Problem1

Brivia Company had the following balances on December 31, 2018:

Cash in checking account 350,000

Cash in money market account 750,000
Treasury bill, purchased November 1, 2018
maturing January 31, 2019 3,500,000
Time deposit purchased December 1, 2018
maturing March 31, 2019 4,000,000

What amount should be reported as cash and cash equivalents on December 31, 2018?

a) 1,100,000
b) 3,850,000
c) 4,600,000
d) 8,600,000

Problem 2

Camp Sawi Company had the following account balances on December 31, 2018:

Petty cash fund 50,000

Cash in bank- current account 4,000,000
Cash in bank- payroll account 1,200,000
Cash in bank- sinking fund 2,000,000
Cash on hand 500,000
Cash in bank- restricted account for plant addition
and expected to be disbursed in 2019 1,500,000
Treasury bills 1,000,000

The petty cash fund included unreplenished December 2018 petty cash expense vouchers P5,000 and
employee IOU P5,000.

The cash on hand included a P100,000 customer check payable to Camp Sawi dated January 15,2019.

In exchange for an guaranteed line of credit, the entity has agreed to maintain a minimum balance of
P200,000 in the unrestricted current bank account.

The sinking fund is set aside to settle a bond payable that is due on June 30,2019.

What total amount should be reported as cash and cash equivalents on December 31, 2018?

a) 8,640,000
b) 7,440,000
c) 7,640,000
d) 5,640,000

Problem 3

In preparing the bank reconciliation for the month of August, Apex Company provided the following
information:

Balance per bank statement 1,805,000

Deposit in transit 325,000
Return for customer check for insufficient fund 60,000
Outstanding checks 275,000
Bank service charge for August 10,000
What is the adjusted cash in bank?

a) 1,855,000
b) 1,795,000
c) 1,785,000
d) 1,755,000

Problem 4

Shine Company prepared the following bank reconciliation on December 31:

Balance per bank statement 2,800,000

Add: Deposit in transit 195,000

Checkbook printing charge 5,000

Error made by Shine in recording

check issued in December 35,000

NSF check 110,000 345,000

Total 3,145,000

Less: Outstanding check 100,000

Note collected by bank including

P15,000 interest 215,000 315,000

Balance per book 2,830,000

The entity had cash on hand P500,000 and petty cash fund P50,000 on December 31.

1. What amount should be reported as cash in bank at year-end?

a) 2,930,000
b) 3,095,000
c) 2,895,000
d) 3,130,000

Problem 5

Mira Company prepared the following bank reconciliation on June 30:

Balance per bank 9,800,000

Deposits in transit 400,000
Outstanding checks (1,400,000)
Balance per book 8,800,000

There were total deposits of P6,500,000 and charges for disbursements of P9,000,000 for July per bank
statement. All reconciliation items on June 30 cleared the bank on July 31.
Checks outstanding amounted to P1,000,000 and deposits in transit totalled P1,200,000 on July 31.

1. What is the amount of cash receipts per book in July?

a) 6,500,000
b) 7,300,000
c) 5,700,000
d) 7,900,000

2. What is the amount of cash disbursements per book in July?

a) 8,600,000
b) 7,600,000
c) 9,400,000
d) 8,400,000

Problem 6

Curry Company provided the following information during the first year of operations:

Total merchandise purchases for the year 7,000,000

Merchandise inventory on December 31 1,400,000
Collections from customers 4,000,000

All merchandise was marked to sell at 40% above cost. All sales are on a credit basis and all receivables
are collectible.

What is the balance of accounts receivables on December 31?

a) 1,000,000
b) 3,840,000
c) 5,000,000
d) 5,800,000

Problem 7

Gonzales Company used the allowance method of accounting for uncollectible accounts.

During the current year, the entity had charged P800,000 to bad debt expense and wrote off accounts
receivable of P900,000 as uncollectible.

What was the decrease in working capital?

a) 900,000
b) 800,000
c) 100,000
d) 0

Problem 8

Horus Company provided the doubtful accounts expense monthly at 3% of credit sales. The balance in
the allowance for doubtful accounts was P1,000,000 on January 1, 2018.

During 2018, credit sales totalled P20,000,000, interim provisions for doubtful accounts were made at
3% of credit sales, P200,000 accounts were written off, and recoveries of accounts previously written off
amounted P50,000.

An aging of accounts receivable was made on December 31, 2018.

 1 – 60 days 6,000,000 10% uncollectible
61 – 180 days 2,000,000 20% uncollectible
181 – 360 days 1,500,000 30% uncollectible
More than one year 500,000 50% uncollectible
10,000,000

Based on the review of the “more than one year” category, additional accounts of P100,000 are to be
written off on December 31, 2018.

1. What amount should be reported as doubtful accounts expense for the current year?

a) 2,250,000
b) 1,650,000
c) 900,000
d) 850,000

Problem 9

Camia Company sold accounts receivables without recourse for P5,300,00. The entity received
P5,000,000 cash immediately from the factor.

The remaining P300,000 will be received once the factor verifies that none of the accounts receivable is
in dispute.

The accounts receivable had a face amount of P6,000,000. The entity had previously established an
allowance for bad debts of P250,000 in connection with such accounts.

What amount of loss on factoring should be recognized?

a) 700,000
b) 450,000
c) 750,000
d) 300,000

Problem 10

Roth Company received from a customer a one-year, P500,000 note bearing annual interest of 8%.

After holding the note for six months, the entity discounted the note without recourse at 10%.

What amount of cash was received from the bank?

a) 540,000
b) 523,810
c) 513,000
d) 495,238

Problem 11

On July 1,2018, Honey Company sold goods in exchange for P2,000,000, 8-month, noninterest-bearing
note receivable.

At the time of the sale, the market rate of interest was 12%. The entity discounted the note at 10% on
September 1, 2018?

1. What is the cash received from discounting?

a) 1,940,000
b) 1,938,000
c) 1,900,000
 d) 1,880,000

Problem 12

On December 31,2018, Park Company sold used equipment with carrying amount of P2,000,000 in
exchange for a noninterest bearing note of P5,000,000 requiring to annual payments of P500,000. The
first payment was made on December 31, 2019.

The market interest for similar note was 12%. The present value of an ordinary annuity of 1 at 12% is
5.65 for ten periods and 5.33 for nine periods.

1. What is the carrying amount of the note receivable on December 31,2018?

a) 5,000,000
b) 2,825,000
c) 2,665,000
d) 4,500,000

2. What is the gain on sale of equipment to be recognized in 2018?

a) 3,000,000
b) 2,175,000
c) 825,000
d) 0

Problem 13

On January 1,2018, Emma Company sold equipment with a carrying amount of P4,800,000 in exchange
for a P6,000,000 noninterest bearing note due January 1,2021. There was no established exchange price
for the equipment.

The prevailing rate of interest for a note of this type on January 1,2018 was 10%. The present value of 1
at 10% for three periods is 0.75.

1. What amount should be reported as interest income for 2018?

a) 90,000
b) 450,000
c) 500,000
d) 600,000

Problem 14

Philippine Bank granted a loan to a borrower on January 1, 2018. The interest on the loan is 8% payable
annually starting December 31, 2018. The loan matures in three years on December 31, 2020.

Principal amount 3,000,000

Origination fee charged against the borrower 100,000

Direct origination cost incurred 260,300

After considering the origination fee charged to the borrower and the direct origination cost incurred,
the effective rate on the loan is 6%.

1. What is the carrying amount of the loan receivable on January 1, 2018?

a) 3,160,300
b) 3,260,300
c) 2,900,000
d) 3,000,000

2. What is the interest income for 2018?

a) 240,000
b) 189,618
c) 252,824
d) 180,000

Problem 15

On December 1, 2018, Cyrus Company gave Coco Company a P2,000,000, 12% loan.

Cyrus Company paid proceeds of P1,940,000 after the deduction of P60,000 nonrefundable loan
origination fee.

Principal and interest are due in sixty monthly instalments of P44,500, beginning January 1, 2019.

The repayments yield an effective interest rate of 12% at a present value of P2,000,000 and 13.4 at a
present value of P1,940,000.

1. What amount of interest income should be reported in 2018?

a) 22,333
b) 19,400
c) 21,663
d) 20,000

Problem 16

Lester Company sold loans with a P2,200 fair value and a carrying amount of P2,000. The entity obtained
an option to purchase similar loans and assumed a recourse obligation to repurchase loans. The entity
also agreed to provide a floating rate of interest to the transferee.

Fair values
Cash proceeds 2,100
Interest rate swap 140
Call option 80
Recourse obligation (120)

1. What is the gain (loss) on the sale?

a) 320
b) 200
c) (100)
d) 120
 2. What is included in the journal entry to record the transfer on the books of Diane Company?

a) A debit to call option

b) A credit to interest rate swap
c) A debit to loans
d) A credit to cash

Problem 17

On December 31, 2018, Save Bank has a 5-year loan receivable with face amount of P5,000,000 dated
January 1, 2017 that is due on December 31, 2019. Interest on the loan is payable at 9% every December
31.

The borrower paid the interest that was due on December 31, 2017 but informed the bank that interest
accrued in 2018 will be paid at maturity date.

There is a high probability that the remaining interest payments will not be paid because of financial
difficulty.

The prevailing market rate on interest on December 31, 2018 is 10%. The PV of 1 for three periods is .77
at 9% and .75 at 10%.

What is the loan impairment loss for 2018?

a) 1,253,500
b) 1,362,500
c) 1,250,000
d) 1,150,000

Problem 18

Crayola Company incurred the following costs:

Materials 700,000
Storage costs of finished goods 180,000
Delivery to customers 40,000
Irrecoverable purchase taxes 60,000

At what amount should the inventory be measured?

a) 880,000
b) 760,000
c) 980,000
d) 940,000

Problem 19

At year-end, Gerald Company purchased goods costing P500,000 FOB destination. These goods were
received at year-end. The cost incurred in connection with the sale and delivery of the goods were:

Packaging for shipment 10,000

 Shipping 15,000
Special handling charges 25,000

What total cost should be included in inventory?

a) 545,000
b) 535,000
c) 520,000
d) 500,000

Problem 20

Darna Company reported inventory on December 31, 2018 at P6,000,000 based on a physical count of
goods priced at cost and before any necessary year-end adjustments relating to the following:

 Included in the physical count were goods billed to a customer FOB shipping point on December
30, 2018. These goods had a cost of P125,000 and were picked up by the carrier on January 7,
2019.

 Goods shipped FOB shipping point on December 28, 2018, from a vendor to Darna were
received and recorded on January 4, 2019. The invoice cost was P300,000.

What amount should be reported as inventory on December 31, 2018?

a) 5,875,000
b) 6,000,000
c) 6,175,000
d) 6,300,000

Problem 21

Briyana Company counted and reported the ending inventory on December 31, 2018 at P2,000,000.

None of the following items were included when the total amount of the ending inventory was
computed:

Goods located in the entity’s warehouse that are on

Consignment from another entity 150,000

Goods sold by the entity and shipped FOB destination were

in transit on December 31, 2018 and received by the
customer on January 2, 2019 200,000

Goods purchased by the entity and shipped FOB seller were

in transit on December 31, 2018 and received by the entity
on January 2, 2019 300,000

Goods sold by the entity and shipped FOB shipping point were in transit
on December 31, 2018 and received by the customer on January 2, 2019 400,000

What is the correct amount of inventory on December 31, 2018?

a) 2,500,000
b) 2,350,000
 c) 2,900,000
d) 2,750,000

Problem 22

On December 15, 2018, Bagani Company sold 20,000 units at P250 per unit or a total of P5,000,000. The
entity granted the customers a right to return within 30 days if not satisfied and will receive either a full
refund if cash was already paid or a full credit for the amount owed to the entity.

It estimated that 6% of the units sold will be returned within the 30-day period. The cost for each unit is
P175. The entity uses the perpetual method.

1. What amount of sales revenue should be recognized on December 15, 2018?

a) 4,700,000
b) 5,000,000
c) 2,500,000
d) 0

2. What amount of refund liability should be recorded on December 15, 2018?

a) 510,000
b) 300,000
c) 210,000
d) 0

Problem 23

Lagoon Company accumulated the following data for the current year

Raw materials – beginning inventory 90,000 units @ P7.00

Purchases 75,000 units @ P8.00
Purchases 120,000 units @ P8.50

The entity transferred 195,000 units of raw materials to work in process during the year.

Work in process – beginning inventory 50,000 units @ P14.00

Direct labor 3,100,000
Manufacturing overhead 2,950,000
Work in process – ending inventory 48,000 units @ P15.00

The entity used the FIFO method for valuing inventory.

1) What is the cost of raw materials used?

a) 1,485,000
b) 2,250,000
c) 1,530,000
d) 3,015,000

2) What is the total manufacturing cost?

 a) 8,300,000
b) 7,535,000
c) 7,580,000
d) 9,065,000

Problem 24

Jayson Company used the perpetual system.

The following information has been extracted from the records about one product:

Units Unit cost Total cost

Jan. 1 beginning balance 8,000 70.00 560,000

6 purchase 3,000 70.50 211,500
Feb. 5 sale 10,000
Mar. 5 purchase 11,000 73.50 808,500
8 purchase return 800 73.50 58,800
Apr. 10 sale 7,000
30 sale return 300

If the FIFO cost flow method is used what is the cost of the inventory on April 30?

a) 330,750
b) 315,000
c) 433,876
d) 329,,360

Problem 25

Solid Company purchased a pilot of ground for P 18,000,000. The entity also paid an independent
appraiser for the land the amount of P500,000 .

The land was developed as residential lots at a total cost of P 41,500,000

Number of lots Sales price per lot

Highland 20 1,000,000
Midland 40 750,000
Lowland 100 500,000

What total cost should be allocated to highland lots?

a) 12,000,000
b) 11,900,000
c) 8,400,000
d) 8,300,000

Problem 26

Winter Company provided the following inventory data at year end:

Cost NRV
Skis 2,200,000 2,500,000
Boots 1,700,000 1,500,000
 Ski equipment 700,000 800,000
Ski apparel 400,000 500,000

What amount should be reported as in inventory at year end?

a) 500,000
b) 5,300,000
c) 4,800,000
d) 5,200,000

Problem 27

Win Company sold merchandise at a gross profit of 30%. On June 30, all of the inventory was destroyed
by fire.

The entity provided the following information for the six months ended June 30:

Net sales 8,000,000

Beginning inventory 2,000,000
Net purchases 5,200,000

What is the estimated cost of the destroyed inventory?

a) 4,800,000
b) 2,800,000
c) 1,600,000
d) 800,000

Problem 28

Fast Company provided the ff information:

June July August

Sales on account 7,200,000 7,360,000 7,600,000
Cash sales 720,000 800,000 1,040,000
All merchandise is marked up to sell at invoice cost plus 20%. Inventory at the beginning of each month
is 30% of that month’s cost of goods sold.

1. What is the cost of goods sold for June?

a) 5,760,000
b) 6,000,000
c) 6,080,000
d) 6,600,000

Problem 29

Hutch Company used the average cost retail inventory method to account for inventory. The following
information related to operations for the current year:

Cost Retail
Beginning inventory and purchases 6,000,000 9,200,000

Net mark-ups 400,000

Net markdowns 600,000

Sales 7,800,000

What amount should be reported as cost of goods sold for the current year?

a) 4,800,000
b) 4,875,000
c) 5,200,000
d) 5,250,000

Problem 30

National Bank granted a loan to a borrower on January 1, 2018. The interest on the loan is 10% payable
annually starting December 31, 2018. The loan matures in three years on December 31, 2020.

Principal amount 4,000,000

Origination fee charged against the borrower 342,100
Direct origination cost incurred 150,000

After considering the origination fee charged against the borrower and the direct origination cost
incurred, the effective rate on the loan is 12%.
1. What is the carrying amount of the loan receivable on January 1, 2018?

a) 4,000,000
b) 3,807,900
c) 4,150,000
d) 3,657,900

2. What is the interest income for 2018?

a) 400,000
b) 380,900
c) 456,948
d) 480,000

3. What is the carrying amount of the loan receivable on December 31, 2018?

a) 4,000,000
b) 3,807,900
c) 3,864,848
d) 3,750,932

4. What is the interest income for 2019?

a) 480,000
b) 400,000
c) 386,485
d) 463,782

THEORIES
1. What is the law regulating the practice of accountancy in the Philippines?

a) R.A. No. 9298

b) R.A. No. 9198
c) R.A. No. 9928
d) R.A. No. 9892

2. It is t he body authorized by law to promulgate rules and regulations affecting the practice of
the accountancy profession in the Philippines.

a) Board of Accountancy
b) Philippine Institute of Certified Public Accountant
c) Securities and Exchange Commission
d) Financial Reporting Standards Council

3. What is the only underlying assumption mentioned in the Conceptual Framework for Financial
Reporting?

a) Going concern
b) Accounting entity
c) Time period
d) Monetary unit

4. The relatively stable economic, political and social environment supports

a) Conservatism
b) Materiality
c) Timeliness
d) Going concern

5. What is the quality of information that gives assurance that it is reasonably free from error and
bias?

a) Relevance
b) Faithful representation
c) Verifiability
d) Neutrality

6. Which of the following terms best describes information in financial statements that is
unbiased?

a) Understandable
b) Comparable
c) Relevant
d) Neutral

7. It is a present obligation of an entity arising from past event the settlement of which is expected
to result in an outflow from the entity of resources embodying economic benefits

a) Asset
b) Liability
c) Equity
d) Expense
8. It is the residual interest in the assets of the entity after deducting all of the liabilities.

a) Income
b) Expense
c) Net income
d) Equity

9. If an expense has been incurred but not yet recorded the adjusting entry would involve?

a) A liability and asset

b) A liability and revenue
c) An expense and asset
d) An asset and a revenue

10 The adjusting entry for depreciation has the same effect as the adjusting entry for?

a) An unearned income
b) An prepaid expense
c) An accrued expense
d) An accrued income

11. Materiality depends on

a) The nature of the omission or misstatement

b) The absolute size of the omission or misstatement
c) The relative size and nature of the omission or misstatement judged in the surrounding
circumstances
d) The judgement of management

12. An entity shall present

a) The statement of cash flows more prominently than the other statements
b) The statement of financial position more prominently than other statements
c) The statement of comprehensive income more prominently than the other statements
d) Each financial statement with equal prominence.

13. Conceptually asset valuation accounts are

a) Asset
b) Neither assets nor liabilities
c) Part of shareholders equity
d) Liabilities
14. Which should be classified as a non current asset?

a) Plant expansion fund

b) Prepaid rent
c) Supplies
d) Goods in process

15. Disclosure of information about key sources of estimation uncertainty

a) Is voluntary
b) Is mandatory
c) Is either voluntary or mandatory
 d) Depends on the industry

16. Which of following is not a related party an entity?

a) The son of the chief executed officer of the entity

b) A bank providing loan to entity
c) An associate of the entity
d) Director of the entity

17. Which of the following is included in key management personnel compensation?

a) Social security contribution

b) Postemployment benefit
c) Social security contribution and postemployment benefit
d) Neither social security contribution nor postemployment benefit

18. The income statement would help in which of the following?

a) Evaluate liquidity
b) Evaluate solvency
c) Estimate amount timing and uncertainty of future cash flows
d) Estimate future financial flexibility

19. Investor and creditors use income statement information for each of the following except

a) To evaluate the future performance of an entity.

b) To provide a basis for predicting future performance
c) To help access the risk and uncertainty of achieving future cash flows
d) To evaluate the past performance of an entity

20. Which of the following does not in a statement of retained earnings?

a) Net loss
b) Prior period error
c) Preference share dividend
d) Other comprehensive income

21. Corrections of errors in prior period are included in

a) Retained earnings
b) Other comprehensive income
c) Net income
d) Share premium

22. Which of the following should not be considered “cash”?

a) Change fund
b) Certified check
c) Personal check
d) Postdated check

23. All the following may be included in “cash” except

 a) Currency
b) Money market instrument
c) Checking account balance
d) Saving account balance

24. What is the theoretically correct method of recording cash discounts related to accounts
receivable?

a) Net method
b) Gross method
c) Allowance method
d) All three methods are theoretically

25. All of the following are associated with the measurement if accounts receivable except

a) Uncollectible accounts
b) Sales returns
c) Cash discount under the net method
d) Sales allowances

26. Accounting for the interest in a noninterest bearing note receivable is an example of what
aspect of accounting theory?

a) Matching
b) Verifiability
c) Substance over form
d) Form over substance

27. What is imputed interest

a) Interest based on the stated interest rate

b) Interest based on the implicit interest rate
c) Interest based on the average interest rate
d) Interest based on the bank prime interest rate

28. When the accounts receivable are sold out right the accounts receivable have been

a) Hypothecation
b) Factoring
c) Defalcation
d) Pledging

29. The practice of realizing cash from trade receivables prior to maturity date is widespread which
term is not associated with this practice?

a) Hypothecation
b) Factoring
c) Defalcation
d) Pledging

30. A property developer must classify properties that it holds for sale in the ordinary course of
business as
 a) Inventory
b) Property plant and equipment
c) Financial asset
d) Investment property

31. Consumable stores or supplies to be consumed in the production process are reported as

a) Inventory
b) Property plant and equipment
c) Investment property
d) Intangible asset

32. Which of the following inventory method reports most closely the current cost of inventory?

a) FIFO
b) Specific identification
c) Weighted average
d) LIFO

33. Which inventory cost flow assumption would consistently result in the highest income in a
period of sustained inflation?

a) FIFO
b) LIFO
c) Weighted average
d) Specific identification

34. Inventories shall be measured at

a) Cost
b) Net realizable value
c) Lower of cost and net realizable value
d) Higher of cost and net realizable value

35. The cost of inventory shall be measured using

a) FIFO
b) Average method
c) LIFO
d) either FIFO or average method

36. What condition is not necessary when using the retail inventory method

a) total cost of goods sold for the period

b) total cost and retail price of goods purchased
c) total cost and retail price of goods available for sale
d) total sale for period

37. What is the effect of freight in on the cost retail ratio when using the conservative retail
method?

a) Increase the cost retail ratio

b) No effect on the cost retail ratio
c) Depends on the amount of the net markup
 d) Decreases the cost retail ratio
38. Which of the following is NOT considered as inventory under PAS 2?

a) Land other property purchased and held for resale

b) Supplies and materials awaiting use in the production process
c) Abnormal amounts of wasted materials, labor and other costs
d) Costs of service for which a service provider has not yet recognized the related revenue

39. An entity shall include in Its inventory all goods

a) Owned and possessed by the entity at the balance sheet date

b) Possessed but not owned by the entity at the balance sheet date
c) Owned but not possessed by the entity at the balance sheet date
d) Owned by the entity at the balance sheet date, regardless of location

40. Goods on consignment should be included in the inventory of:

a) The consignor but not the consignee

b) The consignee but not the consignor
c) Both the consignee and the consignor
d) Neither the consignor nor the consignee

41. Freight and other handling charges incurred in the transfer of goods from consignor to
consignee are

a) Inventoriable by the consignor

b) Inventoriable by the consignee
c) Expense on the part of the consignor
d) Expense on the part of consignee

42. ‘F.O.B. Destination Point’ means that

a) The freight charges are actually to be paid by the seller

b) The freight charges are actually to be paid by the buyer
c) The ownership of goods is transferred upon receipt of the goods by the buyer and the seller is
the owner of the goods while in transit
d) The ownership of goods is transferred upon shipment of the goods by the seller and the buyer
is the owner of the goods while in transit

28. Under the periodic inventory system, the opening stock is the

a) Net purchases minus the closing stock

b) Net purchases minus the total goods sold
c) Total goods available for sale minus the net purchases
d) Total goods available for sale minus the total goods sold

29. Which of the following pairs of inventory terms would NOT usually go together?

a) Perpetual inventory system < > Cost of Goods Sold account

b) Periodic inventory system < > Freight-In account
c) Gross method < > Purchase Discount account
d) Net method < > Purchase Discount account

30. Theoretically, cash discounts permitted on purchased raw materials should be

a) Added to other income, only if taken

 b) Deducted from inventory, only if taken
c) Added to other income, whether taken or not
d) Deducted from inventory, whether taken or not

31. Which of the following will NOT require inventory estimation?

a) Proof of reasonable accuracy of the physical inventory count

b) Preparation of external and internal interim financial statements
c) Inventory destroyed by a major fire incident in the production facility
d) Year-end reporting for inventory shown on the face of the statement

32. Under the gross profit method, if the gross profit rate is based on sales, the cost of sales is computed
as

a) Gross sales divided by sales ratio

b) Net sales divided by sales ratio
c) Gross sales times cost ratio
d) Net sales times cost ratio