FINANCIAL ACCOUNTING AND REPORTING

1. Internally generated goodwill is prohibited from recognition in the financial statements of an entity. The reason for this
treatment is
a. Goodwill is not identifiable
b. Goodwill is not measurable
c. It is not comparable to any other intangible assets
d. It is not prudent to recognize intangible assets

2. Which of the following will not lead to recognizing an equity component?

a. Bond with share warrants
b. Convertible bonds
c. Callable bonds
d. Compound instruments.

3. In rare circumstances, when a pension plan has attributes of both defined contribution and defined benefit plan, it is considered
as
a. Defined benefit plan
b. Defined contribution plan
c. Both defined benefit plan and defined contribution plan
d. Neither defined benefit plan nor defined contribution plan

4. For purposes of computing the weighted average number of shares outstanding in EPS calculation, a midyear event that must be
treated as occurring at the beginning of the year is the
a. Issuance of share warrants
b. Purchase of treasury shares
c. Issuance of share certificates
d. Issuance of new shares from share split

5. An example of a cash flow from an investing activity is

a. Receipt of cash from an owner upon Issuance of stock
b. Payment of cash to an owner to repurchase common stock
c. Receipt of cash from the issuance of bonds payables grit he
d. Payment of cash to purchase bonds of another corporation

6. Which of the following statements regarding reversing entries is incorrect?

a. Deferrals are generally entered in statement of financial position accounts, thus making reversing entries unnecessary.
b. All accruals should be reversed.
c. Adjusting entries for depreciation and bad debts are never reversed.
d. Reversing entries change amounts reported in the statement of financial position for the previous period.

7. Which of the following components of other comprehensive income will be reclassified to profit or loss when specific
conditions are met?
a. Changes in revaluation surplus
b. Remeasurements of defined benefit plan
c. Gains and losses from investment in equity instruments measured at fair value through other comprehensive income
d. The effective portion of gains and losses on hedging instruments in a cash flow hedge

8. Borrowing costs can be capitalized as part of the cost of an asset when

a. The asset is a qualifying asset
b. The asset is a qualifying asset and it is not probable that the borrowing costs will result in future economic benefits to the
entity
c. The asset is a qualifying asset and it is probable that the borrowing costs will result in future economic benefits to the entity
but the costs cannot be measured reliably.
d. The asset is a qualifying asset and it is probable that the borrowing costs will result in future economic benefits to the entity
and the costs can be measured reliably.

9. Which of the following assets could be treated as qualifying asset for the purpose of capitalizing interest costs?
a. Investment property
b. Investments in financial instruments
c. Inventories that are manufactured or produced in large quantity on a repetitive basis and take a substantial period of time
to get ready for use or sale
d. Biological assets

10. When the effective-interest method is used to amortize bond premium or discount, the periodic amortization would
a. Increase if the bonds were issued at a discount.
b. Decrease if the bonds were issued at a premium.
c. Increase if the bonds were issued at a premium.
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 d. Increase if the bonds were issued at either a discount or a premium.

11. Which of the following is a research and development cost?

a. Research and development performed under contract for others
b. Development or improvement of techniques and processes
c. Offshore oil exploration that is the primary activity of an entity
d. Market research related to a major product for the entity

12. Which of the following statements is incorrect regarding internal-use software?

a. The application and development costs should be amortized on a straight line basis unless another systematic and rational
basis is more appropriate.
b. Internal-use software is considered to be software that is marketed as a separate product or as part of a product or process.
c. The costs of testing and installing computer hardware should be capitalized as incurred.
d. The costs of training and application maintenance should be expensed as incurred.

13. An entity shall measure a noncurrent asset or disposal group classified as held for sale at
a. Carrying amount
b. Fair value less cost of disposal
c. Lower of carrying amount and fair value less cost of disposal.
d. Higher of carrying amount and fair value less cost of disposal.

14. What is the presentation of the results from discontinued operation in the income statement?
a. The entity shall disclose a single amount on the face of the income statement below the income from continuing operation.
b. The amount from discontinued operation shall be broken down over each category of revenue and expense.
c. Discontinued operation shall be shown as a movement on retained earnings.
d. Discontinued operation shall be shown as a line item after gross profit with the taxation being shown as part of income tax
expense.

15. Which of the following would result if the current year’s ending inventory is understated in the cost of goods sold calculation?
a. Cost of goods sold would be overstated
b. Total assets would be overstated
c. Net income would be overstated
d. Retained earnings would be overstated

16. Vincent Company factored P4,000,000 of accounts receivable on July 1. 2022. Control was surrendered by the entity. The factor
accepted the accounts receivable subiect to recourse for nonpayment. The factor assessed a fee of 2% and retained a holdback
equal to 5% of the accounts receivable. In addition, the factor charged 15% interest computed on a weighted average time to
maturity of 30 days. The fair value of the recourse obligation is P120,000. What amount was initially received from the factor?
a. P3,550,685
b. P3,550,000
c. P3,670,685
d. P3.670.000

17. On December 1, 2022, Rodwin Company gave another entity a P200.000. 12% loan. The entity paid proceeds of P194,000 a after
the deduction of a P6,000 nonrefundable loan origination fee. Principal and interest are due in sixty monthly installments of
P4,450, beginning January 1, 2022. The repayments yield an effective interest rate of 12% at a present value of P200.000 and
13.4% at a present value of P194.000. What amount should be reported as accrued interest receivable on December 31, 2022?
a. P4,450
b. P2.166
c. P2,000
d. PO

18. Jon Company reported net income of P7,410,000 for the current year. The auditor raised questions about the following amounts
that had been included in net income:
Unrealized loss on investment at FVTOCI (540,000 )
Gain on early retirement of bonds payable 2,200,000
Adjustment of profit of prior year for error in depreciation, net of tax effect (750,000)
Loss from fire (1,400,000 )
What amount should be reported as adjusted net income
a. P6,500,000
b. P6,610,000
c. P8,160,000
d. P8.700,000

19. During 2022, Davis Company changed from FIFO to weighted average method of inventory valuation. The FIFO of inventory was
P710.000 on January and P790,000 on December 31. The average inventory was p770,000 on January 1 and P830,000 on
December 31. The income tax rate is 30%. In the 2022 income Statement, what amount should be gain or loss on the cumulative
effect of this change? reported as
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 a. P60,000
b. P40,000
c. P42.000
d. P0

20. On January 1, 2024, Ricardo company acquired as a long term investment a 20% interest in East company. Ricardo company
paid P14,000,000 for this investment when the fair value of East company's net assets was P70,000,000. Ricardo company can
exercise significant influence over East company's operating and financial policies. For the year ended December 31, 2024, East
company reported net income of P12,000,000 and declared and paid cash dividend of P8,000,000. How much revenue from this
investment should Ricardo company report for 2024?
a. P 2,400,000
b. P1, 600,000
c. P1,200,000
d. P 800,000

21. On January 1, 2024, Sara Company purchased 20% of Lax Company for P3,000,000. This investment did not give Sara Company
the ability to exercise significant influence over Lax Company. During 2024, Lax Company reported net income of P3,500,000
and paid cash dividends of P2,000,000. What is the balance in the investment in Lax Company on December 31, 2024?
a. 2,600,000
b. 3,000,000
c. 3,300,000
d. 3,700,000

22. An entity reported accounts payable on December 31, 2015 at P4,500,000 before any necessary year-end adjustments relating
to the following transactions:
• On December 27, 2015, the entity wrote and recorded checks to creditors totaling P2,000,000 causing an overdraft of
P500,000 in the entity’s bank account on December 31, 2015. The checks were mailed on January 10, 2016.
• On December 28, 2015, the entity purchased and received goods for P750,000, terms 2/10, n/30. The entity recorded
purchases and accounts payable at net amount. The invoice was recorded and paid January 3, 2016.
• Goods shipped FOB destination on December 20, 2015 from a vendor to the entity were received January 2, 2016, The
invoice cost was P325,000.
On December 31, 2015, what amount should be reported as accounts payable?
a. 7,575,000
b. 7,250,000
c. 7,235,000
d. 7,553,500

23. During 2015, an entity constructed an asset costing P10,000,000. The weighted average accumulated expenditures on the asset
during the year totaled P6,000,000. To help pay for construction, P4,400,000 was borrowed at 10% on January 1, 2015, and
funds not needed for construction were temporarily invested in short-term securities, yielding P90,000 in interest revenue.
Other than the construction funds borrowed, the only other debt outstanding during the year was a P5,000,000, 10-year, 9%
note payable dated January 1, 2012. What is the amount of interest that should be capitalized during 2015?
a. 600,000
b. 300,000
c. 494,000
d. 944,000

24. On June 30, 2015, an entity reported the following information:

Equipment at cost 30,000,000
Accumulated depreciation 10,500,000
The equipment was measured using the cost model and depreciated on a straight line basis over 10-year period. On December
31, 2015, the management decided to change the basis of measuring the equipment from the cost model to the revaluation
model. The equipment was revalued to the fair value of P27,000,000 with remaining useful life of 5 years. The income tax rate is
30%. What amount should be reported as revaluation surplus on December 31, 2015?
a. 7,500,000
b. 5,250,000
c. 6,300,000
d. 9,000,000

25. An entity leased equipment to an unrelated party on July 1, 2015 for an eight-year period expiring June 30, 2023. Equal
payments under the lease are P600,000 and are due on July 1 of each year. The first payment was made on July 1, 2015. The
implicit rate of interest contemplated is 10%. The cash selling price of the equipment is P3,500,000 and the carrying amount is
P2,800,000. The lease is appropriately recorded as a sales type lease. What total amount of income should be recorded for the
year ended December 31, 2015?
a. 700,000
b. 525,000
c. 990,000
d. 845,000
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26. On January 1, 2015, an entity granted to employees 10,000 share options. On January 1, 2016, the entity granted to employees
an additional 20,000 share options.
Date Fair value of share
January 1, 2015 20
December 31, 2015 22
January 1, 2016 25
December 31, 2016 30
The shares vest at the end of a four-year period. There are no forfeitures. What amount should be recorded as compensation
expense for 2016?
a. 175,000
b. 205,000
c. 225,000
d. 500,000

27. An entity provided the following data for the year ended December 31, 2015:
• Retained earnings unappropriated, January 1 200,000
• Overdepreciation of 2014 due to prior period error 100,000
• Net income for 2015 1,300,000
• Retained earnings appropriated for treasury shares (original balance is P500,000 but reduced by P200,000 by reason of
reissuance of the treasury shares) 300,000
• Retained earnings appropriated for contingencies (beginning balance P700,000 but increased by current appropriation
of P100,000) 800,000
• Cash dividends paid to shareholders 500,000
• Change in accounting policy from FIFO to average – credit adjustment 150,000
What is the balance of unappropriated retained earnings on December 31, 2015?
a. 1,150,000
b. 1,350,000
c. 1,950,000
d. 1,750,000

28. An entity reported net income of P3,000,000 for the current year. Changes occurred in certain accounts as follows:
Equipment 250,000 increase
Accumulated depreciation 400,000 increase
Note payable 300,000 increase
During the year, the entity sold equipment costing P250,000 with accumulated depreciation of P150,000 for a gain of P50,000.
In December of the current year, the entity purchased equipment costing P500,000 with P200,000 cash and a 12% note payable
of P300,000. What amount should be reported as net cash provided by operating activities?
a. 3,400,000
b. 3,500,000
c. 3,550,000
d. 3,600,000

29. An entity reported net income of P5,000,000 for the current year. Depreciation expense was P1,900,000. The following working
capital accounts changed:
Accounts receivable 1,100,000 increase
Nontrading equity investment 1,600,000 increase
Inventory 730,000 increase
Nontrade note payable 1,500,000 increase
Accounts payable 1,220,000 increase
Under the indirect method, what net amount of adjustments is required to reconcile net income to net cash provided by
operating activities?
a. 4,950,000
b. 1,050,000
c. 1,290,000
d. 310,000

30. An entity reported P9,000,000 income before provision for income tax. The following data are provided for the current year:
Rent received in advance 1,600,000
Income from exempt municipal bonds 2,000,000
Depreciation deduction for income tax purposes in excess of depreciation reported for financial reporting purposes 1,000,000
Tax payment during the current year 500,000
Income tax rate 30%
What amount of current income tax liability should be reported at year-end?
a. 1,780,000
b. 2,280,000
c. 2,580,000
d. 2,880,000
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