Polytechnic University of the Philippines

College of Accountancy and Finance

Sta. Mesa, Manila
Junior Philippine Institute of Accountants

MOCK SQE IN ACCOUNTING FOR INCOMING JUNIORS

Instruction: On your answer sheet, shade the letter corresponding to your answer.

I. Theories (30 items)

1. I. In line with the going concern assumption in accounting, assets are normally recorded at cost. As a rule,
market values are ignored. However, there are some standards that require measurement of some assets
at fair value.
II. A note payable due within 12 months but has been refinanced for two years after the reporting period
but before the issuance of the financial statements should be reported as non-current liability.

What is the correct disposition of the abovementioned statements?

a. Both statements are true
b. Statement I is true; Statement II is false
c. Both statements are false
d. Statement I is false; Statement II is true

2. Xinhua Co. reported sales of P2,000,000 for the year ended 2014. However, the actual amount of sales for
the same period is P3,000,000. Xinhua violated which qualitative characteristic of financial statements?
a. Accrual basis of accounting c. Relevance
b. Materiality d. Faithful representation

3. Which of the following items should be reported as part of “Cash” as of December 31, 2014?
a. Postdated check drawn by the company payable to a supplier.
b. Commercial paper with original term of 60 days, acquired on Dec. 15, 2014.
c. Customer’s check dated March 15, 2014. The check is yet to be presented to the bank for deposit.
d. All of the above should be reported as Cash.

4. ________ constitutes recording collections made on January 10, 2015 as transactions of December 31,
2014, while ________ constitutes drawing a check from company’s one bank account and depositing the
same in another bank account to deliberately inflate cash balance.
a. Window dressing; Lapping
b. Window dressing; Kiting
c. Lapping; window dressing
d. Kiting; window dressing

5. Weibo Enterprises offers credit terms of 2% discount if merchandise is paid within 10 days and full amount
due within 30 days (2/10, n/30). If some customers take advantage of the discount and others do not,
which of the following accounts will appear on the Statement of Comprehensive Income if gross method
of recording receivables is employed?
a. Sales discounts
b. Sales discounts forfeited
c. Choices a and b are correct
d. None of the above

6. When specific receivables are used as a collateral for a loan, the entry required is
a. No journal entry required. When the loan is still unpaid at the reporting date, disclosure on notes
stating the carrying amount of receivables pledged as collateral is required.
b. Accounts Receivable Assigned xx
Accounts Receivable xx
c. Cash xx
 Loss on factoring xx
Accounts Receivable xx
d. Cash xx
Liability on Discounted Notes xx

7. Which of the following statements is incorrect regarding inventories?

a. Costs of inventories do not include trade discounts and rebates.
b. Debiting inventory purchases to “Purchases” account is a feature of periodic inventory system.
c. Under FIFO Inventory valuation, inventories reported as current asset reflects earlier prices, and
the cost of goods sold is representative of current replacement cost.
d. Under LIFO Inventory valuation, inventories reported as current asset reflects earlier prices, and
the cost of goods sold is representative of current replacement cost.

8. IAS 2 requires that the application of “lower of cost or NRV” valuation of inventories should be on
_________
a. Item per item basis
b. Classification of inventory (e.g., finished goods, in-process goods)
c. Aggregate basis
d. The standard does not address the said issue. Application of lower of cost of NRV valuation is left on
management’s discretion.

9. The amount of inventory write-down to its net realizable value shall be

a. Recognized as operating expense
b. Recognized as impairment loss
c. Recognized as part of cost of goods sold
d. Deferred until inventory is sold

10. The turtles sold at pet shops are classified as

a. Biological assets c. Current assets
b. Inventories d. Not reported, because it is illegal

11. The following are statements pertaining to biological assets

I. IAS 41 is applicable to agricultural produce at the point of harvest and thereafter.
II. “Costs to sell” of biological assets include costs needed to bring the assets to the market and
consummate the sale. It includes commissions to brokers transfer taxes and duties and transportation
costs.
III. Fair value measurement of agricultural produce stops at the point of harvest. Thereafter, it is
measured at lower of cost or net realizable value, just like inventories.
IV. Government grants relating to biological assets measured at fair value less cost to sell are covered by
IAS 41, not IAS 20.
Which of the statements above is/are true?
a. I only b. I and II c. I, II, IV d. III, IV

12. Statement 1: Land may be depreciated if the entity expected to use the land within a limited time.
Statement 2: Investments at Fair value is not subject to impairment loss but to fluctuations of market
prices.
What is the correct disposition for the statements given above?
a. Statement 1 is true c. Both statements are true
b. Statement 2 is true d. None of the statements are true

13. Statement 1: Internally-generated goodwill is not recognized in the books. Statement 2: If the expenses
cannot be identified between the research and development phase, the expense will be attributable to
research phase.
What is the correct disposition for the statements given above?
a. Statement 1 is true c. Both statements are true
b. Statement 2 is true d. None of the statements are true

14. An equipment leased out to a lessee on an operating lease should be accounted for by the lessor as
a. Investment property c. Other investments
b. Property, Plant and Equipment d. Not accounted by the lessor
15. A building leased out to a lessee on a finance lease should be accounted for by the lessor as
a. Investment property c. Other investments
b. Property, Plant and Equipment d. Not accounted by the lessor

16. Non-current assets held for sale are classified in the Statement of Financial Position as
a. Current assets c. Other noncurrent investments
b. Noncurrent assets and part of PPE d. Correct answer not given

17. Which statement is incorrect about provision and contingent liabilities?

a. Both are obligations involving uncertainties.
b. Any event involving uncertainties should always be presented on the face of financial statements, so
to inform the users of the financial statements of possible obligations.
c. A provision is recognized on the face of the statement of financial position while a contingent liability
is not presented on the face of the statement of financial position but is presented in the notes,
unless remote.
d. A provision is an obligation which certainly exists at the end of the reporting period. Only the timing
of settlement or the amount to be settled is uncertain. While in contingent liabilities, the existence of
obligation is uncertain as of the end of the reporting period.

18. Conceptually, liabilities must be initially measured at ________ and subsequently at ________.
a. Fair value; settlement value c. Amortized cost; present value
b. Settlement value; fair value d. Present value; amortized cost

19. Statement 1: In bifurcation approach to the valuation of compound financial instruments, the liability
component is assigned its full fair value and the equity component is assigned the residual value,
regardless when the fair value of equity component is determinable.
Statement 2: But in issuing preference shares with share warrants, the preference shares and the warrants
are assigned values proportionate to their relative market values.
What is the correct disposition for the statements given above?
a. Statement 1 is true c. Both statements are true
b. Statement 2 is true d. None of the statements are true

20. A redeemable preference share

a. Is treated the same way as other classes of preference shares.
b. Entitles holders to vote and participate in the company’s management.
c. Is not equity in substance.
d. Provides for mandatory redemption by the issuing corporation for a fixed or determinable amount at
a future date.

21. The following are statements relating to equity:

I. A bonus issue increases the issuing corporation’s shareholders’ equity.
II. Appropriated retained earnings shall be clearly distinguished from unappropriated retained earnings.
III. Quasi-reorganization cannot be done anytime the corporation wishes to because it requires the
approval of SEC.
IV. When share options granted to employees vest immediately, the compensation expense for the
period is equal to the fair value of share options multiplied by the number of share options given.
Which of the above statements is/are false?
a. I only b. I and III c. III and IV d. I, II, III and IV

22. Generally in an operating lease, the rent expense for each period during the lease term is
a. Equal, regardless of the agreed payment terms unless there is a contingent rent arrangement agreed
upon.
b. Dependent on the agreed payment terms.
c. Zero during the period of bonus granted to the lessee, in which the lessee pays no rent during the said
period.
d. Higher during the period of bonus granted to the lessor, in which the lessee pays more than the
agreed rent during the said period.

23. Yuen Ru agreed to lease its building to a lessor for a period of 90% of the building’s useful life. The present
value of minimum lease payments almost approximates the fair value of the building. The lessor can just
 walk away anytime during the agreed period without bearing the losses of cancellation. Yuen Ru should
account for the lease mentioned as
a. Operating lease c. Bargain lease
b. Finance lease d. Sale leaseback

24. Statement 1: In a finance lease, the lessee recognizes the leased assets in its books and depreciates the
same.
Statement 2: In a sale-leaseback, gains and losses are recognized in the books of the seller-lessee upon
sale of the asset.
What is the correct disposition for the statements given above?
a. Statement 1 is true c. Both statements are true
b. Statement 2 is true d. None of the statements are true

25. Income tax expense for the period is equal to

a. Taxable income multiplied by tax rate
b. Financial income multiplied by tax rate
c. Taxable income, less permanent differences multiplied by tax rate
d. Financial income, less permanent differences multiplied by tax rate

26. Tax rate used in determining deferred tax assets and liabilities should be
a. The tax rate that has been enacted and effective at the end of the reporting period.
b. The tax rate applicable at the time the related asset or liability is expected to reverse.
c. Always 30%, because it is the current corporate tax rate applicable in the Philippines.
d. Any of the above rates can be used.

27. Because the Philippine income tax law requires corporate income tax be paid quarterly, the income tax
paid for the year may exceed the amount actually payable. The excess of the income tax paid over the
amount payable shall be reported as
a. Receivable from BIR c. Deferred tax asset
b. Current tax asset d. Other investments

28. Short-term employee benefits includes all of the following except

a. Wages, salaries and social security contributions
b. Short-term compensated absences
c. Profit-sharing and bonuses payable in more than 12 months after the end of the reporting period in
which the employees render the related service.
d. Nonmonetary benefits for current employees, such as medical care, housing, car and free and/or
subsidized goods.

29. An entity made a public announcement of its commitment to a voluntary redundancy plan. The entity has
an obligation to pay employees that choose voluntary redundancy a lump sum equal to twice their gross
annual salary. The obligation to pay employees that choose voluntary redundancy is
a. A short-term employee benefitc. Other long-term employee benefit
b. A post-employment benefit d. A termination benefit

30. In a defined contribution plan, who assumes the investment risk?

a. employees c. trustee
b. employer d. company’s investment director

II. Problems (35 items)

31. During the cash count conducted on January 3, 2015, Peng You Co.’s petty cash box contains the following
items:

Item Amount
Bills and coins P 840
Envelope containing contributions for a deceased employee 5,000
Approved and paid petty cash voucher 5,200
Employees’ IOUs 4,150
Postage stamps 350
Check dated January 2, 2015 for replenishment of petty cash fund, equal to the amount of paid 5,200
petty cash vouchers
The petty cash imprest balance is P10,000. What is the correct amount of petty cash on the Statement of Financial
Position on December 31, 2014?
a. P840 b. P5,840 c. P6,040 d. P10,000

32. Yunnan Company’s cash account showed a balance of P4,500,000 before reconciliation. The bank statement did
not include a deposit of P230,000 made on April 30, 2014. The April 2014 bank statement showed a collection by
the bank of P94,000 and a customer’s check for P32,000 was returned because it was drawn against insufficient
funds. A customer’s check for P45,000 was recorded on the books as P54,000, and a check drawn for P7,900 was
recorded as P9,700. What is the correct cash balance as of April 30, 2014?
a. P4,551,200 b. P4,554,800 c. P4,572,800 d. P4,784,800

33. You are the accountant of Shandong Co. You have obtained the following information for the year ended 2014.
Allowance for Bad Debts, January 1, 2014 P 8,000
Credit sales for 2014 400,000
Accounts Receivable deemed worthless and written off 9,000
You have determined that aging of accounts receivable suggests that the Allowance for Bad Debts for the year
ended should be reported as P5,500. What amount should be reported as “Bad Debts Expense” for 2014?
a. P4,500 b. P5,500 c. P6,500 ` d. P13,500

34. Feng Wu Garments’ physical count of inventory on December 31, 2014 reveals an inventory balance of
P400,000. However, the following items, which may or may not affect the correct inventory balance, were not
taken into consideration in such valuation:
 Made-to-order gowns, tailored to customers’ specification costing P40,000 were finished and specifically
segregated on December 31, 2014. These items are not included in the physical count and valuation.
 RTWs with invoice price of P5,000 shipped by vendor FOB seller on December 28, 2014 was received by
Feng Wu on January 3, 2015.
 RTWs invoiced at P60,000 was shipped to a department store on December 30, 2014 under the terms FOB
destination, freight collect. The department store received the merchandise on the same day. Freight
charges amounted to P2,500. Feng Wu’s profit margin based on sales is 50% on all shipments.
 Goods in the shipping area were excluded in the inventory although sales invoices indicate that the items
were due to be shipped on January 5, 2015. The sales price is P45,000 and shipment term is FOB shipping
point.
The correct inventory balance of Feng Wu as of December 31, 2014 is
a. P420,000 b. P427,500 c. P450,000 d. P452,500

35. The following inventory information pertain to Finest Bookstore. Following is a stock card maintained by the
company for its “Learn Chinese the Easy Way” course book. Each course book sells for P350.
Date Purchase Units moved out No. of units left in
Cost Units the inventory
January 10 P 100 200 200
January 31 100 100
February 8 110 150 250
February 9 75 175
February 28 50 125
On February 9, 75 units from the Feb. 8 lot were returned to the publisher due to printing defects. Of the 50 units
sold on Feb. 28, 30 came from Jan. 10 lot and 20 came from Feb. 28 lot. How much is the cost of inventory on
February 28 using FIFO method?
a. P13,050 c. P13,750
b. P13,250 d. Correct answer not given

36. Xiaofei Dairy Farms, Inc. has the following biological assets as of January 1, 2014: 1,050 cows, average age 2
years old and 150 heifers, average age 1 year old. Xiaofei purchased 375 heifers, average age 1 year old, on July 1,
2014. No animals were born or sold during the year. The unit values less costs to sell were:
Description Amount Description Amount
1-year-old animal at Dec. P3,200 3-year-old animal at Dec. P5,000
31, 2014 31, 2014
2-year-old animal at Dec. 4,500 1-year-old animal at Jan. 3,000
31, 2014 1, 2014 and July 1, 2014
1.5-year-old animal at 3,600 2-year-old animal at Jan. 4,000
Dec. 31, 2014 1, 2014
The increase in value of biological assets in 2014 due to price change is
a. P1,500,000 b. P630,000 c. P555,000 d. P460,000

37. Romer Company purchased a delivery van with a list price of P3,000,000. The dealer granted a 15% reduction in
list price and an additional 2% cash discount on the net price if the payment is made in 30 days. Nonrefundable
purchase taxes amounted to P40,000 and the entity paid an extra P30,000 to have a special horn installed. What
amount should be recorded as cost of the van?
a. P2,499,000 b. P2,564,500 c. P2,569,000 d. P2,539,000

38. PAPOY purchased an equipment from JEPOY on January 2, 2014. Per JEPOY's record, the equipment has cost of
P250,000 and accumulated depreciation of P120,000 as of January 2, 2014. The purchase was made by issuing an
interest- bearing note of P150,000 payable in equal installments for 3 years, beginning January 2, 2015. The note
has stated rate of 8% and the market rate for similar notes is 6%. PAPOY estimated that the remaining useful life as
of January 2, 2014 was 4 years. The entity used straight-line method of depreciation. From this transaction, what is
the effect to PAPOY's net income for 2014? Clue: Make an amortization table.
a. P22,750 decrease c. P16,130 increase
b. P48,200 decrease d. P13,400 decrease

39. On December 31, 2010, AHOY purchased a building. The building has: cost- P2,000,000 useful life- 10 years On
December 31, 2013, the building was revalued. The fair value was P1,600,000. On December 31, 2015, the building
was subject to impairment. The recoverable amount was P900,000. On December 31, 2017, the building was once
again revalued. Fair value was P680,000. On December 31, 2017 financial statements, what is the carrying value of
Revaluation Surplus?
a. P140,000 b. P120,000 c. P80,000 d. P60,000

40. On January 1, 2014, Tionghua Corp. received a government grant of P120,000,000 to compensate for the costs
to be incurred in planting trees for a period of 5 years. Tionghua expects that costs will be incurred as follows:

Year Cost
2014 P4M
2015 8M
2016 12M
2017 16M
2018 20M
What amount of government grant shall Tionghua recognize as income in 2014?
a. P0 c. P8,000,000
b. P4,000,000 d. P24,000,000

41. Meteor Garden Corp. borrowed P10,000,000 a 9% per annum on October 1, 2014 to finance the construction of
a building from October 2014 to June 2015. Meteor Garden also had a borrowing for working capital purposes
amounting to P20,000,000 at 10%. As of December 31, 2014, the company had spent P6,000,000 on the
construction. The expenditure was incurred evenly during the quarter. Interest earned on the unexpended portion
of the loan amounted to P60,000. How much interest should be capitalized as part of the building cost as of
December 31, 2014?
a. P165,000 b. P225,000 c. P270,000 d. P900,000

42. On June 1, 2014, Monica Company purchased the rights to a mine. The total purchase price was P14,000,000,
of which P2,000,000 was allocable to the land. Estimated reserves were 1,500,000 tons. Monica expects to extract
and sell 25,000 tons per month. Monica extracted the following resources for the year 2014:
Month Output
June 24,000 tons
July 23,000 tons
 August 26,000 tons
September 28,000 tons
October 19,000 tons
November 23,000 tons
December 27,000 tons
How much should be reported as depletion expense for 2014?
a. P1,200,000 b. P1,360,000 c. P1,400,000 d. P1,586,667

43. Nicole Company purchased 10,000 shares of Adrian Company on January 15, 2014 representing 5% ownership
interest. Nicole received a stock dividend of 20% on March 31, 2014 when the market price of the share is P40.
Adrian Company paid a cash dividend of P5 per share on December 15, 2014. In the income statement for the year
ended December 31, 2014, what should Nicole report as dividend income?
a. P140,000 b. P80,000 c. P60,000 d. P30,000

44. On PAPOY's balance sheet revealed the account Equity Investment- FVOCI amounting to P620,000. The
investment was purchased during the year for P550,000. Also, PAPOY paid broker's fee of P20,000 and indirect
costs of P5,000. From this transaction, what is the effect to the net income for the current year?
a. P50,000 increase b. P30,000 increase c. P25,000 decrease d. P5,000 decrease

45. On January 1, 2014, Margarita Company purchased 8,000 of P1,000 face value 10% bond of Vanessa Company
for P8,538,620. The bond matures on December 31, 2017 and pays interest semi-annually on January 1 and July 1.
Bond effective interest rate is 8%. Margarita intends to collect contractual cash flows from the instrument. On
December 31, 2015, the bond sells at 102. How much should Margarita report as Debt Investment in Vanessa
Company on December 31, 2015?
a. P8,000,000 b. P8,160,000 c. P8,285,322 d. P8,290,392

46. The following items were listed in Beijing Corporation as of December 31, 2014 reporting date: Accounts
Payable, P2,000,000; Notes Payable, P5,000,000; Gift Checks Outstanding, P500,000. No other liability accounts
were listed in the trial balance.

Further review of the accounts revealed the following:

 The accounts payable excluded a P500,000 purchase invoice with terms FOB shipping point. The transaction
was taken up in the books on January 5, 2015. The bill of lading evidencing the shipment was dated December
18, 2014.
 The Notes Payable was a borrowing from a bank on a promissory note dated July 1, 2014 and is due in five
equal installments payable every anniversary date. The effective interest rate is 8% based on the outstanding
balance, also payable every anniversary date.
 There were P50,000 gift checks already expired, but still included in the Gift Certificates Outstanding.
How much is the total liability to be presented in Beijing’s Statement of Financial Position on December 31, 2014?
a. P7,500,000 b. P7,900,000 c. P8,150,000 d. Correct answer not given

47. On 2014, in an effort to boost sales and build customer loyalty, Family Mart offered P1 freebie for every P50
purchase to its Loyalty Card holders. For the year-ended 2014, sales to Loyalty Card holders amounted to
P3,150,000, and total sales amounted to P6,840,000. It is estimated that 85% of the Loyalty Card holders will avail
of the freebies. Freebies distributed by Family Mart amounted to P35,400. How much should be the Liability for
Freebies to be recognized by Family Mart in its Statement of Financial Position as of Dec. 31, 2014?
a. P18,150 b. P53,550 c. P80,880 d. P116,280

48. On November 5, 2014, a Wichita Company truck was in an accident with an auto driven by Tallahassee. Wichita
received notice on January 15, 2015 of a lawsuit for P700,000 damages for personal injuries by Tallahassee.
Wichita’s counsel believed it is probable that Tallahassee will be awarded an estimated amount in the range
between P200,000 and P450,000, and no amount is better estimate of potential liability. The 2014 financial
statements were issued on March 11, 2015. What amount of loss should Wichita accrue on December 31, 2014?
a. P700,000 b. P450,000 c. P200,000 d. Correct answer not given

49. Yi Dian Corp. obtained a term loan by issuing a non-interest bearing note for P3,000,000 dated July 1, 2014. The
market rate for similar liabilities is 10% per annum at the time of issuance. Balloon payment is due July 1, 2019. As
of December 31, 2014, how much carrying value of the loan will be reported as current liability and how much will
be reported as noncurrent liability?
a. Current P186,276; Noncurrent P1,965,216
b. Current P0; Noncurrent P2,151,492
c. Current P0; Noncurrent P3,000,000
d. Current P0; Noncurrent P1,862,764

50. On October 1, 2014, Xiu Huang Manufacturing issued P6,000,000 bonds at 9% per annum payable annually.
Effective interest rate is 7%. The bonds mature on September 30, 2017, and principal repayment is payable in three
equal installments. Xiu Huang incurred P108,951 of bond issue costs. After considering the latter, effective interest
rate is determined to be 8%. How much is the bond carrying value on December 31, 2014?
a. P6,053,264 b. P6,092,841 c. P6,105,726 d. P6,323,628

51. Patterson Company has an overdue 8% note payable to California Bank at P8,000,000 and accrued interest of
P640,000. Due to Patterson’s financial difficulties, California agreed to the following restructuring terms, which was
consummated on January 1, 2014.
 The principal obligation is reduced to P7,000,000;
 The accrued interest of P640,000 is condoned;
 The maturity date is extended to December 31, 2017.
 Annual interest of 10% is to be paid every December 31.
What is the gain on extinguishment of debt to be recognized for 2014?
a. P538,000 b. P1,000,000 c. P1,178,000 d. P1,640,000

52. You are the accountant of Stevenson Company. As of December 31, 2014, you are asked to determine the total
legal capital, given the following items:
Accounts Amount
Preference Share Capital, P100 par, 2,300 shares outstanding P 2,300,000
Preference Share Premium 805,000
Ordinary Share Capital, P10 par, 525,000 shares outstanding 5,250,000
Ordinary Share Premium 2,750,000
Subscribed Ordinary Share Capital 50,000
Retained Earnings 1,950,000
Advances from Shareholders 4,000,000
Subscription receivable-ordinary share, to be collected May 2015 40,000
a. P3,600,000 b. P3,560,000 c. P7,550,000 d. P7,600,000

53. Korea Company has granted share options with a fair value of P6,000,000 to its employees. The options are
exercisable upon completion of three-year service. On January 1, 2014, the date of grant, the estimate of
employees leaving the entity during the vesting period is 5%. On December 31, 2015, the estimate of employees
leaving before vesting date is revised to 6%. On December 31, 2016, only 5% of the employees actually left the
entity. What is the compensation expense for 2016?
a. P2,000,000 b. P1,940,000 c. P1.900,000 d. P1,880,000

54. On December 20, 2013, Lily Co. entered into a lease arrangement with Daisy Co. Under the terms of the lease
contract, Daisy grants Lily the usufruct of the office building for 5 years beginning Jan. 1, 2014, subject to renewal,
for a monthly rent of P133,000. Shall Lily terminate the contract prior to lease term, Lily is liable to pay an
equivalent of three months’ rent as pre-termination fee. As an accommodation, Daisy granted a 50% discount on
rent for the first six months and thereafter, Lily should pay the rent as stipulated in the contract. For the half-year
ended June 30, 2014, Lily should recognize a rent expense of
a. P399,000 b. P758,100 c. P781,200 d. P798,000

55. Worcester Company, lessor, leases is equipment under an operating lease. The lease term is 5 years and the
lease payments are made in advance on January 1 of each year as shown in the following schedule:
Date Amount to be
received
January 1, 2014 P1,000,000
January 1, 2015 1,000,000
January 1, 2016 1,400,000
 January 1, 2017 1,700,000
January 1, 2018 1,900,000
On December 31, 2015, what amount should be recognized as rent receivable?
a. P1,400,000 b. P800,000 c. P400,000 d. none

56. Toni Company leased a machine from Alex Company. The lease qualifies as a finance lease and requires 10
annual payments of P100,000 beginning immediately. The lease specifies an interest rate of 12% and a purchase
option of P100,000 at the end of the tenth year, even though the machine’s estimated value on that date is
P200,000. What amount should Toni record as lease liability at the beginning of lease term?
a. P621,600 b. P648,600 c. P665,000 d. P697,200

57. On January 1, 2014, Albania Company entered into a 10-year lease for heavy equipment. Albania accounted for
the acquisition as finance lease for P4,900,000 which includes P200,000 guaranteed residual value. At the end of
the lease term, the asset reverts to the lessor. It is estimated that the asset’s fair value at the end of its 12-year
useful life is P100,000. Albania uses straight-line method for depreciation.
For the year ended December 31, 2014, what amount should Albania should recognize as depreciation expense for
the leased asset?
a. P400,000 b. P470,000 c. P480,000 d. P490,000

58. On January 1, 2014, Aina Ganda Corp. obtained a special-purpose equipment from Manolo Corp under a
finance lease. Under the lease contract, Aina Ganda should pay P420,000 annually beginning immediately for 5
years. Included in the annual payment is the annual maintenance and insurance costs of P15,000. Also included in
the lease contract is a clause that provides Aina Ganda an option to purchase the equipment at the end of lease
term for P300,000, which approximates the fair value of the equipment at that time. Manolo expects a 12% return
on the lease, while Aina Ganda’s incremental borrowing rate is 14%. How much should Aina Ganda recognize as
Finance Lease Liability at the beginning of the lease term?
a. P1,635,107 b. P1,740,860 c. P1,805,335 d. P1,865,894

59. You are Fira Co.’s tax accountant. The company made an accounting profit of P4,000,000 for the year ended
December 31, 2014. Included in the accounting profit were the following items of income and expense:
Charitable donations (the allowed deduction is up to P1M)…..P 2,000,000
Depreciation - 20% ………………………………………………. 1,600,000
Compensated absences………………………………………….. 700,000
Rent revenue……………………………………………………….. 1,200,000
Tax rate……………………………………………………………… 30%
In Fira’s ITR, depreciation rate is 25%. Fira paid compensated absences of P800,000 and received rent of
P1,000,000. Fira’s tax remittance for three quarters totaled P500,000. What is Fira’s current tax liability on
December 31, 2014?
a. P700,000 b. P790,000 c. P868,500 d. P650,000

60. West Company has the following carrying amount of assets and liabilities on December 31, 2014:
Item Amount
Cash P2,000,000
Trade Receivables 3,000,000
Inventories 4,000,000
PPE 15,000,000
Trade payables 6,000,000
The tax base of PPE is P11,000,000. The entity has made a provision for inventory obsolescence of P2,000,000
which is not allowable for tax purposes. Further, an impairment charge against trade receivables of P1,000,000 has
been made. This charge will not be allowed in the current year for tax purposes. The tax rate is 30%.
What amount should be recognized as deferred tax expense for 2011?
a. P1,400,000 b. P1,200,000 c. P350,000 d. P300,000

61. Canterbury Company has one temporary difference at the end of 2014 that will reverse and cause taxable
amounts of P1,100,000 in 2015, P1,200,000 in 2016 and P1,200,000 in 2017. The entity has also a deductible
temporary difference of P1,500,000. The pretax accounting income for 2014 is P6,000,000 and the tax rate is 30%.
There are no deferred taxes at the beginning of 2014. What is the current tax expense for 2014?
 a. P1,800,000 b. P1,920,000 c. P1,200,000 d. P2,400,000

62. Glendo Company has an employee benefit plan for compensated absences that gives employees 10 paid
vacation days and 10 paid sick days. Both vacation and sick days can be carried over indefinitely. Employees can
elect to receive payment in lieu of vacation days. However, no payment is given for sick days not taken. On
December 31, 2014, Glendo’s unadjusted balance of liability for compensated absences was P210,000. Glendo
estimated that there were 150 vacation days and 75 sick days available on December 31, 2014. Glendo’s employees
earn an average of P1,000 per day. In its December 31, 2014 Statement of Financial Position, what amount of
liability for compensated absences should Glendo report?
a. P360,000 b. P225,000 c. P210,000 d. P150,000

63. Edward Company grants all employees 2 weeks of paid vacation for each full year of employment. Unused
vacation time can be accumulated and carried forward to succeeding years and will be paid at the salaries in effect
when vacations are taken or when employment is terminated. There was no employee turnover in 2014.
Additional information relating to the year ended December 31, 2014 is as follows:
Liability for accumulated vacations, Jan. 1, 2014 P 350,000
Pre-2011 accrued vacations taken from Jan. 1-Sept. 30, 2014 200,000
Vacations earned for work in 2014 (adjusted to current rates) 300,000
Edward granted a 10% salary increase to ALL employees on October 1, 2014. For the year ended December 31,
2014, what amount should be reported as vacation pay expense?
a. P300,000 b. P315,000 c. P335,000 d. P450,000

64. The trustee of PBB Co. provided you the following information as of December 31, 2014 relating to the latter’s
defined benefit plan:
Defined Benefit Obligation, Jan. 1 P 41,500,000
Plan Assets, Jan. 1 41,700,000
Current Service cost 4,000,000
Past service cost 5,200,000
Interest cost 10%
Actual return of plan assets:
Dividends earned P1,650,000
Rent earned 1,400,000
Interest earned 1,250,000
Contributions made - at year end 2,150,000
Benefits paid - at year end 3,650,000
Actuarial loss on remeasurement of DBO 50,000
What item should be reported in PBB’s December 31, 2014 Statement of Financial Position in relation to the
defined benefit plan?
a. P6,750,000 asset c. P7,900,000 asset
b. P6,750,000 liability d. P7,900,000 liability

65. Use the same information in the previous problem. How much is the total defined benefit cost that PBB should
recognize?
a. P3,650,000 b. P9,100,000 c. P9,180,000 d. P13,350,000

-oOo-

“Success is often viewed as something that happens overnight. Nothing can be further from the truth. In reality, a
seemingly overnight success had, in its wake, the evidence of long and hard preparation and the hope that the day
of victory will come”- Anonymous

“No man ever reached to excellence in any one art or profession without having passed through the slow and
painful process of study and preparation.” - Horace
“I can do all things through Christ who strengthens me” - Philippians 4:13

#jrda050214

MOCK SPECIAL QUALIFYING EXAMINATION 17. B

Financial Accounting 18. D
11 April 2015 19. C
20. D
21. A
ANSWER KEY 22. A
23. B
THEORIES (30 items x 1pt. = 30pts.) 24. A
25. D
1. B 26. B
2. D 27. B
3. A 28. C
4. A 29. D
5. A 30. A
6. B
7. C
8. A
9. C
10. B
11. D
12. C PROBLEMS (35 items x 2pts. = 70pts.)
13. C
14. B 31. A
15. D 32. B
16. A 33. C
34. B
35. B
36. B
37. C
38. B
39. No answer- P40,000
40. C
41. A
42. B
43. C
44. D
45. D
46. C
47. A
48. D
49. No answer- P1,953,683 NCL
50. B
51. C
52. D
53. B
54. B
55. B
56. C
57. B
58. A
59. B
60. D
61. C
62. D
63. B
64. B
65. B