FINANCIAL ACCOUNTING AND REPORTING

1. The cash count on December 31, 2023 included two customers’ checks amounting to
P5,000 both dated in January 2024. These checks were recorded in the books in
December and were accepted for deposit by the bank on due dates. The adjusting entry
is:
Debit Credit
a. Cash in bank 5,000 Cash on hand 5,000
b. Accounts receivable 5,000 Cash 5,000
c. Cash 5,000 Accounts receivable 5,000
d. Accounts receivable 5,000 Sales 5,000

2. Which of the following is reported as cash for financial reporting purposes?

I. Petty cash funds and change funds.
II. Money orders, and traveler’s checks
III. Coin, currency, and available funds for current operations.
IV. Savings account for acquisition of equipment.
V. Savings account for acquisition of inventory.
VI. Savings account for employee’s travels.
VII. Postdated checks and IOUs.

a. I, II, III, and V

b. I, II, III, V, and VI
c. I, II, III, IV, V, and VI.
d. I, II, III, V, and VII.

3. Unreleased checks, which are checks drawn before the end of reporting period but
held for later delivery to creditors
a. Shall be treated as outstanding checks
b. Shall be restored back to the cash balance if previously recorded as disbursements
c. Shall be treated as outstanding checks if the date is shortly after the end of
reporting period.
d. Shall be treated as outstanding checks if they are ultimately encash.

4. A check disbursement during the current month for P5,000,000 was credited in the
book at P5,500,000. This error was discovered and corrected in the same month. How
would this affect the proof of cash in the book?
a. P500,000 deducted from disbursements, P500,000 deducted from receipts.
b. P500,000 added from disbursements, P500,000 added to ending cash balance.
c. P500,000 deducted from disbursements, P500,000 deducted from ending cash balance.
d. P500,000 deducted from disbursements, P500,000 added to ending cash balance.

5. The following statements relate to cash. Which statement is true?

Statement 1: Classification of a restricted cash balance as current or non-current
should be parallel in the classification of the related obligation for which the
cash was restricted.
Statement 2: Compensating balances required by a bank should always be excluded
from “cash and cash equivalent”.
Statement 3: The purpose of establishing a petty cash fund is to keep enough cash
on hand to cover small amount of operating expenses for a period of time.
a. Only statement 1 and 2 are true.
b. Only statement 1 and 3 are true.
c. Only statement 2 and 3 are true.
d. All statements are true.

6. When the allowance method of recognizing uncollectible accounts is used, the entry
to record the recovery of accounts previously written off would?
a. Increase the balance of the allowance for uncollectible accounts and decrease
accounts receivable.
b. Decrease both accounts receivable and the allowance for uncollectible accounts.
c. Decrease accounts receivable and increase allowance for uncollectible accounts.
d. Increase the allowance for uncollectible accounts and no effect on accounts
receivable.
7. If your analysis of the balance of allowance for uncollectible accounts resulted to
following adjusting entry:
Uncollectible accounts expense xx
Allowance for uncollectible accounts xx

This may indicate that:

a. the amount of provisions made is understated.
b. the amount of provisions made is overstated.
c. the amount of provisions made is greater than the amount of uncollectible accounts
expense.
d. the amount of provisions made is always equal to the ending balance of the
allowance for uncollectible accounts.

8. Which of the following statements concerning non-interest-bearing notes receivable

is generally a false statement?
a. Amortization of the premium causes the carrying amount of the notes receivable
to decrease over the life of the note.
b. The periodic amortization of discount or premium is the difference of nominal
interest recorded and effective interest recorded over the life of the note.
c. The unamortized discount on notes receivable should be deducted from the
principal amount of notes receivable to arrive at the carrying value of notes
receivable.
d. Amortization of the discount causes the carrying amount of the notes receivable
to increase over the life of the note.

9. Assuming that your bad debts expense increased by 50% from prior period’s bad debts
expense and your ending balance of allowance for bad debts remains the same. Which
of the following is true?
a. the ratio of the write-off and beginning balance of allowance is equal to the
ratio of the write-off and ending balance of allowance.
b. The ratio of the write off and ending balance of allowance is equals to the
ration of write off and bad debts expense recognized.
c. the ratio of the write-off and beginning balance of allowance is higher than the
ratio of the write-off and ending balance of allowance.
d. the ratio of the write-off and beginning balance of allowance is less than the
ratio of write-off and ending balance of allowance.

10. Which of the following is correct?

I. Direct origination costs – added to principal
II. Direct origination fees – added to principal
III. Direct origination costs – deducted from principal
IV. Direct origination fees – deducted from principal
a. I and II only
b. III and IV only
c. II and III only
d. I and IV only

11. Identify the cost formula that is described in the following statements:
Statement 1: The cost formula in which the recent cost of purchases was used to
determine the cost of ending inventory.
Statement 2: The cost formula in which the average cost of each inventory item in
stock is re-calculated after every inventory purchase.
a. Specific Identification, Moving Average
b. FIFO, Moving Average
c. Specific Identification, Periodic Average
d. FIFO, Periodic Average

12. The account title “Inventories” as shown on an entities financial statement would
include?
a. Unused supplies in the factory for administrative purposes.
b. Goods in transit, purchased FOB buyer.
c. Goods sold with a buyback arrangement.
d. Goods held on consignment.

13. Evaluate whether each of the following two statements is true or false.
Statement 1: The retail inventory method is allowed for external reporting purposes
as an alternative method to measure the cost of inventory.
Statement 2: The gross profit method may be used to measure inventory and related
expense for interim reporting purposes, but not for annual reporting purposes.
 a. True, true
b. True, false
c. False, true
d. False, false

14. Roczan Company is determining the amount of inventory to be reported in its

statement of financial position as of December 31, 2023. An entry was made as
follow:
Allowance for inventory write down xx
Gain on recovery xx

This indicates that:

a. The cost of ending inventory in 2022 is less than its net realizable value in
2022.
b. The cost of ending inventory in 2022 is greater than its net realizable value in
2022.
c. The cost of ending inventory in 2023 is less than its net realizable value in
2023.
d. The cost of ending inventory in 2023 is greater than its net realizable value in
2023.

15. Which of the following is added to both cost and retail in computing the total
goods available for sale?
a. Freight – in
b. Purchase returns
c. Departmental transfer – in
d. Net mark – up

16. Which of the following is not a condition that must be satisfied before interest
capitalization can begin on a qualifying asset?
a. Interest cost is being incurred.
b. Activities that are necessary to get the asset ready for its intended use are in
progress.
c. Expenditures for the assets have been made.
d. The interest rate is equal to or greater than the company's cost of capital.

17. The cost of a non-monetary asset acquired in exchange for another non-monetary
asset and the exchange has commercial substance is usually recorded at:
a. the fair value of the asset given up, and a gain or loss may be recognized.
b. the fair value of the asset given up, and a gain but not a loss may be recognized.
c. the fair value of the asset received if it is equally reliable as the fair value
of the asset given up and no gain but loss may be recognized.
d. either the fair value of the asset given up or the asset received, whichever one
results in the largest gain or smallest loss to the company.

18. Paolo Builders Company determines that a machine used in its operations has suffered
an impairment in value because of technological changes as of the end of 2023. An
entry to record the impairment should:
a. recognize additional depreciation expense for year 2023.
b. include a credit to impairment loss account.
c. Impairment loss should not be made if the machine is still being used.
d. include a credit to the machine’s accumulated depreciation account.

19. Which of the following is similar for sum-of-the-years’-digit method and double
declining balance method of depreciation?
a. results in a lower depreciation method in earlier years of the asset.
b. results in residual value being ignored in computing periodic depreciation
expense.
c. the carrying amount should not be lower than its residual value at the end of
its useful life.
d. Depreciation rate based on its useful life is used to depreciate the asset.

20. When a previous impairment loss was recognized on a depreciable asset and
subsequently the recoverable amount is higher that it’s carrying value, the proper
accounting treatment should be:
a. recognized the entire amount as revaluation surplus (revaluation model);
recognized the entire amount as impairment loss (cost model)
b. recognized the entire amount as impairment loss (revaluation model); recognized
the entire amount as impairment loss (cost model)
 c. recognized a gain on recovery up to the extent of impairment loss recognized in
the previous year and any excess to revaluation surplus (revaluation model);
recognized a gain on recovery up to the extent of the impairment loss recognized
in the previous year and any excess is ignored (cost model)
d. recognized a gain on recovery up to the extent of unrecovered impairment loss as
of the date of recovery and any excess to revaluation surplus (revaluation model);
recognized a gain on recovery up to the extent of unrecovered impairment loss as
of the date of recovery and any excess is ignored (cost model)

21. Costs incurred internally to create intangibles are generally:

a. capitalized.
b. capitalized if they have an indefinite life.
c. expensed as incurred.
d. expensed only if they have a limited life.

22. Copyrights should be amortized over

a. their legal life.
b. the life of the creator plus fifty years.
c. twenty years.
d. their useful life or legal life, whichever is shorter.

23. The intangible asset goodwill may be

a. capitalized only when created internally.
b. written off directly to retained earnings.
c. capitalized only when arise from a purchase of business.
d. capitalized either when purchased or created internally.

24. A loss on impairment of an intangible asset is the difference between the asset’s
a. carrying amount and its recoverable amount.
b. carrying amount and the expected future net cash flows.
c. recoverable amount and the expected future net cash flows.
d. book value and its fair value.

25. Which of the following research and development related costs should be capitalized
and depreciated over current and future periods?
a. Research and development general laboratory building which can be put to
alternative uses in the future.
b. Inventory used for a specific research project.
c. administrative salaries allocated to research and development.
d. Research findings purchased from another company to aid a particular research
project currently in process.

Multiple Choices – Problems

Situation 1 – The data relates to three different companies:

The Villanueva Company cash balance on December 31, 2023, was P2,250,000. In addition,
Villanueva has the following items on December 31:
Check payable to Villanueva Company, dated January 5, 2024, included in
December 31 cash balance P195,000
Check payable to Villanueva Company, deposited December 27, and included
in December 31 cash balance, but returned by bank on December 30, stamped
"NSF." The check was redeposited on January 3, 2024, and cleared on 255,000
January 4, 2024
Check payable to Villanueva Company, undeposited, dated May 31, 2023,
included in December 31 checkbook balance 460,000
Check drawn on Villanueva Company’s account, payable to a vendor, dated
and recorded on December 30, 2023 but not mailed until January 3, 2024. 740,000
Check drawn on Villanueva Company’s account, payable to a supplier, dated
January 4, 2024, was delivered and recorded on December 29, 2023. 235,000
Check drawn on Villanueva Company’s account, payable to a supplier, dated
November 24, 2023, was delivered and recorded on December 24, 2023. 400,000

The Elijah Corporation reported the following items in its “Cash and cash equivalents”
account as of December 31, 2023:
Cash on hand (including customer’s check dated 1/4/2024, P245,000) P750,000
Cash in bank – unrestricted 1,700,000
Cash in bank – for payment of payroll only 2,780,000
Cash in bank – restricted for additions to plant (to be disbursed in 4,560,000
2025)
Bank certificates of deposit (acquired 12/30/2023; due in 4/30/2024) 350,000
Cash in bank – to be used for payment of 2024 dividends 920,000
Time deposit (acquired on 12/1/2023 and due on 1/31/2024) 440,000
Redeemable preference shares (original term of 5 years due on 2/28/2024;
acquired on 12/28/2023) 610,000

The Lau Company shows a cash balance of P3,950,000 as of December 31, 2023. During the
period, the following transactions are available:
[1.] The accountant recorded a cash sales transaction of P520,000 dated January 2,
2024 in the books of the company. Company’s book for year 2023 was left opened until
January 4, 2024. The P520,000 was included in the cash balance as of December 31,
2023.
[2.] A check of P600,000 was drawn and recorded by Lau Company payable to Meralco for
the utilities consumed for the month of December, but still not delivered to payee
as of December 31, 2023.
[3.] A check dated January 5, 2024 was held by Lau Company amounting to P880,000.
Based on the Company’s experience all postdated checks are realized on the date
indicated on the check. The check was included in the cash balance.
[4.] A customers check for P710,000 was deposited on December 29 but returned by bank
on December 30 as NSF. No entry was made on the return of the check.
[5.] The cashier maintained a cash account that is for use in the purchase of company’s
equipment which expected to be delivered in two years’ time, P450,000. This was
included in the cash balance.

26. How much is the adjusted cash balance of Villanueva Company as of December 31, 2023?
a. P1,915,000 b. P2,775,000 c. P2,315,000 d. P2,715,000

27. How much is the amount of cash and cash equivalents that Elijah Corporation should
report in its December 31, 2023 Statement of Financial Position?
a. P4,175,000 b. P6,955,000 c. P6,995,000 d. P7,305,000

28. How much is the adjusted cash balance of Lau Company as of December 31, 2023?
a. P2,510,000 b. P2,440,000 c. P2,180,000 d. P1,990,000

Situation 2 – The data relates to Samarista Company:

The petty cash fund of Samarista Company (P20,000 of imprest balance) was counted on
January 3, 2024. The following items were found:
Total bills and coins P4,835
Certified check of general manager dated December 27, 2023 3,150
Petty cash vouchers not yet replenished:
Postage stamps (dated December 28, 2023) 1,420
Supplies (dated December 29, 2023) 1,750
IOU of employee (dated December 30, 2023) 1,000
Meals and transportation (dated January 2, 2024) 1,250
Company check representing replenishment of petty cash fund 6,750
Unused postage stamps 560
Currency in an envelope containing contributions of employees for the death
of a fellow employee (total collection is P5,000) 4,200

29. How much is the correct balance of petty cash fund as of December 31, 2023?
a. P15,185 b. P14,625 c. P13,935 d. P13,375

30. How much is the amount of shortage in petty cash fund as of the date of count?
a. P85.00 b. P645.00 c. P1,335.00 d. P1,895.00

Situation 3 – The data relates to Sisters Corporation:

The Sisters Corporation maintained bank account at the ReSA Universal Bank. The
following information is available in the bank account for December 2023.
General ledger Bank statement
November balances P1,210,000 P1,185,000
Deposits made 1,180,000 1,320,000
Check disbursements (990,000) (1,065,000
Bank service charge (5,000)
Notes collected by the bank 120,000
NSF check (15,000)
December balances P1,400,000 P1,540,000
[1.] Bank reconciliation in November included the following information: Bank statement
balance, November, P1,185,000; Deposit in transit, P110,000; Outstanding checks,
P85,000, and balance per ledger, November, P1,210,000.
[2.] Collection from a customer of P105,000 in December 27, 2023 was deposited in the
bank. The bank erroneously credited Sisters Corporation’s account for P150,000.
[3.] A check for P99,000 was cleared by the bank in December. It was for payment of
accounts due in December. The company’s accountant recorded the check in the cash
disbursements journal at P89,000. No correction was made yet on this transaction
in the book.

31. How much is the balance of deposit in transit and outstanding checks as of December
31, 2023?
a. P20,000 and P15,000 respectively c. P20,000 and P25,000 respectively
b. P25,000 and P20,000 respectively d. P15,000 and P20,000 respectively

32. How much is the balance of cash in ReSA Universal Bank as of December 31, 2023?
a. P1,535,000 b. P1,490,000 c. P1,335,000 d. P1,295,000

Situation 4 – The data relates to Grateful Incorporated:

Grateful Incorporated’s cash balance per book and in bank for the year ended May 31,
2023, has the following information:
Descriptions April 30 May 31
Cash per books P464,000 P?
Cash per bank statements 535,000 729,00
Undeposited collections 41,000 64,000
Outstanding checks 138,000 150,000
Bank service charges 3,000 4,000
Insufficient fund check 8,000 11,000
Company's notes receivable collected by bank 59,00 44,000
Checks and debit memos per bank statement – 1,092,000
Cash receipts per cash record – 1,167,000
Cash disbursements per cash record – 1,037,000
Bank charge error – corrected the following month 65,000 -
Book debit error – corrected the following month - 20,000
Book error in recording check disbursement (correct
amount is P54,000, corrected the following month) 45,000 -
Bank credit error – corrected on the same month - 72,000

33. What is the adjusted receipts for the month of May?

a. P1,032,000 b. P1,112,000 c. P1,132,000 d. P1,402,000

34. What is the correct cash balance as of May 31?

a. P503,000 b. P583,000 c. P593,000 d. P603,000
Situation 5 – The data relates to two different Companies:
The following is the summary of transactions of Emjhay Company related to its accounts
receivable in 2023:
Accounts receivable, beginning – net of P50,000 beginning allowance P1,200,000
Credit sales 7,150,000
Total collections from customers during the year 5,700,000
Accounts written off as uncollectible 160,000
Recovery of accounts previously written off 65,000
Cash sales recorded during the period 435,000
Total sales return (From cash sales – P40,000; From credit sales – 150,000
P110,000)

Days past invoice date at December 31: Amounts

0 – 30 1,000,000
31 – 90 820,000
91 – 180 ?
Over 180 400,000

The company’s policy to provide allowance on its account receivable at year end as
follows: 0-30 days – 1%; 31-90 days – 3%; 91-180 days – 10%; and over 180 days – 12%.

35. How much is the balance of the allowance for bad debts as of December 31, 2023?
a. P152,700 b. P153,600 c. P154,300 d. P155,100
36. How much is the amount of bad debts expense in 2023?
a. P176,400 b. P184,200 c. P198,600 d. P199,900

Andrew Malan Company prepared an aging of its accounts receivable at December 31, 2023
and determined that the balance of its accounts receivables was P700,000 on January 1,
2023. Additional information is available as follows:
Allowance for uncollectible accounts at 1/1/23 – credit balance P34,000
Accounts written off as uncollectible during 2023 32,000
Uncollectible accounts recovered during 2023 5,000
Total sales return on credit sales 12,000
Total sales discount granted 7,000
Total credit sale recorded during the period 1,400,000
Collection from credit customers during the period 750,000

The company’s policy is to provide 8.5% of the outstanding receivables as uncollectible.

37. How much is the amortized cost of accounts receivable as of December 31, 2023?
a. P1,188,585 b. P1,256,135 c. P1,281,455 d. P1,214,655

Situation 6 – The data relates to three different Companies:

Jhude Company factored accounts receivable without recourse for P5,500,000. The entity
received P5,000,000 cash immediately from the factor. The remaining P300,000 will be
received once the factor verifies that none of the accounts receivable is in dispute.
The accounts receivable had a face amount of P6,000,000. The entity had previously
established an allowance for bad debts of P250,000 in connection with such accounts.

On April 1, 2023, Angelo Company sold equipment and received a five-year non-interest
bearing P5,250,000 note. The note is payable in annual installments of P1,050,000
with the first installment due on March 31, 2024. The present value of the note is
based on effective interest of 9% on April 1, 2023. The PV factor of 9% in 5 periods
is 0.649931 and PV factor of 9% ordinary annuity in 5 periods is 3.889651.

On January 1, 2023, Dominik Matinik Company sold an old building for P2,000,000 to
Yhel Company. Yhel Company paid P500,000 down payment and signed a 5% interest-bearing
note for the balance which is payable in 3 equal annual installments plus interest
every December 31 of each year. The carrying value of the old building on the date of
sale was P1,780,000. Interest effective on January 1, 2023 is 4%.

38. What amount of loss on factoring should Jhude Company recognized?

a. P750,000 b. P700,000 c. P450,0000 d. P0

39. How much is the interest income should Angelo Company report in its income statement
for year 2024 and the carrying value of the note receivable as of December 31,
2024?
a. P367,572 and P3,401,706 c. P367,572 and P3,631,321
b. P321,508 and P3,631,321 d. P321,508 and P3,401,706

40. How much is the carrying value of notes receivable in Dominik Matinik Company’s
Statement of Financial Position as of December 31, 2023 and gain (loss) on sale of
old building?
a. P1,514,238 and P248,114 gain c. P1,514,238 and P251,886 loss
b. P1,014,238 and P251,886 loss d. P1,014,238 and P248,114 gain

Situation 7 – The data relates to Social Company:

On January 1, 2023, Social Company loaned P15,000,000 to Climber Company. The loan is
to repayable after four years. Interest on this loan is 2% annually every December 31
of each year starting 2023. Direct origination cost of P678,901 was paid by Social and
direct origination fee was deducted to the proceeds received by Climber Company. The
interest effective on this loan is 4% after the origination costs and fees.

On December 31, 2024, after the interest for the period was collected, available
forward-looking information indicated that a significant increase in credit risk is
evident. The present value of the lifetime expected credit loss discounted at 4% is at
P580,000. The probability of default is at 20%.

41. How much is the direct origination fee?

a. P1,767,869 b. P1,764,321 c. P1,753,479 d. P1,748,699
42. How much is the interest income recognized in its 2023 income statement?
a. P556,441 b. P559,356 c. P566,699 d. P577,367

43. How much is the amount of impairment loss recognized by Social Company in its income
statement for year 2024?
a. P580,000 b. P464,000 c. P116,000 d. P0

Situation 8 – The data relates to three different Companies:

The Stephen Company conducted a physical count of inventory on December 31, 2023, which
revealed inventory with a cost of P3,720,000. The following items were included from
the physical count:
Goods held by Stephen on consignment P510,000
Goods shipped by a vendor FOB Destination on December 31, 2023 and was
received by Stephen on January 5, 2024. 850,000
Goods purchased FOB Shipping Point was shipped by the supplier on December
31, 2023 and received by Stephen on January 4, 2024. 770,000
Cost of goods shipped by Stephen FOB Destination to a customer on December
31, 2023 and was received by the customer on January 2, 2024. 370,000
Cost of goods shipped by Stephen FOB Shipping Point to a customer on
December 31, 2023 and was received by the customer on January 5, 2024. 590,000

The Martin Manufacturing Company inventory list at December 31, 2023 shows a total of
P1,880,000. Included in such list are the following items: goods held on consignment
P180,000 at cost; goods tagged awaiting customer’s instructions for delivery
(manufactured according to customer’s specifications) P200,000 cost, unused store
supplies P50,000, and goods sold with buyback arrangement at cost of 150,000. The
following in transit goods were excluded from the list (all at cost): goods sold FOB
shipping point P40,000; goods sold FOB destination, P32,000, goods purchased FOB
shipping point P70,000, and goods purchased, FOB destination, P90,000.

You were retained by James Corporation on April 1, 2023 to estimate the inventory
destroyed in a recent fire. The company’s markup on cost is 40%. The following
information is obtained from available records: Inventory, January 1, P600,000; Gross
purchases from January 1 to March 31 were P1,500,000, freight-in, P50,000, purchase
returns and allowances, P20,000. Gross sales for the same period were P2,280,000,
sales returns were P40,000, while sales discounts were P15,000. Undamaged goods before
the fire cost P100,000. Damaged goods costing P80,000 were sold for P54,000.

44. What amount should Stephen Company report as inventory as of December 31, 2023?
a. P2,910,000 b. P2,540,000 c. P1,830,000 d. P1,770,000

45. How much is the cost of Martin Manufacturing Company’s inventory at December 31,
2023?
a. P1,432,000 b. P1,552,000 c. P1,562,000 d. P1,632,000

46. How much is the estimated cost of inventory fire loss of James Corporation?
a. P350,000 b. P365,000 c. P376,000 d. P530,000

Situation 9 – The data relates to two different Companies:

The operations of a department of Transformer Company that uses FIFO retail inventory
method are presented below:
Beginning inventory-sales price 3,000,000
Beginning inventory-cost 1,500,000
Purchases-cost 3,600,000
Purchases-sales price 5,000,000
Freight-in 199,300
Departmental transfer-in - cost 200,000
Departmental transfer-in - sales price 400,000
Net Markup 180,000
Net Markdown 100,000
Sales 4,000,000
Employee discount 180,000
Sales returns 50,000
Abnormal loss from breakage-sales price 70,000
Abnormal loss from breakage-cost 50,000
Vulturi Inc. is a wholesaler of office supplies. The activity for Model V calculators
during August is shown below:
Date Balance/Transaction Units Cost
Aug. 1 Inventory 2,000 P35.00
7 Purchase 3,000 38.00
12 Sales 3,600
21 Purchase 4,800 40.00
22 Sales 3,800
29 Purchase 1,600 42.00

Vulturi Inc. uses periodic inventory records and that said records are kept in units
only.

47. How much is the estimated cost of ending inventory of Transformer Company?
a. P2,687,187 b. P2,750,000 c. P2,773,247 d. P3,124,400

48. How much is the estimated cost of ending inventory of Transformer Company if Average
method is used?
a. P2,687,187 b. P2,750,000 c. P2,773,247 d. P3,124,400

49. The cost of ending inventory of Model V calculators using the average method at
August 31, should be reported by Vulturi Inc’s at:
a. P155,520 b. P154,220 c. P153,120 d. P152,420

Situation 10 – The data relates to two different Companies:

The following information relate to an item of raw materials of Dragon Empire Company
as of June 30, 2023:
Replacement cost of raw materials P680,000
Historical cost of raw materials 700,000
Conversion cost 250,000
50. How much is the value of the closing raw materials if the finished product to be
produced is expected to be sold at P1,150,000?
a. P680,000 b. P700,000 c. P950,000 d. P1,150,000

51. How much is the value of the closing raw material if the finished product to be
produced is expected to be sold at P880,000?
a. P680,000 b. P700,000 c. P950,000 d. P1,150,000

The December 31, 2023 inventory of Puregold Company consisted of three product
categories, for which the following information is provided:
Product Number of Estimated SP Estimated CTS Cost per Unit
Units per unit per unit
1 1,200 P35 8.00 P29
2 2,500 48 12.00 40
3 3,000 190 55.00 120

52. What is the amount of inventory reported in Puregold Company’s statement of financial
position as of December 31, 2023?
a. P496,500 b. P495,300 c. P494,800 d. P482,400

Situation 11 – The data relates to two different Companies:

On August 1, 2023, Vizcoz Company purchased a machine from a supplier which trade
discount of 10%. An additional 5% cash discount if the account is within 30 days from
the date of invoice. The machinery will be used for 8-years with residual value of
P250,000. Information related to this acquisition were as follows:
List price of the machine acquired P6,200,000
Freight, unloading, and delivery charges for machinery acquired 150,000
Custom duties and other charges for machinery acquired 380,000
Allowances and hotel accommodation paid to foreign technicians during
installation and test run of machine 750,000
Cost of training for personnel who will use the machine 310,000

53. How much is the initial cost of the machine acquired by Vizcoz Company?
a. P7,170,000 b. P6,581,000 c. P6,420,000 d. P5,831,000
54. How much is the amount of depreciation expense that Vizcoz Company recognized in
its income statement for year 2024 if the company is using double declining balance
method?
a. P1,233,938 b. P1,378,466 c. P1,473,870 d. P1,482,400

A new equipment was acquired by Strawberry Corporation on June 30, 2023 with the
following considerations:
Cost of old equipment given up with current fair value of P950,000 P1,000,000
Notes payable in two equal annual installment every July 1, starting 2024
(non-interest bearing; 2 years; effective rate on this date 10%) 1,500,000
Estimated dismantling after six (6) year life of the equipment (at 10%
effective rate) 250,000

55. How much is the initial cost of the equipment acquired by Strawberry Corporation?
a. P2,392,771 b. P2,360,278 c. P2,326,671 d. P2,083,278

56. How much is the depreciation of the equipment in 2024 using SYD? (Use 6 decimal
places for PV factors)
a. P569,707 b. P603,278 c. P626,678 d. P683,649

Situation 12 – The data relates to two different Companies:

Banana Company purchased an equipment at P10,000,000 on January 1, 2019 which will be
used for a total of 10 years, and P400,000 salvage value. On acquisition date, Banana
paid installation cost of P1,200,000; Testing cost of P300,000; and P350,000 will be
expected to incur to dismantle the equipment after 10 years. The effective interest is
5%. Banana accounted for this equipment using the cost model. On December 31, 2021 the
asset’s value in use was P8,000,000 while its fair value was at P8,400,000 with an
estimated cost to disposed of P300,000. The company is using straight-line method of
depreciation.

57. How much is the impairment loss should Banana Company recognize in its income
statement for the year ended December 31, 2021?
a. P320,409 b. P220,409 c. P420,922 d. P425,435

58. How much is the gain on reversal should Banana Company recognize in its income
statement for the year ended December 31, 2023 assuming that it’s recoverable amount
was P6,100,000.
a. P420,000 b. P178,272 c. P188,922 d. P157,435

On January 2, 2022, Turon Inc. purchased an office equipment costing P1,880,000 with
a useful life of 4 years. The company is using straight-line method of depreciation.
At December 31, 2022, and December 31, 2023, the company determines that impairment
indicators are present. The following information is available for impairment testing
at each year end:

12/31/2022 12/31/2023
Fair value less costs to sell P1,430,000 P840,000
Value-in-use P1,500,000 P890,000

No changes were made in the asset's estimated useful life.

59. The company's 2022 income statement will report

a. Depreciation Expense of P470,000
b. Depreciation Expense of P470,000 and Loss on Impairment of P20,000.
c. Depreciation Expense of P470,000 and a Recovery of Impairment of P90,000.
d. Loss on impairment of 380,000.

60. The company's 2023 income statement will report

a. Depreciation Expense of P470,000.
b. Depreciation Expense of P500,000 and Loss on Impairment of P110,000.
c. Depreciation Expense of P470,000 and a Loss on Impairment of P50,000.
d. Loss on impairment of P140,000.

Situation 13 – The data relates to Calculator Company:

Calculator Company purchased a machinery January 1, 2022 at a cost of P1,000,000. It
is being depreciated using the sum-of-the-years-digit method over its projected useful
life of 5 years. At December 31, 2022, the asset’s fair value was P1,300,000.
Accordingly, an entry was made on that date to recognize the revaluation.
A revaluation was made again on December 31, 2023 with the sound value of P500,000.
The company has the policy of transferring any revaluation surplus to retained earnings
as the asset is being used up.

61. How much is the revaluation surplus on December 31, 2022?

a. P633,333 b. P533,333 c. P400,000 d. P333,333

62. How much is the depreciation expense for the year 2023?
a. P266,667 b. P253,333 c. P520,000 d. P545,000

Situation 14 – The data relates to different unrelated Companies:

The following costs are incurred by Aloe Vera Corporation in 2023:
Cost of activities aiming new knowledge P180,000
Cost of developing and producing prototype model 50,000
Cost of seminars to introduce the newly develop product 190,000
Purchase price of patent acquired 560,000
Advertisement cost to introduce the newly develop product 90,000
Cost incurred for search of alternatives 85,000
Cost of final selection of possible alternatives 120,000
Cost of machine acquired to be used only in a single R&D project 450,000
Salaries of employees involved in R&D 670,000
Amount paid to acquire the Franchise 990,000
Radical modification to the formulation of a chemical product 70,000
Laboratory research aimed at discovery of new technology 80,000
Cost of testing the prototype and safety features 210,000
Cost of revision of the design of the prototype model 320,000

63. How much from the above items can be recognized as intangible assets including
goodwill?
a. P2,235,000 b. P1,785,000 c. P1,550,000 d. P0

64. How much of the above items is reported as research and development cost in 2022?
a. P2,235,000 b. P1,785,000 c. P1,550,000 d. P0

The goodwill of Sandbox Company was due to the acquisition of Start Company on December
1, 2023. The carrying amount and fair value of the assets and liabilities of Start
Company as of the date of acquisition were as follows:
Accounts Carrying Amount Fair Value
Cash P1,550,000 P1,550,000
Accounts receivable 1,000,000 1,000,000
Inventory 1,200,000 1,400,000
Investment property 0 500,000
Property, plant and equipment 3,500,000 3,850,000
Liabilities 2,000,000 2,000,000

The bookkeeper of Sandbox recorded goodwill at the excess of purchase price over the
book value of the net assets of Start at P2,150,000.

65. How much should Sandbox Company report goodwill as of December 31, 2023?
a. P2,000,000 b. P1,550,000 c. P1,350,000 d. P1,100,000

Hersey Company spent P100,000 on research and development cost for an invention during
2021. On January 1, 2022, the invention was patented at a total cost of P670,000 with
and estimated legal life of the patent was 20 years and the estimated useful life was
10 years. In January 2024, Hersey paid P320,000 for legal fees in a successful defense
of the patent.

66. What should be the amortization expense for 2024?

a. P67,000 b. P33,500 c. P107,000 d. P110,000

On January 2, 2022, the Mary Grace Company purchased a patent for a new consumer
product for P900,000. At the time of purchase, the patent was valid for 10 years. On
December 31, 2023, the product was removed from the market under governmental order
because of a potential health hazard present in the product.

67. What amount should Mary Grace report as loss from obsolescence during 2023, assuming
amortization is recorded at the end of each year?
a. P670,000 b. P720,000 c. P750,000 d. P780,000
Lumpia Corporation incurred P450,000 of research and development cost to develop a
product for which a patent was granted on January 2, 2021 and legal fees and other
costs associated with registration of the patent totaled P685,000. On January 1, 2023,
Lumpia paid P90,000 legal fees for the litigation put up against the patent. The patent
has a useful life of 10 years.

68. Assume that Corporation failed in their attempt to defend the patent in their
litigation proceedings, what total amount of expense should Lumpia Corporation report
in its 2023 profit or loss related to the patent?
a. P638,000 b. P645,900 c. P706,500 d. P568,200

Situation 15 – The data relates to two different Companies:

On March 1, 2023 Cooler Company purchased for P400,000 a trademark for a very successful
soft drink it markets under the name PowPow! The trademark was determined to have an
indefinite life. A competitor recently introduced a product that is in direct
competition with the PowPow! product, thus suggesting the need for an impairment test.
Data gathered by the entity suggests that the useful life of the trademark is still
indefinite, but the cash flows expected to be generated by the trademark is P26,400
and that the Trademark is still having an indefinite life. The appropriate risk-free
interest rate is 7%.

69. How much should Cooler Company recognized as expense related to its intangibles
assets for the period ending December 31, 2023?
a. P20,672 b. P21,732 c. P22,857 d. P24,821

70. What is the carrying value of intangible assets – net reported in its December 31,
2023, statement of financial position?
a. P400,000 b. P377,143 c. P375,179 d. P372,172

*** end ***

ANSWERS & SOLUTIONS/CLARIFICATIONS
1 B 26 C 51 A
2 B 27 B 52 D
3 B 28 D 53 B
4 A 29 A 54 C
5 B 30 B 55 A
6 D 31 D 56 C
7 A 32 B 57 B
8 A 33 C 58 D
9 A 34 D 59 A
10 D 35 B 60 C
11 B 36 C 61 A
12 C 37 A 62 C
13 A 38 C 63 C
14 C 39 B 64 A
15 C 40 D 65 D
16 D 41 A 66 A
17 A 42 A 67 B
18 D 43 C 68 A
19 C 44 D 69 C
20 D 45 B 70 B
21 C 46 C
22 D 47 D
23 C 48 C
24 A 49 A
25 A 50 B
26 Unadjusted cash balance 2,250,000
1. Customers PDC (195,000)
2. NSCf check (255,000)
3. Customers stale check (460,000)
4. Unreleased check 740,000
5. Company's PDC 235,000
6. Outstanding check (ignored) -
Adjusted cash balance 2,315,000

27 Cash on hand (750,000 - 245,000) 505,000

Cash in bank - unrestricted 1,700,000
Cash in bank - payroll fund 2,780,000
Cash in bank - dividend fund 920,000
Time deposit 440,000
Redeemable preference shares (2 months) 610,000
Total cash and cash equivalents 6,955,000

28 Unadjusted cash balance 3,950,000

1. Cash receipts for year 2024 (520,000)
2. Undelivered check 600,000
3. Customer's PDC (880,000)
4. NSF check (710,000)
5. Restricted fund (450,000)
Adjusted cash balance 1,990,000

29 Bills and coins (4,835 - 800) 4,035

Certified check of general manager 3,150
PCF voucher dated 1/2/2024 1,250
Replenishment check 6,750
Correct petty cash as of 12/31/2023 15,185

30 Accountability:
Imprest PCF balance 20,000
Collection for employee 5,000 25,000

Accounted for:
Bills and coins 4,835
Certified check 3,150
Unreplenished vouchers 5,420
Replenishment check 6,750
Currency in envelope 4,200 24,355
Shortage in PCF 645

31 Computation of DIT, end:

DIT, November 110,000
Deposits per book 1,180,000
Deposits per bank (1,320,000 - 45,000) (1,275,000)
DIT, December 15,000

Computation of OC's:
 Outstanding checks, November 85,000
Check disb per book (990,000 + 10,000) 1,000,000
Check disb per bank (1,065,000)
OC's, December 20,000

32 Book Bank
Unadjusted balances 1,400,000 1,540,000
BSC (5,000)
Notes collected 120,000
NSF check (15,000)
Bank error (45,000)
Book error (10,000)
DIT, end 15,000
OC's, end (20,000)
Adjusted balances 1,490,000 1,490,000

33 - 34 BOOK April Receipts Disb May

Unadjusted balances 464,000 1,167,000 1,037,000 594,000
BSC - April (3,000) (3,000)
BSC - May 4,000 (4,000)
NSF check - April (8,000) (8,000)
NSF check - May 11,000 (11,000)
Notes collected - April 59,000 (59,000)
Notes collected - May 44,000 44,000
Book debit error (20,000) (20,000)
Book error (9,000) (9,000)
Adjusted balances 503,000 1,132,000 1,032,000 603,000

BANK April Receipts Disb May

Unadjusted balances 535,000 1,246,000 1,092,000 689,000
UDR - April 41,000 (41,000)
UDR - May 64,000 64,000
OC's - April (138,000) (138,000)
OC's - May 150,000 (150,000)
Bank charge error 65,000 (65,000)
Bank credit error (72,000) (72,000)
Adjusted balances 503,000 1,132,000 1,032,000 603,000

35-36 Beginning Balance - AR (1,200,000 + 50,000) 1,250,000

Credit sales 7,150,000
Accounts writtent off (160,000)
Sales return - credit sales (110,000)
Collections from credit customers (5.7M - 65,000 - 435,000) (5,200,000)
Ending Balance - AR 2,930,000

Days Outstanding Amounts % uncollec. Allowance

 0 - 30 days 1,000,000 1% 10,000
31 - 90 days 820,000 3% 24,600
91 - 180 days 710,000 10% 71,000
over 180 days 400,000 12% 48,000
Total 2,930,000 153,600

Allowance for uncollectible accounts, beginning 50,000

Write off (160,000)
Recoveries 65,000
Bad debts expense 198,600
Allowance for uncollectible accounts, ending 153,600

37 Beginning Balance - AR 400,000

Credit sales 950,000
Accounts writtent off (32,000)
Sales return - credit sales (12,000)
Sales discount (7,000)
Ending Balance - AR 1,299,000
Percentage uncollectible 8.5%
Allowance for bad debts, end 110,415

Ending Balance - AR 1,299,000

Allowance for bad debts, end (110,415)
Net realizable value 12/31/2023 1,188,585

38 Proceeds 5,300,000
Less: NRV of accounts receiavble (6M - 250,000) 5,750,000
Loss on factoring (450,000)

39 Annual payment 1,050,000

PV factor 3.889651
PV of notes receivable 4/1/2023 4,084,134

Date Principal EI (9%) CV

4/1/23 4,084,134
12/31/23 275,679 4,359,813
4/1/24 1,050,000 91,893 3,401,706
12/31/24 229,615 3,631,321

Interest income in 2024 (91,893 + 229,615) 321,508

40 500,000 75,000 575,000 0.961538 552,885

500,000 50,000 550,000 0.924556 508,506
500,000 25,000 525,000 0.888996 466,723
Total PV of notes receivable 1,528,114
Down payment 500,000
Total selling price 2,028,114
Less: CV of old building sold (1,780,000)
Gain on sale 248,114
 Date Principal NI (5%) EI (4%) Amort CV
1/1/2023 1,528,114
12/31/2023 500,000 75,000 61,125 13,875 1,014,238
12/31/2024 500,000 50,000 40,570 9,430 504,808
12/31/2025 500,000 25,000 20,192 4,808 -

41-43 Principal 15,000,000

Direct origination cost 678,901
Direct origination fee (1,767,869)
Initial Amortized cost 13,911,032

PV of loan at 4%:
PV of principal (15M x 1.04^-4) 12,822,063
PV of interest (15M x 2% x 3.629895) 1,088,969
Initial amortized cost of the loan 13,911,032

Date NI (2%) EI (4%) Amort CV

1/1/2023 13,911,032
12/31/2023 300,000 556,441 256,441 14,167,473
12/31/2024 300,000 566,699 266,699 14,434,172

PV of total ECL for lifetime 580,000

Multiplied by probability of deafult 20%
Allowance for credit losses, end 116,000
less: Allowance for credit losses, beginning -
Impairment loss - 2024 116,000

44 Unadjusted balance 3,720,000

1. On consignment (510,000)
2. Goods in transit, FOB destination (850,000)
3. Goods in transit, FOB shipping point -
4. Goods in transit, FOB destination -
5. Goods in transit, FOB shipping point (590,000)
Adjusted balance 1,770,000
45 Unadjusted balance 1,880,000
1. On consignment (180,000)
2. Special order - customize goods (200,000)
3. Store supplies (50,000)
4. Goods sold FOB destination 32,000
5. Goods purchase FOB SP 70,000
Adjusted balance 1,552,000
46 Beginning inventory 600,000
Net purchases (1.5M + 50,000 - 20,000) 1,530,000
Total goods available for sale 2,130,000
Cost of sales (2,280,000 -40,000) / 140% (1,600,000)
Estimated ending inventory 530,000
Less: Undamaged goods (100,000)
Less: Salvage value of damage goods (54,000)
Loss on fire 376,000
47-48 Cost Retail
 Beginning Inventory 1,500,000 3,000,000
Purchases 3,600,000 5,000,000
Freight in 199,300 -
Departmental transfer in 200,000 400,000
Net mark up - 180,000
Net mark down (100,000)
Abnormal losses (50,000) (70,000)
Total goods available for sale 5,449,300 8,410,000

Sales 4,000,000
Sales return (50,000)
Employee discounts 180,000 4,130,000
Estimated ending inventory at retail 4,280,000
X CTR (FiFo) 73%
Estimated ending inventory at cost 3,124,400

49 Beginning Inventory 70,000

Purchases 373,200
Total goods available for sale 443,200
Divided by TGAS in units 11,400
Cost per unit 38.88
Multiplied by ending inventory in units 4,000
Ending inventory at cost 155,520

50 Cost because the finished goods is not impaired 700,000

51 Replacement cost because the finished goods is impaired 680,000

52 Product 1 (1,200 x 27) 32,400

Product 2 (2,500 x 36) 90,000
Product 3 (3,000 x 120) 360,000
LCNRV of inventory 482,400

53 Net purchase price (6,200,000 x 90% x 95%) 5,301,000

Freight, unloading, and delivery charges for machinery acquired 150,000
Custom duties and other charges for machinery acquired 380,000
Allowances and hotel accommodation machine 750,000
Total cost of the machine 6,581,000

54 Cost of machine 6,581,000

Less: Accum deprn 12/31/23 (685,521)
CV 12/31/2023 5,895,479
X depreciation rate (2/8) 25%
Depreciation expense in 2024 1,473,870

55 FV of old equipment 950,000

PV of notes payable (750,000 x 1.735537) 1,301,653
PV of dismantling cost (250,000 x 1.10^-6) 141,118
Total cost of the equipment 2,392,771
56 1st year (2,392,771 x 6/21) 683,649
2nd year (2,392,771 x 5/21) 569,707

Depreciation expense in 2024:

First 6 months (January - June) 683,649 / 2 341,824
Last 6 months (July - December) 569,707 / 2 284,854
Depreciation expense in 2024: 626,678

57 Cost of equipment 11,714,870

Accu deprn 12/31/21 (3,394,461)
CV 12/31/2021 8,320,409
RA 12/31/2021 8,100,000
Impairment loss 220,409

RA 12/31/2023 6,100,000
CV 12/31/2023 5,900,000
Increase in value 200,000

Limit on recovery:
Impairment loss 220,409
Partial recovery (1,131,487 - 1,100,000) x 2 (62,974)
Unrecovered impairment loss 157,435