PAGE 1

The Professional CPA Review School

Main: 3F C. Villaroman Bldg. 873 P. Campa St. cor Espana, Sampaloc, Manila
 (02) 735 8901 / 0917-1332365
email add: crc_ace@yahoo.com
Baguio Davao
2nd Flr. #12 CURAMED Bldg. Marcos Highway, Baguio City 3/F GCAM Bldg. Monteverde St. Davao City
 0906-0775156 / 09618683385  0905-4648851/0968-2209016

FINANCIAL ACCOUNTING & REPORTING (THEORY) OCT 2021 BATCH

FIRST PRE-BOARD EXAMINATION JULY 21, 2021

INSTRUCTIONS: Select the correct answer for each of the following questions. Mark only one answer
for each item by Shading the corresponding letter of your choice on the answer sheet provided.
STRICTLY NO ERASURES ALLOWED. Use Pencil No. 2 only.

1. The following are application of the art aspect of accounting EXCEPT when
A. An accountant engaged in management consultancy interpret the information presented in
the financial statements through trend analysis and ratios.
B. An accountant prepares a trial balance after transactions and events are journalized fand
posted to the ledger
C. An accountant chooses the first-in, first-out inventory valuation method for perishable
merchandise.
D. An external auditor, after audit, issues an unqualified opinion on the fairness of
presentation of a client’s general purpose financial statements

2. Internal events are

A. Recorded because they involve changes in values of the accounting elements
B. Recorded because they involve exchanges of values between the entity and
another entity
C. Not recorded because they are not capable of money measurement
D. Not recorded since they happened only within the entity.

3. The third millennium ushered in what is commonly described as borderless economic

transactions. Which of the following is the primary factor that accelerated this world
phenomenon?
A. Fast-paced development of Information technology
B. Globalization and e-commerce
C. Uniform international financial reporting standards
D. Uniform international education standards

4. Which of the following is the objective of financial statements?

A. To prepare and present financial statements and attached Notes thereto in accordance with
all applicable Standards and Interpretations.
B. To provide information about the financial position, financial performance and changes in
financial position of an entity that is useful to a wide range of users in making economic
decisions.
C. To prepare and present relevant, reliable, comparable and understandable information to
investors and creditors.
D. To comply with the reportorial requirements of government regulatory bodies like the SEC,
BIR and Insurance Commission.

5. Which of the following is NOT part of the generally accepted accounting principles currently
being implemented in the Philippines comprise
A. Philippine Financial Reporting Standards and Interpretations
B. Philippine Financial Reporting Standards for Small and Medium-sized Entities
C. Philippine Financial Reporting Standards for Small Entities
D. Philippine Financial Reporting Standards for Micro Entities

6. The following selected business documents of Serena Corporation are presented to you by its
management in 2021.
A) A purchase commitment signed on October 31, 2021 by Serena Corporation and
Simon Enterprise for the delivery of merchandise worth P500,000 on January 31, 2022.
B) A purchase order for office supplies amounting to P 100,000
C) A utilities bill for December 2021 amounting to P 50,000 for light and power
consumption which remains unpaid at year-end 2021.
 PAGE 2
D) An official receipt amounting to P600,000 issued by Serena to JK Corporation for
advance payment for 10 months’ rental of office space starting January 1, 2022.
E) A delivery truck purchased and delivered on January 1, 2021 under a 3-year annual
installment plan for P3,000,000 for which Serena Corporation issued a 10% interest
bearing note.

The total monetary amount that should be recognized in the books of Serena Corporation as
having met the three criteria for accountable events is
A. P 650,000
B. P 2,150,000
C. P 3,650,000
D. P 4,250,000

7. The accounting equation must remain in balance

A. Throughout each step of the accounting cycle
B. Only when journal entries are recorded
C. Only at the time the trial balance is prepared
D. Only when formal financial statements are prepared

8. Complete the sentence: Adjusting entries

A. Are often prepared after the statement of financial position date, but dated as of the
statement of financial position date.
B. Are prepared as a quality assurance review to ensure that the financial statements conform
to International Financial Reporting Standard (IFRS).
C. Allocate revenue and expense between current and future periods
D. Are all of (A), (B) and (C) above

9. Which of the following statements about Philippine GAAP is (are) false?

I. The Philippine Interpretations Committee issuances are an indication that the IFRSs (or
PFRSs) are principles-based
II. The Securities and Exchange Commission (SEC) regulates all commercial and not-for-
profit reporting enterprises except micro entities.
III. All reporting entities in the Philippines including regulated entities are required to follow full
Philippine Financial Reporting Standards (PFRSs) in the preparation of financial
statements.
A. I only
B. II only
C. II and III only
D. I, II, and III

10. Which of the following statements about the background of accounting is (are) true?
I. The Accrual view in the analysis and recognition of accountable events is the reason why
the steps in the accounting cycle that Luca Pacioli designed is not exactly the same as that
which the accounting profession is adopting today.
II. A milestone for the accountancy profession in the current millennium is the uniform
adoption of international accounting standards by all countries of the world.
III. Adoption of uniform international accounting standards would have the advantage of
comparability and more relevance to external users’ financial information needs across
countries.
Statement I Statement II Statement III
A. False True True
B. False False True
C. True True False
D. True False True

11. Under Philippine Securities and Exchange Commission rules for financial reporting, which of the
following is matched correctly with its reporting framework?
Entity Reporting Framework
1) Rural Bank of Atimonan, with Total Assets of P300 M (1) Full PFRS
2) Scion, Inc.: Total Assets-P110 M;Total Liab. - P45 M (2) PFRS for SME
3) Amore Co: Total Assets-P2.2M; Total Liab-P.8M (3) PFRS for Small Entities
A. (1) and (2)
B. (2) and (3)
C. (1) and (3)
D. (1) (2) and (3)
.
 PAGE 3
12. What is the relationship between the Securities and Exchange Commission and accounting
standard setting in the Philippines?
A. The SEC requires all companies listed on an exchange to submit their financial statements
to the SEC.
B. The SEC coordinates with the FRSC in establishing accounting standards.
C. The SEC has a mandate to establish accounting standards to be followed by enterprises
under its jurisdiction.
D. The SEC reviews financial statements for compliance.

13. Which of the following statements about “due process” in accounting standard setting and the
Conceptual Framework is (are) false?
I. The exposure draft issued by the accounting standard-setting body before an accounting
standard is approved for implementation gives CPA professionals the opportunity to
participate in the standard-setting process.
II. After the FRSC has approved an accounting standard, it should be automatically
implemented by all reporting enterprises in the Philippines.
III. The Conceptual Framework constitute the accounting laws of the accountancy profession
and violations of its provisions will be meted corresponding sanctions by the regulatory
bodies
A. I and II are false
B. II and III are false
C. I and III are false
D. All statements are false

14. The use of special journal system of recording transactions and events is an application of which
of the following qualities of financial reporting?
A. Faithful representation
B. Timeliness
C. Relevance
D. Completeness

15. All of the following will justify the recognition of an asset by an accounting entity
EXCEPT when
A. It acquires legal ownership of the asset
B. It has legal control of the asset
C. It has exclusive knowledge and control of expected benefit flow even without legal right
D. It acquires physical possession of the asset with or without legal ownership or legal
control

16. Which TWO of the following areas of an accountant’s work are not part of financial accounting?
1) Reporting on parent and subsidiary relationships and transactions
2) Reporting on installment sales and long-term construction contracts
3) Reporting on profitability trends as well as ratios and measurements
4) Reporting on the fairness of presentation of financial position and performance of an entity
in conformity with GAAP.
A. (1) and (2)
B. (3) and (4)
C. (1) and (3)
D. (2) and (3)

17. Which of the following statements about the General Purpose Financial statements is (are)
correct?
I. They show the results of the stewardship of management for the resources entrusted to it by
the capital providers.
II. They are the primary responsibility of both management and the external auditor after audit.
III. They are prepared at least annually and are directed to the common information needs
of a wide range of statement users.
IV. The financial statements prepared by banks, cooperatives and insurance companies as far
as possible, comply with financial reporting standards of the accountancy profession as well
as regulatory accounting principles pertinent to their particular type of industry. .
A. Statements I and II only
B. Statements I and III only.
C. Statements I, III and IV only
D. Statements II, III and IV
 PAGE 4
18. Which of the following statements about financial accounting is INCORRECT?
I. General purpose financial statements must be prepared by a certified public accountant.
II. A reporting enterprise may account for its transactions using Cash basis but for
financial reporting to the external users, it should be on Accrual basis.
III. Financial statements submitted to SEC can be stated in the national language, or English
or Spanish language.
IV. All significant information useful to users can be displayed on the face of the basic
financial statements
A. Statement I and II only
B. Statements I, and 1V only
C. Statements I and III only
D. Statements III and IV only

19. Sale of merchandise at an amount higher than its cost will affect which of these accounting
elements?
A. .Assets, Liabilities, Equity
B. Assets, Income, Expense
C. Liabilities , Income, Equity
D. Assets, Liabilities, Income

20. Which of the following is a change in economic resources and claims, that DOES NOT REFLECT performance?
A. Cost of sales
B. Rent income
C. Dividends
D. Insurance expense

21. Which of the following types of acquisition of asset by Kawilihan rading and measurement base is
(are) NOT properly and logically matched?
Mode acquisition Measurement base
1. Acquisition of equipment acquired by non-monetary
exchange with no commercial value 1. Fair value of equipment
2. Acquisition of equipment purchased on long-term
credit 2. Equivalent Cash Price
3. Acquisition of land invested by the owner 3. Fair value of land
A. I only
B. 2 only
C. 2 and 3 only
D. 1, 2 and 3

22. On July 8, 2008, JAYJAY purchased a parcel of land at its fair value of P5,000,000.He spent
P50,000 in having the land titled and P150,000 development costs. On January 10, 2020, Jayjay
invested the land in his newly established business, The fair value of the land on this date is
P 8,000,000, and its appraised value is P8,200,000. The invested asset should be recorded in the
books of the business at
A. P5,000,000, its fair value when Jayjay purchased it in 2008
B. P5,200,000, Its total cost when Jayjay acquired it in 2008.
C. P 8,000,000, Its fair value when Jayjay invested it on January 10, 2020.
D. P 8,200,000, its appraised value on January 10, 2020

23. Which of the following accounting measurements may be made with the greatest degree of
objectivity
A. Depreciation expense for the year
B. Cost of inventory at year-end
C. Cost of land owned as at year-end
D. Net Income

24. The financial information qualities of faithful representation, verifiability, and freedom from error
are typically applied in which of the following steps of the accounting cycle?
A. Journalizing
B. Posting
C. Trial Balance preparation
D. Adjusting entries
 PAGE 5
25. Which of the following statements does not pertain directly to the Going-Concern assumption of
accounting?
A. Assets and liabilities should be classified in the statement of financial position as to “current”
or “non-current”
B. Threats to the ability of an entity to operate as a going concern, such as a troubled-debt
restructuring arrangement should be disclosed in the notes to financial statements
C. Income and expenses should be recognized as these events occur, even if cash is not yet
received or paid.
D. Conceptually, the Accrual assumption is related to the Going Concern assumption

26. Ms. D. Mawari, the accountant of Ala Chamba Corporation discovered a purchase invoice for
some small items of office equipment amounting to P15,000 which was omitted from the books.
She was already doing the summarizing stage of the recording process and has prepared the
financial statements for submission to management. She did not see the need to include the
omitted transaction in the records as she reasoned that the amount involved is not material. The
total assets of the corporation as of balance sheet date is P 500,000,000. This situation is
A. An application of the materiality principle
B. A violation of the materiality principle
C. An application of cost – benefit constraint in financial reporting
D. A violation of the recognition principle for accountable events

27. Accrual accounting is used because

A. cash flows are considered less important.
B. it provides a better indication of ability to generate cash flows than the cash basis.
C. it recognizes revenues when cash is received and expenses when cash is paid.
D. it is less costly to apply

28. Under the revised Conceptual Framework, which of the following are among the enhancing
qualitative objectives of financial accounting?
A. Relevance D. Faithful representation G. Comparability
B. Neutrality E. Verifiability H. Freedom from error
C. Understandability F. Timeliness I. Completeness
A. A, D, and F
B. C, E, F and G
C. E, G, H
D. C, D, E and F

29. The IASB conceptual framework includes a cost-benefit constraint (which is also the same as the
Materiality constraint or principle of convenience). This states that the benefits of the information
must be greater than the cost of providing it. Which of the following is not a proper application of
the cost-benefit constraint?
A. The cost of an inexpensive waste can that has a useful life of 5 years is charged to expense
upon acquisition.
B. The Board of Directors of Jericho Corporation passed a resolution the entities capitalization
threshold for asset recognition at P 50,000.
C. Before closing its books in 2020, Mea Culpa Corporation discovered an unrecorded sales
invoice of 2019 amounting to P10,000. Since the amount is immaterial compared the 2019
Gross Sales of P20,000,000 no correcting entry was made in 2020.
D. An extensive repairs amounting to P3,000,000 at the end of the 7 th year of a building with a
life of ten years was charged to expense. After the repairs, it was estimated that the
building has a remaining life of three years.

30. Which of the following statements about the bases of accounting for income and expense is
false?
A. Total Operating expenses will be the same under pure cash and modified cash basis.
B. Income and expenses with cash flows are recognized in cash, modified cash and accrual
bases
C. Modified Cash basis will yield the same Cost of Sales amount as Accrual basis
D. Cash basis of accounting does not recognize any adjusting entry at year end.
 PAGE 6
31. In the year 2021, ASTORIA, Corp. .incurred P1,000,000 in research and development costs
for a new production process. Pertinent data on the progress of the development activity is as
follows:

On May 1, 2021, the enterprise is able to demonstrate that the production process has a fair
value even in its unfinished state but management estimates that the entity has no financial
capability to finish the project as it will entail much cost. On July 1, 2021, management sold a
four-hectare land that is being held for investment purposes in order to finance the development
activity. The amount, if any, to be recognized as intangible asset in Astoria’s Statement of
Financial Position as of December 31, 2021
A. P 0
B. P 750,000
C. P 500000
D. P 1,000,000

32. Which of the following statements about the concept of measurement or valuation in Accounting is
(are) True?
I. Under current GAAP, as a general rule, the primary basis of measurement of assets upon
acquisition is historical cost.
II. There are some instances when assets are initially measured on the basis of fair value.
III. The final valuation of assets and liabilities in the balance sheet are a mixture of costs and
values.
IV. According to IFRS, under no circumstances is price-level accounting acceptable as an
alternative measurement in accounting in present-day GAAP.
A. I and II only C. I, II, and III only
B. I, II and IV only D. I, II, III and IV

33. The concept of verifiability is complied with when an accounting transaction occurs that
A. involves an arms-length transaction between two independent interests
B. furthers the objectives of the company
C. is promptly recorded in a fixed amount of pesos
D. allocates revenues or expense items in a rational and systematic manner

34. The appropriate basis for recognizing an asset is when a particular enterprise
A. Acquires the right to utilize and control access to the asset’s benefits
B. Acquires legal title to the asset
C. Obtains physical possession of the asset
D. Makes a cash disbursement for the asset

35. Which of the following transactions is both a recognition and derecognition of an asset
A. Payment of notes payable and accrued interest
B. Payment of utilities expense
C. Issuance of entity’s ordinary shares for cash
D. Purchase of inventory for cash

36. Which of the following is an appropriate basis for recognizing an asset by Transformers
Corporation?
A. A material amount of Research and development costs will benefit future accounting
periods as estimated by management of Transformers Corporation
B. Transformers Corporation issued a purchase order to a supplier for merchandise to be
delivered next month under terms, FOB supplier’s warehouse.
C. The Board of Directors of Transformers Corporation approved a resolution authorizing the
purchase of new machinery next year.
D. Transformers’ Corporation entered into a purchase commitment on December 15, 2020 to
buy P1,000,000 worth of inventory from Performers Company to be delivered on February
28, 2021. Transformers made an advance payment of 50% of the contract price.

37. Which of the following statements about “executory contracts” is NOT true?
A. Executory contracts are viewed in accounting as a mere exchange of promises which are
offsetting
B. Executory contracts should be recorded only when both parties have fully complied with
the terms of the agreement.
C. Executory contracts are legally binding
D. Executory contracts are not recorded until one or both parties at least partially performs
under the contract
 PAGE 7
38. The initial recording principle for assets states that assets are initially recorded on the basis of
events in which the enterprise acquires resources from other entities. This principle DOES NOT
APPLY to which of the following types of asset acquisition?
A. Right of the lessee to the use of a building owned by the lessor under a non-cancellable
lease contract. Covering a period of 40 years
B. Purchase of equipment on account
C. A building that is being self – constructed by the entity that is 70% complete
D. Cash received for merchandise sold.

39. The primary factor that distinguishes a capital from a revenue expenditure is
A. The period in which the expenditure was made
B. Whether or not the expected benefit will extend beyond the current accounting period
C. The account to be charged
D. The materiality of the expenditure

40. Which of the following is NOT a capital expenditure?

A. Paid the professional fees of engineers to test – run a machinery before being put to
use
B. Rearrangement costs incurred on machineries in a production line to reduce
operating costs
C. Material repair costs spent on a building that did not prolong its useful life
D. Replaced major part of a machine which increased its production capacity
But did not prolong its useful life

41. On December 31, 2020, Meredith COMPANY in its draft financial statements reported the
following in its current asset section
Cash and cash equivalents P 975,000
Trade and other receivables 800,000
Inventory 1,000,000

The cash and cash equivalents included the following:

BDO special checking account used for payroll payments P 400,000
BPI special account used as a bond sinking fund 200,000
MBTC checking account (per bank statement), checks of
P80,000 are outstanding as of December 31, 2020 300,000
Petty cash fund (under the imprest system; 15,000 75,000
unreplenished vouchers were identified)
Total 975,000

The cash and cash equivalents total to be included in the current asset section of the December
31, 2020 statement of financial position is
A. 680,000
B. 695,000
C. 760,000
D. 880,000

42. On December 31, 2020, CRISTINA COMPANY in its draft financial statements provided the
following items in its draft statements
Cash and cash equivalents P 975,000
Trade and other receivables 800,000
Inventory 1,000,000

Trade and other receivables included the following:

Trade accounts receivables 450,000
Advances to affiliated entities 370,000
Allowance for doubtful accounts, January 1, 2020 (20,000)
Total 800,000
• The trade accounts receivables included assigned accounts totaling to P150,000. The
related loan balance was P60,000.
• During 2020, total accounts considered worthless amounted to P12,000 in which P4,000
were recovered. At yearend, the company’s expected credit loss was 15,000.
 PAGE 8
The trade and other receivables amount to be included in the current asset section of the December
31, 2020 statement of financial position is
A. 375,000
B. 430,000
C. 435,000
D. 805,000

43. On December 31, 2020, IZZIE COMPANY in its draft financial statements provided the following
items in its draft statements
Cash and cash equivalents P 975,000
Trade and other receivables 800,000
Inventory 1,000,000

The inventory on December 31, 2020, of P1,000,000 was based on a physical count conducted on
December 28, 2020. Included were goods costing P100,000 which were identified as goods under
consignment from Katherine Company. Upon further review, two shipments to customers were
made on December 27. The first one having a cost of P130,000 was shipped to Heigl Company fob
destination (arrival date January 2, 2021). The second one having a cost of P120,000 shipped to
Stevens Company fob shipping point (arrival date January 4, 2021).

The inventory total to be included in the current asset section of the December 31, 2020 statement
of financial position is
A. 1,020,000
B. 1,030,000
C. 1,130,000
D. 1,150,000

44. On December 31, 2020, GEORGE COMPANY in its draft financial statements reported the
following in its current asset section
Cash and cash equivalents P 1,700,000
Trade and other receivables 1,000,000
Inventory 800,000

The cash and cash equivalents included the following:

DBP, checking account P 900,000
PNB, checking account 700,000
Petty cash fund 100,000
Total 1,700,000
• The DBP checking account included in the cash and cash equivalent schedule was
taken from the ledger balance. A debit memo of P70,000 was charged in December 22
for a customer’s unfunded check. Deposits in transit and outstanding checks as of
December 31, 2020 were P40,000 and P90,000 respectively
• The petty cash fund was maintained under the fluctuating system. The total
unreplenished vouchers as of December 31, 2020 amounted to P60,000

The cash and cash equivalents total to be included in the current asset section of the December
31, 2020 statement of financial position is
A. 1,570,000
B. 1,590,000
C. 1,630,000
D. 1,650,000

45. On December 31, 2020, ALEX COMPANY in its draft financial statements reported the following
in its current asset section
Cash and cash P 1,700,000
equivalents
Trade and other 1,000,000
receivables
Inventory 800,000
The trade and other receivables included the following:
Trade receivables net of allowances amounting to P40,000 P 300,000
Notes receivable 700,000
Total 1,000,000
 PAGE 9
The notes receivable recorded at its face amount of P700,000 was received in exchange for
goods sold on October 1, 2020. No interest rate was stipulated on the note which is due on
September 30, 2021. The fair value of the goods at the time of the sale was P625,000 in which
the yield rate would be 12%.

The trade and other receivables amount to be included in the current asset section of the
December 31, 2020 statement of financial position is
A. 885,000
B. 925,000
C. 943,750
D. 1,000,000

46. On December 31, 2020, DEREK COMPANY in its draft financial statements reported the following
in its current asset section
Cash and cash equivalents P 1,700,000
Trade and other receivables 1,000,000
Inventory 800,000

The inventory on December 31, 2020, of P800,000 was based on a physical count conducted on
December 28, 2020. Invoices from suppliers revealed two shipments are still in transit as of
December 31, 2020. The first was from Shepherd Company costing P70,000 which was shipped
on December 27, 2020 under fob shipping point. The second was from McDreamy Company
costing P100,000 which was shipped on December 30, 2020 under fob destination.

Furthermore, due to trade restrictions, goods costing P120,000 were identified to only have a
selling price of P125,000 in which the cost of disposal is around P15,000.

The inventory total to be included in the current asset section of the December 31, 2020
statement of financial position is
A. 790,000
B. 860,000
C. 870,000
D. 960,000

47. MIRANDA Company is selling its condominium unit with a carrying amount of P3,500,000. It
received an offer from Bailey Company in which it will issue a P4,800,000, 3-year note having a
stated rate of 9% which was the prevailing rate. Furthermore, the note shall be collected in three
equal amounts to include the interest that will start one year from the date of the issuance of the
note
The annual collections from the note is
A. 1,235,493
B. 1,600,000
C. 1,739,691
D. 1,896,263

48. On January 1, 2020, RICHARD Company sold its condominium unit with a carrying amount of
P3,500,000. It received from West Company a P7,000,000, 4-year note. The note shall be
collected in equal amounts which will start at the date of sale. No interest was stipulated. The
prevailing market rate was 9%.RICHARD Company uses the calendar year period for reporting
purposes.
The interest income for 2021 is
A. 472,500
B. 398,700
C. 315,000
D. 277,000

49. PRESTON Company had the following information relating to its accounts receivable at
December 31, 2020 and for the year ended, December 31, 2021
Accounts receivable, December 31, 2020 975,000
Allowance for doubtful accounts, December 31, 2020 117,000
Credit sales for 2021 3,130,000
Discounts granted to credit customers 115,000
 PAGE 10
Sales returns on credit sales 45,000
Cash collections from credit customers for 2021, including P40,000 from
previously written-off accounts 2,725,000
Accounts written-off in October 2021 60,000

The lifetime expected credit loss of PRESTON Company was 15%.

The bad debts expense amount reported in the 2021 statement of comprehensive income of
PRESTON Company is
A. 27,000
B. 42,000
C. 47,000
D. 82,000

50. The following transactions of ADDISON Company during the last quarter of 2020 and first week of
2021 in relation to its receivables were as follows:
• October 1: ADDISON Company factors P500,000 of its receivables to Montgomery
Company on a with recourse basis. The agreement includes a factoring fee of 1.5% and
a 4% holdback both based on the factored accounts. ADDISON Company transferred
substantially all the risks and rewards of ownership and the receivable records are
transferred to Montgomery Company on October 9, 2020. The fair value of the recourse
obligation was P15,000
• December 1: ADDISON Company discounted an P800,000, 8-month, 9% note
receivable dated October 1, 2020. The bank discounted the note at 12%.
• January 8: Received a statement and a check from Montgomery Company indicating
that all receivables factored were totally collected.
The total loss arising from the receivable financing activities of ADDISON Company in 2020 is
A. 22,380
B. 37,380
C. 10,380
D. 25,380

51. The following transactions of MARK Company during the last quarter of 2020 and January 2021 in
relation to its receivables were as follows:
• November 1: MARK Company assigned, under guarantee specific accounts totaling to
P1,800,000 to SLOAN Finance on a notification basis. SLOAN Finance advances 85% of
the accounts assigned less a service charge of 1% based on the total accounts assigned.
• November 30: MARK received a statement that SLOAN Finance collected P700,000 of the
accounts. The November charges which is 1% of the accounts assigned outstanding as of
November 30 shall be deducted from the remittance that will be due to MARK Company
• December 31: MARK Company received a second statement that SLOAN Finance
collected P600,000 of the accounts. The December charges which is 1% of the accounts
assigned outstanding as of December 31 shall be deducted from the remittance that will be
due to MARK Company
• January 31: MARK Company received a third statement and a check. The statement
indicated that SLOAN Company collected an additional P350,000 and made an additional
charge of 1% of the accounts assigned outstanding as of January 31.

The total amount to be included in the current liability section of MARK Company in its December
31, 2020 statement of financial position is
A. 230,000
B. 241,000
C. 246,000
D. 254,000

52. The following changes in ADELE Company’s assets and liabilities during the year are as follows:
Increase (Decrease)
Cash and cash equivalents P 730,000
Accounts receivables (150,000)
Allowance for bad debts (15,000)
Inventory 75,000
Financial instrument @ FVTPL 100,000
Land 260,000
Building 175,000
 PAGE 11
Accumulated depreciation – Building 50,000
Accounts payable 160,000
Accrued expenses (80,000)
Bonds payable 500,000
Discount on bonds payable 65,000

During the year, ADELE Company issued 20,000 of its P10 par value ordinary shares for
P285,000. Total dividends declared amounted to P60,000
The net income for the year is
A. 285,000
B. 385,000
C. 415,000
D. 515,000

53. The following items were taken from DENNY Company’s adjusted trial balance; except for its land
and building accounts
Accounts receivable 250,000 Inventory 160,000
Accounts payable 140,000 DENNY, capital 320,000
Accrued Interest Expense 65,000 Prepaid supplies 25,000
Accrued Interest Revenue 30,000 Rent revenue 60,000
Advances from customers 50,000 Salaries expense 110,000
Cost of sales 40,000 Sales 250,000
Furniture and fixtures 310,000 Sales returns and 20,000
allowances
Interest expense 75,000 Unearned rent income 35,000
Interest revenue 90,000 Utilities expense 15,000

In DENNY Company’s post-closing trial balance, the credit total would amount to
A. 685,000
B. 750,000
C. 945,000
D. 1,1010,000

54. FINN Company’s first 4 months show purchases of product M! as follows

September October November December
Number of units 3,800 4,200 3,600 2,900
Cost P 95,570 P 114,030 P 102,960 P 88,740

The ending inventory of P243,920 was computed under the LIFO periodic inventory system
The ending inventory under the FIFO periodic inventory system is
A. 232,475
B. 243,285
C. 254,620
D. 265,005

55. On September 25, 2021, LEXIE Company acquired a crate of items which LEXIE Company will
process further and made ready for sale. As payment, LEXIE Company issued a P1,233,600 face
value note. The note carries a rate of 9%. In addition, the agreement was for LEXIE Company to
pay six annual instalments starting October 1, 2021.

The crate included the following items:

Product Units Fair value per Conversion Units sold
Code unit costs
MG 16,000 22.50 P 234,000 7,600
DS 14,400 15.00 129,600 10,800
CY 20,000 43.20 414,720 8,000
Cost of goods sold in relation to the DS inventory
A. 78,660
B. 138,780
C. 235,980
 PAGE 12
D. 257,640

56. The records of ARIZONA Company show the following for the current year:
Cost Retail
Beginning inventory P 126,000 P 280,000
Purchases 456,950 765,000
Freight – In 50,000 -
Purchase returns 28,350 45,000
Purchase discounts and allowances 5,000 -
Departmental transfers in 56,700 90,000
Departmental transfers out 34,650 55,000
Additional mark-up 105,000
Additional mark-up cancellation 70,000
Markdowns 60,000
Markdown cancellation 45,000
Sales 580,000
Sales discounts 95,000
Sales returns 40,000
Employee discounts 60,000
Shrinkage, Spoilage 25,000
Shoplifting losses 10,000

Ending inventory – cost under the average retail method is

A. 191,504
B. 207,853
C. 247,482
D. 268,610

57. The records of NATHAN Company show the following for the current year:
Cost Retail
Beginning inventory P 126,000 P 280,000
Purchases 456,950 765,000
Freight – In 50,000 -
Purchase returns 28,350 45,000
Purchase discounts and allowances 5,000 -
Departmental transfers in 56,700 90,000
Departmental transfers out 34,650 55,000
Additional mark-up 105,000
Additional mark-up cancellation 70,000
Markdowns 60,000
Markdown cancellation 45,000
Sales 580,000
Sales discounts 95,000
Sales returns 40,000
Employee discounts 60,000
Shrinkage, Spoilage 25,000
Shoplifting losses 10,000

Cost of sales under the FIFO retail method is

A. 374,168
B. 353,040
C. 248,168
D. 227,040
 PAGE 13

58. On September 30, 2020, a fire at MEGAN Company’s only warehouse damaged its entire
inventory inside it. The following information were made available from MEGAN Company’s
records for the nine months ended September 30, 2020:
Inventory at January 1, 2020 P 450,000
Total purchases received and recorded from January to date of fire
3,500,000
Total freight cost of goods purchased and received
160,000
Total credit memo received on goods purchased and received 70,000
Total discounts taken on purchases 180,000
Invoice received for goods purchased in transit on September 30, FOB shipping 150,000
point
Total sales delivered and recorded from January to date of fire
3,800,000
Unrecorded sales invoice for goods delivered
300,000
Total sales returns accounted and recorded to date of fire 150,000
Total sales discounts taken by customers on recorded sales 80,000
A physical inventory disclosed usable damaged goods which MEGAN Company estimates can be
sold to a jobber for P50,000

Assuming that MEGAN Company has maintained a profit margin of 30% throughout the years, the
cost of the goods destroyed by the fire is
A. 1,035,000
B. 1,085,000
C. 1,235,000
D. 1,385,000

59. HEATHER Company started operations on March 2019. The following information were provided
in relation to its inventory for the past three years
2019 2020 2021
Inventory, beg P - P 900,000 P 1,100,000
Net Purchases 4,500,000 5,000,000 4,200,000
Inventory, end 900,000 1,100,000 850,000

In preparing the 2018 financial statements of HEATHER Bell Company the following items were
noted:
• The ending inventory reported in the past three years were based on physical counts made
in HEATHER Bell Company’s warehouses.
• Goods out on consignment at the end of 2019, 2020 and 2021 were P150,000, P180,000
and P140,000 respectively
• The last purchase invoice recorded in 2021 was P80,000. These goods were shipped on
December 29, 2021 under the terms fob shipping point and arrived on January 3, 2022.

The amount to be reported as cost of sales in the 2021 income statement of HEATHER Bell
Company is
A. 4,370,000
B. 4,410,000
C. 4,450,000
D. 4,490,000

60. CALLIE Bank loaned Torres Company P5,000,000 on January 1, 2019. The terms of the loan were
payment in full on January 1, 2022 plus annual interest payment at 8%. The interest payment was
made as scheduled on January 1, 2020.

However, due to financial setbacks, Torres Company was unable to make its 2021 interest
payment. CALLIE Bank considers the loan impaired and projects the cash flows from the loan on
December 31, 2021. CALLIE Bank accrued the interest at December 31, 2020, but did not
continue to accrued interest for 2021 due to the impairment of the loan. The projected cash flows
are as follows: January 1, 2022, P500,000; 2023, P1,000,000; 2024, P1,000,000; 2025,
P1,000,000;2026, P1,500,000.
 PAGE 14

The loan impairment loss on December 31, 2021

A. 1,222,360
B. 1,529,960
C. 1,622,360
D. 1,929,960

61. On January 1, 2020 SYDNEY Company sold a plot of land and received in exchange a note
having a face amount of P4,550,000. The note provides for 7 equal collections that will start on
December 31, 2020. No interest rate was included in the note. The fair value of the land and the
market value of the note were not determinable. The prevailing rate for a similar instrument was
8%.

SYDNEY Company recorded the exchange at a gain of P1,600,000, the difference between the
face amount of the note and the land’s carrying value of P2,950,000.

In relation to the above mentioned information, the net income for 2020 will be
A. Correctly stated
B. Over by 602,738
C. Over by 895,128
D. Over by 1,165,859

62. Records of the SHANE Company shows the following relative to product GO
Beginning December 1 3,000 units @ P 30
Purchases December 10 2,000 units @ P 35 Sale December 3 1,600 units
December 12 1,300 units @ P 40 December 8 900 units
December 15 1,200 units @ P 50 December 19 1,500 units
December 21 500 units @ P 60 December 24 300 units
December 30 1,500 units @ P 55 December 28 1,200 units

Assuming that SHANE Company uses the FIFO periodic system and maintains a 25% mark-up, the
cost of goods sold for December is
A. 180,000
B. 204,500
C. 225,000
D. 259,500

63. Records of the WINSTON Company shows the following relative to product AM
Beginning December 1 3,000 units @ P 30

Purchases December 10 2,000 units @ P 35 Sale December 3 1,600 units

December 12 1,300 units @ P 40 December 8 900 units
December 15 1,200 units @ P 50 December 1,500 units
19
December 21 500 units @ P 60 December 300 units
24
December 30 1,500 units @ P 55 December 1,200 units
28

Assuming that WINSTON Company uses the Average-periodic system and maintains a 20% profit
rate, the ending inventory balance is
A. 129,500
B. 161,895
C. 194,275
D. 222,600
 PAGE 15

64. Records of the JASON Company shows the following relative to product AK
Beginning December 1 3,000 units @ P 30

Purchases December 10 2,000 units @ P 35 Sale December 3 1,600 units

December 12 1,300 units @ P 40 December 8 900 units
December 15 1,200 units @ P 50 December 1,500 units
19
December 21 500 units @ P 60 December 300 units
24
December 30 1,500 units @ P 55 December 1,200 units
28
Assuming that JASON Company uses the Average-perpetual system and reported sales of
P750,000, the gross profit on sale for December is
A. 552,938
B. 527,395
C. 570,000
D. 561,276

65. Records of the ELLIS Company shows the following relative to product MS
Beginning December 1 3,000 units @ P 30

Purchases December 10 2,000 units @ P 35 Sale December 3 1,600 units

December 12 1,300 units @ P 40 December 8 900 units
December 15 1,200 units @ P 50 December 1,500 units
19
December 21 500 units @ P 60 December 300 units
24
December 30 1,500 units @ P 55 December 1,200 units
28

Assuming that ELLIS Company uses the Average-perpetual system and reported sales of
P750,000, the gross profit on sale for December is
A. 552,938
B. 527,395
C. 570,000
D. 561,276

66. On November 15, 2020, Pope Company declared a cash dividend of P2.25 per share on its P9 par
value ordinary shares of which 2,000,000 were issued and outstanding, to holders on record as of
December 15 to be distributed on January 15, 2021.

On December 1, 2020 REBECCA Company acquired 300,000 ordinary shares of Pope Company
at its quoted price of P14.75. Cost incurred in relation to the acquisition amounted to P132,500.
The securities were classified by REBECCA Company under instruments measured at FV through
Profit/Loss.
On December 31, 2020, Pope Company shares were quoted at P17.50 per share. Estimated cost
to dispose the securities amounted to P115,000

The unrealized gain (loss) reported by REBECCA Company in its Profit/Loss section of the 2020
comprehensive income statement is
A. 710,000
B. 825,000
C. 1,385,000
D. 1,500,000
 PAGE 16

67. On November 30, 2020, ERICA Company acquired 15,000 of Hann Company’s P8 par value
ordinary shares at its quoted price of P9.40 per share as well as 6,000 of Hann Company’s 9%,
P30 par value cumulative, nonparticipating preference shares at its quoted price of P22. Initial
direct cost in acquiring Hann Company’s ordinary and preference shares were P5,000 and 4,500
respectively. Hann Company has 100,000 ordinary and 12,500 preference shares outstanding.
The securities were designated under instruments measured at FVtOCI.

On December 31, 2020, Hann Company’s ordinary shares were quoted at P10.30, while the
preference shares were quoted at P23.25. Likewise, estimated disposal costs were P5,200 and
P4,750 respectively. Hann Company reported a net income of P580,000 for the year ended
December 31, 2020 but did not declare any dividends.
On December 31, 2021, Hann Company’s ordinary shares were quoted at P11.65, while the
preference shares were quoted at P24.40. Likewise, estimated disposal costs were P5,700 and
P5,250 respectively. Hann Company reported a net income of P720,000 for the year ended
December 31, 2021. Total cash dividends declared amounted to P275,000 on November 20, 2021
for holders on record on December 20, 2021 to be paid on January 20, 2022.
The net unrealized gain/loss included in the equity section of ERICA Company’s 2021 statement of
financial position, in relation to the investment in Hann Company’s ordinary shares is
A. 20,250
B. 23,050
C. 28,750
D. 33,750

68. On November 30, 2020, LEVI Company acquired 15,000 of Linus Company’s P8 par value
ordinary shares at its quoted price of P9.40 per share as well as 6,000 of Linus Company’s 9%,
P30 par value cumulative, fully-participating preference shares at its quoted price of P22. Initial
direct cost in acquiring Linus Company’s ordinary and preference shares were P5,000 and 4,500
respectively. Linus Company has 100,000 ordinary and 12,500 preference shares outstanding.
The securities were designated under instruments measured at FVtOCI.

On December 31, 2020, Linus Company’s ordinary shares were quoted at P10.30, while the
preference shares were quoted at P23.25. Likewise, estimated disposal costs were P5,200 and
P4,750 respectively. Linus Company reported a net income of P580,000 for the year ended
December 31, 2020 but did not declare any dividends.
On December 31, 2021, Linus Company’s ordinary shares were quoted at P11.65, while the
preference shares were quoted at P24.40. Likewise, estimated disposal costs were P5,700 and
P5,250 respectively. Linus Company reported a net income of P720,000 for the year ended
December 31, 2021. Total cash dividends declared amounted to P275,000 on November 20, 2021
for holders on record on December 20, 2021 to be paid on January 20, 2022.
The dividend income to be included in the P&L section of the 2021 comprehensive income
statement is
A. 24,638
B. 53,157
C. 63,525
D. 77,796

69. On January 1, 2020, TEDDY Company purchased a new machine on a deferred payment basis. A
down payment of P500,000 was made and 4 annual payments of P150,000 are to be made
beginning on January 1, 2021. The cash price of the machine was P950,000

Due to an employee strike, TEDDY Company could not install the machine immediately, and
incurred P8,000 of storage costs. Installation and testing were completed by April 1, 2020. Total
installation cost (excluding storage costs) amounted to P32,000
TEDDY Company estimates the useful life of the machine to be 8 years with a residual value of
P12,000. TEDDY Company uses the straight-line method to record depreciation.
The initial measurement of the machine is
A. 982,000
B. 990,000
C. 1,332,000
D. 1,340,000
 PAGE 17

70. CORMAC Company started operations on January 2, 2020. On December 31, 2020, prior to the
preparation of the year-end adjustments, the revenue and expense totals were P890,000 and
P520,000 respectively. Further analysis of CORMAC Company’s records revealed the following:
• On March 1, 2020, forwarded a 9% P400,000 loan to Hayes Company. The loan calls for
interest payments every March 1 and September 1.
• On April 1, 2020, CORMAC Company paid P87,600 for a two-year property insurance
which it recorded initially in a nominal account
• Total supplies purchased in 2020 amounted to P76,000 which was recorded initially under
the supplies on hand account. Unused supplies at yearend was P39,000
• Received P32,100 from Flood Company representing advance rental for one year
commencing on June 1, 2020 which was initially recorded under a nominal account
The amount to be reported as revenues for 2020 is
A. 876,625
B. 888,625
C. 906,625
D. 915,375

71. While preparing the 2020 trial balance, MAGGIE Company’s accountant committed the following
errors: omission of the prepaid rent account amounting to P4,000; understatement of the inventory
account by P7,200; overstatement of the sales account by P1,500; accounts receivables totaling to
P123,000 was included in the trial balance as P132,000; accounts payable totaling to P153,000
was included as P135,000; discount on bonds payable was included as a credit rather than as a
debit, P1,500; Revenue expenditures of P35,000 was erroneously capitalized to furniture and
fixtures.

The difference between the debit and credit amounts in MAGGIE Company’s trial balance is
A. 6,700
B. 11,300
C. 17,300
D. 18,700

72. On January 1, 2020 THOMAS Company acquired a smelting machine for P500,000 paying a down
payment of P100,000 and the balance to be paid in two equal annual installments on January 1,
2021 and January 1, 2022. No stated interest was provided in the note, however, a 12% interest
rate is considered to be appropriate for a note of this type.
The PVF of P1 @ 12% for 2 periods is 0.79719
The PVF for an ordinary annuity of P1 @ 12% for 2 periods is 1.69005
The PVF for an annuity in advance @ 12% for 2 periods is 1.89286
Additional costs for freight P15,000; installation and testing for P20,000. Training cost for personnel
P50,000
THOMAS Company uses the straight-line method of depreciation. The smelting machine’s
expected useful life is 8 years with a salvage value of P8,000.
On January 1, 2025, it was determined that the smelting machine would be useful for at least 2
more years from this date. The expected salvage value was reduced to P0.
The depreciation expense amount included in THOMAS Company’s 2020 income statement is
A. 53,751
B. 58,126
C. 59,126
D. 64,376

73. On April 1, 2020, MATTHEW Company acquired land and building for a lump sum amount of
P700,000. The building was no longer fit for use and was to be demolished to give way to the
construction of a new building. Demolition cost incurred amounted to P60,000. Sale of salvaged
materials amounted to P10,000. Clearing and leveling amounted to P170,000. Excavation cost P
80,000

Construction of the new building started in July 1, 2020. The following expenditures during 2020 in
relation to the construction were as follows: July 1, P400,000; September 1, P360,000; November
1, P240,000. MATTHEW Company borrowed P2,000,000 on April 1, 2020 to finance the
construction of its new building. The 5-year term loan carries a rate of 8% to be paid annually.
 PAGE 18
Interest earned from the temporary investment of the unused portion of the loan amounted to
P35,000

The capitalized cost of the land is

A. 870,000
B. 920,000
C. 950,000
D. 1,000,000

74. On April 1, 2020, BEN Company acquired land and building for a lump sum amount of P700,000.
The building was no longer fit for use and was to be demolished to give way to the construction of
a new building. Demolition cost incurred amounted to P60,000. Sale of salvaged materials
amounted to P10,000. Clearing and leveling amounted to P170,000. Excavation cost P 80,000

Construction of the new building started in July 1, 2020. The following expenditures during 2020 in
relation to the construction were as follows: July 1, P400,000; September 1, P360,000;
November 1, P240,000. BEN Company borrowed P2,000,000 on April 1, 2020 to finance the
construction of its new building. The 5-year term loan carries a rate of 8% to be paid annually.
nterest earned from the temporary investment of the unused portion of the loan amounted to
P35,000

The amount capitalized to building is

A. 1,045,000
B. 1,125,000
C. 1,175,000
D. 1,255,000

75. On January 1, 2020 LEAH Company completed its acquisition of a land and building for a lump
sum amount of P450,000. The fair value of the land and building were P400,000 and P100,000
respectively. After acquisition, the building was demolished at a cost of P20,000 to give way to the
construction of a new building. Salvage materials used in the construction of the new building
P5,000.

The following expenditures for the building construction were as follows:

January 1 P 250,000
April 1 180,000
July 1 120,000
October 1 90,000
December 31 30,000

LEAH Company have the following general borrowings; 9%, P500,000 2-year loan maturing on
June 30,2020 and 12% 800,000 5-year loan maturing on December 31, 2022. The building was
completed as of December 31, 2020.

The building was to be depreciated using the sum-of-the-years’ digits method. Expected useful life
and salvage value was 10 years and P50,000 respectively.
The amount of borrowing cost capitalized is
A. 42,614
B. 50,706
C. 52,761
D. 55,018
 PAGE 19

76. SEATTLE GRACE Company requests your assistance in determining the amount of loss and in
filing an insurance claim in connection with a fire on June 15, 2020 that destroyed most of
SEATTLE GRACE Company’s inventory and accounting records. You were able to obtain the
following information from available records:
• The last physical inventory was taken on December 31, 2019. At that time, total inventory (at
cost) amounted to P210,700.
• Accounts payable were P110,500 on December 31, 2019 and P 126,900 at the time the fire
occurred.
• Payments to vendors from December 2019, to the date of the fire totaled P641,870.
• All sales are on account and accounts receivable were P 135,000 at December 31, 2019
and P107,145 at the date of the fire.
• Collections on receivables from December 31, 2019 to the date of the fire were to P876,200
• Goods are sold at approximately 25% in excess of cost.
• As at June 15, 2020, the total cost of inventory items not destroyed by the fire amounted to
P60,000.
• Per insurance contract, SEATTLE GRACE Company can recover a maximum of 90% of the
estimated cost of damaged inventory.
Amount of inventory (at cost) as of June 15, 2020
A. 117,265
B. 130,277
C. 171,265
D. 1 90,294

efl/mft