CONTROL NO.

MOCK BOARD EXAMINATIONS

November 10, 2019

FINANCIAL ACCOUNTING AND REPORTING

NOTE: Final answers must be indicated on the separate answer sheet provided. Intermediary work on
questionnaire and scratch paper will merit no points.

1. The classification of a lease is normally carried out

A. at the end of the lease term
B. at the inception of the lease
C. when the entity deems it necessary
D. after a “cooling off” period of one year

2. Statement 1: For the purpose of calculating diluted earnings per share, an entity shall adjust profit
or loss attributable to ordinary equity holders of the parent entity, and the weighted average
number of shares outstanding, for the effects of all dilutive potential ordinary shares.

Statement 2: Potential ordinary shares shall be treated as dilutive when, and only when, their
conversion to ordinary shares would decrease earnings per share or decrease loss per share from
continuing operations.

A. Both statements are true

B. Statement 1 is true but statement 2 is false
C. Statement 2 is true but statement 1 is false
D. Both statements are false

3. At the date of declaration of a small ordinary share dividend, the entry should not include
A. a debit to retained earnings C. a credit to share premium
B. a credit to share dividend payable D. all of these are acceptable

4. If the outcome of rendering services cannot be estimated reliably, what revenue recognition
method is required?
A. Completed-contract method C. Installment method
B. Cost-recovery method D. Percentage-of-completion method

5. Under PAS 33, the weighted average number of shares outstanding for all periods shall be adjusted
for
A. any prior period error
B. any issue of shares for cash
C. any convertible instruments settled in cash
D. any change in the number of ordinary shares without change in resources
 6. Which of the following is accounted for as a change in accounting policy?
A. a change in the estimated useful life of plant assets
B. a change in inventory valuation from average cost to FIFO
C. a change from the cash basis of accounting to the accrual basis of accounting
D. a change from expensing immaterial expenditures to deferring and amortizing them

7. What is the objective of financial statements?

A. To prepare comparable, relevant, reliable and understandable information to investors and
creditors
B. To prepare financial statements in accordance with all applicable Standards and
Interpretations
C. To prepare a statement of financial position, an income statement, a statement of cash flows
and a statement of changes in equity
D. To provide information about the financial position, performance and changes in financial
position of an entity that is useful to a wide range of users in making economic decisions

8. Which of the following is an implication of the going concern assumption?

A. The historical cost principle is credible
B. Depreciation and amortization policies are justifiable and appropriate
C. The current-noncurrent classification of assets and liabilities is justifiable and significant
D. All of these are an implication of going concern

9. For segment reporting purposes, which tests must be applied to determine if a unit or component
is a reportable operating segment?
A. revenue test and asset test
B. revenue test, asset test, and expense test
C. revenue test, asset test, and cash flow test
D. revenue test, asset test, and profit or loss test

10. Which of the following is not a related party of an entity?

A. an associate of the entity
B. key management personnel of the entity
C. an entity providing banking facilities to the entity
D. a shareholder owning 30% of the ordinary shares

11. Jennalyn Company reported total assets of P1,050,000 and total liabilities of P680,000 in its
December 31, 2019 statement of financial position. The following transactions occurred during
2020:
● On August 1, Jennalyn Company issued an additional 5,000 ordinary shares at P25 per share.
● The company paid dividends totaling P80,000.
● Net income during the year was P110,000.
● Reacquired treasury shares of 2,000 at P30; subsequently, reissued 1,000 for P39 per share.

No other changes occurred in Shareholders’ Equity during the year.

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 What is the balance of Jennalyn’s Shareholders’ Equity section in its December 31, 2020 statement
of financial position?
A. 400,000 C. 525,000
B. 504,000 D. 685,000

12. On January 2, 2019, Ava Company received an P800,000, 8%, 2-year note from Lee Corporation as
settlement for an outstanding past due account. The interest is payable every December 31 and the
interest due in 2019 were collected on time.

In 2019, Lee Corporation was in financial crisis, and as a result of this development, Ava Company
expects that the interest accruing for 2019 will note be collected and that only P600,000 of the
principal amount will be collected in equal annual installment over the next three years standing
December 31, 2020. As of December 31, 2019, the market rate of interest for a similar instrument
as 9%. What amount of impairment loss/bad debts should Ava Company recognized on December
31, 2019 related to its notes receivable?
A. None C. 348,600
B. 64,000 D. 357,800

13. Hernandez Company provided the following information for the current year:
● Purchased a building for P1,200,000. Paid P400,000 and signed a mortgage with the seller
for the remaining P800,000.
● Executed a debt-equity swap and replaced a P600,000 loan by giving the lender ordinary
shares worth P600,000 on the date and swap was executed.
● Purchased land for P1,000,000. Paid P350,000 and issued ordinary shares worth P650,000.
● Borrowed P550,000 under a long-term loan agreement. Used the cash from the loan
proceeds as follows: P150,000 for purchase of additional inventory, P300,000 to pay cash
dividend, and P100,000 to increase the cash balance.

What amount should be reported as net cash used in investing activities in the statement of cash
flows?
A. 1,200,000 C. 400,000
B. 2,200,000 D. 750,000

14. Bringas Company included one coupon in each box of laundry soap sold. A towel is offered as a
premium to customers who send in 10 coupons and a remittance of P20.

2020 2021
Boxes of soap sold 500,000 800,000
Number of towels purchased (P100 per towel) 20,000 25,000
Coupons redeemed 140,000 200,000
The entity estimated that only 30% of the coupons would be redeemed. What is the premium
liability on December 31, 2021?
A. 500,000 C. 320,000
B. 400,000 D. 80,000

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 15. On December 31, 2020, Espinosa Company leased equipment from Atienza Company.
● The estimated seven-year useful equipment life coincides with the lease term.
● The first of the seven equal annual P200,000 lease payments was paid on December 31,
2020.
● Atienza Company’s implicit interest rate of 12% is known to Espinosa
● Espinosa’s incremental borrowing rate is 14%.
● Present value of an annuity of 1 in advance for seven periods is 5.11 at 12% and 4.89 at 14%.
● Tiger Company paid initial direct cost of P100,000.

What amount should be recorded by Espinosa Company initially as cost of the equipment?
A. 1,400,000 C. 1,122,000
B. 1,022,000 D. 1,078,000

16. On March 1, 2020, Guzman Company issued at 103 plus accrued interest 4,000 of 9%, P1,000 face
value bonds. The bonds are dated January 1, 2020 and mature on January 1, 2029. Interest is payable
semiannually on January 1 and July 1. The entity paid bond issue cost of P200,000. What is the net
cash received from the bond issuance?
A. 4,320,000 C. 4,120,000
B. 4,180,000 D. 3,980,000

17. You were able to obtain the following from the accountant of Agdangan Corp. related to the
company’s liabilities as of December 31, 2019:

Accounts Payable P 650,000

Notes Payable- trade 190,000
Notes Payable- bank 800,000
Wages and Salaries Payable 15,000
Interest Payable ?
Mortgage Notes Payable- 10% 600,000
Mortgage Notes Payable- 12% 1,500,000
Bonds Payable 2,000,000

The following additional information pertains to these liabilities:

a. All trade notes payable are due within six months from the end of the reporting period.
b. Bank notes payable include two separate notes payable to Allied Bank:
a. A P300,000 8% note issued March 1, 2017, payable on demand. Interest is payable every
six months.
b. A 1-year P500,000 , 11 ½% note issued January 2, 2019. On December 30, 2019, Agdangan
negotiated a written agreement with Allied Bank to replace the note with a 2 year,
500,000 10% note to be issued January 2, 2020. The interest was paid on December 31,
2019.
c. The 10% mortgage note was issued October 1, 2016, with a term of 10 years. Terms of the note
give the holder the right to demand immediate payment if the company failes to make a monthly
interest payment within 10 days of the date the payment is due. As of December 31, 2019,
Agdangan is three months behind in paying its required interest payment.

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 d. The 12% mortgage note ass issued May 1, 2013, with a term of 20 years. The current principal
amount due is P1,500,000. Principal and interest payable annually on April 30. A payment is
P220,000 is due April 30, 2019. The payment includes interest of P180,000.
e. The bonds payable is 10-year, 8% bonds, issued June 30, 2010. Interest is payable semi-annually
every June 30 and December 31.

Total interest payable as of December 31, 2019 is:

A. P155,000 C. P143,000
B. P203,000 D. P215,000

18. Palawan Company reported the following information for 2020:

Sales revenue 500,000

Cost of goods sold 350,000
Operating expenses 55,000
Unrealized translation gain 20,000
Cash dividends received on the securities 2,000

Ignore income tax, for 2020, Palawan Company would report comprehensive income before tax of
A. 117,000 C. 97,000
B. 115,000 D. 20,000

19. The following information was taken from the accounting records of Laoag Company for the year
ended December 31, 2020:

Decrease in finished goods inventory 700,000

Increase in raw materials inventory 300,000
Freight-out 900,000
Factory overhead 6,000,000
Direct labor 4,000,000
Raw materials purchased 8,600,000

There was no work in process inventory at the beginning or at the end of the year. The cost of goods
sold is
A. 17,600,000 C. 18,400,000
B. 18,200,000 D. 19,000,000

20. Zabala Company acquired an investment property with an installment price of P2,400,000. The
acquisition of the property requires a down payment of 20% and a non-interest bearing note
payable at the end of each year for five years. The prevailing market rate of interest for similar
instrument is 12%. The present value of factor of annuity of 12% for four periods is 3.605. Zabala
Company incurred transaction costs amount to P50,000 for the property. What is the cost of
acquiring the property?
A. 1,862,400 C. 2,400,000
B. 1,914,320 D. 2,450,000

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 21. Pagadian Corporation has supplied you with the following list of its bank accounts and cash at
December 31, 2020:

Checking account (with compensating balance, of no restriction) 48,000

Savings account, 2% 30,000
Certificate of deposit, 6 months, 10% due April 20, 2021 60,000
Money market (30-day certificate), current rate, 9.75% 40,000
Payroll account 20,000
Certificate of deposit, 3 months, 10% due February 15, 2021 75,000
Petty cash 1,500
Total 274,500

What should be the balance to be reported as “Cash and Cash Equivalents” in the December 31,
2020 statement of financial position of Pagadian Corporation?
A. 139,500 C. 214,500
B. 199,500 D. 274,500

22. An SME provided the following data for 2020:

Sales 6,700,000
Royalty revenue 120,000
Cost of goods sold 5,100,000
Dividend received from an associate – cost model 25,000
Gain on disposal of property 60,000
Distribution costs 175,000
Administrative expenses (include amortization on goodwill of P2,000) 810,000
Research and development cost (5 years) 70,000
Foreign exchange loss on trade payables 30,000
Interest on bank loan and overdraft 20,000
Interest on finance lease 5,000
Current tax expense 270,000
Deferred tax benefit 10,000
Retained earnings - January 1 2,100,000
Dividends 150,000
What is the profit for the year ended December 31, 2020?
A. 435,000 C. 437,000
B. 410,000 D. 695,000

23. On January 1, 2020, an SME acquired goods for sale in the ordinary course of business for
P1,000,000, including P50,000 refundable purchase taxes. The supplier usually sold the goods on
30 days’ interest-free credit. However, as a special promotion, the purchase agreement for these
goods provided for payment to be made in full on December 31, 2020. In acquiring the goods,
transport charges of P20,000 were incurred. An appropriate discount rate is 10%. What is the cost
of purchase?
A. 1,020,000 C. 970,000
B. 863,550 D. 883,550

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 24. On January 1, 2020, Punongbayan Company reported P1,750,000 of appropriated retained earnings
for the construction of a new office building, which was completed in 2020 at a total cost of
P1,500,000. In 2020 the entity appropriated P1,200,000 of retained earnings for the construction of
a new plant. Also, P2,000,000 of cash was restricted for the retirement of bonds due in 2021. In the
December 31, 2020 statement of financial position, what amount should be reported as
appropriated retained earnings?
A. 1,200,000 C. 2,950,000
B. 1,450,000 D. 3,200,000

25. Fabular Company is a car dealer. On January 1, 2019, the entity entered into a finance lease with a
customer under which the customer would pay P200,000 on January 1 each year for 5 years,
commencing in 2020. The cost of the car is P600,000 and the cash selling price was P750,000. The
entity paid legal fees of P20,000 to a law firm in connection with the arrangement of the lease. What
amount of gross profit on sale should be recognized for 2020?
A. 150,000
B. 130,000
C. 20,000
D. 0

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