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Elms Mock Board Reviewer
Elms Mock Board Reviewer
Elms Mock Board Reviewer
Question 1
It is an accounting method where the investment is initially recognized at cost and adjusted for
the post-acquisition change in the investor's share of the investee's net assets.
Response: Equity method
Feedback: Correct! The equity method is an accounting method whereby the investment is
initially recognized at cost and adjusted for the post-acquisition change in the investor's share
of the investee's net assets. With this method, the investor company reports the revenue
earned by the other company on its income statement, in an amount proportional to the
percentage of its equity investment in the other company.
Score: 1 out of 1 Yes
Question 2
What is the initial measurement of an internally generated intangible asset?
Response: Directly attributable cost incurred after the asset met the criteria for capitalizing
development cost
Feedback: Correct! An internally generated intangible asset is initially measured using directly
attributable cost incurred after the asset met the criteria for capitalizing development cost.
Score: 1 out of 1 Yes
Question 3
Which of the following is NOT an adjusting event after the reporting period?
Response: The settlement before the reporting period of a court case that confirms the entity
had a present value after the present obligation at the end of the reporting period.
Feedback: Correct! Because the settlement of a court case happened before the reporting
period, not after the reporting period.
Score: 1 out of 1 Yes
Question 4
What is the initial measurement of an intangible asset acquired through a government grant?
Response: Fair value or nominal account plus directly attributable expenditures
Feedback: Correct! Intangible asset acquired through a government grant is initially measured
at fair value or nominal account plus any directly attributable expenditures. Fair value
represents the estimated worth of various assets and liabilities that must be listed on a
company's books.
Score: 1 out of 1 Yes
Question 5
Shaina took the October 200B Certified Public Accountant Licensure Examination (CPALE)
and obtained a general average of 85%, with four (4) subjects higher than 75% and no grade
lower than 65% in the remaining two (2) subjects. Using the current Board of Accountancy
(BOA) Resolution, what is her status in the examination?
Response: Passed
Feedback: Correct! Shaina passed because she obtained a general average of 85%, with four
(4) subjects higher than 75% and no grade lower than 65% in the remaining two (2) subjects.
Score: 1 out of 1 Yes
Question 6
It is an amount by which the carrying amount of an asset exceeds its recoverable amount.
Response: Impairment loss
Feedback: Correct! Impairment loss exists when the carrying amount of an asset exceeds its
recoverable amount. When testing an asset for impairment, the total profit, cash flow, or other
benefit expected to be generated by that specific asset is periodically compared with its
current book value.
Score: 1 out of 1 Yes
Question 7
Which of the following DOES NOT result in a deferred tax asset?
Response: Taxable temporary differences
Feedback: Correct! This is the direct opposite of a deferred tax asset. The taxable temporary
difference will result in taxable amounts in a future period's taxable profit (or loss).
Score: 1 out of 1 Yes
Question 8
These events are indicative of conditions that arose after the reporting period.
Response: Non-adjusting events
Feedback: Correct! Non-adjusting events are indicative of conditions that arose after the
reporting period. Examples of which are declaration of dividends and initiation of litigation
against the company arising out after the reporting period.
Score: 1 out of 1 Yes
Question 9
Which condition must be met for an item to be recognized as an intangible asset other than
goodwill?
Response: The item is non-monetary, identifiably, and lacks physical substance.
Score: 1 out of 1 Yes
Question 10
Which of the following should NOT be included in the physical inventory of a company?
Response: Goods held on consignment from another company
Feedback: Correct! Goods held on consignment should not be included because another
company has a title (ownership) to the goods.
Score: 1 out of 1
FAR
Question 1
Adjustments for unpaid rendered services:
Response: Have an assets-and-revenues-account relationship
Feedback: Correct! Adjustments will have an assets-and-revenues-account relationship.
Score: 1 out of 1 Yes
Question 2
ML Company incurred the following costs in its production of Product Green: Beginning
finished goods of P10,000; Cost of goods manufactured amounting to P6,500 and ending
finished goods of P5,000. What amount will be reported as the cost of goods sold?
Response: P11,500
Feedback: Correct! Beg. Finished Inv. + COGM – End. Finished Inv. = COGS; P10,000 +
P6,500 - P5,000 = P11,5000
Score: 1 out of 1 Yes
Question 3
Renalie Company was incorporated on January 1, 2X21, with P5,000,000 from the issuance of
share capital and borrowed funds of P1,500,000. During the first year, the net income was
P2,500,000. On December 15, the entity paid a P500,000 cash dividend. On December 31,
2X21, the liabilities had increased to P1,800,000. What should be reported as total assets on
December 31, 2X21?
Response: P8,800,000
Feedback: Correct! Liabilities P1,800,000 + Share capital P5,000,000 + Retained earnings
P2,000,000 (P2,500,000 - P500,000) = P8,800,00
Score: 1 out of 1 Yes
Question 4
Yoshi Manufacturing incurred the following costs in its production of Product Y: Direct
Materials of P10,000; Direct Labor of P8,000; and Manufacturing Overhead of P7,500. How
much will Yoshi record as prime cost?
Response: P18,000
Feedback: Correct! DM + DL = Prime Cost; P10,000 + P8,000 = P18,000
Score: 1 out of 1 Yes
Question 5
X Company incurred the following costs in its production of Product A: Direct Materials of
P15,000; Direct Labor of P10,000; and Manufacturing Overhead of P12,000. Compute the cost
of goods manufactured if the company has P25,000 worth of beginning Work in Process (WIP)
inventory and P13,000 ending WIP inventory.
Response: P49,000
Feedback: Correct! Beg. WIP + (DM + DL + MO) – End. WIP = COGM; P25,000 +
(15,000+10,000+12,000) – P13,000 = P49,000
Score: 1 out of 1 Yes
Question 6
Adjustments for professional fees received but not yet rendered:
Response: Decrease liabilities and increase revenues
Feedback: Correct! Adjustments will consist of a debit (decrease) to unearned revenues (a
liability) and credit (increase) to a revenue account.
Score: 1 out of 1 Yes
Question 7
Given the following account balances of Jan Company for the month ended June 30,
2X22, how much is its total assets?
Revenues P85,000
Expenses:
Popcorn 22,800
Toppings and
seasonings 17,300
Employees’ wages
and benefits 10,700
Lease payments 24,000
Utilities 3,200
Advertising 900
Miscellaneous 300
Cash 6,200
Equipment 12,500
Accounts Payable 650
Wages Payable 1,200
Investment by Owner 12,500
Drawings by Owner 1,450
Response: P18,700
Feedback: Correct! Cash P6,200 + Equipment P12,500 = P18,700
Score: 1 out of 1 Yes
Question 8
A company has purchased a tract of land and plans to build a production plant on the land in
approximately five (5) years. The land will be idle during the five (5) years before construction.
The land should be reported as:
Response: Long-term investment
Feedback: Correct! Long-term investments include long-term assets such as land that a
company is not currently using in its operating activities.
Score: 1 out of 1 Yes
Question 9
The trial balance shows Prepaid Rent P1,575 and Rent Expense P0. If P800 is the remaining
balance of Prepaid Rent at the end of the period, the adjusting entry is:
Response: Dr. Rent Expense P775; Cr. Prepaid Rent P775
Feedback: Correct! Debiting Rent Expense for P775 and crediting Prepaid Rent for P775
(P1,575 – P800) will decrease Prepaid Rent and increase Rent Expense.
Score: 1 out of 1 Yes
Question 10
Given the following account balances of Jan Company for the month ended June 30,
2X18, how much is its net assets?
Revenues P85,000
Expenses:
Popcorn 22,800
Toppings and
seasonings 17,300
Employees’ wages
and benefits 10,700
Lease payments 24,000
Utilities 3,200
Advertising 900
Miscellaneous 300
Cash 6,200
Equipment 12,500
Accounts Payable 650
Wages Payable 1,200
Investment by Owner 12,500
Drawings by Owner 1,450
Response: P16,850
Feedback: Correct! Total assets P18,700 – Total liabilities P1,850 = P16,850
IA1
Question 1
Jade Company acquired two (2) items of machinery as follows:
On December 31, 2X14, Jade Company purchased a machine in exchange for a noninterest-
bearing note requiring 10 payments of P500,000. The first payment was made on December
31, 2X15, and the others are due annually on December 31. The prevailing interest rate for this
type of note at the date of issuance was 12%. The present value of an ordinary annuity of 1 at
12% is 5.33 for nine (9) periods and 5.65 for 10 periods.
On December 31, 2X14, Jade Company acquired used machinery by issuing the seller a two-
year, noninterest-bearing note for P3,000,000. The entity has paid a 12% interest for this type
of note in recent borrowing. The present value of 1 at 12% for two (2) years is .80, and the
present value of an ordinary annuity of 1 at 12% for two (2) years is 1.69.
What is the total cost of machinery?
Response: P5,225,000
Feedback:
Correct!
Using bank reconciliation, what is the adjusted cash balance per book?
Response: P67,124
Feedback:
Correct! This is the adjusted cash balance per book.
Unit Units
Units Total cost on
cost hand
Balance -1/1 10,000 100 1,000,000 10,000
Purchased -1/7 6,000 300 1,800,000 16,000
Sold - 1/20 9,000 7,000
Purchased –
4,000 500 2,000,000 11,000
1/25
Using the moving average method, what should the company report as inventory on January
31?
Response: P3,225,000
Feedback:
Correct!
U
Uni nit Total
ts co cost
st
P
10, P1,00
January 1 10
000 0,000
0
6,0 30 1,800,
January 7
00 0 000
Balance
16, 17 2,800,
(2,800,000/
000 5 000
16,000)
January 20 (9,0 17 (1,575
- Sale 00) 5 ,000)
7,0 17 1,225,
Balance
00 5 000
4,0 50 2,000,
January 25
00 0 000
11, 29 P3,22
Balance
000 3 5,000
Score: 1 out of 1 Yes
Question 10
Hype Company acquired a tract of land containing an extractable natural resource. The entity
is required by the purchase contract to restore the land to a condition suitable for recreational
use after it has extracted the natural resources. A geological survey indicated that the
recoverable reserves will be 2,500,000 tons and that the extraction will be completed in five (5)
years. Relevant cost information shows the following: Land - P9,000,000; Exploration and
development cost - P1,000,000; Expected cash flow for restoration cost - P1,500,000; Credit-
adjusted risk-free interest rate - 10%; and PV of 1 at 10% for five (5) periods - 0.62. What is the
depletion charge per ton?
Response: P4.37
Feedback: Correct! Depletable Amount = Land Cost P9,000,000 + Exploration and
Development Cost P1,000,000 + Present Value of Expected Restoration Cost (P1,500,000 x
0.62) P930,000 = P10,930,000/2,500,000 = P4.37
IA2
Question 1
At the beginning of the current year, Ashe Company entered into a 10-year noncancelable
lease requiring year-end payments of P1,000,000. Ashe’s incremental borrowing rate is 12%,
while lessor’s implicit interest rate known to Ashe is 10%. Present value factors for an ordinary
annuity for 10 periods are 6.145 at 10% and 5.650 at 12%. On the same date, Ashe paid the
initial direct cost of P200,000 to negotiate and secure the leasing arrangement. Ownership of
the property remains with the lessor at the expiration of the lease. There is no purchase option.
The leased property has an estimated economic life of 12 years. What is the annual
depreciation of the right of use asset?
Response: P634,500
Feedback: Correct! Depreciation of right of use asset (6,345,000/10 years = P634,500)
Score: 1 out of 1 Yes
Question 2
At the end of the current year, Lessee Company leased machinery with the following
information:
Coupons expected to be
1,350,000
redeemed ( 4,500,000 x 30%)
Coupons redeemed 1,100,000
Balance 250,000
No. of coupons required for one
10
(1) premium
Expected premium to be
25,000
redeemed
Cost per premium 45
Estimated premium liability 1,125,000
Score: 1 out of 1 Yes
Question 7
Before deducting bonus and income taxes, TMI Company has a profit of P1,000,000. The
bonus rate and income tax rates are 10% and 30%, respectively. What is the bonus amount if it
is based on profit after bonus but before taxes?
Response: P90,909
Feedback:
Correct! P90,909 is the bonus based on profit after bonus but before taxes.
B = .10 x (P1,000,000 - B)
B = P100,000 - .10B
B = P100,000/1.10
B = P90,909
Score: 1 out of 1 Yes
Question 8
At the beginning of the current year, Ashe Company entered into a 10-year noncancelable
lease requiring year-end payments of P1,000,000. Ashe’s incremental borrowing rate is 12%,
while lessor’s implicit interest rate known to Ashe is 10%. Present value factors for an ordinary
annuity for 10 periods are 6.145 at 10% and 5.650 at 12%. On the same date, Ashe paid the
initial direct cost of P200,000 to negotiate and secure the leasing arrangement. Ownership of
the property remains with the lessor at the expiration of the lease. There is no purchase option.
The leased property has an estimated economic life of 12 years. What amount should be
capitalized initially as the cost of the right of use asset?
Response: P6,345,000
Feedback: Correct! Present value of rentals (1,000,000 X 6.145) P6,145,000 + Initial direct cost
P200,000 = Total cost of property P6,345,000.
Score: 1 out of 1 Yes
Question 9
On December 31, 2X19, and 2X18, Mashiho Company had 100,000 ordinary shares and
10,000 cumulative preference shares of 5%, P100 par value. No dividends were declared on
either the preference or ordinary shares in 2X19 or 2X18. Net income for the current year was
P900,000. What amount should be reported as basic earnings per share?
Response: P8.50
Feedback: Correct! Net income P900,000 – Preference dividend (P1,000,000 x 5%) P50,000 =
Net income to ordinary shares P850,000 / 100,000 ordinary shares = P8.50
Score: 1 out of 1 Yes
Question 10
Post-employment employee benefits include all of the following, EXCEPT:
Response: Long-term disability benefits
Feedback: Correct! Long-term disability benefits are under other long-term employee benefits.
IA3
Question 1
Jack Company (JC) earns a net profit of P100,000 and has 5,000,000 common shares
outstanding that sell on the open market for an average of P20 per share. Also, 500,000
options are outstanding that can be converted to JC’s common stock at P10 each. Which of the
following is the diluted earnings per share (EPS) of JC Company?
Response: 0.0196
Feedback: Correct! Net Profit / Diluted shares; P100,000 / 5,114,286 = 0.0916
Score: 1 out of 1 Yes
Question 2
Assume that ABC Company had post-tax profits for 2X21 of P1,375,000 and issued share
capital of P1,650,000 comprising 1,000,000 ordinary shares of P0.65 each and 1,000,0000 at
P1, 10% preference shares classified as equity. Which of the following are the basic earnings
per share?
Response: 1.28
Feedback: Correct! Profit attributable to ordinary shares / Total preference shares = Basic
earnings per share; P1,275,000/1,000,000 shares = 1.28
Score: 1 out of 1 Yes
Question 3
Juan Company provided the following data on December 31, 20x1:
Cash, P27,500
Accounts receivable, P583,000
Prepayments, P66,000
Inventories, P93,000
Investment in associate, P131,600
Property, plant, & equipment, P3,575,000
Dep. and impairment, P770,000
Software net of amortization and impairment, P11,000
Deferred tax asset, P8,500
Bank overdraft, P88,000
Trade payables, P500,000
Interest payable, P2,200
Current tax liability, P297,000
Provision for warranty, P4,400
Employee benefit obligation,
Current, P6,000
Non-current, P5,000
Finance lease liability,
Current, P24,400
Non-current, 34,600
Bank Loan due in 20x3, P55,0000
Share capital, P33,000
Retained earnings, P2,673,000
Which of the following is the total non-current assets?
Response: P2,956,100
Feedback: Correct! Non-current assets are the investment in an associate, property, plant, and
equipment, software, and deferred tax asset.
Score: 1 out of 1 Yes
Question 4
ABC Company earns a net profit of P100,000 and has 5,000,000 common shares outstanding
that sell on the open market for an average of P20 per share. Also, 500,000 options are
outstanding that can be converted to ABC’s common stock at P10 each. Which of the following
is the number of diluted shares?
Response: 5,250,000 shares
Feedback: Correct! Options x average exercise price / average market price; (500,000 x
10)/20= 250,000; options - shares that could have been purchased with the proceeds from the
options; 500,000 – 250,000 = 250,000 shares plus common shares of 5,000,000 = 5,250,000.
Score: 1 out of 1 Yes
Question 5
The following are the accounts presented on Jeon Company’s Statement of Financial Position:
Cash 337,770
Accounts receivable 87,480
Inventories 374,625
Building & equipment 3,847,500
Acc. Depreciation 1,265,625
Accounts payable 202,500
Salaries payable 22,275
Total liabilities 224,775
The cash book shows the receipts and payments during 2X21 as follows:
Total liabilities
Cash Receipts
Collections on AR 719,685
Cash sales 923,400
Cash Payments
AP for merchandise 1,100,385
Salaries 216,675
Other operating expenses 60,750
Withdrawals by the owner 121,500
Supplementary information:
Sales returns and allowances 36,450
Cash discounts to customers 12,150
AR written off as worthless 6,075
Cash discounts on purchases 22,275
Purchase returns & allowances 19,642.50
Balances were taken on December 31, 2X21 from the supplementary analysis:
Accounts Receivable 153,900
Accounts Payable 172,125
Cash 337,770
Accounts receivable 87,480
Inventories 374,625
Building & equipment 3,847,500
Acc. Depreciation 1,265,625
Accounts payable 202,500
Salaries payable 22,275
Total liabilities 224,775
The cash book shows the receipts and payments during 2X21 as follows:
Total liabilities
Cash Receipts
Collections on AR 719,685
Cash sales 923,400
Cash Payments
AP for merchandise 1,100,385
Salaries 216,675
Other operating expenses 60,750
Withdrawals by the owner 121,500
Supplementary information:
Sales returns and allowances 36,450
Cash discounts to customers 12,150
AR written off as worthless 6,075
Cash discounts on purchases 22,275
Purchase returns & allowances 19,642.50
Balances were taken on December 31, 2X21 from the supplementary analysis:
Accounts Receivable 153,900
Accounts Payable 172,125
AUDITING THEORY
Question 1
In the first audit of a client, an auditor was not able to gather sufficient evidence about the
consistent application of accounting principles between the current and prior year, as well as
the amounts of assets or liabilities at the beginning of the current year. This was because of the
client’s record retention policies. If the amounts in question could materially affect current
operating results, the auditor would:
Response: Be unable to express an opinion on the current year’s results of operations and
cash flows
Feedback: CORRECT! The scope limitation will affect the year’s beginning balances and affect
the current year’s operations and cash flows. Therefore, the auditor will disclaim an opinion.
Correct answer: Be unable to express an opinion on the current year’s results of operations
and cash flows
Score: 1 out of 1 Yes
Question 2
Which of the following is an audit procedure that an auditor would MOST likely perform
concerning litigation, claims, and assessments?
Response: Discuss its policies and procedures adopted for evaluating and accounting for
litigation, claims, and assessments with management.
Feedback: CORRECT! Auditors must discuss its policies and procedures for evaluating and
accounting for litigation, claims, and assessments with management.
Correct answer: Discuss its policies and procedures adopted for evaluating and accounting for
litigation, claims, and assessments with management.
Score: 1 out of 1 Yes
Question 3
An auditor who discovers that a client’s employees paid small bribes to municipal officials
would MOST likely withdraw from the engagement if:
Response: Management fails to take the appropriate remedial action.
Feedback: CORRECT! Management’s failure to take the appropriate remedial action is
particularly problematic since it may affect the auditor’s ability to rely on management
representation and may therefore lead to withdrawal.
Correct answer: Management fails to take the appropriate remedial action.
Score: 1 out of 1 Yes
Question 4
These provide additional evidence about conditions that existed at the balance sheet date and
affected the estimates part of the financial statement preparation process.
Response: Adjusting events
Feedback: CORRECT! They are also known as Type I events and may require adjusting
amounts in the financial statements.
Correct answer: Adjusting events
Score: 1 out of 1 Yes
Question 5
Confirmation is most likely to be a relevant form of evidence about assertions on accounts
receivable when the auditor has concerns about the receivables’:
Response: Existence
Feedback: CORRECT! A confirmation addresses whether the entity replying to the confirmation
believes that a debt exists.
Correct answer: Existence
Score: 1 out of 1 Yes
Question 6
It is the risk that a misstatement could occur in an assertion about a class of transaction,
account balance, or disclosure and that could be material, either individually or when
aggregated with other misstatements, which will not be prevented, or detected and corrected,
on a timely basis by the entity’s internal control.
Response: Control risk
Feedback: CORRECT! Control risk is related to the effectiveness of the client’s internal control.
It also exists independently in the audit of financial statements and is assessed using the
auditor’s judgment.
Correct answer: Control risk
Score: 1 out of 1 Yes
Question 7
Which of the following procedures would an auditor MOST likely perform in obtaining evidence
about subsequent events?
Response: Investigate changes in long-term debt occurring after year-end.
Feedback: CORRECT! The auditor obtains evidence about subsequent events to determine
unusual events that may happen. Changes in long-term debt occurring after year-end may
require disclosure in the notes. The changes need to be disclosed because they are material,
and the stockholders need to be aware of them.
Correct answer: Investigate changes in long-term debt occurring after year-end.
Score: 1 out of 1 Yes
Question 8
Which of the following procedures should an auditor generally perform regarding subsequent
events?
Response: Compare the latest available interim financial statements with the financial
statements being audited.
Feedback: CORRECT! The professional standards state that, generally, the auditor should
compare the latest available interim financial statements with the financial statements being
audited.
Correct answer: Compare the latest available interim financial statements with the financial
statements being audited.
Score: 1 out of 1 Yes
Question 9
As the acceptable level of detection risk decreases, an auditor may:
Response: Postpone the planned timing of substantive tests from interim dates to the year-end.
Feedback: CORRECT! Postponement of interim substantive tests to year-end decreases
detection risk by reducing the risk for the period after the performance of those tests; other
approaches to decreasing detection risk include changing to more effective substantive tests
and increasing their extent.
Correct answer: Postpone the planned timing of substantive tests from interim dates to the
year-end.
Score: 1 out of 1 Yes
Question 10
An auditor MAY NOT issue a qualified opinion when:
Response: The auditor lacks independence from the audited entity.
Feedback: CORRECT! An auditor who lacks independence must disclaim an opinion, not
qualify an opinion.
Correct answer: The auditor lacks independence from the audited entity.
AUDIT OF ASSET
Question 1
Using the information in Case No. 3, what is the increase in the accounts payable balance on
June 30, 20x2?
Response: P44,100
Feedback: CORRECT! The accounts payable balance as of June 30, 20x2 is as
follows: P27,900 + P16,200 = P44,100.
Score: 1 out of 1 Yes
Question 2
Using the information in Case No. 5, what is the accumulated depreciation – machinery and
equipment on December 31, 20x6?
Response: P8,556,875
Feedback:
CORRECT! To compute the accumulated depreciation, determine first the depreciation
expense recognized in the previous years and 20x6. The accumulated depreciation in 20x6 is
already given.
Unrealized
Year Gain
(Loss)
20x2 P(5,893)
20x3 26,455
20x4 (1,222)
20x5 (8,358)
Cumulative
P10,982
Gain
Score: 1 out of 1 Yes
Question 5
Using the information in Case No. 2, what is the net realizable value (NRV) of Gibas
Corporation’s accounts receivable on December 31, 20x1?
Response: P3,970,800
Feedback:
CORRECT! This is computed by deducting the required allowance from the accounts
receivable balance.
Accounts receivable (P4,600,000 –
P4,480,000
P120,000)
Required allowance 509,200
Net realizable value P3,970,800
An amortization table can also be used as a reference to determine the unrealized gain.
Score: 1 out of 1 Yes
Question 7
Using the information in Case No. 1, what is the amount of cash shortage chargeable against
the cashier?
Response: P168,510
Feedback:
CORRECT! The amount can be computed as follows:
20x2 20x3
Unadjusted
P39,000
balances P45,000
Inventory-
overstated
20x2 (42,000) 42,000
20x3 (48,000)
Inventory-
understated
20x1 (36,000)
Prepaid expenses
omitted
20x1 (5,400)
20x2 4,200
(4,200)
20x3 3,000
Deferred revenues
omitted
20x2 2,400
(2,400)
Accrued expenses
omitted
20x1 1,200
20x2
(450) 450
20x3 (600)
Accrued revenues
omitted
20x2 750
(750)
(P35,10
Adjusted balances P33,300
0)
Score: 1 out of 1 Yes
Question 4
Using the information in Case No. 8, what is Harlequin Company’s total assets as of
December 31, 20x4?
Response: P316,500
Feedback:
CORRECT! This is the adjusted balance of total assets.
20x4 NI 20x4 RE
Unadjusted P162,000
balances P33,000
Inventory-
understated
20x4 54,000 54,000
Prepaid expenses
omitted
20x4 3,600 3,600
Deferred revenues
omitted
20x4 (1,800) (1,800)
Accrued expenses
omitted
20x4 (300)
(300)
Accrued revenues
omitted
20x4
900 900
Adjusted balances P135,000 P218,400
Score: 1 out of 1 Yes
Question 7
Using the information in Case No. 8, what is the corrected net loss for 20x2?
Response: P35,100
Feedback:
CORRECT! This is the corrected net loss after all the adjustments were made.
20x1
(36,000)
Prepaid expenses
omitted
20x1
(5,400)
20x2 4,200
Deferred revenues
omitted
20x2
(2,400)
Accrued expenses
omitted
20x1 1,200
20x2
(450)
Accrued revenues
omitted
20x2 750
Adjusted balances
(P35,100)
Score: 1 out of 1 Yes
Question 8
Using the information in Case No. 6, what amount of current liabilities should be reported on
the December 31, 20x1 statement of financial position?
Response:
P7,300,000
Feedback:
CORRECT! The following are the items classified as current liabilities:
20x2
Balance, 20x1 P14,895,000
Apr. 30 Dividends (305,250)
May 19 Dividends (154,200)
Oct. 31 Dividends (314,888)
Dec. 31 Net income 2,670,000
Balance, Dec. 31 P16,790,662
Score: 1 out of 1 Yes
Question 2
Using the information in Case No. 10, what is the preference share capital on December 31,
20x2?
Response: P1,954,200
Feedback:
INCORRECT! Take note of the transactions involving ordinary share capital.
Preference
Share
20x1
Jan. 1 P2,400,000
Sept. 30 Conversion 600,000
Balance, Dec. 31 P1,800,000
20x2
May 16. Cash Dividend 154,200
Balance, Dec. 31 P1,954,200
Score: 1 out of 1 Yes
Question 3
Using the information in Case No. 10, what is the balance of retained earnings before an
appropriation for treasury shares on December 31, 20x1?
Response: P14,895,000
Feedback:
CORRECT! To compute the retained earnings balance, determine the value of dividends
declared to be deducted from the beginning balance of retained earnings.
RE
20x1
Jan. 1 P13,500,000
Apr. 30 Dividends (307,500)
Oct. 31 Dividends (277,500)
Dec. 31 Net income 1,980,000
Balance, Dec. 31 P14,895,000
Score: 1 out of 1 Yes
Question 4
Using the information in Case No. 9, what is the compensation expense to be recognized in
year 1
Response: P225,000
Feedback:
CORRECT! The compensation expense in 20x1 is computed as follows:
P10 x 450 employees x 100 shares x ½ = P225,000
By the end of year 1, the entity expects that the shares will vest at the end of year 2.
Score: 1 out of 1 Yes
Question 5
Using the information in Case No. 9, what is the amount of compensation expense to be
recognized in year 2?
Response: P57,000
Feedback:
CORRECT! This is the compensation expense in year 2.
(P10 x 423 x 100 x 2/3) – P225,000 = P57,000
Score: 1 out of 1 Yes
Question 6
Using the information in Case No. 10, what is the share premium on December 31, 20x2?
Response: P10,838,100
Feedback:
CORRECT! The following are the transactions involving share premium:
SP
20x1
Jan. 1 P9,000,000
Sep. 30 525,000
Dec. 21 840,000
Balances, Dec. 31 P10,365,000
20x2
Feb. 1 (36,900)
Apr. 15 510,000
Balances, Dec. 31 P10,838,100
Score: 1 out of 1 Yes
Question 7
Using the information in Case No. 9, what amount should the entity report as share options
outstanding at the end of year 3?
Response: P428,000
Feedback:
CORRECT! The share options outstanding are equal to the cumulative compensation expense
for the period.
Share premium
20x1
Jan. 1 P9,000,000
Sep. 30 Conversion 525,000
Dec. 21 Subscription 840,000
Balance, Dec. 31 P10,365,000
Score: 1 out of 1 Yes
Question 9
Using the information in Case No. 9, what is the amount of compensation expense to be
recognized in year 3?
Response: P146,000
Feedback:
CORRECT! This is the compensation expense in year 3.
Score: 1 out of 1
Teddy Outsiders
Sales P900,000 P8,000,000
Variable Costs (900,000) (3,600,000)
Fixed Costs (300,000) (1,200,000)
Gross Margin (P300,000) P3,200,000
Unit Sales 20,000 80,000
Truz has an opportunity to sell the above 20,000 units to an outside customer at P75 per unit
during 20X0 continuingly. Teddy can purchase its requirements from an outside supplier at P85
per unit.
Assuming that Truz desires to maximize its gross margin, should it take on the new customer
and drop its sales to Teddy for 20X1, and why?
Response: Yes, because Truz Division’s gross margin would increase by P600,000.
Feedback: CORRECT! If Truz sells to the new customer, its revenues will increase to
P1,500,000 (P75 × 20,000), but its costs will remain the same at P1,200,000 (P900,000 +
P300,000). This results in a positive gross margin of P300,000 (P1,500,000 – P1,200,000). The
new gross margin is P600,000 [P300,000 – (– P300,000)] greater than the original gross
margin.
Score: 1 out of 1 Yes
Question 6
The following 20X1 information of Asahi Enterprise is available:
The ending finished goods inventory for each month equals 25% of the next quarter’s budgeted
unit sales. Additionally, four (4) pounds of raw materials are required for each finished unit
produced. The ending raw materials inventory for each month equals 10% of the next month’s
production requirements. What is the budgeted or scheduled production for the 3rd Quarter?
Response: 17,500
Feedback:
CORRECT! This can be computed as follows:
Sales 18,000
Add: Ending Finished Goods Inventory 4,000
Less: Beginning Finished Goods Inventory (4,500)
Number of Units Produced 17,500
Score: 1 out of 1 Yes
Question 9
Clay Co. has considerable excess manufacturing capacity. A special job order’s cost sheet
includes the following applied manufacturing overhead costs:
The fixed costs include a normal P3,700 allocation for in-house design costs, although no in-
house design will be done. Instead, the job will require the use of external designers costing
P7,750. What is the total amount to be included in the calculation to determine the minimum
acceptable price for the job?
Response: P40,750
Feedback: CORRECT! When determining a price for special order with idle capacity, only the
differential manufacturing costs are considered. The underlying assumption is that acceptance
of the order will not affect regular sales. In the short run, fixed costs are sunk costs and are
irrelevant. Since regular sales will not be affected by the special order, fixed and variable costs
incurred during normal operations are not considered. Clay Company should consider only the
variable costs associated with the order and the differential cost of using the external
designers. The costs to be considered total P40,750 (P33,000 + P7,750). The order is
accepted if revenue from the order exceeds the differential costs.
Score: 1 out of 1 Yes
Question 10
Lorreyn Company uses flexible budgeting for cost control. Lorreyn produced 10,800 units of
product during October, incurring indirect materials costs of P13,000. Its master budget for the
year reflected indirect materials costs of P180,000 at production volume of 144,000. What is
the indirect materials cost that shall be reflected in the October’s production flexible budget?
Response: P13,500
Feedback: CORRECT! The cost of indirect materials for 144,000 units was expected to be
P180,000. Consequently, the budgeted unit cost of indirect materials is P1.25
(P180,000/144,000). Multiplying the P1.25 to the 10,800 units is equal to P13,500 indirect
materials cost.
Score: 1 out of 1
In the above equation, cost of placing one order, annual demand in units, and cost of carrying
one (1) unit in inventory for one (1) year. Substituting the given information, the equation
becomes
Debt 35%
Preferred Stock 5%
Common Equity 60%
100%
Yomi’s expected net income this year is P34,285.72, its established dividend payout ratio is
30%, its tax rate is 30%, and investors expect future earnings and dividends to grow at a
constant rate of 5%. Yomi paid a dividend of P2.40 per share last year, and its stock currently
sells for P48.00 per share. Yomi can obtain new capital in the following ways:
New preferred stock with a dividend of P12.00 can be sold to the public at P80.00 per share.
Debt can be sold at an interest rate of 10%.
Cost of debt:
Next, determine the Net Income using the Return on Assets (ROA) formula.
Then, get the Net Income Before Taxes (NIBT).
Then, get the difference of the EBIT and NIBT to determine the Interest Charges:
Where:
= Current quantity
= Previous quantity
This means that the percent change in the quantity of Kim Junkyu Merchandising’s best-selling
automotive accessory fell to 33.33%.
Score: 1 out of 1 Yes
Question 5
Jung Merchandising is the major supplier of automotive parts in a local town. As the company
became well-known, it started increasing the price of its best-selling automotive accessory from
P2,000 to P2,500. As a result, the quantity of their product sold fell from 700 to 500. Determine
the demand elasticity of the given product.
Response: Elastic
Feedback: CORRECT! The given product is considered elastic because the quotient, derived
from the price elasticity, is 1.5 and is, therefore, greater than one (1).
Score: 1 out of 1 Yes
Question 6
This happens when a firm produces the maximum output possible for a given combination of
inputs and existing technology.
Response: Technical efficiency
Feedback: CORRECT! When a firm is technically efficient, every input is being utilized to the
fullest extent possible. There is no other way to get more output without using more of at least
one (1) input.
Score: 1 out of 1 Yes
Question 7
Which market structure is characterized by a large number of firms producing identical
products?
Response: Perfect competition
Feedback: CORRECT! It has the highest degree of competition due to the large number of
firms producing identical products in perfect competition.
Score: 1 out of 1 Yes
Question 8
Jeff Batambakal receives an income of P3,000 per month and spends P2,500. Jeff’s income
increased by P500 per month, and he now spends P2,800 per month. What is Jeff’s marginal
propensity to save?
Response: 0.40
Feedback:
CORRECT! To solve for the marginal propensity to save, compute first for the change in
savings which is P200 [(P3,500 – P2,800) – (P3,000 – P2,500)]. Afterward, divide the change
in savings (P200) with the change in income of P500.
Level of
Disposable
Consumption
Income
P42,000 P36,000
P50,000 P42,000
The P20,000 loss is then distributed to the partners in relation to their profit and loss ratios as
follows:
P144,000/P180,000 = 80%
This increased loss would then be allocated to the partners, decreasing their capital accounts.
The computations are shown below.
Score: 1 out of 1
ACCOUNTING FOR SPECIAL TRANSACTIONS II
Question 1
Using the information in CASE NO. 5 (a), what is the net income?
Response: P23,000
Feedback:
CORRECT! The freight costs to be included as the cost of chillers sold shall pertain only to the
sold units. Therefore, only P2,000 shall be included.
Sales, P100,000 – Cost of chillers sold, P60,000 + P2,000 freight cost = Gross profit, P38,000
– Commission expense, P15,000 = P23,000 net income
Score: 1 out of 1 Yes
Question 2
Using the information in CASE NO. 6, how much loss should Kaiser recognize in 20x1?
Response: P50,000
Feedback: CORRECT! When it is probable that the contract costs will exceed total contract
revenue, the expected loss should be recognized as an expense immediately. Instead of
recognizing P15,000 only, the anticipated loss shall be fully recognized. (P15,000/30%
=P50,000)
Score: 1 out of 1 Yes
Question 3
Using the information in CASE NO. 4 (a), what is the unearned franchise revenue for the year
ended December 31, 20x1?
Response: P119,700
Feedback:
CORRECT! This is the unearned revenue from the license. Only P13,300 is considered earned
during 20x1 since the amount allocated to the license of P133,000 will be amortized over time
for 10 years.
Therefore, P119,700 is still unearned for the year ended December 31, 20x1.
Score: 1 out of 1 Yes
Question 4
Using the information in CASE NO. 5 (b), what are the total collections during 20x2 (including
collections for 20x1)?
Response: P300,000
Feedback:
CORRECT! The total collections for 20x2 includes P150,000 each for 20x1 and 20x2
installment sales.
T-accounts:
Ratio Revenue
Rights to trade
80/180 P83,110
name
Training services 23/180 -
Equipment 77/180 -
Training services and equipment are separately classified and not as an unearned franchise
revenue.
Score: 1 out of 1 Yes
Question 7
Using the information in CASE NO. 7 (b), what is the amount of inventory of the branch on
January 1, 20x2 insofar as the home office is concerned?
Response: P12,500
Feedback: CORRECT! Insofar as the home office is concerned, the amount to be reported
should be restated to its original costs. The amount of inventory on January 1, 20x2, at cost is
P12,500 computed as P15,625/1.25 = P12,500.
Score: 1 out of 1 Yes
Question 8
Using the information in CASE NO. 7 (a), how much is the branch's net income (loss) insofar
as the home office is concerned?
Response: P16,500
Feedback:
CORRECT! Note that the true profit is computed by simply restating the merchandise received
from the home office to their original costs. Alternatively, the true profit of the branch can be
calculated by adding the realized markup to the individual profit. The realized markup is the
markup on the shipments sold to external parties.
P303,050 – P61,050 = P242,000 x 10/110 = Realized markup, P22,000 – Individual net loss,
P5,500 = P16,500 True net income
Score: 1 out of 1 Yes
Question 9
Using the information in CASE NO. 5 (c), what is the gain or loss on repossession assuming
the repossessed merchandise is to be recorded at fair value?
Response: P1,100 loss
Feedback:
CORRECT! Since the unrecovered cost amounting to P5,600 (P8,000 x 70%) is greater than
the fair value of P4,500, there is a loss on repossession of P1,100.
Journal entry:
Inventory 4,500
DGP 2,400
Loss on Repossession 1,100
Installment Receivable 8,000
Score: 1 out of 1 Yes
Question 10
Anna Company (AC) provides furniture to Veronica Company (VC) on a consignment basis.
The products are immediately proposed for sale in the garden center of VC. AC retains title to
the products until they are sold to the end customer. VC does not have an obligation to pay AC
until a sale occurs, and any unsold products can be returned to AC. AC also retains the right to
take back any unsold products or transfer unsold products to another retailer. Once VC sells
the products to the end customer, AC has no further obligations, and the retailer has no further
return rights. Under Philippine Financial Reporting Standard (IFRS) 15, when shall AC
recognize revenue for the consignment arrangement?
Response: When VC sells the products to the end customer.
Feedback: CORRECT! IFRS 15 provides that revenue shall be recognized only when control is
passed. In the given case, VC only assigns AC the right to sell the products. Revenue will only
be recognized when VC sells the product to the customers.
ACCOUNTING FOR BUSINESS COMBINATIONS, CONSOLIDATIONS, AND FOREIGN
CURRENCY TRANSACTIONS
Question 1
Using the information in CASE NO. 10 (b), how much is the translated comprehensive income
of Samuel Company?
Response: P40,950
Feedback: CORRECT! The rate to be used in translating revenues and expenses is the
weighted average rate.
Score: 1 out of 1 Yes
Question 2
Using the information in CASE NO. 8, what is the value of the total assets that will appear in
the consolidated statement of financial position at the date of acquisition?
Response: P7,545,000
Feedback:
CORRECT! To solve for the total assets that will appear in the consolidated statement of
financial position at the date of acquisition, consolidate the book values of the parent’s assets
and the fair values of the subsidiary’s assets.
Thus, in the given case, the total consolidated assets as of the acquisition date is P7,545,000,
computed as follows:
Applying the above concept, the business combination resulted in a P221,000 gain on bargain
purchase, computed as follows:
TAXATION
INCOME TAX - INDIVIDUALS
Question 1
In 2022, Ysa Batumbakal, the Assurance Manager of Deloitte Philippines, earned a
compensation income of P2,001,000 in the Philippines. This amount is inclusive of his 13th-
month pay and other benefits of P800,000, but net of mandatory contributions to SSS and
PhilHealth.
She also owns a restaurant in Metro Manila. In 2022, the restaurant has gross receipts of
P2,000,000, cost of sales of P500,000, and operating expenses of P600,000. It also had a non-
operating income of P235,000.
What would be Ysa’s total income tax due if she is a non-resident citizen and avails of the 8%
optional income tax rate?
Response: P642, 100
Feedback:
Correct! If a mixed earner signifies his intention to be taxed at an 8% optional income tax rate,
his income from compensation will be subjected to graduated rates. In comparison, his income
on self-employment or practice of profession will be subjected to the 8% optional income tax
rate.
Thus, the tax for his compensation income:
First
Singing contest he voluntarily joined P10,000
Prize
First Philippine Charity Sweepstakes Office
500,000
Prize (PCSO) winnings
Third
Raffle ticket winnings 8,000
Prize
Other income:
Cash dividends received from:
Domestic corporations, P550,000
Foreign corporations, P30,000
Interest income from Philippine bank deposits, net of final tax, P100,000
Royalty income in the Philippines, gross of final tax, P125,000
Gain from sale of real property:
Makati real property not used in business (Selling Price = P10 million), P2,000,000
Domestic shares (not listed) held as capital assets, P100,000
Domestic shares (listed) held as capital assets, P23,000,000
Liquidating dividend from Kyu Corp. (cost of Kyu Corp.’s shares = P96,000), P100,000
Creditable withholding tax (CWT) withheld by customers, P68,000
Tax paid in first three (3) quarters, P30,000
How much is the corporation’s regular corporate income tax (RCIT) due?
Response: P1,481,793
Feedback:
CORRECT! First, solve for the blended rates for regular corporate income tax (RCIT), minimum
corporate income tax (MCIT), and interest rate arbitrage:
Then, determine the tax due under 2% Minimum Corporate Income Tax (MCIT):
By comparing the tax due under each tax, it is determined that in the 1st quarter, the company
will pay the tax due under MCIT. Thus, the prior year’s MCIT cannot be credited:
Then, determine the tax due under 1% Minimum Corporate Income Tax (MCIT):
By comparing the tax due under each tax, it is determined that in the 1st quarter, the company
will pay the tax due under MCIT. Thus, the prior year’s MCIT cannot be credited:
Other income:
Cash dividends received from:
Domestic corporations, P550,000
Foreign corporations, P30,000
Interest income from Philippine bank deposits, net of final tax, P100,000
Royalty income in the Philippines, gross of final tax, P125,000
Gain from sale of real property:
Makati real property not used in business (Selling Price = P10 million), P2,000,000
Domestic shares (not listed) held as capital assets, P100,000
Domestic shares (listed) held as capital assets, P23,000,000
Liquidating dividend from Kyu Corp. (cost of Kyu Corp.’s shares = P96,000), P100,000
Creditable withholding tax (CWT) withheld by customers, P68,000
Tax paid in first three (3) quarters, P30,000
How much is the corporation’s capital gains tax (CGT) applying the provision of the Corporate
Recovery and Tax Incentives for Enterprises (CREATE) Act?
Response: P615,000
Feedback:
CORRECT! This can be computed as follows:
The book, market, zonal, and appraised values of TST’s real properties are as follows:
MV per
Book Value Zonal Appraised
Tax
per FS Value Value
Declaration
P2,000,00 P2,500,00 P5,000,00
Land A P6,000,000
0 0 0
Land B 2,000,000 2,200,000 4,000,000 3,500,000
Building A 1,000,000 2,400,000 3,000,000
Building B 500,0000 2,000,000 1,950,000
Classificatio Assessor’s
Zonal Value
n Value
Residential P4,000,000 P3,000,000
Commercial 1,500,000 6,000,000
Agricultural 5,000,000 2,100,000
Instead of sharing the properties equally, the heirs executed an Extrajudicial Settlement of the
Estate. According to their agreement, the residential property went to Jun, the commercial
property went to Lisa, and finally, the agricultural property went to Doy.
Residential P4,000,000
Commercial 6,000,000
Agricultural 5,000,000
Total P15,000,000
Divide by: 3
An equal share of each heir P5,000,000
As can be observed, Junghwan’s share in the extrajudicial settlement is less compared to his
supposed share. Thus, he donated to his siblings:
How much will proceeds from the above insurances be included in the gross estate of Mr. Sy?
Response: P2,040,000
Feedback:
Correct! The following proceeds from life insurance policies shall form part of the gross estate.
VAT
Question 1
What is the form to file the monthly tax return for value-added tax (VAT)?
Response: BIR Form 2550M
Feedback: Correct! It shall be filed on the 20th day after the end of each month.
Score: 1 out of 1 Yes
Question 2
Spray Kids Inc., VAT-registered, had the following data (net of business taxes) for the last
quarter of 2021 in Philippine peso:
Quarterly
Sales October November December
Totals
Vatable Sales to private entities P500,000 P200,000 P300,000 P1,000,000
Exempt sales 400,000 200,000 600,000
Sales to the government 300,000 100,000 400,000
Export sales 200,000 50,000 250,000
Total P1,400,000 P400,000 P450,000 P2,250,000
Quarterly
October November December
Totals
Purchase of depreciable capital goods P3,000,00 P2,000,00 P5,000,00
from VAT supplier 0 0 0
Life in years 3 6
The corporation had excess input tax credit from the previous quarter in the amount of P3,900.
In November 2021, it chose to file an application for a value-added tax (VAT) refund in the
amount of P2,000. The purchase of depreciable capital goods is for the benefit of all its
business.
What is the VAT payable for the 4th Quarter of 2021?
Response: P4,276
Feedback:
Correct! This can be computed as follows:
Quarterly
Sales October November December
Totals
Vatable Sales to private entities P500,000 P200,000 P300,000 P1,000,000
Exempt sales 400,000 200,000 600,000
Sales to the government 300,000 100,000 400,000
Export sales 200,000 50,000 250,000
Total P1,400,000 P400,000 P450,000 P2,250,000
Quarterly
October November December
Totals
Purchase of depreciable capital
P3,000,000 P2,000,000 P5,000,000
goods from VAT supplier
Life in years 3 6
The corporation had excess input tax credit from the previous quarter in the amount of P3,900.
In November 2020, it chose to file an application for a value-added tax (VAT) refund in the
amount of P2,000. The purchase of depreciable capital goods is for the benefit of all its
business.
Quarterly
Sales October November December
Totals
Vatable Sales to private entities P500,000 P200,000 P300,000 P1,000,000
Exempt sales 400,000 200,000 600,000
Sales to the government 300,000 100,000 400,000
Export sales 200,000 50,000 250,000
Total P1,400,000 P400,000 P450,000 P2,250,000
Purchase of goods from VAT Quarterly
October November December
suppliers related to: Totals
Vatable Sales to private entities P40,000 P50,000 P90,000
Exempt sales 30,000 50,000 80,000
Sales to the government
Export sales 30,000 30,000
Total P70,000 P30,000 P100,000 P200,000
Quarterly
October November December
Totals
Purchase of depreciable capital
P3,000,000 P2,000,000 P5,000,000
goods from VAT supplier
Life in years 3 6
The corporation had excess input tax credit from the previous quarter in the amount of P3,900.
In November 2021, it chose to file an application for a value-added tax (VAT) refund in the
amount of P2,000. The purchase of depreciable capital goods is for the benefit of all its
business.
Quarterly
Sales October November December
Totals
Vatable Sales to private entities P500,000 P200,000 P300,000 P1,000,000
Exempt sales 400,000 200,000 600,000
Sales to the government 300,000 100,000 400,000
Export sales 200,000 50,000 250,000
Total P1,400,000 P400,000 P450,000 P2,250,000
Quarterly
October November December
Totals
Purchase of depreciable capital
P3,000,000 P2,000,000 P5,000,000
goods from VAT supplier
Life in years 3 6
The corporation had excess input tax credit from the previous quarter in the amount of P3,900.
In November 2020, it chose to file an application for a value-added tax (VAT) refund in the
amount of P2,000. The purchase of depreciable capital goods is for the benefit of all its
business.
Credits
Quarterly
Sales October November December
Totals
Vatable Sales to private entities P500,000 P200,000 P300,000 P1,000,000
Exempt sales 400,000 200,000 600,000
Sales to the government 300,000 100,000 400,000
Export sales 200,000 50,000 250,000
Total P1,400,000 P400,000 P450,000 P2,250,000
The corporation had excess input tax credit from the previous quarter in the amount of P3,900.
In November 2020, it chose to file an application for a value-added tax (VAT) refund in the
amount of P2,000. The purchase of depreciable capital goods is for the benefit of all its
business.
The following input taxes were passed on by its value-added tax (VAT) suppliers during the
month:
VAT payable:
1.75
Category Progress
Grade 80
None 20
8/10 (80%)