MOCK QUALIFYING EXAM

Part II: Accounting 2

Instructions: Answer the following carefully. Highlight your answer with color yellow. After
answering all the questions edit the file name by replacing it with your name.

Example:

1. The relevance of providing information in financial statements is subject to the constraint of

a. Comparability

b. Cost-benefit

c. Reliability

d. Faithful representation

Example: MockQualifyingExam.doc to LucaPacioli.doc

1. Which of the following statements in relation to liabilities is not valid?

A. Current liabilities shall not be offset against assets that are to be applied to their liquidation.
B. Unasserted claims are never accrued because to do so would require an entity to implicitly
admit liability.
C. Commitments to make future purchases shall be accrued if losses become probable and if the
amount is reasonably measurable.
D. Estimated liabilities shall be accrued because these are known to exist and are only uncertain
as to amount.

2. Regal Department Store sells gift certificates, redeemable for store merchandise and with no
expiration date.

The entity provided the following information pertaining to the gift certificate and sales
redemptions:

Unearned revenue on January 1, 2018 750,000

2018 Sales 2,500,000
2018 redemptions of prior year sales 250,000
2018 redemptions of current year sales 1,750,000
On December 31, 2018, what amount should be reported as unearned revenue?

A. 1,250,000
B. 1,125,000
C. 1,000,000
D. 500,000

3. During the current year, Day Company sold 500,000 boxes of cake mix under a new sales
promotional program.

Each box contained one coupon, which entitled the customer to a baking pan upon remittance of
$40.

The entity paid $50 per pan and $5 for handling and shipping and estimated that 80% of the
coupons would be redeemed, even though only 300,000 coupons had been processed during the
year.

What amount should be reported as liability for unredeemed coupons at year-end?

A. 1,000,000
B. 1,500,000
C. 3,000,000
D. 5,000,000

4. An entity has outstanding a 7%, ten-year P100,000 face value bond. The bonds was
originally sold to yield 6% annual interest. The entity uses the effective interest method to
amortize bond premium and does not elect the fair value option for reporting financial liabilities.
On June 30, 2015, the carrying amount of the outstanding bond was P105,000. What amount of
unamortized premium on bond should be reported on June 30, 2016?

a. 1,050
b. 3,950
c. 4,300
d. 4,500

5. Which is a true statement for electing the fair value option for valuing bonds payable?

a. The effective interest method of amortization must be used to calculate interest expense.
b. Discount or premium is disclosed in the notes to the financial statements.
c. The fair value of the bond and the principal obligation value must be disclosed.
d. If the fair value option is elected, it must be applied to all bonds.
6. Libras Corporation purchased a machine on July 1, 2009, for P500,000. The machine was
estimated to have a useful life of 10 years with an estimated residual value of P28,000. During
2012, it became apparent that the machine would become uneconomical after December 31,
2016 and that the machine would have no scrap value. What should be the charge for
depreciation in 2012?

a. P70,800
b. P76,400
c. P82,000
d. P95,500

7. Under the principles of PAS 16 – Property, Plant and Equipment, which of the following
should be included in the cost of an item of property, plant and equipment?
I. Initial delivery and handling cost.
II. Cost of training staff on new asset.
III. Apportioned general overhead costs.
IV. Installation and assembly cost.

a. I, II, III and IV

c. II and IV only
b. I, II and III only
d. I and IV only

8. The measurement basis often used to report a long-term payable requiring a commitment to
pay money at a determinable future date is

a. Current cost
b. General price level
c. Net realizable value
d. Present value of future cash flows

9. Glenn Company provided the following information at year-end:

Preference Share Capital, $100 par 3,000,000

Share Premium- Preference Share 500,000
Ordinary Share Capital, $10 par 6,000,000
Share premium- Ordinary Share 2,000,000
Subscribed ordinary share capital 4,000,000
Retained Earnings 2,500,000
Subscription receivable- ordinary share 1,000,000

What is the amount of LEGAL CAPITAL?

A. 15,500,000
B. 13,000,000
C. 15,000,000
D. 12,000,000

10. At the beginning of current year, Ashe Company was organized with authorized capital of
100,000 shares of $200 par value.

January 10 Issued 25,000 shares at $220 a share

March 25 Issued 1,000 shares for legal services when the fair value was $240 a share
September 30 Issued 5,000 shares for a tract of land when fair value was $260 a share

What amount should be reported for share premium?

A. 840,000
B. 800,000
C. 540,000
D. 500,000

11. Shareholders are said to be the residual owners which means that the shareholders

a. Are entitled to a dividend every year in which the business earns a profit.
b. Have the rights to specific assets of the business.
c. Bear the ultimate risks and uncertainties and receive the benefits of ownership.
d. Can negotiate individual contracts on behalf of the entity.

12. When the right to receive dividend is forfeited in any one year in which dividend is not
declared, the preference share is said to be

a. Cumulative
b. Non-cumulative
c. Participating
d. Non-participating

13. Cyan Company issued 200,000 shares of $5 par value at $10 per share. On January 1, 2018,
the retained earnings amounted to 3,000,000.
In March 2018, the entity reacquired 50,000 treasury shares at $20 per share. In June 2018, the
entity sold 10,000 of these shares to corporate officers for $25 per share. The entity used the cost
method to record treasury shares.

Net income for the current year was 600,000.

What amount should be reported as unappropriated retained earnings at year-end?

A. 3,600,000
B. 3,650,000
C. 3,750,000
D. 2,800,000

14. The following are true about the differences on financial statements prepared for partnerships
and those prepared for corporations, except

a. In the statement of financial position, ownership equity for a partnership will be partners’
capital balances;
in a corporation, share capital, share premium, and accumulated profits & losses.
b. In lieu of a statement of accumulated profits & losses done for corporations, partnerships
present a
statement of partners’ capital in support of its ownership equity on the statement of financial
position.
c. In the statement of partners’ capital, generally, salaries, interest, & bonuses paid to partners are
excluded
from the operating expenses of the partnerships.
d. In the statement of comprehensive income, some partnerships are treating partners’
remunerations as
operating expenses rather than as distribution of net profits.

15. Emil and Pearl form a new partnership. Emil invests P300,000 in cash for
Her 60 percent interest in the capital and profits of the business. Pearl contributes
Land that has an original cost of P40,000 and a fair market value of P70,000, and a
Building that has a tax basis of P50,000 and a fair value of P90,000. The building is
Subject to a P40,000 mortgage that the partnership will assume. What amount of
Cash should Pearl contribute?

a.P40,000
b.P80,000
c.P110,000
d.P15,0000

16. The Rachelle Company purchased an investment property on January 1, 2009 for a cost of
P220,000. The property had a useful life of 40 years and at December 31, 2011 had a fair value
of P300,000. On January 1, 2012 the property was sold for net proceeds of P290,000. Rachelle
uses the fair value model to account for investment properties.
What is the gain or loss to be recognized in the profit or loss for the year ended December 31,
2012 regarding the disposal of the property?

a. P86,500 gain
b. P81,000 gain
c. P10,000 loss
d. P92,000 gain

17. Which of the following is incorrect regarding the loss of significant influence under the
revised PAS 28?

a. An entity loses significant influence over an investee when it loses the power to partake in the
financial and operating policy decisions of that investee
b. The loss of significant influence can occur with or without a change in absolute or relative
ownership levels
c. When an associate becomes subject to the control of a government, court, administrator or
regulator, significant influence is unaffected because of the potential rights on the investment in
associate
d. Loss of significant influence could occur as a result of a contractual arrangement

18. Killua Corporation purchased 40% of Zack Corporation for 100,000 on January 1. On
November 17 of the same year, Zack declared total cash dividends of 12,000. At year-end, Zack
reported net income of 60,000. The balance in Killua’s Long-term investment at Dec. 31 will be:

A. 119,200
B. 124,000
C. 112,000
D. 148,000

19. Supplemental disclosures required only when the statement of cash flows is prepared using
the indirect method include

a. A schedule reconciling net income with net cash flows from operating activities
b. Amounts paid for interest and taxes
c. Amounts deducted for depreciation and amortization
d. Significant noncash investing and financing activities

20. An entity had the following beginning and ending balances in prepaid expenses and accrued
liabilities for the current year:

Prepaid expenses Accrued liabilities

Beginning balance 5,000 8,000
Ending balance 10,000 20,000

Debits to operating expenses totaled P100,000. What amount was paid for operating expenses
during the current year?

a. 83,000
b. 93,000
c. 107,000
d. 117,000

21. When calculating the estimate of future cash flows, which of the following cash flows
should not be included?

a. Cash flows from disposal

b. Income tax payments
c. Cash flows from the sale of assets produced by the asset.
d. Cash outflows incurred to generate the cash inflows from the continuing use of the asset.

22. The shareholders’ equity of Joyful Corporation on December 31, 2012 shows the following
account balances:
10% Preference share, 5,000 shares, P100 par P500,000 12% Preference share, 6,000 shares,
P100 par 600,000 Ordinary share, 10,000 shares, P40 par 400,000 Share premium 320,000
Accumulated profits 480,000

The 10% preference share is cumulative and fully participating, while the 12% preference share
is non-cumulative and fully participating. The last payment of dividends was on December 31,
2010.

What is the book value per share of ordinary shares?

a. P44.00
b. P59.68
c. P60.27
d. P102.80

23. Earnings per share is calculated before accounting for which of the following items?

a. Preference dividend for the period

b. Ordinary dividend
c. Taxation
d. Minority interest

24. Which of the financial statement should an investor primarily use to assess the amounts,
timing, and uncertainty of investing and financing activities of ABC Company?

a. Statement of comprehensive income

b. Statement of financial position
c. Statement of changes in equity
d. Statement of cash flows

25. On December 31, 2011, Raven Company has 200,000 ordinary shares outstanding with a par
value of P100 per share. Information revealed that Raven had an 9% convertible debenture,
P1,000,000 face value bonds. The bond has a carrying value of P1,067,830 as of January 2, 2011
based on a prevailing rate of 7%. Each 1,000 bond is convertible into 20 ordinary shares. The
bonds were dated January 1, 2011. Net income after tax of 32% for 2011 was P418,000.
How much should Raven Company report as earnings per share in its financial statements?

a. P1.90
b. P2.09
c. P2.13
d. P2.89