Quiz #1: Intacc Reviewer

1. An outflow of resources embodying economic benefits is regarded as “probable”

when
a. The probability that the event will not occur is greater than the probability that
event will occur
b. The probability that the event will occur is greater than the probability that
event will not occur
c. The probability that the event will occur is the same as the probability that event
will not occur
d. The probability that the event will occur is 90%

2. A retail store received cash and issued gift certificates that are redeemable in
merchandise. The gift certificates lapse one year after they are issued. How
should the deferred revenue account be affected by each of the following
transactions?

Redemption of Certificates Lapse of Certificates

a. Decrease Decrease
b. No effect No effect
c. Decrease No effect
d. No effect Decrease

3. In June of the current year, an entity sold refundable merchandise coupons. The
entity received a certain amount for each coupon redeemable from July 1 to
December 31 of the current year, for merchandise with a certain retail price. At
June 30 of the current year, how should the entity report these coupon
transactions?
a. Unearned revenue at the cash received
b. Revenue at the cash received
c. Revenue at the merchandise’s retail price
d. Unearned revenue at the merchandise’s retail price

4. A contingent liability
a. Is not disclosed in the financial statements
b. Definitely exists as a liability but its amount or due date is indeterminate
c. Is not recognized in the financial statements, but is disclosed in the notes,
unless the outflow of resources embodying economic benefits is
considered remote
d. Is commonly associated with operating loss carry forwards
5. An entity operates chemical plants. Its published policies include a commitment
to making good any damage caused to the environment by its operations. It has
always honored this commitment. Which of the following scenarios would give
rise to an environmental provision?
a. The government has outlined plans for a new la requiring all environmental
damage to be rectified
b. Recent research suggests there is a possibility that the entity’s action may
damage surrounding wildlife
c. On past experience it is likely that a chemical spill which would result in having to
pay fines and penalties will occur in the next year
d. A chemical spill from one of the entity’s plants has caused harm to the
surrounding area and wildlife

6. Which of the following statements are correct?

I. An enterprise should not recognize a contingent liability
II. The amount recognized as a provision should be the best estimate of the
expenditure required to settle the present obligation at the end of the
reporting period
III. A provision is a liability of certain timing and amount
IV. Accruals are liabilities to pay for goods or services that have been received
or supplied but have not been paid

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

7. Information available prior to the issuance of the financial statements indicates

that it is probable that, at the date of the financial statements, a company has a
present obligation related to product warranties. The amount of the expense
involved can be reasonably estimated. Based on the above facts, the estimated
warranty expense should be
a. Neither accrued nor disclosed
b. Classified as an appropriation of retained earnings
c. Disclosed but not accrued
d. accrued

8. Which of the following statements in relation to a contingent liability is true?

I. An obligation as a result of the entity creating a valid expectation that it will
discharge its responsibilities is a contingent liability
II. A present obligation that arises from past events but cannot be reliably
measured is a contingent liability.
a. II only
 b. Neither I nor II
c. Both I and II
d. I only

9. A legal obligation is an obligation that is derived from all of the following, except
a. Other operation of law
b. Legislation
c. A contract
d. An established pattern of past practice

10. A contingent liability

a. Is not disclosed in the financial statement
b. Has a most probable value of zero but may require a payment if a given
future event occurs
c. Definitely exists a liability but its amount is due as due date is indeterminate
d. Is commonly associated with loss carry-forward

11. When the occurrence of a contingent asset is probable and its amount can be
reliably measured, the contingent asset shall be
a. Neither recognized in the statement of financial position nor disclosed
b. Classified as an appropriation of retained earning
c. Recognized in the statement of financial position and disclosed
d. Disclosed but not recognized in the statement of financial position

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

13. An entity has a self- insurance plan. Each year, the entity appropriated retained
earnings for contingencies is an amount equal to insurance premiums saved less
recognized losses from lawsuits and other claims. As a result of an accident in the
current year, the entity is a defendant in a lawsuit in which it will probably have to
pay a measurable amount of damages, What are the effects of this lawsuit’s
probable outcome on the entity’s financial statements for the current year?
a. No effect on either expenses or liabilities
b. No effect on expenses and an increase in liabilities
c. An increase in expense and no effect on liabilities
d. An increase in both expenses and liabilities
14. How would the proceeds received from the advance sale of nonrefundable tickets
for theatrical performance be reported in the seller’s financial statements before
the performance?
a. Unearned Revenue for the entire proceeds
b. Revenue to the extent of the related costs expended
c. Revenue for the entire proceeds
d. Unearned revenue to the extent of related costs expended

15. B company had a P4,000,000 note payable due on March 15,2021. B company
expects, and has the discretion to refinance the obligation for fifteen months from
its due date. How should B company classify the note on its December 31, 2020
financial statements?
a. As a non-current liability with no separate disclosure required.
b. As a current liability with separate disclosure of the note refinancing
c. As a current liability with no disclosure required.
d. As a non-current liability with separate disclosure of the note refinancing.

16. For an event to be an obligating event, it is necessary that the entity has no
realistic alternative but settle the obligation created by the event and this is the
case only:
I. Where the settlement of the obligation can be enforced by law
II. Where the event creates valid expectation in other parties that the entity
will discharge the obligation as in the case of a constructive obligation
a. II only
b. Neither
c. I only
d. Either I or II

17. Which of the following need not be disclosed in the financial statements or the
notes thereto?
a. Guarantees of indebtedness of others, outflow resources is reasonably
possible
b. Probable Losses not reasonably estimated
c. Possible loss as a result of unspecified business risk
d. Possible assessment of additional taxes.

18. An entity is closing one of its operating divisions, and the conditions for
restructuring have been met. The closure will happen in the first quarter of the
next financial year. At the current year end, the company has announced the
formal plan publicly and is calculating the restructuring provision. Which of the
following costs should be included in the restructuring provision?

a. Retraining staff continuing to be employed

b. Relocation costs relating to staff moving to other divisions
 c. Contractually required costs of retraining staff being made redundant from
the division being closed
d. Future operating losses of the division being closed up to the date of
closure

19. Which of the following sets of conditions would give rise to the accrual of a loss
or an expense?
a. Amount of loss is reasonably estimable and event occurs infrequently.
b. Amount of loss is reasonably estimable and occurrence of event is probable.
c. Event is unusual in nature and occurrence of event is probable.
d. Event is unusual in nature and event occurs infrequently.

20. Which of the following liabilities is not contingent?

a. A liability to replace a specific defective television set already returned to
the manufacturer
b. A liability to pay pension benefits if a specific employee lives to retirement
c. A liability to pay any adverse judgment for a product liability case currently
on appeal
d. A liability to pay for books received by a college bookstore under terms
that allow for the return for full refund of any books not sold

21. The board of directors of an entity decided in the latter part of the current year to
wind up international operations in the Far East and move them to Australia. The
decision was based on a detailed formal plan of restructuring. This decision was
conveyed to all workers and management personnel at the headquarters in
Europe. The cost of this restructuring plan can be estimated reliably. How should
the entity treat this restructuring in its financial statements for the current year
end?
a. Because the entity has not announced the restructuring to those affected
by the decision and thus has not raised an expectation that the entity will
actually carry out the restructuring and has no constructive decision and
the cost of restructuring.
b. Because the restructuring has not commenced before year-end, based on
prudence, wait until next year and do nothing in this year’s financial statements
c. Recognize a provision for restructuring since the board of directors has approved
it and it has been announced in the headquarters of the entity in Europe.
d. Mention the decision to restructure and the cost involved in the chairman’s
statement in the annual report since it is a decision of the board of directors.

22. A factory owned by an entity was destroyed by fire. The entity lodged an
insurance claim for the value of the factory building and plant and an amount
equal to one year’s net profit. During the year, there were a number of meetings
 with the representatives of the insurance company. Finally, before year-end, it was
decided that the entity would receive compensation for 90% of its claim. The entity
received a letter that the settlement check for that amount had been mailed but it
was not received before year-end. How should the entity treat this in its financial
statements?
a. Record 90% of the claim as a receivable as it is virtually certain that the
contingent asset will be received
b. Disclose the contingent asset in the footnotes
c. Record 100% of the claim as a receivable at year-end as it is virtually certain that
the contingent asset will be received, and adjust the 10% next year when the
settlement check is actually received
d. Wait until next year when the settlement check is actually received and not
recognize or disclose this receivable at all since at year-end it is a contingent
asset
23. A retail store received cash and issued a gift certificate that is redeemable in
merchandise. When the gift certificate was issued, a
a. Deferred revenue account should be increased
b. Revenue account should be increased
c. Revenue account should be decreased
d. Deferred revenue account should be decreased
24. Which statement is incorrect concerning a contingent asset?
a. The related gain arising from contingent asset is recognized usually when it is
realized
b. A contingent asset is not recognized in the financial statements because this may
result to recognition of income that may never be realized
c. A contingent asset is only disclosed when the occurrence of the future
event is possible or remote
d. When the realization of income is virtually certain, the related asset is no longer
contingent asset and its recognition is appropriate
25. A competitor has sued an entity for unauthorized use of its patented technology.
The amount that the entity may be required to pay to the competitor if the
competitor succeeds in the lawsuit is determinable with reliability, and according
to the legal counsel it is less than probable but more than remote than an outflow
of the resources would be needed to meet the obligation. The entity that was sued
shall at year-end
a. Make no provision or disclosure and wait until the lawsuit is finally decided and
then expense the amount paid on settlement, if any
b. Set aside, as an appropriate, a contingent reserve, an amount based on the best
estimate of the possible liability
c. Make a disclosure of the possible obligation in footnotes to the financial
statements
d. Recognize a provision for this possible obligation
26. If an amount being measured involves a large amount of population of items and
an outflow of resources embodying economic benefits is probable and can be
 reasonably estimated to be within a continuous range of possible outcomes, and
each point in the range is as likely as any other, the amount to be accrued is
a. The upper limit of the range
b. The lower limit of the range
c. The midpoint of the range
d. Zero
27. The likelihood that the future event will or will not occur can be expressed by a
range of outcomes. Which range means that the future event occurring is very
slight?
a. Certain
b. Probable
c. Reasonably possible
d. Remote
28. It is contract in which the unavoidable costs of meeting the obligation under the
contract exceed the economic benefits to be received under the contract.
a. Sale contract
b. Executed contract
c. Executor contract
d. Onerous Contract

29. A contingent liability shall be recognized when

a. It is probable that a liability has been incurred even though the amount of
the loss can be reasonably measured.
b. It is certain that funds are available to pay the amount of the claim.
c. The amount of the loss can be reliably measured as it is probable prior to
issuance of financial statements that a liability has been incurred.
d. Any lawsuit is actually filed against an entity.

30. An entity is a retailer of home appliances and offers a service contract on each
appliance sold. The entity sells appliances on installment contracts, but all service
contracts must be paid in full at the time of sale. Collections received for service
contracts shall be recorded as an increases in a
a. Shareholder’s equity valuation account
b. Service revenue account
c. Sales contracts receivable valuation account
d. Deferred revenue account

31. Under PAS 37, which of the following statements is true concerning the
measurement of a provision?
I. The amount recognized as a provision should be the best estimate of the
expenditure required to settle the present obligation at the end of the
reporting period
II. The best estimate of the expenditure required to settle the present
obligation is the amount that an entity would rationally pay to settle the
 obligation at the end of reporting period or to transfer it to a third party at
that time
a. II only
b. Neither I nor II
c. Both I and II
d. I only

32. Reporting in the body of financial statements is required for

a. Gain contingencies that are probable and can be reliably measured
b. Loss contingencies that are possible and can be reliably measured
c. Loss contingencies that are probable and can be reliably measured
d. All loss contingencies

33. Where the provision being measured involves a large population of items, the
obligation is estimated by “weighting” all possible outcomes by their associated
probabilities. The name for this statistical method of estimation is
a. Current value
b. Extrapolation
c. Expected value
d. Present value

34. Which of the following uncertainties is normally accrued?

a. Obligations related to product warranties
b. Risk of property loss due to fire
c. Pending or threatened litigation
d. General or unspecified business risk

35. What is the relationship between current liabilities and the company’s operating
cycle?
a. Liquidation of current liabilities is reasonably expected within the
company’s operating cycle (or one year if more).
b. There is no relationship between the two
c. Current liabilities are the result of operating transactions
d. Current liabilities cannot exceed the amount incurred in one operating cycle

36. How would the proceeds received from the advance sale of nonrefundable tickets
for a theatrical performance be reported in the seller’s financial statements before
the performance?
a. Revenue for the entire proceeds
b. Revenue to the extent of related costs expended
c. Unearned revenue for the entire proceeds
d. Unearned revenue to the extent of related costs expended
 37. A provision is an obligation that is uncertain as to
Timing or Amount Existence
a. No Yes
b. Yes No
c. No No
d. Yes Yes

38. Which of the following is a financial liability?

a. A constructive obligation
b. An obligation to deliver own shares worth a fixed amount of cash
c. Deferred revenue
d. A warranty obligation

39. At year-end, an entity was suing a competitor for patent infringement. The award
from the probable favorable outcome could be reliably measured. The entity’s
financial statements shall report the expected award as
a. Receivable and revenue
b. Receivable and reduction of patent
c. Disclosure only
d. Receivable and deferred revenue

40. Which of the following statements related to accounting for provisions is/are
correct?
I. A company must accrue a liability for sick pay that accumulates but does not vest.
1. False
II. Companies should recognize the expense and related liability for compensated
absences in the year earned by employees. True
III. A provision differs from other liabilities in that there is greater uncertainty about
the timing and amount of settlement. True
a. Neither I, II, nor III
b. II and III only
c. I only
d. I, II and III

41. Magazine subscriptions collected in advance are treated as

a. Deferred revenue in the liability section
b. Deferred revenue in the shareholders equity section
c. A contra account to magazine subscriptions receivable
d. Magazine subscriptions refunds in the income statement in the period collected

42. Which of the following is within the scope of PAS 37?

a. Future payment on vacant leasehold premises
b. Future payment under employment contract
c. An insurance company’s policy liability
 d. Financial instrument carried at fair value

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

44. It is an event that creates a legal or constructive obligation because the entity has
no other realistic alternative but to settle the obligation
a. Current event
b. Subsequent event
c. Past event
d. Obligating event

45. An entity sells appliances that include a three- year warranty. Service calls under
the warranty are performed by an independent mechanic under a contract with the
entity. Based on experience, warranty costs are expected to be incurred for each
machine sold. When should the entity recognize these warranty costs?
a. When the service calls are performed
b. Evenly over the life of the warranty
c. When payments are made to the mechanic
d. When the machines are sold

46. Under a royalty agreement with another entity, a entity will receive royalties from
the assignment of a patent for four years. The royalties received in advance shall
be reported as revenue
a. In the period earned
b. Evenly over the life of the royalty agreement
c. In the period received
d. At the date of the royalty agreement

47. For which of the following should provision be recognized

a. Obligations for plant decommissioning cost
b. Reductions in fair value of financial instruments
c. Obligations under insurance contracts
d. Future operating losses
48. At the end of the current year, an entity received an advance payment of 60% of
the sales price for special order goods to be manufactured and delivered within
five months. At the same time, the entity subcontracted for production of the
special order goods at a price equal to 40% of the main contract price. What
liabilities should be reported in the entity’s year-end statement of financial
position?
a. None
b. No deferred revenue but payable to subcontractor is reported at 40% of the main
contract price
c. Deferred revenue equal to 60% of the main contract price and no payable to
subcontractor
d. Deferred revenue equal to 60% of the main contract price and payable to
subcontractor equal to 40% of the main contract price

49. Gain contingencies that are remote and can be reliably measured
a. Must be disclosed in a note to the financial statements
b. May be disclosed in a note to the financial statements
c. Must be reported in a body of the financial statements
d. Should not be reported or disclosed

50. An entity received an advance payment for special order goods that are to be
manufactured and delivered within six months. The advance payment shall be
reported in the entity’s statement of financial position as a
a. Current liability
b. Noncurrent liability
c. Contra asset account
d. Deferred charge

51. How should the proceeds received from the advance sale of nonrefundable tickets
for a theatrical performance be reported in the seller’s financial statements before
the performance?
a. Unearned revenue to the extent of related costs expended
b. Unearned revenue for the entire proceeds
c. Revenue for the entire proceeds
d. Revenue to the extent of related costs expended

52. N company has co-signed the mortgage note on the residential house of its
president guaranteeing the indebtedness in the event that the president should
default. N company considers the likelihood of default to be not likely

How should the guaranty be treated in N company’s financial statements?

a. Accrued only
b. Accrued and disclosed
c. Disclosed only
 d. Neither accrued nor disclosed

53. Which statement is incorrect where some or all of the expenditure required to
settle a provision is expected to be reimbursed by another party?
a. The reimbursement shall not be treated as separate asset and therefore
“netted” against the estimated liability for the provision
b. The reimbursement shall be recognized only when it is virtually certain that the
reimbursement would be received if the entity settles the obligation
c. In the income statement, the expense relating to the provision may be presented
net of the reimbursement
d. The amount of the reimbursement shall not exceed the amount of the provision

54. Which statement is incorrect concerning contingent liability?

a. If the contingent liability is remote, no disclosure is required
b. A contingent liability is disclosed only
c. A contingent liability is both probable and measurable
d. A contingent liability is not recognized in the financial statements

55. Disclosure usually is not required for

a. Contingent gains that are probable and can be reliably measured
b. Contingent losses that are reasonably possible and cannot be reliably measured
c. Contingent losses that are remote and can be reliably measured
d. Contingent losses that are probable and cannot be reliably measured

56. An item that is not a contingent liability is

a. Premium offer to customers for labels or box tops
b. Accommodation endorsement on customer note
c. Additional compensation that may be payable on a dispute now being arbitrated
pending lawsuit
d. None of the above

57. A present obligation that is probable and for which the amount can be reliably
measure shall
a. Be accrued by debiting an expense account and crediting an appropriated
retained earnings account
b. Be accrued by debiting an appropriated retained earnings and crediting a liability
account
c. Not be accrued but shall be disclosed in the notes to the financial statements
d. Be accrued by debiting an expense account and crediting a liability
account
58. A contingent liability is a
I. Possible obligation that arises from past event and whose existence will be
confirmed only by the occurrence or non-occurrence of one or more
uncertain future events not wholly within the control of the entity
(contingent asset to)
II. Present obligation that arises from past events and it is probable that an
outflow of resources embodying economic benefits will be required to
settle the obligation and the amount of the obligation can be measured
reliably. (not probable dapat)
a. Both I and II
b. II only
c. I only
d. Neither I or II
59. An entity has been served a legal notice at year-end by the department of
environment and natural resources to fit smoke detectors in its factory on or
before middle of next year. The cost of fitting a smoke detector can be measured
reliably. How should the entity treat this in its financial statements year-end?
a. Recognize a provision for current year equal to one-half only of the estimated
amount
b. Ignore this for purposes of the financial statements at year-end
c. No provision is recognized at year-end because there is no present
obligation for the future expenditure since the entity can avoid the future
expenditure by changing the method of operating but disclosures is
required
d. Recognize a provision for the current year equal to the estimated amount
 Quiz #2 : Intacc Reviewer
1. During 2020, T Company became involved in a tax dispute with the Bureau of
International Revenue (BIR). On December 31, 2020, T Company’s tax advisor
believed that an unfavorable outcome was probable and a reasonable estimate of
additional taxes was P5 million but could be as much as P6.5 million. After the
2020 financial statements were issued, T Company received and accepted a BIR
settlement offer of P5.5 million.
What amount of accrued liability would T Company have reported in its December
31, 2020 statement of financial position?
a. P6.50 million
b. P5.50 million
c. P5.00 million
d. P 5.75 million

2. J Company, a grocery retailer, operates a customer loyalty program. The entity

grants program members loyalty points when they spend a specified amount on
groceries. Program members can redeem the points for further groceries. The
points have no expiry date. During 2026, the sales amounted to P7,000,000 based
on stand - alone selling price. During the year, the entity granted 10,000 points.
But management expected only 80% or 8,000 points will be redeemed The stand
-alone selling price of each loyalty point is estimated at P100.

On December 31, 2026, 4,00 points been redeemed. In 2027, management revised
its expectations and now expected that 90% or 9,000 points will be redeemed
altogether. During 2027, the entity redeemed 4,100 points.

Applying PFRS 15 - Revenue from contacts with Customers, what amount should
be reported as revenue earned from points for 2026?
a. P360,000
b. P875,000
c. P437,500
d. P400,000

3. B corporation sells washing machine that carry a three-year warranty against

manufacturer’s defects. Based on the company’s experience, warranty costs were
estimated at P300 per machine. During 2020, B Corporation sold 24,000 washing
machines and paid a warranty costs of P1,700,000.

Assuming that the company’s operations started in 2020, what is the feasibility for
warranty reported by B Corporation at December 31, 2020?
a. P2,400,000
 b. P1,700,000
c. P5,500,000
d. P7,200,000

4. O Company inaugurated a sales promotional promotional on August 31, 2020 in

its desire to improve sales. O company placed a coupon redeemable for a
premium in each ream of bond papers sold. Each premium cost O Company P20
and five coupons must be presented by a customer to receive a premium. O
Company estimated that 70% of the coupons issued would be redeemed. For the
four months ended December 31, 2020. The following information is available:

of bond paper sold Premiums purchased Coupons redeemed

400,000 30,000 100,000

How much is the estimated liability for a premium claims outstanding at December
31, 2020?
a. P1,800,000
b. P3,600,000
c. P1,020,000
d. P 720,000

5. R Company estimates its annual warranty expense as 4% of annual sales. The

following data relate to the calendar year 2020:
Net Sales P 1,500,000
Warranty liability account
Balance, 12/31/2020 (debit, before adjustment) 10,000
Balance, 12/31/2020 (credit, after adjustment) 50,000

Which of the following entries was made to record the 2020 estimated warranty
expense?

a. Warranty Expense 40,000

Warranty Liability 40,000
b. Warranty Expense 60,000
Warranty Liability 60,000
c. Warranty Expense 60,000
Retained Earnings 10,000
Warranty Liability 50,000
d. Warranty Expense 50,000
Retained Earnings 10,000
Warranty Liability 60,000

6. During 2020, B Company sold 500,000 boxes of cake mix under a new sales
promotional program. Each box contains one coupon, which when submitted with
 P40 entitles the customer to a baking pan. B Company pays P50 per pan and P5
for handling and shipping. B Company estimates that 80% of the coupons will be
redeemed, even though only 300,000 coupons had been processed during the
year.

What amount should B Company report as liability for unredeemed coupons on

December 31, 2020?
a. P1,500,000
b. P1,000,000
c. P5,000,000
d. P3,000,000

7. R Company issued the 2026 financial statements on March 1, 2027. The entity
provided the following data for 2026.
Amount owing to another entity for services
Rendered during December 2026 P 300,000
Estimated long service leave owing to employees
With respect to the past services 1,200,000
Estimated cost of relocating an employee from head office to
Branch and employee will physically relocate on 1/2027 100,000
Estimated cost of overhauling machine every five years 150,000

What amount should be recognized as provision on December 31, 2026?

a. P1,600,000
b. P1,200,000
c. P1,750,000
d. P1,300,000
8. Company sells 3-year service contracts for air conditioning units for P1,500 each.
Sales of service contracts and repairs are made evenly throughout each year. The
company estimated that 15% of repairs are done in the first year from the date of
sale, 35% in the second year and 50% in the third year. Service contracts sold are
as follows:
2018 2019 2020
Number of service contracts sold 1,400 1,820 1,650

How much is the unearned revenue from service contracts as of December 31,
2019?
a. P1,417,500
b. P1,942,750
c. P2,525,250
d. P4,657,125

9. Following selected account balances and supplemental information were taken

from the accounting records of C Company as of December 31, 2020:
 Sales P 9,675,000
Mortgage Notes Payable 1,300,000
Bank Notes Payable 300,000|
Accounts Payable 270,000
Share Dividends Distributable 200,000
Withholding Taxes Payable 120,000
SSS Premiums Payable 45,000
PhilHealth Premiums Payable 22,000
Pag-ibig Premiums Payable 18,000

Supplemental Information:

Mortgage note was refinanced on its due date, February 15,2021 with a new 5-year
mortgage note after paying P300,000 cash on the principal balance. The
refinancing scheme was planned long before its due date. There was no unpaid
interest as of December 31, 2020.

a. The bank notes are payable in semi-annual installments of P50,000 on February 1

and August 1 of each year. Unpaid interest as of December 31, 2020 of P7,5000 has not
been taken up. This was paid on January 5,2021.

b. On August 1,2020, a suit was filed by a dismissed employee against the company
asking for P1,000,000 damages. The company’s lawyer believes it is probable that the
suit will result in a loss to the company, ranging from P600,000 to P900,000, with each
point in the range considered to be equally likely.

c. The sales account included the 12% VAT corresponding to the last quarter sales
of P2,688,000 (inclusive of VAT). This was remitted to the BIR on January 20,2021.

d. The entity’s share of the SSS, PhilHealth and Pag-ibig are as follows:
SSS Premiums P 50,000
Philhealth Premiums 28,000
Pag-ibig Premiums 20,000

e. Total income tax due for 2020 amounted to P865,000. Quarterly remittances to BIR
during the year for income tax totaled to P550,000. The balance due as of December 31,
2020 has not been taken up in the books.

How much is the amount of the mortgage notes payable that will be included in
total current liabilities as of December 31, 2020?

a. P300,000
b. P1,000,000
c. P1,300,000
 d. P0

10. E Marketing sells split type air conditioners. The company provides its customer
an option to purchase a warranty contract for a two-year period for P2,250 for
every unit of the air conditioner purchased priced at P45,000. If the customer
chooses not to buy the warranty contract, the air conditioner sells for P42,750.

Sale of warranty contracts and repairs are made evenly throughout the year.
Based on past records of the entity, 30% of the repairs are done in the first year
from the date of sale and 70% in the second year.

During 2020, E Marketing sold 500 packages of the air conditioners and warranty
contracts. Cost of servicing the units during 2020 amounted to P95,000.

Based on the given data, E Marketing should report the following at the end of
2020:

a. Unearned revenue from warranty contracts of P956,250 and Profit from

warranty contracts of P73,750
b. Unearned revenue from warranty contracts of P787,500 and Profit from warranty
contracts of P168,750
c. Unearned revenue from warranty contracts of P956,250 and Profit from warranty
contracts of P168,750
d. Unearned revenue from warranty contracts of P787,500 and Profit from warranty
contracts of P73,750

11. F Company sells magazine subscriptions for one-to-three year periods. Cash
receipts from subscribers are credited to Magazine Subscriptions Collected in
Advance, and this account had a balance of P2,400,000 at December 31, 2020,
before year-end adjustments. Outstanding subscription at December 31, 2020
expire as follows:

During 2021 P 600,000

During 2022 900,000
During 2023 400,000

What amount should F Company report as magazine subscription revenue for the
year ended December 31, 2020?
a. P1,200,000
b. P1,900,000
c. P2,400,000
d. P500,000
12. P Company is being sued for illness caused to local residents as a result of
negligence on the company’s part in permitting the local residents to be exposed
to highly toxic chemicals from its plant. P Company’s lawyer states that it is
probable that P company will lose the suit and be found liable for a judgment
costing P Company anywhere from P400,000 to P2,000,000. However, the lawyer
states that the best estimate of the expenditure required to settle the obligation is
P1,200,000. As a result of the foregoing facts, P Company should accrue.

a. A provision of P1,200,000 and not disclose any additional contingency.

b. No provision but disclose a contingency of P400,000 to P2,000,000.
c. A provision of P1,200,000 and disclose an additional contingency of up to
P800,000.
d. A provision of P400,000 and disclose an additional contingency of up to
P1,600,000.

13. B Corporation sells washing machines that carry a three-year warranty against
manufacturer’s defects. Based on the company’s experience,warranty costs were
estimated at P300 per machine. During 2020, B Corporation sold 24,000 washing
machines and paid a warranty costs of P1,700,000.

In its profit or loss statement for the year ended December 31,2020, B Corporation
should report warranty expense of

a. P7,200,000
b. P5,500,000
c. P1,700,000
d. P2,400,000

14. V Company is the defendant in a patent infringement suit filed by P Company in

2019. At December 31, 2019, V Company determined that P Company would
probably be successful against V Company for an estimated amount of
P5,000,000. V Company and P Company agreed to a settlement for a cash
payment of P3,800,000 and the transfer of V Company’s patent to P Company. On
such date, the patent had a carrying value of P2,000,000.

What would be the effect of this settlement on V Company’s profit for the year
ended December 31, 2020?

a. No effect
b. Increase of P1,800,000
c. Decrease of P2,000,000
d. Decrease of P800,000
15. An entity records stamp service revenue and provides for the cost of redemptions
in the year the stamps are sold to licenses. The past experience indicates that
only 80% of the stamps sold to licenses will be redeemed. The liability for stamp
redemptions was P6,000,000 on January 1, 2026.

Stamp service revenue from stamps sold to licenses

During the current year P4,000,000
Cost of redemptions for stamps sold prior to 1/1/2026 2,750,000

If all the stamps sold in 2026 were presented for redemption in 2026, the
redemption cost would be P2,250,000. What is the estimated liability on December
31, 2026?

a. P5,050,000
b. P3,250,000
c. P7,250,000
d. P5,500,000

16. An entity sells one and two-year mail order subscriptions for video of the month
business. Subscriptions are collected in advance and credited to sales
2026 2027
Sales P420,000 500,000
Cancellations 20,000 30,000
Subscription expiration:
2026 120,000
2027 155,000 130,000
2028 125,000 200,000
2029 140,000

On December 31, 2017, what is the balance of the unearned subscription revenue?

a. P465,000
b. P495,000
c. P340,000
d. P470,000

17. Consider the following facts:

After a wedding in 2020, ten people died, possibly as a result of food poisoning
during the wedding reception from products sold by the enterprise. Legal
proceedings are started seeking damages from the enterprise but the enterprise
disputes the liability. Up to the date of authorization of the financial statements for
the year ended December 31, 2020 issue, the enterprise’s lawyers advise that it is
probable that the enterprise will not be found liable. However, when the enterprise
prepares the financial statements for the year ended December 31, 2021, its
 lawyers advise that, owing to developments in the case, it is probable that the
enterprise will be found liable.

What is the proper disposition for the foregoing facts for the years 2020 and 2021?

a. A provision is recognized both in 2020 and 2021 for the best estimate of the
amount to settle the obligation
b. No provision is recognized for both in 2021, though the matter may be disclosed
as a contingent liability
c. No provision is recognized in 2020, though the matter may be disclosed as
a contingent liability; a provision recognized in 2021
d. A provision is recognized in 2020; no provision is recognized in 2021

18. K Company operates a retail store and must determine the proper December 31,
2020 year-end accrual for the following expenses:

A. An electric bill of P8,500 covering the period December 16, 2020 through
January 15, 2021 was received January 22, 2021.
B. A P4,000 telephone bill was received January 7, 2021 covering:
Service in advance for January 2021 P1,500
Local and toll calls for December 2020 2,500

In its December 31, 2020 statement of financial position, K Company should report
accrued liabilities of

a. P5,250
b. P6,750
c. P8,250
d. P11,000

19. N company sells 3-year service contacts for air conditioning units for P1,500 each.
Sales of service contracts and repairs are made evenly throughout each year. The
company estimates that 15% of repairs are done in the first year from the date of
sale, 35% in the second year and 50% in the third year. Service contracts sold are
as follows:
2018 2019 2020
Number of service contracts sold 1,400 1,820 1,650

How much revenue from service contracts sold in 2020 is realized in 2021?
a. P371,250
b. P955,500
c. P185,625
d. P 618,750
20. The C Company launched a new sales promotional program. For every 10 chewing
gum box tops returned to the company, customers receive an attractive prize. C
Company estimates that 40% of the chewing gum box tops reaching the consumer
market will not be redeemed. Additional information is as follows:
Units Amount
Sales of chewing gum (in boxes) 3,000,000 3,600,000
Purchase of prizes by C Company 80,000 40,000
Prizes distributed to customers 42,000

At the end of the year, C Company recognized a provision equal to the estimated
cost of potential prizes outstanding. What is the amount of the provision?
a. P69,000
b. P39,000
c. P49,000
d. P21,000

21. J Company sells contracts agreeing to service equipment for a three-year period.
Information for the year ended December 31, 2020 is as follows:
Cash receipts from service contracts sold P 1,920,000
Service contracts revenue recognized 1,560,000
Unearned service contracts revenue, January 1 1,080,000

In its December 31,2020 statement of financial position, what amount should J

Company report as unearned service contracts revenue
a. P480,000
b. P1,440,000
c. P1,100,000
d. 780,000

22. The profit for 2020 of D Company before any deduction for bonus and income tax
amounted to P2,500,000. Under an incentive compensation plan, the general
manager is entitled to a year-end bonus of 10% of the profit before deducting the
bonus but after deducting the income tax. Income tax rate is 30%

The manager’s bonus for 2020 was

a. P180,412
b. P175,000
c. P250,000
d. P227,273

23. L Marketing launched a new sales promotional program. For every 20 sales of
proof of purchase of their product, customers receive a double- layer reversible
umbrella costing P200 each. This umbrella may separately be sold for P300 each.
 The company estimates that 75% of the seals of proof of purchase reaching the
consumer market will be redeemed.

Product sales with seals of proof of purchase - 20,000 units for a total of
P12,000,000
Premiums distributed to customers - 500 umbrellas

How much of the total transaction price is allocated to the premium?

a. P225,000
b. P300,000
c. P220,859
d. P150,000

24. Following selected account balances and supplemental information were taken
from the accounting records of C Company as of December 31, 2020:

Sales P 9,675,000
Mortgage Notes payable 1,300,000
Bank Notes Payable 300,000
Accounts Payable 270,000
Share Dividends Distributable 200,000
Withholding Taxes Payable 120,000
SSS Premiums Payable 45,000
Philhealth Premiums Payable 22,000
Pag- ibig Premiums Payable 18,000

Supplemental Information:
a. Mortgage note was refinanced on its due date, February 15, 2021 with a
new 5-year mortgage note after paying P300,000 cash on the principal
balance. The refinancing scheme was planned long before its due date.
There was no unpaid interest as of December 311, 2020.

b. The bank notes are payable in semi- annual installments of P50,000 on

February 1 and August 1 of each year. Unpaid interest as December 31,
2020 of P7,500 has not been taken up. This was paid on January 5, 2021

c. On August 1, 2020, a suit was filed by a dismissed employee against the

company asking for P1,000,000 damages. The company’s lawyer believes it
is probable that the suit will result in a loss to the company, ranging from
P600,000 to P900,000, with each point in the range considered to be equally
likely.
 d. The sales account included the 12% VAT corresponding to the last quarter
sales of P2,688,000 (inclusive of VAT), This was remitted to the BIR on
January 20, 2021

e. The entity’s share of the SSS, Philhealth and Pag-ibig are as follows:
SSS Premiums P 50,000
Philhealth Premiums 28,000
Pag-ibig Premiums 20,000

f. Total Income tax due for 2020 amounted to P865,000. Quarterly remittances
to BIR during the year for income tax totaled to P550,000. The balance due
as of December 31,2020 has not been taken up in the books.

Compute the total amount due to BIR for the taxes unpaid as of December 31,
2020.
a. P603,000
b. P723,000
c. P958,000
d. P618,000

25. During 2020, C Company filed a suit against D Company seeking damages for
patent infringement. At December 31, 2020, C Company’s legal counsel believed it
was probable that C Company would be successful against D Company for an
estimated amount in the range of P7.5 million, with all amounts in the range
considered equally likely. In March 2021, C Company was awarded P10 million and
received full payment thereof.

In its 2020 financial statements issued in February 2021, how much should C
Company report this award?

a. As a disclosure of contingent gain of P10 million.

b. As a receivable and revenue of P10 million.
c. As a receivable and revenue of P11.25 million.
d. As a disclosure of a contingent gain of an undetermined amount in the
range of P7.5 million to 15 million.

26. Following selected account balances and supplemental information were taken
from the accounting records of C Company as of December 31, 2020:

Sales P 9,675,000
Mortgage Notes payable 1,300,000
Bank Notes Payable 300,000
Accounts Payable 270,000
 Share Dividends Distributable 200,000
Withholding Taxes Payable 120,000
SSS Premiums Payable 45,000
Philhealth Premiums Payable 22,000
Pag- ibig Premiums Payable 18,000

Supplemental Information:
g. Mortgage note was refinanced on its due date, February 15, 2021 with a
new 5-year mortgage note after paying P300,000 cash on the principal
balance. The refinancing scheme was planned long before its due date.
There was no unpaid interest as of December 311, 2020.

h. The bank notes are payable in semi- annual installments of P50,000 on

February 1 and August 1 of each year. Unpaid interest as December 31,
2020 of P7,500 has not been taken up. This was paid on January 5, 2021

i. On August 1, 2020, a suit was filed by a dismissed employee against the

company asking for P1,000,000 damages. The company’s lawyer believes it
is probable that the suit will result in a loss to the company, ranging from
P600,000 to P900,000, with each point in the range considered to be equally
likely.

j. The sales account included the 12% VAT corresponding to the last quarter
sales of P2,688,000 (inclusive of VAT), This was remitted to the BIR on
January 20, 2021

k. The entity’s share of the SSS, Philhealth and Pag-ibig are as follows:
SSS Premiums P 50,000
Philhealth Premiums 28,000
Pag-ibig Premiums 20,000

l. Total Income tax due for 2020 amounted to P865,000. Quarterly remittances
to BIR during the year for income tax totaled to P550,000. The balance due
as of December 31,2020 has not been taken up in the books.

Compute the total amount of current liabilities presented on the December

31, 2020 statement of financial position

a. P2,935,500
b. P1,948,500
c. P3,248,500
d. P3,333,500
27. Following selected account balances and supplemental information were taken
from the accounting records of C Company as of December 31, 2020:

Sales P 9,675,000
Mortgage Notes payable 1,300,000
Bank Notes Payable 300,000
Accounts Payable 270,000
Share Dividends Distributable 200,000
Withholding Taxes Payable 120,000
SSS Premiums Payable 45,000
Philhealth Premiums Payable 22,000
Pag- ibig Premiums Payable 18,000

Supplemental Information:
m. Mortgage note was refinanced on its due date, February 15, 2021 with a
new 5-year mortgage note after paying P300,000 cash on the principal
balance. The refinancing scheme was planned long before its due date.
There was no unpaid interest as of December 311, 2020.

n. The bank notes are payable in semi- annual installments of P50,000 on

February 1 and August 1 of each year. Unpaid interest as December 31,
2020 of P7,500 has not been taken up. This was paid on January 5, 2021

o. On August 1, 2020, a suit was filed by a dismissed employee against the

company asking for P1,000,000 damages. The company’s lawyer believes it
is probable that the suit will result in a loss to the company, ranging from
P600,000 to P900,000, with each point in the range considered to be equally
likely.

p. The sales account included the 12% VAT corresponding to the last quarter
sales of P2,688,000 (inclusive of VAT), This was remitted to the BIR on
January 20, 2021

q. The entity’s share of the SSS, Philhealth and Pag-ibig are as follows:
SSS Premiums P 50,000
Philhealth Premiums 28,000
Pag-ibig Premiums 20,000

r. Total Income tax due for 2020 amounted to P865,000. Quarterly remittances
to BIR during the year for income tax totaled to P550,000. The balance due
as of December 31,2020 has not been taken up in the books.
 Compute the total amount of payroll taxes (Withholding taxes, SSS
Philhealth and Pag-ibig

a. P303,000
b. P618,000
c. P205,000
d. P218,000

28. J Company, a grocery retailer, operates a customer loyalty program. The entity
grants program members loyalty points when they spend a specified amount on
groceries. Program members can redeem the points for further groceries. The
points have no expiry date. During 2026, the sales amounted to P7,000,000 based
on stand - alone selling price. During the year, the entity granted 10,000 points.
But management expected only 80% or 8,000 points will be redeemed The stand
-alone selling price of each loyalty point is estimated at P100.

On December 31, 2026, 4,000 points been redeemed. In 2027, management revised
its expectations and now expected that 90% or 9,000 points will be redeemed
altogether. During 2027, the entity redeemed 4,100 points.

Applying PFRS 15 - Revenue from contracts with Customers, what is the revenue
earned from loyalty points for 2027?
a. P350,000
b. P288,000
c. P400,000
d. P648,000

29. At December 31, 2020, C company had 1,000 gift certificates outstanding, which
had been sold to customers during 2020 for P750. C company operates on a gross
margin of 60%.

How much revenue pertaining to the 1,000 outstanding gift certificates should be
deferred at December 31, 2020?
a. P450,000
b. P300,000
c. P750,000
d. 0

30. R company pays all salaried employees on a biweekly basis. Overtime pay
however, is paid in the next biweekly period. R company accrued salaries expense
only at its July 31 year end. Data relating to salaries earned in July 2020 are as
follows:
● Last payroll was paid on July 26, 2020, for the 2-week period ended July 26, 2020.
 ● Overtime pay earned in the 2-week period ended July 26, 2020 was P63,000.
● Remaining work days in 2020 were July 29, 30, 31, on which days there was no
overtime.

The recurring biweekly salaries total P1,125,000

Assuming a 5-day work week and a fiscal year ending July 31. R company should
report a liability at July 31, 2020 for accrued salaries of
a. P738,000
b. P400,500
c. P675,000
d. P337,500

31. The B Food Company distributes to consumers coupons, which may be presented
on or before a stated expiration date to retail outlets on certain products of B
Food Company. The retail outlets are reimbursed when they send the coupons to
B Food company. In B Food Company's experience, 50% of such coupons are
redeemed. The retail outlets are given one month to request full reimbursement
for B Food Company from the date it redeems the coupons from the consumers.
During 2020, B Food Company issued two separate series of coupons as follows:

Issued On January 1, 2020 July 1, 2020

Total Value 500,000 720,000
Consumer Expiration Date June 30, 2020 December 31, 2020
Amount Disbursed as of 12/31/20 236,000 300,000.

The only journal entries to date recorded debits to coupon expense and credits to cash
of 536,000, representing the total amount disbursed for the coupon redemption.

The December 31, 2020 statement of financial position should include a liability for
unredeemed coupons of

a. 0.
b. 60,000.
c. 124,000.
d. 360,000.

32. G company distributes annual bonus to its sales manager and two sales agents.
The company reported 2,000,000 profit for 2020 before bonuses and income taxes.
Income taxes of G company average 30%

How much is the total amount of bonus of each is computed at 15% of profit after
taxes and bonuses?
 a. 397,476
b. 570,135
c. 479,087
d. 190,045

33. G company distributes annual bonus to its sales manager and two sales agents.
The company reported 2,000,000 profit for 2020 before bonuses and income taxes.
Income taxes of G company average 30%

How much should the sale manager and each sales agent receive, respectively, if
the sale manager gets 15% and each sales agent gets 10% of profit after bonuses
but before income taxes?
a. 518,519 and 518,519
b. 195,000 and 130,000
c. 857,143 and 571, 428
d. 222,222 and 148,148

QUIZ 3- INTACC REVIEWER

1. When a company issues its share in payment for services, the least appropriate
basis for recording the transaction is the

a. Any of these provides an appropriate basis for recording the transaction

b. Market value of the services received
c. Market value of the shares issued
d. Fair value of the shares issued

2. In accounting for shareholder’s equity, the accountant is primarily concerned with

which of the following?

a. Distinguishing between realized and unrealized revenue

b. Determine the total amount of shareholder’s equity
c. Making sure that the directors do not declare dividends in excess of retained
earnings
d. Recording the source of each of the various elements of shareholder’s
equity

3. The accounting problem in a lump sum issue is the allocation of proceeds

between the classes of securities. An acceptable method of allocation is the

a. Incremental method
b. Proportional method
c. Either the proportional method or the incremental method
d. Pro forma method

4. According to IFRS, redeemable preference share should be

a. Excluded from the statement of financial position

b. Included with ordinary shares
c. Included as a liability
d. Included as a contra item in shareholder’s equity

5. Which of the following disclosure should be made in the equity section of the
statement of financial position, rather than in the notes to the financial
statements?
a. Dividend preferences
b. Call prices
c. Liquidation preferences
d. Conversion or exercise prices

6. When share without par value are sold, the proceeds should be credited to the
a. Retained earnings
 b. Income
c. Share premium
d. Share capital

7. The cumulative feature of preference shares

a. Requires that dividends not paid in any year must be made up in a later
year before dividends are distributed to ordinary shareholders.
b. Enables a preference shareholder to accumulate dividends until they equal the
issue of the shares and receive the shares in place of the cash dividends.
c. Limits the amount of cumulative dividends to the issue price of the preference
shares.
d. Means that the shareholder can accumulate preference shares until it is equal to
the issue price of ordinary shares at which time it can be converted into ordinary
shares.

8. If management wishes to capitalise part of the earnings, it may issue a

a. Property dividend
b. Share dividend
c. Liquidating dividend
d. Cash dividend

9. The pre-emptive right enables a shareholder to

A. share proportionately in any new issues of shares of the same class.
B. receive cash dividends before other classes of stock without the pre-emptive right.
C. sell ordinary shares back to the corporation at the option of the shareholder.
D. receive the same amount of dividends on a percentage basis as the preference
shareholders.

10. Subscriptions receivable and other receivables from sale of shares which are not
collectible currently shall be presented as
A. Deduction from the related subscribed share capital in the shareholders’
equity section
B. Current asset
C. Long term investment
D. Other asset

11. An ordinary shareholder has the pre-emptive right to

A. share proportionately in any new issues of shares of the same class.
B. receive cash dividends before they are distributed to preference shareholders.
C. share proportionately in company’s assets upon liquidation
D. exclude preference shareholders from voting rights.
12. Which of the following best describes a possible result of treasury stock
transactions by a corporation?
 A. May increase but not decrease retained earnings.
B. May increase net income if the cost method is used.
C. May decrease but not increase retained earnings.
D. May decrease but not increase net income.

13. The residual interest in a company belongs to the

a. Preference shareholders
b. Creditors
c. Ordinary shareholders
d. Management

14. Which of the following features of preference shares make the security more like
debt than an equity instrument?
a. Voting
b. Noncumulative
c. Redeemable
d. Participating

15. Which statement is incorrect regarding treasury share?

a. Gain or loss on sale of treasury shares shall not be included in profit or loss
b. Treasury shares may be recognized as financial asset
c. The total cost of treasury shares shall be deducted from equity
d. Treasury share shall be recorded at cost irrespective of whether acquired below
or above par value

16. Discount on share capital

a. None of the above may be done
b. May be the offset against share premium on the same class of share capital
c. May be recorded as either an asset or an expense
d. Shall be closed to income summary account

17. If treasury shares are reissued for noncash consideration, the proceeds shall be
measured by
a. Fair value of the noncash consideration received
b. Carrying amount of the noncash consideration received
c. Book value of the treasury shares
d. Fair value of the treasury shares

18. Total equity represents

a. The maximum amount that can be borrowed by the enterprise
 b. A claim against specific assets contributed by the Owners
c. Only the amount of earnings that have been retained in the business.
d. A claim against a proportion of the total assets of an enterprise.

19. When treasury shares are purchased for more than the issue price of the shares
and the cost method is used to account for treasury shares, what account(s)
should be debited?
a. Treasury shares for the issue price and Paid-in Capital for the excess of
purchase price over the issue price
b. Paid-in capital in excess of the issue price for the purchase price.
c. Treasury shares for the purchase price
d. Treasury shares for the issue price and retained earnings for the excess of the
purchase price over the issue price.

20. Special characteristics of the corporate form that affect accounting include the
a. All of the above are correct
b. use of the share system.
c. development of a variety of ownership interests.
d. influence of corporate law.

21. Deposits on subscription to a proposed increases in share capital shall reported

as
a. Memorandum only
b. Part of liabilities
c. Part of retained earnings
d. Part of shareholders’ equity

22. If shares are issued for a non cash consideration, the shares shall be measured
by
a. Fair value of the consideration received
b. Carrying amount of the consideration received
c. Par value of the shares issued
d. Fair value of the shares issued

23. Share warrants outstanding shall be reported as

a. Reduction of share premium
b. Liability
c. Share premium
d. Share capital

24. Equity is generally classified into two major categories

a. Retained earnings and unearned capital
 b. Appropriated capital and retained earnings
c. Contributed capital and appropriated capital
d. Earned capital and contributed capital

25. Direct costs incurred to sell shares such as underwriting costs should be
accounted for as a(n)
a. Intangible asset
b. Expense or intangible asset
c. Expense of the period in which the shares is issued
d. Reduction of capital

26. Which of the following represents the total number of shares that a corporation
may issue under the terms of its charter?
a. Unissued shares
b. Authorized shares
c. Issued shares
d. Outstanding shares

27. Which of the following transaction costs relating to issue of share capital shall be
charged to profit or loss?
a. Stock exchange listing fees
b. Documentary stamp tax in public offering of share
c. SEC registration fees for issue of new shares
d. Underwriting costs

28. A “gain” from the sale of treasury shares should be reflected when using the cost
method of recording treasury shares transaction as
a. A reserve in shareholders equity
b. Paid-in capital from treasury share transactions
c. Ordinary earnings shown on the income statement
d. An increase in the amount shown for ordinary shares

29. Shares that have a fixed per-share amount printed on each share certificate are
called
a. Fixed value shares
b. Uniform value shares
c. Par value shares
d. Stated value shares

30. The accounting problem in a lump sum is the allocation of proceeds between the
classes of securities. An acceptable method of allocation is the
a. Pro forma method
 b. Proportional method
c. Either proportional method or incremental method
d. Incremental method

31. It is the issuance by an entity of its own shares to its shareholders without
consideration and under conditions indicating that such action is prompted
mainly by a desire to increase the number of shares outstanding for the purpose
of effecting a reduction in unit market price
a. Recapitalization
b. Stock dividend
c. Reverse share split
d. Share split

32. Gains and losses on retirement of treasury shares shall not be included in profit
or loss. If the retirement results in a gain, such gain shall be credited to
a. Share capital
b. Income
c. Retained earning
d. Share premium

33. The total cost of treasury shares shall be reported as

a. Deduction from shareholders’ equity
b. Deduction from retained earnings
c. Asset
d. Deduction from share premium

34. Ordinary shareholders’ equity divided by the number of shares outstanding is

called
a. Stated value per share
b. Market value per share
c. Book value per share
d. Par value per share

35. Treasury shares shall be recorded at cost irrespectively of whether these are
acquired below or above par value. The cost of treasury shares acquired for non-
cash consideration is usually measured by
a. Carrying amount of the non-cash asset surrendered
b. Fair value of non-cash consideration given
c. Book value of the shares
d. Par value of the shares

36. When share with par value are sold the proceeds should be credited to the
 a. Share premium
b. Share capital account to the extent of the part of the shares issued with any
excess being reflected in a share premium
c. Share capital account
d. Retained earnings

37. An entity issued rights to its existing shareholders to purchase unissued ordinary
shares at more that par value. Share premium would be recorded when the rights
a. Are issued
b. Become exercisable
c. Are exercised
d. Expire

38. The features most frequently associated with preference shares include all of the
following except
a. Non -voting
b. Callable at the option of the shareholder
c. Preference as to assets in the event of liquidation
d. Convertible into ordinary shares
39. A primary source of equity is
a. Contributions by shareholders
b. Both income retained by the company and contributions by shareholders
c. Income retained by the company
d. Appropriated retained earnings
40. When shares are issued for services received, the measure is equal to
a. Fair value of such services
b. Fair value of the shares issued
c. Par value of the shares issued
d. Book value of shares issued

41. When preference shares share ratably with the ordinary shareholders in any profit
distributions beyond the prescribed rate this is known as the
a. Cumulative feature
b. Callable feature
c. Redeemable feature
d. Participating feature

42. Ordinary no-par shares.

a. Are subject to high taxes
b. Are always sold at premium
 c. Are considered illegal
d. All of the choices are correct

43. Categories of equity include all of the following except

a. Accumulated other comprehensive income
b. Non -controlling interest
c. Liquidating dividends
d. Treasury shares

44. An ordinary share does not possess which of the following?

a. The right to share in the earnings of the corporation when dividends are declared
b. The right to share proportionately in corporation assets in case of liquidation if
such assets exceed the claims of creditors
c. The right to direct to ownership of the corporation assets
d. The right to vote in the election of the board of directors of the corporation

45. Which one of the following disclosures should be made in the equity section of
the statement of financial position, rather than in the notes to the financial
statements?
a. Call prices
b. Conversion or exercise prices
c. Dividend preferences
d. Liquidation preferences
46. If shares are issued to extinguish a financial liability, what is the initial
measurement of the shares issued?
a. Fair value of liability extinguish
b. Fair value of the shares issued
c. Par value of the shares issued
d. Book value of shares issued
47. “Gains” on sales of treasury shares (using the cost method) should be credited to
a. Share capital from sale of treasury shares
b. Share capital
c. Retained earnings
d. Other income
48. A dividend which is a return to shareholders of a portion of their original
a. Property dividend
b. Participating dividend
c. Liability dividend
 d. Liquidating dividend

49. Wilson Ltd purchased its own shares on 1 January 2027 for P20,000 and debited
the treasury shares account for the purchase price. The shares were sold for
P12,000. The 8,000 difference between the cost and sales price should be
recorded as a deduction from
a. Additional paid-in capital without regard as to whether or not there have been
previous net gains from sales of the same class of shares included therein.
b. Net income
c. Retained earnings
d. Additional paid-in capital to the extent that previous net gains from sales of
the same class of shares are included therein; otherwise, from retained
earnings.

50. Hiro corp. Issues shares which bear the ultimate risk of loss and receive the
benefit of success. These shares are not guaranteed divided nor assets upon
dissolution. These shares are considered

Ordinary Preference

a. Yes Yes
b. No No
c. Yes No
d. No Yes

51.