1.

The accounting principle of expense recognition is best demonstrated by

a. Not recognizing any expense unless some revenue is realized
b. Associating effort with accomplishment
c. Recognizing prepaid rent received as revenue
d. Establishing an Appropriation for Contingencies account

2. Which of the following is true regarding SMEs?

a. SME is an entity with assets between P3,000,000 and P350,000,000, and liabilities
between P3,000,000 and P250,000,000.
b. SME is an entity with assets between P3,000,000 and P350,000,000, and liabilities
between P2,000,000 and P250,000,000.
c. SME is an entity with total assets between P3,000,000 and P350,000,000, or total
liabilities between P2,000,000 and P250,000,000.
d. SME is an entity with assets between P3,000,000 and P350,000,000, or liabilities
between P3,000,000 and P250,000,000.

3. An entity reported the checkbook balance on December 31, 2017 at P8,000,000. In

addition, the entity held the following items in the safe on that date:

Check payable to the entity, dated January 2, 2018 in payment

of a sale not included in December 31 check book balance P 400,000
Check payable to the entity, deposited December 15 and
included in December 31 checkbook balance but returned by
the bank on December 30 stamped “NSF.” The check was
redeposited on January 2, 2018 and cleared on January 5, 2018. 3,000,000
Check drawn on the entity’s account dated and recorded on
December 31, 2017 but not mailed until January 15, 2018 2,500,000
Coins and currencies on hand 800,000
Cash restricted for acquisition of equipment to be disbursed 600,000
2018
Sinking fund restricted for bond payable due 2018 1,000,000

What amount should be reported as cash on December 31, 2017?

a. 9,900,000
b. 9,300,000
c. 8,300,000
d. 8,600,000
4. An entity included the following items in inventory at year-end:
Goods out on consignment at sale price, including 40% markup on cost 1,400,000
Goods purchased in transit, shipped FOB destination 1,200,000
Goods held on consignment by the entity 900,000

At what amount should the inventory at year-end be reduced?

a. 1,460,000
b. 2,660,000
c. 1,300,000
d. 2,500,000

5. An entity purchased an investment property on January 1, 2015 at a cost of P2,200,000.

The property had a useful life of 40 years and on December 31, 2017 had a fair value of
P3,000,000. On December 31, 2017, the property was sold for net proceeds of
P2,900,000. The entity used the cost model to account for investment property.

How much is the net amount to be recognized in profit or loss for 2017?
a. 865,000 gain
b. 810,000 gain
c. 100,000 gain
d. 700,000 gain

6. On January 1, 2017, an entity showed land with carrying amount of P10,000,000 and
building with cost of P60,000,000 and accumulated depreciation of P18,000,000. The
land and building were revalued on same date and revealed the fair value of land at
P15,000,000 and the building at P70,000,000. The original useful life of the building is 20
years and depreciation is computed on the straight line.

What is the revaluation surplus on December 31, 2017?

a. 31,000,000
b. 33,000,000
c. 31,350,000
d. 29,600,000
7. On March 1, 2018, an entity issued 4,000 of its P1,000 face value bonds at 120 plus
accrued interest. The entity paid bond issuance cost of P500,000. The bonds were dated
November 1, 2017, mature on November 1, 2026, and bear interest at 12% payable
semi-annually on May 1 and November 1. What is the net amount received from bond
issuance?

a. 4,800,000
b. 4,960,000
c. 4,460,000
d. 4,000,000

8. An entity provided the following information during the current year:

January 1 December 21
Fair value of plan assets 6,000,000 8,500,000
Projected benefit obligation 5,000,000 6,500,000
Prepaid/accrued benefit cost – 1,000,000 2,000,000
surplus
Asset ceiling 700,000 1,200,000
Effect of asset ceiling 300,000 800,000

During the year, the entity recognized current service cost of P1,000,000, actual return
on plan assets of P400,000, and contribution to the plan of P2,100,000. The discount
rate is 10%.

What is the employee benefit expense for the current year?

a. 930,000
b. 900,000
c. 800,000
d. 870,000
9. At the beginning of current year, Coral Company was organized with the following
capital structure:

 10% cumulative preference share capital, par value P10, liquidation value P14,
authorized, issued and outstanding 100,000 shares, P1,000,000.
 Ordinary share capital, par value P100, authorized 40,000 shares, issued and
outstanding 30,000 shares, P3,000,000.

The net income for the current year was P5,000,000 and no dividends were declared.

What is the book value per ordinary share?

a. 187.50
b. 250.00
c. 150.00
d. 263.33

10.An entity acquired 40% of another entity’s shares on January 1, 2017 for P15,000,000.
The investee’s assets and liabilities at that date were as follows:

Carrying amount Fair value

Cash 1,000,000 1,000,000

Accounts receivable 4,000,000 4,000,000
Inventory – FIFO 8,000,000 9,000,000
Land 5,500,000 7,000,000
Plant and equipment – net 14,000,000 22,000,000
Total Assets 32,500,000 43,000,000
Liabilities 7,000,000 7,000,000

The plant and equipment have a 10-year remaining useful life. The inventory was all sold
in 2017. The entity sold the land in 2018 for P8,000,000 and reported a gain of
P2,500,000.

The investee reported net income of P3,000,000 for 2017 and P5,000,000 for 2018. The
investee paid P1,000,000 cash dividend on December 31, 2017 and P2,000,000 on
December 31, 2018.

What is the investment income for 2017?

a. 880,000
b. 480,000
c. 400,000
d. 580,000