Professional Documents
Culture Documents
THEORY OF ACCOUNTS
1. The ASC framework (Choose the incorrect one)
a. Sets out the concepts that underlie the preparation and presentation of
financial statements for external users.
b. Is not a Statement of Financial Accounting Standards and hence does not
define standards for any particular measurement or disclosure issue.
c. Is concerned with special purpose reports, for example, prospectuses and
computations prepared for taxation purposes.
d. Applies to the financial statements of all commercial, industrial and
business reporting enterprises, whether in the public or private sector.
2. Accounting is
I.
A service activity and its function is to provide quantitative information,
primarily financial in nature, about economic entities, that is intended
to be useful in making economic decision.
II.
The art of recording, classifying, and summarizing in a significant
manner and in terms of money, transactions and events which are in
part at least of a financial character and interpreting the results
thereof.
III.
The process of identifying, measuring and communicating economic
information to permit informed judgment and decision by users of the
information.
a. I, II and III
b. I only
c. II only
d. III only
3. Financial accounting
1. Is the examination of financial statements by an independent CPA for the
purpose of expressing an opinion as to the fairness of the financial
statements.
2. Focuses on the preparation and presentation of general purpose reports
known as financial statements.
3. Has no precise coverage but is used generally to refer to services to clients
on matters of accounting, finance, business policies, organization
procedures, product costs, distribution and many other phases of business
conduct and operations.
4. Is the preparation of annual income tax returns and determination of tax
consequences of certain proposed business venture.
4. Categories of hedges include
a. Fair value hedge
c. Cash flow hedge
b. Hedge of a net investment in a foreign operation d. All of these
P 1,500,000
A further analysis of the Trade Creditors debit balances indicates:
Date
Items
Miscellaneous debit balances prior to 2007.
No information available due to loss
of records in a fire.
03/03/07
06/10/09
07/10/10
10/10/10
15. The ASC framework deals with (choose the incorrect one)
12/05/10
a. Objective of financial statements
b. Qualitative characteristics
c.
Definition, recognition and measurement of the basic elements of financial 12/05/10
statements
d. Generally accepted accounting principles
AUDITING PROBLEMS
In connection with the audit of the PAKYO COMPANY for the year ended December
31, 2010 you are called upon to verify the accounts payable transactions. You find
that the company does not make use of a voucher register but enters all
merchandise purchases in a Purchases Journal, from which posting are made to a
subsidiary accounts payable ledger. The subsidiary ledger balance of P1,500,000
as of December 31, 2010 agrees with the accounts payable balance in the
companys general ledger. An analysis of the account disclosed the following:
Trade creditors, credit balances
Trade creditors, debit balances
Net
Estimated warranty on products sold
Customers deposits
Due to officers and shareholders for advances
Goods received on consignment at selling price
(offsetting debit made to Purchases)
P 1,363,000
63,000
P 1,300,000
100,000
9,000
50,000
41,000
Amount
P 3,000
8,000
7,000
5,000
12,000
24,000
Your next step is to check the invoices in both the paid and the unpaid invoice
files against ledger accounts. In this connection, you discover an invoice from
Atlas Co. of P45,000 dated December 12, 2010 marked Duplicate, which was
entered in the Purchase Journal in January 2011. Upon inquiry, you discover that
the merchandise covered by this invoice was received and sold, but the original
invoice apparently has not been received.
In the bank reconciliation working papers, there is a notation that five checks
totaling P 63,000 were prepared and entered in the Cash Disbursements Journal
of December, but these checks were not issued until January 10, 2011.
The inventory analysis summary discloses good in transit of P 6,000 at December
31, 2010, not taken up by the company under audit during the year 2010. These
goods are included in your adjusted inventory.
1. The Accounts payable Trade balance at December 31, 2010 should be
A. P 1,471,000
B. P 1,614,000
C. P 1,214,000
D. P 1,477,000
Bonds Payable
2,000,000
B. P 23,000
D. P 39,000
4. The entry to adjust the Accounts payable account for those accounts with debit
balances should include a debit to
A. Miscellaneous losses if P 23,000
B. Advances to suppliers of P 24,000
C. Suppliers to debit balances of P 18,000
D. Purchases of P 21,000
5. Auditor confirmation of accounts payable balances at the end of the reporting
period may be necessary because
A. There is likely to be other reliable external evidence to support the
balances
B. Correspondence with the audit clients attorney will reveal all legal action by
vendors for non-payment
C. This is a duplication of cutoff test
D. Accounts payable at the end of reporting period may not be paid before the
audit is completed.
Problem 2
You were able to obtain the following from the accountant for Maverics Corp.
Related to the companys liability as of December 31, 2010.
Accounts payable
Notes payable trade
Notes payable bank
Wages and salaries payable
Interest payable
Mortgage notes payable 10%
Mortgage notes payable 12%
P 650,000
190,000
800,000
15,000
?
600,000
1,500,000
Feel Na Feel issued P10,000,000 of 10% bonds on July 1, 2008. The prevailing
market rate of interest for these bonds was 12% on the date issue. The bonds will
mature on July 1, 2018. Interest is paid semiannually on July 1 and January 1. Feel
Na Feel uses the effective interest rate method to amortize bond premium or
discount
NOTES PAYABLE
Feel Na Feel has signed several long-term notes with financial institutions. The
maturities of these notes are given in the schedule below. The total unpaid
interest for all of these notes amounts to P600,000 on March 31, 2010
Due Date
April 1, 2010
July 1, 2010
October 1, 2010
April 1 2011 - March 31, 2012
April 1, 2012 March 31, 2013
April 1, 2013 March 31, 2014
April 1, 2014 March 31, 2015
April 1, 2015 March 31, 2016
ESTIMATED WARRANTIES
Amount Due
P
400,000
600,000
300,000
300,000
1,200.000
1,000,000
800,000
1,000,000
P 7,000,000
Feel Na Feel has a one-year product warranty on some selected items in its
product line. The estimated warranty liability on sales made during the 2008-2009
fiscal year and still outstanding as of March 31, 2009 amounted to P180,000. The
warranty cost on sales made from April 1 2009, through March 31,2010, are
estimated as P520,000. The actual warranty cost incurred during the current
2009-2010 fiscal tear are as follows:
Warranty claims honored on 2008-2009 sales
P 180,000
Warranty claims honored on 2009-2010 sales
178,000
Total warranty claims honored
P 358,000
OTHER INFORMATION
1. TRADE PAYABLES
Accounts payable for supplies, goods and services purchased on open
account amount to P740,000 as March 31, 2010
2. PAYROLL RELATED ITEMS
Merchandise, shipped FOB destination, 12.24.10; received 01.02.11
Accrued Salaries and wages
P 300,000
Withholding taxes payable
94,000
Other payroll deductions
10,000
3. MISCELLANEOUS ACCRUALS
Other accruals not separately classified amount to P150,000 as of March
31, 2010
4. DIVIDENDS
On march 15, 2010, Feel Na Feels board of directors declared a
cash dividend of P0.20 per common share and a 10% common stock
dividend. Both dividends were to be distributed on April 12, 2010, to the
common stockholders of record at the close of business on march 31,
2010. Data regarding Feel Na Feel common stock are as follows:
Per Value
P 5.00 per
share
Number of shares issued and outstanding
6,000,000
shares
Market Values of Common Stock:
March 15, 2010
March 31, 2010
April 12, 2010
per share
10 How much was received by Feel Na Feel from the bonds issued on July
1, 2008?
a. P8,852,960
b. 10,000,000
c. 10,500,000
d.
10,647,040
11 On March 31, 2010, Feel Na Feels statements of financial position
would report total current liabilities of
a. P5,286,000
5,642,000
b. 4,386,000
c. 5,336,000
d.
12. On March 31, 201, Feel Na Feels statement of financial position would
report total noncurrent liabilities of
a. P14,389.350
14,252,960
b. 14,352,217
c. 14,370,783
d.
d. Contract
4. It is a wrong committed without any pre-existing relations between the
parties.
a. Natural obligation
b. Quasi-delict
c. Quasi-contract
d. Culpa contractual
5. Unless the law or stipulation of the parties requires another standard of
care, every person obliged to give something is also obliges to take care of
it with.
a. Extra-ordinary diligence
b. Diligence of a father of a good family
c. Diligence of a good father of a family
d. Good diligence of a father of a family
6. Which of the following can be considered as a feature of a void
contract?
a. Subject to ratification
b. It exist
c. Action or defence of nullity is subject to prescription
d. Novation cannot apply
7. D entered into a contract of mortgage with X, T, the clerk of L, typed the
document. Due to Ts negligence, the document made was that of sale
instead of mortgage.
a. The remedy is annulment
b. Parties may go to court for interpretation
c. Parties may enforce their right because it is enforceable
D.Reformation of instrument is proper
8. There persons bound by contracts, except:
a. Third persons
b. Assigns
c. Heirs
d. Parties
from
because
the
contract
is
c.
d.
profitability.
marketability.
D. P300
8. Wasting Resource Co. has annual credit sales of P4 million. Its average
collection period is 40 days and bad debts are 5% of sales. The credit and
collection manager is considering instituting a stricter collection policy,
whereby bad debts would be reduced to 2% of total sales, and the average
collection period would fall to 30 days. However, sales would also fall by an
estimated P500,000 annually. Variable costs are 60% of sales and the cost of
carrying receivables is 12%. Assuming a tax rate of 35% and 360 days a year,
the incremental change in the profitability of the company if stricter policy
would be implemented would be
a. Zero as the positive and negative effects offset each other.
b. A reduction in net income by P70,000.
margin will be 20% of sales and no other expenses will increase. Assume an
opportunity cost of 20%. What should the firm do?
A. Make no policy change.
B. Change to only Policy A.
C. Change to Policy B (means also taking Policy A first).
D. All policies lead to the same total firm profit, thus all policies are equal.
14. The NPV and IRR methods give
A. the same decision (accept or reject) for any single investment
B. the same choice from among mutually exclusive investments
C. different rankings of projects with unequal lives
D. the same rankings of projects with different required investments
15. What is the proper preparation sequencing of the following budgets?
a.
b.
c.
d.
1,
2,
2,
2,
10,000,000
10,000,000
Differences between cost and market value are considered temporary. The
income statement for 2005 should report unrealized gain on these securities
at
a. 1,500,000
b. 1,000,000
c.
500,000
d.
0
3. Data regarding Lamut Companys available for sale securities follow:
Cost
Market_
December 31, 2004
8,500,000
December 31, 2005
11,000,000
P1
1. Mankayan Company uses the first-in, first-out retail method of inventory
valuation. The following information is available:
Beginning inventory
Purchases
Net markups
Net markdowns
Sales
Cost
P 2,500,000
13,500,000
Retail
4,000,000
16,000,000
3,000,000
1,000,000
15,000,000
10,000,000
10,000,000
Differences between cost and market value are considered temporary. The
2005 statement of stockholders equity should report unrealized gain on these
securities at
a. 2,500,000
b. 1,000,000
c. 1,500,000
d.
0
4. Hungduan Company had acquired investments in available for sale securities for
P15,000,000 on January 1, 2004. On December 31, 2005, Hungduan decided to
reclassify the available for sale securities as trading securities. The market value
of the securities was P13,000,000 on December 31, 2004 and P12,000,000 on
December 31, 2005. In its 2005 income statement, Hungduan should report
unrealized loss on the transfer of AFS securities at
a. 2,000,000
b. 3,000,000
c. 1,000,000
d.
0
5. Hingyon Company had investments in marketable debt securities costing
P10,000,000 which were acquired on January 1, 2004 and classified as available
for sale. On December 31, 2005, the company decided to hold the investments
to maturity and accordingly reclassified them as held to maturity on that date.
The investments market value was P9,000,000 at December 31, 2004, and
P7,500,000 on December 31, 2005. What amount should Hingyon Company
report as unrealized loss on these securities in its 2005 statement of
stockholders equity?
a. 2,500,000
b. 1,000,000
c. 1,500,000
d.
0
6. On December 31, 2004, Mayayao Company purchased trading securities.
Pertinent data on December 31, 2005 are as follows:
Security
Market_value
X
3,500,000
Y
7,500,000
Z
6,000,000
Cost
4,000,000
6,000,000
8,000,000
A stock dividend of 20,000 shares from A Company when the market price
of As shares was P30 per share.
What amount should Vigan report as dividend income in its 2005 income
statement?
a. 6,200,000
b. 4,200,000
c. 3,000,000
d. 5,000,000
9. Caoayan Company owns 1,000,000 shares of Suyo Companys 5,000,000
shares of P50 par, 10% cumulative, nonparticipating preferred stock and 500,000
shares (2%) of Suyos common stock. During 2005 Suyo declared and paid
dividends of P40,000,000 on preferred stock. No dividends had been declared or
paid during 2004. In addition, Caoayan received a 15% common stock dividend
from Suyo when the quoted market price of common stock was P100. What
amount should Caoayan report as dividend income in its 2005 income statement?
a. 15,500,000
b. 20,000,000
c. 10,000,000
d. 8,000,000
b. 2,170,000
c. 2,310,000
d. 2,100,000
13. Nagbukel Company issued rights to subscribe to its stock, the ownership of 4
shares entitling the stockholders to subscribe for 1 share at P100. Sinait
Company owns 200,000 shares of Nagbukel Company with total cost of
P15,000,000. The stock is quoted right-on at 125. What is the theoretical value
of the stock rights?
a. 1,000,000
b. 1,250,000
c. 1,500,000
d.
0
11. Candon Company owns 100,000 shares of the outstanding common stock of
Bantay Company which has several hundred thousand shares publicly traded.
These 100,000 shares were purchased in 2002 for P100 per share. On December
1, 2005, Bantay Company distributed 100,000 rights to Candon. Candon was
entitled to buy one new share of Bantay common stock for P100 and five of these
rights. On December 1, 2005, each share of stock had a market value of P135 exright and each right had market value of P15. On December 31, 2005, Candon
exercised all rights. What cost should be recorded for each new share that
Candon acquired by exercising the rights?
a. 150
b. 100
c. 135
d. 15
2005_
_
6,000,000
None
In its income statement for the year ended December 31, 2005, how much should
Laoag report as income from this investment?
a. 2,250,000
b. 1,950,000
c. 700,000
d. 600,000
4,000,000
7,000,000 15. In January 2005 Paoay Company acquired 25% of the outstanding common
stock of Bangui Company for P25,000,000. The book value of the acquired shares
In 2005, Tagudin received 150,000 rights to purchase Kanluran stock at P80
was P21,000,000. The excess of cost over book value was attributable to an
per share plus five rights. At issue date, rights had a market value of P5 each
identifiable intangible asset which was undervalued on Banguis balance sheet
and stock was selling at P95 ex-right. Tagudin used rights to purchase 22,000
and which had an indefinite life. For the year ended December 31, 2005, Bangui
additional shares of Kanluran stock and allowed the remaining rights to lapse.
reported net income of P20,000,000 and paid cash dividends of P6,000,000 on its
The FIFO mathod is used in determining the stock rights exercised. What is
common stock and thereafter issued 10% stock dividend. What is the proper
the cost of the new investment?
carrying value of investment in associate at December 31, 2005?
a. 1,760,000
a. 28,300,000
b. 28,500,000
c. 20,400,000
d. 28,700,000
P2
A. Option A
B. Option B
C. Option C
D. Option D
4.
Refer to the above information. What is each partner's tax basis in the
Jones and Smith partnership?
A. Option A
B. Option B
C. Option C
D. Option D
5. Windsor Corporation owns 75 percent of Elven Corporation's outstanding
common stock. Elven, in turn, owns 15 percent of Windsor's outstanding
common stock. What percent of the dividends paid by Windsor is reported
as dividends declared in the consolidated retained earnings statement?
A. None
B. 100 percent
C. 85 percent
D. 75 percent
6.
Based on the preceding information, in the entry in August to record the sale
of the 2,000 units:
A. Cost of Goods Sold will be debited for $70,000.
B. Inventory will be credited for $85,000.
C. Excess of Replacement Cost over LIFO Cost of Inventory Liquidation will be
credited for $15,000.
D. Excess of Replacement Cost over LIFO Cost of Inventory Liquidation will be
credited for $67,000.