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QUIZ # 1 (LETRAN)
Multiple Choice
Identify the choice that best completes the statement or answers the question.
1. Trisha Company computed a pretax accounting income of P5,000,000 for its first year of operations ended
December 31, 2016. In preparing the income tax return for 2016, the following differences are noted between
accounting income and taxable income.
Nondeductible expenses
Nontaxable revenue
Gross income on installment sales reported in accounting income but not in
taxable income (expected to reverse in 2017)
Provision for doubtful accounts
Income tax rate

200,000
500,000
1,000,000
100,000
35%

What is the "current tax expense"?

a.
1,330,000
b.
1,645,000
c.
1,750,000
d.
1,295,000
2. Trisha Company's income statement for the year ended December 31, 2016 shows pretax income of P1,000,000.
The following items are treated differently on the tax return and in the accounting records:
Tax return
Accounting record
Rent income
70,000
120,000
Depreciation
280,000
220,000
Premiums on officers' life insurance
90,000
Trisha's tax rate for 2016 is 35 percent.
What is the amount of income tax payable for 2016?
a.
420,000
b.
350,000
c.
343,000
d.
381,500
3. On June 30, 2016, Trisha Company prepaid a P190,000 premium on an annual insurance policy. The premium
payment was a tax deductible expense in Trisha's 2016 cash basis tax return. The accrual basis income statement
will report a P95,000 insurance expense in 2016 and 2017. The income tax rate is 35%. In Trisha's December 31,
2016 balance sheet,
What amount related to the insurance should be reported as deferred tax liability?
a.
66,500
b.
35,000
c.
33,250
d.
0
4. Trisha Company leased a building and received P4,000,000 annual rental payment on June 15, 2016. The
beginning of the lease was July 1, 2016. Rental income is taxable when received. The income tax rate is 35%.
Trisha had no other permanent or temporary differences.
What amount of deferred tax asset should Trisha report in its December 31, 2016 balance sheet?
a.
1,400,000
b.
350,000
c.
700,000
d.
0
5. Trisha Company has three financial statement elements for which the December 31, 2016 book value is different
from the December 31, 2016 tax basis:
Book value
Tax basis
Difference
Equipment
Prepaid officers'

200,000

120,000

80,000

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Insurance policy
75,000
Warranty liability
50,000
As a result of these differences, future taxable amounts are
a.
205,000
b.
155,000
c.
80,000
d.
50,000

0
0

75,000
50,000

6. The following balances were reported by Angel Company at December 31, 2015 and 2014:
Inventory
Accounts payable

12/31/2015
2,600,000
750,000

12/31/2014
2,900,000
500,000

Angel paid suppliers P4,900,000 during the year ended December 21, 2015.
What amount should Angel report for cost of goods sold in 2015?
a. 5,450,000
b. 4,950,000
c. 4,850,000
d. 4,350,000
7. Angel Company maintains its accounting records on the cash basis but restates its financial statements
to the accrual method of accounting. Angel had P6,000,000 in cash basis pretax income for 2015. The
following information pertains to the operations for the years ended December 31, 2015 and 2014.
Accounts receivable
Accounts payable

2015
4,000,000
1,500,000

2014
2,000,000
3,000,000

Under the accrual method, what amount of income before tax should Angel report in its 2015 income
statement?
a. 2,500,000
b. 5,500,000
c. 6,500,000
d. 9,500,000
8. Angel Company borrows money under various loan agreements involving notes discounted and notes
requiring interest payments at maturity. During the year ended December 31, 2015, Angel paid interest
totaling P100,000. Angels December 31 balance sheets included the following information:
2014
2015
Prepaid interest
23,500
18,000
Interest payable
45,000
53,500
How much interest expense should Angel report for 2015?
a. 86,000
b. 97,000
c. 103,000
d. 114,000
9. Angel Company acquires patent right from other enterprises and pays advance royalties in some cases,
and in others, royalties are paid within 90 days after year end. The following data are included in Angels
December 31 balance sheet:
Prepaid royalties
Royalties payable

2014
550,000
800,000

2015
450,000
750,000

During 2015, Angel remitted royalties of P3,000,000.

In its income statement for the year ended December 31, 2015, Angel should report royalty expense of
a. 2,950,000
b. 3,050,000
c. 3,100,000
d. 3,300,000

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10. On July 1, 2015, Angel Company obtained fire insurance at an annual premium of P72,000 payable on
July 1 of each year. The first premium payment was made July 1, 2015. On October 1, 2015, Angel paid
P24,000 for real estate taxes to cover the period ending September 30, 2016. This prepayment was
made to obtain a discount.
In its December 31, 2015 balance sheet, Angel should report prepaid expenses of
a. 60,000
b. 54,000
c. 48,000
d. 36,000
11. The following information pertains to Joseph Company during 2015.
Dividend received
Dividend paid
Cash received from customers
Proceeds from issuing common stock
Interest received
Proceeds from sale of long term investments
Cash paid to suppliers and employees
Interest paid on long term debt
Income taxes paid
Cash balance January 1

500,000
1,000,000
9,000,000
1,500,000
200,000
2,000,000
6,000,000
400,000
300,000
1,800,000

What is the net cash provided by operating activities for the year ended December 31, 2015 using the
direct method?
a.
3,000,000
b.
3,300,000
c.
2,700,000
d.
2,000,000
12. The net income for the year ended December 31 for Joseph Corporation was P3,520,000. Additional
data are as follows:
Purchase of plant assets
Depreciation of plant assets
Dividends declared
Net decrease in noncash current assets
Loss on sale of equipment

2,800,000
1,480,000
970,000
290,000
130,000

What should be the cash provided by operating activities in Josephs cash flow statement for the year
ended December 31 using the indirect method?
a.
5,420,000
b.
5,130,000
c.
7,250,000
d.
5,290,000
13. Joseph Company reported net income of P3,000,000 for 2015. Changes occurred in several balance
sheet accounts as follows:
Equipment
250,000 increase
Accumulated depreciation
400,000 increase
Note payable
300,000 increase
During 2015, Joseph sold equipment costing P250,000, with accumulated
depreciation of P120,000 for a gain of P50,000.
In December 2015, Joseph purchased equipment costing P500,000 with
P200,000 cash and a 12% note payable of P300,000.
In Josephs 2015 cash flow statement, net cash used in investing activities should be
a. 20,000
b. 120,000
c. 220,000
d. 350,000

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14. Joseph Companys comparative balance sheet at December 31, 2015 and 2014 reported accumulated
depreciation balances of P800,000 and P600,000 respectively. Property with a cost of P50,000 and a
carrying amount of P40,000 was the only property sold in 2015.
Depreciation in 2015 was
a.
190,000
b.
200,000
c.
210,000
d.
220,000
15. During 2015 Joseph Company had the following activities related to its financial operations:
Payment for the early retirement of long-term bonds payable
(carrying value P7,400,000)
Distribution in 2015 cash dividend declared in 2015 to preferred
shareholders
Carrying value of convertible preferred stock converted into
common shares
Proceeds from sale of treasury stock (carrying value at, P860,000)

7,500,000
620,000
1,200,000
950,000

In the 2015 cash flow statement, net cash used in financing activities should be
a. 7,170,000
b. 7,160,000
c. 5,970,000
d. 5,350,000
16. Jostine Company's stockholders' equity is comprised of 100,000 shares of P20 par common stock, P4,000,000 of
additional paid in capital on common stock, and retained earnings of P6,000,000. If a 40% stock dividend is
declared when the stock is selling for P50 per share.
What amount should be transferred from the retained earnings account to additional paid in capital account?
a.
2,000,000
b.
1,200,000
c.
800,000
d.
0
17. On September 30, 2016, Jostine Company issued 4,000 shares of its P100 par common stock in connection with a
stock dividend. The market value per share on the date of declaration was P150. Jostine's stockholders' equity
accounts immediately before issuance of the stock dividend shares were as follows:
Common stock P100, 50,000 shares authorized,
shares outstanding
Additional paid in capital
Retained earnings

20,000
2,000,000
3,000,000
1,500,000

What should be the retained earnings balance immediately after the stock dividend?
a.
1,100,000
b.
1,500,000
c.
2,100,000
d.
900,000
18. Jostine Company declared a 5% stock dividend on its 100,000 issued and outstanding shares of P20 par value
common stock, which had a fair value of P50 per share before the stock dividend was declared. This stock
dividend was distributed 60 days after the declaration date.
By what amount did Jostine's current liabilities increase as a result of the stock dividend declaration?
a.
250,000
b.
100,000
c.
150,000
d.
0
19. On December 31, 2016, Jostine Company declared and issued a 10% common stock dividend. Prior to this
dividend, Jostine had 100,000 shares of P1 par value common stock issued and outstanding. The fair value of the
common stock was P30 per share on December 31, 2016.

As a result of this stock dividend, the total stockholders equity

a.
Increased by P300,000
b.
Decreased by P300,000
c.
Decreased by P10,000
d.
Did not change
20. The directors of Jostine Company whose P50 par value common stock is currently selling at P60 per share have
decided to issue a stock dividend. The selling price is not expected to be affected by the stock dividend. Jostine,
which has an authorization for 1,000,000 shares of common, had issued 500,000 shares, of which 100,000 shares
are now held as treasury stock. In order to capitalize P2,400,000 of the retained earnings balance,
What percentage should be declared as a stock dividend by the directors?
a.
10%
b.
8%
c.
6%
d.
4%
21. An analysis of the records of Jerome Company disclosed changes in account balances for 2015 and the
supplementary data listed below.
Cash
Accounts receivable
Merchandise inventory
Accounts payable

480,000 decrease
300,000 increase
3,100,000 increase
420,000 increase

During the year, Jerome borrowed P4,000,000 in notes from the bank and paid off
notes of P3,000,000 and interest of P240,000. Interest of P100,000 is accrued on
December 31, 2015. There was no interest payable at the end of 2014. In 2015,
Jerome transferred certain trading securities to the business and these were sold for
P1,500,000 to finance purchase of merchandise. Jerome made weekly withdrawals in
2015 of P10,000.
What was the net income for 2015?
a.
1,520,000
b.
1,920,000
c.
1,400,000
d.
420,000
22. Presented below are changes in all the account balances of Jerome Company for the current year,
except for retained earnings.

Cash
Accounts receivable, net
Inventory
Investments
Accounts payable
Bonds payable
Share capital
Share premium

Increase
(Decrease)
790,000
240,000
1,270,000
(470,000)
(380,000)
820,000
1,250,000
130,000

There were no entries in the retained earnings account except for net income and a dividend declaration
of P190,000 which was paid in the current year. What was the net income for the current year?
a.
1,200,000
b.
1,190,000
c. 200,000
d.
10,000

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23. Presented below are changes in the accounts of Jerome Company for 2015.
Increase
(Decrease
1,500,000
3,500,000
3,900,000
(1,000,000)
3,000,000
(800,000)
2,000,000

Cash
Accounts receivable (net)
Inventory
Investments
Equipment
Accounts payable
Bonds payable

During 2015, Jerome sold 100,000 shares of its P20 par stock for P30 per share and
received cash in full. Dividend of P4,500,000 was paid in cash during the year. Jerome
borrowed P4,000,000 from the bank and made interest payment of P600,000. Jerome
had no other loan payable. Interest of P400,000 was payable at December 31, 2015.
Interest payable at December 31, 2014 was P100,000. Equipment of P2,000,000 was
donated by a shareholder during the year.
What was the net income for the year 2015?
a.
9,200,000
b.
4,800,000
c.
4,900,000
d.
4,300,000
24. Following data are selected information for Jerome Company for the current year:
Cash balance, January 1
Accounts receivable, January 1
Collections from customers
Shareholders equity, January 1
Total assets, January 1
Total assets, December 31
Cash balance, December 31
Accounts receivable, December 31
Total liabilities, December 31

130,000
190,000
2,100,000
380,000
750,000
880,000
160,000
360,000
390,000

The net income for the current year is

a.
490,000
b.
150,000
c.
110,000
d.
70,000
25. Jerome started a retail merchandise business on January 1, 2015. During the fiscal year ended
December 31, 2015, he paid his trade creditors P2,000,000 in cash and suffered a net loss of P350,000.
Among his ledger account preclosing balances on December 31, 2015 were the following:
Accounts receivable
Accounts payable
Capital (total investment in cash)
Expenses (paid in cash)
Merchandise (unadjusted debit balance)

600,000
750,000
2,000,000
100,000
700,000

There were no withdrawals. All sales and purchases were on credit. The merchandise account is
debited for purchases and credited for sales.
The sales for 2015 amounted to
a.
2,750,000
b.
2,050,000
c.
2,650,000
d.
700,000

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26. Effective December 31,2016, the stockholders of Kaila Company approved a two-for-one split of the
companys common stock, and an increase in authorized common shares from 100,000 shares (par
value P20 per share) to 200,000 shares (par value P10). Kailas stockholders equity accounts
immediately before issuance of the stock split shares were as follows:
Common stock, par value P20; 100,000 shares authorized; 50,000
shares outstanding
1,000,000
Additional paid-in capital
150,000
Retained earnings
1,350,000
What should be the balances in Kailas additional paid-in capital and retained earnings accounts
immediately after the stock split is effected?
Additional paid-in capital
Retained earnings
a
0
500,000
b
150,000
350,000
c
150,000
1,350,000
d
1,150,000
350,000

27. On July 1, 2016, Kaila Company declared a 1 for 5 reverse stock split, when the market value of stock
was P100 per share. Prior to the split, Kaila had 100,000 shares of P10 par value common stock issued
and outstanding.
After the split, the par value of the stock is
a.
10
b.
20
c.
50
d.
2
28. Kaila Company issued 200,000 shares of common stock when it began operations in 2004 and issued
an additional 100,000 shares in 2016. Kaila also issued preferred stock convertible to 100,000 shares of
common stock. In 2016, Kaila purchased 75,000 shares of its common stock and held it in treasury.
At December 31, 2016, how many shares of Kailas common stock were outstanding?
a. 400,000
b. 325,000
c. 300,000
d. 225,000
29. Kaila Corporation was incorporated on January 1, 2016. The following information pertains to Kailas
common stock transactions:
Jan. 2 Number of shares authorized
80,000
Feb. 1 Number of shares issued
60,000
July 1 Number of shares reacquired but not canceled
5,000
Dec. 1 Two-for-one stock split
At December 31, 2016, the number of shares of Kailas common stock outstanding is
a. 150,000
b. 120,000
c. 115,000
d. 110,000
30. Of the 125,000 shares of common stock issued by Kaila Company, 25,000 shares were held as treasury
stock at December 31, 2015. During 2016, transactions involving Kailas common stock were as follows:
January 1 through October 31 13,000 treasury shares were distributed to officers as part of a stock
compensation plan.
November 1 A 3 for 1 stock split took effect.
December 1 Kaila purchased 5,000 of its own shares to discourage an unfriendly takeover. These
shares were not retired.
At December 31, 2016, how many shares of Kailas common stock were issued and outstanding?
Issued
Outstanding
a
375,000
334,000
b
375,000
324,000
c
334,000
334,000
d
324,000
324,000