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Review 105-----------Day 1 b. Hedge of a net investment in a foreign operation d.

All of these

THEORY OF ACCOUNTS
5. Characteristic(s) common to all joint ventures include
1. The ASC framework (Choose the incorrect one) a. One or more venturers are bound by a contractual arrangement.
b. The contractual arrangement establishes joint control.
a. Sets out the concepts that underlie the preparation and presentation of c. The use of proportionate consolidation.
financial statements for external users. d. Both a and b.
b. Is not a Statement of Financial Accounting Standards and hence does not
define standards for any particular measurement or disclosure issue.
6. A party to a joint venture and has joint control over that joint venture
c. Is concerned with special purpose reports, for example, prospectuses and
computations prepared for taxation purposes. a. Venturer b. Investor c. Operator d. Manager
d. Applies to the financial statements of all commercial, industrial and business
reporting enterprises, whether in the public or private sector. 7. A method of accounting whereby a venturers share of each of the assets,
liabilities, income and expenses of a jointly controlled entity is combined line
2. Accounting is by line with similar items in the venturers financial statements or reported as
I. A service activity and its function is to provide quantitative information, separate line items in the venturers financial statements
primarily financial in nature, about economic entities, that is intended to a. Equity method c. Proportionate
be useful in making economic decision. consolidation method
II. The art of recording, classifying, and summarizing in a significant manner b. Cost method d. Combination method
and in terms of money, transactions and events which are in part at least
of a financial character and interpreting the results thereof.
8. This form of joint venture maintains own records and prepares and
III. The process of identifying, measuring and communicating economic
information to permit informed judgment and decision by users of the presents financial statements in accordance with GAAP.
information. a. Jointly controlled operations c. Jointly controlled entities
a. I, II and III b. I only c. II only d. III only b. Jointly controlled assets d. All of the above

3. Financial accounting 9. This form of joint venture involves the use of assets and other resources of
1. Is the examination of financial statements by an independent CPA for the the venturers rather than the establishment of a separate entity
purpose of expressing an opinion as to the fairness of the financial a. Jointly controlled operations c. Jointly controlled entities
statements. b. Jointly controlled assets d. All of the above
2. Focuses on the preparation and presentation of general purpose reports
known as financial statements. 10. Separate financial statements include financial statements
3. Has no precise coverage but is used generally to refer to services to clients
a. In which the investments are accounted for on the basis of the direct
on matters of accounting, finance, business policies, organization
procedures, product costs, distribution and many other phases of business equity interest.
conduct and operations. b. In which the investments are accounted for on the basis of the reported
4. Is the preparation of annual income tax returns and determination of tax results and net assets of the investees.
consequences of certain proposed business venture. c. In which proportionate consolidation is applied.
d. Of an entity that does not have a subsidiary, associate or venturers
4. Categories of hedges include interest in a jointly controlled entity.
a. Fair value hedge c. Cash flow hedge
11. Allowed accounting treatment for interests in jointly controlled entity In connection with the audit of the PAKYO COMPANY for the year ended December 31, 2010 you are called upon to
verify the accounts payable transactions. You find that the company does not make use of a voucher register but
include enters all merchandise purchases in a Purchases Journal, from which posting are made to a subsidiary accounts
a. Proportionate consolidation c. Either a or b payable ledger. The subsidiary ledger balance of P1,500,000 as of December 31, 2010 agrees with the accounts
payable balance in the companys general ledger. An analysis of the account disclosed the following:
b. Equity method of accounting d. None of the above
Trade creditors, credit balances P 1,363,000
12. Investment property excludes Trade creditors, debit balances 63,000
Net P 1,300,000
a. Land held for long-term capital appreciation. Estimated warranty on products sold 100,000
b. Building leased out under an operating lease. Customers deposits 9,000
Due to officers and shareholders for advances 50,000
c. Property held for future use for administrative purposes. Goods received on consignment at selling price
d. None of the above. (offsetting debit made to Purchases) 41,000
P 1,500,000

13. Investment property includes A further analysis of the Trade Creditors debit balances indicates:

a. Property being constructed or developed on behalf of third parties. Date Items Amount
b. Property that is being constructed or developed for use as an Miscellaneous debit balances prior to 2007.
No information available due to loss
investment property. of records in a fire. P 3,000
c. Property leased to another entity under a finance lease. 03/03/07 Manila Co. Merchandise returned for credit,
d. Property that is being redeveloped for continuing use as investment but the company is now out of business 8,000
property. 06/10/09 Cebu Corp. Merchandise returned but Cebu
says never received 7,000
07/10/10 Jolo Distributors Allowance granted on
defective merchandise after the invoice
was paid 5,000
14. Which is not a purpose of the ASC framework?
10/10/10 Bulacan Co Overpayment of invoice 12,000
a. To assist the ASC in developing accounting standards that represent
generally accepted accounting principles in the Philippines. 12/05/10 Advance to Zambales Co. This company agrees
b. To assist the ASC in its review and adoption of existing International to supply certain articles on a cost plus basis 24,000
Accounting Standards. 12/05/10 Goods returned for credit and adjustments on
c. To assist auditors in forming an opinion as to whether financial statements price after the invoices were paid; credit memos
conform with Philippine GAAP. from supplier not yet received 4,000
63,000
d. To assist the Board of Accountancy in promulgating rules and regulations
affecting the practice of accountancy in the Philippines. Your next step is to check the invoices in both the paid and the unpaid invoice files against ledger accounts. In this
connection, you discover an invoice from Atlas Co. of P45,000 dated December 12, 2010 marked Duplicate, which
was entered in the Purchase Journal in January 2011. Upon inquiry, you discover that the merchandise covered by
15. The ASC framework deals with (choose the incorrect one) this invoice was received and sold, but the original invoice apparently has not been received.
a. Objective of financial statements
In the bank reconciliation working papers, there is a notation that five checks totaling P 63,000 were prepared and
b. Qualitative characteristics entered in the Cash Disbursements Journal of December, but these checks were not issued until January 10, 2011.
c. Definition, recognition and measurement of the basic elements of financial
statements The inventory analysis summary discloses good in transit of P 6,000 at December 31, 2010, not taken up by the
company under audit during the year 2010. These goods are included in your adjusted inventory.
d. Generally accepted accounting principles
1. The Accounts payable Trade balance at December 31, 2010 should be

AUDITING PROBLEMS A. P 1,471,000


C. P 1,214,000
B. P 1,614,000
D. P 1,477,000
2. The net adjustment to Purchases should include a Based on the above and the result of your audit, answer the following:
6. Interest payable as of December 31, 2010 is
A. Net debit of P 51,000 a. P155,000 b. 143,000 c. 203,000 d. 215,000
B. Net credit of P 41,000 7.The portion of the Notes payable bank to be reported under current liabilities as of December 31, 2010 is
C. Net debit of P 10,000 a. P 300,000 b. 500,000 c.800,000 d. 0
D. Net debit of P 73,000 8. Total current liabilities as of December 31, 2010 is
b. P 3,950,000 b. 4,138,000 c. 3,938,000 d. 3,998,000
3. The entry to adjust the Accounts payable account for those accounts with debit balances should include a debit to 9. BTotal noncurrent liabilities as of December 31, 2010 is
c. P1,760,000 b. 2,560,000 c. 3,960,000 d. 1,960,000
A. P 18,000 B. P 23,000
C. P 35,000 D. P 39,000 FEEL NA FEEL, INC. has been producing quality reusable adult diapers for more than two decades. The companys
fiscal year runs from April 1 to March 31. The following information relates to the obligations of Feel Na Feel as of
4. The entry to adjust the Accounts payable account for those accounts with debit balances should include a debit to March 31, 2010.

A. Miscellaneous losses if P 23,000 BONDS PAYABLE


B. Advances to suppliers of P 24,000 Feel Na Feel issued P10,000,000 of 10% bonds on July 1, 2008. The prevailing market rate of interest for these
C. Suppliers to debit balances of P 18,000 bonds was 12% on the date issue. The bonds will mature on July 1, 2018. Interest is paid semiannually on July 1
D. Purchases of P 21,000 and January 1. Feel Na Feel uses the effective interest rate method to amortize bond premium or discount

5. Auditor confirmation of accounts payable balances at the end of the reporting period may be necessary because NOTES PAYABLE
Feel Na Feel has signed several long-term notes with financial institutions. The maturities of these notes are given in
A. There is likely to be other reliable external evidence to support the balances the schedule below. The total unpaid interest for all of these notes amounts to P600,000 on March 31, 2010
B. Correspondence with the audit clients attorney will reveal all legal action by vendors for non-payment
C. This is a duplication of cutoff test Due Date Amount Due
D. Accounts payable at the end of reporting period may not be paid before the audit is completed. April 1, 2010 P 400,000
July 1, 2010 600,000
Problem 2 October 1, 2010 300,000
April 1 2011 - March 31, 2012 300,000
You were able to obtain the following from the accountant for Maverics Corp. Related to the companys liability as of April 1, 2012 March 31, 2013 1,200.000
December 31, 2010. April 1, 2013 March 31, 2014 1,000,000
April 1, 2014 March 31, 2015 800,000
Accounts payable P 650,000 April 1, 2015 March 31, 2016 1,000,000
Notes payable trade 190,000
Notes payable bank 800,000 P 7,000,000
Wages and salaries payable 15,000 ESTIMATED WARRANTIES
Interest payable ?
Mortgage notes payable 10% 600,000 Feel Na Feel has a one-year product warranty on some selected items in its product line. The estimated warranty
Mortgage notes payable 12% 1,500,000 liability on sales made during the 2008-2009 fiscal year and still outstanding as of March 31, 2009 amounted to
Bonds Payable 2,000,000 P180,000. The warranty cost on sales made from April 1 2009, through March 31,2010, are estimated as P520,000.
The actual warranty cost incurred during the current 2009-2010 fiscal tear are as follows:
Warranty claims honored on 2008-2009 sales P 180,000
The following additional information pertains to these liabilities: Warranty claims honored on 2009-2010 sales 178,000
a. All trade notes payable are due within six months of the balance sheet date. Total warranty claims honored P 358,000
b. Bank notes payable include two separate notes payable Allied Bank.
(1) A P300,000, 8% note issued March 1, 2008, payable on demand. Interest is payable every six OTHER INFORMATION
months.
(2) A 1-year, P500,000, 11 % note issued January 2, 2010. On December 30, 2010 Mavericks 1. TRADE PAYABLES
negotiated a written agreement with Allied Bank to replace the note with 2-year, P500,000, 10% note Accounts payable for supplies, goods and services purchased on open account amount to P740,000
to be iss7ued January 2, 2011. The interest was paid on December 31, 2010 as March 31, 2010
c. The 10% mortgage note was issued October 1, 2007. With a term of 10 years. Terms of the note give the
holder the right to demand immediate payment of the company fails to make a monthly interest payment
2. PAYROLL RELATED ITEMS
within 10 days of the date the payment is due. As of December 31, 2010, Mavericks is three months
Merchandise, shipped FOB destination, 12.24.10; received 01.02.11
behind in paying its required interest payment.
Accrued Salaries and wages P 300,000
d. The 12% mortgage note was issued may 1, 2001, with a term of 20 years. The current principal amount
Withholding taxes payable 94,000
due is P 1,500,000. Principal and interest payable annually on April 30, A payment of P220,000 is due
Other payroll deductions 10,000
April 30, 2011. The payment includes interest of P 180,000.
e. The bonds payable is 10-year, 8% binds, issued June 30, 2001. Interest is payable semi-annually every
3. MISCELLANEOUS ACCRUALS
June 30 and December 31.
Other accruals not separately classified amount to P150,000 as of March 31, 2010
b. Quasi-contracts
4. DIVIDENDS
On march 15, 2010, Feel Na Feels board of directors declared a cash dividend of P0.20 per c. Law
common share and a 10% common stock dividend. Both dividends were to be distributed on April 12,
2010, to the common stockholders of record at the close of business on march 31, 2010. Data regarding
d. Negligence
Feel Na Feel common stock are as follows: 3. It is the voluntary administration of the property of another without his consent.
Per Value P 5.00 per
share a. Negotiorumgestio
Number of shares issued and outstanding 6,000,000 shares
b. Solution indebiti
Market Values of Common Stock: c. Quasi-delict
March 15, 2010 P 22.00 per share
March 31, 2010 21.50 per share d. Contract
April 12, 2010 22.50 per share
4. It is a wrong committed without any pre-existing relations between the parties.
a. Natural obligation
10 How much was received by Feel Na Feel from the bonds issued on July 1, 2008?
a. P8,852,960 b. 10,000,000 c. 10,500,000 d. 10,647,040 b. Quasi-delict
11 On March 31, 2010, Feel Na Feels statements of financial position would report total current liabilities
of c. Quasi-contract
d. Culpa contractual
a. P5,286,000 b. 4,386,000 c. 5,336,000 d. 5,642,000
5. Unless the law or stipulation of the parties requires another standard of care, every
12. On March 31, 201, Feel Na Feels statement of financial position would report total noncurrent liabilities
of person obliged to give something is also obliges to take care of it with.
a. Extra-ordinary diligence
a. P14,389.350 b. 14,352,217 c. 14,370,783 d. 14,252,960
b. Diligence of a father of a good family
13 In Auditing accounts payable, an auditor procedures most likely will focus primarily on managements
assertion of.
c. Diligence of a good father of a family
a. Existence c. Completeness d. Good diligence of a father of a family
b. Presentation and disclosure d. Valuation and allocation
14An auditor performs a test to determine whether all merchandise for which the client was billed was 6. Which of the following can be considered as a feature of a void contract?
received. The population for this test consist of all
a. Merchandiser received c. Canceled checks
a. Subject to ratification
b. Vendors invoices d. receiving reports b. It exist
15. The primary audit test to determine if accounts payable are valued properly is c. Action or defence of nullity is subject to prescription
a. Confirmation of accounts payable d. Novation cannot apply
b. Vouching accounts payable to supporting documentation 7. D entered into a contract of mortgage with X, T, the clerk of L, typed the document. Due to Ts
c. An analytical procedure
negligence, the document made was that of sale instead of mortgage.
d. Verification that accounts payable was reported as a current liability in the balance sheet.
a. The remedy is annulment
b. Parties may go to court for interpretation
BUSINESS LAW AND TAXATION c. Parties may enforce their right because it is enforceable
1. The following are the requisites of an obligation, except: D.Reformation of instrument is proper
a. Passive subject, debtor or obligor
b. Active subject, creditor or oblige 8. There persons bound by contracts, except:
a. Third persons
c. Efficient cause b. Assigns
d. Presentation c. Heirs
2. Obligations may arise from any of the following, except: d. Parties
a. Contracts
9. Liable for the loss of the subject matter by fortuitous event.
a. Creditor
b. Debtor 15. Example 1 S sold to B in private instrument his land. Later, B wanted to have the sale
c. Both creditor and debtor registered, but registration requires a public instrument: in here, B may compel S to execute the
d. None of them needed public instrument.
Example 2 S sold orally to B his land. After B paid S the price he wants to register the land
10. S offers to sell his house to B for P100,000. B asks him if he would accept P80,000. Which of in his name but he needed a public instrument of sale. In here, B may compel S to execute
the following is correct? the needed public instrument.
a. Because of ambiguity, both offers are terminated by operation of law. a. Both examples are false
b. Bs response is a counter-offer effectively terminating the P100,000 offer and instigating b. Only the first is true
an offer for P80,000. c. Only the second is true
c. Bs response is a rejection of the P100,000 offer, and there is no offer for P80,000 d. Bothe examples are true
because it is too indefinite to be an offer
d. Bs response is a mere inquiry, the P100,000 offer by S is still in force. MANAGEMENT ADVISORY SERVICES

11. Example no. 1: G, guardian of W, sold Ws house valued P50,000 for P37,500 or a lesion by 1. The following characterize management advisory services except
of the value. A. involve decision for the future
Example no. 2: S sold his house valued P50,000 for only P10,000 because S did not know the B. broader in scope and varied in nature
true value of the house.
C. utilize more junior staff than senior members of the firm
a. Both contracts are rescissible.
b. Only no. 1 is rescissible D. relate to specific problems where expert help is required
c. No. 2 is voidable because there is an error or mistake.
d. Both contracts are valid and enforceable. 2. Total production costs for Carera, Inc. are budgeted at P230,000 for 50,000 units
of budgeted output and P280,000 for 60,000 units of budgeted output. Because of
12. B Company bought out a competitor. C Corporation, with a stipulation that C Corporation the need for additional facilities, budgeted fixed costs for 60,000 units are 25%
should not thereafter engage in any business in the Philippines unless consented to and more than budgeted fixed costs for P50,000 units. How much is Careras
approved by B Company.
budgeted variable cost per unit of output?
a. The stipulation is defective but subject to ratification.
b. The stipulation is valid because the parties are free to enter into any stipulation, terms
A. P1.60 C. P3.00
and conditions such as this one. B. P1.67 D. P5.00
c. The stipulation is unenforceable as there was no showing that the sale was done in
writing. 3. Short-term creditors are usually most interested in assessing
d. The stipulation is void because it is contrary to public policy. a. solvency.
b. liquidity.
13. Which of the following is not valid? c. marketability.
a. Mutual promise to marry entered into orally
d. profitability.
b. Sale of immovable property orally entered into.
c. One of the parties in a contract is incapable of giving consent
d. Mortgagor of an immovable cannot alienate it without the mortgagees consent. 4. Long-term creditors are usually most interested in evaluating
a. liquidity.
14. D forced C to execute a promissory note. b. marketability.
a. Contract is rescissble because the contract is fraudlert c. profitability.
b. The contract is void d. solvency.
c. C cannot demand payment from D because the contract is unenforceable
d. Contract remains valid
5. Stockholders are most interested in evaluating 8. Wasting Resource Co. has annual credit sales of P4 million. Its average
a. liquidity. collection period is 40 days and bad debts are 5% of sales. The credit and
b. solvency. collection manager is considering instituting a stricter collection policy, whereby
c. profitability. bad debts would be reduced to 2% of total sales, and the average collection period
d. marketability. would fall to 30 days. However, sales would also fall by an estimated P500,000
annually. Variable costs are 60% of sales and the cost of carrying receivables is
6. Madel Company manufactures a single electronic product called Walastik. 12%. Assuming a tax rate of 35% and 360 days a year, the incremental change in
Walastik sells for P900 per unit. In 2000, the following variable costs were the profitability of the company if stricter policy would be implemented would be
incurred to produce each Walastik device. a. Zero as the positive and negative effects offset each other.
Direct labor P180 b. A reduction in net income by P70,000.
Direct materials 240 c. A reduction in net income by P38,350.
Factory overhead 105 d. A reduction in net income by P35,400.
Selling costs 75 Use the following information for questions 9-10.
Total variable costs P600
Madel is subject to 40 percent income tax rate, and annual fixed costs are Terry Corporation had net income of $200,000 and paid dividends to common
P6,600,000. Except for an operating loss incurred in the year of incorporation, stockholders of $40,000 in 2002. The weighted average number of shares outstanding
the firm has been profitable over the last five years. in 2002 was 50,000 shares. Terry Corporation's common stock is selling for $60 per
In 2001, a significant change in Madels production technology caused a 10% share on the New York Stock Exchange.
increase in annual fixed costs and a 20% unit cost increase in the direct labor
component as a result of higher skilled direct labor. However, this change 9. Terry Corporation's price-earnings ratio is
permitted the replacement of a costly imported component with a local a. 3.8 times.
component. The effect was to reduce unit material costs by 25%. There has been b. 15 times.
no change in the Walastik selling price. c. 18.8 times.
The annual sales units required for Madel to breakeven are: d. 6 times.
A. B. C. D.
2000 22,000 22,000 14,000 14,000 10. Terry Corporation's payout ratio for 2002 is
2001 20,840 22,407 22,407 20,840 a. $4 per share.
b. 25%.
7. Derby Co. uses a standard costing system in connection with the manufacture of a c. 20%.
line of T-shirts. Each unit of finished product contains 2 yards of direct material. d. 12.5%.
However, a 20 percent direct material spoilage calculated on input quantities
occurs during the manufacturing process. The cost of the direct materials is P120 11. Phranklin Pharms Inc. purchases merchandise from a company that gives sales
per yard. terms of 2/15, net 40. Phranklin Pharms has gross purchases of $800,000 per year.
The standard direct material cost per unit of finished product is What is the maximum amount of costly trade credit Phranklin could get, assuming
A. P192 C. P288 they abide by the suppliers credit terms? (Assume a 360-day year.)
a. $87,111.20 b. $32,666.70 c. $54,444.50 d.
B. P240 D. P300
$52,266.67
12. Crest Co. has the opportunity to increase annual sales by P1 million by selling to P1
new riskier customers. It has been estimated that uncollectible expenses would be
15% and collection costs 5%. The manufacturing and selling costs are 70% of
sales and corporate tax is 35%. If it pursues this opportunity, the after tax profit 1. Mankayan Company uses the first-in, first-out retail method of inventory
will valuation. The following information is available:
a. Increase by P35,000. c. Increase by P65,000.
b. Increase by P97,500. d. Cost Retail
Remain the same. Beginning inventory P 2,500,000 4,000,000
Purchases 13,500,000 16,000,000
13. A firm currently sells $500,000 annually with 3% bad debt losses. Two alternative Net markups 3,000,000
policies are available. Policy A would increase sales by $500,000, but bad debt Net markdowns 1,000,000
losses on additional sales would be 8%. Policy B would increase sales by an Sales 15,000,000
additional $120,000 over Policy A and bad debt losses on the additional $120,000
of sales would be 15%. The average collection period will remain at 60 days (6
turns per year) no matter the decision made. The profit margin will be 20% of What would be the estimated cost of the ending inventory?
sales and no other expenses will increase. Assume an opportunity cost of 20%. a. P7,000,000 c. P5,110,000
What should the firm do? b. P5,250,000 d. P4,750,000
A. Make no policy change.
B. Change to only Policy A. 2. Data regarding Kiangan Companys trading securities follow:
C. Change to Policy B (means also taking Policy A first). Cost
D. All policies lead to the same total firm profit, thus all policies are equal. Market_
December 31, 2004 10,000,000
14. The NPV and IRR methods give 8,500,000
A. the same decision (accept or reject) for any single investment December 31, 2005 10,000,000
B. the same choice from among mutually exclusive investments 9,500,000
C. different rankings of projects with unequal lives
D. the same rankings of projects with different required investments Differences between cost and market value are considered temporary.
The income statement for 2005 should report unrealized gain on these
15. What is the proper preparation sequencing of the following budgets? securities at
a. 1,500,000
1. Budgeted Balance Sheet
b. 1,000,000
2. Sales Budget
c. 500,000
3. Selling and Administrative Budget
d. 0
4. Budgeted Income Statement
a. 1, 2, 3, 4
3. Data regarding Lamut Companys available for sale securities follow:
b. 2, 3, 1, 4
c. 2, 3, 4, 1 Cost
d. 2, 4, 1, 3 Market_
December 31, 2004 10,000,000 6. On December 31, 2004, Mayayao Company purchased trading securities.
8,500,000 Pertinent data on December 31, 2005 are as follows:
December 31, 2005 10,000,000
11,000,000 Security Cost
Market_value
Differences between cost and market value are considered temporary. X 4,000,000
The 2005 statement of stockholders equity should report unrealized gain 3,500,000
on these securities at Y 6,000,000
a. 2,500,000 7,500,000
b. 1,000,000 Z 8,000,000
c. 1,500,000 6,000,000
d. 0
On December 31, 2005, Mayayao reclassified its investment in security Z
4. Hungduan Company had acquired investments in available for sale from trading to available for sale. What amount of unrealized loss on the
securities for P15,000,000 on January 1, 2004. On December 31, 2005, transfer of trading securities should be shown in the 2004 income
Hungduan decided to reclassify the available for sale securities as trading statement?
securities. The market value of the securities was P13,000,000 on December
31, 2004 and P12,000,000 on December 31, 2005. In its 2005 income a. 2,000,000
statement, Hungduan should report unrealized loss on the transfer of AFS b. 1,000,000
securities at c. 3,000,000
d. 0
a. 2,000,000
b. 3,000,000 7. Ilocos Company received dividends from its common stock investments
c. 1,000,000 during the year 2005 as follows:
d. 0
A stock dividend of 20,000 shares from A Company when the market
5. Hingyon Company had investments in marketable debt securities costing price of As shares was P30 per share.
P10,000,000 which were acquired on January 1, 2004 and classified as
available for sale. On December 31, 2005, the company decided to hold the A cash dividend of P2,000,000 from B Company in which Ilocos owns
investments to maturity and accordingly reclassified them as held to a 20% interest.
maturity on that date. The investments market value was P9,000,000 at
A cash dividend of P1,500,000 from C Company in which Ilocos owns
December 31, 2004, and P7,500,000 on December 31, 2005. What amount a 10% interest.
should Hingyon Company report as unrealized loss on these securities in its
2005 statement of stockholders equity? 10,000 shares of common stock of D Company in lieu of cash dividend
a. 2,500,000 of P20 per share. The market price of D Companys shares was P180.
b. 1,000,000 Ilocos holds originally 100,000 shares of D Company common stock.
c. 1,500,000 Ilocos owns 5% interest in D Company.
d. 0 What amount of dividend revenue should Ilocos report in its 2005 income
statement?
a. 15,500,000
a. 3,300,000 b. 20,000,000
b. 5,300,000 c. 10,000,000
c. 3,500,000 d. 8,000,000
d. 2,500,000
10. On January 2, 2005, Narvacan Company acquired 100,000 shares of
8. Data pertaining to dividends from Vigan Companys common stock ABC Company common stock for a total consideration of P6,000,000. On
investments for the year 2005 follow: October 1, 2005, Narvacan received from ABC a preferred stock dividend of
On October 1, 2005, Vigan received P2,000,000 liquidating one share for every 10 common shares held. On this date, the market price
dividend from X Company. Vigan owns a 5% interest in X of ABC common is P75 per share and the ABC preferred, P50 per share.
Company. Narvacan Company should report its investment in ABC Company preferred
stock at
Vigan owns a 10% interest in Y Company which declared a
P30,000,000 cash dividend on November 15, 2005 to stockholders a. 500,000
of record on December 15, 2005 payable on January 15, 2006. b. 750,000
c. 375,000
On December 1, 2005, Vigan received from Z Company a dividend d. 0
in kind of one share of V Company common stock for every 5 Z
Company common shares held. Vigan holds 200,000 Z Company
shares which have a market price of P50 per share on December 1, 11. Candon Company owns 100,000 shares of the outstanding common stock
2005. The market price of V Company common is P30 per share. of Bantay Company which has several hundred thousand shares publicly
traded. These 100,000 shares were purchased in 2002 for P100 per share.
What amount should Vigan report as dividend income in its 2005 income On December 1, 2005, Bantay Company distributed 100,000 rights to
statement? Candon. Candon was entitled to buy one new share of Bantay common stock
for P100 and five of these rights. On December 1, 2005, each share of stock
a. 6,200,000 had a market value of P135 ex-right and each right had market value of P15.
b. 4,200,000 On December 31, 2005, Candon exercised all rights. What cost should be
c. 3,000,000 recorded for each new share that Candon acquired by exercising the rights?
d. 5,000,000
a. 150
b. 100
9. Caoayan Company owns 1,000,000 shares of Suyo Companys 5,000,000 c. 135
shares of P50 par, 10% cumulative, nonparticipating preferred stock and d. 15
500,000 shares (2%) of Suyos common stock. During 2005 Suyo declared
and paid dividends of P40,000,000 on preferred stock. No dividends had
been declared or paid during 2004. In addition, Caoayan received a 15% 12. Tagudin Company invested in stocks of Kaunlaran Company as follows:
common stock dividend from Suyo when the quoted market price of common
stock was P100. What amount should Caoayan report as dividend income in 2003 50,000 shares at P80 4,000,000
its 2005 income statement? 2004 100,000 shares at P70 7,000,000
b. 1,950,000
In 2005, Tagudin received 150,000 rights to purchase Kanluran stock at c. 700,000
P80 per share plus five rights. At issue date, rights had a market value of d. 600,000
P5 each and stock was selling at P95 ex-right. Tagudin used rights to
purchase 22,000 additional shares of Kanluran stock and allowed the
remaining rights to lapse. The FIFO mathod is used in determining the 15. In January 2005 Paoay Company acquired 25% of the outstanding
stock rights exercised. What is the cost of the new investment? common stock of Bangui Company for P25,000,000. The book value of the
acquired shares was P21,000,000. The excess of cost over book value was
a. 1,760,000 attributable to an identifiable intangible asset which was undervalued on
b. 2,170,000 Banguis balance sheet and which had an indefinite life. For the year ended
c. 2,310,000 December 31, 2005, Bangui reported net income of P20,000,000 and paid
d. 2,100,000 cash dividends of P6,000,000 on its common stock and thereafter issued 10%
stock dividend. What is the proper carrying value of investment in associate
at December 31, 2005?
13. Nagbukel Company issued rights to subscribe to its stock, the ownership
of 4 shares entitling the stockholders to subscribe for 1 share at P100. Sinait a. 28,300,000
Company owns 200,000 shares of Nagbukel Company with total cost of b. 28,500,000
P15,000,000. The stock is quoted right-on at 125. What is the theoretical c. 20,400,000
value of the stock rights? d. 28,700,000

a. 1,000,000
P2
b. 1,250,000
c. 1,500,000
d. 0

14. On January 1, 2004, Laoag Company purchased 15% of Vintar


Companys common stock for P20,000,000. The following data concerning
Vintar Company are available:

2004 _
2005_
Net income 6,000,000
7,000,000
Cash dividend paid None
15,000,000

In its income statement for the year ended December 31, 2005, how much
should Laoag report as income from this investment?
a. 2,250,000
1. Which of the following observations concerning interfund transfers is true? 4. Refer to the above information. What is each partner's tax basis in the Jones
A. They are expected to be repaid. and Smith partnership?
B. They are classified as fund revenues or expenditures.
C. The receiving fund recognizes these transfers as revenue.
D. These transfers are classified under "Other Financing Sources or Uses."

2. Shue, a partner in the Financial Brokers Partnership, has a 30 percent share


in partnership profits and losses. Shue's capital account had a net decrease
of 100,000 during 2008. During 2008, Shue withdrew 240,000 as withdrawals A. Option A
and contributed equipment valued at $50,000 to the partnership. What was B. Option B
the net income of the Financial Brokers Partnership for 2008? C. Option C
A. 633,334 D. Option D
B. 466,666
5. Windsor Corporation owns 75 percent of Elven Corporation's outstanding
C. 300,000
common stock. Elven, in turn, owns 15 percent of Windsor's outstanding
D. 190,000
common stock. What percent of the dividends paid by Windsor is reported as
3. The JPB partnership reported net income of 160,000 for the year ended dividends declared in the consolidated retained earnings statement?
December 31, 2008. According to the partnership agreement, partnership A. None
profits and losses are to be distributed as follows: B. 100 percent
C. 85 percent
D. 75 percent

6. Parent Corporation owns 90 percent of Subsidiary 1 Company's stock and


75 percent of Subsidiary 2 Company's stock. During 2008, Parent sold
inventory purchased in 2007 for $48,000 to Subsidiary 1 for $60,000.
How should partnership net income for 2008 be allocated to J, P, and B?
Subsidiary 1 then sold the inventory at its cost of $60,000 to Subsidiary 2.
Prior to December 31, 2008, Subsidiary 2 sold $45,000 of inventory to a
nonaffiliate for $67,000 and held $15,000 in inventory at December 31, 2008.

Based on the information given above, what amount should be reported in


the 2008 consolidated income statement as cost of goods sold?
A. $36,000
A. Option A B. $12,000
B. Option B C. $48,000
C. Option C D. $45,000
D. Option D
7. Consolidated net income may include the parent's separate operating income 10. On September 30, 2008, Wilfred Company sold inventory to Jackson
plus the parent's share of the subsidiary's reported net income: Corporation, its Canadian subsidiary. The goods cost Wilfred $30,000 and
A. plus the unrealized profit on upstream intercompany sales of inventory were sold to Jackson for $40,000, payable in Canadian dollars. The goods
made during the current year. are still on hand at the end of the year on December 31. The Canadian dollar
B. plus the profit realized this year from upstream intercompany sales of (C$) is the functional currency of the Canadian subsidiary. The exchange
inventory made last year. rates follow:
C. plus unrealized profit on downstream intercompany sales of inventory
made during the current year.
D. minus the parent's share of profit realized this year from upstream
intercompany sales of inventory made last year.

8. Xing Corporation owns 80 percent of the voting common shares of Adams Based on the preceding information, at what dollar amount is the ending
Corporation. Noncontrolling interest was assigned $24,000 of income in the inventory shown in the trial balance of the consolidated workpaper?
2009 consolidated income statement. What amount of net income did Adams A. $45,000
Corporation report for the year? B. $50,000
A. $150,000 C. $40,000
B. $96,000 D. $35,000
C. $120,000
D. $30,000 11. Wakefield Company uses a perpetual inventory system. In August, it sold
2,000 units from its LIFO-base inventory, which had originally cost $35 per unit.
9. On January 1, 2008, Zeta Company acquired 85 percent of Theta Company's The replacement cost is expected to be $45 per unit. The company is planning
common stock for $100,000 cash. The fair value of the noncontrolling interest to reduce its inventory and expects to replace only 1,500 of these units by
was determined to be 15 percent of the book value of Theta at that date. December 31, the end of its fiscal year. The company replaced 1,500 units in
What portion of the retained earnings reported in the consolidated balance November at an actual cost of $50 per unit.
sheet prepared immediately after the business combination is assigned to the
noncontrolling interest?
A. Nil Based on the preceding information, in the entry in August to record the sale of
B. 15 % the 2,000 units:
C. 100 % A. Cost of Goods Sold will be debited for $70,000.
D. Cannot be determined B. Inventory will be credited for $85,000.
C. Excess of Replacement Cost over LIFO Cost of Inventory Liquidation will be
credited for $15,000.
D. Excess of Replacement Cost over LIFO Cost of Inventory Liquidation will be
credited for $67,000.
12. On December 31, 2009, Rudd Company acquired 80 percent of the common
stock of Wilton Company. At the time, Rudd held land with a book value of
$100,000 and a fair value of $260,000; Wilton held land with a book value of
$50,000 and fair value of $600,000. Using the parent company theory, at what
amount would land be reported in a consolidated balance sheet prepared
immediately after the combination?
A. $550,000
B. $590,000
C. $700,000
D. $860,000

13. Princeton Company acquired 75 percent of the common stock of Sheffield


Corporation on December 31, 2009. On the date of acquisition, Princeton held
land with a book value of $150,000 and a fair value of $300,000; Sheffield held
land with a book value of $100,000 and fair value of $500,000. Using the entity
theory, at what amount would land be reported in a consolidated balance sheet
prepared immediately after the combination?
A. $650,000
B. $500,000
C. $550,000
D. $375,000

14. If Push Company owned 51 percent of the outstanding common stock of


Shove Company, which reporting method would be appropriate?
A. Cost method
B. Consolidation
C. Equity method
D. Merger method

15. Goodwill under the parent theory:


A. exceeds goodwill under the proprietary theory.
B. exceeds goodwill under the entity theory.
C. is less than goodwill under the entity theory.
D. is less than goodwill under the proprietary theory.

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