Financial Accounting & Reporting 1ST Preboard Examination

“Whoever can be trusted with very little can also be trusted with much, and whoever is dishonest
with very little will also be dishonest with much.” Luke 16:10
“Almost any difficulty will move in the face of honesty. When I am honest I never feel stupid. And
when I am honest I am automatically humble.” Hugh Prather
INSTRUCTION: Read the questions and information carefully and choose the best answer. Shade the letter of your choice
on the answer sheet provided.
1. The qualitative characteristics that enhance the usefulness of information least likely include
A. Relevance
B. Comparability
C. Timeliness
D. Understandability
2. Clear Co.'s trial balance has the following selected accounts: Cash (includes P10,000 in bond sinking fund for long-
term bond payable) of P50,000; Accounts receivable of P20,000; Allowance for doubtful accounts of P5,000;
Deposits received from customers of P3,000; Merchandise inventory of P7,000; Unearned rent of P1,000; and
Investment in trading securities of P2,000. What amount should Clear report as total current assets in its
statement of financial position?
A. 64,000
B. 67,000
C. 72,000
D. 74,000
3. Martin Co. had net income of P70,000 during the year. Depreciation expense was P10,000. The following
information is available:
Accounts receivable increase P20,000
Equipment gain on sale increase 10,000
Nontrade notes payable increase 50,000
Prepaid insurance increase 40,000
Accounts payable increase 30,000
What amount should Martin report as net cash provided by operating activities in its statement of cash flows for
the year?
A. -0-
B. 40,000
C. 50,000
D. 100,000
4. Isle Co. owned a copy machine that cost P5,000 and had accumulated depreciation of P2,000. Isle exchanged the
copy machine for a computer that cost P4,000. Isle's future cash flows are not expected to change significantly as
a result of the exchange. What amount of gain or loss should Isle report and at what amount should it record the
asset?
A. No gain or loss in the income statement; P3,000 asset in the statement of financial position.
B. No gain or loss in the income statement; P4,000 asset in the statement of financial position.
C. P1,000 gain in the income statement; P3,000 asset in the statement of financial position.
D. P1,000 gain in the income statement; P4,000 asset in the statement of financial position.
5. A company manufactures and distributes replacement parts for various industries. As of December 31, year 1, the
following amounts pertain to the company’s inventory:
Item Cost Replacement Cost Sales Price Cost to dispose Normal profit margin
Blades P 41,000 P 38,000 P 50,000 P 2,000 P 15,000
Towers 52,000 40,000 54,000 4,000 14,000
Generators 20,000 24,000 30,000 2,000 6,000
Gearboxes 80,000 105,000 120,000 12,000 8,000
What is the total carrying value of the company’s inventory as of December 31, year 1, under IAS 2?
A. 178,000
B. 191,000
C. 193,000
D. 207,000
6. A company recently moved to a new building. The old building is being actively marketed for sale, and the
company expects to complete the sale in four months. Each of the following statements is correct regarding the
old building, except:
A. It will be reclassified as an asset held for sale.
Financial Accounting & Reporting 1ST Preboard Examination
B. It will be classified as a current asset.
C. It will no longer be depreciated.
D. It will be valued at historical cost.
7. A company is preparing its year-end cash flow statement using the indirect method. During the year, the
following transactions occurred: Dividends paid P300,000; Proceeds from the issuance of common stock
P250,000; Borrowings under a line of credit P200,000; Proceeds from the issuance of convertible bonds P100,000;
and Proceeds from the sale of a building P150,000. What is the company's increase in cash flows provided by
financing activities for the year?
A. 50,000
B. 150,000
C. 250,000
D. 550,000
8. A company has a 22% investment in another company that it accounts for using the equity method. Which of the
following disclosures should be included in the company's annual financial statements?
A. The names and ownership percentages of the other stockholders in the investee company.
B. The reason for the company's decision to invest in the investee company.
C. Whether the investee company is involved in any litigation.
D. The company's accounting policy for the investment.
9. A shoe retailer allows customers to return shoes within 90 days of purchase. The company estimates that 5% of
sales will be returned within the 90-day period. During the month, the company has sales of P200,000 and returns
of sales made in prior months of P5,000. What amount should the company record as net sales revenue for new
sales made during the month?
A. 185,000
B. 190,000
C. 195,000
D. 200,000
10. On October 31, year 1, a company with a calendar year end paid P90,000 for services that will be performed
evenly over a six-month period from November 1, year 1, through April 30, year 2. The company expensed the
P90,000 cash payment in October, year 1, to its services expense general ledger account. The company did not
record any additional journal entries in year 1 related to the payment. What is the adjusting journal entry that the
company should record to properly report the prepayment in its year 1 financial statements?
A. Debit prepaid services and credit services expense for P60,000.
B. Debit services expense and credit prepaid services for P30,000.
C. Debit services expense and credit prepaid services for P60,000.
D. Debit prepaid services and credit services expense for P30,000.
11. A company has a parcel of land to be used for a future production facility. The company applies the revaluation
model under IFRS to this class of assets. In year 1, the company acquired the land for P100,000. At the end of year
1, the carrying amount was reduced to P90,000, which represented the fair value at that date. At the end of year
2, the land was revalued, and the fair value increased to P105,000. How should the company account for the year
2 change in fair value?
A. By recognizing P10,000 in other comprehensive income.
B. By recognizing P15,000 in other comprehensive income.
C. By recognizing P15,000 in profit or loss.
D. By recognizing P10,000 in profit or loss and P5,000 in other comprehensive income.
12. Ina Co. had the following beginning and ending balances in its prepaid expense and accrued liabilities accounts for
the current year:
Prepaid expenses Accrued liabilities
Beginning balance P 5,000 P 8,000
Ending balance 10,000 20,000
Debits to operating expenses totaled P100,000. What amount did Ina pay for operating expenses during the
current year?
A. 83,000
B. 93,000
C. 107,000
D. 117,000
13. Smythe Co. invested P2,000 in a call option for 1,000 shares of Gin Co. P1 par common stock, when the market
price was P10 per share. The option expired in three months and had an exercise price of P9 per share. The
market price after 3 months rose to P14 per share. What was the gain or loss on the call option?
A. 3,000 gain
B. 5,000 gain
C. 5,000 loss
D. 2,000 loss
FAR Page 2 of 10
Financial Accounting & Reporting 1ST Preboard Examination
14. Which of the following financial instruments issued by a publicly listed company should be reported on the
issuer's books as a liability on the date of issuance?
A. Cumulative preferred stock.
B. Preferred stock that is convertible to common stock five years from the issue date.
C. Common stock that contains an unconditional redemption feature.
D. Common stock that is issued at a 5% discount as part of an employee share purchase plan.
15. Which of the following adjusting entries would reversing entries not be applicable?
I. Deferred income under liability method
II. Deferred expense under expense method
III. Doubtful accounts
IV. Accrued income
V. Accrued expense
A. I and III
B. I, II and III
C. III, IV and V
D. III only
16. An asset under the 2018 conceptual framework for financial reporting is
A. A present economic resource controlled by the entity as a result of past events.
B. A right that has the potential to produce economic benefits.
C. A resource controlled by the entity as a result of past events and from which future economic benefits are
expected to flow to the entity.
D. All of the foregoing
17. Markson Co. traded a concrete-mixing truck with a book value of P10,000 to Pro Co. for a cement-mixing machine
with a fair value of P11,000. Markson needs to know the answer to which of the following questions in order to
determine whether the exchange has commercial substance?
A. Does the book value of the asset given up exceed the fair value of the asset received?
B. Is the gain on the exchange less than the increase in future cash flows?
C. Are the future cash flows expected to change significantly as a result of the exchange?
D. Is the exchange nontaxable?
18. The following information relate to the merchandise of Extreme Inc. for the current year:
Date Particular Quantity Cost Per Unit
Jan 1 Beginning Inventory 100 18.00
Mar 4 Purchase 400 19.00
April 7 Sale 330
May 8 Purchase 800 20.00
July 4 Sale 770
Nov 3 Purchase 500 21.00
Dec 25 Sale 130
Using the FIFO (perpetual) method, the cost assigned to the ending merchandise inventory is
A. 10,800
B. 11,900
C. 11,970
D. 11,368
19. As of December 1, year 2 a company obtained a P1,000,000 line of credit maturing in one year on which it has
drawn P250,000, a P750,000 secured note due in five annual installments, and a P300,000 three-year balloon
note. The company has no other liabilities. How should the company's debt be presented in its statement of
financial position on December 31, year 2 if no debt repayments were made in December?
A. Current liabilities of P1,000,000; long-term liabilities of P1,050,000.
B. Current liabilities of P500,000; long-term liabilities of P1,550,000.
C. Current liabilities of P400,000; long-term liabilities of P900,000.
D. Current liabilities of P500,000; long-term liabilities of P800,000.
20. Palmyra Co. has net income of P11,000, a positive P1,000 net cumulative effect of a change in accounting
principle, a P3,000 unrealized loss on available-for-sale securities, a positive P2,000 foreign currency translation
adjustment, and a P6,000 increase in its common stock. What amount is Palmyra's comprehensive income?
A. 4,000
B. 10,000
C. 11,000
D. 17,000
21. Consider the following statements regarding the 2018 Conceptual Framework for Financial Reporting.
I. The Conceptual Framework does not prescribe a particular model of capital maintenance.
II. Existence uncertainty affects the relevance and faithful representation of the recognition of an element of a
financial statement.
FAR Page 3 of 10
Financial Accounting & Reporting 1ST Preboard Examination
III. Current value measurement bases do not include amortized cost and current cost.
IV. A trade-off between the fundamental qualitative characteristics of relevance and faithful representation may
need to be made in order to meet the objective of financial reporting.
Which statement(s) is/are not true?
A. III only
B. II and III
C. I and IV
D. I and III
22. A company exchanged land with an appraised value of P50,000 and an original cost of P20,000 for machinery with
a fair value of P55,000. Assuming that the transaction has commercial substance, what is the gain on the
exchange?
A. 0
B. 5,000
C. 30,000
D. 35,000
23. A transaction that is unusual in nature or infrequent in occurrence should be reported in the statement of
comprehensive income as a(an):
A. Component of income from continuing operations, net of applicable income taxes.
B. Extraordinary item, net of applicable income taxes.
C. Extraordinary item, but not net of applicable income taxes.
D. Component of income from continuing operations, but not net of applicable income taxes.
24. Which of the following characteristics of accounting information primarily allows users of financial statements to
generate predictions about an organization?
A. Reliability.
B. Timeliness.
C. Neutrality.
D. Relevance.
25. Which of the following is a discontinued operation?
I. An entity has three machines located in one plant. All of the machines produce the same product. The
entity significantly scales down its operations by disposing of one of the machines.
II. An entity has three machines located in one plant. Each machine produces a completely different product
and each machine is managed as a separate business unit. The entity significantly scales down its
operations by disposing of one of the machines and in doing so discontinues manufacturing one of its
three products.
III. An entity has three plants that all produce the same product. Each plant is located in a separate continent
and sells its output to customers local to the plant in which the product is manufactured. The entity scales
down its operations by disposing of one of the plants.
A. II and III
B. I and II
C. I and III
D. I, II and III
26. On June 19, Don Co., Philippine-based company, sold and delivered merchandise on a 30-day account to Cologne
GmbH, a foreign corporation, for 200,000 foreign currency units. On the same date, Don entered into a 30-day
forward contract to sell foreign currency units to hedge the exposures to currency risk. On July 19, Cologne paid
Don in full. Relevant currency exchange rates were:
June 19 July 19
Spot rate P0.988 P0.995
30-day forward rate P0.990 P1.000
What amount should Don record on July 19 as gain or loss on the hedging instrument?
A. 2,000 loss
B. 2,000 gain
C. 1,400 gain
D. 1,400 loss
27. Separate line items in an analysis of expenses by nature include:
A. Purchases of materials, transport costs, employee benefits, depreciation, extraordinary items.
B. Purchases of materials, distribution costs, administrative costs, employee benefits, depreciation, taxes.
C. Depreciation, purchases of materials, employee benefits and advertising costs.
D. Cost of sales, administrative costs, transport costs, distribution costs etc.
28. Which of the following gains and losses can an entity recognized in other comprehensive income?
A. Losses from discontinued operations under IFRS 5.
B. Gains and losses arising on translating the financial statements of a foreign operation using temporal method
under IAS 21.
FAR Page 4 of 10
Financial Accounting & Reporting 1ST Preboard Examination
C. Gains and losses when using revaluation model in measurement of equipment under IAS 16.
D. Actuarial gains and losses of defined benefit plans under IAS 19.
29. On January 1 of the current year, Barton Co. paid P900,000 to purchase 3-year, 8%, P1,000,000 face value bonds
that were issued by another publicly-traded corporation. Barton’s business model is to sell the bonds in the first
quarter of the following year. The fair value of the bonds at the end of the current year was P1,020,000 and
amortized discount at the end of the year is P50,000. At what amount should Barton report the bonds in its
statement of financial position at the end of the current year?
A. 1,020,000
B. 1,000,000
C. 900,000
D. 950,000
30. Tinsel Co.'s balances in allowance for uncollectible accounts were P70,000 at the beginning of the current year
and P55,000 at year end. During the year, receivables of P35,000 were written off as uncollectible. What amount
should Tinsel report as uncollectible accounts expense at year end?
A. 15,000
B. 20,000
C. 35,000
D. 50,000
31. Kauf Co. had the following amounts related to the sale of consignment inventory:
Cost of merchandise shipped to consignee, P72,000
Sales value for two-thirds of inventory sold by consignee, P80,000
Freight cost for merchandise shipped, P7,500
Advertising paid for by consignee, to be reimbursed, P4,500
10% commission due the consignee for the sale, P8,000
What amount should Kauf report as net profit(loss) from this transaction for the year?
A. (12,000)
B. 8,000
C. 14,500
D. 32,000
32. Oak Co., a newly formed corporation, incurred the following expenditures related to land and building: County
assessment for sewer lines P2,500; Title search fees P625; Cash paid for land with a building to be demolished
P135,000; Excavation for construction of basement P21,000; and Removal cost of old building (P21,000 less
salvage of P5,000) P16,000. At what amount should Oak record the land under PIC 2012-02?
A. 138,125
B. 153,500
C. 154,125
D. 175,625
33. Which of the following are required disclosures under IAS 2?
I. Carrying amount of inventories pledged as security for liabilities
II. Cost of inventories recognized as expense (cost of goods sold)
III. Policies and terms of major supplier of materials and merchandise
IV. Amount of any write-down of inventories recognized as an expense in the period
A. I, II and IV
B. I, III and IV
C. I and III
D. All re required disclosures
34. Baler Co. prepared its statement of cash flows at year-end using the direct method. The following amounts were
used in the computation of cash flows from operating activities:
Beginning inventory P 200,000
Ending Inventory 150,000
Cost of goods sold 1,200,000
Beginning accounts payable 300,000
Ending accounts payable 200,000
What amount should Baler report as cash paid to suppliers for inventory purchases?
A. 1,200,000
B. 1,250,000
C. 1,300,000
D. 1,350,000
35. Which of the following transactions is included in the operating activities section of a cash flow statement
prepared using the indirect method?
A. Gain on sale of plant asset.
B. Sale of property, plant and equipment.
FAR Page 5 of 10
Financial Accounting & Reporting 1ST Preboard Examination
C. Payment of cash dividend to the shareholders.
D. Issuance of common stock to the shareholders.
36. Polk Co. acquires a forklift from Quest Co. for P30,000. The terms require Polk to pay P3,000 down and finance
the remaining P27,000. On March 1, year 1, Polk pays the P3,000 down and accepted delivery of the forklift. Polk
signed a note that requires Polk to pay principal payments of P1,000 per month for 27 months beginning July 1,
year 1. What amount should Polk report as an investing activity in the statement of cash flows for the year ended
December 31, year 1?
A. 3,000
B. 9,000
C. 12,000
D. 30,000
37. Flynn Sales Company uses the retail inventory method to value its merchandise inventory. The following
information is available for the current year:
Cost Retail
Beginning inventory 36,000 60,000
Purchases 174,000 240,000
Freight-in 3,000 —
Net markups — 10,200
Net markdowns — 12,000
Employee discounts — 1,200
Sales — 246,000
If the ending inventory is to be valued at the lower of cost or NRV, what is the cost to retail ratio would Flynn
most likely use?
A. 213,000 ÷ 309,000
B. 213,000 ÷ 310,200
C. 177,000 ÷ 238,200
D. 213,000 ÷ 298,200
38. On March 21, year 2, a company with a calendar year end issued its year 1 financial statements. On February 28,
year 2, the company's only manufacturing plant was severely damaged by a storm and had to be shut down. Total
property losses were P10 million and determined to be material. The amount of business disruption losses is
unknown. How should the impact of the storm be reflected in the company's year 1 financial statements?
A. Provide no information related to the storm losses in the financial statements until losses and expenses
become fully known.
B. Accrue and disclose the property loss with no accrual or disclosure of the business disruption loss.
C. Accrue and disclose the property loss and additional business disruption losses in the financial statements.
D. Do not accrue the property loss or the business disruption loss, but disclose them in the notes to the financial
statements.
39. Abbott Co. is preparing its statement of cash flows for the year. Abbott's cash disbursements during the year
included the following:
Payment of interest on bonds payable, P500,000
Payment of dividends to stockholders, P300,000
Payment to acquire 1,000 shares of Marks Co. common stock, P100,000
What should Abbott report as total cash outflows for financing activities in its statement of cash flows?
A. 0
B. 300,000
C. 800,000
D. 900,000
40. Neron Co. has two derivatives related to two different financial instruments, instrument A and instrument B, both
of which are debt instruments. The derivative related to instrument A is a fair value hedge, and the derivative
related to instrument B is a cash flow hedge. Neron experienced gains in the value of instruments A and B due to
a change in interest rates. Which of the gains should be reported by Neron in its income statement?
Gain in value of debt instrument A Gain in value of debt instrument B
A. Yes Yes
B. Yes No
C. No Yes
D. No No
41. Assuming constant inventory quantities, which of the following inventory-costing methods will produce a lower
inventory turnover ratio in an inflationary economy?
A. FIFO
B. LIFO
C. Moving average.
D. Weighted average.
FAR Page 6 of 10
Financial Accounting & Reporting 1ST Preboard Examination
42. Hilltop Co.'s monthly bank statement shows a balance of P54,200. Reconciliation of the statement with company
books reveals the following information: Bank service charge, P10; Insufficient funds check, P650; Checks
outstanding, P1,500; Deposits in transit, P350; Check deposited by Hilltop and cleared by the bank for P125 but
improperly recorded by Hilltop as P152.
What is the cash balance per books prior to reconciliation?
A. 52,363
B. 53,683
C. 53,050
D. 53,737
43. When purchasing a bond, the present value of the bond's expected net future cash inflows discounted at the
market rate of interest provides what information about the bond?
A. Price.
B. Par.
C. Yield.
D. Interest.
44. A company calculated the following data for the period: Cash received from customers, P25,000; Cash received
from sale of equipment, P1,000; Interest paid to bank on note, P3,000; and Cash paid to employees, P8,000.
What amount should the company report as net cash provided by operating activities in its statement of cash
flows?
A. 14,000
B. 15,000
C. 18,000
D. 26,000
45. In year 1, a company reported in other comprehensive income an unrealized holding loss on an investment in
equity securities not held for trading. During year 2, these securities were sold at a loss equal to the unrealized
loss previously recognized. The reclassification adjustment should include which of the following?
A. The unrealized loss should be credited to the investment account.
B. The unrealized loss should be credited to the other comprehensive income account.
C. The unrealized loss should be debited to the other comprehensive income account.
D. The unrealized loss should be credited to beginning retained earnings.
46. Campbell Corp. exchanged delivery trucks with Highway, Inc. Campbell's truck originally cost P23,000, its
accumulated depreciation was P20,000, and its fair value was P5,000. Highway's truck originally cost P23,500, its
accumulated depreciation was P19,900, and its fair value was P5,700. Campbell also paid Highway P700 in cash as
part of the transaction. The transaction lacks commercial substance. What amount is the new book value for the
truck Campbell received?
A. 5,700
B. 5,000
C. 3,700
D. 3,000
47. Marr Co. had the following sales and accounts receivable balances, prior to any adjustments at year end: Credit
sales, P10,000,000; Accounts receivable, P3,000,000; and Allowance for uncollectible accounts (debit balance),
P50,000. Marr uses 3% of accounts receivable to determine its allowance for uncollectible accounts at year end.
By what amount should Marr adjust its allowance for uncollectible accounts at year end?
A. 140,000
B. 0
C. 40,000
D. 90,000
48. During the year, Hauser Co. wrote off a customer's account receivable. Hauser used the allowance method for
uncollectable accounts. What impact would the write-off have on net income and total assets?
Net income Total assets
A. Decrease Decrease
B. Decrease No effect
C. No effect Decrease
D. No effect No effect
49. On January 1, year 1, Newport Corp. purchased a machine for P100,000. The machine was depreciated using the
straight-line method over a 10-year period with no residual value. Because of a bookkeeping error, no
depreciation was recognized in Newport's year 1 financial statements, resulting in a P10,000 overstatement of
the book value of the machine on December 31, year 1. The oversight was discovered during the preparation of
Newport's year 2 financial statements. What amount should Newport report for depreciation expense on the
machine in the year 2 financial statements?
A. 9,000
B. 10,000
FAR Page 7 of 10
Financial Accounting & Reporting 1ST Preboard Examination
C. 11,000
D. 20,000
50. A company's activities for year 2 included the following: Gross sales P3,600,000; Cost of goods sold P1,200,000;
Selling and administrative expense P500,000; Adjustment for a prior-year understatement of amortization
expense P59,000; Sales returns P34,000; Gain on sale of available-for-sale securities P8,000; Gain on disposal of a
discontinued business segment P4,000; Unrealized gain on available-for-sale securities P2,000. The company has
a 30% effective income tax rate. What is the company's net income for year 2?
A. 1,267,700
B. 1,273,300
C. 1,314,600
D. 1,316,000
51. What is the purpose of reporting comprehensive income?
A. To summarize all changes in equity from nonowner sources.
B. To reconcile the difference between net income and cash flows provided from operating activities.
C. To provide a consolidation of the income of the firm's segments.
D. To provide information for each segment of the business.
52. Which of the following would be reported as an investing activity in a company's statement of cash flows?
A. Collection of proceeds from a note payable.
B. Collection of a note receivable from a related party.
C. Collection of an overdue account receivable from a customer.
D. Collection of a tax refund from the government.
53. Garson Co. recorded goods in transit purchased F.O.B. shipping point at year end as purchases. The goods were
excluded from ending inventory. What effect does the omission have on Garson's assets and retained earnings at
year end?
Assets Retained earnings
A. No effect Overstated
B. No effect Understated
C. Understated No effect
D. Understated Understated
54. Acme Co.'s accounts payable balance at December 31 was P850,000 before necessary year-end adjustments, if
any, related to the following information:
At December 31, Acme has a P50,000 debit balance in its accounts payable resulting from a payment to a
supplier for goods to be manufactured to Acme's specifications.
Goods shipped F.O.B. destination on December 20 were received and recorded by Acme on January 2, the
invoice cost was P45,000.
In its December 31 balance sheet, what amount should Acme report as accounts payable?
A. 850,000
B. 895,000
C. 900,000
D. 945,000
55. On September 30, World Co. borrowed P1,000,000 on a 9% note payable. World paid the first of four quarterly
payments of P264,200 when due on December 30. In its December 31 balance sheet, what amount should World
report as note payable?
A. 758,300
B. 825,800
C. 735,800
D. 750,000
56. On January 2 of the current year, LTTI Co. entered into a three-year, non-cancelable contract to buy up to 1
million units of a product each year at P0.10 per unit with a minimum annual guarantee purchase of 200,000
units. At year end, LTTI had only purchased 80,000 units and decided to cancel sales of the product because the
product became obsolete and worthless. What amount should LTTI report as a loss related to the purchase
commitment as of December 31 of the current year?
A. 40,000
B. 60,000
C. 12,000
D. 52,000
57. Which of the following is included in other comprehensive income?
A. Unrealized holding gains and losses on equity securities held for trading.
B. Unrealized holding gains and losses that result from a debt security being transferred into the held-to-
maturity category from the available-for-sale category.
C. Foreign currency translation adjustments.
D. The difference between the accumulated benefit obligation and the fair value of pension plan assets.
FAR Page 8 of 10
Financial Accounting & Reporting 1ST Preboard Examination
58. Which of the following transactions should be classified as investing activities on an entity's statement of cash
flows?
A. Increase in accounts receivable.
B. Sale of property, plant and equipment.
C. Payment of cash dividend to the shareholders.
D. Issuance of common stock to the shareholders.
59. Milton Co. pledged some of its accounts receivable to Good Neighbor Financing Corporation in return for a loan.
Which of the following statements is correct?
A. Good Neighbor Financing cannot take title to the receivables if Milton does not repay the loan. Title can only
be taken if the receivables are factored.
B. Good Neighbor Financing will assume the responsibility of collecting the receivables.
C. Milton will retain control of the receivables.
D. Good Neighbor Financing will take title to the receivables, and will return title to Milton after the loan is paid.
60. Carr, Inc. purchased equipment for P100,000 on January 1, Year 2. The equipment had ten-year useful life and
P15,000 salvage value. Carr uses the 200% declining method. In its Year 3 income statement, what amount should
Carr report as depreciation expense?
A. 13,600
B. 16,000
C. 12,800
D. 20,000
61. Talton Co. installed new assembly line production equipment at a cost of P185,000. Talton had to rearrange the
assembly line and remove a wall to install the equipment. The rearrangement cost P12,000 and the wall removal
cost P3,000. The rearrangement did not increase the life of the assembly line but it did make it more efficient.
What amount of these costs should be capitalized by Talton?
A. 185,000
B. 188,000
C. 197,000
D. 200,000
62. An enterprise must separately report information about an operating segment when the segment's total revenue
meets (1) what minimum percentage of the combined revenue of all segments? Likewise, the sum of the
segments’ external revenues must constitute at least (2) what minimum percentage of combined revenues of the
reporting entity?
A. 25% and 70%
B. 10% and 75%
C. 20% and 80%
D. 10% and 70%
63. How should a first-time adopter of IFRS recognize the adjustments required to present its opening IFRS statement
of financial position?
A. All of the adjustments should be recognized in profit or loss.
B. Adjustments that are capital in nature should be recognized in retained earnings and adjustments that are
revenue in nature should be recognized in profit or loss.
C. Current adjustments should be recognized in profit or loss and noncurrent adjustments should be recognized
in retained earnings.
D. All of the adjustments should be recognized directly in retained earnings or, if appropriate, in another
category of equity.
64. Young Corp. purchased equipment by making a down payment of P4,000 and issuing a note amounting to
P18,000.Payment of P6,000 is to be made at the end of each year for three years. Interest rate implicit in the note
is 8%. Shipping charges paid were P2,000, and installation charges were P3,500. What is the capitalized cost of
the equipment?
A. 19,480
B. 22,980
C. 24,980
D. 27,500
65. On April 1, Aloe, Inc. factored P80,000 of its accounts receivable without recourse. The factor retained 10% of the
accounts receivable as an allowance for sales returns and charged a 5% commission on the gross amount of the
factored receivables. What amount of cash did Aloe receive from the factored receivables?
A. 68,000
B. 68,400
C. 72,000
D. 76,000
66. Which of the following is the minimum reporting requirement for a company that is preparing its first IFRS
financial statements?
FAR Page 9 of 10
Financial Accounting & Reporting 1ST Preboard Examination
A. Three statements of financial position and two statements of comprehensive income.
B. Two statements of financial position and two statements of comprehensive income.
C. Three statements of financial position and three statement of comprehensive income.
D. Two statements of financial position and three statements of comprehensive income.
67. On July 1, Year 1, Investor Corp. acquired 40,000 shares of Investee Corp. for P75,000. At that date, the equity
section of the statement of financial position of Investee follows:
Issued capital (100,000 shares) P100,000
Retained earnings 60,000
Total P160,000
The non-depreciable assets of Investee were undervalued by P20,000 at July 1, Year 1. Investor used its significant
influence to have the Investee revalued its assets to fair value at July 1, Year 1. The tax rate is 30%. The same
assets were still on hand with the Investee at June 30, Year 2.
For the year ending June 30, Year 2, the following information about Investee was available:
Profit before tax P 120,000
Income tax expense 36,000
Profit for the year 84,000
Retained earnings 7/1/Y1 80,000
Total 164,000
Dividend paid during the year 20,000
Dividend declared to be paid next month 30,000
Retained earnings 6/30/Y2 P114,000
Investor recognizes dividends as revenue when they are declared by Investee. During the year ended June 30,
Year 2, Investee sold inventories to Investor for P15,000. These inventories originally cost P5,000. Half of the
inventories were still on hand at June 30, Year 2.
What amount would Investor recognized under the item “Share in the profit of associate” in its statement of
comprehensive income for the year ended June 30, Year 2?
A. 31,600
B. 23,600
C. 32,200
D. 35,000
68. Refer to the previous problem. What amount would Investor recognized under the item “Investment in
Associate” in its statement of financial position as of June 30, Year 2?
A. 87,200
B. 88,600
C. 107,200
D. 108,600
69. Which of the following events after reporting period require adjustments in accordance with IAS 10?
I. The sale of inventories after the reporting period may give evidence about their net realizable value at the
end of the reporting period.
II. The bankruptcy of a customer that occurs after the reporting period usually confirms that the customer was
credit-impaired at the end of the reporting period.
III. Major purchases of assets, classification of assets as held for sale (PFRS 5), other disposals of assets, or
expropriation of major assets by government.
IV. Changes in tax rates or tax laws enacted or announced after the reporting period that have a significant effect
on current and deferred tax assets and liabilities
A. I and II
B. I, II and IV
C. I and IV
D. All of the events listed are adjusting events
70. The Monster Company purchased a machine on January 1, Year 1. The relevant information is given below:
Cost of the machine P250,000
Expected useful life of machine 5 years
Salvage value P25,000
What is the carrying amount of the machine on Y1 statement of financial position?
A. 175,000
B. 235,000
C. 166,667
D. 150,000

************************************************************************
Good luck and God bless

FAR Page 10 of 10