Republic of the Philippines

Commission on Higher Education

Don Honorio Ventura State University
Bacolor, Pampanga

FINAL EXAMINATION IN INTERMEDIATE ACCOUNTING 1

I. MULTIPLE CHOICES

1. What is the effect of admission of a new partner to an existing partnership through the purchase of
interest of an existing partner?

a. It will result to partnership gain or loss

b. It will increase the partnership total assets by the cash paid to the existing partner
c. It will not change the total capital of the partnership
d. It will decrease the capital of the partnership by the capital to be transferred to the new partner

2. If the total contributed capital of all the partners is equal to the agreed capitalization of new
partnership in admission of new partner by investment, which is true?

a. Asset revaluation is recognized

b. Impairment loss is recognized
c. Bonus to or from new partner is recognized
d. Any of the above

3. In a limited partnership, the entity ceases to legally exist when

a. An existing partner retires or dies

b. A new partner enters the partnership
c. A limited partner transfers his/her interest
d. A general partner is no longer present

4. Which of the following statements is correct with regard to the creation of initial capital account
balances on a partnership’s financial records?

a. The capital accounts can be created for any peso amount agreed by all partners
b. The market value of non-cash assets must be considered when creating the initial capital balances
c. Each partner’s capital account must have a non-zero value assigned to it
d. All of the above statements are correct

5. Which of the following should be done when the partnership profit and loss ratios are changed?

a. The book and market value of assets and liabilities should be evaluated
b. The capital accounts should be modified to reflect the new profit and loss ratios
c. The creditors should be informed that the profit and loss ratios have been changed
d. The partners must draft new articles of co partnership

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6. Which of the following is not correct with regard to creditor claims against partnerships and
individual partners?

a. Partnership creditors can have claims against partnership assets and individual partner assets
b. Partnership creditors can have claims against partnership assets and individual partner assets only to
the extent that the partner has a deficit capital account balance
c. Partners creditors can have claims against individual partner assets and partnership assets to the
extent of the partner’s capital account balance
d. All of the above

7. In a bank reconciliation, deposits not recorded by the bank are:

a. added to the balance according to the bank statement.

b. deducted from the balance according to the bank statement
c. added to the balance according to the depositor’s records
d. deducted from the balance according to the depositor’s records

8. In preparing its August 31, 2022, bank reconciliation, Morning Co. has made available the following
information:

Balance per bank statement, 8/31/2022 18,050

Deposit in transit, 8/31/2022 3,250
Return of customer’s check for insufficient funds, 8/31/2022 600
Outstanding checks, 8/31/2022 2,750
Bank service charges for August 100

What is the correct cash balance of Morning on August 31, 2022?

a. 15,550
b. 16,850
c. 17,650
d. 18,550

9. Stock dividends differ from cash dividends in that stock dividends

a. Do not increase the legal capital

b. Involve disbursements of corporate funds
c. Require the approval of both the board of directors and the shareholders
d. Once received by the shareholder’s are beyond the reach of corporate creditors

10. Which of the following statements is false concerning treasury shares?

a. They are entitled to dividends

b. They have no voting right
c. They may be disposed or for a price lower than the par value provided such price is reasonable
d. They are not outstanding shares

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11. A stock corporation is similar to a non-stock corporation in what respect?

a. Transferability of shares of or membership

b. Method of voting directors or trustees
c. Voting by shareholders or members in person or by proxy
d. Terms of directors or trustees

12. Which of the following provisions in the articles of incorporation cannot be amended?

a. Name of corporation
b. Number and names of incorporators
c. Terms of existence
d. Primary purpose

13. Which statement is true about bank overdraft?

a. Overdraft typically ca be offset against positive balance in other bank account

b. Generally, cash overdraft is allowed
c. Overdraft can be offset against other bank account when payable on demand and often fluctuates
from positive to overdrawn as an integral part of cash management
d. All of these statements are true about bank overdraft

14. Why is the allowance method preferred over the direct write off method of accounting for bade
debts?

a. Allowance method is used for tax purposes

b. Estimates are used
c. Determining worthless accounts under direct write off method is difficult to do
d. Improved matching of doubtful accounts expense with revenue

15. An entity has an existing loan receivable. If there has been a significant decline in credit quality but
no objective evidence of impairment, an entity shall recognize

a. 12 month expected credit loss

b. Lifetime expected credit loss
c. The average of the 12 month and lifetime expected credit loss
d. The higher of 12 month and lifetime expected credit loss

16. What is the effect of freight in when using the conventional retail method?

a. Increases the cost ratio

b. Decreases the cost ratio
c. No effect on the cost ratio
d. Cannot be determined

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17. Which of the following is false about factoring of accounts with recourse?

a. A recourse liability equal to the fair value of the recourse obligation shall be recognized
b. Due from factor that is debited is a receivable
c. Due from factor debited is a loss
d. Any service fee will be part of the loss on factoring

18. When the cost of goods sold method is used to record inventory at net realizable value

a. There is a direct deduction in the estimated selling price that results in a loss
b. A loss is only recorded by directly crediting inventory
c. Only the portion of the loss is attributable to inventory sold during the period is recorded
d. The net realizable value for ending inventory is substituted for cost and the loss is buried in cost of
goods sold

19. What criterion is excluded in the definition of cash equivalents under PAS 7?

a. Short term, highly liquid investments

b. Investment in high quality instruments
c. Subject to an insignificant change in value
d. Readily convertible to known amounts of cash

20. Which of the following items should not be included as cash?

a. Money market placement

b. Coins and currency in the cash register
c. Amounts on deposit in checking account at the bank
d. Checks from other parties presently in the cash register

21. Which method does not properly match expense and revenue?

a. Charging bad debts as accounts are written off as uncollectible

b. Charging bad debts with a percentage of sales under the allowance method
c. Charging bad debts using aging of accounts receivable under the allowance method
d. Charging bad debts using a percentage of accounts receivable under the allowance method

22. Which of the following is an advantage of using the net price method for recording cash discounts
on credit sales?

a. It properly reflects current periods sales revenue

b. It simplifies recording of sales returns and allowances
c. It eases communication with customers about their balances
d. It requires less record keeping efforts than the gross method

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23. What is the treatment of direct origination cost incurred in connection with loans and receivables?

a. Included in profit or loss

b. Part of the initial carrying amount of the loans receivable and amortized using the effective interest
method
c. Part of the initial carrying amount of the loans receivable and amortized using the straight-line
method
d. Charged directly to retained earnings

24. A non- interest-bearing notes receivable

a. Causes no interest revenue to be recorded

b. Includes a specified principal amount plus specified interest
c. Includes a specified principal amount but an unspecified interest amount
d. Includes an unspecified principal amount and an unspecified interest amount

25. The equity of the assignor in assigned accounts is equal to

a. Assigned accounts receivable

b. Bank loan balance
c. Assigned accounts receivable minus the bank loan balance
d. Bank loan balance minus the assigned accounts receivable

26. The weighted average inventory costing method is particularly suitable to inventory where:

a. Homogeneous products are mixed together

b. Dissimilar products are stored in separate locations
c. The entity carries stocks of raw materials, work in process and finished goods
d. Goods have distinct use by dates and the goods produced first must be sold earliest

27. Inventory estimation will be required to all the following, except:

a. When interim financial statements are prepared

b. When inventory is destroyed by typhoon or flash floods
c. As proof of reasonable accuracy of the physical inventory
d. In the determination of the ending inventory to be shown in the balance sheet

28. A major advantage of the retail inventory method is that it

a. Hides costs from customers and employees

b. Gives a more accurate statement of inventory cost item than other methods
c. Permits companies which use it to avoid taking an annual physical inventory
d. Provides a method for inventory control and facilitates determination of the periodic inventory

29. PAS 2 requires that when inventories are written down to net realizable value, they are written down

a. On a class-by-class basis
b. On an item-by-item basis
c. On the basis of industry segment
d. According to geographical segment within the entity
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 30. If an item of inventory was written down to net realizable value in a prior period subsequently
recovered, then

a. Previous amount of the write down can be reversed

b. Carrying amount of the inventory cannot be adjusted
c. Value adjustment can be recognized immediately in equity
d. Adjustment must be recognized in a provision for future inventory write down account

31. To determine an inventory valuation that using the retail method under the average method, the
computation of the cost to retail percentage should

a. Include markups but not markdowns

b. Include markups and markdowns
c. Include markdowns but not markups
d. Exclude markups and markdowns

32. The use of a discount lost account implies that the recorded cost of an inventory is

a. Invoice Price
b. Invoice Price plus the purchase discount lost
c. Invoice Price less the purchase discount taken
d. Invoice Price less the purchase discount allowable whether taken or not

33. The cash account of the Makati Corporation as of December 31, 2022, consists of the following:

On deposit in current account with Real Bank P 900,000

Cash collection not yet deposited to the bank 350,000
A customer’s check returned by the bank for insufficient 150,000
fund
A check drawn by the Vice-President of the Corporation
dated January 15, 2023 70,000
A check drawn by a supplier dated December 28, 2022,
for goods returned by the Corporation 60,000
A check dated May 31,2022 drawn by the Corporation
against the Piggy Bank in payment of customs duties.
Since the importation did not materialize, the check
was returned by the customs broker. This check was
an outstanding check in the reconciliation of the Piggy
Bank account 410,000
Petty Cash fund of which P5,000 is in currency; P3,600
in form of employees’ I.O.U. s; and P1,400 is
supported by approved petty cash vouchers for
expenses all dated prior to closing of the books on 10,000
December 31, 2022
Total 1,950,000
Less: Overdraft with Piggy Bank secured by a Chattel
mortgage on the inventories 300,000
Balance per ledger P1,650,000
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At what amount will the account “Cash” appear on the December 31, 2022, Statement of Financial Position?

a. P1,315,000 c. P1,495,000
b. P1,425,000 d. P1,725,000

34. You noted the following composition of Malabon Company’s “cash account” as of December 31,
2022 in connection with your audit:

Demand deposit account P2,000,000

Time deposit – 30 days 1,000,000
NSF check of customer 40,000
Money market placement (due June 30, 2023) 1,500,000
Savings deposit in a closed bank 100,000
IOU from employee 20,000
Pension fund 3,000,000
Petty cash fund 10,000
Customer’s check dated January 1, 2023 50,000
Customer’s check outstanding for 18 months 40,000
Total P7,760,000

Additional information follows:

a) Check of P200,000 in payment of accounts payable was recorded on December 31, 2022 but mailed to
suppliers on January 5, 2023.
b) Check of P100,000 dated January 15, 2023 in payment of accounts payable was recorded and mailed on
December 31, 2022.
c) The company uses the calendar year. The cash receipts journal was held open until January 15, 2023,
during which time P400,000 was collected and recorded on December 31, 2022.

Question:

The cash and cash equivalents to be shown on the December 31, 2022, Statement of Financial Position is

a. P3,310,000 c. P2,910,000
b. P1,910,000 d. P4,410,000

35. Bantay Company’s unadjusted trial balance at December 31, 2022, included the following accounts:
Debit Credit
Accounts receivable P1,000,000
Allowance for doubtful accounts 40,000
Sales P15,000,000
Sales returns and allowances 700,000

Bantay Company estimates its bad debt expense to be 1 1/2% of net sales. Determine its bad debt
expense for 2022.

a. P225,000 c. P214,500
b. P254,500 d. P 55,000

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36. Shown below is the bank reconciliation for Marikina Company for November 2022:

Balance per bank, Nov. 30, 2022 P150,000

Add: Deposits in transit 24,000
Total 174,000
Less: Outstanding checks P28,000
Bank credit recorded in error 10,000 38,000
Cash balance per books, Nov. 30, 2022 P136,000

The bank statement for December 2022 contains the following data:

Total deposits P110,000

Total charges, including an NSF check of P8,000 and
a service charge of P400 96,000

All outstanding checks on November 30, 2022, including the bank credit, were cleared in the bank
1n December 2022.

There were outstanding checks of P30,000 and deposits in transit of P38,000 on December 31, 2022.

Based on the above information:

How much is the cash balance per bank on December 31, 2022?

a. P154,000 c. P164,000
b. P150,000 d. P172,400

37. You obtained the following information in connection with Villasis Corporation:

Cost Retail
Beginning inventory P1,987,200 P2,760,000
Sales 7,812,000
Purchases 4,688,640 6,512,000
Freight in 94,560
Mark ups 720,000
Mark up cancellations 120,000
Markdown 240,000
Markdown cancellations 40,000

Villasis Corp. uses the retail inventory method in estimating the values of its inventories and costs.

The cost ratio to be used considering the provisions of PAS 2 is

a. 68.58% c. 70.00%
b. 69.20% d. 75.78%

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 38. An entity factored with recourse P6,000,000 of accounts receivable to a finance company on July 1,
2022. The finance company assessed a fee of 5% and retains a holdback equal to 10% of the
accounts receivable. In addition, the finance company charged 8% computed on a weighted average
time to maturity of the receivables of 30 days. The fair value of the recourse obligation is P50,000.
The finance company has fully collected the accounts. What is the total loss on factoring that the
entity should recognize?
a. 339,452
b. 389,452
c. 939,452
d. 989,452

39. An entity had the following account balances on December 31, 2022:
Cash in bank – current account 3,500,000
Cash in bank – income tax payments only 1,000,000
Cash on hand 500,000
Cash in bank – restricted account for plant additions, expected to
be disbursed in 2023 2,800,000
Commercial papers 900,000
The cash on hand includes a P150,000 check payable to the entity dated January 15, 2023. The commercial
papers had a total term of 3-years but was purchased by the entity 2 months prior to maturity. What amount
of cash and cash equivalents should the entity report on December 31, 2022?
a. 8,550,000
b. 5,750,000
c. 4,750,000
d. 4,850,000

40. On January 1, 2022, an entity sold goods to a customer in which the customer issued a noninterest-
bearing note requiring annual payment of P400,000 for 5 years. The first payment was made on
December 31, 2022. The prevailing interest rate for this similar note is 12%. The present value
factor of an ordinary annuity for 5 periods at 12% is 3.60. What is the carrying amount of the note
receivable on December 31, 2022?
a. 1,212,800
b. 1,612,800
c. 1,600,000
d. 1,440,000

41. An entity operates in an industry that has a high rate of bad debts. On December 31, 2022, before
any year- end adjustments, the accounts receivable balance was P4,800,000 and its allowance for
doubtful accounts balance was P240,000. The year-end balance reported for the allowance for
doubtful accounts is based on the following schedule:

Time Outstanding Accounts Receivable Percent Uncollectible

Under 30 days 3,000,000 5%
31 - 180 days 900,000 10%
181 - 360 days 600,000 30%
More than one year 300,000 100%

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The accounts which have been outstanding for more than one year and 100% uncollectible would be written
off immediately. What should be the doubtful accounts expense for the year ended December 31, 2022?
a. 420,000
b. 480,000
c. 300,000
d. 180,000

42. On December 31, 2022, an entity had the following cash balances:
Cash in bank 8,000,000
Cash on hand 2,500,000
Time deposit – three months due January 15, 2023, 1,700,000
Saving deposit 800,000
Cash in bank includes P600,000 of compensating balance against short-term borrowing arrangement on
December 31, 2022. The balance is not legally restricted as to withdrawal. A check of P300,000 dated
January 15, 2023, in payment of accounts payable was recorded and mailed on December 31, 2022. What
amount of cash and cash equivalents should an entity report on December 31, 2022?
a. 12,700,000
b. 13,000,000
c. 12,500,000
d. 13,300,000

43. An entity reported P7,000,000 of inventory on December 31, 2022, based on physical count.
Additional information is as follows:
* Excluded from the physical count were goods billed to a customer, FOB shipping point, on
December 31, 2022. The goods had a cost of P400,000 and had been billed at P550,000. The
shipment is ready for pick- up by the delivery contractor on January 5, 2023.
* Goods were in transit from a vendor. The invoice cost was P300,000 and goods were shipped FOB
shipping point on December 31, 2022.
* Included in the count were goods held on consignment amounting to P680,000.
* Excluded from the count were goods out on consignment costing P 240,000.
What amount of inventory should the entity report on December 31,2022
a. 7,410,000
b. 6,860,000
c. 6,620,000
d. 7,260,000

44. An entity uses the moving average method to determine the cost of its inventory. The entity
recorded the following information pertaining to its inventory during the current year:
Units Unit cost Total cost
Balance 40,000 30.00 1,200,000
Purchase 35,000 33.00 1,155,000
Sale 15,000
Sale return 5,000
Purchase 12,000 35.25 423,000
Purchase return 2,500 35.25 88,125
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What is the moving average cost per unit at the end of the current year?
a. 35.25
b. 31.89
c. 32.00
d. 31.40
45. An entity accepted from a customer P2,000,000, 120-day, 12% note dated August 31, 2022. On
September 30, 2022, the entity discounted with recourse the note at a certain bank. The discount
rate is 15%. The entity accounted for the transaction as conditional sale with recognition of a
contingent liability. What amount of proceeds from discounting the note should the entity
recognize?
a. 2,080,000
b. 2,020,000
c. 2,002,000
d. 2,000,000

46. An entity uses the average cost retail method to estimate its inventory. Data relating to the
inventory on December 31, 2022, are as follows:

Cost Retail
Inventory, January 1 600,000 900,000
Purchases 3,180,000 4,200,000
Net markup 480,000
Net markdown 180,000
Sales 3,600,000
Estimated normal shoplifting losses 120,000
Estimated normal shrinkage is 5% of sales

What is the estimated cost of inventory on December 31, 2022?

a. 1,020,000
b. 1,050,000
c. 1,176,000
d. 1,142,400

47. An entity provided the following information on December 31, 2022:

Petty cash fund 40,000

Current account – City Bank 3,000,000
Current account – HK Bank (overdraft) (300,000)
Money market placement – My Bank 1,000,000
Time deposit – Country Bank 450,000

A check for P150,000 was drawn against City Bank current account dated and recorded December 20,
2022 but delivered to payee on January 10, 2023. The time deposit was set aside to acquire land on January
5, 2023.What total amount should be reported as cash and cash equivalents?

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a. 4,040,000
b. 3,890,000
c. 4,190,000
d. 4,640,000

48. An entity used the FIFO cost flow assumption.

Units Unit cost Total cost
Jan. 1 Beginning balance 8,000 70.00 560,000
Jan. 4 Purchase 3,000 70.50 211,500
Feb. 12 Sale 10,000
Mar. 15 Purchase 11,000 73.50 808,500
Mar. 30 Purchase return 800 73.50 58,800
Apr. 12 Sale 7,000
Apr. 25 Sale return 300

What is the cost of inventory on April 25

a. 330,750
b. 315,000
c. 433,876
d. 329,360

49. An entity reported the December 31, 2022 inventory at P3,500,000. The entity revealed the
following transactions:

 Goods shipped to the entity FOB Destination on December 27, 2022 were received on January 3,
2023.The invoice cost of P450,000 is excluded in the inventory balance.
 On December 31, 2022, the entity held P275,000 of goods on consignment from another entity. The
goodsare included in the inventory balance.
 On December 27, 2022, goods costing P100,000 was shipped to a customer FOB Shipping
Point andarrived at the customer’s location on January 4, 2023. The goods are included in the
inventory balance.
 On December 31, 2022, the entity had merchandise costing P150,000 with sales agents. The goods
are notincluded in the inventory balance.
What amount of inventory should the entity report on December 31, 2022?
a. 3,125,000
b. 3,275,000
c. 3,725,000
d. 3,375,000

50. An entity factored with recourse P3,000,000 of accounts receivable with a bank. The finance charge is
5% and 8% was retained to cover sales discounts, sales returns and sales allowances. The fair value of the
recourseobligation was P50,000. What amount of cash was received from the factoring?
a. 2,610,000
b. 2,560,000
c. 2,850,000
d. 2,710,000
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 51. ABC Company reported that the cash account per ledger had a balance at December 31, 2022 of P
4,415,000 which consisted of the following:

Petty Cash Fund P 24,000

Undeposited receipts including a post-dated customer check for P 70,000 P 1,220,000
Cash in allied bank, per bank statement, which a check for P 40,000 still outstanding P 2,245,000
Bond Sinking Fund P 850,000
Vouchers paid out of collections, not yet recorded P 43,000
IOU;s signed by employees taken from collections P 33,000
P 4,415,000

What amount should be reported as CASH in the December 31, 2022 Statement of Financial Position?

a. P 3,379,000
b. P 3,419,000
c. P 3,489,000
d. P 3,449,000

52. On June 1, 2023, RRR Company sold merchandise with a list price of P 300,000 to DDD Company
om account, DDD was given the following trade discounts of 30% and 50%. Credit terms were 2/15,
n/40 and the sale were made FOB Destination.

What amount should DDD company remit to RRR company as full payment on June 14, 2023?

a. P 168,000
b. P 164,640
c. P 159,740
d. P 159,640

53. CHINA Company prepared an aging of accounts receivable on December 31, 2024 and determined
that the net realizable value of the accounts receivable was P 2,500,000. Additional information are
as follows:

Allowance for Doubtful Accounts on January 1 P 280,000

Accounts written off as uncollectible P 230,000
Accounts Receivable on December 31 P 2,700,000
Uncollectible Accounts Recovery P 50,000

For the year ended December 31, 2024, what amount should be recognized as doubtful accounts expense?

a. P 230,000
b. P 200,000
c. P 150,000
d. P 100,000

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 54. On July 1, 2022, PHIL Company sold goods in exchange for P 2,000,000, 8-month non-interest-
bearing note receivable. At the time of sale, the market rate of interest was 12%. The entity
discounted the note at 10% on September 1, 2022. What is the cash received from discounting?

a. P 1,940,000
b. P 1,938,000
c. P 1,900,000
d. P 1,890,000

55. On December 31, 2022, MISO Company has the following information concerning its cash and cash
equivalents and some other items

Coins and currency P 50,000

Checks received from customer P 600,000
Certificate of Deposit, term: 12 months P 800,000
Petty Cash Fund P 4,000
Postage Stamps P 600
Bank A, Checking account balance P 2,100,000
Post dated check, customer P 10,000
Money order from customer P 15,000
Cash in savings account P 100,000
Bank draft from customer P 40,000
Cash advance received from customer P 8,000
NSF Check, C company P 20,000
Bank B, checking account, overdraft P 20,000
IOU from employees P 12,000

What amount of cash and cash equivalent should the company report on its December 31, 2022 Statement of
Financial Position?

a. P 2,869,000
b. P 2,874,000
c. P 2,882,000
d. P 2,909,000

56. Cash equivalents do not include

a. Money market instrument

b. Treasury bills
c. Held for trading equity investments
d. Commercial papers

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