Review 105-----------Day 6 c.

Noncurrent liability
d. Deduction from accounts receivable
THEORY OF ACCOUNTS
7. A method of estimating doubtful accounts that focuses on the income statement rather the
1. Nontrade receivables are classified as current assets only if they are reasonably expected balance sheet is the allowance method based on
to be realized in cash a. Direct writeoff c. Credit sales
a. Within one year or normal operating cycle, whichever is shorter. b. Aging of trade accounts receivable d. Balance of accounts
b. Within the normal operating cycle receivable
c. Within one year or the normal operating cycle, whichever is longer
d. Within one year, the length of the operating cycle notwithstanding 8. The “corridor” in the recognition of actuarial gain or loss is equal to
a. 10% of the present value of the defined benefit obligation at the beginning of the year.
2. Installments receivable arising from sales of household appliances should be classified as a. 10% of the fair value of the plan assets at the beginning of the year.
a. Current assets b. 10% of the lower between the present value of the defined benefit obligation and the
b. Noncurrent assets fair value of the plan assets at the beginning of the year.
a. Current assets; however, the amount not realizable within one year should be c. 10% of the higher between the present value of the defined benefit obligation and
disclosed, if material the fair value of the plan assets at the beginning of the year.
b. None of these
9. The components of the financial statements include all, except
3. In the case of long-term installments receivable (real estate installment sales) where a a. Balance sheet, income statement and cash flow statement
major portion of the receivables will be collected beyond the normal operating cycle b. Statement of changes in equity or statement of recognized gains and losses
a. The entire receivables are classified as current without disclosure of the amount not c. Notes, comprising a summary of significant accounting policies and other explanatory
currently due notes
a. The entire receivables are classified as noncurrent d. Additional statements such as environmental reports and value added statements
b. Only the portion currently due is classified as current and the balance as noncurrent
c. The entire receivables are classified as current with disclosure of the amount not 10. Which is incorrect concerning fair presentation of financial statements?
currently due a. In virtually all circumstances, a fair presentation is achieved by compliance with
applicable Philippine Financial Reporting Standards.
4. Receivables from subsidiaries and affiliates, if significant should be classified as b. Financial statements shall present fairly the financial position, performance and cash
a. Current assets flows of an enterprise.
b. Noncurrent assets c. An enterprise whose financial statements comply with PFRS shall make an explicit and
c. Either as noncurrent or current depending on the expectation of realizing them within unreserved statement of such compliance in the notes.
one year or over one year d. Inappropriate accounting treatments are rectified either by disclosure of the accounting
d. Intangible assets policies used or by note or explanatory material.

5. Receivables from officers, directors and employees for goods sold or services rendered in 11. Which is incorrect concerning the overall considerations in the preparation and
the ordinary course of business presentation of financial statements?
a. Are considered current if proper control is exercised in granting credit and the accounts a. An enterprise shall prepare its financial statements, except for cash flow information,
are currently collectible under the accrual basis of accounting.
b. Are not included in trade accounts receivable b. The presentation and classification of items in the financial statements shall be
c. Are included in current assets even if the receivables are actually loans and advances retained from one period to the next.
and the collection is unlikely within a year c. Assets and liabilities, income and expenses, shall not be offset unless required or
d. Are always classified as noncurrent permitted by another PFRS.
d. Comparative information need not be disclosed in respect of the previous period for all
6. Credit balances in accounts receivable should be classified as numerical information in the financial statements.
a. Current liability
b. Part of accounts payable
12. A method of estimating doubtful accounts that emphasizes asset valuation rather than Cash inflows Cash outflows
income measurement is the allowance method based on 2006 30,000,000 12,000,000
a. Aging of receivables 2007 32,000,000 17,000,000
b. Direct writeoff 2008 26,000,000 14,000,000
c. Gross sales 2009 16,000,000 6,000,000
d. Credit sales less sales returns and allowances
It is believed that a discount rate of 8% is reflective of time value of money. The table of
13. A company uses the allowance method for recognizing doubtful accounts. The entry to present value shows that the present value of 1 at 8% is as follows:
record the writeoff of a specific uncollectible account
a. Affects neither net income nor working capital Period Present value of 1
b. Affects neither net income nor accounts receivable 1 .93
c. Decreases both net income and working capital 2 .86
d. Decreases both net income and accounts receivable 3 .79
4 .74
14. When the allowance method of recognizing bad debt expense is used, the entries at the
time of collection of an account previously written off would
a. Decrease the allowance for doubtful accounts
b. Increase net income Tanauan Company should recognize an impairment loss in 2005 at
c. Have no effect on the allowance for doubtful accounts a. 13,480,000
d. Have no effect on net income b. 15,000,000
c. 5,000,000
15. When a specific customer’s account receivable is written off as uncollectible, what will be d. 0
the effect on net income under each of the following methods of recognizing bad debt
expense?
Allowance Direct writeoff 2. Odiongan Company acquired a machine for P6,400,000 on August 31, 2002. The machine
a. None Decrease has a 5-year life, a P1,000,000 salvage value, and was depreciated using the straight line
b. Decrease None method. On May 31, 2005, a test for recoverability reveals that the expected net future
c. Decrease Decrease undiscounted cash inflows related to the continued use and eventual disposal of the machine
d. None None total P3,000,000. The machine’s fair value on May 31, 2005 is P2,700,000 with no residual
value. Assuming a loss on impairment is recognized on May 31, 2005, what is Odiongan’s
depreciation for June 2005?
P1 a. 127,040
b. 100,000
1. Tanauan Company has one division that performs machining operations on parts that are c. 111,110
sold to contractors. A group of machines have an aggregate cost and accumulated d. 45,000
depreciation on December 31, 2005 as follows:
3. On December 31, 2005, Baliuag Company had the following cash balances:
Machinery 90,000,000
Accumulated depreciation 30,000,000 Cash in bank P15,000,000
Petty cash fund (all funds were reimbursed on December 31, 2005) 50,000
The machines have an average remaining life of 4 years and it has been determined that Time deposit 5,000,000
this group of machinery constitutes a cash generating unit. The fair value less cost to sell Saving deposit 2,000,000
of this group of machines in an active market is determined to be P45,000,000. Based on
supportable and reasonable assumptions, the financial forecast for this group of Cash in bank includes P500,000 of compensating balance against short term borrowing
machines reveals the following cash inflows and cash outflows for the next four years: arrangement at December 31, 2005. The compensating balance is legally restricted as to
withdrawal by Baliuag. A check of P300,000 dated January 15, 2006 in payment of
 accounts payable was recorded and mailed on December 31, 2005. In the current assets c. 2,050,000
section of the December 31, 2005 balance sheet, what amount should be reported as d. 950,000
“cash and cash equivalents”?
a. P21,850,000 c. P21,800,000
b. P16,850,000 d. P14,850,000 7. Nagcarlan Company purchased a patent on January 1, 2002, for P3,570,000. The patent
was being amortized over its remaining legal life of 15 years expiring on January 1, 2017.
During 2005 Nagcarlan determined that the economic benefits of the patent would not last
4. Lobo Company reported an impairment loss of P4,000,000 in its income statement for the longer than ten years from the date of acquisition. What amount should be reported in the
year 2004. This loss was related to an item of property, plant and equipment which was balance sheet as patent, net of accumulated amortization, at December 31, 2005?
acquired on January 1, 2003 with cost of P25,000,000, useful life of 10 years and no residual a. 2,618,000
value. On December 31, 2004 balance sheet, Lobo reported this asset at P16,000,000 which b. 2,520,000
is the fair value on such date. On December 31, 2005, Lobo determined that the fair value of c. 2,448,000
its impaired asset had increased to P19,000,000. The straight line method is used in d. 2,142,000
recording depreciation of this asset. What amount of gain on impairment recovery should
Lobo report in its 2005 income statement?
a. 5,000,000 8. On January 2, 2002, San Pedro Company purchased a patent for a new consumer product
b. 3,500,000 for P3,000,000. At the time of purchase, the patent was valid for 15 years. However, the
c. 1,500,000 patent’s useful life was estimated to be only 10 years due to the competitive nature of the
d. 0 product. On December 31, 2005, the product was permanently withdrawn from sale under
governmental order because of a potential health hazard in the product. What amount should
5. Kuyab Company incurred P900,000 of research and development cost to develop a San Pedro charge against income during 2005, assuming amortization is recorded at the end
product for which a patent was granted on January 2, 2005. Legal fees and other costs of such year?
associated with the registration of the patent totaled P200,000. On July 31, 2005, Kuyab paid a. 1,800,000
P400,000 for legal fees in a successful defense of the patent. The total amount capitalized b. 2,400,000
for this patent through July 31, 2005 should be c. 2,100,000
a. 1,500,000 d. 300,000
b. 1,100,000
c. 600,000
d. 200,000 9. On January 1, 2005, Mambusao Company bought a trademark from Panitan Company for
P6,000,000. Mambusao retained an independent consultant who estimated the trademark’s
life to be indefinite. Its carrying amount in Panitan’s accounting records was P4,000,000. In
6. Laguna Company acquired three patents in January 2005. The patents have different lives Mambusao’s December 31, 2005 balance sheet, what amount should be reported as
as indicated in the following schedule: trademark?
a. 6,000,000
Cost Remaining useful life Remaining legal life b. 5,700,000
Patent A 2,000,000 10 8 c. 3,800,000
Patent B 3,000,000 5 10 d. 3,600,000
Patent C 6,000,000 Indefinite 15

Patent C is believed to be uniquely useful as long as the company retains the right to use
it. In June 2005, the company successfully defended its right to Patent B. Legal fees of
P800,000 were incurred in this action. The company’s policy is to amortize intangible
assets by the straight-line method to the nearest half year. The company reports on a
calendar-year basis. The amount of amortization that should be recognized for 2005 is
a. 1,330,000
b. 1,250,000
10. On January 1, 2005, Calamba Company signed an agreement to operate as a franchise
of Bay Company for an initial franchise fee of P30,000,000. Of this amount, P10,000,000 was
paid when the agreement was signed and the balance is payable in equal annual payment of
P5,000,000 beginning December 31, 2005. The agreement provides that the down payment
is not refundable and no future services are required of the franchisor. Calamba’s credit rating
indicates that it can borrow money at 12% for a loan of this type. Information on present value
factors at 12% for 4 period is:
 Sapian’s earnings for the past 5 years averaged P5,000,000. This is believed to be the a
Present value of 1 reasonable estimate of future income. The level of income normally experienced by
0.64 enterprises similar to Sapian is 15%. Panay and Sapian agreed to capitalize average
Present value of an ordinary annuity of 1 excess earnings at 25% in estimating the value of goodwill. How much should Panay pay
3.04 in acquiring Sapian?
a. 20,000,000
a. 30,000,000 b. 28,000,000
b. 15,200,000 c. 32,000,000
c. 25,200,000 d. 20,500,000
d. 21,600,000
13. Tublay uses the retail inventory method to approximate the lower of average cost or
market. The following information is available for the current year:
11. Liliw Company engaged your services to compute the goodwill in the purchase of
Calauan Company which provided the following: Cost Retail
Beginning inventory P 1,300,000 P 2,600,000
Net income Net assets Purchases 18,000,000 29,200,000
2002 1,400,000 6,000,000 Freight in 400,000
2003 1,600,000 8,000,000 Purchase returns 600,000 1,000,000
2004 2,000,000 8,800,000 Purchase allowances 300,000
2005 2,200,000 9,200,000 Departmental transfer in 400,000 600,000
Net markups 600,000
It is agreed that goodwill is measured by capitalizing excess earnings at 25% with normal Net markdowns 2,000,000
return on average net assets at 15%. How much is the purchase price for Calauan Sales 24,400,000
Company? Sales discounts 200,000
a. 11,600,000 Employee discounts 600,000
b. 10,400,000
c. 11,200,000 What should be reported as the estimated cost of inventory at the end of the current
d. 11,000,000 year?
a. P3,120,000 c. P3,000,000
b. P3,200,000 d. P3,840,000
12. Panay Company is negotiating to acquire Sapian Company. Panay manufactures and
sells wood burning stoves and Sapian Company produces parts that are required to
manufacture stoves. Sapian enjoys an exceptional reputation and Panay management
believes it can continue Sapian’s level of income and satisfy its own need for parts. Under 14. The owners of Majayjay Company are planning to sell the business to new interests. The
the contemplated arrangement, Panay will negotiate for the acquisition of the net assets of cumulative net earnings for the past 5 years was P9,000,000 including casualty loss of
Sapian Company. The recorded amounts and current values of the assets and liabilities of P500,000. The current value of net assets of Majayjay Company was P20,000,000. Goodwill
Sapian are: is determined by capitalizing average earnings at 8%. What is the amount of goodwill?
a. 1,900,000
Assets Liabilities b. 1,700,000
Recorded amounts 20,000,000 8,000,000 c. 3,750,000
Current values 25,000,000 5,000,000 d. 1,250,000

15. On January 1, 2005, Carmona purchased Topaz Company at a cost that resulted in
recognition of goodwill of P5,000,000 having an expected benefit period of 10 years. During
January of 2005, Carmona spent an additional P2,000,000 on expenditures designed to
maintain goodwill. Due to these expenditures, at December 31, 2005, Carmona estimated
that the benefit period of goodwill was indefinite. In its December 31, 2005 balance sheet,
what amount should Carmona report as goodwill?
a. 5,000,000
b. 7,000,000
c. 4,750,000
d. 4,500,000
MAS
1.The goal of credit policy is to
a. Extend credit to the point where marginal profits equal marginal costs.
b. Minimize bad debt losses.
c. Minimize collection expenses.
d. Maximize sales.
2. The discontinued operations section of the income statement refers to
a. discontinuance of a product line.
b. the income or loss on products that have been completed and sold.
c. obsolete equipment and discontinued inventory items.
d. the disposal of a significant segment of a business.
3. Which one of the following would be classified as an extraordinary item?
a. Expropriation of property by a foreign government
b. Losses attributed to a labor strike
c. Write-down of inventories
d. Gains or losses from sales of equipment
4. When a change in accounting principle occurs,
a. all prior years' financial statements should be changed to reflect the newly
adopted principle.
b. the new principle should be used in reporting the results of operations of the
current year.
c. the cumulative effect of the change in principle should be reflected on the income
statement as of the beginning of the next year.
d. the cumulative effect of the change in accounting principle should be classified as
an extraordinary item on the income statement.
5. It is held that the level of accounts receivable that the firm has or holds reflects both the
volume of a firm’s sales on account and a firm’s credit policies. Which one of the
following items is not considered as part of the firm’s credit policies?
a. The minimum risk group to which credit should be extended.
b. The extent (in terms of money) to which a firm will go to collect an account.
c. The length of time for which credit is extended.
d. The size of the discount that will be offered.
6. In assessing the loan value of inventory, a banker will normally be concerned about the
portion of inventory that is work-in-process because
a. WIP inventory is relatively easy to sell because it does not represent a raw material
or a finished product.
b. WIP inventory usually has the highest loan value of the different inventory types.
c. WIP generally has the lowest marketability of the various types of inventories.
d. WIP represents a lower investment by a corporation as opposed to other types of
inventories.
7. When a company analyzes credit applicants and increases the quality of the accounts
rejected, the company is attempting to
A. Maximize sales. C. Increase the average collection period.
B. Increase bad-debt losses. D. Maximize profits.
8. A high turnover of accounts receivable, which implies a very short days-sales
outstanding, could indicate that the firm
A. Has a relaxed (lenient) credit policy.
B. Offers small discounts.
C. Uses a lockbox system, synchronizes cash flows, and has short credit terms.
D. Has an inefficient credit and collection department.
9. Accounts receivable turnover will normally decrease as a result of
a. The write-off of an uncollectible account (assume the use of the allowance for
doubtful accounts method).
b. A significant sales volume decrease near the end of the accounting period.
c. An increase in cash sales in proportion to credit sales.
d. A change in credit policy to lengthen the period for cash discounts.
10. The credit and collection policy of Amargo Co. provides for the imposition of credit block
when the credit line is exceeded and/or the account is past due. During the month,
because of the campaign to achieve volume targets, the general manager has waived the
credit block policy in a number of instances involving big volume accounts. The likely
effect of this move is
a. Deterioration of aging of receivables only.
b. Increase in the level of receivables only.
c. Deterioration of aging and increase in the level of receivables.
d. Decrease in collections during the month the move was done.
11. An increase in sales resulting from an increased cash discount for prompt payment would
be expected to cause
A. An increase in the operating cycle.
B. An increase in the average collection period.
C. A decrease in the cash conversion cycle.
 D. A decrease in purchase discounts taken. balance sheet, under the treasury stock method?
a. Manke, 20,000
b. Manke, 20,000; Neske, 1,000
1. Enert, Inc.'s current capital structure is shown below. This structure is optimal, and
c. Manke, 18,000; Neske, 1,000
the company wishes to maintain it.
d. Manke, 18,000
Debt 25%
Preferred equity 5% 2. Cattle Company sold inventory with a cost of 40,000 to its 90%-owned subsidiary, Range
Common equity 70% Corp., for 100,000 in 20X1. Range resold 75,000 of this inventory for 100,000 in 20X1. Based
Enert's management is planning to build a $75 million facility that will be financed on this information, the amount of inventory reported on the consolidated financial statements
according to this desired capital structure. Currently, $15 million of cash is available for at the end of 20X1 is ____.
capital expansion. The percentage of the $75 million that will come from a new issue of a. 10,000
common shares is b. 18,000
A. 50.00%. B. 56.25%. C. 70.00%. D. 56.00%. c. 21,000
d. 30,000
12. Bobo LLC's has an asset base of $1 million. After a dividend payment of $40,000, Bobo
added $50,000 to retained earnings. What is Bobo's internal growth rate? 3. Partners A and B have a profit and loss agreement with the following provisions: salaries of
A. 1% B. 4% C. 5% D. 9% 30,000 and 45,000 for A and B, respectively; a bonus to A of 12% of net income after salaries
and bonus; and interest of 10% on average capital balances of 50,000 and 65,000 for A and
13. It is the policy of Franz Corp. that the current ratio cannot fall below 1.5 to 1.0. Its current B, respectively. One-fourth of any remaining profits are allocated to A and the balance to B. If
liabilities are P400,000 and the present current ratio is 2 to 1. How much is the maximum the partnership had net income of 108,600, how much should be allocated to Partner A?
level of new short-term loans it can secure without violating the policy? a. 43,225
b. 43,816
a. P400,000 b. P300,000 c. P266,667 d.P800,000 c. 47,850
d. 65,375
14. Wildthing Amusement Company’s total assets fluctuate between $320,000 and $410,000, 4. Under the bonus method, when a new partner is admitted to the partnership, the total
while its fixed assets remain constant at $260,000. If the firm follows a maturity matching capital of the new partnership is equal to:
or moderate working capital financing policy, what is the likely level of its long-term a. the book value of the previous partnership plus the fair market value of the
financing? consideration paid to the existing partnership by the incoming partner
a. $ 90,000 b. $260,000 d. $410,000 e.$320,000 b. the book value of the previous partnership plus any necessary asset write ups from
book value to market value plus the fair market value of the consideration paid to the existing
15. Jarrett Enterprises is considering whether to pursue a restricted or relaxed current asset partnership by the incoming partner
investment policy. The firm’s annual sales are $400,000; its fixed assets are $100,000; c. the book value of the previous partnership minus any asset write downs from book to
debt and equity are each 50 percent of total assets. EBIT is $36,000, the interest rate on market value plus the fair market value of the consideration paid to the existing partnership by
the firm’s debt is 10 percent, and the firm’s tax rate is 40 percent. With a restricted policy, the incoming partner
current assets will be 15 percent of sales. Under a relaxed policy, current assets will be d. the fair market value of the new partnership as implied by the value of the incoming
25 percent of sales. What is the difference in the projected ROEs between the restricted partner's consideration in exchange for an ownership percentage in the new partnership
and relaxed policies?
a.. 1.6% b. 6.2% c. 3.8% c. 5.4% 5. Partners Able, Baker, and Chapman have the following personal assets, personal liabilities,
and partnership capital balances:
P2 Able Baker Chapman
Personal assets 30,000 80,000 60,000
1.Manke Company owns a 90% interest in Neske Company. Neske, in turn, owns Personal liabilities 25,000 50,000 72,000
a 10% interest in Manke. Neske has 10,000 common stock shares Capital balances 50,000 (32,000) 70,000
outstanding, and Manke has 20,000 common stock shares outstanding. How
many shares would each firm show as outstanding in the consolidated
Assume profits and losses are allocated equally. 9. Which of the following statements is true concerning forward contracts classified as hedges
of an identifiable foreign currency commitment?
After applying the doctrine of marshaling of assets, the capital balances for Able, Baker, and a. Forward contracts used as hedges cannot exceed the foreign currency commitment.
Chapman, respectively, would be b. Forward contracts cannot extend for a time period after the transaction date of the
a. 50,000, (2,000), and 58,000. commitment.
b. 48,000, 0, and 58,000. c. The gain or loss traceable to the time period after the transaction date of the
c. 49,000, 0, and 57,000. commitment should not be deferred.
d. 34,000, 0, and 54,000. d. None of these statements is true.

6. In order to generate interim financial reports that contain a reasonable portion of 10. A foreign subsidiary of Dallas Jeans Corp. (a U.S. firm) has certain balance sheet
annual expenses, which of the following statements is true? accounts on December 31, 20X9. The functional currency is the U.S. dollar and currency of
a. an allocation of a portion of an annual bonus would be made as an interim record is the peso and the parent's books are kept in U.S. dollars. Information relating to
adjustment these accounts in U.S. dollars is as follows:
b. any adjustments for inventory shrinkage would be deferred to year end
c. the allowance for uncollectible accounts receivable will be revised at year end Remeasured at
d. None of the above are true Current Rate Historical Rate
Accounts Receivable 175,000 190,000
7. Ansfield, Inc. has several potentially reportable segments. The following financial Inventories 400,000 450,000
information has been determined for the current fiscal year: Prepaid Insurance 40,000 45,000
Consolidated net income 1,000,000 Land 30,000 100,000
Operating income before taxes 1,500,000
Net operating income of all segments 1,350,000 What amount should be included as total assets on Dallas Jean's balance sheet on
Total consolidated revenue 8,000,000 December 31, 20X9 as the result of the above information?
Total revenue of all segments, a. 645,000
excluding intersegments sales 7,000,000 b. 765,000
Total intersegment sales1,200,000 c. 770,000
Consolidated total assets 50,000,000 d. 785,000
Total assets of all segments 45,000,000
11. Equipment with a fair value of 65,000 and a cost basis of 60,000 is transferred to a
creditor in partial settlement of a debt of $150,000 plus accrued interest of 7,500. The
The minimum amount of revenues a segment must have to qualify as reportable is ____. balance of the debt will be satisfied by 3 equal payments of 30,000 over the next three years.
a. 700,000 Which of the following journal entries best records the restructure?
b. 800,000 a. Loan Payable 150,000
c. 820,000 Interest Payable 7,500
d. The answer cannot be determined from the information given. Equipment 60,000
Restructured Debt 90,000
8. Which of the following statements is not true regarding forward contracts that cover periods Gain on Restructure 7,500
of time different from the settlement period (transaction date to the settlement date)?
a. If the forward contract expires before the settlement date, the gain or loss will partially b. Loan Payable 150,000
offset the gain or loss on the foreign currency transaction. Loss on Restructure 5,000
b. If the forward contract expires after the settlement date, post-settlement date gains Equipment 60,000
and losses are not recognized as components of current operating income. Gain on Transfer of Equipment 5,000
c. Premium and discount are amortized over the life of the contract. Restructured Debt 90,000
d. All of these statements are true.
c. Loan Payable 150,000
Interest Payable 7,500
 Equipment 60,000
Gain on Transfer of Equipment 5,000 AP
Restructured Debt 90,000 An examination of the accounting records of Katok Inc. for the year ended December 31,
Gain on Restructure 2,500 2007 indicates that several errors were made. The following errors were discovered:
a. The footings and extensions showed that the inventory on December 31, 2006 was
d. Loan Payable 150,000 understated by 380,000
Interest Payable 7,500 b. 300,000 worth of inventories were received on January 2, 2008. Upon investigation
Equipment 65,000 you discovered that these goods were shipped by the supplier on December 30,
Restructured Debt 90,000 2007 FOB Shipping point. Further investigation revealed that liability on item were
Gain on Restructure 2,500 recorded when the goods were shipped.
c. Salary accruals on December 31, were consistently omitted:
12. Lakeside Bank holds a 100,000 note secured by a building owned by Fly-By-Night 2004 190,000
Manufacturing, which has filed for bankruptcy under Chapter 7 of the Bankruptcy Code. If the 2005 220,000
property has a book value of 120,000 and a fair market value of 90,000, what is the best way 2006 200,000
to describe the note held by Second City Bank? The bank has a(n) 2007 280,000
a. secured claim of 100,000. d. unused supplies were consistently oitted at the end of each year
b. unsecured claim of 100,000. 2004 150,000
c. secured claim of 90,000 and an unsecured claim of 10,000. 2005 200,000
d. secured claim of 100,000 and an unsecured claim of 20,000. 2006 230,000
2007 240,000
13. Which of the following is NOT a required characteristic of a private not-for-profit e. a 4-year fire insurance amounting to 300,000 was paid and fully expense on June 15,
organization per the definition given by the AICPA? 2005. The insurance covers the fiscal year July 1 to June 30.
a. no owners or shareholders
b. an operating purpose other than making a profit f. Interest receivable were not recorded on December 31 of the following years:
c. an organization dedicated to service of the public good 2005 40,000
d. Significant contributions from providers who do not expect reciprocal goods or 2006 50,000
services in return 2007 60,000
g. on January 1, 2007 an equipment costing 800,000 was sold for 440,000. At the end of the
14. A voluntary welfare organization is permitted to use building facilities rent free. This sale the equipment had accumulated depreciation of 480,000. The cash received was
should be recorded as: recorded by the company as miscellaneous income.
a. a footnote in the financial statements disclosing the rent-free arrangement. h. you also discovered that on July 1, 2005, the company completed the construction of the
b. a contribution. left wing of its factory building incurring a total cost of 1,400,000, which it had charged to
c. rent expense at the fair market value. repairs expense. The said building has been used in operations for 5 years as of july 1,
d. both b and c are correct. 6,000,000 had a carrying value of 2,250,000 as of December 31, 2007.

15. On January 1, 20X1, Rabb Corp. purchased 80% of Sunny Corp.'s 10 par common stock The income statements of glamorous Inc. indicate the following net income:
for 975,000. On this date, the carrying amount of Sunny's net assets was 1,000,000. The fair 2005 3,000,000
values of Sunny's identifiable assets and liabilities were the same as their carrying amounts 2006 3,500,000
except for plant assets (net), which were 100,000 in excess of the carrying amount. 2007 4,000,000

In the January 1, 20X1, consolidated balance sheet, goodwill should be reported at ____. Required:
a. 0
b. 75,750 1. What is the correct depreciation expense of the factory building in 2007?
c. 95,000 a. 600,000
d. 118,750 b. 650,000
c. 700,000
 d. 780,000 Notes payable, trade, increase 800,000
Notes payable-bank, increase 1,200,000
2. What is the correct net income in 2005? Sales return( 200,000 was refunded) 320,000
a. 4,622,500 Sales discounts 80,000
b. 4,585,000 Purchase returns (120,000 was refunded) 320,000
c. 4,422,500 Purchase discounts 140,000
d. 4,385,000 Accounts written-off 240,000
Recovery of accounts written off 72,000
3. What is the correct net income in 2006? Cash sales 1200,000
a. 3,285,000 Cash purchases 1000,000
b. 3,665,000 Cash received from account customers 6000,000
c. 3,865,000 Cash payment to trade creditors 4800,000
d. 3,965,000
8. What is the current sales on account
4. What is the correct net income in 2007? a. 4752000 b. 6432,000 c. 7048,000 d. 7248,000
a. 2,500,000
b. 2,665,000 9. What is the total gross sale
c. 2,965,000 a. 8448,000 b. 8248,000 c. 7632,000 d. 5952,000
d. 3,165,000
10. What is the total net sales
5. What is the effect of the errors to the 2007 retained earnings? a. 5552,000 b. 7232,000 c. 7848,000 d. 8048,000
a. 742,500 under
b. 742,500 over 11. What is the correct purchases on account
c. 712,500 under a. 5460,000 b. 5340,000 c. 4260,000 d. 4140,000
d. 712,500 over

6. What is the effect of the errors to the 2007 working capital? De Castro Inc. is a calendar year corporation. Its financial statements for the years 2006 and
a. 432,500 under 2007 contained errors as follows.
b. 432,500 over 2006 2007
c. 712,500 under Ending inventory 1000 underestated 3000 overstated
d. 712,500 over Depreciation expense 800 undestated 2500 overstated

7. What is the effect of 2005 errors to the 2007 net income? 12. Assumed that no correcting entries were made at December 31, 2006. By how much
a. 75,000 over will 2006 income before income taxes be overstated or understated
b. 200,000 over a. 200understated b. 500overstated c. 2700 understated d. 3200
c. 275,000 under understated
d. 275,000 over
13. Assumed that no correcting entries were made at December 31, 2006. Ignoring
Cutting Edge Co. is engaged in a small export business. The company maintains limited income taxes, by how much will retained earnings at December 31, 2007b be overstated
records. Most of the company’s transactions are summarized in a cash journal; non-cash or understated?
transactions are recorded by making memo entries. The following are abstracted from the a. 1300 overstated b. 500overstated c. 2700 understated d. 3200
company’s records: understated

Accounts receivable, increase 1,480,000 14. Assumed that no correcting entries were made at December 31, 2006 or December
Notes receivable, decrease 800,000 31, 2007 and that no additional errors occurred in 2007. Ignoring income taxes, by how
Accounts payable, decrease 600,000 much will working capital at December 31, 2007 be overstated or understated?
 a. 500overstated b. 3000 overstated c. 1000 understated d. 1700 - Land in Makati valued at P1,000,000. Donee is the City of Makati and land
understated will be used for a school site.
The donor’s tax due on May 1 donations is –
15. Henry Company had the following bank reconciliation at March 31: a. P43,400 b. P51,200 c. P52,000 d. None of the
Balance per bank statement, March 31 P 93,000 above
Add deposit in transit 20,600
P 113,600 4. Percentage tax on agent of foreign insurance company subject to a tax rate of 5%:
Less outstanding checks 25,200 a. Premium on life insurance policies issued to foreign nationals;
Balance per books, March 31 P 88,400 b. Premium on non-life insurance policy;
c. Premium paid by a property owner allowed to secure insurance cover directly
Data per bank statement for the month of April follow: from abroad;
Deposits P 116,800 d. Premium on variable contracts of insurance.
Disbursements P 99,400
5. Which of the following statements on taxes is true?
All reconciliation items at March 31 cleared through the bank in April. Outstanding a. Taxes are the revenues raised in the exercise of the police power of the state;
checks at April 30 totaled P15,000. b. Taxes represent the power of government in its sovereign capacity;
What is the amount of cash disbursements per books in April? c. Taxes are raised to cover the cost of governance;
a.P 89,200 b.P 99,400 c.P109,600 d.P114,400 d. No one shall be exempt from the payment of taxes because all are deriving and
enjoying benefits from the state.
BLT
6. Statement 1. In a civil case for the collection of a tax, the decision of the court
1. On October 1, 2008, Pastrana Co. leased a new residential house for the use of its will be only for the payment by the taxpayer of the tax, interest, and surcharges.
general manager. The rent agreed upon was P136,000 per month. The amount of the fringe Statement 2. In a criminal case for the collection of a tax, the decision of the court will
benefit tax monthly is: be only for the imposition of the fine or imprisonment.
a. P68,000 b. P100,000 c. P136,000 d. P32,000 a. The first statement is true while the second statement is false.
b. The first statement is false while the second statement is true.
2. Tee Gok died on October 11, 2008, leaving the following properties: c. Both statements are true;
A parcel of land inherited from his father who died in 2006 valued at P350,000 d. Both statements are false.
at the time but valued in 2008 at
P400,000; 7. Exclusive property does not become community property just because it is used as
Conjugal properties valued at 200,000 Family Home
The following are the deductions claimed against the estate:
Funeral expenses 45,000 The Family home constituted by the husband and wife belongs to both spouses even if
Judicial expenses 20,000 the money used was from compensation income of the wife
Claims against the estate 45,000 a. True, true c. False, true
b. True, false d. False, false
How much is the share of the surviving spouse?
a. P100,000 b. P45,000 c. P52,500 d. P50,000 2. 8. First Bong transfer to Kate P50,000 in trust for May. The transfer is not
case: subject to tax because the transfer is in trust.
3. Julian made the following gifts in 2008 –
 May 1 - Land valued at P500,000. Donee is first son and the gift is on account of Second case: In consideration of his love Mary donated a parcel of land to her
marriage held on April 10, 2008. brother Ernesto and Francisco, the naked title to Ernesto and
- Farm valued at P600,000. Donee is first son, farm has an unpaid mortgage usufruct to Francisco for two year. The transfer of the land, naked
of P100,000 which Donee assumed. title to Ernesto and usufruct to Francisco, being a gift, is subject to
 Dec 1 - Shares of stock of F4 Corporation valued at P400,000. Donee is first son donor’s tax.
and the gift is also on account of his marriage on April 10. a. Answer to both cases are correct
b. Answer to both cases are wrong b. Corporate Interest Doctrine
c. Only answer to first case is correct c. Business Judgment Rule
d. Only answer to second case is correct d. Corporate Opportunity Doctrine.

9. A made a promissory note payable to the order of B. Subsequent indorsements are 14. It is a legal scheme whereby a debtor, who has sufficient assets but who may be
as follows: B to C; C to D; D to E; and E to F, F decided to strike out the indorsement unable to meet his obligations as and when they fall due, may petition for more time
of D and later negotiated the instrument to G, a holder in due course. Which is within which to settle such obligations.
a. Insolvency Proceedings
correct?
b. Suspension of Payments
a. G can go after A, B and C but not D, E and F.
c. Corporate Rehabilitation
b. D, E and F are discharge from their obligations to the instrument.
d. Voluntary Insolvency
c. G can go after A, B, C, D, E and F as it was F who struck-out the indorsement of
D. 15. What is the so-called “Grandfather Rule” under the Corporation Code?
d. G can only go after A, B, C and F. a. It is a rule that determines the nationality of a corporation on
the basis of the place where the foreign corporation is incorporated or
10. Under the Negotiable Instruments Law, to be holder in due course, a person must registered?
have acquired the instrument before it is overdue. Does this apply to the payee to b. It is a rule that determines the nationality of a corporation on
whom the maker issued an overdue note? the basis of the nationality of the majority of the stockholders.
a. Yes, because the payee is still considered a holder under the law. c. It is a rule that determines the nationality of the corporation on
b. No, because issuance to the payee is not considered a holder under the law. the basis of the nationality of its officers and directors.
c. No, because the payee is privy to the contract between himself and the maker. d. All of the above
d. Yes, because the law does not distinguished between payee and subsequent e. None of the above
holder.

11. Which of the following is negotiable instrument?

a. Pay to bearer C P1M. Reimburse yourself out of the house rentals of my house
in Manila. (Sgd) A To: B.
b. Pay to C or his order P1M out of the rentals of my house in Manila. (Sgd) A To: B
or in his absence X.
c. Pay to C P1M (Sgd) A To: B.
d. Pay to the order of C and reimburse yourself out of the rentals of my house in
Manila. (Sgd) A To: B and X.

12. Which of the following is a restrictive endorsement, pay to J?

a. In trust for E. Sgd. M.
b. If he passes the CPA examination. Sgd. E.
c. At his own risks. Sgd. E.
d. Notice of dishonor waived. Sgd. E.

13. This doctrine is a recognition by the courts that the fiduciary standards could not be
upheld where the fiduciary is acting for two entities with competing interests. It rests
on fundamentally on the unfairness of a corporate officer or director taking advantage
of a prospect for his own personal benefit when the interest of the corporation justly
needs protection.
a. Corporate Entity Doctrine