FAR Pre Week

No. 125 Brgy.
San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : [email protected]
FINANCIAL ACCOUNTING AND REPORTING iCARE Preweek

Quizzer – Oct. 2023
1. The December 31, 2023, statement of financial position of Brave Company contained the
following current assets:
Cash and cash equivalents 1,800,000

Accounts receivable 1,500,000
Inventories 1,700,000
Prepaid expenses (including cash surrender value of 50,000) 300,000
Total 5,300,000
An examination revealed that accounts receivable consisted of the following items:
Customers’ accounts 1,050,000

Employees’ account – current 150,000
Advances to affiliates 250,000
Allowance for uncollectible accounts ( 50,000)
Subscription currently collectible 100,000
1,500,000
Which of the following statements are true?

I. Trade and other receivable included in current assets is 1,150,000.
II. Total current assets in the statement of financial position is 5,000,000.
III. The operating cycle of an entity is the time between the acquisition of assets for
processing and their realization in cash or cash equivalents.
a. I only c. II and III only

b. I and II only d. I, II, and III
2. The income statement accounts of Yardwork Company for the year 2023 included the
following:
Net sales 10,000,000

Cost of goods sold 4,000,000
Distribution cost 600,000
Administrative expenses 400,000
Interest expense 500,000
Other expense 100,000
Unrealized gain on FVPL 250,000
Gain from expropriation 150,000
Share in net income of associate 200,000
Tax expense 800,000
Income from discontinued operations - net 600,000
Unrealized gain FA at FVTOCI 1,100,000
Foreign currency translation adjustment loss 200,000
Revaluation surplus 500,000
Net remeasurement gains 1,000,000
Unrealized loss on futures contract – cash flow hedge 300,000
1|P a g e TSIY/ATANG/JSaripada/JBugatan
B7 Oct. 2023
No. 125 Brgy. San Sebastian
Mobile : 0927 283 8234
Telephone : (043) 723 8412

I. Income from continuing operations is 4,200,000.
II. Net income is 4,800,000.
III. Comprehensive income is 6,900,000.

3. On January 1, 2022, Grace Company purchased for P6,000,000 a machine with a useful life
of 8 years and residual value of P600,000. The machine was depreciated by the double
declining balance method. Grace changed to the straight-line method on January 1, 2024 and
the residual value did not change.

I. The carrying amount of the machine on December 31, 2023 is 3,375,000.
II. An adjustment to the beginning balance of retained earnings on January 1, 2024 of
1,275,000 should be recorded for over depreciation in 2022 and 2023.
III. Accumulated depreciation on December 31, 2023 is 3,087,500.
a. I only c. I and III only

b. I and II only d. II, and III only
4. Blake Company is a diversified company with nationwide interests in commercial real estate
developments, banking, mining and food distribution. The food distribution division was
deemed to be inconsistent with the long-term direction of the company. On October 1, 2023
the board of directors voted to approve the disposal of this division. The sale is expected to
occur in November 2024. The food distribution had the following revenue and expenses in
2023: January 1 to September 30, revenue of P50,000,000 and expenses of P30,000,000;
October 1 to December 31, revenue of P12,000,000 and expenses of P10,000,000. The
carrying amount of the division’s assets at December 31, 2023 was P50,000,000 and the fair
value less cost of disposal was estimated to be P45,000,000. The sale contract requires Blake
to terminate certain employees incurring an expected termination cost of P2,000,000 to be paid
by June 30, 2024. During 2023, Blake sold a portion of the food distribution’s assets at a pretax
loss of P3,000,000. The income tax rate is 25%. What is Blake Company’s

I. Pretax income from discontinued operation is 20,000,000.
II. Income from discontinued operation presented in profit or loss is 9,000,000.
III. IFRS 5 prohibits assets that will be abandoned from being classified as held for sale.
However, if the assets to be abandoned are a major line of business or geographical
area of operations, they are reported in discontinued operations at the date at which
they are abandoned.

B7 Oct. 2023
Mobile : 0927 283 8234
Telephone : (043) 723 8412
5. Lavender Company accounted for noncurrent assets using the revaluation model. On
October 1, 2023, the entity classified its land as held for sale. At that date, the carrying amount
of the property was P6,000,000. Lavender originally acquired the land for 4,000,000. On the
same date, the fair value of the land was estimated at P7,500,000 and the cost of disposal at
P200,000. The land was sold on January 31, 2024 for P8,000,000.

I. Impairment loss on reclassification is 200,000.
II. Gain on sale of the NCA is 700,000.
III. The amount of revaluation surplus reclassified to retained earnings is 1,500,000.

6. Drake Company, a publicly owned corporation, is subject to the requirements for segment
reporting. In its income statement for the year ended December 31, 2023, Drake reported
consolidated revenue of P80,000,000, cost of goods sold and operating expenses of
P66,000,000 and net income of P14,000,000. Operating expenses include payroll costs of
P5,000,000. Drake’s combined identifiable assets of all industry segments on December 31,
2023 were P32,000,000. Total internal and external revenue totaled P90,000,000.

I. An operating segment is reportable if it reports revenue of at least 9,000,000.
II. An operating segment is reportable if it reports assets of at least 3,200,000.
III. The minimum amount of external revenue that must be reported by identified
reportable segments is 60,000,000.
7. Inevitable Company has historically reported doubtful accounts expense of 5% of sales in

each quarter. For the current year, the company allowed the same procedure in the first three
quarters of the year. However, in the fourth quarter, the company determined that bad debt
expense for the year should be P4,000,000.
Sales in each quarter of the year were as follows: 1st, P20,000,000; 2nd, P15,000,000; 3rd,
P25,000,00; 4th, P40,000,000.

I. If an entity chooses to change its accounting policy during the interim period it is
normally required to implement the change retrospectively, which also includes
restating the prior interim period.
II. Doubtful accounts expense recorded for the 4th quarter interim period is 1,000,000.
III. IAS 34 does not mandate which entities are required to publish interim financial
statements, how frequently they should be produced, or how soon interim reports
should be released after each reporting date.
B7 Oct. 2023
Mobile : 0927 283 8234
Telephone : (043) 723 8412
8. In your analysis of Mindful Company as of December 31, 2023, you gathered the following
information:
Balance per bank statement 6,000,000

Deposit in transit 2,000,000
Outstanding checks 1,500,000
Note collected by bank with interest of 50,000. 750,000
Customer’s NSF check 200,000
Checkbook printing and other bank charges 10,000
Certified checks included in the outstanding checks 400,000
Depositor’s note charged to account 140,000

I. The amount of cash to be presented in the statement of financial position is 6,900,000.
II. The unadjusted balance per book is 6,500,000.
III. The net adjustment to cash per books is 400,000, credit.
9. The following information regarding Smart Company with its cash and cash equivalents items
are enumerated below:
Current account #1 UBP P3,000,000

Current account #2 UBP (100,000)
Payroll account 500,000
Foreign bank account – restricted (in equivalent pesos) 1,000,000
Employee’s postdated check 4,000
IOU from manager 10,000
Credit memo from a vendor for a purchase return 20,000
Money order 50,000
Not-sufficient-funds check 15,000
Treasury bills 400,000
Treasury bonds 500,000
Petty cash fund (currency and coins) 50,000
Certificate of deposit, due 1/31/24
purchased on 4/1/22) 500,000
Time Deposit 300,000

I. Total cash is 3,500,000.
II. Total cash equivalents is 400,000.
III. As contemplated in accounting, cash includes money and any negotiable instrument
that is payable in money and acceptable by the bank for deposit and immediate credit.

B7 Oct. 2023
Mobile : 0927 283 8234
Telephone : (043) 723 8412
10. Gratitude Company operates in an industry that has a high rate of bad debts. Gratitude’s
Allowance for Doubtful Accounts had a balance of P300,000 on January 1, 2023.
There were P400,000 write-offs during the year, while P20,000 were recovered. Interim
provisions of 500,000 were recorded prior to the year-end adjustment to allowance for doubtful
accounts. The year-end balance reported in the statement of financial position for the
Allowance for Doubtful Accounts will be based on the aging schedule shown below.
Probability
Days Account Outstanding Amount
of Collection
Less than 16 days 2,400,000 95%
Between 16 and 50 days 2,000,000 90%
Between 51 and 100 days 1,000,000 85%
Between 101 and 200 days 1,000,000 75%
Between 201 and 365 days 400,000 70%
Over 365 days 200,000 60%

I. Yearend adjustment to allowance for doubtful accounts is 500,000.
II. Doubtful accounts expense for the year is 920,000.
III. The amortized cost of accounts receivable is 6,080,000.

11.Thankfulness Company provided the following transactions:
May 1 Thankfulness Company assigned P2,000,000 of accounts receivable to a bank in

consideration for a loan.
A cash advance of 70% less service charge of P20,000 was made by the latter.
It was agreed that interest of 2% per month is to be made and that the assignor
continues to make the collections. The entity signed a promissory note for the loan.
May 5 The entity issued a credit memo to a customer for returned merchandise, P80,000.
The account is one of the assigned accounts.
May 10 Collections of P1,000,000 of the assigned accounts were made, less 3% discount.
June 1 Remitted the collections to the bank plus 2% interest for one month.
June 7 Assigned accounts of P30,000 proved to be worthless.
June 30 Collections of P500,000 for the accounts assigned were made.
July 1 Final settlement was made with the bank. Thankfulness Company
accordingly remitted the total amount due the bank to pay off the loan plus
interest charge.
I. Net proceeds from assignment of accounts receivable on May 1 is 1,380,000.
B7 Oct. 2023
Mobile : 0927 283 8234
Telephone : (043) 723 8412
II. The note payable balance on June 1, after the first remittance is 430,000.
III. Equity in assigned accounts on June 1 is 490,000.

12. Wokeness Company factored P6,000,000 of accounts receivable to Island Bank on October
1, 2023. Control was surrendered by Wokeness. Island assessed a fee of 3% and retains a
holdback equal to 20% of the accounts receivable. In addition, Island charged 12% interest
on the carrying amount of the receivables on a weighted-average time to maturity of 30 days.
There is a recourse obligation in the factoring arrangement with a fair value of 150,000.
I. Net proceeds from the factoring agreement on October 1, 2023 is 4,560,822.

II. The total loss on factoring is 239,178.
III. The factor’s holdback of 1,200,00 is a receivable included in current assets in
Wokeness’s statement of financial position.

13. Forgiveness Company accepted from a customer P5,000,000 face amount, nine-month, 12%
note dated August 1, 2023 and due on May 1, 2024. On December 1, 2023, Forgiveness
discounted the note at Philippine Bank of Commerce at a 15% discount rate.
The discounting is accounted for as a conditional sale with a contingent liability. Forgiveness’s
total notes receivable on December 31 2023 including the discounted notes receivable
amounted to 20,000,000.
The customer dishonored the note on May 1, 2024 and PBC charged Forgiveness the total
amount due plus protest fee that it paid amounting to 30,000.
Forgiveness paid the total amount to PBC on May 1, 2024 and was able to collect from the
customer on July 31, 2024 plus interest at 12% for the total amount paid to PBC.
I. The loss on discounting amounted to 90,625.

II. Proceeds from discounting is 5,200,000.
III. The amount collected from the customer on July 31, 2024 is 6,137,600.

B7 Oct. 2023
Mobile : 0927 283 8234
Telephone : (043) 723 8412
14. Ronaldo Company sold one of its machines on January 1, 2023, to Marron Company.
Ronaldo received in exchange a noninterest bearing note requiring eight equal annual
payments of P500,000 every December 31 beginning in 2023.
The machine had a carrying amount of P2,500,000 in Ronaldo’s books. The first payment
due on December 31, 2023 was collected as scheduled.
The market interest for similar notes was 12% and the relevant present value factors are:
PV of a single payment at 12% for 8 periods .4039

PV of an ordinary annuity of 1 at 12% for 8 periods 4.9676
I. Loss on the sale of the machine is 16,200.

II. 2023 interest income reported in profit or loss is 298,056.
III. The current notes receivable presented in the December 31, 2023 statement of
financial position is 226,177.

15. Bountiful Bank loaned P5,000,000 Diversity Company on January 1, 2021. The terms of the
loan require the principal payment of P5,000,000 to be made after 5 years on December 31,
2025. Interest at 12% is to be paid annually on December 31. The first interest payment is
due on December 31, 2021 and Diversity Company made the required interest payment on
that date.
In 2022 Diversity Company began to experience financial difficulties and defaulted the 2022
interest payment. Bountiful appropriately recorded accrued interest income on December 31,
2022.
Diversity also defaulted the 2023 interest payment. Bountiful did not accrue interest in 2023
and determined that the total principal will be collected by installments until 2027. It is
probable that the accrued interest in 2022 and all other interest due will not be collected.
The probable timing and amount of collections from 2024 to 2027 is as follows:
December 31, 2024 500,000

December 31, 2025 1,000,000
December 31, 2026 2,000,000
December 31, 2027 1,500,000
Also, the present value of 1 at 12% is as follows
For one period 0.8929

For two periods 0.7972
For three periods 0.7118
For four periods 0.6355
B7 Oct. 2023
Mobile : 0927 283 8234
Telephone : (043) 723 8412

I. Loan impairment loss on December 31, 2023 is 1,979,500.
II. Interest income to be recorded in 2024 is 434,460.
III. The carrying amount of the loan receivable on December 31, 2024 is 3,054,960.

16. An analysis of the ending inventory account of Lilac Company on December 31, 2023
disclosed the inclusion of the following items:
Merchandise in transit purchased on terms:

FOB shipping point 165,000
FOB destination 100,000
Merchandise out on consignment at sales price (mark up of 30% on cost) 195,000
Merchandise sent to a customer for approval (cost is 32,000) 42,000
Merchandise held on consignment 35,000

I. Merchandise held by customers on trial or approval shall not be recorded as a sale
unless the customer has manifested their acceptance. Hence, the cost of the inventory
shall be included in the seller’s ending inventory amount.
II. Merchandise out on consignment should be valued at its cost of 136,500.
III. The total cost of inventories on December 31, 2023 should be reduced by 190,000.
17. In January of 2023, Worldly Company uses the average method of inventory costing recorded
the following information:
Units Unit cost Total cost

Balance on 1/1 10,000 200 2,000,000
Purchased on 1/5 6,000 250 1,500,000
Sold on 1/22 12,500
Sales return 500
Purchased on 1/19 7,000 280 1,960,000
Purchase return 1,000
Sale on 1/25 5,500
I. Cost of sales under moving average is 4,030,250.

II. Moving average cost per unit on January 31, 2023 is 255.50.
III. Ending inventory under weighted average method on January 31, 2023 is 1,149,750.

B7 Oct. 2023
Mobile : 0927 283 8234
Telephone : (043) 723 8412
18. Comedy Company provided the following data for the current year ending December 31,
2023:
Inventory – January 1, 2023:

Cost 2,500,000
Net realizable value 2,200,000
Net purchases 8,500,000
Inventory – December 31, 2023:

Cost 1,400,000
Net realizable value 900,000
I. Cost of sales is 9,800,000.

II. If the benchmark method is used, the loss on writedown separately disclosed as part
of cost of sales is 500,000.
III. Ending inventory shall be presented at the NRV of 900,000.

19. On November 30, 2023, a fire occurred at Satire Company’s warehouse that caused severe
damage to its stocks. Satire has a gross profit of 25% based on cost. The following
information is available from the records until and after the accident:
Inventory – January 1 3,000,000

Net purchases 18,500,000
Net sales 22,000,000
Selling price of undamaged goods 800,000
Cost of goods out on consignment 360,000

I. Estimated ending inventory at cost is 3,900,000.
II. The estimated loss as a result of the fire is 2,900,000.
III. Sales returns and allowances should be deducted from sales to determine estimated
cost of sales under the gross profit method.

B7 Oct. 2023
Mobile : 0927 283 8234
Telephone : (043) 723 8412
20.The records of Murray Company report the following data for the month of January 2023:
Sales 12,500,000 Mark down 1,350,000

Sales allowance 100,000 Mark down cancelations 100,000
Sales returns 500,000 Freight 100,000
Employee discounts 200,000 Purchases at retail 16,000,000
Normal losses at retail 800,000 Purchase returns at cost 450,000
Purchases at cost 9,700,000 Purchase returns at retail 600,000
Additional mark up 500,000 Beginning inventory cost 600,000
Mark up cancelations 200,000 Beginning inventory at retail 800,000
Abnormal losses at cost 200,000 Abnormal losses at retail 250,000

I. Goods available for sale at cost is 9,950,000.
II. Estimated ending inventory under conservative retail at cost is 1,200,000.
III. Estimated cost of sales under average retail method is 8,450,000.

21. Liberal Company has a herd of 500, 2-year-old animals on January 1, 2023 with a fair value
less cost to sell of 13,000 each.
On July 1, 2023, 50 animals aged 2.5 years were purchased for 15,000 each, and 20 animals
were born and recorded at fair value less cost to sell of 8,000 each. No animals were sold
during the year.
The fair values less cost to sell for each animal on December 31, 2023 were as follows:
2 – year old animal 14,000
2.5 – year old animal 15,500
Newborn animal 9,000
3 – year old animal 17,000
0.5 – year old animal 10,000

I. Total gain on fair value during the year is 1,755,000.
II. The gain on price change to be disclosed as a component of the total gain is 545,000
III. The carrying amount of the biological assets on December 31, 2023 is 9,550,000.

10 | P a g e TSIY/ATANG/JSaripada/JBugatan
B7 Oct. 2023
Mobile : 0927 283 8234
Telephone : (043) 723 8412
22.On January 1, 2023, Pristine Company purchased nontrading equity securities. Direct
transaction costs of 100,000, 200,000 and 300,000 were incurred on securities A, B and C,
respectively. Pristine irrevocably selected to classify the securities purchased at FVOCI. The
purchase price at the date of acquisition and December 31, 2023 market values were:
Cost Market
A 1,000,000 1,200,000
B 2,000,000 2,500,000
C 3,000,000 3,600,000
On March 1, 2024, the Pristine sold Security A for P1,500,000 gross and P100,000 in
brokerage commission and taxes.

I. The amount of unrealized gain in the 2023 statement of comprehensive income is
700,000.
II. The amount credited to retained earnings from the sale of security A in 2024 is
400,000.
III. If the securities acquired are held for trading and appropriately classified at FVPL, the
unrealized in recognized in profit or loss in 2023 is 700,000.
23. Strength Company owns 40,000 shares of Conquest Company with a total cost of P6,000,000.
Conquest Company issued rights to subscribe to its shares. The ownership of 5 share rights
entitles the shareholders to subscribe for 1 share at P150. The share is quoted ex-right at
200. The share rights are accounted for separately at fair value. All the rights are exercised
by December 31, 2023.

I. Share rights shall be separately recognized from the original investment at 400,000.
II. The cost of the new investment from the exercise of the share rights is 1,600,000.
III. If the exercisability of the share rights laps, the allocated fair value reverts back to the
cost of the original investment.
24. On January 1, 2023, Bravery Company purchased 25% of the ordinary shares of Associate
Company for P3,200,000. Associate’s net assets amounted to P12,000,000.
The carrying amounts of the identifiable assets and liabilities of Associate were equal to their
fair value, except for inventory and equipment that has a useful life of 5 years. The fair value
exceeded their carrying amounts by P500,000 and 1,500,000, for inventory and equipment,
respectively. Half of the inventory at the date of acquisition was sold by the end of 2023.
Associate Company reported net income of P1,250,000 for 2023 and paid Bravery 125,000
dividends at yearend.
B7 Oct. 2023
Mobile : 0927 283 8234
Telephone : (043) 723 8412

I. The gain on bargain purchase is 300,000.
II. The cost of the investment recorded at the date of acquisition is 3,500,000.
III. The carrying amount of the investment on December 31, 2023 is 3,850,000.
25.On January 1, 2023, Silver Company purchased bonds with face value of P3,000,000 for
P2,750,000 plus transaction costs of P16,621. Silver’s business model comprises both selling
financial assets and collecting contractual cash flows that are solely payments of principal and
interest.
The bonds mature on December 31, 2027, and pay interest at 7% annually every December
31 with a 9% effective yield.
On December 31, 2023, the bonds are quoted at 90 and on December 31, 2024, the bonds
are quoted at 105.

I. The 2023 interest income recognized in profit or loss is 248,996.
II. The unrealized gain in the 2024 statement of changes in equity is 301,878.
III. The unrealized gain in the 2024 statement of comprehensive income is 407,494.

26.Dilatante Company insured the life of its president for P1,000,000, the entity being the
beneficiary of an ordinary life insurance policy. The annual premium is P45,000 and the policy
is dated January 1, 2020. The entity reported the following cash surrender value:
December 31, 2022 18,000

December 31, 2023 30,000
The president died on September 1, 2023, and the policy is settled on December 1, 2023.

I. Gain on the settlement of the policy on December 1, 2023 is 959,000.
II. 2023 Life insurance expense is 22,000.
III. Dividends received on ordinary life insurance policies should be deducted from the life
insurance expense unless applied to the cash surrender value.

27. Hamilton Company requires 50,000 pounds of aluminum at the beginning of its fiscal year.
Hamilton entered a futures contract as a cash flow hedge on December 1, 2023 to eliminate
the price risk as it relates to aluminum prices to buy 50,000 pounds on July 1, 2024 at a strike
price of P150 per pound.
The futures contract is managed through an exchange and will be settled by a transfer of cash
on July 1, 2024, based on the price of aluminum.
B7 Oct. 2023
Mobile : 0927 283 8234
Telephone : (043) 723 8412
The price of aluminum on December 31, 2023, is P200 per pound, while the price of aluminum
on the date of delivery is P185 on July 1, 2024.

I. The derivative asset on December 31, 2023 is 2,500,000.
II. The futures contract is settled on July 1, 2024 by collecting 1,750,000 from the
exchange.
III. The net amount of purchases recorded in 2024 is 9,250,000.
28. Spectacular Company acquired three machines with the following information:
• On June 1, a machine with an invoice price of P1,400,000 was acquired. A cash discount
of 3% is available for early payment. Freight and insurance during shipment is P10,000.
Testing and installation cost of P20,000 was also paid. Spectacular also incurred the cost
of P5,000 in removing an old machine prior to the installation of the new one. The invoice
price is VAT inclusive and discount was forfeited by Spectacular.
▪ On July 1, 2023, another machine was acquired in exchange for a non-interest- bearing
note requiring 4 payments of P500,000. The first payment is to be made on June 30, 2024,
and the others are due annually on same date from 2025 to 2027. The prevailing rate of
interest for this type of note at date of issuance was 12%. The present value of 1 at 12%
for 4 periods is .6355 and the present value of an ordinary annuity for 4 periods at 12% is
3.037.
▪ A last machine was acquired on December 31, 2023, by issuing the seller a five-year,
noninterest-bearing note for P2,000,000. In recent borrowing, Spectacular has paid 12%
interest for this type of note. The present value of 1 at 12% for 5 periods is .5674.
I. Total amount of expenses associated with the June 1 machine purchase is 42,500.
II. The total cost of the machine purchases is 3,895,800.
III. Interest expense from the issuance of the notes payable in 2023 is 91,110.

29.Adore Company has purchased land with an existing building for construction of new buildings.
The following costs were incurred in purchasing the property and constructing the building:
Purchase price 4,000,000

Fair value of the old building 300,000
Payment of property taxes in arrears 100,000
Title search and insurance 50,000
Special assessment 150,000
Building permit 90,000
Cost to destroy old building 60,000
Contract cost of new building 5,000,000
Fencing and gates 450,000
Sidewalks and parking lot 600,000
The depreciated value of the old building on the books the seller was P100,000.
B7 Oct. 2023
Mobile : 0927 283 8234
Telephone : (043) 723 8412
I. The total cost of the land and building if held for sale in the ordinary course of business
is 10,500,000.
II. The total cost of the land and building if held for capital appreciation or to earn rentals
is 10,200,000.
III. The cost of the new building if the property is classified as property, plant and
equipment is 5,150,000.

30. On January 1, 2024, Vanity Company purchased equipment for P4,000,000 with a useful life
of 5 years and a residual value of P500,000. Vanity uses double declining balance method
of depreciation with no expected changes in its estimate to occur.
I. The carrying amount on December 31, 2024 is 2,400,000.

II. Depreciation expense on this equipment for the calendar year ended December 31,
2025 is 1,280,000 if the equipment is acquired on July 1, 2024.
III. Using the original information, depreciation expense in 2027 is 364,000.

31.On January 1, 2024, Champion Company purchased rights to a mine. The total purchase price
was P50,000,000 of which P5,000,000 was allocated to the land. Estimated reserves were
4,000,000 tons. Champion expects to extract and sell 100,000 tons per month.
Champion Company purchased new equipment on January 1, 2024, for P5,000,000 with
estimated life of 5 years and a residual value of 500,000. However, after all the resources are
removed, the equipment has no future use.
I. Total depletion in 2024 is 15,000,000.

II. Depreciation in 2024 for the equipment is 1,350,000.
III. If the equipment has an alternative future use, 2024 depreciation is 900,000.

32.On January 1, 2023, Civility Company received a grant of P12,000,000 from the national
government to assist in environmental activities to reduce carbon emissions from 2023 to 2026.
Costs associated to the endeavor that are expected to be incurred over four years,
respectively, are P2,000,000, P1,500,000, P2,500,000 and P4,000,000.
The grant became repayable for the full amount received in 2023 on January of 2025 because
of noncompliance.
B7 Oct. 2023
Mobile : 0927 283 8234
Telephone : (043) 723 8412
I. Grant income recognized in 2023 is 2,400,000.

II. Deferred income from government grant on December 31, 2023 is 9,600,000.
III. The loss on the repayment on government grant during 2025 is 12,000,000.

33. A construction project in its third year in 2023 began with a P30,000,000 balance in
Construction in Progress. This amount included interest capitalized in the first two years.
Construction expenditures spent in the current year were P25,000,000 which were all incurred
on February 1, 2023.
There is a specific construction loan of 15,000,000 with a rate of 10% and the company has
had over P100,000,000 in interest-bearing debt outstanding of general borrowings at a
weighted average rate of 12 percent.
The asset was completed and ready for use on October 31, 2023.

I. Weighted average expenditures in 2023 is 47,500,000.
II. Total borrowing cost capitalized in 2023 is 5,000,000.
III. Interest expense in 2023 is 8,500,000.

34. Progressive Company acquired a building on January 1, 2018, for P25,000,000 with an
estimated life of 15 years and a residual value of P4,000,000.
The building was revalued on January 1, 2023 and the revaluation revealed a replacement
cost of P33,000,000 and a residual value of P3,000,000. There is no change in the useful
life.
The entity’s tax rate is 20%

I. The depreciated replacement cost at the date of revaluation is 20,000,000.
II. The revaluation surplus net of tax on January 1, 2023 is 4,000,000.
III. Depreciation expense after revaluation is 2,000,000.

B7 Oct. 2023
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35. Moira Company acquired an item of property, plant and equipment on January 1, 2022,
costing P3,000,000 with a useful life of 10 years and no residual value. On December 31,
2023, there are indicators of impairment. The estimated fair value less cost to sell of the asset
is 2,200,000 and value in use is 2,000,000.
Moira also determined that the remaining useful life is 5 years as a result of the impairment.
On December 31, 2025, Moira determined that the fair value of the asset is 1,500,000 due to
indicators that reversed conditions for impairment.
The straight-line method is used in recording depreciation of this asset.

I. Impairment loss on the asset recognized in 2023 is 400,000.
II. Depreciation in 2024 is 400,000.
III. Gain on impairment recovery on December 31, 2025 is 180,000.
a. I only c. III only
b. II only d. II, and III only
36. On January 1, 2023, Leadership Company purchased Stewardship Company. The following
income and fair value of net assets for the past four years is provided to determine the goodwill
and purchase price:
Net income Net assets
2019 2,000,000 15,000,000
2020 1,500,000 16,000,000
2021 1,800,000 18,000,000
2022 2,400,000 14,000,000
Included in 2021 net income is a P200,000 major casualty loss that is both unusual and
infrequent. It is agreed that goodwill is measured by capitalizing excess earnings at 20%
with normal return on average net assets at 10%.
I. Goodwill of Stewardship is 2,000,000.

II. The purchase price of Stewardship is 14,000,000.
III. If average earnings is capitalized using the normal rate of return on average net assets,
goodwill is 5,250,000.

B7 Oct. 2023
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37. Gander Company sells gift certificates redeemable in exchange for the purchase of
merchandise in any branch nationwide.
The certificates have no expiration and transferrable, but Gander implements a strict
compliance with redemption policies and the physical condition of the gift certificate.
Data for 2023 are as follows:
Unearned revenue, 1/1/2023 900,000

Gift certificates sold 6,000,000
Gift certificates redeemed 5,500,000
Estimated gift certificates not to be redeemed 100,000
Gross profit rate on sales 40%
I. Sale revenue for the period ending December 31, 2023 is 5,500,000.
II. Unearned revenue for gift certificates sold on December 31, 2023 is 1,400,000.
III The expected face value of gift certificated that will not be redeemed shall be added to
. sales.

38. On December 31, 2023, Merit Company issued P5,000,000 face value, 5-year bonds at 115.
Each P1,000 bond was issued with 10 non-detachable share warrants. Each warrant entitles
the bondholder to purchase one share of P100 par value ordinary shares at P120.
Immediately after the issuance, the market value of each warrant was P5. The stated interest
rate on the bonds is 10% payable annually every December 31. However, the prevailing
market rate of interest for similar bonds without the warrants is 12%. The present value of 1
at 12% for 5 periods is 0.5674 and the present value of an ordinary annuity of 1 at 12% for 5
periods is 3.6048.
On December 31, 2024, 30,000 share warrants were exercised.

I. The equity component from the issuance of the compound financial instrument is
1,110,600.
II. Interest expense for the year ended December 31, 2024 is 690,000.
III. The share premium from the exercise of the share warrants on December 31, 2024 is
600,000.

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39. Maturity Company purchased a new machine for P5,500,000 on January 1, 2023, for the
purpose of leasing it. The machine has an estimated 10-year life. On May 1, 2023, Maturity
leased the machine to Friendly Company for three years at a monthly rental of P120,000 with
the stipulation that succeeding rentals increase by 5% in year 2 and another 5% in year 3.
Friendly Company paid the rental for one year on May 1, 2023. Friendly also paid P270,000
as a lease prepayment. Maturity incurred initial direct costs of P90,000.

I. Annual rental income throughout the lease term is a uniform amount of 1,513,200.
II. Net rental income for the year ended December 31, 2023 is 498,800.
III. The carrying amount of the leased asset on December 31, 2023 is 4,950,000

40. Loyalty Company leased equipment for its entire nine-year useful life, agreeing to pay
P400,000 at the start of the lease term on January 1, 2023, and P400,000 annually on each
January 1, for the next eight years.
The present value on January 1, 2023, of the nine lease payments over the lease term, using
the rate implicit in the lease known by Loyalty to be 10% was P2,532,000.
Initial direct cost incurred is 76,000, a lease prepayment of 150,000 was also paid by Loyalty
and the present value of restoration cost discounted using the market interest rate of 9% is
92,000. Loyalty made a timely second lease payment on January 1, 2024.

I. The total cost of the right of use asset is 2,850,000.
II. Total interest expense for the year ended December 31, 2023 is 221,480.
III. The current lease liability on December 31, 2023 is 186,800.
41.At the beginning of the current year, Brotherhood Company sold a building with the remaining
useful life of 20 years and immediately leased from the buyer for 5 years.
Sales price 4,500,000

Fair value 5,000,000
Carrying amount 6,000,000
Annual rental payable at the end of the year 300,000
Implicit rate 12%
PV of an ordinary annuity for 5 periods at 12% 3.60
I. The cost of the right of use asset recorded by Brotherhood in the leaseback transaction
is 1,896,000.
II. The loss on the right of use transferred is 1,500,000.
III. The lessor shall record the building at 4,500,000, recognize annual rental income at
300,000 and annual depreciation expense on the building at 225,000.

b. I and III only d. I, II, and III
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42. Competence Company is in the business of leasing equipment. Competence expects a 12%
return on its net investment with payments made in advance. All leases are classified as
direct financing leases. At the end of the lease term, the equipment reverts back to
Competence. On January 1, 2023, equipment is leased with the following information:
Cost of equipment 1,700,000

Initial direct cost 50,000
Residual value – unguaranteed 200,000
Useful life and lease term 8 years
Annual rent due on January 1 of each year 300,000

I. The gross investment of Competence is 2,400,000.
II. Interest income earned for the year ended December 31, 2023 is 174,000.
III. The carrying amount of the lease receivable on December 31, 2023 is 1,624,000.

43. Orderliness Company sells its equipment costing 1,500,000 that they manufacture under
sales-type leasing arrangements. On January 1, 2023, Orderliness’ inventory was leased to
another entity with an agreement for the return after 7 years with the following provisions:
Annual rental payable at the end of each year 400,000

Lease term 7 years
Useful life 8 years
Residual value at the end of lease term 200,000
Implicit interest rate 10%
PV of an ordinary annuity for 7 periods at 10% 4.8684
PV of 1 for 7 periods at 10% 0.5132
The perpetual inventory system is used. Orderliness incurred initial direct costs of P50,000.
I. Total financial revenue if the residual value is unguaranteed is 950,000.

II. Profit from the sale under a “residual value guarantee scenario” is 500,000.
III. Total income recognized in profit or loss for the year ended December 31, 2023,
regardless whether the residual value is guaranteed or unguaranteed is 705,000.

44. Camaraderie Company shows the following data with respect to its maturing obligation on
January 1, 2024.
Note payable 2,000,000

Accrued interest payable 200,000
The company enters into an agreement with the creditor for the issuance of the Camaraderie’s
ordinary shares in full settlement of the note payable and accrued interest on December 30,
2023.
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The agreement provides for the issue of 30,000 shares of ordinary shares with par value of
P50. The ordinary shares are currently quoted at P60 per share. The market value of the
notes and interest payable is P1,950,000.
I. Gain on extinguishment of debt using the benchmark method is 400,000.

II. If the fair value of the liability is used, the share premium recorded is 250,000.
III. Equity instruments issued to extinguish a financial liability are measured at their fair
value, as long as their measurement can be carried out reliably. If not, the equity
instruments are measured at the fair value of the extinguished liability.

45. Cooperation Company provided the following data in its memorandum records for a defined
benefit plan on January 1, 2023.
Fair value of plan assets 5,500,000

Projected benefit obligation (5,000,000)
Prepaid/accrued benefit cost 500,000
Defined benefit plan transactions for the current year are as follows:
Current service cost 940,000

Past service cost 300,000
Contribution to the plan 1,500,000
Benefits paid to retirees 900,000
Actual return on plan assets 650,000
Actuarial loss on projected benefit obligation 50,000
Present value of benefit obligation settled 450,000
Settlement price of benefit obligation 420,000
Discount rate 12%
I. Benefit expense is 1,150,000.

II. Prepaid benefit cost on December 31, 2023 is 790,000.
III. Defined benefit cost is 1,090,000.

46. On December 31, 2023, Morose Company accounting profit is P8,000,000. The following
items are the temporary differences that caused Morose’ tax expense in the tax return to differ
from the amount reported in the income statement. Permanent differences from dividends
and interest from investments amounting to 500,000. Also, future deductible amounts
expected to reverse in 2024 of P900,000 and future taxable amounts expected to reverse in
2024 and later years of P700,000 and P550,000, respectively. Morose’ income tax rate is
20%.
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I. Current tax expense is 1,430,000.

II. Income tax benefit is 70,000.
III. The purpose interperiod income tax allocation is to recognize an asset or liability for
the tax consequences of temporary differences that exist at the end of the reporting
period.
a. I and II only c. II and III only

b. I and III only d. I, II, and III
47. Prior to treasury share transactions, Goodness Company’s balances in shareholders’ equity
are as follows:
Ordinary share capital (300,000 shares, par value 20) 6,000,000

Share premium 3,100,000
Retained earnings 4,000,000
Treasury shares (20,000 at 40 each) ( 800,000)
Total shareholders’ equity 12,300,000
The share premium balance arises from the original excess over par from the issuance of
300,000 shares and a gain from a previous treasury share transaction of 100,000.
I. If Goodness Company retires all 20,000 treasury shares, the retained earnings
balance shall be 3,900,000 after retirement.
II. If Goodness Company retires all 20,000 treasury shares, total shareholders’ equity
after retirement will be unchanged at 12,300,000.
III. If Goodness Company reissues all the treasury shares at 33 each, the retained
earnings balance shall be 3,860,000 after reissuance.

48.Bold Company’s shareholders’ equity comprised of 50,000 issued shares of P50 par ordinary,
P1,000,000 of share premium, retained earnings of P1,500,000 and 5,000 treasury shares
costing 200,000. 15% share dividends were declared when the shares were selling for P100.

I. Share dividends distributable is 675,000.
II. The amount debited from retained earnings due to the share dividends is 675,000.
III. Total equity remains unchanged since there is only a transfer of equity amounts from
retained earnings of 675,000 to contributed capital.

49. On January 1, 2023, Mindful Company granted share options to 200 employees. The share
options vest at the end of a three-year period provided that the employees remain in the
company and the volume of sales increase at least 10% annually. The grant date fair value
of each share option is P15.
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Additionally, Mindful also granted that if sales increase by more than 10%, each employee
will receive 100 share options but if sales increase by more than 15%, each employee will
receive 200 share options.
On December 31, 2023, the sales increased by 13%, and no employees have left the
company.
On December 31, 2024, sales increased by 16% but 5 employees leave the company. Mindful
estimated that due to the 2024 departure of employees included in the share option plan, it is
probable that only 90% of the options would probably vest.
On December 31, 2025, sales increased by 18% and 10 employees leave the company for a
grand total of 15 employees over three years.
I. 2023 compensation expense is 100,000.

II. The total equity component as share options outstanding included in shareholders’
equity on December 31, 2024 is 360,000.
III. 2025 compensations expense is 195,000.

50. On January 1, 2023, Eloquence Company offered a share appreciation rights plan.
Employees participating in the plan shall receive the appreciation on the market value of
30,000 shares after three years of service. The predetermined price on January 1, 2023 is
P50. The share appreciation rights are exercisable until December 31, 2026. Market prices
of the shares at the end of each year during the vesting period and on December 31, 2026
are as follows:
December 31, 2023 55 per share

On December 31, 2025, employees exercised 15,000 share appreciation rights while the
remaining rights were exercised on December 31, 2026.
I. The 2024 compensation expense is 190,000.

II. The balance of the liability for compensations payable under the share appreciation
plan after the December 31, 2025 exercise is 600,000.
III. There is no compensations expense recognized in 2026 since the share appreciation
rights vested in 2025.

51.Hunger Company purchased equipment from a supplier on October 31, 2023 with a cash price
of 1,900,000 to be paid on December 31, 2023. The supplier was given the option between
the issuance of 10,000 shares with a fair value of P180 per share or a cash payment based on
the fair value of the same 10,000 shares on December 31, 2023.
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The 10,000 shares with a par value of 100, had a fair value on December 31, 2023 at 185 per
share.
I. The equity component from the purchase of the equipment is 100,000.

II. Interest expense recognized if the supplier opts for the cash alternative on December
31, 2023 is 50,000.
III. The share premium if the supplier opts for the shar alternative on December 31, 2023
is 800,000.

52. Honor Company’s equity balances on December 31, 2023, are:
12% cumulative, preference shares, P20 par, 100,000 shares 2,000,000

Ordinary shares, P5 par value, 500,000 shares 2,500,000
Share premium 5,000,000
Retained earnings 3,000,000
Dividends in arrears on the preference shares are for 2 years as of December 31, 2022. No
dividends were declared in 2023. The preference shares would receive par plus a premium
of P4 per preference share in the event the company is liquidated.
I. Book value per preference share is 31.20.

II. Book value per ordinary share is 18.76.
III. If the total amount of dividends is settled on December 31, 2023 on preference shares,
the book value per ordinary share is 20.20.

53. Dignity Company had 300,000 ordinary shares outstanding on January 1. In addition, as of
January 1, the company had an outstanding issue of 5,000 convertible 12% bonds with P1,000
face value. The company has no other potentially dilutive securities. The bonds were
converted on October 1 and 200,000 ordinary shares were issued. Accrued interest on the
bonds was recognized and paid on October 1. Net income for the year was P2,500,000. The
income tax rate is 20%.

I. Basic earning per share is 7.14.
II. Diluted earnings per share is 5.90.
III. Anti-dilution is a decrease in both earnings per share and loss per share.

B7 Oct. 2023
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54. Financial statements in 2022 and 2023 of Purity Company contained the following errors:
2022 2023
Ending inventory 200,000 over 350,000 under

Depreciation 150,000 under 100,000 over
Rent income 20,000 over 20,000 under
Unearned rent income 20,000 under
On December 31, 2023, a fully depreciated equipment was sold for P35,000 cash but the
sale was not recorded until 2024.

I. 2022 Net income is overstated by 370,000.
II. 2023 Net income is understated by 705,000.
III. The January 1, 2024 Retained Earnings should be net adjusted by a 335,000 credit.

55. Value Company a retailer provided the following:
• Net income reported by Value in 2023 is 1,130,000.

• Purchased real estate for P1,450,000 from a bank loan in the current year.
• Sold FVPL securities for P200,000 at a loss of P20,000.
• Paid dividends of P800,000.
• Issued 50,000 ordinary shares for P1,500,000.
• Purchased machinery and equipment for P300,000 cash.
• Paid P350,000 for a bank loan. Interest paid of 30,000 was included in net income
above.
• Loaned 400,000 to other entities.
• Decrease in accounts receivable of P100,000.
• Increase accounts payable of P150,000.

I. Net cash provided by operating activities is 1,600,000.
II. Net cash used in investing activities is 1,750,000.
III. Net cash provided by operating activities is 2,200,000.

56. Philippine Financial Reporting Standards include

a. Philippine Financial Reporting Standards corresponding to IFRS issued by IASB.
b. Philippine Accounting Standards corresponding to IAS issued by IASC.
c. Philippine Interpretations corresponding to IFRIC and SIC Interpretations, and
Interpretations developed by PIC.
d. All of these
57. The responsibility to review the work of the accountants and issue opinions as to the fairness
of the financial statements rests with
a. The external auditor.
b. The board of directors.
c. The internal auditors.
d. Management.
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58. Under generally accepted accounting principles

a. Income and expenses, assets and liabilities are measured based on the occurrence of
changes in the economic resources and obligations.
b. Assets and liabilities are measured on the basis of their liquidation value.
c. Income and expenses are recognized on the basis of cash receipts and payments
including depreciation of property, plant and equipment.
d. Financial position and financial performance are measured on the basis f cash received
and paid.
59. Changing the method of inventory valuation should be reported in the financial statements
under what enhancing qualitative characteristic of accounting information?
a. Understandability
b. Timeliness
c. Verifiability
d. Comparability
60.External events are those that affect the entity and in which other entities participate. An
example of external event is
a. Manufacture of a product out of raw materials
b. Loss of property due to flood
c. Issuance of a promissory note in settlement of an account
d. Transfer of goods from one department to another
61. The amount of income reported for tax purposes

a. Is normally greater than the net income reported to stockholders.
b. Must be computed according to GAAP.
c. Is used to compute earnings per share.
d. May differ from the amount of income determined for financial reporting purposes.
62. Which of the following characteristics may result in the classification of a liability as current?
a. Short-term obligations expected to be refinanced with long-term debt.
b. Debts to be liquidated from funds that have been accumulated and are reported as noncurrent
assets.
c. Violation of provisions of a debt agreement.
d. Obligations for advance collections that involve long-term deferment of the delivery of goods
or services.
63. Which of the following statements best describes an event after the reporting period?
a. An event after the balance sheet date affects only subsequent reporting periods.
b. An event after the balance sheet date may occur any time after financial statements are
issued.
c. An event after the balance sheet date is, in some cases, reflected in the statements of the
preceding period.
d. An event after the balance sheet date is not covered by the independent auditor's report.
64. XYZ Company is a multidivisional corporation, which has both intersegment sales and sales
to unaffiliated customers. XYZ should report segment financial information for each division
meeting which of the following criteria?
a. Segment operating profit or loss is 10% or more of consolidated profit and loss.
b. Segment operating profit or loss is 10% or more of combined operating profit and loss of
all company segments.
c. Segment revenue is 10% or more of combined revenue of all the company segments.
d. Segment revenue is 10% or more of consolidated revenue.
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65. When a business segment is discontinued during the year, the gain or loss on disposal
a. Is reported as an extraordinary item.
b. Should include only the loss or income from operating the discontinued segment for the
current period.
c. Excludes only the gain or loss on disposal of the segment.
d. Should be shown net of applicable income taxes.
66. Which of the following statements regarding cash equivalents is correct?

a. A one-year treasury note could not qualify as cash equivalent.
b. All investment meeting the IASB’s criteria for cash equivalent must be reported as such.
c. The date a security is purchased determines its “original maturity” for cash equivalent
classification purposes.
d. Once established, management’s policy for classifying items as cash equivalents cannot
be changed.
67. All but one of the following is required before a transfer of receivables can be recorded as a
sale.
a. The transferred receivables are beyond the reach of the transferor and its creditors.
b. The transferor has not kept effective control over the transferred receivables through the
repurchase agreement.
c. The transferor maintains continuing involvement.
d. The transferee can pledge or sell the transferred receivables.
68. Subsequent to initial recognition, loans and receivables are measured at

a. Cost
b. Amortized cost using effective interest method
c. Amortized cost using straight-line method
d. Fair value
69. Which of the following types of interest cost incurred in connection with the purchase or
manufacture of inventory should be capitalized as a product cost?
a. Purchase discounts lost
b. Interest incurred during the production of discrete projects such as ships or real estate
projects
c. Interest incurred on notes payable to vendors for routine purchases made on a repetitive
basis
d. Interest on inventory that an entity also manufactures and take a substantial time to be
manufactured but was purchased and delivered ready for immediate sale.
70. An entity transferred financial assets to another entity. The transfer meets the conditions to
be accounted for as a sale. As the transferor, the transferring entity should do each of the
following, except
a. Remove all assets from the balance sheet
b. Record all assets received and liabilities incurred as proceeds from the sale
c. Measure the assets received and liabilities incurred at cost
d. Recognize any gain or loss on the sale
71. A compound financial instrument shall be accounted for as

a. Financial liability only
b. Equity only
c. Partly financial liability and partly equity
d. Neither financial liability nor equity
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72. Investments in debt securities classified as FVOCI and amortized cost should be recorded on
the date of acquisition at
a. Lower of cost or market.
b. Market value.
c. Market value plus brokerage fees and other costs incident to the purchase.
d. Face value plus brokerage fees and other costs incident to the purchase.
73. Under the equity method of accounting for investments, an investor recognizes its share of
the earnings in the period in which the
a. Investor sells the investment
b. Investee declares a dividend
c. Investee pays dividend
d. Earnings are reported by the investee in its financial statements.
74. Which statement is correct concerning property leased to affiliate?
I. From the perspective of the individual enterprise that owns it, the property leased to an
affiliate is considered an investment property.
II. From the perspective of the affiliates as a group for purposes of consolidated financial
statements, the property is treated as owner-occupied property.
a. Both I and II
b. Neither I nor II
c. I only
d. II only
75. A contract giving the owner the right, but not the obligation, to buy or sell an asset at a
specified price any time during a specified period in the future is referred to as a(n)
a. Interest rate swap c. Futures contract
b. Forward contract d. Call option
76. When a company purchases land with a building on it and immediately tears down the building
so that the land can be used for the construction of a plant, the costs incurred to tear down
the building should be
a. Amortized over the estimated time period between the tearing down of the building and the
completion of the plant.
b. Expensed as incurred.
c. Added to the cost of the new building.
d. Added to the cost of the land.
77. Which is incorrect concerning the criterion of identifiability of an intangible asset?

a. The intangible asset does not arise from contractual or legal right.
b. The definition of an intangible asset requires that an intangible asset be identifiable to
distinguish it from goodwill.
c. If an intangible asset is acquired through purchase there is a transfer of legal right that
would make the asset identifiable.
d. An intangible asset may be identifiable if it is separable.
78. A newly set up dot-com entity has engaged you as its financial advisor. The entity has recently
completed one of its highly publicized research and development projects and seeks your
advice on the accuracy of the following statements to be issued to their stakeholders. Which
statement is correct?
a. Costs incurred during the “research phase” can be capitalized.
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b. Costs incurred during the “development” phase can be capitalized if criteria such as
technical feasibility of the project being established are met.
c. Training costs of technicians used in research can be capitalized.
d. Designing of jigs and tools would qualify as research activities.
79. Liabilities are

a. Any accounts having credit balances after closing entries are made.
b. Deferred credits that are recognized and measured in conformity with generally accepted
accounting principles.
c. Obligations to transfer ownership shares to other entities in the future.
d. Obligations arising from past transactions and payable in assets or services in the future.
80. Examples of events that may qualify as restructuring include all of the following, except
a. Sale or termination of a line of business.
b. Closure of business location in a region or relocation of business from one location to
another.
c. Change in management structure, such as elimination of a layer of management.
d. Cost of retraining or relocating continuing staff.
81. The most conceptually appropriate method of valuing a liability under the historical cost basis
is to
a. Discount the amount of expected cash outflows that are necessary to liquidate the liability
using the market rate of interest at the date the liability was initially incurred.
b. Discount the amount of expected cash outflows that are necessary to liquidate the liability
using the market rate of interest at the date financial statements are prepared subsequent to
issuance.
c. Record as a liability the amount of cash or cash-equivalent value that the company would be
required to pay to eliminate the liability in the ordinary course of business on the date of the
financial statements.
d. Record as a liability the amount of cash or cash-equivalent proceeds actually received when
a liability was incurred.
82. These are instruments that normally provide the holder with contractual right to receive
payments on account of interest at fixed dates extending into the indefinite future, either with
no right to receive a return of principal or a right to receive a return of principal.
a. Perpetual debt instruments
b. Financial instruments
c. Financial liabilities
d. Compound financial instruments
83. The right-of-use asset recognized by a lessee shall be reported in the statement of financial
position as
a. Property, plant and equipment
b. Intangible assets
c. Other investments
d. Separate line item under noncurrent assets
84. Which is statement is incorrect finance leases in the accounts of the lessor?
a. The residual value, regardless if guaranteed or unguaranteed shall always be included in
the gross and net investment.
b. Treat as receivable equal to the gross amount receivable on lease. Recognize finance
payments in cash by reducing debt.
c. Treat as a receivable equal to net investment in the lease. Recognize finance payments
by reducing debt and taking interest to income statement
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d. Initial direct cost shall be capitalized for direct financing leases and shall reduce financial
revenue to be earned over the lease term.
85. Which of the following statements characterizes defined benefit plans?

a. They are comparatively simple in construction and raise few accounting issues for employers.
b. Retirement benefits are based on the plan's benefit formula.
c. Retirement benefits depend on how well pension fund assets have been managed.
d. All of the above.
86. When a company amends a pension plan, for accounting purposes, past service cost should
be
a. Treated as a prior period adjustment because no future periods are benefited.
b. Amortized in accordance with procedures used for income tax purposes.
c. Amortized under accrual accounting to current and future periods benefited.
d. Treated as an expense of the period during which the amendment occurs.
87. Taxable income of a corporation

a. Differs from accounting income due to differences in intraperiod allocation between the
two methods of income determination.
b. Differs from accounting income due to differences in interperiod allocation and permanent
differences between the two methods of income determination.
c. Is based on generally accepted accounting principles.
d. Is reported on the corporation's income statement.
88. When treasury shares are purchased for more than the par value of the stock and the cost
method is used to account for treasury shares, what account(s) should be debited?
a. Treasury shares for the par value and paid-in capital in excess of par for the excess of the
purchase price over the par value.
b. Share premium in excess of par for the purchase price.
c. Treasury shares for the purchase price.
d. Treasury shares for the par value and retained earnings for the excess of the purchase
price over the par value.
89. A "secret reserve" will be created if

a. Inadequate depreciation is charged to income.
b. A capital expenditure is charged to expense.
c. Liabilities are understated.
d. Shareholders’ equity is overstated.
90. If share options are converted on March 31 of the current year
a. The potential ordinary shares (share options) are included in diluted earnings per share
up to March 31, and in basic earnings per share from the date converted to the year-end
(both weighted accordingly).
b. The potential ordinary shares are not included in the diluted EPS calculation but included
in basic EPS.
c. The potential ordinary shares are not included in the basic EPS but are included in diluted
EPS.
d. The effects of the share option are included only in previous year’s EPS calculation.
91. Equity settled share-based transactions are those transactions in which the entity receives
goods or services
a. As a consideration for equity instruments of the entity including share options.
b. By incurring a liability to transfer cash or other assets tot the supplier of the goods or
services for amounts that are based on the price of the entity’s shares or other equity
instruments.
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c. And the terms of the arrangement provide either the entity or supplier of goods or services
with a choice of whether the entity settles the transaction in cash or by issuing equity
instruments.
d. Without consideration
92. The use of equity reserves under international accounting standards

a. Is strictly voluntary on the part of the management of a company.
b. Is based on whether a reserve is part of distributable or nondistributable equity.
c. Is primarily for the benefit of shareholders rather than creditors.
d. Results in the elimination of the retained earnings category from the total equity of a company.
93. Under international accounting requirements, which of the following equity reserves is part of
distributable equity?
a. Par value of shares c. Asset revaluation reserve
b. Capital redemption reserve d. Retained earnings
94. Which of the following is true?

a. The FASB requires dividends paid to be classified as an operating activity.
b. The FASB requires interest paid to be classified as a financing activity.
c. The FASB allows dividends paid to be classified as an operating activity or as a financing
activity.
d. The IASB allows dividends paid to be classified as an operating activity or as a financing
activity.
95. Noncash investing and financing activities, if material, are

a. Reported in the statement of cash flows under the "all-financial-resources concept."
b. Reported in the statement of cash flows only if the indirect method is used.
c. Disclosed in a note or separate schedule accompanying the statement of cash flows.
d. Not reported or disclosed because they have no impact on cash.
96. Under IFRS 15 or “Revenue from Contracts with Customers”, the transaction price is affected
by all of the following, except
a. Variable consideration
b. Non-cash consideration
c. Significant financing component
d. Amounts collected on behalf of third parties
97. The financial statements of an entity that reports in the currency of a hyperinflationary
economy shall be stated in terms of
a. Historical cost.
b. Current cost.
c. Fair value.
d. Measuring unit current at balance sheet date.
98. A subsidiary shall be excluded from consolidation when

a. The investor is a venture capital organization, mutual fund, unit trust or similar entity.
b. The business activities of the subsidiary are dissimilar from those of the other entities
within the group.
c. There is evidence that control is intended to be temporary because the subsidiary is
acquired with the intention to dispose of it within twelve months from the date of
acquisition.
d. The subsidiary is operating under severe long-term restrictions that significantly impair its
ability to transfer funds to the parent.
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99. Which of the following earnings management techniques is frequently associated with start-
up companies?
a. Recording immaterial adjustments that cause earnings to meet analysts' expectations.
b. Recording extremely high warranty expense when earnings are high.
c. Recognizing revenue when a contract is signed and before goods are delivered or services are
provided.
d. Expensing purchased in-process research and development.
100.The gain or loss from extinguishment of a financial liability by issuing equity instruments shall
be presented in the statement of comprehensive income as
a. Other income or other expense
b. Separate line item in profit or loss.
c. Component of other comprehensive income
d. Component of finance cost
end
B7 Oct. 2023

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No. 125 Brgy.

FINANCIAL ACCOUNTING AND REPORTING iCARE Preweek

Cash and cash equivalents 1,800,000

An examination revealed that accounts receivable consisted of the following items:

Customers’ accounts 1,050,000

Which of the following statements are true?

a. I only c. II and III only

Net sales 10,000,000

Which of the following statements are true?

a. I only c. II and III only

Which of the following statements are true?

a. I only c. I and III only

Which of the following statements are true?

a. I only c. II and III only

Which of the following statements are true?

a. I only c. II and III only

Which of the following statements are true?

7. Inevitable Company has historically reported doubtful accounts expense of 5% of sales in

Which of the following statements are true?

Balance per bank statement 6,000,000

Which of the following statements are true?

Current account #1 UBP P3,000,000

Which of the following statements are true?

a. I only c. I and III only

Which of the following statements are true?

a. I only c. I and III only

11.Thankfulness Company provided the following transactions:

May 1 Thankfulness Company assigned P2,000,000 of accounts receivable to a bank in

June 7 Assigned accounts of P30,000 proved to be worthless.

June 30 Collections of P500,000 for the accounts assigned were made.

Which of the following statements are true?

I. Net proceeds from assignment of accounts receivable on May 1 is 1,380,000.

a. I only c. II and III only

Which of the following statements are true?

I. Net proceeds from the factoring agreement on October 1, 2023 is 4,560,822.

a. I only c. I and III only

Which of the following statements are true?

I. The loss on discounting amounted to 90,625.

a. I only c. II and III only

PV of a single payment at 12% for 8 periods .4039

Which of the following statements are true?

I. Loss on the sale of the machine is 16,200.

a. I only c. II and III only

December 31, 2024 500,000

Also, the present value of 1 at 12% is as follows

For one period 0.8929

Which of the following statements are true?

a. I only c. II and III only

Merchandise in transit purchased on terms:

Which of the following statements are true?

Units Unit cost Total cost

Which of the following statements are true?

I. Cost of sales under moving average is 4,030,250.

a. I only c. II and III only

Inventory – January 1, 2023:

Net purchases 8,500,000

Inventory – December 31, 2023:

Which of the following statements are true?

I. Cost of sales is 9,800,000.

a. I only c. I and III only

Inventory – January 1 3,000,000

Which of the following statements are true?

a. I only c. II and III only

Sales 12,500,000 Mark down 1,350,000