Theory

1. When measuring fair value, which level has the highest priority for valuation inputs?
a. Level 1
b. Level 2
c. Level 3
d. Level 4
2. Which of the following is not a relevant consideration when to derecognize a financial
liability?
a. Whether the obligation has expired
b. Whether the obligation has been canceled
c. Whether the obligation has been discharged
d. Whether substantially all of the risks and rewards of the obligations have
been transferred
3. A Cash Over and Short account
a. Is not generally accepted
b. Is a contra account to cash
c. Is debited when the petty cash fund proves out over
d. Is debited when the petty cash fund proves out short
4. Which of the following is not a benefit associated with the Conceptual Framework?
a. A coherent set of accounting standards and rules should result
b. Practical problems should be more quickly solvable by reference to an existing
conceptual framework
c. A conceptual framework should increase financial statement users’
understanding and confidence in financial reporting
d. Business entities will need far less assistance from accountants because
the financial reporting process will be quite easy to apply
5. Which of the following is a financial liability?
a. Deferred revenue
b. A warranty obligation
c. A constructive obligation
d. An obligation to deliver own shares worth a fixed amount of cash

Problems

1. John Company buys ten shares of securities at P2,000 each on December 31, 2016.
The securities are classified as available-for-sale. The entity does not elect the Fair
Value option for reporting available-for-sale securities. The fair value of the securities
increase to P2,500 on Dec 31, 2017, and to P2,750 on Dec 31, 2018. On Dec 31, 2018,
the entity sells the securities. Assume no dividends are paid and that the tax rate is 30%.
What is the amount of the reclassification adjustment for other comprehensive income
on Dec 31, 2018?
a. (7,500)
b. (5,250)
 c. 5,250
d. 7,500
2. Tabloid Company negotiated with a major creditor to restructure a maturing debt on Dec
31, 2016. The creditor was owed a principal of P10,000,000 and interest of P1,200,000
but agreed to accept equipment with Fair value or P8,000,000 and note receivable from
Tabloid Company’s customer with a face value of P2,000,000. The equipment had a
Carrying amount of P5,000,000. What amount should be recognized as gain from
extinguishment of debt on Dec 31, 2016?
a. 0
b. 1,200,000
c. 2,000,000
d. 4,200,000
3. On January 1, 2016, Judd Company bought a trademark for P500,000. The entity
retained an independent consultant who estimated the trademark’s remaining useful life
to be 50 years. The unamortized cost of the trademark was P380,000. On Dec 31, 2016,
what amount should be reported as accumulated amortization?
a. 7,600
b. 9,500
c. 10,000
d. 12,500
4. Merill Company offers a cash rebate of P50 on each P200 package of biscuits sold
during the year. Historically, 30% of the customers mail in the rebate form. During the
year, 7,700 packages of biscuits are sold, and 1,470 P50 rebates are mailed to
customers. What amount of rebate liability should be recognized at year-end?
a. 42,000
b. 73,500
c. 115,500
d. 311,500
5. On July 1, 2016, Rudd Company reported that a delivery van was destroyed in an
accident. On that date, the carrying amount was P2,500,000. On July 15, 2016, Rudd
received and recorded a P700,000 invoice for a new engine installed in the van in May
2016, and another P500,000 invoice for various repairs. In August, Rudd received
P3,500,000 under an insurance policy on the van, which it plans to use to replace the
van. What amount should be reported as gain or loss on disposal of the van?
a. 200,000 loss
b. 0
c. 300,000 gain
d. 1,000,000 gain