
PProduct
QProduct
RProduct
SSalesP
62,600 P
10,000P
18,000P
12,600P
22,000Cos
t of goods
sold
44,274
4,750
7,056
13,968
18,500Gro
ss profitP
18,326 P
5,250P
10,944P
(1,368)P
3,500Oper
ating
expenses
12,012
1,990
2,976
2,826
4,220Inco
me before
income
taxesP
6,314 P
3,260P
7,968
P(4,194)P
(720)Units
sold
1,000
1,200
1,800
2,000Sales
price per
unit P
10.00P
15.00 P
7.00P
11.00Varia
ble cost of
goods sold
per unit
P
2.50P
3.00 P
(720)Units
sold
1,000
1,200
1,800
2,000Sales
price per
unit P
10.00P
15.00 P
7.00P
11.00Varia
ble cost of
goods sold
per unit
P
2.50P
3.00 P
(720)Units
sold
1,000
1,200
1,800
2,000Sales
price per
unit P
10.00P
15.00 P
7.00P
11.00Varia
ble cost of
goods sold
per unit
P
2.50P
3.00 P
Product
QProduct
RProduct
SSalesP
62,600 P
10,000P
18,000P
12,600P
22,000Cos
t of goods
sold
44,274
4,750
7,056
13,968
18,500Gro
ss profitP
18,326 P
5,250P
10,944P
(1,368)P
3,500Oper
ating
expenses
12,012
1,990
2,976
2,826
4,220Inco
me before
income
taxesP
6,314 P
3,260P
7,968
P(4,194)P
(720)Units
sold
1,000
1,200
1,800
2,000Sales
price per
unit P
10.00P
15.00 P
7.00P
11.00Varia
ble cost of
goods sold
per unit
P
2.50P
3.00 P
6.50 P
Product
RProduct
SSalesP
62,600 P
10,000P
18,000P
12,600P
22,000Cos
t of goods
sold
44,274
4,750
7,056
13,968
18,500Gro
ss profitP
18,326 P
5,250P
10,944P
(1,368)P
3,500Oper
ating
expenses
12,012
1,990
2,976
2,826
4,220Inco
me before
income
taxesP
6,314 P
3,260P
7,968
P(4,194)P
(720)Units
sold
1,000
1,200
1,800
2,000Sales
price per
unit P
10.00P
15.00 P
7.00P
11.00Varia
ble cost of
goods sold
per unit
P
2.50P
3.00 P
6.50 P
6.00Variab
Product
SSalesP
62,600 P
10,000P
18,000P
12,600P
22,000Cos
t of goods
sold
44,274
4,750
7,056
13,968
18,500Gro
ss profitP
18,326 P
5,250P
10,944P
(1,368)P
3,500Oper
ating
expenses
12,012
1,990
2,976
2,826
4,220Inco
me before
income
taxesP
6,314 P
3,260P
7,968
P(4,194)P
(720)Units
sold
1,000
1,200
1,800
2,000Sales
price per
unit P
10.00P
15.00 P
7.00P
11.00Varia
ble cost of
goods sold
per unit
P
2.50P
3.00 P
6.50 P
6.00Variab
le
Practical Accounting 2
Second Pre-Board Examination
6.50 P
6.00Variab
le
operating
expenses
per unit
P
1.17P
1.25 P
1.00 P
1.20
SalesP 62,600
P 10,000P
18,000P
12,600P
22,000Cos
t of goods
sold
44,274
4,750
7,056
13,968
18,500Gro
ss profitP
18,326 P
5,250P
10,944P
(1,368)P
3,500Oper
ating
expenses
12,012
1,990
2,976
2,826
4,220Inco
me before
income
taxesP
6,314 P
3,260P
7,968
P(4,194)P
(720)Units
sold
1,000
1,200
1,800
2,000Sales
price per
unit P
10.00P
15.00 P
7.00P
11.00Varia
ble cost of
goods sold
per unit
P
2.50P
3.00 P
6.50 P
6.00Variab
le
operating
expenses
per unit
May 2007 Batch
Page 83
6.50 P
6.00Variab
le
operating
expenses
per unit
P
1.17P
1.25 P
1.00 P
1.20
P 62,600 P
10,000P
18,000P
12,600P
22,000Cos
t of goods
sold
44,274
4,750
7,056
13,968
18,500Gro
ss profitP
18,326 P
5,250P
10,944P
(1,368)P
3,500Oper
ating
expenses
12,012
1,990
2,976
2,826
4,220Inco
me before
income
taxesP
6,314 P
3,260P
7,968
P(4,194)P
(720)Units
sold
1,000
1,200
1,800
2,000Sales
price per
unit P
10.00P
15.00 P
7.00P
11.00Varia
ble cost of
goods sold
per unit
P
2.50P
3.00 P
6.50 P
6.00Variab
le
operating
expenses
per unit
6.50 P
6.00Variab
le
operating
expenses
per unit
P
1.17P
1.25 P
1.00 P
1.20
P 10,000P
18,000P
12,600P
22,000Cos
t of goods
sold
44,274
4,750
7,056
13,968
18,500Gro
ss profitP
18,326 P
5,250P
10,944P
(1,368)P
3,500Oper
ating
expenses
12,012
1,990
2,976
2,826
4,220Inco
me before
income
taxesP
6,314 P
3,260P
7,968
P(4,194)P
(720)Units
sold
1,000
1,200
1,800
2,000Sales
price per
unit P
10.00P
15.00 P
7.00P
11.00Varia
ble cost of
goods sold
per unit
P
2.50P
3.00 P
6.50 P
6.00Variab
le
operating
expenses
per unit
P
6.00Variab
le
operating
expenses
per unit
P
1.17P
1.25 P
1.00 P
1.20
P 18,000P
12,600P
22,000Cos
t of goods
sold
44,274
4,750
7,056
13,968
18,500Gro
ss profitP
18,326 P
5,250P
10,944P
(1,368)P
3,500Oper
ating
expenses
12,012
1,990
2,976
2,826
4,220Inco
me before
income
taxesP
6,314 P
3,260P
7,968
P(4,194)P
(720)Units
sold
1,000
1,200
1,800
2,000Sales
price per
unit P
10.00P
15.00 P
7.00P
11.00Varia
ble cost of
goods sold
per unit
P
2.50P
3.00 P
6.50 P
6.00Variab
le
operating
expenses
per unit
P
1.17P
le
operating
expenses
per unit
P
1.17P
1.25 P
1.00 P
1.20
P 12,600P
22,000Cos
t of goods
sold
44,274
4,750
7,056
13,968
18,500Gro
ss profitP
18,326 P
5,250P
10,944P
(1,368)P
3,500Oper
ating
expenses
12,012
1,990
2,976
2,826
4,220Inco
me before
income
taxesP
6,314 P
3,260P
7,968
P(4,194)P
(720)Units
sold
1,000
1,200
1,800
2,000Sales
price per
unit P
10.00P
15.00 P
7.00P
11.00Varia
ble cost of
goods sold
per unit
P
2.50P
3.00 P
6.50 P
6.00Variab
le
operating
expenses
per unit
P
1.17P
1.25 P
operating
expenses
per unit
P
1.17P
1.25 P
1.00 P
1.20
P 22,000Cost
of goods
sold
44,274
4,750
7,056
13,968
18,500Gro
ss profitP
18,326 P
5,250P
10,944P
(1,368)P
3,500Oper
ating
expenses
12,012
1,990
2,976
2,826
4,220Inco
me before
income
taxesP
6,314 P
3,260P
7,968
P(4,194)P
(720)Units
sold
1,000
1,200
1,800
2,000Sales
price per
unit P
10.00P
15.00 P
7.00P
11.00Varia
ble cost of
goods sold
per unit
P
2.50P
3.00 P
6.50 P
6.00Variab
le
operating
expenses
per unit
P
1.17P
1.25 P
1.00 P
Practical Accounting 2
Second Pre-Board Examination
P
1.17P
1.25 P
1.00 P
1.20
Cost of goods
sold
44,274
4,750
7,056
13,968
18,500Gro
ss profitP
18,326 P
5,250P
10,944P
(1,368)P
3,500Oper
ating
expenses
12,012
1,990
2,976
2,826
4,220Inco
me before
income
taxesP
6,314 P
3,260P
7,968
P(4,194)P
(720)Units
sold
1,000
1,200
1,800
2,000Sales
price per
unit P
10.00P
15.00 P
7.00P
11.00Varia
ble cost of
goods sold
per unit
P
2.50P
3.00 P
6.50 P
6.00Variab
le
operating
expenses
per unit
P
1.17P
1.25 P
1.00 P
1.20
Gross profitP
18,326 P
5,250P
10,944P
(1,368)P
3,500Oper
May 2007 Batch
Page 84
P
1.17P
1.25 P
1.00 P
1.20
44,274
4,750
7,056
13,968
18,500Gro
ss profitP
18,326 P
5,250P
10,944P
(1,368)P
3,500Oper
ating
expenses
12,012
1,990
2,976
2,826
4,220Inco
me before
income
taxesP
6,314 P
3,260P
7,968
P(4,194)P
(720)Units
sold
1,000
1,200
1,800
2,000Sales
price per
unit P
10.00P
15.00 P
7.00P
11.00Varia
ble cost of
goods sold
per unit
P
2.50P
3.00 P
6.50 P
6.00Variab
le
operating
expenses
per unit
P
1.17P
1.25 P
1.00 P
1.20
P 18,326 P
5,250P
10,944P
(1,368)P
3,500Oper
ating
1.17P
1.25 P
1.00 P
1.20
4,750
7,056
13,968
18,500Gro
ss profitP
18,326 P
5,250P
10,944P
(1,368)P
3,500Oper
ating
expenses
12,012
1,990
2,976
2,826
4,220Inco
me before
income
taxesP
6,314 P
3,260P
7,968
P(4,194)P
(720)Units
sold
1,000
1,200
1,800
2,000Sales
price per
unit P
10.00P
15.00 P
7.00P
11.00Varia
ble cost of
goods sold
per unit
P
2.50P
3.00 P
6.50 P
6.00Variab
le
operating
expenses
per unit
P
1.17P
1.25 P
1.00 P
1.20
P 5,250P
10,944P
(1,368)P
3,500Oper
ating
expenses
1.25 P
1.00 P
1.20
7,056
13,968
18,500Gro
ss profitP
18,326 P
5,250P
10,944P
(1,368)P
3,500Oper
ating
expenses
12,012
1,990
2,976
2,826
4,220Inco
me before
income
taxesP
6,314 P
3,260P
7,968
P(4,194)P
(720)Units
sold
1,000
1,200
1,800
2,000Sales
price per
unit P
10.00P
15.00 P
7.00P
11.00Varia
ble cost of
goods sold
per unit
P
2.50P
3.00 P
6.50 P
6.00Variab
le
operating
expenses
per unit
P
1.17P
1.25 P
1.00 P
1.20
P 10,944P
(1,368)P
3,500Oper
ating
expenses
12,012
1.00 P
1.20
1.20
13,968
18,500Gro
ss profitP
18,326 P
5,250P
10,944P
(1,368)P
3,500Oper
ating
expenses
12,012
1,990
2,976
2,826
4,220Inco
me before
income
taxesP
6,314 P
3,260P
7,968
P(4,194)P
18,500Gross
profitP
18,326 P
5,250P
10,944P
(1,368)P
3,500Oper
ating
expenses
12,012
1,990
2,976
2,826
4,220Inco
me before
income
taxesP
6,314 P
3,260P
7,968
P(4,194)P
(720)Units
sold
1,000
1,200
1,800
2,000Sales
price per
unit P
10.00P
15.00 P
7.00P
11.00Varia
ble cost of
goods sold
per unit
P
2.50P
3.00 P
6.50 P
6.00Variab
le
operating
expenses
per unit
P
1.17P
1.25 P
1.00 P
1.20
(720)Units
sold
1,000
1,200
1,800
2,000Sales
price per
unit P
10.00P
15.00 P
7.00P
11.00Varia
ble cost of
goods sold
per unit
P
2.50P
3.00 P
6.50 P
6.00Variab
le
operating
expenses
per unit
P
1.17P
1.25 P
1.00 P
1.20
P (1,368)P
3,500Oper
ating
expenses
12,012
1,990
P
3,500Oper
ating
expenses
12,012
1,990
Practical Accounting 2
Second Pre-Board Examination
ating
expenses
12,012
1,990
2,976
2,826
4,220Inco
me before
income
taxesP
6,314 P
3,260P
7,968
P(4,194)P
(720)Units
sold
1,000
1,200
1,800
2,000Sales
price per
unit P
10.00P
15.00 P
7.00P
11.00Varia
ble cost of
goods sold
per unit
P
2.50P
3.00 P
6.50 P
6.00Variab
le
operating
expenses
per unit
P
1.17P
1.25 P
1.00 P
1.20
Operating
expenses
12,012
1,990
2,976
2,826
4,220Inco
me before
income
taxesP
6,314 P
3,260P
7,968
P(4,194)P
(720)Units
sold
1,000
1,200
1,800
2,000Sales
price per
unit P
10.00P
May 2007 Batch
Page 85
expenses
12,012
1,990
2,976
2,826
4,220Inco
me before
income
taxesP
6,314 P
3,260P
7,968
P(4,194)P
(720)Units
sold
1,000
1,200
1,800
2,000Sales
price per
unit P
10.00P
15.00 P
7.00P
11.00Varia
ble cost of
goods sold
per unit
P
2.50P
3.00 P
6.50 P
6.00Variab
le
operating
expenses
per unit
P
1.17P
1.25 P
1.00 P
1.20
12,012
1,990
2,976
2,826
4,220Inco
me before
income
taxesP
6,314 P
3,260P
7,968
P(4,194)P
(720)Units
sold
1,000
1,200
1,800
2,000Sales
price per
unit P
10.00P
15.00 P
7.00P
12,012
1,990
2,976
2,826
4,220Inco
me before
income
taxesP
6,314 P
3,260P
7,968
P(4,194)P
(720)Units
sold
1,000
1,200
1,800
2,000Sales
price per
unit P
10.00P
15.00 P
7.00P
11.00Varia
ble cost of
goods sold
per unit
P
2.50P
3.00 P
6.50 P
6.00Variab
le
operating
expenses
per unit
P
1.17P
1.25 P
1.00 P
1.20
1,990
2,976
2,826
4,220Inco
me before
income
taxesP
6,314 P
3,260P
7,968
P(4,194)P
(720)Units
sold
1,000
1,200
1,800
2,000Sales
price per
unit P
10.00P
15.00 P
7.00P
11.00Varia
1,990
2,976
2,826
4,220Inco
me before
income
taxesP
6,314 P
3,260P
7,968
P(4,194)P
(720)Units
sold
1,000
1,200
1,800
2,000Sales
price per
unit P
10.00P
15.00 P
7.00P
11.00Varia
ble cost of
goods sold
per unit
P
2.50P
3.00 P
6.50 P
6.00Variab
le
operating
expenses
per unit
P
1.17P
1.25 P
1.00 P
1.20
2,976
2,826
4,220Inco
me before
income
taxesP
6,314 P
3,260P
7,968
P(4,194)P
(720)Units
sold
1,000
1,200
1,800
2,000Sales
price per
unit P
10.00P
15.00 P
7.00P
11.00Varia
ble cost of
2,976
2,826
4,220Inco
me before
income
taxesP
6,314 P
3,260P
7,968
P(4,194)P
2,976
2,826
4,220Inco
me before
income
taxesP
6,314 P
3,260P
7,968
P(4,194)P
(720)Units
sold
1,000
1,200
1,800
2,000Sales
price per
unit P
10.00P
15.00 P
7.00P
11.00Varia
ble cost of
goods sold
per unit
P
2.50P
3.00 P
6.50 P
6.00Variab
le
operating
expenses
per unit
P
1.17P
1.25 P
1.00 P
1.20
(720)Units
sold
1,000
1,200
1,800
2,000Sales
price per
unit P
10.00P
15.00 P
7.00P
11.00Varia
ble cost of
goods sold
per unit
P
2.50P
3.00 P
6.50 P
6.00Variab
le
operating
expenses
per unit
P
1.17P
1.25 P
1.00 P
1.20
2,826
4,220Inco
me before
income
taxesP
6,314 P
3,260P
7,968
P(4,194)P
4,220Inco
me before
income
taxesP
6,314 P
3,260P
7,968
P(4,194)P
(720)Units
sold
1,000
1,200
1,800
2,000Sales
price per
unit P
10.00P
15.00 P
7.00P
11.00Varia
ble cost of
goods sold
(720)Units
sold
1,000
1,200
1,800
2,000Sales
price per
unit P
10.00P
15.00 P
7.00P
11.00Varia
ble cost of
goods sold
Practical Accounting 2
Second Pre-Board Examination
15.00 P
7.00P
11.00Varia
ble cost of
goods sold
per unit
P
2.50P
3.00 P
6.50 P
6.00Variab
le
operating
expenses
per unit
P
1.17P
1.25 P
1.00 P
1.20
Income before
income
taxesP
6,314 P
3,260P
7,968
P(4,194)P
(720)Units
sold
1,000
1,200
1,800
2,000Sales
price per
unit P
10.00P
15.00 P
7.00P
11.00Varia
ble cost of
goods sold
per unit
P
2.50P
3.00 P
6.50 P
6.00Variab
le
operating
expenses
per unit
P
1.17P
1.25 P
1.00 P
1.20
Units sold
1,000
1,200
1,800
2,000Sales
price per
unit P
10.00P
15.00 P
7.00P
11.00Varia
May 2007 Batch
Page 86
11.00Varia
ble cost of
goods sold
per unit
P
2.50P
3.00 P
6.50 P
6.00Variab
le
operating
expenses
per unit
P
1.17P
1.25 P
1.00 P
1.20
P 6,314 P
3,260P
7,968
P(4,194)P
(720)Units
sold
1,000
1,200
1,800
2,000Sales
price per
unit P
10.00P
15.00 P
7.00P
11.00Varia
ble cost of
goods sold
per unit
P
2.50P
3.00 P
6.50 P
6.00Variab
le
operating
expenses
per unit
P
1.17P
1.25 P
1.00 P
1.20
Units sold
1,000
1,200
1,800
2,000Sales
price per
unit P
10.00P
15.00 P
7.00P
11.00Varia
ble cost of
goods sold
per unit
P
2.50P
3.00 P
6.50 P
6.00Variab
le
operating
expenses
per unit
P
1.17P
1.25 P
1.00 P
1.20
P 3,260P
7,968
P(4,194)P
(720)Units
sold
1,000
1,200
1,800
2,000Sales
price per
unit P
10.00P
15.00 P
7.00P
11.00Varia
ble cost of
goods sold
per unit
P
2.50P
3.00 P
6.50 P
6.00Variab
le
operating
expenses
per unit
P
1.17P
1.25 P
1.00 P
1.20
Units sold
1,000
1,200
1,800
2,000Sales
price per
unit P
10.00P
15.00 P
7.00P
11.00Varia
goods sold
per unit
P
2.50P
3.00 P
6.50 P
6.00Variab
le
operating
expenses
per unit
P
1.17P
1.25 P
1.00 P
1.20
P 7,968
P(4,194)P
(720)Units
sold
1,000
1,200
1,800
2,000Sales
price per
unit P
10.00P
15.00 P
7.00P
11.00Varia
ble cost of
goods sold
per unit
P
2.50P
3.00 P
6.50 P
6.00Variab
le
operating
expenses
per unit
P
1.17P
1.25 P
1.00 P
1.20
Units sold
1,000
1,200
1,800
2,000Sales
price per
unit P
10.00P
15.00 P
7.00P
11.00Varia
per unit
P
2.50P
3.00 P
6.50 P
6.00Variab
le
operating
expenses
per unit
P
1.17P
1.25 P
1.00 P
1.20
per unit
P
2.50P
3.00 P
6.50 P
6.00Variab
le
operating
expenses
per unit
P
1.17P
1.25 P
1.00 P
1.20
P(4,194)P
(720)Units
sold
1,000
1,200
1,800
2,000Sales
price per
unit P
10.00P
15.00 P
7.00P
11.00Varia
ble cost of
goods sold
per unit
P
2.50P
3.00 P
6.50 P
6.00Variab
le
operating
expenses
per unit
P
1.17P
1.25 P
1.00 P
1.20
P (720)Units
sold
1,000
1,200
1,800
2,000Sales
price per
unit P
10.00P
15.00 P
7.00P
11.00Varia
ble cost of
goods sold
per unit
P
2.50P
3.00 P
6.50 P
6.00Variab
le
operating
expenses
per unit
P
1.17P
1.25 P
1.00 P
1.20
Units sold
1,000
1,200
1,800
2,000Sales
price per
unit P
10.00P
15.00 P
7.00P
11.00Varia
Units sold
1,000
1,200
1,800
2,000Sales
price per
unit P
10.00P
15.00 P
7.00P
11.00Varia
Practical Accounting 2
Second Pre-Board Examination
ble cost of
goods sold
per unit
P
2.50P
3.00 P
6.50 P
6.00Variab
le
operating
expenses
per unit
P
1.17P
1.25 P
1.00 P
1.20
Units sold
1,000
1,200
1,800
2,000Sales
price per
unit P
10.00P
15.00 P
7.00P
11.00Varia
ble cost of
goods sold
per unit
P
2.50P
3.00 P
6.50 P
6.00Variab
le
operating
expenses
per unit
P
1.17P
1.25 P
1.00 P
1.20
Sales price per
unit P
10.00P
15.00 P
7.00P
11.00Varia
ble cost of
goods sold
per unit
P
2.50P
3.00 P
6.50 P
6.00Variab
le
operating
expenses
per unit
P
1.17P
1.25 P
1.00 P
1.20
May 2007 Batch
Page 87
ble cost of
goods sold
per unit
P
2.50P
3.00 P
6.50 P
6.00Variab
le
operating
expenses
per unit
P
1.17P
1.25 P
1.00 P
1.20
1,000
1,200
1,800
2,000Sales
price per
unit P
10.00P
15.00 P
7.00P
11.00Varia
ble cost of
goods sold
per unit
P
2.50P
3.00 P
6.50 P
6.00Variab
le
operating
expenses
per unit
P
1.17P
1.25 P
1.00 P
1.20
P
10.00P
15.00 P
7.00P
11.00Varia
ble cost of
goods sold
per unit
P
2.50P
3.00 P
6.50 P
6.00Variab
le
operating
expenses
per unit
P
1.17P
1.25 P
1.00 P
1.20
P
ble cost of
goods sold
per unit
P
2.50P
3.00 P
6.50 P
6.00Variab
le
operating
expenses
per unit
P
1.17P
1.25 P
1.00 P
1.20
1,000
1,200
1,800
2,000Sales
price per
unit P
10.00P
15.00 P
7.00P
11.00Varia
ble cost of
goods sold
per unit
P
2.50P
3.00 P
6.50 P
6.00Variab
le
operating
expenses
per unit
P
1.17P
1.25 P
1.00 P
1.20
ble cost of
goods sold
per unit
P
2.50P
3.00 P
6.50 P
6.00Variab
le
operating
expenses
per unit
P
1.17P
1.25 P
1.00 P
1.20
1,200
1,800
2,000Sales
price per
unit P
10.00P
15.00 P
7.00P
11.00Varia
ble cost of
goods sold
per unit
P
2.50P
3.00 P
6.50 P
6.00Variab
le
operating
expenses
per unit
P
1.17P
1.25 P
1.00 P
1.20
ble cost of
goods sold
per unit
P
2.50P
3.00 P
6.50 P
6.00Variab
le
operating
expenses
per unit
P
1.17P
1.25 P
1.00 P
1.20
1,800
2,000Sales
price per
unit P
10.00P
15.00 P
7.00P
11.00Varia
ble cost of
goods sold
per unit
P
2.50P
3.00 P
6.50 P
6.00Variab
le
operating
expenses
per unit
P
1.17P
1.25 P
1.00 P
1.20
10.00P
15.00 P
7.00P
11.00Varia
ble cost of
goods sold
per unit
P
2.50P
3.00 P
6.50 P
6.00Variab
le
operating
expenses
per unit
P
1.17P
1.25 P
1.00 P
1.20
P 15.00 P
7.00P
11.00Varia
ble cost of
goods sold
per unit
P
2.50P
3.00 P
6.50 P
6.00Variab
le
operating
expenses
per unit
P
1.17P
1.25 P
1.00 P
1.20
P 7.00P
11.00Varia
ble cost of
goods sold
per unit
P
2.50P
3.00 P
6.50 P
6.00Variab
le
operating
expenses
per unit
P
1.17P
1.25 P
1.00 P
1.20
ble cost of
goods sold
per unit
P
2.50P
3.00 P
6.50 P
6.00Variab
le
operating
expenses
per unit
P
1.17P
1.25 P
1.00 P
1.20
2,000Sales
price per
unit P
10.00P
15.00 P
7.00P
11.00Varia
ble cost of
goods sold
per unit
P
2.50P
3.00 P
6.50 P
6.00Variab
le
operating
expenses
per unit
P
1.17P
1.25 P
1.00 P
1.20
P
11.00Varia
ble cost of
goods sold
per unit
P
2.50P
3.00 P
6.50 P
6.00Variab
le
operating
expenses
per unit
P
1.17P
1.25 P
1.00 P
1.20
Practical Accounting 2
Second Pre-Board Examination
Variable cost
of goods
sold per
unit P
2.50P
3.00 P
6.50 P
6.00Variab
le
operating
expenses
per unit
P
1.17P
1.25 P
1.00 P
1.20
Variable
operating
expenses
per unit
P
1.17P
1.25 P
1.00 P
1.20
May 2007 Batch
Page 88
P
2.50P
3.00 P
6.50 P
6.00Variab
le
operating
expenses
per unit
P
1.17P
1.25 P
1.00 P
1.20
P
2.50P
3.00 P
6.50 P
6.00Variab
le
operating
expenses
per unit
P
1.17P
1.25 P
1.00 P
1.20
P
3.00 P
6.50 P
6.00Variab
le
operating
expenses
per unit
P
1.17P
1.25 P
1.00 P
1.20
P 6.50 P
6.00Variab
le
operating
expenses
per unit
P
1.17P
1.25 P
1.00 P
1.20
P
P
1.17P
1.25 P
1.00 P
1.20
P
1.17P
1.25 P
1.00 P
1.20
P
1.25 P
1.00 P
1.20
P 1.00 P
1.20
P 1.20
6.00Variab
le
operating
expenses
per unit
P
1.17P
1.25 P
1.00 P
1.20
Each of the following proposals is to be considered independently of the other proposals. Consider only the
product changes stated in each proposal; the activity of other products remains stable. Ignore income
taxes.
????. If product R is discontinued, the effect on income will be
a. P 4,194 increase c. P 1,368 increase
b. P 900 increase d. P 12,600 decrease
????. If product R is discontinued and a consequent loss of customers causes a decrease of 200 units in
sales of Q, the total effect on income will be
a. P 15,600 decrease c. P 2,044 increase
b. P 1,250 decrease d. P 2,866 increase
????. If the sales price of R is increased to P8 with a decrease in the number of units sold to 1,500, the
effect on income will be
a. P 2,199 decrease c. P 750 increase
b. P 600 decrease d. P 1,650 increase
????. The plant in which R is produced can be used to produce a new product, T. Total variable costs and
expenses per unit of T are P 8.05, and 1,600 units can be sold at P 9.50 each. If T is introduced and R is
discontinued, the total effect on income will be
a. P 3,220 increase c.
b. P 2,600 increase d.
P 2,320 increase
P 1,420 increase
????. Production of P can be doubled by adding a second shift, but higher wages must be paid, increasing
the variable cost of goods sold to P 3.50 for each additional unit. If the 1,000 additional units of P can
be sold at P 10 each, the total effect on income will
a. P 10,00 increase c.
b. P 6,500 increase d.
P 5,330 increase
P 2,260 increase
Practical Accounting 2
Second Pre-Board Examination
??
Part of the plant in which P is produced can easily be adapted to the production of S, but changes in
quantities may make changes in sales prices advisable. If production of P is reduced to 500 units (to be
sold at P 12 each), and production of S is increased to 2,500 units (to be sold at P 10.50 each), the total
effect on income will be
a. P 2,060 decrease c.
b. P 1,515 decrease d.
??
May 2007 Batch
Page 89
P 250 increase
P 1,765 decrease
Uniliver Corp. uses a standard-cost system and prepared the following budget at normal capacity for
the month of January:
Direct labor hours
24,000
Variable factory O/H
48,000
Fixed factory O/H P 108,000
Total factory O/H per DLH
6.50
Actual data for January were as follows:
Direct labor hours worked
22,000
Total factory O/H P 147,000
Standard DLH allowed for capacity attained
21,000
Using the two-way analysis of O/H variances, what is the budget (controllable)variance for January?
a. P 3,000 favorable c. P 9,000 favorable
b. P 5,000 favorable d. P 10,500 unfavorable
??
The bailout payback method
Is used by firms with federally insured loans.
Calculates the payback period using the sum of the net cash flows and the salvage value.
Calculates the payback period using the difference between net cash inflow and the salvage value
Estimates short-term profitability.
??
. A firm’s optimal capital structure
Minimizes the firm’s tax liability.
Minimizes the firm’s risk.
Maximizes the firm’s degree of financial leverage.
Maximizes the price of the firm’s stock.
????. A firm seeking to optimize its capital budget has calculated its marginal cost of capital and projected
rates of return on several potential projects. The optimal capital budget is determined by
Calculating the point at which marginal cost of capital meets the projected rate of return, assuming that the
most profitable projects are accepted first.
Calculating the point at which average marginal cost meets average projected rate of return, assuming the
largest projects are accepted first.
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 90
Accepting all potential projects with projected rates of return exceeding the lowest marginal cost of capital.
Accepting all potential projects with projected rates of return lower than the highest marginal cost of capital.
????. The Clarence Corp. invested P 67,000 in a 4-year machine. The machine’s NPV was P 8,000 using a
15% cost of capital. Information on cash flows and present value factors is as follows:
Year Expected Cash Flow,
1
P 20,600
.87 2
24,000
.76 3
21,800
.66 4
?
.57
2
24,000
.76 3
21,800
.66 4
?
3
.57
4
2
P 20,600
.87
24,000
.76 3
21,800
.66 4
?
.57
24,000
.76 3
.66 4
21,800
.57
21,800
.66 4
.57
Expected Cash Flow,
Net of Taxes
Present Value
?
?
.57
21,800
.66 4
.57
?
.57
?
?
Present Value
of P 1 @ 15% 1
20,600
.87
24,000
3
21,800
.66 4
?
.57
.87 2
24,000
.76
21,800
4
?
.57
.76 3
21,800
?
.57
.66 4
.57
P
2
.76
3
.66
.66 4
?
.57
What is the expected cash flow, net of taxes, in year 4?
a. P 8,600 b. P 16,450 c. P 24,450 d.
P 42,895
*** Items 66 through 70 are based on the following: The management of Benjamin Corp. asked you to
submit an analysis of the increase in their gross profit in 2007 based on their past two-year comparative
income statements which show:
2008
2007
Sales P 1,237,500 P 1,000,000
Cost of Sales
950,000
800,000
Gross profit P 287,500 P 200,000
The only know factor given to you is the sales prices increased 12.5% beginning January 2007.
????. The increase in gross profit due to increase volume is
a. P 50,000 b.
P 35,000 c.
P 20,000 d.
None of these
????. Gross profit declined due to increase in cost in the amount of
a. P 70,000 b.
P 88,000 c.
P 97,500 d.
None of these
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 91
????. The increase in sales price caused an increase in gross profit by
a.
P 100,000 b.
P 137,500 c.
P 110,000 d.
None of these
????. The percent of change in volume is
a. P 12.750% b.
??
11.000% c.
15.125% d.
None of these
The percent of change in cost is
a. 10.79% b.
10.000% c.
8.67% d.
None of these
*** Items 71 through 74 are based on the following information. Alpha Corp. a multiple-product company,
has the following data available for gross profit analysis.
PRODUCTS
2006ABCTotalSalesP
ABCTotalSalesP
BCTotalSalesP
CTotalSalesP
TotalSalesP
225,000P
225,000P
225,000P
225,000P
225,000P
240,000 P
240,000 P
240,000 P
240,000
45,000 P
45,000 P
45,000 P
P
240,000
510,00Cost of
510,00Cost of
510,00Cost
45,000 P
P
Sales 180,000
Sales
of Sales
510,00Cost
45,000
210,000
180,000
180,000
of Sales
P
33,750
210,000
210,000
180,000
510,00Co
423,750No. of
33,750
33,750
210,000
st of
units
22,500
423,750No.
423,750No.
33,750
Sales
30,000
of units
of units
180,000
7,500
60,000
22,500
22,500
423,750No
30,000
30,000
. of units
210,000
7,500
7,500
22,500
60,000
60,000
30,000
33,750
7,500
60,000
423,750N
o. of
units
22,500
30,000
SalesP 225,000P
240,000 P
45,000 P
510,00Cost of
Sales 180,000
210,000
33,750
423,750No. of
units
22,500
30,000
7,500
60,000
P 225,000P
240,000 P
45,000 P
510,00Cost of
Sales
180,000
210,000
33,750
423,750No.
of units
22,500
30,000
7,500
60,000
P 240,000 P
45,000 P
510,00Cost
of Sales
180,000
210,000
33,750
423,750No.
of units
22,500
30,000
7,500
60,000
P
45,000
P
510,00Cost
of Sales
180,000
210,000
33,750
423,750No
. of units
22,500
30,000
7,500
60,000
P
7,500
60,000
510,00Co
st of
Sales
180,000
210,000
33,750
423,750N
o. of
units
22,500
30,000
7,500
60,000
Cost of Sales
180,000
210,000
33,750
423,750No. of
units
22,500
180,000
210,000
33,750
423,750No.
of units
22,500
210,000
33,750
423,750No.
of units
22,500
30,000
33,750
423,750No
. of units
22,500
30,000
423,750N
o. of
units
22,500
30,000
Practical Accounting 2
Second Pre-Board Examination
30,000
7,500
May 2007 Batch
Page 92
60,000
No. of units
22,500
30,000
7,500
60,000
2007ABCTotalSalesP
360,000P
270,000 P
30,000 P
660,000Cost of
Sales 270,000
225,000
24,000
519,000No. of
units
30,000
30,000
6,000
66,000
30,000
7,500
60,000
22,500
30,000
7,500
60,000
7,500
60,000
ABCTotalSalesP
360,000P
270,000 P
30,000 P
660,000Cost
of Sales
270,000
225,000
24,000
519,000No.
of units
30,000
30,000
6,000
66,000
BCTotalSalesP
360,000P
270,000 P
30,000 P
660,000Cost
of Sales
270,000
225,000
24,000
7,500
60,000
30,000
7,500
60,000
7,500
60,000
60,000
7,500
60,000
CTotalSalesP
360,000P
270,000
P
30,000 P
660,000Co
st of Sales
270,000
225,000
519,000No.
of units
30,000
30,000
6,000
66,000
24,000
519,000No
. of units
30,000
30,000
6,000
TotalSalesP
360,000P
270,000
P
30,000
P
660,000Co
st of
Sales
270,000
225,000
24,000
519,000No
. of units
30,000
30,000
66,000
SalesP 360,000P
270,000 P
30,000 P
660,000Cost of
Sales 270,000
225,000
24,000
519,000No. of
units
30,000
30,000
6,000
66,000
Cost of Sales
270,000
225,000
24,000
519,000No. of
units
30,000
30,000
6,000
66,000
No. of units
30,000
30,000
6,000
66,000
??
P 360,000P
270,000 P
30,000 P
660,000Cost
of Sales
270,000
225,000
24,000
519,000No.
of units
30,000
30,000
6,000
66,000
270,000
225,000
24,000
519,000No.
of units
30,000
30,000
6,000
66,000
30,000
30,000
6,000
66,000
The sales price factor shows a variance of
a. P 150,000 unfavorable c. P 84,000 unfavorable
b. P 150,000 favorable d. P 84,000 favorable
??
The cost price factor shows a variance of
a. P 95,250 unfavorable c.
b. P 61,500 unfavorable d.
P 42,000 unfavorable
P 33,750 favorable
P 270,000 P
30,000 P
660,000Cost
of Sales
270,000
225,000
24,000
519,000No.
of units
30,000
30,000
6,000
66,000
225,000
24,000
519,000No.
of units
30,000
30,000
6,000
66,000
30,000
6,000
66,000
P
30,000
P
660,000Co
st of Sales
270,000
225,000
24,000
519,000No
. of units
30,000
30,000
6,000
6,000
66,000
P
660,000Co
st of
Sales
270,000
225,000
24,000
519,000No
. of units
30,000
30,000
6,000
66,000
66,000
24,000
519,000No
. of units
30,000
30,000
6,000
66,000
6,000
66,000
519,000No
. of units
30,000
30,000
6,000
66,000
66,000
Practical Accounting 2
Second Pre-Board Examination
??
May 2007 Batch
Page 93
. The quantity factor shows a variances of
a. P 8,625 favorable c. P 12,816 favorable
b. P 46,125 unfavorable d. P 9,075 unfavorable
????. The sales-mix factor shows a variance of
a. P 14,124 favorable c. P 4,125 favorable
b. P 4,125 unfavorable d. P 14,124 unfavorable
*** Items 75 through 76 are based on Wallace Corp., which sells Product A at a price of P 21 per unit.
Wallace cost per unit based on the full capacity of 200,000 units is as follows:
Direct materials P 4
Direct labor
5
Overhead ( 2/3 of which is fixed)
P 15
6
A special order offering to buy 20,000 units was received from a foreign distributor. The only selling costs
that would be incurred on this order would be P 3 per unit for shipping. Wallace has sufficient existing
capacity to manufacture the additional units.
????. In negotiating a price of the special order, Wallace should set the minimum selling price per nit.
a. P 14 b.
P 15 c.
P 16 d.
P 18
????. To achieve an increase in operating income of P 40,000, Wallace should charge a selling price of
a. P 14 b.
P 15 c.
P 16 d.
P 18
????. Selected information for Melanie Corporation is as follows:
December 31
2006 2007
Preferred stock P 180,000 P 180,000
Common stock
648,000
840,000
Retained earnings
192,000
360,000
Net income for year ended
144,000
240,000
What is Melanie’s rate of return on average stockholders’ equity for 2007?
a. P 16.0% b.
20.0% c. 23.5% d. 26.0%
????. Hanson Corp.’s current balance sheet reports the following stockholders’ equity:
5% cumulative preferred stock par value P 100 per share; 2,500 shares
issued and outstanding P 250,000
Common stock, par value P 3.50 per share, 100,000 shares issued
and outstanding
350,000
Additional paid-in capital excess of par value of common stock
125,000
Retained earnings
300,000
Dividends in arrears on the preferred stock amount to P 25,000. If Hanson’s were to be liquidated, the
preferred stockholders would received par value plus a premium of P 50,000. The book value per share
of common stock is
a. P 7.75 b.
P. 7.50 c.
P 7.25 d. P 7.00
*** Items 79 and 80 are based on the following information. Pizza Pie Shop has two divisions, Crusty
division sells pizza crusts to Pepperoni division which add flavorful toppings. Standard costs for Crusty
are given below.
Direct materials P 1.50 per crust
Direct labor 6.00 per hour
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 94
Crusty uses a predetermined overhead rate of P 12 per direct labor hour. One pizza crust requires 5 minutes
of direct labor. Sixty percent of the overhead cost is fixed.
????. What is the transfer price for a pizza crust based on standard variable cost?
a. P 2.00 b.
P 2.40 c.
P 2.60 d.
P 3.00
??
What is the transfer price for a pizza crust based on standard full cost?
a.
P 2.00 b.
P 2.60 c. P 3.00 d.
P 3.20
MANAGEMENT ADVISORY
SERVICES 1D11C21D31D41B51B61A71D2C12C22C32A42C52B62B72C3D13A23C33A43C53C63D73
1D1 1D1 1D1 1D1 1D1 1D1 1D1 1D1 1D1 1D1 1D1 1D1 1D1 1D1 1D1 1D1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1D1
2C1
3D1
1
2
3
4C1
D11
11C
C21
21D
D31
31D
D41
41B
B51
51B
B61
61A
A71
71D
D2
C12
12C
C22
22C
C32
32A
A42
42C
C52
52B
B62
62B
B72
72C
C3
D13
13A
A23
23C
C33
33A
A43
43C
C53
53C
C63
63D
D73
73A
A4C
C14
14B
B24
24C
C34
34B
B44
44C
C54
54A
A64
64A
A74
74C
C5C
C15
15C
C25
25B
B35
35A
A45
45D
D55
55B
B65
65D
D75
75A
A6B
B16
16B
B26
26A
A36
36B
B46
46B
B56
56B
B66
66C
C76
76C
C7
D17
17B
B27
27A
A37
37D
D47
47D
D57
57D
D67
67A
A77
77B
B8C
C18
18B
B28
28D
D38
38B
B48
48B
B58
58A
A68
68B
B78
78D
D9
A19
19A
A29
29A
A39
39A
A49
49C
C59
59C
C69
69D
D79
79B
B10
B20
20C
C30
30B
B40
40D
D50
50C
C60
60B
B70
70D
D80
80C
C
4
5C1
5
6B1
6
7D1
7
8C1
8
9A1
9
10B
MANAGEMENT SERVICES
PREBOARD EXAMS
OCTOBER 2007 BATCH SECOND
I try to avoid looking forward or backward, and try to keep looking upward.
-Charlotte Bronte
GENERAL INSTRUCTIONS: Select the BEST answer for each of the following questions by writing a vertical
line (I) on the letter of your choice on the answer sheet provided. Mark only one answer. NO
ERASURES ARE ALLOWED. Use pencil no. 2 only.
. IM, Company has failed to reach its planned activity level during its first two years operation. The following
table shows the relationship between units produced, sales, and normal activity for these years and the
projected relationship for Year 3. All prices and costs have remained the same for the last two years and
are expected to do so in Year 3. Income has been positive in both Year 1 and Year 2.
Practical Accounting 2
Second Pre-Board Examination
Units
ProducedSalesPlanne
d ActivityYear
190,00090,000100,0
00Year
295,00095,000100,0
00Year
390,00090,000100,0
00
Year
190,00090,000100,0
00Year
295,00095,000100,0
00Year
390,00090,000100,0
00
Year
295,00095,000100,0
00Year
390,00090,000100,0
00
Year
390,00090,000100,0
00
May 2007 Batch
Page 95
Units
ProducedSalesPlanne
d ActivityYear
190,00090,000100,0
00Year
295,00095,000100,0
00Year
390,00090,000100,0
00
SalesPlanned ActivityYear
190,00090,000100,0
00Year
295,00095,000100,0
00Year
390,00090,000100,0
00
Planned ActivityYear
190,00090,000100,0
00Year
295,00095,000100,0
00Year
390,00090,000100,0
00
90,00090,000100,000Yea
r
295,00095,000100,0
00Year
390,00090,000100,0
00
90,000100,000Year
295,00095,000100,0
00Year
390,00090,000100,0
00
100,000Year
295,00095,000100,0
00Year
390,00090,000100,0
00
95,00095,000100,000Yea
r
390,00090,000100,0
00
95,000100,000Year
390,00090,000100,0
00
100,000Year
390,00090,000100,0
00
90,00090,000100,000
90,000100,000
100,000
Because IM Company uses an absorption costing system, one would predict gross margin for Year 3 to be
a. Greater titan Year 1.
c.
Equal to Year 1.
b. Greater than Year 2.
d.
Equal to Year 2.
. A company had income of P50,000 using direct cost for a given period. Beginning and ending inventories
for that period were 13,000 units and 18,000 units, respectively. Ignoring income taxes, if the fixed
overhead application rate were P2.00 per unit, what would the income have been using absorption
costing?
a.
P40,000.
c.
P60,000.
b.
P50,000.
d.
Cannot be determined from the information
given
Questions 3 and 4 are based on Kapritso Co., a manufacturer operating at 95% of capacity. Kapritso has
been offered a new order at P7.25 per unit requiring, 15% of capacity. No other use of the 50% current
idle capacity can be found. However, if the order were accepted, the subcontracting for the required
10% additional capacity would cost P7.50 per unit. The variable cost of production for Kapritso on a perunit basis follows:
MaterialsP3.50Labor1.50Variable
P3.50Labor1.50Variable
overhead 1.50P6.50
overhead 1.50P6.50
Labor1.50Variable overhead 1.50P6.50
1.50Variable overhead 1.50P6.50
Variable overhead 1.50P6.50
1.50P6.50
P6.50
P6.50
. In applying the contribution margin approach to evaluating whether to accept the new order, assuming
subcontracting, what value would be computed for average variable cost per unit?
a. P6.83
b.
P7.17 c.
P7,25
d.
P7.50
. The expected contribution margin per unit on the new order would be
a. P0.08.
b.
P0.25 . c.
P0.33.
d.
P0.42.
. A company has the following cost data:Fixed manufacturing costs P2,000
Fixed manufacturing costs P2,000
Fixed selling, general, and administrative costs 1,000
Variable selling costs per unit sold 1
Variable manufacturing costs per unit 2
Beginning inventory
0 unit
Production
100 units
Sales
90 units at P40 per unit
Variable and absorption-cost net incomes are
Practical Accounting 2
Second Pre-Board Examination
a. P320 variable, P520 absorption
b. P330 variable, P530 absorption.
May 2007 Batch
Page 96
c.
d.
P520 variable, P320 absorption.
P530 variable, P330 absorption.
. Direct costing has an advantage over absorption costing for which of the following purposes?
Analysis of profitability of products, territories, and other segments of a business.
Determining the CVP relationship among the major factors of selling price, sales mix, and sales volume.
e. Minimizing the effects of inventory changes on net income.
Minimizing the effects of the arbitrary allocation of fixed costs.
All of the above.
. Alicia Co. is replacing a grinder purchased 5 years ago for P15,000 with a new, one costing P25,000 cash.
The original grinder is being depreciated on a straight-line basis over 15 years to a zero salvage value;
Alicia will sell this old equipment to a third party for P6,000 cash. The new equipment will be
depreciated on a straight-line basis over 10 years to a zero salvage value. Assuming a 40% marginal tax
rate, Alicia’s net cash investment at the time of purchase if the old grinder is sold and the new one
purchased is
a. P19,000.
b. P15,000.
c. P17,400.
d. P25,000.
e. P21,000.
. A weakness of the internal rate of return (IRR) approach for determining the acceptability of Investments is
that it
a. Does not consider the time value of money.
b. Is not a straightforward decision criterion.
c. Implicitly assumes that the firm is able to reinvest project cash flows at the firm's cost of capital.
d. Implicitly assumes that the firm is able to reinvest project cash flows at the project's internal
rate of return.
e. Does not consider the annual timing of the projected cash flows.
. The profitability index approach to investment analysis
a. Fails to consider the timing of project cash flows.
b. Considers only the project's contribution to net income and does not consider cash flow effects.
c. Always yields the same accept/reject decisions for independent projects as the net present
value method.
d. Always yields the same accept/reject decisions for mutually exclusive projects as the net present value
method.
e. Always yields the same accept/reject decisions for dependent projects as the net present value method.
. Jasper Company has a payback goal of 3 years on new equipment acquisitions. A new sorter is being
evaluated that costs P450,000 and has a 5-year life. Straight-line depreciation will be used; no salvage is
anticipated. Jasper is subject to a 40% Income tax rate. To meet the company's payback goal, the
sorter must generate reductions in annual cash operating costs of
a. P60,000.
b. P100,000.
c. P150,000.
d. P190,000.
e. P285,000.
Questions 11 and 12 are based on the following information.
The Keego Company is planning a P200,000 equipment investment which has an estimated 5-year life with
no estimated salvage value. The company has projected the following annual cash flows for the
investment,
YearProjected
Projected
Present
Cash inflowsPresent
Value of
P11P120,000.91260,000.
76340,000.63440,000.53
Practical Accounting 2
Second Pre-Board Examination
1P120,000.91260,000.7634
0,000.63440,000.53540
,000.44TotalsP300,0003
.27
260,000.76340,000.63440,0
00.53540,000.44TotalsP
300,0003.27
340,000.63440,000.53540,0
00.44TotalsP300,0003.2
7
440,000.53540,000.44Total
sP300,0003.27
540,000.44TotalsP300,0003
.27
TotalsP300,0003.27
May 2007 Batch
Page 97
P120,000.91260,000.76340
,000.63440,000.53540,
000.44TotalsP300,0003
.27
60,000.76340,000.63440,0
00.53540,000.44Totals
.91260,000.76340,000.6344
0,000.53540,000.44Total
sP300,0003.27
40,000.63440,000.53540,0
00.44TotalsP300,0003.
27
40,000.53540,000.44Totals
.63440,000.53540,000.44Tot
alsP300,0003.27
40,000.44TotalsP300,0003.
27
P300,0003.27
.76340,000.63440,000.5354
0,000.44TotalsP300,000
.53540,000.44TotalsP300,00
03.27
.44TotalsP300,0003.27
3.27
. Assuming that the estimated cash inflows occur evenly during each year, the payback period for the
Investment is
a. .75 years.
b. 1.67 years.
c. 4.91 years.
d. 2.50 years.
e. 1.96 years.
. The net present value for the investment is
a. P18,800.
b. P218,800.
c. P196,200.
d. P(3,800).
e. P91,743.
. Altoona Company is considering replacing a machine with a book value of P200,000, a remaining useful life
of 4 years, and annual straight-line depreciation of P50,000. The existing machine has a current market
value of P175,000. The replacement machine would cost P320,000, have a 4 year life, and save
P100,000 per year in cash operating costs. If the replacement machine would be depreciated using the
straight-line method and the tax rate is 40%, what would be the increase in annual income taxes if the
company replaces the machine?
P28,000
P40,000
P42,000
P64,000
. Portage Press Company is considering replacing a machine with a book value of P200,000, a remaining
useful life of 5 years, and annual straight-line depreciation of P40,000. The existing machine has a
current market value of P200,000. The replacement machine would cost P300,000, have a 5-year life,
and save P100,000 per year in cash operating costs. If the replacement machine would be depreciated
using the straight-line method and the tax rate is 40%, what would be the increase in annual net cash
flow if the company replaces the machine?
P60,000
P68,000
P76,000
P84,000
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 98
. Winneconne Company is considering replacing a machine with a book value of P400,000, a remaining
useful life of 5 years, and annual straight-line depreciation of P80,000. The existing machine has a
current market value of P400,000. The replacement machine would cost P550,000, have a 5-year life,
and save P75,000 per year in cash operating costs. If the replacement machine would be depreciated
using the straight-line method and the tax rate is 40%, what would be the net investment required to
replace the existing machine?
P90,000
P150,000
P330,000
P550,000
. Alcatraz Division of XYZ Corp. sells 80,000 units of part X to the outside market. Part X sells for P20, has a
variable cost of P11, and a fixed cost per unit of P5 Alcatraz has a capacity to produce 100,000 units per
period. Capone Division currently purchases 10,000 units of part X from Alcatraz for P20. Capone has
been approached by an outside supplier willing to supply the parts for P18. What is the effect on XYZ's
overall profit if Alcatraz REFUSES the outside price and Capone decides to buy outside?
a. no change
b. P70,000 decrease in XYZ profits
c. P40,000 decrease in XYZ profits
d. P20,000 increase in XYZ profits
. Alcatraz Division of XYZ Corp., sells 80,000 units of part X to the outside market. Part X sells for P20, has a
variable cost of P11, and a fixed cost per unit of P5. Alcatraz has a capacity to produce 100,000 units
per period. Capone Division currently purchases 10,000 units of part X from Alcatraz for P20. Capone
has been approached by an outside supplier willing to supply the parts for P18. What is the effect on
XYZ's overall profit if Alcatraz ACCEPTS the outside price and Capone decides to buy inside?
a. no change
b. P70,000 decrease in XYZ profits
c. P40,000 decrease in XYZ profits
d. P20,000 increase in XYZ profits
. If the investment turnover decreased by 20% and ROS decreased by 30%, the ROI would
a. increase by 30%
b. decrease by 20%
c. decrease by 44%
d. none of the above
.Spade Division has the following results for the year:
Revenues P940,000
Net income 260,000
Total divisional assets are P1,250,000. The company's minimum required rate of return is 12 percent.
Residual income for Spade is
a. P7,520.
b. P110,000.
c. P147,200.
d. cannot be determined without further information.
. Compared to a jewelry store, a supermarket has
a. higher margin and higher turnover.
b. higher margin and lower turnover.
c. lower margin and higher turnover.
d. lower margin and lower turnover.
. Sams Company manufactures a single product. It keeps its inventory of finished goods at 75% the coming
month's budgeted sales, inventory of raw materials at 50% of the coming month's budgeted production
needs. Each unit of product requires two pounds of materials. The production budget is, in units: May,
1,000; June, 1,200; July, 1,300; August, 1,600. Raw material purchases in June would be
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 99
1,525 pounds.
2,550 pounds.
2,800 pounds.
3,050 pounds.
. Rundall Co. makes payments for purchases 30% during the month of purchase and the remainder the
following month. April purchases are projected to be P160,000; May purchases will be P240,000. Cash
payments in May will be
P 72,000.
P108,000.
P168,000.
P184,000.
. Conde Inc. has projected sales to be: February, P20,000; March, P18,000; April, P16,000; May, P20,000;
and June, P22,000. Conde has 30% cash sales and 70% sales on account. Accounts are collected 40%
in the month following the sale and 60% collected the second month. Accounts receivable for May 31
would be
P 6,160.
P13,300.
P14,000.
P20,720.
. In a profit-volume graph, the cost/volume/profit relationships are represented. The vertical axis is the profit
in pesos and the horizontal axis is the volume in units. The diagonal line is the contribution margin line.
The point at which the contribution margin line intersects the zero profit line is the point:
a. At which the volume level is zero
b. At which the total cost equal the total sales
c. At which sales increases
d. At which total variable costs equal total sales
. For the doughnuts of McDonut Co. the Purchasing Manager decided to buy 65,000 bags of flour with a
quality rating two grades below that which the company normally purchased. This purchased covered
about 90% of the flour requirement for the period. As to the material variances, what will be the likely
effect?
a. Unfavorable price variance, favorable usage variance
b. Favorable price variance, unfavorable usage variance
c. No effect on price variance, unfavorable price variance
d. Favorable price variance, favorable usage variance
. Which of these assertions refer to responsibility accounting?
1. Costs and revenues are identified with individuals for better control and performance appraisal.
2. Performance reports under this concept includes variances of actual amounts versus plan.
3. Third parties who are external users are the main recipients of information.
4. Only expenses which are directly under the control of managers should ideally be charged to them.
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 100
a. Assertions 1, 2 and 4 only
b. Assertions 1 and 4 only
c. Assertions 1 and 2 only
d. All four assertions
. Hankies Unlimited has a signature scarf, for ladies, which has been quite popular. Certain production and
marketing data are indicated below:
Cost per yard of cloth P 36.00
Allowance for rejected scarf 5% of production
Yards of cloth needed per scarf 0.475 yards
Airfreight from supplier P 0.60/yard
Motor freight to customers P 0.90/scarf
Purchase discount from supplier 3%
Sales discount to customers 2%
The allowance for rejected scarf is not part of the 0.475 yard of cloth per scarf. Rejects have no market
value. Materials are used at the start of production. Calculate the standard cost of cloth per scarf that
Hankies Unlimited should use in its cost sheets…
a. P 16.87
b. P 17.76
c. P 18.21
d. P 17.30
. The Sales Director of Can-Can Co. suggests that certain credit terms be modified. He estimates the
following effects:
• Sales will increase by at least 20%
• Accounts receivable turnover will be reduced to 8 times from the present turnover of 10 times.
• Bad debts, now at 1% of sales will increase to 1.5%. Sales before the proposed change are at P 900,000.
Variable cost ratio is 55% and desired rate of return is 20% Fixed expenses amount to P 150,000.
Should the company allow the revision of its credit terms?
a. Yes, because income will increase by P 64,800.
b. Yes, because losses will be reduced by P 78,800.
c. No, because income will be reduced by P 13,000.
d. No, because losses will be increased by P 28,000,
. Bing and Lynn's Store is on the cash basis of preparing it funds statement. These data are available:
Decrease in working capital P 50,000
Depreciation 13,000
Increase in cash 25,000
Repairs and maintenance 19,500
Total uses of cash
454,000
Calculate the total sources of cash of Bing and Lynn's Store.
a. P 472,500
b. P 492,000
c. P 479,000
d. P 467,000
. The following data pertain to Sunlight Corp., whose management is planning to purchase an automated
tanning equipment:
Economic life of equipment: 8 years
Disposal value after 8 years: nil
Estimated net annual cash inflows for each of the 8 years: P 81,000 4. Time-adjusted internal rate of return:
14%
Cost of capital of Sunlight Corp: 16%
The table of present values of P 1 received annually for 8 years has these factors; at
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 101
14% = 4.639, at 16%=4.344
Depreciation is approximately P 46,970 annually.
Find the required increase in annual cash inflows in order to have the time adjusted rate of return
approximately equal the cost of capital.
a. P 5,501
b. P 6,501
c. P 4,344
d. P 5,871
. Given these data:
• Net after tax inflows are: P 24,000 for year 1, P30,000 for year 2, P36,000 for year 3, and P30,000 for year
4
• Initial investment outlay is P60,000
• Cost of capital is 18%
Determine the payback period for this investment:
a. 2.5 years
b. 2.17 years
c. 3.00 years
d. 3.17 years
. It is the start of the year and St. Tropez Co. plans to replace its old sing-along equipment, this information
is available:
Old New
Equipment cost P 70,000 P 120,000
Current salvage value 10,000 n/a
Salvage value, end of useful life 2,000 16,000
Annual operating costs 56,000 38,000
Accumulated depreciation 55,300
Estimated useful life 10 years 10 years
The company's income tax rate is 35% and its cost of capital is 12%. What is the present value of all the
relevant cash flows at time zero?
a. (P 54,000)
b. (P110,000)
c. (P120,000)
d. (P124,700)
. Mr. Val Yu is an entrepreneur who is contemplating to buy a machine to increase the capacity of his
manufacturing operations, He consults you for advise on the alternatives of leasing or buying the
equipment. If purchased, the straight line depreciation expense will be P 18,700 annually over its life of
5 years. The annual lease payments will amount to P 29,000 payable at the end of each of the 5 years.
Cost of money is 18%. Tax rate is 35%. There is no salvage value. Present value of P 1 received
annually for 5 years at 18% is 3,127. Present value of P1 due in 5 years at 18% is .437.
What will you recommend and why?
a. Lease the machine because leasing saves P 2,817
b. Lease the machine because leasing saves P 27, 138.
c. Buy the machine because depreciation saves P 10,300 each year.
d. Lease the machine because outlay is less by P 51,500
. Reliable Electric is a regulated public utility, and it is expected to provide steady growth of dividends of 5%
per year for the indefinite future. Its last year’s dividend was P5 per share; the stock sold for P60 per
share just after the dividend was paid. What is the company’s cost of equity?
8.33
13.75
7.69
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 102
8.08
. Olympic Sports has two issues of debt outstanding. One is a 9% coupon bond with a face value of P20M,
a maturity of 10 years, and a yield to maturity of 10%. The coupons are paid annually. The other bond
issue has a maturity of 15 years, with coupons also paid annually, and a coupon rate of 10%. The face
value of the issue is P25M, and the issue sells for 92.8% of the par value. The firm’s tax rate is 35%.
What is the before-tax cost of debt for Olympic? (Rounded off to two decimal places)
10.43%
10.77%
9.55%
5.22%
. Olympic Sports has two issues of debt outstanding. One is a 9% coupon bond with a face value of P20M, a
maturity of 10 years, and a yield to maturity of 10%. The coupons are paid annually. The other bond
issue has a maturity of 15 years, with coupons also paid annually, and a coupon rate of 10%. The face
value of the issue is P25M, and the issue sells for 92.8% of the par value. The firm’s tax rate is 35%.
What is the after-tax cost of debt for Olympic?
3.39%
6.21%
7.00%
6.78%
. Passive footwear has a WACC of 12%. Its debt sells at a yield to maturity of 9%, and its tax rate is 40%.
Its cost of equity is 15%. What is the fraction of the firm’s resources financed with debt?
1.687%
0.687
5.40
31.25%
. The total book value of the firm’s equity is P10M; book value per share is P20. The stock sells for a price
of P30 per share, and the cost of equity is 15%. The firm’s bonds have a par value of P5M and sell at a
price of 110 percent of par. The yield to maturity on the books is 9%, and the firm’s tax rate is 40%.
What is the company’s WACC?
12.5%
0.0873
0.126
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 103
12.75%
Questions 39 and 40 are based on the following information Little Leo Corporation had the following activity
relating to its fixed and variable overhead for the month of July.
Actual costs
Fixed overhead
P120,000
Variable overhead
80,000
Flexible budget
(Standard input allowed for actual output achieved x the budgeted rate)
Variable overhead
90,000
Applied
(Standard input allowed for factual output achieved x the budgeted rate)
Fixed overhead
125,000
Variable overhead spending variance
2,000F
Production volume variance
5,000U
. If the budgeted rate for applying variable manufacturing overhead was P20 per direct labor hour, how
efficient or inefficient was Little Leo Corporation in terms of using direct labor hours as an activity base.
a.
100 direct labor hours inefficient
b.
100 direct labor hours efficient
c.
400 direct labor hours inefficient
d.
400 direct labor hours efficient
e.
500 direct labor hours efficient
. The fixed overhead efficiency variance is
a. P3,000 favorable.
b. P3,000 unfavorable.
c. P5,000 favorable.
d. P10,000 unfavorable.
e. Never a meaningful variance.
. Which one of the following variances is of least significance from a behavioral control perspective?
Unfavorable material quantity variance amounting to 20% of the quantity allowed for the output attained.
Unfavorable labor efficiency variance amounting to 10% more than the budgeted hours for the output
attained.
Favorable labor rate variance resulting from an inability to hire experienced workers to replace retiring
workers.
Favorable material price variance obtained by purchasing raw material from a new vendor.
Fixed overhead volume variance resulting from management's decision midway through the
fiscal year to reduce its budgeted output by 20%.
Questions 42 through 44 are based on the following information. Hap Chan uses a standard costing system
in the manufacture of its single product. The 35,000 units of raw material in inventory were purchased
for P105,000, and two units of raw material are required to produce one unit of final product. In
November, the company produced 12,000 units of product. The standard allowed for material was
P60,000, and there was an unfavorable quantity variance of P2,500.
Hap Chan's standard price for one unit material is
a.
P2.00.
b.
P2.50.
c.
P3.00.
d.
P5.00.
e.
P6.00.
. The units of material used to produce November output totaled
a. 12,000 units.
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 104
b. 12,500 units.
c. 23,000 units.
d. 24,000 units.
e. 25,000 units.
. The materials price variance for the units used in November was
a. P2,500 unfavorable.
b. P11,000 unfavorable.
c. P12,500 unfavorable.
d. P3,500 unfavorable.
e. P2,500 favorable.
Questions 45 through 49 are based on Matapang Company, which manufactures a line of products
distributed nationally through wholesalers. Presented below are planned manufacturing data for 2007
and actual data for November 2007. The company applies overhead based on planned machine hours
using a predetermined annual rate.
2007 Planning Data
Annual
November
-----------------------------------------------Fixed manufacturing overhead
P1,200,000
P100,000
Variable manufacturing overhead
2,400,000
220,000
Direct labor hours
48,000
4,000
Machine hours
240,000
22,000
Data for November 2007
Direct labor hours (actual)
4,200
Direct labor hours (plan based on output) 4,000
Machine hours (actual)
21,600
Machine hours (plan based on output) 21,000
Fixed manufacturing overhead
P101,200
Variable manufacturing overhead
P214,000
. The predetermined overhead application rate for Matapang Company for 2007 is
a.
P 5.00.
b.
P25.00.
c.
P10.00.
d.
P50.00.
e.
P15.00.
. The total amount of overhead applied to production for November 2007 was
a.
P316,200.
b.
P315,000.
c.
P320,000.
d.
P300,000.
e.
P324,000.
. The amount of over- or under-applied variable manufacturing overhead for November was
a P6,000 overapplied.
b. P4,000 underapplied.
c. P20,000 overapplied.
d. P2,000 overapplied.
e. P6,000 underapplied.
. The variable overhead spending variance for November 2007 was
a P2,000 favorable.
b. P6,000 favorable.
c. P14,000 unfavorable.
d. P6,000 unfavorable.
e. P2,000 unfavorable.
. The fixed overhead volume variance for November 2007 was
a P1,200 unfavorable.
b. P5,000 unfavorable.
c. P10,000 favorable.
d. P5,000 favorable.
e. P1,200 favorable.
. Fatima Fashions sells a line of women's dresses. Folsom's performance report for November 2001 follows:
Practical Accounting 2
Second Pre-Board Examination
Dresses sold
Sales
Variable costs
Contribution margin
Fixed costs
Operating income
May 2007 Batch
Page 105
Actual
Budget
5,000
6,000
P235,000
P300,000
145,000
180,000
P 90,000
P120,000
84,000
80,000
P 6,000
P 40,000
The company uses a flexible budget to analyze its performance and to measure the effect on operating
income of the various factors affecting the difference between budgeted and actual operating income.
The following additional information would be needed by Fatima Fashions to calculate the peso impact of a
change in market share on operating income for November 2001.
Fatima's budgeted market share and the budgeted total market size.
Fatima's budgeted market share, the budgeted total market size, and the average market selling price.
Fatima's budgeted and actual market shares and the actual total market size.
Fatima's actual market share and the actual total market size.
There is no information that would make such a calculation possible.
. A firm has daily cash receipts of P200,000. A commercial bank has offered to reduce the collection time by
3 days, The bank requires a monthly fee of P4,000 for providing this service, if money market rates will
average 12% during the year, the additional annual income (loss) of having the service is
a.
P(24,000).
b.
P24,000.
c.
P66,240.
d.
P68,000.
e.
Some amount other than those given above.
. Melody, Inc. has a temporary need for funds. Management is trying to decide between not taking discounts
from one of their three biggest suppliers, or a 14.75% per annum renewable discount loan from its bank
for 3 months. The suppliers' terms are as follows:
Chester Co.
1/10, net 30
Tim Co.
2/15, net 60
Marcel Co.
3/15, net 90
Using a 360-day year, the cheapest source of short-term financing in this situation is
a. The bank.
b. Chester Co.
c. Tim Co.
d. Marcel Co.
. If the average age of inventory is 90 days, the average age of accounts payable is 60 days, and the
average age of accounts receivable is 65 days, the number of days in the cash flow cycle is
a. 215 days.
b. 150 days.
c. 95 days.
d. 85 days.
Questions 54 and 55 are based on the following information. Catherine Company needs to pay, a supplier's
invoice of P50 000 and wants to take a cash discount of 2/10, net 40. The firm can borrow the money
for 30 days at 12% per annum plus a 10% compensating balance.
. The amount Catherine Company must borrow to pay the supplier within the discount period and cover the
compensating balance is
a. P50,000.
b. P55,000.
c. P55,056.
d. P55,556.
e. P54,444.
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 106
. Assuming Catherine Company borrows the money on the last day of the discount period and repays it 30
days later, the effective interest rate on the loan is
a. 12.00%.
b. 13.61%.
c. 13.33%.
d. 13.20%.
e. 13.48%.
. The following information regarding a change in credit policy was assembled by the Winston Company. The
company has a required rate of return of 10% and a variable cost ratio of 60%.
Old Credit
New Credit
Policy
Policy
Sales
P3,600,000
P3,960,000
Average collection period
30 days 36 days
The pretax cost of carrying the additional Investment in receivables, using a 360-day year, would be
a. P5,760.
b. P9,600.
c. P8,160.
d. P960.
. The Alta Vista Corporation was recently quoted terms on a commercial bank loan of 7% discounted interest
with a 20% compensating balance. The term of the loan is 1 year. The effective cost of borrowing is
(rounded to the nearest hundredth)
a. 6.54%.
b. 8,75%.
c. 9.41%.
d. 7.53%.
e. 9.59%.
. During 2000, Bunny Company's current assets increased by P120, current liabilities decreased by P50, and
net working capital
a. Increased by P70.
b. Did not change.
c. Decreased by P170.
d. Increased by P170,
e. Decreased by P70.
. Cogie, Inc. can issue 3-month commercial paper with a face value of P1,000,000 for P980,000. Transaction
costs will be P1,200, The effective annualized percentage cost of the financing, based on a 360-day
year, will be
a. 2.16%.
b. 8.48%.
c. 8.66%.
d. 8.00%.
e. 2.00%.
. Lacson Company has the opportunity to increase annual sales P100,000 by selling to a new, riskier group
of customers. Based on sales, the uncollectible expense is expected to be 15%, and collection costs will
be 5%, The company's manufacturing and selling expenses are 70% of sales; and its effective tax rate
is 40%. If Lacson accepts this opportunity, the company's after-tax profit will increase by
a. P4,000.
b. P6,000.
c. P10,000.
d. P9,000.
e. P14,400.
/end
MANAGEMENT ADVISORY
SERVICES 1C11D21C31B41E51B2C12A22D32B42B52D3B13A 23D33A43E53C4A14B 24B34B44C54E5B15
1C11D 1C11D 1C11D 1C11D 1C11D 1C11D 1C11D 1C11D 1C11D 1C11D 1C11D 1C11
Practical Accounting 2
Second Pre-Board Examination
1C11D
2C12A
3B13A
4A14B
5B15B
6E16B
7C17A
8D18C
9C19B
10D20
C11D2
1C
C12A2
2D
B13A 2
3D
A14B 2
4B
B15B 2
5B
E16B2
6A
C17A2
7B
D18C2
8A
C19B2
9C
D20C3
0A
11D21
May 2007 Batch
Page 107
21C31
13A 23
D21C3
1B
A22D3
2B
A 23D
14B 24
B 24B
24B34
15B 25
B 25B
25B35
16B26
B26A3
6D
A27B3
7D
C28A3
8A
B29C3
9D
C30A4
0E
26A36
12A22
17A27
18C28
19B29
20C30
22D32
23D33
27B37
28A38
29C39
30A40
C31B4
1E
D32B4
2B
D33A4
3E
B34B4
4C
B35A4
5E
A36D4
6B
B37D4
7B
A38A4
8A
C39D4
9
A40E5
0C
31B41
32B42
33A43
34B44
35A45
36D46
37D47
38A48
39D49
40E50
B41E5
1
B42B5
2
A43E5
3
B44C5
4E
A45E5
5
D46B5
6
D47B5
7E
A48A5
8
D49D
41E51
E51B2
51B2C
B2C12
42B52
B52D3
52D3B
43E53
E53C4
53C4A
D3B1
3
C4A14
44C54
C54E5
54E5B
E5B15
45E55
E55C6
55C6E
C6E16
46B56
B56A7
56A7C
A7C17
47B57
B57E8
57E8D
E8D18
48A58
A58D9
58D9C
49D59
59C10
E50C6
0
50C60
D59C1
0
C60B
D9C1
9
C10D
60B
B
T
h
e
co
rr
ec
t
a
ns
w
er
is
(b
).
(C
M
A
1
2
9
0
13
0)
T
h
e
co
rr
ec
t
a
ns
w
er
is
(b
).
(C
M
A
1
2
9
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(b
).
(C
M
A
1
2
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0)
The correct answer is (b). (CMA 1290 1-30)
REQUIRED: The increase in after-tax profit as a result of an increase in sales.
DISCUSSION: The company's manufacturing and selling costs exclusive of bad debts equal 70% of sales.
Hence, the gross profit on the P100,000 increase in sales will be P30,000 (30% x P100,000), Assuming
P15,000 of bad debts and P5,000 of collection expense, the increase in pre-tax income will be P10,000
(P30,000 - P20,000). Consequently, after-tax income will increase by P6,000 [P10,000 - (40% x
P10,000)],
Answers (a), (c), (d), and (e) are incorrect because after-tax income will increase by P6,000.
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 108
CEBU CPAR CENTER, INC.
MANAGEMENT ADVISORY SERVICES
1st Pre-board – July 18, 2007
1. Which one of the following terms best describes the rate of output which qualified workers can achieve as
an average over the working day or shift, without over-exertion, provided they adhere to the specified
method of working and are well motivated in their work?
A. Standard time C. Standard hours
B. Standard performance
D. Standard unit
2. MNO Company applies overhead at P5 per direct labor hour. In March 2001, MNO incurred overhead of
P120,000. Under-applied overhead was P5,000. How many direct labor hours did MNO work?
A. 25,000 C. 24,000
B. 22,000 D. 23,000
3. The Spade Company’s bonds have 4 years remaining to maturity. Interest is paid annually; the bonds
have a P1,000, face value; and the coupon interest rate is 9%. What is the estimated yield to maturity
of the bonds at their current market price of P829?
A. 8.20% C. 13.10%
B. 10.86%
D. 14.80%
4. In assessing the loan value of inventory, a banker will normally be concerned about the portion of
inventory that is work-in-process because
A. WIP inventory is relatively easy to sell because it does not represent a raw material or a finished product.
B. WIP inventory usually has the highest loan value of the different inventory types.
C. WIP generally has the lowest marketability of the various types of inventories.
D. WIP represents a lower investment by a corporation as opposed to other types of inventories.
5. Based on normal capacity operations, Sta. Ana Company employs 25 workers in its Refining Department,
working 8 hours a day, 20 days per month at a wage rate of P6 per hour. At normal capacity,
production in the department is 5,000 units per month. Indirect materials average P0.25 per direct
labor hour; indirect labor cost is 12½% of direct labor cost; and other overhead are P0.15 per direct
labor hour.
The flexible budget at the normal capacity activity level follows:
Direct materialsP 4,000Direct labor24,000Fixed
P 4,000Direct labor24,000Fixed factory
factory overhead1,200Indirect
overhead1,200Indirect
materials1,000Indirect labor3,000Other
materials1,000Indirect labor3,000Other
overhead600TotalP 33,800Cost per unitP
overhead600TotalP 33,800Cost per unitP
6.76The total production cost for one month
6.76The total production cost for one
at 80% capacity is
month at 80% capacity is
Direct labor24,000Fixed factory
24,000Fixed factory overhead1,200Indirect
overhead1,200Indirect materials1,000Indirect
materials1,000Indirect labor3,000Other
labor3,000Other overhead600TotalP
overhead600TotalP 33,800Cost per unitP
33,800Cost per unitP 6.76The total
6.76The total production cost for one
production cost for one month at 80%
month at 80% capacity is
capacity is
Fixed factory overhead1,200Indirect
1,200Indirect materials1,000Indirect
materials1,000Indirect labor3,000Other
labor3,000Other overhead600TotalP
overhead600TotalP 33,800Cost per unitP
33,800Cost per unitP 6.76The total
6.76The total production cost for one month
production cost for one month at 80%
at 80% capacity is
capacity is
Indirect materials1,000Indirect labor3,000Other
1,000Indirect labor3,000Other
overhead600TotalP 33,800Cost per unitP
overhead600TotalP 33,800Cost per unitP
6.76The total production cost for one month
6.76The total production cost for one
at 80% capacity is
month at 80% capacity is
Indirect labor3,000Other overhead600TotalP
3,000Other overhead600TotalP 33,800Cost per
33,800Cost per unitP 6.76The total
unitP 6.76The total production cost for one
production cost for one month at 80%
month at 80% capacity is
capacity is
Other overhead600TotalP 33,800Cost per unitP
600TotalP 33,800Cost per unitP 6.76The total
6.76The total production cost for one month
production cost for one month at 80%
at 80% capacity is
capacity is
TotalP 33,800Cost per unitP 6.76The total
P 33,800Cost per unitP 6.76The total
production cost for one month at 80%
production cost for one month at 80%
capacity is
capacity is
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 109
Cost per unitP 6.76The total production cost for
P 6.76The total production cost for one month
one month at 80% capacity is
at 80% capacity is
The total production cost for one month at 80% capacity is
A. P20,760 C. P27,280
B. P21,500
D. P30,160
6. ABC Company uses the equation P300,000 + P1.75 per direct labor hour to budget manufacturing
overhead. ABC has budgeted 125,000 direct labor hours for the year. Actual results were 110,000
direct labor hours, P297,000 fixed overhead, and P194,500 variable overhead. What is the fixed
overhead volume variance for the year?
A. P35,000 unfavorable. C. P2,000 favorable.
B. P36,000 unfavorable.
D. P3,000 favorable.
7. If a firm had been extending trade credit on a 2/10, net/30 basis, what change would be expected on the
balance sheet of its customer if the firm went to a net cash 30 policy?
A. Increased payables and increased bank loan.
B. Increased receivables.
C. Decreased receivables.
D. Decrease in cash.
8. ACE Company’s operations for the month just ended originally set up a 60,000 direct labor hour level,
with budgeted direct labor of P960,000 and budgeted variable overhead of P240,000. The actual results
revealed that direct labor incurred amounted to P1,148,000 and that the unfavorable variable overhead
variance was P40,000. Labor trouble caused an unfavorable labor efficiency variance of P120,000, and
new employees hired at higher rates resulted in an actual average wage rate of P16.40 per hour. The
total number of standard direct labor hours allowed for the actual units produced is
A. P52,500 C. P62,500
B. P60,000
D. P70,000
9. Software Center, Inc.’s new controller is reviewing the company’s cash management. Below are relevant
information regarding trade credits from the suppliers of the company:
SuppliersAverage Monthly
Average Monthly
Credit TermsTech Co.P
PurchasesCredit TermsTech
PurchasesCredit TermsTech
100,000Net 30Computech
Co.P 100,000Net
Co.P 100,000Net
300,0002/10,
30Computech
30Computech
n/30Compuworks
300,0002/10,
300,0002/10,
1,000,0005/10, n/120Son/30Compuworks
n/30Compuworks
wares
600,0003/10,
1,000,0005/10, n/120So1,000,0005/10, n/120Son/45The company uses a
wares
600,0003/10,
wares
600,0003/10,
360-day year. Assume that
n/45The company uses a
n/45The company uses a
all of the suppliers can
360-day year. Assume that
360-day year. Assume that
supply any and all of the
all of the suppliers can
all of the suppliers can
requirements of Software
supply any and all of the
supply any and all of the
and can provide unlimited
requirements of Software
requirements of Software
credit line to the company
and can provide unlimited
and can provide unlimited
and that the company can
credit line to the company
credit line to the company
have only one supplier.
and that the company can
and that the company can
With a cost of bank
have only one supplier.
have only one supplier.
borrowing of 18% per
With a cost of bank
With a cost of bank
annum, which supplier
borrowing of 18% per
borrowing of 18% per
should Software choose?
annum, which supplier
annum, which supplier
should Software choose?
should Software choose?
Tech Co.P 100,000Net
P 100,000Net 30Computech
Net 30Computech
30Computech
300,0002/10,
300,0002/10,
300,0002/10,
n/30Compuworks
n/30Compuworks
n/30Compuworks
1,000,0005/10, n/120So1,000,0005/10, n/120So1,000,0005/10, n/120Sowares
600,0003/10,
wares
600,0003/10,
wares
600,0003/10,
n/45The company uses a
n/45The company uses a
n/45The company uses a
360-day year. Assume that
360-day year. Assume that
360-day year. Assume that
all of the suppliers can
all of the suppliers can
all of the suppliers can
supply any and all of the
supply any and all of the
supply any and all of the
requirements of Software
requirements of Software
requirements of Software
and can provide unlimited
and can provide unlimited
and can provide unlimited
credit line to the company
credit line to the company
credit line to the company
and that the company can
and that the company can
and that the company can
have only one supplier.
have only one supplier.
have only one supplier.
With a cost of bank
With a cost of bank
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 110
With a cost of bank
borrowing of 18% per
borrowing of 18% per
borrowing of 18% per
annum, which supplier
annum, which supplier
annum, which supplier
should Software choose?
should Software choose?
should Software choose?
Computech
300,0002/10,
300,0002/10,
2/10, n/30Compuworks
n/30Compuworks
n/30Compuworks
1,000,0005/10, n/120So1,000,0005/10, n/120So1,000,0005/10, n/120Sowares
600,0003/10,
wares
600,0003/10,
wares
600,0003/10,
n/45The company uses a
n/45The company uses a
n/45The company uses a
360-day year. Assume that
360-day year. Assume that
360-day year. Assume that
all of the suppliers can
all of the suppliers can
all of the suppliers can
supply any and all of the
supply any and all of the
supply any and all of the
requirements of Software
requirements of Software
requirements of Software
and can provide unlimited
and can provide unlimited
and can provide unlimited
credit line to the company
credit line to the company
credit line to the company
and that the company can
and that the company can
and that the company can
have only one supplier.
have only one supplier.
have only one supplier.
With a cost of bank
With a cost of bank
With a cost of bank
borrowing of 18% per
borrowing of 18% per
borrowing of 18% per
annum, which supplier
annum, which supplier
annum, which supplier
should Software choose?
should Software choose?
should Software choose?
Compuworks 1,000,0005/10,
1,000,0005/10, n/120So5/10, n/120So-wares
n/120So-wares
wares
600,0003/10,
600,0003/10, n/45The
600,0003/10, n/45The
n/45The company uses a
company uses a 360-day
company uses a 360-day
360-day year. Assume that
year. Assume that all of
year. Assume that all of
all of the suppliers can
the suppliers can supply
the suppliers can supply
supply any and all of the
any and all of the
any and all of the
requirements of Software
requirements of Software
requirements of Software
and can provide unlimited
and can provide unlimited
and can provide unlimited
credit line to the company
credit line to the company
credit line to the company
and that the company can
and that the company can
and that the company can
have only one supplier.
have only one supplier.
have only one supplier.
With a cost of bank
With a cost of bank
With a cost of bank
borrowing of 18% per
borrowing of 18% per
borrowing of 18% per
annum, which supplier
annum, which supplier
annum, which supplier
should Software choose?
should Software choose?
should Software choose?
So-wares
600,0003/10,
600,0003/10, n/45The
3/10, n/45The company uses a
n/45The company uses a
company uses a 360-day
360-day year. Assume that
360-day year. Assume that
year. Assume that all of
all of the suppliers can
all of the suppliers can
the suppliers can supply
supply any and all of the
supply any and all of the
any and all of the
requirements of Software
requirements of Software
requirements of Software
and can provide unlimited
and can provide unlimited
and can provide unlimited
credit line to the company
credit line to the company
credit line to the company
and that the company can
and that the company can
and that the company can
have only one supplier.
have only one supplier.
have only one supplier.
With a cost of bank
With a cost of bank
With a cost of bank
borrowing of 18% per
borrowing of 18% per
borrowing of 18% per
annum, which supplier
annum, which supplier
annum, which supplier
should Software choose?
should Software choose?
should Software choose?
The company uses a 360-day year. Assume that all of the suppliers can supply any and all of the
requirements of Software and can provide unlimited credit line to the company and that the company
can have only one supplier. With a cost of bank borrowing of 18% per annum, which supplier should
Software choose?
A. Compuworks due to the longest credit term of 120 days.
B. Computech due to cost of trade credit of 36.7%.
C. Compuworks due to the highest trade discount at 5%.
D. Tech Co. due to no discount policy.
10. In cash management, which of the following statements is false?
A. Capital costs, delinquency costs, and default costs are costs associated with cash management.
B. Short costs, long costs, and procurement costs are costs associated with optimal cash
balance model approach
C. Obtaining financing services and controlling cash flow are some of the major functions of cash
management.
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 111
D. Funds sourcing and custodianship must be done at the lowest possible cost, where excess funds must be
invested for a return that is best in the market.
11. ABC Company’s cost of equity is 18%, its before-tax cost of debt is 8%, and its corporate tax rate is
40%. Given the following balance sheet, calculate the after-tax weighted-average cost of capital.
AssetsLiabilitiesCashP 100Accounts payableP
LiabilitiesCashP 100Accounts payableP
200Accounts Receivable400Accrued taxes
200Accounts Receivable400Accrued taxes
due200Inventories200Long-term
due200Inventories200Long-term
debt400Plant &
debt400Plant &
equipment1,300Equity1,200P2,000P2,000A.
equipment1,300Equity1,200P2,000P2,000A.
14.7% C. 9.7%
14.7% C. 9.7%
CashP 100Accounts
P 100Accounts
Accounts payableP
P 200Accounts
payableP
payableP
200Accounts
Receivable400Accr
200Accounts
200Accounts
Receivable400Accr
ued taxes
Receivable400Accr
Receivable400Accr
ued taxes
due200Inventories
ued taxes
ued taxes
due200Inventories
due200Inventories
due200Inventories
Accounts
400Accrued taxes
Accrued taxes
200Inventories200Lon
Receivable400Accr
due200Inventories
due200Inventories
g-term
ued taxes
debt400Plant &
due200Inventories
equipment1,300Eq
uity1,200P2,000P2
,000A. 14.7% C.
9.7%
Inventories200Long200Long-term
Long-term
400Plant &
term debt400Plant
debt400Plant &
debt400Plant &
equipment1,300Eq
&
equipment1,300Eq
equipment1,300Eq
uity1,200P2,000P2
equipment1,300Eq
uity1,200P2,000P2
uity1,200P2,000P2
,000A. 14.7% C.
uity1,200P2,000P2
,000A. 14.7% C.
,000A. 14.7% C.
9.7%
,000A. 14.7% C.
9.7%
9.7%
9.7%
Plant &
1,300Equity1,200P2,00
Equity1,200P2,000P2,0 1,200P2,000P2,000A.
equipment1,300Eq
0P2,000A. 14.7%
00A. 14.7% C.
14.7% C. 9.7%
uity1,200P2,000P2
C. 9.7%
9.7%
,000A. 14.7% C.
9.7%
P2,000P2,000A.
P2,000P2,000A.
P2,000A. 14.7% C.
P2,000A. 14.7% C.
14.7% C. 9.7%
14.7% C. 9.7%
9.7%
9.7%
A. 14.7% C. 9.7%
B. 10.3%
D. 16.8%
12. APJ, Inc. is planning to purchase a new machine that will take six years to recover the cost. The new
machine is expected to produce cash flow from operations, net of income taxes, of P4,500 a year for the
first three years of the payback period and P3,500 a year of the last three years of the payback period.
Depreciation of P3,000 a year shall be charged to income of the six years of the payback period. How
much shall the machine cost?
A. P12,000 C. P24,000
B. P18,000
D. none of these
13. The accounting area in which the only objective of depreciation accounting relates to the effect of
depreciation charges upon tax payments is
A. Income determination. C. Cost/volume/profit analysis.
B. Financial reporting.
D. Capital budgeting.
14. McIndon Corporation bought a major equipment which is depreciable over 7 years on a straight-line
basis without any salvage value. It is estimated that it would generate cash flow from operations, net of
income taxes, of P800,000 in each of the seven years. The company’s expected rate of return is 12%.
Based on estimates, the project has a net present value of P127,200. What is the cost of the
equipment?
To facilitate computations, below are present value factors:
Present value of P1 at 12% for seven years is 0.452.
Present value of an ordinary annuity of P1 at 12% for seven years is 4.564.
A. P3,651,200 C. P2,404,000
B. P3,524,000
D. P3,778,400
15. The Liberal Sales Co. budgeted sales for the coming year are P30 million of which 80% are expected to
be on credit. The company wants to change its credit terms from n/30 to 2/10, n/30. If the new credit
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
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terms are adopted, the company estimates that cash discounts would be taken on 40% of the credit
sales and the new uncollectible amount would be unchanged. The adoption of the new credit terms
would result in expected discount availed of in the coming year of
A. P600,000 C. P480,000
B. P288,000
D. P192,000
16. “Net present value” is an example of which concept?
A. Capital budgeting. C. Managerial control.
B. Project feasibility.
D. Management by exception.
17. Mr. S. Mart assumed the presidency of Riches Corp. He instituted new policies and with respect to credit
policy, below is a summary of relevant information:
Old Credit PolicyNew Credit
Old Credit PolicyNew Credit
New Credit
PolicySalesP1,800,000P1
PolicySalesP1,800,000P1,980
PolicySalesP1,800,000P1,980
,980,000Average
,000Average collection
,000Average collection
collection period30
period30 days36 daysThe
period30 days36 daysThe
days36 daysThe
company requires a rate of
company requires a rate of
company requires a rate
return of 10% and a variable
return of 10% and a variable
of return of 10% and a
cost ratio of 60%. Using a
cost ratio of 60%. Using a
variable cost ratio of
360-day year, the pre-tax
360-day year, the pre-tax
60%. Using a 360-day
cost of carrying the
cost of carrying the
year, the pre-tax cost of
additional investment in
additional investment in
carrying the additional
receivables under the new
receivables under the new
investment in
policy would be
policy would be
receivables under the
new policy would be
SalesP1,800,000P1,980,000
P1,800,000P1,980,000Average
P1,980,000Average collection
collection period30 days36
period30 days36 daysThe
daysThe company requires a
company requires a rate of
rate of return of 10% and a
return of 10% and a variable
variable cost ratio of 60%.
cost ratio of 60%. Using a
Using a 360-day year, the
360-day year, the pre-tax
pre-tax cost of carrying the
cost of carrying the
additional investment in
additional investment in
receivables under the new
receivables under the new
policy would be
policy would be
Average collection period30
30 days36 daysThe company
36 daysThe company requires a
days36 daysThe
requires a rate of return of
rate of return of 10% and a
company requires a rate
10% and a variable cost
variable cost ratio of 60%.
of return of 10% and a
ratio of 60%. Using a 360Using a 360-day year, the
variable cost ratio of
day year, the pre-tax cost of
pre-tax cost of carrying the
60%. Using a 360-day
carrying the additional
additional investment in
year, the pre-tax cost of
investment in receivables
receivables under the new
carrying the additional
under the new policy would
policy would be
investment in
be
receivables under the
new policy would be
The company requires a rate of return of 10% and a variable cost ratio of 60%. Using a 360-day year, the
pre-tax cost of carrying the additional investment in receivables under the new policy would be
A. P4,800 C. P3,000
B. P2,880
D. P4,080
18. ABC Company outstanding common stocks sells for P42 a share, earning P4.80 per share and is
expected to pay P2.10 dividend. The firm’s earnings, dividends, and stock price have been growing at
8% a year and are expected to continue to grow at this rate indefinitely.
If the firm’s addition to retained earnings was re-invested at an 8% rate rather than the cost of capital, what
would be the price of the stock at the end of the year, assuming that this new growth rate is the same
rate as it has in previous years on its original capital?
A. P31.20 C. P24.71
B. P22.80
D.
P33.20
19. Which of the following transactions causes an increase in working capital?
A. Sale of merchandise on credit at a price above cost.
B. Sale of marketable securities at a price below cost.
C. Collection of an account receivable.
D. Return to supplier of defective merchandise purchased on credit. Full credit allowed by supplier.
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
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20. Red Turkey Company will pay a dividend of P1.50 per share at the end of next 12 months. The required
rate of return for Red Fin’s share is 10% and the constant growth rate is 5%. The approximate current
market price per common share of Red Turkey stock is
A. P30.00 C. P15.00
B. P10.00
D. P26.63
21. Slippers Mart has sales of P3 million. Its credit period and average collection period are both 30 days
and 1% of its sales end as bad debts. The general manager intends to extend the credit period to 45
days which will increase sales by P300,000. However, bad debts losses on the incremental sales would
be 3%. Costs of products and related expenses amount to 40% exclusive of the cost of carrying
receivables of 15% and bad debts expenses. Assuming 360 days a year, the change in policy would
result to incremental investment in receivables of
A. P24,704. C. P701,573.
B. P65,000.
D. P9,750.
22. In capital budgeting, these techniques are applied: payback (PB) method, net present value (NPV)
method and time-adjusted rate of return (TARR) method. PB method has this in common with NPV and
TARR methods.
A. Use of cash flows.
B. Consideration of the time value of money.
C. Use of discounting.
D. Use of accrual method of accounting.
Earnings per Share & Dividends per Share
Questions 23 and 24 are based on the following information.
Gardner Company’s stock is currently selling for P120 a share. The firm is expected to earn P10.80 per
share and to pay a year-end dividend of P7.20. Investors require a 9% return.
23. If Gardner reinvests retained earnings in projects whose aggregate return is equal to the stock’s
expected rate of return, what will be next year’s Earnings per Share?
A. P11.12 C. P7.42
B. P10.80 D. P11.77
24. If Gardner reinvests retained earnings in projects whose aggregate return is equal to the stock’s
expected rate of return and it will continue the constant dividend growth rate, how much is the year-end
dividend next year?
A. P7.42 C. P7.20
B. P7.35 D. P9.00
25. The following statements refer to the accounting rate of return (ARR)
1. The ARR is based on the accrual basis, not cash basis.
2. The ARR does not consider the time value of money.
3. The profitability of the project is considered.
From the above statements, which are considered limitations of the ARR concept?
A. Statements 2 and 3 only. C. All the 3 statements.
B. Statements 3 and 1 only.
D. Statements 1 and 2 only.
26. During the past five years, Alen Company had consistently paid 50% of earnings available to common as
dividends. Next year, the Alen Company projects its net income, before the P1.2 million preferred
dividends, at P6 million.
The capital structure for the company is maintained at:
Debt25.0%Preferred Stock15.0%Common
25.0%Preferred Stock15.0%Common
Equity60.0%What is the retained earnings
Equity60.0%What is the retained earnings
breakpoint next year
breakpoint next year
Preferred Stock15.0%Common Equity60.0%What
15.0%Common Equity60.0%What is the
is the retained earnings breakpoint next year
retained earnings breakpoint next year
Common Equity60.0%What is the retained
60.0%What is the retained earnings breakpoint
earnings breakpoint next year
next year
What is the retained earnings breakpoint next year
A. P5,760,000 C. P4,000,000
B. P4,800,000
D. P6,000,000
27. Great Value Company is planning to purchase a new machine costing P50,000 with freight and
installation costs amounting to P1,500. The old unit is to be traded-in will be given a trade-in allowance
of P7,500. Other assets that are to be retired as a result of the acquisition of the new machine can be
salvaged and sold for P3,000. The loss on retirement of these other assets is P1,000 which will reduce
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 114
income taxes of P400. If the new equipment is not purchased, repair of the old unit will have to be
made at an estimated cost of P4,000. This cost can be avoided by purchasing the new equipment.
Additional gross working capital of P12,000 will be needed to support operation planned with the new
equipment.
The net investment assigned to the new machine for decision analysis is
A. P50,200 C. P53,600
B. P52,600
D. P57,600
28. The “inflation element” refers to the
A. Impact that future price increases will have on the original cost of a capital expenditure.
B. Fact that the real purchasing power of a monetary unit usually increases over time.
C. Future deterioration of the general purchasing power of the monetary unit.
D. Future increases in the general purchasing power of the monetary unit.
29. A company is considering putting up P50,000 in a three-year project. The company’s expected rate of
return is 12%. The present value of P1.00 at 12% for one year is 0.893, for two years is 0.797, and for
three years is 0.712. The cash flow, net of income taxes will be P18,000 (present value of P16,074) for
the first year and P22,000 (present value of P17,534) for the second year. Assuming that the rate of
return is exactly 12%, the cash flow, net of income taxes, for the third year would be
A. P7,120 C. P16,392
B. P10,000
D. P23,022
30. On September 15, 19x7, LTW Corporation accepted from a customer a P100,000, 90-day, 20% interestbearing note dated the same day. On October 15, 19x7, LTW discounted the note at the Western Bank
at 23% discount. The customer paid the note at maturity. Based on a 360-day year, what amount
should LTW report as net interest revenue from the note transaction?
A. P975 C. P5,000.
B. P20,000.
D. P4,025.
31. The credit and collection policy of Amargo Co. provides for the imposition of credit block when the credit
line is exceeded and/or the account is past due. During the month, because of the campaign to achieve
volume targets, the general manager has waived the credit block policy in a number of instances
involving big volume accounts. The likely effect of this move is
A. Deterioration of aging of receivables only.
B. Increase in the level of receivables only.
C. Deterioration of aging and increase in the level of receivables.
D. Decrease in collections during the month the move was done.
32. Your company is purchasing a transport equipment as part of its territorial expansion strategy. The
technical
services department indicated that this equipment needs overhauling in year 4 or year 5 of its useful
life. The
overhauling cost will be expected during the year the overhauling is done. The finance officer insists
that the
overhauling be done in year 4, not in year 5. The most likely reason is
A. There is lower tax rate in year 5. C. The time value of money is considered.
B. There is higher tax rate in year 5 D. Due statements A and C above.
33. TAMARAW, Inc. has a maintenance shop where repairs to its motor vehicles are done. During last
month’s labor strike, certain records were lost. The actual input of direct labor hours was 1,000, and the
resulting direct labor budget variance was a favorable P3,400. The standard direct labor rate was
P28.00 per hour, but an unexpected labor shortage necessitated the hiring of higher-paid workers for
some jobs and had resulted in a rate variance of P800. The actual direct labor rate was
A. P27.20 per hour C. P30.25 per hour
B. P28.80 per hour
D. P31.40 per hour
34. Which of the following actions would not be consistent with good management?
A. Increased synchronization of cash flows.
B. Minimize the use of float.
C. Maintaining an average cash balance equal to that required as a compensating balance or that which
minimizes total cost.
D. Use of checks and drafts in disbursing funds.
35. Which is an accepted purpose of standard costing?
A. Determine profits.
B. Determine “break-even” production level.
C. Control costs.
D. Allocate costs with more accuracy.
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 115
E. Assume standard level of performance.
36. The Habagat Inc. is planning to spend P600,000 for a machine that it will depreciate on a straight-line
basis over a ten-year period with no terminal disposal price. The machine will generate cash flow from
operations of P120,000 a year. Ignoring income taxes, what is the accounting rate of return on the net
initial investment?
A. 5% C. 10%
B. 12%
D. 15%
37. You are the treasurer of the Hibang Corp. The company is considering a proposed project which has an
expected economic life of seven years. Net present value is the capital budgeting technique the president
wants
you to use. Salvage value of the project would be
A. Treated as cash inflow at estimated salvage value.
B. Treated as cash flow at its present value.
C. Irrelevant cash flow item.
D. Treated as cash inflow at the future value.
38. A firm following an aggressive working capital strategy would
A. Hold substantial amount of fixed assets.
B. Minimize the amount of short-term borrowing.
C. Finance fluctuating assets with long-term financing.
D. Minimize the amount of funds held in very liquid assets.
39. The following data are related to ABC stock:
Required return on ABC common15%Beta
coefficient1.5Risk-free rate9%The required market
return is
Beta coefficient1.5Risk-free rate9%The required market
return is
Risk-free rate9%The required market return is
The required market return is
A. 13.0% C. 25.0%
B. 18.0%
D. 16.0%
40. Hankies Unlimited has a signature scarf for ladies that
marketing data are indicated below:
Cost per yard of clothP36.00Allowance for
rejected scarf5% of productionYards of cloth
needed per scarf0.475 yardAirfreight from
supplierP0.60/yardMotor freight to
customersP0.90 /scarfPurchase discounts
from supplier3%Sales discount to
customers2%The allowance for rejected
scarf is not part of the 0.475 yard of cloth
per scarf. Rejects have no market value.
Materials are used at the start of production.
Allowance for rejected scarf5% of
productionYards of cloth needed per
scarf0.475 yardAirfreight from
supplierP0.60/yardMotor freight to
customersP0.90 /scarfPurchase discounts
from supplier3%Sales discount to
customers2%The allowance for rejected
scarf is not part of the 0.475 yard of cloth
per scarf. Rejects have no market value.
Materials are used at the start of production.
Yards of cloth needed per scarf0.475
yardAirfreight from supplierP0.60/yardMotor
freight to customersP0.90 /scarfPurchase
discounts from supplier3%Sales discount to
customers2%The allowance for rejected
scarf is not part of the 0.475 yard of cloth
per scarf. Rejects have no market value.
Materials are used at the start of production.
Airfreight from supplierP0.60/yardMotor freight
to customersP0.90 /scarfPurchase discounts
15%Beta coefficient1.5Risk-free
rate9%The required market return is
1.5Risk-free rate9%The required market
return is
9%The required market return is
is very popular. Certain production and
P36.00Allowance for rejected scarf5% of
productionYards of cloth needed per
scarf0.475 yardAirfreight from
supplierP0.60/yardMotor freight to
customersP0.90 /scarfPurchase discounts
from supplier3%Sales discount to
customers2%The allowance for rejected
scarf is not part of the 0.475 yard of cloth
per scarf. Rejects have no market value.
Materials are used at the start of production.
5% of productionYards of cloth needed per
scarf0.475 yardAirfreight from
supplierP0.60/yardMotor freight to
customersP0.90 /scarfPurchase discounts
from supplier3%Sales discount to
customers2%The allowance for rejected
scarf is not part of the 0.475 yard of cloth
per scarf. Rejects have no market value.
Materials are used at the start of production.
0.475 yardAirfreight from
supplierP0.60/yardMotor freight to
customersP0.90 /scarfPurchase discounts
from supplier3%Sales discount to
customers2%The allowance for rejected
scarf is not part of the 0.475 yard of cloth
per scarf. Rejects have no market value.
Materials are used at the start of production.
P0.60/yardMotor freight to customersP0.90
/scarfPurchase discounts from
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 116
from supplier3%Sales discount to
supplier3%Sales discount to
customers2%The allowance for rejected
customers2%The allowance for rejected
scarf is not part of the 0.475 yard of cloth
scarf is not part of the 0.475 yard of cloth
per scarf. Rejects have no market value.
per scarf. Rejects have no market value.
Materials are used at the start of production.
Materials are used at the start of production.
Motor freight to customersP0.90 /scarfPurchase
P0.90 /scarfPurchase discounts from
discounts from supplier3%Sales discount to
supplier3%Sales discount to
customers2%The allowance for rejected
customers2%The allowance for rejected
scarf is not part of the 0.475 yard of cloth
scarf is not part of the 0.475 yard of cloth
per scarf. Rejects have no market value.
per scarf. Rejects have no market value.
Materials are used at the start of production.
Materials are used at the start of production.
Purchase discounts from supplier3%Sales
3%Sales discount to customers2%The allowance
discount to customers2%The allowance for
for rejected scarf is not part of the 0.475
rejected scarf is not part of the 0.475 yard
yard of cloth per scarf. Rejects have no
of cloth per scarf. Rejects have no market
market value. Materials are used at the
value. Materials are used at the start of
start of production.
production.
Sales discount to customers2%The allowance for 2%The allowance for rejected scarf is not part of
rejected scarf is not part of the 0.475 yard
the 0.475 yard of cloth per scarf. Rejects
of cloth per scarf. Rejects have no market
have no market value. Materials are used at
value. Materials are used at the start of
the start of production.
production.
The allowance for rejected scarf is not part of the 0.475 yard of cloth per scarf. Rejects have no market
value. Materials are used at the start of production.
Calculate the standard cost of cloth per scarf that Hankies Unlimited should use in its cost sheets.
A. P16.87 C. P18.21
B. P17.76
D. P17.30
41. All of the following statements are correct except:
A. The matching of asset and liability maturities is considered desirable because this strategy
minimizes interest rate risk.
B. Default risk refers to the inability of the firm to pay off its maturing obligations.
C. The matching of assets and liability maturities lowers default risk.
D. An increase in the payables deferral period will lead to a reduction in the need to non-spontaneous
funding.
42. Guemon Company is taking into account the replacement of an old machine now in use with a new
machine costing P100,000. The replacement is expected to produce an annual cash savings of P22,500
before income taxes.
The estimated useful life of the new machine is ten years with no residual value. The book value of the old
machine is P37,500 and is expected to last for another five years. It is being depreciated at P8,000 per
year. The income tax rate is 25%. The annual cash savings after tax is
A. P15,375 C. P17,375
B. P16,875
D. P20,520
43. An inventory method which is particularly useful in connection with the valuation of the overhead
element of work-in-process is
A. Physical count.
B. Specific identification.
C. Market price of product less cost of disposition.
D. Standard cost.
44. Bal and Subas obtained a short-term bank loan for P1 million at an annual interest of 12%. As a
condition of the loan, the company is required to maintain a compensating balance of P200,000 in its
savings account which earns interest at an annual rate of 6%. The company would otherwise maintain
only P100,000 in the savings account for transactional purposes. The effective cost of the loan is
A. 13.20% C. 12%
B. 12.67%
D. 13.5%
45. To approximate annual cash inflow, depreciation is
A. Added back to net income because it is an inflow of cash.
B. Subtracted from net income because it is an outflow of cash.
C. Subtracted from net income because it is an expense.
D. Added back to net income because it is not an outflow of cash.
46. The Nunal Corporation finds that it is necessary to determine its marginal cost of capital. Nunal’s current
capital structure calls for 45% debt, 15% preferred stock and 40% common equity. The costs of the
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 117
various sources of financing are as follows: debt, after-tax 5.6%; preferred stock, 9%; retained
earnings, 12%; and new common stock, 13.2%. If the firm has P12 million retained earnings, and
Nunal has an opportunity to invest in an attractive project that costs P45 million, what is the marginal
cost of capital of Nunal Corporation?
A. 8.83% C. 9.95%
B. 8.91%
D. 12.40%
47. If a company uses a predetermined rate for absorption of manufacturing overhead, the volume variance
is
A. The under- or over-applied fixed cost element of overhead.
B. The under- or over-applied variable cost element of overhead.
C. The difference between budgeted cost and actual cost of fixed overhead items.
D. The difference between budgeted cost and actual cost of variable overhead items.
48. Based on normal capacity operations, Sta. Ana Company employs 25 workers in its Refining
Department, working 8 hours a day, 20 days per month at a wage rate of P6 per hour. At normal
capacity, production in the department is 5,000 units per month. Indirect materials average P0.25 per
direct labor hour; indirect labor cost is 12½% of direct labor cost; and other overhead are P0.15 per
direct labor hour.
The flexible budget at the normal capacity activity level follows:
Direct materialsP 4,000Direct labor24,000Fixed
P 4,000Direct labor24,000Fixed factory
factory overhead1,200Indirect
overhead1,200Indirect
materials1,000Indirect labor3,000Other
materials1,000Indirect labor3,000Other
overhead600TotalP 33,800Cost per unitP
overhead600TotalP 33,800Cost per unitP
6.76The cost per unit at 60% capacity is
6.76The cost per unit at 60% capacity is
Direct labor24,000Fixed factory
24,000Fixed factory overhead1,200Indirect
overhead1,200Indirect materials1,000Indirect
materials1,000Indirect labor3,000Other
labor3,000Other overhead600TotalP
overhead600TotalP 33,800Cost per unitP
33,800Cost per unitP 6.76The cost per unit at
6.76The cost per unit at 60% capacity is
60% capacity is
Fixed factory overhead1,200Indirect
1,200Indirect materials1,000Indirect
materials1,000Indirect labor3,000Other
labor3,000Other overhead600TotalP
overhead600TotalP 33,800Cost per unitP
33,800Cost per unitP 6.76The cost per unit
6.76The cost per unit at 60% capacity is
at 60% capacity is
Indirect materials1,000Indirect labor3,000Other
1,000Indirect labor3,000Other
overhead600TotalP 33,800Cost per unitP
overhead600TotalP 33,800Cost per unitP
6.76The cost per unit at 60% capacity is
6.76The cost per unit at 60% capacity is
Indirect labor3,000Other overhead600TotalP
3,000Other overhead600TotalP 33,800Cost per
33,800Cost per unitP 6.76The cost per unit at
unitP 6.76The cost per unit at 60%
60% capacity is
capacity is
Other overhead600TotalP 33,800Cost per unitP
600TotalP 33,800Cost per unitP 6.76The cost
6.76The cost per unit at 60% capacity is
per unit at 60% capacity is
TotalP 33,800Cost per unitP 6.76The cost per
P 33,800Cost per unitP 6.76The cost per unit
unit at 60% capacity is
at 60% capacity is
Cost per unitP 6.76The cost per unit at 60%
P 6.76The cost per unit at 60% capacity is
capacity is
The cost per unit at 60% capacity is
A. P6.00 C. P6.82
B. P6.50
D. P6.92
49. Compared to other firms in the industry, a company that maintains a conservative working capital policy
will tend
to have a
A. Greater percentage of short-term financing.
B. Greater risk of needing to sell current assets to repay debt.
C. Higher ratio of current assets to fixed assets.
D. Higher total asset turnover.
50. Information on the direct material costs of Bernal Manufacturing Corp. is as follows:
Actual direct material costsP 44,000Actual units of
P 44,000Actual units of direct material
direct material used22,000Standard price per
used22,000Standard price per unit of
unit of direct materialP2.20Direct material
direct materialP2.20Direct material
efficiency variance-unfavorableP2,800What
efficiency variance-unfavorableP2,800What
was Bernal’s direct material price variance?
was Bernal’s direct material price
variance?
Actual units of direct material used22,000Standard 22,000Standard price per unit of direct
price per unit of direct materialP2.20Direct
materialP2.20Direct material efficiency
Practical Accounting 2
Second Pre-Board Examination
material efficiency varianceunfavorableP2,800What was Bernal’s direct
material price variance?
Standard price per unit of direct
materialP2.20Direct material efficiency
variance-unfavorableP2,800What was Bernal’s
direct material price variance?
Direct material efficiency varianceunfavorableP2,800What was Bernal’s direct
material price variance?
What was Bernal’s direct material price variance?
A. P4,400 favorable. C. P5,600 favorable.
B. P4,400 unfavorable.
D. P5,600 unfavorable.
May 2007 Batch
Page 118
variance-unfavorableP2,800What was
Bernal’s direct material price variance?
P2.20Direct material efficiency varianceunfavorableP2,800What was Bernal’s direct
material price variance?
P2,800What was Bernal’s direct material price
variance?
51. The best characteristics of a standard cost system is
A. Standard can pinpoint responsibility and help motivation
B. All variances from standard should be reviewed
C. All significant unfavorable variances should be reviewed
D. Standard cost involves cost control which is cost reduction
52.
ALPHA Co. uses a standard cost system. Direct materials statistics for the month of May, 19x7 are
summarize below:
Standard unit price P90.00
Actual units purchased 40,000
Standard units allowed for actual production 36,250
Materials price variance- favorable P6,000
What was the actual purchase price per unit?
A. P75.00 C. P88.50
B. P85.89
D. P89.85
53. Lyben Inc. is planning to produce a new product. To do this, it is necessary to acquire a new equipment
that will cost the company P100,000. The estimated life of the new equipment is five years with no
salvage value. The estimated income and costs based on expected sales of P10,000 units per year are:
Sales @ P10.00 per unitP100,000Costs @ P8.00 per
P100,000Costs @ P8.00 per unit80,000Net
unit80,000Net incomeP 20,000The accounting
incomeP 20,000The accounting rate of
rate of return based on initial investment is 20%
return based on initial investment is
20%
Costs @ P8.00 per unit80,000Net incomeP
80,000Net incomeP 20,000The accounting
20,000The accounting rate of return based on
rate of return based on initial
initial investment is 20%
investment is 20%
Net incomeP 20,000The accounting rate of return
P 20,000The accounting rate of return
based on initial investment is 20%
based on initial investment is 20%
The accounting rate of return based on initial investment is 20%
What will be the accounting rate of return based on initial investment of P100,000 if management decrease
its selling price of the new product by 10%?
A. 5% C. 15%
B. 10%
D. 20%
54. An advantage of using the payback method of evaluating capital budgeting alternatives is that payback is
A. Insensitive to the life of the project considered.
B. Precise estimate of profitability.
C. Based on cash flow data.
D. Easy to apply.
55. Diliman Republic Publishers, Inc. is considering replacing an old press that cost P800,000 six years ago
with a new one that would cost P2,250,000. Shipping and installation would cost an additional
P200,000. The old press has a book value of P150,000 and could be sold currently for P50,000. The
increased production of the new press would increase inventories by P40,000, accounts receivable by
P160,000 and accounts payable by P140,000. Diliman Republic’s net initial investment for analyzing the
acquisition of the new press assuming a 35% income tax rate would be
A. P2,450,000 C. P2,600,000
B. P2,425,000
D. P2,250,000
56. It is held that the level of accounts receivable that the firm has or holds reflects both the volume of a
firm’s sales on account and a firm’s credit policies. Which one of the following items is not considered as
part of the firm’s credit policies?
A. The minimum risk group to which credit should be extended.
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 119
B. The extent (in terms of money) to which a firm will go to collect an account.
C. The length of time for which credit is extended.
D. The size of the discount that will be offered.
57. DIGITAL Products produces a product, Digit, and uses standard costing methods. The standard direct
labor cost of Digit is one and one-half hours at P180 per hour. During October, 19x7, 500 Digit units
were produced in 1,000 hours at P176 per hour. The direct labor efficiency variance is a favorable (an
unfavorable)
A. P30,000 C. P(30,000)
B. P45,000
D. P(45,000)
58. The formula for labor rate variance is
A. Actual hours worked x actual hourly rate less standard hourly rate
B. Actual hours worked x standard hourly rate less actual hourly rate
C. Standard hourly rate x standard labor hours less actual hours worked
D. Standard hourly rate x difference in hours
59. QRS makes large cash payments averaging P17,000 daily. The company changed from using checks to
sight drafts which will permit it to hold unto its cash for one extra day. If QRS can use the extra cash to
earn 14% annually, what annual peso return will it earn?
A. P652.10 C. P6.52
B. P6,521.00
D. P2,380
60. The accepted purpose of standard costing is
A. To allocate costs to standard production effort.
B. To allocate the costs with more accuracy.
C. To control costs.
D. To assure a standard level of performance.
61. The MNO Company believes that it can sell long-term bonds with a 6% coupon but at a price that gives
a yield-to-maturity of 9%. If such bonds are part of next year’s financing plans, which of the following
should be used for bonds in their after-tax (40%) cost-of-capital calculation?
A. 3.6% C. 4.2%
B. 5.4%
D. 6%
62. The accounting area in which the only objective of depreciation accounting relates to the effect of
depreciation charges upon tax payments is
A. Income determination. C. Cost/volume/profit analysis.
B. Financial reporting.
D. Capital budgeting.
63. MLF Corporation is evaluating the purchase of a P500,000 die attach machine. The cash inflows
expected from the investment is P145,000 per year for five years with no equipment salvage value. The
cost of capital is 12%. The net present value factor for five (5) years at 12% is 3.6048 and at 14% is
3.4331. The internal rate of return for this investment is
A. 3.45% C. 13.8%
B. 2.04%
D. 15.48%
64. The official terms of purchases of U Tang & Co. are 2/10, net 30 but generally the company does not
pay until 40 days after the invoice date. Its purchases total P3,600,000 per year. Assuming 360 days a
year, the approximate cost of the “non-free trade credit amounts to
A. 18.36% C. 21.90%
B. 24.50%
D. 19.40%
65. If you compute variances from standard cost, the difference between the actual and standard price
multiplied by actual quantity will yield a
A. Mix variance C. Volume variance
B. Combined price-quantity variance
D. Price variance
66. In deciding the investment in a project, cash flows should be adjusted for their tax effect. Assume an
income tax rate of 35%. An old equipment with a book value of P15,000 will be replaced by a new
equipment costing P50,000. The market value of the old equipment is P11,000. The after-tax
investment outlay is
A. P34,400 C. P39,000
B. P37,600
D. P40,400
67. An overhead budget consisting of separate budgets for different levels of activity is called a
A. Progressive budget C. Capital budget
B. Production budget
D. Flexible budget
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 120
68. Bachoy & Co. buys on terms 2/10, net 30, but generally does not pay until 40 days after the invoice
date. Its purchases total P2,160,000 per year. Assuming 360 days a year, the amount of “non-free”
trade credit used by the company on the average each year is
A. P180,000 C. P60,000
B. P240,000
D. P120,000
69. JBJ Company’s account balance at June 30, 1987 for account receivables and related allowances for
doubtful
accounts were P600,000 and P3,000 respectively. Aging of accounts receivable indicated
that P48,000 of the June 30, 1987 receivable may be uncollectible. Net realizable value of accounts
receivable were:
A. P597,000 C. P539,000
B. P552,000
D. none of these
70. To which of the following is a standard cost nearly like?
A. Estimated cost. C. Product cost.
B. Budgeted cost.
D. Period cost.
MANAGEMENT ADVISORY
SERVICES1B11A21B31C41A51A61B2D12C22A32A42C52D62D3D1
3D23A33B43D53B63C4C14B24A34B44B54D64B5C15D25D35C45D
1B11 1B11 1B11 1B11 1B11 1B11 1B11 1B11 1B11
1B11
1B11
1B11
1B11
1B11
1B11
1B11
1B11
1B11
1B11
1B11
B11A
11A2
1
A21B
21B3
1
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31C4
1
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41A5
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5
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C45D
45D5
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55B6
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B65D
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6B16
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56B6
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B66B
66B7
B7A1
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7A17
A17B
17B2
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B27A
27A3
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37B4
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B47A
47A5
7
A57D
57D6
7
D67
67D8
D8C
8C18
C18C
18C2
8
C28C
28C3
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C38D
38D4
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48D5
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58A6
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A9B1
9
9B19
B19A
19A2
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39A4
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A49C
49C5
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C59D
59D6
9
D69B
69B1
0
B10B
10B2
0
B20A
20A3
0
A30A
30A4
0
A40B
40B5
0
B50A
50A6
0
A60C
60C7
0
C70B
70B
B
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 121
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 122
Business Law & Taxation First Pre-Board Examination August 11, 2007 Saturday 10:00am–12:00nn
Choose the letter of your choice in the answer sheet provided.
Two persons became debtor & creditor of each other:
A. Confusion c. Remission
B. Abbreviated payment d. Novation
A, B, C, and D, owes E, F, G and H P40,000. How much E can collect from A if there is no agreement if
their obligation is joint or solidary?
P2,500 c. P40,000
P10,000 d. P5,000
. In the preceding number, if A, B, C and D are joint debtors while E, F, G and H are solidary creditors, how
much can E collect from A?
P2,500 c. P40,000
P10,000 d. P5,000
??. The principle by which contracting parties may stipulate any legal or lawful conditions:
Autonomy of contracts c. Relativity of Contracts
Mutuality of contracts d. Freedom to stipulate
??. Here, defense of a good father of a family is not a proper defense:
Culpa Contractual c. Culpa aquiline delicto
Culpa Aquiliana d. Culpa Criminal
??. 1st Statement: When a fortuitous event concurs with a person’s negligence resulting to a loss, he is still
exempt from liability.
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 123
2nd Statement: The creditor has a right to the fruits of the thing from the time ownership is transferred.
Both statements are correct. c. Only the first is correct.
Both statements are false. d. Only the second is correct.
??. A obliged himself to deliver to his dog, his cow, his carabao, his elephant or his crocodile. The first two
were lost due to fortuitous event and the last three lost due to A’s fault. What is A’s obligation?
Creditor, B may convert to cash any of them plus damages
Debtor A may convert to cash the value of the last one lost plus damages
A may rescind the contract plus damages
Creditor, B may convert to cash any of the last three plus damages
??. A obliged himself to deliver to B his cellphone or as a substitute he may deliver his cute kitten. After
substitution was made, the former was lost due to A’s fault
A is liable and must pay damages
A will simply deliver his cute kitten plus damages for the loss of the cellphone
The loss has no effect to the obligation, obligation to deliver the latter will subsist
Obligation was extinguished
??. A and B solidarily owe C P50,000; they issued a promissory note in favor of C. C endorsed it to D, D
endorsed it to E then endorsed it back to A who is also E’s creditor in the amount of P50,000.
The obligation is partially extinguished by merger
The obligation is extinguished and A cannot recover any amount from B
The obligation is extinguished but A can recover the share of B which is P25,000
The obligation is partially extinguished by compensation
Rose obliged herself to give Jack 1 dozen of eggs on January 15, 2006. When the date arrived, Rose
failed to deliver despite repeated demands from Jack. Jack’s remedy is:
Compel Rose to deliver eggs plus damages
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 124
Compel Rose to pay the amount of the eggs
Rescind the contract
Ask a 3rd person to deliver the eggs to him but chargeable to Rose
Mary obliged herself to give to Crisse her BMW car on October 10, 2005 but she failed to deliver on
that date. On the following day, a lightning completely destroyed the car.
Mary is still liable for she is in default already
Mary is no longer liable there being no demand , there is no delay and the thing is lost due to
fortuitous event
Crisse can demand for a substitute
Mary is still liable even if she is in default
One is an incorrect distinction between solidarity and indivisibility.
Solidarity refers to the legal tie whereas indivisibility refers to prestation
Plurality of subject is indispensable in solidarity unlike in indivisibility
In case of breach, solidarity character of obligation remains, but the indivisible character of the obligation is
terminated
Solidarity refers to the parties of the obligation and the prestation whereas indivisibility refers
to the vinculum juris
I will pay you P10,000 if I decide to go to USA tonight is what kind of condition
a. Casual c. Potestative resolutory
b. Potestative suspensive d. Mixed
Here, consignation alone is enough to produce payment except:
If the creditor is unknown
Creditor is incapacitated
Creditor is reluctant to issue receipt
Two or more persons claim to be creditors
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
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Which of the following is correct?
An action for rescission of contract prescribes in five (5) years counted from the execution of the contract
An action to declare contract void is not subject to prescription
An action for annulment of contract is imprescriptible
An action to enforce judicially a natural obligation prescribes in 4 years
The following contracts should observe Statute of Frauds, except:
Lease of real property longer than one year
Representation as to the credit of a third person
Lease of personal property longer than one year
Guaranty
S makes an offer to B on January 12, 2006. B makes known his acceptance in a letter sent on January
2, and received by S on January 10. Meantime, on January 5, S becomes insane.
The contract is unenforceable
The contract is not binding because there is no meeting of minds
There is already a meeting of minds, the contract is perfected
The contract is voidable because one party is insane.
Which of the following can be considered as feature of a void contract?
Subject to ratification
They exist
Action or defense for nullity is subject to prescription
Defense cannot be waived
In three of the following defective contracts, ratification cleanses the defects. Which is the exception?
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 126
Contracts entered into by a person who has been given no authority
Sale of a piece of land thru an agent the authority is oral
Sale of immovable property or interest orally entered into
Both parties are incapable of giving consent
S, a minor, owns a specific property valued P 50,000. B, capacitated, by means of fraud induced S to
sell his property to him (B) for P 10,000 which S did so. The contract is in writing.
The contract is void
The contract is rescissible because the ward suffered lesion by more than ¼ of the value
The contract remains unenforeceable because it falls under the Statute of Frauds
The contract is binding from the start
Type of defective contract that creates no rights and impose no obligation, but are susceptible of
ratification.
Void contracts
Rescissible contracts
Unenforceable contracts
Voidable contracts
The guardian of an insane person sells a house and lot belonging to the latter valued at P100,000 to B,
buyer for P74,000. The contract is:
Rescissible c. Voidable
Unenforceable d. Valid
Example No. 1: W 16 years old sold his house valued at P1M for P50,000 or a lesion by more than
one-fourth of the value of the said house.
Example No. 2: G, guardian of W, sold W’s house valued at P50,000 for P37,500 or a lesion of onefourth of the value.
Voidable; Rescissible
Rescissible; voidable
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
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No. 1 is rescissible; while No.2 is unenforceable
Voidable; valid perfectly
Which of the following contracts cannot be ratified?
Those whose cause or object did not exist at the time of the transaction
Unauthorized contracts
Those where both parties are incapable of giving consent
Those that fail to comply with the Statute of Fraud
On October 4, 2005, A is indebted to B for P50,000 for a 20-day period. A proposed to B that X will
pay A’s debt and that A will be free from all liabilities. B and X agree to the proposal. On October 25,
2005, X became insolvent. At the time of delegation, X was already insolvent but this was not known to
A. The insolvency is not public knowledge. So B sues A on the ground that it was A who made then
proposal that A guaranteed X’s solvency. Decide.
A is liable because he is presumed to have guaranteed X’s solvency.
A is not liable because he does not know the insolvency of X at the time of delegation and
neither was the insolvency of public knowledge.
A is liable because he did not exercise due diligence in determining the insolvency of X.
A is liable because X agree to the proposal to make himself solidarity liable for the obligation.
When the thing deteriorates pending the fulfillment of the suspensive condition without the fault of the
debtor, the impairment is:
To borne by the party who caused the deterioration
To be borne partly by the debtor and partly by the creditor
To be borne by the debtor
To be borne by creditor
X enters into a contract with Y whereby X sold his land orally to Y. The land has been delivered and
the money has been paid. Decide.
The contract fully enforceable.
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
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The contract is unenforeceable
The contract is not valid because the contract is not made in public instrument
The contract is not valid because it is not in writing as required by the Statute of Fraud
On September 1, 2005, A entered into a contract with B whereby A sells to B 5,000 sacks of sugar to
be delivered on the 15th and to be paid in full on the 30th. There was no agreement for rescission
based on prepayment. A did not deliver on the 15th but on the 30th, he was willing and offering to
deliver but B did not make payment on said date and so A did not like it and refused to make delivery.
Which is incorrect?
A cannot rescind the contract for nonpayment of the price
A cannot refuse to deliver the goods
B is not entitled to recover damages
A can rescind the contract for nonpayment of the price since B is at fault
A has a daughter, B; X has a son, Y. A, B, X and Y agree together that Y will marry B. The agreement
is oral. If B later on refuses to marry Y who spent for the necessary wedding preparations, X and Y
decided to bring an action against A and B, will the action prosper? Decide.
Between Y and B, the action will prosper because the agreement is made orally.
In case of A and X, the action will prosper because the agreement which was made orally in enforceable as
it is based in the consideration of marriage.
As to A and X, the action will not prosper because the agreement is not enforceable as it was
not they who mutually promised to marry each other.
The action of X and Y against A and B will prosper because the agreement is based on the consideration of
marriage other than mutual promise to marry.
D1, D2 and D3 borrowed from C P300,000 as a security, he mortgaged their undivided agricultural land to
C, Subsequently, D1 paid C P100,000. Is the mortgage on D1’s share of the land extinguished?
No, because mortgages are considered indivisible, payment in part shall not extinguish the
obligation secured by the mortgage.
No. because the obligation is solidary, payment in part shall not extinguish the obligation secured by the
mortgage.
Yes, the obligation of the debtors is joint, D1 is answerable only for P100,000.
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 129
Yes, because the obligation of D1 on the debt is only P100,000.
B called up S by telephone, to sell his parcel of land. The land was purchased by X, but S did not
forward the money to B. Now B wants to recover the parcel of land.
B cannot recover because the sale is valid
B can recover because the sale between S and X is void, therefore there is no sale
B can recover only if B can return the money paid by X to S
Answer not given
32.
D pledged his ring to C for P100,000. D failed to pay his obligation on time. C sold it at public
auction for P8,000.
a. C can recover the deficiency even without stipulation
b. C cannot recover the deficiency even there is stipulation
c. C cannot recover the deficiency
d. C can recover the deficiency
33. Which is not a characteristic of contract of sale?
a. Onerous c. Consensual
b. Innominate d. Commutative
34.Mr. Ong leased to Mr. Santos a 5 KVA generator for two years at a lease rental fee of P2,000 per month
and signed an option in favor of Mr. Santos to buy the generator at the end of the term of the lease at
P60,000. All rental fees are paid to be considered as partial payment of the sale. After 12 months, Mr.
Santos was able to pay the rental fees for nine months and was in arrear for the three months rental fees.
Mr. Ong terminated the lease contract and repossessed the generator. The consequence of the transaction
is:
Mr. Ong can collect the rental fees for the three months which are in arrears.
Mr. Ong can collect the rental fees for the unexpired 12 months of the lease contract.
When Mr. Ong took possession of the generator, he has no further action against Mr. Santos.
Mr. Ong, in terminating the lease and repossessing the generator, is obliged to refund the nine months
rental fees paid by Mr. Santos.
35. When the period is “ on or before date”, the debtor has the benefit of the period. This benefit is lost and
the obligation becomes demandable when:
The debtor attempts to abscond.
After contracting the obligation, the creditor suspects the debtor becoming insolvent.
The guarantee given by the debtor is not acceptable to the creditor.
Demand by the creditor could be useless.
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 130
36. In the following cases, the sale should be considered an equitable mortgage, except:
If the vendee still keeps a substantial portion of the purchase price.
When seller paid the capital gains tax on the property sold.
When the price is unusually low.
When seller keeps the possession of the property.
37. S sold his car to B payable in ten (10) equal monthly installments and with a mortgage constituted on
the same property (car). For B’s failure to pay a month’s installment, which statement is correct?
S may foreclose the mortgage on B’s car but he no longer has the right to recover the balance should it (the
car) be sold for an amount lower than what he claims from B.
S may seek the cancellation of the sale made to B.
S may seek the cancellation of the same and later on foreclose the mortgage should he find it impossible to
collect from B.
S may seek fulfilment of the obligation of B to pay the amount due.
38. Which statement is correct about extinguishments of obligation?
Confusion or merger rights may occur in the person of a guarantor.
Agency wherein novation is effected must be in writing and thru a Special Power of Attorney.
Prescription is a primary mode of extinguishing an obligation.
Condonation is generally gratuitous.
39. S sold to B a specific car for P20,000 payable in four equal installments. S delivered the car to B but
required to mortgage it back to S to answer for the unpaid installments. B paid the 1st installment, but
the last three he failed to pay. S foreclosed the mortgaged property and sold it at public auction for
P13,000.
S can recover from B the balance of P2,000.
S can recover from B & balance of P2,000 if there is stipulation to that effect.
S cannot recover the deficiency any more even if there is stipulation to that effect.
None of the above.
40. When it is stipulated that the repurchase of the property sold could be made at any time, the repurchase
shall be exercised
Within four years from the date of the contract
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 131
Within ten years from the date of the contract
After ten years from the date of the contract
None of them.
41. S sold to B a parcel of land for a lump sum of P50,000 the contract states that the area is 500 square
meters. Subsequently, it was ascertained that the area included within the boundaries is really 550
square meters.
a. S to deliver 550 sq. meters and B to pay same amount.
b. S or B can rescind the We because there is no meeting of minds.
c. S is bound to deliver 500 square meters and B to pay P55,000.
d. S is bound to deliver 500 square meters and B to pay P50,000.
42. Statement No. 1: If the property is sold for nonpayment of taxes due and not made known to the
vendee before the sale, the vendor is still liable for warranty against hidden defects.
Statement No. 2: In the eviction, if seller is at fault, he must reimburse to the buyer the purchase price of
the thing sold.
a. Both are true c. No. 1 is true; No. 2 is false
b. Both are false d. No. 1 is false; No. 2 is true
43. A, B and C are co-owners of an undivided parcel of land. B sold his 1/3 interest to C absolutely. Which is
correct?
a. A may exercise his right of redemption on the interest sold by B to C.
b. A cannot exercise the right of redemption because the sale was made in favor of a co-owner.
c. The sale made by B to C is void because it was not made in favor of a stranger.
d. A may redeem only ½ of the interest sold by B to C.
44. Which of the statements is not true?
In sale or return ownership is transferred to the buyer upon delivery
Warranty against hidden defects is an accidental element of a contract of sale
In sale the obligation of the buyer is not only the payment of the price
In dacion en pago, an obligation is extinguished while in contract of sale, obligation arise.
45. A land was sold to different vendees, the ownership shall be transferred to the person
Who have first taken possession in good faith.
Who presents the oldest title in good faith.
Who in good faith recorded it in the Registry of Property
Who have paid in good faith the purchase price in full
46.
S sold car for P300,000 to B. Despite his knowledge of this defect, S obtained a waiver from B of the
latter’s right under the warranty against hidden defects. Subsequently, the car was wrecked due to the
recklessness of B who only the discovered the defects when the FMV of the car was P250, 000. Choose
the best answer.
a. The liability of S remains to be P300,000 because of breach of warranty against hidden defect.
b. S is not liable anymore because the car got loss due to recklessness of B
c. The waiver is void because S knew the defect
d. S is still liable to reimburse B P50,000 plus damages and he must pay damages.
Practical Accounting 2
Second Pre-Board Examination
47.
May 2007 Batch
Page 132
Here the owner of the property became the lessee thereof so no physical delivery is still required.
a. Traditio longa manu c. Traditio constitutum possessorium
b. Traditio brevi manu d. Traditio clarium
48. In redemption, which will not be paid by the buyer- a retro?
Price of the thing sold.
Useful expenses.
Necessary expenses.
Expenses of the sale if paid by the seller.
49. Which is not a constitutional limitation?
a. Due process of law in taxation
b. Uniformity of taxation
c. Double taxation
d. Equality in Taxation
50. Which is incorrect?
a. Collection of taxes is an administrative act.
b. There can be no tax if there is no law providing for the said tax.
No person can be imprisoned for non-payment of capitation tax.
A tax is a form of administrative revenue.
51. All are essential characteristics of a tax except:
a. Payment of the tax is mandatory.
b. It is generally payable in money.
c. It is generally unlimited in amount.
d. It is proportionate in character.
52. First Statement: Estate tax is an excise, direct and proportionate tax.
Second Statement: Our tax are civil, prospective and penal in nature.
True; True c. True; False
False; False d. False; True
53. Who is the taxpayer in estate tax?
The heirs or successors
The deceased person’s estate
The heir’s legal representative
The executor or administrator of the estate
54. All are considered legal mode of escape from taxation except:
a. Shifting
b. Transformation
c. Capitalization
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 133
d. Tax dodging
55.
One of the following is not subject to 0-15% first donor’s tax rates:
a. A donation to the illegitimate child of the donor’s niece
b. A donation to the only brother of his paternal uncle
c. A donation to the only sister of his maternal aunt
d. A donation to the grandson of his father’s brother
Boboy sold his residential land in Manila for P500,000. Its fair market value was P800,000, with historical
cost P100,000 only. Later Boboy died within the year of transfer due to accident. What is the tax liability
of Boboy?
Basic Income Tax
Capital Gains Tax
Donor’s tax
Estate tax
57. All are incorrect except one:
a. Claims against insolvent person must be notarised to be deductible
b. Losses must occur before decedent’s death to be deductible
Allowable deduction for funeral expenses can never be more than the actual expenses
Onerous revocable transfers are includible in the gross estate
58. Mr. and Mrs. Reyes gave the following gifts out of their conjugal property. March 15, 2000 - Land valued
at P200,000, mortgaged for P50,000 and P20,000 of which was assumed by the donee, brother of Mr.
Reyes on account of his brother’s marriage held last February 14, 2000.The donor’s tax due on the gift
is:
a. P27,000 c. P1,600
b. P54,000 d. P
0
59. In addition to the above problem, if on April 15, 2000, Mr. and Mrs. Reyes donated a car in USA worth
P395,000 to their daughter (he paid P15,000 donor’s tax) but the car is exclusive property of Mr. Reyes,
and a conjugal car in the Philippines worth P300,000 to the son of Mr. Reyes by first marriage on
account of marriage last April 25, 1999. The donor’s tax due for Mr. and Mrs. Reyes shall be:
a. P21,500; P45,000 c. P22,100; P42,000
b. P7,912: P45,000 d. P8,600; P42,000
60. Mr. and Mrs. Cruz gave the following conjugal donations:
Date Donee
7/15/05 Son on account of marriage on 8/20/04 P100,000 with mortgage of P20,000 assumed by the donee.
8/15/05 Daughter on account of marriage 8/1/04 P160,000
10/22/05 Niece of Mrs. Cruz on account of marriage 11/20/05 P60,000
11/22/05 Granddaughter on account of marriage 12/22/05 P140,000.
The combined donor’s tax payable by Mr. and Mrs. Cruz on 8/15/05 is:
P200 c. None
P400 d. P600
61. The tax payable by Mr. Cruz only on 11/22/05 is:
P9,000 c. P7,600
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
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P1,400 d. P9,600
62. Below are characteristics of a sound taxation system EXCEPT:
a. Administrative feasibility and compliance
b. Fiscal Adequacy
c. Theoretical Justice or Equality
d. Uniformity of Taxation
63. One of the following is NOT inherent limitation:
Taxes must be for public purpose
Equality in Taxation
Territoriality rule
Rule on double taxation
64. Three of the following are exempt or excluded from the donor’s tax. Which is the exception?
a. P150,000 donation to nonprofit school
b. Donation of condominium in Hong Kong to a Filipina by a British nation not residing in the Philippines
c. P10,000 cash given by a resident alien donor to his legitimate son who is getting married in the Philippines
d. P20,000 cash given by a nonresident alien donor to his legitimate son who is getting married
in the Philippines to a Filipina.
65. John sold his car in Manila to Sam. Its cost is P500,000 and has a fair market value of P400,000 at the
same time of sale. It was sold for P200,000. For donor’s tax purposes, which of the following statements
is correct?
There is taxable gift of P300,000
There is taxable gift of P200,000
The transfer is for insufficient consideration, hence, not subject to gift tax.
d. The transfer is subject to capital gains tax
66. Which of the following is not a scheme of shifting the incidence of taxation?
a. The manufacturer transfer the tax to the customer by adding the tax to the selling price of the goods sold
b. The tax forms part of the purchase price
c. Changing the terms of the sale like FOB shipping point in the Philippines to FOB destination
on abroad, so that the title passes abroad instead of in the Philippines
d. The manufacturer transfer the sales tax to the distributor, then in turn to the wholesaler, in turn to the
retailer and finally to the consumer
67. In case of conflict between the tax code and generally accepted accounting principles (GAAP):
Both tax codes and GAAP shall be enforced
GAAP shall prevail over tax code
Tax code shall prevail over GAAP
d. The issue shall be resolved by the courts
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
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68. Which of the following statements is not correct?
a. Taxes may be imposed to raise revenues or to regulate certain activities within the state
b. The state can have the power of taxation even if the Constitution does not expressly give it the power to
tax
c. For the exercise of the power of taxation, the state can tax anything at any time
d. The provisions of taxation in the Philippines Constitution are grants of power not limitations
on taxing powers
69. Mr. Tuna, head of the family died on January 15, 2005, leaving the following properties and obligations:
House and lot in Makati, F. Home P 1,500,000
Personal Properties 1,500,000
Farm lot, USA
825,000
Claim against an insolvent debtor
225,000
Transfer in contemplation of death (gratuitous)
1,500,000
Transfer passing special power of appointment
75,000
Deduction Claimed:
Funeral Expenses
575,000
Judicial Expenses
67,500
Death benefits from employer
300,000
Unpaid mortgage on the farm lot 75,000
Medical expenses (included in the funeral expense incurred
within the 1 year period with receipts)
225,000
The farm lot was inherited 4 years ago by the decedent before his death with a value then P575,000 and a
mortgage indebtedness of P150,000.
The total deduction from the gross estate is:
a. P3,092,500 b. P3,363,398
c. P867,500 d. P1,867,500
70. Mr. Kukuruku, non-resident Japanese, died leaving the following:
Exclusive properties, Philippines
Conjugal properties, Philippines
Conjugal properties, Abroad
1,820,000
Deductions claimed:
Funeral expenses
Judicial expenses
Unpaid expenses
Losses: occurring 3 mos. After death due to fire
Donation mortis causa to Makati City Hall
Family Home (inc. above)
Standard deduction
1,000,000
The taxable net estate is:
a. P216,500
b. P816,500
c. P516,500
P 560,000
420,000
100,000
100,500
150,500
120,000
180,000
1,000,000
d. P916,500
71.
The following are transactions and acquisitions exempt firm transfer tax except:
a. Transmission from the first heir or donee in favor of another beneficiary in accordance with the desire of
the predecessor.
b. Transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to the
fideicommisary;
c. The merger of usufruct in the owner if the naked title;
d. All bequests, devises, legacies or transfers to social welfare, cultural and charitable
institutions.
72. In determining the net estate of a decedent, which of the following rule is correct?
a. Real estate abroad is not included in the gross estate of a decedent who is a resident alien;
Vanishing deduction must be subject to limitations;
Shares of stocks being intangible property shall be included in the decedent’s gross estate wherever
situated;
Funeral expenses are deductible to the extent of 5 % of the total gross estate but not exceeding P100,000.
73. Y, a Filipino resident, died on November 5, 2002 and his estate incurred losses due to:
1st. Loss: From fire on February 2, 2002 of improvement on his property not compensated by insurance.
2nd Loss: From flood on February 25, 2003 of household furniture also not compensated by insurance.
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
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1st loss is not deductible and 2nd loss is deductible;
Both losses are not deductible;
Both losses are deductible from gross estate;
d. 1st loss is deductible and 2nd loss is not.
74. A CPA Certificate is required when:
Gross estate exceeds P50,000
Gross estate is P50,000 or more
Gross estate exceeds P2,000,000
Gross estate is P2,000,000 or more
75. Extension for payment of estate tax with judicial settlement is:
6 months c. 5 years
b. 90 days d. 2 years
76. The period for filing the donor’s tax return
Within 6 months from the date of donation
Within 30 days from the date of donation
Within 3 months from the date of donation
Within 1 month from donation
77. The period for filing the estate tax return
Within 6 months from the date of death
b. Within 3 months from the date of death
c. Within 90 days from the date of death
d. Within 120 days from the date of death
78. Which of the following proceeds of life insurance policy is not includible in the gross estate
Beneficiary is the estate, irrevocable
Beneficiary is the administrator, revocable
Beneficiary is the executor, irrevocable
Correct answer is not given
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 137
79. Sarah inherited a residential lot in 1996 valued at P200,000 at that time. On November 30,2006
she sold it for P400,000 when its fair market value was P800,000 Sarah is subject to:
a. VAT
b. Donor’s Tax
c. OPT
d. Income Tax (CGT)
80. Which of the following is correct about estate tax?
Courts may allow the distribution of the estate to the heirs in the interest of justice and equity before estate
tax is paid.
A resident alien decedent’s suits of taxation is within the Philippines only just like in income tax.
Estate is a taxpayer created by the death of a person.
The payment of estate tax is a personal obligation of the heirs.
Donor’s Tax Table
If the net gifts is:
The tax Of excess
Over But not over shall be Plus
over
----------------------------------- -------------------------------------P 100,000 Exempt
—
—
P 100,000
200,000
0 2% P 100,000
200,000
500,000
2,000
4%
200,000
500,000 1,000,000 14,000
6%
500,000
1,000,000 3,000,000 44,000
8% 1,000,000
3,000,000 5,000,000 204,000 10%
3,000,000
5,000,000 10,000,000 404,000 12% 5,000,000
10,000,000 —
1,004,000 15% 10,000,000
-END-
“If you lose your confidence you will lose nothing more”
1. The following contracts are not perfected until the delivery of the object of the obligations except:
Practical Accounting 2
Second Pre-Board Examination
A. Pledge
May 2007 Batch
Page 138
B. Deposit
C. Commodatum
D.
Sale
Petra transferred to Pedro a parcel of land for the price of P200,000; P130,000 to be paid in cash and for the
difference, he will convey his car worth P70,000. What kind of contract is this?
A. Contract to Sell
B. Contract of sale
C. Obligation to sell
D. Barter
3. The receipt of the principal loan by the creditor, without reservation with respect to the interest, shall give
rise to the presumption that:
A. Debtor is, indeed, indebted to the creditor
B. Creditor is, therefore, paid as to the principal amount
C. Said interest has been paid
D. Said principal has been paid
4. Mr. Chua sold his horse for P100,000 to Mr. Ng. There was no fixed date for the performance of the
obligations of both parties. The obligation of Mr. Chua as vendor is:
A. To rescind the contract because no time or date is fixed for the performance of their respective
obligations.
B. To deliver the horse as this is a perfected contract.
C. To deliver the horse after demand.
D. To wait for Mr. Ng to pay P100,000 and deliver the horse.
5. Rescission of contracts can take place in this case:
A. When the things which are the object of the contract are legally in the possession of third persons who
acted in bad faith;
B. When he who demands rescission can return whatever he may be obliged to restore;
C. When the party seeking rescission can perform only as to part and rescind to remainder;
D. When the seller cannot return the installment paid to him by buyer.
6. A stipulation in favor of a third person conferring a clear and deliberate favor upon him and which
stipulation is merely a part of a contract entered into by the parties, neither of whom acted as an agent of a
third person, and which favor can be demanded by third person if duly accepted by him before it could be
revoked.
A. Stipulation pour autrui
C. Caveat emptor
B. In pari delicto
D. Pactum commissorium
7. Juan sold his parcel of land to Maria for only P1M although its value is P3M. He therefore suffered lesion
due to the inadequacy of the price. The contract is
A. Voidable
B. Unenforceable
C. Rescissible
D. Valid
8. It is an act or means by virtue of which efficacy is given to a contract which suffers from vice of curable
nullity.
A. rescission
B. ratification.
C. prescription
D.
annulment
9. Dacion en pago as distinguished from sale:
A. the object is always existing and specific
B. there is a greater degree of freedom in fixing the price
C. there is no pre-existing obligation
D. the cause is the price
10. Caloy offered to sell his house and lot for P2M to Buboy. Buboy could not make up his mind so he asked
that he be given 30 days to decide. Caloy agreed. After 15 days, Caloy raised the price to P2.5M. Assume
that Buboy decided to buy the house and lot the following day, can he compel Caloy to accept the P2M
price and deliver the house and lot?
A. No, there was no acceptance of the original offer.
B. Yes, Caloy cannot change his offer without the consent of Buboy.
C. Yes, there was already a perfected contract of sale.
D. No, because Buboy agreed that Caloy may change his mind later on.
11. Case 1 – X hired Y for P100,000 to kidnap Z, and he paid Y P50,000 in advance. Before Y could kidnap Z,
X relented and stopped Y from performing the contract. The court may not allow X to recover from Y the
P50,000 paid in advance.
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
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Case 2 – X, at gun point, compels Y to marry him. Since the contract of marriage is voidable, either X
or Y has the right to file the action for annulment. Determine whether:
A. Both cases are false.
B. First case is false, second case is true.
C. Both cases are true.
D. First case is true, second case is false.
12. If the area was specified in the contract of sale and there is a difference between the area and the
boundary:
A boundary prevails
C. there must be another survey
B. area prevails
D. contract is void
13. 1st Statement – Option money is recoverable if the offeree will choose not to purchase the thing being
offered for sale.
2nd Statement - The vendor is bound to deliver the thing sold but not its accessions.
A. Both statements are wrong.
C. 1st statement is correct, 2 statement is wrong.
B. Both statements are correct.
D. 1 statement is wrong, 2nd statement is correct
nd
st
14. 1st Statement – Guardians and agents, holding fiduciary positions cannot purchase the property of
the ward or the principal.
2nd Statement - Delivery is necessary to transfer ownership in a contract of sale and ownership
is transferred to the buyer upon delivery.
A. Both statements are wrong.
C. 1st statement is correct, 2 statement is
wrong.
B. Both statements are correct.
D. 1 statement is wrong, 2nd statement is
correct
nd
st
15. 1st Statement – Contracts entered into in the name of another person by one who has no authority to do so
is rescissible if the owner suffered lesion of more than one-fourth of the value of the property sold.
2nd Statement - Where the goods are delivered to the buyer "on sale or return" the buyer does not become
the owner of the goods.
A. Both statements are wrong.
C. 1st statement is correct, 2 statement is wrong.
B. Both statements are correct.
D. 1 statement is wrong, 2nd statement is correct
nd
st
16. The redhibitory action based on the faults or defects of animals must be brought within
A.
30 days from delivery to the vendee
B.
40 days from delivery to the vendee
C.
45 days from delivery to the vendee
D.
6 months from delivery to the vendee
17. Ownership of the thing sold is transferred/acquired/retained:
A.
Retained by the seller in “sale or return”
B.
Transferred to the buyer upon constructive or actual delivery of the thing sold.
C.
Acquired by the buyer upon perfection of the contract.
D.
Transferred to the buyer upon acceptance of the price.
18. A ground for the exercise of the right of stoppage in transitu by the unpaid seller:
A. Failure of the buyer to insure the goods
B. Insolvency of the buyer
C. Refusal of the buyer to accept the goods
D. Filing of a case by the buyer against the seller
19. A contract by which one person transfers to another his rights and actions against a third person in
consideration of a price certain in money or its equivalent is:
A. Sale
B. Barter
C. Lease
D. Assignment of Credit
20. A stipulation stating that despite delivery, the ownership of the thing shall remain with the seller until the
buyer has fully paid the price:
A. pactum commissorium
C. fraud in factum
B. pactum reservati dominii
D. constitutum possessorium
21. By specific provisions of law, which of the following need not appear in a public instrument?
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
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A. A contract of donation involving an immovable.
B. A pledge, describing the thing pledged and the date of the pledge, in order to be effective against third
persons.
C. A contract of agency, for the sale of a piece of land or any interest therein, in order to consider
the sale by the agent as valid.
D. A contribution to the partnership of immovable property or real rights.
22. George secured and Randy granted a loan of P1M due on December 31, 2007. George executed a first
mortgage of his residential house in favor of Randy to guarantee the loan. On August 18, 2007 the house
was totally destroyed by an accidental fire. On August 31, 2007, Randy demanded payment of the loan. Is
the demand valid?
A. No. The obligation is one with a definite date for payment.
B. No. The object of the obligation was lost through a fortuitous event and the obligation was
extinguished.
C. Yes. The obligation became due at once because the guaranty was lost through a fortuitous
event.
D. Yes. The obligation became due at once because from the tenor benefit, the creditor is given the right
to demand performance even before the due date stipulated.
23. An example of an aleatory contract is
A. Sale
B. Pledge
C. Insurance
D. Partnership
24. Vilma, guardian of Nora sold Nora’s house and lot worth P2M for P1M. As a result:
A. The contract can be rescinded because of inadequacy of price.
B. The contract cannot be rescinded because there is no fraud, mistake or undue influence.
C. The contract cannot be rescinded because all the elements of a contract are present.
D. The contract cannot be rescinded because it is expressly provided by law as one of the contracts that
cannot be rescinded.
25. Which of the following would be an example of an executory contract?
A.
A customer places an order for merchandise to be picked up and paid for in one week.
B.
A company sold a one-year subscriptions to its publication and received the subscription price in
cash.
C. A company sold an appliance and gave a warranty to replace defective parts within one year after sale.
D. A company borrowed money from a bank to purchase a delivery truck.
26. A juridical relation known as negotiorum gestio takes place.
A. When a person voluntarily takes charge of another’s abandoned business or property without the
owner’s consent.
B. When something is received and there is now right to demand it and it was delivered through mistake.
C. When a person is appointed by a court to make the property or business of another.
D. When a person is appointed agent of another.
27. A sold to B 1000 baskets of lanzones at P600 a basket. Thereafter, A can only deliver 900 baskets and
offered this number to B and no more, but at P700 each. Decide
A. B can refuse to accept delivery of the 900 baskets without liability.
B. B must pay for 1000 baskets but at P500 each.
C. B can accept 900 baskets but pay P550 for each.
D. A can require B to accept 900 at P700 each.
28. On June 16, 2007, A obliged himself to give to B his motorcycle. There was no delivery until July 15, 2007
when the garage of the motorcycle collapsed due to a strong typhoon and the motorcycle was totally
destroyed. Is A still liable?
A. No, even if A was already in default, he could plead impossibility of performance.
B. Yes, the obligation to deliver the motorcycle is changed to pay the equivalent value because Jose
C. No, because there was no demand by B to deliver the motorcycle and the specific object was
lost due to fortuitous event. The obligation is extinguished.
D. Yes, because the contract is perfected.
29. The creditor shall have a right to indemnity for damages when, through the fault of the debtor, all the things
which are alternatively the object of the obligation have been lost or compliance of the obligation has
become impossible. The indemnity shall be fixed taking as a basis the value of the
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 141
A. Least expensive thing.
B. Most expensive thing.
C. Last thing which disappeared.
D. Any of the things which disappeared.
30. A solidary obligation is one in which each of the debtors is liable for the entire obligation or debt,
and each of the creditors is entitled to the entire credit. Obligations shall also be considered
solidary under the three following exceptions. Which does not belong to the exception?
A. When solidarity is expressly stipulated in the obligation.
B. When the prestation is indivisible and there are two or more debtors and creditors.
C. When the law expressly provides solidarity.
D. When solidarity is required from the nature of the obligation.
31. As a general rule, in assignment of credit, the assignor in good faith:
a. Warrants the existence of the credit at the time of assignment
b. Warrants the legality of the credit at the time of assignment
c. Warrants the solvency of the debtor at the time of assignment.
A. a and c
C. b and c
B. a and b
D. a, b and c
32. 1 STATEMENT – If the same car should have been sold to different buyers, the ownership shall be
transferred to the person who may first taken possession thereof in good faith.
2 STATEMENT – The seller is responsible to the buyer for any hidden defects or faults in the thing sold
only if he was aware thereof.
st
nd
A.
B.
C.
D.
The 1 statement is true, 2 statement false
Both statements are false
1 statement false, 2 statement true
Both statements are true
st
st
nd
nd
33. Gross inadequacy of the purchase price does not invalidate the contract of sale; unsually inadequate
purchase price in a sale with right of repurchase shall give rise to the presumption that:
A. It is a vitiated sale
C. It is not a sale
B. It is an equitable mortgage
D. It is an invalid sale
34. In sale of personal property by installment, if the seller forecloses the chattel mortgage on the thing sold:
A. He cannot recover the balance of the purchase price
B. He can recover the balance of the price if there is a stipulation to that effect
C. He can compel the buyer to redeem the property
D. He can ask for a security from the buyer
35. Angie owns 50 mango trees bearing fruits, ready for harvest. She sold all the fruits of all the trees to Bambi
who paid P100,000.00. Angie told to Bambi that she can harvest all the fruits anytime she likes and pointing
at the mango trees. For legal purposes, Angie has fulfilled her obligation to deliver the mango fruits to
Bambi by:
A. Traditio longa manu
C. Traditio constitum possessorium
B. Traditio brevi manu
D. Traditio symbolica
36. Cindy needs a size 9 rubber shoes for her boyfriend Dodong, but the same is not available so she placed an
order for one. On the other hand, Dodong placed an order for size 6 ½ , colored maroon (something not
ordinarily made by the company), to be given to Cindy. Which is correct:
A.
Both are contracts of sale.
B.
Both are contracts for a piece of work.
C.
First is a contract of sale, second is a contract for a piece of work.
D.
First is a contract for a piece of work, second is a contract of sale.
37. This contract is without effect unless ratified
A. Contract of sale between a guardian and his ward
B. Donation between husband and wife
C. Contract of marriage between brother and sister
D. Contract of sale between two insane persons
38. Which of the following contracts is valid?
A.
Oral contracts of agency giving authority to an agent to sell the land belonging to the principal.
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 142
B.
Oral partnership agreement where immovable property is contributed.
C.
Oral contract of sale of an immovable property entered into by an agent who was given authority
orally by the principal
D.
Oral agreement to answer all expenses for the wedding reception if Melanie marries Noel.
39. Simulation of a contract may be absolute or relative. It is relative when:
A.
The parties do not intend to be bound at all.
B.
The contract is valid.
C.
The parties conceal their true agreement.
D.
The parties conceal their true intentions.
40. Which of the following is not an element of legal compensation:
A.
Debts to be compensated are due and demandable.
B.
There is no controversy or adverse claim over any debts to be compensated.
C.
There are two or more debts of the same kind.
D.
The creditors and debtors are one and the same person.
41. Three (3) of the following contracts are void. Which is not?
A. Contract in writing contemplating and asking for impossible service.
B. Oral authority given to an agent in sale of land.
C. Oral partnership agreement where immovable property is contributed.
D. Oral contract of loan more than P5,000.00
42. Contracts are effective and binding only between the parties, their assigns and their heirs. Three of the
following enumeration are exceptions as provided by law. Which does not belong to the exceptions?
A. Where there is a stipulation in favor of a third party.
B. Where one of the parties to the contract dies and thereafter a suit is filed on the basis of the
contract.
C. Where the obligations arising from the contract are not transmissible by their nature.
D. Where the obligations arising from the contract are not transmissible by stipulation or by provision of
law.
43. A creditor, through a contractual arrangement made with Mr. P, is to receive the rentals of the P’s apartment
buildings in Singalong Manila with the obligation to apply them to the payment of the interest and thereafter
to the principal of his credit. This contract is a valid:
A. Pledge.
B. Mortgage.
C. Antichresis.
D.
Guaranty.
44. Which of the following statements is not correct?
A. The vendor is bound to deliver the thing sold and its accessions and accessories in the condition in which
they were upon the perfection of the contract
B. All the fruits of the thing sold shall pertain to the vendor from the day on which the contract was
perfected
C. The vendor shall not be bound to deliver the thing sold, if the vendee has not paid him the price, or if no
period for the payment has been fixed in the contract.
D. Sale is perfected from the moment of the meeting of the minds.
45. The following are cases when delivery does not transfer ownership over the thing sold, except:
A. In case of express reservation by the seller until certain conditions have been fulfilled, particularly the full
payment of the purchase price
B. In case of implied reservation of title as when goods are deliverable to the order of the seller or his agent
C. In sale on approval, or on trial or on satisfaction
D. In sale or return within seven days.
46. It is the process of enforcing the State's right to take away property for public use upon payment of just
compensation which is governed by special laws:
A. Eminent Domain
B. Escheat
C. Police Power
D. Expropriation
47. Mr. Arrovo, a former government employee, suffered from severe paranoia and was confined in the mental
hospital in 2000. After his release he was placed under the guardianship of his wife to enable him to get his
retirement pay. In 2004 he became a mining prospector and sold some mining claims. In 2005 he sued to
annul the sale claiming that he was not mentally capacitated at the time of sale. The sale in question was
A. Illegal.
B. Void.
C. Voidable.
D. Valid.
48. On July 7, 2007 Maria orally sold to Nena a certain radio for Php500. This kind of contract is:
A. Rescissible
B. Voidable
C. Unenforceable
D.Valid
49. What mode of extinguishing a contract of sale is effected when a person is subrogated upon the same terms
and condition stipulated in the contract in the place of one who acquires a thing by onerous title?
Practical Accounting 2
Second Pre-Board Examination
A. Compensation
redemption
May 2007 Batch
Page 143
B. Conventional redemption
C. Novation D.
Legal
50. A unilateral promise to buy or to sell which was not accepted by the offeree. This produces no juridical
effect and creates no legal bond.
A. solicitation
B. policitacion
C. expromission
D.
delegacion
51.
A closely-held domestic corporation registered with the BIR in 2003 had the following data for
taxable year 2007:
Sales
P5,000,000
Cost of sales
1,500,000
Business expenses
800,000
Dividend from a domestic corporation
50,000
Selling price of land (capital asset) costing P3,500,000
4,000,000
Interest on Philippine currency bank deposit
40,000
Dividends declared and paid
500,000
Tax paid for the first three quarters
150,000
The BIR upon investigation found out that there was improper accumulation of earnings. The
corporation did not contest the findings of the BIR.
The tax on improperly accumulated earnings is:
a. P154,700 b. P159,700 c. P160,500 d. P174,700
52.
First statement: In computing the taxable share of partners in a general professional partnership, the
accounting method used (accrual or cash method) is an important factor to consider.
Second statement: Only the share in the net income actually withdrawn by a partner in a general
professional partnership is taxable to him.
a. Both statements are correct
c. Only the first statement is correct
b. Both statements are incorrect d. Only the second statement is correct
53.
Which of the following statements is incorrect?
a.
A general professional partnership is not required to file a return of its income
because it is tax-exempt.
b.
Each partner shall report as gross income his distributive share, actually or constructively
received, in the net income of the general professional partnership.
c.
For purposes of computing the distributive share of the partners, the net income of the
general professional partnership shall be computed in the same manner as a corporation.
d.
Partners engaging in business as partners in a general professional partnership shall be liable
for income tax only in their separate and individual capacities.
54.
First statement: Taxable partnerships are required to file cumulative quarterly declarations and a
final income tax return because they are taxed as corporations.
Second statement: The distributable net income of a taxable partnership shall include incomes which are
subjected to final tax as well as those that are exempted from income tax.
a. Both statements are correct c. Only the first statement is correct
b. Both statements are incorrect d. Only the second statement is correct
55.
First statement: Salaries received by a partner from a general professional partnership is not
considered gross compensation income but as part of his share in the distributable net income after tax of
the partnership.
Second statement: Salaries received by a partner from a business partnership is considered gross
compensation income.
a. Both statements are correct
c. Only the first statement is correct
b. Both statements are incorrect d. Only the second statement is correct
56.
First statement: Estates and trusts can deduct from their gross income the same items of
deductions authorized under the Tax Code as those allowed to individual taxpayers.
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 144
Second statement: The schedular tax rates under Section 24 (A), which are prescribed for
individuals, will be used in computing the income tax of estates and trusts.
a. True, true b. False, false c. True, false d. False, true
57.
First statement: The amount of income of the estate for the taxable year, which is properly paid or
credited during such year to any legatee, heir or beneficiary, is a special item of deduction from the gross
income of the estate.
Second statement: An allowance paid a widow or heir out of the corpus of the estate is not deductible
from the gross income of the estate.
a. True, true b. False, false c. True, false d. False, true
58.
Which of the following test of source of income is incorrect?
a. Interest income – residence of the debtor
c. Royalties – place of use of intangible
b. Income from services – place of performance d. Gain on sale of real property – place of sale
59.
Which of the following is not considered an income purely from sources within the Philippines?
a.
Gain on sale of domestic shares
b.
Dividends from domestic corporation
c.
Rent on property located in the Philippines
d.
Income from sale of personal property produced in the Philippines and sold outside
the Philippines
60.
In 2007, a non-resident alien not engaged in trade or business receives a P100,000 dividend
from a resident foreign corporation. The resident foreign corporation’s gross income for the years
2005 and 2006 follows:
Philippines
Foreign
2005 P5,000,000 P2,000,000
2006 3,000,000 6,000,000
For Philippine income taxation, the final tax due on the dividend is:
a. P25,000 b. P15,000 c. P12,500 d. Not subject to final tax
61.
The monetary value of the following fringe benefits is 50% of the value of the benefits:
I. Employer leases residential property for the use of an officer.
II. Employer owns residential property which was assigned to an officer for his use as residence.
III. Employer purchases residential property on instalment basis and allows an officer to use the same as his
residence.
IV. Employer purchases a residential property and transfers ownership in the name of an officer.
IV. Employer purchases a residential property and transfers ownership to an officer for the latter’s residential
use at a price less than the employer’s acquisition cost.
a. All of the above b. None of the above c. I, II and III only d. IV and V only
62. A house and lot were owned by Piltel Corporation. The ownership of the said house and lot
was transferred to its President in 2007. The following data were made available:
Cost
P5,950,000
Fair market value per BIR
4,760,000
Fair market value per Assessor’s Office
3,570,000
The fringe benefits tax was:
a. P1,523,200 b. P1,680,000 c. P2,240,000 d. P2,800,000
63.
Using the same information in the preceding number except that there was no transfer of
ownership. The President was only allowed to use it as his residence. The quarterly fringe benefits tax is:
a. P56,000 b. P14,000 c. P42,000 d. P10,500
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 145
64.
In 2007, Pacman, a single resident citizen realized a P150,000 short-term capital gain, and a long
term capital loss of P300,000. He had no other capital transactions for the year. The net effect would be:
a. No gain, nor loss for tax purposes c. A capital loss of P300,000
b. A capital gain of P150,000
d. A capital loss of P150,000
65.
Urduja qualified as head of a household for 2007 tax purposes. Urduja’s 2007 taxable
income was P200,000 exclusive of capital gains and losses. Urduja had a net long-term capital loss
of P8,000 in 2007. What amount of this capital loss could Urduja offset against the 2007 ordinary
income?
a. Zero b. P3,000 c. P4,000 d. P8,000
66.
First statement: Net capital loss carry-over is allowed to taxpayers other than corporations, and this
is carried over to the succeeding year as a short-term loss.
Second statement: The amount of net capital loss carry over is the net capital loss or the net income in
the year the net capital loss was sustained, whichever is lower.
a. True, true b. False, false c. True, false d. False, true
67.
First statement: Corporations are allowed to observe the holding period and to carry over net capital
loss.
Second statement: Capital gains and loses of a general professional partnership will be accounted for
separately by the partners in proportion to their interest in the partnership.
a. True, true b. False, false c. True, false d. False, true
Questions 78 and 79 are based on the following information:
A taxpayer has the following data for the years 2006 and 2007:
2006: Gross income
Business expenses
Capital loss (capital asset was acquired on January 15, 2006
and was sold on March 15, 2006)
Capital gain (capital asset was acquired on January 15, 2005
and was sold on March 31, 2006)
2007: Gross income
Business expenses
P200,000
180,000
50,000
30,000
500,000
400,000
Capital gain (capital asset held for 12 months)
60,000
Capital loss (capital asset held for more than 12 months)
20,000
68.
Assuming the taxpayer is an individual, single, how much is the taxable income?
2006
2007
2006
2007
a. None
P110,000 c. P5,000 P130,000
b. P20,000 P130,000 d. None P100,000
69.
Assuming the taxpayer is a domestic corporation, how much is the taxable income?
2006
2007
2006
2007
a. None
P140,000 c. P40,000 P100,000
b. P20,000 P140,000 d. P20,000 P100,000
70.
The following were taken from the income statement of Kapuso Corporation for the taxable year
2007:
Gross profits from sales
P800,000
Practical Accounting 2
Second Pre-Board Examination
Business expenses
Provision for bad debts
Net income before tax
May 2007 Batch
Page 146
P440,000
80,000
520,000
P280,000
Additional information:
o
Accounts written off during the year and charged to allowance for bad debts, P50,000.
o
Recoveries on accounts receivable previously written off in 2006 and credited to allowance
for bad debts:
•
Allowed as deduction by BIR, P30,000
• Disallowed as deduction by BIR, P20,000.
How much was the taxable income for taxable year 2007?
a. P340,000 b. P330,000 c. P280,000 d. P360,000
71.
Boljak, married, resident citizen with two qualified dependent children, has the following
data for the preceding year:
Salaries, net of P50,000 withholding tax
P200,000
Tuition of children
10,000
Rent of apartment
24,000
Household expenses
60,000
Health and hospitalization insurance premium paid
3,400
How much is the taxable income?
a. P202,000 b. P199,600 c. P149,600 d. P104,600
72.
Using the same data in the preceding number, assuming Boljak chooses optional standard
deduction, how much is the amount of optional standard deduction?
a. P30,000 b. P25,000 c. P20,000 d. None
73.
A certified public accountant used cash basis in computing his taxable income. In 2006, he
performed a professional service for a client who was unable to pay him. The unpaid professional
fee of the client became worthless in 2007. When could the taxpayer deduct the worthless
professional fee as bad debt?
a. 2006 c. 2006 or 2007 depending on his choice
b. 2007 d. Cannot be deducted in any year
Questions 84 to 86 are based on the following information:
A domestic company under calendar year has the following selected transactions:
09/09/06
– Purchased 100 shares of Kalibo Company common for P5,000.
12/21/07
– Purchased 50 shares of Kalibo Company common for P2,750.
12/26/07
– Sold the 100 shares purchased on 09/09/06 for P4,000.
01/02/08
– Purchased 25 shares of Kalibo Company common for P1,125.
74.
How many shares are sold at a loss without covering acquisition?
a. 100 shares b. 75 shares c. 50 shares d. 25 shares
75.
How much is the loss on wash sale and the capital loss?
Loss on wash sale Capital loss
Loss on wash sale Capital loss
a.
P750
P125
c.
P1,000
None
b.
P750
P250
d.
None
None
76.
How much is the adjusted cost of the shares bought on 12/21/07 and 01/02/08?
12/21/07 01/02/08
12/21/0701/02/08
a. P3,250
P1,375
c. P750
P250
b. P2,750
P1,125
d. P500
P250
77.
A leasehold is acquired for business purposes for P500,000. The lease contract is for 10 years. How
much is the deductible amount from the gross income?
a. P500,000 b. P100,000 c. P50,000 d. None
78.
Lessor received from Lessee the amount of P800,000 for the lease of a lot for a period of 10 years,
starting July 1, 2007. Lessee also assumed payment of real estate tax on the land, which was P14,000 a year.
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 147
How much was the deductible rental expense of Lessee in 2007?
a. P94,000 b. P80,000 c. P54,000 d. P47,000
79.
First statement: All royalties from Philippine sources are subject to final tax.
Second statement: Income from sale of books is subject to 10% final tax.
a. Both statements are correct
c. Only the first statement is correct
b. Both statements are incorrect d. Only the second statement is correct
80.
During 2007, Philip, a resident citizen, received the following income:
Interest from Philippine treasury certificates P4,000
Refund pertaining to 2006 income tax
500
The total amount of income subject to tax in Philip’s 2007 income tax return was:
a. P4,500 b. P4,000 c. P500 d. Zero
81.
Zubiri filed his annual income tax return for the taxable year. In July 2007, he received an
income tax refund of P9,000, plus interest of P100, for overpayment of 2006 income tax. What
amount of the tax refund and interest were taxable in Zubiri’s 2007 income tax return?
a. Zero b. P100 c. P9,000 d. P9,100
***Eva Padilla, widow has two (2) sons, Robin, 27 years old; Rommel, 25 years old and one (1) daughter,
Rustomina, 23 years old. On August 15, 2007, she donated two (2) lots, each with fair market value of
P150,000, one (1) each to her sons Robin and Rommel. On November 15, 2007, she gave cash of P150,000
to her daughter Rustomina as dowry on account of Rustomina’s forthcoming marriage on December 22,
2007.
82.
The donor’s taxes due on the donation on August 15, 2007 is
a. Tax exempt b. P5,200 c. P6,000 d. P12,000
83.
The donor’s taxes due on the donation on November 15, 2007 is
a. P11,600 b. P6,000 c. P9,600 d. P5,600
84.
Mr. and Mrs. Gibbs donated the following community properties to their children on May 30, 2007:
Amount
Donee
P125,000
Janno For graduating Cum Laude in Haybol University of Somewhere City.
200,000 Melissa On account of marriage celebrated April 30, 2007.
?
Bing For placing No. 3 in the May 2007 CPA Board Examinations.
If the donor’s tax payable by Mr. Gibbs is P10,500, the amount of the donation given by the spouses to Bing
is:
a. P250,000 b. P200,000 c. P500,000 d. P520,000
85.
A, made the following donations:
a.)
February 14, ’07 – Cash of P500,000 to B, his legitimate daughter on account of B’s
marriage celebrated on February 10, 2006.
b.)
April 14, ’07 – Land with a FMV of P700,000 to C, a son of A’s father by a former
marriage
c.)
June 14, ’07 – Automobile worth P600,000 to D, the favorite granddaughter of the sister of
A’s mother.
d.)
Oct. 14, ’07 – Jewelry worth P300,000 to E, the legitimate daughter of A’s sister, on account
of E’s marriage scheduled on December 31, 2007.
e.)
December 14, ’07 – Cash of P400,000 to F, the grandson of the daughter of A’s
granddaughter
f.)
January 14, ’08 – Fish pond with FMV of P800,000 to G, the widowed mother of A, on
account of G’s marriage on January 14, 2008.
The donor’s tax due on the December 14, 2007 donations is:
a. P84,000 b. P24,000 c. P90,000 d. other amount
***
A married decedent who was under absolute community of properties died on October 15, 2007. His estate
provided the following information:
Real properties inherited during the marriage from his father
who died 3 years before the present decedent’s death P 500,000
Real property given during the marriage by his uncle as gift
4 ¼ years before the present decedent’s death 1,500,000
Land inherited before the marriage from an aunt who died
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 148
6 years before the present decedent’s death
500,000
House built on the land inherited from the aunt (family home) 900,000
Cash income from the real property received as gift
100,000
Real properties received by the surviving wife spouse before the marriage
1,800,000
Real properties acquired by the spouses during the marriage
1,500,000
Personal properties acquired during the marriage
1,000,000
The following were considered as deductions from the gross estate:
Actual funeral expenses P 100,000
Judicial expenses
150,000
Medical expenses
200,000
Obligations incurred before marriage that benefited
the community properties
250,000
Claims against and insolvent debtor
50,000
Unpaid mortgage on inherited land
100,000
Loss of car through theft on December 31, 2007 (part
of personal properties acquired during marriage) 300,000
Unpaid realty tax on real property received as gift from his uncle 30,000
The value of the real properties at the time of inheritance was P300,000. The value of the real property
received as gift from an uncle was P1,000.000.
The inherited land and the house built on it were certified as the family home of the decedent and his family
by the Barangay Captain in the locality where they were situated.
86.
The gross estate is
a. P7,800,000 b. P7,850,000 c. P7,700,000 d. other amount
87.
The vanishing deduction is
a. P525,096 b. P527,388 c. P550,000 d. other amount
88.
The taxable estate is
a. P2,047,196 b. P2,044,904 c. P2,150,000 d. other amount
***
The following data were provided by the estate of Juan Palad, head of the family, a resident of Pasay City. Mr.
Palad died intestate on September 30, 2007.
Land and house (family home) P3,000,000
Agriculture land inherited from his father who died
2 ½ years before his death
800,000
Other real properties 1,000,000
Other tangible personal properties
200,000
Bank, deposit, Landbank-Manila
500,000
Obligations of and changes against certain properties follow:
Medical expenses of last illness (paid as of the time of
death, supported by bills and statements from hospital) P 600,000
Actual funeral expenses (30% paid for from the estate,
70% paid for by relatives)
500,000
Judicial expenses incurred within six (6) months after death
100,000
Claims against the estate other than unpaid mortgage 250,000
Unpaid mortgage on inherited agricultural land 30,000
Claims against insolvent persons
100,000
Unpaid real estate tax for the 4 quarter of 2004 20,000
th
The agricultural land was inherited by the present decedent. Its value at the time of inheritances was
P610,000. It had an unpaid mortgage of P80,000.
89.
The gross estate is:
a. P5,600,000 b. P5,500,000 c. P5,000,000 d. other amount
90.
The taxable estate is:
a. P2,500,000 b. P2,250,000 c. P2,171,000 d. other amount
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 149
____ 1. Statement 1: Estate tax is a transfer tax. It is also an excise tax as to object of taxation.
Statement 2: Estate tax is levied on the heir receiving the property and not on the decedent.
a. Only statement 1 is correct. c. Both statements are correct.
b. Only statement 2 is correct. d. Both statements are not correct.
____ 2. Statement 1: Not all the net estate is subject to estate tax.
Statement 2: The first P200,000 of the net estate is exempt from estate tax.
a. Only statement 1 is correct. c. Both statments are correct.
b. Only statement 2 is correct. d. Both statments are not correct.
____ 3. Statement 1: The estate of nonresident alien is not taxable with Philippines estatetax if the
properties are
located outside the Philippines at date of death.
Statement 2: The esatate of nonresident alien is reduced by indentifiable esxpenses incurred within to
arrive at the
amount of net estate.
a. Only statement 1 is correct. c. Both statements are correct.
b. Only statement 2 is correct. d. Both statements are not correct.
____ 4. The rule of reciprocity as to whether the intangible property with situs within is to be included in
the
gross estate is applicable to the estate if
a. resident citizen c. nonresident citizen
b. resident alien d. nonresiden alien
____ 5. The tax creditor for the estate tax paid to foreign country is allowed to the estate of the following
decedent, except
a. resident citizen c. nonresident citizen
b. resident alien d. nonresident alien
____ 6. Transfer taxes are taxes on
a. rights and privileges. c. property under onerous transferred.
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 150
b. property under gratuitous transfers. d. onerous transfers.
____ 7. Estate tax is imposed upon the
a. decedent. c. right to transfer properties.
b. property or rights transferred. d. privilege to receive inheritance.
____ 8. To prevent undue avoidance of tax, inter-vivos disposition in contemplation of death is subject to
a. donor's tax c. income tax
b. estate tax d. excise tax
____ 9. Inheritance received is construed as unequal distribution of wealth resulting to the imposition of
estate
tax describes.
a. redistribution of wealth theory c. state partnership theory
b. benefit-received theory d. ability to pay theory
____ 10. Donation mortis causa transfer of property is effected
a. when the property is received by the heir
b. when the court awarded the ownership of property to a particular heir
c. upon the death of the decedent
d. upon the payment of state tax
____ 11. Which of the following deductions from gross estate will not actually reduce the amount of
distributable
estate?
a. Vanishing deduction
b. Claims against the estate
c. Judicial expenses
d. Funeral expenses
____ 12. The following are required to be listed as part of the gross estate, but are exempted from estate
tax,
except
a. Share of surviving spouse
b. Transfer for public use
c. Exclusive property of the decedent
d. Amount received by heir under R.A.4917
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 151
____ 13. All of the following items are deduction against exclusive portion of the estate, except
a. taxes
b. claims against insolvent persons
c. share of surviving spouse
d. family home
____ 14. For estate tax computation, which of the following is not to be included in the determination of
the share
of surviving wife?
a. Funeral expenses
b. Judicial expense
c. Claims against insolvent person
d. Claims against the exclusive property
____ 15. Which of the following is not allowed as deductible funeral expenses?
a. Mourning apparel of widow and children
b. Expenses of wake before burial
c. Burial lot donated by brother
d. Death notices published
____ 16. The amount of the funeral expenses that may be deducted from the gross estate is
a. 5% of the gross estate or actual funeral expenses incurred whichever is lower but not
exceed P200,000.
b. 5% of the gross estate or actual funeral expense, whichever is lower.
c. Actual funeral expenses incurred.
d. 5% of the gross estate or actual funeral expenses incurred, whichever is lower.
____ 17. Casualty losses are deductible from gross estate if
1st Statement: Such loss was incurred during the settlement of the estate.
2nd settlement: Such loss was incurred not later than the last day of payment of the estate tax.
a. Both statement are false
b. 1st statement is false while 2nd statement is true
c. 1st statement is true while 2nd statement is false
d. Both statements are true
____ 18. Which of the following unpaid taxes is not deductible from the gross estate?
a. Property taxes accrued prior to decedent's date
b. Income taxes on income earned and received by the estate after decedent's death
c. Gift taxes on life time which remains unpaid at date of death
d. Capital gain tax on transfers before death and paid after date of death
____ 19. Which of the following is deductible from the exclusive portion of the gross estate?
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 152
a. Vanishing deduction pertaining to property inherited by the decedent prior to marriage
under conjugal property ownership
b. Transfer for public use pertaining to joint donation of husband and wife to the government
c. Bad debts for uncollectible claims against insolvent person
d. Family home pertaining to house and lot acquired during marriage
____ 20. Mr. Estrado, an unmarried resident of the Philippines, died on January 15, 2005 leaving real
properties
in Manila with fair market value of P1,560,000. Deductions claimed by the administrator of the
decedent estate are as follows:
Medical expenses during the decedent's sickness paid out
of the decedent's cash P45,000
Expenses during the wake paid out of the decedent's cash 85,000
Coffin donated by friends of decedent 40,000
Claims against insolvent persons 100,000
How much funeral expense is allowed as deduction from the gross estate?
a. P200,000 c. P83,000
b. P90,000 d. P78,000
____ 21. Donor's tax is a
a. Personal tax c. Excise tax
b. Property tax d. Business tax
____ 22. Which one of the following is not an essential element of taxable gift?
a. Capacity of the donor c. Delivery and acceptance of the gift
b. Intent to make a gift d. Capacity of the donee
____ 23. Donor's tax is applicable on gifts made by
a. natural person c. both a and b
b. juridical person d. government
____ 24. Which of the following is not subject to Philippine donor's tax?
a. Donation mortis causa
b. Donation which will take upon the birth of the donee
c. A creditor who, out of his affection, cancelled the debt of the debtor
d. A parcel of land in USA donated by nonresident Filipino to a foreigner.
____ 25. Which of the following is not subject to donor's tax?
a. Transfer of property for less than adequate and full financial consideration
b. Cancellation of debt for personal consideration
c. Contribution to a political candidate
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 153
d. Gift to a stranger
____ 26. Which of the following statements is not true about percentage tax?
a. It is a business tax. c. It is an advalorem tax.
b. It is an excise tax. d. It is a progressive tax.
____ 27. Which of the following business is not subject to percentage tax?
a. Carriers of passengers
b. Life insurance companies
c. Carriers of cargoes
d. Sale of shares of stock in the local stock exchange
____ 28. Admission fees received by cockpits and race tracks are subject to
a. tax on paid admission c. tax on winning
b. tax on gross receipts d. tax on amusement
____ 29. Which of the following items is not percentage tax-exempt?
a. Business with annual gross sales of P100,000 and below
b. Overseas call made by the Philippine government
c. Overseas messages transmitted by any embassy and consular offices of a foreign
government.
d. Gross receipts of operators of auto calesa.
____ 30. Alpha Hydro is delivering water to its customers as franchise holder for such business. During the
period, its gross receipts amounted to P1,000,000.
The percentage of Alpha Hydro would be
a. P50,000 c. P20,000
b. P30,000 d. P10,000
____ 31. Statement 1: Transfers of property in the course of business from the person to another are
subject to
transfer taxes.
Statement 2: Gratuitous transfers of property are subject to either estate or donor's tax.
a. Only statement 1 is correct. c. Both statements are correct.
b. Only statement 2 is correct. d. Both statements are not correct.
____ 32. Statement 1: Casual transfer of real property (capital asset) is normally subject to capital gain tax.
Statement 2: Capital gain tax is an income tax.
a. Only statement 1 is correct. c. Both statements are correct.
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 154
b. Only statement 2 is correct. d. Both statements are not correct.
____ 33. Statement 1: Sale of inventory of a non-VAT person is subject to business tax.
Statement 2: Sale inventory of a VAT-registered person is subject to percentage tax other than VAT.
a. Only statement 1 is correct. c. Both statements are correct.
b. Only statement 2 is correct. d. Both statements are not correct.
____ 34. Statement 1: Both income earned within and outside the Philippines by resident alien are subject
to
Philippine income tax.
Statement 2: Casual transfer by nonresident alien of property located within and outside the Philippines are
subject
to Philippine transfer taxes.
a. Only statement 1 is correct. c. Both statements are correct.
b. Only statement 2 is correct. d. Both statements are not correct.
____ 35. Which of the following is taxable with Philippine income tax for his income earned within and
outside
the Philippines?
a. Resident alien c. Resident citizen
b. Nonresident alien d. Nonresident citizen
____ 36. Which of the following can be considered as a feature of a void contract?
a. subject to ratification
b. they exist
c. action or defense to nullity is subject to prescription
d. none of them
____ 37. These persons are bound by contracts:
a. contrating parties
b. assign or assigns
c. heirs
d. all of them
____ 38. S offers to sell his house to B for P100,000. B asks him if he would accept P80,000. Which of
the following is correct?
a. B’s response is more of inquiry, the P100,000 offer of S is still in force
Practical Accounting 2
Second Pre-Board Examination
May 2007 Batch
Page 155
b. B’s response is a rejection of the P100,000 offer, and there is no offer for P80,000
because it is too indefinite to be an offer
c. B’s response is a counter offer effectively terminating the P100,000 offer and
instigating an offer for P80,000
d. Because of ambiguity, both offers are terminated by operation of law
____ 39. Which of the following contracts is not valid?
a. Mutual promise to marry entered into orally
b. Sale of immovable property orally entered into
c. One of the parties in a contract is incapable of giving consent
d. None of the above
____ 40. In a contract of sale executed by S and b, it appears S sold his motor vehicle to B and B
bought it for P10,000. It turned out however, S has three motor vehicles. Gallant valued
P80,000; Hi-Ace van valued P70,000; and a Jeep valued P60,000. Which of the following is
correct?
a. The parties can ask for annulment of contract
b. There is no contract
c. The parties can ask for interpretation because the word Motor vehicle is
ambiguous
d. The contract shall be reformed because there was a mistake
____ 41. Three of the following are rescissible, which is not?
a. Sale of property under litigation made by the defendant without the knowledge of
plaintiff and authority of the court
b. Those made to defraud creditors when the creditors has no other means to
recover his claim
c. Those agreed upon in presentation of absentees, if the absentee suffers lesion by
more than 1/4 of the value of the property subject of the contract
d. None of the above
____ 42. In order that a stipulation in favor to third person in a contract would be valid and binding upon
the parties thereto, three of the requisites are mentioned in the following enumeration. Which
of them is not a requisite?
a. There must be an existing agency between either of the contracting parties and
the third person
b. The third person communicated his acceptance to the obligor before it’s
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revocation
c. The contracting parties must have clearly and deliberately conferred a favor upon
that third person
d. There must be stipulation in favor of a third person
____ 43. “A”, bachelor lawyer, raped W twice. Upon learning this, “F” the father of W, was able to force
A to marry W under pain of being sued in court and dibarred from the practice of his law
profession. Which statement is correct?
a. The defectiv e marriage may, however, be ratified
b. There was no defect, the marriage was perfectly valid
c. The marriage may be annulled on the ground of threat of intimidation
d. The marriage may be annulled on the ground of force or violence
____ 44. In the preceding question, which of the following is correct?
a. If there is no more offer made, the contract is perfected on the offer of B because
he will be considered as the highest bidder.
b. However, if another bidder, X, bidder P15,000, he will be considered as the
highest bidder and the contract is perfected
c. In letter (b), if X increase his bid for P20,000, and no more bid equals his bid, the
contract is perfected for P20,000.
d. Answer not given
____ 45. G was appointed guardian of S, the latter being 16 years old. S sold his parcel of land in
writing to B valued at P100,000 for P75,000, suffering lesion by 1/4 of the value. What is the
status of the contract?
a. Voidable
b. Enforceable
c. Unenforceable
d. Rescissible
____ 46. The stipulation in a contract to the effect that the debtor should remain as a servant in the
house and in the service of her creditor so long as she had not paid her debt is void because
it is:
a. Contrary to good customs.
b. Contrary to public policy.
c. Contrary to law and morality.
d. Contrary to obligations of contracts rule.
____ 47. Consent is manifested by the meeting of the offer and the acceptance upon the thing and the
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cause which are to constitute a contract. Which of the following constitutes an offer?
a. An offer made through an agent.
b. Business advertisement of things for sale.
c. Advertisement for bidders.
d. Policitation.
____ 48. When one of the parties to a contract is compelled to give his consent by a reasonable and a
well-grounded fear of an imminent and grave evil upon his person or property, or upon the
person or property of his spouse, descendants or ascendants, there is:
a. Violence
b. Intimidation
c. Undue influence
d. Reverential fear
____ 49. Simulation of a contract may be absolute or relative. It is relative when:
a. The parties do not intend to be bound at all.
b. The contract is void.
c. The parties conceal their true agreement.
d. The intention of the parties is uncertain.
____ 50. The proper remedy is annulment of contract and not reformation when:
a. Mistake, fraud, inequitable conduct, or accident has prevented a meeting of the
minds of the parties.
b. A mutual mistake of the parties causes the failure of the instrument to disclose
their real agreement.
c. One party was mistaken and the other knew or believed that the instrument did
not state their real agreement, but concealed the fact from the owner.
d. The parties concealed their true agreement.
____ 51. Which of the following does not discharge a negotiable instrument?
a. Payment on due course by the accomodated party which the instrument is made
or accepted for his accomodation
b. Payment on due course by the principal debtor
c. Intentional cancellation of the instrument by the maker
d. Payment in due course by the accomodation maker
____ 52. The value requirement in determining whether a personis a holder in due course with respect
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to a check will not be satisfied by the taking of the check.
a. As a security for an obligation to the extent of the obligation
b. As payment for an antecedent debt
c. In exchange for another negotiable instrument
d. In exchange for a promise to perform services in the future
____ 53. Not a method of transferring commercial papers.
a. Assignment
b. Negotiation
c. Indorsement and delivery
d. None of the above
____ 54. One of the following indorsements is a valid negotiation.
a. Pay to A P6,000 (amount of the instrument is P10,000)
b. Pay to A P7,000 and to B, the balance (amount of the note is P10,000)
c. Pay to A P8,000 out of the amount of P10,000 of this note
d. Pay to A and B P10,000
____ 55. A bill of exchange to which no document is attached when presentment for payment or
acceptance is made
a. Trade acceptance
b. Bank acceptance
c. Clean bill of exchange
d. Documentary bill of exchange
____ 56. A partnership which comprises all profits that the partners may acquire by their work or
industry during the existence of the partnership;
a. universal partnership of profits
b. particular partnership
c. universal partnership of all present property
d. partnership at will
____ 57. Antonio is an industrial partner. Besides his service, he also contributed capital in the
partnership. There is no agreement or stipulation regarding profit or losses. His share in the
partnership profit is;
a. depends in the agreement of the other partners
b. pro rata in his interest
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c. such share that is just and equitable
d. combination of B and C
____ 58. A partnership is dissolved:
a. In contravention of the partnership agreement by the express will of any partner at
any time
b. By any event which makes it unlawful for the business of the partnership to be
carried on or for the members to carry it on in the partnership
c. When the specific thing which a partner had promised to the partnership perishes
before its delivery to the partnership
d. All of the above
____ 59. Which of the following provision in Partnership Law are considered directory and not
mandatory?
a. If capital is P3,000 or more it must appear in a public instrument
b. The partnership contract must be recorded with the SEC
c. If immovable properties is contributed it must appear in a public instrument
d. A and B
____ 60. A partner whose liability for partnership debts is limited to his capital contribution is called:
a. general partner
b. limited partner
c. general-limited partner
d. secret partner
____ 61. A limited partner who takes active part in the management of the firm becomes:
a. A managing partner.
b. Liable as a general partner.
c. A general partner.
d. A general partner and a limited partner at the same time.
____ 62. Which of the following statements is not correct?
a. A limited partner in a limited partnership manages the business of the partnership but
cannot perform acts of ownership without the consent of all the limited partners.
b. Valid contributions of a limited partner are money and property but not services.
c. Additional limited partners may be admitted into the limited partners with the consent of
all partners.
d. A person who is both a general partner and a limited partner is deemed a limited partner
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only with respect to the return of his contribution.
____ 63. A is the managing partner of A & B Company. X is indebted to A for P20,000.00 and to the
partnership
for P60,000.00. When both debts mature, X pays A P20,000.00 and the latter issues a receipt for his
personal credit. The payment for P20,000.00 shall be applied:
a. 1⁄4 in favor of A and 3⁄4 in favor of partnership.
b. To the whole debt owing to A.
c. 1⁄2 in favor of A and 1⁄2 in favor of the partnership.
d. To the debt owing to the partnership.
____ 64. Which of the following is an essential element of partnership?
a. There must be a contribution of money, property, or industry to a common fund.
b. It must be an association for profit with the intention to divide the profits among
themselves.
c. There must be a valid and voluntary agreement.
d. All of them.
____ 65. A and B are capitalist partners with C as industrial partner. A and B contributed P20,000.00 each to
the
capital of the partnership. A contractual liability of P50,000 was incurred by the partnership in favor of
X. the assets of the partnership has been exhausted still leaving an unpaid liability of P12,000.00. What
are the rights and the obligation of the partner, if any?
a. A, B, and C are liable to X, and C after giving his share may ask reimbursement from A
and B, unless otherwise stipulated.
b. A and B only.
c. C only.
d. A, B, and C and C has no right for reimbursement from A and B unless expressly
stipulated.
____ 66. Three of the following are elements of the vendor’s right of stoppage in transitu. Which is the
exception?
a. the buyer must be insolvent
b. the goods must be in transit
c. the seller must be unpaid
d. the seller must be in possession of the goods
____ 67. A, B, and C are co owners of an undivided parcel of land. B sold his 1/3 interest to C
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absolutely. Which is correct?
a. A may exercise his right of redemption on the interest sold by B to C
b. A cannot exercise the right of redemption because the sale was made in favor of a
co owner
c. The sale made by B to C is void because it was not made in favor of a stranger
d. A may redeem only 1/2 of the interest sold by B to C
____ 68. P, the owner of a piece of residential land orally authorized A to sell the land for P500,000 with
5% commission. Today A sold the land to C. One day later P sold the same land to D.
Assuming that both buyers are in good faith, who is the lawful owner?
a. C, being the first owner
b. C, because A was given authority by P
c. D, because the sale made by A to C is only voidable
d. D, because the sale between A and C is void
____ 69. Which statement is true?
a. In contract to sell, ownership is transferred to the buyer upon delivery
b. In sale with a right to repurchase, upon delivery the buyer is the absolute owner
c. Sale con pacto de retro is an example of sale subject to a suspensive condition
d. “When the vendor binds himself to pay the taxes on the thing sold”, it is presumed
that the transaction is a mortgage and not governed by contract of sale
____ 70. B went to a store and offered to a buy a certain watch for P1,000. S, said that he was willing to
give it for P1,200. B turned to go away because he did not to pay the price. S called him (B)
and said that he was willing to sell the watch for P1,000. Is the contract perfected?
a. Yes, because there was meeting of minds between S and B
b. No, S made another offer not accepted by B
c. Yes, because the consent was already manifested at the time of the offer
d. Yes, because B’s acceptance is not qualified
END