1. Given the following facts below, how much is the recoverable amount of the asset?

a. P3,400

b. P2,700

c. P1,400

d. P1,200

e.

P1,067

4. How much will the entity record as an impairment loss for the period ended December 31, 20x2 based on
the following information?
a.

P13,000

b. P10,500

c. P10,700

d. P10,000

e.

P11,000

2. In which of the following scenarios will an entity record an impairment loss?

a. P-0-

b. P10,000

c. P20,000

d. P30,000

Use the following information for the next four items

For the year ended December 31, 2014, you found the following information relating to certain inventory
transactions from your observation of the entitys physical count and review of sales and purchases cut-off.
Emily Corporation uses perpetual inventory system.
Note 1 - Goods held on consignment from Victoria to Emily amounting to P100,000, were included in the
physical count of goods in Emilys warehouse on December 31, 2014, and in accounts payable at December
31, 2014.
a.

b. 2

c. 3

d. 4

3. How much will be allocated impairment loss to machinery and equipment based on the information in the
table?

Note 2- Goods were in transit from a vendor to Emily on December 31, 2014. The invoice cost was P180,000,
and the goods were shipped FOB shipping point on December 29, 2014.
Note 3- A P420,000 shipment of goods to a customer on December 30, 2014, terms FOB destination, was
recorded as a sale upon shipment. The goods cost P210,000 and received by customer on January 3, 2015.
Note 4- Goods, with an invoice cost of P150,000, received from a vendor at 5:00 p.m. on December 31, 2014,
were recorded on a receiving report dated January 2, 2015. The goods were not included in the physical count,
but the invoice was included in accounts payable at December 31, 2014.
Note 5- Included in the physical count were goods billed to a customer FOB shipping point on December 31,
2014. These goods had a cost of P70,000 and were billed at P140,000. The shipment was on Emilys loading
dock waiting to be picked up by the common carrier.
Based on the above information, answer the following:

5. In relation to Note 1, the journal entry to record the transaction includes a debit to
a. Purchases of P100,000
b. Inventory of P100,000
c. Accounts Payable of P100,000
d. No entry needed

The deferred tax asset on December 31, 2014 is

a. 105,000
b. 153,000

c.

285,000

d. 438,000

12. An asset is sold in three different active markets at different prices. An entity enters into transactions in
all markets and can access the price in those markets for the asset at the measurement date. Information
for these markets are shown below:

6. In relation to Note 2, the necessary adjusting journal entry includes a debit to

a. Purchases of P180,000
b. Inventory of P180,000
c. Accounts Payable of P180,000
d. No entry needed
7. In relation to Note 3, the necessary adjusting journal entry does not include a debit to
a. Cost of Sales of P210,000
b. Inventory of P210,000
c. Sales of P420,000
d. No entry needed
8. Inventory as of December 31, 2014 is understated by
a. P440,000
b. P370,000
c. P230,000

d. P50,000

9. On January 2, 2014, Renzel Company sold equipment with a carrying value of P480,000 in exchange for
a P600,000 non-interest-bearing note due January 2, 2016. There was no established exchange price for
the equipment. The prevailing interest rate for a note of this type at January 2, 2014 was 10%.The present
value factor of 1 at 10% for three periods is 0.7513. What is the carrying value of the receivable as of
December 31, 2014 statement of financial position?
a. P450,780
b. P495,858
c. P545,444
d. P600,000
10. The bank statement of Night Crawler Corporation for February 2015 showed an ending balance of
P169,700. Deposit in transit on February 28 was P18,200. Outstanding checks as of February 28 were
P59,000, including a P5,000 check which the bank had certified on February 25. During the month of
February, the bank charged back NSF checks in the amount of P3,000 of which P1,000 had been
redeposited in February. On February 20, the bank charged the account of Night Crawler for P2,000
which should have been charged against the account of another company; the error was not detected by
the bank. During February, the proceeds from the note collected by the bank for Night Crawler was
P7,500 and bank charge for this services was P50. The adjusted cash balance on February 28, 2015 is
a. P141,350
b. P136,350
c. P135,900
d. P130,900
11. The following facts relate to MJ Company
Deferred tax liability, January 1, 2014; P510,000:
Deferred tax asset, January 1, 2014; P120,000
Pretax financial income for 2014; P2,000,000
Non-taxable revenues, P340,000; Non-deductible expenses, P210,000
Cumulative difference at December 31, 2014, giving rise to future taxable amounts, P1,460,000
Cumulative difference at December 31, 2014, giving rise to future deductible amounts, P510,000
Tax rate for current and future years 30%

Assuming none of these markets is the principal market, which of the three is the most advantageous market?
a. A
b. B
c. C
d. Any of the three since the Company
has access to all
13. The following information relates to the Patricia Company:
2014 cash dividends declared
Unadjusted (reported) Retained Earnings, January 1, 2014
2014 net income
Error in 2013, Understatement of ending inventory; error found in 2014
Unadjusted (reported) Retained Earnings, December 31, 2014
What is the restated January 1, 2014, balance of retained earnings?
a. P1,170,000
b. P1,320,000
c. P1,470,000

P 400,000
?
480,000
150,000
1,400,000

d. P1,630,000

14. On March 1, 2014, N Company, a medium-sized entity, acquired 30% of the ordinary shares that carry
voting rights at a general meeting of shareholders of F Company for P3,000,000. On December 31, 2014,
F Company declared a dividend of P1,000,0000 for the year 2014 but reported net income of P800,000
for the year ended December 31, 2014. At December 31, 2014, the fair value less costs to sell amount of
N Companys investment in F Company is P2,900,000 (Fair value of P2,930,000 less costs to sell of
P30,000). There is no published price quotation for F Company. Assume that the fair value of net asset
of F Company was P9,000,000, what amount should the investment in F Company be reported in the
December 31, 2014 statement of financial position using the equity model?
a. P2,900,000
b. P3,570,000
c. P3,600,000
d. P3,900,000

15. Clarissa Company pays all salaried employees on a biweekly basis. Overtime pay, however, is paid in the
next biweekly period. Clarissa accrues salaries expense only at its December 31 year end. Data relating
to salaries earned in December 2013 are as follows:

Last payroll was paid on 12/26/2013, for the 2-week period ended 12/26/2013.
Overtime pay earned in the 2-week period ended 12/26/2013 was P10,000.
Remaining work days in 2013 were December 29, 30, 31, on which days there was no overtime.
The recurring biweekly salaries total P180,000.

Assuming a five-day work week, what amount should be recorded as liability at December 31, 2013 for accrued
salaries?
a. P 64,000
b. P 54,000
c. P 108,000
d. P 118,000
Use the following information for the next three items
On January 1, 2014, Vernon Company purchased an equipment for the cash price of P5,000,000. The supplier
can choose how the purchase is to be settled. The choices are:

50,000 shares with par value of P50 in one year time, or

A cash payment equal to the market value of 40,000 shares on December 31, 2014.

At grant date on January 1, 2014, the market price of each share is P110 and on the date of settlement on
December 31, 2014, the market price of each share is P130.
16. How much is the equity component arising from the purchase of equipment with share and cash
alternative?
a. P0
b. P600,000
c. P400,000
d. P500,000
17. What is the interest expense to be recognized on December 31, 2014 if the supplier has chosen the cash
alternative?
a. P600,000
b. P400,000
c. P800,000
d. P0
18. How much is the share premium on December 31, 2014 if the supplier has chosen the share alternative?
a. P2,500,000
b. P4,000,000
c. P4,400,000
d. P5,000,000
Use the following information for the next three items:
On July 1, 2014, entity A started the construction of a building. The building was completed at the end of
June 2015 (the fiscal year end of the Company). During the period, the following payments were made to
the contractor:
Payment date
Amounts
July 1, 2014
P200,000
September 30, 2014
600,000
March 31, 2015
1,200,000
June 30, 2015
200,000
Total
P2,200,000

Entity As borrowings as at its year end of June 30 were as follows:

1. 10% four year note with simple interest payable annually, which relates specifically to the project;
debt outstanding at June 30, 2015 amounted to P700,000. The amortized cost of this liability as of
July 1, 2014 was P812,500 with effective interest of 8%. Interest income of P20,000 was earned
on these funds while they were held in anticipation of payments.
2. 12.5% 10-year not with simple interest payable annually; debt outstanding at July 1, 2014
amounted to P1,000,000 and remained unchanged during the year. Interest income for temporarily
investing the general fund amounted to P3,000.
3. 10% 10-year note with simple interest payable annually; debt outstanding at July 1, 2014 amounted
to P1,500,000 and remained unchanged during the year.
Note that interest expenses in this case equals borrowing costs. Applying PAS 23 Borrowing Costs,
determine the following:
19. Weighted average accumulated expenditures attributable to general borrowing:
a. P375,000
b. P250,000
c. P142,500
d. P137,500
20. General borrowing costs to be capitalized:
a. P12,125
b. P15,675

c. P24,500

d. P41,250

21. Specific borrowing costs to be capitalized:

a. P70,000
b. P50,000

c. P65,000

d. P45,000

22. A company has six million ordinary shares in issue at the beginning of Year 1. At the very end of the third
quarter of Year 2 it announces a rights issue whereby all existing shareholders will be entitled to buy one
share for every four they hold, at a price of 30. Immediately prior to the issue, the share price was 50. The
profits for year 1, 2 and 3 were 225 million, 230 million and 245 million, respectively. The rights were
exercised immediately upon issuance. What are the (restated) basic earnings per share for each of these
years?

a.
b.
c.
d.

Year 1
37.50
37.50
34.50
None of the above

Year 2
32.81
30.67
33.99

Year 3
32.67
32.67
32.67

23. At the start of the current year, JL Companys stockholders equity accounts appeared as follows:
Common stock, P15 par value; authorized 200,000 shares; issued and
outstanding, 150,000 shares
P 2,250,000
Paid-in capital in excess of par
300,000
Retained earnings
5,000,000
Total
P 7,550,000
During the year, JL Company entered into the following transactions:

May 1
June 1
July 1

Acquired 30,000 shares of its stock for P1,600,000

Reissued 15,000 treasury shares at P19 per share
Declared a cash dividend of P1.50 for holders on record on July 30 to be distributed on
January of next year
October 1 Reissued 10,000 treasury shares at P16 per share
Retired the remaining treasury shares

The total stockholders equity reported in the current year statement of financial position is
a. 6,395,000
b. 6,215,000
c. 6,192,500
d. 6,170,000
24. On January 1, 2012, Roy Company started its operations. The company reported a net income P1,100,000,
and the following events occurred:
Cash dividends of P8 per share on 16,000 shares of common stock were declared and paid
A stock was declared consisting of 3,200 shares of P10 par common stock. On the date of declaration,
the market price of the companys common stock was P25 per share. There were no changes in the
outstanding shares since the declaration of the cash dividend.
The company recalled and retired 2,000 shares of P100 par preferred stock. The call price was P125
per share; the stock had originally been issued for P110 per share.
The company discovered that it had erroneously recorded depreciation expense of P 80,000 for both
financial and tax reporting. The correct depreciation should have been P176,000. This is considered
a material error.
The BOD declared appropriations for plant expansion in the amount of P200,000
The retained earning balance at December 31, 2012
a. 1,006,000
b. 958,000
c.

814,000

d.

766,000

25. On December 27, 2013, Emil Company leases its airplane to Julius Company. The airplane which was
constructed for P7,500,000 has a fair value of P 9,800,000 and an expected useful life of 12 years. Under
the 8-year lease agreement, Julius Company will pay an annual rent in advance starting on January 1,
2014 at an implicit rate of 12%. At the end of the lease, Julius Company is given an option to purchase
the airplane at P100,000; which is substantially low compared to the airplanes expected resale value of
P600,000. Emil Company incurred cost of P125,000 to have the contract completed. Depreciation
expense to be reported by Julius Company in its 2015 income statement is
a. 813,301
b. 816,667
c. 1,219,951
d.
1,225,000
26. On January 1, 2012, Francis Company, a VAT-registered company, acquired three machines (driller,
chipper and boiler) for a lump sum price of P6,048,000 which included the value-added tax of 12%. Fair
values at acquisition date were as follows: driller, P2,400,000; chipper, P1,500,000; and boiler
P2,100,000. Installation costs for the driller amounted to P140,000, while the special base structure for
the boiler amounted to P110,000.
Francis Company provided the following information in relation to the depreciation of the abovementioned machines:

Driller
Chipper
Boiler

Useful life
(yrs)
10
3.5
5

Depreciation method

Estimated residual amount

Straight-line
Sum-of-the-years digits
Double-declining balance

P 50,000
P 90,000
P 130,000

On July 1, 2014, Francis Company transferred its chipper to Xavier Company for P30,000 and a cutter.
The fair value of the cutter was P220,000 with an estimated salvage of P20,000 at the end of its remaining
4 years. Francis Company will apply the sum-of-the-years method of depreciation for the cutter.
On January 2016, Francis Company decided to change its depreciation method from sum-of-the-years
digits method to straight-line method in relation to the cutter. The residual value expected from the cutter
remains the same at P20,000.
Total depreciation expense in 2012 BONUS
a. 1,599,000
b. 1,610,000

c.

1,652,000

d.

1,657,000

27. AJ Companys assets and liabilities as of December 31, 2014 prior to the computation of the current and
deferred taxes for 2014 are as follows:
Assets
Cash and cash equivalents
P 1,600,000
Accounts receivable, net of allowance P60,000
400,000
Rent receivable
899,379
Inventory, net of allowance P50,000
350,000
Land
1,000,000
Building
1,500,000
Accumulated depreciation building
750,000
Machinery
720,000
Accumulated depreciation machinery
450,000

Liabilities

Accounts payable
Estimated warranty obligations
Unearned service revenue

P 150,000
300,000
290,000

The following information was provided in relation to the preparation of AJ Companys 2014 tax return:
The deferred tax asset, January 1, 2014 was P210,000; deferred tax liability, P229,950
The allowance method for recording bad debts is used for financial purposes, for tax purposes,
however, bad debts are recognized only when they are considered as worthless
Inventory is reported net of allowances for obsolescence; no allowances are recognized for tax
purposes
Income from rent and services to customers are taxable only upon receipt of cash; while warranty
costs are deductible only upon payment of cash
Building and machinery were acquired 5 years ago; both are depreciated under the straight-line
method with no expected residual values; For tax purposes, the depreciation of the assets is
under the double-declining balance method

The pre-tax accounting income for 2014, P400,000; There were no permanent differences during
2014. Tax rate for current and future years is 35%.
Deferred tax asset, December 31, 2014
a. 206,500
b. 210,000
c. 245,000
d. 280,000
28. ZEO Company manufactures and sells themed-boxes. The stock of themed-boxes included in its
December 31, 2014 inventory had a cost of P60 each. It was noted, however, that the subsequent sale
price of the themed-boxes was P70. Furthermore, inquiry reveals that during the physical stock take, a
water leak created damages to the themed-boxes. Accordingly, ZEO Company has spent a total of P15 to
repair and re-apply adhesives to the themed-boxes. The net realizable value of the themed-boxes is
a. P45
b. P55
c. P60
d. P70
e.
29. Marlene Company leases a mini-racecar to Rimy Company on January 1, 2014. The term of the noncancelable lease is 6 years. The fair value of the mini-racecar was P147,581, while its carrying amount
was P131,500. The mini-racecars residual amount at the end of the lease is 3,000 none of which was
guaranteed by Rimy Company. Marlene Company wants a rate of return of 9% on its mini-racecar. Equal
annual payments are due at the end of each year starting December 31, 2014. The total income recognized
by Marlene Company in relation to the lease agreement in 2014 is
a. 29,363
b. 16,081
c. 26,438
d. 29,093
30. On January 1, 2014, Ken Company grants 1,000 cash share appreciation rights to each of its 500
employees, on the condition that the employees remain in its employ for the next three years. During the
year, 35 employees left the firm. Ken Company estimates that around 60 employees will leave over the
next two years

by P 150,000 and P 300,000 while the drilling equipment was overstated by P200,000. The drilling
equipment was depreciated using straight-line method with a remaining useful life of 4 years
In 2014, Chandler Company reported net income of P 700,000 and declared dividends of P 660,000 to its
ordinary and preference shareholders (no dividends were in arrears). All items of inventory at the
beginning of 2014 were completely sold by yearend. 30% of the land in Mactan was sold by Chandler
Company and resulted in a loss of P120,000.
In 2015, Chandler Company reported an operating loss of P946,750. The remaining portion of the land
was likewise sold at yearend. No dividends were declared.
In 2016, Chandler Company reported an operating loss of P1,020,450.
In 2017 as the trade embargo on one of its major trade routes has finally been lifted it reported a net
income of
Investment income to be reported in 2014 BONUS
a. 141,000
b. 153,000

c.

159,000

d.

171,000

32. On January 1, 2014, Meris defined benefit pension plan showed a surplus of P75,000. The maximum
future benefit available to Meri in the form of future contribution reductions was P30,000. The 2013
service costs amounted to P8,000 and the assumed discount rate at the beginning of the period amounted
to 5%. During 2014, contributions of P9,000 were made into the pension plan. If the maximum benefit
available to Meri is P30,000, what is the amount of net pension asset or liability at December 31 2014?
a. 27,250
b. 29,500
c. 30,000
d. 31,000

In 2015, 22 employees left the firm and Ken Company expects that 25 employees will leave by next year.
At the end of 2016, 150 employees exercise their share appreciation rights. In 2017 another 140 employees
exercise their share appreciation rights.
At the end of 2018 all the remaining 150 employees exercise their share appreciation rights
Year
Fair value of the SAR
Intrinsic value of the SAR
2014
20
2015
25
2016
28
26
2017
32
28
2018
31
31
Compensation expense in 2014
a. 0

b. 2,700,000

c.

3,100,000

33. On September 30, 2011, JP Company acquired a smelting machine for P270,000 paying a down payment
of P90,000 and the balance to be paid in two equal annual installments on September 30, 2012 and
September 30, 2013. There was no stated interest provided in the note, however, an 8% interest rate is
considered to be appropriate for a note of this type. The PV of an ordinary annuity of P1 @ 8% for 2
periods is 1.78. Additional costs for freight P5,000; installation and testing for P10,000.
JP Company uses the straight-line method of depreciation. The smelting machines expected useful life
is 5 years with a salvage value of P20,000.
On January 1, 2014, it was determined that the smelting machine would be useful for at least 2 more years
from this date. The expected salvage value was reduced to P10,000.

d. 8,100,000

31. On January 1, 2014, Rosalyn Company acquired a 30% interest in Chandler Company by paying P
643,500. Chandler Company has 1,000,000, P 1 par value ordinary shares, as well as, 25,000, 8% P 20
par value cumulative preference shares. Chandler Companys net assets at the time of the acquisition was
P 1,955,000. The carrying amount of Chandler Companys assets approximates its fair values except for
its inventory, a piece of land in Mactan and a drilling equipment. The inventory and land were understated

The amount of adjustment to the opening balance of retained earnings account in 2014 as a result of the
change is
a. 0
b. 19,539
c. 21,060
d. 30,060
34. Cyclops Company uses the average retail inventory method to estimate ending inventory for its monthly
financial statements. In the past, Cyclops Company has had a stable cost-to-retail relationship for its
inventory due to buying only from one supplier and marking up the goods by a fixed percentage. Because
of lack of competition, Cyclops Company has not previously needed to mark down any of its goods.
During 2012, however, two department store chains have opened which provided intense competition and

Cyclops Company has found itself buying products from a variety of manufacturers with lower costs,
reducing markup on many of its goods and marking down various items of inventory. The following data
pertain to a single department of Cyclops Company for March 2012: Inventory, March 1: at cost
P200,000, at retail P300,000; purchases: at cost P1,001,510, at retail P1,464,950; freight-in
P45,400; purchase returns: at cost P21,000, at retail P28,000; additional markups P25,000; markup
cancellations P2,650; net markdowns P8,000; normal spoilage and breakage P36,000; sales
P1,347,300. The cost of the March 31 inventory is
a. 289,380
b. 282,800
c. 265,055
d. 257,600
Use the following information for the next three items:
On January 1, 2014, JANE Company acquired 10%, P4M bonds for P3,807,853. The principal is due on
January 1, 2018 but interest is due annually starting December 31, 2014. The yield rate on the bonds is
12%. The entity adopts the calendar year reporting and is required by SEC to prepare interim financial
statements in accordance with PFRS. In June 1, 2014, JANE changed its business model. It was
ascertained that the investment in bonds at amortized cost should be reclassified to held for trading
securities on reclassification date. On June 1, July 1, October 1 and December 31, 2014, the bonds were
quoted at P104, P104, P103 and P105, respectively. On January 1, 2015, the bonds were quoted at 104.
Based on the information provided to auditor, JANE Company (audit client) is asking how to account for
such change in business model since it is only the second year of the company under PFRS 9. JANE
specifically asked for the following:

35. When is the reclassification date?

a. June 1, 2014
b. July 1, 2014

c. December 31, 2014

36. How much is the gain (loss) on reclassification in 2014, if any.

a. P295,205
b. P283,676
c. P255,205

Factored P1,000,000 of accounts receivable without recourse on a non-notification basis with Jean
Company. Jean Company charged a factoring fee of 2% of the amount of receivables factored and
withheld 10% of the amount factored.

What is the total cash received from the financing of receivables?

a. P1,320,000
b. P1,350,000
c. P1,380,000

d. P1,470,000

40. Accumulated depreciation at December 31, 2012 and December 31, 2011 were P390,000 and P245,000
respectively. During the year, Polaris Company acquired machineries costing P200,000 to replace the
retired machines costing P120,000. In disposing the retired machines Polaris Company generated cash
inflows of P80,000 recognizing a gain of P15,000. At yearend, there was no indication of any impairment
on the machineries of Polaris Company as the carrying amounts of the machinery accounts were less than
the net recoverable amounts of the said items.
In Polaris Companys 2012 income statement, the amount of depreciation expense reported is
a. P100,000
b. P170,000
c. P200,000
d. P290,000

41. Moon Company is experiencing financial difficulty and is negotiating a debt restructuring with its
creditor. Moon Company has an outstanding financial liability of P2,500,000. Stars Financing Company
accepted an equity interest in Moon Company in the form of 400,000, P5 par value ordinary shares which
at the time of restructuring was quoted at P6.00 per share. The fair value of the obligation at the time of
the restructuring was P2,450,000.

d. January 1, 2015
The amount of gain to be recognized arising from the debt restructuring by way of an equity swap is
a. 0
b. 50,000
c. 100,000
d. 500,000
d. P0
42. The following appear on the statement of financial position of ADP Company

37. How much was our interest income from this investment in 2014?
a. P456,942
b. P428,471
c. P400,000

d. P200,000

38. In 2012, Beast Hypermarket awards loyalty points to customers who use Beast Hypermarkets own credit
card to pay for purchases. The award is at the rate of one point for every P250 charged to the card and
each point entitles the customer to a certain credit against future purchases, without time limit. Beast
Hypermarket estimates the fair value of each point at P4 and in 2012, P250,000,000 is charged to the
Beast Hypermarkets credit card. None of the customers have claimed their corresponding credit points
during 2012.
The amount to be reported as revenue for 2012 by Beast Hypermarket is
a. P250,000,000
b. P249,000,000
c. P246,000,000

d. P245,000,000

39. On October 31, 2008, Marvel Company engaged in the following transactions:

Obtained a P500,000, six-month loan from Phoenix Bank, discounted at 12%. The company pledged
P500,000 of accounts receivable as security for the loan.

Cash in bank
Accounts receivable
Advances to employee
Advances to suppliers
Prepaid expenses
Inventory
Available-for-sale securities
Patent

1,000,000
2,000,000
100,000
200,000
50,000
750,000
250,000
500,000

Accounts payable
Accrued expenses
Advances from customers
Unearned revenue
Estimated warranty liability
Bonds payable
Finance lease liability
Deferred tax liability
Income tax payable

500,000
250,000
600,000
150,000
100,000
1,500,000
2,000,000
200,000
600,000

In preparing financial statements in a hyperinflationary economy, the amount classified as monetary liabilities
is
a. 1,500,000
b. 2,250,000
c. 4,250,000
d. 4,850,000

43. Daren Company provided the following balances at the end of the current year:
Wasting asset, at cost
Accumulated depletion
Capital liquidated
Retained Earnings
Depletion based on 100,000 units extracted at P50 per unit
Inventory of resource deposit (20,000 units)

Net Sales
Cost of sales
Gross Profit
Operating expense
Operating Income
Gain on sale of a component

P80,000,000
20,000,000
15,000,000
10,000,000
5,000,000
2,000,000

Daren Company declared the maximum dividend for the period. What is the balance of the Capital
Liquidated account at the end of the current year?
a. 19,000,000
b. 15,000,000
c. 14,500,000
d. 7,000,000
44. Presented below is a list of items that may or may not reported as inventory in CHALLENGING
Companys December 31 statement of financial position located in Clark:
Goods sold under a bill and hold sale, at the time of sale, the buyer accepts the billing,
goods are on hand, identified and ready for delivery to the buyer, the buyer specifically
acknowledges the deferred delivery, and is under special terms agreed
Goods sold on installment basis
Goods sold under Lay away sale, final installment payment is due on January 15 next year
Goods sold where large returns are predictable
Goods sold f.o.b. Clark that are in transit as of December 31, the buyer is in Cebu
Goods sold f.o.b. Davao that are in transit as of December 31, the buyer is in Davao
Interest cost incurred for inventories that are routinely manufactured
Costs incurred to advertise goods held for resale
Raw Materials on hand not yet placed into production
Raw materials on which a the company has started production, but which are not
completely processed
Conversion costs incurred on goods still not completely processed
Work-in-process inventory, ending
Costs identified with units completed but not yet sold
Goods out on consignment at another companys store
Goods purchased still in transit on December 31 on terms FAS (free alongside)
Goods purchased still in transit on December 31 on terms CIF (cost, insurance, and
freight)
Goods purchased still in transit on December 31on terms Ex-ship
Freight charges on goods purchased

450,000

100,000
300,000
280,000
80,000
80,000
40,000
20,000
350,000
280,000
50,000
330,000
260,000
400,000
450,000
120,000
200,000
80,000

How much of these items would be reported as inventory in the financial statements?
a. P1,950,000
b. P2,250,000
c. P2,700,000
d. P2,820,000
45. The following condensed profit or loss statement of Grande Corporation is presented for two years ended
December 31, 2014 and 2013:

Income tax expense

Net income

2014
P10,000,000
6,000,000
P4,000,000
2,500,000
P1,500,000
900,000
P2,400,000
720,000
P1,680,000

2013
P9,000,000
6,000,000
P3,000,000
2,000,000
P1,000,000
P1,000,000
300,000
P700,000

On January 1, 2014, Grande entered into an agreement to sell for P2,000,000 one of its separate operating
divisions. The sale resulted in a gain on disposition of P900,000 on November 14, 2014, and qualifies as a
discontinued component. This divisions contribution to Grandes reported income before income taxes for
each year was as follows:
P700,000 loss
2014
P400,000 loss
2013
Assume an income tax rate of 30%. In preparation of a revised comparative profit or loss, Grande should
report under the caption discontinued operations for 2014 and 2013, respectively
A. Income of P140,000 and a loss of P280,000
B. Income of P140,000 and a loss of P0
C. Income of P200,000 and a loss of P400,000
D. A loss of P700,000 and a loss of P400,000
Use the following information for the next two items
Information from the records of NANCY BEE Company as of December 31, 2014 is shown below:
Cash and cash equivalents inclusive of P550,000 FVPL investments
P 1,500,000
Total Trade Accounts Receivable net of P20,000 credit balance *
5,000,000
9% Notes Receivable from sales to regular customers, dated December 1, 2014,
200,000
interest due every Jan. 31 and principal due on January 31, 2016
Notes receivable from sale of an owner occupied property **
1,000,000
Dividends Receivable
100,000
Subscription Receivable due in 30 days
250,000
Advances to officers and employees (due in 18 months)
130,000
Accounts Payable net of P12,000 debit balance in suppliers account
1,008,000
Trade Accounts Receivable from officers, due currently
270,000
Trade Accounts Receivable on which postdated checks are held (no entries were
80,000
made on the receipt of checks
Prepaid Insurance ***
120,000
Merchandise Inventory ****
450,000
* 45% of the total Trade Accounts Receivables before the credit balance is determined to be unassigned.

a.
** Dated October 1, 2014 with stated rate of 12% and semi-annual installments for 5 years starting June 30
2016.
*** Insurance premium covering years 2014, 2015 and 2016 amounting to P120,000 was prepaid last January
1, 2014.
**** Include goods from a recorded and uncollected credit sale of goods costing P25,000 on which the seller
cannot reliably estimate future returns. Gross profit rate based on cost on this sale was 20%.

46. How much is the total trade receivables from the above items?
a. P5,570,000
b. P5,370,000
c. P5,190,000

d. P5,540,000

47. How much is the total current assets from the above items?
a. P7,573,500
b. P7,941,500
c. P7,993,500

d. P7,618,500

48. Sunfire Company started operations on March 2009. The following information were provided in relation
to its inventory for the past three years
2009
Inventory, beg
Net Purchases
Inventory, end

4,500,000
900,000

2010
P 900,000
5,000,000
1,100,000

2011
P 1,100,000
4,200,000
850,000

In preparing the 2011 financial statements of Sunfire Company the following items were noted:

The ending inventory reported in the past three years were based on physical counts made in Sunfire
Companys warehouses.
Goods out on consignment at the end of 2009, 2010 and 2011 were P130,000, P90,000 and P110,000
respectively
The last purchase invoice recorded in 2009 was P70,000. These goods were shipped on December 29,
2009 under the terms fob shipping point and arrived on January 3, 2010

The amount to be reported as cost of sales in the 2011 income statement of Sunfire Company is
a. 4,100,000
b. 4,340,000
c. 4,360,000
d. 4,430,000
49. On December 27, 2014, Gambit Company leases its airplane to Jubilee Company. The airplane which
was constructed for P7,500,000 has a fair value of P9,800,000 and an expected useful life of 12 years.
Under the 8-year lease agreement, Jubilee Company will pay an annual rent in advance starting on January
1, 2015 at an implicit rate of 12%. At the end of the lease, Jubilee Company is given an option to purchase
the airplane at P100,000; which is substantially low compared to the airplanes expected resale value of
P650,000. Jubilee Company has indicated that it will make use of the purchase option. Gambit Company
incurred cost of P125,000 to have the contract completed.
The net effect of the lease transaction included in Gambit Companys 2015 income statement is

2,175,000

b.

3,140,503

c.

3,204,000

d.

3,351,000

50. On January 1 ,2014, Showtime Co., an entity required to consolidate its subsidiary, acquired 50,000 newly
issued shares of Bulaga, Inc. at P40 per share. Before the acquisition, Bulaga had 100,000 ordinary shares
outstanding. During the year, the associate reported profit of P900,000. How much is the share in the
associates profit on its separate financial statements?
a. P450,000
b. P300,000
c. P333,333
d. P0