POLYTECHNIC UNIVERSITY OF THE PHILIPPINES

College of Accountancy and Finance

ACCO 3016: Financial Accounting and Reporting Part 1
Midterm Departmental Examination
August 14, 2016
General Instructions: Faith is the confidence that what we hope for will actually happen; it gives us
assurance about things we cannot see. Have faith and always bear in your mind that you can answer
everything to the best that you can. You must shade the scannable answer sheet properly and show your
computations in a separate worksheet. Always observe HONESTY during the examination. GODBLESS!

THEORIES (30%)

1. The Conceptual Framework

A. is the PFRS.
B. overrides all other PFRS requirements.
C. does not define standards for any particular measurement or disclosure issue.
D. is in the hierarchy that management must, in the absence of a specific PFRS requirement, apply
in developing an accounting policy that results in information that is relevant.

2. The objective of general purpose financial reporting is

A. to provide financial information about the reporting entity that is useful to existing and potential
investors, lenders and other creditors in making decisions about providing resources to the entity.
B. to meet all the information needs of all the users of an entity’s financial statements
C. to inform economic decision-making by a broad range of users.
D. to support the entity’s tax return.

3. Statement 1: A financial concept of capital should be used if the users of the financial statements are
mostly concerned with the maintenance or the purchasing power of their invested capital.
Statement 2: A physical concept of capital should be used if the users of the financial statements are
mostly concerned with the operating capacity of the entity, and current value accounting.
A. Only statement 1 is correct C. Both statements are correct
B. Only statement 2 is correct D. Both statements are incorrect

4. Under the conceptual framework, an entity’s gain may result from a/an
A. decrease in a liability from primary operations.
B. increase in a liability from primary operations.
C. decrease on asset from primary operations.
D. increase in an asset from peripheral or incidental transactions.

5. The conceptual framework identifies two recognition criteria for the recognition of financial statement
elements. Which of the following is (are) included in the said criteria?
I. It is probable that there is an inflow or outflow of economic benefits; and
II. The element has cost or value that could not be reliably measured.
A. I only B. II only C. I & II D. Neither I nor II

6. What is the basic requirement for “cash and cash equivalent”?

A. Deposited in the bank
B. Set aside for the liquidation of long-term debt
C. Unrestricted in use for current operations
D. Available for purchase of property, plant and equipment

7. What is the major purpose of an impress petty cash fund?

A. To effectively plan cash inflow and outflows
B. To ease the payment of cash to vendors
C. To determine the honesty of the petty cashier
D. To effectively control cash disbursements

1st Semester A.Y. 2016-2017 ACCO 3016: MIDTERM DEPARTMENTAL EXAMINATION 1

8. Which of the following manipulations of cash transactions would understate the cash balance?
A. Understatement of outstanding checks C. Overstatement of deposit in transit
B. Overstatement of outstanding checks D. Understatement of bank service charge

9. Which of the following statements is true?

A. Window dressing is a practice of closing the books of accounts at the end of the accounting
period for a better financial position and performance.
B. Lapping is a transfer of cash from one bank to another bank.
C. Kiting consists of misappropriating a collection from one customer and concealing this
defalcation when collection is made from another customer.
D. The imprest system required that all cash receipts should be deposited intact and all cash
payments should be made by means of check.

10. Following are reconciling items in an enterprise’s bank reconciliation:

I. Deposit in transit.
II. Company check for P62,500 recorded in the books for P26,500.
III. Check of another company erroneously charged by the bank in the company’s account.
IV. Deposit of another company erroneously credited by the bank to the company’s account.
V. Bank service charge
VI. No sufficient fund check charged by the bank
VII. Company’s deposit for P37,500 recorded in the books for P73,500
Which of these adjustments would be shown as deduction from the balance per books in order to arrive
at the correct cash balance?
A. II, V & VI B. V, VI & VII C. II, V, VI & VII D. II, IV, V, VI & VII

11. Which of the following situation will least likely to happen?

A. An entry to record replenishment of check should include a credit to Cash in Bank.
B. An debit balance in Cash Short or Over account at the end of period should be reported as
miscellaneous income.
C. An entry to record a bank service charge may include a debit to Miscellaneous Expenses.
D. A bank overdraft may be offset against a positive balance in another bank account with the same
bank if a right of offset exists between the bank and the depositor.

12. Statement 1: In accordance with PAS 1, an entity shall classify an asset as current when the asset is cash
or a cash equivalent unless the asset is restricted from being exchanged or used to settle a liability for at
least twelve months after the reporting period.
Statement 2: Petty cash disbursements should be replenished only by means of checks and not from
undeposited cash collections.
A. Only statement 1 is correct C. Both statements are correct
B. Only statement 2 is correct D. Both statements are incorrect

13. Nontrade receivables are classified as current assets only if they are reasonably expected to be realized
in cash
A. Within normal operating cycle.
B. Within one year or within the normal operating cycle, whichever is shorter.
C. Within one year or within the normal operating cycle, whichever is longer.
D. Within one year, the length of the operating cycle is notwithstanding.

14. If the accounts receivable is hypothecated against borrowings, the amount of accounts receivable
hypothecated should be
A. excluded from the total receivables with disclosure.
B. excluded from the total receivables without disclosure.
C. included from the total receivables with disclosure.
D. included from the total receivables without disclosure.

15. On July 1, 2016, an entity obtained a two-year 8% note receivable for services rendered. At that time,
the market rate of interest was 10%. The face amount of the note and the entire amount of interest are
due on the date of maturity. Interest receivable on December 31, 2016 was
A. 5% of the face amount of the note C. 5% of the present value of the note
B. 4% of the face amount of the note D. 4% of the present value of the note

16. Which statement is true regarding the two methods of accounting for uncollectible accounts?
Statement 1: The percentage-of-sales emphasizes the cash realizable value of the accounts receivable.

1st Semester A.Y. 2016-2017 ACCO 3016: MIDTERM DEPARTMENTAL EXAMINATION 2

 Statement 2: The percentage-of-receivables emphasizes basis the expense recognition (matching)
principle.
A. 1 only B. 2 only C. Both 1 and 2 D. Neither 1 nor 2

17. Genesis Company factored its receivables without recourse with Revelation Bank. Genesis received
cash as a result of the transaction which best described as a
A. loan from Revelation Bank collateralized by Genesis’ accounts receivable.
B. loan from Revelation Bank to be repaid by the proceeds from Genesis’ accounts receivable.
C. sale of Genesis’ account receivable to Revelation Bank with the risk of uncollectible accounts
retained by Genesis.
D. sale of Genesis’ account receivable to Revelation bank with the risk of uncollectible accounts
transferred to Revelation Bank.

18. Statement 1: The entity shall measure the impairment loss on individual receivables as the excess of the
receivable’s carrying amount (net of allowance for uncollectible account) over the present value of the
estimated future cash flows discounted at the historical or original effective interest rate.
Statement 2: Receivables denominated in foreign currency should be translated in the statement of
financial position using the exchange rate at the beginning of the reporting period.
A. Only statement 1 is correct C. Both statements are correct
B. Only statement 2 is correct D. Both statements are incorrect

19. Leviticus Inc., a VAT-registered business, received a three-year, non-interest bearing note for P56,000
on January 1, 2016. The current interest rate at that time was 13% for similar notes. Leviticus recorded
the receipt of the note as follows:
Notes Receivable 56,000
Output tax 6,000
Sales 50,000
The effect of this accounting for note receivable on Leviticus’ profit for the years 2016, 2017 and 2018
and its retained earnings at the end of 2018, respectively shall be
A. overstate, understate, understate, no effect
B. overstate, overstate, understate, no effect
C. overstate, understate, understate, understate
D. no effect on any of these

20. Inventories encompasses all of the following, except

A. finished goods produced
B. land and other property not held for sale
C. merchandise purchased by a retailer
D. materials and supplies awaiting to be used in production process

21. When using a perpetual inventory system

A. purchases account is used. C. two journal entries are required to record a sale.
B. cost of goods sold account is not used. D. a physical count is required at the year-end.

22. The gross profit method of estimating inventory would not be useful when
A. a periodic system is use and inventories are required for interim statements.
B. inventories have been destroyed or lost by fire, theft or other casualty, and the specific data
required for inventory valuation are not available.
C. preparing year-end financial reports.
D. the relationship between gross profit and sales remains stable over time.

23. A company using a periodic inventory system neglected to record purchase of merchandise on account
at year-end, 2016. This merchandise, however, was correctly included in the year-end physical count.
How will these errors affect inventory at the year-end and cost of goods sold for the year?
Inventory Cost of Goods Sold
A. No effect Understate
B. No effect Overstate
C. Understate Understate
D. Understate No effect

24. In a period of rising prices, the use of which of the following inventory cost flow method would result
in the highest reported net profit?

1st Semester A.Y. 2016-2017 ACCO 3016: MIDTERM DEPARTMENTAL EXAMINATION 3

 A. First-in, first-out method C. Weighted average method
B. Last-in, first-out method D. Moving average method

25. A disclosure in the notes to financial statements is required for a purchase contract subject to revision
or cancellation if
A. A future loss is possible C. The amount can be reasonably estimated
B. The amount is material D. Payment is unusual

26. Which of the following statement(s) is/are true?

I. Inventories are presented in the balance sheet at the lower of cost and net realizable value.
II. Inventories are usually written down to net realizable value to each class of inventory.
III. Under allowance method, both the beginning and ending inventories are measured at cost in
the computation of the cost of goods sold.
IV. The retail method requires the maintenance of records of purchases at both cost & selling price.
V. The method prescribed by IAS 2 is the method that considers both the gross markups and net
markdowns in the computation of the cost ratio.
A. I, II, III B. I, III, IV C. I, II, IV, V D. I, III, V

27. Generally speaking, biological assets relating to agricultural activity shall be measured using
A. Historical cost C. Historical cost less depreciation less impairment
B. A fair value approach D. Net realizable value

28. All of the following criteria must be satisfied before a biological asset can be recognized in an entity’s
financial statement except
A. The entity controls the asset as a result of past event.
B. It is probable that future economic benefits relating to the asset will flow to the entity.
C. An active market for the asset exists.
D. The fair value or cost of the asset can be measured reliably.

29. An unconditional government grant related to a biological asset that has been measured at fair value less
cost of disposal shall be recognized as
A. Income when the grant becomes receivable
B. A deferred credit when the grant becomes receivable.
C. Income when the grant application has been submitted.
D. A deferred credit when the grant has been approved.

30. Statement 1: A bearer plant is a living plant that: (a) is used in the production or supply of agricultural
produce; (b) is expected to bear produce for more than one period; and (c) has a remote likelihood of
being sold as agricultural produce except for incidental scrap sales.
Statement 2: When an animal is born, the newborn is classified as biological asset. The entry to record
such transaction shall include a credit to an income account with the amount based on fair value less
cost to sell.
A. Only statement 1 is correct C. Both statements are correct
B. Only statement 2 is correct D. Both statements are incorrect

PROBLEMS (70%)
31. Below are items pertinent to Joshua Company’s cash and cash equivalent:
 Commercial savings account of P1,200,000 and a commercial checking account balance of
P1,800,000 are held at BPI Bank.
 Travel advances of P360,000 for executive travel for the first quarter of the next year (employee to
reimburse through salary deduction).
 A separate cash fund in the amount of P3,000,000 is restricted for the retirement of a long term debt.
 Petty cash fund of P10,000.
 An I.O.U. from a company officer in the amount of P40,000.
 A bank overdraft of P250,000 has occurred at one of the banks the company uses to deposit its cash
receipts. At the present time, the company has no deposits at this bank.
 The company has two certificates of deposit, each totaling P1,000,000. These certificates of deposit
have maturity of 120 days.
 Joshua has received a check dated January 2, 2017 in the amount of P150,000.
 Joshua has agreed to maintain a cash balance of P200,000 at all times at BPI Bank to ensure future
credit availability.
 Currency and coin on hand amounted to P15,000.

1st Semester A.Y. 2016-2017 ACCO 3016: MIDTERM DEPARTMENTAL EXAMINATION 4

 How much will be reported as cash and cash equivalent at December 31, 2016?
A. P3,025,000 B. P2,575,000 C. P2,825,000 D. P5,025,000

32. In connection with your observation of Judges Corporation for the year ended December 31, 2016, you
gathered the following:
Current account at Philippians Bank P2,000,000
Current account at Colossians Bank (600,000)
Payroll account 500,000
IOU from controller’s sister 10,000
Credit memo from a vendor for a purchase return 16,000
Traveler’s check 50,000
Not-sufficient-funds check 12,000
Money order 30,000
Petty cash fund (P4,000 in currency and expense receipts for P6,000) 10,000
Treasury bills, due 2/28/17 (purchased 11/31/16) 200,000
Treasury bills, due 3/31/17 (purchased 3/1/16) 300,000
Foreign bank account (in USD) 25,000
USD to PHP conversion rates are as follows: Average- P41; Closing – P40. Based on the above
information, compute for the cash and cash equivalent that would be reported on the December 31, 2016
balance sheet.
A. P2,704,000 B. P2,790,000 C. P3,084,000 D. P3,784,000

33. The petty cash fund is established in the amount of P5,000 and contains P4,000 in cash and P950 in receipts
for disbursement when it is replenished. The journal entry to record the replenishment shall include credit/s
to the following account/ as
A. Petty cash, P750 C. Cash in bank, P950; Cash short & over P50
B. Petty cash, P1,000 D. Cash in bank, P1,000

34. The accountant of Ruth Company gathered the following information:

1. The Nov. 30 bank statement balance included the bank service charges of P2,000.
2. The Nov. 30 cash balance in the ledger was P244,500.
3. Outstanding checks on Nov. 30 were P63,000 while undeposited receipts were P36,000.
4. The bank charges as shown on the bank statement totaled P3,000.
5. The Dec. 31 cash balance in the general ledger was P319,750, which was recognized P482,750 for
December receipts and P405,500 for checks written during December. In transit to the bank were
receipts of P28,750. Checks of P15,000 written prior to December and checks of P60,500 written
in December had not yet cleared the bank.
What is the adjusted cash balance on December 31?
A. P316,750 B. P363,500 C. P322,750 D. P366,500

35. Samuel reported a balance of P43,000 in its cash account at the end of the month. There were P20,000
deposits in transit and P15,000 outstanding checks. The balance per bank statement showed a balance of
P50,000, service charge of P6,000 and the proceeds of note collected by the bank for the company. The
face value of the note is P15,000. How much is the interest on the note collected by the bank?
A. P12,000 B. P9,000 C. P6,000 D. P3,000

36. Kings Company checkbook balance at December 31, 2016 was P100,000. In addition, Kings held the
following items in its safe on that date.
 P10,000 worth of check payable to Kings, deposited on December 15 and included in December
31 checkbook balance but returned by the bank on December 30 stamped “NSF”. The check was
redeposited on January 2, 2017 and cleared on January 9, 2017.
 P40,000 check payable dated January 2, 2017 in payment of a sale made in December 2016, not
included in December 31 checkbook balance.
 Check drawn on Kings’ account amounting to P6,000, payable to a vendor, dated and recorded in
King’s books on December 31, but not mailed until January 10, 2017.

What is the amount of cash in Kings’ December 31, 2016 statement of financial position?
A. P136,000 B. P104,000 C. P100,000 D. P96,000

37. The cash account of the Chronicles Corporation as of December 31, 2016 consists of the following:
On deposit in current account with Real Bank P 900,000
Cash collection not yet deposited to the bank 350,000
A customer’s check returned by the bank for insufficient fund 150,000

1st Semester A.Y. 2016-2017 ACCO 3016: MIDTERM DEPARTMENTAL EXAMINATION 5

 A check drawn by the Vice-President of the Corporation dated January 15, 2017 70,000
A check drawn by a supplier dated December 28, 2016 for goods returned by the
60,000
Corporation
A check dated May 31, 2016 drawn by the Corporation against the Ezra Bank in
payment of customs duties. Since the importation did not materialize, the check was
410,000
returned by the customs broker. This check was an outstanding check in the
reconciliation of the Ezra Bank account
Petty Cash fund of which P5,000 is in currency; P3,600 in form of employees’ I.O.U.;
and P1,400 is supported by approved petty cash vouchers for expenses all dated prior 10,000
to closing of the books on December 31, 2016
Total P1,950,000
Less: Overdraft with Ezra Bank secured by a Chattel mortgage on the inventories 300,000
Balance per ledger P1,650,000
At what amount will the account “Cash” appear on the December 31, 2016 balance sheet?
A. P 1,315,000 B. P 1,425,000 C. P 1,495,000 D. P1,725,000

38. The accountant of Nehemiah Inc. examined the petty cash fund immediately after the close business, July
31, 2016, the end of the company’s natural business year. The petty cash custodian presented the following
during the count:
Currency 3,300
Petty cash vouchers:
Postage 840
Office supplies expense 1,800
Transportation expense 680
Computer repairs 1,600
Advances to office staff 3,000
A check drawn by Elisha Inc. payable to the petty cash custodian 14,400
Postage Stamps 600
An employee's check, returned by the bank marked as NSF 2,000
An envelope containing currency of P 3,780 for a retiring employee 3,780
32,000
The ledger shows an imprest petty cash fund balance of P 32,000. How much is Corinthians’ petty cash
shortage or overage?
A. P4,380 overage B. P4,380 shortage C. P3,780 shortage D. P3,780 overage

39. Using data in no. 38, what is the adjusted balance of the petty cash fund at July 31, 2016?
A. P21,480 B. P7,080 C. P14,400 D. P17,700

40. You obtained the following information on the current account of EstherCo. during your examination of
its financial statements for the month ended November 30, 2016.

The bank statement on October 31, 2016 showed a balance of P306,000. Among the bank credits in October
was customer’s note for P100,000 collected for the account of the company which the company recognized
in November among its receipts. Included in the bank debits were cost of checkbooks amounting to P1,200
and a P40,000 check which was charged by the bank in error against EstherCo. account. Also in October
you ascertained that there were deposits in transit amounting to P80,000 and outstanding checks totaling
P170,000.

The bank statement for the month of November showed total credits of P416,000 and total charges of
P204,000. The company’s books for November showed total debits of P735,600, total credits of P407,200
and a balance of P485,600. Bank debit memos for November were: No. 00131 for service charges, P1,600
and No. 00132 on a customer’s returned check marked “NSF” for P24,000. On November 30, 2016 the
company placed with the bank a customer’s promissory note with a face value of P120,000 for collection.
The company treated this note as part of its receipts although the bank was able to collect on the note only
on December. A check for P3,960 was recorded in the company cash payments books in November as
P39,600. How much is the adjusted bank receipts for November?
A. P435,600 B. P475,600 C. P515,600 D. P635,600

41. Using data in no. 40, how much is the adjusted book disbursements for November?
A. P225,960 B. P395,960 C. P397,160 D. P431,600

1st Semester A.Y. 2016-2017 ACCO 3016: MIDTERM DEPARTMENTAL EXAMINATION 6

42. Below are items listed in Job Corp’s accounting records on May 2016:
Trade receivables P50,000
Loans to officers 14,000
Advances to affiliates 35,000
Accrued interest and dividends 1,450
Deposits to guarantee performance 2,000
Claims for losses and damages 2,500
Claims for tax refunds or rebates 7,000
Claims against common carriers for damaged goods 1,400
Considering that all of the non-trade receivables are collectible within 12 months, how much is the current
receivable to be presented on May 31, 2016 balance sheet?
A. P113,350 B. P111,950 C. P111,350 D. P78,350

43. On January 1, 2016, Psalms Company sold land that originally cost P400,000 to Proverbs Corp. As
payment, Proverbs gave Psalms a P600,000 note. The note bears an interest rate of 14% and is to be repaid
in three annual installments of P200,000 plus interest on the outstanding balance. The first payment is due
on Dec. 31, 2016. The market price of the land is not reliably determinable. The prevailing interest rate for
note of this type is 14%. How much is the total impact of the transaction on 2016’s income statement?
A. P400,000 B. P284,000 C. P200,000 D. P103,105

44. Using data in no. 43, assuming that the note received by Psalms bears an interest rate of 4% (instead on
14%) and the prevailing interest rate for comparable notes is 14%. How much is the gain on sale of land?
(Note: Use four decimal places for PV factor)
A. P400,000 B. P200,000 C. P103,085 D. P70,435

45. Song of Solomon Company accepted a P400,000 face value, six month, 10% note dated May 15, 2016
from a customer. On the same date, Song of Solomon discounted the note at Lamentations Bank at a 12%
discount rate. How much cash should Song of Solomon receive from the bank on May 15, 2016?
A. P400,000 B. P 396,000 C. P394,800 D. P387,200

46. You are given the following data for Ecclesiastes Inc.:
Cash Credit Total
Cost of sales P500,000 P4,500,000 P5,000,000
Cash received from customers 650,000 5,850,000 6,500,000
Merchandise was marked to sell as follows: Cash sales - 30% above cost and Credit sales – 40% above
cost, all of which are collectible. The balance of accounts receivable at year-end was
A. P1,475,000 B. P1,350,000 C. P450,000 D. P125,000

47. Isaiah Corp.’s accounts receivable subsidiary ledger shows the following information:
Account Balance Sales Invoices
Customer December 31, 2016 Date Amount
12/6/2016 P 14,000
Wisdom Inc. P 35,180
11/29/2016 21,180
9/27/2016 12,000
Love Co. 20,920
8/20/2016 8,920
12/8/2016 20,000
Patience Corp. 30,600
10/25/2016 10,600
11/17/2016 23,140
Happy Co. 45,140
10/9/2016 22,000
12/12/2016 19,200
Purity Corp. 31,600
12/2/2016 12,400
Honesty Inc. 17,400 9/12/2016 17,400

The estimated bad debts rates below are based on Isaiah’s receivable collection experience.
Age of Accounts Rate
0 -30 days 1%
31- 60 days 1.50%
61-90 days 3%
91 - 120 days 10%
over 120 days 50%

The allowance for bad debts account had a debit balance of P5,500 on December 31, 2016, before
adjustment. The allowance of bad debts to be reported at December 31, 2016 is

1st Semester A.Y. 2016-2017 ACCO 3016: MIDTERM DEPARTMENTAL EXAMINATION 7

 A. P9,699 B. P15,199 C. P4,199 D. P5,500

48. Using the data in no. 47, what entry should be made on December 31, 2016, to adjust the allowance for
bad debts account?
A. Dr. Bad debts expense; Cr. Allowance for bad debts amounting to P15,199
B. Dr. Bad debts expense; Cr. Allowance for bad debts amounting to P4,199
C. Dr. Allowance for bad debts; Cr. Bad debts expense amounting to P5,500
D. Dr. Bad debts expense; Cr. Allowance for bad debts amounting to P9,699

49. On December 31, 2016, the Jeremiah Finance Company had a P5,000,000 note receivable from Ezekiel
Company. The note bears 10% interest. The books reported accrual interest of P500,000 on this date.
Because of financial distress suffered by Ezekiel Company, Jeremiah Finance agreed to the restructuring
and modification of the terms as follows:
 Reduction of principal to P4,000,000;
 Reduction of interest to 8% payable annually beginning December 31, 2017;
 Accrued interest on December 31, 2016 is condoned; and
 Principal payment was reset to December 31, 2019.
How much impairment loss should Jeremiah record on Dec. 31, 2016 as a result of restructuring?
A. P300,000 B. P540,000 C. P1,500,128 D. P1,698,992

50. Daniel Department Store starts its business on June 1, 2016 and completes the following transactions
relating to its credit card sales during June: (1) Total sales charged by customers are as follows: BPI –
P600,000; BDO – P1,200,000; PSB- P1,500,000; (2) Deposits made by banks to charge the account of
Malachi for credit card sales, net of 2% service charge. BPI- P352,800; BDO – P705,600; PSB – P882,000.
How much is the accounts receivable as of June 30, 2016?
A. P3,300,000 B. P1,980,000 C. P1,940,400 D. P1,320,000

51. During the second year of operations, Hosea Company found itself in financial difficulties. The entity
decided to use accounts receivable as a means of obtaining cash to continue its operations. On July 1, 2016,
the entity sold P1,500,000 of accounts receivable for cash proceeds of P1,390,000. No allowance for bad
debt was associated with these accounts. On December 31, 2016, the entity assigned the remainder of
accounts receivable, P5,000,000 as of that date, as a collateral on P2,500,000, 12% annual interest rate
loan. The entity received P2,500,000 less a 2% finance charge. None of the assigned accounts had been
collected by the end of the year. The balances as of December 31, 2016 are as follows: Allowance for bad
debts before adjustment – P65,000; Estimated uncollectible – 3% of accounts receivable; Accounts
receivable not including factored and assigned accounts – P1,000,000. What is the bad debts expense for
the current year?
A. P180,000 B. P115,000 C. P95,000 D. P30,000

52. You are given the following information relating to Joel Trading:
Gross profit rate based on cost 25%
Accounts receivable, December 31, 2015 P 120,000
Allowance for bad debts, December 31, 2015 3,000
Collections of accounts receivable in 2016 645,000
Cost of goods available for sale in 2016 690,000
Merchandise inventory, December 31, 2016 150,000
Assuming all sales were on account and estimated bad debts was 5% of sales, what is the realizable value
of accounts receivable December 31, 2016?
A. P150,000 B. P142,500 C. P116,250 D. P113,250

53. The following information was taken from the records of Amos Gift Shop for the month of December:
Sales P 198,000.00 Purchases at cost P 96,000.00
Sales returns 4,000.00 Purchases at retail 176,000.00
Additional Markups 20,000.00 Purchase return at cost 4,000.00
Markup cancellations 3,000.00 Purchase return at retail 6,000.00
Markdowns 18,600.00 Beg. inventory at cost 60,000.00
Markdown cancellations 5,600.00 Beg. inventory at retail 93,000.00
Freight-in 4,800.00
What is the cost of Amos’ ending inventory under the retail inventory (FIFO cost) method? (Note: Use
two decimal places for the cost-to-retail ratio)
A. P40,150 B. P43,070 C. P51,296 D. P43,500
54. Obadiah Inc. uses the lower of cost and net realizable value for its products’ ending inventory. Data
pertaining to one of the products are as follows: Historical cost- P680; Estimated selling price- P1,200;

1st Semester A.Y. 2016-2017 ACCO 3016: MIDTERM DEPARTMENTAL EXAMINATION 8

 Estimated cost of completion and disposal- P420; Normal Profit- P240 What is the inventory unit value of
this product?
A. P540 B. P680 C. P780 D. P1,200

55. Jonah Company has partially completed inventory located in its factory and below are some information:
Production cost to date- P29,000; Additional expected selling cost- P4,000; Production cost to complete-
P20,000; Estimated sales price- P54,000; Transportation cost to customer- P3,000. Following IAS 2
Inventories, at what amount should this inventory be presented on the balance sheet?
A. P54,000 B. P47,000 C. P29,000 D. P27,000

56. The following data relate to the first three years of operations for Micah Company:
2015 2016 2017
Net profit under FIFO P 300,000 P 450,000 P 160,000
Net profit under Weighted Average 120,000 320,000 120,000
Ending inventory under FIFO 550,000 670,000 710,000
How much is the ending in inventory in 2017 using the weighted average method?
A. P1,060,000 B. P710,000 C. P360,000 D. P350,000

57. During 2016, Nahum Company signed a non-cancelable contract with Habakkuk Milling Company to
purchase 1,000 sacks of rice at P1,200 per sack with delivery to made in 2017. On December 31, 2016, the
price of rice had fallen to P1,100 per sack. The company expects delivery of rice when the price is P1,180
per sack on April 1, 2017. In Nahum’s December 31, 2016 profit and loss, how much is reported loss on
purchase commitments?
A. P50,000 B. P30,000 C. P20,0000 D. P0

58. Zephaniah Corp. was organized on January 1, 2016. On December 31, 2017, the company lost most of its
inventory in a warehouse fire just before the year-end count of inventory to take place. The company
records disclosed the following data:
2016 2017
Inventory, Jan. 1 P - P 204,000.00
Purchases 860,000.00 692,000.00
Purchase returns and allowances 46,120.00 64,600.00
Sales 788,000.00 836,000.00
Sales returns and allowances 16,000.00 20,000.00
On January 1, 2017, Zephaniah’s pricing policy was changed so that the gross profit rate would be three
percentage higher than the one earned in 2016. Salvage undamaged merchandise was marked to sell at
P24,000 while the damaged merchandise marked to sell at P16,000 had an estimated realizable value of
P3,600. What is the company’s gross profit rate beginning January 1, 2017?
A. 24% B. 21% C. 17% D. 20%

59. Using data in no. 58, how much is the inventory fire loss?
A. P189,400 B. 183,640 C. 164,920 D. 254,000

60. Haggai Co. recorded the following data pertaining to one of its inventory items during May 2016. May 1-
Inventory, 80 units @ P2,000; May 8- Sold 40 units; May 30, - Purchased 120 units @ P2400. What is
the moving average unit cost of this item at May 31, 2016?
A. P2,200 B. P2,240 C. P2,300 D. P2,400

61. Zechariah Inc. reported total assets of P400,000 and net income of P21,250 for the current year. It was
determined that inventory was understated by P5,750 at the beginning of the year and P2,500 at the end of
the year. What is the corrected amount for total assets and net income for the year?
A. P402,500 and P23,750 C. P397,500 and P24,500
B. P402,500 and P18,000 D. P400,000 and P21,250

62. In connection with your observation of the Matthew Manufacturing Company, you reviewed its inventory
as of December 31, 2016 and found the following items:
 A packing case containing a product costing P100,000 was standing in the shipping room when the
physical inventory was taken. It was not included in the inventory because it was marked “Hold for
shipping instructions.” The customer’s order was dated December 18, but the case was shipped and
the costumer billed on January 10, 2017.
 Merchandise costing P600,000 was received on December 28, 2016, and the invoice was recorded.
The invoice was in the hands of the purchasing agent; it was marked “On consignment”.

1st Semester A.Y. 2016-2017 ACCO 3016: MIDTERM DEPARTMENTAL EXAMINATION 9

  Merchandise received on January 6, 2017, costing P700,000 was entered in purchase register on
January 7. The invoice showed shipment was made FOB shipping point on December 31, 2016.
Because it was not on hand during the inventory count, it was not included.
 A special machine costing P200,000, fabricated to order for a particular customer, was finished in the
shipping room on December 30. The customer was billed for P300,000 on that date and the machine
was excluded from inventory although it was shipped January 4, 2017.
 Merchandise costing P200,000 was received on January 6, 2017, and the related purchase invoice
was recorded January 5. The invoice showed the shipment was made on December 29, 2016, FOB
destination. Merchandise costing P150,000 was sold on an installment basis on December 15. The
customer took possession of the goods on that date. The merchandise was included in inventory
because Matthew still holds legal title. Historical experience suggests that full payment on
installment sale is received approximately 99% of the time.
 Goods costing P500,000 were sold and delivered on December 20. The goods were included in the
inventory because the sale was accompanied by a purchase agreement requiring Matthew to buy back
the inventory in February 2017.
How much of these items should be included in the inventory balance at December 31, 2016?
A. P1,300,000 B. P1,650,000 C. P1,050,000 D. P800,000

63. Malachi Company sells a variety of items to its customers. At December 31, the balance of Malachi’s
ending inventory account was P5,000,000 and the allowance for inventory write down account before any
adjustment was P200,000. Relevant information about the inventories and the breakdown of inventory cost
and market data at December 31 are as follows:
Item Cost Replacement Cost Sales Price Net Realizable Value Normal Profit
C1 P1,000,000 P1,100,000 P1,450,000 P700,000 P100,000
C2 1,500,000 1,200,000 1,750,000 1,600,000 200,000
C3 1,700,000 1,300,000 2,000,000 1,450,000 250,000
C4 800,000 1,000,000 1,300,000 950,000 250,000
Total P5,000,000 P4,600,000 P6,500,000 P4,700,000 P800,000

How much is the loss on inventory write down to be included in Malachi’s cost of goods sold?
A. P550,000 B. P350,000 C. P200,000 D. P100,000

64. The following information is made available by Mark Farms of its dairy livestock:
Carrying amount @ FV less cost to sell, January 1, 2016 P450,000
FV less cost to sell of livestock purchased during the year 250,000
Increase in FV less cost to sell attributable to physical changes 220,000
Increase in FV less cost to sell attributable to price changes 64,000
Total selling price less cost to sell of livestock sold during the period 290,000
At what amount should the biological assets on the balance sheet be reported at Dec.31, 2016?
A. P1,274,000 B. P764,000 C. P694,000 D. P630,000

65. Using data in no. 64, what amount is total impact of the transactions on Mark’s income statement?
A. P64,000 B. P220,000 C. P284,000 D. P290,000

- End of Examination -
Be blessed! 

“Do not waste time. Life is short. But it is always long enough to change for the better. Be the other you soonest,
but be the better you NOW!”

Remember Proverbs 3:5-6 “Trust in the Lord with all your heart, and do not lean on your own understanding. In
all your ways acknowledge Him, and He will make your paths straight.” Have faith and be
expectant for He has prepared the best for you. God has perfect timing; never early,
never too late. It takes a little patience and faith, but it’s worth the wait.
#RoadToBSAThirdYear
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Concentrate === Pray === Achieve

/NABergonia2016

1st Semester A.Y. 2016-2017 ACCO 3016: MIDTERM DEPARTMENTAL EXAMINATION 10