P1 & TOA Quizzer (AC 503 Midterm Topics)

Prepared by: Miguel Albert M. Taveros

Instructions: Round off Computations to the nearest Peso and PV factors to the 4 th decimal place unless
otherwise stated. Choose among the choices the best alternative that would answer the question.
1. Per PAS 1, they are referred to as holders of instruments called equity.
A. Shareholders
B. Owners

C. Stockholders
D. Equity Holders

2. According to the Conceptual Framework for Financial Reporting, this pertains to information about
the reporting entitys economic resources, claims against the reporting entity, and the effects of
transactions and other events and conditions that change those resources and claims.
A. General purpose financial reports
B. General purpose financial statements

C. Financial Position and Financial Performance

D. Economic phenomena

3. Which of the following statements is true?

(I)
For information to be useful, financial information need not be comparable, verifiable,
timely and understandable.
(II)
Materiality is an entity-specific aspect of relevance
(III)
An entity classifying expenses by nature must disclose separately the function of expenses,
including Administrative, Distribution, and Other expenses.
(IV)
Per PAS 1, income statements may be presented by either the nature or function of expense
method
A. 1 statement only
B. 2 statements only
C. 3 statements only

D. All of the statements are true

E. All of the statements are true

4. Which is by itself and objective evidence of impairment of financial assets according to PAS 39?
A. Disappearance of an active market for the FA because of financial difficulties
B. A downgrade of the entitys credit rating
C. A decline in the fair value of a financial asset below its cost or amortised cost
D. Disappearance of an active market for the FA because it is no longer publicly traded
5. When a noncurrent, non-interest bearing note is discounted, what is used to compute for the
discount to be taken by the bank and therefore the proceeds to be received by the entity?
A. Its Maturity Value
B. Its Face Value

C. Its Present Value

D. Two of these

6. The bank reconciliation prepared by Agnes Bank for the Cash in Bank of Alberto Corporation during
the month of April revealed that there have been deposits in transit and outstanding checks last
month that cleared the bank during the current month. It is also discovered that certain checks from
customers awaiting deposit have not been reflected in the deposits section of the reconciliation.
Bank credits representing notes held by the bank for the entity have matured this month. What is
the amount of cash receipts per book?
A. The cash receipts per bank reconciliation less deposits in transit and outstanding checks last
month plus customer checks less bank credits.
B. The cash receipts per bank reconciliation less deposits in transit last month plus customer checks.
C. The cash receipts per bank reconciliation less deposits in transit last month and bank credits
plus customer checks.
D. None of the choices will yield the correct cash receipts per book because the given information
regarding the two month reconciliation of the bank is insufficient.
7. What is the proper accounting treatment of cash in bank that has been restricted as to withdrawals
due to the bankruptcy of the bank?
A. Write down cash to estimated realizable value and treat any irrecoverable amounts as
impairment loss
B. Decrease the amount of cash in bank and reclassify the amount of decrease as a noncurrent asset
because there may be a possibility of recovery in subsequent periods
C. A and B are acceptable accounting treatments
D. None of the choices are an acceptable accounting treatment for the situation
8. Theoretically, receivables are measured at:
A. Face Value, unless another measure is more appropriate; such as when noncurrent and noninterest bearing receivables are discounted at the market rate of interest
B. Original Invoice Amount
C. Fair Value
D. Present Value
9. The interest for amortizing premium provides for
A. Increasing amortization and increasing interest income
B. Increasing amortization and decreasing interest income
C. Decreasing amortization and increasing interest income
D. Decreasing amortization and decreasing interest income

10. Which of the following is true with regards to a note payable that is irrevocably designated at fair
value through profit or loss (FVTPL)?
A. A note payable initially measured at FVTPL may subsequently be remeasured to Present Value or
Amortized Cost if certain conditions are met per PFRS 9
B. A change in fair value attributable to credit risk may or may not be presented in OCI depending on
the accounting policies governing the entity
C. A note payable initially measured at Present Value may subsequently be remeasured
irrevocably to FVTPL per PFRS 9
D. A change in fair value attributable to credit risk recognized in OCI may be subsequently
transferred to Equity or Profit or Loss, depending on the entitys accounting policy
11. Which is incorrect regarding the Accounting for the Modification of Terms in a Debt Restructuring?
A. Any cost or fees incurred as a result of the substantial modification of terms shall form part of the
gain or loss on extinguishment
B. The difference between the carrying amount of the old liability and the present value of the
restructured liability discounted at the original effective rate shall be accounted for as gain or loss
on extinguishment
C. Per Application Guidance B3.3.6 of PFRS 9, there is substantial modification of terms if the gain
or loss on extinguishment is greater than 10% of the old financial liability.
D. A substantial modification of terms of an existing financial liability shall be accounted for as an
extinguishment of the old financial liability and the recognition of a new financial liability.
12. Which of the following is incorrect regarding income, expense and realization?
A. The essence of gain that distinguishes it from revenue is regularity
B. The essence of expense that distinguishes it from losses is regularity
C. Of the realization principles, the most risky is the cost recovery method
D. Production method is allowed when a sale is assured such as under a forward contract but not a
futures contract
E. Two statements are incorrect
F. Three Statements are incorrect
13. Everything else constant, which of the following is true regarding 2 Debt securities: Security A and B
where the issuers are required to make periodic payments at the beginning and end of the period,
respectively.
A. EIR of A > EIR of B
B. First amount of amortization of A > that of B
C. Present Value for security B > that of A

D. Future Value for security B < that of A

E. Two of these
F. Three of these

14. Which of the following is true regarding Investments per PAS 39 and PFRS 9?
A. Under the fair value option for measuring securities, interest income is based on the nominal
interest rate and the change in fair value from the end of the prior reporting period.
B. Impairment loss for financial assets at Amortized Cost is measured as the difference between the
carrying amount and the present value of estimated future cash flows discounted at the effective
rate that reflects the current market condition of the impaired asset
C. Establishment of an Allowance for Impairment account instead of directly reducing the carrying
amount of the financial asset measured at amortized cost is a valid accounting treatment
D. There can be no objection when an entity irrevocably designates the subsequent measurement of
a trading security at FVTOCI as long as it applies it to all identical assets
15. In calculating the carrying amount of the loan receivable, the lender adds to the principal
A. Direct loan origination cost incurred by the lender
B. Indirect loan origination fee charged to the borrower
C. Direct loan origination fee charged to the borrower
D. Two of these
16. It is defined as an account in which amounts are temporarily recorded
A. Mixed Account
B. Suspense Account

C. Nominal Account
D. Two of these

17. Which of the following is not an objective of using the present value in accounting measurements?
A. To capture the value of an asset or a liability in the context of a particular entity
B. To estimate fair value
C. To capture the economic difference between sets of future cash flows
D. To capture the elements that taken together would comprise a market if one existed.
18. What is the most valid definition of carrying amount per PFRS?
A. It is the cost with which the asset or liability was initially recognized plus any directly attributable
costs.
B. It is the amount with which the asset or liability is carried at the books of the entity
C. It is the amount at which an asset is recognized after deducting any accumulated depreciation
and accumulated impairment losses
D. It is any one of the three fair value inputs (Input from identical assets in principal markets, Input
from identical or similar assets in markets that are not active and unobservable inputs of the asset)
at the date the asset is acquired or the liability is incurred per PFRS 13 Fair Value Measurement

Problem Set 1: Alberto Corporation is a publicly held entity whose primary operations are conducted
in the Philippines. The following are information about its liabilities for the year 2015:
I. A Stock dividends payable to Agnes Company on June 30, 2016
II. A note payable to Maxine Corporation due on April 10, 2016 for which both parties have
completed a long-term rescheduling at the end of the reporting period.
III. A loan payable to Maya Corporation with which during the current year, a breach of the covenant
was committed by Alberto that made the liability immediately demandable. Maya agreed to give
Alberto a grace period ending 9 months after the end of the reporting period.
IV. Salaries payable to its employees due on December 20, 2017
V. Deferred serial bonds with face of P5,000,000 issued to Mark Company at par bearing interest at
12%,payable in semi-annual instalment of P500,000 due on April 1 and October 1 of each year, the
last bond to be paid on October 1, 2021
19. For the given problem set, which of the following items should be classified as current liabilities?
A. 1 item only
B. 2 items only

C. 3 items only
D. 4 items only

20. For the given problem set, which of the following items should be classified as noncurrent liabilities?
A. 1 item only
B. 2 items only

C. 3 items only
D. 4 items only

21. (Cash and Cash Equivalents) The controller of Miguel Corporation is attempting to determine the
amount of cash to be reported on its December 31, 2015 statement of financial position. The
following information is provided:
(I)
Commercial savings account of P1,200,000 and a commercial checking account balance of
P1,800,000 are held at PS Bank
(II)
Travel advances of P360,000 for executive travel for the first quarter of the next year
(employee to reimburse through salary deduction)
(III)
A separate cash fund in the amount of P3,000,000 is restricted for the retirement of a long
term debt.
(IV)
A bank overdraft of 250,000 in Miguels checking account at Aumentar bank has occurred
although this the bank overdraft is repayable on demand and the checking account forms
part of Miguels cash management.
(V)
The company has two certificates of deposit, each totalling P1,000,000. These certificates
have a remaining time to maturity of 30 days and were acquired on January 2015.
(VI)
Miguel has an 18 month check long outstanding from a customer of P150,000
(VII)
Miguel agreed to maintain a cash balance of P200,000 at all times at PS Bank to ensure
future credit availability
(VIII) Currency and coins on hand amounted to P15,000

The proper amount to be shown as cash and cash equivalents on Miguels statement of financial
position at December 31, 2015 is
A. P3,015,000
B. P2,815,000

C. P2,765,000
D. P3,165,000

22. (Cash and Cash Equivalents) The following are information relating to Albert Companys cash and
cash equivalents account on January 1, 2015:
Cash
Cash equivalents acquired December 15, 2014 and maturing January 31,2015
Certificate of deposits acquired one year ago and maturing in January 10, 2015
Unused and Refundable Postage Stamps

P200,000
P40,000
P20,000
P10,000

Other than the information above, total cash receipts and disbursements during the year amounted
to P1,000,000 and P600,000, respectively. What is the amount of cash (only) to be reported by
Albert on December 31, 2015.
A. P670,000
B. P640,000

C. P610,000
D. P660,000

23. (Bank Reconciliation) The following are information relating to the bank reconciliation prepared by
Beach Please Companys newly hired assistant on December 31, 2015:

Book Balance
Add:

P
December 31 Deposit in transit
Collection of note
Interest on note

P 1,500,000
5,000,000
300,000

6,800,000
9,610,000

Total
Less:

Sheet Company's deposit to

our account
Bank Service Charge
Adjusted Book Balance
Bank Balance
Add:
Total
Less:

2,200,000
90,000
P
P

Error on check No. 96

Preauthorized payments for

water bills
NSF check
Outstanding Check
Adjusted bank balance

2,810,000

P248,000
440,000
3,219,000
P

2,290,000
7,320,000
11,260,000
9,000
11,269,000

3,907,000
7,362,000

Check No. 96 was made for the proper amount of P489,000 in payment of an account. However, it
was entered in the cash payments journal as P498,000. Beach authorized the bank to automatically
pay its water bill as submitted directly to the bank. What is the correct cash in bank balance as of
December 31, 2015?
A. P7,341,000
B. P7,362,000

C. P7,320,000
D. P9,541,000

Problem Set 2: Lay Soon Company reported the following transactions affecting accounts receivable
during the year ended December 31, 2015:
Sales (Cash and Credit)
Cash received from credit customers, all of whom
took advantage of the discount feature of the
entity's credit terms 4/10, n/30
Cash received from cash customers
Accounts receivable written off as worthless
Credit memorandum issued to credit customers
for sales returns and allowances
Cash refunds given to cash customers for sales
returns and allowances
Recoveries on accounts receivable written off as
uncollectible in prior periods (not included in
cash amount stated above)

5,900,000

3,024,000
2,100,000
50,000
250,000
20,000

80,000

The following balances were taken from the January 1,2014 statement of financial position:
Accounts Receivable
950,000
Allowance for bad debts
90,000
Lay Soon provided for net uncollectible account losses by crediting allowance for bad debts for 2%
of net credit sales for the current period.
24. (Accounts Receivable) What is the balance of accounts receivable on December 31, 2015?
A. P1,300,000
B. P1,426,000

C. P1,280,000
D. P1,220,000

25. (Accounts Receivable) What is the balance of allowance for bad debts after adjustment?
A. P120,000
B. P188,480

C. P108,480
D. P188,080

26. (Valuation of a Note) December 31, 2015, Orens Company received two P5,000,000 notes
receivable from customers in exchanged for consulting services rendered. On both notes, interest is
calculated on the outstanding principal balance at the annual rate of 4% and payable at maturity.
The note from Porpol Corporation, made under customary trade terms, is due on October 1, 2016
and the note from Blo Corporation is due on December 31, 2020. The market interest rate for similar
notes on December 31, 2015 was 10%. The compound interest factors to convert future value into
present value at 10% follow: present value of 1 due in nine months, 0.93, and present value of 1 due
in five years, 0.62. At what amounts should these two notes receivable be reported in Orens
December 31, 2015 statement of financial position?
Porpol
A. P4,650,000
B. P5,000,000

Blo
P3,100,000
P3,100,000

Porpol
C. P5,000,000
D. P4,836,000

Blo
P3,720,000
P3,720,000

Problem Set 3: January 1, 2015, Natutulog ba ang Juice Company issued a non-interest bearing note
for which the current value was P500,000. The note was payable in five annual instalments starting
on December 31, 2015. Market rate of interest for similar notes was 4%. Round off PV factors to 2
decimal places.
27. (Annuity Payments of a Note) What would be the annual instalments to be paid by Juice?
A. P100,000
B. P112,360

C. P608,991
D. P500,000

28. (Note Maturity) What would be the value of the note upon maturity?
A. P100,000
B. P112,360

C. P608,991
D. 0

29. (Factoring) Dagat sa Apoy Company factored P5,000,000 of accounts receivable to Makakalimutan
Mo Kaya Bank on July 1, 2015. Control was surrendered by Dagat. Makaklimutan assessed a fee of
5% and retains a holdback equal to 20% of the accounts receivable. In addition, the bank charged
12% computed on a weighted average time to maturity of the receivables of 30 days. Assuming all
receivables are collected, Dagat sa Apoy Companys cost of factoring the receivables would be:
A. P250,000
B. P299,315

C. P49,315
D. None of the Above

30. (Discounting) On July 1, 2015, Kulto ni Mommy Dee Company sold goods in exchange for P200,000,
8 month, non-interest bearing note receivable. At the time of the sale, the notes market rate of
interest was 12%. What amount was received by Mommy Dee when the note was discounted at 10%
on September 1, 2015?
A. P190,000
B. P193,000

C. P194,000
D. P188,000

31. (Effective Rate of Discounting) Pagbigti ug Yarn Company discounted its own P5,000,000 one-year
note at a bank, at a discount rate of 14%, when the prime rate was 12%. In reporting the note in the
statement of financial position prior to maturity, what rate should be used by Pagbigti in recording
interest expense?
A. 16.2791%
B. 14%

C. 17.4341%
D. 14.8312%

Problem Set 4: On January 1, 2014, Pabebe Gurlz Company was granted a P2,000,000 loan by Wala
Kang Pakialam Bank. The market interest rate at that time was 12%. The stated interest rate on the
note was 10% payable annually on January 1, starting 2014. The note matures in five years.
Unfortunately, because of lower sales, Pabebes financial condition worsened. On December 31,
2015, Wala Kang Pakialam determined that it was probable that Pabebe would pay back only
P1,200,000 of the principal at maturity and that Pabebe would be unable to pay any accrued interest
receivable payable on the next day. However, it was considered likely that any subsequent interest
would continue to be paid, based on the 2,000,000 loan. The prevailing interest for similar type of
note as of December 31, 2015 is 14%.
32. (Loan Present Value) What is the present value of the loan on January 1, 2014?
A. P1,878,460
B. P2,078,460

C. P1,942,260
D. 1,742,260

33. (Loan Amortization) What is the carrying amount of the loan on December 31, 2015?
A. P1,961,491
B. P1,761,491

C. P2,132,340
D. P1,932,341

34. (Impairment Loss) What is the impairment loss and allowance for loan impairment to be recognized
on December 31, 2015, respectively?
A. P769,311 & P569,311
B. P568,311 & P569,311

C. P740,161 & 540,161

D. P540,161 & P540,161

35. (Amortization of an Impaired Loan) What is the carrying amount on December 31, 2017?
A. P1,321,545
B. P1,271,471

C. P1,071,471
D. P1,000,041

36. (Debt Restructuring) On the part of Pabebe Gurlz, what is the gain or loss on restructuring to be
recognized on December 31, 2015?
A. P769,311
B. P569,311

C. P740,161
D. P540,161

37. (FA @ FVTOCI) On July 1, 2015, Gaano Kadalas ang Palagi Company acquired securities to be
recognized as FA@FVTOCI for P5,000,000 excluding transaction costs of P500,000. On December 31,
2015, the investment had an expected undiscounted cash flows of P6,000,000; a fair value with inuse valuation premise of 5,200,000; and a fair value with-in exchange valuation premise of
P5,600,000. Per PFRS 9, what is the unrealized gain/loss to be recognized in the Statement of
Comprehensive Income by Gaano?
A. P400,000 gain
B. P300,000 loss

C. P100,000 gain
D. P200,000 gain

Problem Set 5: On October 1, 2015, University of Colon, Junquera and Ramos Company purchased a
12% P3,000,000 face amount bond issue for P2,700,000 excluding accrued interest to be held as a
financial asset at amortized cost. The date of the bonds is February 1, 2015 and the interest is
payable semi-annually on February 1 and August 1. The bonds mature annually at the rate of
P1,000,000 on February 1, 2016 and every February 1 thereafter.
38. (Amortization Schedule) What is the total Peso months to be used by UCJR in the amortization
schedule?
A. P3,600,000
B. P3,000,000

C. P36,000,000
D. P48,000,000

39. (Amortization) How much is the amortization for the year ended, December 31, 2015?
A. P75,000
B. P150,000

C. P56,250
D. P18,750

40. (FA @ Amortized Cost) What is the carrying amount of the investment on December 31, 2016?
A. P1,900,000
B. P1,912,500

C. P2,000,000
D. P1,855,250