College of Accounting Education

3rd Floor, Matina Area

Facundo Hall, PETBuilding
McArthur Highway, Davao City
Telefax: (082)300-1496
Phone No.: (082)300-5456 Local 137

1. Which of the following is not a basic assumption underlying financial reporting?

a. Economic entity assumption c. Periodicity assumption
b. Going concern assumption d. Historical cost assumption

2. Financial reporting can be broadly defined as the area of accounting that

a. General purpose financial statements to be used by parties internal to the entity only.
b. Financial statements to be used by investors only.
c. General purpose financial statements to be used by parties both internal and external to the entity.
d. Financial statements to be used primarily by management.

3. It is the body authorized by law to promulgate rules and regulations affecting the practice of the
accountancy profession in the Philippines.
a. Board of Accountancy c. Securities and Exchange Commission
b. Professional Regulations Commission d. Philippines Institute of CPA

4. The conceptual framewrok deals with all of the following, except

a. The objective of financial reporting.
b. The qualitative characteristics of useful information.
c. The definition, recognition and measurement of the elements from which financial statements are
constructed.
d. Supplementary information.

5. The primary focus of financial reporting has been on meeting the needs of which of the following groups?
a. Managers of the entity.
b. National and local taxing authorities.
c. Existing and potential investors, lenders and others creditors.
d. Independent CPA’s

6. When information about two different entities engatged in the sasme manner, the information exhibits
the enhancing qualitative characteristics of
a. Relevance c. Faithful representation
b. Consistency d. Comparability

7. The petty cash fund account under the imprest fund system is debited
a. Only when the fund is created.
b. When the fund is created and everytime it is replenished.
c. When the fund is created and when the size of the fund is increased.
d. When the fund is created and when the the is decreassed.

8. Iron Man Company reported the following information at the end of the current year.
 Investment securities of P1,000,000. These securities are share investments in entities that are traded
in the PSE. As a result, the shares are very actively traded in the market.
 Investment securities of P2,000,000. These securities are government treasury bills. The treasury bills
have a 10-year term and purchased on December 31 at which time they had four months to go until
they mature.
 Cash of P3,400,000 in the form of coin, currency, savings account and checking.
 Postal Money order P1,500,000.

What total amount should be reported as cash and cash equivalents at the end of current year?
a. P6,900,000 b. 4,900,000 c. 7,900,000 d. 5,900,000

9. When preparing a bankk reconciliation, bank credits are

a. Added to the bank statement balance.
 b. Deducted from the bank statement balance.
c. Added to the balance per book.
d. Deducted from the balance per book.

10. Captain America Company prepared the following bank reconciliation on December 31, 2015:

Balance per bank statement 2,800,000

Deposit in Transit 195,000
Checkbook Printing Charge 5,000
Error made by Captain America in recording Check No. 45
Issued in December 35,000
NSF Check 110,000
Outstanding check (100,000)
Note collected by bank including P15,000 interest (215,000)
Balance per book 2,830,000

The entity has P200,000 cash on hand on december 31, 2015. What total amount of cash should be
reported on December 31, 2015?

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

(For No. 11 and 12) Hulk Company prepared the following bank reconciliation on June 30.

Balance per bank 9,800,000

Deposit 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. Deposit in transit totaled
P600,000 and checks outstanding amounted to P1,000,000 on July 31.

11. What is the cash balance per book on July 31?

a. 7,300,000 b. 6,900,000 c. 6,300,000 d. 8,800,000

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

a. 6,500,000 b. 6,300,000 c. 6,700,000 d. 7,100,000

13. A method of estimating bad debts that focuses on the income statement rather than the statement of
financial position is the allowance method based on
a. Direct write-off c. Credit sales
b. Aging the trade accounts receivable d. The balance in trade accounts receivable

14. On December 31, 2015, Hawk Eye Company reported before any year-end adjustments accounts
receivable of P6,000,000 and allowance for doubtful accounts of P300,000.

Outstanding Accounts Receivable Probability of Collection

Under 15 days 3,000,000 .96
16 – 30 days 2,000,000 .90
31 – 45 days 400,000 .80
46 – 60 days 300,000 .70
61 – 75 days 200,000 .65
Over 75 days 100,000 .00

The accounts which have been outstanding over 75 days and have zero probability of collection would
be written off immediately. The ending allowance based on % of Accounts Receivable is 660,000. What is the
appropriate balance for the allowance for doubtful accounts on December 31, 2015?
a. 660,000 b. 260,000 c. 560,000 d. 360,000
15. Accounting for the interest in a noninterest bearing note receivable is an example of what aspect of
accounting theory?
a. Matching b. Verifiability c. Consistency d. Substance over form

16. On December 27, 2015, Thor Company sold a building, receiving as consideration a P4,000,000 noninterest
bearing note due in three years. The building had a cost of P3,800,000 and the accumulated depreciation
was P1,600,000 at the date of sale. The prevailing rate of interest for a note of this type was 12%. What
was the amount of gain should be reported on the sale?
a. 1,800,000 b. 640,000 c. 200,000 d. 0

17. Subsequent to initial recognition, a loan receivable shall be measured at

a. Cost plus transaction cost
b. Amortized cost using the straight line method
c. Amortized cost using the effective interest method
d. Fair value

18. On December 31, 2015, Avengers Bank recorded an investment of P5,000,000 in a loan granted to a client.
The loan has a 10% effective interest rate payable annually every December 31. The principal is due in full
at maturity on December 31, 2018. Unfortunately, the borrower is experiencing significant financial
difficulty and will have difficult time in making full payment. The bank projected that the entire principal
will be paid at maturity and 4% interest or P200,000 will be paid annually on December 31, 2015. What is
the carrying amount of the loan receivable on December 31, 2016?
a. 3,750,000 b. 5,000,000 c. 4,672,800 d. 4,472,800

19. After being held for 30 days, a 120-day 12% interest bearing note receivable was discounted at a bank at
15%. The amount received from the bank is equal to
a. Face value less discount at 12%
b. Face value less discount at 15%
c. Maturity value less discount at 12%
d. Maturity value less discount at 15%

20. On June 30, 2015, Jarvis Company discounted at the bank a customer’s P600,000, 6-month, 10% note
receivable dated April 30, 2015. The bank discounted the note at 12%. What amount should be reported
as proceeds from the discounted note?
a. 604,800 b. 617,400 c. 564,000 d. 576,000

21. Freight and other handling charges incurred in the transfer of goods from the consignor to consignee are
a. Expense on the part of the consignor
b. Inventoriable by the consignee
c. Expense on the part of the consignee
d. Inventoriable by the consignor

22. Ultron Company counted the ending inventory on December 31, 2015. The entity reported inventory
before any corrections at P2,000,000. None of the following items were included when total amount of the
ending inventory was computed:
 P150,000 in goods located in the entity’s warehouse that are on consignment from another entity.
 P200,000 in goods that were sold by the entity and shipped on December 30 were in transit o
December 31, 2015. The goods were received by the customer on January 2, 2016. The terms were
FOB destination.
 P300,000 in goods that were purchased by the entity and shipped on December 30 and were in
transit on December 31, 2015. The goods were received by the entity on January 2, 2016. Terms
were FOB shipping point.
 P400,000 in goods that were sold by the entity and shipped on December 30 an were in transit on
December 31, 2015. The goods were received by the customer on January 2, 2016. Terms were FOB
destination.
a. 2,350,000 b. 2,500,000 c. 2,900,000 d. 2,750,000
23. Which of the following is the reason why specific identification method may be considered ideal for
assigning costs to inventory and cost of goods sold?
a. It is applicable to all types of inventory.
b. The potential for manipulation of net income is reduced.
c. There is no arbitrary allocation of costs.
d. The cost flow matches the physical flow.

24. The following data were extracted from the records of APPLE Company about its inventory for the month
of January of the current year:
Units Unit Cost Total Cost
Jan. 1 Beginning 16,000 140 2,240,000
5 Purchase 4,000 150 600,000
10 Sale 15,000
15 Purchase 20,000 160 3,200,000
16 Purchase Return 1,000 160 160,000
25 Sale 8,000
26 Sale Return 4,000
31 Purchase 30,000 150 4,500,000
What is the moving average cost of the inventory on January 31?
a. 7,500,000 b. 7,530,000 c. 7,625,000 d. 7,690,000

25. A gain or loss arising on the initial recognition of a biological asset and from a change in the fair value less
cost of disposal of a biological asset shall be included in
a. An appropriation reserve
b. A separate revaluation reserve
c. Other comprehensive income
d. Profit or loss for the period

26. Black Widow Company provided the following data:

Value of biological asset at acquisition cost on December 31, 2015 6,000,000

Fair valuation surplus on initial recognition at fair value on 12/31/2015 500,000
Change in fair value on 12/31/16 due to growth and price fluctuation 900,000
Decrease in fair value due to harvest 100,000

What amount of net gain from the change in fair value of biological asset should be reported in 2016?
a. 800,000 b. 900,000 c. 1,300,000 d. 1,400,000

27. If the gross profit rate is based on cost, the cost of sales is computed as
a. Gross sales divided by sales ratio
b. Gross sales times cost ratio
c. Net sales divided by sales ratio
d. Net sales times cost ratio

28. Flavia Manufacturing began operations 3 years ago. On October 1, 2009, a fire broke out in the warehouse
destroying all inventories. The information available is presented below.
January 1 October 1
Inventory 500, 000
Accounts Receivable 800, 000 500, 000
Accounts payable 400 000 650, 000
Collection on accounts receivable, January 1 to October 1 6, 500, 000
Payments to suppliers, January to October 1 5, 200, 000
Goods out on consignment at October 1, at cost 400, 000

2006 2007 2008

Sales 6, 000, 000 7, 500, 000 8, 000, 000
Gross profit on sales 1, 650, 000 1, 725, 000 2, 000, 000
What is the inventory loss suffered because of the fire?
a. P200,000 b. P425, 000 c. P825,000 d. P900,000
29. The conventional retail method produces an ending inventory that approximates
a. Lower of average cost and net realizable value
b. Lower of cost and net realizable value
c. Lower of FIFO cost and net realizable
d. Net realizable value

30. AntMan Company used the FIFO retail inventory method. The following information pertains to the
current year.
Cost Retail
Inventory, Beg 1,200,000 1,800,000
Purchases 5,600,000 7,200,000
Freight – in 400,000
Net markup 1,400,000
Net markdown 600,000
Sales 7,600,000

a. 4,350,000 b. 5,550,000 c. 5,594,000 d. 5,682,000

31. Depending on the business model for managing financial assets, an entity shall classify financial assets
subsequent to initial recognition at
a. Amortized cost
b. Fair value
c. Either fair value or amortized cost
d. Neither fair value or amortized cost

32. Debt instruments that met the business model and contractual cash flows are reported at
a. Amortized cost
b. Fair value
c. Net realizable value
d. The lower of amortized cost or fair value

33. SpiderMan Company purchased the following securities during 2015:

Classification Cost MV – 12/31/2015
Security A Trading 900,000 1,000,000
Security B Trading 1,000,000 1,600,000
On July 31, 2015, the entity sold all of the shares of security B for P1,100,000. On December 31, 2016, the
shares of security A had a market value of P600,000. No other activity occurred during 2014 in relation to
the trading security portfolio. What is the gain or loss on sale of security B on July 31, 2015?
a. 100,000 gain b. 100,000 loss c. 500,000 gain d. 500,000 loss

34. Cash received in lieu of stock dividends is accounted for as

a. Dividend income
b. Partly dividend income and partly return of investment
c. Return of investment
d. If the stock dividends are received and subsequently sold and gain or loss is recognized

35. On January 1, 2015, Green Lantern Company purchased 10,000 ordinary shares at P90 per share to be held
for trading. On December 31, 2015, the entity received 2,000 shares of the investee in lieu of cash dividend
of P10 per share. On this date, the investee's share has a quoted market price of P60 per share. What
amount should be reported as dividend income for 2015?
a. 0 b. 20,000 c. 100,000 d. 120,000

36. When an investor uses the cost method to account for investment in ordinary shares, cash dividends
received by the investor from the investee should be recorded as
a. Addition to the investor’s share of the investee’s profit
b. Deduction from the investment account
c. Dividend income
d. Deduction from the investor’s share of the investee’s profit
37. On January 1, 2015, Tony Stark Company purchased 25% of the outstanding ordinary shares of an investee.
During the current year, the investee reported net income of P4,200,000 and distributed dividends of
P1,800,000. The carrying amount of the investment on December 31, 2015 was P3,200,000 after applying
the equity method. What was the purchase price paid for the investment?
a. 1,700,000 b. 2,600,000 c. 3,800,000 d. 4,700,000

38. When an investor purchased a bond between interest dates at a premium, the cash paid to the seller is
a. Less than the face amount of the bond
b. More than the face amount of the bond
c. The same as the face amount of the bond
d. The same as the face amount of the bond plus accrued interest

39. On April 1, 2014 Roger Company purchased P2,000,000 face amount, 9% treasury notes for P1,895,000,
including accrued interest of P45,000. The notes mature on July 1, 2015, and pay interest semiannually on
January 1 and July 1. The entity use the straight line method of amortization. What is the purchase price of
this investment on April 1, 2014?
a. 1,940,000 b. 1,985,000 c. 1,972,000 d. 1,990,000

40. To compute the price to pay for a bond, what present value concept is used?
a. The future value of 1
b. The present value of 1
c. The present value of an annuity of 1
d. The present value of 1 and present value of an annuity of 1

41. On January 1, 2014, Banner Company acquired P4,000,000 of 12% face amount bonds at P3,767,000 to be
held as financial assets at amortized cost with a 14% effective interest yield. Interest of bonds is payable
annually on December 31 and the bonds mature on January 1, 2018. The effective interest method of
amortization is used. What is the carrying amount of the bond investment on December 31, 2016?
a. 3,814,360 b. 3,868,393 c. 3,929,968 d. 4,000,000

42. Which of the following statements best describes investment property?

a. Property held for capital appreciation
b. Property held for sale in the ordinary course of business
c. Property held to earn rentals or for capital appreciation
d. Property held for use in the production and supply of goods and services and property held for
administrative purposes

43. Directly attributable expenditures related to the investment property include

a. Abnormal amounts of wasted material, labor and other resources incurred in constructing or
developing the property
b. Operating losses incurred before the investment property achieves the planned level of occupancy
c. Startup costs
d. Professional fees for legal services, property and transfer taxes and other transaction costs

44. All of the following are characteristics of a derivative, except

a. It is acquired for the purpose of generating a profit from short-term fluctuation in market factor
b. Is it settled at a future date
c. It requires no initial or a small initial investment
d. The value changes in response to an underlying

45. Derivatives are measured at

a. Cost
b. Fair value
c. Fair value less cost of disposal
d. Higher between fair value and cost

46. Costs that are expensed immediately include all of the following, except
 a. Cost of opening a new facility
b. Cost of introducing a new product or service, including cost of advertising and promotional activities
c. Cost of testing whether the asset is functioning properly
d. Cost of conducting business in a new location properly

47. Fury Company acquired land and paid in full by issuing P600,000 of its 10% bonds payable and 40,000
ordinary shares with par value of P10. The share was selling at P19 and the bonds were trading at 102.
What is the initial cost of the land?
a. 988,000 b. 1,000,000 c. 1,372,000 d. 1,387,200

48. Leader Company has received a donation of land from a rich local philanthropist. The land originally had a
cost of P1,000,000. On the date of the donation, the land had a fair value of P1,500,000 and an assessed
value of P1,200,000. What amount of income should be recognized from the donation?
a. 0 b. 1,000,000 c. 1,200,000 d. 1,500,000

49. This represent assistance by government in the form of transfer of resources to an entity in return for past
or future compliance with certain conditions relating to the operating activities of the entity.
a. Government assistance
b. Government donation
c. Government grant
d. Government aid

50. Which of the following is not a qualifying asset?

a. Asset that is ready for the intended use or sale
b. Investment property
c. Manufacturing plant
d. Power generation facility

51. The cost of land usually includes all of the following, except
a. Commission related to acquisition
b. Cost of survey
c. Property tax to date of acquisition assumed by the purchaser
d. Property tax after date of acquisition assumed by the purchaser

52. On February 1, 2015, Scammer Company purchased a parcel of land as a factory site for P1,000,000. An old
building on the property was demolished and construction began on a new building which was completed
on November 1, 2013.
Demolition of old building 100,000
Architect fee 175,000
Legal fee for title investigation and purchase contract 25,000
Construction cost 5,450,000
Salvage materials resulting from demolition 50,000

What amount should be reported as cost of land and building, respectively?

a. 1,025,000 and 5,675,000
b. 1,050,000 and 5,650,000
c. 1,050,000 and 5,625,000
d. 1,075,000 and 5,625,000

53. Which of the following statements is true?

a. Assets are depreciated even if their fair value exceeds their carrying amount
b. A noncurrent asset acquired as the result of an exchange of assets is not recognized
c. A gain on disposal of a noncurrent asset is classified as part of other comprehensive income
d. Land and building are not accounted for separately when acquired together

54. Eczema Company purchased equipment which was installed and put into service January 1, 2015 at a total
cost of P1,280,000. Residual value was estimated at P80,000. The equipment is being depreciated over
 eight years by the double declining balance method. What amount of depreciation should be recorded for
2016?
a. 225,000 b. 240,000 c. 300,000 d. 320,000

55. Depletion expense

a. Excludes restoration cost from the depletable cost
b. Excludes intangible development cost from the depletable cost
c. Includes tangible equipment cost in the depletable cost
d. Is usually part of cost of goods sold

56. When an asset’s carrying amount is increased as a result of a revaluation, the increase shall be credited to
a. Deferred income
b. Retained earnings
c. Revaluation surplus as component of other comprehensive inceome
d. Revaluation surplus as component of profit or loss

57. What is the revocable amount of an asset?

a. Fair value less cost of disposal
b. Fair value less cost of disposal or value in use whichever is higher
c. Fair value less cost of disposal or value in use whichever is lower
d. Value in use

58. Once recognized, an intangible asset can be carried at

a. Cost less accumulated amortization
b. Cost plus a notional increase in fair value since the intangible asset is acquired
c. Cost less accumulated amortization and impairment losses
d. Revalued amount less accumulated amortization

59. A patent should be amortized over

a. Twenty years
b. The useful life
c. The useful life or twenty years, whichever is longer
d. The useful life or twenty years, whichever is shorter

60. Which of the following would be considered research and development?

a. Construction of prototype
b. Marketing research to promote a new product
c. Periodic alteration to existing production line
d. Routine effort to refine an existing product