Financial Accounting and Reporting

SET 1

MULTIPLE CHOICE. Select the best answer by writing the letter of your choice.

1. Which statement is correct regarding Receivables?

a. They refer to amounts due from individuals and other events
b. They are claims expected to be collected in cash
c. They are financial assets representing contractual rights to receive cash
d. All of these

2. Receivables not measured initially at their transaction price are measured initially at
a. Fair value
b. Fair value less costs to sell
c. Fair value minus transaction costs that are directly attributable to the acquisition of
the financial asset
d. Fair value plus transaction costs that are directly attributable to the acquisition of
the financial asset

3. Accounts receivables are normally reported at the:

a. Present value of future cash receipts
b. Current value plus accrued interest
c. Expected amount to be received
d. Current value less expected collection costs.

4. New Corp. has the following data relating to accounts receivables at the end of the current year:
Accounts Receivable P1, 880, 000
Allowance for doubtful accounts 94,000
Allowance for sales discounts 10, 000
Allowance for sales returns 15, 000
Allowance fir freight 3, 000

What is the net realizable value of the accounts receivable?

a. P2,708,000 c. P1,758,000
b. P1,880,000 d. P1,752,000

5. On June 9, Seller Corp. sold merchandise with a list price of P5, 000 to Buyer on account. Seller
allowed trade discounts of 30% and 20%. Credit terms were 2/15, n/40 and the sale was made
FOB shipping point. Seller prepaid P200 of delivery costs for Buyer as an accommodation. On
June 25, Seller received from Buyer a remittance in full payment amounting to
a. P 2,744 c. P2,944
b. P 2,940 d. P 3,000
Use the following information for the nest two questions.

Seller Corporation sold P21, 000 of merchandise during the month of December, which was charged to a
national credit card. On December 15, seller bills the independent national credit card company for
these sales and is assessed a 5% service charge. On December 21, a customer returned merchandise
originally sold for P2, 000 and Seller notifies the credit card company remitted amount owed to Seller.

6. In recording this sale, Seller should record:

a. An account receivable from the buyer.
b. A cash receipt
c. An account receivable from the credit card company
d. A small increase in the allowance for doubtful accounts.

7. How much was received by Seller from the credit card company?
a. P21, 000 c. P19,000
b. P 19,950 d. P 18, 050

Jay Company provided the following data relating to accounts receivable for the current year:

Accounts Receivable, January 1 650, 000

Credit sales 2,700,000
Sales returns 75,000
Accounts written off 40,000
Collections from customers 2,150,000
Estimated future sales returns at December 31 50,000
Estimated uncollectible accounts at 12/31 per aging 110,000

8. What amount should be reported as Accounts Receivable in December 31?

a. P 1,085,000 c. P 1,010,000
b. P 1,045,000 d. P 1,195,000

9. What amount should be reported as net realizable value of accounts receivable on December
31?
a. P 1,200,000 c. P 1,085,000
b. P 1,125,000 d. P 925,000

10. Bangui Company provides for doubtful accounts expense at the rate of 3% of credit sales. The
following data are available for last year:

Allowance for doubtful accounts, January 1 P 54,000

Accounts written off as uncollectible 60,000
Collection of accounts written off 15,000
Credit sales, year-ended December 31 3,000,000

The allowance for doubtful accounts balance at December 31, after adjusting entries, should be

a. P45,000 c. P90,000
 b. P84,000 d. P99,000

11. Credit balances in accounts receivable should be classified as

a. Current liability
b. Part of accounts payable
c. Noncurrent liability
d. Deduction from accounts receivable

12. On January 1, 2018, the balance of accounts receivable of Burgos Company was P5, 000,000 and
the allowance for doubtful accounts on same date was P800, 000. The following data were
gathered:

Credit sales Writeoffs Recoveries

2015 P10, 000,000 P250, 000 P20, 000
2016 14,000,000 400,000 30,000
2017 16,000,000 650,000 50,000
2018 25,000,000 1,100,000 145,000
Doubtful accounts are provided for as percentage of credit sales. The accountant calculates the
percentage annually by using the experience of the three years prior to the current year. How much
should be reported as 2018 doubtful account expense?
a. P750,000 c. P330,000
b. P812,500 d. P875,000

13. Tyson, Inc. reported the following balances (after adjustment) at the end of 2018 and 2017.

12/31/18 12/31/17
Total accounts receivable P105, 000 P96, 000
Net account receivable 102,000 94,500

During 2018, Tyson wrote off customer accounts totaling P3, 200 and collected P800 on
accounts written off in previous years. Tyson’s doubtful accounts expense for the year ending
December 31, 2018 is
a. P1,500 c. P3,000
b. P2,400 d. P3,900

14. Trade receivables are classified as current assets if these are reasonably expected to be
collected
a. Within one year
b. Within the normal operating cycle
c. Within one year or within the operating cycle, whichever is shorter
d. Within one year or within the operating cycle, whichever is longer.

15. When an entity uses the allowance method for recognizing uncollectible accounts, the entry
to record the write-off of a specific uncollectible account
a. Affects neither net income nor working capital
b. Affects neither net income nor accounts receivable.
c. Decreases both net income and accounts receivable
 d. Decreases both net income and working capital

16. On the December 31,2018 statement financial position of Mann Company, the receivables
consisted of the following:
Trade accounts receivable P93, 000
Allowance for uncollectible accounts (2,000)
Claim against shipper for goods lost in transit last November 2018 3,000
Selling price of unsold goods sent by Mann on consignment at 30%
of cost (not included in Mann’s ending inventory) 26,000
Security deposit on the lease of a warehouse 30,000
Total P150, 000

How much should be reported as trade and other receivables in Mann’s December 31, 2018
statement of financial position?
a. P94,000 c. P120,000
b. P68,000 d. P150,000

Use the following information for the nest four questions.

An entity began operations on January 1, 2015. From 2015 to 2017, the entity provided for doubtful
accounts based on 5% of annual credit sales. On January 1, 2018, the entity changed the method of
determining the allowance for doubtful accounts using an aging schedule.

In addition, the entity writes off all accounts receivable that are over 1 year old. The following
information relates to the years ended December 31,2015,2016,2017 and 2018:

Credit sales 15,000,000 9,500,000 8,000,000 6,000,000

Collections excluding recovery 11,700,000 8,200,000 6,700,000 4,500,000
Accounts written off during year 200,000 120,000 80,000 none
Recovery of accounts written off 90,000 40,000 25,000 none

Days Account Outstanding Amount Probability of Collection

Less than 16 days 3,000,000 98%

Between 16 and 50 days 1,500,000 80%
Between 51 and 100 days 1,200,000 75%
Between 101 and 200 days 800,000 50%
Between 201 and 365 days 400,000 20%
Over 365 days-to be written off 100,000 0%

17. What was the allowance for doubtful accounts on January 1, 2018?
a. P1,175,000 c. P1,240,000
b. P1,040,000 d. P 975,000
 18. What amount should be reported as allowance for doubtful accounts on December 31, 2018?
a. P1,380,000 c. P2,420,000
b. P1,480,000 d. P1,060,000

19. What amount should be reported as doubtful accounts expense for 2018?
a. P550,000 c. P450,000
b. P750,000 d. 200,000

20. What is the net realizable value of accounts receivable on December 31, 2018?
a. P6,900,000 c. P5,520,000
b. P7,000,000 d. P5,620,000

Financial Accounting and Reporting

(PROPERTY, PLANT AND EQUIPMENT)

SET 2

MULTIPLE CHOICE. Select the best answer by writing the letter of your choice.

At the beginning of the year, Town Company purchased for P5,400,000, including appraiser’s fee of
P50,000, a warehouse building and the land on which it is located. The following data were available
concerning the property:

Current Seller

appraised value original cost

Land 2,000,000 1,400,000

Warehouse 3,000,000 2,800,000

5,000,000 4,200,000

1. What is the initial measurement of the land?

a. 2,140,000

b. 1,800,000

c. 2,000,000

d. 2,160,000

2. On August 1, 2018, Bamco Company purchased a new machine on a deferred payment basis. A down
payment of P100, 000 was made and 4 monthly installments of P250, 000 each are to be made beginning
on September 1, 2018. The cash equivalent price of the machine was P950, 000. The entity incurred and
paid installation costs amounting to P30, 000. What is the amount to be capitalized as cost of the
machine?

a. 950,000

b. 980,000

c. 1,100,000

d. 1,130,000

Josey Company entered into a contract to acquire a new machine for its factory. The machine, which had
a cash price of P2, 000,000 was paid as follows:

Down payment 400,000

Note payable in 3 equal

annual installments 1,200,000

20,000 ordinary shares with par value

P25 and fair value of P40 per share 800,000

2,400,000

3. Prior to the machine’s use, installation cost of P50, 000 was incurred. The machine has an estimated
residual value of P100, 000. What is the initial cost of the machine?

a. 2,000,000

b. 2, 400, 000

c. 2,050,000

d. 2,450,000

Anxious Company acquired two items of machinery as follows:

On December 31, 2018, Anxious Company purchased a machine in exchange for a non-interest bearing
note requiring ten payments of P500, 000. The first payment was made on December 31, 2019, and the
others are due annually on December 31. The prevailing rate of interest for this type of note at date of
issuance was 12%. The present value of an ordinary annuity of 1 at 12 % is 5.33 for nine periods and 5.65
for ten periods.
On December 31, 2018, Anxious Company acquired used machinery by issuing the seller a two-year,
non-interest-bearing note for P3, 000,000. In recent borrowing, the entity has paid a 12% interest for this
type of a note. The present value 1 at 12% for 2 years is .80 and the present value of an ordinary annuity
of 1 at 12% for 2years is 1.69.

4. What is the total cost of the machinery?

a. 5,065,000

b. 5,225,000

c. 5,565,000

d. 8,235,000

On December 1, 2018, Bart Company purchased a machine in exchange for a non-interest bearing note
requiring eight payments of P200, 000. The first payment was made on December 31, 2018, and the
others are due annually on December 31. At date of issuance, the prevailing rate of interest for this type of
note was 11%. Presents value factors are as follows:

PV of an ordinary annuity of 1 at 11% for 8 periods 5.146

PV of an ordinary annuity of 1 in advance at 11% for 8 periods 5.712

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

a. 1,600,000

b. 1,029,200

c. 1,400,000

d. 1,142,400

6. Dawson Company has received a donation of land from a rich local philanthropist. The land originally
had a cost of P1, 000,000. On the date of the donation, the land had a market value of P1, 500,000 and an
assessed value of P1, 200,000. What amount if income should be recognized from the donation?

a. 1,500,000

b. 1,200,000

c. 1,000,000

d. 0
Precious Company had the following property acquisition during the current year:

 Acquired a tract of land in exchange for P50, 000 shares of Precious Company with P100 par value
that had a market price of P120 per share on the date of acquisition. The last property tax bill
indicated assessed value of P2, 400,000 for the land.

 Received land from a major shareholder as an inducement to locate a plant in the city. No payment
was required but the entity paid P50, 000 for legal expenses for land transfer. The land is fairly
valued at P1, 200,000.

7. What is the total increase in land as a result of the acquisition?

a. 7,200,000

b. 6,000,000

c. 7,050,000

d. 6,100,000

Lax Company recently acquired two items of equipment. The transactions are described as follows:

 Acquired a press at an invoice price of P3, 000,000 subject to a 5% cash discount which was taken.
Costs of freight and insurance during shipment were P50,000 and installment cost amounted to
P200,000

 Acquired a welding machine at an invoice price of P2, 000,000 subject to a 10% cash discount which
was not taken. Additional welding supplies were acquired at a cost of P100, 000.

8. What is the total increase in the equipment account as a result of the transactions?

a. 4,900,000

b. 5,000,000

c. 5,100,000

d. 5,200,000

9. Jazz Company purchased land with a current market value of P2, 400,000. The carrying amount of the
land was P1, 305,000. In exchange for the land, the entity issued 20,000 ordinary shares with par value of
P100 and market value of P140 per share. The shares are traded in an established stock exchange. What
amount should be recorded as cost of the land?

a. 1,305,000

b. 2,000,000

c. 2,400,000

d, 2,800,000

10. Kirk Company purchased equipment by making a down payment of P400, 000 and issuing a note
payable for P1, 800,000. A payment of P600, 000 is to be made at the end each year for three years. The
applicable rate of interest is 8%. The present value of an ordinary annuity of 1 for three years at 8% is
2.58, and the present value for the future amount of a single sum for three years at 8% is .735. Shipping
charges for the equipment of P200, 000 and installation charges of P350, 000 were incurred. What is the
capitalized cost of the equipment?

a. 1.948,000

b. 2,148,000

c. 2,498,000

d. 2,750,000

11. Figaro Company acquired land and paid in full by issuing P600, 000 of its 10 percent bonds payable
and 40,000 ordinary shares with par value of P10. The share was selling at P19 and the bonds were
trading at 102. What amount should be recorded as cost of the land?

a. 988,000

b. 1,000,000

c. 1,372,000

d. 1,387,200

12. On September 1, 2018, Ron Company issued 100,000 treasury shares with P25 par value for parcel of
land to be held as investment property. The treasury shares were acquired at a cost of P30 per share.
This share had a fair market value of P40 on September 1, 2014. The entity received P50, 000 from the
sale of scrap when an existing unusable structure on the site was immediately razed. What is the initial
cost of the land?

a. 4,000,000

b. 3,950,000

c. 3,000,000

d. 2,500,000
Taiwan Company fabricated equipment for office use during the current year. The following data were
taken from the accounting records:

Materials Direct labor

Finished goods 1,000,000 1,500,000

Office equipment 600,000 500,000

Factory overhead amounted to P1, 200,000. Normal production of finished goods is 50,000 units. Due to
the fabrication of the office equipment, finished goods produced totaled 35,000 units only in the current
year. The office equipment is to be charged with the overhead which would have been apportioned to the
15,000 units which were not produced.

13. What is the total cost of office equipment after the apportionment of factory overhead?

a. 1,100,000

b. 1,400,000

c. 1,460,000

d. 2,300,000

14. Property, plant and equipment are

a. Identifiable non-monetary assets without physical substance.

b. Properties held to earn rentals or for capital appreciation or both.

c. Assets held for sale in the ordinary course of business

d. Tangible items that are held for use in the production or supply of goods or services,
for rental to others, or for administrative purpose; and are expected to be used
during more one period.

15. The cost of an item of property, plant and equipment comprises:

I. Its purchase price, including import duties and non-refundable purchase taxes, after deducting
trade discounts and rebates.

II. Any costs directly attributable to bringing the assets to the location and condition
necessary for it to be capable of operating in the manner intended by management.

III. The initial estimate of the costs of dismantling and removing the item and restoring the
site on which it is located, the obligation for which an entity incurs either when the item is
 acquired or as a consequence of having using the item during a particular period for purposes other
than to produce inventories during that period.

a. I, II, and III

b. I and II only

c. I and III only

d. I only

16. Cost directly attributable to bringing the asset to the location and condition necessary for it be capable
of operating in the manner intended by management exclude

a. Costs for employee benefits arising directly from the construction or acquisition of the
item of property, plant and equipment.

b. Costs of site preparation

c. Initial delivery and handling costs

d. Administration and other general overhead costs.

17. Costs directly attributable to bringing the asset to the location and condition necessary for it to be
capable of operating in the manner intended by management exclude

a. Installation and assembly costs.

b. Costs of testing whether the asset is functioning properly.

c. Professional fees.

d. Costs of opening a new facility.

19. Depreciation is not recognized if

a. The fair value of the asset exceeds its carrying amount.

b. The asset becomes idle

c. The asset retired from active use

d. The asset’s residual value exceeds its carrying amount

20. Useful life of Property, Plant and Equipment is:

 a. The period over which an asset is expected to be available for use by an entity.

b. The number of production or similar units expected to be obtained from the asset by an Entity.

c. Either a or b

d. Neither a nor b

Financial Accounting and Reporting

(Notes Receivable)
SET 3

MULTIPLE CHOICE. Select the best answer by writing the letter of your choice.

1. Accounting for the interest in a non-interest bearing note receivable is an

example of what aspect of accounting theory?
a. Verifiability
b. Substance over form
c. Form over substance
d. Matching

Stuart Company has an 8% note receivable dated June 30, 2018, in the original amount of
P1,500,000. Payments of P500, 000 in principal plus accrued interest are due annually on July 1,
2019, 2020 & 2021.

2. What is the balance of note receivable on July 1, 2019?

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

3. In June 30, 2020 statement of Financial Position, what amount should be reported as a
current asset for interest in the note receivable?
a. 120,000
b. 40,000
c. 80,000
d. 0

4. Identify the control that is most likely to prevent the concealment of a cash shortage
resulting from the improper write-off of a trade account receivable:
 a. Write-offs must be approved by a responsible official after review of credit
department recommendations and supporting evidence
b. Write-offs must be approved by the accounts receivable department
c. Write-offs must be authorized by the shipping department
d. Write-offs must be supported by an aging schedule showing that only receivables
overdue by several months have been written off

On January 1, 2017, George Company sold goods to Frost Company. Frost signed a
non-interest bearing note requiring payment of P600, 000 annually for seven years. The first
payment was made on January 1, 2017. The prevailing rate of interest for this type of note at date
of issuance was 10%.

PV of ordinary annuity of 1 at 10% for 6 periods 4.36

PV of ordinary annuity of 1 at 10% for 7 periods 4.87

5. What should be the amount to be recorded as sales revenue in January 2017?

a. 3,216,000
b. 2,922,000
c. 2,616,000
d. 2,142,000

6. What is the carrying amount of the note receivable on January 1, 2017?

a. 3,600,000
b. 2,616,000
c. 3,000,000
d. 2,322,000

7. What is the interest income for 2017?

a. 300,000
b. 232,200
c. 261,600
d. 360,000

8. What is the carrying amount of the note receivable on December 31, 2017?
a. 3,600,000
b. 3,000,000
c. 2,277,600
d. 2,877,600

9. On June 1, 2013, Cho Company collected a $12,000 note receivable that had been issued
on June 1, 2012. The note carried a 6% interest rate. The interest revenue recognized on
the maturity date is $720.
a. TRUE
 b. FALSE
c. Neither true nor false
d. Either true or false

Cloud Company sold equipment with a carrying amount of P800, 000, receiving a
non-interest bearing note due in three years with a face amount of P1, 000,000. There is no
established market value for the equipment. The interest rate on similar obligations is estimated
at 12%. The present value of 1 at 12% for three periods is .712.

10. What amount should be reported as gain or loss on sale of equipment?

a. 200,000 gain
b. 200,000 loss
c. 88,000 gain
d. 88,000 loss

11. What amount should be reported as interest income for first year?
a. 288,000
b. 120,000
c. 96,000
d. 85,440

12. On June 30 of the current year, an entity obtained a two-year 8% note receivable for
services rendered. At that time the market rate of interest was 10%. The face amount of the
note and the entire amount of interest are due on the date of the maturity. Interest
receivable on December31 of the current year
a. 5% of the present value of the notes
b. 5% of the face value of the notes
c. 4% of the present value of the notes
d. 4% of the face value of the notes

On December 31, 2017, Sky Company sold for P3, 000,000 old equipment having an
original cost of P5, 400,000 & carrying amount of P2, 400,000. The terms of the sale were P600,
000 down payment & P1, 200,000 payable each year on December 31 of the next two years. The
sale agreement made no mention of interest. However, 9% would be a fair rate for this type of
transaction. The present value of an ordinary annuity of 1 at 9% for two years is 1.76.

13. What is the interest income for 2018?

a. 216,000
b. 190,080
c. 108,000
d. 106,000

14. What is the carrying amount of the note receivable on December 31, 2018?
a. 1,200,000
 b. 1,102,080
c. 2,302,000
d. 1,009,920

15. Rinehart Company made a loan of P8,000 to one of the company's employees on April
1, 2013. The one-year note carried a 6% rate of interest. The amount of interest revenue
that Rinehart would report in 2013 and 2014, respectively would be:
a. 480 , 0
b. 0 , 480
c. 360 , 120
d. 120 , 360
16. Notes receivable typically earn interest revenue for the lender and interest expense for
the borrower.
a. TRUE
b. FALSE
c. Neither true nor false
d. Either true or false

17. On October 1, 2013, Beacon Corporation borrowed $10,000 from First Bank by signing a
one-year, 6% notes. On December 31, 2013 Beacon failed to make the adjusting entry to
accrue the related interest. This error will cause:
a. Net income for 2013 to be overstated and liabilities for 2013 to be overstated.
b. Net income for 2013 to be understated and net income for 2014 to be overstated.
c. Net income for 2014 to be understated and liabilities for 2013 to be understated.
d. Net income for 2013 to be understated and liabilities for 2013 to be overstated.

18. Hamm Co. borrowed $10,000 from Townsend Co. on March 1, 2013. Hamm is to repay
the principal and interest on March 1, 2014. The interest rate is 8%. If the year-end
adjustment is properly recorded, what will be the effects of the accrual on Hamm's 2013
financial statements?
a. Increase assets and increase liabilities
b. Increase assets and increase revenues
c. Increase liabilities and increase expenses
d. No effect

19. A 90-day note receivable dated February 1 is due on April 30, three months later.
a. TRUE
b. FALSE
c. Neither true nor false
d. Either true or false

20. The face amount of a note plus interest earned on the due date is called the:
a. Realizable value
 b. Face value
c. Net realizable value
d. Maturity value

Financial Accounting and Reporting

(Inventory)
SET 4

MULTIPLE CHOICE. Select the best answer by writing the letter of your choice.

1. Woodcraft Company provided the following costs incurred during the current year:

Merchandise purchased for resale 500,000

Salesmen’s commissions 40,000
Interest on notes payable to vendors 5,000

How much should be charged to the cost of the merchandise purchases?

a. 505,000
b. 545,000
c. 500,000
d. 540,000

2. Venice company included the following in inventory at year-end:

Merchandise out on consignment at sale price,

Including 40% markup on sales 1,400,000
Goods purchased in transit, shipped FOB shipping point 1,200,000
Goods held on consignment by Venice 900,000

At what amount should the inventory be reduced?

a.1, 460,000
b. 3,500,000
c. 2,300,000
d. 1,740,000

3. An analysis of the ending inventory of Liac Company at year-end disclosed the inclusion of the
following items:

Merchandise in transit purchased FOB destination 100,000

Merchandise out on consignment at sale price, including
Markup of 30% on cost 195,000
Merchandise sent to customer for approval costing P30, 000 40,000

What is the reduction of the year-end inventory?

a.168, 000
 b.155, 000
c. 185,000
d.145, 000

4. A property developer must classify properties that it holds for sale in the ordinary course of
business as:
a. Inventory
b. Property, plant and equipment
c. Financial asset
d. Investment property

5. An SME may use techniques for measuring cost of inventories if the results approximate cost,
Accepted techniques include all of the following, EXCEPT

a. Standard cost
b. Retail method
c. Most recent purchase price
d. Gross profit method

6. Inventories must be measured by an SME at;

a. Cost
b. The lower of cost and estimated selling price less cost to complete and dispose
c. The lower of cost and fair value less cost to complete and dispose
d. The most recent purchase price

7. Fenn Company provided the following information for the current year:

Merchandise purchased for resale 4,000,000

Freight in 100,000
Freight out 50,000
Purchase returns 20,000
Interest on inventory loan 200,000

What is the inventorial cost of the purchase?

a. 4,280,000
b. 4,030,000
c. 4,080,000
d. 4,130,000

8. On December 28, 2015, Kerr Company purchased goods costing P500, 000 FOB destinations.
These goods were received on Dec 31, 2015. The costs incurred in connection with the sale and
delivery of the goods were;

Packaging for shipment 10,000

Shipping 15,000
Special handling charges 25,000
 On Dec 31, 2015, what total cost should be included in inventory?
a. 545,000
b. 535,000
c. 520,000
d. 500,000

9. Corolla Company incurred the following Cost;

Materials 700,000
Storage costs of finished goods 180,000
Delivery to customers 40,000
Irrecoverable purchase taxes 60,000

At what amount should the inventory be measured?

a. 880,000
b. 760,000
c. 980,000
d. 940,000

10. Eagle company incurred the following cost in relation to a certain product:

Direct material and labor 180,000

Variable production overhead 25,000
Factory administrative costs 15,000
Fixed production costs 20,000

What is the correct measurement of the product?

a. 205,000
b. 225,000
c. 195,000
d. 240,000

11. The cost of inventory is the sum of

a. Cost of purchase and cost of conversion.
b. Direct cost, indirect cost and other cost.
c. Cost of purchased, cost of conversion and other cost incurred in bringing the inventory
to the present location and condition.
d. Cost of conversion and other cost incurred in bringing the inventory to the present condition
and location.

12. The cost of inventory does not include

a. Salaries of factory staff.
b. Storage cost necessary in the production process before a further production stage.
c. Abnormal amount of wasted material.
d. Irrecoverable purchase taxes.
13. Consumable supplies to be consumed in the production process are
a. Inventories
b. Property, plant and equipment
c. Investment property
d. Intangible assets

14. An entity must assign the cost of inventories by

a. The LIFO cost Formula.
b. Specific identification of individual costs for inventories that are not ordinarily
interchangeable and, for inventories that are not ordinarily interchangeable, the FIFO
or the weighted average cost formula.
c. Specific identification of individual costs for inventories that are ordinarily interchangeable,
and for inventories that are not ordinarily interchangeable, the FIFO or he weighted average
cost formula.
d. The FIFO cost formula.

15. Under PFRS for SMEs, f the estimated selling price less cost to complete and sell is lower than
cost of inventory, the write down is recognized
a. As an impairment loss
b. As component of cost of goods sold
c. Either as an impairment loss or a component of cost of goods sold
d. Directly in retained earnings

16. Generally, which inventory costing method approximates must closely the current cost for each
of the following?

Cost of goods sold Ending inventory

a. LIFO FIFO
b. LIFO FIFO
c. FIFO FIFO
d. FIFO LIFO

17. PAS 2(inventories) applies to all inventories, except

a. Work in progress arising under construction contracts, including directly related service
contracts
b. Financial instruments
c. Biological assets related to agricultural activity and agricultural produce at the point of
harvest
d. All of the above

18. PAS 2 does not apply to the measurement of inventories held by

a. Producers of agricultural and forest products, and agricultural produce after harvest, and
minerals and mineral products, to the extent that they are measured at net realizable value in
accordance with well-established practice in those industries.
b. Commodity broker-traders who measure their inventories at fair value less costs to self.
 c. Both a and b
d. Neither a nor b

19. Which of the following is not a common disclosure for inventories?

a. Inventory composition
b. Inventory costing methods employed
c. Inventory financing arrangements
d. Inventory location.

20. The following may be included in the cost of inventories, except

a. Administrative overheads
b. Storage costs
c. Wasted materials, labor and other production costs
d. Selling costs.

Financial Accounting and Reporting

(Bonds Payable)
SET 5

MULTIPLE CHOICE. Select the best answer by writing the letter of your choice.

On March 1, 2018, Marie Company issued 10,000 of its P 1,000 face value bonds at 95 plus accrued
interest. Marie Company paid bonus issue cost of P 1,000,000. The bonds were dated November 1,
2017, mature on November 1, 2027, and bear interest at 12% payable semiannually on November 1 and
May 1.

1. The net amount that Marie receive from the bond issuance is

A. P8, 900,000 C. 9,500,000

B. P9, 900,000 D.P8, 500,000

2. The entry on the books of Marie could include a

A. Debit to Interest Payable

B. Credit to Interest Receivable

C. Credit to Interest Expense

D. Credit to Unearned Interest

3. On January 1, 2018, Marimar Company issued 10,000 of its 12%, P1, 000 face values 5- year bonds at
105. Interest on the bonds is payable annually every December 31. In condition with the sale of these
bonds, Marimar paid the following expenses:
Promotion costs P 100, 000

Engraving and printing 400,000

Underwriter's commissions 500,000

Using straight-line method, what amount should Marimar report as bond interest expense for the year
2018?

a. P 1,000,000. c. P 1,300,000

b. P 1,200,000. d. P 1,600,000

4. Straight-line amortization of bond of discount or premium:

a. Can be used for amortization of discount or premium in all cases and circumstances

b. Provides the same amount of interest expense each period as does the effective interest method.

C. Is appropriate for deep discount bonds

D. Provides the same total amount of interest expense over the life of the bond issue as does the
effective interest method

5. Thunder Company floated a serial bond issue in 2016. Details of the issue are as follows:

Total amount P 5,000,000

Date of issue October 2, 2016

Proceeds from issue P4, 900,000

Interest rate 5% per annum

Interest payment date October 1

Maturity date P 1,000,000 annually, starting October 1, 2018

Using the bond outstanding method of amortizing discount, compute the interest expense to be
recognized for the year ended December 31, 2018.

A. P 237, 500 C. P273750

B. P257, 500 D. P261, 250

6. On March 1, 2018, Pyne Furniture Co. issued P700, 000 of 10 percent bonds to yield 8 percent.
Interest is payable semiannually on February 28 and August 31. The bonds mature in ten years. Pyne
Furniture Co. is a calendar-year corporation. The interest expense to be recognized in 2018 profit or loss
is

A. P 52,925 C. P 58,933

B. P 53,000 D. P58, 333

7. On June 1, 2018, Jefferson Controls, Inc. issued P 12,000,000 of 10 percent bonds at P 10,348,080.
Interest is payable semiannually on May 31 and November 30. The bonds mature in 15 years. Jefferson
Controls, Inc. is a calendar-year corporation.

A. P 12,000,000 C. P10, 368,965

B. P10, 372,655 D.P10, 391,103

8. The printing costs and legal fees associated with the issuance of bonds should

A. Be expenses when incurred

B. Be reported as a deduction from the face amount of bonds payable

C. Be recorded as reduction of the bond issue amount and then amortized over the life of the bonds

D. Not be reported as expense until the period the bonds matured or are retired

9. Which statement is correct when the effective interest method is used to amortize bond premium pr
discount?

A. The carrying at the end of the first year would be the highest if the bonds were issued at a discount.

B. The interest expense increases each period if the bonds were issued at a premium.

C. The periodic amortization will increase or decrease depending on whether the bonds were issued at a
premium or at a discount.

D. The periodic amortization will increase regardless on whether the bonds were issued at either a
discount or a premium.

10. On December 31, 2017, Ulster Co. issued P 200,000 of 8% serial bonds, to be repaid in the amount of
P40, 000 each year. Interest is payable annually on December 31. The bonds were issued to yield 10% a
year. The bonds proceeds were P 190,280 based on the present values at December 31, 2017 of the five
annual payments. In its December 31, 2018 statement of financial position, at what amount should
Ulster report the carrying amount of the bonds?

A. P139, 380 C. P150, 280

B. P149, 100 D. P153, 308

11. On July 1, 2012 Ecclesiates Corporation issued for P960, 000 one thousand of its 9 percent, P1,000
bonds. The bonds are dated July 1, 2012, and mature on July 1, 2022. Interest is payable semiannually
on January 1 and July 1. Ecclesiates uses the straight-line method amortizing bond discount. On July 1,
2018, Ecclesiates reacquired all of the bonds at 101 and retired them. How much loss should Ecclesiastes
report on this early extinguishment of debt for the year ended December 31, 2018?

A. P50, 000 C. P26, 000

B. P34, 000 D.P10, 000

12. Which statement is incorrect regarding compound financial instruments?

A. Compound financial instruments have both a liability and an equity component from the issuer's
perspective

B. PAS 32 requires that the component parts be accounted for and presented separately

C. The split of the components is made at initial recognition

D. The liability component is assigned the residual amount

13. On December 31, 2018 , Atimonan Company issued 8,000 of its 8%, 10-year P 1,000 face value
bonds with detachable warrants at 120. Each bond carried a detachable warrant for two shares of
Atimonan's P100 par value ordinary shares at a specified option price P150. Immediately after issuance,
the market value of bonds ex-warrants was P8, 100,000 and the market value of the warrants was P900,
000. The issuance of the bonds increased Atimonam's equity by

A. P 900,000 C. P 960,000

B. P 1,500,000 D. Nil

Use the following information for the next two questions.

On January 2, 2013, Picard Enterprises issued P2, 400,000 of 8 percent, 15 year semiannual coupon
bonds. Each bond is convertible into 40, P15 par, ordinary shares, which was trading at P20 per share on
the date of the bond issue. The bonds were issued at 106. Without the conversion feature, the bond
would have been issued for 104.5.

On January 2, 2018, all of the bonds were converted into ordinary shares. The market price of the shares
was P28 per share on the date of conversion. The issue premium is amortized using the straight-line
method.

14. The issuance of the bonds increased the entity's equity by

A. P144, 000 C.P36, 000

B. P108, 000 D. Nil

15. The conversion of the bonds increased the entity's equity by

A. P2, 496,000 C. P1, 068,000

B.P2, 472,000 D.P1, 032,000

Use the following information for the next two questions.

On 1 January 2013, Entity A issued a 10 per cent convertible debenture with a face value of P10, 000,000
maturing on 31 December 2022. The debenture is convertible into ordinary shares of Entity A at a
conversion price of P25 per share. Interest is payable half-yearly in cash. At the date of issue, Entity A
could have issued nonconvertible debt with a ten-year term bearing a coupon interest rate of 11 per
cent.

On 1 January 2018, the convertible debenture has a fair value of P11, 200,000. Entity A makes a tender
offer to the holder of the debenture to repurchase the debenture for P11, 200,000, which the holder
accepts. At the date of repurchase, Entity A could have issued non-convertible debt with a five-year
term bearing a coupon interest rate of 8 per cent.

16. Compute the amount to be recognized in profit or loss as a result of the repurchase of the
debenture.

A. P1, 577,200 B. P1, 200,000 C. P1, 188,650 D. Nil

17. Compute the amount to be recognized in equity as a result of the repurchase of the debenture.

A.P10, 000,000 B. P1, 200,000 C. P388, 550 D. Nil

18. On 1 January 2013, Entity A issued a 10 per cent convertible debenture with a face value of P1,
000,000 maturing on 31 December 2022. The debenture is convertible into ordinary shares of Entity A at
a conversion price pf P25 per share. Interest is payable half-yearly in cash.

On 1 January 2018, to induce the holder to convert the convertible debenture promptly, Entity A
reduces the conversion price to P20 if the debenture is converted before 1 March 2018. The market
price of Entity A's ordinary shares on the date the terms are amended is P40 per share.

Compute the amount to be recognized in profit or loss as a result of the amendment of the terms.

A. P400, 000 C.P50, 000

B. P200, 000 D. P 0

19. The net amount of a bond liability that appears on the balance sheet is the
A. Call price of the bond plus bond discount or minus bond premium

Face value of the bond plus related premium or minus related discount

C. Face value of the bond plus related discount or minus related premium

D. Maturity value of the bond plus related discount or minus related premium

20. The issuance price of a bond does not depend on the

A. Face value of the bond

B. Riskiness of the bond

C. Effective interest rate

D. Method used to amortize the bond discount or premium