MOCK CPA EXAMINATION FINANCIAL ACCOUNTING AND REPORTING

OCTOBER 2016 (70 ITEMS, 14 PAGES)

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.

For numbers 2 and 3

Sloan Company, a wholesaler, budgeted the following sales for the indicated months:
June July August
Sales on account 2,790,000 2,860,000 2,980,000
Cash sales 180,000 200,000 260,000
Total sales 2,970,000 3,060,000 3,240,000
All merchandise is marked up to sell at its invoice cost plus 20%. Merchandise inventories at the
beginning of each month are at 30% of that month's projected cost of goods sold.
2. The cost of goods sold for the month of June is anticipated to be
a. 2,232,000.
b. 2,325,000.
c. 2,356,000.
d. 2,475,000.
3. Merchandise purchases for July are anticipated to be
a. 2,448,000.
b. 3,114,000.
c. 2,550,000.
d. 2,595,000.
4. Holler Company uses the straight-line depreciation for its property plant and equipment. The
related balances were:

December 31, 2016 December 31, 2015

Property, plant and equipment 60,000,000 65,000,000
Accumulated depreciation 19,000,000 15,000,000

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.

Employee Starting Cumulative vacations taken Weekly

date As of December 31, 2016 salary
Brianna Lim December 1, 2013 2 weeks 3,500
Tricia Lopez August 1, 2014 1 week 3,000
Crissy German December 1, 2009 10 weeks 5,000
Jackielou De Vera March 31, 2015 None 2,500
Paula De Jesus March 1, 2013 3 weeks 4,000
What is the liability for vacation pay of Pride Company on December 31, 2016?
a. 60,000
b. 65,000
c. 58,500
d. 63,000

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MOCK CPA EXAMINATION FINANCIAL ACCOUNTING AND REPORTING
OCTOBER 2016 (70 ITEMS, 14 PAGES)
For numbers 6 and 7
Pinson Company is considering acquiring Gagne Company. The following information relates to Gagne
Company:
Net tangible assets at cost 5,000,000
Net tangible assets at fair market value 5,500,000
Average net income for the past four years 475,000
Normal rate of return for the industry 8%

_____ 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.

For numbers 8 and 9

Crosby Corporation sold one of its high-rise buildings on January 1, 2016 for P10,000,000. Crosby
received a cash down payment of P2,000,000 and a 5-year, promissory note for the balance. The
note states that the balance is payable in equal annual payments of principal and interest of
P2,219,278 to be paid on December 31 of each year starting December 31, 2016 and every December
31 thereafter. The payments where received as scheduled on December 31, 2016 and December 31,
2017.
8. What was the stated interest rate on the promissory note?
a. 10%
b. 11%
c. 12%
d. 14%
9. What is the balance of the note payable in the December 31, 2017 statement of financial position?
a. 3,561,444
b. 7,839,131
c. 5,330,331
d. 5,481,444

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

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MOCK CPA EXAMINATION FINANCIAL ACCOUNTING AND REPORTING
OCTOBER 2016 (70 ITEMS, 14 PAGES)
11. A reconciliation of Reagan Company’s bank account at November 30, 2016 revealed the following
items:
Balance per bank statement 2,600,000
Deposits in transit 300,000
Checks outstanding ( 100,000)
Correct cash balance 2,800,000
Balance per books 2,810,000
Bank service charge ( 10,000)
Correct cash balance 2,800,000
December data are as follows:
Bank Book
Deposits recorded 1,600,000 1,800,000
Checks recorded 2,200,000 2,500,000
Service charges recorded 50,000 -
Collection by the bank, P500,000 note
plus interest 550,000 -
NSF check returned with December 31
statement 100,000 -
Balances 2,400,000 2,110,000
What is the amount of outstanding checks on December 31, 2016?
a. 540,000
b. 400,000
c. 340,000
d. 390,000

For numbers 12 and 15

On January 1, 2016, Garnett Company (as lessor) entered into a noncancelable lease agreement with
Rush Company for machinery which was carried on the accounting records of Garnett at 2,265,000
and had a market value of 2,400,000. Minimum lease payments under the lease agreement which
expires on December 31, 2025, total 3,550,000. Payments of 355,000 are due each January 1. The
first payment was made on January 1, 2016 when the lease agreement was finalized. The interest
rate of 10% which was stipulated in the lease agreement is the implicit rate set by the lessor. The
effective interest method of amortization is being used. Rush expects the machine to have a ten-year
life with no salvage value, and be depreciated on a straight-line basis. Collectibility of the rentals is
reasonably predictable, and there are no important uncertainties surrounding the costs yet to be
incurred by the lessor.

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

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MOCK CPA EXAMINATION FINANCIAL ACCOUNTING AND REPORTING
OCTOBER 2016 (70 ITEMS, 14 PAGES)
16. Dalton Company’s accounting records provided the following information for the year 2016:
January 1 December 31
Current assets 800,000
Property, plant and equipment 3,200,000 3,000,000
Current liabilities 600,000
Long-term liabilities 900,000
Working capital of P300,000 remained unchanged from January 1 to December 31, 2016. Net
income for 2016 was P500,000. No dividends were declared during 2016 and there were no other
changes in equity. What is amount of long-term liabilities on December 31, 2016?
a. 200,000
b. 300,000
c. 500,000
d. 900,000

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.

Service contracts still outstanding at December 31, 2016 expire as follows:

During 2017 190,000
During 2018 285,000
During 2019 125,000
What amount should be reported as Unearned Service Revenues in Dexter's December 31, 2016
statement of financial position?
a. 675,000.
b. 600,000.
c. 375,000.
d. 300,000.

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

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MOCK CPA EXAMINATION FINANCIAL ACCOUNTING AND REPORTING
OCTOBER 2016 (70 ITEMS, 14 PAGES)
21. The cash account of Maria Company disclosed a balance of P3,450,000 on December 31, 2016.
The bank statement as of December 31, showed a balance of P2,735,000. Upon comparing the
statement with the cash records, the following facts were developed.
a. Maria’s account was charged on December 27 for a customer’s uncollectible check
amounting to P150,000.
b. A 4-month, 10% P300,000 customer’s note dated August 20, 2016, discounted on
September 30, 2016, was dishonored December 21 and the bank charged Maria
P315,000, which include a protest fee of P5,000.
c. A customer’s check for P150,000 was entered as P105,000 by Maria Company.
d. Check no. 777 for P210,000 was entered in the cash disbursements journal at
P120,000 and check No. 780 for P33,000 was entered as P3,300.
e. Bank service charges of P4,300 for December were not yet recorded on the books.
f. A bank memo stated that Ana Company’s note for P200,000 and interest of
P20,000 had been collected on December 29, and the bank charged P6,000. (no
entry has been made on the books)
g. Receipts on December 29, 2016 for P880,000 were deposited January 2, 2013.
h. Maria issued a total of P1,200,000 checks in December. The following canceled
checks were included in the December bank statement:
No. 777 P 210,000 No. 782 P 50,000
No. 778 120,000 No. 785 77,000
No. 780 33,000 No. 786 90,000
No. 781 80,000 No. 790 45,000
What is the correct amount of cash to be shown in Maria’s December 31, 2016 statement of
financial position?
a. 3,120,000
b. 2,910,000
c. 2,240,000
d. 3,435,000

For numbers 22 and 23

Information concerning the debt of Cannell Company is as follows:
Short-term borrowings:
Balance at December 31, 2016 1,050,000
Proceeds from borrowings in 2013 650,000
Payments made in 2013 (900,000)
Balance at December 31, 2013 800,000
Current portion of long-term debt:
Balance at December 31, 2016 3,250,000
Transfers from caption "Long-Term Debt" 1,000,000
Payments made in 2013 (2,450,000)
Balance at December 31, 2013 1,800,000
Long-term debt:
Balance at December 31, 2016 18,000,000
Proceeds from borrowings in 2013 4,500,000
Transfers to caption "Current Portion of Long-Term Debt" (1,000,000)
Payments made in 2013 (3,000,000)
Balance at December 31, 2013 18,500,000
22. What is the cash inflow from financing activities?
a. 4,000,000
b. 4,500,000
c. 5,300,000
d. 5,150,000

23. What is the cash outflow from financing activities?

a. 4,000,000
b. 4,500,000
c. 5,150,000
d. 6,350,000

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MOCK CPA EXAMINATION FINANCIAL ACCOUNTING AND REPORTING
OCTOBER 2016 (70 ITEMS, 14 PAGES)
For numbers 24 and 25
On December 31, 2016 Long Corporation sold some of its product to Duane Company, accepting a
3%, four-year promissory note having a maturity value of 400,000 (interest payable annually on
December 31). Long Corporation pays 6% for its borrowed funds. Duane Company, however, pays
8% for its borrowed funds. The product sold is carried on the books of Long at a manufactured cost of
255,000. Long uses a perpetual inventory system.
24. What is the amount of sales to be recorded in 2016?
a. 400,000
b. 333,758
c. 294,012
d. 358,317
25. What is the total amount of interest revenue to be recorded in 2018?
a. 27,877
b. 26,701
c. 22,069
d. 39,877

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

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MOCK CPA EXAMINATION FINANCIAL ACCOUNTING AND REPORTING
OCTOBER 2016 (70 ITEMS, 14 PAGES)
29. Weston Company purchased a tooling machine on January 3, 2009 for 600,000. The machine
was being depreciated on the straight-line method over an estimated useful life of 10 years, with
no salvage value. At the beginning of 2016, the company paid 150,000 to overhaul the machine.
As a result of this improvement, the company estimated that the useful life of the machine would
be extended an additional 5 years. What should be the depreciation expense recorded for the
machine in 2016?
a. 41,250
b. 50,000
c. 60,000
d. 66,000

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

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MOCK CPA EXAMINATION FINANCIAL ACCOUNTING AND REPORTING
OCTOBER 2016 (70 ITEMS, 14 PAGES)
For numbers 35 and 36
Assume that the following data relate to Bass Company for the year 2016:

Net income (30% tax rate) 3,500,000

Average ordinary shares outstanding 2016 1,000,000 shares
10% cumulative convertible preference shares:
Convertible into 80,000 ordinary shares 1,600,000
8% convertible bonds; convertible into 75,000
Ordinary shares 2,500,000
Stock options:
Exercisable at the option price of 25 per share;
average market price in 2016, 30 90,000 shares

_____ 35. What is the amount of basic earnings per share?

a. 3.34.
b. 3.50.
c. 2.29.
d. 3.20.

_____ 36. What is the amount of diluted earnings per share?

a. 2.92.
b. 3.11.
c. 3.16.
d. 2.97.

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:

Amount For Quarter Ended Date Paid

42,000 December 31, 2015 January 23, 2016
36,000 March 31, 2016 April 24, 2016
39,000 June 30, 2016 July 19, 2016
43,000 September 30, 2016 October 22, 2016

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

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(Not to be assumed as actual examination)
MOCK CPA EXAMINATION FINANCIAL ACCOUNTING AND REPORTING
OCTOBER 2016 (70 ITEMS, 14 PAGES)
For numbers 40 to 42
In 2016, the initial year of its existence, Hyland Company's accountant, in preparing both the income
statement and the tax return, developed the following list of items causing differences between
accounting and taxable income:
1. The company sells its merchandise on an installment contract basis. In 2016, Hyland elected,
for tax purposes, to report the gross profit from these sales in the years the receivables are
collected. However, for financial statement purposes, the company recognized all the gross
profit in 2016. These procedures created a 240,000 difference between book and taxable
incomes. The future collection of the installment contracts receivables are expected to result
in taxable amounts of 120,000 in each of the next two years. (Note: the company treats
installment contracts receivable as a current asset on its balance sheet.)
2. The company has also chosen to depreciate all of its depreciable assets on an accelerated
basis for tax purposes but on a straight-line basis for accounting purposes. These procedures
resulted in 42,000 excess depreciation for tax purposes over accounting depreciation. The
temporary difference due to excess tax depreciation will reverse equally over the three year
period from 2017-2019.
3. Hyland leased some of its property to Simms Company on July 1, 2016. The lease was to
expire on July 1, 2020 and the monthly rentals were to be 30,000. Simms, however, paid the
first year's rent in advance and Hyland reported this entire amount on its tax return. These
procedures resulted in a 180,000 difference between book and taxable incomes. (Note: this
lease was an operating lease and Hyland classified the unearned rent as a current liability on
its balance sheet.)
4. Hyland owns 150,000 of bonds issued by the DOT upon which 6% interest is paid annually. In
2016, Hyland showed 9,000 of income from the bonds on its income statement but did not
show any of this amount on its tax return. (Note: these bonds are classified as long-term
investments on Hyland's balance sheet.)
5. In 2016, Hyland insured the lives of its chief executives. The premiums paid amounted to
12,000 and this amount was shown as an expense on the income statement. However, this
amount was not deducted on the tax return. The company is the beneficiary.
Hyland Company showed income before income taxes of 900,000. The enacted tax rates are
40% for all years; and that no other differences between book and taxable incomes existed,
except for those mentioned above:

40. What is the income tax payable?

a. 176,400
b. 319,200
c. 361,200
d. 320,400

41. What is the deferred liability at the end of 2016?

a. 72,000
b. 112,800
c. 116,400
d. 40,800

42 What is the net deferred tax expense (benefit) for 2016?

a. 72,000
b. 112,800
c. 116,400
d. 40,800

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

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MOCK CPA EXAMINATION FINANCIAL ACCOUNTING AND REPORTING
OCTOBER 2016 (70 ITEMS, 14 PAGES)
44. A company has been using the FIFO cost method of inventory valuation since it was started 10
years ago. Its 2016 ending inventory was 90,000, but it would have been 70,000 if LIFO had been
used. Thus, if LIFO had been used, this company's income before taxes would have been
a. 20,000 less in 2016
b. 20,000 less over the 10-year period
c. 20,000 greater over the 10-year period
d. 20,000 greater in 2016

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

What should be the balance of retained earnings at December 31, 2016?

a. 446,000
b. 500,000
c. 380,000
d. 566,000

For numbers 47 and 48

Vera Company has a herd of 100 three year-old oxen on January 1, 2016. During 2016, 50 four-
year-old male oxen were purchased on July 1 for P150,000 each while 20 three and three
quarters year-old oxen were sold on October 1. The fair value less cost to sell regarding oxen for
2016 is as follows:
Three – year old ox on January 1, 2016 120,000
Four – year old ox on July 1, 2016 150,000
Three and three quarters – year old ox on October 1, 2016 130,000
Three – year old ox on December 31, 2016 135,000
Four – year old ox on December 31, 2016 160,000
Four and a half – year old ox on December 31, 2016 170,000
47. What is the gain from price change?
a. 2,500,000
b. 1,700,000
c. 2,000,000
d. 3,000,000

48. What is the gain from physical change?

a. 1,700,000
b. 2,500,000
c. 3,000,000
d. 2,000,000

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%

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MOCK CPA EXAMINATION FINANCIAL ACCOUNTING AND REPORTING
OCTOBER 2016 (70 ITEMS, 14 PAGES)
50. The expenses other than interest expense of Regular Company for the current year is 40% of cost
of sales but only 20% of sales. Interest expense is 5% of sales. The amount of purchases equals
80% of cost of sales. Ending inventory is 120% as much as the beginning inventory. The income
after tax of 30% for the current year is P420,000. What is the amount of sales for the year?
a. 1,200,000
b. 2,400,000
c. 2,500,000
d. 1,680,000

For numbers 51 and 52

The following information relates to the pension plan for the employees of Mauro Company:
1/1/15 12/31/16 12/31/17
Accum. benefit obligation 2,200,000 2,300,000 3,000,000
Projected benefit obligation 2,325,000 2,490,000 3,335,000
Fair value of plan assets 2,125,000 2,600,000 2,870,000
Market-related value of assets 2,050,000 2,580,000 2,825,000
Unrecognized net (gain) or loss -0- (360,000) (400,000)
Settlement rate (for year) 11% 11%
Expected rate of return (for year) 8% 7%
Mauro estimates that the average remaining service life is 16 years. Mauro's contribution was
315,000 in 2017 and benefits paid were 235,000.
51. What is the 2017 interest cost?
a. 224,100
b. 253,000
c. 273,900
d. 366,850
52. What is the 2017 actual return on plan assets?
a. 170,000
b. 190,000
c. 245,000
d. 270,000
53. Yanina Corporation has the following equity accounts:

Accumulated profits 2,500,000

Asset revaluation reserve 1,000,000
Share capital 5,000,000
Contra equity reserve 500,000
Appropriation reserve 1,500,000
Share premium 3,000,000
Foreign translation reserve - credit 800,000
Treasury shares at cost 400,000

What is Bert’s amount of shareholders’ equity?

a. 12,900,000
b. 13,900,000
c. 10,100,000
d. 13,300,000

54. The following is the shareholders’ equity section of Benny Corporation at December 31, 2016:

12% fully participating, cumulative preference shares, P50 par;

authorized 100,000 shares: 15,000 shares issued 750,000
Ordinary shares, P20 par; 90,000 shares issued 1,800,000
Share premium 2,450,000
Total paid in capital 5,000,000
Retained earnings 4,000,000
Less: Cost of 3,000 preference treasury shares 1,000,000
Total shareholders’ equity 10,000,000

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

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MOCK CPA EXAMINATION FINANCIAL ACCOUNTING AND REPORTING
OCTOBER 2016 (70 ITEMS, 14 PAGES)
55. Nevada Company has 40 employees who work 8-hour days and are paid hourly. On January 1,
2014, the company began a program of granting its employees 10 days' paid vacation each year.
Vacation days earned in 2014 may first be taken on January 1, 2015. Information relative to these
employees is as follows:
Hourly Vacation Days Earned Vacation Days Used
Year Wages by Each Employee by Each Employee
2014 P50.00 10 0
2015 55.00 10 8
2016 60.00 10 7
Nevada has chosen to accrue the liability for compensated absences at the current rates of pay in
effect when the compensated time is earned. What is the amount of the accrued liability for
compensated absences that should be reported at December 31, 2016?
a. 280,000
b. 288,000
c. 252,800
d. 276,800

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

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MOCK CPA EXAMINATION FINANCIAL ACCOUNTING AND REPORTING
OCTOBER 2016 (70 ITEMS, 14 PAGES)
61. Deltoid Corp. signed a three-month, zero-interest-bearing note on November 1, 2016 for the
purchase of 40,000 of inventory. The face value of the note was 40,588. Assuming Deltoid used a
“Discount on Note Payable” account to initially record the note and that the discount will be
amortized equally over the 3-month period, the adjusting entry made at December 31, 2016 will
include a
a. Debit to Discount on Note Payable for 196
b. Debit to Interest Expense for 392
c. Credit to Discount on Note Payable for 196
d. Credit to Interest Expense for 392
For numbers 62 to 64
On January 1, 2016, Gregg Company purchased land for an office site by paying 80,000 cash.
Gregg began construction on the office building on January 1. The following expenditures were
incurred for construction:
Date Expenditures
January 1, 2016 120,000
April 1, 2016 50,000
May 1, 2016 90,000
July 1, 2016 111,000
The office was completed and ready for occupancy on December 31. To help pay for
construction, 360,000 was borrowed on January 1, 2016 on a 9%, 3-year note payable. Other
than the construction note, the only debt outstanding during 2016 was a 150,000, 12%, 6-year
note payable dated January 1, 2015.
62. The weighted-average accumulated expenditures on the construction project during 2016
were
a. 192,000
b. 1,467,000
c. 156,000
d. 353,000
63. The actual interest cost incurred during 2016 was
a. 45,000
b. 50,400
c. 25,200
d. 42,000
64. Assume the weighted-average accumulated expenditures for the construction project are
435,000. The amount of interest cost to be capitalized during 2016 is
a. 39,150
b. 41,400
c. 45,000
d. 50,400

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%
]

What is the approximate inventory loss as a result of the fire?

a. 700,000
b. 580,000
c. 280,000
d. 400,000

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MOCK CPA EXAMINATION FINANCIAL ACCOUNTING AND REPORTING
OCTOBER 2016 (70 ITEMS, 14 PAGES)
For numbers 67 and 68
Taffies Company issued 12%, P10,000,000 face value convertible bonds for P11,500,000 on
January 1, 2015. Interest is paid semiannually on January 1 and July 1 of each year. On that
date, the equity component recorded as an increase in shareholders’ equity was P600,000. Each
P1,000 face value bond can be converted into 12 ordinary shares. On July 1, 2017, after
recording amortization and payment of the interest, Taffies Company converted P5,000,000 of its
12% convertible bonds into ordinary shares with a par value of P50 each. As of the conversion
date the premium from the issuance has been amortized at an amount of P200,000. The market
value of the bonds was P6,500,000, and Taffies’ ordinary shares was publicly trading at P150 per
share.

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

68. How much is the interest payable on December 31, 2017?

a. 300,000
b. 150,000
c. 600,000
d. 250,000

For numbers 69 and 70

The shareholders’ equity section of Solaris Company’s balance sheet at December 31, 2016, was
as follows:

Share capital (P10 par value, authorized 1,000,000 shares

issued and outstanding 900,000 shares) P9,000,000
Share premium 2,700,000
Retained earnings 5,000,000
Total shareholders’ equity P16,700,000

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

-END-

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(Not to be assumed as actual examination)