Multiple Choice: Select The Best Answer From The Given Choices and Write It Down On Your Answer Sheet
Multiple Choice: Select The Best Answer From The Given Choices and Write It Down On Your Answer Sheet
1. During 2016, Garber Corporation, which uses the allowance method of accounting for doubtful
accounts, recorded a provision for bad debt expense of 10,000 and in addition it wrote off, as
uncollectible, accounts receivable of 4,000. As a result of these transactions, net cash flows from
operating activities would be calculated (indirect method) by adjusting net income with a
a. 10,000 increase.
b. 4,000 increase.
c. 6,000 increase.
d. 6,000 decrease.
Holler purchased land during 2016 for P5,000,000 and sold machinery for P7,000,000 at a gain of
P500,000. Depreciation expense for 2016 is
a. 6,500,000
b. 7,500,000
c. 6,000,000
d. 7,000,000
5. Pride Company employs 5 people. Each employee is entitled to two weeks paid vacation every
year the employee works for the company. The conditions of the paid vacation are (a) for each
full year of work, an employee will receive two weeks of paid vacation (no vacation accrues for a
portion of a year), (b) each employee will receive the same pay for vacation time as the regular
pay in the year taken, and (c) unused vacation pay can be carried forward.
_____ 6. What is the amount of goodwill if average excess earnings for the past four years are to
be capitalized at the normal rate of return for the industry?
a. 400,000.
b. 437,500.
c. 440,000.
d. 500,000.
_____ 7. What is the total amount that Pinson should be willing to pay for Gagne if average excess
earnings for the past four years are to be capitalized at 14%?
a. 5,750,000.
b. 5,700,000.
c. 4,600,000.
d. 5,250,000.
10. Ponce Company sells merchandise on a consignment basis to dealers. The selling price of the
merchandise averages 25% above cost of the merchandise. The dealer is paid a 10% commission
of the sales price for all sales made. All dealer sales are made on a cash basis. The following
consignment sales activities occurred during 2012:
Manufacturing cost of goods shipped on consignment 8,800,000
Sale price of merchandise sold by dealers 9,600,000
Payments remitted by dealers after deducting commission 6,300,000
How much is the gross profit on sales?
a. 2,400,000
b. 1,920,000
c. 1,700,000
d. 1,220,000
12. What should be the income before income taxes derived by Garnett from the lease for the year
ended December 31, 2016?
a. 375,000
b. 339,500
c. 204,500
d. 240,000
13. Ignoring income taxes, what should be the expenses incurred by Rush from this lease for the year
ended December 31, 2016?
a. 240,000
b. 204,500
c. 444,500
d. 375,000
14. What is the finance lease liability in the statement of financial position of Rush Company on
December 31, 2016?
a. 2,400,000
b. 2,285,000
c. 1,894,500
d. 2,045,000
15. What is the carrying amount of the lease receivable on the statement of financial position of
Garnett Company on January 1, 2016?
a. 3,195,000
b. 2,045,000
c. 2,249,500
d. 2,400,000
17. Dexter Company sells major household appliance service contracts for cash. The service contracts
are for a one-year, two-year, or three-year period. Cash receipts from contracts are credited to
Unearned Service Revenues. This account had a balance of 900,000 at December 31, 2016 before
year-end adjustment. Service contract costs are charged as incurred to the Service Contract
Expense account, which had a balance of 225,000 at December 31, 2016.
18. On July 1, Wanda Company sold to Winn Company a new computer software system. The
contract price for both the system and the after-sales service for updates and eliminating viruses
for a period of 12 months was P2,000,000. Wanda estimates the cost of the after-sales service
at P400,000 and it normally marks up such costs by 50% when tendering for after-sales contracts.
What amount of revenue shall Wanda recognize in its statement of comprehensive income for the
year ended December 31, 2012?
a. 1,700,000
b. 2,000,000
c. 1,600,000
d. 2,600,000
19. Certain information relative to the 2016 operations of Thomas Company follows:
Accounts receivable, January 1, 2016 34,000
Accounts receivable collected during 2016 46,000
Cash sales during 2016 12,000
Inventory, January 1, 2016 18,000
Inventory, December 31, 2016 16,500
Purchases of inventory during 2016 40,000
Gross margin on sales 13,500
What is Thomas's accounts receivable balance at December 31, 2016?
a. 28,000
b. 31,000
c. 34,000
d. 43,000
20 Atlas Company had 100,000 ordinary shares outstanding on January 1. In addition, as of January
1, the company had issued share options that allowed employees to purchase 40,000 ordinary
shares. The option exercise price is P10 per share. The options were exercised on April 1.
The average share price for the year was P20. The share price on the option exercise date on
April 1 was P16. The company has no other potentially dilutive securities. Net income for the
year was P2,000,000. What is the amount of basic earnings per share?
a. 20.00
b. 15.38
c. 14.95
d. 16.67
26. Angola Company was organized on January 1, 2016, 25,000 shares of P100 par value common
stock being issued in exchange for property, plant and equipment valued at P3,000,000 and cash
of P1,000,000. The following data summarize activities for 2016:
Net income for the period ending December 31, 2016 was P1,000,000.
Raw materials on hand on December 31, were equal to 25% of raw materials purchased.
Manufacturing costs were distributed as follows:
Materials used 50%
Direct labor 30%
Factory overhead 20% (includes depreciation of 200,000)
Goods in process remaining in the factory on December 31 were equal to 33 1/3% of the
goods finished and transferred to stock.
Finished goods remaining in stock were equal to 25% of the cost of goods sold.
Operating expenses were 30% of sales
Cost of goods sold was 150% of total operating expenses.
Ninety percent of sales were collected. The balance was considered to be collectible.
Seventy five percent of the raw materials purchased were paid for. There were no
expense accruals or prepayments at the end of the year.
What was the amount of Raw materials purchases for the year?
a. 1,500,000
b. 1,750,000
c. 2,000,000
d. 2,250,000
27. Cole Company pays all salaried employees on a biweekly basis. Overtime pay, however, is paid in
the next biweekly period. Cole accrues salaries expense only at its December 31 year end. Data
relating to salaries earned in December 2016 are as follows:
Last payroll was paid on 12/26/16, for the 2-week period ended 12/26/16
Overtime pay earned in the 2-week period ended 12/26/16 was 5,000.
Remaining work days in 2016 were December 29, 30, 31, on which days there was no overtime.
The recurring biweekly salaries total 80,000.
Assuming a five-day work week, Cole should record a liability at December 31, 2016 for accrued
salaries of
a. 24,000
b. 29,000
c. 48,000
d. 53,000
28. Robin Company, has an incentive compensation plan under which the sales manager receives a
bonus equal to 10 percent of the company's income after deductions for bonus and income taxes.
Income before bonus and income taxes is P8,520,000. The effective income tax rate is 35
percent. How much is the bonus (rounded to the nearest peso)?
a. 852,000
b. 630,000
c. 553,800
d. 520,000
30. On April 13, 2016, Foley Company purchased machinery for 240,000. Salvage value was
estimated to be 10,000. The machinery will be depreciated over ten years using the double-
declining balance method. If depreciation is computed on the basis of the nearest full month,
Foley should record depreciation expense for 2017 on this machinery of
a. 41,600
b. 40,800
c. 41,100
d. 41,866
For numbers 31 and 32
Nolte Company’s 2016 income statement had pretax financial income of 100,000 in its first year of
operations. Nolte uses an accelerated cost recovery method on its tax return and straight-line
depreciation for financial reporting. The differences between the book and tax deductions for
depreciation over the five-year life of the assets acquired in 2016, and the enacted tax rates for
2016 to 2020 are as follows:
Book Over (Under) Tax Tax Rates
2016 (20,000) 35%
2017 (26,000) 30%
2018 (6,000) 30%
2019 24,000 30%
2020 28,000 30%
31. There are no other temporary differences. In Nolte's December 31, 2016 statement of financial
position, what is the noncurrent deferred income tax liability?
a. 15,600
b. 18,200
c. 7,000
d. 6,000
32. What is the amount of income tax payable currently?
a. 20,000
b. 30,000
c. 24,000
d. 28,000
33. Manchester Company provided the following information for the year ended December 31, 2016:
Net income 2,000,000
Total assets 14,950,000
Share capital 5,600,000
Share premium 2,400,000
Dividends declared 1,200,000
Prior period adjustment for 2015 overdepreciation 500,000
The debt to equity ratio is 30% at December 31, 2016. What was the retained earnings balance
on January 1, 2016?
a. 1,165,000
b. 2,165,000
c. 3,200,000
d. 2,200,000
34.At a lump-sum cost of 36,000, Sealy Company recently purchased the following items for resale:
Item No. of Items Purchased Resale Price Per Unit
M 4,000 2.50
N 2,000 8.00
O 6,000 4.00
The appropriate cost per unit of inventory is:
M N O
a. 2.50 8.00 4.00
b. 1.55 9.93 1.66
c. 1.80 5.76 2.88
d. 3.00 3.00 3.00
37. At December 31, 2016, Maye’s stockholders’ equity was P4,500,000, while total assets was
P500,000 larger than at the beginning of the year. Total liabilities on January 1, 2016 and
December 31, 2016 was P1,400,000 and P1,200,000 respectively. If dividend declaration during
2016 exceeded the proceeds from the issuance of ordinary shares by P250,000, how much is the
net income or loss for 2016?
a. 950,000 net income
b. 50,000 net loss
c. 550,000 net income
d. 450,000 net income
38. Baker Company’s liability account balances at June 30, 2017 included a 10% note payable in the
amount of 1,500,000. The note is dated October 1, 2015 and is payable in three equal annual
payments of 500,000 plus interest. The first interest and principal payment was made on October
1, 2016. In Baker's June 30, 2017 statement of financial position, what amount should be
reported as accrued interest payable for this note?
a. 112,500
b. 75,000
c. 37,500
d. 25,000
39. Lane Corporation has an incentive commission plan for its salesmen, entitling them to an
additional sales commission when actual quarterly sales exceed budgeted estimates. An analysis
of the account "incentive commission expense" for the year ended December 31, 2016, follows:
The incentive commission for the quarter ended December 31, 2016, was 35,000. This amount
was recorded and paid in January 2017. What amount should Lane report as incentive commission
expense for 2016?
a. 160,000
b. 118,000
c. 153,000
d. 195,000
43. Authentic Book Company obtained the copyright to a textbook written by renowned author Atty.
Jack De Vera, on June 1, 2016. This textbook is one of the most popular and effective reviewers
used by CPA board exam candidates in taxation. The royalty agreement with between Authentic
and Atty. Jack De Vera stipulates for payments of royalties at 20% of future sales of the book, to
be paid twice a year on April 1 for sales in May to October of the preceding year, and on
November 1 for sales in November from the previous year to April of the same year. Authentic
Book made royalty payments of P500,000 and P700,000 on April 1, 2017 and November 1, 2017,
respectively; and P600,000 and P800,000 on April 1, 2018 and November 1, 2018, respectively.
Atty. Jack De Vera’s book registered sales for the months of May to October 2018 of P3,000,000
and for November to December 2018, of P800,000. It was also determined that 50% of the
books sold occur in the first two months of the 6-month period. What is the royalty expense of
Authentic Book Company for the year ended December 31, 2018?
a. 1,400,000
b. 760,000
c. 1,160,000
d. 1,560,000
45. Kirsten Company purchased machinery that cost P1,200,000 on January 4, 2013. The entire cost
was recorded as an expense. The machinery has a ten-year life and a P150,000 residual value.
The error was discovered on December 20, 2016. Ignoring income tax considerations and before
the correction was made and books were closed on December 31, 2016, Kirsten Company’s
retained earnings was understated by
a. 885,000
b. 780,000
c. 1,200,000
d. 420,000
46. The following information was extracted from the accounts of Claw Company at December 31,
2016:
CR(DR)
Total reported income since incorporation 1,500,000
Total cash dividends paid (800,000)
Cumulative effect of changes in accounting principle (120,000)
Total stock dividends distributed (200,000)
Prior period adjustment, recorded January 1, 2016 66,000
49. On January 1, 2016, Olin Company borrows 2,000,000 from National Bank at 12% annual
interest. In addition, Olin is required to keep a compensatory balance of 200,000 on deposit at
National Bank which will earn interest at 4%. The effective interest that Olin pays on its
2,000,000 loan is
a. 10.0%
b. 11.6%
c. 12.0%
d. 12.9%
54. The following is the shareholders’ equity section of Benny Corporation at December 31, 2016:
Dividends have not been paid since 2014. On December 31, 2016, Benny wants to pay a cash
dividend of P3.50 a share to ordinary shareholders. How much should be the total amount of
cash dividend to be declared?
a. 564,000
b. 690,750
c. 600,000
d. 615,250
56.Oswald Corporation's partial income statement after its first year of operations is as follows:
Income before income taxes 1,750,000
Income tax expense
Current 483,000
Deferred 42,000 525,000
Net income 1,225,000
Oswald uses the straight-line method of depreciation for financial reporting purposes and
accelerated depreciation for tax purposes. The amount charged to depreciation expense on its
books this year was 700,000. No other differences existed between book income and taxable
income except for the amount of depreciation. Assuming a 30% tax rate, what amount was
deducted for depreciation on the corporation's tax return for the current year?
a. 560,000
b. 665,000
c. 700,000
d. 840,000
For numbers 57 to 59
Mississippi Company decides to enter the leasing business. The company acquires a specialized
packaging machine for P3,000,000 cash and leases it for a period of six years, after which the
machine is to be returned to Mississippi Company for disposition. The expected guaranteed
residual value of the machine is P200,000. The lease terms are arranged so that Mississippi
Company earns a return of 12%. The present value of 1 at 12% for six periods is .51, and the
present value of annuity advance of 1 at 12% for six periods is 4.60.
57. What is the annual lease payment payable in advance required yielding the desired return?
a. 645,000
b. 630,000
c. 652,174
d. 732,000
58. What is the gross investment in the lease?
a. 3,780,000
b. 3,913,044
c. 3,580,000
d. 3,980,000
59. What is the amount of interest revenue to be recorded in the first year of the lease?
a. 284,400
b. 360,000
c. 347,760
d. 402,000
60. In 2015, Minton Company purchased a tract of land as a possible future plant site. In January,
2016, valuable sulfur deposits were discovered on adjoining property and Minton Company
immediately began explorations on its property. In December, 2016, after incurring 500,000 in
exploration costs, which were accumulated in an expense account, Minton discovered sulfur
deposits appraised at 2,500,000 more than the value of the land. To record the discovery of the
deposits, Minton should
a. Make no entry
b. Debit 500,000 to an asset account
c. Debit 2,500,000 to an asset account
d. Debit 3,000,000 to an asset account
65. Milano Company entered into the following cash transactions during the year.
Purchase of trading securities 2,000,000
Sale of trading securities 900,000
Purchase of available for sale securities 3,000,000
Sale of available for sale securities 1,000,000
Milano had no investment securities at the beginning of the year. The cost of the trading
securities sold was P1,200,000. The cost of the available for sale securities sold was P750,000.
The market value of the remaining securities on December 31 was as follows: Trading securities,
P1,000,000 and available for sale securities, P2,500,000. The net income for the year was
P4,000,000. Assume that net income does not include any noncash items except for those related
to investment securities. Milano Company shall report net cash flow from operating activities at
a. 3,850,000
b. 2,750,000
c. 3,000,000
d. 2,950,000
66. On June 20, 2017, a fire destroyed the entire uninsured merchandise inventory of the Adamson
Merchandising Company. The following data are available:
Inventory, January 1 P 300,000
Purchases, January 1 through June 20 2,200,000
Sales, January 1 through June 20 2,400,000
Markup percentage on cost 25%
]
67. What is the share premium from the conversion of the bonds payable?
a. 2,650,000
b. 2,300,000
c. 2,350,000
d. 1,350,000
On January 2, 2017, Solaris purchased and immediately retired 100,000 shares of its share capital
for P1,800,000. Solaris records treasury shares using the cost method.
69. What is the balance of share premium after the retirement of the treasury shares?
a. 2,500,000
b. 1,900,000
c. 2,400,000
d. 2,700,000
70. What is the balance of retained earnings after the retirement of the treasury shares?
a. 4,500,000
b. 4,200,000
c. 4,700,000
d. 5,000,000
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