FINANCIAL ACCOUNTING AND REPORTING

1. Under a new sales promotion scheme, Aria Company sold 100,000 reversible belts this year.
Each belt had one coupon that entailed a P70 cash rebate for the customer.
Despite the fact that just 45,000 vouchers were processed this year, the institution estimates
that 80% of the coupons would be redeemed.
At year's end, how much should be reported as rebate liability for unredeemed coupons?
1,750,000
A. 1,050,000
B. 3,150,000
C. 2,450,000
D. 5,600,000
ANSWER : C

Coupons to be redeemed (80% x 100,000) 80,000

Multiply by: cash rebate per coupon 70
Rebate expense 5,600,000
Rebate paid (45,000 x 70) (3,150,000)
Rebate Liability 2,450,000

2. In the year stamps are sold to licenses, the Real Company records stamp service revenue and
accounts for the cost of redemption. Based on previous experience, only 70% of the stamps
sold would be redeemed. On January 1, 2021, the stamp redemption debt was 8,500,000.
Additional information for the current year:

Stamp service revenue from stamps sold to 6,000,000

licenses
Cost of redemption of stamps sold prior to 2,500,000
January 1, 2021

If all the stamps sold in 2021 were presented for redemption in 2022, the redemption cost
would be 2,000,000.
What amount should be reported as liability for stamp redemption on December 31,2021?
A. 7,250,000
B. 5,050,000
C. 7,400,000
D. 5,500,000
ANSWER : C

Liability for stamp redemptions 8,500,000

Estimated cost of redemption for stamps sold 1,400,000
(70% x 2,000,000)
Total 9,900,000
Cost of redemption in 2021 (2,500,000)
Lability for stamp redemptions – December 7,400,000
31,2021

3. Renken Company decided to give the branch manager a bonus of 30% of the branch's income
over 1,000,000 after three profitable years. For the current year, the branch's income was
2,600,000 before taxes and bonus. After deducting the bonus but before deducting tax, the
bonus is calculated on income in excess of 1,300,000.
What amount should be reported as bonus to the branch manager for the current year?
A. 320,000
B. 300,000
C. 250,000
D. 120,000
ANSWER : B

Income after bonus but before tax 1,000,000

(1,300,000/130%)
Multiply by: bonus rate 30%
BONUS 300,000

4. Zen Company has several contingent liabilities on December 31,2021.

 In May 2021, Zen Company became involved in litigation.

 In December 2021, the court assessed a judgement for 2,100,000 against Zen Company.
 The entity appealing the amount of the judgement. The entity’s attorneys believed it is
probable that the assessment can be reduced on appeal by 50%
 In July 2021, Pampanga City brought action against Zen Company for polluting the
Pampanga River with its waste products.
 It is probable that Pampanga City will be successful but the amount of damages might
not exceed 2,000,000.
What amount should be accrued as provision on December 21,2021?
A. 1,050,000
B. 3,050,000
 C. 2,000,000
D. 2,100,000
ANSWER : B

Assessment of appeal (50% x 2,100,000) 1,050,000

Environmental Cost 2,000,000
Total provision 3,050,000

5. During 2021, Akasha Company experienced financial difficulties and is likely to default on a
6,500,000, 20% three year note dated January 1, 2019, payable to Sassy Bank. On December
31,2021, the bank agreed to settle the note and unpaid interest of 850,000 for 2021 for
5,100,000 cash payable in January 31,2022.
What amount should be reported as gain from extinguishment of debt in 2021?
A. 2,250,000
B. 1,650,000
C. 900,000
D. 750,000
ANSWER : A

Note payable 6,500,000

Accrued interest payable 850,000
Total liability 7,350,000
Cash settlement (5,100,000)
Gain on extinguishment of debt 2,250,000

6. On June 30,2021, Puff Company issue at 99, 6,000 bonds of 10%, P800 face amount. The
bonds were issued through an underwriter to whom the entity paid bond issue cost of 550,000.
On June 30,2021 what amount should be reported as bond liability?
A. 4,800,000
B. 4,525,000
C. 4,202,000
D. 4,575,000
ANSWER : C

Bonds payable 4,800,000

Discount on bonds payable [(4,800,000 x 99) (48,000)
- 4,800,000]
Bond issue cost (550,000)
 Carrying amount of bonds payable 4,202,000

7. Isthmus Company had 700,000 convertible 10% convertible bonds payable outstanding on
June 30. Each 1,000 bond was convertible into 10 ordinary shares of P55 per value. On July 1,
the interest was paid to bondholders and the bonds were converted into ordinary shares which
had a fair value of 85 per share. The unamortized premium on these bonds was 15,000 at the
date of conversion. No equity component was recognized when the bonds were originally
issued.
What amount should be recorded as increase in share premium as a result of bond conversion?
A. 312,000
B. 330,000
C. 306,000
D. 162,000
ANSWER : B

Bonds payable 700,000

Premium on bonds payable 15,000
Carrying amount 715,000
Ordinary shares issued at par value (385,000)
(700,000/1,000 x10 x 55)0
Share premium 330,000

ADVANCE FINANCIAL ACCOUNTING AND REPORTING

1. Perry Corporation owns a 70% stake in Art Corporation, which it bought at book value several
years ago. Art mailed a P10,000 cheque to Perry on December 31, 2021, in part payment of a
P20,000 account with Perry. When Perry's books were closed on December 31, it had not
received the check. At the conclusion of the year, Perry Corporation had P250,000 in accounts
receivable (including the P45,000 from Art), while Art had P280,000 in accounts receivable. In
the consolidated balance sheet of Perry Corporation and Subsidiary at December 31, 2021
accounts receivable will be shown in the amount of:
a. P470,000
b. 360,000
C. P350,000
d. 485,000
ANSWER: D
 Perry’s Accounts Receivable 250,000
Less: Intercompany receivable (45,000)
Art’s accounts receivable 280,000
Consolidated accouns receivable 485,000

2. On January 1, 2021, Shion and Beni launched a combined operation to run two stores, one
for each joint operator. They agreed to make the following financial contributions: Shion is
valued at P50,000, whereas Beni is valued at P35,000.
The capital ratio is used to distribute profits and losses. The cash revenues and disbursements
of the arrangements throughout the four-month period, which were handled through the joint
operator bank accounts, are as follows:

Shion Beni
Receipts P88,920 P75,425
Disbursements 72,275 80,695

On April 30, 2021, the remaining joint operation non-cash assets in the hands of the joint
operators were sold for P100,000 cash. The joint operations was terminated and settlement
was made between Shion and Beni. The arrangement profit (loss) for the four-month period,
after selling the remaining non-cash assets, was:
A. 11,375
B. 26,375
C.(31,375)
D. (38,625)
ANSWER: B

Total cash receipts(88,920 + 75,425 ) 164,345

Less: Cash investments included(50,000 + (85,000)
35,000)
Cash Sales 79,345
Add: Proceeds from sale of remaining assets 100,000
Total Revenue 179,345
Less: Expenses(72,275 + 80,695 ) (152,970)
Net Income 26,375

3. Sigh (Indian firm) was purchased for 90 percent by Arthur (Philippine corporation), with a
starting inventory of 650.000 rupees at the time of acquisition. During the year Sigh purchased
950,000 rupees of inventory and ending P438,000 Inventory amounted to 670,000 rupees. The
ending inventory was acquired during the fourth quarter of the year.
The exchange rates on the purchase date, the year's average, the fourth quarter average, and t
he end of the year were P.97, P.99, P1.03, and P1.01, respectively.
Assuming inventory records are maintained on a First in. First-out, what is the converted Cost of
Goods Sold if the temporal method is applied.
A. P699, 500
B. P762.000
C. P772.200
D. P794,000
ANSWER: A

Beginning inventory (650.000 x P.97) P 630,000

Purchases (950,000 x P.99) 940,500
Ending Inventory (670,000 x P1.03) (871,000)
Cost of Goods Sold P699, 500

4. On October 1, 2021, Boni Co. purchased merchandise worth a total of 250,000 foreign
currencies (FC'S) from its foreign supplier, payable within 30 days under an open account
arrangement. Boni Co. issued a 30-day, notes payable in FC. On October 31, 2021, Boni Co. paid
the note. The following information on spot rates (P/FC) is provided:

Buying Selling
October 1, 2021 P24.03 P25.15
October 31, 2021 24.10 25.22

Boni Co.'s foreign exchange gain or loss on the transaction is:

A. P5,040 loss
B. P17,500 loss
C. P12,075 gain
D. P19,110 loss
ANSWER: B

Date of transaction: October 1, 2021 selling P25.15

spot rate
Date of transaction: October 31, 2021 selling 25.22
spot rate
 Foreign exchange loss per FC 0. 07
Multiplied by: Number of FC 250,000
Foreign Exchange Loss 17, 500

5. The difference between the fair value and book value of insurance liabilities assumed in a
business combination might be recognized by insurers as an intangible asset. Thus,this asset
should be used to account for?
A. PAS 38, Intangible Assets.
B. PFRS 4, Insurance Contracts, only.
C. PAS 16, Property, Plant, and Equipment.
D. Such an asset should not be accounted for until phase two if the insurance contract.

6. Agency ABC had the following account balances for the year 2021:

Cash P 15,000,000
Receivables 20,000,000
Marketable securities 28,000,000
Fixed assets 95,000,000
Long-term investments 5,000,000
Other assets 8,000,000
Inventories 9,000,000
Prepaid Expenses 1,500,000
Accumulated depreciation (5,000,000)

Determine the current assets for the year 2015:

A. P55,000,000
B. P95,000,000
C. P145,000,000
D. P73,500,000

ANSWER: D

Cash P 15,000,000
Receivables 20,000,000
Marketable securities 28,000,000
Inventories 9,000,000
Prepaid Expenses 1,500,000
 TOTAL P73, 500,000

7. Drakken Company is a Jeus Corporation 80 percent-owned company that was purchased at

book value several years ago. These related corporations' comparative separate company
revenue statements for 2021 are as follows:

Jeus Corporation Drakken Corporation

Sales P1,500,000 P700,000
Dividend income 108,000 -
Gain on building 30,000 -
Income credits P1,638,000 P700,000

Cost of sales P1,000,000 P400,000

Operating expenses 300,000 P550,000
Income debits P1,300,000 150,000
Net income P 338,000 P150,000

On January 5, 2021 Jeus sold a building with a 10-year remaining useful life ta Drakken as a gain
of P30,000. Drakken paid dividends of P120,000 during 2021.
The Non-controlling interest in net income for 2021:
A. P12,000
B. 12,300
C. P30,000
D. 15,300
ANSWER: C

Subsidiary Net Income from own operations P150,000

Multiply by: Non-controlling interest 20%
Non-controlling Interest in Net Income P30,000

TAXATION
1.Maria, a Filipino residing in Cebu died on December 10, 2021, leaving a gross estate of
P4,500,000 including a parcel of land valued at P1,125,000, which he inherited from his father
who died on October 5, 2018, that the land was previously taxed with a fair value of P940,500
for estate tax purposes in the estate of his father, that the land was subjected to a mortgage of
P468,750 at the time it was inherited by the present decedent, which amount was deducted
from the net estate of the father, that the present decedent paid P287,500 of the mortgage
indebtedness and that the total deductions claimed for expenses, losses, etc, including the
unpaid mortgage of P281,250 was P662,500.
REQUIRED: Determine the correct amount of vanishing deduction, if any
A. 940,500
B. 222,746
C. 653, 000
D. 556,864
ANSWER: B

Value to take P940,500

1st Deduction: Mortgage paid (287,500)
Initial basis 653, 000
2nd Deduction: Proportional deduction (653, (96,136)
000 /4,500,000 x 662,500 )
Intial Basis 556,864
Vanishing rate X 40%
Vanishing Deduction 222,746

2. On September 4, 2021, Mario Domingo died leaving an apartment building which has a fair
value of P1,500,000 which he inherited from his mother The property was valued at P1,
000,000 at the time of inheritance dated July 28, 2018. The building has a previous mortgage of
P180,000 of which P80,000 was paid by Mario Domingo prior to his death. In computing for the
vanishing deduction, what percentage will be used and how much will be the vanishing
deduction?
a: 40%; P343,467
b. 60%; P300,000
c. 40%; P323,000
d. 20% P305,000
ANSWER: A

Value to take P1, 000,000

1st Deduction: Mortgage paid (80,000)
Initial basis 920,000
2nd Deduction: Proportional deduction (61,333)
(920,000/1,500,000 x 100,000)
Intial Basis 858,667
Vanishing rate X 40%
Vanishing Deduction 343,467
3. Nonresident alien decedent left the following assets:

Domestic shares P1, 000,000

Foreign shares 3, 000,000
Tangible personal property, Philippines 7, 000,000
Losses, unpaid indebtedness and taxes 1, 200,000

The country where the decedent is a citizen and resident does not impose transfer tax on
transmission of intangibles of Filipinos not residing therein. The taxable net estate in the
Philippines is
a. P3,800,000
b. P4,280,000
C. P5,780,000
d. P5,280,000
ANSWER: C

Gross Estate 7, 000,000

Prorated LIT (1,200,000 x 6,000/10,000,000) (720,000)
Standard deduction (500,000)
Taxable Estate P5,780,000

4. A Filipino taxpayer died in 2018 leaving the following:

Net taxable estate, Philippines, P3,000,000;
Net Estate - Korea, P2,000,000;
Estate tax paid in Korea, P80,000.
How much is the estate tax due after tax credit?
A. P60,000
B. P180,000
C. P200,000
D. P240,000
ANSWER: D

Net taxable estate P5,000,000

x Estate tax rate 6%
 Estate tax due 300,000
Less: Estate tax credit
Limit = P1/4 x P240,0000 = P60,000 (60,000)
Actual tax paid abroad = P80,000
Estate tax payable 240,000

5. An American, residing in the Philippines, died in 2021 leaving the following estate before
deducting special deductions, if any:
Net taxable estate, Philippines P8,000,000
Net taxable estate, Qatar 2,000,000
Net taxable estate, Dubai 1,500,000
Estate tax paid, Qatar
Estate tax paid, Dubai There is no estate tax law in Qatar and Dubai.
The estate tax due after tax credit is
A. PO
B. P690,000
C. P400,000
D. P1,000,000
ANSWER:B

Total net taxable estate P11,500,000

Estate tax rate 6%
Multiply by: Estate tax 690,000
Less: estate tax credit NA
Estate tax payable P690,000

6. A VAT registered real estate dealer sold a residential lot on September 2020. The following
information was made available on the terms of the sale:

Gross selling price (zonal value, P2,800,000) P3,000,000

Initial payments consisting of down payment 900,000
installments in the year of sale
Balance to be paid in equal installments of 2,100,000
P700,000 starting January 2021
 DETERMINE THE FOLLOWING:
Output Vat - September 2020
Output vat September 2018 = P3M x 12% = P360,000
The sale is a Deferred sale. Ratio of initial payments over SP is 30%
7. Output Vat - January 2021
Output vat January 2019 = P0

MANAGEMENT ADVISORY SERVICES

1 Which of the following always has a direct cause-effect relationship to a cost?
Predictor Cost driver
a. yes yes
b. yes no
c. no yes
d. no no

2. A firm presently has total sales of $100,000. If its sales rise, its
a. net income based on variable costing will go up more than its net income based
on absorption costing.
b. net income based on absorption costing will go up more than its net income
based on variable costing.
c. fixed costs will also rise.
d. per unit variable costs will rise.

3. Consider the equation X = Sales - [(CM/Sales)  (Sales)]. What is X?

a. net income
b. fixed costs
c. contribution margin
d. variable costs
 4. The following are the standard costs connected with the manufacture and selling of one of
CYRUS Corporation's products:

 P3.00 per unit for direct material

 2.50 per unit for direct labor
 1.80 per unit variable manufacturing overhead
 Manufacturing overhead fixed at $4.00 per unit (estimate) 50,000 units per year)
 Selling costs that are subject to change 25 cents per unit
 SG&A spending is fixed at $75,000 per year.
Langley produced 51,000 units and sold 48,000 in its first year of operation. The selling price
was P25 per unit. All prices were in line with industry standards.

5. Refer to CYRUS Corporation. Under absorption costing, the standard production cost per unit
for the current year was
a. P11.30.
b. P 7.30.
c. P11.55.
d. P13.05.

ANSWER:A

DM + DL + VFOH + FFOH = Standard Cost per Unit

$3.00 + $2.50 + $1.80 + $4.00 = $11.30

6. Refer to CYRUS Corporation. The volume variance under absorption costing is

a. P8,000 F.

b. P4,000 F.
c. P4,000 U.
 d. P8,000 U.

ANSWER:B

1,000 favorable units production variance * P4.00 fixed factory overhead = P4,000 F

7. Refer to CYRUS Corporation. Under variable costing, the standard production cost per unit for
the current year was
a. P11.30.
b. P7.30.
c. P7.55.
d. P11.55.

ANSWER:B

DM + DL + VOH = Standard Production Cost per Unit

P3.00 + 2.50 + 1.80 = P7.30

24. Refer to CYRUS Corporation. Based on variable costing, the income before income taxes for the
year was
a. P570,600.
b. P560,000.
c. P562,600.
d. P547,500.

ANSWER:C

Sales: 1,200,000
Variable Expenses 362,400
Contribution Margin 837,600
Fixed Expenses
 Overhead 200,000
75,000
Net Income 562,600