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1st-mock-cpa-board-exam FAR march-24 2022
Accountancy (Isabela State University)
Studocu is not sponsored or endorsed by any college or university
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UNIVERSITY OF LUZON
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Integrated Review & Refresher Course
MOCK CPA BOARD EXAMINATION
FINANCIAL ACCOUNTING & REPORTING
March 24, 2022 (TIME ALLOTTED = 3 HOURS)
INSTRUCTION: USE THE GOOGLE FORM ANSWER SHEET.
1. Recognizing expected losses immediately, but deferring expected gains, is an example of
______.
a.
b.
c.
d.
materiality
conservatism
cost-effectiveness
timeliness
2. Primecoat Corporation could disseminate its annual financial statements two days earlier if it
shifted substantial human resources from other operations to the annual report project.
Management decided the value of the earlier report was not worth the added commitment of
resources. The concept demonstrated is ______.
a. timeliness
b. materiality
c. relevance
d. cost-effectiveness
3. Which type of account is always debited during the closing process?
a.
b.
c.
d.
Dividends.
Expense.
Revenue.
Retained earnings.
4. Reversing entries do not apply to which of the following items?
a.
b.
c.
d.
Unearned revenue.
Accrued wages.
Prepaid insurance.
Depreciation.
5. The worksheet for Sharko Co. consisted of five pairs of debit and credit columns. The peso
amount of one item appeared in both the credit column of the income statement section and
the debit column of the balance sheet section. That item is
a.
b.
c.
d.
net income for the period.
beginning inventory.
cost of goods sold.
Net loss for the period.
6. Because the first formal accounting record of a transaction is made in a journal from source
document information, a journal is commonly referred to as a(n)
a.
b.
c.
d.
ledger.
account.
cross-reference.
book of original entry.
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7. Asset and expense accounts normally have
a.
b.
c.
d.
credit balances.
large balances.
debit balances.
negative balances.
8. Increases are entered on the credit side of a(n)
a.
b.
c.
d.
asset account.
liability account.
expense account.
drawing account.
9. The fact that each transaction has a dual effect on the accounting elements provides the basis
for what is called
a.
b.
c.
d.
single-entry accounting.
compound-entry accounting.
multiple-entry accounting.
double-entry accounting.
10. An investment of cash in a business by the owner
a.
b.
c.
d.
increases cash.
decreases owner's equity.
appears in a liability account.
represents an obligation of the business.
11. What is the requirement for incorporating an item into the financial statements?
a.
b.
c.
d.
It meets the definition of relevance and faithful representation.
It meets the definition of an element and can be measured reliably
It satisfies the criteria of capital maintenance
It meets the requirement of comparability and consistency.
12. What is the purpose of reporting comprehensive income?
a.
b.
c.
d.
To report changes in equity due to transactions with owners.
To report a measure of overall entity performance.
To replace net income with a better measure.
To combine income from continuing operations with income from discontinued
operations.
13. When a full set of general-purpose financial statements are presented, comprehensive income
and its components should
a.
b.
c.
d.
Appear as a part of discontinued operations.
Be reported net of related income tax should effect, in total and individually.
Appear in a supplemental schedule in the notes to financial statements.
Be displayed in a financial statement that has the same prominence as other
financial statements.
14. Which is an acceptable method for reporting comprehensive income under IFRS?
a. One comprehensive income statement.
b. Two statements, an income statement and a comprehensive income statement.
c. In the statement of changes in equity.
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d. One comprehensive income statement or two statements, an income statement and a
comprehensive income statement
15. Which of the following is true about financial statement requirements?
a.
b.
c.
d.
Prior year comparative financial statements are required.
Income statements for three years are required.
Statements of financial position for three years are required.
There are no specific requirements regarding comparative financial statements.
16. Which of the following items would cause earnings to differ from comprehensive income?
a.
b.
c.
d.
Unrealized loss on investment classified as at fair value through OCI
Unrealized loss on investment classified as trading
Loss on exchange of similar asset
Loss on exchange of dissimilar asset
17. Which of the following statements conforms to the realization concept?
a. Equipment depreciation was assigned to a production department and then to product unit
cost.
b. Depreciated equipment was sold in exchange for a note receivable.
c. Cash was collected on accounts receivable.
d. Product unit costs were assigned to cost of goods sold when the units were sold.
18. What is the underlying concept that supports estimating a fixed asset impairment charge?
a.
b.
c.
d.
Substance over form
Consistency
Matching
Faithful representation
19. What is the concept that supports the issuance of interim reports?
a.
b.
c.
d.
Relevance
Materiality
Consistency
Faithful representation
20. Which of the following is an essential characteristic of an asset?
a.
b.
c.
d.
The claims to an asset’s benefits are legally enforceable.
An asset is tangible.
An asset is obtained at a cost.
An asset provides future benefits.
21. Young and Jamison’s modified cash basis financial statements indicate cash paid for
operating expenses of P150,000, end of year prepaid expenses of P15,000 and accrued
liabilities of P25,000. At the beginning of the year, Young and Jamison had prepaid
expenses of P10,000 while accrued liabilities were P5,000. If cash basis operating expenses
is converted to accrual-basis operating expenses, what would be the amount of operating
expenses?
a. P125,000
b. P135,000
c. P165,000
d. P175,000
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22. A company records item on a cash basis throughout the year and converts to accrual basis for
year end reporting. Its cash-basis net income for the year is P70,000. The company has
gathered the following comparative balance sheet information:
Accounts payable
…………………………
Unearned revenue
Wages payable
Prepaid rent
Accounts receivable
Beginnin
g
of year
P3,000
End of
year
P1,000
300
300
1,200
1,400
500
400
1,500
600
What amount should the company report as its accrual-based net income for the current year?
a. P68,800
b. P70,200
c. P71,200
d. P73,200
23. Which of the following would be reported as an investing activity in a company’s statement
of cash flows?
a. Collection of proceeds from a note payable.
b. Collection of a note receivable from a related party.
c. Collection of an overdue account receivable from a customer.
d. Collection of tax refund from the government.
24. Identify which of the following is an assumption(s) underlying the preparation and
presentation of financial statements.
a.
b
.
c.
d.
Accrual
Basis
Yes
Yes
Going
Concern
No
Yes
No
No
Yes
No
25. Which of the following is a fundamental (primary) qualitative characteristic of useful
financial information?
a. Comparability
b. Timeliness
c. Relevance
d. Understandability
26. The process of reporting an item in the financial statements of an entity is:
a. Recognition
b. Statement of financial position
c. Disclosure
d. Presentation
27. Which one of the following is a characteristic of accounting under PFRS for SMEs?
a. Interest incurred during construction must be capitalized.
b. Earnings per share must be provided in the financial statements.
c. Goodwill must be amortized.
d. The LIFO cost flow assumption can be used in valuing inventories.
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28. PFRS requires a classified Statement of Financial Position. What are the required
classifications?
a. Cash; trade receivables and payables; property plant and equipment; long-term assets and
liabilities; and other assets and liabilities.
b. Cash; trade receivables and payables; property plant and equipment; and other assets and
liabilities.
c. Current, long-term, and other assets and liabilities.
d. Current and non-current assets and liabilities.
29. Which of the following accounts is a contra account?
a. Accumulated depreciation-equipment
b. Depreciation expense-equipment
c. Dividends
d. Unearned revenue
30. The following trial balance of JB Company at December 31, Year 5, has been adjusted
except for income taxes. The income tax rate is 30%.
Debit
Credit
Accounts receivable (net)………………………. P 725,000
Accounts payable
P250,000
Accumulated depreciation
125,000
Cash
185,000
Contributed capital
650,000
Expenses
3,750,000
Goodwill
140,000
Prepaid taxes
225,000
Property, plant and equipment
850,000
Retained earnings, 1/1/year five
350,000
Revenues
_________ 4,500,000
Total
P5,875,000 P5,875,000
During year five, estimated tax payments of P225,000 were paid and debited to prepaid
taxes. There were no differences between financial and taxable income for year five.
Included in accounts receivable is P400,000 due from a loyal customer. Special terms were
granted to this customer to make payments of P100,000 semi-annually every March 1 and
September 1.
In JB Company’s December 31, Year 5 Balance Sheet, what amount should be reported as
current assets?
a.
b.
c.
d.
P710,000
P910,000
P935,000
P1,135,000
31. (Refer to information in item #30) In JB Company’s December 31, Year 5 Balance Sheet,
what amount should be reported as total retained earnings?
a. P225,000
b. P525,000
c. P750,000
d. Some other amount
32. In multi-step income statement:
a. Total expenses are subtracted from total revenues.
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b. Gross profit is shown as a separate item.
c. Cost of sales and operating expenses are subtracted from total revenues.
d. Other income is added to revenue from sales.
33. Which of the following is a component of other comprehensive income?
a. Minimum accrual of vacation pay.
b. Cumulative currency-translation adjustments.
c. Changes in market value of inventory
d. Unrealized gain or loss on trading securities.
34. A company reports the following information as of December 31:
Sales revenue
Cost of goods sold
Operating expenses
Unrealized holding gain on the securities at
Fair value through OCI
P800,000
600,000
90,000
30,000
What amount should the company report as comprehensive income as of December 31?
a. P30,000
b. P110,000
c. P140,000
d. P200,000
35. Which of the following items would appear on the statement of changes in equity?
Notes
Treasury Advertising Retained
Payable Stock
Expense
Earnings
a.
Yes
Yes
Yes
Yes
b.
No
Yes
yes
Yes
c.
No
Yes
No
Yes
d.
No
No
No
No
36. Metro Inc. reported net income of P150,000 for 2021. Changes occurred in several accounts
during 2021 as follows:
Investment in Videogold carried on equity basis
Accumulated depreciation caused by
Major repair to equipment
Premium on bonds payable
Deferred income tax liability (long-term)
5,500 increase
2,100 decrease
1,400 decrease
1,800 increase
In Metro’s 2021 statement of cash flows, the reported net cash provided by operating
activities should be:
a. P150,400
b. P148,300
c. P144,900
d. P142,800
37. Which of the following must be included in the notes to the financial statements in a
company’s summary of significant accounting policies?
a. Description of current year equity transactions.
b. Summary of long-term debt outstanding.
c. Schedule of property, plant and equipment.
d. Revenue recognition policies.
38. The following information pertains to Grey Co. on December 31, 2021:
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Checkbook balance
Bank statement balance
Check drawn on Grey’s account, payable to a vendor,
dated and recorded 12/31/2021 but not mailed
until 1/10/2022
P12,000
16,000
1,800
On Grey’s December 31, 2021 statement of financial position, what amount should be
reported as cash?
a. P12,000
b. P13,800
c. P14,200
d. P16,000
39. On the December 31, 2021 statement of financial position of Vanoy Co., the current
receivables consisted of the following:
Trade accounts receivable
Allowance for uncollectible accounts
Claim against shipper for goods lost in transit (November 2021)
Selling price of unsold goods sent by Vanoy on consignment
at 130% of cost (not included in Vanoy ‘s ending inventory)
Security deposit on lease of warehouse used for storing
some inventories
Total
P 75,000
(2,000)
3,000
26,000
30,000
P132,000
At December 31, 2021, the correct total of Vanoy’s current net receivables was
a. P76,000.
b. P102,000.
c. P106,000.
d. P132,000.
40. Ace Co. prepared an aging of its accounts receivable at December 31, 2021 and determined
that the net realizable value of the receivables was P300,000. Additional information is
available as follows:
Allowance for uncollectible accounts at 1/1/2021—credit balance
Accounts written off as uncollectible during 2021
Accounts receivable at 12/31/2021
Uncollectible accounts recovered during 2021
P 34,000
23,000
325,000
5,000
For the year ended December 31, 2021, Ace’s bad debt expense would be
a. P25,000.
b. P23,000.
c. P16,000.
d. P9,000.
41. For the year ended December 31, 2021, Dent Co. estimated its allowance for uncollectible
accounts using the year-end aging of accounts receivable. The following data are available:
Allowance for uncollectible accounts, 1/1/21
Provision for uncollectible accounts during 2021
(2% on credit sales of P2,000,000)
Uncollectible accounts written off, 11/30/21
Estimated uncollectible accounts per aging, 12/31/21
P56,000
40,000
46,000
69,000
After year-end adjustment, the uncollectible accounts expense for 2021 should be
a. P46,000.
b. P62,000.
c. P69,000.
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d. P59,000.
42. Nenn Co.’s allowance for uncollectible accounts was P95,000 at the end of 2021 and P90,000
at the end of 2020. For the year ended December 31, 2021, Nenn reported bad debt expense
of P13,000 in its income statement. What amount did Nenn debit to the appropriate account
in 2021 to write off actual bad debts?
a. P5,000
b. P8,000
c. P13,000
d. P18,000
43. In preparing its August 31, 2021 bank reconciliation, Bing Corp. has available the following
information:
Balance per bank statement, 8/31/21
Deposit in transit, 8/31/21
Return of customer’s check for insufficient funds, 8/30/21
Outstanding checks, 8/31/21
Bank service charges for August
P21,650
3,900
600
2,750
100
At August 31, 2021, Bing’s correct cash balance is
a.
b.
c.
d.
P22,800.
P22,200.
P22,100.
P20,500.
44. Choose the correct accounting by the creditor for a loan impairment. Column (1): recognize
a loss or expense upon recognizing the impairment. Column (2): rate of interest to use in
computing the revised book value of the receivable after the impairment.
a.
b.
c.
d.
1
Yes
Yes
No
No
2
Original effective rate
New implied effective rate
Original effective rate
New implied effective rate
45. Which, if either, of the following statements concerning the transfer of investments between
categories under PFRS 9 is/are correct?
I.
II.
a.
b.
c.
d.
Only investments in debt securities may be transferred between categories.
When investments are transferred between categories, financial statements of prior
period presented for comparative purposes must not be restated.
I only
II only
Both I and II
Neither I nor II
46. Inco, Inc., an entity that prepares financial statements in accordance with PFRS, has the
following information concerning an investment in the bonds of Tyro Corporation, as of
December 31, 2021:
Par value
Original cost
Current premium
Fair value
P100,000
108,000
3,500
105,000
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Inco’s business model is to regularly invest in debt to receive the cash flow provided by
interest and the repayment of principal on maturity. The bonds are not associated with any
other asset or liability. Which one of the following is the amount at which Inco should report
its investment in Tyro in its December 31, 2021 statement of financial position?
a.
b.
c.
d.
P100,000
P103,500
P105,000
P108,000
47. Which, if any, of the following transfers between categories is possible under PFRS 9 for
investments in debt securities?
a.
b.
c.
d.
Amortized Cost to Fair Value
Yes
Yes
No
No
Fair Value to Amortized Cost
Yes
No
Yes
No
48. Which of the following are possible ways that gains or losses on changes in the fair value of
investments in equity securities may be reported under PFRS requirements?
In Profit/Loss
a.
b.
c.
d.
Yes
Yes
No
No
In Other Comprehensive
Income
Yes
No
Yes
No
49. Which, if any, of the following characteristics concerning the categories of investments under
PFRS 9 is/are correct?
I.
II.
a.
b.
c.
d.
There is a single category for debt investments and a single category for equity
investments.
The business model test in evaluating debt instruments for classification purposes is
concerned with the investor’s intent.
I only
II only
Both I and II
Neither I nor II
50. According to PFRS guidance on equity method accounting, under what circumstances would
the investor be required to recognize the associate’s losses that exceed the investor’s
investment?
I. The associate’s return to profitability is imminent and assured.
II. The investor has guaranteed the obligations and commitments of the associate.
a.
b.
c.
d.
I only
II only
Both I and II
Neither I nor II
51. Which of the following is not required under PFRS with respect to equity method
accounting?
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a. The accounting policies of the associate must conform with the accounting policies of the
investor.
b. Any investor can elect to apply fair value option to the accounting for the associate.
c. The reporting dates for the investor and associate cannot be more than 3 months apart.
d. Any impairment loss on an equity investment is measured as the carrying value less the
recoverable amount.
52. Which of the following methods may a mutual fund investor use to measure and report an
equity method investment under PFRS?
a.
b.
c.
d.
Fair Value Method
Yes
Yes
No
No
Equity Method
Yes
No
Yes
No
53. Cobb Company purchased 10,000 shares (2% ownership) of Roe Company on February 12,
2021. Cobb received a stock dividend of 2,000 shares on March 31, 2021, when the carrying
amount per share on Roe’s books was P35 and the market value per share was P40. Roe paid
cash dividend of P1.50 per share on September 15, 2021.
In Cobb’s income statement for the year ended October 31, 2021, what amount should Cobb
report as dividend income?
a.
b.
c.
d.
P98,000
P88,000
P18,000
P15,000
54. Simpson Company received dividends from its common stock investments during the year
ended December 31, 2021 as follows:
1. A cash dividend of P8,000 from Wren Corp., in which Simpson owns 2% interest.
2. A cash dividend of P45,000 from Brill Corp., in which Simpson owns 30% interest. This
investment is appropriately accounted for using equity method.
3. A stock dividend of 500 shares from Paul Corp. was received on December 15, 2021,
when the quoted market value of Paul’s shares was P10 per share. Simpson owns less
than 1% of Paul’s common stock.
In Simpson’s 2021 Income Statement, dividend income should be:
a.
b.
c.
d.
P58,000
P53,000
P13,000
P8,000
55. Larkin Company has owned 25% of the ordinary shares of Devon Co. for a number of years,
and has the ability to exercise significant influence over Devon. The following information
relates to Larkin’s investment in Devon during the most recent year:
Carrying amount of Larkin’s Investment in Devon at the
beginning of the year
Net income of Devon for the year
Total dividends paid to Devon’s shareholders during the year
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P200,000
600,000
400,000
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What is the carrying amount of Larkin’s investment in Devon at year-end?
a.
b.
c.
d.
P100,000
P200,000
P250,000
P350,000
56. In year 1, a company reported in other comprehensive income an unrealized holding loss on
an investment in financial asset as at fair value. During year 2, the investment was sold at a
loss equal to the unrealized loss previously recognized. The reclassification adjustment
should include which of the following?
a.
b.
c.
d.
The unrealized loss should be credited to the investment account.
The unrealized loss should be credited to the other comprehensive income account.
The unrealized loss should be debited to the other comprehensive income account.
The unrealized loss should be credited to beginning retained earnings.
57. Which of the following statements is true about biological assets?
a. Biological assets are only found in Biotech entities.
b. Biological assets are living animals or plants and must be disclosed as a separate
item in the statement of financial position.
c. Biological assets must be valued at cost.
d. Biological assets do not generally have future economic benefits.
Items 58 through 60 use the following information.
An entity sells a new product. During a move to a new location, the inventory records for the
product were misplaced. The bookkeeper has been able to gather some data for the purchases
and sales records. The July purchases are as follows:
July
5
10
15
25
Units
Unit cost
Total cost
10,000
12,000
15,000
14,000
65
70
60
55
650,000
840,000
900,000
770,000
On July 31, 17,000 units were on hand. The sales for July amounted to P6,000,000 or 60,000
units at P100 per unit. Roshe Company has always used a perpetual FIFO inventory costing
system. Gross profit on sales for July was P2,400,000.
58. What was the cost of the inventory on July 31?
a.
b.
c.
d.
P3,600,000
P1,670,000
P 770,000
P 950,000
59. What was the cost of inventory on July 1?
a.
b.
c.
d.
P1,390,000
P2,400,000
P 950,000
P 760,000
60. What is the number of units available on July 1?
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a. 34,000
b. 26,000
c. 10,000
d. 9,000
61. On August 31, a hurricane destroyed a retail location of Vinny’s Clothier including the entire
inventory on hand at the location. The inventory on hand as of June 30 totaled P320,000.
From June 30 until the time of the hurricane, the company made purchases of P85,000 and
had sales of P250,000. Assuming the rate of gross profit to selling price is 40%, what is the
approximate value of the inventory that was destroyed?
a. P320,000.
b. P181,500.
c. P205,000.
d. P255,000.
62. Dicer uses the conventional retail method to determine its ending inventory at cost. Assume
the beginning inventory at cost (retail) were P130,000 (P198,000), purchases during the
current year at cost (retail) were P685,000 (P1,100,000), freight-in on these purchases totaled
P43,000, sales during the current year totaled P1,050,000, and net markups (markdowns)
were P24,000 (P36,000). What is the ending inventory value at cost?
a. P153,164.
b. P156,165.
c. P157,412.
d. P236,000.
63. Loazia Inc. incurred the following costs during the year ended December 31, 2021:
Laboratory research aimed at discovery of new knowledge
Costs of testing prototype and design modifications (economic viability
not achieved)
Quality control during commercial production, including routine testing
of products
Construction of research facilities having an estimated useful life of
6 years but no alternative future use
P200,000
45,000
270,000
360,000
The total amount to be classified and expensed as research and development in 2021 is
a. P515,000.
b. P875,000.
c. P605,000.
d. P315,000.
64. On June 2, 2020, Olsen Inc. purchased a trademark with a cost P2,360,000. The trademark is
classified as an indefinite-life intangible asset. At December 31, 2020 and December 31,
2021, the following is available for impairment testing:
Fair value less costs to sell
Value-in-use
12/31/2020
P2,280,000
P2,340,000
12/31/2021
P2,265,000
P2,390,000
The 2021 income statement will report
a. no Impairment Loss or Recovery of Impairment.
b. Impairment Loss of P20,000.
c. Recovery of Impairment of P20,000.
d. Recovery of Impairment of P50,000.
65. The general ledger of Vance Corporation as of December 31, 2021, includes the following
accounts:
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Copyrights
Deposits with advertising agency (will be used to promote goodwill)
Bond sinking fund
Excess of cost over fair value of identifiable net assets of
Acquired subsidiary
Trademarks
P 30,000
27,000
70,000
390,000
120,000
In the preparation of Vance's statement of financial position as of December 31, 2021, what
should be reported as total intangible assets?
a. P510,000.
b. P537,000.
c. P540,000.
d. P537,000.
66. In January, 2016, Findley Corporation purchased a patent for a new consumer product for
P840,000. At the time of purchase, the patent was valid for fifteen years. Due to the
competitive nature of the product, however, the patent was estimated to have a useful life of
only ten years. During 2021 the product was permanently removed from the market under
governmental order because of a potential health hazard present in the product. What amount
should Findley charge to expense during 2021, assuming amortization is recorded at the end
of each year?
a. P560,000.
b. P420,000.
c. P 84,000.
d. P 56,000.
67. Hall Co. incurred research and development costs in 2021 as follows:
Materials used in research and development projects
Equipment acquired that will have alternate future uses in future research
and development projects
Depreciation for 2021 on above equipment
Personnel costs of persons involved in research and development projects
Consulting fees paid to outsiders for research and development projects
Indirect costs reasonably allocable to research and development projects
P 850,000
3,000,000
300,000
750,000
300,000
225,000
P5,425,000
Assume economic viability has not been achieved.
The amount of research and development costs charged to Hall's 2021 income statement
should be
a. P1,900,000.
b. P2,200,000.
c. P2,425,000.
d. P4,900,000.
68. Long-lived assets are required to be reviewed for impairment
a. At the end of reporting period, every three years.
b. When the asset is fully depreciated.
c. When circumstances indicate that the carrying amount of an asset might not be
recoverable.
d. At the end of reporting period, every year.
69. An entity uses the fair value model for reporting investment property. Which of the following
statements is true?
a. Changes in fair value are reported in profit or loss in the current period
b. Changes in fair value are reported in other comprehensive income for the period
c. Changes in fair value are reported as an extraordinary gain in the income statement
d. Changes in fair value are reported as deferred revenue for the period
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70. When accounting for property, plant and equipment, an entity
a. Must use the cost model for presenting the assets
b. May elect to use the cost model or the revaluation model on any individual asset.
c. May elect to use the cost model or the revaluation model on any asset class.
d. Must use the cost model for land
Items 71 – 74 use the following information.
January 1, 2021, an entity disclosed the following balances:
Land
Land improvements
Buildings
Machinery and equipment
4,000,000
1,300,000
20,000,000
8,000,000
During the current year, the following transactions occurred:
* A tract of land was acquired for P2,000,000 cash as a building site.
*
A plant facility consisting of land and building was acquired in exchange for 200,000 shares
of the entity. On the acquisition date, each share had a quoted price of P45 on a stock
exchange. The plant facility was carried on the seller’s books at P1,600,000 for land and
P5,400,000 for the building at the exchange date. Current appraised values for the land and
the building, respectively, are P2,000,000 and P8,000,000. The building has an expected life
of forty years with a P200,000 residual value.
*
Items of machinery and equipment were purchased at a total cost of P4,000,000. Additional
costs incurred were freight and unloading P100,000 and installation P300,000. The
equipment has a useful life of ten years with no residual value.
* Expenditures totaling P1,200,000 were made for new parking lot, street and sidewalks at the
entity’s various plant locations. These expenditures had an estimated useful life of fifteen
years.
*
Research and development costs were P1,100,000 for the year.
* A machine costing P200,000 on January 1, 2014 was scrapped on June 30, 2021. Straight line
depreciation had been recorded on the basis of a 10-year life with no residual value.
*
A machine was sold for P500,000 on July 1, 2021. Original cost of the machine sold was
P700,000 on January 1, 2018, and it was depreciated on the straight line basis over an
estimated useful life of eight years and a residual value of P50,000.
71. What is the total cost of land on December 31, 2021?
a. P7,800,000
b. P7,600,000
c. P8,000,000
d. P6,800,000
72. What is the total cost of land improvements on December 31, 2021?
a. P1,200,000
b. P3,600,000
c. P1,300,000
d. P2,500,000
73. What is the total cost of buildings on December 31, 2021?
a. P28,000,000
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b. P25,400,000
c. P27,200,000
d. P27,000,000
74. What is total cost of machinery and equipment on December 31, 2021?
a. P12,400,000
b. P11,500,000
c. P11,000,000
d. P11,700,000
75. Rivera Company purchased a tooling machine on January 3, 2014 for P500,000. The
machine was being depreciated on the straight-line method over an estimated useful life of 10
years, with no residual value. At the beginning of 2021, the company paid P125,000 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 5 years (15 years total). What should be
the depreciation expense recorded for the machine in 2021?
a. P34,375
b. P41,667
c. P50,000
d. P55,000
76. A depreciable asset has an estimated 15% residual value. At the end of its estimated useful
life, the accumulated depreciation would equal the original cost of the asset under which of
the following depreciation methods?
Productive Output
Straight-line
a.
Yes
No
b.
Yes
Yes
c.
No
Yes
d.
No
No
77. Net income is understated if, in the first year, estimated residual value is excluded from the
depreciation computation when using the
Straight-line
Production or
Method
Use Method
a.
Yes
No
b.
Yes
Yes
c.
No
No
d.
No
Yes
78. The liabilities section of the balance sheet of Pug Company on December 31, 2021 detailed
the following:
Accounts payable
Notes payable-trade
Bank note payable -10%
Bank note payable – 12%
Accrued expenses
Accrued interest payable
Mortgage note payable – 6%
Bonds payable – 10% due June 30, 2022
2,000,000
2,500,000
800,000
1,000,000
350,000
500,000
4,000,000
5,000,000
The 10% bank note payable is issued on January 1, 2021, payable on demand and interest is
payable every six months. The 12% bank note payable is a two-year note issued on July 1,
2020.
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The 6%, 10 year mortgage note was issued on October 1, 2018. Terms of the note give the
holder to demand payment if the company fails to make monthly interest payment. On
December 31, 2021, Pug is three months behind in paying its required interest.
What is the total amount of current liabilities on December 31, 2021?
a. P10,150,000
c. P15,750,000
b. P16,150,000
d. P15,150,000
79. To increase sales, Quezon Company inaugurated a promotional campaign on June 30, 2021.
Quezon placed a coupon redeemable for a premium in each package of cereal sold at P200.
Each premium costs P100. A premium is offered to customers who send in 5 coupons and a
remittance of P30. The distribution cost per premium is P20. Quezon estimated that only
60% of the coupons issued will be redeemed. For the six months ended December 31, 2021,
the following is available:
Packages of cereal sold
Premiums purchased
Coupons redeemed
100,000
10,000
40,000
What is the estimated liability for coupons on December 31, 2021?
a. P1,080,000
c. P360,000
b. P1,000,000
d. P720,000
80. A new product introduced by Wilkenson Promotions carries a two-year warranty against
defects. The estimated warranty costs related to dollar sales are as follows:
Year of sale ..............................
Year after sale ...........................
3 percent
5 percent
Sales and actual warranty expenditures for the years ended December 31, 2020 and 2021, are
as follows:
2020
2021
Sales
P 8,000,000
10,000,000
Actual Warranty
Expenditures
P200,000
700,000
What amount should Wilkenson report as its estimated liability as of December 31, 2021?
a. P540,000
c. P 40,000
b. P240,000
d. P740,000
81. 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 P60 per
machine. During the year, National sold 48,000 washing machines and paid warranty costs of
P340,000. In its income statement for the year ended December 31, National should report
warranty expense of
a. P2,200,000
c. P680,000
b. P2,880,000
d. P960,000
82. On November 5, 2021, a Calauag Company truck was in an accident with an auto driven by
Macalelon. Calauag received notice on January 15, 2022, of a lawsuit for P4,000,000
damages for personal injuries suffered by Macalelon. Calauag’s counsel believes it is
probable that Macalelon will be awarded an estimated amount in the range between
P2,000,000 and P3,000,000, and no amount is a better estimate of potential liability than any
other amount. The accounting year ends on December 31, and the 2021 financial statements
were issued on March 31, 2022. What amount of provision should Calauag accrue at
December 31, 2021?
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a. P4,000,000
b. P3,000,000
c. P2,500,000
d. P2,000,000
83. The residual interest in a corporation belongs to the
a. management.
b. creditors.
c. ordinary shareholders.
d. preference shareholders.
84. A retained earnings appropriation can be used to
a. Absorb a fire loss when an entity is self-insured.
b. Provide for a contingent loss that is probable and reasonably estimable.
c. Smooth periodic income.
d. Restrict earnings available for dividends.
85. In accounting for share-based compensation, what interest rate is used to discount both the
exercise price of the option and the future dividend stream?
a. The entity’s known incremental borrowing rate.
b. The current market rate that entities in that particular industry use to discount cash flows.
c. The risk-free interest rate.
d. Any rate that entities can justify as being reasonable.
86. In determining diluted earnings per share, dividends on nonconvertible cumulative
preference shares should be
a. Disregarded
b. Added back to net income whether declared or not.
c. Deducted from net income only if declared.
d. Deducted from net income whether declared or not.
87. In determining earnings per share, interest expense, net of income tax, on convertible debt
that is dilutive should be
a. Added back to weighted-average shares outstanding for diluted earnings per share.
b. Added back to net income for diluted earnings per share.
c. Deducted from net income for diluted earnings per share.
d. Deducted from weighted-average shares outstanding for diluted earnings per share.
88. In computing basic earnings per share, an entity would include which of the following?
a. Dividends on nonconvertible cumulative preference shares.
b. Dividends on ordinary shares.
c. Interest on convertible bonds.
d. Number of nonconvertible cumulative preference shares.
89. The primary purpose of a quasi reorganization is to give an entity the opportunity to
a. Obtain relief from creditors.
b. Revalue understated assets to fair value.
c. Eliminate a deficit in retained earnings.
d. Distribute the shares of a newly created subsidiary to shareholders.
90. When an entity goes through a quasi reorganization, the carrying amounts are stated at
a. Original cost
b. Original carrying amount
c. Replacement value
d. Fair value
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91. A “secret reserve” will be created if
a. inadequate depreciation is charged to income.
b. a capital expenditure is charged to expense.
c. liabilities are understated.
d. shareholders’ equity is overstated.
92. Which of the following is not a method that may be used to account for treasury shares?
a. Cost method
b. Par value method
c. Retained earnings method
d. Constructive retirement method
93. Presented below is the equity section of Oaks Corporation at December 31, 2020:
Share capital—ordinary, par value P20; authorized 75,000 shares;
issued and outstanding 45,000 shares
P 900,000
Share premium—ordinary
250,000
Retained earnings
500,000
P1,650,000
During 2021, the following transactions occurred relating to equity:
3,000 shares were reacquired at P28 per share.
3,000 shares were reacquired at P35 per share.
1,800 shares of treasury shares were sold at P30 per share.
For the year ended December 31, 2021, Oaks reported net income of P450,000. Assuming
Oaks accounts for treasury under the cost method, what should it report as total equity on its
December 31, 2021, statement of financial position?
a. P1,965,000.
b. P1,961,400.
c. P1,957,800.
d. P1,515,000.
94. Sosa Co.’s equity at January 1, 2021 is as follows:
Share capital—ordinary, P10 par value; authorized 300,000 shares;
outstanding 225,000 shares
Share premium—ordinary
Retained earnings
Total
P2,250,000
900,000
2,190,000
P5,340,000
During 2021, Sosa had the following share transactions:
Acquired 6,000 shares of its shares for P270,000.
Sold 3,600 treasury shares at P50 a share.
Sold the remaining treasury shares at P41 per share.
No other share transactions occurred during 2021. Assuming Sosa uses the cost method to
record treasury share transactions, the total amount of all share premium accounts at
December 31, 2021 is
a. P891,600.
b. P870,000.
c. P908,400.
d. P927,600.
95. The equity of Howell Company at July 31, 2021 is presented below:
Share capital—ordinary, par value P20, authorized 400,000 shares;
issued and outstanding 160,000 shares
P3,200,000
Share premium—ordinary
160,000
Retained earnings
650,000
P4,010,000
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On August 1, 2021, the board of directors of Howell declared a 15% share dividend on
ordinary shares, to be distributed on September 15th. The market price of Howell’s ordinary
shares was P35 on August 1, 2021, and P38 on September 15, 2021. What is the amount of
the debit to retained earnings as a result of the declaration and distribution of this share
dividend?
a. P480,000.
b. P840,000.
c. P912,000.
d. P600,000.
96. Yoder, Incorporated, has 3,200,000 ordinary shares outstanding on December 31, 2020. An
additional 800,000 ordinary shares were issued on April 1, 2021, and 400,000 more on July
1, 2021. On October 1, 2021, Yoder issued 20,000, P1,000 face value, 8% convertible bonds.
The bonds are dilutive. Each bond is convertible into 20 ordinary shares. No bonds were
converted in 2021. What is the number of shares to be used in computing basic earnings per
share and diluted earnings per share, respectively?
a. 4,000,000 and 4,000,000
b. 4,000,000 and 4,100,000
c. 4,000,000 and 4,400,000
d. 4,400,000 and 5,200,000
97. Didde Co. had 300,000 ordinary shares issued and outstanding at December 31, 2020. No
ordinary shares were issued during 2021. On January 1, 2021, Didde issued 200,000 shares
of nonconvertible preference shares. During 2021, Didde declared and paid P100,000 cash
dividends on the ordinary shares and P80,000 on the preference shares. Net income for the
year ended December 31, 2021 was P620,000. What should be Didde's 2021 earnings per
share?
a. P2.07
b. P1.80
c. P1.73
d. P1.47
Next three items use the following information.
The following trial balance of an entity on December 31, 2021 has been adjusted except for
income tax expense.
Cash
Accounts receivable
Inventory
Property, plant and equipment
Accounts payable
Income tax payable
Preference share capital
Ordinary share capital
Share premium
Retained earnings – January 1
Net sales and other revenue
Cost of goods sold
Expenses
Income tax expense
6,000,000
14,000,000
10,000,000
25,000,000
9,000,000
6,000,000
3,000,000
15,000,000
4,000,000
9,000,000
80,000,000
48,000,000
12,000,000
11,000,000
126,000,000
__________
126,000,000
During the year, estimated tax payments of P5,000,000 were charged to income tax expense.
The tax rate is 30% on all types of revenue. Inventory and accounts payable included goods
purchased in transit, FOB destination, costing P500,000, and unsold goods held on
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consignment at year-end, costing P300,000. The perpetual system is used. The preference
share capital is redeemable mandatorily on December 31, 2026.
98. What amount should be reported as current assets on December 31, 2021?
a.
b.
c.
d.
29,200,000
29,700,000
29,500,000
30,000,000
99. What amount should be reported as current liabilities on December 31, 2021?
a. 14,200,000
b. 17,200,000
c. 12,200,000
d. 9,200,000
100.
What amount should be reported as total shareholders’ equity on December 31, 2021?
a.
b.
c.
d.
40,000,000
37,000,000
45,000,000
42,000,000
End of examination.
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