POLYTECHNIC UNIVERSITY OF THE PHILIPPINES

COLLEGE OF ACCOUNTANCY
STA. MESA, MANILA
FINANCIAL ACCOUNTING AND REPORTING
SPECIAL QUALIFYING EXAMINATION
March 31, 2011

Test 1 Multiple Choice theories- 30%

1. To
a.
b.
c.
d.

be reported s cash, the cash and cash equivalent must be

Unrestricted in use for current operarions
Available for the purchase of property, planr and equipment
Set aside for the liquidation of long-term debt
Deposited in a bank

2. Which means that the check has been merely drawn and recorded but not
given to the payee on balance sheet date?
a. Undelivered check
b. Postdated check delivered
c. Stale check
d. Outstanding check
3. Accounts receivalble should initilly be recognized at
a. Face value
b. Present value
c. Maturity value
d. Net realizable value
4. Subsequent to initial recognition, accounts receivable shoud be carried at
a. Face value
b. Amortized cost
c. maturity value
d. present value
5. what is the method of accounting for inventory in which the cost of goods
sold is recorded each time a sale is made?
a. Periodic system
b. Perpetual system
c. Professional system
d. Accounting system
6. Theoretically, ash discounts permitted on purchased raw materials should be:
a. Added to other income whether taken or not
b. Added to other income, only if taken
c. Deducted from inventory, whether taken or not
d. Deducted from invetory, only if taken

7. Government grants shall be

a. Credited to equity
b. Credited to retained earnings
c. Recognized as income immediately
d. Recognized as income on systematic and rational basis over the periodss
necessary to match them wit the related costs.
8. When funds are borrowed specifially for the purpos of obtaining a qualifying
asset, the capitaizable borrowing costs equal to:
a. Actual borrowing costs incurrd during the period
b. Actual borowing costs incurred during the period plus any investment
income on the temporary investment of the borrowing
c. Actual borowing costs incurred during the period minus any investment
income on the temporary investment of the borrowing
d. Estimated borrowing cost during the period
9. In accordance with thePAS, which of the following methods of amortization is
normally not recommended for intngible assets?
a. Units of production
b. Declining balance
c. Effective interest method
d. Straight-line
10.Goodwill shod roperly appear on the financial statements of a company
which:
a. Has purchased an entity
b. Consistently operates profitably
c. Consistently reports above-normal profits
d. Meets all of the conditions
11.The factors to consider in classifying investment in secutirties as short term
are:
a. Ready marketability and type of investment
b. Ready marketability and management intentions
c. Type of investment only
d. Ready marketability only
12.A net unrealized loss on a companys available for sale equity securities
should be reflected in the current financial statements as
a. An extraodinary item shown as a direct reduction of retained earnings.
b. A curent loss resulting fron holding marketable equity securities.
c. A footnote or parenthetical disclosure.
d. A valuation allowance and included in the equity section of the statement
of financial position.
13.Temporary investment in bonds may be classified as

a. trading securities only

b. available for sale securities only
c. Trading Securities and Available for Sale Securities
d. Trading Securities, Available for Sale Securities and Held to Maturity
Securities
14.When interest payment dats are February 1 and August 1 and a bond
investment is sold June 1, the cash received from the sale
a. Excludes accrued interest
b. Does not include the accrued interest
c. Includes accrued interest for four (4) months
d. Includes accrued interest for seven (7) months
15.Long-term cash funds include
a. Change fund
b. Dividend fund
c. Payroll fund
d. Sinking fund
16.Whuch of te following would nt be reporte as investment property?
a. Property owned by the entity and leased out one or more operating leases
b. Property held by the entity to be leased out under one or more operating
leases.
c. Real estate held for an undetermined future use
d. Property owned by the entity and leased out to another entity under a
finance lease
17.Probable future sacrifice of eonomic benefits arising from present obligations
of a particulr entity to transfer assets or provide services to other entities as
a result of past transactions or events defines
a. Revenues
b. Expenditures
c. Costs
d. Liabilities
18.Where there is a continous range of possible outcomes, and each point in
that range is as likely as any other or in the absence of best estimate, the
range to be used is the
a. Minimum
b. Maximum
c. Midpoint
d. Summmation of minimum and maximum
19.The proceeds from a bond issued with detachable share puchase warrants
should be accounted for
a. Entirely as bonds payable
b. Entirely as equity

c. Partially as unearned evenue and partialy as onds payable

d. Partially as equity and paartially as bonds payable
20.In theory, the proceeds from sale of a bond will equal to the
a. Face value of the bond
b. Present value of the principal amount dua at the end of the life of the
bond plus the present value of the interest payments mae during the life
of the bond
c. Face value of the bond plus the present value of interest pyments made
during the life of the bond
d. Fair value of the bond plus the interest payments made during the life of
the bbond
21.The primary purpose of quasi-reorganization is to give the entity the
opportunity to
a. Obtain reef from creditors
b. Revalue understated assets to their fair value
c. . At retained earings
d. Distribute the shares of a newly created subsidiary to its shareholder in
exchange for part of their shares in the corporation
22.If the fair value of the share options cannot be estimated reliably, then the
amount of compensation arising from the share options can be measured
based on
a. Carying amount of the related shares
b. Par vale of options shares
c. Intrinsic value
d. Subscription price
23.In a lease that is recorded as sales-type lese by the lessor, interest evenue
a. Should be recognized in full as revenue at the leases inception
b. should be recognized over the period of the lease using the straight-line
method
c. Should be recognized over the period of the lease using the interest
method
d. Does not arise
24.The excess of the fair value of the leased property at the inception of the lese
over its cost or carrying amount should be classified by the lessor as
a. Unearned income from a sales-type lease
b. Unearned income from a direst finaning lease
c. Manufacturers profit from sales-type lease
d. Manufacturers profit from direct financing lease
25.Interperiod tax llocation accounts for
a. All differences between tax reglation and PAS
b. Tax effects of spsecific income statement items in the same period

c. Permanent differences
d. Temporary differences
26.It is the amount of income tax paid or payable for the year as determined in
applying the provisions of the encted tax law to the taxable income
a. Current tax expense
b. Deferred tax expense
c. Deferred tax benefit
d. Income tax expense
27.All forms of consideration given by an enterprise in exchange for services
rendered by employees
a. Employee benefits
b. Employee remuneration
c. Employers contribution
d. Employers share
28.If the actual return on plan assetd is ore than the expected return, the
differene is treated as an
a. Amortization of past sevice cost
b. Effect of curtailmentt or settlement
c. Actuarial gain
d. Actuarial loss
29.Biological assets are measured at
a. Cost
b. Lower of cost or net realizable value
c. Net realizable value
d. Fair less estimated point of sale cost
30.Changes in fair value of biological asset or an agricultural produce are
a. Ignored
b. Include in profit or loss of the current period
c. Include in equity
d. Included in retained earnings
Test II-Multiple Choice Problems- 70%
31.Annah company provided the followin data for the purpose of reconciling the
Cash balance per books
Balane per books
Outstanding checks (including certified checks of
P20,000)
Deposit in transit
December NSF checks (P10,000 had been redeposited
and cleared on 12/27)

P 170,000
100,000
40,000
30,000

Erroneous credit to Annahs account, representing

proceeds of loan granted to another company
Proceeds of note collected by bankfor Annah, net of
service charge of P4,000

60,000
150,000

What is the cassh in bank balance as reflected in the bank statement at

December 31, 2010?
a. P280,000
b. P300,000
c. P360,000
d. P400,000
32.The following data pertains to Ahmie Company on December 31,2010:
Bank statement balance
P10,000,000
Checkbook balance
11,200,000
Deposit in transit
4,000,000
Outstandding checks, excluding check for P200,000
dated Decemer 31, 2010 but undelivered to payee
1,000,000
In Ahmies December 31, 2010 staement of financial position, cash should be
reported at:
a. P13,000,000
b. P13,200,000
c. P14,200,000
d.
P14400,000
33.Puregold Company had the following account balances on December 31,
2010:
Cash in bank current account
P10,000,000
Cash in bank payroll account
2,000,000
Cash on hand
1,000,000
Cash in bank restricted account for building construction
expected to be disbursed in 2011
6,000,000
Time deposit, purchased Decmber 15, 2010 and due
March 15, 2011
4,000,000
The cash on hand includes a P400,000 check payable to Puregold dated
January 15, 2011. What shoud be reported as cash and cash equivalents on
December 31, 2010?
a. P12,600,000
b. P16,600,000
c. P13,000,000
d.
P17,400,000
34.On January 1, 2010, Phares Company had accounts receivable and allowance
for bad debts of P320,000 and P24,000 respectively. Sales (all on account
during 2010 amount to P3,500,000. Accounts of P14,000 were written off
during the year analysis of Pharexs accounts receivable at December 31,
2010. Revealed the following:
Age

Amount

Estimated
uncollectible

0-60 days
61-120 days
Over 120 days

P 240,000
180,000
200,000

1%
2%
6%

There were no other transactions affecting sccounts receivable. How uch is

the cash collected from customers during 2010?
a. P2,980,000
b. P3,286,000
c. P3.300,000
d. P3,886,000
35.Using the information given in no. 34, what is the Pharex Companys bad debt
expenses for 2010?
a. P 28,000
b. P 20,000
c. P18,000
d. P8,000
36.Using the information given in no. 34, what is the ent realizable value of
accounts receivable at Decembe 31, 2010?
a. P582,000
b. P596,000
c. P602,000
d.
P606,000
37.On December 31, 2009, a fire at Delia Companys only warehouse cause
severe damage to its entire inventory. Based on recent history, Delia has a
gross profit of 40% on cost. The following information is available from the
records for the year ended December 31,2009:
Inventory at 1/01
P2,000,000
Net purchases
7,000,000
Net sales
9,100,000
A physical inventory disclosed usable damages goods which Delia estimates
can be sold to a jobber for P200,000. Using the gross profit method, the
estimated cost of goods sold for the year ended December 31, 2009 should
be
a. P4,200,000
b. P5,460,000
c. P5,600,000
d. P6,500,000
38.Using the information given in no. 37, assuming that Delia has a gross profit
of 40% on sales. What is the stiated cost of goods sold for the year ended
December 31, 2009?
a. P4,200,000
b. P5,460,000
c. P5,600,000
d. P6,500,000
39.The following balances were reported by Mercy Company:
January
December 31
Inventory
P1,000,000
P2,400,000
Accounts payable
1,500,000
2,500,000
Mercy paid suppliers P6,000,000 during the year 2009. What amount should
Mercy report as cost of goods sod for 2009?

a. P8,000,000
d. P4,000,000

b. P7,000,000

c. P5,600,000

40.Patty Page has recently purchased a computer system for its office. The
following information were gathered in relation to the acquisition of the unit:
List price
P152,000
Trade discount and rebates
56,000
taken
Installation and assembly cost
3,200
Initial delivery and handling
6,400
cost
Purchase discount
2%
What is the acquisition cost of the equipment?
a. P94,080
b. P103,680
c. P105,680
d.
P160,600
41.On august 1, 2010, Brenda Lee purchased a new machine on a deferred
payment basis. A down payment of P100,000 was made and 4 monthly
installments of P250,000 each are to be made beginning on August 1,2009.
The terms of the agreement is nt considered normal. The cash equivalent
price of the machine P950,000. Brenda incurred and paid installation costs
amounting to P30,000. How much should be capitalized as cost off the
machine?
a. P950,000
b. P980,000
c. P1,100,000
d.
P1,130,000
42.Tom Jones purchased a machine under a deferred paymaent contract on
December 31, 2010. Under the terms of the contract, tom Jones is required to
make 8 annual payment of P490,000 each beginning Deceber 31, 2011. The
applicable interest rate is 8%. What is the purchase price of the machine?
a. P2,815834
b. P3,014,150
c. P3,920,000
d. P4,862,165
43.On May 1,2009, Greek Company purchased a short-term P4,000,000 face
value 9% debt instrumrts for P3,720,000 excludig the accrued interest and
classified it as a security. Greek incurred and paid P20,000 transactions cost
related to the acquisitions of the instrument. Thw debt instruments mature on
January 1, 2011, and ay interest semi-annually on January 1 and July 1. On
December 31, the fair market value of the instruments is 97%. On February
2,2010, Greek Company sold the trading security for P3,960,000. What amont
should Greek Company sold the trading security for P3,960,000. What
amount should Greek Company initially measure its investment in trading
securities?
a. P3,720,000
b. P3,740,000
c. P3,880,000
d. P4,000,000

44.What amount should Greek Company report for short-term debt securities on
December 31,2010?
a. P3,600,000
b. P3,720,000
c. P3,880,000
d. P4,000,000
45.Assuming that short-term debt security is classified as available for sale
securities, what amount should Greek Company initially measure its
investment.
a. P3,720,000
b. P3,740,000
c. P3,880,000
d. P4,000,000
46.On October 1, 2010, Sarah Geronimo Inc has exchanged 2,000 shares of its
P500 par value ordinary shares held in treasury for a patent owned by Mark
Company. The treasury shares were acquired in 2006 at a cost of P800,000.
At the time of exchange, ordinary share was qouted at P550 pe share and the
patent had a carying value on Marks books of P900,000. At what munt
should Sarah record the patent?
a. P800,000
b. P900,000
c. P1,00,000
d.
P1,100,000
47.Christina Bautista purchased a patent on January 1, 2007 for P428,400. The
patent was being amortized over its remaining legal life of 15 years expiring
on January 1, 2022. Early 201, Cehristian determined that the economic
benefits of the patent, would not last longer than 10 years from the date of
acquisition. What amount should be reported in th balance sheet as patent,
net of accumulated amortization at December 31, 2010?
a. P257,040
b. P293,760
c. P302,400
d.
P314,160
48.The selling price of Automatic Centers units is P80,000 each. The buyers are
provided with a 2-year warranty that I expected to cost the company P2,000
per unit in the year of sale and P6,000 per unit in the year of the following
sale. The company sold 80 units in 2010 and 100 units in 2011. Actual
payments for warranty claims were P80,000 and P520,000 in 2010 and 2011,
respectively. How mus=ch would be the warranty expense for 2010?
a. P200,000
b. P640,000
c. P680,000
d.
P800,000
49.On December 31, 2010, an employee filed a P3,000,000 lawsuit against
Cargo Company for damages suffered when one of Cargos plants exploded
on July 2, 2010. Cargos legal counsel expects the company will lose the
lawsuit and estimates the loss to be between P500,000 and P1,000,000. The
employee has offered to settle the lawsuit out of court for P900,000, but
cargo will not agree to the settlement. In its December 31, 2010 statement of

financial position, what amount should Cargo report as provision from

lawsuit?
a. P500,000
b. P750,000
c. P1,000,000
d.
P3,000,000
50.The balance of Amsterdam Corporations accounts payable account at
December 31, 2010 was P1,350,000 before any necessary year0end
adjustents relating to the following:
a. Goods were in transit to Amsterdam from a vendor on December 31,
2010. The invoice cost ws P75,000. The goods were shipped FOB
shipping point on December 29, 2010 and were received on January 2,
2011.
b. Goods shipped FOB destinatio on December 21, 2010 from a vendor to
Amsterdam, were received on January 6,2011. The invoice cost was
P37,500.
c. On December 27, 2010, Amsterdam wrote and recorded checks
totalling P60,000 which were mailed on January 10, 2010.
In Amterdams December 31, 2010 staement of financial position, how much
should be the accounts payable?
a. P1,410,000
b. P1,425,000
c. P1,462,500
d. P1,485,000
51.Ranch Company has the following information pertaining to its biological
assets for the year 2010:
A herd of 100, 2-year old animals was held at January 1, 2010. Ten animals
aged 2.50 years were purcahased on July 1, 2010 for P54,000, and ten
animals were born on July 1, 2010. No animals were sold or disposed of
during the period. Per unit fair value less estimated poin-of-sale cost were as
follows:

2.0-year old animal at January 1,

2010
New born animal at July 1, 2010
2.5-year ol animal at July 1, 2010
New born animal at December 31,
2010
0.5-year ol animal at December 31,
2010
2.0-year ol animal at December 31,
2010
2.5-year ol animal at December 31,
2010
3.0-year ol animal at December 31,
2010

P50,000
35,000
54,000
36,000
40,000
52,500
55,500
60,000

How much is the increase in fair value of the biological assets due to price
change?
a. P-0b. P250,000
c. P255,000
d.
P275,000
52.Using the information in no. 14, how much is the increase in fair value of the
biological assets due to physicl change?
a. P750,000
b. P795,000
c. P1,100,000
d.
P1,185,000
53.Using the information in no. 14, what is the fair value of the biological assets
as of December 31, 2010?
a. P5,540,000
b. P5,815,000
c. P7,000,000
d. P7,350,000
54.The following information reltes to the pension plan for the employees of
Sarondo Company:

Accumulated
benefit
obligation
Fair value of plan assets
Settlement rate (for year)
Actuarial net(gains)/loss

01-01-09
P9,330,000
8,500,000
-0-

12-31-09
12-31-10
P9,960,00 P13,340,000
0
10,400,00
11,480,000
0
11%
11%
(1,440,000 (1,600,000)
)
8%
7%

Expected rate of return (for

year)
Sarondo esrimates that the average remaining service life is 16 years.
Sarondos contributions was P1,260,000 in 2010 and benefits paid were
P940,000. What should be the iteret cost for 2010?
a. P896,000
b. P1,012,000
c. P1,095,600
d.
P1,467,400
55.Using the information given in no. 54, how much shall be the actual return on
plan ssets in 2010?
a. P680,000
b. P760,000
c. P980,000
d.
P1,080,000
56.Using the information given in no. 54, how much shall be the additional gain
in plans assets in 2010?
a. P32,000
b. P65,600
c. P254,500
d.
P357,600

57.Chari Corporation at the end of 2010, its first year of operations prepare a
reconciliation between pretax financial income and taxable as follows:
Pretax financial income
Estimated litigation expense
Installment sales
Taxable income

P800,000
2,000,00
0
(1,600,0
00)
P1,200,0
00

The estimated litigation expense of P2,000,000 will be decuctible in 2011

when it is expected to be paid. The gross profit from the installment sales wil
be realized in the amount of P800,000 in each of the next two years. The
estimated liability for litigation is classified as non-current and the installment
accounts receivable are classified ad P800,000 and P800,000 non current.
The income tax rate is 32% for all years. Ow much shall be recognized as
deferred tax asset?
a. P640,000 current
c. P128,000
b. P640,000 noncurrent
d. P-058.Using the information given in no.57, how much shall be recognized as
deferred tax liability?
a. P128,000
b. P192,000
c. P256,000
d. P512,000
59.Using the information given in no. 57, how much shall be recognized as tax
expense/benefit?
a. P128,000 benefit
c. P192,000 benefit
b. P128,000 expense
d. P192,000 expense
60.On January 1, 2010, Mountain Dew Company granted 160,000 cash share
appreciation rights to the executives on condition that the executives remain
in its employ for the next three years. The entity estimates that the fair value
of the stock ppreciation rights at the end of each year in which a liability
exists s follows:
Year
2011
2012
2013

Fair value
P15
P18
P20

Compensation expense relating to the plan is to be recoeded over a three-year

period beginning January 1, 2010. What amount of compensation expense
should the company recognize for the year ended December 31, 2010?

a. P480,000
P2,880,000

b. P600,000

c. P800,000

d.

61.Using the information in no. 60, what amount of compensation expense should
the company recognize fo the year ended December 31, 2011?
a. P-0b. P800,000
c. P900,000
d.
P1,120,000
62.Using the information in no. 60, assume that on December 31, 2012, executives
exercised 80,000 SARs, what aount of compensation expense should the
company recognize for the year ended December 31, 2012?
a. P1,920,000
b. P1,280,000
c. P1,120,000
d.
P800,000
63. During 2010, Corolla Company issued at 95, 1,000 of its 8%, P5,000 bonds due
in 10 years. One detachable stock purchase warrants entitling the holder to buy
20 shares of Corollas ordinary shares was attached to each bond. Shortly after
issuance, the amount, if any, of the proceeds from the bond isssuance should
be recorded as part of Corollas shareholders equity?
a. P-0b. P225,000
c. P250,000
d. P367,000
64. On January 1, 2010, Maercedes Company issued its 8%, 5-year convertible debt
instrument with a face aount of P6,000,000 for P5,900,000. Interest is payable
every December 31, of each year. The debt instrument is convertible into 50,000
ordinary shares with a par value of P100. When the debt instruments were
issued, the prevailing market rate of interest for similar debt without conversion
privilege is 10%. How much of te proceeds represents the equity components?
a. P-0b. P100,000
c. P354,320
d. P454,800
65. Africa Corporation, a calendar year firm, is authorized to issue P2,000,000 of
10%, 20-year bonds dated January 1, 2009, with interest payable on January 1
and July 1 of each year. If the bonds were issued on April 1, 2009, the amount of
accrued interest on the date of sale is:
a. P200,000
b. P100,000
c. P50,000
d.
P25,000