FINANCIAL ACCOUNTING VOL.

1. Jambalaya Company reported the following renumeration and other payments made to the
entity’s chief executive officer during the current year:

Annual Salary 2,000,000

Share options and other share-based payments 1,000,000
Contributions to retirement benefit plan 500,000
Reimbursement of travel expenses for business trips 1,200,000

What total amount should be disclosed as “compensation” to key management personnel?

a. 3,500,000 c. 3,000,000
b. 4,700,000 d. 2,500,000

2. Dean Company acquired 100% of Morey Company in the prior year. During the current year, the
individual entities included in their financial statements the following:

Dean Morey
Key officers’ salaries 750,000 500,000
Officers’ expenses 200,000 100,000
Loans to officers 1,250,000 500,000
Intercompany sales 1,500,000 500,000

What total amount should be reported as related party disclosure in the notes to Dean’s
consolidated financial statements for the current year?

a. 1,500,000 c. 1,750,000
b. 1,550,000 d. 3,000,000

3. Elaine Company prepared draft financial statements that showed the profit before tax for the year
ended December 31, 2015 at P9,000,000. The board of directors authorized the financial statements
for issue on March 20, 2016. A fire occurred at one of Elaine’s sites on January 15, 2016 with
resulting damage amounting to P7,000,000, only P4,000,000 of which is covered by insurance. The
repairs will take place and be paid for in April 2016. The P4,000,000 claim from the insurance entity
will however be received on February 14, 2016. What amount should be reported as profit before
tax in the financial statements?

a. 2,000,000 c. 4,000,000
b. 9,000,000 d. 6,000,000

4. During 2015, Marian company was sued for a competitor for P5,000,000 for infringement of a
patent. Based on the advice of the legal counsel, the entity accrued the sum of P3,000,000 as a
provision on the financial statements for the year ended December 31, 2015. Subsequently, on
March 15, 2016, the Supreme Court decided in favor of the party alleging infringement of the patent
and ordered the defendant to pay the aggrieved party a sum of P3,500,000. The financial
statements were prepared by the entity’s management on February 15, 2016 and approved by the
board of directors on March 31, 2016. What amount should be recognized as accrued liability on
December 31, 2015?
 a. 5,000,000 c. 3,000,000
b. 3,500,000 d. 1,500,000

5. Carla Company carried a provision of P2,000,000 in the draft financial statements for the year ended
December 31, 2015 in relation to an unresolved court case. On January 31, 2016, when the financial
statements for the year ended December 31, 2015 had not yet been authorized for issue, the case
was settled and the court decided the final total damages to be paid by the entity at P3,000,000.
What amount should be adjusted on December 31, 2015 in relation to this event?

a. 3,000,000 c. 1,000,000
b. 2,000,000 d. 0

6. Pink Company is completing the preparation of the draft financial statements for the year ended
December 31, 2015. The financial statements are authorized for issue on March 31, 2016. On
January 31, 2016, a dividend of P2,000,000 was declared and a contractual profit share payment of
P200,000 was made, both based on the profit for the year ended December 31, 2015. On February
15, 2016, a customer went into liquidation having owed the entity P900,000 for the past 5 months.
No allowance had been made against this debt in the draft financial statements. On March 1, 2016,
a manufacturing plant was destroyed by fire resulting in a financial loss of P2,500,000. What total
amount should be recognized in profit or loss for the year ended December 31, 2015 to reflect
adjusting events after the end of reporting period?

a. 2,000,000 c. 2,500,000
b. 3,600,000 d. 1,100,000

7. Dana Company accounts for noncurrent assets using the cost model. On October 1, 2015, the entity
classified a noncurrent asset as held for sale. At that date, the asset’s carrying amount was
P3,200,000, the fair value was estimated at P2,200,000 and the costs of disposal at P200,000. On
December 15, 2015, the asset was sold for net proceeds of P1,850,000. What amount should be
recognized as an impairment loss in 2015?

a. 1,000,000 c. 1,350,000
b. 1,200,000 d. 0

8. Arlene Company accounts for noncurrent assets using the cost model. On October 30, 2015, the
entity classified a noncurrent asset as held for sale. At that date, the asset’s carrying amount was
P1,500,000, the fair value was estimated at P1,100,000 and the cost of disposal at P150,000. On
November 20, 2015, the asset was sold for net proceeds of P800,000. What amount should be
included as loss in disposal in 2015?

a. 550,000 c. 150,000
b. 700,000 d. 0

9. Coral Company accounts for noncurrent assets using the cost model. On July 31, 2015, the entity
classified a noncurrent asset as held for sale. At that date, the asset’s carrying amount was
P1,450,000, the fair value was estimated at P2,150,000 and the cost of disposal at P150,000. The
asset was sold on January 31, 2016 for P2,120,000. At what amount should the asset be measured
on December 31, 2015?

a. 2,000,000 c. 2,120,000
 b. 2,150,000 d. 1,450,000

10. Veritas Company accounts for noncurrent assets using the revaluation model. On October 1, 2015,
the entity classified a freehold property as held for sale. At that date, the carrying amount was
P2,200,000 and the balance of revaluation surplus was P1,200,000. At same date, the fair value was
estimated at P2,900,000 and the cost of disposal at P220,000. At what amount should the
revaluation surplus be reported on December 31, 2015?

a. 1,900,000 c. 1,680,000
b. 1,200,000 d. 0

11. Abba Company accounts for noncurrent assets using the revaluation model. On June 30, 2015, the
entity classified a freehold property as held for sale. At that date, the carrying amount was
P2,900,000 and the balance of revaluation surplus was P200,000.

On June 30, 2015, the fair value was estimated at P3,300,000 and the cost of disposal at P200,000.
On December 31, 2015, the fair value as estimated at P3,250,000 and the cost if disposal at
P250,000.

At what amount should the asset be reported in the statement of financial position on December 31,
2015?

a. 3,100,000 c. 3,000,000
b. 3,300,000 d. 3,250,000

12. Clara Company purchased equipment for P5,000,000 on January 1, 2015 with a useful life of 10 years
and no residual value. On December 31, 2015, the entity classified the asset as held for sale. The
fair value of the equipment on December 31, 2015 is P4,200,000 and the cost of disposal is P50,000.
On December 31, 2016, the fair value of the equipment is P3,500,000 and the cost of disposal is
P100,000. On December 31, 2016, the entity believed that the criteria for classification as held for
sale can no longer be met. Accordingly, the entity decided not to sell the asset but to continue to
use it.

1. What is the impairment loss to be recognized on December 31, 2015?

a. 350,000 c. 800,000
b. 300,000 d. 750,000

2. What is the measurement of the equipment that ceases to be held for sale on December 31,
2016?

a. 4,000,000 c. 3,400,000
b. 3,500,000 d. 4,150,000

3. What amount should be recognized as gain or loss as a result of the reclassification in 2016?

a. 750,000 gain c. 150,000 gain

b. 750,000 loss d. 150,000 loss
13. On April 1, 2015, Brandy Company had a machine with a cost of P1,000,000 and accumulated
depreciation of P750,000. On April 1, 2015, the entity classified the machine as “held for sale” and
decides to sell the machine within one year. on April 1, 2015, the machine had an estimated selling
price of P100,000 and a remaining useful life of two years. It is estimated that the disposal cost of
the machine will be P10,000. On December 31, 2015, the estimated selling price of the machine had
increased to P150,000 with estimated disposal cost of P20,000.

1. What is the impairment loss to be recognized on April 1, 2015?

a. 160,000 c. 100,000
b. 150,000 d. 0

2. What amount should be recognized as gain on reversal of impairment on December 31, 2015?

a. 93,750 c. 60,000
b. 73,750 d. 10,000

14. On May 1, 2015, Harlet Company approved a plan to dispose of a business segment. It is expected
that the sale will occur on March 31, 2016. On December 31, 2015, the carrying amount of the
assets of the segment was P2,000,000 and the fair value less cost of disposal was P1,800,000.
During 2015, the entity paid employees severance and relocation costs of P100,000 as a direct result
of the discontinued operation. The revenue and expenses of the discontinued segment during the
2015 were:

Revenue Expenses
January 1 to April 30 1,500,000 2,000,000
May 1 to December 31 700,000 900,000

What amount should be reported as loss from the discontinued segment for 2015?

a. 1,000,000 c. 700,000
b. 500,000 d. 800,000

15. On October 1, 2015, Lann Company approved a formal plan to sell a business segment. The sale will
occur on March 31, 2016. The segment had income of P2,500,000 from January 1 to September 30
and P500,000 for the quarter ended December 31, 2015. On December 31, 2015, the carrying
amount of the assets of the segment was P4,000,000 and the fair value less cost of disposal was
P3,500,000. The income tax rate is 30%. What amount should be reported as income from the
discontinued segment for 2015?

a. 3,000,000 c. 1,750,000
b. 2,100,000 d. 2,500,000

16. Flame Company had two divisions, North and South. In 2015, the entity decided to dispose of the
assets and liabilities of Division South and it is probable that the disposal will be completed early
next year. The revenue and expenses are as follows:

2015 2014
Sales-North 5,000,000 4,600,000
Total nontax-expenses-North 4,400,000 4,100,000
 Sales-South 3,500,000 5,100,000
Total nontax expenses-South 3,900,000 4,500,000

During the later part of 2015 the, the entity disposed of a portion of Division South and recognized a
pretax loss of P2,000,000 on the disposal. The income tax rate is 30%. What amount should be
reported as loss from discounted operation in 2015?

a. 2,000,000 c. 1,400,000
b. 2,400,000 d. 1,680,000

17. On September 30, 2015, when the carrying amount of a major subsidiary was P30,000,000, Yolanda
Company signed a legally binding contract to sell the subsidiary. The sale is expected to be
completed by January 31, 2016 at a selling price of P31,000,000. In addition, prior to January 31,
2016, the sale contract obliged the entity 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, 2016.
The segment’s revenue and expenses for 2015 were P20,000,000 and P26,000,000 respectively. The
income tax rate is 30%. What amount should be reported as loss from discounted operation for
2015?

a. 7,000,000 c. 8,000,000
b. 4,900,000 d. 5,600,000

18. In 2015, Isuzu Company decided to discontinue the Electronics Division. On December 31, 2015, the
division has not been completely sold. However, it is probable that the disposal will be completed
within a year. Analysis of the records for the year disclosed the following information relative to the
Electronics Division:

Operating loss for the year 8,000,000

Loss on disposal of some assets during 2015 500,000
Expected operating loss in 2016 preceding final disposal 1,000,000
Expected gain in 2016 on disposal of division 2,000,000

What amount should be reported as pretax loss from discounted operation in 2015?

a. 8,000,000 c. 9,500,000
b. 8,500,000 d. 7,500,000

19. Sky Company reported the following information for the current year:

Income from continuing operations 450,000

Net income 405,000
Distribution and administrative expense 2,250,000
Income tax before income tax 900,000

What amount should be reported as income or loss from discontinued operation?

a. 450,000 income c. 90,000 loss

b. 360,000 income d. 45,000 loss
20. In the accrual basis income statement for the year e3nded. December 31, 2015, Daria Company
reported revenue of P3,000,000.

Accounts receivable - January 1 400,000

Uncollectible accounts written of 20,000
Accounts receivable - December 31 500,000

Under cash basis, what amount should be reported as revenue for the current year?

a. 2,900,000 c. 3,000,000
b. 2,880,000 d. 3,120,000

21. Zeta Company reported sales revenue of P4,600,000 in the income statement for the year ended
December 31, 2015.

The entity wrote of uncollectible accounts totaling P20,000 during the current year.

2014 2015
Accounts receivable 1,000,000 1,300,000
Allowance for uncollectible accounts 60,000 110,000

Under cash basis, what amount should be reported as sales for the current year?

a. 4,900,000 c. 4,300,000
b. 4,350,000 d. 4,280,000

22. Spee Company provided the following information for 2015:

Cash sales
Gross 400,000
Return and allowances 20,000
Credit sales
Gross 600,000
Discounts 30,000

On January 1, 2015, customers owed P200,000. On December 31, 2015, customers owed P150,000.
The entity used the direct write of method for bad debts. No bad debts were recorded in 2015.
Under cash basis, what amount of revenue should be reported for the current year?

a. 1,000,000 c. 850,000
b. 950,000 d. 380,000

23. Jacqueline Company began the current year with accounts receivable of P1,000,000 and allowance
for doubtful accounts of P80,000.

During the current year, the following events occurred:

Accounts written of 120,000

Cash sales 500,000
Sales on account 3,000,000
 Doubtful accounts expense recognized 200,000

At the end of the current year, the entity showed a balance in accounts receivable of P1,680,000.
Under cash basis, what amount should be reported as sales?

a. 2,700,000 c. 3,500,000
b. 2,200,000 d. 3,320,000

24. Easter Company reported that all insurance premiums paid are debited to prepaid insurance. The
entity provided the following information for the current year:

Prepaid insurance on January 1 100,000

Charge to insurance expense 440,000
Prepaid insurance on December 31 120,000

What was the amount of insurance premium paid in the current year?

a. 340,000 c. 440,000
b. 420,000 d. 460,000

25. Hard Company maintained accounting records on the cash basis but restated the financial statement
to the accrual basis of accounting. The entity has P6,000,000 in cash basis income for 2015. The
entity provided the following information at year-end:

2015 2014
Accounts receivable 4,000,000 2,000,000
Accounts payable 1,500,000 3,000,000

Under accrual basis, what amount of income should be reported in the 2015 income statement?

a. 2,500,000 c. 6,500,000
b. 5,500,000 d. 9,500,000

26. Mall Company reported the following balances at the end of each year:

2015 2014
Inventory 2,600,000 2,900,000
Accounts payable 750,000 500,000

The entity paid suppliers P4,900,000 during the year ended December 31, 2015. What amount
should be reported for cost of goods sold in2015?

a. 5,450,000 c. 4,850,000
b. 4,950,000 d. 4,350,000

27. Sweet Company provided the following information for the current year.

Interest paid 800,000

Decrease in prepaid interest 100,000
Increase in accrued interest payable 30,000
 What is the interest expense that should be reported for the current year?

a. 930,000 c. 730,000
b. 800,000 d. 870,000

28. Thrift Company reported that the unadjusted prepaid expense account on December 31, 2015
comprised the following:

 An opening balance of P15,000 for a comprehensive insurance policy. The entity had paid an
annual premium of P300,000 on July 1, 2014.
 A P32,000 annual insurance premium payment made July 1, 2015.
 A P20,000 advance rental payment for a warehouse that was leased for one year beginning
January 1, 2016.

On December 31, 2015, what amount should be reported as prepaid expenses?

a. 52,000 c. 20,000
b. 36,000 d. 16,000

29. During the first year, Exel Company issued 15,000 shares with P100 par value at P150 per share. At
year-end, the entity issued 2,000 shares in payment of current obligations of P250,000. Dividends of
P500,000 were paid during the year. Total liabilities at the end of the year amounted to P200,000
and total assets at the end of the year equaled P3,000,000. What if the net income for the first year
of operations?

a. 1,500,000 c. 500,000
b. 800,000 d. 300,000

30. Sunshine Company had total assets of P4,000,000 and shareholders’ equity of P2,080,000 at the
beginning of the year. During the year, assets increased by P520,000 and liabilities decreased by
P820,000. What is the shareholders’ equity at the end of the year?

a. 3,420,000 c. 3,380,000
b. 3,700,000 d. 1,340,000

31. On December 31, 2015, Melissa Company showed shareholders’ equity of P5,000,000. The share
capital of P3,000,000 remained unchanged during the year. The transactions which afected the
equity were:

 An adjustment of retained earnings for 2014

overdepreciation 100,000
 Gain on sale of treasury shares 300,000
 Dividend declared, of which P400,000 was paid 600,000
 Net income for the current year 800,000

What is the retained earnings balance on January 1, 2015?

a. 1,400,000 c. 1,200,000
b. 1,700,000 d. 1,600,000
32. Trend Company provided the following information for the current year:

Net loss 100,000

Total assets at December 31 3,000,000
Share capital at December 31 1,000,000
Share premium at December 31 500,000
Dividend declared 700,000

The debt-to-equity ratio is 50% on December 31. What is the retained earnings balance on January
1?

a. 1,100,000 c. 500,000
b. 1,300,000 d. 600,000

33. Rice Company was incorporated on January 1, 2015, with P5,000,000 from the issuance of share
capital and borrowed funds of P1,500,000. During the first year of operations, net income was
P2,500,000.

On December 15, 2015, the entity paid a P500,000 cash dividend. No additional activities afected
shareholders’ equity in 2015. On December 31,, 2015, the liabilities had increased to P1,800,000.

On December 31, 2015, what amount should be reported as total assets?

a. 6,500,000 c. 8,800,000
b. 9,300,000 d. 6,800,000

34. Lanao Company showed the following increase (decrease) in ledger account balances during the
current year:

Cash 800,000
Accounts receivable (100,000)
Inventory 300,000
Equipment 950,000
Note payable – bank 500,000
Accounts payable (600,000)
Share capital 700,000
Share premium 300,000

There were no transactions afecting retained earnings other than a P1,500,000 cash dividend and a
P250,000 prior period error from understatement of ending inventory. What was the net income for
the current year?

a. 2,000,000 c. 3,250,000
b. 2,500,000 d. 3,000,000

35. Oakwood Company provided the following data for the current year:

Cash balance, beginning of year 1,300,000

Cash flow from financing activities 1,000,000
Total shareholders’ equity, end of year 2,300,000
Cash flow from operating activities 400,000
Cash flow from investing activities (1,500,000)
Total shareholders’ equity, beginning of year2,000,000

What is the cash balance at the end of current year?

a. 1,200,000 c. 1,400,000
b. 1,600,000 d. 1,700,000