REVIEW 105 – DAY 15 3. Ballesteros Company began operations late in 2004.

For the first quarter ended

March 31, 2005, Ballesteros made available the following information:
Total merchandise purchased through March 15, recorded at net P4,900,000
P1 Merchandise inventory at December 31, 2004, at selling price
1,500,000
1. Eternal Company acquired an equipment on January 1, 2005. The asset has an All merchandise was acquired on credit and no payments have been made on
estimate useful life of 5 years. An employee has prepared a depreciation schedule accounts payable since the inception of the company. All merchandise is marked to
for this equipment using two methods, sum-of-years digit method and double sell at 50% above invoice cost before time discounts of 2/10, n/30. No sales were
declining balance method, as follows: made in 2005.
Sum-of-years digit Double declining How much cash is required to eliminate the current balance in accounts payable?
2005 3,000,000 4,000,000 a. P6,000,000 c. P6,400,000
2006 2,400,000 2,400,000 b. P5,900,000 d. P5,750,000
2007 1,800,000 1,440,000
2008 1,200,000 864,000
2009 600,000 296,000 4. The following expenditures were incurred by Gina Company in 2005:
Purchase of land 10,000,000
What is the acquisition cost of the equipment?
Land survey 500,000
a. P9,500,000 c. P10,000,000
Fees for title search of title for land 200,000
b. P9,000,000 d. 10,500,000
Building permit 250,000
Temporary quarters for construction crew 100,000
2. Binmaley Company operates in an industry that has a high rate of bad
Payments of tenants of old building for vacating the premises 600,000
debts. On December 31, 2005, before any year-end adjustments, the Payment to demolition company to raze the old building and clean up 400,000
accounts receivable balance was P20,000,000 and its allowance for doubtful Excavating basement 350,000
accounts balance was P1,500,000. The year-end balance reported for the Special assessment tax for street project 60,000
allowance for doubtful accounts is based on the following schedule: Salvage value of materials from old building retained
by the demolition company 150,000
Time Outstanding Accounts Receivable Percent Damages awarded for injuries sustained in construction 90,000
Uncollectible Costs of construction 20,000,000
Under 30 days P10,000,000 5% Cost of paving parking lot adjoining the building 180,000
31 - 180 days 5,000,000 10% Cost of shrubs, trees and other landscaping 40,000
181 - 360 days 3,000,000 30%
More than one year 2,000,000 100% The total costs to be capitalized as land is
a. P11,610,000 c. P11,800,000
The accounts which have been outstanding for more than one year and b. 11,730,000 d. P11,650,000
100% uncollectible would be written off immediately. What should be the
doubtful accounts expense for the year ended December 31, 2005? 5. Joan Company acquired a machine on March 1, 2003 for P8,000,000. The
a. P1,900,000 c. P3,900,000 machine has a 10 year useful life and a P500,000 residual value, and was
b. P2,400,000 d. P2,000,000 depreciated using the straight-line method. Joan records a full year’s depreciation
on the year of an asset’s acquisition and no depreciation on the year an asset is
disposed of. On December 31, 2004 the machine had a significant decline in its
market value. A test for recoverability revealed the expected net future undiscounted
cash flows related to the continued use and eventual disposal of the machine total The depletion recorded by Young Company in 2005 is
P7,200,000. The machine’s fair value on December 31, 2004 is P6,000,000 with no a. P8,400,000 c. P9,360,000
salvage value while the discounted future cash flows amounts to P6,600,000. On b. P7,200,000 d. P5,616,000
December 31, 2005, the machine should have a carrying value of
a. P5,687,500 c. P5,750,000 8. Essel Company uses the composite method of depreciation and has a composite
b. P5,775,000 d. P5,250,000 rate of 20%. During 2005, it sold assets with an original cost of P500,000 and a
residual value of P100,000 for P300,000 and eventually acquired P400,000 of new
6. Calayan Company has determined its December 31, 2005 inventory on a FIFO assets with a residual value of P40,000. Information regarding the original group of
basis at P9,500,000. Information pertaining to that inventory follows: assets as of January 1, 2005 is presented below:
Estimated selling price Total cost 5,000,000
P14,000,000 Total residual value 800,000
Estimated cost to complete and cost of disposal Accumulated depreciation 1,000,000
5,000,000
What was the depreciation expense recorded by Essel Company in 2005?
Normal profit margin
a. P1,000,000 c. P832,000
2,000,000
b. P 632,000 d. P980,000
Current replacement cost
8,000,000
9. The bookkeeper of Calumpit Company recently prepared the following bank
Calayan records losses that result from applying the lower of cost or market rule. reconciliation on December 31, 2005:
At December 31, 2005, Calayan should report inventory at
a. P9,500,000 c. P9,000,000 Balance per bank statement 20,000,000
b. P8,000,000 d. P7,000,000 Add: Deposit in transit 1,500,000
Checkbook and other bank charge 50,000
Error made by Calumpit in recording check
7. In 2004, The Young Mining Company purchased property with natural resources No. 150,000
for P29,000,000. The property was relatively close to a large city and had an 1005 (issued in December)
expected residual value of P4,000,000. However P2,000,000 will have to be spent to Customer check marked DAIF 500,000 2,200,000
restore the land for use. The following information relates to the use of the property: Total 22,200,000
 In 2004,Young spent P3,000,000 in development costs and P1,500,000 in Deduct: Outstanding checks 1,900,000
buildings on the property. Young does not anticipate that the buildings will Note collected by bank (includes P200,000 2,300,000 4,200,000
have any utility after the natural resources are depleted. The original interest)
estimated output is 5,000,000 tons. Balance per book 18,000,000
 In 2005 and additional P2,400,000 were spent for additional developments on
Calumpit has P1,000,000 cash on hand on December 31, 2005. The amount to
the mine.
be reported as cash on the balance sheet as of December 31, 2005 should be
 The tonnage mined and estimated tons remaining for years 2004 and 2005
a. P19,600,000 c. P20,600,000
are as follows:
b. P18,600,000 d. P19,750,000
Estimated tons remaining
Year Tons extracted
2004 1,500,000 3,500,000 10. On January 1, 2003, Tulsa Company purchased a machine for P10,560,000 and
2005 1,200,000 1,800,000 depreciated it by the straight line method using an estimated life of ten years with no
residual value. On January 1, 2005, Tulsa determined that the machine had a useful
life of eight years from the date of acquisition and will have a residual value of b. P812,500 d. P875,000
P450,000. An accounting change was made in 2005 to reflect this additional
information. The accumulated depreciation for this machine should have a balance 13. Cagayan Company included the following items under inventories:
at December 31, 2005 of
a. P3,445,000 c. P3,055,000 Materials P 1,400,000
b. P3,168,000 d. P3,033,000 Advance for materials ordered 200,000
Goods in process 650,000
11. Ursula Mathey Company incurred the following costs during 2005 in connection Unexpired insurance on inventories 60,000
with its research and development activities: Advertising catalogs and shipping boxes 150,000
Finished goods in factory 2,000,000
Cost of equipment acquired that will have alternative uses in future Finished goods in company-owned retails store, including 50% profit
research and development projects over the next five years on cost 750,000
(straight-line depreciation) 600,000Finished goods in hands on consignees including 40% profit on sales 400,000
Materials consumed in research and development projects 150,000Finished goods in transit to customers, shipped FOB destination, at
Consulting fees paid to outsiders for research and cost 250,000
development projects 250,000Finished goods out on approval, at cost 100,000
Personnel costs of persons involved in research and Unsalable finished goods, at cost 50,000
development projects 80,000Office supplies 40,000
Indirect costs reasonably allocable to research and Materials in transit shipped FOB shipping point, excluding freight of
development projects 220,000 P30,000 330,000
Materials purchased for future research and development projects 300,000Goods held on consignment, at sales price, cost P150,000 200,000
The amount to be reported by Ursula as research and development expense on How much is the correct amount of inventories?
its income statement for 2005 is a. P5,610,000 c. P5,375,000
a. P720,000 c. P1,600,000 b. P5,500,000 d. P5,450,000
b. P820,000 d. P1,120,000

12. On January 1, 2005, the balance of accounts receivable of Manaoag 14. Kula Company has the following information as of January 1, 2005 on its
Company was P5,000,000 and the allowance for doubtful accounts on same property plant and equipment account:
date was P800,000. The following data were gathered: Land 30,000,000
Credit sales Writeoffs Recoveries Buildings and improvements 250,000,000
2002 P10,000,000 P250,000 P20,000 Less: Accumulated depreciation . 62,500,000
Net book value 217,500,000
2003 14,000,000 400,000 30,000
2004 16,000,000 650,000 50,000 There were no additions or disposals during 2005. Depreciation expense is
2005 25,000,000 1,100,000 145,000 computed on the straight-line method over 20 years for buildings and
improvements. On January 1, 2005, all of Kula’s property, plant and equipment
Doubtful accounts are provided for as percentage of credit sales. The
were appraised as follows:
accountant calculates the percentage annually by using the experience of
the three years prior to the current year. How much should be reported as Replacement cost
2005 doubtful accounts expense? Land 50,000,000
a. P750,000 c. P330,000 Buildings and improvements 400,000,000
 As a result of the appraisal, the buildings and improvements were also 3. A measure that describes the risk of an investment project relative to other investments
determined to have a revised useful life of 25 years. What is the revaluation in general is the
surplus that will appear in Kula’s stockholders’ equity on December 31, 2005? a. Coefficient of variation
a. P132,500,000 c. P145,875,000 b. Beta coefficient.
b. P125,000,000 d. P126,875,000 c. Standard deviation.
d. Expected return.
15. Lovable Corporation is considering the purchase of Adorable Company, whose
balance sheet as of December 31, 2005 is summarized as follows: 4. The expected rate of return for the stock of Cornhusker Enterprises is 20%, with a
Current assets 800,000 Current liabilities 600,000standard deviation of 15%. The expected rate of return for the stock of Mustang Associates
Fixed assets (net) 1,100,000 Long-term liabilities 700,000is 10%, with a standard deviation of 9%. The riskier stock is
Other assets 700,000 Common stock 850,000a. Cornhusker because its return is higher.
. . Retained earnings 450,000b. Cornhusker because its standard deviation is higher.
Total 2,600,000 Total 2,600,000c. Mustang because its standard deviation is higher.
The fair market value of the current assets is P1,100,000 because of the d. Mustang because its coefficient of variation is higher.
undervaluation of inventory. The normal rate of return on the net assets for the
industry is 15% and the average expected annual earnings for Adorable 5. Questo borrowed $100,000 from a bank on a one-year 8% term loan, with interest
Company is P300,000. Assuming that the excess earnings continue for the next compounded quarterly. What is the effective annual interest on the loan?
five years and Lovable follows the “years’ multiple of excess earnings” approach a. 8%
of computing goodwill, how much would Lovable be willing to pay for the net b. 8.24%
assets of Adorable? c. 2%
a. P1,900,000 c. P2,125,000 d. 9.12%
b. P2,000,000 d. P2,300,000
6. Jones Company has $5,000,000 of average inventory and sales of $30,000,000. Using a
MAS 365-day year, calculate the firm’s inventory conversion period.
a. 30.25 days
b. 60.83 days
1. An improvement in technology that in turn leads to improved worker productivity would c. 45.00 days
most likely result in d. 72.44 days
a. A shift to the right in the supply curve and a lowering of the price of the output.
b. A shift to the left in the supply curve and a lowering of the price of the output. 7. The length of time between the acquisition of inventory and payment for it is called the
c. An increase in the price of the output if demand is unchanged. a. Operating cycle.
d. Wage increases. b. Inventory conversion period.
c. Accounts receivable period.
2. Which of the following market features is likely to cause a surplus of a particular product? d. Accounts payable deferral period.
a. A monopoly.
b. A price floor. 8. If everything else remains constant and a firm increases its cash conversion cycle, its
c. A price ceiling. profitability will likely
d. A perfect market. a. Increase.
b. Increase if earnings are positive.
c. Decrease.
d. Not be affected. 13. The balanced scorecard and value-based management are techniques that are being
used by a number of corporations. In comparison to the balanced scorecard, value-based
9. An organization offers its customers credit terms of 5/10 net 20. One-third of the management focuses on
customers take the cash discount and the remaining customers pay on day 20. On average, a. Nonfinancial measures
20 units are sold per day, priced at $10,000 each. The rate of sales is uniform throughout b. Financial measures.
the year. Using a 360- c. Both financial and nonfinancial measures.
day year, the organization has days’ sales outstanding in accounts receivable, to the nearest d. Quality measures.
full day, of
a. 13 days. 14. Management has identified a relationship between customer satisfaction and return on
b. 15 days. investment. This relationship could be depicted in a
c. 17 days. a. Strategy map.
d. 20 days. b. Value chain.
c. Customer perspectives chart.
10. Troy Toys is a retailer operating in several cities. The individual store managers deposit d. Strategic initiatives list.
daily collections at a local bank in a noninterest-bearing checking account. Twice per week,
the local bank issues a depository transfer check (DTC) to the central bank at headquarters. 15. Which of the following is not a component of the balanced scorecard?
The controller of the company is considering using a wire transfer instead. The additional a. Strategic objectives.
cost of each transfer would be $25; collections would be accelerated by two days; and the b. Targets.
annual c. Strategy initiatives.
interest rate paid by the central bank is 7.2% (0.02% per day). At what amount of dollars d. Assessment of human resources.
transferred would it be economically feasible to use a wire transfer instead of the DTC?
Assume a 360-day year.
a. It would never be economically feasible. TOA
b. $125,000 or above.
c. Any amount greater than $173. 1. It is the increase in the present value of the defined benefit obligation resulting
d. Any amount greater than $62,500. from employee service in the current period.
a. Past service cost c. Current service and
11. A decrease in the price of a complementary good will interest cost
a. Shift the demand curve of the joint commodity to the left. b. Current service cost d. Interest cost
b. Increase the price paid for a substitute good.
c. Shift the supply curve of the joint commodity to the left. 2. Which statement is true concerning depreciation?
d. Shift the demand curve of the joint commodity to the right. I. When a change in depreciation method is necessary to reflect the new
pattern of economic benefits the change should be accounted for as a
12. The balanced scorecard has been adopted by many corporations. Which of the following change in accounting estimate and the depreciation charge for the current
best describes the balanced scorecard? and future periods should be adjusted.
a. A strategy that meets management’s objectives. II. The useful life of an item of property, plant and equipment should be
b. A diagram illustrating cause and effect relationships. reviewed periodically and if expectations are significantly different from
c. A table of key actions to achieve strategic objectives. previous estimates, the depreciation for the current and future periods should
d. A strategic performance measurement and management framework. be adjusted.
 a. I only b. II only c. Both I and II d.
Neither I nor II
3. All of the following factors are considered in determining the useful life of an
asset, except
a. Expected usage of the asset by the enterprise
b. Expected physical wear and tear
c. Technical obsolescence
d. Residual value
4. The sum of units method of depreciation results in
a. Constant charge over the useful life of the asset
b. Decreasing charge over the useful life of the asset
c. Increasing charge over the useful life of the asset
d. Charge based on the expected use or output of the asset
5. Technical obsolescence arises from
a. Expected usage of the asset
b. Expected physical wear and tear
c. Expiry date of related lease of the asset
d. Change or improvements in production or change in the market demand
for the product output of the asset.
6. The cost of fully depreciated asset remaining in service and the related
accumulated depreciation
a. Should be removed from the accounts and excluded from property, plant
and equipment
b. Should not be removed from the accounts and therefore included in
property, plant and equipment with disclosure
c. Should not be removed from the accounts and therefore included in
property, plant and equipment without disclosure
d. Should be adjusted to conform with new estimated useful life
7. Enterprises are encouraged to disclose all of the following amounts, except
a. Gross carrying amount of fully depreciated property that is still in use.
b. Carrying amount of property, plant and equipment retired from active use
and held for disposal.
c. Fair value of property, plant and equipment when the fair value is not
materially different from the carrying amount.
d. Carrying amount of temporarily idle property, plant and equipment.
8. Characteristic(s) common to all joint ventures include
a. Two or more venturers are bound by a contractual arrangement.
b. The contractual arrangement establishes joint control.
c. The use of proportionate consolidation.
d. Both a and b.
9. Investment property excludes
a. Land held for long-term capital appreciation.
b. Building leased out under an operating lease.
c. Property that is being redeveloped for continuing use as investment property.
d. Property that is being constructed or developed for use as an investment
property.
10. Which statement is correct regarding the application of the equity method of
accounting for investments in associates?
a. The equity investment is initially recorded at cost.
b. The equity investment is increased by the investor's share of the net loss of
the associate.
c. Distributions received from the investee increase the carrying amount of the
investment.
d. The investor's share of profit or loss of the investee and of changes in the
investee's equity is determined on the basis of total potential ownership interests.
11. Which is incorrect concerning depreciation of PPE?
a. The depreciation method used should reflect the pattern in which the asset's
economic benefits are consumed by the enterprise.
b. The depreciation method should be reviewed at least annually and, if the
pattern of consumption of benefits has changed, the depreciation method should
be changed currently and prospectively as a change in estimate.
c. Depreciation should be charged to the income statement, unless it is included
in the carrying amount of another asset.
d. Depreciation begins when the asset is available for use and continues until the
asset is derecognized and became idle.
12. An item of property, plant and equipment that is retired from active use and
held for disposal is carried at
a. Net realizable value
b. Carrying amount
c. Carrying amount or net realizable value, whichever is higher
d. Carrying amount or net realizable value, whichever is lower
13. Gain or loss from disposal of an item of property, plant and equipment is Additional information is as follows:
equal to the difference between
a. Fair value of the asset on balance sheet date and its carrying amount a. Goods received on November 28 but recorded as purchases in December
b. Net realizable value on balance sheet date and its carrying amount 10,000
c. Net proceeds from disposal and the cost of the asset b. Deposits made in October 2010 for purchases to be made in 2011 but charged to
d. Net proceeds from disposal and the carrying amount of the asset Purchases 14,000
c. Defective merchandise returned to suppliers:
14. Dividends representing a return of capital to stockholders are not uncommon Total at November 30, 2010 5,000
among enterprises which Total at December 31, 2010, excluding
a. Use accelerated depreciation November items 7,000
The returns have not been recorded pending
b. Use straight line depreciation receipt of credit memos from the suppliers.
c. Recognize both functional and physical factors in depreciation The defective goods were not included in the inventory.
d. Do not expect to purchase additional property after depleting existing d. Goods shipped in November under FOB destination and received in December were
property. recorded as purchases in November 18,500
e. Through the carelessness of the client’s warehouseman, certain goods were
15. Depletion expense damaged
a. Is usually part of cost of goods sold. in December and sold in the same month
b. Includes tangible equipment cost in the depletion base at its cost 20,000
c. Excludes intangible equipment cost from the depletion base. f. Audit of the client’s November inventory summary revealed the ff:
d. Excludes restoration cost from the depletion base. Items duplicated P3,000
Purchase in Transit:
Under FOB shipping point 12,000
AP Under FOB destination 18,500
The Malawi Company is an importer and wholesaler. Its merchandise is purchased from a Items counted but not included
in the inventory summary 7,000
number of suppliers and is warehoused until sold to customers.
Errors in extension that overhauled
the items 4,000
In conducting his audit for the year ended December 31, 2010, the company’s CPA
determined that the system of internal control was good. Accordingly, he observed the 1. The correct amount of net purchases up to November 30, 2010, is
physical inventory at an interim date, November 30, 2010, instead of at year end. a. P716,000 c. P692,500
b. P682,500 d. P706,500
The ff information was obtained from the general ledger: 2. The correct amount of net purchases up to December 31, 2010, is
a. P765,500 c. P784,000
Inventory, January 1, 2010 P 90,000 b. P803,000 d. P789,000
Inventory, November 30, 2010 225,000 3. What is the correct amount of net purchases for the month of December 2010?
Sales for 11 months ended November 30, 2010 800,000 a. P83,000 c. P82,500
Sales for year ended December 31, 2010 950,000 b. P91,500 d. PP101,500
Purchase for 11 months ended November 30, 2010 4. The correct inventory on November 30, 2010, is
(before audit adjustments) 720,000 a. P206,500 c. P237,000
Purchase for year ended December 31,2010 b. P214,500 d. P218,500
(before audit adjustments) 810,000 5. What is the gross income for 11 months ended December 31, 2010?
a. P234,000 c. P224,000
 b. P217,000 d. P237,500 goods were not included in the physical count, but the invoice was included in
6. What is the cost of sales ratio for 11 months ended November 30, 2010? accounts payable at December 31, 2010.
a. 73% c. 28%  Goods received from a vendor on December 26, 2010, were included in the physical
b. 70% d. 72% count. However, the related P56,000 vendor invoice was not included in accounts
7. What is the total cost of goods for the month of December 2010? payable at December 31, 2010, because the accounts payable copy of the receiving
a. P108,000 c. P114,900 report was lost.
b. P113,600 d. P108,000  On January 3, 2011, a monthly freight bill in the amount of P6,000 was received. The
8. What is the estimated inventory on December 31, 2010 bill specifically related to merchandise purchased in December 2010, one-half of
a. P183,100 c. P184,400 which was still in the inventory at December 31, 2010. The freight charges were not
b. P175,900 d. P190,000 included in either the inventory or accounts payable at December 31, 2010.

Apple company, a manufacturer of small tools, provided the ff information from its accounting 9. The adjusted balance of Inventory as of December 31, 2010 is
records for the year ended December 31, 2010. a. P1,673,000 c. P1,672,000
b. P1,704,000 d. P1,670,000
Inventory at December 31, 2010 (based on 10. The adjusted balance of Accounts Payable as of December 31,2010 is
physical count on December 31, 2010) P1,520,000 a. P1,333,000 c. P1,262,000
Accounts payable at December 31, 2010 1,200,000 b. P1,327,000 d. P1,330,000
Net sales(sales less sales returns) 8,150,000 11. The adjusted Net Sales for the year ended December 31,2010 is
a. P8,103,000 c. P8,110,000
Additional information follows: b. P8,150,000 d. P8,063,000
12. To ascertain whether inventories included in the statement of financial position
 Included in the physical count were tools billed to a customer FOB shipping point on physically exist, a CPA will ordinarily:
December 31, 2010. These tools had a cost of P31,000 and were billed at P40,000. a. Obtain confirmation of pledged inventories
The shipment was on Apple’s loading dock waiting to be picked up by the common b. Observe physical inventory counts
carrier. c. Test client’s shipping cutoff procedures
 Goods were in transit from a vendor to Apple on December 31, 2010. The invoice d. Perform an analytic review of the relationship of the inventory balance to recent
cost was P71,000. And the goods were shipped FOB shipping point on December sales
29,2010. 13. In a properly designed accounts payable system, a voucher is prepared after the
 Work in process inventory costing P30,000 was sent to an outside processor for invoice, purchase order, requisition, and receiving report verified. The next step in the
plating on December 30, 2010. system is to
 Tools returned by customers and held pending in the returned goods area on a. Post the voucher amount to the expense ledger
December 30,2010, were not included in the physical county. On January 8, 2011, b. Cancel the supporting documents
the tools costing P32,000 were inspected and returned to inventory. Credit memos c. Enter the check amount in the check register
totaling P47,000 were issued to the customers on the same date. d. Approve the voucher for payment
 Tools shipped to a customer FOB destination on December 26, 2010, were in transit
at December 31,2010, and had a cost of P21,000, Apple issued a sales invoice for You are now in the completion stage of your audit of the Merly Company’s financial
P42,000. statements for the year ended December 31, 2010.
 Goods, with an invoice cost of P27,000, received from a vendor at 5:00 p.m. on
December 31, 2010, were recorded on a receiving report dated January 2, 2011. The The next 5 items represent various commitment and contingencies of Merly at December 31,
2010, and events subsequent to December 31, 2010, but prior to the authorization for issue
of the 2010 financial statements. For each item, select from the ff list the reporting 2008 by the vendor because the vendor wished to donate this medicine to Z. The donation
requirement. should be recorded as
a. An increase of P100,000 to Patient Service Revenue
b. An increase of P100,000 to Other Non - Operating Revenue
14. On December 1, 2010, Merly was awarded damages of P75,000 in a patent c. An increase of P100,000 to Other Operating Revenue
infringement suit it brought against a competitor. The defendant did not appeal the d. A decrease of P100,000 to Other Non – Operating Revenue
verdict, and payment was received in January 2011.
A. Disclosure only
B. Accrual only Problem 4. AA Hospital had the following cash receipts for the year ended December 31,
C. Both accrual and disclosure 2008:
D. Neither accrual nor disclosure Collections of Receivables P500,000
Contribution for an establishment of 100,000
15. A former employee of Merly has brought a wrongful- dismissal suit against Merly. term endowment
Merly’s lawyers believe the suit to be without merit. Tuition from nursing school 200,000
a. Disclosure only Interest received from investment in 35,000
b. Accrual only permanent endowments
c. Both accrual and disclosure Dividends received from investment in 40,000
d. Neither accrual nor disclosure term endowments
Payment of supporting expenses 150,000
P2 Payment of program expenses 215,000
Problem 1. During 2008, Agency W transferred cash of P1,000 to Agency X for a land How much is the net cash provided by operating activities?
beautification project. Subsequently, Agency W received a report from Agency X about the a. P335,000 b.P510,000 c. P410,000 d. P435,000
project. Which of the following is incorrect?
a. The obligation of P1,000 is entered in the RAOCO
b. Source Agency debits Due from NGA upon transfer of cash Problem 5. D, T and M Partnership became insolvent on December 31, 2008 and is to be
c. Receiving Agency credits Cash – NT – MDS upon receipt of cash liquidated. D, T and M has the following balances respectively, P65,000, (P30,000), (P4,000).
d. Source Agency credits Cash – NT – MDS upon transfer of cash
After paying their personal liabilities, D has still P10,000 while T has P15,000 of their
personal assets. However, M has still unpaid personal liabilities amounting to P40,000 and
his personal assets amounted only to P30,000. The partners share profits and losses equally.
Problem 2. Y hospital, a Not for Profit hospital affiliated with a religious group, reported the
How much is the maximum amount that D can expect to receive from the partnership?
following information for the year ended December 31, 2008:
a. P31,000 b. P61,000 c. P35,000 d. P46,000
Gross patient service revenue P2,400,000
Bad debts expense 50,000
Contractual adjustments with third party payors 200,000
Problem 6. The following Balance Sheet for the partnership of C, I and G were taken from
Charity care 150,000
the books on October 1, 2008.
Allowance for discounts to hospital employees 90,000
Assets Liabilities and Capital
Net patient service revenues for Y hospital for the year ended December 31, 2008 is
Cash P100,000 Liabilities P200,000
a. P2,250,000 b. P2,110,000 c. P1,960,000 d. P1,910,000
Other Assets 400,000 C, Capital 120,000
I, Capital 95,000
_________ G, Capital 85,000
Problem 3. During 2008, Z Hospital purchased medicines for hospital use totaling
Total Assets 500,000 Total Liabilities and Capital 500,000
P1,000,000. Included in the P1,000,000 was an invoice of P100,000 that was canceled in
 Liabilities 262,500 T, Capital (20%) 141,250
The partners agreed to distribute profits as follows: If in the first distribution, S received P50,000, which of the following is incorrect?
1. Annual salaries to C and I of P5,000 each a. Total amount distributed to partners is P336,250
2. Annual interest of 5% on beginning capital b. Total amount paid to creditors is P262,500
3. Bonus of 15% to C based on income after salaries, interest and bonus c. Total amount realized from the non–cash assets is P598,750
4. Remaining profit: 25% to C, 35% to I and 40% to G d. R received an amount equal to P187,500
The partnership began its operations on Oct. 1, 2008 and net income as of Dec. 31, 2008 is
P69,500. Which of the following is true?
a. The bonus to C is P5,804 Problem 10. VG Construction Company has consistently used the percentage of completion
b. Net Income after salaries, interest and bonus is P38,696 method of recognizing income. During 2007, VG entered into a fixed price contract to
c. I’s total share in the net income is P21,688 construct an office building at P15,000,000. Information relating to the contract are as follows:
d. G’s share on the profit after salaries, interest and bonus is P13,543
Dec. 31, 2007 Dec. 31, 2008
Percentage of Completion 20% 60%
Estimated costs of completion P11,250,000 P12,000,000
Problem 7. The partnership of Y,E and S provides for 3 : 3: 4 sharing in profits and losses
Income recognized 750,000 1,050,000
respectively. S is retiring from the partnership and by mutual agreement the assets are to be
Contract costs incurred during 2008 were
adjusted to their fair values which is P30,000 higher than their carrying amount. Y and E
a. P4,800,000 b. P7,200,000 c. P4,950,000 d. P4,500,000
agree that the partnership will pay P87,000 to S for his partnership interest, exclusive of his
loan which is to be paid in full separately. Before the retirement of S, Total Assets, S loan, Y
capital, E capital and S capital has the following balances respectively: P200,000, P20,000,
Problem 11. M Construction company began operations on January 2008. During the year,
P50,000, P60,000 and P70,000. Which of the following is not correct?
the company entered into a contract with G company to construct a manufacturing facility. At
a. If partial goodwill is recorded, total amount paid to S including his loan is P107,000
b. If no goodwill is recorded, the balance of Y’s capital after S’s retirement is P56,500 that time, M estimate that it would take 10 years to complete the facility at a total cost of
c. If partial goodwill is recorded, total assets after retirement is P123,000 P3,000,000. The total contract price for the construction of the facility is P5,000,000. During
d. If no goodwill is recorded, the share of E in the excess payment to S is P2,500 the year, the company incurred P850,000 in construction costs related to the project. The
estimated cost to complete the contract is P2,550,000. G company was billed 30% and paid
27% of the contract price. Using the percentage of completion method, how much is the
Problem 8. C and D shares profits and losses equally. E is to be admitted as a partner by excess of Construction in Progress over Contract billings or Contract billings over
contributing cash to the firm. The capital balances of C and D are both P30,000 before the Construction in Progress?
admission of E. E invests P25,000 for a one third interest in the firm. Which of the following is a. P250,000 current asset c. P100,000 current asset
incorrect upon admission of the new partner? b. P250,000 current liability d. P100,000 current liability
a. If total agreed capitalization is P90,000, goodwill to new partner is P5,000
b. If total agreed capitalization is P85,000, no goodwill or bonus will be recorded
c. If total agreed capitalization is P75,000, withdrawal of P10,000 from the old partners Problem 12. T restaurant sold a fastfood restaurant franchise to I. The sale agreement,
is necessary signed on January 2008 called for a P100,000 down payment plus two P50,000 annual
d. If total agreed capitalization is P90,000, no bonus would be recorded payments representing the value of initial franchise services rendered by T restaurant. In
addition, the agreement required the franchisee to pay 8% of its gross revenues to the
franchisor. The restaurant opened early in 2008 and its sales for the year amounted to
Problem 9. The accounts of the partnership of R, S and T at the end of its fiscal year on
P750,000. Assuming a 12% interest rate is appropriate, T’s 2008 total revenue will be (PV of
November 30, 2008 are as follows:
annuity of P1 at 12% for two periods is 1.6901)
Cash P103,750 Loan from S P 20,000
a. P84,505 b. P244,505 c. P254,646 d. P266,646
Other Non cash assets 707,500 R, Capital (30%) 266,250
Loan to R 15,000 S, Capital (50%) 136,250
 How much is the material cost of the units completed?
Problem 13. LL Incorporated which began operating on January 2008 appropriately uses the a. P690,500 b. P693,000 c. P690,000 d. P700,000
installment method of accounting. The following information pertains to LL’s operations in
2008.
Installment sales P600,000 BLT
Regular sales 800,000
Cost of Installment sales 270,000 1. Which among the following reduces the gross estate (not the net estate) of a citizen of the
Cost of Regular sales 440,000 Philippines for purposes of estate taxation?
Operating expenses 200,000 A. Transfers for public use
Collections on installment sales 150,000 B. Property previously taxed
Collections on regular sales 200,000 C. Standard deduction of P1 million
D. Capital of the surviving spouse
How much is the Realized Gross Profit in 2008?
2. What is the rule on the taxability of income that a government educational institution
a. P690,000 b. P242,500 c. P82,500 d. P442,500 derives from its school operations? Such income is
A. subject to 10% tax on its net taxable income as if it is a proprietary educational institution.
B. Exempt from income taxation if it is actually, directly, and exclusively used for
Problem 14. HH company began operating at 2006 and using the installment method of educational purposes.
accounting, presented the following data for its installment sales: C. subject to the ordinary income tax rates with respect to incomes derived from educational
activities.
Down payment is 30%
D. Exempt from income taxation in the same manner as government-owned and controlled
Installment sales: P600,000 in 2006; P762,500 in 2007; P981,250 in 2008 corporations.
Mark up on cost is 25% 3. An example of a tax where the concept of progressivity finds application is the
Collections after down payment,: 25% in the year of sale, 30% in the year after and A. income tax on individuals.
45% in the third year B. excise tax on petroleum products.
Which of the following is true? C. value-added tax on certain articles.
a. IAR at the end of 2007 is P400,313 D. amusement tax on boxing exhibitions.
b. DGP for 2007 sales at the end of 2008 is P80,063 4. Exempted from donor’s taxation are gifts made
c. RGP from 2006 and 2007 sales at 2008 is P85,838 A. for the use of the barangay.
d. Total Unrealized Gross Profit at the end of 2008 is P151,069 B. in consideration of marriage.
C. to a school which is a stock corporation.
D. to a for-profit government corporation.
5. In 2010, Juliet Ulbod earned P500,000.00 as income from her beauty parlor and received
Problem 15. DD Company uses a Raw and In process (RIP) account and charges all P250,000.00 as Christmas gift from her spinster aunt. She had no other receipts for the year.
conversion cost to Cost of Goods Sold (CGS). At the end of each month, all inventories are She spent P150,000.00 for the operation of her beauty parlor. For tax purposes, her gross
counted, their conversion cost components are estimated and inventory account balances income for 2010 is
are adjusted. Raw material cost is backflushed form RIP to finish goods. The following A. P750,000.00.
information is for the month of July: B. P500,000.00.
Beginning balance of RIP account P 50,000 C. P350,000.00.
D. P600,000.00.
Beginning balance of Finished Goods account, including 78,000
6. Passive income includes income derived from an activity in which the earner does not
P12,500 of conversion cost have any substantial participation. This type of income is
Raw materials received on credit 700,000 A. usually subject to a final tax.
Ending balance of RIP account 60,000 B. exempt from income taxation.
Ending balance of Finished Goods account, including 75,000 C. taxable only if earned by a citizen.
P10,000 of conversion cost D. included in the income tax return.
7. Which theory in taxation states that without taxes, a government would be paralyzed for When T sought collection from Y, the latter countered as indorser that there should have
lack of power to activate and operate it, resulting in its destruction? been a presentment first to the maker who dishonors it. Is Y correct?
A. Power to destroy theory A. No, since Y is the real debtor and thus, there is no need for presentment for
B. Lifeblood theory payment and dishonor by the maker.
C. Sumptuary theory B. Yes, since as an indorser who is secondarily liable, there must first be presentment for
D. Symbiotic doctrine payment and dishonor by the maker.
8. A non-stock, non-profit school always had cash flow problems, resulting in failure to recruit C. No, since the absolute rule is that there is no need for presentment for payment and
well-trained administrative personnel to effectively manage the school. In 2010, Don Leon dishonor to hold an indorser liable.
donated P100 million pesos to the school, provided the money shall be used solely for paying D. Yes, since the secondary liability of Y and Z would only arise after presentment for
the salaries, wages, and benefits of administrative personnel. The donation represents less payment and dishonor by the maker.
than 10% of Don Leon’s taxable income for the year. Is he subject to donor’s taxes? A, the proprietor of a fleet of ten taxicabs, decides to adopt, as his business name, “A
A. No, since the donation is actually, directly, and exclusively used for educational purposes. Transport Co., Inc.” May this be allowed?
B. Yes, because the donation is to be wholly used for administration purposes. A. No, it would be deceptive since he is a proprietor, not a corporation.
C. Yes, since he did not obtain the requisite NGO certification before he made the donation. B. No, since “A” is a generic name, not suitable for registration.
D. No, because the donation does not exceed 10% of his taxable income for 2010. C. Yes, since his line of business is public transportation.
9. The excess of allowable deductions over gross income of the business in a taxable year is D. Yes, since such name would give his business a corporate identity.
known as The Articles of Incorporation must be accompanied by a Treasurer’s Affidavit certifying under
A. net operating loss. oath, among others, that the total subscription paid is:
B. ordinary loss. A. not less than P25,000.00.
C. net deductible loss. B. not more than P5,000.00.
D. NOLCO. C. not less than P5,000.00.
10. Lualhati Educational Foundation, Inc., a stock educational institution organized for profit, D. not more than P25,000.00.
decided to lease for commercial use a 1,500 sq. m. portion of its school. The school actually,
directly, and exclusively used the rents for the maintenance of its school buildings, including
payment of janitorial services. Is the leased portion subject to real property tax?
A. Yes, since Lualhati is a stock and for profit educational institution.
B. No, since the school actually, directly, and exclusively used the rents for educational
purposes.
C. No, but it may be subject to income taxation on the rents it receives.
D. Yes, since the leased portion is not actually, directly, and exclusively used for
educational purposes.
Can a drawee who accepts a materially altered check recover from the holder and the
drawer?
A. No, he cannot recover from either of them.
B. Yes from both of them.
C. Yes but only from the drawer.
D. Yes but only from the holder.
The rule is that the intentional cancellation of a person secondarily liable results in the
discharge of the latter. With respect to an indorser, the holder’s right to cancel his signature
is:
A. without limitation.
B. not limited to the case where the indorsement is necessary to his title.
C. limited to the case where the indorsement is not necessary to his title.
D. limited to the case where the indorsement is necessary to his title.
X executed a promissory note in favor of Y by way of accommodation. It says: “Pay to Y or
order the amount of Php50,000.00. Signed, X.” Y then indorsed the note to Z, and Z to T.