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1. Which gives rise to the requirement to accrue a liability for the cost of compensated absences?

a. Payment is probable.
b. Employee rights vest or accumulate.
c. Amount can be reasonably estimated.
d. All of the above.

2. Under what conditions is an employer required to accrue a liability for sick pay?

a. Sick pay benefits can be reasonably estimated.


b. Sick pay benefits vest.
c. Sick pay benefits equal 100% of the pay.
d. Sick pay benefits accumulate.

3. When is a contingent liability recorded?

a. When the amount can be reasonably estimated.


b. When the future events are probable to occur and the amount can be reasonably estimated.
c. When the future events are probable to occur.
d. When the future events will possibly occur and the amount can be reasonably estimated.

4. Which of the following is an example of a contingent liability?

a. Obligations related to product warranties.


b. Possible receipt from a litigation settlement.
c. Pending court case with a probable favorable outcome.
d. Tax loss carryforwards.

5. Assume that a manufacturing corporation has (1) good quality control, (2) a one-year operating cycle, (3) a relatively stable pattern of
annual sales, and (4) a continuing policy of guaranteeing new products against defects for three years that has resulted in material but
rather stable warranty repair and replacement costs. Any liability for the warranty

a. should be reported as long-term.


b. should be reported as current.
c. should be reported as part current and part long-term.
d. need not be disclosed.

6. Ortiz Corporation, a manufacturer of household paints, is preparing annual financial statements at December 31, 2012. Because of a
recently proven health hazard in one of its paints, the government has clearly indicated its intention of having Ortiz recall all cans of
this paint sold in the last six months. The management of Ortiz estimates that this recall would cost P800,000. What accounting
recognition, if any, should be accorded this situation?

a. No recognition
b. Note disclosure only
c. Operating expense of P800,000 and liability of P800,000
d. Appropriation of retained earnings of P800,000

7. What condition is necessary to recognize an asset retirement obligation?

a. Company has an existing legal obligation and can reasonably estimate the amount of the liability.
b. Company can reasonably estimate the amount of the liability.
c. Company has an existing legal obligation.
d. Obligation event has occurred.

8. Which of the following are not factors that are considered when evaluating whether or not to record a liability for pending litigation?

a. Time period in which the underlying cause of action occurred.


b. The type of litigation involved.
c. The probability of an unfavorable outcome.
d. The ability to make a reasonable estimate of the amount of the loss.

9. Which of the following is not acceptable treatment for the presentation of current liabilities?

a. Listing current liabilities in order of maturity


b. Listing current liabilities according to amount
c. Offsetting current liabilities against assets that are to be applied to their liquidation
d. Showing current liabilities immediately below current assets to obtain a presentation of working capital

10. Glaus Corp. signed a three-month, zero-interest-bearing note on November 1, 2012 for the purchase of P250,000 of inventory. The
face value of the note was P253,675. Assuming Glaus used a Discount on Note Payable account to initially record the note and that
the discount will be amortized equally over the 3-month period, the adjusting entry made at December 31, 2012 will include a

a. debit to Discount on Note Payable for P1,225.


b. debit to Interest Expense for P2,450.
c. credit to Discount on Note Payable for P1,255.
d. credit to Interest Expense for P2,450.

11. The effective interest on a 12-month, zero-interest-bearing note payable of P300,000, discounted at the bank at 8% is

a. 8.51%.
b. 8%.
c. 11.49%.
d. 8.70%.

12. On September 1, Hydra purchased P13,300 of inventory items on credit with the terms 1/15, net 30, FOB destination. Freight charges
were P280. Payment for the purchase was made on September 18. Assuming Hydra uses the perpetual inventory system and the net
method of accounting for purchase discounts, what amount is recorded as inventory from this purchase?

a. P13,167.
b. P13,447.
c. P13,580.
d. P13,300.

13. Purchase Retailer made cash sales during the month of October of P221,000. The sales are subject to a 6% sales tax that was also
collected. Which of the following would be included in the summary journal entry to reflect the sale transactions?

a. Debit Cash for P221,000.


b. Credit Sales Taxes Payable for P12,510.
c. Credit Sales Revenue for P208,490.
d. Credit Sales Taxes Payable for P13,260.

14. On February 10, 2012, after issuance of its financial statements for 2011, House Company entered into a financing agreement with
Lebo Bank, allowing House Company to borrow up to P6,000,000 at any time through 2014. Amounts borrowed under the agreement
bear interest at 2% above the bank's prime interest rate and mature two years from the date of loan. House Company presently has
P2,250,000 of notes payable with First National Bank maturing March 15, 2012. The company intends to borrow P3,750,000 under the
agreement with Lebo and liquidate the notes payable to First National. The agreement with Lebo also requires House to maintain a
working capital level of P9,000,000 and prohibits the payment of dividends on common stock without prior approval by Lebo Bank.
From the above information only, the total short-term debt of House Company as of the December 31, 2012 balance sheet date is

a. P0.
b. P2,250,000.
c. P3,000,000.
d. P6,000,000.

15. On December 31, 2012, Irey Co. has P4,000,000 of short-term notes payable due on February 14, 2013. On January 10, 2013, Irey
arranged a line of credit with County Bank which allows Irey to borrow up to P3,000,000 at one percent above the prime rate for three
years. On February 2, 2013, Irey borrowed P2,400,000 from County Bank and used P1,000,000 additional cash to liquidate P3,400,000
of the short-term notes payable. The amount of the short-term notes payable that should be reported as current liabilities on the
December 31, 2012 balance sheet which is issued on March 5, 2013 is

a. P0.
b. P600,000.
c. P1,000,000.
d. P1,600,000.

Stine Co. is a retail store operating in a state with a 6% retail sales tax. The retailer may keep 2% of the sales tax collected. Stine Co.
records the sales tax in the Sales Revenue account. The amount recorded in the Sales Revenue account during May was P222,600.

16. The amount of sales taxes (to the nearest dollar) for May is
a. P13,089.
b. P12,600.
c. P13,356.
d. P14,157.

17. The amount of sales taxes payable (to the nearest dollar) to the state for the month of May is

a. P12,826.
b. P12,348.
c. P13,089.
d. P13,873.

18. A company gives each of its 50 employees (assume they were all employed continuously through 2012 and 2013) 12 days of vacation
a year if they are employed at the end of the year. The vacation accumulates and may be taken starting January 1 of the next year.
The employees work 8 hours per day. In 2012, they made P24.50 per hour and in 2013 they made P28 per hour. During 2013, they
took an average of 9 days of vacation each. The companys policy is to record the liability existing at the end of each year at the wage
rate for that year. What amount of vacation liability would be reflected on the 2012 and 2013 balance sheets, respectively?

a. P117,600; P163,800
b. P134,400; P168,000
c. P117,600; P168,000
d. P134,400; P163,800

19. The total payroll of Teeter Company for the month of October, 2012 was P600,000, of which P150,000 represented amounts paid in
excess of P106,800 to certain employees. P500,000 represented amounts paid to employees in excess of the P7,000 maximum subject
to unemployment taxes. P150,000 of federal income taxes and P15,000 of union dues were withheld. The state unemployment tax is
1%, the federal unemployment tax is .8%, and the current F.I.C.A. tax is 7.65% on an employees wages to P106,800 and 1.45% in
excess of P106,800. What amount should Teeter record as payroll tax expense?

a. P197,700.
b. P188,400.
c. P38,400.
d. P47,400.

Vargas Company has 35 employees who work 8-hour days and are paid hourly. On January 1, 2011, the company began a program
of granting its employees 10 days of paid vacation each year. Vacation days earned in 2011 may first be taken on January 1, 2012.
Information relative to these employees is as follows:
Hourly Vacation Days Earned Vacation Days Used
Year Wages by Each Employee by Each Employee
2011 P21.50 10 0
2012 22.50 10 8
2013 23.75 10 10

Vargas has chosen to accrue the liability for compensated absences at the current rates of pay in effect when the compensated time
is earned.
20. What is the amount of expense relative to compensated absences that should be reported on Vargass income statement for 2011?

a. P0.
b. P57,400.
c. P63,000.
d. P60,200.

21. What is the amount of the accrued liability for compensated absences that should be reported at December 31, 2013?

a. P79,100.
b. P75,600.
c. P66,500.
d. P79,800.

22. During 2011, Vanpelt Co. introduced a new line of machines that carry a three-year warranty against manufacturers defects. Based
on industry experience, warranty costs are estimated at 2% of sales in the year of sale, 3% in the year after sale, and 4% in the second
year after sale. Sales and actual warranty expenditures for the first three-year period were as follows:

Sales Actual Warranty Expenditures


2011 P 600,000 P 9,000
2012 1,500,000 65,000
2013 2,100,000 135,000
P4,200,000 P209,000
What amount should Vanpelt report as a liability at December 31, 2013?
a. P0
b. P12,000
c. P54,000
d. P169,000

23. Palmer Frosted Flakes Company offers its customers a pottery cereal bowl if they send in 3 boxtops from Palmer Frosted Flakes boxes
and P1. The company estimates that 60% of the boxtops will be redeemed. In 2012, the company sold 675,000 boxes of Frosted Flakes
and customers redeemed 330,000 boxtops receiving 110,000 bowls. If the bowls cost Palmer Company P3 each, how much liability for
outstanding premiums should be recorded at the end of 2012?

a. P270,000
b. P50,000
c. P75,000
d. P138,000
Mott Co. includes one coupon in each bag of dog food it sells. In return for eight coupons, customers receive a leash. The leashes
cost Mott P3 each. Mott estimates that 40 percent of the coupons will be redeemed. Data for 2012 and 2013 are as follows:
2012 2013
Bags of dog food sold 500,000 600,000
Leashes purchased 18,000 22,000
Coupons redeemed 120,000 150,000

24. The premium expense for 2012 is

a. P37,500.
b. P45,000.
c. P52,500.
d. P75,000.

25. The premium liability at December 31, 2012 is

a. P11,250.
b. P15,000.
c. P26,250.
d. P30,000.

26. The premium liability at December 31, 2013 is

a. P16,875
b. P31,875.
c. P33,750.
d. P63,750.

27. Included in Vernon Corp.'s liability account balances at December 31, 2012, were the following:

7% note payable issued October 1, 2012, maturing September 30, 2013 P250,000
8% note payable issued April 1, 2012, payable in six equal annual
installments of P150,000 beginning April 1, 2013 600,000
Vernon's December 31, 2012 financial statements were issued on March 31, 2013. On January 15, 2013, the entire
P600,000 balance of the 8% note was refinanced by issuance of a long-term obligation payable in a lump sum. In addition,
on March 10, 2013, Vernon consummated a noncancelable agreement with the lender to refinance the 7%, P250,000 note
on a long-term basis, on readily determinable terms that have not yet been implemented. On the December 31, 2012
balance sheet, the amount of the notes payable that Vernon should classify as short-term obligations is
a. P175,000.
b. P125,000.
c. P50,000.
d. P0.

28. Edge Companys salaried employees are paid biweekly. Occasionally, advances made to employees are paid back by payroll
deductions. Information relating to salaries for the calendar year 2013 is as follows:

12/31/12 12/31/13
Employee advances P24,000 P 36,000
Accrued salaries payable 130,000 ?
Salaries expense during the year 1,300,000
Salaries paid during the year (gross) 1,250,000
At December 31, 2013, what amount should Edge report for accrued salaries payable?
a. P180,000.
b. P168,000.
c. P144,000.
d. P50,000.

29. Risen Corp.'s payroll for the pay period ended October 31, 2012 is summarized as follows:

Federal Amount of Wages Subject


Department Total Income Tax to Payroll Taxes
Payroll Wages Withheld F.I.C.A.Unemployment
Factory P 75,000 P 9,000 P70,000 P32,000
Sales 22,000 3,000 16,000 2,000
Office 18,000 2,000 8,000
P115,000 P14,000 P94,000 P34,000
Assume the following payroll tax rates:
F.I.C.A. for employer and employee 7% each
Unemployment 3%
What amount should Risen accrue as its share of payroll taxes in its October 31, 2012 balance sheet?
a. P21,600.
b. P15,020.
c. P14,180.
d. P7,600.

During January 2014 Forlorn Company recorded the following information pertaining to its inventory:
Units Unit cost Total Cost
January 1 balance 20,000 10 200,000
January 15 sales 15,000
January 18 purchase 20,000 11 220,000
January 20 purchase 15,000 12 180,000
January 25 sales 24,000
January 30 purchases 14,000 15 210,000
January 31 sales 10,000

30. Using the First In First Out method, what amount of inventory should Forlorn Company report on its January 31, 2014
statement of financial position?
a. 240,000
b. 260,000
c. 280,000
d. 282,000

31. Using the moving average method, what amount of inventory should Forlorn Company report in its January 31, 2014
statement of financial position?
a. 240,000
b. 260,000
c. 280,000
d. 300,000

32. Gorgeous Co.s pricing structure has been established to yield a gross margin of 30%. The following data pertain to the
year ended December 31, 2014; Sales, P2,200,000; Inventory, January 1, 2014, P1,000,000; Purchases, P800,000; Freight
cost on purchases, P20,000; Freight cost on merchandise sold, P30,000; Inventory inside the companys warehouse, per
actual count on 12/31/14, P160,00; Credit memo issued to customers for goods returned & received, P50,000; Credit memo
issued to customers for merchandise to be returned, 01/02/15, P40,000. Sales discount, P100,000; Gorgeous is satisfied
that all sales and purchases have been fully and properly recorded. How much would Gorgeous reasonably estimate as a
shortage in inventory at December 31, 2014?
a. 343,000
b. 183,000
c. 155,000
d. 143,000

Drake Corporation had the following amounts, all at retail:

Beginning inventory 3,600 Purchases 120,000


Purchase returns 6,000 Net markups 18,000
Abnormal shortage 4,000 Net markdowns 2,800
Sales 72,000 Sales returns 1,800
Employee discounts 1,600 Normal shortage 2,600

33. What is Drakes ending inventory at retail?


a. 54,400
b. 56,000
c. 57,600
d. 58,400

Morgan Company began business in October 13, 2013. During the year, Morgan purchased a portfolio of securities listed below. In
its December 31, 2013 balance sheet, Morgan appropriately reported a P300,000 credit balance in its Fair Value Adjustment-Equity
Security account. The composition of the securities did not change during the year 2014. The current and future tax rate is 32%.
Pertinent data are as follows:
Security Cost Market Value, December 31, 2014
P 2,400,000 2,450,000
Q 2,500,000 2,550,000
R 1,900,000 2,000,000
6,800,000 7,000,000

34. What amount of unrealized gain or loss on these securities should be disclosed in Morgans profit or loss for the year ended
December 31, 2014 assuming the securities were designated as investment to profit or loss?

35. What amount of unrealized gain or loss on these securities should be disclosed in Morgans other comprehensive income
for the year ended December 31, 2014 assuming the securities were designated as investment at fair value to other
comprehensive income?

36. What amount of unrealized gain or loss on these securities should be disclosed in Morgans shareholders equity for the
year ended December 31, 2014 assuming the securities were designated as investment at fair value to other comprehensive
income?

Owl Company with an income tax rate of 32% for current and future years, reported the following investment in long-term marketable
equity securities investment to other comprehensive incomes in its December 31, 2013, statement of financial position:
Investment in non-current equity securities, at cost 2,600,000
Fair value adjustment (400,000)
Fair market value, December 31, 2013 2,200,000

37. On December 31, 2014, the market value of the portfolio was P2,500,000. How much should Owl report in its 2014 statement
of comprehensive income as a result of the increase in the market value of the investment in 2014?

38. What amount of unrealized gain or loss should the company disclose in the December 31, 2014 statement of financial
position?

39. It is defined as property held by an owner or finance lessee to earn rentals or for capital appreciation or both.

a. Investment property c. Mining property


b. Owner occupied property d. Rental property

40. Investment property includes all of the following, except

a. Land held for long term capital appreciation


b. Land held for currently undermined use
c. Building owned by the reporting by the reporting enterprise or held by a finance lessee leased out under one or more
operating leases
d. Property held for sale in the ordinary course of business or in the process of construction for such sale

41. Subsequent to initial recognition, the investment property should be measured at

a. Fair value
b. Cost less any accumulated depreciation and any accumulated impairment losses
c. Revalued amount
d. Either fair value or cost less any accumulated depreciation and any accumulated losses.

On April 15, 2007, fire damaged the office and warehouse of Mark Medinalalaki Company. The trial balance below was prepared
from the general ledger which was the only accounting record saved.
Mark Medinalalaki Company
TRIAL BALANCE
March 31, 2007

Debit Credit
Cash P 35,000
Held-for-trading securities 350,000
Accounts receivable 120,000
Inventory, December 31, 2006 225,000
Land 950,000
Building 800,000
Accumulated depreciation - bldg. P 260,000
Machinery and Equipment 130,500
Accumulated depreciation Mach. & Equip. 69,400
Other noncurrent assets 98,000
Accounts payable 71,100
Other expense accruals 15,400
Common stock 1,220,600
Retained earnings 849,000
Sales 405,000
Purchases 156,000
Other operating expenses 26,000

The following additional information has been obtained:

1. The companys year- end is December 31.


2. An examination of the April bank statement and cancelled checks revealed the following:
Checks written, April 1-15 P39,000
(P17,000 paid to accounts payable as of March 31, P10,200 for April merchandise shipments, and
P11,700 paid for other operating expenses)
Deposits, April 1-15 P38,850
(consisted of collections from customers with the exception of a P2,850 refund from a supplier for
goods returned in April)

3. Communication with suppliers disclosed unrecorded payables at April 15 of P31,800 for April merchandise shipments,
including P6,900 for goods in transit (FOB shipping point) on that date.
4. Customer acknowledged indebtedness of P108,000 (including P1,800 that will probably be uncollectible.) it was also
estimated that customers owed another P24,000 that will never be acknowledge or recovered.
5. The insurance company agreed that the fire-loss claim should be based on the assumption that the overall gross profit
ratio for the past 2 years was in effect during the current year. The companys audited financial statements disclosed the
following information:
Dec. 31, 2006 Dec. 31, 2005
Net sales P1,590,000 P1,170,000
Net purchases 840,000 705,000
Beginning inventory 150,000 225,600
Ending inventory 225,000 150,000

6. Inventory costing P21,000 was salvaged and sold for P10,500. The balance of the inventory was a total loss.

Based on the preceding information, determine the following:

42. Gross profit ratio


43. Sales, January 1, 2007 April 15, 2007
44. Net purchases, January 1, 2007 April 15, 2007
45. Cost of inventory not destroyed by fire
46. Inventory fire loss

UHAWSAIYO COMPANY
General and Petty Cash Count
Audit Year: 2008
Date of count January 5, 2009, 9:10 am

Bills and Coins


Denom. Bundles of 100 pcs Rolls of 50 coins Loose
P500 1 9
100 2 27
50 3 5
20 5 4
10 10
5 6 4

1 10 20
.25 40 16

Checks
Maker Payee Date Amount
T. Otis customer Uhawsaiyo 12/30/08 P11,920
R. Eyes customer Uhawsaiyo 12/26/08 12,505
O. Liever customer Uhawsaiyo 1/2/09 5,707
F. Rancisco customer Uhawsaiyo 12/21/08 13,350
Uhawsaiyo ABC Co. 12/27/08 14,500
M. Doza officer Cash 1/5/09 310
O. Campo * Cash 12/29/08 260

*Amount is for a return of travel advance made to the employee in an earlier period.

Vouchers and IOUS


Paid to Date Amount
Post office 12/20/08 150
Italian Village Christmas party 12/23/08 6,290
I. Dio IOU 12/27/08 300

Others
A. Cash sales invoices (all currencies No. 17903 to 18112), P100,500
B. Official receipts
Number Amount Form of Collection
31250 P560 Cash
31251 12,505 Check
31252 1,202 Cash
31253 11,920 Check
31254 13,350 Check
C. Stamps of various denomination amounted to P80.
D. A notation on a sheet of paper as follows:
Proceeds from employee contribution for Christmas Party, P9,500
E. Petty cash per ledger, P15,000.

47. How much is the petty cash shortage as of January 5, 2009?

48. The adjustment to correct petty cash fund involves a credit to petty cash fund at:

49. What is the adjusted petty cash fund as of December 31, 2008?

The Calamba Products, Inc. had poor internal control over its cash transactions. Data pertaining to its cash position at October 31,
2002 were as follows:

The cash book showed a balance of P15,000, which included undeposited receipts. A credit of P150 on the bank records for a deposit
made by a customer did not appear on the books of the company.

The bank statement had a balance of 12,300. The outstanding checks were as follows:

NO. 210667 P 120.00


210671 100.00
210693 230.00
210734 110.00
210737 140.00
210749 150.00
The cashier misappropriated all undeposited receipts in excess of P3,000 and prepared the following reconciliation:

Balance per books, October 31, 2002 P 15,000.00


Add: Outstanding checks
#210734 P 110.00
#210737 140.00
#210749 150.00 300.00
15,300.00
Less: Undeposited receipts 3,000.00
Balance per bank, October 31, 2002 12,300.00
Unrecorded credit 150.00
True cash balance, October 31, 2002 12,150.00

50. The cash shortage, if any is

51. A correct reconciliation will show that the cashiers accountability for the cash on hand is

52. The adjusted cash in bank balance for the balance sheet as of October 31, 2002 is

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