GALACTIC CUP 1: CFAS

EASY ROUND

1. Which of the following is not a basic assumption underlying the financial accounting structure?
a. Economic entity assumption.
b. Going concern assumption.
c. Periodicity assumption.
d. Historical cost assumption.

2. The application of Philippine Financial Reporting Standards, with additional disclosures if necessary, is
presumed to result in financial statements that achieve
a. Aggregation
b. Fair presentation
c. Comparable information
d. Consistency of presentation

3. According to the FASB conceptual framework, an entity’s revenue may result from
a. A decrease in an asset from primary operations.
b. An increase in an asset from incidental transactions.
c. An increase in a liability from incidental transactions.
d. A decrease in a liability from primary operations.

4. The accounting equation for Zelway Enterprises is as follows:

Assets Liabilities Owner’s Equity

P120,000 = P60,000 + P60,000

If Zelway purchases office equipment on account for P12,000, the accounting equation will change to:
Assets Liabilities Owner’s Equity
a. P120,000 = P60,000 + P60,000
b. P132,000 = P60,000 + P72,000
c. P132,000 = P72,000 + P60,000
d. P132,000 = P66,000 + P66,000

5. Reporting inventory at the LCNRV is a departure from the accounting principle of:
a. Historical cost
b. Conservatism
c. Consistency
d. Full disclosure

6. Identify which of the following accounts would have balances on a post-closing trial balance.
 a. Service Revenue
b. Income Summary
c. Notes Payable
d. Interest Expense

7. Management usually desires ________ financial statements and the IRS requires all businesses to file
_________ tax returns.
a. annual, annual
b. monthly, annual
c. quarterly, monthly
d. monthly, monthly

8. The Kingway Company has five plants nationwide that cost P100 million. The current market value of
the plants is P500 million. The plants will be recorded and reported as assets at
a. P100million
b. P600million
c. P400miliion
d. P500million

9. A common business transaction that would not affect the amount of owners' equity is
a. Signing a note payable to purchase equipment.
b. payment of property taxes.
c. Billing of customers for services rendered.
d. Payment of dividends.

10. A company shows the following balances:

Sales P1,000,000
Sales Returns and Allowances 180,000
Sales Discounts. 20,000
Cost of Goods Sold. 560,000

What is the gross profit percentage?

a. 56%
b. 70%
c. 44%
d. 30%
AVERAGE ROUND

1. On September 23, Temco Company received a P350 check from Gary Moore for services to be
performed in the future. The bookkeeper for Temco Company incorrectly debited Cash for P350 and
credited Accounts Receivable for P350. The amounts have been posted to the ledger. To correct this
entry, the bookkeeper should:
a. Debit Cash P350 and credit Unearned Service Revenue P350.
b. Debit Accounts Receivable P350 and credit Unearned Service Revenue P350.
c. Debit Accounts Receivable P350 and credit Cash P350.
d. Debit Accounts Receivable P350 and credit Service Revenue P350.

2. Linda's Mechanical Shop follows the revenue recognition principle. Linda services a car on July 31.
The customer picks up the vehicle on August 1 and mails the payment to Linda on August 5. Linda
receives the check in the mail on August 6. When should Linda show that the revenue was earned?
a. July 31
b. August 1
c. August 5
d. August 6

3. Alpha Enterprises has a beginning merchandise inventory of P30,000. During the period, purchases
were P140,000; purchase returns, P4,000; and freight-in P10,000. A physical count of inventory at the
end of the period revealed that P20,000 was still on hand. The cost of goods available for sale was:
a. P164,000.
b. P156,000.
c. P176,000.
d. P184,000.

4. At the beginning of the year, Gaxton Apparel had an inventory of P400,000. During the year, the
company purchased goods costing P1,600,000. If Gaxton Apparel reported ending inventory of
P600,000 and sales of P2,000,000, the company’s cost of goods sold and gross profit rate must be:
a. P1,000,000 and 50%.
b. P1,400,000 and 30%.
c. P1,000,000 and 30%.
d. P1,400,000 and 70%.

5. The respective normal account balances of Purchases, Purchase Discounts, and Freight-in are:
a. credit, credit, debit.
b. debit, credit, credit.
c. debit, credit, debit.
d. debit, debit, debit.
6. Which of the statements below is not true?
a. An adjusted trial balance should show ledger account balances.
b. An adjusted trial balance can be used to prepare financial statements.
c. An adjusted trial balance proves the mathematical equality of debits and credits in the ledger.
d. An adjusted trial balance is prepared before all transactions have been journalized.

7. Xoro Company has the following account balances:

Purchases P48,000
Sales Returns and Allowances 6,400
Purchase Discounts 4,000
Freight-in 3,000
Delivery Expense. 4,000

The cost of goods purchased for the period is:

a. P52,000
b. P47,000
c. P51,000
d. P44,600

8. At October 1, Metro Enterprises reported owner’s equity of P70,000. During October, the owner made
additional investments of P4,000 and the company earned net income of P14,000. If owner’s equity at
October 31 totals P80,000, what amount of owner drawings were made during the month?
a. P0
b. P4,000
c. P8,000
d. P10,000

9. Expenses paid and recorded as assets before they are used are called:
a. Accrued expenses
b. Interim expenses
c. Prepaid expenses
d. Unearned expenses

10. Under the accrual basis, rental income of Dublin Company for the calendar year 2021 is P600,000.
Additional information regarding rental income are:

Unearned rental income, January 1, 2021................................ ₱100,000

Unearned rental income, December 31, 2021.........................… 150,000
Accrued rental income, January 1, 2021.............................……… 60,000
Accrued rental income, December 31, 2021...........................…… 80,000
Under the cash basis, how much rental income should be reported?

a. ₱490,000
b. ₱570,000
c. ₱630,000
d. ₱710,000
DIFFICULT ROUND

1. An entity reported net income of ₱3,000,000 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
₱150,000 for a gain of ₱50,000. In December of the current year, the entity purchased equipment
costing ₱500,000 with ₱200,000 cash and a 12% note payable of ₱300,000. 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

2. The effects of a change in accounting principle should be recorded on a prospective basis when the
change is from the
a. Cash basis of accounting for vacation pay to the accrual basis.
b. Presentation of statements of individual companies to their inclusion in consolidated
statements.
c. Completed-contract method of accounting for long-term construction-type contracts to the
percentage-of-completion method.
d. Straight-line method of depreciation for previously recorded assets to the
double-declining balance method

3. On December 28, year 2, Redmond Manufacturing Co. purchased goods costing ₱50,000. The terms
were FOB destination. Some of the costs incurred in connection with the sale and delivery of the goods
were as follows:

Packaging for shipment ₱1,000

Shipping 1,500
Special handling charges 2,000

These goods were received on December 31, year 2. In Redmond’s December 31, year 2 balance
sheet, what amount of cost for these goods should be included in inventory?
a. ₱54,500
b. ₱53,500
c. ₱52,000
d. ₱50,000
4. An entity frequently borrowed from the bank in order to maintain sufficient operating cash. The following
loans were at a 12% interest rate with interest payable at maturity. The entity repaid each loan on
scheduled maturity date.

Date of loan Amount Maturity date Term of loan

November 1, 2017 ₱500,000 October 31, 2018 1 year

February 1, 2018 1,500,000 July 31, 2018 6 months

May 1, 2018 800,000 January 31, 2019 9 months

The entity recorded interest expense when the loans are repaid. As a result, interest expense of
₱150,000 was recorded in 2018. If no correction is made, by what amount would interest expense be
understated for 2018?
a. ₱54,000
b. ₱62,000
c. ₱64,000
d. ₱72,000

5. Which of the following is incorrect regarding Statement of Cash Flows (PAS 7)?
a. As regards the cash flows of associates, joint ventures, and subsidiaries, where the
equity or cost method is used, the statement of cash flows should report only cash
flows between the investor and the investee; where proportionate consolidation is used,
the cash flow statement should include the venturer's share of the cash flows of the
investee.
b. All entities that prepare financial statements in conformity with PFRSs have the option to
present a statement of cash flows.
c. Investing and financing transactions which do not require the use of cash should be included
from the statement of cash flows.
d. The amount of cash and cash equivalents held by the entity that is not available for use by the
group may be disclosed, together with a commentary by management.

6. Brightstar Company takes a full year’s depreciation expense in the year of an asset’s acquisition, and
no depreciation expense in the year of disposition. Data relating to one of Brightstar’s depreciable
assets at December 31, 2019, are as follows:

Acquisition year 2016

Cost ₱110,000
Residual value 20,000
Accumulated depreciation 72,000
Estimated useful life 5 years
 Using the same depreciation method as used in 2016, 2017, and 2018, how much depreciation
expense should Brightstar Company record in 2019 for this asset?
a. ₱12,000
b. ₱18,000
c. ₱22,000
d. ₱24,000

7. On January 2, year 1, Newon Co. sold equipment with a carrying amount of P480,000 in exchange for
a P600,000 non-interest 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 Newon’s year 1 income statement, what
amount should be reported as interest income?
a. P9,000
b. P45,000
c. P50,000
d. P60,000

8. Which statement is INCORRECT with respect to inventories under PAS 2?

a. Inventories should be measured at the lower of cost and net realizable value.
b. The cost of inventories should comprise all costs of purchase, costs of conversion and other
costs incurred in bringing the inventories to their present location and condition.
c. The cost of inventories of a service provider consists primarily of labor and other costs of
personnel directly engaged in providing the service, including supervising personnel and
attributable overhead.
d. The costs of conversion of inventories include costs directly related to the
units of production such as direct labor, and a systematic allocation of
variable production overhead.

9. How would the declaration and subsequent issuance of a 30% stock dividend by the issuer affect each
of the following when the market value of the share exceeds the par value of the stock?

Common Stock Additional paid-in Retained Earnings Stockholder’s

capital Equity

a. No effect No effect No effect No effect

b. No effect Increase Decrease No effect

c. Increase No effect Decrease Decrease

d. Increase No effect Decrease No effect

10. Le Scent Company is a wholesaler of perfumes. The activity for item “Iridescent” during June is
presented below:

Date Transactions Units Cost per Unit

June Balance 10,000 ₱ 500.00

1

5 Purchases 7,000 550.00

12 Sales 7,500

25 Sales 8,700

29 Purchases 3,000 540.00

Under the FIFO periodic inventory system, how much is the ending inventory of “Iridescent” at June 30?
a. ₱3,700,000
b. ₱4,140,000
c. ₱4,800,000
d. ₱5,156,000
CLINCHER ROUND

1. PAS 24 requires disclosure of compensation of key management personnel. Which of the following
would not be considered "compensation" for this purpose?
a. Short-termbenefits
b. Share-based payments
c. Terminationbenefits
d. Reimbursement of out-of-pocket expenses

2. During February 2020, its first month of operations, the owner of Urban Enterprises invested cash of
P25,000. Urban had cash revenues of P4,000 and paid expenses of P7,000. Assuming no other
transactions impacted the cash account, what is the balance in Cash at February 28?
a. P3,000 credit
b. P22,000 debit
c. P29,000 debit
d. P18,000 credit

3. Which one of the following transactions is recorded with the same entry in a perpetual and periodic
inventory system?
a. Cash received on account with a discount
b. Payment of freight costs on a purchase
c. Return of merchandise sold
d. Sale of merchandise on credit

4. Employees at Delta Corporation are paid P5,000 cash every Friday for working Monday through
Friday. The calendar year accounting period ends on Wednesday, December 31. How much salary
expense should be recorded two days later on January 2?
a. P5,000
b. P3,000
c. None, matching requires the weekly salary to be accrued on December 31.
d. P2,000

5. At March 1, 2008, Palaz Inc. had supplies on hand of P500. During the month, Palaz purchased
supplies of P1,200 and used supplies of P1,500. The March 31 adjusting journal entry should include a
a. Debit to the supplies account for P1,500.
b. Credit to the supplies account for P500.
c. Debit to the supplies account for 1,200.
d. Credit to the supplies account for P1,500.