Since 1977

PRACTICAL ACOUNTING 1

L. R. CABARLES

PROBLEMS
INVENTORIES
1. The physical inventory of Pangasinan Company on
December 31, 2012, showed merchandise with a cost
of P4,000,000 was on hand at that date. You also
discovered the following items were all excluded from
the count:
a.
Merchandise costing P160,000, which was
held by Pangasinan on consignment.
The
consignor is a subsidiary.
b.
A special machine, fabricated to order for a
customer costing P400,000, was finished and
specifically segregated in the back part of the
shipping room on December 31, 2012.
The
customer was billed on that date and the machine
excluded from inventory although it was shipped
on January 4, 2013.
c.
Merchandise costing P80,000, which was
shipped by Pangasinan f.o.b. destination to a
customer on December 31, 2012. The customer
expects to receive the merchandise on January 3,
2013.
d.
Merchandise costing P120,000 which was
shipped by Pangasinan f.o.b. shipping point to a
customer on December 29, 2012.
e.
Merchandise costing P50,000 shipped by a
vendor f.o.b. seller on December 28, 2012 and
received by Pangasinan on January 10, 2013.
The corrected balance of Pangasinans inventory should
be
a. P4,530,000
c. P4,480,000
b. P4,130,000
d. P4,690,000
2. On December 15, 2012, Boston purchased goods
costing P100,000. The terms were FOB shipping point.
Costs incurred by Boston in connection with the
purchase and delivery of the goods were as follows:
Normal freight charges
Handling costs
Insurance on shipment
Abnormal freight charges for express
shipping

P3,000
2,000
500
1,200

What is the total amount to be charged to inventory?

a. P106,700
c. P105,000
b. P105,500
d. P103,000
Use the following information for the next two questions.
Transactions for the month of June were:
Purchases
June 1
400 @ P3.20
(balance)
3 1,100 @ 3.10
7
600 @ 3.30
15
900 @ 3.40
22
250 @ 3.50

June

2
6
9
10
18
25

Sales
300 @ P5.50
800
500
200
700
150

@
@
@
@
@

5.50
5.50
6.00
6.00
6.00

3. Assuming that perpetual inventory records are kept in

pesos, the ending inventory on a FIFO basis is
a. P1,900
c. P2,065
b. P1,920
d. P2,100

Page 1 of 16

4. Assuming that perpetual inventory records are kept in

units only, the ending inventory on an average-cost
basis is
a. P1,980
c. P1,970
b. P1,956
d. P1,995
5. Alcala Company installs replacement siding, windows,
and louvered glass doors for family homes.
At
December 31, 2012, the balance of inventory account
was P502,000, and the allowance for inventory
writedown was P33,000. The inventory cost and other
data at December 31, 2012, are as follows: (amounts
in thousands)

Item
A
B
C
D
Total

Cost
P 89
94
125
194
P502

Replace
ment
Cost
P 86
92
135
114
P427

Sales
Price
P 91
93
129
205
P518

Normal
Profit
P 5
7
10
20
P32

NRV
P 87
85
111
197
P480

The gain on reversal of inventory writedown is

a. P33,000
c. P8,000
b. P11,000
d. P
0
6. On November 15, 2011, Socrates entered in to a
commitment to purchase 200,000 units of raw material
X for P8,000,000 on March 15, 2012.
Socrates
entered into this purchase commitment to protect itself
against the volatility in the price of raw material X. By
December 31, 2011, the purchase price of material X
had fallen to P35 per unit. However, by March 15,
2012, when Socrates took delivery of the 200,000
units, the price of the material had risen to P42 per
unit.
How much will be recognized as gain on
purchase commitment on March 15, 2012?
a. P1,400,000
c. P400,000
b. P1,000,000
d. P
0
7. A physical inventory taken on December 31, 2012
resulted in an ending inventory of P1,440,000. Banak
Company suspects some inventory may have been
taken by employees. To estimate the cost of missing
inventory, the following were gathered:
Inventory, Dec. 31, 2011
Purchases during 2012
Cash sales during 2012
Shipment received on December 26,
2012, included in physical inventory,
but not recorded as purchases
Deposits made with suppliers, entered
as purchases. Goods were not
received in 2012
Collections on accounts receivable,
2012
Accounts receivable, January 1, 2012
Accounts receivable, Dec. 31, 2012
Gross profit percentage on sales

P1,280,000
5,640,000
1,400,000
40,000
80,000
7,200,000
1,000,000
1,200,000
40%

At December 31, 2012 what is the estimated cost of

missing inventory?
a. P200,000
c. P240,000
b. P160,000
d. P320,000

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Use the following information for the next two questions.
Pugo uses the retail inventory method. The following
information is available for the current year:
Beginning inventory
Purchases
Freight in
Purchase returns
Purchase allowances
Departmental transfer in
Net markups
Net markdowns
Sales
Sales returns
Sales discounts
Employee discounts
Loss from breakage

Cost
P 1,300,000
18,000,000
400,000
600,000
300,000
400,000

Retail
P 2,600,000
29,200,000
1,000,000
600,000
600,000
2,000,000
24,700,000
350,000
200,000
600,000
50,000

8. The estimated cost of inventory at the end of the

current year using the conventional (lower of cost or
market) retail inventory method is
a. P3,200,000
c. P3,250,000
b. P3,000,000
d. P3,360,000
9. The estimated cost of inventory at the end of the
current year using the average retail inventory method
is
a. P3,200,000
c. P3,250,000
b. P3,000,000
d. P3,584,000
10. The estimated cost of inventory at the end of the
current year using the FIFO retail inventory method is
a. P3,200,000
c. P3,250,000
b. P3,000,000
d. P3,658,480
AGRICULTURE
A herd of 10 2 year old animals was held at 1 January
2012. One animal aged 2.5 years was purchased on 1 July
2012 for 108, and one animal was born on 1 July 2012.
No animals were sold or disposed of during the period.
Per-unit fair values less costs to sell were as follows:
2 - year old animal on January 1, 2012
Newborn animal at July 1, 2012
2.5 - year old animal on July 1, 2012
New born animal on December 31, 2012
0.5 - year old animal on December 31, 2012
2 - year old animal on December 31, 2012
2.5 - year old animal on December 31, 2012
3 - year old animal on December 31, 2012
11. The carrying amount
December 31, 2012 is
a. P1,292
b. P1,400

of

biological

100
70
108
72
80
105
111
120

assets

as

of

c. P1,338
d. P1,320

12. The increase in fair value of biological assets in 2012

due to price change is
a. P 55
c. P 53
b. P222
d. P212
13. The increase in fair value of biological assets in 2012
due to physical change is
a. P 70
c. P237
b. P229
d. P167
PROPERTY, PLANT AND EQUIPMENT ACQUISITION
14. During the current year, Benguet Company purchased
a secondhand machine at a price of P300,000. A cash
down payment of P50,000 was made and a two-year,
noninterest bearing note was issued for the balance.
Recent transactions involving similar machinery

Page 2 of 16

indicate that the used machine has a cash price of

P240,000. A new machine would cost P400,000.
The following costs were incurred on the machine
during the year:
Cost of removing the old machine
Cash proceeds from the sale of the old
machine
General overhaul and repair to recondition
the machine prior to use
Cost of spare parts purchased and set
aside for breakdowns during the first
two years of normal use of the machine
Cost of labor to install the machine
Cost of the testing the machine prior to
use
Cost of hauling the machine from the
vendor's place of business
to the
company's premises
Cost of repairing the damage to the
machine when it was dropped during
installation
Repairs incurred during the first year of
operations
Safety devices added to the machine to
comply with the terms of the collective
bargaining agreement entered into with
the employees' union
Cost of training workers to operate the
machine

P2,000
1,200
10,000
20,000
4,000
1,800
5,000
3,000
6,000

12,000
1,500

Determine the amount to be capitalized as cost of the

machine.
a. P262,800
c. P272,800
b. P280,800
d. P292,800
15. During 2012, Cavite Company made the following
property, plant and equipment expenditures:
Land and building acquired from
Bacoor Company
Repairs made to the building
Special tax assessment
Remodeling of office space including
new partitions and walls

P9,000,000
300,000
50,000
400,000

In exchange for the land and building acquired from

Bacoor, Cavite issued 60,000, P100 par value, ordinary
shares. On the date of purchase, the shares had a
market value of P150 per share and the land and
building had fair value of P2,000,000 and P6,000,000
respectively.
During the year, Cavite also received land from a
shareholder to facilitate the construction of a plant in
the city. Cavite paid P100,000 for the land transfer and
charged this amount to legal expenses. The land is
fairly valued at P1,500,000.
The cost of the land and building acquired should
respectively be
a. P3,800,000, and P7,450,000
b. P3,550,000, and P6,700,000
c. P3,500,000, and P6,400,000
d. P3,500,000, and P6,750,000
GOVERNMENT GRANT
16. Lively Inc. received a consolidated grant of P120
million. Three-fourths of the grant is to be utilized to
purchase a college building for students from
underdeveloped or developing countries. The balance
of the grant is for subsidizing the tuition costs of those
students for four years from the date of grant.
The college building, which costs P100 million, will be
depreciated using the straight-line method over 10

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PROFESSIONAL REVIEW and TRAINING CENTER, INC.

years.
Assuming that the tuition subsidy will be
offered evenly over the period of 4 years, the amount
that should be recognized as income at the end of year
1 is
a. P12.0 million
c. P16.5 million
b. P10.0 million
d. P17.5 million
BORROWING COSTS
Use the following information for the next two questions.
Lodi Department Stores, Inc., constructs its own stores.
Managements policy is to include interest as part of the
cost of new store just being completed.
Additional
information follows:
Total construction expenditures:
January 2, 2011
May 1, 2011
November 1, 2011
March 1, 2012
September 1, 2012
December 31, 2012

600,000
600,000
500,000
700,000
400,000
500,000
P3,300,000

P1,000,000

500,000

P1,000,000
14%

17. The capitalizable borrowing cost for 2011 is

a. P122,850
c. P120,000
b. P125,667
d. P250,000
18. The capitalizable borrowing cost for 2012 is
a. P253,938
c. P120,000
b. P274,233
d. P250,000
DEPRECIATION
19. Bugis Corp. acquired a machine on January 1, 2004.
Details of the machine at December 31, 2011 are
given below:

Outer casings
Other
components

Cost
P170,000,000
510,000,000
255,000,000
P765,000,000

Depreciation
basis
Useful life of
40,000 hours
25 years
straight line
12 years
straight line

During the year 2012, the following events took place:

a) Engine, which had run for 30,000 hours till date
developed serious snags. It was replaced by a
better engine with a cost of P238 million and
estimated life of 50,000 hours. The new engine
was used for 5,000 hours during the year.
b) Polishing and painting was done to the outer
casings at a cost of P1.3 million.
c) Other components were upgraded at a cost of
P102 million.
The remaining life of the other
components is 5 years.
Compute the total depreciation for the year 2012,
assume that all the work mentioned above was
completed at the beginning of 2012.
a. P85,850,000
c. P90,950,000
b. P81,676,470
d. P81,600,000

Page 3 of 16

In 2010, Lepanto spent P1,000,000 in development

costs and P3,000,000 in buildings on the property.
Lepanto does not anticipate that the buildings will have
utility after the natural resources are removed. In
2011, an amount of P1,000,000 was spent for
additional development on the mine. The tonnage
mined and estimated remaining tons for years 2010 to
2012 are as follows:

Outstanding company debt:

Mortgage related directly to new store;
interest rate, 12%; term, 5 years
from beginning of construction
General liability:
Bonds issued just prior to construction
of store; interest rate, 10% for 10
years
Bonds issued just prior to construction;
interest rate, 8%, mature in 5 years
Estimated cost of equity capital

Component
Engine

WASTING ASSETS
20. In 2010, Lepanto Mining Company purchased property
with natural resources for P28,000,000. The property
had a residual value of P5,000,000. However, the
company is required to restore the property to its
original condition for P2,000,000.

2010
2011
2012

Tons extracted
0
3,000,000
3,500,000

Tons remaining
10,000,000
7,000,000
2,000,000

The company should recognize depletion for 2012 at

a. P10,150,000
c. P14,245,000
b. P12,040,000
d. P 9,450,000
21. ABC Company provides the following balances at the
end of 2012:
Wasting asset, at cost
Accumulated depletion
Retained earnings
Capital liquidated
Depletion based on 100,000 units
extracted at P50 per unit
Inventory of resource deposit
(20,000 units)

P80,000,000
20,000,000
10,000,000
15,000,000
5,000,000
2,000,000

Compute for the maximum amount of dividend that

ABC can declare on December 31, 2012.
a. P20,000,000
c. P15,000,000
b. P14,000,000
d. P13,000,000
REVALUATION MODEL
Use the following information for the next three questions.
On December 31, 2011, the statement of financial position
of Twitter Corporation showed the following property and
equipment after charging depreciation:
Building
Accumulated depreciation
Equipment
Accumulated depreciation

P3,000,000
(1,000,000)
1,200,000
(400,000)

P2,000,000
800,000

The company has adopted the revaluation model for the

valuation of property and equipment. This has resulted in
the recognition in prior periods of an asset revaluation
surplus for the building of P140,000. The company does
not make a transfer to retained earnings in respect of
realized revaluation surplus.
On December 31, 2011, an independent valuer assessed
the fair value of the building to be P1,600,000 and the
equipment to be P900,000. The building and equipment
had remaining useful lives of 25 years and 4 years,
respectively, as of that date.
22. The net amount to be recognized in comprehensive
income for 2011 related to the revaluation of property
and equipment is
a. P160,000
c. P260,000
b. P240,000
d. P300,000

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PROFESSIONAL REVIEW and TRAINING CENTER, INC.

23. The carrying amount of property and equipment as of
December 31, 2012 is
a. P2,500,000
c. P2,080,000
b. P2,400,000
d. P2,211,000
24. The revaluation surplus as of December 31, 2012 is
a. P140,000
c. P75,000
b. P100,000
d. P
0
INVESTMENT PROPERTY
25. Quirino, Inc. and its subsidiaries have provided you,
their PFRS specialist, with a list of the properties they
own:

Land held by Quirino, Inc. for undetermined future

use, P5,000,000.

A vacant building owned by Quirino, Inc. and to be

leased out under an operating lease, P20,000,000.

Property held by a subsidiary of Quirino, Inc., a

real estate firm, in the ordinary course of its
business, P30,000,000.

Property held by Quirino, Inc. for use in

production, P1,000,000.

A hotel owned by Sugo, Inc., a subsidiary of

Quirino, Inc., and for which Sugo, Inc. provides
security services for its guests belongings,
P50,000,000.

A building owned by Quirino, Inc. being leased out

to Status, Inc, a subsidiary of Quirino, Inc.,
P20,000,000.
How much will be reported as investment properties in
Quirino, Inc. and its subsidiaries consolidated financial
statements?
a. P75,000,000
c. P95,000,000
b. P25,000,000
d. P45,000,000
INTANGIBLE ASSETS
26. Gooden Enterprises Inc. developed a new machine for
manufacturing baseballs.
Because the machine is
considered very valuable, the company had it
patented. The following expenditures were incurred in
developing and patenting the machine.
Purchases of special equipment to be
used solely for development of the
new machine
Research salaries and fringe benefits
for engineers and scientists
Cost of testing prototype
Legal costs for filing for patent
Fees paid to government patent office
Drawings required by patent office to
be filed with patent application

P1,820,000
171,000
236,000
127,000
25,000
47,000

Gooden elected to amortize the patent over its legal

life. At the beginning of the second year, Gooden
Enterprises paid P240,000 to successfully defend the
patent in an infringement suit. At the beginning of the
fourth year Gooden determined that the remaining
estimated useful life of the patent was five years.
The carrying amount of the patent at the end of fourth
year is
a. P135,320
c. P1,649,680
b. P131,100
d. P
39,800
27. Betterword Company is engaged in developing
computer software. The following costs were incurred
during 2012:
Salaries of programmers doing research
Expenses related to projects prior to
establishment of technological
feasibility
Expenses related to projects after

Page 4 of 16

P235,000
78,400
49,500

technological feasibility has been

established but before software is
available for production
Amortization of capitalized software
development costs
Costs to produce and prepare software
for sale
Additional data for 2012:
Sales of products for the year
Beginning inventory
Portion of goods available for sale sold
during the year

26,750
56,300
P515,000
142,000
60%

Determine the companys profit for 2012. Income tax

rate is 35%.
a. P43,270
c. P36,315
b. P72,527
d. P49,927
28. Liliw Company engaged your services to compute the
goodwill in the purchase of Calauan Company which
provided the following:
Net income
Net assets
2009
P1,400,000
P 6,000,000
2010
1,600,000
8,000,000
2011
2,000,000
8,800,000
2012
2,200,000
9,200,000
Total
P7,200,000
P32,000,000
It is agreed that goodwill is measured by capitalizing
excess earnings at 25% with normal return on average
net assets at 15%. How much is the purchase price
for Calauan Company?
a. P11,600,000
c. P10,400,000
b. P11,200,000
d. P11,000,000
IMPAIRMENT OF NONFINANCIAL ASSETS
29. Twig Company reported an impairment loss of
P4,000,000 in its income statement for the year 2011.
This loss was related to an equipment which was
acquired on January 1, 2010 with cost of P25,000,000,
useful life of 10 years and no residual value. On
December 31, 2011 statement of financial position,
Twig reported this asset at P16,000,000 which is the
recoverable amount on such date. On December 31,
2012, Twig determined that the recoverable amount of
its impaired asset had increased to P19,000,000. The
straight line method is used in recording depreciation
of this asset.
Compute the amount of gain on impairment recovery
to be recognized in 2012 profit or loss.
a. P5,000,000
c. P3,500,000
b. P4,000,000
d. P
0
Use the following information for the next two questions:
One of the cash-generating units of Tweak Corporation is
that associated with the manufacture of wine barrels. At
31 December 2011, Tweak Corporation believed, based on
an analysis of economic indicators, that the assets of the
unit were impaired. The carrying amounts the assets of
the unit at 31 December 2011 were:
Buildings, net
(Depreciated at P60,000 per annum)
Machinery, net
(Depreciated at P45,000 per annum)
Goodwill
Inventory
Receivables, net
(Allow. for doubtful debts of P5,000)
Cash
Total

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P240,000
180,000
15,000
80,000
35,000
20,000
P570,000

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PROFESSIONAL REVIEW and TRAINING CENTER, INC.

Tweak Corporation determined the value in use of the unit
to be P535,000. The receivables were considered to be
collectible, except those considered doubtful.
During 2012, Tweak Corporation increased the depreciation
charge on buildings to P65,000 per annum, and to P50,000
per annum for factory machinery. The inventory on hand
at 31 December 2012 was sold by the end of 2012. At 31
December 2012, Tweak Corporation, due to a return in the
market to the use of traditional barrels for wines and an
increase in wine production, assessed the recoverable
amount of the cash-generating unit to be P20,000 greater
than the carrying amount of the unit.
30. How much is the carrying amount of buildings at 31
December 2011 after allocating impairment loss?
a. P230,400
c. P231,028
b. P224,300
d. P228,571
31. How much is the carrying amount of factory machinery
at 31 December 2012 after the reversal of impairment
loss?
a. P135,000
c. P131,322
b. P131,793
d. P123,271
CASH AND CASH EQUIVALENTS
32. The following data pertain to Lincoln Corporation on
December 31, 2012:
Current account at Metrobank
P1,800,000
Current account at Allied Bank
(100,000)
Payroll account
500,000
Foreign bank account (in equivalent
pesos)
800,000
Savings deposit in a closed bank
150,000
Postage stamps
1,000
Employees post dated check
4,000
IOU from employees
10,000
Credit memo from a vendor for a
purchase return
20,000
Travelers check
50,000
Money order
30,000
Petty cash fund (P4,000 in currency and
expense receipts for P6,000)
10,000
Pension fund
2,000,000
DAIF check of customer
15,000
Customers check dated 1/1/13
80,000
Time deposit 30 days
200,000
Money market placement (due 6/30/13)
500,000
Treasury bills, due 3/31/13 (purchased
12/31/12)
200,000
Treasury bills, due 1/31/13 (purchased
2/1/12)
300,000
The cash and cash equivalents as of December 31,
2012 is
a. P2,784,000
c. P3,784,000
b. P3,084,000
d. P3,584,000
BANK RECONCILIATION
33. The cash in bank account of S-mart, Inc. for April
showed an ending balance of P129,298. Deposits in
transit on April 30 was P18,200. Outstanding checks
as of April 30, were P59,435, including a P5,000 check
which the bank had certified on April 27. During the
month of April, the bank charged back NSF checks in
the amount of P3,435 of which P1,835 had been
redeposited by April 20. On April 23, the bank charged
S-Marts account for a P2,200 items which should have
been charged against K-mart, Inc., the error was not
detected by the bank. During April, the proceeds from
notes collected by the bank for S-Mart, Inc. was
P7,548 and bank charges for this services was P18.

Page 5 of 16

How much is the unadjusted balance per bank on April

30?
a. P95,263
c. P173,663
b. P88,333
d. P169,263
Use the following information for the next two questions.
Banaue Company deposits all receipts and makes all
payments by check. The following information is available
from the cash records:
May 31 Bank Reconciliation
Balance per bank

P262,460

Add: Deposits in transit

21,000

Deduct: Outstanding checks

( 38,000)

Balance per books

P245,460

Month of June Results

Per Bank
Per Books
Balance June 30
P279,950
P303,550
June deposits
107,840
158,890
June checks
111,000
100,800
June note collected (not
included in June deposits)
30,000
-0June bank service charge
350
-0June NSF check of a customer
returned by the bank
(recorded by bank as a
charge)
9,000
-034. The deposits in transit as of June 30 is
a. P72,050
c. P51,050
b. P70,250
d. P42,050
35. The outstanding checks as of June 30 is
a. P27,800
c. P37,150
b. P28,700
d. P31,750
TRADE AND OTHER RECEIVABLES
36. On December 31, 2012 the accounts receivable control
account of Ipil-ipil Co. had a balance of P181,000. An
analysis of the accounts receivable account showed the
following:
Accounts known to be worthless
Advance payments to creditors on
purchase orders
Advances to affiliated companies
Customers accounts reporting credit
balance arising from sales return
Interest receivable on bonds
Other trade accounts receivable
unassigned
Subscriptions receivable for ordinary
share capital due in 30 days
Trade accounts receivable assigned
Trade installment receivable due 1 18
months, (including unearned
finance charges, P2,000)
Trade receivables from officers, due
currently
Trade accounts on which post-dated
checks are held (no entries were
made on receipts of checks)
Total

2,500
10,000
25,000

(15,000)
10,000
50,000
55,000
15,000
22,000
1,500
5,000
P181,000

The correct balance of trade accounts receivable of

Ipil-ipil on December 31, 2012 is
a. P 86,500
c. P 91,500
b. P103,500
d. P206,000
37. John Corp. has the following data relating to accounts
receivable for the year ended December 31, 2012:
Accounts receivable, January 1, 2012
Allowance for doubtful accounts,
January 1, 2012

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Sales during the year, all on account,
terms 2/10, 1/15, n/60
Cash received from customers during
the year
Accounts written off during the year

2,400,000
2,560,000
17,600

An analysis of cash received from customers during the

year revealed that P1,411,200 was received from
customers availing the 10-day discount period,
P792,000 from customers availing the 15-day discount
period, P4,800 represented recovery of accounts
written-off, and the balance was received from
customers paying beyond the discount period.
The allowance for doubtful accounts is adjusted so that
it represents certain percentage of the outstanding
accounts receivable at year end.
The required
percentage at December 31, 2012 is 125% of the rate
used on December 31, 2011.
The doubtful accounts expense for the year ended
December 31, 2012 is
a. P6,880
c. P8,720
b. P7,120
d. P8,960
LOANS AND RECEIVABLES LONG-TERM
Use the following information for the next two questions.
Money Bank granted a loan to a borrower on January 1,
2012. The interest rate on the loan is 10% payable
annually starting December 31, 2012. The loan matures in
five years on December 31, 2016. The data related to the
loan are:
Principal amount
Direct loan origination cost
Indirect loan origination cost
Origination fee received from borrower

P4,000,000
61,520
26,400
350,000

38. The effective interest rate of the loan is

a. P10%
c. P12%
b. P11%
d. P13%
39. The carrying amount
December 31, 2012 is
a. P4,000,000
b. P3,807,730

of

the

loan

receivable

on

c. P3,756,902
d. P3,711,520

RECEIVABLE FINANCING
Use the following information for the next two questions.
Seller Corp. factored P400,000 of accounts receivable with
Buyer, Inc., on a without-recourse basis. The factor charge
was 1.75% of the amount of receivables, and an additional
4% was retained to cover probable adjustments.
In
addition to the factor charge, a finance charge was
withheld equal to 12% annually for any amounts advanced
prior to the due dates of the receivables. This charge was
based on 100% of the face value. The average credit term
was 30 days from the date of transfer. According to the
terms of the factoring agreement, Seller was to handle
returned goods, allowances, and shipping disputes. Buyer
was to collect the cash and acknowledge sales discounts,
but such discounts were to be charged to Seller. Credit
losses were to be absorbed by Buyer. Seller has not
recorded any bad debt expense related to the factored
receivables.
The following transactions pertain to this
factoring arrangement:
Aug.

1
31

Sept. 20

The receivable records were transferred to

Buyer.
Buyer collected P234,000 during August
after allowing for P9,000 of sales discounts.
Sales returns and allowances during August
totaled P2,400.
Buyer wrote off a P2,000 account after

Page 6 of 16

30
Oct. 10

learning of the company's bankruptcy.

Buyer collected P151,720 during September.
Sales returns and allowances during
September totaled P880.
Seller and Buyer made a final cash
settlement.

40. What net cash proceeds did Seller ultimately realize

from the factoring?
a. P389,000
c. P380,000
b. P385,720
d. P376,720
41. What was the factor's net income from the factoring?
a. P11,000
c. P9,000
b. P 3,280
d. P2,000
42. The Hinoba-an Department Store wishes to discount
two notes receivable arising from the sale of
merchandise in order to meet some maturing
obligations.
Both notes have a face amount of
P50,000 each and are due in one year. Note A is a
non-interest bearing note while Note B is to be paid
with an interest of 12%. The bank rate in discounting
notes is 12%.
Assuming that the notes were
discounted ten months prior to maturity, the proceeds
from both notes discounted is
a. P94,280
c. P 95,400
b. P93,280
d. P103,880
INVESTMENT IN DEBT SECURITIES
Use the following information for the next two questions.
On April 1, 2012, Purefoods Company purchased as a
short-term investment a P1,000,000 face value 8% bond
for P905,000 including accrued interest. The bonds were
designated as held for trading. The commission to acquire
the bonds was P5,000. The bonds are dated January 1,
2012 and mature on January 1, 2017, and pay interest
semi-annually on January 1 and July 1. On December 31,
2012, the bonds had a market value of P920,000. On April
1, 2013, Purefoods sold the bonds for a total consideration
of P950,000.
43. What amount should Purefoods report as unrealized
gain in its 2012 income statement?
a. P35,000
c. P30,000
b. P15,000
d. P
0
44. How much is the gain from the sale of short-term
investment in debt securities on April 1, 2013?
a. P30,000
c. P10,000
b. P45,000
d. P65,000
Use the following information for the next two questions.
On January 1, 2011, YOU TOO Corporation purchased
P1,000,000 10% bonds designated as held-to-maturity.
The bonds were purchased to yield 12%. Interest is
payable annually every December 31. The bonds mature
on December 31, 2015. On December 31, 2011 the bonds
were selling at 99. On December 31, 2012, YOU TOO sold
P500,000 face value bonds at 101. The bonds were selling
at 103 on December 31, 2013.
45. How much is the realized gain on sale of the
investment in bonds in 2012?
a. P41,060
c. P35,387
b. P29,010
d. P10,000
46. How much should be reported as component of equity
on December 31, 2013?
a. P39,010
c. P31,895
b. P29,010
d. P
0

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INVESTMENT IN EQUITY SECURITIES

During 2011, the first year of its operations, Osprey
Industries purchased the following securities:
Fair value
Sec.
Class.
Cost
12/31/11
12/31/12
A
FVTPL
P220,000
P140,000
P 90,000
B
FVTPL
70,000
100,000
110,000
C
FVTOCI
160,000
150,000
160,000
D
FVTOCI
200,000
250,000
120,000
During 2012, Osprey sold one-half of security A for
P100,000 and one-half of security D for P130,000.
47. The total amount to be recognized
loss related to Ospreys financial
through profit or loss is
a. P60,000
b. P40,000

in the 2012 profit or

assets at fair value
c. P 10,000
d. P100,000

48. The total amount to be recognized in the 2012 profit or

loss related to Ospreys financial assets at fair value
through other comprehensive income is
a. P30,000
c. P70,000
b. P 5,000
d. P
0
49. Lasam
Company
received
dividends
from
its
investments in ordinary shares during the year 2012
as follows:

A share dividend of 20,000 shares from A

Company when the market price of As shares was
P30 per share.

A cash dividend of P2,000,000 from B Company in

which Lasam owns a 20% interest.

A cash dividend of P1,500,000 from C Company in

which Lasam owns a 10% interest.

10,000 ordinary shares of D Company in lieu of

cash dividend of P20 per share. The market price
of D Companys shares was P180. Lasam holds
originally 100,000 ordinary shares of D Company.
Lasam owns 5% interest in D Company.

A liquidating dividend of P2,000,000 from E

Company.
Lasam owns a 5% interest in E
Company.

A dividend in kind of one ordinary share of X

Company for every 5 ordinary shares of F
Company held. Lasam holds 200,000 F Company
shares which have a market price of P50 per share.
The market price of X Companys ordinary share is
P30 per share.
What amount of dividend income should Lasam report
in its 2012 income statement?
a. P4,500,000
c. P6,300,000
b. P5,700,000
d. P5,900,000
50. On January 2, 2012, Theodora Company purchased
40,000 shares of Byzantine, Inc. stock at P100 per
share. Brokerage fees amounted to P120,000. A P5
dividend per share of Byzantine, Inc. shares had been
declared on December 15, 2010, to be paid on March
31, 2012 to shareholders of record on January 31,
2012. The shares are designated as available-for-sale.
On December 31, 2012 the investment has a fair value
of P3,820,000. How much should be recognized in the
2012 other comprehensive income related to these
securities?
a. P100,000
c. P300,000
b. P180,000
d. P
0
INVESTMENT IN ASSOCIATES

Page 7 of 16

51. On January 2, 2011, Maco, Inc. acquired a 15%

interest in Nacon Corp. by paying P2,000,000 for
10,000 ordinary shares. On this date, the net assets
of Nacon Corp. totaled P12,000,000. The fair values of
Nacon Corp.s identifiable assets and liabilities were
equal to their book values. The investment in Nacon
Corp. is not intended for trading.
On January 1, 2012, Maco paid P4,500,000 for 30,000
additional ordinary shares of Nacon, which represents
a 25% interest in Nacon. The fair value of Nacons
identifiable net assets, was equal to their book values
of P13,000,000.
During 2011, and 2012 the following occurred:

2011
2012

Nacons Profit
P2,000,000
5,000,000

Dividends Declared
by Nacon
P1,000,000
1,500,000

The fair value of Maco's investment in Nacon securities

is as follows: December 31, 2011, P2,700,000;
December 31, 2012, P8,700,000.
The balance of the investment in Nacon account at
December 31, 2012 is
a. P8,700,000
c. P8,050,000
b. P8,600,000
d. P7,525,000
DERIVATIVES AND HEDGE ACCOUNTING
52. On January 1, 2011, Doodles Company borrowed
P5,000,000 from a bank at a variable rate of interest
for 4 years. Interest will be paid annually to the bank
on December 31 and the principal is due on December
31, 2014. Under the agreement, the market rate of
interest on each January 1 resets the variable rate for
that period and the amount of interest to be paid on
December 31.
To protect itself from fluctuations in interest rates, the
entity hedges the variable interest by entering into a
four-year "receive variable, pay fixed" interest rate
swap with a speculator. The interest rate swap is
based on the notional amount of P5,000,000 and an
8% fixed interest rate. The entity has designated this
interest rates swap as a cash flow hedge of the
variability of interest payments on the variable rate
loan. Assume that market interest rates are 8% on
January 1, 2011, 10% on January 1, 2012, and 11%
on January 1, 2013. (Round off present value factors
to four decimal places)
The amount to be recognized as derivative asset on
December 31, 2012 is
a. P122,185
c. P256,875
b. P366,555
d. P 85,625
Use the following information for the next two questions.
On December 12, 2012, Slow Corp. entered into two
forward exchange contracts, each to purchase 100,000
euros in ninety days. The relevant exchange rates are as
follows:
Forward Rates for
Date
Spot Rates
March 12, 2013
11/30/12
P87
P89
12/12/12
88
90
12/31/12
92
93
53. Slow entered into a second forward contract to hedge
a commitment to purchase equipment being
manufactured to Slows specifications. The expected
delivery date is March 2013 at which time settlement is
due to the manufacturer. The hedge qualifies as a fair

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PROFESSIONAL REVIEW and TRAINING CENTER, INC.

value hedge. At December 31, 2012, what amount of
foreign currency transaction gain from this forward
contract should Slow include in net income?
a. P1,000,000
c. P300,000
b. P 500,000
d. P
0
54. Slow entered into a third forward contract for
speculation. At December 31, 2012, what amount of
foreign currency transaction gain from this forward
contract should Slow include in net income?
a. P1,000,000
c. P300,000
b. P 500,000
d. P
0
55. On January 2, 2012, Jones Company purchases a call
option for P300 on Merchant ordinary shares. The call
option gives Jones the option to buy 1,000 shares of
Merchant at a strike price of P50 per share. The
market price of a Merchant share is P50 on January 2,
2012 (the intrinsic value is therefore P0). On March
31, 2012, the market price for Merchant share is P53
per share, and the time value of the option is P200.
What was the effect on profit of entering into the
derivative transaction for the period January 2 to
March 31, 2012?
a. P3,000
c. P2,700
b. P2,900
d. P
0
ACCOUNTING FOR OTHER INVESTMENTS
56. Following are selected transactions in chronological
order of Bayombong Company and its trustee in
connection with a sinking fund.
a.
b.
c.
d.
e.
f.
g.

Cash contribution to the sinking fund, P1,000,000.

Acquisition of securities at par by the trustee,
P700,000.
The trustee receives interest on the securities,
P60,000.
The trustee pays expenses of P30,000.
The trustee sells the securities for P800,000 plus
accrued interest of P10,000.
The trustee pays bonds payable of P1,000,000 and
interest of P100,000.
The trustee remits the remaining cash to
Bayombong Company.

How much was remitted by the trustee to Bayombong

Company?
a. P150,000
c. P50,000
b. P140,000
d. P40,000
57. On January 1, 2007, Ball, Inc. purchased a P1,000,000
ordinary life insurance policy on its president. The
policy year and Balls accounting year coincide.
Additional data are available for the year ended
December 31, 2012:
Annual premium paid on 1/1/2012
Dividend received 7/1/2012
Cash surrender value, 1/1/2012
Cash surrender value, 12/31/2012

P20,000
3,000
43,500
54,000

Ball, Inc., is the beneficiary under the life insurance

policy. How much should Ball report as life insurance
expense for 2012?
a. P6,500
c. P17,000
b. P9,500
d. P20,000
IMPAIRMENT OF FINANCIAL ASSETS
Use the following information for the next two questions.
On December 31, 2009, Entity X acquired Ms. Leading
Corporations P1,000,000 bonds for P927,880. The market
interest rate at that time was 12%. The stated interest
rate was 10%, payable annually. The bonds mature in five
years and classified as held-to-maturity. Unfortunately,

Page 8 of 16

because of lower sales, Ms. Leadings financial condition

worsened. On December 31, 2011, Entity X determined
that it was probable that the issuer would pay back only
P600,000 of the principal at maturity.
In 2012, Ms. Leadings officers consulted a feng shui
expert to seek pieces of advice to improve the companys
financial condition.
Fortunately, the companys sales
started to pick up and the credit rating of Ms. Leading
improved. At December 31, 2012, Entity X reassessed the
collectibility of the bonds and now expects to collect
P1,300,000 from Ms. Leading at maturity date.
58. How much should be recognized as impairment loss in
2011?
a. P572,920
c. P332,740
b. P524,900
d. P284,720
59. How much should be recognized as reversal
impairment loss in 2012?
a. P558,030
c. P524,900
b. P539,130
d. P487,880

of

TRADE AND OTHER PAYABLES

60. Case
Corporation
had
accounts
payable
of
P5,000,000 recorded in the general ledger as of
December 31, 2012 before consideration of the
following unrecorded transactions:
Invoice
Date
date
Amount shipped
1-3-13 P400,000 12-22-12
1-2-13

650,000 12-28-12

12-26-12 600,000
1-10-13

1-2-13

450,000 12-31-12

Date
received
12-24-12
1-2-13
1-3-13
1-5-13

FOB terms
Destination
Shipping
point
Shipping
point
Destination

In the December 31, 2012 statement of financial

position, the accounts payable should be reported in
the amount of
a. P5,000,000
c. P6,050,000
b. P5,400,000
d. P7,100,000
61. Pythagoras Co. must determine the December 31,
2012 year-end accruals for advertising and rent
expenses.
A P2,000 advertising bill was received
January 7, 2013. It related to costs of P1,500 for
advertisements in December 2012 issues and P500 for
advertisements in January 2, 2013 issues of the
newspaper. A store lease, effective December 16,
2011, calls for fixed rent of P4,800 per month payable
1 month from the effective date and monthly
thereafter. In addition, rent equal to 5% of net sales
over P1,200,000 per calendar year is payable on
January 31 of the following year. Net sales for 2012
were P2,200,000.
In its December 31, 2012
statement of financial position, Pythagoras should
report accrued liabilities of
a. P56,800
c. P56,300
b. P51,500
d. P53,900
NOTES PAYABLE
Use the following information to answer the next two
questions:
Funan Industries purchases new specialized manufacturing
equipment on July 1, 2011. The equipment cash price is
P79,000. Funan signs a deferred payment contract that
provides for a down payment of P10,000 and an 8-year
note for P103,472. The note is to be paid in 8 equal
annual payments of P12,934. The payments include 10%
interest and are made on June 30 of each year, beginning
June 30, 2012.

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62. The carrying amount of the note payable on December

31, 2012 is
a. P62,966
c. P66,115
b. P56,329
d. P59,818
63. The total interest expense for the year ended
December 31, 2012 is
a. P6,900
c. P6,612
b. P6,599
d. P5,982
DEBT RESTRUCTURING
64. On December 31, 2012, X Corp. was indebted to
Zyland Co. on a P1,000,000, 10% note. Only interest
had been paid to date, and the remaining life of the
note was 2 years. Because X Corp. was in financial
difficulties, the parties agreed that X Corp. would settle
the debt on the following terms:

Settle one-half of the note by transferring land

with a recorded value of P400,000 and a fair value
of P450,000.

Settle one-fourth of the note by transferring

10,000, P1 par, ordinary shares with a fair market
value of P15 per share.

Modify the terms of the remaining one-fourth of

the note by reducing the interest rate to 5% for
the remaining 2 years and reducing the principal to
P150,000.
What total gains should X Corp. record in 2012 from
this troubled debt restructuring?
a. P135,000
c. P313,024
b. P200,000
d. P213,024
BONDS PAYABLE
Use the following information for the next two questions.
On January 2, 2007, Picard Enterprises issued P2,400,000
of 8 percent, 15-year semiannual coupon bonds. Each
bond is convertible into 40, P15 par, ordinary shares, which
was trading at P20 per share on the date of the bond
issue.
The bonds were issued at 106.
Without the
conversion feature, the bonds would have been issued for
104.5.

Mindoro Company should report net rental income for

2012 at
a. P820,000
c. P890,000
b. P908,000
d. P800,000
68. Bowtock has leased an item of plant under the
following terms:

Commencement of the lease - January 1, 2011

Term of the lease - 5 years

Annual payments in advance - P12,000

Cash price and fair value of the asset P52,000

Implicit interest rate 8% per annum

Depreciation policy 20% per annum

The total lease related expenses for the fiscal year
ended September 30, 2012 is
a. P13,072
c. P12,272
b. P12,896
d. P10,200
Use the following information for the next two questions.
Camarines Company is a dealer in machinery. On January
1, 2012, a machine was leased to another entity with the
following provisions:
Annual rental payable at the end of each
year
Lease term and useful life of machinery
Cost of machinery
Residual value-unguaranteed
Implicit interest rate
PV of an ordinary annuity of 1 for 5 periods
at 10%
PV of 1 for 5 periods at 10%

P2,000,000
5 years
P5,000,000
P1,000,000
10%
3.79
0.62

At the end of the lease term, the machinery will revert to

Camarines.
The perpetual inventory system is used.
Camarines incurred initial direct costs of P200,000 in
finalizing the lease agreement.
69. How much is the total finance income from the lease to
be recognized by Camarines over the lease term?
a. P2,800,000
c. P2,420,000
b. P1,800,000
d. P2,600,000

On January 3, 2012, all of the bonds were converted into

ordinary shares. The market price of the shares was P28
per share on the date of conversion. The issue premium is
amortized using the straight-line method.

70. Camarines Company will recognize profit on the sale at

a. P3,000,000
c. P5,800,000
b. P3,200,000
d. P6,000,000

65. The issuance of the bonds increased the entitys equity

by
a. P144,000
c. P36,000
b. P108,000
d. Nil

Naga Company leases computer equipment to customers

under direct financing leases. The equipment has no
residual value at the end of the lease and the leases do not
contain bargain purchase options. Naga wishes to earn
14% interest on a 5-year lease of equipment with a cost of
P1,955,000. The present value of an annuity due of 1 at
14% for 5 years is 3.91 Naga incurs initial direct cost of
P65,000.

66. The conversion of the bonds increased the entitys

equity by
a. P2,496,000
c. P1,068,000
b. P2,472,000
d. P1,032,000
LEASES
67. Mindoro Company purchased a new machine on
January 1, 2012 at a cost of P2,000,000 for the
purpose of leasing it. The machine is estimated to
have a useful life of ten years with a residual value of
P200,000. Depreciation is computed by Mindoro on a
straight line basis.
On January 2, 2012, Mindoro
entered into a lease contract with Oriental Company
for a term of up to four years until December 31,
2015. The lease fee is P1,000,000 per year and was
paid in advance by Oriental. Mindoro paid P120,000
commissions associated with negotiating the lease and
receive an additional P400,000 as lease bonus.

Use the following information for the next two questions.

71. What is the total amount of interest income that Naga

will earn over the life of the lease?
a. P480,000
c. P545,000
b. P500,000
d. P273,700
72. What is the interest income to be recognized in the
first year of the lease?
a. P242,400
c. P273,700
b. P182,400
d. P203,700
73. On December 31, 2012, Norhan Corp. sold Noel Co.
two airplanes and simultaneously leased them back.
Additional information pertaining to the saleleasebacks follows:
Sales price

Page 9 of 16

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Plane #1
P600,000

Plane #2
P1,000,000

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PROFESSIONAL REVIEW and TRAINING CENTER, INC.

Carrying amount,
12/31/12
P100,000
P550,000
Remaining useful life,
12/31/12
10 years
35 years
Lease term
8 years
3 years
Annual lease
payments
P100,000
P200,000
In its December 31, 2012 statement of financial
position, what amount should Norhan report as
deferred gain on these transactions?
a. P950,000
c. P450,000
b. P500,000
d. P
0
EMPLOYEE BENEFITS
Use the following for the next five questions:
The following information relates to the defined benefit
pension plan of the Shoot Company as of December 31,
2012:
Projected benefit obligation (PBO)
Fair value of plan assets

P17,700,000
14,500,000

Pension data for the year 2013 follows:

Current service cost
Past service cost
Contributions to the plan
Benefits paid to retirees
Total return on plan assets
Decrease in projected benefit
obligation due to changes in
actuarial assumptions

880,000
200,000
1,100,000
1,500,000
2,000,000
900,000

The average remaining service period of the covered

employees is 5 years.
Settlement interest rate and
expected rate of return are 12% and 10%, respectively.
74. The amount to be recognized in 2013 profit or loss is
a. P 304,000
c. P1,204,000
b. P1,464,000
d. P1,304,000
75. The amount to be recognized in 2013 other
comprehensive income is
a. P1,160,000
c. P900,000
b. P 640,000
d. P
0
76. The amount to be recognize d in the statement of
financial position as of December 31, 2013.
a. P3,564,000
c. P3,904,000
b. P2,404,000
d. P 904,000
77. Fair value of plan assets as of December 31, 2013.
a. P15,840,000
c. P16,100,000
b. P15,000,000
d. P17,600,000
78. Projected benefit obligation as of December 31, 2013.
a. P18,504,000
c. P20,004,000
b. P19,404,000
d. P18,304,000
SHARE-BASED PAYMENT TRANSACTIONS
79. An entity grants to an employee the right to choose
either 1,000 phantom shares, ie a right to a cash
payment equal to the value of 1,000 shares, or 1,200
shares. The grant is conditional upon the completion
of three years service. If the employee chooses the
share alternative, the shares must be held for three
years after vesting date.
At grant date, the entitys share price is P50 per share.
At the end of years 1, 2 and 3, the share price is P52,
P55 and P60 respectively. The entity does not expect
to pay dividends in the next three years. After taking
into account the effects of the post-vesting transfer
restrictions, the entity estimates that the grant date
fair value of the share alternative is P48 per share.

Page 10 of 16

Compute for the amount to

compensation expense in year 2.
a. P21,867
b. P36,667

be

recognized

as

c. P19,334
d. P19,200

PROVISIONS AND CONTINGENCIES

80. Maybe Company is evaluating whether each of the
following would be a liability, a provision or a
contingent liability, or none of the above, in the
financial statements of Maybe as at its balance date of
30 June 2012.
Assume that Maybes financial
statements are authorized for issue on 24 August
2012:
a) An amount of P350,000 owing to Perhaps
Company for services rendered during May 2012.
b) Long-service leave, estimated to be P5,000,000,
owing to employees in respect of past services.
c) Costs of P260,000 estimated to be incurred for
relocating employee D from Maybes head office
location to another city. The staff member will
physically relocate during July 2012.
d) Provision of P500,000 for the overhaul of a
machine. The overhaul is needed every 5 years
and the machine was 5 years old as at 30 June
2012.
e) Damages awarded against Maybe resulting from a
court case decided on 26 June 2012. The judge
has announced that the amount of damages will be
set at a future date, expected to be in September
2012. Maybe has received advice from its lawyers
that the amount of the damages could be anything
between P50,000 and P8 million.
How much should be reported as Provisions in Maybe
Companys statement of financial position as of 30
June 2012?
a. P10,135,000
c. P5,350,000
b. P 6,110,000
d. P5,000,000
81. During January 2012, Tagkawayan Company won a
litigation award for P2,000,000 which was tripled to
P6,000,000 to include punitive damages.
The
defendant, who is financially stable, has appealed only
the P4,000,000 punitive damages. Tagkawayan was
awarded P1,000,000 in an unrelated suit it filed, which
is being appealed by the defendant. Counsel is unable
to estimate the outcome of the appeals. In its 2012
income statement, Tagkawayan should report what
amount of pretax gain?
a. P6,000,000
c. P2,000,000
b. P4,000,000
d. P3,000,000
INCOME TAXES
82. The following differences enter into the reconciliation
of financial income and taxable income of Celtics
Company for the year ended December 31, 2012, its
first year of operations.
Accounting profit
Excess tax depreciation
Litigation accrual
Unearned rent income deferred on the
books but appropriately recognized
in taxable income
Interest income from long-term
certificate of deposit

P4,500,000
3,000,000
450,000
250,000
100,000

Additional information:

Excess tax depreciation will reverse equally over a

four-year period, 2013-2016.

It is estimated that the litigation liability will be

paid in 2016.

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Rent income will be recognized during the last year

of the lease, 2016.
Interest income from the from long-term certificate
of deposit is expected to be P100,000 each year
until their maturity at the end of 2016.
Tax rate is 35%.

Compute for the current income tax expense for 2012.

a. P735,000
c. P560,000
b. P647,500
d. P770,000
83. An entity has the following assets and liabilities in its
statement of financial position at December 31, 2012:
Property
Plant and equipment
Inventory
Trade receivables
Trade payables
Cash

P10,000,00
0
5,000,000
4,000,000
3,000,000
6,000,000
2,000,000

The value for tax purposes of property and for plant

and equipment are P7 million and P4 million
respectively. The entity has made a provision for
inventory obsolescence of P2 million, which is not
allowable for tax purposes until the inventory is sold.
Further, an impairment charge against trade
receivables of P1 million has been made. This charge
does not relate to any specific trade receivable but to
the entitys collective assessment of the overall
collectibility of the amount. This charge will not be
allowed in the current year for tax purposes but will be
allowed in the future. Income tax paid is at 35%.
The deferred tax provision at December 31, 2012 is
a. P1,400,000
c. P2,100,000
b. P1,050,000
d. P 350,000
EQUITY TRANSACTIONS
84. Helu Corporation was organized on January 1, 2010,
with an authorization of 1,000,000 ordinary shares
with a par value of P5 per share.
During 2010, the corporation had the following equity
transactions:
Jan. 4
April 8
June 9
July 29
Dec. 31

Issued 200,000 shares @ P5 per share.

Issued 100,000 shares @ P7 per share.
Issued 30,000 shares @ P10 per share
Purchased 50,000 shares @ P4 per
share.
- Sold 50,000 shares held in treasury @ P8
per share.

What should be the total Share Premium as of

December 31, 2010?
a. P400,000
c. P500,000
b. P450,000
d. P550,000
85. The following balances are shown in the shareholders'
equity of tamarind company on December 31, 2009:
Preference share capital, P10 par,
100,000 shares
Ordinary share capital, P10 par,
500,000 shares,
Share premium - preference
Share premium ordinary
Retained earnings

P1,000,000
5,000,000
50,000
200,000
100,000

During 2010, the following transactions pertaining to

the shareholders' equity were completed:

Retirement of 5,000 preference shares at P11 per

share.

Purchase of 5,000 ordinary shares at P12 per

share.

Page 11 of 16

Share split, ordinary, 2 for 1.

Reissue of 2,000 treasury shares at P8 per share.
Profit for 2010, P300,000.

The total shareholders' equity on December 31, 2010

is
a. P6,556,000
c. P6,350,000
b. P6,551,000
d. P6,251,000
86. Cerritos Corporation began operations on January 1,
2009.
During its first three years of operations,
Cerritos reported net income and declared dividends as
follows:
2009
2010
2011

Net income
P 80,000
250,000
300,000

Dividends declared
P
0
100,000
100,000

The following information related to 2012:

Income before income tax
Prior period adjustment:
understatement of 2010 depreciation
expense (before taxes)
Cumulative decrease in income from
change in inventory methods (before
taxes)
Dividends declared (of this amount,
P50,000 will be paid on January 15,
2013)
Effective tax rate

P480,000
40,000
70,000
200,000
35%

As at December 31, 2012, the retained earnings of

Cerritos Corporation is
a. P520,500
c. P430,000
b. P484,500
d. P470,500
87. Leyte Corporation has incurred losses from operations
for several years. At the recommendation of the newly
hired president, the board of directors voted to
implement
a
quasi-reorganization,
subject
to
shareholder approval.
Immediately prior to the
restatement, on June 30, Leyte's balance sheet was as
follows:
Current assets
Property, plant, and equipment (net)
Other assets
Total liabilities
Share capital
Share premium
Retained earnings (deficit)

P 550,000
1,350,000
200,00
0
P2,100,000
P 600,000
1,600,000
300,000
(400,000)
P2,100,000

The shareholders approved the quasi-reorganization

effective July 1, to be accomplished by a reduction in
other assets of P150,000; a reduction in property,
plant, and equipment (net) of P350,000; and
appropriate adjustment to the capital structure. To
implement the quasi-reorganization, Leyte should
reduce the share capital account in the amount of
a. P
0
c. P400,000
b. P100,000
d. P600,000
EARNINGS PER SHARE
88. Maria Lourdes, controller at Garcia Pharmaceutical
Industries, a public company, is currently preparing the
calculation for basic and diluted earnings per share and
the related disclosure for Garcia's external financial
statements. Below is selected financial information for
the year ended December 31, 2012.
Long-term debt

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Notes payable, 10%
7% convertible bonds payable
10% bonds payable
Total long-term debt
Shareholders' equity
Preference share capital, 8.5%
cumulative, P50 par value,
100,000 shares authorized,
25,000 shares issued and
outstanding
Ordinary share capital, P1 par,
2,000,000 shares authorized,
1,000,000 shares issued and
outstanding
Share premium
Retained earnings
Total shareholders' equity

P 1,000,000
5,000,000
6,000,000
P12,000,000

P 1,250,000

1,000,000
4,000,000
6,000,000
P12,250,000

The following transactions have also occurred at

Garcia.
a. Options were granted in 2010 to purchase 100,000
shares at P15 per share. Although no options were
exercised during 2012, the average price per
ordinary share during year 2012 was P20 per
share. The market price per ordinary share on
December 31, 2012 was P25.
b. Each bond was issued at face value. The 7%
convertible debenture will convert into 50 ordinary
shares per P1,000 bond. It is exercisable after 5
years and was issued in 2011.
c. The 8.5% preference shares were issued in 2010.
d. No preference share dividends were declared in
2011 and 2012.
e. The 1,000,000 ordinary shares were outstanding
during 2012.
f. Profit for the year 2012 was P1,500,000, and the
average income tax rate is 40%.
For the year ended December 31, 2012, calculate the
diluted earnings per share for Garcia Pharmaceutical
Industries.
a. P1.37
c. P1.26
b. P1.32
d. P1.24
ACCOUNTING CHANGES AND ERRORS
89. On January 1, 2009, Cherry Bomb Co. purchased a
machine for P528,000 and depreciated it by the
straight-line method using an estimated useful life of
eight years with no salvage value. On January 1,
2012, Cherry Bomb determined that the machine had
a useful life of six years from the date of acquisition
and will have a residual value of P48,000.
An
accounting change was made in 2012 to reflect these
additional data. The accumulated depreciation for this
machine should have a balance at December 31, 2012,
of
a. P292,000
c. P320,000
b. P308,000
d. P352,000
90. Balungao Company changed its accounting policy in
2012 with respect to the valuation of inventories. Up
to 2011, inventories were valued using weightedaverage cost (WAC) method. In 2012 the method was
changed to first-in, first-out (FIFO), as it was
considered to more accurately reflect the usage and
flow of inventories in the economic cycle. The impact
on inventory valuation was determined to be
At December 31, 2010:
At December 31, 2011:
At December 31, 2012:

An increase of P100,000
An increase of P150,000
An increase of P200,000

The change in accounting policy increased net profit for

2012 by
a. P200,000
c. P450,000

Page 12 of 16

b.

P150,000

d.

P 50,000

91. Allspark showed income before income taxes of

P250,000 on December 31, 2012. On your year-end
verification of the transactions of the company, you
discovered the following errors:
a) P100,000 worth of merchandise was purchased in
2012 and included in the ending inventory.
However, the purchase was recorded only in 2013.
b) A merchandise shipment valued at P150,000 was
properly recorded as purchases at year-end. Since
the merchandise were still at the port area, they
were inadvertently omitted from the inventory
balance at December 31, 2012.
c) Business taxes for the 4th quarter of 2012,
amounting to P50,000, was recorded when
payment was made by the firm in January, 2013.
d) Rental of P30,000 on an equipment , applicable for
six months, was received on November 1, 2012.
The entire amount was reported as income upon
receipt.
e) Insurance premium covering the period from July
1, 2012 to July 1, 2013, amounting to P120,000,
was paid and recorded as expense on July 31,
2012. The company did not make any adjustment
at the end of the year.
The corrected income before income taxes for 2012
should be
a. P240,000
c. P280,000
b. P290,000
d. P340,000
STATEMENT OF FINANCIAL POSITION
Use the following information for the next two questions.
The following totals are taken from the December 31,
2012, statement of financial position of Streamer
Company:
Current assets
Long-term assets
Current liabilities
Long-term liabilities

P350,000
800,000
240,000
270,000

Additional information:
(a) Cash of P38,000 has been placed in a fund for the
retirement of long-term debt. The cash and longterm debt have been offset and are not reflected in
the financial statements.
(b) Long-term assets include P50,000 in treasury shares.
(c) Cash of P14,000 has been set aside to pay taxes
due. The cash and taxes payable have been offset
and do not appear in the financial statements.
(d) Advances on salespersons' commissions in the
amount of P21,000 have been made. Also, sales
commissions payable total P24,000. The net liability
of P3,000 is included in Current Liabilities.
After making any necessary changes, compute for the
totals of Streamer's:
92. Current assets
a. P385,000
b. P423,000

c. P350,000
d. P364,000

93. Current liabilities

a. P254,000
b. P240,000

c. P278,000
d. P275,000

STATEMENT OF COMPREHENSIVE INCOME

94. The following information was taken from Basilan
Companys accounting records for the year ended
December 31, 2012:
Sales
Decrease in goods in process
inventory

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P10,000,000
200,000

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Decrease in raw materials inventory
Increase in finished goods inventory
Raw materials purchased
Direct labor payroll
Factory overhead
Selling expenses
Freight out
General and administrative expenses

350,000
500,000
2,100,000
1,000,000
800,000
300,000
900,000
1,600,000

99. Changes in the statement of financial position account

balances for the Peak Sales Co. during 2012 follow.
Dividends declared during 2012 were P25,000.

Cash
Accounts receivable, net
Inventory
Buildings and Equipment (net)
Patents
Accounts payable
Bonds payable
Share capital
Share premium

Basilan Companys profit before tax is

a. P3,550,000
c. P3,250,000
b. P4,250,000
d. P4,150,000
Use the following information for the next two questions.
Tawi2 Companys income statement for the year ended
December 31, 2012 reported net profit of P10,000,000.
The auditor raised questions about the following amounts
that had been included in the net profit:
Unrealized loss on decline in value of
available for sale securities
Loss on write-off of inventory due to a
government ban net of tax
Adjustment of profit of prior year net-debit
Loss from expropriation of property,
net of tax
Exchange differences gain on translating
foreign operations
Revaluation surplus realization

Calculate the net income for the year assuming that no

transactions other than the dividends affected retained
earnings.
a. P117,500
c. P142,500
b. P267,500
d. P292,500

P 500,000
1,500,00
0
2,000,00
0
3,500,00
0
4,500,00
0
1,000,00
0

Increase
(Decrease)
P95,500
92,000
(30,000)
190,000
(5,000)
(75,000)
150,000
100,000
50,000

STATEMENT OF CASH FLOWS

Use the following information for the next five questions.
The following is a list of the items to be included in the
preparation of the 2012 statement of cash flows for the
Norhan Company:
a) Net income, P59,200
b) Payment for purchase of building, P98,000
c)

Increase in accounts receivable, P7,400

d) Proceeds from issuance of ordinary shares, P37,100

The loss from expropriation was unusual in occurrence in

Tawi2s line of business.

e) Increase in accounts payable, P4,500

95. Tawi2 Companys 2012 statement of comprehensive

income should report profit at
a. P9,000,000
c. P7,000,000
b. P6,500,000
d. P8,500,000

g) Depreciation expense, P12,600

i)

Gain on sale of land, P5,300

96. Tawi2 Companys 2012 statement of comprehensive

income should total comprehensive income at
a. P12,000,000
c. P5,000,000
b. P11,000,000
d. P4,000,000

j)

Decrease in inventory, P3,700

SINGLE ENTRY AND CASH-TO-ACCRUAL BASIS

97. The following relate to Panda Companys patents
assigned to other entities:
12/31/2011 12/31/2012
Royalties receivable
500,000
1,500,000
Unearned royalties
P200,000
P 600,000
During 2012, Panda received royalty remittance of
P5,000,000. In its income statement for the year
2010, Panda should report royalty income of
a. P6,400,000
c. P4,400,000
b. P5,600,000
d. P3,600,000
98. Peak Company borrows money under various loan
agreement involving notes discounted and notes
requiring interest payments at maturity. During the
year ended December 31, 2012, Peak paid interest
totaling P5,000,000. The balance sheets included the
following:
12/31/2012
12/31/2011
Interest payable
2,500,000
2,000,000
Prepaid interest
P1,500,000
P 500,000
How much interest expense should Peak report for
2012?
a. P4,500,000
c. P3,500,000
b. P6,500,000
d. P5,500,000

Page 13 of 16

f)

Proceeds from sale of land, P7,000

h) Payment of dividends, P36,000

k) Payment for purchase of long-term investments,

P9,600
l)

Amortization of discount on bonds payable, P1,900

m) Proceeds from issuance of note, P18,000

n) Increase in deferred taxes payable, P5,000
o) Equipment acquired by finance lease, P19,500
p) Decrease in salaries payable, P2,300
q) Beginning cash balance, P20,300
Based of the foregoing information, compute for the
following.
100. Cash provided by operating activities
a. P68,100
c. P74,900
b. P89,900
d. P71,900
101. Cash used in investing activities
a. P120,100
c. P100,600
b. P107,600
d. P 9,600
102. Cash provided by financing activities
a. P19,100
c. P20,600
b. P38,600
d. P 1,100
103. Net decrease in cash
a. P19,600
b. P 6,600

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d. P 9,600

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104. Cash balance, ending
a. P13,700
b. P10,700

(Assume that all changes in the general price-level

index took place more or less evenly during the
year.)

c. P 700
d. P6,900

HYPERINFLATIONARY ECONOMY
105. Entity Q operates in hyperinflationary economy. Its
balance sheet on December 31, 2012, follows:
Cash
Inventory
Property, plant and equipment
Current liabilities
Noncurrent liabilities
Share capital
Retained earnings

P 3,500,000
27,000,000
9,000,000
7,000,000
5,000,000
4,000,000
23,500,000

The general price index at December 31 had moved in

this way: 2008 100; 2009 130; 2010 150; 2011
240; 2012 300.
The property, plant and equipment was purchased on
December 31, 2010, and there is six months inventory
held. The noncurrent liabilities were a loan raised on
March 31, 2012.
What is the retained earnings balance on December
31, 2012 after adjusting for hyperinflation?
a. P35,500,000
c. P31,250,000
b. P27,500,000
d. P23,500,000
106. The following information
Company for the year 2012:

pertains

Monetary assets:
January 1
December 31
Monetary liabilities:
January 1
December 31
Increase in net monetary items as
restated to constant peso
Decrease in net monetary items as
restated to constant peso
General price index:
January 1
December 31

to

Inflation

P250,000
700,000
100,000
300,000
2,000,000
1,500,000
125
150

107. The Richmond Corporation presented the following

balances from the historical peso income statement for
the year ended December 31, 2012:
P350,000
218,000
34,000
23,000
48,000

Other information include:

Merchandise available for sale came from 2011

inventory of P28,750 and 2012 purchases of
P220,000.

Building costing P850,000 was acquired at the end

of 2007.

Equipment totalled P115,000, of which P85,000

was bought at the end of 2009 and P30,000 was
bought at the end of 2011.

The company uses the FIFO method of inventory

valuation; average indexes for the year are used in
restating inventories.

General price indexes at year end are as follows:

2009 100
2011 106
2010 102
2012 112

Page 14 of 16

ACCOUNTING PROCESS
108.
The account balances
December 31, 2012 follow:

of

Seiko

Accounts payable
Accounts receivable
Building
Share capital
Cash
Equipment
Land
Notes payable
Retained earnings

Corp.

as

of

P100,000
120,000
400,000
760,000
60,000
160,000
50,000
280,000
100,000

In a trial balance prepared on December 31, 2012, the

sum of the debit column is
a. P 860,000
c. P 790,000
b. P1,440,000
d. P1,240,000
109.
Remember Companys Prepaid Insurance account
has the following balances:
Balance beginning of year
Balance end of year

The loss on purchasing power for the year 2012 is

a. P280,000
c. P250,000
b. P300,000
d. P100,000

Sales
Cost of goods sold
Depreciation - building
Depreciation - equipment
All other expenses

What should Richmond Corporation report as net

income for the year ended December 31, 2012
restated for general price-level changes?
a. P16,512
c. P22,016
b. P22,852
d. P21,431

P5,600
6,400

During the year, an additional business insurance

policy was purchased. A 2-year premium of P2,500
was paid and charged to Prepaid Insurance. The
adjusting entry that was made to arrive at the ending
balance included
a. A debit to Prepaid Insurance of P800
b. A debit to Insurance Expense of P1,700
c. A credit to Prepaid Insurance of P800
d. A credit to Insurance Expense of P1,700
110.
The accountant of Mutya Company made the
following adjusting entry on December 31, 2012.
Rent Income
Unearned Rent Income

900

900

If annual rent is received in advance every March 1.

the original transaction entry made was
a. Debit Cash and credit Unearned Rent Income,
P900.
b. Debit Cash and credit Rent Income, P1,080.
c. Debit Cash and credit Rent Income, P5,400.
d. Debit Rent Income and credit Cash, P5,400
111.
A company receives interest on a P30,000, 8%, 5year note receivable each April 1. At December 31,
2011, the proper adjusting entry was made to accrue
interest receivable. Assuming that the company does
not use reversing entries, what entry should be made
on April 1, 2012 when the annual interest payment is
received?
a.
Cash
P 600
Interest Income
P 600
b.
Cash
P1,800
Interest Receivable
P1,800
c.
Cash
P2,400
Interest Receivable
P1,800
Interest Income
600
d.
Cash
P2,400
Interest Income
P2,400

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PROFESSIONAL REVIEW and TRAINING CENTER, INC.

OPERATING SEGMENTS
112.
Jolbon Company and its divisions are engaged
solely in manufacturing operations. The following data
pertain to the industries in which operations were
conducted for the year ended December 31, 2012.

1
2
3
4
5
6

Total revenue
P13,000,000
10,000,000
8,000,000
3,000,000
3,500,000
2,500,000
P40,000,000

Operating
profit
P4,000,000
2,000,000
1,500,000
1,000,000
800,000
700,000
P10,000,000

Identifiable
assets
P25,000,000
20,000,000
15,000,000
7,000,000
7,500,000
5,500,000
P80,000,000

d.

116.
In 2012, Roy Industries decided to discontinue its
Laminating
Division,
a
separately
identifiable
component of Roys business. At December 31, 2012,
the division has not been completely sold. However,
negotiations for the final and complete sale are
progressing in a positive manner, and it is probable
that the disposal will be completed within a year.
Analysis of the records for the year disclosed the
following relative to the Laminating Division:
Operating loss for the year
Loss on disposal of some Laminating
Division assets during 2012
Expected
operating
loss
in
2013
preceding final disposal
Expected gain in 2013 on disposal of
division

In its segment information for 2012, how many

reportable segments does Jolbon have?
a. Three
c. Five
b. Four
d. Six
113.
Celine Corporation and its divisions are engaged
solely in manufacturing. The following data pertain to
the industries in which operations were conducted for
the year ended December 31, 2012:
Operating Profit (Loss)
Division A
P30,000,000
B
10,000,000
C
( 8,000,000)
D
( 2,000,000)
E
5,000,000
In its 2012 financial statements, Celine Corporation
should disclose an operating segment if operating
profit or loss is at least
a. P1,000,000
c. P4,500,000
b. P3,500,000
d. P5,500,000
114.
Norte Company has three manufacturing divisions,
each of which has been determined to be a reportable
segment. Common costs are appropriately allocated
on the basis of each divisions sales in relation to
Nortes aggregate sales. In 2012, Division I had sales
of P6,000,000, which was 20% of Nortes total sales,
and had traceable operating costs of P3,800,000. In
2012, Norte incurred operating costs of P1,000,000
that were not directly traceable to any of the divisions.
In addition, Norte incurred interest expense of
P600,000 in 2012. In reporting segment information,
what amount should be shown as operating profit of
Division I for 2012?
a. P2,000,000
c. P1,880,000
b. P1,400,000
d. P2,200,000
NON-CURRENT ASSETS HFS AND DISPOSAL GROUP
115.
An entity is planning to dispose of a collection of
assets.
The entity designates these assets as a
disposal group. The carrying amount of these assets
immediately before classification as held for sale was
P20 million. Upon being classified as held for sale, the
assets were revalued to P18 million. The entity feels
that it would cost P1 million to sell the disposal group.
How would the reduction in the value of the assets on
classification as held for sale be treated in the financial
statements?
a. The entity recognizes a loss of P2 million
immediately before classification as held for sale
and them recognizes an impairment loss of P1
million.
b. The entity recognizes an impairment loss of P3
million.
c. The entity recognizes an impairment loss of P2
million.

Page 15 of 16

The entity recognizes a loss of P3 million

immediately before classifying the disposal group
as held for sale.

P899,000
50,000
450,000
200,000

Assuming a 35% tax rate, how much will be reported

as loss from discontinued operations in Roys 2012
income statement?
a. P949,000
c. P616,850
b. P909,350
d. P779,350
INTERIM FINANCIAL REPORTING
117.
An entity operates in the travel industry and incurs
cost unevenly through the financial year. Advertising
costs of P2 million were incurred on March 1, 2012,
and staff bonuses are paid at year-end based on sales.
Staff bonuses are expected to be around P20 million
for the year; of that sum, P3 million would relate to
the period ending March 31, 2012. What costs should
be included in the entitys quarterly financial report to
March 31, 2012?
a. Advertising costs P2 million; staff bonuses P5
million
b. Advertising costs P0.5 million; staff bonuses P5
million
c. Advertising costs P2 million; staff bonuses P3
million
d. Advertising costs P0.5 million; staff bonuses P3
million
118.
Occidental Companys P10,000,000 net income for
the quarter ended September 30, 2012, included the
following after-tax items

A P1,200,000 gain realized on April 30, 2012 was

allocated equally to the second, third and fourth
quarters of 2012.
A P3,000,000 cumulative loss resulting from a
change in inventory valuation method was
recognized on August 2, 2012.

In addition, Occidental paid P600,000 on February 1,

2012, for 2012 calendar-year property tax. Of this
amount, P150,000 was allocated to the third quarter of
2012. For the quarter ended September 30, 2012,
Occidental should report net income of
a. P12,600,000
c. P11,800,000
b. P12,750,000
d. P 9,600,000
PFRS FOR SMEs
119. The SME Company has a single investment property
which had originally cost P580,000 on 1 January 2009.
At 31 December 2011 its fair value was P600,000 and at
31 December 2012 it had a fair value of P590,000. On
acquisition, the property had a useful life of 40 years.
What should be the expense recognized in SME's profit
or loss for the year ended 31 December 2012 assuming

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that the fair value of the property can be measured
reliably without undue cost or effort?
a. P24,500
c. P14,500
b. P14,750
d. P10,000
120. On January 1, 2011, Magdalena, an SME, purchased
Victoria Company at a cost that resulted in recognition
of goodwill of P5,000,000. During January of 2012,
Magdalena spent an additional P2,000,000 on
expenditures designed to maintain goodwill. Due to
these expenditures, at December 31, 2012, Magdalena
estimated that the benefit period of goodwill was
indefinite. In its December 31, 2012 statement of
financial position, what amount should Magdalena
report as goodwill?
a. P7,000,000
c. P5,000,000
b. P5,600,000
d. P4,000,000
121. On 1 January 2012 an entity acquired a transferable
nine-year taxi license by way of government grant
when the fair value of the license was P90,000. The
license is given, free of charge, to the entity on the
basis of the entitys performance and there are no
future performance conditions attached to the grant.
The entity shall account for the government grant as
follows:
a. recognise P90,000 in income on 1 January 2012.
b. recognise P90,000 in income evenly over the nineyear period of the license, ie P10,000 per year.
c. credit P90,000 directly to retained earnings on 1
January 2012.
d. credit P90,000 directly to retained earnings evenly
over the nine-year period of the license, ie P10,000
per year.

122. On 1 January 2012 an entity acquired, free of

charge, a non-transferable nine-year taxi license by
way of government grant when the fair value of the
taxi license was P90,000. In accordance with the
terms of the license the entity must operate at least 10
taxis in a deprived neighborhood of the capital city
during that nine-year period. Failure to do so will
result in the taxi license being revoked immediately.
The entity shall account for the government grant as
follows:
a. recognise P90,000 in income on 1 January 2012.
b. recognise P90,000 in income evenly over the nineyear period of the license (ie P10,000 per year
when the performance condition of the government
grant is met).
c. credit P90,000 directly to retained earnings on 1
January 2012.
d. recognise P90,000 in income on 31 December
2020.
123. The White Company, an SME, set up a defined benefit
post-employment plan with effect from 1 January 2012.
In the first year the expected return on plan assets was
P5,000, the actual return on plan assets was P4,000, the
current service cost was P12,000 and White's
contributions paid into the plan were P7,500.
What is the net expense to be recognized in profit or
loss for the year ended 31 December 2012, according to
section 28 of PFRS for SMEs?
a. P8,000
c. P7,000
b. P3,500
d. P2,500

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