No. 125 Brgy.

San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@gmail.com

FINANCIAL ACCOUNTING AND REPORTING

iCARE Accountancy Review
st
1 Open Preboard Examination, Batch 3

INSTRUCTIONS: Choose the best answer among the given choices. Policies on academic
honesty are strictly enforced.

1. Net investment in a direct financing lease is equal to

A. Cost of the asset
B. Cost of the asset plus initial direct cost paid by the lessor.
C. Cost of the asset minus guaranteed residual value.
D. Cost of the asset plus unguaranteed residual value.

2. Which of the following statements is correct regarding initial direct costs incurred
by the lessor?
I. In an operating lease, initial direct costs incurred by the lessor are
deferred and allocated over the lease term.
II. In a direct financing lease, initial direct costs are added to the net
investment in the lease.
III. In a sales-type lease, initial direct costs are expensed as component of
cost of goods sold.

A. I only B. II only C. II and III D. I, II, III

3. On January 1, 2016, Bruce Company acquired a specialized packaging machine

for P6,000,000 and leased it for a period of 6 years, after which the machine is
to be returned to Bruce. The guaranteed residual value of the packaging
machine is P400,000. The lease term is arranged so that a return of 12% is
earned by Bruce. The first lease payment is due on January 1, 2016. The PV of 1
at 12% for six periods is 0.51; PV of an annuity in advance of 1 at 12% for six
periods is 4.60; and the PV of an ordinary annuity of 1 at 12% for six periods is
4.11. What is the annual lease payment required to yield the desired return?

A. 1,260,000 B. 1,304,348 C. 1,410,219 D. 1,459,854

For the next three items:

Wamboo Company is a dealer in machinery. On January 1, 2018, a machinery was
leased to another company with the following provisions:

Annual rental payable at the end of each 3,000,000

year
Lease term and useful life of machinery 5 years
Cost of machinery 8,000,000
Residual value – unguaranteed 1,000,000
Implicit interest rate 12%
PV of an ordinary annuity of 1 for 5 3.60
periods at 12%
PV of 1 for 5 periods at 12% 0.57

At the end of the lease term on December 31, 2022, the machinery will revert to Wamboo
Company. Wamboo incurred initial direct cost of P300,000 in finalizing the lease
agreement.

1 | Page TSIY/RSORIANO
 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@gmail.com

4. What amount shall be reported as gross profit on sale in 2018?

A. 2,500,000 B. 3,070,000 C. 3,370,000 D. 7,700,000

5. What is the interest income for 2018?

A. 926,000 B. 1,296,000 C. 1,364,400 D. 1,400,400

6. What amount should be included in non-current assets in relation to the lease on

December 31, 2019?
A. 5,850,832 B. 6,000,000 C. 7,902,528 D. 9,000,000

7. A right of use asset is initially measured at

A. Cost B. Fair C. Current D. Present value of expected
value cost cash inflows

On January 1, 2019, Nigeria Company entered into a 10-year lease agreement with Falls
Company for an office equipment. Annual lease payments of P500,000 are payable at the
end of each year. The lessor expected a 10% return on the lease which is the implicit
rate in the lease. The equipment is expected to have an estimated useful life of 10 years.
In addition, a third party has guaranteed to pay Falls Company a residual value of
P250,000 at the end of the lease term. PV of an ordinary annuity of 1 at 10% for 10
periods is 6.14 and the PV of 1 at 10% for 10 periods is 0.39.

8. What is the initial measurement of lease liability on January 1, 2019?

A. 3,070,000 B. 3,167,000 C. 5,000,000 D. 5,250,000

9. What is the interest expense for 2019?

A. 307,000 B. 316,700 C. 500,000 D. 525,000

10. What amount shall be reported as lease liability on December 31, 2020?
A. 2,664,700 B. 2,782,675 C. 2,877,000 D. 2,984,250

11. When temporary difference will result in taxable amounts in future years
A. A deferred tax asset is recognized in the current year.
B. A deferred tax liability is recognized in the current year.
C. A deferred tax asset may be recognized in the current year if certain
conditions are met.
D. A deferred tax liability may be recognized in the current year if certain
conditions are met.

For the next three items:

Unity Company is in the first year of operations and reported pretax accounting
income of P4,000,000. The entity provided the following information for the first year:

Premium on life insurance of key officer 200,000

Depreciation on tax return in excess of book depreciation 200,000
Interest on municipal bonds 50,000
Warranty expense 40,000
Actual warranty repairs 30,000
Bad debt expense 60,000
Ending balance in allowance for bad debts 40,000
Rent received in advance that will be recognized evenly over the 300,000
next three years

2 | Page TSIY/RSORIANO
 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@gmail.com

12. What is the deferred tax liability at year-end?

A. 60,000 B. 75,000 C. 90,000 D. 105,000

13. What is the deferred tax asset at year-end?

A. 45,000 B. 60,000 C. 75,000 D. 105,000

14. What is the total income tax expense for the first year?
A. 1,200,000 B. 1,245,000 C. 1,290,000 D. 1,335,000

15. What is the discount rate for pension plans?

A. The weighted average interest rate.
B. The rate of return on plan assets.
C. The market yield at the end of the reporting period for high quality corporate
bonds.
D. The bank prime interest rate

16. The service cost component of a defined benefit plan comprises all of the
following, except
A. Past service cost B. Current service cost
C. Net interest D. Gain or loss on plan settlement

For the next three items:

Efron Company provided the following information related to a defined benefit plan for
2018:
Current service cost 60,000
Past service cost 230,000
Benefits paid 62,000
Contribution to the fund 42,000

Fair value of plan assets:

January 1, 2018 4,200,00
December 31, 2018 4,800,00

Defined benefit obligation

January 1, 2018 4,400,00
December 31, 2018 5,000,00

Discount rate 5%
Expected rate of return 7%

17. What is the employee benefits expense for the year 2018?
A. 230,000 B. 280,000 C. 290,000 D. 300,000

18. What is the remeasurement gain or loss on December 31, 2018?

A. 258,000 B. 258,000 loss C. 562,000 gain D. 562,000 loss
gain

19. What amount should be reported as prepaid or accrued benefit cost on

December 31, 2018?
A. 200,000 B. 200,000 C. 300,000 D. 300,000
accrued prepaid accrued prepaid

3 | Page TSIY/RSORIANO
 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@gmail.com

20. Flash Company granted all employees two weeks of paid vacation for each full
year of employment. Unused vacation time can be accumulated and carried
forward to succeeding years and will be paid at the salaries in effect when
vacations are taken or when employment is terminated. There was no employee
turnover in the current year. Additional information relating to the current year
are as follows:

Liability for accumulated vacations on January 1, 2018 350,000

Pre-2018 accrued vacations taken from January 1 to
September 30, 2018, 200,000
the authorized period for vacations
Vacations earned for work in 2018 adjusted to current rate 300,000

The company granted a 10% salary increase to all employees on October 1, 2018,
the annual salary increase date. For the year ended December 31, 2018, what
amount should be reported as vacation pay expense?
A. 300,000 B. 315,000 C. 335,000 D. 45,000

21. Compensation expense resulting from a share option plan is generally

A. Recognized in the period of grant.
B. Recognized in the period of exercise.
C. Allocated to the periods benefited by the employee’s required service.
D. Allocated over the periods of the employee’s service life to retirement.

22. For share appreciation rights, the measurement date for computing
compensation is the
A. Date the rights mature B. Date the share reaches a
predetermined amount
C. Date of grant D. Date of exercise

For the next three items:

On January 1, 2018, La Russo Company granted 200 share options each to 1,500
employees, conditional upon the employee’s remaining in the entity’s employ during the
vesting period. The share options vest at the end of a four-year period. On grant date,
each share option has a fair value of P10. The par value per share is P40 and the option
(or exercise) price is P50.

On December 31, 2018, 100 employees have left and it is expected that on the basis of
a weighted average probability, additional 200 employees will leave before the end of the
four-year period.

On December 31, 2019, 70 employees have actually left and it is expected that on the
basis of a weighted average probability, additional 80 employees will leave before the
end of the remaining vesting period.

On December 31, 2020, no employees have actually left but it is expected that on the
basis of a weighted average probability, 40 employees will leave before the end of the
remaining vesting period.

On December 31, 2021, 80 employees actually left and all of the share options are
exercised on such date.

23. What is the compensation expense for 2019?

A. 600,000 B. 650,000 C. 685,000 D. 1,250,000

4 | Page TSIY/RSORIANO
 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@gmail.com

24. What is the compensation expense for 2021?

A. 565,000 B. 600,000 C. 650,000 D. 685,000

25. What amount shall be credited to share premium upon exercise of the share
options on December 31, 2021?
A. 2,500,000 B. 5,000,000 C. 7,500,000 D. 10,000,000

For the next two items:

On January 1, 2018, Bo Reum Company offered the top management share appreciation
rights with the following terms:

Pre-determined price P50 per share

Number of share appreciation 100,000
rights
Vesting or service period 3 years
Exercise date January 1, 2021

The share appreciation rights are exercised on January 1, 2021.

The share prices are P50, P77, P92, and P103 on January 1, 2018, December 31, 2018,
December 31, 2019, and December 31, 2020, respectively.

26. What amount shall be reported as liability under share appreciation rights on
December 31, 2019?
A. 0 B. 900,000 C. 1,900,000 D. 2,800,000

27. What is the compensation expense for 2020?

A. 1,900,000 B. 2,500,000 C. 2,800,000 D. 5,300,000

28. If the qualifying asset is financed by general borrowing, the capitalizable

borrowing cost is equal to
A. Actual borrowing cost incurred
B. Actual borrowing cost incurred minus any investment income from the
temporary investment of the borrowing.
C. Average expenditures on the asset multiplied by a capitalization rate or actual
borrowing cost, whichever is lower.
D. Average expenditures on the asset multiplied by a capitalization rate or actual
borrowing cost, whichever is higher.

29. If the qualifying asset is financed by specific borrowing, the capitalizable

borrowing cost is equal to
A. Actual borrowing cost incurred.
B. Actual borrowing cost incurred up to completion of asset.
C. Actual borrowing cost incurred up to completion of asset minus any
investment income from the temporary investment of the borrowing.
D. Average expenditures on the asset multiplied by a capitalization rate or actual
borrowing cost incurred up to completion of asset minus any investment
income from the temporary investment of the borrowing, whichever is lower.

For the next three items:

Oakley Company had loans outstanding during 2018 and 2019:

5 | Page TSIY/RSORIANO
 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@gmail.com

Specific 2,000,000 10%

construction loan
General loan 25,000,000 12%

The company began the self-construction of a new building on January 1, 2018 and the
building was completed on December 31, 2019.

Expenditures during 2018 and 2019 were:

January 1, 2,000,000
2018
June 30, 2018 4,000,000
November 1, 3,000,000
2018
July 1, 2019 1,000,000

30. What is the cost of the new building on December 31, 2018?
A. 9,000,000 B. 9,500,000
C. 9,200,000 D. 9,300,000

31. What is the cost of the new building on December 31, 2019?
A. 10,000,000 B. 11,660,000
C. 11,700,000 D. 11,500,000

32. What is the interest expense for 2019?

A. 3,000,000 B. 2,040,000
C. 1,840,000 D. 0

33. At the beginning of 2018, JD Company received a grant of P6,000,000 from the
Indian government to compensate for massive losses incurred because of a
recent tsunami. The grant was made for the purpose of giving immediate
financial support to the company. It will take the company two years to
reconstruct the structures destroyed by the tsunami. What amount of grant
income should be recognized in 2018?
A. 6,000,000 B. 3,000,000
C. 1,500,000 D. 0

For the next two items:

Jay Company received a government grant of P600,000 related to depreciable asset
acquired on January 1, 2018 for P6,600,000. This grant was deducted from the cost of
the asset with a useful life of 10 years and residual value of P500,000. On January 1,
2020, the grant became fully repayable due to non-compliance with conditions.

34. What is the depreciation for 2018?

A. 600,000 B. 610,000
C. 550,000 D. 660,000

35. What is the depreciation for 2020?

A. 610,000 B. 780,000
C. 730,000 D. 600,000

36. An entity shall measure a non-current asset or disposal group classified as held
for sale at
A. Its carrying amount. B. Fair value less cost to sell.

6 | Page TSIY/RSORIANO
 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@gmail.com

C. Lower of carrying amount and fair D. Higher of carrying amount and fair
value less cost to sell. value less cost to sell.

37. An entity manufactures and sells household products. The entity experienced
losses associated with the small appliance group. Operations and cash flows for
this group can be clearly distinguished from the rest of the entity’s operations.
The entity decided to sell the small appliance group. What is the earliest point at
which the entity shall report the small appliance group as a discontinued
operation?
A. When the entity classified it as held for sale.
B. When the entity receives an offer for the segment.
C. When the entity first sells any of the assets of the segment.
D. When the entity sells the majority of the assets of the segment.

For the next three items:

On June 1, 2018, Starr Company had an equipment with a cost of P10,000,000 and
accumulated depreciation of P7,500,000. On the same date, the entity classified the
equipment as held for sale and decided to sell it within one year. The equipment had an
estimated selling price of P2,000,000 and a remaining useful life of 4 years. It is estimated
that selling cost associated with the disposal of the equipment will be P200,000.

On December 31, 2018, the estimated selling price of the equipment had increased to
P2,300,000 with estimated cost of disposal of P250,000.

38. What amount of impairment loss should be recognized on June 1, 2018?

A. 700,000 B. 500,000 C. 300,000 D. 0

39. What amount should be recognized as gain on reversal of impairment on

December 31, 2018?
A. 700,000 B. 512,500 C. 250,000 D. 0

40. Assuming the estimated selling price of the equipment on December 31, 2018
had increased to P2,800,000 with estimated cost of disposal of P200,000, what
amount should be recognized as gain on reversal of impairment on December
31, 2018?
A. 1,062,500 B. 962,500 C. 800,000 D. 700,000

Misua Company, a parent company, approved on December 1, 2017 a plan to sell a

subsidiary. The sale is expected to be completed on March 31, 2018. The year-end is
December 31, 2017 and the financial statements were approved on March 1, 2018.

The subsidiary had net assets with carrying amount of P10,000,000 including goodwill of
P500,000 on December 31, 2017. The subsidiary made a loss of P1,000,000 during the
first quarter of 2018 and is expected to make further loss of P500,000 up to the date of
sale.

At the date of approval of the financial statements, the company was in negotiation for
the sale of the subsidiary but no contract had been signed. The company expected to sell
the subsidiary for P9,500,000 and to incur cost to dispose of P2,000,000. The value-in-
use of the subsidiary was estimated to be P11,000,000.

41. On December 31, 2017, what is the measurement of the subsidiary which is
considered as a disposal group classified as held for sale?
A. 11,000,000 B. 10,000,000 C. 9,500,000 D. 7,500,000

7 | Page TSIY/RSORIANO
 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@gmail.com

42. Which of the following statements is true about biological assets?

a. Biological assets must be valued at cost
b. Biological assets are only found in Biotech entities
c. Biological assets do not generally have future economic benefits
d. Biological assets are living animals or plants and must be reported as a
separate item in the statement of financial position

43. According to PAS 41, Agriculture, which of the following criteria must be satisfied
before a biological asset can be recognized in an entity’s financial statements?
I. The entity controls the asset as a result of past events
II. It is probable that economic benefits relating to the asset will flow to the
entity
III. An active market for the asset exists
IV. The asset comes from a homogeneous biological group
a. I and II only
b. II and III only
c. I, II and III only
d. I, II and IV only

44. 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

45. An entity shall disclose information about an operating segment when

a. The segment assets are 10% or more of the combined assets of all
segments
b. The segment external and internal revenue is 10% or more of the
combined external and internal revenue of all segments
c. The segment profit or loss is 10% or more of the greater between
combined profit or profitable segments and combined loss of
unprofitable segments
d. All of these are correct

46. A major customer is one providing revenue which is

a. At least 90% of the consolidated entity revenue
b. 10% or more of the consolidated entity revenue
c. 10% or more of the combined internal revenue of all segments
d. 10% or more of the combined external and internal revenue of all
segments

47. Aaron Company prepares quarterly interim financial reports. The entity sells
electrical goods and normally 5% of customers claim their warranty. The
provision in the first quarter was calculated at 5% of sales to date which
amounted toP10,000,000. However, in the second quarter, a design fault was
found, and warranty claims were expected to be 10% for the whole year. Sales
for the second quarter amounted to P15,000,000. What would be the provision
charged in the second quarter’s interim income statement?

8 | Page TSIY/RSORIANO
 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@gmail.com

a. P2,000,000
b. P1,250,000
c. P1,500,000
d. P750,000

48. Raymart Company has estimated that total depreciation expense for the year
ended December 31, 2021 will amount to P300,000 and that 2021 year-end
bonuses to employees will total P600,000. In its interim income statement for
the six months ended June 30, 2021, what total amount of expense relating
to these two items should be reported?
a. P900,000
b. P150,000
c. P450,000
d. P 0

49. Earnings per share disclosures are required only for

a. Public entities
b. Private entities
c. Entities with complex capital structure
d. Entities that change their capital structure during the reporting period

50. When EPS is computed dividends on preferred stock are

a. Reported separately on the income statement
b. Ignored because they do not pertain to the common stock
c. Added because they represent earnings to preferred shareholders
d. Subtracted because they represent earnings to preferred shareholders

51. Marilyn, Inc. had 20,000 shares of common stock outstanding on January 1,
2021. On May 1, 2021, it issued 10,500 shares of common stock. Outstanding
all year were 10,000 shares of nonconvertible preferred stock on which a
dividend of P40 per share was paid in December 2021. Net income for 2021 was
P967,000. The earnings per share for 2021 is:
a. P18.60
b. P21.00
c. P28.40
d. P35.80

52. An entity had 100,000 ordinary shares issued and outstanding at the beginning
of current year. During the current year, the entity revealed the following
ordinary share transactions:

April 1 Issued 30,000 previously unissued shares

May 1 Split the share 2 for 1
June 30 Purchased 10,000 shares for the treasury
July 31 Distributed 20% stock dividends
December 31 Split the stock 3 for 1

What is the weighted average number of shares?

a. P288,000
b. P864,000
c. P882,000
d. P972,000

9 | Page TSIY/RSORIANO
 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@gmail.com

53. Current liabilities include

a. Only obligations which are expected to be settled within the normal
operating cycle
b. Only obligations which are due to be settled within one year from
balance sheet date
c. Obligations which are expected to be settled within the normal
operating cycle and obligations which are due to be settled within one
year from balance sheet date
d. Refinanced long-term debt falling due within one year from balance
sheet

54. A present obligation should be accrued when

a. It is probable at the date of the financial statements that a liability has
been incurred and the amount can be reasonably estimated
b. The obligation has been incurred on the date of the financial
statements and the amount may be material
c. It is probable that the obligation will be incurred in a future period and
the amount can be reasonably estimated
d. It is probable at the date of the financial statements that an obligation
has been incurred and the amount may be material

55. An outflow of resources embodying future economic benefits it is regarded as

“probable” when
a. The event is more likely than not to occur, meaning, the probability
that the event will occur is greater than the probability that the event
will not occur
b. The probability that the event will not occur is greater than the
probability that the event will occur
c. The probability that the event will occur is the as the probability that
the event will not occur
d. The probability that the event will occur is 90% likely

56. Which of the following items would be excluded from current liabilities?
a. Normal accounts payable which had been assigned by the creditor to a
finance company
b. Long-term debt callable within one year or less because the debtor
violated a debt provision
c. A short-term debt which at the discretion of the entity can be rolled
over at least twelve months after the balance sheet date
d. A long-term liability callable or due on demand by the creditor even
though the creditor has given no indication that the debt will be called

57. Which item is not a current liability?

a. Unearned revenue
b. Stock dividends distributable
c. The currently maturing portion of long-term debt
d. Trade accounts payable

58. During 2021, Ezequil Company sold 500,000 boxes of cake mix under a new
sales promotional program. Each box contains one coupon, which entitles the
customer to a baking pan upon remittance of P4.00. The company pays P5.00
per pan and P0.50 for handling and shipping. It estimates that 80% of the

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 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
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coupons will be redeemed, even though only 300,000 coupons had been
processed during 2021.

What amount should it report as a liability for unredeemed coupons at

December 31, 2021?
a. P100,000
b. P150,000
c. P300,000
d. P500,000

59. On April 1, 2021, Kyla Company began offering a new product for sale under a
one-year warranty. Of the 50,000 units in inventory on April 1, 2021, 30,000
had been sold by June 30, 2021. Based on its experience with similar
products, it estimated that the average warranty cost per unit sold would be
P80. Actual warranty costs incurred from April through June 30, 2021
amounted to P700,000.

At June 30, 2021, what amount should it report as estimated warranty liability?
a. P900,000
b. P1,600,000
c. P1,700,000
d. P3,300,000

60. Betania Company sells gift certificates, redeemable for store merchandise that
expire one year after their issuance. It has the following information
pertaining to its gift certificates sales and redemptions:

Unredeemed at 12/31/2020 P75,000

2021 sales 250,000
2021 redemptions of prior year sales 25,000
2021 redemptions of current year sales 175,000

The company’s experience indicates that 10% of gift certificates sold will not
be redeemed. In its December 31, 2021 balance sheet, what amount should
it report as unearned revenue?
a. P125,000
b. P112,500
c. P100,000
d. P50,000

61. The stockholders’ equity of Raquelyn Company on December 31, 2021 includes
the following:

12% preferred stock, 2,000 shares, P100 par value

200,000

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 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
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14% preferred stock, 1,000 shares, P300 par value

300,000
Common stock, 5,000 shares, P100 par value
500,000
Retained earnings 300,000
Additional paid in capital 50,000
Donated capital
224,000

The 12% stock is cumulative and fully participating. The 14% stock is
noncumulative and fully participating. Dividends in arrears are for 3 years.
What is the book value per share of common stock?
a. P152
b. P146
c. P100
d. P112

62. A long-term debt falling due within one year should be reported as noncurrent if
the following conditions are met (choose the incorrect one)
a. The original term is for a period of more than one year
b. The enterprise intends to refinance the obligation on a long-term basis
c. The intent to refinance is supported by an agreement to refinance
which is completed before the issuance of the financial statements
d. The intent to refinance is supported by an agreement to refinance
which is completed after the issuance of the financial statements

63. Covenants are often attached to long-term borrowing agreements which

represent undertakings by the borrower. Under these covenants, if certain,
conditions related to the borrower’s financial position are breached, the
liability becomes payable on demand. This liability can still be classified as
noncurrent
a. When the lender has agreed, prior to the issuance of the statements,
not to demand payment
b. When it is probable that further breaches or violations will not occur
within one year from balance sheet date
c. When the lender has agreed prior to the issuance of the statements
not to demand payment and it is probable that further breaches will
not occur within one year from balance sheet date
d. With no conditions

64. If a long-term debt becomes callable due to the violation of a loan covenant
a. Cash must be reserved to pay the debt
b. The debt must be reclassified as current
c. Retained earnings must be restricted in the amount of the debt
d. The debt may continue to be classified as long-term if the entity
believes the covenant can be renegotiated

65. On March 1, 2021, Arlyn Company issued at 103 plus accrued interest 4,000 of
its 9%, P1,000 face value bonds. The bonds are dated January 1, 2021 and
mature on January 1, 2031. Interest is payable semiannually on January 1 and
July 1. It paid bond issue cost of P200,000. The company received net cash
from the bond issuance of

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 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@gmail.com

a. P4,320,000
b. P4,180,000
c. P4,120,000
d. P3,980,000

66. On June 30, 2021, Oliver Company issued at 99, five thousand of its 8%,
P1,000 face value bonds. The bonds were issued through an underwriter to
whom it paid bond issue cost of P425,000. On June 30, 2021, the company
should report the bond liability at
a. P4,525,000
b. P4,950,000
c. P5,000,000
d. P4,575,000

67. Which is not within the scope of the Revised Conceptual Framework?
a. Objective of financial statements
b. Qualitative characteristics of financial statements
c. Recognition and measurement of basic elements
d. Generally accepted accounting principles

68. The Revised Conceptual Framework is comprised of how many chapters?

a. Six
b. Eight
c. Ten
d. Twelve

69. Which among the rules on debit and credit below is not correct?
a. The normal balance of any account appears on the side for recording
increases
b. Assets and expenses are debited when increased, and liabilities,
revenues and equity are credited when increased
c. The debit is always on the left side of the accounting double entry
d. Debit means increase, and credit means decrease

70. Debits
a. Increase assets and decrease expenses, liabilities, revenue, and equity
b. Increase assets and expenses and decrease liabilities, revenue and
equity
c. Increase assets and equity and decrease liabilities, expenses and
revenue
d. Decrease assets and expenses and increase liabilities, revenue and
equity

13 | Page TSIY/RSORIANO
 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@gmail.com

FAR First Preboard Examinations – ANSWER KEY

iCARE Accountancy Review
st
1 Open Preboard Examination, Batch 3

1. B 36. C
2. D 37. A
3. A 38. A
4. B 39. C
5. C 40. D
6. A 41. D
7. A 42. D
8. A 43. A
9. A 44. D
10. A 45. D
11. B 46. B
12. A 47. A
13. D 48. C
14. B 49. A
15. C 50. D
16. C 51. B
17. D 52. B
18. A 53. C
19. A 54. A
20. B 55. A
21. C 56. C
22. D 57. B
23. B 58. B
24. A 59. C
25. B 60. D
26. D 61. A
27. B 62. D
28. C 63. C
29. C 64. B
30. B 65. D
31. B 66. D
32. B 67. D
33. A 68. B
34. C 69. D
35. C 70. B

14 | Page TSIY/RSORIANO