FINANCIAL ACCOUNTING AND REPORTING

DECEMBER 18, 2021

8:00AM – 11:00AM
Compiled By: 11 Supernova

DISCLAIMER: Not of all these questions are the exact questions itself on the said
CPALE but the concept behind those questions, exists HERE. The importance of the
concept/rationale is important. Padayon, future CPA’s!

P.S. Wag maniniwala sa chismis. Always believe in your preparation and your efforts
will never betray you. ^^

1. The International Accounting Standards Board was formed

A. To enforce IFRS in foreign countries.
B. To develop a single set of high quality IFRS.
C. To establish accounting standards for multinational entities.
D. To develop accounting standards for countries that do not have their own standard-
setting bodies.

2. The ingredients of relevant financial information are

A. Predictive value and confirmatory value.
B. Predictive value, confirmatory value and timeliness.
C. Predictive value, confirmatory value and materiality.
D. Predictive value, confirmatory value and comparability.

3. In the worksheet, if the total of the debits exceeds the total of the credits
in the income statement columns, there is a net loss. Then
A. The credit balance is greater than to the debit balance in the statement of
financial position column to have a net loss.
B. The credit balance is less than to the debit balance in the statement of financial
position column to have a net loss.
C. The debit balance is equal to the credit balance in the statement of financial
position column to have a net loss.
D. The credit balance is less than or equal to the debit balance in the statement
of financial position column to have a net loss.

4. What is the logical order of the following steps in the accounting cycle?
A. Post the journal entries to the ledger accounts, prepare a worksheet, and then
take a trial balance.
B. Journalize the closing entries, post the closing entries, and then take a post
closing trial balance.
C. Prepare the earnings statement, prepare the statement of financial position, and
then prepare a worksheet.
D. Post the closing entries, take a post closing trial balance, then journalize the
closing entries.

5. An entity shall classify an asset as current under all of the following

conditions, except:
A. The entity expects to realize the asset or intends to sell or consume it within
the entity’s normal operating cycle.
B. The entity holds the asset for the purpose of trading.
C. The entity expects to realize the asset within twelve months after the reporting
period.
D. The asset is cash or a cash equivalent that is restricted to settle a liability
for more than twelve months after the reporting period.
6. To be a reportable segment, revenues include

Sales to external customers Intersegment sales

A. Yes No
B. No No
C. No Yes
D. Yes Yes

7. An improvement made to a machine which increased the fair value and production
capacity without extending the useful life of the machine should be
A. Expensed immediately.
B. Debited to accumulated depreciation.
C. Capitalized in the machine account.
D. Allocated between accumulated depreciation and the machine account.

8. How should research and development costs be accounted for?

A. Must be capitalized when incurred and then amortized over the useful life.
B. Must be expensed in the period incurred.
C. May be either capitalized or expensed when incurred depending upon the
materiality.
D. Must be expensed in the period incurred unless it can be clearly demonstrated
that the expenditure will have alternative future use or unless contractually
reimburseable.

9. What is the discount rate for pension plans?

Expected Return on Assets Actual return on Assets
A. Yes Yes
B. No Yes
C. No No
D. Yes No

10. An entity wants to convert the financial statements from accrual basis to cash
basis. Both supplies inventory and office supplies payable increased. To obtain
cash basis net income, how should these increments be added to or deducted from
accrual basis net income?
Supplies Inventory Office Salaries Payable
A. Deducted Deducted
B. Deducted Added
C. Added Deducted
D. Added Added

11. If an SME that uses the PFRS for SMEs in the current year breaches the ceiling
of the size criteria at the end of the current year, the entity is
A. Required to transition to full PFRS at the current year-end.
B. Required to transition to full PFRS at the current year-end if the event that
caused the change is significant and continuing.
C. Required to transition to full PFRS in the next year if the event that caused
the change is significant and continuing.
D. Not required to transition to full PFRS.

12. On March 31, 2021, BRCI Co. received an advanced payment of 60% of the sales
price for special-order goods to be manufactured and delivered within five months.
At the same time, BRCI subcontracted for production of the special-order goods at
a price equal to 40% of the main contract price. What liabilities should be reported
in BRCI’s March 31, 2021 balance sheet?
 Deferred Revenue Payables to Subcontractor
A. None None
B. 60% of main contract price 40% of main contract price
C. 60% of main contract price None
D. None 40% of main contract price

13. Which is not a purpose of the Conceptual Framework?

A. To provide definitions of terms and concepts.
B. To provide specific guidelines for resolving situations not covered by existing
standards.
C. To assist CPA’s in selecting among alternative accounting standards.
D. To assist IASB in the standard setting process.

14. Which statement is not true in relation to the measurement of provision?

A. The risks and uncertainties that inevitably surround many events and
circumstances shall be taken into account in reaching the best estimate of a
provision.
B. Where the effect of the time value of money is material, the amount of a provision
shall be the present value of the expenditure expected to settle the obligation.
C. Future events that may affect the amount required to settle the obligation shall
be reflected in the amount of the provision where there is sufficient objective
evidence that the future events will occur.
D. Gains from expected disposal of assets shall be taken into account in measuring
a provision.

15. EPS disclosures are

A. Required for all public and non public entities.
B. Required for public entities and encouraged for nonpublic entities.
C. Encouraged for public entities and required for nonpublic entities.
D. Encouraged for all entities.

16. When classifying assets as current and noncurrent

A. The amounts at which current assets are carried and reported must reflect
realizable cash value.
B. Prepayments for items such as insurance or rent are included in other assets
rather than as current assets.
C. The time period by which current assets are distinguished from noncurrent assets
is determined by the seasonal nature of the business. D. Assets are classified as
current if these are reasonably expected to be realized in cash or consumed during
the normal operating cycle.

17. The service cost component of the defined benefit cost is measured using the
A. Projected benefit obligation
B. Vested benefit obligation
C. Actual return on plan assets
D. Accumulated benefit obligation

18. Nezuko Company swaps a container of its milk for a container of milk of Tanjiro
Company in order to be able to deliver to a customer located closer to Nezuko
Company’s distribution center. The value of the container of milk is P20,000 which
is the same for both companies. The following week, Nezuko Company swaps a container
of milk (with a value of P20,000) with Inosuke Company in exchange for a container
of cream. The value of Inosuke Company’s container of cream is P24,000. Nezuko
Company also received P2,400 from Inosuke Company. What amount of revenue should
Nezuko Company recognized?
A. P20,000
B. P21,600
C. P24,000
D. P26,400

19. How would a share split affect asset and shareholders’ equity?
A. Increase and Increase
B. No effect and No effect
C. No effect and Increase
D. Increase and No effect

20. Pampam Co. issued ten-year P2,000,000 debenture bonds on January 2, 2021. The
bonds pay interest semiannually. The company uses the effective interest method to
amortize bond premium and discounts. The carrying value of the bonds on this date
was P1,859,530. A journal entry was recorded for the first interest payment on June
30, debiting interest expense for P130,160 and crediting cash for P120,000. The
annual stated interest rate for the debenture bonds is
A. 6%
B. 7%
C. 12%
D. 14%

21. The objective of financial reporting in the Conceptual Framework for Financial
Reporting:
A. Is the foundation for the framework
B. Includes the qualitative characteristics that make accounting information useful.
C. Is found on the third level of the Framework.
D. All of the choices are correct.

22. An expenditure made in connection with a machine being used by an entity should
be
A. Expensed if it merely extends the useful life but does not improve the quality.
B. Expensed if it merely improves the quality but does not extend the useful life.
C. Capitalized if it maintains the machine in normal operating condition.
D. Capitalized if it increases the quantity of units produced by the machine.

SITUATIONAL

Situation 1: Data regarding different entities

Rengoku Company disclosed the following information as of year-end – Accounts

payable, after deducting debit balances in suppliers’ accounts amounting to P100,000
– P4,000,000; Accrued expenses, P1,500,000; Credit balances of customers’ accounts,
P500,000; Share dividend payable, P1,000,000; Claims for increase in wages and
allowance by employees of the entity, covered in a pending lawsuit, P400,000;
Estimated expenses in redeeming prize coupons, P600,000; Bonds payable, due next
year, gross of discount; P5,500,000.

On April 30,2021 , Inosuke Company approved a plan to dispose of a segment of its

business. At this date, the entity is committed to a plan to sell the segment and
classifies its assets as Held for Sale. The carrying value of the segment's net
assets at April 30 was P800,000. In compliance with PFRS 5, no further depreciation
or amortization was taken up on these assets until they were sold in November.
During November, disposal costs incurred by Inosuke totaled P22,500. During the
period January 1, 2021 through November 30, 2021, the segment had total revenues
of P4,500,000 and total selling and administrative expenses of P4,080,000. On
November 30, 2021, the segment's net assets were sold for P850,000. The income tax
rate is 30%.
Zenitsu Company, an entity listed on a recognized stock exchange, reports operating
results from its Mugen Train Division to the chief operating decision maker. The
entity revealed the following segment information and operating segments in total
for the current year:

Operating Segments - Total Mugen Train Division

Revenue P40,000,000 P3,800,000
Profit P10,000,000 P1,200,000
Assets P20,000,000 P1,800,000
Number of Employees 25,000 2,500

Tanjiro Company reported the checkbook balance at December 31, 2021 was P123,450.
In addition, Tanjiro held the following items in its safe on that date. Check
payable to Tanjiro, deposited December 15 and included in December 31 checkbook
balance, but returned by the bank on December 30 stamped “NSF”. The check was
redeposited on January 2, 2022 and cleared on January 9, 2022. – P12,500; Check
payable to Tanjiro dated January 2, 2022 in payment of a sale made in December
2021, not included in December 31 checkbook balance – P15,000; Check drawn on
Tanjiro’s account, payable to a vendor, dated and recorded in Tanjiro’s books on
December 31, but not mailed until January 10, 2022.

23. What amount should be reported by Rengoku as total current liabilities?

A. P11,700,000
B. P12,100,000
C. P12,600,000
D. P13,200,000

24. What is the single amount reported as discontinued operations in Inosuke’s

profit or loss for 2021?
A. P447,500
B. P397,500
C. P313,250
D. P278,250

25. Which piece of information determines that the Mugen Train Division is a
reportable segment?
A. Revenue
B. Profit
C. Assets
D. Number of employees

26. What is the amount of cash in Tanjiro’s December 31, 2021 balance sheet?
A. P127,675
B. P123,450
C. P119,225
D. P104,225

Situation 2: Data regarding different entities

Bulbasaur Company provided the following information relating to current operations

– Accounts receivable, January 1, P4,000,000; Accounts receivable collected,
P8,400,000; Cash sales, P2,000,000; Inventory, January 1, P4,800,000; Inventory,
December 31, P4,400,000; Purchases, P8,000,000; Gross margin on sales, P4,200,000.
Charmander Company’s allowance for doubtful accounts was P1,000,000 at the end of
2021 and P90,000 at the end of 2020. For the year ended December 31, 2021, the
entity reported bad debts expense of P160,000 in the income statement.
750,000
Squirtle Company factored P50,000 of accounts receivable at year-end. Control was
surrendered. The factor assessed a fee of 2% and retained a holdback equal to 4%
of the accounts receivable. In addition, the factor charged 12% interest computed
on a weighted average time to maturity of 51 days.

Pikachu Company provided the following assets in a forest plantation: Freestanding

trees, P2,550,000; Land under trees, P600,000; Roads in forest, P300,000; Animals
related to recreational activities, P1,000,000; Plants with singular use,
P1,400,000.

27. What amount should Bulbasaur be reported as accounts receivable on December 31?
A. P8,200,000
B. P6,200,000
C. P2,000,000
D. P4,200,000

28. What amount was debited to the appropriate account to write off uncollectible
accounts in 2021?
A. P60,000
B. P100,000
C. P160,000
D. P260,000

29. What total amount should be recognized initially as loss on factoring?

A. P12,575
B. P15,000
C. P27,575
D. P30,000

30. What total amount should be reported as biological assets?

A. P3,150,000
B. P3,450,000
C. P4,450,000
D. P2,550,000

Situation 3: Data regarding different entities

On December 31, 2020, Dirdge Company purchased a machine in exchange for a

noninterest bearing note requiring eight payments of P200,000 and a downpayment of
P250,000. It also incurred shipping costs and installation costs of P13,500 and
P24,000, respectively. The first payment was made on December 31, 2020 and the
others are due annually on December 31. The prevailing rate of interest for this
type of note was 11%. PV of an ordinary annuity of 1 at 11% for 8 periods is 5.146
and PV of an annuity of 1 in advance at 11% for 8 periods is 5.712.

Keeper of the Light (KOTL) Company purchased a P4,000,000 tract of land for a
factory site. The entity razed an old building on the property to make room for the
construction of new building and sold the materials salvaged from the demolition.
Demolition of old building, P200,000; Legal fees for purchase contract and recording
ownership, P150,000; Title guarantee insurance, P50,000; Proceeds from sale of
salvaged materials, P20,000.
During 2020, Raijin Thunderkeg Company constructed an asset costing P5,000,000. The
weighted average expenditures totaled P3,000,000. To help pay for construction,
P2,200,000 was borrowed at 10% on January 1, 2020. Funds not needed for construction
were temporarily invested in short-term securities yielding P45,000 in interest
revenue. Other than the construction funds borrowed, the only other debt outstanding
during the year was a P2,500,000 , 10-year, 9% note payable dated January 1, 2019.

Traxxex Company incurred the following research and development costs in the current
year – Equipment acquired for use to its various R and D projects, P975,000;
Depreciation on the said equipment, P135,000; Materials used, P200,000; Compensation
costs of personnel, P500,000; Outside consulting fees, P150,000; Indirect costs
appropriately allocated, P250,000

31. What amount should be recorded as initial cost of the machine?

A. P1,429,900
B. P1,316,700
C. P1,524,000
D. P1,665,500

32. What amount should be capitalized as cost of the land?

A. P4,200,000
B. P4,150,000
C. P4,050,000
D. P4,400,000

33. What amount of interest should be capitalized and what amount should be reported
as interest expense for 2020?
A. P150,000 and P178,000
B. P247,000 and P153,000
C. P300,000 and P225,000
D. P472,000 and P0

34. What total amount should be recognized as R and D expense?

A. P850,000
B. P1,085,000
C. P1,235,000
D. P1,825,000

Situation 4: Data regarding different entities

Fall Out Boy Company, a grocery retailer, operates a customer loyalty program. The
entity grants program members loyalty points when they spend a specified amount on
groceries. Program members can redeem the points for further groceries. The points
have no expiry date. During 2020, the sales amounted to P7,000,000 based on stand-
alone selling price. During the year, the entity granted 10,000 points. But
management expected that only 80% or 8,000 points will be redeemed. The stand alone
selling price of each loyalty point is P100. On December 31, 2020, 4,800 points
have been redeemed. In 2021, management revised its expectations and now expected
that 90% or 9,000 points will be redeemed altogether. During 2021, the entity
redeemed 2,400 points.

On July 1, 2021, The Click Five Company borrowed P1,000,000 on a 10% five-year note
payable. On December 31, 2021, the fair value of the note is determined to be
P795,000 based on market and interest factors. The entity has elected the fair
value option for reporting the financial liability.
Due to adverse economic circumstances and poor management, My Chemical Romance
Company had negotiated a restructuring of the 9% P6,000,000 note payable to Helena
Bank due on January 1, 2019. There is no accrued interest on the note. The bank has
reduced the principal obligation from P6,000,000 to P5,000,000 and extend the
maturity to 3 years on December 31, 2021. The present value of 1 at 9% for three
periods is 0.77 and the present value of an ordinary annuity of 1 at 9% for three
periods is 2.53.

During the year, Yellowcard Company issued P110 per share, 15,000 convertible
preference shares of P100 par value. One preference share may be converted into
three ordinary shares of P25 par value at the option of the preference shareholder.
At year-end, all of the preference shares were converted into ordinary shares. The
market value of the ordinary share at the conversion date was P40.

35. What total amount of revenue (sales and through points) should be realized for
2020?
A. P7,000,000
B. P8,000,000
C. P6,125,000
D. P6,650,000

36. What amount should be reported as revenue from loyalty points for 2021?
A. P700,000
B. P210,000
C. P175,000
D. P200,000

37. Which of the following statements is true/false in relation to the note payable?
Statement I – The discount or premium amortization will have an effect to the note
payable.
Statement II – The interest expense for 2021 is P100,000.
Statement III – The entry to recognize change in fair value at December 31 includes
a credit to note payable of P25,000.
Statement IV – The carrying amount of the note at year-end is P975,000.

A. Statement I and II true, Statement III and IV false.

B. Statement I, III, and III true, Statement IV false.
C. Statement I and IV true, Statement II and III false
D. Statement IV true, Statement I, II, and III false.

38. What amount should be reported as gain on modification of debt for 2019?
A. P500,000
B. P350,000
C. P505,500
D. P0

39. What amount should be credited to ordinary share and share premium as a result
of the conversion?
A. P1,125,000 and P525,000
B. P1,500,000 and P375,000
C. P1,650,000 and P150,000
D. P1,800,000 and P200,000
Situation 5: Data regarding different entities

At the beginning of the current year, Mavericks Company was organized and authorised
to issue 100,000 shares with P50 par value. During the current year, the entity had
the following transactions relating to shareholders’ equity:
• Issued 10,000 shares at P70 per share.
• Issued 20,000 shares at P80 per share.
• Purchased 3,000 treasury shares at P100 per share.
• Sold 60% of the treasury shares at P125 per share.

At the beginning of 2019, Warriors Company offered share options to its key officers
with a vesting period of two years. By the end of 2020, in anticipation of the
exercise of the options, the company acquired 50,000 of its own ₱30 par ordinary
shares and these were held in the treasury. At the time, true company has 280,000
issued ordinary shares. During 2021, transactions involving True Company’s ordinary
shares were as follows: January 1 through October 31 – 30,000 treasury shares were
distributed to its key officers as part of the share option plan; November 1 – a
5-for-2 share split took effect

Lakers Company provided the following data at year-end:

12% Preference share capital, 20,000 shares, P100 par value P2,000,000
14% Preference share capital, 10,000 shares, P300 par value 3,000,000
Ordinary share capital, 50,000 shares, P100 par value 5,000,000
Retained earnings 2,240,000
Share premium 1,500,000

The 12% preference share is cumulative and participating. The 14% preference share
is noncumulative and participating. Dividends are in arrears for 3 years.

On January 1, 2016, Knicks Company, a SME, acquired a trademark for a line of

products from a competitor for P3,000,000. The SME expected to continue marketing
the line of products using the trademark indefinitely. An analysis of market,
competitive and environmental trend provides evidence that the line of trademarked
products may generate net cash inflows for the acquiring entity for an indefinite
period. Management is unable to estimate the useful life of the trademark. In 2019,
a competitor unexpectedly revealed a technological breakthrough that is expected
to result in a product, that when launched by the competitor, will extinguish demand
for SMEs patented product line. On December 31, 2019, SME assessed the recoverable
amount of the trademark at P500,000. Demand for SMEs patented product line is
expected to remain strong until December 2021, when the competitor is expected to
launch the new product. SME intended to continue manufacturing the patented products
until December 31, 2021.
40. What amount should be reported as share premium at year end?
A. P950,000
B. P755,000
C. P800,000
D. P845,000

41. At year-end, Warriors Company’s issued and outstanding ordinary shares were
A. 700,000 and 500,000
B. 112,000 and 104,000
C. 575,000 and 650,000
D. 700,000 and 650,000
42. What is the book value per share?
12% Preference Share 14% Preference Share Ordinary Share
A. P156 P402 P132
B. P136 P342 P112
C. P146 P382 P130
D. P152 P392 P128

43. Which of the following is true/false regarding the trademark of Knicks Company?
Statement I – The useful life of the trademark is considered to be finite.
Statement II – The carrying amount of the trademark as of January 1, 2019 is
P2,100,000.
Statement III – The impairment loss to be recognized in 2019 is P1,400,000.
Statement IV – The amortization of the trademark for 2019 is P700,000

A. Statement I false, Statement II, III, and IV true

B. Statement III false, Statement I, II, and IV true
C. Statement III and IV true, Statement I and II false
D. Statement II, III, and IV false, Statement I true

Situation 6: Data regarding different entities

Haranasa Company made a P150,000 sale on account with the following terms, 1/15,
n/30. The customer paid the 65% of the total receivable within the discount period.
The company uses the net method to record sales on credit.

On January 1, 2021, Shineboi Company purchased 5-year bonds with face value of
P8,000,000 and stated interest of 10% per year payable semi-annually January 1 and
July 1. The bonds were acquired to yield 8%. Present value factors are:

PV of an annuity of 1 for 5 periods at 8% 3.993

PV of 1 for 5 periods at 8% 0.681
PV of an annuity of 1 for 10 periods at 4% 8.111
PV of 1 for 10 periods at 4% 0.676

On January 1, 2020, Dantay Company purchased 3,000, P1,000 face value term bonds
with a stated rate of 10% as at amortized cost. The bonds pay interest annually on
December 31 and will be redeemed entirely by the issuer on December 31, 2023. The
bond investment was purchased for P2,819,100 at an effective rate of 12%. On
December 31, 2021, the entity changed business model for managing its financial
assets and this investment was reclassified as debt investments at fair value
through profit or loss. On this date, the bonds are quoted at 101.

On December 31, 2020, G Company acquired the following intangible assets:

• A trademark for P3,000,000. The trademark has 8 years remaining in its legal
life. It is anticipated that the trademark will be renewed in the future,
indefinitely, without problem.
• A patent for P2,000,000. Because of market conditions, it is expected that the
patent will have economic life for just 5 years, although the remaining legal
life is 10 years.

Because of a decline in the economy, the trademark is now expected to generate cash
flows of just P120,000 per year. The useful life of the trademark still extends
beyond the foreseeable horizon. The cash flows expected to be generated by the
patent are P500,000 in 2022, P600,000 in 2023, P400,000 in 2024 and P500,000 in
2025. The appropriate discount rate for all intangible assets is 6%. The present
value of 1 at 6% for one period is 0.94, for two periods is 0.89, for three periods
is 0.84 and for four periods is 0.79.

44. The journal entry on the receipt of the remaining receivable, assuming the
customer pays beyond the discount period includes a credit to
A. Accounts receivable of P52,500
B. Sales Discount Lost of P525
C. Cash of P51,975
D. Sales of P96,525

45. What is the purchase price of the bonds?

A. P8,000,000
B. P8,642,400
C. P8,652,400
D. P8,662,400

46. What is the carrying value of the debt investment on December 31, 2021 prior
to reclassification and the difference between market value and amortized cost is
taken to
Carrying Value – 12/31/2021 Difference is taken to
A. P3,030,000 Equity
B. P3,000,000 Other Comprehensive Income
C. P2,900,279 Profit or Loss
D. P2,857,392 Not reported

47. G Company shall recognize a total impairment loss in 2021 at

A. P1,265,000
B. P1,000,000
C. P625,000
D. P0

Situation 7: Data regarding different entities

Cong TV Company acquired a tract of land containing an extractable natural resource.

Diamond Company is required by the purchase contract to restore the land to a
condition suitable for recreational use after it has extracted the natural resource.
Geological surveys estimate that the recoverable reserves will be 2,500,000 tons
and that the extraction will be completed in five years. Relevant data follow:

Land P9,000,000
Exploration and development costs 1,000,000
Expected cash flows for restoration costs 1,500,000
Credit-adjusted risk-free interest rate 10%
Present value of 1 at 10% for 5 periods 0.62

The following information is made available by Junnie Boy Farms in Batangas City
relating to its dairy livestock during 2021 - Carrying amount at January 1,
P1,000,000; Fair value less cost to sell of livestock purchased during the year,
P340,000; Increase in fair value less cost to sell due to physical changes, P180,000;
Increase in fair value less cost to sell due to price changes, P40,000; Fair value
less cost to sell of livestock sold during the year, P890,000.

On December 31, 2019, the Yow Company issues for P5,851,160 to yield 10%. Interest
is payable December 31 at 12%. On April 1, 2021, Compaq Company retires 2,000 of
its own P1,000 bonds at 98 plus accrued interest. The accounting period for the
Compaq Company is the calendar year. The company uses the effective interest method
of amortization.

Boss Keng Company provides an incentive compensation plan under which its president
is to receive a bonus equal to 10% of the profit in excess of P1,000,000 before
deducting income tax but after deducting the bonus. Profit after income tax of 30%
is P2,100,000.

48. What’s should be the depletion charge per ton of extracted material?
A. P4.37
B. P4.00
C. P3.97
D. P3.60

49. What amount shall be included in gross income of Junnie Boy Farms as a result
of the transactions on its dairy livestock?
A. P890,000
B. P220,000
C. P280,000
D. P40,000

50. How much is the gain or loss on the retirement of bonds

A. P372,873 gain
B. P372,873 loss
C. P40,000 gain
d. P40,000 loss

51. How much is the president’s bonus?

A. P129,888
B. P200,000
C. P210,000
D. P220,000

Situation 8: Data regarding different entities

San Miguel Beermen Company provided the following information for the year ended
December 31, 2021 – Profit, P2,000,000; Share Capital, P5,600,000; Dividends
declared, P1,200,000; Total assets, P14,950,000; Share Premium, P2,400,000; Prior
period adjustment for 2020 over depreciation, P500,000. The debt-to-equity ratio
is 30% at December 31, 2021.

The following information relates to the defined benefit pension plan of Terrafirma
Dyip Corporation for the year ending December 31, 2021 – Defined benefit obligation,
January 1, P8,000,000; Fair value of plan assets, January 1, P9,500,000; Current
service cost, P3,600,000; Actual return on plan assets, P1,200,000; Employer
contributions, P3,300,000; Discount rate, 10%; Actuarial loss on remeasurement of
defined benefit obligation, P120,000.

Phoenix Super Gas Company acquires equipment under a non-cancelable lease at an

annual rental of P45,000 payable in advance for five years. Under the lease contract,
Kia Company is given the option to purchase the asset for P75,000 at the end of
five years and Kia is reasonably certain to exercise this option. The appropriate
interest rate is 12%. Present value of 1 at 12% for 5 periods is 0.5674. Present
value of an annuity due of 1 at 12% for 5 periods is 4.0373.
The following are the records of TNT Tropang Giga Company who uses cash basis of
accounting:
Revenues P1,234,500
Expenses 987,600
Net Income P 246,900

December 31, 2020 December 31, 2021

Accrued receivable P54,320 P43,210
Deferred income 26,200 29,000
Accrued expenses 18,200 23,500
Prepaid expenses 6,400 5,120

52. What was the retained earnings balance on January 1, 2021?

A. P3,200,000
B. P2,200,000
C. P2,165,000
D. P1,165,000

53. How much is the defined benefit obligation at December 31, 2021?
A. P12,520,000
B. P12,400,000
C. P12,280,000
D. P8,000,000

54. What is the capitalized cost of the right-of-use equipment and the first year’s
interest expense?
A. P224,234 and P26,908
B. P204,771 and P21,508
C. P204,771 and P19,173
D. P224,234 and P21,508

55. Under the accrual basis, how much are the revenues and expenses for 2021 by TNT
Tropang Giga Company?
A. P1,276,830 and P991,620
B. P1,248,410 and P987,600
C. P1,220,590 and P994,180
D. P1,234,500 and P981,020

Situation 9: Data regarding different entities

The following are the records of Miggy Company’s current assets - Cash on hand and
in banks (includes plant expansion fund cash of P1,350,000),P2,950,000; Financial
assets at fair value through profit or loss, at cost (market value at December 31,
2021 is P2,150,000), P2,300,000; Angel Company's ordinary share capital, 500 shares
at cost, P50,000; Accounts receivable - trade, after deducting P200,000 credit
balance in customer's account resulting from overpayment, P2,800,000;
Inventories, including advertising supplies of P200,000 and goods still in transit
of P1,300,000 (The goods were purchased under the terms FOB destination and the
related invoice was received and recorded on December 30, 2021), P5,200,000;
Debit balance in a suppliers account, P500,000.

The following is a list of items to be included in the preparation of the 2021

statement of cash flows from the Ian Company - Gain on retirement of bonds, P92,000;
Increase in inventory, P67,000; Proceeds from sale of investment, P85,000; Proceeds
from issuance of note, P250,000; Depreciation expense, P107,000, Decrease in
accounts receivable, P50,000; Payment for purchase of patent, P198,000; Decrease
in accounts payable, P40,000; Payment of dividends, P300,000; Net profit, P554,000;
Ordinary share exchanged for land, P140,000; Payment to retire bonds, P370,000;
Payment for purchase of equipment, P394,000; Loss on sale of investments, P48,000;
Repurchase of treasury shares, P120,000; Proceeds from issue of preference shares,
P528,000; Amortization of discount on debt securities at amortized cost, P15,000.

The following information was taken from the accounting records of Kim, Inc. for
2021. Proceeds from issuance of preference shares, P4,000,000; Dividends paid on
preference shares, P400,000; Bonds payable converted to ordinary shares, P2,000,000;
Payment for purchase of machinery, P500,000; Proceeds from sale of plant building,
P1,200,000; Retirement of bonds payable, P2,500,000, 2% bonus issue on ordinary
shares, P300,000; Purchase of ordinary treasury shares, P120,000; Payment for
purchase of debt securities at amortized cost, P450,000; Gain on sale of plant
building, P200,000.

Karlo Company reported pretax financial income of P800,000 for the current year.
The taxable income was P500,000 for the current year. The difference is due to
accelerated depreciation for income tax purposes. The income tax rate is 30% and
the entity made estimated tax payment of P50,000 during the current year.
56. How much is the total current assets of Miggy Company?
A. P11,150,000
B. P8,350,000
C. P12,450,000
D. P12,500,000

57. How much is the net cash flow from operating activities of Ian Company during
2021?
A. P575,000
B. P560,000
C. P554,000
D. P545,000

58. How much is the net cash flow from investing and financing activities of Ian
Company during 2021?
A. P500,000 and P260,000
B. P367,000 and P12,000
C. (P507,000) and (P12,000)
D. (P367,000) and (P260,000)

59. How much is the net cash flow from investing and financing activities of Kim
Company during 2021?
Investing Financing
A. P250,000 P3,600,000
B. P450,000 P3,480,000
C. P700,000 P980,000
D. P750,000 P530,000

60. What amount should be reported as income tax expense – current for the year?
A. P2,100,000
B. P2,400,000
C. P1,600,000
D. P1,900,000
Situation 10: Data regarding different entities

Luffy Company had retained earnings of P3,500,000 at the beginning of 2021.

Throughout 2021, the entity had 40,000 ordinary shares of P100 par value that are
issued and outstanding. During 2021, the entity reported net income of P5,500,000,
purchased 5,000 treasury shares for P600,000, declared cash dividends of P2,000,000,
reissued all treasury shares at a gain of P200,000, and declared and issued a 10%
ordinary share bonus issue when the market value was P150 per share.

The end of reporting period of Nami Company is December 31, 2021 and the financial
statements for 2021 are authorised for issue on March 31, 2022.
• The entity had equity investments held for trading. On December 31, 2021, these
investments were recorded at fair value of P5,000,000. During the period up to
February 15, 2022, there was a steady decline in the fair value of the shares in
the portfolio and on February 15, 2022, the fair value had fallen to P2,000,000.
• The entity had reported contingent liability on December 31, 2021 related to
court case in which the entity was the defendant. The case was not heard until
the first week of February 2022. On March 1, 2022, the judge handed down a
decision against the entity and determined that the entity was liable to pay
damages and costs totaling P3,000,000.
• On December 31, 2021, the entity had accounts receivable from a large customer
in the amount of P4,000,000. On March 15, 2022, the entity was advised in writing
by the liquidator of the said customer that the customer was insolvent and that
only 10% of the accounts receivable will paid on December 31, 2022.

Zoro Company is involved in a lawsuit resulting from a dispute with a customer over
a 2020 transaction. On December 31, 2020, the legal counsel advised that it was
probable that Zoro would lose P3,000,000 in an unfavorable decision. On February
15, 2021, judgment was rendered against Zoro in the amount of P4,000,000 plus
interest P500,000. Zoro does not plan to appeal the judgment.

Sanji Company has past service cost of P15,000 each employee that will be entitled
for 6,000 hours. On 2021, it consumed 3,750 hours.

61. What amount should be reported as retained earnings on December 31, 2021?
A. P7,200,000
B. P6,800,000
C. P6,600,000
D. P6,400,000

62. Which of the following is true/false in relation to Nami Company?

Statement I – The entity should adjust the value of the held for trading investments
to P2,000,000.
Statement II – The entity should ignore the contingent liability.
Statement III – The total amount should be reported as adjusting events is
P6,600,000.

A. Statement I is true, Statement II and III is false

B. Statement I and II is false, Statement III is true
C. Statement II and III is true, Statement I is false
D. Statement I and III is false, Statement II is true

63. What amount should be reported as accrued liability on December 31, 2020?
A. P4,000,000
B. P3,500,000
C. P4,500,000
D. P0

64. Which of the following is correct?

Statement I – An enterprise should not recognize a contingent liability
Statement II – A provision is a liability of certain timing and amount.
Statement III – Accruals are liabilities to pay for goods or services that have not
been received or supplied but have not been paid.
Statement IV – The amount recognized as a provision should be the best estimate of
the expenditure required to settle the present obligation at the end of the reporting
period.

A. I, II, III, and IV

B. I and IV only
C. II and IV only
D I, II, and IV

65. Assume that Sanji has 15 employees that is entitled for service cost, how much
is the past service cost that will be recognized to profit or loss for 2021?
A. P150,000
B. P84,375
C. P75,000
D. P140,625

Situation 11: Data regarding different entities

Chizuru Ichinose Company’s shareholders’ equity as of December 31 is as follows

2020 2021
Preference stock, 8%, P100 par P250,000 P250,000
Common stock 600,000 800,000
Retained earnings 150,000 370,000
Dividends paid on preferred stock 20,000 20,000
Net income for the year 120,000 210,500

The cash account of Ruka Sarashina Company on December 31, 2021 has a balance of
P127,600 and it consists of the following – Bills and coins on hand, P52,780; Petty
cash including cash vouchers of P650, P1,000; Balance in savings account with a
bank closed by the BSP, P36,000; Customers check dated January 15, 2022, P8,000;
Credit memo from suppliers on account for purchase returns, P6,500; Postage stamps,
P120; Money order, P800; IOU of an employee, P400; Checking account balance in BPI,
P22,000.

Mami Nanami Corporation’s December 31, 2021 balance sheet reports the following
shareholders’ equity - 10% Cumulative Preference share capital, P100 par value per
share, 30,00 shares issued and outstanding, liquidation value of P105, P3,000,000;
Ordinay share capital, P100 par value, 60,000 shares issued, P6,000,000; Share
premium, P500,000; Treasury stock (ordinary), 5,000 shares at cost, P600,000;
Retained earnings, P4,000,000; Subscribed ordinary share net of P400,000
subscription receivable, P1,000,000; Revaluation surplus, P700,000. Preference
dividends have not been paid since last year up to the end of 2021.

On January 1, 2019, Sumi Sakurasawa company granted to its CFO, Kazuya Kinoshita
the right to choose either:

• 12,000 shares (share or equity alternative)

• Cash payment equal to market value of 10,000 shares (cash alternative)

The grant is conditional upon the completion of three years of service. If the CFO
chooses the share alternative, the shares must be held for three years after vesting
date. The par value of the share is P25 and at grant date on January 1, 2019, the
share price is P51. The share prices for the three-year vesting period are –
December 31, 2019, P54; December 31, 2020, P60; December 31, 2021, P65. After taking
into account the effects of post-vesting restrictions, the entity has estimated
that the fair value of the share or equity alternative is P48 per share.

On December 31, 2019, Kibe Bank has a 5-year loan receivable with a face amount of
P5,000,000 dated January 1, 2018 that is due on December 31, 2022. Interest on the
loan is payable at 9% every December 31. The borrower paid the interest that was
due on December 31, 2018 but informed the bank that interest accrued in 2019 will
be paid at maturity date. There is a high probability that the remaining interest
payments will not be paid because of financial difficulty. The prevailing market
rate of interest on December 31, 2019 is 10%. The PV of 1 for three periods is 0.77
at 9% and 0.75 at 10%.

66. Chizuru’s return on common shareholders’ equity, rounded to the nearest

percentage point for 2021 is
A. 17.23%
B. 19.84%
C. 21.22%
D. 23.65%

67. The correct cash balance on December 31, 2021 of Ruka Company is
A. P76,580
B. P76,330
C. P75,130
D. P75,930

68. What is the book value per share on ordinary shares and preference shares of
Mami Company?
A. P173.08 and P115.00
B. P163.04 and P125.00
C. P166.92 and P120.00
D. P157.25 and P105.00

69. What amount should be recorded as share premium if the employee has chosen the
cash alternative?
A. P716,000
B. P650,000
C. P66,000
D. P0

70. What is the impairment loss for 2021?

A. P1,253,500
B. P1,362,500
C. P1,250,000
D. P1,150,000

“Let all that you do be done in love.”

1 Corinthians 16:14