1. Which of the following is not a basic characteristic of a system of cash control?

a. internal audit of cash at irregular intervals

b. combines responsibility for handling and recording cash
c. regular deposit of cash receipts and cash payment of major cash disbursements
d. use of the voucher system
 
2. One of the following is an incorrect application of the Imprest system of cash control
a. cash receipts must be deposited intact on a regular basis
b. cash disbursements must be made in the form of checks, the amount notwithstanding
c. cash disbursements if material must be made in the form of checks
d. cash disbursements if immaterial must be made out of the petty cash fund
 
3. Under the Imprest fund system, the petty cash fund account is debited
a. only when the fund is created
b. when the fund is created and every time it is replenished
c. when the fund is created and when the size of the fund is increased
d. when the fund is abolished and when the size of the fund is decreased
 
4. Under the Imprest fund system, when the petty cash fund is replenished or reimbursed
a. cash is debited
b. petty cash is debited
c. petty cash is credited
d. expense accounts are debited
 
5. Stamps and IOUs found in petty cash drawer at the time of replenishment should be reported
a. supplies and receivables
b. cash and cash equivalents
c. marketable securities
d. inventories
 
6. An employee asks for an authorized reimbursement of transportation charges out of the
Imprest petty cash fund. What is a correct action by the petty cashier?
a. debit to transportation expense
b. credit to cash
c. debit to receivable from employee
d. no journal entry is to be made
 
7. Long-term notes receivable that bear no interest or an unreasonably low interest may be
stated at
a. face value c. maturity value
b. discounted value d. sales value
 
8. The interest in a non-interest bearing note is equal to
a. the excess of face value over the present value
b. the excess of present value over the face value
c. the excess of the market value over the face value
d. zero
 
9. Accounting for the interest in a non-interest bearing note is an example of what aspect of
accounting theory?
a. matching principle c. substance over form
b. verifiability d. accounting entity
 
10. Credit balances in accounts receivable should be classified as
a. current liabilities c. a contra-asset
b. long-term liabilities d. none of these
 
11. A method of estimating bad debts that focuses on the income statement rather than the
balance sheet is the allowance for doubtful accounts based on
a. trade accounts receivable c. credit sales
b. aging of trade accounts receivable d. none of these
 
12. Which of these methods of determining bad debts expense most closely matches expense to
revenue?
a. charging bad debts only as uncollectible accounts are written-off
b. charging bad debts with a percentage of sales for that period
c. estimating the allowance for doubtful accounts as a percentage of accounts receivable
d. estimating the allowance for doubtful accounts by aging the accounts receivable
13. The advantage of relating a company’s bad debts experience to its accounts receivable is that
this approach
a. gives a reasonably correct statement of receivables in the balance sheet
b. relates bad debts expense to the period of sale
c. is the only GAAP method of valuing accounts receivable
 d. makes estimates of uncollectible accounts unnecessary
 
14. When the allowance method of recognizing bad debts expense is used, the entry to record the
write-off of a specific account would
a. decrease accounts receivable and the allowance for doubtful accounts
b. decrease accounts receivable and increase the allowance for doubtful accounts
c. increase the allowance for doubtful accounts and decrease net income
d. decrease both the accounts receivable and net income
 
15. A company that uses the direct write-off method recognizes uncollectible accounts expense
a. as a percentage of net sales for the period
b. as a percentage of net credit sales during the period
c. as indicated by the aging of accounts receivable at the end of the period
d. as specific accounts receivable are determined to be worthless
 
16. One of the following is not a purchase cost of inventories
a. purchase price c. import duties and other taxes
b. trade discounts d. transportation and handling cost
 
17. One of the following items is not a conversion cost of inventories
a. direct and indirect labor c. factory building depreciation
b. factory equipment depreciation d. administrative building depreciation
 
18. Net realizable value is computed as
a. current replacement cost
b. estimated selling price
c. estimated selling price less estimated cost to complete
d estimated selling price less estimated cost to complete less estimated cost to sell
 
19. The proper cost method for inventories that are not ordinarily interchangeable and goods or
services produced and segregated for specific projects is the
a. Specific identification b. FIFO c. LIFO d. Weighted average
 
20. Which inventory costing method is most conservative in periods of declining inventory costs?
a. FIFO b. LIFO c. Weighted average d. Specific identification
 
21. The cost of goods sold being recorded each time a sale is made is according to what inventory
system?
a. Conservative inventory system c. Liberal inventory system
b. Perpetual inventory system d. Periodic inventory system
 
22. Equity securities may be classified as
a. TS only b. AFS only c. TS and AFS d. TS, AFS, or HTM
 
23. Trading securities shall be classified as
a. current assets c. current and non-current assets
b. non-current assets d. current and non-current liabilities
 
24. Current investments may include
  a. TS only b. AFS only c. TS and AFS d. TS, AFS, or HTM

25. Subsequent to acquisition, these securities are generally reported at fair value
a. TS and AFS c. TS and HTM
b. AFS and HTM d. TS, AFS and HTM
  
26. Investments in equity instruments that do not have a quoted market price in active market
and whose fair value cannot be reliably measured is measured at
a. Cost b. Net realizable value c. LCNRV d. Discounted value
 
27. Unrealized gains and losses in TS are included and shown in the
a. Income statement c. Cash flow statement
b. Balance sheet d. none of these
 
28. Unrealized gains and losses on AFS are included and shown in the
a. Income statement c. Notes to the financial statement
b. Statement of Changes in Equity (SHE) d. none of these

29. Property, plant, and equipment (PPE) must be (Choose the incorrect one)
a. used in the conduct of the business c. have useful life beyond one year
b. not intended for sale in the ordinary course of business d. subject to depreciation
30. Which of the following is inconsistent with the phrase used in the conduct of business?
a. used in production or supply of goods c. held for administrative purposes
b. held for rental purposes d. held for future resale
 
31. PPE shall not include one of these items
a. property not subject to depreciation or depletion, such as land used as a plant site
b. property subject to depreciation, such as building
c. property subject to amortization, such as franchise
d. property subject to depletion, such as timber, oil and mining lands and leases
  
32. One of the following items is not capitalized as part of the cost of PPE
a. initial operating loss
b. initial estimate of the cost of dismantling and removing the PPE
c. cost of site preparation and testing
d. professional fees
 
33. When a group of assets is acquired for a lump sum price, the total cost should be allocated to
the individual assets based on their relative
a. fair value b. book value c. assessed value d. appraised value

34. All of the following factors need to be considered n determining useful life of an asset, except
a. expected usage of the asset c. technical obsolescence
b. legal limits d. residual value
  
35. The depreciation method used where the usage of the asset varies considerably from period to
period and the service life is more a function of use than passage of time
a. straight-line method c. sum of the years’ digits method
b. units of production method d. declining balance method
  
36. Under this method, a fixed or uniform rate is applied to the undepreciated cost of the asset
a. straight-line method c. sum of the years’ digits method
b. units of production method d. declining balance method

37. Wasting assets are

a. qualifying asset equivalents c. decaying inventories
b. spoiled materials of production d. natural resources
  
38. It is the cost incurred to extract or exploit the located natural resource
a. acquisition cost b. exploration cost c. development cost d. restoration cost
  
39. How much is the depletable cost of a natural resource?
a. acquisition and exploration cost
b. acquisition, exploration, and development cost
c. acquisition, exploration, and development cost less the residual value
d. acquisition, exploration, and development cost less the residual value (net of restoration cost)
 
40. Under PAS 38, which of these phrases is not part of the definition of intangible assets?
a. identifiable non-monetary assets lacking physical substance
b. controlled by an enterprise
c. future economic benefits
d. capable of being depreciated over useful life
   
41. The cost of the intangible asset arising from business combination is based on the asset ’s
a. fair value c. either of these
b. nominal amount/zero plus direct costs d. none of these
 
42. The factors to consider in determining the useful life of an intangible asset does not include
a. legal or contractual provision c. obsolescence, demand, and competition
b. expected usage of the asset d. initial cost and salvage value
    
43. Which of the following statements is false regarding trademark?
a. it is a symbol, sign or name used to mark a product to distinguish it from other products
b. the term trade name and brand name are considered as patents and not trademark
c. a trademark with an indefinite life is not amortized but tested annually for impairment
d. costs of successfully defending a trademark in court are expensed outright

44. Which of the following statements is false regarding organization costs?

a. it represents costs incurred in forming a corporation (e.g., stock issuance costs)
b. organization costs is generally amortized over a period not exceeding 5 years
c. organization costs is charged to expense when incurred
d. subsequent to incorporation, stock issuance costs are generally charged to APIC account
 
45. Current liabilities include all of the following, except
a. trade payables and accruals for employee and other operating costs
b. financial liabilities held for trading
c. bank overdraft
d. deferred tax liability
46. An example of an item which is not a liability is
a. dividend payable in stock
b. advances from customer on contract
c. accrued estimated warranty cost
d. the portion of long-term debt due within one year

47. A retail store received cash and issued a gift certificate that is redeemable in merchandise.
When the gift certificate was issued, a
a. deferred revenue account should be decreased
b. deferred revenue account should be increased
c. revenue account should be decreased
d. revenue account should be increased

48. Magazine subscriptions collected in advance are treated as

a. a contra account to magazine subscriptions receivable
b. deferred revenue in the liability section
c. deferred revenue in the stockholders’ equity section
d. magazine subscription refunds in the income statement in the period collected

49. Which of the following is a characteristic of a liabilities rather than equity?

a. the capital providers claims are residual in the event of liquidation of the business
b. the capital providers normally have the right to exercise control over business operations
c. the capital providers frequently are entitled to receive interest payments
d. the obligation to the capital providers does not mature

 50. Which of the following is an accrued liability?

a. cash dividends payable c. rent revenue collected one month in advance
b. wages payable d. portion of long-term debt payable in current year
 
51. Which of the following phrases is not part of the fundamental purpose of accounting?
a. financial in nature c. to provide qualitative information
b. making economic decisions d. intended to be useful
  
52. Financial accounting is the area of accounting that emphasizes reporting to
a. management c. internal auditors
b. regulatory bodies d. creditors and investors
 
53. They are interested in information that enables them to determine whether loans, and the
interest attaching to them will be paid when due.
a. investors c. customers and suppliers
b. lenders d. general public
 
54. Which of the following is an indirect user of financial information?
a. Management c. labor unions
b. prospective investors d. stockholders
 
55. Which of the following is a direct user of financial accounting information?
a. stock exchange c. creditors
b. registration authorities d. lawyers
 
56. The main objective of financial statements is
a. to comply with government reportorial requirements
b. to provide information about the financial position, performance, and cash flows of a business
enterprise
c. to showcase a company’s achievement s in business operations
d. to make a forecast about the company’s future viability as a business undertaking
 
57. Which among the following items does not form part of a complete set of financial statements?
a. balance sheet and income statement
b. statement of changes in financial position
c. value-added statements
d. notes and supplementary schedules
 
58. It is the financial flexibility of an enterprise
a. liquidity c. financial structure
b. solvency d. capacity for adaptation
 
59. Solvency is defined as the
a. ability of the enterprise to pay currently maturing obligations
b. ability of the enterprise to meet obligations as they fall due
c. invested capital of the enterprise
d. borrowed capital of the enterprise
60. Which among the following equations best exemplifies the entity theory with respect to the
objectives of financial statements?
 a. Assets=Liabilities+Capital
b. Assets+Capital=Liabilities
c. Assets-Liabilities=Capital
d. Assets-Liabilities-Preferred SHE=Common SHE
 
61. The debit and credit analysis of a transaction normally takes place
a. before an entry is recorded in the journal
b. when the entry is posted to the ledger
c. when the trial balance is prepared
d. at some other point in the accounting cycle
 
62. Journals are likewise regarded as the
a. Book of original entry c. Book of secondary entry
b. Book of final entry d. Book of Genesis
 
63. One of the following is an invalid statement
a. Revenue accounts are decreased by debits and increased by credits.
b. Asset accounts are decreased by credits and increased by debits.
c. Liability accounts are increased by debits and decreased by credits.
d. Expense accounts are increased by debits and decreased by credits.
 
64. Which of the following accounts has a credit balance?
a. Treasury stock c. Allowance for doubtful accounts
b. Sales returns and allowances d. Discount on bonds payable
 
65. Which of the following special journals is used to facilitate recording of credit sale transaction?
a. Sales journal c. Cash receipts journal
b. Purchases journal d. Cash disbursements journal

66. A subsidiary ledger is

a. A backup system to protect against unexpected destruction of records.
b. A listing of accounts of a subsidiary company owned by a parent company
c. A listing of account balances just before closing entries are prepared
d. A system that relieves the general ledger of much details so that work may be divided
 
67. Which of the following is considered a real account?
a. Interest expense c. Prepaid expense
b. Distribution cost d. Income and Expense Summary
 
68. Which of the following is considered a nominal account?
a. Capital stock c. Rent expense
b. APIC d. Accrued income
 
69. Which of the following is not a function of an adjusting entry?
a. To record revenues and expenses already earned but not yet taken up in the books.
b. To segregate real and nominal elements of mixed accounts.
c. To record other changes in accounting values not yet reflected in the accounts.
d. To bring all nominal accounts to zero balances.
 
70. Adjusting entries normally involve
a. Expense and liability accounts c. Real and nominal accounts
b. Nominal accounts only d. Asset and income accounts
 
71. It is a term that means the process of reporting an asset, liability, income, or expense on the
face of the financial statements of an enterprise
a. Realization c. Allocation
b. Recognition d. Matching
72. These are related to the economic resources (assets), economic obligations (liabilities),
residual interest (equity) and changes in them (revenue and expense)
a. Basic elements c. Basic objectives
b. Basic principles d. basic concepts
 
73. Which of the following is not a known measurement valuation basis for the elements of FS?
a. Historical cost c. Fair market value
b. Present value d. Pawn value
 
74. Four types of money prices are used in measuring resources in financial accounting. Which is
usually identified as replacement cost?
a. Price in past purchase exchange c. Price in current sale exchange
b. Price in current purchase exchange d. Price based on future exchange
 
75. This type of valuation is primarily justified by the fact that it is objectively determinable with
regard to single cash price at acquisition
a. Current selling price c. Historical cost
b. Replacement cost d. discounted cash flow
 
76. The valuation basis used in conventional financial statement is
a. Replacement cost c. Original cost
b. Market value d. A mixture of cost and values
 
77. To be recognized, an asset (Choose the incorrect one)
a. must represent probable future economic benefits that are expected to flow to the enterprise
b. must have a cost or value that can be measured reliably is reasonably estimated
c. must be already paid for and does not have any form of encumbrances
d. None of the above is incorrect
 
78. According to GAAP, at what value should a company show its assets on the balance sheet?
a. Market values at all times
b. Cash value of asset given up or asset received, whichever is more clearly evident
c. Best estimate of an internal auditor
d. Cash outlay only, even if part of the consideration given was something other than cash
 
79. Which of the following in the most precise sense means the process of converting non-cash
resources into cash resources and claims to cash?
a. Allocation c. Recognition
b. Collection d. Realization
 
80. Gains on assets not yet sold are identified, in a precise sense, by the term
a. Unrecorded c. Unrecognized
b. Unrealized d. Unallocated
  
81. An entity shall disclose on the face of the income statement the allocation of profit or loss for
the period attributable to
a. ordinary and extraordinary activities
b. parent and subsidiary companies
c. head office and branches
d. minority interest and equity holders of parent
 
82. PAS 1 would require, as a minimum, the presentation of the following items on the face of the
income statement, except
a. income tax expense
b. finance cost
c. extraordinary activities
d. share of income or loss of associates and joint venture accounted for using equity method
 
83. A transaction that is material in amount, unusual in nature, and infrequent in occurrence,
should be presented in the income statement separately as a component of income
a. net of applicable income tax c. from continuing operation
b. as a prior period error d. from discontinued operation
 
84. The results of discontinued operations, net of tax, should be shown
a. as a single amount in the income statement below income from continuing operations
b. as a single amount in the statement of changes in equity
c. as a single amount in the income statement in juxtaposition with income from continuing operations
d. as a note disclosure only
  
85. One of the following is not considered as a discontinued operation
a. selling by communications company of all its radio stations in order for the company to concentrate
on TV stations and publication activities.
b. selling by frozen delights company of its only controlling interest in a telecommunications company
c. selling of a subsidiary whose activities are similar to those of other subsidiaries
d. selling by a diversified enterprise of a major division that represents the only company ’s activities in
the electronics industry
 
86. A component of an entity is classified as held for sale if it meets certain conditions. Which
among the following is incorrect regarding these conditions?
a. management is committed to a plan to sell
b. the component is available for immediate sale
c. an active program is initiated to locate a buyer
d. the sale is highly probable within two years from the date of classification as held for sale
 
87. Before the sale of the discontinued operation, the fair value less the cost to sell of the net
assets of the discontinued operation is lower than their carrying amount, entity shall recognize
at the balance sheet date
a. gains or losses from actual disposal of the assets and settlement of the liabilities
b. termination costs
c. impairment losses
d. results from continuing operations of component that is about to be discontinued
88. A change in accounting estimate is considered as a
a. change in accounting policy c. normal recurring adjustment
b. correction of prior period error d. none of these
 
89. The peso effect of the change in accounting estimate
a. should be shown as correction of retained earnings
b. should be treated as an ordinary item, net of related tax
c. should be accounted for in the period of change only
d. should be accounted for in the period of change and future periods if the change affects both
 
 90. A change in accounting policy includes all of the following, except
a. the initial adoption of a policy to carry assets at revalued amount
b. the change from expensing to capitalizing borrowing costs
c. the change in inventory valuation from FIFO to weighted average method
d. the change in depreciation method from SYD to straight line
 
91. The balance sheet is used to analyze and evaluate the entity ’s
a. Performance c. Changes in financial position
b. Financial position d. None of these
 
92. Assets in the balance sheet must be classified into
a. Current and non-current c. Depreciable and non-depreciable
b. Tangible and intangible d. Any of these
 
93. The basis of classifying trade assets as current assets is
a. the accounting cycle or one year, whichever is longer
b. the accounting cycle or one year, whichever is shorter
c. the operating cycle or one year, whichever is longer
d. the operating cycle or one year, whichever is shorter
 
94. Which of the following items is a trade asset?
a. due from employees c. advances to affiliates
b. receivable from customers d. none of these
 
95. The format wherein the asset section is shown side by side with the liabilities and equity
section of the balance sheet is known as
a. Report form c. Functional format
b. Account form d. Nature of expense format
 
96. It is a property held by the owner or by the lessee under a finance lease to earn rental s or
capital appreciation or both, rather than for use or sale
a. Financial assets c. Investment property
b. PPE d. Non-current asset held for sale
 
97. As a minimum the face of the balance sheet shall include items that present the ff. except:
a. Provisions
b. Biological assets
c. Financial assets
d. Investments accounted for using the cost method
 
98. Which of the following is not an allowed treatment of items shown on the balance sheet face?
a. assets presented in the order of liquidity
b. provisions as part of the liability section
c. deferred tax liabilities and deferred tax assets, presented as current assets
d. minority interest within equity
 
99. Offsetting of assets and liabilities is
a. allowed in all cases
b. not allowed in all cases
c. allowed unless otherwise required or permitted by a Standard or Interpretation
d. not allowed unless otherwise required or permitted by a Standard or Interpretation

100. An asset shall be classified as current when it satisfies any of the following criteria, except
a. it is a cash or cash equivalent restricted from being exchanged or used to settle a liability
b. it is held primarily for the purpose of being traded
c. it is expected to be realized within twelve months after the balance sheet date
d. it is expected to be realized or intended for sale/consumption within entity ’s normal operating cycle
 

END OF EXAMINATION

PROBLEMS:
1. Marbel Corporation uses the allowance method for bad debts. During 2002, Marbel charged
P30,000 to bad debts expense, and wrote off P25,000 of uncollectible accounts receivable.
These transactions resulted in a decrease in working capital of
a. P0 b. P4,800 c. P25,200 d. P30,000

2. On January 1, 2002, Best Company’s allowance for doubtful accounts had a credit balance of
P15,000. During 2002, Best charged P32,000 to bad debts expense, wrote off P23,000 of
uncollectible accounts receivable, and unexpectedly recovered P6,000 of bad debts written off
in the prior year. The allowance for doubtful accounts at December 31, 2002, should be
a. P47,000 b. P32,000 c. P30,000 d. P24,000

3. Bell Company prepared an aging of its accounts receivable at December 31, 2002, and
determined that the net realizable value of the receivables is P125,000. Additional information
is available as follows:
Allowance for doubtful accounts at 1/1/02 credit balance P14,000
Accounts written off as uncollectible during 2002 11,500
Accounts receivable at 12/31/02 135,000

For the year ended December 31, 2002, Bell’s bad debts expense would be
a. P7,500 b. P10,000 c. P11,500 d. P12,500

4. Regal Company reported revenue of P1,980,000 in its income statement for the year ended
December 31, 2002. Additional information is as follows:
12/31/01 12/31/02
Accounts receivable P415,000 P550,000
Allowance for doubtful accounts 25,000 40,000

No uncollectible accounts were written off during 2002. Had the cash basis of accounting been
used instead, Regal would have reported receipts for 2002 of
a. P2,115,000 b. P1,885,000 c. P1,860,000 d. P1,845,000

5. The Alpha Company’s account balances at December 31, 2002, for accounts receivable and
the related allowance for uncollectible accounts were P800,000 and P40,000, respectively. An
aging of accounts receivable indicated that P71,100 of the December 31 receivables may be
uncollectible. The net realizable value of the account receivable was
a. P688,900 b. P728,900 c. P760,000 d. P768,900

6. Wonder Company accepted a P20,000, 90-day, 12% interest-bearing note dated September
12, 2002, from a customer. On October 12, 2002, Wonder discounted the note at Provident
Bank at a 15% discount rate. The customer paid the note at maturity. Based on a 360-day
year, what amount should Wonder report as net interest revenue from the note transaction?
a. P85 b. P100 c. P150 d. P200

7. At the end of its first year of operations, December 31, 2006, Solid Company had accounts
receivable of P500, 000, which were net of the related allowance for doubtful accounts. During
20006, Solid recorded charges to bad debt expense for P80, 000 and wrote off uncollectible
accounts receivable of P20, 000.
How much should Solid Company report in its December 31, 2006 balance sheet as account
receivable before allowance for doubtful accounts?
a. 500,000 b. 520,000 c. 560,000 d. 600,000

8. Alca Company’s inventory at June 30, 2006 was P750,000 based on the physical count of goods
priced at cost and before any necessary year-end adjustment relating to the following:

o Included in the physical count were goods billed to a customer FOB Shipping point on June 30,
2006. These goods costing P15, 000 were picked up by the carrier on July 9, 2006.
o Goods shipped FOB Destination on June 28, 2006 from a vendor to Alca were received on July
4,2006. The invoice cost was P25, 000.
What amount should Alca report as inventory in its June 30,2006 balance sheet?
a. P735,000 b. P740,000 c. P750,000 d. P765,000
9. In preparing the bank reconciliation at December 31,2002, Castle Company has made
available the following data:
Balance per bank statement 3,807,500
Deposit in Transit 520,000
Amount erroneously credited by bank to Castle 40,000
Bank service charge for December 7,500
Outstanding checks 675,000
The adjusted cash in bank balance on December 31,2002is
a.3,652,500 b. 3,645,000 c. 3,612,500 d.3,605,000

10. Bell Corp. had the following balances at December 31, 2002:
Cash in checking account P 420,000
Cash in money market account 300,000
 Treasury bill purchased 12/01/02, maturing 2/28/03 960,000
Treasury bond purchased 3/01/01, maturing 2/28/03 600,000
Bell’s policy is to treat as cash equivalents all highly liquid investments with maturity of three
months or less when purchased. What amount should Bell report as cash and cash equivalents
in its December 31, 2002 balance sheet?
a. 2,280,000 b. 1,680,000 c. 720,000 d. 1,380,000

11. The following information pertains to Solid Co. at December 31, 2002:
Checkbook balance P 60,000
Bank statement balance 80,000
Check drawn on Solid’s account, payable to a vendor,
dated and recorded 12/31/02 but not mailed until 1/10/03 9,000
On Solid’s December 31, 2002 balance sheet, what amount should be reported as cash?
a. 69,000 b. 60,000 c. 80,000 d. 71,000

12. At December 31, 2002, Kent Co. had the following balances in the account it maintains at First
City Bank:
Checking account#1001 P 525,000
Checking account#2001 ( 30,000)
Money market account, 60 days 75,000
90-day certificate of deposit, due 2/28/03 150,000
180-day certificate of deposit, due 3/15/03 240,000
Kent classifies investments with original maturities of three months or less as cash
equivalents. In its December 2002 balance sheet, what amount should Kent report as cash
and cash equivalents?
a. 720,000 b. 960,000 c. 570,000 d. 600,000

13. Best Company had the following account balances at December 31, 2002:
Cash in banks P 2,700,000
Cash on hand 150,000
Cash legally restricted for additions to plant
(expected to be disbursed in 2003) 1,920,000
Cash in banks includes P720,000 of compensating balances against short-term borrowing
arrangements. The compensating balances are not legally restricted as to withdrawal by Best.
In the current assets section of Best’s December 31, 2002 balance sheet, total cash should be
a. 4,770,000 b. 2,850,000 c. 2,700,000 d. 2,130,000

14. In preparing its August 31, 2002 bank reconciliation, Simplex Corp. has made available the
following information:
Balance per bank statement, 8/31/02 P 54,150
Deposit in transit, 8/31/02 9,750
Return of customer’s check for insufficient funds, 8/31/02 1,800
Outstanding checks, 8/31/02 8,250
Bank service charges for August 300
At August 31, 2002, Simplex’s correct cash balance is
a. 52,650 b. 53,550 c. 55,650 d. 53,850

15. Lipton Company shows the following account balance in their financial records as of 12/31/06
Checking account at Morgan Bank P(20,000)
Checking account at Land Bank 500,000
Payroll account- National Bank 100,000
Foreign bank account-restricted 750,000
Postage stamps 22,000
Employees’ postdated checks 30,000
I.O.U from president’s brother 75,000
Traveler’s check 50,000
No-sufficient funds check 18,000
Petty cash fund (P16, 000 in currency & expenses
Receipts for P84, 000) 100,000
Cashier’s checks 36,000
What is the correct cash balance to be reported in the balance sheet of Lipton Company on
December 31, 2006?
a.) P582,000
b.) P686,000
c.) P702,000
d.) P704,000

16. In preparing its bank reconciliation at December 31, 2006, Smiley Company has the following
available data:
Balance per bank statement, December 31, 2006 P38,075
Deposit in transit, December 31, 2006 5,200
Outstanding checks, December 31, 2006 6,750
Amount erroneously credited by bank to Smiley’s account,
December 28, 2006 400
 Bank service charge for December 75
How much is Smiley’s adjusted cash in bank balance at December 31, 2006?
a.) P36,050
b.) P36,125
c.) P36,450
d.) P36,525

17. In April 1, 2005, Holy Company acquired 30% of the 100,000 shares outstanding common
stock of Trinity Company for P3,000,000. This investment gave Holy the ability to exercise
significant influence over Trinity. The book value of the acquired shares was P2,400,000. The
excess of the cost over the book value was attributed to an identifiable tangible asset which
was undervalued on Trinity’s balance sheet and which has a remaining life of 20 years. For the
year ended December 31, 2005, Trinity reported net income of P900,000 and paid cash
dividends of P200,000 on its common stock and thereafter issued 15% stock dividend. What is
the unit cost of Holy’s “Investment in Trinity” account on December 31, 2005?
a. 90.43
b. 92.17
c. 104.00
d. 106.00

18. Harry Company purchased 15% of Potter Corporation ’s 200,000 outstanding shares of
common stock on January 2, 2005 for P2,500,000. On October 31, 2005, Harry Company
purchased another 20,000 shares of Potter for P2,000,000. There was no goodwill as a result
of either acquisition and Potter has not issued any stock dividends during 2005. Potter
reported earnings of P6,000,000 for the year ended December 31, 2005. Potter paid
P3,000,000 cash dividends to its stockholders on December 31, 2005. What amount should
Harry Company report in its December 31, 2005 financial statement as Investment in Potter
and Income from Investment, respectively?
a. 4,500,000 and 900,000
b. 4,750,000 and 1,000,000
c. 5,000,000 and 1,500,000
d. 5,250,000 and 2,500,000

19. On January 2, 2006, Thread Company purchased a 6-year 12% P5,000,000 face value bond.
Thread Company paid P5,000,000 and classified this as held to maturity. On December 31,
2006, the yield rate of the debt security is 14% and Thread Company immediately reclassified
the security as available for sale. What total amount of loss on these securities should be
included in Thread’s balance sheet for the year ended December 31, 2006?
a. 0
b. 345,200
c. 367,200
d. 388,800

20. On January 1, 2004, Marcus Company made P924,184 investments in the Camper
Corporation’s 8%, 5-year bonds with face value of P1,000,000. The effective rate for similar
financial asset is 10%. Marcus Company intends to hold the bonds until maturity. On
December 31, 2005, Marcus could no longer hold the bond investments in the Camper
Corporation until maturity date and decided to transfer it to available for sale securities. The
market value of the securities on the date of reclassification was P1,000,000. What amount of
unrealized gain should Marcus Company recognize on the date of transfer?
a. 0
b. 34,711
c. 49,738
d. 75,816

21. Guess Company purchased 50,000 shares (5% ownership) of Casio Company on January 15,
2005. Guess received a stock dividend of 15% on March 31, 2005 when the market price of
the share is P40. On November 30, Guess paid P20/share special assessment on the shares.
On December 15, 2005, Casio paid a cash dividend of P8 per share. In the income statement
for the year ended December 31, 2005, what amount should Guess report as dividend
income?
a. 150,000 c. 400,000
b. 60,000 d. 460,000
22. Comfort Company purchased 10,000 shares of Velvet ordinary shares at P90 per share on
January 3, 2005. On December 31, 2005, Comfort received 2,000 shares of Velvet ordinary
shares in lieu of cash dividend of P10 per share. On this date, the Velvet ordinary shares have
a quoted market price of P60 per share. In its 2005 income statement, Comfort should report
dividend income at:
a. 120,000
b. 100,000
c. 10,000
d. 0

23. On December 31, 2005, the cash account of Cuba Company shows the following composition:
 Petty cash fund, P30,000; Cash in bank(payroll fund), P2,000,000; Travel fund, P150,000;
interest and dividend fund, P250,000; Tax fund, P120,000; cash in bank (current
account),P3,000,000; Certificate of deposits(term 90 days), P1,000,000; Certificate of
deposits(term 180 days), P1,500,000; Cash in foreign bank-restricted, P500,000; Money
market fund (60 days), P500,00; Money market fund (9 mos.), P900,000; Costumer check
dated January 15,2006, P60,000; Costumer check dated December 30,2005, P60,000;
Costumer check dated December 30, 2005 returned for lack of funds, P40,000; a 30-day BSP
Treasury bill, P1,000,000; a 3-yr BSP Treasury bill acquired 3 months prior to maturity,
P1,200,000; Sinking fund cash , P800,000; Preferred redemption fund, P400,000; Contingent
fund, P300,000; Insurance fund, P200,000; Fund for the acquisition of long-lived assets,
P500,000; Travelers’ checks, P60,000; Cashiers checks, P100,000.
What is the correct cash and cash equivalents balance to be reported by Cuba Company?
a. P7,810,000 b. P8,210,000 c. P9,410,000 d. P9,610,000

24. On December 31, 2005, Brazil Company’s cash account balance per ledger of P3,600,000
includes: Demand deposit, P1,500,000; Time deposit-30 days, P500,000; NSF check of
costumer, P20,000; Money market placement(due date: June 30,2006), P1,000,000; savings
deposit in closed bank, P50,000; IOU from an employee, P30,000; Pension fund, P400,000;
Petty cash fund, P10,000; Costumer’s check dated January 31,2006, P60,000; Costumer ’s
check outstanding for 18 mos, P30,000.
Additional information:
 Check of P100,000 in payment of accounts payable was recorded on December 31, 2005 but
mailed on creditors on January 15, 2006
 Check of P50,000 dated January 31, 2006 in payment of accounts payable was recoded and
mailed December 31,2005.
 The company uses the calendar year. The cash receipts journal was held open until January
15,2006, during which time, P200,000, was collected and recorded on the December 31,
2005.
How much cash and cash equivalents should be shown on the December 31,2005 balance
sheet?
a. P1,960,000 b. P2,050,000 c. P2,160,000 d. P2,360,000

25. On April 1,2005, Russia Company established a petty cash fund for P20,000 by writing a check
drawn against in general checking account. On April 29, the fund contained the ff: Currency
and coins, P6,000; Receipts for office supplies, P8,000; Receipts for postage still unused,
P4,000; Receipts for transportation, P1,200.
On April 30, the company wrote a check to replenish the fund.
What is the amount of replenishment under the imprest system?
a. P6,000 b. P12,000 c. P14,000 d. P20,000

26. Maiden Company provided some information on their financial records on Dec. 31, 2006:
Account receivable, January 1 P 1,920,000
Collection of Account receivable 6,240,000
Bad Debts 200,000
Inventory, January 1 2,880,000
Inventory, December 31 2,640,000
Accounts Payable, January 1 1,000,000
Accounts Payable, December 31 1,500,000
Cash Sales 1,200,000
Purchases 4,800,000
Gross Profit on Sales 2,160,000
What is the ending balance of accounts receivable on December 31, 2006?
a.) 1,680,000
b.) 2,880,000
c.) 3,120,000
d.) 4,080,000

27. On January 2, 2001, Bell Corporation traded a used delivery truck with a carrying amount of
P540,000 for a new delivery truck having a list price of P1,600,000, and paid a cash difference
of P750,000 to the dealer. The used truck had a fair value of P600,000 on the date of
exchange.
At what amount should the new truck be recorded on Bell ’s book?
a. 1,060,000 b. 1,290,000 c. 1,350,000 d. 1,600,000
28. On July 1, 2001, Viva Company purchased for P5,400,000 a warehouse building and the land
on which it is located. The following data were available concerning the property.
Current Appraised Value Seller’s Original Cost
Land P2,000,000 P1,400,000
Warehouse building 3,000,000 2,800,000
Viva should record the land at
a. 1,400,000 b. 1,800,000 c. 2,000,000 d. 2,160,000

29. On January 1, 2000, the Corona Company purchased a new machine for P4,000,000. The new
machine has an estimated useful life of eight years and the salvage value was estimated to be
 P400,000. Depreciation was computed on the sum of the years ’ digits method. What amount
should be shown in Corona’s balance sheet at December 31, 2001, net of accumulated
depreciation for this machine?
a. 2,100,000 b. 2,500,000 c. 3,150,000 d. 3,300,000

30. The Lepanto Corporation purchased factory equipment that was installed and put into service
January 2, 2000, at a total cost of P32,000. Salvage value was estimated at P2,000. The
equipment is being depreciated over eight years using the double declining balance method.
For the year 2001, Lepanto should record depreciation expense on the equipment of
a. 5,625 b. 6,000 c. 7,500 d. 8,000

31. In January 2001, the Benguet Mine Corporation purchased mineral mine for P3,400,000 with
removable ore estimated by geological survey surveys at 4,000,000 tons. The property has an
estimated value of P200,000 after the ore has been extracted. The company incurred
P800,000 of development costs in preparing the mine for production. During 2001, 400,000
tons were removed and 375,000 tons were sold. What is the amount of depletion that Benguet
Mine should record for 2001?
a. 375,000 b. 393,750 c. 400,000 d. 420,000

32. Mercy Company determined its December 31, 2002 inventory on a FIFO basis to be P400,000.
Information pertaining to that inventory follows:
Estimated selling price P408,000
Estimated cost of disposal 20,000
Normal profit margin 60,000
Current replacement cost 360,000
Mercy records losses that result from applying the lower of cost or net realizable value. At
December 31, 2002, what should be the net carrying value of Mercy ’s inventory?
a. 400,000 b. 388,000 c. 360,000 d. 328,000

33. The following information apply to Fairmont Inc, for 2002:

Merchandise purchase for resale P400,000
Freight-in 10,000
Freight-out 5,000
Purchase returns 2,000
Fairmont’s 2002 inventoriable cost was
a. 400,000 b. 403,000 c. 408,000 d. 413,000

34. The following information was taken from Wendy Co ’s accounting for year ended 12/31/02
Decrease in raw materials inventory P 15,000
Increase in finished goods inventory 35,000
Raw materials purchased 430,000
Direct labor payroll 200,000
Factory overhead 300,000
Freight-out 45,000
There was no work-in-process inventory at the beginning or end of the year. Wendy ’s 2002
cost of goods sold is
a. 895,000 b. 910,000 c. 950,000 d. 955,000

35. Based on a physical inventory taken on December 31, 2002, Cherry Company determined its
chocolate inventory on a FIFO basis at P26,000 with a replacement cost of P20,000. Cherry
estimated that, after further processing costs of P12,000, the chocolate could be sold as
finished candy bars for P40,000. Cherry’s normal profit margin is 10% of sales. Under the
lower of cost or net realizable value, what amount should Cherry report as chocolate inventory
in its December 31, 2002, balance sheet?
a. 28,000 b. 26,000 c. 24,000 d. 20,000

36. Lin Company sells its merchandise at a gross profit of 30%. The following figures are among
those pertaining to Lin’s operations for the six-months ended June 30, 2002:
Sales P200,000
Beginning inventory 50,000
Purchases 130,000
On June 30, 2002, Lin’s entire inventory was destroyed by fire. The estimated cost of this
destroyed inventory was
a. 40,000 b. 120,000 c. 70,000 d. 20,000
37. Dean Company uses the retail inventory method to estimate its inventory for interim
statement purposes. Data relating to the computation of the inventory at July 31, 2002, are as
follows: Cost Retail
Inventory, 2/01/02 P 180,000 P 250,000
Purchases 1,020,000 1,575,000
Markups, net 175,000
Sales 1,705,000
Estimated normal shoplifting losses 20,000
Markdowns, net 125,000
 Under the approximate lower of average cost or market retail method, Dean ’s estimated
inventory at July 31, 2002, is
a. 90,000 b. 96,000 c. 102,000 d. 150,000

38. Union Company uses the FIFO retail method of inventory valuation. The following information
was made available: Cost Retail
Beginning inventory P 12,000 P 30,000
Purchases 60,000 110,000
Net additional markups 10,000
Net markdowns 20,000
Sales revenue 90,000
If the LCNRV rule is disregarded, what would be the estimated cost of the ending inventory?
a. 24,000 b. 20,800 c. 20,000 d. 19,200

39. Love Company acquired the following portfolio of trading securities during 2005 and reported
the following balances at December 31, 2005. No sales occurred during 2005. All declines are
considered to be temporary.
Security Cost Market value 12/31/05
ABC 350,000 360,000
DEF 425,000 400,000
GHI 525,000 640,000
What is the carrying value of the securities on December 31, 2005 on Love ’s balance sheet?
a. 1,275,000 b. 1,300,000 c. 1,400,000 d. 1,425,000

40. Ruralbank purchased the following portfolio of trading securities during 2006 and reported the
following balances at December 31, 2006. No sales occurred during 2006. All declines are
considered to be temporary.
Security Cost Market value 12/31/05
JKL 800,000 820,000
MNO 1,400,000 1,320,000
PQR 320,000 280,000
How much should Ruralbank report as unrealized loss related to the securities in its 2006
stockholder’s equity section of the balance sheet?
a. 0 b. 20,000 c. 100,000 d. 120,000

41. Peace Company acquired the following portfolio of available for sale securities during 2005 and
reported the following balances at December 31, 2005. No sales occurred during 2005. All
declines are considered to be temporary.
Security Cost Market value 12/31/05
STU 350,000 360,000
VWX 425,000 400,000
XYZ 525,000 640,000
What is the carrying value of the securities on December 31, 2005 on Peace ’s income
statement?
a. 0 b. 1,300,000 c. 1,400,000 d. 1,425,000

42. Interbank purchased the following portfolio of available for sale securities during 2006 and
reported the following balances at December 31, 2006. No sales occurred during 2006. All
declines are considered to be temporary.
Security Cost Market value 12/31/05
JKL 800,000 820,000
MNO 1,400,000 1,320,000
PQR 320,000 280,000
How much should Interbank report as unrealized loss related to the securities in its 2006
stockholder’s equity section of the balance sheet?
a. 0 b. 20,000 c. 100,000 d. 120,000

43. During January 2005, MI3 recorded the following information pertaining to its inventory:
Units Unit Cost Total Cost
January 1 balance 20,000 P10 P200, 000
January 15 sales 15,000
January 18 purchase 20,000 11 220,000
January 20 purchase 15,000 12 180,000
January 25 sales 24,000
January 30 purchase 14,000 15 210,000
January 31 sales 10,000
Using the moving average method, what amount of inventory should MI3 report in its January 31
balance sheet?
a.240,000 b. 260,000 c. 280,000 d.300,000

44. In December 2002, Eagle Company began including one coupon in each package of candy that
it sells and offering a toy in exchange for P5.00 and five coupons. The toys cost Eagle P8.00
each. Eventually 60% of the coupons would be redeemed. During December, Eagle sold
 1,100,000 packages of candy and no coupons were redeemed. In its December 31, 2002
balance sheet, what amount should Eagle report as estimated liability for coupons?
a. 396,000 b. 1,056,000 c. 1,980,000 d. 5,280,000

45. Rizal Company records its purchases at gross amounts but wishes to change to recording
purchases net of purchase discounts. Discounts available on purchases recorded from October
1, 2001, to September 30, 2002, totaled P16,000. Of this amount, P1,600 is still available in
the accounts payable balance. The balances in Rizal ’s accounts as of end for the year ended
September 30, 2002, before conversion is:
Purchases P800,000
Purchase discounts taken 6,400
Accounts payable 240,000
What is Rizal’s accounts payable balance as of September 30,2002, after the conversion?
a. 238,400 b. 233,600 c. 230,400 d. 225,600

46. Small Company sells magazine subscriptions for one to three-year periods. The account
unearned magazines subscriptions has a balance of P1,800,000 at December 31, 2005.
Information for 2006 is as follows:
Cash receipts from subscribers P2,300,000
Magazine subscription revenue 1,600,000
In its December 31, 2005 balance sheet, how much should Small report as the balance for
unearned magazine subscriptions?
a. 1,100,000 b. 2,100,000 c. 2,300,000 d. 2,500,000

47. Mighty, Inc. purchased a machine under a deferred payment contract on December 3,
2006. Under the terms of the contract, Mighty is required to make eight annual
payments of P490,000 each beginning December 31, 2007. The applicable interest rate is
8%
What is the purchase price of the machine?
a. 4,862,165 b. 3,041,150 c. 3,920,000 d. 2,815,834

48. On July 1, 2006, Challenger Corporation exchanged its non-monetary asset (equipment)
with another non-monetary asset. The following data were made available:
Equipment P4,400,000
Accumulated depreciation 2,000,000
Fair value of equipment 3,000,000
Cash received on exchange 900,000
If the cash flows of the non-monetary assets were not the same, what would be the cost of
the non-monetary asset received?
a. 1,500,000 b. 1,680,000 c. 2,100,000 d. 3,000,000

49. Calories Company purchased an equipment for P540,000 on January 2, 2005. The
equipment has an estimated useful life of 5 years and an estimated salvage value of
P60,000. The equipment is being depreciated using the sum-of- the- year ’s digit
method. What is the carrying value of the equipment on December 31, 2006?
a. 156,000 b. 252,000 c. 380,000 d. 412,0000

50. On January 2, 2005, Iron Company purchased factory equipment for P4,000,000.
Estimated salvage value was P160,000. Estimated useful life of the equipment is 10 years
and will be depreciated using the double declining balance method. What is the amount
of depreciation to be recognized in year 2005?
a. 384,000 b. 614,400 c. 640,000 d. 768,000

51. Rico Company was incorporated on January 1,2002, with P 5,000,000 from the issuance of
stock and borrowed funds of P 1,500,000. During the first year of operations, net income was
P 2,500,000. On December 15, Rico paid a P500, 000 cash dividend. No additional activities
affected equity in 2002. At December 31, 2002, Rico liabilities increased to P1, 800,000. In
Rico’s December 31,002-balance sheet, total assets should be reported a t
a. 6,500,000 b. 9,300,000 c. 8,800,000 d.6, 800,000
52. Mar, Inc. was incorporated on January 1,2002, with proceeds from the issuance of P
7,500,000 in stock and borrowed funds of P 1,100,000. During the first year of operations,
revenues from sales and consulting amounted to P8, 200,000, and operating costs and
expenses totaled P 6,400,00. On December 15,Mar declared a P300, 000 dividend payable to
stockholders on January 15,2003. No additional activities affected owner ’s equity in 2002.
Mar’s liabilities increased to P2, 000,000 by December 31, 2002. On Mar ’s December
31,2002 balance sheet, total assets should be reported at
a. 11,000,000 b. 11,300,000 c. 10,100,000 d.12, 100,000
 
53. The trial balance of Jill Company included the following account balances at Dec. 31, 2002:
Accounts payable 1,500,000
Bonds payable, due 2003; 2,500,000
Discount on bonds payable 300,000
Dividends payable 800,000
Notes payable, due 2004; 2,000,000
 What amount should be included in the current liability section of Jill ’s December 31, 2002
balance sheet?
a. 4,500,000 b. 5,100,000 c. 6,500,000 d.7,800,000
 
54. When preparing a draft of the 2002 balance sheet, Vent Company reported net assets totaling
P8,750,000. Included in the asset section of the balance sheet were the following:
Treasury stock of Vent Company at cost 250, 000
Idle machinery 100, 000
Cash surrender value of life insurance of corporate executives 150, 000
Allowance for decline in value of non-current equity investment 200,000
 
What amount should Vent’s net assets reported at December 31,2002 balance sheet?
a.8,500,0000 b. 8,400,000 c. 8,300,000 d.8,200,000
 
55. During 2002, Jones Company engaged in the following transactions:
Salary expense to key employees who are principal owners 100,000
Sales to affiliated enterprises 250,000
 
Which of the two transactions would be disclosed as related party transactions in Jones ’ 2002
financial statement?
a. Neither transaction c. The 250,000 transaction only
b. The 100,000 transaction only d. Both transactions
 
56. The accounts below were taken from the unadjusted trial balance of Katie Corporation as at
December 31, 2002:
Cash, net of bank overdraft of P150, 000 600,000
Notes Receivable (including discounted note of P100, 000) 500,000
Trade accounts receivable, net of customers’ credit balance
Of P50, 000 700,000
Merchandise Inventory 800,000
Trade accounts payable, net of creditor’s debit balance of
P100, 000 800,000
 
What is the correct amount of current assets on December 31,2002?
a.2,800,000 b. 2,700,000 c. 2,600,000 d.2,900,000
 
57. At December 31, 2002, Janise Corporation owned two assets as follows:
Equipment Inventory
Current cost 1,000,000 800,000
Recoverable amount 950,000 900,000
 
Janise voluntarily disclosed supplementary information about current cost at
December 31, 2002. In the disclosure, at what amount would Janise report total assets?
a.1,750,000 b. 1,800,000 c. 1,850,000 d.1,900,000
 
58. Rock Corporation reports operating expenses in two categories: selling and administrative.
The adjusted trial balance at Dec. 31, 2002 included the ff. expense and loss accounts:
Accounting and legal fees 1,200,000
Advertising 1,500,000
Freight out 800,000
Interest 700,000
Loss on sale of long-term investment 300,000
Officers’ salaries 2,250,000
Rent for office space 2,200,000
Sales salaries and commissions 1,400,000
 
One half of the rented premises is occupied by the sales department. Rock ’s total selling
expenses for 2002 should be
a. 4,800,000 b. 4,000,000 c. 3,700,000 d.3, 600,000
 
59. The following items were among those reported on Bee Company ’s income statement for the
year ended December 31, 2002:
Legal and audit fees 1,700,000
Rent for office space 2,400,000
Interest on inventory loan 2,100,000
Abandonment loss of EDP Equipment used in operations 350,000
 
The office space is used equally by Bee ’s sales and accounting departments. What amount of
the above listed items should be classified as general and administrative expenses in the
income statement?
a. 2,900,000 b. 3,250,000 c. 4,100,000 d.5, 000,000
 
60. The following costs were incurred by Griffin Company, a manufacturer for 2002:
Accounting and legal fees 250,000
 Freight-in 1,750,000
Freight-out 1,600,000
Officers’ salaries 1,500,000
Insurance 850,000
Sales representative salaries 2,150,000
 
What amount should be reported as general and administrative expenses for 2002?
a.2,600,000 b. 5,500,000 c. 6,350,000 d.8,100,000
 
61. The following information is available from Well Company’s 2002records:
Purchases 5,300,000
Purchase discounts 100,000
Beginning inventory 1,600,000
Ending inventory 2,150,000
Freight-out 400,000
 
Well’s 2002 cost of goods sold is
a.4, 650,000 b. 4,750,000 c. 5,050,000 d.5,850,000
 
62. The following information pertains to Real Corp’s 2002 cost of goods sold:
Inventory, January 14,500,000
2002 purchases 6,200,000
2002 write off of obsolete inventory 1,700,000
Inventory, December 31 1,500,000
 
The inventory written off became obsolete due to an unexpected and unusual technological
advance by a competitor. In its 2002 income statement, what amount should Real report as
cost of goods sold?
a. 9,000,000 b. 9,200,000 c. 7,500,000 d.6, 200,000
 
63. The following information is available for Smart Company for2002:
Disbursements for purchases 5,800,000
Increase in trade accounts payable 500,000
Decrease in merchandise inventory 200,000
 
Cost of goods sold for 2002 was
a. 6,500,000 b. 6,100,000 c. 5,500,000 d.5,100,000
 
64. The following pertains to Ray Company’s records for the year ended Dec.31 ’02:
Increase in raw materials inventory 150,000
Decrease in finished goods inventory 350,000
Raw materials purchased 4,300,000
Direct labor payroll 2,000,000
Factory overhead 3,000,000
Freight-out 450,000
 
There was no work-in-process inventory at the beginning or at the end of the year. Ray ’s 2002
cost of goods sold is
a. 9,500,000 b. 9,650,000 c. 9,750,000 d.9, 950,000
 
65. In Dew Company’s 2002 annual report, Dew described its social awareness expenditures
during the year as follows:
“The company contributed P250, 000 in cash to youth and educational programs. The
company also gave P140, 000 to health and human service organizations, of which P80, 000
was contributed by employees through payroll deductions. In addition, consistent with the
company’s commitment to the environment, the company spent P100, 000 to redesign
product packaging.”
What amount should be included in income statement as charitable contribution ’s expense?
a.310,000 b. 390,000 c. 410,000 d.490,000
 
66. Chester Corporation was a development stage enterprise from its inception on September 1,
2002 to December 31,2003. The following information was taken from the Chester ’s
accounting records for the period:
Net Sales 5,400,000
Cost of Sales 4,000,000
Selling. General and administrative expenses 1,600,000y
Research and development costs 1,200,000
Interest expense 400,000
 
For the period September 1, 2002 to December 31,2003, what amount should Chester report
as net loss?
a.1,800,000 b. 1,400,000 c. 600,000 d.200,000
 
67. Love Corporation had the following gains, net of applicable taxes, during2002:
 Foreign currency transaction gain due to major devaluation 700,000
Gain from expropriation of asset 1,000,000
 
What amount must be reported as extraordinary gain in 2002 income statement?
a.1,700,000 b. 1,000,000 c. 700,000 d. 0
 
68. On January 1, 2002, Jazz Company purchased a machine for P5, 280,000,and depreciated it
by the straight-line method using an estimated useful life of eight years with no salvage value.
On January 1,2005, Jazz determined that the machine had a useful life of six years from the
date of acquisition and will have a salvage value of P480, 000. An accounting change was
made in 2005 to reflect these additional data. The accumulated depreciation for this machine
has a balance at December 31, 2005 of
a.2,920,000 b. 3,080,000 c. 3,200,000 d.3,520,000
 
69. Meow Corporation and its divisions are engaged solely in manufacturing. The following data
pertain to the industries in which operations were conducted for the year ended Dec.31, 2002:
Operating profit (loss)
V 3,400,000
W 1,000,000
X (2,000,000)
Y 400,000
Z (200,000)
 
In its segment information for 2002, what are the reportable segments?
a. V, W, X, and Y b. V, W, and X c. V and W d. all segments

70. An inventory loss from a permanent market decline of P432,000 occurred in May 2002. Red
Company appropriately recorded this loss in May 2002 after its March 31, 2002 quarter report
was issued. What amount of inventory loss should be reported in Red ’s quarterly income
statement for the three months ended June 30, 2002?
a. 0 b. 108,000 c. 216,000 d. 432,000

71. On June 30, 2002 Green Corp. incurred a P180,000 net loss from disposal of a business
segment. Also, on June 30, 2002, Green paid P72,000 for property taxes assessed for the
calendar year 2002. What amount of the foregoing items should be included in the
determination of Green’s net income/loss for the six-month interim period end June 30, 2002?
a. 252,000 b. 216,000 c. 162,000 d. 126,000

72. On July 1, 2002, Regal Corporation approved a plan to sell its textile division, considered a
segment of the business. The sale will occur in the first three months of 2003. The division
had an operating loss of P480,000 for the six months ended December 31, 2002 and expects
to incur a loss of P240,000 for the first quarter of 2003. The sales price is P26.4 million, and
the carrying value at the date of sale should be P24 million. Regal ’s effective tax rate for 2002
is 32%. At the year-end, December 31, 2002, how much gain should Regal report on disposal
of the textile division?
a. 0 b. 1,142,400 c. 1,468,800 d. 1,632,000

73. The income statement of DJH Co. shows operating expenses of $265. The following
information was also available:
Prepaid expenses, 1/1 $14
Accrued expenses, 1/1 $40
Prepaid expenses, 12/31 $21
Accrued expenses, 12/31 $36
Cash paid for operating expenses was
a. $224 b. $262 c.$268 d. $276

74. The income statement for PQR Co. for 20X1 shows cost of sales of $742. The following
information is also available.
Inventory, 1/1 $52
Inventory, 12/31 $61
Accounts payable, 1/1 $28
Accounts payable, 12/31 $48
Cash paid in 20X1 for merchandise was
a. $713 b. $731 c. $771 d. $779

75. Scoot Inc. had the following condensed balance sheet at year-end:
Assets Equities
Cash and receivables $120 Current liabilities $100
Inventories 200 Long-term debt 200
Fixed assets (net) 1,080 Stockholder’s equity 1,100
 $1,400 $1,400
The current ratio is
a.      31.25%
b.      1.2 to 1
c.      1 to 3.375
d.      3.2 to 1

76. Market Corporation failed to recognize, accruals and prepayments since the inception of its
business three years ago. The accruals and prepayments at the end of 2003 as given:
Prepaid insurance P60,000
Accrued wages 75,000
Rent revenue collected in advance 96,000
Interest receivable 81,000
What is the net effect of the above errors in the 2003 net income?
a.      30,000 overstated
b.      30,000 understated
c.      120,000 understated
d.      120,000 overstated

77. While examining the December 31, 2003 financial statements of Dawn Company, you discover
the following:
a. Inventory at January 1, 2003 had been overstated by P30,000
b. Inventory at December 31, 2003 was understated by P50,000
c. 2004 Sales amounting to P100,000 was recognized in 2003
d. Unadjusted net income of 2003 was P3,000,000

What is the corrected net income for the year ended December 31, 2003?
a. 2,920,000 b. 2,980,000 c. 3,040,000 d. 3,080,000

78. You are given the following data from the income statement of Banana Co.:
Sales P 3,000,000
Cost of Sales 1,000,000
Gross Profit 2,000,000
Operating Expenses 500,000
Operating Income 1,500,000
Income Tax Expense (35%) 525,000
Net Income 975,000
Compute the operating ratio
a. 75% b. 50% c. 25% d. 16.67%

79. At the end of its first year of operations, December 31, 2002, Solid Company had accounts
receivable of P500,000, which were net of the related allowance for doubtful accounts. During
2002 Solid recorded charges to bad debt expense of P80,000 and wrote off uncollectible
accounts receivable of P20,000. What should Solid report on its balance sheet at December
31, 2002 as accounts receivable before the allowance for doubtful accounts?
a. 500,000 b. 520,000 c. 560,000 d. 600,000

80. Berta Corporation began operations in 2002. For the year ended December 31, 2002, Berta
made available the following information:
Total merchandise purchases for the year P350,000
Merchandise inventory at December 31, 2002 70,000
Collection from customers 200,000

All merchandise was marked to sell at 40% above cost. Assuming that all sales are on a credit
basis and all accounts receivables are collectible, what should be the balance in accounts
receivable at December 31, 2002?
a. 50,000 b. 192,000 c. 250,000 d. 290,000

81. The following accounts were abstracted from the December 31, 2002, trial balance of Redford
Company: Debit Credit
Credit sales P750,000
Sales discounts P15,000

On January 1, 2002, allowance for doubtful accounts had a credit balance of P18,000. During
2002, P30,000 of uncollectible accounts receivable were written off. Past experience indicates
that 3% of gross sales proves to be uncollectible. What should be the allowance for doubtful
accounts at December 31, 2002, after the provision is made for the current year?
a. 10,050 b. 10,500 c. 22,050 d. 34,500

82. Blue Company accepted a P50,000 face value, 6-month, 10% note dated April 15, 2002, from
a customer. The same date Blue discounted the note at First National Bank at 12% discount
rate. How much cash should Blue receive from the Bank on April 15, 2002?
a. 48,400 b. 49,350 c. 49,500 d. 52,500
 83. The following information were abstracted from Orient Company ’s unadjusted trial balance at
December 31, 2002:
Debit Credit
Accounts receivable P500,000
Allowance for doubtful accounts 4,000
Net credit sales P2,000,000

Orient estimates that 3% of gross accounts receivable will become uncollectible. After
adjustment at December 31, the allowance for doubtful accounts should have a balance of
a. 11,000 b. 15,000 c. 30,000 d. 60,000

84. Ever Co.’s inventory at December 31, 2002 was P1,500,000 based on a physical count priced
at cost, and before any necessary adjustment for the following:
         Merchandise costing P90,000, shipped FOB shipping point from vendor on December 30, 2002 ,
was received and recorded on January 5, 2003
         Goods in the shipping area were excluded from inventory although shipment was not made until
January 4, 2003. The goods, billed to the customer FOB shipping point on December 30,2002, had a
cost of P120,000. What amount should ever report as inventory in its December 31, 2002 balance
sheet?
a. 1,500,000 b. 1,590,000 c. 1,620,000 d. 1,710,000

85. On January 3, 2005, Dean Company purchased 8,000 shares of Pearl Co. stock at P100 per
share. Dean intends to hold the instrument for an indefinite period. Transaction costs of
P24,000 were paid on the same date. A P5 dividend per share of Pearl stock has been declared
on December 17, 2004 to be paid on March 4, 2005 to stockholders of record on January 31,
2005. On July 31, 2005 Dean Company received a 10% stock dividend on December 31, 2005
and also paid P10 for each share as special assessment. If the market value of the instrument
is not clearly determinable, what is the carrying value and unit cost of the stock investment on
December 31, 2005?
a. 872,000 and 99.09
b. 872,000 and 109.00
c. 912,000 and 103.64
d. 912,000 and 114.00

86. On September 30, 2005, Cedric Company exchanged equipment for 2,500 shares of Chuck
Company’s ordinary share. On that date, the equipment had a carrying value of P250,000 and
its fair market value was P290,000. The book value of Chuck ’s ordinary share was P80 per
share. On December 31, 2005, Chuck had 25,000 number of shares outstanding but its
market value was not clearly determinable. What amount should Cedric Company as carrying
value of the investment and the amount of gain or loss on the exchange respectively?
a. 290,000 and 40,000 gain
b. 290,000 and 40,000 loss
c. 250,000 and 65,000 gain
d. 250,000 and 65,000 loss

87. Turner Company acquired 50,000 shares of Burner Company, a closely-held company,
ordinary shares on September 30, 2005 for P8,250,000. On October 30 the shares were split
into a 2 for 1 basis. Then on November 30, 2005, Burner distributed 10% ordinary share
dividends. On December 31, 2005, Turner sold 10,000 shares of its Burner shares for
P1,200,000. for the year ended December 31, 2005, how much should Turner report as gain
on sale of investment and the carrying value of the investment on December 31, 2005
respectively?
a. 375,000 and 7,425,000
b. 375,000 and 7,500,000
c. 450,000 and 7,425,000
d. 450,000 and 7,500,000

88. Mutant Company purchased 20,000 shares of Twister Company ordinary shares on February
29, 2005, for P924,000. Mutant received a P40,000 cash dividend on Twister stock on July 1,
2005. Twister declared a 10% stock dividend on December 1, 2005, to stockholders of record
as of December 31, 2005. The dividend was distributed on January 31, 2006. The market price
of the stock was P38 on December 1, 2005, P40 on December 31, 2005 and P42 on January
31, 2006. What is the carrying value of the investment and the amount of dividend income
respectively, that should appear in the December 31, 2005 financial statement?
a. 880,000 and 40,000
b. 924,000 and 120,000
c. 924,000 and 40,000
d. 964,000 and 120,000

89. On May 1, 2005, Graham Company purchased a short-term P2,000,000 face value 9% debt
instruments for P1,860,000 and classified it as a trading security. The debt instruments
mature on January 1, 2006, and pay interest semi-annually on January 1 and July 1. On
December 31, the fair market value of the instruments is 98%. On March 2, 2006, Graham
 Company sold the securities for P1,980,000. What amount should Graham report for short-
term debt securities on December 31, 2005?
a. 1,800,000
b. 1,860,000
c. 1,960,000
d. 1,980,000

90. On January 1, 2005, Sun Company purchased the debt instruments of Silk Company with a
face value of P5,000,000 bearing interest rate of 8% for P4,621,006 to yield 10% interest per
year. The bonds mature on January 1, 2010 and pay interest annually on December 30 but
Sun Company does not intend to hold the instruments until maturity. If the market value of
the instruments as of December 31, 2006 is 96%, what amount of unrealized gain should Sun
Company report in its 2006 stockholder’s equity?
a. None
b. 26,559 unrealized gain
c. 48,583 unrealized gain
d. 116,893 unrealized gain

91. Maker Company purchased a held to maturity instrument with a face value of P5,000,000 on
January 2, 2005. The bonds will mature on January 2, 2010 and the nominal rate of interest is
12%. Interest is payable annually every December 30. If the market rate of interest on this
date is 10%, how much did maker pay in acquiring the instruments?
a. 5,247,610
b. 5,326,006
c. 5,348,580
d. 5,379,600

92. Marker Company purchased a held to maturity instrument with a face value of P5,000,000 on
July 1, 2005. The 5-year 12% bonds will mature on January 2, 2010. Interest is payable
annually every December 30. If the market rate of interest on this date is 10%, what total
amount of cash did Marker use related to the acquisition of the instruments?
a. 5,547,610
b. 5,626,006
c. 5,648,580
d. 5,679,600

93. On January 2, 2005, Light Company purchased 10% of the outstanding common stock of
House Corporation for P3,000,000 when the net assets of House Corporation were
P9,000,000. House reported net earnings throughout the year in the amount of P2,400,000
and paid total dividends of P1,000,000. What is the carrying value of the investment and the
maximum amount of income Light Company should include in its 2005 financial statements,
respectively?
a. 3,000,000 and 240,000
b. 3,000,000 and 100,000
c. 3,100,000 and 100,000
d. 3,240,000 and 240,000

94. On January 2, 2004, Good Company purchased 10% of Samaritan Company ’s common stock
for P4,500,000. The following information concerning Samaritan Company are available for the
years 2004 to 2006:
Cash Dividends Paid Net Income Reported
2004 --- 400,000
2005 3,200,000 2,600,000
2006 1,500,000 2,000,000

In its financial statement for the year ended December 31, 2006, how much should Good
Company report as dividend income and the carrying value of its investment?
a. 150,000 and 4,480,000
b. 150,000 and 4,500,000
c. 200,000 and 4,500,000
d. 200,000 and 4,520,000

95. On January 2, 2005, Marco Company purchased 20% of Polo Company ’s common stock for
P4,500,000. During 2005, Polo reported net income of P4,000,000 and paid cash dividends of
P3,000,000 on its common stock. What is the balance in Marco ’s “Investment in Polo ” account
and the amount of income from investment on December 31, 2005, respectively?
a. 4,300,000 and 200,000
b. 4,400,000 and 200,000
c. 4,500,000 and 800,000
d. 4,700,000 and 800,000

96. Data regarding Kiangan Company’s trading securities follow:

Cost Market
December 31, 2004 10,000,000 8,500,000
 December 31, 2005 10,000,000 9,500,000

Differences between cost and market value are considered temporary. The
income statement for 2005 should report unrealized gain in these securities at
a. 1,500,000
b. 1,000,000
c. 500,000
d. 0

97. Data regarding Lamut Company’s available for sale securities follow:
Cost Market
December 31, 2004 10,000,000 8,500,000
December 31, 2005 10,000,000 11,000,000

Differences between cost and market value are considered temporary. The 2005 statement of
stockholders’ equity should report unrealized gain on these securities at
a. 2,500,000
b. 1,000,000
c. 1,500,000
d. 0

98. Banawe Company was organized on January 1, 2005. At December 31, 2005, Banawe had the
following investments:
Trading Available for sale
Aggregate cost 10,000,000 10,000,000
Aggregate market value 9,000,000 8,500,000

The declines are judged to be permanent. In 2005, what amount of total loss should be shown
as component of income?
a. 2,500,000
b. 1,500,000
c. 1,000,000
d. 0

99. Lagawe Company purchased trading equity securities. The cost and market value at December
31, 2004 were:
Security Cost Market
A – 20,000 shares 2,000,000 2,500,000
B – 40,000 shares 4,000,000 3,000,000
C – 60,000 shares 6,000,000 5,500,000

Lagawe sold 60,000 shares of Security C on January 31, 2005, for P5,000,000, incurring
P100,000 in brokerage commission and taxes. On the sale, Lagawe should report a realized
loss of
a. 1,100,000
b. 1,000,000
c. 400,000
d. 500,000

100. Information about Ifugao Company’s portfolio of available for sale securities is:
Aggregate cost – December 31, 2005 9,000,000
Unrealized gains – December 31, 2005 500,000
Unrealized losses – December 31, 2005 2,000,000
Net realized gains during 2005 300,000

On January 1, 2005 Ifugao reported an unrealized loss of P400,000 as a component of

stockholders’ equity. In its December 31, 2005 stockholders ’ equity, Ifugao should report what
amount of unrealized loss?
a. 2,000,000
b. 1,500,000
c. 1,100,000
d. 1,200,000