POLYTECHNIC UNIVERSITY OF THE PHILIPPINES

College of Accountancy
Financial Accounting and Reporting- Special Qualifying
Exam
April 28, 2010
Instructions: Mark properly the letter of the best answer on the scannable
answer sheet. Good luck!
1. A petty cash system is des guadric
a. Account for all small cash receipts and disbursements
b. Cash checks for employees
c. Handle cash sales
d. Pay small miscellaneous expenses
2. Bank statements provide information about all of the following except
a. Bank charges for the period
c. Checks cleared
during the period
b. NSF checks
d. Errors made by the
company
3. The amount reported as Cash on a companys statement of financial
position normally should exclude
a. Postdated checks payable to the company
b. Undelivered checks to the payee written and signed by the
company
c. Petty cash fund
d. Postdated checks issued by the company
4. If a note is exchanged for property and no interest rate is stated, the
note is recorded at
a. Face value of the note
b. Carrying value of the property
c. Maturity value of the note
d. Fair market value of the property or note
5. A form of receivables financing which is equivalent to an absolute sale
of accounts receivable is
a. Discounting of notes receivable
c. assignment of
accounts receivable
b. Pledge of accounts receivable
d. factoring
6. A company writes off as uncollectible an account receivable from a
bankrupt customer. The company has an adequate amount in its
Allowance for Bad Debts. This transaction will
a. Have no effect on total current assets
b. Decrease profit for the period
c. Decrease total current assets
d. Decrease the amount of owners equity
7. Which of the following would not be reported as Inventory?
a. Agricultural produce held by a farm.
b. Partially completed goods held by a manufacturing company.
c. Land acquired for resale by a real estate firm.
d. Machinery acquired by a manufacturing company for use in
the production process.
8. In periodic inventory system that uses the weighted average cost flow
method, the beginning inventory is
a. Net purchases minus the cost of goods sold

b. Total goods available for sale minus the net purchases

c. Total goods available for sale minus the cost of goods sold
d. Net purchases minus the ending inventory
9. The average retail method is based on the assumption that the
a. Ratio of gross margin to sales is approximately the same each
period
b. Ratio of cost to retail changes at a constant rate
c. Beginning inventory and the cost of goods sold contain the same
proportion of high-cost and low-cost ratio goods
d. The gross margin percentage applicable to ending inventory
and to the goods sold during the period is the same
10.
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. Added to the cost of the land
b. Added to the cost of the plant
c. Expensed as incurred
d. Amortized over the estimated time period between the tearing
down of the building and the completion of the plant
11.
The property, plant and equipment category in the statement of
financial position includes the following, except
a. Delivery truck acquired on installment, certificate of ownership
being held by the finance company
b. Equipment that is idle temporarily
c. Building under construction
d. Land acquired and put on the market for resale
12.
The recoverable amount of a cash generating unit is
a. The higher between the selling price less cost to sell and the
discounted cash flow from the use and disposal of the unit
b. The discounted cash flow from the use and disposal of the unit
c. The selling price less cost to sell
d. The lower between the selling price less cost to sell and the
discounted cash flow from the use and disposal of the unit
13.
All costs incurred to establish the technological feasibility of a
computer software product to be marketed or leased should be
a. Capitalized as an inventory
b. Charged to expense when incurred
c. Capitalized as property, plant and equipment
d. Capitalized as an intangible asset
14.
Unrealized holding gains and losses which are taken to profit or
loss are from securities that are classified as
a. Investment in associate
c. Trading
b. Available for sale
d. Held to maturity
15.
a.
b.
c.
d.

A correct measurement is
Held to maturity securities at market value
Investment in associate at market value
Available for sale securities at amortized cost
Available for sale securities at market value

16.
A debt security is transferred from available for sale of held to
maturity securities. At the transfer date, the securitys carrying amount
exceeds its market value. What amount is used to transfer date to
record the security in the held to maturity classification?
a. At market value with the difference between market and cost
subject to amortization
b. At cost, with difference between market and cost subject to
amortization
c. At cost
d. At maturity value
17.
When the word accrued is used in connection with a current
liability. It means that
a. The liability is being contested and may not be paid.
b. The liability will not become due in the subsequent accounting
period.
c. An expense has been incurred for which cash has to be paid.
d. An expense has been incurred, but is unpaid at the financial
statement date.
18.
If an amount being measured involves a large population of
items and an outflow of resources embodying economic benefits is
probable and be reasonably estimated to be within a continuous range
of possible outcomes, and each point in the range is as likely as any
other, the amount to be accrued should be
a. The midpoint of the range
c. the lower limit of the
range
b. The upper limit of the range
d. zero
19.
Which of the following statements is incorrect?
a. A provision is a liability of certain timing and amount.
b. The amount recognized as a provision should be the best estimate
of the expenditure required to settle the present obligation at the
balance sheet date.
c. Accruals are liabilities to pay for goods or services that have been
received or supplied but have not been paid.
d. An enterprise should not recognize a contingent liability.
20.
The proceeds from a bond issued with detachable stock purchase
warrants should be accounted for
a. A part of the proceeds is assigned to bonds payable and
another part to shareholders equity for the warrants
b. A part of the proceeds is recorded as unearned revenue and another
part as bonds payable
c. Entirely as bonds payable
d. Entirely as shareholders equity
21.
How would the carrying value of a bond payable be affected by
amortization of each of the following?
Discount
Premium
a. No effect
No effect
b. Decrease
Increase
c. Increase
Decrease
d. Increase
No effect
22.
Which of the following is true when the effective interest method
of amortizing bond premium is used?

a.
b.
c.
d.

23.
a.
b.
c.
d.

Interest expense decreases each period.

Interest expense increases each period.
Interest rate varies from period to period.
Interest expense remains the same for each period.

The par value of ordinary share capital represents

The liquidation value of the share capital
The legal nominal value assigned to the share capital
The book value of the share capital
The amount received by the corporation when the share was
originally issued

24.
Gains or losses on the purchase and resale of treasury share is
reflected in
a. Paid-in capital only
b. Income, paid-in capital and retained earnings
c. Paid-in capital and retained earnings accounts
d. Income and paid-in capital accounts
25.
Under PFRS 2, Share Based Payment, the value of the options
that lapse after vesting shall
a. Remain in equity
b. Be converted into a liability
c. Be credited to income during the period that the options lapse
d. Be credited to expense during the period the options lapse
26.
When should a lessor recognize as income a nonrefundable lease
bonus paid by a lessee on signing an operating lease?
a. At the expiration of the lease
c. when received
b. At the inception of the lease
d. over the life of
the lease
27.
In an operating lease, rent collected in advance by the lessor
should be treated as
a. Prepaid expense
c. accrued asset
b. Unearned revenue
d. accrued liability
28.
Initial direct costs incurred by the lessor in connection with
specific leasing activities as in negotiating and securing leasing
arrangements, in a direct finance lease, are
a. Included in the initial measurement of the finance lease receivable
and reduce the amount of income over the lease term
b. Recognized as an expense, usually as part of the cost of
sales
c. Ignored
d. Recorded as deferred costs and amortized over the useful life of the
asset
29.
The justification for the method of determining periodic deferred
tax expense is based on the concept of
a. Objectivity in the calculation of periodic expense
b. Consistency of tax expense measurements with actual tax planning
strategies
c. Recognition of assets and liabilities
d. Matching of periodic expense to periodic income
30.
Which of the following is not a component of a post-employment
benefit cost?

a. Current service cost

service cost
b. Interest cost
plan

c. amortization of past
d. contributions to the

31.
Bataan companys checkbook balance at December 31, 2009
was P50,000.
Check payable to Bataan, dated December 31, 2009 in
payment of a sale made in December 2009 not
included on December 31, 2009 checkbook balance
P20,000
Check payable to Bataan, deposited December 15, but
returned by bank on December 30, marked NSF.
The deposit and the return were both reflected in
the checkbook
5,000
Check drawn on Bataan Companys account, payable to
A vendor dated December 30, but not yet mailed to
payee as of December 31, 2009. The check is not
yet recorded.
3,000
The amount to be shown as Cash on Bataan Companys statement of
financial position December 31, 2009 is
a. P48,000
b. P68,000
c. P70,000
d. P65,000
32.
The petty cash fund of Seven Trading at the end of the fiscal year
ended June 30, 2009, is composed of the following:
Currencies
P3,800
Coins
1,200
Paid vouchers:
Office Supplies
1,750
Postage Stamps
2,000
Loans to employees
6,000
Check drawn by the manager, returned by bank
Marked NSF
2,750
Check drawn by the company, payable to the order
of the petty cash custodian, representing
her salary
12,500
The amount of petty cash fund that should be shown on the statement
of financial
Position at June 30, 2009 of Seven Trading is
a. P20,250
b. P30,000
c. P17,500
d. P65,000
33.
Gem Company had the following cash balances at December 31,
2009:
Petty Cash Fund
P1,500
Customers certified check
5,000
Customers NSF Check
2,000
Customers postdated check
4,000

Unrestricted demand deposits

486,000
Companys checks written and deducted from the
demand deposits but not scheduled to be
mailed until 1/2/10
12,000
Time deposits restricted for use expected use in 2010
300,000
In exchange for a guaranteed line of credit, Gem Company has agreed
to maintain a minimum balance of P100,000 in its unrestricted demand
deposit account. How much should Gem Company report as Cash in
its December 31,2009 statement of financial position?
a. P504,500
P399,500

b. P404,500

c. P480,500

d.

38. The following purchase transactions occurred during the last few days of
Whilsel Companys business year, which ends October 31, or in the first few
days after that date. A periodic Inventory system is used.
1.
An invoice for P6,000 terms FOB Shipping point, was received
and entered November1. The invoice shows that the material
was shipped October 29, but the receiving report indicates
receipt of goods on November 3.
2.
An invoice for P2,700 terms FOB destination, was received and
entered November 2. The receiving report indicates that the
goods were received October 29.
3.
An invoice for P3,150, terms FOB shipping point was received
October 15, but never entered. Attached to it is a receiving
report indicating that the goods were received October 18.
Across the face of the receiving report is the following notation
Merchandise not of same quality as ordered- returned for credit
October 13.
4.
An invoice for P3,600 terms FOB shipping point, was received
and entered October 27. The receiving report attached to the
invoice indicates that the shipment was received October 27 in
satisfactory condition.
5.
An invoice for P4,300 terms FOB destination was received and
entered October 28. The receiving report indicates that the
merchandise was received November 2.
Inventory was determined by physical count on October 31 as P77,500.
What is the correct Inventory amount that should be shown in the
October 31 statement of financial position?
a. P85,500
b. P74,850
c. 80,350
d. P86,200
39. The Inventory account of Nike Trading at December 31, 2009 included
the following items:
Goods purchased in transit, FOB shipping point
P130,000
Merchandise out on consignment at sales price
(including markup of 30% on cost)
104,000
Goods held on consignment
56,000
Goods out on approval at sales price(cost P25,000)
32,500
Based on the above information, the inventory account at December
31,2009 should be reduced by

a. P84,500

b. P81,500

c. P91,600

d. P87,500

40. Webster Company uses the FIFO retail method of inventory valuation.
Following are the information available:
Cost
Retail
Beginning Inventory
P24,000
P60,000
Purchases
120,000
220,000
Net markups
20,000
Net markdowns
(40,000)
Sales revenue
180,000
If the lower of cost or NRV rule is disregarded, what would be the
estimated cost of ending inventory?
a. P48,000
b. P41,600
c. P38,400
d. P40,000

41. The following were incurred by the Keng, Inc. in 2009:

Cost of land
P4,500,000
Expenses of land survey
30,000
Expenses for search of land title
6,000
Temporary building to house materials and workers
50,000
Demolition of old building
40,000
Payments to tenants to vacate the premises of
old building
60,000
Payments to some construction worker for injuries
sustained (no insurance was carried)
85,000
Interest on temporary loan for construction
90,000
Cost of paving parking area adjoining building
45,000
Excavation expenses for foundation of building
150,000
Cost of construction
9,800,000
What is the cost of the land?
a. P4,636,000
b. P4,461,000
d. P4,536,000

c. P4,661,000

42. During 2009, Bing Company constructed its own equipment costing
P5,000,000. The weighted average accumulated expenditure on these assets
during 2009 was P2,500,000. TO help finance the construction, P1,800,000
was borrowed at 10% on January 1, 2009, and funds not needed for
construction were temporarily invested in short-term securities, yielding
P45,000 in interest revenue. Other than the construction funds borrowed, the
only other debt outstanding during the year was a P2,500,000, 10-year, 9%
notes payable dated January 1, 2009. What is the amount of interest that
should be capitalized by Bing during 2009?
a. P250,000
b. P198,000
c. P243,000
d. P135,000

43. On December 31,2005, Un Company purchased an equipment with an

estimated useful life of 10 years. The equipment was expected to have a
residual value of P5,000 at the end of its service life. The sum-of-the-years
digits method was used in computing depreciation. For the year ended
December 31,2009, the depreciation applicable to this equipment was
P42,000. What was the acquisition cost of the equipment?
a. P335,000
b. P330,000
c. P293,750
d.
P325,000
44. France Company determined that due to obsolescence, equipment with
original cost of P1.8M and accumulated depreciation at January 1, 2009 of
P840,000 had suffered permanent impairment and as a result should have a
carrying value of only P600,000 as of the beginning of the year. In addition,
the remaining useful life of the equipment was reduced from eight to three
years. In its December 31, 2009 statement of financial position, what amount
should France report as accumulated depreciation?
a. P1,400,000
b. P1,200,000
c. P1,500,000
d.
P1,360,000
45. Mars Corporation bought Patent A for P40,000 and Patent B for P60,000.
Mars also paid acquisition cost of P5,000 for Patent A and P7,000 for Patent
B. Both patents were challenged in legal actions. Mars paid P20,000 in legal
fees for a successful defense of Patent A and P30,000 in legal fees for an
unsuccessful defense of Patent B. What amount should Mars disclose as total
cost of patents on its year-end statement of financial position?
a. P45,000
b. P162,000
c. P65,000
d. P112,000

46. Silahis Trading made investments in available-for-sale securities. The

market adjustment account has a credit balance of P12,900 at December
31,2008. An analysis of the investments on December 31, 2008 showed the
following:
No. of Shares
Cost
Market
Asia Textile ordinary
600
P307,500
P270,000
S-Mart Inc. ordinary
225
76,500
90,000
RJ Company
2,000
269,500
280,600
P653,500
P640,600
On July 1, 2009, the shares of S-Mart, Inc. were sold for P70,000. On
December 31,2009, Asia Textile shares were quoted at P440 per share while
RJ Company shares were quoted at P138 per share. How much is the
required increase in the market adjustment account at the end of 2009?
a. P43,500
b. P10,600
c. P37,000
d. P30,600
47. Bayview Company bought 1,000 shares of PLDT stock as available for
sale securities on January 10,2009 at P150 per share and paid P2,250 as
brokerage fees. On December 5, 2008, a P10 dividend per share of PLDT had
been declared to be paid on April 30,2009 to shareholders of January 31,
2009. There were no other transactions in 2009 affecting the investment in

PLDT. At what amount should the available for sale securities be initially
recognized on January 10,2009?
a. P152,250
b. P150,000
c. P142,250
d. P162,250
48. On January 1, 2009, Inkjet Company acquired 40% of GIC Company by
purchasing 8,000 shares for P1,440,000. On the date of acquisition, Inkjet
calculated that its share of the excess of the fair value over the book value of
GICs depreciable assets was P150,000 and that the purchased goodwill was
P120,000. At the end of 2009, GIC reported profit of P450,000 and paid
dividends of P7.00 per share. Inkjet depreciates depreciable assets over a
12-year remaining life. What is the amount of income Inkjet would report
from its investment in GIC for the year ended December 31,2009?
a. P105,500
b. P172,600
c. P56,000
d. P167,500
49. Carlston, Inc. purchased 10% of Toy Companys 100,000 outstanding
ordinary shares on January 1, 2009, for P500,000. On December 31, 2009,
Carlston purchased an additional 20,000 shares of Toy for P1,500,000. There
was no goodwill as a result of either acquisition, and Toy had not issued any
additional shares during 2009. Toy reported earnings of P3,000,000 for 2009.
What amount should Carlston report in its December 31, 2009 balance sheet
as investment in Toy?
a. P1,700,000
b. P2,900,000
c. P2,000,000
d.
P2,300,000
50. Apple Company sells contracts agreeing to service equipment for a threeyear period. Information for the year ended December 31,2009 is as follows:
Cash receipts from service contracts sold
P960,000
Service contract revenue recognized
780,000
Unearned service contract revenue, 1/1/09
540,000
In its December 31,2009 statement of financial position, what amount should
Apple report as unearned service contract revenue?
a. P550,000
b. P720,000
c.P240,000
d.
P390,000

51. The Cybernet Company launched a new sales promotional program. For
every 10 chewing gum box tops returned to Cybernet customers receive an
attractive prize. Cybernet estimates that 40% of the chewing gum box tops
reaching the consumer market will not be redeemed. Additional information
as follows:
Units
Amount
Sales of chewing gum(in boxes)
3,000,000
P3,600,000
Purchase of prizes by Cybernet
80,000
40,000
Prizes distributed to customers
42,000
At the end of the year Cybernet recognized a liability equal to the estimated
cost of potential prizes outstanding. What is the amount of this estimated
liability?
a. P39,000
b. P21,000
c. P69,000
d. P49,000
52. The Quickbite Company distributes to consumers coupons which may be
presented(on or before a stated expiration date) to grocers on certain
products of Quickbite. The grocers are reimbursed when they send the

coupons to Quickbite. In Quickbites experience, 50% of such coupons are

redeemed, and generally on a month elapses between the date a grocer
receives coupons from the consumers and the data Quickbite receives it.
During 2009, Quickbite issued two separate series of coupons as follows:
Issued on Total Value
Disbursed
1/1/09
P125,000
P59,000
7/1/09
180,000
75,000

Consumer expiration date

Amounts

6/30/09
12/31/09

The only journal entries to data recorded debits to coupon expense and
credits to cash of P134,000. The December 31,2009 statement of financial
position should include a liability for unredeemed coupons of
a. P90,000
b. P-0c. P31,000
d. P15,000
53. On December 31,2008, the liability section of Texas Companys
Statement of financial position included bonds payable of P10M and
unamortized premium on bonds payable of P180,000. Further verification
revealed that these bonds were issued on December 31, 2007 and will
become due on December 31, 2017. Interest of 12% is payable on June 30
and December 31 of each year. On April 1, 2009, Texas retired P4,000,000 of
these bonds at 97 plus accrued interest. The total amount of cash paid for
the retirement of bonds on April 1, 2009 was
a. P4,180,000
b. P3,950,000
c. P4,040,000
d.P4,000,000
54. On January 1, 2009 London Company issued its 9% bonds in the face
amount of P2.0M which mature on January 1, 2019. The bonds were issued
for P1,878,000 to yield 10% resulting in a bond discount of P122,000. London
uses the interest method of amortizing bond discount. Interest is payable
annually on December 31. What is the carrying value of the bonds at
December 31, 2009?
a. P1,896,000
b. P1,896,780
c. P1,898,000
d.
P1,885,800
55. Fresh Company has outstanding 7%, 10-year, P2,000,000 face value
bong. The bond was originally sold to yield 6% annual interest. Fresh uses
the effective interest method to amortize bond premium. On june 30,2008
the carrying amount of the outstanding bond was P2,100,000. What amount
of unamortized premium on bond should Fresh report in its June 30,2009
statement of financial position?
a. P140,000
b. P114,000
c. P100,000
d. P86,000

56. Queenie Corporation was incorporated on January 2, 2009. The following

information pertaining to Queenies ordinary share transactions:
1/2/09
Number of shares authorized
80,000
2/1/09
Number of shares issued
60,000
7/1/09
Number of shares reacquired but not cancelled 5,000
12/1/09
Two-for-one stock split

What is the number of shares of Queenies ordinary share outstanding at

December 31, 2009?
a. 115,000
b. 120,000
c. 150,000
d. 110,000
57. Melissa Corporation granted share options to its employees with a fair
value of P4,500,000 on January 1, 2009. The options vest in three years and
the options are exercisable starting January 1,2012 until December 31,2013.
On December 31, 2009 it was estimated that 5% of employees will leave the
company during the vesting period. This estimate was revised to 6% during
the year 2010. On December 31, 2011, employees record indicates that 90%
of the employees stayed and became entitled to the options. What would be
the expense charged during the year ending December 31, 2009?
a. P1,500,000
b. P1,110,000
c.P1,425,000
d.
P1,350,00
58. Jane Company has granted 200 share appreciation rights to each of its
300 employees on January 1,2009. The rights are due to vest on December
31, 2010 with payment being made on December 31,2011. During the year
2009, the company estimated that all options would vest; although only 90%
of the options actually vested. Share prices are as follows:
January 1, 2009
P20
December 31, 2009
24
December 31, 2010
27
December 31, 2011
30
What liability will be recorded on December 31, 2009 as a result of the share
appreciation rights?
a. P270,000
b. P189,000
c. P
d.
P120,000
59. Peter Company leased office premises to Fox, Inc. for a five-year term
beginning January 2, 2009. Under the terms of the operating lease rent for
the first year is P80,000 and rent for years 2 through 5 is P125,000 per
annum. However, an an inducement to enter the lease, Peter granted Fox the
first six months of the lease rent-free, In its December 31,2009 income
statement, what amount should Peter report as rental income?
a. P116,000
b.P108,000
c.P120,000
d.P80,000
60. On December 31, 2009, Lazarus Corporation leased equipment under a
finance lease. Annual lease payments of P200,000 are due December 31 for
10 years. The equipments useful life is 10 years and the interest rate
implicit in the lease is 10%. The finance lease obligation was recorded on
December 31, 2009 at P1,350,000 and the first lease payment was made on
that date. What amount should Lazarus include in current liabilities for this
finance lease in its December 31, 2009 statement of financial position?
a. P65,000
b. P200,000
c. P85,000
d. P115,000
61. On January 1, 2009, Hooks Company sold equipment with carrying
amount of P100,000 and a remaining useful life of 10 years to Maco
Company for P150,000. Hooks immediately leased the equipment back
under a 10-year finance lease with a present value of P150,000 and will
depreciate the equipment using the straight-line method. Hooks made the
first annual lease payment of P24,412 in December 2009. What is the
unearned gain on equipment sale in Hooks December 31, 2009 statement of
financial position?
a. P50,000
b. P25,588
c. P-0d. P45,000

62. Camiguin Company reported depreciation of P250,000 on its 2009 tax

return. However, in its income statement, Camiguin reported depreciation of
P100,000. The difference in depreciation a temporary difference that will
reverse over time. Assuming Camiguins tax rate is constant 30% what
amount should be added to the deferred income tax liability in 2009?
a. P45,000
b. P37,500
c. P30,000
d.P75,000
63. On June 30, 2009, Star Company prepaid a P190,000 premium on an
annual insurance policy. Premium payment was a tax-deductible expense in
Stars 2009 cash basis tax return. The accrual basis income statement will
report a P95,000 insurance expense each in 2009 and 2010. Stars income
tax rate is 35% in 2009 and 38% thereafter. In Stars Decemeber 31, 2009
statement of financial position, what amount related to the insurance should
be reported as deferred income tax liability?
a. P36,100
b. P33,250
c. P66,500
d. P72,200
64. On January 1, 2009, Stinx Company had the following balances in its
memorandum records: Fair value of plan assets, P3,200,000; Accrued benefit
obligation P3,200,000. Other data related to the retirement benefit plan for
2009 are as follows:
Current service cost
P140,000
Unrecognized prior service cost
0
Contribution to the plan
204,000
Benefits paid
200,000
Actual return on plan assets
185,000
Discount rate
9%
Expected rate of return
6%
The retirement benefit expense for 2009 is
a. P 143,000
b. P436,000
P236,000

c. P243,000

d.

65. Glad Company has these balances relating to its defined benefit plan:
Present Value of the obligation
P3,300,000
Fair value of plan assets
3,700,000
Unrecognized actuarial losses
300,000
Unrecognized past service cost
200,000
The present value of available future refunds and reductions in future
contributions is P100,000. What amount of prepaid (accrued) retirement
benefit cost will be shown on the statement of financial position?
a. P500,000
b. P900,000
c. P600,000
d.
7,500,000