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2.
3.

Crispin Santos started a retail merchandise business on January 1, 2017. During the fiscal year ended December 31, 2017, he paid his
trade creditors P2,000,000 in cash and suffered a net loss of P350,000. Among his ledger account preclosing balances on December 31,
2017 were the following:
Accounts receivable
600,000
Accounts payable
750,000
Capital (total investment in cash)
2,000,000
Expenses (paid in cash)
100,000
Merchandise (unadjusted debit balance)
700,000
There were no withdrawals. All sales and purchases were on credit. The merchandise account is debited for purchases and credited
for sales.
The sales for 2017 amounted to
a. 2,750,000
b. 2,050,000
c. 2,650,000
d. 700,000
What was the cash balance on December 31, 2017?
a. 1,350,000
b. 2,000,000

c. 1,450,000

What was the merchandise inventory on December 31, 2017?


a. 700,000
b. 450,000
c. 750,000

d. 3,450,000
d. 0

4.

After its first year of operations, Mercury Company had the following data on its operations. Manufacturing costs were distributed as
follows:
Cost of goods sold
4,320,000
Materials used
50%
Direct labor
30%
Manufacturing overhead
20%
Goods in process, December 31, were 10% of the total manufacturing cost. Finished goods remaining in stock were 20% of the total
cost of goods manufactured.
The direct labor cost was
a. 1,800,000
b. 2,400,000
c. 3,000,000
d. 5,400,000

5.

Presented below are changes in all the account balances of Camadillo Company for the current year, except for retained earnings.
Increase
(Decrease)
Cash
790,000
Accounts receivable, net
240,000
Inventory
1,270,000
Investments
(470,000)
Accounts payable
(380,000)
Bonds payable
820,000
Share capital
1,250,000
Share premium
130,000
There were no entries in the retained earnings account except for net income and a dividend declaration of P190,000 which was paid
in the current year. What was the net income for the current year?
a. 1,200,000
b. 1,190,000
c. 200,000
d. 10,000

6.

Vane Companys trial balance of income statement accounts for 2017 included the following:
Debit
Sales
Cost of sales
2,400,000
Administrative expenses
700,000
Loss on sale of equipment
100,000
Sales commissions
500,000
Interest revenue
Freight out
150,000
Loss on early retirement of long-term debt
200,000
Uncollectible accounts expense
150,000
4,200,000
Finished goods inventory
January 1
December 31
In Vanes 2017 income statement, what amount should be reported as cost of goods manufactured?
a. 2,000,000
b. 2,150,000
c. 2,800,000
d. 2,950,000

7.

Credit
5,750,000

250,000

6,000,000
4,000,000
3,600,000

An analysis of the records of Isla Company disclosed changes in account balances for 2017 and the supplementary data listed below.
Cash
480,000 decrease
Accounts receivable
300,000 increase
Merchandise inventory
3,100,000 increase
Accounts payable
420,000 increase

During the year, Isla borrowed P4,000,000 in notes from the bank and paid off notes of P3,000,000 and interest of P240,000. Interest of
P100,000 is accrued on December 31, 2017. There was no interest payable at the end of 2016. In 2017, Isla transferred certain trading
securities to the business and these were sold for P1,500,000 to finance purchase of merchandise. Isla made weekly withdrawals in 2017 of
P10,000.
What was the net income for 2017?
a. 1,520,000
b. 1,920,000
c. 1,400,000
d. 420,000
8.

The following information for 2017 is provided by Bangladesh Company:


Sales
Cost of goods sold
Selling expenses
General and administrative expenses
Interest expense
Gain on early extinguishment of long-term debt

50,000,000
30,000,000
5,000,000
4,000,000
2,000,000
500,000

Correction of inventory error, net of income tax credit


Investment income equity method
Gain on expropriation
Income tax expense
Dividends declared
What was the 2017 income from continuing operations?
a. 9,000,000
b. 8,000,000
c. 9,500,000
9.

1,000,000
3,000,000
2,000,000
5,000,000
2,500,000
d. 7,000,000

Moon Corporation reports quarterly to its stockholders. Condensed financial information is presented. Selected information for the
year 2013 is shown below.
Machinery repairs of P500,000 incurred in the first quarter are expected to benefit each quarter equally.
Advertising costs are allocated among the remaining quarters of the annual period, including the quarter in which the costs
are incurred on the basis of historical pattern of sales: 20%, 30%, 15%, and 35% in the first through fourth quarters
respectively. Advertising expense amounted to P600,000 and was incurred in the second quarter.
How much of the expense should be reported for the second quarter?
a. 1,100,000
b. 325,000
c. 350,000
d. 600,000

10. Thorpe Companys income statement for the year ended December 31, 2017 reported net income of P7,410,000. The auditor raised
questions about the following amounts that had been included in net income:
Unrealized loss on available for sale securities
(540,000)
Gain on early retirement of bonds payable
2,200,000
Adjustment of profit of prior year for error in depreciation (net of tax effect)
(750,000)
Loss from fire
(1,400,000)
The loss from fire was an infrequent but not an unusual occurrence in Thorpes line of business. Thorpes 2017 income statement
should report net income at
a. 6,500,000
b. 6,610,000
c. 8,160,000
d. 8,700,000
11. Kell Corporations P950,000 net income for the quarter ended September 30, 2013, included the following after tax items:
A P600,000 expropriation gain, realized on April 30, 2013, was allocated equally to the second, third, and fourth quarters of
2013.
A P160,000 cumulative-effect loss resulting from a change in inventory valuation method was recognized on August 1, 2013.
In addition, Kell paid P480,000 on February 1, 2013, for 2013 calendar-year property taxes. Of this amount, P120,000 was allocated to
the third quarter of 2013.
For the quarter ended September 30, 2013, Kell should report net income of
a. 910,000
b. 1,030,000
c. 1,110,000
d. 1,150,000
12. Pear Companys income statement for the year ended December 31, 2017, as prepared by Pears controller, reported income before tax
of P5,000,000. The auditor questioned the following amounts that had been included in income before tax:
Equity in earnings of Cinn Company
1,600,000
Dividend received from Cinn
320,000
Adjusted of profit of prior year for arithmetical error in depreciation
1,400,000
Pear owns 40% of Cinns common stock. The 2017 income statement should report income before tax at
a. 3,400,000
b. 4,680,000
c. 4,800,000
d. 6,080,000
13. On March 15, 2013, Rex Company paid property taxes of P180,000 on its factory building for calendar year 2013. On April 1, 2013
Rex made P300,000 in unanticipated repairs to its plant equipment. The repairs will benefit operations for the remainder of the
calendar year.
What total amount of these expense should be included in Rexs quarterly income statement for the three months ended June 30, 2013?
a. 75,000
b. 145,000
c. 195,000
d. 345,000
14. Midway Company had the following transactions during 2017.
P1,200,000 pretax loss on foreign currency exchange due to a major unexpected devaluation by the
foreign government.
P500,000 pretax loss from discontinued operations of a division.
P800,000 pretax loss on equipment damaged by a tsunami. This was the first tsunami ever to strike in
Midways area. Midway also received P4,000,000 from its insurance company to replace a building,
with a carrying value of P3,300,000, that had been destroyed by the tsunami.
What amount of loss should Midway report in its 2017 income statement as part of continuing operations?
a. 100,000
b. 1,300,000
c. 4,100,000
d. 2,500,000
15. Taylor Company, a publicly owned corporation, assesses performance and makes operations decisions using the following information
for its reportable segments:
Total revenue
7,680,000
Total profit and loss
406,000

Included in the total profit and loss are intersegment profit of P61,000. In addition, Taylor has P5,000 of common costs for its
reportable segments that are not allocated in reports used internally.
For purposes of segment reporting, Taylor report segment profit of
a. 350,000
b. 345,000
c. 411,000
d. 406,000
16. Ocean Corporations comprehensive insurance policy allows its assets to be replaced at current value. The policy has a P250,000
deductible clause. One of Oceans waterfront warehouse was destroyed in a winter storm. Such storms occur approximately every
four years. Ocean incurred P100,000 of cost in dismantling the warehouse and plans to replace it. The following data relate to the
warehouse:
Current carrying amount
1,500,000
Replacement cost
5,500,000
What amount of gain should Ocean report as a component of income from continuing operations?
a. 5,150,000
b. 3,900,000
c. 3,650,000
d. 0

17. Clay Company has three lines of business, each of which was determined to be reportable segment. Clay Company sales aggregated
P7,500,00 in 2013, of which Segment No.1 contributed 40%. Traceable costs were P1,750,000 for Segment No.1 out of a total of
P5,000,000 for the company as a whole. For external reporting, Clay allocates common costs of P1,500,000 based on the ratio of a
segments income bofere common costs to the total income before common costs.
In its 2013 financial statements, how much should Clay report as operating profit for Segment No. 1?
a. 1,250,000
b. 1,000,000
c. 650,000
d. 500,000
18. XYZ Company has three segments, A, B and C. Segment C, the closing division, is deemed inconsistent with the long-term direction of
the enterprise. Management has decided to dispose of Segment C. On November 15, 2017, the board of directors of XYZ Company
voted to approve the disposal and an announcement was made. On that date the carrying amount of Segment Cs net assets was
P90,000,000 and the recoverable amount of the net assets was P70,000,000. Segment Cs revenue and expenses for 2017, respectively,
were P50,000,000 and P32,000,000, including an interest of P5,000,000 attributable to Segment C. There was no further impairment of
assets between November 15 and December 31, 2017.
Before income tax, how much is the 2017 income or loss from the discontinued segment?
a. 13,000,000 income
b. 18,000,000 income
c. 30,000,000 income
d. 2,000,000 loss
19. Glory Company manufactures kerosene heaters for home use. The December 31 financial statements contained the following errors:
2012
2013
Ending inventory
200,000 under
300,000 over
Depreciation
50,000 under
An insurance premium of P150,000 was prepaid in 2012 to cover 2012, 2013 and 2014. The entire amount was charged to expense in
2012. On December 31, 2013, fully depreciated machinery was sold for P250,000 cash but the sale was not recorded until 2014. There
were no other errors during 2012 and 2013 and no corrections have been made for any of the errors.
Ignoring income tax, what is net effect of the errors on the retained earnings on December 31, 2013?
a. 300,000 overstated
b. 250,000 understated
c. 50,000 overstated
d. 50,000 understated
20. On September 30, 2017, when the carrying amount of the net assets of a business segment was P70,000,000, XYZ Company signed a
legally binding contract to sell the business segment. The sale is expected to be completed by January 31, 2018 at a selling price of
expected to be completed by January 31, 2018 at a selling price of P60,000,000. In addition, prior to January 31, 2018, the sale
contract obliges XYZ Company to terminate the employment of certain employees of the business segment incurring an expected
termination cost of P2,000,000 to be paid on June 30, 2018. The segments revenue and expenses for 2017 were P40,000,000 and
P45,000,000 respectively.
Before income tax, how much will be reported as loss from the discontinued segment for 2017?
a. 17,000,000
b. 12,000,000
c. 15,000,000
d. 7,000,000
21. Victoria Companys statements for 2011 and 2012 included errors as follows:
Year
Ending inventory
Depreciation
2011
200,000 understated
50,000 understated
2012
300,000 overstated
90,000 overstated
How much retained earnings should be retroactively adjusted at January 1, 2013?
a. 260,000 increase
b. 260,000 decrease
c. 410,000 decrease

d. 210,000 decrease

22. Siasi Company is a diversified company with nationwide interest in commercial real estate development, 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,
2017 the board directors voted to approve the disposal of this division. The sale is expected to occur in August 2018. the food
distribution had the following revenue and expenses in 2017: January 1 to September 30, revenue of P35,000,000 and expenses of
P27,000,000; October 1 to December 31, revenue of P15,000,000 and expenses of P10,000,000. The carrying amount of the divisions
assets at December 31, 2017 was P56,000,000 and the recoverable amount was estimated to be P56,500,000. The sale contract requires
Siasi to terminate certain employees incurring an expected termination cost of P4,000,000 to be paid by December 15, 2018.
The income statement for the year ended December 31, 2017 will report income from discontinued operations at
a. 9,500,000
b. 6,175,000
c. 9,000,000
d. 5,850,000
23. During 2013, Paul Company discovered that the ending inventories reported on its financial statements were incorrect by the following
amounts:
2011
60,000 understated
2012
75,000 overstated
Paul uses the periodic inventory system to ascertain year-end quantities that are converted to peso amounts using the FIFO cost
method.
Prior to any adjustments for these errors and ignoring income tax, Pauls retained earnings at January 1, 2013 would be
a. Correct
b. 15,000 overstated
c. 75,000 overstated
d. 135,000 overstated
24. The following information pertains to Alena Company on December 31 of the current year:
Property, plant and equipment
Accounts receivable
Prepaid insurance
Short-term note payable
Cash
Bonds payable
Total assets
Land
Accounts payable
Allowance for doubtful accounts
Merchandise inventory
Available for sale securities to be held indefinitely
Wages payable
Total liabilities
Premium on bonds payable
The December 31 working capital is
a. 46,500,000
b. 33,500,000
c. 26,500,000

35,000,000
20,000,000
2,500,000
3,000,000
5,000,000
40,000,000
101,500,000
20,000,000
8,000,000
1,000,000
13,000,000
7,000,000
2,000,000
56,000,000
3,000,000
d. 35,500,000

25. Conn Company reported a retained earnings balance of P4,000,000 at December 31, 2012. In August 2013, Conn determined that
insurance premiums of P900,000 for the three-year period beginning January 1, 2012, had been paid and fully expensed in 2012.
Assume Conn has a 35% income tax rate.

What amount should Conn report as adjusted beginning retained earnings in its 2013 statement of retained earnings?
a. 3,400,000
b. 4,390,000
c. 4,600,000
d. 3,610,000
26. Mirr Company was incorporated on January 1, 2017, with proceeds from the issuance of P7,500,000 in stock and borrowed funds of
P1,100,000. During the first year of operation, revenues from sales and consulting amounted to P8,200,000, and operating costs and
expenses totaled P6,400,000. On December 15, Mirr declared a P300,000 dividend, payable to stockholders on January 15, 2014. No
additional activities affected owners equity in 2017. Mirrs liabilities increased to P2,000,000 by December 31, 2017.
On Mirrs December 31, 2017 balance sheet, total assets should be reported at
a. 11,000,000
b. 11,300,000
c. 10,100,000
d. 12,100,000
27. On December 31, 2013, Astor Company sold merchandise for P750,000 to Day Company. The terms of the sale were net 30, FOB
shipping point. The merchandise was shipped on December 31, 2013, and arrived at Day on January 5, 2014. Due to a clerical error,
the sale was not recorded until January 2014 and the merchandise sold at a 25% markup on cost was included in Astors inventory at
December 31, 2013.
As a result, Astors cost of goods sold for the year ended December 31, 2013 was
a. Understated by P750,000
b. Understated by P600,000
c. Understated by P150,000
d. Correctly stated
28. The following data pertains to Caticlan Company on December 31, 2017:
Cash, including sinking fund of P500,000 with trustee
Notes receivable (P200,000 pledged)
Accounts receivable unassigned
Accounts receivable assigned
Notes receivable discounted
Equity of assignee in accounts receivable assigned
Inventory, including P600,000 cost of goods in transit purchased FOB destination. The
goods were received on January 3, 2014
Allowance for doubtful accounts
How much current assets should be shown in the balance sheet on December 31, 2017?
a. 7,900,000
b. 8,000,000
c. 7,400,000
d. 7,700,000

2,000,000
1,200,000
3,000,000
800,000
700,000
500,000
2,800,000
100,000

29. In 2016, Complex Company had the following financial data:


Cash revenue
8,000,000
Cash expenses
4,000,000
Depreciation expense
2,000,000
Income before income tax
2,000,000
Income tax expense
500,000
Net income
1,500,000
At the beginning of 2017, the company purchased additional assets at a cost of P5,000,000 on cash basis. Each year these assets provide
additional cash revenue of P5,000,000 and incur cash expenses of P2,000,000. The assets have a 10-year life and the company uses the
straight line Depreciation for all assets. The existing assets produced the same cash revenue and incur the same expenses as in 2016.
Assume income tax is paid every April 15 of each year.
The net cash inflows from operating activities in 2017 should be
a. 7,000,000
b. 6,500,000
c. 3,000,000
d. 1,500,000
30. Brite Company had the following liabilities at December 31, 2017:
Account payable
550,000
Unsecured note, 8%, due July 1, 2018
4,000,000
Accrued expenses
350,000
Contingent liability
450,000
Deferred tax liability
250,000
Senior bonds, 7%, due March 31, 2018
5,000,000
The contingent liability is an accrual for possible loss on a P1,000,000 lawsuit filed against Brite. Brites legal councel expects the suit
to be settled in 2018 and has estimasted that Brite will be liable for damages in the amount of 450,000
The deferred tax liability is not related to an asset for financial reporting and is expected to reverse in 2018
What amount should Brite report in its December 31, 2017 balance sheet for current liabilities?
a. 10,350,000
b. 10,150,000
c. 9,900,000
d. 4,900,000
31. The cash balance of Darwin Company on January 1, 2017 was P8,000,000. During 2017, the changes in certain accounts were.
Accounts receivable
2,000,000 increase
Inventory
1,500,000 decrease
Accounts payable
3,000,000 decrease
Total sales and cost of goods sold were P30,000,000 and P20,000,000 respectively. All sales and purchases were made on credit Various
expenses of P5,000,000 were paid in cash. There were no other pertinent transactions.
What is the cash balance on December 31, 2017?
a. 13,000,000
b. 16,500,000
c. 10,500,000
d. 9,500,000

32. The following information about Manchester Company is available at December 31, 2017:
Employee income taxes withheld
Cash balance at first state Bank
Cash overdraft at Harbor Bank
Accounts receivable with credit balance
Estimated expenses of meeting warranties on merchandise previously sold

900,000
2,500,000
1,300,000
750,000
500,000

Estimated damages as a result of unsatisfactory performance on a contact

1,500,000

Accounts payable

3,000,000

Deferred serial bonds, issued at par and bearing interest at 12%, payable in
semiannual installments of P500,000 due April 1 and October 1 of each year, the last

bond to be paid on October 1, 2016. Interest is also paid semiannually.


Stock dividend payable
The December 31, 2017 balance sheet should report current liabilities at
a. 8,100,000
b. 7,950,000
c. 9,100,000

5,000,000
2,000,000
d. 7,350,000

33. The transactions of Kollar Company for the year ended December 31, 2017 included the following:
Purchase of real estate for cash (cash was borrowed from bank
Sale of investment securities for cash
Dividend paid
Issuance of common stock for cash
Purchase of patent for cash
Payment of bank loan
Increase in customers deposit
Issuance of bonds payable for cash
Kollars net cash provided by financing activities was
a. 5,000,000
b. 3,500,000
c. 4,500,000
d. 5,500,000

5,500,000
5,000,000
6,000,000
2,500,000
1,250,000
1,500,000
200,000
3,000,000

34. Fay Company pays its outside salespersons fixed monthly salaries and commissions on net sales. Sales commissions are computed and
paid on a monthly basis (in the month following the month of sale), and the fixed salaries are treated as advances against commissions.
However, if the fixed salaries for salespersons exceed their sales commissions earned for a month, such excess is not charged back to
them. Pertinent data for the month of March 2017 for the three salespersons are as follows:
Fixed
Salesperson
Salary
Net sales
Commission
A
10,000
200,000
4%
B
14,000
400,000
6%
C
18,000
600,000
6%
Total
42,000
1,200,000
What amount should Fay accrue for sales commissions payable at March 31, 2017?
a. 70,000
b. 68,000
c. 28,000
d. 26,000
35. Fara Company reported bonds payable of P4,700,000 at December 31, 2016 and P5,000,000 at December 31, 2017. During 2017, Fara
issued P2,000,000 of bonds payable in exchange for equipment. There was no amortization of premium or discount during the year.
What amount should Fara report in its 2017 cash flow statement for redemption of bonds payable?
a. 300,000
b. 1,700,000
c. 2,000,000
d. 2,300,000
36. Tara Company owns an office building and leases the offices under a variety of rental agreements involving rent paid in advance
monthly or annually. Not all tenants make timely payments of their rent. Taras balance sheet contained the following data:
2016
2017
Rentals receivable
960,000
1,240,000
Unearned rentals
3,200,000
2,400,000
During 2017, Tara received P8,000,000 cash from tenants.
What amount of rental revenue should Tara record for 2017?
a. 9,080,000
b. 8,520,000
c. 7,480,000
d. 6,920,000
37. Roe Company is preparing a cash flow statement for the year ended December 31, 2017. It has the following account balances:
12/31/2016
12/31/2017
Machinery
2,500,000
3,200,000
Accumulated depreciation
1,020,000
1,200,000
Loss on sale of machinery
40,000
During 2017, Roe sold for P260,000 a machine that cost P400,000, and purchased several items of machinery.
Depreciation on machinery for 2017 was
a. 180,000
b. 240,000
c. 280,000
d. 320,000
38. Marr Company reported rental revenue of P2,210,000 in its cash basis income tax return for the year ended November 30, 2017.
Additional information is as follows:
Rent receivable- November 30, 2017
1,060,000
Rent receivable-November 30, 2016
800,000
Uncollectible rent written off during the fiscal year
30,000
Under the accrual basis, Marr should report rental revenue of
a. 1,920,000
b. 1,980,000
c. 2,440,000
d. 2,500,000
39. On January 1, 2017, Denver Company entered into a 4-year licensing agreement with Akins Company allowing Akins to use Denvers
cartoon characters on all the lunchboxes that Akins manufactures. Akins is required to pay Denver royalties equal to 10% of annual
sales. Akins guaranteed Denver a P1,200,000 minimum royalty over the life of the agreement and paid Denver the minimum amount
on January 1, 2017. For the ended December 31, 2017, Akins sales totaled P5,000,000.
What amount of royalty income should Denver report in 2017?
a. 300,000
b. 500,000
c. 800,000
d. 1,200,000
40. Eros Company kept its records on a cash basis. At the end of 2017, the accountant prepared the following cash basis income statement.
Revenue
1,910,000
Expenses
809,000
Net income
1,101,000
In preparing the income statement, the following amounts of accrued, prepaid and unearned items were
ignored at the end of 2016 and 2017:
2016
2017
Accrued revenue
91,000
73,000
Unearned revenue
66,000
108,000
Accrued expenses
49,000
65,000
Prepaid expenses
46,000
56,000
The net income on the accrual basis for 2017 should be

a.

1,035,000

b. 1,051,000

c. 1,201,000

d. 1,135,000

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