18,550 In preparing its December 31, year 2 bank reconciliation,

Apex Corp. has available the following information:

Balance per bank statement, 12/31/Y2 P18,050
Deposit in transit, 12/31/Y2 3,250
Return of customer's check for insufficient funds 12/31/Y2
600
Outstanding checks, 12/31/ Y2 2,750
Bank service charges for December 100
At December 31, year 2, Apex's correct cash balance is?
Short-term and highly liquid investments that are Cash Equivalents are?
readily convertible into cash
48,000 A petty cash fund of P50,000 was composed of the following
on December 31, 200x:
Petty cash vouchers 43,000
Return value of 20 cases of soft drinks 2,000
Total 50,000
A check of P43,000 was drawn on December 31, 200x
payable to Petty Cash. How much should be the petty cash
balance on December 31, 200x?
The entire balance in the sinking fund account should At the current year-end, a trustee held cash in the sinking
appear as non current asset fund account representing annual deposits to the fund and
the interest earned on these deposits. How should the
sinking fund be reported?
A credit to cash and a debit to various expenses for The journal entry to replenish the petty cash fund includes:
P126.
A three-year treasury note maturing on May 30 of the Which is not considered as a cash equivalent?
current year purchased by the entity on January 15 of
the current year
Window Dressing The payment of accounts payable made after the close of
the accounting period are recorded as if it were made at the
end of the current.
Prepare the petty cash voucher An employee asks for an authorized reimbursement of
transportation charges out of the Imprest petty cash fund.
To document this transaction, the petty cashier should?
Cash, P100 If a petty cash fund is established in the amount of P250,
and contains P150 in cash and P95 in receipts for
disbursements when it is replenished, the journal entry to
record replenishment should include credits to the following
accounts
With the establishment of an imprest petty cash fund, The following statements pertain to accounting for petty
one person is given the authority and responsibility for cash fund. Which statement is false?
issuing checks to cover minor disbursements
Cash All are non-financial assets except:
Accounting entities give accountable events the same Financial information exhibits the characteristics of
accounting treatment from period to period consistency when
Decision usefulness The underlying theme of the conceptual framework is
Philippine Interpretations Committee (PIC) Formed by the FRSC in August 2006 to assist the FRSC in
establishing and improving financial reporting standards in
the Philippines.
Supplies and Receivables Postage stamps and IOU's found in cash drawers should be
reported
When the sale occurs When is revenue generally recognized?
II, III, IV and V only Information in a company's financial statements is
considered to be reliable when it:
I is relevant to the decision making needs of users.
II represents faithfully the financial position, financial
performance and cash flows of the entity.
III is neutral.
IV is prudent.
V reflects the economic substance of transactions, other
events and conditions.
Equity Instruments Examples of physical assets
Restored to the cash balance Unreleased checks (checks drawn before balance sheet date
but held for later delivery to creditors) should be
Post-dated checks Which of the following would not be classified as cash?
none Debit always means
Financial Accounting General-purpose financial statements are the product of
c. The rules for debit and credit and the normal Which of the following statement is true regarding debits
balance of Share Capital-Ordinary are the same as for and credits?
liabilities.
Money market checking accounts Which of the following is considered "cash"?
Full disclosure Which accounting assumption or principle is being violated
if a company is a party to major litigation that it may lose
and decides not to include the information in the financial
statements because it may have a negative impact on the
company's stock price?
All – (Public hearings are held on proposed accounting What is due process in the context of standard setting at the
standards. IASB?
c. FASB operates in full view of the public.
d. Interested parties can make their views known.)
Imprest system Under the ___, the petty cash fund is replenished by writing
a check equal to the payments that have been made.
Income and expenses, assets and liabilities are Under generally accepted accounting principles
measured based on the occurrence of changes in the
economic resources and obligations.
c. it provides a better indication of ability to generate Accrual accounting is used because
cash flows than the cash basis.
The petty cash custodian Who is responsible, at all times, for the amount of the petty
cash fund?
c. Transfers journal entries to the ledger accounts. Which of the following best describes posting?

a. Funds in a bank account that can't be spent. Compensating balances represents;

c. AIS No.1 (Presentation of Financial Statements) Which of the following authoritative iGAAP guidance
specifically addresses issues related to cash?
journal An accounting record where a company initially records
transactions and selected other events is called the;
b. Always involves the legal restriction on the Which is INCORRECT about compensating balance
compensating cash balance. agreement?

SEC Companies that are listed on a stock exchange are required

to submit their financial statements to the
Internal Control This is defined as the plan of organization and all the
methods and measures adopted within an entity to
 safeguard assets, check the accuracy of accounting data,
promote operational efficiency, and encourage adherence
to managerial policies
Financial Instrument Is any contract that gives rise to a financial asset of one
entity and a financial liability or equity instrument of
another entity.
b. Can be used to uncover errors in journalizing and The trial balance
posting.
Money market checking accounts Which of the following should be considered cash?
c. Charging bad debts with percentage of sales for Which of the following methods of determining bad debt
that period expense most closely matches expense to revenue?

When the direct write-off method of recognizing bad debt

c. Decrease the accounts receivable balance and
expense is used, the entry to write off a specific customer
decrease net income
account would
Which of the following best describes a non-interest
a. Includes an unspecified principal amount and an
bearing note receivable?
unspecified interest amount

Long-term notes receivable which nominally bear no

c. Present value
interest or an interest which is unreasonably low shall be
recognized initially at

A debit balance in the allowance for doubtful accounts

a. May occur before year-end adjustment for
uncollectibles

Non trade receivables are classified as current assets

d. Within one year, the length of the operating cycle only if they are reasonably expected to be realized in
notwithstanding cash

After being held for 30 days, a 90-day 10% interest

d. 60 days at 12% bearing note was discounted at a bank at 12%: Discount
will be based on;

Which of the following methods of determining bad debt

b. Charging bad debts as accounts are written off as
expense does not match expense and revenue?
uncollectible

On July 1, 2017, an entity obtained a two-year 8% note

a. 4% of the face value of the note
receivable for services rendered. At that time, the market
rate of interest was 10%. The face amount of the note
and the entire amount of interest are due on June 30,
2019. Interest receivable on December 31, 2017 was

If there is an evidence that an impairment loss on loan

b. Excess of the carrying amount of the loan
receivable has been incurred, the amount of the loss is
receivable over the present value of the cash flows
equal to the;
related to the loan.

What is an imputed interest?

a. Interest based on implicit rate

This is called the balance sheet approach in accounting

b. Percentage of receivables
for doubtful accounts expense

Which of the following is not recognized for financial

c. Trade discounts
 accounting purposes?

Doubtful Accounts Expense is treated as a/an

d. Operating expense

When the stated rate is greater than the market rate, the
a. Premium
note is at (a)

When the stated rate is less than the market rate, the
b. Discount
note is at (a)

A 90-day 15% interest-bearing note receivable is sold to a

a. The face value of the note
bank without recourse after being held for 60 days. The
proceeds are calculated using a 12% interest rate. The
amount credited to note receivable at the date of the
discounting transaction would be

It violates the matching principle because the bad debt

a. Direct write-off method
loss is often recognized in later accounting period than
the period in which the sales revenue was recognized.

Subsequent to the date of the note or the draft, the

d. Face value plus accrued interest present value of an interest-bearing note is equal to

The date when the note is due and payable

b. Maturity date

Entries for bad debt expense. Entries for bad debt expense.
A trial balance before adjustment included the A trial balance before adjustment included the following:
following:
Debit Credit
Debit Credit
Accounts receivable 80,000
Accounts receivable 80,000
Allowance for doubtful
Allowance for doubtful accounts 730
accounts 730
Sales
Sales 340,000
340,000
Sales returns and allowances 8,000
Sales returns and allowances 8,000

Give journal entries assuming that the estimate of

Give journal entries assuming that the estimate of uncollectibles is determined by taking:
uncollectibles is determined by taking:
A. 5% of gross accounts receivable
A. 5% of gross accounts receivable

Bad Debt Expense

Bad Debt Expense
3,270

Allowance for Doubtful Accounts

Allowance for Doubtful Accounts
3,270
 4,000 Gross receivables
Gross receivables
5%">5% Rate
Rate
3,270 Total allowance needed
Total allowance needed
4,000 Present allowance
Present allowance
(730) Adjustment needed
Adjustment needed
B. 1% of net sales.
B. 1% of net sales.
Bad Debt Expense
Bad Debt Expense
3,320

Allowance for Doubtful Accounts

Allowance for Doubtful Accounts
3,320

Sales
Sales
8,000 Sales returns and allowances
Sales returns and allowances
332,000 Net sales
Net sales
1% Rate
Rate
3,320 Bad debt expense
Bad debt expense
Check

Accounts receivable in the amount of 250,000 were Accounts receivable in the amount of 250,000 were
assigned to the Fastfood Finance Company by assigned to the Fastfood Finance Company by
Marshmallow, Inc., as security for a loan of 200,000. Marshmallow, Inc., as security for a loan of 200,000. The
The finance company charged a 4% commission on finance company charged a 4% commission on the face
the face amount of the loan, and the note bears amount of the loan, and the note bears interest at 9% per
interest at 9% per year. year.
During the first month, Marshmallow collected During the first month, Marshmallow collected 130,000 on
130,000 on assigned accounts. This amount was assigned accounts. This amount was remitted to the
remitted to the finance company along with one finance company along with one month's interest on the
month's interest on the note. note.
Instructions Instructions
Make all the entries for Marshmallow Inc. associated Make all the entries for Marshmallow Inc. associated with
with the transfer of the accounts receivable, the loan, the transfer of the accounts receivable, the loan, and the
and the remittance to the finance company.
 remittance to the finance company.
192,000

Cash
8,000 Cash
Finance Charge
Notes Payable Finance Charge
200,000
Notes Payable

130,000

Cash
Accounts Receivable Cash
130,000
Accounts Receivable

130,000

Notes Payable
1,500 Notes Payable
Interest Expense
Cash Interest Expense
131,500
Cash

On December 31, 2017, Green Lantern Company On December 31, 2017, Green Lantern Company
finished consultation services and accepted in finished consultation services and accepted in exchange
exchange a promissory note with a face value of a promissory note with a face value of 400,000, a due
400,000, a due date of December 31, 2020, and a date of December 31, 2020, and a stated rate of 5%, with
stated rate of 5%, with interest receivable at the end interest receivable at the end of each year. The fair value
of each year. The fair value of the services is not of the services is not readily determinable and the note is
readily determinable and the note is not readily not readily marketable. Under the circumstances, the note
marketable. Under the circumstances, the note is is considered to have an appropriate imputed rate of
considered to have an appropriate imputed rate of interest of 10%.
interest of 10%.
The following interest factors are provided:
The following interest factors are provided:

Interest Rate
Interest Rate
Table Factors For Three Periods
Table Factors For Three Periods 5% 10%
5% 10%
Future Value of 1
Future Value of 1 1.15763 1.33100
1.15763 1.33100
Present Value of 1
Present Value of 1 .86384 .75132
.86384 .75132
Future Value of Ordinary Annuity of 1
Future Value of Ordinary Annuity of 1 3.15250 3.31000
3.15250 3.31000
Present Value of Ordinary Annuity of 1
 Present Value of Ordinary Annuity of 1 2.72325 2.48685
2.72325 2.48685

Instructions
Instructions
(a) Determine the present value of the note.
(a) Determine the present value of the note.
350,265 -
-
(b) Prepare a Schedule of Note Discount Amortization
(b) Prepare a Schedule of Note Discount for Green Company under the effective interest method.
Amortization for Green Company under the effective (Round to whole dollars.)
interest method. (Round to whole dollars.)
Green Company
Green Company Schedule of Note Discount Amortization
Schedule of Note Discount Amortization
Effective Interest Method
Effective Interest Method
5% Note Discounted at 10% (Imputed)
5% Note Discounted at 10% (Imputed)

Unamortized
Cash Interest Effective Discount
Unamortized Date 5% Interest 10%
Discount
Balance
Cash Interest Effective Amortized
Date Discount
5% Interest 10%
Amortized
12/31/17 49,735 350,265

12/31/18 20,000 35,027 15,027 35,027 365,292

12/31/19 20,000 36,529 16,529 18,179 381,821

12/31/20 20,000 38,179 18,179 0 400,000

60,000 109,735 49,735

If a note receivable is discounted without recourse

c. Note receivable shall be credited
After being held for 30 days, a 90-day, 15 percent
b. Maturity value less the discount at 18%
interest-bearing note receivable was discounted at a bank
at 18 percent. The proceeds received form the bank upon
discounting would be the:

It pertains to the rate of interest used by the bank in

c. Discount rate
computing discount.

It refers to endorsing a promissory note to a bank or a

a. Discounting
financing company, the latter advancing the maturity
value of the note less a charge called a discount.

The discounted value of the note received by the

b. Proceeds
endorser of the note from the bank is called;

Notes receivable discounted with recourse should be;

a. Excluded from total receivables with disclosure of
the contingent liability

If the factor retains a portion of the purchase price to

a. Receivable from factor
cover probable sales discounts, returns and allowances
such amount is charged to a

Discount The amount of interest earned by the bank is called;

 After being held for 40 days, a 120-day 12% interest-
a. Maturity value less the discount at 15%
bearing note receivable was discounted at a bank at 15%.
The proceeds received from the bank equal

Receivables, as an asset, normally has

d. Debit balance

Is a more formal borrowing arrangement in which specific

c. Assignment of accounts receivable
receivables are identified and used as security for a loan.

Which of the following is required before a transfer of

a. The transferor maintains continuing involvement
receivables can be recorded as a sale?

May Roads sold P50,000 of goods and accepted the

a. Debit Notes Receivable for P50,000
customer's P50,000 10%1-year note receivable in
exchange. Assuming 10% approximates the market rate
of return, what would be the debit in this journal entry to
record the sale?

Customers are instructed to made payments to the

a. Notification basis
assignee and the assignee informs the assignor of the
amount collected

A financing agreement whereby one party formally

b. Assignment
transfers its rights to accounts receivable to another party
in consideration for a loan.

Which of the following is NOT true regarding accounting

a. Transfers of receivables can be treated as a sale if
for transfers of receivables under PFRS?
the transferee is a QSPE.

If accounts receivable are pledge against borrowings, the

c. Included in total receivables with disclosure
amount of accounts receivable pledge shall be;

It is otherwise known as general assignment of accounts

b. Pledge of accounts receivable
receivable

The practice of realizing cash from trade receivables prior

c. Defalcation
to maturity date is widespread. A term which is not
associated with this practice is

Receivable from Factor is also known as

a. Factor holdback

Which of the following is true?

d. The arrangement of having collateral transferred to
a secured party is known as a pledge.

On January 2, year 1, Emo Co. sold equipment with a

b. 45,000
carrying amount of P480,000 in exchange for a P600,000
noninterest-bearing note due January 2, year 4. There
was no established exchange price for the equipment.
The prevailing rate of interest for a note of this type at
January 2, year 1, was 10%. The present value of P1 at
10% for three periods is 0.75.
In Emo's year 1 income statement, what amount should
be reported as interest income?
 A company takes P400,000 of its accounts receivable to
b. If the receivables can be repurchased by the
the local bank and leaves all of the records and
company, the transaction is viewed as a loan.
information there. The company walks out with P340,000
in cash. The company's accountant is trying to determine
whether the receivables have been sold and a P60,000
loss should be reported or whether a P340,000 loan has
been granted by the bank and the receivables are serving
as security. Which of the following statements is true?

P368,000 Wilkinson Corporation factored, with guarantee

(recourse), P400,000 of accounts receivable with Huskie
Financing. The finance charge is 3%, and 5% was
retained to cover sales discounts, sales returns, and sales
allowances. What amount of cash would Wilkinson
receive on the sale of receivables?

Sun Inc. factors P2,000,000 of its accounts receivables

b. Loss of P100,000.
without guarantee (recourse) for a finance charge of 5%.
The finance company retains an amount equal to 10% of
the accounts receivable for possible adjustments. What
would be recorded as a gain (loss) on the transfer of
receivables?

If a transfer of receivables with recourse qualifies to be

d. Reduced by the fair value of the recourse recognized as a sale, the proceeds from the sale are
obligation.

Question text
a. 52,773.
On December 31, 2010, Flintstone Corporation sold for
P75,000 an old machine having an original cost of
P135,000 and a book value of P60,000.
The terms of the sale were as follows:
P15,000 down payment
P30,000 payable on December 31 each of the next two
years
The agreement of sale made no mention of interest;
however, 9% would be a fair rate for this type of
transaction. What should be the amount of the notes
receivable net of the unamortized discount on December
31, 2010 rounded to the nearest peso? (The present
value of an ordinary annuity of 1 at 9% for 2 years is
1.75911.)

Bojun Company assigned its receivable to Joy Bank on a

b. Sale of Bojun's accounts receivable to Joy, with
without-recourse basis. Control was surrendered in the
the risk of uncollectible accounts transferred to Joy
transaction to Joy Bank. Bojun received cash as a result
of the transaction, which is best described as;

On April 1 of the current year, Throw Company factored

c. Debit loss on sale of receivables for P25,000.
receivables with a carrying value of P85,000 for P60,000
in cash from Scratch Lenders. The transfer was made
without recourse. On April 1, Troubled would;

Tay Corp. factored P400,000 of accounts receivable to

b. P365,260
Rick Corp. on July 1, year 2. Control was surrendered by
Tay. Rick accepted the receivables subject to recourse for
nonpayment. Rick assessed a fee of 2% and retains a
 holdback equal to 5% of the accounts receivable. In
addition, Rick charged 15% interest computed on a
weighted-average time to maturity of the receivables of
forty-one days. The fair value of the recourse obligation is
P12,000.

The advantage of relating a company's bad debt expense

d. gives a reasonably correct statement of to its outstanding accounts receivable is that this
receivables in the statement of financial position. approach

Moon Inc. factors P1,000,000 of its accounts receivables

a. P880,000.
with guarantee (recourse) for a finance charge of 4%. The
finance company retains an amount equal to 8% of the
accounts receivable for possible adjustments. What would
be the debit to Cash in the journal entry to record this
transaction?

The standard requires that companies assess their

b. True receivables for impairment each reporting period and
begin the impairment assessment by considering whether
objective evidence indicates that one or more loss events
have occurred.

Which of the following controls most likely would be

d. Employees involved in the credit-granting function effective in offsetting the tendency of sales personnel to
are separated from the sales function. maximize sales volume at the expense of high bad debt
write-offs?

Barry Corp. transferred financial assets to Chop, Inc. The

b. Measure the assets received and liabilities
transfer meets the conditions to be accounted for as a
incurred at cost.
sale. As the transferor, Barry should do each of the
following, except;

Ideally, a company should measure receivables in terms

a. True
of their present value, that is, the discounted value of the
cash to be received in the future.

Which of the following is a method to generate cash from

a. Assignment: Yes Factoring: Yes
accounts receivable?

When a customer purchases merchandise inventory from

a. cash discount.
a business organization, she may be given a discount
which is designed to induce prompt payment. Such a
discount is called a(n)

If accounts receivable are pledged against borrowings,

d. Included in total receivables with disclosure the amount of accounts receivable pledged shall be;

Companies record and report long-term notes receivable

b. True on a discounted basis

In accordance with accounting for transfers and servicing,

c. Description of assets or liabilities with estimable
all of the following would be disclosed except;
fair values.
 Which of the following controls most likely would assure
d. Daily sales summaries are compared to daily that all billed sales are correctly posted to the accounts
postings to the accounts receivable ledger. receivable ledger?

122,500 Vivo, Inc had net sales in 2017 of P700,000. At December

31, 2016, before adjusting entries, the balances in
selected accounts were: accounts receivable P125,000
debit, and allowance for doubtful accounts P1,200 debit.
Vivo estimates that 2% of its net accounts receivable will
prove to be uncollectable. What is the cash realizable
value of the receivables reported on the statement of
financial position at December 31, 2017?

Before year-end adjusting entries, Duncan Company's

a. 537,500.
account balances at December 31, 2010, for accounts
receivable and the related allowance for uncollectible
accounts were P600,000 and P45,000, respectively. An
aging of accounts receivable indicated that P62,500 of
the December 31 receivables are expected to be
uncollectible. The cash realizable value of accounts
receivable after adjustment is

a. A way of pledging them as collateral for a loan. Factoring of accounts receivables is;
b. A way of raising cash quickly.
c. A way of selling them.

The percentage-of-sales method results in a more

b. False accurate valuation of receivables on the balance sheet.

Which of the following methods of determining annual

b. Percentage of sales
bad debt expense best achieves the matching concept?

Which of the following concepts relates to using the

d. Bad debt expense is an estimate that is based on allowance method in accounting for accounts receivable?
historical and prospective information.

Lanky Company has the following account balances at

d. 56,400. year-end:
Accounts receivable 60,000
Allowance for doubtful accounts 3,600
Sales discounts 2,400
Lanky should report accounts receivable at a net amount
of
Tay Corp. factored P400,000 of accounts receivable to
a. P14,740
Rick Corp. on July 1, year 2. Control was surrendered by
Tay. Rick accepted the receivables subject to recourse for
nonpayment. Rick assessed a fee of 2% and retains a
holdback equal to 5% of the accounts receivable. In
addition, Rick charged 15% interest computed on a
weighted-average time to maturity of the receivables of
forty-one days. The fair value of the recourse obligation is
P12,000. Assuming all receivables are collected, Tay's
cost of factoring the receivables would be;

Term bonds When all bonds mature on a single date, they are called;
True In accordance with PFRS 9, bond investments are
recognized initially at fair value plus transaction cost that
are directly attributable to the acquisition.

When an entity has acquired a "passive interest" in

b. By using the fair value method
another entity, the acquiring entity should account for the
investment

False Stock dividends affect the total cost of the investment

Investments that are readily realizable and are intended

b. Current investments
to be held for not more than one year

True Investment in bonds shall be measured subsequently at

amortized cost.

In addition to financial assets at fair value through profit or

d. Available for sale financial assets loss, which of the following categories of financial assets
is measured at fair value?

Date on which the payment of dividends is approved by

d. Date of declaration the BOD

The term used for bonds that are unsecured as to

b. debenture bonds
principal is

True Transaction costs attributable to the acquisition of bond

investments held for trading or at fair value through profit
or loss are expenses immediately.

0 On January 2, 2016, Lovely, Inc. acquired a 15% interest

in CPS Corp. by paying P8,000,000 for 100,000 ordinary
shares. On this date, the net assets of CPS Corp totaled
P40,000,000. The fair values of CPS corp.'s identifiable
assets and liabilities were equal to their book values.
Lovely did not have the ability to exercise significant
influence over the operating and financial policies of CPS.
Lovely received dividends of P1.40 per share from CPS
on October 1, 2016. CPS reported net income of
P5,000,000 for the year ended December 31, 2016.
Lovely classified the investment as at fair value through
other comprehensive income. Market price for the
100,000 shares was P9,000,000 on December 31, 2016.
Lovely paid P30,000,000 on January 1, 2017 for 300,000
additional CPS ordinary shares, which represents a 25%
interest in CPS. The fair value of CPS Corp.'s identifiable
assets, net of liabilities, was equal to their book values of
P92,000,000. As a result of this additional acquisition,
Lovely has the ability to exercise significant influence over
the operating and financial policies of CPS. Lovely
received a dividend of P2.70 per share on October 5,
2017. CPS reported net income of P6,000,000 for the
year ended December 31, 2017. The investment's fair
value on December 31, 2017, is P45,000,000.
What amount of gain on remeasurement to equity should
be reported in the 2017 income statement?
 On January 2, 2016, Lovely, Inc. acquired a 15% interest
b. P9,000,000
in CPS Corp. by paying P8,000,000 for 100,000 ordinary
shares. On this date, the net assets of CPS Corp totaled
P40,000,000. The fair values of CPS corp.'s identifiable
assets and liabilities were equal to their book values.
Lovely did not have the ability to exercise significant
influence over the operating and financial policies of CPS.
Lovely received dividends of P1.40 per share from CPS
on October 1, 2016. CPS reported net income of
P5,000,000 for the year ended December 31, 2016.
Lovely classified the investment as at fair value through
other comprehensive income. Market price for the
100,000 shares was P9,000,000 on December 31, 2016.
Lovely paid P30,000,000 on January 1, 2017 for 300,000
additional CPS ordinary shares, which represents a 25%
interest in CPS. The fair value of CPS Corp.'s identifiable
assets, net of liabilities, was equal to their book values of
P92,000,000. As a result of this additional acquisition,
Lovely has the ability to exercise significant influence over
the operating and financial policies of CPS. Lovely
received a dividend of P2.70 per share on October 5,
2017. CPS reported net income of P6,000,000 for the
year ended December 31, 2017. The investment's fair
value on December 31, 2017, is P45,000,000.
In the December 31, 2016, statement of financial position,
what is the carrying amount of the investment in equity
securities?
On January 2, 2016, Lovely, Inc. acquired a 15% interest
c. P140,000
in CPS Corp. by paying P8,000,000 for 100,000 ordinary
shares. On this date, the net assets of CPS Corp totaled
P40,000,000. The fair values of CPS corp.'s identifiable
assets and liabilities were equal to their book values.
Lovely did not have the ability to exercise significant
influence over the operating and financial policies of CPS.
Lovely received dividends of P1.40 per share from CPS
on October 1, 2016. CPS reported net income of
P5,000,000 for the year ended December 31, 2016.
Lovely classified the investment as at fair value through
other comprehensive income. Market price for the
100,000 shares was P9,000,000 on December 31, 2016.
Lovely paid P30,000,000 on January 1, 2017 for 300,000
additional CPS ordinary shares, which represents a 25%
interest in CPS. The fair value of CPS Corp.'s identifiable
assets, net of liabilities, was equal to their book values of
P92,000,000. As a result of this additional acquisition,
Lovely has the ability to exercise significant influence over
the operating and financial policies of CPS. Lovely
received a dividend of P2.70 per share on October 5,
2017. CPS reported net income of P6,000,000 for the
year ended December 31, 2017. The investment's fair
value on December 31, 2017, is P45,000,000.
What is the total amount of investment-related income
that should be reported in the 2016 income statement?
On January 2, 2016, Lovely, Inc. acquired a 15% interest
a. P40,320,000
in CPS Corp. by paying P8,000,000 for 100,000 ordinary
shares. On this date, the net assets of CPS Corp totaled
P40,000,000. The fair values of CPS corp.'s identifiable
assets and liabilities were equal to their book values.
Lovely did not have the ability to exercise significant
 influence over the operating and financial policies of CPS.
Lovely received dividends of P1.40 per share from CPS
on October 1, 2016. CPS reported net income of
P5,000,000 for the year ended December 31, 2016.
Lovely classified the investment as at fair value through
other comprehensive income. Market price for the
100,000 shares was P9,000,000 on December 31, 2016.
Lovely paid P30,000,000 on January 1, 2017 for 300,000
additional CPS ordinary shares, which represents a 25%
interest in CPS. The fair value of CPS Corp.'s identifiable
assets, net of liabilities, was equal to their book values of
P92,000,000. As a result of this additional acquisition,
Lovely has the ability to exercise significant influence over
the operating and financial policies of CPS. Lovely
received a dividend of P2.70 per share on October 5,
2017. CPS reported net income of P6,000,000 for the
year ended December 31, 2017. The investment's fair
value on December 31, 2017, is P45,000,000.
What is the carrying amount of the investment in
associate on December 31, 2017?
On January 2, 2016, Lovely, Inc. acquired a 15% interest
b. P2,200,000
in CPS Corp. by paying P8,000,000 for 100,000 ordinary
shares. On this date, the net assets of CPS Corp totaled
P40,000,000. The fair values of CPS corp.'s identifiable
assets and liabilities were equal to their book values.
Lovely did not have the ability to exercise significant
influence over the operating and financial policies of CPS.
Lovely received dividends of P1.40 per share from CPS
on October 1, 2016. CPS reported net income of
P5,000,000 for the year ended December 31, 2016.
Lovely classified the investment as at fair value through
other comprehensive income. Market price for the
100,000 shares was P9,000,000 on December 31, 2016.
Lovely paid P30,000,000 on January 1, 2017 for 300,000
additional CPS ordinary shares, which represents a 25%
interest in CPS. The fair value of CPS Corp.'s identifiable
assets, net of liabilities, was equal to their book values of
P92,000,000. As a result of this additional acquisition,
Lovely has the ability to exercise significant influence over
the operating and financial policies of CPS. Lovely
received a dividend of P2.70 per share on October 5,
2017. CPS reported net income of P6,000,000 for the
year ended December 31, 2017. The investment's fair
value on December 31, 2017, is P45,000,000.
What is the goodwill arising from the acquisition of
additional 300,000 shares on January 1, 2017?
When an insurance policy has a coinsurance clause, the
b. Book value of the asset.
minimum amount recoverable by the insured is never
limited by the;

Stock dividends on common stock should be recorded at

c. Cost (No); Equity (No)
their fair market value by the investor when the related
investment is accounted for under which of the following
methods?

Michael owns 10% of the common stock of Maine Co.

d. be paid 10% of the firms profits in cash each year. throughout the year. Maine Co. has no preferred stock
outstanding. Michael as stock gives him the right to
 An independent trustee holds cash in the sinking fund
b. The entire balance in the sinking fund is classified
account representing the annual deposits to the fund and
as noncurrent asset.
interest earned on these deposits. How should the sinking
fund be classified in the balance sheet?

What is the effective interest rate of a bond measured at

b. The interest rate that exactly discounts estimated
amortized cost?
future cash payments through the expected life of the
bond or when appropriate, a shorter period to the net
carrying amount of the bond

If the excess of the acquisition cost of an investment

c. The carrying amount of the investment is
accounted for under equity method over the book value of
increased by the proportionate share in the profits
net assets acquired is attributable to an undervalued
earned by the investee and decreased by the
depreciable asset and an unidentifiable asset, which of
depreciation of the interest in the undervaluation and
the following statements is correct
unaffected by the separate impairment of the
unidentifiable asset.

Bliss Co. uses the equity method to account for its

d. As a memorandum entry reducing the unit cost of investment in Nirvana, Inc. common stock. How should
all Nirvana stock owned. Bliss record a 2% stock dividend received from Nirvana?

Adjustments to the carrying amount of the investment in

b. Changes in the actuarial gains and losses of the
associate may be necessary for changes in the investors
associate not amortized through the corridor
proportionate interest in the investee arising from
approach.
changes in the investees equity that have not been
recognized in the investees profit or loss. Which of the
following may not necessitate an adjustment to the
investment in associate account?

What should happen when the financial statements of an

c. The associate should prepare financial statements
associate are not prepared to the same date as the
for the use of the investor at the same date as those
investors accounts?
of the investor

Derivative It is a financial instrument that derives its value from

another underlying item such as a share price, exchange
rate or interest rate.

Which of the following observations is not consistent with

c. Investee dividends from earnings since acquisition
the cost method of accounting?
by investor are treated as reduction of investment

Information concerning Atis Co.s portfolio of debt

b. Be recognized in other comprehensive income by
securities at December 31, 2019, and December 31,
a year-end credit of 24,015.
2020, are shown below. These debt securities were
purchased by Atis Co. during 2019. Prior to January 1,
2019, Atis Co. had non investments in debt or equity
securities. As of December 31, 2019 Amortized cost Fair
value Cloning Co. bonds 493,578 442,800 Blooming
Corp. bonds 614,892 613,500 Maalindog, Inc. bonds
917,355 874,200 Totals 2,025,825 1,930,500 Assuming
that the above securities are property classified as
available-for-sale securities under PAS 39 (Financial
Instruments: Recognition and Measurement), the
unrealized gain or loss as of December 31, 2020, would;
 On June 1, P400,000 of bonds were purchased as a long-
a. 388,500
term investment at 97 and P500 was paid as the
brokerage commission. If the bonds bear interest at 12%,
which is paid semiannually on January 1 and July 1, what
is the total cost to be debited to the investment account?

Unamortized debt discount shall be reported in the

a. Direct deduction from the face value of the debt
balance sheet of the issuer as a

The Folk Arts Development Trading Co. has P1,250,000

d. Balance sheet as a non-current item. appropriated for land acquisition and site development.
The accountant should reflect this sum on his financial
statement. On the

Unamortized debt discount shall be reported in the

b. Direct deduction from the face value of the debt
balance sheet of the issuer as a

b. The cost method of accounting for an investment Incorrect statement

in a subsidiary recognizes the legal fact that the
parent and subsidiary are one economic unit.

What is the effective interest rate of a bond measured at

c. The interest rate that exactly discounts estimated
amortized cost?
future cash payments through the expected life of the
bond or when appropriate, a shorter period to the net
carrying amount of the bond

The Tomas Corporation issues 1,000, 10-year bonds, 8%,

c. debit to Cash for P970,000.
P1,000 bonds dated January 1, 2017, at 97. The journal
entry to record the issuance will show a

Bonds Payable has a balance of P1,000,000 and

a. P2,000 loss
Premium on Bonds Payable has a balance of P8,000. If
the issuing corporation redeems the bonds at 101, what is
the amount of gain or loss on redemption?

The proceeds from bonds issued with nondetachable

a. Partly as bonds payable and partly as
share warrants shall he accounted for
shareholders equity

One potential advantage of financing corporations

d. the interest expense is deductible for tax purposes through the use of bonds rather than common stock is
by the corporation

Which is true about fair value option?

a. Reports all gains and losses in income

The journal entry a company records for the payment of

d. debit Interest Expense and Premium on Bonds interest, interest expense, and amortization of bond
Payable, credit Cash premium is

The present value of P30,000 to be received in two years,

d. 23,916 at 12% compounded annually, is (rounded to nearest
peso)

If an investors ownership interest in an associate is

c. the investor shall reclassify to profit or loss or
reduced but significant influence is not lost
directly in equity only a proportionate amount of the
gain or loss previously recognized in other
comprehensive income.

When the company pays insurance premium on a life

c. ignored.
insurance policy of an officer and the officer or his heirs
are the designated beneficiary, any cash surrender value
is

When significant influence is achieved from additional

a. the previous investment is measured at
purchase of shares resulting to an increase in ownership
acquisition-date fair value and any difference
interest,
between this amount and the previous carrying
amount is recognized immediately in profit or loss or
other comprehensive income, as appropriate.

In January 1, 2003 Cameron Company established a

c. P364,000 should appear as a noncurrent asset
sinking fund with its issue of bonds due in 2013. A bank
was appointed as an independent trustee of the fund. On
December 31, 2009, the trustee held P364,000 cash in
the sinking fund account representing P300,000 in annual
deposits to the fund and P64,000 of interest earned on
those deposits. How should the sinking fund be reported
in Cameron's balance sheet at December 31, 2009?

Which of the following may provide evidence of significant

c. any of these
influence even if the percentage of ownership interest is
less than 20%?
I Representation on the board of directors or equivalent
governing body of the investee.
II Participation in policy-making processes, including
participation in decisions about dividends or other
distributions.
III Material transactions between the investor and the
investee.
IV Interchange of managerial personnel.
V Provision of essential technical information.
Select one:

Which of the following computations may properly result

c. Beginning balance of investment plus share in
to the correct balance of an investment in associate
associates profit minus share in dividends declared
account at year-end?
by associate, and minus amortization of share in
undervaluation of associates asset.

Interest in life insurance contract should be carried at

b. Cash surrender value

In its financial statements, Pulham Corp. uses the equity

a. The total receivable should be disclosed
method of accounting for its 30% ownership of Angles
separately.
Corp. At December 31, 2010, Pulham has a receivable
from Angles. How should the receivable be reported in
Pulham's 2010 financial statements?

When an entity has acquired a "passive interest" in

b. By using the fair value method
another entity, the acquiring entity should account for the
investment

If a sinking fund is used to purchase securities, the

b. Increases when revenue is earned on the
sinking fund
securities

An entity neglected to amortize the premium on

a. Overstate and overstate
outstanding bonds payable. What is the effect of the
failure to record premium amortization on interest
expense and bond carrying value, respectively?

Which statement is correct about the effective interest

c. The effective interest method applies the effective
method of amortization?
interest rate to the beginning carrying amount for
each interest period.

Which of the following is not a long-term investment?

b. Franchise.

Philip, Inc. acquires 10% of Erwin Corporation on January

d. A debit of P16,500. 1, 2012, for P90,000 when the book value of Erwin was P
1,000,000. During 2012, Erwin reported net income of
P215,000 and paid dividends of P50,000. On January 1,
2013, Philip purchased an additional 30% of Erwin for
P325,000. Any excess of cost over book value is
attributable to goodwill with an indefinite life. During 2013,
Philip reported net income of P320,000 and paid
dividends of P50,000.
How much is the adjustment to the Investment in Erwin
Corporation for the change from the fair-value method to
the equity method on January 1, 2013?
Long-term debt that matures within one year and is to be
c. as noncurrent and accompanied with a note
converted into stock should be reported
explaining the method to be used in its liquidation

The book value of the XYZ Trading’s inventory at year

end of 2016 is P9, 500, 000. Included in the amount are
the following items:

1. Merchandise in transit, purchased FOB shipping

point, P680, 000
2. Goods held on consignment, P500, 000
3. Goods out on consignment, at cost plus 50%
mark up on cost plus P10, 000 delivery charge,
P610, 0000

Required: What is the correct amount of inventory?

8 800 000

The correct amount of inventory is

ABC Company regularly buys merchandise from DEF Co.

and is allowed a trade discount of 20% from the list price.
Crossings made a purchase on March 20, 2016, and
received an invoice with a list price of P150, 000, a freight
charge of P2, 500, and payment terms of net 30 days.

Required: What is the total cost of merchandise

purchased?
 122 500

The total cost of merchandise is

Flint Co. records purchase discounts lost and uses

perpetual inventories. Prepare journal entries in general
journal form for the following:

(a) Purchased merchandise costing 900 with terms

2/10, n/30.
(b) Payment was made thirty days after the purchase.

Required: What is the correct Accounts Payable (a) and

Purchase Discounts Lost (b)?
882

(a) Accounts Payable

18

(b) Purchase Discounts Lost

An entity owns and manages a hotel. Services provided

c. Owner-occupied property
to guests are a significant component of arrangement as
a whole. In such a case, the hotel is classified as

The inventory of a service provider may simply be

c. Work in progress
described as

After initial recognition, investment property held by an

b. fair value model.
entity shall be valued using either the cost model or the

Which of the following is not considered investment

d. Land to be leased out under a finance lease. property?

An investment property is recognized when I. It is

a. Both I and II
probable that the future economic benefits that are
associated with the investment property will flow to the
enterprise. II. The cost of the investment property can be
measured reliably.

Inventories are presented as ______________ in the

c. Asset
Statement of Financial Position.

2 Accounting for Inventories are covered by International

Accounting Standards _______?

Goods purchased in transit which are shipped with terms

d. Included in the inventory of the buyer FOB shipping point should be;

The cost of inventories of a service provider consists

d. Labor and other cost of personnel directly primarily of
engaged in providing the service, including
supervising personnel and attributable overhead

Which of the following should not form part of the cost of

a. Abnormal amounts of wasted material, labor, or
investment property?
other resources incurred in developing the property.

Partially correct Shown below is an amortization schedule related to Ang

Company’s 5 year, P500,000 bond with 7% interest rate
and a 5% yield, purchased on December 31, 2016, for
P543,300.
Date Interest Interest Premium Carrying
received income amortization amount
12/31/16 P543,300
12/31/17 P35,000 P27,165 P7,835 535,465
12/31/18 35,000 26,773 8,227 527,238
12/31/19 35,000 26,362 8,638 518,600
12/31/20 35,000 25,930 9,070 509,530
12/31/21 35,000 25,470 9,530 500,000
The following shows a comparison of the amortized cost
and fair value of the bonds at year end:

Amortized cost Fair value

December 31, P535,465 P532,500
2017
December 31, 527,328 537,500
2018
December 31, 518,600 528,250
2019
December 31, 509,530 515,000
2020
December 31, 500,000 500,000
2021
Questions:
1. Prepare journal entry to record the purchase of these
bonds on December 31, 2016, assuming the bonds are
held as financial assets at amortized cost.
Answer:
December 31, 2016
Investment in bonds

543,300

Cash
 543,300

2. Prepare the journal entry(ies) related to these bonds

for 2017.
Answer:
December 31, 2017
Cash

35,000

Interest income

27,165

Investment in bonds

7,835

3. Prepare the journal entry(ies) related to these bonds

for 2019.
Answer:
December 31, 2019
Cash

35,000

Interest income

26,362

Investment in bonds

8,638

4. What should be reported as the carrying amount of

these bonds in the statement of financial position on
December 31, 2020?
Answer:
Investment in bonds, at amortized cost
Interest income

wrong On June 30, 2016, Gab Company purchased 25% of the

outstanding ordinary shares of IB Co. at a total cost of
P2,100,000. The book value of IB Co.’s net assets on
acquisition date was P7,200,000. For the following
 reasons, Gab was willing to pay more than book value for
the IB Co. shares:

 IB Co. has depreciable assets with a current fair

value of P180,000 more than their book value.
These assets have a remaining useful life of 10
years.
 IB Co. owns a tract of land with a current fair
value of P900,000 more than its carrying amount.
 All other identifiable tangible and intangible assets
of IB Co. have current fair values that are equal to
their carrying amounts.

IB Co. reported net income of P1,620,000, earned evenly

during the current year ended December 31, 2016. Also
in the current year, it declared and paid cash dividends of
P315,000 to its ordinary shareholders. Market value of IB
Co.’s ordinary shares at December 31, 2016 is P9 million.
Cabbage Company’s financial year-end is December 31.
Questions:
1. What is the total amount of goodwill of IB Co. based on
the price paid by Gab Company?
P140 000

Answer:
2. What amount of investment income should Gab report
in its income statement for the year ended December 31,
2016, under the equity method?
P150 000

Answer:
3. Under the equity method, the carrying value of Gab
Company’s investment in ordinary shares of IB Co. on
December 31, 2016 should be
P3 222 500

Answer:
4. What amount should Gab Company report in its
December 31, 2016, statement of financial position as its
investments in IB Co. under the fair value method?
P3 222 500

Answer:

wrong On January 1, 2016, an entity purchased marketable

equity securities not qualifying as financial asset held for
trading. The entity elected to present changes in fair vake
as component of other comprehensive income.
On December 31, 2016, the securities have the following
cost and market value:

Cost Market
Security A 1,000,000 1,100,000
Security B 2,000,000 2,700,000
 Security C 3,000,000 2,800,000
6,000,000 6,600,000
1. What is the entry to record the unrealized gain or loss?
Cash

1,100,000

Financial asset-OCI

1,100,000

Cost Market Gain(Loss)

Security 1,000,000 1,100,000 100,000
A
Security 2,000,000 2,700,000 600,000
B
Security 3,000,000 2,800,000 700,000
C
6,000,000 6,600,000 1,400,000

2. On July 1, 2017, Security A was sold for P1,400,000.

What is the journal entry to record the sale?
Cash

1,400,000

Financial asset-OCI

1,100,000

Financial asset-FVOCI

300,000

The unrealized gain of P100,000 related to Security A is

transferred to retained earnings.
Cash

1,100,000

Unrealized gain-OCI
Partially correct Axel Company buys and sells securities expecting to earn
profits on short-term differences in price. During 2016,
Axel Company purchased the following trading securities:
Security Cost Fair Value
(Dec. 31, 2016)
A P195,000 P225,000
B 300,000 162,000
C 660,000 678,000
Before any adjustments related to these trading
securities, Axel Company had net income of
P900,000.
What is Axel’s net income after making any necessary
trading security adjustments?

Net income before trading security adjustment

P900,000

Unrealized loss (P1,155,000-P1,065,000)

(P90,000)

Net income, as adjusted

P810,000

Fair Value
Secur
Cost (Dec. 31,
ity
2016)
A P195,000 P225,000

B P300,000 P162,000

C P660,000 P678,000

Total P1,155,000 P1,065,000

WRONG ndicate in each of the spaces provided the effect of the

described errors on the various elements of a company's
financial statements. Use the following codes: O =
amount is overstated; U = amount is understated; NE =
no effect. Assume a periodic inventory system.
Required: Please use Uppercases (Capital Letters) in
answering
Account Inventory Accounts Sales Cost
Payable of
Receivable
Sales
Excluded NE U NE NE O
goods in rented
warehouse
from inventory
 count
a. Goods in
transit shipped
"f.o.b.
destination" by
supplier were
recorded as a
purchase but
were excluded
from ending
inventory
b. Goods held O NE O O
on
consignment
were included
in inventory
count and
recorded as a
purchase
c. Goods in NE O NE NE O
transit shipped
"f.o.b. shipping
point" were not
recorded as a
sale and were
included in
ending
inventory.
d. Goods were NE O NE U O
shipped and
appro-priately
excluded from
ending
inventory but
sale was not
recorded.

FIFO = 35400; AVERAGE COST = 31900

Mark up ________________ is an increase in the selling price
over the original retail price.

______________ is the estimated selling price in the

d. Net realizable value ordinary course of business less the estimated costs of
completion and the estimated costs necessary to make
the sale.

How is a significant amount of consignment inventory

a. The inventory is reported separately on the
reported in the statement of financial position?
consignor's statement of financial position.

Generally, the lower of cost and net realizable value test

d. item-by-item basis should generally be applied on:

a. Specific identification The cost of inventory shall be measured using

b. All of the choices
c. FIFO
d. Average method

The pricing of issues from inventory must be deferred

d. Weighted-average. until the end of the accounting period under which of the
following methods of inventory valuation?

Assume that employees confessed to a $500,000

c. Classified as a loss and shown as a separate line
inventory theft but are not able to make restitution. How
item in the income statement.
should this material fraud be shown in the company's
financial statements?

______________ is a decrease in the selling price which

b. Markup Cancellation
does not bring the new selling price below the original
retail.

The possible causes of the inventory cost becoming not

a. Controllers' budget
recoverable includes

Which of the following is a characteristic of a perpetual

c. Cost of goods sold is recorded with each sale.
inventory system?

Using the information in no. 41, what is the cost of sales

b. 1,600,000
for the sales on January to March?

Which of the following attributes would not be used to

b. Present value of future cash flows.
measure inventory?

Which of the following inventories carried by a

d. Finished goods. manufacturer is similar to the merchandise inventory of a
retailer?

Groh Co. recorded the following data pertaining to raw

d. 9.00 material X during January 2016:
Date Received Cost Issued On hand
1/1/16 Inventory 8.00 3,200
1/11/16 Issue 16,000 1,600
1/22/16 Purchase 4,000 9.4 5,600
The moving-average unit cost of X inventory at January
31, 2016 is
Blanco Company purchased 200 of the 1,000 outstanding
a. P300,000.
shares of Darby Company's common stock for P300,000
on January 2, 2010. During 2010, Darby Company
declared dividends of P50,000 and reported earnings for
the year of P200,000.
If Blanco Company used the fair value method of
accounting for its investment in Darby Company, its
Investment in Darby Company account on December 31,
2010 should be
On March 31, 2016, the store inventory of Gotesco was
b. 500,000
destroyed by fire. The following information was obtained
from available records:
Inventory , December 31, 2015 600,000
Sales Purchases
January 640,000 400,000
February 750,000 500,000
 March 850,000 600,000
Total 2,240,000 1,500,000
If the gross profit margin is 40% on cost, the inventory
immediately before fire was:

Chess Top uses the periodic inventory system. For the

d. 33,400. current month, the beginning inventory consisted of 200
units that cost 65 each. During the month, the company
made two purchases: 300 units at 68 each and 150 units
at 70 each. Chess Top also sold 500 units during the
month. Using the FIFO method, what is the amount of
cost of goods sold for the month?

On the acquisition date, TJ Company designates

b. 600,000
purchased debt and equity securities as available-for-
sale. TJs intent in buying investment securities is to make
them available for sale when circumstances warrant, not
to earn profit from short-term fluctuations in price, and not
necessarily to hold debt securities to maturity.
TJ Companys fiscal year ends on December 31. No
investments were held by the company at the beginning
of the year. Described below are the companys
investment-related transactions:
2020
March 1 Purchased 30,000 PG, Inc. ordinary shares for
750,000, including brokerage fees and commissions.
April 15 Purchased 1,000,000 of 10% bonds at face value
from OW Corporation.
July 23 Received cash dividends of 60,000 on the
investment in PG, Inc. ordinary shares.
October 15 Received semiannual interest on the
investment in OW Corporations bonds.
October 16 Sold the OW Corporation bonds for
1,100,000.
November 2 Purchased 250,000 ESP Co. preference
shares for 12,500,000, including brokerage fees and
commissions.
December 31 Recorded the necessary adjusting entries
relating to the investments. The market values of the
investments are 30 per share for PG, Inc. and 44 per
share for ESP Co. preference shares.
2021
January 27 Sold half the PG, Inc. shares for 65 per share.
March 2 Sold the ESP Co. preference shares for 78 per
share.
What amount of gain on sale of PG, Inc. shares on
January 27, 2021, should TJ recognize?
During periods of rising prices, when the FIFO inventory
b. result in the same ending inventory as a periodic
cost flow method is used, a perpetual inventory system
inventory system.
would

The following information applied to Howe, Inc. for 2016:

a. 306,000
Merchandise purchased for resale 300,000
Freight-in 8,000
Freight-out 5,000
Purchase returns 2,000
Howe's 2016 inventoriable cost was
 Carlos, Inc. purchased bonds at a discount of 18,400.
c. 41,500
Subsequently, Carlos sold these bonds at a premium of
26,500. Bond discount amortization of 3,400 had been
recorded during the period that Carlos held this bond
investment.
What amount should Carlos, Inc. report as gain on the
sale of these bonds?
Rommel Corp. purchased 40% of Associate Companys
c. 290 million
outstanding ordinary shares on January 2, 2020, for 270
million. The book value of Associate Companys net
assets (shareholders equity) at the purchase date totaled
450 million. Book values and fair values were the same
for all financial statement items except for inventory and
buildings, for which fair values exceeded book values by
12.5 million and 112.5 million, respectively. All inventory
on hand at the purchase date was sold during 2020. The
buildings have average remaining useful lives of 15
years. Associate Company reported net income of 110
million for the year ended December 31, 2020, and paid
cash dividends of 40 million. The fair value of Rommels
investment in associate was 300 million at December 31,
2020.
What is the investment balance at December 31, 2020?
What is the estimated cost of ending inventory in item 43?
a. 44,000

Which of the following items should be included in a

b. None of these.
company's inventory at the statement of financial position
date?

On December 31, 2010, Patel Co. purchased equity

b. P27,000 loss.
securities as trading securities. Pertinent data are as
follows:
Security Cost Fair Value At 12/31/11
A P132,000 P117,000
B 168,000 186,000
C 288,000 258,000
On December 31, 2011, Patel transferred its investment
in security C from trading to available-for-sale because
Patel intends to retain security C as a long-term
investment. What total amount of gain or loss on its
securities should be included in Patel's income statement
for the year ended December 31, 2011? {

87,500 The inventory account of Nike Trading at December 31,

2016 included the following items:
Good purchased in transit, FOB Shipping point 130,000
Merchandise out on consignment at sales price (including
markup on 30% cost) 104,000
Goods held on consignment 56,000
Goods out on approval, at sales price (cost, 25,000)
32,500
The inventory at December 31, 2016 should be reduced
by:
Net losses on firm purchase commitments for goods for
a. be recognized in the accounts and separately
inventory result from a contract price that exceeds the
disclosed as a loss on the income statement of the
current market price. If a firm expects that losses will
period during which the decline in price takes place.
occur when the purchase is effected, expected losses, if
 material, should

Costs which are inventoriable include all of the following

b. selling costs of a sales department.
except;

Which of the following is a characteristic of a perpetual

a. Cost of goods sold is recorded with each sale.
inventory system?

Which of the following is a period cost?

d. Selling costs.

Webby uses the average retail method of inventory

b. 55%
valuation. The following information are available:
Cost Retail
January 1 23,000 60,000
Purchases 120,000 220,00
Net markups 20,000
Net markdown 40,000
Total COGAS 143,000 260,000
Sales revenue 180,000
What is the cost to retail ratio:
In a periodic inventory system which uses the FIFO cost
b. Plus the beginning inventory.
flow method, the cost of goods available for sale is net
purchases

A corporation entered into a purchase commitment to buy

d. Describe the nature of the contract in a note to the inventory. At the end of the accounting period, the current
financial statements, recognize a loss in the income market value of the inventory was less than the fixed
statement, and recognize a liability for the accrued purchase price, by a material amount. Which of the
loss. following accounting treatments is most appropriate?

When using the periodic inventory system, which of the

d. Trade discounts applicable to purchases during following generally would not be separately accounted for
the period in the computation of cost of goods sold?

Which of the following is not true about accounting for

c. Inventories are always valued at net realizable
inventory under PAS 2?
value.

The following information was derived from the 2016

d. 639,000 accounting records of Perez Co:
Perez's Central Warehouse Perez's Goods Held by
Consignees
Beginning inventory 130,000 14,000
Purchases 575,000 70,000
Freight-in 10,000
Transportation to consignees 5,000
Freight-out 30,000 8,000
Ending inventory 145,000 20,000
Perez's 2016 cost of sales was?
Which of the following would not be reported as
d. Machinery acquired by a manufacturing company inventory?
for use in the production process

In the books of the consignor, goods out on consignment

c. Included in inventory and excluded from accounts
should be
receivable
 On January 1, 2013, Aldrine Company issued 3 year
b. 559,680
bonds with face value of P5,000,000 at 99. The nominal
rate is 10% and the interest is payable annually on
December 31. Additionally, Aldrine Company paid bond
issue cost of P150,000.
The PV of 1 at 11% for 3 periods is .7312 and the PV of
an ordinary annuity of 1 at 11% for 3 periods is 2.4437.
The present value of the bonds using 11% is:
PV of principal (5,000,000 x .7312) 3,656,000
PV of annual interest payments (500,000 x 2.4437)
1,221,850
Total present value of bonds 4,877,850
The PV of 1 at 12% for 3 periods is .7118, and the PV of
an ordinary annuity of 1 at 12% for 3 periods is 2.4018.
The present value of the bonds using 12% is:
PV of principal (5,000,000 x .7118) 3,559,000
PV of annual interest payments (500,000 x 2.4018)
1,200,900
Total present value of bonds 4,759,900
What is the interest expense for 2013 using the effective
interest method?
Which of the following is a product cost as it relates to
b. Raw materials.
inventory?

Perfect On January 1, 2016, an entity purchased 100 cows which

are 3 years old for P15, 000 each for the purpose of
producing milk for the local community. On July 1, 2016,
the cows give birth to 20 calves.

The active market provided the fair value less cost to sell
of the biological assets as follows:

New born calf on July 1 4,000

New born calf on December 5,000
31
½ year old calf on December 7,000
31
3 years old calf on December 18,000
31
4 years old cow on December 24,000
31

Required:
(a) Prepare all indicated journal entries for 2016
necessary to record all the transactions relating to
biological asset.

(b) Determine the price, physical change and total change

in fair value.
(c) Determine the carrying amount of the biological asset
on December 31, 2016 and indicate the financial
statement presentation of the accounts related to the
biological assets.

(a)
Biological Asset 1,500,000
Cash 1,500,000
To record the acquisition of 100 cows at P15, 000 each or
a total of P1.5 million.

Biological Asset 80,000

Gain from change in fair value 80,000
To record birth of 20 calves with a fair value of P4,000
each or a total of P80,000

Biological Asset 960,000

Gain from change in fair value 960,000
To record the change in fair value of the cows and calves
on December 31, 2016

Cows which are now 4 years old 2 400 000

Calves which are now 1’2 year old 140 000

Total fair value as at December 31 2 540 000

Carrying amount 1 580 000

Change in fair value 960,000

(b)

1. Price Change

4 years old cows 300 000

½ year old calves 20 000

Total price change 320,000

 1. Physical Change

4 years old cows 600 000

½ year old calves 40 000

Newborn, at birth 80 000

Total physical change720,000

Total change in fair 1 040 000

value
Which of the following information shall be disclosed in
b. The aggregate gain or loss arising on the initial
relation to biological assets and agricultural produce?
recognition of biological assets and agricultural
produce and from the change in fair value less cost
to sell of biological assets.

Where there is a production cycle of more than one year,

c. Physical and price change
PAS 41 encourages separate disclosure of the:
Which of the following is not used as basis on determining
d. Appraised value based on an independent the fair value of biological assets:
appraisal

True Agricultural produce is the harvested product of the

entity's biological assets.
Asset Biological assets are presented as ______________ in
the Statement of Financial Position.
An unconditional government grant related to a biological
c. Income when the grant becomes receivable
asset that has been measured at fair value less costs to
sell should be recognized as
The recognition criteria for biological assets and
a. control of assets as a result of a past event
agricultural produce which must be met includes:
b. probable flow of future economic benefit
associated with the asset will flow to the entity
c. All of the choices must be met
d. reliable measurement of fair value or cost

_____________ comprises growth, degeneration,

a. Biological transformation
production, and procreation that cause qualitative or
quantitative changes in a biological asset.
Biological assets is to be measured at _____________
b. Fair value less costs to sell
both on initial recognition and at the end of each reporting
period.
Accounting for Agriculture is covered by International
d. 41 Accounting Standards _______?

Partially correct Determine the proper inventory price per unit in the
following independent cases by applying the lower of cost
or net realizable value rule (NRV).
 1 2 3 4 5
Cost 80 105 120 60 72
Sales Value 100 130 160 65 80
Cost to complete 18 19 21 4 6
Cost to sell 7 10 12 2 5

Answer:

1 2 3 4 5
Cost 80 105 120 60 72
Sales 100 130 160 65 80
Value
Cost to 18 19 21 4 6
complet
e
Cost to 7 10 12 2 5
sell
NRV 75 101 59 61

Partially correct Presented below is information related to Kuchinsky

Company.

Cost Retail
Beginning inventory 280,000 390,000
Purchases 1,820,000 3,000,000
Markups 130,000
Markup cancellations 20,000
Markdowns 47,000
Markdown cancellations 7,000
Sales 3,150,000
Compute the ending inventory using the conventional
retail inventory method.
Answer:

Cost Retail
Beginning 280,000 390,000
inventory
Purchases 1,820,000 3,000,000
 Totals 2,100,000 3,390,000

Markups 130,000
Markup 20,000
cancellations
Add: 110,000
Net markups

Markdowns 47,000
Markdown 7,000
cancellations
Less: 40,000
Net markdowns

Sales 310,000 3,460,000

Less: 3,150,000
Goods available for sale

Ending inventory 310,000

at retail

Cost – to – retail
ratio:

Ending inventory
at cost 188,150

Property, plant and equipment are conventionally

b. Historical cost minus depreciated portion thereof.
presented in the balance sheet at

Which of the following items should be included in the

a. All of the choices should be considered part of the
cost of property, plant, and equipment under IAS 16? (M)
cost of the asset.

The term "betterment" refers to;

c. An expenditure made to improve existing facilities
by increasing "capacity".

Subsequent expenditure relating to an item of property,

d. probable that future economic benefits in excess
of the originally assessed standard of performance of plant and equipment should be added to the carrying
the existing asset will flow to the enterprise. amount of the asset when it is

The carrying amount of property, plant and equipment

c. Amount at which an asset is recognized in the
subsequent to acquisition is the
balance sheet less accumulated depreciation and
accumulated impairment losses thereon

On September 10, 2016, JKL Co. incurred the following

c. P85,000.
costs for one of its printing presses:
Purchase of attachment P55,000
Installation of attachment 5,000
Replacement parts for renovation of press 18,000
Labor and overhead in connection with renovation of
press 7,000
Neither the attachment nor the renovation increased the
estimated useful life of the press. However, the renovation
resulted in significantly increased productivity. What
amount of the costs should be capitalized?
Property, plant and equipment are tangible items that I.
b. Both I and II
Are held for use in production or supply of goods and
services, for rental to others or for administrative
purposes. II. Are expected to be used during more than
one period.

When depreciation is computed for partial periods under

b. determine depreciation expense for the full year
a decreasing charge depreciation method, it is necessary
and then prorate the expense between the two
to
periods involved.

A depreciable asset has an estimated 15% salvage value.

At the end of its estimated useful life, the accumulated
depreciation would equal the original cost of the asset
under which of the following depreciation methods?

A machine with a five-year estimated useful life and an

b. 60% x 60% x 40%.
estimated 10% salvage value was acquired on January 1,
2015. The depreciation expense for 2017 using the
double-declining balance method would be original cost
multiplied by

Which of the following is not dealt with by PAS 41?

c. The processing of agricultural produce after
harvesting

Which of the following is not a condition that must be

b. The interest rate is equal to or greater than the
satisfied before interest capitalization can begin on a
company's cost of capital.
qualifying asset?

Gutierrez Company is constructing a building.

d. P1,850,000. Construction began in 2016 and the building was
completed 12/31/10. Gutierrez made payments to the
construction company of P1,500,000 on 7/1, P3,300,000
on 9/1, and P3,000,000 on 12/31. Average accumulated
expenditures were

true Insurance on equipment purchased, while the equipment

is in transit, is part of the cost of the equipment.
 ______________ is the process of facilitating the
b. Management change
biological transformation by enhancing or stabilizing the
conditions necessary for the process to take place.

Which of the following is unlikely to be used in fair value

d. External independent valuation measurement?

Africa Company purchased 2000 llamas at the beginning

d. 5,300,000 of current year. These llamas will be sheared
semiannually and their wool sold to specialty clothing
manufacturers. The llamas were purchased for P5, 000,
000. During the current year, the change in fair value due
to growth and price changes is P350, 000, the wool
harvested but not yet sold is valued at net realizable
value of P100, 000 and the decrease in fair value due to
harvest is P50, 000.
What is the carrying amount of the biological asset at
year-end?
True Assets purchased on long-term credit contracts should be
recorded at the present value of the consideration
exchanged.

Sutherland Company purchased machinery for P320,000

c. P66,000.
on January 1, 2013. Straight-line depreciation has been
recorded based on a P20,000 salvage value and a 5-year
useful life. The machinery was sold on May 1, 2017 at a
gain of P6,000. How much cash did Sutherland receive
from the sale of the machinery?

Glen Inc. and Armstrong Co. have an exchange with no

c. P15,000
commercial substance. The asset given up by Glen Inc.
has a book value of P12,000 and a fair market value of
P15,000. The asset given up by Armstrong Co. has a
book value of P20,000 and a fair market value of
P19,000. Boot of P4,000 is received by Armstrong Co.
What amount should Armstrong Co. record for the asset
received?
Processing of agricultural produce Biological transformation results from asset changes
through all of the following, except;

According to PAS41 Agriculture, which of the following

b. I, III
expenses would be classified as costs to sell when
valuing biological assets and agricultural produce?
I. Commissions to brokers
II. Transport costs
III. Transfer taxes and duties
IV. Advertising costs

Mendenhall Corporation constructed a building at a cost

b. P237,500.
of P10,000,000. Average accumulated expenditures were
P4,000,000, actual interest was P600,000, and avoidable
interest was P300,000. If the salvage value is P800,000,
and the useful life is 40 years, depreciation expense for
the first full year using the straight-line method is

_____________ is comprised of growth, degeneration,

c. Biological transformation
 production, and procreation that cause qualitative or
quantitative changes in a biological asset

Bearer animals are classified as;

c. Biological asset

On September 10, 2016, Jenks Co. incurred the following

b. P0.
costs for one of its printing presses:
Purchase of attachment 55,000
Installation of attachment 5,000
Replacement parts for renovation of press 18,000
Labor and overhead in connection with renovation of
press 7,000
Neither the attachment nor the renovation increased the
estimated useful life of the press. However, the renovation
resulted in significantly increased productivity. What
amount of the costs should be capitalized?
The cost of land does not include
b. costs of improvements with limited lives.

An active market is a market where all of the following

b. The items traded are heterogeneous
conditions exist, except;

Land that is related to agricultural activity is valued:

b. In accordance with PAS 16, Property, Plant and
Equipment, or PAS 40, Investment Property

Plant assets may properly include

d. none of these.

An entity produces milk for local ice cream producers.

d. 2,150,000
The entity began operations at the beginning of the
current year by purchasing milking cows for P5, 000, 000.
The entity provided the following information at year-end
relating to the milking cows:
Carrying amount, beginning of the year 5,000,000
Change in fair value due to growth and price change
2,000,000
Decrease in fair value due to harvest 250,000
Newborn calf at year-end 400,000
Milk harvested during the year but not sold 850,000
What is the amount of gain on biological asset should be
reported in the current year?

____________ is the detachment of produce from a

a. Harvest
biological asset or the cessation of a biological asset's life
processes.

According to PAS 41, all of the following would be

c. Eggs
classified as biological asset, except,

Which of the following assets do not qualify for

a. ssets not currently undergoing the activities
capitalization of interest costs incurred during construction
necessary to prepare them for their intended use.
of the assets?

Peterson Company purchased machinery for P160,000

c. P33,000
on January 1, 2013. Straight-line depreciation has been
 recorded based on a P10,000 salvage value and a 5-year
useful life. The machinery was sold on May 1, 2017 at a
gain of P3,000. How much cash did Peterson receive
from the sale of the machinery?

Storm Corporation purchased a new machine on October

a. P11,800.
31, 2016. A P1,200 down payment was made and three
monthly installments of P3,600 each are to be made
beginning on November 30, 2016. The cash price would
have been P11,600. Storm paid no installation charges
under the monthly payment plan but a P200 installation
charge would have been incurred with a cash purchase.
The amount to be capitalized as the cost of the machine
on October 31, 2016 would be

Which of the following would be classified as a product

c. Cheese
that is the result of processing after harvest?

Agricultural produce is measured at

a. Fair value less cost to sell at point of harvest

On August 1, 2016, Mendez Corporation purchased a

d. P23,800. new machine on a deferred payment basis. A down
payment of P2,000 was made and 4 annual installments
of P6,000 each are to be made beginning on September
1, 2016. The cash equivalent price of the machine was
P23,000. Due to an employee strike, Mendez could not
install the machine immediately, and thus incurred P300
of storage costs. Costs of installation (excluding the
storage costs) amounted to P800. The amount to be
capitalized as the cost of the machine is

Two independent companies, Hager Co. and Shaw Co.,

d. P150,000. are in the home building business. Each owns a tract of
land held for development, but each would prefer to build
on the other's land. They agree to exchange their land. An
appraiser was hired, and from her report and the
companies' records, the following information was
obtained:
Hager's Land Shaw's Land
Cost and book value P192,000 P120,000
Fair value based upon appraisal 240,000 210,000
The exchange was made, and based on the difference in
appraised fair values, Shaw paid P30,000 to Hager. The
exchange lacked commercial substance.
The new land should be recorded on Shaw's books at
Samson Company applies revaluation accounting to plant
a. Plant assets P750,000.
assets with a carrying value of P800,000, a useful life of 4
years, and no salvage value. Depreciation is calculated
on the straight-line basis. At the end of year 1,
independent appraisers determine that the asset has a
fair value of P750,000. The financial statements for year
one will include the following information:

Samson Company applies revaluation accounting to plant

d. debit to Depreciation Expense for P250,000. assets with a carrying value of P800,000, a useful life of 4
years, and no salvage value. Depreciation is calculated
on the straight-line basis. At the end of year 1,
 independent appraisers determine that the asset has a
fair value of P750,000.
Samson Company applies revaluation accounting to plant
d. debit to Depreciation Expense for P200,000.
assets with a carrying value of P800,000, a useful life of 4
years, and no salvage value. Depreciation is calculated
on the straight-line basis. At the end of year 1,
independent appraisers determine that the asset has a
fair value of P750,000.

All of the following are true regarding the revaluation

c. When an asset is revalued, any increase in
model allowed under GAAP except;
carrying amount is reported as miscellaneous
revenue.

Samson Company applies revaluation accounting to plant

a. credit to Revaluation Surplus for P150,000.
assets with a carrying value of P800,000, a useful life of 4
years, and no salvage value. Depreciation is calculated
on the straight-line basis. At the end of year 1,
independent appraisers determine that the asset has a
fair value of P750,000. The journal entry to adjust the
plant assets to fair value and record revaluation surplus in
year one will include a;

For the sale of a non-current asset held for sale to be

b. The sale should be expected to qualify for
highly probable (choose the incorrect one)
recognition as a completed sale within two years
from the date of classification of the asset as "held
for sale".

An entity shall classify a noncurrent asset or disposal

d. The carrying amount of the asset or disposal group as "held for sale" when
group will be recovered through a sale transaction.

Which of the following is (are) external sources of

a. I and II only.
information on impairment of an asset?
I. Significant decline in market value of an asset which is
more than would be expected as a result of passage of
time or normal use.
II. Significant changes in technological, market, economic,
or legal environment with an adverse effect on the
enterprise or in the market to which the asset is
dedicated.
III. Evidence of obsolescence or physical damage of the
asset.
After initial recognition, an item of PPE may be carried in
a. at revalued amounts, being its fair value at the
the books
date of the revaluation less any subsequent
accumulated depreciation and any subsequent
impairment losses

Under IAS36 Impairment of assets, which ONE of the

d. The amount by which the carrying amount of an following statements best describes the term 'impairment
asset exceeds its recoverable amount loss'?

I. IFRS 5 sets out detailed requirements for the prominent

d. I– True; II – False presentation of amounts relating to non-current assets
held for sale, disposal groups and discontinued
operations.
 II. If a non-current asset (or disposal group) meets the
criteria to be classified as held for sale after the reporting
date but before the financial statements are authorized for
issue, no disclosure were required by the standard.
The following statements pertain to recognition and
a. II only
measurement of an impairment loss. Which statement is
incorrect?
I. An impairment loss is the amount by which the carrying
amount of an asset exceeds its recoverable amount and
should be recognized as an ordinary loss.
II. After the recognition of an impairment loss,
depreciation of the asset for the future periods should be
equal to the revised carrying amount less its residual
value allocated on a systematic basis over its original life.
hen an asset's carrying amount is decreased as a result
d. Recognized in profit or loss of a revaluation, the decrease shall be

Under the reporting requirements for impaired assets,

b. As a component of income from continuing
impairment losses for assets to be held and used shall be
operations.
reported

IAS 16 require that revaluation surplus resulting from

a. Debited to the class of property, plant and
initial revaluation of property, plant and equipment should
equipment that is being revalued and credited to
be treated in which of the following way?
"revaluation surplus", which is presented under
"equity".

Which of the following is a characteristic of intangible

a. They are recorded at cost.
assets?

Grayson Co. incurred significant costs in defending its

c. Litigation costs would be expensed regardless of
patent rights. Which of the following is the appropriate
the outcome of the litigation.
treatment of the related litigation costs?

Which of the following is not a characteristic of all long-

a. Possess physical substance.
term nonmonetary assets?

The cost of a separately acquired intangible asset

d. Directly attributable cost of preparing the asset for comprises its purchase price, including import duties and
its intended use. nonrefundable purchase taxes, and;

An intangible asset that was acquired separately shall

c. Cost
initially be recognized at