PRE-FINALS QUIZ
MULTIPLE CHOICE: On your answer sheet, write the corresponding letter of the best
answer. Provide solutions for problems solving questions. Write the letter of your
choice in the CAPITAL letters.
1. RFC provides 3-year warranty for the products it sells. RFC estimates that warranty costs ₱400
per unit sold. As of January 1, 20x1, the liability for warranty has a balance of ₱800,000 for
units sold in 20x0. During the year RISIBLE sold 5,000 units and actual warranty costs incurred
were ₱1,240,000. How much is the warranty expense to be recognized in 20x1? (nfl,p,c)
a. 2,000,000
b. 1,240,000 c. 3,240,000 d. 4,240,000
2. PFC launched a sales promotion in 20x1. For every ten empty packs returned to PFC plus
₱200, customers will receive a set of kitchen knives. PFC estimates that 40% of the packs
sold will be redeemed. Information on transactions during the year is as follows:
Units
Sales
Sets of kitchen knives purchased (₱800 per set)
Number of packs redeemed
500,000
300,000
45,000
Amount
3B
240M
How much is the premium expense in 20x1? (nfl,p,c)
a. 8,000,000 b. 12,000,000 c. 14,000,000 d. 16,000,000
3. In December 20x1, Mill Co. began including one coupon in each package of candy that it sells
and offering a toy in exchange for 50 centavos and five coupons. The toys cost Mill 80
centavos each. Eventually, 60% of the coupons will be redeemed. During December, Mill sold
110,000 packages of candy and no coupons were redeemed. In its December 31, 20x1,
balance sheet, what amount should Mill report as estimated liability for coupons?
a. 3,960
b. 10,560
c. 19,800
d. 52,800
4. In May 20x6, Caso Co. filed suit against Wayne, Inc. seeking ₱1,900,000 damages for patent
infringement. A court verdict in November 20x9 awarded Caso ₱1,5000,000 in damages, but
Wayne’s appeal is not expected to be decided before 2x10. Caso’s counsel believes it is
probable that Caso will be successful against Wayne for an estimated amount in the range
between ₱800,000 and ₱1,100,000, with ₱1,000,000 considered the most likely amount. What
amount should Caso record as income from the lawsuit in the year ended December 31, 20x9?
a. 0
b. 800,000
c. 1,000,000
d. 1,500,000
5. National Appliance Center sells washing machines that carry a three-year warranty against
manufacturer’s defects. Based on company experience, warranty costs are estimated at ₱60
per machine. During the year, National sold 48,000 washing machines and paid warranty
costs of ₱340,000. In its income statement for the year ended December 31, National should
report warranty expense of:
a. 680,000 b. 960,000 c. 2,200,000 d. 2,880,000
6. During January 20x9, Haze Corp. won a litigation award for ₱15,000 which was tripled to
₱45,000 to include punitive damages. The defendant, who is financially stable, has appealed
only the ₱30,000 punitive damages. Haze was awarded ₱50,000 in an unrelated suit it filed,
which is being appealed by the defendant. Counsel is unable to estimate the outcome of these
appeals. In its 20x9 financial statements, Haze should report what amount of pretax gain?
a. 15,000
b. 45,000
c. 50,000
d. 95,000
7. Taken from the records of ABC Co. as of December 31, 20x1 is the following information:
Computer software cost
Machinery
Accrued liability - health care
Carrying
amount
Tax base
Difference
500,000
1,000,000
200,000
600,000
-
500,000
400,000
200,000
Additional information:
 Software development costs after technological feasibility was established were capitalized for
financial reporting. The costs were recognized as outright deductions for tax purposes.
 Straight line method is used in depreciating the machinery while sum-of-the-years’ digits
method is used for tax purposes.
 Health care benefits are accrued as incurred but are tax deductible only when cash is actually
paid.
 Pretax profit for 20x1 is ₱1,000,000. Income tax rate is 30%.
 There were no temporary differences as of January 1, 20x1.
How much is the deferred tax liability on December 31, 20x1? (it)
a. 400,000
b. 900,000
c. 320,000
d. 270,000
8. Information on an entity’s operating segments is shown below:
Operating
segments
Total revenue
Profit
Identifiable
assets
A
B
C
D
E
F
1,000,000
500,000
300,000
500,000
200,000
900,000
200,000
120,000
30,000
50,000
60,000
400,000
4,000,000
1,000,000
800,000
1,700,000
800,000
1,000,000
860,000
9,300,000
Totals
The reportable segments are
a. A, B and F
b. A, B, D and F
3,400,000
c. A, B, C, D and F
d. All segments
9. Stiggins Corporation had the following account balances for 20x2:
Accounts Payable
Prepaid Rent Expense
Accounts Receivable (net)
31-Dec
67,200
24,600
84,000
1-Jan
58,200
37,200
66,600
Stiggins' 2002 profit is ₱450,000. What amount should Stiggins include as net cash
provided by operating activities in its 20x2 statement of cash flows?
a. 436,200
b. 445,200 c. 453,600 d. 454,200
10. Chow Company's 20x2 income statement reported the cost of goods sold as ₱135,000.
Additional information is as follows:
Inventory
Accounts Payable
31-Dec-02
30,000
13,000
31-Dec-01
22,500
19,500
If Chow uses the direct method, what amount should Chow report as cash paid to
suppliers in its 2002 statement of cash flows?
a. 121,000
b. 134,000
c. 136,000
d. 149,000
Use the following for the next three questions:
Frye Company uses the direct method to prepare its statement of cash flows. The
company had the following cash flows in 2002:
Cash receipts from the issuance of ordinary shares
Cash receipts from customers
Cash receipts from dividends on long-term investments
Cash receipts from repayment of loan made to
another entity
Cash payments for wages and other operating expenses
Cash payments for insurance
Cash payments for dividends
Cash payments for taxes
Cash payment to purchase land
400,000
200,000
30,000
220,000
120,000
10,000
20,000
40,000
80,000
11. The net cash provided by (used in) operating activities is
a. 60,000
b. 40,000
c. 30,000
d. (20,000)
12. The net cash provided by (used in) investing activities is
a. 220,000
b. 140,000
c. 60,000
d. (80,000)
13. The net cash provided by (used in) all activities is
a. 580,000
b. 410,000
c. 380,000
d. (60,000)
14. Entity Co. uses the cash basis of accounting and reported income of ₱87,000 in 20x1. The
following items were considered in the computation of the cash basis net income.
Inventory, beginning
Inventory, ending
Receivables, beginning
Receivables, ending
Payables, beginning
Payables, ending
The accrual basis income is
a. 97,000
b. 73,000
12,000
18,000
40,000
38,000
19,000
25,000
c. 89,000
d. 85,000
15. Entity A reported profit of ₱340,000 for the year ended December 31, 20x1. Depreciation
expense for the year was ₱100,000. The following are the changes in the operating assets
and liabilities of Entity A during 20x1:
Accounts receivable
Accounts payable
20x1
20x0
560,000
240,000
300,000
120,000
How much is the net cash from operating activities?
a. 820,000
b. 580,000
c. 300,000
d. 100,00
The following were the cash transactions of Entity A during the period:
Cash receipts from sale of goods
Cash paid for purchases of inventory
Cash receipts on loans taken from a bank
Cash paid for interest expense
Cash payment for the acquisition of property, plant and equipment
650,000
340,000
200,000
20,000
180,000
16. How much is the net cash from (used in) operating activities?
a. 155,000
b. (155,000)
c. 290,000
d. (290,000)
17. How much is the net cash from (used in) investing activities?
a. 180,000
b. (180,000)
c. 20,000
d. 0
18. Under the indirect method, the cash flow from operating activities is determined by adjusting the
reported profit by (choose the incorrect statement)
a. adding back non-cash expenses
b. adding back decreases in operating assets
c. deducting decreases in operating liabilities
d. adding back increases in operating assets
19. Under the indirect method, the cash flow from operating activities is determined by adjusting the
reported profit by (choose the incorrect statement)
a. deducting non-cash income
b. deducting increases in operating assets
c. deducting decreases in nonoperating liabilities
d. deducting gains on sale of nonoperating assets
20. When preparing a statement of cash flows using the direct method, amortization of patent is
a. shown as an increase in cash flows from operating activities.
b. shown as a reduction in cash flows from operating activities.
c. included with supplemental disclosures of noncash transactions.
d. not reported in the statement of cash flows or related disclosures.
The movements in the cash account of DEADLOCK STANDSTILL Co. during 20x2 are shown
below.
Cash
beg.
400
Sales
12,000 7,600 Purchases
Interest income
40 2,400 Operating expenses
Rent income
540
60 Interest expense
Dividend income
80
140 Income taxes
Sale of held for trading
securities
1,600
200 Investment in FVOCI
Sale of old building
1,040 2,200 Purchase of equipment
Collection of non-trade note
120
260 Loan granted to employee
Proceeds from loan with a bank
3,200
480 Payment of loan borrowed
Issuance of shares
1,940
400 Reacquisition of shares
180 Dividends
7,040 end.
21. How much is the cash flows from operating activities?
a. 4,600
b. 4,840
c. 5,040
d. 4,060
22. How much is the cash flows from investing activities?
a. (1,500)
b. 1,500
c. 1,240
d. (1,240)
23. How much is the cash flows from financing activities?
a. 4,800
b. (4,800)
c. 4,240
d. 4,080
24. DEMENTED INSANE Co. is preparing its year-end financial statements and has identified
the following operating segments:
Segments
Revenues
Profit (loss)
Assets
A
4,000,000
800,000
56,000,000
B
4,800,000
560,000
72,000,000
C
1,080,000
(280,000)
48,000,000
D
960,000
(2,800,000)
4,000,000
E
1,160,000
200,000
5,600,000
12,000,000
(1,520,000)
185,600,000
Totals
What are the reportable segments?
a. A, B and D
b. A, B, C and D
c. A and B
d. A, B, C, D and E
25. EMBOSOM CHERISH Co. engages in five diversified operations namely, operations A, B, C,
D, and E. Information on these segments are shown below:
Segments
Revenues
Profit (loss)
Assets
A
3,200
800
40,000
B
3,200
400
8,000
C
200
40
4,000
D
600
80
8,000
E
800
280
24,000
8,000
1,600
84,000
Totals
Additional information:
a. For internal reporting purposes, segments A and B are considered as one operating segment.
b. Segment E is considered as an operating segment for internal decision making purposes.
c. Segments C and D have similar economic characteristics and share a majority of the
aggregation criteria.
What are the reportable segments?
a. A, B, C, D and E
b. A, B and E
c. A and B as one segment and E
d. A and B as one segment, E, and C and D as one segment
26. SORDID DIRTY Co. is preparing its year-end financial statements and has identified the
following operating segments:
InterExternal
segment
Total
Segments
revenues
revenues
revenues
Profit
Assets
A
4,800,000
2,400,000
7,200,000
2,800,000
48,000,000
B
1,600,000
400,000
2,000,000
1,600,000
28,000,000
C
1,000,000
1,000,000
400,000
4,000,000
D
800,000
800,000
320,000
3,200,000
E
600,000
600,000
280,000
2,800,000
F
400,000
400,000
200,000
2,000,000
9,200,000
2,800,000
12,000,000
5,600,000
88,000,000
Totals
Management believes that between segments C, D, E and F, segment C is most relevant to
external users of financial statements.
What are the reportable segments?
a. A and B
b. A, B, C and D
c. A, B and C
d. A, B, C, D, E and F
27. The ledger of PERNICIOUS DEADLY Co. as of December 31, 20x1 includes the following:
Liabilities
Bank overdraft
Trade accounts payable (net of ₱10,000 debit balance in accounts)
Notes payable (due in 20 semi-annual payments of ₱4,000)
Interest payable
Bonds payable (due on March 31, 20x2)
Discount on bonds payable
Dividends payable
Share dividends payable
Deferred tax liability (expected to reverse in 20x2)
Income tax payable
Contingent liability
Reserve for contingencies
Totals
10,000
40,000
80,000
30,000
70,000
(30,000)
10,000
12,000
36,000
44,000
100,000
28,000
430,000
How much is the total current liabilities?
a. 192,000
b. 186,000
c. 212,000
d. 178,000
28. On January 1, 20x1, ABC signed a 3-year, non-cancellable purchase contract which allows
ABC to purchase up to 12,000 units of Buko annually from XYZ at P15 per unit and guarantees
a minimum purchase of 3,000 units. At year-end, it was found out that the goods become
unique in the market. ABC had 4,000 units of this inventory at December 31, 20x1, and
believes these can be sold for P25 per unit. How much is the gain on purchase commitment
to be recognized on December 31, 20x1?
a. 70,000
b. 100,000
c. 60,000
d. 0
29. ABC Co. has the following information relating to its income tax on December 31, 20x1:
 Provision for probable loss on litigation of ₱300,000 is recognized for financial reporting.
This amount is tax deductible only when actually paid. ABC expects to pay for the accrued
loss in 20x2.
 Revenue for financial reporting is recognized based on percentage of completion while
revenue for taxation purposes is recognized based on collections on progress billings.
Total revenue recognized for financial reporting is ₱1,000,000 while revenue recognized
for taxation purposes is ₱800,000.
 Pretax income for the year is ₱1,000,000. Income tax rate for 20x1 is 30%. However, an
enacted tax law that will take effect starting January 1, 20x2 requires a tax rate of 32%.
 There are no temporary differences on January 1, 20x1.
How much is the income tax expense?
a. 320,000
b. 300,000
c. 298,000
d. 289,000
30. ABC Co. is determining the amount of its pretax accounting income for the year by making
adjustment to taxable income from the company's year-end income tax return. The tax return
indicates taxable income of ₱100,000, on which a tax liability of ₱30,000 has been recognized
(₱100,000 x 30% = ₱30,000). Additional information is shown below:
Goodwill impairment loss not included as a deduction in the tax return but may
be deducted for financial reporting
Interest income on savings and time deposits with private banks
Revenues from installment sales are recognized as goods are sold but are taxed
only when installment payments are collected.
Excess of depreciation recognized for financial reporting over depreciation
recognized for taxation purposes due to shorter depreciation period used for
financial reporting
Bad debt expense recognized using the allowance method
How much is the pretax income?
a. 115,000
b. 100,000
c. 96,000
d. 86,000
-END OF QUIZ-
35,000
6,000
40,000
10,000
15,000