AFAR - Test 12/10/2018

1. A company’s management has expressed concern over the varied system architectures that the organization uses.
Potential security and control concerns would include all of the following except:
a. Backup file storage administration is often decentralized
b. There are difficulties in developing uniform security standards for the various platforms
c. Having data distributed across many computers throughout the organization increases the risk that a single
disaster would destroy large portions of the organizations data
d. Users may have different user ID codes and passwords to remember for the several systems that they use

2. A derivative financial asset is designated as the hedging instrument in a fair value hedge. The following details are
available concerning its cost and fair value for three years.
Fair value Cost
Year 0 P90,000 P90,000
Year 1 P100,000 P90,000
Year 2 P85,000 P90,000
Year 3 P85,000 P90,000
In accordance with the accounting required by PFRS 9, which one of the following would be the gain or (loss) recorded in
the statement of profit or loss and other comprehensive income in year 2?
a. (P15,000)
b. (P5,000)
c. 0
d. P10,000

3. Based on discussions with former customers, a company determines that sales have been lost due to the lengthy
turnaround time and inflexible pricing in their proposal and bid process. Which of the following internal activities could
not be used to improve the closing ratio?
a. Activity-based management
b. Process reengineering
c. Benchmarking best prac
d. Activity-based costing (ABC)

4. On December 31, 2013, Giant Corporation's Investment in Penguin Corporation account had a balance of P500,000.
The balance consisted of 80% of Penguin's P625,000 stockholders' equity on that date. Giant owns 80% of Penguin. On
January 2, 2014, Penguin increased its outstanding common stock from 15,000 to 18,000 shares
Assume that Penguin sold the additional 3,000 shares to outside interests for P150,000 on January 2, 2014. Giant's
percentage ownership immediately after the sale of additional stock would be
a. 83-1/3%
b. 75%
c. 66-2/3%
d. 80%

5. Which computer application is most frequently used to analyze numbers and financial information?
a. WAN applications
b. Computer graphics programs
c. Word processing programs
d. Spreadsheets

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6. Omni Company uses a job order cost system and has two production departments, T and P. Budgeted information for
the year is as follows:
Department T Department P
Machine hours 500 25,000
Direct materials P400,000 P600,000
Direct labor 350,000 100,000
Factory overhead 455,000 300,000
Both Department T and Department P apply factory overhead to production orders through the use of predetermined
factory overhead application rates, which are based upon the yearly budget. Department T applies factory overhead on
a direct labor cost basis while Department P does so on a machine hours basis. Actual information relating to Job 194
during the year was as follows:
Department T Department P Total
Machine hours 150 2,500 2,650
Direct materials P18,000
Direct labor P11,000 P4,500 P15,500
Factory overhead control P14,500 P24,600 P39,100
If Omni Company contracted to sell Job 194 for P100,000, and if estimated selling and administrative expenses are 5% of
the selling price, what is the estimated profit on Job 194?
a. 28,600
b. 22,400
c. 33,700
d. 17,200

7. Which of the following is the least likely means a company might choose to meet the needs of international investors?
a. Denomination of the financial statements in the currency of the country where the financial statements will be
used.
b. Mutual recognition in which one country accepts the financial statements of another country for regulatory
purposes such as listing on stock exchanges or filing annual reports.
c. Partial or complete restatement of financial statements to the accounting principles of the financial statement
users' country.
d. Translation of financial statements or annual reports into the language of the user.

8. In a perpetual inventory system, the sale of items for cash consists of two entries. One entry is a debit to Cash and a
credit to Sales. The other entry is a debit to
a. Finished Goods Inventory and a credit to Work in Process Inventory
b. Work in Process Inventory and a credit to Finished Goods Inventory
c. Finished Goods Inventory and a credit to Cost of Goods Sold
d. Cost of Goods Sold and a credit to Finished Goods Inventory

9. Increasing complexity of the information technology systems often blurs the boundaries that separate the
authorization, record keeping, and custody functions performed by the information technology (IT) department and the
system users. For example, when a sales agent enters a customer's order online, the computer plays a significant role in
authorizing the sales transaction based on its comparison of pre-set customer credit limits in the master file and
consequently posting all approved sales transactions in the sales journals and related sub-ledgers. In this scenario, what
would be an example of the control that would best minimize the lack of segregation of duties on the part of the
computer system?

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 a. Since the transaction is processed in an automated fashion, it really does not matter which department
performs a particular function
b. Responsibility for designing and controlling accounting software programs that contain the sales authorization
and posting controls should be under the authority of the IT department; and the ability to update all the
information in the master file of customer credit limits should be under the authority of the credit approval
department
c. In such situations, it is best to outsource such tasks to eliminate risking the lack of segregation of duties
d. Responsibility for designing and controlling accounting software programs that contain the sales authorization
and posting controls should be under the authority of the credit approval department; and the ability to update
all the information in the master file of customer credit limits should be under the authority of the IT
department

10. Pahm Corporation owns 80% of the outstanding voting common stock of Abussi Corporation, which was purchased
for P60,000 over Abussi's book value. The excess purchase price was attributable to goodwill. Abussi Corporation owns
60% of the outstanding common stock of Badock Corporation, which was purchased at book value. The separate net
incomes of Pahm, Abussi, and Badock (excluding investment income) for the year are P200,000, P240,000, and
P260,000, respectively. There were no fair value/book value differences in the assets and liabilities of Pahm, Abussi and
Badock
The amount of income for the current year assigned to the noncontrolling shareholders of Abussi Corporation is
a. 53,200
b. 48,000
c. 79,200
d. 74,000

11. Which focuses on process improvement, process innovation, or business reengineering?

a. functional-based responsibility accounting
b. strategic-based responsibility accounting
c. none of the above
d. activity-based responsibility accounting

12. The Angelo Corporation decided to open a branch store in Balayan. Shipments of merchandise to the branch totaled
P108,000 which included a 20% mark-up on cost. All accounting records are to be kept at the home office. The branch
submitted the following report summarizing its operations for the period ended December 31, 2020.
Sales on account 148,000
Sales on cash basis 44,000
Collections of accounts 120,000
Expenses paid 76,000
Expenses unpaid 24,000
Purchase of merchandise for cash 52,000
Inventory on hand, December 31 (80% from home office) 60,000
Remittances to home office 110,000
The branch operations resulted in a net income (loss) of:
a. 2,000
b. none of the above
c. 8,000
d. 1,600

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13. Tillary Company, which began business on January 1, 2017, appropriately uses the installment sales method of
accounting. The following data are available for 2017:
Installment accounts receivable, December 31, 2017 P200,000
Deferred gross profit, December 31, 2017
(before recognition of realized gross profit) P140,000
Gross profit on sales 40%
The cash collections on installment sales for the year ended December 31, 2017, should be
a. 120,000
b. 130,000
c. 100,000
d. 150,000

14. A parent corporation owns 55% of the outstanding voting common stock of one domestic subsidiary. The parent has
control over the subsidiary. Which of the following statements is correct?
a. The parent corporation must prepare consolidated financial statements for the economic entity
b. The parent company can use the equity method or the fair value/cost method
c. The parent corporation must use the fair value method
d. The parent company may use the equity method but the subsidiary cannot be consolidated

15. Mackerel, a company listed on a recognized stock exchange, reports operating results from its North American
activities to its chief operating decision maker. The segment information for the year is:
Revenue 3,675,000
Profit 970,000
Assets 1,700,000
Number of employees 2,500
Mackerel's results for all of its segments in total are:
Revenue 39,250,000
Profit 9,600,000
Assets 17,500,000
Number of employees 18,500
According to IFRS 8 Operating segments, which piece of information determines for Mackerel that the North American
activities are a reportable segment?
a. Revenue
b. Profit
c. Number of employee
d. Assets

16. Cruz Company processes Duo into two joint products, Big and Mini. Duo is purchased in 1,000 gallon for P2,000.
Processing costs are P3,000 to process the 1,000 gallons of Duo into 800 gallons of Big and 200 gallons of Mini. The
selling price is P9 per gallon for Big and P4 per gallon for Mini.
The 800 gallons of Big can be processed further into 600 gallons of Giant if P1,000 of additional processing costs are
incurred. Giant can be sold for P17 per gallon. If the net-realizable-value (NRV) method was used to allocate costs to the
joint products, the total cost of producing Giant would be:
a. 5,564
b. 4,600
c. 5,520
d. 5,600
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17. Arrow Manufacturing Company has an expected production level of 175,000 product units for 2001. Fixed factory
overhead is P 450,000 and the company applies factory overhead on the basis of expected production level at the rate of
P5.20 per unit. The variable overhead cost per unit is:
a. 3.02
b. 2.93
c. 2.63
d. 2.57

18. Current generally accepted accounting principles require that the translation of a foreign subsidiarys accounting
records should be accomplished by the
a. current rate method.
b. monetary/nonmonetary method.
c. functional currency method.
d. current/noncurrent method.

19. Goldberg Corporation owned a 70% interest in Savannah Corporation on December 31, 2013, and Goldberg's
Investment in Savannah account had a balance of P3,900,000. Savannah's stockholders' equity on this date was as
follows:
Capital stock, P10 par value P3,000,000
Retained Earnings 2,400,000
Total Stockholders' Equity P5,400,000
On January 1, 2014, Savannah issues 80,000 new shares of common stock to Goldberg for P16 each
On January 1, 2014, assume the fair values of Savannah's identifiable assets and liabilities equal book values. What is the
change in the amount of goodwill associated with the issuance of 80,000 additional shares to Goldberg? (Use four
decimal places.)
a. Decrease goodwill P384,000
b. Decrease goodwill P38,176
c. Increase goodwill P38,176
d. Increase goodwill P384,000

20. A partnership has the following capital balances:

Partners Capital
William (40% of gains and losses) 220,000
Jennings (40%) 160,000
Bryan (20%) 110,000
Darrow invests P250,000 in cash for a 30% ownership interest. The money goes to the business. After the transaction,
what is Jennings capital balance?
a. 170,200
b. 171,200
c. 168,000
d. 160,000

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SOLUTIONS:
1. C
2. A
3. D
4. C
5. D
6. D
7. B
8. D
9. B
10. C
11. D
12. A
13. D
14. A
15. B
16. D
17. C
18. A
19. B
20. B

Credit to icpa.ph

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