Review 105-----------Day 1 4.

Categories of hedges include

a. Fair value hedge c. Cash flow hedge
THEORY OF ACCOUNTS b. Hedge of a net investment in a foreign operation d. All of these
​1. The ASC framework (Choose the incorrect one)
5. Characteristic(s) common to all joint ventures include
a. Sets out the concepts that underlie the preparation and presentation of a. One or more venturers are bound by a contractual arrangement.
financial statements for external users. b. The contractual arrangement establishes joint control.
b. Is not a Statement of Financial Accounting Standards and hence does not c. The use of proportionate consolidation.
define standards for any particular measurement or disclosure issue.
d. Both a and b.
c. Is concerned with special purpose reports, for example, prospectuses and
computations prepared for taxation purposes.
d. Applies to the financial statements of all commercial, industrial and business
6. A party to a joint venture and has joint control over that joint venture
reporting enterprises, whether in the public or private sector. a. Venturer b. Investor c. Operator d. Manager

2. Accounting is 7. A method of accounting whereby a venturer’s share of each of the assets,

I. A service activity and its function is to provide quantitative information, liabilities, income and expenses of a jointly controlled entity is combined line
primarily financial in nature, about economic entities, that is intended to by line with similar items in the venturer’s financial statements or reported as
be useful in making economic decision. separate line items in the venturer’s financial statements
II. The art of recording, classifying, and summarizing in a significant manner a. Equity method c. Proportionate
and in terms of money, transactions and events which are in part at least consolidation method
of a financial character and interpreting the results thereof. b. Cost method d. Combination method
III. The process of identifying, measuring and communicating economic
information to permit informed judgment and decision by users of the 8. This form of joint venture maintains own records and prepares and
information. presents financial statements in accordance with GAAP.
a. I, II and III b. I only c. II only d. III only a. Jointly controlled operations c. Jointly controlled entities
b. Jointly controlled assets d. All of the above
3. Financial accounting
1. Is the examination of financial statements by an independent CPA for the
9. This form of joint venture involves the use of assets and other resources of
purpose of expressing an opinion as to the fairness of the financial
the venturers rather than the establishment of a separate entity
statements.
2. Focuses on the preparation and presentation of general purpose reports
a. Jointly controlled operations c. Jointly controlled entities
known as financial statements. b. Jointly controlled assets d. All of the above
3. Has no precise coverage but is used generally to refer to services to clients
on matters of accounting, finance, business policies, organization 10. Separate financial statements include financial statements
procedures, product costs, distribution and many other phases of business a. In which the investments are accounted for on the basis of the direct
conduct and operations. equity interest.
4. Is the preparation of annual income tax returns and determination of tax b. In which the investments are accounted for on the basis of the reported
consequences of certain proposed business venture. results and net assets of the investees.
c. In which proportionate consolidation is applied.
 d. Of an entity that does not have a subsidiary, associate or venturer’s d. Generally accepted accounting principles
interest in a jointly controlled entity.
AUDITING PROBLEMS
11. Allowed accounting treatment for interests in jointly controlled entity
include
In connection with the audit of the PAKYO COMPANY for the year ended December 31, 2010 you are called upon to
a. Proportionate consolidation c. Either a or b verify the accounts payable transactions. You find that the company does not make use of a voucher register but
b. Equity method of accounting d. None of the above enters all merchandise purchases in a Purchases Journal, from which posting are made to a subsidiary accounts
payable ledger. The subsidiary ledger balance of P1,500,000 as of December 31, 2010 agrees with the accounts
payable balance in the company’s general ledger. An analysis of the account disclosed the following:
12. Investment property excludes
a. Land held for long-term capital appreciation. Trade creditors, credit balances P 1,363,000
Trade creditors, debit balances ​ 63,000
b. Building leased out under an operating lease. Net P 1,300,000
c. Property held for future use for administrative purposes. Estimated warranty on products sold 100,000
d. None of the above. Customer’s deposits 9,000
Due to officers and shareholders for advances 50,000
Goods received on consignment at selling price
13. Investment property includes (offsetting debit made to Purchases) 41,000
P 1,500,000
a. Property being constructed or developed on behalf of third parties.
b. Property that is being constructed or developed for use as an A further analysis of the “Trade Creditors” debit balances indicates:

investment property. Date Items Amount

c. Property leased to another entity under a finance lease. Miscellaneous debit balances prior to 2007.
No information available due to loss
d. Property that is being redeveloped for continuing use as investment of records in a fire. P 3,000
property.
03/03/07 Manila Co. –Merchandise returned for credit,
but the company is now out of business 8,000

06/10/09 Cebu Corp. – Merchandise returned but Cebu

14. Which is not a purpose of the ASC framework?
a. To assist the ASC in developing accounting standards that represent
generally accepted accounting principles in the Philippines.
b. To assist the ASC in its review and adoption of existing International
Accounting Standards.
c. To assist auditors in forming an opinion as to whether financial statements
conform with Philippine GAAP.
d. To assist the Board of Accountancy in promulgating rules and regulations
affecting the practice of accountancy in the Philippines.
15. The ASC framework deals with (choose the incorrect one)
a. Objective of financial statements
b. Qualitative characteristics
c. Definition, recognition and measurement of the basic elements of financial
statements
says “never received” 7,000
07/10/10 Jolo Distributors – Allowance granted on
defective merchandise after the invoice
was paid 5,000
10/10/10 Bulacan Co – Overpayment of invoice 12,000
12/05/10 Advance to Zambales Co. This company agrees
to supply certain articles on a cost –plus basis 24,000
12/05/10 Goods returned for credit and adjustments on
price after the invoices were paid; credit memos
from supplier not yet received 4,000
63,000
Your next step is to check the invoices in both the paid and the unpaid invoice files against ledger accounts. In this
connection, you discover an invoice from Atlas Co. of P45,000 dated December 12, 2010 marked “Duplicate”, which
was entered in the Purchase Journal in January 2011. Upon inquiry, you discover that the merchandise covered by
this invoice was received and sold, but the original invoice apparently has not been received.
In the bank reconciliation working papers, there is a notation that five checks totaling P 63,000 were prepared and (1) A P300,000, 8% note issued March 1, 2008, payable on demand. Interest is payable every six
entered in the Cash Disbursements Journal of December, but these checks were not issued until January 10, 2011. months.
(2) A 1-year, P500,000, 11 ½% note issued January 2, 2010. On December 30, 2010 Mavericks
The inventory analysis summary discloses good in transit of P 6,000 at December 31, 2010, not taken up by the negotiated a written agreement with Allied Bank to replace the note with 2-year, P500,000, 10% note
company under audit during the year 2010. These goods are included in your adjusted inventory. to be iss7ued January 2, 2011. The interest was paid on December 31, 2010
c. The 10% mortgage note was issued October 1, 2007. With a term of 10 years. Terms of the note give the
1. The Accounts payable – Trade balance at December 31, 2010 should be holder the right to demand immediate payment of the company fails to make a monthly interest payment
within 10 days of the date the payment is due. As of December 31, 2010, Mavericks is three months
A. P 1,471,000 B. P 1,614,000 behind in paying its required interest payment.
C. P 1,214,000 D. P 1,477,000 d. The 12% mortgage note was issued may 1, 2001, with a term of 20 years. The current principal amount
due is P 1,500,000. Principal and interest payable annually on April 30, A payment of P220,000 is due
2. The net adjustment to Purchases should include a April 30, 2011. The payment includes interest of P 180,000.
e. The bonds payable is 10-year, 8% binds, issued June 30, 2001. Interest is payable semi-annually every
A. Net debit of P 51,000 June 30 and December 31.
B. Net credit of P 41,000 Based on the above and the result of your audit, answer the following:
C. Net debit of P 10,000 6. Interest payable as of December 31, 2010 is
D. Net debit of P 73,000 a. P155,000 b. 143,000 c. 203,000 d. 215,000
7.The portion of the Notes payable – bank to be reported under current liabilities as of December 31, 2010 is
3. The entry to adjust the Accounts payable account for those accounts with debit balances should include a debit to a. P 300,000 b. 500,000 c.800,000 d. 0
8. Total current liabilities as of December 31, 2010 is
A. P 18,000 B. P 23,000 b. P 3,950,000 b. 4,138,000 c. 3,938,000 d. 3,998,000
C. P 35,000 D. P 39,000 9. BTotal noncurrent liabilities as of December 31, 2010 is
c. P1,760,000 b. 2,560,000 c. 3,960,000 d. 1,960,000
4. The entry to adjust the Accounts payable account for those accounts with debit balances should include a debit to
FEEL NA FEEL, INC. has been producing quality reusable adult diapers for more than two decades. The company’s
A. Miscellaneous losses if P 23,000 fiscal year runs from April 1 to March 31. The following information relates to the obligations of Feel Na Feel as of
B. Advances to suppliers of P 24,000 March 31, 2010.
C. Suppliers to debit balances of P 18,000
D. Purchases of P 21,000 BONDS PAYABLE
Feel Na Feel issued P10,000,000 of 10% bonds on July 1, 2008. The prevailing market rate of interest for these
5. Auditor confirmation of accounts payable balances at the end of the reporting period may be necessary because bonds was 12% on the date issue. The bonds will mature on July 1, 2018. Interest is paid semiannually on July 1 and
January 1. Feel Na Feel uses the effective interest rate method to amortize bond premium or discount
A. There is likely to be other reliable external evidence to support the balances
B. Correspondence with the audit clients attorney will reveal all legal action by vendors for non-payment NOTES PAYABLE
C. This is a duplication of cutoff test Feel Na Feel has signed several long-term notes with financial institutions. The maturities of these notes are given in
D. Accounts payable at the end of reporting period may not be paid before the audit is completed. the schedule below. The total unpaid interest for all of these notes amounts to P600,000 on March 31, 2010

Problem 2 Due Date Amount Due

April 1, 2010 P 400,000
You were able to obtain the following from the accountant for Maverics Corp. Related to the companys liability as of July 1, 2010 600,000
December 31, 2010. October 1, 2010 300,000
April 1 2011 - March 31, 2012 300,000
Accounts payable P 650,000 April 1, 2012 – March 31, 2013 1,200.000
Notes payable – trade 190,000 April 1, 2013 – March 31, 2014 1,000,000
Notes payable – bank 800,000 April 1, 2014 – March 31, 2015 800,000
Wages and salaries payable 15,000 April 1, 2015 – March 31, 2016 1,000,000
Interest payable ?
Mortgage notes payable – 10% 600,000 P 7,000,000
Mortgage notes payable – 12% 1,500,000 ESTIMATED WARRANTIES
Bonds Payable 2,000,000
Feel Na Feel has a one-year product warranty on some selected items in its product line. The estimated warranty
liability on sales made during the 2008-2009 fiscal year and still outstanding as of March 31, 2009 amounted to
The following additional information pertains to these liabilities: P180,000. The warranty cost on sales made from April 1 2009, through March 31,2010, are estimated as P520,000.
a. All trade notes payable are due within six months of the balance sheet date. The actual warranty cost incurred during the current 2009-2010 fiscal tear are as follows:
b. Bank notes payable include two separate notes payable Allied Bank. Warranty claims honored on 2008-2009 sales P 180,000
 Warranty claims honored on 2009-2010 sales 178,000 15. The primary audit test to determine if accounts payable are valued properly is
Total warranty claims honored P 358,000 a. Confirmation of accounts payable
b. Vouching accounts payable to supporting documentation
OTHER INFORMATION
c. An analytical procedure
1. TRADE PAYABLES d. Verification that accounts payable was reported as a current liability in the balance sheet.
Accounts payable for supplies, goods and services purchased on open account amount to P740,000
as March 31, 2010 BUSINESS LAW AND TAXATION
2. PAYROLL RELATED ITEMS
1. The following are the requisites of an obligation, except:
Merchandise, shipped FOB destination, 12.24.10; received 01.02.11 a. Passive subject, debtor or obligor
Accrued Salaries and wages P 300,000
Withholding taxes payable 94,000
b. Active subject, creditor or oblige
Other payroll deductions 10,000 c. Efficient cause
3. MISCELLANEOUS ACCRUALS d. Presentation
Other accruals not separately classified amount to P150,000 as of March 31, 2010 2. Obligations may arise from any of the following, except:
4. DIVIDENDS
a. Contracts
On march 15, 2010, Feel Na Feel’s board of directors declared a cash dividend of P0.20 per b. Quasi-contracts
common share and a 10% common stock dividend. Both dividends were to be distributed on April 12,
2010, to the common stockholders of record at the close of business on march 31, 2010. Data regarding c. Law
Feel Na Feel common stock are as follows: d. Negligence
Per Value P 5.00 per
share 3. It is the voluntary administration of the property of another without his consent.
Number of shares issued and outstanding 6,000,000 shares a. Negotiorumgestio
Market Values of Common Stock: b. Solution indebiti
March 15, 2010 P 22.00 per share c. Quasi-delict
March 31, 2010 21.50 per share
April 12, 2010 22.50 per share d. Contract
4. It is a wrong committed without any pre-existing relations between the parties.
10 How much was received by Feel Na Feel from the bonds issued on July 1, 2008? a. Natural obligation
a. P8,852,960 b. 10,000,000 c. 10,500,000 d. 10,647,040
11 On March 31, 2010, Feel Na Feel’s statements of financial position would report total current liabilities
b. Quasi-delict
of c. Quasi-contract
a. ​P5,286,000 b. 4,386,000 c. 5,336,000 d. 5,642,000
d. Culpa contractual
5. Unless the law or stipulation of the parties requires another standard of care, every
12. On March 31, 201, Feel Na Feel’s statement of financial position would report total noncurrent liabilities
of person obliged to give something is also obliges to take care of it with.
a. Extra-ordinary diligence
a. P14,389.350 b. 14,352,217 c. 14,370,783 d. 14,252,960
b. Diligence of a father of a good family
13 In Auditing accounts payable, an auditor procedures most likely will focus primarily on managements c. Diligence of a good father of a family
assertion of.
d. Good diligence of a father of a family
a. Existence c. Completeness
b. Presentation and disclosure d. Valuation and allocation
14An auditor performs a test to determine whether all merchandise for which the client was billed was 6. ​Which of the following can be considered as a feature of a void contract?
received. The population for this test consist of all a. Subject to ratification
a. Merchandiser received c. Canceled checks b. It exist
b​. Vendor’s invoices d. receiving reports c. Action or defence of nullity is subject to prescription
 d. Novation cannot apply c. The stipulation is unenforceable as there was no showing that the sale was done in
7. ​D entered into a contract of mortgage with X, T, the clerk of L, typed the document. Due to T’s writing.
negligence, the document made was that of sale instead of mortgage. d. The stipulation is void because it is contrary to public policy.
a. The remedy is annulment
b. Parties may go to court for interpretation 13. Which of the following is not valid?
c. Parties may enforce their right because it is enforceable a. Mutual promise to marry entered into orally
D.​Reformation of instrument is proper b. Sale of immovable property orally entered into.
c. One of the parties in a contract is incapable of giving consent
8. There persons bound by contracts, except: d. Mortgagor of an immovable cannot alienate it without the mortgagee’s consent.
a. Third persons
b. Assigns 14. D forced C to execute a promissory note.
c. Heirs a. Contract is rescissble because the contract is fraudlert
d. Parties b. The contract is void
c. C cannot demand payment from D because the contract is unenforceable
9. Liable for the loss of the subject matter by fortuitous event. d. Contract remains valid
a. Creditor
b. Debtor 15. Example 1 – S sold to B in private instrument his land. Later, B wanted to have the sale
c. Both creditor and debtor registered, but registration requires a public instrument: in here, B may compel S to execute the
d. None of them needed public instrument.
Example 2 – S sold orally to B his land. After B paid S the price he wants to register the land
10. S offers to sell his house to B for P100,000. B asks him if he would accept P80,000. Which of in his name but he needed a public instrument of sale. In here, B may compel S to execute
the following is correct? the needed public instrument.
a. Because of ambiguity, both offers are terminated by operation of law. a. Both examples are false
b. B’s response is a counter-offer effectively terminating the P100,000 offer and instigating b. Only the first is true
an offer for P80,000. c. Only the second is true
c. B’s response is a rejection of the P100,000 offer, and there is no offer for P80,000 d. Bothe examples are true
because it is too indefinite to be an offer
d. B’s response is a mere inquiry, the P100,000 offer by S is still in force. MANAGEMENT ADVISORY SERVICES

11. Example no. 1: G, guardian of W, sold W’s house valued P50,000 for P37,500 or a lesion by ¼
of the value.
Example no. 2: S sold his house valued P50,000 for only P10,000 because S did not know the
true value of the house.
a. Both contracts are rescissible.
b. Only no. 1 is rescissible
c. No. 2 is voidable because there is an error or mistake.
d. Both contracts are valid and enforceable.
12. B Company bought out a competitor. C Corporation, with a stipulation that C Corporation
should not thereafter engage in any business in the Philippines unless consented to and
approved by B Company.
a. The stipulation is defective but subject to ratification.
b. The stipulation is valid because the parties are free to enter into any stipulation, terms
and conditions such as this one.
1. The following characterize management advisory services except
A. involve decision for the future
B. broader in scope and varied in nature
C​. utilize more junior staff than senior members of the firm
D. relate to specific problems where expert help is required
2. Total production costs for Carera, Inc. are budgeted at P230,000 for 50,000 units
of budgeted output and P280,000 for 60,000 units of budgeted output. Because of
the need for additional facilities, budgeted fixed costs for 60,000 units are 25%
more than budgeted fixed costs for P50,000 units. How much is Carera’s
budgeted variable cost per unit of output?
A. P1.60 C​. P3.00
B. P1.67 D. P5.00
 A. B​. C. D.
3. Short-term creditors are usually most interested in assessing 2000 22,000 22,000 14,000 14,000
a. solvency. 2001 20,840 22,407 22,407 20,840
b. liquidity.
c. marketability. 7. Derby Co. uses a standard costing system in connection with the manufacture of a
d. profitability. line of T-shirts. Each unit of finished product contains 2 yards of direct material.
However, a 20 percent direct material spoilage calculated on input quantities
4. Long-term creditors are usually most interested in evaluating occurs during the manufacturing process. The cost of the direct materials is P120
a. liquidity. per yard.
b. marketability. The standard direct material cost per unit of finished product is
c. profitability. A. P192 C. P288
d. solvency.
B. P240 D​. P300
5. Stockholders are most interested in evaluating 8. Wasting Resource Co. has annual credit sales of P4 million. Its average
a. liquidity. collection period is 40 days and bad debts are 5% of sales. The credit and
b. solvency. collection manager is considering instituting a stricter collection policy, whereby
c. profitability. bad debts would be reduced to 2% of total sales, and the average collection period
d. marketability. would fall to 30 days. However, sales would also fall by an estimated P500,000
annually. Variable costs are 60% of sales and the cost of carrying receivables is
6. Madel Company manufactures a single electronic product called Walastik. 12%. Assuming a tax rate of 35% and 360 days a year, the incremental change in
Walastik sells for P900 per unit. In 2000, the following variable costs were the profitability of the company if stricter policy would be implemented would be
incurred to produce each Walastik device. a. Zero as the positive and negative effects offset each other.
Direct labor P180 b. A reduction in net income by P70,000.
Direct materials 240 c. A reduction in net income by P38,350.
Factory overhead 105 d. A reduction in net income by P35,400.
Selling costs 75 Use the following information for questions 9-10.
Total variable costs P600
Madel is subject to 40 percent income tax rate, and annual fixed costs are Terry Corporation had net income of $200,000 and paid dividends to common
P6,600,000. Except for an operating loss incurred in the year of incorporation, stockholders of $40,000 in 2002. The weighted average number of shares outstanding
the firm has been profitable over the last five years. in 2002 was 50,000 shares. Terry Corporation's common stock is selling for $60 per
In 2001, a significant change in Madel’s production technology caused a 10% share on the New York Stock Exchange.
increase in annual fixed costs and a 20% unit cost increase in the direct labor
component as a result of higher skilled direct labor. However, this change 9. Terry Corporation's price-earnings ratio is
permitted the replacement of a costly imported component with a local a. 3.8 times.
component. The effect was to reduce unit material costs by 25%. There has been b. 15 times.
no change in the Walastik selling price. c. 18.8 times.
The annual sales units required for Madel to breakeven are: d. 6 times.
 A​. the same decision (accept or reject) for any single investment
10. Terry Corporation's payout ratio for 2002 is B. the same choice from among mutually exclusive investments
a. $4 per share. C. different rankings of projects with unequal lives
b. 25%. D. the same rankings of projects with different required investments
c. 20%.
d. 12.5%. 15. What is the proper preparation sequencing of the following budgets?
1. Budgeted Balance Sheet
11. Phranklin Pharms Inc. purchases merchandise from a company that gives sales 2. Sales Budget
terms of 2/15, net 40. Phranklin Pharms has gross purchases of $800,000 per year. 3. Selling and Administrative Budget
What is the ​maximum amount of costly trade credit Phranklin could get, assuming 4. Budgeted Income Statement
they abide by the suppliers credit terms? (Assume a 360-day year.) a. 1, 2, 3, 4
a. $87,111.20 b. $32,666.70 c. $54,444.50 d. b. 2, 3, 1, 4
$52,266.67 c. 2, 3, 4, 1
d. 2, 4, 1, 3
12. Crest Co. has the opportunity to increase annual sales by P1 million by selling to
new riskier customers. It has been estimated that uncollectible expenses would be
15% and collection costs 5%. The manufacturing and selling costs are 70% of P1
sales and corporate tax is 35%. If it pursues this opportunity, the after tax profit
will
1. Mankayan Company uses the first-in, first-out retail method of inventory
a. Increase by P35,000. c. Increase by P65,000.
valuation. The following information is available:
b. Increase by P97,500. d.
Remain the same.
Cost Retail
Beginning inventory P 2,500,000 4,000,000
13. A firm currently sells $500,000 annually with 3% bad debt losses. Two alternative Purchases 13,500,000 16,000,000
policies are available. Policy A would increase sales by $500,000, but bad debt
losses on additional sales would be 8%. Policy B would increase sales by an Net markups 3,000,000
additional $120,000 over Policy A and bad debt losses on the additional $120,000 Net markdowns 1,000,000
of sales would be 15%. The average collection period will remain at 60 days (6 Sales 15,000,000
turns per year) no matter the decision made. The profit margin will be 20% of
sales and no other expenses will increase. Assume an opportunity cost of 20%. What would be the estimated cost of the ending inventory?
What should the firm do? a. P7,000,000 c. P5,110,000
A. Make no policy change. b. P5,250,000 d. P4,750,000
B. Change to only Policy A.
C. Change to Policy B (means also taking Policy A first). 2. Data regarding Kiangan Company’s trading securities follow:
D. All policies lead to the same total firm profit, thus all policies are equal.
Cost ​_
14. The NPV and IRR methods give Market_
 December 31, 2004 10,000,000 b. 3,000,000
8,500,000 c. 1,000,000
December 31, 2005 10,000,000 d. 0
9,500,000
5. Hingyon Company had investments in marketable debt securities costing
Differences between cost and market value are considered temporary. P10,000,000 which were acquired on January 1, 2004 and classified as
The income statement for 2005 should report unrealized gain on these “available for sale”. On December 31, 2005, the company decided to hold the
securities at investments to maturity and accordingly reclassified them as “held to
a. 1,500,000 maturity” on that date. The investments’ market value was P9,000,000 at
b. 1,000,000 December 31, 2004, and P7,500,000 on December 31, 2005. What amount
c. 500,000 should Hingyon Company report as unrealized loss on these securities in its
d. 0 2005 statement of stockholders’ equity?
3. Data regarding Lamut Company’s available for sale securities follow: a. 2,500,000
b. 1,000,000
Cost ​_ c. 1,500,000
Market_ d. 0
December 31, 2004 10,000,000
8,500,000 6. On December 31, 2004, Mayayao Company purchased trading securities.
December 31, 2005 10,000,000 Pertinent data on December 31, 2005 are as follows:
11,000,000
Security ​ ​ ost
C ​_
Differences between cost and market value are considered temporary. Market_value
The 2005 statement of stockholders’ equity should report unrealized gain X 4,000,000
on these securities at 3,500,000
a. 2,500,000 Y 6,000,000
b. 1,000,000 7,500,000
c. 1,500,000 Z 8,000,000
d. 0 6,000,000

4. Hungduan Company had acquired investments in available for sale On December 31, 2005, Mayayao reclassified its investment in security Z
securities for P15,000,000 on January 1, 2004. On December 31, 2005, from trading to available for sale. What amount of unrealized loss on the
Hungduan decided to reclassify the available for sale securities as trading transfer of trading securities should be shown in the 2004 income
securities. The market value of the securities was P13,000,000 on December statement?
31, 2004 and P12,000,000 on December 31, 2005. In its 2005 income
statement, Hungduan should report unrealized loss on the transfer of AFS a. 2,000,000
securities at b. 1,000,000
c. 3,000,000
a. 2,000,000 d. 0

7. Ilocos Company received dividends from its common stock investments
during the year 2005 as follows:
● A stock dividend of 20,000 shares from A Company when the market
price of A’s shares was P30 per share.
● A cash dividend of P2,000,000 from B Company in which Ilocos owns
a 20% interest.
● A cash dividend of P1,500,000 from C Company in which Ilocos owns
a 10% interest.
● 10,000 shares of common stock of D Company in lieu of cash dividend
of P20 per share. The market price of D Company’s shares was P180.
Ilocos holds originally 100,000 shares of D Company common stock.
Ilocos owns 5% interest in D Company.
What amount of dividend revenue should Ilocos report in its 2005 income
statement?
a. 3,300,000
b. 5,300,000
c. 3,500,000
d. 2,500,000
8. Data pertaining to dividends from Vigan Company’s common stock
investments for the year 2005 follow:
● On October 1, 2005, Vigan received P2,000,000 liquidating
dividend from X Company. Vigan owns a 5% interest in X
Company.
● Vigan owns a 10% interest in Y Company which declared a
P30,000,000 cash dividend on November 15, 2005 to stockholders
of record on December 15, 2005 payable on January 15, 2006.
● On December 1, 2005, Vigan received from Z Company a dividend
in kind of one share of V Company common stock for every 5 Z
Company common shares held. Vigan holds 200,000 Z Company
shares which have a market price of P50 per share on December 1,
2005. The market price of V Company common is P30 per share.
What amount should Vigan report as dividend income in its 2005 income
statement?
a. 6,200,000
b. 4,200,000
c. 3,000,000
d. 5,000,000
9. Caoayan Company owns 1,000,000 shares of Suyo Company’s 5,000,000
shares of P50 par, 10% cumulative, nonparticipating preferred stock and
500,000 shares (2%) of Suyo’s common stock. During 2005 Suyo declared
and paid dividends of P40,000,000 on preferred stock. No dividends had
been declared or paid during 2004. In addition, Caoayan received a 15%
common stock dividend from Suyo when the quoted market price of common
stock was P100. What amount should Caoayan report as dividend income in
its 2005 income statement?
a. 15,500,000
b. 20,000,000
c. 10,000,000
d. 8,000,000
10. On January 2, 2005, Narvacan Company acquired 100,000 shares of
ABC Company common stock for a total consideration of P6,000,000. On
October 1, 2005, Narvacan received from ABC a preferred stock dividend of
one share for every 10 common shares held. On this date, the market price
of ABC common is P75 per share and the ABC preferred, P50 per share.
Narvacan Company should report its investment in ABC Company preferred
stock at
a. 500,000
b. 750,000
c. 375,000
d. 0
 P15,000,000. The stock is quoted right-on at 125. What is the theoretical
11. Candon Company owns 100,000 shares of the outstanding common stock value of the stock rights?
of Bantay Company which has several hundred thousand shares publicly
traded. These 100,000 shares were purchased in 2002 for P100 per share. a. 1,000,000
On December 1, 2005, Bantay Company distributed 100,000 rights to b. 1,250,000
Candon. Candon was entitled to buy one new share of Bantay common stock c. 1,500,000
for P100 and five of these rights. On December 1, 2005, each share of stock d. 0
had a market value of P135 ex-right and each right had market value of P15.
On December 31, 2005, Candon exercised all rights. What cost should be 14. On January 1, 2004, Laoag Company purchased 15% of Vintar
recorded for each new share that Candon acquired by exercising the rights? Company’s common stock for P20,000,000. The following data concerning
Vintar Company are available:
a. 150
b. 100 ​ 2004 _
c. 135 2005_
d. 15 Net income 6,000,000
7,000,000
Cash dividend paid None
12. Tagudin Company invested in stocks of Kaunlaran Company as follows: 15,000,000

2003 50,000 shares at P80 4,000,000 In its income statement for the year ended December 31, 2005, how much
2004 100,000 shares at P70 7,000,000 should Laoag report as income from this investment?
a. 2,250,000
In 2005, Tagudin received 150,000 rights to purchase Kanluran stock at b. 1,950,000
P80 per share plus five rights. At issue date, rights had a market value of c. 700,000
P5 each and stock was selling at P95 ex-right. Tagudin used rights to d. 600,000
purchase 22,000 additional shares of Kanluran stock and allowed the
remaining rights to lapse. The FIFO mathod is used in determining the
stock rights exercised. What is the cost of the new investment? 15. In January 2005 Paoay Company acquired 25% of the outstanding
common stock of Bangui Company for P25,000,000. The book value of the
a. 1,760,000 acquired shares was P21,000,000. The excess of cost over book value was
b. 2,170,000 attributable to an identifiable intangible asset which was undervalued on
c. 2,310,000 Bangui’s balance sheet and which had an indefinite life. For the year ended
d. 2,100,000 December 31, 2005, Bangui reported net income of P20,000,000 and paid
cash dividends of P6,000,000 on its common stock and thereafter issued 10%
stock dividend. What is the proper carrying value of investment in associate
13. Nagbukel Company issued rights to subscribe to its stock, the ownership at December 31, 2005?
of 4 shares entitling the stockholders to subscribe for 1 share at P100. Sinait
Company owns 200,000 shares of Nagbukel Company with total cost of a. 28,300,000
 b. 28,500,000
c. 20,400,000
d. 28,700,000
P2
1. Which of the following observations concerning interfund transfers is true?
A. They are expected to be repaid.
B. They are classified as fund revenues or expenditures.
C. The receiving fund recognizes these transfers as revenue.
D.​​ These transfers are classified under "Other Financing Sources or Uses."

2. Shue, a partner in the Financial Brokers Partnership, has a 30 percent share

in partnership profits and losses. Shue's capital account had a net decrease
of 100,000 during 2008. During 2008, Shue withdrew 240,000 as withdrawals
and contributed equipment valued at $50,000 to the partnership. What was
the net income of the Financial Brokers Partnership for 2008?
A. 633,334
B. 466,666
C.​​ 300,000
D. 190,000

3. The JPB partnership reported net income of 160,000 for the year ended
December 31, 2008. According to the partnership agreement, partnership
profits and losses are to be distributed as follows:

How should partnership net income for 2008 be allocated to J, P, and B?

A. Option A
B. Option B
C.​​ Option C
D. Option D
 4. Refer to the above information. What is each partner's tax basis in the Jones
and Smith partnership?

A.​​ Option A
B. Option B
C. Option C
D. Option D

5. Windsor Corporation owns 75 percent of Elven Corporation's outstanding

common stock. Elven, in turn, owns 15 percent of Windsor's outstanding
common stock. What percent of the dividends paid by Windsor is reported as
dividends declared in the consolidated retained earnings statement?
A. None
B. 100 percent
C.​​ 85 percent
D. 75 percent

6. Parent Corporation owns 90 percent of Subsidiary 1 Company's stock and

75 percent of Subsidiary 2 Company's stock. During 2008, Parent sold
inventory purchased in 2007 for $48,000 to Subsidiary 1 for $60,000.
Subsidiary 1 then sold the inventory at its cost of $60,000 to Subsidiary 2.
Prior to December 31, 2008, Subsidiary 2 sold $45,000 of inventory to a
nonaffiliate for $67,000 and held $15,000 in inventory at December 31, 2008.

Based on the information given above, what amount should be reported in

the 2008 consolidated income statement as cost of goods sold?
A.​​ $36,000
B. $12,000
C. $48,000
D. $45,000
7. Consolidated net income may include the parent's separate operating income
plus the parent's share of the subsidiary's reported net income:
A. plus the unrealized profit on upstream intercompany sales of inventory
made during the current year.
B.​​ plus the profit realized this year from upstream intercompany sales of
inventory made last year.
C. plus unrealized profit on downstream intercompany sales of inventory
made during the current year.
D. minus the parent's share of profit realized this year from upstream
intercompany sales of inventory made last year.

8. Xing Corporation owns 80 percent of the voting common shares of Adams

Corporation. Noncontrolling interest was assigned $24,000 of income in the
2009 consolidated income statement. What amount of net income did Adams
Corporation report for the year?
A. $150,000
B. $96,000
C.​​ $120,000
D. $30,000

9. On January 1, 2008, Zeta Company acquired 85 percent of Theta Company's

common stock for $100,000 cash. The fair value of the noncontrolling interest
was determined to be 15 percent of the book value of Theta at that date.
What portion of the retained earnings reported in the consolidated balance
sheet prepared immediately after the business combination is assigned to the
noncontrolling interest?
A.​​ Nil
B. 15 %
C. 100 %
D. Cannot be determined
 10. On September 30, 2008, Wilfred Company sold inventory to Jackson
Corporation, its Canadian subsidiary. The goods cost Wilfred $30,000 and
were sold to Jackson for $40,000, payable in Canadian dollars. The goods
are still on hand at the end of the year on December 31. The Canadian dollar
(C$) is the functional currency of the Canadian subsidiary. The exchange
rates follow:

Based on the preceding information, at what dollar amount is the ending

inventory shown in the trial balance of the consolidated workpaper?
A.​​ $45,000
B. $50,000
C. $40,000
D. $35,000

11. Wakefield Company uses a perpetual inventory system. In August, it sold

2,000 units from its LIFO-base inventory, which had originally cost $35 per unit.
The replacement cost is expected to be $45 per unit. The company is planning
to reduce its inventory and expects to replace only 1,500 of these units by
December 31, the end of its fiscal year. The company replaced 1,500 units in
November at an actual cost of $50 per unit.

Based on the preceding information, in the entry in August to record the sale of
the 2,000 units:
A. Cost of Goods Sold will be debited for $70,000.
B. Inventory will be credited for $85,000.
C.​​ Excess of Replacement Cost over LIFO Cost of Inventory Liquidation will be
credited for $15,000.
D. Excess of Replacement Cost over LIFO Cost of Inventory Liquidation will be
credited for $67,000.
12. On December 31, 2009, Rudd Company acquired 80 percent of the common
stock of Wilton Company. At the time, Rudd held land with a book value of
$100,000 and a fair value of $260,000; Wilton held land with a book value of
$50,000 and fair value of $600,000. Using the parent company theory, at what
amount would land be reported in a consolidated balance sheet prepared
immediately after the combination?
A. $550,000
B.​​ $590,000
C. $700,000
D. $860,000

13. Princeton Company acquired 75 percent of the common stock of Sheffield

Corporation on December 31, 2009. On the date of acquisition, Princeton held
land with a book value of $150,000 and a fair value of $300,000; Sheffield held
land with a book value of $100,000 and fair value of $500,000. Using the entity
theory, at what amount would land be reported in a consolidated balance sheet
prepared immediately after the combination?
A.​​ $650,000
B. $500,000
C. $550,000
D. $375,000

14. If Push Company owned 51 percent of the outstanding common stock of

Shove Company, which reporting method would be appropriate?
A. Cost method
B.​​ Consolidation
C. Equity method
D. Merger method

15. Goodwill under the parent theory:

A. exceeds goodwill under the proprietary theory.
B. exceeds goodwill under the entity theory.
C.​​ is less than goodwill under the entity theory.
D. is less than goodwill under the proprietary theory.