Easy

1. The following pertains to Malpighi, Inc. on April 30, 2009: Correct cash balance in a general checking
account with PCI Bank – P32,000; overdraft in a special checking account with Family Bank (Malpighi
does not have another account with Family Bank) – P2,000; Cash accumulated in a special fund that
will be used for plant expansion in five years – P15,000; cash surrender value of life policy – P3,200;
cash travel advances in the hands of sales personnel- P1,200; currency and coins in a petty cash fund
(the company has not replenished the fund to the imprest amount of P2,000) – P58. How much cash
should Malpighi report as cash on the balance sheet?
a. P33,258 c. P32,200
b. P32,058 d. P30,200

2. Aguinaldo Corporation had the following transactions in its first year of operations:

Sales (90% collected in the first year) P750,000

Disbursements for costs and expenses 600,000

Purchases of equipment for cash 200,000

Proceeds from issuance of ordinary

shares
250,000

Payments on short-term borrowings 25,000

Proceeds from short-term borrowings 50,000

Depreciation on equipment 40,000

Disbursements for income taxes 45,000

Bad debt write-offs 30,000

What is the cash balance at December 31 of the first year?

a. P 75,000 c. P 85,000
b. P105,000 d. P140,000

3. If a petty cash fund is established in the amount of P250, and contains P200 in cash and P45 in
receipts for disbursements when it is replenished, the journal entry to record replenishment should
include credit to the following accounts
a. Petty Cash, P45.
b. Petty Cash, P50.
c. Cash, P45; Cash Over and Short, P5.
d. Cash, P50.
4. The information below is from the books of the Seminole Corporation on June 30:

Balance per bank statement P11,164

 Receipts recorded but not yet deposited
in the bank
1,340

Bank charges not recorded 16

Note collected by bank and not recorded

on books
1,120

Outstanding checks 1,100

NSF checks - not recorded on books nor

redeposited
160

Assuming no errors were made, compute the cash balance per books on June 30 before any
reconciliation adjustments.
a. P11,404 c. P10,460
b. P12,348 d. P10,220
5. Roxy Company had the following information relating to its accounts receivable:

Accounts receivable at 12/31/2008 P1,300,000

Credit sales for 2009 5,400,000
Collections from customers for 2009,
excluding recovery 4,750,000
Accounts written off 9/30/2009 125,000
Collection of accounts written off in
prior year (customer credit was
not reestablished) 25,000
Estimated uncollectible receivables
per aging of receivables at
12/31/2009 165,000

On December 31, 2009, the amortized cost of accounts receivable is

a. P1,825,000 c. P1,635,000
b. P1,800,000 d. P1,660,000
1. 6. The following information for 2006 is provided by Guam Company:
Sales 50,000,000

Cost of Sales 30,000,000

Selling Expenses 5,000,000

General and Administrative Expenses 4,000,000

 Interest Expense 2,000,000

Gain on early extinguishment of long term debt 500,000

Correction of Inventory error, net of income tax-credit 1,000,000

Investment Income-equity method 3,000,000

Gain on expropriation 2,000,000

Income tax expense 5,000,000

Dividends declared 2,500,000

What is the amount of finance cost?

a. 1,200,000 c. 1,500,000

b. 2,000,000 d. 1,800,000

7. Danhag Company has determined its 2008 Net Income is P3,000,000.In the first –time audit of
company financial statements, you determined he following errors:
P400, 000 revenue received in advanced during 2008was credited to revenue account.P100,
000 was earned in 2008, P200,00 will be earned in 2009 and the remainder will be earned in 2010.

A P150, 000 was recognized as a loss resulting from a change in inventory valuation method
during 2008.

What will be the adjusted Net Income during 2008?

a.2, 800,000 c..2, 850,000

b.3,150,000 d.2,600,000

2. 8. Felicia Co. owns 20% royalty interest in an oil well. Felicia receives royalty payments on January 31
for the oil sold between June 1 and November 30, and July 30 for oil sold between December 1 and
May 31 Production report shows the following sales:
June 1, 2006-November 30, 2006 4,050,000

December1, 2006-December 31, 2006 675,000

December 1, 2006-may 31, 2007 5,400,000

June 1, 2007-November 30, 2007 4,387,500

December 1, 2007-December31, 2007 945,000

What amount should Felicia report as royalty revenue for 2007?

a.1, 890,000 c.2, 011,500

b.1, 944,000 d.2, 146,000

9. Marie Company sells gift certificates redeemable only when merchandise is purchased. These gift
certificates have an expiration date of two years after issuance date. Upon redemption or expiration,
Marie recognizes the unearned revenue as realized. Information for 2007 as follows:
Gift certificate payable 12/31/2006 520,000

Gift certificate payable 12/31/2007 680,000

Gift certificate redeemed 1,560,000

Expired gift certificates 80,000

Cost of goods sold 80%

How much Gift certificates sold during the year?

a. 1,800,000 c.. 1,640 ,000

b. 1,500,000 d. 1,760,000

10. Genius Company reported an Accumulated Profits balance of P300,000at December 31,2005. In June
2006, Genius discovered that merchandise costing P100,000 had not been included in the inventory in its
2005 financial statements. Assume Genius has 35% tax rate.

What amount should Genius report as adjusted beginning Accumulated Profits and Losses on January 1,
2006?

a. 235,000 c. 300,000

b. 365,000 d. 400,000

11. In 2004, Power Designs Corporation sold a layout design to Mass,Inc. and will receive royalties of
future revenues associated with the said layout design. On December 31,2005, Power Designs reported
royalties receivable of P75,000 from Mass, Inc. During 2006, Power Designs received royalty payments of
P200,000. Mass,Inc. reported revenues of P1,500,000 in 2006 from the layout design.

In its 2006 Income Statement, what amount should Power Designs report as royalty revenue?

a. 125,000 c. 200,000

b. 175,000 d. 300,000

3. 12. The Puncher Co. launched a sales promotional campaign on June 30, 2006. For every ten empty
packs returned to Puncher, customers will receive an attractive food container. The company
estimates that only 30% of the packs reaching the market will be redeemed. Additional information
are as follows:
 Units Amount

Sales of food packs 3,000,000 P9,000,000

Food containers purchased 60,000 180,000

Prizes distributed to customers 37,000

At the end of the year, Puncher recognized a liability equal to the estimated cost of potential prizes
outstanding.

What is the amount of this estimated liability?

a. 69,000 c. 159,000

b. 90,000 d. 180,000

13. Tarzana Company reported total purchases of P3,200,000 in its accrual basis financial statement on
December 31,2006. Additional information revealed the following:

Accounts Payable, December 31,2005 P 900,000

Accounts Payable, December 31,2006 1,250,000

What is the amount of purchases under the cash basis on December 31,2006?

a. 2,850,000 c. 4,100,000

b. 3,550,000 d. 4,450,000

14. On March 31, 2005 Mr. Right Enterprise traded in an old machine having a carrying amount of
P1,600,000 and paid cash difference of P600,000 for a new machine having a total cash price of
P2,000,000.

On March 31,2005, what amount of loss should Mr. Right recognize on this exchange?

a. P 0 c. P400,000

b. P200,000 d. P600,000

15. PRC Company began selling a new calculator that carried a two year warranty against defects in
2007.
PRC projected the estimated warranty cost (as a percent of sales) as follows:
 First year warranty 4%

Second year warranty 10%

Sales and actual warranty repairs were:

2007 2008

Sales 5,000,000 9,000,000

Actual warranty repairs 390,000 900,000

What is the estimated warranty liability on December 31, 2007?

a. 670,000 c. 700,000

b. 790,000 d. 650,000

Average

1. The Pacifier Company uses the net price method of accounting for cash discounts. In one of its
transactions on December 15, 2009, Pacifier sold merchandise with a list price of P500,000 to a
client who was given a trade discount of 20% and 15%. Credit terms were 2/10, n/30. The goods
were shipped FOB destination, freight collect. Total freight charges paid by the client amounted to
P7,500. On December 20, 2009, the client returned damaged goods originally billed at P60,000.

What is the net realizable value of this receivable on December 31, 2009?

a. P272,500 c. P280,000
b. P274,400 d. P333,200

6. Pascal Company’s usual sales terms are net 60 days, FOB shipping point. Sales, net of returns and
allowances, totaled P1,300,000 for the year ended December 31, 2008 before year-end adjustments.

Additional data are as follows:

 On December 27, 2008 Pascal authorized a customer to return, for full credit, goods shipped and
billed at P50,000 on December 15, 2008. The returned goods were received by Pascal on
January 4, 2009, and a P50,000 credit memo was issued and recorded on the same date.
 Goods with an invoice amount of P80,000 were billed and recorded on January 3, 2009. The
goods were shipped on December 30, 2008.
 Goods with an invoice amount of P100,000 were billed and recorded on December 30, 2008.
The goods were shipped on January 3, 2009.
 On January 5, 2009, a customer notified Pascal that goods billed and shipped on December 23,
2008 were lost in transit. The invoice amount was P100,000.
 Pascal’s adjusted net sales for 2008 should be
a. P1,130,000 c. P1,180,000
b. P1,280,000 d. P1,230,000

7. During your review of the records of Yoko Corporation for the year 2009, you noted that Yoko sold a
machine with a carrying amount of P640,000 (cost is P1,600,000) on June 30, 2009. Yoko received
an P800,000 non-interest bearing note due in 3 years. There is no established market value for the
machine. The prevailing interest rate for a note of this type is 12%. Yoko recorded the transaction by
debiting Note Receivable for P800,000 and crediting Machinery for P640,000 and Gain on sale of
Machine for the difference. Because of this, Yoko’s profit for the year ended December 31, 2009 had
been overstated by
a. P196,394 c. P125,834
b. P162,227 d. P 55,274
8. On January 1, 2008, Nickel Company loaned Copper Company amounting to P2,000,000 and
received a two-year, 6%, P2,000,000 note. The note calls for annual interest to be paid each
December 31. Nickel collected the 2008 interest on schedule. However, on December 31, 2009,
based on the Copper’s recent financial difficulties, Nickel expects that the 2009 interest, which was
recorded in the books, will not be collected and that only P1,200,000 of the principal will be
recovered. The P1,200,000 principal amount is expected to be collected in two equal installments
on December 31, 2011 and December 31, 2013. The prevailing interest rate for similar type of note
as of December 31, 2009 is 8%. The carrying amount of the loan as of December 31, 2011 is (Round
off present value factors to four decimal places.)
a. P 473,465 c. P 534,000
b. P1,736,032 d. P1,134,000

9. The following data were taken from the books of Marina Co. for the year 2008:
From cash records:

Cash purchases P 30,000

Payments to trade creditors for credit purchases 302,600

From balance sheets

Accounts payable

Jan. 1, 2008 37,500

Dec. 31, 2008 43,300

Merchandise inventory, Jan. 1, 2008 12,800

From other records:

Purchase returns and allowances 7,500

Cost of goods for the year 335,000

 The merchandise inventory at the end of the year is
a. P16,200 c. P12,800
b. P13,800 d. P23,700
1. 6. Selected records from the accounting records of Malakas Company are as follows:
Net accounts receivable at Dec. 31, 2005 1,900,000

Net accounts receivable at Dec. 31, 2006 1,000,000

Account receivable turnover 5:1

Inventory at Dec. 31, 2005 1,100,000

Inventory at Dec.31, 2006 1,200,000

Inventory turnover 4:1

What is the amount of gross margin?

a. 5,000,000 c.5,200,000

b. 5,150,000 d.5,300,000

7. Dakak Company issued bonds with a face value of P4, 000,000 and with a stated interest rate of 10%
on Jan. 01, 2008. The interest is payable semiannually on June 30 and December 31. The bonds mature
on every December 31 at a rate of P2, 000,000 per year for 2 years. The prevailing rate for the bonds is
8%. The present value of 1 at 4% is as follows:
One period 0.9615

Two periods 0.9426

Three periods 0.8990

Four periods 0.8548

What is the present value of the bonds on January 1, 2008?

a. 4,111,400 c.4,099,600

b. 4,263,400 d.4,252,580

8. Meninqiuz Company provided the following information for the 2008:

Total Assets at December 31 4,500,000

Share Capital at December 31 2,000,000

Share Premium at December 31 200,000

Treasury Stock (at cost) 300,000

The debt-to-equity ratio is 25% at December 3, 2008. What is the retained earnings unappropriated on
December 31, 2008?

a.1, 400,000 c.2, 300,000

 b.1, 100,000 d.1, 700,000

9. Assume the following balances at the end of the current year:

Capital Liquidated 1,800,000

Accumulated Depletion 2,500,000

Retained Earnings 1,500,000

Depletion based on 50,000 units extracted @P20 per unit 1,000,000

Inventory of resource deposit 5,000 units

What is the maximum dividend that can be declared by the company?

a. 2,100,000 c.2, 200,000

b.2, 000,000 d.1, 500,000

10. On December 31, 2007 Colt Company is experiencing extreme financial pressure and is in default in
meeting interest payment on its long term note of P6, 000,000 due on December 31, 2009. The interest
rate is 12% payable every December 31.
In an agreement with the creditor, Colt obtained the following changes in the terms of note:

a. The accrued interest on December 31, 2007 is forgiven.

b. The principal is reduced by 500,000.

c. The new interest rate is 8%.

d. The new date of maturity is December 31, 2011.

The present value of 1 at12% for four periods is 0.6355 and the present value of an ordinary annuity of 1
at 12% for four periods is 3.0373.

How much is the gain or loss on extinguishment?

a. 2,504,750 c. 1,888,338

b. 1,168,338 d. 0

11. Francisco Company was organized on January 2, 2006 with 300,000 ordinary shares with a P6 par
value authorized. During 2006, Francisco had the following stock transactions:

January 2 Issued 60,000 shares at P10 per share

March 8 Issued 20,000 shares at P11 per share.

May 9 Purchased 7,500 shares at P12 per share.

July 2 Issued 15,000 shares at P13 per share.

August 17 Sold 5,000 treasury shares at P14 per share.

Francisco uses the FIFO method for purchase-sale purposes.

If Francisco uses the cost method to record treasury stock transactions, how much would be the Share
Premium at December 31,2006?

a. 445,000 c. 465,000

b. 455,000 d. 485,000

12. The following pertains to an operating sale and leaseback of equipment by Harbor Co. on December
31,2005:

Sales price 420,000

Carrying amount 520,000

Monthly lease payment 37,334

Present value of lease payments/Fair Market Value 420,000

Estimated remaining life 12 years

Lease term 1 year

Implicit rate 12%

What amount of deferred loss should Harbor report at December 31, 2005?

a. 0 c. 100,000

b. 37,334 d. 200,000

13. On April 30, 2005, Shark Corporation purchased for P 30 per share all 200,000 of Fins Corporation’s
outstanding ordinary share. On this date, Fin’s balance sheet showed net assets of P 5,000,000.
Additionally, the fair value of Fin’s identifiable assets on the same date was P600,000 in excess of their
carrying amount.

What amount should Shark report as goodwill in its April 30, 2005 consolidated balance sheet?

a. P 0 c. P600,000
 b. P400,000 d. P 1,000,000

14. The Cloak Corporation received the following report from its actuary at the end of the year:

01/01/06 01/31/06

Unrecognized past service cost 500,000 450,000

Accumulated benefit obligation 6,000,000 6,400,000

Fair Value of pension plan assets 5,800,000 6,276,000

Actuarial net gain 800,000 ?

Benefits paid during the year 680,000

Contribution made during the year 520,000

Current service cost 495,000

Expected rate of return 10%

Settlement rate 12%

Ave. working lives of employees 20 years

What is the amount of net benefit expense to be charged against income for the year 2006?

a. 675,000 c. 716,000

b. 685,000 d. 875,000

15. On January 1, 2004, Loyal Company purchased an equipment for P8, 000,000. The equipment is
depreciated using straight line method based on a useful life of 8 years with no residual value. On
January 1, 2007, after 3 years, the equipment was revalued at a replacement cost of 12,000,000 with no
change in residual value. On June 30, 2007, the equipment was sold for 10,000,000. What is the effect of
the June 30, 2007 transaction to the retained earnings?
a.2, 500,000 increase c. 5,000,000 increase

b.3,250,000 increase d. 5,750,000 increase

Difficult
 An audit of Angelina Company has revealed the following four errors that have occurred but have
not been corrected:

 Inventory at December 31, 2005-P40,000, understated

 Inventory at December 31, 2006-P15,000, overstated
 Depreciation for 2005-P7,000, understated
 Accrued expenses at December 31, 2006-P10,000, understated

1. The errors cause the reported net income for the year ending December 31, 2006 to be
a. Overstated by P72,000 c. Understated by P28,000

b. Overstated by P65,000 d. Understated by P45,000

2. A return of merchandise amounting to P4,500 which was previously purchased on account was
recorded as

Accounts payable 5,400

Purchases 5,400

If the error had been discovered when the nominal accounts were still open, the correcting entry
would require a

a. P900 debit to purchase return

b. P900 debit to accounts payable
c. P900 credit to purchases
d. P900 credit to accounts payable

3. Goods worth P12,000 was shipped on account (2/10, n/30) to Ibuyan Company on January 15,
2006 from Rubenil Company The term of the shipment was fob shipping point. Rubenil
Company paid freight of P950. On January 12, 2006, P2,500 worth of merchandise was received
by Rubenil Co. from Ibuyan Co. due to wrong specification. Ibuyan Company made a partial
payment of P5,000. How much is the subsequent collection of Rubenil Company from Ibuyan
Company assuming Ibuyan Company paid within the discount period?
a. P 5,450 b. P 5,260 c. P 4,500 d. P 4,410
4. Maria Rosa, president of the Villa Nova Company, has a bonus arrangement with the company
under which she receives 10% of the net income (after deducting taxes and bonuses) each year.
For the current year, the net income before deducting either the provision for income taxes or
the bonus is P4,650,000. The bonus is deductible for tax purposes, and the tax rate is 32%.

The amount of Maria Rosa’s bonus is

a. P 465,000.00 b. P 364,285.71c. P 339,270.39 d. P 296,069.42
 5. On September 1, DY COMPANY assigns specific receivables totaling P750,000 to Davao Bank as
collateral on a P625,000, 12% note. DY COMPANY will continue to collect the assigned accounts
receivable. Davao Bank also assesses a 2% service charge on the total accounts receivable
assigned. DY COMPANY is to make monthly payments to Davao Bank with cash collected on
assigned accounts receivable. Collections of assigned accounts during September totaled
P260,000 less cash discounts of P3,500.

What amount is owed to Davao Bank by DY COMPANY for September collections plus accrued
interest on the note to September 30?

a. P 260,000 b. P 262,750 c. P 264,000 d. P 266,250

6. On January 1, 2004, Loyal Company purchased an equipment for P8, 000,000. The equipment is
depreciated using straight line method based on a useful life of 8 years with no residual value.
On January 1, 2007, after 3 years, the equipment was revalued at a replacement cost of
12,000,000 with no change in residual value. On June 30, 2007, the equipment was sold for
10,000,000. What is the effect of the June 30, 2007 transaction to the retained earnings?
a.2, 500,000 increase c. 5,000,000 increase

b.3,250,000 increase d. 5,750,000 increase

7. Zee Company provided the following informations concerning its defined benefit plan in its
memorandum records on January 1, 2007.
Fair Value of plant assets 5,100,000

Unamortized past service cost 210,000

Unrecognized Actuarial Loss 610,000

Projected Benefit Obligation (4,500,000)

Prepaid/Accrued benefit cost 1,410,000

During the current year, the entity determined that its Current service cost was 600,000 and the
interest cost is 10%. The expected return was 10% but the actual return was 12%. Past service cost
and any actuarial gain or loss should be amortized over 10 years. Other related information is as
follows:

Contribution to the plan 720,000

Benefits paid to retirees 900,000

Decrease in PBO due to changes in actuarial assumptions 120,000

What is the balance of prepaid/ accrue benefit cost account on December 31, 2007?

a. 1,530,000 c. 1,770,000

b. 1,560,000 d. 1,680,000
8. Green Company has 2,000,000 shares of ordinary shares outstanding on December 31, 2005. An
additional 100,000 shares are issued on April 1, 2006 and 240,000 more on September 1. On October 1,
Green issued P3,000,000 of 9% convertible bonds. Each bond is convertible into 40 shares of ordinary
shares. At the time of issue of the convertible bonds, the market rate of the bonds without conversion
option is equal to its nominal rate. No bonds have been converted.

The number of shares to be issued in computing basic earnings per share and diluted earnings per share
on December 31, 2006 would be:

a. 2,155,000 & 2,155,000 c. 2,155,000

b. 2.155.000 & 2,275,000 d. 2,540,000

9. East Company leased machinery from Chin Company on January 1, 2007 for a 10-year period
(useful life of 20 years)
Equal annual payments under the lease are P200,000 and are due on January 1 of each year starting
January 1, 2007.

The present value at January 1, 2007 of the lease payments over the lease term discounted at 10% was
1,352,000. The lease was appropriately accounted for as finance lease by East because there is a very
nominal bargain purchase option.

What is interest expense for 2008?

a. 106,720 c. 200,000

b. 115,200 d. 0

10. A natural resources property was purchased by Nge Wang Company for 6,000,000. The output was
estimated to be 1,500,000 tons. Nge Wang

purchased a mining equipment at a cost of 8,000,000 and has a useful life of 10 years but is capable of
exhausting the resource in8 years. Production is as follows:

1st Year 150,000 tons

2nd Year 225,000 tons

3rd Year None

4th Year 225,000 tons

What is the carrying amount of the mining equipment at the end of four years?

a. 4,800,000 c. 4,200,000

b. 4,000,000 d. 4,500,000